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TENTH CONFERENCE
GOVERNORS O F FEDERAL RESERVE BANKS
WASHINGTON, D. C,
SHOREHAM HOTEL
WALTER
S. COX
SHORTHAND REPORTER
MUNSEY BUILDING—TEL.
WASHINGTON,
D . C.
M . 1364
PROCEEDINGS O F TH:
TENTH CONFERENCE O F GOVERNORS O F
FUDSRAL RES@RVE BANKS,
EVENING SESSION.
Shoreham Hotel, Washington, D , C.,
Wednesday, April 4 , 1917.
The Conference reassembled, pursuant t o recess,
at
8:50 o'clock p. m.
The Chairman:
T h e couference w i l l please c o m e t o
order.
We will meet with t h e Reserve Board tomorrow morning
at 10:30, a n d I
think w e h a d b e t t e r t a k e u p f o r discussion
the matters that are o f the greatest interest t o the Board.
I think t h e matter i n which they a r e most interested i s
Topic 6 , Sub-topic (h).
6-(h) Committee o n Federal Reserve Bank
drafts.
Governor Treman: A
meeting o f the Committee f o r dis-
cussion o f t h e p l a n t o m a k e d r a f t s u p o n F e d e r a l R e s e r v e
Banks a c c e p t a b l e f o r i m m e d i a t e a v a i l a b i l i t y
a t p a r i n all
Federal reserve banks w a s held i n Washington, D . C., Monday
January 22nd, 1917.
At the last Conference o f Governors there was a joint
session with members o f the Federal Reserve Board, a t which
the above mentioned topic w a s discussed, a n d a t that time
the following v o t e was adopted:
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Federal Reserve Bank of St. Louis
126
"That the Chairman b e authorized t o appoint a committee
of five t o Confer with the Federal Reserve Board and assist
in p r e p a r i n g a
plan i n connection w i t h t h e immediate a v a i l -
ability o f drafts o n Federal reserve banks.”
After i n f o r m a l
Governor S e a y ,
d i s c u s s i :ofn
the
o
plan,
a s outlined
by
i t w a s t h e u n a n i m o u s o p i n i o n o f this c o m m i t -
tee that w h e n t h e final transfer o f reserves becomes effective,
i n accordance w i t h t h e a m e n d m e n t w h i c h i s n o w b e f o r e
Congress, s o m e machinery should b e i n readiness t o provide
for t h e transfer o f such funds f o r s u c h banks a s have b e e n
in the habit of using drafts o m central reserve cities, and
in c o n f o r m i t y w i t h t h i s v i e w , t h e C o m m i t t e e u n a n i m o u s l y
agreed u p o n t h e following plan.
(1) T h a t the privilege o f drawing federal reserve
exchange d r a f t s s h o u l d b e l i m i t e d
in o t h e r words,
t o t h e c o u n t r y banks, o r ,
t o those banks carrying a
1 2 p e r c e n t reserve.
eS T h a t the drafts should b e limited, a s t o the
amount drawn i n any one day by a member bank, t o $10,000.
(3)
T h a t t h e drafts s h o u l d b e drawn b y member banks
upon t h e i r o w n F e d e r a l r e s e r v e b a n k s a n d m a d e r e c e i v a b l e
for i m m e d i a t e a v a i l a b i l i t y
Serve b a n k s p e c i f i e d
(4) T h a t a
a t Par,-ge a n y o n e F e d e r a l r e -
i n t h e draft.
special uniform f o r m o f draft b e adopted
by all t h e Federal Reserve Banks, s u c h drafts w h e n drawn
upon this f o r m t o b e the o n l y ones which a r e receivable f o r
immediate c r e d i t a t par.
(5)
T h a t t h e drawing b a n k b e required t o give imme-
diate a d v i c e
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t o its Federal reserve
bank
o f all Federal ex-—
2
change c r a f t s d r a w n , a n d t h a t s u c h d r a f t s
b e immediately
charged t o the member banks account o n receipt o f advice.
(6) T h a t this plan become operative when the final
transfer
o f reserves b e c o m e s a f f e c t i v e ,
able t o s u c h m e m b e r b a n k s
a n d b e made avail-
a s m a y agree t o t h e terms formu-
lated b y the Federal reserve banks.
The C o m m i t t e e w h e n d i s c u s s e d w h e t h e r
i t w o u l d b e neces-—
sary t o immediately formulate daily settlements i n the gold
settlement fund, and, o n motion b y Governor Seay, i t was
moved a n d c a r r i e d t h a t ,
i n t h e o p i n i o n o f t h e committee,
under existing conditions a n d t h e terms above recited, there
would b e n o n e c e s s i t y f o r d a i l y s e t t l e m e n t s t h r o u g h t h e
gold settlement fund a t t h e present time.
The Committee next considered the. advisability o f putting i n t o o p e r a t i o n a t t h i s t i m e t h e G i d n e y p l a n o f a
silver
and l e g a l s fund.
on motion
After discussion b y Governor S e a y i t was moved a n d carried t h a t , u n d e r e x i s t i n g c o n d i t i o n s t h e r e ' i s
n o necessity
for establishing such a fund a t this time.
We sent that report o f the Committee t o the Federal
Reserve Board.
T h e y approved a l l o f the recommendations
except the first one, and said that instead o f limiting i t
to thos e banks carrying 1 2 per cent reserve, that i t should
be made applicable t o all banks. I
think that was t h e only
Change t h a t t h e y made.
Then w e sent copies o f the report t o all o f the other
banks n o t represented o n the committee and asked for any suggestions c o n c e r n i n g t h e same.
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T h e r e were suggestions m a d e
Lee
by t h e S a n F r a n c i s c o b a n k , t h r o u g h M r - C a l k i n s ; M i n n e a p o l i s
sent, through Mr. Wold, a
recommendation, a n d Governor Seay's
bank s e n t a n o t h e r paper. A
committee a p p o i n t e d
York B a n k p r e p a r e d a n o t h e r s e t o f resolutions,
came before t h e committee i n New York. A
b y the New
a l l o f which
meeting o f the
committee was held a t 11 o'clock o n March 19, a t the New
York bank,
a t which there w e r e present M r - Treman, Chairman,
Messrs. Rhoads, Fancher, Seay and McDougal o f the committee.
There w a s a l s o p r e s e n t M r . H a r d i n g , G o v e r n o r o f t h e Federal
Reserve Board, a n d Mr. Aiken.
Y o u all have copies o f those
minutes a n d i t i s n e t n e c e s s a r y f o r m e t o read t h e m all.
The follcwing resolutions were adopted:
(1) T h a t paragraph No. 1 of the original plan b e
reaffirmed.
That r e f e r s
t o limiting i t t o the country banks, t h o s e
with 1 2 p e r c e n t reserve.
A f t e r discussion w e decided
to
reaffirm that.
(7)
T h a t paragraph No. 2
o f t h e original p l a n b e r e -
scinded.
That paragraph refers t o the limitation o f $10,000.
Mr- McDougal desired t o b e recorded a s declining t o
vote i n favor o f this resolution except o n the understand-
ing that the Federal Reserve Bank of Chicago, i f it saw fit
to d o so, would b e permitted t o charge t h e market rates f o r
exchange
i n connection w i t h s u c h checks
a s m a y b e issued f o r
the purpose o f transferring funds between banks.
Governor Wold: I
a m opposed
t o arranging a n y kind o f
draft f o r the purpose o f transferring funds.
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123
Governor McDougal:
T h a t i858 the reason I declined t o
vote for the taking off o f the limit i n Paragraph 2, because
I a m sure i f w e d o not place a
later o n , a s t h e r e s u l t
limit there t h a t w e will
o f experience,
b e compelled
t o do
SO.
Vice Governor Treman: I
d o not think I said anything
in that first paper about t h e transfer o f funds.
Governor V a n Zandt: I
limit, b u t I
d o n o t object
d o want permission
t o taking o f f t h e
t o charge t h e market r a t e
for exchange i n connection w i t h handling these checks.
Vice Governor Treman:
( 3 ) T h a t paragraph No- 3 of
the o r i g i n a l p l a n b e reaffirmed.
That paragraph refers t o drafts b e i n g drawn b y member
banks u p o n their o w n Federal reserve banks made receivable
for i m m e d i a t e a v a i l a b i l i t y
a t p a r a t a n y b a n k specified
ir
the draft.
(4) T h a t paragraph No. 4 of the original plan be reaffirmed.
Paragraph 4
referred t o a
special u n i f o r m f o r m o f
draft t o b e adopted b y all reserve banks, a n d s o forth.
(5) T h a t paragraph No- 5
o f the original p l a n b e
amended t o read a s follows:
"That t h e drawing bank b e required t o give immediate
advice
t o its Federal r e s e r v e b a n k o f a l l federal reserve
exchange drafts drawn, and, i m the case o f drafts made
recéivable a t another Federal reserve bank,
t o forward a
dupli-
cate advise forthwith t o the Federal reserve b a n k a t which
Such drafts a r e made receivable; a n d that a l l such drafts b e
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124
immediately charged t q the member bank's account o n receipt
@. advice b y the Federal reserve b a n k o n which they a r e
drawn."
(6) V o t e d t o insert a new paragraph No. 6, a s fellows:
“Tat the Federal reserve bank o n which the draft i s
drawn s h a l l c r e d i t
b y telegraph
i n the g o l d settlement f u n d
the Federal reserve b a n k a t which t h e draft i s t o b e received each d a y the total amount o f such drafts i n round ameunts,
ef $10,000; s u c h advice t e b e sent i n time t o reach the Federal
Reserve B o a r d n o t l a t e r t h a n 3
o ' c l o c k p.m.
o f e a c h day."
(7) T h a t paragraph No. 6 ef the old plan be renumbered 7 and amended t o read a s follars:
"That this p l a n became Operative o n the
d
a
y of
,1917 a n d b e made available t e such member
banks a s m a y agree t e terms formulated b y their Federal
reserve banks."
(8) T h a t t h e views o f the committee a s expressed
in the last t w o paragraphs o f the original report b e
reaffirmed, to-wit:
"Mat u n d e r existing conditiens a n d t h e terms a b o v e r e cited t h e r e w i l l b e n o n e c e s s i t y f o r d a i l y s e t t l e m e n t s
through the gold settlement fund a t the present time, nor
any necessity f e r establishing a
silver a n d legal fund,
as suggested i n the Gedney plan."
After a
Harding,
brief discussion a n d conference w i t h Governer
i t w a s o n motion,
d u l y m a d e a n d seconded, v o t e d
that t h e Secretary b e requested t o call a
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cenference o f the
125
Governors o f all the Federal reserve banks t o discuss this
plan a n d other matters,
Washington, D.C.,
t o b e held a t the Shoreham Hotel,
o n April 4 , 1917."
There i s one thing I
Mr. Harding suggested a
did not read, a n d that i s that
plan o f telegraphic advice t o b e
sent b y the Federal reserve b a n k o n which t h e draft i s
drawn t o the mgerve b a n k a t which i t i s t o b e received,
such a d v i c e
t o refer
t o t h e advices r e c e i v e d
b y the fermer
from its member banks covering Federal reserve exchange
drafts d r a w n that day, w i t h a code word t o check the total
footings c f each letter o f advice received f r o m member banks,
which must necessarily correspond with the duplicate advice
forwarded b y the member b a n k t o the mserve b a n k a t which t h e
drafts are t o be received. T h i s plan, while not acted upon
formally,
w a s unanimcusly approved
i n principle
by the
committee.
Governor McDougal:
O n receipt o f these minutes from
the Secretary, a n d upon his invitation t e criticize a n d s u g
gest changes that we thought should b e made, I called Mr.
Curtis' a t t e n t i o n t e t h e f o l l o w i n g w a r d s a p p e a r i n g a f t e r v o t e
No.5, w h i c h I
said I believed should b e stricken out. Beginning
with the next t e the last word i n the third line, " i n the case
ef drafts m a d e receivable a t anether Federal reserve bank", I
believe should b e stricken out, because a l l Federal reserve
exchange would b e receivable a t some other bank. I
wish y o u
would l o o k a t that a n d see i f I a m not right.
The Chairman:
T h e paragraph would then read, " That
the drawing bank be required t o give immediate advice t o
its Federal reserve b a n k o f all Federal reserve exchange
drafts
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drawn, a n d t o forward a
duplicate advice ferthwfith
to the Federal Reserve bank", etc.
Governor McDougal: I
think you will find that will
clarify t h e paragraph, t h o s e other words being superfluous.
I suggest t h a t a s a change.
Governor Seay:
T h a t i s all right.
I t does n o t hurt
it any.
Governor McDougal: I
wish t o inquire whether the
proposed elimination o f those words i s agreeable t o the other
members o f our committee.
I f so, 1 would like t o have
them stricken out.
I a m sure that t h e change will b e agreeable, because
those words a r e confusing a n d d o not mean anything:
Governor V a n Zandt:
Y o u r statement i s t o the effect
that t h e Federal Reserve Exchange draft i s a draft that i s
payable a t some other Federal Reserve Bank?
Governor McDougal!
T h a t i s i t exactly.
Governor Seay: I
do n o t support that view, because
it circulates within t h e district.
Governor McDougal:
Y o u wale HOt eek the member
banks i n your district t o advise y o u o f all the drafts
that t h e y were drawing o n you?
Governor Seay:
E v e r y time; e v e r y one; i t i s essential,
(Informal discussion followed which the reporter was
directed not t o take.)
, G o v e r n o r Seay:
I f the members h e r e have a n y recol-
lection o f i t t h e y w i l l r e m e m b e r t h a t t h e o b j e c t
o f this w a s
to bring about t h e use o f one f o r m o f exchange only-
W e
believe great confusion will arise i f two forms o f exchange
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Federal Reserve Bank of St. Louis
Tey
are used.
T h e y will advise y o u o f the wrong form i f you
have two, a n d i t gives opportunity t o ‘omit t o advise.
affords opportunity f o r confusion,
I t
a m i t i s far more desir-
able t o have o n e f o r m a n d use that altogether.
T h e object
of this was t o promote t h e u s e o f that f o r m o f exchange a n d
do away with t w o forms, a s f a r a s possible.
The Chairman:
T h e Chairman o f this committee h a s made
his report i n this form.
V o you move a modification o f
the report, Governor McDougal?
Governor McDougal: I
a m only suggesting t o the com-
mittee t h a t w e change o u r minutes; t h a t i s all. I
think
those words should b e stricken o u t because t h e y are confus-
ing. I f , as Governor Seay understands it, the banks are
to have only one form of @raft, then that form o f draft,
when i t goes into some other district t o b e receivable a t
some other bank, c a n simply h a v e arubber stamp p u t o n it,
stating that i t will b e receivable a t a certain bank.
Vice Governor Treman? D o n ' t you want advice of all
drafts that are drawn o n you b y the member banks?
Governor McDougal :I
Vice Governor Treman:
think not.
T h e n y o u give t h e member banks
the benefit o f the float all the time that i t is floating
around, before i t gets back t o you.
Governor McDougal: I
think we can afford t o follow
the national bank-custom i n that regard.
Governor Wold:
T h e First National Bank of Chicago
claims that i s o n e o f its great sources o f profit.
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Federal Reserve Bank of St. Louis
'Vice Governor Treman:
t I am not arguing the matter. I
am o n l y t r y i n g t o arrive a t h i s i d e a o f it.
Governor Seay: I
think that t h e alteration will g o
very f a r toward setting u s back, f r o m the point o f view
from which w e have looked a t i t i n Richmond.
T h a t w a s put
there advisedly, and, t o me, i t conveys t h e idea w e h a d
when w e passed o n it.
M
y idea n o w i s very distinct f r o m
that o f Governor McDougal: I
him o n that. I
believe w e c o u l d c u l t i v a t e t h e u s e o f
this o n e f o r m o f exchange,
breed confusion.
a m diametrically opposed t o
I
a n d t h a t t o d o anything e l s e would
t i s t o the advantage o f the Federal
reserve banks t o have these drafts drawn i n this w a y because
it prevents t h e member banks f r o m drawing against a
which they haven't got.
balanc e
I t ob3dges them to draw only
against t h e balance t h e y have i n the Federal reserve bank,
which i s what w e want. T h e r e f o r e i t accomplishes a
fold purpose. I
two-
think the more w e discourage t h e member
banks f r o m k i t i n g a n d f r o m d r a w i n g
i n that Way, t h e better
it will b e for the soundness o f the system. M o r e o v e r ,
if
you will pardon m e one minute, t h e idea h a s been i n our
minds, t h a t i f the b a n k does n o t u s e this f o r m o f exchange;
a bank that won't use this form o f exchange i s not t o be
given t h e p r i v i l e g e
o f drawing o n t h e Federal reserve b a n k s
for immediate availability. T h e r e f o r e i f they will use
the o n e f o r m there c a n b e n o distinction,
n o evasion a n d
no opportunity f o r confusion.
Governor McDougal: I
a m sure that point was n o t
brought o u t clearly i n any o f our conferences. I
would like
to ask Governor Treman, a s Chairman o f t h e Committee,
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Federal Reserve Bank of St. Louis
if
aoa
he understood t h a t there w a s t o b e just o n e f o r m o f draf”
used?
Governor Seay: “
can s a y that t h e matter originally
before t h e committee f o r discussion w a s a plan I prepared
down i n Richmond, a n d that p l a n was merely put forward a s
a basis o f d i s c u s s i o n a n d f o r t h e p u r p o s e
presented t o the committee.
o f getting t h e i d e a
I t was elaborated, a n d t h e e f -
fort w a s t o put everything i n there t o cover t h e whole situation.
N o t t h a t i t was thought expe@ient, perhaps,
t o put
the thing i n operation t o such a complete extent, b u t i f
the m e m b e r s
o f t h e c o m m i t t e e w i l l g o back, t h e y w i i l f i n d
that t h e idea i s n o t only elaborated i n there, b u t i t i s
dwelt u p o n again a n d again a n d i s referred t o i n a
dozen places,
Therefore I
half a
say this w a s t h e subject t h a t
was b e f o r e our c o m m i t t e e w h e n i t o r i g i n a l l y t o c k t h e m a t t e r
up and that a n y other conclusion t h a a that would, while b e ing a legitimate conclusion t o b e arrived at, n o t b e i n
harmony w i t h t h e plan that this committee h a d before i t for
discussion.
The Chairman: G e n t l e m e n ,
w e must make some progress
on this matter.
Vice Governor Calkins:
I
n the interest o f progreas,
why not begin a t the beginning o f this report and discuss
it paragraph b y paragraph.
W e a r e n o w discussing t h e last
paragraph o f the last proposal o f the last committee.
The Chairman: I
think that i s a good suggestion a n d
the Chair will adcpt it.
Y o u have t h e report o f t h e commit-
tee before y o u f o r consideration.
paragraph b y paragraph.
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Federal Reserve Bank of St. Louis
W
e will consider i t
T h e Committee recommend t h a t t h e
1350
privilege o f drawing Federal exchange drafts should b e limited t o t h e c o u n t r y banks, o r ,
i n o t h e r words,
t o those b a n k s
carrying 1 2 p e r c e n t reserve.
Governa: Wold: I
The Chairman:
move that that b e adopted.
G o v e r n o r Wold moves t h e adoption o f
recommendation No. 1
b y the committee.
Vice Governor Calkins:
M y guess i s the Federal Reserve
Board will take t h e same poSition i t did before a n d require
that that paragraph b e eliminated.
Governor Wold:
A r e w e going t o vote o u r o w n convic-
tions o r the convictions o f t h e Board?
Vice Governor Calkins:
it s h o u l d b e eliminated;
I t i s also m y conviction that
t h a t there s h o u l d b e n o limit t o
the banks that a r e t o use this Federal reserve exchange. I
cannot t h i n k o f any sound basis f o r eliminating a n y o f them.
I think i t is improper t o recommend i t for one class o f
banks a n d n o t extend i t t o all member banks:
T
o confine
this t o only t h e twelve p e r cent banks will v e r y nearly d e stroy i t s usefulness.
Governor Wold:
I s there any difficulty o n the part o f
the banks i n the cities?
Vice Governor Calkins:
Y e s ; I
think there i s consider-
able difficulty.
Governor Wold:
W e havent had any difficulty with any
bank of any consequence.
I t is just the little $25,000
banks, a n d that i s due t o the fact that t h e reserves a r e
all going t o b e transferred i n November, a n d t h e y will have
to c l o s e s o m e o f t h e i r accounts.
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Federal Reserve Bank of St. Louis
131
Vice G o v e r n o r Calkins:
banks S h o u l d c o m p l a i n ,
i
t i s quite natural t h a t thoce
b u t t h e complaint will probably b e
made that they a r e given a privilege t o use t h e system which
the larger banks a r e n o t given.
Governor McDougal:
I s i t not true that this committee
was given t h e responsibility o f undertaking t o arrange some
plan b y which t h e small bank, w h i c h could n o t afford t o
maintain i t s exchange account here, there, a n d every place,
could b e afforded t h e privilege w e are trying t o give t h e m
under t h i s p l a n ?
The Chairman:
T h a t i s t h e way I understand it.
Vice Governor Calkins:
I f this p l a n will b e o f n o
use t o t h e c i t y b a n k s a n d w i l l o n l y b e u s e d b y t h e s m a l l
$25 ,000 sani: why object t o giving the opportunity t o use
it t o the larger banks, w h o will never take advantage o f it?
Governor Wold:
T h e y will u s e i t for transferring
funds a t our expense.
Vice Governor Calkins:
D
o you propose t o prevent
that?
Governor Wold: I
d o not propose anything:
W e are
simply discussing this report a s i t i s now.
The Chairman:
I s there a n y further discussion?
Governor Wold has moved, his motion being seconded, t h e
adoption o f the recommendation i n paragraph 1 .
Governor Seay: I
was opposed t o it, b u t I was voted
down.
(The motion was carried, with Governors McCord,
Van Zandt and Calkins voting “NO".)
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Federal Reserve Bank of St. Louis
152
Governor Yeay: I
this a S a
report
a m opposed t o it, b u t I
of a
committee s u b m i t t e d
a m taking
t o this Conference
and I cannot vote against a n y o f the terms with which I disagreed, b u t which were finally adopted.
The Chairman:
W e a r e voting u p o n t h e adoption o f the
report o f the committee a s a recommendation t o the Federal
Reserve Board.
We will next consider paragraph (2), that the drafts
Should b e limited,
a s t o the amount d r a w n i n any o n e d a y
by a member bank, t o $10,000."
The vote o f the Committee i s that paragraph No.» 2 of
the original p l a n b e rescinded.
Vice Governor Calkins: I
would like t o suggest that
the votes b e recorded.
The Chairman:
vote recorded.
W i l l i t satisfy you t o have the minority
W e k n o w w h o a r e present.
Vice Governor Calkins:
T h a t i s equal t o m y suggestion,
of course.
The Chairman:
T h e chair will entertain a
motion with
respect t o the recommendation o f the committee, t o the effect that n o limit b e placed u p o n these drafts.
Governor Fancher: I
Governor Rhoads: I
The Chairman:
will move i t s adoption.
will second it.
I s there a n y discussion?
Governor V a n Zandt: I
would l i k e t o b e o n record a s
agreeing w i t h Governor McDougal i n the matter o f a charge
for exchange.
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Federal Reserve Bank of St. Louis
The C h a i r m a n ;
I
t seems
t o m e that would n o t affect
1.33
your vote p r o o r c o n o n this p a r t i c u l a r resolution.
Governor V a a Zandt: T
a m i x favor o f rescinding that
$10,000 limit.
(The motion was carried.)
Governor Wold: I
The Chairman:
wish t o b e recorded a s voting no.
G o v e r n o r V a n Zandt, I
understand y o u
wish t o b e recorded a s reserving your right t o charge t h e
current market rate f o r exchange i n connection with transfers
of funds under this metho#?
Governor Van Zandt: Y e s , Mr. Chairman.
Governor McCord: I
desire t o b e recorded i n the sane
manner.
Governor McDougal: I
think i t i s important that
consideration b e given t o that matter, because I
believe
it will become necessary f o r u s t o control t h e situation i n
some instances, a n d I think i t would b e well for the banks
to all understand that they have the right t o charge the
current rate for exchange i n case they think i t i s necessary.
