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EIGHTH C O N F E R E N C E
GOVERNORS O F FEDERAL RESERVE BANKS
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
BOSTON, MASS.
SOMERSET HOTEL
WALTER
S. COX .
SHORTHAND REPORTER
COLUMBIAN BUILDING—TEL.
WASHINGTON, D . C.
M . 8324
INDEX T O VOLUME III.
6.
Collections a n d clearances, (Continued)
(m)
Reserve r e q u i r e m e n t s .
U n i f o r m i t y o f compu-
tation a n d report.
(n)
(0)
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Federal Reserve Bank of St. Louis
2
0
0
on
Penalties f o r encroachment r e s e r v e s ,
2
Method o f dealing with member banks that
deduct exchange,
2
1
9
,
2
, 208
0
2
9
, 218
1
.
Immediate availability o f drafts o n Federal
reserve banks.
2
2
1
Immediate availability a t Federal reserve
banks o f checks d r a w n o h e m b e r banks l o cated o u t s i d e F e d e r a l r e s e r v e c i t i e s ,
Immediate availability o f bank drafts o n
member b a n k s l o c a t e d o u t s i d e F e d e r a l r e serve cities.
Checks payable i n New York funds a t current rates
Tranfers b e t w e e n F e d e r a l
Reserw Banks
Establishment o f branches o f g o l d s e t t l e . ment f u n d i n n o n - s u b t r e a s u r y F e d e r a l
reserve c i t i e s
Currency shipments,
Double endorsement stamps
District n u m b e r s
o n checks
No-protest i t e m s |
Should t w o a c c o u n t s
b e maintained between
_Federal resérve banks
Charges t o b e collected b y member banks
from their patrons, a n d charges t o b e
imposed f o r clearing o r collecting b y
Federal reserve b a n k
Compensation t o member banks f o r collecting items o n non-member banks.
, 256
EIGHTH C O N F E R E N C E F
O GOVERNORS O F
FEDERAL RESERVE BANKS,
SECOND DAY; AFTERNOON SESSION,
Hotel Somerset, B o s t o n ; M a s s . ,
August 23, 1916.
The C o n f e r e n c e r e c o n v e n e d
a t t h e expiration
o f the
recess.
Hon, William P , G . Harding, Governor, Federal Reserve
Board, Hon. Frederick A , Delano, Member o f the Federal
Reserve Board, Mr. Olin M. Attebery, Manager Transit Department, Federal Reserve B a n k o f St. Louis, Mr. F . M. Hardt,
Cashier o f the Federal Reserve B a n k o f Philadelphia, a n d
Mr. Chester
C , Bullen, Auditor o f the Federal Reserve
Bank o f Boston were i n attendance w i t h the Governors,
6~(m)
R e s e r v e requirements, U n i f o r m i t y
of computation a n d report.
‘The Chairman:
W e will take u p t h e next topic,
6-(m), Reserve wierunentn.
and report.
U n i f o r m i t y o f computation
G o v e r n o r Miller.
Governor Miller:
i
e Chairman, t h a t topic w a s sug-
gested b y the fact t h a t a great m a n y o f our member e a e
oppose making reports according t o the form w e sent o u t , .
We thought t h a t w a s the simplest f o r m that could b e devised,
and those on the outlying berder are familiar with the
reports required b y other Federal reserve banks. I
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Federal Reserve Bank of St. Louis
thought
201
it would b e a very good thing t o discuss s o m e uniform r e ~
port a n d let i t have t h e sanction o f the Board, s o that
the requirements o f member banks i n that regard would b e
uniform a n d w o u l d a l l a y a n y f e e l i n g t h a t o n e F e d e r a l r e -
serve b a n k i s requiring more information t h a n another. I
have a copy o f the report w e are requiring, w h i c h I think
is a s simple a s i t could possibly b e (exhibiting c o p y t o
the Conference).
The Chairman:
M r . Miller would like a n expression
of opinion a s t o what other bankS a r e doing.
Governor Miller:
Yes.
I h a v e n o resolution t o offer,
bat I thought t h a t that report ought t o b e prepared b y a
committee a n d have the approvel o f the Federal reserve Board
so that they might require i t b y virtue o f the order o f
the Board, a n d not a s seemingly coming from o u r o w n bank.
I suppose a l l banis g e t something, a n d a uniform report
is the main thing I am seeking information about.
The Chairman:
W o u l d you like a n expression o f opin-
ion from t h e Governors h e r e a s t o the desirability o f a
uniform form o f report a s t o reserve requirements made
by the Federal reserve banks?
Governor Miller:
The Chairman:
Yes.
H a s a n y Governor
a n o p i n i o n t o express
as t o the desirability o f a uniform form fer such reports?
Governor Treman, what are you doing i n the New York Bank,
may l ask, i n that respect?
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Federal Reserve Bank of St. Louis
Governor Treman: I
really cannot tell you.
M r .
Hendricks might know,
Mr. Hendricks:
W e have prepared a
simple request
which goes o u t with t h e monthly statement asking them t o
advise u s a s t o what their average daily required reserve
to b e held with t h e Federal reserve b a n k was f o r t h e past
month,
T h e y d o a l l t h e figuring.
T h e y just certify that
the balance i s $25,000, f o r imtance, t h e average daily
balance f o r the preceding month.
The Chairman:
T h e a t i s about what w e do, i s i t not,
Mr. B u l l e n ?
Mr. Bullen:
Y e s sir,
W e had not decided o n any
particular time t o send i t out.
Mr. Hendricks:
O u r “‘tdcn w a s that they h a d the
responsibility o f the report u p o n them, a n d w e did not a s k
them t o d o a n y more work t h a n was necessary.
Governor Wold: I
would lile t o ask a n expression
from each Governor a s t o what t h e y are asking for, a n d
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Federal Reserve Bank of St. Louis
if i t i s a we&lvy o r monthly report, a n d i f they are n o t
asking f o r it, w h a t t h e y p r o p o s e
t o do.
yet commenced t o ask f o r reserves.
W
e have n o t a s
W e contemplate doing
it.
The Chairman: F o l l o w i n g out Governor Wold's suggestion I
will a s k each Governor t o state i f they are
asking f o r reports
a t t h e present time, and,
i f so, w h e t h e r
the reports a r e daily, weekly o r monthly, a n d what t h e
general f o r m o f such report is. G o v e r n o r Fancher?
Governor Fancher:
S i n c e the: 1 5 t h o f J u n e w e h a e
203
had our banks furnish u s with a weekly report.
T h e
report i s required o f n e deposits f o r the week preceding.
They mail i t t o u s Monday o r Tuesday.
W e get i t the fore-
W e have t h e m listed each d a y o f the
part o f the week.
week, t h e demand deposits, e n d five fifteenths i f i t i s a
reserve c i t y bank, a n d five twelfths f o r a country bank,
and total them.
of o u r banks,
W
e are getting reports f r o m all but 2 5
T h e 2 5 have n o t b e e n doing i t regularly,
and three o r four o f them have positi vely refused t o make
the reports, saying that t h e y are furnishing t o o many reports,
e n d that t h e i r books a r e n o t kept i n s u c h shape a n d
that i t involves a great deal o f work.
T h e y d o not have
their deposits i n any form, a n d w e thought that i n asking
a bank t o render a
statement
o f i t s average r e s e r v e f o r
the month, m a n y o f the banks d i d not carry their books
so that t h e y c a n d o it.
I t i s more Simple tec furnish a
statement a n d let us figure ther equired reserve.
W e are
not finding that s o much of a job to jeep those reports u p
and figure t h e reserves a n d refer t o the reserves i n the
reserve ledger a n d see h o w t h e y check up. I
think w e
are going t o find that form satisfactory t o us, a n d i t has
seemed t o m e a b o u t t h e s i m p l e s t r e q u i r e m e n t
w e could make
of the banks a n d still g e t the information u p o n which w e
can figure t h e reserves,
Governor Wald:
as yet made a
A S I previously stated, w e have not
request except from those banks w e h a d reason
to believe were depleting their reserves, a n d w e have asked
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Federal Reserve Bank of St. Louis
204
for reports u p o n the regular form. that the Comptroller
uses b u t w e never contemplated asking them a n d have n o t
yet decided whether i t was best t o ask for them weekly,
daily o r monthly. I
a m inclined t o believe t h a t this
report o f Cleveland i s a very good one, I
Governor McCord:
rather like it.
W e s e n d out, a s New York does, a
blank, w h e n w e send a monthly statement~-The Chairman:
T h a t i s i n operation now?
Governor McCord: | . Yes sir; f o r some time, a n d has
proved v e r y satisfactory,
W e first started o u t with hav-
ing a clearing h o u s e statement similar t o the usual clearing house Statement s e n t i n every fifteen days, b u t that
required a good deal o f calculation o n our part a n d did
not amount t o s o much.
eB
S
T h e r e w a s v e r y little change i n
o we went t o the monthly system, i t requiring de-
mand deposits a n d time deposits, a n d w e checked t h e figures.
Governor McDougal: I
a m g o i n g t o a s k Mr. M c K a y t o
answer that question f o r me, Mr. Chairman,
Mr. McKay:
of reserves
W
e h a v e n o t b e e n a s k i n g f o r a n y reports
s o far, t u t o u r i d e s w a s t h a t w h e n w e d i d a s k
for t h e m w e w o u l d o n l y a s k t h e b a n k s w h o s e r e s e r v e s
we
thought were being depleted, except that we might get possibly a weekly report from the banks i n the reserve cities,
the larger banks t h a t would have t h e reserves figured anyway a n d would n o t have t o d o any extra w o r k t o get i t up.
The Chairman:
M r . Hendircks h a s reported f o r t h e
Federal Reserve Bank o f New York. G o v e r n o r Rhoads?
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Federal Reserve Bank of St. Louis
205
Governor Rhoads:
W
e sent out at the close o f July
with the monthly statement a request t o every member
bank that t h e y certify t o us t h e average amount o f reserves
required t o b e maintained with the Federal réserve b a n k o f
Philadelphia f o r t h e f i f t e e n d a y s a n d g e t r e S p o n s e s v e r y
promptly from banks w i t h one o r two o r three exceptions.
We propose t o d o that every month hereafter,
The Chairman:
Mr. Bullen:
M r . Bullen, h o w far have w e got?
W
e have n o t m a d e a n y requests
o f the
member banks f o r such information u p t o this time, b u t w e
have @
blank that w e h a v e
a l l ready t o send out, a n d
we will probably send i t out t o the cduntry banks once a
month, a n d wé may get the information from the large city
banks optionally a s o c @ sion warrants,
Mr. Hoxon:
W e have a simple form that w e sent out
on the 15th of July t o be filled out a t the close o f busi-~
ness every Saturday.
I t merely show8 t h e amount required
to b e kept i n bank b y the member bank, and, i n another
column, t h e amount actually i n the bank o n that date, according t o their books.
T h e bank cashier certifies t h a t
that i s true, a i a w e g e t t h o s e i n o n c e a
week.
T h e r e
are about eighteen o u t o f 470 members t h a t have n o t yet
replied. I
have b e e n going after t h e m pretty steadily
and propose t o get replies. from all o f them.
T h e r e are
about e i g h t e e n t h a t h a v e n o t s e n t u s i n a n y r e p l y f o r a n y
week since J u l y 15.
T h e rest o f them responded, m o s t
of them, w i t h a b s o l u t e r e g u l a r i t y ,
a weekherezand t h e r e ,
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Federal Reserve Bank of St. Louis
w i t h but a
few missing
206
Governer Seay:
F o r several months, M r , C h a i r m m ,
we
have b e e n receiving weekly reports f r o m o u r member banks.
Ths statement giving t h e time deposits e n d the demand d e posits a n d the amount o f the balance i n our bank i s shown
by t h e i r books.
W
e d o a l l t h e gomputing.
Governor Kains:
W
e send o u t the forms f o r weekly
statements e n d get t h e m i n regularly a s o f Friday o f every
week,
O n a n average;
b u t t h e banks t h a t w a n t t o furnish
us with the figures f o r every d a y have a place there t o d o
so.
T h e y all, w i t h f e w exceptions, respond.
The Chairman:
G o v e r n o r Miller,
d o y o u want a n y ac-
tion o n this question,
Governor Miller:
The Chairman:
N o .
G o v e r n o r Harding, have y o u a n y Ssug-
gestions t o make?
Governor Harding: I
Mr, Delano: I
believ
a not.
wanted t o ask Mr. Miller whether h e
shows total deposits a n d whether h e makes a n y distinction
between demand a n d time deposits?
Governor Miller:
I f y o u will loek o n the formula,
.you will s e e that i t i s supposed t o b e worked o u t according t o the Comptroller's formula.
T h e y p u t d o w n the
actual amount o n which t h e reserve Shall b e counted, a n d
we tabulate t h e reserves,
Mr. Delano:
A r e y o u getting i t filled o u t correctly?
Governor Miller:
S o m e o f them fill i t out forrectly
and o t h e r s c a n n o t d o soa,
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Federal Reserve Bank of St. Louis
A n d that i s what I
would t h i n k
2O7
you would g o u p against b y asking a member bemk t o calculate i t s o w n reserve a n d send you the sum,
Mr. Delano:
Y o u used a form very similar t o Cleve-
land's f o r & time; I
think t w o months, d i d y o u not?
Governor Miller:
N o , w e never used this, t u t w e used
your f o r m 4 5 for a long time.
Mr. Delano: I
thought i t wes very Similar t o that.
Governor Miller: Y e s . F o r a long tine I think t hat
was Mr. Harding's f o r m w e sent out, f o r almost t w o years ;
bat o n July 1 5 we changed that form t o this.
O f course
some o f them kick about taking any form, a n d if i t were
the p u r p o s e
t o b e a n y t h i n g l i k e accurate, I
a m sure t h a t
our m e m b e r banks c o u l d not, h a l f o f them, m a l e i t o u t
accurately,
i f they wanted to,
The Chairman:
T h e y have t o figure their o w n reserves?
Governor Miller:
W e figure t h a t for them i f they
furnish u s the deposits,
The Chairman:
W e figure t h e reserve,
B u t I
mean,
i n the a
c o u r s e of
business?
Governor Miller:
Governor Fancher:
The Chairman:
O h , yes; t h e y d o not d o that.
S o m e o f them d o not know how.
H o r d o you d o i n your district, G o v -
ernor M e C o r d ?
Governor MeCord:
V e send out a
form w h e n w e send
the monthly statement, a n d we find i t works Wery well,
because when they acknowledge the monthly statement they
send i n t h e r e s e r v e c a l c u l a t i o n ,
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Federal Reserve Bank of St. Louis
208
The Chairman:
T h e y make t h e reserve calculation?
Governor NMeCord:
T h e y s e n d i n t h e amount
o f their
demand deposits a n d t h e average amount o f time deposits
and make their calculations, w h i c h w e check.
Governor Harding:
Governor NeCord:
Y o u h a w t h e data t o check b y ?
W e have t h e data t o check b y and
we check i t b y that.
The Chairman:
D o y o u not find that vould work fairly
accurately?
Governor McCord: F a i r l y so, b u t there i s a campaign
of education, sir, w h i c h w e started.
H a l f o f t h e m were
wrong, nearly, b u t w e very diplomatically went badk a n d gat
it u p a n d straightened i t out s o that i t works a l l right.
Mr. Chairman, I
think i t would b e a good idea t o have
the centers furnish a weddiy statement because t h e y furnish
it t o their clearing house, a n d w e would take such reserve
cities o r large cities a n d have t h e weekly statement, w h i c h
is a very advantageous one,
once a
A s for t h others, I think
month i s often enough.
Mr. Hendricks:
Y o u only need the figures once a
month?
Governor McCord:
Yes.
The Chairman:
o y o u w a n t a n y a c t i o n o n this, M r .
D
Miller?
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Federal Reserve Bank of St. Louis
Governor Miller:
N
o sir.
(n) P e n a l t i e s f o r encroachment o n
reserves.
The Chairman:
e Y o u were also responshble for (h),
Penalties f o r encroachment o n reserves.
Governor Miller:
O f course, t h a t brings u p a very
serious q u e s t i o n a b o u t h o w a n d w h e n w e a r e g o i n g t o assess
those penalties,
W e were under t h e impression that the
Federal Reserve Board's circular contemplated that the
penalties would begin, but u p t o this time w e Rave e e e ,
penalties.
(Informal discussion followed which t h e steno~
grapher was directed n a t o report.)
Governor Miller:
T h e question i s w e h a v g o t all t h e
banks i n our district thinking w e were keeping a pretty
good t a b o n them, a n d they a r e keeping their reserves
up; but i f we d o not commence t o tax somebody just a s a n
example,
w e will lose o u r ground.
Governor McCord:
O u r experience w a s that w e h a d more
breaches o f the agreement with regard t o reserves during
the v o l u n t a r y s y s t e m o f clearings t h a n w e h a w h a d since.
Those who are sending u s their figures keep the reserves
intact.
T h e o n l y ones w e have trouble w i t h now a r e
those w h o are not sending u s t h e items, Sending t h e m thragh
some c i t y a n d covering w i t h exchanges O n those cities.
Governor Miller:
T h e o n l y reason I suggested this
topic w a s t o Save m y o w n face i n Suggesting t o them that w e
were going t o charge t h e m u p with a penalty.
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Federal Reserve Bank of St. Louis
The Chairman:
O
F course,
i t has been a
very
perplexing a n d embarrassing matter, b u t I think w e have
got t o squarely face t h e fact that t h e time i s coming w h e n
we have g o t t o enforce these penalties a n d see that reserves
are maintained,
T
h
e question arises a s t o when w e shall
do this, w h e n t h e check collection system has i n our judg-
meht gotten t o be so highly developed, a n d thesé statements
of reserves coming i n regularly--Governor McDougal: I
do not bélieve w e could make
any i n f l e x i b l e r u l e i n t h a t d i r e c t i o n n o w o r i n t h e future.
I think that i s a matter for éach bank t o determine i n
eonnection with e a c h case, a m d I think that Governor Miller,
if h e h a s a
case w h e r e h e o u g h t t o a p p l y t h e penalty, s h o u l d
do i t a t this time.
The Chairman:
W i l l y o u make a
motion embodying that
idea, Governor McDougal?
Governor McDougal: I
move that w e d o not u m e r t a k e
at present t o formulate a n y inflexible rule w i t h regard
to when reserve penalties Shall begin t o apply, b u t that
each bank shall use its own discretion, and, considering
the cases a s they arise, f e e l a t full liberty t o apply t h e
penalty i f they think i t should be done.
Governor Miller:
T h a t would leave t h e matter u p i n
. the air, b e c a u s e i t w o u l d l e a v e i t e n t i r e l y discretionary,
and i t would not b e applying t h e same r u l e t o all.member
banks . U n l e s s w e g o through a s a mathematical proposition
and attach this penalty,
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Federal Reserve Bank of St. Louis
w e are liable t o get ourselves
in very bad r e p u t e ,
Governor Seay:
F u r t h e r t h a n that, i f w e allow a
motion o f t h a t k i n d t o g o o n r e c o r d w e a r r a y o u r s e l v e s
against t h e law.
I
t i s n o t w i t h i n o u r discretion, w h o l l y ,
at least, a s t o whether w e shall apply this penalty o r not,
The l a w i s specific o n that, possibly more Specific t h a n
it i s uponnany other points;
a n d i f the rule i s once fixed
by t h e F e d e r a l Resdérve B o a r d i t i s t h e d u t y o f t h e F e d e r a l
reserve banis t o enforce t h e law. I
believe i t would b e
safer f o r u s n o t t o g o o n r e c o r d a s l e a v i n g a n y t h i n g w i t h i n
the discretion o f the Federal Reserve Banks, b u t i f w e are
going t o use it, why, u s e it, a n d say nothing about it.
It i s one o f the most important subjects w i t h which w e
have t o deal, a n d I take i t that w e shall have t o follow
the law; and, what i s mote, i t may be very doubtful about
the l e g a l i t y o f t h e p o l i c y o f f i x i n g e n a v e r a g e b a l a n c e
for the month a s the proper basis.
so. W h e n e v e r a
T h e l a w does n o t s a y
bank uses i t s reserve,
i t uses i t subject
to the penalties; a n d while a l l o f those things must b e enforced i n t h e l i g h t o f reason, s t i l l I
have v e r y g r a v e
doubts whether t h e average balance p e r month i s correct,
when p e r h a p s s e v e r a l t i m e s d u r i n g t h a t m o n t h a
utilize i t s whole reserve,
Miller.
bank m i g h t
a s i t d i d i n the case o f Goernor
I t i s not authorized t o d o s o b y law.
Governor Wold:
T h e paragraph applying t o that reads
as follows:
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Federal Reserve Bank of St. Louis
"The reserve carried b y a member bank With a Federal
212
reserve b a n k may, u n d e r t h e r e g u l a t i o n s a n d s u b j e c t t o s u c h
p enalties a s m a y b e prescribed b y the Federal reserve
Board, b e checked against a n d withdrawn b y such member
bank for the purpose o f meeting existing liabilities,"
Then i t provides further:
"That n o bank shall a t any time make new loans o r
Shall p a y a n y d i v i d e n d s u n l e s s a n d u n t i l t h e t o t a l r e s e r v e
required b y law i s fully restored,"
That i s t h e p a r a g r a p h u n d e r w h i c h a
assessed,
as I
understand i t .
I
penalty m a y b e
t depends u p o n r u l e s
or
regulations w h i c h m a y b e p r o m u l g a t e d y
b the Federal R e serve Board,
Governor Seay:
N o t the rugs s o t regulations, b u t
the penalties m a y b e fixed b y the Board; a n d then t h e
bank i s automatically subject t o i t under t h e Act.
ies Delano:
T h e Board h a s already approved t h e
Suggestions m a d e b y the Governors,
Governor S e a y :
Y e s sir.
N o w it is a
cuestion
as t o whether t h e bank i s subject t o i t and under what
conditions i t i s subject t o it,
Governor Harding:
W o u l d i t b e your idea t o have a
fixed penalty o r a fluctuating penalty based upon t h e
tr
discount r a t e ?
Go ernor Seay: I
think most o f the banks have taken
their rates f o r mercantile p a p e r a n d have a d d e d t o that,
Mr. Delano:
highest rate,
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Federal Reserve Bank of St. Louis
S o m e a r e t w o p e r cent higher t h a n the
rat i
Governor Seay:
N o t less than six per cent. T h e r e
are a great m a n y banks that would b e delighted t o use their
reserve i f they could use i t a t the d i s @ unt rate,
Governor Miller:
T h e r e a r e several banks t h e t have
issued t h e i r regulations,
exactly t h e same.
maximum rate.
a n d hardly a n y t w o o f them a r e
O n e i s t w o per cent higher t h a n the
T h a t was according t o our circular, a n d
others h a v e t w o p e r d e n t p l u s t h e t e n d a y rate, a n d i t
figures o u t a l l k i n d s o f percentages.
Governor Seay:
W a s i t i n all cases less than
per cent, Governor Miller?
Governor Miller:
N o .
O n e o r twe banks have received
no circular o n it, a s far a s I know.
Governor S e a y :
B u t I
umerstood t h e ruling o f the
Board t o fix a minimum o f penalty that i s net less than
six per cent,
Governor Miller:
never f i x e d a
B u t , Governor Seay, the B e r d has
penalty a t a l l e x c e p t t h a t t h e y h a v e i
tatively a p p r o v e d w h a t w a s d i s c u s s e d
in Chicago.
ten—
a t t h e transit meeting
W h e n ve got ready t o make our debit entries
we discovered just what Governor Wold has read, t h a t t h e
Board must f i x the penalty, a n d w e hesitated about making
any c h a r g e b e c a u s e t h e B o a r d h a d n e v e r c o m e o u t a n d s t a t e d
or promulgated t h e penalty.
The Chairman:
I s not t h e simplest solution o f the
matter t o leave i t a s i t is, a n d the Federal Reserve Board
will exercise i t s authority w h e n they a r e satisfied that
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Federal Reserve Bank of St. Louis
214
the conditions o f the clearing operation have reached a
point where i t c a n b e done a s a practical matter?
Governor Miller:
h a t would suit m e exactly.
Governor Harding:
T h e r e i s a general opinion that
the Board O e n e e
9)
o e t h i s matter u p and issue a circular
regarding i t ?
Governor Miller: E x a c t l y ; a n d send i t t o every member.
o f t h e Conference.
Governor Seay:
A t the last conference t h e Board
gave t h e Governors t o understand that they would
consider
and allow some flexibility i n the penalties i n
the various
rates,
e n d w o u l d permit t h e banks
t o Suggest
they thought w a s a reasonable penalty.
t o them what
F o r our bank, o u r
Board o f directors h a v e formally acted upon the matter
and have submitted their action t o the Pederal Reserve
Board, a n d they have fixed t h e penalty t o b e
enfarced b y
our bank,
Mr, Delano:
the banks,
T h a t i s true a s t o more t h a n half o f
T h e y submitted t o the Board a penalty a n d
asked u s t o approve i t a n d i t was done, K a n s a s
City i s
not one o f t h e banks that submitted a Specific penalty,
but more than half o f the banks have, —s«‘T_have felt
that
we had n o t worked o u t the clearance problem f a r
enough,
nor h a v e w e w o r k e d o u t a
daily o r w e e k l y o r m o n t h l y s t a t e -
ment o f reserves actually held sufficiently well
t o rerrant
us i n p r o m u l g a t i n g a n y t h i n g generally.
F o r s i x months
we have b e e n Suggesting that progress
Ought t o b e made o n
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Federal Reserve Bank of St. Louis
215
reserve ststeménts t o b e made b y members, a n d y o u have
heard just n o w the disparity i n the style o f reports.
Some o f them trust t o the banks themSelves t o maintain t
reserves; o t h e r s c a l c u l a t e
he
i t f r o m t h e figures s e n t in.
I do not think that w e ought t o t e hesitating i n this
thing.
S o m e banks m a y b e a little farther along e n d
mare ready t o impose penalties t h a n others.
W e think
it i s a n essential p a r t o f t h e c l e a r i n g problem,
a n d w e are
ready t o a c t o n i t j u s t a s s o o n e s y o u a r e r e a d y t o h a v e
YW9- ACT Onit.
W
e would rather b e patient w i t h y o u i f
you are making headway.
Governor Miller:
T h e n y o u a r e o f the opinion that
it would b e well f o r the B m r d t o establish some uniform
form o r manner i n which the member banks should report t o
the Federal reserve banks, a s i n my topic just before this
one, a n d then, t h a t b e i n g perfected,
t h e Boardwill announce
at some future time when the date i s that the penalties
Shall begin?
Mr. Delano:
Y e s sir.
Governor Harding: I
presume t h e minutes o f this
meeting will b e sent t o all the Board,
s o w e will have
Something o f record?
Mr. Delano: I
a committee
think i t would b e a good thirg f o r
o f the Governors
t o b e appointed w h o will
take hold o f this subject a n d discuss i t with us, because
there a r e t w o a n g l e s
t o it.
F i r s t , t h e report o f
the member banks a s t o what their reserves are; second,
as t o h o w t h e r a t e s a h a l l b e established,
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Federal Reserve Bank of St. Louis
Therefore
it
216
is necessary that t h e rate should b e the same i n New
York a s i t i s i n San Francisco; b u t that c a n b e adjusted,
aS was suggested, I
understand,
b y the Governors! confer-
ence some time ago, that i t should b e two per cent
higher t h a n perhaps t h e highest ninety d a y rate.
not s e e W h y t h a t i s n o t a
Governor Seay: I
g o o d w a y o f L i s t e sat.
consider t h a t w e a r e f u l l y p r e p a r e d
in o u r district, s i n c e w e h a v e b e e n r e c e i v i n g w e e k l y r e -
ports f o r several months,
t o begin t h e enforcement o f the
penalty, a n d w e shall commence t o d o i t from the first
of the month.
T h e r e were s o many accounting intricacies
at the beginning o f t h e month, a n d s o many errors, b o t h
On our part a n d o n the part o f the member banks, t h a t
we heretofore found difficulty i n proving whether t h e
violation was d u e t o the bank o r due t o us.
B u t w e think
from the first o f the month w e are nav prepared t o enfroce
the penalty. I
do not see h o w w e c a n conduct t h e collec-
tion s y s t e m u n l e s s
The Chairman:
w e are prepared
Might I
t o enforce i t .
suggest t h a t t h e Federal
Reserve Board address a n inquiry t o the different F e d e r a l
reserve banks a s t o what t h e y would consider a
reasonable
penalty, a n d when they feel i t c a n b e put i n force?
Undoubtedly t h e r e s h o u l d b e a
S n e l ohee t o m e e t t h e F e d e r -
al Reserve B a r d a n d have t h e matter Settled,
Governor Miller: I
move t h a t t h e Chair appoint a
committee t o cooperate w i t h the Federal Reserve B o a r d
on t h e q u e s t i o n ~ - - a
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Federal Reserve Bank of St. Louis
committee
o f three,
2i7
The Chairman:
I s there n o t a motion before t h e
house?
I n view of the fact that by the
Governor McDougal:
withdrawl o f that motion i t will leave u s i n e xactly t h e
Same position a s i f the motion were carried, I
a m perfectly
willing t o withdraw it,
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Federal Reserve Bank of St. Louis
The Chairman:
T h e motion i s tithdrawn,
Governor Miller: I
move that @ committee o f three
be appointed b y the Chair t o cooperate a n d confer with
the Federal Reserve B o a r d o n uniform reports o f member
banks, a n d the announcement o f the Board t o the memter
banks that the penalty will begin at a certain date.
The Chairman:. M i g h t I simplify that resolution t o
the effect. t h a t a
committee
o f three b e a p p o i n t e d
t o confer
with t h e Federal Reserve B o a r d i n the matter o f enforcement o f penalties f o r e n c r o a c h m e n t
Governor Miller:
serves.
o f reserves?
A n d uniformity of reports o n re~
T h a t i s a very important part o f it.
