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7
PROCEEDINGS
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Federal Reserve Bank of St. Louis
OF A
CONFERENCE
O F THE FEDERAL RESERVE B O A R D
WITH . THE
GOVERNORS
O F THE FEDERAL RESERVE B A N K S
ASSEMBLY
R O O M
FEDERAL R E S E R V E B O A R D
METROPOLITAN B A N K BUILECING
WASHINGTON,
D .
C.
APRIL 7, 1920 .
LUCIUS Mw. HULL” H . H . P E C H I N :
" W A L T E R &.COXx
9. C, 0I8MUKES
R
M
A
I
N 4309
O
B
E
R
T F. ROSE
ASSOCIATED S H O R T H A N D REPORTERS,
SUITE 18-23 APPEALS BUILDING
426 FIFTH STREET, N. W.
WASHINGTON, D.C.
3
PROCEEDINGS
OF A
CONFERENCE
O F THE FEDERAL RESERVE BOARD
with t h e
GOVERNORS O F T H E FEDERAL RESCRVE BANKS.
Washington, D . C.,
Wednesday, A p r i l 7 , 1920.
Proceedings o f a conference o f .the Fedéral Reserve
Board with the Governors o f the several Federal Reserve
Banks h e l d i n the Assembly R o o m o f the Federal Reserve
Board, i n the Metropolitan Bank Building, Washington, [ , C.,
on wednesday, Thursday, F r i d a y a n d Saturday, april 7 , 8 , 9
and 10, 1920,
Present:
Hon, \W. P. G. Harding, Governor o f the Federal
Reserve Board,
Hon. Charles S$. Hamlin, Member o f the Federal
Reserve B o a r d ,
Hon. adolph C , Miller, Member o f the Federal
Reserve Board,
Hon, H e n r y A. Mohlenpah, M e m b e r o f the Federal
Reserve B o a r d ,
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Federal Reserve Bank of St. Louis
Hon, J o h n Skelton Villiams, Comptroller o f the
Currency, e x - o f f i c i o m e m b e r
o f t h e Federal R e s e r v e Board,
Present also:
Hon. David Franklin Houston, Secretary of the
Treasury,
Mr. R. C. Leffinswell, assistant Secretary o f the
Treasury.
Charles a, Morss, Governor Federal Reserve Bank
of Boston,
J. H. Case, Acting Governor, Federal Reserve Bank
of New York,
George * . Norris, Governor Federal Reserve B a n k of Philedelphia,
E.R. Fancher, Governor o f the Federal Reserve
Bank o f Cleveland,
George J . Seay, Governor o f the Federal Reserve
Bank o f Richmond,
C. «w» Peple, D e p u t y Governor Federal Reserve
Bank o f Richmond,
M. B , Vellborn, Governor Federal Reserve B a n k
of Atlanata;
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James B . McDougal, Governor Federal Reserve
Bank o f Chicago,
David C,. Bigs , Governor Federal Reserve B a n k
of St.Louis,
R. A . Young, Governor Federal Reserve Bank o f
Minneapolis,
Sear Miller, j r . , Governor Federal Reserve
Bank o f Kansas C i t y ,
R. L . V a n Zandt, Governor Federal Reserve
Bank o f Dallas,
John U. Calkins, Governor Federal Reserve
Bank o f S a n Francisca,
PROCEEDINGS.
Secretary Houston (Presiding). G e n t l e m e n , I
to h a v e t h e p r i v i l e g e
o f m e e t i n g t h e Governors.
a m glied
T h e Treas-
ury i s very much interested i n the Governors*of t h e Federal R e s e r v e B a n k s a n d a p p r e c i a t e s t h e c o o p e r a t i o n t h a t t h e y
have given t h e Treasury; and, I
have n o doubt, t h e Govern-
ors a r e v é r y much interested i n the Treasury Department.
We have s o m e problems t h a t v e r y intimately touch,
they a r e i n s e p a r a b l e ,
i n fact,
a n d m y particular d e s i r e t h i s morn-
ing was t o present t o y o u the Treasury's situation a n d
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Federal Reserve Bank of St. Louis
to get the benefit o f your suggestions.
Mr. Leffingvell h a s been dealing w i t h the details o f
the situation, a n d I will a s k h i m t o present i t t o you.
lr, Leffingvell. Gentlemen, the Treasury's position,
its c a s h position,
to receipts,
t h e t i s , t h e r e l a t i o n o f expenditures
h a s b e e n more o r less misunderstood,
a n d [I
will g o over just briefly what h a s happened i n the past
fiscal year.
Last J u l y y o u remember t h a t t h e Treasury announced
that this fiscal year would probably show a definit not
exceeding one billion dollars, which would b e covered b y
the receipts from the Victory Loans which had not been
collected i n the orececiing fiscal year, t h e fiscal year
ending J u n e 30th.
Our estimate w a s v e r y conservative
i n that respect,
and p r e s e n t i n d i c a t i o n s a r e t h a t u n l e s s t h e C o n g r e s s g r a n t s
the soldiers' b o n u s ,
o r does s o m e o t h e r t h i n g w h i c h com-
Pletely u p s e t s o u r c a l c u l a t i o n s ,
t h e fiscal year will not
show & deficit exceeding possibly five hundred million
dollars instead o f one billion dollars.
O f course, t h a t
will b e twice over covered b y the receipts f r o m the Victory
Loan,
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The p o s i t i o n f o r t h e f i s c a l y e a r i s n o t a s f a v o r a b l e
as the position,
b y compsrison,
reached t h e peak o f the debt,
o f August olst, w h e n w e
s i n c e august Sist w e have
paid paid o f fsomething like §1,900,000.00 o f gross and
ywb,s700,000.00 o f floating debt.
O
n the other hand, a r -
rangements w h i c h have b e e n made, under t h e bill passed recently, f o r t h e return o f the railroads a n d the continuance o f the Operation o f the railroads a t a deficit, a r e
hitting t h e Treasury v e r y hard a n d involve borrowings f a r
in excess
o f w h a t w e h a d m o r e r e c e n t l y expected.
Apparently the Railroad Administration, under the arrangements f o r t h e return o f the railroads, w i l l take some-
thing like ¢1,000,000,000 from us i n very short order,
, 800,000,000 f o r loans a n d (200,000,000 f o r working
capital.
Secretary Houston. I
Mr. Leffingwell.
think that i s estimated...
T h e . 0 0 , 0 0 0 , 0 0 0 i s , b u t Mr. Hines
has j o a asked f o r {400,000,000 more.
T h e striking thing
in the situation i s thet there h a s been a n arrangement meade
by which the indebtedness o f the railroads t o the United
States i s funded for e long period a n d t h e indebtedness t o
the railroeds i s t o b e paid immediately i n cash, w i t h the
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anyresult that t h e Tressury has t o provide t h e difference
the United
hov, j u s t a s though t h e debts o f the railroads t o
States were never going t o be paid. A l s o , that the Interv e r y slowly
state C o m m e r c e C o m m i s s i o n a p p a r e n t l y m u s t m o v e
has t o
in respect t o the matter o f rates a n d the Treasury
carry their deficit.
i have here a quarterly statement which illustrates
the position more clearly than anything else for the fiscal
after
year, a n d i t shows t h a t o n March 31st t h e gross debt,
,000,000
deducting net balance i n the general fund, i s £34,447
against {:24,232,000,000 o n June 30th, 1919.
dZeficit
o f about 214,000,000
reduction
T h a t is &
o n eurrent operations.
possible
i n the indebtedness h a s b e e n made
The
by
o f t a x e s a n d salvage,
three t h i n g s s i n c e A u g u s t Slist: t h e u s e
b y reducing
which has been a considerable item, a n d also
had t o be kept very
the balance i n the general fund, which
o f fieating Jebts
high as long a s we had very large amounts
b y taxes.
maturing a t brief intervals a n d uncovered
t h e reThe current issue o f Treasury Certificates,
subscriptions f o r
port l a s t n i g h t was, h a d b e e n c o v e r e d b y
about %180,000,000.
N e w York was oversubscribed, a number
quota, while a
of the districts h a d approximately their
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greater number were well behind.
T h e Treasury Department has
hopes t h a t those t h a t are behind will,
i n the next two o r
three days, a t least make s u c h progress towards concluding
their quote that the issue will reach the des ired$200,000,000
before t h e e n d o f t h e week.
I
t i s v e r y important t h a t i t
should.
Our estimates are that o n April 15th we shall have t o
borrow %200,000,000;
i n May $250,000,000, a n d i n June
450,000,000, §:600,000,000 o f which will g o t o pay off the
certificates maturing July lst, whichwe a r e now selling.
On June t h e 1 5 t h the taxes should come i n t o the amount o f
some $700,000,000,
s o that t h e net operation f r o m now forward
ought t o result i n our breaking about even f o r t h e balance
of the S i t e s :
w i t h n o increase f o r that period.
In a general way, t h e advice t h a t seems t o come f r o m
all q u a r t e r s
i s that i n the present m o n e y situation
pretty n e a r l y i m p r a c t i c a b l e
t o sell certificates
ness o f t h e l o n g e r m a t u r i t i e s .
certificates m a t u r i n g
I t i s very
e e
o n t a x days, b u t i f people
i t is
o f indebtedt o have o u r
d o not want
them t o mature o n t a x days, o r w e place t h e t a x days s o f a r
ahead, t h e Treasury must accommodate itself t o that situation
and resume the issuing o f shortcertificates. I n a s m u c h as
our operations are now on such a relativeysmall scale,’ t
i
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Federal Reserve Bank of St. Louis
joes n o t s e e m t o m e that i t i s a thing that need involve
any embarrassment.
I
t seems
t o m e a l s o t h a t t h e exper-
fence o f the Treasury shows t h a t i t i s better t h a t t h e
Treasury b e o u t every t w o weeks w i t h a moderate sized offer
of shorter m t u r i t y t h a n t o try t o borrow l o n g enough sheed
to c o v e r a
lone period.
S o n bowie: f o r s i x weeks
months means t h a t w e have g o t t o accuimlate a
o r two
balance a t
the beginning o f the period and let i t wear down a t the
end,
W h i l e that may be profitable t o the individual
bank that m Ftlelpates i n ai) the operations, t h e fluctuations
i n the Government bills w h i c h result f r o m that method
of handling the thing must always result i n artificial
ease a t t h e b e g i n n i n g a n g a r t i f i c i a l t i g h t n e s s
o f m o n e y eat
the end of the period, s o that I think the Treasury's inclinination i s t o revert, f o r the time being, t o the moderate
size, semi-monthly issue o f certificates.
Another thing wrich seems t o support that view i s
that without t h a t there i s a certain relaxation o f interest i n the Government requrements;
t h e f a c t that t h e Gov-
ernment i s out o f the market i s overplayed, a n d when the
Government comes back into the market i t has a hard time
getting the money. T h e r e has been a n expansion o f bank
credit which might partly have b e e n avoided b y the fre
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quent i s s u e s ,
On the whole, t h e general inclination i n the Treasury i s t o resume semi-monthly issues a n d issue t a x certificates o n l y when there seems t o b e reasonable expectation
that t h e y will sell themselves w i t h the ordinary selling
effort o n the part o f the organization, b u t without pressure a n d a s k i n g t h e b a n k s
arrangements
o f the country t o make
i n their
n o allowance f o r t h e Government requirements.
It i s perfectly obvious t h a t t h e banks h a v e g o t t o continue
to take their part o f the Government requirements,
to b e determined,
o n terms
o r w e shall have t o resort t o the method
of direct inflation, w h i c h w e have always avoided s o far;
namely,
t h e meeting o f Government requirements
from the Federal Reserve system.
that t o o k p a r t
b y losns
T h e r e i s n o country
i n t h e w a r t h a t d i d n o t d o that, b u t u n -
questionably t h e other method h a s exercised a definite control upon t h e credit, n o t a perfect control, b u t i t has
been a n instrument t o 7 o r é s © e o n t r o l ,
eral w a y o u r i m p r e s s i o n
S
o i n 4 gen-
i n the Treasury i s that w e should
resune s e m i - m o n t h l y i s s u e s
o f certificates
i n moderate
amounts, a n d t h e Treasury would like t o have your sivice
as t o terms, a n d s o forth.
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Federal Reserve Bank of St. Louis
Secretary Houston,
W e will b e very gled t o hear
from any of the Governors a s t o that plan, a s t o the terms
upon which t h e securities should b e offered.
Acting G o v e r n o r C a s e . I
understood M r , L e f f i n g w e l l
to say that i t might b e necessary t o issue these certificates o
n 4 semi-monthly basis, a n d I then understood h i m t o
say that the Treasury proposes t o issue 200,000,000 o n
April t h e 15th and t h e n none until M a y 15th, a n d the same
amount o n June 15th.
Mr. Leffingrell. I
did not mean t o say that. “ h a t
I meant t o say was that there would b e (250,000,000 i n May
and that o u r impression w a s that t h e best way t o d o i t would.
be t o divide t h a t u p into t w o and keep a small issue coming
out e v e r y t w o weeks,
Governor Calkins.
D o you mean 125,000,000 every two
weeks ?
Mr. Leffington.
O n e hundre3 a n d twenty five million
the first o f M a y and $125,000,000 t h e fifteenth o f May; t h e n
say $20,000,000 o n the first o f June, a n d then would come the
fifteenth o f June, w h e n w e would have t a x payments a n d a
big maturity, a n d presumably the thing t o d o then would b e
to sell a s many as you could o f the best maturity you could
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Federal Reserve Bank of St. Louis
o f the Loan Cerpet, a n d t o take u p a s many a t thet time
a s y o u could t e k e
tificates f a l l i n g d u e i n J u l y a n d A u g u s t
Up.
that conThere i s one thing that ought t o b e said i n
b y the
T h i s quarter i s not o n l y made burdensome
nection,
Railroad Administration's exceptional demands,
b y the var
the fact t h a t
Finance Corporation maturity, b u t also b y
T h e
it i s one o f our heavy interest Payment quarters.
next q u a r t e r p a y m e n t
respect.
Februcry,
show a
o f June 1 5 t h i s a
low quarter
i n that
i n January,
T h e r e i s n o Liberty Loan interest
s o thet those quarters should
d u l y e n d august,
definite i m p r o v e m e n t
sition i s concerned.
s o f a r a s t h e Treasury's p o -
T h a t i s not-a conclusion.
T h a t is an
issues.
impression, ir, Case, about the semi.-monthly
Acting Governor. Case.
of i s very desirable.
A
‘ E T should think that thet meth-
s y o u sey, i t would keep t h e
all the
Treasury's requirements i n the mind o f the banks
time.
t h e y were getT h e y would n o t g e t the notion that
possibly p u t their
ting away f r o m Treasury operations a n d
funds i n t o other things.
W h i l e o u r district has sub-
seribed i t s qiota o f the present issue, 1
think i t i s only
a very great deal o f
fair a n d proper t o s a y w e did not fina
some Little corment
enthusiasm f o r t h e issue, a n d there w a s
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Federal Reserve Bank of St. Louis
\
that while t h e banks were v e r y glad t o see t h e time shortened,
there w a s some little comment t h a t the rate o f interest was
too low, a n d i n o u r o p i n i o n
able,
i n future issues,
i n N e w York,
i t w o u l d b e desir.
t o slightly increase t h e rate,
Secretary Houston.
W h a t would y o u suggest i n repard
to rate, Governor Case?
Acting Governor Case. I
should think, Mr. Secretary,
in view o f the fact that t h e amount t o b e offered i s com.
paratively small and shors term, I should think probably
five p e r cent would b e a n appropriate r a t e a t the present
time.
Mr, Leffingwell.
W o u l d y o u adhere t o the three
months! maturity?
Acting Governor Case. I
would adhere t o the three
months! maturity. j
Mr. Leffingwell., T h a t is about as attractive a matur.
ity a s w e c a n igsue.
Acting Governor Case.
I t i s attracitive, a n d i t brings
it right i n line with the bankers! acceptances and other
short term things that have a ready market i n New York.
Governor McDougal.
F i v e per cent would not bring
it i n line with bankers! acceptances a t present.
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Federal Reserve Bank of St. Louis
Acting Governor Case,
N o , not a s t o price.
Governor M c D o u g a l . I
think i t w o u l d b e v e r y h e l p f u l
to the situation if, a s I understand Mr. Leffingwell's
plan, a
tentative p l a n c o u l d b e a d o p t e d o f d e t e r m i n i n g t h e
program i n advance, letting the banks o f the country understand that these a r e coming o u t a
ordinary amounts a t i n t e r
vals, a n d t h e b e s factors would b e short maturity a n d a n
attractive interest rate,
I f you are asking for a state-
ment with regard t o conditions i n our districts, t h e Chica@o district f o r t h e first o r second time i s one o f those
districts which are behind, a n d well behind a t the present
time,
i n its quota. I
think that i s nothing more t h a n
what might b e naturally expected under current conditions.
Our s u b s c r i p t i o n s - - I p r e s u m e y o u h a v e t h e f i g u r e s t h e r e ,
Mr. Leffinewell--are about $16,000,000 o r 18,000,000?
Mr. Leffingwell.
T h a t i s about right.
Governor MeDougal.
I t might b e interesting t o y o u t o
know t h a t those subscriptions
een
i n the egrregate amount rep-
s o m e t h i n g o v e r four hundred individual subscriptions
from bank. T h o s e four hundred banks e r e t h e banks i n our
district which are not borrowing, a n d the ya! are of course
the smaller banks,
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Federal Reserve Bank of St. Louis
T h e larger institutions, which w e have
always depended upon, a r e i n whet I
regard a s a n over-
loaned condition anda w e cannot consistently either force
or urge t h e m t o subscribe t o this issue. I
think a short.
time certificate o f a n attractive interest rate i s what
should b e adopted, ana I think conditions are such as t o
warrant it.
Secretary H o u s t o n , :
W h a t d o y o u think o f the rate
Suggested, Governor?
Governor McDougal. I
think t h e rate i s too low, Mr,
Secretary.
Mr. Leffingwell,
D o you think that five per cent i s
too low?
Governor McDougal.
O f course y o u must remember t h a t
the banks naturally are going t o do the best they can with
their funds. T h a t is, I guess, human nature,
Y o u can
buy bills now, for instance, i n the open market, t o net
6 per cent o r six and one eighth. I
do not know what they
do get, but i t is something like that. A n o t h e r thing
which I have noticed i n our district recently has been the
disposition o n the part o f banks which have purchased these
certificates, when they find themselves hard p r e s s e d , ot
want t o sell them, a n d the best they can do with them, I
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Federal Reserve Bank of St. Louis
believe,
i s t o sacrifice them, a s y o u might say, o n a six
per cent basis.
T h e y c a n b e bought i n our district now,
probably i n considerable quantity,
Secretary Houston.
a t a six per cent rete.
W h a t rate would y o u suggest,
Governor McDougal?
Governor McDougal. I
should say, for e ninety-day
certificate, n o t less t h a n five a n d o n e quarter p e r cent.
Of course t h e t would be, o n the assumption t h a t the ensuing
Aeposits w o u l d r e m a i n f o r a
little while, q u i t e a n attract-
ive investment.
Secretary Houston,
H o w would thet strike v o u i n
New York, G o v e r n o r C a s e ?
Acting Governor Case. I
to s u c h a rete.
a m sure w e would n o t object
O n t h e o t h e r hand,
a s Mr. M c D o u g a l h a s
pointed o u t , t h e r e a r e a t t h e p r e s e n t t i m e s o m e L o w r a t e
certificates
o f n e a r b y m a t u r i t y outstending,
f o r instance,
the four a n d one half certificate o f June 15th. T h e r e h a s
peen n o real trading i n those i n our district a t a n y price
other t h a n par.
M y feeling i s that w e should move up,
that t h e rate should b e moved u p gradually; b u t w e a r e
only going t o get out $125,000,000, a n d I should b e rather
inclined t o the three months! certificate a t afive per cent
rate,
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Federal Reserve Bank of St. Louis
Mr, Leffinewell,
A N issue o f 200,000,000
o n April
15th.
Governor H a r d i n g . I
would suggest, M r . Secretary,
i n
getting expressions f r o m the Governors a s t o what they think
is a proper interest rate o n the certificates, t h a t a t
the same time y o u g e t their opinion a s t o the Federal R e -
Serve Bank discount rate, what that rate ought t o be o n
paper secured b y those sertificates;
i n other words,
i s it
going t o b e necessary t o keep u p a differential o r parity
in rate, o r could t h e c e r t i f i c a t e s b
e floated i f there w a s
one quarter o f one p e r cent spread between t h e rate o f the
certificate a n d the interest rate a t the Federal Neserve
Bank?
My. Leffingvehl.
I s there now?
Governor Harding. T h e r e is, and i t seems t o me a n
important q u e s t i o n t o decide.
Secretary Houston. I
thought w e would get such ex-
pression a 8 we couls from the different Governors a s t o
the rate first, taking u p the rate o f discount a s effecting outstanding issues--
Governor Harding (interposing).
I t seems t o me that
they are pretty closely related a n d could b e considered git
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Federal Reserve Bank of St. Louis
one a n d t h e same time, Mr. Secretary.
Secretary Houston.
Governor Fancher.
covering certificates
“ a y w e hear f r o m Cleveland?
i t h reference t o the situation
i n Cleveland,
w e found i n the sele
of the last S B sue o f tax certificates, maturing March 15th,
1921, that i t was very hard t o interest the banks i n longtime certificates; t h a t t h e question o f payment b y credit,
balance held,for a short time, d i d not add very much t o
the return.
S o fer a s corporetions o r individuals pre-
paring themselves f o r payment o f taxes i n 1921 i s concerned,
they a r e more concerned w i t h whet t h e y are going t o J o with
the next three guerters i n 1920,
w h e n w e took i t u p with
our larger banks, w h i c h i n the past have bought v e r y liber-
ally o f the issues, they were very frank t o say “We will
not subseribe for any certificates other than those w e have
orders f o r , ”
T h e y were v e r y frank about i t ,
O u r larger
banks t h a t have i n the pest bought v e r y liberally a r e v e r y
much i n the condition described b y Governor McDougal--~they
are heavy borrovers w i t h o u r bank a n d are v e r y loath t o
permit themselves t o take o n anything t h e t indicates t h a t
they might have t o l o o k . o
t us for further accommnodetions:;
in fact, w e d o not want t o encourage that situation.
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Federal Reserve Bank of St. Louis
V+ e
are t r y i n g t o g e t l i q u i d a t i o n w i t h a
number
o f our banks
and Wwe a r e n o t e n c o u r a r i n g t h e m o r u r g i n g t h e m w h e r e t h a t
condition exists.
With regard t o the present issue, o u r subscriptions
last night were about nine e n d a half million dollars.
That I
might s a y i s r a t h e r d i s a p p o i n t i n g
t o me, b e c a u s e I
rather f e l t that b y reason o f the bankstaking t h e first
short issue, t h e four a n d three quarter p e r cent rate,
I rather f e l t that a small issue would more readily allow
us t o s e l l o u r quota,
I
n that respect I
have b e e n d i s -
appointed w i t h results.
secretary Houston.
Sardines Fancher.
W h a t was your quota?
think i f
A b o u t 618,000,000, I
the issue continues through the week a t the end o f the week
we will probably have twelve o r thirteen million.
going right along t w o o r three million a day.
number l a s t night was a
subscriptions.
4
I t is
T h e total
little i n excess o f three hundred
8 Mr. McDougal says, that i s b y the
small banks w h o are n o t borrowing, b u t are buying t h e m i n
very modest amounts.
I
ception o f Cincinnati,
t h e banks
borrowers.
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Federal Reserve Bank of St. Louis
n our lorge centers, w i t h the e x as a
rule a r e n o t h e a v y
C i n c i n n a t i h e s a l w a y s t é en a g o o d m a r k e t
fa
certificates; b u t outside o f Cincinnati, i n the c e n t e r s , e=
are h a v i n g v e r y s l o w s a l e s
o n the p a r t o f o u r larger banks.
i am thoroughly i n accord with what Governor McDougal says
as t o short-term certificates, a h d I
conditions w e would n o t have a
think under present
ready stile for a certificate
running more t h a n ninety days, a n d I
do not believe t h a t
we can readily sell certificates better than five and one
quarter p e r c e n t u n d e r s e e e s e t c o n d i t i o n s ,
i n view o f
what w e are experiencing now with the first issue.
secretary Houston. I
would like t o heer from Boston,
Governor :‘orss, 3
Governor Morss.
I a m very sorry to soy that dertifis
Sates a r e unpopular i n our distriot, I
culty i n sélling them.
have h a d prent airriu
T h e isst issue, where ovr quota
would b e between seventeen a n d eighteen million, I
unable t o place o v e r about t e n million.
was
V h o l e cities,
minor cities, second size cities, practically refusei t o
subscribe anything after I
had asked t h e m t o d o so. T h e y
have f o t t h e i d e a t h a t G o v e r n m e n t c e r t i f i c a t e s w e r e a l w a y s
on a
basis b e l o w t h e merket. I
would l i k e t o s e e t h e
Treasury Department p u t o u t something t h a t t h e y would
state w a s good, t o get t h e m o u t o f that idea, something
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Federal Reserve Bank of St. Louis
that they felt was good, a t «a food rate o f interest, t o get
them Sturted again,
T h e y have been gradually shrinking
in their subscriptions f o r t h e last severol months; a l l
this year, a s a matter o f fact. T h e y say that at the rates
they have b e e n issued t h e y cannot distribute them, a n d
they c o m p l a i n t h a t i t d o e s n o t t a k e t h e m o n e y o u t o f t h e
Savings banks, t h e money that hus accumulated i n the sevings banks, savings accounts.
T h e suvines banks a r e
peying o n deposits f o u r a n d four a n d one half per cent
or more, a n d t h e y d o that because t h e y c a n find investments
at a good deal more t h a n that rate.
do not take that class o f money.
T
h
e certificates
I t ought t o d o so, m d
they would b e very free subscribers.
Many o f o u r b a n k s h a v e g o t t e n t o t h e p o i n t w h e r e
they are heavy borrowers with us. T h e y simply say "If
I can sell the certificates 1
will take them; otherwise i t
will simply add t o m y loans.’ I
must say that I would
like t o see t h e Treasury Department d o something t h a t would
make people think thet subscription t o certificates w a s a
good thing t o do, a n d I
do not believe y o u could d o that
with less t h a n five a n d one querter p e r cent,
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Federal Reserve Bank of St. Louis
secretary Houston.
H o w about St.Louis, Governor
Bigs ?
Governor Biggs.
S t . L o u i s i s about like Chicago a n d
Cleveland, e x c e p t p r o b a b l y a
banks a r e large borrowers.
ions a t all.
little b i t worse.
O Q u r member
T h e y ure n e t taking a n y subscript.
T h e y are trying t o sell a n d are selling a
few, a n d the situation does not look very good.
I
n April,
May a n d u p t o the l s t o f June w e could probably dispose o f
them a t five p e r cent, a n d probably a little b i t better a t
five a n d o n e q u a r t e r p e r cent, b u t a f t e r t h e l s t o f J u n e
it i s g o i n g t o b e h a r d f o r u s t o d o anything, v e c a u s e o u r
seasonal demands come o n then and we cannot hope for any~
thing f r o m o u r district.
O u r cotton district, Memphis,
Little R o c k a n d Louisville i s moving its'product v e r y slowly; tobacco, lumber e n d grain i s moving v e r y slowly f o r
some reason, a n d i t i s very high. T h e r e i s a4 car s ortage,
and i f that i s not offered a s o n e excuse, another excuse
is offered, a n d w e look for v e r y little liquidation f r o m
the 1 5 t h o f April u p until t h e l s t o f June, anda after t h a t
there i
s no telling where w e will land. T h e r e i s very
Little difference i n our situetion from that of Chicago
and Clevelend, e x c e p t that I
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Federal Reserve Bank of St. Louis
Secretary Houston.
think i t i s a little b i t worse.
H o w about Atlanta, Governor
wea Looe?
Governor Wellborn, I
have n o t heard much objection
to the rate i n the atlenta district.
