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Federal Reserve Bank of St. Louis
SEVENTH CONFERENCE
GOVERNORS O F FEDERAL RESERVE BANKS
WASHINGTON, D. C.
- SHOREHAM H O T E L
WALTER
S. COX
SHORTHAND REPORTER
COLUMBIAN
BUIDING—TEL.
WASHINGTON,
D . C.
M . 8324
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Federal Reserve Bank of St. Louis
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e
D
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E Ss
Shoreham Hotel, Washington, D . C .
Tuesday, April 18, 1916.
The Conference reassembled a t 9:30 o'clock a. m ,
pursuant t o adjournment, Governor Strong presiding.
The Chairman: G e n t l e m e n , t h e meeting will please
come to order.
We c o n c l u d e d o u r d i s c u s s i o n y e s t e r d a y , having c o m p l e t -
ed the first nine items o n the pregram, b u t w e omitted a n y
reference t o Topic No. 8,"Foreign arrangements.”
A r e yau
interested i n this subject o f foreign arrangements,
o r do
you w a n t t o p o s t p o n e i t s c o n s i d e r a t i o n u n t i l a f t e r t h e w a r
is over?
would l i k e v e r y m u c h t o h e a r
Governor McCord: I
something about i t myself, f o r this reason:
W e have some
cotton t h a t t h e y h a v e g o t t o have o v e r i n t h e t country,
war
or n o war, a n d w e want t o know what i s going t o b e t h e result o f t h e proposition.
O
f course
are n o t t o g o against t h e w i s h e s
m y views
o r wishes
o f t h e m a j o r i t y here.
If t h e g e n t l e m e n presj@mt d o n o t w a n t t o h e a r i t I
will
ply s i t d o w n a n d b e Satisfied.
8. F O R E I G N ARRANGEMENTS.
The Chairman: I
suppose w e a l l agree about what t h e
Act means i n regard t o foreign arrangements.
T h e Act i s
very specific a s t o what t h e Federal Reserve Banks a r e e x -
pected t o do. S e c t i o n 14 cf the Act provides that Federal |
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Federal Reserve Bank of St. Louis
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Reserve Banks m a y open a n d maintain banking accounts i n
foreign countries, a p p o i n t c o r r e s p o n d e n t s
a n d establish
agencies i n such countries, wheresoever i t m a y deem best
for t h e purpose o f purchasing, selling a n d collecting bills
of exchange, a n d t o buy a m s e l l w i t h o r without i t s endorsoments, t h r o u g h s u c h c o r r e s p o n d e n t s
o r agencies, b i l l s
of
exchange arising o u t o f actual commercial transactions
which h a v e n o t m o r e t h a n n i n e t y d a y s t o r u n a n d w h i c h b e a r
the Signature o f two o r more responsibie parties.
There i s n o power conferred u p o n t h e Federal Reserve
Banks, u n d e r t h e t e r m s o f t h e act,
t o do a
general b a n k i n g
business i n foreign countries, a n d certainly t h e Act
never contemplated that anything o f the sort should b e
undertaken
b y t h e r e s e r v e banks.
T h e y a r e merely permit-
ted t o use their funds i n foreign countries t o buy bills
of certain specific character, a n d the problem o f making
the necessary arrangements f o r the purchaseof the bills i s
a comparatively simple one.
somebody,
buy bills,
T h e y simply have t o select
o r appoint t h e i r o w n man, w h o i s c o m p e t e n t
t o buy them.
to
W h e n i t i s not profitable t o
buy t h e m they discontinue buying t h e m and let t h e m r u n
off.
T h e s e bills c a n b e purchased, u n d e r t h e terms o f
the Act, w h e n t h e y c r i g i n a t e
i n this c o u n t r y ,
a s document-
ary bills, o r they may be purchased i n foreign countries
after t h e y h a v e b e e n accepted.
I have always f e l t that i t would b e a mistake f o r t h e
Federal Reserve Banks t o jump into t h e exchange market a n d
buy long documentary bills i n competition w i t h their o w n
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members a n d p r i o r t o acceptance,
a n d undertake a l l t h e
trouble a n d e x p e n s e o f t h e e s t a b l i s h m e n t
o f all t h e machin-
ery necessary f o r the handling o f documentary bills, w h i c h
is not a Simple thing a t all.
i t would b e a mistake f o r
them t o d o that when they c a n sidestep a l l o f that compli-
cation b y buying their bills abroad after the documents
have b e e n d e t a c h e d a n d a f t e r t h e b i l l s
h a v e b e e n accepted.
Proceeding u p o n t h a t t h e o r y w e w o u l d l e t t h e b i l l s
country, S u c h b i l l s a s w o u l d o r i g i n a t e
go through i n the ordinary course,
i n this
i n y o u r district,
T h e y a r e all bought.
There a r e lots o f buyers f o r those bills, a n d t h e profit
to t h e b a n k i n b u y i n g t h e b i l l h e r e r a t h e r t h a n i n buying
it
abroad i s i n the exchange turn-over a n d i s not i n the interest at. all, a s a rule.
interest profit.
w e would b u y t h e bills f o r a n
T h e o r d i n a r y b u y e r o f those b i l l s b u y s
them f o r t h e e x c h a n g e p r o f i t ,
t o make f o r e i g n exchange f o r
him. T h e r e f o r e t h e only matters that I
investigated o v e r
there particularly w i t h reference t o bills were t h e general
bill market, t h e type o f bill, a n d s o forth, t h a t was i n
circulation there, a n d the general subject o f arrangements
for representation i n Paris a n d London. I
think something
can b e done, w h e n t h e time comes f o r u s t o d o it, i n a
very S a t i s f a c t o r y w a y t h r o u g h s o m e o f t h e i m p o r t a n t b a n k s
over there. F u r t h e r m o r e , 1
mdeon
such a
think arrangements c a n b e
basis t h a t w o w i l l n o t h a v e t o b o t h e r v e r y
much about t h e credit;
t h a t wie will g e t guarantys t h a t
are satisfactory f o r a l l the bills t h a t w e buy.
that i t very much simplifies t h e work.
I f we do
W e could handle
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the a c c o u n t j u s t e x a c t l y a s w e h a n d l e t h e p r e s e n t i n v e s t -
ment account,
o r some other arrangement better t h a n that
could b e devised,
i f desirable,
b y which these bills a r e
purchased i n large blocks, either shipped over here o r
held o v e r t h e r e f o r o u r a c c o u n t a n d a
madc;
report o f t h e p u r c h a s e
t h e y could b e collected a s t h e y mature a n d t h e pro-
ceeds paid i n t o o u r account.
We also could m a k e arrangements o v e r there b y which
wouldb
e drawing interest,
all o f our balances
course,
a t t h e p r e s e n t time,
a m of
a t v e r y s a t i s f a c t o r y rates.
While I l was over there I
could have purchased some
millions o f pounds sterling o f the very best bills t h a t
you could want, m a n y o f them bearing t h e endorsement o f
good American banks,
i n which w e all have supreme confidence.
But i t did not seem wise, without having a n understanding
with t h e F e d e r a l R e s e r v e B o a r d i n Washington,
a t a n y rate,
to begin this business until t h e whole subject h a d been
thoroughly t h r e s h e d out.
Governor Wold:
Y o u a r e completely satisfied t h a t w e
ougnt not t o buy bills here, then?
The Chairman:
Yes.
tion w i t h o u r o w n members,
I t j u s t brings u s i n competiY o u accomplish absolutely
nothing b y doing i t except t o put yourself i n the market
on this e n d f o r possibly a
fourth exchange profit.
is t o it.
one-sixteenth o r one-sixth-
T h a t i s all t h e advantage there
T h e bill goes over there and the interest
rate i s j u s t t h e s a m e w h e t h e r y o u b u y i t o v e r h e r e o r o f e r
there, because y o u a r e discounting i t o n the basis o f the
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discount r a t e o v e r t h e r e a n d n o t o n t h e b a s i s O f t h e d i s =
count r a t e o v e r here,
Governor McCord:
S o m e o f our member banks want u s
to handle t h e i r foreign bills. I
d o not m e a n t h e y want
us t o carry them for them, b u t t o handle t h e m for their
credit.
I s i t possible t h a t a n arrangement c a n b e m a d e
whereby these c a n b e sold b y y o u i n New York t o advantage
and p u t u s o n a n e q u a l f o o t t i n g w i t h t h e s t a t e b a n k s ?
The Chairman:
O h , yes, w e c a n handle that business.
That i s s i m p l y h a n d l i n g N e w Y o r k exchange.
Governor McCord: C e r t a i n l y , b u t i t must b e i n this
form.
T h e draft h a s g o t t o have the documents attached
and y e t i t i s n o t accepted.
and o f c o u r s e t h e r e i s a
I
t passes
t o t h e other side,
telegraphic a c c e p t a n c e
o r arrange-
ment w h e r e b y i t i s accepted.
Governor Strong:
W
e have handled a
great m a n y m i l -
lions o f these ce. tton drafts a t the Trust Company,
they a r e o f this native.
am
Y o u r member bank sells a
at 9 0 days S i g h t o n London, w i t h d o c u m e n t s a t t a c h e d ,
the New York correspondent.
correspondent,
documents,
I
draft
t o
t draws o n the New York
a t t a c h i n g t h e L o n d o n draft, w i t h a l l t h e
t o the N e w York draft.
Governor McCord:
The Chairman:
Yes.
Y o u r bank does n o t endorse t h e London
draft a t all.
Governor McCord:
The Chairman:
member bank.
I
N o .
T h e transaction i s between y o u a m y u u r
t would simply b e buying s o much N e w York
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Federal Reserve Bank of St. Louis
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exchange.
T h e p a p e r s a n d t h e L o n d o n draft, a t t a c h e d
to
the New York draft, are negotiated i n New York a t some
exchange h o u s e , l i k e t h e G u a r a n t y T r u s t C o m p a n y ,
a n d your
interest i s i n giving service t o your member bank i n negotiating that draft.
That i 8 easy.
T h e r e i s n o difficulty i n doing that.
I t i s easy enough t o make arrangements t o
negotiate those drafts f o r s o many days until that draft
and t h e d o c u m e n t s a r e p r e s e n t e d f o r a c c e p t a n c e
that is, s o long a s your credit i s good.
i n Londong
T h e holder o f
the draft i s taking a risk that the documents are i n order
and that they represent real cotton; that the credit is
opén and that the draft will b e adteopted when presented i n
Londons
Governor M c C o r d ?
W
e require that o u r member banks
guarantee t h e p r o d u c t r e p r e s e n t e d
b y t h e lading.
A t what rate could those choice
Governor Fancher:
bills h a v e been purchased a t this time?
The Chairman: I
was i n the Union Discount Company,
Nugent
talking with S i r Christopher , one day, w h e n a batch o f
think
bills came i n that h e had just purchased himself. I
in round figures there was $750,000 worth o f bills o r 150,000
pounds worth.
H e said that there w a s a
that h e could sell a t 5-1/8, I
Guarantee
batch o f bills
think i t was, w i t h t h e
o f t h e Union Discount Company, w h i c h w a s a
oughly responsible institution. I
thor-
looked a t all o f those
bills a n d every dollar o f them were American bills bearing
the e n d o r s e m e n t
o f t h e Farmers L o a n a n d Trust Company,
Equitable T r u s t C o m p a n y ,
J . P. Morgan &
Company,
the
t h e Bank
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Federal Reserve Bank of St. Louis
ath
do not think there were a n y
of California, a n d S o on. I
Bankers Trust Company bills there, b u t there were s o m e
Guaranty's
a n d some Hanover National Bank.
A
t a n y rate
they were a l l names with which w e are thoroughly familiar
and k n o w t o b e absolutely good.
Then I was i n Lloyds Bank one day and Sir Felix
Schuster s h o w e d m e a
batch o f b i l l s t h a t h e h a d p u r c h a s e d
in the market, j u s t a million pounds sterling.
M a n y of
those b i l b came f r o m the east, b u t i f you are acquainted
with t h e n a m e s
o n the London market y o u would realize t h a t
each a n d every one o f t h e m was just a s good a s wheat.
of t h e l a r g e s t b a n k s
Some
i n London, Paris, U n i o n o f London, S m i t h s ,
the London City Midland, and most o f them bore also the endoresement o f colonial banks like t h e Hong Kong a n d Shanghai
and t h e C h a r t e r Bank.
T h e y looked awful good, a n d i t was
very tempting.
Governor Seay:
The Chairman:
A t 5-1/8?
Y e s .
T h e rate i s a
little l o w e r n o w
than i t was.
Governor wold:
I f you will observe t h e liability o f
some o f those eastern banks o n account o f the endorsement
om bills, y o u will s e e that i t runs into very large figures.
The Chairman:
Y e s , b u t that i s their business.
far a s t h e i r e a s t e r n b u s i n e s s
houses,
pany.
S o
i s concerned t h e y a r e discount
i n effect, l i k e t h e Union o r National Discount ComT h e y gather those bills
u p i n all t h e markets
where t h e y have offices a n d send t h e m through t o London f o r
acceptance a n d discount.
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Federal Reserve Bank of St. Louis
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Governor McCord:
ancc h o u s e
I s not t h i s true, t h a t i f a n accen-
i n London begins
t o accept certain matters
arc n o t standard, t h e y lose o u t themselves? I
the c l a s s o f t h e i r p a p e r b e g i n s
The Chairman:
W h e n a
that
mean, that
t o g e t below p a r ?
name a p p e a r s t o o m u c h i n t h e
market there i t develops w h a t t h e London bankers c a l l a
"Market resistance".
Mr+ Curtis:
T h a t i s certainly a
The Chairman:
Yes.
and s e n s i t i v e i n s t r u m e n t .
very p o l i t e term.
T h e market i s a mas t
I
delicate
t detacts t h e m r i g h t away.
The bills a r e s o current t h a t t h e y pass around f r o m hand
to h a n d v e r y frequently.
F o r instance Mr. Padgett,
the
head o f the discount department o f t h e Bank o f ungland,
sald t o m e t h a t t h e m o s t d i f f i c u l t p a r t o f h i s j o b w a s t o
throw o u t o f t h e b u n d l e s
they a r e n o t i n c l i n e d
putting a
o f bills which
t o take.
red m a r k o n a
H
com
i n those that
e said i t was just like
bill, b e c a u s e e v e r y t i m e t h e y d o
it the fact gets known around t h e market.
T h e y handle
that matter with great skill and delicacy s o that offense
is n o t given.
B u t t h e market i s s o well educated a s t o
what t h e Bank o f England will o r will n o t take that there
are very f e w bills offered there that t h e y are n o t certain
the b a n k w i l l take.
Governor McCord:
W e see that i n our experience.
When a bank begins t o discount with us w e throw out a certain c l a s s
o f paper.
T h e y take t h e hint t h a t that class
of p a p e r w i l l n o t p a s s w i t h u s a m t h e y d o n o t s e n d i t in.
The Chairman:
O
f course t h e bill business
i n London
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Federal Reserve Bank of St. Louis
173
is a
t o what i t i s i n Paris.
mere b a g a t e l l e
the d i s c o u n t d e p a r t m e n t
T h e head o f
o f t h e B a n k o f France, M r . P a l l i a n
told m e h e had 450 clerks i n his department j u s t handling
the bills that c a m e in; a n d a thousand messengers.
said t h e r e w e r e d a y s
H e
o n which h e h a d c o l l e c t e d 1 0 0 , 0 0 0 b i l l s
in the City o f Paris b y hand; that h o had collected that
many i n o n e day.
