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Federal Reserve Bank of St. Louis
VOLUME NO. It.
A CONFERENCE O F GOVERNORS O F THE FEDERAL RESERVE BANKS.
Washihgton, D . C.,
Wednesday, M a y 2, 1928.
Walter S . Cox,
Shorthand Reporter,
Columbian Bldg.,
Washington, D . C .
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Federal Reserve Bank of St. Louis
THIRD D A Y
& CONFERENCE C F GOVERNORS
OF THE FEDERAL RESERVE BANKS
Washington,
De Ge,
Wednesday, M a y 2, 1928.
The Conference o f Governors o f the Federal
Reserve Banks, refonvened, pursuant t o adjournment
of yeaterday a t 9:30 ofclock aem., i n the hearing
room o f the Federal Reserve Board, T r e a s u r y Byilding,
Washington, D . C.
APPEARANCES ¢
As indicated i n yesterday's proceedings.
P R O C E E D I N G S
The Chairman.
C o n f e r e n c e w i l l please c o m
to order.
If i t agroeable,
w e will pursue t h e topics o n
the first page o f the program a n d dispose o f those,
and then t h e supplemental topics o n the last page o f
the program, a n d t h e n @vote t h e rest o f the time t o
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Federal Reserve Bank of St. Louis
o26
@ discussion o f reserves.
I f there i s n o objeo-
tion t o that I will ask Mr. Herrison t o discuss
Topieos C a n d D , t h e first being gold a n d the second
relations w i t h foreign banks.
Ie C R E D I T TRANSACTIONS A N D POLICIES
Gre:
G o l d .
le. Present supply a n d future production
2. Present distribution and future needs
as a basis f o r different kinds o f
gold standards n o w i n effect.
3. R e l a t i o n t o credit a n d prices,
4. International movements a n d gold
points.
5. F e d e r a l Reserve g o l d policy = present a n d future.
Relations with foreign banks.
1. R e p o r t .
2, Income a n d expense o f operatidn o f
foreign accounts
(Informal discussion of these topics took place
thich t h e Reporter w a s directed n o t t o record.)
The Chairman.
T h e next topic i s Topic E.
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Federal Reserve Bank of St. Louis
527
I-Ee D e v e l o p m e n t o f investment companies
for purchases o f bank stocks.
- Digest o f reports received f r o m
various F . R , Banks since November, 1 9 2 7 conference.
The G,airman. I
have a sheaf o f information
which i s exseedingly interesting t o me ami I think
would b e t o the rest o f you, but there i s too much
of i t t o use a t such 4 conference a s this.
W h a t is
your pleasure, gentlemen?
Governor S e a y . I
would like t o ask,-in a gen-
eral way, i f the development i n your district has
been anything comparable t o that i n N e w York.
The Chairman. I
think N e w York i s still ahead
of us, a a usual, b u t w e are going fairly well.
Governor Seay. I
would like t o ask i f any of
the other larger districts h a v e made similer inquiry
or investigation a n d i f they have found substantial
development i n that direction.
Governor
M o Dougal.
W e have made inquiry i n
accordance w i t h the action o f the l a s t Conference
and have reported t o N e w York o n it. T h e r e a r e
only two o r three companies a t this time o f which
we have a n y record i n Chicago.
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Federal Reserve Bank of St. Louis
328
W e have none i n the Boston
Governor H a r d i n g e
district, b u t every Mutual savings bank and a great
many o f t h e i n s u r a n c e c o m p a n i e s a r e d o i n g i t e
think we ought t o have brief
The Chairman. I
vocal reports i n regard t o all the districts.
W
Governor B l a c k
e have n o such companies
operating i n our district, Mr. Chairman.
The Chairman.
G o v e r n o r Geery?
Governor Geery. N o n e i n ours, Mr. Chairman.
Governor Seay.
find.
N o n e that I have been able t o
T h e r e have been some individual purchases
think t h e P a c i f i c Coast
@&bank stocks there. I
Mussolini h a s purchased slight holdings
i n one o r
two institutions i n furtherance o f his general
panking policy o f making friends i n different parts
of the country.
Governor Biggs»
A
was evidence o f quite a
t the last conference there
little g o i n g on, b u t i t has
quieted down and we hear nothing much o f it. I
do
not know how far i t has gone, but a (alifornia
man has bought a great deal o f St. Louis bank stock
in the last three o r four months, i n half a dozen o f
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Federal Reserve Bank of St. Louis
S29
our banks, causing t h e price t o g o u p a hundreg
to a hundred and fifty dollars a share i n some o f
them.
Governor Talley, T h e r e are n o companies
that are active i n our district.
W e have occasion-
a1 evidence o f such companies i n other districts
reaching i n amd trading i n blooks o f five hundred
or a thousand shares o f our bank.
T h e last w e
heard o f was Chicago but I do not know the identity
of the bidder, however.
Governor Fancher.
in our district.
W e have n o such companies
W e have evidences o f one o r two
orders o f our friend o n the Paoific Coast attempting
to acquire holdings i n one o r two o f our banks. I
know i n one case i t was unsuccessful, I
do not
know about the other case.
Governor Norris. P e r s o n a l l y I
do not know o f
ony owt district, b u t i f a reply has been received
from the Philadelphia b a n k o n this question I
would
rather have i t substituted f o r m y oral reply, because i t must have b e e n made while I
Governor McDougal,
was away.
I n addition t o what I
have
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Federal Reserve Bank of St. Louis
530
stated, there are two o r three o f these conoerns
that have been organized i n our city, b u t I will
report that our investigation indicates that the
grovthf
o such o c e r n s
i n our district have b e e n
evidently retarded b y inability t o comply with t h e
restrictions o f the Illinois seourities law, com-
monly known as the"Blue Sky law? which provides that
holding s u c h a s this would have t o b e olassified a s
Cjass B, and advertised i n that way, ‘that is, securities commonly known as speculative securities.
Reports from Michigan, Wisconsin and Indiane and
Iowa, indicate t h a t there a r e n o companies o f this
kind organized o r ope rating.
Governor Bailey. I
do not think there are any
companies operating i n our district, b u t the B e n k o f
Italy Corporation has bought two rather substantial
blocks o f stock i n two banks i n Kanaas City.
Mr. Cases N e w York sent a memorandum on the
subject t o all the other banks,
W e have quite a
number o f these companies operating i n our city,
with estimated assets o f seven t o eight hundred
mijlion dollars,
E f think i t i s not straining t h e
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Federal Reserve Bank of St. Louis
331
truth t o say that i t looks a s though some o f them
are embarking o n a nation wide policy t o acquire
very substantial purchases o f stock, o r possibly
control where they can, and i t is going o n to a marked
extent.
Governor McDougal.
I s i t fair t o say that some
of the companies organized e r e organized under good
management and are doing legitimate a n d proper
bus iness?
Mrs Oase@e S o m e o f them are, b u t some o f them
are n o t .
S o m e o f t h e m a r e q u i t e t h e reverse.
The Chairman.
S a n Francisco being the center
of the earth i n this perticuler relation, I will say
very little, F i r s t , I think that i t is probably
true that the organization o f companies f o r this
purpose o f acquisition o f bank control i s being
considered i n all o f your
d i s t r i c t s .
T h e
companies h a v e n o t b e e n aganized b u t t h e y probably
will be in the near future and in many cases the
movement i s general throughout t h e country.
T h e
spectacular success o f Mr. Giannini h a w attracted
attention throughout the country and little imitators
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Federal Reserve Bank of St. Louis
3552
of him are springing up. S o m e o f them have had
no success, some o f them have had a little and some
@ great deal o f success.
Q u i t e a
number o f them
have made much more progress than most o f us knav
anything about.
S o far a s the Bancitaly Gorpora~
tion a n d the Bank o f Italy are concerned, t h e y are
operating u p o n the absolutely unqualified m l i e f
of Mr. Giannini that i n the near future w e will
have nation wide branch banking i n the United States.
Mre Giannini i s a man whose convictions a r e very
strong and generally unqualified.
H e has n o more
doubt that that development i s o n the way, and that
we will reach that i n the near future, than he has
of the success o f his operations u p t o this time.
We have had reports which seem authentic, which
indicate that some o f the leading bankers, outstanding bankers i n the first class, i f you please,
imalmost all of the large cities of the Upited
States, have given very serious consideration t o
the prospective development along that line. Where
they are going eventually t o arrive, I
to prophesy. I
am not going
think if Mr. Giannini's success
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Federal Reserve Bank of St. Louis
555
continues f o r a very few years more that i t will
have constantly increasing attention and constantly
increasing respect.
The next topic o n the program i s F.
Suggested schagges i n form o f bankers
acceptanoes t o eliminate a n y question
as t o negotiability growing o u t o f
decision o f Supreme Court o f Toxes i n
ease o f Lane Company v. Crum (See recommendations o f Conference o f Counsel,
pages 1
and 2 of reoord o f Conference
of Counsel (X-5078)s A i s a correspondence o n this subject X-4880 and X-4975).
Governor
M c Dougala
T h i s subject was con-
sidered b y the Conference c f Counsel i n February,
at
which time a resolution was adopted expressing t h e
opinion that the clause "And the acceptor will re-
main secured throughout the life of the bill", as
it appears i n the certificate o n bankers! aoceptances, m a y render the instrument non-negotiable,
and i t was r e c o m m e n d e d t h a t t h e e n t i r e c l a u s e
eliminated.
be
I t was recognized, however, that for
practical reasons the operating officials might desire t o adopt other means t o insure t h e continuous
sepurity o f bankers ' acceptances,
i n which case i t
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Federal Reserve Bank of St. Louis
334
was recommended thet the matter b e referred t o the
General Counsel for the Federal Reserve Board t o
devise other means eo
I think that states the present status o n that
subject.
The Chairman.
O u r osounsol, i n concluding his
memorandum says “ [ do not agree with the report o f
the sub-committee appointed b y the Conference o f
Counsel recommending that from the certificate appearing o n bankers ‘
acceptances t h e words ‘ a n d
the acceptor will remain seoured t h r o u g h o u t t h e
life o f the bill! must b e eliminated i n order t o
insure negotiatbility o f such bills."
H e does not
beliewe i t is necessary, t o insure the bill, that
the legend b e removed,
Mr. Cases»
M y memorandum states that the
Conference o f Counsel formerly expressed the view
that the elimination should b e made from the circu-
lav, Begulation A, Article B, Section 11, and so
on of the Federal Reserve Board Regulations, i t
would b e sufficient t o give affeut t o the policy o f
requiring acceptors t o remain security throughout
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Federal Reserve Bank of St. Louis
355
the life o f the bill, s o apparently i t i s one o f
the teohnical matters i n regard t o which they think
this language should b e eliminated.
T h a t i s one o f
the questions w e had yesterday, a n d i f it is slimi-~
nated t h e r e i
s nothing impracticable i n heaving them
remain security.
The Chairmen. I
do not think i t is a matter
of serious importance t o the development o f the
bill market whether the lenguage i s eliminated o r
included.
H o w about that, Mp. Harrison?
Mr, Harrison. I
should agree w i t h y o u s o far
as the development o f the bill market i s concerned.
I think counsel thought that possibly that might
invite some court ' s decision which would render i t
non-negotiable. :
The Chairman.
T h i s i s a Federal Reserve B o a r d
topic a n d w e should b e prepered t o make a recommen~-
dation.
Mr. Case. f
would like t o move that w e adopt
the recommendation of Conférence o f Ce@nsel o n this
subject.
Governor B a i l e y . I
will second that.
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Federal Reserve Bank of St. Louis
336
The Chairman.
I ¢ is moved and seconded that
we approve é n d adopt t h e recommendation o f Conference
of Counsel for the Federal Reserve F a n k with regard
to the suggested change i n the form o f bankers! acceptances.
Governor N o r r i s . I
have a
suggestion here. I
do not knew whether there i s anything i n it or not,
but i t would not i n any way affect the legality o f
the matter, but a s a practical matter i t would b e
desirable t o change the wording from "this acceptance
arises out o f a transaction involving" a n d s o forth
to“the transaction which gives rise to this instrument is", and so forth.
(The motion having been duly seconded, was
unanimously carried.)
The Chairman.
O n the last page of the program
we have the supplemental Topics A and B e I
Topic Bwas disposed of. T o p i c A
think
i s as follows:
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Federal Reserve Bank of St. Louis
VI-e SUPPLEMENTARY TOPICS.
Ae. S h o u l d a
classification o f U,. S,
securities held b y the Federal
Reserve Banks i n t o
{a } H e l d i n special investment
account,
(b) H e l d under repurchase agree-~
ment, and
(c) A l l other,
be substituted i n the Board', weekly
press statement f r the present classi-
fication o f Government securities,i.e.
(a) B o n d s ,
| Treasury notes, and
ie) C e r t i f i c a t e s o f indebtedness.
Governor H e r d i n g .
Chairman, I
F e f o r e dissussion, M y .
move t h a t t h e answer t o that b e noe
Mr. Case. I
have a memorandum I would like
to read o n that subject.
The Chairman.
V e r y well.
Mr. C a s e . "The purpose o f this suggestion for
changing the press statement i s t o keep the public
currently adviséd o f changes i n holdings o f secue
rities i n the open market investment account a n ,
therefore,
o f changes i n the System'spolicy toward
the money market.
"Mere have n o doubt been times when i t would have
been helpful i f the System could have given a clear
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Federal Reserve Bank of St. Louis
558
indication o f its policy b y a change i n the total
of the special investment account.
I f this change
is made i t will unquestionably attraot considerable
a steatéen a n d will b e construed exactly a s intended
with the result that thereafter every change i n the
tetal o f this account will b e immediately construed
aa indicative o f a shange i n the System's open market
policy.
"It may be doubted whether this would always be
desirable even when the changes d o reflect the Sys-~
tem's policy.
F o r instance, assuming a decision
has been reached t o either buy o r sll a considerable
amount o f securities only a small part o f which i s
reflected o n the first press statement following
the decision, immediately the publio is informed as
to what t h e System i s doing a n d i t might conceivably
make the problem o f satisfactorily handling the balance o f the operation more difficult.
I r the System
gives indication that i t 1s starting either a buying
or selling program, those doing t h e selling o r buying
will naturally t r y t o get better prices,
"It must also b e remembered that changes i n the
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Federal Reserve Bank of St. Louis
539
total o f the special investment account d o n o t
necessarily reflect System policy. M a n y changes
have been made i n the past and probably will b e
necessary i n tha future w h i c h a r e n o t i n a n y
sense connected with the System's current policy
toward t h e money market.
F o r instance,
in
handling such a large investment scount i n short
maturities a s that o f the system coupled w i t h that
of our foreign correspondents a n d the Treasury,
the problem o f arranging t o replace maturities
frequently nesessitates t h e acquisition o f new
securities prior t o the maturity o f the old.
Also
quite frequently when exchanges are arranged the
new securities are taken i n a day o r two before
the old aes are given up, o r vice versa. Securities have a l s o frequently been t a k e n over f r o m
special funds o f the Treasury o r from foreign banks
and sales are likewise made t o the Treasury ami t o
foreign banks which d o not i n a n y sense represent
the System's policy toward the money market.
"ty, all o f these cases which involve the acequisition o f additional seouritiss,
i t would o f
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Federal Reserve Bank of St. Louis
540
course b e possible t o avoid increasing t h e system's,
special investment account b y reporting a l l such
securities a s "All Other" u p to the time that they
can be actually exchanged for special investment
account holdings, although the advisability o f this
method o f handling may b e subject t o question.
in cases which involve e
But
decrease i n the System
account, there would be no possible way of preventing
showing this i n the account a n d consequently i n the
press statement f o r the current week,
" gonsidering all phases of the matter it is my
view that i t would b e unwise t o make t h e change
suggested.» I p , the long run I think there would
frequently b e ocoasions w h e n this method would b e
embarrassing a n d some oecasions w h e n i t would b e
actually misleading, a n d a s a matter o f fact i f
the System i s carrying o n open market operations
which are not accurately reflected i n the current
press statement because o f other transactions,
it
would generally be possible t o secure i n other ways
whatever publicity was considered desirable."
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Federal Reserve Bank of St. Louis
541
The Chairman. Briefly, I think that that
means that y o u believe t h a t a change i n the classification suggested would n o t result i n better i n -
formation being given, but o n the oontrary would b e
more misleading than the present classification.
Mr. C a s @ .
Yose
Governor H a r d i n g .
A n d b e harmful i n its
operation.
Mr. Case. Yes,» M r . Chairman, i n order to
make progress I
would recommend that w e vote a d ~
versely o n this proposal for the reasons given i n
this memorandum.
Governor Norris. I
Tye Chairman.
will second that motion,
A n d you include the memorandum
in the resolution?
Myre C a s e . I
wuld make i t a part o f the record,
yes o
(The motion having been duly seconded was
carried.)
The Chairman.
N o w , gentlemen, I
have a
letter
from Mr. Smead, which may b e easily disposed of.
“The Governors at their November 1927 confer~
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Federal Reserve Bank of St. Louis
ence requested that M r s R o u n d s a n d I make a
study o f functional expense reports, w i t h a view
to e f f e a t i n g a
revision o f t h e m e t h o d o f reporting
that would b e more economical, a n d submit a report
thereon prior t o the conference t o b e held i n the
spring o f 1928.
“vr, R o u n d s and I have given thts matter
considerable study and have communicated with a
number o f the reserve banka regarding costs i n
certain expense units, b u t have n o t y e t progressed.
far enough t n our studies t o warrant t h e submission
of a report a t this time.
I t i s respectfully r e -
quested, therefore, t h a t i f agreeable t o the Gov-
ernors, the life o f the committee b e extended with
the understanding that a report will b e submitted
prior to the Governors! fall conference
Governow McDougal.
M r s C h a i r m e n , Imove
that that report b e received a n d the request
granted.
Governor Fancher. 1
will second the motion.
(The motion having been duly seconded was
carried. )
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Federal Reserve Bank of St. Louis
543
The Chairman. I
think w e have n o w disposed
of the topics o n the program with the exception o f
Vi-B, Undestrability o f oartailing services regdered
member banks i n view o f criticisms m a d e b y banks
and others.
Governor Seay.
W a s not that disposed of, Mr.
Chairman?
The Chairman, Y e s e I
asked Mr. C a s e i f he
thought that had been sufficiently disposed o f and
he said yes.
IVe O P E R A T I O N A N D A D M I N I S T R A T I O N
&« R e s e r v e s
o f member banks»
™,. Desirability o f recommending
legislation amending Seotion
19 o f F, R e A o t relating t o
required reserves o f member
banks a n d o f writing into l a w
a complete definition (Along
lines o f the Board's Regulation D) o f what constitutes
savings a n d other time deposits.
The Chairman.
O n e o f the topics t h a t w e
passed over was IV- A~7, the desirability o f recommending legislation amending Section 1 9 o f the F e d
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Federal Reserve Bank of St. Louis
544
eral Reserve A o t relating t o required reserves
of member banks a n d o f writing into l a w a complete
dfinition (along lines o f the Board's Regulation
D) o f what constitutes savings a n d other time de-~
posits.
M r , Platt sent out a letter
Governor Harding.
some time ago, enclosing a memorandum from Mr.
Smead,
o n that subject.
M r . Platt's letter o f
April 12th, enclosed g proposed bill, and I think
it would save time b y considering this bill,
wouldn't w e ?
The Chairman. I
think so.
Governor McDougal (Presiding i n the temporary
absence o f Governor.Calkins). G o v e r n o r Harding,
you suggested that w e consider the bill, and if it
is agreeable t o you, I would like t o read a memo~
randuim . I
think w e have a l l read t h e bill, T h i s
4a quite long, but I will not read i t all:
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Federal Reserve Bank of St. Louis
* The sugpested changes i n the proposed bill relating t o r e s e r v e r e q u i r e m e n t s a p p e a r t o h a v e b e e n
carefully worked out o n the basis o f all available
data.
“However,
o n the basis o f present reserve r e q ire-
ments, the situation has been kept well i n hand and
any attempt t o further amend t h e l e w e t this time o r
in the immediate future m a y a n d probably will result
in the effort t o introduce
be detrimental.
o t h ee r
hnges
c
which m a y
T h e better policy would appear t o
be for the present t o “let well enough alone,"
“The question o f writing into the law a complete
definition o f what constitutes savings a n d other
time deposits i s perheps open.to t h e same objection
as thet o f changing the lew i n regard t o reserves.
"Nevertheless,
that e
i t i s o f the highest importance
complete a n d specific definition c f what
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Federal Reserve Bank of St. Louis
346
constitutes savings and other time deposits b e agreed
upon, a n d I cannot s e e w h y i t i s n o t within the province o f the Board a n d t h e Comptroller's office t o
adopt such definition.
"this i s particularly important i n view of the
changes made i n the law b y the McFadden bill. F p r merly, a national bank was permitted t o invest i n
real estate loans t o the extent o f 2 5 per cent o f
capital and surplus o r 1/3 o f average time deposits.
The McFadden bill provided that i n case o f national
banks, real estate loans can be m d e t o the extent
of 25 per cent o f capital and surplus o r to 50 per
cent o f savings accounts.
T h e point should b e empha~
sized strongly thet the law formerly permit ted real
estaté loans t o te mde t o the extent o f 1/5 of
savings a n d time deposits, wheregs t h e present l a w
permits s u c h loans t o b e made t o the extent o f 5 0
per oent o f savings accounts only.
“The present practice of national examiners is
to construe a s savings deposits all time deposits
which have more than 3 0 days t o run, a m such oonstruction would include deposits o f banks o n comparae
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Federal Reserve Bank of St. Louis
547
tively short-time basis o r deposits o f business houses
and corporations o n comparatively short-time tesis,
which are not really savings accounts a t all, ami the
amount o f which i s a t times enormous; yet, under such
construction real estate loans can b e made against the
latter class o f deposits t o the extent o f 5 0 per cent
if they have a nominal maturity o f over 5 0 days, even
though i t is generally understood that t h e y c a n b e
drawn o u t practically without netice. A
practical
demonstration o f the absurdity o f classifying s u c h
deposits a s "savings" deposits was presented i n chicago
about April 1, last, when several o f our large banks
had their so-called "time™ deposits practically cut i n
two i n order t o avoid liability f o r taxes.
