Full text of Federal Reserve Governors Conference : Meeting Documents : April 17-22, 1916, Seventh Conference of Governors of Federal Reserve Banks : Proceedings, Volume 1: April 17, 1916

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Federal Reserve Bank of St. Louis

SEVENTH C O N F E R E N C E

GOVERNORS O F FEDERAL RESERVE BANKS

WASHINGTON, D. C.

SHOREHAM H O T E L

WALTER

S. COX

SHORTHAND R E P O R T E R

COLUMBIAN BUIDING—TEL.

WASHINGTON, D. G.

M . 8324

SEVENTH C O N F E R E N C E O F G O V E R N O R S
OF
FEDERAL R E S E R V E B A N K S

Shoreham Hotel, Washington, D.C.,
Montays J p r i i o e y , f o i e .

The Seventh Conference o f Governors o f the Federal
Reserve Banks w a s called t o order b y Governor Benjamin
Strong, J r . , C h a i r m a n ,

a t t h e S h o r e h a m Hotel, W a s h i n g t o n ,

D. C., a t 10 o'clock a s mi o n Monday, April 17, 1916.


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Federal Reserve Bank of St. Louis

PRESENT:

Governor Benjamin Strong, Jr., o f the Federal Reserve
Bank o f N e w York:
Governor A . L . Aiken,

o f t h e Federal Reserve B a n k o f

BOSTON.

Governor C . J . Rhoads,

o f the Federal Reserve B a n k o f

Philadelphia.

Governor J . B . McDougal,

o f the Federal Reserve B a n k

of Chicago.
Governor G e o r g e J . Seay,

o f t h e Federal Reserve B a n k

of Richmond.

Governor E . R. Fancher,

o f the Fedéral Reserve B a n k

of Cleveland.

Governor Theodore Wold, o f the Federal Reserve B a n k
of Minneapolis.

Governor K . L. V a n Zandt,

o f the Federal Reserve B a n k

of Dallas.
Governor J o s e p h A . McCord,
Bank

o f Atlenta .

o f t h e Federal R e s e r v e

2
Governor J . Z. Miller,

o f the Federal Reserve B a n k o f

Kansas City.
Acting Deputy Governor J o h n U. Calkins,

o f the Feceral

Reserve B a n k o f S a n Francisco.
Deputy F e d e r a l R e s e r v e A g e n t ,

T . C . Tupper,

o f the

Federal R e s e r v e B a n k o f St. Louis.

C.R. McKay, o f the Federal Reserve Bank of Chitagos
L. H . Hendricks, Assistant Cashier, Federal R e serve B a n k o f N e w York.

Lynn Talley, Cashier o f the Federal Reserve B a n k
of Dallas.

Olin N. Attebery, Manager Transit Department o f the
Federal Reserve B a n k o f St- Louis.
J. F. Curtis, counsel f o r t h e Federal Reserve Bank

of New York and Secretary o f the Conference.

PROCEEDINGS.
The Chairman: G e n t l e m e n , t h e Conference will come
to order.

SUBSTITUTE REPRESENTATION.
The Chairman:

W e have s o m e n e w faces w i t h u s a t

today's meeting, and I think we ought t o explain to those
gentlemen that, where representatives attend these meetings
with credentials,

such as I

have f r o m Mr. T u p p e r ,

w e have

generally S u b m i t t e d t h e m t o t h e m e e t i n g b e f o r e p u t t i n g
their n a m e s

o n t h e roll.

T h e hecessity f o r t h a t i s o b -

vious.


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Federal Reserve Bank of St. Louis

I would like t o suggest t h a t Mr. Tupper a n d t h e other

3
gentlemen r e t i r e f o r a

f e w moments u n t i l w e c a n g o t h r o u g h

the formalities t h a t a r e customary i n passing a

vote, andwe

will t h e n b e g l a d t o s e e t h e m a t t h e t a b l e again.

(The gentlemen referred t o thereupon retired

from the Conference rcom.)
The Chairman: I

have here a

letter f r o m Mr. Rollo

Wells, t h e Governor of t h e Bank o f St- Louis,

i n relation

to Mr. Tupper's attendance, a n d I will ask Mr. Curtis t o
read it:
Mr. Curtie:

T h e letter i s dated Federal Reserve B a n k

of St. Louis, April 14, 1916, a n d i s a s follows:

"My dear Governor Strong:
I have n o t been very well f o r t h e past t w o o r
three weeks,

a n d w i l l n o t b e i n c o n d i t i o n t o b e present

the m e e t i n g o f t h e G o v e r n o r s

at

i n W a s h i n g t o n n e x t Monday.

I have instructed o u r Mr. Tupper t o represent m é a t the
Conference.
Mr. T u p p e r i s t h e h e a d o f o u r C r e d i t D e p a r t m e n t
and a l s o V i c e - C h a i r m a n

o f o u r B o a r d , a n d y o u will, t h e r e f o r e ,

please r e c o g n i z e h i m a s m y r e p r e s e n t a t i v e

a t t h e Confer-

ence,

I am also sending with Mr. Tupper, Mr. 0. M.
Attebary,

w h o i s t h e m a n a g e r o f o u r T r a n s i t Department.

Messrs. Tupper a n d Attebery, jointly, h a v e b e e n
quite active i n formulating what might b e called t h e St.
Louis C l e a r a n c e P l a n .

If c o n s i s t e n t w i t h y o u r m e t h o d o f procedure, I

Should b e pleased i f y o u will permit Mr. Attebory t o enter


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Federal Reserve Bank of St. Louis

4
into t h e e x p l a n a t i o n

o r ciscussion w h i c h m a y b e brought

in c o n n e c t i o n w i t h t h e C l e a r a n c e P l a n a s s u g g e s t e d

up

b y this

bank.

Refretting that I shall b e unable t o extend t o you a
cordial g r e e t i n g a f t e r y o u r t r i p abroad, I

subScribe m y s e l f

Very s i n c e r e l y y o u r s ,

Rollo wells,
Governor."

The Chairman: I

have had a little chat with Mr. Tup-

per a b o u t t h e situation.

very well.

M r . Rollo Wells h a s n o t been

H e i s worried about h i s hearing, a n d this was

apparently t h e only arrangement h e could conveniently m a k e
to b e r e p r e s e n t e d

a t this meeting. I

your p l e a s u r e w i t h r e f e r e n c e
Governor Fancher:

t o Mr. T u p p e r ' s attendance.

W a s there n c t a

in Minneapolis w i t h r e f e r e n c e

The Chairman:

would l i k e t o a s k

resolution p a s s e d

t o this?

T h e Minneapolis resolution provided

that t h e Governors should only b e represented a t these meet—
ings, w h e n they could n c t attend themselves,

b y a n execu-

tive officer o f the bank, t h e object being, c f course, t o
protect ourselves against t h e introduction o f interests
not i d e n t i c a l w i t h o u r own.

Personally I

d o not apprehend

that a n y such situation applies t o Mr. Tupper.

H e is a n

executive officer c f the bank, although h e i s i n the

Federal Reserve Agent's department.
Governor McDougal:

I

n view o f the fact that Governor

Wells h a s sent Mr. Tupper, a n d i n view o f the facts that
you have stated, Mr. Chairman, I


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Federal Reserve Bank of St. Louis

would m o v e that Mr. Tupper

be a c c e p t e d a n d i n v i t e d t o j o i n t h e Conference.
Governor Fancher: I
The Chairman:

I

will s e c o n d t h a t motion.

s there a n y further discussion?

(There w a s n o f u r t h e r d i s c u s s i o n a n d t h e m o t i o n w a s

duly carried. )
a m not a s well posted a s I might

The Chairman: I

be i n regard t o the pre}iminaries o f this meeting, b u t I
understand t h a t i t i s p r i m a r i l y h e l d f o r t h e p u r p o s e

of

discussig@g collections, although w e have o n the program a

number o f other topics:
APPOINTMENT O F A COMMITTEE T O L A Y OUT PROCEDURE
FOR DISCUSSION O F COLLECTION PLAN.
By a n arrangement made prior t o the meeting, Mr. Atte-

very i s here, a n d Mr. V a n Zandt's assistant, Mr. Talley, i s
here,

a n d t h e y a r e s p e c i a l l y here,

as I

understand i t , t o

discuss this question o f collections w i t h us-

I t has oc-

curred t o m e ---~ a n d I

suggestion

offer t h i s s i m p l y a s a

in

erder t o make a s great headway a s possible - - - i n view o f
the eleven o r twelve plans t o b e examined a n d discussed,
that i t m i g h t b e d e s i r a b l e f o r Mr. H e n d r i c k s , M r . M c K a y ,

lir. Attebery a n d Mr. Talley t o get together, while w e a r e
discussing o t h e r p a r t s o f t h e program,

a n d endeavor

t o lay

out a method t o b e pursued b y this Conference i n discussing
the whole collection subject a n d these eleven o r twelve
plans,

s o that w e will make progress a n d not have delay,

which delay i s inevitable i n a large meeting,

i f the matter

is not predigested f o r us.
How d o e s t h a t s u g g e s t i o n a p p e a l

Governor Seay:
I move t h a t


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Federal Reserve Bank of St. Louis

t o t h e Conference?

A s very practical, Mr. Chairman, a n d

i t b e s o done.

np
o

The Chairman: I

do not submit that sug:iestion a s a

resolution, b u t mereiy a s something t o discuss i n order
nt

w e might progress. I

difficulty

anticipate a

great deal o f

i n getting p a s s e d a l l o f these plans t h a t a r e

Srore. us.
Governor McDougal: I

believe t h a t t h e Committee

Should have some light o n the subject a s t o what w e propose t o d o h e r e b e f o r e t h e y a r e a s k e d t o g o a h e a d a n d f o r -

mulate a report. I

would like t o ask for m y o w n informa-

tion, a n d for t h e information o f cthers, whether o r not
anyone h a s a n y a d v i c e f r o m W a s h i n g t o n i n d i c a t i n g w h e t h e r

or not t h e l a w o r legal points, about which w e have heard
so much, h a v e b e e n settled.

The Chairman:

w e have n o advice that I am aware of.

Is that correct, Mr. Curtis?
Mr. Curtis:

T h a t i s right; n o n e a t all.

The Chairman: I

doubt very m u c h i f the Attorney

Veneral has rendered a n opinion.
Governor Seay: I

woulda like t o say that I have a

let-

ter from Mr. Harding who stated,that, while a n cpinion had
not been handed down, b y the grape vine method they had
pecome a d v i s e d o f t h e f a c t t h a t t h e A t t o r n e y V e n e r a l w a s o f

the opinion that the Federal Reserve Act did not mean
exactly w h a t i t s a i d w i t h r e f e r e n c e

The Chairman:

t o collections.

T h a t throws a great deal o f light o n

the Federal Reserve Act.
Governor V a n Zandt:

of the dilemma?


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Federal Reserve Bank of St. Louis

I

t throws light

o n which angle

7
Governor Seay:

T

o t h e effect t h a t t h e Federal Reserve

Banks themselves a r e n o t compelled t o receive a t par f o r


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Federal Reserve Bank of St. Louis

immediate c r e d i t .

T h a t . i s t h e principal point that h e

covered.
The C h a i r m a n :

T h e y are not required

immediate c r e d i t a t p a r i t e m s d e p o s i t e d

Mr. Seay:

t o receive

for

b y member banks?

Y e s , t h a t t h e provision should n o t b e con-

strued liberally.

The Chairman:

W h e n we come back t o Mr- Curtis!’ pro-

position that exchange should not b e charged except where
it w a s charged.

t

s that i b ?

Mr» Curtis: Approximately that.
The Chairman:

A

s I a m infcrmed c f the progress o f the

discussion during m y absence,

i t appears t h a t Mr. Hendricks

and Wir, McKay have developed a n elabcration « f the plan
recommended

b y t h e Governors,

been d i s c u s s e d

a n d that that p l a n has n o t

i n Getail w i t h t h e o t h e r experts.

T o t hawic

they ought t o exchange views, e v e n i f they d o not c o m e t o
us with a n y definite suggestion o r recommendation, because
Mr. H e n d r i c k s a n d M r - M c K a y h a v e S i m p l y e l a b c r a t e d a

plan

which h a s n o t been discussed w i t h anyone s o far; t h e y weuld
Come h e r e b e t t e r a b l e t o discuss t h e i r o w n e l a b o r a t i o n t h a n

would their associates, a n d I think i n any event t h e y ought
to start o n all fours i n this m t t e r .
Governor McCord:
The Chairman: I

D o e s n o t No- 4

cover t h a t ?

was d e a l i n g p a r t i c u l a r l y , G o v e r n o r

MeCord, w i t h the idea o f having some g e n t l e m e n w h o a r e
fully conversant w i t h all t h e features o f the twelve plans,

discuss t h e matter with us.
Governcr McDougal: I

think that i s the proper thing

to do, and i f necessary I should second Governor Seay's
motion,

a n d that i s that this committee

retire a n d take u p the work. I

b e requested

to

do not like t o have t h e

thought p r e v a i l a r o u n d t h i s t a b l e , h o w e v e r ,

that the work

of the Governors and o f the now dismissed committee, i s
going t o b e o v e r l o o k e d e n t i r e l y here. I
thought t h a t w e h a v e a l r e a d y p r e p a r e d a

have i n m i n d t h e
plan, t h a t p l a n

has been accepted, a n d I would l i k e t o have i t understood
that i t i s going t o b e dealt w i t h before w o get through
here,

T h a t p l a n i s resting w i t h the Federal Reserve Board.

It has been approved, a n d I do not want t o proceed a s
though w e had t o start a l l over again. I

would like t o

see that settled.
The Chairman::

I s i t not a

fact t h a t t h e p l a n w h i c h

we Submitted w a s a statement o f the fundamental principles
is not
of a

plan, t h a t i t i s n o t - p p r o v e d cast 2 c l e heacouns accept-

able t o some o f the members o f the Federal Reserve Board,
and that t h e y have accordingly invited suggestions f o r
modification o f our p l a n and asked u s t o elaborate it;

that all these things have been done: *

Our plan has

been elaborated i n detail, t h e t e n o r eleven other sugges—
tions have b e e n submitted, a n d they want u s t o examine
those plans a n d s e e whether w e find sufficient value i n
them t o m o d i f y o u r views. I
attempt

t o sit around this table a n d examine t h e t e n o r

eleven suggestions


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Federal Reserve Bank of St. Louis

d o not t h i n k t h a t w e s h o u l d

i n detail, because w e would never g e t

9
through w i t h them. I

think w e Should r e a l l y a s k those

who a r e d e v e l o p i n g t h i s w o r k f o r u s - - - o u r e x p e r t s - - go t h r o u g h t h e m a n d
and t h e r e b y g e t a

to

t o g i v e u s t h e i r v i e w s a b o u t t h e plans,

result v e r y m u c h quicker. I

think that

would b e b e t t e r t h a n t o t r y t o discuss t h e w h o l e b u d g e t a r o u n d
this table,

Governor McDougal: I
Mr- Chairman. I

a m quite i n agreement w i t h you,

have s a i d w h a t 1

that w e have a

desire

t o say

i

L Peed

plan that i s n o w u p a n d has t o b e dealt w i t h

one w a y o r t h e other. I

second t h e motion t h a t this c o m -

mittee retire a n d undertake t h e work a s y o u have outlined
it, p r e p a r a t o r y

t o l a t e r a c t i o n b y t h e Conference.

The Chairman:

G o v e r n o r Seay's resolution i s that

these plans b e referred t o a committee consisting o f Messrs.

McKay, Hendricks, Talley and Attebery, t h e committee t o
thoroughly f a m i l i a r i z e t h e m s e l v e s w i t h a l l o f t h e details
of t h e e l e v e n plans, a n d , w h e n w e c o m e t o t h a t t o p i c o n
the program,

b e Prepared

t o discuss t h e v a r i o u s p o i n t s .

Is that your view o f it, Governor Seay?
T h a t t h e committee consider t h e plans

Governor S e a y :

and outline a

program f o r procedure w i t h reference thereto.

That i s w h a t i s i n y o u r m i n d t o o ,

The Chairman:

Yes.

i s i t not?

T h a t motion h a s b e e n seconded.

Is t h e r e a n y f u r t h e r d i s c u s s i o n ?
(There w a s n o f u r t h e r d i s c u s s i o n

a m t h e motion w a s

dul} carried.)
The Chairman: I

desire n o w t o r e f e r t o a n o t h e r q u e s -

oiakcWr T h e Federal Reserve B a n k o f S a n Francisco i s repre-


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Federal Reserve Bank of St. Louis

LO
sented here b y Mr. Calkins, Governor Kains beirg away, a s
‘you know.

I t hardly seems necessary t o s u g i e s
t that Mr.

Calkins l e a v e t h e room,

a s h e i s t h e Acting Yeputy Gover-

nor.

Mr. Calkins: I

beg your pardon, Mr. Chairman, I did

not h e a r y o u r statement.

The Chairman: I

was merely explaining t h e absence

of Governor Kains and your presence here representing the
San F r a n c i s c o B a n k , a n d s u g g e s t i n g t h e p a s s a g e

o f a resolu-

tion accepting y o u r credentials.
Mr. Calkins: I

will b e g l a d t o r e t i r e i f necessary.

The Chairman: I

d o n o t t h i n k i t i s n e c e s s a r y a t all.

formality n a n b e disposed o f without a n y discus sion.
Governor Fancher: I
Governor W o l d : I

The Chairman:

s o move, M r - Chairman.
wecom

t h e motion.

I s there a n y further discussion?

(There w a s n o further discussion a n d the motion was

carried. )
The Chairman:

I s i t your pleasure t o ask Mr. Talley,

Mr. Attebery a n d Mr. Tupper t o step i n and have t h e situation e x p l a i n e d

t o them,

o r s h a l l w e r e l y u p o n Mr. H e n d r i c k s

to a d v i s e t h e m ?

Mr. Aiken: I

would suggest that t h e Secretary a d -

vise then.

(At this point Mr. Talley, Mr.Attebery a n d Mr. Tupper

were recalled t o the Conference room.)
Mr-e Curtis:

M r - T a l l e y a n d Mr. A t t e b e r y i t h a s

just b e e n voted that t h e eleven plans for the collection


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Federal Reserve Bank of St. Louis

ll
of checks

b e referred

to a

committee

o f transit men, c o n -

sisting o f Messrs. McKay, Hendricks, Talley and Attebery,
for t h a t c o m m i t t e e

t o g o over a n d digest a n d bring i n a

re-

port a s t o t h e b e s t m e t h o d o f p r o c e d u r e f o r t h i s c o n f e r e n c e

to adopt i n getting a t the plans a n d shortening t h e discusSion.

T h e Conference i n the meanwhile will g o o n with

other m a t t e r s

o n o u r program.

Governor McCord:

I

s that limited strictly t o eleven

plans?

Mr. Curtis:

N o , t o any number. I

think eleven was

all w e had.
The Chairman:

M r . McKay h a s been serving a s chair-

man o f this committee a n d I presume i t will b e agreeable
for h i m t o c o n t i n u e
The s i t u a t i o n

i n t h a t capacity.
i n respect

understand i t , i s this:

t o these transit plans,

as I

T h e Governors o f the twelve

reserve banks, a s y o u know, have submitted t h e details o r
at least t h e principles o f a plan o f deferred debit a n d
credit, a
request

collection plan a n d n o t a clearing plan, a t the

o f t h e F e d e r a l R e s e r v e Board.

T h a t plan has been

elaborated i n some detail b y Mr. McKay and Mr. Hendricks.
In addition t o that t h e Board h a s invited suggestions f r o m
various people, w h i c h have resulted i n the submission o f
ten o t h e r plans,

i n some respects S i m i l a r a n d i n other

respects q u i t e d i s s i m i l a r


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Federal Reserve Bank of St. Louis

t

o t h e p l a n t h e y h a v e recom-—

mended.

In order that w e m a y b e advised o f your views a s t o
these e l e v e n o r t w e l v e p l a n s ,

w e think i t i s highly desir-

12
able t h a t t h e e l a b o r a t i o n o f t h e o r i g i n a l p l a n a n d t h e p o i n t s
brought o u t i n t h e t e n s u b s e q u e n t p l a n s submitted, s h o u l d

be discussed b y the Committee a n d a method o f procedure
receommended w h i c h w i l l n o t w a s t e t i m e t h r o u g h a n effort t o

have sixteen m e n digest eleven plans a & a meeting o f this
kind, because w e would n o t g e t anywhere. T h e r e f o r e , w i t h
our prayers

w e submit t h i s matter

t o your earnest considera-

tion.

I think the rest o f this program will occupy t h e bigger part o f the day, a s near a s I can tell f r o m looking i t
over.

T h e r e a r e Some matters

take t i m e t o discuss;
very rapidly. I

o f i m p o r t a n c e t h a t i t will

o t h e r matters c a n b e disposed

of

would n o t figura@:.on h a v i n g a n y m o r e t i m e

than t o d a y i n w h i c h t o d e a l w i t h t h e s u b j e c t o f t h e s e plans,

because 1 think we c a n gallop through most of this program
pretty rapidly.
I desire

t o inform you, M r . Tupper, t h a t y o u a r e enrol-

led f o r t h e meeting.

For the benefit o f Mr. Tupper and Mr. Calkins, I deskre
to s a y a few w o r d s i
n regard t o the procedure a t these
meetings.

At the very outset,
Governors,

i n holding these conferences o f

i t was determined t h a t t h e y would b e productive

of n o results whatever unless w e could discuss t h e topics
submitted o n the program with complete frankness e v e n i f

it involved criticism o f each other, o f the Reserve Board,
or o f anyone.

Necessarily,

i f w e undertake t h i s w o r k w i t h

a mental reservation i n what w e say, w e will never under-


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Federal Reserve Bank of St. Louis

13
stand e a c h other.
other p r o t e c t i o n

T h a t course involves affording e a c h
b y considering t h a t t h e discussions

a t this

meeting a r e absolutely confidential.

I

to p r e s e r v e a

a n d that record h a s

record o f t h e meetings,

always b e e n c o n s i d e r e d confidential.

I

t has b e e n necessary

t i s never submitted

to the Reserve Board except i n the form o f a digested report, w i t h which y o u are doubtless familiar.
make p r o g r e s s t h e Chairman,

given a

I

n order t o

f o r t h e time being, h a s b e e n

certain amount o f latitude i n directing a n d conelud-

ing discussions,
as possible,

t o the consideration o f a definite resolution

on each topic.
ceed until,

S o that w e m a y bring i t down, a s rapidly

T h e discussion i s generally allowed t o pro-

i n the discretion o f the Chairman,

i t seems that

no further progress i s being made, w h e n a resolution i s called for and that i s generally supposed t o b e offered i n the
first instance b y the m a n who proposed t h e topic.

I

n

other words, t h e topic appearing o n the program i s always
followed

b y t h e n a m e o f t h e proposer,

discuss i t i n the first instance.

w h o i s expected

to

T h e Chairman i s also,

by courtesy, permitted t h e privilege o f offering resolutions himself.

T h a t i s unusual,

b u t i t i s necessary

in

some c a s e s ,

MINUTES O F THE SIXTH CONFERENCE O F
GOVERNORS.
The Chairman:

T h e first business o f the meeting will

be t o act upon the minutes o f the Sixth Conference o f Governors.


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Federal Reserve Bank of St. Louis

W h a t i s your pleasure?
Governor Aiken: I

move t h a t t h e y b e a p p r o v e d w i t h o u t

reading.

The Chairman:

T h e y have been submitted t o each of

the Governors, a n d if, after you have examined them, y o u are
ready t o a p p r o v e t h e m without r e a d i n g , t h a t w i l l b e done,

Governor Fancher: I
The Chairman:

I

will second that motion.

s there a n y further discussion?

(There was n o further discussion a m t h e motion
was duly carried.)

COMMITTEE T O WAIT UPON FEDERAL RESERVE BOARD.
The Chairman:

T h i s meeting,

a s has frequently b e e n

the case i n the past, h a s been called a t t h e request o f the
Federal Reserve Board.

I t seems therefore particularly

desirable, i n this instance, that w e should s a v e t h e m i n
a formal way, b y a committee, t h a t w e are here i n session
and place ourselves a t their disposal.
What a r e y o u r w i s h e s

Governor V a n Zandt: I

i n t h a t regard, g e n t l e m e n ?

move that t h e Chair appoint

the asual committee,
Governor Rhoads: I

The Chairman:

will s e c o n d that.

I s there a n y further discussion?

(There w a s n o dis c u s s i o n a n d t h e m o t i o n w a s d u l y c a r -

ried.)
The Chairman:
appointing a

W e have a

committee

Unless s o m e o n e

has a

monopoly i n this matter o f

t o w a i t o n t h e F e d e r a l R e s e r v e Board.

particular

reason

t o g o t o the Treasury

Department t o discharge some other business, 1 find that I
am under t h e obligation o f appointing Governor Wold.


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Federal Reserve Bank of St. Louis

15
Governor A i k e n : I

would l i k e

t o a s k i f this commit-

tee c o u l d n o t , w i t h propriety, i n q u i r e Got t h e R o a r d
the p r o s p e c t s

a s o

o f getting a n opinion f r o m t h e Attorney G e n e r -

al a S t o the power o f t h e Board i n regard t o t h e check collection matter.
early a

I

t seems

t o m e w e Should h a v e t h a t a t a s

moment a s possible.

The Chairman:

Y o u offer that a s a motion?

Governor Aiken:

Y e s ,

(The motion was duly seconded and carried.)
Governor Wald:

I g this committee t o consist o f only

one m e m b e r ?

The Chairman:
committee. I

W e usually have t w o members u p o n that

will appoint Governor McDougal t o serve with

ypu.
Governor V a n Bandt:

W o u l d i t not b e well f o r the com-

mittee t o ask the Federal Reserve Board i f they have any
plan o f procedure o n this collection proposition that t h e y
would like u s t o follow?
The Chairman: I

think w e would like t o follow o u r

own p l a n o n that.
Governor McCord:

I

f they have a

plan i t will b e sub-

mitted t o us.

Tne Chairman:

Y e s ; i f they have one, i t will b e pre-

sented t o u s during this meeting.
When o u r committee waits u p o n t h e Federal Reserve
Board w e g e n e r a l l y t a k e u p i t e m s o f mincr i m p o r t a n c e

o n the

program s o that the members o f the committee will not b e
deprived


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Federal Reserve Bank of St. Louis

o f t h e opportunity o f discussing important matters.

16
Possibly s o m e o f t h e s e i t e m s o f u n f i n i s h e d b u s i n e s s c a n

be dealt with,

(The committee appointed t o wait upon the Federal Reserve B o a r d r e t i r e d

f r o m t h e Conference room.)

DISTRIBUTION O F EXPENSiS O F MOVING GOLD F O R GOLD FUND.
The Chairman:

Kains.

T h a t t o p i c w a s Suggested

b y Governor

W a s that accompanied b y a n explanation, Mr. Seére-

tary?

Mri Cubtist T h e explanation of it is this.

w e dis-

cussed that a t the last conference a n d i t developed that
there w a S n o expense.

G o v e r n o r Kains was afraid there

might later t u r n out t o b e some, a n d h e asked t o have that
topic retained u p o n t h e program.
ies

H e has not written about

I t i s just o n the program becquse h e asked t o have i t

held w e r .
The Chairman: I

would l i k e t o r e f r e s h y o u r recollec-—

tion o n one point i n this connection.
requested, p r i v a t e l y ,

M r . W a r urg was

t o ascertain f r o m t h e Treasury Depart-

ment whether a n y transactions w h i c h h a d s o far ofcurred
had given rise t o any expense i n the Treasury Department

which might b e assessed against us-

H e made inquiry and

advised m e informally that Mr. Burke, I

believe, stated

that n o expense h a d y e t been incurred u p t o that time, a n d
a record o f that fact was made a t our previous meeting.
Since then--- i n fact o n Friday only-~-- I happened t o
notice a
burn, I


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Federal Reserve Bank of St. Louis

letter a t the office f r o m Assistant Secretary Malthink,

o r from one o f the officers o f the Treasury

17
Department,


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Federal Reserve Bank of St. Louis

Zandt, I

i n reply t o a letter written b y Governor V a n

think, w h i c h concluded w i t h the statement t h a t n o

expense would arise i n connection w i t h t h e payment o f gold
at a n y subtreasury unless t h e gold i n that sub-treasury h a d
been depleted,

a n d that t h e n t h e necessity f o r a

transfer o f gold arose.

special

T h a t seemed t o b e confirmatory

of the statement m d e b y Mrs warburg that n o expense h a d
as yet been incurred.

P e r s o n a l l y I ‘think w e are justified

have made a note i n our

in leaving the record a s i t is. I

offide to have the other Goverhdrs advised of the ea cay a
of tris L e ttat; Fle Liaise yots wind Have slicn evidehde b b h a t
affords that w e are still under n o liability f o r expense.
Mr. Calkins:

S o m e effort h a s been made t o obtain i n -

formation slong that line, without v e r y m u c h result, t h e unofficial inferente being that n o record was really being
kept f o r the purpose o f ascertaining whether o r not a
charge should a t some time b e made.

T h a t would seem t o

indicate t h a t t h e r e i s n o e m i n e n t charge.

The Chairman:

Mr. Calkins: I
The Chairman:

O f course t h e record i s i n existence--~

mean b y the Department.
T h e r e i s none a t the Treasury,that I

know of.
Governor Seay:

T h e r e h a S developed a

method o f re-

plenishing g o l d a t t h e v a r i o u s s u b t r e a s u r i e s ,

w e find, a n d

that i s t h e Board i n transferring f r o m its general deposit
accounts requests t h e various Federal Reserve Banks t o deposit a t various sub-treasuries.

W e have deposited a t

Boston a million o r two dollars, f o r instance.


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Federal Reserve Bank of St. Louis

18

The Chairman:

T h e y are, i n fact, using t h e preserve

pank's general account?
Governor Seay:

T h e y are using the reserve bank's

general account f o r t h e transfer o f gold.

The Chairman:
tickle you."

I

I t is a case o f “you tickle m e and I

f we are doing work for them we might send

thet a bill for expense,
Governor Seay!

The Chairman:

W e a r e entitled t o a n offset anyway.

A t any pate, unless objection i s made,

Item 3 a will b e left o n the program s e that i t will c o m e

up from time t o time, and w e will take n o further action o n
the m a t t e r n o w .

RETROACTIVE LIABIZPITY FOR THE ixXPENSE O F OPERATING GOLD FUND.
The Chairman:

Mr. Curtis:

T h a t is in a

Similar situation.

T h a t i s exactly similar i n s o far a s the

reason f o r its appearance o n t h e program i s concerned.

I t

was o n the program before a n d Governor Kains asked t o have

it retained o n the program for this Conference.
The Chairman:

W e discussed t h i s question o f retro-

active liability a t great length a n d w e agreed a t our last
meeting t h a t t h e r e w a s n o o c c a s i o n

t o raise that point f o r

further discussion inasmuch a s t h e expense t o t h e Federal

Reserve Board o f operating the fund had been s o small.
If there i s n o objection this topic will b e left o n the
program a n d will b e allowed t o rest i n its present shape.

19
SEPARATION O F GOLD FUND HELD B Y BOARD F O R FEDERAL RESERVE
AGENTS A N D F D E R A L RESUORVE BANKS.
The Chairman:

T h i s i t e m was suggested b y m e and has

todo with the question of liability in case of loss of any
part of the Goid Settlement Fund, inasmch as there are now
two interests i n the fund:
I would

i e

t o a s k Mr: C u r t i s

t o report t o t h e meeting
'

the substance o f the correspota e n e W h i c h h e has had, o r

which Mrs J a y has h a d , with the Federal Reserve Board o n
that subject, t h a t correspondense being designed t o bring
out t h e l e g a l p o i n t s i n v o l v e d

Mr+ Curtis:

i n t h e q u e s t i o n o f liabitity.

A t the Sixth Conference i t was voted

.that t h e Secretary should forward t o each o f the Governors,

in a separate communication, the ruling o f the Federal Reserve Board t o the effect that t h e Hold h e l d i n the Gold
Fund s h o u l d b e d i v i d e d e v e n l y o r p r o p o r t i o n a t e l y

i n case o f

loss between t h e Federal Reserve Agents a n d the Federal R e serve Banks, a n d that e a c h Governor should b e requested t o
consult w i t h his Federal Reserve Agent a n d counsel, a n d
submit t h e i r v i e w s

t o t h e F e d e r a l R e s e r v e Board.

of the gentlemen have done that I

H o w many

do not know, because none

of the Governa’s have sent m e a copy o f any submission o f
views i n that regard. I

know that t h e Federal Reserve B a n k

of New york forgot t h e matter until April l2th, a t which
time w e got busy a n d sent i n a report t o the Federal R e serve Board.

W

e b e a t B o s t o n b y tiuelve hours.

O

n April

13th they sent i n one also.
Governor Miller:

W e h a d t h e eonference suggested;

we submitted i t t o our board o f directors, a n d the board o f


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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

20
directors p a s s e d a

very f u l l a n d c o m p l e t e r e s o l u t i o n d i r e c t -

ing that t h e physical separation o f the funds o f the bank
I . have

and t h e f u n d s o f t h e F e d e r a l r e s e r v e a g e n t b e made.

a c o p y o f that r e s o l u t i o n w i t h m e i f y o u c a r e t o h e a r i t .
Governor Fancher:

W

e presenteé t h e matter t o o u r

attorneys, a n d I have here a
not y e t s u b m i t t e d
The Chairman:

copy o f their opinion. I

have

i t t o t h e Board.
W h a t i s t h e effect o f t h e o p i n i o n s u b -

mitted t o you?

Governor Fancher:

O u r counsel stated a s follows;

"As w o have already advised you, i t seems t o us that
that i s a

question w i t h i n t h e d i s c r e t i o n o f t h e F e d e r a l R e -

serve Board, a n d i f i n the opinion o f the banks, t h e method
which t h e Federal R e s e r v e B o a r d i s f u l l o w i n g i s n o t t h e
best method,

i t occurs

t o u s t o suggest t h a t t h e situation

yould b e one i n which action o n the part o f the Federal A d -

visory Council might well be taken."
Governor Seay: I

would like t o report that 1

sed t h e m a t t e r w i t h o u r B o a r d o f directors; I
matter

t o o u r counsel a n d I

discus-

submitted t h e

have h e r e h i s w r i t t e n opinion.

I thought t h e q u e s t i o n w a s o n e t h a t m i g h t u n d e r g o f u r t h e r
discussion

here before a

definite

report

was made

t o the

Federal Reserve Board, and 1 therefore did not make it. I
thought i f w e submitted a

report o f our counsel t h a t w e

might crystalize opinion t o some further extent a n d then
make a

more definite report t o t h e Board.
The Chairman:

seay?

W h a t a i d y o u r counsel hold, G e v e r n o r

21
Governor Seay: .

He c o n c u r s

i n the opinion given b y

the c o u n s e l f o r t h e F e d e r e l R e s e r v e B o a r d , t h a t t h e F e d e r a l
reserve ascent h a s t h e l e g a l r i g h t

t o c e p o s i t t h a t g o l d there.

He considers t h a t i t i s a question o f policy with t h e bank
whether i t concurs i n the commingling o f the t w o funds, a n d
that i f the bank acauiesces i n the commingling i t i s then
b y t h e Board.

responsible f o r t h e d e c i s i o n r e a c h e d

The Chairman:

T h a t is, i t is bound b y the Board's

decision a s t o a n y loss?
Governor Seay:
yes:

I t 4 s bound b y the Board's P u s e y

O f course several duestions arise there.

the q u e s t i o n

o f whether

T h e r e is

o r not t h e Federal Reserve Agents'

fund i s liable f o r a n y loss i f h e parts w i t h custody o f

funds which, under the Act, are placed i n his hands.
parts w i t h t h e c u s t o d y o f t h e f u n d s
whether h i s b o n d w o u l d b e liabie.