The Chairman:
D o you think that i f three o f the banks
reserve their right t o make such a charge, that any o f the
other nine would hesitate t o make such a charge a s a protective measure?
Governor McDougal: I
do not think they would hesitate
to do so, but I think i t might b e well t o have some expresSion from them a s t o whether o r not t h e y might want t o exercise that right.
H o w d o you feel about it, Mr- Chairman?
The Chairman: I
would feel a t liberty t o d o it, a n d
it m i g h t b e n e c e s s a r y a s a
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Federal Reserve Bank of St. Louis
protective m e a s u r e .
£ 8 0 " n0t
134
understand there i s anything i n this p l a n that prevents u s
from doing it.
The committee recommends that paragraph No» 3 of the
Original plan b e reaffirmed, P a r a g r a p h 3 18 t o the effect
that t h e drafts should b e drawn b y the member banks u p o n
their own Federal reserve banks, and made receivable for
immediate availability a t par, etc.
T h e Chair will await
a motion.
Governor Rhoads: I
move that i t b e adopted.
Governor V a n Zandt: I
second it~
Vice Governor Calkins: I
would l i k e t o hear a n ex-
planation o f the proposed procedure u n d e r that Plan, whether
it i S receivable o n l y upon receipt o f confirming advice,
or whether i t Shall b e receivable without advice.
is the milk i n the cocoanut,
because,
T h a t
s o far a s w e are concerned,
b e i n g l o c a t e d o n t h e e x t r e m e e d g e o f nowhere,
there i s n o such thing a s getting advice t o New York before t h e drafts f r o m our member banks a r e received.
Governor Seay:
C h a r g e t h e bank d r a w i n g t
i a t the time
drawn.
Vice Governor Calkins:
I s i t t o b e confirmed b y the
other Federal reserve banks?
Governor Seay:
N o .
Vice Governor Calkins:
T h i s p l a n proposed b y the N e w
York directors i s a little ambiguous.
(Informal discussion followed.)
Vice Governor Calkins:
I
t appears t o m e that the
paragraph should b e £ gaplified b y a statement t o the effect
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Federal Reserve Bank of St. Louis
£30
that advice i s not necessary f o r its receipt f o r immedlate
availability a t par b y any other Federal reserve bank.
The Chairman:
receivable s u b j e c t
I f t h e draft i s not payable,
t o final payment,
provided f o r under paragraph 5
i s n o t t h e advice
sufficient?
Vice Governor Calkins: I
yet» I
o r is
havs n o t lonked a t No- 5
am considering this one. T h i s reads “that the
draft should b e .rawn b y member banks u p o n their o w n reserve b a n k a n d made receivable f o r i m m d i a t e availability
at par a t a n y one Federal reserve b a n k specified i n the
draft."
I t doesn't say that they shall be received for
immediate credit subject t o final payment b y the bank o n
which they are originally drawn.
The Chairman: V o e s n ' t that imply receipt for immediate
availability, instead o f reciting that they shall
b e payable
at the bank designated.
A
m I not right i n saying that
was t h e idea; t h a t was t h e impression meant t o
b e conveyed,
Governor Treman?
3
Vice Governor Treman:
Yes.
vice Governor Calkins:
F o r immediate availability
means f o r immediate é@redit. I
should think t h e words
“subject t o final payment" should be added there.
Governor Van Zandt: I
think that would clarify i t
a little bit, i f you add the words "subjeqt t o final payment."
The Chairman:
ment
W h y d o you not offer that a s a n amend-
t o the motion?
Vice Governor Calkins: I
an expression o f opinion. |
am only trying to bring out
I am not trying t o impress m y
\
views u p o n t h e conference b y any means. H o w e v e r ,
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Federal Reserve Bank of St. Louis
‘r
i f i t meets
Izy
oI
with approval, I
will b e very glad t o offer that amendmsr:,
The Chairman:
I s there a n y further discussion o f
the m o t i o n t o a d o p t t h a t p a r a g r a p h ?
Vice G o v e r n o r Calkins: J
move t h a t t h e p a r a g r a n n
be amended b y the additicn o f the words “subject t o final
payment."
Governor Fancher: I
The Chairman:
the a m e n d m e n t I
second it.
I f there i s n o further discussion o f
will p u t i t t o vote.
(The motion, being duly seconded, was carried.)
The Chairman:
T h e p a r a g r a p h w o u l d t h e n read:
"That the drafts should b e drawn b y member banks upon
their o w n Federa’. reserve b a n k and made receivable
f o r immediate availability a t par Subject t o final payment
a t any
one Federal reserve bank specified i n the draft."
The Committee recommended t h e t paragraph No. 4
original p l a n b e reaffirmed.
of the
P a r a g r a p h No. 4 is:
"That a special uniform form o f draft b e adopted
by
all the Federal reserve banks, such drafts when
drawn upon
this f o r m t o b e the only ones which a r e receivable
f o r im-
mediate credit a t par."
Is there a motion a s t o the adoption o f that paragraph?
Vice Governor Treman: I
Governor Fancher: I
The Chairman:
paragraph
move i t s adoption.
second t h e motion.
I t i s moved a n d seconded t h a t that
b e adcpted a s a
part o f o u r r e c o m m e n d a t i o n
t o the
Board.
Governor Wold: I
drew from Governor Seay's remarks
that i t was contemplated t h a t this Should
b e the o n l y form
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Federal Reserve Bank of St. Louis
137
of d r a f t t h a t m e m b e r b a n k s s h o u l d b e p e r m i t t e d
The Chairman:
t o draw.
F o r immediate credit, Governor Wold.
Governor Wold: I
think Governor Seay had another idea
in mind.
Governor Seay: I
did have another idea, b u t I did
not prevail u p o n m y bretheren.Governor Wold: I
a m not s o sure that y o u are n o t
Governor Seay: I
a m very glad t o hear that, Governor
The Chairman: I
there any further discussion of the
right.
Wold.
motion t o adopt paragraph 4 ?
Governor Seay:
T h e idea that I had, and advanced,
was that unless a bank agreed t o draw all o f its drafts i n
this w a y i t should n o t b e permitted t o draw a n y drafts o n
a Federal reserve bank.
ing possible c o n f u s i o n ,
T h a t was for the purpose o f avoidn o t t o allow the member b a n k t h e
excuse o f not advising, a n d also t o get them out of the
habit o f drawing against funds which they did not have.
Governor Van Zandt: I
think this special uniform
form o f draft should b e obtainable only from the Federal
reserve banks.
The Chairman: I
think i t was contemplated t h a t the
Federal reserve banks should furnish them a t their expense,
that t h e Federal reserve banks should furniah t h e form o f
Federal reserve exchange drafts for use o f their member
banks.
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Federal Reserve Bank of St. Louis
A m I not right, Mr. Treman?
138
Vice Governor Treman:
Yes.
T h a t i s explained i n
paragraph 7 , that i t shall b e according t o the terms t o b e
agreed: upon.
The Chairman:
I f there i s n o further discussion I
will p u t t h e motion.
(The motion, being duly seconded, was carried.)
The Chairman:
T h e committee voted that paragraph 5
of the original p l a n b e amended t o read a s follows:
"That the drawing bank b e required t o give immediate
advice t o its Federal reserve b a n k o f all Federal reserve
exchange drafts drawn, and, i n the case o f drafts m a d e r e ceivable a t another Federal reserve bank, t o forward a
duplicate a d v i c e f o r t h w i t h
t o the Federal reserve b a n k a t
which such drafts a r e made receivable;
a n d that a l l such
drafts b e immediately charged t o the member bank's account
on receipt o f advice b y the Federal reserve b a n k o n which
they are drawn."
Is t h e r e a
motion f o r t h e adoption o f paragraph 5
as
amended .
‘Governor Fancher: I
Governor Seay: I
The Chairman:
so move, Mr. Chairman.
will second that.
I s there a n y discussion o f this para-
graph?
Governor McDougal:
I
n the succeeding paragraph, N o , 4 ,
I think i t is plainly evident that w e d o contemplate that
thereare t o be two kinds o f drafts drawn b y member banks.
Paragraph 4
says "That a
special i t e r a
H e e s o f draft b e
adopted b y all t h e Federal reserve banks, S u c h drafts, w h e n
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Federal Reserve Bank of St. Louis
}
139
drawn u p o n t h i s f o r m t o b e t h e o n l y o n e s r e c e i v a b l e f o r
immediate credit a t par." P a r a g r a p h 5 says, "That the drawing bank b e required t o give immediate advice t o the Federal
reserve b a n k o f all Federal reserve exchange drafts drawn,"
and I think i t i s all right t o that point, b u t the following
words, " i n the case o f drafts made receivable a t another
Federal reserve bank" should b e cut out.
Governor Seay: I
in my mind, a t least.
think I
can explain clearly what w e
W e had several forms before u s i n
New York, a n d down i n the left hand corner, somewhere, there
was a Space left t o designate t h e name o f any special
Federal reserve bank which it was desired t o receive that
draft. Now, if that form 6f draft was used; whether the
hane were put i n or not, o r whether i t was intendéa t o
circulate within the district and go to the Federal resebve
bank o n which drawn, then, i n the case o f that form being
used, advice must b e sent t o the Federal reserve bank,
and
all other forms o f drafts, whether u s e d i n the
district o r - o n
outside o f the district, a n d which g o t into t h e
hands o f
another Federal reserve bank, would n o t b e received
for
immediate availability.
Governor McDougal:
Governor Seay:
T h e y would n o t o n the other form.
Governor McDougal:
ment.
B u t would they b e advised?
A l l right; t h e n we are i n agree -
T h a t i s m y idea exactly.
Governor Seay: C o u p l e d with that there was a Plan,
which I had hoped would b e adopted, t h a t t h e
member D O R R
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Federal Reserve Bank of St. Louis
140
would n o t b e permitted t o use this f o r m unless
i t agreed
to draw all i t s drafts o n it, b u t that idea w a s
n o t agreed
to.
The Chairman:
I s there a n y further discussicn o f
the
motion t o adopt paragraph 5 ?
(The motion, being duly seconded, was carried.)
The Chairman:
T h e committee voted t o
insert a
new
paragraph numbered 6 , a s follows:
"That the Federal reserve bank o n
which the draft i s
drawn shall credit b y telegraph i n
the Gola Settlement Fund
the Federal reserve b a n k a t which t h e
draft i s t o b e received e a c h d a y t h e t o t a l a m o u n t
o f 6uch draft
i n round
amounts o f $10,000; such advices t o
be sent i n time t o reach
the Federal reserve Board not later
than 3 o'clock p. m, o f
each day."
Is there a n y discussion,
o r is t h e r e a
motion t o adopt
that paragraph?
Governor Rhoads: I
move t h e adoption o f it.
Vice Governor Calkins: I
would l i k e t o have some
members o f t h e committee elucidate t h a t
a
little b i t for
my benefit.
Vice Governor @reman:
" T h a t t h e Federal reserve
bank
on which t h d r a f t i s drawn shall
credit b y telegraph i n the
Gold Settlement Fund t h e Federal
reserve b a n k a t which t h e
draft i s t o b e received e a c h
d a y t h e total amount o f such
drafts i n round amounts of ten
thousand dollars,"
Governor Seay:
advice.
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Federal Reserve Bank of St. Louis
T h a t being t h e d a y they
receive t h e
Vice Governor Calkins:
B u t 1 h @ays s u o h edyviee t o
reach the Federal Reserve Board n o t later t h a n 3 0 cicck o f
each day.
T h a t could n o t b e done.
Governor Fancher:
I t . was t h o u g h t ,
i n the actual o p e r a -
tion o f this, that y o u would receive, f o r instance,
i n the
morning f r o m c e r t a i n o f y o u r m e m b e r b a n k s , n o t i c e t h a t
they h a d made a certain volume o f drafts, receivable a t
New York, a n d those would b e totaled u p until y o u found
there was $110,000 in drafts receivable at the Federal reserve bank of New York; o r it might be $115,000, but you would
transfer t o the Gold settlement f u n d tte r o u n d amount o f
$110,000 b y wire t o the Federal reserve Board.
Vice G o v e r n o r Calkins:
(Interrupting)
T h a t i s per-
fectly simple, b u t w h y could i t not b e made workable?
W h y
not make i t read that the telegram could b e dispatched
at the close o f the day's business,
I
f this plan would
work out between New York and San Francisco, t h e one
day's
advice would always g o over t o the next day's business.
Governor Fancher:
I
n view o f the fact that four o r
five days would elapse i n almost a l l cases, y o u would probably g e t a d v i c e f r o m t h e d r a w i n g b a n k b e f o r e t h e d r a f t
would
be received i n N e w York?
Vice Governor Calkins:
O h , yes:
T h e r e i s n o objec-
tion t 6 - i t f r o m t h a t p o i n t o f view, b u t t h e Q u e s t i o n
is
whether
w e could make t h e transfer through
the Board be-
fore three o'cldéck on the day of the receipt o f advice.
Vice Governor Treman: W h a t would yor Suggest, Mr.
Calkins?
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Federal Reserve Bank of St. Louis
142.
Vice Governor Calkins: I
would suggest t h a t t h e no-
tice o f transfer b e dispatched a t the close o f each day's
business.
The Chairman:
T h a t would result
i n the paying bank,
or the bank that receives t h e draft for immediate availability, n o t being put i n funds t o pay that draft until t h e
following day.
Vice Gcvernor Calkins: I
but I
realize that, Mr+ Chairman,
d o n o t s e e h o w i t c a n b e avoided.
The Chairman:
T h e r e i s a motion before t h e house
for the adoption o f that paragraph.
(There were calls for the question, a n d the motion,
having been duly seconded, was carried.’
The Chairman:
graph No. 6
T h e committee recommends t h a t para-
of the o l d plan b e renumbered 7
and amended t o
read a s follows:
"Tauat this plan become operative o n the
d
a
y of
» 1917, a n d b e maie available t o such member
banks a S may agree t o terms formulated b y theirFederal r e -
serve banks."
Is there a motion for the adoption o f that paragraph?
Governor V a n Zandt: I
Governor Fancher: I
The Chairman:
move t h e adoption o f it.
s e c o n d t h e motion.
T h e Secretary raises t h e question a s
to the filling in: of that date.
Governor S e a y : I
suggest
w e leave i t blank until t h e
conference w i t h t h e Board.
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Federal Reserve Bank of St. Louis
The Chairman: I
think i f w e leave i t blank n o action
143
is necessary, b e c a u s e
a s t h e p a r a g r a p h i s i n t h a t form, i t s
adoption will leave i t blank.
(The motion, being duly seconded, was carried.)
The Chairman:
T h e committee recommends t h a t t h e
views o f the committee,
a s expressed i n the Last t w o para-
graphs o f the original report b e reaffirmed,
t o wit:
"That under existing conditions and the terms above
recited, there will b e n o necessity f o r daily settlement
through t h e Gold Settlement F u n d a t t h e present time, n o r
any necessity f o r establishing a silver a n d legal fund,
as Suggested i n the Gedney plan."
Is there a
motion f o r the adoption o f that paragraph?
Governor Rhoads: I
move i t s adoption.
(The motion, having been duly seconded, was carried.)
The Chairman: I
would like t o call t h e attention o f
the C o n f e r e n c e o
t the Suggestion b y Governor Harding, a s
set forth o n the first page o f the report o f the committee
of March 19. G o v e r n o r Harding suggested confirmatory a d vice f r o m the parent Federal reserve b a n k t o the Federal
reserve bank designated a s the point o f availability o f
this
check.
T h a t was coupled w i t h t h e suggestion o f
the commit -
tee f r o m the Federal Reserve B a n k o f N e w York that these
drafts
b e m a d e payable, i n s t e a d o f r e c e i v a b l e .
I would like t o b e recorded a s being i n favor o f making
thése drafts payable at designated points subject to telegraphic a d v i c e a s s u g g e s t e d
Vice Governor Calkins:
b y G o v e r n o r Harding.
I
tle f u r t h e r t i e p l a n proposed, I
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Federal Reserve Bank of St. Louis
n order t o understand a litwould l i k e t o a s k t h i s
144
question.
I
n view o f the fact that o n e Federal reserve
bank only i s t o b e designated a t which t h e draft will b e receivable f o r i m m e d i a t e a v a i l a b i l i t y
final payment,
a t par, s u b j e c t
to
i t i s certain that a very large proportion,
or practically a l l o f these drafts, will b e drawn receivable
in New York City a t the Fed -ral Reserve Bank o f New York.
What i s proposed i n the w a y o f compensation t o the Federal
Reserve B a n k o f N e w Y o r k f o r h a n d l i n g t h e v o l u m e
o f business
that will arise f r o m the operation o f this system, i f i t
works?
The Chairman:
N o compensation.
Vice Governor Calkins:
float.
N o compensation except t h e
T h e Federal reserve B a n k o f New York will o f course
have advantage o f the float, running t o a very large
amount a t times,
i f this restriction confining i t t o t h e
country b a n k s i s removed.
Governor Seay:
sumption?
draws a
I s not that a
rather gratuitous a s -
I t i s taken f o r granted that w h e n a member b a n k
draft o f that k i n d i t will have approximate know-
Ledge o f w h e r e
i t i s t o b e sent, a n d t h a t i t w i l l a l w a y s
go t o the nearest Federal reserve bank. I
think that that
Spirit ought t o dominate t h e use o f these drafts, a n d
that efforts should b e made t o find o u t t h e approximate l o cality t o which these drafts will b e sent.
T h a t t h e near-
est Federal reserve b a n k Should always b e designated, t h e
object b e i n g t o g e t t h e s e t h i n g s h o m e a s q u i c k l y a s possible,
It doesn't appear t o me, that being so, unless there i s a
direct transfer from San Francisco t o New York, that New
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Federal Reserve Bank of St. Louis
York will have t o b e used.
Vice Governor Calkins:
T a k e t h e case o f S a n Francisco,
and I suppose that what I have i n mind might apply t o some
of t h e others,
a n d there w i l l b e v e r y f e w calls,
s o small
a number a s t o b e negligible, f o r such drafts payable elsewhere i n New York.
payable
T h e r e will b e n o calls f o r such drafts
i n Richmond, A t l a n t a
o r Dallas
o r Minneapolis.
Occasionally there m a y b e one f o r Chicago a n d occasionally
one f o r Boston;
b u t t h e number,
i n proportion,
small a s t o b e o f n o consequence whatever.
it appears t o me, will apply t o Chicago.
will b e s o
T h e same thing,
F o r instance,
drafts iSsued i n tis Chicago district will b e drafts t o b e
poneiabie i n New York i n the vast majority o f cases-
The
bulk o f t h e d r a f t s d r a w n i n t h e w h o l e s y s t e m w i l l b e r e c e i v -
able a t the Federal Reserve B a n k o f N e w York, b o t h i n number a n d i n volume. I
cannot s e e h o w that will b e questioned.
Governor Seay: I
do not take that view o f i t i n the
least. T a k e for instance the present plan of remitting.
Any c h e c k s r e c e i v e d ,
on New York.
t h e present p l a n i s t o craw a
draft
B u t take our own district, f o r example.
Sup-
pose Baltamore were t o send t o a member bank i n our district
c o r e r
f o r remittance.
I s i t t o b e supposed
that t h a t m e m b e r b a n k i n o u r d i s t r i c t w o u l d d r a w a
draft
and designate N e w York as the receiving bank? W o u l d n ' t
it designate its own Federal reserve bank?
Vice Golvernor Calkins:
Y e s , b u t w e are not talking
about that.
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Federal Reserve Bank of St. Louis
Governor. Seay:
A n d again,
i f y o u please.
Suppose
146
a member b a n k sells exchange o v e r i t s counter t o a cus-
tomer, a n d the question will b e ‘Where are you going t o
send that check?
to Omaha?
A r e you. gotng t o pene a t t o Denver o r
I f i t should b e i n your o w n district t h e draft
would b e o n you a n d woulda come back t o you.
be i n the vicinity o f C
h
i
I f i t should
cr Minneapolis
a go o
those banks
would b e designated, and. it will only. be ce e e case o f a
direct transfer o f funds from: one place a n d another t o New
York that N e w York will b e specified. I
believe N e w York
will take i t s place a s paveebe havingthe majority o f banks
designate i t , but that N e w York will b e o n e case o u t o f
twelve.
T h e other Federal reserve banks will b e dvsig-
nated w h e n e v e r t h e d r a f t i s t o b e s e n t i n t h e i r vicinity.
Vice Governor Calkins:
O f course, M r + Chairman, t h e
district o f the drawing b a n k m a y b e left o u t o f the discussion.
I f the draft i s t o b e used i n the district o f the
drawing bank, i t will b e drawn o n i e e e e !
reserve bank
ofthat district, of course, but in case of drafts drawn
for other purposes,
a t least i n the Twelfth District, t h e
majority o f them will b e drawn o n New York, the next i n
proportion being “hicago, probably.
Governor Seay:
U n l e s s something i s t o b e paid i n
New York it wouldn't be.
Vice Governor Calkins:
F o r instance, t h e volume o f
Federal reserve notes o f the San i m i n e s bank, returned
from N e w York, i s vastly greater t h a n those f r o m all t h e
other banks combined.
I
used almost exclusively.
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Federal Reserve Bank of St. Louis
n m y opinion N e w York would b e
147
Governor V a n zandt:
T h a t i s brought about b y reason
of the fact that these member bauks h a v e S e n t those Federal Reserve notes t o New York t o creat. N e w York exchenge
because t h e y a r e called o n for N e w York exchange.
I f some
man o u t there wants t o p a y a bill i n Columbus, Ohio, h e
gets a
piece o f N e w York exchange;
i f h e wants t o pay a
bill forfurniture a t Grand Rapids, Michigan,
York exchange.
but I
I
h e gets N e w
t i s a l s o v e r y l a r g e l y d o n e i n t h e west,
think they will draw exchange o n the nearest Federal
reserve b a n k when this i s put into operation.
Governor Wold: I
Seay.
a m inclined t o agree w i t h Governor
Y o u will b e surprised b y the amount o f exchange
drawn upon t h e other banks.
N e w York i s going t o b e dis-
appointed i n not having a s many drawn upon it, when t h e
system i s organized a s n o w anticipated.
Vice G o v e r n o r Treman:
must n o t overlook.
I
T h e r e i s mother point y o u
n the past, a l l over t h e United States,
every b a n k o f a n y size h a s kept a
New York account.
the shifting aroundof t h e reserves,
it o e
I
n
t o m e they
are g o i n g t o k e e p t h e i r m o n e y i n t h e r e s e r v e b a n k o f t h e i r
own district, a n d when a customer comes i n and asks f o r
New York exchange, a n d h e hasn't a n y account i n New York
on which t o draw the exchange, h e will say, "What d o you
want t o do with this?"
I f they tell him they want t o pay
a draft a t Columbus, O h i o , f o r s o m e h a y i n g t o o l s t h a t h e
has bought. they will say, " I will give you a draft o n
Cleveland, Ohio", a n d i t will g o just the same a s the
New Y o r k c r a f t . I
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Federal Reserve Bank of St. Louis
think that
i s the way
i t will w o r k o u t
a great derl more than i s anticivated.
Governor Seay:
T h a t i s m y judgment.
Vice Governor Calkins: I
seem t o b e i n the minority.
It i s unimportant, except a s bearing o n what t h e proposed
plan i s t o b e i n regard t o compensation. i
ttiok, if: m y
views a r e a n y where near correct, t h a t t h e N e w York Bank;
will f i n d itself loaded w i t h a very large amount o f business
in connection w i t h this matter.
Vice Governor Treman: I
think w e will a t first, m y -
self, but i t WK11 gradually work out along the other line.
Governor McCord:
M r : Chairman, i t seems t o m
the question before us. 1
that
has t o d o with Governor Harding's
Suggestion a s t o telegraphic advices.
N o w , collections
come from other districts down into the Atlanta district,
say from Philadelphia houses,
t o b e drawn i n odd amounts.
Is i t contemplated that w e should b e exact i n the amount
of this advice,
o r should w e s a y i n round Sums, S o much?
Vice Governor Treman:
Governor McCord:
I n round sums.
A l l right, because the other way
it w o u l d b e a b s o l u t e l y i m p r a c t i c a b l e ,
The Chairman:
M r + Curtis has volunteered t o explain
somewhat fully Governor Harding's suggestion.