Governor McDougal:
A n d t h e fixing o f a penalty,
I would s u g g e s t t h e r e , M r . C h a i r m a n , b e c a u s e I
think w e
can easily s e e ahead o f u s the possibility o f cases
arising wherein t h e present penalty would n o t hold them.
The Chairman:
T h e fixing a n d enfarcement o f penal-
ties f o r encroachment o n reserve~---
Governor Harding:
T h e Comptroller o f the Currency
showed m e t h e other d a y a circular h e h a d sent o u t t o all
national b a n k examiners, a n d i n order not t o put belances
218
with Federal Reserve banks a t a disad¥Vantage a s compared
with balances o f reserve agents h e has instructed national
bank examiners i n computing t h e reserves o f member banks
as they examine t h e m t o accept a t their face value, accord-—
ing t o the statement s h o w n b y the bank books ,the balances
that t h e bank claims t o have w i t h t h e Federal reserve bank,
verifying that just a s h e would t h e balance o f the approved
reserve agent, a t the same time advising e a c h m e m t rbank
that while the Comptroller's office actepts the bank's
books a s t o what its reserve with the Federal réserve bank
is, a s f a r a s the Federal reserve b a n k i s concerned, t h o s e
balances a r e computed according t o the books o f the
Federal reserve bank, a n d i f there i s a n y actual deficiency
they will hear from t h e Federal reserve b a n k a n d the penalty will b e enforced,
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Federal Reserve Bank of St. Louis
The Chairman:
T h e actual deficiency f r o m whose point
at v i e w ?
Gneoinee Harding:
F r o m y o u r p o i n t o f view.
mekes i t very clear i n e
H
e
a s examiner will carry o u t h i s
instructions there will b e n o confusion,
Governor Wold: I
will raise n o question s o long
as t h e i r orin books s h o w t h e reserve,
Mr. Delano:
H e i s not t o d o that unless y o u are
going t o give t h e advantage t o the banks t h a t are n o w
holding t h e reserve,
Governor Wold:
B u t they will n o t have that advantage
if w e t a k e t h a t view—--~
road
Mr. Delano:
Y e s , Iknow; b u t they still h a v option-~
al réserves u n t i l November,
other banks.
1 9 1 7 that they c a n hold with
W e might change that rule a year and three
months hence,
The Chairman:
I n the interest o f progress, l e t me
state that there i s a motion before the house,
I s the
motion seconded?
Governor Treman: I
second it,
(The motion was duly carried.)
(o) M e t h o d o f dealing with member banks
that d e d u c t exchange.
The Chairman:
G o v e r n o r Miller, y o u are responsible
for (0), Method o f dealing w i t h member banks t h a t deduct
exchange.
Governor Miller:
W e have o n e member i n our district,
the First National Bank o f York, Nebraska, that has
charged u s exchange o n everythirg w e have sent them since
Degember, 1914, a n d he has got a bill against u s o f $658
now, j u s t a s regularly a s the reconcilement blanks a r e
sent.
I f we send him ten items of $10 each he charges us
1° cents o n each one of the items.
Governor Wold:
D o e s h e d o that now?
Governor Miller:
Yes.
T h e question that came t o
me i s t h a t w e have t a k e n t h e m a t t e r u p w i t h h i m i n e v e r y
diplomatic way, I
fed him for a week down at Kansas City,
and I thought sure w e had him.
T h e next month w e discover-
ed that item again, a n d we have written t o tle Comptroller
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Federal Reserve Bank of St. Louis
220
about it.
he made a
W e took it up through the chief examiner and
special examination o f the bank, w h i c h i s one
of the best banks i n Nebraska; a n d we have taken i t u p with
our board, a n d w e d o not seem t o b e making v e r y much progress,
T h a t will spread very rapidly i n Nebraska,
That
is b a d seed t o sow, a n d w e ought t o have some wajg-vof get~
ting t h e Comptroller t o write t h a t m a n a letter saying
Something like this, that that item appearing i n the next
published statement a s a n asset wida b e regarded a s a
misrepresentation o f his condition-~-«
Governor Harding: I
talked with the Comptroller
about t h a t very case,
Ga ernor Miller:
W h a t d i d h e say?
Governor Harding:
H e d i d nob commit himself, b u t
indicated that h e h a d a formal letter f r o m y o u setting
forth a l l the facts, t h a t h e would notify this bank that
the last statement showed a
certain amount d u e from the
Bank o f Kansas C i t y a n d the Federal Reserve B a n k o f Kansas
city advised h i m from time t o time that t h a t amount i s
not due, a n d that h e must n o t show s u c h a misrepresentation o n his next statement.
Governor Miller:
T h a t i s the thing t o do.
Governor Harding:
H e i s not g o i n g t o d o i t unless
you send h i m a clear c u t indictment Stating a l l t h e facts.
Governor Miller:
W e would have taken that matter
up formally w i t h t h e Comptroller, b u t w e thought w e h a d
passed i t through.
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Federal Reserve Bank of St. Louis
Governor Harding: I
suggodt that you take i t u p with
him i n that w a y right away.
Governor Delano:
O n July 1 2 I wrote t o you and you
answered Some questions t h a t I asked y o u o n July 18. T h e n
I prepared a letter to you along the lines which Mr,
Harding has suggested.
I n order to be sure that I haa
the l a w department w i t h m e I sent i t i n t o the l a w de-
partment. I
found m y letter had névér bedn Sent, that
the law department took it off on a vacation anda he has
got i t there, I
telegraphed t o find what had become o f
it and received word that h e hoped I would hold the mat-
ter u p until h e got back, which will b e the first o f
the month, because h e h a d sane suggestions t o make.
S o
you Will hear from i t pretty soon,
Governor Miller:
Mr. Delano:
Yes,
The Chairman:
D e e s t h a t satisfy you, Governor M i l e
Governor Miller:
Mr. Delano:
I t i s i n the grinding?
Y e s sir.
T h e r e i s a similar case i n Wyoming.
(Informal discussion followed which the steno~
grapher was directed n & t o report.)
The Chairman:
l e t u s pass t o t h e next question.
(p) Immediate availability of drafts o n
Federal R e s e r v e b a n k s .
The next question has been put o n the program b y
Mr. Delano and b y various governors o f the banks.
Delano s e n t a
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Federal Reserve Bank of St. Louis
M r ,
letter t o a l l t h e F e d e r a l R e s e r v e B a n k s
eae
bearing o n this matter.
Sion, a n d i f agreeable
T h e matter h a s been under distust o Mr. Délano I
will a s k him t o
bring t h e matter before t h e gonference.,
Mr. Delano: I
confess that I
a m a g o o d deal inter-
ested e e this matter; a n d one reason thet I
a m interested
in i t i s that i t seems t o m e a n answer t o a statement
that i s very frequently made that t h e banks t h a t a r e getting the greatest benefit o u t o f the Federal Reserve System
are the state banks located i n the cities where t h e Feder~
al reserve b a n k i s situated, where a s the little country
bank s e e s v e r y l i t t l e p r o f i t
i n t h e system.
It seemed t o me that here was sonething that w e could
offer the country banks, a
service t h a t w e could offer
them, A l t h o u g h that i s m y general v i e w o f the subject
Ido n o t want y o u t o think that I
on the subject, I
have n o t a n open mind
have b e e n trying t o get the opinions
of men who are opposed a s well a s those w h o a r e i n favor
of the thing. I
a m anxious t o have a l l t h e facts before
us i n order t o arrive a t a fair conclusion,
Among t h e m e n t o whom I wrote o n this subject w a s Mr.
Porgan, president o f the Pirst National Bank, o r formerly
presadent, a n d nov chairman e n d member o f the Advisory
Council. I
a m g o i n g t o read,
if I
may, t h e a n s w e r t h a t
hé wrote mé, although i t i s opposed t o this thing.
I t
not o n l y states t h e conditions, b u t i t i s t o a great extent
an argument i n faver o f the service.
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Federal Reserve Bank of St. Louis
He says:
£25
"The furnishing o f bank drafts f o r both domestic
and f o r e i g n e x c h a n g e p u r p o s e s h a s a l w a y s f o r m e d a
branch
of the legitimate business o f banking o n which banks have
earned a
fair profit.
Quite a
considerable proportion o f
this profit i s derived from what hes come t o t e termed t he
‘float’, meaning thereby the profit o n the funds i n the
hands o f the banks represented b y the enormous number o f
their drafts always outstanding, which is earned between
the dates o f their issue a n d t h e dates o f their payment.
The longer bank drafts a r e kept afloat t h e more profitable
are t h e y t o the banks that issue them.
a bank sells a
F o r example i f
draft o n New York t o a customer w h o remits
it to San Francisco t o m payee who can use it there as
cash i t i s more profitable t o the drawing b a n k t o issue
it o n New York than i t would b e t o issue i t o n San Francisco, e v e n i f i t h a d available funds i n both places.
The draft o n New York would b e outstanding f o r over five
Gays l o n g e r t h a n t h e d r a f t
o n S a n Francisco before i t
could b e charged t o the account o f the drawing bank.”
In the séatement I
sent t o y o u gentlemen I
think I
quoted t h e figures w h i c h s h o v e d t h a t a b o u t 9 9 p e r c e n t
of the National Banks i n the country h a d N e w York City
accounts, a n d about 6 5 t o 70 per cent o f the State banks
would have N e w York City accounts.
"This, however, presupposes that the funds against
which t h e drawing bank makes i t s drafts areearning interest.
Therein lies t h e impracticable p a r t o f the proposed u s e o f
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Federal Reserve Bank of St. Louis
224
drafts
o n Federal r e s e r v e b a n k s f o r d o m e s t i c e x c h a n g e
purposes,
T h e funds o n deposit i n them earn n o interest;
However advantageous the 'float' might b e t o the Federal
reserve banks o r t o the public there would b e absolutely
no profit i n the issue o f them t o the banks a n d they would
lose their present léegitimete profit o n that branch o f the.
business."
In other words, a s I understand Mr. Forgan's argu-.
ment, e v e n i f w e gave this privilege, t h e advantage i s s o
much greater t o continue doing business i n the way i t now
is that t h e banks w o u l d practically n o t make use o f the
new method.
I f that i s a n argument, t h e n I do not s e e
what t h e objection c a n t e t o giving this a s a n alternative
privilege, because there a r e a good many banks asking f o r
this privilege.
"Already the Federal Reserve System has eliminated
the legitimate charges heretofore made b y its member banks
for issuing their drafts i n remitting t o the Federal r e serve b a n k s f o r c h e c k s d r a w n u p o n t h e m s e l v e s a n d p a y a b l e
at their counters only.
T h e proposition that t h e y shall
also supply their customers with drafts o n the Federal
reserve banks f o r purposes o f domestic exchange, w h i c h
involves their maintaining large non-interest bearing
balances t o their credit a t the Federal reserve banks i n
excess o f their reserve requirements, w o u l d seem t o b e
rather ‘rubbing i t in', especially a s the Federal reserve
banks belong t c the member banks, being established and
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Federal Reserve Bank of St. Louis
maintained with their money."
Governer Harding:
T h e r e i s h o objection t o their
charging & ® premium, though,
Mr. Delano:
whatever
i s there?
M r . Harding a n d I have n o objection
t o the member banks c h a r g i n g a
fee. I
think t h a t
is a highly proper f o r m o f revenue.
Governor Seay:
A n d t h e l a w permits i t too,
Mr. Delano: ( C o n t i n u i n g ) "
{It would seem therefore
very unfair that t h e Federal reserve banks should undertake
to prevent their member banks f r o m e arning reasonable
profits for their legitimate a n d actual services t o their
customers."
The answer t o that Mr. Harding h a s made.
want t o prevent t h e i r earning,
a different way.
W e d a not
b u t they vould earn i t i n
T h e y would e a r n i t b y charging their
customer something instead o f earning i t i n float.
Governor Wold:
U n l e s s t h e y could sell t o their cus-
tomers something that i s better t h a n t h e customers' o w n
draft, d r a w n o n the banks, t h e y have g o t nothing t o charge
on.
Mr. Delano: (Continuing readng): " B a n k s i n Great
Britain w i l l s u p p l y a n y o n e w i t h a
draft o n L o n d o n w i t h o u t
charge f o r practically a n y amount which i s t e be used b y
the purchaser i n paying a
foreign debt.
T h e y c a n affard
to d o this because t h e draft i s drawn against a n interest
bearing balance which affords t h e drawing bank t h e inter-~
est o n t h e a m o u n t o f t h e d r a f t f o r t h e p e r i o d i t i s o u t -
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Federal Reserve Bank of St. Louis
225
standing.
S i m i l a r l y a n y bank i n Chicago would b e glad
to sell its draft o n New York without charge i f the draft
in the first instance i s t o b e remitted west a m w i l l
Similarly e a r n a
legitimate p r o f i t
o n t h e transaction.
But what profit would a member bank have i n issuing its
draft o n the Federal Reserve B a n k i f i t had t o keep a noninterest bearing balance o n deposit always sufficient t o
cover all the drafts it¢draws?"
In other words, that i s repeating t h e argument that
we made before, t h a t t h e y would not have a n y interest i n
keeping t h a t excess d e p o s i t
i n the Federal Reserve B a n k ;
they would rather keep i t i n New York o r Chicago o r somewhere else, a n d draw against that.
I f that i s true, t h e n
the Federal Reserve Banks a r e not going t o b e called upon
to d o much o f this business.
Governor Miller:
C o u l d na& t h e drawing bank figure
on the average float itself a n d keep just that much less
in the Federal reserve bank?
H e would get t h e benefit o f
the float that way.
Mr. Delano:
I
n the suggestions
w e m a d e w e suge@ sted
that there should b e a daily notification b y the Federal
reserve bank.
"It would make n o difference t o the drawing bank whether t h e d r a f t s w e r e p r e s e n t e d t h e d a y t h e y a r e d r a w n o r
months thereafter.
T h e result o f course w o u l d b e that
the Federal reserve banks would ultimately have o n deposit
all the time a l l the funds represented b y all the outsta n d ing drafts d r a w n b y all their member banks;
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Federal Reserve Bank of St. Louis
o r i n other
227
words, t h e Federal reserve banks would r e a p a l l the benefit-6f the-.'floas’ . I n the aggregate t h i s would become
an encrmous fund, a
on a s a
large part o f which could b e reckoned
Steady d e p o s i t a n d c o u l d b e u s e d j u s t a s o t h e r d e -
posits a r e used.
T h i s would b e greatly t o the benefit
of the Federal reserve banks, b u t i t would b e a t the e x pense o f the profits n o w earned b y the member banks.
"We i n the First National Bank see t o it that our
‘daily remittances o f checks g e t t o our credit i n New York
with the least possible delay.
O n the other hand, e v e n
those o f our drafts which a r e sent direct t o New York
having t o pass through the individual hands o f the payees
who deposit them i n their o w n banks, average a t least o n e
day's delay longer than our remittances t o cover them.
Then, o f course, m a n y o f our drafts a r e remitted t o different parts o f the country before t h e y are finally sent
to N e w Y o r k a n d w e g a i n s e v e r a l d a y s o n them. A
careful
estimate made from the monthly reconcilements o f our New
York accounts shows that between August 1 , 1915, t o July 1 ,
1916, o u r average float o f New York drafts amounted t o
33,033,673.
O
n this amount w e o f course earned two per
cent o r a little over $60,000.
B a n k profits o n out-
Standing drafts drawn for exchange purposes, commonly
known a s the 'float' are earned from the interest paid o n
the balances against which they are drawn,”
My point i s simply this: A
bank like Mr. Forgan's
Will always prefer t o keep its accounts against which drafts
are d r a w n i n N e w York,
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Federal Reserve Bank of St. Louis
a n d t h e r e i s n o objectd o n ney @e a e eer
228
but there a r e a good many little banks i n the country w h o
Say that i t i s gcing t o b e more difficult f o r them t o keep
outside accounts, outside o f Federal Reserve Banks, a n d
we h a v e h a d m o r e t h a n o n e complaint, I
Union City, T e n n e s s e ,
think o f o n e f r o m
i n t h e St. L o u i s District,
where they
Sent u s a letter f r o m t h e Hanover B a n k from a man who h a d
formerly kept a n account w i t h t h e Hanover.
H e h a d de-
cided, a s h e h a d t o keep his reserves w i t h the St. Louis
bank, t h a t h e would discontinue h i s Hanover B a n k acco unt.
The next time h e tried t o send a draft against the
Federal reserve Bank o f St. Louis, naturally they gave
him deferred credit. D e f e r r e d credit would b e all right
if they treated N e w York t h e same way, a n d they would a l l
be i n the same boat; b u t s o long a s the draft o n New York
is given immediate credit, besides t h i s advantage o f interest, I
do not s e e where y o u a r e doing anything f o r your
members a s a service unless y o u give them equal treatment.
Governor Miller:
A r e y o u r suggestions w i t h reference
to t h e N e w Y o r k a c c o u n t o n l y ,
o r each o f the other eleven
banks?
Mr. Delano: I
only mentioned N e w York because t h a t
is t h e m o s t p r o m i n e n t one.
Governor Miller:
Y o u would not confine i t t o New
York?
Mr. Delano:
O n , n o t e t sai...
Governor Harding:
only o n checks
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Federal Reserve Bank of St. Louis
P h e - t h e o r y O f i t i s this:
“ I t 46
o f a n y considerable s i z e t h a t t h i s proposi-
229
tion would apply.
J u s t assume a
case o f a bank down
in Steetwater, Texas, having n o account anywhere except
with the Federal Reserve B a n k o f Dallas, having closed a l l
its other accounts;
anywhere else, A
i t i s a small bank a n d has n o exchange
customer comes i n and wants t o buy
92500 on New York. W h a t i s the man going t o do? T h e
Sweetwater Bank can say, "We have n o account there.
You
b y express. si "
d better s h i p t h e money
a
h C a n you use Dal-
las?" " N o , we cannot,
Y o u have got to use New York, "
"Must we Ship the money b y express, o r would it not b e
permissible f o r the Sweetwater Bank t o draw against its
reserve account, t h e necessary reserve accourm,
i f you please,
in Dallas, stamp o n that check, "collectible, i f desired,
through the Federal reserve bank i n New York", give i t to
the customer, charge h i m a premium f o r it, just enough t o
justify his excess reserve
a
n
d tell t h e customer,
"This i s the same a s N e w York exchange."
T h e n h e will
send a notification b y mail that night t o the Federal
Reserve Bank of Dallas giving them a n abstract o f t h trans~
action.
S a y , after this check is stamped “collectible
at N e w Y o r k w i t h o u t d e d u c t i o n ;
p l e a s e c h a r g e o u r account
with t h e amount o f this check a n d please s e n d a night mes-—
sage a t o u r expense t o New York authorizing t h e m upon pre-~
sentation t o purchase t h i s check f o r thar account f o r the
Yederal Reserve Bank of Dallas.”
T h e Federal Reserve
Bank o f Dallas i s carrying a n account f o r exchange pur-
poses o r arranging through the gold settlement fund.
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Federal Reserve Bank of St. Louis
230
Governor McDougel:
followed a
I t seems t o m e i f that plan were
better p r o c e d u r e n e r h a p s w o u l d b e t o h a v e t h e
bank drawing t h a t check, w h e n i t d i d advise t h e Federal
reserve b a n k i n the district,
t o simultaneously advise
New York i n the same w a y s o that t h e mail advice would
reach there--Governor Harding:
T h e r e i s n o objection t o that;
but I should think t h e N e w York m a n would want something
better t h a n the mere advice o f the drawing bank,
They
would want some authority f r o m t h e Federal Reserve B a n k o f
Dallas t o act a s its agent i n taking this check, a n d the
last e n d o r s e r
i n N e w Y o r k v o u l d w a n t s o m e protection;
because w h e n ea check i s drawn payable o n a bank i n New York,
the l a s t e n d o r s e r
o f t h e check,
a s s o o n a s i t passes t h r o u g h
the clearing house, i s released .from all liability.
Governor McDougal:
T h e r e would b e liability o n the
part o f somebody until t h e check reached i t s destination.
Governor Harding:
N o . A f t e r N e w York has handled
the proposition, e v e n i f the drawing b a n k should s a y s o
while that check was i n transit b a c k t o Dallas,
not a f f e c t t h e proposition,
i t vould
O u r counsel h a s advised u s
OTe p h e t ,
Governor McDougal:
S u p p o s e thet check were a
forgery.
It seems t o m e t h ® y would have t o pass o n the Signatures
under certain circumstances l i k e that,
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Federal Reserve Bank of St. Louis
Governor Harding: I
understand this i s applied t o
checks that a r e large enough
a n d . where t h e exchange war-
rants the sending o f a telegram.
T h e code might b e worked
2ol
on it, t h e number o f the check given o n d the date a n d
the m e n i n whose favor i t i s drewn, a n d t h e payee a n d all
of that.
Governor Seay:
M r . McDougal i s supposing that t h e
H a y
New Y o r k b a n k w o u l d h a v e t o k n o w t h e Signature.
check
about t h e case o f a bank out west that receives a
on New York e n d gives credit o n it.
I t does n o t have t o
know a n y Signature.
I t sives dredit o n the face o f t h e
bank t h a t d r e w i t ,
I
f v o u will epply t h a t illustration
to a check used i n New York--- a check drawn o n New York
is more advantageous t o another New York Bank than anything
else y o u c a n give it, b u t this exchange i s t o be used
broadcast a l l over t h e country.
I a m quite c o n f i d e n t t h a t i f a
distinguishing f o r m
of check were used, k n o w n a s Federal reserve exchange,
any bank drawing that check would have t o draw i t against
an excess balance, a n d i t would advise i t s o w n Federal
reserve bank o f having ¢rawn it, and i t would agree with
the Federal reserve b a n k i n advance t h a t i t vould charge
it u p t o i t s a c c o u n t u p o n r e c e i v i n g advices.
P
i that
form o f check were used i t would b e known a l l over t h e
country b y w h o m s o e v e r r e c e i v e d t h a t t h a t c h e c k w a s d r a w n
against a n excess balance o n the Federal reserve b a n k a n d
4t had been charged t o the a c m unt o f the drawer,
Governor Harding:
O u r counsel points out that i n
taking u p t h i s c h e c k i t i s n o t p a y i n g the: check: 4 - 6 -1:5
Simply cashing it.
I t has g o t t o satisfy itself a s t o
the party t o whom paid.
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Federal Reserve Bank of St. Louis
LoL
Governor Wold:
T h e responsibility o f an encorser?
Gevernor Harding:
Governor
L y :
Y e s .
I f Minneapolis r e c e i v e s a
check
on
New York City crewn b y another western bank i t does n o t
know anything ebout t h e signature;
know it.
i t does n o t have t o
I t usually passes i t t o the credit a f t h e bank
that sends i t end does n o t p a y until i t gets t e New York.
Mr. -MeKay:
T h a t check i s not paid i n Minneapolis.
The other o n e i s payable i n New York.
Governor Seay:
I
t vould b e current
i n New York a t
par,
I t vould b e paid t o the Geld Settlement Fund.
I t
seems
t o m e that t h a t i s o n e o f t h e essential things f o r
carrying into effect the spirit o f the Federal Reserve
pte
. € Will have t o b e frank i n the matter.
I t i s go-
ing t o operate more against N e w York t h a n against a n y other
city i n the country, b u t i t i s going t o b e the chief means
of building u p e n d keeping within t h e district t h e bank
funds
c f t h e district,
e n d more s u r e l y t h a n anything e l s e
in the Federal Reserve A c t i t will make t h e financial districts o f t h e country independent.
Governor “old:
W o u l d not a n y Federal reserve b a n k
of any district f i n d i t convenient j u s t t o carry t h e balances w i t h t h e N e w Yerk bank just f o r exchange purposes?
Governor Seay: I
d o not think that vould b e neces~
sary because there would b e t w o things f o r t h e same purpose.
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Federal Reserve Bank of St. Louis
T h e r e i s the gold settlement fund--—Mr. Delano:
Y e s ; y o u have t h e g o l d settlement fund.
Gevernor Seay!
T h e gold settlement f u n d i s a step i n
255
advance
o f anything t h a t h a s e v e r b e e n attempted
i n this
country o r a n y o t h e r c o u n t r y .
Mr. Delano:
U n l e s s w e use i t w e d o n & g e t its full
utility--- u n l e s s
w e p u t i t t o t h a t s o r t o f use,
Goernor Seay:
W e d o not.
I L have t h e very highest
admiration f o r t h e c o n c e p t i o n w h i c h h a s e s t a b l i s h e d t h e
Gold Settlement Fund, a n d I believe i t i s a means b y which
all o f our Federal reserve banks c a n instantly obtain
credit f o r anything t h e y have o n another Federal reserve
bank.
T h a t c a n b e instantly done. I
do not know a n y -
thing which would b e mare conducive t o keeping t h e bank
funds o f t h e P i f t h D i s t r i c t w i t h i n t h e F i f t h District;
and
the same thing a s t o Boston a n d Minneapolis e n d Chicago.
I do not see w h y the banks west that n o w keep balances i n
New York would want t o keep belances i n New York,
T h e y
would keep them all i n Chicago i f the Federal reserve
exchange were a s current e s N e w York exchange.
think Mr. Forgan‘'s letter answers
Mr. Delano: I
that,
I f they could keep their balances i n London they
would k e e p them there.
They g e t t h e i n t e r e s t
Governor Wold:
banks.
1927.
T h e farther sway t h e better.
o n t h e f l o a t w h i l e i t i s afloat.
I t i s t o accommodate t h e smaller
T h e bigger banks w i l l n o t use this after November
I t i s absolutely necessary f o r u s t o pretect t h e
small bank i n some away and afford i t a means o f selling
exchange through a draft o n the Federal reserve b a n k o f
its district. I
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Federal Reserve Bank of St. Louis
think i t i s done w i t h safety, without
o
Any doubt.
The Chairmen:
O
G o v e r n o r Treman, I
notice t h a t
you are o n e o f the propounders o f this inquiry.
you feel,
H o w do
i n N e w York, a b o u t i t ?
Governor Treman: I
do not know that I
petent t o represent N e w York, because I
job s o short a time. I
a m quite
c o m-
have been o n the
can give y o u m y o w n personal
fiews, b u t I xould n o t want t o commit enyone else t o them.
jt Seems t o mé, i n the first place, t h a t i t would
be very wise t o postpone t h e inauguration o f this f o r
perhaps t h e entire year, o r until November.
T h a t would
be m y first thought, because w e are i n the midst e f a development o f a new system.
operating against a
Y o u are a t the present t i m e
small bank.
A s a matter o f fact,
there i s a certain amount o f float, a
very large amount.
I suppose i t i s fair t o s a y that t h e lerge banis, principally i n New York a n d Chicago a n d i n the reserve cities
have bought that float i n the past.
T h e Small b a n k has
thought that t h e b i g bank bought i t out o f its o w n funds.
It strikes m e that t h e Small bank has b e e n paying f o r
that f l o a t b y h a v i n g b e l a n c e s
i n different p l a c e s .
have b e e n g e t t i n g t w o p e r cent, a n d I n m a n y c a s e s
They
i t has
been counted a s reserve, a n d they a r e losing t h e difference b e t w e e n t h e t w o p e r c e n t a n d t h e f i v e o r s i x o r s e v e n
or ¢ight p e r cent that t h e y could have l o a n e d their money
Loree
w e we O W U d o Liou.
S
o i t i s not fair t o say that
the small bank h a s not really been paying f o r that float.
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Federal Reserve Bank of St. Louis
Taking t h e i n s t a n c e
o f t h e b a n k a t Sweetwater d r a w -
255
ing o n Dalles,
i n the first place s o much publicity h a s
been given t o the Federal reserve b a n k that anyone w h o
knows enything about that dreft knows that t h e draft i s
protected b y a balance k e p t b y the Sweetwater bank i n
Dallas, a m d probably a n excess balance k e p t there,
as far a s being good i s mncerned, I
throughout t h e United States.
s o that
think i t will circulate
Y o u take t h e ordinary
commercial h o u s e w h i c h i s a c c e p t i n g d r a f t s a n d checks a l l
the time, a n d theyturn t h e m into their banks,
B u t in a
great m a n y small places those checks circulate a s cur~
rency and they pass one t o the other; a n d s o long as i t
has b e e n a New York draft there h a s b e e n n o question about
the circulation o f that a s currency.
I t seems t o m e
that i n s o far a s that i s mncerned, a
reserve bank, a n y one o f the twelve,
draft o n a federal
i s going t o circulate
among the commercial people freely, just the same a g a
New York draft.
At the present time most o f the banks,
o r the larger
Proportion of the banks are still keeping accounts i n New
York a n d Chicago o n i n the reservecities, j u s t a s they
have been, because t h e y are feeling o u t t h e wmnditions,
and i t seems t o me before w e take any radical step o r try
to t a k e a n o t h e r s t e p forward,
study t h e thing a little more.
in o n e w a y ,
i t seems
w e c a n g o along slowly a n d
I f you will look a t i t
t o m e that i t i s f o r t h e transfer o f
credit o r BOB68Yfrom one point t o another, a n d what should
be a proper c h a r g e
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Federal Reserve Bank of St. Louis
I t does n o t make a n y diffe rence.
236
have b e e n having a
lot o f rules.