Governor Wold :
T h o s e bilis average very small.
The a v e r a g e a m o u n t i s v e r y s m a l l coinpa red w i t h t h e a v e r a g e
amourt o f the bills i n London and New York:
The Chairman: ‘ T h e vbdlithe af bills that comes into the
Bank of ngland i s not determined b y the necessity of the
bank for rea@isddint or credit. I
think it ms been the
fuppeastion i n this country that the Bank o f France has discounted a n immense quantity o f bills f o r bamks o v e r there
that n e e d t o build u p their reserves t o meet demands m a d e
upon them.
B u t t h a t i s n o t r e a l l y t h e c a s e a t all.
Bank o f France charges a
T h e
minimum discount o f five days,
at the bank rate, o n every bill which i s discounted, e v e n
if i t h a s o n l y o n e d a y t o run.
T h e i r facilities f o r
collection a r e s o vastly superior t o those o f a n y other
bank that i t i s the custom a f t h e banks there t o dump a l l
their bills o n them within five days o f maturity.
Governor S e a y :
T h e y m u s t c h a r g e a s m u c h a s 1,000
per c e n t i n s o m e c a s e s ,
The Chairman:
Long t h e b i l l runs.
France
i s simply a
T h e y charge f i v e days, n o matter h o w
I
t really means t h a t t h e Bank o f
collection a g e n c y f o r a l l o f t h e s e d o m e s -
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Federal Reserve Bank of St. Louis
$20 Bilis.
Governor Fancher:
S
o t h a t i n effect t h e five d a y
minimum interest charge i s really a
The Chairman:
I
service charge?
t i s really a
service charge- W h e n
you read over t h e figures o f what t h e Bank o f France does
in bills, t h e turn-over, a n d s o on, i t looks a s though they
are doing a n immense discount business, w h e n i n reality
it i s a n immense collection business.
Governor Fancher:
I s Paris a n open m r k e t f o r t h e
purchase of such bills a s the Federal Reserve Banks might
want, o r is London the market?
The Chairman:
L o n d o n i s the matkets
Y o u can buy
the bills i n Paris, b u t y o u d o not b u y them t h e same w a y
that y o u d o i n London, because t h e y have n o discount houses
and n o b i l l b r o k e r s
i n t h e s e n s e t h a t t h e y h a v e i n London.
The transactions between t h e banks i n bills a r e conducted
by a rather cheap l o t o f brokers t h a t deal i n anything f r o m
a pawn ticket t o a n automobile,
o r life insurance a n d bonds
and stocks o f foreign exchange.
Governor Fancher:
The Chairman:
Governor Seay:
A n d scalps a
Small c o m m i s s i o n ?
Yes.
A r e t h e bills a l l subject
t o prtest
it not. pard?
The Chairman:
Governor Seay:
item, I
Yes.
T h e r e i s n o protest o n a ten dollar
presume?
Governor Wold:
conccrns.
Y o u refer t o brokers
a m discounting
T h e discounting concerns referred
t o i n London
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Federal Reserve Bank of St. Louis
Lin
Giscount t h e i r o w n bills.
T h e y would n o t g o through a
bill broker, w o u l d they?
The Chairman: I
d i d n o t understand t h a t , G o v e r n o r
Wold.
Governor Wold: I
was speaking o f the discount concerns.
If they wish t o melt five millions o f bills, t h e y would
take i t t o the Bank o f +ngland.themselves a n d would n e t take
Lt t o
s e o
e
The Chairman:
happens
T h a t i s not t h e w a y i t works.
W h a t
i n t h e c a s e o f t h e U n i o n D i s c o u n t C o m p a n y i s this;
they a r e b u y i n g b i l l s f r o m a l l o f t h e various b a n k i n g a g e n -
cies.
T h e y b u y the bills t h a t come into t h e Oharter Bank
of London,
t h e R i v e r Platte Bank, t h e B a n k o f India,
Australian banks, a n d s o on.
T h e y have a
ment w i t h t h e m a n d q u o t e t h e m a
rate.
the
regular arrange-
T h e y might b u y
them from the Guaranty Trust Company, t h e Equitable Trust
Company,
o r the Farmers L o a n Company, American bills, w h i c h
bills a r e drawn s a y a t 9 0 days sight a n d r u n for 9 3 days,
on account
o f t h e t h r e e d a y s grate.
T h e arrangement t h e y
make w i t h most o f their customers, f r o m whom they b u y bills,
is t h a t t h e y w i l l g i v e t h e m a
ance.
discount t h e d a y a f t e r a c c e p t -
T h a t g i v e s o n e d a y f o r acceptance.
count c o m p a n y s e l l s t h e b i l l i t h a s 9 2 d a y s
W h e n t h e dist o run.
T h e
Union Discount Company does n o t necessarily s e l l those
bills, b u t frequently carries them, because t h e y receive
many deposits o n which t h e y allow a rate o f interest a t a
Somewhat l e s s r a t e t h a n t h e a v e r a g e t h e y a r e p a y i n g o n t h e
© Sebaape
I f the market s h o u l d show a
tendency t o g o up, t h e n
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Federal Reserve Bank of St. Louis
176
the Union Discount Company would call i n the bill brokers;
they would offer those bills t o the banks t h a t are buying
bills, Lloyé€s, t h e Union o f London,
o r t h e London City.
If the market w a s n o t inclined t o take t h e bills, a n d they
had t o h a v e t h e money, t h e n t h e U n i o n D i s c o u n t C o m p a n y w o u l d
go t o the Bank o f “ngland a n d t u r n i n a batch o f bills w i t h
a liability agreement,
v e r y bill that t h e Union Discount
Company turns o v e r i s either accompanied b y a liability
agreement; which makes i t liable for every bill a s a n endorser constructively, o r else i t actually endorses the
bills; and the liability agreement they give with a batcH
of bills contains a provision--- and I have some o f those
here--- that the other party c a n require t h e Union Discount
Company t o put its endorsement o n the bill i f they want t o
negotiate it.
T h e liability agreement i s simply a mechan-
ical device t o relieve the discount company o f inconvenience
and detail i n endorsing s o many bills.
Governor Wold: W o u l d that apply t o the dealings o f
the Bank o f “ngland with the bill brokers? W o u l d they buy
bills f r o m the bill brokers, wnosell t h e m o n the market
without their endorsement?
The Chairman:
T h e bill broker a s a
rule b u y s b i l l s
and shifts them b y carrying them as day t o day loans, o r
seven day loans,with the banks.
F o r instance a bill
broker might have strong clients all through the United
Kingdom from whom h e i s buying bills.
T h e y make a
rate
which i s slightly higher than the rate a t which they can
borrow the money o n the bill.
T h e y g o around through t h e
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Federal Reserve Bank of St. Louis
Ey2s
market a n d b o r r o w m o n e y f r o m C a y t o day,
o r o n s e v e n days!
notife,and t h e n i f t h e market g o e s a g a i n s t t h e m a n d t h e y
{J
have t o h a v e t h e money, t h e y g c t o t h e B a n k c f iunglam a n d
ell the bills.
rate.
H e ig always figuring against the bank
T h a t i s his rule, h i s provectibn,
Ho k n o w s
h e c a n get o u t a t a
s o t o speak.
1losS n o g r e a t e r t h a n t h e d i f -
ference between t h e rate a t which h e got t h e bill a n d t h e
rate t h e Bank c f mngland will charge h i m for it. N a t u r a l y
the bill broker i s exceédingly careful n e t t o actumulate
a lot o f bills w h i c h h e cannot m e l t a t the Bank c f Lngland,
because t h a t i s his only insurance against a
Governor Fancher:
I
big loss.
n your judgment, provided a n ar-
rangement c a n b e worked out, a n d provided t h e Federal R e serve Board deems i t advisable,
i s i t a good time n o w t o
make a start over tnere%
Tne Chairman:
I t would b e a good t i m e this fall. I
do not think i t would b e now.
this f a l l .
I t might b e a gocd time
Y o u must remember that w h e n y o u b u y a
bill
by
over t h e r e n o w , f o r w h i c h y o u p r o v i d e t h e m o n e y b u y i n g
sterling exchange, y o u are really buying exchange a t a new
parity o f exchange, b e c a u s e 4 . 7 7 i s t h e c o s t o f m a k i n g t h e
xchange f o r t h e e x p o r t
By b u y i n g e x c h a n g e
o f g o l d u n d e r p r e s e n t conditions.
a t 4.77 y o u a r e n o t getting a
in sterling exchange a t all.
bargain
I t would n o t b e a bargain
until t h e means o f transportation, insurance, a n d s o on,and
the price o f gold get b a c k t o normal.
I think there a r e t w o questions
t o b e determined w i t h
reference t e buying bills o v e r there now.
T h e Lirst 38s
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Federal Reserve Bank of St. Louis
178
i n London w h e n y o u d o n o t k n o w
is i t s a f e t d b u y b i l l s
whether you are going t o get back your balance o n a gold
basis;
t h e o t h e r q u e s t i o n i s whether,
w i t h this w a r going
F
Y
f
:
!
i
}
.
.
::
on, w e are justified i n doing business i n a beligerant
.
country a n d whether w e would not b o subject t o criticism
Governor Fancher:
T h a t i f the poiht I wanted t o
bring out.
The Ghairman: F r a n k l y I do not know. I
think a n y o f us know.
cine.
do not
T h i s thing i b like a dose o f medi-
Y o u have got t o take i t t o find out.
Governor Miller:
W h e n will w e know whether o r not
the beligerant countries will be on a paper basis Even
though t h e y m a y start o u t o n a gold basis, a n d after. t h e
they m a y later
war,get o n a paper basis.
the
o
f
termination
D
The Chairman:
o y o u not t h i n k that i s simply a
ques=
tion t o be determined b y the character o f arrangements
which w e s u b s e q u e n t l y m a k e o v e r t h e r e ?
Governor Miller:
will b e p e c u l i a r
B u t c a n w e make arrangements w h i c h
t o us?
The Chairman:
W e l l , t h a t i s the whole question.
Are
to
we sufficiently important n o w i n the world's affairs
t h a t n o one
justify u s i n expecting that w e c a n get terms
else c a n g e t ?
Governor Miller:
W h o woulda b e the guarantor o f any
terms w h i c h w e might make?
The Chairman:
T h a t i s just t h e question.
J u s t what
we will d o about that I do not know.
deI feel a little b i t embarrased i n going into t h e
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Federal Reserve Bank of St. Louis
of io
tails
o f t h i s f o r t w o reasons.
I
n the first place what-
ever w e undertake t o d o over there has g o t t o b e discus-
sed with the Federal Reserve Board, i n order t o protect
oursclvos f r o m possible criticism here i n Washington.
I n
the s c c o n d p l a c e i t i s a b s o l u t e l y n e c e s s a r y t h a t a n y p o s -
sible arrangement o r negotiation should n o t b e permitted t o
Leek o u t iust now,
T h e fact i s that w e c a n make arrange-
ments o v e r there t h a t a r e extraordinarily favorable i f w e
can afford t o make a n y arrangements a t all.
not know.
w e must f i n d out.
and Mp. Hamlin yesterday I
T h a t I
do
I n talking with Mr. Delano
rather gathered t h a t i t i s a
matter t h e y wanted t o consider very carefully before w e
went t o o f a r i n a
discusdon
o f it. P o s s i b l y b e f o r e l e a v -
ing W a s h i n g t o n w
e c a n m a k e s o m e progress w i t h them.
I f
we had a l l arrangements completed today w e would not feel
that w e were justified i n doing business o v e r there a t t h e
present level o f exchange.
Governor Miller:
W
e c o u l d never hope f o r a n y direct
Cooperation f r o m t h e G o v e r n m e n t i t s e l f
i n standing behind
us t o see that t h e arrangements %.e¢ might make i n Europe
Would b e c a r r i e d o u t ?
, T h e Chairman:
O u r Government?
Governor Miller:
The Chairman:
Y e s .
O h , I
that w o u l d b e a s e f f e c t i v e
do n o t think so- I
do n o t think
a s t h e question o f credit invol-
v e d . If We c o u l d m a k e a g r e e m e n t s
o f t h e charactcr t h a t w e
would like t o make, a n y violation o f that agreement would
be such a blow. :
a t the credit o f t h e violator,
s o to
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Federal Reserve Bank of St. Louis
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speak, t h a t i t would b e worth more a s insurance t h a n anything o u r Government might b e able t o d o t o enforce t h e
terms o f the agreement.
Governor Miller: t . o u l d the Bank of “ngland regard
us a s i n t r u d e r s a n d c o s i d e r t h a t w e w e r e c u t t i n g i n t o t h e
inglish o p e n m a r k e t ?
The Chairman:
bumped
T h e y might t h i n k that i f w e just
i n there without h a v i n g a n y arrangement
o r under-
standing, a n d I also think that t h e Bank o f France would
think that likewise.
Governor Wold:
I t i s true that t h e B a n k o f England
at times buys bills i n France, a n d the Bank o f France buys
bills i n London.
The Chairman:
V e r y rarely.
Governor Wold:
The Chairman:
O r Amsterdam?
T h e ieichsbank h a s done that more
than the Bank of “ngland or the Bank of France.
I t i s probable t h a t w e would b e very
Governor Seay:
welcome intruders,
The Chairman:
i s i t not?
j
l thine so-«
their eyes o n u s very intently.
very rich.
O f course t h e y h a v e h a d
V e arc. regarded o s peing
T h a t is, the Federal Reserve System i s regard—-
ed a s being v e r y rich.
T h e y s e e t h e gold figures a n d
those figures astonish t h e m over there.
ously interested a n d very m u c h impressed.
T h e y a r e tremend—
T h e whele money
Situation i n England i s largely i n the hands o f the Bank o f
England, a n d t h e money situation i n France i s i n the hands
of the Bank o f France.
T h e y control t h e market.
W e
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Federal Reserve Bank of St. Louis
181
might b o a very disturbing element i n their market i f w e
wont t h r o u g h t h e d i s c o u n t c o m p a n i e s a n d s o m e o f t h e b i g j o i n t
stock c o m p a n i e s a n d j u s t t h r e w m o n e y a r o u n d r e c k l e s s l y
without knowing what w o were doing.
w e might disturb t h e
exchange a n d interest rates very much.
A n d w e might g e t disturbed ourselves.
Governor MeCord:
Y e s ; w e might ultimately b e disturbed
The Chairman:
ourselves before w e g o t through.
Governor Fancher:
T h e n , preliminary t o getting under
way thore i t would b e necessary t o get t h e funds o v e r there,
a m select a
to watch conditions
T h e r e i s n o difficulty i n getting t h e
Governor Wold:
T h e difficulty would b e i n getting t h e m
funds ovor there.
back.
favorable opportunity-
Y o u c a n get sterling n o w a t a very l o w level.
N o , i t i s a t about par.
The Chairman:
T h a t depends u p o n whether y o u think
Governor Wold:
the n e w parity i s going t o remain after t h e war.
S u p p o s e after t h e war y o u could n o t
The Chairman:
get gold a t all?
change?
T h e n what would b e the parity o f ex-
I t might b e four dollars o r two dollars;
be anything.
i t might
T h a t i s w h e r e c a r e h a s g o t t o b e exerciscd.
We have g o t t o have a roof over o u r heads b y having someone
who i s abSolutely going t o b e i n the position t o furnish
us gold c r w o cannot sell o u r exchange.
T h a t has n o bearing o n the procuring
Governor Wold:
of exchange o n London today.