T h e o n l y complaint
that t h e y h a t e h a d h a s b e e n a b o u t t o o l o n g méturities. I
am inclined t o think that a rate around five p e r cent would
be sufficient. I
have n o objection whatever t o the rate.
I think o n the present subscriptions w e are doing v e r y well.
we d i d very poorly o n the year certificates,
a n d that was o n
account o f the long time maturity.
Secretary Houston. G o v e r n o r Calkins,
w e would like
to hear f r o m S a n Francisco.
district
Governor Calkins.
or unenviable,
certificates I
T h e San Francisco/nas a n enviable,
a s y o u look a t it, reputation
i n regard t o
see that Mr. Leffingwell i s smiling a t
that statement. H o w e v e r ,
w e are n o t doing a s well this
time &s we have done heretofore.
T h e last report that
Ioheve, a n d as you will observe, b y looking a t the rep, I
am a lon, ways from home, i s that the subscriptions atount
to about $9,000,000, w h i l e o u r quote t#otld b e about
¥l6,000,000. T h e situation i s that the banks are quite
heavily l o a n e d a n d a r e b o r r o w i n g a n d p r e p e r i n g
t o borrow
Deripeasonal demands i n advance o f the usual season, and we
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Federal Reserve Bank of St. Louis
expect continuing pressure until after J u l y a t least,
My o w n opinion i s that t h e certificates should be,
ag Mr. Leffingwell h a s indicated, ninety-day certificates,
with oa rate o f five p e r cent, a n d perhaps preferably five
and o n e quarter p e r cent.
T h e r e i s only one ples t h a t
you can make t o the banks now, a n d thet i s thet i t i s i n
their interest t o support Government financing, a n d elimost
invariably t h e answer t o that is:
our interest,
I s i t not a s mech i n
i s i t not a s much i n the interest o f the
country t h e t w e t a k e c a r e o f t h e n e e d s
o f o u r constituents?
It is very difficult t o answer that plea, a n d I believe
frequent, small offerings, a t a rate which will enable u g
to sell certificates without t h e expectation o f using t h e m
as cOllateral,
i s the test program,
Secretary Houston.
V i h a t d o you think t h e d i s u n t
rate ought t o be?
Governor Calkins.
T h e discount rete should b e a t
least a s high a s the interest rate.
Secretary Houston.
V h a t would you say to that,
Governor Case?
Acting Governor Case. I
Secretary Houston.
higher?
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Federal Reserve Bank of St. Louis
‘agree w i t h that suggestion.
T h a t i t should b e t h e same o r
24
Acting Governor Case. I
think i t ought t o b e a t leest
as h i g h a s t h e c e r t i f i c a t e r a t e .
Governor M o r s s .
W h e n the dismunt
the certificate rate, there 1 s n o doubt,
it helps s e l l s c e r t i f i c a t e s .
rate
i s lower t h a n
i n m y mind, t h a t
A t t h e s a m e time, I
think u n d e r p r e s e n t c o n d i t i o n s t h a t I
do n o t
would w a n t t h e d i s -
count rate less t h a n t h e certificate rate; b u t 1
think w e
should b e quite sure that the discount rate i s not higher than
the certificate rate, which i t is i n our district a t the
present time.
Governor McDougal.
M y belie®i
s thet these certificates
should b e kent o u t o f the banks.
T h e banks a t the present
time are not i n condition t o obligate themselves t o carry
loans o f this character,
i I think t h e discount rate o n
certificates o u g h t t o b e higher, m e t e r i a l l y h i g h e r , t h a n
the rates the certificates draw, a n d I think the certificate
should b e p u t o u t e t a
rate t h a t w i l l p r o v e attractive a n d
enable us to place the’ certificates where they will not
come into the bank. I
think i t would b e & very good thing
for all concerned, i f we would make these certificates at.
tractive,
s o much s o that w e could p l a c e t h e m where w e
have not placed them heretofore, a n d keep them out o f the
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Federal Reserve Bank of St. Louis
25
banks.
e
t
i
m
T h e banks a r e n o t i n condition a t the present
e t o obligate themselves,
i n m y opinion,
t o loan o n
them o r b u y them.
Governor vote,
M r . Secretary, t h e long-time c e r -
tificates a r e n o t selling i n our district.
W i t h respect
to the rate o n short-time certificetes, t h e last time Mr.
Leffing: ell wired me, I
suggested t h e certificate t h a t
he hes o u t a t this time, 4
ninety-day certificate, f o u r
and three Guerter p e r cent rate, b u t i n doing t h e t I
did n o t t h i n k w e c o u l d s e l l o u r q u o t a
i n o u r district,
although w e have disposed o f them out there.
I s not
thet s o practically, M r . Leffingwell?
Myr. Leffingwell.
Governor Young.
the entire quota.
Y e s .
I n any event, w e practically sold
Now I
cannot a s k the TwintCcity banks
to buy these certificates i n any large amounts.
us a great deal o f money.
T h e y owe
T h e r e i s a great deal o
in Minneapolis which i t is necessary t o @rry. I
grain
was i n
conference with e grain V A the other d a y and I asked him
not t o exaggerate t h e aheuetion in. any particular, a n d h e
stated t h a t M i n n e a p o l i s n e e d s o n e t h o u s a n d c a r s a
day
>
for thirty days, a n d thet t h e y are getting about t w o
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Federal Reserve Bank of St. Louis
hundred,
v é cannot g e t Liquidation i n our 4istrict until
that prain i s moved.
T h e r e i s uw grest deal o f grein in:
the country, a n d they cannot move t h a t grain into Minneapolis until t h e grain i n Minnespolis i s moved out.
we get liquidation, I
am satisfied
I f
t h a t , with short
time certificates, c o m i n g o u t every t r o weeks,
t
h
e
banks will purchase them, a n d I would like t o see a rate
of a t leust five p e r cent o n those o c rtificates.
Secreteury Houston.
I s the grein which is’ held there
much greater t h a n i s usual a t this time o f the yeer?
Governor Young, T h e t grain should have moved last
lovember a n d December,
Y e should n o t b e loaning a n y
money i n our district e t this period.
I t may b e that those
certificates s o l d lust time because w e have a
discount
rate o n fifteen-day collateral notes secured b y certificetes
of four a n d three quarter p e r cent.
that rate.
y
e have n o t raised
i e did not feel thet we should penalize our
banks a t this period o f the year when they cannot move
things. I
would like t o see t h e discount r a t e t h e same a s
the certificates beer. T h e r e s r e thirty seven hundred a n d
fifty t w o b a n k s — i
n dur district a n d w e are selling o n l y
about t w o hundred banks o u t o f that number. A
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Federal Reserve Bank of St. Louis
great deal
of that has come f r o m our p e r collection campaipns.
The
banks o u t there d o not feel friendly towards u s a n d will
not s u b s c r i b e
t o certificates.
secretary Houston.
gate a t five p e r cent,
B u t t h e t w i l l w e a r off.
suppose
w e issue a
new certifi-
H o w would t h e people f e e l w h o re-
cently bought t h e issucsat a
Governor Y o u n g . I
lower rate?
think s o m e p r o v i s i o n s h o u l d b e m d e
for t h e redemption o f the March certificates.
T h e others
I coulda perhaps t a k e care of,
Secretary Houston.
Governor Y o u n g .
Y o u refer t o the yeur certificates?
Y e s s
Secretary Houston.
W h e t about t h e t i n the other dis-
tricts?
Governor Fencher. I
think t h a t should b e provided f o r
in our district, b u t t h e amount i s not large, about t w o
hundred million.
I s that it, Mr. Leffingwell1?
Mr. Leffingwell.
Yes.
Y o u a r e speaking
o f discount
rates, a n d i n that connection t h e r e i
s one aspect i n which
these t w o subjects w e l d together a n d make a n important topic.
we have outstanding t w o billion a n d a quarter o f certificates
pearing interest a t four a n d o n e half a n d four e n d three
Quarter p e r cent, maturing anywhere u p t o & yezxr. T h e r e
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Federal Reserve Bank of St. Louis
is, 4 8 Governor Harding scid,a relution between t h e discount rate a n d the certificate rate. 1
confess t h e t I
am
under t h e impression, f r o m what I have seen, t h a t w e c a n
not get country-wide distribution, a
satisfactory country-
wide distribution, u n d e r present conditions where t h e meorket rate f o r t h e great bulk o f borrowings o f the country
is w e l l a b o v e tine d i s m u n t rate.
Y o u c a n n o t g e t satis.
factory participation o f the banks a s agents f o r re-sale
unless t h e y have something i n the nature o f assurance t h a t
if they d o not succeed i n reselling t h a t t h e y c a n borrow
without s c t u a l loss.
W h i l e I
have b e e n v e r y e a g e r t o
sée t h e time come when Treasury certificates c o u l d b e sold
ata rate below the dismunt rate, m y experience andj the
general r e a c t i o n t h a t I
have g o t t e n f r o m y o u r t e l e g r a m s
and f r o m m y telephone talks w i t h the Governors o f the Banks,
has been that you cannot get whole-hearted frticipation
by the banks i n buying i n the first place with a view o f redistribution unless t h e y feel t h a t i f they d o not redistribute
they c a n c o m e t o t h e R e s e r v e B a n k s a n d b o r r o w w i t h o u t a c t u a l
loss.
O
f course t h e r e i s n o t a n actual l o s s i f y o u take
the deposit i n t o account a n j the exemptions f r o m taxation
and o n e t h i n g a n d a n o t h e r
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Federal Reserve Bank of St. Louis
on a
thirty-day o
rtificate w i t h
an average deposit, b u t they d o not figure i t that way,
and I
doubt i f w e c a n get t h e m t o come along.
impression
M
y only
i s t h a t w e h a v e g o t t o recognize t h e f a c t t h a t
the discount r a t e established f o r t h e Federal Reserve S y s t e m
is going t o b e t h e certificate rate, a t least o n long
certificates.
I t may b e y o u c a n keep i t one qQuerter o f a per
sent b e Low m y the v e r y short t e r m ones,
o n account o f the
relative importance o f the deposit,
Now i n that connection,
i f you take a
much higher r e t e
on the certificate, f o i n g a t a jump, s a y t o five a n d o n e
qQuerter per cent o n « three months! certificate, y o u hove
to consider w h u t would b e t h e effect o f your discount policy i f y o u want t o raise t h e discount rate.
I f the Tress-
ury went out with a three-months! certificate a t five and
one quarter, e a t raise t h e discount r a t e o n certificates
to five a n d wine quarter, t h e r e a r e going t o b e few people
pleased t o buy two hundred million dollars worth o f certificate a t five a n d one quarter, b u t there will b e a n awful
hundred
lot o f people displeased t h o have bought two/million dollars
worth o f certificate a t four a n d a querter a n d four a n d
three q u a r t e r s .
T h a t i s a n aspect o f t h e question
on
which I think the Secretary ought t o have your advice,
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Federal Reserve Bank of St. Louis
30
and t h e Board also.
iy opinion i s the Secretary wants t o set u p a program
here wrich i s reasonably constructive.
I t i s highly desir-
able t h o t w e should n o t b e changing i t every f e w days.
I t
is highly desirable t h a t w e should h i t o n a n interest rate
which will d o for a time, assuming thet conditions d o not
get worse, a n d I
do not think t h a t t h e good will o f the
whole operetion will b e improved b y our going u p a quarter
of s per cent every two weeks, a n d I do not think the situation c a n b e handled without reference t o the discount
rate a n d without reference t o the after morket f o r outStanding securities,
Now, w e have h e l d t o the view that people o u g h t n o t
to s e l l T r e a s u r y c e r t i f i c a t e s b e l o w p a r - - n o t t h a t t h e r e i s
any l a w against it, b u t w e have dinneteece a
t
I t seems t o
me perfectly apparent, i f you go above five per cent o n a
three months! c e r t i f i c a t e ,
t h a t i t i s perfectly impossible
to maintain s u c h a view a s that o f asking patriots n o t t o
Sell below par, w h e n other people will sell--that
a5 Lt
you have « four a n d one half p e r cent s i x months' certificate, o r five months! certificate, w h i c h i s the September
certificate, outstanding, y o u cannot expect them t o be
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Federal Reserve Bank of St. Louis
distributed o n a par basis w h e n y o u a r e borrowing f o r
three m o n t h s
a t f i v e p e r cent;
s o that t h e whole situation
of the after market a n d t h e relation o f the Treasury a n d
the Federal Reserve Banks a s fiscal agents t o the exist.
ing holders
o f o u r securities,
i s tied u p with this quest-
ion o f the rate o n the n e w issue a n d with a n y arrangements
that w e m a y make.
There i s one difficulty about t h e situation, a n d that
is“if we are t o take u p the four and three quarters certifi-~
cate, the March certificate, w e would not need two hundred
million but would need four hundred million Treasury certificates i n the next B sue, because anything that you exChange would have t o be left out o f account; i t would not
produce t h e cash,
I t shortens t h e maturity b y nine months
and enlarges t h e operations w h i c h y o u will have t o make i n
June B y two hundred million dollers.
Governor V a n Zandt, Y V o u l d i t not b e possible t o offer
an exchange o f those March certificates?
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Federal Reserve Bank of St. Louis
Mr. Leffingwell, Exchange them for what?
Governor V a n Zandt.
Mr. Leffingwell.
F o r fives.
Y o u mean f o r fives o f March?
Governor V a n Zandt. Y e s , the same maturity.
32
My. Leffingyvell. I
have never been able t o figure out
any W a y i n which y o u c a n give t h e m a n open a n a shut privllege o f increusing interest charges b y a quoterof o n e per
cent a year without paying anything for it. T h e Secretary
of the Treasury i s not entitled t o give a w a y that thing.
It i s p e r f e c t l y c o m p e t e n t
i n him,
i t seems
t o me,
t o make
a bargain with them i n consideration o f subscription t o the
new issue, o r something o f that sort, but I never heard of
anybody giving away a quarter o f one per cent, and I do
not believe the Secretary o f the Treasury could d o thet.
Governor Morss, I
have always accumulated t h e im-
pression that the Treasury Department takes too much care
and feels t o o sensitive abokt-=the rates a t which certifi-
Cates have been issued. Everybody u n d e r s t a ntd
athey
hst
are sold on the market on the day that they are issued ‘ana
that t h e r e i
s risk about it for everybody that buys them.
Cond it ions may make them a poor purchase o r conditions m a y
“mike them 8 good ‘purchese.
I F you have banks which think
drat recent issues o f certificates w h i c h t h e y have are p o o r
purchases, then offer them s ome thing which they will recog-
nize 4s a good purchase, “That, i t seems t
o me, is the orainary way of doing ‘business. Offer them something very
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Federal Reserve Bank of St. Louis
good, something thet will compensate them for lower ones
which m a y g o t o discount. T h a t i s a method which t h e y under.
stand, too.
T h e y will appreciate that,
T h e y would ap-
preciate it, {I think, more than a n effort t o always pro.
tect past issues.
Secretary Houston.
T h a t raises,
issue a s t o t h e e f f e c t o f operations
operstions
o f course, t h e larger
u p t o date a n d f u t u r e
o n the whole mess o f Government securities.
Governor Morss.
I t certainly does, Mr. Secretary.
Secretary Houston, I
notice t h a t a
gentleman
i n Con-
egress h a s recently introduced a resolution t o discover w h y
existing bonds h a v e depreciated a n d what the remedy,
any, i s for t h e situation,
if
O f course y o u could reply t o
that that the Government's obligation i s t o redeem those
bonds a t par a t maturity a n d p a y interest i n the meantime,
but I
assume t h a t Congress,
a s has t h e Treasury, h a s a great
deal o f pressure f r o m the holders o f those securities w h o
want t o k n o w w h y t h e y e r e b e i n g hid.
Governor Morss.
Y e s , t h a t 1 s true, b u t w h e n y o u a r e
issuing three months' certificates t h e principle i s quite
different from the principle o f issuing long-time bonds,
and while t h e great bulk o f the subscribers t o bonds d o not
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Federal Reserve Bank of St. Louis
understand t h e principles o f whet might happen t o them,
whet W e want t o d o now i s t o sell these certificates a n d
distribute them.
heve
I f circumstances seemed favorable, y o u
might/made a n issue a t five and one quarter, f o r instance,
and-you might issue some a t five--that would d o the cer.
tificates more good than anything else, instead o f always
being below t h e market~-
Mx, Leffingwell (interposing). 1
agree with Governor
Morss' view, and aside from any advantage i t is to the
Treasury 4 s vell as t o the certificate holders, y o u have
got t o assume a l l the time t h a t t h e Treasury i s free t o
move from day t o day i n the light o f its current require.«
ments, without any obligation and without insuring anybody
against loss.
a 8 a matter o f fact, t a k e t h e certificates
which mature next September. I
have figures which show
that t h e returns t o the banks t h a t bought them, bought
for credit, was something over seven per cent.
I f they did
not choose t o sell them o r did not find opportunity t o sell
them, t h e y h a v e n o c o m p l a i n t a g a i n s t t h e G o v e r n m e n t
the unproiitableness
o f the investment.
as to
O n the other hand,
you find some o f the certificates are very unprofitable,
as, for instance, t h e certificates which matured last
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Federal Reserve Bank of St. Louis
35
March, because t h e amount sold wes s o
smll that the calls
were m o r e h e a v y i n p r o p o r t i o n a n g
v e r y rapid.
Mr. Miller. T h e y d o feel a erievance a t
having
these things jammed o n them, T h e y are
made t o feel t h a t
they are not doing what we still call their
patriotic duty
unless t h e y take them.
Governor McDougal,
J I am wondering,
a s brought o u t b y
t o what extent i t would b e
possible t o
bring o u t these certificates w i t h a rate
t h e t would make
them attractive t o a man w h o has g o t some
money t o invest,
or t o a bank that has money t o invest, a n d thus
keep the
certificates o u t o f the banks.
Secretary Houston. I
think Governor Morss i s quite
right with respect t o the certificates a s well a s
the
bonds.
Par,
T h e Government w i l l redeem t h e bonds i n
time a t
T h e people m a y find themselves selling t h e m
above
par i n the meantime. I
simply h a d -
mind t h e state o f
mind o f the people and the pressue that woulda probably
be
brought o n Congress t o do some very unvise things,
but I
do not think that should necessarily control the
Treasury
or control t h e banks.
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Federal Reserve Bank of St. Louis
Governor Seay, m a y w e hear f r o m you?
Governor Seay, l i r . Secretary, I
do not question a t
56
all the wisdom o f the policy); no: d o I think there i s a n y
division o f j u d g m e n t
time. I
o n t h e p o l i c y o f borrowing u p o n s h o r t
think t h e Treasury i s entitled t o absorb surplus
funds w h e n and wherever available, a n d under present
e e
dition o f things I think i t is well for the banking inter.
ests that i t should.
I do believe there i s some necessity f o r increasing
the rate,
I t would i n m y judgment b e quite unfortunate
as a precedent and would have a bad effect i f the Treasury
had t o borrow directly f r o m the Federal Reserve Banks.
[ I
think t h e impression created would n o t b e a t all good ©
and the banks o f the country might leave i t to the Federsl
Reserve BankSto support t h e Treasury later on.
As t o the difference between t h e certificate r a t e a n d
the o p e n m a r k e t rate, t h e r e w i l l c o n t i n u e
t o be &
disparity.
If you put u p the Treasury rate you absorb funds that are
available f o r certificates a n d diminish funds available f o r
acceptances, because t h e acceptances c o m e i n competition
and t h e acceptance r a t e will rise. I
no question about that.
think there will b e
i f there i s a limited surplus o n
the market and you take i t up with Treasury certificates,
in order t o get money f o r acceptances, t h e y will have t o
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Federal Reserve Bank of St. Louis
o7
get i t a t some sacrifice o f rate,
you d e t e r m i n e
i t will h a v e some
t o issue t h e certificate
appreciable e f f e c t
rate.
s o that a t whatever r a t e
i n raising t h e o p e n market interest
a t the same time, I
do feel that i t i s necessary
that t h e Treasury should p a y a little higher rate t h a n i t
has paid.
There i s o n e respect i n which t h e banks a r e called upon
to t a k e c e r t i f i c a t e s ,
a n d t h a t i s t o provide a g a i n s t c o n -
tinuous withdrawal o f t a x payments.
I
f they invest i n
acceptances a t a higher rate, that i s not the final provision f o r t h e payment o f taxes.
T h e y m a y have t o resell
-them a t a loss a n d a good deal o f pressure i s being brought
to wear, moral suasion being brought t o bear upon certain
banks w h i c h h a v e b o r r o w e d h e a v i l y f r o m t h e F e d e r a l R e s e r v e
Bank. I
think they feel that, b u t I do not think the use
of surplus f u n d s
t o temporarily purchese certificates
a final position o f t a x withdrawal, T h e r e f o r e 1
is
think the
banks should b u y the certificates, a n d I believe t h a t t h e y
will b e prepared t o take those certificates a t some slight
aifference between t h e interest rate a n d t h e o p e n rmerket
acceptance rate. I
would b e a t present inclined,
present advised, toward a five p e r cent rate, b u t I
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Federal Reserve Bank of St. Louis
a s at
defer
to the opinion o f “R1erger markets,
I would like t o say, w i t h respect t o the Richmond district, t h a t i t i s the season o f heuvy borrowing f o r agricultural purposes.
“ @ are redism@munting n o w t o the extent o f
twenty million dollars.
L a s t season w e were re~disw unting
to the extent o f fifty five million.
when t h e c r o p s a r e sold.
peated t h i s s u m m e r ,
T h a t i s all paid o f f
T h a t same experience w i l l b e re-
s o i t i s n o t t o b e axpected t h a t t h e R i c h
mond district, under those conditions, w i l l have a n y kind
of surplus funds,
A
t the same time there are banks which
nevertheless d o have surplus funds, which I think feel the
necessity for providing against tax withdrewale, a n d would
to some extent participate i n taking these certificates.
1 a m very strong i n the conviction t h a t i f a higher rete i s
necessary t o place t h e certificates, t h a t whatever rate i s
necessary t o place t h e m should b e m d e . I
do feel that bor.
rowing direct f r o m the Federal Reserve B a n k would o e
u n -
fortunate step,
Mr. M i l l e r .
H o w about indirect borrowing?
Governor S e a y ,
I n d i r e c t borrowing--just o n c e removed
in degree.
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Federal Reserve Bank of St. Louis
Mr, Miller.
W h y i s i t not possible t o place the cer-
tificates instead o f placing t h e m with the banks o r a t re-
discount, with individuels?
Governor Seay.
T h a t i s what was ineluded i n m y idea,
that t h e banks would take t h e m a s a provision against with.
drawal o f taxes--
‘My. Miller.
M y own impression i s that a five o r a
five a n d a quarter p e r cent rate would make i t very attrective a t t h e p r e s e n t t i m e t o p e o p l e w h o h a v e a c t u a l f u n d s
t o
invest, a n d i t i s for that reason that i t i s important,
to
my mind, n o t t o have a
discount rate a t the Reserve Bank,
which would encourage t h e banks t o turn right around a n d
put them back into the Neserve Bank.
Governor Seay. I
de not think there should b e any
differential between the Federal. Reserve dismunt rate and
the rate t h e certificates bear. I
be eliminated. I
think that ought t o
doubt the expediency o f attempting t o
make provision f o r exemption before maturity, w r i c h would
amount t o that.
T h e banks o f the country have contr ibu-
tei their efforts b y taking t h e certificates a l r e a d y issued
at a lower rate, t h e y have made a
sacrifice t o help t h e
Treasury, a n d the Federal Reserve S y s t e m i s t h e medium
through which t h a t has been done--but i t i s the banks t h a t
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Federal Reserve Bank of St. Louis
have t o carry the load, a s 1 take it.
Governor licbougal. I
believe after the first feel.
ing o f disappointment t h e t might arise f r o m the effect o f
a five a n d o n e q u a r t e r p e r c e n t r a t e u p o n o u t s t a n d i n g
certificates, t h a t t h e bankers o f the country would b e very
happy t o seé t h e Treasury Department bring their rate u p
to &@ point that i s more i n keeping with t h e situation i n
the market. I
think i t would create a
very good feeling.
I do not believe y o u needa necessarily obligate yourself
to protect t h e holders o f bonds a n d certificates t h a t have
been p u t out heretofore a t low rates, because those rates
represented t h e judgment o f the Treasury Depart,
a t least,
as t o what t h e money market might stand a t the time t h e
certificates were issued-Mr. Leffingvell. I
think i t i s proper t o say, i n that
connection, that there isnot a single issue o f certificates
outstanding, w i t h the exception o f the issue w e are n o w
offering, w h i c h was sold o n e quantity basis, t h a t w a s
sold with a n y prticuler pressure t h a t I
a m aware o f 1 T h e y
are all tax issues; they were all sold without any stated
amount being offered a n d without a n y pressure being brought,
so far a s I can recall, u p o n anybody t o subscribe,
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Federal Reserve Bank of St. Louis
41
Secretary Houston,
B u t perhaps there w a s a feeling
of obliga tion--~
Mr. Leffingvell. I
hope there will always b e a feel-
ing o f obligation.
Secretary Houston. I
would l i k e t o h e a r f r o m Kansas
City.
Governor Miller. M o s t ,
i f not all, o f o u r important
banks a r e v e r y much overloaned n o w o n account o f a lack o f
transportation facilities
t o set the products t o market.
W e
are selling s o m e certificates t o the smaller banks w h k h e r e
not borrorers.
W
e think w e could sell o u r quote o f a
srall
F i v e a n d a querter p e r cent o f
issue at. five p e r cent.
course w i l l b e better a n d easier t o sell.
W
e think that
the discount rate a n d the interest r a t e should b e level
Secretary Houston.
A r e special efforts b e i n g made t o
get cars o u t there, Governor tiller?
Governor Miller.
S p e c i a l efforts h a v e b e e n made f o r
the last four o r five months. Governors o f the different
States, Congressmen and Senators, chambers o f commerce,
have b e e n endeavoring, a n d p r e s s u r e h a s been brought
to bear, b u t i t has been impossible t o get cars.
A t some
stations where there are 200,000 bushels o f wheat, they
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Federal Reserve Bank of St. Louis
42
have had just one car i n thirty days.
T h a t i s really a
curiosity.
Governor McDougal.
A n d t h e y have b e e n more fortunate
there than they have been i n some other points.
w e hear
& great deal o f this c a r shortage.
Secretary Houston. Governor V a n Zandt, w e would like
to hear f r o m Dallas.
Governor V a n Zandt. I
think there i s n o doubt about
the advisability o f having short-term securities,
the rate, I
A
s to
believe t h a t the certificate r a t e amithe r a t e o f
re-discount o f the Federal Reserve Bank o n those certificates
should b e the same, with n o profit and n o loss.
I f a bank
finds i t necessary t o redism unt those i n order t o get
funds t o carry o n its business, there should b e n o profit
and n o loss.
In our district j u s t a t the present t i m e 4 er: dual
seasonal shrinkage i n deposits i s taking place v e r y rapidly.
it will n o t b e long before t h e banks throurhout t h a t entire
district will be heavy borrorers,
T h e short-time maturities
will o f cotirse appeal t o them, but I would dislike t o see
a rate above five p e r cent o n certificates a t the present
time,
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Federal Reserve Bank of St. Louis
43
secretary Houston. P a r d o n me, Governor, 1
did not
understand y o u r last statement.
Governor V a n Zandt. I
would dislike t o see a rate
above f i v e p e r cent o n certificates a t the present time,
for t h e reason t h a t a n increase i n the rate o n certificates
carries u p rates a l l along t h e line.
Secretary Houston.
G o v e r n o r Norris, w h a t have y o u
to say with regard t o Philadelphia?