Mr. Curtis: I
volunteer this only because, coming
down o n t h e t r a i n yesterday,
s o able a
mind a s t h a t p o s -
sed b y Governor McDougal, h a d n o t grasped exactly all t h e
details o f this.
A s I understand t h e plan i t i s this:
"Every member bank has a n A+ B. A. number. Z a c h member b a n k t h a t d r a w s .
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Federal Reserve Bank of St. Louis
Federel
reserve
b a n k drafts
i s to
149
send a
daily letver, a t the e n d o f the day, t o its o w n
Federal reserve bank, describing i n detail a l l crafts
drawn payable, let us say, at New York. A
duplicate o f
that, with the duplicate signatures o f the officers who
have signed those ‘rafts, i s sent t o the Federal reserve
bank o f New York.
I t m a y contain, l e t u s say, t e n drafts
that have been given o u t b y that bank.
O n receipt o f ad-
vice t h e Federal reserve b a n k t o which that member b a n k belongs, S a y Dallas, immediately telegraphs t o the reserve
bank a t N e w York a telegram identifying t h e letter, w h i c h
will b e i n substance
a s follows:
F i r s t t h e transit A . B . A ,
number o f the member bank; s e c o n d ,
a n alphabetical indica-
tion "A, B, C, D ' and s o forth, t h e number o f the letter that
that bank is sending i n t o the Federal reserve bank o f
Dallas, a n d third a code word indicating that t h e footings
in that letter a r e n o t i n excess o f five thousand, s i x
thouSand, t e n thousand o r fifteen thousand,
s o that when
the F e d e r a l r e s e r v e b a n k o f N e w Y o r k r e c e i v e s t h e d u p l i c a t e
letter f r o m the member b a n k i n the Dallas district, p l u s
the telegram, everything o n that duplicate letter i s identified b y a very brief telegram, containing probably n o t more
then t e n words,
T h a t same telegram would £nclude i n i t
advice o f all other member banks t h a t have sent i n letters
of advice to the Federal reserve bank of Yallas, indicating
that t h e y h a d drawn drafts payable a t N e w York, o r receivable
in New York, s o that the telegram would read Something a s
follows:
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Federal Reserve Bank of St. Louis
Wy dseh o k
That is the member bank's A. Be A+ number;
"A" indicating the first letter o f advice that that
member bank had sent the reserve bank of Dallas; "Drake",
indicating that t h e footings o f the letter were n o t more
than $5,000, but were more than $3,000, let us say, o r any
arbitrary amount that y o u want.
T h a t tells. t h e Federal
Reserve B a n k o f N e w York that w h e n i t receives a
advice a l l o f those drafts a r e good.
duplicate
T h e n t h e telegram
goes o n to say "779 A. B. A.", the number of another member
pank "B", meaning its second letter o f the member bank;
"Duke" a s a code word indicating that the footing i s between
seven a n d eight thousand dollars,
o r whatever y o u choose,
and when y o u get that, p l u s that duplicate advice, y o u
have t h e whole story i n New York, a n d they are safe i n paying o u t d r a f t s t h a t c o m e i n t h a t a r e m e n t i o n e d
cate l e t t e r o f advice.
I
t seems
t o me it is a
and s a f e w a y o f c o n d u c t i n g t h i s exchange.
i n the duplipractical
t . Laink t t t s
a good scheme.
Governor McDougal: I
would like t o s a y that that
very clear statement o f the matter d i d clear i t u p for me,
but I do believe, w h e n y o u comsider t h e p l a n a l l t h e w a y
through, that that advice i s not necessary» I s n ' t it
proposed t h a t y o u are going t o have your drafts payable
instead o f simply collectible through t h e bank?
Mr- Curtis:
T h i s telegram would make i t immaterial
whether t h e y w e r e p a y a b l e
o r collectible,
a n d t h e reserve
bank where t h e y a r e t o b e received i s absolutely protected
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Federal Reserve Bank of St. Louis
by t h e telegram.
Governor Fancher: ‘Suppose I had advice, as I might
have, o f the drawing o f 856 banks o n N e w York,
and I
would have t o identify b y telegram this letter o f advice,
and give all those details, why, i t wouldn't b e possible.
Vice Governor Calkins:
Fancher h a s said, I
R e f e r r i n g t o what Governor
g o a little further.
S u p p o s e
w e have
287 banks permitted t o use t h e system, a n d t h e y use it;
Suppose i t r e a l l y b e c o m e s
be 287 descriptions
a n a c t i v e system.
T h e r e would
t o send i n a telegram.
The Chairman: I
would l i k e t o a s k you,
as a
practic-
al matter, t h a t y o u believe t h a t 2 8 7 o f your member banks
would b e drawing drafts o n New York o n any given day, o r
anything like that number?
Vice Governor Calkins: I
am not sure that they would,
under t h e plan, b u t i f the p l a n appeals t o them a s a satisfactory plan, o f course I
don't m e a n 287, because I coulda
not s a y o f f h a n d h o w many, b u t t h e m a j o r i t y o f t h e m w i l l
use i t .
The Chairman:
D o the banks o f your district draw New
York exchange e v e r y day?
Vice Governor Calkins:
banks d o ;
Y e s , a
majority o f the small
o r , n e a r l y e v e r y day.
Governor McCord:
T h a t would practically b e a certifi-
cation o f those drafts, w o u l d i t not?
Vice Governor Calkins:
Governor McCord:
I
Yes.
n spite o f the fact that Congres
has ruled that t h e orly dertification that c a n b e made must
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Federal Reserve Bank of St. Louis
ube~s
be made i n writing o r stamping a ross the face o f a paper.
Mr. Curtis:
I t would b e i n lieu o f certification.
Governor Seay:
tification.
I t would be substitutuon but rot cer-
T h e plan a s just explained, w h i c h was t h e
plan proposed b y Mr. “arding,
i s opposed t o the p l a n adopted
by the committee, a n d f o r that reason, w h e n t h e minutes
were received b y me and I read "This plan, while not acted
upon formally,
w a s unanimously approved
i n principle
b y the
committee" I objected t o it because that was not the case.
I think that before this goes before the Board that ought to
be altered.
T h e p l a n w e adopted i s opposed
t o the plan
suggested b y Mr. Harding, a n d i t seems t o m e that that
language S h o u l d n o t b e i n there, b e c a u s e t h e p r i n c i p l e
of
advice t o the receiving bank was n o t approved unanimously.
The p r i n c i p l e c o n t a i n e d
i n the explanation j u s t given b y
Mr. Curtis i s opposed t o the plan o f Governor Harding, a n d
therefore
i t could n o t have b e e n unanimousl a p p r o v e d .
Quite t o the contrary,
The Chairman:
i t was unanimously rejected.
D o you make t h a t a s a motion, Governor
Seay?
Governor Seay:
M y motion i s that this language i n
the report, t h e last sentence o f the first paragraph,
which reads, "This plan, while not acted upon formally, was
unanimously a p p r o v e d
i n principle
b y t h e committee,"be alter-
ed t o read "this p l a n was n o t acted u p o n formally b u t t h e
principle o f advice t o the receiving b a n k was unanimously
a p p r o v e d " --
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Federal Reserve Bank of St. Louis
Mr» Curtis: A d v i c e from whom?
154.
Governor Seay: .
From the drawing bank. C l e a r l y i t
is opposed t o what w e did adopt, a n d therefore I
Say w e
could n o t have approved something t h a t w e did not adopt,
and Something contrary t o what w e did adopt- W h a t was approved u n a n i m o u s l y w a s t h e p r i n c i p l e
o f advising t h e receiv-
ing bank, a n d the drawing b a n k i s t o d o that, n o t t h e F e d eral reserve bank,
W e rejected that.
B u t t h e principle
aS :
of advising t h e receiving b a n k . " the drawing b a n k was
unanimously approved.
Governor V a n Zandt: I
would l i k e t o offer a motion
right h e r e .
The Chairman:
the f o r m o f a
G o v e r n o r Seay,
d o you offer that i n
motion t o a m e n d t h e c o m m i t t e e r e p o r t ?
Governor Seay: I
would like t o offer this, t h a t this
plan was n o t acted u p o n formally b u t the principle o f
advice b y t h e d r a w i n g b a n k t o t h e r e c é i v i n g b a n k w a s
unanimously approved.
(Informal d i s c u s s i o n f o l l o w e d w h i c h t h e r e p o r t e r w a s
directed not t o take. )
Governor V a n Zandt:
prepare a
A s I understand i t w e are t o
report t o the Board f r o m this Conference, a n d
we
are only taking t h e report o f this committee a s the
basis
upon which t o work.
W e have gone over the report o f the
committee i n full and have approved i t with a few Slight
Changes.
I now move you, Mr. Chairman, i n substitution, a s Mr.
Seay's motion did not receive a second, that the report
of
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Federal Reserve Bank of St. Louis
155
the Conference o f Governors begin right here, w i t h this
paragraph:
"The plan reported b y the committee a t its meeting of
January 22nd, 1917, w a s taken u p for discussion paragraph
by paragrap h", etc.
(There were several seconds.)
Governor Seay: I
will accept the substitute.
(Whereupon informal discussion followed which t h e re-
porter was directed not t o take.)
Governor Seay: I
move that t h e closing sentence o f
the statement b y Mr. Harding,
t o the effect that t h e plan
was n o t a c t e d u p o n f o r m a l l y b u t w a s u n a n i m o u s l y a p p r o v e d
principle b y the committee,
in
b e stricken f r o m the minutes o f
the meeting.
Governor V a n Zandt:
W h i l e that meets t h e situation
with regard t o cutting that out, i t does n o t quite agree
with m y motion.
M y motion was that t h e report o f this
Conference t o the Federal Reserve Board o n this subject
begin with the paragraph immediately following that:
“The plan reported b y the committee a t its meeting of
January 22nd, 1917, w a s taken u p for discussion paragraph
by paragraph."
Governor Seay: I
understand that, but the object i s
to get this expression out o f here i f i t does not correctly
express t h e facts.
I move t h e eliminatior o f the closing sentence o f the
paragraph containing Mr. Harding's Suggestion f r o m
t h e report.
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Federal Reserve Bank of St. Louis
156
The Chairman:
G o v e r n o r V a n 4andt, w i l l y o u allow
that t o take precedence?
Governor Van Zandt:
The Chairman:
Y e s , Mr- Chairman,
W i t h the c o r e n t o f Governor V a n Zandt
Governor “eay moves that the sentence |
" T h i s plan,
while n o t acted u p o n formally, w a s unanimously approved i n
principle b y the committee" b e eliminated from the commit-—
tee's report.
(The motion, being duly seconded, was carried.)
The Chairman:
N o w , Governor V a n Zandt, d o y o u wish
to renew your motion?
Governor Van Zandt:
Governor Seay: I
Y e s sir, Mr+ “hairman.
will second that motion:
The Chairman: G o v e r n o r Van Zandt's motion is t h a t
the report o f this Conference t o the Federal Reserve Board
on this subject beginning w i t h the paragraph,
o n the first
page, which reads, "The plan reported b y the Committee a t
its meeting o f January 22nd, 1917, w a s taken u p
for discus-
Sion, paragraph b y paragraph", etc.
Governor Seay:
A n d that the Conference approved the
plan submitted b y the committee, together with the amend
—
ments adopted b y this Conference.
Governor V a n Zandt:
T h a t i s satisfactory t o me.
( The motion, having b e e n duly seconded, w a s
carried.)
The Chairman:
I t i s understood that the Secretary
will revise t h i s a n d get i t i n proper f o r m
for presentation
to t h e B o a r d t o m o r r o w .
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Federal Reserve Bank of St. Louis
T h e Conference
will convene tomor-
row at 9 o'clock.
I s there any further business you wish
to take u p this evening?
Governor Seay:
T h e r e i s a resolution that I
like t o have considered.
would
W e have tried r e p e a t e d l y o
t have
the Secretary o f the Treasury convert o u r three p e r cent
notes i n t o bonds. I
think t h e time i s very prop#tious n o w
for u s t o renew that request. I
think the situation pre-
sents a n entirely different aspect, a n d I think there i s
very m u c h stronger reason n o w f o r the request, a n d 1 think
the matter i s o f such importance t o the Federal Reserve
System that w e ought n o t t o let i t g o without making enother
tryThe resolution that I
had i n mind was somewhat like
this:
"Whereas, t h e Federal Reserve Banks n o w have a
large
amountof o n e year three p e r cent notes o f the Government,
which carry a n obligation o f annual renewal, a n d
"“Whereas,such notes are not available a s security for
note issues, a n d under present conditions a r e n o t salable
to banks,
o r t o t h e public,
ible i n t o reserve,
a n d a r e therefore n o t convert-
and
"Whereas, i t is eminently desirable that the resources
of the reserve banks should be kept i n a state o f liquidity,
and
“Whereas, i t is believed that such notes should not; be
converted i n t o bonds b o t h t o the advantage o f t h e Government
and t h e reserve banks,
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Federal Reserve Bank of St. Louis
"Therefore, B e i t Resolved, That the Federal Reserve
158
Board b e respectfully requested t o lay before t h e Secretary
of the Treasury t h e application o f the Federal reserve
banks f o r t h e c o n v e r s i o n o f t h e i r t h r e e p e r c e n t o n e y e a r
notes i n t o t h i r t y y e a r t h r e e p e r c e n t bonds.
Governor McDougal: I
Governor Seay: I
ask for it.
will second that.
believe t h e time i s propitious t o
H e certainly cannot have t h e same reason that
he had formerly, because conditions a r e s o changed:
are n o t Salable.
They
T h e Government h a s n o chance o f redeem-
ing them because i t will have hundreds o f millions a h e a d o f
them, a n d i t i s very important t o convert those notes i n t o
bonds and into a reserve which we may b e able t o use, both
for t h e benefit o f the Government a n d f o r t h e benefit o f
our member banks. I
hope t h e Secretary will b e willing t o
consider i t under those terms.
The Chairman:
I s there a n y discussion?
Governor Wold: I
sent w h a t c h a r a c t e r
would like t o inquire o f those pre-
o f security t h e y prefer,
t h e thirty
year t h r e e p e r c e n t b o n d s t h a t t h e y c a n n o t sell,
o r the one
year notes that might b e made available for circulation?
Vice Governor Calkins: M i g h t b e made available for
circulation?
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Federal Reserve Bank of St. Louis
Governor Wold:
Yes.
Vice Governor Calkins:
Governor Wold:
W h a t d o y o u mean b y that?
T h e r e w a s a n amendment—--
Vice G o v e r n o r Calkins:
T h e y .withdrew that.
(Informal discussion followed.)
15¢
The Chairman:
There
i s
m o t i o n before t h e house.
That i s Governor Seay's resolution i s before us.
Governor Seay: I
man. I
offered i t tentatively, Mr+ Chair-
a m not particularly anxious t h a t i t should b e
adopted. I
d o think i t highly desirable,
i f there i s a n y
way f o r u s t o get r i d o f these three p e r cent notes, t h a t w e
do so, a n d I think i t i s a very important matter.
Governor Wold: I
think i t i s a very important matter
and have thought s o for a year o r more.
I t seems t o m e
it i s a matter that ought t o b e discussed w i t h t h e Board,
not b y w a y o f a
resolution,
b u t b y bringing
i t u p t o see
what their thought o n the matter is.
Governor Seay:
W e may not have a conference with the
Board tomorrow.
The Chairman:
J u s t a moment.
D o you withdraw your
. motion, G o v e r n o r S e a y ?
Governor Seay: I
will withdraw t h e motion a n d move
that it be one of the matters taken up with the Board tomorrow, t h a t i s , t h e q u e s t i o n o f t h e c o n v e r s i o n o f t h e o n e y e a r
three p e r cent bonds held b y the Federal reserve banks.
Governor V a n Zandt: I
Governor Fancher:
tary o f t h e T r e a s u r y
will second that motion.
A s w e have b e e n asked b y the Secre -
t o prepare a
memorandum o n the Govern-
ment b o n d issues, couldn't that appear i n our memorandum i n
Some w a y ?
Governor McCord: I
Governor Seay: I
think i t could, v e r y nicely.
would like t o ask i f it isn't expect-
ed that w e will give t h e Board t h e results o f our delibera-
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Federal Reserve Bank of St. Louis
1.69
tions u p o n that subject tomorrow:
D o n ' t t h e y expect u s
to discuss i t and report t o them tomorrow?
The Chairman: I
assume t h a t matter will b e taken u p
at half past nine i n the morning.
Governor Seay:
I f w e are t o report i t won't w e have
toconsider it tonight and arrive at dome conclusidn?
Vice Governor Calkins:
I
n the discussion this morning
it was n o t clearly indicated that w e were expected t o turn
in that Suggestion o r memorandum tomorrow morning.
W e were
asked t o discuss several things w i t h t h e Board tomorrow
morning,
b u t there w
a
s
n y 'request
n ta
o n the p a r t o f the
secretary that. that memorandum b e considered tomorrow,
remember it.
as I
I t i s a serious matter a n i ought t o have ser-
iouS consideration. ‘Someone said at the Board meeting this
morning that we @ould have aS many conferences as we had
time t o have.
Governor Seay: 1
the memorandum.
think it would be well to prepare
I t should b e considered b y this confer-
ence before w e have another conference w i t h the Board.
The Chairman:
T h e r e i s a motion before the house,
and i f y o u h a v e d i s c u s s e d
ECS
I
i t thoroughly,
w h y n o t pass u p o n
t 1 s t o t h e e f f e c t t h a t tomorrow,
a t t h e conference
with the Federal Reserve Board, t h e question o f the treatment
of these three p e r cent o n e year notes b e taken u p with
them.
Governor McCord: I
move, a s a n amendment, t h a t w e
Strike out the word “tomorrow; s o that i f we d o not reach
thet subject tomorrow w e c a n take i t u p later.
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Federal Reserve Bank of St. Louis
BASE
The Chairman:
‘ 5 o that it will read “at a conference
with the Federal Reserve Board".
Vice Governor Calkins: I
make i t read a s follows:
offer a n amendment, t h a t w e
“ I n the discussion with the
Federal reserve Board regarding Government finance there b e
included a
discussion o f the treatment o f the o n e y e a r
three p e r cent notes."
The Chairman:
D
Governor McCord:
Governor Seay:
o you accede t o that Governor McCord?
Y e s sir,
T h a t will suit me, Mr- Chairman.
(The m o t i o n , b e i n g d u l y seconded,
Governor Seay:
w a s carried.)
H a v e w e not sort o f left hanging i n
the a i r t h e q u e s t i o n o f G o v e r n m e n t F i n a n c e ,
t h a t t h e y expect
uS t o consider.
Vice Governor Treman: (Temporarily i n the Chair)
M y
own personal v i e w was that i t would perhaps b e well, since
we have had a long day's work, t o take u p that question i n
the morning, w h e n Governor Aiken i s here, a n d w e c a n formulate a
plan t o present.
we w i l l f e e l j u s t i f i e d
W e c a n frame u p a report t h a t
i n making,
a n d i f w e c a n n o t d o that,
then t h e q u e s t i o n w i l l a r i s e w h e t h e r
w e will have another
conference w i t h t h e Board.
Governor Seay: I
a m entirely willing t o put i t over
until tomorrow, b u t I think i t i s regarded b y the Secretary
and i s believed b y the Board,
t o b e one o f the most import-
ant things t h a t w e are t o consider, b o t h for ourselves a n d
the country. I
matter.
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Federal Reserve Bank of St. Louis
have s o m e v e r y d e c i d e d c o n v i c t i o n s
o n the
162
Vice Governor Calkins: i
would like t o have soms cne
else's o p i n i o n a s t o w h e t h e r t h e S e c r e t a r y i n d i c a t e d t h a t h e
would attend t h e conference tomorrow morning f c r t h e purpose
of getting this memorandum. I
Governor V a n Zandt:
d o not think h e did.
H e d i d not.
Vice Governor Treman:
D o you wish t o go o n with the
program?
Governor McCord: I
program,
suggest t h a t w e r u n down t h e
a s there a r e some things w e c a n clean up.
Vice Governor Treman:
T h a t will b e the order, unless
objection i s made.
Vice G o v e r n o r Calkins: I
we are t o have a
have n o objection,
but as
conference w i t h the Board tomorrow a n a they
have suggested some things t h a t t h e y wish u s t o discuss,
it
Seems t o m e w e h a d better devote ourselves t o these things
that t h e y expect u s t o talk about tomorrow.
W
e are t o
discuss government finance i n addition t o a number o f
other
things t h e y h a v e a s k e d u s t o r e p o r t o n .
O n e o f those
subjects w a s branches.
Vice Governor Treman:
T h e other subject w a s amendments.
We were a l l furnished w i t h copies o f them-
Suppose we begin with (1) under 6, and run down.
I f
there i s anything that w e should o m i t w e will d o so.
6-(1) Committee t o Confer with Federal Reserve
Board with respect t o introducing daily
settlements of the Gola Settlement Fund.
Governor Wold: I
a m happy t o say that t h e Committee
on Feleral reserve exchange h a s made a
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Federal Reserve Bank of St. Louis
report f o r me, w h e n
165
they S a y t h a t t h i s m a k e s u n n e c e s s a r y d a i l y s e t t l e m e n t s
the gold fund.
in
Y o u have adopted their report and I do
not s e e that a n y further report i s necessary.
Governor Seay:
I f your Committee h a s reported o n
that a n d i s willing t o furnish m e with a copy o f the report
I would b e very happy t o receive it. i
thane
matter t h a t w e w i l l h a v e t o t a k e u p a n d I
i s a
would t h e r e f o r e
like t o have t h e benefit o f the conclusions o f any Governor
on the subject.
Governor Wold:
T h e members o f the Committee thought
that matter might well await t h e further development o f
the c h e c k c o l l e c t i o n S y s t e m ,
a n d a t t h e present t i m e there
is n o immediate call o r need f o r daily settlements
i n the
Gold Settlement Fund.
Vice Governor Treman: S h a l l we take that as your report?
Governor Wold:
Y e s , i f you will.
Y o u have adopted
a report b y the Committee o n Federal Reserve exchange
which
reiterates t h e fact that daily settlements a r e unnecessary
at this time.
Governor e a y : I
thought possibly y o u might have
prepared some paper o n the subject t h a t y o u
could give me,
but I
a m perfectly satisfied w i t h your statement.
Vice Governor Treman: G o v e r n o r Wold submits that a s
the report o f his committee, and, b y unanimous consent,
the ccmmittee i s continued.
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Federal Reserve Bank of St. Louis
T h e next i s (m).
164
6-(m) C o m m i t t e e t o inspect vault facilities
provided f o r custody o f Gold Settlement
Fund.
(Governor Fancher thereupon read the committee report . )
Governor Rhoads: I
move t h e a c c e p t a n c e
o f the report
and that t h e committee b e discharged,
The Chairman:
I s there any discussion?
I t will b e
So ordered, unless objection i s made.»
The next i s 6-~(n).
6-(n) Committwe t o investigate report upon discrepancies i n transit time shedules a n d
the subject o f domestic exchanges.
Vice G o v e r n o r C a l k i n s : I
move t h a t t h a t g o o v e r f o r
later discussion.
Governor Seay:
T h a t i s important.
long discussion. I
I t will entail
second the motion that i t go over until.
we have more time t o consider it.
The Chairman:
I t i s s o ordered.
(The motion was duly carried.)
The Chairman:
T h e next is (0),
6-(0) Committee o n the establishment of
branches a n d agencies o f Federal reserve
banks.
Governor Van Zandt: M r . Chairman, I was the Chairman
of that committee. I
understood that the report o f the
committee was t o be made t o the Federal Reserve Board: I
made s u c h a - r e p o r t
with a
copy. I
have n o t a
The Chairman:
tive 6 1 4G.
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Federal Reserve Bank of St. Louis
t o t h e Board a n d furnished e a c h Governor
c o p y w i t h me.
P e r h a p s y o u c a n give u s a gerpral out-
165
Governor V a n Zandt: A
general outline o f that was
that t h e Committee believed i t would b e more advantageous
to h a v e s o m e p l a n w h e r e b y a g e n c i e s m i g h t b e established,
which m i g h t b e d e v e l o p e d L a t e r i n t o branches;
that when you
got a branch there w a s n o provision under t h e l a w f o r ever
getting r i d o f the branch, unless y o u got r i d o f the bank.
