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Federal Reserve Bank of St. Louis
CONFERENCE
O F GOVERNORS
O F THE
FEDERAL R E S E R V E BANKS.
Treasury Building
Washington, D.C.,
Aprik 6-7, 1925.
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Federal Reserve Bank of St. Louis
CONFERENCE
O F GOVERNORS
O F THE
FEDERAL R E S E R V E BANKS.
Washimeton,
4
D s -Gs,
Monday, April 6 , 1925,
LO o e P e c k S i g s
The c o n f e r e n c e
o f Governors
o f Federal Reserve
Banks convened i n the hearing r o o m o f the Federal
Reserve B o a r d , T r e a s u r y Building, W a s h i n g t o n ,
o n
Monday, April 6 , 1925, a t 1 0 o'clock asm.
Present:
D. R . Crissinger, Governor, Federal R e s erve Board,
W. P . G s Harding,
G o v e r n g r , Federal Reserve B a n k
of - Bospors
Benjamin S t r o n g , G o v e r n o r , F e d e r a l R e s e r v e B a n k
of N e w York,
Geo. W . N o r r i s , G o v e r n o r F e d e r a l R e s e r v e B a n k o f
Philadelphia,
BE. R . Fancher, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f
Cleveland,
George J . Seay, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f
Richmond,
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Federal Reserve Bank of St. Louis
WOE bOrn
U O VOrnUr | o d ema h e s hve: Banik
Atlanta,
McDougel, Governor, Federal Reserve B a n k
Governor, Federel Reserve B a n k o f
Louis,
Young, Governor, Fedvrel Reserve B a n k o f
Minneapolis,
Baviey, G o v e r n o r , F e a c r e .
Kansas C l t y ,
McKinney, Governor, Fedvrel Resurve B a n k o f
Qi Dees
Calkins, Governor, Fedvral Reserve B e n k o f
Som P r o n e a C .
George L . Harrison, D e p u t y G o v e r n o r , F e d e r a l
Resurve. B a
o f New York, Seeretary.
Governor C r i s s i n g e r .
Gentlemen, I
want
t o call
your attention t o what t h i n k i s t h e outstanding
thing f o r this confurenee t o consider.
J u s t before
edjournment o f Ongress t h e r e w a s a bill introduced
by Congressman McFadden, t h a t h a s many varmerks o f
being v e r y dangerous t o the Federal Reserve System,
and t h e n w e h a v e e n o t h e r M c F a d d e n b i l l ,
and I
would
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Federal Reserve Bank of St. Louis
“S
ace
o S
e
n
t
i
o
n
to t h e l a s t
CLVS-
p y Siem,
tay D e a s M e t t e r
o F
and p e r m i t
vO. p r o p o s e
J e s islation,
without t a k i n g a n y a c t i v e
after t h e w e l f a r e
Poy
passed
by Congress?
well g o t o the
system
s
the B o a r d
p
e
c
t t o s u c h matters
a n d t h e Federal
Reserve
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Federal Reserve Bank of St. Louis
Banks s h o u l d d o .
Herstofore
i n the Board there has been a
f e e l i n 34
that t h e Board should d o nothing until called upon b y
Congress t o express a n opinion.
W e l l , w e have this
cas
o lf t h e
M c Fc a d d ein b itl l g ro i n g a throurch
+ tt h5e
a e
u
p
r
lower House o f Congress and getting into the Senate,
without t h e proponents o f the bill e v e n giving t h e
Board t h e courtesy - - and also t h e banks - - o f offering
uggestions
y objections o r s n
Ie feel i t i s one
d u t i de s
Governors a n d Agents
take p a r t i n t h e s
and I know
c
3)
a
H
e
to the: a
bills P e r s o n a l l y
o f the Board, and the
s
e
r
v
e Banks t o
things a n d t o point o u t i f possible,
n
, what i s needed i n the
legislation r a t h e r t h a n t o p e r m i t i l l - a d v i s ed, undigest-
ed legislation t o be proposed and passed.
Therefore [ I
hope t h i s C o n f e r e n c e
of procedure.
if p o s s i b l e a n d I
in t n e m a t t e r
Congress,
believe
will develon
would s
uggest
i f we ere
go through
o f having proper legisletion
if
i
s
i t is
our d u t y
t o m e gU t
s h e t
end 7
5: en s h o u l d
determine u p o n a method o f how i t should b e
eems
to t e k e p a r t
i f w e determine
thet .ve owe it’ t o the country,
Cone. — - 1 5
o n t h e f i rst q u e s t i o n
w e owe i t t o
our
O W N
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Federal Reserve Bank of St. Louis
5
banks,
t o take part i n a n d s e e t h a t proper legislation
is presented a n d enacted, t h e n I should like t o see
tris c o n f e r e n c e a p p o i n t a
problems, a
cormittee
t o study these
committee t h a t will b e active i n looking
after legislation, a n d that t h e Board c o u l d call upon
ao c a y w a n e t o helps
ese a v e just some observations I
have about t h e
I hope that y o u gentlemen will
genoral s u b j e c t s e r i o u s c o n s i d e r a t i o n
o f how
we c a n g o without being p u t i n « position o f being
criticized a s trying i e t a t e l e g i s l a t i o n a n d thereos s e c u r e s o m e a d v e r s e c r i t i c i s m
i n Congress;
aetermined t h a t q u e s t i o n t h e n l e t u s
up, i f our determination
i s in the affirmative,
the proper machinery t o d o this with least friction a n d
with greatest advantage t o the system.
heve t o s a y t o y o u
gentlemen now.
Y o u have your program before you.
Governor e l l b o r n .
G o v e r n o r Crissinzer, w o u l d i t
not b e well f o r t h e Federal Reserve Board t o give u s its
on t h e s e t w o b i l l s ?
S o m e o f t h e members
o f the
Board have studied them, a n d i t would b e well i f w e
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Federal Reserve Bank of St. Louis
could h a v e y o u r v i e w s
ybse
h t tien
i w
n
order
*
dé
itM oe amroe n
i z e o u r views
if possible.
has n o t t a k e n a n y
Governor Crissii
action upon either
w
e have presented here,
from our research division, D r . Stewart's anaiysis o f
n writing f o r t h e benefit o f this
Conference.
Governor Herding. I
a m very much gratified t o
o
hear y o u make that sugzesti G,o v e r n no r Crissinger,
becetse f b think i t
‘Gites2
e
e
v
e
second 2
indefensible.
s
o
r
n
e o f the m
io s t i m p o r t a n t
c o n f r o n t e d t h e system.
kciMhd d e n
bill, I T think, is
+
ap
I t would emasculate t h e Federal Keserve
System a n d i t has canzerous elements i n the appeal
thet
i t would meke
t o the member banks
reserves l o w e r e d . P
the f a c t t h e t M r . M c F a d d e n
w i ich w o u l d l i k e
o r c
V e OW O k
d i d not i n t r o d u c e t h a t b i l l
until t w o o r three days before t h e adjournment o f
Congres
d i d n o t introduce
i t until
bill w a s n o t g o i n g t o b e p a s s e d
y
h e s a w his other
b y t h e Senate, t h a t i t
bae tm hhe
e t c o n f e r e n c e w i t h hr. M c F a d d e n ,
i n which h e
could b e shown the weak points i n the bills a n d a t
which something constructive could be suggested t o him
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Federal Reserve Bank of St. Louis
it would s
results,
ave time, might
5
b e productive
+ o f very good
and
g e t this thing o u t o f the w
ay.
H e has some-
tring i n his system thet h e wants t o get out; h e wants
some legislation beering h i s name.
T h a t i s natural
of course, because h e i s chairman o f the Banking a n d
Currency Committee,
set a
a n d perhaps
w e might b e able t o
bill t h e t c o u l d b e a m e n d e d l a t e r a n d i n t h a t
t his mind o f f o f this bill which would
destructive s
Governor Crissinger.
T h a t i s the reason
the sugzestion t h a t y o u enpoint a
think t h e Board. wi:
committee.
Then I
w a i t e willing t o cooperate
with y o u r committee i n whatever i s necessary t o b e
done.
Wow I
do not think I
have a n y t h i n g f u r t h e r
t o
say a t this time unless s o m e o f y o u gentlemen have
some q u e s t i o n s y o u d e s i r e to.
(Governor Crissinger thereupon retired f r o m t h e
conference r o o m a n d t h e C o n f e r e n c e
o f Governors p r o -
ceeded, Governor Strong o f the Federal H e s erve Bank
of New York pres iding.)
The meeting will please come t o
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Federal Reserve Bank of St. Louis
Onder. [
M a d a n o p p o r t u n i t y tO. neve 6 8 Gale w a t h
Governor Crissinger about t h e matter t o which h e
referred before t h e meeting a n d I would like t o repeat,
before taking tris subject u p i n its proper place o n
the program, what s e e m s t o b e i n h i s mind.
Stewart,
b
r
b y the way, w a s with u s wren w e were talking
about it.
{ think Governor Crissinger's i d e a was t o have
committee appointed which will b e representative
of the system, b o t h geograp’ically, a n d a s t o the
different types of reserve banks; that that committee
is t
o f t h r e e o r f o u r Governors, t o g e t h e r
with the Chairman,
i n some w e y have Dr. Stewart asso-
ciated with t h e work, a n d then w e were discussing t h e
advisability o f having Professor Sprague a c t i n some
capacity a s advisor t o the committee, f o r the reason
that he is probably the best posted of the university
men o n the history o f the National Bank Act.
made a
H e has
special s t u d
My first thought, when thi g e s t i o n was made,
was that the Federal Regs erve Board should appoint
this committee, b u t I
personally p r e f e r r e d
think Governor Crissinger
t o h a v e i t d o n e t h e o t h e r way.
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Federal Reserve Bank of St. Louis
cannot a p n o i n t a n y o f t h e C h a i r m e n
meeting,
o n t h e committee
at
s o I had i n mind suggesting t h e appoint-
of a committee o f three o r four o f this body,
req esting
m e Federal Reserve fgents t o become
of the committees, 28: wo 7
n
o power t o a p -
and t h e n s u b m i t i t t o G o v e r n o r C r i s s i n g e r
with t h e r e c o m m e n d a t i o n s
a s t o some advisor
to
committee, a n d let t h e Boarg decide whether i t should
represented
o n the committee also.
uggested t h e t t h i s c o m m i t t e e s h o u l d
cooperate w i t h t h e c o m a i t t e e
Curtis
i s the Chairman,
o f Chairmen,
o f which Mr.
o n member b a n k reserves,
upon t h e s a m e subject,
a n d that
would bring t h e work o f the t w o gommittees together.
That i s about what w a s i n mind a s t o procedure.
comuittee
t o b e avwointed w o u l d m a k e a
the M c F a d d e n bills,
o f the report
T h e
study o f both o f
o f Mr. C u r t i s
committee a n d p o s s i b l y s o m e o t h e r r e l e v a n t s u b j e c t s ;
for insterce,
o n e s u b j e c t t h a t w e w a n t t o discuss w a s
of amending t h e provision o f the
Federal K e s e r v e A c t i n r e g a r d t o t h e r e t i r e m e n t
of
2bLOMsAl D a n k n e u e s .
I a m r e m i n d e d b y Mr. H a r r i s o n t h a t a l l o f t h i s d i s -
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Federal Reserve Bank of St. Louis
10
cussion took place i n the absence o f the Comptroller o f
the Currency, a n d I think i t was Governor Crissinger's
intention,
a s soon a s Colonel Mcintosh returned,
to
take i t u p with h i m a n d s e e i f h e was agreeable t o
either serving o n the committee o r cooperating with
it i n some way, s o that t h e first McFadden bill, w h i c h
was i n part t h e product o f his predecessor, w o u l d b e
made a part o f this w h o l e structure, a n d i
22
course v e r y important t h a t t h e Comptroller o f the Currency b e a perty t o the consideration.
Governor F a n c h e r .
s t h e Federal
1
heserve Board
to t h e e x t e n t t h a t t h e y a r e a g r e e a b l e
to thet sort o f procedure, Mr. Strong?
The Chairman.
‘ I d o not know.
Governor Fancher.
Y o u d o not k n o w whether Governor
Crissinger w a s expressing h i s o w n views o r the views o f
the B o a r d ?
The Chairman. I
d o not k n o w whether t h e Board h a s
taken a n y action o n i t o r not; i n fact I
did not a s k h i m
that.
Governor Calkins.
H
e s
tated t h e t i t w a s h i s o w n
personal v i e w this morning.
Governor Harding.
M y idea would b e t o have this
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Federal Reserve Bank of St. Louis
body nominate a
Reserve A g e n t s
committee, including s o m e Federal
i f y o u c a r e t o , a n d mal
n a t a s a
recormendation t o the Board a n d let t h e Board make t h e
appointment.
The Chairman.
Crissinger, b u t I
T h a t w a s m y suggestion t o Governor
think h e felt otherwise about i t and
st thing t o d o i s t o follow his o w n wishes a s t o
procedure.
e
e
r e a l l y t h i n k i t i s better,
Harding. I
not only from the Board's standpoint, b u t f r o m the
W e d o not want t h e banks
stendpoint o f the banks.
mixing u p i n legislation a n d politics.
Board's committee
I f it
i t would b e better. W w e can suggest
a committee t o them a n d they would undoubtedly approve
he suggestion.
make a
Governor Young. I
be authorized t o nominate a
motion t h a t t h e C h a i r m a n
comaittee o f five, consist-
ing o f three Governors a n d t w o Agents.
Governor Calkins.
would
b e better
thing over.
M r . Chairman,
t o weit a
little w h i l e
i t seems t o m e i t
a n d think this
t
i t d s not necessary t o take i m m e d i . e
action.
The Chairman. I
think s o s P r o b a b l y some o f y o u
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Federal Reserve Bank of St. Louis
Le
would l i k e t o t a l k i t o v e r w i t h
Governor
C r i s s i n g<e
r
>.
On. Heb.
mevernor Youte,
2 4
time.
that understending
The Chairman.
the subject o n the
little w h i l e
Weewenl L a y
for a c t i o n
later,
The f i r s t
tople o n the program -is ee
sn
bee - C r E d Lt
POLLCLes
y
Open M a r k e t O p e r a t i o n s .
henort o f O p e n M a r k e t I n v e s t m e n t
ets
Committee.
=:
n h a r d l ya t a l k cuae riausa8
until
we
- 7
meeting o f the Open Market Committee.
prepared b u t t h e c o m m i t t e e
been
nad o p p o r t u n i t y
HO C O n s i doer: 2 .
bec b o u l e
and take u p B,
B. R e c e n t D i s c o u n t
Kate
reo
New York.
program for: the
1ewhe.t t h e
PCASONS
purpose o f
t h a t
led
Change.
ave “ e d i n a u i r i e s
the neserve Banks a s t o the reason f o r it, a n d i t
Deon
ot a o a
a
e
s
Ve k i t o b s c u r e .
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Federal Reserve Bank of St. Louis
T h e
you know, h a d b e e n t h r e e p e r c e n t f o r q u i t e awhile.
exportation o f gold which h a d taken place, p l u s t h e amount
of z o l d w h i c h h a d b e e a r m a r k e d
i n o u r vault
i n New
York, p l u s t h e s a l e s o f i n v e s t m e n t s h e l d b y t h e s y s t e m
had r e s u l t e d
i n a n advance
i n interest r a t e s
o f sub-
stantially o n e p e r cent above what t h e y had b e e n .
Vnen
a k 1 o - b h e direetors
our t h r e e p e r c e n t r a t e w a s ¢
of the Federal xeserve B a n k o f New
w e r e confronted
with t h e necessity o f deciding whether a n advance i n the
discount
rete
g h t give. s o m e C i u t a t
o n the one hand m
throughout t h e country,
might h a v e a
G O
o r o n the other hand
wholesome e f f e c t u p o n s p e c u l a t i o n w h i c h w e
felt w a s r e a c h i n g r a t h e r danzterous p r o p o r t i o n s .
What
a s w e s a w Ley
had happened i n the speculative market,
was this: A f t e r t h e election, esnecia!
een a
rather j u s t i f i e d a n d w h o l e s o m e r e a d j
security values; t h a t h a d gradually cegenera
movements u s u a l l y d o , i n t o a
rather h i g h
wide spread margin sneculation i n s t o e a
of i t conducted
b y pool operators.
sulted i n t h e e m p l o y m e n t
I
good deal
t had a l s o re-
o f t h e stock exchange l o a n
account i n the larzest emount o f credit i n the history
of t h e exchange,
w e estimated
i n t h e neighboriiood o f
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Federal Reserve Bank of St. Louis
2000,000 ,000 i n
elso o b s e r v e d t h e t t h e l a t e r i s s u e s
sing offered
o f securities
t o the public were not o f as
quality a s the earlier financings h a d been last
some o f t h e m o r e r e c e n t i s s u e s w e r e u n s o l d i n
of syndicates,
a n d t h e varying LeveL o s
retes justified o u r making
t h q a n z e thet w e
the feeling thet i t would b e a
pretty
ome thing t o d o from t h e stendpoint o f speculaLON
S n
W o u l d c o ) noo injury. se-Lap.
concerned, especially
e s business w
Ay
as
i f chanves i n rates were n o t made
eny o f the other ‘reserve Daa!
a n d they h a n o t
another point o f V i e w th: s t r u c k
saving some importance.
know, a
ment a b r o a d
T h e r e nes bee
a s you
h
e move-
very consicerabl
jevelopn C
i n the direction
o f the res mption o f the
ayment o f gold internetionsally;
i f t)is speculation i n
Hew Y o r k w e n t a h e e d a n d w e h e d i n a d d i t i o n a n i n f l a t i o n
of credit i n this country thet later o n © 1
necessi-
tate pate advances generally,
ulties
o f t h e presumstion
our d i r e c t o r s t h e t i f e f - a c t e a d v a n c e
it W e e b e t t e r
t o d o i t n e w than.later-
woe
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Federal Reserve Bank of St. Louis
15
might b e embarrassing i n the matter o f a
return t o the
T h i s advance made t h e early
gold standard i n Surove.
part o f last month, whether i t did o r did not have a n y
direct e f f e c t u p o n t h e s p e c u l e t i v e m e r k e t s , d e v e l o p ments s i n c e t r e n h a v e b e e n w h o l e s o m e a n d uncertain;
there h a s been quite q a shrinkage i n the stock exchange
loezn account a n d i t looks a s though t h e enthusiasm f o r
speculation
t o some extent
h a d subsided
Governor F a n c h e r .
H
e
r e r e Bane2
S
U
Si eV e .
stock e x c h
liguidated?
The Chairman.
O h , n o e L e n l O u U l Gris aun er
move t h a n »,150,000,000 l i q u i d a t e d ,
o r possibly a
little
MOC e
Governor Fancher.
account g o t u p half a
b o I
understend t h i t t h e l o a n
billion dollars above t h e previous
high?
The Chairman.
Governor iicKinne
V h a t would
b e your estimete o f
the high point?
The Chairmen.
C e r t a i n l y t w o a n d a half billion above
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Federal Reserve Bank of St. Louis
Governor Penchere:..°%
high had
m e a n t h e previous
i
#
two billion?
the Chairman.
V e n .
A n o t h e r development
i n con-
nection with t h e stock exchange l o a n account t h a t w e
didn't like t o see was this, t h a t t h e enlargement o f the
loan account w a s taking place entirely withoout o f town
MOREY « T h e N e w York banks were reducing their loans
on the stock exchange right along a n d sfterwards being
replaced b y money from out o f town, a n d more.
W e did
not went t o see this indefinite extension o f credit o n
the e x c h a n g e
to
i n N e w Y o r k f r o m a l l o v e r t h e U n i t e d States,
that sometime might g o out over night a n d put qiite a
strain o n t h e m a r k e t
Governor Bailey.
i n N e w York,
H o w d o y o u control these fellows
in o u r s e c t i o n i n s e n d i n g m o n e y t o llew Kona) eesiovdene etek i
k
loans?
The Chairman. T
dontt k n o w t h a t i t c a n b e
If this interests y o u people a t all I would like t o
explain a
little b i t about t h e view thet some o f M s n e i
as t o whet happened, a n d what w e believe will a l w a y s
happen u n d e r t h o s e c o n d i t i o n s w h e n w e a d v a n c e o u r d i s Counc P a t e ,
s t tieaat i t i s
m y experience
when
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Federal Reserve Bank of St. Louis
By
loaning money o n the exchange.
B e f o r e w e advanced o u r
rate t h e N e w Y o r k b a n k s w e r e f o r c e d i n t o d e b t t o t h e
reserve bank.
T h a t w a s t h e result o f exports o f gold
and o f sales o f securities.
A t one time t h e y o w e d u s
over .200,000,000 a n d I think t h e average o f what t h e y
had t o borrow f r o m u s was i n the neighborhood o f
~L50 ,O00 , 000.
When
m o n e y i s very e a s y a n d they have a
large surplus there t h e banks i n New York call u p the
brokers a n d a s k them i f they cannot u s e t h e money.
When they o w e t h e Federal Reserve B a n k money t h e lending
officers i n the banks that l o a n money o n the exchange
will l o o k o v e r t h e i r l o a n c a r d s a n d t h e y p i c k o u t e v e r y
card, w h e r e t h e y d o n o t c a r e f o r t h e h o u s e o r w h e r e t h e
total t h a t t h e y a r e l o a n i n g t h a t h o u s e
like l o a n e d a n d ,
i s move t h a n t h e y
i f y o u please, w h e r e t h e c o l l a t e r a l
is
not u p t o w h t t h e y would like t o have it, a n d they
also discriminate against stocks o n which there i s a
pool operation teking place, a n d when a large N e w York
City bank i s about t o repay u s a t the H e s erve B a n k
that i s a t o n c e r e f l e c t e d
i n t h e persistent c a l l o f
loans o f a character which a r e regarded a s undesirable
in the s treet.
Will f i n d t h a t
F o r instance s o m e morning a
i t i s short
i n its reserve
bank
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Federal Reserve Bank of St. Louis
of c o m i n g o v e r t o b o r r o w f r o m u s t h e y p r e f e r
t o pay Oil
their debit b y calling s o m e stock exchange loans.
Some
other bank will take those loans over, t h e loans will
be shifted f r o m one bank t o another, e n d the bank which
took the loan m a y b e short a t t h e clearing house o r
short i n reserve, a n d they will call those loans.
I n
this w e y t h e r a t i s chasing around f r o m o n e hole t o an-
other and until i t gets a little tired o f it, and the
brokers b e g i n t o s a y t o their customers " O u r loans have
been called a n d w e would like y o u t o reduce your line
e i t does n o t oporate d i r e c t l y f r o m t h e
Reserve B a n k t o the stock market, undoubtedly t h e f a c t
thet the banks are i n det
a
n
d are calling loans
influence u p o n t h e attitude o f the brokers i n
advising their customers whether t o g o ahead a n d b u y
without limit, o r whether t o reduce.
T h a t i s roughly
of ;
our analysis h o w i t works.
Governor Bailey.
T f abl our: banks would. call-heilf
their loans next week, whist would happen to your bank
The Chairman.
O h , w e would just nave t o lend thet
money t o t h e N e w Y o r k b a n k s u n t i l t h e f u n d s g o t b a c k t o
New York.
T h e y would g e t back very promptly, because
if the interior banks called 500,000,000 o f loans i n
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
19
New York, t h e y w o u l d n o t t e k e t h : t money h o m e t h r o u g h
the g o l d s e t t l e m e n t f u n d ; t h e y w o u l d l e a v e i t o n d e -
posit w i t h t h e N e w York City banks v e r y largely a n d t h e
New York C i t y banks would heve t o take over a lot o f
hose loans, a n d borrowing would take place with u s
right a w a y .
Governor Bailey.
B u t suppose something would
develop o u t t h e r e s o t h e t t h e b a n k s w o u l d u s e t h i s money.
The Chairman.
T h e n w e would have t o loan i t t o
our member banks, h a v e t o loan t h e m a sufficient amount
to e n a b l e t h e m t o r e p a y t h e i n t e r i o r b a n k s .
Governor Bailey. “ B u t i t a
o r e t danzerous
proposition t o y o u t o have s o much o f this call money
there.
The Chairman... W w e d o not like 1t, no.
Governor Calkins. G o v e r n o r Strong, h o w does i t
happen that a t the time o f this f l o w o f money f r o m outside N e w York i s going into t h e stock exchange l o a n
fhe Chairman.
T h e y were n o t a
Governor Calkins.
f T understood y o u t o s a y that t h e
banks w e r e b o r r o w i n g f r o m t h e F e d e r a l R e s e r v e B a n k a t t h e
same t i m e .
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Federal Reserve Bank of St. Louis
The Chairman.
Possibly I
did n o t explain t h e
sequence o f events accurately. I m m e d i a t e l y after t h e
lst o f January there w a s a heavy return flow o f currency, o v e r ( 6 8 0 0 , 0 0 0 , 0 0 0 .
S a l e s o f securities w h i c h w e r e
made a n d the exports o f gold d i d not more t h a n offset
hat return flow;
b u t along towards February fur-
ther sales were made, further gold exports took place
and that forced t h e banks i n t o debt t o us. A f t e r t h e y
were i n d e b t t o u s t h e n w e p u t o u r r a t e u p o n t h e 7 t h
of March, j u s t a
month ago.
Governor Norris.
A r e y o u able t o estimate
a nproximately h o w much o f this t w o a n d a half billion
of s t o c k e x c h a n g ©e a c c o u n t
w a s out-of-town
money being
loaned i n New York?
The Chairman.
Y e s , m o r e t h a n half.
Governor B a i l e y .
Over a
Governor Norris.
O v e r a
billion dollars.
5
The Chairman.
billion a n d a
quarter.
Y e s .
Governor B a i l e y .
T h e r e w a s .,75,000,000 f r o m o u r
district.
The Chairman.
reported
Y o u unders t a n d t h e s e figures a r e
t o u s i n confidence a n d w e d o n o t l i k e t o have
them g o outside.
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Federal Reserve Bank of St. Louis
Ba
M r . Chairman,
Governor Fancher.
Yaiss o f
o f ins
ank
a
may I
inguire,
e coming right after t h e raise o f
t
1 , w h a t t h e reaction w a s f r o m increes-
your
The Chairman.
A t first there was a
good deal o f
discussion, s o m e criticism e n d some witticism about it.
The f i r s t i m p r e s s i o n
i n the C i t y o f London w a s - - a n d
when I sey the City o f London I
mean what w e generally
describe a s Lombard Street, t h e financial c i t y - - w a s
that w e had a p p a r e n t l y grown o u t f o r them a n d they
had t o p r o t e c t t h e m s e l v e s
b y putting t h e i r r a t e up.
o f
course y o u realize t h a t t h e change w a s made o n l y after
fullest discuss i o n when Governor Norman: w a s
after
a n exchange o f cables, a n d was timed t o the
best o f o u r k n o w l e d g e
tions.
s o thet i t would m e s t b o t h situa-
H e hed » b e e n expecting it, a
in f a c t h e rather hoped th:t w e would increase o u r
rate.
Governor Fancher.
I f they increase t h e Bank o f
ngland r a t e t o five d o y o u think y o u r r a t e s h o u l d g o
up. t o f o u r o r f o u r a n d
The Chairman. I
for-that.
d o n o t think there i s a n y occasion
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Federal Reserve Bank of St. Louis
Wret I-mean te-if there was. ac=
casion f o r y o u t o g o t o four n e r cent would-thet affect
the Bahk o f tngland rate?
The Chairman.
Y e s , I
think i t would.
T h e y gave
the market
s
a warning, ewhich was very B
unusual with the
Bank o f England, a
warning b y advancing t h e rate o n
private c o l l a t e r a l l o a n s .
I n other words t h e y anticipated
Governor Fancher.
heir r a i s e a
week i n advance?
Governor Stronge
oO
Y e s , which i s unusual.
I s n t t i t something v e r y un-
Governor McKinney.
usuel f o r t h e B a n k o f E n g l a n d
t o give a
warning o f t h a t
character?
The Chairman.
Y e s , b u t i t has b e e n done before.
However i t i s u n u s u a l
t o d o it.
Governor wellborn. i r . Chairman,
that t h i s s h a l l b e a
i s it intended
general d i s c u s s i o n
o f rediscount
rates o f t h e F e d e r a l R e s e r v e B a n k s ?
The C h a i r m a n .
‘
i$
because t w o o f t n e G o v e r n o r s
advanced o u r rate. I
this
o n tne program
h e d asked m e whylwe h a d
did not want t o leave t h e meeting,
when w e were altogether, without s o m e explanation o f it,
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Federal Reserve Bank of St. Louis
in c a s e s o m e q u e s t i o n h a d a r i s e n i n y o u r m i n d a s t o
the w i e d e m of: it.
O
consult everybody.
f course
i
i t i s not poss ible t o
d have a
chance t o talk with
Governor Harding e n d Governor Norris, a n d one o r two
others I
think.
The next topic o n the program i s also mine.
D. P r o b l e m
o f F a r m Credit.
put o n t o a f f o r d o p p o r t u n i t y f o r s o m e
s
discussion
o f farm credit
i n case t h e conference
} 9
a
!
b
took
e
any action i n regard t o the NeFadden bills, because I f
think a
committee u n d e r t e k i n g
7 >
a d iscussion o f t h a t
subject should slso consider whether t h e time h a s n o t
arrived f o r t h e F e d e r a l t e s e r v e S y s t e m t o d o s o m e -
thing constructive i n the w a y o f legislatio n
ng agricultural credit.
cussed
i n connection
regard-
I f desirable that cah be dis-
w i t h t h e McFadden bills.
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Federal Reserve Bank of St. Louis
Repurchase A g r e e n e n t s .
ane P e d p a l K e s e r v e B o a r d ' s R e s o l u t i o n
so
t o i n Board's l e t t e r
ed March 6 , 1925.
Governor M e Dougal.
T h a t suggestion c a m e , i
n my
absence, f r o m Mr. McKay, w h o makes t h i s comment:
eserve B o a r d r e a f f i r m s t h e p r e v i o u s
zing t h e practice, l o n g continued,
in the o p e n market o f bankers!
acceptances a n d G o v e r n n e n t s e c u r i t i e s
b y Federal R e s e r v e
Banks from a n d t o banks a n d qualified dealers, u n d e r
fifteen d a y re-purchase egreement,
i t being understood
thet s u c h trerns a c t i o n s h a l l b e o p e n u n d e r s i m i l a r
facts a n d conditions t o all Federal Reserve Banks w i t h
relation t o banks a n d similarly qualified dealers i n
their respective districts."
This resolution apparently gave t h e Federal Reserve
Banks a u t h o r i t i e s
t o meke re-purchase
agreements
with
banks, either member o r non-member i n addition t o recognized
X
securities.
rn
bankers!
acceptances
a n d Government
T h e purpose o f the re-purchase agreements,
which have been made a n d ane p Asdea he i s *to.sup-2y mone?
temporarily t o the o p e n market a n d enables
obtain f u n d s a t a
reasonable r a t e f r o m t h e
Reserve Banks w h e n there i s a temporary shortage o f funds
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Federal Reserve Bank of St. Louis
26
in the o p e n market.
T h e understanding is.thrt dealers
will b o r r o w i n t h e o p e n m a r k e t o r d i n a r i l y a n d w i l l o n l y
come t o t h e F e d e r a l R e s e r v e B a n k t e m p o r a r i l y w h e n t h e
rates r i s e i n t h e o p e n m e r k e t
igs not obtainable there.
fore,
o r when sufficient m o n e y
T h e supelying o f money, there-
b y t h e u s e o f pre-purchase a g r e e m e n t s
t o banks
which d o not borrow money o n the open market a n d a r e
not dealers i n bankers! acceptances o r Government s e curities would b e a violation o f the principle above
outlined.
for
(After i n f o r m a l d i s c u s s i o n t h i s t o p i c w a s p a s s e d
the time being.)
he next i s subheading &
under E .
Should Federal Reserve Banks b e permitted t o b u y Government securities
from m e m b e r b a n k s a n d F e d e r a l L a n d
Banks w i t h a repurchase a g r e e m e n t
for p e r i o d s a s l o n g a s 9 0 days.
(After informal discussion o f this topic i t also
was passed.)
The Chairman.
T h e n e x t i s tonic F .
FP, fdavisability o f greater latitude f o r
Federal Reserve Banks i n their o p e n
market transactions u p t o o r until
they h a v e e a r n e d t h e i r o v e r h e a d
expenses.
Governor Beiley.
in o u r district.
i e are u p against this situation
W e a r e n o t earning o u r expenses
by a
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Federal Reserve Bank of St. Louis
e7
very large margin.
A s I read t h e l a w w e have t h e right
to g o o u t a n d b u y securities.
T h i s o p e n m e r k e t business:
is s o far removed f r o m u s th:t w e d o not have m u c h
sympathy with i t o r know very much about it. I
ize that t h e o p e n market transactions
real-
i n relation t o
controlling things there a r e mighty small compared t o
the amount o f call money thet i s sent t o New York all
the time f r o m o u r district, a n d what y o u d o t o regulate
that m a r k e t i t s e e m s t o m e f a l l s
pared with this.
b y t h e wayside
a s com-
O f course y q u c a n g o o n with t h e open
market business, b u t w e want t o know, i f w e want t o
invest our capital and surplus i n Government issues,
whether w e have t h e authority t o d o i t without consulting the Open Market Committee o r anybody else.
think y o u have.
The Chairman. I
Governor Wellborn.
t T do not think y o u have,
except t h r o u g h t h e c o m m i t t e e
Governor B a i l e y .
i n N e w York.
T h a t i s exactly t h e question I
tried t o get o n the paper here.
Governor wellborn. {
a m with Governor Bailey o n
that a n d I would like t o know with regard t o not only
Government securities b u t bills that w e would like t o
buy o r whether
w e have t h e privilege o f buying those
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Federal Reserve Bank of St. Louis
ao
originating i n our district a n d dealing i n endorsed bills
of member banks.
The Chairman.
Y o u have always h a d that, Governor
Wellborn.
w e wrote t o y o u a n d y o u said i t
Governor ‘,ellborn.
ought t o come through t h e committee - -
The Chairman.
N o , you are misteken about that.
w e thought w e hed reserved
Governor Wellborn.
thet privilege b u t when I wrote t o you o n that subject
I did not g e t a n y response.
The Chairman.
Wwellborn. I
Y o u are misteken about that, Govennor
have j u s t h a d some correspondence w i t h the
Richmond B a n k o n the same subject.
Y o u c a n not o n l y b u y
bills f r o m your o w n members i n your o w n district b u t
bills thet originate i n your district, through N e w York
brokers.
overnor Wwellb
h
e
d b e e n doing that b u t I
thought under t h e agreement w i t h t h e committee - - I
eceived a letter f r o m y o u calling m y attention t o the
fact that y o u noticed b y the reports t h a t w e hed been
buying bills.
The Chairman.
Y e :
Governor iellborn.
y
o
u o f our position
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Federal Reserve Bank of St. Louis
on that a n d w e never g o t a
The Chairman.
pecause I
reply from you.
Y e s y o u did, o r ‘your bank did,
signed t h e letter myself explaining t h e whole
thing.
Governor Wellborn. I
know I remarked about i t but
you never said anything about i t and w e have never
purchased
a n y bills
The Chairman. I
received a
i n t h e o p e n market since.
think Governor S e a y probably h a s
lett P r o m u s o n thet same subject.
Governor S e a y .
‘ i e have
h a d some correspondence.
Wie have never done anything more i n buying bills than
purchasing b i l l s o f o u r o w n m e m b e r s w h i c h a p p a r e n t l y d i d
not h a v e a
those b i l l s
ready o p e n market.
i e have always purchased
w i t h endorsements
a n d w e have purchased
them usually a t one-eighth above the market i n order t o
support bills pripina tins i n our district.
u e , Ways
never before bought bills from our own imember banks.
They w e r e o f f e r e d t o u s b u t w e u n d e r s t a n d t h e t t h e t i s
a freedom o f action permitted t o all o f the banks - The C h a i r m a n (interposing).
I f y o u will r e a d b a c k
through the literature relating t o
that there never w a s t h e slightest intention
at a n y o f t h e c o n f e r e n c e s h e r e ,
o r i n anything w h i c h
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Federal Reserve Bank of St. Louis
the committee h a s undertaken t o do, t o interpose t h e
slightest r e s t r a i n t u p o n a n y F e d e r a l R e s e r v e B a n k b u y ing a n y b i l l s f r o m i t s m e m b e r banks.
Governor McKinney. W h e t h e r i t originated i n its
own d i s t r i c t
o r not?
The Chairman.
T h e mat i
Y e s .
dealers
i n bills
a great m a n y o t h e r cities,
market c o u l d
perfectly
i n New York have offices
i n
a n d t h e entire N e w York
b e b a l e d o u t o f bills
b y the other reserve
banks unless w e had a n orderly w a y o f dealing w i t h those
ers. A s s u m i n g t h a t t h e O p e n Market Committee h a s
any authority,
w h i c h i t has not,
i t sSimply carries o u t
the understandings arrived a t a t these meetings.
understanding o f the limitation
i s this :
M y
t h a t the Open
Merket Comnittee i s t o d o the System buying f r o m t h e
dealers o f bills t h a t a r e i n the merket, specially i n New
York, a n d that every reserve b a n k c a n b u y all bills
originating i n their district o r bills offered t h e m b y
member banks.
Governor Bailey. O r i c i n a t i n g o u t o f the district?
The Chairmen. O r i g i n a t i n g anywhere.
Governor wellborn.
in N e w Y o r k ?
O
r offered t o u s through t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ol
The Chairmen. N
n a t i s t h e ohly matter o f
control.
Governor Bailey.
Y o u moan thet. i s the - exception,
that when t h e banks i n our district endorse t h e m a n d
the N e w York brokers h a v e possession o f them, i f they
offer t h e m t o u s w e s h o u l d n o t b u y them.
Governor Fancher.
the b i l l s i t s e l f
little l a t e r
O n e o f your banks could b u y
i n N e w Y o r k f r o m a n y dealer,
o n i t could endorse
to you, a n d i h e m i g h t
be a
and a
t h e m a n d pass t h e m
on
miscellaneous b i l l , originat-~-
ingoS a h y place i n the country - Governor Bailey.
T h i s i s all very clarifying t o
me, gentlemen.
ihe Chairman.
{ t i s a i a O r recor, v
e
Bailey.
Governor Baile; I
for 2 Nement.
just want t o state o u r position
w e don't want t o b e outlaws o u t there,
but o u r board has g o t t e n t o the point where i t i s going
to b u y s o m e b o n d s u n l e s s
w e g e t some rediscounts
- - we
are going t o b u y bonds i n the o p e n market = Governor licbougal.
the d i s c u s s i o n s
i t has b e e n understood t h a t regardless
of what this committee decided a g a policy t o pursue,
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Federal Reserve Bank of St. Louis
the Federal Keserve Banks generally speaking, while
t»
adopting t h a t policy, h a v e r e t a i n e d
independence.
T h a t wes
Governor Baile
o w n inference, a n d
our idea a l l t h e time w a s that t h e y w o u l d give u s enough
to make o u r earnings k e e p step with o u r needs o u t there
-and n o w w e are several steps behind,
s o far a s thet i s
concerned.
Chairman.
L e t
m e make a
statement a b o u t t h e
situation with rezard t o t h e distribution o f those
securities p u r c h a s e d .
T h e Federal Keserve B e n k o f New
for t h e committee i s buying bills almost
Those a r e d i s t r i b u t e d
i n the proportion
committee a n d approved b y the various
reserve b a n k s
a s r a p i d l y u s t h e y a r e purchased;
an automatic thing,
i t goes o n every day.
chases w e r e m a d e u n d e r a
that i s
T h e pur
plan b y w h i c h t h e p u r c h a s e s
the
from time t o time would b e distributed i n proportion
Fixed f r o m time t o time, a n d there should b e n o redistribution
o f t h e e x i s t i n g holdings.
N o w i f we had a
redistribution o f e x i s t i n g holdi:
be n o s t i n c a p a b l e
complicated.
o f management b e c a u s e
H o w e v e r I
i t would b e s o
have c o m e o v e r t h i s t i m e w i t h a
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Federal Reserve Bank of St. Louis
Committee, w h i c h i s the reason w h y I wanted t o
meeting before w e concluded this d i s cussion,
in which I
a m proposing t o the committee t h a t w e submit
some scheme f o r redistribution o f existing holdings,
so
that those banks like Kansas City, Dallas and some o f
in their condition s
hall gain’ a lerger
share i n the existing holdings o f Government securities
then t h e y now have.
I t will take u s a little time t o wokk
that out, because e v e r y purchase m a d e i s apnlied o n a
percentage which existed a t the time i t was made.
Governor Bailey.
T h e demand f o r money with u s
going down a n d all t h e discounts t h : twe h a v e a r e frozen
banks, a n d we ere living off the busted ones. T h e present
proportion just givesus a little dribble, a n d does not
anywhere n e a r m e e t o u r needs.
Governor Seay. T h e basis o f the proportion was t h e
ratio which t h e expense o f one Federal Reserve B a n
bore t o the combined expenses o f ell t h e Federal Reserve
Bas.
W a s “to not?
The Chairman.
Thet d o e s n o t q u i t e m e e t t h e s i t u a these b a n k s
t h e t e r e deficient.
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Federal Reserve Bank of St. Louis
54
The Chairmen.
I
t does n o t f o r t h e reason t h a t
not r e d i s t r i b u t e t h e o l d purchases.
W o w that
not buying anything t h e situation i s forced upon
us t h a t t h o s e b a n k s
t h e t e r e i n the position o f Kansas
City a n d Dailas a r e n o t going t o b e able t o make u p
their earnings unless w e change o u r program.
Governor S e a y .
The Chairman.
That
i s exactly t h e point.
A n d make a
r e d i s t r i b u t i o n o f exist-
ing holdings.
T h a t i s i n the ~eport t h e t w e have
drefted a n d I
a m going t o recommend t o the committee
that w e d o that.
Governor Seay.
subsection 3
T h a t i s covered i n article 6 ,
o f article l ,
The Chairman.
Y e s .
N o w , Governor Seay,
i f you
will g o beck over t h e o l d discussions y o u will find t h e
sugzestion which I made, t h a t w h e n t h e time came
sell t h e s e s e c u r i t i e s
w e w o u l d t h e n r e v e r s e tl:
which occurred w h e n w e were buying them. ‘ w h e n w e bought
the securities i t practically p u t N e w York o u t o f business,
w e h a d n o discounts
conseduently,
e t a l l a n d n o earnings,
n o w that w e are
all righteGovernor Seay. I
understand that.
a n d
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Federal Reserve Bank of St. Louis
35
The Cheirman. I
a m going t o
c e a
t h a t the
situation b e corrected through advocating redistribution
of securities f r o m banks which a r e making «arnings t o
those which a r e not, rather t h a n t o violate t h e principle thet controls t h e action o f the committee.
Governor Bailey. S u p p o s e w e g o i n and b u y a lot
of4%8s. I
can buy some that will nay around four per
cent, b y buying carefully, a n d i f we should buy those u p
to our surplus a n d capitel, say, a n d hold t h e m until
such time a g business i s better, I
would like t o know h o w
met w o u l d a f f e c t t h e o p e n m a r k e t c o m m i t t e e ?
I
t wouldn't
a ffect t h e Open Merket Committee v e r y much - The Chairman.
I
t would affect t h e m o n e w a y when
you b u y them a n d another w a y when y o u sell them.
Governor Bailey. I
buy I
mean t h e amount thet w e would
d o n o t t h i n k w o u l d h a v e m u c h effect.
foe C h o i r v i n n » 1 : 4 0 : -Hot R i a d
Governor McDougal. I
a e
o s
should think there would be no”
objection whatever t o your buying a reasonable amount o f
those f o r thet purpose.
T h e r ? i s nothing that stands i n
the w a y o f its.
Governor McKinney.
A s a matter o f fact sevcral o f the
banks have bought these long-time Government bonds have
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Federal Reserve Bank of St. Louis
they n o t ?
Governor Youns. M i n n e a p o l i s has.
Governor McKinney.
A n d s o h a s Dallas.
Let u s h a v e t h e d i s c u s s i o n
it c a n b e recorded. I
s o that
still d e not think Governor
Bailey quite gets t h e point a s t o what I
hove t h e
committee w i l l d o .
Governor Bailey.
O
h I saw the light coming o u t
our way, b u t 1 t hasn't r e a c h e d u s yet.
Governor s e a y .
T h e t i s certainly coming pretty
Close t o undermining a
system policy.
have c o n t r o l w h e n y o u w e n t e d
The a i r m a n .
Y o u would n o t
t o s e l l t h e bonds.
H o w many securities d o y o u went t o
Governor Bailey?
Governor Beiley. ( 1 5 , 0 0 0 , 0 0 0 worth.
The C h a i r m a n .
made a
s u p p o s e
t h e O p e n Market Committee
redistribution a n d turned over t o y o u :,15,000,000
in securities? W o u l d you still want t o buy (315,000,000?
Governor B a i l e y . 4
The Chairman.
S O .
T h a t would b e .:350,000,000.
Governor Bailey.
Y e s s
O
n o u r present earning
power, a n t i c i p a t i n g t h a t i t w i l l b e m a i n t a i n e d a b o u t t h e
same d u r i n g t h e y e a r w e a r e g o i n g t o b e 6 5 0 , 0 0 0 s h o r t
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Federal Reserve Bank of St. Louis
of paying o u r overhead.
The Chairman,
i
f y o u a r e going’
t o b u y some
say $15,000,000 worth, t h e r e wouldn't b e a n y point i n
our turning over t o y o u :,15,000,000 more.
Governor Bailey.
L I wouldn't d o i t i f you had a n y
othsr w a y o f our getting them.
The Chairman.
T h e committee h a s i n the account
7245 000,000 investment securities, w h i c h i s more t h a n
some o f u s need.
W h a t I
was g o i n g t o - s u g z e s t w a s t h a t
instead o f N e w York having 390,000,000 o n the present
basis a n d s o m e o f t h e o t h e r r e s e r v e b a n k s h a v i n g t h e i r
proportion,
thet
w e reduce
t h e amount thet
w e hold a n d
then turn them over t o you, a n d t o Lallas a n d the other
reserve banks,
ties e q u i v a l e n t
o r i n other words furnish y o u with securit o w h a t y o u w a n t t o buy.
I t isn't g o i n g
to d o u s a n y harm, because w e have sufficient earning
assets.
Governor M c K i n n e y .
T h e suggestion made i s very
acceptable t o us. O u r . position t s identical w i t h thet o f
Governor Bailey, except t h a t o u r rediscounts a r e even
lower t h a n his.
O u r advances t o member banks w h e n I
left hone were o n l y 41,450,000.
2
in earnings;
W e a r e very deficient
a n d t h e prospects a r e t h a t o u r advances
to
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Federal Reserve Bank of St. Louis
58
member banks during t h e present producing season will b e
very l i g h t a n d w e a r e s a d l y i n n e e d o f e a r n i n g assets.
Wwe d o own, however, a s i d e f r o m o u r perticipation i n the
System i n v e s t m e n t a c c o u n t a b o u t s i x a n d a
half m i l l i o n s
of44s.
Governor Calkins.
‘ T h i s discussion persists
i n keep-
ing away from t h e very point which I think G o v e r n o r
bailey h a s i n his mind, w h i c h i s t h e q u e s t i o n w h e t h e r t h e
purchase b y a n individuel b a n k will interfere w i t h t h e
operations o f the O p e n Merket Investment Committee.
c s
cannot s e e thst there i s a n y answer b u t o n e t o that, a n d
an individual F e d eral Reserve B a n k undertakes
to b u y a n d sell i n the open market that t h e committee's
operations w i l l b e interfered with.
Governor
B a i
M
y answer
t o t h a t is: t h i s ;
the small amount w e would b u y would n o t interfere.
pledge y o u w e will never g o into t h e market f o r t h e
nurpose o f meking a n y money i n excess o f earnings.
will k e e p c l e a r l y w i t h i n , the limits
W e
o f o u r necessities.
would have a n y effect u p o n t h e o p e n
market transactions, w h a t w e would do, because i t will b e
very s m a l l a m o u n t , c o m p a r e d w i t h t h e m i l l i o n s t h a t t h e
tenth district i s furnishing N e w York t o r u n this
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Federal Reserve Bank of St. Louis
anbling business w i t h there.
Governor Seay.
Lis i
degree
T e m bound t o
e o n y e So
t o which i t will
to operate u p o n a principle w i t h the m e n M a r k e t I n vestment Committee y o u cannot violate t h e t principle
even though t h e violation i s o f a smell amount.
Governor Calkins.
I
t is. o b v i o u s l y t r u e
small p u r c h a s e w o u l d n o t s e r i o n
a f f e c t t h e operations
of the committee, b u t i f w e all d o the same thing,
with Chicago, Minneapolis, ballas, t h e n the Open Merket
Investment C o m i t t e e w i l l b e reduced t o a condition o f
innocuous desuetude.
The Chairman.
s
e
N e v
York quite a bit lately. T h e r : i s undoubtedly a strong
Gestre i n the minds o f some o f the reserve banks a n d
their officers t o have a backlog o f earning assets i n
long t i m e G o v e r n m e n t b o n d s .
although [
W e d o thet i n
do not believe i n a reserve b a n k holding
long-time bonds. H o w e v e r i f t h i s i s t o b e done there
possibly a
to s
way o f dealing > w i t h it, which I
uggest b e c a u s e
i t is a
do
poor way, b u t i t i s
best way, a n d that i s thst t h e reserve banks o f
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Federal Reserve Bank of St. Louis
4C
a C l e v e l a n d a n d Chicago - and I
would l i k e t o a d d S a n F r e n e i s c o
by themselves.
- - ®@ a
group
T h a t would represent 7 5 per cent o f the
System o r thereabouts, a n d then the other s i x banks j u s t
make their investments themselves.
T h e s i x banks t h a t
operate together would have sufficient strength t o d o
all that was necessary i n the o p e n market, a n d once
tments h e d b e e n m a d e b y t h e s i x i n d e p e n d e n t
is those thst were n o t dealing with t h e O p e n
Market Committee - - once t h e y were made, o u r relations
with t h o s e b a n k s w o u l d b e s i m p l y t o s e l l t o t h e m a n d b u y
That
from them b y special arrangement f r o m time t o time.
strikes m e a s a very poor w a y o f solving a
System policy,
put i t i s the next best way.
Governor Wellborn.
B u t t h e v e r y reason i t was
done w a s because w e wented t o have uniformity e n d d i d not
want
t o have differences
i n retes. I
want t o h a v e a n y division,
do not think
we
e n d that i s the reason I
asked
the question about purchasing bills i n our district,
because
w e have declined
t o b u y t h e m beceuse w e d i d n o t
want t o deviate o n e particle f r o m what w e thought w a s
the understanding w i t h t h e committee.
Governor Harding.
I t seems t o m e that there i s a
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Federal Reserve Bank of St. Louis
Pree
Prone
T n
The o p e r a t i o n s
e e t
V
a pte
r i t e t
c
o f t h e cummbittec w o u l d b e
75
M A G C e r e B c d W i t t y t f Wear’
< n d o z e n P C O d G r s l= hescmye p o u r s ;
on t h e i r o w n reuspuns i b i l i t y , w i t h o u t e n y n o t i c e
t o eny-
body, s h o u l d g o i n t o t h e m e r k e t w h e n e v e r t h e y g o t P C E Vy,
emd b u y bonds, without egreement u s t o price o r snything
of t h e t surt. H o w e v e r ,
1 f p e f o r e -meking
cech F o d e r e l R e s e r v e B e n k s h o u l d t a k e i t u p w i t h t h e
Committes a n d t e l l t h e C o m m i t t e e
US.
O W E B e c o u n t c u e r t e in “bunds:
L t desires
et a
t o buy o n
certnan price,
then
the committee i s o n notice, a n d th:t i s a considerably
different thing from operating without knowledge b y the
committee o f whut L s going on.
GO¥ermmor Baileys T h e a t would b e all pight w i t h us.
Governor Young. I
want t o explain what t h e posi-
tion o f M i n u v e p u l i s is.:+ W e d o h o l d s o m e l o n g - t i m e G o v ernment b o n d s ,
b u t those were purenased l o n g before t h e
committee w i s organized.
S i n c e t h e commites h a s b e e n
in operation Minner polis h a s n u t purchased a
ite G w e oecount,.
bond f o r
2 0 b a s n o t p u r e h u s u d “1. bill f o r t t s
in agreement w i t h t h e centre] c o n e
bellevo that. t a the best w a y t o Rendle
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Federal Reserve Bank of St. Louis
42
it. I
have h a d this thought i n mind right along, t h a t
if sone emergency should develop i n New York, w h e r e i t
would b e n e c e s s a r y f o r t h e e e i a e
t O Soden fiat tyr Or. a
hundred million dollars i n bills, a n d y o u should f i n d i t
necessary t o take 310,000, 00° short-time Government
securities t h a t t h e committee f
g i v e n us, o r the
(89,000,000 i n bills, a n d a s k u s t o sell those tomorrow,
we.would s e l l t h e m without regard t o earnings a t all - and I
a m convinced i n m y o w n mind. that y o u might j u s t
es'well forget earnings because t h e y a r e not going t o
come: f o r a Long tins - The Chairmen. I
a m sorry t o differ with y o u o n
that, Governor Young, b u t I think w e are going t o have
pretty good earnings.
Governor Young.
O u t i n the egricultural s e c t i o n
a‘
it 1 s a n i n v i t a t i o n
t o r u n o n the b a n k t o show a n y re-
discountS a n d i t i s going t o b e a g
time before those
banks have t o bor o w a n y money a g e e x c e p t t h e real
brok
as t o how much money y o u d o lend them.
I t i s unfor-
tunate thet a n y such idea a s that should develop, particularly i n the
a g r i c u l td ulivestock
nr aa l
sections
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Federal Reserve Bank of St. Louis
45
ere t h e y d o need money f o r seasonal requirements,
but p e o n l e h a v e o b s e r v e d t h a t e v e r y b a n k t h e t h a s
closed has h a d rediscounts i n its statement a n d they
are suspicious o f thet word "rediscount".
A
Governor S e a y .
s I T understand t h e prinecipis w h i c h
underlies t h e operation o f the Open Merket Investment
Committee i t i s when, ° . a n d t o what extent, Federal
Reserve credit shall b e injected into the market b y the
purchase
o f G o v e r n m e n t s e c u r i t i e s e n d bankers!
tances.
a o s
h
accep-
e broad principle underlying t h e
whole operation, a n d although i f each bank o f its o w n
free will makes purchases, although t h e amount m a y b e
t h e principle
small, n e v e r t h e l e s s
i s b e i n g violated.
I believe t h e matter.can b e met i n the w e y which has
been i n t i m a t e d t h a t t h e O p e n M e r k e t C o m m i t t e e n o w i n -
tends t o meet it.
& £ plen o f reapnortionment o f securi-
ties w h i c h h a v e b e e n b o u g h t w i l l p r o b a b l y s a t i s f y t h o s e
banks t h a t n e e d r e v e n u e
t o w e e t expenses. I
d o believe
thet i f a bank surrenders i t s freedom o f action i n buying
end selling i n the onen market, t h e t there o u g h t t o b e
some s t u d i o u s e f f o r t
t o apnortion t h o s e securities
to m e s t i n c o m e n e e d s
o f several
o f t h e banks.
s o as
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Federal Reserve Bank of St. Louis
44
Governor Bailey.
Governor Harding.
T h e t would b e all right with us.
O n e o f the principles o n which
the Oven Market Committee h a s been working i s thet t h e
securities acquired a r e subject t o its order a n d c a n b e
sold a t a n y time w h e n needed t o affect t h e market.
N o w
the banks t h a t are going t o get securities f o r income
purposes w i l l n o t w e n t t o s e l l them.
N o w
thet i t might b e illuminating t o the committee, a n d i t
will o t pommit y o u t o enything i n advance, f o r each
Governor present t o give y o u e memorandum s
howing t h e
amount o f s ecurities a n d the class o f securities t h a t
he w o u l d l i k e t o buy.
T h e n y o u c a n a d d i t a l l up, s e e
at i t amounts t o Bnd have a
complete picture o f your
problem.
had i n m i n d , which m a y b e a
The Chairman. W h a t I
better w a y o f d o i n g i t , w a s t o h a v e t h e O p e n M a r k e t
Committee meet, c o n s ider this very question
suggestionsto t h e conference a s t o how t o deal with it,
to advocate a
redistythution o f the
(245,000,000 and, i f any p u r c h a s c s w e e
decide w h e t h e r i n d i v i d u ; l
b
e made,
banks should rearranze
in t h e a c c o u n t
o r whether
their
t h e account
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Federal Reserve Bank of St. Louis
should b e enlarged i n toto.
Governor Young.
‘ T h e point I
the s e c u r i t i e s a p p o r t i o n e d
want t o m a k e i s w h e t h e r
i n that w a y would b e subject
to the call o f the Committee w h e n t h e time comes f o r
sale - -
Governor Harding.
Governor Young.
N o .
T h e y would n o t be?,
Governor H a r d i n g .
N o , bécause
y o u wouldn't
want
t o
sell.
Governor Young.
T h e n h o w a r e y o u going t o operate
the Open Merket Committee i f you want t o sell 3100,000,000
worth?
Governor Harding. G o v e r n o r Strong made a
sugeestion,
o f dividing
i t i n t o t w o parts, h a v i n g s o m e
of the banks a c t independently, advising t h e
advance,
very good
a n d t h e other banks acting
o n e s
i n
i n . a group.
Governor Seay. P s h a o u t d 2 1 0 Cy rike t o see 40. divided
up i n that way.
Governor McDougal. I
think Governor Bailey's
position i s one thet c a n b e easily met.
f t have always
advocated t o l a y i n what h a s been design t e d here today >
as a
back l o g f o r e a r n i n g pruposes.
S o m e o f the banks
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Federal Reserve Bank of St. Louis
46
nave a
3 m m
back l o g now. “ J e heve
Bailey's b o a r d o f d i r e c t o r s d e s i r e s
fifteen millions
I
f Governor
t o purchase t e n o r
fourth bonds, t h a t c a n b e done
o f 4
without disturbing t h e market a n d without seriously
interfering w i t h t h e committee's operations.
i f he
does i t through t h e comiittee, t h e n there isn't a
tion but whet those long-time bonds a r e l a i d away a s
effectively, a n d more so, t h a n they would b e i f t h e y were
held, b y t h e U n i t e d S t e t e s S t e e l C o r p o r a t i o n ,
a n d quite
as e f f e c t i v e l y a s t h e y w o u l d b e i f t h e y w e r e b e s d
a s
many o f them are, i n the large trusts t h e t a r e being
handled b y the great banks i n all t h e cities. I
think i t i s a serious proposition a t all. I
felt t h a t a
d o not
have alweys
bank t h a t w a n t e d t o b u y a n d l a y a w a y a n amount
of bonds e a u a l t o t h e i r c a p i t a l ,
a n d possibly their com-
bined e:pital a n d surplus, s h o u l d have t h e right t o d o
thet e n d that there should n o t b e a n y serious objection
to it, provided i t i
o n e i n a n orderly way, possibly
through t h e committee.
Governor Calkins. |
M
r
. McDougal, you. d o not
meen t o s a y t h s t w h e n t h e b a n k b u y s b o n d s f o r a
om f o r a n y o t h e r purpose,
the
back l o g
h e y a r e a s effectively
laid a w a y e s t h e y w o u l d b e i f they, were b o u g h t
by a
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Federal Reserve Bank of St. Louis
47
corporation o r trust? S u p p o s e Govenor Beiley's b a n k
should b u y t e n o r fifteen million dollars a n d then t h e
bank experiences a n unexpected demand f o r rediscounts,
wouldn't t h e y sell t h o s e b o n d s ?
Governor McDougal. I
do not expect that y o u will
ever s e e the time - - a n d y o u look t o m e a s though y o u had
e long line o f life - - when i t will b e necessary t o sell
those bonds.
Perhaps I
a m mistaken.
would never see the time when
Governor Calkins. I
it would b e expedient t o sell t h e bonds?
e
Governor McDougal.
H o , not expedient, I say
necessary for credit purposes,
s t e n d p o i n t
from w h i c h y o u a r e a p p r o a c h i n g
Governor Celkins.
Y o u sre a n older m a n than I
am
and I believe y o u will s e e that day.
Governor Young,
t o
e q u a l
amount
W h a t h ~e want 560: d o s . to: D u y a n
surplus.
W
w
e h a n d l e d
1919 u p t o the present time without 4
happens
t o
v
e
t h e surplus
tied
t h e
situse.tion
f r o m
surplus, b u t i f h e
u r n e a l long-time
bonds
there i s n o r é a s o n w h y h e s h o u l d n o t h a d l e t h e n e x t
cE F u e C O n e ss
Governor Fencher. I
question w h e t h e r t h e p l e n w h i c h
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Federal Reserve Bank of St. Louis
48
Governor Strong h a s i n mind with regard t o a redistribution o f securities w i l l a n s w e r g u i t e w h a t G o v e r n o r
Bailey wents, because there a r e $901 ,000,000 maturing
within nine months a n d about 3140,000,000 maturing i n
SeV E A L
Governor Bailey.
T h a t would not help u s a t all.
I
Governor Fancher.
n o t h e r words,
t h e short-time
securities a r e not going t o supply your need.
Governor Bailey.
Governor S e a y .
they mature.