Governor Norris,
sion thet I
M r , Secretary, thegeneral impres~
have gethered, f r o m conversations
and t h e d a y b e f o r e w i t h t h e o t h e r o f f i c e r s
o n yesterday
o f t h e Bank,
is that there i s n o question i n our mind a s t o the advant-
age o f short maturity. L o n g maturity i s entirely unsole
able i n the districts. O u t s t a n d i n g certificates, w h e r e
they are resold i n our district, a r e selling o n a five a n d
one eighth and a five and a quarter basis, T h e banks generally are reluctant t o buy them.
amount o f subscri.tions
W
e could g e t a large
f r o m banks t h a t h a v e n o business
taking t h e m a n d would o n l y take t h e m for t h e purpose o f
standing well w i t h the Reserve Bank, I
cancelled a
one
hundred thousand dollar subscription yesterday afternoon
from a bank that h a d n o business t o make it, a n d I knew
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Federal Reserve Bank of St. Louis
why they h a d m d e i t .
Individuals w i l l n o t b u y t h e f o u r a n d t h r e e q u u r t e r
Per cent certificates,
C n e large trust company p u t i n
last Saturday a subscription for §110,000, which they said
represented w h a t t h e y h a d b e e n a b l e t o place w i t h t h e i r
customers. T h e y woulda not take another dollar's worth.
The president came i n Tuesday morning--I d o not know
whether i t was b y way of welcoming me-~and said h e had relented a n d would take a million.
T h e y will n o t redis-
count.
They tell m e that N e w York h e s v e r y superior advantages f o r selling certificates
t o insurance companies a n d
institutions o f that sort that d o not exist i n Philadelphia,
and I suppose d o not exist i n the other districts.
fore,
There-
i f there i s t o b e anything appro: ching a general dis-
tribution i n Philadelphie, t h e pate would certainly have
to b e made five p e r cent a n d preferable five a n d one quarter
per cent.
Now, I
will g o o n e s t e p b e y o n d a n d e x p r e s s
m y opinion
with regard t o the advance o f rate affecting certificates
not outstanding.
I t seems t o me that that may be practioclly
disregarded, l a r g e l y because t h e future issues would b e taken
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Federal Reserve Bank of St. Louis
45
very largely b y the same people w h o have t a k e n them i n
the past, s o that i t would not b e penalizing one class
in favor o f a totally different class, o r making a n y discrimination b e t w e e n t h e two.
I
t would r a t h e r b e i n t h e
nature o f averaging u p t h e interest rate o n the certifi.
cates t h a t t h e people already hold.
I n the second place,
if a man has bought a long-time secured note, a railroad
mortgage, f o r example, where bonds m a y b e issued a t dif-
ferent ratesof interest a t different times--~-say he bought
a four a n d one half p e r cent o n d under t h e mortgage a n d
the railro::d c o m p a n y a
per c e n t bond.
few years later puts o u t a
five
H i s four a n d o n e half per cent bond goes
off t e n o r fifteen points i n price.
B u t here t h e dis-
count t h a t would result f r o m the establishment o f a higher
rate would b e solely becnuse o f the shorter maturity, a n d
I do not think that that i s a factor that may be very seriously considered, a n d I agree with these gentlemen who
have s t a t e d t h a t t h e r e - d i s c o u n t r a t e s h o u l d b e t h e r a t e
borne b y the certificates.
Secretary Houston. I
would b e glud t o have a n ex-
pression f r o m those w h o might differ a s t o the relation
of the re-~dism unt rate to. t h e rate t o b e borne b y the
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Federal Reserve Bank of St. Louis
certificate.
Governor Farcher.
I
n the Cleveland b a n k w e have a
rate o f five p e r cent o n certificates a t the present time,
which i s a
quarter
o f one per cent a
the last t w o issues h a v e sold. I
ove t h e r a t e a t w h i c h
a m convinced t h a t i f
the c - r t i f i c a t e r a t e t e r e m a d e f i v e y e r c e n t a n d o u r r a t e
remains u n c h a n g e d t h a t w e w o u l d p r o b a b l y h a v e a
substantial
increase i n our loahs, a n d 1 think i t vould b e a n inducement
for t h e banks t o make loans f o r probably t w o reasons. I
think some o f the banks' would perhaps figure a
profit o n
the deposit a n d a s the balances w e r e withdrawn would expect
to borrow f r o m the Reserve B a n k e n d t o pay those withdrawals b y the use o f the certificates without lossof interest,
I think some o f the banks might figure t h a t that might b e a n
inducement f o r t h e m t o b u y the certificates,
S o m e o f the
larger banks possibly would know that i n buying the certifi cates t h e r e w o u l d b e n o l o s s
i n interest
i n the event o f
their being called upon t o call upon t h e Xeserve Banks f o r
loans.
I f the rates were level I
a m convinced t h a t w e
would s e e gome larper borrowingson certificates, a n d that
feature might encourage sales, but i n the last analysis
we would get more certificatesin loans from our banks-~-
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Federal Reserve Bank of St. Louis
5a
Mr, Leffingwell, (interposing).
W h a t i s t h e rate
on Commercial paper i n your district, t h e prevailing rate
now?
Governor Fancher.
S i x a n d seven p e r cent.
Mr, Leffingwell,
a s a matter o f fact, m o s t o f the
banks t h a t l o a n a n d want t o borrow f r o m y o u make a
profit
on the commerc ial paper rate, d o t h e y not?
Governor Fancher. W e l l ,
i n some eases.
S o m e o f the
banks adhere t o the rate o f six per cent a n d d o not charge
more than that,
T h e n some banks, for new money, a r e charg-
ing seven p e r cent. I
discount yesterday,
noticed i n a n application f o r re-
o n a new loans ecured b y Government
bonds, t h a t t h e rate charged was s i x and one half p e r cent.
Mr. Leffingvell.
O n Government bonds?
Governor Fancher. G o v e r n m e n t bonds, Government se.
cured paper,
a n d those banks a r e probably charging s e v e n p e r
cent o n corporation unsecured note o r « firm's unsecured
note.
W
e h a d this question raised o n yesterday: t h e
treasurer o f a substantial corporation,
i n looking ahead t o
pay June 1 5 t h taxes, r a i s e d the question o f how t o employ
the balance between n o w a n d June 15th.
H e a t first thought
of buying certificates, b u t i n some manner h e had cotten hold
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Federal Reserve Bank of St. Louis
of the sheets o f some bill brokers o n d selected certain
bankers a c c e p t a n c e s
a t s i x a n d o n e C i g h t h p e r cent.
H e
invested}200,000 i n biils and passed u p the certificates.
Secretary Houston.
I s there m u c h l a n d s p e c u l s t i o n
in
your d i s t r i c t ?
Governor Fancher.
N o t v e r y much, M r . Secretary.
There a r e some spots where w e have h a d speculation, b u t tak.
ing i t a s a whole i t has n o t been very large,
Governor Yellborn., ‘With rerara t o the rate, I
am in.
clined t o think i t would n o t b e well t o fix t h e discount
rate t h e s a m e a s t h e r a t e t h a t t h e c e r t i f i c a t e s b e a r . I
would like t o see the certificates t a k e n b y banks able t o
carry them with their own resources a n d not depend o n us.
The rate i n Atlanta i s five p e r cent n o w o n our certificetes,
and I think i t has h a d a good effect.
Governor Calkins, I
would like to emphasize i n a
way what has been said b y several o f the Governors. I
am
sure oll will agree that the Federal Reserve Banks must
sell these certificates to the banks, and that the prevailing opinion,
i f not the unanimous opinion, a m o n g t h e bank-
ers o f the country i s that the rate o n Government certificates should b e determined b y the conditions a t the time
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Federal Reserve Bank of St. Louis
49
the certificates are offered for sale.
I
think there igs
no r e a l pegee L n t o fear because
t h a t rate i s higher t h a n
the rate o n prior issues, I
think that fact should b e kept
in mind a n d perhaps dismisst from
the mind o f the Treasury
in considering
future r a t e s ,
Sécretary Houston.
“ e @ have been discussing this
guestion largely as a separate question,
ficult
t o discuss
question
I t is rather dif.
i t a s a n i s o l a t e d question,
b u t t h e general
t o which i t i s related will
b e t a k e n u p i n another
connection.
“@ have also presented i t o n the
assumption t h a t what
is n o w i n Sight,
i n the w a y o f Tressury burdens,
m a y b e the
only thing i n sight, a n d I hope t h a t
some o f the things
that appear t o b e i n Sight will not
come v e r y much closer.
Some are threatening,
Of course I
ernors
do not know what t h e sentiment o f
the Gov-
o f the Federal Reserve Banks
i s with reference
t o the
proposal t o give t h e soldiers t w o billion
o f dollars i n
‘some f o r m o r other.
T h e Treasury Lepartment h a s been
doing
what i t could t o point o u t the unwisdom
o f it, especially
from the Treasury point of view, end there
are many other
points o f view that I would feel disposed
t o urge. A p . ~
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Federal Reserve Bank of St. Louis
50
parently, f r o m present indications, t h e proposal t o meet
is
such expenditure b y the issue o f new securities, bonds,
not very menacing.
haps n o t i c e d
O n e o f the proposals,
i n t h e papers,
a s y o u have per-
i s that t h e allotment
t o the
extent
soldiers shall b e raised b y new taxes t o whatever
will b e Race
w h i c h will b e just a
I
than t h e o t h e r w a y .
little less menacing
f that comes\along,
o f course I
do
not know where w e shall land.
proportion
Mr. Leffingvell. G o v e r n o r Harding asks what
held i n e a h
of the certificates s o l d i n each district i s
Federal Reserve Bank,
Governor Harding. N o , Mr. Leffingwell, Mr. Williams
asked t h a t question.
Mr. Leffingwell.
P a r d o n me. M r . Williams.
M y rec-
a 4 whole, t h a t t h e amount
ollection is, taking t h e country 4 s
Banks combined
of certificates o n which the Federal Reserve
million dollars.
are lending i s some four o r five hundred
like two
That i s out o f a total outstanding o f something
billions @nd a4 half.
Mr, Williams.
T h a t was n o t exactly t h e point.
I t was
certificates s o l d
not s o much upon what proportion o f the
are t h e m e m b e r b a n k s l e n d i n g ,
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Federal Reserve Bank of St. Louis
b u t u p o n what proportion s o l d
through t h e t w e l v e R e s e r v e B a n k s a r e t h e t w e l v e R e s e r v e
Banks lending.
Me. Leffingwell.
ing.
T h a t w a s t h e question I
was answer-
I f I remember correctly, t h e Reserve Banks loaned
hundred
on Treasury certificates something like four o r five
million dollars.
Mr, tiilliams. I
was wondering whether i t varied much
Reserve
among t h e twelve banks, t h a t is, whether s o m e o f the
Banks 7
i
e
s a y twenty per c e n t o n all certificates,
some seventy five p e r cent, o r some f i f t y per cent.
Governor McDougal,
I n Chicago w e are loaning against
certificates about ©38,000,000.
wr. Tilliams. ‘ h a t per cent is that of the certificates
sola?
was trying t o figure it.
Governor McDougal. I
M r .
we
Leffing.ell c a n perhaps give u s the figures. I - t h i n k
district.
nave s o l d some t w o hundred million i n the Chicago
ty, Leffingreil. I
do not remember t h e figures.
it.
Governor MeDougal.~ That would not be far from
V e
sre loaning thirty million.
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Federal Reserve Bank of St. Louis
we, tillieams.
A b o u t twelve p e r cent?
Governor McDougal.
I t would b e something like thet, yes.
52
Secretary Houston, G e n t l e m e n , u r e there a n y other
suggestions y o u would like t o mike t o the Treasury i n reapect o f t h i s s i t u e t i o n ?
Mr. Leffingrell. I
ought t o correct thet statement.
The total amount o f loans, secured b y c rtificates o f indebtedness o n April 2nd, was only %392,000,000 out o f
total amount o f Treasury certificutes outstanding o f
@e,400,000,000, roughly, s o thet, notvithstending that
that i s t h e l o w e s t r a t e a t w h i c h a
borrower c a n borrow,
there i s o n astoundingly g o o d distribution o f the Treasury
certificates t h a t are n o w outstunding. I
think that com-
ore
peres v e r y w e l l w i t h t h e c m o u n t o f l i b e r t y b o n d s t h a t
distributed.
C f course that leaves out o f account hold~
ines b y banks o f Treasury certificates where those barks are
not borrowers, b u t presumably where those banks g e t all
the certificates there are.
Mr, Filler.
T h a t woula s e e m t o indicate t h a t t h e cer-
tificetes h a v e gone i n t e the hands o f bona fide owners.
Wr. Leffingvell,
Mr, w i l l i a m s ,
T o a very important extent.
T h e t seems a
very importent thing
to discuss.
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Federal Reserve Bank of St. Louis
Comptroller “ 4 1 L i a m s .
T h a t shows. t h a t n o t m o r e t h a n
oo
ten t o fifteen p e r cent o f those w h o g o t o b u y the certificates come back t o the Federal Reserve Banks t o borrow
on them.
Mr. Miller.
H e r e i s the last report o f the Federal
Reserve Banks, 4:488,000,000, a n d you say $392,000,000.
Mr. Leffingvell. $392,000,000, t h e emount the member banks s r e borrowing o f Reserve Banks.
Secretary Houston. A p p a r e n t l y , gentlemen, a b o u t elght
of the banks have suggested a n interest rate o f five p e r
cent, t w o have sugrested a n interest rate o f five a n d o n e
fourth per cent, t w o have suggested a n interest rate piteferably o f five a n d o n e quarter p e r cent.
Governor McDougal.
M y suggestion, M r . Secretary, w a s
five a n d o n e Q u a r t e r p e r c e n t o r higher, f i v e a n d o n e q u a r ter p e r c e n t a t Lesst.
Secretary Houston.
“ s s t h e t yours, G o v e r n o r M e r g é 3 *
Governor Morgss. I
think I
said not less than five
and one quarter p e r cent.
Secretary Houston.
T h e n i t woulda b e t w o o f the bank-
ers w h o suggested five a n d o n e quarter p e r cent o r higher,
that is, t h e t would leave i t eight a t five p e r cent, t w o
at five a n d o n e quarter p e r cent o r higher, a n d t w o pref-
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Federal Reserve Bank of St. Louis
erably a t five a n d o n e q u a r t e r p e r cent.
The T r e a s u r y h e s t o determine t h i s m a t t e r
i n the
course o f the next t w o days, a n d I should b e v e r y gicd i f
you Would think t h e matter over.
to discuss,
a n d perhaps a
T e have other subjects
little d i f f e r e n t t h o u g h t m a y
come t o you, a n d see i f y o u arrive e t any general judgment o n
the matter within thet time, o r a n y different judgement.
I a m very erateful
to i t t h i s morning,
t o y o u f o r t h e t i m e y o u have g i v e n
a n d s h a l l b e g l a d t o have y o u b e e r i t i n
mind a n d s e e w h a t i s t h e f u r t h e r o u t c o m e
tion during your s t a y here. I
to t h e G o v e r n o r
o f t h e considera-
will n o w t u r n the body over
o f t h e Reserve Board.
GOVURNOR } . P . G . HARDING, p r e s i d i n g .
Mr. Mohlenpah. E
should Like t o ask t h e Governors
how t h e y feel tovard a program direct f r o m the T r e a s u r y e
D
partment
t o the people
o n the sale o f these short time
certificates f r o m t i m e t o time?
N o t t o have t h e banks
in i t i n the same Situation a s they are now.
I t appeals t o
me that i f the people o f the country knew t h e significance
of this statement, w h a t a small pyoportion o f these certificates w e r e i n the hands o f the banks a t this time, i f
the p e o p l e h a d t h e c h a n c e
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Federal Reserve Bank of St. Louis
t o b u y these certificates d i -
55
rect, a n d I should like t o have a n expression o f opinion
as t o h o w t h e b a n k s w o u l d l i k e i t ,
Governor Norris.
Banks,
D o you mean the Federal Reserve
o r the member banks?
Mr. Mohlenpah. No, the member banks.
Governor HeDougal. I
you have i n mind.
do not understand exactly what
Y o u mean a change under w h i c h the Tress-
ury D e p a r t m e n t w o u l d h a n d l e t h i s s a l e d i r e c t a n d r e l i e v e
the Federel Reserve Banks?
Mr. Mohlenpah.
Put a
W e l l , directly,
b u t n o t indirectly.
campaign o u t s u c h a s t h e y did t h r o u g h t h e offering o f
the Liberty. Bonds, s o the people would know they could
buy a four a n d three quarter p e r cent certificate,
a n obli-
gation o f the Government.
Governor McDougal.
along, I
B u t t h e y have done t h a t right
think, t o a certain extent.
T h e y certainly have
cireularized very broadly.
Mr. Mohlenpah, I
have n o t seen t h e evidence,
Governor McDougal. I
think t h e y have,
a m I not right
about that, something like 600,000 letters a r e sent each
time, w e are told, presenting t o the largest buyers o f
Government b o n d s t h r o u g h o u t t h e e n t i r e c o u n t r y t h i s o p -
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Federal Reserve Bank of St. Louis
56
portunity t o buy Treasury certificates,
T h a t has been
done ,
Governor Harding. Before we proceed with the discussion o f the topics I
wish t o state t h a t the members o f
the Board would b e glad t o have the Governors take their
lunch with t h e m a t the Metropolitan C l u b tomorrow about 1
o'clock,
o r 1:15, o r whatever t i m e m a y b e convenient t o
you a t the conclusion o f the morning session. I
hope
you c a n all b e present.
Mr. Leffingwell asks m e t o state that h e i s anxious t o
have y o u out t o lunch o r dinner w i t h h i m during your s t a y
here,
As t o the program o f the conference, t h e Secretary
of the Board, Mr. Hoxton, w i l l b e with y o u and a c t a s sec-
retary o f the Governors' Conference.
‘ T e know that i n the
consideration o f these routine matters y o u can make better
headway i f you sre left alone t o your o w n devices, e n d I
think i t would b e i n order f o r y o u t o decide among yourselves a s t o which one o f your number shall e c t a s the
presiding officer.
The intent o f the program here i s for a joint conference w i t h t h e F e d e r a l R e s e r v e B o a r d a t t h e o p e n i n g a n d
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Federal Reserve Bank of St. Louis
57
at the closing, a n d then s u c h time i n between Limes y o u
will have f o r your uninterrupted consideration o f these
various matters, t h e n when y o u get through t h e Board would
like t o h a v e a
conference w i t h y o u s o a s t o b e i n f o r m e d
a8 t o w h e t c o n c l u s i o n s y o u h e v e a r r i v e d a t .
In outlining these topics I
possible, a n d I want t o say that I
marily m y o w n personal views.
will b e a s brief e s
a m going t o express pri-
A s fer a s I know there will
not b e a n y v e r y g r e a t d i f f e r e n c e
o f opinion w i t h those
views o n the part o f other members o f the Board, b u t I
hot b e a s explicit,
may
o r a s full d n the expression o f some
of them a s other members would like t o have t h e views
brought out, a n d therefore y o u are liable t o hear this
afternoon f r o m other members o f the Board pesides myself.
With that announcement I
with what I
shall feel fully free t o g o ahead
have t o s a y t o you, because e a c h member o f the
Board knows h e has t h e right t o add t o o r smend whatever I
have said. ‘
CREDIT CONTROL.
The q u e s t i o n o f c r e i i t c o n t r o l h a s b e e n o n e o f para-~
mount i m p o r t a n c e f o r s everal m o n t h s p a s t .
assured t h a t t h e G o v e r n o r s
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Federal Reserve Bank of St. Louis
T h e Board feels
o f the Federal Reserve Banks
58
have r e a l i z e d t h r o u g h w h a t a
of the expansion o f credits.
crisis
w
v e a r e passing because
e know that y o u have made
an intensive s t u d y o f the conditions
tricts,
i n your respective dis-
a n d t h a t y o u intend t o continue
t o keep yourselves
thoroughly informed a s t o the course a n d direction o f
credits,
T
h
e
r
e i s n o question t h a t o u r whole c r e d i t
situation i s badly expanded,
thet a
g r e a t d e a l o f capital,
W i e have reason t o believe
o f credit,
o f human energy
and o f raw m a t e r i e l : e
r
a being diverted t o non-essential
purposes,
essentials
T h e d i s c r i m i n a t i o n b e t w e e n e s s e n t i a l s a n d non.
is a
matter w h i c h c o u l d b e p o i n t e d o u t a n d i n .
sisted u p o n during t h e time o f war, b u t i t i s clearly im-
possible i n the present circumstances for u s t o expect
to keep i n effect the war time restrictions, C o n s e q u e n t l y
it i s i n c u m b e n t u p o n t h e m e m b e r b a n k s ,
a n d upon t h e non-
member banks also, t o exercise t h e ordinary, reasonable
care and produce t h a t banks i n days gone b y have b e e n ace
customed t o 6xercise i n their credit transactions.
T h e bank-
erg o f the country ought t o bring themselves t o a realization t h a t t h e y m u s t n o t l e a n t o o h e a v i l y u p o n t h e F e d e r a l
Reserve Banks; t h a t merely because there i s n o Limitation
imposed b y law upon the amount t h e y m a y rediscount w i t h
@ Federal Reserve Bank, t h e y should n o t f o r that reason
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Federal Reserve Bank of St. Louis
59
turn their credit resources entirely over t o their
customers t o be used a t the will a n d convenience o f
the cus.
tomer without reference t o the banks! o w n credit position
or the credit position o f the Federal Reserve Banks
and
the country,
From January 2 n d t o March 26th, 1920, a l l reporting
member banks decreased their investments i n and loans
upon Government securities, including Victories, Liberties
and certificates b y 589,700,000.
A t the same time they
increased their other loans and inves tmentsby G890,200,000,.
making a net expansion o f the loans a n d investments d u r ing
the period of three months o f these reporting member banks
of over %500,000,000, a n d the reporting member banks are
supposed t o carry only forty per cent o f all commercial
loans,
s o i t may b e assumed that something l i k e a pro-
portionate expansion t o o k place amonp t h e non-reporting
and non-member banks.
In New York City, during this same period, f r o m Jan-
uary €nd t o March 26th, all reporting banks showed a deerease i n their holdings o f a n d losns u p o n Government w a r
securities o f #254,464,000.
T h e i r other loans and in-
vestments increased a t the. same time only $34,161,000, s o
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Federal Reserve Bank of St. Louis
60
eo
t h e r e seems t o have been some real Liquidation
i n New York
City, around $220,000,000.
I n onsidering the reporting
banks through the New York Federal Reserve District, upState banks included with the city banks, a n d w e find there
&@condition which i s A e e o a e
t o the conditions report-
é¢d in Cleveland, Chicago, a n d other districts,
W e find
that all the reporting banks i n the New York Federal Dis.
trict decreased during this period their loans o n Government securities and holdings b y $260,144,000, a n d they
increased their loens a n d investments generally o n other
classes b y %156,758,000.
T h i s s
ovs that while t h e N e w
York City banks increased their general loans and investments £34,0Q0,000, t h e up-State banks incre:sed theirs b y
4102 ,000,000.
The impression that has gaine? currency, a n d perhaps
the Board i s i n part responsible for it, because the Boarg
understood from Treasury statements that after the 15th o f
January t h e Treasury expected t o be n o longer a
factor
i n t h e m o n e y market,
paramount
a n d t h e impression n o doubt
gained c u r r e n c y d u r i n g t h e m o n t h s
o f February a n d March
that t h e Treasury financing w a s o u t o f the Way, a n d thds i n s
pression h a s probably loosened t h e situation s o that the
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Federal Reserve Bank of St. Louis
61
brakes w e r e n o t h e l d a s t i g h t l y a s t h e y s h o u l d h a v e b e e n
and some expansion h a s been caused along other directions.
it i s very clear, especially i n view o f what h a s
been brought o u t here this morning, t h a t o n e o f the first
things y o u s h o u l d d o i s t o c o r r e c t t h e i m p r e s s i o n o f
the
banks a n d t h e public t h a t the Treasury i s n o longer a
or i n t h e m o n e y m r k e t ;
i t is a
factor
fact-
i n the money merket
end i s going t o b e such certainly all this yeer a n d a s
long a s i t has offerings o f loan certificates, a n d t a x
cértificates,
W h e n & corporation h e s borrowed a very
large amount o f money o n short time notes, a n d those
notes a r e a b o u t t o m t u r e
o n d t h e corporéetion h a s f u n d s
in its treasury o u t o f which i t can reduce t h e outs tanding
issue o f notes i n part, b u t i t has t o renew a large n e e
of t h o s e n o t e s ,
i t i s idle t o s a y that that corporation
out o f t h e market.
sition.
T h e same applies
is
t o the Treasury p o -
S o I think w e ought t o have t h e banks understand
that t h e T r e a s u r y
i s i n t h e merket.
I listened w i t h a great deal o f interest thismorn ing
to your views a s t o the rates t h a t ought t o b e borne b y
the Treasury certificates.
because t h a t i s a
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Federal Reserve Bank of St. Louis
W i t h o u t discussing those rates,
matter p r i m a r i l y f o r y o u t o t a k e u p w i t h
62
the Secretary o f the Treasury, because y o u are familiar
with the conditions i n your respective districts, a n d the
secretery o f t h e T r e a s u r y h a s t h e f i n a l p o v e r
t o s a y what
the rates shall b e and the responsibility i s his t o determine that, y e t £
would like t o call your attention t o the
fact that the Board h a s committed itself i n its annual rePort, a n d o n previous o c c a s i o n s ,
t o the principle t h a t
the Federal Reserve Bank rate ought t o be higher than the
market rate.
w
e h a v e p o i n t e d o u t w h y i t i s imposs ible
to establish a Federal Reserve B a n k rate i n the present
cireumstunces hipher t h a n t h e market rate f o r comvercial
paper, b u t
i t has been o n l y t w o months since w e g o t away
from the proposition t h a t a Federal Reserve Bank'srate
hag t o b e b e l o w o r o n t h e s a m e l e v e l w i t h t h e T r e a s u r y
rate o n certificates.
Y o u remember b e f o r e t h e l a r c h
issue o f certificates w a s p u t o u t the rates w e r e increased
at the various Federal iteserve Banks, all but three o f
them, I believe t o five per cent, s o that the subscribing
banks h a d notice i n advance t h a t i f they could n o t place
the certificates w i t h their customers a n d had occasion t o
use t h e m with the Federal Reserve Banks, theye;wolid b e a
slight loss i n the transaction.
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Federal Reserve Bank of St. Louis
63
The F e d e r a l R e s e r v e B a n k s h a v e a
carry f o r t h e r e s t cof t h e yerr.
tremendous l o a d t o
Y o u have h a d practically
no liquidetion during t h e three months o f the year when
Liquidation i s ordinarily v e r y much i n evidence, t h e months
of January, F e b r u c r y a n d March,
Y o u r issues o f Federal
Reserve notes are higher than ever, and, with the ex.
ception o f some liquidution i n New York City, there h a s
been n o l i q u i d a t i o n
i n t h e r e s t o f t h e country:
trary, t h e r e h a s b e e n c o n t i n u e d e x p a n s i o n .
o n the con-
N o w i t may be
that, o w i n g t o active b u s i n e s s a n d i n d u s t r i a l c o n d i t i o n s ,
owing t o the tie-up i n transportation facilities, m a k i n g
it i m p o s s i b l e f o r l i q u i d a t i o n a l o n g c e r t e i n l i n e s
céed i n a n o r d e r l y manner,
t o pro-
t h e present situation h a s b e e n
unavoidable a n d i t may b e that there will b e some deferred
Lliquidution later on, b u t w e are coming t o 4 scason o f
year when there i s going t o b e heavy borrowing o n account
of a g r i c u l t u r a l r e q u i r e m e n t s
crops.
i n prepsring f o r t h e n e w
T h e n w e come t o the turn o f the year, the first
of July, W h e n there a r e v e r y lerge Government a n d core
porate transactions a n d money i s always tight, o w i n g t o
the vast amount o f the turn over.
T h e n , following that
date b y not more t h a n thirty days,
w e have t h e beginning
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Federal Reserve Bank of St. Louis
of the crop hervesting movement again.
Thus
i t behooves t h e F e d e r a l R e s e r v e B a n k s
véry close g r i p o n the situation. I
t o keep a
do not advocate f o r a
ronment anything startling o r sensational,
anything t h a t
Will create ean undue scare, t h e t will bring
about a n unnecessary depression,
b u t i t seems
t o mé, g e n t l e m e n ,
that
we Should Shape o u r course s o that there
Shall b e a return
te Sanity i n business gealings u n d i n the grenting
o f cred.
its.
