The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis required reserve a n d they have n o t a very large surplus. I n that case where does your exchange come from? iy. MoKay: I think thet i s lapossible, b u t then the federal reserve bank would have the exchange o n deposit i n the different cities. T h a t would mean that New York banks would. stop taking deposits. Ur. Seay: F r o m banks but not from individuals. My. MoKay: T h e r e are a great many banks not i n the system and many will not come in. ir, Seay: T h e n the member bank will have t o purchase exchange from the non-member bank. My, MeKey: Y e s sir. My, Chairman: T h e loss o f exchange between the federal reserve banks would be met by shipment.of ourreney. tiy. McKay: I f such were possible t h a t banks i n reserve s had nor bank correspondents e t n g accounts e with c them. carryin Suppose the féderal reserve banks d o make all the exchanges, i t would not hurt them, My, Seay: F o r the.purpose o f suggesting a cmon idea end betpine u s 1 suggest this, reserve banks. W e a r e all o n e feaily, t h e federal Y o u could have these banks report t o New York their transactions with all the other federal reserve banks, W h a t i s in the way of that idea. Suppose New Tork is the creditor of Chisago t o the extent o f $500,000, I s mot that money just as good to New York there as if in its own Vaults if it didn’t actually need the 7500,000, T h o r e it seems to me a plan o experiment a t the beginning would b e which might b e w o r t h y f one which didn't contemplate the shipment o f any balances Whatever. l e t the federal reserve banks heve their relations with each other and it-will resolve itss1f into a debtor and creditor relation. L e t the debtor bank deduct from its goid reserve the net amount o f its debtor balance. L e t the creditor bank count as its gold reserve that credit b a l a c e . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis i f there should c o m e nae @ time for transfer, let it be done with the sanction of the Board. Or if one bent: became heavily indebted t o another bank, a n d if that benk desired it, let that anount b e segregated from the assets of the benk and let it be placed with the federal reserve agent asthe preperty of the creditor bank. 1 think the whole thing coule b e done that way. T h e r e might not b é any necessity, then for a tronsfer o f funds a t all, I f you will allow time for the completion i n this exchange and take into account the debit and Credit balances; allowing time for the completion of the cycle of the year you will get back to where you started and the whole thing can bo worked as a mttor o f bookkeeping. i. Mokay: Y o u cannot convert a check i n a benk in San Frencisco into money immediately b y any process. T h e time must enter into i t as the check takes time t o get through and be pre~ sented. iy. Seay? B u t I en talking about balances which arise. Suppose Sen Francisco is in debt to New Yorke and New York 4s in debt t o Minneapolis aud Minneapolis i e i n debt t o Sen Yraneiseo, the whole thing could be settled by the federal reserve board instructing the agent to give proper credits to the banks entitled to them. lr, UeChord: T h a t is practiced by the clearing house. ir, Chairman: W e could have 11 or 12 benks radiating from Washington and all the money come from one institution. I Gon't know that sony branch would b e particularly anxious t o obtain shipments of money to settle its accounts with the head office nerc i m Washington unless i t had loeal need o f currency. if it is si1 im one pot, theoretically, the shipment of money between bamxe would be actuslly eliminated unless there was demand for Lewfal reserve money to be paid out of some bank in a given locality. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis W e naturelly approach the diseassion of one bank when we take this matter u p and consider w e put the money i n one pot for the purpose o f settling balances between these branches. ¥e teke a new step towards the creation of one bank. I think the matter should be approached from that aspect also. I t may be that the federal reserve board --~ this i s a pian for the sete tiement o f the results o f clearances, i, lickayt It, is both. T h e items are-cleared every day and settled a t intervals, T h e settlement agent i s the man who hendles it. hy. Fancher: W h e 12 banks have transactions a n d advise the Clearing agent. Ur. lieChord: A t the close of business to-dey, I wuld tele- graph t o the clearing agent our remittance t o Hew York today i s $123,000, Fhiladelphia, $210,000 and so on, ir, Uckay: I t wowld b e the other way. Y o u would tele graph the clearing agent what you received end how. you credited the others with the emourtts,. T h e clearing agent would telegraph you the credits that they had been advised o f from other banks and you would have both sides o f your clearance. T h e Glearings are made after the items are received b y the banks when they can charge them to.the accounts rather than b y the other banks when sent t o you. iy. Seay! ‘There will be a situation where at ell times you will know exactly where you are. T h e banks know what they éwe to each other and if you clear between all the bemis, where obligations might anoubt t o $100,000 y o u might make settlement between the federal reserve banks for 10%, I f there is a large amount due snother bank, a fund may be segregated to cover the amount, under the direstion o f the Board. My. Rhoades: H o w do I pay my checks in my o w bank? Mir. Seay: W h e n there i s need of currency i t could b e transferred. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis * We. Rhoades: Mr. MeNay: B u t that responsibility i a there e v e r y day. T h e bare i s given credit each day and the ereditor b a n k mach receive i t s settlement i n a reasonable t i m e and before Sxé Gemand gate too large, otherwise they sre advancing money to tho federal benks which is im the hands of other reserve penks. Myr. Fancher: Y o u cowlé mot. settle with creditor banks until three or four days afterwards. i I f you notified them each Friday of the week's transactions y o u w g a y what they were but i t would take several days t o make the distributions i f you send. remittance. i, Mefay: B u t if the banke i n the west end the banke i n the e a s t carry accounte-in N e s Tork,, settlements c a n b e made by charging and crediting those accounts i f New Yorksnd. Chis age exchange goes % O par and the ey could d o Deak they ‘Liked with the bzcess balances. Bardwell: I f thie plan prevails could we mot carry i the bank at Chicago. Suppose we carried 5/35 of yim control o f the bavi in Chicago, but not es part of thelr ascetve, Seay: I t could be in’12 plates as woll a5 one. The 12 banks would make gooe that fund if paid over from one bank to another account. V e could warehouse the reserve i n a uamber, o f places, : ix. Seey: Y o u cowld have one warehoust o r you could have 12 and regard the federal reserve board a s the custodien o f those if. i t C e n 2 a s wall as one warehouse, L e t the Federal reserve board<be the mis ig ves ware Wie, CSheirman: 1 ganuot sec the difference cohnbes it pro- vided the coset is the same, the difference between estab lishing e eownen FeSarvoly o f reserves for the settlexent o f belances and having 12 such reservoirs. I s it not simply to do that thing in one common clearing point. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 Mi. Seay: T h e r e would b e one common clearing point which i s the books o f this Board t o which w e will report very frequently. That i s the common clearing point. f h e qeestion o f the storage of reserves i s one point. o f Sittebenoe i oe. whether cdenos ited in 12 reservoirs o x one. Ur. Fancher: I Don't see that the federal reserve board dave taken u p any method to wash cut accountings between the banks. ir, Seay: T o s t i s clearly their idea. ly, Fancher: I think the clearing should v e dene a t a central agency like a clearing house, Ur. Mebougali: T h e plen o f Mir. Mekay i s the s a m a s we have l n our cities for clearing local bank ehecks, T h e only differ- ence i s the question o f bringing your checks t o the clearing house b y messenger and sending them b y the mails. Uy, Wolls: A n d you have a weekly statement instead of 9 daily one. My, Sancher: i a the clearing house you have a gold cer- tificate statement. Nobougall: Ehoades: . 1 would not say we had that i n Chicazo, Y o u get warehouse resoipts. ME, HeDeugali: Bhoades: 1 Y e s sir. would gak Ll, Mexey whether i t is not the expericnee o f the country thet for six months the draft o f excheuge & # Gest t o cast and the other months i t is the other Way , ieniae Sha’ t o £111 the reservoir i u Chicsaro a t certain timos o f the year i t would b e n e c e s s a r y o t ship currency. Mr, Seay? B o w can you tell where the c a r i n g and. exchange a of the country i s soing to bev: Hy. Hhoades: T h e forelgn exchenge i s a draft one way and then the other for a mamber o f months. Mr. Bardwell: ‘There i s a plen ‘ou fo0t now t o have e n international cloarance. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis iy, MeKay: T h i s will reduce the ¢hipping o f curreacy t o a Sepes minimum. T h e shipments would not b e crossing each other a l the time either, Ur. MeChord: M r , Uckay, what d o you contemplate a s to the Yed@ral reserve notes for the Various banks. Ur, MeKay: T h e y would be hamdied the same es chogks, Thoy would b e sent out the sane a s if they were checks o n federal reServe banks, send for credit, T h e y would 80 right i n with the currency, a n d i n comection with telegraphic acknowledgments, they could be followed by acknowledgements i n the mail, My. MeChord: T h e retirement o r redemption o f national bank notes a t the Treesury i n Washington, c o u l d y o u work that i n the plen that would take credit from the Treasury Department i n turning into the Treasury national benk novos for redemption? Mr, Meay: het is amatter Iaid not gointo. © Ny, MeChord: T h a t plays a very important part with us at times. Mr, Seay: I think we ail shall certainly have to recon~ cile ourselves t o the fact a s a necessary developement o f the system that the only in fall operation will b e the exchange created b y the federal reserve banks themselves. 1 don’t see how there i s going to be that New York exchange purchase i f every bank is going to receive at car the checks o f every other bank. ‘There certainly will not be the necessity for the maintenance o f balances i n eny center o f the country. iy. Mekay: A s to the movements o f balences it ig taking effect now. Balances will ep into new channels end there will be balances i n different localities. N e w York will lose some. to the west a n d regain s o m e balences f r o m Philadelphia, e n d will g a i n a larger amount from Albany as New York is in a position to collect BBarly a l l t h e state without charge. m e r e w i ll p e a great readjustment and it is impossible now to say what the result o f the readjustments will be. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Seay: D o you mean member bauk or reserve bam of New oer 4 Ur. Mokay: I mean the member benks. T h e first natiouel benk cenuot. deposit under t h e present rales, i t e m s with t h e federel reserve bank i n Chicago drawn cutside the Chicago district, b a t that doesn’t bother them. T h e y will send those items t o the benk in New York and the National City Bank of New York ean deposit them i n the state reserve bank. T h a t system i s i n force now. lix, Seay: T h a t i s décause o f this partial system we have instelled. lie. Motay: T h e Naglonadl Gity Bank as scon as Hew York opens its gates t o take its own District, will take them from anybody and deposit them in the reserve bank in New York. I think now it would b e better that the federal reserve bank i n New York do not take cheeks o n mentber banks outside their own district. in Sleveland the bank should not take a cheek drawn o n a bank i n iilinois. ‘They can Glear out through regular chamels. W e will have & lot o f transit items, but one.of the biggest benke i n Chicago with 10,000 items a day, told me that whut our whole éistrict was ready they would only deposit with use 1500 items & Gay. T h a t i e inside o u r district. S o w e a r e not going t o get a tremendous volume o f items i n our districts from large banks but if we open the gates to the big banks ani say we will take something o n any bank i n the United States, desi more. w e would g e t a good I t i s not proper t o charge the member banks with the cost o f handling these checks a s the member bank cannot charge the drawer, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr- Chairman: M r . Mickay, wont this plan o f yours result i n the federal reserve bank handling all the items just the same. W e will take the First Netional Bank o f Minneapolis for instance. W o n t the other items that they get from other banks i n other districts b e enough t o them to handle with the other banks i n the district? Y o u will have enough I think, i n your own district. T h e federal reserve benk i s going to handle these items and they are going to handle the majority. A l l that you will handle will come at the time reserve i s taken in. Mr. McKay: D o you know what that means? I do. I got returns from all our banks o f ell the checks they paid. Mr. Aiken: Exelusive o f -the checks paid: onthe federal reserve benkes. Mr. MeKay: O n e thing, the volume of checks will b e re- duced i n another way. Wr» MeChord: checks. I I t seems t o me wevhave got to divide the think w e had better confine ourselves t o the subject of thie clearing house and then get into the subject itself. It is going to take all the time we have got to devote to it. Mre Chairman: M a y I ask one question. ‘The operation ic] of accounting between the federsl reserve. banks contemplated by your plan, i s identical with what the federal reserve bank in New York i s doing. Y o u are charging the ¢redit accounts, are you? Kir, liecKay:; No, we charge them direct. Mir, Chairman: B u t the proposition is identical with your plan a8 I understand it, and consequently what your plan contemplates i s thet instead o f having 132 avenues o f shipment, o f #EX money between all of the federal reserve banks, thet money will only b e shipped + o Chicago. Y o u receive from Chicago money in settlement o f these balences and y o reduce the routes for the shipment o f the money i n settlement o f balances t o 1 1 i n number instead o f 132. Nr-e MeKeay: Y e s sir, that i s the point. Mr. Chairman; A n d i t ie in effect, a method o f arriving at a meens of perfecting that settlement a t a central point, a t wheat you regerd as © minimum o f expense; that is, you ship these amounte t o one central point? Mr. MeKay: T o where your shipping fecilities and other ends meet, and that enables you to get shipments a t a minimum, Mr. Chairman: Y o u r plan wili also contemplate that any member bank i n New York depositing t o its credit a check o n any other reserve bank, would get a n immediate credit for that ag soon e s it hes reached tte destination? Mr. McKay: I personally would not favor granting im- mediate credit t o the personal account o f a check unless i t is chargesble t o another account thet has o credit with it. B u t that i s another questiai. W e were diecussing the question o f the settlement o f balances and not how they were going t o be med@. Mr. Seay: Y o u r federal reserve bank a t San Francisco, how i i t going t o clear the credits o r put them through your Clearing agency! H o w are you going to handle that, wait five or six days! Mr. McKay: D o y o u meen, going t o wait a few days, i s that it? Wr. Seay: Yew.. Mr. WeKey: A n d the federal reserve benk telegraphs Chicage that it has received a draft o n that bank end t o credit the account o f the federal reserve bank at Chieage. That will male i t valuable the same dry it is received i n Sen Francisco. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis pom Mr. Chairman: ~ M a y I ask whether these checks are going to have any currency a t all o n that basis? dy. McChord; A s I understand i t i t would o n l y b e a reserve o n reserve banks, Mr. Chairman; Mr. Seay: S ,& check o n a reserve bank only that w e are 3 H o w are y o u going t o handle bringing i n a reserve b a n k in N e w York. f r . Mr. Chairman: O f course, y o u have got t o recognize the Objection that for five deys the member bank i n New York has a reserve credit r e p r e sented b y a piece o f paper i n the mail which has left a balance i n the San Francisco bank, which counts a s ‘a o f the reserve a t San Francisco, a n d it is a duplication, that is, a paper reserve. Mr. Rhoades: I don't want t o repeat this t o o often b u t I think we ought t o keep i n mind that the whole essence i s time, a n d you cannot wipe i t out b y law, and the minute you neglect i t you are going t o build up @ great expensive system. Mr. Chairman: I think w e ought t o refer t o t h e A c t here a n d s e e what it contemplates. L e t us take Section 16: (referring to Mr. McChord) that isn't the one, Mr. McChord, i t is under the subject o f notes, Section 9 La? I . think w e have all got a copy of this law i n from of us. paragraph 132, p a g e 26, t h e last part o f Section 16. I I t is ° d o n o t think i t has been changed. T h e last section, 16, paragraph 108 (Reading): "Every federal reserve bank shall receive a t par from member banks checks" - - - (let u s reduce this ) "Checks drawn b y member banks against funds t o their credit i n the reserve benks,' is, i t means t o receive i t a t par. Possibly before concluding discussion, w e ought t o define what “Par” means, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis to heave any currency a t #11 o n thet basis? Mr. McChord: A s I understand i t it would only b e a reserve on reserve banks. Mr. Chairmen; T h a t ie, a check o n a reserve bank only that w e are discussing. Mr. Seay: H o w are you going t o hendle bringing i n « reserve bank i n New York? Mr. Chairman; O f course you have got to recognize the objection that every five days the member bank i n New York has a reserve credit represented b y a piece af paper i n the mail which has left a balence i n the Sen Francisco bank, wiich counts es & part o f the credit a t San Francieco, a n d it is a representation of the piece of paper reserve. ifr. Rhoades: I don't want t o repeat this too often but I think w e ought t o keep i n mind that the whole essence i s time, and you cannot wipe i t out b y law, and the minute you neglect it you ere going t o build u p a great expensive system. Mr. Chairmen: I think w e ought t o refer t o the bible here and see what it contemplates. L e t us teke section 13; (referring to Mr. McChord) t h a t ien't the one, Nr. MeChord, i t la under the subject o f "Notice”, section 132. I got a copy of this law i n front o f us. think w e have all I t is paregraph 132, page 26, last pert of section 17, and the last part of seetion 16. This is the St- Jemes edition. I d o not think it-hes been changed. The last section, 16, paregreph 108 (Reading): “Every federal reserve bank shell receive a t per from member banks checke" - ~ - let u e reduce this ‘checks d r a w n b y menber banks against the funds to their credit i n the reserve banks.' Theat is, i t means t o receive i t et par, Possibly before concluding this discussion, w e ought t o define what "par" means, immediate credit o r otherwise. W h a t does "par" meant W r . MeKay's pien, a s I understand it, does not contenplate treating these checks a s real par, thet is, convertible into lawful money o n preeentation, a t the counter of the bank which i s real par I suppose. Inother words, every check is to be timed to the date of ite arrival and « telegraphic advice sent baek t o the settling bank. Nr- MeKey: T h e federal reserve bank intends that the check shall b e par as far as exchange charges are concerned and the cost referred t o there, i s the cost o f handling the items, i f there are any, and if they are i n the district; a n d if outside the die~ trict t h e cost o f handling t h e m i n the bank, c l e r k hire, et¢., and in any cesé thet may be incurred in the settlement.for exChange. T h e very thinge that we refer to here, o r to whatever coset the federal reserve benk i s put t o to make these settlements between federal reserve banks and between federal reserve districts. It contemplates that this cost may be cherged t o the member bank for which the cost was incurred b y the federal reserve bank, and further than that the member bank i s supposed t o haveJA Fight t o put thet cost back o n the drawer o f the check. N o w , theoretically, thet is perfect, b u t practically i t wont work a t all. A s far as charging it to the depositors o f the member bank is concerned... unlese all banks are members-~ and I believe b y limiting the clearings o f federal reserve banks t o their o w n districte, a n d in eddition t e that, iteus drawn o n another reserve bank, that the cost can be borne by the federal reserve benke, and that no charge will be necessary to the other banke. I f the time comes-< if it ever comes--when the federal reserve banks are eble t o pay that the member benke receive their full dividends,/then this cost will simply put the full dividend with the member benks; and I think it will not be so great but that it can be handled by the other banke. It will largely. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The first dividend o r part dividend will b e deleyed a lit- tle longer, but instesd of getting 10% to start with, they will be getting 6 from the beginning. F i r s t the cost o f handling these items will have t o be earned before the dividends begin. Mr. Chairman: I t seems t o me under the statute there could be no question sbout depriving the government o f its share o f the emaluments o f thie system because this statute specifically provides that these checks shall b e received o n deposit a t par, and the act contempletes that the fe@eral reserve banks shall absorb some o f the expense, which, however, will neturelly defer the date when the government will begin to get a n income, but w e perhaps will not be concerned about that a t this meeting. Now, gentlemen, i t is quite i n your hands t o consider how long this matter shall b e discussed before w e attemt t o resch conclusions. lir. Fancher: M r . McKay, i n the matter of collecting checks, this will apply omly i n certain districts. F o r instance, in the matter of carrying part o f these reserve accounts i n the gmaller districts and part outside, o r teking outside colLlection---thet will continue this, w o n t it? Mr. ehay: T h e y will have t o continue some arrangement with the correspondents a s to handling them with the member banks anyhow. | Mr. Fancher: T h e n your thought i s to keep them coupled up with the member banks outside of the district. Ere MeKeay: I n moet cases the reserve within the district will take care of moet iteme within the district. I n KuxM the Minneapolis bank they carry as much a s they will need. ‘The federal reserve bank i n erch district will accumulate all the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ehecks d r a m o n the t there will b e none cue “ h e a 8 of that district, C %,E oG y Be SL F# : H y eourtca h i m , A n g t h e , t a n k i n Pesria wants t o Wet a cheek dn payment o f itm balance, why, jou t h a t “iPeoria a i s drawn e n the fodorel pecarve b a r k te &- * sey 4goe tHgs ao e eeb CLede t e LS e $ aeaae tahGtoanethe se wWaE t Y e ail t h e Meany? i n one its Z f w e a r e seine t e OUBSLGG O F Che Gistriet, then the bank a f rs i e S st $ e Z a i s » a t + 3 & % , ) i y Peoria w h i d a n o s i t W i t h t h e Chicaco b a n k s h e r a 14% carried i t e s e n count, I f we « anticipate o n t , W o cen slwooly e bank i m Feoria % 2% : r1 ade a y e p a s are f V A R A V F s t- A h B r y 'e 1 ' a a " 54 dheEy: e t a ei ‘ i 3 view y L e e Wc) ae a e e J P i e d ? Pa e t a t 2 2 G h i a G o t w e e s ag corigin,g but 1 think 1 % wild hurt e@¢ ” bed vw Gi Ghevke o m Ohie irem ouatern banka, there i s a_ for ¥q havea been o n a surronap Now Y o r k y h i s yaar. ‘Wapping b a s i e f o r the grester part ofce t s Boh: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis @ gnould he 4 i n eperstion t h e atie N a w s i f thie im Cleveland eculd cheeks drawn o n the m e m b e r e m i thet district. Mir. Makax Welle: W r . MeKkay contemplates that there will be none o f that, and thet the smell man i n the small town will come t o his bank snd: get a eheck o n the federal reserve bank o f that district. Mr. KeKkay: I f he does not do that, then of course, his cheek i s not handled a t all. W e cannot stop that, but we can discourage him. Another point that occurs t o me i e if a bank in Peoria carries a n account with the bank i n Cleveland-Clevelend i e i n a different district--and the bank i n Peoria wante t o get a check i n pryment o f its balance, why, y o u c a n give the benk i n Peoria a check on’ Cleveland that i s drawn o n the federal reserve bank and they can deposit that check i n Chicago, 8 0 you will s€ill b e able t o make exchanges between the districts outside i n that way. lur. Chairman: I t will b e s purchase o f drefts all the time. Mr. MeKey: I n one case i t might be. I f we are going t o take checks o n all items outside o f the district, then the bank eat Peoria will deposit with the Chieago benk where it carried its account. I f we are going to teke checks o n that bank, which w e don't anticipate a t present, w e cen simply get the Union National Bank a t Cleveland t o give the bank i n Peorim the check o n Cleveland, and that is aveilable i n Chicago o r in any other city, o r it is available i n any benk i n any other part o f the country. ir. Fancher: O f course, this is going t o bea leveling- up process, and just wheat form i t is going to take and pa? i t is going t o hurt, w e are not certain, b u t I think i t will hurt somebody. B u t i n the case of a large volume o f checks from Chio to eastern benke, f r o m a bank i n Cleveland o r Cincinnati that ismaking « demand for New York exchange, the matter will not be Bo difficult. W e have been a shipping badis for the greater part of this year. N o w , i f thie scheme s h o u l d e b put i n operetion https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis YQ ite currency ond remit ite draft on ita reserve bank in Cleveland, and the federal reserve bank would level it ali up, 1 who i s going t e pay the expense. I don" know ean see at the outcot that w e are very cortain that exeessbalances carried between certain cities im our districts c a n b e checked cut. That surplus is going to be dumped inte the reserve bank a t Cleveland, a n d w e are going t o convert these excesses inte New Yerk finds. I de not know, H o w much they will be, W e will play the part o f the shipping bank. ir. MeKay? N o w that i s the point exactly. A f t e r this plan comes i n there woutb b e such demand f o r N e w York exchange, e n d I would like to say thet the bankers at Dalles for instance, will reduce their rates and a great many others will de se and you will be driving everything b a c k inte i t s natural channel, iy. Chadrmant W o u l d uot the banke within these other reserve districts b e constantly seeking Chicago exchanget Wr. MeKay: ‘They would if they vere debtors to Chicago. Mr. Welis: Well, we vould be debtor to yous lr. MeKay: I f we covid take customers’ checks o n eastern points, S u t under this n e w syotem there would b e 12 different points you if w i i h a s Wew York oxchange. i. MeChord; f e y I ask if h e can arrange i n his plan there a n eubline o f the cases o f national bank notes offered for redemptione https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ooh ee the benk i n Cleveland could remit ites draft o n its rererve bank in Cleveland, a n d the federal reserve bank would level i t all up. I don't k n o w who i e going t o pay the expense. 1 cannot s e e a t the outset that w e ere very certain that balances carried between certain cities i n districts where a n excess i s carried can be gotten out. Y o u have more money than you want t o carry i n cer- tain places but you makxke/get it out. I don't know how the Union Natioml Benk hae paid at Columbus but our currency has been there t h e greater part o f thie year, 6 n d thet surplus there i s going to be dumped into the reserve bank e t Cleveland, and we are going t o divide those excesses inte New York funds. How much they will be, I do not know, baaauma We will pay the shipping agent. Columbtse will then decrease their currency end we will pay the shipping o f the. reserve. Mr. MeKeay: N o w thet i s the point exactly. a f t e r this plen comes i n there wont b e sion dota’ for New York exchange, and I would like t o sey that the bankere a t Dalles for instance, will reduce their rates and a gréat many others will do se and you will b e driving everything back into its natural channel. Mr. Chairman: W o u l d not the banks within these other reserve districts b e constantly seeking Chicago exchange? irs McKay: T h e y w o u l d . f i eee were debtors t o Chicago. Mr. Welle: Well, we would be debtor to you. Vr. MekKay: I f w e could take customers’ checks o n eastern points. B u t under thie new system there would b e 12 different pointe o f exchenge all equally ovettabie and it would b e just oe good to you éixan if presented,ab thm New York exchange. ir. MeChord: N e y I ask i f he can arrange i n hie plen there an outline of the ceases of national bank notes otticed for redemption. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis YSM Mr. NeKay:: I f . i t i s to come t o Washington, a s now, the currency notes would have t o come t o the federal reserve bmk. Mr. MeChord:- T h a t i s right, but i e i t possible t o collect credit through the clearing nouseg of the bank’ McKay: I f the governmebt carries e deposit the same Be any other deposit, some o i Mr. Chairman: m a y b e made. M o s t o f their checks a r e n a w payeble a t a federsl depository and they can be included i n the proposition. I do not like t o interrupt this discussion but w e ought to be dak ing progress o n « policy whith m e y be important. T h e r e ere two mattere which should b e considered i n connection with this whole subject o f making new exchange retes. One i t what effect i t is going to have o n the country bank, that now profits by the business o f making exchange charges, e n d the other is the possible effect--and this I regard a s e very important question--porsibly the effeet o f devising e system of settlements b y which national banks are going t o get a distinct adveutege i n matters o f exchange over. state benks, prior to some method being edopted b y the federal reserve board for the edmission o f siate banks s o that they i n tura, will b e forced to adopt gome plan o f their own, e n d ultimately have t h e two eyetems mated againet eech other i n an unprofitable and unsound competition. T h e state banks throughout t h e country a r e watching the development o f plans for produ¢ing cheeks a t re- duced cost of collecting debts with a grerter rate of interest, end, i n some cases 1 believe, with a great deal o f concern. We are at a point where the sentiment from these ‘we ayetens is going t o develop from what is said here, I believe, very lergely; a n d I do not believe the managers o f the banks will disagree i n thie statement that the system will b e most ef- fective after all the state baiike are entitled to membership, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis We want t o observe # certain degree o f cere i n going s e fast in developing new things, for members of this system. W e do not went t o force the stete banks to teke measures that will be inimical for the system. Whether w e are going too fast o r not will have t o develop b y experience. Mir. MeChord; M a y I sey that the stete banks i n Georgia heve already formed a n association for the handling o f checks. There are four hundred etete banks i n the State o f Georgia. _They have already consented t o join i m such a n association. There ere 114 nationals. A n d now thet system i s already under- weigh, that you speak of, i n our Stete. Hr. Chairman; Y e s , and eolketdent with the development for facilities for member banks considerable facilities should be developed for the state banks. Mr. Wold: I n thie connection youmay b e interested in the article i n a peper of North Lakote a s follows: "Fargo, North bekote, December 8th. The regional banking systea under the new federal currency measure may result i n practically all the leeding national benke o f North Lekote abandoning their charters and changing t o state banks. "The cause o f this proposed change i e the dissatisfaction with the systen of handling reserves end the lack of informatin regarding what the regional banks will d o o n the securities o f the North Dakota nationals, S h o u l d the time arise when money wae badly needed i n this State and it would b e necessary t o put up these securities. "It i e reported that before taking any radical action leading North Dakota representatives o f National banke heave gone t o the regional benks o f Minneapolis, Chicago, and elgewhere with large bundles o f their papmer, not that they want immediate loans, but t o learn how the securities would b e passed upon i f conditions arose i n this State which would require that https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis “Lb https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis they b e put up as collaterel. T h e future of the North Dakota banks depends upon the results o f these investigations. "Under the regional system the reeerve funds o f each national must b e deposited with the regional bank of its dis= trict. Thies necessitates a withdrawal o f the reserves from corregponding benke i n big financinl centers. A s a reeult the North Dekote national banks can nok longer expect courtesies from the benks with which they were formerly affiliated, a n d if they require money they must necesearily look t o the regional banke. "It is a foregone conclusion that i f a dozen of the lesding nationals o f this state abandon their charters a n d teke state charters there will b e a stampedé for state charters i n North Dekote. Similar action i n many states would practically nufify the regional benking system a s the reserves would all b e withdrawn. V o r this resgon i t is anticipated the officials o f the regional bank will have a liberel policy for the smaller nationals o f the country. “North Dek ota financiers are greotly interested i n the developments and the result o f the investigations now being made by representatives o f the nationals o f thie estate." ir. Sawyer: Y o u don't teke that seriously d o yout Mr. Chairmen: W e are getting away from our subject. Kir. MeKay: L e t me observe that the country banker will be deprived o f the exchange charges that h e has been making, Xxknaw going to ie not the only one thet is and the small country banker lose exchange. b e modified s o that all T h e New York rules will taken at per immediate credit will be 4¢ems that are accepted for peyments. by the New York Clearing House N o w , the New York items the regular yates o n the bauks are still going t o charge system. benks that are not in the on the non member banks, - The at a dismember bank checks will be non that be will The result member benks will g o at p r and non chekes bank member count, a n d a t par o r a place for their checks provide t o compelled will b e the proposition. T h a t i s one side o f else join the Federal system. i n Chicago large non member pank Were i s the other.side. O n e said certain bank and the manager ‘hea on check a had said they not prepared check? f t said we were this with do to going I what a m teke i t but i f we were I might district, our o f outside to take system. at par unless he joined the with H e said"@hat shall I do i t down to a there” and so he sent down it "Send said I it, a n d Reserve Board. a member o f the Federal not i s that Atlante pank i n had sent i t to ® thousand because h e dollar e a t returns He got his bank had the same N o w then, i f this penk. member non a Atlanta t o leverage o n getting i t would b e a strong items, other its with trouble https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis them to join the system. wr. Chairman: i f the other objections T h a t would b e trae the admission to the the State banks have to that -admission to the system wore removed. Mr. McKay: that. Y e s , w e are supposing Mr. Chairman: in that better things W e #re always supposing and on that point State banks to come in, the induce will the system b e o n that point. f exactly as i t should i t illustrated have you system now t o & developing the collection personally a m afraid of i n tne minds of will pegin to develop point where those gavantages been overcome b y their objections have although banks, atate the now. T h e r e f o r e ft Federal Reserve Board the o f regulations the now for the adnot to erect barriers careful be should think we that would them t o erect barriers force o r mission o f state systems never get them in. e d then possibly system, this compete with 4% My. McKay: A s regards the fairness o f charging u p to a inember bank's account a t par i n any district there i s this: They are all members o f 8 clearing house system, one has its checks charged u p to it at par. I n return for the privilege i t can get eredit st par f o r any mamber of banks of that system on the same basis, a n d a1] checks “ehould b e et par within any district. T h e r e isud question in my mind about that, within each district. That is the only way we are going t o handle chedies o n sty o f the benks. Now then, as regards t h e interest handled by the country benks/ f em not speaking of the country bank 6s smell banks, but in all country banks, a s & rule, they have arrangements with correspondare ents s o that they d o not have t o pay any exchange, e n d they getting the best o f the deal eli the time. A n y bank i n the State o f Massachusetts i s willing t o remit a t par t o the Soston goclearing house without s single exception, a n d that has been ing on for fifteen years. I believe i t i a the best system w e have except this Federal Reserve Sank system. T h e system extends the New England all over the country, a n d should b e just 4s good. in states a s i n San Francisco. I think i t is the correct p o l i o y I n Glrect answer t o that, you take a Little ir. MieChord: pank in the interfor who has uo moons of cresting a n exchange, @xheve to remit i n cept at certain seasons of the year. These people cleared currency to meke thei balances and they get their checks o n which atpar, as you say, and they get a balance ereait there they get interest. get T o force them into the systeu where they the checks, I nointerest end where they wukxma have to pay for many members o f that state t o you right mow you will.lose a great force. Mr. okay : I believe every bank should provide @ place a certain district. for vetemption a t per for cheoks o n {it within members of I believe that is the correct policy, and ail the this system should b e o n the same pagis. Wr. Seay: tion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis T h a t develops @ very interesting proposi- another bank Y o u will fina a bank right next door to uf nevertheless and 200 miles from a Federal Reserve Sank, and it the Federal would send its check o n the 25-mile district t o Reserve Bank. to be My. MoKay: T h a t is another point ’hat will have think those cases will have t o be taken threshed out later. I to these two care o f as they come up, and i t will b e suggested and settle banks thet they exchange checks with each other with the check o n the Federal Reserve Bank. M r . Chairman, Mr, Seay: w e imnediately approach o u r something else. subject and then withdrawby considering T h i s all came from Mr. McChord! Mr. Mekey: My. Chairman: W e seem to be in a frame o f mind to reach t o make about @ conclusion, i f possible, a n d I have n o suggestion opinion I bave, not it whatever, beyond expressing what little having the experience o f some o f you. B u t I believe this absolute- revolutionary ly: t h a t we have got. to act mighty slow about i s your decision; bat things, a n d whatever you decide t o recommend pretty slow in begiming I cannot help but feel that we ought t o go the business o f to develop 4 sharp line o f demarkation between national and state banks. W e ought t o be breaking i t down rather than erecting a barrier for awhile. My. Wold: no I n this comection, y o u had a telegram, prepared t o clear country doubt, a n d we hac one, asking if we were tenor which I have several i n my pocket o f the sane checks. I have not read! us t o d o that? I s there any disposition requiring with each other about the I think we have got to be very frank this matter. Prankly, the attitude of the Federal Reserve Board in currency o f the country checks, opinion of the Board i n regard to the formed from & preliminary c o m in my opinion, has been very largely read through some cof that committes that was appointed, a n d I have https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis mittee's penae’s T t is a very pretty thing i n theory, t o consider, is as dangerous a n but expressing simply m y own view I think it system o f 2500 experiment a s could b e introduced i n a banking W e are leaving out o f considera- panks, i f they. all come.in. w e are going tion any question o f the goodness o f the checks o r " floaters, kiters" to handle: whether t h e y are real checks, and every other kind. Mr. MeKay: O f course checks will come for redemption very mich quicker under this system. w e have Mr. Ghairman: Y e s ; but under this arrangement simply a bundle a piece of machinery where a check is treated as i t now every fellow of paper o r cordwood; whereas a s I understand customer i s able in the bank is watching his checks t o see i f his 4 n account h a s reached to take care o f his endorsement, a m i when a dangerous position, i t is checked up. Mr. MeKay: deal quicker T h e checks w i l l g e t back & good under this new system. Mr. Fancher; I o f getting f y o u facilitate t h e matter the better for present @ check around t o a paying bank, $ 0 mach conditions. o f floating i n N o o n e c a n estimate t h e amount struments to-day. Mr. MeDougell: W e have had xixk experience of an interesting sort i n Chicago. O n e o f the Indianapolis banks opened payment. A f t e r w e pegan up with u s with $329,000 from reserve our district the account taking the items on reserve cities o f to their account the went down to $125,000 by charging up and that represented items deposited with us on that bank, $100,000 a day which was being sent to Minnespolis. T h e vicehe said,"If you president of this bank came in to see me and with the Federal send us $200,009, then we will be overdrawn Reserve Bank i n Chicago.” in W e have the required amount reserve at all times. I can carry 3 little more than what https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis you are going t o send." I do said the thing f o r