The Chairman:
N o , b u t i t has a bearing o n the
ultimate l i q u i d a t i o n
o f t h e accounts.
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Federal Reserve Bank of St. Louis
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Governor old: I
think v e have g o t t o make haste v e r y
Slowly i n that matter, having i n mind the difficulty w e
mignt encounter i n securing o u r funds a t t h e maturity o f
the bills, i f we want them.
I n other wards, I mean get-
ting t h e g o l d o v e r here.
Mr. Tupper:
M r » Chairman,
i s i t n o t very g e n e r a l l y
held i n New York, b y the New York banks, that the arrangement S u c h a s y o u have mentioned i s the o n l y thing that will
protect t h e tremendous r e s e r v e s
The Chairman:
i n this country?
i l theme S t e s
eetere
yee
o t
whole situation would b e improved a n d %e would b e better
protected
i f w e had a
large f u n d o n t h e o t h e r s i d e t o d r a w
upon i n c a s c d e m a n d s w e r e m a d e u p o n u s f o r gold,
o
f
course i f that demand e v e r came t h e n t h e liquidation o f
our account Would b e immensely profitable t o us.
Governor Fancher: A
hundred million dollar fund o f
the F e d e r a l R e s e r v e B a n k s w o u l d b e a
tremendous p o w e r ,
would i t not?
The Chairman:
l
L think 1 6 would b e t h e s r e a t e s t
in
the world.
The Chairman:
W o u l d t h e Bank o f Sngland accept a n
account from the Federal Reserve Bank o f New York?
The Chairman:
T h e Bank o f 4ngland a m t h e Bank o f
France a r e b o t h very conservative about taking a n y account
abroad---— they a r e very conservative.
Governor Miller:
The Chairman:
not Miller:
O
o u l d t h e y d o that?
W e might b e able t o arrange that, Gover-
f course t h e y a r e p r e t t y conservative,
old
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Federal Reserve Bank of St. Louis
183
fashioned p e o p l e
i n t h o s e o l d banks,
tend t o g i v e t h e f a c i l i t i e s
market gives.
a n d t h e y d o not p r e -
t o their customers t h a t t h e
T h a t < m u s t v e b o r n e a n mines.
Governor Fancher:
Y o u probably would not get the
facilities f r o m t h e m t h a t y o u v o u l d g e t f r o m a
bank l i k e
the London City Bank?
The Chairman:
ters.
T h e B a n k o f France n e v e r w r i t e s l e t -
T h e y send a messenger o v e r t o Ungland.
T h e y would
rather s e n d a messenger t h a n write a letier about s o m e important matter:
T h e y d o not have telephones i n those o l d
banks.
Governor Miller:
R e f e r r i n g a g a i n t o the acaunt,
would i.t b e p o s s i b l e f o r u s t o m a k e a
in a bank
ceposit jin e n g l a n d
or France that would give u s gold back regardless o f any
change i n the status o f the finances i n ingland o r France?
The Chairman:
T h a t i s t h e question.
O f course t h e
Bank o f »ngland a m t h e Bank o f France traditionally a l l o w
no i n t e r e s t
o n deposits.
h e r e would b e n o particular
advantage unless t h e y would violate a l l precedent,
i n hav-
ing a n account with them i f w e d i d not g e t interest o n it.
The o t h e r b a n k s d e p e n d u p o n t h e B a n k o f “ n g l a n d a n i t h e
Bank of France for their gold, a m they could not make a
gold contract w i t h u s without having t h e Bank o f sngland's
support.
I n the case of the Bank of France, that is the
Only b a n k a u t h o r i z e d
b y t h e Government
t o export gold.
They hold all the gold, and the Bank o f France would have
to give i t s consent t o the export o f the gold, s o that i n
the case o f t h e Bank o f France w e would b e dependent u p o n
Government a s s e n t
t o t h e arrangement.
Governor Miller:
S O , considering all t h e things men-
tioned, w e might g e t a gold ceposit i n London, a n d b u y bills
which w o u l d b e c o m
o n a
paper basis,
a n d a t the same time
their demand o n us, a s a n offset, w o u l d b e payable i n gold-The Chairman:
W h e n y o u g o into t h e Bank o & England,
or a bank i n London, a n d o p e n a n account--— i n fact a
bank
anywhere s-you place your money i n their hands subject t o
repaymont
i n money t h a t i s l e g a l t e n d e r
Governor Miller:
T h e n i t would
i n t h a t country.
b e a
very dangerous
thing f o r u s t o d o until w e knew exactly what would b e done.
The Chairman:
Unless
Governor Miller:
The Chairman:
w e h a d a n arrangement.
Y e s .
Y h a t i s t h e feeling o f t h e EPonference
in regard t o whether w e shall undertake a n y b u s i r s s o v e r
there n o v
o r wait until t h e conclusion o f the war? H a v e
any o f you a n y definite views o n the subject?
Governor V a n Zandt: I
d o n o t think w e ought t o break
in over there until w e have something more definite t h a n
we h a v e n o w . I
think t h i s i s a
subject t h a t c o u l d b e
very much more intelligently considered a t the next conference t h a n a t t h i s one.
T h e r e i s n o immediate need,
as
far a s 1 can see, for disposing o f i t now.
The Chairman:
Mr. Calkins: I
M r . Calkins, w h a t d o y o u think?
feel that I
have learned a
great deal,
Mr. Chairman, f r o m your remarks, b u t m y opinion would t
no value a t this stage o f the game. I
do not k n o w enough
about t h e situation t o have a n opinion o f any weight.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
185
The Chairman:
I t i s a big subject.
T h i s system was
organized f o r t h e purpose, a m o n g o t h e r t h i n g s ,
c f dealing
with j u s t t h a t p h a s e o f i n t e r n a t i o n a l banking.
Mr. Calkins: I
be done. I
would like t o add that 1 feel i t mst
a m s p e a k i n g o f m y o p i n i o n a t this t i m e .
do n o t k n o w e n o u g h t o have a n o p i n i o n now. I
A E
have n o
doubt whatever o f t h e ultimate expedieney o f such a n arbangement.
The Chairman:
I f w e could get suitable guaranties
that e v e r y b o d y w o u l d a c c e p t a s satisfactory,
d o you think
we would b e justified i n doing business abroad under w a r
conditions?
Mr. C a l k i n s :
I
t seems
t o m e that t h e b e s t guaranty
affcrded b y t h e London houses w o u l d b e s o good that they
could h a r d l y b e q u e s t i o n e d f r o m a n y h u m a n p o i n t
o f view.
They a r e a S sure a s anything except death a n d taxes.
The Chairman:
I f t h e time ever came when t h e London
market broke down, w e would a l l b e whittling sticks i n the
back yard.
Governor Aiken, what i s your view?
Governor Aiken: I
Van Zandt: I
d o not q u i t e a g r e e w i t h G o v e r n o r
think w e ought t o make s u c h connections a s
early a s w e c a n with reasonable business safety.
to m e i t i s o n e o f t h e f u n d a m e n t a l s
I t seems
i n the development
of
this system that w e should have a call o n the London markets
It will b e t h e greatest insurance that w e c a n have, i f w e
are subjected t o aheavy drain o f gold, after t h e war, i f
we c a n get a big offset i n London.
186
The Chairman:
G o v e r n o r told, w h a t i s your view?
Governor Wold: I
a m inclined t o agree w i t h Governor
Aiken, but I do not think a reasoable insurance i s necesSary-oOr sufficient. I
think w e ought t o have pretty near-
ly a n absclute insurance.
Governor Aiken: I
would o f c o u r s e l i k e t o g e t i t a s
good a s w e c a n get it.
Governsr %-:1ld:
T h a t i s where w e are going t e serve
the m e m b e r b a n k s a n d t h e b u s i n e s s i n t e r e s t s
o f this coun-
try t o the very greatest advantage.
Governor Fancher:
us h o w y o u f e e l a b o u t
M r s Chairman, w i l l y o u not tell
it,
a s you have Sized
u p the situa-
tion?
The Chairman: I
feel a b o u t i t j u s t a s a
very w i s e
man told m e h e felt about i t , w h e n 1 went t o see h i m particularly about i t and w e talked i t over together.
knows things very very well indeed-
H e
H e said, "It is the
greatest thing i n the world t o do if you can do i t safely."
that 1 8 the w i h o f it,
Governer Miller:
C a n w e put i t o n a safe basis?
H a v e y o u i n your mind s o n p l a n o r
arrangement t h a t c a n b e made that would,
i n your opinicn,
make i t safe--- not o n l y reasonably safe, b u t almos t
cer-
tainly s a f e ?
The Chairman:
Y e s , I have a
Governor Miller:
The Chairman: I
B u t y o u a r e n o t willing t o state i t
hate t o appear
of having a n y secrets here.
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Federal Reserve Bank of St. Louis
plan i n mind, Governor.
t o b e i n the position
187
Governor Miller:
“ € d o not want y o u t o state it,
Mp» Chairman, i f you d o not wish t o state it.
The Chairman:
T h e r e a r e considerations involved i n
anything that w e d o ovor there that o u r people here h a v e
got t o consider v e r y seriously before w e undertake. I
would rather wait, before discussing i t i n any more
cetail,
until those considerations h a v e been threshed out.
Governor Miller:
The Chairman:
W
e are perfectly satisfied.
A l s o p a r t i c u l a r l y b e c a u s e w i t h refer-—
ence t o the discussions that w e h a d m e y e r were
pledged most
positively n o t t o d i v u l g e t h e m .
I
t is a
very i m p o r t a n t
thing t h a t they should n o t b e discussed.
(Informal discussion followed.)
The Chairman: I
will tell y o u what I
to d o i n regard t o this matter. I
think w e ought
do not want t o drop it.
I d o n o t w a n t t o s e e n o t h i n g c o m e o f it. i
put i n a n i n e
mense amount o f time o n this thing over there. I
practic-—
ally lived o n the j o b a m did not d o anything
else, a n d I
not w a n t t o s e e a l l t h a t t i m e t h r o w n away.
how c a n i t b e dealt w i t h without
do
T h e question i s
u r being i n the unfor-
tunate position o f having t o leave i t t o Some
o n e chap t o
work out.
W e d o not want t o d o that a t all.
Governor Aiken:
W e would n o t call i t a misfortune
Lt: you-wiii-d6- s t .
The Chairman:
two o f y o u r m e m b e r s
I f you will permit m e t o select o n e
or
t o j o i n w i t h me, I
will t a k e i t u p , a d d
we c a n a p p r o a c h t h e F e d e r a l R e s e r v e
B o a r d a n d d r a w t h e m out.
I have n o secrets f r o m this bunch a t all, a n d
have n o desire
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Federal Reserve Bank of St. Louis
188
to h a v e a n y -
discussed.
B u t t h e r e a r e reasons w n y i t S h o u l d n o t b e
T h e people o n the other side, w i t h whom I
talked, a s k e d t h a t t h i s m a t t e r b e c o n s i d e r e d f o r t h e moment
as q u i t e a
personal o n c .
F r a n k l y , there are only four m e n
abroad that k n o w the story a t all, a n d those a r e t h e m e n I
consulted.
I f y o u will leave i t i n that shape, w e will
do the best w e c a n with it.
Governor Miller: I
move t h a t the Chairman select h i s
own committee a n d handle t h e situation i n his o w n way.
Governor Wold: I
will second t h a t motion.
Governor V a n Zandt:
W o u l d i t not b e well t o have
the c o m m i t t e e m a k e s u c h r e c o m m e n d a t i o n s
a s i t sees f i t t o
this body.
Governor Miller:
T h a t w o u l d b e d o i n g i t i n his o w n
Governor McCord:
Y e s ; t h a t w o u l d n a t u r a l l y follov.
Mr. Calkins:
absolutely
T h e intention b e i n g t o leave t h e m t t p r
i n Governor S t r o n g ' s h a n d s w i t h o u t r e s e r v a t i o n
any k i n d w h a t e v e r a n d w i t h o u t p a r t i c i p a t i o n
of
i n those things
which h e m i s t necessarily k e e p s e c r e t ?
The Chairman:
or two. I
S u p p o s e w e leave i t that w a y f o r a day
will p u t t h e motion.
(The motion, b e i n g duly seconded, w a s unanimously c a r ried.)
The Chairman:
B e f o r e
w e leave W a s h i n g t o n I
hope t o
b e
able t o s a y something m o r e about it.
Governor Aiken:
M r - Chairman, w a s i t not suggested
at the Conference, before y o u went away, that i n view o f the
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Federal Reserve Bank of St. Louis
189
fact that you were negotiating for the FederalReserve Sys-
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Federal Reserve Bank of St. Louis
tem that there should b e some distribution o f the expense
invelved
think w e o u g h t t o t a k e t h a t u p .
i n y o u r trip. I
(Informal discussion followed.)
Governor Aiken: I
move t h a t t h e C h a i r m a n b e request-
ed t o submit h i s e x p e n s e a c c o u n t a n d t h a t i t b e a s s e s s e a
pro rata among t h e banks, b e i n g diviced i n t o twelfths.
The Chairman:
W h e n - t h i s matter gets under w a y w e
are going t o work together i n a n account.
thing where there c a n b e n o question.
operated
i n a n account a n d manage
run it.
I
that sort.
t can be run b y a
T h a t i s one
W e must have this
i t someway.
committee,
A n y o n e can
o r something
B u t i t must b e handled i n a n account.
of
L t 16
absolutely impossible f o r t h e twelve banks t o g o over there
and d o b u s i n e s s s e p a r a t e l y .
not m a k e a r r a n g e m e n t s ;
I
n the first place y o u could
t h e y would n o t b e willing
t o d o it.
They w o u l d l o c k a t u s i n d i s m a y i f w e s h o u l d p r o p o s e t w e l v e
Separate a r r a n g e m e n t s .
T h e y will o n l y make o n e arrange-
ment.
My belief i s that this bill i f i t i s t o b e apportioned
among t h e banks, ought t o b e divided u p o n t h e basis o f participation
T h e basis
i n t h e account.
the account,
o f participation
in
a t the outset, w o u l d p r o b a b l y b e substantially
that which prevails i n the handling o f warrants
a m a c c e p t -—
ances.
Governor Aiken: I
will m o d i f y m y m o t i o n t o r e a d t h a t
the e x p e n s e b e d i s t r i b u t e d
of w a r r a n t s .
o n the basis
o f t h e distribution
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Federal Reserve Bank of St. Louis
will s e c o n d t h a t motion.
Governor Miller: I
B u t three o f the banks d o not join i n
Mr-e Curtis:
that.
Governor Seay:
Y e s - Thereis a
percentage distribu-
tion.
Mr. Curtis:
Y e s , u n d e r t h e n e w O U ELlaie:
Governer Seay:
T h e plan was devised w i t h reference
to t h e future.
The Chairman:
W
e should eliminate t h e question o f
warnings f r o m i t for this reason.
taken i n p a r t f o r profit,
T h i s business i s underi t i s undertaken f o r
b u t primarily
the purpose o f protecting t h e situation.
I t m a y prove
to b e a burden some d a y t o handle this account.
I t may
take o u r resources w h e n w e d o not want t o use them.
would like t o amend that motion
Governor Miller: I
and m a k e i t o n t h e b a s i s
Governor McCord:
o f capitalization.
T h a t i s t h e correct way,
o n the basis
of legal deposits.
Governor Fancher:
The Chairman:
Resources.
A n y w a y y o u say, gentlemen.