I f the expansion o f credits should b e permitted t o
continue
a t the rate w h i c h h a s gone o n for t h e p a s t
ten
months, i t is very clear there can be only one end
t o it,
i saw some fipures the other day from the reporting
banks showing thet commercial credits h a d expanded
during
the two and one-half years o f war b y @l,000,000,000, a n d
that those banks h a d expunded their loans during t h e last
ten months b y 43,600,000,000.
Your problem i s t o bring about i n some quiet b u t ef.
fective way, b y having t h e member banks themselves appre}
elate t h e possibilities
tive f e e l i n g
o f the situation, @
more conserva.
o n t h e p a r t o f b o t h b o r r o v e r s a n d lenders.
We hear a prect deal o f complaint about h i g h prices a n d
the h i g h cost o f living, about t h e decreased purchasing
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Federal Reserve Bank of St. Louis
65
power o f the. dodlar, but, gentlemen, t h e r e h a s b e e n n o
decreased p o w e r o f t h e d o l l a r
go f u r t h e r t o w a r d s p a y i n g a
t o p a y debts, a
dollar w i l l
d e b t n o w t h a n i t will
i n any
other direction, a n d i f w e c a n bring about a feeling o n
the part o f the people o f this country that now i s a good
time t o get closer t o srore, t o show a reduction i n their
liabilities,
t h e n w e will a l l g e t o n a
e e t safer and
More comfortable bssis.
Both H o u s e s
o f Congress h a v e passed
a n amendment
to
sub-section Lb of section 1 4 of the Federal Reserve Act, s o
that, 8 8 soon a s the bill i s dcopareh b y the President,
the subesection will n o w r e a d a s follows:
"Pach Federal Reserve Bank shall have power t o establish from time t o time, subject t o review and direction
of t h e F e d e r a l R e s e r v e B o a r d , r a t e s o f d i s c o u n t
t o be
charged b y the Federal Reserve B a n k f o r e a c h class o f paper,
which shall b e fixed with a view o f accommodating commerce
and business."
(New) “And which, sub ject t o the approval, review, a n d
determination o f the Federal Reserve Board, m a y b e graduated o r progressed o n the basis o f the amount o f the advances a n d discount accommodations extended b y the Federal
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Federal Reserve Bank of St. Louis
Réserve Bank t o the borrowing bank."
The Board hopes that y o u will p a y special attention t o
this emendment while y o u are here, discussing i t among
yourselves a n i give u s t h e benefit o f your views o n it.
There i s nothing mandatory about it.
I n fact, there i s
some q u e s t i o n a s t o whether s u c h a n anendament w a s n e c e s -
sary 4 t all o r not; s o m e were o f the opinion that t h e Fedc¢ral Reserve Banks a n d t h e Board already h a d that authority
under the provisions o f Section 4, but i t was felt i n view
of counsel's opinion t h a t i t was better t o take n o chances
and t o get specific authority from Congress t o establish
progressive rates i f i t should become advasable t o d o so.
(ne bank c a n adopt this system indcpendently o f a n y other
Federal Reserve Bank,
I t need n o t b e unanimous. a
have a n opinion here f r o m counsel i n which h e points o u t
that j u s t a s y o u h a v e t h e p o w e r t o m a k e d i f f e r e n t r e t e s
with respect t o euch class o f paper,
s o this n e w amendment
will give y o u porer t o progress rates w i t h respect t o each
class o f paper, t h e only requirement being thet whatever
rule you adopt shall b e uniform, s o thet i t will affect all
the b a n k s
i n y o u r d i s t r i c t alike.
F o r example,
y o u would
have i t i n your porer t o establish a normal line o f dis
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Federal Reserve Bank of St. Louis
counts f o r o n e p a r t i c u l a r c l a s s o f paper, l e a v i n g o t h e r
classes e n t i r e l y o u t o f consideration,
a n d t o make y o u r
progressive r a t e s a p p l y t o t h a t p a r t i c u l a r c l a s s ,
would h a v e
i t i n your power
o r you
t o make t h e progressive
rates
and t h e n o r m a l l i n e a p p l y t o t h e s u m t o t a l o f a l l p a p e r
discounted b y the Federal Reserve Bank. T h e r e i s n o limitation i n the l a w a s t o the amount o f the progression;
you c a n make i t one fourth o f one per cent, o n e half o f
one p e r cent, o n e per cent o r two p e r cent, o r whatever you s a w fit, n o r i s there a n y limitetion i n the l e w a s t o
the amount o f the discount line beyond which this progression c a n apply.
I t has been pointed o u t that i n establish-
ing a normal line, i f any o f you should decide t o establish
such a line, t h a t there a r e about five combinations t o be
considered, A
- and surplus.
normel linc m i g h t b e based upon t h e capital
o f t h e member bank; second, u p o n t h e actual
resources o f a member bank; third, u p o n t h e deposits o f the
member bank; fourth, u p o n t h e averave reserve balance f o r
say t h i r t y d a y s p r e c e d i n g t h e t i m e o f t h e d i s c o u n t t h e
member bank carried w i t h you, o r , a s another alternative,
the loan capacity o f the Federal Reserve Bank might b e cal~
culated a n d pro-rated among t h e Federal Reserve Banks i n
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Federal Reserve Bank of St. Louis
68
proportion t o the reserve balance o f each, o r there might
be @
combination
o f the reserve balance a n a t h e capital
and surplus o f the member banks; there i s a number o f ways
in Which i t i s possible t o work o u t a normal line,for t h e
law €ivés y o u t h e widest latitude.
T h e r e i s n o reason w h y
the normal line should b e uniform i n all districts, and: i t
is e n t i r e l y p o s s i b l e f o r a
b a n k t o establish, p a r t i c u l a r l y
those banks w h i c h have seasonal movements, a
very Jiberal
normal line i n the c r o p moving seeson, f o r instance, a n d t o
reduce t h e normal line i n other seasons o f the year.
Y o u
will find i t a very interesting problem t o work out, a n d
in case y o u have a
number o f banks w h i c h y o u feel a r e over.
loaned and you wish t o hold them i n line without raising
the rates generally--_
Governor McDougal.
M a y I ask a question +here?
Governor Harding. C e r t a i n l y .
Governor McDougal.
rate t o a p p l y t o a
I n the establishing o f a normal
district a n d t h e n o r m a l l i n e , t h e a m o u n t
mast apply t o all banks alike, within their district, must
it not?
Governor Harding. Within their district, yes. A s a
simple example,
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Federal Reserve Bank of St. Louis
i f you should decide t o establish a
normal
69
line a n d a progressive rate and you should decide t o go
back t o the old basis and establish, a s your normal line,
the capital stock o f each member bank, w h y then o f course
the Continental a n d the C o m e r c i a l National B a n k would
have a
very much larger l i n e t h a n t h e First National B a n k
of Podunk, but the mormal line would b e regulated i n
each c u s e b y t h e c a p i t a l s t o c k o f t h e bank.
Governor McDougal.
w e are not at liberty t o regulate
it i n accordance w i t h t h e character o f the business; f o r
instance,
o n e bank doing a
commercial b u s i n e s s p u r e l y a n d
simply, i t s deposits being demnd, a n d another bank, being
possibly a trust company, t h a t has a large part o f its
deposits placed o n time?
Governor Harding. I
here f o r t h e c o n s i d e r e t i o n
will leave ths counsel 'sletter
o f t h e Governors.
H e points o u t
that y o u have t h e right t o f i x a normal line with respect
to e a c h c l a s s o f paper,
o r t o fix a
normal l i n e w i t h r e -
spect t o o n e c l a s s o f p a p e r a n d n o t ancther.
F o r instance,
you could say, "We d o not care t o fix any normal line a t
l t o paper securedl b y Government obligations,’
a
' or you
might say "We will fix a normal line o n Government obligations, b a s e d o n the holdings o f Government securities
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Federal Reserve Bank of St. Louis
70
by the bank a t a certain past date." T h e r e are all sorts
of angles t o it.
I t i s one o f the most flexible laws that
has ever passed Congress.
Governor McDougal. B u t t t h e normal line, when once
established within a district, must apply t o all banks.
Governor Harding,
Y o u must work o u t some rule t h a t
will a p p l y o
t all banks; y o u must not work out just a rule
that w i l l a p p l y t o o n l y t w o o r t h r e e b a n k s w h i l e o t h e r s
can not come i n under it,
T h e intent o f Congress i s very
Plain, t h e r e must b e n o favoritism shown; whatever r u l e i s
adopted must apply to all member banks within the district,
You w i l l f i n d h e r e o n t h e f i r s t p a g e o f t h e p r o g r a m , S e c t i o n
7, that t h e Boerd would like informetion a s t o the methods
employed b y your bank t o inform and satisfy itself o f the
use made b y memib er banks o f credit facilities obtained f r o m
their Federal Reserve Bank~-perticular the amounts used
for Speculative purposes a s contrasted with amounts used
for productive purposes.
T h i s information, I
take it, i s
rather difficult t o secure, especially i n normal times,
Wemight get it in war times, but if any of you heave any
informétion o n this subject, t h e Board would like t o have it,
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Federal Reserve Bank of St. Louis
Then the Board is interested in knowing what steps
gs
you have t a k e n t o inform yourselves a s t o abuse o f credit
in h o a r d i n g c o m n o d i t i e s ,
a n d request
i s mde
for a
written
statement i n response t o that question.
Ne doubt y o u have observed t h a t the Federal Reserve
System has been t h e subject o f a good deal o f publicity
within t h e lest s i x months, a n d some severe criticism h a s
been indulged in,
i
t has occurred t o the Board that,
as the Federal Reserve Banks are now well established,
the v a r i o u s c a m p a i g n s f o r S t a t e b a n k m e m b e r s h i p
in
o r part
points that. i t might b e well t o conduct t h e r o n a little
quieter a n d more dignified plane t h a n was t h e case i n the
earlier days o f the system when nobody understood it, a n d
there w e s more o r less explaining o f details necessury.
We d o not feel that the Federal Rescrve system has anything
to apologize for, n o r d o w e think there i s a n y vuccasion
any l o n g e r f o r a n y pyrotechnics
with it.
o r fireworks
i n connection
I t i s a stable proposition; y o u have g o t your
member banks, y o u r various departments; y o u have f o t your
own organizations a s t o State b a n k memberships;
y o u heve,
some o f you, c o m p l e t e d y o u r c a m p a i g n s f o r p a r points;
others are right i n the thick o f the fight, a n d while i t
is necessiury t o d o a
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Federal Reserve Bank of St. Louis
great d e a l o f h a r d a n d i n t e n s i v e
7B
work i n keeping i n touch with t h e banks, b o t h member a n d
non-member,
i n your districts, i t occurred t o the Board
that i t might b e possible t o conduct t h e work i n such a
way 88 t o bring you a little less i n the fierce glare
of the lime light.
T h e Bank o f England i s hardly a s m e h
in €vivence i n the debates i n the Houses o f Parliament a s
the Federal Reserve System is g e t t i n g t
o be i n the Houses
of Congress,
CLEARING A N D COLLECTION SYSTEM,
On page 2
there a r e a
good many questions connected
with the clearing and collection system which explain them.
selves.
T h i s problem i s one which has caused a l l o f us
& great deal o f hard work, a n d I presume i t has been t h e
cause o f more friction a n d criticism t h a n a n y other o n e
thing connected with the Federal Reserve system; a t the
same time i t has developed almost t o the point o f comple-
tion, and w e should m k e every effort t o carry out the
Program for which w e have been working.
I t i s gratifying
to note that the merchents a n d jobbers i n some o f the dis~
tricts have taken h o l d o f the situation a n d a r e doing
most effective work cre. ting a sentiment for keeping the
Federtl Reserve system i n effect and amplifying it. t h e i r
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Federal Reserve Bank of St. Louis
73
assistante i s very effective, a n d i f i t had been given earlier woulda have simplified your problem very, v e r y much;
but t o paraphrase David Harum, i t may not be a bad thing
after a l l that y o u have h a d these troubles w i t h your
clesring system, because t h e y have served t o keep y o u from
brooding o v e r some graver problems.
There i s a paragraph i n Section 1 6 of the Federal
Reserve A c t which seems t o b e mandatory.
T h e language i s a
little involved, but the meaning o f i t as interpreated b y
counsel i s that the Federal Reserve Board shall b y rule
fix the charges which may be made b y member banks aga inst
checks deposited with them which they collect through the
Federal Reserve Bank.
T h e Board has never fixed the
charges; t h e r e have b e e n & good many reasons w h y i t could
not.
I n the first place, w e d i d not want t o interfere
with the transit operations o f the banks.
to h a v e a
I t i s necessary
State a l l p a r s o t h a t a t a l a r g e t a i l a l l c h e c k s
on & certain State shall b e a t the same rate and the transtt. department g o v e r n s i t s e l f a c c o r d i n g l y .
I
t would i n -
terfere w i t h t h e operations o f the banks i f they h a d t o
look into a book like a
whether a
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Federal Reserve Bank of St. Louis
telephone directory a n d find owt
certain b a n k w a s o n a
par l i s t o r not, b u t i n
74
some o f t h e l a r g e r c l e a r i n g h o u s e s t h e y h a v e a d o p t e d n o w
more liberal payee cit: presume,iir. Case,
i t would n o t b e vio-
lating a n y conficence i f I mentioned what happened l a s t
week i n New York?
Governor Case.
N o , w h a t happened yesterday.
No, v
not s o long a s i t is treated a s a confitential mtter.
Notice i s t o g o out t o the clearing house banks i n the
course o f the next day.
Governor Harding.
V e r y well.
I t will o n l y be men-
tioned right here i n the family, n o t t o g o out t o the press.
The N e w York Clearing House h a s agreed t o revise i t s rates
on out-of-town checks s o a s t o put all cheeks o n all par
States approximately o n a four a n d one half p e r cent interest basis f o r the time i n trensit o n e way; a l l checks
on banks © in States which are n o t all par o n a basis o f approximately nine p e r cent, t h e thought being t h a t this
will stimulate banks i n States which were almost par but
not quite, t o get the dissenting banks t o come across,
Under this schedule t h e maximum rate, I
believe, w i l l b e
one tenth o f one p e r cent, a n d t h e y r u n down a s l o w a s _.
4E
ji
one twentieth o f one p e r cent, i s that it?
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Federal Reserve Bank of St. Louis
Governor C a s e ,
Y e s sir.
75
Governor H e r d i n g ,
S o that i s a
step t h a t I
think w i l l
weaken t h e a r g u m e n t s t h a t h a v e b e e n m a d e b y opponents
of
the clearing system that c i t y banks a r e t h e beneficiaries,
Governor Case. T h e r e are thirty six States, Governor,
that come i n under that ruling.
Governor Seay.
M a y I ask i f they got immediate credit
on thst balance?
Governor Case. Y e s , t h e y do; i t i s merely a difference
in the interest f o r t h e estimated time.
Governor H a r d i n g .
Like t o have sdvice o n ,
Here is a
question t h e B o a r d w o u l d
T h i s section does n o t refer t o
reserve cities only, but requires "The Board shall b y rule
fix the charges that may be made b y member banks", meaning
811 member banks.
N o w shall w e l a y down a general rule a s
to what t h e member benks i n a country t o w n shall charge a n
out-of-town c h e c k ?
T h e l a w seems
t o require t h a t , b u t t h e
Board h a s been urged b y various representatives o f Federal
Reserve Banks t o d o nothing about this f o r t h e time being,
at least, because i t might weaken t h e help that i s being
given b y merchants a n d jobbers who are now getting their
collections m a d e without a n y cost a t all; f o r some o f the
member banks might say, "Vell, here we have overlooked some-
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Federal Reserve Bank of St. Louis
76
thing; “ e ought t o charge o n this check; they are doing i t
in the cities, and the Board says w e can cherge this amount
as a maximum," a n d thus there would b e a charge m a d e which
is not being made now, t h e banks absorbing the cost o n
account o f the value o f the deposit.
B u t w e have worked o u t
a schegjule o f cherges s o that e a c h Federal reserve Bank,
if t h i s i s p u t i n t o effect, c o u l d n o t i f y a l l b a n k s
i n its
cistrict j u s t what t h e maximum charge i s thot i s permitted
to b e made b y i t o n all checks.
T h i s will b e handed t o you
by Mr. Hoxton.
BANKERS! ACCEPTANCZS.
In the matter o f bankers! acceptances, t h e Board feels
it i s very important thet there b e a full discuss ion.
N e w
York and Boston are the great acceptance markets, and the
Federal Reserve B a n k i n New York has been buying acceptances
very freely, and in the old days, before your esurnings began
to b e appreciable, a l l o f y o u were anxious t o have N e w York
divide
u p w i t h y o u pro-rata t h e acceptances b o u g h t f o r t h e
sake o f revenue,
L a t e r t h e r e h a s n o t b e é n s o much enthusi-
asm i n the matter o f having them pro-rated, b u t the acting
Governor of the Federal Reserve Bank i n New York will take
this u p w i t h y o u i n conference,
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Federal Reserve Bank of St. Louis
and I
presume w i l l m a k e s o m e
bid
Suggestions
t o you a s t o her h e thinks i t should b e
handled.
What t h e Board i s particularly interested i n i s that
there
eheall Beno a
=
F
t h e auceptenee privilege.
+ e had
tremendous export triudé l e s t year, w i t h balances i n our
favor o f more t h a n *,4,000,000,000,
h e c a n account f o r
about 1.1,750,000,000 o f our trade balance, w h i c h w a s
taken
care o f through t h e credits erented b y the Treasu:ty
o f the
United otetes before t h e 10,000,000,000 f u n d wes
exhaus ted,
but I t seems there m u s t have been a t lezst .2,000,000,000
of European credits that are being held b y menber benks
of this country, r h o are i n turn borrowing f r o m the Federal
Reserve Banks,
T h e Board i s wondsring whether o r not a c e
ceptances a p a i n s t e x p o r t s , w h i c h a r e a p p a r e n t l y p a i d a t
the ir mseturity, are, a s a m t t e r o f fect, f i n a l l y paid a s
far a s t h e exporter a n d t h e purchsser o n the Other
side
ape c o n c e r n e d ;
a s t o whether
o r not there a r e cases where
the acceptances a r e made f o r t h e statutory time
a n d pass
vant
through a bank and through the Federal
Reserve Banks, a n d
then a t m a t u r i t y a r e p a i d a s f a r a s t h e F e d e r a l R e s e r v e
Bank i s concerned, b u t yet may not be liquidated a s fer a s
the a c c e p t i n g b a n k i s concerned,
v
e have s o m e figures
here relating t o peckers' bills, which are not completed
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Federal Reserve Bank of St. Louis
78
yet, b u t which will b e completed t h i s afternoon a n d will
be s u b m i t t e d
t o you.
In t h e m a t t e r o f d o m e s t i c a c c e p t a n c e s t h e r e i s s o m e
reason t o believe there h a s b e e n some abuse, t h a t domestic
acceptances a
r
e being used b y the banks, particularly some
with s m a l l capital,
t o evade t h e l i m i t a t i o n s
o f Section
5200, s o that they are lending the credit now t o the extent
of fifty per cent of their capital and surplus instead o f
ten per cent a s provided b y Section 5200.
In the matter o f domestic acceptances, Section 1 4
seems t o be perhaps unduly liberal. T h e r e i s no require.
ment that documents b e attached except a t the time o f the
acceptance. N o w i t is altogether possible for a party
having a
bill o f leding o r e warehouse receipt t o g o t o a
bank, get e n acceptance o n the strength o f that domment
conveying or securing title, let it be attached for a moment o r two, then take i t out with him, then g o t o another
bank a n d g e t another acceptance o n the same document.
Ve have known o f some stupendous frauds i n days gone b y
in connection w i t h bills o f lading s n d warehouse receipts,
and i t Seems w e would b e negligent i f we let this opportunity f o r fraud remain open.
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Federal Reserve Bank of St. Louis
I t has b e e n suggested that
79
i448 i m p r a c t i c a b l e
t o have t h e documents attached
t o the
acceptance practically during t h e life o f the acceptance,
because they are usually handled a s clean bills. T h e r e are
several advantages i n handling them as clean bills.
You
do n o t W a n t t o h a v e y o u r p o r t f o l i o s a l l c l u t t e r e d u p w i t h
a lot of documents; they might get detached accidentally
and lost, but the Board would Like you to consider as to
whether o r not i t woulda b e advisable o r practicable f o r
you to suggest t o your inetber banks that i n making domestic
acceptances where t h e y release tlh documents u n d e r trust
recéipt,
o r for sany other reason, t h a t t h e y stamp o n the
bill o f lading o r the warehouse receipt words t o the effect
that "This document has been used as a basis for a domestic
acceptance,"
v o r d i t i n some w a y s o a s not t o affect t h e
negotiability o f the document for the release o f the goadis,
but t o p r e v e n t
i t being u s e d a
second t i m e f o r a
purpose f o r
which i t has already been legitimately used once,
Governor V a n Zandt.
A s @ security o r a basis o f secur-
ity?
eeecohor Harding.
A s 4 basis.
There a r e various other matters here t h a t I
do not
think need a n y special comment on. T h e y explain themselves.
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Federal Reserve Bank of St. Louis
80
There i s a
s u p p l e m e n t a r y list- I
think w e h s d b e t t e r
adjourn n o w f o r lunch.
Mr, Miller. 1
suggest before w e leave that we think
about the meeting a t which the general credit situation may
be discussed a s t o its control, a t some time t o suit the
convenience
o f t h e Secretary.
Secretary Houston, I
shall n o t b e able t o attend v e r y
many of your meétings, b u t I am very deeply interested i n the
credit situation,
i n the tendency,
action m a y have t o b e taken,
would b e pursucd,
a n d while I
i n the extent t o which
i f any, a n d t h e methods t h a t
seem t o b e pretty b a d l y
tied u p today, a n y other d a y that y o u are here would suit
me, a n d I should adjust myself t o your convenience.
(Followed informal discussion).
Governor Harding. Tororrow morning a t 10 o'clock w e
will have a discussion o f the general credit situation.
Board will n o t meet w i t h y o u this afternoon.
The
D o y o u wish
to elect @ presiding officer before I leave?
Governor V a n Zandt. I
nominate Governor McDougal.
(The nomination o f Governor McDougal w a s d u l y seconded
and unanimously carried.)
Thereupon,
a t 1 2 o'clock M, t h e conference w a s adjourned
until 2:15 o'clock P , MM,
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Federal Reserve Bank of St. Louis
61
The conference reassembled pursuant t o recess a t 2:35
o'clock P, HM,
The Governors o f the Federal Reserve Banks i n conference w i t h Governor McDougal,
o f the Federal Reserve B a n k
of Chicago, presiding.
The Chairman. G e n t l e m e n , according t o the forecast
of some one, w e are going t o have a session here which will
isst f r o m now until Saturday inclusive.
I t seems t o m e that
if w e c e n e x p e t i t e m i t t e r s a n d d o j u s t i c e
t o all these sub-
jects i n a shorter time, t h a t w e are a t liberty t o d o so.
When w e adjourned this morning Secretary Houston
stated t o m e t h a t h e w o u l d l i k e t o b e p r e s e n t a n d h e a r
the entire discussion o f Topic No. 1, "Credit Control,"
I understood t h a t G o v e r n o r H a r d i n g w o u l d a l s o l i k e t o b e
here. U n d e r those circumstances, a n d i n view o f the fact
that w e a r e t o h a v e a
discussion
o'clock t o m o r r o w m o r n i n g ,
i f there i s n o objection w e will
proceed w i t h s o m e o t h e r s u b j e c t
I would suggest,
o n that subject a t 1 0
o n t h e program.
i n order t o get t h e meeting started,
that w e begin with Topic 5 , o n page 3,--
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Federal Reserve Bank of St. Louis
5. B a N k K E R S ' A C C T P T A N C E S ,
The f i r s t s u b t o p i c
is
(1) A r e bankers! acceptances being creuted for
purposes n o t contemplated b y the Act a n d are accepting
banks abusing t h e privilege?
But before proceeding w i t h t h e discussion o f that,
I believe i t would b e agreeable t o all present i f a c o m
mittee o f the Governors b e appointed t o send a word o f
cheer t o Governor Strong, wherever h e is.
W e miss him.
I have n o doubt h e i s going t o be well represented here
by the Bank, b u t I would suggest t h a t Governor Fancher
and Governor S e a y prepare a
telegram t o b e sent t o Gov-
ernor Strong.
Governor “‘orss.
I w i l l m a k e s u c h a motion, M r . Cheair-
Governor V a n Zandt. I
will s e c o n d i t .
.The m o t i o n w a s u n a n i m o u s l y carried.
The Chairman.
i
t has b e e n customary t o f o around
36
the table o n the /subject,s,and I will ask Governor Wellborn
to state h i s o p i n i o n o n it.
Governor Yellborn.
“ Y e have f o u n d i t v e r y u n u s u s l
for a n y one t o abuse t h e privilege. C c c a s i o n a l l y w e have
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Federal Reserve Bank of St. Louis
83
detected something o f the kind, but w e
have had i t cleareg
up right away. T h e r e i s very little abuse
o f the privilege
in our district.
The Chairman, W h e r e y o u have noticea abuse, whet
form d i d i t take?
Governor Wellborn.
V e l l , w e have j u s t written t o
them and told t h e m that w e noticed it.
case o f renewal,
ceptances.
F o r instence,
in a
w e d o not permit renewal o f bankers! a c .
T h e o n l y case w e have approved renewal
has
been i n the case o f the Savannsh port, where
the cotton
has b e e n hel? f o r export because t h e y could n o t
g e t the
ships, I
had p e r m i s s i o n f r o m t h e F e d e r a l R e s e r v e
Board
at that time t o extend those acceptances
until t h e y could
get shipping facilities,
M o s t o f the bankers acceptances
in our district a r e against cotton, peanuts a n d tobacco,
and t h e y a r e u s u a l l y p e i a f o r b e f o r e n i n e t y
days.
Provisions
are made f o r payment within ninety days,
The Chairman.
H o w about y o u r district, Governor
Miller?
Governor Miller.
W i t h few exceptions, w e have o b -
served that bankers! acceptances anount t o 6 n evasion
of c
i
i j
Section 5 2 0 0 o f t h e N a t i o n a l B a n k Act,
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Federal Reserve Bank of St. Louis
The Chairman.
H o w d o they work i t ?
Governor Miller. W e l l , t h e y underteke t o draw o n the’
member b a n k s
i n which t h e y a r e keeping accounts a n d t h e
bank accepts a n d takes t h e bill i n t o its o m portfolio
and
attempts t o sell i t t o us.
than a
I t i s nothing more o r less
p r o m i s s o r y note.
The Chairman,
,
Y o u mean t h e bank accepts t h e bill
and does n o t pass i t back to. its customer?
Governor Miller,
No.
I t lends i t the money instead
of credit.
The Chairman,
D o y o u take those bills f r o m y o w banks?
Governor Miller.
v e have n o t been doing s o for t h e
last sixty days, o r thelest few months, but we aid for quite
& while,
The Chairman,
Y o u took those a t the commercial paper
rate?
Governor ‘iller. Yes, at the commercial paper rate.
The Chairman. G o v e r n o r Norris?
Governor Norris.
T h e Deputy Governor tells m e that w e
have n o knowledge o f anything o f that sort and n o reason t o
suspect i t .
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Federal Reserve Bank of St. Louis
The Chairman,
H o w about Minneapolis, Governor Young?
&5
Governor Young.
W
e only have five accepting banks
in our district, a n d t h e y accept i n the fall o f the year.
We h a v e n o e v i d e n c e
o f t h e abuse o f t h e acceptance priv-
ilegecat all.
The Chairman. I
would like t o ask Governor Wellborn
whether o r not his bank i s i n the habit o f investigating
the underlying transactions,
o r d o you simply take t h e m a s
the bank offers them?
Governor Vellborn.
Yell, 1
them a s t h e bank offers them.
suppose w e usually take
W e have n o direct w a y o f
making direct examination, G o v e r n o r Harding spoke this
morning o f receipts b e i n g detached a n d used for other purposes.