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Federal Reserve Bank of St. Louis

I f he

i t i s very questionable
t

h

e loss w a s appor-

tioned according t o the regulations o f the Federal Reserve
Board t h e l o s s w o u l é n o t f a l l o n t h e a g e n t o r h i s b o n d o r
the F e d e r a l R e s e r v e B o a r d ,

p u t i t would b e placed directly

back u p o n t h e bank.
The Chairman:

G o v e r n o r Seay, h a v e y o u r e a c h e d t h e

point w h e r e y o u h a v e i n y o u r o w n m i n d a

definite o p i n i o n a s

to the wisdom o f commingling o r separating those t w o funds?
Governor Seay: I
from a

have, sir, b u t i t i s altogether

practical p o i n t o f view.

The Chairman:
Governor Seay:

T h a t i s t h e o n e w e deal with here.
M y opinion i s that t h e custody o f the

fund i s surrounded w i t h such safeguards,

i t has been placed

22
in the hands o f the body that i s responsible f o r t h e regulation o f these banks, t h a t t h e practical way, i n m y opinion, t o handle t h e fund; i s t o coOmingle t h e two; t h a t there
is less r i s k i n handling i t i n that w a y than there would b e
in handling t h e m separately.

I f y o u hand1é t h e m separ-

ately i t necessartly means frequent transfers f r o m one t o

the other.

I f you handle them together there will b e no

physical transfer but it will all be book accounts:

I n -

asmuch as the Board has taken that attitude and made a regulation thereon, and as the safeguards surrounding the ¢ustody o f the funds are as fuli o f ¢aution a s wa could dedire,
I believe t h e practical w a y t o handle i t i s the one which
the Board h a s chosen.
The Chairman:

T h e suggestion i n regard t o the bond

appeals t o m e very strongly, f o r this reason:
tion o f the Federal Reserve Bank,
notes themselves,

T h e protec-—

i n its liability o n those

i s first t h e g o l d which secures t h e notes

being safely handled, a n d s e c o m t h e bond that i s given t o

the Government b y which the Federal Reserve Agent insures
his custody.

I f this transaction h a d t h e effect o f releas-—

ing t h e b o n d f r o m liability,

t h e n t h e protection afforded

to t h e b a n k b y t h a t b o n d i s lost.

T h a t point h a d n o t o c -

curred t o me, and i f it i s the fact that the bondsman might
establish t h e fact that t h e condition under which t h e bond
was written h a d been materially changed,
custody,

b y this change o f

a m l t h a t h e i s released f r o m liability,thén I

think

we ought t o bring i t t o the attention o f the Federal R e serve Agentsas w e l l a s t o the attention o f the Federal R e serve Board, a n d possibly s e e that additions a r e made t o


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Federal Reserve Bank of St. Louis

the t e r m s o f t h e b o n d t h a t w i l l p r o t e c t u s .
Governor Seay:

T h e opinion o n that point

My counsel d i d n o t t o u c h u p o n t h a t p o i n t
opinion.

I

i s m y own.

i n rendering h i s

t m u s t n o t b e o v e r l o o k e d t h a t t h e Federal R e -

serve Agent still h a s i n his hands a

very large sum.

I f

a loss w e r e t o o c c u r i n t h a t p o r t i o n o f t h e f u n d u n d e r h i s
control w h i c h h e h a s r e - d e p o s i t e d w i t h t h e F e d e r a l R e s e r v e
Board,

i t i s v e r y c l e a r t o m y mind t h a t t h e condition o f

the bond would have b e e n violated, without consent o f the
bondsman,

a t least, a n d t h e company vould n o t b e bound.

The Chairman:

H a v e w e reached a

point where a

reso-

lution, direction certain action o n this matter, c o u l d b e
considered a n d a c t e d u p o n ?
Governor Fancher:

B e a r i n g o n this particular p o i n t

I might g i v e t h e o p i n i o n o f o u r attorneys.

h

e propounded

this question t o our attorneys: " ' D o e s t h e transferring
of funds n o w i n the physical possession o f the agents t o
the custody o f the Federal Reserve Board relieve h i m o f responsibility w h i c h h e n o w has under his bond b y reason o f

funds i n his possession?'"
The ansi.er i s a s follows:

"As the Federal Reserve Board i s the principal,
the p o s s e s s i o n

Cipal,

o f the agent i s t h e possession

am

o f the prin-

i n the event that t h e principal s e e s f i t t o relieve

the agent o f the custody o f securities a n d funds, t h e principal, t h e r e b y ,

i n our judgment, c l e a r l y relieves t h e

agent c f a n y f u r t h e r r e s p o n s i b i l i t y u n d e r h i s b o n d a s r e spects s u c h f u n d s a s hoe h a s b y d i r e c t i o n o f h i s p r i n c i p a l


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Federal Reserve Bank of St. Louis

turned over to it.!
Governor Seay:

T h a t agrees w i t h t h e conception that

I had.

Governor San Zandt:

I t has occurred t o me that there

is a possibility o f a loss i n the gold fund which i s not
so slight a s i t a t first appeared.

F o r instance, n o t

very l o n g ago w e had occasion t o call o n the Federal Reserve

Board t o ship u s $500,000 i n gold tens, out o f our gold
settlement func; but evidently somebody that had access
to this money went i n there and got $500,000 worth o f these

$10,000 gold tertifidates phyable t o order ard exthanged
them for $10,000 a f spendable money,

S

o thet i h the

event 4 dishonest person should b e delegated with authority, there would b e possibility o f loss.
The Chairman:

O f course, t h e minute t h a t w a s order-

ed out o f the fund b y you, t h e n t h e question o f Liability
for loss w a s confined t o y o u a n d your agent, i f y o u please,
or y o u a n d the Federal Reserve Board a n d their agent t h a t
had t h e handling o f it.
bank than yours; I

I t would n o t involve a n y other

mean, i t i s n o longer a

common fund,

the m i n u t e y o u o r d e r i t o u t o f t h e fund.

Governor Van Zandt:

B u t , suppose they sent m e mine,

put at the same time get out $100,000 and exchange i t for
their o w n purposes?

Governor Seay:

I t takes two o f them t o do that, o n

the order o f the Board.
Governor McCord:
members


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Federal Reserve Bank of St. Louis

o f t h e Board.

I t takes t h e endorsement o f the m a

25
Governor Yeay:

T h e vicw I

take o f t h e w h o l e m a t t e r

is that i t i s a question o f good a n d soundpractice. I


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Federal Reserve Bank of St. Louis

be-

lieve t h a t t h e p r a c t i c e a d o p t e d b y t h e B o a r d i s a s g o o d a n d

as sound a s a n y method t h a t could prevail.
the t w o funds w e r e separated,

O f “eourse, .2f

w e should b e able, then, t o

fix the loss u p o n whichever f u n d might chance t o bear it;
but I believe t h a t t h e risk incurred i n making a

theoretical-—

ly p e r f e c t a r r a n g e m e n t w o u l d b e g r e a t e r t h a n t h e r i s k incur-—
red i n t h e p r a c t i c e n o v a d o p t e d

greater, indeed. I

b y t h e Board--—- v e r y m u c h

think that i t i s a question o f sound

judgment and business practice, a n d I believe the Board will
conform t o it.
The Chairman:

T n a s m a c h a s a n y record having t o d o

with these matters i s liable t o subpoena a n d production i n
court i n a proceeding t o ascertain liabilities i n case o f
lossesswhich have occurred, I

would like t o note upon the

record f o r our b a n k that i n discussion o f this matter a t

this meeting, s o far as the Federal Reserve Bank o f New York
is concerned,

w e d o not waive a n y right o f recovery o f any

kind o r character that might arise f r o m the loss.
I would n o t w a n t t o b e b o u n d b y a n a c t i o n t a k e n a t t h i s

meeting,
meeting

o r t o bind o u r bank b y a n y action taken a t this
i n such a

way that w e would b e estopped f r o m exer-

cising o r ascertaining a n y legal remedy w e h a d i n case o f
loss.

Sometimes w e might unwittingly,
vance, c o n d o n e n e g l i g e n c e

i f y o u please,

o n t h e p a r t o f t h e Board,

would n c t w a n t t h i s r e c o r d t o a p p e a r t h a t I

i n ad—
and I

was e x p r e s s i n g

26
satisfaction w i t h a n y method which they h a d adopted i n
handling t h e s e t w o funds. I

consider t h a t t h e y a r e a b s o -

lutely r e s p o n s i b l e f o r e x e r c i s i n g t h e g r e a t e s t p r u d e n c e a n d

caution i n handling t h e fund a n d keeping i t i n the safest
possible vault that t h e y c a n provide; a n d s o far a s our
bank i n New York i s concerned, I

would n o t want t o waive

any r i g h t t h a t w e m i g h t h a v e i n c a s e o f loss,

b y participat-

ing i n a discussion which might have t h e effect o f facing
liabilities i n advance.
Governor Seay: I

meant t o reflect a n opinion o f that

kind, Mr. Chairman, that the Federal Reserve Board is a competent b o d y c n d a

responsible b o d y ,

a n d t h e y m a y determine

their own methods of doing things, and ! think we should
let t h e responsibility rest there, without either approving o r disapproving, o n e w a y o r the other;

l e t t h e matter

stand a s i t i s and l e t t h e m f i x their o w n responsibility,

and our responsibility, a s 1 take it, would b e fixed b y the
law, whatever i t might be, right o f recovery o r otherwise.
I believe i t would b e safest n o t t o commit t h i s body o n the
question, either o n e w a y o r the other.
Governor Miller:

M r . Chairman,

the r e s o l u t i o n p a s s e d b y o u r B o a r d I

i n accordance w i t h
believe

i t necessary

to actually protest against the commingling o f the funds.
The Chairman: I

a m rather clear, myself, a n d I d o

not think t h e Federal Reserve B a n k o f N e w York would c a r e

to imply a tacit assent t o a ruling b y the Federal Reserve
Board which would attempt t o fix the character o f their
own liability,

i f one arose,

b y a loss,which apparently this

ruling o f the Board attempts t o do.


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Federal Reserve Bank of St. Louis

W e d o not know what

27
kind o f a loss o r what t h e circumstances o f the loss will

be.

I t might arise through the default b y the Federal

Reserve Agent,

i n collusion,

of the Board. I

i f you please, w i t h a member

am citing that a s a vety extreme casei

I do not want t o see the Federal Reserve Bank o f New York
by assenting t o a ruling o f the Board waive i t s rights t o
large s u m o f money,

the r e c o v e r y o f a

i f y o please,

if

any s u c h c a s e s h o u l d arise.
T h e opinion o f our counsel

Governor S e a y :

effect t h a t i f , k n o w i n g t h e a r r a n g e m e n t

i s t o the

o f t h e Board,

you

take a n y action i n opposition t o it, y o u are held t o have
Lost your. Yignt o f recoverg=—=
S o far a s o u r bank i s concerned, o u r

The Chairman:

Federal Reserve Agent, during m y absence, h a s written a


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Federal Reserve Bank of St. Louis

letter stating t h e views held b y himself a n d b y m e and b y
our counsel that t h e commingling o f this f u n d i s neither
justified b y t h e l a w o r b y their o w n rulings i n regard t o
this matter,

a m c a l l i n g their attention t o the liklihcod

of o u r dissent f r o m t h e present practice.
Mr+ Curtis, t h a t have y o u t o offer i n regard t o what
is a

safe p r o c e d u r e ,

i f a n y procedure

i s d e s i r e d f r o m us,

in regard t o this matter?
Mr. Curtis:

Procedure

The Chairman:
Mr>e Curtis: I

b y the Governors Conference?

Yes.
d o not t h i n k a n y procedure

i s required.

It strikes m e that t h e carrying o u t o f the resolution o f the
last m e e t i n g w o u l d b e t h e best; t h a t i s , t o h a v e e a c h

Governor o n d his ccunsel a n d Federal reserve agent submit


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Federal Reserve Bank of St. Louis

28

their views t o the Board.

I d o n o t think anything t h a t

you d o h a e i s going t o bind the bank i n any w a y a t all.
I think t h e attitude

i s c o r r e c t t h a t t h e f u n d s a r e Separate.

The B o a r d i s a c t i n g i n t w o v e r y d i s t i n c t c a p a c i t i e s ,
have s o s t a t e d i n their rulings.

clearing house,

T h e y a r e acting a s a

o r a system o f clearing between Federal

rescorve banks i n holding t h e gold settlement fund.
are a c t i n g a s a

and

T h e y

convenient d e p o s i t a r y f o r t h e F e d e r a l r e -

serve a g e n t s f o r g o l d h e l d e x c l u s i v e l y f o r t h e p u r p o s e o f

retiring Federal s a s h e s notes,

a m i t seems t o m e these

two capacities are s o dissimilar that the funds held i n
W w e have

such capacities ought n o t t o b e commingled.

elabobated t h a t s o m e w h a t a n d s e n t o u r r e p l y t o t h e B o a r d

in that way.
It seems t o m e i t would b e better f o r e a c h reserve
bank t o take t h e action suggested a t the last conference,
rather t h a n t o h a v e t h e G o v e r n o r s h e r e a t t o m p t a

joint a c -

tion o n it.
The Chairman:
Topic 3

w h a t i s your pleasure i n dealing with

bays w h i c h h a s b e e n

o n our program

n o w for some

time?

move that w e take the course sug-

Governor Seay: I

gested b y the Secretary, w h o acts a s our counsel a s well
aS i n the capacity o f Secretary.

Governor Miller: I
The Chairman:

I

second the motion.

s there a n y further discussion?

(There being n o further discussion t h e motion was duly
carried.)


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Federal Reserve Bank of St. Louis

3—(d) —

RECEIPT F R O M COLLECTORS O F CUSTOMS A N D INTERNAL
REVENUE O F CHECKS CARRYING EXCHANGE CHARGES.

The Chairman:

G o v e r n o r Rhoads,

a t t h e last confer-

encer y o u w e r e t h e o n e r e s p o n s i b l e f o r T o p i c 3-(d).

A f t e r

a very - acrimonious discussion w e decided w e would g o ahead,
each i n our independent way, a n d take these checks a n d
deal w i t h t h e m a s b e s t w e m i g h t u n t i l w e h a d experience.

Our transit account, when 1 saw the statement o f the bank
of Friday, amounted t o $70 and s o m cents o n foreign checks.
Our experience, I

think, h a s b e e n c o n f i r m a t o r y o f o u r b e -

lief w h e n w e first undertook this work, t h a t the amount
Subject t o exchange charges would b e very small, a n d w e
have h a d n o difficulty i n dealing w i t h it.
Do y o u wish t o discuss this matter further,

of the experience o f the past few months?

i n view

I f so, "go t o

ps
Governor Rhoads:

O u r experience

has cost us $4 exchange.
revenue
steps

u p t o date i s that i t

B u t the collector of internal

i n our district refuses absolutely

t o eliminate c h e c k s s u b j e c t

t o take a n y

t o exchange charges w h i c h

he m a y receive f o r the i n c o m t a x i n June, a n d reports that
last year h e received checks f r o m all over t h e eight counties covered i n his district outside o f Philadelphia,

and

that a great m a n y o f them undoubtedly will b e subject t o
exchange charges.
It i s t h e p r i n c i p l e

o f t h e thing,

a n d n o t t h e expensé.

I appealed t o Secretary Malburn, reminging h i m o f the conversation w e h a d w i t h h i m w h e n y o u w e r e present,
far h e h a s s i d e - s t e p p e d t h e situation. I

but so

d o think that

he o u g h t

t o establish t h e principle t h a t w e must n o t

the door wide o p e n f o r that exchange charge, w h e n w e
not d o i t f o r o u r m e m b e r b a n k s w h o a r e stockholders.

H a v e y o u a method t o suggest o f ceal-

The Chairman:

ing w i t h t h i s m a t t e r w i t h t h e T r e a s u r y o r w i t h t h e Federal
Reserve B o a r d ?


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Federal Reserve Bank of St. Louis

would suggest t h a t w e follow

Governor Rhoads: I

the course u s e d i n the Cleveland District, where t h e y sent
out a

circular

i n December w a r n i n g e v e r y b o d y t h a t t h e y

must n o t send checks which a r e not free o f exchange charges.
T

The Chairman:

o w h o m would y o u address t h i s recom-

mendation?

Governor Rhoads: I

would ask that the Federal Reserve

Board u s e i t s i n f l u e n c e w i t h t n e t r e a s u r y D e p a r t m e n t

t o have

that course followed generally.

I s that your motion?

The Chairman:

Governor R h o a d s :

G o v e r n o r Rhoads moves t h a t request b e

The Chairman:
submitted

Y e s sir.

t o t h e Federal Reserve B o a r d that t h e y endeavor

to o b t a i n a

ruling f r o m t n e T r e a s u r y D e p a r t m e n t

o r coopera-

tion with the Treasury Department t o have the collectors
instructed n o t t o r e c e i v e c l e c k s

othor collections

i n payment

o f income t a x o r

o f the Government t h a t are subject t o

charges o f exchange, h a v i n g particular reference t o the collection o f t h e income t a x next June.
Governcr Seay:

B e f o r e putting t h a t motion 1 would

like t o make a n explanation which i s pertinent, I
We h a p p e n e d

t o l o s e i n t h e mails,

believe.

o r tlk m a i l s happened

31

to l o s e f o r us, a

couple o f S m a l l c h e c k s d e p o s i t e d

b y our

internal revenue collector, a n d when w e applied t o h i m for
duplicates

w e f o u n d t h a t h e k e p t n o r e c o r d o f t h e m whatever,

and w a s n o t i n p o s i t i o n

t o tell f r o m w h o m h e received then.

He w a n t e d t o p u t t h e l o s s o n us. I

communicated w i t h

the Assistant Secretary a m t o l d h i m that o u r bank followed
sound banking principle

a m t h a t w e wanted t h e revenue c o l -

lector t o d o the same.

H e wrote a

letter t o us, sending

a copy o f t h e communication h e h a d addressed

t o t h e collec-—

tor, a n d i n i t h e stated that h e expected t h e revenue c o l lectors t o follow t h e usual banking practice a n d t o keep
accounts o f Such checks s o a s t o b e i n position t o give
duplicates i n case o f loss, reminding t h e collector that
he was receiving s u c h checks against. t h e l a w and a t his
own risk, a n y h o w .

Governor McCord:
Mr. Curtis:

N o w , w e are getting a t it.

W h a t s o r t o f checks w e r e they?

Uncer-

tified?

Governor Seay:

H e did n o t know f r o m whom h e h a d r e -

ceived t h e m o r what bank they were drawn upon--- just t h e
amount.

A f t e r w e received t h e letter w e went t o w o r k

and did manage t o find the names o f the remitters.

W e

knew t h e banks o n which t h e y were drawn, o f course, b u t w e
did n o t know from whom h e h a d received them, a n d h e found
out a n d s u b s e q u e n t l y m a d e i t good.
that h e t o o k s u c h c h e c k s

B u t h e w a s reminded

a t h i s o w n risk.

I thought t h a t might b e applicable t o your situation,
Mr. R h o a d s .


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Federal Reserve Bank of St. Louis

32
Governor Miller:

S u p p o s e t h e collector

revenue should t h e n decline t o take a n y check?
make i t p r e t t y h a r d f o r t h e G o v e r n m e n t

o f internal

I t would

t o sollcct i t s r e v e -

nues, would i t not?
Mr. Curtis:
collectors

T h e r e w a s a special statute authorizing

t o r e c e i v e c e r t a i n checks.

Governor Seay:
Mr- Curtis:

I n certain cases.

T h a t law was passed when I was i n the

treasury D e p a r t m e n t ,

largely

i n order

t o enable people

t o

pay their revenue duties.
Governor Seay:

M a y 1

send y o u a

copy o f t h e corres—

pondonce?

Governor Miller: I

should b e very glad t o have it,

mysclf.
Mr. Curtis:

W e would like t o h a v e it.

The Chairman:

I t i s moved a n d seconded a m passed,

that Governor S e a y send copies o f the correspondence t o all
twelve o f the reserve banks.

Governor Seay:

W i t h great pleasure, Mr+ Chairman.

do not think I am mistaken about what I have said t o the
Board.

M

y m e m o r y m i g h t n o t b e t e c h n i c a l l y correct.

(Informal d i s c u s s i o n a r o s e w h i c h t h e S t e n o g r a p h e r w a s
directed n a t t o report; a f t e r w h i c h t h e f o l l o w i n g p r o c e e d -

ings were had.)
The Chairman:

W

e s e e m t o b e surmising about t h e lig-

bility o f these collectors i n this matter without t h e
statute

i n f r o n t o f us.

S

o f a r a s experience goes,

knoy t h e checks a r e going t o b e received,

am I

we

do not

think a n y o f u s expects t h a t t h e Government i s going t o


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Federal Reserve Bank of St. Louis

53
modify t h e p r a c t i c e a b o u t r e c e i v i n g checks.
that i n t e r e s t s

u s i s whether

T h e question

w e a r e responsible f o r losses

of . h e c k s w h i c h c o m e i n t o o u r h a n d s t h a t a r e p a y a b l e

in

cities other t h a n those where w e a r e located, o r , i n other
words,

a n y checks

i n c a s e t h e y a r e lost.

T h a t i s quite a

different question f r o m t h e one raised b y Governor Rhoads,
which i s exchange.
Shall w e n o t a c t o n G o v e r n o r Rhoads!

motion now i n the

matter o f making request t o the Federal Reserve Board t o get
instructions f r o m the freasury Department that will ceal
with this exchange subject?
Governor Seay:

T h e connection b e t w e e n t h e t w o w a s this,

Mr- Chairman, that, a s 1 remember, t h e letter stated that
the collector either m a had t h e discretion o r took such
checks f o r collections a t his o w n peril a n d that i f h e took
such checks knowing that t h e y vere subject t o a n exchange
charge a m t h e bank objected, t h a t h e might b e reached i n
that way-

T h a t w a s t h e connection.

The Chairmant

s e know the rules o f the ‘reasury De-

partment p r o v i d e t h a t c o l l e c t o r s a r e authorizeod
checks o n l y i n payment

o f dues

t o receive

t o the Government w h i c h c a n

be collected without c o s t t o the Government.

A n d the reason

why the collectors h a v e b e e n reveiving these checks i n that
way, Subject t o charges o f exchange, without violating those
regulations

o f the Department i s that t h e y have been able

to pay the cost o f exchange o n the collecting bank, a n d
they a r e e n d e a v o r i n g t o p e r p e t u a t e t h a t p r a c t i c e

o f paying

the cost a f exchange, a n d w e want t o stop that.

S o far a s


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Federal Reserve Bank of St. Louis

the Federal reserve banks a r e concernéd;

i f w e c a n deal

with that b y getting t h e Reserve Board t o make a

ruling o r

a change o f ruling f r o m t h e Treasury Department, t h a t would
end it.
Mr- Curtis:

M r s Cheirman, might 1

read t h e resolu-

tion a d o p t e d a t t h e l a s t c o n f e r e n c e ?
The Chairman:

V e s .

Mr+ Curtis: (Reading):
"Voted, T h a t t h e Federal Reserve Board b e requested
to t a k e t h i s m a t t e r u p w i t h t h e p r o p e r o f f i c i a l s

o f t h e Treas-—

ury Department."
That resolution w a s sent t o them o n the third o f
February, b u t s o far I have received n o reply concerning
what t h e y h a v e done. I

wrote G o v e r n o r H a m l i n a b o u t a

ago c a l l i n g h i s a t t e n t i o n

weok

t o this particular vote, a m d a s k -

ing h i m t o advise u s before this conference what action
the B o a r d h a d taken- I

Governor Rhoads: I

have h a d n o r e p l y t o t h a t letter.

might say that 1 sent a copy of

my c o r r e S p o n d e n c e w i t h t h e c o l l e c t o r
Secretary M a l b u r n

them t o cooperate,

i n our district a n d

t o the Federal Reserve B o a r d a n d asked

a s Governor Strong h a s said. I

am

Simply t r y i n g t o g e t t h e m t o c a r r y o u t t h e i r o w n rule.

The Chairman:

T h a t resolution would not b e quite com-

plete w i t h o u t m a k i n g r e f e r e n c e

the l a s t meeting.

t o t h e resolution passed

a t

S o , i f y o u would accppt that modifica-

tion o f the resolution, calling the Board's attention t o the
original resolution, I
tO; Vouve o n L b s


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Federal Reserve Bank of St. Louis

will p u t a

motion,

i f y o u are ready

Governor Rhoads:
The Chairman:

L e s : S47,

T h e Secretary will frame i t , a s usual.

(The motion was duly carried.)

3-(e) C O N F E R E N C E O F AUDITORS.
The Chairman:

T o p i c 3-(e), C o n f e r e n c e o f Auditors,

was p u t o n t h e p r o g r a m b y t h e Secretary. I

will a s k h i m

to refer t o the action o f t h e previous conference.
Mr- Curtis:
sented a

A t t h e last conference t h e chairman pre-

memorandum prepared b y the Auditor o f the Federal

Reserve B a n k o f New York.

I n accordance w i t h that Mr.

Jefferson, our Auditor, held some meetings with Mr. Cadwal-

lader and Mr. Broderick, andi they got along very happily,
and t h e m a t t e r s t h a t w e r e u n d e r d i s c u s s i o n w h i c h h a d c a l l e d

forth this memorandum o n Mr. Jefferson's part, are all
being ironed o u t very well, a n d those three agreed,

in

talking w i t h me, n o t t o call a general conference o f auditors, because t h e y were getting t h e matters t h a t were subject t o criticism s m b straightened o u t without having a n y
formality a b o u t i t .

Mr. Brodtrick i s getting t h e things fixed u p through

the Board i n a shape which i s entirely satisfactory t o Mr.
Jefferson,

w h o w a s t h e original m o v e r o f t h e p l a n t o g e t

the changes,


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Federal Reserve Bank of St. Louis

s o that there have been n o confcrences, except

some informal ones o f those three men.
gave m e a

memorandum w h i c h I

have here.

M r . Jefferson
I

t i s rather l o n g

to read, b u t t h e gist o f i t i s that t h e y strongly recommend

that no action be taken by this Conference o f the Reserve

36
Agents until,
straighten

a t least, t h e y have h a d more opportunity t o

i t o u t b y informal c o n f e r e n c e a n d b y a

formal

meeting.
The Chairman: S u p p l e m é n t i n g w h a t Mr- Curtis h a s said,
Mr. J e f f e r s o n a l s o h a s r e p o r t e d

t o m e that t h e y have taken

up a t these discussions t h e question o f the amount o f
statistical material being prepared f o r t h e use o f the
Federal Reserve Board, w h i c h was t h e cause o f a great deal
of c o m p l a i n t

i n o u r office.

M r e Jefferson reports t h a t

all o f t h o s e m a t t e r s a r e l i k e w i s e b e i n g a d j u s t e d

entire Satisfaction.

t o his

T h e r e a r e certain mutual concessions

that h a d t o b e made, b u t h e i s hopeful t h a t with a little
experience w h i c h they have arranged t o work out, I

think,

between the Reserve B a n k o f Richmond a m t h e Reserve B a n k
of New York, o r the Reserve B a n k o f Atlanta, I
they t h i n k i n t h e c o u r s e

o f t h e next f e w months

forget which,
w e can re-

duce t h e amount o f statistical material s e n t t o Washington
So materially that everybody will b e satisfied.
Governor Seay: R i c h m o n d i s cooperating i n that r e spect.
The Chairman:

W h a t i s your pleasure i n regard t o

Topic 3-(e)?
Governor Seay? I

move that i t b e passed over with

that explanation.
The Chairman:

letter?

W o u l d y o u l i k e t o h e a r Mr. J e f f e r s o n ' s

I t is about two and a half pages long, I think.

Governor R h o a d s ? I
Mr. C h a i r m a n .


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Federal Reserve Bank of St. Louis

think

i t will

b e very interesting

Governor Seay:
Mr. Curtis:

Y e s sir.

T h e r e is a

very b r i e f o n e h e r e o n s t a -

tistics which Mr. Jefferson wrote.

I t is as follows:

"I d o n o t r e m e m b e r t h a t t h e s u b j e c t c o v e r e d
tached

m e m o r a n d u ms
a
w referred

b y the at-

t o i n the distussion

o f sta-

tistics b y the last Conference o f Governors, b u t i f so, I
would avise that this matter h a s been adjusted satisfactorily t o a l l concerned.

Therefore,

i f i t i s o m your order

of business a s unfinished matter, 1 would suggest that i t
be regarded a s completed."
That was o n the statistical question.

T h e other,

dated April 5 , 1916, i s a s follows:
"You w i l l r e m e m b e r t h e r e p o r t I

prepared

i n January

for y o u r e g a r d i n g t h e v o l u m e o f s t a t i s t i c s p r e p a r e d

Federal Reserve Banks f o r t h e Federal Reserve Board:

b y the

Y o u

presented t h i s t o the Conference o f Governors a t their Jan-

uary meeting and the matter was referred t o the Federal Reserve Agents f o r attention a t their M a y meeting.

"Since preparing this report I have had two conferences which have d o n e mich t o correct t h e trouble, a n d I
feel that i t would b e well t o withdraw t h e resolution o f
the C o n f e r e n c e

o f Governors

o r t o recall t h e report f r o m

.the Agents i f i t has gone that far.

T h e following supple-

mentary r e p o r t w i l l a c q u a i n t y o u w i t h t h e p r e s e n t s t a t u s .

"In accordance with the suggestion o f Mr. Warburg I
had a

t a l k w i t h Mr. B r o d e r i c k

a t this o f f i c e a f t e r t h e

January Conference o f Governors.
February I


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Federal Reserve Bank of St. Louis

had a

I

n the early part o f

conference w i t h Mr. C a d w a l l a d e r

o f Rich-


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Federal Reserve Bank of St. Louis

38
w h o assisted Mr. Broderick

mond,

i n his examination o f

this bank- A f t e r Mr. Cadwallader a m I
points a n d a r r i v e d a t conclusions,

and w e made a

joint study:

had settled t h e

M r . Broderick joined u s

A s a result o f this confer-

ence lir. Broderick agreed t o g o over the whole matter with
Mr. Jacobson, chief o f the statistical division o f the
FederalReserve Board, a n d further t o arrange far a

confer—

once between Mr. Jacobson, Mr. Cadwallader, Mr. Broderick,
and myself, a t Richmond, provided 1 would assist him a t the
next succeeding audit o f the Federal Reserve Bank o f Richmond.

“tT joined Mr. Broderick a t Richmond o n the morning o f
March 29th, a n d o n Thursday Mr- Cadwallader a n d I again
reviewed m y report.

O n Friday Mr+ Jacobson m e t u s a t

Richmond a n d w e h a d a conference w i t h Mr. Broderick.
have a r r a n g e d w i t h Mr. J a c o b s o n
warded

W e

t o r e v i s e t h e reports f o r -

b y t h e F e d e r a l R e s e r v e B a n k s o f Richmond a n d N e w

York a n d test o u t a plan w e have agreed upon.

I

f the n e w

plan works well i t will b e suggested t o the other banks i n
due course.

"The p l a n presented,

i n the order o f m y previous r e -

port, contemplates t h e following modifications

o f the pre-

sent system:
so T h e assembling o f sundry data n o w reported
by various d e p a r t m e n t s i n t o o n e g e n e r a l s t a t e m e n t s i m -

ilar to that now employed b y the Federal Reserve Bank
of Richmond.

C o p y o f this f o r m i s attached hereto.

This i s t o b e revised b y Mr. Jacobson before being


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Federal Reserve Bank of St. Louis

39

finally adopted, a n d i s t h e base f o r t h e changes t o
be made.

ee O m i t the statistical references n o w shown
on form 3 4 (page 3 of previous report f o r comment),
excepting m e m o r a n d u m N o . 3

regarding b a n k e r s a c c e p t -

ances, a n d the memorandum shown among t h e liabilities
regarding total federal reserve notes outstanding.

"3. O m i t form 38 altogether (page 4).
tA. P r a c t i c a l l y all o f the information previously reported o n vhat w e know a s *rate sheet'
been eliminated.

W

e a r e n o w reporting

h a s

i n place o f

this:

"Total Bills Discounted, Members.
"Total Bills Bought i n Open Market,
“Total Investments, Municipal Warrants,

"Rates a t Which Commercial Paper Purchased b y
Member Banks.

"Rates a t which Paper Rediscounted between Member Banks.

"This change has been very grateful t o us and
has eliminated o n e o f the chiefest objections.

ane O m i t form 3 2 (page 6).
aaie M r . Jacobson h a s promised t o study f o r m

369-31 B (page 7) and endeavor t o make revision o f
it s o a s t o eliminate

a s m u c h o f the details

a s pos-

sible."
We d i s c u s s e d o t h e r s t a t e m e n t s m e n t i o n e d

and arrived a t the following conclusion :

i n m y report


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Federal Reserve Bank of St. Louis

40

hs W h i l e report No» 482-40 (page 3 ) i s purely
an a c c u m u l a t i o n

o f statistics p r e v i o u s l y furnished,

Mr. J a c o b s o n b e l i e v e s t h a t h e c a n n o t u s e a

machine f o r

more than one third o f the time a n d that i t vould not
be a paying proposition t o install t h e necessary equipment u n t i l t h e v o l u m e o f w o r k i s m u c h l a r g e r t h a n a t

present. w e w i l l , therefore, continue t o report the
figures required b y this f o r m
"S F u r t h e r study o f form 368-44 (page 7 ) indicates that i t c a n b e prepared m u c h easier b y the Federal

Reserve Banks than b y the HederalReserve Board, a n d we
will continue t o report o n this f o r m a s a t present.

To. S o m e o f the details required o n form 369A-44
(page 7 ) are not shown i n any other report.

S o m e of

the figures are furnished b y the FederalReserve Board
to the Treasurer o f the United States f o r tle purpose
of m a king his calculation statement.

W e will, thcre-

fore continue t o report these figures.

"10.

W e believe w e have made some progress i n

simplifying Report 381 (page 8)

w e find that Mr,

Jacobson has been requiring t h e report o f those r e -

ceipts and shipments o f Federal Reserve notes becaus e
he had found derious discrepancies

i n the figures, a n d

that h e would b e glad t o eliminate o n e side o f the r e cord a s s o o n a s t h e f i g u r e s w e r e a c c u r a t e l y prepared.

I have n o doubt t h a t w e shall have a
this f o r m within a

modification o f

reasonable time.

“These conference have been s o Satisfactory t o Mr. Cad-

41
wallader, Mr. Jacobson, Mr. Broderick a n d myself that I
trust i t w i l l b e possible

t o progress

t o allow t h e subject

in this unofficial way for the time being a t least."


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Federal Reserve Bank of St. Louis

The Chairman:

T h e matter w o u l d therefore

in t h i s shape, t h a t w h e r e a s

w o had determined

vious m e e t i n g t h a t t h e s e r e p o r t s s h o u l d

b e left

a t the pre-

b e dealt w i t h i n

an effort t o simplify them b y the Federal Reserve Agents,
as a result o f the examination o f the Federal Reserve B a n k

of New York and the Federal Reserve Bank o f Richmond, some

ofthese auditors have been brought together with these
representatives o f the Reserve Board,

a m t h e y made some

progress i n the inverval a n d i f the progress i s satisfac-—
tory t o them i t might take i t s natural course.

W o might

instruct the Secretary t o notify the Federal Reserve Agents
that t h e matter i s i n course a

of arrangement a n d that n o

action i s d e s i r e d a t t h e present t i m e .