N e y Sie.
U n l e s s
t h e y a r e replaced
when
what t h e
Y o u then come t o the question o f
securities
policy i s going t o b e - a b o u t replacing t h e
when they mature o n June 16th.
Governor McKinney.
C é u i d t h e y n o t b e reappor-
then t h e
tioned, l i k e Governor Strong has stated, a n d
change made into: long-time securities?
Governor Fancher.
Y o u mean a
sale a n d r e p u r c h a s e
in t h e market?
Governor McKinney.
Yes.
T h a t would n o t heve t h e
t h e market.
effect o f p u t t i n g = a n y n e w tnoney i n t o
Governor Seay.e I
hate t o s e e t h e F e d e r a l K e s e r v e
I
system a c q u i r e a n y l o n g - t i m e s e c u r i t i e s .
think t h a t
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Federal Reserve Bank of St. Louis
s inconsistent w i t h t h e reserve i d e a altogether.
Governor Bailey.
T h a t i s a theory y o u have, b u t
the fact i s w e have g o t t o have these earnings f o r many
years
t o come.
Governor Seay.
T h e a t i s the real theory o f the
n
O f course i f 10° i e v i o l e t e d , i
reserve situetion.
principle t h e e f f e c t
o f the violation would depend u p o n
i n t h e s e s e c u r i t i e s : foibloe,
the a m o u n t w h i c h w a s i n v e s t e d
fate, i f w e d o it, i t i s going t o haunt u s a t
some time, a n d i t i s a n unsound principle i n m y judgment.
I remember during t h e w a r t h e Government found some
Gri isiwl@ lla cabiak s e d e Cenbige u e l b o n d s ,
e the
and we e x p r e sd
opinion t o the Secretary o f the Treasury that i t would b e
a very unfortunete thing i f he should heve t o call upon
the Federal Reserve Banks t o take a n y o f those bondsissues,
and h e a g r e e d t o that.
Governor Harding.
W h e n t h e Federal Reserve f e t was
written t h e b a n k s h a d n o s u r p l u s e n d i t w e s n o t c o n t e m -
pleted that t h e y should have a
ner cent o f thei a p i t s
accumulated s u r p l u s e s
N
o
surplus i n excess
o f 40
w lots o f them have
o f 2 0 0 p e r c e n t o f tneir p a i d i n
is n o reason w h y thet surplus should b e
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Federal Reserve Bank of St. Louis
50
locked u p a n d r e m a i n idle.
W
h
y n o t l e t i t esrn some=
thing.
Governor W e l l b o r n .
T h e i d e a was that t h e reserve
should b e i n l i c u i d paper,
a n d should n o t b e anything
but l i q u i d p a p e r - -
do not s e e h o w y o u distinguish
Governor Harding. I
between c a p i t a l a n d s u r p l u s e
T
e Capi
t
h
e sole
basis, t h e n i t i s more important t o heve t h e cepital
then
invested t h e surpius, i s n ' t
j
Governor Youngs. t
Hare
c a n i t a l invested
in buildings, t h e chances are.
The Chairman.
H o w about concluding this discussion
at t h i s p o i n t ?
move t h a t t h e m a t t e r
Governor Seay. I
over u n t i l t h e r e p o r t
o f the Committee
b e left
o n Open Market
Investment.
Governor hicbougal.
G o v e r n o r Seay, I
understood y o u
to s a y t h e t y o u n e v e r h a d b o u g h t e n y b i l l s f r o m y o u r
member banks?
Governor S e a y .
O S .
Governor McDougal.
Y o u mean y o u never have bought
*
any ;
b a bi s- from
o u r
o w n member banks? y
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Federal Reserve Bank of St. Louis
50~-A
have never bought a n y bills t h a t
Governor Seays I
did not originate i n our o w n district, f r o m our member
banks.
Governor McKinney.
Y o u require t h e endorsement o f
the m e m b e r b a n k i n e v e r y c a s e ?
Governor Seay.
Y e s , sir.
Y o u h a v e n ' t b o u g h t a n y bills
Governor McDougal.
from your o w n member banks w h e n those bills originated
Ou
“OL your district?
Governor Seay.
T h e t i s correct.
Governor McDougal.
Y o u are: a t full liberty t o d o so.
Governor Seay. I
understand thet w e are but I
not u n d e r s t a n d
i t before.
W
did
e have supported t h e market
for acceptances i n our o w n district.
The Chairman,
M r . Kengel
wrote you a
letter t o t h a t
effect, Governor Seay.
Governor Seay.
W i e have n o objection t o acting upon
Loy S P .
Governor Bailey.
buy a
I f any o f our member banks should
lot o f accentences a n d carry them f o r fifteen days,
we c o u l d t h e n b u y t h e m a n d r e l i e v e t h e m o f them?
Governor McDougal.
Certainly.
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Federal Reserve Bank of St. Louis
51
Governor S e a y .
O u r position w e s t h e t t h e accept-
ances o f o t h e r b a n k s w e r e s u p p o r t e d
i n their districts
as w e s u p p o r t e d t h e m i n o u r o w n merket.
The hairman.
T h e r e never w a s e n y effort
so far a s I can recall,
o r thought,
i n the mindsof a n y member o f the
Open M a r k e t C o m m i t t e e t h e t t h e o p e r a t i o n s
o f the
committee i n any way should interfere w i t h t h e transactions i n bills between m e m b e r banks a n d Federal
Reserve Banks.
Governor Calkins.
illuminating,
I t really would b e somewhe.t
i n view o f the wide ranze o f this discus-
sion, t o g o back t o what t h e purpose o f the Open Market
Committee w a s .
I t s first purpose w e s t o have a
HoLicy
in the Federal Reserve System, something that could b e
labeled a
policy anyway;
i t s second purpose w e s t o avoid
competition b e t w e e n t h e t w e l v e b a n k s ;
a n d now w e ere
proposing t o g o under t h e first policy, which c a m o t b e
carried out unless the second one is, and dismiss the
-econd
o n e f r o m consideration a n d s e y t o a
part o f t h e
Federel R e s e r v e B e n k s “ G o a h e a d a n d b u y w h e t y o u w a n t t o
buy,
3
w e will operate t h e O p e n Merket Investment Committee
regardless o f the fact that y o u will b e i n the market
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Federal Reserve Bank of St. Louis
52
competing with us all the time".
L - d o not thinx that
those t w o t h i n g s c a n b e reconciled.
both
o r neither.
T r i s general question arises through
The Chairman.
a fear i n t h e m i n d s
directors
ing a
Y o u have g o t t o
o f t h e Governors
o r officers
o f the reserve banks that
o f some
o r
w e a r e enter-
period w h e n w e w o n ' t b e a b l e t o e a r n e x p e n s e s a n d
pay a dividend.
N o w the fact i s a t the present time
in the immediate future,
s o far a s I can s e e fo, o n s
system a s a whole i s going t o b e i n a petter position t o
make i t s e x p e n s e s « n d dividends t h a n i t w a s o v e r a
year
now is
The difficulty t h e t w e are dealing w i t h
redistribution o f earning assets.
earning assets. A
W e have over
year o r m o r e a g o w h e n w e
were dealing with this subject w e h e d 800,000,000,
e time l e s s t h a n that.
met b y effecting a
T h i s whole situetion
and
can be
redistribution o f those securities,
and the opportunity t o d o that hes o n l y arisen within t h e
ast month o r so. I
f a little patience i s exerthinki
cised a n d i f t h e c o m m i t t e e
i s given a
chance, t h a t t h e
whole q u e s t i o n w i l l b e d e a l t w i t h t o e v e r y b o d y ' s s a t i s
Tections
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Federal Reserve Bank of St. Louis
Governor McKinney.
adjournment
A n d that will b e before t h e
o f this c o n f e r e n c e ?
The Chairman.
Yes.
Governor McKinney. I
hed unders t o o d i t would n o t
dealt w i t h u n t i l t h e f i r s t o f spril, t h a t i t w o u l d b e
done after t h e first o f April.
The Chairman.
T h e r e h e s n o t b e e n time.
Gov r n o r Wellborn. I
letter here.
want t o c a l l a t t e n t i o n t o a
T h e y have made a
mistake i n our figures.
They have t h e m i n black when t h e y ought t o b e i n red.
Governor Strong. I
at all.
wait a
have n o t s e e n those figures
T h e y came after I
left N e w York. Shall: w e
report f r o m t h e O p e n M a r k e t C o m m i t t e e b e f o r e
d ealing w i t h this m a t t e r ?
Governor Seay. I
Governor
s o move, M r . Chairman.
salley
.
l L owadt second. t a c .
ion h a v i n g b e e n d u l y s e c o n d e d
TANG. D S M G e o O s e . ~Gi.
policy w i t h r e g a r d t o m a
e services for member
imes wren t h e earnings o f the Federa
Reserve B a n k s a r e l o w o r insufficient
to c o v e r o v e r h e a d
a n d dividend
re-
quirements.
Governor Bailey. I
put t h a t t h e r e t o c a l l a t t e n -
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Federal Reserve Bank of St. Louis
54
Bion t o t h e <tTact: t h a t [ L a d o m o t t h i m k w e c a n : r u n o u t
there without paying o u r dividends e n d paying o u r overi e have eight years before w e will a s k for a
head.
renewal o f our charter, a n d i f the other districts a r e
comparable w i t h t h e t e n t h d i s t r i c t I
c a n s e e n o possible
way that w e are going t o earn o u r overhead a n d o u r dividends o n the naturel business i n that district.
got t o get i t from somewhere outside.
w e have
E L O2n0t- thir:
this system i s e n y different f r o m a n y other business
Lt tbo-oannet p a y T o t e
n e t
tained.
The Chairman.
H o w d i d y o u make o u t last year with
your earnings, Governor Bailey?
Governor Bailey.
W e charged about 400,000 t o
surplus.
The Vhairman. i
Governor B a i l e y ,
he Chairman.
had a ‘ b i g cherge-off, did you not?
Y e s .
W
e j u s t m a d e o u r dividends.
B u t y o u realize t o d e y th:t t h e FPeder-
al R e s e r v e S y s t e m i s e a r n i n g a s a
hood o f t h i r t y - s e v e n a n d a
whole
i n t h e neighbor-
half m i l l i o n d o l l e r s p e r annum,
that i t c o s t s s o m e t h r e e o r f o u r m i l l i o n d o l l a r s l e s s
than t h e t t o m e e t t h e w h o l e c o s t o f o p e r a t i o n e n d divi-
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Federal Reserve Bank of St. Louis
dends.
W
e have g o t a
billion e a r n i n g a s s e t s
i n the
L
t cost
System t h a t a v e r a g e w e l l o v e r 3 4 p e r cent,
last y e a r t w e n t y - e i g h t a n d a
run t h e system;
iillion,
half m i l l i o n d o l l a r s
t h e dividend takes a
a n d there i s a
good margin,
little o v e r s i x
a n d i t i s just a
question o f who i s going t o get t h e ecrnings.
reapportion o u r i n v e s t m e n t s
to
I f we
--
Governpr Bailey (interposing).
O h , w e d o not want
to m a k e a n y m o n e y b u t w e d o l i k e t o p a y o u r dividends.
I do not think i t i s good policy t o b e constantly drawing o n t h e surplus.
O f course s o u e b o d y will s a y thet w a s
contemplated, b u t i t was n o t contemplated t h : t w e would
have a
surplus w h e n this l a w was enacted.
Governor Calkins.
I t i s m y opinion there i s nothing
more destructive t o the operation o f the System o r more
demorelizing t h a n this feari’or anxiety o n the pert o f
directors o f the Federal Reserve Banks about earnings,
regardless o f whatitherobiginal intention was.
T h e
Pederal Keserve B a n s h a v e a l l accumulated v e r y large
surpluses.
T h e r e i s n o danger whatever
to pass dividends.
though I
o f their having
T h e r e i s n o feasom t o m y mind, a l -
f i n d s o m e p e o p l e d i f f e r w i t h m e v e r y pointedly,
Governor M c b o u g a l p a r t i c u l a r l y ,
t o anticipate a
long
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Federal Reserve Bank of St. Louis
56
i n t h e banks.
period o f l o w d e f i c i e n t e z r n i n g s
experience t h a t ,
i f w e reach a
nlus a c c u m u l a t e d f o r that p u r p o s e
B u s if
point w h e r e t h e s u r i s not sufficient
to
pay dividends t h e n i t w i l l b e t i m e t o t a l k a b o u t d r a s -
tic a n d destructive nibbling a t the System wnich i s n o w
S o m e b o d y s a i d something this morn-
er discussion.
ing about t h e danger t o the System f r o m its friends.
Now w e u n d e r v e n t
a n atteck a
few years a g o f r o m people
who might b e classed a s enemies.of t h e System e n d the
I
net result w a s n o t disastrous.
n m y opinion «et the
present m o m e n t w e a r e i n mo:e d a n g e r f r o m o u r friends
than t h e many enemies t h a t w e have hed, a n d i f w e discontinue, little b y little,
t o decrease t h e benefits con-
ferred upon the member banks, w e will alienate much o f
the support thet the c a y a has had heretofore with
trous results.
The Chairmen.
G o v e r n o r Beiley, w h e t shall w e d o
with this. topic?
Governor Bailey. I
further.
do n o t c a r e h a v e i t discussed
j u s t w a n t e d i t kep 4
Initia “that o s o n e t
the System c a n g o o n i n thet w a s e v e r a l weeks
visited O m a h a a n d D e n v e r
and then I
hed some
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Federal Reserve Bank of St. Louis
57
people f r o m Oklahoma C i t y i n t o talk with me, a n d this
was o n e o f the s ubjects discussed.
tions t h e r e w a s a
‘ i t h t w o excep-
unaimous o p i n i o n t h e t t h e S y s t e m w o u l d
if w e e o u l d n o t e a r n o u r o v e r h e a d e n d p a y
with y o u r e x p l a n a t i o n t h a t ,
we a r e earning t h a
n b e made, I
n d thet a
as a
redistribution
will b e content.
I will g o even further t h e n
Governor Bailey, a n d tell y o u personally that a
situa-
tion i s developing n o w which will make i t highly desirable f o r t h e Oven Market Committee t o g o i n and enlarge
our i n estment a c c o u n t s l i g h t l y ,
a n d i f t h e t i s done t h a t
would meet t h e s ituation.
B u t n o t f o r the purpose o f meking
Governor seay.
ineome?
N o .
The Chairman.
Governor .Biggs.
W h e a t limit have y o u now, Mr.
Chairman, 600 or 500 millions?
airman.
F i v e h u n d r e d millions.
Governor Calkins. |
anticipate a
H o w much reason i s the:-e t o
condition under which t h e System will n o t
earn i t s d i v i d e n d s a n d expenses?
Y o u stated thet i t
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Federal Reserve Bank of St. Louis
58
roughly a billién dollars successfully t o provide t h e
earnings a n d exnenses under enything like normal condiEslonsieue U n d e r c o n d i t i o n s w h i c h I
pate a
A
think w e m a y antici-
third o f t h a t b i l l i o n d o l l a r s w i l l b e i n v e s t e d
D L S
I
f the committee i s g o i n g t o operate t h e y
will have t o have something
t o play with a n d that some-
thing t o pl:y with will b e another
billion dollers, a n d the remaining one-third o f the billion will
b e carried i n the srape o f rediscounts.
Governor S e a y .
have a n effect
M u c h u o r e t h a n thet,
1 8 it is to
o n t h e merket.
Governor Calkins.
I f anyone c a n s i t around t h e
table a n d s a y thet over e a term o f years i t i s improbable
that t h e F e d e r a l n e s e r v e S y s t e m w i l l c a r r y a n a v e r a g e
of one-third o f a billion dollars i n rediscounts, I f can
not. s e e 1 b .
The Chairman.
Governor Young. I
banks, because I
cannot s peak f o r t h e other
a m not femiliar w i t h their situation,
but w e have these facts i n Minneapolis f r o m which w e c a n
not g e t a w a y e M i n n e a p o l i s h a s expenses, d i v i d e n d r e -
quirements a n d churge-ofi's
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Federal Reserve Bank of St. Louis
59
Thet means thet w e must employ 4 0 , 0 0 0 , 0 0 0 continuously
at f o u r p e r cent.
N o w whenever t h e Federal Reserve
Bank o f Minneapolis e m p l o y s ( 4 0 , 0 0 7 , 0 0 0 c o n t i n u o u s l y
four n e r c e n t
becomes a
i t ceases
t o be a
commercial bank. I
Federal R e s e r v e
Bank
a m just a s firmly con-
has c e a s e d t o b e a n earner a n d n e v e r w i l l b e
an carner.
L e t u s assume that y o u get about 5100,000,000
of seasonal requirements f o r three months i n the fall o f
the year, a n d after i t gets t o G O o r 7 0 millions,
w e are
Uy
through a n d somebody else uses i t from then on.
A n d
then 6 0 , 0 0 0 , 0 0 0 f o r three months i s n o t ~40,000,000
for t w e l v e months. I
is a b o u t t h e same.
assume G o v e r n o r B a i l e y ' s p r o b l e m
S u p p o s e fear e s t h e s m : 1 1 b a n k s
are concerned, s u c h a s Minneapolis a n d Kansas City, t h e y
cannot e a r n m o n e y i f t h e y g o o n w i t h t h e s e g r a t u i t o u s
services, b e c a u s e t h a t e x p e n s e a c c o u n t i n c r e a s e d r a t h e r
than decreased?é
The Chairman.
all b e m e t w i t h a
tee o p e n m a r k e t
D o n ' t y o u think that situation c a n
little m a n a z e m e n t ,
i n cooperation w i t h
c o m m i t t e e --
Governor Young.
I t i s rumored that t h e y have a
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Federal Reserve Bank of St. Louis
60
little m a n a g e m e n t
i n Minneapolis,
b u t o f course I
don't
know.
The Chairman. W h a t I
meant t o say Was i f your
expense r e q u i r e m e n t s n e c e s s i t a t e t h e e m p l o y m e n t
of
“40,000,000 a t interest, a n d then y o u have your seasonal demand, t h e difficulty could b e met through t h e Open
Market Committee b y shifting your investment a t times
when needed.
Governor Young. I
cannot get 440,000,000 of
R e p e a t e d l y here i n the last year
Government securities.
we heve h e d t o scrape around every night t o get enough
reserves t o put u p with the agents.
N o w when w e are
setting a few bills w e can d o it, but i f we buy Government securities w e c a n only g o t o about 350,000,000, a n d
then w e are a l l through.
The Chairman. T h e n why dontt w e give you more bills
and less Governments?
Governor Young.
T h a t tsa the pein’.
W e l l i t recuires
o n Governments
and bills .j50,00°%,000 instead o f 340,000,000.
Governor McDougal.
w h a t is'‘vour s o l u t i o n o f this,
Governor B a i l e y ?
Governor B a ley.
T o make charges a n d get r i d o f
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Federal Reserve Bank of St. Louis
the facility services.
Governor Seay.
B u t i f your bank does t h a t won't
the other banks have t o d o it?
Governor Bailey.
Y e s , I
think so, b u t a
lot o f the
banks have complained about i t t o me.
(Further i n f o r m a l d i s c u s s i o n f o l l o w e d . )
Governor i e
G o v e r n o r Young,
y o u d o not think
thet this policy o f free services t o member banks should
fluctuate according t o the bank's earning position,
do
you?
V
Governor Young. N
a
t
o abuouent:
F O b e a tixe
policy.
Governor C a l k i n s .
W
e have spent
t e n strenuous
years trying t o set u p something which looks like a
policy a n d n o w i t i s s u p p o s e d
t o scatter t h a t policy t o
the four winds a n d begin a l l over agiin.
Governor licbougal. I
cussion that j
do not s e e anything i n the dis-
i f i e s t h e statement o f Governor Calkins
1at w e a r e n o w e n d e a v o r i n g
t o u n d o w h : twe h a
topic w a s p u t o n t h e p r o g r a m b y C h i c a g o f o r t h e p u r -
pose o f having a discussion o f the matter. P e r h a p s not
all o f you, b u t some o f us, have h a d something t o d o with
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Federal Reserve Bank of St. Louis
62
the F e d e r a l R e s e r v e B o a r d d u r i n g t h e l a s t s i x months
on. the subject o f expense.
me t h a t a s a
O n e member o f the Board
result o f l a s t y e a r ' s o p e r a t i o n s
it would cost t h e Government something over 4,000,000.
You will have t o judge f o r yourselves w h a t i s meant b y
that.
I n considering the matter o f expense o f the busi-
ness, i t i s enormous,
w e all know, o f course, t h a t t h e
expense o f extending free s ervices i s perhaps the largest contributing factor.
T h e disposition t o avail o f
these free services i s growing.
T h e banks o f ti.is coun-
y are just beginning t o learn, m a n y o f them, t h e great
advantages o f it.
T h e i n c vease i n volume i n the check
collection system oneration i s cheracteristic b u t I
do not
pelieve w e have gone f e r enough t o have experienced a n y
serious e m b a r r a s s m e n t .
S o m e o f the banxs last year h a d
a little shortage i n earnings. E
do. think, however,
that i t is proner e t this time t o get a n expression o f
those present e s t o whether o r not v e are going t o modify
in e n y respect these free services which w e voluntarily
offer t h e b a n k a n d w h i c h i f t a k e n a w a y w o u l d p r o d u c e
exactly t h e situetion Governor Calkins says i t would
produce, a n d y e t just t h e same I
it. I
think w e should consider
want t o s e y thst because there a r e differences o f
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Federal Reserve Bank of St. Louis
63
opinion i n our o w n organization, a n d I feel that w e
should l e t this m a t t e r ride. I
think i t would b e a mis-
take t o withdraw chose free services a n d put ea charge o n
the non-cash collection activities a n d things o f tha
s ort, b u t I
make a
think w h e n t h e t i m e c o m e s w e h a d b e t t e r
comprehensive s t u d y o f t h e w h o l e s
ituation.
would n o t b e a t all surprising if, within a
short t i m e ,
w e would feel j u s tified
I t
comparatively
i n possibly imposing
a charge o f one cent a n item, o r something like that, o n
our t r a n s i t i t e m s .
T h e topic w a s p u b o n by C h i c a g o
to p
see h o w 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 f e l t i n r e g a r d
to the matter.
The Chairman.
T h e bistory o f the thing must b e
perfectly clear i n your minds, especially i n the minds
of those w h o heve been w i t h i t from the very beginning.
Wie started a l l o f these services making c h a r g e s f o r them.
The decision t o discontinue t h e charge w a s part o f the
program which several objected to.very strongly. I
I did personally.
S o m e o f those s
know
ervices were given
in order t o make t h e System attractive,
t o keep t h e
national banks i n « s members a n d induce t h e Stats banks
to come in.
I t was done deliberately. I
think i t was
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Federal Reserve Bank of St. Louis
64
nisteke t o abandon th. t charge o f a penny a
check a n d I have always thought so.
B u t i t has b e e n
done now.
I would l i k e t o s e e s o n e o f t h o s e c h a r g e s r e i m p o s e d
but I
do not think t h e time has come t o d o i t . T h e r e
o
has b e e n t o o m u c h g r o w l i n g a b o u t t h e S y s t e m among
the
members a n d n o n - m e m b e r s t o o . F u r t h e r m o r e ,
through a
w e heve b e e n
period recently when t h e profits o f the banks
have b e e n c o m p a r a t i v e l y s m a l l a n d t h e l o s s e s v e r y heavy.
if w e undertake n o w t o impose ch:rges, ‘just beceuse w e are
a little deficient here avid there i n our carnings,
order t o make earnings a n d f o r n o other reason, I
in
think
we a r e j u s t f l y i n g i n t h e f a c e o f P r o v i d e n c e a n d jeonard-
izing t h e System unnecessarily. I
hope t h e time i s soing
to come w h e n w e c a n imposs a
o f;
charge
& Cent o r
something o f thet sort o n every check thet w e clear through
the mail, a n d o n some o f the other services, b u t I
perfectly c l e a r t h e t i m e h a s n o t c o m e t o d o i t yet.
is just a
case
am
I t
e i n g patient a n d waiting u n t i l t h e time
does come w h e n t h e atn p h e r e i s better
with t h e t subject.
I n the meantime I
particle about earnings .
Tere:
w h i c h t o deal
a m not alarmed a
l e plenty coiling e n 2 6
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Federal Reserve Bank of St. Louis
65
at we are going t o heve earnings.
Now,
t
e
k
e just o n e thing.
T h e banks
country h a v e l o s t n e t o v e r ..200,000,000
o f reserve
d u e t o g o l d exports a n d d u e
within t h e l a s t f e w months,
to e e r m a r k e d gold.
o f this
T h i s i s all replaced
from t h e R e s e r v e B a n k s , p e r t i c u l a r l y
b y borrowings
i n N e w York, a n d
e.rning p o w e r b e y o n d w h r t w e n e e d a t t h e
je would give i t up,we a r e glad t o and went t o
the re; son for t h e sugzestion that w e suro earning assets, a n d I see other
render o u r s u r p l u s f
things
i n the weand that I
personally believe will justi-
fy, i n the very neer future,
our security holdings.
think i t w o u l d b e a
charging
was 9
a n increase i n the amount o f
w i t h t h e atmosphere i n mind I
wrong t i n e t o s t a r t a
program o f
P r service a n d breaking u p wheat w e have thought
satisfactury system orgenization a n d nolicy - - I
would r a t h e r w e i t e n d d e a l w i t h t h e m a
a
s I
know w e
can, later when thinzs will b e sore propitious a n d when
we c e n deal with t h e whole subject o f charges.
convietion about it, a n d I
ference t h a t I
think before T
That
leave.t
c a n c o n v i n c e y o u t h e t t h a t i s so.
Governor Bailey.
t fL
may b e permitted t o s a y this,
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Federal Reserve Bank of St. Louis
66
whenever o u r earning power will sustain o u r services,
the free services, I
a m i n favor o f it, a n d i f through
the Onen Market Committee w e c a n secure a
back l o g o r
something o f that kind, then I think i t would b e a misteke t o charge for the collection o f checks and a lot of
tne other free s ervices.
The Chairman. I
a m perfectly satisfied that i t i s
not going t o b e very long before w e are going t o have
further losses o f gold. I
do not know h o w much, a n d w e
may g e t s o m e i n firs t , b u t i f t h a t m o v e m e n t s t a r t s o r
there i s a resumption o f specie payment i n Europe i t i s
going t o effect a
redistribution o f central b a n k reserves
throughout the world and gold i s going t o come out o f
this country t o accomplish that.
Y o u cannot export that
gold a n d not have o u r member banks borrow f r o m us. T h a t
is whet i s going t o cause e.rnings, w h e n i t takes place.
Tt m a y not b e a t once, i t m a y b e a yoar o r two years,
but I think w e must n o t shift o u r policy just because
for a few months w e are a little s h y o f deen bacs:
Governor Calkins.
M r . Strong, w o n ' t y o u elucidate
a little f u r t h e r w i t h reszard t o t h e s t a t e m e n t t h a t y o u
just made, t h a t i s presuming that there i s a n export o f
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Federal Reserve Bank of St. Louis
oT
gold from this country a n d the gold-is coming o u t o f the
reserve m e m b e r b a n k s ?
The Chairman.
I
n the first place w e know t h e t t h e
anount.of o u p r e n c y w h i c h C i i c a l o t o n
I e D i S COuUm UI c a m
the hands o f the public, f o r hand t o hand purposes, a n d
in e r a l t h e t which i s h e l d b y the banks here, member
i s a fixed minimum,
and non-member,
requirements
t o meet t h e actual
o f t h e t r a d e a n d b a n k reserves,
surplus r e s e r v e s
i n the country
i s that s
a n d thet t h e
urplus
is
which
represented i n the Federal Reserve Banks! holdings o f
gold.
Now L e t u s s u p p o s e a n y f o r e i g n b a n k h a s a
1,000,000
i n a
member b a n k i n N e w York,
balance
of
o r i n any bank
in New York, a n d the same would b e true o f San
and they want t o take i t out i n gold.
member b a n k t o s h i p o u t e
draw - a c h e c k
million d o l l a r s
o n their reserve
gold c e r t i f i c a t e s ,
T h e y s a y t o the
i n gold, t h e y
b a n k s n d convert
i t into
o r g e t t h e g o l d b a r s a n d s h i p i t out,
and when thet bank suffers a
loss o f 1,000, 0 0 0 i n its
reserve i t has g o t b o r r o w f r o m us, i t cannot hekp it.
If they €
y1,000,000,000 w e get %1,000,000,000
earning a s s e t s
i n o n e f o r m o r anovne
w
in
e have lost
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Federal Reserve Bank of St. Louis
‘200,000,000.
O u r so-called i d l e excess
Governor S e a y .
a fiction;
i t d o e s n o t exist.
T t has been used a s a basis o f credit
The Chairman.
by t h e m e m b e r b a n k s a n d n o t b y t h e R e s e r v e Banks.
Governor Calkins.
T h a t i s t h e point,
a n d t h e state-
went thet the country i s over-flowing with idle gold i s a
misteke.
g e l d i n the counis
DD n o s u r p l u s
t h e Federal Reserve
try f o r e x p o r t o u t s i d e o f t h a t h e l d b y
banks.
H o w much could w e lose before w e
Governor Bigzs.
got t o the danger point?
W
The C h a i r m a n .
e could lose a
billion dollars
o f
Governor Bigas. C o u l d «je lose t w o billion?
e
h
Chairmen.
T
I f wWSe l o s t t w o b i l l i o n w e w o u l d b e d o w n
to o u r f r e e w a r r e s e r v e n e a r l y a n d w e w o u l d h a v e t o d e a l
with i t then.
B u t w e w o n t t l a s e tivo billion; t h e r e i s n ' t
chance
Governor Seay.
o f that.
B u t w e could n o t lose a
seriously affecting t h e rate.
billion with-
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Federal Reserve Bank of St. Louis
69
The Chairman.
h yes,
O
w e could.
S u p p o s e every
time w e shipped #1,000,000 i n gold w e bought $1,000,000
Governor Seay.
The Chairman.
B u t your reserve ratio would g o dow
B u t i t would n o t affect t h e rate.
Our reserve ratio could g o down 5 0 per cent.
Governor S e a y .
would
i t not
B u t i t w o u l d h a v e a n influence
i n --
Governor Calkins,
Y o u mean psychologically?
Governor S e a y . P s y c h o l o g i c a l l y a n d actually.
Chairman.
G o v e r n o r Seay, w r e n d o y o u think
would n e e d t o b e raised, w h e n t h e r e s e r v e p e r w h e t point?
centage w e n t d o w n Governor seay. I
would n o t w e n t t o say.
The Chairman. ‘ w h e n i t vent d o w n 1 0 points?
Governor Seay.
P o s s i b l y 10, b u t I
cannot s a y o f f -
hand.
Governor Fancher.
B u t assuming that your member bank
eame i n a n d b o r r o w e d f o u r o r f i v e h u n d r e d m i l l i o n d o l l a r s
by r e a s o n o f t h e e x p o r t g o l d yovenent,
a n d w i r t would t h e
effect b e ?
The Chairman.
T h a t w o u l d a f f e c t t h e rates,
a case o f t h e t k i n d w e w o u l d b u y s e c u r i t i e s
but i n
s o a s t o pre-
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Federal Reserve Bank of St. Louis
vent thet very thing happening, w o u l d w e
Governor Fancher.
Yes.
A n d s o I say i n one w a y o r another
The Chairman.
the g o l d m o v e m e n t v o u l d b e c o m p e n s a t e d f o r , Seltuer i e
our investing t h e money o r b y the members discounting.
Governor Fancher.
I f y o u want t o anticipate t h e
demand a n d b u y securitics.
Yes.
The Chairman.
Governor Seay.
T h a t would emphasize t h e importance
of the operations o f the Open M a r k e t Committee a n d
investment policy.
Governor Young.
B u t i f w e lose 500,000,000
i n gold,
which forces t h e bank t o carry ,500,000,000 rediscount f o r
that, t h a t i s temporary a n d not permanent.
The Chairman.
B u t what happened
i n 1919?
T h e banks
were borrowing s o m e considerable s u m s f r o m u s a n d when w e
put o u r r a t e u p w e f o r c e d t h e m t o pay, t h e t its w e o f f e r e d
a very s t r o n g i n d u c e m e n t f o r t h e m t o pay, a n d t h a t f o r c e d
liquidation.
T h a t i s t h e c o m m o n t h e o r y o f liquidation,
but t h e c o m p l a i n t w a s t h : twe f o r c e d l i g u i d a t i o n
ing our rate up.
b y merk-
N o w what i s t h e need for doing that?
Suppose t h e m e m b e r b a n k s d i d e x p o r t 5 0 0 , 0 0 0 , 0 0 0
i n gold
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Federal Reserve Bank of St. Louis
Th
and w e were t o s
surplus
the gold when w e heve this great
i n t h e reserve banks,
a n d thereby impose u p o n
us a policy which would force liquidation i n this country - - w e w a n t t o g o a h e e d a n d d o business w i t h o u t d o i n g
that,
d o w e not?
Governor Young.
Y e s , b u t w h e n t h e y c o m e around,
without raising t h e rate, t h e n that ,500,000,000 borrowing
is o n l y a
temporary matter.
Governor Seay.
T o the extent t h e member banks a r e
forced t o borrow f r o m you, t h e y would naturally b e disposed t o r a i s e t h e r a t e - - b u t w h e n t h e r e t e o f t h e r e -
serve bank might b e below t h e rate which t h e member banks
are f o r c e d
t o borrow at, t h e n t h e Open Merket Committee
can step i n and perhaps relieve t h a t situation.
The Chairman.
T h e banks o f the country d o not want
to b o r r o w f r o m u s a t a l m o s t a n y r e t e e t w h i c h w e c r e w i l l -
ing t o lend i t - Governor Scay.
i t know th:.t, b u t i f they lose t h e
funds t h e y will have t o d o one o f two things.
either h e v e t o s e l l t h e i r s e c u r i t i e s
T h e y will
o r h a v e t o curtail
their? loan.
The Chairman.
B u t who buys t h e securities t h e y sell?
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Federal Reserve Bank of St. Louis
72
Governor Seey.
T h e System would come i n and buy the
he Chairman:
/ The System will, t h a t i s the answer.
Governor Young.
B u t I cannot s e e a n y permanent
borrowing for any longperiod. ‘ i e might have borrowings
for a short period b u t n o t f o r a long period.
The Chairman.
justment o f business a n d p r i c e levels.
500,000,000, resulting i n 500,000,000 borrowing from
us, w e w o u l d h a v e t h e p e r i o d o f l i q u i d a t i o n f o r c e d u p o n
the banks i n order thet t h e y might repay us.
to r e p a y t h e .-pp00 ,000 ,000 o f b o r r o w i n g s
I n order
f r o m t h e Reserve
have g o t t o pull d o w n their loans a n d deor investments b y some five times that, s a y two
and -analrepiLiion,
have a
determin
n o n tin order t o a v o i d that, w h i c h m i g h t
i n g influence
u p o n business,
w e would g e t
the member banks o u t o f debt t o u s b y buying securities,
as we heve done before, end a s we buy the securities
furnishes t h e s u r p l u s e r e d i t - -
Governor Youngs,
T h e t i s what I
a m trying t o bring
that i s the borrowing will b e temporary a n d not o f a
permanent n a t u r e ,
a n d temporary borrowing will never p a y
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Federal Reserve Bank of St. Louis
the expenses o f the Federal Reserve System.
The Chairman.
is p a i d
I t will b e temporary, b u t when i t
o f f i t will b e replaced a m o n g o u r earning assets
by t h e s e c u r i t i e s t h a t w e buy.
had a n e x p o r t m o v e m e n t
G o v e r n o r Young,
o f i,500,000,000
i n gold, I
i f we
would
regard i t a s adding almost thet amount, barring seasonal
fluctuations,
t o the permanent assets o f the System.
Governor Seay.
Lele.
< a qestion o f the volume o f
the s e c u r i t i e s a n d a c c e p t a n c e s t h a t t h e m e m b e r b a n k s h a v e
t0-sell t o u s
Chairman.
w
e d o not have t o b u y t h e m t h e member
Vie buy them from anybody a n d w e put o u r credit
into t h e market. I
earning b u s i n e s s ,
a m not a t all alarmed about t h i s
i f you will just
b e patient
a n d let
this p i c t u r e unfold.
Governor Bigss.
f i n d you are not alarmed about t h e
gold situation, a r e you?
The C h a i r m a n .
N o t a
1pit, Governor
c>
Biggs.
Governor Fancher. A s s u m i n g that Great Britain a n d
some o f t h e o t h e r c o u n t r i e s r e s u m e g o l d payments, m i g h t
we n o t h a v e t o f i n d s o m e o t h e r f o r m s o f i n v e s t i n g m o n e y ?
The Vhairman. I
would n o t b e s u r p r i s e d i f w e did.
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Federal Reserve Bank of St. Louis
74
Governor Bailey.
I f w e adopt a
policy o f b u y i n g
folereign securities, w o u l d n ' t t h e t b r i n g a b o u t a
howl
that w e were sending money o u t o f the country that could
be-wsed h e r e ?
The Chairman.
Governor S e a y .
T
t -do mot: t h i n k s o . .GOVeruoi.
I t depends
u p o n t h e purpose
f o r which
we bought them.
Governor Calkins.
V e a r e buying other things that
are much more questionable a t present,
a t quite a
rapid
rate.
Governor Fancher. ‘tjould there n o t b e a howl f r o m t h e
member banks that y o u are supplying this money i n thet w a y
and not meeting t h e credit demands o f the livestock a n d
agricultural i n d u s t r i e s o
t which t h e y were entitled?
Governor Bailey. I
was d o w n i n Governor McKinney's
district t h e other d a y and thet i s one o f the things t h e y
put u p d o w n there.
Governor Harding.
W h e n «re buy foreign securities
those p e o n l e o v e r t h e r e t o b u y o u r w h e e t a n d o u r
Chairman.
I f y o u told those banks t h : tlast
year “ s e c u r i t i e s w e bought furnished credit which
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Federal Reserve Bank of St. Louis
75
Burope.
t o b u y s e v e n o r eight n u n d r e d million
worth o f f a r m p r o d u c t s they w o u l d u n d e r s t a n d
end that i s j u s t what i t did.
it
A s a matter o f
fact there isn't anything that t h e farmer could d o s o
mich t o }is o w n disadvantage t h a n to: start a howl ebout
the policy o f the Reserve System toward helping tow: .rd
reconstructionof m o n e t a r y a f f a i r s a b r o a d , b e c a u s e
doing t h a t i t would give s
by
table exchange conditions a n d
give t h e r e s t o f t h e w o r l d c r e d i t w i t h w h i c h t o p a y f o r
our exports.
T h a t i s the whole problem i n a nut shell.
This subject f o r charges f o r services i s hopelessly
interwoven w i t h t h e p o l i c y o f t h e O p e n Market Committee.
The w h o l e thing l i n k s t o g e t h e r .
made a
G o v e r n o r Bailey,
you
statement that was most enlightening t o m e a n d
wes i f w e hed t h e earnings y o u think these services
would b e d c s i r a b l e a n d t h a t w e s h o u l d c o n d u c t t h e m without m a k i n g a
charge. . h i n k t h e situation presents
possibilities o f being a t lea: 1 o p e f u l o f doing that f o r
some t i m e ; I
think i t i s c a p a b l e
maticatliy 1 f w e e r e .
meets
a n d until after
reccr-mendations.
i n g w
w e have a
o f demonstration mathe-
i t until t h e committee
discussion
a n d make
Y o u could t h e n take this u p a n d d o what
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Federal Reserve Bank of St. Louis
you l i k e w i t h i t .
Governor McbLougale
T h e purpose
program w a s t o g e t discussion,
o f putting i t o n t h e
anil
requiz s
e e n y further action;
Governor Young.
T : w a n t t o (go o m record that w e are
o the gratuitous services,
in favor o f c u r t a i l m e n t f
regardless o f what t h e e:rnings are.
Governor Bigss.
l i v . Chairmaan,
y o u remarked a
few
moments a g o th:t i t would perhaps b e well sone time t o
cent p e r item o n the larger checks.
Do y o u rezlize where that exnense would fall?
not f a l l
o n Danks
a t all but
i t will fall
comierce a n d y o u are going t o elienste a
I t does
o n treade a n d
whole l o t o f
t o b e o u r friends now, o u r best
people w h o a r e beginning
Rs
fraends..
airmen.
Q u r experiences, w h e n t h e charge o f
cent w a s first imposed, w a s thet that charge w a s n o t
a
sed back to the customers of the benks; it came out of
member banks’ sarnings.
Y o u will remember w e used
them one cent a n
items passing
not think’ that a n y member
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Federal Reserve Bank of St. Louis
that back t o its customers. T h e y had their
out o f town collections a n d this w a s called
house collection charge a n d i t wes simply a
been m a d e t o u g f o r o u r s e r v i c e s
payment
i n collect-
the check.
Governor Fancher.
I
f w e were t o put o n a
item o n transit i t e m s , t h e c l e a r i n g h o u s e s
charge
i n our
basing o u r charges o n our deferred time schedule a n d
they w o u l d p e r h a p s r e c e s t t h e i r s c h e d u l e
o f
a
include this cherge o n the items, i f i t was made perm-
anent.
o
The Chairman. W h e a t I a
o
of t h e Hardwick amendment,
f i s the efiect
t h e P a s c a g o u l a case,
a si
where t h e y susteinedthe c l a i m that w e owned t h e check a s
azent
a n d not
a s buyer
t h e s a m e t h i n g would h e n
e n with
this penny charge t h a t happened i n the Pascagoula case,
which w e n t a g e i n s t u s ,
i n that throughout t h e entire
country t h e r e w o u l d g o o u t a
cherges,
s ystem o f collection
but c o l l e c t i o n c h a r g e s ,
n o t exchange charges ,
*
which c o r p r e h e n d b o t h t h e t e i
end w e w o u l d h e v e a
Governor Calkins.
t
s
universal
a hundred a n d tie one
collection charge.
i n y cherges t h a t w e make f o r
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Federal Reserve Bank of St. Louis
78
servicos will eventually b e put upon t h e consumer. ,aThe
consume: usually pays t h e cost, a n d will i n this cas6,
just a s surely a s h e e v
Governor Biss
a
i
w
e began t o give free
r and t .
of St. L o u i s g o t t o g e t : e
they c a l l e d a
collection c h a r g e o r exchange
then they besed their cherges o n our deferred schedule, a n d called i t c n interest energe.
Now,
in talking t o their.customers, t h e y d o not refer t o
exci: nee c h rges, b u t call i t e n interest charge.
cherged t h t
i f we
back t o the c l e ring house t h e y would c o m e
s¢y that they h e d been charging five p e r cent,
per cent above t h e rate, a n d then they will j u m p t o
six “per c e n t t o c o v e r t h i s - Governor Celkins. I
think Governor
one that should b e carefully considered, a n d t h e
reestrblishment o f something th:t will b e labeled
collection charge t o justify a
reestablishment o f
kind o f a cherge b y the member banks, e n d v e will
back w h e r e w e w e r e before.
Governor Biggs.
T h e banks w i l l charge b a c k every-
cen t o the Federal seserve System.
T h e y will
per
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Federal Reserve Bank of St. Louis
tell t h e i r c u s t
thiate-pie P e d e r ad
ice S O R 1S.
Governor Vellborn.
f i n d i t knocks o u t
per collections, also.
I believe w e a v e resdy t o proceed
the n e x t t o p ..c which i s :
H. .keport o n foreign fccounts.
Before d i s c u s s i n g t h a t ,
matter that h a s g o t t o b e
Comaiptee a n d I
would 11!
h e v e th. t
t o r e p o r t b e c k t o t h e Confcrence.
Without
objection th:t course will b e pursued.
The n e x t i s :
tT; R e p n o r t o f s u b - c o m m i t t e e o f G e n e r a l
Committee o n B a n k s r s A c c e p t a n c e s .
is report does h o t revvire a n y action.
as f o l l o w s : )
Apres 1; 192m.
KisPOK
T
t o the
v y them a n d t h e
Onen M a r k e t C o m m i t t e e , c o n s i d e r :
Committee
referred
: OF
H E SUBSCOMMITT3
2.CCEPTLNCLS
§ O N BANIunS
CONFERENCE, A P R I L 6 ,
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Federal Reserve Bank of St. Louis
80
The purpose o f the Sub-Cormnittee s s reported t o the
last conference,
Council
t o work with t h e American Acceptance
i n a n endeavor
t o have a
c r y s t a l l i z e d expression
> banking thought i n the country
on the subject ‘of bankers domestic acceptances h a s been
carried out, b u t without definite conclusions having
been arrived - t a s a
result o f Hr. Kent's conmunica-
tions with m a n y accepting banxs a n d bankers, t h e results
of which were,
i n the opinion o f your Committee a n d o f
the officers o f the American Acceptance Council, t o o
meagre
t o f o r m t h e basis o f recomiendstions
f o r new
legislation o r regulation.
In consequence thereof, t h e American Acceptance
Council anpointed a
committee o f its membors
gate, consider a n d make definite recormmend:tions.
Chetirman O f t h e t -eormittce 4 1 s mre.)
w
of t h e D i s c o u n t Corpnoretion o f New ¥
a
n
T
h
This
e President
e other
members are:
Uy a e e e e e e
V i G e PP P e s t
mchange Notional Bank.
roward. Sec]
o
f Goldmen, S a c h s &
°
Company.
Cherries A. lolder, V i c e President, Guaranty
Trust C o p e n y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Velluer S . Hvhucass- P r e d
Trust Co., Kansas
cent, C o m m n e r e e
ie.
Deckers, leMadCUS MMGRG
no
aTis N o r t h w e s t e r n
National B ank,
Minneapolis.
Be eis e n VEG:
Presi eleven!
ayia T e , Cox.
Chicago
Varburg a n d t h e
smbers
of y o u r sSub-
Cormittesc
the A m e r i c a n A c c e p t a n c e C o u n c i l .
New Y o r k m e m b e r s
committee,
o f the
in conjunc-
the C h a d rman o f y o u r S u b discus=
tre i m p o r t a n t t r a d
sions
N
n
. the-counery
f
f
r
e
c
trade customs, including
from w h i c h
he
os
t
e
d
and w i t h r e s p e c t
t o
sales terms i n t o s e trades,
will prepare matter f o r d i s c u s s i o n a n d
action b y t h e c o m m i t t e e
end your Chairmen
whole,
s d nbeac
a to esl sr w
e i dl ln bu e
accomplished
b y es
rly
summer.
r t hee s ed
d
an n Uc e
Circumst:
s
,
your
Sub-Committee
h a
te
h e t v t h ee y) i should
l
e d eb
fer
3
mendations, pending t h e findings
the c o r m i t t e e
1 pecomnende1
o
.
t
o f t h e A i n e r i c en f e c e n t a n c e C o u n c i l .
ries p e c t f u laeadnad
ly |
submitted,
Hee KengZed,
Chairman.
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Federal Reserve Bank of St. Louis
82
The Chairmen.
W h a t i s your pleasure, gentlemen.
Governor Young, I
move t h a t t h e report b e received,
accepted a n d approved.
(The m o t i o n b e i n g d u l y seconded,
w a s carried, )
(Whereupon o n motion d u l y seconded t h e Conference
recessed
f r o m 12.45 o'clock p.m.
t o 2.50 o'clock p.m.
of the same day.)
-FTER RuUCESS.
The Conference reassembled, pursuant t o recess,
at
2200 O ' c l o c k p.m.
The Chairman.
T h e meeting will kindly come t o
order. I
want t o report a b o u t t h e d i s c u s s i o n o f t h e
committee.
Y o u remember that this morning Governor
3Jeay m a d e s o m e r e m e r k s r e l a t i v e
t o legislation concern-
ng the system a n d more particularly a s t o how the
McFadden bills shovld b e dealt with.
H i s stetements
were discussed a t the meeting o f the O p e n Market. Committee a n d after informel discussion b y the Committee,
the Committee decided t o recommend t h e t this conference
impress u p o n t h e B o e r d t h e i m p o r t e n c e
o f the Board taking
some affirmative position i n the matter
o f banking
legislation a n d further carrying o u t Governor Crissinger's
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Federal Reserve Bank of St. Louis
85
suggestion, recomiended that a
appointed
su:table committees b e
b y the Board t o advise w i t h t h e Board i n
the so-called MeFadden bills o r other banking
committee s u g g e s t e d :
Seay, Wills, Talley, e n d Strong.
3 . H a r d i n g , Young,
G o v e r n o r Strong e x -
pressed t h e desire t o b e relicved o f s erving o n this
committee.
The c o m i l t t e e a l s o v e c o r . e n d s t h a
Sprague o f Hervard a n d br. Stewart o f the Federal
Reserve Board b e associated with t n e work o f the Committee widen s o m e s u i t a b l e a r r a n g e m e n t
a s t o Dr.
Spraguets t i m e a n d compensation.
The C o m m i t t e e a l s o r e c o m e n d e d t h a t t h e B o a r d
take s o m e s t e p s
t o secure t h e participation
o f the Com-
ptroller o f the Currency i n this matter.
On m o t i o n d u l y s e c o n d e d t h e r e c o m i e n d a t i o n s s u b -
mitted b y the Chairman were cpproved b y the Conference.
The Chairman.
T h e O n e n Market Committee w o u l d
like t o make this report t o the Conference e s a whole:
pirat a s t o t h e i n v e s t m e n t a c c o u n t
tLES.
o f Government Securi-
T h e Committee h a s recommended,
a n d n o w recommends
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Federal Reserve Bank of St. Louis
84
thet i t p r o c e e d
to m r k e t
t o m a k e f u r t h e r purchases,
a n d other conditions,
with due
o f e n amount
sui ri¢leni. te bring t h e total account approximately i n
the neighborhood o f +,300,000,000, under t h e authority
which already exists.
T h e Committee a l s o recommends
thet t h e C h a i r m a n s h e l l m a k e s
ugzestions
t o members
of
the comaittee individually o f reapportionment o f the existing account,
so a
A
Y W e .
b a n k s which
are obviously short o n eernings, a n d that t h e reapportionment,
i n connection w i t h further purchases
b e made
under t h e authority just reported, a n d b e employed t o
effect a
more e.nritable d i v i s i o n o f t i e e x i s t i n g i n v e s t -
ment account with regard t o ecrning position o f those
banks e s p e c i a l l y w h i c h a r e s h o r t o f e a
Governor Celkins. I
would like
a s k whether con-
sideration o f t h e p o s i t i o n o f s o m e o f t h e banks, M i n n e a polis,
f o r instance, m i g h t n o t l e a d t o a
redistribution
or recalculation w i t h recard t o Government securi
ilis;
i n other words, might n o t Minneenolis, o w i n g
Si G l e n n , a
proportion
eane
o f Government securities?
The C h a i r m a n .
Y e s . T
think
i t wes understood
that
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Federal Reserve Bank of St. Louis
85
the w h o l e s u b j e c t w o u l d b e c o n s i d e r e d a n d a
ment made according t o the specific s
reapportion-
uggestion submit-
tede
Governor Wellborn.
A r e y o u limiting t h e amount
or operation o f the Open Market Committee, t h a t i s i n
regard t o bills p u r c h a s e s ?
The Chairman.
G o v e r n o r Bailey this morning r e -
ported t h e t t h e y w e r e c o n t e m p l a t i n g b u y i n g s o m e l o n g -
time bonds.
w e h a d s uggested a
reapnortionment o f the
existing account o n some basis which will make i t unnecessary f o r them t o make those purchases a n d furthermore w e w o u l d i n c r e a s e t h e a m o u n t o f t h e a c c o u n t t':en
by buying a t times that seemed favorable t o d o so, s a y
55 millions additional o r thereabouts, w h i c h will rethis e a r n i n g p r o p o s i t i o n r e p o r t e d
Governor Wwellborn. I
b y some o f the
would like something specific
to b e s tated.about t h e banks investing u p t o their
capital
i n Government b o n d s .
PRCULy
e o e Ss o l e
“ W e Peel t h a t w e would b e
I n C o l n e o o , s n cx s l l .
W O N l d nein a s e cons
siderably i f w e h a d u p t o o u r c a n i t e l i n v e s t e d
Government
bonds
o r Treasury
i n either
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Federal Reserve Bank of St. Louis
86
The Chairman.
have,
V h e n this i s completed w e will
i n round figures, t h e amount o f the capital o f
the R e s e r v e B a n k s invested.
I
t m a y n o t b e apportioned
exactly o n that basis, but w e will have i n the neighborhood o f .,300,000,000, within a few millions o f the
capital o f the Reserve Banks.
Governor Seay.
W h e n y o u steted thet t h e committee
recommended that these purchases b e increased t o
(200,000,000 under t h e authority already existing,
to
what authority d i d y o u refer?
The Chairman.
T h e committee h a s b e e n authorized - -
or rather w e have a n agreement - - that that shall b e done
to replace maturities, u p t o a n amount not exceeding
000,000,000.
T h a t i s tne existing status
o f t h e accounts
It i s t e m p o r a r i l y b e l o w t h a t m a x i m u m .
Governor Seay. T
authority.
had reference t o the source o f the
D o e s t h e committee n e e d a n y authority o f
any s o r t o u t s i d e i t s e l f ?
I
t needed perhaps
or u n d e r s t a n d i n g w i t h t h e c o m m i t t e e
The Chairman.
Governor Seay.
a n agreement
o f t h e Board.
N o , y o u a r e mistecken about that,
‘ j e d o not b u y securities f o r y o u without
your authority. l i v e r y t i m e t h e committee makes a
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Federal Reserve Bank of St. Louis
87
decision i t is only i n the form o f a recommendation
to the different reserve banks, a n d w e get your
aULHOrLty
t O d o 10.
Governor Seay. T h a t i s the point, y o u mean t h e
authority i s from t h e banks concerned.
The Chairman.
banks
W
e have authority f r o m t h e reserve
t o b u y u p t o ~500,000,000,
a n d w e have t h e approval
of the Board.
That i n s u b s t a n c e
to do.
I n a
i s wrat t h e committee
word i t s i m p l y m e a n s a
i s proposing
redistribution
o f the
existing holdings o f securities m o r e equitably with
regard t o the varying earning conditions o f the banks;
a purchase
o f approximately .55,000,000 additional a n d
reapportionment
o f that, a n d t h a t c o n s i d e r a t i o n
b e given
to the proportion o f bills t o b e taken b y t h e Fede
Reserve B a n k o f Minneapolis a n d a n y other i n like situation, w r i c h m i g h t n e e d a
a smaller p r o p o r t i o n
lerger p r o p o r t i o n o f bills a n d
o f Government securities
i n order
to m e e t t h e i r needs.
Now u n d e r t h e a u t h o r i t y g r a n t e d t h a t t h e C h a i r m a n
can offer motions a t this meeting,
this committee, I
as I
a m Chairman o f
move that the report o f the committee
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Federal Reserve Bank of St. Louis
AG
cnd t h e recormeunds:tions n o w o f f e r e d b o RECopped. < n d
approved,
GoVernor P e n c h «
E W A
S
GcGrile ments
(The m o t i o n heaving b e e n d u l y s u c o n d u d , w u s c a r r i c d , )
(The report o f the committcc, previously
buted informally emong t h e Governos,
end o f this record,
The Chairman.
committe:
i s copicd a t
a s approved b y the Committec.)
T h e other matter dealt w i t h b y t h e
w e s t h e f o r e i g n eccounts.
I t was steted t o
committes t h a t G o v e r n o r H u r d i n g a n d f
cuthorized
t o w o r k out-: r e d i s t r i b u t i o n
would l i k e t o
o f this e c -
count, w i t h rogerd t o Boston participating, e n d w e would
eee
S O rye
a t S u l e to: u s (te-Gu. t h a s
matter o f mechanicel aprengement. I
on t h e committee,
héeve served notice
e n d t h e y h e v e e p p r o v e d t h e sugegcstion,
thet i n d u e c o u r s e w e w i l l p r o p o s e «
contain o t h e r f o r v i g n u c c o u n t s
plun t o a p p o r t i o n
o f t h e Federel R e s e r v e
Benk o f N e w York.
Governor Young. I
move that Governors Herding a n d
Ven t h e authority i n question.
Seiy~e. 2
sccond t h e t
The m o t i o n heaving b e e n d u l y seconded,
The Cheirman. I
would l i k e n o w t o PeEVOrE L o
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Federal Reserve Bank of St. Louis
89
Governor C r i s s i n e
mittee m a t t e r
w h a t w e h a v e d o n e about t h i s com-
and ask h i m
i f h e would care
is very much i n t e r : sted
A
t o come
i n
the B o a r d w o u l d c a r e
t o
t the same time, i f
you will authorize m e t o d o so, I will discuss t h i s
with him.
Governor Harding. I
five m i n u t e s
move that w e take a
t o enable t h e Cheirman t o carry o u t h i s
sugzestion.
Governor Fancher. I
will s e c o n d thet.
(The m o t i o n h a v i n g b e e n d u l y seconded,
w a s carried
the Conference w a s i n recess f o r five minutes,
a t the
expiration o f weich t h e meeting continued a s follows:)
ThesChatrman.
G o v e r n o r Crissinger s a y s thet h e
will c o m e i n w i t h s o m e m e m b e r s
Stewart,
o f t h e Board,
a n d Dr.
a t four o'clock.
we s k i p d o w n t h e p r o g r a m
of collections a n d clearings until Mr. Stra:
from Cleveland, w h i c h will b e tomorrow morning.
gest w e proceed w i t h topic I V o n the program.
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Federal Reserve Bank of St. Louis
90
skipping No. 3
because Mr. L e w e y would like t o b e pres -
ent a t thet discussion.
topic
A... F o r m u l a t i o n o f Program. fer
Governors C o n f e r e n c e .
We d o n o t g e t t h e p r o g r a m
u p a s promptly
a s w e would
There w e r e n o t v e r y m a n y t o p i c s c o m i n g i n f r o m
the o t h e r R e s e r v e B a n k s ,
dence o f t h e f a c t t h a t a
which w
¢ 1
interpreted
many
a s evi-
1 6 € s e s y s t e m opera-~
tion matters have been pretty well worked out end are
working smoothly and then there were not a s many
crack a s there has been. " o w e v e r one o f the
sugtested the.t t h e r e a s o n f o r t h e r e l u c t a n c e
pert o f s o m e o f t h e n e s e r v e B e n k s
t o submit tonics w a s
a
thet t h e request contained likewise a
recommendation :
tHe G O p L e s
pared
S o m e
w
o f the Governors
t o make recommendations
tions.
o f a n y commitments
request f o r snecific
e & should b e d o n e w i t h
were not
T h e y wanted t o come
i n the Y
But
t i e p r o g r a m takes c a r e o f cases
because a
+.
a n d withheld sugsestions
from t h e program o n that account.
here free
i
o n the
recommenda~
o f that sort,
good meny topics a r e s ugzsested merely f o r dis-
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Federal Reserve Bank of St. Louis
912
E
cussion, w i t h o u t r e c o m i e n d a t i o n .
D Sia G e a amici
easier t o d e a l w i t h a - s a b j e c t e f t e r d i s c u s s i o n
is a
r e c o m i e n d a t i o n attached,
and I
i f there
would l i k e t o h a v e
from members o f the Conference a s t o
facilitating a n d improving t h e method o f formule ting
the p r o g r a m f o r t h e s e conferences.
Governor Calkins.
delivered a
l a v e a statement t h a t I have
good many times.
I T think obviously i t i s
necessary t h e t s o m e t h i n g b e d o n e t o p e r f e c t t h e m e t h o d
of preparing the program and facilitating t h e discussion o f the program.
I n other words I
think o u r pro~
=
ghould b e p r e p e r e d w i t h m o r e c a r e t h e n
~~ not meaning enybocuy except myself - - e n d
program s h o u l d b e p r e p e r e d a n d d i s t r i b u t e d
in t i m e t o p e r m i t t h e G o v e r n o r s
for discussion. I
t o prepare
do not know that anything c a n b e
done t o bring that about, b u t i t seems t o b e i t would
be e s s e n t i a l
t o a n orderly s n d beneficial procedure.
Governor S e a y .
to make. I
h a v e n o particular suggestion
think probsebly o n e o f the reasons w h y the
subjects were not suggested was the fact that we have
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Federal Reserve Bank of St. Louis
oF
run t h e gamut,
to me, a n d I
a n d h a v e d i s c u s s e d t h e m ; b u t it. d i d o c c u r
perhaps m a y b e t h e o n e t o w h o m y o u a r e r e -
ferring, Governor Celkins, but all of us perhaps might
be a
little b a c k w a r d
i n s u gOo
s e s t i n g
subjects because w e
wanted t o c o n s i d e r m o r e c a r e f u l l y s u b j e c t s w h i c h w e r e
discussed, before forming a n opinion ourselves,
accompanied b y a resolution.
t o be
W e form our resolutions
as t h e d i s c u s s i o n t a k e s p l a c e v e r y often,
a n d if you
formulate t h e m i n advance y o u d o s o wren y o u have n o t
heard the discussion, and do not know the different
points o f view.
I t never would have oceurred t o me t o
have advanced that i f I had not received a letter from
the Chairman stating that none o f the Governors h a d
tendered any subject, a n d Ism merely shooting a t
random w h e n I
s a y t h a t that m i g h t h a v e s o m e t h i n g
t o do
WLth 1 ts.
greet m a n y o f the subjects,come i n
where there should b e n o difficulty i n submitting a
recommendation.