B e t w e e n manufacturer
and jobber there i s a question e f freight that &lweys comes
up.
i t has alweys g o t t o b e a matter t o b e adjusted.;
A s
between Manufacturer a n d jobber o r the jobber a n d retailer
there i s a
q u e s t i o n a s t o whether i t i s t o b e p a i d i n
funds currert
i n the place where t h e buyer lives o r
where t h e S e l l e r lives.
i
for the transfer o f that, I
t is a
question o f w h o p a y s
deo not think that y o u are
working a n y r e e l l y g r e a t h a r d s h i p e x c e p t t h a t y o u a r e
breaking
up a
custom w h i c h h e s b e e n i n s t i t u t e d anda inaugu-
‘vated i n the evolution o f the United S t a t e s Banking
System that has b e e n going o n for several generations,
and t o that extent y o u a r e arousing criticism a n d adverse
comment, b e c a u s e a n y t h i n g t h a t i n t e r f e r e s w i t h t h e c o u r s e
that h a s been pursued i s subject t o criticism a n d comment,
Especially w i t h the smell country benk y o u must recog—
nize t h e caliber o f most o f the m e n who are running s u c h
banks, t h e v e r y small bank o f 2 5 t o 50,thousand dollars
capital
o r less,
My t h o u g h t
i s t h a t i f y o u e xperiment w i t h t h i s t h i n g
Curing t h e c o m i n g y e a r y o u w i l l a r r i v e p e r h a p s
at a
very
wise conclusion. i f you take time t o study i t still
farther.
In New York there a r e things y o u want t o consider,
This question o f the Gold Settlement Tund, for instance,
I a m very much @
ncerned a t t h e p r e s e n t t i m e w i t h t h e
Federal Reserve bank having $375,000,000 i n gold.
ought t o have a good deal more than that,
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Federal Reserve Bank of St. Louis
I t
W e are not
2o7
accumulating g o l d i n a n y amount.
O u r credit balances
in New York with the clearing house i n Mey, 1915, u p t o
and including July, amounted t o 292,000,000 a t the
clearing house, a n d the debit balances are {20,000,000.
In other words, w e had a credit belance o f “272,000,000.
We paid o u t everything i n gold » d w e received silver a n d
legal tender.
There a r e great cuestions i n regard t o the flow o f
gold a d t h e e f f e c t o f h a v i n g g o l d i n t h e country,
o n
all those intricate things, but if we take a little more
time t o study these questions a n d g o a little more slowly
we will come e u t ehead.
I f y o u went t o have drafts o n
New York paid a t par, i t seems t o m e that y o u could arrange some’ Wavthat there should b e a discount f o r t h e time
in which t h e N e w York bank would collect that a n d discount
it.
I t i s a perfectly fair charge f o r the use o f the
money, w h e n w e come t o analyze it, a n d i n every place where
there i s a delay o r a deferred credit i t seems t o m e
that y o u have g o t t o recognize t h a t thet i s e charge f e r
the. correction, I
clear,
but I
do not knew t h a t I make m y meaning
d o think t h a t w e should g o very s l o w i n
adopting this proposition.
a draft. payable
I f you are going t o handle
i n N e w York, f o r instance,
o f the Sweetwater
bank o n Dallas, payable i n New York, i t seems t o m e t h e
Sweetwater m a n should sdvise t h e Dallas B a n k that h e has
paid that draft, t h a t t h e Dallas B a n k c a n charge i t u p
against h i s account o r put i t i n a deferred debit until
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Federal Reserve Bank of St. Louis
258
it comes b a c k t o him.
W h e n t h e m a n i n Sweetwater drews
that h e s h o u l d n o t i f y t h e D a l l a s B a n k a n d t h e D a l l a s B a n k
should n o t i f y N e w Y o r k t h a t t h e r e h a s b e e n s u c h a
issued,
a n d t h e N e w Y o r k bank,
craft
i n m y judgment, s h o u l d n o t
pay that until t h e y g e t the receipt f r o m Dallas, a n d i f
the notice E v e Dailies does n e t get there until t h e d a y
after t h e d r a f t g e t s t h e r e t h e d r a f t w i l l b e h e l d u n t i l
they g e t the formal notice f r o m t h e bank o n which i t i s
drawn,
Governor Harding:
Governcr Kains:
L f agree w i t h y o u i n that, fully.
I t seems t o m e that there ought t e
be a basis o f settlement through t h e gold settlement f u n 4
and that a l l that float should b e i n the gold settlement
fund,
Mr. Delano:
W e are ready t o d e that a n y time,
Governor Kains:
T h a t would make a
sound transaction
of i t a n d t h e b e n e f i t w o u l d b e t e t h e g o l d s e t t l e m e n t
c i n gBays
Governor McDougal: I
d o not believe v o u could clear
that u p entirely --Governor Keins:
W h e n t h e Crafts a r e drawn, t h e
federal reserve bank o n which i t i s drawn would credit
the gold settlement f u n d e n d settle i t into that fund.
Governor Treman:
Governor Heins:
Governor Seay:
gold.
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Federal Reserve Bank of St. Louis
I t seems t o m e there i s some basis,
Yes.
E v e r y Federal reserve agent c a n get
I f i t were deposited b y your member banks i n the
239
clearing house y o u could p a y legel tender a n d y o u would
get gold f o r every doller o f it.
T h a t would b e one means
of the N e w York bank vovering g o l d into itself.
M r . Hendricks h a s given this matter
The Chairman:
a great deal o f study, I
know, a n d I should like t o hear
from h i m about it.
Mr. Hendricks:
40 i s this.
M r . Aiken, t h e situation a s I see
T h i s whole subject seems t o affect N e w
York more t h e n a n y other Federal reserve bank.
T h e New
York f u n d s h a v e b e e n t h e o n e t h i n g t h a t h a s b e e n c u r r e n t
I
all over the United States.
t is safe t o assume,
since y o u a r e t a l k i n g a b o u t d r a w i n g a n d m a k i n g i m m e d i a t e l y
available ,that when drawn o n Kansas C i t y i t will b e made
payable t o New York i n the majority a e cases,
Governor Seay:
O h , no.
Governor Wold: I
Governor Seay:
do not think s o a t all.
T h e o n l y reason i t goes t o N e w Y o r k
4s that i t is drawn o n New York; a n d if it i s drawn o n
the other Federal reserve banks i t m a y b e sent anywhere
in the country, but may never get t o New York i n one case
out o f ten.
wr. Delano: Within the last two months I had ® bill
to pay i n Idaho a n d another o n e i n Alberta, Canada.
both cases my. bank gave n e drafts o n New York. i
"can you not d o better then that?”
js a t a premium,
SaiG,
e said, "New York
T h a t i s a proper thing."
like Mr. Forgan's argument.
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Federal Reserve Bank of St. Louis
H
I n
I t is just
T h e customer wants S a n Fran-
240
cisco exchange.
H e gets N e w York exchange because i t
will stay afloat longer.
Governor H a r d i n g : I
d o not suppose there i s one o u t
of ten that i s drawn o n New York that goes t o pay a bill
incurred i n New York.
Mr. Delano:
W e are perfectly willing t o have a l l
of o u r d r a f t s p a y a b l e
i n N e w Y o r k d r a w n o n N e w York;
a n d
if this i s tobe a regional system w e want t o have t h e
central bank o f the district perform t h e services o f t h e
district.
Mr, Hendricks:
I n thet case, o f course, there a r e
interdistrict mattcrs t o b e considered.
T h a t m o n e y has
sot t o b e trensferred~-Mr. Delano:
E x c u s e t h e interruptions.
Mr. Hendricks:
W h a t I was getting a t is this: C o n -
ditions w i l l arise i n New York City, a s soon a s the exchange
rule i s i n effect, t h a t a check drawn o n Dallas i s immediately available i n New York a n d i t will b e subject,
opinion,to a n exchange charge.
i n my
T h e simple reason i s that
I do not b e l i e v
e for one minute that the New York City
banks a r e a n y less jealous o f their deposits t h a n Chicago
or St. Louis o r New Orleans, a n d t h clearing house will
immediately,
i n m y opinion, impose a n exchange charge upon
every such check that cames i n t o N e w York City.
Governor Harding:
E v e n though i t i s immediately
available i n New York?
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Federal Reserve Bank of St. Louis
Mr. Hendricks:
I t does n o t make a n y difference, b e -
24d
cause these checks c a n b e drawn anywhere i n the United
States,
a n d t h e s e N e w Y o r k a c c o u n t s w i l l disappear,
and
they will never s i t idly by--Mr, Delanc: I
do net think they will disappear f o r
the reason Mr, Hendricks has stated, that the bank that
can afford t o keep a New York account a n d get t w o per
cent w i l l c e r t a i n l y d o it. I
a m o n l y looking o u t f o r
the fellow that camnot afford t h e N e w York account.
Governor Seay:
O n e v e r y important consideration,
Mr. Delano, i s d o the member banks want it? T h a t would
answer Mr. Forgan's argument, i f they did. I
am of the
opinion that t h e banks i n our district want i t overwhelm~
ingly. I
a m o f the opinion t h a t they lock upon i t a s
I have tried t o express myself here. I
a m convinced b e -
yond a n y proof t o the contrary that i t vould b e overwhelmingly t o the finencial advantage o f o u r district, a n d I
think i t would b e the same thing with a n y other district
except N e w York.
Mr. Hendricks: I
do not believeit would b e t o the
disadvantage o f New York?
Governor Seay: I
think i t would, because I
think
a very large volume w o u l d b
e keptin t h e banks i n the
reserve cities o f the country,
Mr. Hendricks: I
eral r e s e r v e bank.
I
a m Speaking o f the N e w York Fedt is a
little
t o o u r advantage;
there i s n o cuestion about that,
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Federal Reserve Bank of St. Louis
Governor Seay:
I t seems t o me just a s plain a s A,
242
B, C , a 8 f a r a s the banks o f t h e reserve cities o f the
country a r e cancerned, t h a t t h e y stand t o gain immeasur-—
ably byit.
Governor McCord:
C u s t o m has made N e w Y
o
rxchange
k
e
float a t par.
Governar Seay:
T h e National Banking System h a s
made it~-— not custom s o much a s the National Benking
System; t h e banks that carry that float f r o m t w o t o four
days a n d credit i t o n their books a n d draw against it.
I can see n o other w a y out o f this proposition t h a n t o h ave
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Federal Reserve Bank of St. Louis
a daily g o l d settlement, absolutely, a n d a n y checks drawn
on a F e d e r a l reserwe b a n k reaching another Federal reserve
bank b e immediately available.
Governa F a n c h e r : I
believe t h a t t h e t i m e i s approach-—
ing when w e have got t o podirige our small banks with some
means o f handling their exchange d r a w n o n the N e w York a c count,
W h i l e I
cannot s a y t h a t a
numberof o u r b a n k s a r e
clamoring f o r it, y e t i t i s b e i n g b r o u g h t
that something must b e done.
plan should b e devised - I
t o o u r attention
I t seems t o m e that some
do not think i t is immediate-
ly before us, b u t when t h e reserves a r e transferred, t h a t
request i s going t o b e very insistent f r o m a great m a n y o f
the small banks, and I believe that we hav got to provide
the small banks w i t h that facility i n some form. I
think
that daily settlement i n the Gold Fund i s going t o be one
of the conditions o f putting i t into operation.
I t might
not b e that w e will want t o adjust balances arising o u t o f
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Federal Reserve Bank of St. Louis
245
transit matters e v e r y day, b u t I believe there a r e certain
Spanbactions t h a t will take place between Federal reserve
banks t h a t s h o u l d b e c l e a r e d u p e v e r y d a y i n t h e g o l d s e t -
tlement fund. I
think i t i s a question that i s before
us a n d w e have g o t t o work o n i t a n d work i t out i n some
mahhers I
feel i t should b e confined t o the small b a n k
I think the 15 per cent reserve banks, generally speaking,
are going t o maintain balances a a n are going t o draw
drafts a s they have been doing} but i t is the small bank
With the small deposits a n d small reserves, t h a t cannot
spread i t around that hes g o t t o have t h e facility i n
some form. I
think t h e matter c a n b e worked o u t s o that
when a man comes t o the bank f o r a draft h e will give
information a s t o where t h e payment i s t o b e made, a n d
as t o w h e r e h e w a n t s t h e d r a f t p a y a b l e ,
me t h a t b y d a i l y s e t t l e m e n t
I
t seems t o
i n the g o l d fund these trans-
actions may all be washed out very nicely.
Governor Rhoads: I
to this. I
think that w e will probably come
a m not sure that there i s any pressure o n our
district f o r this arrangement e t t h e present time. z
would only b e i n favor o f i t o n the basis that G o v e r n a
Harding h a s indicated b y which i t c a n b e charged u p t o
the member bank's S o m e s
a n d the bank a t which i t was
being cashed would b e satisfied.
M y suggstion, subject
to further light, w o u l d b e that t h e bank drawing t h e
draft should n & o n l y advise i t s o w n Federal reserve b a n k
but s h o u l d a d v i s e t h e F e d e r a l r e s e r v e b a n k w h e r e i t i s t o
244
be cashed,
s o the advice would prob: bly get there i n time.
Gevernor Hoxon:
I n spite o f the fact that t h e only
complaint mentioned was i n our district--- I think i t was
Union City, Tennessee that Mr. Delano mentioned, which i s
the o n l y bank that I
have heard made a
complaint about i t - -
it seems t o m e that t h e Federal reserve b a n k checks should
bemade current without deduction anywhere i n the United
States; t h a t i t i s essential t o the ultimate success o f
the system,
a n d w e believe t h a t under t h e p l a n outlined
by Mr. Harding i t i s entirely practicable a n d feasible.
There were s o m e objections that I
had t o i t until I
heard
Mr. Harding expound h i s plan, I
think i t i s entirély
practical, a n d I think w e will come t o it, provided w e have
a daily settlement i n the gold settlement fund. I
do
not see t h e advantage t o b e gained i n the bank drawing
such a draft advising the bank that i s to pay the draft.
I think i t i s important t h a t w e should advise t h e bank
upon whom the draft i s drawn; b u t i t seems t o m e advising
the b a n k a t w h i c h i t i s p a y a b l e w o u l d b e e n t a i l i n g a
lit ~
tle extra work,
Mr, Delano:
I t would a d d very much toe the labor.
Gavernor H o x o n :
Y e s ; and I
do n @ think i t w o u l d t
e
of any value.
Governor McDougal: I
suggested that purely for t h e
reason that t h e N e w York bank o r whatever bank i t might
be would t h e n b e advised a s early, a t least, a s the draft
itself c a n p o s s i b l y b e presented; w h e r e a s ,
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Federal Reserve Bank of St. Louis
i f i t came i n
24 5
a round about w a y there would b e delay which would o f
course b e annoying.
The Chairman: I
understand that this i s not a mat-
ter that the members o f the Board want brought t o a definite vote a t this time,
S h e y wanted a general discussion
for mutual enlightenment.
T h e y deemed the matter t o be
sufficiently urgent s o that i t was entitled t o considera ~
tion a t the present time, w i t h t h e idea---
Governor Harding:
T h e main idea was t o try e v o l v e
plan that wes fair a n d absolutely safe f o r the banks
might b e called o n t o redeem these drafts.
The Chairman:
M y own feeling i n the matter was
that o n general principles I
d o not like t o have a n appli-
cation f i l e d i n N e w Y o r k o r i n Chicago,
a s the case m a y
be, o f which I have n o knowledge before i t s presentation
at the point o f payment.
T h a t i s a situation that would
arise a great many times i n many o f the districts.
instance,
i n the Chicago district, a
For
bank i n the eastern
part o f the district might draw a check o n New York and
the check be presented for payment i n New York at the same
time that t h e advice reached Chicaga o f the check having
been drawn, a m d the Chicago bank having n o way o f confirming until after t h e payment w a s made. I
do not under-
Stand thet there was t o b e a specific point o f payment.
Suppose the -e checks under this plan would b e payable a t
any one o f the 1 2 federal reserve banks a t the option o f
the holder o f the check, I
think i t i s very important
that there should b e a specific limit o n these checks. I
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Federal Reserve Bank of St. Louis
246
should feel very loath t o permit a
bank t o draw a d libitim
against our credits, i n New York o r in Chicago. I
this i s @ problem thet hes g o t t o b e met, I
think
do not think
we c a n escape tit, b u t I should like toe have some v e r y
definite p l a n worked o u t b y a committee acting with the
board,
a n d r e d u c e d t o writing,
to b e followed before I
a s t o t h e m o d e o f procedure
felt favorably disposed torard i t
or before m y present prejudiced can be over come,
Governor McDougal: I
of Mr. Lelano,
would like t o ask one questian
I t comes about f r o m t h e neture o f the cor-
resp ondence w i t h o u r banks, o u r understanding being that
it was Something that some o f the Federal reserve banks
themselves would like t o see done, end, moreover, t h a t
Some members o f the Federalreserve B o a r d would like t o
See--- a Federal reserve b a n k check given circulation
end immediate credit a t a n y o f the 1 2 points.
W e gave
@ good deal o f consideration t o the question i n Chicaga,
and w e r e p o r t e d
t o t h e B e a r d unfavorably,
ed our statement b y a n argument, I
a n d w e supporte
think, though, t h a t
as G o v e r n o r H a r d i n g p r e s e n t s t h e case,
i t i s Simply a
mat~-
ter o f taking care o f the smaller banks e n d furnishing
them with a possible means o f securing N e w York exchange
and f u r n i s h i n g t h e m w i t h t h a t m e a n s
on a
sound basis,
presents t h e matter i n a n entirely different way,
I t
W e
would b e very much opposed t o the granting generally o f
free c i r c u l a t i o n
t o checks
o n Federal r e s e r v e b a n k s ;
that
is, b y making t h e m immediately available a t a n y o f the
twelve points;
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Federal Reserve Bank of St. Louis
b u t i f I have a
corrrect understanding o f
247
what t h e B o a r d n o w w o u l d b e s a t i s f i e d w i t h , I
should n o t
go into this argument a t all a s against t h e general plan.
Am I right about it, Mr. Delano?
Mr, Delano:
Y e s , y o u are ¢ntirely right. I
I sent out two circular letters o n this thing.
think
O n e in
order t o get your views-~-~ aie I did not hesitate t o express
my own, b u t I
have a n o p e n m i n d o n t h e subject. I
have
modified m y views a n d have s e e n the necessity a n d desirability o f throwing safeguards around it; f a r instance,
limiting t h e payment o f the draft t o the Federal reserve
bank o n w h o m drawn;
limitation. I
a n d o n e o t h e r hank, I
think i s a
think i t would b e t o o bad, though,
good
t o in -
culecate the idea that i f y o u wanted t o pay a bill i n San
Francisco y o u w o u l d d r a w a
Federal r e s e r v e d r a f t
o n the
bank o f the district a n d stamp i t payable i n New York o n
the t h e o r y t h a t y o u w a n t e d t o c o n t i n u e t h a t policy.
is just what w e are trying t o get away from.
T h a t
I t would b e
and
paid i n San
e i n e
s h o u l d b e stamped "payable i n
San Francisco,"
Governor McDougal:
T h e r e would not b e the same in-
centive f o r the Federal reserve b a n k a s for the commercial
bank.
O u r consideration o f this question goes back t o
the date o n which I heard f r o m you, a n d i t originated
with a request f r o m one o r more o f the banks t h a t i n m
inaugurating t h e collection system w e should immediately
make available checks o n other banks, W h i c h w e very promptly
and p r o p e ly declined
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Federal Reserve Bank of St. Louis
t o do.
T h a t i s one phase a f the
248
guestion.
B u t I see n e w the views a r e modified, a n d
therefore t h e r e w i l l b e n o n e c e s s i t y o f p r e s e n t i n g w h a t
I had prepared o n that subject.
Governerr Seay: T h e r e is, Mr. Chairman, o n e point
of view f r o m which t h e matter i s pressing t o a degree. I
believe that t h e use o f the draft o n Federal reserve banks
could b e cultivated coincidentally w i t h t h e development
of the Federal reserve collection system.
W e are prac=
tic l l y forcing o u r member banks t o a c a mulate balances
with us, a n d even after having done that t h e y cannot g e t
excess b a l a n c e s a w a y f r o m u s e x c e p t a t a
disadvantage.
Ayiother thing, i f y o u will pardon me, Mr. Chairman,
I quite a p p r e c i a t e t h e p o s i t i o n t a k e n b y Governor A i k e n
that o n e Federal reserve bank does n o t wish t o b e compelled
to advance credits t o another, b u t I am convinced fully
that i t i s e n t i r e l y p r a c t i c a l
t o evolve a
scheme
b y which
another Federal reserve bank would b e granting credits.
There i s another thing. I
will appear half a s illogical
do not think this thing
a s i t does t o many o f us
here i f w e look upon t h e Federal reserve System a s a system
and c e a s e t o c o n s i d e r t h a t i t i s c o m p o s e d o f units.
T h e
Federal r e s e r v e s y s t e m w i l l n e v e r r e a c h t h e l i m i t o f i t s
power unless i t i s operated a s a coordinated system.
Mr. Delano:
T h e su;,;gestion has been made a good deal
in t h e c o r r e s p o n d e n c e t h a t I
have r e c e i v e d t h a t t h e r e i s
no r e a s o n w h y t h e s e d r a f t s s h o u l d b e t r e a t e d a n y d i f f e r -
ently f r o m a check;
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Federal Reserve Bank of St. Louis
o r i f w e deferred credit o n a check w e
249
ought t o d e f e r c r e d i t
o n 2° Orarn,
I
is°e@li-the aifference i n the: worid,
t seems t o m e there
i n - the TIirst. place,
we are n o t dealing w i t h mere individuals w h o are drawing
checks, irresp nsible people, against possibly fictitious
balances, b u t w e are dealing with n o t t o exceed 7500 mem-
ber banks, who are drawing against a n y one of twelve reServe banks.
Governor Seay:
T h e w h o l e thing, M r . Delano, resolves
itself i n t o t h e s e t w o fectors:
we a m o n g o u r s e l v e s e v o l v e a
safely? I
a m convinced
I
s i t desirable,
a n d can
system b y which i t c a n b e done
o f b o t h o f t h o s e things;
a n d the
gold s é t t l e m e n t f u n d i s t h a t g r e a t institution, I
a m con-
fident, through which w e c a n effect settlement n o t o n l y
at the close o f business, b u t a t a n y time during the day.
If you will draw a million dollars i n the morning a t Richmond w e Will p a y y o u the money a s Soon ® S y o u c a n get a
wire t o us,
Governor Rheads:
O u r experience shows that i t i s
not physically practicable.
N e w York has made transfers
ta Philadelphia, a n d vice versa,
o f large amounts, a n d w e
cannot get the gold qua Uke subtreasury i n time t o meet
the clearings.
Governor Seay: T h r o u g h the settlement fund?
Governor Rhoads:
Governor Seay:
Yes.
Y o u mean t h e Federal reserve Board
cannot m a k e t h e t r a n s f e r
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Federal Reserve Bank of St. Louis
Governor Rhoads:
I t does n o t work.
t o you---
T h e time lost i s s o much, a n d the
250
actual drawing o f the gold order certificates, t h a t w e
can
nOt.-£6 t- 14 Out i n time:
Governor Wold:
Mr. Telano:
I
t i s simply a
bookkeeping entry.
T h a t i s where t h e balance w a s s o large
it c o u l d n o t b e t r a n s f e r r e d
o n t h e books, b u t - i t r e q u i r e d
the actual drawing o f gold o u t o f the subtreasury.
Goernor Rhoads:
Mr, Delano:
9
x é s ° 817,
0 p e r c e n t o f o u r balances a r e t r a n s f e r -
rec every week o n the bocks without a n y actual change
of a certificate,
The Chairman:
G o v e r n o r Kains, I
would like t o hear
from y o u o n this matter,
Governor Kains: I
a m thoroughly i n favor o f it. I
got a little n e w light f r o m Governor Harding. I
think
that this thing i s necessary a n d that i t can b e
safely
handled through t h e gold settlement f u n d b y daily settlements,
The Chairman:
G o v e r n o r Miller, w h a t views have y o u
on this matter?
Governor Miller:
M r . Chairman, I
a m satisfied t h a t
700 o f our banks would b e all right i f w e could make their
checks available e t Chicago, N e w York and St. Louis.
W e
have t e n reserve cities i n our district, b u t I would hesitate t o open t h e doors t o those a t this time O n account
af
the e n o r m o u s f l o w o f e x c h a n g e
Governor Rhoads:
Chairman?
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Federal Reserve Bank of St. Louis
a t c e r t a i n seasons,
D o y o u wish a motion o n this, Mr.
The C h e i r m a n :
N o . T
understand
f r o m Mr. Delano
that h e does not c a r e f o r a n y action a n this,
ply wanted a n expression o f opinion.
umier c o n s i d e r a t i o n e n d i t i s a
H e sim-
T h e Board has i t
matter t h a t h a s g o t t o
be t a k e n u p a n d s e t t l e d o n e o f t h e s e days.
Governor Seay:
W e have b e e n asked questions, a n d
I would like t o ask a question i f i t i s entirely i n order.
I w m l d l i k e t o know, G o v e r n o r Harding,
i f you a r e pre-
pared toanswer, whether o r not theBoard hes consid ered
this e n d believes i t t o b e desirable.
Governor Harding:
it i s a
W
e have considered
i t informally.
matter w h i c h n o n e o f u s e x p e c t e d t o rush, I
think
I am justified i n saying that i t is something w e all feel
is desirable andthat w e expect t o see p u t into operation
in due time, o r a t least some progress made Looking
toward that end,
Y e feel there i s necessity f o r it.
Governor Wold:
The Chairman:
M a y I ask a question here?
G o v e r n o r Wold,
Governor Wold:
next p a y m e n t
I t vould s e e m t o m e that after t h e
o f reserves
i n November,
will become more pressing.
t h a t this q e s t i o n
I t i s not something that I
believe w i l l stand putting o f f until t h e readjustment i s
entirely completed i n November, 1917, t u t I think i t i s
going t o b e very pressing after t h e coming November a n d
ought t o b e adjusted between n o w a n d t h e first o f the year.
Mr. Hendricks: I
think w e ought t o first f i n d out
hoy t h e readjustment i s going t o affect the balances i n
@ifferent parts o f the country, whether i t i s going t o take
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Federal Reserve Bank of St. Louis
253-55
it out o f New York a n d put i t i n Philacelphia o @ take i t
out o f Philadelphia a n d put i t into Chicago.
U n t i l re
find where these balances a r e going t o accumulate a n d where
they normally should eccumulate, I
do not think e e a o e
tell anything about it.
Mr. Tremat:
O n e day last week w e had a n adverse bal-
ance i n the gold settlement f u n d o f t e n @
dolisrs
eleven million
S u p p e s e t h e current s h o u l d b e changed s o that
it r a n against u s very much e n d depleted o u r gold?
W h a t
would w e do?
Governor Wold:
question I
I f I m a y b e permitted t o enswer that
will s a y t h a t t h e s a m e c u e s t i o n w a s r e i s e d b y
Governor Strong w h e n w e discussed this a year o r s o ago.
This scheme o f permitting t h e member banks t o draw upon
the Federal reserve b a n k e n d have funds available a t different points will enable t h e N e w York bank tec get r i d a f
its silver cerfificates a n d i t will b e u p t o the banks i n
theinterior t o provide g o l d for y o u i n the gold fund.
You will b e dumpingyaur silver certificates o n the member
banks a n d clesring house banks i n New York a n d w e will
be replenishing y o u r gold fund with gold.
Governor Seay:
Governor W o l d :
The Chairman:
T h a t i s unquestionably so,
I
t w i l l h e l p v o u out,
T h i s question i s a very lerge o n e
ami i f w e a r e g o i n g t o g e t t h r o u g h w i t h t h i s p r o g r a m I
do not think w e should devote more time t o it, unless
Mr, Harding o r Mr, Delano w i s h u s t o take definite action
On 5 hs
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Federal Reserve Bank of St. Louis
T h e Chairm:will e n t e r t a i n a
motion that t h e sub-
ject b e continued o&# the program.
Governor “ancher: I
will m a k e s u c h a
motion,
The Chairman: G o v e r n o r Fancher moves that item (p)
under topic 6, 'tmmediate availability o f drafts o n Federal reserve banis b e continued o n the program,
(The motion was duly seconded end carried.)
The Chairman:
T h e next topic i s
(q) Immediate evailability a t Federal reserve
banks @ & checks drawn o n member banks
located outside Federal reserve cities.
The Chairman:
G o v e r n o r McDougal, y o u are responsible
for that topic, a s i s also Governor Miller,
Governor McDougal:
brought
u p beceuse
of a
M r . Chairman, t h a t cuestion w a s
telegram w h i c h w a s received f r o m
Mr, Delano b y our bank i n which h e states:
"You are doubteless aware that Clevelani a n d St. Louis
banks h a v e given privilege t o some o f their largest cities
of keeping excess deposits w i t h them s o a s t o give check s
on those cities immediate credit a t par.
I t seems t o m e
it would beonly f a i r f o r y o u t o give Similar privileges
under similer conditions t o certain cities, f o r example,
asDetroit, Indianapolis and Milwaukee."
To thet telegram I replied:
"we have your telegram o f this date sug@ sting that
we consider giving immediate credit for items o n Detroit,
Indianapolis e n d Milwautzee, s h o u l d they desire t h i s privilege, a n d w e nate that Cleveland a n d St. Louis have per-
mitted such a n arrangement t o be made with some o f their
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Federal Reserve Bank of St. Louis
largest cities."
“Our experience i n operating the voluntary collection
system o f immediate debit a n d credit develops t h e fact
that i t was practically impossible f o r o u r member banks
in the reserve cities t o maintain their reserve balances
with u s a n d that reserves were n o t 6 n l y seriously impair.@d, b u t o v e r d r a f t s w e r e frequent.
S o m e o f o u r members
advised u s that i t was impossible f o r t h e m t o anticipate
and p r o v i d e f o r t h e v o l u m e o f checks t h a t m i g h t b e p r e -
sented t o u s i n any one cay, a n d the Indianapolis banks
withdrew f r o m the voluntary system principally because
they w e r e u n a b l e
t o m a i n t a i n t h e i r reserves.
O n e of
the Milwaukee banks, w h i c h did succeed i n m a i n t a i n i n g
its reserve, w a s enabled t o d o s o b y requesting i t s
Chicago correspondent n o t t o deposit t h e checks d r a w n o n
it i n the Federal reserve bank.