I would like t o ask, though, whether a n y o f the Governors w o u l d c a r e t o h a v e t h e i r o w n auditors t a k e p a r t i n

any w a y i n this discussion. I

would n o t like t o have i t

appear that Mr. Jefferson o r Mr. Cadwallader--- and I am
sure Mr. Seay feels t h e same way about it--- are assuming
to g o a h e a d a n d a r r a n g e t h e s e m a t t e r s w i t h t h e B o a r d w i t h out o u r b e i n g c o n v e r s a n t w i t h w h a t t h e y a r e doing.
a m e n t i r e l y satisfied.

: G o v e r n o r Rhoads: I
Governor Fancher: I

a m Satisfied.

Governor McCord:

I

t i s satisfactory

Governor Miller:

W

e a r e satisfied.

The Chairman:

V h a t

t o us.

i s y o u r pleasure, t h e n ?

42

Gove rnor Fancher:

I n order that t h e Conference might

be k e p t i n t o u c h w i t h i t , I

would s u g g e s t t h a t t h e t o p i c

be left o n our program t o come u p a t some future meeting.
Mr. Curtis:

D o y o u want t o put i n anything about s u g -

gesting t o t h e a g e n t s s h a t s o f a r a S w e a r e c o n c e r n e d t h e
Governors

d o n o t ’ c a r e f o r t h e m t o t a k e a n y action?

Governor Fancher:

The Chairman:

Y e s ; I

would include that.

M a y I also suggest that Topic 3-(e),

as n o w appearing o m the program,
some e x p l a n a t i o n w i t h r e f e r e n c e

i s a little blind, without
t o statistics

a m method o f

dealing w i t h organization expense, a m i i f w e could elaborate
the topic t o continue i t o n the program with t h e heading,
and have t h e Secretary take t h e action that y o u suggest, I
think w e h a v e a c c o m p l i s h e d a l l

Governor Fancher: I

w e can.

would suggest, lr, Chairmay, that

the S e c r e t a r y e l a b o r a t e t h e t o p i c a n d b r i n g i t u p o n t h e
next p r o g r a m f o r t h e n e x t c o n f e r e n c e

Governor McCord: I
The Chairman:

o f Governors.

second that.

I s there a n y further discussion?

(There w a s n o f u r t h e r d i s c u s s i o n ,

a n d t h e motion was

duly carried.)
The Chairman:

I

t i s i n order n o w t o veccive t h e r e -

port o f t h e c o m m i t t e e a p p o i n t e d

t o wait u p o n t h e F e d e r a l

Reserve Board.

REPORT O F COMMITTE:: A P P O I N T E D

T O WAIT O N FED_RAL RESLRVE

BOARD.
Governor Wold:

M r . Chairman, y o u r committee h a d a n

audience w i t h Governor Hamlin a n d Governer Delano, a n d w e


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Federal Reserve Bank of St. Louis

43

reported t h e f a c t t h a t t h e Bonferenee w a s i n s e s s i o n a n d
awaited t h e i r p l e a s u r e a n d a s k e d f e r i n f o r m a t i o n r e l a t i v e
to t h e questions s u b m i t t e d

b y t h e c o l l e c t i o n committee.

No f o r m a l o p i n i o n h a s y e t b e e n r e n d e r e d
ney General.

b y t h e Attor-

T h e y have h a d conferences e n o u g h w i t h h i m

and have talked t h e subject o v e r with h i m sufficiently t e
satisfy t h e m a s t o a b o u t w h a t t h a t o p i n i o n w i l l b e i f h e

is allowed t o elaborate i t and p u t i t into writing;
goes v e r y m u c h f u r t h e r t h a n i e w a n t h i m t o go,

than the Board would desire h i m t o go. I

am he

a m further

drew t h e conclu-

Sion that t h e y rather hesitated about asking h i m t o fornmmlate a

formal opinion c n the subject.

T h e impression

seems t o prevail t h a t t h e opinion might b e t o the effect
that w e w o u l d b e r e q u i r e d

t o take checks

a t par for imme-

diate credit.
The Chairman:

Governor Wold:

T h a t w e w o u l d b e s o required?

Y e s sir.

T h e i r suggestion i s that

we f o r m u l a t e s o m e d e f i n i t e p l a n o f c h e c k c o l l e c t i o n a n d s u b -

mit i t t o the B o a r d , a n d i f i t meets w i t h their approval
they c o u l d t a k e i t t o t h e c o u n s e l

a m h a v e h i m approve

of

that plan o r give his authority f o r carrying i t out, rather
than h a v e h i m f o r m u l a t e a

formal o p i n i o n o n Sections

1 3 and

(16,
Does that cower t h e question, Governor McDou:;al?
Governor McDougal: I
The Chairman:

think that covers it.

W e r e there a n y voluntary suggestions

made b y t h e B o a r d ?


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Federal Reserve Bank of St. Louis

Governor Wold:

R a t h e r indefinitely.

T h e r e were t w o

44
or t h r e e h i n t s t h r o w n o u t t h a t t h e y w o u l d n o t w a n t t h i s

made mandatory.

T h e y would like t o have i t left optional

with the banks, s o a s t o permit t h e member bank t o send
us all their checks o r part o f their checks, a s they s a w
fits
The Chairman:

Governor Wold:

W a s D r e Miller there?

N o ; Dr.» Miller was n o t there.

A n in-

quiry w a s m a d e o f m e a s t o w h e t h e r i t w o u l d e
b practical

for u s t o pay interest u p o n excess balances.

(At this point a n informaLio discussién arose
which t h e stenographer w a s directed n o t t o report; after

which the following proceedings took place:)
The Chairman: G e n t l e m e n ,

i n view o f the immincenee

of a memorandum, h o w would i t d o t o suspend discussion o f
this m a t t e r u n t i l t h e m e m o r a n d u m arrivea,

a n d then refer

it t o our committee o f experts?
The report o f the visiting committee i s received a n d
made a part o f the record, a m d t h e thanks o f the Conference
is extended t o the Committee.
In v i e w o f t h e f a c t t h a t w e h a v e p a s s e d a

special r e s o -

lution covering Item 3-(d), m a y i t not b e well t o take n o
action i n regard t o 3-(f), t h e matters being i n the course
of t r e a t m e n t

i n s o m e f o r m o r other?

Governor McCord: I
Mr. Tupper: I

The Chairman:

W h a t i s y o u r pleasure?

move that w e take that course.

second t h e motion.

I s there a n y discussion?

i (There w a s n o discussion,

duly carried.)


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Federal Reserve Bank of St. Louis

a n d t h e motion was

45
y mutual c o n s e n t w e w i l l p a s s T o p i c

B

The Chairman:

3-(d) R E C E I P T F R O M COLLECTORS O F CUSTOMS A N D INTERNAL
REVENUE O F CHECKS CARRYING EXCHANGE CHARGsS.

(Supplemental)
Governor Wold:

M r . Chairman, d u r i n g m y absence w a s

reserve banks
the q u e s t i o n r a i s e d a s t o w h a t c h e c k s F e d e r a l

the colkecmight t a k e from the collector o f sustoms o r from
T h a t matter has been raised i n

tor o f Internal Revenue?


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Federal Reserve Bank of St. Louis

district,

are
a n d our boys a r e o f the opinion that t h e y

authorized to accept anything but certified checks.
> collector w a s bringing i n checks uncertified, a n d w e
i t up
at the time t o o k i t u p with t h e Beard a n d they took
any
with Mr.» Malburn, a n d w e are advised that i f w e take
checks o t h e r t h a n c e r t i f i e d c h e c k s

a n d credit

account o f the Treasury o f the United States,

them

t o the

i n case o f a

bank failure,

o r anything o f that kind, w e cannot c o m e

back o n him.

O u r counsel holds t h a t h e i s authorized t o

take anything b u t a n uncertified check. T h e r e f o r e ,

i f we

it
take anythingfrom h i m that i s uncertified w e take
knowingly,

a n d w e c a n n o t c o m e b a c k o n h i m personally.

The Chairman:
the r e g u l a t i o n s
treatment

H a s n o t e a c h bank been furnished w i t h

o f the Treasury Department covering t h e

c f these matters

b y t h e Collectors

o f Customs?

I t h i n k w e have.

Governor Rhoads:
Governer McCord:

The Chairman:

N o .
N

o sir;

w e h a v e not.

W h y would i t not b e a good plan t o

a resoluget a t the fundamentals o f this thing b y passing

46
tion requesting t h e Federal Reserve Board t o furnish each

one of the Federal Reserve Banks 4 complete set of instructions given t o the revenue litebtérs,

a n d then w e c a n

find out for oursélves whether they are imposing upon us.
We received a

check i n New York, uncertified, f o r d e

posit, a n d w h e n w e c a m e t o i n q u i r e

w é found i t w a s s i m p l y

a check that ch® o f the boys i n the collector's office

had cashed i n the office, and, a s 4 recall, i t was sent
back a n d n o demurrer w a d made + 6 6ur adtion i n sending i t

back:

T h e y had developed a custdém that prevails, appar+

ently, o f cashilig

hecks for the boyS i n the office; but

they have got t é stop that, betausé w e will not handle those
checks,
Governor Wold:

W

cept n o t h i n g b u t c h e c k s

e have advised t h e m that w e will a c w e a r e authorized

t o accept u p o n

instructions o f the Secretary.of t h e Treasury, a n d i t i s
the
up t o them when J h a v e a n y business w i:t h us.
The Chairman:

W o u l d t h e suggestion that I made,

Governor Wold, b e satisfactory?
Governor Wold: I

think i t i s a wise one, a n d I

s0

move,
Governor Fancher: I
The Chairman:

second t h e motion.

I s there a n y discussion?

(There w a s n o d i s c u s s i o n a n d t h e m o t i o n w a s d u l y c a r -

ried. )
The Chairman:

W e have agreed t o pass Topic 4 , Collec-

tions amd Clearances, until our memorandum comes from the
Reserve B o a r d a n d o u r c o m m i t t e e h a s e x a m i n e d t h e plans.


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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

The next: item i s Now 5 ,

5. R E P O R T O F COMMITTEE O N METHOD O F CALCULATING DIVIDENDS.
Governor S e a y i s Chairman o f the Committee o n that
matteri

(Governor Seay handéd t h e report o f t h e Committce a p pointed b y the Conference é6f Governors t o consider t h e mehod

of computing dividends; a n d dther matters relating thereto,
to the Secretary, w h o read 4 8 follows!)
Report o f Committee Appointed b y the
Conference o f Governors t o Consider t h e Method

ofComputing Dividends and other Matters Relating thereto.

The Committee appointed t o recommend t o the Conference
of Governors a

method o f computing dividends m a d e i t s r e -

port a t t h e l a s t C o n f e r e n c e a n d a

c o p y o f that r e p o r t w a s

sent t o each Federal Reserve Bank.
In @iscussing t h e report a t the last Conference, f u r ther questions relating t o interest o n capital s t o c k payments a n d the allowance o f interest o n re-payments o f
capital s t o c k m a d e t o m e m b e r b a n k s
tion i n their c a p i t a l

o n account

o r surplus, a r o s e ,

of a

reduc-

a n d the whole mat-

ter w a s r e f e r r e d b a c k t o t h e C o m m i t t e e f o r f u r t h e r report.

The Committee h a s nothing t o add t o its report w i t h
reference t o the method o f computing dividends o n capital
stock payments,

w h i c h i t i s b e l i e v e d w a s f u l l y c o v e r e d in.

the original report.
The only debatable question i n that report w a s a s t o
whether i n t e r e s t c a l c u l a t i o n s s h o u l d b e b a s e d o n a

year o f

48

three hundred a n d sixty o r three hundred a n d sixty-five
days.
It w a s r e c o m m e n d e d

i n t h e r e p o r t t h a t e a c h Federal R e -

serve B a n k p u r s u e t h e m e t h o d r e q u i r e d

b y l a w o r customary

in its State o r District.
It has b e e n learned that t h e computations
tisti¢al D e p a r t m e n t

i n the Sta-

o f t h e Federal Reserve B o a r d a r e based

upon a year o f three hundred a n d sikty days:
With r e f e r e n c e

t o the questions r e l a t i n g t o intereston

¢éapital stock payments, a n d the interest t o be allowed t o
member banks i n making re-payments o f capital stock, t h e
Committee h a s t o r e p o r t t h a t t h e w h o l e m a t t e r h a s S i n c e

been covered i n memorandum No. 6 0 1 from the Federal Reserve

Board relating t o 'Dividend Payments.' T h i s memorandum
was sent t o each Federal Reserve Bank, a n d i t i s hereby
made a part o f this report.
It i s p r o p e r

t o s a y that t h e Committee wrote t o t h e

Federal Reserve Board bringing ..to its attention t h e principal m a t t e r s c o v e r e d
The B o a r d
and t h e l e t t e r

randum p r e p a r e d

i n this memorandum.

h a d under consideration
f r o m the Committee,

t h e same question,

together

with a

i n the Statéstical Department

memo-

o f t h e Board,

were considered a t the Same time, w i t h the result that


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Federal Reserve Bank of St. Louis

the r u l i n g s e m b o d i e d

i n m e m o r a n d u m No. 6 0 1 w e r e m a d e b y

the Board.
All o f which i s respectfully submitted.

(Signed) G e o . J. Seay,
Re L e V a n Zandt,

Joe's A y NoCora.”

49
The Chairman:
dum No. 6 0 1 ,

G o v e r n o r Seay, I

t o w h i c h y o u referred,

Board h a d b a s e d t h e i r r u l i n g
computing d i v i d e n d s

read o v e r M e m o r a n -

a n d discovercd t h a t t h e

i n regard t o t h e method o f

o n a three h u n d r e d a n d @ i x t y d a y method.

Upon t h e p r o v i s i o n o f t h e s t a t u t e t h a t p r o v i d e s f o r a d j u s t -

ments o f capital stock payments based u p o n o n e half o f one
per c e n t d i v i d e n d p e r month,

plication a

i t seems

t o m e i t i s b y im-

sufficient justification f o r employing a

day method; a n d , p e r s o n a l l y , I

a m quite satisfied w i t h

their memorandum i n that respect.

I

n another respect I

not a t a l l S a t i s f i e d W i t h t h e i r memorandun,
;j

e

360-

i

am

o do: n o t

e oat eer

have it before mey but ad Lt recall it, they provide that
each Foderal Reserve Bank shall submit t o the Board a
cértain m e m o r a n d u m p r i o r t o t h e d e c l a r a t i o n o f t h e dividend;
that subsSequent t o t h a t t h e Board,

i n passing a

resolution should u s e a pro forma resolution,

dividend

s o they have

provided t h a t b e f o r e p u t t i n g t h a t r e s o l u t i o n i n t o e f f e c t
tho p e r m i s s i o n

o f the Board m u s t b e obtained f o r t h e pay-

ment o f t h e dividend.

H a v i n g read t h e statute

o n that

point i t occurs t o m e that o n e o f the very first a n d prbmary common l a w liabilities o f a director a n d responsibil‘ities o f a director i s t o determine w h a t i s the condition o f
the c o m p a n y o r o f t h e corporation,

that t h e y have a

a n d having determined

very serious legal responsibility resting

upon t h o m i n d e t e r m i n i n g t h e a m o u n t

o f dividend

This method provided b y the Board,

t o pay.

i t seems t o me, u n -

less authorized specifically b y the statute, involves a
director i n ignoring certain responsibilities which rest


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Federal Reserve Bank of St. Louis

50-5)
upon h i m and which h e cannot very well avoid b y acting upon
instructions o f this kind.
I would hesitate t o a s k our directors t o g o through
the p r o c e d u r e c o n t e m p l a t e d

b y this memorandum without h a v -

ing a n o p i n i o n o f c o u n s e l t h a t t h e y a r e j u s t i f i e d

this ruling.

i n making

I t is a delegation o f the powers and respon-

sibilities o f a board o f directors t h a t I

do not believe

is justified b y l a w and I would b e afraid t o see our directors a c t upon it. I
personally I

a m not a director i n our bank, a n d

would n o t t h i n k o f a c t i n g u p o n i t without i t s

being s u p p o r t e d

by a

v e r y c l e a r o p i n i o n o f counsel.

Governor Wold: I

a m very glad indeed t o know that

somebody e l s e t o o k e x c e p t i o n

have gone a

t o that.

I

t seems

t o m e they

long w a y out o f the w a y t o perform functions

that a r e delegated b y l a w t o the directors o f the bank.

The Chairman:

W h o can say, other than the directors

of a bank, h o w much money the bank has made? O n l y the
directors c a n s a y that.
body e l s e t o s a y that,

T h e l a w does n o t authorize anya m t h e whole question o f t h e pay-

ment o f dividends depends u p o n the determination o f that
fact.

Furthermore, I

dq not understand that the payment o f

a dividend b y a reserve b a n k i s dependent f o r its legal
authority u p o n a
directors

ruling o r p e r m i s s i o n o f a n y b o d y b y t t h e

o f t h e bank. I

d o not w a n t t o appear

criticising t h e Board i n this matter, b u t I

t o be

do not think

it could have given consideration t o those questions.


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Federal Reserve Bank of St. Louis

Governor Seay:

W i t h reference t o the committee, I

52
would s a y t h a t t h i s m e m o r a n d u m c a m e i n , a S y o u a l r e a d y know,
within t h e l a s t w e e k o r s o i T h e e r e w a s n o o p p o r t u n i t y

to

discuss i t b y correspondence w i t h either o f the other
members o f the committee, a n d i t introduced s o many brand
new questions t h a t I

simply t o o k t h e responsibility

o f em-

bodying i t i n the report offered f o r discussion here o r for
reference b y this b o d y again t o the committee i f i t sees
Petree

You will recall, Mr- Chairman, that before y o u went
abroad a

memorandum similar t o this h a d b e e n issued b y t h e

Board. I

think you wrote me for my impressions o n that,

and I expressed t h e m with some freedom, a n d they were n o t
very :issimilar f r o m what y o u have just stated t o this Conference.

The Chairman:

O f course vhese things h a v e b e e n very

much o u t o f m y m i n d i n t h e interval, G o v e r n o r S e a y , a n d i n
listening

t o the report

o f the committee

i t appeared a s

though t h e c o m m i t t e e h a d s i d e s t e p p e d a n y a p p r o v a l
approval

o f t h e m e m o r a n d u m 6 0 1 i n i t s report.

Governor Seay: I
Supplementeé
given.

o r dis-

intended

t o supplement a n d I

i t b y the verbal statement w h i c h I

have

have j u s t

T h e purpose w a s t o let t h i s memorandum, w h i c h i s a

brand n e w o n e t o a l l o f u s , l i c b e f o r e t h i s C o n f e r e n c e f o r
consideration,

a n d i f y o u desire t h a t t h e committee g i v e

further consideration t o it; why, I

a m sure t h e y wiit b e

very glad t o undertakeit; b u t I wish y o u t o understand thero
has b e e n n o o p p o r t u n i t y
because


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Federal Reserve Bank of St. Louis

i t i s t o o fresh.

t o give o u r consideration

t o it


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Federal Reserve Bank of St. Louis

52-A
The Chairman:

I

n s o f a r a S this report deals w i t h

the question o f the methematical basis f o r calculation o f
dividends, I

move, i f y o u please, t h a t t h e report b e accept-

ed, a n d that t h e 360-day method b e adopted i f t h e Governors
feel that that i s t h e thing t o do; b u t s o far a s memorandum
601 i s concerned, I

would like t o see that separately dealt

with b y this meeting,
to s e e w h e t h e r

o r else b y a committee o f this meeting,

w e could not make some representation

to our o w n boards o f directors o r t o the Reserve Board o n
the subject.
Governor McCord:
offer a

A

s a

member o f t h e committee,

suggestion t h a t t h e r e p o r t b e a c c e p t e d

mathematical c a l c u l a t i o n

i s concerned,

question b e d e a l t w i t h b y t h e G o v e r n o r s

may I

s o far a s t h e

a n d that t h e other
aS a

committee

of

the whole.

The Chairman:

Y o u have heard Governor McCord's motion.

Is t h a t s e c o n d e d ?

Governor Seay:

Y o u see, Mr- Chairman,

i f you will l e t

me make another remark, there a r e embodied i n this memorandum from the Board very many more points t h a n were referred
to u s for consideration.
reforred

T h e particular points that were

t o u s b y the Conference

upon w e r e t h e t w o q u e s t i o n s

t o make a

further r e p o r t

o f allowing interest

o n re-pay-

ments o f c a p i t a l S i s a l , a n d r e q u i r i n g p a y m e n t o f i n t e r e s t

on addi tional subscriptions o f stock a n d o n new subscriptions.

T h o s e

by t h e B o a r d ,

t w o matters

and I

a r e referred

t o i n the memorandum

think a r e s e t t l e d correctly.

T h e r e re=—

mains t h e open question a s t o h o w the earnings o f a bank a r e

T h a t is a

£oO.be.deLermined.
course c a r r i e s a

broad question,

great m a n y points,

and of

a n d the Board under-

takes practically t o take i t from the hands o f the direc-


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Federal Reserve Bank of St. Louis

tors a n d p r e s c r i b e a

method b y w h i c h i t s h a l l b e done.

The Chairman: G e n t l e m e n , a c t i o n upon Governor M c Cord's m o t i o n w o u l d l e a v e t h e s u b j e c t s i m p l y a

tion c f memorandum 601.
resolution?

considera-

V h a t i s your pleasure about that

I s i t seconded?

Governor Fancher: I

The Chairman:

second t h e resolution.

I s there a n y further discussion?

(There w a s n o f u r t h e r d i s c u s s i o n ,

a n d the motion was

duly carried.)

MEMORANDUM 601.

The Chairmant N o w , a s t o Memorandum 601. G o v e r n o r
Seay, d o e s y o u r é o m m i t t e e r e c o m m e n d t h e a p p r o v a l

o r assent
h o w the

to t h a t p o r t i o n o f m e m o r a n d u m 6 0 1 w h i c h p r e s c r i b e s

questions o f interest o n part payments o f new subscriptions
and withdrawals

o f capital s t o c k s h a l l b e d e a l t w i t h ?

Governor Seay:
with r e f e r e n c e

I t does

t o the payment

i n t h i s respect, p a r t i c u l a r l y
o n additional s u b s c r i p t i o n s

of capital stock, a n d that i s that t h e payments shall b e
made a n d t h e d i v i d e n d s c a l c u l a t e d t h e r e o n ,
whichever y o u m a y prefer,

o r interest p a i d ,

f r o m t h e t i m e o f payment.

makes t h e w h o l e q u e s t i o n u p o n t h e s a m e basis.

W

T h a t

e d o not

exact a n y payments o f one half p e r cent a month f r o m t h e
member b a n k p a y i n g i n , b u t s i m p l y a l l o w e a c h b a n k t o m a k e

interest o n its capital stock r u n from the date o f payment.
That satisfactorily disposes o f that.

54
The o t h e r q u e s t i o n i s u p o n w h a t i n t e r e s t a n d a t w h a t
rate a n d w h a t metho’

o f computation Shall w e make i n the

ease o f surrenders o f capital stock.

T h a t involves t h e

whole question which i s u p here f o r consideration, t h e determination o f t h e earnin;,s o f a
question t h a t

w e ought

The Chairman:

bank;

a n d that i s the

t o consicer here.

A r e y o u prepared

t o m o v e t h e approval

of the method o f dealing with t h e question o f interest o n
payments m a d e t o t h e b a n k o f capital s t o c k s u b s c r i p t i o n s ?
Governor S e a y :

The Chairman:

Y e s ; I

think t h a t m a y b e disposed of.

W i l l y o u s o move?

Governor Seay: I

s o move.

Governor icCord: I
Governor McDougal:

second the motion.
T h a t h a s t o d o with the payments

as t h e y a r e m a d e ?

Governor Seay:
payments

B o t h payments o n additional stock and

o n n e w subscription.

T h e point i s that interest

is a l l o w e d a t t h e r a t e e a r n e d u p o n t h e p a y m e n t f r o m t h e t i m e
it i s made.

Governor McDougal: R a t h e r than t o calculate b y one
half o f o n e p e r cent.
Governor Seay:

S i n c e i t affects t h e s a m e purpose,

and

it i s authorized i n this memorandum o f t h e Board.
The Chairman:
Are y o u r e a d y f o r a

W h a t i s your w i s h i n regard t o this?
vote?

(There was n o further discussion a n d t h e motion was
duly carried.)


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Federal Reserve Bank of St. Louis

The C h a i r m a n :

N o w w e have t h e question

o f t h e method

55
prescribed f o r t h e d e t e r m i n a t i o n

e f t h e amount

o f profit

to t h e bank, a n d t h e declaration o f the dividend.
Do y o u wish t o refer t o the memorandum i n connection w i t h
this discussion?
Governor Seay:

W i t h respect t o that, I

think the

Board is. correct i n its attitude that t h e reserve b a n k c a n
only m a k e p a y m e n t
book value.

o n the rate earned n e t exceeding t h e

T h e question goes b a c k t o a

determination

of

the book value, the amount earned, a n d that i s the method
to which w e c a n confine o u r discussion.
Governor McCord:

U n d e r that heading, Mr. Chairman,

we h a v e h a d t o d e a l w i t h t h e w i t h d r a w a l

our Board passed a

o f s o m e banks,

and

resolution setting aside, f o r safety, a

certain a m o u n t t h a t i n v o l v e d f a i l e d banks.

O u r e€arnings,

up t o December 31, were 3.83 p e r cent o f t h e capital stock,
paid “eos

O u r Board decided t h a t i t w o u l d e
b prudent a n d

wise t o r e t a i n . 8 5 p e r c e n t p e n d i n g t h e c l e a r i n g u p o f f a i l e d
bank obligations,

per centum.

a n d t o pay t o the withdrawing b a n k three

T h e Reserve Board insisted t h a t w e shouldde-

termine t h e loss.

T h a t is a

physical i m p o s s i b i l i t y .

Y o u

cannot determine w h a t t h e loss i s going t o b e until y o u wind
up t h e estate,

and the

e c i a e

ceaak

at i t s n e x t m e e t i n g a S t o w h e t h e r
for t h a t purpose,

u p before o u r Board

w e shall s e t aside a

a n d then w e are confronted w i t h the ruling

of the Board that w e have n o right t o set aside a
that purpose.

S

sum

o w e a r e a t Sea.

w

sum for

e h a v e taken t h e situa-

tion i n hand, however, a n d have paid three p e r cent, which
seems t o b e s a t i s f a c t o r y o
t the withdrawing member banks.


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Federal Reserve Bank of St. Louis

The C h a i r m a n : I

see,

Governor Seay:

T h e l a w o n that subject i s i n Section

"After all necessary expenses o f a Federal reserve bank
have been paid o r provided for, t h e stockholders shall b e
entitled

t o receive

a n annual d i v i d e n d

o f six p e r centum

on the paid-in capital stock, which dividend shall be cumulative."
So the injection into t h e matter o f the question o f
expenses

o n account

o f probable l o s s ,

o r probable b a d debts

is a new question--- a brand n e w question.
The Chairman:

Y o u s a y the "probable losses."

Y o u

cannot justify the making o f an account o f undivided profits,

i f you please,

are a n t i c i p a t e d

o r special rezerves f o r losses t h a t

w i l l s o m e d a y occur,

a S I

view it, unless

the amount s o set aside should b e set aside after discharg-—
ing t h e l i a b i l i t i e s

t o stockholders.

I

f y o u have n o t

ascertained t h e lossess, h o w c a n y o u deprive y o u r stockholders

o f t h e dividends?

Governor McCord:
are a d v i s e d

O n the other hand, M r - Chairman,

b y t h e Board t h a t w e should n o t declare a

wo

divi-

dend until w e have looked i n t o that question o f losses,
intimating that S u c h s u m o f money should b e held i n abeyance
for t h a t p a r t i c u l a r purpose.
Governor Seay:

n a t i s t h e whole question r i g h t there,

Mr-e Chairman.
Governor Wold:

T h e situation,

a s I. view i t , i s a

case

where t h e bank i s dealing w i t h a n insolvent concern a n d t h e y
do not k n o w what t h e estate i s going t o pay, a n d i t i s im-


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Federal Reserve Bank of St. Louis

57
possible

t o ascertain t h e extent

o f t h e loss until t h e e s -

tate h a s b e e n liquidated.
Governor McCord:
Governor ‘old:

Absolutely.
Y o u k n o w y o u have a

loss, b u t y o u d o

not k n o w the amount o f it.
Governor McCord:

O u r Board t o o k into consideration

that i t was n o t fair t o allow that retiring bank t o participate i n a

banks. I

profit t h a t m i g h t b e a

loss t o t h e c o n t i n u i n g

a m happy t o say, however, t h a t I do n o t believe

we w i l l h a v e a n y loss.

Governor Miller:

v o u l d y o u not determine that ques-

tion a S y o u would i n any commercial bank?
Governor Wold:

T h e y will n o t allow u s to.

Governor Miller:

O h , t h e y will nct?

Governor McCord:

N o .

Governor Miller:

H o w d o they expect y o u t o retain

dividends

o f cther members until t h a t estate

i s wouhd

u p and

finally determined?
Governor MeCord:

M r . Miller,

set aside anything f o r that purpose.
they expect us, o f course,
The Chairman:

t h e y will n o t l e t u s

A t the same time,

t o pay dividends.

T h e y have power, under Section ll,

paragrapa-G —
"to r e q u i r e t h e w r i t i n g o f f o f d o u b t f u l
assets u p o n t h e b o o k s a n d b a l a n c e s h e e t s

o r worthless

o f the Federal

resorve banks."
Why d o y o u n o t h o l d t h e m t o t h e i r s t a t u t o r y p o w e r s
there?


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Federal Reserve Bank of St. Louis

Governor McCord:

B e c a u s e t h e y will n o t put their fin-

58
gers o n what i s a doubtful asset.

W

e tell t h e m t o name

it, and. t h e y c a n n o t d o it.

Governor Seay:

I t m a y b e that this last memorandum

covers that question, Governor McCord.
The Chairman:

I t seems t o me, Governor McCord, t h a t

the question o f the treatment o f this matter i s one somewhat
Similar t o the o n e that arose between t h e Federal reserve
bank i n Minneapolis a n d the Federal Reserve Board when w e
bumped i n t o t r o u b l e

b y endeavoring

t o participate

i n some

personal a n d p r i v a t e d i s c u s s i o n s w i t h t h e R e s e r v e B o a r d ,

and w e ought n o t t o make t h a t mistake again.

O n the other

hand w e have before u s t h e general memorandum, 601, dealing
with t h e general subject o f procedure i n declaring dividends,
which w e have t o deal with a t this conference i n order that
uniformity m a y prevail.

Governor McCord:
that I

T h e n , Mr. Chairman,

shall withdraw m y remark, I

i f i t i s desired

shall a s k the Secretary

to expunge w h a t I have said f r o m the record.
The Chairman: I

do not believe t h a t i s necessary,

because i t throws light o n the matter; b u t d o you not think
we ought t o deal with i t a s a special topic?
Governor McCord: I

think so, b u t I was just telling

you o f the problem w e have r u n u p against.
The Chairman:

L e t m e read Section 7

o f t h e Act:

"After all necessary expenses o f a Federal Reserve Bank
have b e e n paid o r provided for, t h e stockholders shall b e
entitled t o receive a n annual. cividend o f six per centum
on the paid-in capital stock, w h i c h dividend shall b e cumulative.


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Federal Reserve Bank of St. Louis

A f t e r f t h e aforesaid dividend claims h a v e been

59

fully met, a l l t h e n e t earnings shall b e paid t o the United
States a s a franchise tax, except that one half o f such
net earnings shall b e paid into a surplus f u n d until i t

shall amount to 40 per centum of the paid-in capital stock
of such bank."
On referring b a c k t o the provision i n regard t e directors;

i t says:

"To exercise b y its board o f directors,

o r duly author-

ized officers o r agents, a l l powers specifically granted b y
the p r o v i s i o n s

o f this a c t a m s u c h i n c i d e n t a l p o w e r s

shall b e n e c e s s a r y

t o carry o n the business

as

c f banking

within the limitations prescribed b y this Act."
There i s a n o t h e r p r o v i s i o n h e r e a b o u t directors:

"The Board o f directors shall perform the duties usually appertaining t o the office o f directors o f banking a s sociations, a n d all s u c h duties a s are prescribed b y law."
I do net believe that this memorandum 6 0 1 i s a memorandum which w e c a n afford t o pass o r assent to, o r that o u r
directors w o u l d b e willing to.
You will observe, Wir. Tupper, t h a t w e discuss t h e s e
things rather frankly. I
Mr. Tupper:

think w e ought to.

Y e s sir.

W h a t d o y o u find i n that memorandum,

The Chairman:

Governor Seay, o n the subject?
Governor S e a y :

T h e question arises

o n circumstances

stated b y Governor McCord, a n d this i s t h e recommendation
of t h e Board. I

take i t t h a t t h e s e a r e r e c o m m e n d a t i o n s

under t h e head o f supplementary information, unpaid indebt-


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Federal Reserve Bank of St. Louis

edness o f closed banks t o the reserve banks--The Chairman:

W e are n o t dealing with that.

W e are

dealing n o w w i t h t h e q u e s t i o n o f d e t e r m i n i n g profits.

tion.

Governor MeCord:

T h a t enters i n t o it, Mr. Chairman.

The Chairman:

t i s incidental

I

t o t h e gereral q u e s -

w h o i s t o determine w h a t t h e profits

are a t a given date, a n d who i s t o declare a

o f t h e bank

dividend a n d

be r e s p o n s i b l e f o r i t s p a y m e n t ?

Governor Seay: U n q u e s t i o n a b l y , t h e directors.
The Chairman:
attempt,

I

i f y o u please,

n what respect d o e s t h i s memcrandum
t o circumscribe t h e powers

o f the

Board o f Directors o f a reserve bank i n performing t h a t
function w h i c h t h e s t a t u t e e x p r e s s l y c o n f e r s u p o n i t ?

Governor Seay: I

take i t i t is nothing more than a

recommendation t o the directors o f a method t o b e pursued.
In the main, I

a m free t o s a y that that i s just t h e method

that weuld b e pursued i n any regular banking institution.

The Chairman:

T h i s says"dividend payments" (a) T h e

Federal R e s e r v e B o a r d s h o u l d b e a d v i s e d

b y the officers

of

the federal reserve banks w h e n i t i s the intention t o submit t h e question o f the payment o f dividends t o the direc-

tors a t the next meeting.

A t the Same time the banks

should submit t o the Board t h e information a s called f o r

in the attached memorandum marked "A".
That m a y b e all right.
Governor Seay:
The Chairman: I
Governor S e a y :
think.


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Federal Reserve Bank of St. Louis

T h e dividends t o b e paid annually--have m y doubts about that.
T h e l a w i s v e r y c l e a r o n that, I

The Chairman:
Governor Seay:

D o e s i t say “annually"?
Y e s ; that after all expenses have

been p r o v i d e d f o r t h e m e m b e r b a n k s h a l l b e e n t i t l e d

t o re-

ceive a n annual cividend.
The Chairman:

T h a t means a

dividend a t the annual

rate, does- i t n o t ?

Governor Seay?

Y e s , annual dividend.

Governor Wold:

A n n u a l dividend

The Chairman:

o f s i x p e r cent.

H o w e v e r , t h a t i s not a n important point

anyway.

Governor Seay:

N o , that i s not important.

The Chairmn: (Reading):

" T h e suggested form of

dividend resolution, w h i c h has been prepared b y Judge L11l-

iott, i s attached t o this memorandum and marked "B",
distributed e a r n i n g s a r e t o b e c a r r t e d
loss account.

U n -

i n t h e profit a n d

o transfers ghould b e m a d e t o surplus a c -

N

count u n t i l s u c h t i m e a s a c c r u e d d i v i d e n d s h a v e b e e n p a i d

to date."
The m e m o r a n d u m d o e s n o t g o a S f a r a s t h e resolution,
which i s w h a t 1

specifically referred t o .

Governor Van Zandt:

J u d g e Blliott's opinion i s that

dividends s h o u l d o n l y b e p a i d a n n u a l l y .