Governor Seay:
Y o u did n o t define what y o u meant b y
“agency” did you?
Governor V a n Zandt:
Mr. Curtis: I
N o :
think that i s one o f the points that
the F e d e r a l R e s e r v e B o a r d i s anxious
t o have e l u c i d a t e d ;
that is, what t h e recommendation o f the Governors would b e
as t o what functions a n agency should have, a n d what functions a
branch should have, :
Governor Seay:
M r . Delano's t a l k this afternoon w a s
partly along those lines.
the opinion,
Y o u will remember h e was o f
i f I recollect correctly, t h a t t h e establish-
ment o f agencies might quiet this disposition t o establish
branches, w h i c h I thought h e intimated h e would l i k e a
quietus p u t upon.
(Informal discussion followed. )
The Chairman:
F o r t h e sake o f progress, d o e s t h e
Conference desire t o m a k e a n y recommendation t o the Board
on the question o f branches and agencies?
I f 1 remember
correcily Governor Harding this morning spoke o f t h a t a s
one o f the matters h e would like t o have u s consider.
I n
view o f Governor V a n Zandt's report, a n d the feeling expres-
seq p y Mr. Calkins, d o you wish t o formulate your views i n
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Federal Reserve Bank of St. Louis
any recommendation t o the Board?
Vice Governor Calkins:
I t would seem t o me i t would
be a good thing i f Governor Van Zandt would rewrite his report s o t h a t t h i s c o n f e r e n c e c a n a p p r o v e
o r disapprove i t .
He could d o that a l l right.
The Chairman: I
think t h e Board w i l l b r i n g t h e matter
up and will a s k for our views.
I t seems t o m e w e ought
to formulate them.
Governor Wold:
I f w e approve o f agencies w e should
indicate what t h e functions o f the agencies should be.
Governor McCord:
I t was t h e understanding t h a t w e
were t o report t o the Board a n d n o t t o the conference o f
Governors.
that r e p o r t
T h e report has gone int o t h e Board,
W e can refer t o
a n d Governor Harding will prob-
ably h a v e i t o n file.
Governor V a n Zandt:
Mr. Curtis:
T h a t w a s t h e w a y I understood it.
B u t the report does not define a n agency.
Governor McCord:
T h a t i s a matter f o r t h e considera-
of this Conference right now.
Mr: Curtis:
Y o u will remember a t the joint conference.
held with the Board during the Ninth Conference, t h e last
time w e met, Mr. Warburg elaborated somewhat o n the question
of what f u n c t i o n s
a n a g e n c y s h o u l d perform,
a variety o f views t h a t h a d b e e n suggested
a n d h e repeated
t o t h e Board,
and
the views t h a t different members o f the Board held, a n d then
he wanted t o get t h e views o f the Governors a s t o what thetr
definition
o f the functions
o f t h e a g e n t w o u l d be.
W h i l e
your report covers t h e question o f branches a n d agencies i t
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Federal Reserve Bank of St. Louis
L167
cees not go into these definitions that Mr. Warburg was
speakingof.
Vice Governor Calkins:
T h e r e wasn't a n y request f o r
that a t the time t h e report was made.
T h e report w a s made
before t h e last conference o f Governors.
Mr. Vurtis: I
was.
beg your pardon; I
d o not think i t
I t came a s a result o f that Conference.
Vice Governor Calkins: P a r d o n me, Mr. Curtis; I
am
Governor Seay: I
if
wrong:
would l i k e t o a s k t h e G o v e r n o r s
they are i n the habit o f accepting f r o m reliable member
banks their trust receipts f o r collateral furnished t o
Federal Reserve Banks?
Governor Fancher:
Goverror Seay:
W e are not.
H a v e y o u ever m d occasion t o d o that?
Governor Fancher:
W e never have.
Governor Seay: W o u l d you hesitate t o do it?
Governor Fancher: I
t h i n k i t would d e p é n d ---
Governor Seay: ( I n t e r p o s i n g ) W a r e h o u s e receipts, f o r
instance, t h a t need t o b e substituted, t h e member b a n k advising y o u o f the substitution.
T a k e grain elevators, r e -
: ceéipts f o r g r a i n w h i c h h a v e t o b e s u b s t i t u t e d f r e q u e n t l y .
Would y o u hesitate t o take t h a t from a member bank?
Governor Wold:
N o t a responsible bank.
(Informal discussion followed. }
Governor McCord:
W i t h regard t o those receipts,
rot t o draw a line o f distinction between banks.
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Federal Reserve Bank of St. Louis
we
W e made
168
it a
r u l e t h a t t h e y s h o u l d a l l d e p o s i t t h e i r collateral.
Governor Seay;
W
e m a k e t h e m deposit,
b u t i n cases
where t h e loans are approaching maturity. a n d where there
is a desire t o sell a
part a n d t o substitute t h e other part
we t a k e t h e i r t r u s t receipts.
Governor McCord:
Governor Seay:
W e arrange for a custodian.
H o w c a n y o u d o that i n a Small place,
for instance, w i t h cotton warehouse receipts?
Governor McCord:
W e send them out i n trust over night,
or for a day o r two, b u t o f course W e wouldn't d o i t o n a
sixty d a y loan,
o r a n y t h i n g l i k e that.
Governor V a n Zandt:
W e have a rule that when,
in
our j u d g m e n t t h e b o a r d o f directors p e r s o n a l l y g u a r a n t e e
it
we will take t h e personal guarantee o f the board a n d let t h e m
give u s t h e trust receipts.
Governor Seay?
Y o u d o nut d o it otherwise?
Goverror V a n Zandt:
Governor Seay:
N o -
L e t m e ask Governor Treman i f he has
occasion t o d o it.
Vice Governor Treman:
W e don't do it in New York at
all, a s I understand i t .
Governor Seay:
T h e New York bankers have their own
form o f trust receipts?
Vice G o v e r n o r Treman:
Governor Seay:
Y e s .
W i t h which they deal with their mem-
ber banks?
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Federal Reserve Bank of St. Louis
Vice G o v e r r o r T r e m a i ?
Governor Seay: I
Y e s .
have a s k e d t h o s e q u e s t i o n s b e c a u s e
169
they have a
agencies.
very important bearing o n the question o f
I f 7 % c a n n o t d o that w i t h some member banks i t
would h e necessary t o have a n agency sometimes o r appoint
a custodian,
a s Governor M c C o r d says,
a t various p l a c e s o v e r
QUY-C1S bFECE.
Vice Governor Calkins:
nothing more o r less.
T h e custodian i s a n agent,
I t seems t o m e i f you c a n regard t h e
practice o f taking trust receipts, w i t h proper discretion,
as legitimate, a n d I believe i t is, y o u c a n d o away with
the establishment o f @& encies, whereas otherwise y o u
would
have t o establish a n agency.
Governor McCord:
L e t m e refer again t o that Subject.
We take the same view that i s taken b y Governor Van Zandte
When I say a custodian i s appointed, I
mean a man i s desig-
nated, a n d then i f there i s sufficient financial Strength
amoung t h e directors o f that bank, a n d t h e y are willing
to become surety o n bonds, w e accept t h a t guarantee.
Governor Seav:
T h e practice differs, b u t w e w u l d
not d o business i n our district under that plan.
Governor McCord:
W e are doing i t right along.
I t
is a joint agency w i t h us. G o v e r n o r Harding was
i n At-
lanta investigating the plan I adopted, a n d while h e dia
’
not sanction i t officially h e dia personally.
joint custodianship w i t h us, Governor Seay.
I t isa
T o give a
ton-
crete case, our National Bank o f Savings handles a great
deal o f cotton o n order notify bill o f lading,
warehouse
receipts a n d d o w receipts
Cue Voctat,
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Federal Reserve Bank of St. Louis
N o w , w e have a
D e s i S p y <= bonding company,
form f o r a
o r b y responsible
170
men, t o act for us and the bank acts o n its own behalf i n
the matter, h o l d i n g t h e m a s t e r k e y t o t h e b o x , a n d t h e a g e n t
holds t h e t w o customers! keys:
T h r e e forms are issued,
one f o r t h e bank, o n e for u s a n d o n e f o r t h e custodian.
Both t h e custodian a n d t h e officers o f the bank sign that
blank, a n d therefore i t i s a joint custodianship,
o f that
bank and o u r representative.
Governor Wold: I
would like t o qualify m y reply some-
what a s t o what w e do.
W e have n o t permitted anyone t o
take u p c o l l a t e r a l a t t a c h e d
The Chairman:
t o rediscounts.
W a s there any action taken i n regard
to sub-tepic (0)? S h a l l we leave i t to Governor Van “andt
to lead the discussion a n d answer a n y questions b y the Board
tomorrow?
Vice G o v e r n o r Calkins:
T h a t w i l l n o t constitute a
recommendation b y the Conference,
never p a s s e d
a s t h e Conference h a s
o n t h a t report.
Governor Wold:
W h a t would you think would constitute
an agency, Governor V a n Zandt?
Governor V a n Zandt:
various things.
power.
Y o u might have a n agency f o r
A n agency need not have * -
Y o u might have a
clearing agency here.
Louis had, i n Memphis.
. Specific
collection agency here a n d a
Y o u might have a n agency,
a s St.
Y o u might have a n agency t o pass
upon the eligibility o f paper, a s Mr. Calkins says, before
it g o e s t o t h e p a r e n t b a n k .
things.
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Federal Reserve Bank of St. Louis
T h e r e are a
great n u m b e r o f
Y o u might give a n agency a l l o f those powers.
Governor Wold:
W h a t would i t s functions b e a s a
clearing a g e n t ?
Governor V a n Zandt:
certain s e c t i o n s
I t would b e a clearing house f o r
o f the district---
Governor Wold: (Interrupting)
T h e n you would have
funds i n his possession?
Governor Van 4andt:
Governor Wold:
member b a n k s
Y e s , h e would have t o have funds,
H e would have t o have accounts w i t h
i n that v i c i n i t y ,
clearing operation.
a n d a n y t h i n g incident
to a
w o u l d h e carry reserves?
Governor V a n Zandt: I
cannot s e e that h e would have
to have accounts a t all.
Governor Seay:
S u p p o s e y o u were t o appoint a
member
bank your Clearing agent i n certain territory?
Governor V a n Zandt: I
think that could b e done.
Vice Governor Calkins:
I t would not b e permitted b y
the Board.
Governor McCord:
T h e other banks would n o t operate
with them.
(Informal discussion followed which the reporter was
Cirected not to take.)
Governor McCord:
A s there seems t o b e such a diver-
Sion o f o p i n i o n a s t o w h a t a n a g e n c y c o n s i s t s o f ,
o r what
would b e the duties o f a n agency, I
suggest that w e report
tomorrow t h a t the committee appointed o n this subject understood that t h e y were t o report t o the Board; t h a t
t h e y have
previously filed a report w i t h t h e Governor o f
the Fed-ral
Reserve Board, a n d i n that report t h e definition o f
a n agency
was n o t gone into, a n d i t i s a very difficult
problem t o
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Federal Reserve Bank of St. Louis
say w h a t a n a g e n c y s h o u l d be.
Goverror Wold:
A s a substitute I would suggest that
we refer this t o the committee a n d a s k them i f they cannot
formulate s o m e k i n d o f a report t o make t o this conference
before w e adjourn.
W e ought t o d o something with i t and
have something t o say t o the Federal Reserve Board i n a concrete a n d definite w a y
Governor V a n Zandt:
H o w would i t b e t o say that i t
is the opinion o f this Conference t h a t a n agency should
have a l l t h e f u n c t i o n s
with t h e e x c e p t i o n
of a
b r a n c h bank,
a s defined
b y law,
o f rediscounts a n d o p e n market purchases,
and that i t b e officered i n a manner t o b e provided for.
(Further informal discussion followed which the reporter w a s d i r e c t e d n o t t o take.
The Chairman:
D o you wish to take any formal action,
any more t h a n w e have outlined?
I f i t comes u p before t h e
Board Garernor V a n Zandt i s t o handle it.
Governor Seay: I
d o n o t s e e that w e a r e prepared
handle i t i n any other way.
to
W e could say that a committee
was appointed f o r t h e purpose o f handling t h e matter, a n d
then l e t i t d e v e l o p i n t o g e n e r a l d i s c u s s i o n ,
Vice Governor Calkins:
i f i t will.
T h e n the Conference does n o t
desire t o express a n y approval o f that report?
Governor Seay:
W e have already expressed o u r view t o
the effect t h a t i n the opinion o f this conference i t i s
more d e s i r a b l e
t o e s t a b l i s h a g e n c i e s t h a n branches.
Governor V a n Zandt:
The Chairman:
T h a t w a s t h e report.
Gentlemen,
i f there i s n o further
business t o transact tonight w e will adjourn a t this time
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Federal Reserve Bank of St. Louis
until 9:30 o'clock tomorrow morning.
(Whereupon, a t 11:20 o'clock p- m., the Conference
adjourned until tomcrrow, Thursday, April 5 , i917, a t
9:30 o'clock a. ine)
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Federal Reserve Bank of St. Louis
PROCECDINGS O F THE TENTH CONFERENCE
OF GOVERNORS O F FED"SRAL RESERVE B A N K S .
SECOND DAY.
Shoreham Hotel, Washington, D . C.,
Thursday, April 5 , 1817.
The Conference met, pursuant to Adjournment, a t 9:30
o'clock a. m., on Thursday, A p r i l ,
5 1917.
Appearances a s indicated o n yesterday.
The Chairman:
T h e meeting will please come t o orger.
Governor Rhoads (Temporarily i n the Chair):
T h e idea
has b e e n that t h e most important question t o discuss w a s
Government bonds a n d general financing, b u t that will depend
a good deal o n whether w e are t o g o t o the Board this morn-
ing or not. I
imagine from the words o f Governor Aiken,
when h e left, that his intention i s t o persuade t h e Board
to let u s come later,
(Informal discussion followed.)
Governor Rhoads:
I n the inverest o f progress, i s i t
your wish t o take u p some o f the items under topic 7 ?
Mr. Calkins, you are responsible for 7-(a), Completion
or contraction o f collection system.
I s that a matter
that will take ut.’ m c h discussion?
Vice Governor Calkins:
W e discussed t h a t rather i n -
formally y e s t e r d a y a n d a r r i v e d a t t h e u s u a l point, n o w h e r e .
It s e e m s t o m e t h a t i t i s a
in s o m e way.
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Federal Reserve Bank of St. Louis
However, I
matter t h a t o u g h t
a m not v e r y angious
t o b e advanced
t o discuss i t . ”
L75
7-(a) Completion o r contraction o f collection
system.
The Chairman:
D o you wish that off the program?
Vice Governor Calkins:
T h e r e w a s alot o f indefinite
talk yesterdy, which did not result i n any conclusion.
M r .
Delano seemed t o b e very much interested i n the subject a n d
it occurred t o m e that h e expected u s t o m k e s o m e concrete
proposal a n d have i t ready t o present t o them, o r t o h i m
at least, although I
The Chairman:
may b e mistaken:
T h e r e is a
dis tinct conflict o f
expression between what Governor Harding s a i d a t N e w York
the other d a y a n d what Mr. Delano said here yesterday.
Governor Harding said that t h e Board @ i d not wish t h e other
Federal reserve banks,
a t the present time, t o push the col-
lection o f checks b y «xpress; t h a t t h e y wanted N e w York t o
try i t out; t h a t i n v i e w o f t h e b i l l s t h e y h a d b e f o r e C o n -
gress t h e y wished t o g o slowly.
iseier
e s
h e would b e willing f o r all o f us t o imme-
diately s t a r t c o l l e c t i n g
b y t h e express companies.
Vice Governor Calkins: I
is n o t b e i n g p r e s s e d v e r y hard,
of the story.
B u t yesterday Mr. Delano
understand t h e Kitchin Bill
a n d perhaps t h a t i s t h e r e s t
B u t i f there i s n o reason f o r holding o f f
on t h a t account,
i t seems t o m e w e ought t o g o ahead o r g o
back, o n e o r the other.
The Chairman:
H a v e you a motion to make, Mr- Calkins?
Vice G o v e r n o r Calkins:
N o -
(Informal discussion followed.)
The Chairman:
I
t i s t h e sense o f t h e conference t h a t
in the interest o f developing t h e check collection system i t
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Federal Reserve Bank of St. Louis
176
is desirable t h a t a l l Fedéral Reserve Banks take such steps,
in the near future, a s m a y b e possible t o extend t h e p a r
list; t h a t t h e Conference believes t h a t t h e most practical
méthod i s t o u s e t h e e x p r e s s c o m p a n i e s ,
a n d that they re-
quest t h e F e d e r a l R e s e r v e B o a r d t o authorize t h e u s e o f t h e
express companies.
I s t h e Conference i n favor o f such a
resolution?
Governor Seay: I
would suggest t h a t w e leave o u t the
request t o t h e B o a r d a n d p a s s t h e r e s o l u t i o n y o u h a v e s u g -
gested.
Vice Governor Calkins: I
a m again anxious t o offer
a substitute--- that i t i s the sense o f this meeting that
the Governors o f the Federal Reserve Banks should take i m mediate e f f e c t i v e s t e p s l o o k i n g t o w a r d a d d i n g t h e n a m e s o f
all banks t o their p a r lists.
Governor McCord: I
will second that.
(The motion, having been duly seconded, was carried
as amended.)
(At this point Governor Aiken resumed the Chair.)
The Chairman:
Gentlemen, I
must apologize f o r being
late this morning, but I have had t o call upon Governor
Harding.
T h i s morning,
a t breakfast,
i n talking over with
some o f the m e n here about o u r meeting, I
Suggested that w e
had not convered t h e mattersthat were t o b e taken u p with
the Board, a n d that some o f those w e h a d covered w e h a d not
gotten into definite shape t o discuss with the Board advantageously. I
thought i t might b e desirable, before o u r
meeting w i t h the Boards-and t h e four members o f the Confer-
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Federal Reserve Bank of St. Louis
ae
ence w i t h whom I breekfasted a g r
w i t h me--- f o r m e t o g o
over t o see Governor Harding a n d teil h i m the situation,
stating that yesterday morning h a d been devoted t o our meeting w i t h t h e Board,
a n d that yesterday afternoon h a d b e e n
devoted t o a somewhat desultory discussion o f check collections with Governor Delano; t h a t w e h a d made small progress
On our program:
H e agreed that i t would b e better t o de-
fer t h e meeting with t h e board until w e h a d gotten o u r
conclusions i n a little more definite form. I
if h e would prefer t o M v e a
morrow morning.
tory: I
asked h i m
meeting this afternoon
o r to-
H e said tomorrow morning was more satisfac-
a m sorry that i t involves keeping u s all here
tonight, b u t there a r e a good many things still left o n
program t o discuss, and’I t h i n k there i s enough here t o
us f u l l y o c c u p i e d u n t i l w e m e e t w i t h t h e B o a r d again:
Governor McCord:
D i a y o u make a
specific engage-
ment f o r a specific hour?
The Chairman:
N o . I
think w e h a d better make i t
ten o'clock, i n the hope that we can get through. H o w e v e r ,
1 will take it up with the Board and I have no doubt that
they will accede t o our wishes i n the matter.
A
s I under-
stand it, after I left last night a l l o f the matters o n the
first p a g e o f t l p r o g r a m were discussed a n d acted upon.
Governor Seay:
N o , Mr- Chairman.
Vice Governor Calkins: I
move, Mr. Chairman, t h a t
Items (c), (d) and (e) under Topic 5 be marked off the program. ( c ) , direct interdistrict routing, there i s no occasion t o discuss.
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Federal Reserve Bank of St. Louis
:
I t is ancient history.
( a ) ana (e),
178
Uniformity o f service charges a n d Audit o f Gold Settlement
Fund, h a v e b e e n discussed.
Mr. Curtis:
( c ) and (d) Are matters that the Federal
Reserve Board feel are important.
T h e y are both Mr. Kains!
topics, Mr. Calkins.
The Chairman:
I n view o f the recommendation o f the
Board, that w e give those special consideration,
d e you with
draw your motion that t h e y b o removed f r o m t h e program, Mr.
Calkinp?
Vice Governor Calkins:
Y e s . I
did not know there
had b e e n a n y s u c h request.
The Chairman:
H a v e y o u something
t o offer
o n the mat-
ter of 5-(c), “Direct interdistrict routing?"
Vice Governor Calkins: I
thing very definite.
am afraid I haven't any-
I t appears a t this stage o f the game
that direct interdistrict routing i s essential t o the operation o f the system.
W e have tried i t out with more o r
less success a n d unsuccess- I
do not remember what t h e
point w a s a t t h e t i m e t h i s w a s p u t o n t h e program, w h i c h
ws
before t h e last conference a t which I appeared.
The Chairman:
D o e s any member o f the Conference desire
to offer anything bearing o n that subject?
Governor Seay: I
some light upon it.
believe I might be able to throw
T h e Board has been advised o f the ob«
jection o f the banks i n some districts t o receiving from
banks i n other districts f o r remittance t o their o w n Federal
reserve bank.
T h e Board, I
believe,
i s desirous o f meet-
ing these objections a n d would like t o have t h e Opinion o f
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Federal Reserve Bank of St. Louis
the Conference o n that subject.
In m y judgment, t h e coilection system,
t o b e o f the
greatest advantage, m u s t embrace direct routing t c t h e full-
est extent possible. 1
think i t is the most valuable feature
of t h e w h o l e c c l l e c t i o n s y s t e m a n d I
think w e want t o stand
for i t t o its fullest development a n d endeavor t o bring i t
about.
Vice Governor Calkins:
T h e Board's circular i s as
clear o n that point a s o n any other.
more authority.
W e d o n o t need a n y
T h e o n l y question i s whether that author-
ity i s t o be withdrawn o r not.
T h e regulations o f the Board
as they exist n o w provide f o r direct routing a n d require t h e
member b a n k s
t o cover a t p a r items
Governor Wold:
s o routed.
T h e r e a r e t w o sides t o this question,
as t h e r e a r e t o m o s t o t h e r questions. I
think i t would
be very unfortunate f o r t h e Federal Reserve banks t o intimate t o their members generally that t h e y might route
their c h e c k s direct.
Imagine,
i f y o u please,
a n y member
bank receiving remittances from 500 banks every day, and
having t o account t o them.
O n e o f the advantages o f the
collection s y s t e m t h a t w e l a y b e f o r e t h e m e m b e r b a n k i s
that they c a n get all checks f r o m one source; t h a t i t i s
one transactiong o n e accounting.
I f you propose t o let
Tom, D i c k a n d Harry route their checks direct, w i t h instruc-
tions t o remit t o the Federal reserve bank o f that district,
you will drive t h e m absolutely crazy:
T h a t privilege
Should b e permitted o n l y when t h e bank has sufficient volume
of business t o justify it, a n d only under s u c h conditions.
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Federal Reserve Bank of St. Louis
130
Governor Seay: F r a c t l y .
T h a t i s i n every collection
circular i s s u e d b y t h e Fedserai R e s e r v e P a n k s ,
Governor Wold:
W e md a
bank send u s a n item
direct of $1.10, asking credit a t the Federal Reserve Bark
Of -bneie Gisirict.
Governor Seay:
The Chairman:
handled,
T h a t i s not contemplated.
T h a t i s a matter that c a n only b e
i t seems t o me. b y mutual agreement: I
believe i t i s permissible t o force a
d o not
bank t o remit f o r
its checks received indiscriminately f r o m other member banks
in other districts at the dis cretion of the sending bank.
I think w e have g o t t o take t h a t u p with t h e banks i n each
district and develop i t as fast a s we can o n a business
basis, where conditions justify s u c h a n arrangement, b u t
I do not believe that i t can be made mandatory upon all the
banks t o make s u c h remittances a t t h e discretion o f the
sending bank.
Vice Coverror Calkine :
the regulations
I t i s mandatory s o far a g
o f t r B o a r d go.
T h e circular makes i t
perfectly straight.
Governor Seay?