Governor McCord:
W
e are willim
t o bear o u r part o f
it a n y w a y y o u s e t t l e i t .
The Chairman:
table n o w p r e p a r e d
Suppos e
t o s a y what t h e participation
bank would b e i n the account?
Governor McCord: I
The Chairman:
we were sitting around t h e
o f each
W h a t would i t amount t o ?
c o u l d n o t say.
‘ t l e w o u l d find s o m e basis f o r i t , ‘ a m a p -
portionment a s t o resources, capital o r something o f that
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Federal Reserve Bank of St. Louis
sort.
Governor Fancher:
I f we were going into a ~25,000,000
to w h a t e x t e n t w o u l d e a c k b a n k p a r t i c i p a t e ?
The Chairman:
W w e would participate
i n proportion
to
our resources.
will modify m y amendment a n d make
Governor Miller: I
it "resources", M r - Chairman.
Governor McCord:
T h e n I will second the motion.
Governor Seay:
M
y only object
have y o u u n d e r s t a n d t h a t w e d e S i r e
portionment. I
hope
i n speaking w a s t o
t o participate
y o u d i d n o t umMerstand
The Chairman: I
i n any ap-
i t ctherwise.
appreciate t h a t G o v e r n o r Seay:
all t h e conversations I
had over there I
i
n
took t h e liberty
of stating n o t that t h e whole system o f twelve banks would
participate,
opportunity
b u t that a l l t h e twelve banks must have a n
t o participate.
Governor Seay:
T h a t a l l will participate, I
a m sure.
The Chairman: I
hope s o .
Governor Fancher:
I t will d e p e n d o n conditions.
Governor McCord:
Whether
w e participate
o r not i t
is j u s t a n d r i g h t t h a t m y i n s t i t u t i o n s h o u l d p a y i t s p o r -
tion o f the expense.
The Chairman: I
think y o u w i l l b e g l a d t o join,
Governor McCord.
Governor McCord:
I
f w e n e v e r h a v e o c c a s i o n t o join,
this i s a n arrangement f o r t h e entire system o f banks.
W e
Should participate i n the cost o f establkshing t h e arrangement w h e t h e r
w e avail ourselves
o f i t o r not.
192
Governor Miller:
to t h e b a n k s
T h e amount i n bulk will b e given
s 0 t h a t w e m a y remit?
O r , will y o u charge
our account?
The Chairman: I
will s e n d a memorandum.
is I have n o t made u p m y account yet: I
T h e fact
will have i t made
up.
Governor Milleb:
A n d you will advise uséf our pro-
POrtion?
The Chairman:
Y e s s
(There were calls for the question.)
The Chairman:
T h e question has beeh called for.
I s
there a n y further discussion?
(There was no further discussion and the motion was duly
carried.)
The Chairman:
Gentlemen,
a r e y o u ready t o dispose o f
Topic Noy. 1 0 ?
10. C O N V E R S I O N A N D DISPOSITION O F UNITED STATES BONDS
AND NOTES.
The Chairman:
T h a t w a s proposed b y Governor V a n Zandt
and Governor McDougal.
Governor V a n Zandt:
M
y name appears first there- I
asked Mr- Curtis t o put that o n the program more i n the
nature o f a way i n which t o get information o n the advantages o r disadvantages o f the conversion o f the two's i n t o
three's,
M r . McDougal h a s h a d some pexperience i n that
matter a n d I will defer t o him.
Mr. McDougal: I
suggested t h e topic f o r the reason
that there has b e e n some correspondence between t h e banks,
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
between the New York bank and ourselves, a n d the other
banks, a n d f o r t h e further reason that 1 thought i t would
be a matter o f interest.
I wrote t o the N e w York bank a m t o l d t h e m that I
should o f c o u r s e b e w i l l i n g
t o stand b y some minimum price
which w e might b e willing t o set a t which t o dispose o f
the bonds. I
understand that some o f the banks have sold
their c o n v e r s i o n bonds.
w
e have h a d o n l y o n e formal c f f e r
and that was at about two premiums.
The Chairman:
A t 102?
Governor McDougal:
Yes.
The Chairman! T h a t is too low.
Governor McDougal!
a better price.
S o m e o f the others have sold a t
O u r committee);
i n considering t h e matter,
has determined t h a t w e are willing t o sell o u r bonl s—- o n e
million o f t h e t h i r t y y e a r b o n d s - - -
than 3-1/2.
at a
price n o t l e s s
A l l we have heard o n the subject comes from
two sources i n New York.
O n e was that sales had been
made a t 3-5/8, and then o f course I knew that Governor Fancher h a d m a d e a
cussion.
sale- I
suggested t h e m a t t e r s i m p l y f o r d i s -
T h a t . i s all.
Governor Wold:
Chairman, I
T h e price obtained b y Cleveland, M r .
think r e q u i r e s s o m e explanation.
Sing that with m
I
n discus-
Governor Fancher told m e that h e let his
notes g o a t one half, w i t h t h e bonds, t h a t is, h i s o n o year
gold notes.
Governor McDougal:
Governor W o l d :
Y o u mean a t a one half premium?
Y e s .
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Federal Reserve Bank of St. Louis
194
Governor Seay:
D i d h e take indemnity f o r renewal?
Governor W o l d
O h , no.
Chase a t t h e e n d o f t h e year,
The Chairman:
H
Governor Wold:
Yes.
The Chairman:
H e was obligated t o repuro f course,
e sold a t par a n d a halt?
P o s t i s cUuuivel ent. to O l t o r . p e - b a n e e
Per c e n t ponds.
Governor Wold:
N o , the notes only run for a year.
The Chairman: I
know, b u t assuming that y o u are going
to k e e p t h e n o t e a n d s e l l t h e bond, t h e n y o u a r e g e t t i n g
Substantially t h e equivalent o f 101 f o r t h e long bond.
Governor Wold:
T h a t i s not equivalent t o selling
Government bonds a t 10&-5/8 b y a long shot.
The Chairman:
N o .
Governor Wold: I
had t h e matter u p with o u r Board
and t h e y are disposed t o sell t h e conversion bonds over t h e
counter.
T h e y feel t h a t w e ought t o try t o make a market
for those bonds w i t h the people.
T h e price w a s t o b e such
as w e could agree upon a t this meeting.
Mr. Calkins:
I s the practice t o sell t h e notes a n d
the bonds?
Governer Wild:
N o , just the bonds.
(Informal discussion followed.)
The Chairman:
W h y would n o t this b e a good question
to handle through a committee?
M r . Kenzel
pared a very long memorandum o n this matter.
long t o read:
h
T o what effect?
s pre-
I t is too
C o p i e s o f i t c a n b e sent t o you.
Governor Seay:
a
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Federal Reserve Bank of St. Louis
195
The Chairman: I
be a
think he feels that 103-1/2 would
fair price.
Governor McCord:
paper a t 103-3/8.
P a n a m a 3 ' s a r e quéted
i n t o day's
T h e y are due i n 1986.
Governor Miller:
O u r bonds would r u n a little better
than that.
Mr- Curtis:
T h e y are a little better than the Panama
bonds because the word "Panamd' seems t o have a little sentimental effect.
Governor Miller:
I t i s suggested that probably t h e
bonds a r e n o t t h e bonds o f the Government itself.
Mr. Curtis: I
have heard a
lot o f people s a y that
in the minds o f the public t h e u s e o f the word Panama i s a n
indication t h a t possibly t h e y are payable o u t o f the revenues
of the canal, o r that t h e y are a joint obligation o f t h e
Panamanian Government a n d this Government;
t h a t does n o t
make i t a straight bond o f the United States.
Governor Miller:
I
f Germany o r Japan takes t h e canal
the bonds m a y not b e good.
The Chairman:
objection t o that?
H o w about 103-1/2.
I s there any
I s that t o o high?
Governor Miller: i
would t a k e that f o r our bonds i f
we couldn't get more.
Governor Van Zandt: P a n a m a 3's a t 103 yield 2.88,
according t o the memorandum, a n d the conversions,
a t 104,
yield 2.80.
The Chairman:
Panama 3's.
T h a t i s below t h e squivalent
o f the
I t is 3/4 of a point, o r something like that,
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Federal Reserve Bank of St. Louis
in f a v o r
o f t h e conversion bonds,
Governor McCord: 103-1/2 would be a good basis.
Governor Miller:
103-1/2 to 103-5/8.
Governor McCord:
N o , j u s t l e a v e i t a t o n e price.
If anybody asks you you could say "103-1/2."
Mr. Tupper:
fect?
H o w l o n g w o u l d t h e agreement
b e i n ef-
H o w long should w e hold t h e m f o r that?
Governor McCord:
U n t i l w e have another conference
or a g r e e u p o n i t i n correspondence.
Governor Aiken: I
think t h e suggestion t h a t w e should
handle i t b y a committee i s a good one. C o n d i t i o n s a r e
changing a l l t h e t i m e i n these m a t t e r s ,
a n d i t i s hard t o
get twelve banks t o agree, unless y o u handle i t through
a small committee.
The Chairman:
T h e y would a l w a y s
g o down t o the mini-
mum, a n d I think i t i s pretty hard t o d o better than the
minimum throughout t h e whole system.
O n c e y o u made a
trade below a given price y o u would have t o cut down each
time.
Governor Seay:
The Chairman:
U n l e s s t h e y a r e a b s o r b e d v e r y quickly.
Yes.
Governor McCord: I
have a n o t h e r s u g g e s t i o n
t o make,
and that i s that w e sell t h e m o n a quotation o f one-eighth
above the Panama 3's.
Governor Wold:
T h a t would allow Childs a n d those
people t o m a k e t h e p r i c e f o r us.
W
e h a d better make o u r
own price.
(Informal discussion followed. )
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Federal Reserve Bank of St. Louis
LOT
Governor McDougal: I
would like t o know what t h e other
banks h a v e d o n e w i t h t h e i r bonds. I
would l i k e t o k n o w
whether a n y o f t h e m h a v e s o l d them. I
understand t h a t s e m e
bonds have b e e n sold o n the basis o f 103 o r a little above.
The Chairmant G o v e r n o r Rhoads, I
think, s o l d half
a million at 102-1/2, and the banks that bought them turned
around almost immediately a n d sold t h e m a t 103-5/8.
work t o g e t h e r I
I f we
believe w e c a n s e l l t h e w h o l e b a t c h o f
bonds a t 103-1/2 net.
(Further informal discussion followed. )
The Chairman:
H o w would i t d o t o have a
try a t hav-
ing all the bonds sold at 103-1/2?
Governor Miller: I
Mr. Calkins:
think that would b e all right.
I t seems t o me that Governor Aiken's
Suggestion i s t h e o n l y o n e i n sight, a n d t h a t i s t h a t a
committee h a n d l e i t r a t h e r t h a n h a v i n g i t h a n d l e d
in a
hap-
hazard way.
Governor Seay: I
m o v e that t h e Chair appoint a com-—
mittee o f t h r e e a n d t h a t t h e y b e a u t h o r i z e d
t o sell t h e
bonds cf the bank at 103-1/2 or better, i n their discretion.
The Chairman:
T h a t i s a good motion.
Mr. Calkins: I
second t h e motion.
I s that sec-
onded?
Governor McDougal:
T h a t would limit t h e sale o f bonds
to the commit te-Governor Seay:
I t will b e better t o handle i t through
a committee.
The Chairman:
see w h a t
W
c a n b e done.
e can do i t for a
Limited p e r i o d
a m
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Federal Reserve Bank of St. Louis
198
I
Governor A i k e n :
t seems
know w h a t w e h a v e t o d e l i v e r
t o m e the committee
t o them.
must
Y o u cannot h a v e
bonds s o l d o u t s i d e o f t h e a r r a n g e m e n t - - -
Governor McDougal:
B u t i f we are offered 103-1/2 o r
better?
R e f e r t h e offer t o the committee.
Governor Seay:
The Chairman:
mittee, s u b j e c t
T a k e i t u p b y telegraph w i t h t h e com-
t o confirmation,
a n d t h e n i t i s just s o l d
for the account.
Governor McDougal:
T h a t ,
o f course, w o u l d b e s a t i s -
factory.
would like t o have that motion read.
Governor Wold: I
(The pending motion offered b y Governor Seay was bhereupon read.)
a m opposed
Governor Wold: I
t o that. I
would n o t
ask tho committee t o dispose o f our bonds a t this time i n
view o f t h e f a c t t h a t o u r d i r e c t o r s h a v e g o n e o n record
with the view that t h e y want t o establish a local market
with the public f o r t h e bonds.
W e are willing t o dis-
pose o f t h e m a t w h a t e v e r p r e m i u m i s d e c i d e d
conference. I
u p o n b y this
would not b e authorized, knowing the feel-
ing o f m y directors,
as I
do,
t o g o into a
peol w i t h o u r
bonds t o b e sold a t any price.
should t h i n k that would b e all
The Chairman: I
right.
P u t i n a proviso t o the effect t h a t anyone c a n
sell their bonds over t h e counter.
Governor Wold:
W
e cannot autherize t h e committee
sell o u r bonds because o u r directors d o not want t o sell
our b o n d s
a t this t i m e
o n t h e maxket.
to
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Federal Reserve Bank of St. Louis
199
Governor McCord: I
think: i t would dure i t i f the
banks would communicate w i t h the committee a n d tell t h e m
whether t h e y care t o offer their bonds, g o that t h e com—
mittee w i l l k n o w w h a t t h e y h a v e o n hand,
Governcr Seay:
L e t a n y bank that does n o t care t o
go i n t o i t withdraw.
I
t c a n take i t s bonds o u t a n d sell
them a t the price, 3-1/2. .
handle i t s o w n bonds
A n y bank that desires t o
i n i t s o w n w a y m a y d o s o b y communicat-—
ing with the committee. I
should like. t o rid myself o f
the bonds a s quickly a s I can and t o get t h e best price
for them. I
believe w e c a n d o that through t h e medium
of a committee.
A n y bank that does n o t want t o join t h e
peol should n o t b e asked t o c o so, o r should n o t bind
itself.
A n y bank desiring t o d o s o m a y communicate w i t h
the c o m m i t t e e a n d i n f o r m t h e c o m m i t t e e t h a t i t s b o n d s a r e
for sale.
Governor Wold:
bank t h a t d e s i r e s
W o u l d i t not b e better t o have t h e
t c dispose
o f i t s bonds communicate w i t h
the committee, rather t h a n have t h e committee dispose o f
the bonds unless advised t o the contrary?
The Chairman:
H o w would i t d o t o agree a t this meet-
ing a t t h e f a i r p r i c e
conditions c h a n g e ,
a t which
t o sell t h e bonds,
i s 1 0 3 - 1 / 2 a n d interest;
desiring t o p a r t i c i p a t e
t h a t a n y bank
i n a n account f o r t h e s a l e o f t h o s e
bonds s h a l l n o t i f y t h e c o m m i t t e e
Chairman,
until
t o b e appointed
b y the
c f the amount o f bonds which i t desires t o sell
through t h e committee; t h a t t o the extent i t i s selling
bonds d i r e c t l y w i t h o u t t h e s e r v i c e
o f t h e committee t h e s a l e
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Federal Reserve Bank of St. Louis
200
Shall, f o r t h e present,
b e a t n o t l e s s t h a n t h a t D P E L C E 5u n
its o w n market, a n d that n.tification shall b e sent t o
the committee.
Governor McDougal:
s h a t i s meant b y “in its
mrket"?
The Chairman:
W e l l , a t home,
F o r instance somecne
wants t o sell bonds o v e r t h e ccunter a t home.