The Chairman:

T h a t i s t h e resolution:

"Whereas, t h e officers o f this association h a v e submitted
tions

t o the Federal Reserve Board a
i n f o r m approved

statement

c f condi-

b y t h e Board, w h i c h s t a t e m e n t h a s

been duly certified b y a committee appointed b y this Board,
and h a s b e e n o r d e r e d s p r e a d u p o n t h e m i n u t e s


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Federal Reserve Bank of St. Louis

o f this m e e t -


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Federal Reserve Bank of St. Louis

ing, a n d

"Whereas, i t appears from this statement that the estimated acérued dividends d u e t o t h e stockholders o n the
S

e

n
wrye
e e e 6 l e s ) cere: Eero o e

te

dollars, a n d that after charging t o profit a n d loss account
all expenses, w h e t h e r p a i d o r approved, w h i c h a r e p r o p e r l y
chargeable

a s current expenses,

a n d after m a k i n g provision

for a n y d e p r e c i a t i o n t h a t m a y h a v e o c c u r r e d

i n the value

of the assets owned b y the bank a n d f o r probable losses,
there w i l l r e m a i n i n s a i d p r o f i t a n d l o s s a c c o u n t t h e s u m
Be R a r e

P

e

a C

a

e

"Now, Therefore, B e it Resolved, that a dividend t o
stockholders o f sesc«seeeee per cent, payabl@® on the ....:.
day o f ........ be, and i s hereby declared o n all stock o f
this bank, a s shown b y the books o f t h e bank o n that date.
“Be i t further Resolved, t h a t a
tion b e t r a n s m i t t e d

copy o f this res: lu-

t o t h e F e d e r a l R e s e r v e Board,

its a p p r o v a l t h a t t h e o f f i c e e s

o f this bank b e a n d they

are hereby, a u t h o r i z e d a n d d i r e c t e d

t o p a y a n d distribute

to said stockholders t h e dividend s o declared.
the p a y m e n t

a r d upon

o f a l l accrued dividends,

T h a t after

a n d after provision

has b e e n made f o r all expenses, losses a n d depreciations
in assets, s a i d o f f i c e r s a r e authorized, c m p d w e r e d a n d

directed t o charge t o profit a n d loss account a n d t o
credit t o the surplus account o f this b a n k t h e s u m o f
eoececeeeee GOllars a n d p a y the balance remaining t o the

United States a s a franchise tax, a s provided b y law."
You w i l l o b s e r v e t h a t t h i s f o r m r e q u i r e s f i r s t t h e

63

submission o f a
of i n f o r m a t i o n

directors.

statement
t o submit

t o t h e Board a n d t h e expression
t h e question

o f dividends

t o the

T h e n t h e resolution provides t h a t t h e resolu-

tion s h a l l o n l y t a k e e f f e c t a f t e r t h e B o a r d h a s a p p r o v e d

os

T h a t i s t h e point I

fied- I

raise a s being probably unjusti-

d o not believe t h e r e i s a n y power

i n the Board

to determine whether this resolution o f the directors o f a
reserve b a n k s h o u l d b e p u t i n t o e f f e c t
Governor Seay: I

o r not.

think t h a t brings

up a

question

which has always b e e n a live one, a n d that i s where t h e
authority o f the .irectors e n d s a n d t h e powers o f the Board
begin. I

take i t f o r granted, howéver, t h a t this i s more

in t h e n a t u r e o f a

recommendation

o f practical p r o c e d u r e ,

after consultation w i t h the Board, rather t h a n otherwise.
Whatever t h e language m a y b e there I

a m sure t h e acts

would b e i n accordance w i t h t h e law.

T h e cirectors a r e

authorized u n d e r t h e l a w t o determine,

determine---

a n d would h a v e t o

a m t h e y alone c a n determine--- aid t h e i r acts

are Subject t o review a n d determination b y the Federal R e serve Board.

The Chairman:
Seay.

T h e y a r e not i n this respect, Governor

T h e Federal Reserve B o a r d h a s t h e power t o examine

a bank a n d require a

writing d o w n o f assets.

T h e Board

of directors h a s t h e p o w e r t o determine w h a t t h e e a r n i n g s
are a n d t o p a y a
payment

divicend,

as I

r e a d t h e statute.

o f t h e dividend should disclose

I f the

t o the Federal

Reserve Board that t h e y are impairing their capital, t h a t
they have n o t written d o w n their assets, t h e n the Board


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Federal Reserve Bank of St. Louis

64
naturally c a n reqdttire a wHiting d o w n o f assets, a n d the
funds

i n the

a S

o f the bank will possibly n o t b e suffi-

cient t o pay the dividend.

B u t a s t o having i t take this

form o f a preliminary approval b y the Board, I
ployee eer I

do n d a g r e e

d o n o t t h i n k t h a t i s t h e w a y t o g e t a t it. i

do n o t b e l i e v e

i n i t a t all.

Governor Seay:

T h a t m a y just b e a method o f technical

procedure, because i f a t t h e time t h e directors o f the
bank Should, a s suggested, submit t o the Board their o w n
estimate o f earnings, t h e Board should n o t happen t o agree,
it could a t that time have a n examination made o f the bank,
and c o u l d d i r e c t t h a t c e r t a i n p r o b a b l e l o s s e s

off.

b e written

I t amounts t o practically t h e same thing,

There

May b e Some objection t o the language a s used b y the Board

there, but I think i t is technical.
Mr* Curtis: I

d o not t h i n k t h e Board h a s a n y right

to approve o r disapprove t h e declaration o f a dividend a s
such.

T h e y c a n require t h e writing d o w n o f assets.

They

can remove t h e directors i f they d o not like t h e w a y they
run the bank,

B u t t h e dividend i s legal, w h e n declared b y

the directors, o
t my mind, whether i t has the approval o f
the Board o r not.
Governor McDougal: I

believe w e are i n exactly t h e

Same position i n this regard a s that occupied b y national
banks w i t h t h e Comptroller o f t h e Currency.

The Chairman: I
Governor McDougal:
to ascertain,


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Federal Reserve Bank of St. Louis

agree with you, Governor. McDougal.
I t i s t h e Comptroller's business

t o his o w n satisfaction, whether t h e dividends

65
aS t h e y a r e p a i d b y national b a n k s a r e warranted.

H

e can

put the brakes on, i f he wants to, but he has got t o tell
them w h y h e i s d o i n g i t .
The Chairman: I

anticipate l i t t l e d i f f i c u l t y

i n per-

Suading t h e B o a r d t o m o d i f y t h e f o r m o f t h i s resolution. I

think i f i t i s represented t o them i n the proper w a y they
will s e c t h e p o i n t a t once.
Do y o u f e e l d i s p o s e d

t o take a n y action a t this meet-

ing i n regard t o the form o f resolution, Governor McDougal?
Governor McDougal: I

d o not know t h a t i t i s necessary

to t a k e a n y a c t i o n here. I

we will declare a

k n o w w h a t o u r B o a r d w i l l do.

dividend w h e n w e think i t i s time, a n d I

do n o t b e l i e v e t h e r e w i l l b e a n y i n t e r f e r e n c e f r o m t h e

Board under this 601, although t h e y reserve t h e right there
to s t o p us.
The Chairman:

H a s a n y o n e a n y suggestion

Governor Seay:

t o make?

T h e only dividend w e have h a d a n

opportunity

t o declare w a s d e c l a r e d

ead b y yous

w

i n the manner prescrib-

e w e n t a h e a d a n d f i x e d o u r dividend.

w

e de-

termined o u r o w n earnings, f i x e d o u r dividend, d e c l a r e d i t
and s u b m i t t e d
us a

i t t o t h e Board.

T h e Board thereupon sent

telegram a s k i n g u s t o hold u p t h e notification

dividend pending t h e receipt o f certain figures.

o f the

W e

sent t h e m t h e figures a n d they sent u s the approval o f the
dividend.

v e made t h e determination,

w o declared it, a n d

it w a s paid.
Governor Wold:
action


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Federal Reserve Bank of St. Louis

i n the mtter?

D i d y o u a s k t h e m f o r approval

o f your

66
Governor Seay:

w e did n o t ask f o r approval.

acted a n d t h e n s u b m i t t e d
proval,

i t t o t h e Board,

b u t w e merely submitted

h e

n o t for its ap-

i t a s w e would a n y o f o u r

acts.

Governor MeCord:

Governor Seay:

I

n compliance w i t h t h e i r request?

w e received a

request t o hold i t u p

until t h e B o a r d w a s f u r n i s h e d c e r t a i n figures.

The Chairman: P o s s i b l y w e . a r e justified, i n view
of the precedent, a n d the fact that dividends are not imminent i n some o f the banks,

t o pass t h e matter f o r the time

being.

Governor Miller:

H o w large a

dividend d i d y o u pay,

Governer S e a y ?

Governor Seay:

W e paid five p e r cent.

Governor Miller:
Governor Seay:

Y o u just l e t i t apply?
h

e l e t i t apply; y e s .

W

e have Since

paid the other one per cent, making the divivend complete
up t o the first o f January. I

might say, Mr. Chairman, w e

paid t h e other o n e p e r cent accumulated dividend w h e n w e
made t h e earnings, a n d w e advised t h e Board that

w e had

done s o .
Governor Miller:

Y o u d i d n o t w a i t f o r a n y particular

period?
Governor Seay:

N o .

I

t just happened

ly period, t h e first o f April.

t o be a

quarter-

W e concluded our earnings

were ample t o justify t h e payment o f the accumulated divident t o our banks under t h e law.


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Federal Reserve Bank of St. Louis

Governor Miller:

D i d you pay six and a

fraction,

to


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Federal Reserve Bank of St. Louis

take i n the month o e a half i n 19147
Governor Seay:

y

e paid five p e r cent f o r t h e period

of operation, fourteen months.

I n the second c a s e w e paid

the remaining o n e p e r cent f o r the entire period,

s o that

it w a s a t t h e r a t e o f s i x p e r c e n t f o r t h e f o u r t e e n m o n t h s
of operation.

I s i t your wish t o leave t h a t i t e m o n

The Chairman:

the program, i n a s m u c h a s i t m i g h t c o m e u p w i t h a n y o f t h e
other b a n k s a t a n y time, a n d t a k e n o a c t i o n o n i t today?

Governor Rhoads: I

would b e glad t o have Governor

Seay's committee continue t o give this special attention.
The Chairman:

I s that a resolution, Governor Rhoads?

Governor Rnpnoads:

The Chairman:

Y e s

2 .

I s there a n y further discussion?

(There was n o further discussion and the resolution
was duly carried.)
I

Governor S e a y :

t will b e regarced t h a t a l l ques-

tions a r e disposed of, i n the considerations o f our committee, except t h e question o f determining earnings, w h i c h w e
have just discussed?
The C h a i r m a n :

Mr. Curtis:

Y e s .

T h e next

i s No.

6.

M a y I go back for a moment t o Topic 3-(f).

3-(f) D I S P O S I T I O N O F MATTERS REPORTLD T O FEDERAL RESERVE
BOARD.

Mr. Cyrtis:

T h e cther matter that I

last meeting w a s this:

reported f r o m t h e

T h a t t h e Conference suggested that

the F e d e r a l R e s e r v e B o a r d b e r e q u e s t e d

t o consider t h e

advisability o f publishing t h e monthly earnings o f the

68
Federal r e s e r v e b a n k s - - -

t o b o t h t h e public a n d t h e m e m -

ber b a n k s - - - n o t m o r e f r e q u e n t l y t h a n o n c e a

preferably every s i x months.

quarter,

and

T h a t was tle other matter

to which I cahhed their attention.
The Chairman:
to t h a t matter,

D o y o u wish t o take action i n respect

o n which t h e B o a r d h a s n o t made reply?

Governor V a n Zandt:
publishing

D i a t h e y HOt: Y e p l y -to thatops

i t i n the bulletin?

Governor MeCord:

I . - t h i n k : t h e y did-rephy. b y - p u t t i n e

Lt:-in-the- Bulletin.
The Chairman:

Monthly?

Governor Rhoads:

Governor Seay:

Quarterly.

T h e y published the gross earnings,

not t h e net earnings.
The Chairman:

t h a t action G o y o u t}ich t o take o n this

matter, g e n t l e m e n ?

Governor Rhoads:

I t is m y understanding that they

propose t o publish t h e n e t earnings publicly.
Governcr Aiken:
bulletins. I

I s i t not s o stated i n one o f the

have t h e i m p r e s s i o n t h a t i t i s ,

Governor Seay:

The Chairman:

T h a t i s a l s o m y impression.

A r e y o u satisfied t o let t h e matter

rest without further action?

I n the absence o f any reso-

lution w e will l e t i t take that course.
The Chairman:

T h e next i t e m i s No. 6 .

REPORT O F CO:MITTEE O N ALLOTMENT O F WARRANTS A N D
ACCEPTANCES.

Governor Seay: I

would a s k that that b e passed.

The C h a i r m a n o f t h e c o m m i t t e e h a s a


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Federal Reserve Bank of St. Louis

full report.

T h e

69
committee itself w a s t o have h a d a meeting this morning a t
nine c ' c l o c k ,

b u t w e d i d n o t manage

t o h a y e t h a t meeting.

T h e explanation i s understood, a n d i t

The Chairman:
is s o ordered,

Governor Seay:

W h i l e t h e report i s complete,

the approval o f two members , which constitutes a

i t needs

majority,

and i f y o u will pass i t f o r the time being, w e will either
submit t h a t r e p o r t


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Federal Reserve Bank of St. Louis

or a

n e w one.

T h e aeons

The C h a i r m a n :

p e passed

will

a t the request

the C h a i r m a n o f t h e Committee.

The next item i s No. 7 ,

REPORT O F COMMITTEE T O PREPARE REPLY T O QUiSTIONS SUBMITTED B Y THE FLDERAL RESURVE BOARD TOUCHING FOREIGN
e
e
OPLRATIONS.
Mr. V a n Zandt, t h a t i s youritem.
Governor V a n Zandt:

G o v e r n o r Kains w a s t h e Chairman

the Committee, a n d h e told m e when h e left that h e h a d
preparation a

report w h i c h h e w o u l d c o m p l e t e

a S soon a s

he returned, t h a t h e would b e prepared t o present it; -but
he has n o t y e t returned, a n d t h e e e

P E i s therefore n o t

ready t o report.
The Chairman:
No. 7

I

n the absence

o f G o v e r n o r K a i n s Topic

will b e passed.

Governor Wold: I
the B o a r d o f t h e

C T S

think i t would b e well t o advise
w h y t h e y h a v e h a d n o response

e T h i s i s i n response
LnCiPatnOuULr y

to

t o a n inquiry m a d e b y

the Federal Reserve Board, a n d I think w e should advise t h e m

of the reason for the delay.

70
The Chairman:

D o y o u offer a

resolution requesting

the Secretary t o convey that information t o the Board?
Governor wold:

I f necessary I

offer s u c h a resolu-

tion.

(The resolution was duly seconded n d carried.)
The Chairman:

T h e next. is: Topic.8.

FORLIGN ARRANGEMENTS.
This i t e m bears somewhat o n item No. 7 .
call t h a t t h e d i s c u s S i o n

Y o u will r e -

a t o u r last conference h a d some

bearing o n m y g o i n g a b r o a d a n d t a l k i n g w i t h t h e bankers o v e r
there.
I have t a l k e d w i t h a l l t h e bankers

less, a n d t h e result i s that I

i n Europe, m o r e o r

brought h o m e personally some

rather definite ideas o f what w e ought t o d o about this m t ter.

I t i s a matter o f very great importance j u s t now,

and, w i t h your assent, I

would like first t o have a little

informal t a l k with some members o f the Reserve Board o n

the subject before going into i t i n detail. I

have taken

the liberty o f arranging t o meet Governor Hamlin and Governor Delano a t luncheon today,

t o have a

little private i n -

formal c h a t with them, t o sound o u t t h e ground a n d s e e
whether t h e Board has a n y definite views a s t o what w e should
do a n d h o w f a r w é s h o u l d g o i n f o r m i n g o u r a r r a n g e m e n t s

abroad, a n d s o on. P o s s i b l y this afternoon I could make
some r e p o r t h e r e , a n d c o u l d d o i t p o s s i b l y t o b e t t e r

advantage t h a n I can now, before consulting them. F u r t h e r more, t h e q u e s t i o n o f o u r a r r a n g e m e n t s a b r o a d i n v o l v e s s o m e
matters t h a t a r e n o t s t r i c t l y b a n k i n g m a t t e r s ,


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Federal Reserve Bank of St. Louis

and I

would

ee §
hesitate t o g o into a discussion a t length here without
having t h e Board,

as a

matter o f courtesy, u n d e r s t a n d t h a t

we are going t o d o So.
Therefore, unless objection i s made, w e will wait
until a f t e r l u n c h t o t a k e u p T o p i c N e . 8 .
The -next-topie:

i s No.2:

9. I N Q U I R I E S F R O M FEDERAL RESERVE BOARD RLLATIVE T O RESERVE A N D CENTRAL RESLRVE CITIES.
I understand t h a t s o m e d a t a h a s b e e n p r e p a r e d s i n c e

the last meeting, w h i c h probably h a s reached y o u r hands,
and y o u m a y have Something definite t o suggest. responsive
to t h i s topic.

Gentlemen, have you anything to propose o n this matter?
It t S a pretty important matter, affecting a

readjustment

of the country's reserve roquirements.
Governor McCord:

D o y o u not think that sShoyld b e

left open until after some determination i s made o f the
matter o f clearing checks?
Mr-e Tupper:

A f t e r November 1 , 1917 there will b e

no distinction between central reserves a n d other resérves.

he Chairman: E x c e p t a s t o the amount o f reserves,
You will recall thet the Federal Reserve Board has had i n
mind t h e readjustment o f the reserve cities a n d central r e serve cities o f the country might b e t h e means o f accomplish~
ing two things.

T h e first thing accomplished would b e

the lapping u p o f some o f the country's surplus reserve a n d
the s t r e n g t h e n i n g

o f t h e banking situation b y appointing

additional central reserve ¢ities, automatically increasing


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Federal Reserve Bank of St. Louis

72
+the r e s e r v e o f banks:

i n t h o s e cities;

t h e other i s t o use

it a S a weapon t o bring recalcitrant banks i n t o o u r voluntary c o l l e c t i o n system.
he s e c o m p r o p o s i t i o n n e v e r a p p e a l e d

strongly.
ways.

t o m e very

T h e first proposition does appeal t o m e i n some

T h e r e a r e many cities i n the United States t h a t a r e

not reserve cities, where the. banks figure their reserve -on
the country bank basis, where i t i s a perfect anomoly. A
city l i k e Buffalo,

w i t h 500,000 inhabitants,

eighth largest b a n k i n the United States,
to c a r r y a

twelve p e r c e n t reserve.

a n d with the

i s only required

T h a t seems absrud,

particularly when y o u consider that there a r e banks i n the

southwest i n cities o f 25,000 o r 50,000 inhabitants that are
reserve c i t i e s a n d a r e r e q u i r e d
Governor V a n Zandt:

south, Memphis,

i s not a

Governor McDougal:

t o c a r r y 1 5 p e r c e n t reserve.

O n e o f the largest cities

i n the

reserve city.
M r . C h a i r m a n , h a v e y o u a n y figures

indicating the reserves A¢that the Buffalo banks havo carried?
The Chairman: I

think y o u will probably find, Gover-

nor McDougal, t h a t t h e y have carried reserves i n excess o f
l2 p e r cent, b u t t h e y h a v e l a r g e l y b e e n d e p o s i t e d w i t h t h e i r

reserve agents.

T h e y have not. been cash reServes i n their

vaults.

Governor McDougal:

I t i s quite pos s i b l e that some o f

those banks have carried ample reserves f o r their needs.
Governor McCord:

I t i s also possible f o r them t o carry

it i n national b a n k notes, w h i c h privilege i s denied other
cities.


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Federal Reserve Bank of St. Louis

73
Governor Seay:

I n the country national banks---

Governor McCord:
nor Seay.
required

H e i s referring t o Buffalo, Gover-

T h e y carry a n excess reserve thatthey a r e n o t
t o carry.

T h e y a r e n o t required

per c e n t i n lawful money.

t o carry b u t 1 2

T h e y a r e permitted

t o carry

whatever o v e r p l u s t h e r e m a y b c i n national b a n k notes,
whereas t h e o t h e r c i t i e s a r e n o t p e r m i t t e d

t o carry t h e

national b a n k

Governor S $ :

T h e y d o not count a s fash reserve,

though.
Governor Wold: I

a m o f the opinion that after Novem-

ber, 1917, t h e designation o f central reserve cities will
not b e necessary,

T h e y will a l l b e reserve cities, a n d

instead o f designating t h e m a s reserve cities t h e y should
be reserve banks.

A n y bank that carries t h e account o f

any other bank, whether state o r national, should b e required t o c a r r y t h e r e s e r v e r e q u i r e d o f a
bank.

reserve c i t y

T h e question o f population h a s n o bearing u p o n i t

at all.

M a n y o f the banks i n New York c i t y d o not accept

accounts f r o m o t h e r banks.

I

t i s t h e nature o f t h e busi-

ness t h a t t h e b a n k i s t r a n s a c t i n g t h a t r e q u i r e s t h e l a r g e r
reserve, r a t h e r t h a n t h e c i t y i n w h i c h t h e y h a p p e n t o b e

doing business.
Governer Seay:

T h e y all carry it, but n o t i n cash.

Governor Wold:

N e w Y o r k C i t y banks w o u l d b e exactly

upon t h e s a m e b a s i s a s C e d a r Rapids, I o w a , f o r instance,

after November, 1917.
be r e q u i r e d
40°06.


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Federal Reserve Bank of St. Louis

t o carry a

T h e r e i s n o reason w n y they should
greater r e s e r v o u n l e s s t h e y w i s h

1 0 t o r “themselves:


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Federal Reserve Bank of St. Louis

74
Gwernor Seay:

T h e c o u n t r y banks,

a t t h e l a s t report,

were carrying i n their vaults only 5-3/4 per cent o f
their n e t deposits.

Governor Wold:
The Chairman:

T h e balance o f i t was d u e from.
A

t our last meeting, w h e n this memoran-

dum was first submitted,

w e voted that i t was impossible

for u s t o give a n y intelligent reply t o the query o f bhe
Board without fully studying t h e situation i . the various
cities o f the country. I

think y o u will recall w e felt

that t h e cities o f the country should b e classified, p o s sibly according t o population a n d bank resources, a n d that
a study s h o u l d b e made o f local conditions
cities

t o determine t h e merits

i n each o f thoso
t o

o f t h e particular case,

determine whether any change was justified o r required for
I f

the designation o f reserve a n d central reserve cities.
we should c o m e t o t h e c o n c l u s i o n ,

a f t e r examination,

that

Changes were required--- a n d I think that possibly might
be the case--— would w e consider i t wise t e introduce that
further element o f discord i n t o t h e situation a t this time,
or s h o u l d

i t n o t b e deferred u n t i l o t h e r matters t h a t a r e

liable t o cause discord, have been dealt with and smoc thed
out.

W e have t o deal with this whole collection matter,

and possibly w e are going t o deal w i t h i t finally.

w

e

may deal w i t h i t i n the way that s o m e o f the banks m a y consider arbitrary.

D

o w e w a n t a t t h i s t i m e t o introduce a

further b o n e o f contention t o cause dissatisfaction?
Governor Miller: I
Governor Seay: I

do nc’ t h i n k w e do, Mr. Chairman.
move it- 4 6 t h e sense o f the Confer=

75
t o take a n y action w i t h a

ence t h a t i t i s p r e m a t u r e

view t o

altering t h e status o f reserve a n d central reserve cities
at this time, b u t that t h e study o f t h e situation should b e
continued.

The Chairman: P e r s o n a l l y that i s what 1 think ougnt
to b e done, Governor Seay.
resolution

T h e trouble i s i f w e leave t h e

i n that f o r m w e d o n o t o f f e r a n y c o n s t r u c t i v e

suggcStion t o the Board a s t o the means o f arriving a t a
decision a s t o what should b e done when t h e time comes t o
do it.

n a t i s just what w e want t o avoid

Governor Seay:

right now, that i s , offering a n y defined suggestions t o the
Board. I

believe t h a t before suggestions a r e offered t h e

matter s h o u l d c o n t i n u e


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Federal Reserve Bank of St. Louis

The Chairman:

t o b e o n e o f examination.

T h a t i s just t h e point.

H o w are w e

going t o have a n examination made unless w e sugecst s o m e
machinery f o r doing it. S h o u l d w e d o it? S h o u l d t h e Federal Roserve Board d o it, o r should i t b e done b y the Comptroller?
Governor Seay: I
have

i t aS a

had i n mind that t h e Board should

continuing subject,

just

a s w e have

i t o n our

program here.

The Chairman:

H o w would i t d o for u s t o have a

com-

mittee o f the Governors examine a n d report u p o n t h e figures
that have b e e n submitted, a n d report a s t o whether a n y further d a t a i s required?

Governor Seay:

T h a t might effect what I

had i n mind,

sir, a n d that i s t o keep t h e matter under analysis a n d study.

76
Mr. Tupper?

I f I may make a suggebtion, Suppose w e

hold u p a c t i o n o n t h a t t o p i c u n t i l w e h a v e h e a r d f r o m t h e

collection a n d mieinanis committee.

“ T h e plan that w e adopt

with referente t o handling cheeks m a y vitally affect the reServes that are necessary t o be anedes i n Central reserve
cities

said:

o r other r e s e r v e c i t i e s , j u s t a s G o v e r n o r S e a y h a s

A f t e r hearing the report o f the Committee w e will

be able t o Say whether o r not w e need more data.
Governor McCord:
Wold,

R e f e r r i n g t o the remarks o f Governor

i n which h e s a i d t h a t t h e q u e s t i o n o u g h t

up b y t h e individual banks, I

t o b e takon

wish t o cite h i m Section ll,

paragraph (e).
Governor Wold: I
That w o u l d r e q u i r e

u n d e r s t a n d w h a t y o u a r e g e t t i n g at.

a n amendmj@t

t o the

what m y thought w a s o n the matter,

a e

I

have stated

I t i s not a question o f

where the bank i s doing business that should regulate the
reserve, b u t i t i s a question o f the character o f business
it i s transacting.
The Chairman:

H a s n o t t h e Board power t o change t h e

designation without a n y further legislation?

Governor McCord:

Y e s . P a r a g r a p h (e), Section ll,

of the Federal Reserve Act, reads a s follows:
"To add t o the number o f cities classified a s reserve
and central reserve cities under existing l a w i n which
National banking associations a r e subject t o the reserve
requirements s e t f o r t h i n S e c t i o n 2 0 o f t h i s Act;

o r t o re-

Classify existing reserve a n d central reserve cities,

terminate their designation a s such.”


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Federal Reserve Bank of St. Louis

o r to

T h e y have complete power.

The Chairman:

T h e y could change t h e reserve cities,

Governor Wold:

put t h e y h a v e g o t t o r e q u i r e t h e s a m e r e s e r v e s f r o m a l l t h e

member banks i n that city.

W h i c h i s v e r y unsound policy.

The Chairman:

Y e s , i t seems t o m e i t is.

Governor ‘old:

T h e r e i s n o d o b t about it.

The Chairman:

Governor Van Zandt:
the r i g h t

T h e y c a m o t differentiate.

H a s not the Federal Reserve Board

t o set aside o r modify a n y reserve requirement

undor the Federal Reserve Act?
N o t a s t o a n individual bank.

Governor Wold:

T h a t

is f i x e d b y statute.
will a c c e p t t h a t s u g g e s t i o n a s a

Governor Seay: I

sub-

stitute f o r m y motion.
W

The Chairman:

o h a v e t w o suggestions.

O n e is to

defor action until after t h e collection matter i s discussed,
or make i t a part o f the discussion c f the collection matter,
and t h e o t h e r i s t o appoint a

committee

t o make further

investigation o f dda.


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Federal Reserve Bank of St. Louis

Governor Fancher:

M i g h t not this Conference make

inquiry o f the Board a s t o whether they have further da t a
that t h e y wish t o submit t o us?

will sccond Governor Seay's motion.

Mrs Calkins: I
Governor Seay:

T h a t i s t o say, I

have accepted t h e

subtitution b y Governor Strong a n d y o u agree t o that?
Mr- Calkins:

Yes.

Governor Strong:

W h i c h comes first, t h e suggestion

of Mp. Tupper o r the suggestion o f Governor Strong?

The Chairman:
Mr-+ Calkins:

other.

4 e @ might d o both.
O n e would a u t o m a t i c a l l y a c c o m p l i s h t h e

C o n t i n u e d consideration would c a u s e t h e Board t o

consider what i s contained i n Mr. Tupper's Suggestion.
The Chairman:
Mr-e Tupper:

T h i s motion h a s been seconded.
I

t h a s b e e n o f f e r e d a s a n amendment.

The Chairman:

I n addition t o that i t i s moved thatthe

Subject b e c o n s i d e r e d

i n connection w i t h t h e consideration

of t h e c o l l e c t i o n plan.
Mr+ Calkins:

I

f Mr. T u p p e r w i l l s a y s u b s e q u e n t

t o

considering t h e collection p l a n I will agree.
Mr. Tupper:

Y e s , subsequent

The Chairman:

t o that.

T h e motion i s that a committee o f this

Conference b e appointed t o consider t h e

d a t a submitted

by the Federal Reserve Board a n d ascertain whether further
data i s necessary s o that consideration o f the subject
Shall b e continued.
_Governor Wold:

W h y not s a y what w e mean a n d tell t h e m

that t h e time i s premature;

t h a t this i s not the time t o

discuss t h e question o f changing reserve requirements o f the
banks i n reserve cities; t h a t w e should allow t h e matter
to r e s t a n d i n t h e m e a n t i m e g i v e i t study; t h a t t h e b a n k s
are a l l e x e r c i s e d n o w a s t o different r e q u i r e m e n t s ,

a n d that

we d o not want t o exercise t h e m a n y further?
Governor S e a y :

The Chairman:
gentlemen,

T h a t covers

m y original m o t i o n .

W h o n w e get into a tahgle o f this sort,

w e usually a s k t h e Secretary t o frame a

resolu-

tion, a n d w e will a s k t h e Secretary t o reconcile a l l these


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Federal Reserve Bank of St. Louis

79
irreconcilable views a n d draw a res: lution.
we w i l l h a v e t h i s r e s o l u t i o n

A f t e r lunch

i n f o r m t o consider.

That brings u s through about half o f the program b e fore lunch.

M a n y o f the other items, w i t h the exception

of No+ 14, c a n b e dealt w i t h i n very short orcer. I
therefore e n t e r t a i n a

(Whereupon,

will

motion t o a d j o u r n f o r lunch.

a t 12:45 o'clock p . m., u p o n motion duly

seconded, t h e Conference adjourned until 2:15 o'clock p.m.

of the same day.)


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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

AFTERNOON SESSION.

The C o n f e r e n c e r e c o n v e n e d

a t t h e expiration o f the

recess.
Mr. Curtis:

M r e Chairman, I

tion b y G o v e r n o r S e a y w h i c h 1
pefore r e c e s s .

L

have p r e p a r e d t h e r e s c l u +

was requested

t o prepare,

t 328 "as f o l l o w s :

RESERVE A N D C E N T R A L R E S E R V E CITIES.
Voted t h a t a

committee

consider t h e d a t a p r e p a r e d

b e appointed

b y the Chair t o

b y t h e Federal R e s e r v e B o a r d ,

such committee t o report t o the next conference u p o n t h e
advisability o f recommending action i n the premises.
The Chairman:

T h a t i s offered

Governor W o l d : I

b y G o v e r n e r Seay.

second it.

(There was n o discussion a n d t h e resolution was duly
passed.)
The Chairman:
toda y

G o v e r n o r Hamlin informed m e a t lunch

that t h e y have s e n t these papers o v e r (indi cating

package o f papers o n Chairman's table) consisting o f a
memorandum o f c e r t a i n p r i n c i p l e s

t o b e followed

i n the pre-

paration o f plans f o r clearing a n d collecting checks, a n d
also t o a d v i s e u s t h a t t h e c o m m i t t e e c o n s i s t i n g

o f Messrs

Delano a n d Harding would b e very glad t o sit i n with u s
during t h e course o f our diseussion o f that subject.

M r .

Delano m u s t b e i n New York tomorrow, a n d I said that w o
would communicate w i t h h i m o r with Mr-.Harding a s t o when
n
o G o v e r n o r Hamlin
we were proparcd t o begin that d i s c u s s i .

81
seemed t o think i t was desirable b o t h should b e present,

as

they represented somewhat divergent views o n the subject,
and t h e y d i d n o t w a n t o n e t o h a v e a n y a d v a n t a g e o v e r t h e

S o I su,gested that w e might have a

other.

preliminary

canter tomorrow, w h e n Mr. Delano would b e away, a n d invite


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Federal Reserve Bank of St. Louis

thom i n on Wednesday for the balance o f our meeting, which

they seemed t o think was all right.
Governor Van Zandt! I
Mrs Tupper: I

so move, Mr- Chairman.

second thé motion.

(There w a s n o d i s c u s s i o n a n d t h e m o t i o n w a s a u l y d a b -

ried.)
(The memorandum sent b y the Board t o the Conference i s
as follows:
" M E M O R A N D U M .
OF T H E GENERAL PRINCIPLES T O B E FOLLOWED
IN THE PREPARATION O F A CHECK CLEAR~
ING AND COLI: CTING PLAN.
Washington, D . C.,
April:17, 1916.
Introduction:

The Federal Reserve Board h a s n o plan a n d h a s n o
wish t o s u g g e s t

"olan".

t o t h e Governors

o f t h e B a n k y a n y specific

I t considers that this is a problem for the ixecu-

tive Offices o f the Federal Reserve Banks t o work out.
However,

i n working o u t their p l m , t h e Governors should

bear i n mind a n d adhere t o the following general propositions:

First:
It i s t o b e noted that b y May 16, 1916, a

large

82
part o f t h e N a t i o n a l b a n k r e s e r v e s w i l l h a v e b e e n t r a n s -

ferred, a n d that b y November, 1917, t h e final transfers
will h a v e b e e n made.

B

y that date,

a t t h e batest,

each Federal Reserve B a n k must b e i n readiness t o
render f o r its member banks t h e service o f check
Clearing a n d colleetion.

T h i s , however, d o e s n o t m e a n

that a n y Federal R e s e r v e B a n k i s e x p e c t e d o r r e q u i r e d
to render t h i s s e r v i c e w i t h o u t c h a r g e o r f o r l e s s t h a n
cost.

Second:

While the opinion of the Attorney Genefal has not yet.
been rendered, informal talks w i t h members o f his
Staff s e e m t o indicate that that office regards t h e
language

o f S e c t i o n 1 6 o f t h e Act,

i n which t h e f o l -

lowing phrase i s used:

"Ivery Federal Reserve Bank shall receive o n
deposit a t par from member banks o r from Federal
Reserve Banks, checks and drafts drawn fpon any
of its depositors,"
aS meaning that these checks m u s t b e credited u p o n

receipt, a t full face value.

I t does not necessarily

follow, however, that Federal Reserve Banks would permit items thus credited t o b e drawn against i n anti-

cipation of collection, that they would not be fully entitled t o charge t h e cost o f collection, interest o n the funds
advanced, e t c ,

Third:


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Federal Reserve Bank of St. Louis

It is expected that every Feceral Reserve Bank will
approach t h i s s u b j e c t f r o m a

p u r e l y practical, r a t h e r

than a theoretical standpoint a n d will, s o far a s prac-

B83
ticable adhere t o the banking practices w h i c h t h e last

fifty years have developed.
has n o d e s i r e

T h e Federal Reserve Board

t o compel m e m b e r b a n k s

t o d o their check

clearing a n d collection through t h e Federal Reserve Banks,
but i t does expect t h e Federal Reserve Banks t o offer this
service t o their member banks o n substantially a s favorable
terms a s the larger banks o f the b i g cities, heretofore
acting a S r e s e r v e a g e n t s f o r t h e i r c o u n t r y b a n k clients.