I f you will permit m e I was, a s you
probably will recall, t h e Chairman o f the Committee L e f t
here o n one occasion t o ccliaborate w i t h t h e Board i n fram-
ing these regulations. I
that clause, a n d I
a m responsible f o r it. I
purport o f that clause was.
in language,
know the travail w e had over
know what t h e
W e endeavored t o e x p r e s s t
i
a s nearly a s possible, t h a t would admit o
miSconstruction, a n d i f taken according t o its verbiage,
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Federal Reserve Bank of St. Louis
no
it
181
doss n o t a d m i t o f a n y m i s c o n s t r u c t i o n it was t e b e a p p l i e d
T
h
e w a y i n which
b y the F e d ral Reserve B a n k s
i n dealing
with t h e m e m b e r b a n k s w a s p r o v i d e d f o r i n t h e c i r c u l a r o f
each bank i n that clause which said that when t h e amount
or t h e n u m b e r
o f checks j u s t i f i e d
i t i t s h o u l d b e done»
B u t
it wasn't intended t o leave i t t o the discretion ‘ f the bank
to w h i c h t h e y w e r e s e n t , b e c a u s e y o u w o u l d n e v e r g e t a n y where i f t h a t t a s done.
w
e have done a
great d e a l o f i t
in our district a n d w e nave prepared o u r member banks t o
receive f r o m another bank which might : end direct t o i t for
our credit, a n d they havé arrived a t that understanding,
although w e have h a d some difficulty
in explaining t h e matter t o them.
The Chairman:
D o y o u think there i s a n y power either
in the Federal Reserve Board o r the Federal Reserve Banks
to c o m p e l a l l m e m b e r b a n k s
t o remit under t h o s e circum-
stances?
Governor Seay: B e y o n d all question, Mr- Chairman.
Governor McDougal:
ience along that line.
W e have h a d considerable experT h e r e have b e e n s@me complaints
made b y member banks where t h e y have recieved direct f r o m
other m e m b e r b a n k s i t e m s
t o b e handled
a n d t h e returns
sent
to us, a n d o f late w e have b e e n requesting t h e banks t h a t
were likely t o want direct relations t o take t h e matter u p
in a d v a n c e w i t h t h e m e m b e r b a n k a n d ask; o r , o n t h e o t h e r
hand, w e have taken itup for them.
way i t Should b e carried on. I
% e believe that i s the
think Mr. S e a y i s undoubted-
ly right, t h a t v e c o u l d c c m p e l t h e m t o d o it, b u t 4
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Federal Reserve Bank of St. Louis
peizevs
182
the voluntary method i s preferable i f you c a n arrange it.
Governor Fancher:
S u c h h a s b e e n t h e procedure f o l +
lowed i n our district.
I n a number o f cases w e have made
arrangements f o r some o f the banks desiring t o send items
direct,
I
n n o case h a s i t been refused w h e n w e have
taken i t u p with them, a n d i t has worked v e r y nicely»
has p r e v e n t e d c o n f u s i o n ,
I t
t h e accounting h a s b e e n Simplified
and ithas worked o u t very satisfactorily t o all concerned.
The Chairman:
I
n the Boston District,
Reserve B a n k o f Boston,
w e have a
i n the Federal
young m a n w h o t r a v e l s a
good deal among t h e member banks, a n d o n e ofhis duties
has
been t o develop this direct routing.
W h i l e w e haven't
done i t o p a large scale, w e have done i t wherever t h e
banks were desirous o f doing i t and the volume justified
it.
We have h a d n o complaint, either a s t o its being a
hardShip u p o n anybody,
o r t h a t i t w a s n o t b e i n g developed.
Governor Fancher:
have b e e n receiving a
W e have done this: W h e r e w e
very substantial volume o f items f r o m
some o f our member banks, w e have very carefully analyzed
the letters and where ve found the volume i n certain districts, b o t h i n number a n d amount, w o u l d j u s t i f y
direct
routing,
w e have suggested
endeavor t o arrange f o r it.
i t a n d suggested t h a t w e would
I n that way w e have b e e n en-
couragingthe matter o f direct routing where
t h e items have
been o f a n y consequence,
The Chairman:
matter?
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Federal Reserve Bank of St. Louis
H a s anyone a
motion t o offer o n this
1835
Governor Seay: I
would l i k e t o s a y i n e x p l a n a t i o n
to G o v e r n o r W o l d , a l t h o u g h I
take i t f o r g r a n t e d
h e is
aware o f this, t h a t w e h a v e c e r t a i n f o r m s a n d i f o n e b a n k
Should b e the recipient o f fifteen o r twenty o r more letters f r o m a s many banks, f o r the credit o f the Federal r e serve b a n k , t h e y w i l l m a k e o n e t o t a l o f those, a n d o n e
entry i s made.
The Chairman:
H a s anyone a motion t o offer o n 5-(c)?
Governor Seay: I
would l i k e t o offer a motion that
it i s the sense o f this Conference t h a t t h e regulation o f
the Board o n this subject b e sustained.
Governor W o l d : I
will a m e n d t h a t m o t i o n
t o t h e effect
that i t b e left where i t is, subject t o arrangement
with
the Federal reserve b a n k o f the district.
Governor McCord: I
rise t o a point o f order.
That
motion was n a t seconded, a n d therefore t h e amendment could
not b e considered.
The Chairman:
I s there any second t o Governor Seay's
motion?
Governor V a n Zandt: I
Governor Seay:
will second it.
I f it is the sense o f the Conference
here t h a t the matter b e left h e r e
Satisfied, b e c a u s e t h a t i s w h a t I
i t is, I
a m perfectly
woulda l i k e t o s e e - - - t h a t
it b e left where i t i s right now.
Governor McCord: I
motion.
will second t h e amendment t o the
T h a t can b e done i f the regulation o f the Board
is sufficiently strong.
either b y a r r a n g e m e n t
W e won't b e able t o do anything
o r otherwise w i t h o u t a
regulation o f the Board behind it.
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Federal Reserve Bank of St. Louis
forceful
184
The Chairman:
any action,
M a y I inquire a s t o the necessity f o r
i f the matter i s t o b e left where i t is?
Governor Seay:
T h e Board h a s asked u s t e discuss i t ,
and t h e purport o f the r«solution w a s that i t was t h e sense
of the conference that t h e matter i s covered b y the regulation o f the Board.
Governor Rhoads:
T h e r e . is, I
believe, s o m e n e c e s s i t y
for informing the Board about this question.
W e have had
one specific c a s e within o u r district where a n item was
routed t o a
b a n k i n Bradford d i r e c t
Philadelphia.
closing hour.
by a
member b a n k i n
I t wag a large item, received after our
T h e Bradford B a n k objected t o that.
I t
was with our consent a n d t h e Federal Reserve Board ruled
that the langmwmge “for account of" was never meant t o cover
transactions within t h e district unless i t was mutually
agreeable t o the t w o banks.
T h e y ¢ven went s o far a g t o
Suggest t o the bank that they could take a n extra d a y i n
which t o cover it.
T h a t was t h e advice t d the Bradforg
Bank, a n d i t practically breaks d o w n t h e force o f that
language.
T h e n they went farther a n d said that when
that r e g u l a t i o n w a s d r a w n i t w a s o n l y m e a n t t o c o v e r
transactions without t h e district a n d never within t h e
district.
The Chairman:
gentlemen.
Y o u have heard Governor Seay's motion,
W h a t action d o you desire t o take?
Governor Seay:
M a y I
say just o n e word there.
vere advised o f this situation.
W e
W e h a d a visit f r o m the
transit e x p e r t n o w c o l l a b o r a t i n g w i t h t h e
Board a n d h e ex
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Federal Reserve Bank of St. Louis
185
plained t h e m a t t e r
t o us-
H
e was o n e o f t h e committee
that w a s left behind here t o help frame that regulation
of t h e Board. I
a m s u r e h e sustains
fon that t h e direct routing,
i t and i t i s his opin-
a s previded for, ought t o
Stand.
‘The Chairman:
4
Governor Seay:
s t o interdistrict operations?
4 s t o both.
I t is broad enough t o
cover both. W h a t e v e r m a y b e the practice o f the Federal
reserve b a n k s w i t h r e s p e c t
to b e a
t o their members t h e r e o u g h t
broad s u p p o r t i n g r e s o l u t i o n b e h i n d t h a t w h i c h w i l l
cover a l m o s t a n y Situation:
The Chairman:
G o v e r n o r Wold, w i l l y o u repeat y o u r
amendment t o Governor Seay's motion?
Governor Wold: I
to table his motion.
presume m y motion should have b e e n
A l l o f the collection circulars o f
the F e d e r a l r e s e r v e b a n k s p r o v i d e f o r t h i s v e r y t h i n g now.
We have h a d n o d i f f i c u l t y ’ n
i our district.
cOne b y arrangement.
W e want this
W e d o not want t o burden 6very lit-
tle b a n k i n o u r d i s t r i c t
b y having another b a n k d o that b e -
cause i t happens t o want to.
I t will break d o w n t h e whole
SyStem w o r s e t h a n a n y t h i n g e l s e y o u c a n inaugurate.
The Chairman:
Y o u will leave t h e practice w e have
now in force by the adoption of Governor Seay's motion.
Governor Wold: G o v e r n o r Seay's motion i s with regard
to the regulation o f theBoard, b u t without reference
to
the will o r desire o f the Federal reserve b a n k o f our district.
All t h e b a n k s
i n Governor Seay's district c a n route items
direct. h o s t h e m = 1 e t h e y desire. I
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Federal Reserve Bank of St. Louis
d o n o t w a n t i t t h a t WAY.
I want t h e arrangement m a d e with us.
Vice Governor Calkins:
T h i s Conference i s o n record
to t h e e f f e c t t h a t d i r e c t r o u t i n g s h o u l d b e p e r m i t t e d o m l y
when i t was justified b y the volume a n d amount:
lution F a s b e e n passed twice b y this conference,
T h a t resoa s I re-
member it.
Governor Seay:
A l s o one t o the effect that interdis-
trict routings b e n o t undertaken until some experience
has b e e n derived f r o m the intradistrict routings.
The Chairman:
H a s enough experience b e e n derived
from i t t o warrant a n y change i n the present practice?
Governor Seay: I
confirmed o p i n i o n ,
d o not think so, but I am of the
a n d entrtain t h e deepest convictions,
that only w i t h that broad resolution behind u s c a w w e have
protection. I
more i m p o r t a n t
d o n o t know anything which i s going t o b e
i n i t s development,
than t h e s y s t e m o f d i r e c t routings:
a s gradual a s i t m a y be,
I
t i s folly t o have
a bamk 150 miles o f f yonder send u p t o a bank certain matters which have t o g o 125 miles a n d back t o t h e place u p o n
which they are dravn, w h e n t h e t w o banks sending them are
25 miles apart.
T h a t i s a very unsound m e t h o d o f doing
it.
(Informal discussion followed w h i c h the reporter was
directed n o t t o take.)
Vice Governor Calkins: I
move that this Yonference
-eaffirm i t s resolution o n this subject.
The Chairman:
Conference.
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Federal Reserve Bank of St. Louis
T h e r e i s a motion already before t h e
187
Governor Seay: I
will accept t h e substitute. 2
is the same thing. I
said, "sustain" and he says "reaf-
veet ae t C will accept that substitute.
The Chairman:
Y o u have heard t h e substitute m o t i o n
offered s y Governor Calkins .
Governor Seay: I
I s there a
second?
will second it.
(The motion was duly carried.)
Mr» Curtis:
discussion, I
I f 1 may inject a n acid tone into this
think i t i s very important that t h e Federal
Reserve Board b e requested t o conduct i t s correspondence
with member banks through t h e Federal reserve banks.
Then
we will avoid having s u c h a n upset a s Mr- Rhoads speaks of.
That i S not t h e first time i t has happened, t h a t t h e Board
has w r i t t e n d i r e c t
to a
member b a n k s o m e t h i n g o f w h i c h t h e
Federal reserve b a n k has n o t been advised f o r weeks afterwards, a n d the bank has found itself i n the position o f
being overruled without knowing it.
I t ought n o t t o conduct
that type o f correspondence w i t h a member b a n k until after
consultation with the Federal Reserve Bank i n questionproper a d m i n i s t r a t i o n ,
Governor Wold:
time ago, r
bank,
I t
t o m y mind-
D i d n o t they adopt t h a t policy some
d e c l i n i n g t o c o m unicate direct w i t h a member
a n d sent their reply t o t h e Federal reserve b a n k o f
the district.
(Informal discussion followed which t h e reporter w a s
cirected n o t t o take.)
Mr. Yurtis: I
have prepared a form of report t o the
Federal Reserve Board o n the subject o f bank drafts, w h i c h
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Federal Reserve Bank of St. Louis
188
does n o t i n c l u d e a n y v o t e s
i n t h e negative,
but i s j u s t s t r a i g h t a n d plain:
I
o r a n y addition,
f a n y Governor w a n t s
to
have h i s n e g a t i v e v é t e r e c o r d e d , p l e a s e l e t m e k n o w a n d I
will have Some Additions made t o this,
The Chairman: I
who d e s i r e
suggest that members o f the Conference
t o b e recorded
a s v o t i n g i n t h e negative,
on
these paragraphs let Mr. Curtis know so that I may have a
copy with the proper record t o use when t h e matter i s presented t o t h e B o a r d t o m o r r o w morning: :
Mr: Curtis:
T h e form reads "After consideration o f
the r e p o r t o f t h e c o m m i t t e e a p p o i n t e d
t o consider t h e s u b -
ject, this Conference recommends t h e adoption o f the following plan.
(3) T h a t t h e privilege o f drawing Federal reserve
exchange drafts b e limited t o the country banks, o r i n
other words,
t o thos e
banks c a r r y i n g a
t»elve p e r c e n t r e -
serve.
Governor V a n Gandt: I
ing i n t h e n e g a t i v e
desire t o b e recorded a s v o t -
o n t h e first one.
Vice Governor Calkins: I
desire t o b e recorded a s
voting i n the negative o n the first one.
Governor McCord: I
likewise .
d e s i r e t o be re-
corded a s voting i n the mgative.
Governor Seay: I
been expressed,
recorded
but I
i n the m
entertain t h e s a m e o p i n i o n t h a t h a s
d o n o t regard
gative, b e c a u s e a
i t a s proper
report
to be
o f our committee
went b e f o r e t h i s b o d y a n d t h e r e p o r t w a s c o n s i d e r e d
was, t h a t is, a s a whole, a n d I
d o not think i t i s proper
for m e t o vote i n the negative. I
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Federal Reserve Bank of St. Louis
a s it
would l i k e t o make that
189
explanation, although m y sentiments a r e opposed t o it.
The Chairman; I
understand y o u d o not dissent t o
that paragraph, Governor Seay?
Govermor Seay:
N o , b u t that m y opinions a r e t o t h e
contrary,
The Chairman: I
understand t h a t t h e following gentle-
mén dissent o n No. 1, Governors Van Zandt, McCord and Yalkins.
Vice. Governor Calkins: I
see t h e somewhat delicate
position i n which Governor Seay finds himself, but i t appears
to me that i f i t is his wish that his position b e stated
in the matter, that that i s proper.
Govermor Seay:
impropriety I
I f the Conference considers i t n o
will b e recorded a m o n g those dissenting.
Governor V a n Zandt:
T h i s i s t h e report o f the Con-
ference, n o t o f the committee.
es Lurtis:
N o , 2 is"that the drafts should b e drawn
by member banks upon their own Federal reserve banks and
made receivable f o r immediate availability a t p a r subject
to final payment a t a n y one Federal reserve b a n k specified
in the draft."
The Chairman:
A r e there any dissenting votes o n No. 2 %
(There were none.)
Mr. Curtis:
N o . 3 is "That a special uniform form
of draft b e adopted b y all the Federal reserve banks, such
drafts w h e n c r a w n u p o n t h e f o r m t o b e t h e o n l y o n e s w h i c h
are receivable f o r immediate creditat par."
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Federal Reserve Bank of St. Louis
The Chairman:
A r e there any dissenting votes o n No- 3 ?
(There were none.)
Mr+ Curtis:
quired
N o . 4 is "That the drawing bank b e re-
t o tive immediate a d v i c e t o its Federal reserve b a n k
of all Federal Reserve exchange drafts drawn, and, i n the
case o f ‘rafts made receivable a t another Federal reserve
bank t o forward a
duplicate advice forthwith t o the Federal
Reserve Bank at which such drafts are made receivable,
and t h a t a l l s u c h d r a f t s
b e immsdiately charged
t o the member
bank's account o n receipt o f advice b y the Federal reserve
bank on which they are drawn."
The Chairman:
A r e there a n y dissenting votes u p o n
No» 4 ?
(There were none.)
Mr. @urtis: N o s . 4, 5, 6, and 7 were all approved
unanimously, I
think.
N o . 5 , 6 and 7 are a s follows:
No. 5 . " T h a t t h e Federal reserve b a n k o n which the
draft i s drawn shall credit b y telegraph i n the Gold ‘Settlement Fund the Federal reserve bank a t which the” d r a f t i s
to be recéived each day the total amount o f the drafts i n
round a m o u n t s
o f t e n thousand dollars;
s u c h advices
t o be
sent i n time t o reach t h e Federal reserve Board n o t later
than three o'clock p. m. of each dayNo- 6, " T h a t this plan become operative o n the _
day o f »
1917, a n d b e made svailable t o such
member banks a s m a y agree t o terms formulated b y the Federal r e s e r v e b a n k s .
No, 7. " T h a t under existing conditions and the terms
recited, there will b e n o necessity f o r daily settlements i n
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Federal Reserve Bank of St. Louis
191.
the G o l d S e t t l e m e n t F u n d a t t h e p r e s e n t t i m e , n o r a n y n e c e s -
sity f o r establishing a
silver a n d legals fund.
a s suggested
in t h e G e d n e y plan.
The Chairman:
G o v e r n o r “old,
corded a s b e i n g i n f a v o r o f l i m i t i n g
d o you wish t o b e rei t t o #10,000 e a c h
day?
Governor Wold:
No.
The Chairman: I
understand three governors want t o
have the statement added that they vote for No- 2 with the
understanding that t h e y c a n buy exchange whenever i t i s
necessary. I
would like t o s a y I had a long t a l k with
Governor Harding this morning,
told m e h e t h o u g h t
i n this connection, a n d h e
i t was entirely w i t h i n t h e rights u n d e r
this p l a n f o r a n y b a n k t o c h a r g e e x c h a n g e f o r transfers
protect itself;
the b a n k s
t h a t t h e y expected,
o r h e would expect,
t o d o that.
@overnor McDougal:
of the matter. I
right
to
T h a t would b e your understanding
think i t would b e well t o s o state it,
i n t h i s paragraph,
The Chairman:
as I
suggested l a s t evening.
I s i t not inferential?
I s there any
reason for stating it? D o e s h ' t i t g o without stating?
There i s n o prohibition.
Governor McDougal:
I f i t goes without saying, t h a t
will b e sufficient.
The Chairman:
this report,
T h e r e i s n o prohibition u p o n i t i n
o f any sort.
Governor McDougal: I
would like t o hear f r o m some
of the other banks, yourself, f o r instance.
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Federal Reserve Bank of St. Louis
Y o u , 1,-oeLieve,;
have d e c l a r e d t h i s w a s s a t i s f a c t r r y
The Chairman:
t o you.
A t the meeting yesterday a l l t h e Gover-
nors stated t h e y were prepared t o d o the Same thing i f
necessary.
Go. r n o r McYougal:
Yes.
T h e r e were t w o governors a t
least w h o asked t o b e recorded « s favoring s u c h a statement
being made i n the plan, a s I remember it. I
a m Satisfied
if they are a l l satisfied.
The Chairman: I
would l i k e t o get this cleaned u p
so t h a t w e c a n g o o n w i t h o u r program.
Governor McDougal: I
understand there i s nothing i n
the plan t o prohibit u s f r o m protecting ourselves b y the application o f t h e c u r r e n t r a t e s f o r exchange,
and I
have n o
further objection.
The Chairman:
D o y o u w i s h t o offer a motion t h a t the
statement b e amended.
Governor Seay: G r a n t i n g that, should ¥ot this first
paragraph b e altered, o r modified. I
do want t o call at-
tention t o t h e f a c t t h a t i f t h i s i s t a k e n f o r g r a n t e d t h e r e
would b e n o strict reason f o r confining this t o the country
banks.
Governor Wold:
step a t a time-
I t seems t o me we should take one
B y limiting i t t o t h e 1 2 per cent banks,
if w e s e e later i t i s practical a n d works without hardship
to the Federal reserve banks, w e could extend i t .
The Chairman:
ceed t o 5-(a).
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Federal Reserve Bank of St. Louis
I
n the interest o f progress l e t u s pro-
5-(d) Uniformity of Service Charges.
Governor Calkins, w h a t h a v e y o u t o say With respect t o
that?
Vice Governor Calkins: T h a t is in the same category
with t h e c t h e r one.
I
t i s a n c i e n t history. I
ber what t h e point was.
The Chairman:
D
I d o g o t think there w a s agy.
o y o u m o v e t h a t i t b e passed?
Vice Governor Calkins:
The Chairman:
Y e s .
A n d removed from tle program?
Vice Governor Calkins: I
not b e removed.
d o not remem-
d o not s e e w h y i t should
I t c a n b e put o n again, i f necessary.
Governor Wold:
I n a s m u c h a s the Board asked that es-
pécial consideration b e given t o the subject I
move i t i s
the sense o f this meeting that until t h e collection system
is further developed i t would b e quite impossible t o have
uniform service charges.
Vice G o v e r n o r Calkins:
consideration I
withdraw
I
f t h e y requested s p e c i a l
m y request t h a t i t b e r e m o v e d
from the program.
The Chairman:
Y o u have heard Governor Wold's motion
that u n t i l t h e s y s t e m i s f u r t h e r d e v e l o p e d
i t will b e i m -
possible t o have uniform service charges.
I s that seconded?
(The motion was duly seconded and carried.)
The Chairman:
W e will now take u p 6-(n).
6-(n) Committee t o investigate and report upon
discrepancies
i n transit t i m e s c h e d u l e s
and the subject o f domestic exchanges.
Governor Fancher:
W e had t o g o into this subject a t
considerable length, and if it is desired the report can be
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Federal Reserve Bank of St. Louis
194-5-6
read a n d then w e c a n proceed t o discuss it.
Governor Seay: I
move that t h e report b e read b y
the Chairman o f the Committee.
(The motion was duly carried.)
(Governor Fancher thereupon read h i s report f o r t h e
Committve t o investigate and report upon discrepancies i x
transit time schedules and the subject o f domestic exchanjes-)
The Chairman: G e n t l e m e n , y o u have heard Governor
Fancher's admirable report f o r his committee.
W h a t action
will t h e Conference t a k e u p o n it?
Governor V a n Zandt: I
move that w e thank Governor
Fancher, first.
Governor McCord: I
second t h e motion:
Vice Governor Calkins: I
offer a n amendment, t h a t t h e
report b e received and approved, a n d that the Conference
express i t s admiration a n d appreciation.
The Chairman:
tion.
Y o u have heard Governor VYalkins' mo-
I s that seconded?
(There were several seconds:)
Governor McCord:
The Chairman:
T h e report i s n o w debatable?
I s there a n y d i s c u s s i o pf
o it?
Governor McCord: I
want t o ciscuss t h i s last clause.
Our conditions are such that i f we d o not d o what that
last clause says, w e would c a r r y a
we d o carry.
much larger float t h a n
I f w e refuse t o receive f r o m o u r member banks
checks o n the other Federal reserve cities e a s t o f the Missouri River, w e find ourselves i n the position o f paying
express charges o n currency t o cover ghecks,
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Federal Reserve Bank of St. Louis
a m t h e y avail
themselves o f that. F u r t h e r m o r e ,
i f w e refuse t o take
that e x c h a n g e f o r i m m e d i a t e c r e d i t t h e m e m b e r b a n k s m a y
utilize t h a t exchange i n other directions, a n d will allow
the state banks t o unload currency o n them, a n d t h e n they
unload
i t o n us, a n d i t h a s p r o v e d
i n our district t h a t w e
would p a y f o r t h e remittance o f the currency o f state banks
that were n o t remitting a t par.