h i m t o that h e reserve o n his books s o was t o carry enough excess would have the winkdmws required on cur booke, and that he had been cone ducting his business on more oy lesa of a float, and draving on them, and while they chewed a pretty good balance, the actual loansble funde might not be more than §120,000 er even less than that. lir. Chadvment Y o there anything in thie ler which permite o Federal Reserve Sauk te charge to member banks accowrts cheeks dram o n the tember bask? Mes MeKayt i don'+ know whether there ig er uot, tir. Chaireany Y e there any Liseqse other than the comalttee's report hare? , Y a r , MeKay: ‘The comatthee hearing o n October 20th racomsenied that, T t ie in the reports Ure MeGherd: I f we don’; charge u p te each menber bank their gheeks hew are you going to handle them in your syatem of accounting? De you carry then as & collection itent fir, Helougalls 1 % is charged againet the ewteide bank. My, Mecherd: I f you credit it inte the mowber hank and charge the difference t o the clearing what é¢eumtry credit have you got to figure for your vecerve against the other tvo creditet ty, Bavdiwehli While the item ie out 4¢ de “doe from banke® and you deduct 1 4 from “due t o banka” before you make your reserve cale wulationa.s Mir. Me Chord: Y o u elimply daduet it end 14 don't permit gov 4@ carry the reserve clearing that you toko from tho total, ur. Beays There ie another aspect of that Indianapolis came. and reduce You receive these checks for $125,000 on tho Indianspolio bank the reserve of thet batk. I t aeema to me that 1% wal add to the deposit} ing bank an equal amount. Were WeKay? deposite I t increases the funds e f the bank which banks are going them on which they gould check agcounts, I f the other can draw out the tomaintain the reserve deposit with your itema, they ether items which show a doficiency i n that agcount https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis “S26 | would have the minimum required o n our books, a n d that h e had been conducting his business o n more o r less o f a float, e n d drawing on them, a n d while they showed a pretty good balance, the actus loanable funds might not b e more than $120,000 or: even less than that. Mr. Chairman: ‘ J s there anything i n this lew which permits one o f the members t o draw a check on one o f their members with you? ur/ MeKay: 1 don't-kmow whether there-is or not. Mr, Chairman: I s there any license other than the committee fyrmxkzers? formed here? Mz. McKay: T h e committee hearing on Ogtober 20th recommended that. I t is i n the report. kit. MeDougall: M a . Ripley, who i s vice-president o f the second national bank, was out t o lunch with me the other day, and this very question o f charging o n checks was brought up. T h i s Mn represents four o f the largest banks i n New England, a n d they represent & third o f our capital a n d a fourth o f the best bankers in New England. A n d he said everyone o f them told him they did not believe i o e w e r e justified under a n y circumstances i n charging up items against the balances of member banks against us until those items had reached the bank and been paid. N o w , a11 through our country the clearing o f those items practically occupies four days: two for transit down, ommxfurckeamsk and the other for remittance back. T h a t is, i n our country clering system. S o that I am quite sare that n o system which contemplated a shorter transit time would b e tolerated b y our member banks throughout the country, efter it.has taken ten years t o get our banks.up t o the poigt o f doing that, and b y a-great deal o f diplomatic work. And it has resulted i n what Mr, Mekay has racognized a s one of the most admireble systems of handling such items in the whole https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis page ekk@ «country. I kmow the country banks very well, m d I am very sure that w e should have a state o f open rebellion o n our hands a t once i f we contemplate charging: these balances on our books. N o w at the present time they take credit for reserve purposes I know. ‘They then send these checks to the Boston correspondent, f o r instance, a n d they d o not make a check against these balances f o r a day o r t w o days. Mr. Bardwell; T h e y are creating a fictitious reserve and w e ought t o break i t down. Ur. MeGhord: If-we don't charge u p to eseh member bank ‘their checks how are you going to hsndle them i n your system o f https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis accounting? D o you carry them ed a collection item? Mr, MeDougall: liv. MeGhord: I t is charged against the outside I f you credit.it into the member bank and gharge the difference t o the clearing what country credit have you got to: figure for your reserve against the other two credits... M r . Bardwell: ur. Bar@well: While the item ts out i t is dae fro the banks before you deduct the reserve. Mr. MeOhord: Y o u simply deduct. i t and it don't permit you to earry the reserve clearing that you take from the total. Mr. Seay: T h e r e i s another aspect o f that Indianapolis case. Y o u receive these checks for $125,009 o n the In- dianapolis bank and reduce the reserve o f thet bank. I t seems to me that i t will give a n amount proportionate t o the deposit of those checks for $125,900 on those funds. Mr. McKay; I t increases the funds of the bank which deposits them on which they could check accounts. I f the other banks are going t o miintain the reserve deposit with your items, they can draw-out the other items which show 6 deficiency i n that accowt. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Wr. Welle: Y o u might held t h e other banks u p i n the air o n thet theory. , M r . Seay: I t tekes t h e compensation a w a y f r o m you o n that. theory, o f -hondling the checks. Mr. Welle: Mr. Rhédee: M y thought was not handling the checks. Y o u take the items o n a number o f the banks and tell them thet they might withhold what they will agree to send arid it will delay a volume o f item@ upon other member banke and mation] banke i n thet district. T o offset the items, w e might point out that i t would b e better t o make a clearing house arrangement o f itcvonly upon that basis. S h o u l d w e do so, w e would have the checks and carry them as i n trensit only. We will get the returns, »givée credit t o the depositing Sink: immediately upon receipt.Where w e cennot get the deposit, t o take this action would b e to work ‘ a x flomting basis. I f Indian- apolis and buluth. could g i v e u é credits i n thet way, i t would help t o absorb all the deposits. Mr. Rhomdes; I have hed a discussion with all the banks in our district a t Gincinneti, and Cleveland end Pittsburg, a n d to @ men they seemed t o have i n mind the matter of not permitting their reserve incoming items until they have been received. MeKeay: A r e they willing t o do i t thenj~. Fancher:. Wheolutely. ieKay: H e r e i s the point thet comes up. W e have juet gotten t o thie point i n our present bank organization. I f we are going to send out these statements t o 97 er a hundred different banks, a n d where only these iteme are charged up, w e Will have t o keep a night force o n hand every night i n order to get the statements off, and we will heve to weit until the transit department i s through, because they meke these charges. The solution o f the whole thing which should selve the matter i s Ly https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Soe ou a2a4de ps: T o chirge the transit total toe .the account thet night and + to the bookkeepere the next morning, and let the book~ keepers charge i t up when he hes time t o do it. W e can reach four days. the banke i n our district i n one o r two o r three o r That might remove the objection. I t would save a lot of time the f we did that and got our statements out early, and When one statement c o m e s in, w e are going t o credit these items, day later i n our district. Mr. }icChord: N o w ; t r , Chairuan, matter very thoroughly. 7 w e have discussed t h i s make @ motion---I d o not mean t o b e understood a s wishing t o in. any way, enter into service o n tne committee for the motion I am going t o make. I move thet the Ghairman o f thie Board of Governors appoint a committes o f three of there Governors, o r five, a s you see fit, t o present to the body as suggested, a plan such as we have been discussing and let u s then:vote o n it, yem o r nay. W e will then be ready to contider the propoeition definitely and b e ready t o take i t up with the reserve board. I believe that i e the best way t o bring the matter t o « solution, because w e may discuss here end keep o n discuesing for the next week, and each of us will heve hie views t o present o n the matter, a n d at that rete w e wont know when we will b e able t o get away. H a v e I got a second t o that metiont W e may make i t to a. committee o f three or five but I do not want t o serve o n the committee. Wr» Seay: B u t are w e not taking up the same pointe in our discussion h e r e thet will b e covered. i n the report o f thet committes? Mr. MeChord: T h a t committee may consider i t and better present their conelusions t o us. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis r.Rhoades: Referring to use respective districts, o r Mr. Chairmen; H e r e i s something offered b y Mr. MeChord; “A resolution adopted b y the Mississippi Bankers Associa- tion, Jackson, Mississippi, November 27, 1914. . B = IT RESOLVED, that the secretary o f this association i s hereby directed t o trensmit the following address t e the Honorable Federal Reserve Board. in Ye chington: We filicitate with the nation i n the great echievement aecomplirhed i n the Federpl Reserve Act and look earnestly end 80 a hopefully t e its being administered a s to invite aiid attract fll claeses o f banke t o membership. Aeit@ is a Vitel necessity thet the Mississippi banks b e permitted t e earn exchenge o n customers’ ‘cheske a s heretofore a n d as any infringement upon this right b y Federal Reserve Bankes will be prejudicial t o the best interests o f the banke of Missiesippi, which, with only » few exceptions, derive a large percentage o f their net earnings f r o m thig sourte--the: s a i d earnings being only normil--the Mississippi bankers i n meeting aseembled, looking t o the best interest o f the Federal Keserve System, a s we believe, d o hereby petition your honorable b o d y not t o invoke that provision of the Federal Reserve Act whieh authorises your honorable body to cause the Federal Reserve Banks t o act as Clearing houses. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis if this i s undertaken b y the Federal Reserve Banias and member banke are forced +0 par their customers ohecks = and, i n addition thereto, t o bear the burden o f expense thereby incurred b y the Federal Reserve Banks, the loss of revenue and increased expenses would s o severely. penalize Mississippi banks as to make the system a positive menace t o their wel faré,, rether t o the matter between the 12 banks-wr. MeOhord: I think you might just as well make u p your mind taat the bankers o f those districts are going t o get the metier o f collecting cheeks arranged j u s t e s soon a s pos~ sible, and as soon ee you have gotten this matter settled, the sooner you will clove the question all ower the entire country. Mir. Fancher: I do not believe that because the member banks sre going t o pay you with a part o f their bed reserves, and you are going t o continue t o debate the matter for the next twelve months without much change. 1 do not think the fact that they have made that preliminary transfer of reserves will i n any way bring the matter t o a definite conclusion, 8 0 far #¢ concerns the clearing o f these country banks. ars Kekimz Fancher: w r , Welle o f &t" Louie i s all right i teke it. Myre Welle! T h a t is all right. I do not believe that should come u p now. , Vr. Seays ;They have been compensated twofold b y the rediscounting benefits and the sesurance t o the country o f the lowering of the discount rate generally. I think they have ree ceived the benefite which they all ought to appreciate at least. Wr. Wold: T h e trouble i s that t o o many o f the banks are up i n the air ebout the fee proposition, a n d they want t o know how they are going t o get b y with the same old charge. Mr. MeDougall: T I head a conference with a representa- tives of a number o f xmmmxzs banks i n the reserve cities, and in the beginning o f the meeting I think they were just as poets «.iv® perhaps, a s the representative that ir, Aiken invited to https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis iunch with him, and they agreed with the reprerentetives from Pittsburg @nd Cleveland thet i t would not b e well for them to https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis charge a rediscount i n their account, but before w e left the discussion that efternoon, | believe they were very much more in sympathy with i t when they realized that they were going to get more for the same number of iteme from their districts. I n other words, a s a practical matter, the proposition has made an appeal t o them, and they have conceded the juetness o f charging items which they had net heretofore conceded, b u t as a practical matter they are willing t o allow these charges t o go inte their account and they were of the opinion that i t would result i n their carrying sufficient excess balance towards the federal reserve bank i n handling the general elearingsy o f itens individually. I believe that our member banks, i f JI may take them as e fair guidance, have come quite t o the conclusion that the offsetting advantages of this set will warrant their losing their exchange charges, and unless the members i n Mr. WeChord's district, start something, I believe the members i n the llth district.are going t o accept the offsetting advantages against the profits they heve been getting.’ B u t I do not believe there will be any converts. ur* Chairman; -That is certeinly a different view point than thoee w e heave heard mentioned here before. Mr, Welle: I have discussed i t with the people s h o a r e contemplating a general change and who heve been kept alive during the peried of the formation o f this law by the possibility thet i$ will work for « better all around administration i n banke ing methods, a n d they’are willing t o get away from the condition of affeire which hes been surrounding them, and when the time comes fer us to have borrowing facilities, w e will fing ourselves mors.or less 1é#EK loathe to-do this. “I am telking ebout the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis expression from individual members. I may be wrong about m y conclusions i n that respect but I believe they are reconciled to the view that i t 1s coming, a n d that they are willing t o ac- cept it. tr. Welle: T h e other day I happened t o be i n Cleveland and we hed abeut 360 o f our members i n Cleveland a t a conference which w e attended, M o s t o f the things w e discussed, a n d i n that general discussion they seemed to have got i t into thelr minds that thie proposition o f exchenge charges i s going to b e broken down, T h e y said here w e have been putting some o f our reserve with you withent interest; what are you going to do for ue? B u t they have got thet in-thoir minds s o that I believe so for as the district i s concerned, s n d any bank becoming disgrumbled over losing emy exchange --~ 1 do not think you will experience 1%, ty. Seay: Don't you believe that is based on the suggestion thet the federal reserve board i s t o be --Me. Yells: I think 1 4 is o n the essumption thet w e are handling everything bn a par basis ap far se that district is concerned. My. Seay: I deo not think i t is so closely confined. My. MeChord: I have a four page communication from one of your banks whieh-I have i n my pocket and which 1 have not read, but the contents of which I already know, hating receivod a number o f other letters o f the same tenor, making vory mony suggestions, and in detsil, a s to the manner i n which the federal reserve board of appeals cam handle matters o n points where State benks are concerned. I sion i n the record, will e@fer this for inolu- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis We bolieve that fis view of the question applies generally t o all country banks i n the South; t o banks generally i n the emaller cities o f the South; and, t e & substantial degree, i n the larger cities o f the South, We are likewise led to believe that the earning of exchange o n customers’ checks i s a source o f subStantiel revenne t o banke i n the country and smaller cities throushout the United Stetes, the practice even. obtaining to..some extent i n New England, We especially petition your “honorable body that in the event you give serious consideration t o clearing customer's checks b y the Federal Reserve Danks, thet before permitting same t o be underteken b y them you first meke inqiiry o f the state ani national vanks of the entire country and ascertain their feelings end practices i n this regard; a n d particularly the proportion o f their net earnings acquired b y exchange charges, We would further respectfully pray that before issuing such an order to the Federal Reserve Banks that would seriously afflict, we believe, a vast majority. of the banks, that your honorable body give the country banks a hearing, with suffiocient+ iy notice to ensble them to properly prepare ani present for your consideration the fact support- ing their position, hora. cits Che wewand v a r s Yold, 1% would roquire going over 212 the mround #9 have discussed teday to bring 14 te a point where they would heave our undermtiandiuc e f 24, awl = o m aseure you that after dieeuseing 14 amenc the 12 mon in this reom, we ehould be able t e agree o n it umardmougiy s e thal v e cen present i t te the Pederel Neserve Board, and if we did that I think they would beave a goamral eigh of relicf. ee. Ushougal: i guggest that we leave thie fer two or twelve montos henge. fs A ditent ‘ t h e quettion ia the quevtion ef oottienent of balances effored for ageeptance ond of sonvendence to thas, and after further counmidoring thie plan < thisk it ie very eosential that we should arrive at scene alfireative degision, soncthing which will a m t ie ewembare hl ty of our banka as a result of the ¢we ond a half doye ve wil have epend hore, i f wo sled have https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis gettled thet ene thing ani nothing alee. ie, Medoumal: I am willit‘ng to giiek te thet beenuse tT think we would aot wake any progress unlesa we dobide te take izguniiete action, T h e comiitions prevalling are net satiefartory in our dietriat, and we cannot o g along with thig u n l e e s muke s v upour miuds en something definite. Yr, Chadpaans i thhas in lew York wo wild be willing to ge ahead en the basie of these gowtullad reciprocal acuouwris, between the Federak Reserve bouke for a period until somebody decired te etop £t, but I think o y p r o f e r e d be u l t utod oadopt ew something whieh may bo suggested that we have net yet thought of, but which we may agreo upon as a mutual arrangement between the banks as a nethod by ohieh Federal reserve checks shall be henlled, with an agreed beaia in advance of the period whens balances may be acttled byshipmest of currency or the amount ef balances lef seay: D o I understand that this i s simply e copy of t h e resolution that t h e secretery o f the board sent t o us? Mr. MeChord: A copy o f t h e resolution w a e eent t o m e with the urgent request that I government, yes sir. I present i t t o the beard a n d alse t o the heve, supporting that contention, let~ ters and telegrams from Tennesese, Florida ‘and Alabera, making district o f New Orleans. Mr. Chairman: A r e those f r o m the associations o f those Air. MeCkord:. N o , they are from the individual benkers and feders] reserve barks o f Atlanta, urging thet the resélution be given d u e consideration a n d that t h e interest b e protected and T a m simply eeting a s representing m y constituents, Mr. Bhondet: I would suggest that theese exchange charges have broken i n o n the whole question, Mr. MePpeugeall; I f they had been broken down yours ago, you would have reer than that “to show for it, but they have sbout reached t h e point where t h e y aré Willing t o take all t h e benefits the system confers upon then. Mr. MeChord; I n presenting the resolution, I wish t o say that I have quite a number of telegraus and letters, I em presenting for your consideration, a n d péesibly you will want t o arrive a t something which i e equitable and just t o be considered in’ ¥the with m y thoughte a little while ago. ire Cheirmean: I t ie now ten minutes t o seven. Will anybody offer # resolution? I believe Mr’ MeChord's resolu thon hes not been seconded, but i believe under the parliamentary rules i t is proper t o discuss a resolution without ruling o n it. Mr. Wold: Isn't. it posible thet the federal reserve kamd borrd may have some thought that may b e of interest t o us on thie subject which might help t o solve it, and I sugeest that we should broach the matter t o them after a further discussion https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 16 / https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis whieh would give the erediter bunk the right te eal fer a ahipe ment of currency, or peasibly by an agroenent on the whdea subject of shipmenta, it cowld be left io abeyance for adjustment iwiividually betweon the Feteral seserve hone and the cest of shipment apnerhionad between thas soma way.We shouldget a Little moro e x porence before adopting soucthing ure radical, a s te how theese acegunts will work owt, P o r inetaneo, if Covermer A iken states he hao accumilated tec auch balance in Sew York «< Nie. Medougels L e t him carry on part ef our balenge, fore Chedveoant W e eould very readily exchange telegrams with him by whieh we sould mmke imoodiate shipment if he bad sny dewand fer warrenty. ty. Panchers Y o u have a balance in Mew York. N o w have you beon Werkiug that, ia, Alken, ty. Aikemt ‘There was deposited with me yeoterday 00,000, itis éutively conceivable in our relations with Nov York that we mich run tro or thres willien delicrs in a day. T h e exchanges attimes aro very heavye 3 itr. Fouther: + I think tho oituction there is probably ‘the Largest. ity, HeKay: Probably a mlliien dellarea would go through our Dak o t @ tons bie, Sonyt T r a hie de « timo where the funds of the b a n k s e Litthe noaded, ani wo are now in o posktion te make experiments, #0thot X believe befere we adept a ples, however wise and well ew d bell to try thie thing thoughtf o 4% may bey At w o u l neree going ever ail ur. Chairman: M r . Wold, i t woulé require 4 o bring i t where w e would the ground w e have discussed today understanding o n it, and I heve a point where there would b e an emong the 12.men i n can assure you that after discussing i t o n it unanimously s o that this room, w e should b e eble t o agree board, and if we did we ten prerent i t to the federsl reserve o f relief. 