I f w e are
negotiating a sale o f five millions o f bonds i n New Yerk
it would b e embarrassing t e have other bonds ¢ffered e v e n
at t h e s a m e price.
Governor Miller:
O f f e r e d i n New York.
Governor McDougal:
w e will b e i n a position t o sell
our bonds a t 103-1/2 a f w e get an-offer a n y plate, w o u l d
we not?
Tne Chairman:
N o t i n N e w York.
Presumably
i f you
got a n offer y o u would g e t i t i n Chicago.
Governor McDougal: I
would net bind c u r bank i n that
Way because I have already taken action o n the matter, a n d
when
« e get a
chance
t o sell t h e m v e a r e going
t o sell them;
but we are willing t o stand by the price.
Governor McCerd:
T h a t sittiation s o u l d b e c u r e d v e r y
easily b y m a k i n g d e l i v e r i e s t h r o u g h t h e F e d e r a l N e s o r v e
Bank i n t h e dcisirict w h e r e sold.
(Further infcrmal discussion followed. )
Tne Chairman:
L e t u s p u t in-an- a c u t t i o n a l p r o v i s i o n
that a n y bank negotiating a
Withheld
sale c f bonds which have been
f r o m the account w i l l k e e p t h e committee
of w h a t -2b--s
advisod
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Federal Reserve Bank of St. Louis
201
Governor S e a y :
I
n other words t h e Committee w i l l
not a c t u n l e s s s e v e r a l b a n k s c o m m u n i c a t e w i t h i t a n d f o r m
a pool.
Governor Fancher:
T h i s condition m a y arise.
T h e
committee m a y b e negotiating f o r a sale a t 103-3/4, w i t h
fair prospects, a n d o n e o f the other banks m a y have a
hid
from brokers at 103-1/2 or 103-1/2 to 103-11/16, and sell.
You a t once p u t a stop t o the negotiations
o n the part o f
the committes i n the market.
The Chairman:
T h e danger y o u r u n i n dealing i n a
new G o v e r n m e n t b o n d ,
i n t h e w a y t h a t y o u propose,
i s this.
Some enthusiastic young broker will c o m e along a n d make
an offer t o Governor McDougal f o r his bonds, believing that
he c a n t u r n t h e m o v e r a t a
profit.
I
n t h e megntime
we
are working o n the sale o f a block o f bonds, o f s a y five
million.
T h i s broker, w h o i s net a
very responsible broker,
finds t h a t h e i s h u n g u p w i t h t h e bonds, t h a t h e c a n n o t
turn t h e m o v e r a t a
mines
profit;
t o c u t down h i s losses
sell t h e m
a t Such a
price
h e gets i n a
panic a n d d e t e r -
a s sharply a s possible a n d t o
a s h e c a n get.
H e h a s therefore
spoiled t h e market f o r the five millions o f bonds.
Y o u
have sold t h e bonds a t the agreed price, t h e committee
price, but the broker who has bought$100,000 ofthem finds
that h e i s stuckof bonds.
H e spoils t h e market for the 35,000,000
T h a t i s nearly always t h e case w i t h every n o w
issue e f bonds,
a m e v e r y bond hcuse i n New Yerk that i s
experienced i n these matters oxercises t h e greatest c a r e
in introducing a
new issue, t o see that t h e primary sales
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Federal Reserve Bank of St. Louis
202
made t o responsible people that will n o t g e t frightenrnd r u n i f they d o n e t turn the bonds o v e r right away.
I do not care particula. r l y , because I
believe there
a number o f very rich m e n a n d institutions
i n New York
who a r e looking with grave concern t o tne future o n account
of the war, a n d I think w e cculd g e t o some o f them quietly
and place a l l o f our bonds a t a very fair price a n d have
them p u t a w a y permanently.
Governcr McDougal:
O u r committce acted o n that mat-
ter a n d f e l t t h a t i t would@ b e o u r policy: to: sell t h e -ponds
aS soon a s v e could, a n d fixed t h e price o n them a t 3-1/2 .
The Chairman:
c far a s I a m concerned, 1
S
would just
as leave g o i t alone i n this matter a n d n e t attempt t o
think t h e c h a n c e s a r e w e w o u l d d o
heave “any account. I
better with a n account, b u t I think the Federal “eserve B ank
ef New York can do much better without any partners i n it.
We h a v e t h e f a c i l i t i e s
Governor Seay:
t o s e l l them.
M y object i s t o get the best price
for the bonds, a n d m y judgment i s that we would get the
best p r i c e b y p r o l i n g t h e m a n d g e t t i n g t h e m o f f t h e market
and letting t h e brokers w o r k u p the price afterwards f o r
themselves.
F o r that reason I sug:sested a committee. I
am also willing t o go i t alone, but 1 am convinced, a t the
time.
same t h a t w e w i l l d o b e t i e r i f t h e bonds a r e pooled.
Governor Miller:
H o w about giving t h e committee a n
option o n your b o n d s f o r t w e n t y o r t h i r t y days, G o v e r n o r
McDougal; l e t them t r y i t f o r 3 0 days a t t h e price y m have
named, o r better.
2035
Governor McDougal:
sell t h e b o n d s
P t i h i n k L f we=fot e B 7 Chance
a t t h a t p r i c e w e w o u l d s e l l them.
W
to
e want
to soll t h e m a s soon a s possible a n d g e t r i d o f them.
Governor Wold: I
misunderstood h e r e .
like t o d o now.
do not want m y position t o be
I
t i s not a
question o f what I
would
O u r directors a t their last meeting took
action u p o n t h i s m a t t e r a n d I
have t o abide b y that a c t i o n
at least until w e have another directors meeting.
Governor Seay: I
will w i t h d r a w
m y motion, M r . C h a i r -
(Informal discussion followed.)
oe i tery tt
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Federal Reserve Bank of St. Louis
The Chairman:
H a v e w e nct threshed t h i s o u t t o a
point where w e c a n get dcewn t o a motion?
Governor Wold:
W w e Can agree u p o n o n e thing; v e c a n
agree u p o n a price t o ask, c a n w e not.
The C h a i r m a n
Y e s .
Governor Wald: W h a t e v e r i s agreed upon a t this conference,
w e will abide by, a n d cur bonds will n o t b e sold
over t h e c o u n t e r
a t a n y l o w e r price.
The Chairman:
S u p p o s e y o u cffer a
Governor Wold: I
resolution.
do not want t o f i x the price.
move t h a t t h e b a s i c p r i c e b e
Governor McCord: I
3-1/2 per cent minimum, for the present.
Governor V a n Zandt: I
The Chairman:
(There w a s
I
second t h e motion.
s there a n y discussion?
n o ciscussion
and the motion was duly
carricd.)
The Chairman:
N e w , a s t o the method c f sale-
H a s
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Federal Reserve Bank of St. Louis
anybody a resolution?
Governor Wold: I
mittee b e appointed,
a m prepared t o suggest that a coma n d if,
i n their judgment,
a n advance
in this price i s justified, t h e y netify t h e member banks
and that they abide b y their devision i n the matter.
Governor Seay: I
The Chairman:
second t h e motion.
A r e y o u ready f o r t h e question? £
would like t o say for t h e Federal Reserve B a n k o f New York
I would n o t j o i n i n a pooling arrangement,
going t o sell i r r e s p e c t i v e
i f ohhers were
o f t h e arrangement. I
not want t o serve o n the committee. I
would
have n o t a word o f
criticism; e v e r y bank ought t o d o just what i t thinks best,
but I would not want t o serve o n a committee t o sell bonds
of e i g h t o r s e v e n o f t h e b a n k s a n d h a v e o n e c r t w o o f t h e m
outside o f t h e arrangement.
T h a t would p u t t h e pool a t a
tromendous disadvantage i n the amount o f bonds sold.
(At t h i s p o i n t i n f o r m a l 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 nographer w a s d i r e c t e d
n t
t o report; a f t e r w h i c h t h e f o l l o w -
ing proceedings took place.)
The Chairman:
W
e a r e w a s t i n g t i m e , gentlemen. I
net g o i n g t o waste a n y more t i m e talking about it.
that w o cannot m a k e that arrangement;
and g e t along.
W
am
w e k
now
s o let u s abandon i t
e h a v e f i x e d t h e price,
a n d s o let the
matter drop.
ll. N O T E ISSUES.
The Chairman:
Mre Curtis:
T h e next item is No. 11, "Note issues".
M r + Chairman, a t the last conference o f
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Federal Reserve Bank of St. Louis
205
Governors i t was voted t o refer t o the Conference o f
Federal R e s e r v e A g e n t s a l l m e t t e r s p e r t a i n i n g
t o the issue
of notes,
The Chairman:
T h a t i s a great helps G e n t l e m e n , i s
it your pleasure t o carry o u t o u r formal expression o f in-
tentions a n d refer topics 1 1 (a), (b), (c) and (d) t o the
Federal R e s e r v e A g e n t s f o r d i s c u s s i o n a n d disposition?
Governor Fancher: I
s o move, Mr. Chairman.
Governor V a n Zandt: I
The Chairman:
second the motion.
I s there a n y ciscussion?
(There was n o discussion and the motion was duly
carried. )
lé. R E V I S I O N O F REGULATIONS.
Mr. Curtis:
M r . Wold has some ideas o n Topic 12.
Governor Wolds G o v e r n o r Strong, a t different times,
has h a d this matter u p o f rewriting t h e regulations, a n d
quite r e c e n t l y t h e B o a r d s u b m i t t e d t w o s u b j e c t s k n o w n a s
No. 1
and No. 2
t o the Federal Reserve Agents.
T h a t came
to m y motive and I discussed i t with our agent and suggested t o h i m that h e might write t o the Board a n d tell t h e m
that i n a s m u c h a s a C o n f e r e n c e
o f Governors w a s h e l d a l o n g
about t h i s t i m e , t h e m a t t e r m i g h t b e r e f e r r e d
t o it.
B t
went d o w n t o t h e B o a r d r o o m y e S t e r d a y a n d a s k e d t h e m i f t h e y
propos e d t o refer these n e w rezulations
Mr. Hambin said, "Yos, I suppose so-" I
furnish u s with copies?" I
Set;
t o the Conference.
said, "Will you
had already procured the one
a m t h e y S a i d t h e y w o u l d s e n d o v e r copies,
have not. I
b u t they
have t w o p r o p o s a l s h e r e , o n e a n d t w o , a n d I
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Federal Reserve Bank of St. Louis
206
believe t h a t t h e Governers a r e more interested i n this matter t h a n t h e agents,
our banks,
a n d i t i s o f more importance
a n d w e ought t o h a v e a n opportunity
t o us and
t o ciscuss
and g o over these regulations before t h e y a r e finally i s -
sued» I
have been told--- Ithink Mr. Curtis told me—-
that they were n e t going t o put these o u t until Mr. Warburg
had gotten back.
Mre Curtis:
T h a t i s the latest decision.
Governor Miller:
I s i t your understanding that copies
of t h e s e w e r e s e n t t o t h e F e d e r a l R e s e r v e A g e n t s ?
Governor Wold:
and
O u r Federal Reserve Agent got a sct,
h e was instructed
Governor Miller:
Governor Seay: I
think o u r a g e n t g o t a
Governor McCord:
t o confer w i t h
m e o n the matter.
I f our agent g o t it, h e did not con-
have never heard o f it. I
do not
copy.
O u r agent g o t a
soon a s h e opened t h e envelope,
copy, a n d j u s t a s
h e gave m e a duplicate c o p y
snd said, " I want you t o read this over, because you are
more interested i n it than w e are.”
The Chairman:
I t would b
e impossible for us tc deal
with t h i s m a t t e r here;
w e h a v é n e t c o p i e s e n o u g h t o read,
and i t would b e a long discussion.
A s s u m i n g that w e can
not discuss it, what action should w e tako with references
to a revision o f the regulation?
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Federal Reserve Bank of St. Louis
_{Informal discussion follored. )
The Chairman:
W i l l y o u offer a
resolution, Governor
Miller?
Governor Miller: I
will certainly d o it i f Mr. Cur-
tis will frame it.
Mr+ Curtis:
The Chairman:
I t has been passed three times.
N o , n o t separate mailing.
Governor Miller: I
Mr- Curtis:
offer t h e resolution.
T h e very first o n e was o n separate mail-
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Federal Reserve Bank of St. Louis
Governor Miller:
Girect
I l offer a
t o t h e Governcr
resolution that t h e Board
c f each b a n k a l l communications
are intended ultimately f o r delivery t o the b a n k which
heretofore b e e n mailed t o the agent f o r delivery.
Governor McDougal: I
think that i s the identical
language u s e d a t Chicago i n regard t o the same subject.
Mr. Curtis:
J u s t about, Mr. McDougal.
Governor Seay:
T h e repetition ought t o lend force
to it, then.
The Chairman:
hear a
W i t h this m e t i o n before us, d o I
second?
(The metion was duly seconded.)
Governor Fancher:
man, I
B e f o r e t h e mction i s puty Mr.Chair+
will s a y t h a t t h e t r o u b l e s e e m s
t o me, f r o m m y e x p e r -
lence w i t h t h e Board, t h a t t h e y h a v e n o t a n y plan, a n y f i x e d
Plan, o v e r there, o f their own.
The Chairman:
N o system.
Governor Fancher:
I
T had t h a t u p w i t h Mr. D e l a n o
when h e w a s i n “ l e v e l a n d a b o u t t h r e e w e e k s ago. I
to t h e B o a r d w i t h r e f e r e n c e
warrants.
w e wanted a
wrote
t e the matter o f some issues
little larger percentage.
of
T h e
ackyowledgement c a m e back t o m e from Secretary Willis stating that i t would b e brought t o the attention o f the Board.
In a few days t h e Board advised t h e Federal Reserve Agent
that o u r request f o r certain things had b e e n granted, a n d a
carbon c o p y t o t h e a g e n t c a m e o v e r t o m y desk.
gone about t h e cther w a y sometimes.
I
t has
W h e n t h e agent h a s
addressed s o m communications, t h e y would reply t o the Gover-
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Federal Reserve Bank of St. Louis
209
nor.
S o there i s not a n y general scheme o r regular p l a n
spoke
about communicGkhtions c o m i n g d i r e c t f r o m t h e Board. I
to Mr. Delano about i t and h e rather admitted that they
were just a Little b i t a t sea over there, a n d I put considerable s t r e s s
o n t h e matter.
Governor S e a y ?
matter.
but I
T h e r e i s n o u s # o f compromise
i n this
I f they take a n opposed view, w e cannot help it,
should think w e shéuld stand u p o n t h e request t h a t i t
be done.
Governor Miller:
T h e n m y resolution should g o a lit-
tle further a n d state that t h e Board should address t h e
Governor
o n all matters pertaining particularly
ation o f t h e b a n k a n d s e n d a
t o the oper-
carbon c o p y o f t h e l e t t e r
to
the agent.
Governor Seay: I
Governor Wold:
think you have the right idea, now.
W h y not say, " W e renew o u r request
that a l l c o m m u n i c a t i o n s b e a r i n g u p o n t h e o p e r a t i o n o f t h e
bank b e directed t o the Governor o f the Bank?"
The Chairman:
O u r Secretary w i l l o f course s e n d t h e
usual e x p u r g a t e d edition.
(After informal discussion t h e resolution w a s duly
adopted.)
The Chairman:
W e still have n o t hit Topic No. 12,
which i s Revision o f regulations.
pursue
i n respect
W h a t course should fre
t o this particular matter?