A further reason i s that these shipments o f currency
in t o u s n e c e s s i t a t e o u r e m p l o y i n g h e l p t o s o r t c u r r e n c y ,
even i f w e were t o decline t o take national b a n k notes, a r d
that i s a n e x p e n s e
o f about 2 0 cents a
thousand:
T h e ex—
pense o f bringing money i n t o u s i s something o n a n average
of 20 cents t o a thousand, a n d i t would cost about 2 0 cents
a thouSand t o ship that redemption money t o Washington.
there i s , a t t h e l e a s t c a l c u l a t i o n ,
S o
e v e n i f the money was
brought t o our counter free o f express charges, 4 0 cents
a thousand f o r t h e redemption o f currency t h a t w e would
t
have t o take i f we did give immediate credit f o r this exchange
on other cities.
Those a r e n o t a l l t h e d i f f i c u l t i e s
i n t h e way.
we refuse t o take these checks f o r immediate credit,
receive t h e currency,
a n d h a v i n g n o Subtreasury,
redemption i n Washington.
i
f
w e will
i t i s for
T h e estimates made u p b y m y
auditor s h o w t h a t w e a r e f r o m c i g h t
t o nire d a y s b e f o r e w e
get t h e transfer checks o f that currency, a n d therefore there
is eight o r nine days' float o n the currency that w e are
continually redeeming.
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Federal Reserve Bank of St. Louis
Governor Seay: N a t i o n a l bank notes?
Governor McCord:
N o } Silver certificates
treasury notes:
Governor Seay: U n f i t notes?
Governor MeCord:
N o - U n f i t a n d f i t both, because
we c a n n o t h o l d i n o u r v a u l t a l l t h e c u r r e n c y w e g e t a n d
meet you gentlemen i n the Gold fund.
We will swamp our gold fund.
some way.
w
W e cannot d o that.
e have got t o arrange i n
N o w , w h e n w e g e t a transfer,
w e have t o depend
on our grood friends a t such cities where t h e subtreasurer
will permit the transfer t o be issued, t o take that into
account a m d p u t i t i n their clearings o n the subtreasury,
and allow u s t o have credit i n the gold f u n d f o r it:
F o r
instance, S t - Louis h a s b e e n very kind t o u s i n that r e -
spect.
T h e Treasury Department refuses t o give u s transfer
checks
o n N e w Y o r k o r Philadelphia a n d gives
St. Louis.
i t t o us o n
T h e n w e have g o t t o depend upon t h e Feseral r e -
serve b a n k i n St» Louis t o accept t h a t transfer check and
allow u s t o cmrge i t to the Goid Fund, b y reason o f the
fact that t h e y c a n settle i t against t h e subtreasury.
T h a t
is the only way, gentlemen, w e can get the money into the
Gold Fund f o r checks t h a t y o u send o n usNow, i f you pass this a s i t i s a n d force m e t o defer,
then y o u f o r c e m e t o p a y t h i s e x p e n s e
o f redemption,
i n ad-
dition t o the nine o r t e n days’ f l o a t a n d make m e depend
upon t h e good services o f the other Federal reserve banks t o
take into account t h e transfer checks t h a t I cannot t u r n
into t h e GoldFiund.
F o r that reason I
a m opposed t o that
part o f the resolution a n d I shall s o vote.
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Federal Reserve Bank of St. Louis
19¥
Governor Fancher:
A s I understand t h e geogravhical
location o f the Federal Reserve Bank o f Avlanta, with the exception o f the S a n Francisco Bank,they a r e practically o n e
to t w o d a y s r e m o v e d f r o m t h e o t h e r F e d e r a l r e s e r v e b a n k s .
1 would like t o ask Governor McCord if he could not take
such exchange 4 t ten, twelve o r thirteen cents discount?
Governor McCord:
W h i c h exchange?
Governor Fancher:
T h e exchange
cities where i t i s two days removed?
o n t h e Federal reserve
i f you would receive
that exchange a t a slight discount, w o u l d y o u g e t i t ?
Governor McCord: I
would not.
Governor Fancher: Wouldn't you get it in place of
shipments o f currency?
Governor McCord:
N o , f o r this reason, Governor Fancher.
We m i g h t d o i t a l o n g i n t h e s p r i n g o f t h e y e a r ,
June a n d July;
i n May,
b u t the time o f redemption o f currency i n
great volume b y us, i n January, February a n d March, w o u l d
completely p u t that o u t o f joint.
Governor Fancher:
F o r instance,
j u s t f o r information,
let us take one o f your banks i n Macon, Georgia.
Governor McCord:
Governor Fancher:
A l l right.
T h a t bank i s covering i n its balance
to m a k e i t s r e s e r v e g o o d , a n d t h a t b a n k s h i p s c u r r e n c y t o
you to make the balance good. T h a t would be at its expense.
Governor McCord:
Governor Fancher:
Governor McCord:
exchange
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Federal Reserve Bank of St. Louis
N o , a t our expens e .
W h y a t your expense?
B e c a u s e i f w e have turned i n all the
w e have a n d t h e y still have m o r e o n them than t h e y
200
have o n us, t h e n w e h a v e g o t t o p a y t h ® e x p r e s s c h a r g e s .
Governor Fancher:
I
s i t t o b e supposed t h a t f o r
any continufous t i m e t h e Macon B a n k would have nething b u t
currency a n d n o e x c h a n g e ?
Governor McCord:
Yes.
V e r y little exchange.
happens b y reason o f the products o f the country.
That
F o r cer-
tain months o f the y-ar i t would b e the other way, o f
course.
Governor Fancher:
D o e s that conditicn exist i n your
district, G o v e r n o r V a n Z a n d t ?
Governor V a n Zandt:
Governor Seay:
mitted i 4 .
W
V e r y largely, yes.
I t would i n our district i f w e per-
e d o n o t a l l o w t h e m t o send currency a t o u r
expense t o offset items unless t h e y agree t o d o i t continuously.-
I f they will s h i p u s currency every d a y w e will
take i t and p a y for it, b u t they cannot s h i p u s currency
only w h e n
i t suits t h e i r convenience.
Governor Wold:
W e would b e swamped i f we let them
their o w n convenience.
Governor S e a y : i
would:
like
t o offer a
correstion=
In the case o f the Richmond B a n k i t i s said that t h e Richmond b a n k allows immediate credit f o r checks o n New York
City banks.
T h a t should r e a d “allows country banks i m ~
mediate credit f o r items o n New York City banks". I
would
like t o inquire i f that i s n o t true o f New York a n d Philadelphia both.
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Federal Reserve Bank of St. Louis
Governor Fancher: I
Governor Seay:
think that i s right.
R i c h m o n d allows country banks immediate
201
credit for checks o n New York City banks. I
would like
it t o b e s t a t e d t h a t P h i l a d e l p h i a a n d B o s t o n d o t h e s a m e
thing, because t h a t was agreed o n a t a conference i n New
Yorks I
would l i k e t o s u g g e s t t h a t c o r r e c t i o n
i n the case
of Boston, Richmond, N e w York and Philadelphia, because
I have h a d t h e m a t t e r
u p with the Board a n d have b e e n p u t
on t h e d e f e n s i v e a n d I
think I
have s u c c e e d e d
i n defending
it.
The Chairman:
D o you accede t o the correction i n
the report, Governor Fancher?
Governor Fancher:
Governor Seay:
Y e s , I
do.
A n d i t is noted that that would b e
true i n the case o f Philadelphia a n d Boston also.
T h a t was
by mutual understanding between t h e three banks i n consultation i n N e w Y o r k b e f o r e t h e s c h e d u l e w a s adopted.
Governor Wold:
Governor Seay:
The Chairman:
I n any amount?
F r o m country banks, yes.
G o v e r n o r Calkins' amendment t o Goverwor
Van Z a n d t ' s m o t i o n w a s t h a t t h e r e p o r t b e r e c e i v e d a n d a p -
provided a n d that t h e Conference express i t s admibation a m i
appreciation.
Is there a n y further discussion?
(There was n o further discussion a n d t h e motion, a s
amended, having been duly secon e d , was carried.)
Governor McCord: I
wish t o b e recorded a s agreeing
thoroughly w i t h t h a t r e p o r t e x c e p t t h e o n e o b j e c t i o n t h a t
I have referred to, t o which I cannot gree.
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Federal Reserve Bank of St. Louis
202
The Chairman:
i t . . i s unders tood t h e adoption.
report c o m m i t s t h e b a n k s
o f “this
t o the sug:estion m a d e i n the r e -
port that, beginning April.10, t h e y record t h e times o f
receipt.
Vice Governor Calkins: I
be better t o defer t h a t date.
would ask if it wouldn't
A p r i l 1 0 i 8 not very f a r
away, a n d S o m e o f u s w i l l n o t b e home.
Governor V a n Zandt: I
wish t o b e recorded a s not
voting o n t h i s question.
The Chairman:
D o you wish t o offer a motion changing
the date, Mr. Calkins?
Vice Governor Calkins: I
tien i n e p p o s i t i o n
d o not wish t o offer a mo-
t o t h e r e s t o f t h e Governors. I
can
send a telegram from S a n Francisco i f necessary.
Governor Seay: I
think i t would b e advisable t o make
it t r o m A p r i l 1 5 t h t o 25th.
Governor Fancher:
The Chairman: I
O
r i t c a n b e m a d e f r o m A p r i l 20th.
understand t h a t y o u m o v e t h a t t h e
date for the recording o f the receipt : f mail b e changed
from April 1 0 t o April 15, a n d that t h e observation extend
from A p r i l
1 5 t o April 25th.
I
s there a
second
t o that
motion?
(The motion was seconded a n d duly carried.)
Governor old: I
on this matter.
direct
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Federal Reserve Bank of St. Louis
do not care t o delay the Conference
M i n n e a p o l i s c a n take i t u p with the banks
i f t h e r e i s a n y discrepancy.
Governor Seay: I
take i t the approval o f this report
293
cqoes n o t necessarily involve m o r e t h a n a n adjustment b y each
Federal r e s e r v e b a n k t o t h e f u l l e s t e x t e n t possible.
Governor Fancher:
Governor i e C o r d
n a t 18<a@i1-.
I - w a n t
approved t h i s report. I
t o s a y this.
have a l w a y s t r i e d t o b e w i l l i n g
to s e r v e t h e G o v e r n o r s a n d h a v e a b i d e d
This i s g o i n g t o b e a
acceding
t o it I
Y o u have
b y t h e majority vote.
tremendous b u r d e n o n us, a n d b e f o r e
shall a p p e a l
t o you t o let m e explain t o
you m y position.
The Chairman: I
do not understand t h a t t h e adoption
of t h i s r e p o r t b i n d s y o u t o c h a n g e y o u r practice.
Conference c a n n o t a d o p t a
T h i s
report w h i c h i s m a n d a t o r y u p o n
the other banks.
Governor McCord: I
d o n o t want t o b e i n the attitude
of going against this body, b u t this i s a vital point t o
me.
The Chairman:
T h i s i s simply a n expression
o f opinion
bythe Governors i n Conference a s t o the proper method t o
be pursued.
B u t w e have n o power t o compel a
governor
of any bank t o c o anything.
I understand t h a t t h e report o f mail time will b e made
to Governor Fancher a s Chairman o f this committee.
i t 18
understood that Governor Fancher, a s Chairman o f the Committee, w i l l advise a l l t h e banks o f the change i n this date
and t h e period o f time i n which t h e mail i s t o b e noted,
and a s k them t o advise h i m o f the result o f their experience.
Governor F a n c h e r w i l l p r o v i d e e a c h b a n k w i t h a
report.
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Federal Reserve Bank of St. Louis
copy o f the
£04
The Chairman:
T o p i c ( o ) under I t e m 6 not having
been cdisposed of, w e will take that up.
6-(0)
C o m bese o n the establishment o f
branches a n d agencies o f Federal r e serve banks.
The Chairman:
W h a t i s the status o f the discussion
of t h a t t o p i c ?
Vice Governor Calkins:
T h e status o f the discussion
is u n c e r t a i n a n d unsatisfactory. A
report h a s g o n e t o
the Board, which should have come t o this Conference, e x pressing t h e opinion that agencies w e r e desirable, b u t
there i f a general impression that t h e Board wishes this
conference
t o define t h e functions
to the functions o f a branch.
o f a n agency a s opposed
T h a t i s where t h e discussion
ended last night.
Governor McCord:
G o v e r n o r Treman, w h o was presiding,
made a Suggestion t o the Conference a n d I would b e glad t o
have h i m state that again-
H e suggested t h a t t h e state-
ment b e made that a report h a d been filed a n d i f the matter was taken u p further that certain other replies should
be m a d e .
Vice G o v e r n o r Treman:
G o v e r n o r V a n Zandt,
a s Chairman
of that Committee, stated h e understood h i s committee w a s
to r e p o r t d i r e c t
Prepared a
Board.
t o t h e Federal Reserve Board; t h a t h e h a d
report a n d sent i t direct t o the Federal Reserve
T h e suggestion w a s made t h a t i f the matter came
up, a s one o f the subjects i n which they were interested,
that G o v e r n o r
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Federal Reserve Bank of St. Louis
V a n Zandt should make t h a t statement
t o the
205
Board.
T h e n , a s é n addition t o that report,
a s I remember
it, t h e expression o f the Governors w a s t o the effect that
they f a v o r e d t h e e s t a b l i s h m e n t
o f agencies r a t h e r t h a n
branches.
Vice Governor. C a l k i n s :
T h a t i s simply a
confirma-
tion o f Governor Van Zandt's report.
The Chairman: I
recommendations
a m guite s u r e that t h e Board wishes
a s t o w h a t t h e functiows
be a n d t h e g e n e r a l p u r p o s e
agency. I
to make. I
o f a n agency s h a l l
o f t h e establishment
o f the
would like t o ask i f anyone h a s a n y suggestion
think t h e Conference w i l l Strengthen i t s posi-
tion v e r y m u c h w i t h t h e B o a r d i f t h e y w i l l h a v e s o n c o n -
structive suggestion t o make about these things, a n d not rest
upon a n y s u c h g e n e r a l r e c o m m e n d a t i o n t h a t v e a r e i n f a v o r
of a g e n c i e s instead o f branches.
Governor V a n Zandt: I
appointed
would like t o state that I
o n that committee against a
telegraphic a r g u m e n t
in favor o f m y being placed o n the committee, a f t e r I
here.
I t was simply a
was
left
committee o n agencies a n d branches.
I did not k n o w that the Committee v a s Supposed t o ¢cefine
agencies o r define branches, a n d I do not think either o f
my associates o n the committee s o understood i t - I
told that a s Chairman c f the Committee I
the F e d e r a l R e s e r v e B o a r d . I
made a
was
was t o report t o
report
t o t h e Federal
Reserve Board a n d sent a copy o f i t t o the other Governors.
That r e p o r t s i m p l y e l a b o r a t e d t h e v o t e t h a t w a s c a s t a t t h e
last C o n f e r e n c e
t o t h e effect t h a t t h e Governors w e r e i n
favor o f agencies instead o f branches.
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Federal Reserve Bank of St. Louis
206
The Chairman: I
would l i k e t o ask i f i t would n o t b e
practicable f o r you, together with the other mambers o f your |
committee,
t o meet a t luncheon a n d formulate s o m e definite
recomméencations t h a t w e c a n t r a n s m i t
t o the Board a s t o the
purpose o f an agency organization. I
think i t is quite
important.
Vice Governor Calkins: I
the Board expects it.
think i t i s important, a n d
W e Giscussed this matter f o r a con-
Siderable t i m e last night. G o v e r n o r Rhoads a t the break-—
fast table this morning, said that the ideas o f the Conference h a d not crystalized. I
think i f other members o f tle
Conference, besides Governor V a n Zandt,
G v ernor McCord
and myself would express their opinions o n the S u b ;eot t t
woulda b e o f great assistance.
The Chairman:
T h i s matter w a s brought
u p f o r discus-
Sion a n d Governor Treman moves that t h e Committee o n the
Sstablishment o f branches o r agencies b e asked t o formulate
a Statement
o f the functions
o f a n agency,
tis b e a s k e d t o c o n f e r w i t h t h e c o m m i t t s e ,
a n d that Mr- Curt h e committee
to report a t the afterneon session.
(The motion, being duly seconded, was carried.)
The Chairman:
T h e next topic i s 7 , collections a n d
eleéarances.
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Federal Reserve Bank of St. Louis
7-(a) Completion o r contraction of collection
System.
Governor Rhoads:
T h a t was disposed of, Mr. Chairman.
7-(b) P r o b l e m o f collection.
Governor Wold:
T h a t h a s n o t been disposed of, b u t I
tnink w e have discussed i t sufficiently.
The Chairman:
D o I understand t h a t y o u with
subject f r o m the program, Governor wold?
Govern@ Wold: L
The Chairman:
dG.
T h e next i s (c).
7-(c) Reinstatement o f the Postmaster
Governor V a n Zandt:
T h a t h a s been disposed
7-(d) Situation resulting from Seattle
failure.
Governor Fancher:
T h a t topic w a s p u t o n a t m y sugies-
tion with the idea o f learning a little about t h e situation
of thos e
banks u p there. I
thought w e might l e a r n some-
thing f r o m Mr. Calkins a s t o the situation i n Seattle.
Vice Governor Calkins:
t i s difficult t o give a n y
authentic i n f o r m a t i o n w i t h r e g a r d
those banks.
t o the situation o f
I t i s a complicated situation.
S o far a s
know n o o n e h a s f o r m e d a n y o p i n i o n a S t o w h a t t h e r e s u l t
of t h e i r l i q u i d a t i o n w i l l b e .
two banks, I
Situation.
T h e r e a r e Gefalcations
in
believe, w h i c h m v e somewhat complicated t h e
T h e State b a n k examiner i s i n charge o f all
of that, a n d u n d e r t h e l a w s o f W a s h i n g t o n
h e i s receiver.
we have n o t received a n y Satisfactory information f r o m h i m
as t o w h a t h e expects
t o d o o r what h e will undertake
to
do, except h e says i n effect t h a t a l l matters t h a t a r e r e ported
t o h i m i n connection w i t h t h e clesing c f those banks
Will b e r e p o r t e d
t o h i s l e g a l c e p a r t m e n t f o r a n Opinion.
That i s a s f a r a s w e have b e e n able t o get with h i m a t this
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Federal Reserve Bank of St. Louis
time.
Governor Fancher:
M a y I
ingui:e a s t o what s t e p s ,if
you h a v e t a k e n a n y s t e p s
i n filing claims
banks
w e r e returned,
t o whom t h e checks
Vice Governor Calkins:
t o protect t h e
h a v e b s e n taken?
w e have filed n o c l a i m a n d
are advised b y our counsel that w e should n o t file a n y
Claims u n l e s s
b y consent.of
o r with t h e approval
o f the
endersing bank; t h a t w e should file n o claims o n our o w n
behalf.
% e took the position, o f course, that the check
was n o t finally paid a n d therefore should b e charged b a c k
to the endorseing bank.
Governor Fancher:
Y o u held for those checks t h e
Grafts o f the remitting banks either o n New York o r o n some
Sther bank?
Vice Governor Calkins:
Governor Fancher:
I n some cases:
4 n d raat covers a number o f items
in some cases.
Vice dovernor Calkins: Y e s :
Governor Fancher:
W h a t i s your r e a d s
there? H a v e
you taken i t up’at the advice o f your attorney? I
am mak-
ing these inquiries because w e are interestea t o the extent
of “5153.42 o n an item which was paid and a remitvance i n
some P o r n w e e m a d e t o y o u r b a n k ,
w e have g o t t h e matter
adjusted a s b e t w e e n o u r m e m b e r bank:
s o that y o u r b a n k has
received credit, a f t e r s e v e r a l c o n f e r e n c e s a b o u t i t ;
b u t
the question arises from the depositor o f our member bank
as t o who i s going t o protect h i s interests?
I s his claim
going t
o be filed and is he going to receive dividends a s
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Federal Reserve Bank of St. Louis
the assets o f those banks a r e liquidated?
Vice G o v e r n o r Calkins: I
think o u r poSition w i l l
finally b e t h a t w e w i l l f i l e c l a i m s w h e n authorized,
power o f a t t o r n e y o r otherwise,
b y
b y t h e interested party,
whoever t h a t m a y b e , a n d n o t otherwise.
Governor McCord:
“ e are interested i n the same way,
but w e have declined t o file claims o n the same grounds
stated b y Mr. Calkins.
partment.
checks.
B u t here comes t h e State b a n k de-
T h e y have received f r o m u s i n our letter certain
T h o s e checks possibly have b e e n paid, s o far a s
the local customer i s concerned, a n d charged t o his account.
Remittance h a s b e e n made t o us, b u t n o t paid:
State Department w i l l take t h e position, I
N o w , the
believe,
o r the
receiver appointed b y the Comptroller o f the Currency will
take t h e p o s i t i o n t h a t t h a t i n d e b i e d n e s s ,
i f collectible
at all i s collectible through t h e last endorser.
requested t h e s t a t e b a n k i n g d e p a r t m e n t s
W
e have
i n our district
to
give u S a separate certificate o f indebtedness f o r each
item, i n order that w e might, acting o n l y a s agents, p a s s
it t a c k t o t h e p r o p e r party. I
think w e h a v e g o t t e n o n e
of the state cepartments t o see t h e justice o f our position
and t h e y will b e willing t o accede t o our wishes- I
to g e t t h e o t h e r d e p a r t m e n t
in m y district.
t o d o so.
hope
T h e r e a r e s i x states
T a k e t h e case down a t Live Oak, Florida,
where t h e r e w e r e a
dozen c h e c k s
i n one letter, c o m i n g f r o m
four o r five other Federal Reserve Banks a n d some member
banks.
T h e State Department insists t h a t i f that c l a i m i s
ever settled.
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Federal Reserve Bank of St. Louis
a t a l l i t will b e o n the basis
o f t h e “Last
210
endorser. I
have b e e n endeavering t o get the State Depart-
ment t o h o l d t h a t e a c h c h e c k i n v o l v e d s h a l l h a v e a
separate
certificate, a n d then w e c a n pass that separate certificate
back t o t h e o r i g i n a l owner.
Vice Governor Calkins:
I t i s impossible t o give a n y
satisfactory i n f o r m a t i o n a s t o w h a t t h e s t a t u s i s -
I
n some
cases t h e banks h a d remitted b y . raft t o NewYork a n d other
places.
I n other places t h e y h a d received checks, Charged
them t o the customers’ accounts, a n d had not remitted a t
all.
I n the case o f checks that were received a n d ‘ropped
in a basket o r left o n somebody's desk until the bank had
closed, nothing was done with them at all.
unable
t o g e t a n y o f t h o s e i t e m s back.
W
e have been
T h e State Super-
intendent o f Banking takes the position that h e won't do
anything.
Vice G o v e r n o r Treman:
to Seattle for collection.
F o r instance,
W h a t cid they remit t o you?
Vice Governor Calkins:
spot a t once,
o f course.
y o u sent checks
Y o u have touched t h e sore
W
e are perfectly free t o s a y
that what w e did was absolutely indefensible
i n some cases.
However, i t does not change the situation a s between the
Federal reserve b a n k o f San Francisco a n d the depositing
bank,
i n this situation, because i t makes n o difference.
Our p o s i t i o n w o u l d h a v e b e e n n o b e t t e r h a d v e p u r s u e d a
Sound instead o f a n unsound policy.
banks i n Seattle remitted a
I
n some cases these
draft o n other banks i n Seattle
and they were received b y the Federal Reserve Bank of San
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Federal Reserve Bank of St. Louis
211
Francisco.
T h e y should n o t have b e e n received.
were r e c e i v e d w i t h o u t k n o w l e d g e
T h e y
o f a n y responsible o f f i c e r
of t h e bank; t h a t i s , t h e y w e r e r e c s i v e d i n a c v e r t a n t l y
clerks, b u t that i s entirely indsfensible.
I
by
t i s very
Cleirly set forth i n the regulations o f the Board that i n
handling items f o r member banks t h e Federal reserve b a n k
will a c t a s agent only.
(Informal Ciscussion followed w h i c h t h e reporter w a s
directed n o t t o take.)
The Chairman:
T h e Secretary has some ideas o n this
subject which 1 will be glad t o have him develop, i f he
will.