A system o f check clearing which might b e perfectly satisfactory i n theory,

b u t u n d e r w h i c h n o business w o u l d b e

done, could hardly b e considered a s a satisfactory solution
of t h e p r o b l e m

Fourth:
It follows f r o m t h e foregoing that t h e Board does
net contemplate t h e adoption o f a plan which shall b e mandatory o r c o m p u l s o r y u p o n t h e m e m b e r b a n k s

Reserve System.

o f t h e Federal

T h e Board will, however, require e a c h

Federal Reserve B a n k t o establish, within t h e near future,
‘for s u c h o f its member banks a s desire t o avail themselves
of it, a

system o f check clearing a n d collection a t least

comparable w i t h t h a t i n general u s e i n t h e country; t h a t

is shall analyze carefully t h e cost o f its service a n d
charge these members t h e actual c o s t o f the service ren-

dered."

6. R E P O R T O F COMMITTEE O N ALLOTMENT O F WARRANTS A N D
ACCEPTANCES.
The Chairman:

G o v e r n o r Seay, h a v e y o u held y o u r

meeting o n the allotment matter?


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Federal Reserve Bank of St. Louis

84

Governor Seay!
repat now, sir.

Y e s sir: I believe w e dare prepared t o

W h e n this report i s read aloud these

gentlomen m a y f i n d s o m e t h i n g

i n i t that t h e y did n o t think

there was there before.
The Chairman:

H a s this report b e e n submitted i n de-

tail t o all t h e Governors?
Governor Seay:

I t has not,

I t was just handed i n

today.
The Chairman:

A r e there a

sufficient n u m b e r o f c o p i e s

to g o around?

Governor Seay:
The Chairman:

S e s Sirs
i t i s “rather. lone.

Governor Seay:

T h e text i s n o t a t all long.

I t is

just t w o a n d a quarter pages.

The Chairman: I

guess you had better read it, Mr.

Curtis.
Mr- Curtis:
appointed

T h i s i s t h e report o f t h e Committee

b y t h e Corf erence o f Governors

for t h e a p p o r t i o n m e n t

t o recomend a

basis

o f investments m a d e b y o n e F e d e r a l

Reserve B a n k f o r the other Federal Reserve Banks.

I

t is

as follows:
Report o f C o m m i t t e e A p p o i n t e d b y t h e
Conference o f Governors t o R e c e m m e n d a Basis f o r
-the A p p o r t i o n m e n t o f I n v e s t m e n t s m a d e b y o n e F e d cral R e s e r v e B a n k f o r t h e o t h e r F e d e r a l

Reserve

Banks.
This c o m m i t t e e

@

m e t a t t h e Federal

Reserve

Bank

o f New

Y o r k on February 23rd, 1916.
Inasmuch a s N e w Y o r k C i t y i s t h e c h i e f m a r k e t

i n which

such investments h a v e i n the past b e e n purchased, a n d since


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Federal Reserve Bank of St. Louis

85

the majority o f such purchases have b e e h made b y the Federal R e s e r v e B a n k o f N e w Y o r k u p o n o r d e r s f r o m o t h e r Federal

Reserve Banks, a n d inasmuch a s N e w York City i s likely t o
continue t h e c h i e f m a r k e t

i n which s u c h purchases

i n the

future w i l l b e made, t h e c o m m i t t e e i n v i t e d i n t o t h e d i s c u s -

Sions t h e officers c f the Federal Reserve B a n k o f New York,
whose i n t e r e s t s w i l l b e a f f e c t e d

i n proportion

t o its very

large r e q u i r e m e n t s .
The c o n c l u s i o n s

o f the committee a r e embcdied

i n the

following recommendations t o t h e Conference o f Governors.
FIRS?

T h a t investments m a d e b y o n e Federal Reserve

Bank u p o n o r d e r s f r o m o t h e r F e d e r a l R e s e r v e B a n k s
tioned u p o n t h e b a s i s

o f t h e necessities

b e appor-

o f each Federal

Reserve B a n k t o m e e t i t s a n n u a l c u r r e n t e x p e n s e s a n d d i v i -

dent requirements.

T h e basis o f cistribution shall b e t h o

proportion which t h e net requirement o f each Federal Reserve
Bank b e a r s
Banks,

t o t h e requirements

T h e n e t requirement

o f a l l t h e Federal R e s e r v e

i s t o b e computed

the e s t i m a t e d c u r r e n t e x p e n s e s

b y taking

o f e a c h bank, p l u s t h e d i v i -

dent r e q u i r e m e n t a n d d e d u c t i n g t h e r e f r o m t h e e s t i m a t e d
earnings.

SECOND:

T h a t current expenses shall b e computed

according t o the analysis prescribed b y the Federal Reservo
Board.
THIRD:

T h a t current earnings o f Federal Reserve Banks

shall include earnings f r o m all sources.
FOURTH:

T h a t t h e statement o f earnings a n d expenses,

upon w h i c h t h e a p p o r t i o n m e n t
terly.


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Federal Reserve Bank of St. Louis

i s made, s h a l l b e a d j u s t e d q u a r -

86
Piven

T

o b e g i n with, e a r n i n g s a n d expenses f o r t h e

quarter ended March 3lst shall b e used a s a basis f o r distribution o f investments m a d e during t h e wuarter following.
Sie les T h a t inasimech a s N e w Y o r k C i t y i s t h e c h i e f

market i n which such investments a r e likely t o b e made,
the local situation o f the N e w York Bank entitles i t t o
particular consideration.

SEVENTH :

I t is, therefore, recommended t h a t t h e neces-

sities o f t h e N e w Y o r k B a n k t o m e e t i t s e x p e n s e s a n d d i v i -

dend requirements b e recognized a s entitling that bank t o
make f o r itself a

minimum amount c f investments before

executing t h e orders o f t h e other Federal Reserve Banks i n
that maker.
DIGHTH:

T h a t this minimum amount

o f investments

for

the ¥quarter beginning April lst b e $25,000,900, which
sum a t t w o p e r cent. a n n u a l i n t e r e s t w o u l d y i e l d a n income

which would about cover t h e current expenses o f the N e w York
Bank.

NINTH:

T h a t after t h e necessities o f the N e w York

Bank h a v e b e e n m e t i n this m a n n e r i t s h a l l s h a r e i n t h e
apportionment

recommended

TENTH:

o f surplus investments

i n Article I

m a d e upon t h e basis

o f t h i s report.

I t i s t o b e taken into account t h a t t h e N e w

York Bank i n making investments f o r its o w n account, a n d
that o t h e r b a n k s m a k i n g i n v e s t m e n t s f o r t h e i r o w n account,
may a c q u i r e d a

larger l i n e o f a

can l e g a l l y b e held,

particular i n v e s t m e n t t h a n

i n w h i c h c a s e s t h e surplus w i l l b e

apportioned a m o n g t h e o t h e r F e d e r a l R e s e r v e B a n k s


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Federal Reserve Bank of St. Louis

i n propor-

tion t o t h e i r n e t r e q u i r e m e n t s ,

a s shown i n table II:

Appended t o this report i s a statement showing t h e
earnings a n d e x p e n s e s

o f e a c h Federal Reserve B a n k f o r t h e

quarter e n d e d M a r c h 3ist, a n d t h e a n n u a l d i v i d e n d r e q u i r e ment b a s e d u p o n o u t s t a n d i n g c a p i t a l

a t t h a t date.

I t

is computed that t h e annual expenses a n d earnings o f each
bank w i l l b e a t t h e r a t e o f t h e e a r n i n g s a n d e x p e n s e s s h o w n

for t h e first quarter.

T h e percentage o f distribution i n

the caso o f each bank i s shown i n the tables appended.
The c o m m i t t e e f u r t h e r recommends:

That w h e n a n y Federal Reserve B a n k purchases i n the
open market warrants a n d acceptances created i n another district, i t make s u c h purchases o n l y a t the rate which t h e
Federal Reserve B a n k o f that district recommends o r would
be willing t o pay f o r the investment.
This i s t o prevent injurious competition between Federal
Reserve Banks, a n d t o further prevent brokers f r o m taking


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Federal Reserve Bank of St. Louis

the market a w a y f r o m the Federal Reserve Banks a n d bring
them i n t o c o m p e t i t i o n w i t h e a c h other.

Governor Seay: I
mendations

will state i n ciscussing t h e recom-

o f that report t h a t t h e r e w e r e t w o bases f o r

distribution which w e r e discussed.

I t was agreed i n com-

mon that t h e requirements o f each bank, t h a t is, t h e dividend r e q u i r e m e n t s ,

a n d the necessity o f meeting i t s c u r -

rent expenses should b e t h e basis o f distribution.

T h e

object i s t o enable t h e Federal Reserve Banks t o earn their
expenses a n d d i v i d e n d s a n d t h e r e f o r e t h e n e t d e f i c i t w o u l d b e

perhaps t h e most logical a n d equitable ground o f distribu-

tion.

There were t w o crounds o f discussion.

O n e was that t h e

carnings c f each bank from its local Situation, excluding
the c a r n i n g s d e r i v e d f r o m a p p o r t i o n e d i n v e s t m e n t s ,
be t h e basis.

Should

T h e other w a s t h a t since t h e net deficit

was the real thing to be covered, the het deficit; after
allowing f o r 4 1 1 e a r n i n g s a m d expenses, S h o u l d b e t h e r e a l
ground o f distribution;

a n d that i s the opinion o f the

committee.

B u t I will state that-in t h e table there s s

calculated

a n estimate

First,

c f d i s t r i b u t i o n w h i c h c o v e r s both.

t h e deficit,

n o t including apportioned invest-

ments, and, second, t h e deficit inelud 4 g apportioned invest-

ments.

T h e Committee, s
a stated in the text of the report,

recommends t h a t t h e deficit, a f t e r t h e i n c l u s i o n o f a l l

items o f expense a n d earnings, bce the real basis o f distribution.

There will arise fases where t h e Federal Reserve Bank
of N e w York, f o r instance, m a y purchase more o f a certain
class c f i n v e s t m e n t t h a n i t c a n h o l d o r m a y w i s h t o hold.

In that case i t will apportion t h e excess among a l l t h e
other F e d e r a l r e s e r v e b a n k s ,

a n d t h a t requires a

cifferent

percentage table o f distribution, w h i c h i s worked o u t i n the
Second t a b l e there. ,

Tho same thing is true of all the banks.

A n y bank

May purchase more o f a particular investment t h a n i t c a n
hold, a n d i n distributing t h e excess t h e ratio i s Worked o u t

in tnat second table.

T h e bank could then exclude its
the

own S i t u a t i o n a n d distribute a m o n g a l l t h e o t h e r s
tion t h e d e f i c i t


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Federal Reserve Bank of St. Louis

o f each bank bears

t o the dcficit

i n proporo f all

the others.

The Chairman:

T h e n y o u recommend t h e percentages a p -

pearing i n the last line o f the first table?
Governor Seay:
The Chairman:

Y e s sir.
W h i c h a r e t h e percentages applying where

New Y o r k i s , f o r instance,

t h e last l i n e i n the first table?

Governor Seay: S t r a n g e t o say, percentage i s such a

peculiar thing that New York would b e entitled t o a larger
percentage a f t e r s u p p l y i n g i t s o w n needs, a f t e r i n c l u d i n g

apportioned investments, t h a n i t would before.

T h e last

line i s the percentage basis recommended b y the committee.
Governor V a n Zandt:
Governor Seay:
first report.

T h a t is, line 15?

T h e last line, t h e very bottom o f t h e

I n other words,

i n the case o f Boston i t i s

6.13, N e w York 24.42, a n d s o on.

Governor McDougal:

N o w , Governor Seay, explain this

line 14, across t h e page?
Governor Seay:
the l o c a l o p e r a t i o n s

T h a t i s t h e net deficit arising f r o m
o f e a c h F e d e r a l R e s e r v e Bank.

includes i t s earnings, e x p e n s e s ,

T h a t

a n d different earnings f r o m

discounts a n d warrants p u r c h a s e d w i t h i n i t s o w n district,

and exchange, a n d promiscuous earnings, a n d does n o t include
the income derived f r o m investment which N e w York has given
it o r cther Federal Reserve Banks h a v e given it.
Stated, i n a s m u c h a s w e a l l h a v e a

B u t , as

deficit w h i c h h a s t o b e

made up, i t was thought t h a t t h e final deficit should b e
the logical basis o f distribution, and, inasmuch a s i t has
to b e redistributed every three months a n d a n y inequities


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Federal Reserve Bank of St. Louis

90

and inequalities will b e corrected,

i t does n o t matter v e r y

materially which O F the two you select.
Mr. Strong, t h e officers o f your bank were i n discussion with t h e Committee, a n i I

believe everything I have s a i d

was discussed then, a n d s o far a s w e know n o w t h e basis i s
acceptable

t o those o f t h e officers

o f the N e w York bank w h o

gave the committee the benefit o f their own position.
The Chairman:

E a r n i n g s h a v e losked u p a bit since I

was away, have t h e y not?
Governor Seay:

Y e s sir.

Y o u r investments h a v e i n +

creased t o about $16,000,000. A t t h a t time it was necessary
for you t o purchase about eleven millions.

about 1 6 o r 17 millions invested,

N o w there are

s o that you have t o g o

very little further before y o u will begin a distribution.
There w a s a n o t h e r p o i n t considered.

S i n c e N e w York

would n o t begin t o distribute until after i t has purchased


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Federal Reserve Bank of St. Louis

its 2 5 millions, i t was a t o n e t i m e thought that i n this
report w e should arbitrarily put down the New York bank as
if i t h a d p u r c h a s e d

2 5 millions;

b u t since t h e matter would

be corrected@-——

The Chairman:

Governor Seay:

I t has been corrected already, h a s i t

I t i s not quite corrected yet+ Y o u

will n o t b e g i n a n y d i s t r i b u t i o n u n t i l y o u h a v e p u r c h a s e d

about n i n e millions i n investments--—
The Chairman: I

think y o u are mistaken about that.

Mr- Curtis: I

think o u r investments a r e 3 6 million.

Governor Seay:

I n the last week o r so?

91
The Chairman: I

investments.

think w e a r e r e a d y t o distribute

A r e w e n o t distributing now?

Governor Fancner:

O h , yes; y o u a r e distributing now.

The Chairman: I

think w e have b e e n for sone time.

Mr- Curtis: I

Governor Seay:

t h i n k w e h a v e 3 6 millions i n v e s t e d n o w .

T h e n y o u should begin your distribu-

tion.

The Chairman: I

saw from a report p u t o n m y desk o n

Friday that w e had distributed o v e r twelve million, I

be-

lieve.

Governor S e a y:

S o much the botter.

Governor Wold:

5 5 millions o n April 7.

Governor S e a y :

T h i s report i s a l l t h e more logical

and forceful, then.

I t , applies t o the present situation

and g o e s i n t o e f f e c t immediately.

Governor ¥old:

I t has n o reference t o accumulated

dividends?
Governrr Seay:

for that.
amount

T h e N e w York bank c i d n o t contend

T h e New York bank centended that i f the minimum

o f investments

were s a t i s f i e d

took care

t o begin a

The Chairman: I

o f its current expenses

distribution

they

a t t h a t time.

a m glad t o s a y t h e y a r e s t i l l p l a y i n g

according t o form.
Governor Seay:

I f the N e w York bank has changed i t s

attitude i n that respect, why, then, a

different basis o f

distribution w o u l d h a v e t o b e recommended;

b u t that was

satisfactory t o the N e w York bank a t t h e time t h e Committee
had i t s meeting.


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Federal Reserve Bank of St. Louis

92

The Chairmant
of heart. I

T h e y have not advised m e o f any change

imagine i t i s going t o b e satisfactory.

Governor Wold:

U n d e r t h i s p l a n , G o v e r n o r Strong,

that y o u r b a n k h a s t e n millions
ceptances

o r warrants

say

o f invested assets a n d a c -

i n quantity larger t h a n y o u would c a r e

to handle f o r your o w n bank were offered, y o u would only
buy e n o u g h t o t a k e c a r e o f y o u r o w n w a n t s a n d w o u l d n o t
purchase a n y f o r o u t s i d e b a n k s ?

Governor Seay:

T h i s contemplates that the New York

Bank w o u l d p u r c h a s e u p o n t h e o r d e r o f o t h e r F e d e r a l R e s e r v e
Banks,

a n d y o u have a

The Chairman:

standing order--

Y e s ; w e already have.

I t takes sixty

millions o f investments t o pay o u r dividends.

A s this

matter works o u t after w e have invested twenty-five millions,
which p a y s o u r expenses,

t h e n w e must invest 1 4 0 millions

for t h e whole system before w e also e a r n a dividend.

Governor Seay:

T h e n you share i n the distribution

above 2 4 p e r c e n t ?

The Chairman:
Governor Seay:

Y e s , I

see.

W i t h reference t o the last clause o f

that, i t was n o t referred t o this committee a s a Special
matter o f consideration,

b u t since i t i s very germane

to

the s i t u a t i o n a n d s i n c e i t i s e x a c t l y w h a t h a s b e e n d o n e

in New York n o w since none o f the FederalReserve Banks buys
in N e w Y o r k i f i t h a s n o account,

b u t entrusts t h e b u y i n g

to the Federal Reserve B a n k o f N e w York, w e thought s o m e
principle s h o u l d e
b p u t i n force.

A s a n illustration, t h e

City o f Richmond issues short time obligations f o r half a


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Federal Reserve Bank of St. Louis

93

million c o l l a r s , a n d t h e F e d e r a l R e s e r v e B a n k o f R i c h m o n d
would n e t b i d o n them, b e c a u s e

i t did not wish t o come i n

competition w i t h i t s l a c a l b a n k s .

S o m e N e w York brokers

got one o f the Richmond banks t o buy f o r them.

T h e y bid

2.89 a n d sold i t t o the N e w York broker f o r 2.5.

T h e New

York broker s o l d i t t o the other Federal Reserve Banks f o r


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Federal Reserve Bank of St. Louis

Bens

T h a t i s entirely t o o low, lower t h a n anything that

has e v e r prevailed.

The Chairman:

w h i c h bank bought them?

Governor Seay:

C h i c a g o a n d S a n Francisco, a n d s-me

of the others.
Governor McDougal:
conferred w i t h you.

w e did not b u y them until w e had

Y o u remember t h o s e bonds w e r e o u t

of y o u r hands.

Governor Seay: I
transaction

do not make a n y criticism o f this

T h i s i s t h e point: I

a t all.

a m satisfied

that i f t h i s p r e s e n t m e t h o d h a d b e e n p r e v a i l i n g C h i c a g o

could have gotten those a t 27/8 o r even 3 per cent.
Governor McDougal:

B u t t h e y were s o l d before w e k n e w

anything a b o u t t h e m .

Governor Seay? I

knew that, b u t i n the iuture,

order t o get these brokers trained, a n d i n order that
may k n o w w h a t t h e y h a v e t o expect, I

think t h e y ought

left with some o f these investments o n their hands.

The Chairman:

T h a t is what we have done i n New York,

and i t has b e e n very salttary-

W e have bought s o m e a t

cost a n d some a t less t h a n cost, a n d w e have t o l d them t o
behave t h e m s e l v e s .

94
S o m e o f the banks have b e e n cffering

Governor Seay:

their o w n acceptances o n the cutside a t rather t o o l o w a
rate, i n our judgment,
T h e r e W a s o n e b a n k i n V O u r O 2 5 Uri Ce

The Chairman:

f e w w o r e bought,

tie c a m e u p . A

b u t t h e rate was t o o

low.

thought i t was t o o low.

Yes; I

Governor Seay:

t h a t w a s t h e rate?

Governor McCord:

A b o u t 2-3/4 p e r cent;

Governor Seay:

4 2 Very m i e n

Lower r a t e t h a n h a s p r e v a i l e d f o r a n y l e n g t h o f time.

has a

I t

demoralizing influence a l l along t h e line.
B r o k e r s h a v e b e e n o n t h e outside,

Governor McCord:

with us, a n d forced m e down t o 2.25 i n New Orleans.
I

Governor S e a y :
influence,


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Federal Reserve Bank of St. Louis

s o far a s I

t is a

demoralizing a n d a

pernicious

have b e e n a b l e t o t r a c e it, to=i6s

close.

Mr. Calkins:

T h e effect o f that, Governor Seay, i s

to p r e c l u d e o n e F e d e r a l R e s e r v e B a n k f r o m p u r c h a s i n g
market o f a n o t h e r F e d e r a l R e s e r v e B a n k ,
Stances.

i n the

u n d e r a n y circum-

I s that correct?

Governor Seay:
Mr- Calkins:
for instance.

N o ; i t i s n o t correct.

T a k e t h e case c f a bank i n San Francisco,

e actually precluded.
I t wouldb

T h e oppor-

tunity would have g o n e before negetiations could b e made
back a n d forth.

Governor Seay:

I t would i n the first case, b u t not

in the second.
Governor McDougal: I

believe now, j u s t a s I believed

95

when w e had o u r last conference, t h a t w e Should r e g a r d these
a s available

open m a r k e t s e c u r i t i e s
it i s a

think

t o a n y bank. I

very g e o d p l a n t o arrange w i t h t h e N e w Y o r k b a n k

to buy for u s i f they c a n buy t o advantage, b u t 1 would n o t
be i n favor o f the last t w o clauses i n this report, f o r t h e
reason that Chicago i s a market a s well a s N e w York. V i e h a v e
adhered t o this plan, a n d s o far acted f o r our o w n benefit
and f o r t h e benefit o f all, b u t w e believe t h a t when either
acceptances o r warrants a r e firmly held a n d a r e being bought
about t h e n e i g h b o r h o o d

w e should

t o d o likewise.

b e permitted

We have never bought a n y acceptances i n that way, b u t w e
have b o u g h t a

f e w warrants,

b u t n o t many, a n d w e h a v e n e v e r ,

with but o n e exception, g o n e i n t o a n y field a n d made a n y
overtures.

T h a t occurred

i n the early stage o f the opera-

tion, a n d has n o t b e e n repeated. I

feel, myself, t h a t this

matter o f using these purchases t o equalize t h e earnings i s
not altogether right. I


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Federal Reserve Bank of St. Louis

think that e a c h district should

be entitled t o the benefits t h a t are available t o i t i n its
own district, t h a t which comes f r o m t h e open market. I
would b e o p p o s e d

t o t h e l a s t t w o paragraphs,

thom correctly, b e c a u s e I

if I

understand

feel t h a t w e w o u l d b e p u t i n a

position w h e r e w e c o u l d n o t p o s s i b l y p u r c h a s e a n y t h i n g i

we wanted t o d o it,

t h a t would b e a hardship that I

not t h i n k s h o u l d b e

u p o n u s o r u p o n a n y o t h e r bank.

Governor Seay:

do

w i l l state that I think this i s t h e

idea o f the committee; s u p p o s e , f o r instance,

w e have a s a n

{llustration t h e Richmond short t e r m bonds which were bought

by Chicago: C h i c a g o wires: " T h e s e bonds are offered t o

96
s a t 2.55.

W o u l d y o u adviseu taking them?

=

R

e would

say that w e think they ought t o take t h e m a t 2.75 o r 2.87,
and w e w o u l d n o t a d v i s e t h e i r p a y i n g o v e r that.

I

t would

not interfere w i t h t h e operations o f t h e market.
Governor McDougal: I
inclined

cannot b u t think that y o u are

t o bring this m a t t e r u p , a n d i t might b e misunder-

stood--- the mtter o f our having purchased those warrants.
Governor Seay:

N o ; l e t m e correctthat a t the outset.

It w a s n o t b a s e d o n t h a t t r a n s a c t i o n

a t all, a n d t h e F e d e r a l

Reserve Bank e f Ruchmpond, w h e n asked b y Chicago i f there w a s
any objection, replied promptly i n the negative; a n d i t
has n o objection t o that transaction:

B u t , neveptholess,

it does serve a s a very excellent illustration o f what t h e

committee had i n mind.
Governor MeDougal:

W h a t 1 would have understood i s

simply this, that t h e figure a t which w e bought those war-

rants was baSed upon the figure a t which someone else had
purchased t h e m .

Governor Seay:

T h e brokers i n New York u s e d that t o

get other banks t o buy them a t the same price, a n d I a m
entirely confident that t h e y usedthe banks i n competition
with e a c h o t h e r a n d u s e d t h e r a t e f i x e d b y t h e f i r s t p u r -

chasing b a n k t o induce o r compel t h e others.


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Federal Reserve Bank of St. Louis

T h a t was en-

tirely too lov. N o b o d y had ever been accustomed t o that
rate.

I t cannot b e continued,

a m i t ought n o t t o be, i n

my judgment.
Governor Aiken:
Mre Chairman. A

N e had a concrete illustration o f that,

partner

i n one o f our large n o t e brokerage

97
houses came t o see m e a n d asked i f I would b e interested

in some city warrants which h e had a t 2-1/2 per cent. T h e r e
has b e e n v e r y l i t t l c m a r k e t i n B o s t o n f o r t h o s e C i t y n o t e s

in the last month o r six weeks, a n d there i s not a n y very
clearly d e f i n e d rate.

around. I

w

e have b e e n rather feeling o u r w a y

told him, no, that I thought 2-1/4 was about

the lowest rate i n which w e would b e interested.
me--- t h i s w a s a

partner

H e told

i n the concern--- n o t o n e o f their

Salesmen--~- that their Chicago office h a d advised t h e m that
the C h i c a g o F e d e r a l R e s e r v e B a n k w o u l d b e g l a d t o b u y them;

that they could get from 2.40 t o 2,50. I
had better sell i t t o them, then." I

said, "Well, y a u

said, “Would y o u mind

telling m e i f y o u c a n s e l l t h a t n o t e t o a n y o n e e l s e b u t t h e

Federal Reserve B a n k o f Chicago?"

not."

H

H

e said, "No; w e c a n

e said, “If they d o not buy i t we are hung u p o n

Lie
We h a d some City o f Malden notes, a n d o n e o f our local

banking concerns asked about it, and I said, "2-3/4 ought
to be fair."

H

e said, "We can sell those t o the Chicago

Federal Reserve B a n k lower t h a n that," I

market here o r i n New York lower than that?"
"io,?

H

e got those notes a t 2,63.

us, o u r c a s h i e r t o l d m e , b y telephone,

declincd t o buy them. I

said, " I s t h e

H

e said,

H e offered them t o
o n a

2-50 basis.

W e

do not know where h e g0l1d them.

It kills o u r whole market, n o t o m l y f o r t h e Federal
Reserve B a n k o f Boston, b u t i t kills t h e market f o r all o u r
member banks a n d our trustees, a n d everybody else, j u s t b e cause t h e Federal Reserve B a n k o f Chicago happens t o b o i n


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Federal Reserve Bank of St. Louis

98

an e x t r a o r d i n a r y p o s i t i o n a s r e g a r d s m o n e y , c o m p a r e d w i t h

other normal buying institutions.
Governor McDougal:

talk about 2.40. I
any Warrants

T h e r e i s one point there.

Y o u

do not believe that we offered t o take

a t 2.40.

w

e Were v e r y g l a d t o g e t s o m e a t 2.50,

which were a s good a s we could secure from any cther source,
equal t o some w e have received f r o m N e w York.
Surprise y o u .

T h a t might

T h e s e warrants a r e s u c h a s y o u a n d I

talked

as t o
about and ,Wwhich y o u told m e that anything that might offer
from door t o door would b e warrants that y o u would pass
along anyhow,

a n d g o a h e a d a n d t a k e them.

Governor Aiken: I

formation.

a m simply giving y o u this f o r i n -

I t i s just a s easy t o get £.-60 o n those a s i t

is 2.50.
Governor McDougal:
of t h e warrants

y m carry?

Governor Aiken:
time.

B u t y o u d i d not g e t 2.60 o n most

N o ; b u t w e bought t h e m before t a x

T h e whole market condition i s such, d n c e t h e first

of April---

Mre Calkins:

T h e point o f m y question h a d nothing t o

do w i t h rates,

a n d rates could n o t b e discussed

tion “with-it.

I

i n connec-

t h a d t o d o w i t h t h e f a c t t h a t i t appear g s

to m e that under this arrangement o t h e r Federal Reserve
banks w i l l b e p r e c l u d e d f r o m purchasing,

c r a t least t h e

Federal Reserve Bank o f San Francisco would be.
Governor Seay:

M r - Chairman, I

believe i f i t were t o

come t o a n expression o f opinion, t h e local market i n
each case Should b e left t o the bank o f the place.


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Federal Reserve Bank of St. Louis

I f there

99
are a n y s u r p l u s i n v e s t m e n t s

t o b e made, t h e y w i l l m a k e

them a t the, b e s t r a t e a n d a p p o r t i o n t h e m a m o n g t H e o t h e r

banks.

B u t i t does n o t seem t o be altogether proper f o r

onc F e d c r a l R e s e r v e B a n k t o i n v a d e t h e l o c a l m a r k e t o f

another, f r o m m y point o f view.
Mr. Calkins:

T h e situation would then b e that i f one

Federal R e s e r v e B a n k d i d n o t d e s i r e i n v e s t m e n t s ,

t h e rest

would g o without?
Governor S e a y :

N o ;

o n t h e contrary,

t h e overflow

would t h e n g o t o t h e o p e n m r k e t s .

Mr. Calkins: I

a m afraid w e would find i t out t o o

late.

Governor Seay:

I f , o n the other hand, t h e Federal

Reserve Bank o f Richmond would offer more t h a n i t could
hold,

i t would b u y t h e m a t t h e b e s t r a t e a n d o n l y k e e p 2 5

per cent o f them and would distribute 7 5 per cent equitably
among a l l t h e other banks.

a c h would have a

share, a n d

Without competing w i t h each other.
The Chairman: I

think Mr. Calkins h a s overlooked o n e

thing a b o u t t h e a c c o u n t

a s i t w i l l operate,

that i f w e d o n o t o p e r a t e

a n d that i s

i n Some account o f this character

each bank will have a n advantage i n its o w n market a n d i n
its o w n district,

a n d t a k e a l l o f t h e i n w stments offered.

Governor Aiken: I

realize f u l l y t h a t s o m e a r r a n g e m e n t

is n e c e s s a r y a n d s h o u l d b e made.

The Chairman:

A s t o San Francisco, M r - Calkins, I

cdo not believe y o u realize t h e rather slight inequality o f
disadvantage t h a t S a n Francisco labors under, f o r this rea-


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Federal Reserve Bank of St. Louis

100
son.

T h e offerings that a r e made i n San Francisco a r e very

largely offerings o f warrants w h i c h arise i n the N e w York
markets, a n d ,

t o S o m e extent,

cipally N e w York.

t h e B o s t o n market,

b u t prin-

T h e y a r e offered o u t there b y telecraph

and p r a c t i c a l l y a l l o f t h e m c a n b e p u r c h a s e d

b y t h e Federal

Reserve B a n k o f New York i f San Francisco leaves t h e m alone.
They will t h e n g o into the account, b u t S a n Francisco will
not g e t a l o f them that a r e offered o u t there.

T h a t is

the o n l y difference.
Mr. Calkins:

W

e h a v e h a d t h i s experience.

I a m s e e k i n g information. I
at.

O

f course

want t o f i n d o u t w h e r e I

S e v e r a l times, comparatively recently,

am

w e have tenta-

tively accepted offerings i n San Francisco subject t o the

approval o f the Federal Reserve Bank o f New York, a n d they
have b e e n s o l d e l s e w h e r e b e f o r e o u r telegrams h a v e r e a c h e d

New York.

T h a t would s e e m t o b e a n answer t o your state-

ment.

Governor Aiken:
that

t

trifling

h

D o e s i t not amount t o really this,

e totalso
f all offerings o f that character a r e

i n amount t o w h a t i s p r o d u c e d

b y operating t h e

a c c o u n tn
i this way, w h e n y o u consider t h e rates are s o m e what b e t t e r ?
Mr- Calkins:
time, b u t I

I

think I

t doubtless h a s b e e n t r u e u p t o t h i s
can s e e instances

i n which i t might

not b e true.
Governor Aiken:

Y o u m e a n i n conditions

rates?


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Federal Reserve Bank of St. Louis

Mr. C a l k i n s :

Y e s sir.

o f high

101
The Chairman: I

think w h e n t h e rates g o u p w e will

all g e t f e d u p o n this stuff, anyway, a n d i t will take care
(epbe tarisyee oie
Governor Seay:

T h a t i s what w i l l p u t t h e rates up,

to b e g i n with.
The Chairman:

I

t is a

matter o f c o m p l e t e i n d i f f e r e n c e

to u s i n New York---

‘Mr. Calkins: I
not a

understand that, perfectly, b u t it i s

matter o f complete i n d i f f e r e n c e

t o SanFrancisco.

The Chairman:

b y n o arrangement m u c h

w

e w o u l d benefit

more t h a n w e d o b y having it.
Mr. Calkins:
anybody that I

I t was with n o intention o f criticising

a m endeavoring t o discuss t h e matter.

Governor S e a y : I

would l i k e t o state h o w I

think i t

would operate, b o t h i n the case o f Chicago a n d S a n Francisco,
with r e s p e c t

t o Richmond.

W

e would n o t b e inclined

t o let

either o n e o f those banks c o m i n t o t h e market a n d take
investments t h a t w e wanted.

I f w e took them w e would take

the lot, a n d w e would take t h e m a t the rate fixed b y Chicago
and S a n Francisco,

a n d t h e y would get t h e surplus a t that

rate, whereasg i f they left i t t o us a n d w e fixed a
we w o u l d d i s t r i b u t e t h e s u r p l u s
a much higher rate,

and I

rate

a t o u r rate, w h i c h w o u l d b e

a m sure t h a t t h e y would g e t that

just a s e q u i t a b l y a s t h e y w o u l d i n t h e c o m p e t i t i o n plan,

and a t a better rate.
Mr- Calkins:

W e might g e t i t a t a better rate, b u t

not equitably, because someone else n o t connected w i t h the
Federal Reserve B a n k might b u y it.


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Federal Reserve Bank of St. Louis

102

Governor McCord:

I s it not true that the rates now

prevailing a r é lower than c a n b e handled o n the outside?

Governor Seay? {

think Mr. Aiken gave a n illustra-

tion o f that, that t h e Federal Reserve Banks a r e responsible

for these extraordinary rates o n these high class investments.

Governor McCord:

A n d a detriment t o their o w n mem-

bers.

Governor McDougal: I

think there a r e t w o classes o f

those securities--- t h e y might b e called classes;
might b e s o considered.

they

T h a t is, t h e matter o f going into

a district a n d buying tecurities i n answer t o a n ad. that
securities a r e going t o b e put out.

T h a t i s something that

we have never done, a n d I assume that n o other bank has ever
done i t i n a n y o t h e r district. I

d o n o t think i t should

be done.

There i s another class.

T h o s e securities a r e sold a s

a result o f bids, and they get into somebody's hands, and
not only d o they g e t into somebody's hands, b u t a r e put o n
the market.

T h e n I think i f the banks h a v e t h e opportun-

ity t o buy some, t h e y ought t o b e permitted t o d o it.
I would s a y that i n s o far a s the warrants w e have
bought
at a

i n t h e B o s t o n D i s t r i c t a r e concerned,

better r a t e t h a n w e h a v e s e c u r e d

of t h e S a m e c h a r a c t e r

w e have had- I

w e have bought

o n other investments
would s a y , M r . A i k e n ,

that t h e broker i s a very reliable man, I think.