I f , under the limited
operation o f the voluntary collection system, reserve
city banks were unable t o maintain their reserves, h o w
can they b e expected t o d o s o with the increased volume
of items w e will have under t h e new collection system,
"If this bank should agree t o receive items o n its
member banks i n Milwaukee, f o r instance, f o r immediate
credit, charging t h e m u p egainst t h e member bank's a c =
count, w h a t would w e d o with items o n the non-member banks
in Milwaukee? T o u l d w o have t o split Milwaukee i n two,
by making checks o n member banks available immediately,
and checks o n non-member banks available o n l y after two
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Federal Reserve Bank of St. Louis
days?
258
E t would s e e m t o us that i f the arrangement were
Coupee e
=
eaeron ‘
permitted that a l l checks o n M i leaukke Should b e poaea ves
on the same basis.
"This bring u p the question--"First, a s t o whether owr member banks would b e willing
for us t o charge the non-member banks! checks against
their accounts,
and
"Second, a s t o whether t h e y would carry t h e increased
addi tional a m o u n t o f f u n d s w h i c h t h i s w o u l d require.
"This question i s very simular t o the proposition o f
making Federal reserve b a n k checks cashable a t other Federal
reserve banks.
O u r opinion i s that checks -are payable a t
the counter o f the bank upon which they are drawn.
I f casted
anywhere else, i t involves t h e advancing o f the funds or,
in other words, carrying 'float' until returns are a v a i l
able,
“In the matter o f checks o n Federal reserve banks w e
do not feel that w e should carry ‘'float' b y cashing checks
of other Federal reserve banks, n o r d o w e believe i t
good panking policy f o r u s t o maintain balances i n other
Federal reserve banks against which they could charge checks
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Federal Reserve Bank of St. Louis
drawn upon us.
I f i t i s not good banking f o r the banks
to savente funds i n antidipation o f checks anata upon
them,
i t must follow t h a t s u c h a
practice w o u l d p r o v e
to
be inadvisable i f undertaken b y our member banks.
"The situation i n this district, although similar i n
some respects,
i s not the same a s that i n the Cleveland
259
district, o w i n g t o t h e f a c t t h a t C h i c a g o i s t h e predominat-—
ing fincnaial center o f this district, a n d the majority
of t h e n o n - m e m b e r b a n k s h a v e C h i c a g o c o r r e s p o n d e n t s a n d ,
of course, t h e member banks a r e obliged t o use u s a s ther
Chicago correspondent.
I
n the C l e v e l a m district,
Cleveland, Pittsburgh a n d Cincinnati a r e all o f tearly
equal i m p o r t a n c e
a s financial centers,
a n d there i s a
stronger reason w h y Pittsburgh e n d Cincinnati should d e Sire t o make their checks a s available a s funds o n Cleveland.
I n this district i t would seem, hovever; t h a t the
principal r e a s o n w h y a
member b a n k i n Milwaukee w o u l d w a n t
its checks t o b e taken f o r immediate credit here would b e
to enable a
non-member bank t o remit t o us i n Milwaukee
xchange f o r checks w e would send them,
I f the Milwaukee
banks, hovever, w o u l d agree t o receive f r o m u s a t par
checks o n other non-member country banks, t h e matter could
be Settled i n that way.
M i l w a u k e e banks,
Still h a v e t h e p r o b l e m o f m a k i n g c h e c k s
h w ever, would
o n them imme-
diately available i n Minneapolis, inasmuch a s a large
mumber o f their cerrespondents a r e i n the Linneapolis
Ors treet:
"There are many angles t o this question, a n d even
if this bank should arrange t o receive items o n Milwaukee
banks f o r immediate credit, where would w e draw t h e line?
Suppose w e extended the privilege only t o memba’s i n the
reserve c i t i e s o f t h i s d i s t r i c t ,
t h e n collecting centers
like Waterloo, Peoria, a n d many others, would b e clamoring
far equal privileges a n d wouX, c l a i m that they were being
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Federal Reserve Bank of St. Louis
discriminated against,"
There i s other correspondence following that which I
do n o t thinkneed-be read,
There h a v e b e e n s o m e d e v e l o p m e n t s s i n c e t h i s corres-—
podence w a s conchuded,
Milwaukee
i s v e r y anxious
p u t b a c k o n t h e immedi ate c r e d i t l i s t ,
t o be
o r o n the dis-
creticnary list, a n d naturally s o because o f the fact that
the o p e r a t i o n o f t h e n e w c o l l e c t i o n s y s t e m h a s u n d o u b t e d l y
worked t o their disadvantage i n Some ways.
I t has worked
to their disadvantage largely because o f the fact that
time n o w must enter into o u r operation o f the System, a n d
they a r e f e e l i n g t h e e f f e c t o f t h a t f e a t u r e which, h e r e -
tofore, t h e y have n o t felt.
F o r some reason, I
‘now h o w o r why, Milwaukee h a s b e m a
do not
discretionary
point i n Chicago,
We feel this way about it. M i l w a u k e e a n d other cities
were n o t a b l e t o t a k e c a r e o f t h e i r r e q u i r e m e n t s t h a t t h e y
had because t h e y h a d n o way o f knowing h o w many checks
were g o i n g t o b e p r e s e n t e d n e x t Thursday.
T h e y told u s
so and i t developed, furthermore, t h a t their efforts
to guess a t t h e a m o u n t s w e r e n o t v e r y successful.
is all citéd i n this correspondence,
T h a t
I t Seems t o m e that
if wegrant this. permission t o Milwaukee,
w e are granting
a prigilese which w e would have t o grant t o others, a n d
hoy f a r that woulh e x t e n d I
d o not know, Ald:.Of--our
cities a r e t w o d a y points. M i l w a u k e e i s only 9 0 miles
away, b u t just a s far away i n the question o f time a s
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Federal Reserve Bank of St. Louis
261
Des Moines,
I
f w e should grant this concession w e
are then embarking i w the chllection p l a n which w e have
recently abandoned 2 s n o t workable,
W e feel that w e
Should n e t b e compelled t o make Milwaukee p a r even i f
they d o agree, e n d have expressed their willingness,
to
undertake t o maintain sufficient balances.
Mr. Delano, bearing o n this subject, y o u might b e
interested
t o knew that t h e Milwaukee
banks
had a
committee
in Chicago a n d that Commit tee has been good --enough t o tell
me t h a t t h e y b e l i e v e t h a t a f t e r a l l t h e q u e s t i o n w a s o n e
between t h e m a n d the clearing house more t h a n i t was b e tween Milwaukee a n d t h e F e d ral reserve bank.
T h e y are
making every effort n e w t o arrange some p l a n b y which they
can b e put o n the discretionary list o f the Chicago clearing house, I
told the répresentative o f that committee
that a t t h i s meeting,
i f the subject c a m e up, I
would t e l l
you that t h e y thought t h e y h a d reached a Solution,
or a
po Sible solution, o w i n g t o the expressed willingness o f
the Chicago banks t o make Milwaukee immediately convertible into Chicago exchange.
ting i t e m s
T h e y would d o that b y permit-
t o b e c h a r g e d i m m e d i a t e l y a g a i n s t t h e i r accounts
and t h e member banks o f Chicago would b e taken care o f
in that way.
T h e other numerous banks that might g e t Mil-
waukee items would havethe privilege o f presenting t h e m
at the Continentel National o r the Corn Exchange,
o r some
other nationel bank, a n d having them exchanged for cashier's
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Federal Reserve Bank of St. Louis
checks.
F e have beenopposed t o embarking agein i n the
262
imnediate debit and credit plan, which has net been satis~
factory a n d which,
i t s o happens, h a s n o t been satisfac-
tory i n the three cities which v e believe a r e n o w interested a n d want t o get back under t h e o l d plan.
The Chairman:
F e r t h e information o f the m e n here
tfwould like t o es& w h a t t h e banks have undertaken---
Goverror McDougal:
man, I
i f you will permit me, Mr. Chair-
will g o ehead a n d tell y o u what t h e other banks
are doing, b a s e d upon information that w e h a w f r o m their
collection plan circulars, « n d also some verbal informa~
tion.
The Chairmen: “ e r d o n me, Governor meDougal, I
thought
you h a d finished,
Governor McDougal:
York. I
T h e Philadelphia b a n k takes N e w
am speeking now o f what they are taking aside
from their o w n districts,
Gevernor Rhe ds:
The Chairman:
O n l y from country banks.
T i . a t i s simply a 8 caver f o r checks
sent them for collection, i s it not?
Governor Rhoads:
Y e s , Mr, Chairman.
Governor McDougal:
I f I make a n y mistakes I
should
like t o be corrected.by the bank that i s affected,
Clevelam i s taking checks o n member banks i n Cincin-
nati and Pitts burg---~ only member bankschecks. I
that should b e noted,
think
T h e y are net taking Cleveland and
Pittsburgh, but are Simply takingchecks o n member banks.
That i s n o t what Milwaukee wants u s t o do.
us t o t e k e t h e W h o l e sity.
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Federal Reserve Bank of St. Louis
T h e y want
C l e v e l a n d i s a l s o taking
263
checks o n all branchesef t h e Cle velam T r u s t Company,
by
Special errangements.
Richmond takes N e w York checks a n d checks o n 211
other Federal reserve banks-—~
Mr. Delano:
I t also takes Baltimore a n d Reanoke.
Gevernor Seay:
T h a t i s recent, a n d Governor McDougal
has probably n e t received that sdvice,
i t receives
cheeks o n non-member banks i n Baltimore a s well a s a bank
in Roanoke, Virginia.
Governor McDouzcal: i
understood t h a t A t l a n t a w a s
taking N e w Orleans a n d Birmingham.
the advice I
T h a t w a s according t o
received f r o m Mr, Delano. i
2 e L ito: Lind
6ither o f those t w o towns mentioned o n their collection
plan.
Mr. Delano:
N e w Orleans i s a branch o f Atlante.
Govennor McDougal: I
would like t o ask Governor M e -
Cord what t h e y are doing d o w n there.
Governor McCord:
W
e a r e t a k i n g f o r immediate c r e d i t
items o n Birmingham a n d N e w Orleans i n Atlanta except where
the s t a t e b a n k a g r e e s
t o remit a t p a r a n d gives u s a
check
On B i r m i n g h a m a n d B i r m i n g h a m w o u l d a l l o w t h a t t o b e “immediately d e b i t e d
‘ber banis c h e c k s
t o t h e i r account.
W
e take f r o m non-mem-
o n a n y o f t h e financial centers e a s t o f
the M i s s i s S i p p i R i v e r , i n c l u d i n g S t . L o u i s ,
of items sent t o them,
i n settlement
W e d o that t o broaden t h e collec-
tion system o f non-member bank checks.
B u t w e d o na&
Give immediate credit f o r items o n the cities named, neither
do we on eny other cities i n our district,
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Federal Reserve Bank of St. Louis
264
Governor McDougal:
T h e n y o u are n o t making N e w
Yeleans e n d Birmingham items immediately available, g e n erally speaking?
N o .
Governor McCord:
W e defer N e w Orleans o n e
day t o our Atlante members, befause N e w Urleans i s a
branch o f our bank.
V e defer t w o days f o r Birmingham
and. one d a y f o r our New Orleans branch,
Governor MeDougel: M i n n e a p o l i s , I
understand,
is
taking St. LPaul, which bank can easily b e accounted for,
and I have added Milwrukee, but 1 find there are restric~
tions there f a r beyond those that Milwaukee would like t o
place o n Chicago.
Governor Wold:
W e take a draft o n Milweukee f r o m
a bank t o whom collections a r e sent; a
draft i n settle-
ment o f collections.
Governor McDougal:
Y o u are not taking Milwaukee
in the sense that y o u are making i t immediately available
at par?
Governor Wold:
trict,
N o . M i l w a u k e e i s out o f o u r dis-
W e take from Fisconsin banks i n settlement o f
items s e n t to them, a
draft u p o n Milwaukee.
Governor Harding:
M e m b e r banks a S well a s non-
member banks?
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Federal Reserve Bank of St. Louis
Gevernor Vold:
Yes,
(Informal discussion followed.)
Governor McDougal:
T a k e Kansag City. K a n s a s City
265
takes K a n s a s
and drafts
C i t y a n d receives
o n a n y reserve c i t y i n the district---
Mr. Delano:
Y o u mean f o r immediate credit?
Governor Miller:
Kenses
i n return non-member items
N o , f o r collection.
K a n s a s City,
i s t h e s a m e a s Kansas C i t y , Missouri.
Governor McDougal:
S a n Francisco, I
umerstand,
is
taking drafts o n all Federal reserve baniS ¢ n d also United
States treasury warrants. I
of t h e s t a t e m e n t w h i c h I
mention a l l this i n support
propose
t o make, a n d t h a t i s t h a t
filwaukee i s asking o f us something which i s not being given
by any other Federal reserve b a n k t o any city, Mr. Delano,
if I correctly understand it.
T h a t i s about a l l there
is t o say o n the subject,
Governor Miller: I
might s a y that w e have proposed
not only t o the reserve cities, b u t t o any member b a n k i n
our d i s t r i c t t h a t t h e y m a y p l a c e t h e m s e l v e s
o n a n immediate
availability l i s t w i t h us.
Governor McDougal:
is this:
A l l I can Say i n reply t o that
T h i s i s a n organization o f Governors,
i f it is
an organization, t h a t h a s responsibilities, 7 n d I would
put foremost among those responsibilities t h e matter ¢
encouraging s o u n d b a n k i n g methods a n d d i s c o u r a g i n g u n sound methods,
T h e n y o u offer t o d o that y o u a r e placing
your bank i n great danger.
Governor Miller: I
Governor McDougal:
d o not see why, Governor McDougal.
W h i l e y o u m a y b e able t o stand
that i n ordinary times, y o u are coming t o a time later
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Federal Reserve Bank of St. Louis
266
on, i n a l l probability,
w h e n y o u w o u l d h a v e t o treat t h o s e
banks i n exactly t h e same manner that some o f the small
banks i n the lerge cities have b e e n dealt w i t h b y the large
banks through which they clear,
F o r instance,
i f the
Small bank i n New York has n o t been able t o stand a
run o n
it, a n d t h e r e f o r e t h e s t r e a m g c e s t h r o u g h t h e c l e a r i n g
agent until s u c h time a s thet clearing agent h a s t o shut
down, t h e n t h e burden o f resppnsibility i s placed o n the
big clearing house banksi
T h e t s a m e thing will happen t o
you sooner o r later i f you permit y o u r members t o d o that,
The Cheirman: G o v e r n o r McDougal, Mr, Harding would
like t o make a n inquiry o r two,
Gw ernor Harding: I
Dougala few questions.
Chicago a
member
would like t o a s k Governor M c -
I s the "ederal reserve bank of
o f the Chicago clearing house?
Governor McDougal:
Governor Harding:
W e are nab a
veting member,
B u t y o u send checks t o them e n d
receive checks f r o m them?
Governor McDougal:
w
e have t h e privileges
of the clearing house.
Governor Harding:
A t what hour is that clearing
mede?
Governor McDougal:
Governor Harding:
A t sleven o'clock.
T h e banks i n Detroit, D e s Moines,
Milwaukee, Winneapolis e n d Pecria--- I mean t h e member
banks a l l carry reserve accounts w i t h member banks i n Chicago, d e they not?
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Federal Reserve Bank of St. Louis
Governor McDougal: Y e s ; 1 think in every case.
267
Movernor Harding:
O
Governor McDougal:
Yes.
Gavernor Harding:
n which t h e y g e t interest?
J u s t what i s unsound about i t @
1 would l i k e t o h a v e t h i s e x p l a i n e d
Speaking w o w o f a l l t h e b a n k s
t o me, I
a m not
i n a n y city, i n c l u d i n g a l l
the m e m b e r b a n k s a n d a l l t h e n o n - m e m b e r b a n k s , b u t I
am
speaking o f a n y p e r t i c u l a r b a n k i n a n y c i t y w h i c h f o r s o m e
reason, W h i c h i c regards
e s sound, d e s i r e s
t o remove w h a t
it consideres t h i s disadvantage o f being p u t o n the deferred credit. basis,
T h i s situation c a n very -easily
arise u n d e r t h i s r i v a l r y b e t w e e n c i t i e s w h e r e t h e r e a r e
two o r three cities o f practically the same size that regard t h e m s e l v e s
a s important
as a
Federal r e s e r v e c i t y ;
that is, i t might come t o pass that unless t h e checks
drawn b y a lerse corporation i n a non-reserve c i t y could
be r e c e i v e d a l l o v e r t h e c o u n t r y o n e x c a c t l y t h e s a m e
basis a s checks drawn o n banks i n a Federal reserve city,
the non-reserve c i t y might lose t h e banks i n the Federal
reserve c i t y .
might desire,
F o r t h a t reason,
o r o t h e r reasons,
b y paying t h e price,
they
t o eliminate t h i s dis-
advantage thet their distence f r o m a reserve c i t y places
them under.
T h e y a r e stockholders
i n therederal r e s e r v e
bank a n d t h e y w r i t e a n d a s k t h e p r i v i l e g e
o f having a
Special favor extended t o them, something that they appreciate t h e responsibility o f end f o r which t h e y are
willing t o pay.
N o w ,
w e w i l l assume,
f o r instance,
i n
Wis consin--~ e n d I a m not talking o f a l l the Milweukee
banks o r a l l the Detroit banks--=- but l e t u s s a y that t h e
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Federal Reserve Bank of St. Louis
268
Visconsin national banke a
t h e Indiana National B a n k o r
the Merchants N a t i o n a l B a n k o f Indianapolis,
s h o u l d write
to youand say, " W e desire t o make e n arrangement w i t h y o u
by which y o u will credit immediately, subject t o final
payment,
a l l checks w h i c h e r e received
b y y o u o n us,
W
e
estimate that £150,000 excess balance will be sufficient."
Suppose y o u say t o them, "Well, that & something w e d o not
cere particularly t o d&, b u t w e are willing t o try i t out.
We w a n t y o u t o understand, t h o u g h , t h a t w e a r e n a t g o i n g
to credit immediately subject t o final payment, a n y check
on y o u t h a t e n c r o a c h e s o n é d o l l a r
o n your required reserve;
we are going t o hold you t o your contrast,"
"All right, w e will stand b y it.®
W
T h e y say,
e will then assume
that the “isconsin National bank carries °150,000 excess
reserve w i t h you.
T h e r e i s certainly nothing unsound i n
& Pederal reserve b a n k permitting a
bank t o carry w i t h i t
a balance i n excess a f its lawful reserve,
money.
Y o u have t h e
W e will assume that i t runs along f o r e week o r
So all right, e n d you find that the “150,000 excess reserve
is ample.
A
s checks come i n you d o n o t give final pay-
ment, but you d o give immediate credit subject t o final
payment,
a n d with the exception a f a
net b e good, the credit stands,
few checks w h i c h m a y
T h e arrangement has
fulfilled t h e object f o r which i t w e s undertaken,
N o w ,
on a certain occasion there i s a n unusually large amount
of checks drawn o n the “Wisconsin National B a n k which are
presented t o you f o r immediate credit subject t o final
peyment, b u t the amount, instead o f being $150,000, which
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Federal Reserve Bank of St. Louis
269
represents the amount o f their excess balance, i s $250,000
or$300,000? Would there be enything unsound in it, or
would t h e r e b e a n y p e r t i c u l a r h a r d s h i p
o n you,
a s soon a s
you ascertain just what t h e situation is, t o send a collect
telegram t o the Wisconsin National Bank and say " T h e checks
On you amount t o %300,000.
for immediate cover."
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Federal Reserve Bank of St. Louis
telephones
W e need $150,000 addi tional
T h e n the Wisconsin National bank
o r telegraphs d e w n t o t h e F i r s t N a t i o n a l B a n k
or the Continental Commercial o f Chicago, wnere i t carries
an account, "Deposit a t once t o our credit with Federal
reserve bank 3150,000,"
T h a t will take care o f the checks.
Always having i t understood, u n d e r that Situation, t h a t
you are doing this a s a matier o f courtesy e n d y o u are
not going t o l e t them encroach ore dollar o n the required
reserves.
deposit
Y o u s e n d t h e m this collect telegram,
a n d i f the
i s n o t made v o u will Simply a d d t h e checks
up in
the regular course a n d credit t h e m h e n youreceive funds
under t h e regular time schedule.
do n o t t r e a t t h e c i t y a s a
U n d e r that system y o u
whole, b u t y o u d e a l w i t h t h e
individual banks,
Governar McDougel:
right u n d e r t h e p r i n c i p l e
R e believe i t would wark o u t all
« s y o u have outlined,it,
but I
do n o t b e l i e v e t h a t y o u c o u l d p o s s i b l y m a l e t h e r u l e s o
inflexible a s y o u have outlined i t a n d not permit t h e m t o
encpoach o n e dollar o n their reserve a c m u n t .
W e learned
a sood many things i n operating c u r immediate credit
plan. I
fail t e see h o w a collect telegram,
o r a n y other
kind o f a telegram, w o u l d g e t a response q u i c k enoughto
remedy t h e s i t u a t i o n t h a t day.
Governor Harding:
Y o u close a t three o'clock.
Governor McDougal:
Y e s , but the Federal reserve
banks a r e n o different f r o m commercial banks,
T h e y do
net k n o w a t three o'clock h o w the aceunts stand.
only wish w e did,
[ I
I t i s impossible always t o ascertain,
Governor Fancher: I
might state how w e handle this
proposition, a s we seem t o te the bank that started it.
The situation mentioned b y Mr. Herding appealed favorably
to our member banks a t Pittsburgh a n d a t Cincinnati,
that is, t h e advantage o f a n accunt i n Cleveland,
son o f t h e f a c t t h a t a
Cleveland’
b y rea-
d r a f t o r check w a s i m -
mediately available a n d items o n Pittsburgh a n d Cincin-~
neti were deferred,
very a n x i o u s
T h e Pittsburgh banks were naturally
t o p u t themselves
a s nearly a s possible
on
the same footing with the Cleveland Banks, ¢ m that condition was brought about b y all the banks agreeing b y action
of their boards,
t o maintain their reserves a n d t o maintain
a su.ficient amount t o protecttheir items.
N o r m a l l y our
reserve deposits prior t o July 15, were about $37,000,000
or $37,500,000,
in excess
O u r realized reserve deposits now are
o f “ 4 0 , 0 6 0 , 0 0 0 p r a c t i c a l l y a l l t h e time.
That i s the arrangement w e have with the larger banks.
We telesraphthem,.
I n one instance, I
might Say, o n e
of the banks i n Pittsburgh made e n arrangemert W i t h a
bank i n Cleveland under which w e were authorized t o report t o the Cleveland bank, u p o n their inquiry, t h e i r realized reserve e a c h day.
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Federal Reserve Bank of St. Louis
T h e y have given instructions t o
271
the C l e v e l a m b a n k that they a r e t o keep a certain amount
there,
a n d t h e C l e v e l a m b a n k Supplies t h e deficit
is any,
b y either a
i f there
deposit o f l a w f u l m o n e y o r e l s é b y
check o m the Cleveland b a n k f o r the excess reserve,
I n
the case o f three o r four a f t h e very, large banks i n Pitts-—
burgh and Cincinnati w e wire them when the letters are
in excess o f a certain amount.
T h a t is, w e send them a
collect telegram.
The other day we had a n item of $600,000 o n one of
our Pittsburgh Banks, w h i c h would have depleted i t s reserve
to the extent o f some $300,000.
promptly.
W
W e wired them very
e k n e w t h a t b y noon, r h e n o u r m a i l w a s p r a c e
nt G2albel aoe el02 ee
transfer, b e f o r
T h a t amount w a s made available
b y wire
t h e close o f business t h a t day, t h r o u g h
Chicago end New York.
I fail t o see where there i s anything unsound i n
that.
I t i s a situation that h a s arisen i n some o f t h e
districts which has g o t t o t e met.
be perfectly safe i n ® i n g it, I
I f w e c a n d o it, a n d
see n o reason w h y t h e
privilege s h o u l d n o t b e g i v e n t o t h e banks,
Governor McDougal: I
think y o u will perceive t h e
difference between the situation i n h i c h y o u are involved
and t h e Situation i n which w e would b e involved i f that
this i s a question o f making a
whole s i t y available.
You have e n arrangement w i t h I don't know h o w many banks
in Pittsburgh, b u t would not t h e situation b e somewhat
modified, e n d would n o t your opinion regarding t h e desirabllity o f doing i t b e somewhat influenced,
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Federal Reserve Bank of St. Louis
i f youwere
asked t o take Pittsburgh?
Governor Fancher:
J u s t w h a t d o y o u mean?
Governor McDougal:
P i t t s b u r g h h a s 2 5 o r 3 0 national
banks a n d probably that many more trust companies a n d other
banks, e n d the same i s true a f Cincinnati.
Y o u are
dealing n o w i n a very Small w a y with those t w o cities.
Governor Fancher: I
must b e g t o differ with you,
because W e have member banks 4 m those cities-——
Governor McDougal:
H o w about the non-member banks ,
the s t a t e b e n k s ?
Governor Fancher:
W e a r e not concerned w i t h them.
Governor MeDougal: I
know, b u t y o u would b e i f you
were asked t o Put Pittsburgh o n a par with them.
(Informal discussion followed.)
Governor McDougel:
you have said might I
G o v e r n o r Seay,
i n view o f what
esk i f y o u would b e willing t o ex-
tend this privilege i n your district?
Governor Seay: Y e s , t o a n unlimited extent,
Governor McDougal:
W o u l d n t t h a t amount t o going
back t o the o l d plan a n d trying i t over again?
Governor Seey:
ferent basis,
N o ; i t vould b e n n an entirely dif-
I n the first place w e have n o t offered
that privilege t o the member banks b u t t h e y have asked for
<t.
T h e t puts t h e whole transaction o n quite a
ferent basis.
dif—
T h e n there i s another thing that I would
like t o call your attention to.
that w h e n c h e c k s
on a
M r , Harding was saying
member b a n k w e r e i n excess
o f the
balance a n d i m p a t r e d i t s r e s e r v e y o u c o u l d t e l e g r a p h a n d
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Federal Reserve Bank of St. Louis
275
the account could b e restored.
T h e Federal reserve b a n k
is perfectly safe i n that matter because t h e Act distinctly
provides, subject t o penalty imposed b y the Board, t h a t
the member bank m a y use i t s reserve balances t o pay its
obligations.
reserve bank.
are a l l o w i n g
T h e r e i s n o risk assumed b y the Federal
Y o u are not loaning that bank money.
i t t o use,
a s t h e l a w provides
You
i t m a y use,
its o w n balance w i t h you.
Governor Harding:
I
f they are willing t o pay the
price.
Governor Seay:
The Chairman:
Yes,
B u t I cannot escape t h e feeling t h a t
sooner o r later y o u are going t o b e confronted w i t h t h
necessity o f decif@ing whether o r net y o u will p a y those
checks t h a t a r e p e y e b l e s o m e w h e r e e l s e ,
your agreement is. A
n o matter w h a t
case Will arise s o m e time when a
bank's c h e c k s w i l l b e p r e s e n t e d
t o y o u f o r payment a n d
vhey cennot make them gond that day.
Y o u have then
got t o determine whether y o u will throw those checks o u t
or w h e t h e r y o u w i l l not.
I
t is prectical l
y a question o f
Shutting u p your bank o r not shutting i t up.
I t seems
to m e that w e must g o e gord deal further inta t h e check
collection system a n d must know a
great deal more about i t
than w e d o n o w b e f o r e w e i n t r o d u c e a
tell the extent of.*
plan w h i c h w e c a n n o t
I t i s m u c h more safe t o stick t o
our present method o f deferring these items.
I f you d o
it for o n e y o u have g o t t o d o i t f o r enother,
i f they
Sive y o u satiafactory egreements,
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Federal Reserve Bank of St. Louis
274
Governor Harding:
T h e r e it) Some criticism a - t h e
present p l a n under which w e are operating.
S o m e people
claim that b y making this strictly a collection System a n d
having this deferred payment a l l t h e w a y through that
we are not carrying o u t t h e mendates o f the Act i n providing f o r a
clearing system.
Governor McDougal: I
would take exception t o one
Statement made b y Governor Seay.
W i t h the exception o f
the penalty which w e n e w have, a n d which would remedy t o
Some extent t h e evil, w e are i n exactly t h e same position
we vere before, e v e n i f y o u have a contract w i t h your
banks.
Y o u h a d a contract w i t h them before,
Y o u did
not invite t h e m t o come into t h e voluntary plan.
L t
you did, y o u did. something w e did not do,
Governor Seay: I
a m aware o f that, Governor M e -
Dougal, b u t 1 © maintain -that t h e arrangements t h a t
would b e mede w i t h u s n o w would b e made under circumstanees
quite different f r o m the arrengements t h a t were first made.
(Informal discussion followed.)
Governor larding. I think there i s a very essential
Cifference there that w e have overlooked,
B e f o r e these
assenting banks felt that they were doing the Federal
reseBve b a n k a
favor,
T h i s t i m e t h e Federal reserve
bank i s doing t h e m a favor
e n d i t i s f o r their conven-
lence a n d n o t f o r t h e c o n y e n i e n c e
banks.
o f the Federel reserve
I t is sometiing for their own selfish interests.
There i s nothing patriotic about it.
business proposition,
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Federal Reserve Bank of St. Louis
i t is a
cold blanded
275
Governor S e a y :
T h i s i s a n arrangement
w e are making
nw a t their request. B e f o r e w e invited them t o come
into t h e arrangement, w h i c h they d i d reluctantly--~
The Chairmax:
I n our district I
came i n reluctantly.
Governor Seay:
it applies
do not think t h e y
T h o s e that came i n came i n willingly.
T h e n I
will w i t h d r a w
t o you, M P . Chairman.
it
s o far a s
T h e r e i s o n e thing,
and that i s there aré some banks that a r e not s o dreadfully shecked w h e n their checks arerefused,
The Chairman:
T h a t vould close u p a bank i n New
England,
Governor Seay:
I f that i s t h e case i n New England
I believe that the banks that are so jealous of their
Credit would take particular c a r e that t m t credit i s not
hurt a n d would maintain t h e arrangement scrupulously.