P o r i n s t m ce,
recommendation i s tr:t some act?
the recommendations
are m a n y o t h e r s w h e r e a
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Federal Reserve Bank of St. Louis
935
advance, b u b thet 1s.no reason f o r not stugsesting them.
Governor Calkins.
7
6 2dopeed. 2
effect t h a t a l l c o m m i t t e e r e p o r t s
Governors
conierenes
a t least three months
resol urion t o t i c
b e submitted
t o the
i n advance o f t h e n e x t
i n order t h a t
upon a n y c o m m i t t e e r e p o r t s a f t e r having h a d o p p o r t u n i t y
to s t u d y them.
I
t seems t o m e t h a t s o m e t h i n g o f that
sort w o u l d b e a d v i s a b l e
o f accomplishment,
not b e e n done.
The Chairman.
Y o u could-not
supe
t u s report
the O p e n M a r k e t C o m n a i t t e e t h r e e m o n t h s b e f o r e
of
the
of c o u r s e
BOG 2fOuU-COuUld N O Y S u p m i t s a
with regard t o foreign accounts because i t
brought fight d o w n t o date.
Governor C a l k i n s .
B u t y o u could submit a
report
routine matters.
Governor Bailey. I
find i n the discussions t h a t
our morning meetings e a t t h e banks that s o m e interesting
matter
m a y¥ f
come
u p t h a t p e r hia p s
f should
b e submitted
t o
on
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Federal Reserve Bank of St. Louis
94
the conference, b u t I forget t h e m a n d i t would b e a good
plan t o m a k e a
list o f t h o s e t h
a
A
eRS!aD
s et the time
i n order
that w e might submit t h e m t o the conference.
The Chairman. I
think i f e v e r y G o v e r n o r
o f every
neserve B a n k w o u l d f o r m t h e habit, w h e n matters o f importance c o m e u p often i n meetings,
o f making a
list o f
them i n order that t h e y might b e submitted t o these conhet a
great deal would b e accomplished.
W e
1
good d e a l o f t h a t i n t h e N e w Y o r k B a n k a n d t h a t i s
he
way & lot o f the topics a r e sugzested f o r the program.
In a d d i t i o n t o t h a t w e s e n d a
memorandum t o every officer
of the bank asking for s ugzestions for the conference.
Would i t meet your ideas t o have a
committee o f
Governors c h a r g e d w i t h t h e j o b o f p r e p a r i n g t h e program?
Governor B a i l e y . I
think t h e program i s prepared
better i n this way, i f the subjects a r e turned in.
The Chairman,
Secretary,
T h i s suggestion comes from the
w h o felt that h e was
Governor Bailey.
W e have a
r a
P
e POOPS p r o g rim
good many questions there
that come u p a t the bank, b u t s o much time intervenes
between t h e conferences, t h a t w e d o not remember them.
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Federal Reserve Bank of St. Louis
95
The Chairmen.
unless
c
t
w e w i s h t o appoint =
i
s Pequired
o n this t o p i c
b e m ctee.
Ine n e x t i s I¥<{B.
B. C o s t e f s e c u r i n g r e p o r t s
of national banks.
o f examination
That matter w a s r e f e r r e d t o a committee a n d t h e
committee w a s expecting t o meet w i t h t h e Governor o f
the Federal Reserve Board, t h e Secretary o f the Treasury
and I think t h e Comptroller a n d dis cuss t h e situation.
It developed,
s h o r t l y a f t e r t h e c o m m i t t e e w a s appointed,
that i t was t h e purpose o f the Comptrollér t o reduce t h e
cost o f t h e s e reports.
& member
G o v e r n o r Crissinger a s k e d m e - -
o f t h e eommittee, I
d o n o t think<I w a s
~ i f w e w o u l d p u t t h a t meetings
situation h a d d e v e l o p e d f u r t h e r ,
held u p . I
r
f t until t h e
y m a t t e r has been
have h a d o n e o r t w o d i s c u s s i o n s w i t h t h e
Comptroller about i t and h e says h e i s going t o bring
the c o s t d o w n a n d h a s a l r e a d y r e d u c e d
i t t o W l «DOs
Lam going t o a s k ir. Harrison t o read a
which I
wrote
t o the Comptroller
dissent f r o m t h e p o s i t i o n w h i c h I
(The letter i s a s follows:)
letter
t o s e e i f there i s a n y
took i n t h e letter.
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Federal Reserve Bank of St. Louis
Mr. Commtroller:
I have been thinking over o u r conversation i n reoO. The. Oharge for. reports: o f
tional
This m a t t e r w i l l d o u b t l e s s c o m e u p f o r f u r t h e r
consideration a t the conference o f Governors, w h i c h i s
pies
O a
f o r e t h e n i t will b e
if possible, f o r y o u a n d m e t o have some
understanding a s t o just h o w i t should b e dealt with,
so I am writing you quite personally and without consulFation. with. t h e
h e r members
o f t h e Committee,
a n d would
much appreciate y ¥ . d v i s i n g m e h o w t h e following suggestions appeal
The o b j e c t i o n s w h i c h h a v e b e e n r e g u l a r l y u r g e d
against t h e payment heve b e e n principally, I
believe,
the following:
esel s u p p o r t f o r a n y
payment
above actual cost.
2. T h a t , a8 a matter of policy, t h e interchange
of information o f this character should b e free o f a n y
expense b e y o n d t h e a c t u a l c o s t s i n c u r r e d .
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Federal Reserve Bank of St. Louis
o7
oe h e t t h e & c t r e a l l y c o n t e m p l a t e d , a l t h o u g h n o t
in express terms, t h a t t h e i: n a t i o n s h o u l d b e a t the
disposal
o f t h e R e s e r v e Banks.
rat t h e p r o c e e d s
are
i n fact cpnlied
t o making
y i n t h e Devartment w h i c h s h o u l d b e assess-
ed against t h e national banks; t h a t there i s n o limit
to the amount o f this deficiency; t h a t t h e expansion o f
the a c t i v i t i e s
o f t h e Comptroller's examination O n c e .
etc., m a y l e a d t o c o n s t a n t l y l a r g e r e x p e n d i t u r e s ,
and
therefore unless s o m e principle i s determined upon which
will permanently control t h e cost, there i s n o limit t o
the possible-assessments w e i c h m a y hereafter b e made b y
subsequent C o m p t r o l l e r s .
These, I
think, cover t h e main points which h a v e been
discussed.
is t h e t t h e b u r d e n o f e x p e n s e t h r o w n
especially t h e e x a m i n e t i o n force,
during t h e recent y e a r s o f a c t i v e b a n k i n g problems,
will l i k e l y b e materially r e d u c e d
i n the near fubute A S
banks w h i c h a r e
being administered
restored
b
y s p e r t m e n t a r e liquidated o r
t o solvency, a n d : t h e t t h e n o r m a l d e v e l o p m e n t
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Federal Reserve Bank of St. Louis
will b e s o m e r e d u c t i o n o f expense,
tion s h o u l d b e a p p l i e d a s p r o b p t l y a s p o s s i b l e
ive t h e c o s t a o f t h o s e r e p o r t s
to a
t o reduc-
nominal figure, w h i c h
Depixrtment f o r its outlay i n
their preparation.
the
If, therefore, t h e subject c a n b e approached a t
next meeting b y submitting a
report t h
the
which i s t o ultimately apply will b e 4 reduction o f
cost t o a
fair a l l o w a n c e
o f t h e a c t u a l c o s t o f prepara-
end,
tion, a n d that t h e Comptroller i s working t o that
then indeed I feel quite
p e tha I65tle,
will arise i n agreein &
One o f t h e d i f f i c u l t i e s
which
2 h eny,
programe
w e encountered a
year
ago was principally d y e t o the assertion that proper
service
a
b y the examining force w a s dependent u p o n
fact,
lerger income b y the Office, a n d that in. point o f
a
necessity which led t o the imposing o f
get away
I think we should, if poss ible,
it u p s o m e -
IThave above
Jay has read this letter a n d i t strikes h i m a s
covering t h e point, a n d I hope i t will strike y o u i n the
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Federal Reserve Bank of St. Louis
same w a y .
Len j0yed. our avz
you t r y t o s a v e enougt
i n “wash:ngeton v e r y much. W o n ' t
"WT
i m e when y o u come t o N e w York
in always expect t o see “you Here...
I f will
be v e r y h e l p f u l i n d e e d .
BENJI. STRONG
Governor.
Honorable J o s e p h W . M c I n t o s h ,
Comptroiler o f t h e Currency,
Washington, b . C ,
1e Chairman.
the c o s t t o 7 . 5 0 ,
T h e Comptroller h a s since beduced
a n d a s his letter
would like t o have a
before replying.
The C o m m i t t e e I
t o me s
tated h e
further t a l k with m e abdutymy letter
T h a t i s the
think c o n s i s t e
Governor Harding.
Governor Young.
Governor Strong?
The Chairman.
Governor Young.
However I
want t o e x p l a i n t h e p o s i t i o n o f t h e M i n n e a p o l i s
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Federal Reserve Bank of St. Louis
100
t o t h a t charge.
Bank i n reference
e d o not Peel.that
W
or S L O f£6% thess r e p o r t s
oF
review t h e situation
we have used t h e
great m a n y o t h e r purposes, w h i c h s e r v i c e
ey have performed well a n d just t h e w a y v e have aske
hem t o perform, that i s i n the handling o f non-cash
items, transit items a n d such stuff a
L
E
: She
examiner does n o t d o i t i t necessitates o u r sending a
man out, which i s expensive, a n d i n s o far a s Minneapolis
is concerned w e are quite willing t o pay the 47.50 for
the services thrt t h e y render us.
The Chairman.
B u t you would not object t o paying
less.
conference d e s i r e a n y a c t i o n
-e
on t h i s m a t t e r ?
r
o
Young.
I
n
r
realize
t hea t
thet
v
i s noo t t h G
e case
in some o f the other districts, b u t that i s the condition
with us.
Governor McDougel.
ies
D A O ni eO0. PODOrT.We.
l
t m a y b e interesting
Ser
t o imnow
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Federal Reserve Bank of St. Louis
101
Departmentswe a r e p a y i n g a
the m a x i m u m w o u l d b e a b o u t . 1 7 . 5 0 .
But y o u have n o such relationship
with t h e State Lepartmentsthet y o u have with t h e Comptroller's office, h e being > a
member o f the System, t h a t
is a member o f the Federal Reserve Board, w i t h a pretty
clear i n d i c a t i o n
a
i n the Act which information i s a t t h e
of t h e F e d e r a l R e s e r v e Banks.
information
Y o u a r e buying credit
i n t h e o t h e r case, b u t w e h a v e a l w a y s f e l t
that w e w e r e e n t i t l e d
t o this f r o m t h e Comptroller.
Governor McKinney.
‘ T h e Comptroller h a s telied t o
me a b o u t t h i s r e d u c t i o n o f 2 5 p e r c e n t a n d s t a t e d t h e t h e
honed t o . m a k e a
further r e d u c t i o n
a t a n e a r l y date; t h a t
he i s anxious t o give u s t h e benefit o f any reduction h e
can m a k e i n c a r r y i n g o u t h i s g e n e r a l p l a n .
Governor Calkiy
L
e son uve
S
e bd Simca OD. TOIL
it d o e s not-mecet “the r n i s s e t f o r t h i n t h e C h a i r m a n ' s
LOCCer B O Dim..
1 b p e r t e c t l y clear i n principle t h a t
there i s n o reason f o r the Federal Keserve B a n k t o pay
more t h a n t h e cost o f furnishing t h e service.
Governor McKinney.
I t would b e pretty hard f o r u s
to k e e p hottse w i t h o u t t h e m .
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Federal Reserve Bank of St. Louis
102
c e
I n the light o f the correspon-
M o D ougeY »
dence with t h e Comptroller
I move that t h e subject b e
bassed f o r t h e
Governor Norris. d b e c o u d e d .
The Chairman. J
fg t T underst
n a t h e motion,
it i
thst t h e c o m m i t t e e rema: i n f o r m a l l y a p p o i n t e d a n d t h a t
no a c t i o n b e t a k e n u n t i l t h e c o m m i t t e e t e k e s a c t i o n a n d
reports.
second t h e t .
Governor Norris. I
(The motion having b e e n duly s econded, w e s carried. )
The Chairman.
T h e next i s
GC. l i m i n e t i o n o r c o n s o l i d e t i o n o f c u r r e n t
reports b y F e d e r a l x e s e r v e B a n k s t o
of
the Federal Reserve Board.
making e n analysis
enornous
good d e a l
o f a l l . o f t h e s e reports.
i n number a n d voluminous
o f work a n d expense
a n d produce a
a t t h e Federal heserve
Stewert a n d G o v e r n o r C r i
very anxious t o reduce
work
Herding.
LEMAN.
Y o u mern t h e deily trenscript o f
Y e s .
T h e y are a t work o n i t now and
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Federal Reserve Bank of St. Louis
103
topic
xpression
o n the program simply t o draw o u t a n
>
o f opinion o f t h e Conference a n d t o s e e i f
we could draft e n y resolution thet would b e o f aid t o
the Board i n dealing with the matter.
Governor
H a i
— - s h o u l d think the Board must
feel thet with t h e examining boards i n operation t h e
totels
w o u l d
be s
urficient
V
v2
reports
t h e t w e have t o make 2
e made-a
:
1 s t
onsists
and s o m e o f t h e r e p o r t s p r : s e n t a
iof the
o f three
good m a n y
rammifications.
Governor F a n c h e r . I
duplications
and it
seving o f time worked out.
The Chairman.
reports
4 @ make between 4 0 and 5 0 separate
o f different
kinds
Governor McKinney
The Chairman.
L
t o
y W h e tperiod? o f time, ir.
i n a yearts time. . Some deily, s o m e
weekly, s o m e monthly, q u a r t e r l y a n d s o on.
Governor Sea;
from
D
i
d t h e suggestion o f climination
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Federal Reserve Bank of St. Louis
The Cheirman.
L U C a n O g e . f r o m u l e m a e comb r t
& GOnVers= e t i o n w i t h G o v e r n o r
C r S S N S Cle ene i
ees
their statement th:.t t h e Board w a s not gett n g
certain reports i n regard t o open market matters, a n d i t
wes developed that that report went t o the B o a r d i n five
different forms, b u t that t h e information w a s not properly
a ssembled i n W a s h i n g t o n
Boerd. I
s o that i t really reached t h e
pointed o u t t o t h e m th:.t o n e m e m b e r o f t h e B o a r d
wanted a certain kind o f report a n d another a
nd t h a t d u p l i c a t i o n s h e d arisen,
astonished
n
different
T h e y were v e r y much
d t h e r e s u l t w a s t h i s discussion.
Governor Seay.
Board t o apnoint a
Would it
committee
men f r o m s o m e o f t h e is
t o meet w i t h
a n c . confer
o n this
elimination?
GOVERDOI C Gaaviet9
O
n
e -opere
and s e v e r a l f r o m
the t would b e proper.
Governor
TO e N O C l l G
L
T move thet t l e board
e S C o m i n Eree. f r o m
Reserve Banks with a
s
t
a
t
b e reouested
o confer w i t h 2
view o f determining whether o r not
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Federal Reserve Bank of St. Louis
105
numerous Statements o r reports n o w b e i n g furnished b y
Banks c a n n o t b e d i s p e n s e d with, r e d u c e d o r
simplified.
Governor Big:s. I
will second that.
(The motion having b e e n duly seconded, w a s carried.)
(Whereupon t h e members
o f the Reserve Board,
Governor Crissinger, Mr. Platt, Mr. James, Mr. ililler,
Me. Hamlin, M r . Cunningham, together w i t h Mr. Stewart,
entered t h e c o n f e r e n c e r o o m , )
Governor C r i s s i n g e r ,
t h e program
wes arranged i n such a way thet
convenient
t o teke u y t h i e duestion-of t n e
bills today rather than t o wait.
W e have h a d a
discussion o f t h e w h o l e c u e s t i o n o f t h e a t t i t u d e
Heserve B a n k s
legislation.
o f the
a n d t h e System towards subsequent banking
T h e meeting unanimously recommended first
that i n i t s o p i n i o n 1 0 was, desirsb:
o
w
t h s t -.n / c o n n e e s m
with matters o f legislation which affected t h e Federal
Reserve S y s t e m , d i r e c t l y o r indirectly,
s u c h a s the
acts referred t o as the McFadden bills, that
Reserve B o a r d a n d t h e S y s t e m s h o u l d t a k e a
definite
affirmative
position
i n regard
t o the wisdom
o r the unwisdom
of
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Federal Reserve Bank of St. Louis
1LO6
such L e g i s l a t i o n .
I
n the matter
o f the proper method
to pursue, t h e conference h a s gone a
little further
than i t usually goes i n such matters a n d they recommended that t h e Board appoint a
mittee,
t o make a
committee, a
System com-
study o f the matter a n d cooperate
with t h e Board i n dealing w i t h legislation a n d w e have
gone t o the length o f suggesting t o the Board a committee which i n the opinion o f the meeting meets t h e
situation geographically a n d also a s t o t h e various
types o f reserve banks.
arding @,
T h e committee suggested w a s
Young, Seay, Wills, T a l l e y a n d myself. I
want
to s e y that I would b e very glad n o t t o serve o n the
committee.
W e ere pretty b u s y i n New York a n d i t would
not t o serve o n it.
have also recomiended that s
uch committee should
have the expert service a n d advice o n the history o f
banking l e g i s l a t i o n
i n this c o u n t r y a n d s o o n a n d has
suggested Professor Sprague o f Boston a s a n advisor t o
the committee a n d suggested thet h e a n d Dr. Stewart b e
associated w i t h t h e committee.
if possible,
i s o t h a t s t e p s b e taken,
t o secure t h e participation
Orithe Currency.
o f the Comptroller
T h a t is-as f a r a s t h e meeting h a s g o n e
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Federal Reserve Bank of St. Louis
LO”
in making a n y recommendations.
W e have n o t discussed,
in terms, e i t h e r o f t h e M c F a d d e n bills, a l t h o u g h soine
of t h e G o v e r n o r s h a v e m a d e s o m e s t u d y o f them.
W
e
understood t h a t t h e B o a r d w a n t e d t o h a v e s o m e d i s c u s -
sion o f this matter w i t h the conference.
Governor Crissinger. I
think i t would b e well t o
a discussion w h i l e t h e G o v e r n o r s a r e h e r e a n d
I would like t o a s k a n y member o f the Board t o address
themselves
t o t h i s matter,
T think what Mr. Strong h a s just
t
Mr. Miller.
i f they desire t o d o so.
1g m u c h a s w e e x p e c t e d a t t h i s t i m e ,
get t h e i r arrangenie I
opinions o f a more
work a n d m a k e a
>
to
to s t u d y i t a n d not express
o r h a s t y nature, b u t t o get t o
thorough s t u d y o f i t w i t h a
view o f s e e -
img whet t h e attitude o f the System would b e i n the event
it w a s c a l l e d u p o n t o e x p r e s s i t s views.
Governor Strong.2
T h i s committee i s going t o have a
serious j o b t o p e r f o r m a n d w e d i d n o t w a n t i t t o a p p e r r
that a
specific g r o u p o f t h e l a r g e r b a n k s w e r e e n g a g e d
in the work o f the committee a n d thought i t best t o
it geographically a n d otherwise.
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Federal Reserve Bank of St. Louis
108
Governor C r i s s i n g e r
W o u l d L2t b e p o s s i b l e
t o make
a partial ruport s o that w e might have that resolution
before us. tomorrow, while t h e Governors a r e here a n d act
it. “ l e will b e very glad t o take i t u p tomorrow morning
and ect: upon i t .
Mr. Miller.
W o u l d y o u have t h a t committee s t u d y
the so-called McFadden bills?
The Chairman.
Y e s , a n d i t was also recommended i n
the discussion that, w i t h Governor Harding serving o n the
committee,
a n d Mr. C u r t i s s c h a i r m a n o f t h e c o m m i t t e e t h a t
is studying t h e question o f reserves, c o u l d bring i n that
committee i n t o t h e dis cussion, because that i s a part o f
the same subject.
M
r
. Sprague w a s suggested a s the
man w r o understood t h e history o f banking legislation
as well a s anyone i n the country.
B u t just h o w thet
should b e handled y o u know better probably t h a n we.
Governor Grissinger.
present tomorrow morning.
w eW
a s k D r . Stewart t o b e
L o e s any member o f the Board
care t o say anything about i t while w e are here? I
going t o s a y t o the rest o f the Board that I
am
came i n this
morning, w h e n n o other members o f the Board were here, a n d
I found the Governors working; they asked m e i f I had
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Federal Reserve Bank of St. Louis
109
to s a y a n d I
took u p t h e q : e s t i o n o f t h e M c F a d d e n
bills a n d suggested thet t h e Governors t a k e some action
and t o determine u p o n a policy, a n d t o s a y that i f they
should determine t h a t o u r policy should b e thet w e
should take part i n stopping b a d legislation a n d promulgating g o o d legislation, t h a t t h e n a’committee should
be appointed t o study it.
it
e e r
I
assume that i n a study o f this kind
while t h e c o m m i t t e e w o u l d t e k e u p t h e M c F a d d e n b i l l s t h e
question w o v l d a l s o b e w h a t a m e n d a t o r y l e g i s l a t i o n f o r
national banks might recormend itself t o the cormittee.
The Chairman.
Elon snewula.
Y e s , a n d also whether that legisla-
D e a n n e
Lorn:
of one
G 1
- o r two-Diils-or
The study will b e a very broad scope.
The Chairman. Y e s , and I think 1 t i s important that
the d o r m a n s p r o v i s i o n
i n resard t o national b a n k notes
should b e d e a l t w i t h , b e c a u s e t h e y a r e a b s o l u t e l y u n a b l e
to d o anything n o w even though t h e acts contemplate t h a t
we d o something about it.
(Whereupon t h e m e m b e r s
and D r .
Stewart retired
o f t h e Federal Keserve B o a r d
f r o m t h e conference
room end the
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Federal Reserve Bank of St. Louis
proceedings o f the conference. continued.)
The C h a i r m a n .
O u r next topic
i s IV-D.
By O u a t c d y o f seturiiher f o r account o f
member banks i n other Federal Heserve
Distrrots.
The Federal Reserve B a n k o f N e w York, during t h e
r
3
hadL o c c ees i o n
t a
o t a k e o v e r f o r o twh e r r e s e r v e b a n k s
a considerable amount o f securities w h i c h they held f o r
their member banks really a s collateral.
T h e y were
Government securities t h a t were issued that t h e y wented
to hold i n N e w Y o r k f o r a c c o u n t
banks.
o f the other reserve
T h i s has dwindled until w e n o w have o n l y
wt ,400,000
o f t h a t charecter.
peculiarly
situatedn
i respect
T h e N e w York Bank i s
t o t h i s c u s t o d y o f securi-
ties, inasmuch a s i t i s the central security market.
If t h e o t h e r r e s e r v e b a n k s s h o u l d p e r m i t t h e i r m e m b e r
banks t o deposit securities with us for physical custody
there f o r a c c o u n t
o f their reserve banks, w h i c h w a s
responsible t o their member banks f o r them, there would
be n o limit t o the expansion o f this business a n d w e
would b e s wamped with a s
is a matter o f large expense a n d much trouble a n d
we d e c i d e d
t h a t
w e wanted
t o secure
t h e adoption
o f a
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Federal Reserve Bank of St. Louis
Le 4a
rule,
i f the conference looked a t i t f r o m o u r point o f
view, t h a t t h e s e c u r i t i e s w h i c h w e h o l d i n N e w Y o r k
shall o n l y b e t h o s e t h e t a r e o w n e d b y t h e o t h e r r e s e r v e
banks.
T h e r e m a y b e a n exception t o thet n o w a n d then
where y o u have occasion t o make a loan, where t h e securities a r e i n New York temporarily a n d y o u want u s t o hold
them - - t h e n a
little d i f f e r e n t r u l e m i g h t aprly.
B u t
if v e ere going t o b e the custodien o f s ecurities t h e t
are simply held f o r sefe keeping f o r t h e member banks a l l
t o b e i n very serious
over t h e c o u n t r y we. a r e g o i n g
trouble.
Governor Fancher.
a
b i n e
r
e holding certain
ecurities p l e d g e d w i t h u s a s s e c u r i t y f o r «
Government
et grew o u t o f the wer period t h a t y o u speck
The C h a i r m a n .
c
Governor fancher.
where
o u r member benks
a l e es Or a a y e i s
E a e
j
a
sent t o y o u t o b e held. .
o not k n o w o f
s
k
e
d
t o have securities
I think there t h e request
probably c a m e f r o m u s , having a
member b a n k
°
the s e c u r i t i e s
1 e account
i n t h e Bankers T r u s t Comnany,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Laie
think they were i n your hands u p there f o r some little
time. I
do not know o f any scie keeping proposition
.t s o r t a n d w e c e r t a i n l y w o u l d
gee Cols-b.
b a n e
W O U .
ermitted.
gre: taccommodation
Governor wel) .
to our member beniss f o r your bank t o hold t h e securities
for s f e keeping,
BL,
have n o d o u b t i t te; a e . t h e
The Chairman. T
result would b e thet i n tkme> wa; vould have a l l t h e
securities.
Governor Jellborn.
‘ s h e n they have securities
in
New York they prob a b l y want t o sell them there e n d d o
not w e n t t o p a y t h e t r a n s p o r t a t i o n c h e r g o s a n d i t i s
convenient f o r tiem for y o u t o keep then.
The C h e i r m a
B u t i t i s v e r y expensive
involves
Tt wes &
a
prectuced i
t
O f “the panko s i d o
not know h o w meny hundreds o f thousends o f dollars i t
would c o s t u s .
Governor Celkins.
tion
t o t h e prectice
T h e n there i s © greeter objec-
tran the cost
t o the Reserve
Benk
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Federal Reserve Bank of St. Louis
Leee,
York, e n d thet-De- that Chere 2 s tae C i c i ently
tendency t o concentrate a l l o f such securities
in N e w Y o r k a n d i t i s e n t i v e l y u n d e s i r a b l e
t o increase
i f w e could prevail u p o n y o u t o hold
thet tendency.
securities f o r sife keeping f o r t h e member banks t h e
téndency
t o concentrate
s u c h things
i n New York would
be vastly increased until y o u held t h e bulk o f them.
The Chairman.
Y e s , a n d when y o u c c
n
a
t we
have some four hundred millions o f dollars i n securities
in the vault th:t d o not belong t o us, but belong t o
member banks, t h e t t h e courons hreve t o b e cut, audited,
checked,
a n d a l l t h : t s o r t o f thing,
y o u c a n realize
thet i t i s a tremendous underteking. .
heve t o d o a
u f course w e
certain a m o u n t o f i t f o r o u r m e m b e r s w h o
are i n and o u t all t h e time, either borrowing o r who
i n New York with a
have n o a c c o u n t
have t o h e v e a
place
t o k e e p them.
have g o t t o l i m i t our. service
comercial b a n k a n d
B u t . e feel t h e t w e
i n thet respect
i n the
handling o f securities thet a r e owned b y the other
Of course there coun be exceptions,
emergency cases.
Governor C e l k i n s .
‘ 6 1
h a d some
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Federal Reserve Bank of St. Louis
114
5
with your benk o n thet subject, a n d your s t s t e m e n t i s
in e n t i r e a c c o r d
w i t h o u r views,
you t o hold s u c h securities f
h
t h e t we:cannot expect
e account-of-@um
member banks.
Governor licKinney. 3
there a
resolution before
the h o u s e ?
There
Governor Calkins. I
i s n o resolution offered.
nr
offer o n e along that line, M reae
Chairman.
The Chairman.
G o v e r n o r Calkins's resolution i s
that t h e practice o f the reserve banks i n holding
securities f o r safe keeping f o r the account o f other
reserve banks should b e t o limit those securities t o
securities actually owned b y the other reserve banks
exclusively,
service
except
i n emergency cases where s o m e
i s t e m p o r a r i l y r e q u i r e d o f t h e t cheracter.
Governor licKkinney.
t i r h e i pme:
a t t h e present
are holding ..5,600,000 o f securities belonging
to our member b a n s.
H o w would this affect those t h e t
you a l r e r d y h a v e ?
The Chairma V e l l , w e d o not went t o d o enything
redical
which would cause inconvenience
b u t w e would
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Federal Reserve Bank of St. Louis
discontinue teking a n y more o f them.
I n the
time those thet w e have will gredually g o out a n d w e
will g e
i d o f ‘them. {
do n o t went t o b e arbitrary
about i t at a l l , b u t t h e people i n the bank heve r e ported t o m e th:t there i s a tendency f o r thrt t o
increase
n d w e are o n notice i n some cases that t h e
securities w e hold d o not belong t o the reserve banks °
but t o their member banks. I
easiorn-to:
stop
t a t
think i t i s a greet deal
T e s Anesotion rather than
t o wert
until i t has g a i n e d proportions.
Governor McKinney.
the r é a s o n t h a t a
S e c u r i t i e s a r e lodged with y o u
member b a n k i n o u r district,
le, w i l l a s k u s t o p u r c h a s e c e r t a i n s e c u r i t i e s
the N e w Y o r k markét,
for
on
w e h e d y o u execute t h e order a n
vou sent u s your trust receipt f o r t h e m a n d w e i n turn
executed a
trust receipt t o the member bank f o r them.
Governor Calkins.
T o s h o w the extent t o which i t
might g o , o n e o f our large member banks asked u s whether
or not w e would permit t h e m t o transfer t o the Federal
Reserve Bank. o f New ¥
‘ o p s e t e keeping a i l t h e
headin:
New
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Federal Reserve Bank of St. Louis
securities,
i n order t h e t t h e y m i g h t b e avai
to w h i c h t h e y d e -
sived to. p u t them.
thing
O n e e y o u e r t e d thet s o r t o f
i t would apply
t o all t h e other eleven reserve
would h a v e a
highly u n d e s i r a b l e situation.
D e y o u receive f o r safe keep-
Governor licDougel.
thet a r e o f f e r e d y o u b y y o u r N e w Y o r k banks?
The Chairmen. W
l a v e done t h e t t o some extent
but w e are cutting i t down a s much a s poss ible,
(After further discussion t h e m o tion, having b e e n
duly seconded, was carried.)
The Chairman.
T h e next topic i s IV-E.
E. S e m i - m o n t h l y stetements o f exceptions.
Recommended :
Theat the Federal Keserve Banks discontinue e a c h o t h e r s e m i - m o n t h l y
s tatements o f o p e n e x c e p t i o n s i n
their r e s p e c t i v e a c c o u n t s .
Fancher.
I T have a brief stetement covering
When t h e sosgcalled
Reserve B a n z s w e r e d i s c o n
for a l l t r a n s a c t i o n s
between Federel Heserve
nlaced o n a remittance basis, t h e usual f o r m o f monthly
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Federal Reserve Bank of St. Louis
w e s discontinued.
reconcilement
o f accounts
the n e e d o f a
veriodical v e r i f i c e t i o n w e s questions,
leral K e s e r v e B a n k
semi-monthly report o f exceptions t o each
aral r e s e r v e B a n k .
~ de
Sy
f
I t was Poet
the close o f business e n y dey would
i n transit
d s o f current items
e hundre
Z e d “tiet]one
o r de-
to
ferred credits, a n d for thet reason i t was decided
i
allow t e n days
e after t h e c l o
m
before p r e p a r i nz e n d f o r w a r d i n g t h e s e m i - m o n t h l y s t a t e ments
Q Therefore,
t
o f o p e n exceptions.
t h e s e st:te-~
end 1 5 t h
respectively.
o f e e c h month,
-emittance
F the l a s t
f
ments heave b e e n s e n t o n t h e 1 0 t h a n d 2 5 t h
o r c h e c k i n g o f f m e t h o d o f account-
netbions b e t w e e n F e d e r s 1 R e s e r v e B a n k s
he o n e n i t e m s
s
very f e w i n number
e
t
e
other F e d e r s l 1 1
and d u r i n g
t
t h e ¢:lendar
e
m
e
a
e
x
a
n
c
c
ast t e n d e y s o l d w e r e r e p o r t e d
t
l
t
s
h a s
g
aPsVie
t o 27
h month
y 2&7 items
o n these 6 4 8 state-
en a v e r a g e o f o n e i t e m f o r e a c h o f f i c e d u r i n g
These 2 7 e x c e p t i o n s w e r e l e f t o u t o f 605,056
bw
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Federal Reserve Bank of St. Louis
118
@racred@ a n d c r e d toc: i n O u r C u e 1 rom a e eo um
With ell other Pederrcl heserve Benk
O
n the: 648
POpOrGs which w e received f r o n other @ederal nescrve
this f o r m o f accounting h a s develoned t o
from accounts betwee
few number o f open
sns i t i s umnecess:ry t o prepare these seni-monthly
st-tements.
i n our benk they a r e prepered i n t r i p l i -
cate, o n e c o v y b e i n g m e i l e d
t o t h e other Fedeial
heserve B a n k office, a e scopy kent i n the acco nting
department a n d a cony given t o the audit depertment.
of thecee forms -coulid b e elimineted e e weil
labor used i n t y p ing end welling them,
especially when t h e open eacentions « i e usually de-
seribed b y writing the word “none”
hes b e e n r e f e r r e d
t o our audit de-
partment w r i c h r e p o r t s t h : t t h e s t e t e m e n t s r e c e i v e d
from otiier Feders1 iesevve Banks a r e unnecessery a n d
toet.
tre
s t e
d e n v e r inent’ s “ v e r i i t e c t i o n
e n d creck-uy
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Federal Reserve Bank of St. Louis
119
on t r i s l e r g e v o l u m e o f business
moe s a t i s f e c t o r y m e n n e r
i s obt: ined i n a
much
b y listing a n d checking o u t
stated intervels, usually quarterly o r
semi-monthly.
I move, Mr. Chairmen,
t e t t h e Federal neserve
discontinue sending e a c h other semi-monthly stetements
i n their respective accounts,
o f exceptions
be-
ginning May 1, nexts
Governor Wellborns I
will seoond thet motions
(The motion heving b e e n duly seconded, w a s carried.)
The C h a i r m e n .
T h e next tonic IV-G.
G, S h o u l d F e d e r a l n e s e r v e
rember b a n k s
t h e cost
over c o m m e r c i e l w i r e s
fers o f f u n d s w e e n t h e l e a s e d w i r e s a r e
unaveileble b e c a u s e o f s t o r m s o r C p n e r
interruntions.
The L e a s e d w i r e C o m m i t t e e i n Hey, 1 9 2 4 ,
secommended t h e t w h e n t h e l e a s e d w i r e s
are u n a v a i l a b l e b e c a u s e o f s t o r m s o r
other i n t e r r u p t i o n s , e n y r e a u e s t s f o r
transfers t o b e m a d e o v e r c o r m e r c i a l
wires s h o u l d b e a c c e p t e d «et t h e e x p e n s e
of the re.vesting member benk, a n d tiis
now
topic i s p r o p o s e d b e c a u s e t h e r e i s n o t
a u n i f o r m p r o c e d u r e i n thre s e v e r a l F e d e r a l
Reserve Districts rozarding this matter.
Governor McKinney. matter
thet s
ecms
Tis
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Federal Reserve Bank of St. Louis
bing that n o abuse
very w e l l absorb.
Oia C O M e s o m b OL..
HAA
PG
A A
e e
t
r
e
n
s
f
e
r
1eriber b a n k s
for
s
t o make
as w e u n d e r t a k e
T n a s
i n round
ebsorb w h e t e v e r
amounts
slabea
Sore o e t y c o n n e c t i o n w i t h
‘ade
r
e
e
outlay
l
the s o u r c e
o f some
s x involved.
i n a b
Governor
veay
Gonference.- t h a t
sense
i
e cter
M
i t isa
to t h e d i s e r e t i o n
thet micht w e l l b e l e f t
esorve B a n k .
rederal
o f each
is o n e t r o u b l e
Governor M c K i nney.
VOrCK.
R
Hfede:eal
r et s
e
r
v
e
B a n k
t member
of
Giie weak
(tk a oatess
.
k
nLe
a N bO V
eb t h e r e c u e s t
rs a b o u t
menifest
r e e
O
n =u
bank.
o f
Ole p i acs ice
becomes
L A S Wiges
‘il wes c h e r g e d b y
rdown
e we n
e
about
of o u r m e m b e r
Geb.
s
o f the
thet
w e d o not make such
Tack cor Unit orm ty. alfelat
i n a
it would b e b e t t e r n r a c t i c e f o r u s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Cases.
Governor McDougal.
O u r record shows th: t the
Wire Committee i n May of. 1924 recommended t h a t
ne l e a s e d w i r e s ¢
iMterruptions,
n a v a i l e b l e because
any
n s f e r s
commercial w i r e s w i l l b e a c c e p t e d
reavesting m e m b e r bank.
theres i s n o t n o w a
recormencetion I
o f storms
made over the
a t t h e expense
o f the
T i s t o p i c i s proposed because
uniform p r o c e d u r e a n d s o forth.
T h e
:efer to, together
sugzestions w a s contrined i n the report o f the Leased
Wire Committee, a n r r o v e d b y t h e C o n f e r e n c e
the
i n May, 1 9 2 4 ,
and i t did not, i n view o f the comnittee, pronerly belong under the h e a d o f le:sed wire regulations e n d for
thet reason w z s n o t specifically epnroved b y the Fede: al
Reserve B o a r d
w h i c h sent o u t the reguletions
LebTer 2 2 0 8 9 .h o w e v e r ,
adopted a
under
its
o n February.
resolution providing t h a t “re { r e n c e E O S
Oe
ection taken < t Gotresen ores conferences relating t o
matters o f operation o r other matters o f a nature w i c h
neither t h e l a w o r t h e reguletions required t h e
pass upon, might b e put into effect b y the various reserve
banks without waiting arvroval b y the Board.
W e assumed
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Federal Reserve Bank of St. Louis
thetebic a é u L o n o f sblie Cont crenes
hob s n o w
thee
te
n n k s are* not
C
h
i n accorcance with
i
action o f t h e Governors! conrersenec,.
GOVGE HOw W e k iin ey .
C
o
a n o t a b s t e e n O n spe
u
rescinded?
Governor W i c b o t s a l e
O n .
corteimss
y
Governor lickKinney. T o t h i n k L t t 6 e¢eg60d: deal w i t h
US. D e t i a t s ,
i k e L h e juror w e m p l a i n e d anout t h e
other e l e v e n b e i n g r a t h e r c o n t r a r y ;
b u t i t i s m y feel-
ing t h e t t h e regal: t i o m o u g h t t o b e changed.
Governor Mebovers1.
I t c e n b e rescinded, b u t i t
wuniformity, becai
sOVernone: |
e e e
e y e m p res
ng t o t h e p r o c e d u r e t h e t s h o u l d b e followed.
C NOt. Bus)
T
Governor’ Fancher.
e e u LO
c e
your district wae x
and b e o v t o f u s e f o r s o m e drys,
ft Belle S E S
m a r e
amnornt. b O @onside:
waste i
e n d where
ek o e
Die epen
Governor iicbousre
T
h
: t never h e s hennened.
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Federal Reserve Bank of St. Louis
125
Governor -Menchex.
i
y u n d e r s t i a d a en o f tne: p r o e
intended
t e cover
Lng S e r i o u s N a n p e n m { c o
ore a t i o n f o r s o m e
made t h e t r e n s f e r s
of t i m e
free over
C
a
r
Governor lHcKinney.
e
Nav eens
e
n item o f ex-
- e @ find three o r four o f the
banks following t h e same practice, b u t o f course i f i t
the judgment o f the confereneo t h e t t h e present reguLation s h o u l d s t e n d s w e
Line.
Governor N o r r i s .
i t - s e e m s
lation i s p e r f e c t l y fair. I
t o m e t i e present regu-
h a v e a e memor:ndum o f t h e
?
endation o f the Leased Wire Committee o f liey,
recom
on t h e
member b a n k
does n o t w n t
t o {
y
LtU2OVer C h e QonMertlelo w i r e s ,
pret, because t h e y preie
b s G O Lorward
end ask
W e sene ree. ot i e : C o e s oer
m e n they
w
e were
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Federal Reserve Bank of St. Louis
L24
ubject t o delay over o u r wire, t o have i t
sent o v e r t h e c o m m e r c i a l w i r e a n d
Governor Young.
Helena, M o n t e n a .
Hepene
wire.
o
v
r
brench. just e
Fowever
s
e w e make transfers
t o the
same a s though w e hed a leased
i t seems t o m e t h e t t r i s w n o l e matter i s
eo i n d e n t icant, the. chereco i s s o smail, tort f t a m g o r e
to make a
motion thet t h e Fede:al neserve Banks absorb
thet charge.
Governor McKinney. I
Governor C a l k i n s .
second t h e motion.
T h e reason
f o r that
t s thet because
of the misunderstandings t h t arise f r o m the fact that o n e
Federal neserve Bank charges a n d another does not, a n d the
member bank: does not know exectly whit the situation i s that costs inore t h e n the absorbed cost would amount to.
Governor Young.
T h a t 1s
Governor HcKinney.
fors,
V
e undertake t o make t h e trans-
a n d because cireumstances b e y o n d o u r control prevent
us from sending i t over t h e leased wire sometimes w e ought
COLSULIS? t i e o s e ourselves, esvecially w i e n i t i s s e
intl semeresmerdes, S e n Scbateds
Governor veay.
B u b L.cennot s c e a n y veason f o r
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Federal Reserve Bank of St. Louis
125
uniformity.
i f there w e s uniformity o f conditions
there m i g h t b e u n i f o r m i t y « 8 t o treatment,
b u t the
conditions v a r y i n the different parts o f the country
so widely.
T r i n g s m i g h t happen d o w n i n Texas that
would n o t hapnen t o us.
D o w n thers they might heve a
delay o f a week.
Governor H a r d i n g .
i v e have s e e n examples
o f how a
resolution o f this sort, calling f o r a uniform prac-~
tice,
i s carried out.
i e s e t a
o r e o e a c h ebanik aes
going t o e x e r c i s e i t s o w n discretion.
w e might b e
willing “to absorb the. cherges T o r a dey o r so, b u t i f
tre w i r e s w e r e d o w n f o r a
week o r t e n days,
w e might
notify t h e member bank. thet i f i t winted t o meke t h e
transfers
i t w o u l d h a v e t o d o s o a t i t s o w n cost.
The Chairman.
T h a t i s contemplated
i n t h e Boardts
letter o f M a r c h 25th.
Governor McDougal. f
t h e resolution
i s adopted a s
offered i t g c i q u a r e l y a g a i n s t t h e r e c o m iendations’
of
the L e a s e d W i r e Committee.
The Chairman.
T h a t just reserves t h e right t o cherge.
Governor licDougal.
to a b s o r b t h e cherge,
T h e pesolution jmpliss
T h e calculetions
that
7 . we
o f t h e commniipes
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Federal Reserve Bank of St. Louis
were a r r i v e d a t e f t e r c a r e f u l c o n s i d e r a t i o n ,
a-proved
b y t h e Conference,
and
were
i t n o w develops
that
notwithstanding t h a t fact t h e metter i s handled a t the
discretion o f e a c h F e d e r a l R e s e r v e B a n k ,
and I
would
dLHe T O b e t 1 b sleep.
(Upon calls f o r the question, t h e motion w a s put,
teers Deltas erent votes i n fever o f i t senc tour azaines
hairman.
l i e c l e r e t h e m o t i o n carried.
does n o t involve t h e right
to chergée, b u t sitply that a s . t o t h e matter o f making
charge w e adont t h e practice uniformly, except w h e n the
circumstances
a r e s u c h a s G o v e r n o r H a r d i n g h a s described.
Governor S e a y
‘Governor.
the p e r t
Y
o
u meen not
Fencher, I
d o i t sometimes.
very m u c h deplore
o f the confsrence
o n y action
o n
t h e t would weaken t h e leased
wire reguletions.
(After f urther discussion: )
r
o
n I
Seay.
-
r
e
o
G
De
move
av veconsideration
o f that
vote, Mr. Chairmen.
Governor C a i k i n s , .
The C h a i r m a n .
S
C
O
!
T h i s motion
t h e motion,
i s o n reconsideretion
o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
were seven votes
recons i d e r a t i
Governor Y o u n g .
h
Federcl keserve Banks a b
e eost o f sending tele-
grenhic transfers o v e r comie:cisl wires w h e n t h e leased
n d i
a r n a v e i l a b l e because o f :
wires
inter-
Pup L o n e .
t
Governor Calkins.
Governor S e a y , I
h
offer a
e notion.
s u b s t i t u t e motion thet
we l e y i t o n the table.
Governor ‘:ellborn. I
second Governor Young's
motion.
(On a
division t h e r e w a s s i x v o t e s
six votes agains
i n favor o f
h e wwotion e n d t h e Chrirman decler
the motion lost.)
The Cheirman.
T h e motion b y Yovernor b e a y
matter b e l a i d o n t r e t e b l e i s a p p a r e n t l y lost.
vereupon t h e q.estion wes p u t o n Gover Y o u n g ' s
MoObLon, “onere D e l n g -aix P a v e r O f On. 8 1 k “ere ar
a n d
theV C h a i r m a n d e c l e r e d t h e t m o t i o n l o s t . )
The Cheirmen.
°
G o v e r n o r Y o u n g ' sH m o t i o n i s l o s t b y
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Federal Reserve Bank of St. Louis
tLe VOUC.
The Chairmen. ‘ T h e n e x
neport
i s IV-H.
o f t h e L e a s e d W i r e Committee.
Governor MceDougil.
Committee
r T
T h e report o f the Leased
i s a s follows:
Since t h e l a s t c o n f e r e n c e
o f Governors t h e r e h a s
been n o change i n the arrangement o f circuits comprising
the Teecsed-wire
There h a s b e e e p y little chansé i n volume, t h e
facilities a r e a m p l e e n d t h e service i s satisfactory.
Below ere figures showing comoarative cost and volume handled f o r 1923 a n d 1924 a n d estimated cost a n d
volume ( u s i n g2 J e n u a r y a n d F e b r u e r y a s 4
basis) f o r t h e
weer 1 9 2 5 ;
Totel N u m b e r
ofWords.
A n n u a l
C
o
s
C o s t
t p e r Word
20,579,547 3 1 2 , 9 7 9 . 4 8
e
e
16;987,120 2 9 7 , 8 5 0 . 1 7 £ 0 1 7
135,400,514 2
6 528.00
9
,
The r e d u c t i o n
the leased wires, w h i c h b e c a m e e f i ctive J u l y 15, 1924.
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Federal Reserve Bank of St. Louis
129
The decrease i n t e
proportion
t o t h e decrease
ceartein n u m b e r
that a
i s not i n
s t , while substrnticl,
i n volume,
d u e t o the fect
a i e neces-
o f wirés a n d o p s r a t o r s
gary t o m a i n t a i n c o n n e c t i o n b e t w e e n t h e Fede:
and t h e B o a r d .
Your c o m m i t t e e p r o p o s
e s t o c o n t i n u e i t s supervision,
os
and i f f u r t h e r e c o n o m i e s e p r e r r
t o b e precticeble,
recom-
mendation will b e tiade accordingly.
Governor Norris. I
move t h a t t h e r e p o r t b e a c c e p t e d
and approved.
second t h e motion.
Governor Fanch=:-r I
(The m o t i o n h a v i n g b e e n d u l y seconded,
I have o n e m a t t e r
w a s carried.)
t o mention
nection w i t h t i s w h i c h i s not o n the program.
i n con-
T h e r e have
been r e p e a t e d s u g z e s t i o n s m a d
lot o f w o r k t h e t w e h e v e t o d o f o r o t h e r r e s e r v e
banks
Ci
i s pretty e x
g
e
oe
t
a
n
d t h e y went t o !mow w h y w e .
L discussed t o c h v o r y f u l l y w e t : t h s
officers a n d t h e y h a v e t : k e n t : 1s position,
and I
they a e unsnimous i n agreeing t o it:
expenses t h a t w e a r e p u t t o e v e r y year,
as ner
tink
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
130
cen figure it, o n all t h e work thet w e d o for other
reserve banks i n New York, i s somewhere between 7 5 , 0 0 0
and wil00,000 a year T h a t includes everything I
trin
The o n l y céecount o n w h i c h t h e r e i s a n y cherge n e c e s s a
tO e e menier 1
k
s t h e f o r e i g n account.
i
a m oprosed t o a n y
is a very small charge there. I
for reimbursement f o r a
n the
I
n u m b rf
o r certein things
first place i f we should make charg:
er preserve banks d o for us, a n d s o forth, w e would
set u n e n enormous mass o f accounting;
i n addition
t o that
wretever y o u p a y u s w i l l a d d t o y o u r e x p e n s e s e n d w h a t e v e r
we collect f r o m y o u increases o u r income, e n d the effect
the System a s
of i t r e a l l y i s t o i n c r e a s e t h e e x p e n s e o f
reported.
I t does n o t d o the expense account a n y good
for u s t o have a
lerger income w h e n t h e other reserve
banks would b e peying o u t this money. T h e a t anprlies t o
everything, I
tY¥ink, thet w e do, w i t h o n e excention.
‘ce send o n e o r ‘ore telegrems e v e r y d e y over t h e l e e s e d
s, r e l a t i n g t o o r d e r s
Wentepe: t i n e s
th t
toce
wires.
Z i v
T
e
n
d revorts
have -had a n
o f tee @
of t h e t m a d e a n d w e
send
;
g
s us . 1 4 0 0
r am n o t sure but whet
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
be J u s t i l i e d
those chars
t o consid
s h o u l d note:
importent mat
n
an
o o e Ob.
T
m a Little hesitant i n sug-
i
d
reversed.
gesting i t b u t i f w e b e g i n t h e p r a c t i c e
o f reversing
to the point o f origin o n that wire, t h e same principle might apply t o a good meny other telegrems t h a t
fly a r o u n d
open u p a
i n t h e F e d e r a l K e s e r v e System.
subject
I t night
o f endless e c c o v n t i n g a n d s o forth.
What w e think ought t o b e done f r o m the s tendpoint o f
the N e w York Benk i s t o have this matter referred t o
the L e a s e d V i r e C o m i t t e e
Governor McLougel.
P - t h i n k t h e suggcstion
cntirely a p p r o p r i a t e e n d I
is
would l i k e t o express m y -
i L steted t o G o v e r n o r S t r o n g
self o n t h e subject.
long a g o that
e n d heve t h e m look into it.
l e Reserve B a n k o f New York should b e
reimbursed f o r whet t h e y ez¢
various r e s e r v e b a n k s . I
have k n o w n t h : t t h e y have
great d e a l i n e h s o r b i n g t h e exnense,
and
right tr:.t t h e y s h o u l d d o s e ;
Chairmen.
f b o u t three-fourths
of o v r b i l l d e p a r t m e n t
other r e s e r v e b a n k s ,
o f t h e expense
i s not f o r u s a t all but f o r
but i
think i t w o u l d b e a
mistake
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Federal Reserve Bank of St. Louis
L32
to a t t e m p t
inerease
t o make
e n adjustment w h i c h w o u l d s h o w a n
i n t h e e x p e n s e o f r u n n i n g t h e System, w h i c h
I think ought t o b e evoided i f possible,
Governor S e e W o u l d n ' t
inery wey
r
e
r
i t b e well i n a
prelim-
e matter t o each Federal h e s e r v e
Bank a n d s e e w h e t m e s s a g e s s r e b e i n g s e n t t o i t t h a t
can b e dispensed with?
The Chairmen. I
think v o s s i b l y t h e L e a s e d W i r e
Committee would handle thet, e n c i f n o objection i s
offered w e w i l l r e f e r t i e m a t t e r
Committes
t o the Leased i r e
f o r renort later on.
The next. subject i s IV-1.
I. x e p o r t o f Insurance Comittee.
The r e p o r t o f t h e I n s u r n a c e C o m m i t t e e
i s a s follows:
REPORT O F THE IWNSUAANCE COMMITTEE.
No new matters h a v e b e e n referred t o the comnittee
since t h e last confsrence.
T h e following report i s made
with respect t o items previously reviewed b y the
committee.
TREASURY niGisTi.sb GAIL INSUnANC:. CONTRIOT.
Under t h e n e w contract f o r registered mail insurance made b y the Treasury Deprrtment effective J u n e l ,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1924, a l l s h i p m e n t s a r e i n s u r e d a t a
4.7/8 c e n t s p e r t h o : s a n d dollars.
flat r a t e o f
Several
o f the
eestern b a n k s h a v e p r o t e s t e d treet t r i s c h e
equitable e s between t h e banks. ‘ w h i l e there i s a slight
reduction i n the anount o f tre total premiums collected
on t h i s business, t h e reduction enplies almost entireI n the c a s e o f one eastern
ly t o the western banks.
bank t h e premium under t h e present f l a t rate i s actuale a e under
Ay G e
As r e p o r t e d
h e o l d contract.
a t t h e l a s t conf: rence U n d e r S e c r e t a r y
Winston h e d r e c u e s t e d
t h t t h e matter b e allowed t o rest
until boxvek the- e n d o f the first policy yeer, w h i c h
will -expilse-Jily 1 :
discus:
f
T is matter h a s recently beon
w i t h representatives o f Mr3rsh & MeLennan, t h e
prokers h a n d l i n g t r i s busines:
e n d i t i s t h e understand-
ing o f your committee t h a t Marsh & McLennan have recently
submitted a
proposel
for a
resdjustment
o f the insurance
premium o n n e w K e d e r a l s e s e r v e N o t e s h i p m e n t s
which w i l l b e r e a s o n s b l y c o m m e n s u r a t e witl
exoosure
t o risk involved 3
vi rious p o i n t s ,
h e s h i p ments
on a
basis
1 6 ectual
t o the
a n d w h i c h w i l l «et t h e s a m e t i m e p r o d u c e
the s e m e t o t e l p r e m i u m a s t h e p r e s e n t f l a t reste.
I t is
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
expected t h e t t h e
courereice
Treasury w i l l p r e sent
and
biese
if satisfactory, .th:.t t h e y m a y
ONCE «
et
3°NK S t T U S U R A N C H .
comaittee
Your
has
previously reported upon a
inter-=1
ank s e l f i n s u r a n c e
eriount
sent
500,000
nies w e r e
on t h e l i v e s
ference “She ved T a e k
Git
W283 o n p p o s a d
Federal
Tre r e p o r t
neserve B o a r d
b y each
which w o u l d
be
t o the last con-
Board h a d n o t y e t d e c i d e d w h e -
to i n t e r - i n s u r e .
renee
o f
to c e r r y t r e i r o w n i n s u r a n c e
of enployees
The, last c o n f s
i n excess
blenkst b o n d s c a r r i e d
with respect t o savings
and a l s o
o f the
p l e n s
o f Governors
recuested
LES -ObLALOm-
t o express
i n
principle.
the
O n one
cl t e s e r v e B a n k s
olf i n s u r a n c e
adopting i n t e r
plans
for both
fidelity
advised
Boel
y o u r committee
o f its
mnter-bpank fidelity insur~ance.
the
bar 1
will
sue ©
be c o n s idered
c u e s t i o n
o f inter-bank
i n connection
with the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
155
proposed pension nlen.
T h e Borrd has, however, s t a t e d
thet i t w o u l d n o t a p p r o v e e n y p l a n f o r s e l f i n s u r a n c e
without first obtaining the euthority o f Congress."
Your c o m i i t t e e d i r e c t s t h e a t t e n t i o n o f t h e c o n f e r e n c e
to t i i s s
e d inter-bank s e l f insurance
o f nrenos
tatus
so thet considerstion m e y b e given b y the conference
to procedure f o r obiaining legislation i f i t i s deconference.
Governor Young. T
move t h e t t h e r e p o r t b e a c c e p t e d
and a p p r o v e d . a n d f i l e d .
Governor McKinney I
second t h e motion.
(The motion having b e e n d u l y seconded, w a s
I went
t o call
yeport c o n t a i n s ©
sentence t h e t
e
eserve b a n k s ,
n o “rocedure
attention
sugzestion
1 s possible
t o the
i n the very
b y the
r t h e action recently teken b y the
Fede.el Reserve B o a r d unless t h e Federal n e s e r v e Board
a n attempt, w h e n Congress i s i n
ig willing t o make
session,
to
r
e legislation.
W e might cell t h e
Board ' s attention:to t h e fact that there i s a n economy
which cennot b e cffected unless t h e
affirmative e c t i o n ,
e n d m y reconr-endction i s t h e t w e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
156
a resolution dizecting t h e Board's attention t o
fact.
a
Fencher. I
n
resolution,
will o f f e r s u c h a
fir. Chairmen.
t o second 14.
wis
Governor l o r r i s . i
(The m o t i o n b e i n g c u l y seconded,
w a s carried.)
T h e n e x t t o p i c i s IV-d.
Cheirnen.
on Comilttee.
T h e veport o f t h e Pension Committee
The Chairman.
is eas follows:
Your c o m v u t t e e m a k s s r e f e r e n c e
t o its report t o
the conference o f November 10, 1lvv4 T h e a t report, cover=
ed the further conside: tion o f the plen b y the
Reserve B o e r d w i t h v o u r C o m m i t t e e a n d i t s e x p e r t advisers,
resvilt o f w h i c h t h e c o u n s e l f o r v o u r C o m i t t e e p r e -
a bill f o r introduction t o the 68th Congress, e n d
i sederel
i
e the
"To incorpor: t
v
e Pension -
Fund, t o define its functions, e n d for other purposes.
in s e v e r e l
o f its dete:ls
by liu. J . #. Curtis,
Reserve
y
o
s
u
l
and
t e counsel f o r your
f counsel
o
Committes, w i t h t
w i s considered
o f t h e Pederal
t t h e t y o u r Comaittee under-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
miestion b e t w e e n c o u n s e l
‘Wig s o l e
C r e m e
b e P O D E
form f o r t h e p u r n o s e
i g s i n proper e n d s u i t a b l e
f o r which
i t wes designed.
Your Comaitscee f u r t h e r u n d e r
decision hes n o t been teken b y
merits o f the plan s n d the desirability
of i n a u g u r e t i n g
i t a t teis o r c n y future t i m e b u t that
t.eso q u e s t i o n s a r e s t i l l b e f o r e
further consider: t i o n a n d action.
in t h i s r e s a r d y o u r C o r m i t t e e w o u l d p o i n t o u t t h e t
teat p r o b l e m o f a c c r u e d l i a b i l
through deley end t h - t unless
cation o f i t i s adonted with reasonable promptness, t h e
i t is d e s :gned t o provide t o the banks
ay
benefits which
would b e m a t e r i s l l y d e c r e e s
considerable n u m b e r
e df 2
by r e a s o n o f t h e b u r d e n o f a c c r u e d l i a b i l i t i e s
on t h e o m p l o y e e s w i i c h w o u l d p r e v e n t m a n y o f
them from participating i n the plan.
Governor Young.. I
move ti: t
the r e p o r t b e a d o p t e d
anproved a n d c e l l e d t o
Boa: ad to the Committee o n Legislation.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Gov r n o r ranches
L
I will s e c o n d t h a t .
underst
n d i t the motion i s t o
report
o f tre Committee
on
to t h e F e d e r a l n e s e r v e B o a r d t h e t
the s u b j e c t o f l e g i s l a t i o n
t o cover a
Pederoal n e s c u v e
Pension system a n d authorizing inter-bank fidelity
insurance might properly b e referred
t o the committee
to b e annointed t o deal w i t h banking
ters. r e l a t i v e t h e r e t o .
(The motion heving b e e n duly seconded,
The Chairman.
Governor Younz.
there i s a
Purchase
"
@ will n o w teke u p IV-K.
B e f o r e f01°8
reportfrom t h e Comnaittesc o n Stendardizgation
O L Supplies. I
ed a n g a n n r o v e d a n d t h t
apnoint a
we
move t h e t t h e t r e p o r t b e a c c e p t e
t h e Gheipmen b e authorized
successor t o fill t h e position vac:ted b y Mr.
A. K . Lnueckner.
G O V E L O M { o O o vie
motion
h a v ng been d u l y seconded, w e s
and t h e report o f t}:e Comnittee
Purchase
to
o f Supnlies
on
i s a s follows:)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
CONE neNGi; O F GOV. .itbOsts :
Since your last conference, t h e Committee o n
Stenderdization a n d Purchase o f Supplies h a s h a d
formal meetinzs, h u t h e a r r i e d o n its work through
corresnondence
a n d has mainteined
direct contact
with
the purchasing departments o f the s everal Federal
reserve b a n k s t h r o u g h t h e becrst:r}
h
e Committee,
o f t h e Federel n e s e r v e B a n k o f N e w
Mr. A e K e L a u c k n e r
gllesat Giie
ave b e n e f i t e d
the c a r e f u l c o n s i d e s e t i o n
o f the wide variance
by
i n
prices heretofore p a i d a n d from the c l o s e scrutiny o f
purchases t h t i s now being given b y e11 t h e banks.
f£s s s t e t e d
impossible
i n former z:eports,
t o figure
i t i s practically
i n dollars e n d c e n t
Committce h a s a c c o m p l i s h e d a n d w h e t w i l l b e t h e f u t u r e
annual s a v i n g s
e s # 8 resvlt<of i t s work.