W
e have always required i n our district that t h e
warehouse r e c e i p t ,
the d r a f t w h e r e
t h e s h i p p i n g d o c u m e n t , shoulda a c c o m p a n y
i t i s over t e n per cent o f the capital m d a
surplus, a n d w e have always h e l d those.
T h e y c a n only take
them W h e n i t i s u n d e r t e n p e r c e n t o f c a p i t a l a n d surplus.
Governor Seay,
H o w c a n y o u hold t h e m where t h e y a r e
necessary f o r t h e delivery o f the goods, t h e shipping d o c .
ments?
Governor Wellborn. I
themselves,
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Federal Reserve Bank of St. Louis
do not know.
T h e y provide f o r thet
T h e y send t h e m back and provide a
trustee r e c e i p t
until t h e y want t o sell them.
Governor V a n Zant,
H o w d o y o u handle t h e export
proposition?
Governor Yellborn.
W e o n l y have exporting i n Sa-
Varmeh, T h e t i s o u r o n l y port.
“ w e have a n agency i n
Savannah thet handles t h a t f o r us.
V e are t h e o n l y bank
that has a n agency for hendling that, and they keep all
the Dilis o f l e Jing aria receijits there.
The Chairman.
G o v e r n o r jiiller,
d o y o u m a k e a n y invest-
igation o f t h e u n d e r l y i n g t r a n s a c t i o n ?
Governor Siller, Y e s , w e d o b y correspondence w i t h
the offering bank,
The Chairman.
C h , w i t h the offering bank?
Governor Miller. ‘Yes, thet i s all.
The Chairman, t h a t i s the situation i n your district,
Governor Fancher?
Governor Fancher.
Y o u are nov : eferring t o the first
sub-topic under Topic 5 ?
The Chairman.
Yes.
Governor Fancher.
W
e investigate v e r y carefully
the underlying transactions a n d while w e have n o t i n any
ease u n c o v e r e d a
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Federal Reserve Bank of St. Louis
situation t h a t showod t h a t a
bank deliber-
87
ately s o u g h t t o evade section 5200, t h e y have done some
things t h a t they were n o t fully advised about, where t h e y
thought t h e y were accepting according t o the l a w a n d regulations,
a n d i n those c a s e s w e h a v e p u t t h e m right.
have p r o m i s e d
It i s more a
t o b e good, a n d I
T h e y
guess t h e y a r e b e i n g g o o d .
lack o f intelligent understanding o f the ac-
cepting p r i v i l e g e r u t h e r t h a n a n a t t e m p t
t o evade a n d i n -
crease t'e line o f credit. U n d e r only one circumstence
do we buy a n y unendorsed bills.
V
e d o not buy bills
from the accepting b a n k except i n one case, a n d that i s
bills crestea f o r a very short time covering domestic shipments o f & commodity, a
bill drawn f o r less t h a n thirty
days, a n d i n thet case w e take t h e m a n d charge t h e m s i x
per cent, t h e commercial rate.
The chairman.
Gove-nor Biggs ?
Governor Biggs.
T h e r e h a s n o t been abuse i n our disT h e r e h a s been @, case o r t w o o n oce
trict t o any extent,
easion where w e raised a question ana checked i t u p right
away,
but
i t has n o t amounted
The Chairman.
t o anything.
Y o u depend o n the banks t o look after
that matter--
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Federal Reserve Bank of St. Louis
Governor Biges.
Y e s , b u t i f they d i d n o t look after
88
it we did.
v
e g o a little further i n t o i t t o find out.
The Chairman.
W h e r e d i d you go?
Governor Biggs,
W e went b a c k t o the accepting bank.
We first g o t o the depositing bank.
I f ve find that i t /
means a n evasion o f Section 5200 w e tell them that we will
not t a k e i t a t a n y rate.
T h e r e h a s o n l y b e e n o n e incident
of that kind, and that was just a week o r two ago.
The Chairman. G o v e r n o r Calkins, w h a t i s the situation
in your district?
Governor Calkins, &
very large proportion o f the
acceptances that w e carry are those purchased for us i n
New York,s comparative s m a l l amount being created i n our dis
trict.
W e have made inquiry wherever there seemed t o be
ocecnsion f o r it, a n d w e have found some violation o r evasion
of the sct, due t o ignorance. T h e r e i s no question i n my
mind b u t what t h e member banks n e e d education i n regard t o
proper practices i n repard t o bankers! acceptances.
N o n e
of the cases have b e e n serious o r o f sufficient importence
to cause a n y drastic. action t o be taken.
The Chairman,
generally speaking,
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Federal Reserve Bank of St. Louis
Y o u get your information f r o m the bank,
d o y o u not?
Governor Calkins,
W e have gotten i t from the banks
ae
except i n one o r two cases where w e felt obliged t o g o further b a c k i n order t o get t h e facts.
The Chairma’., G o v e r n o r V a n Zandt, w h a t i s the situation with yous
Governor Van Zandt, T h e r e seems t o be a tendency i n
our district,
i n the development o f the acceptance pract-
ice, f o r the member banks t o purchase immediately f r o m their
customer their acceptance, n e v e r giving i t back t o him, a s
in m y opinion t h e practice should be--that is, that t h e ac-
cepting bank's duty and responsibility should cease when
it has affixed its signature, a n d i t is no more concerned
with t h a t a c c e p t a n c e u n t i l
i t comes t i m e t o p a y i t , b u t
we find that t h e y take them, charge t h e m their regular discount rate, a n d then turn eround e n d offer t h e m t o u s a s t h e
only open market,
y
e have refused i n several instances
to buy these sedeptansen wherever w e found t h a t i t was i n
violation
o f S e c t i o n 5200, a n d w e b o u g h t
i t from them and
discounted i t for t h e m a t the regulsr commerciel peper
eee
j u s t t h e vsame a s though i t had been bills payable.
If the acceptance p u t them i n excess o f the limitations o f
Section 5 2 0 0 ,
re
igies: ae
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Federal Reserve Bank of St. Louis
we refusedt
o have a n y t h i n g
t o d o witr i t
90
The Chairman.
Y o u buy t h e m a t the commercial rate a n d
take t h e m a t a lower rate, under present conditions, t h a n
you would a t the o p e n m r k e t rate, d o y o u not?
Governor V a n Zandt.
The Chairman,
T h a t i s that, Mr. Chairman?
Y o u r discount rate does n o t impose a n y
penalty o n them now?
Governor V a n Zandt.
N o - - s i x p e r cent.
The Chairman. G o v e r n o r Case, s e will b e particularly
interested i n any report y o u c a n give u s o n this subject.
Acting Governor Case. T h e r e a r e v e r y f e w instances o f
abuse o f the accepting privilege i n our district, w e think.
A good m a n y r u l e s a n d r e g u l a t i o n s h a v e b e e n introduced,
we t h i n k t h a t o u r b a n k s u n d e r t e k e v e r y c o n s c i e n t i o u s l y
construe those rulings a n d t o live u p v i them.
end
to
T h e feu
instances o f abuse t h e t w e have found have b e e n d u e altogether t o misunderstanding o r perhaps F
Little ignorance
of the law, a n d they have b e e n corrected.
is a
C f course, there
great d e a l m o r e t o b e s e i d o n t h i s subject.
O n e of
the things t h e t I would like t o have discussed i s the
question o f the better distribution o f the bills t h a n w e have
been having i n the lest f e w months, I
do not know whether
you want t o discuss t h a t n o w o r take i t u p later.
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Federal Reserve Bank of St. Louis
Gl.
The Chairman. I
headings
am not sure t h a t some o f these other
d o n o t c o v e r t h a t point.
of t h e i m p r e s s i o n a s t o whether
M r . H o x o n reminds
me
o r r o t t h e b i l l s w h i c h pur-
port t o b e export bills a r e i n reality whet t h e y a r e said
to be.
I s that the idea?
Mr. Hoxon,
T h a t i s the thought I
The Chairman,
had, yes.
t h a t 1 s your view o n thet subject,
Governor C a s e ? .
Acting G o v e r n o r Cause.
most o f y o u gentlemen know,
M r , K e n z e l , wheanI t h i n k
i s cur v e r y good expert o n
this subject, h i s given that matter a
very preset deal o f
thought a n d made considerable investige tion regerding it.
Hethinke there is very little abuse of that, thet the
great m a j o r i t y o f t h e b i l l s s r e p r e c i s e l y w h u t t h e y p u r p o r t
to be, export o r import bills.
There h a s b e e n a
ing-alluded
question raised,
t o i t this morning,
a n d Governor Hard-
a s t o whether t h o s e bills
are cctually a n d finally paid u t maturity. I
had quite a
discussion o f that feeture w i t h Mr. Kenzel v e r y recently,
and h e t h i n k s t h e t t h e g r e a t p r e p o n d e r a n c e
paid.
H
o f them are
e s a i d t h a t here a n d there i t i s possible t h a t
there m a y have b e e n a n exception, w h e r e t h e goods have
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Federal Reserve Bank of St. Louis
.
9
been s t o r e d anda perhaps
2
a n e w i n s t r u m e n t c r e s t e d t o temp-
orarily t i d e o v e r t h e p e r i o d t o p e r m i t d i s t r i b u t i o n ;
thet is, where a shipment h a s b e e n hela u p due t o a dock
Strike o r inability t o get t h e goods scross,
o @ somett ing
af that sort; b u t h e feels t h a t i n the main t h e privilege
is not being abused.
Governor Calkins,
Y o u would n o t consider t h a t a n
abuse, w o u l d you? =
Acting Governor Case, I
properly b e c o n s i d e r e d
a n abuse
do not think i t would
i f a ninety-day b i l l i s
drawn i n good faith, w i t h merchendise attached, b u t be-
cause for one reason o r another, over which the shipper
has n o control,
i t doesnot reach destination a n d there-
fore could not b e self~liquidating.
B u t still I
think
that i s a temporary situation a n d i t would b e perfectly
legitimate t o bridge t h a t gap.
Governor Calkins.
T h a t i s what I
mean exactly,
Governor.
Acting Governor Case.
B u t a t the same time, t h e
question h a s b e e n r a i s e d b y t h e Board,
a n d i t would a p -
pear as though they feel there might be some question
about another bill being drawn there,
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Federal Reserve Bank of St. Louis
93
The Chairman. G o v e r n o ” iorss, w h a t i s the situation
with you?
Governor M o r s s .
I n t h e e a r l y p a r t o f acceptances,
did n o t t h i n k t h e t s o m e o f t h e b i l l s w e r e
we
i n compliance
with the repuletions, b u t that ves more f r o m a misunder-~
standing o f the regulstions t h a n anything else.
V
e setisfy
ourselves n o w that every bill thet comes t o u s e n d thet r e
SG6 “18S ‘properly ‘dremn a n d f a r -a.proper purpose.
same time, t h e regulation o f the Board,
t the
b y which t h e docu-
ment o n acceptance n e e d n o t b e t h e r e e x c e p t
acceptance, leaves, 1
A
a t the time o f
believe, opportunity t o have more
than one acceptance o n the same goods, a n d t h e bank might
not be a t fault i n that a t all, because i f the goods are
shipped a n d a r e r e c e i v e d l o n g b e f o r e t h e a c c e p t a n c e
ec, they may be gold t o snother customer.
i s receive
T h e t cus-
tomer might ship t h e m again a n d draw another acceptance o n
them b e f o r e t h e f i r s t o n e i s paid, .
I think t h e r e g u l a -
tions l e a v e o p p o r t u n i t i c s f o r that. I
do not know t h a t I
have meje any estimate o f how much i t has been, but the
practice
i n our district
i s t h a t w e d o n o t b u y a n y bills
from t h e accepting bank.
Governor Calkins.
T h e regulations d o not require
that t h e d o c u m e n t s s h o u l d b e a t t a c h e d
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Federal Reserve Bank of St. Louis
a t t h e t i m e o f ac-
94
ceptance
i n t h e c a s e o f i m p o r t o r e x p o r t bills.
L
G 38
only i n the case o f a domestic bill.
Governor Morss,
j e feel a s i f the foreign business
is rather m o r e carefully conducted than t h e domestic busi-
ness.
T h e bills thet w e see for imports, f o r instance,
acceptances, Why, t h e v e r y names o n them and t h e f o r m ¢
bills, t h e w a y they are written, m a k e i t impossible t o
getaway from the fact thet they are real bills for the
import o f goods.
“ h e n y o u take goods f o r export, there
is a clause which w e require i n a bill o f that kind.
The
bank has t o make the statement "This money 1s used for inport or export of goods”, and then there i s secondary evidence, l i k e t h e number o f a letter o f credit o r such 6 thing
as that, a l l o f w h i c h p o t o p r e v e t h a t t h e b i l l i s f o r a
real purpose.
Governor Fancher.
M a y I inqv‘re whether i t would be
practical, o n export bills, t o get mo.e inforrétion than the
mére statement t h a n i t i s a n import o r export transaction?
Is i t possible f o r t h e e c c e p t i n g b a n k t o m o r e c l o s e l y i d e n t i f y
the transaction,
b y riving t h e commodity, t h e steamship,
something o f that sort.
or
I s there a n y w a y b y which w e c a n
‘get more informetion with regard t o a n export bill than w e
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Federal Reserve Bank of St. Louis
$5
do get, that is, more than the general statement that i t is
an export o r impert bill?
Governor Norss.
W h y yes, I
suppose y o u can, b u t a t
the same time there h a s b e e n s o much interruption o f transportstion, a f t e r t h e goods g e t t o the coast, because o f a
want o f ships, o r because o f strikes, d o c k strikes, a n d
vérious mattersof thet,sort, t h a t I
do not suppose,
i f they
had the name o f the ship i t was going on, t h a t i t woulda g o
on that ship,
I t i s more difficult right n o w than i t
would b e ordinarily.
Governor Fancher.
N e haven't many accepting banks,
but w e have been endeavoring w i t h our banks,
i f they have
import o r export bills, particularly export a n d S c i e vic. t o
have t h e m c o v e r t h e t r a n s a c t i o n a n d h a v e s o m e t h i n g
o n the
bill t o show what i t is.
bit o f
W w e are getting quite a
informétion o n those bills, a n d o f coirse i f w e have o c c a
sion t o think thet possibly the transaction i s not one that
would properly be covered, w e g o beck t o the accepting bank
for details.
The Chairman.
G o v e r n o r Seay,
w e would l i k e t o hear
from you.
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Federal Reserve Bank of St. Louis
Governor Seay.
“ i t h the permission o f the Governors,
$6
Deputy Governor Peple w i l l reply i n ? etail t o your question.
Governor iiorss.
I f you will pardon me, I
would like
to S a y one more thing about that question t h a t Governor
Harding spoke o f and Mr. Case s a a
o f . S o m e o f our banks
have toli u s that their customers h a v e sold foods abroad,
and have had those poodspaid for o n the other side, and
insteed o f bringing the money which was paid o n the other
Side for those goods back here, because o f the decline i n
the rate o f exchange, those balances have been left o n the
other side,
Of course, when those balances are left o n
the other side, t h e exporter h a s t o borrow more heavily
here. T h e y do the same thing i n Cancda.
I n fact, one of
our investing banking concerns has a large advertisement i n
the p a p e r t o l e a v e b a l a n c e s
i n t h a t w a y i n Canada, w h i c h
eould profitably b e invested i n Dominion bonds until such
time a s the money could b e brought b a d h e r e .
W e believe,
there i s
altrough w e haven't a n y way o f messuring it, /a ereat deal
of. money o n the other side a n d i n Canada o n balances o f that
kind,
The Chairman.
Mp. Peple., I
M r . Peple, w i l l y o u proceed?
think thet w e have h e d what appeared
to us t o be a great deal o f abuse o f the acceptance privil-
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Federal Reserve Bank of St. Louis
ego i n our district.
The Chairman.
Y o u s a y there h a s been & great deal
of abuse?
Mr P e p e ,
Y e s .
W
e h a v e always b o u g h t o u r bills
direct f r o m t h e bank, a n d w e h a v e r e q u i r e d a
great d e a l
of detail information w i t h regard t o the underlying trans-
uctions. I
cannot help feeling that it is because w e have
followed t h e thing s o closely a n d made s u c h dlose investigations t h a t w e have discovered this practice, w h i c h hasnot
peen S O apparent i n other district.
In the @ se o f foreign bankers' acceptances, a s long
as t h e drawer i s within t h e t e n per cent limit o f the ac-
cepting bank, h e i s not required t o deposit any security
whatever.
T h e result o f that hasbeen that a number o f
tobacco exporting concerns, s o m e milling concerns, a n d
probably some cotton concerns, h a v e b e e n carrying w i t h
their banks a n additional t e n per cent line o f credit based
on bankers' acceptances w h i c h were drawn largely against
their e x p o r t b u s i n e s s a n d n o t t i e d u p w i t h a n y p a r t i c u l a r
transaction.
W e have h a d some little o f the packers
pusiness d o w n i n our district, S w i f t &
& Company, S
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Federal Reserve Bank of St. Louis
w
Company a n d armour
i if Armour
@t
a r e t h e ones t h a t w e have han-
98
dled prticularly,
S w i f t a n d armour have made arrangements
with quite a nurber o f banks i n the district t o take ace
ceptances u p t o their t e n per cent r i e n '
They have
given their repular acceptance toiktia ot that has been ap.
Proved b y the Board, a n d i n the description o f the underlying transactions t h e y have used t h e most general
terms
possible--~meat and lard for export t o foreign countries.
in one case I think i t was "fresh and cured meat" for Antwerp a n d Milan, a @ very general description.
Evidently
these individual acceptances are not besed..on individual
icy
transcetions, b u t cover their genere] export business.
Another abuse o f the export acceptance business t h a t
we have d i s w vered recently i s this: tobacco éxporters,
just efter t h e armistice, shipped a
great deal o f tobacco
to the other side; t h e y found their funds t i e d u p o n account
‘of the adverse condition o f exchange, andj then had tobacco
t o be
shipped there which they were not willing t o ship and pile
up the credit any further, but the tobacco having been intended for export, h a d bankers' acceptances d r a w n against
it,
and they came beck f o r renewals o f those acceptances,
other Words,
I n
i t was their understanding, w h e n t h e first
acceptance was made, that the export was t o be made within a
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Federal Reserve Bank of St. Louis
$9
sufficient t i m e t o clear t h e acceptance,
W e believe i n
& good many cases i t was erbitrerily
h e l d for t h e reason
that t h e y d i d not want t o consummate
t h e sale,
V
e have
shut down o n that, elthough w e had a n agreement,
had an
understanding w i t h the banks i n
the begnning, t h e t n o renewal o f t h a t a c c e p t a n c e h a d b e e n
promised, t h o u g h when:
the time came t h e bank d i d n o t hesitate
t o grant t h e renéewal.
In the domestic storage e n d o f i t I think
w e have
had a great deal o f abuse o f the privilege
i n thet t h e acceptances h a v e b e e n used prictically
u s commodity loans.
The r e g u l a t i o n s p r o v i d e ,
funds c a n b e u s e d
i f proper acceptance,
i n settlement
that the
o f accounts a r i s i n g f r o m
the domestic storage o f recdily marketable
staples a n d
consequently p e o p l e h a v e n o t h e s i t a t e d
t o b u y cotton, t o .
bacco, wheat, a n d various different things, without
a n y defindte contract t o sell i t a t any particular
time, t h e y
need t h e f u n d s
t o p a y f o r them, a n d t h e y h a v e i s s u e d
bank- .
ers' acceptances against those things. I
do not state t h a t
any of those abuses have grown out o f eny deliberate
intention o n the part o f the banks t o violate
a
specific law.
I think t h e y have grown o u t o f the fact that
t h e regulations
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Federal Reserve Bank of St. Louis
185
in many benks were wide o p e n t o all kinds o f interpretsetions
and that t h e banks h a v e p u t t h e most Liberal interpre tetion
on them.
Governor Vellborn,
Mr. Peple,
w
The Chairman.
Mee POplSeS:
Y o u d o not call thet ebuse,
do
e t h i n k i t is.
I t takes t h e f o r m o f a
loan.
Y e u ,
Governor \ellborn,
I t does n o t reguire a
contract o f
sale--
Ue Papier.
O T tank t h t a n a e s perty accurmlstes
goods simply t o sell i t at some future time, a t his good
Pleasure, Snd then dravs a banker's acceptance against i t
and borrows m o n e y against t h e acceptance, I
all d u e respect,
think, w i t h
i f y o u will look u p most carefully some
of your transactions y o u will f i n d that y o u h v e m o r e o f
those t h a n y o u think.
The Chairman. D o n ' t you think that i s due more, p e r
haps, t o the liberality o f the provisions a n d regulations?
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Federal Reserve Bank of St. Louis
Mr. P e p l e . U n d o u b t e d l y .
The Chairman.
iy .Peple.
T h a n i t i s t o abuse?
Y e s , but nevertheless i t has tied u p
AaB i
money i n those exports, a n d h u s made practically commod-
ity loans o f them, which I think should not be the cese.
Governor Sesy. T h e r e h a s beoen a regulation issued
since t h e n particularly meeting thet situation.
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Federal Reserve Bank of St. Louis
102
Deputy Governor Peple,
not & @ regulation.
Now, I
a n interpretation, a ruling;
T h e r e h e s been a
ruling o n it.
will give y o u one o r tivo instunces a n d show
you the liberal w a y i n which banks have interpreted o r
tried t o interpret the regulstions.
T
e had ea concem
Jown i n Mr, Veliborn's district, w h o undertook t o 30 some
business through t h e Bank o f Cherleston,
cérn o f small capital.
I
t vas a con-
T h e y h a d arranged w i t h banks i n
Our district f o r a five million dollar bankers acceptance
privilege, f u r m e d o u t smong the different banks,
m s what
they proposed t o d o was that this brokerare concern would
take cotton o n deposit, h a v e warehouse receipts issued
in their own names, distribute these bankers aceuptanocs
around t o the . xtint o f five million dollars, h o l d the
cotton until t h individual owners ordi red t h e m t o sell,
but i n t h mantime carry the loan o n bunkers! agce ptanccs.
The ySaid that t h e y could cesily have r u n i t u p t o s e v n
and one h e l f millions, b u t thot t h e y were J u s t trying
to ect 4 Stert this year.
of cotton itself.
T h a t concern d i d not o m & pound
I t was mercly cstablishing a n epiney
by which a n owner o f cotton could g e t money o u t o f
the F e d e r a l R e s e r v e B a n k s a n d c a r r y c o t t o n f o r a s l o n g a s
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Federal Reserve Bank of St. Louis
4
he plcascd.
T
e t o o k that u p with the Board a n d o f
COUrSe f o d 1 b S§ LOppE d
x
Justa f e w days a z o I had a n inguiry f r o m a V i r -
ginia banker, w h o sald that a customr o f his wanted t o
buy ¢g@gs e n d put t h o m i n coid storage f o r the fall.
hea t o pey «12.60 a
H e
crate f o r t h e cers, a n d the storage
company was going t o tdvance (9.00 & crate o n the ergs,
and h t w a s poing t o put u p about 20,000 crates k a k h e
would need (75,000 t o finance h i s «nd of the trensaction,;
and h e wanted t o know whether h e could use bankers' ac-
coptances upainst the equity i n cold storage eggs that
were going t o be held for a higher price i m the fall.
Now, that i s the idea that some bunkers have o f proper
uses for bunkcrs acceptances, a n d I think i f we get down
deeper i n t o the individual transactions t h a t these banks
are having, w e will find thet a great many o f them are
abusing n o t neetcsserily the langusge o f the regulations,
but t h e y e r e u n g u e s t i o n s b l y u b u s i n g t h e s p i r i t ,
o r what
should b e th: spirit, underlying t h e acceptance b u s incss.
The Chairman,
I
n 1918,
i n Chicago, w h e n this
question first came u p for determination a s t o what would
constitute satisfuctory evidence,
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Federal Reserve Bank of St. Louis
as I
remember it. we h a d
our counsel work t h e matter out, o n d h e prepared
a document f o r u s e i n c o n n e c t i o n w i t h e x p o r t a n d i m p o r t
accept-
ances, w h i c h was referred t o the Federal Reserve
Board
and corrected b y them, a n a the form was then
adopted,
and I think i t i s i n use n o w i n other districts, b u t
we
have n o definite knowledpe o f there being a n y abuse o f
the acceptance privilege i n our district.
T h e banks
which are accepting are using this particular form,
and
on investigation recently made w e were informed t m t
in
every c a s é - - I
d o not k n o w whether t h e other banks a r e
using i t o r not.
ir, Hoxton,
T h e y are a l l using it.
The Chairman, T h e s e are for exports and imports,
Mr. Hoxton.
T h e y are used b y all the banks.
The Che irman, Y e s , they are used b y the packers
and t h e y are u s e d i n other transactions.
C u r bills o u t
there are largely peckers bills, o f course.
Mr. Hoxton,
T h e banks. generally are using that
form,
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Federal Reserve Bank of St. Louis
Chairman.
T h e banks generally are using thet
they?
Hoxton,
Yes.
T h e point t h a t Mr. Peple m a d e
105
wes i t was s o vague that y o u could n o t tell whether i t
was o n e t r e n s a c t i o n
The Chairman.
or a
number o f t r a n s a c t i o n s ,
Yes.
I t seems t o m e that,
i n going
around t h e table, t h e various banks sere n o t i n possession
of any informition which would indicate a n y great abuse
of the acceptance privilere, e x c e p t perhaps i n connection
with the domestic storage o f goods.
Deputy Governor Peple,
I s that it, Mr. Peple?
W i t h t h e domestic storage
acceptance
of goods and using the banker’ Ainstead o f 2 commodity
loan,
i n the export business w i t h respect t o granting a
very m u c h l o n g e r t i m e t h a n i s n e c e s s a r y u n d t h a n should
be embraced i n the banker's acceptance.
M r . Seay has
just reminded m e o f another instance t h a t came u p recently.
We h a d s o m e e x p o r t b i l l s a g a i n s t t o b a c c o ,
applied f o r a
renewal.
V
a n d the bank
e a s k e d why, w h e t h e r t h e g o o d s
had landed. T h e y said yes, thet the woods had landed
and were i n a waréhouse i n London, b u t they hed not h d a n
opportunity t o sumple t h e tobacco. I
asked h i m h o w long
he Was going t o drav that renewal acceptance for, a n d h e
said ninety days.
v é l l , h e was making a subterfuge o f
sampling t h e tobacco really t o get ninety days further
time f o r h i s E n g l i s h customer.
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Federal Reserve Bank of St. Louis
LOA
The Chairman.
M r . Peple,
i t seems t o m e i t would b e
quite i n order t o a s k for suggestions a s t o how t o correct
this abuse o r evil.
“ h a t would b e your recommendation?
Deputy G o v e r n o r P e p l e ,
Well,
i t seems
as far a s export bills e r e concerned, a n d I
to €xpress
a n opinion
t o m e that,
am not willing
o n the import business because
we
have h a d practically none o f that a n d I have h a d n o experience;
s o far a s t h e export
i s concerned, t h e r e o u g h t t o
be a n effort t o tie u p the granting o f the credit a little
closer with the specific transaction which i s going t o
mature with the maturity of the bill, end provide funds
out o f which the bill i s t o be paid.
mestic trensictions, I
V i t h regard. t o do-
am beginning t o be sfraid that the
only way t o correct that absolutely will b e not t o lend
money on stored foods i n the form of bankers!’ acceptances.
Governor Wellborn. N o w , Mr. Chairman, Mr. Peple
has r e f e r r e d t o m y district a n d h e s m a d e t h e s u g g e s t i o n
that i f I would g o into i t a little closer I might uncover s o m e o f these ebuses. I
want t o s a y that h e has
mentioned s o m e m t t e r s t h e r e t h a t are n o t abuses
i n
accordance w i t h the regulations o f the Board, a n d m y understanding i s thst domestic acceptances d o net require
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Federal Reserve Bank of St. Louis
197
actual contracts o f sule.