1 that I think they would he-ve a general gigh oir. WeDougell: I suggest thet w e Lerve this for two o r twelve monthe hence. Mr. Aiken: settlement T h e question i s the question o f convetiience t o them, ofbalances offered for acceptance and of think “te very essential end after further considering this pian.I something that w e should arrive a t sone affirantive decision, & result of the which will satisfy the members o f our benks ar we shall have two and a half days w e will have goent heré, i f settled thet one thing end nothing ¢1se. Wr. MeDougell: I m willing»to stick t o that because decide t o + think w e would not make Sny progress unless w e not take immediate action. T h e conditions prevailing axe along with patisfactory i n our district, end we ecenhet g o this unlese w e make u p our minds o n something definite. Mr. 6, airman: J think i n New York w e will. be willing accounts, to go aherd o n the besis o f a a d so-called reciprocal somebody between the federal reserve banks for @ period when would b e that would b e sure t o stop it, but I think m y preference but which something may b e suggested thet we have not thought of, between t h e we may agree upon which will b e a sutual arrangement benke for accounte i n which federal checks shall b e handled may with a n egreed basis i n advance o f the period when balances be settled b y shipment e f currency o r the amount o f balances https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mae https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis webreugitt wp, T h e r e ie net o chugle bent tnt would object tencoumilating « ceufertable balance of one or tt or three midijen dollars duc by suother bank, L e t uo woe if there i a a methed of effecting 2 clearance between the Toderal reserve henke for 5 while, ond Lot us try 14 and thon get together aad wo Gan in the Might of pructionl amerdence be able to devises @ fle the reguli ef witieh wo can bettor forsees than ve e m eee Lvs (eOeugal: “xeepth that you de not effar the m hyve Cleviawent I w e n hove wet ouch oxporienee in the anxbtor emt de mot know how 44 would work out in Amy York dm the spring, i oom dceugine 4 4 would. run vory much aguinet we awl that we would leoe « coed deal of rocerve cvlng to the chipamta of qurronty., X t would ohl be debited 4o we and Af we shh tie wp - tan or (iftoon milidene that may, I eammet ooo that 11 ae going tohurt us OO VORy mittlts is Sold: I n our divtrict ve have « teehnles, eituciion ehieh I do net aupsese axbets in ay other, 26 we have tre rouerve chiles, “inaenpelie and 3 t. Maul, aad ‘anenpelis erontes a gveact donk of 6 4, Poul exehange which iMimnonpolis dows netwart, and boo d&¢fheulty dnPoledaing onit, 6 he would be forced iwhe the negosrhty of copesiidug thoes choeks on 8 te. Peck and in Goyn doce hor cheek against the Federal reserve hank and gend At to How Yorks, amd wo weuld bo Turmighing thas te the Sew York oxehoage withewt a y profit er ulideate seompente of a quich returs, anil there ia the prospect of a Rene the, we ate runnin o n thooe chache. N G (» which would give the creditor bank the right t o call for a shipment o f currency, o r possibly b y en agreement o n the whole subject of shipments, i t could b e left i n abeyance individually between t h e federal reserve banks a n d the cost o f shipment apper- tioned between them some wey, % 3 o got a little more experience before taking something more raffkel a s to how these accounts will work out. F o r instance, i f Governor Aiken states h e has accumulated too much trouble " a New YOr kom Mr. McDougall: Nr. Cheirwan; L e t h i m carry o n part o f our balence. w e could v e r y readily exchange telegrams ith him b y which w e could make immediate shipment i f he had any demand for the exchange. Mr. Fancher: .. You heve.a baiance’ i n New York. How have you been working thet, H r Aiken? r. Aiken: F r o m floster checks i n New York w e have sbout 910,000,000 excess o f Boston clearing house bank notes, and they have been declering a n emergency currency there, a n d w e have b e a on currency from Albany and New York, anc there was depesited with m e yesterday €80¢,000. I t is entirely conceivable i n our rBlieations with New York that w e aban busi two o r three million dollars i n a day. T h e exchanges ur. Fencher: J a t times are very heavy. think the situntion there i s probably whe lergest. kr. Rekay: Probably a million dollars would g o through our bank at a time. Mr. Seay: T h i e s i e @ time where the funds of the banks are & little low but where w e have @ little o n hand and w e are not i n a position t o make experiments, s o thet I believe before we @dopt a plan, however wise and well thought o f i t may be, it Would b e well t o try this thing experimentally and see where https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis G2 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis M4, Chairman: Y o u would got currency» ir. Wold: Y e s sir, ir. Chairwont Theat might make you a dumping ground of exchange but w e would b e the ultimate dumping ground a n d - would have to ehip it to you te recover, i t would not affect your reserve position materially. Mr. Wold: No, mot necessarily. iy, MeDeugel: That ie just wheat we are doing with a mexiber bank in New York. Me. Wells: Theat is a matter of a fow hundred thousand doliavs, Forinstance, in the ease of a regent advance to Wace, Galvesten end San Francisco, I will get something back on the proposition from perhaps Wace and Galveston and Sen Francisco, but certain others of the coast cities we are not so sure of for immediate return, i n other words, where it abserbe a con- siderable amount of exchange in the mail owing to delays, it is a question whether the transaction is a profitable one or Which might be better arrangediin gome other mammer such as contemplated by the act. My, MeDeugal: X de not ses any other way and that is why i voted negatively upon making checks drawn on our people at Hew York at par, because it is going to mean that we will have to ship the currency which they finally have fo send to ue as a result of this plan. tir, Chairman: I t would not be altered at all if you are going to make the Federal reserve banks pay. liv. Vancher: i f you are going t o z o outside o f your distrt and permit members to draw a check on you through New York, it seems t¢ me that 1% is going to unneenesarily complicate matters. ee we brought up. T h e r e i s not a single bank that would object to accumulating a comfortable balance o f one o r two or three millionm dollars due by another benk. L e t us see if there i s 8 method o f effecting a clearance between the federal reserve benks for a while, end let us try i t and then get together and we can in the light o f practical experience b e able t o devise a plen the result o f which w e can better foresee than we Can now. Mrs MeDougall: E x e e p t that you do not offer the meane+Mr" Gheirmen; I have not any experience i n the matter end d o not know how i t would work out*in New York i n the ‘spring . I c a n imagine i t would.run. very much against u s and that w e would lose a good deal o f reserve owing t o the shipments o f cotton. I t would ell b e debited t o us and i f you did tie ten or fifteen millions that way, I @ennot see thet i t is going t o hurt us so very much i f we can get..our accounts through o n your market and také the checks o f the creditor when they heave been accepted R E E necessary length o f time to get them to destination. Mr. Fancher: I n our dietrict w e heave a technical situation which I do not’ suppose exists in-eny other, a e we have two reserve cities, Minneapolis and St. Paul, and Minneapolis creates e great deel o f St. Paul sxahwnee which Minneapolis does uct want, end hae difficulty i n releasing o n it. b S h e would b e forced into the necessity o f depositing those checks onSt” Paul end in turn draw her check against the federsl reserve bank and send it to Hew York, and we would b e furnishing them to the New York exchange without any profit o r ultimate prospects o f = quick return, and there i s the prospect of a loss that w e are running o n those checke. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis itr, Uadewgls £ donot agree with hrs Fancher because i voalige that ve are eorrying om a Limited fund with the quater exehonges it's reivenns < went portiqwlarly te find out chieh of thes peanible views you have in mindy one, the expanae of our galling on you f o r ourreney shipmenta; two, the fear of your bank hoviug suffered a tranafer of too augh of ate roverven to New Yorks o r y throu, vhother your Lending povor “oud boSemadyed, They are ol involved. ‘hie aayAnvelve ti aoe of two or thewe or five hundred Weveand dollars oF more of your penerve to Ser Yorke & do mot think that thie 46 a sovhous we tor wnleee yeu vecard ue ae om ona. h e tor aslesing yeur reserves je concerned, thet enanet cot beyond 4 sertain polat where you have out your roservea inte ltean which aro being collected through the exile, and when you have roughed the pedut of danger, we could take the matter up end changes ) eur ayotem or poliey. Mr, Wepougnhs T h a t de the point. ie Pheadest Theat io the very questéions ti, Ghairennt “hen you have begun te discount and these d4ncewnte were for the purpose of toldlug up Leand made by low York banks leeated at polate betrcon New York and Ghieage, then you vould hewe « demand on you for exchange on New York and then gou would Lege ngtine tip, Nedougedt ¥@le reChakwonnt tan't £tfuther truethatthetvould cobimae wathl 44 reached «2 waxkme ond then change to tho ether side of the eecount; i n cthor verde, considering that the movesest aust in time tucm tho other ways tip, Vellougal: G h geo, 1f you emit untill not yours ty. Gintewant Fersounlly, 1 attempt to de thats I de sot see why wo should net camot condekve thet the aasunt of exehange Cs Mr. Cheirman: You: would get currency. Mr. Fancher: Y e e gir. ir. Cheirman: “Nothing that might drop over that might make you e dumping ground but we would b e the dumping ground and would h a v e t o ship i t t o you t o recover. I t would n o t ef- fect your reserve position materially. Mr. Fencher: N o , not necessarily. Mr. KeDougall: T h a t i s just whet.we are doing with a member bank i n New York. Mir. dis Fien: T h e t i s a matter of « few hundred thousesd dollars. For instance, i n the case of & recent advance t o Wace, Gaiveston and Sen Francisca, I will get something beck o n the proposition from perhaps Waco and Galveston and San Francisco, but certain others o f the coast cities w e are not g o sure of for immediate return. I n other words, where i t absorbs a cons siderable emowt o f exchange i n the meil owing to delays, i t is # question whether the transaction i s x profiteble one or which might h e better erranged i n some other manner Buch ag contemplated b y the act. ur.jieDougall; I d o not see any other way and that i e why T voted negatively upon making cheeks drawn o n our people a t New York a t per, because i t is going t o mean thet we will hase to ship the currency which they finally have t. send t o us as as result o f this plan. ir. Chairman: I t would not be altered at all if you are going t o make the federal reserve banks pay. Mr. Fancher: I f you are going» to. go outside. of your district a n d permit t h e m t o draw a check o n you through N e w from " i York end N. and M. a n d the bank in. San Francisco a t a n excess o f $2500 with your benk. i n Pittsburg, checked t o the National Bank o f Commerce, $40,000, a n d d o the eame thing in several other coees, i t séens to me that it is going to unnecessarily complicate matters. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6S Ur. MeDougall:. I do not agree with Mr. Fancher because I realize that we are carrying o n a limited fund with the eastern exchange. Mr. Chairmen; I want particulerly t o find out whieh of two views you have i n mind; one, the expense o f our calling o n you for emergency; two, o r of your reserve bank trensfer t o New York; or, three, whether your lending power would b e impaired, They @re @ll1.invelved b u t taking each o n e y o u see this m a y in- volve the loes o f two o r three o r five hundred thousand dollere of your reserve t o New York. ¥ do not think that this i s e serious matter unless you regerd us #8 an ememy. S o far as lowing your reterves i s concerned, that cannot get beyond a certain point where you heve put the reserves inte iteme which ere being covered through the mails, a n d when you have gotten te the point o f denger, w e would take them u p and change your syatem o r policy. Ny. NeDougall: Er. Rnosdes; #7 t h e t is the point. T h a t i s the very question. ir. Chairman; “ h e n you have Begun t o discount and these discounts a r e f o r the purpose o f taking u p all the points b e - tween New York and Chicago, then you would have a demand o n you for exchange between New York and then you would lose agains Mr. MeLougeall: Yes Ne. Chairman: I s n ' t i t further true that that would continue until i t renched a maximum e n d then chenge t o the other side o f the aceount; i n obher words, cedeineniie that tha movement turns t h e other WEY. Mr. MeDougall: O h yee, i f you wait until next yooer. Mr. Chairman: P e r s o n a l l y I attempt t o d o that. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis do not s e e w h y w e should not J I cannot conceive that the rete o f exchange https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis would b e so large that i t would not b e eafe t o experiment with it. Wr. Ailken:..Nr- Chairman, m a y I the commissary department i s busy? ask t h e Chairman whether I t is querter past seven. (Meeting then edjourned t o reconvene a t 9:15 p.m.) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Thur sday, Deoember 10, 1914. The Board reconvened e t 9:15 p.m. My, Sedougells A c I understand 1 t we are all ready now individually to take or receive et par items drawn on any other federal reserve benk i n the country provided w e can agree o n some ni6thod of settling balances a c e r u i n g therefrom, a n d Lt seems t o mo woe ought t o bé abhee able after this discussion to deside unon some temporary plan by which we can go ahead, cannot g O bank, V o umst take o k We i t e m s and there are going to be balances accumlating and it-seems t o w e i f we cannet agree on # nermanent plen w e can agree perhaps o n @ temporary. one. dust stating that s o that we can get t o work o n this ques end Go ‘something with it. Ur. Velis: I t would satisfy the Dallas bank to adopt the plan suggested h y you and see where t h e balamces fall. W h e n we come back topethar w o will h a v e some concestion o f what our needs may. he, I muggest that ageinst sny permanent plan Lim wwhae ewsgeested. siggested. That vould contemplste léniency o n the pert o f the bank acommilating oredit. P e r h a p s two a r three of the emallest districts are perhaps the districts that will be constantly debiting. I may be over estimating the extent of that; after this thing starts, w e may b e getting more inate this them I san see nov. ‘ Y e will make every offort i n our bank a3 mmch licnideation as we can, bat i think to resort t o considerable. shipping t o Keep covering the checks that will come t o you as I outlined i n the traneaction megzested. After a short ting a f 4 h a s become known that their cheoke o n ug, thet is, checks the smaller banke, will be teken at per i n New .York, there will be comsi@ersble drafts o n the federal reserve bank at Dellas and Dg more repidly then w e gen keep covering except b y shipping cur- renoy. My, Chairman: S o far as New York i s concerned, w e are not worried about the reserves being seattered,. W e are loaded with them. <6 My. Velis: I guess you cen stand i t for sometime, My. Chairmen: i f that difficulty i s the o n l y o n e particular- iy i n your mind, wiless oor friends o f the federal reserve board direct us to deley, I think our policy in Hew York would be to test i t even i f it resulted i n a considerable scattering o f our reserves. i cannot help feeling that the time will come possible forced a upon ua b y experience o f a month o r two, when sone Central polnt o f settlement o f exchanges will b s quite a necessity, a n d with that i n view 1 thonght 1 + would be well, to prepare thet table t o ascertain whet wae the moan distence between tho federal reserve banks, a n d the time between then, There i s Clevelsnd end Chicago, a n d possibly Cleveland i s a Shade nearer t o all t h e other federal reserve banks t h a n Chieago. And whether w e adont that vlan or some other, o u r disposition i s t o d o whatever i s thought t o b e wise b y all the banka, Mr, Wells: C o u l d we draw against a debit belance o n the bank i n Chisago? iy. Cheirmen: I dan’t know ebout that. My, ieKeay:? Could we draw on New York and Cispese of thet exchange snywhere w e chose b y selling it. My. Chairman! d s a matter of fact that i s what i s boing done today. hy, MeDougall: A g a i n s t belances with you, vy. Fancher: I t seems t o me that i t is fundamental that in a n exchange between t h e 1 2 banks w e should w o r k out s plen now, although i t may not b e the one for permanent adoption. we have g o t t o t r y some plan. I plan, think i t i s vitel t o edcrt s o m e i t may work against Mr. Wells i n Dallas o r it may work against some one else. i https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis But don't think he nee@ worry. I t ean all https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis all b e arranged, iy. Welis: I think we will get most é f the city exchange. ir, Faucher: T h e r e will b e a process o f accumulation o f balances thet will become available. ‘There are excess balances in Litteburg but they cennot 8611 the exchange and those balances Wili reduce the point consistent with the service rendered, it may be a million and a Béte half i n our district but after hae they are cleaned up I will get something to f111 in the vacwm, “8 ave @ Manufacturing district. W e are not selling our commodities outside and that is why New York, the one exchange we desire, w e don't get. ily. Wells: B u t you do get some Chicago? liv, Fenohers: Y e e and some ot. Louis. iy. Wella: I might agree with Mr. Strong to try this plan for @ short time amd see where 1 come out. I f we find efter 3 0 or 6O days that i t don't work w e can have something else. I ar egeinst trying t o adjust the balances with the individual banks. i think we should have a plan to clear the balances a t the outset, “2”. Mencher: I suggest a modification of the ourreney to make i t lawful momey, t h a t t h e covering o f balances b e b y lewful money. If you éraw o n national bank notes i t would have to be come i n gold certificates. Vancher: liz. Wells: Y o u could redeem the national b e n k notes. T h e ingemity o f the board has been brought into play t o bring into the banks the gold aud gold certificates a n d we violate t h a t plan i f we should d o this. federal reserve note o n the situation. W e ¢ a n force t h e W e ean keep some floak= ing. Ey, Mekay: Y o u could put that i n the bank for redemption. uy. ligbougall: i gold reserve we have. I do not see how we cam hold on to all the am willing to mect the banking situation 26 a9 i t erises but I cannot hold the #18,500,000 gola I have, ir. Welle: S o far as our distriet i s concerned, w e can ¥ float considerable federal reserve notes and there are pratically no national bank notes there now: Mt». M e Chord: There i s . &00d deal o f your other notes in progess o f redemption. : | _Mv. Wells: I am not acquainted with the status o f that now but u p t o six six weeks ago very little was redeemed. Wr. Fancher: Ores £170,000,000 has been retired. Ur. McKay: v e heave put out » million and a half a day i n gold lately. I f gou think w e eould hela this gold I would like to know h o w that oould b e done, b u t some banks want i t for Ghesring house PUPPOBes»§ : | Mr. Chairman: Y h e n y o u apply foree t o thet process you destroy the credit system. ir. Pencher: I think you have the same trouble. ir, Chairman: Y o u have taken i n this reserve money from the menber banks a n d i f they want i t back they are entitiea t o it. T h e currency laws are such thet i f you are forced t o protest your gpld reserve b y redeeming the obligations o f the Una te Stetes goverment, you ¢an turn thet legal tender money i n and redeem it, that i s your right end there s i the obligation of the United Statea te give you 7014 f o x its | My, F a n c h e r : u o Y are Speakingabout your notes-~« Mr. Chairman: No, they are a different matter, I am speakéng ing ebout your reserves ond i f we are roing t o contin o n a gold basis in this country, o u r bakke must pay paid and cannot afford t o refuse to pay gold. When your gold i s depleted and converted into silver certificates and legal tender notes, y o u have t o ask the United States to make good their obligation t o you o n those notes, That i s the basis o f our currency system i n the United States, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7 as it arises but I cannot hold the $15,500,000 gold I have. Mr. Yells: . 