Governor Fancher: I
think there i s another situa~
tion which enters i n t o t h e present collection arrangement a n d that i s that under t h e limited intra-district c o l lection scheme t h e banks o n l y h a d a very limited w a y o f
offsetting items. T h e y did not haw the facilities and
could n o t take outside pcints f r o m them,
N o w w e have a n
entirely different situation which enables them to maintain surplus reserves w i t h you.
Gay ernor Harding:
T h a t is a
very important dif-
ference.
GovernorFancher:
Absolutely,
W
e found i n Cleve~
land that after w e Joined t h e clearing house,
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Federal Reserve Bank of St. Louis
o n the 15th
BAS,
of July w e r a n a very heavy creditor a n d i t took u s t w o
ar three days t o accumclate t h e gold clearing house cer-=
tificates,
T h e n w e created exchange b y selling those
certificates,
T h e clearirg h o u s e ©
mmittee agreed that
the member banks might settle their debits i n the clearing
house i f w e w o u l d t a k e t h e i r c h e c k s a g a i n s t e x c e s s r e s e r v e ;
that is, that w e eould instruct t h e clearing house manager
that a certain bank would settle a
balance b y a check o n us,
certainpart o f its
T h e Cleveland banks a t
once s a w i t w a s t o t h e i r a d v a n t a g e
t o carry a
surplus
reserve t o protect their clearing house debit a n d
we + . have a million o r a million and a half excess reserve o f Cleveland banks which enables u s t o teke care o f
their debits i n the clearing house.
Governor Rhads: I
think a similar situation might
erise t o that which arose i n 1907 when t h e Knickerbocker
Trust Y o m p a n y failed,
T h a t company w * s clearing through
the National B a n k a f Commerce.
strong institutions.
B o t h were supposedly
I t had deposited with the National
Bank of Commerce security t o caver its clearings.
Y o u
all know that t h e National s a n k o f Commerce f o u n d o u t
that t e Knickerbocker Trust Company could not keepup i t s
end a n d refused t o clear,
T h e r e w a s t h e case o f a bank
trying t o d o the best i t could, b u t could n o t w @ it. I
think y o u will have a similar situation t o that,
The Chairman:
regusal
I t was true, w a s i t not, t h a t the
o f t h e B a n k o f Commerce
bocker c l o s e d t h e K n i c k e r b o c k e r ?
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Federal Reserve Bank of St. Louis
t o clear f o r the Knicker~
err
Governor Rhoads: Y e s ,
O n a two days deferred credit
the Federal Reserve b a n k would not b e i n a hole.
Governor Delano:
T h e r e would not b e a n y deferred
credit i n New York City.
Governor Seay: I
do not think the Federal reserve
bank could b e put i n a hole.
believe,
T h e r e i s a weakness, I
i n the Federal Reserve Act, w h i c h permits a
ber bank to withdraw its balance, I
come a
mem—
think there might
time i n this country w h e n that would b e a decided
weakness, I
think y o u a r e a g g r a v a t i n g t h a t b y t h i s a r -
rang&ment,
Governor McDougal:
W h a t would y o u have t h e m use i t
for i f they could not withdraw i t under certain circumstances?
Governor Seay:
the money.
L e t t h e Federal reserve b a n k loan them
I t would g o twice a s far,
p e E G Y SPS: i n
need o f money t h e y c a n borrow t h e money f r o m t h e bank t o
Satisfy their needs a n d accomplish more t h a n they c a n b y
Withdrawing their balance.
Governor McDougal: I
believe a
bank's reserve
Should b e w h a t i t i s s u p p o s e d toa b e - ~ ~ a
reserve
i n case
of emergency.
(Informal discussion followed.)
The Chairman: G e n t l e m e n ,
i s there a n y further dis~-
cussion o f this subject?
Mite Delano: I
Mr, Chairman. I
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Federal Reserve Bank of St. Louis
would like t o say a word,
plead guilty t o having sent that telegram
278
to Mr. McDougal w i t h referenw
t o this matter, b u t a s y o u
have perhaps noticed, w h e n h e came b a c k and said h e d i d
not s e e a n y good reason f o r doing i t I did net pursue t h e
matter any further.
I recognize t h a t i n the different districts there a r e
going t o b e quite different views o n this question.
instance i n the Boston district I
F o r
d o not suppose there i s
any city o r bank outside o f Boston that cares enough about
its prestige, relative t o that o f the Boston banks,
t o be
willing t o keep a two d a y balance i n the Boston bank. I
onsider that with reference t o t h e Cleveland b a n k Gover nor
Fancher absolutely had t o © what h e did do, I
how h e could have declined t o d o it.
an i n s u r r e c t i o n there,
do not see
H e would have h a d
T I would n o t h a v e b l a m e d t h e b a n k s
of Pittsburgh o r Ctncinnati i f they had started one.
the C h i c a g o district,
I n
a s Governar M c D o u g a l s a y s , t h e C h i c a g o
banks are overwhelmingly o f more importance than the other
banks.
A t the same time when I called t h e attention o f
Governor McDougal t o the situation i n Milwaukee, I thought
it would h e l p soften a situation which w a s rather aggravated t h e r e i f h e h a d s e e n fit,
b y s o m e way,
they asked, e s p e c i a l l y a s M i l w a u k e e
from Chicago,
e n d has a
t o d o what
i s o n l y t w o hours a w a y
train a b o u t e v e r y h o u r i n t h e day.
This is not a question that is going to arise with
any great acuteness i n most o f the districts, b u t i n those
districts where i t does arise I
do not v e r y well s e e how,
under t h e principles o f our clearing system, w e c a n s a y that
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Federal Reserve Bank of St. Louis
279
we Will decline t o d o this i f a tank, w h i c h has t h e money
in your bank, requests y o u t o charge their account.
I f
we s a y that w e will m o t permit t h e charging o f checks against
uncollected funds a n d all that sert o f thing, a n d w e wont
allow uncollected funds t o count «8S reserve, certainly
the r e v e r s e i s true, t h a t i f t h e f u n d s a r e t h e r e a n d t h e y
request y o u t o charge their checks against those funds,
you cannat v e r y well s a y that j u will n o t doit.
The Chairman:
I
s there a n y further discussion o f
this topic (aq). ( A f t e r a pause)
M r . Miller, d o e s n o t
this discussion cover your topic (r), "Immediate availability o f b a n k d r a f t s
o n member b a n k s l o c a t e d o u t s i d e o f
Federal reserve cites?"
Governor Miller:
Y e s sir, this i s the same ques=
tion.
The Chairman:
D o either y o u @
Governor McDougal
desire t o offer a n y resolution s o that action c a n b e taken
by t h e c o n f e r e n c e
o n this matter?
Govern@ Miller: i
-de nov,
Governor McDougal:
Governor Miller:
i
W
e do.T,
e have offered t o let a n y o f
the member banks make these checks available, a n d I d o not
see h o w w e could ®
differently i f they have t h e money
there t o c o v e r i t .
The Chairman:
I
f there i s n o further discussion
of topic ( r ) w e will pass t o topic (s).
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Federal Reserve Bank of St. Louis
(S) C h e c k s payable i n New York funds a t
current rates.
Governor Seay:
T h a t matter h a s been disposed of,
Mr, Chairman, b y a circular from the Federal reserve Board.
The topic was proposed before w e h a d received that circular.
I consider that i t i s disposed of. G o v e r n o r McCord also
proposed t h e subject, however.
Governor McCord:
T h e question w a s raised b y m e i n
the interim o f the receipt o f the circular. I
had m y
attorney render a n opinion o n the subject a n d his opinion
was that checks w i t h anyqualifications a s t o how t h e y
should t e paid, other than lawful money o f the United States
were n o t negotiatble a n d could not bepaid byea draft o n
some other city, especially where these w a s a deduction
of exchange, I
furnished t h e Federal reserve B a rd with
that opinion, a n d I understand that a t the same time, Mr.
Harding, the Board's attorney rendursd practically the
same opinion.
Governor Harding:
Governor McCord:
T h a t they were not checks,
T h e n t h e question h a s b e m dis-~
posed o f .
Mr. Hoxon:
Y o u s a y only checks a n d drafts.
T h a t
would exclude certificates o f deposits.
Governor McCord:
T h e y are n o t collectible,
s o my
attorney ruled,
Gavernor Harding:
T h a t is what our counsel holds,
The Act says, "Shall receive checks and drafts."
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Federal Reserve Bank of St. Louis
Governy W o l d : I
had a
transaction w i t h o n e o f
281
Governor Kains' member banks, located a t Spokane, where
they deducted exchange u p o n a certificate o f deposit.
only point i m interest i s the construction placed b y
Judge Elliott upon a certificate o f deposit.
Bovernor Harding:
¥ e hold i t i s not a check.
Governor Wold: J u d g e Elliott's opinion i s as follows:
S
h
e
"Thile there i s a technical difference between a
certificate
o f deposit a n d a
check t h e question involved
in t h e p r e s e n t c s s e i s t h e s a m e i n b o t h instances.
other words,
I n
t h e drawee b a n k claims t h a t checks d r a w n
against i t are payable a t its o w n counter,
I f the holder
desires t h e proceeds remitted chsewhere t h e bank claims
that i t has a
ogy a
right t o charge f o r this service.
certificate
o f deposit i s likewise payable
B
y anal-
a t the
counter o f the issuing b a n k a n d i f the holder desires t h e
proceeds remitted elsewhere t h e bank claims t h e rignt t o
charge f o r this service,
"The technical difference between the check and the
certificate o f deposit t o which y o u call attention does
not affect t h e question under consideration.
‘It seems that theFederal Reserve B a n k o f Minneapolis
received i n due course a
Spokane Bank.
certificate o f deposit o f the
I t might have sent this certificate o f de-
posit t o the Federal Reserve Bank o f San Francisco for collection a n d credit t o its account.
I n that case t h e Feder—
dl Reserve B a n k o f San Francisco would have sent t h e
certificate o f deposit t o the Spokane B a n k withbequest f o r
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Federal Reserve Bank of St. Louis
288
remittance,
I
f the present clearing p l a n
h a d been i n
force a t that time t h e Spokane B e n k would have h a d the
option o : shipping lawful money a t the expense o f the
Federal reserve b a n k o f San Francisco,
T h e Minneapolis
bank elected t o send the certificate o f deposit
direct
t o t h e Spokane B a n k w i t h reauest t h a t i t r e m i t t o
the Federal Reserve Bank of San Francisco.for its account.
"The question invelved, therefore, i s the same one
brag i s involved i n the case o f the Federal reserve
bank o f Kansas City which has been unable t o reconcile its
accounts w i t h some o f its members 6 n aceunt o f similar
charges that have b e e n made,
adjust t h i s c h a r g e
I f the Spokane b a h k will
o n the basisof t h e actual cost that
it would assume i n remitting lawful money t o the Federal
Reserve Bank of San Francisco, i n eecordance with the
clearing p l a n n o w i n force, I
would s u g s e s t t h a t t h i s
be done, otherwise, t h e metter will have t o stand i n
abeyance until t h e Board takes u p the question o f adopting
Some regulation fixing thesecharges."
This letter was i n response t o a n inquiry o f the
Board Relative t o the question whether o r not
requirement o f a member b a n k covering without deduction
applied t o a c e r t i f i c : e
t of depesit.
I
n the second
peragraph Judge Elliott said, "The technical difference
between t h e eheck a n d the certificate o f deposit t o
Which y o u call attention does n o t affect t h e ouestion
under consideration,"
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Federal Reserve Bank of St. Louis
T h a t certificate o f deposit i s
/
s
i
m
check
p l byy the
& member bank o n itself. —
The Chairman:
B e f o r e taking u p the next q u e s t i n
o
the C h a i r w i l l t a k e u p t h e m a t t e r
which i t i s authorized t o appoint.
o f appointing committees
T h e committee t o
confer with the Federal Reserve B o a r d o n the use o f postmasters
a s c o l l e c t i n g a g e n t s w i l l b e c o m p o s e d o f Governor.
Rhoads, Governor S e a a n d Governor McDougal.
on uniform s t a t e m e n t s
T h e .Committee
o f reserves a n d p e n a l t i e s
f o r defi-
ciencies w i l l c o n s i s t o f G o v e r n o r McDougal, C h a i r m a n ,
self, a n d Governor Fancher,
the Chair t o appoint a
my-
U n d e r t h e vote authorizing
committee t o meet with a committee
of the Board end cohsider the metter o f acting a s fiscal
agents for the goverhment, the Chair was d=signated as
chairman o f that committee e n d I will designate a s m y
associates Mr. Treman and Mr. Francher.
The next topic i s (t).
(t) T r a n s f e r s between Federal reserve banks,
(The Chair stated that a recess would b e declared a t
half past five until 8:30, a n d that a s topic ( t ) was ¢
considerable i m p o r t a n c e
i t would b e passed a n d questions
that could b e disposed o f quickly would b e taken up.)
The Chairman:
N e x t i s topic (a). E s t a b l i s h m e n t
of branches o f gold settlement f u n d i n non~subtreasury
Federal r e s e r v e c i t i e s ,
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Federal Reserve Bank of St. Louis
(vu) E s t a b l i s h m e n t o f branches o f gold settlement fund i n non-subtre-sury Federal r e ~
Serve c i t ies.
Governor Miller:
T h a t topic w a s proposed because o f
the fact that i n our district, a n d I suppose t h e same
thing i s t r u e i n Dallas a n d p r e b a b l y
i n Minneapolis,
w e have
but t w o seasons w h e n o u r products usually move eastsard,
as they are now,and when N e w York exchange i s i n great
abundance, H o w e v e r , a
little later o n New York exchange
will b e scarce, a n d I thought i f w e h a d some kind o f a
committee, composed o f the Federal reserve agent, t h e president o f a bank o r trust company a n d a bonding compeny,
te
act a S a n auxiliary committee t o the Federal Reserve Board's
committee i n Washington, t o hold those funds when money i s
plentiful a n d p a y i t back when money i s scarce,
i t would
save a n enormous f l o w o f actual m o n e y i n w a r d l y a n d out-—
wardly. I
was e n c o u r a g e d
t o propose t h i s topic because
I had written m y suggestions t o Mr. Delano ani h e encour~
aged the idea b y saying that i t was entitled t o some consideration,
Governor Wold:
M a y I ask a question?
Governor Miller:
Governor Wold:
Certainly.
T h i s movement o f funds i s not gold?
It i s currency, national b a n k notes?
Governor Miller:
s e e
Governor Wald: N e t i o n a l b a n k notes will n e t serve
as a
part o f t h e g o l d s e t t l e m e n t fund.
Governor Miller: I
imow t h a t , b u t w e c o u l d u s e t h e
lawful money.
Governor Wold:
B u t lawful money does not g o into t h e
gold settlement fund,
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Federal Reserve Bank of St. Louis
Goernor Miller:
B u t , Governor Weld, I
was going t r
2
say w e c o u l d u s e t h e l a w f u l m o n e y i n t h e o r d i n a r y t r a n s -
action o f business a n d deposit t h e actual gold, because
we have g o t t o produce t h e gold f o r the gold settlement
fund o n e w a y o r another,
(Informal discussion followed. )
Mrs Delano: I
was interested i n Governor Mil-
ler's sugge Stion, because w e have recognized a t Washington
that s i x o f the Federal reserve banks were a t a consider-
able disadvantage i n settling through the gold settl ement
fund. I
confess t h a t I
have n o t b e e n a b l e t o s a t i s f y m y -
self j u s t h o w t o w o r k o u t a
Suggests.
scheme s u c h a s G o v e r n o r M i l l e r
I h a v e b e e n workingon a
rather different idea.
That i s the reason I was s o much interested i n the bank
acting a s fiscal agent.
cities
T h e r e a r e n o w nine subtreasury
i n t h e U n i t e d States.
S
i
banks a r e a t sub-—treasury points.
x o f the Federal reserve
T h r e e other subtreasury
points a r e within a Federal resefve district, b u t n o t a t
a Federal r e s e r v e c i t y .
I
t seems
t o m e that t h e ultimate
result o f having t h e Federal reserve banks a c t a s fiscal
agents o f the Government i s that t h e Federal reserve banks
Will take t h e place o f the sub-treasuries a n d will per-
form the chief functions o f the subtreasuries, a n d then
automatically t h e deposit o f gold o r withdrawal o f gold
by a Federal reserve bank, s a y ith the Federal reserve
agent, w h o might b e the d e facto subtreasury o r assistant
treasurer, would accomplish the same thing for all of the
Federal reserve banks that i s n o w accomplished i n the
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Federal Reserve Bank of St. Louis
286
six cities where there a r e subtreasuries,
I
t does s e e m
unfortunate t h a t s i x o f the banks should b e a t a disadvant-
age,
The Chairmen:
W h a t dispositionwould y o u like t o
have made o f this questiom, Governor Miller?
Governor Miller: I
would like t o have Mr. Delano
make @ Suggestion as to what dispositionshould be made of
it, whether t o keep i t onthe program o r appoint a
committee
to work i t out, o r just leave i t up t o the Beard.
Mr. Delano: I
should think that perhaps i t i s more
to the interest o@& t h e s i x banks that a r e not located i n
subtreasury cities t o t r y t o work o u t the solution o f
this problem t h a n i t i s t o anybody else. I
very cheerfully that I
to assist e i t h e r a
should s a y
a m sympathetic a n d will b e willing
committee
o r a n y individual m e m b e r ,
with t h a t problem,
The Chairman:
W o u l d i t b e covered i f i t were taken
up b y correspondence between t h e Governors o f the banks
who are located i n non-subtreasury cities, e n d when those
governors h a v e formulated some p l a n they c a n take i t u p
with t h e Board,
Governor Miller: I
it out o n Kansas City.
there. ( L a u g h t e r ) I
was i n hopes t h a t they would t r y
W e t r y out a good many things
was i n hopes they would try it
out o n us t o see h o w i t worked.
Gawernor Seay:
M r . Delano, heve y o u ecansidered the
question o f whether 6 % not it can b e done legally?
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Federal Reserve Bank of St. Louis
=
Mr. Delano:
N o , I
have n o t satisfied myself that
it i s legal t o d o what h e suggests.
T h e r e i s a considerable
question o f responsibility i n which allthe banks would b e
interested, a n i i t would require a
good deal o f considera-
tion.
Governor Wold:
W h y n o t let this qmestion b e referred
to the committee. o n fiscal agen¢ies.
T h a t committees could
take under consideration t h e situation o f the s i x banks i n
that regard.
Governor Miller:
M i g h t i t not b e referred t o a
special committee composed o f three governors representing
the n o n - s u b t r e a s u r y F e d e r a l r e s e r v e c i t i e s ?
Gor ernor Vold:
M y thought was that i t might b e work-
ed o u t i n c o n n e c t i o n w i t h s o m e o t h e r r e l a t i o n w i t h t h e
govermment a n d the committee working o n the question o f
fiscal relations might have this i n mind i n their deliberations,
Governor Miller:
The Chairman:
T h a t i s perfectly satisfactory t o
D o you s o move, Governor Wold?
Governor Wold: I
s o move.
Govern@ Miller: I
The Chairman:
second t h e mcection.
G o v e r n o r Wold's moticn i s that a
solu~
tion o f the difficulties arising i n the case o f banks l o cated incities i n which there a r e n o subtreaSuries o f the
United States,
b e referred t o t h e committee
agencies f o r consideration.
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Federal Reserve Bank of St. Louis
o n fiscal
(The motion was duly carried.)
Governor McDougal: I
would like t o ask that a n ad-
ditional t o p i c b e p u t o n t h e program,
i n order t h a t i t will
not b e overlooked, a n d that i s the matter o f rendering uniform bills o m uniform dates t o Federal reserve banks covering their charges f o r each month.
The Chairman:
W e will take a recess a t this time un-
til 8:30 o'clock this evening.
(Whereupon,
a t 5:30 o'clock p . m. a reéess w a s taken
until 8:30 o'clock p. m. of the same day.)
EVENING SESSION,
The C o n f e r e n c e reconvened a t the expiration o f the
recess.
The Chairman:
T h e conference w i l l come t o O r c e r
We will take some o f the least important matters h e r e pending: the arrival o f the full membership, because w e want
ta get through this evening.
I have taken t h e liberty o f asking the cashier o f
our bank, Mr, Howe, t o come tonight.
U n l e s s there i s
some o b j e c t i o n w e w i l l i n c l u d e h i m .
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Federal Reserve Bank of St. Louis
Let u s take u p for the first topic question (x).
(3) D i s t r i c t n u m b e r s
Governor Seay:
o n checks.
M r . Chairman,
i t would greatlynfacili-
289
tate, a S y o u all know a n d understand t h e handling o f checks,
if w e c a n d o e n y t h i n g
t o expedite a
movement
number o f the district printed o n all checks.
our d i s t r i c t , f o r i n s t a n c e ,
t o haw t h e
Checks i n
a r e f r e q u e n t l y p r i n t e d b y litho-
graphers a n d others i n other districts.
I n our o w n dis-
trict w e have communicated w i t h all the printers a n d lithographers a n d requested them, w h e n they were making n e w
checks f o r any of our banks, t o take u p the subject w i t h
them.
W
e h a v e c o m m u n i c a t e d n o t o n l y w i t h a l l o f o u r mem=-
ber banks, b u t with all o f the banks i n our district,
members a n d non-members, telling t h e m i t would greatly facilitate t h e handling
o f checks, w h e t h e r t h e y w e r e m e m b e r s
of
the s y s t e m o r not; a n d w e a r e t r y i n g t o d o e v e r y t h i n g
that will save ourselves trouble. I
believe t h a t i s one
thing that will save u s a great deal o f trouble i f w e c a n
tals s o m e active steps i n all districts t o bring t h a t
about a s q u i c k l y a s possible.
That w a s m y only object i n putting this subject o n
the program.
T h o s e districts t h a t have n o t t a k e n t h e
trouble t o communicate w i t h the printers a s well a s with
their member banks I
believe w o u l d certainly d o service
to all o f us i f they would take i t u p i n that way.
The Chairman:
M r . Howe, h a v e y o u talked t o the J .
C+ Hill Company?
Mr. Howe:
Mr. Bullen:
W e have i n all cases,
T h e y are a l l doing
W e have t a k e n i t u p with every printer
and lithographer w e know o f that i s W i n g a n y business,
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Federal Reserve Bank of St. Louis
290
The Chairman:
H a v e y o u a n y metion y o u wish t o of-
Governor Seay: N o t h i n g a t all, sir. I
thought i t
might b e advantageous t o call the attention o f the Confer-~
ence t o it.
Mri McKay: T h e r e are 1 6 states split out o f the 48,
and i t wodld b e a good idea t o direct our efforts first
to those sixteen states, because where the states are not
split, t h e numbers a r e n o t s o essential.
I f we had
the sixteen split states numbered i t would help a great
deal,
Governor MeCord:
O f those 1 6 w e have three.
W e
are doing o u r best t o get t h e numbers o n our member bank
checks,
W e are going a little b i t farther:
I f one o f
our member banks draws o n New York w e Will a s k h i m t o
put a "2" o n that for New York.
T h a t i s o n business
inside o f the district.
Governcr Seay: Thatindicates the number of the
district o n which the check i s drawn ?
Goernor McCord:
Governer Seay:
Yes.
W e have o n l y o r s t a t e that i s split,
and that i s a small portion.
W e have received a number
of checks f r o m that o n e little state.
I t shovs h o w i t
would facilitate things i f w e could carry this plan out.
Governor Hoxon:
number
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Federal Reserve Bank of St. Louis
T h e district number,
o f t h e bank?
Governor Seay:
T h e district number,
o r the A. B . A »
Gwernor Fancher:
W
e have t n o u r district t h r e e
split states, a n d w e have circularized o u r banks twice,
have s e n t sample drafts showing h o w t o skeleton their
cheeks a n d drafts, a n d then w e have h a d i t u p with t h e
principal lithographers a n d printers,
W e a r
j u s t up to
the point o f making a third campaign end doing everything
we can to get the district number o n the checks.
W e have
not g o n e a s f a r a s y o u have, G o v e r n o r S e a y ,
i n the matter
of circularizing thenon-member banks, b u t I
can see that
it i s very essential, a n d I think w e will bring i n the
non-member banks,
Mr. McKay:
O f course there i s one d i f f i m i t y connected
with it, now, a n d that i s t h a t i t has n o t definitely b e e n
settled y e t a s regards certain o f the states i n the redistricting that m a y occur, a n d i f w e had a lot a
those
checks numbered a n d then there Should b e some change i n
the figure,
i t would make none confusion t h a n i f w e d i d
not have t h e m numbered a t all.
(Informal discussion followed which t h e stenogra-
pher was directed not t o report.)
The Chairman:
I
s there a n y further discussion of.
(x).
Governor McCord: I
can explain, possibly, o n e rea-
son w h y there h a s n o t been the numbering t h a t was expected.
It i s a
known f a c t t h a t q u i t e a
number
o f banks l a i d i n
a heavy supply o f stationery o n account a f t h e expected
rise i n the price o f paper, a n d other expenses.
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Federal Reserve Bank of St. Louis
T h e y
292
have g o t a pretty good stock o f stuff o n hand.
I t is s o
in m y district, I : know,
The Chairman:
D o y o u wish t o make a motion, Govermor
Seay, expressing t h e desirability o f activity alorg t h i s
Line?
Governor Seay: I
d o n o t t h i n k i t i s necessary,
Mr,
Chairman,
The @hairman:
‘ W e will then pass t o the next topic.
(w}) D o u b l e endorsement stamps.
Governor Seay:
W e haw issuéd a composite stamp t o
our member banks, t h e nature o f whichypg are all familiar
with, I
presume, a n d i t greatiy facilitates o u r work,
I t
would still further facilitate i t i f the Federal reserve
banks themselves would use a double endorsement stamp,
and i f i t were universal, a n d there i s n o objection t o i t
on the part o f a n y member bank, i t would save o u r handling
checks once, a t least, a n d since the number o f the checks
is growing s o rapidly, i t occurred t o me that this was
a subject that we might well devote our attention t o and
take some action upon a s soon a s possible.
Governor Fancher:
M a y I
inquire
i f y o u have
in mimi furnishing, f o r instance, o u r bank with a double
endorsement stamp o n items s e n t o u t t o you?
Goernor Seay:
W e would b e glad t o furnish anybody
with a double endorsement stamp that would use it.
O f
course there are a great many checks that come i n now i n
that w a y , along with a great m a n y that d o not, a n d i t
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Federal Reserve Bank of St. Louis
295
seemed t o nullify t h e convetience o f the whole arrangement
to have some that a r e n o t s o endorsed,
Governor McCord:
I t would b e very advantageous t o
have a double endorsement stamp t e tween Federal reserve
banks, I
think y o u would r u n u p against a
considerable
amount o f t r o u b l e n
o double endorsement stamps f o r t h e
member banks,
T h e y wouldb
e using y o u r stamp o n business
that t h e y didnot s e n d t o you a t all.
Governor S e a y : I
do not know about that, b u t when
they d o use i t o n b u s i w e s that they send u s only, i t i s
a tremendous business.
Gorernor McCord:
B u t y o u are troubled with having
items c o m e back t o you that never came through y o u a t all?
Governor Seay:
N o s ; not nearly a s much a s w e are
troubled with the non-use o f
The Chairman:
s u c tamp.
h s
T h e Chair i s curious t o know. h o w
generally t h e double e n d o r s e m e n t s t a m p i s used.
Governor Pancher:
Governr Wold:
W e a r e not uSing it,
W e a r e not using i t a n d d o n d b e -
lie ve i n it.
Governor McCord: I
a m uSing i t f o r t h e r e a s o n s
Stated.
Governor McDougal:
W e are using it. I
will a s k
Mr. M c K a y t o state t o w h a t extent,
Mr. McKay:
O n e o f our member banks uses it, endors-—
ing items t o us a n d f o r us, a n d i t saves u s a considerable
amount o f work, a n d w e would b e glad i f the other member
banks i n Chicago d i d that.
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Federal Reserve Bank of St. Louis
T h e i r system i s such that i t
294
is i n c o n v e n i e n t f o r t h e m t o u s e i t because t h e y e n d o r s e
the items a n d r u n them all through a machine, a n i t h e y d o
net want t e make a n y distinction,
Governor Seay:
Mr. McKay:
T h e y r u n them through a machine?
A n encerseing machine.
Governor Seay:
T h e y d o not make them pays l e t o
any Federal reserve bank?
Mr. McKay:
N o sir.
Governcr Seay:
T h e y vould have t o alter t h e type
of t h e m a c h i n e ?
Mr. McKay:
not é l l alike,
T h e y have a lot o f machines a n d they are
and
i t w o u l d i n t e r f e r e w i t h t h e system,
Governor Seay:
Y o u d o agree t h a t i t would save u s
all a tremendous amount o f work.
Mr. McKay:
y e s ,
Governor Treman:
M r . Hendricks,
a r e w e uSing a
double
stamp?
Mr. Hendricks:
NO-SEY,
T h e o m l y double s t a m p t h e
xchange has got.
Governor Rhoads:
The Chairman:
W
e u s e i t a n d would n o t b e without
M r . Howe, w e d o not use i t ?
ir, Howe: N o s i r .
The Chairman:
W h y not?
Mr. Howe: B e c a u s e we have to endorse them, anyhow.
They m i g h t a s w e l l e n d o r s e e y e r y t h i n g . I
think i t w o u l d
be impossible t o have a l l t h e banks u s e i t and use i t cor-
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Federal Reserve Bank of St. Louis
295
rectly.
I f w e get a few that d o not use i t they a r e
going t o g o through, a n d w e would rather endorse everything.