T h e sug-
gested definition o f savings deposits i s t o m y notion
a fairly reasonable a n d proper one, f o r i t specifically
excludes deposits o f banks a n d deposits o f business c o r -
porations o r firms and therefore excludes ail such de-
posits from consideration in the matter of real estate
loans t o b e m d e .
excess
T h e suggestion that n o withdrawal i n
o f $500 o n a n y o n e d a y c a n b e made f r o m a s a v i n g s
account without giving thirty days notice i s entirely
proper i n theory b u t i t will meet with strenuous opposition
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Federal Reserve Bank of St. Louis
548
I wanted t o get that before the meeting,
D o
you want t o discuss the bill, Governor Harding?
Goernor Harding,
T h a t suggestion i s not made
in the bill.
Governor Calkins, R e g u l a t i o n D .
Governor Harding.
B u t this i s a bill t o supersede
all o f that,
Governor MoDougal.
T h i s statement i s a state-
ment i n effect discouraging a n y legislation a t this
time f o r this purpose, b u t placing u p o n the Federal
Reserve Board, i f they will assume the responsibility - -
Governor Harding. W o u l d n ' t y o u b e i n favor
of legislation a t a n opportune time?
O f course,
now is not the opportune time.
Governor M,Dougal.
T h e danger that i s re-
ferred t o is the danger o f putting a bill u p and
getting the thing started a n d perhaps injecting
other legislation.
(At this point Governor Calkins resumed the
Chair.)
Governor Harding. I
think the Board has
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Federal Reserve Bank of St. Louis
asked u s t o c o n s i d e r t h i s b i l l .
Governor N o r r i s ,
I t seems t o m e that i t i s
not u p t o u s t o g o into t h e question o f expedienoy
or time t h i s morning; t h a t t h e only t h i n g that w e
have t o consider i s whether this bill i s entirely
satisfadtory t o u s or, i f not, what changes w e
would suggest i n ite
Governor S e a y . M y . C h a i r m a n , I
am wondering
if a n y o f the Governors h a v e disoussed this proposal with their d i r e c t o r s « T h e y are questions o f
Reserve bank policy, a n d I am wondering, i n a
matter a s far-reaching a s this, a n y governor c o u l d
undertake t o say now that his directors are advised
of these proposals a n d i f they have e v e r discussed
them with them.
The Chairman. H e r e i s a letter from ViceGovernor P l a t t , d a t e d A p r i l 1 2 t h , w h i c h d i d n o t
reach San Francisco until a f t e r I had left, and
obviously i t had not been discussed with the directors i n any way.. I
think i t would b e weel t o
find out i f it has been disoussed with the directors
of the various banks. G o v e r n o r Bailey?
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Federal Reserve Bank of St. Louis
350
Governor Bailey,
I t has been disoussed with
our directors a s the Board, but the exeoutive committee w e n t over i t carefully a n d discussed i t .
The Chairmane G o v e r n o r McDougal?
Governor McDougal,
I t has not been taken
G o v e r n o r Norris?
The C h a i r m a n .
Governor N o r r i s .
I s h a s n o t b e e n discus sedy
The Chairmane G o v e r n o r Fancher?
Governor Fancher.
I t h a s n o t b e e n discus se&
our board.
he Chairman.
G o v e r n o r Talley?
Governor Talley.
I t has not been discussed
our board.
The Chairman. G o v e r n o r Biggs ?
Governor Biggs.
I t has not been discussed with
our board.
The Chairman.
G o v e r n o r Geery?
Governor Geery. ‘ W i t h the officers and the
heads o f our larger member bankse
The Chairman.
Governor Seay.
G o v e r n o r Seay?
I t has not been.
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Federal Reserve Bank of St. Louis
The Chairmen. G o v e r n o r Black?
Governor Black.
I t came f r o m Qube j u s t be-
fore I came here, and therefore I
have not had a n
opportunity t o take i t up.
The Chakrmean. G o v e r n o r Herding?
Governor Harding.
I ; has been discussed with
our officers a n d with the executive committee, b u t
not with the directors.
The Chairman.e M r e G a s e ?
Mr. C a s e »
T h e officers only.
The Cheirman. I
think i t is unfortunate that
this situation exists a t this time, inasmuch 688
the B o a r d probably expects i n this Conference s o m e
definite recommendation, b u t I think i t is also obvious t h a t w e a r e n o t p r e p a r e d
t o offer a
recommen-
i view o f the fact that w e have h a d n o oppor~
dation. n
‘tunity t o disouss i t with o u r directors.
T h e ques=
tion i s whether w e should take t h e responsibility
of making suggestions,
o r whethe f r we shall a s k f o r
more time for consideration.
Governor Harding. I
think all the Board wants
4a our opinion a s operating officers a s t o the bill.
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Federal Reserve Bank of St. Louis
352
Governor Seay.
I t has seemed t o me. Mr.
Chairman, with a possible view o f having this referred t o a committee which w a s suggested, I
be-
live, yesterday, that there has always been some
feeling o f dissatisfaction, i f I may so express it,
that matters which concern the policies o f all Federal reserve banks could not b e handled t o entire
satisfaction b y any particular committee appointed
by the Governors, especially i n a matter of such
far-reaching polisy a s this.
T h i s i s fundamen-
tal, not only t o the operation o f the System, b u t
of the banking business o f the country, a n d as
Governor Harding has stated, there i s n o possibility that this legislation should b e conside
ered a
t this Congress, b u t I believe that w e
have arrived eas a period w h e n t h e subject o f
reserves i s more pressing than i t ever has been
at any time i n our history, a n d we are compelled
to consider it.
My o w n opinion o f this memorandum here i s that
it i s t h e b e s t m e m o r e n d u m t h a t h a s b e e n p u t b e f o r e
us, very largely because o f the consideration o f
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Federal Reserve Bank of St. Louis
353
the subjeet which has been given from time t o time
by the C o m m i t t e e o f Agents a n d b y this donference
of Governors.
T h i s matter i s o f such grave i m
portanee, I think, that i e a
might n o t well revert
question whether w e
t o ea practice w h i c h existed
earlier i n t h e development o f the Federal Reserve
System,
Y o u will recall that then i t was the
practice t o have quite frequent conferences o f the
various governors, a n d i t was v e r y advantageous.
Now, I
believe t h a t this m t t e r
tance that w e might have a
i s o f such impor-
special conference b y
the governors t o consider it. I
do not believe
it would b e satisfactory t o refer i t t o a commit-
tee »
I f we did that, w e would have t o have sub-
sequently a conference t o consider t h e report o f
the committee.
But m y o w n feeling o n the m t t e r , e f t e r think-
ing of i t a good deal, i s that w e might take this
proposal, s t u d y i t even more i n detail than w e
have already done, a n d where necessary, i f neoessary a t all, discusss i t with those o f our directors w h o would b e more likely t o have a compre=
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Federal Reserve Bank of St. Louis
354
hension o f it, i f not discuss i t with our directors a s @ board, but t o give more intimate detailed study o f the thing ourselves a n d come t o a frim
opinion o n everything that i s presented here, a n g
at a subsequent special meeting t o discuss it.
Surely, i f any subject merits a special meeting o f
the Governors, this i s one that should d o it,
The Chairman.
T h a t was t h e suggestion t h a t
I was about t o make; thet is, that w e would b e
t o cone
given @ n opportunity, which w e have not,
sider this memorandum a n d request t h e Board t o
eall a
conference f o r t h e e s p e c i a l p u r p o s e o f
considering this matter, s a y i n June, W h a t t s
the opinion o f the G o v e r n o r s w i t h regard t o that?
Governor Seay.
T h a t i s m y own feeling, sir,
which I have endeavored t o express,
Te Chairman. Governor Harding?
Governor Harding.
N o w , y o u are getting a
complication right there, My, Chairman.
You
matter u p
reeollect t h e board that t o o k this
first b y appointing a
committee o f Federal Reserve
long time,
Agents, a n d they studied t h e matter f o r a
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Federal Reserve Bank of St. Louis
355
and finally made a report. I
think the Board i s
going t o take t h e v i e w that unless t h e operating
officers make suggestions, that the proper man t o
represent t h e Board o f Directors i s the Chairman
of the Board o f Directors, a n d they will probably
call o n the A g e n t s rather t h a n o n the Governors.
We have a n o p p o r t u n i t y o
t give o u r views now, a n d
unless w e d o i t w e take ourselves o u t o f the picture.
The Chairman, I
a m proposing t o suggest t o the
Board thet w e are desirous o f expressing o u r views,
in regard t o this m m o r a n d u m a n d the proposals i n
it, that w e are desirous t o d o s o butwe have n o t
hed sufficient opportunity t o study i t and discuss
ite
Governor Hardinge
conditions
Y o u are familiar w i t h the
i n your district.
I f y o u g o over t h e
bill a n d read it, y o u know whether i t suita y o u o r
not, i t would seem t o més
S o far as I am concerned,
I a m just a s well prepared t o discuss i t now a s I
would b e s i x months f r o m today.
The Chairman. I
cannot s a y that, because I
have not even read it thoroughly.
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Federal Reserve Bank of St. Louis
356
Governor Norris, M r . Chairman, i f we
postpone o u r reply o r comme nts o n this a n d come
together i n Jyne o r any other date, that is, a n y
appreciable t i m e ahead o f us, f o r the expression
of our opinion, I
think w e would almost b e obliged
to consult o u r directors i n the meantime . I
think
it might b e of considerable advantage i n our taking
the opportunity t o express o u r o w n personal opin-
fons now, saying that they are opinions that are
expressed
i n a more o r l e s s o f f - h a n d m a n n e r ,
with
out a n y considerable t i m e t o study t h e bill a n d
without consultation with our directors, and let
g to the B o a r d for what they
those s u g g e s t i o n s o
are worth.
The Chairman,
f r m y own part, I would expect
to follow this program. I
would expect t e g o home
and give some time t o a study o f the question my-~
self, and discuss i t so far as the directors dee
sired t o disouss it, o r with the Board o f Director s,
and come back here a n d exress m y own opinion a n d not
the opinion o f the Board o f Dyrectors.
Governor Seay.
M y own feeling i s somewhat o f
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Federal Reserve Bank of St. Louis
357
that character, that unless w e e t least take our
direstors t o some extent into the consideration of
the subject, even if we intend ultimately to express
our own official convictions i n the matter, that
there would b e some feeling o n the part o f the d i rectors t h a t w e have n o t treated t h e matter a s
frankly a s w e might have done.
The Chairman.e T h a t i s i n the interest o f progresa t o determine whether w e will consider this
bill a t this meeting.
.Qovernor H a r d i n g .
W e t I
think t h e Board
would ao, better than calling a special meeting o f
this conference, would b e t o request each Governor
by letter "Here i s a proposition and we want 4 definite r e p l y a n d criticism o f this bill. A n a l y z e
it and tell us what you think about it", and they
will put them sil together,
The Chairmane
I n the interest o f progress, a s
I have ssid, let u s determine whether w e will d o
o whether w e will have t o
that a t this m e e t i n g , r
defer this.»
Mr, C a s e s
T h i s proposal Jende* itself really
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Federal Reserve Bank of St. Louis
358
into four subdivisions.
T h e r e are four differ-
ent questions, a n d the first one really i s @ question whether w e would approve o f the 1 5 per cent
reserve o n bank depositors wherever locatede
W e
head a discussion yesterday afternoon, a n d I thought
we were a l l practically i n agreement o n that point,
and I do not see any reason why we should not answer those questions a n d express t h e opinion o f
aon
e a e
o f governors, e a c h one giving his per-
sonal opinion concerning t h e questions w h i c h have
been put up, and we might find that w e could not
make progress b y informally going around the table,
if you care t o dothat, a n d see whether t h e governors are n o t prepared t o vote o n the question like
that «
The Chairman.
of opinion.
way,
W e have a t least a difference
L e t u s get back to i t i n the proper
I g i t the opinion o f the Conference t h a t w e
should proceed, a s suggested b y Governor Harding
and Mr. Case, o r that we should defer a n ayswer to
‘ the Board ' s inqiry? T h o s i n favor o f proceeding
mg
t
will s a y aye. <
‘,
rd
!
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Federal Reserve Bank of St. Louis
(A numer o f governors responded "aye", )
The Chairman.
T h e ayes have it, and w e will
proceed,
Governor N o r r i s .
M r . Chairman, I
think i t
would b e perfectly proper f o r those governors
present, l i k e Gevernor Black, f o r example, w h o
have n o t h a d a n y opportunity t o consider t h e bill,
to just s a y that h e does n o t make a
he does n o t participate
reply o r that
i n the discussion b e e ause
he has had n o opportunity t o o¢nsider the bill,
or some other Governor might say he has had a n
insufficient opportunity.
Governor Harding.
I t very seldom oocurs i n
Congress that a measure i s considered b y the full
committee i n the House o f Congress, b u t those who
are present i n the committee w i l l take t h e matter
up and proceed t o take i t u p and t h e Chairman will
say "What do you think about that?" W e l l , they
will agree t o that and then they will g o o n to the
next a n d then t o the next a n d then have a dis cussion
and pass it, a n d then g o back again, C e r t a i n l y
this first section o f Paragraph 19, w e can all
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Federal Reserve Bank of St. Louis
agree o n that.
Bank Reserves, Seotion 19,
The Chairman. "
The term Demand Deposits! within the meaning of
this act shall include all deposits o f public
moneys of the United States, all certified checks,
cash&er’s checks, treasurer’s checks, demand letters
of oredit, a n d travellers’ cheoks outstanding, a n i
all other deposits except ‘time deposits! a n d
‘banks deposits! a s hereinafter defined."
Is there a n y objection t o that?
Mr, C a s e .
NO.
Governor Harding.
The Chairman.
No»
M p y we take thet paragraph as
having t h e approval w f this Conference?
I g i t understood that the
Governor Talley.
term “time deposits" a n d deposits o f public moneys
by the United States” embraces the so-called weil
known depository accounts?
The Chairman. I
think that i s the intention
of the man who drew the bill.
Gavernor Seay . I
The Chairman.
hopw 80»
M a y w e take t h e first paragraph
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Federal Reserve Bank of St. Louis
561
Sestion 1 9 a s approved b y this Conference? I - ¢
there i s n o objection i t i s approved.
The second paragraph:
“fhe term ‘time deposits! within the meaninb o f
this act shall include all tanvings accounts’, ‘time
certificates o f geposit!, ‘postal savings deposits',
and 'epen account time deposits!
defined, except t h a t whenever,
a s hereinafter
b y the lapse o f time
or the giving o f notice o f a n intended withdrawal,
savings accounts, time certificates o f deposit, a n d
open account time deposits become payeble i n less
than 350 days, such deposits shall b e considered
demand deposits."
Governor McDougal,
T h e term “savings deposits",
what does that include?
Governor Harding.. T h e y define that later on.
Governor McDougal,
B u t w e are asked t o prove
it before w e find out,
Governor Black. S a v i n g s accounts comes i n
right below that.
Governor Seays
“ i e d o not approve t h e defini-~
tion o f savings accounts b y this.
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Federal Reserve Bank of St. Louis
The Chairman.
NOs
M a y w e consider this
second paragraph a s approved? I
am noting these
as approved, because there i s n o objeetion.
Governor McDougal.
about this point;
I s there a n y question
" a depesit made b y one bank i n
another o r a deposit o f a business corporation o r
firm shall not i n ay case b e considered a savings
account within the meaning of this act"?
Te Chairman.
W e have not reached that yet,
Governor MeDougal.
T h a t i s eferred t o i n
the second pragraph.
Governor Harding.
T h e n w e 6an g o back and
check this u p if we d o not approve o f it,
The Chairman. " T h e term tsavings accounts!
shall mean deposits o f individuals a n d religious,
charitable o r similar corporation,
i n respect t o
which =
"(1) A
o other similar
pass book, certificate. r
form o f receipt, delivered t o and retained b y ths
depositor o r his assignee, must actuelly b e presented
t o t h e b a n k whenever a
withdrawal
i s made:
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Federal Reserve Bank of St. Louis
565
"“(2) T h e depositor or his assigns may at
any time b e required b y the bank t o give notice
of a n intdnded withdrawal n o t less t h a n thirty
days b e f o r e a
withdrawal
i s made;
and
"(3) T h e bank's printed regulations, accepted
by the depositor include the above requirements."
Governor McDougal. I
am not sure the term
"savings accounts” should b e confined t o ind@ivid~
uals, a n d religious, charitable o r similar sorporations.
Governor Harding. S u p p o s e w e read the whole
section.
Governor M c D o u g a l . I
think thet ought t o b e
done » S o m e more thinga follow,
The Chairman,
A j l right.
"Deposits which are permitted t o be withdrawn
cheflk or otherwise, without the actual presentation
the pass book, certificate, o r other similar form
receipt whenever a withdrawal i s mde, shall not
considered 'savings accounts! within t h e meaning
of this act. T h e retentiom o f the pass book, certificate o r other similar form of receipt o r duplicate
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Federal Reserve Bank of St. Louis
364
of s a m ,
b y the b a n k o r b y e n officer, agent o r
employee thereof, and the presentation o f same b y
the bank, o r b y a n officer, agont o r employee
thereof, shall not b e considered a n actual presentation within the meaning o f this act. A
deposit
made b y one b a n k i n another o r a deposit o f a business corporation o r firm shall n o t i n any case b e
considered a 'savings account! within the meaning
ofthis act."
Mr. C a s e . I
disagree w i t h that suggesttop,
that a business corporation o r firm may n o t i n any
ease have a
savings account«
Governor M e Dougale
T h a t i s the point I
am
bringing out, b u t w e will have t o finish this.
The Chairman. I
Governor Fancher.
disagree.
YeSe
The Chairmen. (Continuing reading:)
"The term 'time certificate o f deposit' shall
mean a deposit evidenced b y written instrument delivered t o and retained b y the depositor evidencing
the deposit with a bank, either with o r without
interest, o f a certain sum specified o n the face o f
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Federal Reserve Bank of St. Louis
565
the certificate, payable i h whole o r i n part t o
the depositor o r o n his order -
"(1)
O n a certain date, specified o n the c e r
tificate, more t h a n thirty deys after the dte o f
the deposit;
or
"(2) After the lapse o f a certain time subsequent t o thé date o f the certificate, i n no case less
than thirty days;
or
"(3) A f t e r written notice which the bank may
at i t s o p t i o n r e q u i r e
t o b e given a
certain specified
number o f days, n o t less t h a n thirty days before t h e
Gate o f repayment; a n d
"(4)
I n all cases only upon the actual presen-
tation o f t h e c e r t i f i c a t e
a t each withdrawal f o r
proper endorsement o r surrdnder.s
“phe retention of the @rtificate, o r a duplicate
of same, b y the bank o r b y en officer, agent o r employeé thereof, a n d the psesentation o f same b y the
bank o r b y a n officer, agent o r employee the reof
shall not b e considered e n actual presentation
within t h e meaning o f this act. A
deposit made b y
one bank i n another shall not i n any ease b e con-
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Federal Reserve Bank of St. Louis
066
siasred & '¢2me gePbificate o f deposit? w i t h i n the
meaning o f this eet.
phe term ‘postal savings deposits? a s used i n
this a t shall m e a n deposits o f postal savings funds
in bankenunder i h e Weves o f e e sodtak-pevinen a c t
approved June 26, 1919, bai amended.
: "The terth open account time depos tts" a 8
“ised i n thas act shail mean deposits mot evidenced
by certificates o f depos its or savings pass books
“th respeet to. which a written contract i s entered into
with the depositor at the time the deposit i s made
" providing that neither the whole of any pert of
s e n deposit may be withdrawn, by chetk or othe re
wise, except o n a given date, dere Coles th irty
days after the date e f the epost,
o r o n written
netioe. which myst b e given b y the d e p o s i t e r 4
Leovtatd specified number o f days i n aavense, i n
no cage less t h a n thirty days»
I n order f o r der
s Yepen account time
“posits t o b e c l a s s i f i e d a
r
a made
deposits! the bank in which suoh depositse
dust gotually r e quatre s u c h written notice before
permitting withdrawals t o be made.
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Federal Reserve Bank of St. Louis
567
"The term 'pank deposits? shall include all
deposit balances due to other banks, bankers, and
trust companies i n the United States a n d foreign
countries.
"Every bank, banking association, and trust
company which i s o r which becomes a
member o f a n y
Federal reserve b a n k shall establish a n d maintain
&@reserve consisting o f a n actual n e t balance w i t h
the Federal reserve b a n k o f its district equal t o n o t
less t h a n thirteen p e r centum o f the aggregate amount
of its bank deposits, three p e r centum o f the aggre-
gate amount o f its time deposits, a n d the following per centum o f the aggregate amount o f its n e t
demand deposits:
*reanks i n central reserve cities, 1 3 per oentum;
WRanks i n reserve cities, 9 per centum; and
"Other banks, 7 per centum,"
I think the re i s a stopping place.
Governor N o r r i s .
I t seems t o m e that w e h a d
better stop before w e get into the question of
reserves a n d take u p these definitions first.
The Chairman.
W e should g o back t o the pro-
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Federal Reserve Bank of St. Louis
368
vision " a deposit made b y one bank i n another o r
@ deposit o f a business corporation o r firm shall
not i n any case b e considered a 'savings account!
within the meaning of this act.
Governor McDougal, I
further,
M r . Chairman,
should like t o back
t o the paragraph I referred
to:
*me term 'savings accounts! shall mean deposits
of individuals a n d religious, charitable o r similar
corporations.”
That i s the point that I brought out.
Mr. Case.
I p you change one you would have
to change i t i n other places.
Governor Harding.
I t would b e better t o use
the word "inolude", instead of “mean®.
I t should
read “The term ‘savings accounts! shall inolude
deposites o f individuals”, etc.
Governor N o r r i s .
W o u l d n ' t i t b e more accu-
rate t o say "shall b e restricted to"?
going t o change t h e word, I
I f you are
think i t should b e
"shall b e restricted to".
Governor Harding.
Y o u will have t o consider
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Federal Reserve Bank of St. Louis
these business corporations a n d firms.
Mr. G a s e .
I t would h a v e t o b e restricted
to deposits o n individuals, firms and forporations,
without undertaking t o classify them.
Governor McDougal, I
am sure that i s what
the Board wants t o eliminate.
T h e y want t o get
rid o f firms a n d corporations. I
Mr. C a s e . I
think i t i s very debatable whether
that s h o u l d b e done.
and c o r p o r a t i o n s
a m sure o f that,
T h e r e a r e lots o f small firms
i n t h e c o u n t r y that,
i f they get
a little windfall a n d accumulate s o m e profits, t h e y
are quite r e a d y t o put i n i n the savings account
against a rainy day.