D
o w e want
to ask the Board t o see that e a c h Governor i s furnished
with a copy o f the revision o f regulations, a n d after w e
have h a d t h e m , w h a t d o y o u t h i n k w e o u g h t t o d o a b o u t it-—~-
deal individually o r collectively?
Governor Millor:
W
e cannot tell, b e c a u s e w e d o n o t
know t h e s u b j e c t m a t t e r .
Governor Wold:
W e u l d i t n o t b e better, M r . C h a i r m a n ,
if w a w e r e t o consolidate o u r v i e w s a n d recomnendations,
rather t h a n t o have this referred t o twelve different
Governors f o r t w e l v e d i f f e r e n t e x p r e s s i o n s g i v e n a s t o w h a t
Should b e done?
Mre Tupper:
I f these regulations a r e things t h a t per-
tain directly t o the operation o f the bank, a n d i t s relation t o t h e o p e r a t i n g e n d o f t h e bank, a
large p a r t o f
them Would vitally affect the Governors! Department.
The Chairman:
W i t h a l l d u e respect
t o t h e Board, I
Cannot help b u t feel that t h e y a r e inclined t o b e a little
bit sensitive o f getting into a position where their own
original w o r k i s directed o r suggested o r molded t o o much
by t h e o f f i c e r s
o f t h e b a n k s themselves. i
-do.net t h i n k
that the Board feel that they ought t o go t o the officers
of all t h e banks a n d ask them what kind o f regulations
they should make; but having prepared regulations, i t seems
to mo absolutely neccossary that befcre they are promulgated
the o f f i c e r s
o f t h e bank should h a v e a n opportunity
t o ex-
amine t h e m and m a k e suggestions.
The question is, what kind o f a recommendation d o you
think should g o t o the Federal Reserve B o a r d which will i n Sure o u r having opportunity t o examine t h e revisions o f r e gulations before t h e y are promulgated, e n d when w e d o send
that recommendation,
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Federal Reserve Bank of St. Louis
i f they a c t upon it, h o w should w e deal
212
with the drafts o f revised regulations s o that o u r work
will n o t b e t o o i n d i s c r i m i n a t e a n d s c a t t e r e d
t o b e effec-
tive?
Governor McDougal: I
think t h e Board believes t h a t
they have sent copies t o all t h e banks. I
got from Mr.
Bosworth a
copy o f this proposed revision, a n d I think i t
was j u s t a
copy o f a
banks.
general ¢ i r c u l a r s e n t t o t h e t w e l v e
T h e intent w a s v e r y good there; i t was t o simplify
matters a n d t o give t h e banks fullinstructions a n d l e t u s
conduct t h e affairs o f the banks a s w e would i f w e were
operating S o m e commercial institution.
The Chairman:
little I
T h e s e regulations, I
a m sure, f r o m t h e
know o f them, a r e a great improvement o v e r their
former regulations.
Governor McCord: I
a m sure that the Board intended
hat t h e G o v e r n o r s s h o u l d h a v e a
c o p y o f t h e regulations,
because o u r chairman g o t t w o copies, a n d h e gave m e o n o o f
them, a n d l read that.
h e n w e get back home, i f we have
net r e c e i v e d t h e copy, a s k t h e a g e n t f o r i t , a n d t h e n c o m m u n -
icate w i t h the a g o t a n d cffer o u r suggestion, a n d when
they c o m e h e r e i n May, l e t t h e m t a k e u p o u r s u g i e s t i o n s
‘'with thcoir own.
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Federal Reserve Bank of St. Louis
can adopt a
T h e y c e r t a i n l y s h o u l d n e t conflict.
T h e y
Suggestion t o the Board that t h e y shink would
be right.
Governor Fancher:
T h e y came t o our agent with the
letter asking f o r suggestions. I
act language. I
do not recall t h e e x -
think h e was asked t o confer w i t h t h e
Gevernor a n d make suggestions.
W e sat down a n d gave i t
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Federal Reserve Bank of St. Louis
considerable thought.
The Chairman:
W h o here h a s n e t received copies o f
these regulations?
Governor Miller:
{ G 4 4 Rot.
Governor Seay: I
have not.
W e have changed agents
in that time, a n d i t m a y b e due t o that fact.
Governor Aiken: I
it t o o u r agent.
have t h e letter here transmitting
T h e last paragraph says that i t i s t h e
general object t o study i t with the officers o f the bank,
etc.
The Chairman:
E a c h o f the banks that have n o t receiv-
ed copics o f the regulations ought t o take i t up. 2
Aoso 3
Say t h a t i f w e b e g i n g o i n g b e t w e e n i n d i v i d u a l b a n k s a n d t h e
Board w e will b e getting i n hot water all the time.
T h e
Board has done exactly what w e are n o w requesting t h e m t o
do, a n d t h e d i f f i c u l t y d o e s n o t l i e w i t h t h e Board, b u t w i t h
the Agents o f three e r four o f the banks.
(At this point a n informal discussion arose which the
stenographer 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 t o o k place:)
Governor Seay:
I t i s clear that w e cannot handle t h e
matter here n o w i n this conference.
I t i s a matter o f re-
gret t h a t w e d i d n o t h a v e t h e m b e f o r e a n d h a v e n o t b e e n a b l e
to get together t o discuss i t among ourselves a n d get t h e
benefit o f each other's ideas.
The Chairman:
H a s anybody a suggestion o f how the
criticism o r how suggestions
i n regard t o the f o r m o f these
revised regulations can be submitted t o the Federal Reserve
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Federal Reserve Bank of St. Louis
214
Board collectively a n d effectively f r o m all 1 2 o f the banks?
That i s w h a t w e w a n t t o g e t at.
cumstances,
thik, under. the. c i r
think not. i
Governor S e a y I
w e will have t o make o u r individual comments
and suggestions.
Governor Miller:
We will
over.
W h y c a n w e not g e t copies
o f these?
b e here several days, a n d w e c a n probably r e a d t h e m
T h e r e m a y not b e very m u c h t o i t when w e read it.
I do not know what i s i n it.
Governor McCord:
I l ‘think-you- will. find very little.
W o u l d i t not b e a pretty g o o d
Governor V a n Zandt:
plan t o have t h e Governors g e t copies o f this while t h e y
are here, those t h a y haven't them, a n d after they g e t back
to their banks,
g o over this plan and submit t h e i r criti-
cisms o r suggestions t o Mr- Curtis, a n d let h i m tabulate
them a n d s e n d i n t h e d u p l i c a t i o n ?
Mr. Curtis: T h a t does not accomplish anything, except t o make m e d o the w a k of--Mr. Calkins:
T w e l v e separate suggestions f r o m twelve
separate b a n k s w i l l n o t g e t a n y w h e r e e x c e p t i n t o a
wrong
direction.
The Chairman:
L e t u s have a
committee, then.
W h o
is willing t o serve o n the committee?
Governor McDougal: I
do net think t h e communication
Would i n d i c a t e t h a t i t w a s n e c e s s a r y f o r u s t o a c t u p o n t h i s
as a
body.
T h e nature
o f the letter i s rather personal
and a s k s e a c h b a n k t o express i t s views. I
have i n m i n d
ono c o n f c r e n c e w i t h t h e B o a r d w h e n w e w e r e t o l d p r e t t y p l a i n -
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Federal Reserve Bank of St. Louis
ZA
ly thatthey w o u l d operate a s they s a w fit a n d they d i d not
want u s t o interferes,
Governor Seay:
A s a body.
Governor McDougal:
The Chairman:
W
A s a body:
e are here a s a
body a t t h e direc-
tion of the Reserve Board.
Mr: C u r t i s :
T h i s meeting
i s called
b y request
o f the
Reserve Board,
Governor Seay:
thesoe r e g u l a t i o n s
B u t w e are n o t requested t o consider
as a
Mr- Curtis:
body.
M r . J a y wrote t o them that h e had handed
me his c o p y f o r the purpose o f having i t discussed a t this
conference.
S
o that t h e y are advised
a s t o t h a t much.
Nobody h a s s a i d ye&S o r n o t o t h a t p r o p o s i t i o n
Governor McCord:
i n reply.
M r . Miller's suggestion i s a
very gocd one——- g e t a copy while here, a n d then, before
we adjourn, d i s c u s s
Mr- Curtis:
i t briefly.
T h e r e i s one important question i n con-
nection with it, a n d that i s whether o r not they Shall con-
solidate everything into one little pamphlet and have i n
there divisions t h a t cover t h e actions o f the member b a n k s ,
the action o f the reserve banks a n d t h e action o f the Federal R e s e r v e Agents;
pamphlets
o r whether t h e y s h a l l p u b l i s h s e p a r a t e
i n which those s a m e divisions s h a l l b e marked
out byt t h o inappropriate ones n o t sent t o the member banks.
Then there a r e minor changes; b u t that i s the great
issue presented. P e P e o n a l l y > I
all i n o n e l i t t l e p a m p h l e t
a m i n favor o f having i t
s o that everybody w h o deals w i t h
the r o s c r v e b a n k s k n o w s h o w e v e r y o f f i c e r
o f the bank o r
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of t h e G o v e r n m e n t
i s g o i n g t o h a n d l e a n y proposition.
It i s j u s t l i k e t h e r e p o r t s
i n t h e T r e a s u r y Vepartment,
They d o n o t n e e d t o r e a d a n y t h i n g t h a t t h e y d e n o t w a n t
to.
Governor Miller:
ably d e a l w i t h a
ours.
M r . Secretary,
different c h a r a c t e r
l i v e r y banker
y o u would prob-
o f member banks f r o m
i n Oklahoma w o u l d b e discussing w i t h
the agent o r the Governor his rights a n d limitations. I
have gct discourses that high (indicating) o n what i s the
duty o f a Governor, a n d s o forth; " W o u l d y o u please give
me your authority f o r t h i s , t h a t o r the other?"
cannot f i n d a n y t h i n g
The Chairman:
living
i n the l a w that applies
T h e y
t o it.
T h a t i s one o f the misfortunes o f
i n Oklahoma.
(Informal d i s c u s s i o n f o l l o w e d w h i c h t h e s t e n o g r a p h e r
was 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 f o l l o w i n g p r o -
ceedings took place.)
Tho Chairman:
W e have exhausted t h e time allotted
for-No... L a s
Governor McCord: I
Governor Fancher: I
move w e p a s s i t f o r t h e present.
s e c o m t h e motion.
(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 q u e s t i o n w a s
duly carried.)
The C h a i r m a n :
N o w we come
t o amendments
t o the
Federal Reserve Act, No. 1 3 h a v i n g b e e n taken care of.
14. A M E N D M E N T S
T O F E D E R A L R E S E R V E ACT.
Have y o u a n y h o p e o r e x p e c t a t i o n t h a t a
this matter will d o any good, Mr. Secretary?
discussion o f
CLT
Mr. Curtis:
T h e only thing which I know of that
the Board might like t o have u s discuss h e r e i s the amondment concering t h e issuing o f Federal Reserve notes against
gold.
The Che irman:
A n d w e ought t o put a
strong r e s o l u t i o n
through o n that.
Mr- C u r t i s s I
for the present.
think, p e r h a p s ,
w o might p a s s t h a t
M r . Hamlin asked m c t o g o over i t some-
time during t h e course o f the week a n d confer w i t h h i m o n
the c x a c t p h r a s e o l o g y t h a t t h e y m i g h t adopt.
had s o m e l i t t l e u p s e t w i t h r e s p e c t
posed t o Congress,
T h e y have
t o the plan they pro-
a n d they a r e v e r y anxious
straightened o u t i n apple p i e order,
t o have i t
s o that t h e y c a n con-
vinec t h e committee t h a t i t should b e done. I
believe
that w e would g e t along a
good doal faster i f w e found just
where t h e B o a r d w e r e n o w ,
M r . J a y h a s b e e n i n correspond-
ence with t h e m for s o m t i m e before w e tackled that, a n d
I think they would appreciate a resolution.
The Chairman:
T h e n l e t u s pass t h a t until Mr. Curtis
has h a d his conference.
Governor McCord:
pardon m e just a
O
moment:
n t h a t o n e point,
i f y o u will
I f the l a w i s a s m y good friend
Van Zandt says, t h e n w e need a n amendment t o put u s o n a n
equal p l a n e w i t h b a n k s l o a n i n g m o n e y t o o u r m e m b e r banks.
We have t o discount a n d cannot m a k e loans direct,
a m in
doing s o should a bank fail w e must prove o u r claim o n
each individual item.
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The Chairman:
T h a t has becn attended t o b y a n amend-
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2:0
ment that i s n o w proposed, and, I
believe, h a s b e e n rather
tentatively agreed u p o n with the House committee, t h a t
the b a n k s m a y b e p e r m i t t o d
t o make loans n o t exceeding
fifteen d a y s m a t u r i t y s e c u r e d
b y bills t h a t a r e e l i g i b l e
for discount.
Governor McCord:
B u t that does n o t meet t h e subject
as I would like t o have it, becauso y o u are discounting
continually, a n d while t h e y might l e t y o u make a
note f o r
fiftcen days i t would n e t protect y o u i n discounting.
What I
want i s t h a t t h e c i s c o u n t s , h o w e v e r m a n y t h e r e
may be, shall b e filed a s one claim.
The Chairman:
T h a t h a s nothing t o c o with t h e Federal
Reserve Act.
Mr- Curtis:
Y o u a r e talking about bankruptcy claims?
Governor McCord:
N
o 617;
i t i s cifierent t r o m 2
bamkruptcy claim.
The Chairman:
T h e Federal Government cannot make
any l a w w i t h r e s p e c t thereto.
Governor Miller:
G o v e r n o r McCord, t h a t i s simply a
little formality o f just swearing t o each item?
Governor McCord:
N o ,
i t i s not a
formality.
(Informal discussion followocd which t h e stenographer
was d i r e c t e d n e 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 prco-
ceodings t o o k place: )
The Chairman:
A L ] o f the amendments that t h e ¥ederal
Reserve Board a r e willing t o press t o obtain a t this sesSion o f Congress h a v e b e e n Submitted t o Congress a n d a r e
now u n d e r discussion.
T h i s i s a n amendment
t o t h e general
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219
statutes
o f t h e U n i t e d States.
L S A O a n O - b a b eodhVie.wlon Cain
accomplish anything b y taking the matter u p with the Reserve
Board at this tim&
Governor McCord:
V o u l d t h e r e be: a n y 1mprdpricery— i n
my taking i t u p with m y Member o f Congress?
The Chairman:
N o t a bit;
b u t w h y d o y o u not sug-
gest that t h e item b e put o n the calcondar for o u r next meeting a n d k e p t t h e r e ?
Governcr McCord:
C o n g r e s s w i l l b e adjourned
b y that
time.
The Chairman:
it i s important,
T a k e i t u p with the next Congress.
i t i s worth keeping
o n o u r program,
I f
as
other matters have been, f o r long periods o f time.
I think m o s t o f t h e s e q u e s t i o n s w h i c h n c b o d y g e t s a n
opportunity
t o consider u n l e s s t h e y a r e o n t h e p r o g r a m
ought n o t t o b e c o n s i d e r e d u n l e s s t h e y h a v e b e e n s u : g e s t e d
for the program, a n d everybody comes here prepared t o dis-
cuss them. T h e fact is that many questions come up at
our meetings, b u t where these things a r e pending i n the
different r e s e r v e b a n k s a n d c a n b e suggested f o r t h e p r o -
gram i t greatly facilitates dealing w i t h them i f they are
offered i n advance.