I t just involves a
of goods, a s a practical matter. I
storage
know w i t h regard t o
cottom all b i g cotton shippers have t o buy a great l o t
of cotton, w h a t w e call e n assembling o f cotton,
in
order t o get t h e assembly o f grades, a n d that i s what
bankers! acceptances are used for i r our district very
largely, toassemble e ‘thousand o r t w o thousend bales,
in order t o get the supply t o ship o u t t o the eastern
er foreign mills. I
have never s e e n a n y abuses whatso-
ever i n those acceptances.
T h e y g e t pretty heavy a t
times, b u t i t complies w i t h t h e reguletions, a n d I think
it i s & very proper reguletion, too.
Governor Seay.
W e had one case i n which a n assem-
bler o f c o t t o n w a s g e t t i n g a c c e p t a n c e s a g a i n s t c o t t o n
which was not intended for delivery until t r o years.
Governor VWellborn.,
T h a t is a
v e r y unusual propo-
sition.
Governor Calkins.
T h e Board recently made a
ruling
to the effect that bankers’ acceptences should b e used i n
furtherance o f the distribution o f goods, a n d f o r storage
of goods f o r t h e purpose o f distribution.
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Federal Reserve Bank of St. Louis
Governor Vellborn.
B u t t h e y are assembled f o r the
purpose
o f distribution.
fovernor Calkins.
A c c o r d i n g t o Governor Seay,
it
depends u p o n whet y o u call imrediete distribution.
Governor Vellborn.
T h e y want t o sell t h e cotton a s
Soon a s possible, b u t possibly have n o t p o t orders f o r
it already.
T h e y heave g o t t o a s s e m b l e
the different grades.
i
i t i n order t o p e t
f they want t o spemlate,
they
speculute o n the exchange.
Governor Morss,
T h e particular l o t o f eotton t h a t
the bill is supposed to cover would lose its identity if
it wes unbaled a n d repraded, would i t not?
Governor Wellborn.
T h e y assemble the bales, a thous-
and o r two thousand bales.
T h e y make the sales immediately
and s h i p t h e m a n d attuch t h e bill o f l e ding t o the draft
Governor V a n Zandt.
I f a men has a
contract
sale for, say, a thousand bales o f strict middling,
o f
i t ma ¥
be necess:ry f o r h i m t o purchase a n d remove t w o thousand
bales o f cotton before h e c a n get o u t his thousand bsles
of strich middling.
H e cannot identify each bale, because
there a r e other frades w h i c h h e m a y not export,
Governor Forss,
the specific bale?
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Federal Reserve Bank of St. Louis
T h e n where i s your security against
109
Governor V a n Zandt.
Governor Morss,
I t is not u
q u e s t i o n o f security.
I t i s not?
Governor V a n Zandt.
Governor Vellborn,
No.
- I n connection w i t h the subject, I
might bring u p 4 matter which occurred the other d a y i n
which your bank was interested, Governor McDougal, w i t h
regard t o this Cuban suger situation.
T h e r e i s a syndicate
forned between ~. New Orleans banksand Cuban banks t o make
loans o n sugar i n Cuba, a n d t h e bank i n Cuba d r e w o n the
New Orleans bank:., e n d they h a d a syndicate agreement, a n d
we wanted t o make s n investigation o f that, because there
hed been s o much talk about hoarding sugar, a n d we thought
it was o u r d u t y t o inquire particularly into that.
r e
found that t h e agreement r e a d that the sugar must b e shipped t o the United States within t h e time o f the maturity o f
the bills.
W e took t h e position t h a t there ought t o b e
some contract o f sale, a n d w e relied o n a decision i n the
Bulletin o f M a y lst, 1 9 1 7 , I
think, w h e r e t h e y s a i d t h a t
there must b e a n actual contract o f sale f o r imports.Well, t h e y immedietely wrote b a c k a n d s a i d that t h e y had a
Letter f r o m the.Board t h a t t h e y could d o that, e n d t h a t
r aoc t i w e
4t did not requ i r e s a r ~ a c t i e l L . c o mf tsabey~and
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Federal Reserve Bank of St. Louis
11¢
wanted t o find o u t whether a n y o f the other banks h a d a n y
of these ucceptancés, a n d I
believe y o u r bank wired that
they head two a n d o n e half millions o f it.
W e thought t h e
transaction h : d gone s o far that w e would n o t turn d o w n
those bills, but w e wired ourbrancnin New Orleans that
in future 1 f t h o y m a d e a n y o f t h e s e s y n d i c a t e a g r e e m e n t s ,
that t h e y s h o u l d l e t u s l o o k i n t o them; t h a t w h i l e t h e y
may b e eligible u n d e r t h e F e d e r s l R e s e r v e A c t , s t i l l t h e y
might n o t b e desirable f o r u s t o purchase t h e m a n d w e
would b e the judge o f that ourselves.
I t seems t o be well
settled w i t h t h e B o a r d h e r e t h a t i t does n o t r e q u i r e a n y
contract o f Sule.
The Chairman,
W h e n you brought that matter u p with
us, w e of course investigated and found that v e had some o f
these bills, a n d the tenor o f your letter was that y o u a t
least were v e r y suspicious o r perhaps h e d determined t h a t
the b i l l s w e r e n o t regular.
W
e g a v e y o u a l l t h e informe-
tion that v e c o u l d get, a n d aweited your reply, w h i c h finally came, a n d which stated i n effoct that since y o u h a d
begun investigating t h e matter information h r d come t o hand
which satisfied y o u thet the bills were all right, a n d that
is a l l w e { n e w S o u t i t .
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Federal Reserve Bank of St. Louis
i11
Governor Vellborn.
The Chairman, Y é s 3 .
Y e s , t h a t t h e y were eligible,
s u b - ~ t o p i c No, 2 . ~
Governor Morss (interposing).
M r . Chairman, m a y I
Say one w o r d about that? T h e r e seems t o b e «& ast b e l i e
in the understending o f the definition o f "acceptances",
from what Governor V a n Zandt seid j u s t now, t o whet
I have,
My Sefinition o f a n ecceptance i s that i t covers a
transaction;
specific
t h a t i t covers « e short t i m e b i l l w h i c h
covers
& specific t r a n s a c t i o n w h i c h l i q u i d a t e s i t s e l f a n d
i s se-
cured. N o w , Mr. V a n Zandt seid just n o w thet i t wes n o t
secured necessarily, a n d when y o u take t w o thousand bales
of cotton a n d take i t out o f the bales a n d regrade i t t o
befesold, you have certainly lost the identity of the
security against t h e particular bill, a n d your bill i s n o
longer secured.
Governor V a n Zandt.
a n export bill o r e n import bill
is. T h e r e i s nothing i n the a c t that requires t h a t bill
to b e s e c u r e d e x c e p t w h e r e
i t i s i n excess
o f ten per cent
of the accepting bank's capitel and surplus,
Governor Morss.
ef a n acceptance, I
that.
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Federal Reserve Bank of St. Louis
T h a t i s different f r o m m y definition
would like t o have a discussion ahout
11g
Governor fellborn. I
*
agree w i t h y o u thoroughly about
t h a t , a n g w e r e q u i r e a l l w a r e h o u s e r e c e i p t s f o r t i m t eotton.
Governor Morss.
Y o u cannot g o i n and take t h a t
cotton o u t unless y o u have those receipts.
O n c e t h e re-
ceipts a r e o u t o f your possession, t h e situation i s
changed.
Governor “eliborn.
T h e cotton h a s n o t been changed.
They probably took those u p e s soon a s t h e y shipped it,
anticipate the bills, and then we rebate them,
Governor Seuy,
a s beuring o n that, the practice that
one o f our member banks desired t o enforce was this, that
they desired t o m k e loans against those acceptunces a n d
wanted t h e warehouse receipts s e n t back t e them, s o that
the original goods spxinst which the acceptence was made
would b e changed once, twice o r more times--thst was the
general p r a c t i c e .
T h i s w a s a n export point, a n d t h e t w a s
the p é n e r a l p r a c t i c e
o f t h e i r c o t t o n f a c t o r s a n d exporters,
that t h e y h a d b e e n a c c u s t o m e d
t o a c c e p t w e r e house r e c e i p t s
ang take other goods o f similar value-~-not the identical
value, b u t o f similar value--and t h e y wanted t o d o i t i n
that way, t h a t there would b e n o bills which h a d been r e ceived h e l d n o t good when t h e ecceptance w a s made.
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Federal Reserve Bank of St. Louis
113
Governor Morss. W e l l , t h t i s one way, but o f course
you take t h e security,
i f a man takes i n two thousand bales
of cotton with various acceptances
o n them a n d regrades
then and begins t o ship aut, y p e might ship o u t t h e best
grades first.
Governor Seay, S u r e l y .
Governor M o r s s ,
a n d leave t h e security o f a n inferior
Governor Wellborn.
W h e n e v e r h e ships o u t h e supplies
the bill o f lading, warehouse r e -ipt, a n d the draft c a n be
taken u p .
Governor Morss.
O f course t h e transeetion c a n b e pro-
tected.
Governor tiellborn.,
T h e member banks w i l l take c a r e o f
The Chairman, T h i s matter we are discussing i s 4irectly related t o sub-topic No. 2, "Should a n import or
export b i l l b e a r s p e c i f i c d e t a i l s
o f t h e transaction u p o n
its face, including t h e name o f the ship, a s i s the custom
in certain foreign countries?”
And also No. 3: “Warehouse acceptances--how t o prevent
their abuse without destroying their usefulness."
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Federal Reserve Bank of St. Louis
Li4
LIshould like some one now t o susgest whut action ne
ought t o take.on these three subjects, w h i c h I
all b e sealt with a s one.
think c a n
I n the first place, 1
umer-
stund f r o m the discussion t h a t there i s n o noticeable general a b u s e o f t h e a c c e p t a n c e p r i v i l e g e , e x c e p t i n g p e r h a p s
in the case, a s Mr. Peple recites, wherein h e thinks t h a t
acceptances b a s e *
perhaps--1
o n the storage
o f goods a r e nothing m o r e
m a y p u t t h i s t o o strong,
b u t a s J ] understood,
nothing more n o r less than a n additional aca@mmodstion,
Deputy G o v e r n o r P e p l e .
O n c o m m o d i t y losns,
The Chuirman, Y e s , o n comiodity loans. N o w , i f we
can dispose o f those three, I would like some one t o sugges
how t o d o it. I
went it, o f course, understood thst, i n so
far o s w e are concerned, t h e banks o u t i n our district are
using this form, w h i c h was prepared, a n d which was approved
by the Federal Reserve Board, and of course i t is pretty
general i n its terms and there i s nothing here which implies t h a t there must b e u specific transaction o r anything
with r e g a r d
t o the name o f t h e s h i p that t h e goods a r e going
on, o r anything o f that sort. ‘ Now, are these provisions t o o
liberal,
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Federal Reserve Bank of St. Louis
o r are t h e y not?
Governor Seay.
M r . Chairman, 1
may be wrong, b u t o u r
115
conception o f the acceptance Wea, briefly. t h e t
stated ‘bi
Governor M o r s s ,
W
e a r e n o t i n a lerge nxeceptance m a r k e t
and a r e t h e r e f o r e n o t i n a p o s i t i o n
t o express
a n opinion
thet would b e o s comprehensive a s thet o f y o u
bankers w h o
are i n a n accer tance market, b u t w e
are o f the opinion,
fron the observation o f transactions w h i c h
come before us,
that the principle o f « banker's receptance,
by many banks,
¢ s interpreted
i s nothing more rer less t h a n extension
of
the commodity loan,
N o w , i f i t was intended t o be less,
end t h a t i s t h e p u r p o s e
o f the u c t and t h e purpose
o f the
Board t o grant additional privileges, a l l right
snd good;
but that has n o t been o u r idea o f the acceptance,
w e do
not believe t h a t i t i e t h e purpose o f the A c t t o
give
banks,
i n the. n a m e o f a n acceptance,
Provides
i n other c a s e s
more than the law
o n c o m m o d i t y loans.
I t seems
to
us that i t i s necesszry f o r t h e Board t o more
Specifically
interpret
o r provide w h a t d o e s c o n s t i t u t e a
banker's a c c e p t -
ance a s dJifferestieted f r o m a commodity loan. N o w ,
i f it
is Seckacd t o extend the privilere o f lending
m o r e money
on c o m m o d i t i e s w h i c h u l t i m a t e l y e r e s o l d u n d e r
a
contract,
or Which may be shipped abroad, a l l well and good,
but I
think that w e ought t o esk fore definite interpretation
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Federal Reserve Bank of St. Louis
from the Board u p o n that point.
Governor Celpins.
M r . Chairman, I
huve t o refer t o
my former inquiry, a s t o whether t h e Federal Reserve Board
as n o t recently ruled o n exactly thet point, t h a t a banker's acceptance w u s v r o p e r i y n
a instrument made i n furtherance o f the distri bution o f foods a n d for storage o f goods
for distribution.
e r e h o u s e storage o f poods f o r other
purposes t h a n distribution should n o t ufford a basis f o r
bankers! acceptances.
The Chairman.
T h e t applies t o domestic storxuge o f
moods.
Leputy Governor Péple.
M r , Calkins, w h e n were t h e
goods t o be distributed?
Governor Calkins.
I n course o f distribution.
I s
that ruling correct, Mr, Hoxton?
ir.
Hoxton, 1
do not
recall
t h e
wor
Deputy Governor Peple. T h e r e i s the weak point.
These people who buy these things s a y "We are going t o
distribute."
Y o u ask them when, end they sey "When we
get ready, w h e n t h e p r i c e
i s satisfactory,
w h e n there i s
& demand f o r them.’
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Federal Reserve Bank of St. Louis
Governor tiorss.
T I would like t o sey that the accept-
Siig
ance council o f which Mr. Varburg i s chairman, i
one o f those meetings
cil w a s e x p e c t e d
i n New York.
sat i n
O f course, this coun-
t o make recommendations
t o the Board
for their regulation, b u t i n thet council this definition
which I
have g i v e n o f ecceptance w a s t h e fundamental basis
of their deliberation, a n d I do not know whether they have
reommended anything o r not, but I understood they were t o
make recommendations.
Governor Wellborn.
M y idea t s that i t must take c a r e
of itself within t h e life o f the aeceptance.
Governor Morss. Y e s , but i t is not secured when i t
hsslost i t s identity.
Governor Wellborn. I
do not admit that i t has lost
its identify.
beputy Governor Peple. W h a t provision 1 s there for
taking care o f the acceptance when the goods are simply
bought a n d s o l d w i t h n o c o n t r a c t
Governor Wellborn.
o f sale?
A s I mentioned t o you a few min-
classes
utes ago, they get orders for cotton, different
a n d so
and prades, middling a n d fair a n d strict middling,
t o get that,
forth, a n d t h e y have g o t t o buy e lot o f cotton
the same t i n ,
and t h e y g e t orders f o r other grades o f i t a t
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Federal Reserve Bank of St. Louis
and t h e y s e l d o m h o l d t h o s e t h i n e s n i n e t y days.
Governor M o r s s ,
T h e security o f thet sale depends
not o n the actual goods back o f it, but o n the credit
of
the concern,
Governor Wellborn.
atself,
i n beles,
W o sir; i t depends o n the cotton
w e have g o t the receipts f o r it, ‘ t e
hold t h e receipts,
{
Governor Morss,
L I thought y o u said that those were
tuken apert a n d reassembled?
Governor Wwellborn,
N o .
W e hold t h e receipts f o r
that cotton.
Governor Y a n Zandt. O h , they never take a bale o f
cotton apart.
Governor M o r s s ,
Then i
Governor Wellborn,
Governor ‘‘orss,
w
was m i s t a k e n a b o u t that.
e a c t u a l l y h o l d t h e receipts,
i f you can identify the cotton,
ail right.
Tt?
Governor Wellporn,
numbered.
E v e r y bale o f it, marked ang
I t i s the same way with wheat, 1
impine,
ina
wheat country, where they assemble the wheat.
Governor F a n c h e r .
W
e have b e e n discussing mostly
cotton bills, a n d I wondered what experience these bank
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Federal Reserve Bank of St. Louis
RS
ers have h a d i n the w a y o f packers! bills t h t f i n d their
way into t h e o p e n m r k e t a n d back into t h e banks.
The Chairman,
w e Will begin with you, Mr. Fancher.
Governor Fancher.
M y observation i s , without having
definite i n f o r m tion, t h a t there a r e a great m a n y peckers
bills t h a t are n o more o r less t h a n general loons.
They
make the véry generol statement that "Te will export larg",
or something o f that sort,
i n a very general s o r t o f a way,
and some o f the bills d o not hive anything behind t h e m
ang some o f them are bused o n domestic operations, a n d
while m y knovledse o f the packing business i s very limites,
I cannot figure o u t where a dormestic m e a t transaction requires a
nine ty-day bill. I
have n o t been satisfied y e t
that i t does.
The C h e irman,
T h e peckers a r e n o t issuing Jomestic
bills v e r y much.
Governor Fancher.
The Chairman.
v
e Find ther i n the m
rket.
B u t I think your inquiry a s t o what
borne S a n they furnish has been ansvered b y my statement.
The information t h e y furnish i s a general statement.
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Federal Reserve Bank of St. Louis
Governor Fancher, A
The Chairman,
very fenerel statement.
a A copy of which you have.
I t is a
very general s t a t e m e n t ,
b u t upproved
b y t h e Board,
and if
there i s anything wrong with thet, l e t us have i t corFooted,
Governor Fencher,
I ~ cannot satisfy myself that a l l
of these peckers! bills t h a t are going around a r e strictly
export bills.
Governor Seay.
T h e t there i s some doubt o n the
question i s conveyed, I take it,
b y a recent communica-
tion f r o m the Bourd w i t h reference t o the experience o f the
different b a n k s w i t h p e c k e r s ' ‘ i l l s . I
think t h e q u e s t i o n
must have srisen i n the minds o f the Board whether o r not
they Were not employing i t for the purpose o f obtaining
loans f r o m the banks not, covered b y specific transactions.
The Cheirman,
e
e
i s not anythine ere: t o indi.
cate & specific transaction. T h a t i s whet I am telling you,
but this i s the f o r m that i s used a n d i s being used, a n d
it i s already approve?, a n d i t i s whet w e got. T h e r e i s
no q u e s t i o n a b o u t t h s t point.
Governor Fancher,
i I have i n mind a specific transaction
of Wilson & Company, e domestic transaction, where they
drew upon o n e o f their branches, a n d they h a d a ninety-dey
bill c o v e r i n g s o m e d o m e s t i c s h i p m e n t s
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Federal Reserve Bank of St. Louis
o f meats.
I f cannot
L121
conceive w h y a
transuction
i n m e a t o r m e a t products, a
mestic trensaction, w o u l d require 4
do-
ninety-duy bill, w h a t
they Would base a ninety-~duy bill on, a n d I
think there
is some doubt b y reason o f the inquiry thit the Board h a s
made recently, s o m e doubt A n the minds o f the Board.
Mir. Hoxton,
P e r h u p s y o u would like t o get t h e result
of t h a t i n q u i r y s o far.
The Chairman.
Y e s , w e would.
My, Hoxton, I
L e t u s have thet.
have n o t gotten a n y :-nsver y e t out
of Boston, N e w York o r Minneapolis, therefore t h i s L i s t
is v e r y incomplete.
I t does n o t s h o w totals
a t all.
Philaselphia hes a total of only “650,000 puckers' bills.
Cleveland has a total o f 42,746,000 packers! bills, o f
which 4,424,000 are domestic and the belance are export.
These a r e a l l exports except where I
have apssified'do-
mestic," R i c h m o n d has ¢310,000 packers! bills, atlanta
$300,000, a n d Chicago h a s 415,988,000,
o f which o n l y
(485,000 sre domestic bills.
The Chairman. I
guess those a r e Nilson bills. I
Nob. sure, though.
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Federal Reserve Bank of St. Louis
Mr, H o x t o n ,
T h o s e . e r e “ L l s o n bills.
The Chairman,
a r e they?
am
Life
Mr. Hoxton,
i I think so; v e s sir,
S t . Louis h a s
v2,600,000 packers' bills, Kanses City none, a n d Dallas
none,
Governor Forss, I
can give y o u o u r figures, \.900,000
of export bills.
“ry. Hoxton,
I s that total?
Y o u have n o t Pot t h e m
separated i n t o export bills e n d domestic bills?
Governor iforss, Y e s , I have them all.
“©, Hoxton, I
then. N o w ,
would like t o get those after a while,
i n connection with this report thut h a s come i n ¥
on these bills, t h e notation o n the bill i s the only thing
that is furnished us, aside fro. the fect that the member
banks have used +
generally, a n d i n fact I do not know o f
any exception, that form which Governor HeDougal has shown
there, a n d o n the black lines o f that f o r m i t shows s u c h
general terms a 8 Mr. Peple h a s specified, export o f meats.
to continentsl p o r t s .
S o m e b o d y o n c e i n a while g e t s m o r e
specific and says "Export o f bacon t o Antwerp", b u t as ide
from that there i s nothing t o indicate the exact ns ture
of the transaction.
Armour says--of course, gentlemen, y o u know thet a l l
of these communications
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Federal Reserve Bank of St. Louis
t o y o u were entirely confidential,
123
The Chairman,
t one Iminute,
s
tu seems t oJ m e t h a t
we C a n n o t e m p h a s i z e t o o m u c h t h e n e c e s s i t y o f m a k i n g t h i s
discussion o n this subject extremely confidential.
‘The
Bof&rd, a 8 I remember i t , has stated that t h e y were going t o
investigate t h e ucceptunce business. T h a t i s all right.
W e
will welcome that, b u t I think w e should b e very careful
and n o t permit i t t o become known t h a t they are b e ¢ inning
on t h e puckers.
Mr. Hoxton, a b s o l u t e l y .
The Chairman, B e c a u s e i t i s not necesssry t o tell
any man i n this r o o m what that might mean.
wy. Hoxton.
T h e Board i s very anxious for you pen-
tlemen t o understand that, because w h e n this m t t e r c a m e u in this r o o m I was t h e o n é w h o celled attention t o thet,
because e n y t a l k a b o u t o r a n y i n v e s t i g a t i o n a g i n s t
any
industryywould b e misunderstod, when the idea of the Board
is t o g o into the whole thing and only i n this case they ere
making e
start.
Now, t h e notation o n the bills y o u are a l l familiar
with.
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Federal Reserve Bank of St. Louis
A r m o u r says:
(Mr. Hoxton here read f r o m the report referred to),
Mr. H o x t o n ,
T h a t i s a l l t h a t w e have.
W
e s r e waite
ing with very great interest t o get New York's report,
and N e w york would have h a d its report i n except t h a t o w
own examiners h a v e b e e n h o l d i n g u p t h e i r portfolio.
The Chairmen, Getitlemen, Mr. Case hes just informed
me thet Hr, Kenzel has gone into this matter and has made a
report, o r some comment o n the subject o f sub-topic No. 2.
Since Mr, Hoxton reads s o well, w e will a s k h i m t o reaqg
that also,
Mr, Hoxton.
Y e s sir.
"Shoulda an export o r import bill bear specific de-.
tails o f the transaction u p o n i t s face, including the
name of the ship, a s is the custom i n certain foreign
countr les%
"Aansver,
I t is desirable thst every bill, whether
export, import o r domestic, bear evidence o n its face,
not a s a term o r condition o f the bill, b u t a s a memorandum
written b y the draver, preferably o n a line below t h e dollar
amount i n the body, a
memorundum o f the transaction i n
which i t i s drawn a s specific a s circumstences will per~
mit.
"On documentary export bills, however, frequently
if not generally,
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Federal Reserve Bank of St. Louis
i t would b e impracticable t o name t h e
125
ship o n w h i c h t h e f 0 0 d s w e r e t o b e exported.
V h i l e this
was f o r m e r l y t h e c u s t o m i n this c o u n t r y w h e n
freights w e r e
consigned t o individual ships o r toe fe S a w
e e e the
custom s t i l l obtains i n many forelen ports where shipping
has n o t d e v e l o p e d a s i t h a s i n N e w York,
toa v e r y l a r g e e x t e n t ,
t o t h e €limination,
o f the individuality
o f t h e particu-
ler carrier (ship)-~goods a r e n o w consigned t o
a steamship
company o r l i n e t o f o f o r w a r d
o n the next s h i p i n which
space i s available. N e i t h e r would i t b e practicable
in
cases w h e r e g o o d s c r e s h i p p e d f r o m t h e i n t e r i o r
t o se port
for export o n throtigh bill o f l:ding, b u t i t
would b e
entirely p r a c t i c a b l e f o r t h e S h i p p e r
t o indicate
bill t h e name a n d guentity o f the £0038,
i n the
o r commodity, a n d
the names o f the places o f origin a n 3 destination, s u c h as,
for instunce, ‘forty four cases mac ine parts, Cleveland,
Chio, t o Lima, Peru,! o r ‘twenty three packages generel
merchandise,
t o Italian ports,' o r ‘sundry documentary
bills f o r collection, genera d merchandise,
ports!,
t o South American
I n & domestic shipment the notetion might be
‘railroad bill o f leding, o n e hundred b- les cotton, Memphis,
Tennessee, t o Fall River, Massachusetts.’
O f course great
care Would have t o b e exercised o n the p a r t o f negotiating
Baa a h hor at's
aETWSS
ge M e y2
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Federal Reserve Bank of St. Louis
126
banks a n a t h e d r e w e r s
o f bills t h a t t h e n e g o t i a t i o n s w o u l d
be simply memoranda a n d not conditions w h i c h would render t h e
instrument n o n - n e r o t i a b l e .
"In c a s e s w h e r e e i t h e r i m p o r t o r export c r e d i t s a r e
granted t o provise the funds either for production o r accumuleution o f t h e s o o i s u l t i m t e l y
t o b e shipped,
t h e memoran-
du W o u l d h a v e t o take a different form, s u c h a s for i n stance ‘ d r a m u n d e r b l a n k a
letter o f credit number b l a n k
to provide for future shipment o f coffee C o l o m b i s o
t
a New
Orleans,' o r ‘drawn under blank letter of crecit (date )
to proviie f o r future export, shoes, Boston t o foreign
ports, t o be desirnatea b y the buyer.’
"Such a practice w h e n inaururated should b e conformed
to b y national banks a s well a s other acceptors, e n d would
eliminate t h e n e c e s s i t y o f d e p e n d e n c e u p o n s t o m p e d c e r t i f i -
cates o f c¢ligibility which sre usunlly general i n charac.
ter, and the necessity for which i s not understood b y buyers o f exchange i n foreign countries w h o not infrequently
buy ineligible bills. T h e y vould readily comprehend the
necessity o f requiring exchange negotiated v y them such
memorandum as suggested above."
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Federal Reserve Bank of St. Louis
Governor Seay.
M r . Chairman, I would like to ask
127
Mr, Case, w h o i s i n the o n e large overwhelming acceptance
market a n d i n a plece w h e r e t h e bankers' a c c e p t a n c e c o u n -
ceil hss its home, whether they feel the need o f regulations
by the Board which would l a y o w n o r more strictly define
the p r i n c i p l e u p o n w h i c h a c c e p t a n c e s s h o u l d
b e made,
s o as
to make t h e transaction relate t o specific transactions.
ACting Governor Case.
I d o n o t think thet w e h a w
felt a n y particular n e e d o f a ruling, Governor Seay.
say, M r . K e n z e l
i s o u r expert
o n t h e t subject,
and I
A s I
think
he knows t h e game forward a n d backward, a n d h e has gone i n t o
it very carefully.
H e i s o f course i n touch with tie
Acceptance Council, b u t the Board already has. m d e a
of rulings a n d regulations, t h i s h ~
number
are rether liberal i n
character, a n d I know thst i t is Mr, Kenzel's view that
our banks generally, o u r acceptors, a r e living u p t o the
rules a n d reguletions l a i d down.
Governor Fancher. I
judge, Mr. Case, from Mr. Kenzel's
memorandum there, that h e rather feels that w e should have
some more specific informetion o f the bill than we are getting.
Acting Governor Case.
I t seems t o me that his sugeestion
there W a s rather general i n character.