C o u l d n o t that b e met b y
Governor Harding.
putting a
limitation o n the anount o f those depos-
its?
Governor McDougal.
in limiting them. A
Y o u haven't a n y business
big deposit f o r one f i r m would
be small for others,
Governor Harding.
I , the New England Savings
Banks $5,000 i s their maximum f o r a n y savings depos~
it, a n d one o f the large N a t i o n a l banks hasput a
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Federal Reserve Bank of St. Louis
practical limit of $10,000.
I n other words,
they pay 4 per cent u p to $10,000, a n d whenever
the amount goes beyond $10,000, they only pay
3Sper cent o n the excess above 410,000.
I n other
large banks there i s no limit, a n d I have heard o f
one bank having a savings account for a mdio corporation o f a million dollars.
The Chairman.
W o u l d i t meet t h e view o f the
Conference t o say;
"The term ‘savings accounts! shall mean de~
posits o f individuals a n d religious a n d charita-
ble corporations?”
Governor Norris.
I % would n o t suit me, i n
view o f what has already been alluded to, the
50 per cent limit o f real estate loans o u t o f
savings accounts. I
think savings accounts should
be restricted a s much a s possible, a n d I think t h e y
should well come i n as time accounts, b u t not
savings accounts,
The Chairman.
M a y we then consider this a s
approved:
"Phe term tgavings aecounts! shall mean depos-
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Federal Reserve Bank of St. Louis
371
its o f individuals, religious ,oharitable o r similar
organizations?"
Governor Norris. I
would a l s o make a
in the phraseology there. I
change
think the moment that
you use such a word as "similar" i n a statute you
open the door t o all sorts o f questions a s t o
whether a certain corporation i s similar o r i t i s
not similar.
Governor H a r d i n g e I
would s a y charitable
or eleemosinary.
I . would s a y "yeligious o r
Governor Norris.
chepitable corporations,
o r other corporations n o t
for profit."
The Chairman.
Governor Norris,
W i t h the change suggested b y
i s the paragraph o r the phrase
acceptible?
Governor G e e r y . I
do not q i t e
s e e it.
I t
4s s o simple t o get around it, anyway.
The Chairman.
Yes,
Governor Geery.
o f course.
A n y corporation c a n have 8
deposit made i n the name o f its president, personally o r a s a trustee, a n d t h e book i s turned o v e r
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Federal Reserve Bank of St. Louis
to the corporation.
N o w , w i t h us, t h e grain
people have about s i x months o f the year a great
deal o f money, a n d they are i n the habit o f putting
it i n savings a c c o u n t s .
T h e o t h e r alternative
is
that t h e y loan i t o n the Street.
Governor Fancher,
deposit.
T h a t would not b e a time
T h a t would b e a contract deposit o r a
time oertificate o f deposit.
Governor Talley. G o v e r n o r Geery's point i s
that y o u could g e t t h e same funds i n the name o f
an individual.
Governor Norris. Y o u cannot avoid thet. B u t
there a r e a great m a n y corporations t h a t would n o t
oare t o p u t t h e i r f u n d s
i n t h e n a m e o f a n individ-
ual, w h o might d r a w i t out a n y time h e pleased,
Governor Seay»
I n the paragraph o n top o f
page 2 I have a suggestion t o make that will cover
that, p e r h a p s .
Mr. C a s e . H a v e w e agreed o n this, Mr.
Chairman?
The Chairman. N o .
W i l l somebody move
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Federal Reserve Bank of St. Louis
approval o f the phrase;
"“ohe term ‘savings accounts! shall mean
deposits o f individuals a n d religious, charitable
or similar corporations, "
so that w e may have
the matter disposed o f ?
Governor McDougal.
T h a t would eliminate
firms a n d corporations, wouldn't it, j u s t a s i t
does now?
Governor Norris.
I t would eliminate firms
and i t would eliminate corporations, unless t h e y
were religious, charitable o r similar o r not
operating f o r profit,
Governor H a r d i n g . I
secehd Governor Norris's
motion.
Governor Fanchere
Governor Norris. I
W h a t are the words?
have suggested two
little changes, the substitution of"be restricted
to® for "mean",
Governor Black, I s not "mean" the better
word?
Mr. Case. S o m e b o d y suggested that i t shall
be "Include",
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Federal Reserve Bank of St. Louis
Governor H a r d i n g . I
do not care about
that »
A r e you satisfied t o leave
Gevernor Norris.
it "mean"?
Governor Talley. I
think i t should b e "re-
stricted to."
Governor Norris. I
think we want t o show
every indication f o r restriction here.
T h i s i s merely a definition
Governor Geery.
of what “savings accaints" are, and when you say
"savings accounts" shall mean so and so, that i s
all y o u want,
Governor Norris,
B u t when you say “shall
berestricted to", you mean it shall be these
things a n d nothing else.
Governor Black. Y p , u should,
The Chairman,
T h e phrase n o w is:
“phe term 'savings accounts! shall mean deposite o f individuals a n d religious, charitable o r
similar corporations,"
Governor MeDougal. I
would move that there
be n o change o n that score, because t h a t i s exactly
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Federal Reserve Bank of St. Louis
S75
what this word means.
I t says that they shall
mean deposits o f that character.
The Chairman.
progress.
W e shall have t o get some
- W e a r e n o w debating t h e question o f
substituting "be restricted to" for the word
"mean". A l l those in favor -Governor Harding (
Interposing), I
to call attention t o one thing.
would like
I t i s not s o necessa-
ry t o b e particular about this wording.
This is a
bill, and under the general terms o f the Federal
Reserve Act, i f this should beoome a law, t h e
Board itself would have t o issue n e w regulations
in conformity with the law, and the Board itself,
in its regulations, c o u l d make a n y further definition i t wants to.
Governor N o r r i s .
A s t o these verbal changes,
it seems t o me w e might save time b y saying that this
is approved w i t h t h e suggestion o f s o a n d so.
Governor Seay. W o u l d n ' t i t b e better f o r
practical purposes t e have t h e definite verbiage
agreed u p o n a n d incorporated i n the bill, rather
than i n the regulation?
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Federal Reserve Bank of St. Louis
376
Governor H a r d i n g ,
question there.
T h e r e i s a practical
Y o u have t o get this through two
committees o f Congress a n d two houses o f Congress,
so that these bills a r e drawn purposely w i t h more
or less vagueness o f language, i n order t o obviate
that, and then the Federal Reserve Board under its
power o f regulation c a n clarify that.
Governor Norris.
I g seoms t o me that this
bill 1 s not a bill authorizing the Board t o make
regulations o f this character.
Governor Harding.
Governor Norris.
I t already hes the power.
B u t i t i s writing this par-
ticular thing into t h e law.
Governor Harding. T h e Beard i s proposing this
to be enacted into law.
T h e Board cannot pass the
lew, but i t has got t o g o to Congress»
Governor Norris. Y e s , but this i s net a bill
to authorize the Federal Reserve Board to make "the
following regulations” o r regulations similar,
I t
is a definition.
Governor S e a y ,
T h e bill itself avoids the
necessity o f regulation.
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Federal Reserve Bank of St. Louis
S77
Governor H a r d i n g . N o a .
Y o u know that t h e
Board has already given a definition o n Sgetion 19,
end i f i t is changed the Board will have t o make 4
new regulation.
Governor B l a c k ,
I n the Federal Reserve Act,
the word "mean " 1s used,
The Chairman.
W h a t shall w e d o with the phrase
that h a s b e e n s u g g e s t e d s e v e r a l t i m e s ? I
think
Governor Harding's point i s conclusive.
Governor Harding.
T e Board has a perfect
right, if you use “simflar corporations" to make
its regulations.
The Chairman.
T h e B o a r d hes power t o define
those words, a n d I think i t i s immaterial whether
the word "mean" o r "be restricted" i s used.
Governor Norris. I
The OQ,eirman.
withdraw the suggestions
A l l i n favor o f approval o f
the phrase a s read, s a y "aye",
Governor Besy.
H o w about Governor Norris's,
other suggestion.
Governor N o r r i s ,
T h a t goes b y the board.
The Chairman. W i t h o u t change.
A l l i n favor
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Federal Reserve Bank of St. Louis
say " a y e " ,
Governor MeDougal. B e f o r e y o u take that vote,
I would like t o s a y this, t h a t I
think that there
is a protection there against over-loaning o n real
estate.
A
t the same time I
think t h a t o u g h t t o b e
very oarefully considered before w e vote i n the a f firmative .
think so, tooe L e t us have
The Chairman, I
it carefully considered and then vote»
A l i i n favor
of the phrase without change will say "aye".
(There were several votes o f “aye"”.)
The Chairman. T h o s e opposed will say "no".
(There were several votes o f “no".)
Mr. C a s e e I
do not like it, besause t h a t
puts a roof o n and does n o t permit t h e depesits o f
firms o r corporations.
Governor Talley.
T h a t i s t h e v e r y reason [ I
like it.
Governor Norrise
W h y should t h e y b e savings
accounts, rather than time accounts Mr. Case?
Mre C a s e .
I f you are running e small firm
and hdd $10,000 surplus, m y anawer to that is I
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Federal Reserve Bank of St. Louis
think y o u should h a v e t h e right t o denominate whether
you want to take the savings deposit book for 45,000
or $10,000.
The Chairman.
O f course, that can b e avoided
vy John Smith a n d T o m Jones opening a joint account.
Mr. Case.
Y e s e T h e r e a r e lots o f ways o f
getting around it.
The Chairman.
T h o s e opposed t o the inclusion
of this phrase a s contained i n the memorandum a n d
read, will please say "no",
(There were several votes o f
The Chairman. I
count «
suppose
LLno” . )
w e will have t e have a
M a y w e consider that w e have approved d e w n
to that second paragraph o n the second page which
begins with the phrase " m e term 'time certificates
ofdeposit!” 48s read and approved?
Governor Seay. I
think not». I
think y o u should
read “deposits which are permitted".
The Chairmane "Deposits which are permitted t o
be withdrawn b y check o r otherwise, without t h e actual
presentation o f the pass book, certificate,
o r other
similar f o r m o f réceipt whenever eae withdrawal i s
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Federal Reserve Bank of St. Louis
580
made, shall not b e considered ‘savings accounts!
within the meaning o f this act. T h e retention o f
the pass book, certificate o r other similar form
of receipt o r a duplicate o f same,
b y the bank o r
by an officer, agent o r employee thereof, a n d the
presentation
o f s a m e b y t h e bank,
o r b y a n officer,
agent o r employee thereof, shall not b e considered
an actual presentation within the meaning o f this
acte A
deposit made b y one b a n k i n anther o r a
deposit
o f a business c o r p o r a t i o n o r f i r m s h a l l
not i n any case b e considered a
'<cvings account!
within the meaning of this act."
Governor Seay.
R i g h t there i s apparently
where there i s a loop-hole f o r evasion.
Corpora-
tions, a s has been already suggested, might make
their deposits i n the names o f their officers, o r
in the names o f members o f the firm, i f i t was a
firm.
W o u l d i t alter t h e meaning there o r meet
the situation i n some respect i f we s a y a deposit
"not of ” but a "deposit owned by"?
The Chairman. I
do not think so. I
do not
think there i s any possible means b y which every
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Federal Reserve Bank of St. Louis
possible loop~=hole o a n b e stopped,
Governor Seay. I
dnot think so, but would
that s t o p o n e o f them?
The Chairman.
T I do not think so.
Mr. Case. I
think i f we adopt all o f this,
there i s scarcely a bank i n the country that, i f i t
cared to take a deposit i n the name of the corporanot
tion, would/go ahead and do it.
Governor Fancher.
Mr. C a s e .
I p the name o f the corporation?
S u r e e
The Chairman.
M a y w e understand that this i s
approved b y the Conference down t o the paragraph
beginning "The term ‘time certificate o f deposit'!"?
Governor N o r r i s .
T h e r e i s e question that
arises theree " D e p o s i t s which are permitted t o be
withdrawn b y oheck o r otherwise, without the actual
presentation o f the pass book, certificate o r other
similar form ef receipt whenever a withdrawal i s made,
shall not b e considered ‘savings acocountst within the
meaning of this aot.” I
do not knew what the prac-
tice with other banks is, but our Mytual savings banks
have n o w all o f them adopted a practice o f allowing
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Federal Reserve Bank of St. Louis
S82
@ savings depositor t o draw a certain number o f
checks per week, with a limit o n the number and
the amount.
The Chairman.
T h a t i s just what the Board
wants t o stop,
Governor Norris.
T h e y are not members. T h e y
ere operating under S t a t e laws, and if we make this
regulation a s stringent a s this, w e will put our
member banks a t a disadvantage a s compared t o the
Mutuals. I
do not know that that i s a n objeo-
tionable thing -- whether i t is o r not - = but I
would like t o call your attention t o it.
The Chairmane-
I t is m y own feeling that these
provisions which are considering will result i n placing a member bank a t a disadvantage, a s compared
with a non=member banke
M a y w e consider a s approved
all that has b e e n read: down t o tbe beginning o f the
paragraph referring t o time certificates?
Governor Seay.
The Chairman.
B y the majority.
A l l these i n favor o f such
approval please raise their right hands.
(Upon a vote, the paragraph was approved eight
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Federal Reserve Bank of St. Louis
to four,)
The Chairman.
T h e next is"@he term ‘time
certificate o f deposit! shall mean a deposit evidenoed b y written instrument delivered t o a n d re-
tained by the depositor evidencing the deposit with
a bank, either with o r without interest, o f a cere
tain s u m specified o n the face o f the certificate,
payable i n whole o r i n part t o the depositor o r o n
his order <-
"(Z) O n a certain date, specified on the certificate, m o r e t h a n thirty days after the d a t e o f the
deposit;
or
"(2) A p t e r the lapse o f a certain time subsequent t o the date o f the certificate,
i n no case
less t h a n t hirty days; o r
" (3) A f t e r written notice which the bank may
at its option require t o b e given a certain specified
number o f days, n o t less t h a n thirty days tefore t he
date o f repayment; a n d
"(4)
I n @ll cases only upon actual presenta~
tion o f the certifioate a t each withdrawal f o r proper
endorsement o r surrender”.
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Federal Reserve Bank of St. Louis
384
Mr. C a s e » I
move a l l o f this b e approved,
Governor McDougal. I
second the motion,
Governor Harding. U n d e r No» 5 there i s a big
loop-hole there.
A
k great m a n y demand certificates
are issued b y banks w h i c h are really all demand cer-
tificates, b u t that word “may”, unless i t is con-
strued as “must' opens a petty wide loop-hole there,
It would be better language t o make i t “after written
notice which t h e bank must require t o b e given a
certain specified number of deys," which wuld make
it a time certificate otherwise.
The Chairman.
Mr. Cas®.
I t is ambiguous a s i t is.
Y o u recommend the substitution o f
the word "must"?
Governor Harding.
I f you want t o make i t what
I think you do, y o u leave out "may" and insert
Smust” «
The Chairman. I
Governor Harding.
think you are right.
I t should b e "(3) A f t e r
written notice which the bank must require t o be
a given a
certain spefified number o f days, n o t
less than thirty days, before the date of repayment."
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Federal Reserve Bank of St. Louis
385
The Chairman.
I t i s moved that t h e provision
as read down t o (4), with the change suggested b y
Governor Harding, o f "must" instead of “may at
its option” i n (3) b e approved.
sition t o that approval? I
mous.
I s there a n y oppo-
take i t t o b e unani-
I t i s passed unless there i s some o n e opposed
to it.
I t i s unanimously approved.
Mr. C a s e .
T h e paragraph reads:
“after written notice which the bank must require
to be given, not less than thirty days before the
date o f repayment.”
The Chairman.
T h e next paragraph reads:
“The retention of the eertificate, o r a duplicate o f same, b y the bank o r b y an officer, agent
or employee thereof, a n d the presentation o f same
by the b a n k o r b y a n officer, a g e n t o r employee
thereof shall n o t b e considered a n actual presentation within t h e m a n i n g o f this act. A
deposit m a d e
by one bank i n amther shall not i n any case b e considered a
'time certificate o f deposit! w i t h i n t h e
meaning of this act.”
Governor M o D o u g a l e I
move approval o f this
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Federal Reserve Bank of St. Louis
paragraphi
Mr. C a s e . I
The Chairman.
second it.
A n y objection? N o e
"The term 'pestal savings deposits! a s used
in this act shall mean depostits o f phstal savings
funds i n banks under t h e terms o f the postal savings
act approved June 26, 1919, as amended."
Is there a n y objectien t e that?
(There were several replies o f "no". )
The Chairman. " T h e term fopen account time
deposits!
a s used i n this a c t shall m a m deposits
not evidenced b y certificates o f deposits o r savings
pass books,
i n respect t o which a written contract
is entered into with the depositor a t the time the
deposit i s made providing that neither t h e whole
or any part o f such deposit may be withdrawn, b y
check o r otherwise, except o n a given date, more
than thirty days after the date o f the deposit,
or o n written notice which must b e given b y the
depositor a certain specified number o f days i n
advance, i n no case less than thirty dayse
I n
order f o r deposite t o b e classified a s ‘open account
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Federal Reserve Bank of St. Louis
387
time deposits" t h e bank i n which such deposits a r e
made must actually require s u c h written netice b e -
fore permitting withdrawals t o be made."
Mr, C a s e . I
move t h a t i t b e approved.
The Chairman. A p p r o v e d , without objections
"The term thank deposits! shall include all
deposit: balances due t o other banks, bankers, a n d
trust companies i n the U n i t e d States a n d foreign
countries."
Approved?
N o . objection.
"Every bank, banking association, and trust
eompany which i s o r which becomes a member o f any
Federal reserve bank shall establish and mantain
@ reserve consisting o f a n actual n e t balance w i t h
the Federal reserve bank o f its district equal t o
not less t h a n thirteen p e r centum o f the aggregate
amount o f its bank deposits, three per centum o f the
ageregate amount o f its time deposits, a n d the following per centum o f the aggregate amount o f its met
demand deposits ;
"Ranks i n central reserve cities, 13 per centum
“renka i n reserve cities, 9 per centum; and
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Federal Reserve Bank of St. Louis
"Other banks, 7 per centum."
Governor Harding.
M a y I
ask, Mr. C h a i r m a n ,
why that was reduced from 10 to 9?
The Chairman. I
Governor Seayae.
¬ know,
T h e definition i s given some-
where f n there, chiefly because those cities not in
the reserve o r branch cities have not facilities
for getting along with a small amount o f cash, which
those banks i n the branch a n d reserve cities have.
Mr.
Case,
F o r t h e s a k e o f m a k i n g progress,
I move the approval o f all this a s read, with the
exception that 1 0 per cent b e substituted f o r 9 ,
Governor Seay. I
Gevernor Talley.
second the motion.
T h a t w a s a mistake made i n
the Agentis repat,
Governor N o r r i s . I
think t h a t r e d u c t i o n t o 9
was made principally, wasn't it, t o equalize o r offset the increase t n the bank!, deposits frem 10 to
15?
Governor Talley. Y e S s -
Governor Norris.
A n d there i s a caleulation
there showing what t h e result would b e t o banks
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Federal Reserve Bank of St. Louis
holding different proportions.
Governor Harding, I
withdraw m y second o f Mr.
Case t's motion.
Governor Seay. I
The Chairman,
make t h e second.
I t is moved and seconded that
the provision t e changed t o require 1 0 per sent
from banks i n reserve cities instead o f 9.
(The motion was put and d e j e c t e d a vote o f
seven t o five.)
fhe Chairman.
W e will now consider this a s
approved down t o "Ppovided, however.”
T ask whether i t is approved down t o "Provided,
however," which inoludes reserves o f 15, 9 and 7 per
I g there a n y objection t o
cent respectively.
approval t o that point?
D o e s anyone w i s h t o move
an amendment t e the percentages o f 15, 9
Governor Geery. I
and 7 ?
would like toe see the small
reserve centers o a r r y a. larger reserve o n their bank
balances, because they sover © limited territory
onlye
The Chairmane
T h a t i s what this doese
Governor Geerye
W h e n i t comes t o cities l i k e
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Federal Reserve Bank of St. Louis
390
St. Peul and Minneapolis, whose territory runs. from
Lake Michigen t o the Pacific Coast, their. bank baiances fluctuate l e s s t h a n their deposits..
I n the
course o f s i x months t h e y m a y vary more, b u t i t i s
a steady, seasonal change, a n d i t i s going t o penal-
ize them very heavily for having those bank balances,
dpvesno’ McDougal...
T h a t i s what i t is in-
tended t o do.
Governor Talleys.
M y district will run somewhat
T h i s statement shows that o f
in line w i t h yours..
the group 1 banks, the {norsand would only be
$784,000 of reserves.
Mr. Case.
I n a real emergency - - and that
is what this 1 3 per cent i s designed t o provide
for «= I think you would not find. that bank deposits
in the T w i n Cities would fluctuate l e s s violently
than your other demand deposits, a n d that i s what
I think w e have t e look a t
The Chairman.
G o v e r n o r Geery,
d o you wish t o
move a n amendment t o that provision?
Governor Geery.
minority.
NOe I
seem t e b e i n the
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Federal Reserve Bank of St. Louis
S91
The Chairman, “Provided, however, that upon
the affirmative vote o f five members o f the Federal Reserve Board, a n y bank located i n an out+
lying district o f a central reserve c i t y m a y b e
permitted t o maintain a reserve balance equal t o
not less t h a n seven o r nine p e r centum o f its n e t
demand deposits, a n d any bank located i n a n outlying district o f a reserve c i t y m a y b e permitted
to maintain a reserve balence equal t o not less t h a n
seven p e r centum o f its n e t demand deposits; A n d
Provided Further, That,
i n computing t h e amounts
of net demand deposits against which reserves must
be maintained, a l l member banks m a y deduct from the
amount o f their gross demand deposits, a l l balances
due t o them from other banks (ezcept Federal reserve
banks and forcign bunks), a l l cash items deposited
by them with Federal reserve banks a n d other banks
in process o f collection, a l l exchanges f o r the
clearing house, a n d a l l checks i n other banks i n the
game place.”
Governor Seay. I
Governor N o r r i s e I
move i t s approval,
would l i k e t o m a k e a
oriti-
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Federal Reserve Bank of St. Louis
3592.
cism o n that.