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Federal Reserve Bank of St. Louis

Governor Aiken:

T h e r e i s n o doubt about that.

Governor McDougal:

T h e y told u s that t h e y owned those

103
BeCucl tress

T h e r e p r e s e n t a t i v e t o l d m e t h a t himself.

S o

he made his bargain before y o u bargained w i t h him.
Governor A i k e n ?

T a c ) W e r e nas. V e s .

T h e n , M r + Aiken, w h e n w e took

Governor McDougal!

them we did not do anything more than somebody else would
have done. T h e y expected t o sell them, o f course;
Governor Aiken:

e said h e expected

H

t o sell t h e m t o

you, a n d h e knew h e could not sell t h e m t o anyone else.
(At t h i s p o i n t a n informal d i s c u s s i o n a r o s e w h i c h t h e
a f t e r which the

stenographer w a s d i r e c t e d n o t t o report;

following proceedings t o o k place: )
Governor Fancher: I

a m i n favor o f t h i s r e c o m m e n d a -

tion o f the committee. I

think,

has b e e n b r o u g h t o u t b e a r i n g

i n the discussion t h a t

o n t h e B o s t o n Situation,

vere c l e a r t h a t t h e r e w a s a n element
with r e f e r e n c e

i t is

i n the local situation

t o the rate t h a t Chicago w a s n o t informed

on, w h i c h h a d a

and I

b e a r i n g o n t h e price,

i s sufficiently

Federal R e s e r v e B a n k i n e a c h d i s t r i c t
touch w i t h conditions

think t h a t t h e

t o intelligently m a k e a

rate;

in

a n d

while w e d o not, i n Cleveland, h a v e these miscellaneous
offerings, offerings g o b y u s that w e believe,

i n the matter

of rate o n warrants i n the Cleveland district, t h a t w e are
petter q u a l i f i e d

and more

i n touch w i t h the situation

and

upone
can m o r e i n t e l l i g e n t l y

to o p e r a t e

m k e a

rate.

W

e are quite willing

o n that basis a n d leave i t t o Boston a n d N e w

York.


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Federal Reserve Bank of St. Louis

Recently there h a s been a matter o f making Some war-

rants i n the State o f Kentucky eligible.

T h e y have had

104
some r e c e n t l e g i s l a t i o n t h e r e w h e r e b y t h e y c a n d e a l w i t h
it, a n d i n t a k i n g t h e S i t u a t i o n u p a n d g o i n g i n t o t h e o u t -

side someone has said t o those people down there they
thought they might b e able t o sé11 9 0 day warrants a t two
per cent. I

d o n o t k n o w w h e r e t h e y g o t those figures,

that has been injected into the situation.

T h a t has alto-

gether b e e n b r o u g h t a b o u t b y t h e c o m p e t i t i o n

Governor Seay:
ket;

but

i n t h i s paper.

I t i s gradually demoralizing t h e mar-

t h e r e i s n o d o u b t a b o u t that.
Governor wold:

T h e whole market

i s demoralized.

Governor S e a y Y e s ; a n d b y such methods.
The Chairman:

M r . Delano just telephoned m e that h e

and Mr. s a r e e s would like t o say a few words t o the committee that i s a t present concerned w i t h considering collection
plans, a n d I asked h i m t o stop i n and s a y how-do~you-do a a d
have a

chat with us.
Mre Tupper:

M r - e Chairman,

i f t h e St. L o u i s B a n k w e r e

to send bills t o New York f o r acceptance a n d they were
bought b y the St. Louis Federal Reserve Bank, does t h e St.
Louis Federal Reserve B-nk b u y those acceptances o u t o f its
district?


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Federal Reserve Bank of St. Louis

The Chairman:

N o .

Governor McCord: I
cause I

a m glad y o u brought that up, b e -

have t h e s a m e k i n d o f a case-

N e w Orleans g e t s

Guaranty Trust Company's acceptances and they offer them
to m e down there--The Chairman:

A

t what rate?

Governor McCord: 2 - 1 / 4 .

The Chairman:

T h e y have b e e n accepted?

Governor McCord:
The Chairman:

T h a t i s t o o l o w a rate.

Governor McCord:
The Chairman:

Yes.

Y e s ; I

know it.

W e have gotten higher ratesthan that

recently.
Governor Fancher:

Governor McCord:
bank. I

W h o makes t h a t rate?

T h e y were offered d o w n there t o our

have b e e n p u n c h e d b e t w e e n t h e r i b s a b o u t n o t m a k -

ing a n y earnings. I

say I

Governor Fancher:

cannot d o a n y better.

W h e r e would t h e y probably f i n d

Sale a t 2-1/4?
Governor McCord:
Mr. Tupper:

I n New York.

A r e t h e y counted a s being bought

i n your

district?
The Chairman:
matter

T h e y a r e held i n St-+ Louis.

o f discretion,

in and offers a

i t seems

t o me.

I

f a

I t is a

broker c o m e s

batch o f acceptances t h a t are obviously

held i n New York a n d are offered f r o m N e w York b y a New
York broker,

t h e inference

because t h e y c a n n o t g e t a

i s that t h e y a r e offered t o y o u
s a t i s f a c t o r y r a t e i n N e w York.

But i f they are held locally out there i t is a very different matter.

(At this point a n informal discussion arose which
the s t e n o g r a p h e r w a s d i r e c t e d n o t t o report; a f t e r w h i c h t h e

following proceedings took place:)
Mr. Calkins: I

want t o s a y t h a t m y remarks, w h i c h

were n o t very clear, w e r e intended t o direct attention t o
the fact, w h i c h i s o f very great importance t o us, that w e


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Federal Reserve Bank of St. Louis

L106
are a t s u c h a

great d i s t a n c e f r o m N e w Y o r k t h a t i t i s

practically i m p o s s i b l e
purchases.

W

t o exchange quotations b e f o r e m a k i n g

e have o n e o f t w o things

buy o n o u r o w n j u d g m e n t

t o do:

W

e have t o

o r o n someone e l s e ' s judgment.

There i s n o other course possible.
The Chairman: I

realize that, particularly a s t o ac-

ceptances.

(After further informal discussion: )
The Chairman:
ances

W e know t h e rate i n New York o n accept-

b y n o o n e v e r y day-

I

f w e sent a

telegram a t n o o n

every d a y y o u w o u l d g e t i t a t n i n e o ' c l o c k

i n the morn-

ing and i t would post you as t o the rate for that day's
business,

i f the extent o f the business justified that

trouble a n d expense.
Mr- Calkins:

T h e telegram i n reply would r e a c h y o u

by office hours n e x t day?
Governor Seay:

T h e rate h a s n o t b e e n changed v e r y

radically f r o m week t o week, h a s it?
The Chairman:
Governor Seay:

Mr-e Calkins:
Vision,

t o m y mind,

N o t very much.
O n e e i g h t h o r o n e sixteenth, perhaps.

T h e objectionable feature i n this proi s that i t i s n o t o n l y probable b u t

it seems t o be certain that at sometime the Federal Reserve
Bank o f S a n F r a n c i s c o w i l l b e l o c k i n g f o r a n i n f e s t m e n t

without a n y great interest i n the fractional fariation i n
rate, a n d that will m e a n that t h e purchasing b a n k i n New
York will n o t b e willing t o make purchases f o r t h e Federal
Reserve B a n k a t S a n F r a n c i s c o


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Federal Reserve Bank of St. Louis

at a

rate w h i c h w i l l b e e n -

107
tirely acceptable t o it.

T h e situation o f the different

banks w i l l c e r t a i n l y b e d i f f e r e n t
or a t t h e s a m e time-

a t different t i m e s - - -

T h a t - i s t h e point.

The Chairman: I

think w e h a v e g o t t o a g r e e t h a t m a t -

ters m u s t b e d e a l t w i t h u p o n o n e o f t w o understandings;

that is, that there shall o r shall not b e a complete comity
as t o how t h e districts shall o r shall not b e invadad.
Mr. Calkins:

T h e r e i s n o question about that.

The Chairman:

T h e question i s whether

i t involves

a Sacrifice o f your o w n interests greater t h a n t h e advantage
of the whole arrangement.
Mr- Calkins:

T h a t i s t h e q u e s t i o n exactly, s t a t e d

much better t h a n I could d o it.
The Chairman:

W h e n y o u consider that under t h e terms

of the existing arrangement I

do not think I

a m mistaken

in saying that w e have purchased f o r the other reserve
banks n e a r l y a

hundred m i l l i o n s

Mr+ Calkins:
The Chairman:

o f investments.

O v e r a hundred millions.
T h e advantage 6 f the account a s n o w

operated i s p e r f e c t l y o b v i o u s

t o me, b u t , f r a n k l y ,

i t oper-

ates against o u r interests i n New York.
Mr. Calkins: I

The Chairman:

understand.

B e c a u s e w e c a n get s o much larger

volume b y n e t d i v i d i n g up.

Mr» Calkins:

I t i s also possible that w h e n operat-

ing against your interests i t might operate against ours.
Governor McDougal: I
it i s true with Chicago:


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Federal Reserve Bank of St. Louis

think that i s true- C e r t a i n l y
L e t m e just cite this case.

T h e

108
day before I left, t h e Continental telephoned o v e r a n d

stated that o e s had been offered about $1,200,000 o f bilis,
beginning w i t h t h e G u a r e n t y T r u s t C o m p a n y a t 2-5/16,

down

tothe National “ity Bank at 2-1/4. T h e y were going to
take some of them seiner panied so know if we wanted: some,

and they: would turn them over bo was O Tbene nee es we
did n o t want t h e m p e n n e

ment of another kind.

S e e r

o r i s a d under a n arrange-

I n cases of that kind, it seems to

me t h a t w i t h t h i s ‘rule i n force w e ‘would n o t b e p e r m i t t e d

to take a n y o f those bills. "

We never have, b u t w e d o not

want t o preclude ourselves f r o m doing i t a t some time, a n d

itseems td me that we could, under those circumstances,
take some o f those bills without a n y hardship t o anyone.

The Chairman:** What von a
Governor MeDougal:
The Chairman:

The Chairman?

a o with them?

w i t h t e bills?

Yes.

Governor McDougal:

B e

W o u l d y o u divide t h e m up?

N o ; w e would not divide them up.

A r e y o u over your minimum i n invest-

ments?

Governor McDougal : O v e r our minimum?
The Chairman:

Yes,

Governor McDougal:

N o ; I think w e had two millions

of acceptances o u t o f a total o f about forty o d d millions
at that time.
The Chairman:

that e e e

T h e proposal is, a s I understand i t ,

t a investments o f any one o f the banks, like

New York, reaches t h e point where i t has taken care o f all

of its expenses, they then put them i n the pot.
the i d e a ?


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Federal Reserve Bank of St. Louis

I s not that

109

Governor McDougal:

T h a t i s true i n this case; t h a t

is, under this plan.
The Chairman:
chased those.

U n d e r t h i s plan, s u p p o s e y o u h a d
pur -.

w o u l d y o u d i v i d e t h e m up,

o r would y o u k e e p

them a l l ?

Governor McDougal: I

sertainly w o u l d not divide t h e m

up unless w e had made arrangements--—

he Chairman: T h a t is just tle point that I
want
to bring out, that this plan means that New
York always divides a n d n o b o d y e l s e does, e x c e p t

b y courtesy--- B o s t o n d o e s

when t h e y a r e p r e t t y w e l l f i x e d u p - - and I
rap a b o u t t h i s t h i n g e x c e p t

fellows;

do not care a

t o s e e i t satisfactory

t o you

b u t i f i t i s not going t o b e satisfactory
t o any

of you, l e t u s abandon t h e thole Shooting
match a n d g o i t
alone.

D o not l e t u s have t e n banks bound
t o a n understand-

ing amd t w o not. I

think that i s a very Silly a m foolish

way t o a t t e m p t t o d o business,

Mr. Calkins:

T h e r e i s n o question about that. I

to s a y j u s t h e r e t h a t I

a m not intending

t o criticise;

want
i t

is m u c h m o r e S a t i s f a c t o r y t h a n t h e p l a n
n e w i n operation.
There i s n o fault

t o b e found w i t h t h e distribution
proposed

by the Committee, only the large question
a s t o whether w e
are a b s o l u t e l y p r e c l u d e d f r o m b u y i n g
anything

i n a n y other

market e x c e p t o u r o w n , W h e r e t h e r e
i s n o market.

The Chairman:

I t would operate i n that w a y
with you;

there i s n o doubt about tnat, M r - Calkins.
one o f t h e s e q u e s t i o n s
US C a n control.


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Federal Reserve Bank of St. Louis

A n d that i s

o f geographic location t h a t n o n e
of

T h i s s a m e principle

i s going t o apply t o

any b u s i n e s s t h a t w e d o abroad.

I

t ought t o apply t o

any transaction that w e have where w e decide, f o r instance,
to begin liquidating t h e government conversion bonds.

W e

will all b e treading upon each other's toes and raising
the price o f government bonds, which w e were Charged
with
doing w h e n w e were trying t o buy i n joint account.

T h e

question o f gcographic location a n d the question o f a
market which exists i n one place ami does n o t exist i n another,
is a fixed condition that w e Cannot change v e r y well.
have t o deal with i t fairly a n d t o ascertain what i s the
fair w a y t o meet S a n Francisco's peculiar situation, where
they h a v e n o m a r k e t a t a l l f o r t h o s e things.

Governor M c D o u g a l : O u r adherence t o this tentative
or t e m p o r a r y a r r a n g e m e n t

h a s resulted

i n our securing

w2+158,000, a n d under the n e w arrangement w e have considerably m o r e t h a n w e w o u l d h a v e i n t h e future.

The Chairman: I

do not think that i s quite right, be-

cause New York's allotment, after i t has its minimum supply,
will b e s o much less that there will b e more t o difiide,
Your percentage w o u l d b e smaller, b u t t h e volume would b e
considerably larger.

Governor Seay:
The Chairman: I
this. I

.as I can.

I

s not that a

fact?

Yes,
do not want t o b e misunderstood i n

have s t a t e d o u r p o s i t i o n c l e a r l y ,

o r a s clearly

W e are the ones that a r e dividing it.

W e are

not going t o divide except o n a basis that i s Satisfactory
and e q u i t a b l e

t o 911; a n d w e a r e n o t g o i n g t o h a v e a n e x c e p -

tion prevail i n the case o f Chicago.


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Federal Reserve Bank of St. Louis

T h e minute a n excep-

bsi
tion prevails

i n t h e c a s e o f Chicago,

t h e N e w York Bank will

NOC=be: a = parry: L o s e .
Mr. Calkins:

I

s t h e r e n o t j u s t o n e t h i n g t o add,

and that i s that there will b e nothing t o divide except a t
a rate t h a t i s acceptable?

The Chairman:

O n the question c f rate, I

admit your

difficulties t h e r e , M r . C a l k i n s , b e c a u s e s o m e o f y o u w i l l

be willing t o operate under m u c h lower rates t h a n w e might
be w i l l i n g t o .

Mr- Calkins:

T h a t i s just t h e difficulty t h a t I want-

ed l i g h t o n .

The Chairman:
with a

W e are looking a t this thing, I think,

view o n l y t o the circumstances t h a t prevail today,

that a r e m c t

unusual.

T h e time i s going t o come w h e n t h i s

condition o f t h e r e s e r v e b a n k s w i l l b e q u i t e t h e r e v e r s e

of

what i t i s now.
Mr. Calkins:

T h e time seems

t o m e t o b e likely t o

come, a n d cone soon, w h e n o u r situation will b e more acute
than i t i s now; t h a t i s , t h a t t h e r e w i l l b e l e s s o p p o r t u n i t y
for u s t o g e t i n v e s t m e n t s t h a n w e h a v e n o w , f o r t h e r e a s o n

that t h e time will come w h e n y o u would not b e willing t o
buy a t a rate that w e would b e willing t o pay--The Chairman: I

d o not agree with y o u a t all o n that.

I t h i n k t h e s i t u a t i o n t h a t i s g o i n g t o d e v e l o p w i l l b e this,

that o u r market i s t o b e t h e strongest i n the whole system,
and j u s t a s S o o n a s t h e d e m a n d s p r i n g s

u p throughout t h e

country f o r r e d i s c o u n t s f r o m t h e m e m b e r b a n k s - - - w h i c h i t
might,


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Federal Reserve Bank of St. Louis

a t a n y time--- t h e whole burden o f t h e N e w York mar-

112
ket i s g o i n g t o b e t h r o w n u p o n us: I

have n e v e r d i s c u s -

sed this feature o f it, but i t is disconcerting sometimes
to t h i n k w h a t t h e e f f e c t w i l l b e i f y o u w e r e t o pull o u t
of t h i s w h o l e a r r a n g e m e n t f o r t h e p r o t e c t i o n o f y o u r l o c a l
Situation.

L o o k i n g a t i t broadly,

the Situation today,

a n d n o t i n regard tos

i f w e consulted t h e interests o f the

New York market solely w e would absolutely devline t o have
this arrangement i n force.
(After informal discussion: )
Mr. Calkins:
bank,

e

r
Th

e i s n o criticism o f the N e w York

o r a n y t h i n g t h a t i t h a s d o n e o r proposes

volved

i n the discussion a s f a r a s I

t o do, i n -

a m comcerned.

T h e

New York Bank's course h a s certainly b e e n liberal a s f a r
as I know anything about it.
is a

S o that i s not involved.

I t

larger q u e s t i o n t h a n that.
(At t h i s p o i n t V i c e G o v e r n o r D e l a n o a n d M r - H a r d i n g ,

of the Federal Reserve Board, entered t h e Conference roon,
and t h e committee appointed t o consider t h e matter o f collections

w a s also called

t o the Conference room.

A f t e r

an infcrmal d i s c u s s i o n t h e f o l l o w i n g p r o c e e d i n g s t o o k p l a c e : )

The Chairman: ( A d d r e s s i n g Vice Governor Delano and
Mr. Harding):

I f you gentlemen will outline your views t o

us w e w i l l a p p r e c i a t e i t .

Mr- Delano: I

will make a very brief statement, Mr.

Chairman.
As Mr. H a r d i n g t o l d s o m e o f y o u g e n t l e m e n h e r e j u s t
now,

w e were appointed several months a g o o n a

to t a k e c h a r g e ,


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Federal Reserve Bank of St. Louis

f o r t h e Federal Reserve Board,

committee
c f this m a t -

113
ter o f check clearing a n d collection. I
ther w e w e r e s e l e c t e d

d o not know whe-

o n this c o m m i t t e e b e c a u s e w e h a d

diametrically opposed views o n the question, b u t I
perhaps t h a t w a s t h e reason.
self a r e t h e b e s t o f friends,

think

A l t h o u g h Mr. Harding a n d m y a n d always h a v e b e e n ,

o n the

Board, w e did look a t this question f r o m totally different
views. I

a m v e r y g l a d t o s a y that, c o m i n g f r o m o p p o s i t e

roads, w
e have m e t i n substantial agreement..
When I
a banker I

first a p p r o a c h e d t h i s s u b j e c t ,
thought,

n o t having been

a n d i n f a c t w a s told, t h a t t h i s l e g i s -

lation was t h e result o f a long, bitter fight between t h e
merchant, t h e manufacturer, t h e s h o p keeper a n d t h e general
public o n the o n e side against t h e banks o n the other, a n d
that the merchant, t h e manufacturer a n d t h e shop keeper
had w o n out i n their contentions a n d h a d succeeded i n doing
away with a long present abuse.

I t seemed t o m e a t that

time, therefore, t h a t i t was a matter o f public service
which t h e F e d e r a l R e s e r v e B a n k m u s t r e n d e r

t o t h e general

public, t h a t i t could not b e deferred; t h a t i t was i n the
law a n d i t must b e @arried out. I
the p r o b l e m w a s a
at f i r s t supposed,

have come t o see that

very m u c h m o r e d i f f i c u l t o n e t h a n I
a n d t h a t t h e merchant,

and t h e g e n e r a l p u b l i c

had

t h e manufacturer

i s really n o t hurt a s much a s [I

had s u p p o s e d t h e y h a d b e e n hurt.

I

n fact,

i n m a n y cases,

they were getting probably more t h a n that t o which they
were entitled.

I have n o w come t o regard i t a s a sort o f service--a public service,

i f y o u want t o call i t that-—-- which t h e

Federal r e s e r v e b a n k s m u s t r e n d e r


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Federal Reserve Bank of St. Louis

t o their members.

114
The more I
it a p p e a r s
Lats,

get into the. s t u d y o f this law, t h e more

t o m e that t h e w a y i t h a s worked o u t i s about

M o s t o f t h e central b a n k s o f Europe h a v e b e e n crea-

ted b y creating q

c e n t r a l b a n k a n d then that central b a n k

has established branches a l l over t h e nation.

I n this

case t h e a p p r o a c h w a s f r o m t h e opposite d i r e c t i o n .

T h e

branch banks--- i s y o u m a y s o call them--- were established
first a n d t h e central bank established afterwards,
sort o f club,

o r association,

as a

w h i c h should gradually assume

the position o f leadership a n d o f a central bank.

I t is

this central bank, i t seems t o me, which has g o t t o b e
ready t o r e n d e r t h e s e r v i c e w h i c h t h e m e m b e r b a n k s a r e g o i n g
tO: rPequireof it.

It i s not m y feeling that w e ought t o force a n issue
at all.

I t i s simply a

question o f this, t h a t whether w e

like i t o r not the Federal Reserve Banks are going t o be
required b y their member banks, e v e n i f t h e Federal Reserve
Board i s absolutely inert o n the subject,
vice o f collecting checks.

t o render t h e ser-

T h e y must collect n e t only t h e

checksof the willing members, t h e members who join the voluntary scheme, b u t they must collect t h e chegks o f the unwilling members, t h e y must collect t h e checks o f the nonmembers, a n d must render practically t h e same service that
any central bank, t h a t h a s held reserves f o r its sountry
correspondents,

h a s rendered

i n t h e past.

T h e r e i s noth-

ing i n the l a w which contemplates t h a t this shall b e done

for nothing.

A l l the Federal ltieserve Bank can offer t o

do —for-its- members.


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Federal Reserve Bank of St. Louis

isto

d o i t -at- c o s t .

T h a t

i s the most

115
that c a n b e a s k e d o f t h e F e d e r a l R e s e r v e B a n k a n d t h a t i s

the most that the FederalReserve Board i s asking.
In o r d e r t o g e t t h e t h i n g i n somewhat c o n c r e t e s h a p e

before y o u gentlemen Mr- Harding a n d I agreed o n a memorandum which w e sent t o you this morning.
a memorandum stating t h e principles.
It s i m p l y s t a t e s principles,

T h i s i s simply
I t i s not a plan.

T h a t memecrandum w e w o u l d

like t o discuss w i t h y o u r subcommittee.
be a b l e t o g i v e a l l d a y t o m o r r w t
o it,

on wednesday,

M r . Harding will
a m I

willjoin h i m

i f t h e Committee i s not ready t o report b y

that time, a n d I

hope t h a t t h e committee,

b y working w i t h

Mr. Harding a n d myself, w i l l b e ready t o report t o you something t o w h i c h y o u c a n g i v e y o u r approval.

“hat I wanted t o m k e c l e a r i s that neither o u r committee n o r t h e B o a r d h a s a n y h o b b y t h a t w e a r e t r y i n g t o p r o Mulgate;

w e have n o particular p l a n that w e a r e trying t o

promulgate.

W

e w a n t t o help;

w e want t o b e helpful

in

bringing i n something that i s really, f r o m our point c f
view, necessary t o the colution o f the problem.

A l l the

reserves will have b e e n transferred next, November, t h a t is,
all t h e r e q u i r e d r e s e r v e s ,

a n d o n l y t h e optional reserves

Will remain f o r the year beyond that.

Perhaps Mr. Harding would like t o say a few words with
regard t o this matter.

Mr-+ Harding: I

have not very much t o say i n addition

tow h a t h a s b e e n s o well s a i d b y Mr. Delano. I

think w e are

at l a s t l o o k i n g a t t h i s t h i n g f r o m t h e p r o p e r light.

T h e

Fedcral Reserve A c t i s a great Act, b u t i t cannot d o t h e i m -


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Federal Reserve Bank of St. Louis

possible.
we h a v e a l l s t u d i e d t h i s s i t u a t i o n

a n d know that float

is a real thing, t h a t i t i s not a n imaginary proposition;
that w o cannot m a t c h u p a l l t h e s e t h i n g s a n d d o a w a y w i t h

all costs. I

think w e are all agreed upon that.

we must p u t ourselves v e r y much i n the attitude o f a
number o f l a r g e i n d e p e n d e n t b a n k s t h a t w e r e r e a c h i n g o u t f o r
business.

W

e would have t o build u p a

would h a v e t o o f f e r service.
along c o n s e r v a t i v e lines.

W

W

clientelle,

and we

e w o u l d w a n t t o d o business

e would n o t want t o pay f o r

the privilege o f giving this service, b u t w e would want t o
at l e a s t b e r e i m b u r s e d f o r i t g

w e would want t o make i t

efficient a n d attractive.
I think a great deal o f headway h a s been made b y the
member b a n k s

i n the matter o f collecting c o u n t r y checks

in t h e l a s t s e v e n t e e n o r c i g h t e e n years.

T h e y have grad-

ually learned t o analyze these accounts a n d throw out t h e

unprofitable ones, and not t o be deceived b y mere bcok
balances w h i c h r e p r e s e n t a

lot o f float.

T h e y look into

the heart o f the thing t o see whether o r not there i s anything there, o r whether i t i s all froth. I

do not think

there a r e nearly a S many banks t h a t a r e n o w disposed t o
handle t h i s c o l l e c t i o n b u s i n e s s w i t h o u t a d e d u a t e c o m p e n s a -

tion a s there used t o b e years ago.
a great m a n y b a n k s

t o which t h e volume

who w i s h t o b u i l d u p t o t a l f o o t i n g s ,
the b u s i n e s s

O f course there a r e

i n order

o f business a p p e a l s ,

a n d they a r e o u t after

t o i n c r e a s e t h e i r balances. I

the responsibility f o r these high charges that a


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Federal Reserve Bank of St. Louis

think

number o f -

117

the country banks h a v e been making was d u e t o the accommocdation t h e y h a d b e e n g e t t i n g f r o m t h e i n t e r m e d i a t e b a n k s
in t h e r e s e r v e c i t i e s , A

number

making excrbitant charges. A
reasonable.

B u t the e

o f t h e banks h a v e b e e n

number o f them have b e e n

making t h e charges have b e e n able

to m a k e t h e m e x o r b i t a n t p u r e l y b y r e a s o n o f t h e a c c o m m o d a tion t h a t t h e y h a v e b e e n g e t t i n g f r o m t h e i n t e r m e d i a t e

banks i n the reserve cities.

w e g o t o a town o f two o r

threc h u n d r e d t h o u s a n d p e o p l e t h a t L o o P C S C r V e C i Ly ane:

say " I will carry a n acéouht w i t h you a n d carry a good balance

a

n

d d 6 Some rediscounting w i t h you; I

want y o u

to collect a l l m y items a m w a n t y o u t o collect t h e m for m e

at par.”

T h e y say, "All right, w e will d o that."

Then n i n e t i m e s o u t o f t e n w h e n y o u t u r n a r o u n d a n d

say t o the country bank, “How about the checks I get o n you?"
They say, "Oh, no, w e could n o t d o without o u r exchange,

and I will charge you fifteen cents."

A n d then tell you

that sone f e l l o w across t h e street? will d o the same thing.
But t h e Federal reserve b a n k has a monopoly.

After a

year

from wext month these balances w i l l n o t count a s reserve
for a n y b o d y c x c e p t a

balance

in a

federal r e s e r v e b a n k , a n d

they c a n n o t g e t a n y b e t t e r facilities.

Under t h e plan that I

have i n mind, a n d which I hope

to see adopted, everything i s right d o w n o n the table.
is just like a

great b i g banking club. I

I t

would n o t want

to belong t o the Metropolitan Club, o r a n y club here i n
the city, i f a man should g o i n and g e t all t h e liquor h e
wanted a n d smoke a l l t h e cigars h e wanted o u t o f the general


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Federal Reserve Bank of St. Louis

118
club expense, a n d n o t sign a check f o r his o w n bill. a

might not b e smoking m y end o f it, and 1 would get left.
A&A club i s n o t r u n t h a t way.

T h e y furnish these supplies

for t h e members, t h e y probably give t h e m better service
and better goods t h a n they c a n g e t elsewhere, a n d probably

cheaper, but they charge enough t o cover the cost o f giving
the s e r v i c e a n d t h e c o s t o f t h e goods.

This w a y o f dcedging t h e exchange charges o r balances

is a very uncertain proposition» S o m e o n e always gets the
worst o f a trade where t w o people g e t together t o t r y t o
Godge a n exchange charges

t t i s impossible t o docge it.

One m a n will getthe worst o f it.
m a n d o w n i n Atlanta

I recollect a

M r . Ottley was ambitious, like I was, t o ad busi-

Ottley.
ness.

b y the name o f

H e came over t o Birmingham one day and said, "Hard-

ing, y o u have pretty g o o d facilities i n Alabama f o r col-


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Federal Reserve Bank of St. Louis

lecting?" I

H

said, "Yes, pretty good."

o said, “ I have

got “oorgia sewed up, a m i f y o u will take all o f m y Alabama

items from m e at par I will take all o f your Georgia items
from y o u e t par.

B

e will remit

i n balances s a y o f N e w

York exchange a t a dollar a thousand."

H

e talked t o m e

about i t and i n about t e n days the number o f Alabama itoms
that that fellow was givéng m e was something awful.

H e

got m e t o the point where I was scratching m y head. I

then went u p t o New York and Philadelphia « n d told some o f
the banks u p there that I

weuld open u p a n account i f they

would send m e their Georgia stuff.
of this:

I t was just a question

W e were simply seeing w h o could g e t t h e biggest

L19
stick t o hit the other fellow over the head with. F i n a l l y ,
because o f the connections I

had, I

could g e t more money

than he could, m y stick was the bigger, and he hollered
enough.

T h a t was the end of that arrangement.

I simply give y o u this illustration t o show t h a t there
are c e r t a i n s c i e n t i f i c a n d e c o n o m i c p r i n c i p l e s w h i c h m u s t
be f o l l o w e d o u t i n t r y i n g t o w o r k o u t t h i s problem; t h e r e
are n o s h o r t c u t s a n d n o evasions a n d t h e r e i s n o u s e i n

trying t o deceive ourselves o r the other fellow.
going t o work o u t satisfactorily,

I t i s not

I t i s bound t o b e tem-

porary, a n d i f you suceeed a t all y o u o n l y s u c c e e d b y
skinning s o m e o n e elseée T

t h i n k now-a-days t h e business

men are pretty much o n the alert, a n d o n e i s about a s smart
do not believe that a n y one o f these

as the other, I

Federal Reserve Banks could p u t i t over a n y o f t h e other
I n outlining t h e principles under which

banks v e r y long.

to attempt this matter w e have g o t t o eliminate t h e idea
that there i s not t o b e any cost--- w e have g o t t o get
pack t o the old-fashioned i d e a that there i s work a n d cost
to the operation a n d that w e are going t o d o i t a s well a s
we c a n b u t a s c h e a p l y a s w e Can.

I

f the country banker

does n o t w a n t t o c o m e i n - — — b u t t h e r e i s n o s y s t e m t o c o m e

into.


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Federal Reserve Bank of St. Louis

I f h e does n o t want t o get y o u t o handle h i s items

he need n o t d o it.
handling them,

H e c a n handle t h e m like h e has been

Y o u will g e t checks o n him ami y o u will

collect t h e m the best y o u Can.
his r e s e r v e

i s transferred,

B u t after a while, w h e n

h e i s going t o c o m

t o you and

you c a n s a y t o h i m t h a t h e h a s g o t t o a g r e e t h a t t h e r e i s

120
no charge t o b e made against t h e Federal Rescrve B a n k f o r
the i t e m s t h a t i t h a s o n h i s bank; a n d a s t h e y c o m e i n o n e

after another,

a m t h e number constantly increases, y o u

will r e d u c e t h e c o s t o f service.
operating a

T h e r e i s n o use i n

tailor s h o p a n d t e l l i n g a

man that y o u a r e

going t o make h i m a coat and v e s t b u t will n o t make h i m his
trousers.

U n d e r this cptional p l a n that w e have b e e n

having h e h a s n o t b e e n a s k e d

t o take a

l o t o f e a s y points,

but havebeen given t h e hard points i h the handling o f state

bank checks.
ting left»

T h e banks come t o us and say, "We are getW e give u p our little exchange profit a n d get

nothing i n return."
change p r o f i t

T

h

e other way he gives u p the ex-

o n h i s o w n checks b u t h e g e t s a d e q u a t e s e r -

vice covering everything h e has got.

A n d a n extra account

can b e k e p t o n t h e a n a l y s i s s h e e t e v e r y d a y s h o w i n g h o w

much the float i s a n d whether i t i s above o r below his
balance. A

postal card c a n b e sent i n every week showing

what t h e balance ought t o be.

Y o u c a n figure t h e float,

figure t h e c o s t o f it, a n d s e n d h i m t h e bill.

I

t may make

his hair curl f o r t h e first month o r so, b u t h e has g o t

the satisfaction o f knowing that i t is going t o be less the
next month.

E v e r y o n e that comes i n reduces t h e cost.

the s a m e t i m e a

man i s allowed independent action.

A t

He--can

not o n l y s e n d t h e i t e m s w h e r e h e h a s b e e n s e n d i n g t h e m , b u t

he sends t h e m where h e pleases.
ment t o s e n d y o u a l l items.
the n i c e e a s y , f a t places,
checks.

H

I t i s not like a n arrangee does n o t s e n d y o u items

b u t h e sends y o u a l l t h e country

B u t i t does n o t make a n y difference

t o t h e Federal

Reserve B a n k whether i t gets a n item o n New York, whether


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Federal Reserve Bank of St. Louis

on

tes

itgets a New York check or a Louisvillé check:

T h e checks

might b o o n little places o f 500 population, b u t y o u figure
the time a n d t h e cost t o protect yourself.
There i s o n e o t h e r t h i n g I

want t o say, a n d t h a t i s

that w e w a n t t o a v o i d a l l t h i s d u p l i c a t e e n t r y business.

You have a

debit card made u p and y o u g o right along a n d

keep your books j u s t like y o u have b e e n accustomed t o + Y o u
state t h e w h o l e t h i n g o n y o u r a n a l y s i s s h e e t .

Y o u tell

the bank i n the country that y o u are going t o charge his
account w i t h the checks that y o u g e t o n him, a n d the very
minute y o u g e t t h o s e c h e c k s y o u a r e g o i n g t o s e n d t h e m t o
him b y mail.

the account,

H

e gets a n allowance

o n the analysis

of

a s the charge o f these checks t o h i m does n o t

count until t h e y have b e e n received b y him.

T h e checks

he sends y o u o n other banks, w h i c h are i n transit, y o u are
going t o give h i m the benefit o f fore t h e time i n transit
from t h e reserve b a n k t o the paying bank,
The Chairman:

Mr. Harding:

W o u l d you run a

N o .

s e c o n d account?

Y o u just k e e p o n e ledger, b u t

the b a n k h a s t o k e e p a n a n a l y s i s department.
Governor McCord: I

do n o t want t o enter i n t o a

dis-

cussion o f the details o f this, but suppose a member bank's
check c o m e s i n , s u p p o s e a

large f l o a t c o m e s i n , h e w o u l d

analyze t h a t a m h e would have t o keep h i s lawful reserve
outside o f that float,---

Mr. Harding: (Interposing) T h e r e i s no charge o n ac-—
count o f float.

Y o u simply keep a

him the cost o f clearing.


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Federal Reserve Bank of St. Louis

cost t a b and charge

122

The Chairman: G e n t l e m e n ,

d o y o u wish t o meet with

our c o m m i t t e e t h i s a f t e r n o o n ?