H e started o f f b y
suggesting miscellaneous points, Cleveland t o Lima, Peru, a n d
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Federal Reserve Bank of St. Louis
128
then h
e goes f r o m that t o a very general memorandum.
Governor Fancher.
I t seems t o m e thet even a generel
statement that i t is the shipment o f hardware, o r sonething,
from Cleveland, Ohio,
t o Lima, Peru, i s better t h a n a
general s t a t e m e n t f
o "Swift, f o r export”.
Acting Governor Case,
Governor Fancher.
a n d I think i t is quite desirable,
if the Board c a n b y regulation suggest that w e get more
data o n t h e s e bills, m o r e s p e c i f i c d a t a a s t o w h a t t h e
transaction i s .
Governor V a n Zandt. I
would like t o findout from
Mr. H o x t o n w h i l e h e i s h e r e w h n t i s t h e s t a t u s
o f the re-
vised reguletionsvgf the" Federal Reserve Board that they
were r a i n t o get up,
Mr. Hoxton, I
do not know just how fer they have
gotten o n them, b u t t h e y are working o n them. nowk
can g e t y o u m o r e d e f i n i t e i n f o r r e t i o n
u i
o n t h e t when I
go
back t o the office.
Governor Sesy.
M r , Chairmen, I
the following f o r consideration. I
would like t o suggest
can understand h o w t h e
large New York banks, w h o are most familiar with transactions o f the kind w e are discussing, w o u l d b e more a p t t o
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Federal Reserve Bank of St. Louis
comply w i t h sound practice t h a n banks i n the smaller districts a n d i n t h e country.
T h e y would understani m o r e
clesriy t h e difference between whet should govern e n acceptance a n d the rules which should rovern a comvodity loan.
Ilwould suggest that t h e Federal Reserve Board b e requested t o consider whether repuletions roverning t h e
making o f ecceptunces s h o u l d b e m a d e m o r e s p e c i f i c ,
s o es
to define w i t h greeter clearness t h e conditions under which
acceptances should b e granted, a s differentisted f r o m
purely commodity loahe. I
think that is where most of
the trouble i s created i n our districti I
understood
that st some bankers! meeting in Mew Orleans the statement
was m a d e b y s o m e N e w O r l e a n s b a n k e r t h a t n i n e t y f i v e p e r
cent o f t h e a c c e p t a n c e s
ity loans.
i n that region were p u r e l y conmod-
N o w , i f i t i s intended t o grant sdditional
privileges i n extending commodity loans through the accept
ances, a l l well a n d good, b u t i t does s e e m t o us thst there
should b e a clearer understanding a s t o the difference
between t h e p r i n c i p l e s g o v e r n i n g t h e a c c e p t a n c e s a n d t h a t
governing t h e c o m m o d i t y l o a n ,
a s defined b y l a w i n section
5200,
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Federal Reserve Bank of St. Louis
The Chairman,
D o e s t h a t apply t o domestic bills only?
1303
Governor Seay.
generally. I
W o sir. T h i s applies t o uecceptances
think this would cover it.
Governor Fencher. D o e s thet cover Section 2 as t o
information?
Governor Seay.
I t does not cover that very definitely,
It only covers i t b y requesting the Federal Reserve Board
to consiser t h a t metter f o r themselves e n d t o give u s their
definition o f w h t should b e embraced i n the acceptance
principle,
Governor ‘iorss. D o n ' t t h e y rant a recommendetion f r o m
us o n that?
Governor Seay.
e
s sir, and that i s wnat I move,
to ask the Federal Reserve Board whether they should b e made
specific,
o r w e m a y recommend t h a t t h e y should be.
Governor Wiellborn,
T h e n y o u maintain t h a t t h e Federal
Reserve Act is abused more than the e cceptance?
Governor S e a y , I
think i t i s w h a t t h e a c c e p t a n c e
under the Federal Reserve A c t means that i s 3
the trouble, I
giving
know that the interpretation hich our
bank Placed upon dealines i n cotton was objected t o by the
President o f the Southern Cotton «ssociatfep,and h e tele-
erephed the Federal Reserve Board t o the effect that some-
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Federal Reserve Bank of St. Louis
181
body was trying t o undo a l l the things t h a t the Southern
Cotton Associattérnhad attempted t o d o during t h e past
season,
T h e Federal Reserve B o a r d strictly upheld us,
so that i t does t e n d t o show t h a t there i s a wide miscenception o f what c u n b e done i n financing cotton.
I n
connection with this whole discussion-The Chairman (interposing).
J u s t a moment.
" e have
a message here from Mr, Kenzel, w h o wants t o be present
particularly w h e n w e discuss t h e pension fund, a n d h e would
like t o know when i t would b e agreeable t o meet h i m o r
have h i m come, a n d I was wondering i f there a r e a n y other
subjects; Mr, Case, concerning which w e would like t o have
Mr, K e n z é l presént.
Acting Governor Case.
is a s w e l l informed,
O f course, Mr. Kenzel, I think,
i f not better informe?,
t h a n a n y one
that w e know o f o n this whole acceptance situation,
I f re
arrange that he should come over to discuss this pension
Plan, w e might very well permit this whole thing t o g o
over, this seceptance matter, a n d bring h i m i n o n the whole
thing.
Governor V a n Zandt.
“ I move y o u that w e take u p this
T o p i c Win its entirety o n the same day, i n t h e seme
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Federal Reserve Bank of St. Louis
182
program w i t h t h e p e n s i o n f u n d , a n d t h a t w e w a i t f o r M r ,
Kenzel t o b e with us.
Governor Seay. I
withdraw t h e suggestion I
in the f o r m o f e motion, M r . Chairman.
rede
T I am perfectly
willing that the discussion should take that course,
The Chairman,
I s Governor Van Zandt's motion sec-
onde 4?
(The motion was seconded, p u t a n d carried unanimously).
The Chairman.
m o t i o n i s carried, a n d that means
the entire Topic V, |
I suppose w e should ask Mr. Kenzel
to b e h e r e w h e n - - t o m o r r o w a f t e r n o o n ?
Governor Calkins,
w o u l d n o t Friday morning b e
better?
The Chairman.
I f there a r e n o objections,
-ask Mr, Kenzel t o come i n Friday morning.
w e will
W i l l you d o
that, M r . H o x t o n ?
Mr. Hoxton.
Y e s sir.
Governor Wellborn.
I anticipated a
W h i l e this i s fresh o n your mind,
discussion
o f this matter,
brought u p more o r less ever since I
this conference. I
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Federal Reserve Bank of St. Louis
I
t has been
have b e e n a member o f
have got a little statement here I would
like t o make-The Chairmin (interposing). I
think i f w e could just
postpone t h i t e - i s t h e r e a n y r e a s o n w h y w e c o u l d n o t p o s t e
pone i t , Governor Vellborn, because w e m a y heave lost time
now i n going u s far a s we have.
Governor \iellborn,
subject.
Perhaps
I t is in connection with thet some
i t w o u l d b e j u s t a s w e l l t o postpone i t .
The Chairman. I
until F r i d a y morming.
would suggest that w e p u t i t over
S h a l l w e take’up Topic VI,
o r has
any O n e @ Suggestion a s t o the best procedure?
Acting Governor Case, M r . Chairman, I
make a sugpestion.
T h i s i s the first time I
would like t o
have attended
one o f these conferences, b u t i t seems t o m e that the most
important question w i t h whach w e have t o deel a t this time
is t h i s q u e s t i o n o f T o p i c N o , 1 , r e l a t i n g
t o credit,
and
the t i m e t h a t w e m a y h a v e t h e S e o r e t e r y w i t h u s t o m o r r o w
morning, t h e time thet h e c a n spare t o b e with us, i t seems
to u s m a y b e limited. I
think i t would b e a fine thing i f
we might some time before tomorrow morning have some discussion o f that, and the Governors, i f it were possible,
with their views, m i g h t crystallize s o m e program. I
have
thought that i t might b e better i f we could d o that. I
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Federal Reserve Bank of St. Louis
think
164
it Would b e f a r better t o d o that than i t would b e t o have
a meeting w i t h t h e S e c r e t e r y a n d t h e F e d e r a l R e s e r v e B o a r d
and find that there a r e a great many divergent views t o
be ironed out.
The Chairman,
M r , Case, that would suit m e very
well except for the fact that the Secretary did state t o me,
as I have already said, that h e would like t o be here during
that entire discussion, a n d Governor Harding indicated that
he would like t o b e here too; s o that whatever w e m a y d o now
we would have t o d o i t again when t h e y come in. T h e y want
to hear f r o m each district, a n d I
We Wouls p r o c e e d
suppose t h a t i s the w a y
i f w e w e n t a h e a d now.
Y o u o f course h e a r d
their statements,
Governor Calkins.
know, e x a c t l y w h e t I
W h a t Mr. Case h a s s a i d is, a s y o u
said w h e n I
came i n t o t h e p r e s e n c e
of the Chairman first, a n d I believe t h a t i t i s extremely
important that this conference should formulate some con-
crete conclusion o r as near a conclusion a s they can come
to for t h e &sis o f the discussion t o be held with the Governor o f the Board and the Secretary and assistant Secretary,
and I believe,
i f w e d o not have s o m e preliminary discussion,
our whole efficiency o r effectiveness w i l l b e largely lost
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Federal Reserve Bank of St. Louis
in a random discussion which will bring u p
opinions a n d w h i c h i t will b e i m p o s s i b l e
a concrete conclusion, I
t o brinr d o w n t o
of course have n o wish thst v e
should r e g a r d the desire o f the Covernor o f the Board
and t h e Secretary o f t h e Treasury, a n d i f i t i s their
wish thet w e should n e t discuss i t , w e will n o t d o so, o f
course.
Phe Chairman, M r , Hoxton hes just whispered t o me,
because h e did not want t o interrupt you, that thet was
exactly what the Secretary and Governor Harding wanted,
have t h e benefit o f our d i s c u s s i o
n as i t proceeded.
of c o u r s e
i t i s j u s t a matter
o f deciding whether w e
gOing t o d o a s they request o r whether w e are not.
c a n m e n t i o n t o you,
Governor S e a y . I
o r probably y o u
recall, Governor McDougal, t h a t w e were speaking t o Governor H u r ’ i n g a s w e w e r e s i t t i n g a t junch, a n d h e s a i d ,
as Iunderstood him, that there was no reason as far as he
knew w h y w e should n o t discuss these things a m o n g ourselves
if w e w a n t e d t o ,
Secretary,
i n advance
a n d i t seems
that i d e a i n view,
t o m e that i f the Treasury h a s
i t is, i f anything,
why w e s h o u l d d i s c u s s
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Federal Reserve Bank of St. Louis
o f discussing t h e m w i t h t h e
more o f a
i t here i n e d v a n c e .
reason
S o m e o f us m a y
136
have o u r o w n i d e a s o t h e s e things, w h i c h have b e e n forne 4
according t o our own experiences, a n d w e have all found i n
previous conferences o f this kind t h a t w e have gained b y
6 discussion w i t h other districts, a n d i n m a n y respects [ I
am Sure ideas have been modified a n d made more concrete b y
getting a view o f the whole rather t h a n a vicw o f a pans, <.
and i f this Conference should think i t desirable t o discuss this matter among ourselves first,
s o a s t o b e able t o
present Something i n more comprehensive form, the idea i n
more comprehensive form, t o the Treasury Department, I
do
not see why we shoulda not g o shead and d o it.
Governor Wellborn.
T h e y have conferred together a n d
talked a b o u t i t .
Governor neay,
Y o u m a y b e sure that t h e y have their
preliminary, definite ideas v e r y well considered, a n d I
do
not see w h y w e are n o t entitled t o arrive a t a coincidence
of opinion here, whether i t be the same as theirs o p dirs
ferent t o theirs.
The Chairman,
T h a t would be, o f course, w i t h t h e under.
standing that w e would give then the benefit o f the suggestion
as W e Saw it, a n d the basis o f o u r suggestion.
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Federal Reserve Bank of St. Louis
Governor Seay, Surely.
137
The Chairman.
O f course, i f this body i s of the opinion
shat W e S h o u l d p r o c e e d ,
vent u s doing so.
w h y there i s nothing t h a t would pre-
I f somebody should make t h a t motion, I
think w e ought t o do i t under the circumstances; thet ls, i f
we are going t o proceed, I
Governor S e a y ,
think i t should b e voted on.
M r , Chairman, I
move w e p r o c o e d t o a
preliminary informal discussion o f Topic No. 1 on the
program,
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Federal Reserve Bank of St. Louis
Acting Governor Case. I
second thet, Hr. Seay.
{The motion was put and carried).
(i,formal discussion followed).
PUELISHING RESERVES
The Jhairman.
G o v e r n o r Fancher, v e r e v o u
Governor Spancher,. I
vas going t o bring
question o f p u b l i s h i n g t h e reserves. A
couple
ago, when w e were all running along with
a very
weseorve w e were giving ous weekly statement t o the press, a n d
we gave the percentage o f the reserve, and, later o n the reserves b e r a n t o d r o p w i t h g o m e o f t h e banks,
t h e n i t first
came about that w e d i d n o t give o u t reserve figures, a n d
that
has gone along, b u t special comment has been made a s t o the
reserve position o f t h e New vork Banit for some time, a n d
withe
in the last t w o o r three months t h e Wall Street Journal has
the reserves o f all the banis e v e r y week a n d makescomnents,
and they are oublishea overy woeke
The Chairman,
W h e r e d o y o u suppose t h e y g e t those
reserves?
Deputy Governor Peple.
The Shairman.
T h e y caleovlate them, I supvoso,
T h a t is. ib.
y o u publish quite a
detailed r e p o r t f r o m w h i c h t h e y c a n S a g u r e y o u r
reserve .
Governor Fancher,
I d o n o t thinti the wall S t r e e t
Journal ficures t h e reserve,
ra
W
A
L
L S t r e e t J o u r n a l e v e r y week,
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Federal Reserve Bank of St. Louis
Governor Gage,
Y o u gee those items i n the
d o y o u not, G o v e r n o r C a s e ?
v e s , I think t h e y ficure them.
139
The Shairmane I
a m not sure, M r e Case, b u t h a t
them t o the press?
goverdes Casee
U
O Ade
The Chairman. B e c a u s e w e get yor
every S u n d a y m o r n i n g
Governor Sasee
very desirable,
i n oni
i n o n e o f t h e pepers tuere.
A
s @ matter o f fact v e think 414 is
a s someone indicated
w e were below forty p e r
cent a n d h a d been f o r three o r six weeks.
getting a
t h i n k
Y o u are just
taste o f i t now, a n d w e come forvard and, franicly,
we feel i t i s all good medicine.
a
l
l t h e newspapers, a m o n g
them t h e Commercial anc Financial Shronicle cre W e e
n
y
s =
terical articles e a c h week about t h e Federal Reserve
below below its reserve, a n d all that. I
some, I
think i t serves n o t i c e
the b a n k s
think i t is shole~
o n t h e g e n e r a l p u t l i c ané@ o n
t h a t credits a r e n o t a s f r e e a s t h e y were, a n d t h e
desirable thing, I believe, i s the publicity end o f it. I
do not believe this question relates t o anything o f that sort
at all.
T h e r e i s one thing w e have acoptec there.
W
e heve
the newspap e r reporters i n our bank every afternoon a t half~
past three, a n d w e have g o t one officer t o meet t h e m a n d dis~
cuss m a t t e r s e
A
s a
matter
o f f a c t f o u r d a y s o u t o f t h e weelr
there i s nothing o f interest; frequently t h e m come i n and a s k
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Federal Reserve Bank of St. Louis
349
be occasionally "io have somethings w e 4
“Let. t o c t e 1
t h e m about,
ba
put w e heve forbidden t h e ~enerel
ni from discusssin:
so that w e contzol,
aS
ERLOE
ae
tele, ---occasionally
i n a meas
something happens t h a t
Somewhere, b u t nevertheless
sener ally if there is
any publicity
thers w e G u n a s c e r t a i n
pretir G e f i n i t e l y j u s t
i t e
where t h e y «
;
shairman.
20 m u c h f o r t h e reserves,
Tuen w h a t activities
~
Ooy o u o r o p o s e
sirable publicity?
t o include under unde-
cuestion, L f think.
Governor uase.
there h a s b e e n a
and unintelligent news
paper c o n m e n t
policy, @
i n regard
sroat aceal o f C i s c u s s i o n ,
10: CG s o m e b o d y
“ r w Case,
writes a
uation, e n d s o on,
column
lot o f lcoge
b o our
Our s t a t e m e n t
o n L t a n d c o m m e n t s u nPon
o the sits
I d o n o t b e l i e v e ADae) u
¢8n control that;
Bae R g ital iea that a n i n s t
itution, s u c h a s t h e Federal reserve
s
is p o u n d
to c o m e i n f o r m
“here t h e members
of t h e B a n k s
d o a
nsicerable
or thend v e d e r a l h e s e r v e
great d e s l
discussion
paper © innent with ; ”
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Federal Reserve Bank of St. Louis
B u O LLo.
f
bard
a ye:
Ve
P
a n e the Governas
o
telxing frecuently
i t comes i, n
and whet not, b u t a s far a g neveOur reserve position, o u r rate
policy,
a n c comments
o n the election
thing, I do not see how you are “oing to control
Governor lorrise
M i s cusation i s
are undewpirable activities.
i
t
O
think that must b e
ad
at some a c t i v i t i e s , either o n the »art o f -the Reserve Board
or officers o f the benks t h e t produce t h a t undesirable
ovr discussing t h e activities
city, because there i s i f
on the part o f other people t h a t produce undesirable publicity,
because w e cannot control that a t alle
The Ghairmans I
would s a y the development o f the
check collection syetem has produced a
lot o f undesirable
licity.
Governor Fancher.
Governor Seay. I
A & l a o your increase i n rates.
a m not aware o f a n y undesirable p u b -
licity that could b e controlled.
V
e certeinly cannot cone
trol the opinions o f people w h o write i n the press o r the newspaperoe
W i e have attempted t o s o o u r even w a y i n the perforin-
are
ence o f the functions t h a t a r e siven us, a n d i f comments
made a s t o them, w e cannot control that. I
not know o f any activities o n our part tha :
produce undesirable publicity.
certainly c o
i
may
W o w a n d then there m a y b e
more attention civen t o some feature t h e n w e choose, b u t i t
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Federal Reserve Bank of St. Louis
is a
matter n o t vrithin o u r control.
sind-of oublicity «hich
cannot b e osrevented, b u t which misht b e
2 certain e x t e n t v e r y beneficially,
s n c that i s the
position t o lool: u p o n t h e s o - c e l l e d m i n i m u m r e s e r v e
Federal Reserve B a n s
a s a danzser
ecis, svactically,
oint.
are suc
of
A l l the
ae
the F e d e r a l R e s e r v e s i n k s a n y l o v e r t h e r e i s s o i n e
uvS
L n g
be a
o
}
A
Sa
cataclysm o f s o m e rind,
T
y
e a t
a
a n c s o m e publicity.
2
7
2
i
n
t o offset
}
w
t 1 74
a ®pak 4
+
that
would
b e lhishly
desirable.
I think t h e nublic
reserves i s very wholesome and very usef
5 a a d 2
*
particularly i n* thes s i x* weeks =
‘
w
e were under o u r
+44 2
e
e
4:
vhat i f the comment w ea s e l l favorable
a n d everything
3
ve would n o t have thousht i t was desirable a t all.
Governor Norris, I
aby t a t ay
‘a
o
vould n o t b e e t all surprised i f that
7t
2p
l
b
u
civen
toi the cloansi o f our
reserve
has
had more to
r }
e
az
P
wlth
thet2 than ell rthe
G
increase
o fe 2rates a n1d $11 the5 moral
y
suasione
4y
a
r
SNaasne ,o
T h e anKEOKt a dtvre n c ea
rrtnine,
4
t
o
o
o f 1c o uGr s e t h a t a
b u t v o4 u c a n n o t d o - a n r i h ian e d v E t h o u t v
d v
it; i t has been a sisnal and a
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
pv
s>
oefm t1 h} e rates,
Governor Oellins.
trery, b u t t h e more rational v i e w
means
i s t h e m o r e desirable.
Governor Fancnere H o t ’ are y o u seing t o stop a l l
collese >rofessors writing i n the magazines?
G o v e r n o r Jalixins.
H a v e s o m e b o c y “trite
Governor V e n uandte
H e v e y o u a n y information f r o m the
Roard a s t o rhat t h e y refer t o ?
The Chairman’
T I have n o information,
b u t it seems t o m e
on this auestion t h e Governors o f the banks, t h e banks e r e
and alrays have been very careful i n the statements they have
made f o r t h e press o r t o the press; their statements h a v e
been confined t o the facts a n d n o criticism cou'd c o m e f r o m
the publication o f the Governors'statements o r the baenks'
statements
a s t h e y a r e given, b u t w e c a n n o t b e h e l d r e s p o n s i -
ble f o r t h e comment that i s made b y the press, n o r f o r misstatements.
“ e cannot avoid this matter o f publishing o u r
statements o n c e a
week, t h a t »
p r o v i d e d f o r i n t h e lar.
great d e a l o f t h e p u b l i c i t y v e s e e c o m e s f r o m t h e v i e r p o i n t
as expressed b y the press a s t o c e r t a i n items that appear i n
our statements.
Governor Seay. I
do not s e e a n y good reason f o r with-
holding t h e r e s e r v e d a t a o f e n y r e s e r v e banks;
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Federal Reserve Bank of St. Louis
o n the contrary
144
‘
it seems t o me 6 matter o f local and a matter o f district
interest, a n d I T hsve althys thought i t vas a mistake n o t t o
give i t out.
Y o u have your member banks asking what your
reserve i s , a n d your local banks that heve a n interest i n the
matter I
think a r e entitled t o know. T
think often i t does
a little more h a r m t o withhold i t than t o give i t out.
Mr.Eoxon* O n c e i n a Fhile you see a certain Federal
Peserve Rank i n this torn rediscounting for another bank i n
another town,
Governor Seay:
‘ “ e publish o u r rediscount liabilities
every reek.
Mr. Foxon: T h o s e stories a r e fpiven out i n the Federal
Peserve Panks themselves.
Governor “orss:
Mr. Hoxon:
T h e contingent liebility i s given out.
Y h y make news i t e m o f it?
Governor Seay: I
think those are normal operations o f a
Federal Reserve Rank's operation o f its normal functions and
I believe publicity should b e given t o each one o f them.
Governor Wellborn: I
v i l l s a y t o you, gentlemen, w h e n
they hed that excitenent thet grem out of filing suit for
injunction, I
gave o u t s e v e r a l i n t e r v i e w s
i n Atlanta a b o u t
the position o f our collections, etc., b u t t h e y were v e r y
carefully p r e p a r e d i n t e r v i e w s ,
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Federal Reserve Bank of St. Louis
a n d t h e Federal Peserve P a n k
145
had looked a t they a n d passed o n them and there w a s n o
criticism whatever m a d e o f them. I . t h o v g h t t h a t v e r y desirable publicity a n d possibly i t hed a good effect.
The Chairman:
1 1 1 someone suggest a n ansver t o this
Question a s t o w h a t a c t i v i t i e s p r o d u c e u n d e s i r a b l e p u b l i c i t y ?
Governor Norris:
I t seems t o m e i t i s the consensus
around the table here that w e d o not knor o f any such, end i f
the F e d e r a l F e s e r v e R o a r d w i l l m a k e t h a t a
little m o r e d e f i -
nite w e will take i t u p later, b u t w e are beating around t h e
bush here trying t o tell what t h e y mean b y it.
Governor “sellborn: I
thought t h e y referred t o that
Chicago business.
ir. Roxon:
T h e Governor réferred t o i t this morning,
if
you Will recall.
The Chairman: I
would s a y that this question i s rather
indefinite a n d that i t had better b e laid over until v e hear
something more f r o m the Board a s t o what t h e y h a d i n mind.
Governor Seay:
O r that t h e Federal Reserve Panks a r e n o t
aware o f a n y things thet produce undesirable publicity.
CLEARING A N D COLLFCTION SYSTEM.
The Chairman:
D o we want t o g o into this clearing and
collection p r o b l e m n o w o r w a i t u n t i l s o m e m e m b e r
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Federal Reserve Bank of St. Louis
o f the Roard
is h e r e ?
Govefnor Fancher:
C a n w e not skip over t o
RATES.
The Chairman: " S h o u l d preferential rates o n government
secured paper b e discontinued?”
Governor Fancher:
The Chairman:
S i x and o n e should b e together.
" h a t i s the answer t o that?
Governor Wellborn: I
think v e ought t o continue prefer-
ential rates o n Liberty Ponds carried b y the banks for the
banks' c u s t o m e r s . I
doubt w h e t h e r
w e ought t o have a
prefer-
ential rate o n indebtedness,
The Chairman:
V o u vouid p u t the rates o n certificates
up t o s i x p e r c e n t ?
Governor Yellborn: Y e s , that i s my idea about it. 1 f
think even i f they break even, a s I suggested here today a t
the same rate w e would b e loaded d o w n with those certificates
later on,
Governor Morss: I
be "No".
should think the answer t o No. 1
would
T h a t they be discontinued.
The Chairman:
i y answer would be “Yes”.
T I think the time
has come w h e n w e c a n depart f r o m that.
Governor Fellborn:
The Chairman: I
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Federal Reserve Bank of St. Louis
H o w about t h e Liberty Loans?
think myself t h e rates f o r discount should
be placed n o w a t s i x per cent.
Mr. Miller: L i b e r t y Bonds?
The Chairman:
A n d everything.
Governor “ellborn: I
think that vould b e very hard o n
the people carrying t h e bonds.
The Chairman:
¥ e have g o t 40C,00C0,000
o f those i n the
system n o w one w a y o r the other, government securities.
course I
a m only speaking f r o m our situation;
what selfish, I
o f
i t may b e some-
a m speaking o n l y from the situation i n our o w n
district, b u t o u r condition i s such that w e believe there
should b e a
rate n o t l e s s t h a n s i x p e r c e n t o n a l l k i n d s o f d i s -
counts.
Governor Miller:
M a y I ask i f that opinion i s shared b y
Mr. Reynolds a n d Mr. Forgan?
The Chairman:
M r . Forgan, o f course,
Gpvernor M i l l e r : I
know that, b u t T
i s not o n our board.
a m talking about
them a s bankers.
The Chairman:
J I do not know. W r . Forgar. and Mr.
Reynolds a r e among t h e large colony o f incependent chaps that
are spending the winter and spring o n vacation, playing golf.
Governor Seay: I
can perhaps partially answer t h a t b y
referring you t o the opinion o f the Advisory Council, a copy
of i t was sent us, that i n their opinion t h e time h a d n o t ar-
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Federal Reserve Bank of St. Louis
143
rived w h e n the differential should b e abolished.
The Chairman:
Governor Seay:
T h a t w a s some time ago.
T h e middle o f February.
Governor M o r s s : I
move w e h a v e a n e x p r e s s i o n o f o p i n i o n
of the Governors present around the table.
Governor Calkins:
B e f o r e that I
should l i k e t o mention
another matter intimately related a n d which perhaps i s more
vitel a t t h i s t i m e , a n d t h a t i s t h e p r o p o s a l
Department
o f the Treasury
t o borrow f r o m t h e Fede1al Feserve Banks
necessity whahever they may need.
i n case o f
Y e talk about credit con-
trol o f the Federal Reserve Ranks, a n d there c a n be n o such
thing a s credit control o f the Federal Reserve Banks i f w e are
to be compelled t o advance necessary sums for the Treasury
Department, o r i f we are t o be held t o the preferontial rate
by papor secured b y certifisate issues.
“ e might just a s well
stopp talking about credit control u n l e s s y o u c a n cure those
two conditions.
The Chairman:
O f course that topic i s rot o n the pro-
gram.
Governor Calkins:
I t is very closely related t o the
subject o f rates.
Mr. Hoxon:
J I have o n e h e r e t h a t i s n o t o n t h e program,
which c a m e i n b y wire.
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Federal Reserve Bank of St. Louis
I t i s No.
1 4 o n the supplemental l i s t
of topics.