T h e corres-
pondence i n the Secretary's files indicetes, o w e v e r ,
th-t t h e a n n u a l sevines
considerable smount.
y
t o the System will b e a
T h e bai
a
very
s a whole, a:e@ giving
r
e
{
cereful
consider
t i ovn t o the
cher:cter o f supplies
purchesed,
a s we
1
6 prices paid,
a n d i t i s felt t het
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Federal Reserve Bank of St. Louis
140
hases
hereafter p
o f importent sunplies w i l l n o t b e
nede w i t h o u t c a r e f u l c o n s i d e r a t i o n
o f prices,
a s well
as quality.
It i s our opinion th:.t the Committee should b e con1, a t least i n neme,
s o t h : tsome coordinating
cercised i n furthering cooperation
and interchange o f informetion between Federal reserve
banks, p e r t i c u l a r l y b e t w e e n p u r c h i s i n g a g e n t s ,
is believed th:
supplemented
and it
y e a r ' s questionnaire should b e
o r r e n e w e d annually.
We r e g r e t t o r e p o r t t h u t t h e S e c r e t a r y o f t h e C o m mittee, iim. Lauckner,
h a s resigned h i s position w i t h the
Federal H e s e r v e B a n k o f New York, effective M a y 1, 1925,
and, consequantly,
continued,
i f the work o f tris Committee i s t o b e
t o anpoint a
i t will-be necessery
Mr. Lauckner's work has been most painstaking
inestimable v a l u e t o t h e C o m i t t e e ;
in a n p o i n t i n g a
and it is
r t o whom
new S e c r e t y
the files o f the ovtgoing Seerétary m e y b e transferred,
such S e c e t a r y s h o v l d b e l o c a t e d
of convenience e n d economy.
i n New York a s a
matter
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Federal Reserve Bank of St. Louis
nespectfully s u b m i t t e d ,
QS. A . W O R T H I N G T O N , .
Chairman.
The Chairman.
‘ w e will n o w teke u p IV-K, membership
in A m e r i c a n A c c e p t a n c e C o u n c i l
a n d American Bankers
ASsociantion.
K. M e m b e r s h i p i n A m e r i c a n A c c e n t a n c e
Council a n d A m e r i c e n B a n k e r s
ESSOCLAGION.
The F e d e r a l n e s e r v e B o a r d i n i t s l e t t e r o f
February 5 , 1925, X~4265, requested that
the v i e w s s o f
t h e directors
o f the
Federal n e s e r v e B a n k s w i t h r e f s r e n c e
continuing m e m b e r s h i p i n t h e s e t w o
associstions
b e reported
t o
t o the Confrence.
Tris h a s been referred t o u s b y the Federal keserve
Board.
O u r directors h a v e recormended t h e continuation
of these memberships. I
portant,
« s t o the first one, t o New York, t i e n i t i s t o
tne o t h e r districts,
detached
think possibly i t i s more i m -
but I
believe t h a t w e c a n n o t b e
f r o m t h e Anerican Bankers Association. I
think
the American Accentance Council i s doing a good work
and f o r a
time m u s t
b e sun:.orted
b y the ieserve Banks.
The fact i s they are just n o w doing some very importent
work f o r u s i n t h e i n v e s t i g a t i o n
o f t h e u s e o f domestic
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Federal Reserve Bank of St. Louis
accentance c r e d i t .
Governor e e l t h a n e I
belisve t h e F e d e r a l K e s e r v e
a circular stating thet this s h o u l d
be l e f t t o e a c h r e s e r v e b a n k .
The Chairmen.
B u t t h e y heve requested
sider i t here.
Governor Ncbougel.
I t was submitted
t o the 4dvisory
Council a n e t h e Advisory Covncil recortaended i n favor
of c o n t i n u i n g
b o t h classes
o f membershin,
with a
stetement
to t h e e f f e c t t h e t i t s h o u l d b e o p t i o n a l w i t h e a c h
reserve bank.
Governor F a x
tinue m e m b e r s h i p
O
u
r boarc p r o m p t l y v o t e d t o con-
i n the fmerican Acceptence Council a n d
we have p a i d t h e 1,600, this yeer's dues, a n d that happened
before t h e receipt o f a n y communicetion f r o m the Board.
We f e e l t h i t t h e & 4 m e r i c a n A c c e p t a n c e
sunrorted .
Council
should
be
k s t o the A m e r i c a n Bankors Associetion I
have s o m e d o u b t a s t o t h e v a l u e o f t h : tmembership.
has been discussed i n oub board several times, a n d I
not b e l i e v e t h e A m e r i c a n B e n k e r s A s s o c i s t i o n
I t
do
i s really
giving t h e Federal neserve S y s t e m t h e right kind o f support.
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Federal Reserve Bank of St. Louis
The Chairman.
égree with
N o r I. |
TLhave b e e n m u c h
have s o m e t h i n g m o r e e g i n s t i t .
(After f u r t h e r discussion: )
Governor Cslkins. I
h e sense o f the
move i t 3
conference t h a t t h e P e d e r a l x e s e r v e
o y
A
t
a ;
ats
membo: s h i p i n t h e A m o r i c a n A c c e p t e n c e
second thet.
Governor Biggs. I
Governor wellborn.
O u r b a n k i s i n fevor o f t h e
g s t enything
fmericen B a n k e r s A s s o c i a t i o n b u t w e d o n o t
out o f t h e A m e r i c a n A e c e p t a n c e C o u n c i l .
(The m o t i o n h a v i n g b e e n d u l y seconded,
w a s cerried,
and Governor e l l b o r n voted “no”.)
(After further informal discussion: )
move that. m e m b e r s h i p
The Chairman. I
i n the
appeers
Americen Bankers Association, a f t e r discussion,
to b e a
matter
o f some
doubt
i n the minds
tors o f m e n y o f t h e k e s e r v e B e n k s ,
ence r e c o m m e n d s
th t
a n d that. t h e c o n t e r -
the membership f o r t h e present
continued w i t h t h e h o n e t h e t
current y e o r a
o f t h e adirec-
be
i f extended beyond t h e
better w o r k i n g r e l a t i o n s h i p w i t h t h e
Americen B a n k e r s f . s s o c i c t i o n W i e l
b e eabapiieiee oii their
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Federal Reserve Bank of St. Louis
consideration
o f matters h a v i n g t o d o w i t h t h
Reserve S y s t e m .
Governor Norris.
[
T will s e c o n d t h e t motion.
having b e e n duly seconded, w a s unenimously carried.)
The Chairman.
T h e C h e i r w i l l e n t e r t e i n @ & motion t o
adjourn.
(Yihereupon a t s i x otclock pem., t h e Confess
adjourned u n t i l t e n o ' c l o c k tozorrow, T u e s d a y , A p r i l
neo
o f c l o c k ‘asms)
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Federal Reserve Bank of St. Louis
The Conference reassembled pursuant t e adjournment
at 1 0 o'tcleck a.m.
PPCSOmy -
A s p r e v i o u s l y noted.
PROCEEDINGS.
The Chairman.
Y
order.
T h e Confsrence w i l l kindly come t o
e e r e G o w n t o d i v i s i o n I I o n t h e program,
collections a n d clearings.
A. R e p o r t o f Stending Comnittee o n Collections.
As I unders t e n d i t the subject referred t o the
Standing Committee o n Collections includes t h e cuestion
as t o meking cherges o n non-cash collection items.
the c o u r s e o f t h e c o m m i t t e e ' s w o r k a
member
I n
o f the
Federal Heserve Board asked f o r a n investigstion e n d
report
o n t h e Barton report o f non-cash collections a n d
thet particular p r t o f their report i s made i n &
separe.te r e p o r t a d d r e s s e d
t o t h e rederel reserve B o a r d
ScnoOrs « T h e r e a r e t w o reports,
understand,
M r . Strater?
Ur. Strater.
The Chairman.
referred
as I
f e a , Shs
O n e deals w i t h t h e subject matter
b y t h e last conference
t o t h e Committee e n d t h e
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Federal Reserve Bank of St. Louis
other report: j o i n t l y d e a l s : = with matters referred
by the confercnce a n d b y the Federal K e s e r v e Board.
Governor C a i k i n s ,
M r . C h e irman.. m y m i n d = s
not a s f r e s h o n t h i s s u b j e c t
a s i t o u g h t t o be, i n a s -
much a s I read t h e report l a s t night quite late, b u t
I want t o put m y impression ebout t h e report i n the
snape:.of “a. motion, if-it-isdin
e
n
d I therefore
move that t h e report b e accepted, annroved,radopted a n d
filed a n d made a s the report o f this Conference o n thet
subject
t o t h e Federal Keserve Board.
The Chairman.
Y o u cover b o t h reports i n that?
Governor C a l k i n s .
T h e report
o f the Stending
Committee o n Collections o n non-cash items.
Governor Seay. I
The Chairman.
second thet motion.
T h e report o f the Committee o n
Collections i s i n two parts, o n e directed t o the GovernOre, COVering t h e various inatters referred t o the
committee
b y u s a n d the other a
senarate r e p o r t d i r e c t e d
especially t o non-cash items.
Governor G a l k i x
one th-t I
refs »
a
s
T h e s e c o n d P E D O P E Ls) T i e
the o n e o n non-cash items.
4
The Chairman. G e n t l e m e n , y o u have heard t h e motion.
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Federal Reserve Bank of St. Louis
have n o t h e d opportunity
Governor McKinney. I
yet t o read e n d make a
study o f this report a n d I
would
like t o meke thet observation a s a matter o f record here.
Governor McLougal.
r t would ssugzest thet Mr.
Strater outline t h e conclusions o f t h e commuittee. a
think t h e y are f o u n d o n the l a : D A L I
report rapidly a n d I think I
have r e e d the
understand it, b u t I
do
not s e e a n y d e f i n i t e r e c o m m e n d a t i o n s
Governor S e a y .
T h e recomiendctions
well through t h e report.
Mr. Strater.
recomendations
T h e r e i s n o summarizing o f the
i n t h e report.
Governor S e a y .
I
t i s the most thorouch treatment
that t h e subject h a s y e t received.
Governor Galkins. I
mersnt t o s u p p l e m e n t
m y remarks
by c o m p l i m e n t i n g M r . S t r a t e r a n d > i s c o m m i t t e e u n o n t h e
production o f e report which i s s
&
S O A C U S I V S 1 Wi D O U G 6 0 . Cine
Te C h a i r m a n . .
as t o t h e s t a t u s
becn a
m
e
e r y trorough
t i b e i n g argumentative.
JI would l i k e t o r e f esh y o u r m e m o r y
o f this subject «
littLe b i t .
i t
subject s t u d i e d b y t h e c o m m i t t e e r e p e a t e d l y a n d
the o n l y g e s t i o n s u b m i t t e d
t o t h e committee f o r consider-
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Federal Reserve Bank of St. Louis
148
1g t o non-cash colleetions s t the last conference wes. s o l e l y t h e q u e s t i o n a s t o whether «
charge
should b e made f o r non-cash collection service, h o w
much o f a cherge should b e made i f a n y i s t o b e made fna w h : t t h e e f f e c t o f 1 t w o u l d b e .
Governor Celkins.
T a n ' ’ t i t true thet later o n
another q u e s t i o n w a s a d d e d t o that?
The Chairmen,
A n o t h e r question w e s added b y the
Federal Reserve Board which,
i n substence, «
s that
growing o u t o f the report o f the Barton Committee which
recomiended t h e t t h e s e r v i c e s
b e discontinued.
T h a t was
submitted t o the committee b y a member o f the Federal
iieserve B o a r d t h e n t h e y w e r e a s k e d t o investigate.
report U p e n * a G e n d thet: report. t s “ a :
suprnlemental r e p o r t
o n the subject
and
& . DELDaOr a l a s
o f charging f o r ser-
vices.
It might b e well t o c M r . Streater i f h e will simnly summarize t h e conclusions o f the committee, f i r s t
ag t o the subject which w e refse.red t o the connittes,
namely, t h e making o f a ehrrge,
the c o m m i t t e e
a n d t h e n t h e findings o f
a s t o t h e B a r t o n report.
Mr. Streter. I
will be’glad t o d o tnt.
i w i
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Federal Reserve Bank of St. Louis
149
ead t h e c o n c l u s i o n s
o f t h e cemmittee w i t h respect
to
the effect o f the possible service cherge, w h i c h appears
the r e p o r t
respect
t o the Conference
and
t o the
b o tne
by reserve banks f o r t h e collection o f non-cash i t e m
while t h e C o m m i t t e e
i s o f the opin:on thet i f a
nerge b e m a d e i t s h o u l d b e n o m i n e l a n d f o r n o m o r e
than s u f f i c i e n t
unsble
t o c o v e r t h e c o s t o f t h e function,
t o estimate t h e effect o f s u c h a
per i t e m )
o n the volume
charge ( s a y 1 5 d
o f n o n - c a s h co’ lections
by: the resorve benks» W h i l e a
i t is
handled
emai. service chrpge o f
about 1 5 c e n t s o n a l l i t e m s w o u l d u n d e r p r e s e n t c o n d i -
tions cover t h e cost o f handling,
i t i s the Committee's
opinion t h a t t h i s enherge s h o u l d n o t b e m e d e u n l e s s
determined
i t be
t h t the income o f t h e reserve banks w i l l n o t
uaviCy tine “Service Tree ce. cheers, e n d even then i t
be a d v i s a b l e
t o c o n s i d e r whet?:er
phe Other Tree :
be a b a n d o n e d d v e f o r e
o r not some
o f
W h i c h a r e more costly might n o t
such
“Tt s h o u l d ¢ l s o
b e remembered
member banks h e s b e e n restricted,
thet
t i s
service
t o
t o sone extent a t lerst,
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Federal Reserve Bank of St. Louis
150
during recent years b y reason o f the fact thet t h e use
of t h e F e d e r a l r e s e r v e l e a s e d w i r s s . h a s b e e n p r o h i b i t e d
fin connection with «
m a t t e r relating t o non-cash c o l -
LeCTaIone | ane a °esrvice. thereat
placed
h
gt
a
s been
o n a l l i t e m s r e t u r n e d u n r a i d a n d vnppotested.
The C o m i t t e e d o e s n o t believe t h e t t h e expense o f pers even B36
forming this function will meteriaily i n c r e : e
the volume o f collections handled b y the reserve banks
continues i t s gradual growth.
“It 1 s further t h e opinion o f the Committee t h a t a s
a last resort a
charge should b e meade f o r the service i n
preference t o abandoning it, because
i t 1s 4
banking
service which should b e avsilable t o member banks even
if it be deemed necessary t o make a charge for it. T h e
Committee offers t h e suggestion thet, i f a charge
deemed
t o b e necessary, Y»i t misht
placing a
b eg w e l l
i s
in
t o b e g&
y by
service cherge f o r t h e collection o f items
payable i n Federal resurve bank e n d branch c i t i s i n c e
they are actually collected b y the reserve banks t h e m -
selves."
That c o v e r s
Committee
h
e cuestion t h a t w a s submitted
b y t h e Conference.
t o the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
LS .
d
Chairmen.
N
the B a r t o n r e p o r t ,
report
o
w
S t r a t e r ,
w i t h rezard
t o
W h e a t a c e : t h e c o n c l u s i o n s -~of-4Ahe
O n that matter?
Mr. Strater.
T h e Barton report i s rether a
lengthy
document.
7ou. not s u m m a r i z e t h e c o n c l u s i o n s
in a
f e w words?
Me. Strater. 1
W i d G e e O o 0 0 See d a e the: Berton
report t h e first point th:.t i s brought u p ils the definition o f n o n - c a s h items.
T h e stetement
i n the Barton
brier: i s e
"Our contention i s that e n y sight o r time draft
with o r without d o c u m e n t s a t t a c h e d d r a w n a g e i n s t
individual f i r m o r c o r p o r a t i o n w h i c h c o m e s
an
i n t h e posses-
sion o f t h e F e d e r a l iies:rve B a n k w i t h o u t t h e F e d e r a l
Reserve B a n k h a v i n g r e d i s c o u n t e d t h e s a n e f o r s e member
bank i s a Non-Cash Item; therefore, a
their possession.
Likewise
a n y ue
collection
i n g note wrich
the Federal Keserve B a n k m e y b e revuested t o handle f o r
collection w i t h o u t
t h e Fedei<l
rediscounted t h e same i s e l s o a
nes-rve
B a n k Heving first
Non-Cash Item.
that a l l dunning drefts, ete., i n wich,
Further,
o f course,
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Federal Reserve Bank of St. Louis
62
neither
t h e member
bank nor
F e d s v a l tesorve
Bank
SSUGG. winches a r e N o n - C a s h
ing into t h e possession
of a
Feders
2 9 6 3
n o t drawn o n or
a bank o r trust company a n d for w h i c h Keserve B a n k has
ROCOUMG s5O-isb.S
. o r s e r
Your c o m n i t t e e a n s w e r s
Lc. L S important.
Committee's d e f i n i t i o n
t o n o t e thiat-the Ave. A;
o f non-cash items,.as summarized
in the last sentence o f this parigraph,7 will exclude
from t h e S y s t e m a
vast n u m b e r o f i t e m s w h i c h
banks g e n e r a l l y c o n s i d e r a n d
and w h i c h
i e
n o w being received f r o m t h e m a n d handled
by reserve banks a s cash items; a n d a s explained previously i n this report,
i t i s the Committee's opinion
that member banks generally d o not k n o w this a n d are
uninformed a s t o the effect i t will heve u p o n them."
In tne second paragreph t h e Berton Commiitec mekes
the statement;
“Thet the pres ent service o f handling Non-Cash
Items a s h e r e i n b e f o r e d e s c r i b e d
. s meterially unbalanced
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Federal Reserve Bank of St. Louis
153
in its benefits t o the member banks o f the system. *
in reply t o that your committee states:
"(b)
meant
I t i s not clerr t o the C o m m i t t ‘
e what i s
b y t h e stetement t h e t t h e present s
ervice o f
handling Non-Cash Items ismaterially unbalanced i n its
benefits t o the member banks o f the System.
I t seems
the C o m m i t t e e t h a t t h e b e n e f i t s e r e u n b a l a n c e d o n l y
so f a r a s m e m b e r b a n k s t h e m s e l v e s
wnich t h e y n e 1
t
h
l i m i t t h e extent
e service, since t h e service
ell member benks alike a n d ¢« a r e free
Lu would seem, ~thererore, t h e t there i s
little justification f o r this statement unless i t b e
considered that member banks located i n a city where
Lene
2s a
Federal r e s e r v e b a n k o r b r a n c h c a n n o t d e r i v e
ame benefit f r o m t h e service a s i s dcorived b y
member banks located elsewhere,
I t i s a fact, however,
thet member banks loctted i n a Federal reserve b a n k o r tes
branch c i t y c e n collect throuzh their reserve b a n k a l l
non-cash i t e m s p a y a b l e
i n other r e s e r v e b a n k a n d brénéh
cities a s vell a s i n the country a t ler-s; a n d according
to the report o f the Committee o f Governors, d a t e d March
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Federal Reserve Bank of St. Louis
154
24, 1924, three fourths o f the member banks- located i n
“Federal r e s e r v e c i t i e s
a e u s i n g t h e collection facili-
eeticelly one-trird o f the items collected
are r e c e i v e d f r o m t h o s e members,
true that member banks l o c a t e d i n Federal
r serve b a n k a n d b r e n c h c i t i e s « i e d e p r i v e d o f t h e
exchange o r collection charges where s u c h charges c r e
meade,
o n items p a y a b l e
i n their o w n cities w h i c h t h e y
would receive f o r collection,
not handling non-cash items.
i f the reserve b a n s w e r e
T r e fret should n o t b e
overlooked, however, t h e t those member banks enjoy
many advantages b y reason of. their location which a r e
to country member banks, a n d the discontinuance
o f the collection function would further
en-
phasize t h o s e a d v a n t a g e
Shalem lals tar scion at:
a p h o f t h e Barton report t h e state-
is made:
"That t h e F e d e r a l k e s e r v e B a n k i n g S y s t e m c a n n o t a f the o v e r h e a d e x n e n s e i n c i d e n t
t o t h e performance
of
service."
In answer t o that, your committee stités:
“te.
‘2
A s has alrezdy been stated,
t h e expense o f the
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Federal Reserve Bank of St. Louis
non*cash c o l l e c t i o n f u n c t i o n
h a
during 3the
number
o f iteins h a n d l e d h a s inereased.
the s e r v i c e d u r i n g 1 9 2 4 w
T h e expense o f
as 888,146.00
of t h e t o t a l c u r r e n t e x p e n s e s
or 3
per c e n t
o f t h e reserve banks.
As l o n g a s t h e r e s e r v e b a n k s a r e p e r f o r m i n g o t h e r a n d
more e x p e n s i v e s e r v i c e s f o r ti.eir m e m b e r b a n k s f r e e o f
cost, i t would s e e m thet there i s little justification
for discontinuing t h e non-cash collection service o n this
ground.
A s has been stented, i t i s well recognized that
tne n o n - c a s h c o l l e c t i o n d e p e r t m e n t
i n reserve b a n k s c o u l d
not b e d i s c o n t i n u e d e n t i r e l y , s i n c e i t i s s o i n t i m e t e l y
assoclated w i t h t h e p e r f o r m a n c e
o f other functions a n d
therefore a l l o f t h e p r e s e n t c o s t o f t h e f u n c t i o n c o u l d
not b e saved.
I n this connection,
i t i s the Committee's
Ovinion tliat. 10. 1 8 -n0t 3 0 m u c h a
System c a n e f f o r d t h e e x n e n s e
a s i t 1 s whether e
member
bank has t h e justifiable right t o expect o f its reserve
bank correspondent a
banking service which i s permitted
under t h e Act even though t h e service m a y o r may not
be used extensively b y member banks gener:lly."
In t h e f o u r t h pare.graph
t h e B e r t o n c o m m i t t e e states:
ei
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Federal Reserve Bank of St. Louis
156
‘That i t i s i n c o n s i s t e n t f o r a n y business o r g a n -
ization t o carry o n a n activity which incurs diaplility
without remuneration, e n d t h e Fedeiel reserve Banks
collection business without incurring
of items o r securities o r documents a t t a c h e d ,
failure
t o protest
o r other accompany-
ing instructions m a y result i n loss t o Federel Reserve
Banks handling seme."
in reply t o that your Committeo states:
“tay. A l c o r t h e sservices ef.the reese
in which liability i s incurred a r e performed without
remuncration,
with the s
ingle e x c e n t i o n
5
o f the dis-
a l
count function C u r r e n c y i s received f r o m tember banks
for exchange, replacement a n d redemption, a n d shipments
are mede t o member banks; fiscal agency operations a r e
performed, s e c u r i t i e s a r e r e c e i v e d a n d h e l d f o r s a f e
keeping o r a s collateral; Government coupons a r e paid,
securities are b o u g h t a n d sold f o r member banks, a n d
checks a r e collected;
o
f w h i c h ope: ations a r e c o s t =
Ly DULY 20s" W i e h n o r e v e n w e is-pepolved.
i f , there-
fore, t h i s objection iwere recognized i t would apply
with equal force t o practically a l l other sservices
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performed, w i t h t h e excention o f thet o f discounting."
The n e x t s t r t e m e n t
b y the Barton committee i s :
"That there i s n o saving o f time i n the handling
of c o l l e c t i o n i t e m s b y Federal K e s e r v e
there m a y b e a loss o f
e s
E estage otpre
©
n e i n routing collection items
through F e d e r e l H e s e r v e
K
5
S i n s t e a d o f member b a n k s
routing them direct."
Your c o m m i t t e e p o i n t s o u t :
"(e)
T h e obvious answer t o the objection t h e
there i s n o seving o f time i n the hendling o f collection
items
b y reserve b a n k s w o u l d b e t o merely s a t a t e t h a t
there i s nothing t o compel member benks t o s e n d their
items t o t h e r e s e r v e b a n k s ,
croice.
A s a
matter
a n d they d o s o o f their e w n
o r tact, h o w e v e r ,
itis
s t least
a question whether a n actuel saving o f time i s not ef-
fected b y the practices o f reserve banks i n handling
non-cash items a s compared with t h e practices o f commercial banks - - particularly before t h e System w a s inaugurated. -[tems a r e received b y a res erve bank from its
members,
payable
i n its o w n district
Pedereai--reserve d v e t n i c t s .
own district,
i
a n d payment
i n other
f e n i t e m i s payatlLe i n i t s
i t i s t h e usual procedure
t o s e n d i t direct
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Federal Reserve Bank of St. Louis
158
to the place o f payment, a n d w e n n e y e b l e i n another
Federal reserve district i t i s
Reserve b a n k o r branch serving t h e territory i n which
it i s payable, a n d that reserve b a n k sends i t direct
to t h e p l a c e
o f payment.
I
t i s true that
i f member
banks themselves should route their collection items
direct t o t h e place o f payment, a
saving o f time would
be effected, b u t i n the majority o f cases i t is the
practice
o f member b a n k s
t o s e n d tv-eir i t e m s t o t h e i r
correspondent banks s o that t h e correspondent banks
Meayrselect-a-benk to-“scab a s c o l l e c t i n g a g e n t ,
it i s impracticable,
a n d since
o f course, f o r « member bank t o
maintcin correspondents a t all points, t h e majority o f
items
a r e not sent direct
t o the place
o f payment.
A s
in the case o f the circuitous routing o f checks before
the inauguration o f the Federel Reserve System,
i t is
e n t i r e l y Vv p o s s i b i l e t h a t c o l l e c t i o n i t e m s w o u l d p a s s s
of s e v e r a l c o r r e s p o n d e n t
before being actually paid.
banks
I t i s slso true, n o doubt,
thet w i t h t h e inaveguration o f t h e F e d e : 4 l iheserve
System, m e m b e r b a n k e d u c e d t h e i r b e n k i n g c o n n e c t i o n s
it s h o u l d
b e unneceg-
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Federal Reserve Bank of St. Louis
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‘
sary f o r t h e m t o m a i n t e i n c o r r e s p o n d e n t s p r o v i d e d
Federel reserve banks w i l l perform reasonable banking
services
f o r them which were formerly performed
thelr correspondents.
I t would s e e m t o b e quite ex-
pnedient f o r m e m b e r b : n k s
in a
majority
since a
o f cases
b y
s e n d their collection items
t o t h e Fedei:.1 r e s e r v e b a n k s ,
Federal reserve b a n k i s quite naturally i n a
better position t o select e n agent i n the territory which
it s e r v e s a n d w i t h w s i c h i t i s f a m i l i a r t h a n a n o t h e r
bank n o t l o c e t e d
i n that territory w o u l d be."
In the next paragraph o f the Barton report t h e y say:
IMhet member banks could absorb the service n o w performed b y Federal neserve Banks i n the collection o f
Non-Cash I t e m s w i t h o u t a n y a p p r e c i a b l e i n c r e a s e
cost o f operation,
i n their
i n that every collection i t e m thet
is n o w handled b y Federal iieserve Banks originates i n
a member bank,
a n d that o n l y i n the thirty-five cities
in w h i c h t h e r e i s e s t a b l i s h e d a e Federal H e s e r v e B a n k o r
Branch i s t h e s e m e i t e m p r e s e n t e d
it i s d r a w n w i t h o v t
t o the perty upon w o m
i t having t o b e sent t o e
bank b y
the F e d e r a l n e s e r v e B a n k i n t h e c i t y i n w h i c h i t i s
payable f o r presentation.
T h u s , a l l t h e collections
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handled
b y Federal iieserve B a n k s , e x c e n t i n g t h o s e
payable
i n cities «foresaic
n a v e handled
iL
et a
duplica-
tion o f service costs."
In reply t o that your Coruittee
"(f) T h e stetement thet member b a n k s covld absorb
the services n o w performed b y Federal reserve banks i n
wa)
the c o l l e c t i o n
o f non-cash items without
e n y appreciable
their c o s t o f o p e r e t i o n m u s t n e c e s s a r i l y b e
predicated u p o n t h e assumption that m e m b e r s n o w using
the collection service o f the reserve banks, would,
in
the event o f its discontinuance, s e n d @ll items direct
to t r e p l a c e o f payment i n s t e a d o f u s i n g a
bank.
correspondent
T h e further stetement that a i l collections handled
by the reserve banks, excepting those payable in:the
Federal reserve b a k a n d branch cites, a r e handled a t a
dvplicetion
o f cost, m u s t l i k e w i s e
same assunption.
but a
b e based upon t h e
I f -the items were 1 0 % sent direct,
commercial c o r r e s p o n d e n t u s e d , t h e r e w o u l d b e t h e
me duplication o f handling t h e t n o w exists.
I n tis
connection, t h e fact must a o t b e overlooked that member
banks must necessarily k e e p accounts w i t h rederel r e serve banks, e n d since t h e y e r e under t h s t necessity,
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Federal Reserve Bank of St. Louis
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occasion exists f o r them t o cre:te balances a t
reserve b a n k s , w h e r e
p
e s
rie o c c a s i o n m a y o r
may not exist w i t h respect t o t cir commorcial correspondents;
a n d i t does n o t s e e m thrt member banks
should b e f o r c e d
t a b l i s h correspondents
nection w i t h t h e c o l l e c t i o n
i n con-
o f non-cash items, w h i c h
would n e c e s s a r i l y b e t h e c a s e i f t h e s e r v i c e w e r e
discontinued b y reserve banks."
The n e x t c s t e t e m e n t
i n the Barton brief
member b a n k s m a i
n i n a
i s a
curious
collection d e p a r t -
ment f o r t h e handling o f outsoing a n d income collecnd a lerge percentage o f membe a n k s i n c u r
costs o f ndvertising o f this fact i n e n effort t o put
their c o l l e c t i o n d e n s r t m e n t s
o n a
Your C o t l e c t i o n C o m m i t t e e
maintenance
answers
o r
that st:tement
as f o l l o w s :
f(g)
& J I t would s e e m that this o b j e c t i o n could o n l y
apply t o m e m b e r b e n k s l o c s ted i n t h e c i t i e s
J
rere
i s a Federal reserve b a n k o r branch, f o r the
reason t h z t m e m b e r
bar l o c e t e d elsewhere receive items
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Federal Reserve Bank of St. Louis
162
for c o l l e c t i o n f r o m t h e r e s e r v e b a n k s a s w e l l a s f r o m
other Danks.
L i m most i n s t a n c e s ,
sex
b a n k s loceted
in t h e F e d e r a l r e s e r v e c i t i e s h a n d l e c o l l e c t i o n i t e m s
for their correspondents, wiiich maintain balances w i t h
them, w i t h o u t w a k i n g a
collection c h a r g e ,
they a r e p o s s i b l y d e p r i v e d
o f some exchange w h i c h t h e y
might cherge o n certain items should t h e y handle them,
they o n t h e o t h e r h e n d a r e a t
t
o collect through t h e
reserve banks all items payable outside o f their cities,
is = e l i e v e d t h a t t h e e x c h a n g e
o r collection
charges saved o n such items would more t h a n compensate
for any loss o f exci:ange that they might suffer,”
The n e x t ste«temeht i n t h e B a r t o n b r i e f i s :
"That t h e presentation o f collection items b y
Federal H e s r v e Banks i s generally unpopuler w i t h t h e
public,
because
items p r e s e n t e d
the e x e r c i s e
o f t h e inconvenience
b y Federel
t o t h e payer
neserve Banks
i n that
o f
i n
o f action t h e Federal Kesirve Bank's
general p r a c t i c e
i s t o require t h e t t h e payer m u s t p a y
in cesh o r b y a dreft o f e member b a n k drawn against i t s
Federal k e
T
h
e
r
e
f
o
r
Federal Kessrve B a n k takes a
a
e
,
when a
runner f o r
collection across ‘ths
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Federal Reserve Bank of St. Louis
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town s o m e f i f t e e n o r t w e n t y ploci
payment,
n
o peesrenbe t i n o r
t h e payer i s confronted w i t h t h i s condition
of payment b y the runner, a n d accordingly has t o p e y i n
ecsh, w h i e n h e seldom fas o n Hand, o r 6
t o bis bank
and arrange f o r a draft i n fevor o f the Federel Heserve
Bank i n payment
and a n n o y a n c e
o f t h e item.
T h i s i s a n inconvenience
t o h i m a n d does n o t create f o r t h e Fed-
erel HKeserve B a n k a
friendly feeling o n the part o f the
public, w h i c h t h e y a r e a t a l l t i m e s h o p e f u l
o f acquiring."
Your Comaittee answers t h a t stetement i n the following way:
"(h)
I t i s the Committee's understanding that
reserve banks i n handling local collection items follow,
as far a s pr:cticable, t h e practices established b y
commercial banks i n those cities.
T h e
s r v e banks
undertake t o offer t h e public e v e r y convenience a n d
Fo)
facility f o r p a y i n g i t e m s , c o n s i s t e n t w i t h s : T e t y a n d
prudence,
s
a n d i n t h e majority o f cases
i n w h i c h co: plaint
been registered
b y e n individu:
l payer
o f a n item,
a
h
ev
an i n v e s t i g a t i o n w i l l d i s c l o s e t h e f e c t treat t h e r e s e r v e
bank h a s b e e n e x t r e m e l y r e a s o n a b l e
a n d has offered
relieve t h e p a y e r o f a n y u n n e c e s s s r y t r o u b l e
t o
o r annoy-
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Federal Reserve Bank of St. Louis
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end t o effect arrangements w i t h i s commercial
parment
o f t h e i t e m without e n y trouble
expense t o him.
tered complaints ore, a s a rule, those w h o are
deserving a n d w h o w o u l d n o t r e c e i v e a n y m o r e c o n s i d é r ate t r e a t m e n t f r o m e
commercial b a n k . "
Tien t h e B e r t o n C o m m i t t e e s t a t e s
te
4
a s follows:
Me a r e convinced f r o m o u r
yice t h e t G o v e r n o r s
o f c e r t a i n F e d e r a l tieserve B a n k s
contending f o r t h e continuence o f this service a r e
influenced
b y their immediete environments because
the b e n e f i t s t h e t a c c r u e t o c e r t a i n i n s t i t u t i o n s
of
i n
large industrial e n d commercial centers i n which certain F e d e r a l K e s e r v e B a n k s a r e l o c a t e d a n d d o n o t
represent t h e a t t i t u d e
o n this s
ubject
o f their
constituency a s a whole."
Committee trcats t h a t «uestion i n this way:
tre G o v e r n o r s
eserve benks,
rvice,
i n contending f o r t.e continuance
a r e influenced
environment, v e c a u s e
certcin i n s t i t u t i o n s
o f certain
b y their
immedicte
o f t h e benefits t h a t accrue
to
i n c e r t a i n r e s e r v e b a n k cities;
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Federal Reserve Bank of St. Louis
and t h e t t h e i r a t t i t u d e
ts.
reserve banks! constituency a
Comnittee
epresentative
o f the
w h o l e , seoms t o the
t o b e without foundation.
I t has been t h e
Committee's impression thet t h e opposition t o the
service h a s centered almost entirely, i n the commercial
banks located i n Federel reserve b a n k a n d branch cities
and i t seems obvious t h a t these could b e n o reason o P
justification whatever f o r a n y objection coming f r o m
any other member benk."
The Barton committee t h e n states:
Wwe are firaly o f the opinion thet i t was not
intended
that a
Federel
neserve Benk should function
conmin a n y c a p a c i t y t h s t w o u l d b r i n g i t i n t o d i r e c t
o r t o deal
in
a s i s necessary
in
petition w i t h e n y o f i t s m e m b e r b a n k s ,
any w a y d i r e c t l y w i t h t h e public,
handling o f t'e collection business."
Your C o m i t t e e
"(4)
i n r e p l y t o t h e t states:
I f i t may b e charged that Federal reserve
banks e r e Girectly competing
performance
w i t )hteir member
o f t i i s sservice, ee i t c e n n o t
t
h
e
b e cliimed that
thaw s h o s s
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Federal Reserve Bank of St. Louis
166
numerically a r e small, end, a s cst: ted above, i t has
been t h e committee!ts understending that t h e opposition
has e m a n a t e d a l m o s t e n t i r e l y f r o m t r o s e banks.
Admit~
ting t h e comnetitive effect that i s “produced b y reason
of the fect thet r serve banks themselves collect items
peyable
i n their c i t i e s ,
i t d o e s n o t s e e m thet. t h i s
affords sufficient cause f o r reserve banks t o discontinue handling non-cash items - - not e v e n tio:e items
p.yable
i n treir eities - - a n d thus deprive t h e c o u n t r y
member banks o f thet sservice f o r e number o f reasons,
which have already been covered i n this report, e n d
which m a y b e s u m m a r i z e d e s follows:
"1.
B y the passage o f the Federal Reserve Act and
the e s t e b l i s h m e n t
of a
new o r d
reserve b a n k s s r e n e c e s a r i l y p l a c e d i n c o m n e t i t i o n w i t h
their member banks i n the administration o f many funetions which e r o authorized b y the Act.
Be i n a s m u c h a s a l l m e m b s r b a n k s a r e r e q u i r e d
under t h e A c t t o carry their reserves i n Federal reserve
banks, t h e y a r e entitled t o -sasonable banking services
wiich w e r e f o r m e r l y a f f o r d e d t h e m b y t h e i r c i t y c o r r e s -
pondents,
i n order that i t might n o t b e essential f o r
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Federal Reserve Bank of St. Louis
“167
them t o maintain additional balances 1 : t h e r b a n k s i n
order t o o b t a i n c e r t a i n services.
B y reason o f treir location, member banks i n
"Ss
Federal reserve cities enjoy advantages w h i c h e r e n o t
available
t o b a n k s locats:d elsewhere,
continuance
a n d t h e dis-
o f the collection service w o u l d further
emphasize t h o s e a d v a n t a g e s o v e r c o u n t r y m e m b e r banks.
ay h e c o r d i n g t o the survey o f the Committee o f
Governors, t h r e e - f o u r t h s
o f t h e member banks loceted
in
reserve b a n k a n d b r e n c h c i t i e s a r e u s i n g t h e c o l l e c t i o n
facilities,
hendled
pers.
a n d p r a c t i c a l l y Gue=spoard o f “the z t e n s
b y reserve b a n k s a r e r e c e i v e d f r o n t h o s e m e m -
T h e collection charges s a v e d f o r those banks,
it
is believed, m o r e t h a n compensate f o r a n y loss o f
e
exchange"
The n e x t p a r a g r a p h
i n t h e B a r t o n r e p o r t states:
"That the service o f handling collection items b y
Reserve Banks
i s not needed e 3 a measure o f
expense o r time t o member banks, a n d the
benefits t h n t accrue b y virtue o f tiis service a r e
being canitelized b y certain member banks f o r profit
to them f o r charges which t h e y c a n make t o their cus-
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Federal Reserve Bank of St. Louis
168
tomers f o r handling collection items that t h e Federal
Reserve B a n k h a n d l e s f o r t h e m w i t h o u t c h a r g e o r i t
accrues directly t o the individual f i r m o r corporetion
wero f u r n i s h e d n o p a r t ?
Federal Heserve B a n k
t h e capital u p o n Wilehe t h e
i s operated, and, therefore,
entitled t o n o part o f b e n e f i t s directly."
Your committee i n answering t h a t states:
"“(k )
I n view o f the use thet i s being made o f
the collection e e i c s ,
i t is difficult t o conceive that
the s e r v i c e w o u l d b e a v a i l e d o f t o s u c h a n extent u n l e s s
it resilted i n either a
member b a n k
aecrue
B
ssaving o f expense o r time t o
a sto whether
Q u e e s u l t
O f - t h i g - s s e r v i CeOfare D e i n e
ized b y certain member a
s
o f n o t L H e penslii6
tna
copies=
l
wics for profit, because-of
g
r
a they
h
c a Y c a n make
which
t o tieir customers f o r
e
handling items which t h e resorve banks collect f o r t h e m
without cost, does n o t s e e m t o t h e Committee t o b e
matter which t h e reserve bani
betes < It, Onavee
h e
n e called upon t o regu-
1 a s u c h benefits accrue direct-
Ly t o tho indlividuel, f i r m or: corporation f o r which t h e
collection i s made, t h e Committee d o e s n o t agree with the
sstetement t h e t s u c h individuels,
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Federal Reserve Bank of St. Louis
169
are e n t i t l e d
t o n o p e r t o f the benefits
o f t h e System.
Prectically e v e r y f u n c t i o n o f t h e r e s e r v e b a n k s a n d t h e
lerge economic saving a s a result o f the Federal
Reserve S y s t e m h a s r e d o n d e d t o t h e b e n e f i t
o f the
general public, w h o constitute t h e customers a n d denositors
o f member banks, a n d i t i s unquestionably t r u e
that s o m e o f t h e p r o v i s i o n s
o f t h e Federal Reserve A c t
were f r e m e d a t t h e i n s t e n c e a n d i n t h e i n t e r e s t
o f the
business public."
The next paragraph i n the Barton committee report
"That i t is unfair t o impose a discretionary duty
upon R e v e r s e b a n k m e n r g e m e n t
b y i t having t o dsily
choose which member shall heve t h e collection items
on @ point where there a r e nore t h e n o n e member bank,
a situation w h i c h s l o n e l e a d s
t o d i s s e n s i o n a n d dis-~
satisfaction,: resulting i n the basis f o r a charge o f
favoritism."
In a n s w e r t o t h e t y o u r C o m m i t t e e s t a t e s :
i i3) C o l l e c t i o n agents are selected b y reserve
banks with discretion a n d fairness a n d with d u e regerd
for t h e i n t e r e s t s
o f a l l concerned.
I f i n a n y case
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Federal Reserve Bank of St. Louis
ted,
there should b e a charge o f favoritism i n the selection
ib w o u l d s s e m t o t h e c o m m i t t e e t h a t
valecbly adjusted t o the satisfac-
banks involved with little difficulty.”
The next point reised b y the Barton comiittee is:
"That many member banks receivi c o l l e c t i o n . 2tems
from Federal Keserve Banks n o w remit without
beceuse t h e y a r e u n d e r t h e i m p r e s s i o n t h e t e n y 1 t o m
handled for «a Federal keserve Bank cannot b e charged
upon.
T h u s through t h i s feeling o f service
cooperation
with t h e Federal
Rescrve Banks
t o and
they are
omitting charging f o r e servic
justly entitled t o remuneration."
Your comnittee states inanswer t o thet:
"(m)
T h e objection o n the ground that m a n y member
ks are remitting t o Federal reserve banks f o r collec-
ion items without cherge because they are under the
impression thet t h e y cannot make e a charge o n e n y item
handled f o r a reserve bank,
t h e opinion o f the Com~
mittee i s without a n y force a n d should receive little
or n o attention, s
ince t h e non-cash collection circulars
,
of t h e m a j o r i t y o f r e s e r v e b a n k s ,
i f n o t a l l o f them,--
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Federal Reserve Bank of St. Louis
Bly8
v
it plain thet i t i s customary f o r member banks
t o
charges f o r collecting non-cash i t e s
not expected t o handle t h e m free o f cha s e for reserve
banks.
I f member banics a r e omitting t o charge through
a feeling o f service t o a n d cooperation with t h e rcserve
banks, w h i c h t h e A. B. A. Committee states t o b e a fect,
it would s e e m t o b e a n argument f o r t h e continuance
of the function b y reserve banks."
in the next paragraph o f the Barton report there a r e
quotations f r o m t w o l e t t e r s r e c e i v e d f r o m b a n k e r s
in
reply t o the letter ssent o u t b y the Committee:
"Ooting f r o m letters recently received f r o m bankers,
which a r e hereto attached,
a s aforesaid, I
desire t o call
your attention t o a letter f r o m the First Netional B a n k o f
Detroit, Michigen,
a s follows:
"tas a comaerciel benk inter sted i n giving direct
and p r o m p t s e r v i c e ,
w e & r e opposed t o t h e Federel e s e r v e
Won-Cesh I t e m s f o r the following reasons:
Loss o f time i n routing items directly.
Slow a n d lncomplete edvices o f vayment.
Additional t i m e a n d trouble t a k e n t o recell o r reduce i t e m s .
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Federal Reserve Bank of St. Louis
Bia
4th. D i f f i c u l t y i n obteining adjustment caused b y
Coc
errors.
More o p p o r t u n i t y f o r s p e c i s l i n s t r u c t i o n s
overlooked
t o be
o r i m p r o p e r l y p a s s e d one!
‘The Fort Vorth Netional Bank, Fort “orth, Texas,
write
i n p e r t a s follows:
“tThe institution w i t h which I
a m connected i n
one month handled move t h e n 4 0 0 , 0 0 0 o f cotton drefts
through the collection depsrtment o f Federal Reserve
eee
a n d based o n e n average collection cherge o f
one-tenth o f one n e r cent there resulted «
this bank o f more then ,400.00.
saving f o r
w h i l e this i s
profit for this perticular bank, i t was mede e t the
expense o f several banks located i n F e d e r a l Reserve
Cities,
and a
profit
t o which t h e y wore j u s t l y e n -
titled, e n d which should have b e o n paid b y the drawer
of the drofts o r the depositor.'!"
Your C o m m i t t e e d e a l s w i t h t h e t m a t e r i n this way:
"(n)
f sa
A: B.A. C o m m i t t e e s
result o f a letter s e n t o u t b y the
t o 8 5 benkers
i n all part
o f the United
States u n d e r d e t e o f N o v e m b e r 1 9 ,
expression
o f opinion o n t h e question o f whether
o r not
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Federal Reserve Bank of St. Louis
LTS
Federel reserve banks should collect non-cash items,
the b r i e f s t a t e s t h e t 5 4 replies w e r e r e c e i v e d p r i o r
to D e c e m b e r 5 , 1 9 2
opinion t h a t t h e c o l l e c t i o n o f n o n - c a s h c o l l e c t i o n s
reserve b a n k s s h o u l d b e discontinued.
by
“uotations from
two o f the replies a r e given, a n d , i f they were selected a s those contsining t h e best reasons f o r the discontinuance o f the service b y reserve banks, t h e Committee
cannot escape t h e conviction t h : t they weaken t h e case
of t h e A . B . A&A. G o m m i t t e e v e r y much.
T h e statements
i n
the letter received f r o m t h e First National B a n k o f
Detroit, Michigen,
a r e merely criticisms o f the service
and d o not contein a n y element o f argument f o r discontin-
uing it.
I f the statements are founded upon facts, t h e
service r e n d e r e d b y r e s e r v e b a n s s h o u l d b e i m p r o v e d
rether t h e n discontinued.
T h e mwotations f r o m t h e letter
of the Fort “orth National Bank, F o r t Worth, Texas, would
seam t o the Cormittee t o present a
more logical argument
for c o n t i n u a n c e t h : n f o r d i s c o n t i n u a n c e
This b a n k e r stetes t h a t h i s b a n k
o f t h e service.
a s collected
month, through t h e Federel res» v e banks, m o r e t h a n
“400,000 o f cotton drafts, which resulted i n a saving for
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Federal Reserve Bank of St. Louis
174
his bank o f more then 4 4 0 0 , based o n a n average collection charge o f one-tenth o f one p e r cent.
H e further
states thet while this w a s a profit f o r his bank, i t was
a loss o f revenue t o the banks i n the Federal reserve
cities, because t h e Federel reserve banks handled t h e
items without charge.
I t . s o b v i o u s t o anyone t h a t
he had t h e preference o f sending t h e items
banks
w h o lost t h e revenue rether
reserve bank.
then
t o those
t o t h e Federal
I n considering t h e stetements contained
in both o f these letters, t h e fact should n o t b e overlooked t h a t u s e o f t h e s
banks
ervice o f f e r e d b y t h e r e s e : v e
i s not mandatory."
7
Now t h e B a r t o n C o m m i t t e e
heb
i n its next paregraph
t S future stebility a n d popularity o f the
Federel Reserve System must b e gu: rded against a n y
tendency t o increase i t s cost o f oneretion b y dealing
directly w i t h t h e p u b l i c
i n a n y manner o r coming i n
competition w i t h its members.
F r e e services have built
up overhead t h e t hes t o b e met b y oven market activities
detrimentel t o its future."
Your C o m m i t t e e
sstetes
i n answer
t o that:
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Federal Reserve Bank of St. Louis
175
basHw A n s w e r s t o the stet ments conteined i n tris
peregraph have already been covered i n t*is report a n d
need n o t b e repeated.
I n t h e o p i n i o n o f t h e Committesc,
the federal n e s e r v e B o a r d e n d t h e F e d e r e l r e s e r v e b a n k s
should s e e k t o decide whether o r not t h e majority o f
member b a n k s w e n t t h e s e r v i c e c o n t i n u e d
o r discontinued,
but e x t r e m e c a r e s h o u l d b e t a k e n t o i n v e s t t h e m i n
advance o f their answers w i t h a full knowledge a n d
understanding
of t h e s
t h e efrect u n o n them o f the abolition
ervice.
A s has b e e n previously stated, t h e
onen m a r k e t a c t i v i t i e s w h i c h w o u l d b e r e q u i r e d
sufficient r e v e n u e
t o furnish
t o provide t r e service é r e insignifi-
cent."
The B a r t o n C o m m i t t e e t h e n csays:
‘ie believe that i t is universally recognized that
there i s a necessity et t h e present t i m e o f reducing t h e
overhead cost o f the System, a n d «ie therefore, f i r m l y
of the opinion thst i t would b e recognized b y a large
majority o f t h e m e m b e r s h i p
o f t h e S y s t e m e s prudent
in
the interest o f economy t o eliminete f r o m the Sistem t h e
handling o f collections, t h e r e b y seving t h e Syste
excess o f one million dollars p e r ennum, a n d w e
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Federal Reserve Bank of St. Louis
vinced t h a t s u c h a c t i o n o n t h e p a r t o f t h e R e s e r v e
Board would meet with t h e anmrovel o f the majority o f
its members a n d certainly could b e done without a n y
serious embarrassment t o any member."
In answer t o thet, y o u r Committee states:
"(p) T h e cost to the reserve banks of performing
the function a n d the effeet u p o n their expenses o f
abolishing i t have elreadyy b e e n covered i n this r e -
perce”
In conelusion your Committee states:
"In conclusion, t h e Committee cennot refrain from
stating thet the brief, togetier with the attached exPibits, conteins inaccuracies a n d i n its opinion m a n y
of t h e s t a t e m e n t s a n d commnerisons
to serve a
sing .
a
Without d u e s e s r d f o r
Pichon:
o f Tigures e r e m a d e
s
s 1 f i s h = = purpose, a n d
n
n
d t h e other s i d e o f t h e
w h le the Conmaittee hes underteken t o ex-
its views with
n s i d s r : tion t o both sides,
brief o f t h e
American Bankers! { / s s o c i z t i o n C o m i i t t e e w e s w r i t t e n w i t h
e bias o f t h o u g h t e n d p u r p o s e a n d p r o b e b l y d o e s n o t c
vyeflect t h e a t t i t u d e
o f the membershin
o f the Association ~
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Federal Reserve Bank of St. Louis
S17
much l e s s t h e m e m b e r s h i p
o f t h e Federal keserve S y s t e m -
any more then d i d t h e views o f the A. B . A. Committee,
headed b y Mr. Claiborne, w h e n i t was sought t o defeat
the n a r collection o f checks under t h e guise o f
American Bankers! Association.
F u r t h e r m o r e , t h e smell
minority o f bankers t h a t have opposed t h e par payment
of checks would derive great encouragement t o renew
their efforts i n thet direction i f the agitation o n the
part o f t h e A . B . A . C o l l e c t i o n C o m m i t t e e r e s u l t e d
in
the discontinuance o f the non-cash collection function."
The Chairman. G o v e r n o r Calkins h a s made a
motion
as t o this report, w h i c h does n o t include t h e other r e port, o f which this i s a supplement.
I s that motion o f
his seconded?
Governor Seay. I
The Chairman.
I
have seconded it.
s there a n y discussion
Governor “fellborn.
introduce a
O n yesterday I
o f it?
attempted t o
letter t o b e read a n d y o u suggested that i t
be p u t o f f u n t i l l a t e r ,
and I
would l i k e t o h a v e t h e
Secretary r e a d this letter now.
particular subject.
Mr. Harrison (reeding:)
I t bears o n this
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Federal Reserve Bank of St. Louis
"DUVALL
O I L a n d GREASE COMPANY,
Incorporated
South T o n t i at. Poydras S t r e e t
New Orleans, La.
Menen F y 2905.
Mr. Oscar Newton,
Chairman,
Federal Reserve Bank,
Atlenta, G a .
Pear Sars
Permit m e t o call your attention t o some banking
methods adopted b y the locel branch which I consider
petty graft.
I make t h e a b o v e s
teatement b a s e d o n t h e f o l l o w i n g
NPS ones Ge
Merch 6th, s o m e employee o f the N e w Orleans Branch
‘phoned u s between t h e hours o f 1 0 and l e during t h e
absence o f the principals o f our Company,
hat there
t o the effect
s i g h t draft i n the bank with B/ZL at-
tached covering merchandise purchased f r o m t h e SheppardChemical Co., Cincinnati, 0 . T r i s message w a s received
by o u r c o l o r e d w a r e h o u s e m a n a n d o n r e t u r n t o o u r p l a c e
of business around 4 P.M. this messege w a s delivered t o
us B e t w e e n t h e h o u r s
o f 4.30 a n d 5
o'clock o f t h e s a m e
date, s o m e p e r s o n p r e s e n t e d t h e m s e l v e s « a t t h e P l a n t
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Federal Reserve Bank of St. Louis
LT9
they h e d a
sight d r a f t w i t h B / L a t t a c h e d f o r
The w r i t e r a s k e d t h i s p a r t y w h e n d i d t h e
Reserve B a n k commence operating b a n k runner
and collectors a n d also comnenced doing commercial
banking business.
T i s p a r t y stated t o m e tiat h e was
not a bank runner, b u t a
notary public a n d that i f w e
did n o t p a y t h e draft, s e m e w o u l d b e p r o t e s t e d a n d w e
or t h e s h i p p e r s w o u l d b e c o m p e l l e d
fees, a p p r o x i m a t e l y 4 . 0 0
t o p a y t h e notarial
o r fay Os
I told this party thrt the merchandise h a d not b e e n
received a n d t h e t r a n s p o r t a t i o n c o m n a n i e s
o f N e w Orleans
had notified u s th.t this merchandise w a s n o t i n the
City o f N e w Orleans a n d thet t h e y could n o t make
delivery.
As a matter o f record,
o n the margin o f tiis draft
a notation w a s made ' t o b e collected through t h e N e w
4
Orleans B a n k &
Trust Coimmany!t
{
f asked t h i s p a r t y
why same w a s n o t sent t o t h i s bank through w h o m w e d o
4
business i n order thet w e m a y take same u p just a s soon
as w e h a v e n o t i f i c a t i o n f r o m t h e t r a n s p o r t a t i o n c o m p a n y
that t h e m e r c h a n d i s e
the o t h e r hand,
2
i s r e a d yJ ? t o b e d e l i v e r e d ,
h e stated that d i d not concern
b3u t ,
o n
him or
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Federal Reserve Bank of St. Louis
180
the b a n k e n d t h a t t h e d r a f t h a d n o t b e e n t a k e n u p a t
5 P.M. a t the close o f banking hours; therefore,
w e or
the shippers were subject t o }is notarial fees f o r
protest a n d thet h e proposed t o protest,
as
mote b y t h e enclosed.
I 'phoned y o u r b a n k t h i s m o r n i n g a n d c a l l e d f o r t h e
Maneger a n d asked h i m point blank t o explain t h e full
meaning o f this transaction a n d h e was i n ignorance
of whet had transpired, [
told him personally thet I
e the inethods adopted pointed t o petty graft
conside: d
for t h e p e r s o n a l b e n e f i t
o f s o m e f a v o r e d lawyer.
A’so I asked this Mansger over the 'phone when was
the draft with B/L received.
H e ste
w
a
s receli
on the morning o f the 6th, w e having supposed t o have
received notification between t h e hours o f 1 0 and l e o f
the same date a n d o n same date, draft w e s protested.
Also, I asked this Mahager why w e did not receive notification b y mail,
a s w e have h e d i n
p a s t .
other drafts come through the local bank end previous t o
this, t h e y h a d n o t i f i e d u s b y mail a n d when merchendise
was r e c e i v e d
b y the local transportation Company a n d they
tendered u s delivery,
delay,
w e always t o o k u p draft without
a n d i n o n e o r tivo instences,
t h e draft w a s h e l d
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Federal Reserve Bank of St. Louis
by your bank 1 0 o r 1 2 days.
You a s a
business mean a n d a
banker w o u l d n o t s t a n d
for transactions o f this character a n d I
proposition
t o y o u direct
gate a n d s e e h o w f a r i t h a
business h o u s e s
a m putting t h e
i n order t h a t y o u c a n investio
n 4 carried a n d w h a t o t h e r
o f N e w Orleans h a v e suffered under
similar c o n d i t i o n s .
No doubt, ?tgh e y f i g u r e d w e wge r e l i g hZt
had n o e x p e r i e n c e
i n t h e commercial b a n k i n g business
and w e w o u l d b e e a s y p r e y f o r s o m e h u n g r y p e t lawyer,
and I
propose
Publisher
of a
t o give this d a t a o u t later
o n t o some
sensational n e w s p a p e r .
I a m sending a
copy o f this letter t o your local
Branch i n order that t h e y c a n understand o u r feeling i n
the matter.
Yours truly,
(ay) & . M B TETS
"eHach p a r t y t o a
Bill o r N o t e h a s e
day t o give notice
to a prior party - - Beiley o n BlALe~ p e BOGy. 2 eee
reference i s made f o r cases where t h e Notary m a y not b e
able t o learn t h e residence o f all t h e parties.
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Federal Reserve Bank of St. Louis
re
‘New Orleans, Marth.6, 2925s
Duvall O 1 1 & Grease Company,
south Tonti &
Poydras St.
YOU A R E HEREBY NOTIFIED, T h a t
drawn b y The Shepherd Chemical Co....
to the order o f Norwood National B a n k
on yourselves eeervreeoe
for the. s i m o f { 8 5 . 4 9
ayable
r y
was t h i s d a y P R O T E S T E D b y m e f o r n o n - p a y m e n t
(the same having b e e n legally demanded) a n d refused,
and t h e holder looks t o y o u for payment a b Drawee
(payer) thercof.
Lem, réspettiully yours,
Orleans Parish, L a .
"Received draft from Federal Reserve Bank, Cleveland,
i n two o'clock mail March Sth, t o o late f o r pre-
sentation th:t dey. I
(during t h e morning)
personally p h o n e d
o n March 6 t h
a n d asked f o r t h e cashier,
and
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Federal Reserve Bank of St. Louis
183
informed t h a t h e w a s n o t i n , I
the p a r t y a n s w e r i n g t h e p h o n e t o m a k e a
requested
memorendum o f
draft a n d notify t r e cashier u p o n his reutnr, w h i c h h e
promised t o do.
The draft, n o t having b e e n taken u p b y 3 o'clock
t evening, w a s turned over t o ‘gregaard f o r protest.
his protest jacket h e states t h e t refus:1 w a s made
the grounds t h a t draft should b e held f o r arrival
goods. -
Presentation w e s made b y him t o Duvall O i l
Yew O r l e a n s
Bank &
Tr.
Co,
N e w
Tr. stated t h e y had n o instructions t o
refers t o collection #123907 f r o m F R B
Cleveland. Dated 5-53-25, 85.49 b / l draft on Duvall
Oil a n d G r e a s e C o . ( a c d r e s s ) S o u t h T o n t i a n d P o y d r a s
Sts.
Geo. P e t e r .
H
ir.
Mr
A R .M £G:):GAARD
AJ N
Attorney & Notary
LOLS Caroudelet Bldg.
Marcus Walker,
Na
New
Origeans Branch,
Federal neserve B a n k o f Atlanta,
New Orleans, L a .
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Federal Reserve Bank of St. Louis
a
My Dear Sir:
he:
Protest-Draft
Duvall O 1 1 &
drewn
Greas e
o n
Co. I n e ,
taken before t h e proSight breft w i t h a Bill o f Lading
attached f o r the s u m o f 1385.49, drawn b y the Shepherd
Chemical Co. o f Norwood, Ohio, o n the Duvall O i l &
Grease Co. Inc, o f New Orleans, Louisiana, a n d payable
I presented s a i d D r a f t a
t their place o f business
at South Tonti a n d Poydras. Streets e t the h u r o f 4 P.M.,
and handed the draft t o a gentleman, w h o I afterwa
is rned U O De-A T
manding p a y m e n t
es As H e t h
a n d told him I was de-
o f s e i d draft.
H e asked m e where I
from, a n d I answered, telling h i m thet I
Fublic a n d w i s u n d e r t h e i n s t r u c t i o n s
was a
was
Notery
o f t h e Rderal
Heserve B a n k t o demand payment ( I used t h e word "Demand"
because
i t i s v e r y essential
Protest).
i n the Public Instrument
H e said that t h e y would n o t p e y t h e draft a s
they h e d n o notice o f the arrival o f the goods; I
Gold: - i m thet - unless. t h e 5 8 . w i s p a i d today, I
heve
never
of
t o protest s
ame.
then
would
H e said th:t the dreft had
b e e n presented before. I
told h i m t h e t I
was t o l d
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Federal Reserve Bank of St. Louis
185
by the Federal Keserve B a n k that t h e y h a d
t
h
e
m
over t h e telephone i n connection w i t h said draft, a n d
that e v e n though t h e y had n o t presented i t for payment,
that I
was giving t h e m a n S
E
A e
t o pay same.