Governor Miller:
Y o u were going t o make some sugges-
ticn about a n amendment?
The Ghairman:
I t i s a very-trifling matter, b u t i f i t
is one that appeals t o you a s Wise, w e c a n put i t i n i n
connection w i t h the sujzestion f o r amendments-—Governer MeCord: I
thoughtit w a s m a d e u p .
220
he Chairman:
b
s
amendment n o w offered.
.
3 ard. avis. L S 2, Daru c t t h e
I t i s with reference t o that sec-
tion o f the l a w relating t o bankers! acceptances, a n d I
would l i k e t o have that revision which i s t o b e ciscussed
before t h e committee i n a day o r two n o w include a
Sion t h a t b i l l s
exclusive
provi-
o f reserve b a n k s m a y r u n f o r n i n e t y d a y s
c f grace, b e c a u s e t h e b i l l s c r a w n o n L o n d o n c a r r y
three days grace, a n d practically i t would b e very difficult f o r u s t o buy bills w h i c h had a maturity o f 9 3 days
under t h e provisions o f the statutes here.
T h a t i s one
of t h e a m e r n d m e n t s w h i c h t h e Federal R e s e r v e B e a r d a r e n o w
working on, a n d i f y o u think i t i s good business t o take
advantage
o f this opportunity---
Governor Miller:
The Chairman:
I
t would
b e well t o straighten i t
T h e Act says payable
i n any more than
ninety days, a n d i t i s payable a s a matter o f fact i n 9 3
days.
Governor Wold:
I t does mature i n 9 0 days, a n d y o u
have three days grace i n which t o pay it,
Governor Fancner: I
offer a
resolution recommending
that wherefer t h e Act gives a s maturity f o r a n eligible bill
or note ninety dayscr threc months, t h a t grace shall b e
excluded.
Y o u c a n add grace a n d make i t a n eligible piece
of paper.
Governor Wold: I
second t h e motion.
(There was n o further discussion and the motion was
duly carried.)
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15, R E P L E N I S H I N G MEMBER BANKS! F I V E P E R CENT FUNDS
THROUGH FEDERAL RESERVE BANKS.
The Chairman:
W h a t was the Board's suggestion with
reference t o No. 15, Mr* Curtis?
Mr- Curtis:
A
t t h e last conference t h i s matter c a m e
up, a n d i t was discovered t h a t i t had n o t been presented
to the members o r any o f the Governors present, a n d after
a brief discussion i t was voted that this matter should
be handled b y each o f t h e banks a s they thought best.
I l
have here a letter f r o m Mr. Delano w h i c h h e sent m e just
the other day, under date o f April llth. I
think i t has
gone t o each o f the Federal Heserve Agents with a copy o f
for t h e bank. I
have h e r e a copy that w a s went t o the
bank.
Governor Seay:
gmcinstance
Strange
t o say,
i n which i t came directly
i n our c a s e i t was
t o t h e Governor a n d
a c o p y w e n t t o t h e Agent.
Mr-+ Curtis:
T h i s o n e i s addressed
t o Mr. P i e r r e J a y ;
and then, a t the top, i t says: “ F o r the Bank", and Mr,
Delano's signature i s stamped i n and n o t written.
Governor Seay: I
thought i t was worthy o f notice
that i t w a s d o n e t h e o t h e r w a y i n o u r case.
(Informal d i s c u s s i o n o c c u r r e d w h i c h t h e stenoz rapher
was d i r e c t e d n c 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 -
ceedings t o o k place:)
Mr. Curtis:
S h a l l I read this, Mr. Chairman?
The Chairman:
Yes.
Mr. Curtis: ( R e a d i n g ) :
"Tho Federal Reserve Board has h a d under discussion
Ree
with the Treasury Dopartment, particularly with Assistant
Secretary Malburn, suggestions w h i c h have c o m e t o
it at
various t i m e s t h a t N a t i o n a l B a n k s b e p e r m i t t e d
posits
t o make d e -
t o the credit o f t h e Five P e r Cent Fund i n the
hands
of the Treasurer o f the United States a t Washington
threugh their o w n Federal Reserve Banks, a n d that, i f this
can b e arranged,
render
i t will enable Federal Reserve Banks t o
a n i m p o r t a n t a n d desirable s e r v i c e
t o t h e i r members.
The r u l e h e r e t o f o r e h a s r e q u i r e d N a t i o n a l b a n k s
t o get
drafts o n New York, b u t i t i s n o w Suggested that instead
of r e q u i r i n g t h i s , t h e b a n k s m a y p r o p e r l y b e
permitted
request t h e i r
c w F e d e r a l R e s e r v e B a n k s LO. r e m ,
to
t o sthe
Treasurer o f t h e United States f o r their credit i n the
Fiver P e r c e n t R e d e m p t i o n Fund.
T h i s would t h e n b e han-
dled ( i n denominations o f $10,000) a n d at the convenience
of the Federal Reserve B a n k o f the District, through t h e
Gold R e d e m p t i o n F u n d a t Washington.
"In carrying o u t this p l a n i t i s proposed t h a t t h e Federal R e s e r v e
Bank
c f N e w Y o r k s h a l l h a v e t h e p r i v iisce
paying f o r i t s m e m b e r b a n k s d i r e c t l y
urer o f t h e U n i t e d S t a t e s
o F
t o t h e Assistant T r e a s e
i n that city, a n d , furthermore,
it i s t h e idea that nothing i n this p l a n shall prevent
National b a n k s f r o m m a k i n g r e m i t t a n c e s d i r e c t
urer
o f t h e United States
o r t o the Assistant
New Y o r k i n t h e o l d w a y i f t h e y d o n o t c h o o s e
themselves
t o the TreasTreasurer
a t
t o avail
o f t h e m e t h o d h e r e i n proposed.
"As t h i s i s a
matter
i n connection w i t h t h e cperation
of the Banks which m a y well b e considerea b y the Governors
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225
at t h e i r f o r t h c o m i n g c o n f e r e n c e
i n Washington,
i t i s now
Submitted t o you with the request that y o u take i t u p a t
that t i m e a n d o f f e r s u c h s u g g e s t i o n s
o r conclusions
a s you
may have arrived at. "
"Yours v e r y truly,
"FF, £, Delano,
"“Wice Governor."
I wrote t o Mp. Delano and cited t o him the decision
arrived a t a t t h e last Conference a n d said that I would
be very glad t o put i t o n the program again f o r t h e Governors t o consider a t this conference.
Governor “old:
W h a t w a s t h e res:lution a t t h e last
Conference?
Mr+ Curtis:
T h a t each Federal reserve bank handle
the matter i n the w a y they deemed best.
Mr. S a i l e r a n d Mr. K e n z e l h a v e m a c e a
very g o o d b r i e f
memorandum o n this subject which points o u t some o f the
matters mentioned b y Mr. Delano, which I will read:
"Referring t o the aitached letver’from Mr. velano,
Vice G o v e r n o r
o f t h e Federal Reserve Board, w i t h reference
to the 5% Redemption Fund of National banks, w e beg to
point o u t that this matter was discussed w i t h Mr. Malburn
at our office o n January 28th last.
"at that time w e suggested t h a t deposits t o replenish
the 5% Fund of National banks throughout the country could
be m a d e i n t h e f o l l o w i n g manner:
1. T h a t the Treasurer c f the United States instruct
the National banks throughout t h e country hereafter
224
to make s u c h deposits b y requesting their Federal
reserve b a n k t o m a k e a
transfer
o f t h e amount
through t h e F e d e r a l R e s e r v e B a n k o f N e w Y o r k t o
the Assistant Treasurer e f t h e United States i n
New York.
If mor® cesirable, that the Federal reserve bank
of e a c h d i s t r i c t m a k e s u c h t r a n s f e r s d i r e c t
by
issuing t h e i r ‘ r a f t o n t h e F e d e r a l R e s e r v e B a n k
of New York and sending i t t o the Assistant
Treasurer
o f the United States
i n N e w York, c o v e r -
ing o n e o r m o r e s u c h d e p o s i t s f o r t h e c r e d i t o f
the member banks 5 % Redemption Fund.
"Inasmuch a s there may b e a number o f these payments
from c a c h d i s t r i c t ,
t h e above procedure
would simplify
the
work o f the Federal Reserve Bank o f New York and the Subtreasury.
A s the Treasurer o f the United States i s n o w
maintaining deposit accounts w i t h each Federal reserve bank,
credits for the 5 % Fund could b e passed t o the credit o f
the Treasurer of the United States i n each Federal reserve
bank, w i t h a d v i c e t o t h e fpeasurer, t h e r e b y e l i m i n a t i n g
all c h e c k s a n d t r a n s f e r s
b y m e m b e r b a n k s a n d Federal r e -
serve banks.
"It i s difficult t o see h o w the Gold Settlement Funda
could b e used t o advantage i n these matters,
a s the unit o f
transactions through t h e Gold Settlement F u n d i s vL0,000,
and the payments t o the 5 % Fund are almost always for small
odd amounts,
of $10 000."
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The Chairmant
¥ e have dis c u s s e d this before a t our
meetings, and, a s you know, I have always shied a t the
idea that t h e Federal Reserve Banks should b e interposed,
if y o u please, between t h e National banks o f t h e country
and the Government's f i v e p e r cent redemption fund, which
is a part o f the general fund, o n the theory that i f we
handled t h e payments i n behalf o f the member banks i n the
form o f c h e c k s - - - t h a t i s , i f t h e y g i v e u s c h e c k s
correspondents,
possibly a
o n their
w e will g e t i n settlement f o r those checks
different quality o f money f r o m what w e would
be able t o pay t o the Government through the Gold Settlement Fund, a n d a t a time o f heavy redemption o f National
bank notes, w h e r e t h e f u n d h a d t o t e r e g u l a r l y replenished,
if w e permitted a
National b a n k t o give i t s check o n any
but a Federal reserve bank, w e would get replenishment
through t h e clearing house,
a m w e would always b e paying
That
out our gold through the Gold Settlement Fund.
would: not b e the case i f the drafts that w e receive f o r
transfer p u r p o s e s
w e r e always drafts
o n Federal
reserve
banks, because t h e y a r e settling between themselves i n gold.
So that Mr. Kenzel's suggestion that these transfers b e
made solely through the Federal reserve agents b y drafts
on Federal r e s e r v e b a n k s w o u l d p r o t e c t u s .
Governor McCord:
The Chairman:
t would not protect us.
I t wouid not?
Governor McCord:
tell y o u why.
I
N o sir; i t would not.
F o r instance, I
b a s ceMeSe 8
have t w o o r t h r e e h u n d r e d
thousand dollars t o b o deposited b y the Atlanta Banks i n
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226
the F i v e r P e r C e n t Fund.
T h o s e people would send u s down
National b a n k n o t e s o r c h e c k s
o n our par points creating
their credit, t h e n g o a m c r a w their checks o n u s f o r the
amount,
a n d w e have g o t t o pump i n the gold t o make their
Five P e r Cent Fund a n d take such things a s t h e Government
itself would not take f r o m us.
Governor Wold:
R h y d o y o u tako the b a n k notes?
You
are not cbliged to.
Governer McCord:
O h , yes, y o u are.
in o u r c o u n t r y a t t h e p o i n t o f a
Governor Seay:
notes
pistol.
C u s t o m i n a community m a y force y o u
to d o things o f that kind.
The Chairman:
Y o u would d o i t
W w e do not take them.
T h e bank has n o right t o redeem its
i n that way.
Governor McDougal:
W e have h a d a number o f requests
from Member Banks f r o m time t o time t o handle t h e matter
for t h e m i n t h i s way,
and d e p o s i t
with a
b y a s k i n g us-.to c h a r g e t h e i r a c c o u n t
local sSubtreasury;
are d o i n g n o w , a n d w h a t i s c u s t o m a r y
a n d that
i s what
we
i n t h e l a r g e banks.
In answer t o this letter from Mr. Delano I suggested
to h i m t h e p o s s i b i l i t y
o f their being able
t o handle
i t re-
gardless o f their subtreasury through t h e Government account.
That i s t h e plan that I
believe y o u found some objection to,
Mr. Strong?
The Chairman:
Y e s .
Governor M c D o u g a l : W o u l d y o u state that objection
again, i f y o u please?
The Chairman:
T h e Government, a s I understand it,
227
while i t holds t h e Five P e r Cent Redemption F u n d i n the
General Fund, i s n o t authcrized b y the Federal Reserve A c t
to deposit that portion o f the General Fund with Federal
Roserve Banks.
T h a t i s specially excepted b y the statute,
as 1 reca ll. I
have n o t looked a t i t f o r s o m time.
Governor Seay:
T h a t i s unquestionably right.
Governer McDougal:
I
n our communication i t was stated
that o f course this would have t o b e with the consent o f
the Treasurer.
Governcr Wold: I
am under the impression, Mr. Chair-
man, t h a t w e are making those transfers o r replen&shing t h e
Five P e r Cent Fund f o r our Member banks b y drafts u p o n
the New york bank sent t o the Assistant T r e a s u r e r t
a New
York w i t h t h e r e q u e s t t h a t i t b e p l a c e d
i n the Five P e r Cent
Fund.
Governor McDougal: I
simply s t a t e t h e m a n n e r
which we are handling that for our member banks.
convenient f o r t h e m a n d s t i l l
in
I t is in-
i t a n s w e r s t h e purpose.
This
plan o f “ir. Delano's would n o t help u s i n m y district a t
Eri
Governor McCord:
I
t would materially affect us.
We have n o R t e e a s u e e .
Governor Seay:
Y o u r redemptions a r e very large?
Governor McCord:
O u r redemptions a r e very large.
he
are n o t permitted t o carry i r t h e unclassified account a n y
redemption
o f national
b a n k notes.
T h e only thing
wo
Can p u t i n there i s u n f i t s i l v e r c e r t i f i c a t e s a n d T r e a s u r y
notes, a n d w e pump that d r y i n two hours.
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I t would simply be
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228
pumping o u t t h e g o l d f r o m o u r G a l d F u n d i n t o t h e Tlreasury
of the United States a n d getting i n payment therefor
checks
o n o u r p a r points,
a n d national b a n k n o t e s t h a t a r e
Uni i g o r circuie ton.
The Chairman:
reference
T h i s question divides itself, w i t h
t o y o u r experience,
i n t o t w o parts:
O n e i s the
part covered b y this suggestion, w h i c h i s simply t o furnish
facilities t o country banks outside o f Federal Reserve Cities
for making remittances.
T h e other i s your o w n special
local c a s e w h e r e y o u r b a n k s - - -
Governor McCord:
N o t o n l y the Atlanta Bank, b u t o u r
country banks d o the same thing.
The Chairman:
T h a t i s a local situation.
Governor McCord:
I t i s local w i t h a t least o n e o f
you, t o o .
Governor V a n Zandt:
I t i s local w i t h us.
Governor Seay? T h e r e i s some danger t h a t the redemption m a y b e the means o f depleting o u r gold fund.
L E <5
am not mistaken, t h e entire volume o f National b a n k notes
is r e d e e m e d e v e r y year.
The Chairman:
T h a t i s what I have been hearing.
Governor S e a y : I
t h i n k i t behooves
u s t o be a
careful o n that, because w e might readily conceive a
when,
i f a
Feceral
reserve
b a n k should undertake
little
time
t o fur-
nish the gold, t h e y would g e t back i n exchange f o r i t some
other class o f money.