The Chairman: I
think i t i s only fair t o say that
we d o not have t o draw t h e checks that come through country
clearing o r what used t o b e the country clearing,
W e
only endorses t h e c h e c k s t h a t a r e o u t s i d e t h e packages,
Mr. Howe:
T h e t 8
e811,
(Informal discussion followed, )
Gavernor Hoxan:
W e should regret v e r y much t o be
obliged t o g i v e u p o u r d o u b l e e n d o r s e m e n t s t a m p .
9
0 per
cent o f the items w e receive a r e s o endorseé.
Governor Kains:
ment, i n a way.
W e d o not use it.
I t i s a n endorse-
A s Governor Miller says, i t i s just sim-
ply a memorandum.
The Chairman:
I
s that a n expression
o f y o u r opinion,
Governor Miller?
Governor Miller:
I t i s a memorandum because b y c o m
mon consent i t binds, a n d I think thefr b o y c a n put i t
on a s well a s oubs, i n one motion.
Governor McCord: I
had a subject similar t o that
up with Governor Harding today.
H e advised m e t o a s k m y
attorney t o look into t h e matter w h e n I
g o back home.
The C i t i z e n s ' S o u t h e r n B a n k o f Savannah, a
state i n s t i t u -
tion, not a member, has endorsed their checks with a stamp
furnished b y the Atlantic National B a n k e f Jacksonville,
Phe Presidentsof t h e t w o banks being brothers,
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Federal Reserve Bank of St. Louis
T h e
296
stationery i s furnished b y the Atlantic National of Jacksonville, a n d the Citizens Southern Bank o f Savannah,
in order t o save time, i s sending business direct t o me
with endorsement o f the Atlantic National o f Jacksonville,
Mr. Harding says that i s ultra vires.
Governor Wold: I
Believe C h i c a g o h a s t h e S a m e c o n -
dition with reference t o the Merchants' Loan & Trust Company a n d the Corn Exchange.
Mr. Attebery:
W e have t h e same thing i n St. Louis
There a r e four o r five o f the larger nun-member banks that
deposit w i t h u s o n t h e s t a t i o n e r y o f t h e m e m b e r bank.
Governor McCord: G o v e r n o r Harding suggests that I '
take i t u p w i t h m y attorney.
Governor McDougal: I
do not think i t should b e
done unless i t i s distinetly understood-~Governor McCord:
H e says i t should t
done b y
resolution o f the board o f directors.
Governor S e a y :
I
t i s a n innovation,
o f course, M r .
Chairman, Something that t h e y have n o t been accustomed
to heretofore, b u t t h e convenience o f i t i s s o great,
Governor Rhoads:
I t i s not such a n innovation,
We used i t a t the Trust Company f o r over t e n years.
Governor Seay:
Lt,
W e are n & a f r a i d o
f the abuse o f
I t i s susceptible o f abuse,
o f course, b u t t h e ends
to b e gained a r e s o very great that w e are willing t o
assume t h a t risk,
Opinions
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Federal Reserve Bank of St. Louis
I f w e were t o ask the attorneys!
o n everything t h a t 1 s done w e would b e afraid t o
297
do many things. I
knowledge a g a i n s t
a m perfectly Satisfied t o put m y own
a n attorney's w h e n i t c o m e s t o a
bank-—
ing practice,
The Chairman:
G o v e r n o r Seay, w h a t a c t i o n would y o u
like t o h a v e t a k e n o n this t o p i c ?
Governor Seay:
I
t serves e v e r y p u r p o s e
t o discuss
matters o f this kind without a n y definite action. I
do
not think they a r e o f sufficient importance t o
justify a resolution o n the part o f our conference, b u t
when w é have f u l l discussion o f them a n d have aired t h e m
from every side, t h e purpose t h a t I had i n introducing t h e m
is served.
Gevernor Kains:
M a y I askGovernor R h @ d s
supplies t h e s e t h i n g s
Governor Rhoads:
i f he
t o the member banks?
Y e s , end charge them u p t o the
Boston transit department.
Governor Seay:
I f you will allow m e I would like
to take t h e sense o f the Conference a s t o whether t h e
use o f a double endorsement s t a m p meets w i t h t h e approval
of the Conference.
The Chairman:
I f you will offera resolution,
Governor Seay--Governor Seay:
I f you will a s k for t h e ayes a n d
noes o n it, whether o r not i t i s the sense o f the Con~
ference t h a t a
double endorsement s t a m p i s approved
and would serve a
good purpose, I
think that i s all
that i s necessary.
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Federal Reserve Bank of St. Louis
The Chairman: G o v e r n o r S e a y moves, a n d i t is
298
seconded b y Governor Rhoads, t h a t i t i s the sense o f t h e
Conference t h a t t h e use o f the double endorsement s t a m p
is desirable.
I s there a n y further discussion?
(The motion was carried, Governors McCord,
Fancher, W o l d a n d Kains voting no, }
The Chairman:
I f I were voting, I should vote no.
Governor Seay:
F o r ourselves,
banks w h o a r e w i l l i n g
w e trust t h a t t h e
t o u s e i t , w i l l p u t i t i n force
with us; and we should b e greatly obliged i f all the
Federal r e s e r v e b a n k s w o u l d u s e i t .
(v) C u r r e n c y Shipments.
The Chairman:
W e will take u p (v), Currency ship-
ments . G o v e r n o r Seay .
Governor Seay: S i n c e that topic was proposed, Mr.
Chairman, I
have c o m e t o t h e c o n c l u s i o n t h a t i t i s
hardly worthy of discussion here, and if I had waited I
should n o t have proposed it.
The currency shipments have increased very much as
the r e s u l t o f t h e n e w c o l l e c t i o n s y s t e m ,
a n d t o such a n
extent t h a t w e have h a d t o employ another tetiéer,
have found that a
W e
great number o f banks S h i p u s currency
and make no adequate attempt to provide in other ways
for t h e c h e c k s t h a t w e s e n d them.
O f course,
w e took
up the subject with them and we told them what the
Spirit a n d the purpose a n d t h e letter o f the l a w were
on that subject, a n d the only thing w e c a n do, finally,
is t o explain t h e matter t o them 4 n d leave i t t o their g o o d
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Federal Reserve Bank of St. Louis
faith--~- w h i c h i s where i t usually ends.
The Chairman:
G o v e r n o r Seay,
i n our bank w e have
suspected that that privilege w a s being abused, b u t after
some discussion w e decided f o r the present that w e would
let t h e m a t t e r g o ,
Gavernor Kains:
The Chairman:
A n d paythe cost.
A n d p a y the cost, A
great many o f
our shipments a r e coming f r o m the banks i n northern N e w
England, a n d at this season o f the year they are very long
on c u r r e n c y b e c a u s e
o f the fact that there a r e Summer r e ~
sorts u p t h e r e a n d t h e r e i s a
very large business d o n e i n
cash, B e f o r e w e took t h e matter u p with those banks w e
decided w e would wait a n d g o through a winter a n d find
out what t h e normal experience was.
Governor Kains:
Q u r experience h a s been that member
banks g e t t i n g c h e c k s f r o m u s fects s e n t u s c u r r e n c y w h e n
they h a v e n o t b e e n d o i n g a n y business w i t h us.
S
o I
re-
fused t o handle i t and ccharged i t back,
Governor Seay:
W e have come t o dispute with some
banks w h i c h s a i d t h a t t h e y c o u l d n o t w i t h c e n v e n i e n c e
send u S currency, t h a t t h e y w e r e s h i p p i n g c u r r e n c y t o
other correspondents a n d a t the same t i m e they were sending
Some items t o us. L a e ! such cases, a S I
h a w said, w e were
compelled t o leave i t t o their g o o d faith, after explaining it, a n d that i s where I
think w e will have t o leave i t
with all o f them,
The Chairman:
T h e situation,
a s I see it, i s that
& number o f o u r b a n k s a r e s e n d i n g c h e c k s t o t h e i r c u t o f
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Federal Reserve Bank of St. Louis
300
town c o r r e s p o n d e n t sr
o
f their credit a n d are sendirg c u r rency t o us. U n d o u b t e d l y t h e privilege i s being abused;
but i t seems t o us a s a matter o f policy better t o let
it g o for the present until this Summer séason was over,
when t h e banks that a r e abusing i t will b e short o f funds.
(Informal discussion followed which t h e steno-
grapher was directed not t o report.)
The Chairman:
M r . Howe,
d o y o u remember what t h e
estimate w a s that w e made o f the express charges f o r currency?
Mr. Howe:
About a
Governor Wold:
The Chairman:
thousand dollars a
month.
I n express charges?
Yes.
Governor Wold: I
think i t would b e interesting i f
one o f the Governors would state what i t has cost him.
The Chairman:
icveetes Wolk:
A t this time?
Y e s sir.
Governor Fancher: I
I t will n o t take long.
have n o t a n y exact figures, b u t
our c h a r g e s h a v e b e e n v e r y small.
who s t a r t e d o u t t o s h i p c u r r e n c y
would s t a n d t h e charges.
W
W
e had a
few banks
i n b y express,
and we
e s i m p l y c r e d i t e d t h e amount,
less the charges, a n d referred them t o our circular.
Our
receipts f o r thirty days have been a little less than
$100,000.
T h e total amount o f charges, I think, was some-
thing less than $20.
Governor Wold:
at our expense,
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Federal Reserve Bank of St. Louis
W
e have n o currency Shipped t o u s
W e have paid t h e express charges o n l y i n
502
there were n o t sufficient items t o send,
a n e n a5
were ‘short, t h e y could ship currency a t our expense .
Governor McCord:
W e have h a d some small shipments,
state b a n k s p r i n c i p a l l y .
The Chairman:
average a
H a v e y o u a n y idea h o w much t h e y would
day?
Gwernor McCord:
N o ; I
myself w i t h those statistics,
did n o t t h i n k t o provide
I t i s nominal, a n d w e have
an insurance p o l i c y o f 1 0 cents a
that district.
W e furnish a
thousand a n y w h e r e
in
book o f adviee a n d have
Special arrangements whereby that advice i s received i n
New York a n d w e are covered,
Governor McDougal:
I n Chicago we have followed the
samé procedure d f not standing express charges i n a n y
case except where a
bank has b e e n unable t o take care o f
the situation b y sending i n Chicago exchange o r items;
and f o r a
thirty d a y period,
o n express c h a r g e s t h a t w e
paid a t our end we charged back “80, and w e absorbed
$46.
Governor Treman: I
have n o record here, b u t w e have
been r u n n i n g 6 0 o r 75, a n d o n e o r t w o d a y s 8 5 o t 9 0 thousand currency,
The Chairman:
H o w much would y o u average?
Governor Treman:
The Chairman:
T h e cost?
N o ; t h e average amount.
Governor Treman: I
creasing;
think i t has been greatly i n -
a t least i t h a d u p t o the time~~~ I have n o t
seen this week's figures,
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Federal Reserve Bank of St. Louis
a
Mr. Hendricks: A b o u t $500,000 a week,
Governor Rhoads:
W
e are quite sure there a r e t w o
or three banks t h a t a r e not playing fair with us, b u t I
think w e c a n p u m p t h e i r c u r r e n c y d r y p r e t t y soon.
T h e y
have other places, l i k e Atlantic City, where t h e y have
been overburtiened s e cash, n
e
a t this time o f
the yeer, a n d there a r e certain railroad e n d coal towns
where the pay is twice a month i n cash and they have t o
get rid of it. I
de not think the thing will be abused
very long.
Governor Hoxon:
W e have made n o extracts f r o m o u r
books i n regard t o it.
W e just tell them they can send
us exchange that i s acceptible t o us, o r give u s currency a t o u r expense.
F r o m t h e l s t o f J u l y t o the 3lst
wepaid $16.88.
W e get not more than a thousanl dollar s
a dey, I f thet.
W e have h a d
u e
eeniit n o money shipped
in t o us, M r , Aiken.
Governor Seay:
W p t o the first o f the month w e atax.
not h a v e S o m u c h s h i p p e d
i n t o us.
W
e h a d quite a
con~
Siderable amount t h a t was shipped, a n d w e charged t h e
exchange b a c k t o the banks, a n d i n some cases w e had n o
dispute.
B u t a dispute did arise i n certain cases, -and
we settled i t as I
have just explained,
S i n c e t h e first
of the month the shipments h a w increased very mach, and
our teller's cage is a very active department. I
had
in mind the opinion held b y some banks when we ‘put that
provision i n the circulars, notably Kansas City, and I
was v e r y a n x i o u s
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Federal Reserve Bank of St. Louis
t o hear t h e experience
o f t h e different
banks
i n t h a t regard, &
Governor Kains:
O u r cost i n that direction h a s
been incansiderable,. I
do n d k n o w the exact Pemares;
Mut a t m u s t b e t w o o r t h r e e h u n d r e d dollars,
declined
a n d w e have
t o p a y i f t h e m e m b e r b a n k “ o e s n o t d o buSiness
with u s ,
Governor Miller:
W
e p a y little
o r n o express c h a r g e s
up t o this time, b u t this i s the season o f the y e a r
when our money i s needed a t home.
The Chairman:
I t hes proved t h e cther way?
Governor Miller:
I t has moved t h e other way.
ably w e have not paid S10 express charges,
I would like t o ask how much i n volume o f money y o u
get f o r your thousand dollars a
The Chairman:
month?
W e have not been receiving more t h a n
about “85,000 a day o n the average. I
of $1,000 i s estimated. I
think that charge
do not quite agree with the
cashier a n d Mr. B u l l e n i n t h e i r estimates. I
are pretty high. I
think t h e y
think they were liberal i n making
up our estimate o f t h e cast o f operation o f the collection
department.
T h e y were v e r y generous i n their estimates,
but I figure i t would cost u s Mout 6 0 0 a month.
Gor,ernor Miller:
The Chairman:
3 2 0 a day.
W e have been confronted with a situa-
tion that has been rather different from that of the other
districts, b e c a u s e t h e B o s t o n C l e a r i n g h o u s e i n t h e i r
ope ration o f their foreign department permitted banks t o
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Federal Reserve Bank of St. Louis
304
remit f e their checkg and “raw exchange, Boston o r New
York, o r in currency a t the expense o f the clearing house.
So that all of the banks, particularly those i n the
nerthern part o f the district and o n the seashore, have
been i n the habit o f remitting large amounts a
currency
in the summer, a n d w e could n o t bring that down i n the
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Federal Reserve Bank of St. Louis
jnitial stages o f our operations w i t h that department,
Governor Wold: I
would like t o inquire i f they ship
the currency i n round amounts, o r just sufficient t o cover
remittances received f r o m you?
The Chairman:
Mr. Howe:
T h e cashier c a n tell y o u better t h a n
I n round amounts.
Governor Wold:
Y o u might accumulate balances i n
that way.
Mr. Bullen: I
might say for Governor Wold'’s infor-
mation that w e checked over practically all the accounts
and w e f o u n d w h e r e t h e y h a d b e e n e e e f e B e r e u n d a m o u n t s
that t h e total c a s h remittances
a m t h e total checks sent
them came out very nearly the same amount, o r within a few
hundred dollars,
i n all cases.
Governor Wold:
A r e these banks sending you any items
at all?
The Chairman:
Governor Seay:
M o s t o f t h e m a r e not, Governor W o l d .
I n some cases w e have discovered
that the banks were sending u s this money and checking
on u s a t the same time, a n d w e felt n o compunction i n
putting the express charges t o the Gebit o f their ac-
accounts, a n d w e did that,
Governor Miller:
D o the benks that are remitting
to you from these summer resorts s e n d y o u lawful money?
The Chairman:
N o ; t h e y send u s a n y kind o f money.
We have always taken national b a n k notes.
Governor Miller:
Y o u are carrying o u t the Boston
system?
The Chairman:
Y e s ; f r o m t h e beginning w e h a w r e -
ceived f r o m member banks national b a n k notes,
Governor Miller:
S o d o we, b u t o u r circulars o n
this particular question s a y lawful money.
The Chairman:
O u r c i r c u l a r s t a t e d that, b u t w e
take anything.
Governor Seay, w h a t suggestions have y o u a s t o a
method o f disposing o f this item?
Governor Seat: I
have n o resolution t o offer i n
respect t o it, Mr. Chairman,
(y)
N o protest items.
The Chairman:
test items,
W e will take u p item (y), n o pro-
G o v e r n o r McDougal.
Goernor McDougal:
from r e p r e s e n t a t i v e s
T h a t topic arose f r o m a request
o f the American Bankers' association
that, w i t h a view t o securing uniformity,
w e give
® nsideration t o the matter o f making 320 and over the
determimtion o f whether checks a r e t o te protested,
or whether i t Should b e t e n dollars, under o u r arrangements.
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Federal Reserve Bank of St. Louis
306
I have n o suggpstion t o offer, except t o transfer i t
to the conference,
Tie Chairman:
I
s there a n y discussion a s t o the
limit which w e should s e t a s t o the amount o f checks t o
be considered--Governor Wold: I
suggest that w e have already set-
Tel Olle ts
Governor McDougal:
lars.
Q u r limit was fixed a t ten dol-~
T h e American Bankers’ Association limit i s twenty
dollars; o n d t h o b j e c t sought being uniformity, t h e i r
thought being that we might be willing t o come up to
Lheie: Jini.
Governor Wold: I
think if we say a ten dollar
limit i t would avoid t h e returning o f a great many items.
I think i t would b e very inadvisable t o make a n y change.
We a r e uniform, a n d w e are going t o handle checks.
The Chairman: I
would like t o get some action o r
some motion o n the record,
My feeling i s i t is a great restraint o n the promiscuous drawing o f checks o n non-existing balances.
I understand that you move that n o change t e made?
Governor Wold: I
move that n o change b e made, a n d
that t h e practice s e t b y the transit managers a n d followed
by the banks u p t o this time b e continued,
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Federal Reserve Bank of St. Louis
Governor Treman: I
s e c o n t h e motion.
(There was n o discussion and the motion was
duly carried, )
307
Governor McCord:
W o u l d i t not b e well t o communicate
that t o the American Bankers' Association,
i n order that
they m e y get together w i t h ns?
Governor McDougal:
K R think i t would b e a nice m a r k
of attention t o the A. B . A. representative w h o has b e e n
in correspondence b y wire, a t least, w i t h Mr. McKay, a n d
by e t t e r , 1 Delie-ve, t o o ,
t o let h i m know that t h e mat-
ter has b e e n considered a t this meeting, a n d communicate
the a c t i o n f
o the t o r erence.
The Chairman: Governor MéCord, d o I understand that
you move that t h e Secretary b e requested t o communicate
with the represéntatives of the American Bankes! Associa« .
tion e n d advise t h e m o f the fact that t h e matter h a s h a d
Consideration a n d the C o n f e r e n c e i s o f the opinion that
the limit should n o t b e increased, giving t h e m a statement o f the reasons.
Governor McCord:
U p o n Mr. McDougal's statement I
think i t would be-.well t o let i t g o through t h e same
channel.
The Chairman:
A s a matter o f form, Should not s u c h
a2communication come from t h e Secretary o f the Conference.
Governor McCord:
Y e s ; t h a t i s right.
Governor McDougal: I
think t h e proper procedure
would b e t o h a v e t h e S e c r e t a r y n o t i f y M r .
Thrallsf
o the
action taken, e n d then Mr. McKay, w h o h a s been i n correspondence, c a n d o a s h e sees fit.
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Federal Reserve Bank of St. Louis
508
The Chairman:
D o you second Governor McCord's motion,
Mr. McDougal?
Governor McDougal: I
do,
(The motion was duly carried.)
(2) S h o u l d t w o a c m unts b e maintained between
Federal reserve banks,
(Mr, McCord, )
The Chairman:
acounts
W e will take u p topic (z), should two
b e maintained between Federal reserve banks.
Governor McCord:
T h a t i s accorded t o me, b u t I think
Governor Seay was the originator o f the subject. Governor
Seay, W i l l y o u l e a d o f f o n that?
Governor Seay: I
did offer the subject, Mr. Chairman,
We w r c e t o the various Federal reserve banks a n d sent
them &@ memorandum prepared b y our auditing department,
calling a t t e n t i o n
t o the fact t h a t confusion was constantly
arising i n making entries i n the different acwmunts o f
the Federal reserve banks.
W e have, a s I believe,
an
auditor who i s as capable a s any man i n the profession,
and w e also have another official o f o u r bank who was a
chartered p u b l i c a c c o u n t a n t ,
a n d they agree t h a t i t i s
very difficult f o r t h e m t o determine w h i c h aceunt
many of these entries should g o to.
i f it i9te.
difficult f o r them t o determine, h o w much more difficult
is i t f a t h e department which handles these items t o
determine.
O
f course, a s between Federal reserve banks
it i s not difficult f o r their auditing departments t o
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Federal Reserve Bank of St. Louis
309
reconcile a n d straighten o u t matters.
B
u
t a s things
nov a r e With t h e gold settlement fund, w e think transactions
between u s would b e facilitated i f w e h a d only ore account.
We b e l i e v e t h a t t h e f u n d s o f e v e r y F e d e r a l r e s e r v e
bank c a n b e wholly within their o w n control, although some
of the Federal reserve banks d o not think so.
O u r judg-
ment i s that i t would facilitate o u r work, w o u l d lessen i t
if one account o n l y w a s used between t h e Federal reserve
banks,
The Chairman:
portance,
and I
T h a t i8 4 m&tter of considerable im-
should l i k e t o h a v e a
Governor Wold: I
free discussion.
submitted this matter t o our ayjdi-
tor a n d h e prepared a little memorandum which I would
just a s soon give t o the stenographer a n d have h i m put
into t h e proceedings unless y o u wish t o hear i t read.
The Chairman:
W i l l y o u read it?
Governor Wold: ( R e a d i n g : )
"Should t w o a c a u n t s
b e maintained between
Federal r e s e r v e b a n k s ?
“ves, f o r the present a t least.
"One bank would have t o send a statement f o r reconciling purposes a n d the other bank would b e required t o send
advices, whereas t h e daily statement does a w a y with conSiderable advising a t present.
"The idea that 'time deferred’ can be estimated s o
closely a s t o make ‘ d u e to' a n d 'due from’ accounts offset
will n o t work out.
in transit,
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Federal Reserve Bank of St. Louis
T o o many things m a y happen t o mail
a s well a s within t h e banks themselves,
310
Fspecially i s this true o f items handled b y other banks
for a c m u n t o f a Federal reserve bank,
"In the sase o f drafts issued b y one Federal reserve
bank against a
credit balance w i t h another Federal reserve
bank, h o w i s the issuing b a n k t o know h o w long the drefts
will remain outstanding,
o r how will t h e paying bank
knew t h a t d r a f t s a r e i s s u e d w i t h o u t a
special advice.
I t
would be necessary for the paying bank to withhold the
amount advised, otherwise beth banks might wire i n a
crenct;
"While i t might d o away with some indecision as to
which a c c o u n t
from v o l u m e
a n entry belonged,in,
t h e single a c @ unt
o f sntries a l o n e w o u l d b e cumbersome,
as many a s fifty credits a
W i t h
day i n some o f the accounts w e
prefer t o keep these entries apart f r o m o u r own,
"The system o f double accounts i n voge w i t h commercial banks for interest purposes and t o inflate balances
cannot b e used as a n argument against double accounts
between Federal reserve banks.
"Any desired information c a n b e more readily obtained from a n account i n which t h e entries o f any one Federal
reserve bank are segregated than from a consolidated
account.
"Finally, the adjustment o f exceptions would likely
lead t o correspondence w i t h Washington, w h i c h w e prefer t o
avoid."
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Federal Reserve Bank of St. Louis
Gq@ernor Seay:
M r , Chairman, I would like t o say that
eeio 8
my O W n o p i n i o n i s t h a t t h i s i s a
matter w h i c h i s m o r e
properly t o b e d i s c u s s e d a n d t h r e s h e d o u t b y t h e auditor,
and i t i s not m y purpose t o argue i t here. I
do not s u p -
pose there are a n y bodies o f men who differ more among themselves t h a n auditors d o end expert accountants.
like t h e doctors;
T h e y are
t h e y have their varying opinions.
f i
am sure t h a t o u r auditor c a n answer overy o n e a f the o b jections g i v e n b y your auditor. I
a great m a n y comments,
conference. I
but I
a m prepared here w i t h
do not propose
t o burden this
do not know that t h e subject n e e d b e pur-
sued i n detail, b e c a u s e w e h a v e o u r auditors
t o solve these
questions, a n d periodically w e have meetings o f o u r sauditors.
Governor McDougal: I
do n & t h i n k i t i s a matter
for the auditors t o solve. I
ing; a n d i f I
think i t i s a matter o f bank-
u m e r s t a n d y o u r s t a t e m e n t correctly,
o n e rea-
son y o u advance i s the desirability o f maintaining control
of your balances,
Governer McCord:
N o ; I
said that that was one o f -
the arguments advanced b y some o f t h e banks, notably b y
your bank, a s I umerstand, Mr. McKay.
The Chairman: I
Governor Seay:
think i t i s a very important m a t —
W e d o net see haw y o u c a n lose con-
trol o f it i n one acwunt, considering the activities that
nov prevail between t h e Federal reserve banks,
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Federal Reserve Bank of St. Louis
Governor McDougal:
B u t y o u see h w w e can maintain
control
b y o p e r a t i n g t w o accounts,
Governor Seay: I
d o y o u not?
can see how you can, but i f I
could also s e e haw y o u could accomplish t h e same result
in a more convenient way, I would b e i n favor a f that.
i;
Governor MeDougal:
Governor MeDord:
i
l
a
Y e s , i f that could b e done.
M y auditor says that h e agrees
thoroughly with the idea o f consolidating t h e a c m unts i n t o
one.
T h e r e i s n o doubt t h a t i t w o u l d s i m p l i f y t h e h a n d -
ling o f the Federal reserve bank accounts v e r y materially
and facilitate t h e work not o n l y o f the transit a n d auditing departments, b u t elso the bookkeeping department.
4.3 l o n g a s d o u b l e a c c o u n t s a r e continued, e v e n u w i t h t h e
greatest care, errors c a n always t e made.
I n case t h e
Single accwunt system i s adopted I would think i t advisable f o r all banks t o send each other daily statements.
Governor McKay:
G o v e r n o r Aiken, I
on this subject that I
wrote something
would like t o read, i f the meet—
ing w o u l d c a r e t o h e a r it.
I
t i s i n answer
to a
memorandum
that Governor Seay has sent me, by his auditor:
"White i t is true that there has been some cenfusio n
in making entries f o r transfers o f funds, t h i s confusion
has been caused b y the lack o f unde yétanding o f the operation o f the double accounts.
A s a n ilinstration, l e t u s
consider t h e t w o accounts c a r r i e d b t w e e n y o u r b a n k a n d
ours.
A n y transaction which originates i n Chicago o r i s
initiated b y a member bank o f this district should g o into
our account w i t h you, - ~ that is, o u r credit balance o n
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Federal Reserve Bank of St. Louis
313
your books,
T h i s would apply t o direct transactions
you might have with your member banks,
I t e m s sent b y them
to you f o r credit would g o into o u r account w i t h you.
Transfers
o f funds r e q u e s t e d
count w i t h you.
b y u s would g o into o u r ac-
I t e m s sent b y them t o you f o r dredit
would g o into our account with you. T r a n s f e r s o f funds
requested b y us would b e charged t o our account w i t h you,
For transactions originating i n your district, t h e entries
would b e made i n w u r acount w i t h us,
I f one o f your
member banks desired t o transfer funds t o one o f our m e m ber
banks, u p o n receiving your request w e would charge y o u r
account W i t h u s e n d c r e d i t t h e m e m b e r bank. T h e a t : i a ,
the f u n d s w o u l d c a m e o u t o f t h e b a l a n c e w h i c h y o u h a d
e¢reated here, I
consider themaintenance o f double a c -
counts n e c e s s a r y r
o
f the following reasons,
"L, T h a t i e may have control o f the funds which
we have i n the other Federal reserve banks,
"A
T o avoid confusion i n the reconcilement o f the
accaunts.
"3,
T o enable u s t o know definitely a t all times
how we stand before settlement through the Gold Settlement.
Fund.
a>
T o enable u s t o properly =conduétt o u r exchange
transactions.
"5,
T o prevent one Federal reserve bank from being
obliged t o advance funds t o another,
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Federal Reserve Bank of St. Louis
“6. T h e y are necessary t o enable proper settlements
314
to be made through the Gold Settlement Fund and such settlements a r e made f r o m the advice o f Sub Foderad reserve
bank w h i c h r e c e i v e s a n d c o l l e c t s t h e i t e m s a n d cannot p r e -
perly b e made b y the bank which sends t h e items. C h e c k s
should n o t b e settled f o r until payment h a s been received
by the Federal Reserve Bank t o which they are sent.
"The twelve Federal reserve banks are Separate institutions a n d under t h e Federal reserve a c t prwvision i s made
so that one bank m a y advance funds t o another through re-
discounting,
I t is conceivable that one Federal reserve
bank might d r a w o n the others w h e n i t i s short o f funds
and have a continuous overdraft, a n d thus obtain funds
without being obliged t o rediscount.
"The practice o f keeping double acwunts o r contraaccounts,
a s t h e y a r e c a l l e d i n Europe,
i s o n e o f long
standing a n d t h e n e e d f o r i t h a s d e v e l o p e d
noted for sound banking practice. I
i n countries
am Speaking from
personal knowledge o f the foreign exchange departments o f
the C h i c a g o b a n k s w h e r e c o n t r a a c c o u n t s a r e m a i n t a i n e d
with E u r o p e a n c o r r e s p o n d e n t s
a n d further t h e contra acconts
with C a n a d i a n b a n k s m a i n t a i n e d
i n the institution w i t h
which I was formerly connected were under m y supervision,
"I may say that i n regard t o the large fluctuations
in our daily statements, caused b y the ‘due to’ and ‘due
from' Federal reserve b a n k acccunts, t h i s c o u l d b e reduced
if more frequent settlements w e r e made through t h e gold
settlement fund, i f i t i s considered necessary.