I t seema t o u s very. illogical t o
allow three o r four different deductions f r o m gross
demand deposita and not allow cash i n vault.
if
there i s a n y one thing i n the world that will p a y
deposits i t 1 s cash i n vault, a n d w a y y o u s h o u l d
allow a bank t o deduct a
lot o f other things a n d not
deduct that, w h y y o u should s a y t o a bank that has
@ million dollars worth o f deposits a n d $50,000
in its till, that o n the $950,000 uncovered you
must m a i n t a i n
a n average r e s e r v e o f 5
per c e n t
but o n the $50 , 000 that i t has covered i t must
maintain a reserve o f 105 per cent, seems t o us
very illogical.
The Chairman,
I t is suggested b y Gaernor Norris
thet there b e added to the deductions "and oash in
vault."
Mr. Case, M a y I say this? I
think there t s
one thing that Governor Norris h a s possibly overlooked, a n d that. is this.
A f t e r e l l t s said a n d
done, that till money I think i s a frozen assete
They have g o t t o have i t every d a y i n the week.
It
4s o f n o value beyond t h e fact that t h e y have g o t
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Federal Reserve Bank of St. Louis
393
to have i t there e v e r y day.
I f they use half o f
it they will have t o replenish it, and therefore,
while i t is cash, i t is actually unavailable f o r
reserve purposes.
Governor Seay.
G o v e r n o r Norris's proposal might
have this effect, that is; i t would induce a great
number o f member banks t o carry more c a s h i n vault.
Governor N o r r i s . I
because a
do not think i t would,
bank would n o t ¢arry 1 0 0 p e r cent against
reserve deposits t o save carrying 5
per cent:
Mrs Harrison. I s n ' t i t true that when the substantial reductions were made i n 1917, when all reserves w e r e r e q u i r e d t o b e e a r r i e d
i n Federal r e s e r v e
bankevaults, that the Congress took into consideration
would
the amount of cash the bank / carry in its own t111,
and had it not been for that fact that all of the present figures o f 15, 1 0 and 7 would have b e e n made
substantially higher?
Governor Norris. T h e n , i f the inclusion o f cash
in vault a s an allowable deduction touldunduly influence the reserves, I
would strike out the limit as t o
all o f these other things.
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Federal Reserve Bank of St. Louis
394
fhe Chairman. G o v e r n o r Norris, will you
move t o amend that paragraph?
Governor Norrig. I
Governor Seay.
will.
M y own feeling ebout i t is
that i t cannot b e defended i n logis,
The Chairman.
I t i s moved a n d n o t seoonded
that the paragraph b e amended.
Governor Geery. I
I s there a second?
feel, i f we are going t o
change that, w e ought t o out out all Geductions.
The balanoes d u e t o our banks a r e j u s t a s much @
necessity a s till money.
Goarnor Seaye
N o t t o the f u l l extent a t
least.
Governor Geery. P r e t t y near.
W e will heve
to have 3 0 much t o work o n and handle colletion
items .
The Chairman.
I t i s moved a n d seconded that
the paragraph b e approved a s read,
Governor Harding. I
would like t o call your
attention t o one deduction, "all cash items deposited
by them with Federal reserve banks a n d other banks
in process o f collection."
I n other wards, they
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Federal Reserve Bank of St. Louis
595
can d e d u c t t h e n a l l o f t h e i r u n m a t u r e d s t u f f t h a t
is i n prooess o f collection.
D
o you want t o d o
that?
The Chairman.
T h a t i s i n accord w i t h ths pre-
sent ruling.
T h e y deduct i t merely from
Mre Harrisone
bank balances.
A p d i f they d o not have
Governor McDougal.
bank balances t h e y d o not g e t the benefit o f it.
The Chairman. I
tion t o that. I
am glad y o u callod m y atten-
a m i n favor o f the elimination
of that.
Governor Seaye
T h e elimination ofwhat?
The Chairman. “ A l l cash items deposited b y
them with Federal reserve banks and other banks i n
process o f collection."
Mr. Case.
S o that i t would read, "in comput-.
ing the amoufts o f net demand deposits against which
reserves m u s t b e maintained, a l l member banks m a y
deduct from the amount o f their gross demand @posits
all balancen d u e t e them from other banks (except
Federal reserve banks and foreign banks), all ex-
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Federal Reserve Bank of St. Louis
596
changes for the clearing house and all checks i n
other banks i n the samé place." T h a t is the way
it would read.
The Chairman.
I t is moved and seconded that
this provision a s read b e epproved, with the elimi~nation o f “all oash items deposited b y them with
Federal reserve banks a n d other banks i n process o f
collection.”
Governor McDougal. B e f o r e yeu vote o n that,
Mr. Chairman, I would like t o have this p a ragra ph
"Provided, however" read to make sure that i t does
not relieve the banks i n the outlying districts
of Chicago a n d other cities f r o m carrying 1 3 per
cent against b a n k deposits. I
think y o u h a d better
read i t carefully.
Governor Norris,
I t does not say thate
I t
says “any bank located i n a n outlying district o f
@ central reserve city may be permitted t o maintain
a reserve balance equal t o not less t h a n 7
o r 9 per
cent of its net denand deposits."
Governor Fancher, Whereever located.
Governor Seay.
T h i s i s a very f a r reaching
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Federal Reserve Bank of St. Louis
matter however - » very f a r reaching.
Governor T a l l e y .
I t eliminates t h e present
ruling.
Mr. Harrison.
I n the present l a w there i s not
a complete understanding o f what this will do,
There i s n o reference
i n the l a w whatever
in the process o f collection,
t o items
b u t f o r years be-
fore the Federal Reserve Act and since the Federal
Reserve A c t b y runiling, t h e Comptroller a n d t h e
Federal Reserve Board have arbitrarily held that
o collection a r e balances
4tems i n the p r o c e s s f
“aque from banks" for the purpose of that section to
which I have j u s t referred, a n d b y that process
of exeoutive ruling a l l items i n process e d col-
lection have been for a number o f years determined
to be "balances due from banks." ‘The difficulty
that hae been o:used by these rulings over a period
of years has been that the items i n process o f colleotion b y ruling a r e n o w deductible f r o m balances
duo to banks and not from gross deposits, and the
banks i n the country claim that they ere not
getting t h e benefit o f this arbitrary ruling, while
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Federal Reserve Bank of St. Louis
396
banks i n the city that have got balances due t o
banks g e t the benefit o f it.
W h e n y o u read this
section a s amended with that i n view, you will
find o u t that y o u have still g o t the same question
of whether w e are going t o have the arbitrary executive ruling continued o r whether w e are not, and
the inelusion o f this clause w a s t o give a
legal
justification f o r what i n the past has b e e n sup-
ported only b y exeoutive ruling, a n d you d o not
change t h e ability o r inability o f the Reserve
Board and the Comptroller ‘sa office t o continue
the present ruling about deducting t h e c a s h items
merely b y striking out this phrase, because then
you leave i t just a s i t is.
The Chairman.
T h e ruling a s a t present per-
mits t h e deduction f r o m bank jelances only.
permits a
deduction f r o m demand deposits.
Mr. Harrison, I
purpose
This
agree with you, but i f t h e
o f t h e present,
i n striking o u t o r t o r e e
fer t o what i s just struck out, i s t o P h y W a n e
sible t o deduct items i n the process o f collection,
and i f that i s the purpose, I
do not think you
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Federal Reserve Bank of St. Louis
599
have accomplished it, beoause a l l y o u heave done i s
to apply present rules t o gross demand deposits,
rather than t o banks deposits.
J I am glad Mr, Harrison made
Governor Norris.
that point, because I
because I
was willing t o approve o f i t
thought t h a t i t struck o u t this language
which w e have always regarded a s unjust.
Governor Harding.
I t does strike o u t that pre-
ference b y extending t h e privilege t o gross deposits,
in which ¢ase country banks c a n get some advantage.
would l i k e t o a s k o n e q u e s t i o n
Mr. C g s e @ e I
in connection w i t h M y . Harrison's statement.
Sup-
pose w e put it this way;
aii cash items t o be deppsited b y them with
Federal reserve banks i n process o f collestion"
and leave out “other banks”.
Governor H a r d i n g e I
think that i s a good
suggestion.
Mr. C a s e .
S o that i t will read - ~ simp}y
strike out three words "and other banks."
The Chajrman.
I z has been voted unanimously
to appoeve t h e amendment.
W e will consider that
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Federal Reserve Bank of St. Louis
vote a s withdrawn.
Governor Talley. I
suggest that we add “and
that no deduotions whatever shall be made for oash
items i n process o f collection f r o m other b a n k s "
.
Governor Harding.
Governor Norris. I
T h a t would b e unnecessary.
would like t o ask a question,
As has just been suggested here, the present ruling
is should the aggregate due from banks exceed the
aggregate d u e t o banks,
b o t h amounts m u s t b e
omitted from the calculation w h e r e both items are
exoluded, t h e banks concerned o f course lose the
deduction, b u t they d o not have t o calculate o n
any e n n e e s s d u e t o banks,
T h e ruling above quoted
does n o t seem equitable s s applied t o country hanks,
Does Ghis p u t themsall o n the same basis,
o r doesn't
167
The Chairmam.
posed,
I t does, s o far as i t is pro-
I t is moved and seconded that this provi-
sion b e a p p r o v e d w i t h t h e e l i m i n a t i o n o f t h e w o r d s
“and other banks ",
Governor Talley. M r . Harrison's point still
holds good,
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Federal Reserve Bank of St. Louis
Governor Seay,
T h e r e i s f a r more i n that
than appears o n the surface,
know there is, and that i s
The Gheirman. I
the reason I
a m i n favor o f it.
Governor Harding.
T h e o n l y w a y t o knock o u t
the point i s t o add; " P h a t there will b e n o deduotion whatever a s t o cash items i n proaess o f col-
leetion from the banks."
Governor Seay.
T h e r e i s more logic i n per-
mitting from other banks than Federal reserve banks,
because i f those checks i n process o f eollestion
are drawn o n banks 8 . 0 b benks d o not maintain a
reserve against t h e deposit.
I t s reserve m u s t b e
maintained somewhere «
Governor H a r d i n g > T h i s i s t o encourage t h e m
to d o the business w i t h t h e Federal reserve bank.
Governor Seay.
T h a t i s the only item I see.
Governor Harding.
I f they send y o u the busi-
ness y o u know what t h e y are doing.
Gevernor Fancher»
Governor Talley,
T h a t i s truer
I f you add the words “No
deductions shall be made from items i n process
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Federal Reserve Bank of St. Louis
402
ofcoklestion,from other banks” that would make i t
ail rights
The Ghairman.
T h e question before the house
has beeh stated and restated, and I will ask thet
p12 rhose i n favor of the a d o p t i o n r
o approval of
this paragraph would be the elimination of the
words "and other banks” please raise their hands.
(The question was put and unanimously carried: )
still have the reservation
Governor Seay. I
hd hot think w e know exactly whet w e are do-
that £
ings
Governor Talley» I
do not think we have had
enough disdéussiony
Mp, Case, M r s Harrison hes clarified my mind.
He says i f only puts i t i n line with what the present
law iss
Governor Talley.
L e t u s recall what i s i n
the ruling a t the present time.
T h e y have a rul-
ing thet refers t o a contract t h a t i s made between
two banks with reference t o the ultimate credit,
or credit o n receipt
o f certain items, n o t t o b e
charged against until they are collected, and the
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Federal Reserve Bank of St. Louis
4035
eageregate o f such items f a alloable a s a deduction a t the present time.
E v e n though this para~
graph should stand a s amended, y o u would have t h e
same principle a n d that i s i n the ruling i n existence a t the prezent time,
Governor Fancher.
T h e Board would probably
nullify this ruling.
Governor Seay. T h e r e i s this t o be said,
that most of the banks, i f not all banks, oharge
to their correspondents
o n their books items i n
process o f collection:
The Chairman.
T h a t does n o t create a n y re-
serve y o u see.
Governor Seay.
O n e moment,
A n d t h e y are
therefore able t o say that they have balances due
from other banks, a n d they deduct them,
Mr. Harrison. P r o v i d e d they send i n the items
through the Federal Reserve Bank and not through
some other bank,
Governor Seay.
O h noe
W h a t I
mean i s this.
They d o not regard t h e m a s items i n process o f col-
lection.
T h e y regerd them as balances due from
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Federal Reserve Bank of St. Louis
404
other banks, because they are o n their books 4 5
iteme d u e f r o m other banks.
U n d e r this t h i n g a s
it was before, t h e r e might have been some tendency
on t h e p a r t o f t h e b a n k t o d e d u o t t h o s e t h i n g s t w i c e ,
put the language a s altered will prevent that. B u t
do not think thet you have prevented those banks
from deducting those f r o m gross deposits, because
you have not.
Mr. Harrison.
H o w about"all collected items
due from other banke"?
Governor Harding.
C a n ' t the Board make regu-
lations t o cover that?
The Chairman.
T h e next paragraph i s one o f
very considerable interest, because i t covers t h e
changes t h a t ave proposed i n all o f these preceding
sections;
“the Pederal Reserve Board shall have authority t o prescribe regulations governing the mainte»
nance o f the reserves required b y this section
and further defining the various classes o f deposits herein mentioned.
~
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Federal Reserve Bank of St. Louis
Mr. C a s e . I
move it,
(The motion was put and unanimously carried.)
The Chairman; "
No member bank shall keep o n
deposit w i t h a n y S t a t e b a n k o r trust company which
is n o t a
member b a n k a
s u m i n excess
o f ten per
centum o f its own paid-up capitel and surplus.
N o
member bank shall act as the medium o r agent o f a
non-member bank i n applying f o r o r receiving discounts f r o m a Federal reserve b a n k under t h e pro-
visions o f this Act, except b y permission o f the
Federal Re serve Board.”
Mr. C a s e . I
move it.
Governor M c Dougal. I
would like t o make a n
inquiry.
Governor Harding«
T h a t i s the present law.
Governor McDougal. U n d e r the present l a w and
the National banking old law, a National bank could
not maintain legally a balance with a Sgate bank
in excess o f 1 0 per cent o f its capital surplus.
Under this arrangement, n o member bank shall keep
on deposit w i t h a n y state b a n k o r trust company
which i s ‘not a
member b a n k a
s u m i n excess
o f 10
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Federal Reserve Bank of St. Louis
406
per centum of its own paid u p capital and surplus.
Is a state bank member now prohibited under the law
from maintaining a balance i n exoess o f 10 per cent?
Mr. Harrison.
U n d e r t h e terms o f the present
law, a state member bank cannot carry wore than 1 0
per cent o f its own capital and surplus i n another
big bank which i s not a member o f the Federal Reserve System.
Governor M e Dougal. T h e n that is all right.
The Ghairman. T h e n I
take i t that the para-
greph, i n the absence of any suggestion t o thé contrary, i s approved,
The next is:
"he required balence, carried b y a member bank
with a Federal reserve bank may, under the regula~
tions a n d subject t o such penalties a s m a y b e pre-
seribed b y the Federal Reserve Board, b e checked
against and withdrawn b y such member bank for the
ae
o f meeting existing liabilities; Provided,
However, that n o bank shall a t any time make new
loans o r shall pay any dividends unless and until
the total balence required b y law is fully restored."
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Federal Reserve Bank of St. Louis
407
‘Governor Fahther.
‘Tyeat ia the présent lawy
Mina Gase. ‘ I move t o approve it.
“fhe Chairmin. Approved, unless there t s ob«
jections
Next
tyetional banks, or panks organized under local
laws, located i n Ayaske o r ina d e pendency or insular
possession o r any part b f -ahe United States outside
the continental Untted States may ‘Terieit nonemember
‘panks, and shall in that event maintain reserves
and comply with #12 the ¢onditions now provided by
Jaw ‘regulating thems o r said banks may, w i t h t h e
consent o f “the Reserve Board, —
m e m b e r banks
of any one of the reserve Aistri cts: and shall tn
thet evert take stotk, mitted in reserves, and be sib=
ject to all the other provisions of this Acte”
“‘Phes is ‘the present mw,
I n dis eyssing this
matter with te ‘Pedere’d Reserve Roard “x end T bee
Ydeve 1 % is the most {rite resting fie tbe y trae we
ve
have discussed and will have %o did ouss with them
the e l i m »
I think w e will b e called u p o n t o defend
nation of the words “and other banks") I think
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Federal Reserve Bank of St. Louis
you should think about thet i n the meantime.
Governor McDougal, M r . Ohairman, I should
like t o inquire whether all present have studied
the memorandum prepared some time ago with reference t o the purposes o f this bill, a n d particularly
page 5, which shows the effect of these reserve
ohanges i f they should b e incorporated into the
law,
The Chairman. I
Governor Seay.
have studied i t myself.
T h a t was the eastest thing
we have ever done.
The Chairman.
W e will meet with the Federal
Reserve Board at 3 ofclock. I
suggest that this
conference reconvene promptly a t 2:50 a s there are
ene o r two matters which e e have n o t discussed,
(Whereupon at one o'clock pam. a recess was
taken until 2 3:30 o'clock pem))
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Federal Reserve Bank of St. Louis
ARIw
e
RECESS
o e R
The Gonference reconvened pursuant t o reoeess
at 2240 o ' elosk p.m,
The Chairman.
to order.
posed of,
3 ofelock.
T h e meeting will kindly come
T h e program appears t o have been disW e have a
session with t h e Board a t
I t has b e e n suggested b y Governor
Pailey that i t would perhaps b e fitting f o r this
Conference t o send some expression o f its sympathy
to lir. Cunningham.
W i l l somebody make a
motion
to that effeot?
Governor MeDougal. I
Governor Seay. I
will make such a motion.
will second it.
(The motion having been duly seconded was
carried.)
The Chairman. M r . Harrison will b e kind
ehough t o attend t o that.
(Whereupon Governor Young, M r e Hamlin,
MY
Platt, Mr. James, Mr. Miller, Members o f the
Federal Reserve B o a r d entered t h e Conference Room,
also Comptroller o f the C,,rrency McIntosh, and :
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Federal Reserve Bank of St. Louis
the following proceedings were had.)
The Chairman.
M r . G o v e r n o r , a n d gentleren,
we have coneluded sonsideration o f the topios o n
the program and, following what I believe i s the
usual procedure,
w e are p r e p a r e d o
t report t o the
Board o n those topics which were proposed b y the
Federal Reserve Roardé
The first is VY#4, Reclassification of
Government Securities;
T h i s i s one o f the sup-
Ppleomentary topics, should a classification o f
Ue. 8 . Securities held b y the Federal reserve
banks i n to (a) Held i n special investment aocounts, (b} H e l d under repurchase aggmrement,
and (¢c) All other, be substituted i n the Board's
weekly presa statement
f o r the present olassifioca-
tion of Government seourities, 1. @e, ( a ) Bonds,
(0) Tresasury notes, and (c) Certificates o f
indebtedness.
It was the sense o f the Conference that i t
would b e unwise, for reasons s e t forth i n a mem~
orandum presented t o the Conference, t o reclaasify
Us s. Securities held b y Federal reserve banks i n
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Federal Reserve Bank of St. Louis
the manner suggested f o r consideration.
Would the B o a r d like t o haar the memorandum
on which that conelusion i s based a t this time?
Governor Youngs I
The Chairman. I
would like t o hear i t e
will a s k Mr, Harrison t o
read i t e
Mr. Harrison, (Readings) " T h e purpose o f
this suggestion f o r changing t h e press statement
is to keep the public currently advised o f shanges
in holdings o f seourities i n the open market inves tment
account and, therefore, o f ehanges i n the system's
policy toward t h e money market.
"mhere heave no doubt been times when it would
have been helpful i f the system could have given
a clear indication o f its policy b y a change i n
the total o f the speocial investment account.
I f
this change i s made i t will unquestionably attract
gonsiderable attention a n d will b e sonstrued exactly
asintended with the result that thereafter every
change i n the total o f this account will b e immer
diately construed a s indicative o f a change i n the
System'sopen market polioy.
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Federal Reserve Bank of St. Louis
412
“Tt may be doubted whether this would always
be desirable even when the changes d o refleot the
system's policy.
F o r instance, a s s u m i n g adeoi-+
sion has been reached t o either buy or sell a con-~
siderable amount o f seourities o n l y a small part o f
which i s reflected o n the first press statemént following the decision, immediately the public i s in-
formed as to what the system is doing and it might
conceivable make the problem o f satisfactorily
handling the balance o f the operations more difficult.
If the system gives indication that i t is starting
either a buying o r selling program, those doing the
selling o r buying will naturally try t o get better
prices.
"Tt must also be remembered thet changes i n
the total o f the special investment account d o not
necessarily reflect system policy.
M a n y ohanges
have been made i n the past and probably will b e
necessary
i n t h e f u t u r e w h i c h a r e n o t i n a n y sense
connected w i t h the system's current policy toward
the money market.
F o r instance,
i n handling s u c h
a large investment account i n short maturities a s
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Federal Reserve Bank of St. Louis
413
that o f the system coupled w i t h that o f o u r foreign
correspondents a n d t h e Treasury, t h e problem o f ar~
ranging to. replase m a t u r i t i e s f r e q u e n t l y n e c e s s i -
tates the acquisition o f new securities prior t o
the maturity o f the old. A l s o quite frequently when
exchanges are arranged the new securities are taken
in a
d a y o r t w o before t h e o l d ones a r e g i v e n up,
or v i o e v e r s a .
S e c u r i t i e s h a v e a l s o frequently
been taken over from special funds o f the Treasury
or from foreign banka and sales are likewise made t o
the Treasury a n d t o foreign banks w h i c h d o n o t i n
any sense represent t h e system's policy toward t h e
money market.
"In all of these cases which involve the acquisition o f additional seourities, i t would o f
course b e possible t o avoid inereasing the system's
special investment account b y reporting all such
securities a s 'All Other! u p t o the time that they
can b e actually exchanged f o r special investment
account holdings, although the advisability o f this
method o
f handling m a y be subject t o question.
in cases which involve a deorease i n the system
But
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Federal Reserve Bank of St. Louis
414
account, t h e r e w o u l d b e n e possible w a y o f p r e v e n t i n g
showing this i n the account a n d consequently i n the
press statement f o r the current week.
"“Gonsidering all phases o f the matter it is my
view that i t would b e unwise t o make the change suggested.