5 o far as our district i s concerned, we can float considerable federal reserve notes and there are practically ne national benk notés therghow. Mr, HeChord: T h e r e i s « gocd deal o f your other notes i n process o f redenption. Mir. Wells: I am not} atquainted with the status o f that now but u p t c s i x week age v e r y little w e e redeoned. Mr. Fancher: Over $170,000,000 has been retired. My. HoKay: G0ld lately. Y e hate pat ont @ million and half a day i n I f you think we could held this gold I would lire te know Kew thet could b e done, but some banks wont i t for clearing house purposes, ir, Chsirymen: W h e n you seply force to thet process you destroy the credit system. ii, Fancher: I Gr, Chairmen: think you Have the @ame trouble. Y o u have taken i n the ressrve money from the member benks and i f they want i t back they ere entitled t o it, The ourrency lews are such that i f you are forced t o protect your Hold reserve b y the use o f the obligation e f the United States government, y o u have t o turn thet legal money i n and redeem it, that i s your obligation, a m i there i s the obligation o f the United States t o cive you gold for 4%. Mr. Yemcher: Y o u are speaking about your notes ~ - ir, Chairman: N o , they are a different matter. f ara speak- ing about your reserves and i f we are soing to contimus o n a gold basis i n this. country, o u r banks heve t o pay gold and cannot afford to refuse to pay gold. W h e n your gold is depleted and converted i n t o silver cértificates a n d legal tender, s o u have t o ask the United States t o make good their obligation t o you o n those notes. T h a t i s the fundawenteal basis o f our evrrency eyetem i n https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 74 Mr. Vellet Until there ie a demand for geld don't you think we shovid held o n to our gold? iy. Chairman: Y e de if wo ¢ane Mrs Yelle: ¢ o r e heldine t o i t a e long a s possible. We. Yold: Gupposing January first they wadertoke t o eolledt tance o n member bankg i n our District and four o r five banks i n Kinnea- polie bring in balf a million cheeke for. two or three days and deposit them o m senber banke, c a n they draw cheeks the next day against those wabalenn and w e heve t o give gold t o thors its Chairman: I f they are sotiefied with anything else you would noy ghve ite I f they ask for cold you showld give i t to them The money that eirdulsates i n thiga country i a not all golds i I mean what o o are pormitied t o hold a e bank reserves 1 4 not all actual cold. You hold gold certificates which are the same a e cold, and United Stetes notes which are about 44% gold and silver certifications. B u t these reeerve banks are holding reserves in gold for the purpose of redeoming their notes i n gold and they held reserves in gold and law ful meney for the purpose of meeting the demonds of their depositors in gold o r lawful money and i f you only have lawful money you must rely on the obligation t o the United States Government t o redeem it in geld, i n order t o meet your depositora’ demand for golds Wr. Wold: 1 pay my obligation i n lawful money but I an not obliced t e make good the promises o f the Und ted iabege Mp, Ghairmant I n your discounting process you are going te lows recerves i f you ave discounting for the nenbers i n your distrigate Are you doing a discount bueinoss. (Te Mire Alken.) Mrs Aikent Y o u Sirs. A r o you, Mre Strong? The Chairmant Y o u , but w e are holding our cold, and settle ing our debit balances i n clearing house depository eertificates for legale and silver certificates but if we exhausted those we would use golds https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis the United States. ir, Wells: Until there is ea demend for gold don't you think w e should hold o n to our pold? r e t y g e e ‘ iy. U h n a i r m n : i ea m a 7 ” W e d o i f w e can. rena iy, Velie: W e are holding/it a s long as possible. Te. Wold: Sapposin ge t o col] Januery first e they undertake b lect taxes o n menber in our District a n d four o r five banke i n Minneapolis bring in half a million checks for two or three d a v e a d thom o n menber banks, c a n they draw checks the next day against those balances and w e have t o give gola t o them. ix. Ghairment would not give it. i f they are setiefied with anything else you I f they ask for gol@ you shoud give i t to them. The money that circulates in’ this country i s mot all gold. I Bh 8 8 mean what w e a r e vermitted + 6 t r e e donk reserves i s not a l l actual gold. Y o u r gold certificates are, m d some certificates are 44% gold and your silver certifications are. B u t these banks are Lolding reserves i n gold for redeeming their notes i n gold and hold reserve i n gpld ani lawfnl money for the purpose o f meeting the demands o f their depositors i n gold o r lawful money emi i f you d o have lawful money you transfer the obligation t o the Unitet States Govermment t o p a y t h e m i n gold, Hr. Wold: I pey my obligation i n lewful money but I am not obligated t o make sped the promises o f the United States. liv, Chairman: I n your discounting you are going to lose something i f you a r e discounting f o r members i n your district. Are you doing a discount business (To Mr. Aiken), ii. Aiken: Y e s six. A r e you, My. Strong? {ne Chairmen: Mo, but we are giving up gold, and we are settling i n clearing house depository sertificates f o r legals a n d silver certificates a n d i f w e exhausted those w e would u s e aold. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mx: You are using federal reserve notes? Mr: Cheirman: N o sir. My. Aiken: Y o u are paying notes where you can? Mr. Chairman: Yes sir, but not through the clearinghouses They will not accept those a s they con't count a s reserves. T h e Aldrich-Vreeland currency set made it necessary and profitable for the national banks who are members o f the clearing houses t o settle their balances inthose notes, It releives them of taking out clearing house loan certificates which cost 6% interest, The result was for ea while a constant effort t o get loan certificates into possession and not bank notes. A large mumber of banks were settling their clezringhouses balences with those notes, Recently they have been sending i n the Aldrich= Vweeland notes, n o t for redemption, b u t for the purpose o f retireing thete own notes and getting back their collateral. I think now. we had better z e t back t o our problen. Mr, S a w y e r : n I connection with Mr. McKay's plan I should like t o ask for a little information a s t o the settlement o f balances. Are they t o be settled weekly i n any way the creditor federal reserve banks demand that the settlement b e made? Mr. MeKay: Y o u are suggreating that w e d o not know h o w often these balances are going t o accumulate there, Ux. Fancher; I thought we were to treatthese o n the weekly basts. I t is all simple i n a wey. Mr, Bardwell: What will happen if some bank fina its balance “going to the bad” and needs the money? Mx, MeDougall: What dia you d o i n your own clearing house before you went into this system? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Ti) J4en: Y o u are using federal reserve notes? Mr. Cheirman: N o sir, n o t muds. 2.ae p e y i n g notes where y o u ssn? Chairyman; “ $ . Y e s sir, b u t n o t through t h e clearing houses. ill n o t ascent those a s they don't count a s reserves. T h e Alérich-Vreclanc currency act u d e i t necessary and profitable for t h e national banks vio are members o f the clearing houses te setile their balances i n those notes. a i e y relieve tien o f t e k ing wp clearing heuse certificates which cost 6 » interest. resilt w a s f o r a whlle a The constant effort t o g e t l o a n eertificates into your possession and noy bank notes. A large number o f banks wore settline their clearing house baianses w i t h those notes. Recently they have been sending those Aldrich-Vreeland notes i n for redewption but for the varpose o f retiring their own notes ard getting b a connection with Hr. 1g to ask Lor & little mors information a s t e the belances adept o n the weekly besis, that may be settled any way ral reserve banks t h i n k i t ought t o b e settled. ki, Mokay: Y o u ere sugvesting thet w e d o not know how often these balances ere going t o accumulate there. My. Fancher: weskly basis - f thought we were to treat these on the [ } i s all simple i n ea way. i Berdwell: W h e t will.keppon i f some bemk finds ite balances aré going t o the bad part o f the country and has not jhe money. Uy, MeDeugali: W h a t did you d o iti your o w ciearing house befere y o u went inte this system? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Ure Aikent f iy, Volla. a m i m the opposite e n d «of t h e G e m a n f r o m W e are larce ereditersa o f the Federal reserve. bank in New Yerk a n d w e may cerry i n a day t h e f u k e u m o f 920,000,0006 As L told you thie morning, v e bave had large avounts deducted i n a your and ony want a romittance, soy tomorrow, e f ahalf oa nile Lion dellers ot short notice, und sey want 2% promptly, because of the exchanges working vory solidly against us, but I don't wart t o gceuwlete « half 2 million dollars o u a joan i n two @ayo. T h e atock sxch i m Bowion opens say today, ond the gteck aexchunge i n New York epand o n Saturday, o n d L t is-quite podoible thet thore wlll b e i m each trangdction « billion dele lars obtained between thom o o thet there will b e a demand that doo not exiet a t another time when the exchanges are opén, B u t at the prevent time I wart t o be i n « pegition where 7 san gat Lavful worey an Kew York o n a telephone comminication from you and d o wet went t o weit aver vlgnt ier. Ghairaan? % I 4 hac oocurred t o me that if Mr. MeKay's pian i a adopted i a connaction with a echewe for a weekly set. tlowent, w e will h e doing t h e vory thier ~we.vwant to a v e i d s o for as the frequency of shipment is concerned and the expense of ahipping money i u concerned, a s 44 will then b e necessary t o have a wookiy ott? om, I n Leoleted ented, hovever, easy betvroen Now York and Boston, 2¢ might b e necessary to cettle every three or four doye o r once m wok. ir. Seayt ‘That woulll not give actual clearance proe miuas t i m e to adjust thameclvea i n one week; 1% would take seve eral weeks and ghowlé iswelve Lease frequent a settlement which would certainly reduces tho expenses iy. Alkent I t docs vot onke very much difference whethar ay Mr. Wells: W e l l , w e still exchange and the rate o f interest depends somewhat upon the state o f your credit. Mr. MeKay; I Mr. Wella. am i n the opposite end of the dilemma from W e are large creditors o f the federal reserve bank in New York and we may carry.in a day the full sum of $29,000,000. As I told y o u this morning, w e have h a d large amounts deducted in a year a n d m a y want ao remittance, s a y to-morrow, o f a half a million dollars a t short notice, a n d may went i t promptly, because o f the exchange working very solidly against us, bat I don't want t o eccwmlate a half-a-million dollars a s a loan i n two days. T h e stock exchange i n Boston opens s a y to-day, a n d the stock exchange i n New York opens o n Saturday, a n d i t is quite possible that there will b e i n each transaction a billion dollars obteined between them s o that there will b e a demand that does not exist a t another time when the exchanges are open. But atthe present time I went to be in a position where I can get lawful money o n New York o n a telephone communication from you and do not want t o wait over night. Mr. Chairman; I t has occurred t o me that i f the plan i s adopted i n an exchange with a scheme for a weekly settlement With regard t o doing the very thing w e ought t o be doing s o far as the frequency o f loans are concerned and the expense o f Shipping money i m concerned, i t will b e necessary t o have a Weekly settlement s o far as our resources go. S o that i n isolated cases between New York and Boston, i t might be necesSay to sit o n four days o f the week. Mr. Seay: T h a t would not give actual elearance pro- Cesses time t o adjust themselves i n one week, but would involve Several weeks which would involve frequently = settlement which Would certainly reduce the expense. Mir. Aiken: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I t doeq not make very much difference whether https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis make 3 % teie6e o x ones « day. Mx. MakKay D e y o u n e longer hove o m y ite K i u r e n a m n H o w York oapecially, I mesn «ise i n every ezve i aity. i? Ai *Ba wore. in godd o r not, oxi i s exvee ‘igen’ $ o Reston, who ie to pay the charges? My, Chviveent T h a t w o ought t o decide here before w o benve temighs. het d c Me, Aileen and Mr. Strong think ir, Mi. G@uiromt M r . Aiken 4id not esem quite certains ir, Aikens . Me. Strong onl I 2 week ago Saturiay Zeit it wee up te the bank who had #6 get the sonsy hom toe poy, o m d 7 wi h e seemed t o Think t h t thoeve was something to be wadd on both sides of the question, wate’, M y originel feeling mo, a n d IT om antursliy ofes t,Sheet w e bet G o take « cheek reyatle i n New York, A n d i f we hull $ 0 e t t e t money i n Bocton w e would got 1 % < < Me. Geoiveon: H o , w e heve a di2¢ Mrs MaDowrsti: g the daetricts o f he I f we could retate these governors around wowld thet de? ge t o Daliss first. My, Alikoms I T think 1 % ‘Lad like te know )x I m thet ease I would we make i t twice o r once 4 day. do not want t o make daily telegraphic My. Wells: I settlement. D o you no longer have any items i n Kansas City? Mr. McKay: I do not mean i n New York, especially. I mean also i n every federal reserve city. N o , sir. Hr. Wells: would like t o inquire whether the federal ur. Aiken: I reserve bank of New York is going t o make the shipment referred to i n gold o r not, a n d i n case w e are celled o n to-morrow t o make a shipment t o Boston, w h o i s t o p a y the charges. Mir, Chairman; T h a t w e ought t o decide here before w e leave to-night. W h e t d o tir. Aiken and Mr. Strong think about Mr. McDougall: Me, Chairman: My, Aiken: M r . Aiken did not seem quite cheerful, M r . Strong and I a week ago Saturday felt i t was u p to the bank who had t o get the money home t o pay, and I that talked t o him a little this morning ani he seemed to think as question, there was something t o b e said o n both sides o f the I understand. afraid M y original feeling was, and I am naturally York. yet, that w e had to take & check payable i n New A n d i f we had to get that money i n Boston we would get it -—iy, Rhoades: F r o m your commercial bank? Mr. Chairman: N o , we have a different relationship with that bank. Wr. MeDougall: I f we could rotete these governors do? around over the districts how would that I n that case I would like t o g o t o Dallas first! Myr. Aiken: I think i t might h e l p t h e situation, b u t get our money when the we would like t o know how we are going t o https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis = e r o K time comes, I 414 not take oxeeption at 211 to Mr. MeDougell's inquirys I think i t entirely proper wider the circumstances, The Shawant benk told me thatthey were liable to draw $200,000, onChicago before I left, Yell, I told the cashier before I ‘Left, that I wished he would send it out there for our credit and asked Bogten i f he could find enough exchange t o reait, Mir, Mo Key: Ome of the Chicago banke has told me ona I told him that w e did not want that transaction. I f w e do get i t we will go over and ask you 40 remit o n Boston. H e hesitated a while and s said,"VYell, That will b e 211 right. I f it comes t o a showdown w e will d o that." ir. Chairman: That is the pbint on which we have got to arrive at a decision: ment nowe I T h e question is, must w e adopt a plen o f settle- heve some little doubt about it, if it involves frequent transfers b y the benks, more 8 0 than we might find t o have been necessary a t the end of a month o r six weeks experience, A n d I am prepared t o angvere Governor MoDougell's question about our relations with Bostons W h e n Governor Aiken and I first discussed this matter 1t seemed to me that if he remitted us o check drawn on our benk forhie credit that we were entitled to eonsider that the gheck being payable ot our office, i t wax up to him to collest it and get the proceeds back t o Boston. N o w , I am sure that ground is sound, that the argument i s sound, I t i s afact that this i s a mutual gonvenience between the nombers of the Boeton district and the meabers o f the Sew York district, a n d i f we san find a ground to justify it, and are going to try some general scheme of relationship between the Federal reserve benks i n this matter, such as a eontral cleaging arrangement, I would like t o find a n argument t o justify dividing those ehargea, I want t o make sure that you under+ stand that I don't know how thie account is going to result so far as Mew York i s eoneernea@, I https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis have n o idea a s t o w h e t h e r time comes. I inquiry. I did not take exception a t all t o ur, MeDougail's think it entirely proper under the circumstances. fhe Shreveport bank told m e that they were liable t o draw $200,000 on Chicago before I left. Well, I told t h e cashier before I left, that I wished h e would send i t out there for our credit and asked Boston i f he could find enough exchange t o remit. Hr. MeKay: O n e o f the Chicago bank has told me and I told him that w e did not want that transaction. I f we d o get i t we will g o over and ask you to remit o n Boston. H e hesitated a while a n d said, “Well, t h a t will b e all right. i f i t comes t o a ghowdown w e will d o that." Wir. Chairman: arrive. T h a t i s the point a t which we have got t o T h e question is, d o we need stock i n there, a n d frankly, I have some little doubt about it, i f it imvolves a frequent transfer b y the banks m o r e s o than w e itight f i n d t o b e necessary at the end of a month o r six weeks. A n d 1 am prepared t o answer Governor McDougall's question about our relations with Boston. When Governor ABkon and I first discussed this matter, i t seemed to me that i f he remitted your checks drawn o n our penks for his our credit, that we were entitled t o use that check as payable a t to office, a n d if you want t o send over here and get it, i t is up you t o get i t and gét i t back t o Boston. H o w , I am not sure that that ground i s sound, t h a t t h e argument i s sound. I t i s a fact o f the that this i s 2 mtual convenience between the members a n d i f we Boston district and the members o f the New York district, try some can find a ground t o justify it, and are going t o banks, which scheme o f relationship between the federal reserve clearing aris individual rather than general, b y our central some basis o f rangement, I would like t o find a n argument for that you underdividing those charges, a n d I want t O make sure t o be reached stand that I don't know how this account i s going so f a r a s N e w York i s coneerned, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis t T have n o ides a s t o whether 76 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis we will generally b e a créditor o r debtor t o the other banks o f the system. Mr, McDougal: I should think it would be up to the Bos- ton Bank to get that money themselves. Those checks are payable inNew York{ . McKay: T h a t isy in the system of clearing between Boston alone. Mr. Chairman; I think Governor Aiken is unduly alarmed as to the extent o f the credit o f Boston o n our books. Mr. McKay: N e w York will be gotting items o n Hoston now. Mr. Aiken: O n e bank has given me eight hundred thousand on New York i n three daysé Mr. Chairman: A n d yet when I left New York your balance on our books was only about half a million dollars. Mr. Aiken: Y e s s Mr. Seay: T h e whole situation i s s o intricate that I would rather stand committed to making such settlements as are called upon our bank b y the shipment o f currency and cannot bring my mind t o acquiesce i n the plan suggested for adoption a t this time. I do not know how our relations with the other banks will work out, whether a debtor or creditor relationship. I t would not make m e uncomfortable i f we were i. o e u p the credit relation t o one wi Lldek or one and one-ha}f million dollars, and I cannot bring my mind t o acquiesce a t the present i n such a definite fixed plan, as has been proposed. I more than agree with you Mr. Chairman, i n the opinion you have expressed, a n d I am convinced that the frequency of such settlements would b e far too great and that the natural order would probably effect settlement i n a month, where i t could not pos- sihly effect i t in a week. Mr, Aiken: M r . McDougal stated that we might possibly take a step backward from what we have already done but I do not. we will b e generel creditor o r debtor t o the other banks o f the system. should think i t would b e up to the Bos- Mr. MeDougeéll: I ton bank t o get that money themselves. T h o s e checks are payable in New York. Mr. McKay: T h a t is, i n the system of clesring between Boston sione. think Governor Aiken is unduly alarmed Mr. Chairmen: I as to the extent o f credit o n Boston o n our books. lir. Mekep: N e w York will b e getting items o n Boston now. Mz. Aiken: O n e bank has given m e eight hundred thousand on New York i n three days. Mr. Chairman: A n d yet when I left New York your balance on our books was about half a million dollars. ix, Aiken: Yes. wr. Seay: T h e whole situation i s soimtricate t h a t I a s are would rather stand committed t o making such settlements a n d cannot called upon o u r bank b g the shipment o f currency adoption at bring m y mind t o acquiesce i n the plan suggested for this time. I a not kmow how our relations with the other banks will work out, whether a debtor o r creditor relationship. I t up the credit would not make m e uncomfortsble i f we were + o ran a n d I can relation t o one million o r a half & million dollars, present o n such a definite not bring m y mind t o scquiesce i n the fixed plan, a s has been proposed. I more than agree with you i n that the frethe opinion you have expressed, and I am convinced great a n d that t h e queacy o f such settlements w o u l d b e far too i n two natural order would affect the settlement proposition i t i n a week, months, where i t could not possibly affect Mr. Aiken: might possibly i r . McDougall s t a t e d thet w e already done, but I do not take o step backward from what w e have https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis quite agree with him i n that, a n d Ithink we have made one mis— take and it is a very fundsmental one, and that i s the failure to recognize the matter o f time i n these exchanges. 