Mr. Curtis:
W e have »450 worth in our bank, and we
have felt, speaking very frankly, t h a t i t was negligence
on the part o f the Keserve B a n k o f S a n Francisco i n receiving i n lieu o f payment a
draft o n another b a n k i n seattle,
as i s t h e case w i t h o n e o f our checks, a n d a
York i n another.
draft o n New
T h a t leaves t h e m still unpaid,
t o my
mind, and 1 do not see just where the San Francisco Bank
gets off.
Vice Governor Calkins:
part o f the bank, I
situation I
4 s t o the negligence o n the
agree, b u t i f i t had n o effect o n the
think Mr. Yurtis will agree that i t i s net worth
discussing.
Mr- Curtis:
B u t I
. . think i t did have effect.
T a
my mind the loss was caused not b y your sending i t to the
Seattle Bank, b u t because y o u recsived f r o m t h e Seattle
Bank
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Federal Reserve Bank of St. Louis
something that wasn't good money.
e
Governor c Calxins:
i
V
Y o n . mean
i t wasn’tLi -cood
money at the time we r e c e i v e d :
t
i B u . how cuvld we determine w h e t h e r
i t was a r not?
Mr: Curtis:
I
t seems
t o m e y o u h a d y o u r choice o f
receiving currency o r San Francisco exchange, b u t n o t exchange
on Honelulu, N e w York, Atlanta o r some other place--Vice Governor Calkins: I
agree w i t h that, except, i f
you stick t o Seattle and say we had n o business t o accept
Seattle exchange, b u t not w i t h respect t o the exchange o n
New York, a s I think w e would have a
right t o accept that,
because t h e other banks a r e doing it.
I t i S a common
practice a m o n g t h e banks.
Mr- Curtis:
I t may be a common practice t o receive
New York exchange, b u t isn't that a liability o f the banks
that receive p a
D o n ' t t h e y take what y o u call a business
risk?
Vice Governor Calkins:
Mr+ Curtis:
4 s t o final payment?
I t seems s o to me.
(Informal discussion followed:)
The Chairman: G o v e r n o r Calkins, f o r m y information, I
would like t o ask for light o n our own case.
correctly,
I f I remember
w e sent t w o o r three checks t o you o n the North-
ern Banking & Trust Company o n the 10th o f January.
They
Should have gotten t o S a n Francisco o n the 1 5 t h o f January
—
and t o Seattle n o t later t h a n t h e 18th o f January.
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Federal Reserve Bank of St. Louis
Vice Governor Calkins:
The Chairman:
“
T h e 19th.
@ were advised
b y telegraph o f their
215
nonpayment o n the 31st.
W h a t happened between t h e 19th
and t h e 31st?
Vice Governor Calkins: I
presume t h a t was a
case i n
which remittance w a s made b y draft o n New York o r possibly
draft
o n Seattle,
a n d w e were n o t advised t h a t those drafts
were n o t paid.
The Chairman: I
think w e were advised that remittance
was made b y draft o n Seattle.
Vice Governor Calkins: I
The Chairman:
O n another non-member b a n k i n Seattle.
Vice Governor Calkins:
The Chairman:
think that i s very likely.
Yes.
T h a t draft would have reached y o u o n
the 23rd o r 24th, would i t not?
Vice Governor Calkins:
T h e 23rd, i t .should have
reached uS, o r S a y the 24th.
The Chairman:
I
t would have taken four d a y s . t
o get
to Seattle a n d back.
Vice Governor Calkins:
Y e s , t h e 28th.
T h e s e advices
were sent a s promptly a s they could b e under the circumStances.
A s I said before t h e situation was inexcusable,
but i t i s a l s o m y o p i n i o n t h a t t h e s e c i r c u m s t a n c e s
d i d not
change the situation, s o that a s far a s the Federal Reserve
Bank o f San Francisco i s concerned i t does right t o charge
them back, because rothing w e could have done, after t h e
checks were deposited t o the drawing b a n k would have changed
the status o f those checks,
T h e moment a n y o n e o f us sends
checks t o t h e drawing bank w e give u p t h e control o f those
checks.
U n l e s s t h e y are finally paid y o u have t h e right
to c h a r g e t h e m back.
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Federal Reserve Bank of St. Louis
214
Governor Wold: I
would like t o make a n inquiry.
Secretary has just raised a n interesting question.
The
W e are
not involvedin this Seattle matter a t all, b u t i n case w e
receive f r o m a
New Y o r k B a n k a
volume o f c h e c k s u p o n a
State bank, a n d o u r policy i s t o take payment o n l y i n Twin
Cities exchange t h a t
S e
a v a i l a b l e , a n d they
arbitrarily s e n d u s a draft u p o n some other point, w h a t i s
our position?
Mr. Curtis: I
think unless you return it at once
or wire t h e m that y o u take that i n payment.
Vice Governor Calkins:
I f w e had returned these
checks t h a t w e a r e d i s c u s s i n g a t t h i s t i m e ,
would that have changed the Situation?
i n what w a y
W e would not have
received final payment a n d would have b e e n obliged t o charge
them back---
Governor Wold: I
anSwer
would like t o have the Secretary
m y question.
Mr. Curtis: I
think y o u ought t o return t h e m a t
once, o r , better still, w i r e t h e m that that i s n o t payment.
Governor Wold:
Mr- Curtis:
W e l l , suppose w e wire---
W i t e t h e b a n k that sends t h e m t o you.
Governor Wold:
Y e s , but that won't protect u s with
you.
Mr. Curtis:
B u t i t prevents
y o u from being guilty o f
any negligence.
Governor Wold:
you.
N o t with you.
T h e y return t h e draft a n d send u s a draft o n some
other point, u p o n Timbuctoo,
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Federal Reserve Bank of St. Louis
W e haven't advised
o r some other place.
215
Vice Governor Calkins:
I
n the case o f the Northern
Bank and Trust Company o f Seattle there were defalcations
and they were n o t discovered until some time after i t was
T h e y were discovered b y the Superintendent o f
closed.
Banking a n d the examiners.
I f w e h a d sent the checks, a s
we did, direct t o that bank,
a m h a d received a
draft o n New
York a n d h a d returned that draft t o the Seattle Bank, t h e
probability i s they would h a v e held i t and said nothings
and d o n e n o t h i n g ,
a n d w e would h a v e b e e n i n n o better p o s i -
tion t o protect t h e e n d o r s e r s
now.
o n those checks t h a n w e a r e
O u r situation would n o t have b e e n changed a t all-
Mr. Curtis:
I t does not seem quite that way t o me.
Suppose y o u had telegraphed t o the Seattle Bank that you
could n o t accept N e w York Exchange i n payment o f those
checks, b u t t o kindly send you San Francisco exchange.
Now, t o m y mind that certainly would have relieved y o u o f
any charge o f negligence w i t h respect t o those drafts t h a t
came from New York, Chicago, o r anywhere else.
Vice Governor Calkins:
N o t unless a t the same time
we h a d a d v i s e d t h e e n d o r s i n g b a n k s t h a t t h e c h e c k s w e r e n o t
paid.
I
f there w a s a n y t h i n g t h a t w e might h a v e d o n e t h a t
we didn't do, that was the thing:
drafts
o n Seattle,
N e w York,
W h e n w e received the
o r w h e r e v e r t h e y were,
we
should have advised t h e endorsing banks that those items were
unpaid.
I n some cases w e did so. W h i l e that woatt Hews
saved t h e s i t u a t i o n
s o f a r a s t h e e n d o r s e r s w e r e w m ncerned,
it would have p u t u s i n a more desirable situation,
course.
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Federal Reserve Bank of St. Louis
of
eats
Governor Wold:
raise,
T h a t i s t h e question I wished t o
a s t o what o u r a c t i o n s h o u l d b e i n acase w h e r e a
state
bank arbitrarily dees send u s exchange t h a t i s not available.
H o w are w e going t o protect ourselves?
Curtis' v i e w w e w o u l d b e l i a b l e
U n d e r Mr.
t o the endorsing t a n k t o
the amount o f the check.
Mr. Custis:
L e t m e ask a counter question. S u p p o s e
Germania Bank o f Seattle, o n which one o f those drafts
drawn b y the Northwestern Trust Company had, i n return
that, given a draft o n another Seattle bank- W h e n woulda
Original check have b e e n paid?
Governor Wold: I
am not attempting t o justify the
action o f the S a n Francisco Bank.
T h e y admit t h e y were
wrong.
But suppose the Seattle Bank had arbitrarily s e n t t h e m d r a f t s u p o n s o m e o t h e r p o i n t ,
Spokane,
such as
o r a point i n New York---
Mr- Curtis:
M y view i s t h e y should telegraph t h e m
that t h e y c o u l d n o t r e c e i v e t h o s e
drafts
i n payment.
Governor Wold: T e l e g r a p h the bank upon which the
item i s drawn?
Mr. Curtis:
Yes.
Governor Wold:
Mr. Curtis:
B u t y o u have h a d n o notice a s endorser.
Y o u would get notice pretty soon if you
failed t o get a reply
S a y i n g that t h e y were s
ending
Something else. T h e n it would b e up to the San Francisco
bank t o immediately notify t h e prior endorser a s t o what
had happened.
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Federal Reserve Bank of St. Louis
217
Governor “old:
I t seems
t o m e we ought t o have a
definite policy that t h e banks should pursue under s u c h
circumstances
i n o r d e r t o protect t h e m s e l v e s .
Mr» Curtis: I
agree with you.
T h e thing ought t o be
settled among t h e reserve banks.
Governor Seay: I s n ' t i t true, acting a s agent, that
if the remitting bank sends exchange other than that which
is immediately available, b u t the Minneapolis bank, f o r
instance, believes t h a t i s the best that c a n b e done, a n d
as agent f o r the owner o f the check, attempts t o collect t h e
thing sent him, h e i s not negligent?
H e has exercised h i s
discretion i n the matter f o r the benefit o f the principal
for whom h e i s acting. I
gent.
H
d o not believe h e would b e negli-
e has some discretion a s a n agent:
do any better, a n d believes,
I f h e cannot
i n his judgment, t h a t i t i s t o
the best interests o f his principal t o endeavor t o collect
the check sent i n payment of the original check, i t isn't
clear t o m e that h e would b e responsible f o r a n y negligence.
Governor Wold:
I t doesn't seem t o me that h e would be,
but Mr. Curtis says that h e is.
Mr. Curtis: I
should be inclined t o think that he was.
Governor Seay;
I n a number o f cases w e could n o t
deal “ w i t h our non member banks if there wasn't some
degree o f latitude i n taking what t h e y are able t o send us.
Notwithstanding t h e fact that w e prescribe what t h e y shall
Send us, they might say that they couldn't d o it that day
because they didn't have it.
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Federal Reserve Bank of St. Louis
Governor Wold: I
wsh t o mke
m y position a little
218
clearer, M r + Chairman.
I t seems t o m e that where a
Federal
reserve b a n k deliberately a n d willingly takes f r o m a state
bank o r a member bank, i n payment o f items sent t o it, a
draft t h a t i s notimmediately available, t h a t i t should b e
liable.
I t assumes t h e responsibility.
repeatedly
W h e n i t i s done
b y t h e b a n k t o w h o m i t e m s a r e sent,
i t seems t o
me w e o u g h t t o h a v e s o m e w a y t o protect o u r s e l v e s
ing the bank f r o m whom w e receive it.
b y hold-
B u t i f w e deliber-
ately take Sioux City Exchange f r o m a bank o u t i n South
Dakota,
w e ought n o t t o expect t h e Federal Reserve B a n k o f
San Francisco o r the Federal Reserve B a n k o f New York t o
Stand a n y loss.
Mr» Curtis:
L e t u s take this particular case. T h e
San Francisco bank received i n payment, o r in lieu o f payment, a draft o n another bank i n Seattle:
I t is perfectly
possible that when they sent that t o the Germania Bank i n
Seattle the Germania Bank would, i n return, send another
draft o n still a third b a n k i n Seattle.
T
o m y mind t h e
sending bank, the Chicago o r New York Bank i n this case, i s
entitled $ometime
t o have adefinite point where that check
is paid, a n d not m v e twenty-two days elapse,
a s i t did i n
some o f our cases, and a t the end o f that time have word
come b a c k t h a t t h e . d r a f t h a s n o t b e e n paid- I
think w e
ought t o agree o n a policy, a n d i t does s e e m t o m e that n o t
to a g r e e o n a
policy w o u l d b e a
Vice Governor Calkins: I
mistake.
agree with Mr- Curtis en-
tirely i n that statement, a n d 1 would like t o have him answer
the q u e s t i o n a s t o w h e t h e r t h e negligence,
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Federal Reserve Bank of St. Louis
which did not
219
affect t h e final payment o f the checks involved, w o u l d place
liability o n the Bank o f S a n Francisce i n those instances?
In other w o r d s ,
t h e negligence.
o f which w e will a d m i t w e
are guilty, d i d not change t h e situation a s between t h e
Federal Reserve B a n k o f San Francisco a n d its endorser,
and therefore would t h a t negligence h a v e a n y effect?
Mr. Curtis: I
would agree w i t h y o u a s a legal pro-
position i t has n o effect, b u t I
do not agree w i t h y o u o n
the statement o f facts, because there w a s a seven days
lapse i n the case o f one cleck, a n d I believe i f you h a d
telegraphed the NorthwesternTrust Company you very likely
would have gotten San Francisco exchange i n payment o f that
itemVice Governor Calkins:
Y o u believe that, b u t that i s
& hypothetical statement o f facts. I
received a
agree that w h e n w e
draft o n another Seattle b a n k w e should have
advised t h e Federal Reserve B a n k o f New York that that item
was unpaid,
b u t i t wouldn't h a v e c h a n g e d t h e s i t u a t i o n e x -
cept i n s o far a s i t gave notice t o the Federal Reserve
Bank
o f N e w York.
T h e one fact that stands
when w e a d o p t t h e p r a c t i c e
o f s ending direct
out
i s that
to a
drawee
non-member b a n k w e are cutting t h e ground f r o m under o u r
feet and taking our chances. S o m e b o d y i s t a k i n g clances.
Who i t i s i s a
question, p e r h a p s .
B u t y o u have n o protece
tion; y o u have n o recourse; y o u have n o method o f insuring
payment.
W h e n y o u have given u p control o f those checks
and s e n t t h e m t o t h e b a n k o n w h i c h t h e y a r e d r a w n t h e r e i s
nothing y o u c a n d o except take whatever t h e consequences m a y
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Federal Reserve Bank of St. Louis
¥20
be.
I f you have a dishonest b a r k official h e m a y destroy
the check a n d deny that h e ever signed it, a n d you would m v e
a correspondence l a s t i n g s i x m o n t i s b e f o r e y o u would f i n d
out what h a d become o f them.
would probably fail. I
I n the meantime t h e bank
don't know but what that actually
happened.
Governor Wold:
I t would b e incumbent u p o n t h e Federal
reserve b a n k t o notify endorsers o f loss i n transit.
Vice Governor Calkirm:
T h a t i s what I
have said,
that the omly negligence w e find i n this case w a s failure
to advise endorsing banks that the cltecks were unpaid.
Governor Wold:
B u t the point w e ought t o determine
is whether d r not there i s any negligence i n this situation.
If the Minneapolis bank sends a n item t o New York o n a state
bank i n the interior, a n d that draft’
i s sent b a c k t o the
State bank, a n d they arbitrarily remit i n some other funds
than New York funds, a n d the draft turns out t o be bad,
and t h e bank fails i n the meantime, w h a t notice ought w e
to have a n d h o w far i s the N e w York bank going t o b e held
ngeligent?
Mr. Curtis: I
think t h e Governors o u g h t t o agree
policy, because i f you d o not w e will have a
on a
recurrence o f
this v e r y thing.
The Chairman:
I
n order t o get S o m e tangible result
of this discussion, w i l l y o u prepare s u c h a motion governing
such a policy, Mr. Curtis?
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Federal Reserve Bank of St. Louis
a
Vice Governor Calkins: I
goat i n this case. I
want t o say that w e are the
am entirely i n agreement with M r Cur-
tis i n regard t o this matter a s t o what should b e done a s
to adopting a
policy.
T h e situation o u t there i s a com-
plicated o n e and w e have only touched t h e edges o f it- T h e
same S i t u a t i o n m a y a r i s e s o m e w h e r e e l s e , a n d w e o u g h t t o s e t -
tle o n a policy i n regard t o it.
Governor Fancher: I
think i t i s going t o have some
considerable bearing when w e get into t h e matter o f sending
collection items into other Federal reserve districts a n d
getting remittance i n various forms o f exchange.
T h e ques-
tion i f a very broad o n e a n d w e ought t o settle it.
The Chairman:
U n l e s s there i s some objection I
going t o a s k t h e S e c r e t a r y
t o draft a
am
resolution embody-
ing his views a s t o the policy which shall b e pursued, f o r
submission t o the Conference this afternoon.
Governor Seay: I
would like t o have h i m take into
consideration t h a t h e i s located i n a district w i t h practically o n e state, which i s one exchange center, a n d that
there a r e other districts where conditions a r e very m u c h different a n d diametrically opposed t o those existing i n his
district.
(Informal discussi n
o followed.)
The Chairman:
I f there i s n o further discussion o f
this, a l t h o u g h i t h a s o n l y b e e n t o u c h e d u p o n ,
to a matter that i s not o n the program.
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Federal Reserve Bank of St. Louis
w e will pass
een
Statement o f State Department that funds
and property o f aliens a r e n o t subject t o
seizure i n the event o f war.
Governor Rhoads h a s asked f o r a n expression o f opinion
of the Conference a s t o the policy that should p e persued
in connection w i t h t h e telegram sent o u t b y the Federal
Reserve Board calling their attention t o the statement made
by the State Department that funds a n d property o f aliens
in this country should n o t b e subject t o seicure i n -event
of war, a n d h e suggests t h a t w e might advise o u r member
banks o f t h e f a c t s o t h e y c o u l d m a k e i t public a n d a l l a y a n y
possible fears that might arise i n the minds o f such aliens
aS t o the safety o f their property.
That matter w a s discussed b y some o f us o n Tuesday,
and a n investigation was made i n New York and i n Boston a s
to t h e state o f minds o f aliens,
a m i n both districts w e
found that there was n o disturbance o f mind apparent, a n d
that n o one seemed disposed t o withdraw balances i n the
State banks, the savings banks and the national banks, b e cause o f a n y f e a r o f t h e i n t e r n a t i o n a l situation.
I
n view
of t h a t f a c t i t s e e m e d t o u s w i s e t h a t n o t h i n g b e done;
that w e should not take any formal public action i n the
matter. I
believe Governor Treman consulted Mr. Richards,
the Commissioner o f Banking i n New York, and our bank consulted Mr. Thorndyke, t h e Banking Commissioner o f Massa-
chusetts, a n d they both agreed that the situation was not
such a s called f o r any action o n the part o f the banks a t
present.
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Federal Reserve Bank of St. Louis
Governor Fancher: I
would l i k e t o i n q u i r e
if a
week o r
223
ten d a y s b e f o r e t h a t t h e b a n k s r e c e i v e d a
communication
from the Board asking f o r a n expression o f what might occur
and inquiring whether there w a s likely t o b e a recurrence
of t h e d i s t u r b a n c e t h a t b r o k e o u t i n s o m e q u a r t e r s
ruary,
i n the event o f a declaration o f war.
W
i n Feb-
e had
such a letter i n our bank a n d w e canvassed t h e situation,
because i n our state w e have large industrial centers, p a r ticularly Youngstown, w h i c h has a large foreign pepulation
and where, during t h e first w e e k o f February, t h e largest
savings b a n k was subject t o a very severe withdrawal, covering a period o f about f o u r days.
paid o u t u p w a r d s
of a
D u r i n g t h a t time t h e y
m i l l i o n dollars.
T h e n this announce-
ment was made b y the State Department t h a t t h e Government
would n o t confiscate t h e i r funds, a n d t h e trouble w a s i m mediately allayed.
W e took i t u p with the President o f
that b a n k after w e got this eommunication f r o m the Board,
and got his opinion a s t o what might occur i n view o f the
experience i n February,
war.
i n the event o f a delaration o f
H e expressed t h e opinion that there probably would
be some further withdrawals a n d some further disturbance.
He expressed t h e opinion t h a t h e did n o t think i t would b e
aS violent, b u t h e thought i t advisable that that statement
be reiterated,
t o the effect that b y n o possible chance would
the funds o n deposit i n the banks b e disturbed. I
also
looked i n t o t h e situation i n Cleveland a n d found that a
half a
dozen o f the principal banks h a d experienced s o m e
withdrawals.
I n several cases t h e opinion was expressed
that there should b e gome announcement.
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Federal Reserve Bank of St. Louis
A f t e r this sugges-
224
tion from the Board, t h e announcement would o n l y b e t o the
member b a n k s f r o m t l t F e d e r a l r e s e r v e b a n k s ,
a n d t h e member
banks should have t h e suggestion f r o m the Federal reserve
banks that t h e y give some publicity a n d prominence t o this
previous announcement f r o m the State Department.
Governor Seay: I
ceived s u c h a
would like t o say that w e also re-
letter a n d t h e B o a r d s u g g e s t e d t h a t w e m a k e
inquiries among our member banks.
W e replied that w e
thought t o make s u c h a n inquiry indiscriminately might possibly bring about t h e trouble i t was desired t o avoid»
I n
lieu thereef w e suggested t o the Board t h a t t h e y make a n
announcement a n d repeat i n that announcement t h e statement
of the President.
T h e n w e received a
telegram t h e other
day suggesting that w e communicate w i t h all o f our member
banks b y letter, sending them a copy of the President's
announcement, w i t h t h e suggestion that wherever advisable
they p o s t i t c o n s p i c u o u s l y
Governor Fancher:
Governor Seay:
i n t h e i r banks.
T h a t i s what w e did i n our bank.
A n d we have communicated with our
member banks t o that effect.
The Chairman: S p e a k i n g for our bank we have decided
not t o take any action a t the present time.
W e have ad-
vised t h e B o a r d t h a t w e d o n o t t h i n k t h e situatiosa i n o u r
district makes i t necessary a t present, a n d that a s the
situation arose w e would deal w i t h i t i n our discretion.
Governor McDougal: I
was one of those who discussed
the matter o n Tuesday, and, a s y o u have stated, t h e concluSion w e r e a c h e d w a s t h a t i t w a s i n a d v i s a b l e
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Federal Reserve Bank of St. Louis
t o undertake
at
this time t o circularize t h e banks generally.
The Chairman:
I
t seems
which y o u have just referred,
t o m e that t h e statement
to
i f i t i s t o b e given publicity,
should n o t b e given i t through the Federal Reserve Banks,
but i t should b e done through t h e Department h e r e i n Washington. I
think that would b e more satisfactory.
H a v e I
stated t h e views o f your bank correctly i n the matter, Gover-
nor Treman?
Vice Governor Treman:
Yes.
Before I
came a w a v i t
was thought wiser n o t t o make a n y announcement a t present.
I have h a d confirmation o f the report that w a s prevalent
at the time I left, t h a t there w a s n o disturbance a t all.
In fact, Superintendent Richards t o l d m e that one o & t h e
banks having large German deposits gained i n d @ osits after
the announcement. I
have here t h e reports f r o m three dif-
ferent b a n k s .
(Vice G o v e r n o r T r e m a n t h e r e u p o n r e a d t h ® p a p e r s r e f e r -
not
red to, which are made a part of this record-)
Governor Seay:
I t i s generally t h e case that these
occurrences c o m e w i t h o u t a n t i c i p a t i o n .
Moreover,
break o u t i n one place, t h e y spread t o others,
i f they
T h e y can
not b e anticipated, f r o m the very nature o f the occurrences,
I a m o f the opinion i t would have b e e n wise f o r t h e Board,
as the financial h e a d o f this country,
utterance t o the country.
t o have repeated t h a t
I t i s prevention that w e want,
not cure.
The Chairman:
D o you wish t o make a motion that w e
request t h e Board t o make s u c h a n announcement?
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Federal Reserve Bank of St. Louis
would make t h a t motion, yes.
Governor Seay: I
Governor Fancher: I
Governor V a n Zandt:
Governor Rhoads;
of State t o m
will second t h e motion.
N o t through the banks?
T h a t t h e Board request t h e Secretary
k e it.
Governor % eay: I
force i f i t came H e c e s
believe i t would come w i t h greater
t h e banking h e a d o f the country.