I n the long run I think there would fre-
quently b e occasions w h e n this method would b e embarrassing a n d some occasions w h e n i t would b e ac~
tually misleading, a n d as a matter o f fact i f the
n open market operations which
system is c a r r y i n g o
ere n o t accurately reflected i n the current press
atatement because o f other transactions,
i t would
i other ways whate
generally b e possible t o s e c u r e n
ever publicity w a s considered desirable."
Gevernor Young.
T h a t sounds reasonable t o me.
I do not know how my oolleagues feel about ite <All
right, g o ahead with the next one»
The Chairman.
T h e next i s a tople suggested
by the Federal Reserve Board, Topic I-F; S u g gested changes i n form o f bankers acceptances t o
eliminate a n y question a g t o negotiebility growing
out o f decision o f Supreme Court o f Texas i n case
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Federal Reserve Bank of St. Louis
of Lane Company Ve. Crum.
Governor Young.
T a t t s technical,
D e
you agree w i t h counsel o n that?
The Chairman,
I t was voted t o epprove t h e
recommendations o f Conference o f @unsel,, as s e t
forth o n page 2 , o f the record o f the Gonfe rence of
Gounsel.
Governor Young, I
think that i s all I would
went t o know about that.
The Chairman.
Board topics, II-D:
T h e next i s a Federal Reserve
R e comme ndat Lon of Conference
of Counsel that Rederal Reserve Banks eliminate from
their c h e c k c o l l e c t i o n c i r c u l a r s t h e p r o v i s i o n s
giving t o such Federal Reserve Banks t h e right t o
charge s a s h items t o reserve account o r clearing
account o f banks Y a t a n y time w h e n i n any particuler case s u c h Federal Reserve B s n k deems i t neo-
essary t o d o so.” ,
Ty w a s v o t e d u n a n i m o u s l y
t o request t h e F e d =
eral Reserve B o a r d t o eliminate f r o m the terms o f
Regulation ¥ that provision which authorizes a n y
t any
federal resefve bank to charge cesh i t e m s a
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Federal Reserve Bank of St. Louis
416
time i t deems necessary t o doso t o the reserve account
of the member banks o r the clearing account o f the
non-member b a n k s «,
Governor Young.
D o you offer anything i n sub-
stitution f o r that ?
The Chairman.
Yes«
I t was voted t o request
the Federal Reserve B , a r d t o amend Regulation J so
as t o provide that the Federal Reserve Bank may, a t
its disoretion, provide i n its cash collection oircuier that i t reserves t h e right t o charge t h e member
bank reserve account o r t o the clearing account o f
& non-member bank, a n y cash letters for which remittance has not been received from the drawee bank
within t h e time provided i n the time schedule.
Six governors voted i n the affirmative, four i n
the negative a n d two requested t o b e recorded as not
voting.
Governor Young.
That is a
legal p r o p o s i t i o n a n d
I do not want t o discuss it, unless sme o f the others
AO o
The Chairman.
T h e next Federal Reserve Board
topic i s II- FB: R e s o l u t i o n o f C o n f e r e n c e o f
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Federal Reserve Bank of St. Louis
417
Counsel expressing t h e opinion t h a t pursuit o f
Federal Reserve Bank of Riehmond o f litigation
contemplated between that b a n k and Receiver o f
Farmers &
Merchants National B a n k o f Lys C t y ,
So. Car-, i s fraught with most dangerous conse-~
quences t o entire Federal Reserve collection
systems
This topic was passed without action b e case
of the fact P R O P ,
R O O
o f Topic II.D, i t
was brought out thet while the Gonferenoe o f Counsel considered this litigation fraught with dangerous consequences t o the entire Federal Reserve
collection system, nevertheless t h e matter had proeceded t o a point n o w when i t would b e difficult
for the Federal Reserve bank o f Richmond t o withdraw i t s suit.
Governor Seay. I
might add, Mr. Ohairman,
thet i f the Federal Reserve bank o f Richmond had
that disposition, t h e suit would b e carried o n by
others «
' Governor Young. M i n n e a p o l i s w o n a couple o f
suits o f that kind. I d e n t i c a l l y the same thing,
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Federal Reserve Bank of St. Louis
were they not, Mr. Geery?
Governor Geery. Y e s , o n all fours.
Governor Seay. M i g h t I say, for the informa+
tion of the Board, that a n agreement was reached between counsel for the Richmond bank and counsel for
the Board t o submit t h e matter t o the district judge
of the United S t a t e s Court u p o n t h e facts.
I t was
submitted a n d quite recently t h e district court de-+
cided against the Richmond bank. ‘ T h e court did not
hand down a written decision, but we are advised that
the Comptroller ' s O f f i c e h a s requested h i m t o
hand down e written decision and he i s now expected
to dothat.
T h e Rychmond bank i s going t o a@peal
the case.
It was also explained t o the Conference that
if the Comptroller had not ohanged his practice o f
acguiescing i n what t h e Richmond banks h a d dono thore-
tofore this suit never would have arisen, o r if he
had dono; it promptly i t never would have arisen;
but i t was
s
i
x months after the oocurrence
that the Richmond Bank was advised o f the attitude
of the Comptroller ' s office a n d after the member
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Federal Reserve Bank of St. Louis
419
bank h a d been advised o f the actian taken b y ths
Richmond bank.
S
o that there w a s n o help f o r
it o n the part o f the Richmond bank, b u t t o bring
the suit.
Governor Young. I
a m very much pleased with
the action o f the Governors with reference t o that,
because ifyou did not fight i t out with the Comptroller y o u would have t o fight i t out with your
own member bank, and you might just as well fight
it out a n d find o u t where y o u are,
Governor Seay. T h e r e i s another thing.
I ¢
was t h e opinion o f the officers o f the Richmond bank
and of our counsel, that there was nothing t o be
gained b y proceeding i n ignorance o f what t h e l a w
might be. W h a t e v e r i t is we want to face it.
The opinion o f the counsel o f the Richmond bank
and its officers was that the Rqchmond bank and
the System, ought t o know what t h e l a w i s o n the
matter a n d have i t adjudicated,
The Chairman. A p o t h e r Federal Reserve Soard
topic was I-A~4; Purchases and sales o f government
securities b y Federal Reserve Banks for their own
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Federal Reserve Bank of St. Louis
account apart f r o m the System account,
When t h e o p e n market committee w a s appointed
by the Federal Reserve Board i n March, 1925, i t was
agreed b y the Federal reserve banks that any purchases made b y the Committee a n d allocated t o the
banks should b e held b y the banks subject t o the
@ispesal o f the committees
T h e banks, however,
reserved their statutory rights under Section
14 t o make purchases a n d sales o f Government securities independently o f the committee.
T h e s e pur-~
chases, however, since 1 9 2 4 have b e e n negligible
and have been limited t o transactions with own member
banks .
It i s the view o f this conference that the Federal reserve banks should not, and e s a matter o f
fact d o not, work a t cross purposes with the Open
Market Committees a n d that n o substantial amounts
of Government obligations s h o u l d b e purchased b y
the reserve banks a t times w h e n i t i s the policy
of the committee t o sell such securities, n o r should
sales o f Government obligations b e made b y the reserve banks, except t o the committee, a t times when
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Federal Reserve Bank of St. Louis
421
it i s the policy o f the sommittee t o purchase
Government s e s u r i t i e s ,
Governor Young. J u s t why was thet limited
to substantial amounts?
The Chairman, I
think only because i t was
felt that occasionally a Federal Reserve Bank hag
occasion t o deal with i t s o w n member banks i n
comparatively insignificant amounts and should not
be prohibited from doing so, but that they would
consult t h e committee i f a n y considerable transastion was contemplated,
Governor Young.
O t h e r t h a n transactions i n -
volving t h e delivery o f securities, I
cannot s e e
any occasion f o r F R e s e r v e b a n k buying securities
from a member bank.
T h e y certainly would n o t b u y
them a t a less figure than the New York mrket
would offer, a n d if, b y a substantial amount, i s
meant a miliion dollars, eleven banks, i f they
did the same thing, would mean eleven million
dollars. ‘What the B o a r d hes observed frequently
has b e e n the System working a t cross ourrents w i t h
the O p e n Market I n v e s t m e n t Committee.
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Federal Reserve Bank of St. Louis
The Chairman. I
San Francisco b a n k ,
can only speak for the
but since t h e appointment
of this committee our transactions i n Government
securities have been limited t o transactions with
member banks and have been entirely negligible i n
amount .
Mr. Hamline
I s thet reservation that you
speak o f i n writing,’ that the banks still have the
right t o buy and sell ?
Governor Young» D e a l i n g with their o w
members, yes.
ment o
&
T h a t was i n the original agree-
s I remember I
for discussion a t &
think I brought t h i s u p
time) W e had developed quite
eadit of open market business i n our own institution out there. A
b
a
nn Fargo,
k
i
North Dakota,
sent i n @ hundred t h o u s a n d d o l l a r s w o r t h o f Gov-
ernment bonds and asked that they be sold. There
wasnt¢g o n e chance i n ten o f our selling those bonds
for delivery in Minneapolis, but they are sold for
delivery i n New York o r Chicago.
N o w , what I had
in mind was thet our bank up there would be permitted t o b u y those bonds a n d give credit t o the
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Federal Reserve Bank of St. Louis
423
Fargo B a n k immediately, pending deliveries
i n New
York, i n which operation the Minneapolis bank gets
e three d a y carry o n them, y o u see, b u t when y o u
buy from a member b a n k a n d hold permanently, w h a t
you are doing i s buying f r o m the N e w York Market.
There i s n o use trying t o figure i t out i n any
other w a y that I
can see.
Mre (G886. G o v e r n o r Young, having purchased that one hundred thousand dollars from the
Fargo bank, i f a bank i n Duluth wanted t o b u y that
one hundred thousand dollars, would you sell i t to
that bank?
Governor Young.
Minneapolis.
W
N o , w e evoided that i n
e thought there might b e some
come b a c k about n o t getting t h e m a satisfactory
prise, a n d all the transactions were p u t through
a dealer, e v e n i f w e h a d simultaneous orders t o
buy and sell.
W e permitted the dealer t o get that
1/32, o r whatever i t might be, simply because w e
wanted a record made o f i t s e there would b e n o
argument o r discussion ebout t h e transaction, I
sat down a n d figured o u t a t one time that w e could
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Federal Reserve Bank of St. Louis
424
possibly s w i t c h a
lot o f these transactions
i n our
own bank, get o n e a c h o n e o f them a sixty-fourth,
but that was a little bit dangerous, because a part
of the order would b e filled a t one price a n d 4 part
at another price and the explanation that would have
to g o t o the member b a n k was s u c h that would oause y o u
a lot o f trouble a n d lot o f work.
W e always a t e
tempted to handle them so that nobody could come back
and complain about t h e price a t all, a n d i f they did
we could s h o w the bids that w e h a d from s a y five
different dealers, showing that w e took the best
bid that was offered.
S
o that frequently i n Min--
neapolis w e have sold and bought within the hour.
The dealer o f course gets a thirty-second o r 4
sixty~fourth o r anything h e oan out o f it.
not d o i t for nothing. I
H e does
know thate
I would like t o discuss t h i s matter a little
further.
I f the System i s going out now and sell
securities, a n d i t seems t o be a very important
thing from the report that you a
t o us that
they do sell securities, I would/like t o see any
Federal R e s e r v e R a n k o f f s e t t h a t m o v e m e n t
a t this
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Federal Reserve Bank of St. Louis
425
time, I
donot think it is = case vhether they have
the right t o b u y o r not.
I t i s nothing b u t e question
of whether our open market committee i s the correct
thing o r not.
fhe Chairman.
I f the words "substantial apunts"
are eliminated i t would meet your position entirely,
I take it,
Governor Young, I
do not know,
I t might make
it worde.
the Chairman. I
mean eliminate the words
"that those substantial amounts of Government obligation".
Governor Young. I
think n o amount except
over the oounter transactions, such as I have «xplained, pending delivery,
that i n writing,
W e would n o t a s k f o r
I f that i s the understanding o f
the governors that i s sufficient for the Board.
The Chairman.
T h a t i s very clearly the under-
stending o f the governors, t h a t t h e y will n o t have
any considerable transaotions o f Government securities a t a n y time without omsultation w i t h the Committee.
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Federal Reserve Bank of St. Louis
Miller. H a v e there been ?
Chairman. I
Mr. O a s e .
think not.
N o n e this year.
Mr. Maller. I
do not mean necessarily this
yeer.
Governor Young.
I t has gone from seventy
million i n 1923 t o 121 million.»
Governor M g Dougal.
I n what length o f time,
Governor?
Governor Youngs S i n c e 1925.
Mr. Case. I p , the past year, 1927, i t wes
about 2 0 million.
The Ghairman.
A n d that i s made u p o f rela-
tively small amounts, i s i t not?
Governor Young. W e l l , i t is the aggregate o f
the small amounts which produces the total o f course.
The Chairman.
T
e n e x t topic o f the Board i s
TV@A-4, Desirabflity o f requiring member banks i n
Federal R e s e r v e B a n k a n d b r a n c h d a n k c i t i e s a n d i n
other cities designated b y the Federal Reserve Board
from time t o time t o calculate a n d adjust their t7ful
reserves d a i l y instead o f o n a n average semie-weekly
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Federal Reserve Bank of St. Louis
427
basis a s a t the present time.
I t has b e e n suggested
that s u c h requirement would b e found practicable,
so
fay as member banks are concerned, i f member banks
are p e r m i t t e d
t o compute t h e i r reserve requirements
for a given d a y o n the basis o f their deposits a t
the opening o f business,
I f this procedure w e r e
adopted, i t would, o f course, b e impossible t o
determine f r o m a bank's balance sheet f o r a single
dey o r from its quarterly condition report whether
or not the reserves o f the b a n k a s o f that d a y are
adequate.
I t is believed, however, that this i s
not a serious objection t o the suggested prodedure,
It was voted t o be the sense o f the Conference
that there should b e n o change i n the present m t h o d
of calculating a n d adjusting reserve balances o n a
semi-weekly basis i n view o f the relatively short
time w e have had of testing the effect o f the present method.
Governor Young,
The Chairman.
W a s that a unanimous vote?
T h e opinion o f the Conference
was t h a t i t was undesirable t o make frequent changes
in adjustment o f the reserves.
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Federal Reserve Bank of St. Louis
428
W
Governor Y o u n g »
already o n that,
rether t h a n a
e have h a d s m e complaints
T h e banks prefer a dally basis
s e m i - w e e k l y basis.
T h e majority o f
the Board thought i n November that t h e daily basis
was the proper way t o handle it, but rather than
approach i t too drastically t h e y deeided o n the
basis o f twice a week.
think i t is correct t o say
The Ghairman. I
that £t wes the consensus o f opinion of the Goverhors that adjustment o n a daily basis was most desi-~rable and would b e more satisfactory t o the reserve
oity and branch reserve city banks.
Governor Young., B y t this i s n o t the opportune
time ?
The C h a i r m a n .
B u t that this change h a s b e e n
so recently made that i t was undesirable t o m e ke
another change a t the present timee I
think that
is a correét statement.
Governor Young.
B u t nobody objects t o the daily
basis eventually?»
Mr. C a s e , Y o u mean that would b e just for the
larger banks, a n d not for the country banks?
Governor Young.
N o t for the sountry bankse
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Federal Reserve Bank of St. Louis
They are still o n the t w o weeks basis,
My. Cases. I
think Governor Calkins has
really expressed t h e view o f the Conference o n
that ¢
Governor Y o u n g ,
I t i s desirable, b u t this
is not t h e opportune time,
The GQhairmans M a i n l y beoause o f the fast that
this change has been s o recently made.
The next topic o f the Board i s IV-A-5, uhder
operation and administrationg Advisability o f forp
mulating a
rectors
program o f advising a l l member bank di-
a s s o o n a s possibie
o f their legal respon-
sibilitges individually arising out o f non-compliance
with reserve requirements o f Federal R e s e r v e A , t o n
part o f their respective banks,
It was voted t o b e the sense o f the Conference
that 1 t would b e inadvisable t o adopt a
which would contemplate < q n d i n g
program
c i r c u l a r no=
tice t o advise t h e individual directors o f all 9,000
member banks o f the Federal Reserve System of what
purports t o be their legal liability for per-«
mitting their bank o r banks o f which they are die
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Federal Reserve Bank of St. Louis
430
rectors, t o become deficient i n their reserves, i t
being the opinion o f the C o n f e r e n c e t h a t such a
course would subject the System t o serious oriticism a n d t h a t t h e m a t t e r
i s one which should pro-
perly b e left t o the discretion o f each Federal
in
Reserve Bank, as at present, t o be take up/individuel paces w h e r e t h e circumstances warrant.
I think the feeling t h e r e w a s t h a t i f you no-
tify all o f the bank directors o f all o f the banks
of the country at the same time you would cause
apprehension, discussion and misunderstanding,
and that generally speaking - - I do not know whether
there were any exceptions - - the matter has been
satisfactorily handled without that..
Governor Young. W e l l , the exceptions would
be i n wheat eases 7 ? T h o s e cases o f banks t h a t
had been deficient continuously?
The Chairman.
T h e Board, es I recall, set
up a n outline o f the precedure t o b e followed i n
cases where banks have b e e n deficient consistently
and that program has b e e n a t lease initiated i n
many cases.
T n our own case w e have had for several
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Federal Reserve Bank of St. Louis
431]
years ® regularly followed program which involved
approaching t h e matter first through t h e officers
of the bank, second getting a resolution adopted
by the direetors o f the Bank, a n d i t contemplated
individual advice o f the direotors i f it became
necessary.
W
e thought t h a t procedure w a s suffi-
client.
Governor Young. Y e s , i n those cases, but how
about t h e bank that runs short t w o days a n d makes
it u p o n the third day?
The Cha irman.
A n d the directors have never
heard o f it.
Governor Y o u n g .
A n d the directors n e v e r know
anything about it.
The Chairman.
T h e y are presumed t o know a t
81} banks.
Governor Harding. I
may s a y f o r the Boston
bank that w e h a d a case o f that sort a n d the directors w e r e n o t i f i e d .
Governor Young.
D o all o f the reserve banks
do that?
Governor Harding.
I t was a chronic case
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Federal Reserve Bank of St. Louis
where t h e y made a
habit o f doing it.
Governor Young.
What I
have i n mind i s that,
instead o f running short i n their reserves, these
banks would run a little b i t over, i f the directors
really knew what liability they had under the law,
have been informed Hhat
or probable liability. I
one large N e w Y o r k bank has already taken some
aotion along that line, Mr. Harrison, a n d i t has
been very effective, has i t not?
Q u i t e effective, yes.
Mr. Harrison.
Mr. C a s e .
A s a matter o f fact, t h e y d o not
adhere t o i t a t all times.
T h e y r u n along f o r
quite a period under that program, b u t occasionally
they have been quite a bit below and average u p a8
the other banks do.
Governor Young. I
will put i t the other way.
If anybody around this table were a director i n a
member bank, under the law as i t is a s present,
what would b e your position a s a member o f the
board o f directors o f that bank? I
mine would be. I
know what
would have a resolution passed
benk
that any officer who permitted the raserve o f that
to run low would b e out o f a job, that i s all.
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Federal Reserve Bank of St. Louis
The Chairman.
Y o u m e m consistently?
Governor Young. N o , a t any time, I
know
a director o f one large bank who has already taken
that action.
The Chairman. I
think that would b e very dif-
ficult t o enforce w h e n a bank was merely deficient
for a short time, f o r a few days during theperiod i n
which t h e y were permitted t o make adjustment, w h e n
they r u n l o w f o r three days a n d @rry excess reserves
for three moree T h a t i s legitimate, i s i t not?
Governor Young. N o , not under the law,
Governor MoDougeal. N o t under the law, but
as a matter o f fact t h e fixing o f the period a s
semi-weekly g i v e s t h e m t h e p r i v i l e g e
an average reserve
Governor Young.
o f maintaining
o v e r those three days.
T h a t h a s reference
t o pen-
alties, a n d nething else.» I t has n o reference t o
the law.
The Chairman,
A n d hes n o reference t o the
liability o f the directors.
Governor Young.
N o t a bit.
Governor M c D o u g a l .
N o one knows better than
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Federal Reserve Bank of St. Louis
434
you d o that 1 t i s impossible f o r a bank, a t 2 otolook
to k n o w w h a t i t s r e s e r v e r e q u i r e m e n t s a r e g o i n g t o
ve
Governor Young.
T h a t i s true, but the re-
sult would b e that t h e banks would carry excess Pree
serves with the System, rather than just the exact
amount. |
My. James. W h a t would happen if you take the
deposits a t the opening o f the business for the day
as a basis for caloulating your resorve?
Governor MgDougal.
Mpe James.
T h a t would b e very helpful.
W h e r e could there b e a n y exouse O n
earth under those circumstances ?
The Chairman.
T h e r e probably would be n o ox-
cuse, except i n some cases where i t was beyond t h e
power o f the bank t o adjust its reserve, a n d i t
would just have t o take the penalty imposed.
Mr. James, T h a t i s where the directors are out
of luck, amyhow.
The Chairman.
Yes
Governor Harding.
I ¢ seems t o me that i f all
the m e m b e r b a n k s w e r e n a t i o n e l b a n k s
i t would b e
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Federal Reserve Bank of St. Louis
435
clearly within t h e province o f the Comptroller t o
issue this notice a n d send i t out t o the direstors,
We have some State benks i n the Systeme w h y is it
not the province of the Federal Reserve Board t o
get out its ovn circular and send out a bunoh of”
them with some franked envelopes, find the address
of the various directors a n d mail i t to them.
Ie
it comes from the Board and not from the individual
bank I thinkt
i will b
e more effective.
Governor “Younge T h a t wae the plan, t o have
the Gomptroller send out notices t o the National
banks a n d the B o a r d t o t h e State banks.
"+ “Governor Harding.
I f you will send them t o u s
wewill be gled to send them out, if you will send
along the franked envelopes.
Governor Seay.
I r the reserves w e r e oalculated
upon the basis o f the deposits a t the opening o f the
day, i
n point of fact a bank might nevertheless be
deficient i n its reserve a t the o n e o f the day.
Governor Young.
Mr. James.
T h a t i s true.
T h a t i s the point exactly.
Governor S e a y .
A n d t h e next morning correct
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Federal Reserve Bank of St. Louis
Mr. James. E x c e p t that they deliverately
do it and take the benefit o f this ability t o switch
the balances between banks o n average days. T p e r e
are g o o d many selaries made b y the manipulation o f
the reserve balances.
Governor Seay.