Mr. Delano:
the c o m m i t t e e

T h e r e i s n o reason whywe could n o t give

half

a n hour

Mr. Harding: I

o r three quartersof

a n hour,

would like t o hear whether t h e prin-

ciples t h a t w e h a v e l a i d d o w n a p p e a r a t t r a c t i v e

t o t h e Gover-

nors?
Mr-e McKay:

O u r committeehas considered t h e memoran-

dum submitted b y the Federal Reserve Board.
The Chairman:

T h a t does n o t touch this particular

point.

Mr+ McKay:

T h e r e a r e some questions w e would like t o

ask t h e m a b o u t i t .

W

e w o u l d l i k e t o have a

meeting w i t h

Mr- Delano and Mr. Harding now.
Mr- Delano:

Y e s , I think w e can do that.

The Chairman:

W h a t will enable u s t o g o ahead w i t h

our r e g u l a r program,

As I understand it. Mr- Delano a m Mr. Harding will
give o u r committee a l l d a y tomorrow o n this matter. I

am

under obligations t o g o out t o Mr. Warburg's house this
afternoon f o r a

come back later,

little while. I

would l i k e t o g o n o w a n d

i f that i s agreeable t o the Conference,

Governor Wold: C o u l d w e n t determine this one ques-—
tion b e f o r e y o u g o ?
The Chairman:

P h e q u e s t i o n w i t h r e g a r d t o Governor

Seay's committee report i s something rather f o r y o u gentlemen t o d e t e r m i n e

t h a n f o r me.

W

e are the victim

thing i n New York a n d n o b the beneficiary-


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Federal Reserve Bank of St. Louis

o f this

I t i s a ques-

tion o f h o w y o u d i v i d e u s up.

Governor Wold: I

would like t o state m y position. I

sympathize with the position taken b y Governor McDougal
and t h e position o f the S a n Francisco Bank. I
deal a S they do, a n d that .is that I

feel. a- good

would like t o express

my individuality a n d judgment a t times.

B u t this i s a

question o f the greatest g o o d f o r the Freatest number, a n d
I think t h e greatest g o o d c a n b e accomplished b y operating

as we have been doing. I

have i n mind the thought raised

a moment a g o b y y o u that very s c o n w e might b e i n such a
at

position a s t o S a y t h a t w e d o n o t w a n t y o u r a c c e p t a n c e s

all, and then you will b e "holding the bag". I

realize

fully that t h e N e w York bank has suffered b y this p l a n which

has been i n operation, but at the same time I sympathize
with Mr+ McDougal a n d have felt myself thatat times =
have picked u p some acceptances t o good advantage.

could

B u t it

would tend to demoralize the whole situation if we did
that, i t seems to me, and I do not believe we can afford
to c o m p e t e

i n t h e matter.

The Chairman:

T h e r e are two things i n cOnnection with

the plan that have n o t been discussed, a n d that possibly
ought t o b e referred to.
participate

O n e i s that t h e banks t h a t

i n a n account o p e r a t e d

b y the New York Bank are

in a way surrend@ring their discretion t o a certain extent.
Another b a n k i s making their investments f o r them. G e n e r ally bankers l i k e t o make their o w n investments.
ize that.

L l réal-

I f there i s a n y w a y y o u gentlemen c a n find t o

avoid that situation w e would b e very glad t o avoid it, b e -


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Federal Reserve Bank of St. Louis

124
o f this discretion involves a

cause t h e e x e r c i s e

I

ing responsibility:
som d a y ,

correspond—-

f some o f theso investments g o wrong

n o matter h o w carefully w e safeguard ourselves

putting a l l t h e r e s p o n s i b i l i t y
nevertheless a

o n t h e beneficiary,

i n

there i s

feeling t h a t w i l l u n d o u b t e d l y p r e v a i l t h a t

some carelessness h a s caused t h e loss; a n d i n our o w n interest I would v e r y much prefer t o avoid seeing t h e New York
bank i n that position.

We have purchased over $100,000,000 o f investments
for t h e otherinstitutions.

I f w e let this volume grow w e

might b e buying some hundreds o f millions a year.
not a

I t is

pleasant thing t o contemplate that w e are piling u p a

great mass o f transactions, s o m e o n e o f which,

o r more, m a y

go wrong a n d not b e discovered f o r a good while; a

forged

bill may come back, o r something o f that sort, where w e
could n o t effect a recovery , and a l l that s o r t o f thing.
Not t h e financial liability b u t t h e moral responsibility
’ rests u p o n NewYork.


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Federal Reserve Bank of St. Louis

We have not entered into this thing with any satisfac~
tion t o ourselves

a t all.

W

e have done i t pretty reluc-

tantly, c o n s i d e r i n g t h e r e s p o n s i b i l i t i e s involved.

T h e

other difficulty i s that i f w e discontinue t h i s arrangement
and each bank should g o i t alone,

i n whole o r i n part, t h e

first effect i s going t o b e t o create antagonism t o the
Federal Reserve System i n the one market where i t s future

success o r failure i s really going t o be made, and that i s
among t h e very large banks i n New York City.

w e have got-

ten them i n a friendly attitude n o w a m t h e y a r e cooperating


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Federal Reserve Bank of St. Louis

125

with us-

I f w e destroy that b y having a n open market i n

New York, o f a character that might c u t into their profits,
we a r e g o i n g t o m a k e t h e m f e e l r e s t l e s s a n d uncomfortable.

Some b i g bank i n New York m a y get out o f thesystem, a
of t h e m w i l l follow,

a n d w e m i g h t d e s t r o y ourselves.

lot
That

we would like t o avoid, a n d w e i n New York are willing t o
assume a
avoid i t .

certain a m o u n t o f r e s p o n s i b i l i t y

i n order

B u t i t m u s t b e done, a n d d o n e o n a

is equitable t o everybody,

to

basis t h a t

o r w e will n o t d o it.

I t seems

to m e t h a t t h e q u e s t i o n o f d e t e r m i n i n g w h a t i s equitable

everybocy rests with y o u gentlemen.

to

Y o u ought t o thresh

it out among yourselves, and, a s 1 said before,

w e are wil-

ling t o t r y anything that h a s the appearance o f reasonablenoss,

i n order t o see h o w i t works. I

evidence

think w e have given

o f o u r d e s i r e a n d intamntion t o d o t h a t already,

we h a v e n o o c c a s i o n t o a l t e r o u r p u r p o s e

Governor McDougal: I

and

i n t h a t respect.

have b e e n discussing t h e last

two paragraphs o f this report w i t h Governor Seay, a n d i f I
uncerstcod h i m c o r r e c t l y - - -

and i f I

did not I

say so--- the intent there i s n o t what I

hope h e w i l l

thought i t was.

The intent i s solely t o maintain rates, a n d there i s noth-

ing i n those paragraphs, according t o Mr. Seay's statement
to me, t h a t w o u l d p r e v e n t a

bank f r o m d o i n g e x a c t l y w h a t 1

have b e e n saying w e might want t o d o some time,

a m that is

to buy, i f w e have the chance, s o m e accepted bills a t rates
that a r e e q u a l

t o o r i n excess

taking t h e bills.
objection

o f t h e rates

a t which

w e are

G o v e r n o r Seay Says there gould b e n o

t o d o i n g that. I

d o n o t t h i n k i t i s made v e r y


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Federal Reserve Bank of St. Louis

Lao

clear i n thos ©

two paragraphs, because I r e a d them. the

other way.

The Chairman:

W h a t does that mean, Governor McDougal?

Does t h a t m e a n t h a t i f B e r n a r d C h o l l e &

Company,

o r any o f

the N e w York Brokers, should d i s c o v e r that y o u are willing
to b u y b i l l s a t l o w e r r a t e s t h a n w e f a y - - - t h e y h a v i n g a

private wire t o Chicago--- that y o u would b u y them?

I f

they w o u l d a s k t h e i r m a n t o s t o p i n y o u r o f f i c e a n d s a y
they h a d t w o a n d a

half m i l l i o n s

o f bills t h e y c o u l d o f f e r

at 2-1/8, w h e n w e had declined t h e m a t 2-1/8 a n d would
buy t h e m a t 2-1/4, w o u l d y o u b u y t h e m ?

Governor McDougal:

A s far as they aré concerned, I

think t h e y have circularized a l l o f the banks.

T h e y all

have o f f i c e s t h e r e - - -

The Chairman: I

named that firm, but i t applies t o

everyone o f them.
Governor McDougal:

F o r instance

t h e Continental B a n k

a f e w days a g o s e n t w o r d t h e y w e r e p r e p a r e d
bills

a t satisfactory rates,

t o b u y some

a m o f f e r e d t o give u s a

part

of thom i f w e would b e willing t o take them.
The Chairman:

Y o u mean t h e y were buying from a brok-

Governor McDougal:

T h e y were buying for their own

account.
The Chairman:
them d i r e c t l y
around a

T h e y might j u s t a s well have offered

t o you.

T h a t i s s i m p l y b e a t i n g t h e devil

stump.

Governor McDcugal: I

understood from Mr. Seay that


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Federal Reserve Bank of St. Louis

4127
there i s n o t h i n g
buying

i n that p a r a g r a p h t h a t w o u l d p r e v e n t o u r

i n that w a y p r o v i d e d w e a r e b u y i n g a t r a t e s t h a t w e r e

equally a s favorable a s thosc upon which w e were receiving
allotments.
The Chairman:

this, gentlemen.
decide.

Y o u understand t h e w a y £

I t i s not a

feel a b o u t

matter f o r u s t o assume t o

I t i s a matter f o r all o f us here t o agree u p o n

among ourselves.

I f you think that arrangement i s not a

proper one--- a n d frankly I have only glanced a t i t very
hastily, a n d h a d made u p m y mind that whatever i t was w e
would agree t o it, s o far a s New York was concerned--- i s
not t h e proper thing t o d o t o make a
be satisfactory?

suggestion o f what would

W h e n y o u have done that l e t these other

gentlemen s a y w h e t h e r i t i s s a t i s f a c t o r y

t o them.

is not satisfactory t o them then we won't d o it.
Satisfactory t o everybody,
it.

E

L AL

i f -1t-is

w e will arrange t o operate under

B u t w e will n o t attempt

t o operate

a n account w h e r e

one p a r t y i s s a t i s f i e d a n d t h e o t h e r p a r t y i s d i s s a t i s f i e d
with t h e arrangement.

w

e will j u s t a t t e n d t o o u r o w n busi-

ness a n d l e t e v e r y o t h e r m a n a t t e n d

t o his business w i t h

reference t o this investment account.

Governor Seay: I

would like t o say that the object o f

the committee-—— a n d I believe I

a m stating i t correctly---

Was t o prevent competition i n the several districts a n d t o
prevent o n e F e d e r a l R e s e r v e B a n k f r o m e n t e r i n g i n t o a n o t h e r

district a n d buying securities a t a lower rate than was current i n that district.
York i s concerned,

A

s f a r a s t h e situation i n New

i t i s entirely different f r o m every


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Federal Reserve Bank of St. Louis

128
other situation.

W e stated that a t t h e outset. I

was

invited t o b e chairman o f that committee f o r the reason
that R i c h m o n d h a s n o t h a d a n y p a r t i n t h e a p p o r t i o n m e n t
investments, b e c a u s e s h e h a d o t l e r i n v e s t m e n t s

i n her o w n

district w h i c h w e r e a l m o s t y i e l d i n g t h e dividend;
the r e a s o n t h a t 1

was n o t i n t e r e s t e d

of

a n d for

i n the apportionment

it was suggested that 1 should act a 8 Chairman o f that com-

mittee.

W e were hot asked t d consider a final recommenda-

tion of this, but i t was s o bound u p i n it, i t was discussed a t our mecting, a n d we thought i t proper t o add it.
The purpose sought i s stated clearly enough, although the
language i n which i t i s couched m a y not b e a S exact a S y o u

might desire. I

would s a y it is the sense o f the committee

that with respect t o the N e w York situation, provided t h e
distribution i s m a d e u p o n t h e p l a n here,
might a g r e e upon, N e w Y o r k i s e n t i t l e d
respects
respect

a s t o t h e control
t o the banks

o r any that y o u

t o b e h e a r d i n other

o f t h e b u s i n e s s market.

i n the o t h e r districts I

W i t h

think i t i s

fair, a n d i t would produce m o r e equitable results,

if a

bank i n a n y o t h e r district, o t h e r t h a n i t s own, p u r c h a s e d

securities a t a rate which would n o t b e under t h e rate
that t h e b a n k i n that d i s t r i c t w o u l d p a y ;

t h a t is, i f they

Would b u y them only a t a rate which the bank i n the district w o u l d r e c o m m e n d
That p u t s e v e r y o n e

o r would i t s e l f

on a

The Chairman: I

par basis,

b e willing

t o give.

a n d t h a t w a s t h e idea.

would l i k e t o c a l l y o u r a t t e n t i o n t o

the fact that t h e arrangement a s t o the N e w York apportion-

mont was not suggested b y New York»

I t was suggsted b y


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Federal Reserve Bank of St. Louis

129

Governor V a n Zandt, a t a former meeting.
ment n o w worked o u t b y the Committee I

with, i

have not even read it. I

T h e apportion-

had nothing t o d o

do not know what the

percentages m e a n .

Governor Seay:
The Chairman:
willing

W e understood that, Mp+ Chairman.
T h e situation i s this:

t o t r y anything récommended

agreed u p o n b y everybody.
vantage.

T h a t w e are

b y this committee a n d

I t m a y vork o u t t o our disad-

W h e n i t coes w e are going t o tell y o u a n d are

going t o t e l l y o u t h a t i t m u s t b e m o d i f i e d
done a b o u t i t .

A

S y o u a l l realize,

a m something

t h e preliminary a r -

rangement i n the w a y o f obtaining statements, letters,
preparing t h e n e c e s s a r y f o r m s

i n c o n n e c t i o n w i t h Warrants,

and all that detail, h a s been worked o u t i n New York, a n d
we will t u r n i t ovor t o you.
way t h a t y o u wish,
If t h e a c c o u n t
a matter

W

i f y o u decide

i s t o b e continued

e will f i x that u p i n any
t o discontinue t h e account.
i t must b e observed a s

o f h o n o r b e t w e e n t h e banks.

tion i s a b s o l u t e l y untenable. I

d o not care What y o u d o

about i t s o far a s w e a r e concerned.
been willing.
directors,

O t h e r w i s e o u r posi-

O u r directors h a v e

O f course w e have t o discuss t h i s with our

a n d they have b e e n willing

t o accept e v e r y s u g -

gestion that w e have made t o them o n the subject.
minutc

i t became i n e q u i t a b l e

Was w o r k i n g

t o New York

t o o u r disddvantage,

T h e

a m w e s a w that i t

o u r directors w o u l d c e r -

tainly feel required t o d o something about it, a m w e would
feel required t o bring i t t o the attention o f our directors.
I t h i n k i f t h i s i s n o t satis. f a c t o r y

t o you, G o v e r n o r


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Federal Reserve Bank of St. Louis

130
MeDougal, y o u ought t o suggest what would b e Satisfactory.
The suggestion i n regard t o the purchase o f acceptances
that y o u m a d e d o e s n o t a p p e a l

of the difficulty whatever. A

t o m e a s being a n y solution

broker might b e employed t o

buy t h e m i n N e w Y o r k o r Chicago b y a

direct arrangement.

The broker might deal o v e r the telephone w i t h Chicago o r
by telegraph.

H

e might d e a l b y telegraph w i t h t h e Conti-

nental Bank of Chicago, which would deal with the Federal
Reservo Bank o f Chicago.

I t does n o t make a n y difference

how many steps removed i t i s from the direct transaction,
the effect i s just t h e same i n every instance.

I so not think w e ought t o stitk our heads i n the sand
and feel that w e are n o t exposing o u r bodies:

T h a t i s ex-

actly what we would be doing if these transactions took
place a s y o u have described,
Governor McDougal:

Y o u would b e opposed t o the com-

mittee's recomm ndation i n that regard, M r s Chairman?

The Chairman: I

think the committee's recommendation

is a deft a n d roundabout w a y o f stating what i s the fact.

If you decline t o take acceptances, except a t the rate a t
which w e would take them, t h e result would b e naturally t h a t
we would g e t them.

I n the one case y o u would save t h e

commission n o w charged, which otherwise y o u would pay.
Gow ernor Rhoads: I

would suggest that t e try this

plan f o r t h r e e m o n t h s a n d s e e h o w i t works.

Governor Seay: I

was going t o say that t h e other t w o

members o f the committee h a d indulgently permitted m e t o
do most o f the talking, because t h e y were interested a n d Iwas

not, a s I believed.

Y o u will bear i n mind t h a t this

plan h a s b e e n s u g g e s t e d f o r t h r e e m o n t h s a n d s t a n d s s u b -

ject t o alterations u p o n a n y basis which m a y b e determined
upon latér.

Governor McDougal: I

have stated that w e have bought

no a c c c p t a n c e s e x c e p t w h a t w e h a v e t a k e n t h r o u g h y o u r bank.

We have taken, I

think, about $100,000 i n bills t h a t origin-

ated i n Chicago.

T h a t i s all w e have taken.

hered strictly t o this arrangement. I

W e have a d -

would like t o know

whether a n y o f the other banks h a v e bought a n y bills other

than those that have been purchased through New York except
those that originatod i n their own cities?
Governor Seay:

T h a t statement, I

think, will s h o w

that t h e y h a v e not.

Governor McCord:

N o n e i n our district.

Governor McDougal: I

a m speaking n o w o f accepted

bills.
Governor Miller:

Mr. Calkins:

O u r bank has not.

T h o San Francisco Bank has.

The Chairman:

W e have bought a

one hundred millions.

great deal morc t h a n

T h e r e i s standing here n o w a t the

time o f this statement, e i g h t y nine and a quarter millions.


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Federal Reserve Bank of St. Louis

Governor McDord:

A t l a n t a h a s bought none except thee

originating i n New Orleans, w h i c h i s practically i n her o w n
home city.

Governor Seay:

W e would expect t h e individual banks

to c h e c k u p t h e statement.

I

t was p u t together f r o m t h e

statements furnished b y the several banks.
any e r r o r s

I f there a r e

i n i t y o u m i g h t c a l l a t t e n t i o n t o then.

Inasmuch


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Federal Reserve Bank of St. Louis

Loe

as Mew York will distribute 7 5 t o 90 per cent o f all that
is t o be done, this record would naturally b e lodged i n New
York, i f adopted, a n d carried o u t b y that bank.

Reports

might b o m a d e t o t h a t b a n k a s w e l l a s t o t h e others,

The Chairman:
to t h e r e p o r t

T h a t i s when w e reach a conclusion a s

a m i t s terms?

Mre Calkins: I

a m looking f o r information, a n d I a m

sure I have acquired s o m e very valuable information.

T h e

only thing I can s a y o n m y own behalf i s that I have b e e n
told that t h e San Francisco Bank's situation i s unique.
Probably that i s the reason I began t o talk about it.

The Chairman:

S a n Francisco holds investments o f

98,922,000. L o o k i n g the subject squarely i n the face, I
have n o doubt that t h e eight o r nine millions investment,
at t h e r a t e s w h i c h t h o s e i n v e s t m e n t s h a v e b o r n e ,

o n the aver-

age have b e e n very m u c h more valuable t o the S a n Francisco
bank t h a n such investments a s they could have made themselves.

Mre Calkins: I

haven't the slightest doubt o f that,

ilps Chairman.
The Chairman: I

think that i s true, although w e can-

nct demonstrate it.
Mr. Calkins: I

The Chairman:

t h i n k i t i s t r u e w i t h o u t question.

I t might b e that y o u will a l l feel very

much better satisfied later o n i f rates advance a little b i t
and w e have a little m o r e freedom i n New York i n buying.
Governor Miller:
Is not that earnings?

Y o u mentioned t h e figure 48,922,000.


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The Chairman:

T h a t i s what I! said.

Governor Millert
The Chairman:

I s it not 38,922--- earnings?

O h , I sees

total amount i s not shown here.

I t is earnings.

The

T n e figures cuoted a r e

earnings a n d not investments:

Governor Fahcher? t h view of the fact that in the
body o f this report i t i d sBliggested that this b e required
for three months, a

current quarter, I

report o f t h e c o m m i t t e e

move y o u that t h e

b e adopted a n d that w e give i t a

trial f o r the next t h r e e months, until t h e next meeting o f
Governors.
Mr. Tupper: I

second t h a t motion.

Governor Miller:

L l also Second it.

Governor McDougal:

Before a

vote i s taken o n that I

would l i k e t o have this point that w e have b e e n discussing
cleared up, a n d that i s the meaning c f the last t w o paragraphs.

G o v e r n o r S e a y h a s t o l d u s w h a t i t means, a n d ,

based o n h i s u n d e r s t a n d i n g

c f t h e matter, I

Willing t o undertake t o t r y t h e plan.
market i n v e s t m e n t s h a s b e e n d i s c u s s e d a
cur e x c c u t i v e c o m m i t t e e a n d I

should b e

T h e matter o f open
number

o f times b y

feel v e r y m u c h a s G o v e r n o r

Strong feels, t h a t is, s o far a s this arrangement i s concerned w e would h a v e been just a s well off, o r better off,
if there h a d n e t been a n y arrangement.
mittce f e e l s t h e s a m e way.
to e x e r c i s e a

broad policy,

W

O u r executive Com-

e a r e entircly willing

b u t a t the same t i m e w e feel

that w e ought t o have some rights i n the open market.
The Chairman:

I

n what o p e n market?


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154
Governor McDougal:'

S o far a s accoptances a n d war-

rants a r e concerned.
The Chairman:

B u t y o u mean i n the N e w Yerk open mar-

Governor McDougal:

Well, I

mean i n the markets;

the

market i n Chicago a s well a s N e w York.
The Chairman:

Y o u mean that when a

New York broker

offers stuff from N e w York over t h e wire that that i s the
Chicago market? I

d o net understand that i s s o a t all.

Governor McDougal: I

for such securities
New York,

think there i s a n o p e n market

i n Chicago just a s well a s thero i s i n

b u t p e r h a p s n e t s o great.

The Chairman: I

T h e y a r e s o l d there.

do not agree w i t h y o u about that a t

think that i s the crux o f the whole matter.

all. I

Governor Fancher:

I n making this motion I offered i t

with the understanding that t h e purchase o f acceptances o f fered i n Chicago b y N e w York brokers a r e t o b e a t a rate
that will b e named b y the N e w York bank purchasing that
class o f paper.

Governor McCord:
Governor McDougal:

N o t lower t h a n that.
W h a t was that y o u said, Governcr

Fancher?
Governor Fancher:

M y understanding o f this last sec-

tion o f t h e r e p o r t i s t h a t a c c e p t a n c e s o f f e r e d

i n Chicago

by New York brokers a r e t o b e purchased b y you a t a rate
not l o w e r t h a n t h e r a t e a t w h i c h t h e y w o u l d b e p u r c h a s e d

the N e w York Bank.
Governor McDougal:

B u t w h y d o y o u s a y Chicago?

by


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135
Governor Fanchcr:
any bank.

W

W e l l , a n y bank.

W e will make i t

e w e r e d i s c u s s i n g t h e C h i c a g o situation.

said i t has a market.
The Chairman:

Y o u

W e will m a k e i t a n y bank.

T h e only affect o f that will b e t o

simply reduce t h e allotment Chicago gets f r o m N e w York.
There i s nothing gained.

T h e only effect i s t o reduce t h o

rate.
Governor McDougal: I

do not see h e w you are going

to. reduce t h e r a t e i f w e b u y b i l l s t h e r e a t r a t e s h i g h e r

than perhaps w e are getting t h e m from you.
The Chairman: I

would Like t o b e advised o f a case

where t h a t happens. I

have n o t k n o w n o f a n y s u c h cases.

Governor McDougal: I

will a d v i s e y o u i n a d v a n c e t h a t

we will n o t undertake t o buy a n y o f those bills.
not done i t yet a n d I
it. I

W e have

do not k n o w that w e are going t o d o

will advise y o u i n advance--=- and w e will b e perfect-

ly willing t o d o it--=- that w e Shall take nothing o f that
Kind a t r a t e s l e s s f a v o r a b l e t h a n t h o s e w h i c h y o u m a y b e
giving u s .
The C h a i r m a n

F r a n k l y w e would n o t operate t h e ac-

count unless Cleveland, Minneapolis, a n d every other bank
does t h e same thing.

T h e minute t h e other thing i s done---

take S a n Francisco, f o r instance, where t h e y have Bond &
Goodwin a n d other brokers handling these things--- t h e
minute t h a t i s d o n e t h e a c c o u n t

is t h e gist o f the matter.
ing d i r e c t l y y o u r s e l v e s ;
so t o speak,

and a

i s o f n o account.

T h a t

I t means y o u get more b y deal-

t h a t w h e n your allotment

i s filled,

readjustment t a k e s p l a c e , y o u a r e c u t o u t


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Federal Reserve Bank of St. Louis

1356
of t h e surplus,

s o t o speak,

as I

understand t h e report.

I d o n o t s e e t h e s l i g h t e s t o b j e c t g a i n e d i n it.

Certainly

it would n o t b e fair for u s t o agree that because tina
Chicago h a s d i r e c t w i r e s t h e r e , t h a t c o n s e q u e n t l y t h e y c a n
increase t h e i r a p p o r t i o n m e n t

b y t h i s method.

O t h e r Feder-

al RcosServe Banks d o n o t happen t o have wires, a n d cannot d o
it.

Governor Seay:

O u r committee feels that there should

be some elasticity about this matter, s o m e possible opportunity o f taking on, f o r instance, w h a t o u r member banks
are Willing t o buy and d o buy, a n d share t h e m with us- I
do not see that anybody i s losing anything b y that.
Governor McCord:

W h y not put Chicago i n the distri-

bution t h e same a s N e w York?

Governor McDougal: I

do not think w e would want t o

do that because i f you d i d w e would g o out a n d b u y securities. I

d o n o t k n o w t h a t w e S h a l l b u y any.

The Chairman:

W i l l y o u explain, G o v e r n o r M c D o u g a l ,

just what y o u would like t o have done?
Governor McDougal: I

a m perfectly willing t o have

it stand a s i t is, with t h e understanding t h a t these paragraphs a r e cleared up, a s Governor Seay, t h e Chairman o f
the Committee, h a s cleared t h e m up.
Governor Seay: I
on t h e committeeif,

would l i k e t o a s k m y t w o a s s o c i a t e s

a s far a s I

sed their ideas, o r whether I
which t h e y d o not agree. I

have g o n e , I

have e x p r e s -

have expressed anything w i t h
have tried t o explain what w e

meant t o effect, b u t language does n o t always effect what
you m e a n it. to.

137
Governor Miller:
bills

M r . McDougal,

i f y o u purchase t h e

a t t h e same price a t which t h e N e w York b a n k would

be willing t o take them, y o u get t h e bills a t a higher rate
of interest t h a n y o u w o u l d i f y o u b o u g h t t h e m t h r o u g h N e w

York, because there i s a little commission that goes t o
New York---

Governor McDougal: (Interposing) M r . Miller, the
Chicago b a n k f i x e d t h a t c o m m i s s i o n a n d f i x e d i t a t a h i g h e r
rate t h a n t h e o t h e r s h a d recommended.

not entered o u r minds.

T h e commission h a s

T h a t i s not what w e are working

tor. e t dil,
Governor Wold:

T h e w a y t h e thing would work out, a s

I said before, i s this. I

sympathize with your position,

Mr- McDougal, a n d 1 agree w i t h y o u i n a great m a n y o f your
Statements a n d contentions.

T h e Minneapolis Bank,

o n the

seventh, had $854,000 o f bills purchased i n tle open market.
Now, u n d e r t h e p l a n y o u propose,

o n April 1 5 t h , M r . D e c k e r ,

offered $600,000 o f acceptances that w e could have bought.
Had w e bought those w e would h a v e then continued t o parti-

cipate i n the New York purchases, a n d w e would b e getting
more than o u r share,

t o the disadvantage o f the banks that

were n o t doing that, a n d would b e depressing t h e rates,
probably.

Mr. Calkins:

T h a t is, presuming t h a t a l l o f the a c -

eeptances were sold to Federal Reserve Banks.

T h e %600,000

may h a v e b e e n s o l d t o someone e n t i r e l y o u t s i d e t h e system.

Governor Wold: I

know, b u t I d o not want t o buy excopt

as t h e N e w York Bank does n o t want t o buy.


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138
Governor Fancher:

M r . Chairman,

y o u are offered a

great m a n y a c c e p t a n c e s t h a t a r e n o t eligible,

The Chairman:

O h , yes, a

Governor Seay:

a r e y o u not?

great many.

T h e big banks which take them keep

their o w n acceptances,

The Chairman:

Y e s } t h e big banks are largely accu-

mMalating their own acceptances and thereby reduce the account o n b o t h sides, b e c a u s e

o f the ruling that t h e y d o not

Show acceptance l i a b i l i t y i f t h e y h o k d t h e acceptances.
is a n offeset

o n t h e i r books,

T h e reports

I t

d o n o t disclose

the true volume o f acceptances t h a t have b e e n made.

O n

the o t h e r h a n d t h e b o o k s d o n o t d i s c l o s e t h e actual p r o p o r tion o f acceptances h e l d , w h i c h i s v e r y large.

I

t may not

be aS much as 7 5 per cent, but I should say 7 5 per cent of
all t h e eligible acceptances, a n d possibly more.

T h e r e are

not a great m a n y that g o outside, because a s a matter o f
fact o u r rate h a s been low.

T h o s e that have gone outside

recently a r e a c c e p t a n c e s t h a t a r e eligible,

other r e a m n s ,

b u t which,

w e d i d not feel willing t o buy.

for

T h e y have

been d r a w n f o r p u r p o s e s w h i c h m i g h t h a v e s u b j e c t e d u s t o

criticism.

T h e r e were twenty o r thirty millions o f those,

I think.
Governor R h o a d s :

h m Governor Fancher's

motion was

seconded?

Governor Miller:
Fancher's motion.

Y e s , I

seconded Governor


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Federal Reserve Bank of St. Louis

139

The Chairman: I

d o not think w e have cleared u p

the meaning o f those bast clauses, b u t I will p u t t h e motion.

Governor Wold: I

think whatever i s done ought t o

be satisfactory t o the N e w York bank.
The Chairman:

W e d o n o t care-

I

f y o u gentlemen

feel that that i s t h e thing t o do, w e will t r y it. W h e r e
I think y o u are differing i s i n the inberpretation between
yourselves o f what that means a s i t stands now.
Governor Fancher:

Governor Seay:
a proposition

C a n w e not have Mr. S e a y explain

A m e n d t h e language t o suit you.

t o a m e n d t h e r e p o r t b e submitted.

Let

T h e com-

mittee h a s laid t h e report before t h e Conference a n d i t
seems

t o m e t h e proper procedure would b e t o amend it,

substitute i t o r reject it; that i f the lapyguage i s not
satisfactory t h a t s o m e a m e n d m e n t

The Chairman:
motion.

W e have a

T h i s matter should b e dealt w i t h b y a
motion t o adopt t h e report a n d t r y the

plan f o r three months.
it.

b e m a d e t o it.

T h a t w a s seconded,

a s I recall

I f there i s a n y objection t o that motion i t c a n b e

voted d o w n o r a n amendment

t o i t c a n b e offered.

are r e a d y t o h a v e m e p u t t h e motion, I

Governor McDougal: I

would suggest t h a t this point

that t h e r e c a n b e n o misunderstanding.
o f it I

the plan f o r three months. I

E 7¥OU

Will d o so.

be c l e a r e d u p a n d t h a t t h e l a s t p a r a g r a p h

in m y u n d e r s t a n d i n g

L

b e amended

L i e .

so

B O r e eis

would n o t b e o p p o s e d t o t r y i n g

do net expect t o go: inte t h e

market a n d bother anybody.

The Chairman:

D o y o u offer that a s a n amendment
to

the f o r m e r r e s o l u t i o n ?

T h e r e s o l u t i o n a s i t stands n o w
is

to a d o p t t h e r e p o r t a s i t i s , i n c l u d i n g
these t w o para~
graphs,

a n d t r y t h e p l a n f o r t h r e e months.

D

o I

understand

that y o u w a n t t o a m e n d t h e m o t i o n
t o adopt t h e report w i t h

modifications o f the last t w o paragraphs?
Governor McDougal:

I t i s a question o f interpretation

merely.

Mr+ Curtis:

M r - Fancher's motion now reads that the

report b e adopted a n d tried f o r three months
w i t h the underStanding that t h e purchaso o f acceptances
. When offered b y Newyork brokers,

i n any district,

i s t o b e made a t a rate n o t

lower t h a n the N e w York bank would pay.

Mr. Calkins:

I t seems t o m e the expression "New

York brokers" should b e takon out.
Governor McDougal:

H o w a r e w e t o determine?

A r e we

to determine simply b y the rate that w e know
the N e w York
is paying f o r bills?

Governor Seay:

M r - Chairman, i t seems t o m e that coula

be c o v e r e d b y S t a t i n g " e x c e p t a t a

New York Bank i s willing t o pay."

rate g r e a t e r t h a n t h e

T h a t would meet the

Situation.

Governor McDougal:
favorablc

W h y not say “except a t a rate a s

o r more favorable t h a n t h e r a t e a t which
the New

York bank i s making such purchases?"
The Chairman: I

a m wondering whether t h e b e s t t h i n g

would n o t b e t o strike o u t t h e last t w o
paragraphs entirely
and s e e h o w i t w o r k s w i t h o u t t h o s e paragraphs.
I


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think w e


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Federal Reserve Bank of St. Louis

141

can tell pretty quickly i n Now York h o w i t will work.
Mre Calkins:

T h e r e i s & motion before t h e house,

Mr+- Chairman.

The Chairman: T h e r e is a motion, and anyone i s entitled t o call f o r a vote o n that motion a t any time.
Mr. Calkins:

G o v e r n o r Fancher offered t h e motion a n d

I will c a 1 1 for a vote.
Governor Seay:

W i l l y o u please l e t u s understand

the motion, M r . C u r t i s ?
Mr-> Curtis:

M o v e d that t h e report b e adopted a n d

tried f o r three months, w i t h t h e understanding that t h e

purchaso of acteptances i n any distfict, when offered b y
New York brokers i s t o b e madc a t a rate not lower than
the N e w York Bank would purchase.

Governor Wold:

W h y not m k e that "any brokers".

The

offer might come f r o m a Boston broker.

The Chairman:

I t should read “offered b y brokers".

The q u e s t i o n h w e i s whether y o u i n t e n d o r d o n o t i n -

tend, either directly o r indirectly,
from N e w York through brokers.
and intention. I
We h a v e a

t o bus paper that comes

I t i s a question o f faet

think w e must wind u p this discussion.

motion o n w h i c h t h e q u e s t i o n h a s b e e n called,

and

I would like t o put that question.
Governor Rhoads:

O u g h t w e not t o include warrants a s

well a s acceptances?

Mr- Curtis: I

think w e should.

Governor Fancher: I
acceptances b o t h .

intended

t o c o v e r warrants a n d


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142
Governor V a n Zandt:
now a

B u t t h e w a y t h e motion reads

Federal R e s e r v e B a n k c a n n o t b u y i n i t s o w n district

any p a p e r u n l e s s t h e N e w Y o r k b a n k m a k e s t h e rate.

Governor Seay:
acceptances

Yes.

T h a t bring,s the warrants a n d

o f o t h e r d i s t r i c t s u n d e r t h e N e w Y o r k rate.

The Chairman:

T h a t w e would not have f o r the world.

Governor Fancher: I

will w i t h d r a w

m y motion, M r .