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Federal Reserve Bank of St. Louis
I t is
315
umerstood,
o f course,that a n y F e d e r a l r e s e r v e b a n k m a y
call f a r s e t t l e m e n t f r o m a n o t h e r F e d e r a l r e s e r v e b a n k a t
any t i m e s h o u l d t h e a m o u n t i n v o l v e d b e c o m e l a r g e e n o u g h t o
warrant it."
Governor Seay:
conclusive,
E v e r y o n e o f these reasons sounds
a n d yet Ihave a
detailed a n s w e r h e r e t o e v e r y
. one o f them, prepared i n our auditing department.
And.
as t o the foreign custom, o u r auditor, w h o was a Canadian
himself, says, I
think, t h e Boston Branch o f the Canadian
bank still keeps b u t o n e account w i t h London a n d another
with Paris;
S o I a m sure that w e could prolong this dis-
cussion, but it is not my purpose t o do that.
Governor Kains:
A
s f a r a s w e a r e concerned,
we
would like t o recommend t h e discontinuance o f carrying
current accunts between Federal Reserve Banks a n d settling
balances periodically through t h e gold settlement fund,
and d o away with a l l ‘these accounts.
A l l interdistrict
transactions s h o u l d b e d i r e c t w i t h a t a s e t t l e m e n t f u n d
for account o f the Federal reserve b a n k concerned.
T h e
plan will eliminate necessity f o r carrying funds o n deposit with other Federal reserve banks s n d make e a c h debit
or credit f o r account o f another Federal reserve b a n k correctly s h o w a
shift
as a t present, a
i n l o c a t i o n o f reserves i n s t e a d o f ,
decrease
o r increase
i n n e t deposits.
I think w e w i l l h a v e t o c o m e t o t h a t S o o n e r o r leter,
but I do not know that this is the proper time to talk
about it. I
go Slowly;
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Federal Reserve Bank of St. Louis
agree with Governor Wold that w e had better
but I
think w e w i l l h a v e t o c o m e t o that.
316
(Informal discussion t o o k place which the
stenographer w a s d i r e c t e d n a t t o report.)
The Chairman: S p e a k i n g for myself, I frankly admit
that I
a m not a n auditor n o r a n expert accountant, a n d
while I
do not spend much time o n the books I like t o b e
in a position where I
can g o t o the books a n d get a n in-~
telligent knowledge o f what i s going on; a n d I a m i t t h a t
I cannot d o that under this system o f single account.
I t
seems t o m e i t i s a much more complicated method o f accounting,
a n d i n t h e present s t a g e o f development a n d
activity t h e p r e s e n t m e t h o d o f c o n t r o l l i n g a c c o u n t s
much safer a n d more satisfactory.
is
M r . Bullen, t h e aufli-~
tor, m a y not agree w i t h m e a t a t i n that, b u t that i s m y
febling. I
do not think i t i s entirely a matter f o r t h e
-auditors o f the banks t o settle.
T . think thet i t i s
largely a matter f o r t h e e xecutive officers o f the banks
to settle. A u d i t o r s , someone h a s said, a r e like special-
ists i n medicine.
T h e y become obsessédwith the refine-
ments o f their specialty, a n d i t seems t o m e this i s a matter o f practical accounting a n d accounting i n which we, a s
chief executive cfficers o f these banks, h a v e acertain
responsibility. I
personelly would like t o see some reso-
lution o n the subject, I
{t f a v o r a b l e
confess I
would like t o have
t o m y polnt o f view.
Governor Seay: I
can read y o u a letter here received
from the chief of the statistical bureu i n Wasuineonic
just a n excerpt from i t ;
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Federal Reserve Bank of St. Louis
317
"So far as my own division i s concerned i t 1s immaterial whether t h e banks show gross o r net figures; b u t
Mr. Gibney seems t o think that a n y changes i n these a c counts should b e deferred until t h e daily settlements
through the gold settlement fund are adopted,”
The Chairman:
I s there a n y further discussion o f
topic (2)? D o e s anyone wish t o offer a resolution bearing o n this m a t t e r ?
(At this point Governor Harding a n d Mr. Delano
entered the conference room, )
If there i s nothing else
i
n connection with (2)
we Will pass i t s
Governor Harding a n d Mr. Beland Having come in, w e
will t a k e u p s o m e o f t h e m o r e i m p o r t a n t q u e s t i o n s t h a t a r e
left.
W e will g o back t o section (t).
(t) T r a n s f e r s between Federal reserve
banks,
Mr. B u l l e n , I
would l i k e t o a s k y o u t o report
o n the
transaction that y o u a n d I discussed i n this connection,
in which y o u made a
memorandum, I
believe.
1 % Lea
question that was raised b y Mr. Hendricks a n d sanebody
else w i t h regard t o what c o s t i t u t e d a
telegraphic trans-
rer,
Mr. Bullen:
W e have b e e n requested several times
byone o f our local member banks t o receive a
deposit o f
Boston funds f o r the credit o f another Fereral reserve
bank f o r use o f one o f their members,
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Federal Reserve Bank of St. Louis
T h e supposition
518
in this case i s that t h e bank f o r whose u s e t h e funds a r e
deposited h a d arranged with its o w n Federal reserve b a n k
for the conversdon o f t h e Boston funds t o its o w n city.
The federal reserve b a n k i n question objected t o this pracetice, ¢laiming w e : h a d n o right t o reseive t h e deposits
without their consent.
The Chairman:
T h i s was between the Chicago Federal
reserve b a n k a n d ourselves?
Mr. Bullen:
Y e s sir ,
A
s they take that stand, I
really think w e ought t o confer with them because t h e y
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Federal Reserve Bank of St. Louis
belie ve we have n o right t o receive funds for them and
place o u r credit i n this way.
B u t o u r Beston bank showed
us correspondence w i t h the Chicago b a n k which seemed t o
bear out their side o f the story that everything h a d been
arranged and a disposit
The Chairman:
A s I
o
f Boston funds was acceptable.
understand that particular trans-
action, the deposit was made with us o n the order o f a
Chicago b a n k b y the First National B a n k i n Boston?
Mr. Bullen:
Y e s sir.
The Chairman:
A n d the funds were immediately made
available for that Chicago bank b y the Federal reserve
bank of Chicago?
Mr. Bullen:
I t wes n o t s o ordered b y the bank
that deposited t h e funds, b u t the Chicago b a n k took i t t o
be sa.
Mr. McKay:
O u r understanding with the Chicago bank
was t h a t t h e B o s t o n b a n k w a s t o make t h i s t r a n s f e r
to
S19
Chicago f o r them.
W e h a d the same situation exectly
with the s a m b a n k i n connection w i t h Philadelphia.
Mr. Hardt:
Mr. McKay:
I t was day after day with us.
S u p p e s e t h e bank d o w n there h a d n o t
put them through promptly enough, b u t i t turns out’ the
transfer was n o t t o t
m a d e b y the Philadelphia b a n k o r
by the Boston Benk a t all.
any such.
T h e y did not egree t o make
T h e y simply deposited t h e funds
in t h e P h i l a d e l p h i a a n d B o s t o n banks.
t o o u r credit
T h e bank a t our
end o f the line w a s using that means t o deposit Philedelphia exchange t h e t w a s selling e t a discount i n Chicago.
Mr. Attehery: I
might mention a case that has come
up between Kansas C i t y a n d ourselves.
O n e o f t h e banks
in St. Joseph, a s I understand, w i r e d their St. Louis
correspondent to. deposit funds w i t h u s for t h e credit o f
Kansas City for their use.
W e were not asked t o sdvise
them b y wire; t h e d e p o s i t w a s s i m p l y m a d e w i t h us.
T h e
bank said, “Here i s {25,000 for the use o f the bank i n St.
Joe,”
W
e got advices the very next day indicating that
they h a d credited St. Joe, o n the strength o f t h e telephone message t h a t this transfer w a s being made.
W e have
never taken it up «ith them, W e h a v e been handling them
so f a r o n l y e v e r y f e w days,
Governor Wold:
W h e a t i s the objection o n the part
of the Boston bank t o the transaction?
The Chairman:
A s t o whether o r not w e were entitled
to telegraphic transfer charge.
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Federal Reserve Bank of St. Louis
520
Mr.Hardt:
W e have h a d a s high a s three o f those a
day f o r that particular National C i t y Bank o f Chicago, b e tween fifty a n d a hundred thousand dollars, a n d w e never
considered a n y telesraphic charge i n the matter;
w e never
had anything t o d o with it,
The Chairman:
I s that deposit immediately available
with you, Mr. McKay?
Mri, McKay!
I t i s deposited i n Philadd phia, a n d
the Philadelphia Federal Reserve B a n k wired that this
amount w a s deposited f o r t h e credit o f this bank i n Chicago, a n d w e Supposed t h a t the Philadelphia member bank was
transferring those funds t o Chicago.
B u t the facts are
that t h e Philadelphia b a n k d i d n o t agree t o d o that a t
all;
i t simply deposited
i n Philadelphia,
a n d w e were t h e
oes t o make t h e transfer, a n d the Chicago
p k
d i d not
have t o pay anything; neither d i d the Philadelphia bank.
We d i d not know t h e real facts o f the case until I
got t o
Boston the ather day.
Governor Seay: °
I s that a burden,
t o d o that f o r
your member bank?
Mr. McKay: T h e y were getting the money two @ys
in advance.
(Informal discussion followed which the steno~
grapher was directed not t o report.)
The Chairman:
M r . Hendricks, I
believe, h a s ideas
Pi the subject.
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Federal Reserve Bank of St. Louis
Mr. Hendricks:
W e h a d this situation arise m a n y
321
times, a n d w e have reached t h e point n o w where w e d o not
recognize a
transfer w h e n w e see it, A
bank i n New York
comes i n with a check for 300,000 ana they say, "Deposit
this t o the credit o f another Federél reserve b a n k b y order
of a member bank."
T h e y ¢laim that is not a transfer,
thet t h e y are mérely making a deposit that they want u s
to advise b y wire i s deposited t o the credit o f another
Federal reserye bank.
T h i s comes i n o n Wednesday morn-
ing, w e will say, a n d o n Wednesday night t h e y transfer it.
‘scannot s e e f o r the life o f m e w h y that i s not a telegra-
phic transfer.
T h e y just use the language b y order oft
so they cannot c a l l i t a transfer.
I f they use t h e lan-
guage " W e d e p o s i t t h i s f o r t h e c r e d i t o f t h e F i r s t N a t i o n a l
Bank", o r for the credit of someone else, that is a trans~
fer.
B u t they say, " B y order of" just t o beat the devil
about t h e bush.
Governor Seay:
T h e Richmond b a n k telecraphs
to
its New York correspondent, "Please depostt i n the Federal:
Reserve Bank o f New York $200,000 t o the weds + of the
Federal reserve bank o f Richmond,"
Y o u d o that, d e
you n o t ?
Mr. Hendricks:
Y e s ,
Governor Seay:
A n d yet, i f youwere requested t o
advise t h e R i c h m o m b a n k that y o u have done so, y o u would
charge f o r it?
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Federal Reserve Bank of St. Louis
Mr. Hendricks:
T h a t i s a transfer,
Governor Seay: I
do not think i t should b e done.
O2e
Mr. H e n d r i c i s : T h a t w o u l d b e a n actual transfer;
that i s all,
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Federal Reserve Bank of St. Louis
Governor Seay:
Y o u have done nothing. S u p p o s e
the New York bank had a n excess balance with you which
was Subject t o its control entirely.
The Cha trinah | I s not the whole essence o f the
thing w h e n i t i s a v a i l a b l e
Governor Seay:
t o t h e b a n k i n Richmond?
Y e s ; b u t what difference does i t
make t o the Federal reserve b a n k o f New York?
nothing a n d has lost nothing;
I t has d o n e
i t i s performing a service
for its member bank--Mr. Hendricks:
T h e o n l y thing that worries u s i s
that i t is n o t carrying o u t t h e instructions o f the ConT h e y decided that a l l telegraphic
ference o f Governors.
transfers s h o u l d b e charged a t t h e rate o f two per cent
interest over elapsed time.
W e are living u p t o that;
thee 18-822,
c a m o t t h i n k that those charges
Governor Seay: I
were made t o cover a n y such transactions a s this.
I t has
peen very difficult t o explain i t t o some o f our member
banks.
Mr. Hendricks:
W
e h a d difficulty explaining
i t to
some o f the other Federal reserve banks.
Governor McCord: P r o b a b l y I am one o f the guilty
parties i n the transaction. I
pought a lot o f foreign
bills a n d a g r e e d t o f u r n i s h c u r r e n c y i n Allanta
o n con-
dition that t h e y deposit g o l d i n the Federal reserve b a n k
of New York. I
thought I was doing a favor and pulling
B25
gold into the Federal Reserve System, a n d I certainly
would not lile t o have t o pay two days' interest o n that
kind o f a transaction.
Governor Fancher:
I
n t h e matter o f transfer
w e have,
I think, i n every case stuck rigidly t o the action
taken b y the Conference o f Governors.
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Federal Reserve Bank of St. Louis
W e are making mail
transfers e v e r y d a y from N e w York a n d Boston without charge,
and when w e place funds b y wire there i s a two days'
interest charge.
T h e r e was deposited b y two different
banks i n New York with one o f our member banks ‘600,000,
"300,000 w e advised them b y wire and $300,000 w e advised
them b y mail.
T h e y were deposited a t the same time.
W e
knew f r o m o u r member banks that those deposits w e r e t o b e
made. H o w e v e r ,
w e made a n entry f o r the first 3300,000
and w e w e r e a d v i s e d bywire~---
I s i t not true that you made 300,000
The Chairman:
available f o r one bank the d e y before y o u made i t available f o r t h e other,
a n d they should p a y for t h a t availabil-—
ity.
Gevernor Fancher:
T h a t i s just exactly what w e did.
I think that i t was the intent o f the member banis to have
it all evailable, a n d whether t h e y gave instructions t o
the second bank I
do not know, b u t I think i t was t h e i n -
tent that the whole $600,000 should b e available that day.
The Chairman: I
can see that i f w e are going t o carry
on such transactions without a n y charge, w h e n w e have
an Anglo-French l o a n i t will r u n into a very large volume,
324
and that t h e banks will abuse t h e privilege unless there
is some check upon it.
Mr. Hendricks:
A s I recall t h e discussion that o c -
curred when this action was taken b y the Governors,
i t was
stated that t h e charge w a s placed upon the telegraphic
transfer t o prevent the bank i n San Francisco drawing a
check o n New York, kiting its checks, a n d 8 0 on,
O f course
at that time w e were talking o f Federal reserve banks f o r
immediate credit.
W h e n i t got t o New york, they would
buy a telegraphic transfer and make i t good,
Governor Seay: S u p p o s e y o u were called upon,
Boston, Governor Aiken,
we will say.
under?
t o make a
transfer t o New York,
W h a t disadvantage c a n i t possibly place y n u
Y o u r member bank,
balance.
in
w e will say, h a s e n excess
I t desires y o u t o place that excess balance toc
the credit o f the Federal reserve b a n k o f New York, a n d
you Will d o that b y mail and advise them, a n d there
is n o charge,
B u t i f they want a little quicker advice
than that you will charge them for the whole thing.
The Chairman:
T h e y g e t t h e advantage o f one d a y f o r
the use o f the money, a s against a constructive shipment
that w e m a y have t o make---
Governor Seay:
I f that i s a service that w e can
perform f o r our member banks, w h y should w e not d o it?
I was chairman s e s c n i a w e s w h i c h framed that resolution
on transfers, a n d I have i t before me,
randum t h a t w a s made,
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Federal Reserve Bank of St. Louis
I
T h i s i s a memo-
t w a s t o present a
member b a n k r e ~
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Federal Reserve Bank of St. Louis
B25
ceiving undue advantage through drawing against a
balance
on which i t is receiving interest and then covering such
draft w i t h a
telegraphic t r a n s f e r .
( T h a t i s quite a
dif-
ferent matter.
Mr, Hendricks:
Mr. Delano: I
H o w a r e y o u going t o distinguish i t ?
would l i k e t o a s k a
question s o a s t o
clear u p m y o w n understanding o f the telegraphic transfer.
I understamd t h a t i f I , a n individual;
i n Washington,
want t o pay a bill i n New York o r credte credit i n New
York I would have t o g o into m y bank i n Washington a n d
esk them to telegraph funds t o New York, T h a t would be
a telegraphic transfer f o r which I would pay.
other hand, I
i o e
o e
had a credit i n New York myself a n d should
wire m y bank i n Washington t o deposit s o many thousand
dollars a t a certain point t o pay m y bill, I
would n o t
say that w a s a telegraphic transfer; t h a t would b e simplg
a transfer o f a credit t h a t I
had i n that place,
In the cases that y o u are criticising a s being tanta-—
mount t o a telegraphic transfer, t h e y are really n a t
making a telegraphic transfer; t h e y are simply transferring
a credit w h i c h t h e y had,
T h e Chicago b a n k apparently
wired someone h e r e i n Boston with whom they h a d a credit
to transfer a
certain amount f o r t h e credit a f the Chica g o
reserve b a n k .
Governor McDougal:
T h e t i s right, excepting t h a t
you d o n o t g o q u i t e a s f a r o n y o u r t r a n s a c t i o n 4 s w e d i d
with ours.
T h e r e w a s a step beyond i n which w e were
326
obliged t o immediately p a y those funds i n Chicago t o the
Chicago bank,
Mr. Delano: I
understood Mr. McKay t o s a y that i s
where t h e y misunderstood t h e transaction.
what was intended,
T h e a t w a s not
A l l the Chicago b a n k intended was
that t h e funds b e deposited i n thé Boston Federal Reserve
Wank to the credit of the Chicago bank.
Mr. MeKay:
N o ; w e thought the intention was that
the Boston Bank.would make t h e transfer f r o m Boston t o
Chicago o f those funds.
ao, that,
T h e Boston member bank would n o t
T h e y d i d not want t o pay the cost o f making
the transfer,
T h e facts a r e that the bank i n Chicago
asked us t o deposit the funds i n the Boston Bank for our
credit a n d w e supposed t h e Boston Bank h a d arranged t o
make this transfer t o Chicago.
T h e y drew t h e money o u t
of C h i c a g o t h e s a m e d a y t h a t t h e m o n e y w a s d e p o s i t e d
in
Boston.
The Chairman:
banks h a d a
I s i t not t h e fact that o n e o f your
lot o f Philadelphia exchange t h a t t h e y could
not g e t r i d of, a n d they wanted y o u t o convert i t into
Chicago exchange?
Mr. McKay:
Yes.
Go ernor Seay:
S o that i n this case a n y charge b e ~
longs against the Chicago bank and not against the Boston
bank.
The Chairman:
T h e Chicago b a n k Should collect t h a t
money f r o m t h e i r c o r r e s p o n d e n t b a n k ,
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Federal Reserve Bank of St. Louis
S27
Governor Wold:
T h a t i s the point I
wanted t o raise.
The Pirst Notional B a n k o f Boston wants t o transfer a
mil«
licen dollars t o the credit o f the Federal Reserve B a n k o f
Chicago.
W h y ought n o t they t o pay t h e cost o f transfer
by wire?
The Chairman:
W h o ?
Governor Wold: T h e First National Bank of Boston,
The Chairman:
I
f the First Netional B a n k sets insruc-
tions from the First National Bank o f Chicago t o transfer
to their immediate credit b y wire a million dollars,
we
should consider that sufficient authority to do it, and,
being done for t h e benefit o f the Pirst National B a n k o f
Chicago,
w e should think t h e First National B a n k o f Chi-
¢ago Should bear t h e expense o f converting Boston exchange,
which apparently i s a drug, because w e cannot use =
ie
Chicago exchange, which they can use.
(Informal discussion followed which t h e stenographer w a e directed not t o report.)
The Chairman:
T h e particubar incidents,
i t seems
to me, are immaterial; but I think w e should establish 2
definite practice i n this matter,
I f telegraphic trans-
fers a r e going t o b e made f o r nothing a s b e t w e e t h e Federal R e g e x .
Banks,
w e c a n d o i t f o r t h e convenience
of a
good many o f our member banks i n western Connecticut,
and they would enjoy it.
B u t w e have stuck t o the rule
that was adopted a n d have declined t o make those transfers
without charge.
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Federal Reserve Bank of St. Louis
Governor Wold:
T h e r e i s n o criticism o n our part o f
028
that plan,
I f a member bank wishes u s t o make a
we Should charge them.
transfer
B u t m y thought i s that y o u
Should charge y o u r member bank-~Governor Seay: B u t , hir. Wold, suppose t h e member
bank i n Boston was requested t o d o that.
T h e y d i d not
originate that, U n d o u b t e d l y there i s a n opportunity there,
theoretically,
to make a
o r ectually, f o r the Teceral reserve b a n k
charge if. it cares to’ d o so,
a service f o r a member bank,
I t i s performing
I t c a n charge a
i t cannot.
Shall w e perform that service free, g i v e i t t o the mem~
ber bank or not? t e t us take the ¢ase again.
T h e Riche
mond b a n k requests t h e N a t i o n é l C i t y B a n k t a deposit aba
the R e s e r v e B a n k o f N e w Y o r k somethiyg
t o the credit o f
the Federal reserve bank o f Richmond f o r t h e use o f the
First National Bank.
I f the National C i t y Bank will
wire t h e F e d e r a l R e s e r v e B a n k o f R i c h m o n d t h a t t h e y h a v e
madé that deposit,
w e want nothing else;
b u t i f the Feder~
al Reserve Bank o f New York wires u s i t has received
that d e p o s i t
o r charges t h e F i r s t N a t i o n a l B a n k o f R i c h m o n d
for making the transfer, that i s ridiculous.
The Chairman: I
think t h e point i s well taken.
The N e w York Federal Reserve B a n k has charged t h e City Bank
with t h e transfer,
Governor Seay:
Y e s ; and the City Benk i s making the
deposit a t the request ad somebody.
(Informal discussion f o l l a @d
e which t h e stenographer w e s directed not t a report.)
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Federal Reserve Bank of St. Louis
329
Governor Seay: I
a deposit
in a
move that whena member bank makes
Federal r e s e r v e b a n k f o r t h e c r e d i t o f
another Federal reserve bank, i t b e not construed a s a
transfer @
funds, a n d that n o charge b e made therefor.
Mr. Hardt:
deposit;
G o v e r n o r Aiken,
i n this case there i s n o
i t i s simply charged t o their acwunt,
There
is n o deposit o f funds.
The Chairman:
W i l l you repeat that resolution.
Governor Seay:
T h a t when a member bank makes a de-
posit i n a Federal reserve b a n k f o r the credit o f another
Federal reserve bank i t be not construed e s a transfer
of funds, a n d that n o charge b e made therefor.
Governor Kains: I
Governor Wold: I
vote o n that,
second the motion .
do not k n o w that I
a m prepared t o
I t might put the banks a t a great disad-~
vantage,
V e a r e entitled t o a charge f a transfers
by wire.
I t 1 8 too broad,
Governor McDougal:
banks
i n Chicago a
that s i n c e I
I t woukk g i v e t h e large c i t y
great advantage, a n y h o w . I
believe
have h e a r d f r o m G o v e r n o r A i k e n o n t h i s t r a n s -
action i t i s c l e a r l y a
transfer @
funds,
a n d sanebdy cught
to p a y f o r it.
The Chairman: I
a m very clear i n m y o w n mind about
“that.
(Further informal discussion t o o k place which the
stenographer was directed ndt t o report.)
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Federal Reserve Bank of St. Louis
Governor McCord: I
call f o r t h e question. I
thi n k
we h a v e d i s c u s s e d
i t l o n g enough.
(The question was put and declared lost.)
(Further informal discussion followed, )
The Chairman:
W e d o not seem t o have made m u c h pro-
egress with topic (t).
I f there i s n o further discussion
we will pass it. |
The next topic i s (aa).
(aa) C h a r g e s t o b e collected b y member banks
from their patrons, a n d c h a r g e s t o b e
imposed f o r c l e a n n g o r c o l l e c t i n g
by
Federal Reserve Banks,
Governor Kains: I
put that o n the program because
of the action o f the Fresno clearing house, w h i c h notified
its members that o n and after a certain date i n August
they w o u l d c h a r g e t h e i r c u s t o m e r s ' a c c o u n t s f i v e c e n t s a
hundred i f bearing endorsements inside o f the district
No. 12, and 10 cents a hundred i f outside. I
do not
know whether they are justified i n doing that or not. I
thought p e r h a p s w e m i g h t r e m o m m e n d
t o the Board t o take
some definite action i n that matter. I
would like t o
have i t discussed, t h a t i s all.
The Chairman:
T h e question b e i n g whether t h e y w e r e
within their rights i n establishing that charge?
Governor Kains:
The Chairman:
Yes,
T h e Federal Reserve Board h a s the
power t o establish s u c h Charges, h a s i t not?
Governor Harding:
W e seem t o have power t o fix, b y
rule, t h e c h a r g e s t h a t m a y b e i m p o s e d b y b a n k s u p e n custom-—
ers whose checks a r e cleared a n d collected through t h e
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Federal Reserve Bank of St. Louis
3351
Federal reserve banks.
so far.
W
e have fixed n o maximum charge
T h e r e a r e t w o theories a s t o what that section
means, " I t s patrons whose checks are cleared through
Federal reserve banks",
T h a t "its" clearly i s a mistake.
Probably i t should b e left out o r is should be "their"
patrons,
T h e n the question i s what i s meant b y "whose
checks",
W h a t i s meant b y "whose"?
I s i t the theory
that Mr, McKay advanced two years ago that where the cus-
tomer of a membér bank wrote a check o n the member bank
and that checkreaches a
member bank for payment through
a Federal r e s e r v e bank-~-~ a n d t h e r e i s a
reversed p r o c e s s
in there~~~ that t h e member bank i s deprived o f a n y
exchange t h a t i t h a s b e e n i n t h e h a b i t o f g e t t i n g
check from some other bank?
on a
I s i t that the member bank
might g o ahead t h e n under o n e construction a n d make a
charge against the drawer o f that check, saying, “You have
drawn a check o n us payable t o our account a n d w e have t o
cover that i n San Francisco funds, o r Chicago funds, a s
the case might be, a n d w e are charging y o u accordingly.
Another construction i s that tho word "whose" has another
Significance,
Y o u might have a
with a member bank,
T
h
jobber doing business
e jobber deposits 5 0 o r 7 5
checks, d r a w n b y various p e o p l e
o n various b a n k s ,
a n d the
member bank would say, "Well, these checks foot u p (31500;
they a r e payable a t about 4 0 different places, a n d w e
think w e ought t o have $15 exchange before putting those
checks
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Federal Reserve Bank of St. Louis
t o y o u r credit.
W
e a r e g o i n g t o collect t h e s e
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Federal Reserve Bank of St. Louis
332
through the Federal reserve bank."
T h e Board might
Say that a n y member bank shall have t h e right t o charge
customers d e p o s i t i n g c h e c k s w i t h i t , p r o v i d i n g t h e m e m b e r
bank is going to collect those checks through the Federal
reserve bank, s a y a mximum charge o f 5 0 cents a thousand.
That is the other way of looking atit.
Governor Seay:
ma.
Y e s ; there a r e t w o horns t o the dilem-
T h e Board i s not going t o d o anything j u s t now?
Governor Harding: I
think the first thing t o do is
to g e t c l e a r a s t o w h a t t h a t s t a t e m e n t m e a n s a n d w h o s e
checks i t refers to.
Governor Miller:
I s that made clear i n the amend-
ments which t h e Board hes before Congress now?
Governor Harding: I
do not know. I
fave Mr. Glass
a draft o f that about t w o weeks ago, making i t clear.
H e
said i t was satisfactory t o him, but I do not know how
it i s going t o come o u t o f the conference committee.
Governor Seay:
W h i c h w a y d i d y o u make it, Mr.
Harding?
Governor Harding:
T h a t the Board should h a w t h e
right t o fix, b y rule, t h e maximum charge t h a t might b e
imposed b y member b a n k s u p o n t h e i r patrons w h o a r e d e p o s i t ing m i s c e l l a n e o u s c h e c k s w i t h a
E S w h i c h checks t h e y
were going t o clear through the Federal reserve bank. I
did that believing that the other charge was a n impracticable one.
Me. McKay.
I
t i s m u c h easier t o charge t h e
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Federal Reserve Bank of St. Louis
depositor t h a n i t i s the drawer,
The Chairman:
G o v e r n o r Kairs,
i s that satisfactor-
ily disposed o f ?
Governor Harding:
W e have hopes t h a t t h e amendment
Will b e passed this week a n d w e will know just exectly
what Congress h a s done about it.
The Chairman!
T h e next tepic.is (ob).
(ob) C o m p e n s a t i o n t o member banks f o r col-=
lecting items o n non-member banks.
Governor Kains:
W h e r e i t i s necessary o r expedient
to collect items o n non-member banks through member banks
in the same location,
i t seems equitable t o offer t o mem-
ber banks reasonable canpensation f o r such service.
With
the full development o f t h e clearing a n d collection system
this would result in, say, nine tenths c d checks o n nonmember b a n k s b e i n g c o l l e c t e d t h r o u g h t h e i r c o m p e t i n g m e m -
ber banks; i t would b e agreeable t o the member banks i n
that i t would afford some profit, a n d i n many cases would
operate i n a strong leverage t o bring eligible state banks
into t h e system.
I n other situations t h i s arrangement
would enable u s t o collect through member banks items o n
state b a n k s
i n contiguous t o w n s w h i c h w e a r e a t p r e s e n t
unable t o collect without cost,
If w e could induce t h e First National B a n k o f San Jose
to collect a l l the rest o f the checks i n San Jose a n d give
them a
little s o m e t h i n g f o r it, t h e o t h e r banks w o u l d say,
"Oh, no, send your checks direct t o us and we will pay
them at par."