T h e y would still b e subject
to the operations o f the law, nevertheless.
Governor Young. I
been a t fault.
W
think maybe the Board has
e put out these penalty require-
ments and made them reasonable with the result that
the great majority o f the banks f e e l that
t h e y
are complying with the law i f they comply with their
penalty requirements»
Governor McDougal. I
think, Governor Young,
that the great majority o f the banks believe that
they a r e d o i n g t h e i r p a r t i f t h e y m a i n t a i n t h e i r
reserves f o r the period involved o n a n average.
Governor Young. I
think so, b u t legally t h e y
are note
Governor M c D o u g a l .
I f you are going t o deal
with i t from a legal standpoint, I think i t has been
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Federal Reserve Bank of St. Louis
457
clearly decided that banks were required t o maintain
their reserve each day, and i f the B o a r d should de~
termine t o act o n that basis, there would b e nothing
to d o but p u t t h e m o n a daily basis.
Mr. Jamese
O n what other basis could the Board
aot, Governor McDougal ?
Governor MgDougal. I
do not know,
Vice~ Governor P l a t t .
I ¢ would have t o b e done
with the country banks a s well a s the oity banks, i t
seems t o me, 5 0 far as the law goes,
Governor Young.
W e would have t o put i t o n
everybody s o far a s t h e l a w i s concerned,
Vice-Governor Platt. I
has ever been c a n n a
o t e
do not believe the law
G i r e c t o r would b e held
reeponsible i f they maintained a n average reserve.
There has never been a decision o n that, has there?
GovernovrYoung.
T h e r e a r e some l a w suits o n
it now.
V4ce* Governor Platt. I
know, but the thing
has g o t t o b e fixed s o that i t c a n b e worked p r a c -
tioally. I
think i t would b e impossible t o obtain
a literal e n f o r c e m e n t
o f it.
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Federal Reserve Bank of St. Louis
458
Mr. Harrison.
T h e necessary corellary t o
that i s that i f a bank avails itself o f the opportunity t h e Reserve B o a r d has properly given it, s o
far as the law i s concerned, amlaverages its reserve
and falls below one day, the technical construction
of the law is that they must not d o business that
day i n the way o f making loans.
Governor H a r d i n g . I
do not k n o w what t h e prac-
tice i s now, bat I know for a number o f years when
the Natfonal bank examiner made a report o f examination o f a bank be made a statement a s to what the
average reserve o f that b a n k h a d been f o r the past
thirty days.
Governor Nerris. I
rectly o r not, I
amadvised, whether cor-
d o not know, t h a t t h e Comptroller's
question t o the National bank i s not how many days
haeye you been deficient i n your reserves, b u t i s
how many times havo y o u been penalized.
N o w if
it 1s desirous t o make every Nationel bank live u p
to its reserve requirement e v e r y day, i t would s e e m
to that i t would b e advisable f o r the Comptroller t o
ghange t h a t prastice.
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Federal Reserve Bank of St. Louis
459°
The CGhairmans
T h e r e i s n o guestion b u t what
it is a general belief o f bankers that i f they comply with the average sserve requirements t h a t t h e y
have complied w i t h t h e law.
T h e re would also b e some i n -
3 G o v e r n o r Seay.
consistency i n the situation,
; weekly period
i f the Board provided
o r a two weekly preiod f o r t h e maine
tenance o f the average reserve, a n d then undertook
to advise the a h estore that nevertheless they were
legally responsible.,
T h e directors w e e s s a y then
why don't y o u require t h e bank t o modntain i t s reserve daily.
O f course I
understand thereis a
difference between the effect o f the law as t o lia-
bility of directors end the maintenance of reserve,
but I think the dimetors m e r s well take the; position - - nit s u c h u e the case w h y don't y o u require
us o r rather t o yoottive o u r banks t o maintain their
p r e
daily?
Mr. Miller...
G a n a member b a n k know each day
just e x a c t l y w h a t i t s r e s e r v e p o s i t i o n i s ?
Governor Seay. I t cannot, sir,
Mr. James.
I t c a n i n the morning.
I ¢ they take
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Federal Reserve Bank of St. Louis
440
h a ve
an analysis i n the morning t h e y know what t h e y
to have for the daye
Mr. Miller.
T h e y know what they hate t o have,
ld
what their liabilities are and what the reserve hou
have
be, but d o they know the actual gredit that they
on the books o f the reserve banks?
Governor Harding.
‘Tyat depends o n the regular-
ity o f t h e m a i l s .
Mr. Miller. I
had supposed that that was a t
schedule.
the f o u n d a t i o n o f this s o - c a l l e d t i m e
Mr. James.
T h a t i s the reason for the schedule,
exactly.
Governor Young.
I f they could arrive a t a n 68-
per cent
timate within 10 per cent, they could have 10
in excess and not below.
Governor MgDougal.
T r e y are é n exactly the
banks a r e e
same position that t h e Federal reserve
hot know
While the bank closes a t 2 o'glock, they d o
until w e get
until t h e books have b e e n made u p and
the statement the next morning where w e APG.
I t is
the same w a y with the other banks,
Mr. James.
B u t they know the next morning.
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Federal Reserve Bank of St. Louis
44)
t
Governor Young.
I n Mgnneapolis, when P M ue re
borrowing money i t cost 1 0 per cent, a n d w e paid
$3,600 a year t o one man to spend the @y going through
the bank, and if he could guess within $500,000 we
figured t h a t h e w a s d o i n g a
good d a y ' s w o r k .
B u t we
always had t o guess over and never below.
Governor Seay.
I f the banks were permitted t o
base reserve requirements u p o n deposits o f the pre-
vious day, nevertheless there will have t o be a period
of adjustment because during the d a y a t a n y time a
bank might b e deficient every day, i n the maintenance
of its reserves,
Mr. James«
A n y bank that i s located i n a city
in which the Reserve bank o r branch is located can
adjust itself b y going t o the Reserve b a n k that day,
can i t not?
T , e facilities a r e prepared a n d pro-
vided t o take care o f those requirements a n y tims
during a business d a y i n those cittles.
Governor Seay.
T h e r e would b e some practical
difficulties because t h e banks might receive @
quest f r o m its member banks t o make a
transfer
P6~
very large
a t t h e v e r y c l o s e o f business.
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Federal Reserve Bank of St. Louis
442
Mr. James.
A l l right.
I f has g o t time t o g o
over t o t h e Reserve b a n k o r t o get word t o the R e serve b a n k t o make t h e transfer i t also has g o t time
to g o t o the Reserve b a n k a n d borrow some money.
Governor Seay. Y o s e
Mr. James.
S o that doesn't g e t y o u anywhere,
Governor Seay. B , t you have t o make a list a
yard long.
Mr. James.
A l l right, l e t them make it.
Governor Seay.
A n d y o u could n o t g e t that t o
the Reserve b a n k within a couple o f hours.
Mr. James,
B u t the Reserve bank does not
close that s o o n . I
know that much.
T h e y stay
open long enough t o transact business.
Vice-Governor P l a t t .
Suppose a
bank with
$100,000 deposits i n a 10 per cent town receives,
near the close of business, another $100,000 in
deposits, i t is very short i n ita reserve.
H o w is
.1t going t o make i t up?
Mr. James.
B u t that don't happen often.
Vice-Governor Platt. I
have given a n extreme
ease, b u t suppose i t happens. S u p p o s e i t receives
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Federal Reserve Bank of St. Louis
$10,000 1% would be short a thousand dollars.
T h e n let u s g o to Congress
Governor Young.
and tell t h e m that f r o m a practical standpoint t h e
lew i s not right a t the present time, and t o put i t
on the average basis.
Mr. Miller.
H o w would t h e member bank compute
its reserve?
Governor Young. B e f o r e i t closes i t s books?
Mr. Miller. N o , when i t closes its books for
the daye
I f you are going t o enforce,
w e will say,
strict compliance with the law, with regard t o the
liability o f directors, h o w would i t know?
The Chairman.
I n connection with what Mr. James
has said, there i s a n inevitable period somewhere
during the day when the bank i s liable t o b e deficient i n its reserve a n d yet utterly unable t o avoid
being deficient.
I n the k i n d o f instance t h a t Mr.
James refers t o there i s a time that would elapse
between the moment a t whieh t h e bank discovered that
ita reserve was deficient, a n d the time when i t segured the oredit o f the Federal Raseerve bank b y
re-discount o r transfer,
i t would have b e e n defi-
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Federal Reserve Bank of St. Louis
444
cient,
a n d that illustrates t h e f a c t t h a t i t i s not
physically possible t o prevent it.
Mr. Miller.
S u p p o s e there i s n o deficiency
which requires re-discount, w e will say, but the bank,
has, a t the close o f the day, a lot o f oash items
that have not yet actually been received b y the Reserve
bank and credited i n its reserve account?
point o f view its reserve i s adequate,
F r o m ite
i s i t not?
They are i n the mails?
Governor Y o u n g e N o e
Mr. Miller.
T h e n h o w e a n i t know.
Governor Young. F r o m ita time schedules.
Mre Miller.
T h e n i t would compute i t s reserve - -
The Chairman.
‘ O n the basis o f the assumption
that c r e d i t w a s m a d e a t t h e t i m e t h e s c h e d u l e s a y s i t
was made.
Mr. James.
T h e y are made, a s a matter o f fact,
ere t h e y n o t ?
Vqce-Governor Platt.
h e n i t comes d o w n t o the
question o f whether the time schedule i s legal, doesnt
it?
Governor Seay. A
bank may be considerably i n
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Federal Reserve Bank of St. Louis
445°:
excess a n d i t i s too late t o transfer i t - Mr. James.
T h a t i s the time that t h e b o y who
has charge o f i t gets hell.
Governor Seay.
B y t there i s a fixed time u p t o
which t h e b a n k m a y receive a n d make transfers.
Now,
if it should discover a t that hour - - I do not care
how much hell h e was going t o get - - if he had a n
excess, there would b e nothing h e could d o
Mr. James. N o , they would just b e out o f luck
to that extent.
T h e y would lose their earnings o n
their money f o r that hour,
The C h a i r m a n .
I + appears t o m e that the regu-
lation a n d ruling s e t u p b y the Board permitting banks
n
i
to adjust their reserves “ t semi-weekly p e r i o d s , evitably r a i s e s t h e a s s u m p t i o n t h a t b y d o i n g t h a t
they have met the requirements o f the law.
H o w
‘gan i t b e interpreted otherwise?
Governor Young. V e l l , i t is not being interpreted correctly then.
The Chairman.
I n so far as the legal liability
4s concerned, certainly not.
Governor S e a y .
T h e r e i s this difference,
they
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Federal Reserve Bank of St. Louis
446
have m e t the requirements o f the l a w but they have
not avoided legal responsibility which attaches t o
them under the l a w -- that is, the directors have
not. T h a t i s the difference a s I see ite
Governor Young. I
think the law ought t o be
amended, from a practical standpoint because i t does
not s e e m that i t c a n b e enforced.
The Chairman.
I f the law means that the bank
must carry a reserve a t all times, every hour and
every month o f the day, i t i s impracticable,
it
cannot b e done.
Mr. Hamlin.
T h e n it must d o s o at 1 0 o',lock,
11 o'clock, 1 2 otclock and s o forth - Governor Young.
H o w about a daily basis?
Governor McDougal.
T h e law contemplates that
the banks has t o carry a reserve f o r today based upon
its showing a e of today they gannot b e accuhate b y
teking a statement o f tomorrow morning a s a guide,
because they will b e a day behind all the time.
Governor Young.
T h a t i s true» C e r t a i n l y
the most liberal interpretation y o u could p u t o n
the law is that they have the legal reserve a t the
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Federal Reserve Bank of St. Louis
@lose o f business e v e r y night.
Mre C a s e .
J y s t take t h e language o f the l a w
itself and it is practically impossible of fulftllme nto
T h e l a w says ‘ s
"the required balance carried b y a member bank
with a Federal reserve bank may, under the regulations a n d s u b j e c t f
o such p e n a l t i e s s
a may b e pre-
soribed for the Federal Reserve Board, b e checked
against a n d withdrawn b y such member banks f o r the
purpose o f meeting existing liabilities”. I
take
it that i s what goes o n all d a y and, a s Mr. Hamlin
says, every hour. T h e n i t goes o n to say "Provided,
Howover, that n o bank shall a t any time make new
loans o r shall p a y a n y @ividends unless a n é untill
the total balance required b y law is fully restored,"
Every b a n k i n the country i s riding along with the
reserve requirements possibly and presumably below
that a t some hour o f the days
“Governor Young.
I f there are 90,000 directors
or 60,000 o r 50,000 o b whatever t h e number is, fully
59,000 o f them do not suede anything about this, I t
seems t o m e something ought t o b e done about i t e
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Federal Reserve Bank of St. Louis
448
We ought t o recommend t o Congrees o r to some~
hody t o make a regulation s o that the directors
would know about it.
O r else w e should g o t o Congress
and tell them from a practical standpoint t h i s oannot
be enforced and get some modification o f i t or changs
in it.
Governor Seay. ‘ T h e r e i s this much t o say,
perhaps, Governor Young, that if that law were con~strued i n the courts i t would b e construed i n the
light o f reason.
The Chairman.
A n d I think there i s this much
further to say, and that is C E o s calculetion of
the reserve i s put upon a daily basis then i f a bank
undertakes t o compute its reserve a s o f its cond t+
tion a t the beginning o f the day's business and carry
e reserve t o cover thet situation y o u c a n hardly oonr
ceive o f any closer compliance with the law that
would b e possible,
I t cannot compute its reserves
at t e n o r elewen o r twelve o',lock overy day, a s
Mr. Hamlin has pointed out.
Vice-Governor P l a t t .
L a w i s only a
statement
of
policy anyhow a n d would never b e construed a s rigidly
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Federal Reserve Bank of St. Louis
as suggested, I
do not believe.
Governor Y o u n g s Y e t t h e r e are several lawsits
ebout that now,
The Ghairman.
T h e next topic b y the Federal
Reserve Board i s IV-A+6, Desirability o f revising
present l i s t o f reserve cities a n d inéluding i n list
certain cities n o t n o w s o designated which are within
@ short distance o f a Federal Reserve B a n k o r branch
city and other cities i n which a large volume o f bank
deposits a r e carried.
In view o f the fact that i t was t h e sense o f
the Conference t h a t changes i n the l a w affectingthe
reserves o f member banks, shonld b e made a s infrequently a s possible, a n d that constant changes should
beavoided, i t was voted that n o action should be
taken t o r e v i s e t h e p r e s e n t l i s t o f r e s e r v e c i t i e s
unless o r until t h e whole subject o f reserves i s
eiven further consideration with a view of providing
for all o f the present inconsistencies.
Now, that seems t o b e pretty completely tied i n
with the next topic, which i s the most important one
that w e h a v e h a d t o discusss.
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Federal Reserve Bank of St. Louis
450
Governor Y o u n g .
Te Chairman.
T h e n let’s g o t o the next one.
T h e next one i s IV-A-7, Desira
bility o f recommending legislation amending Seo-
tion 1 9 of Federal Reserve f e t relating t o required
reserves
o f member banks a n d o f writing
i y
a e
a complete definition (along lines o f the Board's
Regulation D) of what constitutes savings and other
time deposits. .
I think i t was t h e feeling o f practically a l l
of the Governors present that they were not as fully
prepared t o disouss that very important, a n d quite
voluminous suggestion a s they would like t o be.
I n
my own case the letter i n which i t came did not arrive fin 8an F r a n c i s c o until after I
I did not see i t until I
obviously means that I
nity t o examine it.
had left, a n d
got t o Washington. T h a t
have h a d n o adequate oppertu-
o
I t was, however, the s u b j e c tf
very careful examinetibn a t the Conference a n d the
Conference voted as follows;
While t h e Conference w a s o f the opinion that i t
would b e inadvisable a t the present time t o seek
legislation amending the Reserve provisions o f the
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Federal Reserve Bank of St. Louis
451
Federal Reserve Act, nevertheless i t was voted t o
express t o the Federal Reserve B o a r d t h e individual
Opinions o f the Governors present, w i t h respect t o
the terms of the bill submitted by the Federal Rer
forve Board a s a proposed amendment t o Section 1 9
of the Federal Reserve A c t .
The action o f the Gonference i s noted, and [I
oan give y o u t h e action o f the Conference o n each
clause, i f you wish t o hear it.
Section 19, Bank Reserves, T h e term "demand
deposits” within the meaning of this Act shell include all deposits o f publis moneys o f the United
States, all certified checks, cashier * s checks,
treasurer '!g checks, demand letters o f credit,
traveller ‘ s checks outstanding, a n d all other deposits e x c e p t t i m e d e p o s i t s a n d b a n k d e p o s i t s
as
hereinafter defined.
That was approved b y all.
The next paregraphy;
T h e term "time deposits"
within t h e meaning o f this A e t shall include a l l
“savings adcounts”, "sime certifi¢ates o f deposit",
"postal savings deposits", and "open account time
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Federal Reserve Bank of St. Louis
452
deposits" a s hereinafter. defined, except that. whenever, b y the lapse o f time o f the giving of notice
of a n intended withdrawal, savings accounts, time
certificates o f deposit and open account time deposits
become payable i n less than thirty days, said deposits
shall b e considered demand deposits:
The term "“savines Accounts” shall mean deposits
of individuals a n d religious, charitable o r similar
corporations,
That was approved b y vote o f eight t o four,
The disagreement generally, I should say, was with
the use o f the words “shail mean™ instead o f “shall
belimited to” or "restricted", and failure to include t n the same firms a s wel} a s individuals,
It then proceeds:
In respect t o w h i c h #
(1) A
pass book, certificate o r other similar
form o f receipt, delivered t o and retained b y the
depositor o r his assignee, m u s t actually b e presented t o the bank whenever a
withdrawal i s made;
(2) T h e depositor o r his assignee may at any
time b e required b y the bank t o give notice o f a n
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Federal Reserve Bank of St. Louis
453
intended withdrawl n o t less t h a n thirty days b e ~
fore a eihdrewa) is made; and:
(3) T h e bank's Paawees regulations, accepted
“ee the depositor inalude the above requirements.
That was approved, along with the finst para-
graph read, necessarily by eight, and disapproved
by four.
Further: D e p o s i t s which a r e permitted t o b e
withdrawn b y oheok o r otherwise, without the actual
presentation o f the pass book, certificate, o r other
gimilan form of receipt whenever a withdrawal i s
mede , shall not be considered Nepvidad ncaeinte®
within the meaning o f this act.
T h e retention o f
the pass book, ‘certificate o r othe r similar form of
raaotpt or, a duplicate
o f same,
officer, agent o r employee
b y the b a n k o r b y a n
o i d )
a n d the presen-
tation o f same b y the bank, o r b y an officer, agent
an employee thereof, shall n o t b e considered a n sais
ciled ‘gewleuanrién within t h e meaning o f this aat,
A&A deposit made b y one bank i n another o r a deposit’
of a business c o r p o r a t i o n . r
o fiam ebeld n d e i n any
case b e considered a "savings account" within the
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Federal Reserve Bank of St. Louis
meaning o f this acts
The same vote, eight approving a n d four disapproving.
T h e objection o n the part o f the four
I think was generally the failure t o inolude firms,
and perhaps i n some cases corporations.
The next provision is:
The term "time oertificate o f deposit " shall
mean a deposit evidenced b y written instrument delivered t o and retained b y the depositor evidencing
the deposit with a bank, either with or without in=
terest, o f a certain sum specified o n the face o f
the eertificate, payable i n whole o r in part to the
depositor o r o n his order-
(1) O n a certain date, specified on the ertificate, more than thirty days after the date o f the
deposit;
or
(2) A f t e r the lapse of a certein time subsequent
to the date o f the certificate,
i n no case less than
thirty days; o r
(3) A f t e r written notice which the bank may
at its option require t o b e given a certain specified
number o f days, n o t less t h a n thirty days before t h e
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Federal Reserve Bank of St. Louis
date o f repayment; a n d
(4)
I n all cases o n l y upon t h e astual pre-
sentation of the certificate a t each withdrawal
for proper endorsement o r surrender.
All that I
have r e a d last was agreed t o b y
all members o f the Conference.
Further; T h e retention o f the certificate, o r
a duplicate o f same, b y the b a n k o r b y a n officer,
agent o r employee thereof, a n d t h e presentation o f
game b y the bank o r b y a n officer, agent o r employes
thereof shall n o t b e considered a n actual presenta-
tion within the meaning o f this act. A
deposit
made b y one bank i n another shall n o t i n any case
beconsidered a "time certificate o f deposit" within
the meaning o f this act.
The term "postal savings deposits” a s used i n
this a c t s h a l l m e a n d e p o s d t s
o f postal savings funds
in banks under the terms o f the postaj savings a c t
approved June 25, 1919, a s amended.
To which t w o provisions a l l agreed.
Further:
T h e term "open account time deposits"
as used i n this act shall mean deposits not evidenced
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Federal Reserve Bank of St. Louis
456
by certificates o f deposit o f savings pass books,
in respect t o which a written contract i s entered
into with the depositor a t the time the deposit i s
made p r o v i d i n g t h a t n e i t h e r t h e w h o l e o r a n y p a r t
of any such deposit m a y b e withdrawn,
b y check o r
otherwise, except o n a given date, more than thirty
days after the date o f the deposit, o r on written
notice which must be given b y the depositor a dere
tain specified number o f days i n advance, i n n o
case less than thirty days.
I n order for deposits
to be classified e e “open account time deposits”
the bank i n which such deposits are made must 406«
tually require s u c h written notice before permitting
withdrawals t o be made»
The term “bank deposits" shall include all depositsbalances d u e t o other banks, bankers, a n d
foreign
trust companies i n the United S t a t e s a n d
countries.
come
Every bank, banking association, a n d trust
Fedpany which i s o r which decomes & member o f any
@
eral reserve bank shall establish and maintain
with
reserve consisting o f an actual net balance
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Federal Reserve Bank of St. Louis
457
the Fedisral reserfe b a n k
o f its district equal
to not less t h a n thirteen p e r centum o f the aggregefpe a m o u n t
o f i t s b a n k deposits, t h r e e p e r c e n t u m
of the aggregate amount o f its time deposits, a n d
the following p e r centum o f the aggregate amount
of its n e t demand deposits;
Banks i n central reserve cities, 1 5 per centum;
Banka i n reserve cities, 9 per centum; and
Other banks, 7 per centum.