Chairman.
Governor Wold:

D o e s n o t t h e recommendation m a d e b y

the c o m m i t t e e c o v e r i t ?

Mr. Curtis: I

think i t does, i f Mr. S e a y will with-

draw his interpretation o f the language, because I

think i t

pe. CLeer a =

Governor Seay: I

will withdraw it.

Governor McDougal:

Y o u cannot withdraw i t because

is the w a y y o u understood it.

Governor Seay: I

believe I have stated that the pur-

of that was t o prevent o n e bank f r o m underbidding a
in a n y p a r t i c u l a r d i s t r i c t .

Governor McDougal: I
feels,

feel just a s Governor Strong

i n one way, although I

a m standing m y ground, a n d I

guess h e i s willing t o make concessions-—-~

Governor Strong:

Y o u should not usc the word "con-

cessions" Governor McDougal- T h e r e are no concessions
made b y us. I

have n o t h o u g h t o f s u g g e s t i n g a n y l a n g u a g e

for t h i s r e p o r t o r resolution.

Governor McDougal: I

a m referring t o your statement

that under t h e arrangement N e w York really suffers a

hard-


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Federal Reserve Bank of St. Louis

ship,

I f you want t o put your bank upon t h e

The Chairman:
Same basis,

o n a minimum amount o f investment before t h e

division takes place, a n d theothers agree t o that, i t i s
agreeable

t o us.

e d o n o t care.

W

I

gentlemen w o r k out.

I

t i s just w h a t y o u

f you are going t o b u y i n the o p e n

market a n d g e t a n advantage o v e r t h e other banks b y doing
so, w h y , t h e y o u g h t t o understand t h a t a n d a s s e n t

t o its

Mr. Curtis: G o v e r n o r Fancher's motion now is as follows:
the p l a n

“Moved that the report b e adopted and tried for three
months w i t h the understanding that t h e purchase o f warrants
er acceptances creatcd i n any district, w h e n offered b y brokers,

i s t o b e made a t a

rate n o t lower t h a n t h a t a t which

the bank o f the creating district would purchase."
T h a t i s just what the recommendation

Governor Wold:
of the committee is.

(Informal discussion followed.)
Mr- Curtis:

G o v e r n o r Fancher's motion i s a s follows:

“Moved that the report b e accepted a n d t h e plan tried
for t h r e e m o n t h s ,

a n d that warrants

a n d acceptances

originat-

b e purchased o n l y through t h e bank o f

ing i n a n y d i s t r i c t

that district under conditions agreeable t o such bank."
Governor V a n Zandt: I
Governor McCord: I

secom t h a t motion.
second the motion a n d call f o r

the q u e s t i o n .

The Chairman:

T h e r e a r e calls f o r t h e question a n d

will p u t t h e motion.

144

(The motion, having been d u l y seconded, w a s carried.)
The Cymirman: G e n t l e m e n ,

i t i s necessary t h a t I

leave

at this time, and I will ask Governor Aiken t o take the
Chair.

(Governor Aiken thereupon took the chair.)
Governor Wold:
to a

13.

dis c u s s i o n

M r - Chairman, I

move that w e proceed

o f item 13.

" N O PROTEST" ITEMS.
The Chairman:

T h a t i t e m was sugsested b y Governor

McCord a n d w e will hear from h i m first.
Governor McCord:

O u r bank i s opposed t o this arrango-

ment o f "no protest" checks f o r t h e reason that i t woulda
cause member banks t o put i n checks o n you that will n o t
be p a i d a n d c r e a t e a

exist- I

float o f credits t h a t O m e n n o t t o

believe any check o f over $25 that comes into

a Foderal Reserve B a n k should b e protested, because t h e
member banks will cause checks t o float that will n o t b e
paid-

P e o p l e will d r a w checks t h a t t h e y k n o w will n o t

be paid i n order t o create credit.
that proposition. I

A t l a n t a objects t o

have here t h e remarks o f m y cashier,

which I would like t o read:

"At the present time, t h a e i s a discussion going o n
between t h e banks o f the country a s t o just what means
Should

b e adopted

"protest"

t o mark checks plainly whether t h e y a r o

o r "no protest".

T h e r e i s also s o m difference

of o p i n i o n a s t o t h c m i n i m u m a m o u n t o f t h e i t e m s t h a t

Should b e protested;
have p r i n t e d


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f o r instance, m o s t o f our member banks

o n their lett@rs t h a t a l l checks $10.00 a n a


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Federal Reserve Bank of St. Louis

145
under a r e not subject t o protest, whereas t h e f o r m o f

transit letter adopted b y the Federal Reserve Banks reads,
"Twenty-five dollars and under n o protest."
"In m y opinion $10.00 i s a rather small amount t o
pretest, e n d I would suggest that t h e amount b e fixed a t

$20.00, n o check under that amount t o be protested- I

would

also suggest that all checks $20.00 and over sent a s cash
items b e p r o t e s t e d ,

a n d i f there i s a n y reason w h y a

bank

does n o t want a n item protested, t h e n i t should b e cut f r o m
their c a s h letter a n d handled f o r collection.
Sitor expects t o deposit h i s collections

I f a depo-

i n a bank a n d ro-

ceive credit therefor, using t h e funds, there i s n o reason
why the checks should n o t b e subject t o protest i f not paid.
I believe i f this system were uniformly adopted throughout
the United States,

i t would t o a certain extent discourage

banks f r o m depositing checks a s cash items about which there
was a n y doubt o f payment.

"I trust that you will bring this matter t o the attention o f t h e G o v e r n o r s

a t t h e i r n e x t cofiference i n W a s h i n g t o n

and that s o m steps will b e taken t o act o n this suggestion.”
That is. o u r position.

The Chairman:

D o a n y o f the other Governors w i s h t o

speak t o item No- 1 3 ?
Governor Fancher:

T h e A m e r i c a n Bankers!

Association

has undertaken t o work o u t some general p l a n o f handling
these n o p r o t e s t items. I

think t h e N e w Y o r k Banks,

i n

furtherance o f their scheme, h a s circularized t h e members.

We have dore s o in Cleveland.

M W e have sugzested ¥25 as


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146
the l i m i t a n d h a v e i n t i m a t e d h o w t h e y c a n s i g n i f y t h a t o n
the l e t t e r head.

Mr- Curtis:

H a v e y o u not. some plan o f putting t h e

instructions right o n the item; for instance "N. P.", with
the bank's transit number?
Bovornor Fancher:

w e do.

Mr- Curtis:

T h e n t h e i n s t r u c t i o n s n e v e r g e t away.

Mr. McCord:

A l l right, w e will g o into that a

tle, i f that i s the plan. I

understand t h a t some o f the

membcr b a n k s a r e g i v i n g t h o s e s t a m p s

who put the “HN. 2... On. theres
point

lit-

t o t h e i r o w n customers,

I t originates a t a n interior

a n t h a t b a n k would n o t want t o protest i t , b u t s o m e

one o f the banks i n thechain o f endorsement w o u l d want t o
protest it.

Y o u would have t o abbrogato y o u r original

idea o f n o protest a n d put i n their protest.

T h e inter-

Small volume o f business.

ior bank would have a

T h e check

might b e not valuable, a n d t h e intermediate b a n k might
want t h e i t e m p r o t e s t e d

s o a s t o k n o w w h e r e t h e y a r e at.

o know a way o u t o f that difficulty.
I would l i k e t
Mr- Curtis: I

Mr. McCord:

think there a r e t w o ways o u t o f it,

O n e is the lack of liklihood that the inter-

mediate b a n k c a r e s a t all.

I

t i s t h e originating b a n k

that i s interested i n thequestion o f protest.

T h e intor-

mediate banks a r e note
In the second place, i f they were sufficiently interested a l l they would have t o d o would b e t o strike t h e p e n

through the “N. P." stamp and let i t go along as a protestable item.

Governor McCord:

B u t h o w would y o u know who struck


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thepen through the "N. P."?
Mr- Curtis:
well,

T h e bank that d i d i t wouldknow pretty

a s t h e y w o u l d b e t h e o n e s interested.
Governor Miller:

B u t w h o w o u l d p a y t h e pretest f e e s

if i t were protested a n d went a l l t h e way back?

Mr. Curtis: I

have not gone into the details of this

thing, b u t i t s t r i k e s

m e that i t would come b a c k t o the m a n

who S t r u c k o u t t h e N . P .

Governor Miller:

B u t h e would n o t recognize i t then.

He would pass i t o n and charge i t t o the other fellow.
Mr- Curtis: I

think h e would recognize i t i f h e was

interested enough t o change some o n e else's directions t o
him.

Governor Miller: I

do not think t h e intermediate

bank would b e interested a t all, b u t i f such a case a s i s
referred

t o happened

i t would g o right

o n back.

T h e send-

ing b a n k w o u l d d e n y t h a t t h e y h a d g i v e n a n y i n s t r u c t i o n s
and w o u l d s a y t h a t t h e i r i n s t r u c t i o n s

h a d b e e n violated.

He would then look t o you t o find out who owed the $3.50.
Governor V a n Zandt:

I t would not only b e t o find the

93-50, b u t suppose s o m question i s involved greater t h a n
that. A

man would d e n y t h e responsibility i f h e struck

Lt Outs
Governor Wold:

that.

S u p p o s e you g o a

step further t h a n

W h a t would y o u d o i f the bank upon which a check was

drawn declined t o protest it, saying that i t was a domestic
bill o f exchange, n o t negotiable, a n d n o t requiring a protest---

148
Mr. Curtis:

B u t what difference d o e s i t m a k e whethor

this "N. P." i s o n the check itself o r i n the accompanying
letter?

Governor wold:
Mr+ Curtis :

I t does not.
Then I

do not think i t i s germane t o t h i s

discussion.
Mr- Calkins:

T h e American Bankers Association

i s now

advocating t h e adoption o f the N . P. stamp, w i t h t h e transit
number enclosed, w h i c h means t h a t t h e originating bank will
decide w h e t h e r t h e c h e c k s h a l l b e p r o t e s t e d

o r not, a n d n o

other bank will have a n y s a y i n the matter.

I t might occur,

although a remote contingency, t h a t some b a n k through whose
hands t h e i t e m p a s s e s m a y d e s i r e

t o h a v e i t protested,

if the bank originally stamping i t did not. I

even

think the

American B a n k e r s A s s o c i a t i o n s c h e m e i s p r e t t y s u r e t o b e
adopted.

P e r h a p s

i t i s not worth while

t o argue about i t ,

but there i s anotherplan which seems t o me t o be just a s
Simple a n d j u s t a s e a s y o f execution,

a n d very much more cer-

tain, which I have suggested, and that is that every bank
Shall u s e t w o forms o f endorsement stamp, o n e which bears

"N, P." and the other which does not bear "Ny, P,

y i n other

words, that every bank handling the item shall signify its
wishcs i n the m t t e r - - - that is, i t direction;
wishes, b u t i t s mandate.

n o t its

I t i s quite conceivable t h a t t h e

fourteenth bank i n the line might desire t h e item protested
when t h e thirteen preceding banks d i d not.
mote contingency, I

admit.

T h a t i s a re-

I t seems t o m e that m y plan

is s i m p l e r t h a n t h a t o f t h e A m e r i c a n B a n k e r s A s s o c i a t i o n a n d

that i t covers everything t h a t their p l a n covers.


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149

The Ghairman:
that t h e c h a n c e s

I s i t not true, i n practical operation,

o f t h e intermediate b a n k wanting i t pro-

tested a r e s o remote t h a t i t i s hardly worth while
providing
for?
Mr- C a l k i n s :

T h a t m a y b e true.

is w o r t h discussing,

b u t the plan I

L i e

o T

Saar

propose i n v o l v e s

Ft

no

additional labor o f any kind.
Governor Seay:

T h e r e i s t h e danger o f getting t h e

wrong Stamp o n the wrong check.
Mr. Calkins:

Y e s , b u t y o u c a n d o that w i t h t h e N. P.

stamp.

Governor Wold:

T h e r e i s that chance o f making a n er-

Por, nowever.,
The Chairman:

D

o y o u w i s h t o offer a

motion

o n this

Subject, Governor McCord?
Governor McCord: I

will offer a

motion that a com-

mittee o f three Governors b e appointed a n d that this subject
be r e f e r r e d

t o that committee;

t h a t they takc i t u p with the

American Bankers Association Committee a n d arrive a t a satisfactory conclusion.

Mr. Calkins: I
The Chairman:

second that motion.
I

s there a n y further discussion

of

the m o t i o n ?
Governor V a n Zandt:

A r e w e n o t going a

of our province w h e n w e appoint a

little o u t

committee t o act with @

committee o f theAmcrican Bankers Association?

Governor McCord: I

aimed t o say "confer" with them.

I did n o t mean t o s a y that t h e y should a c t jointly, b u t


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that t h e y s h o u l d c o n f e r .

Governor V a n Zandt:

A l l w e c a n d o i s t o make recom-

mendations t o the Federal Reserve Board
o r adopt a policy
to b e used i n our o w n districts.
Mr-+ Calkins:

A l l w e c a n d o i s t o recommend a

policy

to b e u s e d b y o u r m e m b e r banks.

Governor Seay:

W e have already adopted t h e recommen-

dations i n our bank.
Governor Fancher:
The Chairman:

W e have also.

I s there a n y further discussion?

Governor Seay: B e f o r e the motion i s put I would like
to i n q u i r e a r o u n d

t o see h o w many banks

h a v e adopted this

practice.

(The question was asked, a n d i t developed t h a t t e n

banks had adopted the practice referred to.)
Mr. Calkins:

M y second t o the motion i s withdrawn. )

The Chairman:

T h e motion i s n o w unsupported.

Governor McCord: I

seem t o be popular.
adopt i t until I

will w i t h d r a w i t , a s i t d o e s n o t

B u t I want t o say that I will n e v e r

a m forced t o d o it.

The Chairman:

I s there a n y other subject that t h e

Conference wishes t o discuss a t this time?
Governor Wold:

W e might take u p Topic 18.

18. A U D I T O F GOLD SETTLEMENT FUND.
The Chairman:
Mr. Calkins:

M r - Calkins,

w e will hear from you.

T h e question regarding t h e auditing o f

the g o l d s e t t l e m e n t f u n d c a m e u p i n this w a y ,
M r . Chairman.

When Mr. Perrin, the Federal Reserve Agent for San Francisco,


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L512
learned t h a t I

was c o m i r g

t o this conference,

that i t w a s h i s t u r n t o n o m i n a t e a

a n d learned

man t o participate

i n the

audit o f the gold settlement fund, h e suggested that I
Should m

it. I

suppose,

h e knew what h e was asking, b u t

in discussing t h e matter with h i m after h e had nominated m e
I found t h a t i f o n e p a r t i c i p a t e d

i n this a u d i t h e w o u l d

also have t o participate i n the next one.
Suggesting that I

T h e object i n

should participatein t h e a d i t t h i s time

was t o S a v e m o n e y a n d m a k e i t u n n e c e s s a r y f o r a
all t h e w a y f r o m S a n Francisco,

man t o come

a t considerable cost.

B u t

when h e found that t h e second t r i p was involved h e withdrew
my nomination.

In discussing t h e matter with h i m w e arrived a t the
conclusion that some less expensive method o f auditing t h e
fund should b e devised.

T h e method n o w i n vogue involves

two trips f r o m each one o f the twelve banks.

T h o s e two

trips o f some m a n from t h e Federal Reserve B a n k o f San

Francisco would cost--- depending a little o n the man--- w o
will say $750.

$ 7 5 0 spent for the few minutes woik neces-

Sary t o audit t h e g o l d s e t t l e m e n t f u n d w o u l d n o t l o o k w e l l

in a Congressional report, o r , I mean, before a
inquiry.
adopted.

I

committee o f

t seems t o m e that s o m e o t h e r method should b e

B i t h e r t h e auditor should c o m e from o n e o f t h e

nearby banks,

o r t w o o r three o f t h e n e a r b y banks,

o r we

Should b e allowed t o select t h e auditor.
Governor V a n Zandt:
thing i n our district,

W e have considered t h e same

i n view o f the fact that i t left t h e

appointing o f a man t o make t h e audit t o our bank, w e had


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152

the idea that w e would appoint s o m e auditor o u t o f one o f
the nearby banks, a s k h i m t o serve a n d send u s t h e bill
for h i s expenses.
Governor McCord:

I

s n o t the expense p r o rated between

the banks?

Mr. Calkins:

Yes.

I t does n o t fall o n one bank.

But that i s not the point.

T h e point i s that i t i s a

uscless a n d unnecessary expense.

S o m e o n e from the Riggs

National Bank, o r any bank here, i f you please ,could make
the audit a s well a s someone f r o m o u r bank.
The Chairman:

H a v e y o u a motion t o make t o amend t h e

practice, M r e Calkins?
Governor Wold:

of Ltssif.

W o u l d i t not automatically t a k e care

T h e Federal Reserve B a n k will select a n auditor

from S o m e o t h e r b a n k nearby?

Mr. Calkins:

T h e present arrangement i s that a

man

should b e selected f r o m the Federal Reserve B a n k concerned,
going c l e a r a r o u n d t h e banks.
Mr- Curtis:

T h e m e n a r e selected

b y G o ~~" v r Strong

and Mr. Perrin from the Federal reserve banks i n turn.
Mr- Calkins:

I t i s n o w the turn o f the Cleveland

pank t o f u r n i s h a n “auditor.

Governor Fancher:
Mr- Curtis:

Yes.

O n e m a n acts twice i n succession s o that

at each audit there will b e one m a n who has done i t before.
Governor McCord:

A

s w e are close b y I

did n o t r a i s e

tho point, but 1 take the same view.
Governor McDougal: I

think t h e original p l a n was a


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153
very g o o d one,

i n i t s i n t e n t a t least, u n d e r w h i c h e a c h

bank w a s t o - b e r e p r e s e n t e d

i n t h e a u d i t f r o m t i m e t o time.

In order t o meet the possible criticism that Mr. Calkins
has -pointeé out, t o which w e might b e subjected, I

think

if the same p l a n were continued w i t h the understanding t h a t
the S a n Francisco bank, o r the other banks, i f they wish
to d o s o , c o u l d r e q u e s t a

their behalf,

bank n e a r b y t o select &

i t would settle t h e matter.

Mr- Calkins:

B u t w h y n o t d o t h e whole j o b u p a t once

and decide how it i s t o be done.
the o n l y b a n k a t a
St. Louis,

man o n

distance.

S a n Francisco i s not

T h e r e i s Minneapolis, D a l l a s ,

a n d others t h a t a r e a t a

considerable d i s t a n c e .

Why not l e t a man b e sent d o w n from N e w York o r Philadelphia?

The Chairman:

W o u l d i t not b e covered b y giving

authority t o substitute a
nated, t h e s u b s t i t u t e

representative f o r t h e o n e desig-

t o b e approved

b y t h e Chairman o f

the Federal Heserve Agents' Conference and tho Chairman o f
the C o n f e r e n c e

o f Governors?

Governor Seay:
lent purpose, t o o :

haphazard- I

Yes.

A n d i t would s e r v e this excel-

T h e examirer w o u l d n o t b e chosen a t

think Mr. MeDougal's point i s very well

taken a n d t h a t t h e p u r p o s e w o u l d b e b e t t e r a c c o m p l i s h e d

if

it w e r e p u t i n t o execution.

Governor McDougal:

M y thought w a s that i t vould not

produce criticism because i t looks better t o the outsider
to have e a c h bank represented either directly o r indirectly
from t i m e t o time.


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154

Mre Calkins:

T h e r e i s something i n that, Governor

McDougal.
The Chairman:

H a v e y o u a motion t o put, “Zr. Calkins?

Mr. Calkins: I
whatever

will move that the understanding,

i t is--- a n d 1

d o n o t know--~ b e amended s o a s t o

permit t h e Chairman o f t h e Federal Reserve Agents! Confer-

ence and the Chairman o f the Governors' Conference t o appoint a

representative

o r representatives

o f a n y Federal

Reserve b a n k t o m a k e t h e audit.
Governor McCord:
request

W o u l d i t not b e well t o S a y o n the

o f the rotating bank?

Mr- Calkins: I

understand t h e b a n k h a s nothing

say with regard t o the appointment.

t o

I t is=Lbett. t o the

Chairman o f the Governors Conference a n d t h e Chairman o f

the Agents' Conference.
Governor McDougal:
ting t h e a r r a n g e m e n t

T h a t “is trues I

suggest p e r m i t -

t o stand a s i t is, except

t o give a

bank t h e right t o indicate t h e representative o f some other
bank t o act f o r their bank.
Mr- Calkins; I

will accept that amendment, Governor

McDougal.

The Chairman:

I s there a

Governor Fancher: I
The Chairman: I

secom t o that motion?

will second the motion.

understand t h e s u b s t a n c e

o f the mo-

tion i s t h a t t h e F e d e r a l R e s e r v e B a n k f r o m w h i c h t h e a u d i tor h a s b e e n d e l e g a t e d h a s t h e r i g h t t o o f f e r a
subject

t o the approval

substitute,

o f the Chairman o f t h e Conference

of Governors a n d the Chairman o f the Federal Reserve Agents'


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Federal Reserve Bank of St. Louis

255

Conference t o make the audit o n their behalf:

I s there

any f u r t h e r d i s c u s s i o n ?

(There w a s n o further discussion a n d t h e motion was
darried. )
Governor Fancher: M r - + Chairman, I
up T o p i c No.

suggest that w e take

2 0 a n d dispose o f it.

20. A M E R I C A N B A N K E R S ASSOCIATION.

(a) I n v i t a t i o n t o Conference i n May.
(b) I n v i t a t i o n t o Join National B a n k Section.

Mr+- Curtis:

T h e American Bankers' Association have

sent u s t w o invitations.

T h e first o n e i s contained i n

a letter f r o m Mr. Farnsworth, addressed t o m
under date o f February 25, 1916.

a t New York,

I t i s a s follows:

"My dear Mr- Curtis:
The Spring meeting o f the Executive Council o f t h e
American B a n k e r s ' A s s o c i a t i o n w i l l b e h e l d a t B r i a r c l i f f

Lodge, Briarcliff: Menem, t y ts, o n Mey Sth, : Oth, a n d 1oOth,
1916.
This m e e t i n g b r i n g s t o g e t h e r a b o u t o n e h u n d r e d b a n k e r s

twhich form our official family) a n d their wives.
At the last meeting o f the Lxecutive Committee o f our
National Bank Section, said Committee unanimously directed
me t o extend t o your body a n invitation t o visit Briarcliff
Lodge a t t h a t time;

a l s o , should y o u desire

t o hold a n y

meetings, arrangements will b e made t o furnish rooms f o r
the purpose,

The Administrative Committee o f our Association join
the National B a n k Section's Executive Committee i n extend-


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this invitation,
These meetings bring together bankers f r o m every State
of the Union a n d i t would please t h e officials o f t h e Association t o have y o u meet t h e bankers o f the country a t that

time officially o r personally."
In reply t o that I

wrote that I doubted whether

this Conference wanted t o meet together w i t h a n y other body

in joint conference formally, but that 1 felt sure i f I laid
this invitation before t h e group that s o m e members would
like t o come unofficially,

i f that would b e appropriate.

I told h i m I would l a y this before t h e next meeting, a n d
in r e p l y t o t h a t h e wrote a s follows:

"My dear Mr. Curtis:
I acknowledge receipt o f your courteous letter o f
March 17th; a n d thank y o u for t h e information contained
therein. I

c a n understand t h a t y o u r Conference m i g h t

feel, t o holda regulab conference w i t h our meetings would
be impracticable.
When, however, t h e Governors c a n act o n oub invitation a s t o individual attendance,

w e shall b e glad t o see

that t h e y a r e properly provided w i t h good hotel reservations."
As i t stands n o w that i s submitted here f o r final

action. I

simply wrote him that 1 felt sure they would

not want t o d o it, b u t I did not m a k e a
The Chairman:

by Mr- Curtis:

definite statement.

Y o u have heard t h e communications r e a d

I s there any action?

Governor Seay: S i n c e that time I imagine w e have all
received i n d i v i d u a l i n v i t a t i o n s ,

and I

would l i k e t o inquire


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Federal Reserve Bank of St. Louis

if a n y individualis g o i n g ?

Governor Fancher: I
Governor W o l d : I

expect t o b e there, Governor Seay.
have declined.

Governor M c C o r d : I

have declined.

Governor M i l l e r : I

have declined.

Mr. Calkins: I

move that Mr. Curtis' action b e approv-

Governor Fancher: .
The Chairman:

I

I secom

t h e motion.

s there a n y further discussion

o f the

motion?

(There was n o further discussion and the motion was
duly carried.)
Mr. Curtis:
vitation

T h e next letter has reference t o the in-

t o join t h e National B a n k Section o f theAmerican

Bankers' A s s o c i a t i o n . I

have a

letter a d d r e s s e d

t o our

cashier, f r o m the Secretary o f t h e National B a n k Section o f
the A m e r i c a n B a n k e r s A s s o c i a t i o n ,

w h i c h i s a s follows;

"My dear Mr. Sailer:

"I a m glad t o know that your bank i s a member o f
the American Bankers Association, a n d desire t o call your
attention t o the fact that i n the Association there h a s
been o r g a n i z e d a

S e c t i o n k n o w n a s t h e N a t i o n a l B a n k Section.

Your b a n k , b e i n g a
bership

Federal i n s t i t u t i o n ,

i n this S e c t i o n w i t h o u t expense.

i s entitled

t o mem-

P l e a s e have the

enclosed c a r d e # e c u t e d a n d r e t u r n t o u s b y f i r s t m a i l , a n d
you w i l l b e i m m e d i a t e l y e n r o l l e d a s a

member.

"It i s hoped b y co-operation through this Section,
to bring about sound, constructive a n d corrective legisla-


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tion a n d t o prohibit

a s f a r a s possible t h e enactment

harmful a n d unwise monetary laws:
Gone towards bringing

of

G r e a t work c a n b e

a b o u t uniformity a n d betterment

in banking methods a n d w e believe i t i s t h e purpose o f
your bank t o join i n any move i n that direction.
Awaiting t h e return o f the card a n d assuring y o u that
we shall b e very glad t o have y o u write u s wheneyer t h e

National Bank cr Clearing House Sections can be of service
to you, a n d w e s h a l l a l s o b e p l e a s e d

t o have y o u give u s

the benefitof your ideas a n d views o n matters o f common

interest, I am, with good wishes."
That i s signed b y Mr- Jerome Thralls, t h e Secretary,
and i s dated March 6 , 1916.
I think w e answered t h a t b y telephone t o the effect
that w e p r e f e r r e d n c t t o a c t a l o n e
take i t u p a t t h e n e x t n m n f e r e n c e

o n t h e matter, b u t w o u l d
o f Governors.

Governor Strong was away at the time, and Isee a notice
here i n pencil b y Mr, Jay that he thought it would be better=to h a v e

c o m e

u p for discussion

a t the Conference

the propriety o f the reserve banks going into that National
Bank Section.

The Chairman:

I s there a n y discussion o f this matter?

Governor Miller: I
it.

W

e a r e members

d o n o t t h i n k w e ought

t o g o into

o f the American Bankers Association

and i n time we will have a great many state bank members
of o u r systems, I

d o not t h i n k w e should j o i n a n y parti-

cular faction ofthe American Bankers Association.
The Chairman: I
Go €rnor Wold:

feel that w a y v e r y decidedly.
T h e purpose

o f t h a s e c t i o n i s t o pro-


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mote legislation.

I

t seems t o m e that i t would b e very

unwise f o r u s t o j o i n i n a n y o r g a n i z a t i o n

t o promote legis-

lation i n Congress, identified a s we are with the Federal
Reserve Board, a n d being semi-Government banks.
Governor McCord:

T h a t i s m y v i e w o f t h e situation.

I was a member o f the Executive Council o f that Section
and resigned because I

thought i t was m y duty. I

was n o t

compelled t o resign, but 1 resigned because | thought i t
was right.
Governor Seay:
way.

d

o

R O L Lock at. 1 4 -quite: i n -that

w e are members o f t h e American Bankers Association.

We a r e Limited members, a n d w e d o not participate i n the
vote.

I t i s only b y virtue o f the fact that w e are membcrs

of the Association that w e are members o f this Section.
Wo could n o t take a n y greater part i n this t h a n w e c a n i n
the A m e r i c a n B a n k e r s A S S CGiation.

S u p p o s e t h e State

banks were t o form a n association within t h e American Bankers Association.

W e could with just a s much propriety

be members o f them both-

I t seems t o m e i t i s a case o f

the greater composing t h e lesser.
Governor Miller:

joining the

W h a t w o u l d b e t h e object

o f our

S t a t e Section?

Governor Seay:
the o t h e r members.

M e r e l y because w e a r e just like a l l
W

e a r e privileged

ef o u r l i m i t e d m e m b e r s h i p

t o d o s o b y reason

i n the American Bankers Associa-

tion.
-Governor Miller:

S u p p o s e there was a

State s e c t h o n

organized a n d they would write u s just that same kind o f a
lottor.

I f w e Should become members

o f that

w e would

be


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160
members o f a n organization t o promote legislation f o r
the s t a t e banks.

Governor Seay:
legislation.

W

B u t w e d o not participate i n any

e cannot d o that under t h e terms o f o u r

t h th e A m
p w ii
se r i cra n Bea n k ebr s 'mAssociation.
e
m

Governor wold:
Bank Section.

T h a t i s the object o f the National

T h e y S80 state i t i n their letter.

Governor Seay:
The Chairman:

T h e n w e could nct dao it:
W o u l d w e not have t o join the trust

section and the savings bank section i n the Same way?
Governor Seay:
The Chairman:

W e might.
W o u l d there b e any merit i n our doing

that?

Governor Seay:

T h e r e would n o t b e unless t h e same

thing i s e q u a l l y t r u e o f a l l o f t h e s e sections,
a member

thereby a

o f t h e American Bankers

Association

t h a t being

you are

member o f theothers.

Governor Miller:

W

e might h a v e trust companies b e -

longing t o our system.

Governor Seay: I

mean that being a member o f the

American B a n k e r s A s s o c i a t i o n e n t i t l e d y o u t o b e e n r o l l e d

in this National Bank Section, a n d I therefore cannot see
any i m p r o p r i e t y

i n a l l o w i n g t h e m t o e n r o l l o u r n a m e s there.

You have n o rights other t h a n those granted y o u through

membership i n the American Bankers! Association.
Governor Wold: I

think there would b e impropriety

in joining a n association f o r promoting legislation.
Governor V a n Zandt: I

think w e would bring severe


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criticism upon o u r banks i f w e were t o join that section
with S u c h purposes.
Governor Seay:

W h a t i s t h e purpose

Bankers Association?

o f the American

I s i t t o promote legislation?

Governor Miller:

N o t necessarily.

i

y t e t o pet—

ter banking practices a n d exchange views, a n d s o forth.
Governor McDougal: I

would like t o know t h e object

of t h e N a t i o n a l B a n k S e c t i o n o f t h e A m e r i c a n B a n k e r s A s s o ciation.

Governor Wold:

T h e object i s stated i n that letter.

Governor V a n Zandt:

I t i s stated here a s follows:

"It i s h o p e d b y c o o p e r a t i o n t h r o u g h t h i s s e c t i o n ,

t o

bring a b o u t s o u n d , c o n s t r u c t i v e a n d c o r r e c t i v e l e g i s l a t i o n

and t o prohibit a s far a s possible t h e enactment o f harm-

ful and unwise monetary laws."
Governor Miller:

A n d t h e legislation promoted might

be exactly different f r o m amendments t o the l a w which the
Federal R e s e r v e B o a r d m i g h t b e t r y i n g t o g e t through.
Governor Wold:

Y e s .

I

t w o u l d b e v e r y unwise, i

Should think.
Governcr Seay: I

clear.

do not think I

made m y p o i n t q u i t e

T h e same thing would undoubtedly b e trueof t h e

American B a n k e r s A s s o c i a t i o n a s a
joined t h a t a s s o c i a t i o n

whole.

W h e n we

i t was w i t h t h e cistinct under-

Standing that w e would have n o part i n the vote.

N o mat-

ter what, the purposes o f the National B a n k Section a r e w e
could n o t p a r t i c i p a t e

i n them because o u r membership

the p a b e n t a s s o c i a t i o n ,

w h i c h gives u s t h e privilege

in
of


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162
enrollment

i n this s e c t i o n , d o e s n o t e n t i t l e d u s t o that.

Governor Wold:

T h e n w e c a n Stay out a n d avoid e v e n

the appearance o f evil.
The Chairman:

I

s i t n o t true: t h a t t h e p u r p o s e s

of

section a r e more specific i n their relation t o legislathan the purposes o f the American Bankers Association
whole?

Governor Seay:

T h e y may be, Mr. Chairman.

The Chairman:

M y feeling has been, after attending

a great m a n y meetings o f the Lxecutive Council o f the American Bankers Association, t h a t there i s agreat deal besides
t i s partly a

social

legislative m a t t e r s b r o u g h t u p .

I

affair, partly toget acquainted;

b u t t h e purpose o f the

National Bank Section, a s I understand it, i s t o carefully
scrutinize p r o p o s e d l e g i s l a t i o n a n d t o s u g g e s t l e g i s l a t i o n ,

That

i

s the purpose o f it.

Is there a n y further discussion o n this question?
Is a n y o n e p r e p a r e d

t o make a

motion c o v e r i n g t h e a t t i t u d e

of t h e Conference a s t o our joining the National B a n k Section?
would Like t o inquire whether

Governor McDougal: I

all t h e banks here have received a n individual invitation
to join this séction?

(It developed that most of the banks had received
such a n invitation. )

Governor McDougal:

W e received one and passed i t along

without very much thought. I
was taken.

don't know that any action

w e s a w n o objection t o i t a t the moment, a n d


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it i s p o s s i b l e t h a t a c t i o n w a s taken: I
ply a s a

metter o f formality. I

vote o n it.

looked a t i t s i m -

do n o t think w e had a n y

S i n c e i t has b e e n discussed h e r e I

think i t

is o f p r o b a b l y m o r e i m p o r t a n c e t h a n w e h a d a t t a c h e d
Mr- Curtis:

W

t o it.

e were informed t h a t Philadelphia a n d

Kansas C i t y h a d joined.

Governor Miller:
Governor Rhoacs:
Mr. Calkins:
impropriety

I

N o t Kansas City.
Well, I
t seems

i n our joining

will s a y net t o m y knowledge.

t o m e whether there i s a n y

o r not t h a t i t i s n o t expedient

at this time t o accentuate t h e line between t h e national
banks a n d t h e state banks.

I n other words, w e ought n o t

to a l i g n o u r s e l v e s e s p e c i a l l y w i t h e i t h e r side.
The Chairman:

T h i s matter h a s b e e n quite generally

discussed, a n d w e should have a motion.
Governor Fancher: I

move y o u i t i s the sense o f the

Conference t h a t i t i s not advisable t o enroll t h e Federal
Reserve B a n k s

a s members o f t h e National B a n k Section o f

the American Bankers' Association at this time.
The Chairman:

o u l d you permit the Secretary t o

clothe that i n his usual diplomatic w a y a n d send i t t o the
Secretary

o f t h e Section?

Mr. OCyrtis: I

think a s t h e i n v i t a t i o n h a s c o m e t o

the individual banks that t h e reply should g o from the individual banks.

T h i s action i s only t o g o back t o our

banks.

The Chairman: G e n t l e m e n , y o u have hoard t h e motion.
Is there a n y further discussion?


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(There w a s

n o further discussion

a m

t h e motion was

carried. )

(Whereupon,
seconded,

a t 6:20 o'clock p . m., upon motion duly

t h e C o n f e r e n c e a d j o u r n e d u n t i l tomorrow, T u e s d a y ,

April 18, 1916, a t 9:30 o! clock. 4.- im.)

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