T h a t is what 1 want t o get at.
334
Governor McCord:
M a y I ask y o u a question, Governcr
Kains.
The Chairman:
G o v e r n o r McCord.
Governor M c C o r d :
T a k e a
c i t y l i k e NewOrlcans, where
you have the Hibernia Banking & Trust Company and the
Hibernia National Bank,
out there.
H o w d o y o u think i t would w o r k
Y o u know t h e relation o f those banks?
Governor Kains:
Yes, I
Gd¥dthor M e C o r d :
I
do.
t would b e a
very d a n g e r o u s p r o -
position down there.
Gor ernor Kains:
O
f course t h e y a r e under t h e same
ownership, but that i s not the way i t i s done i n our
cistrict,
T h e r e a r e a few state banks t h a t are independent.
I want t o lick these state banks into Shape, a n d that i s
the w a y t o d o it,
Governor McCord: I
a m opposed t o allowing anybody
any e x c h a n g e u n d e r a n y circumstances.
Ga ernor Seay: T h e r e are sewidently two opinions
among o u r m e m b e r banks, A
great m a n y o f t h e m w i s h u s t o
collect without expense checks o n non-member banks, a n d
on the other hand a great many o f them wishus t o charge
for c o l l e c t i n g o n state b a n k items, w h i c h w i l l s i v e t h e
depositors, t h e member banks, t h e advantage,
W e have
encountered that, and I speak from experience,
Governor Kains:
try.
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Federal Reserve Bank of St. Louis
B u t t h e object i s t o par this coun-
T h i s i s the w a y t o d o it.
Governor Seay:
I n order t o do that, havever, w e
355
would have t o take t h e back track o n a great deal that w e
have d o n e u p t o the present,
i n fact o n everything that w e
have done w i t h respect t o non-member b a n k checks u p toa
the p r e s e n t t i m e ,
The Chairman:
I
s there a n y further discussion
of
this topic (bb)?
Gevernor Kains: I
ad V i g .
vould like t o know i f i t w o u l d b
k
2 O a 0 ie; I
would. like t o d o it, b u t I
d o not
want toa d o anything that i s not proper.
The Chairman: I
would lilk® a n expression f r o m some
of the Governors h e r e a s t o the desirability o f beginning
the payment o f such a charge.
Gavernor Kains:
I
t w o u l d n o t b e v e r y much, b u t i t
would b e just enough.
The Chairman:
I t t s a matter o f principle, n o t a
metter o f amount, Governor Kains.
Governor Kains: I
Mr. Delano:
realize that, Mr. Chairman.
I n order t o get a concrete considera-
tion o f it, s u p p o s e y o u c o u l d c o l l e c t t h e s e
S a n Jose
items b y appeinting a n agent i n San Jose t o whom y o u send
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Federal Reserve Bank of St. Louis
the checks, a n d who would g o around a n d collect t h e m a t
their caunters.
S u p p o s e t h e cost a f running t h e agency
there would b e a hundred o r two hundred dollars a
month.
Suppose t h a t instead o f doing that y o u went t o the principal
bark there and said, “Well, now, I am perfectly willing
to give y o u whet i t will cast y o u t o collect these items
am
l e t y o u m a k e t h a t money;
y o u have t h e machinery h e r e
336
can see the advantage of doing that.
for doing it.” I
i s that i f y o u d a e e t W i t h t h e
The r e a l d i s a d v a n t a g e
First National o f San Jose y o u cannot very well refuse t o
do i t for every other national b a n k i n the district
which will agree t o colle¢t non-member bank items.
Governor Seay: G o v e r n o r Kains w a s n o t a t our last
n
a h e perhaps d o e s n & a p p r e c i a t e
Conference o f G o v e r n o r s d
the tpavasl w e h a d over that measure among others.
was decided,
I t
a s one o f the principles, that Federal reserve
banks should pay no exchange for the collection of items.
Mr. Delano:
B u t I do n o t think y o u could call that
exchange.
I t i s compensation, n o t exchange.
Governor Kains:
Governor D e l a n o :
t amounts
I
the fellow that does t h e work.
t o compensation f o r
Y o u are not paying i t
to the bank that i s remitting t h e funds.
Governor Seay:
H o v e v e r y o u might t e r m it, t h e
bank that deposited t h e items would feel that i t was paying e x c h a n g e f o r c o l l e c t i n g them.
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Federal Reserve Bank of St. Louis
Mr. Delano:
O f course i t would b e a tremendous
lever o n the state banks.
Governor Wola: I
am not s o sure i t would b e such
good leverage.
(Informal discussion followed. )
The Chairman:
progress,
G o v e r n o r Kains,
W i l l y o u offer a
Governor Kains: I
i n the interest
of
resolution?
move that where i t i s necessary
or expedient t o collect items o n non-member banks i n the
337
same Locality with a member” bank that i t i s the sense-of
this body that Federal reserve banks b e accorded discretion t o deal with that i n a way o f offering member banks
some compensation f o r collecting items o n non-member b a n ks.
The Chairman:
Is there a
Y o u have heard t h e motion, gentlemen.
second?
Governor Seay:
F o r the sake a f getting i t to a vote
I will second it, #lthough I do not expect to vote for
it, f o r t h e f o l l o w i n g r e a s o n s , a m o n g o t h e r s .
I
t would
involved a turn-about with regard to what we have just
done, a n d that, coming s o quickly u p o n the establishment
of the system, would create a
misunderstanding a n d produce
some demoralization among o u r banks,
Governor Delano:
W h y not let Governor Kair d o this
in his o w n district i n a few localities.
H e need not g e t
out a n y circular about it, b u t m a y simply make private
arrangements a n d not make i t a precedent;
h e need n @ s a y
that because h e did i t i n one case h e intends t o adapt i t
as & polucy; b u t Simply t o try i t out.
Governor Kains:
A l l I want i s the permission.
Governor Delano:
I t seems t o m e that i f i t i s going
to cost him $200 o r $300a month t o collect items i n cebtain
places, I
cannot s e e h o w i t makes m u c h difference h o w
hespends that $200 a month,
I f he thinks h e can get it
-done more efficiently a n d effectively i n one way, w h y
not T e t H i m t r y L t owt.
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Federal Reserve Bank of St. Louis
(Informal discussion followed, )
The Chairman: I
will p u t t h e motion.
(The motion}; having been duly seconded, w a s
lost, }
Gov. Harding:
M a y I be permitted t o explode a little
beomshell right here i n that connection, i n the way o f a
possible amendment that may b e added t o the Act. I
know
it has been discussed b y some members o f the Banking a n d
Currency Committee o f both houses. I
do not know whether
it is now i n the pending amendments, o r whether i t will
be deferred until next winter,
o r whether i t will b e
brought o u t then o r not; b u t i t has been discussed, n o t
so much b y the Board, but i n the committees,
section like this:
v eeigen e e
" a n y non-member bank may, for exchange
and collection purposes, b e permitted, subject t o regulations t o b e prescribed b y the Federal reserve Board, t o
maintain a n account with the Federal reserve bank for the
district i n which i t i s located, a n d m a y deposit t o the
credit o f i t s a c c o u n t
i n t h e Federal reserve b a n k lawful
money, Feceral reserve notes a n d checks o n other Federal
reserve banks", the idea being that these non-member
banks will n o t b e extended a n y rediscount privileges o r
voting privileges, b u t that they may, Subject t o regula~
tions prescribed b y the Federal reserve board, which regulations would s e t forth t h e amount o f balance t h a t should
be required,
b e a l l o w e d t o m a i n t a i n t h a t balance,
a n d fur-
thermore t h a t they will permit t h e Federal reserve banls
to charge their acaomnts w i t h checks o n themselves a t par
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Federal Reserve Bank of St. Louis
359
without a n y cost.
T h a t t h e y shall have t h e privilege
of carrying a n account w i t h the Federal reserve bank a n d
shall b e permitted t o send t o the Pederal reserve b a n k
direct n o t only lawful money a n d Federal reserve notes,
but a l s o c h e c k s t h a t t h e y m a y h a v e o n o t h e r banks,
is thought a
I t
number o f state banks w o u l d d o that because,
in most cases, t h e state banking departments w o u l d rule
that this money with t h e Federal reserve banks w o u l d count
as a part o f the state bank's lawful reserves,
n e the
state bank, finding that t h e tendency i s that they, i n
getting t h e benefit o f the collection system through t h e
medium o f the member banks, w o u l d show t h e competing
member banks what i t s business was, t h a t t h e y would prefer
to deal directly w i t h the Federal reserwe banks.
That
is something that h a s b e e n considered, a n d i t may b e quite
seriously c o n s i d e r e d n e x t winter.
I
t m a y b e well
for the Governors t o think that over a n d l e t the Board k naw
what y o u think about it.
Mr, McCord:
W
e had a
proposition f r o m o n e o f o u r
largest state banks that i f we would permit them t o carry
a balance w i t h us~-- although I
told them w e could not
legally d o it--~ they would n o t only d o all their transit
business t h r o u g h u s , b u t t h e y w o u l d t r y t o b r i n g i n t o
the system quite a few of their small correspondents.
Governor Wold:
B r i n g into t h e system?
Governor McCord:
Governor Wold:
I n t o t h e collection system.
B u t they g e t all the benefits n o w
without p u t t i n g u p a n y money.
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Federal Reserve Bank of St. Louis
(Informal discussion followed, )
The Chairman:
T h e next topic i s (cc).
(co } S e r v i c e charge f o r items forwarded direct b y
member banks f o r Federal reserve banks.
Governor Miller:
M r . Chairman, t h a t came u p owing
to the fact that a t the Transit Managers' Meeting i n
Chicago i t was understood that items sent b y member banks
to Federal Reserve Banks outside o f the district were t o
come under the service charge.
W e have h a d considerable
correspondence w i t h t h e banks i n St. Louis a n d Chicago
with reference to a multitude of checks which St. Louis
and Chicago local banks are sending t o the Federal reserve
bank i n Kansas City and placing them t o the credit o f
their respective Federal reserve banks.
W e find that
neither St. Louis nor C h i c a g o local banks have a service
T
t 1 5 quite e
volume o f o u r b u s i -
charge
o n s u c h checks.
ness.
W e think there ought t o be a Service charge when
we receive checks direct from the St- Louis and Chicago
banks.
Goyernor McDougal:
mind, I
T h e checks that y o u have i n
believe, w e r e Kansas C i t y checksonly?
Goernor Miller:
Yes.
Gor ernor weDougal:
Governor McCord:
N o out o f town checks, o f course.
W e have always p u t those o n the
free list.
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Federal Reserve Bank of St. Louis
The Chairman:
T h e r e i s n o service charge o n those
checks because o f the established principle that a
341
Federal Reserve B a n k would not charge o n items o n its
I s not that t h e case,
own city, 2 s I understand it.
Governor Miller?
T h e s e a r e a l l checks o n banks i n Kan-
sas City, a r e they not?
Governor Miller:
Yes.
T h a t i s where w e get them
direct f r o m o t h e r F e d e r a l r e s e r v e b a n k s , b u t t h e s e c h e c k s
come t o u s from the member banks.
I t makes n o Gfference
The Chairman:
i n the hand-
ling operations,
Governor Miller: I
suppose not,
T h e theory upon which that decision
The Chairman:
was r e a c h e d w a s t h a t i t was a
matter o f i n t e r b a n k comity,
that there should b e n o charge f o r that.
Goernor Miller:
W
e a r e n o t v e r y anzious a b o u t t h e
charge, b u t w e want t o conform t o the transit managers!
regulations, a n d that i s what i t says.
(Informal discussion followed, during which
discussion Mr. Hendricks r e a d from t h e stenographer minutes
of the Transit Managers’ Conference i n Chicago.)
The Chairman:
W h e a t d o y o u want, G o v e r n o r M i l l e r ?
Governor Miller: N o t h i n g . (Laughter)
The Chairman:
T h e n w e will pass topic (cc).
The next topic i s (dd).
(dd ) Uniformity i n billing service charges
between Federal reserve banks.
Mr. Treman:
T h a t topic i s suggested simply f o r
the purpose o f having uniformity; t h a t is, that each Feder‘al r e s e r v e
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Federal Reserve Bank of St. Louis
b a n k should render
o n o r before
t h e 5 t h o r 10th
542
of each month i t s s° vice charge, t h e same a s t o the member banks.
I f i t i s done i n the middle o f the month o r
some other time i t complicates matters, a n d I think i t
would b e better t o have a definite date.
W i l l y o u make a
The Chairman:
motion embodying y o u r
ideas o n that s o a s t o bring i t before t h e meeting?
Governor McDougal:
M r . Chairman, I
have a
recommenda-
tion here made b y one o f our officers, Mr. Cramer, bearing
on thet i n which h e says:
“ I T recomment t h a t bills
pe rendered from the 26th o f one month t o the 25th,
inclusive,
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Federal Reserve Bank of St. Louis
o f the next, a n d that t h e y b e mailed s o a s t o
reach the other Tederal reserve banks o n o r before t h e
jast d a y o f the current month.
T h i s would enable t h e
banks t o get this cost f o r the full month i n the current
month's expenses.
will a s k Mr. Treman t o make a
The Chairman: I
motion embodying his ideas, s o as t o bring i t before the
conference
f o r action.
move that o n o r before t h e fifth
Mr. Treman: I
day o f e a c h m o n t h a
service c h a r g e b e r e n d e r e d t o e a c h
Federal reserve bank f o r services rendered i n the preceeding month.
(Informal discussion followed e s t o the date.)
(Mr, Treman's motion, after discussion was
as follows: )
ue. Peeman:.
of e a c h m o n t h a
T t move thet-on or before the 10th day
service c h a r g e b e r e n d e r e d t o e a c h F e d e r a l
343
reserve b a n k f o r services rendered i n the preceding month.
Governor McCord: I
will secénd that,
Governor McDougal: I
ment t o that b y including a
would like t o offer a n amendprovision under which t h e
banks a r e t o render bills i n a uniform manner s o that t h e y
canbe reconciléd b y the banks receiving them,
Governor McCord:
H a v e y o u a form t o sugg st?
Governor McDougal: I
have a
form which i s o f course
subject t o criticism, |
(The f o r m s r e f e r r e d
t o where t h e r e u p o n h a n d e d
to the Governors. }
Governor Wold: I
have a little matter that I wanted
to bring up, a n d I think this i s about t h e o n l y place I
can interject it.
S o m e o f the benks a r e including i n
their remittances t o us charge slips for currency shipmentse
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Federal Reserve Bank of St. Louis
I t seems t o m e that inasmuch a s there a r e
going t o b e regular bills rendered a t the e n d o f each month
for collection charges t h a t these bills might include
these expense charges o n currency.
W h e n t h e bill i s sert
through with t h e remittance letter i t i s unbusiness like.
Governor Fancher:
D o y o u mean f o r Federal r e s e r v e
notes returned ?
Governor Wold:
Y e s ,
T h e y p u t i n a debit s l i p
and include i t i n remittance letters,
I t seems t o m e
that a l l bills o f this k i n d should b e rendered o n the 1 0 t h
of each month.
The Chairman:
to t h e m o t i o n ?
W o u l d y o u offer that a s a n amendment
344
Governor Wold: I
would amend i t s o a s t o provide
that a n y charge f o r insurance, postage, Shipment o f Federal
reserve notes, a n d s o forth, b e included i n the bills rendered f o r exchange a t whatever timé i n the month i t i s deomed
best,
(Informal discussion followed, )
Mr. Treman:
W h y n o t make a blanket resolution that
any and all charges against t h e other Federal reserve banks
should be rendered by the 10th or on the 10th of the
month?
Mr. Wold: I
w o u l d b e s a t i s f i e d w i t h that,
Mr. Curtis:
T h a t would not include charges f o r mak-
ing investments, a n d things o f that sort?
Governor Wold:
Mr. Treman:
O h , no.
S e r v i c e charges,
(The motion, being duly seconded, was carried.)
The Chairman:
appoint a
committee
W o u l d i t not perhapsbe advisable t o
t o devise s o m e u n i f o r m f o r m o f b i l l ?
Governor Wold: I
will offer s u c h a resolution,
The Chairman: G o v e r n o r Wold moves that the Chair
appoint a committee o f two transit men of the Tederal
reserve banks t o draft w c h a
Governor Fancher: I
The Chairman:
uniform form.
will second that motion,
I s there any further discussion?
(There was n o further discussion and the motion,
having been duly seconded, wan carried.)
The Chairman:
T h e Chair will appoint Mr. Hendricks
and M r , H a r d t o n t h a t committee.
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Federal Reserve Bank of St. Louis
The next topic i s (ee)
(ee) Service charge o n Government checks de-+
posited with Federal Reserve Banks.
a
Governor Rhoads: I
raised that point because a
check coming to us on the Treasury of the United States,
payable a t Washington, D . C., technically i s just the same
as a n item payable o n a member bank, s o far a s t h e amount
of work i s concerned. I
would like t o know whether w e
are entitled t o make a charge o n a check o f that kind f o r
collecting i t from t h e depositing bank. S e v e r a l o f our
member banks a r e willing t o pay a service charge o n those
checks,
Mr. Hoxon: I
think t h e Government would make
trouble i f you tried t o d o that.
The Chairman:
of Governor Rhoads?
I
s there a n y comment
( A f t e r a pause)
o n this i n q u i r y
W i l l you offer
& resolution t o bring t h e matter i n definite f o r m before
the conference?
Governor Rhoads: I
will m o v e t h a t w e a r e e n t i t l e d
to a service charge o n such checks deposited b y member
banks.
The Chairman:
D o y o u not wish t o make that a lit-
-tle broader t h a n that,
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Federal Reserve Bank of St. Louis
Governor Rhoads: I
move that w e make a
service
charge o n Government checks deposited with u s b y member
banks...
The Chairman:
M r . Delano Suggests t h a t i t would b e
impracticable t o collect a n y such charge, a n d consequently
546
unless y o u insist u p o n it, w e will consider i t settled.
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Federal Reserve Bank of St. Louis
T h e r e i s n o second t o the motion
Governor Rhoads:
and I will withdraw it.
Governor McCord: I
d o not want t o prolong t h e dis-
have c o m e t o the Conference I
cussion, b u t since I
have
considered t h e matter o f railroad vouchers, w h i c h a r e
stamped and payable a t dertain banls.
treated a s c h e c k s
o n a bank.
A r e they t o be
F o r instance a
rei lroad
voucher i s stamped o n its face, "Payable a t the Lowry Na-
tional Bank", w e will say, a t Atlanta, Georgia.
Will
that be considered as a check end handled b y the Federal
Reserve Bank?
Governor Seay:
W i l l t h e Lowry National B a n k p a y it?
Governor McCord:
Yes.
Governor Fancher:
Governor McCord:
Governor S e a y :
T h r o u g h t h e clearing house?
Yes.
W
e have s o m e s u c h vouchers t h a t h a v e
come t o us through the banks, a n d notwithstanding that
e t
phraseokogy o n the checks t h e banks will not pay
require that i t be presented a t the railroad office,
shall
and t h e r a i l r o a d o f f i c e a l s o r e q u i r e s t h a t t r e b a n k
present it.
Mr. Hoxon:
W e collectthem frequently i n Louisville
and St. Louis a n d i n the little towns i n Arkansas.
T h e
panks never decline t o pay them.
The Chairman:
W h y r a i s e t h e question,
Cord, i f y o u are able t o collect them?
G a ernor M c -
347
Governor McCord: I
can d o i t i n Atlanta, b u t when
we get them payable i n Richmond I
cannot d o it.
(Informal discussion followed. )
Governor S
roads '
eay:
view o f it.
I n one case I
can explain t h e rail~
T n e railroad h a s stamped o n the
voucher, "Payable through such and such a bank’, but i t
does n o t authorize t h a t b a n k t o charge i t t o its account,
and t h e definition o f the phrase u s e d b y the railr@d::
this:
is
T h a t i t desires t h e check t o b e sent t o the bank
upon w h i c h d r a w n
f w collection;
b u t i t does n d @ n e c e s ~
sarily have t h e funds there t o pay i t a n d i t does not
authorize t h e bank t o pay it.
T h a t i s a misleading
porase,
The Chairman:
H a v e y o u anyresolution
t e offer,
Mr. McCord?
Governor McCord:
N o . I
it u p as I thought o f it. I
Mr, McKay: I
gust thought Itwould bring
have nothing t o offer.
would like t o say that i n Chicago w e
have p e r h a p s t h i r t y o r f o r t y r a i l r o a d s a n d e x p r e s s c o m -
panies, a n d some mercantile firms, whose vouchers cloar
through t h e Chicago clearing house a n d are p a i d b y the mem- bers o f the Chicago clearing house. I
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Federal Reserve Bank of St. Louis
would see n o ob-
jection t o h a n d l i n g t h o s e i t e m s a s l o n g a s t h e y c a n c o l -
lect t h e m i n that manner,
The Chairman:
Y o u would handle t h e m where y o u could
and would not handle t h e m where y o u could not.
that e b o u t t h e s i z e o f i107?
I s not
Mr. MeHay :
Yes,
(Informal discussion followed. )
The Chairman:
M r . Hendricks, there i s a matter that
you wish t o bring up, i s there not?
Mr, Hendricks:
W e have a slight difference o f opin-
ion with t h e Clearing house i n New York with regard t o
items drawn that a r e payable i n the BOston o r Philadelphiea Districts, w h i c h are. one-day points.
W
e advised
the clearing house t h a t w e would accept checks a n d other
cash items, a n d they claime-- a n d I guess i t i s the cus-
tom i n New York--~-~ that they accept all demand items a s
cash,
I t i s therefore necessary forus t o find out from
Boston, Philadelphia a n d Richmond whether t h e y will take
all cash items f r o m us.
Governor Seay:
D
o yvourefer
i o Grafts
o n individuals
payable o n demand?
Mr. Hendricks:
on presentation.
A n y d e m a n d i t e m w h i c h i s payable
T h e principal drafts o f that kind that
would arise i n New York wouldbe stock a n d bond crafts
and bills o f lading drefts which are payable o n sight a n d
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Federal Reserve Bank of St. Louis
demand. I
included. I
do not think t h e Boston sight drafts would b e
a m talking about demand items payable o n pre-
sentation.
The Chairman:
M r . Howe, will you answer that ques-
Mr. Howe: I
do not think w e would undertake t o han-
tion.
dle them.
B49
The Chairman:
Y o u would like t o know what t h e vol-
ume i s .
Mr. Howe:
W e g e t a lot o f express company paper a n d
that o f sheet banking houses, a n d we send them out and
collect t h e m ,
The c h a d o a n
Mr. Hardt: A
M r . Hardt?
draft o n a banking house i n Philadelhia
would cause n o difficulty a t all,’
< A draft with stock
attached m a y bepaid that d a y a n d m a y n o t b e paid that day.
It i s necessary t o determine whether t h e power o f attorney
is correct,
a n d o t h e r things,
day, a n d f r e q u e n t l y i s , I
a n d i t may b e held u p for a
d o not know about bills
ing - ~ originating inNew Y o r k o n Philadelphia,
o f lad-
i n any
volume,
The Chairman:
G o v e r n o r Seay?
Governor S e a y : I
suppose, Mr. Chairman, t h a t w e
are coming t o that after a while, b u t i t i s a departure
from the practice a t present a n d I feel that I would
like t o k n o w s o m e t h i n g o f t h e n a t u r e o f t h e b u s i r s s
fore h a n d l i n g i t .
W
e a r e disposed, h o w e v e r ,
be-
t o d o almost
anything G i v e k n S o k w e n t h a t c a n b e done,
Mr. Hendricks:
T h e i r contention i s that a bill o f
lading draft drawn o n John Smith i s just a s easy t o col~
lect a s a check o n the Cosmopolitan B a n k o f New York
that h a s t o b e presented b y hand,
Governor Seay:
GoVvVerMonReay S u p p o s e i t is a
no-protest draft given f o r immediate credit.
it t o u s o n one d a y a n d w e return it.
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Federal Reserve Bank of St. Louis
Y o u charge
W h e r a settlement
comes u p between u s w e m a y b e paying y o u f o r a great
deal o f stuff that i s being returned.
Mr. Hendficks:
Y o u d o wot pay o n what w e charge y o u u
(Informal discussion followed. )
Gevernor Seay: I
woulda like t o askMr. Hendricks i f
that would disturb t h e relation that exists between t h e
clearing houses o f the three cities y o u mentioned?
Mr. Hendricks:
N o , I f the o p i n i o n i s t h a t w e o u g h t
not t o d o i t w e c a n easily arrange that.
(Further informal discussion followed. )
Governor Fancher:
bring u p a matter,
M r . Chairman, I
would like t o
A t the meeting o f the Governors o n
yesterday, Mr. Kains, a s Chairman o f the committee t o
which w a s r e f e r r e d t h e q u e s t i o n s s u b m i t t e d
b y t h e Federal
Reserve Board touching o n foreign relations, submitted
his report,
and as I
remember
action was deferred. I
i t n o a c t i o n w a s taken,
or
think some action should b e
taken,
I would move that t h e report made b y Mr. Kains' c o m
mittee b e referred t o the Committee o n Foreign Relations
for such use a s they m a y deem proper.
The Chairman:
I s there a second to that motion?
Governor McCord: I
will second t h e motion,
(The motion was duly carried, )
The Chairman:
I s there a n y further busiress before
the Conference?
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Federal Reserve Bank of St. Louis
Governor Wold: T h e r e are some inconsistencies with
551
regard t o collection matters i n the various banks which
# would like t o call t o the attention o f three o r four
banks, f o r the benefit o f all.
Boston, Philadelphia, «tlanta a n d St. Louis have
placed S t . Paul o n four days deferred time, after repeated notice that i t should b e t h e same a s Minneapolis, w h i c h
is t w o days,
Governor McCord: I
Governor Wold:
have corrected that.
R i c h m o n d places b o t h Minneapolis
and St. Paul o n a four days basis w h e n i t should b e a
two d e y basis.
Governor S e a y :
D o you mean that t h e circular does
Gar ernor Wold:
p
oseeiee Seay:
e
D i d y o u take into account t h e fact
that t h e c i r c u l a r w a s i s s u e d l o n g b e f o r e y o u c a l l e d a t e
tention t o that fact.
Governor Wold:
B u t i t didn't take any lorger t o reach
before
Minneepolis f r o m Baltimore
t h a t circular w a s issued
than i t does now. ( L a u g h t e r )
San Francisco places Minneapolis a n d St. Paul o n a
nine d a y s d e f e r r e d t i m e ,
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Federal Reserve Bank of St. Louis
Governor Seay:
H o w do you know they do?
Governor Wold: I
Governor Kains: I
am teking the circular for it.
believe t h e circular w a s issued
before w e received advice, a n d y o u have since b e e n advised
to the contrary.
352
Governor Wold:
T h i s memorandum w a s handed t o m e
by the transit manager just before I
Governor Seay:
left home.
H e should b e s e t right o n the sub-
jent.
Mr. Hoxon:
S t . Louis has corrected that,
The Chairman:
B o s t o n has n o t corrected it, b u t I
Will s e e “that it: is: done.
Governor Wold:
K a n s a s C i t y apprrently gives facil~
ities d o w n there i n their district t o make other Federal
reserve banks carry t h e float b y reason o f deferring t h e
time beyond t h e period within which they c a n collect
these items,
I t seems t o m e i f one bank i s going t o un-
duly defer credit u p o n another bank t h a t - we . have g o t
to reciprocate,
(Informal discussion followed, )
Mr. Hardt:
T h e Philadelphia b a n k was mentioned a s
one o f t h o s e b a n k s .
W
e have
d e t e r m i r é d ot m a k e
n o revi-
Sion o f the transit schedule until after this Conference =
t h e hope that these things would b e cleared up,
in t h a t i f a n y m o r e b a n k s w e r e a d d e d t o t h e i m m e d i a t e
availability points we would not have t o be continually
making. revisions i n the schedule. I
d o not believe
we are r e a d y to make them yet.
Governor Wold:
S t . Paul was o n the immediate
availability l i s t f r o m t h e t i m e w e started.
The Chairman:
T h e point paised dout San Francisco
has b e e n raised often b y our bank.
T r a n s i t time, t h a t
is, the real transit time to San Francisco it five days
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Federal Reserve Bank of St. Louis
553
from Boston,
S o m e o f the banks f e e l that i t i s quite
a herdship t o have t h e time deferred’ a s long a s i t is.
Is t h e r e a n y t h i n g e l s e t o c o m e b e f o r e t h e meeting?
Governor Fancher:
I f I may take just a moment, a l o n g
the line about which Governor Wold has b e e n »
eaking, I
want t o say that i n mating available items o n Cincinnati
and Pittsburgh w e have b e e n very careful t o indicate that
they were items o n member banks.
T h a t i n sone cases,
however, h a s been misinterpreted, a n d from some o f the
Pederal reserve banks w e have b e e n getting a l l items, b o t h
on State a n d member banks i n Cincinnati a n d Pittsburgh f o r
immediate availability. I
the b a n k s
have written t o s e v e r a l fo
t o caution t h e i r transit departments a n d give
instructions t o b e careful i n sorting t h e items. x
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Federal Reserve Bank of St. Louis
know i t makes 2
little confusion, b u t t h e availability
of Pittsburgh i s f o r member banks, a n d likewise Cincinnati.
The Chairman:
ed?
( A f t e r a
T s ther: anything else t o b e consider-
p a u s e : ) I f not, t h e C h a i r w i l l e n t e r -
tain a motion t o adjourn.
Governor Fancher: I
The Chairman: I
s o move.
now declare this conference adjourn-
ed, subject t o call.
(Whereupon,
a t 1 1 o'clock p . m. o n the 23rd d a y
of August, 1916, t h e Bighth C o n f e r e n c e f
o Governors o f
Federal Reserve Banks was adjourned subject t o call.)
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Federal Reserve Bank of St. Louis
@FedFRASER