H e
said t h : t t h e B a n k i n g L a w s d i d n o t r e q u i r e t h e p r o t e s t -
ing o f a Customers! Draft, a n d thet Mr. Duvall w a s just
as determined a s h e a n d thet h e would g o t o the limit,
and w o u l d n o t ¢ :
H
e also stated that
a Custonerst D r a f t siiould not b e protested, unless t h e
word "Protest" was o n the fece o f the draft. 1
tried
to explain t o h i m thet h e was wrong a s t o that statement, e n d i f the draft w a s n o t protested that t h e drawer
would b e released a n d the Federal Keserve B a n k would b e
held responsible.
I also e x p l a i n e d
t o h i m th:.t i f t h e d r a f t h a d c o m e
to t h e F e d e r a l R e s e r v e B a n k w i t h i n s t r u c t i o n s
t o hold
same until t h e arrival o f the goods, t h a t t h e said Bank
would have acted accordingly.
H e d i d not agree w i t h me,
and s eemed t o think thet h e knew everything about Banking Laws, a n d th: t he needed n o edvice.
H e grew a little
impatient, a n d said thet Protest Fees were a
etc. I
De-- graft,
veplief b y saying ( I remember this distinctly)
tif t h e t i s t h e w a y y o u think, alright.'!
‘ I a m under
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Federal Reserve Bank of St. Louis
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the instructions o f the Federal Reserve B a n k t o protest t h e Graft i f L t tse not p a i d ) 2
- eet
p a eccsiniy
alized that h e d i d not know t h e Banking Laws
as well a s h e claimed, a n d that h e knew nothing o f the
duties o f a Notary Public, a n d thet m y duty was not
to g i v e i n s t r u c t i o n s
a s t o t h e Laws, b u t t o m a k e a
demand f o r payment a n d i f aot paid, t h e reason f o r nonpayment.
I then asked h i m the office h e held i n the Duvall
Oil &
Grease C o . I n c . ,
a n d h e answered b y saying t h e t
he held n o office i n said company, b u t nevertheless h e
took the liberty o f speeking for the company.
my calm s peaking,
B y
M r . Mathis calmed down, a n d h e a n d
gome o t h e r g e n t l e m a n w h o w a s v e r y p l e a s a n t ‘directed m e
to t h e n e a r e s t c a r line.
~ then proceeded
t o present sa:
d r a f t
t o the New
Orleans B a n k & Trust Co., a n d Mr. Kammer, Assistant
Cashier of said Bank, stated thet they had no instruétions t o p a y s
ame.
Later I
spoke t o lir. D u v a l l
telephone a n d told h i m the steps which I
o n the
had taken i n
an endeavor t o collect the draft, a n d h e seid, 'Sure
not, +t h e B a n k w : s n o t I n s t r uE c t e d
t o p a y t h e draft,
i f
d
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Federal Reserve Bank of St. Louis
isy
the g o o d s h a v e n o t arrived.!
one occasion h e paid a
h e then told m e thet o n
draft before t h e goods h a d
arrived a n d thet h i s money wis t i e d u p about s i x months
due t o s o m e c a u s e t h a t
renember » |
told h i m thet i f the drawer h a d drawn
the draft with instructions t o hold until t h e arrival
of the goods, thit the Hedei-al Reserve Bank would have
acted accordingly,
b u t under t h e circumstances
draft would b e protested,
the
i f unpaid, f o r the reason that
drawn payable A T SIGHT, a n d not e v e n mentioning
face o f the draft t h : tit wes drawn i n connection
Bill o f Lading,
o r 'To hold until arrivel.!
H e
thit h e d i d n o t t h i n k t h e t t!:e d r a f t s h o u l d b e
protested b e c a u s e
would n o t p e y f o r s o m e t i i n g
not aprivedq,*
'Yes.'.- 1
tnen-told i i m t h i t I w o u l d h a v e t o p r o t e s t t h e
same, a n d r e steted th: t he wovld a
fees, a n d thet h
1
a
v
m y t h e protest
e t h e Bank instructed t o hold
the dreft until t h e arrivel o f the goods.
He scemed t o have g r o w n a little impatient a n d I
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Federal Reserve Bank of St. Louis
188
told h i m not t o feel that w e y w e P d s m e , a s I wanted
to give jilm a i l the chanc
i n t h e world t o p a y it, a n d
did n o t w o n t t o p r o t e s t sauce n l é s s . L-head2 to...
H e
then thanked me, a n d said th:t h e anprecieted t h e favor.
he above, i t c a n plainly b e seen thet t h
primary r e a s o n t h a t t
e draft w a s n o t p a i d w e s f o r t h e
reason th:t t h e goods h a d n o t arrived, a n d t h t the
Federal Reserve B a n k i s i n n o w . y a t fault f o r the s a i d
draft n o t being
J. Agregaard."
Governor “ellborn. I
not e x c e p t i o n a l c a s e s .
e
went t o say that those are
T h e y s r e s o m e w h a t typical.
W e
a gro:t deal
v o f trouble ai n our district
h t h e t shows
tre unpopularity o f the collection system with the
public.
Governor Harding.
Protesting
i s j u s t a s unnopular
with membe: b a n k s s o far c s th:.t i s concerned.
Nobody
tring t o - g o t o protest.
Governor \.¢llborn. t o m i e i n L F you cet ‘certitted
seks <= I think it is vory unusual to got certified
checks a n d that brings d o w n t h e wrath o f the public.
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Federal Reserve Bank of St. Louis
189
%
Tis
B)
w a s n o t a n unusual case; i t i s rather a
would not bring i t u p if it was a n excep-
letzer. I
Cin.
typical
o f some people a n d [I
attitude
I t eet-snoes e
do not think i t does t h e system a n y goode
think severel o f u s have h a d
Governor Celkins. I
experience w i t h c o m m e r c i a l b a n k pr: ctices a n d w i t h t h e
usual attitude about protesting a
tested.
M y o w n expsrience
probably. typical.
draft w h e n i t i s pro-
i n S a n F r a n c i s c o I L think i s
‘ i e have h a d o n l y o n e c a s e o f s e r i o u s
objection t o the procedure o f the Federal Reserve B a n k
in collecting drafts.
my a t t e n t i o n
has been
T h e m a n who brought t h e t case t o
a t the bank sonewhere
between five
5
and t w e n t y t i m e s - - I
five times.
don't k n o w P o w m e n y , b u t a t l e a s t t
T h e matter about which h e wes quarreling
with u s involved 450, a n d a very thorough inquiry into
the c a s e b r o u g h t o u t t h e f a c t t h e t t h e m a n h e a n o c r e d i t
stending w h e t e v e r a n d d i d n o t h a v e , 5 0 i n h i s b a n k
account
a t the time h e proposed
we w e r e f u l l y j u s t i f i e d
t o p a y b y check,
i n refusing
and
t o a c c e p t h i s check.
Now, t h e cases cited b y Governor ‘Vvellborn ave n o t sufficient a s e v i d e n c e
o f unpopulerity
Bank, Collection system. y
o f t h e F e d e r a l neserve
ly o w n o p i n i o n
i s thet
n o
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Federal Reserve Bank of St. Louis
190
evidence c a n b e p r o d u c e d t h : tis s u f f i c i e n t u p o n w h i c h
base t h e a s s e r t i o n t h e t t h e S y s t e m i s u n r o p u l e r a s
compared w i t h the practice o f the commercial banks.
collection s y s t e m a n d p r a c t i c e s f o l l o w e d
The
b y commercial
banks a r e unpopular w h e n t h e y lead into s u c h s ituations
Bios bak }
h e d been p r e s e n t e d
by a
com-
mercial b a n k a n d p r o t e s t e d e x a c t l y t h e s a m e o b j e c t i o n
would have b e e n made.
Gove
thet cannot cite a
thousand cases o f t h t character.
have b e c n a bank runner myself a n d I have h a d more cases
of that kind than I could count.
If I may b e permitted t o wenture a n
opinion about that letter,
i t seems t o m e that thet
correspondence indicates soriething more than i s o n the
fece o f it, a n d thet i s the populerity o f the Federal
Reserve b a n k collection system with t h e banks t h e t a r e
trying t o make the collection.
the l e t t e r s t a t e s
to b e p r e s e n t e d
Y o u will notice that
t h e t t h e d r a f t indicat
t o ‘ a N e w Orleans commercial bank.
I t
is quite likely th:t t h e drawer o f the draft w a s anxious
to g e t payment, a n d possibly under h i s understending
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Federal Reserve Bank of St. Louis
ae
the buyer w a s entitled t o prompt payment, a n d h e knew
he would n o t g e t promnt payment i f i t went through t h e
commercial b a n k but felt reasonably sure that i f i t
went through the Federal Heserve Bank they would collect
the money.
T h e r e are a l w a y s t w o sides t o a collection
pvobpLem.: “ T i e r s 4
to collect.
1 e buyer a n d the person endeavoring
s h i n k t h e b a n k o r the individual o r firm
attempting t o colleet ought t o have j u s t a s much t o s a y
about t h e Federal Heserve System a s t h e payer.
very p o p u l a r w i t h t h e p e r s o n
obligated t o pay.
H e i s going t o dodge i t i f h e can.
he c a n bulldoze t h e commercial b a n k h e will d o i t
They will t r y t o bulldoze t h e Federal
Heserve Bank, b u t t h e y cannot d o it.
The Chairman.
T h e report o f the committee made
year a g o placed special emphasis o n the
they recommended t h t t h e r serve banks a n d their branch63 e n d e a v o r
t o conform
t o t h e local bank practices
I
to e v o i d d é v e l o p n e n
not alw: y s b e e n d o n e
V
i
s o as
t has
e have h e e r d o f c a s e s
of c a s e s w h e r e t h e r e h a s
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Federal Reserve Bank of St. Louis
Bu
d o n o t k n o w o f a n y compleint
been s o m e complaint. I
arising i n New York, d o you, Mr. Harrison?
HeYPison. I
a
I
think t h e r e t s 1 0 c o n p l a i n t
at
have made a
recently, because o f a charge being made b y members o f
the Berton committee a n d others opposed t o the non-cash
collection function, a n d I am told a t the bank t h t w e
have h e d n o criticism whatever o f t h e service.
T h e
operating m e n also tell m e that w h e n t h e y were i n commercial b a n k s t h e o b j e c t i o n s
t h : tthey h a d b y payers
of drafts were perhaps e v e n more numerous t h a n w e have
received lately with t h e System.
T h o s e f e w cases which
have been cited i n other sections o f the country o f
objections t o the non-cash collection system have usually
arisen o u t o f t h e f a c t t h a t t h e r e s e r v e b a n k m a y n o t h a v e
conformed i n certain instances t o the usuel practice - and that might possibly heve b e e n justified - - but a s a
whole,
i f the collection service o f the reserve system
is o p e r a t e d
in a
way thet t h e committce
h a recommended
in t h i s r e p o r t s t i l l p e n d i n g b e f o r e t h e Board, I
do not
see h o w t h e r e c a n b e a n y just objection t o the w a y i n
which t h e F e d eral Reserve Banks a r e hehdling collections
because t h e n they would,
b y hypothesis,
b e doing i t i n
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Federal Reserve Bank of St. Louis
193
precisely t h e s a m e w a y a s i s t h e c o m m e r c i a l p r a c t i c e
in the district i n which t h e y a r e located.
Governor Harding. I
do not know what the law is i n
Louisiana, b u t t h e only flaw th:.t occurs t o m e i n that
letter i s t h e t u n d e r t h e A l a b a m a l a w t h e p a y e r o f a
draft i s entitled t o 2 4 hours.
T h e draft w:s received
on the 6 t h a n d the notary would have b e e n perfectly s a f e
in holding i t until the 7th before protesting it.
be d i f f e r e n t
i n N e w Orleans, I
Governor McKinney.
H
I t may
d o n o t know.
e h a s t o m a k e presentation,
but h e c a n delay t h e notice 2 4 hours.
Chairman.
T h a t i s true i n all States where t h e y
have uniform negotiable instrument acts, a n d I think there
ere 4 4 o f them.
Strater.
I n our State w e make p-yment o n the
day a n d formal protest o n the following day.
happens
thet demand
I t often
i s made t o d a y a n d the draft
i s naid
the f o l l o w i n g m o r n i n g , w i t h o u t protest.
ne Chairman.
would l i k e t o a s k a
W e l l , . the report i s before you. I
ques t i o n b e f o r e a
it, i f y o u a r s r e a d y t o vote.
vote i s t a k e n o n
suppose a
member b a n k c o m e s
to t h e F e d e r a l K e s e r v e B a n k o f N e w Y o r k w i t h a
bundle
of
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Federal Reserve Bank of St. Louis
194
notes a n d drafts, payable i n different parts o f the
country, a n d says, "ie would like t o have these collected f o r u s a n d t h e p r o c e e d s p l a c e d t o o u r c r e d i t
when you get the proceeds", a n d we say t o them, “We
are very sorry, b u t w e had a
meeting o v e r i n Washington
last week a n d w e decided w e e r e going t o give u p cols
lecting those things a n d w e won't make t h e collection
for you,"
T h e n the member banks s eys, "Yell, hold on,
the Federal K e s serve Act provides t h a t y o u have t h e
power t o do this for me and I went you t o d o it." A n d
wesay, “Well, we are sorry but it is a costly thing,
it i s making a lot o f trouble i n the System, a n d w e
wontt d o it." N o w , thet attitude might b e maintained
by t h e r
serve b a n k s a s t o a l l o f t h e s e s e r v i c e s ,
or
almost a l l o f them, a n d w e would b e defeating t h e purpose o f t h e Act. I
have n e v e r b e e n a b l e t o g e t i t
through m y head thet where a
permissive
provision o f the a c t i s
d o e s n o t extend t h e right t o our members
to h a v e u s p e r f o r m t h e s e r v i c e t h a t w e a r e p e r m i t t e d
to p e r f o r m b y t h e 4&4
e
r
s are
S e c e L o n s of. t h e
Act which require u s t o do trings. “ J e are recuired t o
open foreign accounts a n d establish correspondence o n a
vote o f t h e F e d e r a l R e s e r v e B o a r d ;
w e a r e recuired
to
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Federal Reserve Bank of St. Louis
195
adiscount f o r o t h e r r e s e r v e b a n k s
of five members o f t h e Board.
visions
o f the Act i
thet, I
think,
o n a n affirmative v o t e
r o s e e r e t h e o n l y pro-
h e w e y o f service arrantements
e r e mandatory.
Governor Young. I
think y o u h a v e b r o u g h t o u t j u s t
whet t h e trouble w i t h t h e whole thing is.
Y o u have
apparently a s s u m e d t h e t w e h a v e t o h a n d l e t h e s e i t e n s ,
that i s all well a n d good. I
d o not know what t h e
other banks have loaned i n the agricultur:1 a n d livestock section,
but I
suppose
i t amounts
to s
everal
million dollars.
The Chairman. A
Governor Young.
The Chairman. n
great deal o f money.
Mevbee
i
hundred millions.
t i s a good deal mors
that.
Governor Young. w e l l , let's meke i t t w o hundred
millions .
i j i n n e r p o l i s h a s loaned t e n o r fifteen
millions, Chicago, fifty, Kansas City end Lallas have
loaned a lot, probablyy)500,000,000 - - I don't know how
much i t i s - - but i t i s o n bills payable bBycured b y
Notes.
N o w , j u s t a s soon a s the public finds o u t o r
the member banks find o u t th:t t h e y c a n put those notes
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Federal Reserve Bank of St. Louis
196
over into t h e Federal Reserve System, t h e n your vault
is not large enough a n d will n o t b e lsrge enough t o
atays T h o r e i s t h e d a n g e r
thing. T h e r e is a
i n the whote
bank down here i n Illinois that
had one o f our m e n chasing a l l over t h e Strte o f
Montena because o f a bundle o f those notes s e n t t o the
Federal Keserve B a n k o f Chicago.
do i t legell y
N o w whether y o u c a n
o r w h e t h e r y o u cannot,
w e promptly wrote
the Federal seserve Bank o f Chicago that the next batch
of n o t e s
o f that k i n d t h e t c a m e a l o n g w o u l d s i m p l y c o m e
back, t h a t w e w o u l d n o t h a n d l e t h e m .
The Chairman.
Y o u have t h e right certainly t o re-
fuse t o bandle a n y draft which involves e n y denger t o the
reserve b a n k .
Governor Young.
B u t ceantt y o u s e e what i t would de-
velop i n t o a s s o o n a s p e o p l e l e e r n w h a t t h e y c a n d o w i t h
it.
Thee
-
O F o n s toe ths
Governor Celki
i
r
e those notes passed due?
Governor Young. S u r e l y .
Governor Galkins.
Governor Young.
T h e y : r e not meturing obligations «
A > e a l l those drefts t h e t cone
through e v e r y d e y m a t u r i n g d r a f t s ?
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Federal Reserve Bank of St. Louis
197
Governor Celkins.
s
o
o
n a s the notes
are n a s s e d d u e - -
Governor Young.
B u t i s a check o n which payment
has b e e n r e f u s e d a n d w h i c h h a s b e e n p r o t e s t e d a
matured
note?
Governor Calkins.
P a y a b l e u p o n presentation,
passed d u e ; y o u c a n ' t r e d i s c o u n t a
and
passed d u e note.
T h e
defxnition o f a maturing bill. o r draft is.ome t h a t Mes
not passed t h e date o f maturity, whether i t i s a sight,
-340-day o r six yeers.
Governor: Young.
A l l right, letts
nassed d u e n o t e s a n d s i m p l y t c k e t h o s e
ing, a n d y o u still have a
. t a r e metur-
job that y o u cannot perform.
Governor Fancher. Y o u - e x p r e s s e d t h e fear, Governor
Young, that w r e n the banks g o t wise t o the collection
function that w e were going t o b e swamped with business.
We heve h a d this function i n operation since 1917.
I t
is truc a t the outset w e started charcting, b u t w e d i d not
get any items. Later o n t h e ch:rges were eliminated.
heat has taken place i n the lest t w o yerrs?
H a s there
been a n y merked growth? ‘ T h e r e has b e e n a gradual
growth, b u t there h a s b e e n a decrease i n the cost o f
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Federal Reserve Bank of St. Louis
hand L i n g .
B u t i t i s not running a w a y with t h e
System.
Governor Young. I
will n u t the q u e
back t o y o u i n this wey:
S e y y o u are running a
big
bank i n Chicago a n d y o u have t e n millions loaned t o
banks o u t i n the country o n which y o u heave fifteen
millions notes collateral, a r e y o u g o n z t o send those
notes o u t i f you c e n set t h e Federsl Reserve B a n k t o
send tnem out?
Governor Fancher.
best evidence i
T h e y are n o t being sent out. T h e
H e t they. ape. not .being sent o b .
Governor Young.
B u t i f y o u were running a
commer-
cial bank, y o u know what y o u would do.
Governor Fancher.
The b a n k s
I { t would d e p e n d o n circumstences.
know all about these things
our collection service.
e n d they are using
Y o u don't think
in C h i c a g o d o n ' t k n o w a b o u t t h i s s e r v i c e
using 10, G6. you?
The Chairman. G o v e r n o r Young, terke
New York that h a s cor»espondents a l l o v e r the country
nat r e e m e k i n g l o a n s
t o t ) eir o w n c o r r e s n o n d e n t s
o n
eir receivables, a n d they send those receivables f o r
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Federal Reserve Bank of St. Louis
199
collection through t h e seme bank, e n d i f they didn't
they wouldn't
o p th:.t account v e r y long, a n d thet
is t h e a n s w e r
Governor
n e g T h e ones t h a t y o u would g e t would
be t h e accounts t h t they d i d not. want, t h e t i s the
The Chairman.
T h e n they would come t o you a n d
borrow d i r e c t l y f r o m y o u r i g h t a w a y ; t h e y w o u l d c o n e t o
the Federal Reserve System t o borrow f r o m y o u a n d y o u
would he.ve t h e j o b o f collecting t h e m
isn't v e r y much i n the proposition, Governor Young.
Your t r o n b l e
at s o m e b a n k s
i s this;-thet-you 1 ¢ v e
o n Wwiiten 1 0 2 o
Vonuy Gitlicuit
t o make
collections.
Governor Young.
I
t is a
credit p r o b l e m w i t h u s
entirely.
and t h e a n s w e r
send t o every reserve b
1
tion t h e t y o u c a n n o t c o l l e c t
(Governor Young.
i n your case i s t o
s y o u have done, informao n t o s e points
--
h a t i s whet w e heve b e e n doing,
but y o u have b e e n putting u n the ergument t h e t i f a
comes t o y o u a n d offers y o u items y o u h. ve got t o
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Federal Reserve Bank of St. Louis
20C
take them. I
do not believe y o u have t o t
k e them. I
do not believe t h e y c a n compel m e t o collect checks o n
a bank,
even a
member bank,
that I
do not want
to
COlLreCr. On.
The Chairman.
Y o u will remember t h e A c t provided
Por t h a t .
Governor Young. I
The Chairman.
remember section 1 6 and all t h a
W h e r e i t refers t o solvent member
banks a n d s o cn. T h a t seems t o heve b e e n i n the minds o f
the legislators w h e n t h e y passed t h e act.
T h e fact that
it i s permissive undoubtedly gives t r e reserve bank, t h e
collecting bank, l i k e your own, opportunity t o protect
itself a g a i n s t a
notify u s ,
item.
credit risk.
a S y o u have done,
YOU2WiIs
thet
C t pneTado Ih. o n
y o u cennot handle
the
T h e o n l y t w o events w h i c h w o u l d cause t h e diffi-
culty w n i c h y o u a n t i c i p a t e a r e first, t h : t y o u w o n ' t b e
allowed t o discontinue collecting items o n certain
points, w h i c h undoubtedly y o u a v e allowed t o do, a n d t h e
other t h e event that t h e b i g c i t y banks, w h t é h a r e loan-
ing t o their correspondents, will u s e the Federal eserve
System t o collect items ageiin
other t h a n their customers.
“ e i r o w n correspondents
T h e y won't d o thet, I
promise you, i n New York, because t h e y want t o keep t h e
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Federal Reserve Bank of St. Louis
account.
Toy G6. 1710t C O 1 0 i m Clevotane,
Very Jivile,
b y the lerce 6 1 s ; tanks.
oF
T h e lenge ero-
portion o f items in. cur cdistyigteth: tcome T o r coliestion c o m e f r o m o t h e r districts.
O u r o w n member banks
send t h e m t o the Cleveland Bank.
Governor Young. I
e m afraid w e e r e just delaying
action o n this a l i t h e w a y through. I
a m going t o vote
no o n this entire report , enc 3 Wald p e -22 2 cae,
suspent. I
d6 n o t t i n k a n y further Ciscussion
Wilk g e t u s enywhere e t 21].
2 0
ff
o f it
o o o wont t o b e
obstinate o r arbitrary about this metter. I
have s e i d
we would continue i t just a s l o n g a s w e possibly could.
on 1.0, where. 1
Wazeardous--ce=mMes 7
a m Coins
Governor Fanchsr.
U
G O Cuzt Lt.
D 20. b i e p r e s e n t T i m e , n o w
many l o s s e s h a v e y o u e n c o u n t e r e d
non-cash i t e m s ;
what pert
Looks
b y resson o f handling
o f tree l o s s e s
y o u heve made
on failed banks comes o u t o f that?
Governor Y o n g .
checks, i
I f y o u inelude t h e non-cash items
Willsay every loss « ¢ have i n the bank.
Governor Fancher. I
a m aifferentieting between
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Federal Reserve Bank of St. Louis
crecks a n d non-cash items.
Governor Young.
[ { could n o t answer thet.
Governor Fancher.
H e v e y o u m e d e a n y scrious
losses; have y o u not protected yourself a l l the w a y
along?
Governor Young.
Y e s . ‘They have got the impres-
sion, without a n y conceit a t all,
prett:: good m a n i n hendiing :
cen p r o t e c t m y s e l f f o r e v e r
The Chairman.
L
t h t I have b e e n a
L o o n !
s a y f h e c7
o n it.
a i b n e t o a P a e t T i e bvou.eme
1nd
better position t o protect yourself o n non-cesh items
then y o u ¢ r e o n checks?
Governor Young.
The Chairman.
N o .
Y o u d o not think so?
Governor Young.
N o t a bit.
Governor Calkins.
M u c h better.
Y o u have
oprortunity W i t h t h e n o n - c a s h i t e m s a n d n o o p p o r t u n i t y
wath
Governor Young.
i e get 1,000,000 worth o f grain
dratts-6.- Cay. t n Wiel L i o r
t h e year. ‘ a n e w e a r e just
extending ,1,000,000 worth o f credit f o r t w o or. three
hours, thet i s « a h e r s i s t o it. Y o u e¢ennot figure
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Federal Reserve Bank of St. Louis
Lt e n y other wey,
i O ere dev lin’ with’ cocd-pr: in
concerns a l D o r g r o a n conedons T h t 2 1 6 a o t c u r e
so good.
Governor Crlkins. wih t woule the brllas District
he Federal nesorve System just erbitrarily s h u t
on hendling cotton drafts?
Governor McKinney.
I t would b e avite unfortu-
ior t h e m e m b e r benke:
The hhairman.
I f the tederel xeserve Board adopted
the recomend: tion o f the B rton Committee t h r t w e
would o n l y Pendle t h e selected drafts, which benefited
the cornmunity, s n d
e x c l u d e d t o s e w e i c h t h e bankers
objected t o - - I don'+ s e e * o w w e c i n d o thet.
Governor ‘iellborn.
discounted
f
e c o t t o n dr:fts usually e r e
e t t h e Federal weserve Benks.
Governor Y o u n g .
U d e r
Govemor “Wellborn.
Governor McKinney.
t h e reesnt anendment.
Yes.
i D Our I e ’
been rediscounted b y t h e city banks.
t h e s Peeve only
T h e comtry
WBTICe C e eile O e G e
. Cheirman, a : e v e considering i n connection
with t h i s s n e c i a l r e p o r t
t h e t o n i c t h e B o e : cd s u b m i t t e d
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Federal Reserve Bank of St. Louis
to u s i n the Boe:dts l e t t e X-4294?
The Chairman.
I t covers t h : tquestion, t h e o n e
tre C o m m i t t e e
Governors:
b y the l a s t c o n f u r e n e e
o f
S h e l l w e meke ech:rges, h o w much shell i t
be a n d whet t h e e f f e c t o f t h e c h e r g e w i l l b e o n t h e
collection o f non-~cesh items.
T h e second division o f
the report i s devoted t o answering t r e R B rton Committee.
yOVernor McKinney.
wiich i s a
report
special c o m i i t t e e ,
I n the Borrdts letter X-4294,
b y ir. J a m e s a s a
i n paregraph
peregrap h f of thet letter,
5,
member o f t h e
w i
i t ise st-ted t h . tthe com-
ee recomvends thet before finally edopting thi
resolution, thet i s recomrending t o the Federel heserve
Board promulgrtion o , f t h e :egulation, t h a t t h e matter
be submitted t o the Committee o n Voluntary services,
mely G o v e r n o r s H r r d i n g , S t r o n g , F a n c h e ’ , NeLlougel
and McKinney, w i t h instructions
on V o l u n t a r y S e r v i c e s >
t h t if t- is Committee
no - e r e e w i t h t h e recommends.
of your special comnittee t h t h e y then « t the
coming conference o f Governors shell present t o the
conference «
definite
a n d ecnclusive recommend:
this s u b j e c t t h e t w i l l e f f e c t i v e l y e n d s
tion
on
tisfactorily
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Federal Reserve Bank of St. Louis
meet t h e objection e n d protest o f tre Americen
Association a n d t h e C e n t r a l
e
: bing H o u s e Associ: tion
providing f o r a system
o f ch+rges t o b e made f o r nonv
cash collection: services
mm
The Cheirmen.
this:
b y t h e r e s r v e Banks.
T h e -Osition o f th.
t h a t supplementel report, w h i c h
considering, w a s n o t submitted
i n time
by the Voluntery Service Committee, b u t
iLthink o m yesterds: 7 ,suc..22.
D o w ceane
out having b e e n referred t o t h e comnittee.
lowed l i t e : a l l y t h e g Z g z e s t i o n c o n t e i n e c
I f w e fol-
i n thet letter
we w o u l d f i r s t h e v e a
committee r e p o r t m a d e t o t?:is
conference a n d then a
discussion
port o n t h e c o m m i t t e e r e p o r t
o f tre committee r e -
o f the committee report - -
this s i m l y s o r t c u t s it.
Governor Herding.
take a
i n order t o seve time let u s
vote o n ils. C e l k i n s r e s o l u t i o n .
I f t*:t i s
adonted t h e n a n o t h e r r e s o l u t i o n c o u l d b e offered,
wering t h e Board's: ques t i o n thet w e « r e i n fevor
continuance
o f t h e s y s t e m f o r t r e re:sons stéited i n
this r e p o r t w i n c h i s submitted.
e Calhineg !
i n k 1 t i s shsolutely neces-
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Federal Reserve Bank of St. Louis
this r e p o r t
beceuse
b y the bosrd's coriittee
o f the fect t h e neregranh which
‘Governor McKinney just re;d prescribes t h e t & report
J
he made b y the comiittee t o this conference o f
Governors.
Governor McKinney.
vaind.
a
t tee
n e t f b Reve i n
F o r instence t h e y have definitely steted i n the
concluding n:ragrenh - - thet i s
ber of the special comnittee /
Of cherses
thet a
system
collect o n services
m e . .
in
the b a n k s .
The Chairn W w h r e t committee «re you refeiring to?
Governor McKinney.
comittee
T h e .eport o f the specirl
o f t h e Federsl] n e s e r v e B o a r d t o t h e # e d e r a l
ieserve B o a r d .
know t h e B o a r d
Gtovernor Celkins.
Jamess
a
k - i t t e e
i s c o m p o s e d o f hiv
a y vibes eiealaysecoa
er
Governor MceXinney.
serve Board does 1
provide t h a t a
g c e r i s th.t t h e Pederal xe-
g i v e u s m u c h latitude, e:.cent t o
ssystem o f charges b e made, i f w e con-
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Federal Reserve Bank of St. Louis
strue this literally.
Governor N o r r i s .
B u t i f that i s t h e case t h e
Committee o n Voluntary Services d o e s n o t agree w i t h
the report o f that other committee?
Governor Harding.
There is a
motion pending,
but
if Governor Calkins will agree t o withdraw h i s motion
for t h e time being, I
Conference t a k e a
will offer a
motion that this
recess o f t e n minutes i n order t o
let t h i s @Gommittee o f G o v e r n o r s m e e t a n d r e p o r t f o r m a l -
Ly o n this o l d proposition.
Governor Calkins. I
will agree t o that.
(whereupon o n motion d u l y seconded, t h e Conference
recessed f o r t e n minutes f o r t h e p u r p o s e s t a t e d ,
conclusion
A t the
o f t h e recess t h e Confcrence proceeded
as
follows:)
Governor Bailey.
i a , Cnesrmnean, L T admire T o r y
esis t h e ingenuity o f the committee i n getting u p t h i s
report; I
admire t h e invenuity o f the committee o f the
Bankers A s s o c i a t i o n a n d I
think e a c h o n e o f the c o m -
mittees h a s gotten u p e x parte testimony a s clear c u t
as they could. I
think both o f the committees a r e
right i n some respects, b u t I
notice t h a t t h e last
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Federal Reserve Bank of St. Louis
208
committee, w h e n i t refers t o the gentlemen w h o a r e
responsible f o r thet brief, assume a
they s
a y such a n d
sideration. I
1
good deal w h e n
a matter i s not worthy o f con-
think t h e bankers will b e able t o S k e
°
tinguish between a
cash item a n d a non-cash item.
The reports s h o w that t h e y were able t o segregate those
items
a n d show the cost
o f non-cash collections
toeutOs >. OL, Cash tol lections. T
de 100
super j o b t o d i s t i n g u i s h t h e m b u t I
Hoe CC: G O misty
a n d show
I e e e
i s any
think t h e y h a v e b e e n
I : think t h e c o m m o n a c c e p t a t i o n
of a
cash
item i s a check drawn peyable a t a bank, d u e when i t i s
presented,
a n d t h e o t h e r s a r e c o l l e c t i o n items.
T o
broaden t h e scope o f this c o l l e c t i o n system I think t h e
amendment
have i t e n
o f Mr. J a m e s w o u l d b e a
n e
very g o o d one, w h e n w e
n e wayenie a t o r through banks, a n d
that w o u l d e l i m i n a t e o u r b e i n g o n t h e street.
I-know
from m y o w n practical experience t h a t w e have a
just s u c h s t u f f a s i s i n d i c e t e d
Governor Viellborn read.
lot o f
i n t h e letters t h a t
W e have involved ourselves
in
a lawsuit a n d had o loss o f 3 , 0 0 0 bec: use certain people
s-lit their shipment w i t h bill o f lading attached,
order t o g e t a
rai
2 , e t e e
in
carload lot, a n d i t w a s
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Federal Reserve Bank of St. Louis
209
divided u p among fourteen fellows, a n d they had t o
make f o u r t e e n d r a f t s s c a t t e r e d a l l o v e r t h e St:.te o f
a
vie have t h o s e e m b a r r a s s i n g 6 a n d a n n o y i n g
Our investigations h a v e shown that t h e thing
is unpopular. I
a m not speaking about other districts.
I a m speaking about t h e tenth district, where w e have
tested i t out. I
have talked w i t h Kansas, Nebraska
and Colorado banking associations, a n d I have never
resnonse
feiled t o g e t a
t o the effect t h a t t h e y wish
we d i d not have that collection system i n the Federal
A great m a n y o f t h e b a n k s a d v e r t i s e
that t h e y have a
collection agency.
I f y o u will l o o k
in the blue book i n every State y o u will f i n d that a
lot o f t h e b a n k s t e k e d o u b l e s p a c e i n o r d e r
tise t h a t t h e y s p e c i a l i z e
o n collections.
t o adver-
T h i s has
been a serious interference t o them a n d they a r e not
in f a v o r
revenue
T h i s h a s always b e e n a . source o f
O i .
t o them.
N o w I
am s
ure t h a t w h e t t h e S y s t e m
wants t e the kindly T e e l i n g s f
o the Denkers o f ths
country,
and I
was s o r r y t o h e a r i t s a i d h e r e y e s t e r d a y
thet because t h e American Bankers Association h a d seen
fit t o apnoint a
committee t o d o this thing that t h e
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Federal Reserve Bank of St. Louis
American Bankers A s s o c i a t i o n w a s preetically unAmericen almost - The Vheirman.
O h , no, Governor Bailey.
Governor Beiley.
your membership
quickly,
Y o u gentlemen. voted t o renew
i n the Ameri e v e n s L
b u t i n rezard t o t h e membership
Bankers Association y o u had a
C o u n c i l very
i n the American
lot o f qualifications.
You gentlemen must k n o w thet prectically every member
bank O f our System i s a member o f the American Bankers
Association.
I t i s true t h e gentleman f r o m xichmond
stated t h e t t h e r e a r e a
lot o f S t e t e b a n k s t h e r e , b u t
it i s true also thet i t was i n open forum - - I a m
speaking o f the Chicago meeting. I
remember meeting
Governor \Wellborn there, W i t h regard t o challenging this
resolution that was passed, they say that therewere a
lot o f kids ther: a n d thet t h e re:.l bankers were a t
home.
I t i s true a large number o f the boys d o g o u p
it is e fine thing, b u t I. saw a lot o f men
I have s e e n there f o r thirty years.
know,
A s you
b e o f the American Bankers Association i s the
coune#l o f the American Bankers Association a n d they are
picked men, picked m e n from every State thet constitutes
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Federal Reserve Bank of St. Louis
thet council, a n d there i s wrere t h e fight a e
fight w a s i n regerd t o this non-cash collection matter.
ts o p p o n e n t s
council, .btt% t h e o p p o n e n t s
before
the
o f the free collection ser-
vice d o m i n a t e d a n d i t w a s v o t e d o u t a n d b r o u g h t b e f o r e
the Association.
T h a t w a s d o n e n o t b y kids, b u t i t w a s
a comnaittee o f m a t u r e d e x p e r i e n c e d b a n k e r s .
I L am
speaking f r o m m y knowledge o f that great Southwest,
sentlemen. I
know t h e t i t i s unpopular o u t there e n d
I know whet i s going t o happen here, b u t I
want t o s a y
thet t h e tenth district i s opnosed t o this non-cash
collection system.
Governor Harding.
G o v e r n o r Bailey,
1 f the matter
had been leit t o the American Bankers Assccis.tion d o y o u
think w e w o u l d e v e r h a v e h e d t h e Federal K e s e r v e B a n k s ?
Governor Bailey.
P o s s i b l y not, b u t t h a t i s not t h e
question p r e s e n t e d h e r e ,
Governor Seay,
commented o n , I
T h e r e i s one thing thet needs t o b e
think. >
evidence i n t h e case i s that
the report signed b y Mr. James w a s hended i n before t h e
xeport o f the Standing C o m i t t e e
been r e c e i v e d
o n Collections c o u l d
a n d considered.
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Federal Reserve Bank of St. Louis
fae
The Chairman. I
would l i k e t o c l e a r t h e t u p .
not c a l l e d u p o n t o t a k e a n y action,
it, a s suggested i n Mir. James! letter,
Wes sdivlded:.
as I
W e
understand
T h e committee
M r . P l a t t m a d e o n e r e p o r t a n d Mr. J a m e s
meade a n o t h e r r e p o r t a n d n e i t h e r w a s a d o p t e d
Federel tNeserve Board.
b y the
T h e y have b e e n submitted t o u s
for o u r information a n d t h e only need f o r a n y action,
the o n l y q u e s t i o n f r o m t h e F e d e r a l R e s e r v e B o a r d n o w
before t h e Confor*nee i s the question o f whether w e
shall
o r skall
n o t continue
Governor Seay,
size.
t o collect drafts
T h a t i s t h e point I
o n street
want t o empha-
T h e Standing Committee o n Collections h a s b e e n
asked b y t h e B o a r d t o c o n s i d e r t h i s m a t t e r a n d r e n d e r
an opinion,
o r submit a
report a t least, a n d that com-
mittee f r a m e d t h e i d e a w h i c h i t a l r e s d y h a d , a p p a r e n t l y
before i t received t i e report f r o m t h e standing committee.
Doesnit t h a t avpear t o y o u t o b e so, Mr. Strater?
Mr. Strater.
Y o u mecn t h e Board?
Governor Seay. I
mean t h e committee o f the Board,
thet r e p o r t s i g n e d b y Mr. J a m e s
of t h e B o a r d
- -
o n betakf
o f t h e comaittee
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Federal Reserve Bank of St. Louis
21s
Mr. Strater.
Y o u meen before t h e y received t h e
report o f the Standing Committee o n Collections.
That
is true, because t h e y just received t h e report o f the
committee o n Friday o r Saturday o f last week.
Mr. Harrison.
February 1
M r . Jamest report i s dated
8 t h a n d Mr. P l a t t ' s r e p o r t M a r c h 17th.
The Chairman.
report, I
B e f o r e asking Governor Fancher t o
want t o a s k GovernorsYoung ,
Fancher a n d McKinney,
and then Thursday,
he comes d o w n here,
Harding a n d Seay,
i f they will s t e y over tomorrow
t o meet Professor Sprague,
i n case
t o discuss t h e McFadden bills.
The
Board has approved t h e recommendations which w e have made
on that subject.
Sprague
T h e y are going t o telephone Professor
t o come d o w n t o n i g h t ,
i f possible,
a n d meet with
the committee t o discuss t h e thing i n a preliminary way.
I will state t h e history o f this other proposition.
We w e r e a s k e d t o m a k e a
report
t o t h e Federal Keserve
Board o n the subject o f voluntary services a n d the committee report w
a s made a n d approved b y the Federal
Reserve B o a r d .
Governor Seay.
do t h a t ?
Y o u masan t h e Conference w e s asked t o
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Federal Reserve Bank of St. Louis
The Chairman.
Y e s .
I n March, 1924.
T h e t re-
port w a s a p r r o v e d a s t o a l l t h e r e c o m m e n d a t i o n s e x c e p t
the portion relating t o non-cash collections a n d the
Boardts stetement w a s that that matter w a s still under
consideration
b y t h e Board.
At the November meeting i n 1924 t h e question o f noncash collections w a s again brought u p a n d the Governors,
as @ result o f the discussion, resubmitted t h e matter t o
the committees w i t h instructions
port a s t o whether a
t o investigate a n d re-
cherge should b e made, i f s o what
it s hould be, a n d what t h e effect would b e o f a charge.
During t h e course o f the preparstion o f that report t h e
Berton committee m a d e a report.
on Collections,
w h i c h w a s making t h i s investigation,
asked t o m e e t w i t h t h e B o a r d
s. James a n d Platt,
The Collection Committce,
chairman,
T h e Standing Committee
h a s n o w made a
was
' s collection committee,
t o consider t h e Barton report.
o f which Mr. Strater i s the
report
o n t h e various subjects,
and a supplemental report which e m odies t h e conclusions
first
o n t h e subject referred
t o t h e m b y t h i s body, n a m e -
ly, t h e charge, a n d secondly o n the report o f the Barton
committee.
N o w 2
s e e m s that: t h e C o m m i t t e e o f . t n e
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Federal Reserve Bank of St. Louis
215
Federal Keserve Board, consisting o f Messrs. James e n d
Platt, h a v e r e n d e r e d s u c h r e v o r t
Board o n t h e s u b j e c t
t o t h e Federal Reserve
o f non-cash collections,
which
report w a s different i n conclusions, a n d neither o f
which t h e Federal Keserve Board adopted. T h e r e f o r e i n
response
t o the recuest
been asked,
o f Governor Crissinger
w e have
i n considering t h i s committee report,
to
consider t h e recommendation s e n t a i n e d i n Mr. James!
report, n a m e l y , t h e t w e s h o u l d d i s c o n t i n u e t h e c o l l e c tion o f i t e m s p a y a b l e , t h a t i s n o n - c a s h i t e m s , p a y a b l e
elsewhere t h a n a t member b a n k s
o r p a r r e m i t t i n g banks.
So t h a t w e h e v e b e f o r e u s n o w t w o s u b j e c t s f o r c o n s i d e r a -
tion, w e have t h e report o f the committee w h i c h contains
two subjects, o n e sliall w e cherge t o make these collections a n d s e c o n d s h a l l w e c o n t i n u e
payable a t street addresses.
which i s a
t o handle i t e m s
T h e report o f the committee,
sunplemental r e p o r t ,
h a s been s u b m i t t e d
t o Hr.
Fancher's committee, a n d ected upon, a n d h e will report
the r e s u l t o f t h e i r action.
Governor Fancher,
A
t t h e meeting o f the committee
olution w a s u n a n i m o u s l y adopted:
Resolved t h z t the Comnittee o n Voluntary Services
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Federal Reserve Bank of St. Louis
216
recommend
t o the Conference
o f Governors t h a t i t r e -
affirm all o f the recommendations regarding t h e subject
of n o n - c a s h c o l l e c t i o n s a n n r o v e d
Governors
a s contained
Service C o m m i t t e e
b y the Conference
of
i n the report o f the Voluntary
t o the Federal Reserve B o a r d dated
March 2 4 , 1 9 2 4 , a n d t h a t t h e s u p p l e m e n t a r y r e p o r t o f t h e
Standing Committee o n Collections o n the non-cash collection function, submitted t o t h e Conference o f Governors
and the Federal neserve Board, d a t e d April C y a e s
be a d o n t e d
a n d approved.
Perhaps f o r t h e i n f o r m a t i o n
recommendations
o f t h e Governors t h e s e
i n the report o f Merch 24, 1924, might
be read.
"The report o f the Committee o n Voluntary Services
to the Federal keserve Board dated March 24, 1924, contains the following recommend: tions:
"], T h a t t h e non-cash collection service b e continued n o t only f o r items payable a t banks, b u t f o r items
payable a t street addresses a s well.
"2. T h a t n o service cherge b e made for collecting
any class o f non-cash items.
43.
T h e t each reserve
b a n k a n d branch endeavor
s o
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Federal Reserve Bank of St. Louis
A aj
far a s p o s s i b l e
t o effect i t s local collections
in
thet m a n n e r m o s t c o n s i s t e n t w i t h e s t a b l i s h e d b u s i n e s s
and b a n k i n g p r a c t i c e s w i t h a
view t o e l i m i n a t i n g a n y
unnecessary causes o f possible friction a n d discontent o n t h e p a r t o f t h o s e b u s i n e s s h o u s e s w i t h w h o m
the reserve banks necessarily come i n contact i n
making presentation o f items f o r payment.
ta.
T h a t e a c h reserve b a n k a n d branch continue
as
in t h e past, v i g o r o u s l y t o p r o m o t e f u r t h e r e c o n o m y a n d
‘efficiency
i n t h e o p e r a t i o n o f i t s c o l l e c t i o n service,
giving d u e consideration t o the encouragement f o r more
direct s e n d ings b y member banks a s well a s t o other
practices designed t o eliminate extra o r costly hand-
ines,"
In t h e r e p o r t i t s e l f w e g i v e t h e r e a s o n s f o r t h e
recommendations.
The Chairman.
N o w the motion before t h e house i s
to a n p r o v e
o f this recommendation
committee,
as I
o f Governor Fancher's
understand.
Governor Biggs.
M r . Chairman, I
will make a
motion t o t h a t effect.
The Chairman. Automatically, when the chairman o f
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Federal Reserve Bank of St. Louis
218
committee
h
n L t s 2
e moves t h e adoption o f
tie
Governor Fancher. i
move t h e a d o p t i o n o f t h e
report o f t h e Comaittee.
T h e n I will second thet motion.
Governor Biggs.
5
Governor licKinney. S h o u l d not advice t o the
Federal Reserve Board o f this action,
i n the event t h e
recommendation i s adopted here, b e connected u p with
the s p é c i a l t o p i c s u b m i t t e d
b y Governor Crissinger
for
the Federal Keserve Board, a n d have i t shown t o b e responsive
t o t h e topic?
The C h a i r m a n .
W e d i d have a
motion
t o that effect
but i t wes felt that every question submitted was definitely covered b y these recommendations
i n the report
wnich w a s made.
(The m o t i o n h a v i n g b e e n d u l y seconded,
w a s carried,
Governors Young, Bailey a n d e l l b o r n voting "no".)
The Chairman. I
do not went t o becloud this thing
by eny extended remarks i n reply t o the eloquence o f
Governor B a i l e y ,
but I
weuld l i k e t o s a y o n e w o r d a b o u t
the A m e r i c a n B a n k e r s A s s o c i a t i o n p r e p o s i t i o n .
T a s y are
a body comprising practically a l l t h e banks i n the
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Federal Reserve Bank of St. Louis
eae
country.
T h e y have t h e i r conventions o n t e a
whether t h e y a r e a t t e n d e d
or t a e
year, a n d
b y the influential bankers
w h o a r e n o t s o influential, d o e s n o t make v e r y
much d i f i e r e n c e
a s t o their influence
i n m y mind. I
do not want t o b e considered a s being antagonistic t o
the organization.
M
y remarks
o n yesterday were i n -
tended t o bring o u t these facts, t h a t there a r e better
weys o f dealing w i t h these controverted questions i n
those particular ways which have b e e n probably carelessly and thoughtlesslyyadopted b y the American Bankers
Association.
M a y b e i t i s o u r fault i n not having
enough o f t h e c o o p e r a t i v e s p i r i t
the f a c t r e m a i n s t h a t w h e n a
i n these tiings,
committee
but
i s appointed,
as this o n e w a s - - I a m expressing
m y personal opinion
SRE
only - - o r a s t h e G l a i b o r n e C o m n i t t e e w a s ,
esolution i s adopted,
a s o n e w a s i n Chicas
o r when a
without
any consultation w i t h the Federal Reserve Banks a n d
without opportunity t o exchange views and t o deal with
these t h i n g s
i n a n uncontroversial spirit, t h e n I
both t h e y a n d w e a r e m a k i n g a
mistake a n d I
could b e overcome i n somo way. e
think
wish i t
h a v e voted, without
any discussion o f that point i n New York, t o continue
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Federal Reserve Bank of St. Louis
our membership i n both o f these organizations.
would l i k e t o s e e a
[ I
better s p i r i t o f c o o p e r a t i o n
developed between t h e t w o bodies t h a n i s evidencedby
the a c t i v i t i e s
o f t h e s e t w o committees.
think t h a t w e a r e r e m i s s
to me.
f you
i n thet respect w h y should
we not g e t a t i t and have a
Governor Bailey.
I
better understanding?
I t would b e perfectly agreeable
I T a m s ure thet t h e motion made b y the
gentleman f r o m Celifornia w h e n t h e reflection o n the
Americen Bankers Associrtion, a n d I do not think the
members o f the American Bankers Association would take
very kindly t o it. I
would hate t o have t h a t g o out,
I would hate t o have t h e theory g o out thet t h e Governors o f these banks e n d the Federal tes:rve Board a r e
antegonistic t o the American Bankers Association.
the o t h e r h e n d i
O n
think w e s h o u l d function a n d w o r k
tozether a l l w e can.
Governor Calkins .
.The remarks o f the Governor
from Celifornia were these: I
offered a
resolution
that w e continue membership i n the American Accentance
Council a n d i n the fmerican Bankers Associs.tion, b a s e d
‘pon this fact, t h r t i n m y opinion that w e s e t value
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Federal Reserve Bank of St. Louis
for t h e ..300 w h i c h w e p a x t h e A m e r i c a n A c c e p t a n c e
Council a n d thet I
a m unable t o see thet w e get, i n
the s a m e sense, v a l u e f o r t h e a m o u n t t h a t w e p a y t h e
American B e n k e r s A s s o c i a t i o n .
antagonism, I
A
s t o a n y reason f o r
have n o antagonism tow:rd t h e American
Bankers Association, a n d I did not express any.
antagonism i s o n the other side.
The
I n the report o f the
Barton committee i t says, w i t h rezard t o these free
services, t h e t t h e Governors o f certain banks contending
for a
continuation
o f these services a r e influenced
their immedicte environment.
by
T h s t i s a direct attack
upon t h e Governors o f reserve banks w h o believe that,
in duty t o the memborship o f the Federal e s e r v e System,
they should continue this perticulir function, a n d that
is a p p a r e n t l y s u b s c r i b e d
The Chairman. I
t o b y t h e G o v e r n o r f r o m Kansas.
want t o refer t o another matter,
Governor Bailey, t h a t h a s been t h e s ubject o f comment
in t h e x e s e r v e S y s t e m s t d i f f e r e n t t i m e s , t h a t t o m y
mind i s a very striking thing about o u r organization.
vie all undertook, w i t h almost unenimous agreement a s t o
methods,
t o introduce t h e par collection system i n the
face o f much more bitter opposition t h a n enything that
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Federal Reserve Bank of St. Louis
228
we h a v e e n c o u n t e r e d
i n t h i s matter,
has b e e n a c c o m p l i s h e d
and I
think w h a t
i n t h a t i s a n undeniable s u c c e s s .
{t i s a banking reform, a
real reform.
I n regard t o
the non-cash collection service w e hed t h e same opposition, w i t h woich w e are all femiliar, b u t i t i s a striking thing which always comes up, a n d that i s thet there
are certain districts, notably Boston a n d N e w York with
which I
a m familiar, where t h e officers o f the banks a n d
the directors a n d t h e org:nization a s a whole a r e thor-
oughly convinced thet this i s a service that the law
intended u s t o perform. G o v e r n o r Harding tells m e that
at a meeting o f the member banks o f Boston this subject
was u n d e r consideration a n d that i t was unanimously
anvrovedy
b the bankers o f the district.
Governor Harding.
5
0
0
, ° from all perts o f
the district.
The C h a i r m a n .
“ : e heve
of a n y importence. I
n o dissent
do n o t t
i n our district
ink w e heve a n y kick about
ro a r e t h r e e d i s t r i c t s w h e r e t h e r e
definite o b j e c t i o n
is
t o it, a n d t h o s e t h r e e d i s t r i c t s a r e
; .
yours, G o v e r n o r “.ellborn's:
a n d G o v e r n o r Young's.
There
definite objection t o i t o n the part o f those
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Federal Reserve Bank of St. Louis
banks f o r a long time.
N o w i t i s a striking thing
that where Governor Harding addressed a
member bankers,
+
meeting o f }:is
a t which h e advocates this thing, a n d
they vote unanimously f o r it, ~“.yet y o u address a
meeting o f the bankers
definitely,
i n the tenth district, a n d state
a s y o u have t o them, t h e t y o u are opposed
to this thing, t h e y a r e unanimously against it.
I t
seems t o m e t h e q u e s t i o n t h a t w é a r e c o n f r o n t e d w i t h i s
someting l i k e this:
w e are trying t o effect a
con-
position o f our views within t h e System itself, a n d i n
spots i t i s t r u e thet w e appesr t o b e acting contrary,
especially t o the wishes,
Clal interssts.
i n some respects t o the finan-~
o f some o f the members,
of t h e s y s t e m t o d e v e l o p t h i s c o l l e c t i o n system,
Board approves it, a n d w e undertook t o d o it. I
the
believe
as a m a t t e r o f system policy w e cre going t o have
this difficulty right along unless w e «ll g e t behind it.
Governor Beilsy.
V e are collecting non-cash items
of course.
The Chairman.
B u t t h e member banks
i n your district
are reluctent t o d o it, a n d they feel t h : tthey have t h e
sympathy o f t h e r e s e r v e b e n k i n t h e i r position.
Governor B a i l e y .
Y o u m e a n i f t h e officers
o f the
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Federal Reserve Bank of St. Louis
224
reserve b a n k o f Kansas C i t y would come o u t f o r i t - The Chairman.
“ W o u l d t h e attitude o f your bankers
change?
Governor Bailey. I
know o n e o f the managing offi-
cers o f the bank o f Kansas C i t y thet h a s been running
for a long while o n the ideasthet a : e fundamental t o
Hin, e n d h e tsn*t. poing t o d o 4b. O f . course.
Boing to. reise &
it i s right a n d I
amon
row.all t h e time, but’ E<do-net think
a m explaining t o y o u gentlemen what I
believe t o be the overwhelming sentiment i n the tenth
The Chairman. I
such a
difference
a m wondering w h y i t i s s o that
i n the different districts exists.
Governor Bailey. B e c a u s e nobody hes tried t o
change it. ‘they just think i t is wrong. I
have run
a country bank f o r meny years a n d w e d i d not send all
of our collections t o our correspondents
i
t i s the
theory o f the-committes t h a t t h e e r a g e b a n k e r does
not have any correspondents now, thet h e has t o keep his
reserves i n the #ederal iesurve B e n k
another fiction.
- - but thet i s
O n e o f the biggest bankors i n our
district s a i d t h e other d a y that h e keeps enough cash i n
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Federal Reserve Bank of St. Louis
225
his
vaultsy
b ..,2,000,000 t h e n h e w o u l d h a v e h a d t o k e e p
before,
s o thrt argument falls t o the ground.
The Chairman.
a
m addressing m y remarks t o whet
seems t o m e t o b e a practical difficulty here i n getting
a sentinent e m o n g t h e m e m b e r b a n k s
be c o o p e r a t i v e
i n this matter,
a sore with u s for years. I
o f t h e System,
O t h e r w i s e
t o
i t might
b e
d o not k n o w !:ow t o g o
about it, esnecially i f the member banks i n some o f the
districts believe t h e Federal Reserve B a n k i s against
the p r o p o s i t i o n ,
w h i l e n i n e o u t o f t w e l v e o f t h e 1:.serve
banks favor it.
Governor Seay. I
would like t o ask Governor
DSeiley, n o t i n a controversial wey, t h i s question:
Does n o t your bank d o a large non-cash collection business?
Governor Briley. ‘ e l l , I
don't know. C o m p a r a b l e
With t i e ,evNers. perhAnSs t o t .
Governor s e a y . I
wes w o n d e r i n g a b o u t t h e a t t i t u d e
of t h e benkers t h e t s e n d y o u th:t business.
D o n ' t they
favor i t ?
Governor Bailey.
l a y :
f o n o t orisinate
GLstPictes«-There..e26 - o } s i g h t o u t o f a
i n omT
hundred t h a t
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Federal Reserve Bank of St. Louis
ever send u s any.
Governor McKinney.
w o the Kansas C i t y banks
places a n y n o n - c a s h i t e m s
Governor B a i l e y s
w i t h y o u f o r collection?
O h , yes; t h e y dump t h e m over
there f o r u s t o coliéeté
Governor Seay.
B u t they a r e nevertheless apposed
=
Governor Bailey.
T h e y take advantage o f i t but t h e y
think i t i s a n unfair thing.
I t i s like that Fort Worth
Bank referred t o - - i f you have a
free service t h e y grab
onto i t a n d use it, e v e n though convinced i t i s not a
fair thi neg.
The Chairman.
w e l l ,
Governor Bailey.
sidered a
I h a v e s a i d m y shire about it.
O f course I don't went t o be con-
bolshevik.
Governor Norris.
i “ courted net vote hers thie o m n e s
on t h i s question i n a n y other w a y than I did vote f o r t h e
reason t h e t over half o f our member banks a r e using u s
for this service
T i e o u t o f town banks regard i t a s
the m o s t v a l u a b l e s e r v i c e r e n d e r e d .
v e y a s e 60: that
they regard e f f o r t s t o stop i t o r imposing e & charge o n
t as practicelly a
conspiracy egeinst t h e m by t h e c i t y
banks a n d they heve asked u s t o advise t h e m i f any
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Federal Reserve Bank of St. Louis
227
serious danger ever arises o f the service being abrogated.
I f thet condition arises t h e y want t o come d o w n
here w i t h a
committee
o f their o w n a n d make repre-
sentations t o the Federal Reserve Board. T h e r e f o r e ,
in voting a s I have today, I
a m voicing t h e sentiment,
not m y own opinion, b u t t h e sentiment o f the banks o f
our district, W h i c h i s ot’ only iiiiet unanimous, b u t
.S very strong.
T h e y would rezard i t a s a gross injus-
tice t o them i f this service were abolished.
Governor Bailey.
I f y o u are confronted with that
idecl, then I think I should reserve the same right t o
follow t h e feeling i n m y own district.
Governor N o r r i s .
T h a t brings
m e t o the second
point that I'have, a n d th:t i s I do not think that thet
sentiment would esi s t i n our district i f i t were n o t
for the activity o f our bank relations department, w h i c h
consists
o f t h r e e m e n , w h o e r e a l m o s t ‘constently o n t h e
road visiting t h e member banks a n d expleining t o them
the service which t h e Federal Reserve B e n k i s prepared
to render t o them.
I f w e hed n o t done t h t a
great m a n y
of t h e s e o u t o f t o w n b a n k s w o u l d n o t k n o w t h e t w e a r e
prepared t o render this service.
T h e y would b e sending
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Federal Reserve Bank of St. Louis
228
us collection items a n d would n o t know anything about
it.
B u t a s our m e g o about a n d explain t o them that
this service i s aviilable t o them, ti.e number using i t
increases constantly a n d I
a m wondering whether,
in
the districts where i t i s not s o zenerally used, there
would n o t b e a very considersble growth o f i t a n d a
greet increase i n its popularity i f the service were
explained t o the member banks.
Governor Bailey.
w e have a
printed l i s t o f ser-
vices w h i c h o u r m a n c a r r i e s w i t h h i m a n d l a y s b e f o r e
eech member thet h e calls on.
Governor Norris.
H o w meny times a
year does your
man c a l l ?
Governor Beiley.'’
w e haven't g o t enough men, I
will
admit, n o t e s p e c i a l l y t b a p r o m u l g a t e t h i s i d e a , b u t t h e
idea o f t h e S y s t e m a s a
The Ghairmen.
whole.
N o w ,
i f w e e r e r e e d y t o proceed w i t h
ELwant t o c a l l t h e a t t e n t i o n o f t h e
conference
yesterday
to a
s u r i o u s mistake which was made
i n procedure,
l o n g a g o adopted b y t h e confer~
ence, a n d f r e q u e n t l y r e c f f i r m e d
S
.
)
1
relating § o detril
come u p which
~ ~ that i s whe
w e have a
standing
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Federal Reserve Bank of St. Louis
229
committee,
t h a t t h i s conference w i l l refer 6 1 1 those
questions t o the standing comnittee.
me yesterday a n d f
T h a t escaped
a m gorry t o sz.y that w e took very
important action, a f t e r l o n g a n d serious debate, a n d
many votes,
i n deciding h o w w e should treat charges
for these transfers o v e r t h e commercial wires, w h e r e
the wires a : e down, while under t h e cons titution a n d
by-laws
o f this organization t h e t matter should have
been a t once referrod t o the Leased Wire Committee.
Now,
w e a r e subjecting ourselves
t o just criticism a n d
giving offense t o that committee b y assuming t o perform
their duties.
J I will a s k y o u i f y o u w o u l d n o t b e w i l l i n g
to r e c o n s i d e r t h : t v o t e a n d r e p o r t t h : t m a t t e r
t o the
Leased Wire Committee.
Governor Norris.
thought I
i
n voting a s I did o n thet I
was v o t i n g t o s u s t a i n i n g t h e r e p o r t t h e t t h e
committoe h e d alreedy made o n that very subject, w h i c h
it w a s t s o u g h t
t o overturn.
Governor lNicKinney. I
a m uneble t o tell j u s t h o w
serious t h e Chairman i s ebout thet, b u t I
recognize i t
as a n effort t o come back, a n d I would like t o have t a t
matter r e f e r r e d
t o t h e committee.