I t i s a s follows:
“Treasury policy of issuing certificates o f indebtedness
to c o v e r o v e r d r a f t s ’ ,
Then o n the supplementary list o f topics i t has
a suggestion f r o m t h e F e d e r a l P e s e r v e P a n k o f Chicaro,
Item 1 4 as
follows:
"Modification o f Board's ruling giving member banks preference i n collectirig checks
o r non-member banks", suggested
OY: N e e l y
The Chairman: G o v e r n o r Calkins,
w i l l y o u state again
your views with respect t o topic No. 6, "Should preferential
rates o n government secured pener b e discontinued"?
Governor Calkins:
M y view i s that that question i s clove.
ly related t o this paragraph 1 , and t o this telegram sent b y
the Socretary o f the Treasury t o all Federal Reserve Ranks
uncer dete o f March 2%th: " T h e time hes come, horever, when
the only result o f a failure t o provide the amount desired
would b e debited “60,000,0°O for several weeks f r o m Federal
Reserve Banks i n order t o meet its recuirements.”
The Cheirman: I
would l i k e t o incuire whether there i s
anything i n the Federal Reservo Bank act which gives the
Treasury Department t h e power t o demand t h a t w e loan them
under t h o s e c i r c u m s t a n c e s ?
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Federal Reserve Bank of St. Louis
Governor Calkins:
N o t t o m y knowledge.
Governor iMillor: M r . NeAdoo levie@ a loan o n us i n the
esrly part o f the var.
Governor Morss:
J I think some publicity would b e given
to that i f they d o that, i n the press end other places.
Governor Fancher:
The Chairman:
h y should t h e rate b e tro per cent.
I t should n o t be.
Governor V a n Zandt:
T I know i f the Treasury ever borrored
from the Federal Reservo Ranks i t vould novor b e able t o
float
its certificates unless a t very, v e r y advanced rates aftor
that.
Governor Seay:
W e paid our respects t o that this morning,
and they seemed, f r o m the noddting o f their heads,
t o realize
it would b e a very injudicious policy.
Governor Calkins:
J I think thet i s very intimately r e -
lated t o p r e f e r e n t i a l rates.
PREFERENTIAL RATES.
The Chairman:
M r , Yellborn, whet are your views o n
preferential rates o n government secured paper being discont inued?
Governor Hellborn: I
think r e ought t o give a
preferen-
tial rate o n Liberty Bonds owned b y banks o r its customers,
but I do not think w e ought t o give preferential rates o n
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Federal Reserve Bank of St. Louis
certificates o f indebtedness.
The Chairman:
G o v e r n o r Millor?
Governor Miller: I
think w e o u g n t t o g i v e a
preferential
rate o f one half o f one per cent o n Liberty Ponds a n d Victory
notes, a n d i f w e are going t o cooperate w i t h t h e Pepartment
in its financing you will heve t o make a level rate with the
rate o n the certificates,
The Chairman:
o r else t h e y will n o t go.
A r e w e going t o cooperate with them?
Governor Miller: I . s e y ,
The Chairman:
i f w e do.
O r has t h e time come t o cut t h e string?
That i s what w e have b e e n talking about doing f o r a long time.
Governor Miller:
¥ e thought v e had t h e string cut, b u t
it seems t o b e tied pretty hard.
Governor ‘eliborn:
I t i s c u t now.
W e have a
five p e r
cent rate o n certificates.
The Chairman:
Y o u d o not call that cutting t h e string
when r u n n i n g f i v e p e r c e n t a s a g a i n s t s i x p e r c e n t o n c o m m e r ~
cial paper?
t h i n k v e ought t o get this government bond out.
Governor Miller:
D o y o u think i f w e raised t h e rates t o
six per cent o n certificates that anpbody vould vant them i n
an agricultural district l i k e ours?
. The Chairman:
of the certificates.
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Federal Reserve Bank of St. Louis
I t would depend altogether o n the terms
I f you make t h e m attractive t h e y will
152
want them i f there i s any money loose down there.
Governor Miller:
B u t i t would n o t d o t o make a certifi-
cate bearing s i x per cent, rould i t ?
The Chairman:
f e do not want them in the “ederal Reserve
Banks.
Governor Miller:
B u t i t would n o t b e commensurate w i t h
the standing o f the Government o f the United States t o issue
a six per cent security, would i t ?
The Chairman: I
do not think i t would b e necessary t o
issue a six per cent security. I
think the public will buy
government securities a t a lower rate t h a n i t will b u y anything
else.
Governor Norris, w h a t a r e your views o n the matter?
Governor Norris:
The Chairman:
Y o u think i t should b e continued?
Governor Norris:
The Chairman:
T h e same a s Governor Miller's.
Yes.
G o v e r n o r Young?
Governor Young: I
do not think there would b e any objec-
tion t o r a i s i n g t h e r a t e o n notes s e c u r e d b y t h e L i b e r t y L o a n
bonds t o the commercial rate, n o t show a n y preference t o them.
The certificates, whether w e have a
preferential rate o r not,
will depend a great deal o n the Secretary's policy, how h e pute
those out.
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Federal Reserve Bank of St. Louis
I t is going t o take quite a campaign t o sell those
153
to individuals, corporations, banks rill have t o carry some o f
them. I
would rather leave thet over night before answering.
The Chairman: G o v e r n o r Fancher?
Governor Fancher: I
feel that t h e rate o n Liberty L o a n
secured p a p e r s h o u l d b e o u r c o m m e r c i a l r a t e n o w t o l e v e l u p ,
that there m i g h t b
e a preferential rate o n certificates, b u t a
rate a little higher t h a n the certificate bears.
A t the pres-
ent t i m e o u r r a t e i s o n e f o u r t h o f o n e v e r c e n t a b o v e t h e c o r -
tificate rate, a n d i t should b e kept a t least o n e fourth o f
one p e r c e n t a b o v e t h e c e r t i f i c a t e r e t e .
The Chairman:
Y o u think n o preference should b e given e n nm
bond b o r r o w i n g s n o v a s compered w i t h commercial?
Governor Fancher:
W e have s e e n people g o back i n and
take t h e i r b o n d s a n d b o r r o w f o r c o m m e r c i a l purposes.
I t is
not t h e question o f carrying t h e o l d loan, b u t taking free
bonds a n d using t h e m a s colleteral t o get t h e l o w rate.
Governor Case: I
would l i k e t o a s k i f h e does n o t think
a six per cent rate, made effective o n Libervy L o a n bonds,
that would n o t tend t o force a
if
good m a n y member banks t o get
their customers t o take them out entirely, sell them and clean
up?
Governor Fancher: T h a t has been going on, Mr. Case, i n
our d i s t r i c t f o r s o m e time.
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Federal Reserve Bank of St. Louis
T h e f a c t i s o u r banks h a v e b e e n
3.54
charging s i x per cent o n Liberty I o a n bonds.
Governor Case: Y e s , b u t t h e y have &
little encourage-
ment.
Governor Fancher:
I t is 4-1/2 per cent bond and paying
six p e r c e n t o n t h e notes.
Governor Case:
J I am thinking o f their customers’ notes,
Governor Miller:
N o r i f t h e r a t e i s s i x p e r cent, I
/
think they will put pressure o n their customers t c sell them
and clean them up; that docs n o t cloar u p anything,
i t merely
Grives i t from one place t o another.
Governor Fancher: I
do not quite understand y o u r views
in regard t o certificate borrorings.
Governor Case: I
think there should b e perhaps a
pref-
erential r a t e o n certificate s e c u r e d p a p e r , b u t t h e r a t e
should b e a b o v e .the r a t e t h e c e r t i f i c a t e c a r r i e s . I
think v e s h o u l e m a k e a
do not
rate t h a t w o u l d f l a t t e n t h e certificate.
”
Governor Wellborn:
D o y o u think o n e Guerter
o f ons p o r
cent i s enough?
Governor Gase: I
think o n e q u a r t e r
o f one per cent i s
enough, j u s t s o a s t o g e t t h o r a t e a n d n o t t o e n a b l e a n y b o d y
to borrow a t the rete o r borrow a t p r o
B fit.
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Federal Reserve Bank of St. Louis
The Chairman:
Y o u d o not think this
i s the time f o r u s
to invest o u r funds i n loans o f that kind?
Governor Case:
No,
The Chairman’ G o v e r n o r Biggs.
Governor Biggs: I
do not think w e should heve a prefer-
ential o n either certificates o r bonds
The Chairman:
D o y o u think t h e rates o n government s e -
cured paper o f all kinds should b e belor that o f the commerctal r a t e ?
Governor Biggs:
No, I
thought y o u said o n the rate which
they bore.
The Chairman: e
we s h o u l d g i v e a
preference.
Gevernor Biggs:
commercial rate.
a r e speakinr n o v a s t o rhether o r not
Y e s , give a
preference t o i t above t h e
J I thought you had reference t o vhet pref-
erence y o u should give e s t o the rete they bore.
Tho Chairman:
continue giving a
T h e q u e s t i o n i s a s t o “hether
r e are t o
preferential rate t o government secured
paper.
Governor Biggs: Y e s , I feel w e should give a preference, @ Slight preference t o the Government owned certificates
as against commercial paper.
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Federal Reserve Bank of St. Louis
The Chairman:
Yes.
Governor Riggs:
Yes.
I s that the question?
The Chairman:
H d r about California?
Governor Calkins:
J I think t h e preferential r a t e o n
Liberty Bond secured paper should b e abolished gradually;
that t h e rate o n certificates o f indebtedness should b e
Siightly higher than tho rate they bear. I
will put i t this
way, t o get back t o m y original subject, i n view o f the fact
the Feceral Roserve Ranks! reserves s r e i o e a t the l o w point,
with l a r g e l e g i t i m a t e aiid s e a s o n a b l e r e d u i r e m e n t s
t o b e pro-
vided i n the near future, i t i s tho view o f this Conference
that the Treasury should offer certificates o f indebtedness o n
terms which would make i t profitable t o distribute t h e m without
Gependence o n the Federal Roserve Panks, a n d t h e Federal Reserve
Benk réte should b e such a s t o prevent transfer o f Treasury
borrorings f r o m the Federal Fesorve Panks, otherwise y o u cannot have a n y credit control.
The Chairman:
Y o u would n o t b e i n favor o f increasing
the rate o n Liberty Bonds a t present?
Governor C a l k i n s :
N o t t o s i x p e r cent.
The Chairman: G o v e r n o r V a n Zandt?
Governor V a n Zsandt:
ue p r e f e r e n t i a l r a t e s
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Federal Reserve Bank of St. Louis
J I do not think w e should discontin-
o n g o v e r n m e n t s e c u r e d p a p e r a t t h i s time.
The Chairman: G o v e r n o r Case?
Governor Case:
J I feel the same wey, t h a t w e should n o t
157
abolish t h e preferential rate, f o r t h e reasons I
pressed
this morning.
The Chairman:
A n d Governor Morss?
Governor Morss:
T I do not think w e ought t o abolish t h e
preferential vate o n government bonds today.
V h e n w e raised
the rate f r o m 4-3/4 t o S per cent y o u had quite a
serious
liquidation i n government bonds and a decline i n the market
price. I
should n o t think y o u vould invite that again unless
it was very necessary.
J I do not feel i t would b e necessary
at this time.
Governor “ellborn:
Governor Morss:
I t wes raised t o 5-1/2 per cent?
J I should say to 5-1/2 per cent.
the rate o n certificates,
o f course I
A s to
rould say, i n addition,
that I would b e very glad t o see the rate o n bonds u p to the
commercial rate s o soon a s practicable t o d o so, but i t i s
simply a matter i n m y mind o f not being t h e practical thing
to d o at this time.
A s t o certificates o f indebtedness, i f
circumstances permittod I
would like v e r y weil t o see t h e dis-
count rate o n certificates t o b e above t h e rate t h e certificates bore, b u t s o long a s the Treasury h a s g o t t o sell certificates i t does n o t s e e m t o b e practical,
a t least n o t i n
our district, unless t h e Secretary h a s i n mind t o put such a
high rate that discounting will not be considered.
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Federal Reserve Bank of St. Louis
L5E
Of course h e does n o t want t o d o that. I
should n o t have
our discounting rate o n certificates o f indebtedness beyond t h e
rate o f the certificate.
Governor Fancher:
Governor Morss:
T h e present rate i s 5 per cent.
Governor Fancher’
Governor M o r e s :
it m a d e q u i t e a
T h e present rate i s 4-3/4 per cent?
Y o u are above t h e rate now?
Y e a r e above t h e rate now, a n d T
difference
i n the s a l e o f o u r cartificates,
and especially amongst our country banks.
banks, &
eee sure
Y o u take our country
good m a n y o f them i n ordinary times, t h e y d o not have
commercial u s e f o r a l l t h e i r f u n d s ; t h e y a r e s o r t o f i n v e s t i n g
benks.
I t is surprising, i n some o f the smaller towns, h o w
they have developed a
business where t h e y a r e investing bank.
instead o f commercial banks, a n d when the rates o n certificates were low, lower t h a n they could g e t other paper for,
many o f them suid t o me, "Thy, i f you want t o discount w e
will have t o do i t at a loss", and I know i t held u p a great
many subscriptions.
J I think, a s a selling proposition, that
in our district w o should n o t have t h e discount rate above
the commercial rate.
The Chairman: Governor Seay?
Governor Seay: I
think w e are still under the necessity o f
giving t h e preferential rate o n government secured paper. T
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Federal Reserve Bank of St. Louis
i5¢
cannot imagine a n y benefit accruing t o the Federal
Peserve
System b y raising the rate sufficient t o offset the ser
iousness o f the situation which w e woulec raise b y makine
t h e commercial rate. S p e a k i n g o f undesirable publicity,
I
that would give us a good doal of it. I
also compelled, probably, i
think
feel that we are
to give a rate o n certificates o f
indebtedness, current issues, very little i f any higher than
thet borne b y the certificates, w h e n y o u reflect,
a s wag
stated here this morning, that after all the Federal Reserve
banks o n l y hold about ten, trvelve o r fourteen p e r cent
o f the
amount o f those certificates issued, t h a t i t i s not such a
serious handicap f o r u s t o give perhaps t h e same rate
that t h e
certificates bear, o r only t h e very smal} difference o f one
quarter o f one per cent. I
aid t h e T r e a s u r y
am much inclined t o think that to
i n its necessary financing
i t would b e per~
haps better o n the whole t o give t h e rate borne b y the certificates.
W e have g o t t o help t h e m place it. T
also w a s
attracted b y the intimation i n the telegram from the Secretary o f the Treasury, w h i c h Governor Calkins h a s just read,
that h e might b e compelled t o borrow f r o m the Federal Reserve
banks, a n d I brought that telegram along. I . t h i n k w e have
paid o u r respects,
i n a modest w a y this morning,
t o that inti-
mation, a n d t h e Treasurer t m appeared t o b e i n agreement t h a t
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Federal Reserve Bank of St. Louis
160
it would b e very undesirable t o borrow
from the Federal Re-~
serve Banks, a n d I
think whatever steps a r e necessary
t o keep
them from borrowing Ought t o be taken
b y the Treasurys; they
ought n o t borrow f r o m the Federal Reserve
Ranks direct.
Governor ‘ollborn:
C a n they d o that?
Governor Beay: B o r r o w from the Federal
Reserve Ranks d i n
rect?
Governor Wellborn:
Governor Seay: I
Ves.
fancy they can perhaps b y the regula-
tion o f the interest rate, I
do not m e a n borrow f r o m the Fed-
eral Reserve Banks.
Governor Yellborn:
Governor Seay:
D o you mean a direct note?
T o get the Federal Reserve Ranks t o take
their certificates, practically.
Governor Yellborn:
O h , yes, t o get them t o take their
certificates?
Governor Seay: Y e s . I
do not think w e ought t o b e asked
to take their certificates, a n d I think
that should b e managed
so they will not be compelled t o take
them i f it can be,
Governor Morss:
H a v e y o u a n y opinion a s t o whether
o r not
the Treasury Department could obligate
the Federal Reserve
Banks t o buy their certificates?
Governor Seay: N o n e i n the world. I
think they might
get themselves i n such a position, appeal t o them,
and w e have
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Federal Reserve Bank of St. Louis
to take them.
Governor Vellborn:
Governor Seay:
N o t a s a matter o f right then?
N o t a s a matter o f right, a n d I
do not
believe t h e telegram o f the Treasurer meant a s a matter o f
right, but h e meant i f the public did not take these h e
might b e p l a c e d
in @
position w h e r e t h e F e d e r a l R e s e r v e
Banks would have t o lend h i m some money for a while, a n d I
can conceive how that possibility might ariso. P o s s i b l y i t
might b e avoided b y the Treasury fixing a rate o n the certificates 8 0 they would b e taken i n the o p e n market.
T I be-
lieve i t ought t o b e avoided i f any policy c a n avoid it.
The Chairman: G o v e r n o r Seay, m y understanding i s you
are i n favor o f continuing the preforential rate o n governmént securities o f all kinds?
‘ G o v e r n o r Seay:
T I think w e are under t h e necessity o f
doing it, yes, that t h e system is.
The Chairman: I
feel that i n regard t o Liberty Ronds
and Victory notes that the time is opportune t o bring the
rates o n thet kind o f paper u p t o the commercial paper rate.
It would result i n the banks being relieved, I think, o f some
of that paper, a n d i t would result - - - i t would,
o f course,
have a n adverse effect o n the outstanding government securi-
ties, but it seems to me they would find through that ection
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Federal Reserve Bank of St. Louis
their natural place i n the market, a n d I
believe eas soon a s
the public understands t h a t government bonds a r e d o r n a t the
low point there i s going t o be a n increasing demand for then,
and that they would soon revive and probably the market would
be petter than i t i s now.
O f course I may be. entirely wrong,
and, a s I have stated i n regard t o borrowings o n Treasury
certificates, o u r Poard has considered that matter, a n d w e
think that i t would b e advisable t o come e n e
t h e commere-
cial paper rate o n these certificates,
Governor Seay:
O r t o a rate which would compel the
market t o take them, which?
The Chairman:
T I am speaking o f discount rate n o v , o u r
discount rate o n government certificates +-- o n loans secured by Treasury certificetes, that the rates should b e uniform
on all. N o w Mr. Secretary, c a n you give u s the result o f
this canvass?
H o w d o w e stand o n this matter?
Mr, Hoxton: I
should s a y i n answer t o that question
generally t h e following would s a y that preferential rates o n
government parer should not b e discontinued, a n d i f I am
wrong I hope you gentlemen will correct me.
O n the "No" side
ofthat, broadly speaking, is Atlanta, Kansas City, Philadelphia, St. Louis, Dallas, N e w York, Boston, Richmond, a n d S a n
Francisco.
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Federal Reserve Bank of St. Louis
Governor Calkins:
M y answer v a s t h e preforontial rate
should be gradually abolished, should be stepped up.
The Chairman:
T h a t i t should n o t b e ciscontinued a t the
present time?
Mr, Foxton: T h e n that puts you i n the "No" column.
Those w h o think t h e preferential rate should b e abolishod a t
the present time a r e Minnoapolis, Cleveland a n d Chicago.
The Chairmen: T h e r o were some qualifications?
Mr. Foxton:
Y e s , q u a l i f i c a t i o n s a l l through.
The Chairman:
T h e consensus o f orinion i s that t h e
preferential rate should b e ¢ontinued for the present.
"Shall there B e a Differentisl Rate i n fevor of, o r
Preference Shown, Paper Secured b y Receipts o f Warehouses
operating under the Federal Warehouse Act o r complying with
the terms o f that Act i n ospecial perticulars?”
The Chairman:
W o will n o w take u p Topic Mo. 2 , under
title VI, "Shall there be a differential rate i n favor of,
or preference shown, paper secured b y receipts o f warehouses
operating under the Federal “arehouse Act o r complying with
fhe terms o f that Act i n especial particulars?"
Governor V a n Zandt:
M r . Chairman, I
move i t i s the sense
of this Conference that n o preferential rate shall b e shown
the paper secured b y receipts o f warehouses operated under t h e
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Federal Reserve Bank of St. Louis
Federal “arehouse A c t b e adopted.
(The motion ves duly seconded. )
Governor Vellborn:
" h y i s that?
I s i t regarded a s a
Federal receipt i f it is in a United States warchouse?
The Chairman:
N o t a t all. A
loan i s either good o r i s not
good.
Governor “ollborn:
Y o u r b a n k could come t o Chieago a n d
borrow money o n a receipt from a Tmited States warehouse i n
Georgia o r Carolina o r i'ississippi?
Governor Seay: T h e t i s a preference i n itself.
Governor Fellborn:
these w a r e h o u s c e
T h a t i s right, b u t y o u cannot g e t
t o incorporato u n d e r t h a t A c t unless y o u cive
t h o m apreference. T h a t i s what they want, they vant some
preference l i k e this given t h e m t o induce t h e warehouses t o
incorporate and heve a good warehouse system. T h a t i s the
idea.
The Chairman:
I f you let me choose the paper I would
“much rather take a good single namo note thar take a loan
secured b y c o t t o n i n o warehouse m a d e b y a
man who has n o t a n y
responsibility.
Governor Seay:
h e n y o u only take such title a s the
storer had, whatever t a t m a y be.
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Federal Reserve Bank of St. Louis
Governor fellborn: I
will give y o u 4 concrete case: T a k e
@ warehouse i n a small t o v n i n southern Georgia, t h e Atlanta
banks k n o r nothing ebout that warehouse;
i t m a y b e a food
warehouse; t h e manager m a y b e a good man, well known i n the
community, b u t t h e Atlanta banker does n o t k n o w it, but h e
incorporated under t h e Federel Varehouse Act; t h a t receipt
speaks f o r i t s e f f a n d i s r e c o g n i z e d
as a
good r e c e i p t , t h e r e -
fore there i s some contention, t h e r e i s some merit i n their
contention, I
think, t h a t there should b e a preferential rate.
Governor Seay: I
believe, M r . Chairman a n d Governor
Vellborn, t h a t o u r part o f the district, w h i c h i s somewhat
similer, t h a t w e should b e much more strict i n warehousing,
but IT do not think we ought t o make » differential rate, o r
thet i t i s desirable t o make a
security.
section
differential rate o n r a r e h o u e
T h e r e i s another thing. “ h e r e would i t end? O n e
o f the! Amer teak Ranking Association h a s preferred r e -
quests t o the Tederal Feserve Ranks, o r the Federal Reserve
Board, t h a t t h e y give a
preferential rate’ to paper o f firms
furnishing & @ certain character o f credit statement.
Y o u cannot
do that.
Governor "ellborn:
Y o u see, Mr. Seay, y o u tate t h e re-
ceipts o f those Carolina warehouses, a w a y u p i n the northern
part o f the district, y o u d o not know whether those warehouses
ere good o r not,
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Federal Reserve Bank of St. Louis
166
Governor Seay: Y e s , I think w e shall have t o institute
a campaign o f education.
Governor Wellborn:
I n our district w e have three o r
four m e n who g o around inspecting warehouses a n d make o u t reports;
v e have t h e m o n file; t h e character o f the warehouse
people a n d t h e grades o f cotton y o u have n o w a y o f telling.
This Federal warehouse w o u l d have a n inspector a n d graders
and a l l that, t h e cotton i s classified, marked.
Governor Seay:
I t makes i t a much more desirable loan.
Governor Fancher:
W h a t i s the policy o f the banks i n
Caroline, I mean the commercial banks, they do not have a
preferential rate?
Governor Yellborn:
O f course they would b e willing t o
lend o n it. N o w they would not lend o n the warehouse receipt
because t h e y d o not know t h e warehouse.
warehouse receipt a
I t will give t h e
market.
Governor Fancher:
I f they had a Federal warehouse their
rate, however, would b e their going rate, they would not make
any p a r t i c u l a r c o n c e s s i o n a s t o t h a t l o a n , w o u l d t h e y ?
Governor Wellborn:
T h e main idea i s that b y giving this
preferential rate w e induce these warehouses t o incorporate
under the Federal Act, and they have got t o have some inducement t o d o that, otherwise they will not d o that.
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Federal Reserve Bank of St. Louis
167
Governor Fancher:
H o w will that incuce t h e m i f the banks
who make t h e loans based o n these warehouse receipts m a k e t h e
going rate,
Governor Wellborn: I
munities would give a
suppose t h e banks i n the local com-
low rate i f they could discount a t the
Federal Peserve Banks.
The Chairman: G e n t l e m e n , t h e r e seems t o b e a little difference o f opinion here, b u t I
believe someone h a s moved that
the answer b e "No"; i s that seconded?
(The motion was duly seconded.)
The Chairman:
I s there a n y further discussion?
I f not,
T will p u t t h e question.
(The motion was carried.)
The Chairman:
7
T h e answer then i s "Wo",
Dep.Governor P e p l e : - T h e r e i s another t o p i c o v e r i n t h e s u p -
plemental topics that I
think w e c a n dispose o f imnedtiately,
on exactly that same basis. T h e y are also askinr for preferential rates.
The Chairman: I
do not see that that refers t o rated.
Deputy G o v e r n o r P e p l e :
T h a t i s why +
it was p u t on,
because t h e y asked f o r t h e preferential rates.
T h e y wrote
to the Federal Reserve Board, and the Federal Reserve Bosra
suggested they take the matter u p through us, and the infer-
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Federal Reserve Bank of St. Louis
168
ence w a s t h e y would bring i t t o the attention o f the Governors. I
had a communication f r o m the Secretary o n the sub-
ject, a n d I
advised h i m that under t h e circumstances, a n d i n
compliance w i t h h i s r e q u e s t T
would p r e s e n t i t .
H i s sugges~
tion i s that paper bought i n the o p e n market a n d accompanied
by this statement, which gives a great deal o f additional information,
b e given a
preferential r a t e , I
told h i m personal-
ly I was opposed t o it, but T I vould present h i s request t o the
Governors' Conference a n d have t h e m act o n it.
Governor “ellborn: A
certain form of statement?
Deputy Governor Peple: Y e s .
The Chairman:
F i l l someone make a
this a s t o whether a
motion i n regard t o
preferential rate b e given.
Governor Wellborn: T h a t i t is not practical t o give a
preferential rate o n the basis o f the Character o f credit
represented.
The Chairman: G o v e r n o r Fancher, y o u ought t o make that
motion.
Governor Fancher: I
would move y o u that i t i s the sense
‘of this meeting that a preferential rate b e not given, that i t
is impracticable t o give a
preferential r a t e o n that basis:
That n o ehetiee aut eA): rate shall b e shown the paper secured
by receipts o f warehouses operated under t h e Federal “arehouse
Act.
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Federal Reserve Bank of St. Louis
169
Governor Seay:
M r . Chairman, t h a t comes f r o m a very
important a n d lerge section o f your membership,
bership o f the Federal Feserve Bank. I
o f the mem-
think w e might g o
so far a s to say that w e regard i t as highly desirable t o obtain
or tor t a k e measures t o obtain t h e credit statements recommended b y it.
Governor Fancher:
A n d that under present conditions
it
is not practicable?
Governor Seay:
T h i s h a s been considered v e r y generally
by these gentlemen a n d comes f r o m a very large propprtion o f
our membership, a n d I really feel, i t i s preferred formally,
and i s entitled t o some serious consideration a n d some considerate answer,
The Chairman: I
think Governor Seay i s right, a n d I
have n o doubt that i s what Governor Fancher intended t o say.
Governor Fancher:
Y e s , t h a t under present conditions
it i s not practicable.
Mr. H o x t o n :
U n d e r t h e present conditions
i t i s not prac-
ticable t o give a preferential rate?
Governor Seay: I
just feel that that conclusion ought
to b e expressed i n language which would s h o w consideration o f
our membership f o r t h e American Bankers Association.
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Federal Reserve Bank of St. Louis
The Chairman:
I s there a n y second t o Mr. Fancher's
motion a s exprossed b y Governor Seay?
Governor Young: I
second i t .
(The motion vas carried, )
Thereupon at 5:30 o'clock p.m., the Conference ras
adjourned until Thursday, April 8, 1920, a t 10 o'clock a.m.)
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