1 ! think that i # a Yery serious one that i s going t o create a great deal of trouble for us before w e get through. I think it is unsound banking practice t o treat a s gold clearing funds a check o n think i t promigetes a n idea that i s unsound Gan Francisco. I and indefensible a s a banking proposition, a n d I do not imow whether it is possible o r practical t o take a step back now, but I am quite sure that it is making trouble for us in the future i f we are going t o accept for immediate credit checks o n @ll points i n the United States. agree with Governor Aiken. My. MeKay: I I t is a mistake to credit inmediately items that take several days to reach their destination. T h e clearing plan, however, does not clear then until they do reach their déstination, but I do not see why the New York banks should be willing t o credit items a s far away 2s San Francisco. I do not see why they should reach a big float there against which the member banks can draw for immediate credit. A mutber o f banks can draw that out before the New York bank can into a very get settlement o f clearings, a n d that float may run large amount, Mr. Chairman: I t may be desirable to pat a credit on every one o f these checks. Mr. Seay: I % is only on the beautiful theory that two errors neutralize each other. Ur. Aiken: I f the changes were all offsetting that wonld b e --— My. Sesy: T h a t is a theory that is finding entertainment here. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Aiken: I t seems t o me, Mr. Chairman, i t is peculiarly incumbent o n the federal reserve banks t o call u p operations that are fundamentally sound as banking propositions. There isn't a transaction that isn't based o n the current rate o f in- terest. Y o u cannot get away from that mtter o f time. I t does not make any difference a t 811 where one cause creates the case and the other the footnote. t h i n k we wonld l e y our- selves open t o a very well grounded criticism from those who are interested i n the banking proposition. W h e n one i s away from home h e looks t o Boston o r Sen Francisco a s a clearing house for his checks and funds, a n d he would not like t o find that you or I consider the principle o n which they have been working i n the past i s wrong and a great mistake. T o start with s premise that i s enforcible from a n economic point o f view --~My, Chairman: P o s s i b l y this i s the time t o ask itr, UcDougell t o answer that second question. ix. MeDougeli: I lr, Aiken: I do not believe I can answer it. feel pretty strong o n it and I imow that the best bankers i n New England are o f my point o f view. Mr. Chairmsn: T h e discussion seems t o have taken the turn of analyzing this question o f time. I f there i s a strong sentiment that we should put time o n federal reserve banks, why mot stert o n that. Mr. Mexay: B u t thet does not interfere with the general propo sition. Mr. Ghairman: N o , that is.a part o f the plan whichever way the conference decides. W i l l you put your thought i n the form o f = motion, Governor Aiken? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis My. Aiken: I do not know just what sort o f a motion t o https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis = = * ee put, Hr. Chairman. B a t t o bring i t before the meeting, I move That the banks adopt the practice o f deferring the eredit o f checks o n other federal reserve banks i n accordance with this schedule which we shall agree on a3 t o time i n transit. I simply make that motion t o bring i t before the meeting, not to urge i t against your better judgment o r thet o f the other members of this conference. [ I f there is any objection to the language o f the motion, I withdraw it, Mr. Chairman. Mr, Chairman: I would not like t o have you withdraw that at this time, i f it is the judgment o f this meeting that eredit the immediate/memtk of each check is at stake. W e heave for- tified our position i n New York i n such a way that i t would b e an easy matter for us to withdraw and to take advantage of every check we receive. L e t m e repeat that w e did not adopt this plan without first deciding among ourselves that w e were following the fair interpretation o f the federal reserve act, o r without the advice o f a mumber o f the best transit m e n i n our district, and they agreed unanimously w i t h the report o f t h e special committee o f the House, w h e n w e made o u r recommendation t o t h e Cleering house for special treatment o f these items. W e made i t in such 4 way that s t any time w e could modify i t and that was thoroughly understood i n New York that i t could b e modified a t any time. My. Wells: W e are not s o m c h doing violence t o the order o f time a s t o the order o f valuations. F o r instance, Mr. Aiken's statement cannot b e substantiated when i t comes t o paying premium o n New York o r Dalles because w e have weighed the question o f time there and are still considering it. Mr. Aiken: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis O f course, n o defect enters i n t o it. iy. Wells: S u p p o s e i t is insufficiekiime i n ma iki ng these checks cagh current, w e are doing violence t o the laws o f supply and demand. ir. M e D o u g a l, i Kr. Aiken; [ I e it your idea t o put. the limit o n checks am not prepared t o taxe u p the métter o f federal bank checks, My, Wells: Y o u @re sticking right t o the discussion of ll o'clock this morning. Myr. Chairman: I f you a r e willing t o l e t your motion stand in a general way, I think i t will b e seconded. ir. Wells: L e t ' s discuss the practical operation of I think if the federal reserve bank at New York sees a number of banks which are Willing t o give you oredit o n Richmond o r San Francisco f o u r days late, t h e y will accept t h e m i n the same way they accept t h e m now. Nr, Cheirman: I think that a s t h e question stands i t i s whether they are acceptabie as a vehicle ~—— it, Wells: I t is not a cuestion whether they are ac- ceptable but is acceptable. ir. Seay: I believe it ts a violation of the fundamental conception o f this system t o consider t h e question o f time. T t is @ flagrant Violation o f t h e fundamental econception o f this system, Mr. Wells: I interes’ would like to get back to that question of b y Making transfers. I n s t e a d o f having checks pass cur- Font, we can try it better by haviug the banks require that the transfer be made by telegreph, mail o r in any way without charge that seems t o be the concensus of opinion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis a yr, Seay: i f w e adopt t h e conception thst w e are a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis w e e s & co-ordinated system with one overruling head and twelve more o r less independent units, a s I believe w e are, I feel convinced that i t would b e & violation absolutely a n d vitally t o that principle t o adopt such a plan between the federal reserve banks governing t h e time allowance. Mr. Chairman: I a m afraid I concur with you i n that. f think the act meant that checks o f the federal reserve banks o n the f8deral reserve banks would pass a t par all over the country. believe that it would be working a disap- Mr. Seay: I pointment a s t o the intention o f the law to the country. Kir, Wells: G e n we detect the intention o f the law i n all our operations? believe w e can i n a1] our operations i f Mr. Seay: I we view ourselves 2 s members o f one head. Mr. Wells: I t will b e a n advantage t o the eleventh dis~ trict for it will give us a chance t o create our balance into something, a n d that will give us 3 chance t o carry the float which will b e upon us when w e undertake t o finance things. Mr. Chairman: W e l l , w e have reached the point where w e do not s e e m t o b e able t o get a motion seconded. N o two minds in this room seem to b e agreed o n the same subject. Mr, Rhoades: H a v e you talked with Mr. Warburg o n the subject? Mr. Chairman: Y e s , I did, a n d s o far a s his opinion was expressed, although I do not like t o speak another man's views for him, yet I gothered that the settlenent o f exchanges between federal veserve banks should b e effective b y 4 elearing arrangement, b u t h e is not clear as t o what that arrangement should be. I am sorry t o say that h e believes, [ think, that ultimately every feders1 reserve bank should receive o n deposit https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis other mewber bank in the United Stetee at par. tet. Welle: Y o u say, ultiuetely?} tie, Chadimeng I did not cay “ultimately,” if you moan gagh before the draft arrives at the place ef payments I ‘that ultimately ve will appreach that point. I with that point of view. mean de not agrue I t de mot thimk it is a seumd course or that it iw teking a otep in the rightdirevtion te take checks aa gash ond charge then to the member banks on which they are ayown. i vould adopt possibly the sane theory in regard ‘te theese checks, which are certaialy not ae good ag the cheeks drawn on Yederal reesrve banka, carrying the obligation of both orewor and enderser, and < would time these checka in such 2 wey that every momber bank had the oppertunity t e see whether i t wae ao good o r bad check before his account was charged with it. i would do that ot the etart. tie. Voller: h e t ue pureue that idea a Little further. o u l d you have two reserve banks on your accounte] te, Chaivwant Unfortuaxtely, that ie just what it would nocessitate. ly, MeCord: Well, nov you have the cheek on the enlorsenent ofyour customer, wo will say the Gommercial Hank and you realize on the endorsenont, ani that bank is sending that cheek from A tlante to Gclifornia, we will say. T h a t whele syeten has been going on for years, ani W121 continue and they will continue to ume thelr discretion, Mis Welle: A o time has gone on for rocent yeara, we have been following that practice originally, but ve have f from its members a n y check drawn o n another member bani i n the United States. My.. Wells; Y o u say, ultimately? ir. Chairman; . I did mot say, altimately," 4 f you mean cash after the draft arrives, I Get to that point. I mean that Ultimately w e will do not agree with that pointf o view. believe that we are as sound banks as there are in this country and we have 2500 banks i n thig country which ike be members o f this sytem. A n d I do notithink i t is a sowd course o r that it is taking a ster i n the right direction b y taking ibileks a g cash and charging t h e m t o the member banks i n our district. I would adopt possibly the same theory i n regard t o those checks which are certainly not a s zo00 checks a s drawn o n federal reserve banks, comparing the obligation maker and endorser, a n d I would time those checks i n s u c h away that every member banic had the opportunity t o see whether i t was @ pier o r bad check before his account was charged with it. I wowld d o that at the start. My. Wells: L e t us a r s e that idea a little further. Would you have two reserve banks o m your aecounta? : My, Chairman; Unfortunately, that i s just what i t would necessitate. Mr. MeChord: W e l l , n o w you have the checks o n the en- dorsement o f your customer, w e will say the Commereial Bank, and you realize o n the endorsement, a n d that bank is sending that check from Atlenta t o California, w e will say. T h a t whole system has been going o n for years, and will continne and they will continue t o use their diseretion,. Mr, Wells; A s time has gone o n for recent years, w e heve been following that practice originally, b u t we have https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis fort https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis deviated from it during the last few years, The reserve Gity bhanke are ¢harging their correspondencé banks a s originallye Mr. MeXay: Y e s , t h e y 4 6 i m s o m e c a n e s n o w , My, Wells: However, they stopped i t i n New York. Me, Choirmen: Yes, t h e y heave gradually stopped it. Mx, Welle: Competition did it. I t does not make any i concerned difference so far ae the Federal reserve b a n k e s whether you charge i n théetr accounts and bit1L them i n s e e manner b y which they sah anticipate the eall b y charging exeess deposits o r giving them credit i n their accounts later, After you heve had a chance t o get the procesdg,it is a question o f attributing the burden o f the loan. Mir. Cheirman: This matter is quite in your hande if Some gentleman here can find e eolleague whe will second the motion and we ean get ea vote o n it. My. MeXays Y o u 211 know thet New York exchange i s a Commodity i n this country and can be bought and o l d and that such i s not the ease i n all other Federal reserve cities, and there would b e some reason for a bank taking New York exChange for immediate oredit because i t ean sell that New York exchange a n d realise o n i t immediately. in the ease o f New York exchanee, I f we wanted t o d o s o a s a t present i t i s a com- modity i n the ease o f exchange o f a good many o f the other re- serve cities. It is not a commodity in New York and it is not a Commodity a certain distance away from home, but, N e w York x q ehange i s a commodity anywhere i n thie country and oun be used. it is like Geviabed from it during the last few years. T h e reserve city banks sve charging their correspondent banks a s originally. Mr. MeKay: Y e s , they d o i n some cases now. Wr. Wells: E o w e v e r , t h e y stopped 1 % i n New York. Hr. Chairman: Y e a , they have gradually stopped it, and they ars effecting the terms o f it s o far as the theory o f it is concerned. T t was wojectionsable o n l y becaise i t re- Guced the earning power o f the members' eccount. ifr. Wells: C o m p e t i t i o n did it. I t does not make any d i f ference s o f a r a s the federal reserve b a n k i s concerned whether you charge i n their sccounts and bill them i n somo manner b y which they cta anticipate the c&ll b y charging exoess deposits or giving them credit i n their accounts later. A f t e r you have had a chance t o get the proceeds, i t is a question o f attributing the burden o f the loan. Mr. Gheirmen: T h i s matter i s quite i n your hands i f some gentleman here can find a colleague who will sesond the motion a n d get t o voting o n it. Mr, Mekay: Y o u all know that New York exchange i s commodity i n this country and c a n b e bought and sold ami that such t s not the ease i n all other federai reserve cities, a n d there would b e some reason f o r a bank teking N e w York. exchange for immediate credit becakse i t oan gell thet New York exchange By realize o n it immediately. I f we wonted to do so in the in ease o f New York exchange, a s a t present i t is a commodity the case o f exchange o f a good many o f the other reserve cities. It is not ® commodity i n New York and i t i s mot « commodity a is a certain distence a w a y f r o m home, b a t N e w York exchange commodity anywhere i n this country anf can b e used. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I t is like §¥ .‘ ‘ G Our «5 n i u P n o E e oa G t ce — _ — e m h 4G i scet u rpes i c v es w Je { Paserves . la dim i t that a t s thn c o in n s i eas 2 vrI d . e a i, nty,t (on y Apnea ey a io e8 a T S es s o r ve or C h e c wiih a d e https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis S G10 t e e ont e s S . OR mex v o i r : s4 v a panic h in A a k s ’ sterling exchange i n that way. Mr. Seay: P r o j e c t yourself into three years hence. Mr. MeKay: A t that time w e will have a condition o f ex~ change which will make i t possible. T h e r e may be twelve kinds of exchange. Mr. McDougall: I have a motion t o make; That i t is the sense o f this meeting that outstending time shali b e recognized except i n cases of bank balances between the member banks o f federal véserve banks i n each district. We are now accepting drafts drawn b y member banks o n member banks i n cur own districts o n reserve cities. that out for the sake o f argument. L e t us leave T h e object o f going as far as w e did go was for t h e reason o f transferring reserves in our own districta, a n d we all edmit that the outstanding time can b e reserved for consideration o n the queation o f transferring reserves that come i n on reserve banks o f other districts. iy. Chairman: H o w about this case where a member reserve bank im New York city draws #éez $4765,00 on one of its reserve accounts in Albany, e n d remits those checks t o us for the credit o f its reserve accounts, a n d in the same day we have $276,000 of érafts presented egainst them i n the clearing house. Lo. Seay: A n d i n similer cases where one o f the South Carolina banks draws o n Gharleston o r Richmond o n one of the member banks there. Mr. Chairman: i t happens i n our district that one o f the members o f the reserve district waich i s i n the New York Gleering house, i s at Albany. W e are more fortunately situated than a n y other district i n that respect a n d i n this district it would b e quite possible o n this very basis o f transfer, f o r https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis * re s m e S E N e sy B e : t ©Oms a d Y O . n a y te bi v i c P h y g e a l 2 10 2 G Ueeorat: i eanit Gesb ; a r@ K GeO D D A d ihyd c GAAS ay e o t t o a s if v a y e + Pk te SORLe L e e t l Oa a . einer i 9 S i n e a t h ua s e e Y O U Ubueriar en O p heya 3 s fh u s on. Soeveuber o s Yw Oi Re L % d e n e Mee H E XY moon a gi betere r e as G Cn L E L GH. ATT ay e B anne i at or la h A a OSS y y P A E 2 3% ¥ a e G 3 2 ferans: c i a 2 o. R G B rel g ygt i n t h d TIS “ h s oy 3 @ v4 Ba BYRora Thats yey ‘ w h e eLgeo « a n4 ) M e ii r e v e r t , Louvres & member bank to carry its whole reserve i n the "mud wheel” that Mr. Wells refers to. hi, Seay: Mr. Wells: happened with us. W e have just four. W e have six i n our district. A n o t h e r thing T h a t i s one reason why I was i n fevor o f trans- ferring o f balances rather than drewing checks. W e had $37,000 against the federal reserve bank of Dallas. $ 2 5 , 0 0 0 of that is the proceeds o f a loan m d e t o the bank, o n November 30th. ‘ T h e discount was mailed t o us o n December 3rd. committed Mr. Chairman; W a s that seemktket t o break through by trust’ B u t I got itt ir. Wells: I t was brought u p for presentation o n November s0th and came t o us December 3rd. T h e r e i s no way b y which I cen check that except i n this instance where there were n o other transactions. Mr. Seay: M a y I ask whether you charged him with mal- feasance i n office? ( L a u g h t e r) . Mr. McKay: S o long as the reserve had a n excess with Mr. Wells: I t did not have any excess with us o n November yout 50th. M r . NeKay, have you undertaken t o adopt requirements regarding excess i n your district? I mean as between reserve cities. Mr. MeKay: I culty would b e solved. f that problem can b e answered our diffiI n the same towns i n different districts it might b e different. Mr. Bavdwell: I have a case i n mind . T h e Central N a - tionsl Bank of Galen (?) sends about $50,000 a day to Los Angeles customs house. T h e y give credit for that a t par. T h e y then draw ® $50,000 check on us, the bank of Los Angeles. T h a t would create a panic i n Sen Franciscotq B u t they deposit t h e excess https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Od ay aes 4. & 4% in San Francisco and they leave i t for a balance for a day or two. T h e excess charges they give t o the Farmers snd. Merchants Bank o f Los Angeles e n d t h e y mike that g o o d b e sending a check f o r $50,600 o n the Wells Vargo, o n which w e get a clearing has travelled for severél days, a n d everybody i s satisfied. W e thought thet was a kite a t first, but we covld not see how they could o ¢ i n the same Kite with Los Angeles. (Lenehter) Mr. peay; I belleve there will have t o be @ s y s t e m f o fines Geveloped f o r improper practices! Mr. Ohairmin; W e have wot t o puto etopweteh o n this meeting thougi:. Mr. NoChord: . Way not permit the withdrawal o f fonds until ample time has been given for the notes. Ur. Yells: . ii. MaChord; i ir. Wold: i How many banka will use it? don't eare whether they use it eat all. submitted this problem t o . Warburg i n November and he suggested that it’would resolve ttiacelt when i t became burdensome, I t séems t a me that this i s all new t o every one o f us and w e might t r y it for a while and see where the balances d o lie, ard see y h i c h way the exchanges flow, at this time, a n d i n the course cof a year i t ought t o show i t several times o r h a l f a dozen tifferent times anyway. This question o f shipping funds beck end forth i s causing some trouble and some uncertainty as to who.is going to pay the transfer. Mr. Mhondes: T would suspend payment i n s very short time. Ur. Cheirman: N o , vou would accumulate balances which you would b e entitled t o have shipped t o you send that would settle it. What you would have lost i n your shipments t o Chicago for instance, you would g s i n f r o m t h e exchanges. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I t i s simply & watter o f s h i p - https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis °2 ee 0 t s g = ping i n the reserve monoys ir. Wells: Y o u would have our gold. I t would still be i n the system, : Mr. Chairman: I f you discount and d o not lose your federal re- serve notes, but ‘you are goine t o lose your federal reserve notes, that’s all. Disoussing the: dnestion 29 .%0 wno shel? have the cus-— tedy o f this money, I.am Hot a bit afraid o f trying what has been suggested here. Mr. Yold;'°t think ‘once a month would be often enough because it would. be quite Likely t o adjust itself. My. “Ziken: . I-cannot agree to much less than that. ir. Fancher: for i t a T h e bank oueht t o have the privilege o f calling i t becomes burdensome. My. Aiken: I f the federal reserve bank holds the deposit o f $590,000 it is up to the federsl reserve bank to pay you that money when you want it, and if you want that, and tex are going t o present 4 check o n us and walked into the bank and ssid you wanted your money, why, w e are vound t o pay it. Mr. Chairman; I am very reluctantly going t o make a motion. I suggest that w e try something with the understanding that the séttlement b e effected at the end of the month with the privilece on the part o f a n y creditor b a n k o f calling f o r a shipment whever the balance exceeds a certain amount with that bank — — Ur, Seay: I Mr. Chairman, second that motion. — - - and we agree a s a part o f this tenta— tive p l a n that w e will have another meeting o f this board one o r two weeks after that settlement i s effected, a n d take stock of the situation. Mix. MeKay: A https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis shipment..of ourrenoy? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ly, Chedren: Yee, © shipment ef currondy.» tir. Mekey? T h u t is, if eny ene bank hes & settlonont. Theat ia e separate edjarteent from the elearing! by. Chadecent Yeo. h e t < bave in mind dc thie, P e r e ainally, i believe we ore uitdnstely coming to o plan of ¢learance or settlenont. I f we ase the word “sloarante” w e are going te pute ale averygbody, I % ig = syeten of cottloment. between the Federal ree terve botke, and when thet eystom of oettloment is ultimately devele oped, 4% wild avoid both lees of tine ani expinee, a0, whatever m y oe. determined i n the meantime, w e can well afferd te try this phen temporary plan and meres thet af the end of the month m general sete flement will be effected i n favor of eny erediter bank which devires one. i m the muentine, any eraditor bank any ask the privdlage of 2 — settlement of the belence againwt i4 ia eage Lt execacds agreed amount, fg to the deteraination ef when the iatermediata settlement should oce ‘ar, J t ds entively agreenble to me to abide by any plan suggested hore. 1 believe we ehowld fool.our way earefplly se thet we shall aot Later haves to retreet from our peeltion, and probably a t the end of mowth, we will have gedved some usefyl oxperiones, Ne. Sellet C o u l d we heve thet meeting before settlement, if oo, 1 would Like fo Wat s o m gentleman i n the eye 3 tir, Seayt D o you wake thet ae « motion, ty, Vohlat I te, Senys I merely put the sugcoetion, find myvoif very such i n eecerd with that, oir. tr. Fanchort t h i e ie a matter ef each deniing with the other, ‘Thore will ve ne qinetion of clearing up «6 ali, iy, Wellet Y o u heve a genere] eleering up unless w e Me. Chairman; Mr. MeXay: Y e s , & shipment o f currency. T h a t is, i f any one bank has a settlement. That i s a separate adjustment from the clearing? Mr. Chairman: ally, I Y e s . W h a t : I have i n mind is this. - Person- Gatdava w e are coming t o a question o f n o clearance. I f I t is we use the word "clearance" w e are going to. puzzle everybody. a system o f balances between the federal reserve benks, and when that system of settlement will b e ultimately developed a s a scheme o f settlement, i t involves l o s s o f time a n d expense, so whatever m y b e determined i n the meantime, w e can well afford t o try this plan and agree that a t the end of the month tha t a general settlement will b e effected i n favor o f any creditor bank. I n the meantime a n y creditor bank may ask the privilege o f a settle- ment of the balancé against itgin gase it exceeds the amomt. A s to the determination of when the intermediate settlement should ocour, i t is entirely dgrdentile t o me a g eugzested hers.: I do not care whether w e leave thie question for ten or twenty minutes to determine this i n conmittes.. T I T believé we should feel our way eérefully s o that w e shall not. later have t o detract. from our position at the end of the month, and probebly at the end of the month w e will have zained some useful experience. Mr, Wells: G o u l d we*have that meetingbefore settlement. If so, I would like t o hit some gentleman i n the eye! Mir... Seay: D o you make that a s a motion? Mr. Wells: I f merely put the suggestion. ir. Seay: £ £ I find myself very much in aecord with that, sir’ | f . each dealing with the Mr. Fencher: ‘ T h a t is a m a t t e r o other. T h e r e will b e no question o f cléaning u p at at. Mr. Wells: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis w Y o u have a general clearing u p u n l e s s e 67 we provide for a means o f doing it. T h a t is, supposing that ‘the bank will recognize the call which you make upon it. L e t us leave the settlement open until efter the meeting. Mr. Chairman: W i t h regard t o any one bank that might ac. cumlate balances, I do not believe that any member bank should have the right t o protect its position b y calling for a shipment, it seems t o me, a n d when the balance exceeded a reasonable amount. Then the question arises, who should pay the cost o f the shipment. Mr. Wells: L e t us leave the right t o call but not that of the general settlement until w e have h a d a n exchange o f ideas after the experience has been pained, c h a t would suit m e better because i f we g o away from here qhent ws have got t o prepare for settlement, then we will have ‘to Giscuss with ‘each other what the clearance h a s been. , ir. McKay: D o e s this mean that the settlement shall be made i n a month f r o m now?’ Myr. Chairman: l o w , m y idea“is that the — Mr. Welis;: I t shall. have the right t o call for adgustment the end o f the month. Mr. Fancher: A r e you goiug t o all. sit tight now without going out o f your. district for shipment? Mr. Aiken: I would like t o ‘have t h e motion reduced $ 0 writing, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Seay: S u p p o se yon express your ideas. Ma., Cartis: T h e substance o f i t i s that i t i s moved That the. reciprocal accounts between the separate federal reserve. banks b é allowed to, continue. and that .the federal reserve banks b e allowed t o have the shipment when the emount o f it exceeds a certain sum, ir. Mckay: A certain. sum? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis a e t qé Mr. Curtis: T h a t i s merely informally worded and may be changed s t the discretion o f the members. Mr, Moxay: W h y not leave ont — Mr. Wells: I hope y o u will phrase i t i n polite language. Suppose you put a n amendment. Mr, MeChora: I do not think a man wants t o b e troubled about smal] amounts, sey about $25,000 or $50,000 balances. Mx. Chairman: I think we would b e giad t o get rid o f the custody o f the money littering our vaults just now. Myr. Wancher: L e t u g leave i t to the creditor bank. Mr. Wells: T h a t i s whet has just been suggested. Mr. Nekay: U n d e r this plan w e would require settlements more frequently t h a n under t h e clearing arrangement. Mr. MeDouzall: f o get a line o n the course o f the ex-~ changes. ur. Welis: I am perfectly willing to leave it that way until after a meeting and then incorporate that plan as a ‘per manent one. i I do not see how we can d o anything else. Mr. Seay: S o that the amount t o b e settled w o u l d b e in the bank as a n excess o f credit o r debit, thet is, the amount Que t o us from the federal reserve banks. Y o r instance, a net debit o f © million dollars might have the-wunfortunate effect o f pumping M r . Wells out entirely. ir, Chairman; T h a t is, i f his affairs should b e i n a Slack condition. Mr. Welle: T h a t i s true except that these proceeds o f all m y loans will b e i n a debit belance a t eastern points, a n d the proceeds o f the "nmd wheel" that I will sustain i n the Clearing function. Mr, Chairman: “ M r . Wells, the proceeds o f all your loans are going out anyway. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ho4 a’ots Mr. Welles; T h a t i s true except that I have a chance t o get m y federal reserve notes out. Mr. Chairman: I f you issue federal reserve notes against your rediscounts you are not going t o issue & check t o your cus~ tomer that will c o m e t o y o u f o r exchange. Wr. Mekay: I f you send the federal reserve note t o New York, Mr. Chairman: T h o s e federal reserve hotes will not go to New York t o make New York exchange and your operation o f discounting i s going t o result i n one or.two o r three things. Y o u are going t o increase the balance o f the cfedit bank, that i s only temporary; y o u are going t o give him a check o n your note. The check may g o t o New York for New York exchange which can be drawn against a s balance. I t will come t o New York for exchange and then possibly you heave your gold i f the time comes when you would call for it. I f you issue federal reseve notes, they will stay i n circulation just as long as the market i s open. The fact i s yon daemt d o business and keep your reserves too. You have got t o go into business o r lose. I cannot agree that your fears will b e realized i n a month o r six weeks. Mr. Seay: ‘The. law certainly contemplates that the feder- E al reserve banks shall b e indebted t o one another for the loan amounts and it seems t o me that w e should try i t and that n o bank will b e willing t o resign its privilege o f calling o n 4 central bank to maize settlement t o it, and that w e ought not t o expect it. I therefore m k e a m o t i o n that t h e reserve banks accept a t par checks upon each other and that n o creditor benk shall have the right t o call for settlement o f balance due i t at a n y time, b u t that t h e experiment b e tried f o r o n e month. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 k t dh GByge ry” 6 ¢an ¢ = es 7 and says thet w e w e e t ® hg w e s s o . w t % CVOULUGrSs 2° 0" 4 e R t a a ‘ m e a k i conten e ourselves n ag" C y M E at. o e 2|i bat £ 6 i s f o r axel ANGO PUrposage . w e eG r e cch . 3: oat. that e a r h i h jenys ~iThere ia « xs eertain a d 3vroportion o f that i n this e r e is and Z bave but anyway khuow n e w t e o oxpress expressO 2 4 but K moves iate eredit a t wv banks n°? T h e debtor benk to pay the cost. Mr. MeKay: think it ought to be the creditor bank Mr. Seay: I which i s helpless under the conditions which surround us now. I mean for immediate oredit. Mr, Aiken: S a n p o s e t h e creditor b a n k d i d not want t h e money? My. Seay: I t is not benefit t o us now, W h e t value i s the money t o us now? W e are not going t o rey for money w e don'% want? Mr, Chsirmean: Mr. Seay: W h y not divide the cost. Y F would b e verfectly willing: sir. Mr. Yells: T h a t i s only a @etsil. . W e can change that afterwards, vy. Cheirman: ite. Rhoades: Mr, Seay: I + would b e a very trifling amount. T f don't think that i s economically sound. I t is doing n o more than the law contemplates and says that w e shall do, and we are voluntarily mking ourselves ereditors o f other banks b y shipping for exchenge purposes, i t is true, bot i t is for exchange purposss. Mr. Welle: C a n ' t w e credit against that cash i n some way or another? lr. Seay: T h e r e i s a certain proportion o f that i n this whole system, e n d I believe i t is absolutely impossible t o d o it the without timing everything and I heve s o contemplated it, government being the residuary legatee. Mx. MeChord: S u p p o s e you suggest that a s a motion. lir. Seay: I don't quite know how to express it but anyhow I move that t h e reserve banks accept f o r immediate credit a t par checks upon each other. and that the other banks https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis shall have the right t o call for balances a t any but that i t is the sense o f this meeting that the experiment b e tried for one month before a g r e e ing o n any definite method o f settlement. And I am perfectly willing t o agree o n that, f o r m part, Mr. KMeChord:; S e c o n d the motion, a n d call for the question. ir. Chairman: T h e question i s o n Governor Seay's motion which has been seconded b y Governor McChord. I s there any further discussion o f the matter o n the form o f the motion submitted? Mr. Aiken: F o r inmediate credit a t par? Mr. Seey: Y e s , six. I lay emphasis o n that, feeling the most profound conviction that that i s the most vital principle of the federsl reserve act, a n d that i t i s expected o f u s b y the whole country, a n d I believe, n o t o r y expected o f u s b y the board o f control. Mr. Chairman: I am not much practiced i n parliamentary matters, but I believe the question ought t o be called o n this matter, a n d I ask if you are ready for the question. C u e s t i o n on the motion. A l l i n favor o f the motion say "Aye;" contrary “Ho.” ( V i v a voce vote taken.) I am not clear how that vote went, whether i n favor o r opposed t o the motion. W i l l a11 those who voted i n favor o f the motion pleese raise their right hands. Four votes i n favor. How those w h o v o t e d sgainst t h e motion, p l e a s e raise their right hands, Seven against the motion. The motion i s lost, Mr. MeChord: G i v e us something better then! Mr. Pamcher: T h e r e i s one thing left t o do; that is, t o adopt the motion o f rescinding the handling o f checks o n federal https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis reserve benks. Mr. Bhosdes: ‘ T h a t will solve t h e question. J I ask that we adopt Nr. Mckay's plan. Urs Sawyer: I second the motion. Mr. Cyairman; I r wish to m a k e inquiry whether that pro- vided f o r the settlement o f the coet o f shipment. Mir. MeKey: T h a t detail was sot included i n the pian, and wat to be settled by the federal banks. Yr. Fancher: Y T ehould think that the debtor banks ought to be the ones t o nay the cost of shipping this currency. Vir. Wold: M e y . I m a k e the suggestion thet Ur* MeKay reed his propesition wery carefully i m order to clear up each of the different operations steted, end where i t is indefinite that he may be eble t o clear i t up i m sence shape. * ir’ pekay: (Reeding) “One of the federal reserve banks ehell act es clesring agent for all the feéeral reserve benkes. ach federel reserve bank wpon receiving checks end federal reserve notes from the other @lever banks shall telegreph daily t o the clearing agent t o charge ite clearing account end credit each of the other eleven banks the amounts received from then. When these telegrams have been received the clearing agent will make corréepoiding debit and credit entries*te the accounts o f all the regional banks o n e cleering sheet, and thus ascertein the net debit o r credit balances o f exch regional banks “The clearing agent shall then telegraph each of the reor eradit end also the amount o f the credits t o ite clerring account, giving the. name of each regional benk from whith each credit was redeived. sach regioml bank will then know the result of its clearinges "Settlemants of balances could be made weekly, or when any s N s t a d h o r debit balance reached a fixed amount - say, credit bank s net 250,000. * T o properly illuetrate the method o f settling balances r h ae ela a i o e - s a it is necessary to know which Federal Reserve Sank will act ee y e https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis clearing agent, and es payments t o credit banke cannot b e mede until settlemente heve been received f r o m t h e debit banks t h e clear- ing agent seleeted should b e loceted a t a central point s o as to minimize the time taken t o receive payments from the farthest distent Kegionel bank; and, furthermore, this plen provides for paymonts t o be made i n Chiergo o r New York exchange. "Yor the purpose o f explaining thie plen, therefore, w e will a :2 suppose the Federal Fererve Benk o f Chicago t o b e the Clearing agent. O n settlement day the cleering egent will telegraph each debtor bank t o remit ite debit balance i n Chicago o r New York exchange a t the debtor bank's optiom. T h e debtor bank cen buy the exchanges from either t h e member o r non-member banks i n its c i t y at the market price; o r if both kinds o f exchange should b e at a premium exceeding the cost c f shipping currency, them currency could be shipped - lerge bille preferably. T h e cost o f shipping them by registored mail, insured, would run from sbout six cents t o eighteen cents per thousand dollars; t h e latter amount i s the cost from San Francisco t e Chicago, which i s the Longest distance o f any of the regional banks from Chicago. “The payments would b e received i n Chicego spproximately ae follows, from the debtor banks; Boston - - - - two days New York - ~ = two days Philedelphie t w o days Richmond « - - two deys Atlenta- - - = twe drys Cleveland~ ~ = one d e y St. Louis- - Minneapolis- Fensas C i t y Dallas- - -- — Sen Freancisco~ one day one dey one dry two o r three days three o r four days Payments from debter banks would therefore all b e received b y Chicago i n not over four days, a n d i f o n some’ occasions c a n Francisco end Vallas were both creditor banks the peyments would be all received i n two days. A s soon as the payments were re- ceived b y the clearing agent the creditor banks would receive payment i n Chicago o r New York exchange et their option. A https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis vastly lerger amount o f shipment t h e n would b e necessary. Mir. MoKa$: That i s only fer the balance o f one bank againet t h e elevene Mr, Seay: Y o u require under this errangement t h e debtors paying i n three ways, Chicago o n New York, o r shipping lewful moneys “ h e n y o y p a y the creditor bank, y o u only p a y them New York or Chicago fande. I f you pay i n eurrency, w e shovld have the option o f being paid i n currency. Mrs Fancher: I f we r a n steadily debit f o r s time a n d h a d t o ship and then turned credit w e would be>-getting exchenge only and would not get ourrency beck unless w e had a n open order for the money w e are shipping out. Myr. Yold: Supposing your bank r a n ahead o f your eredit for $600,000, you would have a credit for the New York or Chicago banke Mr. Chairman: Icannot see why the result of that plan would not be getting lewful money for the settlement o f debit balances, y o u would b e sending N e w York exchange i n settlement. Wie, MeKay: Y e would make i t upon Chicago o r New York erchange o r aurrenc’. Me. Fancher: A e a ereaiter however, y o u would have t o pey the creditor bank, I n other worde, i f yeu had seven debtor banka and owt o f them four paid i n exehange o n Chicago and flew York, a n d three o f them shipped currency, a n d the currency shipuents were comparatively small, y o u would want thet smell cme t o pro-rate among five ereditors end the five would want @ aonsiderable anowmt o f currency. Y o u ¢ould only pay with what you gote Mrs MoKay: Y o u would have t o know what the ereditor banks wanted settlement in, and then send them---- i f they wanted ourreney~«--— g o n d them currency. ay hy "The clearing egent would convert Chicago exchange into N e w York exchange, o r vice versa, b y buying o r selling N e w York ex- change between the Chicago benke and would b e able t o maintain « closer parity between both kinds o f exenange then could be the case i n any ether city. ‘the clearing agent would o f course have t h e option o f shipping c u r r e n c y t o ¢rediter banks b u t would only d o se when absolutely necessary. "Under this p l a n i t would b e advisable f o r the federal r e - serve benk o f Chienge t o carry a n secount with the federal reserve bank of New York s o that it. could buy and 6611 New York exchange anc thus keep the exchange warket.es nearly par as. posible and could accumulate N e w York exchengd i n enticipation o f t h e payments to b e made for settlements o f clearinge. "It might alse b e a n adventage f o r t h e ‘eastern regional bauks t o carry accounte with the New York regiouel bank and the weatern r e g i o n a l t e n k s t o c a r r y a c c o u n t s w i t h t h e U h i e a g o r e g i o n a l bank, s o thet all the regional benks could anticipate the settlePy mént o :f their clearings a n d perhaos remove t h e necessity o f res rtting payments t o t h e ¢leering agent o n settlement day. “Any coet incurred b y the clearing agent i n making settlemente b y buying o r selling exchange o r shipping currency could be pro-rated among t h e regionai banks o n a b a i e .of the volumevef their clearings e n d eéuld b e adjusted monthly. 