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Federal Reserve Bank of St. Louis
250
The Chairman.
A n d w e n o w h i v e before u s the
report o f the Standing Committee o n Collections, o f
which t h e other report which w e have just finished,
is a
supslement.
sections.
W e w i l l take this report
u p in
T h e first section h a s t o d o with the absorp-
tion o f postage o n cash letters « s e n t direct b y member
banks.
“At the November, 1924, Conference o f Governors,
certain t o p i c s w e r e r e f e r r e d
t o t h e Stending Committee
on Collections f o r investigetion a n d reporti T h e s e
tonics a r e considered i n the order i n which they appear
in the minutes
Y
e
o
o f the secretcry o f the Conference.
f Pos tage o n Cash Letters Sent Direct
by Member Banks t o Other Federal Reserve Banks a n d
Branches.
It i s t h e p r a c t i c e
o f several
o f t h e reserve banks
to r e i m b u r s e e t h e i r l o c a l m e m b e r b a n k s f o r p o s t a g e
cash l e t t e r s r o u t e d d i r e c t
on
t o Federal reserve banks a n d
branches o f other districts b y such members.
T h e prac-
tice seems t o have b e e n adopted t o encourage local
member b a n k s
t o route d i r e c t
t o other reserve banks
and t h e r e b y r e l i e v e t h e l o c a l r e s e r v e b a n k o f t h e e x -
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Federal Reserve Bank of St. Louis
pense o f h a n d l i n g t h e i t e m s ( w h i c h e x p e n s e w o u l d i n -
clude postage),
i t being t h e opinion o f those reserve
ks, n o doubt, t h a t t h e i r l e c e l m e m b e r s h a v e t h e
right t o d e p o s i t l
a checks w i t h t h e m u p t o a specified-closing hour.
From t h e best informestion available t o the Committee, t h e practice prevails i n five o f the reserve banks,
and t h e p o s t a s c a b s o r b e d a m o u n t s
nually.
t o a b o u t ..58,000 a n -
f o u r o f the banks which absorb this postage a r e
among t h e smaller reserve banks, a n d i t i s believed
that i f the other reserve banks should adont the prac-~
tic , under existing conditions,
assumption
of a
i t would result i n the
charge o r e x p e n s e w h i c h w i l l e x c e e d
$100,000 annually. . O n the other hand, t h e Comuittee
recognizes t h e t i f member banks f o r which postage i s
now being absorbed should deposit their items, o r a
nart
o f them,
i m their r e s e r v e banks,
i t might c o s t
those reserve banks more t h e n t h e amount o f postage
they a r e n o w absorbing.
after g i v i n g t h e m a t t e r t h o r o u g h c o n s i d e r a t i o n ,
however,
i t i s the unanimous opinion o f the Committee,
First, t h . tin this a s i n other administrative policies
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Federal Reserve Bank of St. Louis
202
in connection w i t h services t o member banks, t h e practice o f r'serve banks should b e uniform f o r well
second, t h e t inasmuch a s the
erve banks (including the largest
) have n o t f o d
postage,
i t necessery t o absorb s u c h
e n d i t 1 s e s t : m : t e d thz-t i t w o u l d c o s t t h e
System m o r e t h a n v L 0 0 , 0 0 0 a n n u a l l y i f a l l t h e b a n k s
adopted t h e practice o f the minority,
i t would b e mani-
festly unreasonable t o expect those reserve banks n o w
not a b s o r b i n g s u c h p o s t a g e
t o c o m m e n c e t h e practice;
therefore t h e practice o f certain reserve banks i n
absorbing s u c h postage should b e discontinued,
Governor McDougal, i
Governor Y o u n g ,
move t h e t t h e t b e anproved.
seconded.
(The motion having b e e n d u l y seconded, wes c a r r i e d , )
The Chairman,
m
a
i
l service
AistOPLANI, M A T L Si#RVICH.
At t h e l a s t C o n f u r s n e e
o f Governors
thet, t h e S t a n d i n g Committees o
i t was voted
n Collections
b e requested
to s t u d y t h e A e r o p l e n e M e i l S e r v i c e w i t h t h e v i e w
of
dstermining whether i t i s feasible t o edjust t h e time
schedules
s o e s t o gii v e m e m b o r b a n k s t h e b e n e f i t
o f
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Federal Reserve Bank of St. Louis
earlier p r e s e n t a t i o n
o f items w h i c h a r e dispatched
by aeroplane.
The C o m m i t t e e h a s c o n s i d e r e d t h i s m a t t e r a n d
recommends t h : tno chanze b e made i n time schedules o f
the reserve banks t o conform with possible service b y
aeroplane u n t i l s
uch t i m e a s A i r M a i l S e r v i c e s c h e d u l e s
are sufficiently regular t o s o justify.
The C o m m i t t e e f u r t h e r r e c o m m e n d s t h e t ,
i n the
meentime, w h e n requested a n d the pos tage paid b y a
member bank, checks b e dispatched b y Air Mail a n d
availa
pres entation resulting.
It i s s u g g e s t e d that this c a n b e more conveniently
a ecomplished b y the member benk routing direct t h a n b y
depositing i t e m s w i t h i t s r e s e r v e b a n k .
Your Committee will continue t o watch a n d study
the development o f fir Mail Service f o r the purpose o f
determining t h e practicability o f its use i n seeuring
earlier p r e s e n t a t i o n
o f checks a n d make f u r t h e r recom-
mendations a s the extension o f the sorvice permits."
GOVernoOr Calkins.
“ 1 move
Governor Young. S e c o n d e d .
B n p r o v a d
O f “tila.
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Federal Reserve Bank of St. Louis
(The motion having been duly
The C h a i r m a n ,
s possible c h a
Sr g e f o r t h e
non-cash @ o l l e d t i o n s e r v i c
"In submitting
ves c a r r i e d . )
and
i effecte e
this v e r y i m p o r t e n t
question
t o this
Committee, t h e Conference o f Governors l e f t t h e Standing Committee o n Collections free t o conduct whatever
form o f investigation seemed best t o it.
The Comittee,
re: lizing t h e responsibility p l e c e dupon it, devoted
much t i m e
t o a
diseussion
o f the
subject a n d a careful
reconsideretion o f the report o f
the C o m m i t t e e
Governors o n Voluntary servi
appointed
2
5
eral ueserve Boaid, which made
a
o f
by t
Gh e Fed-
complete s t u d y o f the
non-cash c o l l e c t i o n f u n c t i o n S a l a s Teale
The n o n - c a s h e o l l e c t i o n f u n c t i o n h a s l o n g
been a
subject o f consider: tion b y the Federal Reserve
Board,
and t h e S t e n d i n g C o m a i t t e e
last meeting unde took,
Mi & to: t h e F e d e r a l
ovustacles
K e s e
o n Gollections
oonni t s o w n initiative,
an e n t i r e
collection f u n c t i o n ,
ber b a n k s
discontinuance
e ony
n modification
o r the imposition o f
f o r the Service
t o sub-
1 ot
3
o f t h e > practica
‘ve B o a r d s o m e
i n the wey o f
teallment thereof,
a t ite
o f f brandling
&@c h u r g e
:
o f the
O e Gili
t o mem-
non-cash collec-
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Federal Reserve Bank of St. Louis
GLOn s
The C o m m i t t e e d i s c u s s e d t h e s e
with t h e C o l l e c t i o n C o m a i t t e e
Board.
a
t t e r s informally
o f t h e Federal Reserve
D u r i n g t h e discussion t h e Committee w a s r e -
quested t o p r o v i d e t h e B o a r d w i t h s u g z e s t i o n s
wer t o @
Committee
i n ans-
brief o f t h e A m e r i c a n B a n k e r s A s s o c i a t i o n
o n !'Collection o f N o n - C a s h I t e m s b y Federal
Reserve Bankst, w h i c h h a d been submitted t o the Board
on December 12, 1924. I n a s m u c h a s the brief o f
A.B.A. Committee i s rather voluminous ,
the Committee's
treatment must necesserily
thought a d v i s a b l e
t o s u b m i t i t s suggesti
a
n
d conclu-
sions i n t h e form: o f a; geceracs s p o r t , a d d essed t o the
Conference o f Governors a n d the Federal keserve Board."
Governor Young. I
move t h a t t h a t r e c o m m e n d a t i o n
be a p p r o v e d .
@n c h e r , L
Governor F a
(The m o t i o n h a v i n g b e e n
The Chairman.
second that.
d u l y seconded,
w a s carried.
T h e n e x t i t e m i s reconcilement
of
provisions o f “telegraphic t r a n s f e r circulars o f
Federal K e s e r v e b a n k s w i t h r e c o m m e n d a t i o n s
Board!s L e t t e r X - 4 0 9 9 ,
embodied
i n
)
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Federal Reserve Bank of St. Louis
256
"It was voted thit this topic b e referred t o the
Leased Wire Committee i n collaboration w i t h t h e Standing Committee o n Collections w i t h t h e request t h e t
the t w o Committees m a k e a
study o f the question a n d
such recomaendation t o the Federal Reserve Board a s
might b e necessary i n order t o reconcile t h e practice
of some Federal reserve banks w i t h existing regulations,
or e l s e t o m a k e a p p r o p r i a t e a m e n d m e n t s
Standing C o m i t t e e
t o the repula-
o n Collections,
s t its
meeting, considered this subject a n d submitted i t s
conclusions t o the Chairman o f the Leased Wire
e i n a letter dated Janusry 21, 19.5, recommending @
revision o f paragraph 4
of t h e Board's
letter, A-4099, containing regulat:o.is governing the
use o f the leased wires.
T h e Comaittee understinds t h a t
the sugsested revision wes acceptable t o the Leased
Wire Committee (after making one slight chante i n it)
and w i l l b e e m b o d i e d
Wire C o m m i t t e e
i n the report o f the Leased
t o the Conference
Standing C o m m i t t e e
o f Governons,
o n Collect:ons,
h
e
o n e member (Mr,
Attebcry) dissenting, apnroves t h e revision a s embodied
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Federal Reserve Bank of St. Louis
in t h e L e a s e d tyire C o m m i t t e e ' s r e p o r t .
Federal iteserve B a n k m a y p r o p e r l y
receive maturing collection items w i t h instructlons
t o d e p o s i t t h e proceeds
bank f o r t h e a c c o u n t
o f a
i n some commercial
member bank.
Non-cash c o l l e c t i o n i t e m s w i t h i n s t r u c t i o n s
deposit t h e proceeds
to
i n a commercial b a n k f o r t h e
account o f a member bank might b e received f r o m membersbanks a s follows :
l. R e c e i v e d b y a Federal reserve b a n k direct
from a
member b a n k i n a n o t h e r district.
Your Committee finds that Federal reserve banks
cannot n o w r e c e i v e i t e m s d i r e c t f r o m m e m b e r b a n k s
other d i s t r i c t s w i t h i n s t r u c t i o n s
ceeds o f t h e c o l l e c t i o n
in a
in
t o deposit t h e pro-
commercial b a n k f o r t h e
account o f the direct sending member b a n k because o f
n opinion o f the Gencrel Counsel o f the Federal R e serve B o a r d c o n t z i n e d i n - t h e B o a r d ' s l e t t e r X-18358,
dated February 1 9 , 1920, t o the effect that a
bank m a y o n l y f o r w : r d i t e m s d i r e c t
bank
i n another district
Fedsrel r e s e r v e b a n k .
to a
f o r t h e account
member
Federal r e s e r v e
o f its o w n
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Federal Reserve Bank of St. Louis
neceived
its m e m b e r
~ ~ the
M e d e r a l reserve b a n k
from
i ; b e i n g payable within
i t s dis-~
UCLee.
Oe h e c e i v e d
member
t o b e forvwerded t o a n o t h e r
Federal resérve bank,
There a p p e a r s
ting a
M e d e r e l r e s erve bank
from its
t o b e n o rule o r regulation
prohibi-
Federal r e s e r v e b a n k f r o m
receiving f r o m its
members items with instructions
t o deposit t h e proceeds o f the collection with
a commercial bank, o r t o
forward s u c h i t e m s t o
another Federal reserve
bank
with s u c h instructions,
I
t must b e realized
that
items o f this charncten require
special attention a n d
additional l e b o r a n d i f
allowed
t o increase
i n volume
would a d d materially t o
the cost o f a collection
department. H o w e v e r , there m a y
b e occasional trrngsactions o f this k i n g thet
a r e necess a p y and might
be
of considerable service a t
times t o member banks,
Aeho oe therefore, r e c o m e n d e d
t h a t i n s o far a s
is possible the handling
o f items with such instructions b e discouraged, but
that Federal reserve banks
be permitted t o handle
occasional items o f
this character w h e n r e c e i v e d
from m e m b e r banks
within their re.
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Federal Reserve Bank of St. Louis
259
spective d i s t r i c t s a n d o n l y when,
the
F e e
a
i n their opinion,
w o u l d b e o f snecial service
t o the
member bank.
TIOUS O F CONFI:RaNCE O F C O U N S E L F O R T H E
RUSERVE BANKS.
The last Conference o f Governors submitted certain t o p i c s
banks.
to a
Conference
o f Counsel f o r t h e r e s e r v e
T w o o f these tonics, d e a l i n g with non-cash
collection items, a r e covered i n the report o f that
Conference
t o t h e O®nference
o f Governors.
The Standing Comnittee o n Collections w a s furnished a copy o f the report o f the Conference o f Counsel,
and i n o r d e r t o a v o i d delzy,
t h e Committee
a t its last
meeting considered these t w o recommendations o f Counsel a n d d e s i r e s
included
t o recommend t h a t uniform sections
i n the non-cash collection circulars
be
o f all
of the Federal r e s r v e Banks,"
The Chairman. :
i t e m s a r e separate i t e m s
on
the p r o g r a m e n d w e w i l l d e s l w i t h t h e m w h e n w e c o n e t o
them.
Thensthe r e p o r t s o e s
o n and the next item
conditions u n d e r w h i c h m a t u r i n g n o t e s , b i l l s
is
o r other
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Federal Reserve Bank of St. Louis
non-cash items will b e accepted f o r collection,
time Conference o f Counsel b y resolution recommended thet there b e included i n the non-cash collection circular, a
provision thet e x c h memb-r a n d non-
member clearing bank, which sends non-cash items t o
any Federal resurve b a n k f o r collection, s
hall b y such
action b e deemed t o have warranted t o t h e Federal
ne
reserve banks t h t i t has authority t o empower L u e
serve b a n k s
t o handle t h e i t e m s i n t h e m a n n e r p r o v i d e d
in the circular, a n d to have agreed t o indemnify any
Federal r e s erve bank f o r a n y loss resulting f r o m the
feilure o f such sending bank t o have such authority.
The Committee f e l t that this warranty a n d guananty
should p r o p e r l y b e i n c l u d e d
i n the section dealing w i t h
conditions u n d e r w h i c h n o n - c a s h i t e m s w i l l b e a c c e p t e d
for.
e o nico t o n and. c h e r e t o r e ,
pility s e c t i o n
recomiends
that t h e lia-
b e r e v i s e d t o r e a d a s follows:
Every m e m b o r
o r non-member c l e a r i n g b a n k w h i c h
sends maturing notes, bills o r other non-cash items
to t h e F e d e r a l R e s e r v e B a n k o f
another F e d e r a l r e s e r v e
b a n k direct
O
L GO
f o r t h e account
this b a n k b y s u c h a c t i o n w i l l b e understood-,
o f
(a) t o
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Federal Reserve Bank of St. Louis
241
have agreed t o all t h e terms a n d conditions o f this
circular,.(b)
t o have warranted
t o t h e F e d e r a l re-+
serve banks thet i t has authority t o empower t h e
Federal reserve banks t o handle iteisas i n the manner
herein provided, a n d (c) t o have agreed t o indemnify
any Federal r e s erve bank f o r a n y loss r e s u l t i n g f r o m
tre failure o f such sending b a n k t o have s u c h authority.
1. F e d e r a l r e s e r v e b a n k s w i l l a c t o n l y a s t h e
collecting agent o f the sending bank a n d will b e responsible o n l y for. due diligence a n d care i n forwarding o r presenting s u c h items.
2, F e d e r e l r e s e r v e b a n k s w i l l p r e s e n t o r f o r -
ward s u c h items, f o r payment i n cash o r bank draft,
direct
t o the bank
o n w h i c h t h e y a r e drawn, ’ a t w h i c h
they are payable o r through which they a v e collectible; o r will present t h e m direct t o the person, f i r m
or corporation o n which t h e y are drawn f o r payment i n
cash o r b a n k check;
o r i n their discretion forward t h e m
to another egent with t h e same authority thet t h e y have
to p r e s e n t
o r f o r w a r d t h e m f o r payment.
oe. x c e p t
a s herein provided, Federal reserve
banks s h a l l b e held liable o n l y when they have received a c t u e l p a y m e n t
i n cash o r i n the proceeds
of
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Federal Reserve Bank of St. Louis
the bank draft o r check."
Governor Y o u n g . T
move t h a t t h e recomnendettions
be aprroved a n d adopted, a n d I would like t o meke a n
explanation o f the position o f the Minneapolis b a n k o n
No. 2 , i n which they say Federal xeserve Banks will
present
o r f o r w e r d s u c h items,
f o r peyment
i n cash
or bank draft, direct t o the bank o n wisich they a r e
drawn,
a t which they a r e peyable o r through which t h e y
are collectible, e n d s o forth.
W e have always r e -
served t h e right t o accept another draft i n payment o f
the first draft. I
guess i t i s a question o f whether
you c a n d o th.t legelly o r not.
T h e o n l y t ing f o r u s
to d o i s t o cianrze o u r circular s o that i t will cons
form with th:.t of the other banks. W e heve over 500
banks i n our distriét now th:t d o not remit i n aveilable exchange, t h e y cannot remit i n aveilable exchange.
Some o f thos I
w r e i n a very precarious condition
and w e w o u l d j u s t h a v e
thet i s all,
t o t h r o w t h e m o f f t h e p a r list,
I n adonting this resolution you will have
to berr i n mind thet t h e p a r collection o f checks i s
liable t o get a very severe b l o w i n our district.
Mis. S t r a t e n .
T h i s refers
t o non-cash collections.
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Federal Reserve Bank of St. Louis
245
It i s practically t h e same a s check ¢ollections,
Governor Young.
I t is the same thing end I am
just b r i n e i t u p -nows
i s t e , 16. n o t h i n g f o r a s t o ™
do but agree t o i t but w e will have t o protect ourselves
a s w e l l a s w e can.
in putting a
I f that protection results
number o f banks o f f t h e par list, w e will
have t o d o it.
The Chairmen.
b o you think thet i s the thing for
you t o d o under t h e gitbuation?
Governor Young. I
accept a
think 30, yes. -iothink 2 f w e
draft o n Sioux City from a South Dakota b a n k
.in payment o f a trensit item, a n d either b a n k should
close during the interim, w e would b e stuck for those
items. There i s no qiestion about that.
I f we do it
with t w o banks w e must d o i t with a l l o f them.
Governor McDougel.
you s e c u x e p a y m e n t ,
Governor Young.
Y o u d o not make return until
d o you?
I f y o u send items t o u s w e give
you credit a t t h e e n d o f t h e time schedule a n d i t might
take u s from t w o t o four days t o get t h e money.
Governor McbLouzal. I
collections.
a m speaking n o w o f non-cash
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Federal Reserve Bank of St. Louis
ew44
Governor Younge....No, w e Gdo- nob mcke rotumris utili
We f o r weturns,
dreft
i n pryment
b u t i f y o u h a v e n e c e p i c e a : second
o f t h e f i r s t draft,
t h e best advice
we c e n get f r o m our attorneys i s thet w e are taking a
Ghange e v e r y time. w e d o it.
Mr. Harrison.
T h e conference o f counsel which
met i n Washington last December considered that v e r y
question s p e c l l i c e l i y , ; - e n d as. 1 L r e m e m b e r . - - e n d M r .
support m e i n this - - they decided unanimously t h t t h e F e d e r a l R e s e r v e B a n k w o u l d n o t b e p r o r
tected i n teking «
draft.
second draft i n payment o f a first
T h e y also r e c o m e n d e d t h e t a
Federal R e s e r v e
Bank should n o t endeavor t o protect itself i n t e k i n g —
a second draft i n payment o f a first draft, t h a t i t
was a 2 responsibility t h e t w e ought t o assume i f w e
going t o handle t h e collections, a n d when there w a s
loss, t o d o what y o u propose t o do, take t h e m off the
par list entirely.
Governor Calkins. T h a t recommendstion o f the
counsel w a s i n effect t h a t a
Federal reserve b a n k
being i n a position where i t wes necessarily exercising
discretion,
s h o u l d n o t b e absolved f r o m t h e consequences
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Federal Reserve Bank of St. Louis
245
of neglectful action o n its part.
Cannot-be D u e i n a
I n other words. w e
yosi1o
a W h e r e w e c a n b e “as- n e - ~
glectful a s w e n 2
t
The Chairman.
h
e
n not stmnd a n y loss.
. W a s your counsel here, Governor
Young?
Governor Young.
The Chairman.
i,:
a t i s f i e d with t h e result o f
that meeting?
Governor Young.
Governor Seay.
H e was n o t e
B u t d i d h e agree with i t from the
legal point o f view?
Governor Young.
argument
h
i
s
a
e e o s owFay alg
o n t h e l e g a l p o i n t o f i t , I T guess.
Governor Harding.
those sections 2
Mp. Strater.
and 3
M r . Chairman, m a y I ask that
be read again?
" 2 . Federal reserve banks will
pres e n t o r f o r a r d s u c h items,
f o r payment
i n cash o r
bank draft, direct t o She bank o n which
they a r e drawn,
at w h i c h t h e y a r e D e y a b l e
collectible;
firm
o r through w h i c h t h e y a r e
o r will present t h e n giveos t o
the person,
o r corporation
o n which t h e y a r e drawn f o r
pay-
ment i n c a s h o r b a n k check;
o r i n their discretion
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Federal Reserve Bank of St. Louis
246
forward t h e m t o another agent w i t h t h e same anthority
that t h e y h a v e t o p r e s e n t
o r f o r w a r d t h e m f o r payment.
"3, E x c e p t a s herein provided, Federal reserve
banks s
hall b e held liable o n l y when they have re-
ceived a c t u a l p a y m e n t
i n cash o r i n the proceeds
of
he bank draft o r check."
Governor Harding.
T h e conference o f counsel held
that t o exchanze a n original draft for another bank
draft o n e o r m o r e t i m e s w o u l d b e c o n s i d e r e d n e g l i g e n c e
eau.
C a l e mma i l COUPL.
Mr, Harrison. {
ment a m o n g c o u n s e l
think t h e r e w o u l d b e n o disagree-
o n t h e t question.
T h e o n l y question
at all about which there w a s a n y disagreement w a s o n the
question o f policy a s t o whether a
reserve b a n k should
attempt t o exempt itself f r o m loss incident t o negligence i n taking a
second draft. I
think Judge Uhlan
thought i t might b e helpful t o res erve t h e right t o
accept p a y m e n t
b y one draft
i n excianze f o r another
draft, b u t t h e rest o f counsel f e l t that that would not.
support t h e bank a n d i t would b e useless t o t r y t o d o it.
The Chairman. G e n t l e m e n , t h e question before y o u
is o n Governor Young's motion.
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Federal Reserve Bank of St. Louis
Governor Norris. I
second it.
(The motion being d u l y seconded, w a s carried.)
The Chairman.
T h e next i t e m i s guarantee o f
all prior sndorsements.s
“GUARANTSL, O F £LL PRIOR WNLOASEMENTS.
The Conference o f Counsel expressed t h e belief
that t h e policy o f requiring a
ing p r i o r e n d o r s e m e n t
guaranty a n d guarantee-
i s economically s o u n d e n d should
be adonted e s a uniform prectice throughout t h e
sal Reserve System.
I f t h a t policy b e approved,
the C o m i i t t e e r e c o m a e n d s t h a t t h e f o l l o w i n g s e c t i o n
under t h e h e a d i n g ' G u a r a n t e e
o f a l l p r i o r endorsements!
be included i n the non-cash collection circulars o f all
of the Federal kKeserve Banks.
Non-cash collection items will b e :eceived f r o m
member a n d non-member clerring banks o n l y upon t h e
conditio n
that a l l p r i o r e n d o r s e m e n t s a r e
depositing meriber benk.
T h e endorsement s t a m p
the member b a n k should, therefore, h a v e incorporated
it the phrase t a l l prior endorsements gu: ranteedt.
Member a n d non-member clearing banks should make
iate a r r a n g e m e n t s
t o provide themselves
with
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Federal Reserve Bank of St. Louis
e4e
endorsement stemps containing t h e required gusrantee
of ynrior endorssments,
b u t in.order
t o facilitate
the hendling o f non-cesh i t e m s a n d t o avoid t h e delay
incident t o veturning a n y items u n o n which prior e n dorsements a r e not gueranteedj t h e pct o f sending noncash c o l l e c t i o n i t e m s t o t i s b a n k
o r to a n o t h e r
Fedevil reserve b a n k o r brench f o r t h e account o f this
bank w i l l b e dee:ned t o c o n s t i t u t e a
guarantee
o f all
prior endorsenénhts, whether o r not e-snecific g u rentee i s incorporcted i n the endorsement s t e m p o f the
acpositing member bank.
The C o m m i t t e e
i s o f the opinion t h e t , inasmuch
as the incorpor:tion o f a snecific guarantee o f all
yrior e n d o r s e m e n t s
i n t h e c n d o r s e m e n t st:mps
o f
member a n d non-membcr clearing banks o n non-cash
collections i s a new s p a r t u r e a n d -one with worich all
member a n d non-menb:r cle:sring banks « r e not frmiliar,
‘erence s h o u l d
b e mede &
i
e r e . uLrement
in t h e l e t t e r o f t r a n s i i t t a l a c c o m p r n y i n g t h e n e w
uniform n o n - c a s h c o l l e c t i o n c i r c u l e r s w h e
distributed t o member a n d non-member cle:i
The C o m a i t t e e a l s o i-ecommends th:rt a f t e r
P
noito
aripxe
AE
&
reasonable t i n e , e r c h F e d e r a l r e s e r v e
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Federal Reserve Bank of St. Louis
249
penk make. a.coreful i n v stigation
h
e endorsements
apre.ring u p o n t h e n o n - c a s h i t e m
for collection e n d again draw t h e attention o f those
banks w h i
i l - t o incorporate t h e guarantee i n
their e n d o r s e m e n t s t a m p ,
t o t h e necessity f o r prompt
compliance with the requirement.‘
Governor Young. I
move t h : tthe recomrendations
Of-iWie. C o m i t t e e u e
Governor Fenchur, S e c o n d e d .
(The motion having b e e n duly seconded, w a s carried.)
The Chairman.
H o c s t i s e c o n c m u d e u n e report.
of
the comiuittee, Mr. Strater?
tip, Stpaber.
fess. Sars
Governor Young. I
have a
couple o f matters I
would
*
like t o b r i n g u p . I
d o not k n o w whether t h e y should b e
referred t o the committee o r whether t h e y should b e taken
up here.
T h e first i s i n reference t o direct sendings»
Theat privilese has b e e n erented pretty frecly In-all
districts.
H e r e i s one bank which o n Mereh 2 n d had
two items aggregating .565,. Mer
ine A O L ,
a n d s0-Ons
The Chairman.
Where
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Federal Reserve Bank of St. Louis
250
Governor Young.
man h a s p i c k e d
S
t
r o m St. Louie. --i-euegs thie
. Louis mostly, a l t h o u g h h e says
it i s general throughout t h e district.
it w o u l d
b e well
t o put a
resulation
I t seems t o m e
i n that direct
sendings should b e limited t o {10,000 o r ,.50,000 o r
sonething o f that kind. I
would like t o make a
motion
that this matter b e referred t o t h e Committee o n
Collections.
Governor Fancher.
member banks.
Y o u spoke o f direct sendings o f
b o y o u propose t h e t direct sendings shall
be l i m i t e d t o c h e
c e r t a i n amounts?
Governor g
L e t t e r s
o f a
certain amount,
not
checks.
Governor Fancher.
be a
Y o u propose t h : t there should
roasonable t o t a l ?
Governor Young.
Y e s , { o s h o u i d : s e y .,10,000.-
might b e higher t h e n that, b u t I
1 0
think this business o f
sending . 4 2 and 1 0 a n d items o f thet k i n d i s wrong,
because
i t just makes 2
Governor Fancher. i
makes a
l o t o f work.
agree with 4 I
lot o f unnecessery accounting
think i t
L o v e r t h e totels
of which a r e not o f sufficient consequence
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Federal Reserve Bank of St. Louis
apa.
Governor Calkins.
Young h a s made a
D
understend t h a t Governor
motion?
Governor Young. I
better
o I
asked whether i t would b e
t o refer i t t o t h e Committee
o n Collections
to t e k e a c t i o n here.
Governor Calkins. I
would suggest t h e t i t b e
ferred t o t h e committee.
fs thet your motion, Governor
Young, t o refer i t t o the committee?
Governor Young.
Y e s s
Governor Calkins.
The Chairman. 1
It i s a
because
matter
veconded.
would l i k e t o s a y e
w e have discussed a
t h e direct sendings
is a
lot
word a b o u t i t .
i n Ney
p r o b l e m there.
T h e
Federal reserve c a s h collection system was designed
only t o s a v e t i m e b u t a l s o t o obviat:.. a
trenendous
Of d u p l i c a t i o n o f Wore.
Now, theoretic }
something like this
e
L e g e
r
a
e
e
h
e
e.
t o me t o be
thousand banks
in our district w e would have e a c h d a y going through t h e
Federal Reserve Banks, theoretically, 1 , 0 0 0 incoming
letters a n d a thousend outgoing collection letters, p l u s
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Federal Reserve Bank of St. Louis
Le
55 l e t t e r s
t o t h e different Federal Heserve Banks a n d
branches r e c e i v e d a n d s e n t out.
N o w i f w e enlarge
the direct sendings t o its logical and ultimate conclusion w e would each receive 1 2 times 1,000 letters,
which would b e 12,000 letters a n d send out 1,000 plus
35 e v e r y d a y a n d e v e r y r e s e r v e b a n k w o u l d h a v e a
col-
lection letter f r o m every member b a n k i n the country,
wcoimetcly.<
O F course t h e t 1 s 6
least i t i s a
multirlicetion
Gipiicecion,
o r at
o f work d u e t o the
development o f this direct sending, a n d we cannot permit
it t o g o t o t h e t extreme.
I t would enormously enlerge
the a m o u n t o f w o r k i n o u r r e s e r v e b a n k s .
T h e r e are two
dangers .-to- direct sendings, o n e i s thet i t would very
much i n c r e a s e t h e e x p e n s e u l t i m a t e l y
i n the operating
department; t h e other is, a n d I think there might b e a
difference o f view about it, that t h e o l d fashioned
banker believes that w h e n h e collects a
hendling a
check h e i s
negotiable instrument a n d thet handling t h e t
nersotiable instrument rerlly means handiing i t and makentry o n his books a n d s o on; thet t h e payment
of t h a t i t e m a n d c o l l e c t i n g t h e p r o c e e d s t e k e s p l a c e
through p r e s e n t a t i o n
o f t h e i t e m directly,
a n d f o r which
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Federal Reserve Bank of St. Louis
you a r e responsible,
your books,
t h a t you’ have m a d e e n t r i e s
on
y o u h a v e m e a n s o f t r a c i n g i t a n d s o on.
These items that a r e sent direct f o r collection a r e
settled,
i f y o u please,
b y a n advice, n o t b y a direct
handling o f the item through your books, b u t b y a n
advice a n d the opportunity f o r fraud b y collusion i n
the member banks among t h e employees i s very much
greater t h a n i t i s where t h e i t e m i s handled b y you
and goes through y o u r o w n hands.
T o what extent that
is t h e d a n g e r , I
it is a
d o n o t know,
but
danger.
i t
is a novelty i n banking, t h i s direct sending, t h : t has
not b e e n tested o u t a n d I
it d o e s n o t p r e s e n t
a m always wondering whether
rsd
a n opportunity f o r s o m e great f r a u d
to b e p e r p e t r a t e d a g a i n s t u s o r p e r p e t r a t e d
bank b y i t s employees.
w
e had a
of t h a t m a d e b y s o m e o f o u r men:
in a
member
careful i n v e s t i g a t i o n
w e did not want t o
arouse a n y anxiety i n the minds o f the member banks,
and I
Was s u r p r i s e d
t o find fhen t h e renort c a m e b a c k
from those t h a t were interviewed, t h a t t h e officers o f
these b a n k s ,
w h o were responsible a n d experienced men,
were a l l o f them perfectly awaie o f these dangers, a n d
thought t h e t t h e y hed s a f e g u a r d e d against them. I
204
gained t h e impression that t h e y d i d regard i t a s a
novel p r o c e d u r e , a
departure f r o m o l d s e t t l e d b e n k i n g
practices i n the collection o f checks, a n d therefore
f{would like t o s e e t h i s g o t o the committee t o study
it i n e l l i t s aspects.
Governor Fancher. I
was g o i n g t o suggest that
Governor Young's resolution b e broad enough s o that
the committee would study the problem o f direct sendings °
The Chairmen. I
do not think a n y o f u s want t o
receive 10,000 c a s h letters «
day, e n d c a n w e have a
motion t o report the whole subject o f direct sendings
to t h e C o m m i t t e e
o n Vollections f o r i n v e s t i g a t i o n a n d
study o f tle s u b j e c t n
i ell o f its phases, w i t h a
report a n d r e c o m e n d tion t o the conference?
Governor Young.
8 8 , s iI
have
o t h e r
matter ‘that perhaps c a n b e handled here o r should b e
referred t o a committee, whichever y o u think best,
which i s also i n reference t o direct sendings, a n d
that covers t h e instructions o n letters o f transmittal.
For instence a bank i
C h i c a g o has o n its letterhead:
"Protest a l l i t e m s o v e r
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Federal Reserve Bank of St. Louis
l O unless otherwise instructed
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Federal Reserve Bank of St. Louis
by us.
D o n o t protest i t e m s 3 1 0 o r under o r those
bearing t h e stamp N.P.-2-28,
preceding endorsers.
o r similar authority o f
T e l e g r a p h nonpayment
o f all
items .;200 or over, o r items listed T.N.P."
That w a s just picked o u t f r o m a lot.
hundred different instructions,
W e get a
a n d I thought w e sshould
handle i t i n this way, a n d that i s simply write t o the
Fourth Street National B a n k o f Philadelphia a n d tell
them t h e t t h e i r t r a n s i t l e t t e r d i d n o t a g r e e w i t h o u p
circular, a n d i f they d i d not correct i t w e would s e n d
the items b a c k t o them,
The Chairman. ‘ishhy could w e n o t h e v e t h e c o m m i t t e e
consider that a n d make i t uniform f o r everybody?
Governor . Young.
L I think i t i s u n i f o r m n o w a n d i t i s
only a question o f enforcing it.
lr. otrater.
T h e committee i n one o f its reports
recomiended uniform instructions.
Governor Young.
‘ / e have:that, b u t when they send
them directly t h e y use their o w n letterheads, w h i c h
contain many different kinds o f instructions, a n d each
> handled
The Chairman.
W h e t would y o u like t o have done?
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Federal Reserve Bank of St. Louis
256
Governor Young.
J I would like t o g o after those
banks a n d tell t h e m that w e would not handle t h e items
unless t h e y agreed t o our terms.
The Chairman. I
think t h a t i s t h e p r o p e r t h i n g
to do.
Mr. Strater.
T h e committee reported w h a t should
go i n the circulats o f reserve banks, " D o not protest
items o f 3 1 0 o r less; p r o t e s t i t e m s o f 110.01
o r over,
except those bearing o n their face the 4.B.A. n o protest
symbol o r preceding bank endorser, wire advice o f nonpayment o f items o f 5 0 0 o r over",
T h a t appears i n all
check collection circulars o f the reserve banks,
Governor Young.
Kegardless
o f whet t h e circulars
s tate t h e y heve s e n t u s their special letters w i t h
special instructions a n d w e have t o follow those instructions.
/ @ have n o t b e e n doing it.
them i n t r a n s i t i t e m s .
L
W e have b e e n handling
G L s j u s t e n imposritole: t h i n g
to handle.
The Chairman. ‘ W h y are w e not ell i n the same fix
on t h a t ?
Governor Young. I
The Chairman.
think w e are.
w h y not refer i t t o the Collections
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Federal Reserve Bank of St. Louis
Comittee
t o m k e ingu.ry o f the reserve banks a n d
find o u t whether t h e instructions o f the circular
are a d e q u a t e ?
Governor Young.
I f they give a n y other instruc-
tions t h e y a r e going through o u r collection department,
thet i s all.
Governor McDougal.
I t i s the understanding n o w
that where snecial instructions a r e given i n regard t o
the collection o f a check that t h e y must b e handled a s
a collection item, x s I remember it.
The Chairman.
H o w a r e t h e y handled
Governor M c D o u g a l . I
i n your bank?
do not know how they are
handled.
The Ghairnan.
Strater.
Chicago Bank, G
T h e y are n o t handled
I a m quite su.e t h e y are i n the
overnor McDougal, w h i c h i s probably
the o n l y b a n k s t r i c t l y e n f o r c i n g t h e rule.
Governor licbourzal. I
know t h e t t h e r u l e i s known
in our bank.
Mr. H a r r i s o n .
U h e n - t h e
Pourth National
Bank
of Philadelphia sends items direct t o Governor Young f o r
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Federal Reserve Bank of St. Louis
208
collection, i t < s e n d g t h e m
a s the a z e n t f
o the Federal
neserve B a n k o f Phitadeipnia.
~ ~ There t e mo. Cine,
authority i n l a w for direct sending, Thereroere. 2
should t h i n k t h e t t h e p r o p e r m a n n e r o f procedure w o u l d
be f o r t h e m t o w r i t e G o v e r n o r N o r r i s e n d t e l l h i m t h a t
his member banks a r e n o t complying w i t h t h e circuler
in sending a a i
Governor Young.
t h y should w e not write direct
h National B a n k a n d t e l l t h e m t h e c o n d i t i o n s
under w h i c h w e w i l l t a k e t h e m ?
Mr. Harrison,
T h e o n l y w e y they c a n send items
direct i s under the authority of Governor Norris, which
have g o t t o eset,
Governor Young.
ir. Harrison.
A n d a l s o euthority f r o m us.
1 - d o n o t denow thet: t i e y
any euthority f r o m you.
Governor McLougal.
submit
t o t h e terms
The Cheirman.. I
B u t jiasn't e a c h bank agreed t o
i n the collection p l a n - -
think they c o th:t when they send
the i t e m .
Governor Young.
are taking @
J u d g e Uhlan
chsnce e v e r y time w e d o that
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Federal Reserve Bank of St. Louis
259
Governor Celkins,.
Y o u r point, Governor Young,
th:t t h e direct sending banks d o not obsarve
as s e t u p i n y o u r c o l l e c t i o n c i r c u l a r ,
should c o m p e l c o m r l i a n c e
Governor Young.
is
r u e s
e n d thet
we
w i t h those rules.
T h a t i s the point.
Why n o t r e f e r t h i s t o t h e c o m m i t t e e
with r e c u e s t
t o prepare a
uniform circular
t o b e sent
to all direct sending banks f r o m each reserve bank,
ing
bring/out
theft
complied w
o t thep
1 2e tere
ei pn s
t
r
u
c
t
i
o
n
s
ere not
ith they will b e treeted a s collection items?
Governor Young.
The Chairman.
h i n k t h - t would b e proper.
T h e n Governor Young's m o t i o n i s that
we refer. t h i s q u e s t i o n o f u n i f o r m i n s t r u c t i o n s w i t h
reserd: V o l t a .
t
o the Collections Committee.
{fs t h e t m o t i o n s e c o n d e d ?
Governor F a n c h e r . I
will s e c o n d i t s
(The m o t i o n h a v i n g b e e n d u l y seconded,
A T
B
t Q a e < r
Governor
Seay. I
w a s carried.)
move also that the Standing Com-
mittee o n Collections b e reauested t o consider t h e practice o f h a n d l i n g b i l l o f l e n d i n g d r a f t s c o n t r a r y t o
the. C i r e t t i s t e u e t a o n s . - c o n v a t n e d
transmittal.
i m t h e terterns
o f
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Federal Reserve Bank of St. Louis
Governor Calkins,
i f Wiis second thet.
(The motion having b e e n d u l y seconded, w a s carried.)
Some t i m e a g o I
withdrew a
motion a p p r o v i n g t h e s u p p l e m e n t a l r e p o r t o f t h e s t a n d i n g
Committee o n Collections i n regard t o non-cash collections.
i t does n o t s e e m t o b e necessary
t o resubmit
thet resolution b u t I would like t o offer «
this C o n f e r e n c e
resolution
o f Governors
tion o f the very thorough a n d conscientious w o r k o f the
Stending Comi:ittee
o n Collections
i n regerd t o their
ideration of the question of non-cash collections.
Governor Seay. I
second thet motion,
(The sotion having b e e n duly seconded, was carried. )
Governor P e n c h e r , .
T h e r e
L s one other matter that
{ think might properly b e referred t o the Standing
Comnittee
o n Collections a n d t h e t i s t h e q u e s t i o n o f t h e
policy o f r e s e r v e b a n k s
i n e b s o r b i n g t h e c o s t s o f tele-
grems, «dvising n o n - a y n e n t
o f cl.ecks o f ..500 and over.
The present practice a t our bank, e s well
pey t h e cost o f these messeges f r o m
the collecting b a n k t o the Federal Reserve B a n k a n d from
tre Pederecl Kese:ve B a n k t o tie depositing member bank.
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Federal Reserve Bank of St. Louis
yee
Based u p o n o u r r e c o r d o f t h e s e t r a n s a c t i o n s f o r Goes
1924 - - t h é c o s t t o u s f o r t h e s e
apnroxinetely .4,600, distributed a s follows:
Cilevelend, 2 2 7 0 0 ,
Pitisburgn, 12,050,
Gincinneti, 6 5 0 ,
Prior t o the sdoption o f the present policy b y
he reserve banks, I
believe i t wes t h e general custom
to collect t h e cost o f these messeges f r o m the depositing banks, a n d i f i t should « t e n y time become impaired
to reduce t h e cost o f operating t h e transit department,
Well t o consider t h e advisability o f passing
charges b a c k t o the depositing member bank.
ink this i s a matter t o which t n e committee
might give consideration a n d I move t h e t i t b e referred
to t h e S t a n d i n g G o m m i t t e e
Governor lickKinney. I
o n Collections.
second t h e motion.
(Tre m o t i o n h a v i n g b e e n d u l y seconded,
The Chairman.
probably.
w a s carried.)
i t e s now: C i n e t o adjyourm T o r i w i ,
T h e Chair will entertain s u c h « motion.
(Whereupon, u p o n motion d u l y seconded,
o'clock p.m., t h e conference recessed until 2
pem,
o f t h e s a m e day.)
o'clock
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Federal Reserve Bank of St. Louis
APTLR 1oChss.
The Conference reessenvled pursuant t o recess,
at
D e o TONG MOCK: a7 ofils
the Chairman.
order.
T h e neeting will kindly come t o
‘ 6 w i l l p r o c e e a w i t h t h e program.
T h e r e i s one
item, before w e return t o collections a n d clesrings,
thet ousht t o b e cleaned up, Which i s o n the last page,
and that b s topic L .
be C o l l e c t i o n o f 4 ¢tual cmrrpgea Incurred
in h a n d l i n g
o f bonds, c o u p o n s ,
end
nepoti b l e s e c u ities forwarded b y
insured r e s i s t e r e d m a i l o r express.
ecommonded :
That a uniform procedure b e adonted b y
the F e d e r e l iieserve B a n k s r e g a r d i n g t h e
collection o f actual chrr-es incurred
in the handling o f bonds, coupons,
and necotiable securities f o r w rded b y
insured registered mail o r express.
Governor Panchor.
T h e n e w postel reguletions, w h i c h
go into efiect April 15th, a v e going t o increase t h e cost
of handling currency e n d securities t o quite a n extent.
As t h e postel rates i n c r e a s e
i t means a n increase i n
cost o f handling couponesecurities.
us t h e t t h i s c o s t w : s n o w a
I t rather seemed
p r e t t y substz:ntial a m o u n t
and thet w e ought t o trke some procedure here, uniform
by the banks, w i t h regard t o it.
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Federal Reserve Bank of St. Louis
Correspondence a n d i n v e s t i z r t i o n h a v e d e v e l o p e d
thet there i s e
more
s
s u n i f o r m practice among
the Fedevnl reserve banks o f collecting t h e actua
expense,
s u c h a s insurance, r e g i s t r y f e e , e n d postage,
on n o n - c a s h c o l l e c t i o n i t e m s c o n r coupons f r o m m e m b e r b a n k s o n l y w h e
these chirges ariount t o 5 0 cents o r o r e
o n any indi-
vwidued Collection.
Our o w n e x p e r i e n c e
our m e m b e r b a n )
hes bes
e n d payable
h e t
w e receive
from
i n o u r o w n district, a
very cons ider:able number o f small items o f this chara«
eter,
W h i l e t h e o u t o f pockot expense i n connection
individu] ittom i s comparatively small, t h e
expense w i l l e m o u n t
t o seversl h u n d r e d dollars
“e@ have recently edonted ti:e practice o f
collecting t h e actual cxpense o n all bonds, coupons
and negotiable esecurities, a n d heve effected a
reduction
material
i n o u r expense.
Based upon o u r o w n experience,
i t appeers t o u s
that there i s a possibility o f further reducing t h e cost
of the non-cash collection function b y collecting insurance, registry fee, e n d expres b e r g e s f r o m all member
on a l l i t e m s
o f this character.
B e c a u s e
o f our
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Federal Reserve Bank of St. Louis
pr-sent policy,
w e s r e i n the somewhat inconsistent
position o f collecting a l l o u t o f nockst expense
covering security collections f r o m our o w n member b a
in our own. district, a l though t h e vast wejority o f them payeble i n other dis~
tricts
a r e collected f r e e unless
to 5 0 cents
t h e charges amount
o r izore o n 6 : c h individuel item.
sugzest t h e following topie f o r the
progrsm o f t h e next. C o n f e r e n c e
o f Governors s
“Te f o r m u l a t i o n e n d s d o n t i o n o f a
uniform p o l i c y
reserve banks retarding t h e collection
egtuel charges incurred i n the handling o f bonds,
coupons a n d negotiahle securitic
by insured r e g i s t e ; e d m a i l o r express.
xecommendation -
thet t h e r e s e r v e banks c o l l e c t f r o m c l l m o m b e r a n d n o n -
ember clearing benks a n d other Feaor: e a s e r v e banks,
all actual shipping expense incurred i n t h e handling o f
bonds, c o u p o n s e n d n e g o t i a b l e s e c u r i t i e s ,
o r a t least
the minimum c h rge t o b e collected o n items o f
this cher:.cter b e r e c u c e d ”
5 0 cents t o 2 5 cents,
hepges less t h a n 2
e n t s o n a n y individual
be ebsorbed b y the Federel r e s e r v e b a n k making
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Federal Reserve Bank of St. Louis
tue collection.”
LIS
O D 7 6 bison
t e
l h e expense
and
connection*vith collecting smell amounts will
then off55t, t h e ssving h a s been r e i s e ; however,
in
view o f the volume o f sisall items passing through t h e
aved that t h e nolicy sugzested
will effect: a materia
nortion
W i n e e n d m a y result im: driving
o f trcse small items o u t
o f the
PEServe HySst cm.
going t o heve these expenses increased some=
new postel regulations
‘Le item-thi t y e
undergo o u i t e a
a y e been
meterial i n c r e e s e .
Governor S
M
A
Y
a s k
i f t h e S e c : etery
a reply from a l l t h e banks a s t o their practices,
he tebulate i t ?
Harrison.
WW
N o , n o incuiry has been sent out.
seé w e only received a
ORT I
tion f r o m t h e s e c r e t a r y t h a t C l e v e l a n d h a d
notifica-
p u t i t o n the
program.
Governor N o r r i s .
{
L suppose N e w Y o r k c o l l e c t s m o r e
coupons t h e n a l l t h e r e s t o f u s p u t together.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
266
Tne Cheirman.
tO us.
‘
Yes,
t w a y sometimes
'
T h a t i s coming u p f o r discussion later.
T h i s i s merely &
Governor Celkins.
to whether i t w i
‘
question a s
¢ m o r e t o collect these charges
hen i t will t o absorb them.
A t present w e ere collecting a
Governor Fancher.
pert a n d a b s o r b i n g a
part.
Governor. Calkins.
S O . arc We.
1922, that w e could d o that i n effect.
Governor Fancher.
i I would like t o move thet this
matter b e given considerntion b y the Stending Committee
on Collections.
willsecond that.
Governor N o r r i s . I
b e e n d u l y seconded,
(The m o t i o n h a v i n g
The Chairman.
w a s carried.)
W e have o n e o r two tonics o n the
program which Mr. Dewey would like t o discuss w i t h us.
I willask y o u t o t u r n b o n a g e 2 , b o p l e o ,
C. Limit o n Fedovel Heserve exchange drefts.
necomaendec :
Pret t h e 6
m
e
s mun. Lime “ O m :
Federal ics erve lxel.cnge drefts b e
removed.
What have y o u t o s a y svout thet, Governor Fancher?
*
Governor F e n c h e r .
p e r h e n s f o r t h e information o f
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Federal Reserve Bank of St. Louis
oor
the G o v e r n o r s I
might. j u s t r e v i e w wh: t nas t e k e n p l a c e
in connection with t h e
o
f exchange, dvafts.
O n
June 1 , 1917, t h e Federal teserve Board i n their letter,
Pl
y Oe ted- Orid 2 5 , 1917. s o r e v a c t n e
of Pedéral reserve
a
n
g b
@eeiers)
n a amount
z tG
200.
result o f the action teken b y the Govoinors
in c o n f e r e n c e
i n April o f i917.
O
1918, thie m a x i m u m ainount w : s r e i s e d
n Senvembor
t o :,5,000.
was approved b y the Boa.d i n its letter x
AU BUST L y e
e e T h e a t was t h e posuie o f
the s i x ressrve banks i n August o f 1918.
In 1919 t h e contorencs discus
t h e recommendation
of t h e transit conference h e l d i n Cleveland o n June 25,
1919 removing t h e limit o f amovnt o n : n y Federal exchange
drafts.
I n October, 1 9 2 1 , t h e c o n f e r e n c e c o n s i d e r e d t h e
proposel o f the Federal Reserve B a n k o f Richmond t o
remove t h e limit o f amovnt o n a n y one Federcl preserve
exchante draft.
T h e tonic w i s discussed a t length e n d
finally d e c i d e d
conference,
e n d i t was n o t done a n d n o further action
has b e e n t a k e n .
since 1 9 1 8 .
t o withhold a c t i o n until t h e n e x t
T h e : :fore t h e l i m i t h a s b e e n , 5 , 0 0 0
‘ w e find thet o u r member banks aveil them-
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Federal Reserve Bank of St. Louis
268
selves
t o some extent
are l i m i t e d
o f this privilege b u t naturally
i n the emount
o f a n y o n e draft w h i c h c a n
be drawn, a n d i n many cases i f they have a
transection
in excess o f 35,000 they will draw a number o f drafts.
The question has arisen i n many cases w h y i s i t thet
they can draw thirteen drafts for a 65,000 transaction
but cannot p u t i t & n one draft?
is i t t h e t t h e i r d r e f t s
T h e next t h e n i s w h y
o n excess balences
r- serve b a n k d o e s n o t c i r c u l a t e
i n any
a s freely a n d with t h e
sane facility o s a draft o n the bank o f New York and
Chicago.
were
W e have found t h e question difficult t o ans-
I n our bank w e s e e n o rerson w h y the dreft f r o m
a member b a n k d r a w n o n i t s r . s e r v e s
b y the Federal
Reserve Bank, under t h e present arranzement w h i c h has
be n
set u p whereby t h e Federal Keserve Banks! d r a f t
when p r e s e n t e d
t o anot*er Federal Reserve B a n k becomes
immediately available, i s not accorded” the same standing.
T h e question i s raised w h y thet f o r m o f draft
exchange d o e s n o t circulate e s freely a n d w h y i t i s
not r e t a r d e d
a s g o o d a s a n y e x c h a n z e d r e w n o n a n y Federal
Reserve Bank.
The Chairman.
T h e r e were objections m a d e t o that
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Federal Reserve Bank of St. Louis
were t h e r e n o t ?
Governor Young. I
think there were lots o f then,
Mr. Chairman.
Governor C a l k i n s . I
d o not recall w h a t objec-
tims w e r e urged.
Governor Norris. I
have, n o t t h e objections t h a t
were urged, b u t t h e objections t h e t might b e urged,
summarized here i f you cere t o hear them.
Governor Calkins. I
would b e glad t o heer t h e
objections t h a t m i g h t b e u r g e d a n d I
would a l s o l i k e t o
refresh m y memoryiwith regard t o the situetions t h a t
arose w h e n i t was last discussed.
A s I recall a t this
time t h e removing o f limitation o n the exchenge draft
was opposed b y the N e w York bank a n d the Chicago bank.
I do not recall w h e t arguments w e r e made, b u t I would
like t o h a v e m y m e m o r y refreshed.
The Chairman.
M y memory i s a little indistinct
okae3,
Governor Young.
M i n n e : polis objected, a n d t h e
objection w a s thet i f a Federal n e s erve Bramsfer draft,
payable
a t another Federal neserve Bank, u p o n presenta-
tion a n d advice,
i s immediately available e t another
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Federal Reserve Bank of St. Louis
Federal Reserve B a n k but i n reality payable «st the
Federal Ress
B a n k u p o n which i t i s drawn, without
advice - - that means t h e t iff some Federel heserve B a n k
in O h i o s e n d s a
draft t o s o m e o n e
that i s p r e s e n t e d
45,000. A
i n Minnespolis a n d
t o our bank w e take a
chance u p t o
cas e was just st:.ted here where thirteen
drafts were issued o f «5,000 eagh.
I n Minneapolis
think ,5,000 i s high enough.
they would n o t b e paid. I
I f the bank h a d t h e reserve i n
Governor Fancher.
your hands, y o u would n o t p e y the drafts?
Governor Young.
B u t i t has not.
Governor Fancher.
I t i s mostly drawn against
surplus reserves.
Governor Young.
I t i s supposed to, b u t i s it?
Governor Fancher, T t - - 6 Governor Young.
3 - 0
B u t here i s a
Cases
to
draft p r e s e n t e d
I d o n o t k n o w anything a b o u t t h e genuineness
of
the signeture a n d I have t o get advice é&hat y o u have
that r e s e r v e
i n Cleveland.
Governor Fancher.
Y o u d o n o t p a y it.
Y o u receive
it for aveilability, a n d w e p a y it.
Governor Young. I
know that, b u t they c a n check
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Federal Reserve Bank of St. Louis
against i t immediately.
Governor F a n c h r
. T h e y check against a
ws O f itens: every d e y thet. 7
million
‘ v e taken th. t
actually paid.
Governor Young.
T h e y don't check against it. I
get t h e money first.
The Chairman.
‘ J e get a
check o n the Federal
Resorve B e n k o f Cheveland a n d w e send i t trrough a n d
give’ our member t h e proceeds after t h e elapse o f our
time schedule.
Governor Young. q
The Chairmen. I
Governor Young.
Sir.
meen t h e check, p l a i n check.
Y e s .
when
N o w i n this case t h e bank comes i n
The Chairman.
with 565,000 o f those drafts t h e y g e t immediate credit,
do they not?
Governor Y o u n g .
The Chairman.
A n d they t a
h
e
h
o
w
do w e know y o u ere going t o pea S u p p o s e y o u s e y
thet the bank o f Chillicothe h r d busted. e
contt k n o w
anything about thet bank, e n d w e + e€ not going t o p a y
this, a n d then w h o i s going t o make good?
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Federal Reserve Bank of St. Louis
a
Governor Fencher. W h e t d i f f e r e n c e does i t make
whether y o u t r k e a
draft d r a w n o n o n e o f o u r m e m b e r
‘banks o n the Foederel ieserve B e n k o f Cleveland o r
wrether y o u take a
creck drawn b y John Loe o n the
First Netionel B a n k o f rittsburgh?
Y o u take i t from
the endorser subject t o payment e n d give a n d y o u set
1t u p
i n the t i m e schedule a n d e s s o o n a s sufficient
time has elapsed for the draft t o be presented for
peyment. “what haprens now, you teke for two days o n
a New York bank .1,000,000 i n items thet cannot possibly
Governor Young.
B u t w e c o thdton t h e strength o f
the endorser.
Governor Fencher.
and f u r n i s h e d
y points
Y e s , d r a w n o n New York exchenge
t o customers
t o make remittances
- - whet hepnens
i n effect
i s this:
t o far
Surplus
eserve i s crested i n our bank b y a discount operation
hes ere: t e d t i e t s u r p l u s r e s e r v e h a g
sold f o r Dp. ynmnent a t s o n e d i s t a n t p o i n t ,
be done, o r we.t has t o b e a
and then
r
e
sac D e t a n o O In etiest,
= $ drewn t o remit - - w h y couldn't t h e y
drew t h e d:eft o n the surplus reserve i n our benk, a n d
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Federal Reserve Bank of St. Louis
why c o u l d n ' t t h e t b e j u s t é s g o o d e x c h e n z e
a dreft drawn o n its N e w York belence?
Governor Celkins.
i f a m not t-king either s i d e i n
tis discussion a t present.
‘ h e «westion 1 s esked w h y
could n o t thet draft b e just a s good a s t h e draft drawn
by s o m e b a n k o n i t s N e w Y o r k corres:ondent.
Obviously
it should b e just a s 0 6 d , b u t a s I sec i t th. t-3s n e t
exrctly w h a t w e e r e after.
W w e w a n t t o s e e thi:t t h i s
exchenge dvaft drawn o n e Federal n e s r v e Benk i s entitled t o a little ba&ttor treatment a n d a
better c r e d i t t h a n a
draft o n s o m e b e n k d i a w n u n o n i t s
New York correspondent.
pener d r a w n o n a
i
n other words,
New York cortespondent
gives c r e d i t u p o n t h e d e f e r r e d nayment.
drawn
little
b y the same bank
o n a
i n a case o f
C l e v e t a n d :
U p o n a
Federsl Reserve
drake
Bank
Cleveland will give immediete eredit, depending u p o n
s0rsemént, n o t defer:-ed until t h e dreft i s pre
sumebly p a i d , n o t a c t u e l l y peid, b u t p r e s u m a b l y p a i d ,
ond. 6 n tAc“ev T e c o 0 G w i l l “be i
think Governor
Fancher o u g h t t o e l u c i d a t e
ere really trying t o d o i s t o s e e t i x t t h e Fedsral
little b e t t e r
t h e n t h e other draft.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Now i s i t ?
e have h a d @
w
Governor t e n c h e r ,
demonstretion
here f o r sone four o r five years i n a limited way,
ve find th:t once i n a while a
ba w i l l d r a w a n
end forget t o advi
and immedistely call t h e m down.
u s , w e detect i t
I n some cases t h e y
feil t o advise u s a n d the draft i s drawn, w e
adjustment i n reserve, allowing transit t i m e f o r the
w e heve h a d very f e w abuses
notice t o reach o u r bank.
in t h e l i n i t e d e x t e n t
and
s o f e r e s t h e mechancis
t o w h i c h i t h e s b e e n used,
i s concerned
i t whusd worked
a.denand-for t h o s e o t ings?
Governor Fenchor.
T h e r e i s a demand.
ectly whi.t w e e r e g e t t i n g r i g h t along.
T h t i s ex-
‘ j e arc a s k e d
the question w h y i s i t w e cannot d r e w o u r diaft f o r a n
amount i n excess o f ..5,000.
understood G o v e r n o r Y o u n g
Governor Grikins. I
to s e y thet i f his benk receives f r o m & member bank
drafts d s a w n b y a
member
o f t h e C l e v e l a n d iieserve B a n k
amounting t o .65,000 thet h e would not give credit for
them,
as I
understood h i n .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
are
Governor S e a y .
H
e w o u l d g i v e c r e d i t f o r -,5,000
but w o u l d n o t g i v e - c r e d i t f o r 6 5 , 0 0 0 .
ernor Youngs I
Governor Calkins.
ji:here would h e
Would s t o p a t 5 , 0 0 0 ,
t h e o n l y reason h e vould n o t
give i m m e d i e t e c r e d i t f o r t r e . 6 5 , 0 0 0 d r a w n b y a
bank
both
in the Cleveland d i s t r i c t wovld b e th:t théodwewing
back e n d the depositing b a n k might fail before collectton w a s m a d e .
. T h e t i s t h e o n l y reason.
Governor Young.
& n d tnt
i s some reason i n the
Governor Bigss.
f s I underst-nd i t y o u would teke
thirteen ,5,000 drafts b u t y o u would n o t teke o n e f o r
65,0097?
Governor Young.
N o , w e wouldn't t e k e thirteen
6,000 drafts.
Governor B i g g s .
Y o u e r e purmitted
t o t:ke «
number
of 5 , 0 0 0 , b u t y o u c:nnot exslein i t t o your customers.
Governor Young.