It was moved that this b e amended b y the suggestion o f 1 0 per cent i n place o f 9 per cent f o r
banks i n reserve cities,
The vote o n that was seven against t h e amendment
and five i n favor o f it.
Further;
Provided, However, That, upon the affirmative
vote o f five members o f the Federal Reserve Board,
any bank located i n a n outlying district o f a central reserve c i t y m a y b e permitted t o maintein a reserve b a l a n c e e q u a l
t o n o t l e s s t h a h s e v e n o r nine
per centum o f its n e t demand deposits, a n d a n y b a nk
located i n a n outlying district o f a reserve c i t y
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Federal Reserve Bank of St. Louis
458
may b e permitted t o maintain a
m s e r v e balance
equal t o not leas t h a n seven p e r centum o f its
net demand deposits; A n d Provided Further, that,
in computing t h e amounts o f net demand deposits
against which reserves must b e maintajned, a l l
member banks may deduct from the amount o f their
gross demand deposits, all balances due t o them from
other banks (except Federal resorve banks and f o r
eign banks), all cash items deposited b y them with
Federal r e s e r v e b a n k s a n d o t h e r b a n k s
i n process
of collection, a l l exchanges f o r the clearing
house, a n d al} checks i n other banks i n the same
place.
That was amended b y unanimous vote, b y the
elimination o f the words "and other banks", s o
that i t would read; “all member banks m a y deduct
from the sount o f their gross demand deposits, all
balences d u e them, a l l cash items deposited b y them
with the Federal reserve banks and other banks i n
process o f collection, a l l exchanges f o r the cle ar~
ing house, and all checks i n other banks i n the same
place ¢
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Federal Reserve Bank of St. Louis
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Further:
T h e Federal Reserve Board shall
have authority t o presoribe regulations governing
the maintenance o f the reserves required b y this
section and further defining the various classes
of deposits herein mentioned.
That was agreed t o b y alle
The remaining three paragraphs are simply a
repetition o f the provisions o f the l a w a s t h e y
exist a t present, a n d o f course they were agreed t o
by all present.
Mr. Miller.
W a s any consideration given t o the
effect o f those changes i f they were made?
Tye Chairman.
Y o u mean changes i n the reserve
requ irements?
Mr, Miller, N o , i n the definition o f the so«
called time a n d savings deposits.
The Chairmen. I
think thet the members o f the
Conference h a d considered the memorandum that was
attached t o this letter, Mr. S m e a d ' s memorandum.
Mr. Miller.
F o r instanoe, what would be the
effect o f exdluding t h e deposits o f firms a n d business
corporations?
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Federal Reserve Bank of St. Louis
460
Governor Y o u n g e
T h e y would merely switoh
them over t o time deposits and the barks would
not b e permitted t o lend a s much o n real estate.
As far as the reserve i s concerned i t will b e the
game situetion when you classify them as savings
deposits o r time deposits.
T h e reserve requ ire-
ments are the same o n both»
Mr. Miller.
T h a t would practically destroy
benking b y mail, s o f a r a s so-called savings depo~
sits are conoerned.
Te Cheirman.
T h a t would very seriously in~
terfere w i t h it.
My. Miller.
I z would mean ea violent disloca-
tion and distributio n of deposits.
I t would mean
that a man has got t o bank, s o t o speak, next door
to where h e sleeps.
Governor Younge W i t h regard t o presentation
of the pass book, i f he sends i t by mail personally
with e draft, and aske for a draft o n New York i n
return, t h a t certainly would b e considered personal
presentation»
The Chairman. A c c o m p a n i e d b y the pass pook?
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Federal Reserve Bank of St. Louis
Governor Young. Y e s .
The Chairman. I
wuld think s o b u t that would
interfere w i t h the facility o f the transaction.
It
would necessitate sending the pass book through
‘the mail, a t slight risk, o f course, a n d would
necessitate considerable time.
Mr. Miller.
W e do. not want t o overlook, a n d
I think w e ought not: to overlook i n discussions
of this kind, t h e facets which are factors.
i t
does not matter what w e think ebout them, i f they
are pretty thoroughly ingraincd, S a v i n g s banks o r
institutions that have savings accounts o f high
standing a l l o v e r t h s c o u n t r y a r e p a y i n g r a t e s o f
return, perhaps t h e t t h e y ought n o t to, but: they
are paying ratrs o f returns t h a t l o o k pretty attractive a t the present time, a s compared w i t h
interest upon securities o f good character, bonds
or high class equities.
Y o u have i n m y mind,
competition with all the deposits o f
what I call & deposit
4 n - t h e market,
t
in
h is kind
I f you
drive t h e m out o f the banks y o u drive: them. into
the market.
T h a t is, they are going where they
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Federal Reserve Bank of St. Louis
462
Gan be loaned o n call. Personally I think i t
would b e interesting t o have the figures showing the
amount o f money loaned b y corporations a n d s o forth
on calle
Governor Young.
V i e have pretty accurate knowl+
edge o f it, have w e not.
Mp. Millers I
presume so.
B u t you cannot
effect a salutary bank c h a n g e b y simply setting
up a physical obstruction, s u c h a s & requirement
about t h e pass books t o b e paeesented i n persone
We have gotten beyond that.
The Chairman.
Y o u can interfere very seriously
with the facilities offered b y banks for doing that
sort o f thing.
Governor Seayse B a t you can also make i t less
easy t o evade t h e law.
Mr.» Miller.
T h e lew, I suppose, i s mot a n
object i n itself b u t i t i s f o r the purpose o f sécuring c e r t a i n c o n d i t i o n s t h a t a r e t h o u g h t t o b e
desirable «
B u t the l a w may defeat t h e v e r y purpose
for which the law was set up, through a change i n
the habits a n d customs o f the community a n d ideas
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Federal Reserve Bank of St. Louis
of convenience. I
am aware all the time that
things that I thought convenient fifteen o r twenty
years a g o a r e extremely inconvenient now; that w e
have o n the whole a very comfortable, and, i f you
please, leasurely way o f transacting certain business
by a mere scratch o f the p e n o r the mere u s e o f a telephone o r a telegram.
S o that I
think the problem
is one that has got t o be studied more analytically
with a view t o its effects. I
am conscious all the
time in my own mind, because of its very convenience
service
through the mails the / I get from a New York connection.
T o me i t explains w h y there i s a constant,
steady trend t o d o a banking business where I
have
a choice, a n d t h e choice i s growing 2 1 1 t h e while
toward the banks i n New Y o r k City.
Y o u cannot
get away from that. P e o p l e will g o where i t is
most convenient and where they get the best service
and best treatment.
T h e very gxo.thin magnitude,
the stupendous volume o f time a n d savings accounts
show that the term "savings" has lost the meaning
that i t had 25 years ago,whon we ordinarily Shought
of a bank a s a dime savings bank.
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Federal Reserve Bank of St. Louis
464
I know i n California, a n d y o u g a n chock me u p
on this Mr. C a l k i n s , I
would b e greatly surprised
if there a r e n o t savings a n d time deposits i n Cal-.
fornia that run well over a million Gollars, f
f4ve tundred thousand
,'
have had as mich as four offmyself accumulate i n
that way and lie dormant for two o r three years.
Now, i f I had t o take a trip out there o r send m y
pass b o o k byrmail i t would inevitably l e a d m e t o
withdraw that account, and i f I do i t the presump-
tion is that I would take i t hot where I lived, but
to New York.
Governor MeDougal,
Y o u could take i t to a neigh~
boring bank, which was not a member o f the System +-
Mr. Miller. N o t a member of the System? Y o u
do not want t o build u p the non-member banks.
Governor M e Dougal.
B u t that i s what w e will
be doing 1 f w e find i t 1 s necessary t o act b y placing
these restrictions o n savings aecounts» I
think it
would b e a splendid thing i n the way o f a safeguard
against over lending o n real estate, but that would
be a very pleasing change i n our laws a n d regulations
to the advantage o f savings banks a n d other banks
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Federal Reserve Bank of St. Louis
that are n o t members o f the System.
The Chairman, I
think t o o much emphasis e a n
not b e put o n thet, that these regulations will b e
conducive t o the suceess o f the non-member banks,
particularly the savings banks and mutuel banks.
The largest bank i n the state o f Washington pays
5 per o r e o n time deposits, m u c h more t h a n a n y
other i n the state, a n d i s entirely free from
restrictions o f that kind.
Mr. Miller.
I s not one o f the considerable
menaces that hangs over our banking situation thiss
That t h e reserve requirement against these deposits
ie a very l o w one a n d the deposit o f a business c o n e
cern m a y a t a n y time b e converted i n t o 4 demand de~«
posit, and we are reasonably certain that a t some
times that conversion will g o o n a t a pretty rapid
rate?
W e know that f o r a variety o f reasons cor-
perations, through more modern methods o f financing
and s o forth, ere for the time being, many o f them,
over supplied with working capital which they put
into the form o f these accounts where they draw 4
rate o f interest i n excess o f what i s allowed o n
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Federal Reserve Bank of St. Louis
466
current balances, current securities o r call loans};
but the growth o f the country i s going t o bring u s
to a point where thése will b e withdrawn and w e will
then find that what was technically a savings depo=
sit has overnight become a demand deposit and that
the banks then have got t o build u p their reservess
The Chairman. I
would like t o repeat the state-
ment that the statement o f the Conference was that
it was o f the opinion that i t would b e inadvisable
at the present time t o seek legislation.
M y own
personal opinion, which I think was shared b y most
members o f the Conference, i s that this matter was
of such importance t h a t i t would advisable t o h v e
more time i n which t o consider it, and i t even went
to the extent o f a suggestion t o the Board that w e
be given more time and, i f necessary, t h a t w e call
a special conference, although there seems t o be n o
probability o f any tmmediate legislation.
Mr. Miller.
L e t m e say, with regard t o that
subject, that I was a t a hearing this morning be~
fore the H o u s e commiteee o n banking, which was
normally supposed t o hear t h e Strong stabilization
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Federal Reserve Bank of St. Louis
467
bill, although actually i t seemed t o touch o n every
other subject except that, out towards the close o f
the meeting the @hairman said: “ D o you think it is
about time that t h e rese#ve requirements o f the Fed-
eral Reserve Banks should b e revised, that the socalled wartime emendments b e repealed a n d the original
requirements b e restored?"
A n d immediately there
wasa v e r y apparent interest i n thet right around t h e
table.
M y answer was i t might b e better i f w e were
there without t h e problem o f getting there, b u t I
said t h e effect o f the problem o f getting there would
be the imposition o f inflation even more violent than
the one w e went through i n 1920 and 21. I
was asked
"Would you say that i n regard t o all classes o f depoaits: h o w about the savings and time deposits,” a n d
at that juncture the bell meng for the members t o oome
to the House t o vote, a n d the sitting was suspended«
80 I think there i s evidence that i t is pretty much
in the minds o f members o f the banking committee,
and I should s a y that i f the Board has anything t o
propose, n o t b y the w a y o f a great series o f detailed
amendments, b u t one o r two important things, that i t
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Federal Reserve Bank of St. Louis
4s not impossible t h a t i t may b e done.
Governor H e r d i n g .
N o t between n o w a n d the ad-
journment o f this session, d o you think?
My. Miller.
I d o not know about that.
Governor Harding.
I ¢ they adjourn about the
first o f June, w e would n o t b e able t o get anything
through, would we?
Mr Willers W e l l , I do not know.
it,
Governor Harding. N e x t winter w e might d o
but I
now.
do n o t think t h e Senate w o u l d d o i t
Governor Young.
T h a t i s really why i t was
put o n the program, anticipating that these people
and
up there would take u p the question o f reserves
might
if we d i d n o t have something t o suggest t h e y
take some action. I
have sat i n at a good many o f
and I
these conferences w i t h reference t o reserves
have j u s t about errived a t this conciusion:
Tpet
that
you cannot l a y down a n y rules a n d regulations
I
they cannot beat i n some way, shape o P mannere
am tempted,
suge
i f they should a s k m e about it, t o
degest that w e have a reserve requirement o n all
posits end not permit any deductions a t all.
I t
might be 6, 6f or 7 per cent, but that is simple
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Federal Reserve Bank of St. Louis
469
and easy a n d y o u know where y o u are, a n d nobody c a n
beat i t e
What objection would there b e t o me saying that
tf somebody made that inquiry?
The Chairman.
T h e r e i s one provision i n this
memorandum which has not been discussed, a n d that i s
that t h e Federal Reserve B o a r d should have authority
to presoribe regulations governing t h e maintenance o f
reserves required b y this section b y further defining
the verious classes o f deposits here mentioned,
If
we enact that provision i t will n o t b e necessary t o
enact t h e other...
Mr, James.
O h yes, i t would.
Governor S e a y e G o v e r n o r Young, answering y o u r
query o f a moment ago, you would have t o consider what
effect i t would have upon. these banking institutions
now members o f the System a n d prospective membar
institutions which have e
very small line o f demand
deposits a n d a very large line o f time deposits,
and trust companies --.
Governor: Youngs: Ypu‘cannot satisfy everybody.
Governor: Seay.- T h a t i s a practical question
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Federal Reserve Bank of St. Louis
oe
4
7
0
because I think they would/continue i n the System
under a plan of that character.
Governor Y o u n g .
T h a t m a y be.
think i t would drive most o f
Governor Norris. I
them oute
Mr. James.
withdraw, I
I g a great number o f them begin t o
think Congress might find means o f em-
bracing all of the banking inatitutions o f the United
States
i n some w a y . I
n
have h e a r d s o m e v e r y p r o m i n e t
members o f Gongress discuss t h a t v e r y thing.
I f they
are going t o participate i n interstate business there
4s n o reason i n the world w h y they should n e t come
in under the jurisdiction o f the Federal Government,
just l i k e t h e r a i l r o a d s a n d s o m e o f t h e o t h e r s h a v e
done.
T h i s idea o f having them withdraw from the
System because some requirement might b e made i n
the interest o f the entire banking businessof the
country, doesn ' t scare m
a bit, not a bite I T
bankers
talked with one of the biggest/in the United States
and I asked him why he didn't get out o f the Federad
Reserve System and quit talking about it.
H e said,
"You know why I don'y get out” and I said "Certainly,
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Federal Reserve Bank of St. Louis
471
you can't get out.
H e said "That i s right, I cannot.”
I said “Then d o not let us have any more argument
about i t and don't talk t o me about threatening t o
get out of the System. "
Governor Seay.
present law.
O f course I
am talking about the
W e know that a t the present time the
i a de-+
high rate o f 3 per cent o n time d e p o s i t s s
terrent t o some o f the large trust companies t o en-
tering the System.. T a k e right here i n Washington.
One o f the biggest trust companies i n Washington
four o r five years ago wanted t o come into the System and that was the deterrant, t h e 5 per cent o n
the bulk o f their deposits. I
am speaking o f the
law a s i t n o w stands.«
Governor Y o u n g s
B u t 2 per cent would have b e e n
too high too. ‘ T h e y were just looking for a n excuse,
that is ell.
Governor S e a y . I
wanted t o come i n s
EXCUSE e I
think not. I
think they
Y o u are n o t giving that @ s a n
think t h e y were seriously ansidering
coming in,» T h e y figured o n that f o r a long time
and finally concluded that they could not afford it.
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Federal Reserve Bank of St. Louis
472
Governor Y o u n g .
Glusion, I
W e c a n arrive a t this con-
guess, a n d that i s that t h e present
reserve requirements a r e wrong; there a r e t o o many
opportunities
o f beating them.
I f w e make that
statement t o Congress then they say "All right, what
have you got to correet it", and we says "We do not
know," I
think 4 t would b e better t o have a single
requirement, w i t h n o deductions e v e n i f you h a d t o
make t h e requirement 5
The Chairman. I
per cent.
thinkthat changes i n the defi-
nitions o f savings and time deposits have more effect
in deterring banks from joining, a n d influencing them
i n the resesve,
to withdraw, than the suggested change
very m u c h more.
T h e r e a r e m a n y banks
i n the System
that a r e very much inclined t o withdraw i f the definition o f savings a n d time deposits a 8 proposed here
are imposed. I
do not think there i s a n y doubt
about that. 2
Governor Young.
T h e object o f the Board wes t o
get all the information i t possibly could i n order
o inquiries t h a t will n o doubt come t o i t
to r e p l y t
shortly.
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Federal Reserve Bank of St. Louis
475
Governor MoDougal.
D i d y o u g e t a n y insight,
Governor Young, into the ehanges that the Members
of Congress have i n mind m a k i n g when they discussed this matter w i t h you?
Governor Y o u n g e
Mr. James~
N o o
T h a t i s the trouble, a s I under-
stand it. T h e y haven't anything i n mind except
that t h e y are v e r y much purturbed about t h e banking
situation o f this country, n o t only Congress but all
throughout t h e country.
Governor Young.
I f you tell them that this
proposition o f switching f r o m demand time deposits
is going on, they say " Ail right, how will you correct 26". a n d i t i s very embarrassing t o s a y "Well,
I don’t know,*
Governor McDougel.
I s there anything t o ine
dicate thet the reserves i n the aggregate are too
large o r too small?
Governor Young.
Y o u mean i n the System?
Governor M e D o u g a ls Y e S e
Governor Young.
F r o m the action o f the open
market committee since January, from the action o f
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Federal Reserve Bank of St. Louis
474
the several reserve banks i n raising their rates,
and the indication that there i s too much credit,
I think there i s every evidence i n the worldthat
the reserve requirementa a r e t o o low.
Governor S e a y e T h e y are lower than they were
eight years ago.
Governor Young. I
ports t o the Board.
so interpreted from the re-
I f it is a}l right, keep it
going -- don't d o anything about it, T h a t i s a
proper conclusion, isn', i t ?
Governor McDougal. I
should think so.
T o the
best o f m y belief t h e reserves a r e none t o o m u c h «
I was one o f the four who voted against the reduction t o 9 per cent’ on the part o f one cless o f banks.
Governor Young.
W e l l , there i s another proposal
now, that they increase the number o f central reserve
}
sities t o all « + not t o all cities, but t o Boston,
Philadelphia, Cleveland, St. Louis, S g n Fpancisco,
possibly Los Angeles a n d t w o o r three other places.
If they d i d that i t would increase t h e reserve r e quirements o f the member banks approximately a hundred
million dollars.
T h e other proposal i s the one the
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Federal Reserve Bank of St. Louis
475
Gonference acted on, naming several other cities
that should b e reserwe oities.
W h a t i s the re-
aétion o n that ?
M y reaction o n i t is that
Governor McoDovgals
that would b e reversing the pump. T h e r e was a
time when there were three cities that were proud
of the distinction o f being central reserve cities
and w e r e m a d e t h a t
o n their o w n solicitation.
T I
could name o n e that would notellke i t very
think I
mush i f they were put back o n that basis<
VYice~Governor Platt. T a k e n a s a whole t h e conference approved t h e proposition o f amending t h e ast.
The Chairman. Y e s e
WiceeGovernor P y a t t , S o m e b y a majority vote
and some b y unanimous vote?
The Chairman. Y e s s
Governor MoeDougal.» T h a t shoulda b e coupled
with the recommendation and not b e taken u p at
Once »
Governor Young.
B u t I
am afraid i t i s n o t
@ question o f when w e want t o take i t u p e
The Chairman. I
think i t i s fair t o s a y that
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Federal Reserve Bank of St. Louis
476
it was approved with some reluctance.
I s that a
fair statement ?
Governor MaeDougal. Y e s , a n d I think i t i s
better s o understood.
Governor Y o u n g e
M y . Smead has made another
suggestion, n
o page 3 of his memorandum, under the
sub-topic (d) "No withdrawal i n exeess o f $500 o n
any one d a y shall b e made unless t h e depositor h a s
given notice o f such intended withdrawal n o t less
than thirty days before the withdrawal i s made »”*
Thet haa not been discussed,
Mr, James.
T h a t i s another thing w e might
put into t h e l a w that w i l l n o t m e a n anything. I
notice this morning i n Mr. Brisbane's column the
statement t h a t t h e second largest industry i n the
United States t o d a y i s bootlegging.
T h a t i s just
the proposition y o u will have right n o w when y o u
put u p t h e s e s o r t o f r e s t r i c t i o n s a b o u t t i m e d e p o s -
its a n d s o one T a k e thousands o f I¢alieans w h o have
deposited m o n e y i n some bank, a n d some d a y some o l d
woman m a y want some m o n e y a n d s h e goes there a n d pre~
sent s a check a n d the young m a n begins t o tell h e r
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Federal Reserve Bank of St. Louis
477
that under the agreement that they have she has
got t o notify t h e bank thirty days before i n order
to get the money, a n d when that happens I
tell y o u
right n o w that bank had better get i n touch with
its reserve b a n k because i t i s going t o need a l l the
facilities i t c a n get inside o f the next twenty-four
hours. I
have s e e n that worked out.
The Chairman.
W e had just such a n incident
in our district, w i t h o n e o f the oldest institupions a n d the most conservative savings institutions
in the district.
O n e o f your Igalian ladies went t o
the bank with a soheck and the teller undertook t o exPlain t o her that i t would b e necessary f o r h e r t o
be identified, a n d that bank had a very serious
run the rest o f that week a s a result o f that incident »
Governor Harding.
H a s this matter b e e n sub-
mitted t o the advisory counsel,
o r will i t be?
them
Governor Young. Yes, and I expect/to arrive
at about the same conolusions that w e have here.
Governor S e a y . I
would like t o ask De. Miller
4f h e inferred f r o m t h e questions h e was asked
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Federal Reserve Bank of St. Louis
478
sé
whe ther any Members o f Congress entertained the
opinion that t h e present reserve requirements w e r e
too low?
Mr. Miller. I
certainly was given that i m -
pression, yes.
Governor Seay. T h e r e i s n e question i n my
mind b u t what t h e banking policy o f the country
fachig &
orisis, ~
Mr. James.
this:
T h e big crisis, a s 1 see it, is
T h e repeated requests o f the Federal Re-~
serve Board and those charged with responsibility
of operating the Federal Reserve Banks for recommendations, —
h a v e not brought a n y recom-
mendations a n d they have about reached the stage,
as I see it, when something will b e done without
reference t o the Federal Reserve Board o r the Governors o f the Federal Reserve Banks.
T h e y will just
take a running start and teil us “Just for that you
can all get off", and put i n a new organization.
Governor Seay. T h e way i t appeals t o me is
thet the Federal Reserve System, a t this moment,
4s o n trial before the country i n a way i n which
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4a7Y
it has not been o n triel sinée its inatiguration.