The Chairman: I
would n o t want t o undertake t o fur-
nish gold i n settlement o f all national b a n k redemptions
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Federal Reserve Bank of St. Louis
coo
f o r t h e b a n k s i n . o u r «district. i
service t h a t i s p e r f o r m e d
limited t o t r a n s m i t t i n g
would l i k e t o s e e t h e
b y the F e d @ a l reserve banks
t o t h e Government t h e s a m e k i n d o f
money w e r e c e i v e f r o m t h e N a t i o n a l b a n k s ,
a n d tlere i s
no oc<aSion f o r u s t o perform that service i n New York
city for member banks that a r e located there, because t h e y
can g o right t o the sSubtreasury.
Governor Wold:
about this;
B u t there i s nothing obligatory
i t i s s i m p l y p u t h e r e s o w e c a n serve o u r
member b a n k s w h e n w e d e s i r e t o , a n d d i s c o n t i n u e t h a t s e r -
vice when w e please.
Governor Seay:
A n d i f you undcertakeit and get them
in the habit o f it, y o u will b e furnishing them with the
means o f depleting your g o l d reserve, a n d i t will net b e
very e a s y t o reverse your position.
The Chairman:
A r e w e ready t o make a n y recommenda-
tion with respect t o this matter?
A r e n o t t h e t w o cbjec-
tions t o the plan, one, that the Gold Settlement Fund, only
providing settlements i n units o f 610,000,
w i l l not
apply t o t h e a v e r a g e r u n c f s m a l l t r a n s a c t i o n s
i n replenish-
ing t h e Five P e r cent Redemption Fund; a n d , two, t h a t unless t h e a r r a n g e m e n t
i s s o operated t h a t w e c a n p a y i n t o
the redemption fund t h e same kind o f money that w e receive,
we w i l l b e subject
t o the pos sibility o f a
depletion o f o u r g o l d r e s e r v e s
very s e r i o u s
b y being obliged t o p a y out
gold a n d r e c e i v e n a t i o n a l b a n k notes, U n i t e d S t a t e s n o t e s
and s i l v e r certificates.
Governor Seay:
A n d credits o n par points.
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Federal Reserve Bank of St. Louis
The Chairman:
A n d checks.
Governor Seay: I
move t h a t t h e a t t e n t i o n o f t h e
Board b e c a l l e d t o t h o s e t w o considerations,
a n d that i t b e
conveyed t o them i n the language expressed b y our Chairman,
which 1 think covers the situation very completely.
Governor McCord: I
second the motion.
(There w a s n o discussion,
a n d t h e motion w a s
duly carried.)
16. M E M B E R BANK EARNINGS STATEMENTS.
The Chairman:
Mr. Rhoads.
T h e next t: pic i s No. 16, offered b y
H e was obliged t o g o t o a funeral. I
do not
know W h a t t h i s t o p i c r e f e r s t o , e x c e p t p o s s i b l y t h e m o n t h l y
publication.
Mr. C u r t i s :
S t a t e m e n t s t h a t a r e s o n t t o t h e Comptrol-—-
ler a t t h e t i m e o f t h e d e c l a r a t i o n
banks.
o f dividends
b y member
H e wants t o have copies o f those sent t o the Re-
serve b a n k s f o r t h e i r information,
w h i c h h e says h e i s not
now getting t o a n y great extent.
Governor Miller:
Mr- Curtis:
D i v i d e n d reports?
Yes.
i t i s t h e report c f earnings
accompanies t h e dividend.
Governor McCord:
T h a t i s w h e t i t i s called.
Governor Fancher:
W e d o n o t get them a t all, now.
Governor McCord: I
Governor Wold:
Governor McCord:
have t o s e n d u s a
tho Comptroller.
W
get a
few o f them.
e d o occasionally.
S o m e o f o u r member banks t h i n k t h e y
duplicate
c f everything t h e y s e n d t o
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Federal Reserve Bank of St. Louis
251
The Chairman:
A r e they o f value f o r credit purposes?
Governor McCord:
The Chairman:
behalf
Y e s sir.
A r e y o u prepared
o f Governor Rhoads?
H
t o cffer a
motion
in
e apparently thinks h e ought
to have them.
Governor Miller:
I t i s the best documentary evidence
of the prosperity o f the bank,or lack o f prosperity.
Governor McDougal: I
requested
would move that t h e Board b e
t o secure f o r e a c h o f t h e m e m b e r banks a
copy
of the semi-annual report o f dividends a n d earnings a s furnished b y the banks t o the Comptroller f r o m time t o time.
(The m o t i o n w a s d u l y seconded, a n d , t h e r e b e i n g
no further discussion, i t was carried.)
17. M E T H O D O F HANDLING C I P H R C O D E TELUGRAMS.
Mre Curtis:
W e h a d quite a
little discussion about
the method o f handling cipher code telegrams, a n d Mr. Jefferson has worked out, i n conjunction w i t h some o f the cther
members
o f t h e staff, a
very complete s y s t o m w h i c h t h e y
feel very proud o f there, a n d he thought i t might b o well
to have t h e m distributed around f o r the information o f the
other banks t o see whether o r not t h e y wanted t o adopt similar systems. I
think y o u went o v e r that, Mr. Fancher,
when y o u were there, d i d y o u not?
Governor Fancher:
Mr- Curtis:
Y e s . sir.
T h a t i s . l l this is--- merely a
query
as t o whether t h e other banks would b e interested i n having
a description o f that system sent around t o all the banks.
Governor McCord:
W
e have agreed w i t h y o u r b a n k o n
232
the u s e o f that systom. I
think i t would b e valuable i f
we all h a d uniformity, i t . i s y n o t a
a word t h a t Shows,
test word, b u t i t i s
i f y o u s e n d t h r e e o r four t e l e g r a m s
i n
one a n e s w h i c h o n e y o u a r e r e f e r r i n g t o .
Mrs Calkins:
I s that a l l that i s included i n this
system?
Mre Ourtis:
T h e r e i s more t h a n that.
dum i s really t o o long t o read;
T h i s memoran-
i t i s about four pages
long, w i t h some exhibits attached, showing j u s t h o w i t i s
worked.
Mr. Calkins:
C o p i e s have n o t been sent t o t h e
banks?
Mr.» Curtis:
N o t that I
know of; no. I
think t h e y
have h a d correspondence w i t h some o f t h e banks.
Mr. Calkins:
W
e h a d correspondence w i t h y o u r bank
in regard t o that first word, b u t nothing else.
Governor Wold: I
move that t h e Federal Reserve B a n k
of New York b e requested t o send copies o f this plan t o
all t h e Reserve banks, w i t h the view o f making t h e u s e o f
the code gencral.
Mr- Calkins: I
The Chairman:
second t h e motion.
I
s there a n y discussion?
(There was n o discussion, a n d t h e motion was d i l y
carried.)
The Chairman:
been disposed of.
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Federal Reserve Bank of St. Louis
T h e A u d .t o f Gold Settlement F u n d h a s
19. DISTRIBUTION OF CONFERENCE EXPENSES,
Mrs Curtis:
T h a t 1s a
v e r y s m a l l matter,
I
t o@tur-
red t o somecf u s t h e other d a y that there were some
charges f o r ¢igars a n d liquors t h a t p e r h a p s w o u l d a p p e a r
better o u t o f the cxpensé t h a n i n it, a n d I had t h e audi-
tof i n our office g o through ail o f our expense accounts
for all o f these conferences a n d take oub expenses for
cigars and liquors i n order t d bee how mich the whole
thing amounted t o and what disp6sition t h e Goverhors want-
ed to mike of that matter,
T h e y can be left as they are.
Up t o the last Cohferent¢e digars améuhted t o $91, and
liquors around the very mddébate s u m of $20. T h e r e wag
a suggestion that perhapsit would b e well t o have those
paid b y the individual Governors a n d not g o t o the banks,
Governor Fanther:
A r e you reopening that a s t o a
fulLure p o l i c y ?
Governor Seay:
Mr. Curtis:
H a s i t been criticised
N o , n o t a t all. I
b y anybody?
think o u r Chairman
is the one w h o thought o f this matter.
The Chairman:
W h a t impressed m e about the account
was this, that i n effect w e are spending the Governmont's
money i n running t h e s e s b a n k s , b e c a u s e t h e s u r p l u s o v e r
expenses a n d dividends goes t o the Government, a n d t o t h a
extent that w e increase o u r expenses w e reduce t h e Surplus.
So that should t h e Governmen» s e e fit t o make a n investigation o f the Reserve banks a n d haul over their accounts a n d
vouchers,
w h i c h Congress m a y d o a t a n y time, a n d w h i c h I
think i t i s quite likely some d a y will b e done, w e d o n o t
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Federal Reserve Bank of St. Louis
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234
want t o b e h u m i l i a t e d
b y having newspaper headlines s t a t e
that w e w e r e o v e r h e r e d f i n k i n g w h i s k e y a n d s m o k i n g c i g a r s
constructively a t the expense o f tho Government, without
any a u t h o r i t y t o d o s o - P e r s o n a l l y , I
would r a t h e r p a y
the bill t h a n have ithat question pos sibly arise, a n d i n
clear r e c o r d t h a t i t h a d n o t r e c e i v e d c o n -
paying i t m a k e a
sideration until t h e present t i m e when w e were looking over
thequestion o f the expenses o f this Conference a n d t h e suggestion was m a d @ that i t might b e wiser n o t t o have t h e
banks p a y f o r a l c o h o l a n d tobacco.
One a o n
w h y I suggested i t was that i n the o l d Trust
Company w e f o r m a n y y e a r s h e l d o u r e x e c u t i v e c o m m i t t e e
meetings Thursday afternoon a n d evening, « n d w e had dinner
together, a n d once a
month when t h e club bill came i n the
fees f o r the meetings w e r e adjusted, a n d all costs o f alcohol a n d c i g a r s w e r e t a k e n f r o m t h e fees,
s o that n o t h i n g
of that sort would appear o n the books o f the Trust Company.
Governor Seay:
Mr- Curtis:
F o r what period i s that, Mr. Curtis?
U p t o date, f r o m the beginning o f these
conferences.
Governor Wold:
L e t u s get o u r record clear a n d pay
it personally a n d hereafter i t will b e understood t h a t
it will b e a separate bill a n d paid f o r individually.
(Informal d i s c u s s i o n o c c u r r e d w h i c h t h e s t e n o g r a p h e r
was 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 f o l l o w i n g p r o -
ceedings took place: )
Mr+- Curtis: I
think o n e resolution will cover t h e
two; t h a t t h e expenses o f past meetings b e
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Federal Reserve Bank of St. Louis
235
pro rated among t h e twelve Governors a n d that a l l future
expenses f o r l i q u o r s a n d c i g a r s
b e scent t o e a c h o f t h e
Governors p e r s o n a l l y .
(Further informal discussion occurred which t h e ste-
nographer was directed ndt t o report} afiéer which the follewing proccedings took placei)
Governor Seay! U n d e r this heading 1 think i t will b e
possible f o r the Committee o n Apportionment t o make a re-
port up6n another matter which was referred t o it; andthat
was the question o f providing for the compensation o f the
Secretary and legal adviser of this Conference,
Our committee considers that the Conference i s fortuhate t o have a highly capable legal adviser and Secretary
in one.
T h e Committee
i s unanimously
o f t h e opinion t h a t
the arrangement that h a s heretofore b e e n i n force b e continued, i f the Secretary i s willing t o continue h i s services
aS l e g a l a d v i s e r a n d w e d e s i r e t h a t i t b e s p e c i a l l y n o t e d
that h e is -ceting a s legal adviser t o the Conference,
framer o f resolutions, performing clerical labors which w o
think could not very well b e performed t o o u r satisfaction
unless t h e y wore performed b y a man who i s familiar w i t h
the routine o f bank work a n d with t h e purposes o f this Conference, a n d w h o understands t h e subjects w h i c h are discussed here.
to o b t a i n a
W
e d o not think i t would b e a
Secretary f o r t h a t purpose,
very e a s y m a t t e r
a n d w e therefore
recommend t h a t i f t h e p r e s e n t S e c r e t a r y i s w i l l i n g t h e a r -
rangement which has b e e n i n existence heretofore be’ continued a n d t h a t t h e s a m e c o m p e n s a t i o n
b e continued.
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Federal Reserve Bank of St. Louis
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Governor McDougal: I
The Chairman:
second t h e recomnendation.
B e f o r e putting t h e question, l e t m e
refresh y o u r r e c o l l e c t i o n a b o u t w h a t occurred.
T h e sug-
gestion was made that t h e payment t o a Secretary o f this
meeting w a s a
proper t h i n g ; t h a t w e h a d t o have a
and that w e ought t o have a
Secretary,
man who could advise u s about
these things a s w e went along, a n d that Mr. Curtis w a s t h e
only man.
S e c r e t a r y McAddo expressed t h e hope o r the
wish that w e could make that payment compensation for Mr.
Curtis! s e r v i c e s
i n passing u p o n warrants a n d performing
services o f that character directly for each bank a m h a v e
it s o a p p e a r
ing;
o n o u r books,
a m n o t a s Secretary
o f this m a t -
t h e reason f o r that being that there i s nothing i n
the statute w h i c h contemplates a n organization o f this kind,
and, again, w e are spending t h e Government's money.
£t.48
all right i f the offieers o f the banks c o m h e r e f o r a
conference, b u t when they -rganize a n d have paid officers,
it begins t o look a little b i t ultra vires.
M r - Curtis i s
advising t h e banks about investments i n other matters i n New
York,
and I
had thought t h a t i f h e could b e compensated
the b a s i s o f h i s a c t i n g
on
i n that capacity a s sort o f a n ad-
viser o r assistant i n New York i n these matters,
n o possible
objection could b e raised t o it.
Governor Wold:
T h e resolution calls f o r t h e fixing
of this compensation a s counsel, w h i c h will cover a l l that.
Governor Scay: I
embraced that idea i n m y report. I
may not have c-vered i t i n such phraseology a s y o u m a y think
will best meet t h e Situation, b u t inasmuch a s w e have a legal
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Federal Reserve Bank of St. Louis
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adviser I
do not s e e w h y h e could n o t b e called o n t o
frame the resolution.
The Chairman:
A r e y o u ready f o r a vote o n that,
Governor S e a y ?
Governor Seay:
T h a t i s t h e report.of t h e committee,
Mr. Chairman.
The Chairman:
H a s someone a
resolution t o offer?
The resolution might b e framed b y the counsel.
Governor McDougal‘ I
Mr. Calkins! I
offer such a resolution.
second t h e motion.
(There was n o discussion; a n d the motion was duly
carried, )
21s, P R E S S STATEMENT.
Ths Chairman:
S h a l l t h e press statement
b e referred
to the Secretary a s usual?
(On motion, d u l y seconded, t h e preparation o f a state-
ment for the press was referred t o the Secretary.)
22. N E X T MEETING:
Governor V a n Zandt: I
move t h a t t h e p r e s e n t C h a i r m a n
be requested t o preside a t the next Conference which m a y
be called.
(The m o t i o n w a s n u m e r o u s l y s e c o n d e d a n d u n a n i m o u s l y
carried.)
The Chairman:
H o w about t h e date o f the next meeting?
Governor Seay: I
ject t o arrangement.
(Whereupon,
move t h a t our next meeting b e sub-
(
I
t was s o ordered. )
a t 12:45 o'clock p. m., a
recess w a s taken
until Wednesday, April 19, 1916, a t 9:30 o'clock a. m.)
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