‘ i e woulc u o t g o further t h e n 5 , 0 0 0 .
Governor Calkins.
L e m n o t tiking either s i d e o f
this, b u t .. Governor Young's statement
h i t h e would
not give i s member b a n k i n the Hinne: polis cistrict
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
276
credit for the .65,000 beceuse the bank might fail.
Wow I
went t o c a l l a t t e n t i o n
t o the
only risk involved would
banks,
a n d n o ben's h a v e f r i l e d
district f o r a
hundred y e a r s
fore i t v o u l d b e a
o r thereabouts.
m i n i m u m risk
Governor S e a y
i n the Cieveland
There-
a t least.
I f I understend Governor Young
his position i s th:t h e would give certain banks
exedit f o r i t b u t h e w o u l d n o t g i v e c e r t a i n o t h e r b a n k s
Creare
Ort
b e cnieuuhat
Governor Younz,
Governor S e a y . s
v u e
2
Yes.
Y o u eve referring
t o some
o f the
banks i n the Minneepolis District - Governor Young.
Governor Seay,
endorsement
Yes.
B u t sunpose other banks,
y o u relied,
o n whose
a n d o f w h o s e p o s i t i o n y o u hi.ve
them e r e d i t - - o f c o u r s e
doubt t h e integrity o f
bank's e n d o r s e m e n t y o u w o u l d n o t g i v e t h e m e r e d i t
for anything.
Governor
Governor Seexv
O f course £
caniiot quarrel w i t h
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Federal Reserve Bank of St. Louis
Hde
i4
your Position o n thats
cussion hei.:) f o r a
i g -tO- the subject under digs
g r e . t meny ye:rs
w e have been i n
favor o f removing t h e limit, under t h e restrictions
been s e t u p i n t h e Systen.
heve b e e n p l a c e d
i n the seme ewkward position o f
rying t o explein t o our member banks w h y i t wes thet
teir drafts o n their reserve pelances c o u l d n o t b e
used i n e x c e e n z e e e n t e r s ,
end
e t w e have never b e e n
able t o explain t o their satisfaction.
benke = thet, inal
O f course t h e
h e o c r g e sryse't2..0 2 0 Goes nov. iake
it through collection chirge, d o e s n o t m a k e e n exchenge
charge b u t i s making «
the funds b u t
i
n
an exchenge draft
immediate c r e d i t
it w e s m e k i n g a
chirge
k
o f inte
‘
o
r advencing
s Weich mekes t h e deposit o f
i n t h e reserve b a n k cou’d obtein
i t should not s e t
u n t h e pnosition t h e t
charge. f o r interest.
O
f course a
pn elect wrether i t will e i
not.
Wich
N o b o d y c e n govern thet.
L s entirely a p a
B u t thi.t i s
f r o m t h e question o f whetner
tre limit shall b e removed f r o m t h e exchange draft.
The Chairman.
O n e objection — »
in New
York was thet this reelly puts t h e check i n the reserve
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Federal Reserve Bank of St. Louis
278
bank i n float,
s o t o speak,
i n violetion o f the v e r y
principle t h a t w e w e r e c o n t e n d i n g f o r , t h e t t h e r e
should n o t b e e n y float.
Governor Fanche 7
h a s a l l been elimine ted
with t h e d i i l y settlements.
The derly settlement eliminates
thet objections I
recall now thet t h t was a n
objection that w a s v e r y s t r o n g i
n New York.
Governor Seay. T
would like. to. say,
s o ter
pisk i s concerned, t h a t t h e Federal reserve bank, u p o n
the adoption
o f their time sc):edules, g a v e credit f o r
vast guentity o f funds i n anticipation o f ectual
payment.
Boston,
T h e r e s i
i
m
e schedule
n o w prevailing
i n
5
N e w York e n d Philedelphia under w h i c h
three banks a r e accustomed t o giving credit t o t*eir
member banks f o r « lerge volume o f stuff before t h o y
.ctual peyment.
for G 2 scuss2on.
demurred
working a
B o t h G l e v e l a n d a n d kKichmond h a v e
t o t h e existence
hardship
member b a n k s
T h a t m a t e r hes been u n
o f these t i m e sc»edules
o n the Cleveland district
as
and the
i n t h e ttichmond d i s t r i c t a l s o .
is a n y support f o r the position o f
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Federal Reserve Bank of St. Louis
Boston, P h i l a d e l n i i i a a n d N e w Y o r k b a n k s
erect f o r t o s e
t i ye
CUsSed=DTP6quUChtLYy- s n d
i n ziving
T h e matter h a s been digs-
t i t e b i e W O s u l won O t n e
New Y o r k B a n k w a s thet. t h e y 3
fvom t h e member b e
e r i t e d that position
f
O
When t i c h m o n d t o o k t h e m a t t e r
a
n
g
.
u p with rhiledeln.ia
Philadelpiie'ts p o s i t i o n w a s t h e t i n e s m u c h a s B o s t o n
and N e w York were doing i t Philadelphia w e s forced
Governor
o f the Philadelphia
logic w e s o n tiie other side a n d that there
extenuation
o f vrinciple.
Neo a b o u t
Fancher: t h i s duespilon:
J a k e to. a s k foverrnor
b
a
n
k i n your
district wants Mederel r e s e r v e funds i n some city, t o
the extent o f ..65,000, w h y can't they d r e w a
avert i n s t e d
o f e n excerne
Governor F e n c h o e r .
us e d , t h e b a n k s n e v e r
GOVGPROT
trensfer
T h e transfor drefts never were
took
CaliiWd~e. -
t o trem
o r adonted them.
lieres L e a s 1 1 m .
O l 6 OU . e m
trensfer d r e f t s nNOWe
LS I O
s m e
Nowe
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Federal Reserve Bank of St. Louis
Governor Fanch?r.
selves o f the opportunity
IPawi
s h e rescorve i n
the reserve b a n k b u t t h e y draw o n t h e corresponcent
bank - - they don't want t o use t h e transfer draft.
Governor Herding, I
s e d e
think p a r t or: S e t
to the limitation o n the excianze bank. T h e r e i s
some b u s i n e s s
brokers
done
i n the city
of
i n Federel r e s e r v e funds.
B
o
s
t
o
n
b y
T e k e the
Netional Corporrtion o f Boston, a n d they will g e t
some bank i n New York that h e s e n excess o f Federal
reserve funds a n d will b u y their check, a n d vice verse.
When a bank has
cash t h e y fo. a!
some o f these F e d ral reserve funds.
The Chairmen. W o e i c h postpones t h e evil f o r a
Governor Harding.
Y E S
You t h i n k t h t t h e t r a n s f e r d r a f t
cannot b e m e d e t o
Governor Harding. N
76 p r e c t i c a i l y
Loos
n o t being used; i t
i n the diseerd
The Cheirmen.
H a v e y o u ever tried i t out a n d ex-
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Federal Reserve Bank of St. Louis
plained i t t o t o s e n e o p l e ?
Goyernor Fanch: :r. Y e s , w e endeavored t o introduce i t a n d have a
circular o n i t endeavoring t o get
it i n use, b u t i t wes used i n a few cases a n d then
practically p a s s e d i n t o t h e discerd.
The Chairman.
E s a vicar s o r t o f i l l o g i c a l p o s i -
tion f o r a bank t o take, thet t h e y won't u s e a
service
which is identical i n cost snd meets the need exactly.
Governor Young. I
would like t o make this
I f they w o n ' t u s e t h e
sugzestion a s a solution.
transfer draft l e t t h e m g o aheed a n d use t h e exchange
draft i f they went to.
advised o f a n y n u m b e r
in excess
W h e n a Federal Reserve B e n k i s
o f drafts t h a t h a v e b e e n issued
o f ..5,000 i t c a n a d v i s e t h e o t h e r F e d e r a l
Res e r v e Banks.
Governor S e a y .
I n answer
state t h a t i f « n y t e d e r s 1
t o that I
would l i k e t o
R e s e r v e B a n k receives,
o r
is offered exchango d r a f t s i n e n y smount, w h i c h drafts i t
has a n y ree@son
t o question, ther: i r e t h e wires which
10 C a n u s e a n d p o s t Ltselt:
L
b
s S
GueSut0n O f
nine a l m o s t i n s t a n t a n e o u s l y
whether y o u ougrt t o give credit i n a particular c a s e .
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Federal Reserve Bank of St. Louis
I contend that while. i n some cases there m a y b e a
risk involved, there a r e a
number o f onerations which
the Federal Reserve Benks a r e performing i n which I
think i t i s c l e a r l y t o b e i!lustrated t h t the risk
is g r e e t e r t h a n w o u l d t h e e x e r c i s e
i n t h i s matter.
[ I
feel that there i s n o explanation that w e c e n give t o
our menbor banks, th:t w i l l prove satisfactory t o them,
for prohibiting their u s e o r interference w i t h their
use o f drafts against their excess balances,
o r which
militete against t h e acceptability o f those drafts
when offered, u n d e r t h e c i r c u m s t : n c e s w h i c h w o u l d s u r -
round t h e issue o f Federel reserve exchange.
=
i
s
Governor Mcttinney. W e e n a n exchange dreft drawn
in e n y district a n d p r sented t o a Federal reserve bank,
it i s entirely e t the option o f the brink t o p a y i t o r
not,
a s i t ssees proper.
Governor Seay.
L e y wi
g i i m m e d i st
e credit
but i f there b e a n y coubt a s t o whether imsedirte
credit should b e given t h e y c a n exercise t h e i r option.
Governor McKinney.
w h e
i
l reserve bank,
upon which o n e o f these drefts i s drawn, although i t
has accounted f o r the amount o f i t i n the gold settle-
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Federal Reserve Bank of St. Louis
283
ment fund e a d e y o r two previous, finally receives t h e
dreft i t still h a s t h e option o f prying i t o r refusing
4t i f the drawing b a n k does n o t have sufficient funds
to its credit,
Governor S e a y .
N E E
Governor Norris. I
rave &
memorandum here
recommending thet t h e ,5,000 maximum limit o n Federal
r:serve exc: ange d r a f t s b e re:noved.
“TZ d o not think th.t t h e limit o f Federal exchenge
d-afts should b e removed without giving considersble
thought t o the emovnt o f risk involved.
are i s s u e d p a y e b l e
T h e s e drafts
b y t h e Federel r e s e r v e b a n k o f t h e
district i n weich t h e member benk i s loceted, b m t when
issued i t i s n o t k n o w n i n w h e t p a r t o f t h e c o u n t r y
they are t o b e presented f o r peyment.
T h e y bear t h e
o them - - 'Aény Federsl reseyve b a n k
notation p r i n t e d n
will r e c e i v e t h i s c h e c k f o r immedi.
par', i
t e availability
at
do not. think there 1 s e n y xvisk t o the bank
upon w h o m they a r e drawn s s they m a y either b e
refused.
when issued, t h e bank doing s o should advise their
Federal reserve bank, w r o o n receipt o f the advice,
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Federal Reserve Bank of St. Louis
284
account
received
o f t h e member bank.
I f we
a n advice a n d t h e balance
we c o v l d s e t i n t o u c h w i t h o u r n e m b e r b a n k , b u t w e
could
n o t edvise
the bank
e t which
vitimetely b e presented f o r credit,
t h e draft would
a s w e would b e un-
aware i s t o the. town t o which i t had been sent.
If our member bank f e i l e d t o advise us, w e would b e
the f a c t t i e t t h e r e w a s a
draft
in circulation f o r mo:e t h e n t h e balance existing,
es the dreft i s subject t o payment o n presentaStilts stand n o risk,
i ian, 16> taken b y tne. Peners: reserve
bank o f another district through w h o m t h e draft m a y b e
cleared, and who give immediate reserve credit,
wro m e y a l l o w t h e p r o c e e d s
{believe
t o b e c’:ecked egzinst.
i t t o b e also sitegether likely thet e
good
meny m e m b e r b a n k s d o n o t u n d e r s t a n d t h e s e d r e f t s
subject
t o fin'1 p
yuent
o n presentation
a t the
Federal r é e s e : v e b a n k w i t h
this nature a l l o w t h e m urmediete avelleoility, t h e r e
is a likelihood t h t t h e y sllow tieir customers
LA6 f u n d s .
W o r
b i s
V e n sOnede C i a m k
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Federal Reserve Bank of St. Louis
285
there s h o u l d b e e
limit
o n the emount f o r which these
drafts c a n b e issued, a l l t h e more s o when considering thet amounts i n excess
o f .,5,000, c e n b e covered
by a
o r t h e issue o f a
mail o r w i r e t r a n s f e r
Federal
reserve transfer draft.'
Go:.ernor Fancher.
not r e s o r t
O f course t h e small banks
t o w i r e trensfers.
do
T h e wire transfers a r e
ergely f r o m b a n k s . i n t h e centers.
n
e small banks
do not transfer i n that way, d o not u s e t h e wire transfers a n d t h e y c o n t e n d w h y i s i t - - t h e y s a y t h e y h a v e
to f u r n i s h t h e i r c u s t o m e r s e x c h a n g e
payments,
t o make distant
t h a t t h e y come i n and want exchange a n d
thet t h e i r r e s e r v e s c a r r i e d w i t h t h e F e d e r a l r e s e r v e
bank,
a n d t h e y have g o t t o make arrangements f o r some
sort o f a transfer draft
h
e
o r not, o r a s k the
Cleveland Bank t o make t h e N e w York transfer e n d then
draw
o n the N e w York exchenge
Governor Harding.
- -
B u t supnose y o u have a member
bank with a belence o f ..55,000 a n d assume t h e t t h e
limit h a s b e e n removed, e n d that bank draws a n exchange
~00,000, w h i c h w o u l d c o m e t o B o s t o n f r o m
some little b a n k o u t i n the country, a n d w e were n o t
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Federal Reserve Bank of St. Louis
286
to t e k e e & c h e n c e
o n i t and w e sent y o u 4
asked y o u a b o u t t h t
vou c o n certified t i v tcheck over the
you c i n s e y would b e thet t h e y
funds then, b u t maybe b y the time I
got t h e
you t h e y w o u l d n o t b e i n funds.
Governor Fancher.
I f w e h e d advice w e would
imnedi: tely set the funds apart.
Governor Seay. P r e y e r | a. <6 n e t t e r thet
yet been discussed, a n d thet 3
enters i n t o a
h a t the drewing b a n k
written egresmont w i t h t h e Fedeial
reserve b e n k thet t h e dreft shall b e drewn only egainst
Cheirman. ‘ B u t supnose i t violetes t h e « gree-
Governor S e e v .uv
M e h
1
G a
GuUeStTLON O f t r e u d V
and y o u h a v e t o c o n s i d e r h o w o f t e n f r e u d s
ere perpetrated.
S o s e t i - e t h e y sre but T
o f thet kind
imasine t h e
extent t o which t h e y ere, i n reletion t o the extent o f
the use o f the drafts, i s very ssmell.
+
hanging o v e r t h e m t r e f e c t t h e t i f t h e y d o v i o l e t e t h e
agreement t h e Federel reserve b a n k will withdrew t h e
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Federal Reserve Bank of St. Louis
permission
t o issue Feder
bank enters. i n
a n agreement first t h : tit w a l k
be
diawn o n l y a g s i n s t e x c e s s f u n d s , t h a t t h e y w i l l u n d e r -
teke t o advise t h e Federel reserve bank.
o n wh
dvawn o f its issue a n d authorize t h e bank t o cherge
its account;
e n d t h e Federal reserve b a n k
has a t all times t h e privilege o f withdrewing t h e
right t o issue Federal seserve exchange. I
submit
thet u n d e r t h o s e c o n d i t i o n s t h e r i s k t h e t w o u l d b e
iuvolved
in a
possible f r a u d u l e n t i s s u e o f t h e s e
things i s s o small,
risks th:
i n comparison. with t h e other
h e Federal r e s e r v e banks take, t h e t i t
cen hardly b e taken into account.
(ifter further discussion: )
The Chairmen.
when a l l a s p e c t s
we w o u l d
t
e used t o have
o f the subj
w e r o discussed
get downto a
Governor Fancher. I
Federal exchenzte d r e f t s
Governor Bigzs.
(On a
G i v i s i o n wW:
move t h t t h e l i m i t o n
b e removed.
L o w
3 E C1
vote t h e C h e i r w e s u n a b l e
E
L
P
n
:
S e e VGted.
it.
t o determine, a
A n LevVoR-and
Sim
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Federal Reserve Bank of St. Louis
2zeainst.)
Pos U n e rirens 1
‘
r
e t h e m o t i o n lost.
Governor Celkins.
m o v e t h a t t h e transfer
ad: aft b e abolished.
Governor F a n c h s
S e c o n d t h e motion.
(The motion being d u l y seconded, w a s decléred
Governor
C e likins.
M r , Chairman, I
move t h e t t h e
limit o n exchange drefts b e increaged t o ,50,000.
Governor Fancher.
Governor HeDougeal.
ser o n the subject.
s e c o n d thet.
7*
M r . Chairman, I
have this t o
T h o s e o f you who a r e eccustomed
to banking prectice r e m e m b e r v e r y well w h e n i t was,
perraps n o t a
seneral c u s t o m ,
but «
frecvuent occurrence,
thst drvefts were mapked collectible i f desired « t some
time e n d peyeble i f desired.
T h e danze: s and the un-
soundness o f thet p r ctice were agreed u p o n l o n g aso,
for t h e r e e s o n t h t
the c o r r e s p o n d e n t b a n k i n N e w Y o r k
or Chicago o r elsewhere l o s t control o f treir balances.
Now t h é F e d e r a l r e s e r v e e x c r e n z e d r e f t i s
not identical with thet, b u t I cannot b u t feel this way,
thet i f the member banks should b e caref:1 t o always
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Federal Reserve Bank of St. Louis
rdvise t h e i r t e d e r e l r e s e r v e b a n k w h e n s u c h e x c h a n s
hes b e e n put afloat, « n d t h e balance
Why l- puess: thers weuld b e n o denser
but I
d o t ink, e n d heve always t h o v g h t t i . t1t mignt
be p o s s i b l e f o r a
member b a n k t o pr: ctice f r a u d i n
connection w i t h t h e u s e
h e s e drafts, e n d thet
. Lot. o f t i e m e i 2 n t e n d w e w o u l d k n o w
about At- L i ther were, p r e st
neyment « t the counter.
arise
i
n
a
l
r a t complications would
i n t h e t situ. t i o n I
cannot e n u m e r a t e b u t d h a s e r -
ous c o m p l i c e t i o n s m i g h t e r i s e .
minimized
F
h i n k t h e danser
i s
b y having
dee thal eneicletae
Governor Harding.
recollection
M r
o n ti.is w h o l e _
a n
1
a
s refreshed m y
v
posit
e
s o n the
Board w i
there
VLOW
w e s
s e r i o u s
C u b i e 1 . Ct. bib.
2 b
W O
d e o
i n
a s h
O n as One
of t h e l a r g e r b a n k s e n d
ment fund.
f t seems t o m e tre
h e System ought t o
extend t o t h e m e m b e r b e n k e v e r y r e r s o n a b l e accommode-~
tion,
A s .ter-os t h e p i s k o f <fxeud A s concerned, a u y -
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Federal Reserve Bank of St. Louis
290
pody w h o i s i n business i s absolutely helnls a g e . a u n s t
anybody w o wents t o defraud him.
y r e n a m a n i s witie
ing t o t z k e t h e r i s k i n atte:upting t o s t e a l m o n e y I
do
not iknow how w e c a n protect ageinst it, but it sec
me, however, t h e t i f exchenze drafts s r e issued o n l y
by banks w h i c h r e c e i v e a
oormit f r o m t h e i r o w n F e d e r a l
reserve b a n k t o i s s u e e x c ™ a n g e d r a f t s , Necro a n e iota St
erch Federrl reserve b a n k i s cereful
i s s u i n g its
permits e n d issue t h e m only t o b a n k f
recognized
stending, a n d i f each #ederal reserve bank will notify
every O t h e r F e d e r a l r e s c r v e B a n k a n d k e e p t h e m a d vised o f t h e n a m e s o f t h e b a n k s
t o w h o m t h e permits
]
have been issued, a n d will check the banks
u n o n thir
a position i f they e t e n
inguilry o v e r t h e w i r e f r o m a n y r e s e r v e b e n k
whether t h i s 5 0 , 0 0 0 d r a f t
i s g o o d o r not, t h a t t h e n
the r i s k i s s o i n f i n i t e s i m a l l y s m e l l
should b e d i s r e
Now I
think t h e
A
O
] s
different f r o m w h a t i t
was wren t h e matter first came up.
T h e objections
raised t h e n w e r e p r o b a b l y p r o p e r ones, b u t c o n d i t i o n s
have c h e n g e d ,
t h e S y vs t e m h e s p r o g r e s s e d ,
w e
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Federal Reserve Bank of St. Louis
aun.
seven o r cight yearst experience i n the o
the banks,
and i
peration o f
think i t e n t i r e l y u n d e s i r a b l e
t o hold
the thing d o w n t o a ridiculous minimum o f .,5,000,
perticularly i n view o f the fact thst t h e banks g o
anecd a n d d r a w a
number o f d r e f t s a n d b e p u t t o t h a t
és thoughthe
pel reserve banks e r e discriminating egainst their
own funds.
A
s i t i s n o w w e have brokers
reserve f u n d s .
i n Boston w h o
T h e y look around o n
setclement d a y
will b u y t h o s e
i
s a n d sell t h e m t o some bank thet
hes a debit i n the clearing house. I
recollect t h a t
some o f the funds were sella
one p e r c e n t p e r a n n u m
ing,
y o u kiuow. I
Dut t i e
gsood w a y
think
w e ought
t o try
m d e
u
opemagels:
n
e proposition a n d thet m a y b e
a better w e y t h e n t i k i n g t h e limit o f f entirely.
het a n d l e t u s s e e h o w
‘We
i t workd oute
Aeeke. b e i
ab
do n o t t h i n k t h e M e d e r s l R e s e r v e S y s t e m o u g h t t o p u t
itself i n the attitude o f discriminating against
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Federal Reserve Bank of St. Louis
deposits
i n t h e reserve banks.
Tie Cheirmen.
H o w d o y o u vote o n tris matter now?
Governor Harding. I
The C h a i r m a n .
vote i n fevor o f the resolu-
T h e wotion
i s t o raise
t h e limit
to 450,000, c o u p l e d w i t h t h e r e c o m m e n c a t i o n t h e t c a r e
be used a s t o permits issued, t h e t immediate advice
be g i v e n t o a l l o t h e r F e d e r : 1 r e s a r v e b a n k s
a s t o the
banks which g e t the permits a n d thet ccre b e exercised
in ehecking u p the drefts w e e n t h e y come through t o
see t r o t a
permit h e s b e e n issued.
Governor Norris.
Before the
like t o ask this question:
t e is take I
would
i f such permits e r e refused,
on whet ground would they b e refused?
H o w could one
benk r e f u s e t h e m t o e n o t h e r b a n k ?
Governor Harding, e
would n o t h e s i t a t e
t o refuse
them t o some banks t h a t heve a s k e d us, o n perfectly g o o d
grounds,
end I
believe i f y o u h e v e 4
290,000 limit: y o u
have a better ground f o r refusa h e n i f y o u hrve a
(0,000 limit. I
think w e would heve ¢ perf y
reason i n seying t o them, “hy,
valid
y o u heve never gs own a n
excess balance o f .50,000," a n d put i t o n th: t basis.
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Federal Reserve Bank of St. Louis
295
ron owe a S e a n
T h e trouble
i s w e heve n o t h a d
anpnlication f o r t h e p r i v i l e g e b e c a u s e t h e y d o n o t c e r e
to use i t with t h e limitetion imposed.
T h e limita-
tion pr. ctically nullifies t h e use o f the exchange
aft
Governor Young. D o e s this memn, i f I vote “yes"
iis resolution, thet.eny excrance-dreft t h : t- eo e s
5O,000 ; Or- S09. Live: of: R i e s e
gserezating |.250,000,
t h a t Imust <gree t o
te credit f o r those?
Governor licDougal. C e r t e i n l y .
Governor Harding.
P r o v i d i n g t h e F e d e r a l iteserve
Board a n p r o v e s t h e pronosition.
Governor s e r y .
di.ib-is a
question o f credit
risk I should s e y positively t h t u
heve t h e right t e
exercise y o u r j u d g m e n t a n d n o t p i v e c r e d i t
t o the
depositing bank.
Governor McDougal.
Y o u e x e obliged t o give
credit t o trem subject t o finel pyment.
T h e credit
has been passed a n d y o u await final pzyment, t h e t i s
the p o s t i o n you.3ve i n .
Governor YoungerUoadT i g t t e - n o t
a m ediate crediy.
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Federal Reserve Bank of St. Louis
Mebougel «
O f -Celiree t b a 4
out,
B u t suvnose it, is drawn
Governor Young.
and i s gone+r+-
M e y I
Governor Seay.
interject a
remark h e r e ?
I would like t o s e y i f a n y question should erise youd
have the means o f settling i t i n a very few minutes
by wiring t h e Federal seserve B a n k upon which i t i s
adrewn.
Governor
T
h
Governor
Seay S
a
t w e c e r t a i n l y i n t e n d t o do.
h e t y o u 2 t e n o d Without
remedy i n t h s t case.
Governor Young.
L o w o u t d H O t s o r e s b O s e i v e e r e d . tc
on those.
Governor Celkins.
motion,
M y underst-nding i s t h t the
® S now submittéd, raises t h e limit t o 5 0 , 0 0 0 ,
provides th:.t a Federal r e s r v e bank s l l i s s u e permits
at its discretion, t h e t t h e other reserve banks shall
pe a d v i s e d
o f the issuance
o f s u c h permits,
thet wire
inquiry e n d r e p l y w i l l f o l l o w w h e n i t i s c o n s i d e r e d
necessery a n d t h e n p a r m i t s
they e r e withdrawn a l l other resorve
savised.
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Federal Reserve Bank of St. Louis
The Chairmen.
{ s o u n d e r s t a n d it.
Governor Fancher. I
will s e c o n d th:.t motion.
(The motion, having been duly seconded, was
declired c a r r i e d b y the Chair, s e v e n voting i n fevor
of i t and three oppo
Governor Biggs.
change
¥ )
M r . Chairmen, I would like t o
m y vote o n t h e transfer drafts. I
willing t o G o awey with i t now. I
«am perfectly
voted n o t t o d o
away w i t h i t e The Chairman.
S o m e o n e w i l l heave t o m o v e ©
recon-
sideration.
Governor Biggs. 2
reconsider:.tion o f
tick “ P o m i e n v o t .
Governor F a n c h e r . I
The Chairmen.
will s e c o n d i t .
T h e motion i s t o reconsidering t h e
vote o n ebolishing t h e t
(The motion having b e e n duly seconded, w a s carried, )
seven v o t i n g i n f a v o r a f r e c o n s i d e r a t i o n
a n d five
against.)
The Chrirman.
L o e s anyone w i s h t o offer a :esolu-
abolishing transf:r drafts?
Governor Fancher. I
s o move, Mr. Chairman.
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Federal Reserve Bank of St. Louis
Governor Biggs. » e c o n d e d .
Governor Norris. I
would like t o ask what i s t o
anined b y abolishing them, e v e n though they a r e not
The right t o use t h e m will n o t d o n y harm.
(The motion having been duly seconded, wes put,
and s i x voting i n favor a n d s i x a g e d
h
e motion,
the Cheir decl red the motion los t.)
The Chairmans T h e next tonic o n our program is
T I - D
°
D. S e r v i c e cherge o n returned trensit items.
Recommend ed:
That o n a n d efter M a y 1 , 1925, Federal
Heserve Banks should make a service
charge o f 1 0 cents p e r item o n all returned transit items.
Governor Young.
n e t u r n e d trensit items develop-
because o f three principal rei:.sons.
O n e rexson i s
maker has n o t funds i n benk s t the time h e draws
draft, h e attempts t o bert t h e dreft t o the bank,
is not alweys successful, t h e second rerson L é
4
r
that t h e y a r e r e t u r n e d f o r endorsement.
sents a
m
i } n .e aaw
limited amount, e n d n e g l i g e n t .
e a r era
thet a l e
e
h
t o f banks
1
numb.r
great
he p a r l i s t a n d t h e p e o p l e
i n the transit
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
29o7
of the banks
member banks,
e n c in.the dizreaot sending
d o not t r k e t h e trouble
t o look i t u p
and s c e whether t h e y c e n collect t h e check o r not.
figure o u t t h e exsiest w a y t o hendle t h e m i s
them o u t and,
if
t h c e n n o t b e x handled,
be sent back.
T h a t represents a
they
smail number
and i t would n o t b e a serious t h i n g b u t f o r t h e fact
thet 1 t i s growing v
r y revidly with o u p bank,
s o thet
we ere handling w a n y ensueehas o f these items a day.
i do not think th. % the 1 0 cent ch.rge w i l d make a n y
money f o r t h e Federal ieserve System b u t I think i t
will s t o p t h e prectice a n d g e t ric e f a Tot o f it.
You m ¢ : n t h e p r a c t i c e
o f mis-
routing?
Governor Young. Y e s , a n d i t will g e t r i d o f a
lot:
o f t h e work.
Governor HPancher.
checks o r drawing checks against insufficient funds?
Governor Young. I
because o f three -reasor
steted t h : tthey came back
O n e rsason w i s beceuse t h e
the funds a t the time h e drew t h e
check.
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Federal Reserve Bank of St. Louis
208
Cheirman.
Governor Young.
W h e t i s the main reason?
The Chairman.
Governor Young.
peonle
N o , I‘do n o t think so.
T h e m a i n reason i s that t h e
i n t h e tr:ns i t department
o f t h e federal
reserve banks e n d i n the member banks d o not watch
lists csrefully enough.
T h e easiest w e y
for them t o handle i t i s t o send i t out t o Minnecpolis
or t o some other district, where t h e y have a
oft t h e x
lot o f
a n d then w e cetch i t and w e
i
Om t h e t
toils
p A t h e
i
s g ¢ g
t o t h e time w h e n w e
want t o a s k Mr. Lewey t o come i n - - I think everybody
that w e c a n n o t i m p o s e a
charge
o f ten
cents a n item o n items t h : tare improperly routed, n o r
on i t e m s
th:t sre properly routed
e n d properly endorsed
but g o back because o f insufficient funds.
MOU. Go. t h a t .
‘ i e could
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Federal Reserve Bank of St. Louis
Governor Young. i
The Chairman.
think so.
< A cnserge t o o u r m e m b e r D a n k
Governor Youngs
Chairman.
w e Pigu.
h o t o n our return
items w e would n o w b e collecting .240,000 i n fees
based o n y o u r s
uggestion,
the b a n k s w o u l d s t a n d i t .
and I
I
d o not believe t h a t
t occurs
t o m e thet t h e
penalty w e c a n i m p o s e i s t h e p e n a l t y i m p o s e d
clearing h o u s e f o r misrouting,
fine.
I
a n d e x r o r s a n d s o on,
f there i s a n abuse t o b e cor-
yected i t arises i n the trensit denertment o f our benks
and 4 2 the f r i l u r e
o n their p e r t t o deal w i t h t h e i r
members e n d k e e p t h e m s t r a i g h t a b o u t c h e c k s
thet w e d o n o t handle,
o n banks
s n d t h e transit department
the Pederel reserve benk s e n d s t h e m o n through.
of
W e
vee t n e C l e a r i n g h o u s e m e t h o d A n d L i n e a . Le=
bank t e n c e n t s
a n item
o n th:.t account.
B u t
i f
we impose t e n cents fine, w h i c h is r e : l l y whct i t i s ,
for sencing through i1ten M e t a r e d r e w n ageinst i n sufficient funds o r improperly endors ed, i t would
obviousl y
WOMECes 2 . 0
h e Ve t o b e p a s s e d b a c k t o t h e m e m b e r bank,
O e
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Federal Reserve Bank of St. Louis
500
Go.einor Young.
Y e s , a n d from the member i n
turn beck t o the endorser a n d from t h e endorser b a c k
to the drawer o f the check, wheres i t ought t o go.
Governor Seay.
f t o u l d amount t o -.60,000 o r
370,000 \in-our bank.
Governor Young.
to 50,000 a year.
I n iinneapolis i t will emount
O f course i t i s inconceivahle
that y o u sre going t o make a n y such income a s
use everyone would b e more c
eliminate a
lot o f this work.
reful e n d y o u would
Y e nandis a
trensit
item for a cent a n d a half e n d a return i t e m i s handled
at a
cost o f e l l t h e W a y f r o m tyro t o t h r e e c e n t s ,
Up b o 812% Cents, I. think. {
about a
fine i s ea good one.
direction a n d I
and
think your suggestion
I t i s a step i n the right
will make eae motion t o thet effect,
which also covers d i r e c t sending banks.
Ne Cheirman.
{ T f the trans
i t depertments a r e
carrying forwerd mistakes m a d e b y their members, w h a t
doing i n effect i s educating their members
prectice t h e t w e want stonned.
W h y should n o t t h e
transit d e p a r t m e n t s g e t c h e c k e d u p o n t h e t ? e
x
do not
went t o b e passing checks o n t o y o u after y o u have
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
eadvised u s t h ’ tyou cannot
Governor F e n c h s
Vinay e t
. tyeel
cen b e a d j
3
devrrtments
m a k e errors
h e banks?
e
why
matter t h a t
n i sa
i f ti! t r a n s i t
M arericy
1,Ghat ONDdigas SARK L o n , N a v e v i e L e c k »
V
e
b e called
B2 t r a c e d
Out?
Governor Young.
every t i m e I
I t i s called
t o your benk,
have s e n t
r o u r ettention
w h i c h has b e e n f o r
a ye: r and
O f c o u r s e there m a y b e e n 9cca~
Governor Fancher.
{ ti-ink a ten cent cherge
i
dBy q u i c k e r .
Wits C o r r e c t u a r i a i e P
in
I
Governor F a n c h o r e
het sort.
C O / e b e l i e v e a n y cherge
Y o u would be i n n t r o v e r s y w i t h t h e
‘rould. w o r k e n y r e f o r m
cdoaa,
I would b e i n f e v E
checks
t
e have ebout 2600
i n trensit e v e r ;
(After further discussion t h
decl r e d l o s t
Governor Young.
w i l l m e k e enother motion that
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
502
on end’:
2
5 Federa
service f
b
a
n
k
s iwake a
t e n cénts p e r i t e m o n a l l r e t u r n e d
transit items r e t u r n e d b e c e u s e
The Gheirma
W h y:
i
o f i m p r o p e r routing.
y all transit items
hat a r e sent f o r collection payable b y battks which. are
not o n t h e p a r list.
Governor Young.
T h e t i s better.
Governor Wellborn. I
will s e c o n d thet.
(The motion having b e e n duly seconded w a s p u t a n d
red lost b y the Chairman. )
The Chairman. I l - w i i l ] nowcofier a
a4
Seeretsry b e requested t o pay snpeciel attention t o this
his r e p o r t
o f the proceedings w i t h t h e request
thet everyresurve bank i n v e s t i g a t e t h e practice o f
sending o r handling: return items t o determine h o w fer i t
Mie e s c G “LONG.
a . 4 h ter ie
E. S h o u l d Federal nxeserve Banks handle
as c a s h i t e m s d r a f t s d r a w n b y a
cor-
poretiono
n itself o r its treasurer
and items o f similar nature, e v e n though
such items berr t h e notation "payable
at" o r “peyable through" a specified
bank.
Governor licKinney.
e y , Crealrmen, items o f this
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Federal Reserve Bank of St. Louis
Class d o n o t c o e w i t h i n t h e F e d e r a l K e s e r v e B o a r d ' s
definition o f a check a s used i n vegulation J .
ha
for several years
ee
r
to handle t h e m a s c a s h items.
I t
T h e prectice has rein
sulted i n c o n s i d e r s b l e c o n f e r e n c e w i t h t h e b a n k s
our d i s t r i c t a n d w i t h o t h e r banks,
banks,
a n d also o u r member
e n d s o m e o f t h e o t h e r r e s e r v e panks, p o s s i b l y
most o f them,
d o handle s u c h items
i n their regular
n view o f the inter-district sendings
cash letters.
I
1b U s cnyacns
0 .
o e acbice
a . 2
necesstrily
Ne
s e r v e d b y one reserve
h e,
end there should b e
‘ i e have h a d a grert deal o f experi-
some uniformity.
ence i n t h e e l e v e n t h d i s t r i c t w i t h m e m b e r b e n k s
whom w e w o u l d s e n d s u c h i t e m s
regular c a s h
remit
e
n
for them a s i n e
to
a s this listed i n the
d those banks would c u t t h e m out,
collection
i t e m a n d deduct
the
ugzestion a s
exchange.
‘ j e would like t o hive some s
to how ¢
e:n distinguish t h o s e items, a n d which ones
are r e a l l y c h e c k s
o n banks a n d Wo.cH.
s i m p l y drefts.
The Chairmen.
sort o f h y n o t h e t i c a l q u e s t i o n ,
Governor B a i l y I
do not g e t the full pumport
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Federal Reserve Bank of St. Louis
or. 1%%
Governor lHeKinney. H e r v e . G a , v 0 e t e a : =
tions, s u c h a s o i ] companies, r e f i n e r i e s
me d r a f t s s i m p l y u p o n t h e i r t r e a s u r e r ,
cOrpard«
a n d reilroads
a n d some-
where o n the draft, either i n the corner o f it, o r
is the stetement “payable through a
certain bank."
Governor H a r d a
D o e s t h e b a n k p a y them?
Governor McKinney,
A s t o those i n our o w n disfind o u t p r o b e b l y w h e t h e r t h e y
Will o r not.
S o m e o f t h e m d o not; s o m e o f t h e m c u t
them out a n d s a y they a r e not drawn o n a bank,
Governor Haerdii
I
p i s a K i n d o f voucher check,
is i t not?
Governor
Governor
W
h
e
a
t aoe
h
e drewer s a y when
refuseg t o pay?
Governor licKinney.
some r e a s o n w h y a
I t i s our feeling there i s
corpor: tion o r :
2
1 would make
a draft payable u p o n t h e treasurer, u p o n a n individual,
rather t h a n t o make t h e check payable a t a bank.
Governor Harding.
W h e n y o u were i n the Americen
-ixchanze N a t i o n a l B a n k d i d n ' t y o u t a k e s u c h i t e m s a s
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Federal Reserve Bank of St. Louis
Governor
not k n o w h o w
Governor
EAs
imow u n
some o f t h e m o u t a n d t h e m e r
éollection i t e m s .
b
b a n k s tre
o y o u h a v e m a n y i n y o u r district,
Governor
Governor Seay.
W e have n o trouble w i t h them.
I n
casé a n y trouble arises, t h e drawer knows w h e n h e wants
payable
t o ney
heve a
time w i t h t h e drawer,
and if it i 2
vretty h a r d
valuable a c c o u n t
it w i l l h e v e t o p a y it.
The
GAneiemen«
U 0 . you. w a
a c t i
n e e d4
ags G o v e r n o r
Governor
to k n o w h o w t h e o t h e r b a n k s
the check collection system a s developed d i d not contemplate t h a t w e h a n d l e s u c h i t e m s a s c a s h i t e m s a n d a s a
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
506
matter o f practice i t i s noticed that there i s not
uniformity.
I
f y o u want t o proceed n e w along lines
items b e handled,
you c a n eliminate them, b u t t h e prectice o n the part
of the several banks i s not uniform.
Governor Seay. .
question h i s
connection with raising the limit o n Federal rescrve
exchange drafts.
I
t is a
practical q u e s t i o n a n d I
think y o u w i l l a d m i t t h e r e i s n e c e s s i t y f o r s o m e uni-~
formity i n these things.
T h i s i s a n undertaking be-
tween member banks a n d I sugcest that t h e work o f preparing a
uniform notification might well b o referred
to the Standing Comsittee o n Collections w i t h instruc-
tions t o immediately prepare it, and I will make such a
motion.
Governor F f
1 e
f
F Wid] s e c o n d t h a t ,
(The motion heving b e e n duly seconded, w a s
cerried.)
The Chairman.
T h e next topic i s II-F.
-F, Procedure i n handling collection o f
forwerded b y member banks o f other
ricts o r by other Federal Reserve
That i s put o n b y New York a n d I will a s k Mr.
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Federal Reserve Bank of St. Louis
Harrison t o discuss it.
Mr. Harrison. I
put that topic o n the program
at the suggestion o f Governor Calkins. S o m e t i m e ego,
in fact, l a s t fall, w e came t o the conclusion i n New
York t h e t i t w o u l d b e v e r y e s s e n t i a l f o r u s t o c h a n g e
our procedure i n hendling coupons f o r account o f banks
in other districts.
A l l o f our paying corporations
in N e v Y o r k r e q u i r e u s t o c o n s o l i d a t e t h e c o u p o n s
one i s s u e i n o n e envelope,
a n d t h e result
we r e c e i v e c o u p o n s f r o m m e m b e r b a n k s ,
of
i s thet w h e n
i n Boston,
for
instance, t h e y are all included i n the origins1 cusenvelopes,
and as a
result w e h a v e t o b r e a k
them down a n d resort t h e m a n d count them, a n d number
each individual couporn-and t h e n put them «
envelope f o r t h e paying agent.
i n one
T h e work became s o
onerous t h a t i t was eithor a aquestion o f refusing t o
handle t h e s e t h i n g s e n t i r e l y o r e l s e m a k i n g s o m e s o r t
of r e s t r i c t i o n w i t h r e z a r d t o t h e m e t h o d
receive t h e m o n deposi
to Boston, Philadelphia,
£
. rdingly,
b y which w e
w e sent letters
e v e l a n d a n d San Francisco
asking t h e m - - b y t h e w a y t h e y wer:
deposited t h e g r e a t e s t n u m b e r
o f coupons w i t h u s - -
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Federal Reserve Bank of St. Louis
508
asking t h e m t o c o n s o l i d a t e a l l c o u p o n s
one e n v e l o p e
i n one issue i n
i n order t o avoid t h e necessity o f o u r
handling these individual customers! envelopes.
At first w e required that this b e done o n l y a s t o certain large is-ues o f coupons, b u t w e have b e e n gradually extending i t i n order t h a t the banks should
adopt the practice graudally. ‘ J e have had n o real
complaint i n other d i s t r i c t . G o v e r n o r Calkins raised
the question whether o r not o u r procedure i n this matter w a s n o t increasing
t h e expense o f the System a s a
whole, a l t h o u g h i t decreases t h e e x p e n s e
i n N e w York.
we felt thet i f h e would require h i s member banks t o
do what w e are asking h i m t o d o that there would b e n o
inereased e x p e n d i t u r e f o r S a n F r e n c i s c o a n d a
able reduction f o r us. &
consider-
reduction f o r u s i s not o n l y
necessary f r o m t h e e x p e n s e s t a n d p o i n t ,
b u t i t has become
almost physically impossible f o r u s t o handle t h e coupons t h e w a y t h e y w e r e c o m i n g i n before.
we d o r e q u i r e
i s thet t h e coupons
T h e only thing
o f one issue b e in-
cluded i n one envelope, w h i c h means thet a
other |
in *
o
lot o f banks
a
districts w h i c h i n the past have b e e n sending i n
their i n d i v i d u a l c u s t o m e r s !
envelopes
t o us, w o u l d e i t h e r
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
consolidate themselves,
o r else s e n d t h e m
I n the
some o t h e r N e w Y o r k correspondent.
Boston, m o s t o f the banks o f Boston
sending through N e w York banks a n d the coupons a r e
no longer coming through f r o m t h e Federal Heserve
Bank o f Boston t o the Federal neserve B a n k o f New
Whether
o r not this practice develops w o u l d
be really immaterial i n s o far a s the reserve
System i s concerned,
lieve, a
i f o u r requirement i s , a s w e be-
reasonable one.
Governor Calkins.
T h e best method o f reducing
the cost o f handling t h e whole system f o r t h e New York
banksend t h e o t h e r b a n k s w o u l d b e t o r e q u i r e
having a
t h e banks
large quantity o f coupons t o d o w h t y o u re-
quire u s t o do, s e n d direct t o y o u instea
s e n d i n g
through t h e F e d e r a l r e s e r v e b e n k o r branch.
That
would decrease the cost t o the System, that i s the cost
bo u s e n d t o - y o u also.
S h o r t o f that I
have b e e n u n -
able t o think o f e n y plan which would meet t h e situa-
no e
rrison.
w e have a s k e d the Boston bank
n
e 3
-:
send d i r e c t t o t h e i r N e w Y o r k
t o
a
l
ty
hhe
c o r r e s p o n d e nhztuto,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
iguac fous SHORe Ge a blagelmn
Governor C :
a p e
A
e
“ t e&
H
i
u
.
s
n
>
a
'
P
V OMe Wile =HEI V r m s reais Ene’ 5
4
5
4 - }
c
a
} 5
x
will meet your situstion, b u t « s t o whether w e should
endcevor
coupons
!
t o avoid responsibility f o r collveting t h e
b y xwsking o u r b e n k s t u o s e n d t h e n t o t h e i r c o r -
respondents; I
think i s enuthur quustion.
Mr.
s
n
Ba
o P oi G C ns b L
ya
s
ahow
u
=cYori
an
plan a n d w e went t o work t o put i t into cffect immediately,
a n d thet
i s tou pequire
«ll
o f o u r N e w Y o r k Ste. te
Chie te D A V COUDOnS:
p a y V O L e . - C u v sOLGesgine
d1rveet. “ U n d e r o u r p r e s
sent r e g u l a t ifxo n s
2
w e Sc a n a u t eh o
r i z.e o u r m e m b e” r b a5 n k si
send n o n - c a s h i t e m s o r c o u p o n s d i r e c t
It-is o n l y r i g h t a n d l o g i c a l
C
t so
t o other
i n m y mind thet items
thet c h a r e e t e r s h o u l d b e - s e n t dirccet,.in o r d u r t o a v o i d
duplication o f h a n d l i n g
The S h e i m a u .
i n suveraul banks.
T h e duplication
i n t h e heudling i s
& much more svrious p r o b l u m w i t h regerd
t o coupons
Phen Wilh w a y o t t r items bhiet w o der. with,
=
r
e tooo .
i
Nie l e e r S . O i e
t <
a
n
e 2
*
n y P e r e &Olle - Ut PbCels < 6 O U N E nL
voted that w e should require t h e N e w York c i t y banks
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
oll
to s e n d a i l n o n + c a s h i t e m s d i r e c t
t o other districts,
but w e postponed meking t h e t effective until w e hed a n
opportunity t o discuss i t here because i t was somewhet
& System mattur. Thupao- w e s n o t h i n g
i n t h e propos « 1
Whicn i s n o t a l r e a d y c o v e r e d b y e x i s t i n g r e g u l a t i o n s ,
but 1 t i s s u c h oun important m a t t e r
ection i f possible,
t o a v u i d t h i s dupii-~
t h e t w e heave U c l i y e d
i n miking G u r
effective s i m p l y f o r t h e s e k e o f p r o m o t i n g s o m e d i s cussion nurse. E n t i r e l y o p e r t f r o m t h e diroct. s e n d i n g s ,
there i s «. lurger question, coven assuming the.t w e will
is O f t h i s 1 G n d s e n g a t e e e m e
we ought t o have a
personable rustriction placed o n the
in wauich w e w i l l p e c e i v e t h e m .
het i t i s u n r e a s o n e b l e
ing b a n k s
t o send
O N O Lieb A s thet
i n coupons
I d o n o t believe m y -
f o r u s t o require depositi n somewh:t
t h e sene w e y
the p e y i n g u g c n t s preyuire t h : t w e s e n d them, e n d
onG L S s u c t n o n e e n v e l o p e , —
Cheirmm.
That 2 6 2 1 1 w e
H a v e y o u ever expressed t h e t i n the
of-& m o t i o n w h i c h c o u l d b e v o t e d u p o n h e r e ?
Mir. Hareison. “Weil, t h e Water t y 2 little b i t over
the dam, becruse w e have alreedy notified m o s t o f the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
S12
Federal Rese»
k
s and the direct sending banks
thet heve a n y volume o f these coupons that w e would
only
receive t h e coupons/on this
T
h
e only rea-
son I put i t o n the progrem a t all was that Governor
Calkins sugzested that w e might discuss this here a n d
I a m bringing i t u p n o w for that reason.
a)
any
action will b e necessary. I
I . a0-neG
do not know
whether i t will b e neceesary f o r other Reserve Banks
to make t h e same requirements t h a t w e make, although
if they d o I a m sure i t will b e a reasonable one,
t where y o u have t h e proposition w i t h reg: rd t o
coupons t h e t w e h e v e i n N e w York, w h e r e t h e y r e q u i r e
ay,
chat e a c h Issue b e i n one envelope, then I think the
other r e s e r v e b a n k s
should b e r e q u i r e d
a n d the direct sending banks
t o send t h e coupons
t o u s under
the s a m e r e s t r i c t i o n s ,
The Chairman.
Committee
o n Sta
streter,.
4 6 8 have t h e c h a i r m a n o f t h e
C o l l e c t i o n s
with
u s a n d would
I n looking over t h e Board's
functional e x p e n s e r e p o r t I
was p a r t i c u l a r y
ed w i t h t h e f a c t t h a t o n e - t h i r d
impress-
o f t h e collections
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Federal Reserve Bank of St. Louis
513
oy t h e S y s t e m c o n s i s t s
o f c o u p o n collections.
There i s n o question b u t what, s i n c e t h e wer, t h a t
form o f security, t h a t i s t h e c o u p o n bonds, h a s r e s c h e d
a popularity e n t i r e l y u n p r e c e d e n t e d b e f o r e t h e w.r.
The n u m b e r
a good t
o f coupons
i s tremendous.
n
e i t will b e
ing t o t r y t o effect s o m e reform i n the method
of h a n d l i n g t h e m .
I n the c a s e o f Government coupons
are being handled n o w o n a cash basis. I
cannot
why s o m e s i m i l e r a r r a n g e m e n t c o u l d n o t b e w o r k e d
with r e g a r d t o i n d u s t r i a l c o u p o n s a n d m u n i c i p a l
coupons, a n d d o away with this endless handling,
of
putting into envelopes, teking o u t o f envelopes, listing, s o r t i n g a n d a l l t h e t s o r t o f thing.
Sone.
agresable
O u r arrengement,
t o the other reserve banks
i s entirely
f C L O P ye T O s .
Governor C a l k i n s .
a
i i t entir
fs i t not only better t h e n t h e
satisfactory?
w a y , a n d still n o t
entirely satisfa
The C h a i r m a n
“ o u l e
Uidee O Werke ttl AG 6 t
be received,
ings.
i t not be better
t o have a
h e form i n w i e n g n e y eoai2
a n d t h e n d e v e l o p t h e i d e a o f direct s e n d -
N o w t h e direct s e n d i n g o f coupons
is a
very m u c h
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
less hazardous affair t h a n t h e direct sending o f
checks, because t h e y s r e paid just a s a collection
item is, instead o f being o n a
Governor Fancher.
time schedule.
T h e r s would b e a
saving i n
labor b y reason o f direct sendings,
there would b e a saving i n registered maance
w
h
i
c
h h a s become quite
ison.
W e have elreedy reyuired t h e N e w
York city banks t o send coupons pryable i n other disnot
tricts direct.
T h e only thing w e have done i s t o re-
quire them t o send non-cash items generally divect.
And we would like to have that done. I
believe under
o f these
exis ting regulations, a n d past egreoments
conferences, w e would ‘be authorized, without a n y further,
ection,
t o reuuire o u r N e w York c i t y banks t o send
Greco,
DUC
F o i e
matte
o f s u c h genoral snterest
that w e t h o u g h t w e m i g h t r e a c h s o m e c o n c l u s i o n h e r e
ve i n p r o c e d u r e
in
all t h e districts
Myr
The Chairman.
T h e ection would b e
the coupons, that a uniform rule be established tha
coupons shall b e sent b y reserve banks t o e- ch other,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
O15
for collection, a n d b y d ivect
,
e a c h issue c o
n
o
i
t
b
a
n
k
s
f o r collec-
ined i n a separate envelope b y
nGs
Zi U C R
itself.
Governor Calkins.
mot b e a d v i s a b l e
Instead
o f thet action would
t o v pefer t h i s m a t t e r
Comaittee
t o the
llections for study, a n d follow
o n Go
required practi ce i n t h e m e a n t i m e ?
Chairman. I
s going t o make thet a s a
wa
separate m o t i o n .
ronrSeay
evoGc
s
e
you h a d m a d e t h e t s u g g e s t i o n
& m o t i o n I a would s e c o
nd the direct sending motion,
because
w e believe
would l e s s e n t h e w o r k e n d w o uorl] d
that
be a saving.
e
edopt
h
Chairmen.
for
T
the 2
m o m e n t a
Vi
hee
3) s
.hT
i
Of Giiissbomner—at o n c e a
further s
low as
U
a
na
r
t u d y a n d d e v e l opment
isn't a n y reason w h y w e
with r e g e r d
w
proposing
t oa d o
s
t o
us
u n i form r u l e t h a t w o u l d s a v e
all
£
t o coupons
L
o
r
subject f o r
t o t h e committee.
There
should n o t m a k e t h e r e q u i r e m e n t
2
. Bevy.
T hee a t d wo e n oOr -re=
r-not
n certain
t h e
districts
G O 2 h 2or- t i e s
t h e volume
i s s o small
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
516
that i t i s almost unreasonable t o ask tnem t o sort
those coupons b y issues a n d put them i n one envelope,
put r a t h e r t o a s k t h e b a n k s t h a t h a v e l a r g e v o l u m e t o
send t o us i n t h a t way, a n d let t h e smaller banks t h a t
are sending u s a few coupons d o i t i n the o l d way. I
see n o reason t o make t h e i m a m s
G e once b u t think i t
would b e better t o defer i t until a t least t h e Collections Committee h a s h a d a chance t o s t u d y it, a s long
as they a r e going t o take u p the matter a n d study i t
anyway «
I t would also have the edvantage
Governor Seay.
of allowing u s t o teke i t u p with t h e banks once a n d
t
h a ov e
tn o 2<>0 a f t e r
t h e banks twice
for the same
bi
would r a t h e r h a v e i t r e f e r r e d
Mr. Harrison. T
to
the committee.
Governor Me“inney.
D o e s t h e t m e e n waiting s i x
months?
Mr. Harrison.
Calkins!
N o , b e c a u s e I L understand G o v e r n o r
m o t i o n w a s coupled w i t h t h e s
ugsestion t h a t w e
continue t h e p r e s e n t o p e r a t i o n u n t i l s o m e t h i n g e l s e h a s
developed.
Governor Calkins.
M y motion w a s intended t o mean
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Federal Reserve Bank of St. Louis
Reserve
c o would
o f S a n Francis
Bank
coupons until t h e S t e
on Collections hed a n opportunity
n g Conis t u d y and
better method.
to have a n y other
sending c o u p o n s
t o you
comply w i t h your r e q u e s t ?
think-w.G b e B e C e s s a v y k the v o l u m e
is s
do not think
uff I
necessity f o r cnange b y a n } other hank,
but i t
a e
L
a 2
The Chairman.
would, T i k e
V e r y well.
prove t h e p r a c t i c e insaugureted
the s u b j e c t
for s
b y New York a n d refur
t o the Standing Committee
o n Collections
t u d y a n d report.
L-will- s e c o n d 1 0 %
‘ing b e e n d u l y s e c o n d e d w a s carried.)
direct s e n d i n g o f
non-cash iter >
f a r a s New Y o r k i s concerned,
Our o r t sees c o u n c i l a n d e x e c
mittee have favored requesting
to s e n d n o n - c a s h i t e m s p a y a b l e
is
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
o18
reserve b a n k s
said &
moment a g o , t h a t p r e
o f other districts.
A s l
A U G < S e n tireiacousi st
ent with the existing regulations a n d existing agreements
b y this conference.
w e would l i k e t o put thet
plen i n t o e f f e c t w i t h i n t h e r e a s o n a b l y n e e r f u t u r e
there i s some obiection o n the part o f the
Incidently i t w i l l e l i m in t h e N e w Y o r k Bank, w h i c h h a n d -
ling we now estimate costs us anproximately ,50,000 a
year, a n d t h e r e w i l l b e n o a p p r e c i a b l e i n c r e a s e
cost t o t h e S y s t e m a s a
Governor Seay. I
in
whole.
d o n o t k n o w e x actly h o w i t would
arfect Us; i f a l l , but I would like the privilege o f
asking Mr. Strater,
a s chairmen o f the committee, whetler
ws O f a n y p r a c t i c a l
objection
t o t h e inaugura-
tion o f that plan?
Hp. s t r e t e r .
i n m y
a
s
O k h e r e could not b e any
jection.
Governor S e a y I
cannot s e e any.
wrether t h e c o l l e c t i o n
goes through t h e *ederal Reserve B a n k o f N e w York
first o r whether t h e y start t o their destination
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2
SOMO)
or r
e
gofaloer
jybaal venOl6M o S Rr
lind.
S
each
ia t en m
will f i n d v e r y f e w b a n k s
think y o u
invariably,
Ps
C f a-leticr.
1 y doses n o w
you g e t y o u r c o l l e c t i o n s
of N e w Y o r k
member
Gov ernor
e
Fancher,
Collections gives
sendings o f thoss
bank.
T h e work
is
Comhittee
h
o n Non-Cash
T
pecomsendstions
items
o r whether
that the
b e encouraged
res 34a. U e v e r y report
recuired
o n t h i s sub-
question o f t w e e d l e d e e a n d t w e e d l e
4.
CLULM »
&
5
A L S S n Asal
W w e a r e
bopLes,. C O n C e r n a n e
N o w
Whiten
m e e t i n wee
(Whereupon A s s i s t a n t
Dewey
entered
proceedings
e 9c 0 1n 1 e and
r fe o f
l lno wo i c
n g
t h e
were
Treesury
had. )
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Federal Reserve Bank of St. Louis
20
Chairman.
y o u will please c o m e
Gentlemen,
2, Coin, c a r e n ,
ao
O r ee r a ti On.
TII.
C O I N , C U R R E N C Y A N D CIRCULATION.
£.~-Gola
Ll. A d v i s a b i l i t y o f continuing f o r
the p r e s e n t t o m e i n t e i n i n circuletion a p p r o x i m a t e l y t h e a m o u n t
of certificates n o w outstanding.
Supply o f a v ilable h a n d t o hand
gold i n cech Federal xes crve Bank.
Harrison.
N o action i s required
come u p p e r i o d i c a l l y
You may remember t h a
o n this
s t these confer-
M a y , 1 9 2 2 t h e Federal
Reserve Board, the Federal Reserve Banks and the Treasury
Depertment a l l agreed u p o n a policy o f currency payment
tha
h provided g o l d certificates s h o u l d b e l a s t i n t h e
different k i n d o f currency.
A t the time
adopted, Mowever, Governor Strong made
a reservation
a s t o New York o n the sround that h e felt
it might b e very desirable f o r N e w York t o p a y out gold
certificates a t least i n sufficient quantity t o offset
the amount o f sold imp
W
h
i
l
e there w a s never
any formal action taken b y this conference regarding t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
New York policy,
i t was more o r less tacitly a g r e e d
to, . . and i n August, 1922, w e comienced meking g o l d
payments
i n t h e u s u e l c o u r s e o f business.
time, o r during t h e
also adopted t h e sine
a whole,
a s a result o f peyments b y New York a n d
Chicago w e hrve i n the tivo yeers a n d a
pproxime:tely . , 7 5 0 , 0 0 0 , 0 0 0
i n g o l d Cortific:
tes,
is t h e c e r t i f i c - t e c i r c u l a t i o n n a s i n e r e a s e d
by
anount during that t i m e T h e gold imports i n t o
the United States during t h e s:me period have b e e n
ye h a v e a p p r o x i m a t e l y a c c o m p l i s h e d
the purpose f o r which w e cormienced meking t h e gold
payments
i n 1922.
question
ar
i
n December
i n New York a s t o
whet w e would d o i n making ¢g p e y m e n t s n o w that t h e
imports h a v e v e r y materially s l a c k e n e d a n d a
export m o v e m e n t l:as begur
i
length i n t h e N e w Y o r k B a n k ;
definite
e t a l k e d i t over a t some
w e have t e l k e d i t over
with t h e officials o f the Tre: sury Lepartment a n d
individual members o f the F e d eral Keserve Board, a n d
ve a l l f e l t t h a t f o r t h e p r e s e n t
a t least w e should
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
continue
o u r g o l d payments,
a h sbensgt-an S
u l C tLent
L
the gold
gurentity t o meaintein c i r c u l a t i o n
Se
e e ,
a t about i t s pres-
t e a t i s about 900,000,000.
th t
Governor
i n spite o f t h e fact t h a t t h e g o l d
being exported, a n d has b e e n moving o u t for
the l a s t t h r e e months,
t h e t w e s h o u l d n o t t r y t o off-
set the export movement b y sucking i n gold, but should
allow it to have its offect in the total gold supply
of the system, that i s b y a reduction.
bewey m i g h t h a v e s o m e t h i n g t o s
T . think tives
c y o n this because I
kniow i n discussions w i t h h i m a n d w i t h i f . V i n s t o n b o t h
of them felt thet w e should continue the policy along
tie. l i n e h e t .
h a v e
iin. Dewey.
to add, except t o reiterate wh:
said.