Mr. James,
W i t h more folke training guns
on you t h a n you ever h a d before - - a n d good shoot-
ers, too; don't make a n y mistake about that.
Governor S e a y .
I f the purpose o f the reserve
is t o limit the expansion o f credit, a n d i t is, then
that purpose h a s i n a measure b e e n defeated b y the
progress o f the banking policy o f the country, b e cause t h e legally required reserve w a s o n e percentars
back yonder w h e n i t was fixed b y Congress;
now another percentage
i t is
b y reason o f a banking policy
which has resulted i n an inordinate growth i n time
deposits a s compared with demand deposits.
I t is
appreciably lower n o w than i t was then, a n d the
result i a just as plain and as inevitable that there
is a resulting expansion o r inflation o f credit.
Governor Youngs T h e banks have not ‘tBought
collectively, w u t individually; they ell have sharp
pencils a n d I cannot s e e that t h e y have done anything illegal i n the time deposite t h a t t h e y have
set up, s o i f this inflation has developed i t is the
fault o f the l a w a s much a s anything.
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Federal Reserve Bank of St. Louis
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Governor Say. T h e y have done alli they were
permitted t o d o i n their o w n interest, a n d I think
they always will.
Governor Youngs
W h e n y o u g e t before Congress
and tell them that, then they say " All right, whet
is your remedy?"
I ¢ you say you haven't a n y re«
medy they don't have much regard for you.
Mr. James.
B u t what have those charged w i t h
responsibility o f the System ever recommended t o
Congress?% I have been a member o f the Board for
five years a n d I fail t o find a n y recommendations
made b y anybody.
Mre Case. T h e r e i s one phase o f this discussion which has n o t been touched u p o n a t all
but which I think deserves very serious consideration, a n d that i s this;
T h e growth o f savings
or t i m e d e p o s i t s c o n t i n u i n g a t a
demand depositea
&
a I
faster p a c e t h a n
veview t h e examination
reports o f a good many cuntry banks I
find that
where t h e y have three o r four million i n deposits
fifty,
o r sixty o r seventy-five p e r cent o f them
are classified as savings and time deposits --
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Mr. James.
May I
interrupt y o u just a moment?
Mre C a s e . Y 6 @ S e
Mr. J a m e s e I n your analysis o f that situation
have y o u ever made a n inquiry, o r had inquiry made,
as t o what state laws exempt t h e savings deposits
from taxation? I
happen t o know that t h e y are
exempt i n California.
Governor Fancher.
Mr. James.
T h e y are i n Ohio.
A n d I think Mychigan.
Governor Fancher. I
a m not sure about s o m e o f
the other states, b u t that would have a very strogg
bearing o n the matter, particulerly i f one h a d a
rather large b a n k account.
Vioe-Governor Platt.
T h e r e isnt¢ a n y t e x o f
any kind i n New York, i s there, Mr. Case?
Mre C a s @ .
this.
B o e Wheat I
was going t o s a y was
T h e situation within recent years i n regard
to time a n d demand deposits h a s grown t o the point
where t h e proportion o f time deposits i s going t o
be i n excess o f demand deposits.
The Chairman.
t r i c t s .e
T h a t i s already true i n two dis-
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Mp. Case.
A l right. N o w , then i f thst |
continues presently w e will have some more. bank
failures. A
bank, a s i t gets i n a weakened
condition requires thirty days notice o n withdrawals o f savingszdeposits b u t i t permits cus-
tomers who have ohecking accounts payable o n de<
mand t o eheck a t will. I
think really under t h e
situation a s i t exists today that those latter a r e
preferred creditors a n d I think some consideration
should be given to that situation aw to whether or
not the timr has not arrived t o réquire thet banks
which maintain the savings and time deposits should
segregate their investments f a the protection o f
that class o f deposits.
I t is going t o b e a live
question some time within the next ten years and
I think w e should give consideration t o ite
Governor Young.
T h a t i s the Celifornia a n d
Michigen l a w now.
Vice-Governor~ P y a t t .
I n N e w Y o r k State
n a non-member State
savings accounts a r e s a f e r i
bank t h a n they a r e i n a National bank, a
the System.
member o f
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Governor Harding.
I f you want t o start segre-
gation instead o f having a drastic law that they
must segregate t h e aavings department,
i t will b e
better t o make i t optional with them, that if they
segregate t h e i r savings accounts t h e y must make i n vestments according t o a eertain sehedule t o b e
regulated b y the Federal Reserve Board; t h a t i f they
do not shoose t o segregate t h e y must scarry & reserve,
and y o u c a n make i t 5 per cent instead o f 5,
Governor Seay. G o v e r n o r Young, y o u have re-
peatedly referred t o the inquiry that you get "What
are you going t o do about it?”
Governor Young,
W h a t i s Congress g o i n g t o d o
about i t ?
Governor S e a y .
W h a t a r e y o u going t o d o abut
it, what i s t h e System going t o d o about Lt?
Governor Young. I
to d o individually.
Governor Seaye
have stated what I was going
J I cannot d o anything collectively.
D i d y o u s a y what y o u were going
to do?
Governor Young.
Yes.
Governor Seay. What w a s i t ?
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Federal Reserve Bank of St. Louis
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Governor Young. ‘That n o bank shall have deposits without sarrying reserves and they are not
to be allowed any deductions, a n d that a flat rate
bearrived at oh all classes o f deposits.
Mr« James.
a e
T h e r e w i l l b e two reanmibndedioun
along that same line.
T h a t i s what I
am going t o
say and i f somebody has something better than that;
I would like t o hear it.
would like t o follow Mr,
Governor Batley. I
Hames's policy s o that all deposits a l l over the
country could b e covered.
Mr. Mqller.
V i n a t i s this crisis?
Governor S e a y » I
consider the crisis t o be
somewhat a s i t was i n 1920, a n d that i s a n over
expanston o f credit, i f not a n inflation o f credit
ina different direction from what i t was then.
To m e there appears t o b e a very wide spread lack
of understanding a s t o how bank credit i s created.
We know i t is created only upon two bases under our
reserve requirements, t h a t i s upon a n increased stock
of gold a n d upon the continuous increases i n use o f
reserve credit; s o whatever may have been oub in-
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Federal Reserve Bank of St. Louis
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tentions, however good they m a y have been, whatever
purpose w e m a y have desired t o accomplish, t h e
fact remains t h a t t h e amount o f reserve credit
which has b e e n i n use f o r several years a n d i s
now i n use, i s directly responsible f o r the creation o f ths volume o f credit which i s n o w i n
use, = = the superabundance o f credit»
Governor Young.
J I wil a s k y o u again what
dates?
Governor Seay.
W h a t dates?
Governor Young» Y e S - e
Governor Seay. I
antalking about the total
volume o f credit outstanding - Governor Young.
Governor Seay,
b 1 l l right, f r o m what ate?
L e t u s s a y seven o r eight
years.
Governor Young.
A l l right, l e t u s check
up o n this map (indicating map o n wall},
Governor S e a y .
T a k e t h e ratio o f expansion
at that time and the ratio o f expansion a t the present time a n d let u s assume, f o r the sake o f the
as
argument i f you choose, that it was/ great beck
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Federal Reserve Bank of St. Louis
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yonder as i t was, a n d how could i t have been made
less?
I t could have b e e n made less bhne conspic-
uous way, and that i s a gold stock increase.
The
use o f reserve funds m a y have declineds
Governor Young.
How?
Governor Seay.
B y withdrawing from the market.
B y selling securities.
Governor Young.
Governor Seay. Y e s , and putting the discount
rate U p e
Mr. Hamlin.
I n 1926 you filed a protest
ageinst selling securities - - I think i t was 1926.
Governor Seay. A g a i n s t selling securities?
Mr. Hamlin. Y e s .
Governor Seays I
do not recall that ocoasion.
Mr. Hamlin. I recall it very ¥ividly. You
busigiess
said / should not be discouraged by the action
of the Board. I
think we sold some liberty bonds - -
Governor Seay.
Mr. Hamlin.
I f I held that opinion then --
Y o u protested a n d demanded that
a copy o f your telegram b e sent t o every member o f
the Board. I
got i t a n d read i t and must s a y I
was very much impressed with it.
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Federal Reserve Bank of St. Louis
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do not recall that e x -
Governor S e a y . I
pression o f opinion, b u t i t must have b e e n based
on some contemplated exigency which existed a t
the moment.
Mr. Hamlin. W e l l , there was a general small
improvement i n business a n d you d i d not want t o
crush i t e
wish y o u w o u l d c o n f r o n t
Governor Seay, I
me
with any such opinion a s that, and the time.
Mr. Hamlin.
V e r y well.
Governor Young. S e l l i n g stock i n the market-you have n o control o v e r rediscounts a n d very little
control o v e r bills.
Governor Seay.
Y o u have some control.
Governor Y o u n g . I
doubt it.
O n your rate, t h a t i s differ-
Governor S e a y .
ent < <
Governor Young.
fifty millions
i n Government securities.
Governor Seay.
have s o l d it.
Zot
B u t i n 1925 y o u had less t h a n
T r e n o f course y o u should n o t
Y o u cannot sell what y o u haven't
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Federal Reserve Bank of St. Louis
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Governor Young.
I t has been the same for
several years, t h e volume o f credit outstanding,
sometimes u p on account o f seasonal requirements
and sometimes down, Y o u can take one period and
prove y o u r argument right a n d y o u c a n take another
period a n d p r o v e y o u r a r g u m e n t w r o n g ,
T a k i n g the
period since 1922 there isn'¢ anyone w h o c a n
prove whether you are right o r wronge
Governor Seay. I
do not think I
tioned any particular period. I
cession o f years.
have men-
am taking a suc-
Y o u cannot t a k e a n y one year
and predicate a n y very strong argument u p o n it,
but y o u certainly c a n take i t over a period o f
years.
Governor Young.
I t 18 easy enough t o look
backward and see why certain things went wrong,
iio
but certainly; 9
Board and
a 8 i
one member o f the Federal Reserve
one who i s associated with the
Federal Reserve S y s t e m when this w a s going on, I
will never admit that this S , s t e m has contributed
to this inflation a n d i t will take a
man t o make m e believe it.
pretty smart
W e get into expansion
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Federal Reserve Bank of St. Louis
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or inflation n o t becausw o f any action o f the Fed-
eral Reserve B o a r d but because o f the law afid because o f the fact that t h e bankers o f the country
are discovering what they can do with the law, a n d
they are doing it. However, I cannot believe that
this inflation o f the stock market w a s caused b y
this fifty million.
N o b o d y c a n tell whether that
was f o r purposes o f rediscount o r for purposes o f
expansion - <
Governor Seay.
Y o u s a y fifty million?
Governor Young.
Yes.
T h e rest o f i t was
offset b y ear-marking - Governor Seaye B y t there i s the point - -
Mr. Hamlin. Governor Seay, I have this note,
&Kugust 18, 1926:
"npoasury i s welcome t o o u r proportion o f bonds
4f i t wants t h e m .
W
e d o not n e e d t h e investment b u t
we find i t impossible t o approve policy o f buying
System bonds i f i t results i n taking s u c h a large
amount
o f credit f r o m t h e market
i n the face o f
rising interest rates a t a time w h e n financing
of crops a n d p r e p a r a t i o n f o r t a x payments
i s going
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Federal Reserve Bank of St. Louis
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one
I t c a n hardly fail t o increase interest rates
at least temporarily a n d coming o n top o f increase
in the New York Bank rate, cast a chill over business, Which has managed t o survive splendidly note
withstanding the work o f the o r acles a n d sign
readers who predicted decline a n d depression.
Business does n o t need a chill b u t encouragement
when commodity prices a n d construction w o r k are
showing hesitancy and declining tendencies. F u r t h e r
more rising interest rates should have unfavorable
influence o n Treasury September financing. F l o e s o
express this opinion t o the Board and t o other Fed-
eral Reserve Banka."
Governor Seay.
W a s that true a t that time;
were those conditions true a t that time?
Mr; Hamlin. I
see a notation o n here "C.S.H.
4s inclined t o believe Governor Seay i s right."
That was m y comment,
Governor Seaye G o v e r n o r Hamlin, probably I
may have been correct a t that time - - I say "proba p l y " ¢
Mr. Hamlin. I
a m inclined
t o believe y o u were
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Federal Reserve Bank of St. Louis
correct o
Governor Seay. I
would like t o inquire a s t o
what h a d preceded that time.
I , m a y have b e e n
that there was, a n d there was, a s I
a decline
i n business
Mp. Hamlin.
Mr. Miller.
recall it,
a t t h a t time.
N o , there was a gradual coming
I t might h a v e appeared t h a t there
might have b e e n a decline, b u t that was o u r biggest
year, was i t not?
Governor Seaye
year.
A s @ whole i t was a
very b i g
I t got bigger a s t h e year went on, b u t d i d
4t¢ not start o u t with some hesitancy?
Mr. Miller.
I t was thought a t one time, par-
ticularly after t h e March crash i n the stock market
that w e might g e t into a recession o f business. I
think t h e position i s a perfeotly tenable one.
Looking back o n 1927, w e have h a d the biggest rate
4ncrease i n credit that w e have h a d i n any year
since w e got through with the 1920-1921 muddie , and
the greatest decrease i n production,
s o that i t i s
very obvious that t h e Federal Reserze System i s
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Federal Reserve Bank of St. Louis
492
tied into t h e situation i n a responsible way. T h e r e
is more credit and the basis o f that credit haa been
supplied i n part b y the Federal Reserve System and
in part through operations t o which w e were n o t
quickly alive a n d therefore w e were surprised.
The
one thing I think i s o f serious moment a t the pre-
sent time - - and b y the way Professor Sprauge was
drawn into i t yesterday a n d a s a consequence o f his
being drawn into it, I was - - is the admission that
the Federal Reserve System has been surprised be~
cause t h i n g s d i d n o t w o r k o u t a s i t e x p e c t e d a n d
because,
i t develops n o w , t h e r e w e r e s o m e n i g g e r s
in the woodpile that w e did not discover. I
know
that the reserves wore about 125 million dollars
below the average for recent years, which i s exactly the equivalent o f the importation o f gold
and from the point o f view o f the member banks that
has offset the importation o f gold. A
fact that
has entirely escaped discussion s o far i s the effi-
eiency of the American dollar i n recent years, particularly. i n 1927, when business has been at a re~
latively l o w e b b and security operations h a v e b e e n
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Federal Reserve Bank of St. Louis
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in tremendous volume, t h e turn-over o f the dollar
has b e e n s o much that every dollar o f reserve credits
is doing * job now that it: would have probably taken
two, three, four o r five dollars t o d o back i n 1920,
and back i n 1910, about fifteen dollars.
W e have got
to r e c k o n w i t h t h e f a c t t h a t t h e m a c h i n e s o m e t i m e s
with the same amount o f oil will make two, three,
four o r five times a s many revolutions a t one time
as i t will a t another time, a n d as we become more and
more alive t o the fact
a
t the same time that
American industry has b e e n achieving these marvels
in production, t h e credit mechanism o f the country
has been functioning with almost equal marvelous
efficiency and that w e of the Federal Reserve System
ere still thinking i n terms o f experiences w h i c h a r e
ten years behind t h e times.
W e d o not know h o w
much more rapid t h e turn-over o f credit has b e e n
and therefore t h e t w o hundred millions o r more o f
reserve credit - - where i s your detail gold chart?
(The chart was handed t o Myr. Miller.)
T h e Re-
serve bank credit, plus the gold stock a t the end
of the year 1927, which was a year o f slack trade,
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Federal Reserve Bank of St. Louis
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wa@ the biggest i n our history, with commercial
loans i n the last monthe o f the year actually lower
in volume t h a n they were i n 1926, w i t h security
loans a n d brokers loans moving u p i n a n almost per-
pendicular direction, i t is obvious that s o far as
the internal credit requirements w e r e concerned
they were m e t b y this expansion o f reserve credit,
these security loans, (indicating) a s brought o u t i n
the other chart (indicating).
But while I
do think that t h a t i s true, i t i s
very easy t o exaggerate t h e seriousness o f the sitvation.
I f I were going t o speak a n intimate word
I would t o say t o hark back t o 1920, that I see
signs that if the thing goes very much further that the
seme sort o f hysteria will develop i n the Federal
Reserve S y s t e m t h a t d e v e l o p e d
is m y fear.
a t t h a t time.
That
B u t this i s a time w h e n w e d o not want
to get excited o r feel that w e have g o t t o reach out
for one device a f t e r another t o correct a situation,
which i s serious, but which i s nothing that w e need
get agitated about. I
should s a y this i s the time
to b e pretty cool headed. I
a m not a s much Gisturbded
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Federal Reserve Bank of St. Louis
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by the situation outside a s {
a m with the situation
right h e r e i n s i d e t h e F e d e r a l R e s e r v e S y s t e m . I
think you exaggerate tremendously but I think there
ia as much danger i n that a s there i s i n minimizing. I th ink you are minimizing beoause I think we are
tied i n and I think the Federal Reserve b e g a n t o
realize that there was something that was working
here w h e n the policy o f offsetting purchases o f seeurities against g o l d imports were suspended.
I t
was not identified, but I think it was felbhthat
thebe i s something there that i s inexplicable.
Thet t o me now i s fairly clear, t o wit, that the
n circulation, f r o m t h e point
reduction o f m o n e y i
of view o f the total banking situation,
the same a s the gold import. I
i s exactly
wrote d o w n i n m y
mind the figure o f 350 million and b y i t I put the
figure 125 million.
W e have not lost, from the
point o f view o f the member bank 550 million, b u t
we have l o s t t h e 3 5 0 million less t h e n 1 2 5 million.
The most serious element i s one that y o u cannot
detect when i t is i n process, t h e speeding u p i n
the turn-over o f the dollar.
T h e velocity o f
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circulation, i f you please, a n d o f credit i n this
country i s remarkable.
T n e security market i s
the one where credit i s most volatile compared w i t h
any other place i n the world.
T h e larger the vol-
ume o f t h e transactions, e s p e c i a l l y w h e r e t h e y a r e
soncentrated
i n a single c i t y , t h e b i g g e r v o l u m e o f
business your dollar can d o i n the course o f a week
or a month o r a years
S o you have g o t t o multiply
the increase i n Federal reserve credit b y the ratio
of 20 or 25, and some say 30 and almost 4 0 t o de-«
terminecthe extent that the reserve credit is working in the seourity market of the country i n this
recent movement. T h a t i s also why I think i t takes
some time before you can get the real effects o f the
withdrawal o f money.
W e are going t o get those
later on. Y o u might find thet this thing is going
to pinch a n d squeeze u s more t h a n w e believe.
The
metnent the normal demand for commercial credit o f
the larger proportions makes itself felt, i t i s not
going t o b e o n a two-thirds ratio,
be more,
i t i s going t o
i t i s going t o b e more nearly one-tenth,
and even perhaps less, i f i t comes in’the shape o f
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Federal Reserve Bank of St. Louis
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a demand for ourrensys
I f we are not alive t o
that fact w e m a y just a s muah surprised t h e n i n
the exaggeration o f i t a s I think w e are i n danger
of becoming now.
Vice- Governor Platt.
B y t isn't i t a little
hard t o reconcile the theory o f this greater velocity
of credit when we see that time deposits have grown
rather than demand deposits.
T i m e deposits a r e
necessarily invested i n time securities a n d the
velocity ought t o b e slower,
i n the case o f demand
deposits.
Mp. James.
Y o u will find that i s reflected i n
the character o f the earing assets i n the hands o f
the reserve banks.
Y o u will find that you have got
an unduly large amouht o f your loans represented b y
day t o d a y borrowings v e r y much more t h a n i t was s i x
months a g o e
Mr. Miller. T h a t is a very significant symptom
that the policy w e are pursuing i s being effective
and that t h e readjustment i s going on.
Governor Seay.» M r . C h a i r m a n ,
4 f you will l e t
me say one other word, I will have concluded. ‘Without
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Federal Reserve Bank of St. Louis
498
apologizing for the opinion that I may have entertained i n 1926, for which I do not seepresent
necessity, the situation a s i t now exists i s very
different. W h e t gives m e uneasiness, i f not alarn,
is the recent a n d current ratio o f inorease i n the
absorption of credit which has been unexampled.
I think the New Yolk Bank illustrated that admirably i
n its recent bulletin, H o w far it will
go under t h e present fever, n o b o d y c a p say.’ I
may attach more importance t o the part played b y
the Federal Reserve System and for which i t is
responsible, than D,. Miller or some others, but
as h e expressed i t w e are intimately tied u p with
the situation and it 1s a question of how much responsibility has been placed upon us b y others,
which we must consider and confront. I
think a
very large part o f the responsibility c a n b e wry
justly placed upon us.
Mrs Miller. I
think that i s true, but I think
there i s n o situation which has arisen which would
cause u s t o sxaggerate the magnitude o f the problem,
no matter h o w conscious a
part y o u have played i n i t
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Federal Reserve Bank of St. Louis
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or how unconscious eae part - - o f course t h e publics
does n o t care whether i t i s conscious o r unconsci-~
ous.
W e are the s o u r c e o
f reserve credit.
the o n l y s o u r c e
o f reserve c r e d i t a t a
W e are
time w h e n
gold goes f r o m o u r shores, except w h e n t h e community turns i n currency that becomes redundant,
based o n a n uncontrollable volume o f reserve oredit.
Governor Harding. P r o f e s s o r Sprague s a i d t h e
other d a y that h e h a d about m a d e u p his mind t o
recommend t h a t a
ruling b e made t h a t n o loan that
went o n the books o f the Federal Reserve B a n k
should b e permitted t o b e taken u p under three days.
In other words, t h a t t h e o n e d a y borrowing b e stopped;
that t h e y h a d t o borrow f o r three days o r not a t all.
That i s equivalent t o a raise i n rate.
Governor Young.
H a v e y o u anything further,
gentlemen?
Te Chairman. I
think w e have reported o n all
the topics submitted b y the Federal Reserve Board,
A report o n the other topics w i l l b e made i n the
usual waye
Governor Young. I
have nothing further.
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Federal Reserve Bank of St. Louis
Mr. Hamlin. M r . COnairman, I move that w e
adjourn.
(Whereupon, upon motion duly seconded, the
Conference adjourned a t 5 o'clock peme, subject
to the call o f the F e d e r a l Reserve H o a r d . )
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