Vice Governor Treman: I
would l i k e t o raise t h e ques-
tion, i f you pass the resolution, whether i t w u l d not be
more advisable t o put i t i n this way:
T h a t i f any announce-
ment i s to be made i n that connection w e think i t would b e
wiser t o have i t come f r o m Washington.
another question here.
T h e r e is
T h e President made a
certain state-
ment, t h a t under n o conditions w o u l d t h e y absorb a n y o f this
property. I
might c o n c e i v e t h a t i n s i x m o n t h s
o r a year,
if things go on, the opinion o n that point might possiblg
change.
Governor Seay: I
believe, with respect t o bank de-
posit s, that the thing ought to be settled absolutely, because
i t is a
trouble.
source f r o m w h i c h w e m i g h t e x p e r i e n c e g r e a t
I f i t i s feared that property m a y b e ta&en and
sequestered, because o f illegal action o f any German subjects
or any o f our foreign b o r n population, t h a t question ought
to b e settled conclusively, a n d i t ought n o t t o reach bank
deposits.
A
n absolutely unqualified statement ought t o
be made with respect t o those deposits. I
suggested t h a t
the Board make t h e announcement a n d that i n making t h e announcement t h e y quote t h e President. I
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Federal Reserve Bank of St. Louis
believe i t w u l d
227
have more effect among t h e banks i f the banking Board o f
the country Should make it.
T h a t i s immaterial, however.
It i s m y idea that somebody ought t o repeat it.
Governor Wold:
I t shoubd b e the Secretary o f State.
Any announcement b y the Board would have n o legal effect
and w o u l d n o t c a r r y v e r y m u c h w e i g h t
a s t o what t h e policy
of the Government would be, but a statement b y the Secretary o f State a n d the President would have.
Vice Governor Calkins : ; T h e Board h a s n o authority
in the matter whatever.
I t c a n only repeat t h e promise
of the Secretary o f State.
Governor Seay:
T h a t i s m y judgment o f what ought t o
be done.
(Informal discussion followed.)
The Chairman: I
d o n o t w a n t t o interrupt,
b u t Mr.
Harding h a s called m e u p a n d said that h e has b e e n asked
to a p p e a r b e f o r e t h e S e n a t e c o m m i t t e e
o n Banking a n d Cur-
rency tomorrow morning a t t e n o'clock; t h a t Mr. Warburg would
be out o f town, too, a n d asked i f i t would suit o u r convenience t o meet with the Board this afternoon. I
told h i m
we would b e glad t o meet t h e m a t half past t w o i n the Board
room. I
also asked h i m i f h e and the other members o f the
Board would j o i n u s a t luncheon.
H e said that h e a n d Mr.
-Warburg a n d Mr. Delano would b e here.
Governor Rhoads, w o u l d y o u like t o have formal action
on t h i s m a t t e r .
Governor Rhoads:
Mr. Chairman.
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Federal Reserve Bank of St. Louis
T h e r e is a
m o t i o n b e f o r e t h e house,
228
Governor Seay:
Board b e r e q u e s t e d
T h e motion was that t h e Federal Reserve
t o either announce t h e previously expres-
sed decision o f the State Department i n regard t o bank
deposits o f aliens,
it.
o r that i t procure t h e reannouncement o f
I t i s t o b e taken into account, M r + Chairman, t h a t i t
is n o t o n l y t h e n a t u r a l a p p r e h e n s i o n t h a t m i g h t a r i s e
in
the minds o f the alien population, b u t i t i s the worked-up
apprehension that must b e feared.
perience I
F r o m o u r previous e x -
judge that w e m a y expect s o m e effort o f that
nature.
The Chairman:
I s there a n y further discussion?
(There was n o further discussion a n d t h e motion waa
duly carried.)
Vice Governor Treman: D o n ' t you think we had better
take u p the question o f amendments, Mr+ Chairman?
The Chairman:
I f t h e Conference s o deisres.
Governor Seay:
T h e r e w a s o n e verbal intimation made
to m e yesterday, w h i c h disturbed m y equinimity a
great
deal, a n d that was that t h e appointive members o f the boards
of directors
o f Federal r e s e r v e b a n k s m i g h t b e i n c r e a w e d
from three t o four. I
feel confident t h a t would disturb
the member banks i n our district a n d I believe o f the whole
country.
Vice Governor Calkins:
I t would disturb t h e confi-
dence t h a t people h a v e i n the system n o w very much.
Governor V a n Zandt:
T h e r e m s b e e n a great deal said
in our district already about t h e member banks n o t having
more voice i n the operation o f the banks.
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Federal Reserve Bank of St. Louis
T h e y say i t is
C O M
4609
the o n l y c e r p e r a t i u n t h e y k n o w o f t h a t n e v e r h a s a
of stockhclders.
Q u i t e a
number
o f the banks o b j e c t
even t h r e e m e m b e r s b e i n g a p p o i n t e d
Board, w h i c h members,
The Chairman: I
to
b y the Federal Reserve
S o appointed, a r s n o t the representa-
tives o f the banking interests c f the cuuntry.
they a r e n o t s e l e c t e d
meting
o r a t least
b y t h e banking interests.
suggest that w e take u p the mattior
of amendments after w e have a l l h a d time t o read them.
Vice Governor Calkins:
A r e w e n o t expected t o take
some action i n regard t o this Government financing? I
guess that i s a short title f o r it.
The Chairman:
Y e s .
W e are expected t o p r e s e n a
formal expression o f our views o n the matter. I
know whether w e c a n get i t reduced t o writing,
do not
o r whether
we c a n come t o any agreement between n o w a n d 2:30.
Vice Governor Calkins:
W e had better come t o a n
agreement o n it.
The Chairman:
I f i t meats w i t h the a p p r o v a l fo t h e
Conference w e will take that u p for discussion a t this
time.
Governor Seay: I
suggest that w e take i t up, Mr.
Chairman.
The Chairman:
A s a basis f o r discussion I
would like
to submit t h e substance o f a memorandum which I submitted
some time a g o t o the Federal Reserve Board bearing o n this
matter, a n d which they i n turn passed o n t o the Secretary
of the Treasury.
are a s follows:
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Federal Reserve Bank of St. Louis
T h e essential points i n the memorandum
200
That t h e issue should b e f o r probably a
lars.
billioy dol-
T h e reasons f o r suggesting s c large a n amount were,
first, t h a t 1 4 seemec t o m e that t h e market f o r Government
obligations wovld b e better served b y o n e larse issue t h a n
by piecemeal f i n a n c i n g ;
s e c o n d , that because
c f the popular
enthusiasm a n d patriotic impulses w i t h which t h e ccuntry i s
Stirred, that i t i s the psychological moment t e put out
and o f f e r a
large a m o u n t
o f bonds;
t h i r d , because
m m azn
issue o f a n amount a s large a s one billion dollars would
inspire p e o p l e w i t h c o n f i d e n c e t h a t t h e G o v e r n m e n t w a s g c i n g
to deal with the situation i n a large way; that t h e y were
not g o i n g t o p u r s u e a
smali a n d p i c a y u n e p o l i c y ,
going i n t o i t wholesale. I
b u t were
suggested t h a t t h e i s s u e b e
made at a rate of 3-1/2 per cent. I
consulted with bona
dealers i n New York and i n Boston, houses t h a t handle
various grades o f securities, a n d those dealing largely i n
the most conservative savings bank investments, a n d those
that a r e large distributors o f public service securities
commanding a
higher rate, a n d withcut exception t h e y felt
that i t would b e wise t o make t h e initial issue that would
not b e a burden i n the way o f foregoing o f income and a n
imposition upon t h e patriotic impulses o f the people; t h a t
they were entitled t o a fair r u n for their money s o far a s
the return o n the investment was converned.
that a
T h e y agreed
three a n d a half p e r cent rate would float a
loan o f
a billion, certainly, a n d probably considerably more. I
consulted t h e m a s t o a three p e r cent rate, a n d without e x ception t h e y felt that a
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three p e r cent rate might float a
231
five hundred million dollars, b u t most o f them were agreed
that i t would n o t float a
loan o f a larger amount t h a n that.
They felt t h a t i t was o f the greatest importance t h a t
this l o a n should g o with enthu&asm, a n d that i t should b e
a great success.
T h e y felt t h a t a three p e r cent loan, e v e n
for a n amount n o larger than »500,000,000 would probably not
go easily, a n d i t would b e taken u p t o a considerable extent b y the banks, a n d t h e y would find great difficulty
in the distribution o f a three p e r cent loan.
From t h e viewpoint o f the Federal Reserve Banks, i t
seems t o m e most desirable t h a t t h e rate should b e high
enough t o promptly placethese bonds i n t o t h e boxes o f investors, a n d that t h e distribution Should b e made a s rapidly
a8 possible.
I f they g o slowly,
i n view o f the fact t h a t
the banks will undoubtedly b e very heavy original subscribers, t h e Federal Reserve Banks indirectly a r e going t o
bear a part o f the burden o f it, because t h e buying u p o f
those b o n d s
i n the banks w i l l t h r o w a
heavy a m o u n t o f r e d i s -
counting into the Federal reserve banks, a n d inability t o
move t h e s e b o n d s p r o m p t l y a t t h r e e p e r c e n t w o u l d n e c e s s i tate a
pretty l o n g c a r r y o n t h e p a r t o f t h e m e m b e r banks,
and consequently chronic discounting f o r a considerable
amount a t a time when o u r resources s h o u l d b e a s free a s
possible f o r the commercial needs o f the country.
I would suggest t h a t thebonds b e made redeemable a t
the option o f the Government after five years, enabling the
Government t o avail itself o f a favorable money market,
if
such state o f affairs existed a t t h e time; t h a t t h e bonds
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232
should be definitely payable i n amounts o f $40,000,000 a
year, beginning w i t h t h e sixth year, a n d annually thereafter,
retiring t h e total issue i n thirty years f r o m date.
I would make t h e bonds coupon bonds i n denominations
of$100, $500, and $1,000, and the registered bonds i n de-
nominations of $1,000, $5,000, $10,000 and $50,000. I
would h a v e t h e s u b s c r i p t i o n s r e c e i v e d t h r o u g h F e d e r a l R e s e r v e
banks, b o t h t h e member a n d n o n member banks i n the districts
acting a s subagents f o r t h e Federal reserve banks, b u t the
whole transaction going through the Federal reserve banks.
I should
a e s
a
deposit
o f perhaps t w o p e r c e n t a s e v i -
dence of good faith on all bids in excess of $1,000.
The m a t t e r
o f the accumulation
o f the proceeds
f o r
the benefit o f the Government i s a matter o f great importance
and s h o u l d h a v e t h e m o s t c a r e f u l c o n s i d e r a t i o n :
M
y present
judgment i s that the payments made o n these bonds should
be a c c u m u l a t e d
i n the Federal reserve banks and,
burg suggested yesterday,
a s Mr. W a r -
a s a temporary a s s i s t a m e
t o the
banks a n d t o relieve t h e contraction t h a t would result f r o m
this W a v y payment i n t o t h e reserve banks, t h a t a
very favor-
able discount rate b e made for short dates t o the member
banks.
I t seems t o m e i t i s o f the greatest importance
that t h e p a y m e n t s s h o u l d b e h a n d l e d
i n such a
way a s t o
avoid covering into the Treasury this enormous amount o f
money a n d taking i t out o f t h e available commercial resources
of the country.
Governor Wold:
W o u l d i t not b e possible t o have i t
paid i n installments,
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t o take u p the slack i n case o f con-
traction w h i c h w o u l d f o l l o w t h e fleatine.
o f
bil®icn dol-
lars i n bonds?
Goverror Seay:.
I f you concentrate a
billion dollars
in the Federal Reserve Banks i n gold, a n d i t will
have t o b e
gold o r its equivalent,
i t would disorganize t h e bank’ng
business o f the whole country.
I t should n o t b e done:
And least o f all should i t be concentrated i n the Treasury.
Vice Governor Gatine:
I t could b e done i n the banks
because t h e banks will l o a n a large part o f i t back,
but i t could n o t b e done i n the Treasury.
Mr. Wold:
H a s England,
i n selling h e r bonds, required
payment o f the full amount a t once?
The Chairman:
O n some s h e h a @ a n d o n some she h a s not.
The later issues have b e e n paid f o r i n installments.
Governor Wold:
W h y i s not that a practical w a y t o
avoid contraction?
Governor Seay:
I n the last loan I have s e e n a state-
ment b y a n English authority t o the effect that o f the
five
billion three or four billons were paid back into the market.
T h a t was b y the retirement o f previous loans,
exche-
Quer bills o r borrowing f r o m the banks o n the part
o f the
Government.
The Chairman:
T h a t brings out a marked point o f aif-
ference f r o m the situation here a s compared w i t h
over there.
The English Government has pursued the policy
o f financing
Treasury notes o r treasury bills, and when they
have put
out a bond issue,
t o a very considerable extent t h e pro-
ceeds o f that bond issue have been used t o pay matured Treas
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Federal Reserve Bank of St. Louis
234
ury bills, a n d s o they have p u t i t immediately back i n the
market.
T h e r e
has beén
n o contraction because
o f that.
That i s a matter t h a t some experts h v e g o t t o take u p a n d
work out.
I t i s obviously impossible t o have a bil-
lion dollars t a k e n o u t o f the banks o f the country a n d
turned i n t o t h e Federal reserve banks.
Goversor Seay:
T h e entire cash reserves held b y all
the National banks i n the country would n o t a t this time
be mach over three o r four hundred million dollars,
The Chairman:
T h a t i s s o plainly impossible t h a t a
plan would have t o b e worked o u t t o cover it» P e r h a p s i n Stallment p a y m e r t s could b e made.
Governor Wold:
I t involves m o r e work, b u t i t will b e
a great shock absorber.
The Chairman: I
would like a n expression o f opinion,
in c r i t i c i s m o r o b j e c t i o n
t o the plan that I
Suggested,
that when w e discuss t h e matter w i t h t h e Board I
port a n agreement
a s t o t h e fundamentals
Governor Rhoads:
s o
can re-
o f t h e proposition.
T h a t plan obviously contemplates a
System o f taxation t o meet interest a n d principal.
The Chairman:
Yes.
T o b e retired within a
period
of thirty years.
Governor Rhoads:
T h a t i s inevitable,
i n a serial
bond plan.
Governor Seay:
M r - Chairman, I suggest that you go
around t h e t a b l e i n t h e u s u a l w a y a n d a s c e r t a i n t h e o p i n i o n
of those w h o are here.
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The Chairman: I
will d o that. G o v e r n o r Fancher?
295
Governor Fancher: I
The Chairman: I
coneur i n it, Mr: Chairman.
do not intend t o impose m y views;
I d o not wish t o impose t h e views that I
any w a y o n this Conference. I
have expressed i n
would like a
perfectly free
discussion a n d suggestions.
Governor Fancher: I
agree i n a general s o r t o f w a y
with t h e plan y o u have outlined. I
a m led t o inquire,
with regard t o the investigation y o u made a s t o the flota-
tion o f $500,000,000 o f three per cent bonds, whether the
matter o f conversion i n t o t h e higher rate w a s brought out?
The Chairman:
T h a t was looked u p o n a s being essential
in the treatment o f any l o w rate bonds.
Governor Fancher:
rate bonds.
T h a t should b e a feature o f low
I n other words, i f {500,000,000 were issued
at three p e r cent there should b e the conversion privilege
into a higher rate.
The Chairman:
everybody.
this: I
T h a t was immediately suggested b y
M y feeling about a n issue o f $500,000,000 i s
think that is a piecemeal way o f doing it.
I n a
few months we would have to issue $500,000,000 more, and it
seems t o m e that t h e first b o n d issue would t a k e t h e cream
off the market f o r these securities, a n d also o f f the e n thusiasm.
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Federal Reserve Bank of St. Louis
Governor Fancher:
[ I concur i n the recommendation
this b e gone i n t o o n the larger plan, a n d not a s a pie cematter;
that a
The Chairman:
Said?
billion dollars b e issued.
T h e n y o u concur generally i n what I
Governor Fancher:
The Chairman:
G o v e r n o r Wold?
Governor Wold: I
vanced b y you. I
Yes.
concur generally with the ideas ad-
pelieve t h e issue Should b e not less
than a billion dollars. I
rather feel i t should provide
if bonds o f a higher rate a r e p u t o u t b y the Government a t
a later d a t e t h a t t h e y S h o u l d h a v e t h e p r i v i l e g e
Sion.
o f conver-
O t h e r w i s e t h e r e m i g h t b e s o m e h o l d i n g back,
i n view
of the fact that t h e bonds o f some o f the other beligerants
are selling a t a very much higher rate. P a t r i o t i s m o f
course will enter into i t very largely:
The Chairman:
I
t seems
t o m e y o u could depend
on
the good faith o f the Government a n d that t h a t i s not essential i n a three a n d a half p e r cent issue.
Governor Wold: I
think we should emphasize the ef-
fect that t h e floatation o f a billion dollar l o a n will have
upon the finances o f the country and upon the banks. I
know
a g o o d m a n y o f t h e m a r e n o w e x e r c i s e d o v e r t h a t question,
and
i t i s influencing t h e i r actions. I
cannot
see how it
is going t o b e possible t o float a n issue a s large a s the
one s u g g e s t e d w i t h o u t m a k i n g i t p a y a b l e
i n installments,
without causing a contraction here that will put the rates
so h i g h a s t o cause e m b a r r a s s m e n t
i n t h e w a y o f rediscounts.
The Chairman: G o v e r n o r Seay?
Governor Seay:
Secretary,
by that I
M r . Chairman, a s intimated b y the
i t i s essential t o correct t h e public mind, a n d
mean the Congressional mind, a s t o rates o f in-
terest w h i c h have heretofore prevailed o n Government bonds.
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Federal Reserve Bank of St. Louis
257
There i s a
very widespread misapprehension
a s t o the
ability o f this country t o float t w o per cent, t w o a n d a
half p e r cent a n d three been s p e c i a l r e a s o n s
T h e r e have
w h y w e w e r e a b l e i c d o that, a n d t h e y
Should b e emphasized. I
we should guard i n this.
not b e t o o small;
p e r cent bonds.
think there a r e three things t h a t
T h e first i s that the issue should
t h e second i s t m t
the rate should n o t
be t o o low, a n d t h e t h i r d i s t h a t s o m e p r o v i s i o n m u s t b e
made f o r leaving t h e money o n deposit i n the country a t
large. I
believe t h e issue should exceed a
billion dol-
lars a n d that t h e rate should n o t b e under three a n d a half
per cent.
I n the first place w e ought t o put out a bond
that w i l l f l o a t a t p a r a n d w e O u g h t
t o appeal
t o the t e n
or fifteen billions o f dollars o f savings deposits i n this
country that ought t o b e reached, s o as t o affect the reserves o f the barks i e e e l e a s t poSsible extent. I
think
it i s essential t h a t this l o a n should g o with great e n thusiasm;
t h a t w e Should take advantage
of f e e l i n g w h i c h n o w exists.
o f t h e ebulation
T h o s e things flare u p and
they die down. I
believe i t i s essential t h a t w e should
assure s u b s c r i b e r s
that :
when
subs equent issues
issue will b e put upon a parity.
five o r ten billions i n bonds. I
a r e made this
W e might have t o raise
read a n article t o the
effect that Germany h a s a million more m e n i n the field a t
this time t h a n S h e h a s h a d a t a n y time-
O u r mistake, i f
we make any, i s going t o b e that o f under estimation o f
conditions, s i m p l y because w e cannot grasp t h e magnitude o f
blRe I
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Federal Reserve Bank of St. Louis
feel t h a t t h e r a t e s h o u l d b e u n d e r n o c o n d i t i o n
238
less t h a n S - 1 / 2 p e r cent; t h a t p r e c a u t i o n s
that t h e m o n e y i s p a i d i n installments,
disturb conditicns,
s h o u l d b e taken
i n order n o t t o
a n d t h a t i t b e distributed t h r o u g h t h e
country i n depositaries.
I t cannot b e taken into t h e Feder-
al reserve banks o r into the Gcvernment: I
think assur-
ance muSt b e given investors t h a t i f bonds a r e issued a t a
higher rate this initial issue wiil b e raised t o that rate.
The Chairman:
G o v e r n o r Rhoads?
Governor Rhoads:
G r a n t i n g t h e argument i n favor o f
a billion dollar issue o r more, i t i s obvious t h a t w e cannot
spend t h a t b i l l i o n d o l l a r s
i n t h e f i r s t f e w months.
fore I
b e made half n o w and half pay-
suggest t h e p a y m e n t
able S i x months hence.
There-
T h a t would b e one w a y o f relieving
the market o f the strain-
Y o u would hold t h e subscriber
in that event.
The Chairman:
G o v e r n o r McDougal?
Governor McDougal: I
which y o u h a v e outlined,
a m i n agreement w i t h the plan
a n d also w i t h t h e statements t h a t
have b e e n made b y other Governors.
T h e r e i s one point I
think that w e should remember, a n d that i s i t i s quite likely
that this body will not v e permitted t o determine t h e interest rate, a n d i n the evert t h a t i t should b e decided t o put
these bonds o u t o n the three p e r cent basis I
think w e
should u s e o u r best endeavors t o secure f o r t h e purchasers
of this issue t h e advantage o f any increased rate that m a y
be applied t o further issues o f bonds.
I pelieve
vestors
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Federal Reserve Bank of St. Louis
i t would b e well
i n o u r o w n securities
t o protect t h e p r e s e n t i n -
b y giving t h e m the advantage
239
of t h e c o n v e r s i o n f e a t u r e , p a r t i c u l a r l y t h e h o l d e r s fo t h o s e
bonds that d o not have t h e circulation privilege.
The Chairman:
Y o u refer t o t h e conversion threes p r i -
marily.
Governor McDougal: I
do wot m e a n t h e m primarily.
I m e a g t h a t t h i s b o d y o f Governors h a s b e e n i n s t r u m e n t a l ,
and I have beer o n a committee w h i c h has given much time
and h a r d w o r k t o it,
i n undertaking
t o put these conversion
bonds into the hands o f the individual investors, a n d I
would certainly include those i n this recommendation.
(Informal discussion followed.)
The Chairman:
M r - Calkins, what i s your opinion?
Vice Governor Calkins: I
mane I
will b e brief, Mr- Chair-
agree with the statement o f the Ghnairman, and I
think that emphasis should b e placed o n two o r three points.
First the rate should be 3-1/2 per cent. Failing that, 3
per cent, a n d t h a t t h e c o n v e r s i o n p r i v i l e g e S h o u l d b e i n -
cluded. S e c o n d , that arrangements m s t b e made t o prevent
violent contraction d u e t o the subscription t o this loan.
It i s n o t a question o f rate:
I t i s a question o f s e r i o u s -
ly upsetting t h e financial condition o f the country a n d o f
seriously e m b a r r a s s i n g t h e F e d e r a l r e s e r v e b a n k s ,
i f such
steps a r e n o t taken.
The Chairman:
G o v e r n o r McCord?
Governor McCord: I
of t h e Chairman,
lar iSsue.
concur thoroughly i n the views
T h e r e Should
b e a t least a
W e should n o t g o a t i t piecemeal.
billion d o l -
I f the
rate i s 3 per cent the privilege ought t o b e included o f
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Federal Reserve Bank of St. Louis
240
conversion into a higher rate. P o s s i b l y i f i t is 3-1/2
per cent i t ought not to be included. Distribution of payments over a period o f time a s the Government might need t o
absorb t h e money f o r expenditures, a n d equitable distribution according t o subscription.
The Chairman:
G o v e r n o r V a n Zandt?
Governor V a n Zandt: I
Chairman i n general. I
concur i n the views o f the
feel that i n order for the loan t o
be successful t h a t i t must have t h e conversion privilege
in the event o f later issues. I
ly have a
think i t should undoubtea-
rate a t the present time large enough t o attract
Savings b a n k deposits throughout t h e éoantry.
The Chairman:
D o I understand that you say i t must
have t h e conversion privilege?
Governor V a n Zandt:
Y e s .
I
t must b e payable
o n an
installment plan, o r some s u c h plan, w h i c h will prevent
immediate contraction.
(Whereupon, at 1 o'clock p. me, the Conference recessed until 2:30 o'clock p. m)
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