W e felt possibly th:t t h i s exportation
pos-ibly only temporery.
or t o a
is
I t h a s not gone long enough
grést e n o u g h e x t e n t f o r u s t o r o f l e c t
our o u t s t e n d i n g g o l d certifici tes.
A n e w
1
it in
S Ou
feeling that w e would like t o heve t h e outstanding
gold c e r t i f i c c t e s m e i n t a i n e d < - t t h e i r p r e s e n t b e s i s ,
s a little bit - - not t o
and possibly i n c r e . e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor McDoug.1.
S i n c e w e begen p + ying o u t
zold w e have p e i d o u t i n round numbers .900,000,000
s
in certificates.
600,000,000,
n
e have ¢
back about
a n d s o there i s ebout 500,000,000 out.
Mr. H e r r s o n .
T h a t i s f o r y o u r b a n k alone?
Governor licbDougél.e Y e s .
I t i s coming b e c k
just ebout a s i t goes o u t right along.
noticed thet, I
Y o u heve
presume.
XGt.
i r , Harrison d i d n o t include
Governor Fencher.
bank,
the Cleveland.
b u t i n the last t h r e e n
the first three months o f 1% our receints have
276,00 -,000 a n d we h e v e paid o u t ,55,00%,00%.
Y o u r receints heve b e e n a
Governor McLougel.
then your
Governor F a n c h e r .
2
S
We u s e d t h e g o l d certifici:tes
tederel r e s e r v e n o t e s ,
w e paid o u t
i n lieu o f
a n d w e e d o n t e d th:it p o l i c y
elong the latter pert o f 1924.
You a.e€ n o t y e t p a y i n g o u t q u i t e
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Federal Reserve Bank of St. Louis
O24
Governor Fancher.
three m o n t h s ,
N o t quite
a s o u r receipts.
The Chairman.
n i s m a t t e r ceme
and Mr. \iinston suggested then that i t might b e
desirable f o r the Federal heserve Banks, other t h a n
t o p a y o u t a t least a s much a s
New York a n d Chicago,
they received s o that w e could make o u r policy effeeW h i l e there w a s u o definite action taken o n
tive.
the suggestion i t was informally steted b y some o f
the Governors t h a t t h e y would endeavor t o pay o u t a s
mcuh a s t h e y received.
Governor Herding. I
have not the figures but I
know the reduction i n our gold reserve o f ..50,000,000
is attributable t o net payments w e have made.
had
w e have
n o excess o f receipts.
Covernor N o r r i s .
V i e have m a d e s m a l l n e t p a y -
ments i n the calender y e : r o f 124, w h e n w e received
135,000,000 a n d paid o u t #148 ,000,000.
T h e Livet
three months o f this year w e have received fifty-four
nd a
quarter m i l l i o n a n d p a i d o u t f i f t y - e i g h t a n d a
valf million.
Governor Seay.
b o y o u maintain a
separate account
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Federal Reserve Bank of St. Louis
and segregetion o f gold?
Governor Norris.
Governor Biggs.
of 9 , 4 9 2 , 0 0 0
G o l d certificates, yes.
W e made a
gain during t h e year
i n gold certificates a n d $139,192
in
gold coin, That. i s formers twelve months.
T h i s topic naturally leads t o
Mr. Harrison.
the n e x t o n e , w h i c h i s t h e q u e s t i o n o f t h e s u p r l y o f
hand t o hand gold i n each Federal reserve bank.
2. S u p p l y o f available h a n d t o hand gold
in each Federal Keserve Bank.
At t o o r three different conferences t h e s uggestion has b e e n made that a
plan b e worked o u t whereby w e
bank i n
ultimately s h o u l d h a v e i n e a c h F e d e r a l r e s e r v e
its vault a n amount o f hand t o hand gold, t h a t i s
either c e r t i f i c a t e s
o r coins, e q u i v e l e n t
per cent o f its note deposit liability,
cent, o n e - t h i r d
t o b e i n coin.
t o about 2 0
o f that
T h e r e has been
dispute b e t w e e n the s u b - c o m m i t t e e c o n s i d e r i n g
this a n d t h e T r e a s u r y D e p a r t m e n t
a s t o whether
n e
ratio o f c o i n t o c e r t i f i c a t e s s h o u l d b e o n e - t h i r d
or
one-fourth,
the
At one time t h e percentage o f hand t o hand gold t o
totel l i s b i l i t i e s
o f the System a s a
whole w e s a s L o w
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Federal Reserve Bank of St. Louis
present. tine i t i s calming
we h a v e a l m o s t 2 0 p e r c e n t eat
only d i f f i c u l t y i s th:.t w e
have approximetely 1 0 0 , 0 0 0 , 0 0 0 l e s s c o i n i n the
Federel R e s e r v e B a n k s t h a n t h i s p r o g r e m w o u l d c o n t e m Oba bew “ H i i d e t h e t
s<7
Herne]
a e s
in other r i s e r b a n k s é
m i t e
s o important
N e w York, i t i s
most necessary for us t o keep our supply o f coin u p
s¢st o n e - f o u r t h o f t h e 2 0 p e r c e n t o f o u r
liebiiitties.
Governor Fancher.
T h
i s t h e total liability o n
and
notes dsposita,
Yes.
maintained a
i f the System a s a whole
ratio o f h a n d t o h a n d g o l d t o t o t a l
linbilities o f 2 0 per cent, a n d one-third o f thet i n
the S y s t e m w o u l d h o l d a p p r o x i m e t e l y .,250,000,000
in COdtie
A s e
matter o f f a c t t h e t o t a l h o l d i n g
b y the
only about »160,000,000 a t the
sirman.
Several
o f t h e benks
a t one time h a d
a little o v e r o n e p e r cent o f hand t o hand gold with
ch: tox m e e t t h e i r L r a p i i i t i e s .
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Federal Reserve Bank of St. Louis
ie
Governor Mcbougsal.
gold d o y o u
Deora SOM « I
ir. D e w e y .
mean c o i n a n d certificates.
Y o u , “include> i m t h o s e -certiticaves
the , 2 0 and «;50 -- the b i g ones?
Mr. Harrison.
T h e figures I
have include every-
thing e v e n the »10,000 ones.
fhe Chairman.
T h i s consideration always appeals
to m e very strongly about this matter o f gold.
W e have
in this coumtry some statutes which i n effect, although
not d i r e c t l y p l a c e t h e r e s p o n s i b i l i t y u p o n t h e r e s e r v e
banks
o f maintaining a
gold payment.
‘ i e heve h a d a
gre:t volume o f gold coming into t h e country.
I t has
accumulated largely i n gold bars, a n d the continuing
form o f money i n circulation a n d guld certificates.
situetion h a s b e e n such,
T h e
u p t o t h e present time, t h a t
no question o f the maintenance o f gold payment c o u l d
have a r i s e n w i t h t h e g o l d surplus,
except
n o w leczal tender,
a n e x p o r t d e m a n d thimah i f o n e s h o u l d e r i s e .
iwhen
an export demand f o r gold «rises a n y bank that has a
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Federal Reserve Bank of St. Louis
528
right t o come t o tie Federal
demand f o r gold has e
end d e m a n d t h e gold.
T h e statute s a y s
to d e m a n d g o l d o r l e g a l tender.
the f i r s t p l a c e w e w o u l d n o t h a v e a
y o f lecal t e n d e r
surficient
large d e m a n d
o n hand t o meet a
gold; t h a t would not satisfy t h e demand f o r gold
export anywey, a n d t h
g
2
P
y @
convenient
thing i s t o have enough gold coin always o n hand t o
meot that demand i n those district where i t would fall,
specially N e w York, S a n Frenciseo o r some s e e port,
n the Canadian bordérrdistricts.
i s the
T h e n thore
the
problem o f coining these bars i n t o gold coin, a n d
fa i
h
t h e v r o b l e m o f expense.
L G costes
money t o mint t h e gold coins a n d i t costs money t o snip
B u t I
them around t h e country.
do not think considera-
tion o f expense should b e allowed t o delay i t i n a n y
way,
i f i t can b e avoided
t h e immediate
enough g o l d a n d i t s d e l i v e r y
coining
o f
a t t h e p r o p e r Places.
50
that e n y d e m e n d f o r g o l d f o r e x p o r t c a n p r o m r t l y b e met.
6 we would like t o «ship bars a s much a s possible,
but w e h a v e n o r i g h t t o i n s i s t u p o n that.
Governor C a l k i n s .
P o n t
s p e cconand
O r
L b in" b a r s y
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Federal Reserve Bank of St. Louis
The Chairmen.
N o .
Governor GCelking.-
E b
Governor N o r r i s . .
in e d d i t i o n
ea b o edlc ¢ertiticates, t h e r
we have delivered t o tiie Philadelphia
purchase o f gold bars f o r foreign s
hipment, f r o m the
5th o f J a n u s r y t o t h e l l t h o f February, i n c l u s i v e ,
wtyoo?,000.
might b e interesting t o the Governors t o k n o w t h s t w e a r e o n a
as P u l l c a p a c i e
y eat 1
gold m i n t i n g b a s i s
i
n the three mints
San Francisco, Denver a n d Philadelphia.
548,000,000 last month, w h i c h was a
to j
in
‘ t e minted
little better t h a n
e
we h a d h o n e d
t o do.
‘ i e hope
t o continue
t h e t program
ricnt si0ne.
“ e e r e also minting stendard silver
dollars a n d h a v e p u t o n e n e x t r a s h i f t f o r t h e t purpose,
so that w e have about t h e limit o f double eagles being
minted a t t h e p r e s e n t time.
“15,000,000
i n Philadelphia,
cisco a n d «10,000,000
L a s t m o n t h w e minted
15,009,000
f t Denver.
i n S a n Fran-
‘ t e hope t o continue
that program a n d get out a s much gold a s possible.
Governor C a l k i n s .
f i t h o u g h y o u have answered m y
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Federal Reserve Bank of St. Louis
woulc l i k e t o a s k i t
question, Governor Strong, I
again.
I s the demand
i n your p e n e f o r p o l t e r o x
port a l t o g e t h e r f o r g o l d c o i n f o r ‘actual e x p o r t ?
The Chairman.
Yes.
T h e circumstance
Little v e c w l i a r a b o u t t h a t .
T h e demand
i s for new
f o r that.
coin f o r e x p o r t a n d t h e r e s r e v a r i o u s r e a s o n s
Ordinarily i n gold movement w e would prefer bars but
there has been a speciel demand f o r the gold coin.
Governor Celkins. I
think ell we have exported
been i n bars.
The Chairmen. A c c o r d i n g t o the statement cee s
about half a n d half.
Governor Fancher. I
would
c o t o inquire: o f lpr.
Dewey whether,in carrying forwerd t h e minting program,
the t i n e i s nearby when t h e reserve banks c a n build u p
their reserve supply o f coin and certificetes.
Mr. Dewey.
I t i s just a little hard t o say. W w e
have t h a t i n v i e w b o t h i n o u r c u r r e n c y p r o g r e m a n d i n
our c o i n i n g program.
‘ i e were v e r y m u c h i n hopes t h e t
during t h e last portion o f this fiscal year, between
1, w e w o u l d b e g i v e n a
supplementel a p p r o -
priation b y Cong ress which would help u s t o build u p
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ool
this, what w e call, vault stock o f gold certificates
of 2 0 denominations. G e n e r a l Love, t h e Director
of the Budge
hevine 2
little u t A f r a
w a s a
i n p ade
surplus end. 2
o f our not
o w i n g to
cartain unforescen continzencies t h a t srose - - this n e w
HOBtaL p a y D i l l a n d t h e i m b e r B e d P r e v e n
that r e a s o n
h e refused
appropriation,
t o give
- = and for
u s this suprlemental
a n d t h e result h a s b e e n thet w e have
hed t o furlough sone m e n i n the Bureau o f ingreving
and Printing e n d ave n o t vorking t o capacity there: T o r
lack o f funds.
T h : tcut d o w n o u r p r o g r a m f o r r r i n t -
ing gold certificates, a n d w e have b e e n a little
disrpnointed i n that. H o w e v e r , beginning J u l y 1 , w e
go o n t o the lerg-st program which w e have ever had,
pretty neerly 2 5 per cent larger t h a n w e have
the past, a n d thet will give u s gold
we hone t o use t o
T i e minting nrogram will depend
to hand reserves.
entirely o n the export recuirements for gold,
cennot foretell. ‘ “ : e are working j u s t a s
on t h e minting,
mints,
t
a
t
e
t
e n d depending e n t i r e l y
o the fu7l capacity o f the
o n the export demand f o r
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Federal Reserve Bank of St. Louis
G w e W w i k l m e c t our. d e t e r m i n a t i o n .
= 9 to. W h a t
eval P e s e r v e D a n e s
e c
o O pDulid
gold,-of this
there a n y further questions t o
be a s k e d a b o u t t h i s
Governor Biggs. I
would like t o a s k Mr. bewey
nad w i t h t h e n e w s i l v e r dollars.
The last time w e were here w e were talking ebout distributing them.
H o w d i d i t work out, Mr. Lewey?
wie not satisfactory. 1
the G o v e r n o r s
helping
of
t h e n T
u s w i t h o u r program.
might s a
came d o w n here o n e
of the things thet h e d turned u p was t h e desire o f the
Treasury t o g e t o u t t h e s t a n d a r d s i l v e r d o l l a r s
replace t h o s e t h s t h a d b e e n w i t h d r a w n
period. &
out.
number
o f efforts
to
during t h e war
have been
ade
t o put them
T h e y were sort o f seoradic efforts, b u t n o
worked o u t p l a n h a d b e e n d e v i s e d t o s h o v e t h e m o u t i n
circulation.
S o w e decided
t o m a k e o n e f i n e l effort,
we went t o considersble length i n studying i t and got o u t
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Federal Reserve Bank of St. Louis
rtain e m o u n t
o f propaganda
t o t r y t o force
sisvver d o l l a r s I n t e circitecaon,
public
d i d not
w n t them.
W e tried..6.
ane
W e . put them out a n d
to the banks. H a v i n g made this effort
over, a n d having gotten a
particuler report
with rezard t o the situs tion w e a r e n o t going t o push
it e n y further.
T h e a t w i l l e n d t h e matter.
the Vheirman.
M r . Dewey, t h e r e i s another topic
on the program i n which y o u will b e interested.
topic. 1 6 .
I t is
o n :
V. F I S C A L A G E N C Y .
Do Mederal R e s erve Banks g uarantee
l
a
.o the Treasury o f the Unit ed S t a t e s
collateral p l e d g e d
Ler o s i t Accounts.
Mr. Wellborn.
that. I
t o secur e Special
I t will n o t take l o n g t o discuss
have simply brought i t u p for e short dis-
cussion a n d I desi:-e t o read this correspondence bearing
upon i t now.
"Mr. ti. B. Yellborn, Governor,
Federal H e s e r v e B a n k o f Atlanta,
Atlanta, Georgia.
Mie
e d DOr:
of a p r i l t h i r d w i t h f u r t h e r r e f e r e n c e
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Federal Reserve Bank of St. Louis
to t h e g u e s t i o n o f w h e t h e r
o r not
as Fiscal Agents,
by
Special depositary banks, a s security f o r public
monies p l a c e d
o n d e p o s i t w i t h s u c h depositaries.
This
is the subject u p o n which w e rendered a n opinion sever1 days since.
With y o u r l e t t e r o f April t h i r d y o u e n c l o s e a
form
of letter which y o u use i n connection w i t h your recomuendation a s t o the designation o f special depositaries.
Theat form i s prescribed b y the Secretary o f the Treasury,
and contains t h e f o l l o w i n g language:
tThe collaterr1 securities deposited b y the
(blank bank) a s security f o r special deposits o f
o f Treasury Notes,
funds reelized f r o m the sale
Treasury Bonds a r e ( o r
Treasury Certificates a n d
wi
cenbioned i y Deseeenone
h o y o r tne G h cthote?
CLeGuLar
entire amount
adequately s e c u r e t h e
o f such deposits
held b y 2Lt.1
You a s k whether o r not t h e clause quoted above
would alter o u r opinion rendered several days since
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ae. t o y o u r T l e b i l i t y - i n
t h e premise
fn our opinion, t h e legal e f f e c t o f a statement
tthe c o l l a t e i e l s e c u r i t i e s
a r e ( o r will b e ) s u f -
secure t h e a m o u n t o f s u c h d e C o e
ay 6 W
n
o
t anount
to a
contract
of
guaranty n o r t o a n undertaking t o indemnify against
any loss which might pessible accrue t o the United
Tris. p r o p o s i t i o n w o u l d b e clearer,
were t h e p h r a s e
i n qestion qulified
‘in o u r opinion.!
o f course,
b y words s u c h a s
U n d e r e l l t h e facts a n d circumstan-
however, w e believe t h a t t h e representation made
the adequacy, etc., o f the collaterel, w o u l d n o t
onstrued
a s e n undertaking
o f indemnification
or
we therefore reaffirm o u r former opinion, notwithstanding t h e f o r m l e t t e r
t o w h i c h y o u c a l l o u r atten-
tion.
we petirn herewith the- papers enclosed with: yours o F
the “third.
Very u r i le- F O U R S %
NDOLPH & Piritan,
General Counsel."
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Federal Reserve Bank of St. Louis
“PEDERAL
Of A t l a n t a .
Secretary.
o f t h e Treasiry.,
Treasury Department,
We r e c o m m e n d f o r
e
f p u b ! Gc finds
t
i
o
n as a
special d e -
bank, which
O
following
n foo r i th:
t t edesign
c
it i oln upn d epr t
ah e
m
and con
r d i t i o n s eo f D e p e r ttm e n t C i r
in t h e
so0unt
Utes
Nowe s
a s indicated below:
Present b e s i g n a t i o n
Ddestene PLEO b e s i r e d
secu
pitics d e p o s i t e d
b y the
s s e c u r i t y f o r spect: i 1 deposits of. funds
Gs, T r e a s u r y
Certificates a n d T r e e s u r y B o n d s a r e ( o r w i l l b e ) o f
the c h a r e c t e r m e n t i o n e d
-22
a;
i n bepertisent C i r c u l a r N o . 9 2 ,
. will be) r sufficient o t o sde:.uat:-ly
(
secure
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Federal Reserve Bank of St. Louis
amount
o f s u c h deposits
held
nespectfully,"®
“TREASURY D-PARTMENT
Washington
March 25, 1918.
Governor,
federel H e s e r v e
Atlar
In v i e w o f t h e f a c t t r e t t h e r e p o r t s m a d e t o t h e
Depertuat
o f e v e r y deposit, e x c h a n g e a n d w i t h d r a w a l
of Collateral by. eocir
b e l e s i g n e t e d e s a special
itery u n d e r t h e p r o v i s i o n s
o f section 8
of the
24, 1917, impose conside:eble w o r k
upon t h e e d e r a l iieserve Banits a n d t h e i n a c c u r a c i e s c o n reports
h a s c e s s i t a t e d m o r e o r less
correspondence, y o u are advise
h
e tit will n o longer
be n e c e s s e r y f o r y o u r b a n k
In-Ghe future. your
to t h e D e p r r t m e n t w
e n recommending t h e d e s ignation o f a
bank a s a specisl depositary a n d when recommending a n
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
558
inerease
i n t h e m a x i m u m b i lence o f a
designated a
benk p r e v i o u s l y
statement t o t h e effect that:
Mine collateral: s e c u r i t i e s d e p o s i t e d
b y the
(name o f bank a n d location) a s security f o r special
deposits
o f funds realized f r o m t h e s a l e o f Liberty
Bonds a n d T r e a s u r y C e r t i f i c a t e s
o f Indebtedness e r e
of the char cter mentioned i n Depertment Circular
#92 end are sufficient t o adequately secure the
entire a m o u n t o f s u c h d e p o s i t s h e l d b y it.'
There s h o u l d a l s o b e f o r w : r d e d
t o t h e Department
at the close o f business o n Saturday o f exch week a 2
report showing t h e various items o f collateral ( n o t
including commerci:1 paper) accepted during the week.
Items o n c e r e p o r t e d n e e d n o t b e i n c l u d e d
i n subse-
quent reports.
By direction o f the Secre tary,
nespectfully,
R. © . LEPPINGVELL,
"March
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Federal Reserve Bank of St. Louis
Home. BR. 0. Lerringweiy,
Assistant Secretzry o f the Treasury,
Washington, D . C .
pear Mr. Lefiingwely;
We a r e i n receipt
o f your letter o f March 25th,
advising u s thet . e c a n eliminate certain reports
relative t o handling securities
and n a m i n g s u c h o t h e r r e p o r t s
f o r depositary banks,
a s a r e desired b y your
office,
we appreciate v e r y much indeed t h e elimination o f
some o f these reporfs, f o r w e find i t very, difficult
to e m p l o y c o m p e t e n t h e l p t o k e e p u p w i t h t h e w o r k i n
hand.
Yours v e r y truly,
Governor."
Some
O L Se. L O O K t h e v i e w L i a t L i e b i 4 6
strong r e c o m m e n d a t i o n ,
and I
referred
M16) 8
O U I non One a
,
a l m o s t eyueal t o 2
t h e matter
eno
t o our counsel
H s a dat wes H O t
n
a
r
ai tu would
g al b e well
ae n de hte thought
there t h a t i n o u r o p i n i o n t h e p a p e r t h a t i s adeque tely
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
secured
svete A
Line:
De a
ipme.
fa
U n d e r djinary circumstances would
i n t t h e common l a w reletionship o f
agency would apply, dinasmuch a s t h e statute fixes that
relationship unless t h e reserve b a n k weives
an agreement t o become a
Governor Calkins.
principal - -
I n other words w e are liable t o
the extent o f exercising d u e diligence?
The Chairman.
Y e s , £ 8 a n y agent would be.
Governor Wellborn.
T h a t i s what o u r attorney thought.
Fe thought i t would b e well t o put i n there t h a t i n our
opinion i t was good collateral a n d would adequately
secure t h e e n t i r e a m o u n t o f t h e deposit,
be s o m e p r o t e c t i o n
t h a t t h e t would
t o us.
I doubt v e r y much i f there would b e
any l i a b i l i t y
t o t h e r e s e r v e banks w h e n t h e y exercise
due diligence.
D o you want any action teken on this,
Governor ‘iellborn?
Governor Wellborn. i
aetion.
T h a t s een
b
sir, I
do not
e t h e concensus o f opinion o f the
Conference.
o
the C h a i r m a n . i
Be
think M r
V
e
L
i
k
e 1s- 7 6
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Federal Reserve Bank of St. Louis
discuss t h e
insurance o p e r a t e d
b y t h e Treasury,
which
pleces delivery o f t h e
member b a n k s t
question a r o s e w h e t h e r t h a t i n s u r a n c e s h a l l e t t a c h t o
shi p ments which a r e made o n l y when t h e y are made
immediately
the b o n d s
o n t h e subscription b e i n g completed a n d
p a i d for,
allowed t o elanse
o r whether
L
h
s o m e interval
should
e resson t i e
ause Troquenmtay a o delivery
is only made. constructively, t n o eeca ities b e i n g
retained
b y t h e reserve b a n k 4
S t e r a l
f o r .Gne
dcposit which results f r o m t h e subscription, a n d t h e
shall t h e m e m b e r b a n k s e t t h e b e n e f i t
the transporta
securities,
afte
o
n
h
of
d insurance charges o n t h e
e ENosit
H a s
which m a y b e t h r e e m o n t h s l a t e r ,
securities:
Gclivered
b e
w i t h d awn,
f e g e l p h e y neve
a t once
i n order
Denvero
i o r t h e = nsuveance
ank s o a s t o s e r v e
to a d v a n c e m a d e b y t h e r e s e r v e b e n k a n d t !
t o
b e
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Federal Reserve Bank of St. Louis
where t h e y:
to have some light thrown
different r e s e r v e benks,
Mr. L e w e y t
o n the practices
l r . Lewey?
woulcd l i k e t o k n o w t h e f e e l i n g
of the reserve banks
might s e y this: J
a s t o the general s
tie
- W e
asury L e p a r t m e n t
ituation.
o S a s < one =n o a r
t o d o everything
o n ae
t o make o u r securi-
hey can b e made. e
reelize
face some b i g ope)
near future, perticularly i n the refunding o f the third
went t o d o everything,within
reason,
77
le o f our s e c u r 2
Gxpression fro;
to
a n d I would like
n e varlous Governors
a s to
é&bout t h e situation.
eLIMman.
T h e r e w o r b e s0me-aai LLeuley i n
ements b e c a u s e
w e heve n o t hed
to l o o k a t t Usile
h e p r L e e s , b u t se: willi d e t e
can: F o R you.
consider
t h e situs:
their banks a n d perhaps t h e y would 1
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Federal Reserve Bank of St. Louis
with their officers t h e t a r e
the operation a n d t h e n write a
letter t o u s and give
ue their ideas.
Governor McKinney. I
better plan, Mr. Dewey.
believe t h a t would b e a much
S o m e o f u s a r e not very well
acquainted w i t h t h e s e details.
Governor Norris.
L T a m not prepared
iv, “Would 1 % b e So0- much to. a: y
t o comment
M p . Dewey,
to
to t h e p e r -
points u p o n which y o u would like a
is Dewey.
NO, 2
Governor Seay.
ment o p p o r t u n i t y
reply?
gtis b e viry pied 7 6 dd: that.
j i e heve given t h e Treasury
D e
t o repniy t o t h e s p e c i f i e q u e s t i o n
whetrer o r not delayed delivery i s t o b e considered
as original delivery.
w e have written t h e Tressury
and asked t h e m t o confirm o u r section i n treating
deleyed delivery a s e n original delivery.
give t h e T r e c s u r y a n o p p o r t u n i t y
reserve B a n k s w h a t d e c i s i o n
T h e t will
t o advise t h e Federal
i t makes
i n the case
of
the R i c h m o n d Bank.
Mr. D e w e y .
I t was your l e t t e G o v e r n o r Seay,
which b r o u g h t t h i s m a t t e r
t o
h e a 1
BROUGH
b a
on
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Federal Reserve Bank of St. Louis
O44
ould b e a d v i s
p O . bike
p
a
n
feeling o f the Danks a t this time.
a 4 t h e general
i
s our desire
to b e very lenient i n this thing b u t a t the same time
to protect ourselves. P e r h a p s i t would b e better f o r
us t o write a
letter t o each o f the Kkeserve Banks a n d
ask them t o consider i t and notify us, a n d then submit a
Without objection t h e matter will
take thet course.
Mr. Dewey.
G o v e r . : o r Seay, would y o u have a n y
objection t o expressing y o u r feelings about i t now.
It might clarify t h e situ:tion a
Governor Seay.
little bit.
O u r opinion i s t h a t w h e n a member
purchases s e c u r i t i e s a n d l e a v e s t h e m o n deposit
us for its convenience t h e t i t ought t o heve t h e
advantage w h e n i t wents t h e securities o r wents
bank has that takes t h e m immnedLately Upon-purchase; t h a b t h e delivery should pe. dolayed b u t nevertheless i t ought t o b e made . t the
of the Treasury just a s though t h e delivery
been m a d e a t t h e t i m e o f purchase.
The C h e i r m a n .
T h e t
i s not indefinitely,
though.
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Federal Reserve Bank of St. Louis
Governor Seay.
N o t indefinitely.
the Treasury t o specify some reasonable time.
Mr. Dewey.
T h a t i s i n case where t h e y a r e serving
as collateral f o r a wer l o e n account?
Governor Seay. T h e t i s i n the case o f subscription.
Mr. D
wey.
deposit.
W h e r e i t creates a
Governor S e r y e Y e s e
Mr. Dewey.
S u p p o s e t h e deposit
i s withdrawn,
through ea call for funds o n the part o f the Treasury,
and t h e b a n k t h e n w i s h e s
t o b o r r o w o n those b o n d s ,
they t h e n s e r v e a s c o l l a t e r a l f o r t h : tadYance
nart o f your bank.
Governoi S e a y .
and
o n the
H o w d o y o u feel i n thet case?
I n some c a s s
the w e l l - k n o w n deposit.
Suppose
t h e bank does n o t
i t buys certificates,
pays f o r t h e m e n d l e a v e s t h e m w i t h t h e r e s e r v e b a n k
us
for convenience.
T h e . d e a that occurred
t o was t h a t
the d e p e r t m e n t m i g h t « s p e c i f y c a r e a s o n a b l e t i m e w i t h i n
which delivery might b e made, a n d that deleyed delivery
within thet time m i g h t a s well b e regarded a s original
delivery,
# t the expense o f the Treasury.
Mr. Dewey.
W h a t would y o u cell a
reasonable time?
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Federal Reserve Bank of St. Louis
546
Governor Seay. I
should s e y within s i x months,
just s p e a k i n g offhand.
Mr. Dewey.
N i n e t y deys i s pretty near t h e
Yecorn o n puy o f cur issues.
Governor Seay. I
was spesking offhand. I
say 9 0 days, t h r e e months.
months w o u l d b e e
would
— T shotild t h i n k t h r e s
reasonable p e r i o d .
Mr
. Dewey, C o v e r i n g a n y trensaction, whether h e l d
iit o e
ssfekeeping, w h e r e t h e y e r e serving a s collateral
an advance o r serving a s collateral for a deposit?
Governor Seay.
Y e s s I
do not s e e t h e necessity
eny ate- tinction.
The Chairman.
I f we notify the member banks t o
th:t effect, t h a t i t s bonds e r e physically delivered
within 9 0 days that they will b e released o f the
expense,
b u t t h : tafter t h e t t h e y p a y t h e expense,
it
might save u s some expense ourselves i n keeping those
things indefinitely e n d i n t h e cutting o f coupons a n d
sO On.
f T understand th:.t y o u ere going t o send o u t a
form letter?
I will s e n d o u t a
Governor regarding this matter.
form letter
t o ezch
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Federal Reserve Bank of St. Louis
547
The Cheirman.
A r e there a n y other metters t h a t
you would like t o have discussed, Mr. Dewey?
want t o discuss t h e i n s u r a n c e p o l i c y ,
D o you
w i c h runs out
in J u n e ?
Lea n o p i n POsVuLoOn F O -OLscuss t h a t
The Vhairmen.
W e have a s k e d ifr. Kenzel, chairman
of t h e I n s u r a n c e C o m m i t t e e f o r t h e S y s t e m t o g e t i n
touch with t h e Treasury o n thet matter.
W e did that
without setting euthority, b u t h e has b e e n looking
after t h o s e t h i n g s c o n c u r r e n t l y enyway.
ir. Harrison.
H
e wes requested
b y the last
conference o f Governors t o d o thet, Governor Strong.
The Chairman.
H e d i d all h e could d o under thet
authority, w h i c h was noting.
N o w the policy i s
anpro: c h i n g e x p i r a t i o n e n d t h e q u e s t i o n o f a
new policy
will
letter h a s j u s t c o m e d o w n a n d I
Teanec - 4
m
y desk. I
talked w i t h Nr. H a r r i s o n a n d Mr.
Hwelt while t h e y were d o w n here a n d I
to discuss
i t with t h e conference
Mr. H a r r i s o n . I
heve a
e m not i n vosition
a t t h e present time.
letter
o r rather a
letter
t o
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Federal Reserve Bank of St. Louis
548
tne BRoserve B o o r
povi sie
t n
f r o m t h e Post-0flloe peprriuess
a t t r Aprat T o t h every retire suceias
for rogistercud i e d u l i v e r c e d m u s t b e a c c o m p a n i o d
w i t h athree-cunt postege stanp.
(THUS m a t t e r w a s d i s c u s s e d but. n o a c t i o n w a s
Mi, Hapreison, < T h a b w e s t h e first, extra. t o p i c “sub-
gud t h e sécond o n e i s 2 memurendum f r o m Mr.
Wyatt attached t o some correspondvice W h i c h was referred
t o t h e Svernorst
Gonferonce
a t the Board
MCGULHS: OSs MePch 26th. = Thu. aubjeet K a a t ts: prorating t h e expense o f the appeal i n the case o f the
Capitel G r a i n & Seed Company against t h e Federal
Res+crve- B a n k o t Atlanta.
Governur W e l l b o r n .
Mr. H a r r i s o n ,
Secretary
W o ,
-That-ds-nobt
i t wes handed
o n o u r program,
t o me b y the
o f “the. Reserve Board o n l y y e s t e r u a y afuscrnoon.
(Extended i n f o r m e l d i s c u s s i o n
o f t h e topic fol-
lowed.)
Governor Harding. I
Gharrnon-
i s
t n e
will make « motion, Mr.
1 b t e t h e senses
o f t h i s contercice.
that
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Federal Reserve Bank of St. Louis
549
subject t o act intelligently, a n d that i n eny event
the matter o f pro-rating t h e expense f o r this eppeal
is something th:t t h e y will h a v e t o refxsp t o their
respective b o a r d s
o f directors.
Governor Norris. I
will second that motion.
(The motion having b e e n d u l y seconded was carried.)
The Chairman.
N o w , gentlemen,
w e have received
advice, first informally a n d then formally f r o m the
Reserve Board,
legislation. I
t o consider this McFadden program o f
maintain t h t t h e problem o f farm
credit inseparately interwoven w i t h that whole situation a n d question o f legislation, a n d I just p u t
that
o n the program
i n case
w e were expected
the McFadden bills i n detail here.
t o discuss
W e a r e not t o d o
thet, a n d they have been referred t o the committee,
and everything t h a t I hed t o s a y t o the conference w i l l
be t a k e n u p b y t h e committee.
There does n o t s e e m t o b e e n y further business
before
o u r conference.
(Whereupon a t 5 . 3 0 o ' c l o c k Delhe, U P O N m o t i o n d u l y
seconded, t h e conference o f Governors adjourned,
to
meet i n j o i n t c o n f e r e n c e w i t h t h e F e d e r a l H e s e r v e B o a r d
tomorrow, W e d nesday, April 8, 1925, a t 10 o'clock a.m.)
~”
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Federal Reserve Bank of St. Louis
550
REPORT O F THE CHAIRMAN O F THE OPEN MARKET
INVESTMENT C O M M I T T E E
T O T H E GOVERNORS!
CONFERENCE, APRIL, 1925.
Since t h e last joint conference i n November t h e
special i n v e s t m e n t a c c o u n t
o f t h e Federal R e s e r v e
O n
System h a s b e e n r e d u c e d f r o m 5 0 0 fie
to a p p r o x i m a t e l y 2 5 0 million.
During a
C d OLLas
period o f 3 4
months, f r o m early December t o the middle o f March, 2 5 0
million o f securities w e r e s o l d i n k e e p i n g w i t h t h e p u r poses f o r w h i c h t h e a c c o u n t w a s f i r s t e s t a b l i s h e d
a t the
end o f 1923.
The f i r s t r e d u c t i o n
i n the s i z e o f t h e account w a s
made i n the early part o f December.
were
S a l e s a t that time
t o steadying t h e money market
i n part d i r e c t e d
and in part to Gaattisuting the Treasury offering of
December 15, b y making available t o the market Government securities maturing i n March which might b e exchanged f o r t h e new 4 per cent issue.
the o p e r a t i o n o v e r D e c e m b e r
15 w
T h e n e t Pesult. o f
a s t o reduce t h e special
accounp- b y SOU million.
Early i n J a n u a r y i t b e c a m e a p p a r e n t t h a t t h e u s u a l
return f l o w o f f u n d s
t o N e w York, s i m u l t a n e o u s w i t h t h e
return o f currency f r o m circulation,
w o u l d create v e r y
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Federal Reserve Bank of St. Louis
ool
easy m o n e y c o n d i t i o n s u n l e s s f u n d s w e r e a b s o r b e d f r o m
the m a r k e t .
Further sales f r o m t h e account
were there-
fore made amounting t o 150 million dollars a n d bringing
the a c c o u n t
t o 3 0 0 million.
F u r t h e r sales o f 5 0 million
were made i n February a n d Merch, w i t h t h e same e n d i n
view.
A l l b u t 3 1 million o f t h e entire s a l e o f 250
million w e r e m a d e i n t h e N e w Y o r k market.
The immediate result o f these sales, occurring a s
they d i d s i m u l t a n e o u s l y w i t h g o l d exports,
place N e w Y o r k C i t y m e m b e r b a n k s
Reserve B a n k .
A s a
was t o
i n debt a t t h e Federal
conseguence t n e c a l l l o a n p a t e
position a b o v e t h e d i s -
promptly t o o k a n d m a i n t a i n e d a
count rate a n d showed a n average o f about
3 g per cent,
with irregular movements above and below that
there w a s n o p e r i o d o f u n d u e e a s e a s h a d b e e n t h r e a t ened.
O t h e r money retes worked steadily upward during
5
the p e r i o d ;
f r o m early December
t o t h e e n d o f February
commercial p a p e r w e n t f r o m 3 4A p e r c e n t t o 4 , t i m e
money from 3% to 4%, 90-day bankers bills from 2%
5;.
B i l l rates w e r e influenced
b y successive i n -
creases i n Federal Reserve buying rates
3
p
p:
2
22% t o 3 - 1 / 8 p e r c e n t f o r 9 0 - d a y bills.
Federel R e s e r v e
Bank
r
o f New York raised
o n bills f r o m
O yn F e eb r
u a r4y 2 7 t h e
i t s discount
tySPECIAL INVESTMENT
| \,A C C O U N T F.R.SYSTEM
\
}\
|
|
\
\
\
‘
o
e
m
\\
S
e
.ES
e
e
Bee e CALe
e
L LOAN
LJ RENEWAL RATE
jeg
A
n e y ,
\ s
\Ve
JANUARY
1924
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Federal Reserve Bank of St. Louis
1
9
2
5
M
F E B R U A R Y
1
9
2
5
A
1
f Sales f r o m
R
9
f
C
2
a
H
5
l Investment Account
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Federal Reserve Bank of St. Louis
552
rate f r o m 3
yz>
~1 *
z i .
t o 3 3 p e r cent.
investment a c c o u n t ,
T h e changes
*
>
i n t h e special
i n N e w Y o r k C i t y member p a n k borrow-
the
furs,’ p m d i n call: Lossg renewal r a t e s a r e s h o w n o n
a t t a c h e d cherie:
Following these various changes speculative activity
on the stock market beceme much less intense
of
periodic reactions, a n d finelly after t h e middle
March p r i c e a v e r a g e s s h o w e d r a p i d reductions.
I t seems
of
clear that. t o s o m e e x t e n t t h e o p e n m e r k e t o p e r a t i o n s
of
the System h a d a deterrent effect o n the continuation
heavy s p e c u l a t i v e a c t i v i t y .
OPERATIONS A T T A X PERIODS.
the
In June o f last yeer t h e committee inaugurated
policy o f m a k i n g t e m p o r a r y s
ales o f s e c u r i t i e s f r o m t h e
money
special investment account t o teke u p sleck i n the
b the excess o f government disbursements
merket p r o d u c e d ’ y
over receipts i n the early days o f the t a x period.
December a
I n
review o f money conditions indicated that
such s a l e s w o u l d n o t ‘be n e c e s s é r y s i n c e t h e h o l i d e y
demand f o r f u n d s a n d p r o s p e c t i v e t r a n s f e r s o u t o f t h e
district m i g h t b e e x p e c t e d
money market,
a n d this
t o take u p the slack i n the
o b e t h e case.
provedt
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Federal Reserve Bank of St. Louis
558
At t h e M e r c h t a x p e r i o d t h e r e w e s
lange g o v e r n m e n t d i s b u r s e m e n t
a n exceptionally
i n New York a n d a
Tressury overdraft outstanding f o r about a
reduction
large
weeke A
i n member b e n k indebtedness t o o k u p m u c h o f
the r e s u l t i n g s l a c k i n funds,
b u t i n addition temporery
seles o f 2 0 m i l l i o n f r o m t h e s p e c i a l a c c o u n t w e r e m a d c
in New York City a n d 4 million i n Chicago. “ S l a c k funds
member
were n o t entirely taken u p b y the liquidation o f
126
bank borrowings o r b y these temporary Soles;- buy.
ease i n money wes n o t serious.
The e x p e r i e n c e
i n recent
t a x periods
appears
t o
t o the
indicate t h e desirability o f temporary sales
«nd
market a t a n y t a x period w h e n redemptions a r e large
Reserve
member banks a r e not borrowing heavily e b the
when
Banks. D e c e m b e r t a x periods m a y b e e n exception,
todemands f o r Christmas currency offset t h e tendency
werds e a s y money.
T h e results
o f s u c h operations
i n the
as
future will probably b e more completely successful
member banks understend the purposes better and as sales
are a r r a n g e d earlicr.
APPORTIONMENT
O F PURCHASES.
During t h e s e c o n d h a l f o f 1 9 2 4 purchases..of
Government s e c u r i t i c s a n d b i l l s m e d e b y t h e o p e n
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Federal Reserve Bank of St. Louis
market i n v e s t m e n t c o m m i t t e e w e r : d i s t r i b u t e d
aifferent R e s e r v e B a n k s
earning r e q u i r e m e n t s .
heave b e e n d i s t r i b u t e d
o n the basis
Purchases
t o the
o f their estimeted
u p t o A p r a a 1 , - 1925,
o n t h e basis o f e s timated e x -
penses, i n c l u d i n g d i v i d e n d s b u t e x c l u d i n g c h a r g e - o f f s .
In the light o f n e w figures received e s o f April bee
1925, f r o m a l l t w e l v e F e d e r a l R e s e r v e B a n k s ,
it i s now
proposed t o apportion purchases i n accordance w i t h t h e
earning requirements o f the several banks.
INDEX O F EXHIBITS.
(A) S t a t e m e n t S h o w i n g P a r t i c i p a t i o n
Holdings
i n System
o f Government Securities a t Close o f Business
Merch 31, 1925, e n d Classification b y Maturiticse
(b) Statement Showing System Purchases o f Bankers
Acceptances f r o m October 29, 1924, t o March 25, 1925,
and Their Allotment t o Participating Banks.
(Cc) S t a t e m e n t S h o w i n g S t a t u s
o f System Investment
Account Glose o f Business M a r c h 31, 1925, a n d the Profit
end L o s s i f S e c u r i t i e s w e r e S o l d a t M a r k e t P r i c e .
(D) S t e t e m e n t Showing Herning Asset Holdings o f
All R e s e r v e B a n k s M a r c h 2 5 , 1 9 2 5 ,
a s Compared w i t h pre-
vious Week, A l s o Weekly Average f r o m Januery 1 , 1925, t o
March 25, 1925, a s Compared w i t h Corresponding Period o f
7yoo4 and’ Entive Year 1924-6
(E) S t e t e m e n t Showing Ratios o f Perticipation o f
Federal Reserve Banks i n System O p e n Market Purchases
Based o n Figures Furnished a s o f March Sl, 1925.
EXHIBIT "A*
STATEMENT SHOWING PARTICIPATION I N SYSTEM HOLDINGS O F GOVERNMENT SECURITIES A T
CLOSE O F BUSINESS MARCH 31, 1925 AND THE CLASSIFICATION B Y MATURITIES
PARTICIPATION B Y FEDERAL RESERVE BANKS R E C A P I T U L A T I O N O F HOLDINGS B Y MATURITIES
Boston
1
7
, 241,000
New York
9 1 , 2 6 7 ,000
6 , 7 7 3 ,000
Philadelphia
J
S
u
e
D
n
p
e
t
1
, 474, 500
0
, 1 5 , 1925 , 5 6 , 3 8 5 , 500
c
M
Richmond
1 , 7 6 3 ,000
S e p t . 19268 31,901,000
7 ,500
M
4 ,387 ,000
D
8 , 3 1 2 , 0 0 0
T
3
Chicago
St. Louis
3
a
r
e
h
c
h :
c
1927 1 8 , 8 7 5 , 9 0 0
, 1 s , 1927 © 3 2 , 2 9 6 , 3 0 0
c
i
h
1 9 2 5 39,237,600
2 4 , 7 2 6 , 5 0 0
7
r
. 15, 1925
25,932,700
Cleveland
Atlanta
a
e 15, 1925 }
d L. L. Bonds 30,100,000
r
Sept, 15, 1928
Minneapolis
9 , 8 2 5 , 0 0 0
Kaneae City
Dallas
San Francisco
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1
2 ,043 ,600
1
3 ,025 ,500
2 5 , 1 0 3 ,000
8245 ,203,500
Fo
n
n
)
a
$
2
4
5
, 203,500
E
e
e
e
EXHIBIT "B"
STATEMENT SHOWING SYSTEM rURCHASES O F BANKEAS ACCEPTANCES
FROM OCTOBER 29, 1924 T O MARCH 25, 1925 AND THEIR
ALLOTMENTS T O PARTICIVATING BANKS
A l l o t m e n t s
Eurcheses
Boston
$
1
0
3
,
5
New York
1
7
3
Philadelphia
5 ,000
3 7 , 3 1 3 , 0 0 0
Richmond
3
Atlanta
1
1
,
4
Chicago
4
4
,
5
2
,
0
0
8
1 5 , 3 1 2 , 0 0 0
8
3 ,000
2 6 , 3 1 3 , 0 0 0
3
3 ,000
4
9
8
,
Minneapolis 0
6
,
5
7
4
4
4
,
San Francisco
1
1
6
9
,
0
0
9
.
8
9
3 .000
8
2
Totals
2
,
5
0
1
1
,
0
0
0
0 ,880 ,000
5
9
3
,
4
7 ,000
5
1
Kansas City )
1
6,085 ,000
0
St. Louis 0
Dallas
5 ,109 ,000
7 313,000
1 6 , 6 5 0 , 0 0 0
3
0
1 9 1 , 7 7 8 , 0 0 0
Cleveland
8
1
0 ,884 ,000
3
,
#
,
5
5
,
9
3
0
0
4 ,000
8
2
,
0
0
0
0
$ 8 2 8 , 9 3 2 ,000
8 ,932 ,000
Seema tse eine eee eee ieee teed
Richmond
d
i
Philadelphia "
d not participate i n purchases d u r i n g y e a r 1 9 2 4
"
“
2=
x
"
monthe o f Dec. 1924 and
Jan. 1925.
Minneapolis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
f
r
o
m Oct: 1 9 2 4 t o Feb. 1925.
EXHIDSIT “C"
ENT SHOWING STATUS O F SYSTEM SPECIAL INVESTMENT ACCOUNT A T CLOSE O F BUSINESS MARCH Lee 1 9 2 5
AND T H E PROFIT O R 1055 I F SECURITIES WEKE S O L D A T MARKET PRICES APRIL 1 , 1 9 2 5
i
MATURITY
A
R
C
A
June 15, 1925 © 4
are
T
sE
P
3/4%
3
%
U
R VALUE
A
1/2% T/N :
1 5 , 1925 2
Dec. 1 9 2 5
T
®
B
25,932,700
1
1 0 , 4 7 4 , 5 0 0
9
1
8
A
O
0
L M A R K E T PRICES
K COST A P K I L 1, 1925
eO
0
¢
1
9 9 . 9 9 8
0
0
P
i
Ra O
F
F SOLD AT CURHENT MARKET PRICES
I T
L
0
3
5 -
. 250 @
518.65
1 0 0 . 0 0 0
2
8
8
.
4
6
, 500 1 0 0 . 0 0 0 1 0 0 . 0 0 0
Dec. 1 9 2 5 4
3/8% 5 5 , 4 6 7 , 0 0 0 " 1 0 0 . 6 8 2 1 0 0 , 8 7 5 1 0 7 , 0 5 1 . 3 1
liarch 1 9 2 6 4
3/4% T/N
Sept. 1 9 2 6 4
1/4h
March 15, 1927 4
3/4%
Dec.
1/2% T/A
1 9 2 7 4
Sept. 1 9 2 8 4
14%
3
3
9
, 237,600
1
1 0 1 . 1 2 2
1 0 1 . 2 5 0
, 901,000 1 0 0 , 9 8 3
1 0 1 . 0 3 1
1 5 , 3 1 2 . 4 8
1 0 1 . 6 2 9
1 0 2 . 0 0 0
7 0 , 0 2 9 . 5 9
, 296, 300 1 0 1 . 9 4 1
1 0 1 . 9 6 8
8 , 7 2 0 . 0 0
1 8 , 8 7 5 , 9 0 0
3
2
3 0 , 1 0 0 , 000 1 0 1 . 4 8 8
#245, 203, 500
@
2
5
1
1
0
1
,
5
. 468
6
0
6
2
, 224.13
,
5
0
.
2
9
0
7
.
9
6
0
0
, 538.65
ca e n a
SYSTEM HODDINGS CLOSE O F BUSINESS O N FOLLOWING DATES
October 2 9 , 1924 5 0 0 , 0 0 0 , 0 0 0
November 5 , 1924 5 0 0 , 0 0 0 , 0 0 0
~ 1 2 , 1924 5 0 0 , 0 0 0 , 0 0 0
D e c e m b e r 24, 1924 9449,035,000
1
9
2
4 449,035,000
1
9
2
5 4 0 8 , 035,000 a
. 1 9 , 1924 500,000, 000
4 2 6 , 1924 4 9 5 , 9 0 0 , 0 0 0
December 3 , 1924 4 8 5 , 0 0 0 , 0 0 0
. 1 0 , 1924 4 1 2 , 6 0 0 , 0 0 0
. 1 7 , 1924 436,440,000
Transactions
1
-
9
1
2
9
2
1
2
9
7
2
0
1
5
. 290,000,000
,
0
0
0
,0
9 2 5 2 7 0 , 000, 000
5 388,125,500
1
9
2
5 275,350, 000
1
1
4
9
9
9
2
2
2
5 . 244,803,500
5 2 4 5 , 203, 500
5 2 4 5 , 203, 500
1
1
9
9
2
2
5 335,375,500
5 304,275,500
5 3 6 0 , 0 0 0 , 080
1
9
2
5 3 0 0 , 000, 000
* Book value represents average cost with premium o r discount amortized t o date.
i n Special tnvestie nt Account f r o m Oct. 2 9 , 1 9 2 4 t e March 31, 1925 (during which period t h e account w a s reduced f r o m 5 0 0 , 0 0 0 , 0 0 0 t o
8245. 203,590) ¥aised ¢ net profit of 442,741.03.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
STATEMENT SHOWING EARNING ASSET HOLDINGS OF ALL FEDERAL RESERVE BANK$ MARCH 25, 1925 AS COMPARED WITH PREVIOUS WEEK
ALSO WEEKLY AVERAGE OF EARNING ASSETS FROM JANUARY 1 TO MARCH 25 AS COMPARED WITH CORRESPONDING
PERIOD OF 1924 AND ENTIRE YEAR 1924
(000 Omitted)
Boston
S a n Francisco
T o t a l
3,867 $
4,419 ¢
1,520 $ 2 3 ,689 $ 3 3 9484,
Merch 18 $27,956 $103,164 $ 3 1 , 8 9 6 $ 4 9 ,027 $ 3 5 , 3 4 4 $16,811 927/441 $14,350 $
2 5 — 27,883 1 3 6 , 8 2 1 4 1 , 1 0 8 3 7 , C O 7 3 4 , 3 7 2 1 5 , 3 9 6 4 3 , 5 9 8 9 , 8 2 4 4 , 0 9 2 4 , 2 8 7 1 , 5 5 1 2 1 , 7 0 2 3 7 7 , 6 4 1
Bills Discounted ~
""
*
‘Net Change
7
Bills Purchased ”“
e x
Net Change
N e w York P h i l a d e l p h i a C l e v e l a n d R i c h m o n d A t l a n t a C h i t a g o S t . Louis Minneapolis K a n s a s City D a i l a s
1
3 33,657+ 9
,212+ 1 2 , 0 2 0 -
9 7 2 - 1 , 4 1 5 - 16,1574
4 , 526-
March 18 3 9 , 7 2 4 5 2 , 6 2 0 2 3 , 6 5 9 3 0 , 2 4 9 1 1 , 3 6 8 1 2 , 2 9 4 3 1 , 8 4 0 1 3 , 2 5 8
e r8
41,092 6 2 , 2 0 9 2 4 , 2 7 9 3 0 , 9 1 3 1 2 , 8 3 4 13,302 43,282 13,193
,
3
6
8
+ 9
589+
6 2 0 +
6
6
4
+ 1 , 4 6 6 + 1,008+
11,442+
6
5
2
2
5
+
1 3 2 -
3
1
+ 1,987-
3
8 ,157+
8 , 8 0 3 14,439 1 0 , 6 1 8 2 7 , 8 3 9 2 7 6 , 7 1 1
9
, 343 1 5 , 3 0 4 1 1 , 0 5 0 3 0 , 1 0 4 3 0 6 , 9 0 5
=
5
4
0
+
8 6 5 +
4 3 2 +
2
, 265+
3 0 , 1 9+
4
Government Securities - Merch 18 20,093 1 6 9 ,653 3 8 , 484 3 8 , 3 4 8 3 , 0 2 9 3 , 5 8 4 55,204 8 , 4 8 7 1 6 , 9 8 3 2 3 , 6 4 2 1 7 , 4 8 5 3 3 , 2 5 8 4 2 8 , 2 5 0
sd
1
"
Net Change
m
1
,
S
21,148 94,269 2 4 , 2 7 1
0
5
5
+ 75,384~ 14,213-
3
9 ,449 3 , 1 0 4 3 , 7 3 0 5 2 , 6 4 4 8 , 8 9 0 1 7 , 4 0 4 2 4 , 4 1 0 2 0 , 1 0 8 3 4 , 3 2 4 3 4 3 , 7 5 1
1 , 1 0 1 +
7
5
+
1 4 6 + >
,560=
4 0 3 4
4
2
1
+
7 6 8 + 2
,623+ 1 , 0 6 6 + 8 4 , 4 9 9 ~
Total Earning Assets ~ - March 18 -87,773 3 2 8 , 4 9 2 9 6 , 489 1 1 8 ,832 5 0 , 3 5 0 3 3 , 1 5 1 116,049 3 6 ,620 3 0 , 0 2 3 4 3 , 4 6 2 3 0 , 0 2 2 8 5 , 5 8 4 1 , 0 5 6 , 8 4 7
"®
®
"
2 5 9 0 , 1 2 3 2 9 6 , 3 5 4 9 2 , 1 0 8 1 0 8 , 5 7 7 5 0 , 9 1 9 3 2 , 8 9 0 141,088 3 2 , 4 3 2 3 1 , 2 0 9 4 4 , 9 6 3 3 3 , 1 0 8 8 6 , 9 2 8 1 , 0 4 0 , 6 9 9
Net Change
1 verage
2
,
3
5
0
+ 32,138- 4 , 3 8 l ~ _
10,255=
5 6 9 +
2 6 1 - 25,0394 4 , 1 8 8 ~
1 , 1 8 6 + 1,501+ 3 , 0 8 6 + 1,344+
1
6 ,148~
o f Earning A s s e t Holdings
Jan. 1 to March 25, 1925 9 5 , 0 2 4 324,538
7 9 ,638 1 2 2 , 9 7 6 3 7 , 5 6 5 ; 26,122 131fOL 38,664 2 7 , 6 4 8 4 5 , 6 5 0 4 1 , 2 0 6 1 0 2 , 7 4 4 1,073,377
Corresponding Period 1924
6 8 ,420 1 9 9 , 1 7 4 8 7 , 2 9 9 9 7 , 3 4 5 5 6 , 3 3 8 61,029 118,436 44,612
3 0 943 4 8 , 8 5 4 6 0 , 3 2 9 9 0 , 7 9 9 9 6 3 , 5 8 0
Net Change
2
Jen. 1 to March 25, 1925
Entire Year 1924
6 6
Net Change
6 604+
,661- 2 5 , 6 3 1 + 1 8 , 7 7 3 — 3 4 , 9 0 7 1 2 , 9 6 5 +
1 2 5 ,364+ 7
5 , 9 48—
9 5 , 0 2 4 3 2 4 , 5 3 8 7 9 , 6 3 8 1 2 2 , 9 7 6 3 7 , 5 6 5 26,122. 13lgaoe 3 8 , 6 6 4
, 1 9 1 2 3 8 , 236 T O , 757 9 7 , 2 2 0 4 9 , 7 1 9 4 3 , 0 0 6 123,699 4 0 , 4 5 3
2
8 ,833+
8 6 , 308+
8
, 881+ 2 5 , 7 4 6 + 1 2 , 1 5 4 = 1 6 , 8 8 4
7 , 702+ 1 , 7 8 9 =
3 , 0 9 5- 3 , 2 0 4 ~ 1 9 , 1 2 3 1 1 , 9 4 5 6
8 , 6 5 3 3
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
SUMMARY FOR SYSTE¥
8
4
1
Average eerning asset holdings Jan. 1 to Mer. 25/25
against corresponding period 1924
1
Averege earning asset holdings Jan. 1 to March 25/25
against entire year 1924
38,157+
0 ,19 4
, 499~
6 ,148~
3
1
1
0
0
9797+,
2 7 , 8 4 8 4 5 , 6 5 0 4 1 , 2 0 6 1 0 2 , 7 4 4 1,073,377
3 6 , 5 0 1 48,917 50,154 89,113 953,979
+”.
Bills Discounted for week $
Bills Purchased for week
Government securities for week
Total earning assets "
“
1
9
797+ ,
9 ,338+
,267= 8 , 9 4 8 — 1 3 , 6 2 1 +
1 1 9 ,398+
EXHIBIT "E"
STATEMENT SHOWING REVISED RATIOS O F PARTICIPATION O F FEDERAL RESERVE BANKS I N SYSTEM
OPEN MARKET PURCHASES BASED O N FIGURES FURNISHED A S O F MARCH 31, 1925.
EARNINGS
Estimated Gross
E
A
T
Net Earnings Less E a r n i n g s Apr. 1 -
P
t
o
T o t a l
E
Current Expenses D e c , 31/25 Based o n N e t Earnings
x
E
s
p
t
i
EN Seg
a
e
m
n
a
t
l Estimated
s
e
d
e
A m o u n t of
s Inelud- E a r n i n g s Over
i n g Dividends
o
r Short of R e v i s e d
Paid and Accured and E a r n i n g Assets J a n . 1 / 2 5 - Mar.31/25 Estimated Expenses Charge-offs Apr.1/25-Dec.31/25 E s t i m a t e d
R a t i o
Accrued Dividends H e l d Mar. 3 1 Re- a n d Gross Earnings Apr.1/25-Dec.31/25
f o r
a n d Charge-offs R e q u i r e m e n t s
o
f ParJan.l - Mar.31/25 m a i n i n g Unchanged Apr.1/25-Dec.31/25 Including Dividends 1
9 2 5 f o r year 1925 f o r year 1925 t i c i p a t i o n
Boston w
New York
131,194 @
5 1 2 , 1 9 2
Philadelphia
2,777,500 $
1 4 6 , 4 0 0
Richmond
9
9
,
0
0
0
1,912,300 $
127,047 w
2,039,347 @
6 , 9 7 8 , 0 0 0 7 , 4 9 0 , 1 9 2 6 , 5 1 9 , 0 0 0 8 1 4 , 0 0 0 7,333,000
2 9 , 3 0 9 2 , 4 5 3 , 0 0 0
Cleveland
2,908 ,694 $
2
, 482, 309 2 , 0 7 7 , 0 0 0
2 , 9 2 4 , 900 3 , 0 7 1 , 3 0 0 2 , 6 4 7 , 0 0 0
1 , 4 9 8 , 0 0 0 —
1,399,000
1 , 4 2 2 , 0 0 0
3 7 2 , 000 3 , 0 1 9 , 000
2 3 5 , 0 0 0 1,657,000
R
A
L SIAR kS 1 , 0 0 2 , 0 3 9 1 , 1 4 3 , 1 7 2 1 , 1 6 1 , 9 7 6 8 1 5 , 8 3 6 1 , 9 7 7 , 812
Chicago
4
9
, 250 4 , 1 7 4 , 2 4 8
3t. Louis
8 8 . 8 9 0
luinneapolis 3 9 , 9 6 9 .
Kansas City
Dallas
5 5 , 9 3 3
5
,
San Francisco 2
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3
6
7
OC
, 223,498 3 , 5 6 7 , 1 3 4 6 0 0 , 1 9 7 4 , 1 6 7 , 3 3 1
9 2 0 , 0 0 0 8 3 1 , 6 1 0
8 5 8 , 6 0 0
8 1 8 , 6 3 1
1 , 3 5 5 , 2 3 4 1,299,401
8 8 4 , 0 0 0
8
4
5 2 , 3 0 0 +
2
5
8 ,000
8
3
4 ,640
5 6 , 1 6 7 +
, 465,000 1 , 1 1 0 , 0 0 0 2,575,000
1 , 0 7 4 , 100 1 2 3 , 3 0 0 1 , 1 9 7 , 4 0 0
1 , 6 3 2 , 5 7 7
3 2 6 , 7 2 2 1 , 9 5 9 , 299
8 633 1 , 1 3 8 , 4 0 0 | 5 4 2 , 5 2 0 1 , 6 8 0 , 920
2 , 2 0 1 , 000 2 , 1 9 9 , 0 0 0
928,026,521
1
1 5 7 , 1 9 2 +
2 8 , 0 0 0 2,105,000 3 7 7 , 3 0 9 +
Atlanta
4
869,347+
2 , 4 8 9 , 0 0 0
# 2 8 , 715,440 |
7 0 3 , 000 3 , 1 9 2 , 0 0 0
$27,105,487 $5,797,622 $ 3 2 , 903,109 $ 5 , 6 9 9 , 9 8 4
2,522,315 +
—ToPint+
4
.
7
8
OM G O L I C l C e s e s e
H t s
Y LRG
é3
o R h ® Pe)