48 regeras t h e accounting system necessary f o r this plen ef clemrings, esch regione. bank would credit the other regional banks’ @leariag accounts with the ehecke and federel reserve notes when received. a i d would charge t h e itewe sent t e t h e othere i n treneit eecount until telegrapnic advice of clearings was receives then the trensit account could b e credited and the amounts cherged toeneh régioual benk’s cliesring account, end when settlements were received from the clearing egent the regionsl berk's clear ing secount would b e credited. “By this p i a n of clomring between the federal reserve banks shipments o f curreacy would b e reauced t o e minimum." https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Vr. Seay: H o w about the expense o f the clearing agent? Mr. McKay: T h e expense could b e pro-rated according t o the volume o f the clearings and their various methods for doing that i n local clearing houses noted and some satisfactory method could easily b e arranged for that. Mr. Welle: W i t h a correspondent i n New York you would heave a cell o n the regional benk i n New York and the regional bank would offset any deleys o r disadvantages occurring i n the system. Mir. R. Welle; H a v e you a regional bank? Mr. MeKay: Supposing you would went t o call o n New York. Mr. Welle: S u p p o s e a reserve bank wants t o build u p their reserve account b y drawing a check o n New York? Mr. Mekay; A clearing house bank of New York? Mr. Welie: Y e s . Z I think t o carry this plan t o the limit, i t would b e necessary t o permit the benk t o take checke on New York and Chicago, inaemuch a r the market has been created for both kinds of exchenge. I would b e willing t o go as far vs to sey that w e could take checks o n all benks lecated i n the 12 reserve cities where there a r e 1 2 banke; t h e n that would give a direct market for exchange. Mr. Sesy: W h y don't you call for a settlement of belances, then the reserve banks would begin to establish belances with bach other. ir, McKay: T h e y would not have to carry balances with each other at ell seperately. Mr. Chairmen; D o I understend thet t h e l l federal r e e serve banks would b e called o n to ship t o Chicage t o settle their balances wham eas they arose? Wr. MeKey; Y e s , i f we were reserve benks. Mr. Chairman: I do not see that that contempletes a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis vastly larger amount o f shipment than would b e necessary. Mr. MeKeay: T h a t is only for the belancem o f one bank againet the eleven. Mr. Seay: Y o u require under this arrangement the debtors paying three ways, Chicego o r New York, o r shipping lewful money. When y o u pay t h e ereditor benk, y o u only p a y them N e w York o r Chicago funds. I f we pay i n currency, w e should have the option of returning t o thom half. Mr- Fancher; I f we ran steadily for a time and had to ship, w e would b e getting exchange and would not b e getting i t back unless w e had a n open offer for the money w e are shipping out. Mr. “eld: Supposing your bank ran ahead o f your credit for ¥500,00C, y o u would have a credit for the New York o r Chicago bank. Mr’ Cheirmen; I cannot see that the result of that plen would b e getting lawful money for the settlement o f lawful debts due, and you would b e sending New York exchange i n settlement. Mr. MeKay: W e could meke i t upon Chicage o r New York exchange o r currency. Mr. Fancher: A s 4 creditor however, y o u would have t o pay the creditor bank. I n other words, i f you had seven debtor banks and ovt of them four paid i n exchange o n Chieago and New York, a n d three o f them shipped currency, a n d t h e currency shipwre mente were comparatively small, y o u vould "that small amount t o pro-rate among five creditors a n d t h e five would want a n awful lot o f money. Y o u could only p a y with whet y o u got. Mr. MeKay: Y o u would have t o know what t h e ereditor banks wanted settlement in, and then send them~--if they wanted currency--~-send them currency. ix, Aiken: S u e h a n arrangement i s subject t o the ape provel of the federal reserve benks. Wir, Mokay: Yerte Mere Oheirman:. I regerd this matter a n o f eueh/ importance thet I 40 not want t e bind- ourselves without submitting it. t o our directors. Nv. Rhoades: Uy, Alien: I Y e will huve t o submit i t t o our directors. have suffered a slight ehenge o f heart on lr, Seay's propositions https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Seay: T o reconsider that matter would etill leave the quveption o f taking u p o t par vnderternineds My, Yelle: O n Mr, Seay's motion w a s i t contemplated t h a t we take items o f member benke o n New York o r Chicapre? Myr, Chairmen: Bo, that wae not contemplated a c T underStood Lt. Mir. Wells: Couléw e take that e n d send i t t o yous “up- pose they effered t a us for settlement cheeks s t par a s depleted reserves? iy, Chairaan: You. could under this plan. Nr. Velie: V i l l y o u now? My. Gheiyment I think w e will. Poseibly i n sending out our Giycular t o oux member benks, w e excesded the scope o f our authori ty. its Yells: 4 I n the motion mate b y i , Seay, o f trying this out f o r e month, would i t b e practicahihe f o r u e t o sccept N e w York a n d Chieago a n d Zaenses City exchungs, w h i c h i s more o r less current i n our territory, from our member banke, thereby keeping down this net debit? Mr. Aiken: S u c h a n arrangement i s subject t o the approval o f the federal reserve banks, lin’ MeKay: Y e r . Mr. Chairman: I n regard t o this matter I regard i t a s o f such great importance that I do not want t o take the question o f binding ourselves without submitting i t to our directors. Mr’ Rhoades; Mr. Aiken; W e will have to. T I have suffered a slight change o f heart o n SON. / Ur. MeGhord*s proposition. Mr. Seays T o reconsider that matter would still leave the question of taking u p at par undetermined. Mr. Welle: O n Kir. Seay's motion was i t contemplated that we take items o f member banks o n New York o r @hicego? Mr. Chairmen: N o , that was not contemplated a s I understood it. Mir. Wells: C o u l d w e take that and send i t to you. Suppose they offered t o us for settlement checks a t parkas depleted reserves! Mire Chairman: Y o u ceuld under thie plan. Nr. Wells: W i l l you now? Mr. Chairman; I think y o u will. P o s s i b l y i n sending o u t our circular to the Detroit bank, w e exceeded the scope of our authority. Mr. Wells: I n the motion made by lir’ Seay, of trying this out for a month, would i t be practicable for us to accept New York a n d Chicago a n d Sangas C i t y exchenge, which i s more o r less current i n our territory, from our member banks, thereby keeping down this net debit? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr* Seay; Mr. Welle: I t would not curteil your liberty o f action. W e take that action o n federal reserve bank https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis notes, but we do not let it become generally known but simply do it. ir. Seay: W h a t would you d e if you were not a federel reserve bank? Wouldn't you d o it? Nr. Wells; W e have discuesed here a good many things which, i f I were a commercial bank, I would not de. Mr. MeChord; M r . Welle o f Dallas, suppose I owed you a belance and I have & balance i n St- Louis, a n d I telegraph t o St. Louis t a send b y registered mail t h e money down t o you, t o clear up, what i s the difficulty a n d trouble there? Kr. Wells: ‘ T h e only trouble i s that I might b e ehipping that money to St+ Louis and thet I might duplicate the cort o f shipment---the actual physical transaction o f ehipment. W e will finally get to the point, I believe, o f conferring with one another e s to what our assets are. Mr.e MeChord: A e a matter o f fact, I now have e balance a m St. Louis and Kenses ity. Vr. Welle: I only ‘ v e one i n &t. Louis, just a trifle, $40,000. Mr. Feneker: I fully egree with the proposition of Mr. Mekay's suggestion. I do not think hie plan i e worked out to & Conclusion, however, w h i c h w e could wisely adopt a t this time, and thirty deys from now the metter will resolve iteelf. Mr. Chairman; Gentlemen, w e have a motion before the house, made, I believe, b y ir. Seay, and Seconded, which was, i n effect, t o call for the adoption o f the plan of settlement proposed b y Mr. Nekay. Mr. Seay: I n that connection I feel that while i f it should pass b y a majority o f the sentinent here, I would not b e called upon t o commit our bank t o the adoption o f it without firet submitting i t to them. ix. Chairman: I t would b e subject t o review o f the federal reserve board anyway. My. MeDougall: D o I understand that the motion i a sub- mitted b y the Governor Seay? And that the plen should g o before the federal reserve board aleo f o r approval? Mrs Seay: I t vas so informally worded that I have no objection. t o any alteretion being made t o it so far as the gense i s not changed, b u t I think i n the mein, theplan sugwented i n £6, would allow our doing whet w e are doing e t the present time with regard t o settlements, a n d would leave any one bank free t o call f o r payment whenever i t felt disposed t o &QO 80s My. MeKay: T h e settkement largely crew out o f the fact that i t was largely e n interest question. ‘it. : a reserve No. I Xiotk think i t is a question o f having e f paper which i e really e fufidamental thing, a n d i n this ease i t seems t o m e a motter i n generalbrac tise bearing o n hendling ebliection items. T h e more items w e « r e going t o have the more collection sharpen w o will have, and i n fixing a rate n our country w e do not want t o fall afoul ofthe of e h e r g e i so-called anti-trust law. Uy. Aiken: w h e t i s the motion before t h e house, M r , Chairman? Mr. Chairman: T h e motion, a e 1 understand it, i s for the adoption o f a plan proposed b y Mr. MoxXay G e read o n d the motion i s seconded. Mr. MeChord: May I qualify my vote b y making it subject to the approval o f my directors? My Aiken: T h i s would b e subeet t o the approval o f the federel reserve board, would i t not? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis foo’ ‘ ir. Chairmen: I t would b e subject t o review o f the federal reserve board anyway. Mr. UicDougalil: D o I understand that t h e m o t i o n s i sub- mitted b y Governor Seay? A n d that the plan should g o before the federal reserve board also for approval? Mr. Seay: I t was e o informally worded that I have n o objection t o any elteretion being made t o i t s o f a r a s the sense i s not changed, b u t I think i n the main, t h e plan sug- gested i n it, would allow our doing whst w e are deing a t the present time with regard t o settlements, a n d would leeve a n y one bank free to call for payment whenever i t felt disposed t o do 89. % Mr. MeKkay: T h e settlement largely grew out of the fact that i t wee largely a n interest question. hairman; N o . I think i t i s ea question o f reserves of paper which i e really a fundamental thing, a n d i n this case e t c j secms t o me a matter i n general practise bearing o n handling clearing house items. T h e more items w e are going t o have the more clesring house charges w e will have, end i n fixing the rate of charge i n our country w e d o not went t o fall afovl o f the so-called enti-trust lew. ir. Aiken; W h e t i s the motion before t h e house, lir. Chairman! Mr. Chairman; T h e motion, a s J understand it, i s for the adoption o f @ plen proposed b y Mr- WeKay a s read and i seconded. Mr. MeChord: W a y I qualify m y vote b y making i t subject to t h e approval o f m y directors? ir. Aiken: T h i s would b e subject t o the #pprowlof the federal reserve board, would i t not? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Fancher; O f courre, T h i s should heave besn i n a little more general form than it is now and it can be put i n a little more definite shepe leter. I would suggest thet about the 15th o f January, w e would know a Little more about the mae ter. Mr. Chairman: stand it, seconded. W e still have the motion amd, ase I under A r e w e ready t o vote? Mr, MeGhgrd: I move a n amendment, That our vote b e subject t o the approval o f the board éf directors; i f I can get a second t o that amendment. Mir. Alken: M r . Chairman, I Wr. Chairman: do not understand that motinn. T h e motion i s te amend the original motion by make Yt subject t o the approval o f the directors o f our banke. Ie that motion seconded? ( N o second) I e there any diecuesion on Governor McChord's motion t o amend the motion origimlly offered b y adding that i t is subject t o approval b y the directors of the various federal reserve banks. Vr. Sawyer: I second the motion. Vr. Chairman: I f there i s no discussion o n that motion, fll i n favor o f Governor iicChord's amendment will please say, "Aye"; those opposed “No.” ( T h e viva voce vote left some doubt e s to the result.) I will call for the Ayes to raise the right hand. ir. Seay: I would like t o explain that i n voting I do not think I will not have the suthority t o commit our bank t e it, but I would like to see the motion acted upon upon its merit as it stands. Vr. Chairman: I believe a e a metter o f strict parlia. mentary practise w e should vote o n the amendment before voting o n the motion. I f not thet so, Yr. Curtis? ir. Curtis: Y e s , i n voting o n an amendment t o a motion, the vote o n the amendment i s teken first. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mx. Chairmen: I will eall f o r a vote o n the amendment. ALL thoge i n favor please raise their right hands Three favoring the amendment, Those opposed pleage raise their richt hand, “ix opposed t o the amendment. The amendment is lost. 6 will n o w take a yote o n the motion t o recomnend a s I under- stand, t h e adoption o f the plen proposed b y Mr. MeKay. All i n favor o f that motion will please say "Aye", those opposed “Ho”, Thevote seems t o b e a bie a n d I will have t o call f o r oe vote B y reising t h e right hand. Thede i n teres please raise their: right hendse Your voteesin f a v o r o f the motione Those opposed please raise their richt hend. Seven opposed t o the motion.The motion i s lost, M y conClusion i s that we don't know what w e want, ig, Pancher: I em in thorough sympathy with the princi- ple of Sry MeKay'#® plen, but it is not definite enough in its provisions. MY. Whondes: I want t e g o o n record a g recommending a thing more complete, Wir. Chairmen: It is @ rather aiffioult thing to get any one t o agree with any other just now. 7 Mrs Fancher: Ur. Chairman, I hesitate t o amke a motion, but I would like to make a motion that a committee of three be appointed t o whip into more definite form this plan o f Mr, ur, NeKay, o n d have i t ready f o r t h e morning sestion, | lir, MeDougall: I My. Gheirman: seaond the motion, I t ie@ movedand s e c o n d e d t h a t a committee of three b e appointed t o give considerable t o the plan offered by Mr, UcKay and t o put i t into more definite shape a s t o any points o n which the committee thinks i t shovld b e elsborated P w Mir, Chairman: I will call fer a vote o n the amendment. All those i n favor please raise their right hand. Three favoring the amendment. Those opposed please raise their right hand, Six opposed t o the amendment. T h e amendment i s lost. We will now take a vote o n the motion t o recommend a s I understand, the adoption o f the plan proposed b y Wr. McKay. A l l i n favor of thet motion will plemse say " A ye", those opposed "No." The vote seems t o be a tie and I will have t o call for a vote b y raising the right hand. ‘Those i n favor please raise their right hands. Four votes i n fevor of the motion. Those opposed please raise their right hand. Seven opposed t o the motion. the motion i s lost. M y con- clusion i s that w e don't know what w e want. Mr. Fancher: I am i n thenough sympathy with the princi- ple there but it is not definite enough. Mr. Rhoades: I want t o go o n recent a e recommending a thing mare complete. Mr. Chairmen: I t is a thing rather difficult t o get any one t o agree with the other just now. Mr. Fancher; M r . Chairman, I hesitate t o make a motion, but I would like t o make a motion that » committee o f three b e appointed t o whip into more definite plan this plan of Nr. Mekey, a n d have i t reedy for the morning session. Mr. MeDougall: I Wr* Chairmen; second the motion. I t is moved and seconded that a committee of three b e appointed t o give consideration t o the plan offered by Mr. NeKey and t o put it into more definite shape as to any points o n which the committee thinks i t should b e elaboreted. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis /¢ tf And resubmit t h e plan i n more definite shape to- morrow, I s there any debate o n thie motion? irs Rhoades: I offer an amendment t o the effect that the committee report a t the next meeting o f the povernors. That will give u s a chance to. consider it. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis li, Chairmen: Please don't raise thet question. live Chéirmen: T h e amendment a n d motion i ¢ for postponing the consideration o f the report o f this comaittee until the next meeting o f the sovernors, I s that amendment seconded? Mr. Vold: D o I wnderstand thet this i s postponing t h e action o n thé report o f the committee t o be appointed? | Mx. Aiken; Y e will have t o decide what we tre t o d o i n the meantime, won't we, Mr. Cheirman? : M r , Cheirmon: Certainly, I f this motion prevails, we will have t o take that u p at once, a n d we ought t o settle i t at this meeting. Mr. Yella: Y e should not decide o n a plan o f that kind without meking some test beforehand, t h a t w e m a y determine the workings o f the plan i n actaal o p e r a tc voted i o nt‘arainst g x the motion o f Wy, Seay a little while ago and I would like t o reconsider i t now, a s I believe others wouldwho v o t e d nogatively, Mr. Chairman, i f it is not out o f order-«~ Mr. Chairman: I t i a out o f order just now, a s t h e motion hae been seconded, Mr. MeChord: Mr. Chairmen, w h y not let u e take a vote on thet motion t o form a comnittee o f three and let that report be brought i n s That doean’t m e a n thet w e are going t o atept it, a n d And resubmit the plen i n more définite shape to-morrow. I s there any debate o n this motion? Ur, Rhoades; I offer a n amendment t o the effect. that the committee report a t the next meeting of the governors. Theat will give us a chence t o consider it. Mr, Ghairman: Pleaere don't raise that question. 'r. Rhoades: N e w York i s the only one that holds back. Mr. Chrirmen: T h e amendment and motion i e for postponing the consideration o f the work o f this committee until the next meeting o f the governors, not the consideration but the report et least. I s that amendment seconded? Mr- Yold; D o I understend that this is. postponing the ection o n the report o f the committes t o b e appointed? Mr. Aiken: W e will have t o decide what w e are to do i n the meantime, won't we, M r . Chairmant Mr* Chairman; Certainly. I f this motion prevails, w e will have t o teke that u p at once, a n d we ought t o settle i t at iis meeting. t m c a Mr. Wells: W e ought not t o decide o n « olan of. that sort without making some test o f what the operation o f i t is going t o be. I voted against the m o t i o n o f Mr. Seey a little while ago and] w o u l d like t o reconsider i t now, a n d I think othere would h elgo, and, if it is not out of orderee« Mr. Chairman; hes been seconded. ir. MeChord; I t is me o f order just now, a e the motion < M r . Chairman, w h y 0 4 l e t u s take a A vote o n that motion t o form a committee o f three snd l e t thet report be x brought in. T h a t doesn't mean thet w e are going t o adept it, a n d https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1b is at the same time w e will have a chance t o submit our views tomorrow before w e vote o n it. W e will then get i n touch with them Simaxd and get to somie point where w e can get t o some kind of s n egreement before w e go home. Mir. Chairman: T h e question igs on the motion t o appoint a commities o f three t o reconsider the report,before w e go home, to-morrow morning. Mr. Seay: I I e there any further discussion o f the motion? would like to amend that t o this effect, that that committee b e eppointed t o consider this o r any other quese tion and not t o confine i t to this particular subject. Mr. Chairman: Y o u r motion has been seconded, I believe, Kir. Fancher, a n d if your second i s willing, w a will put i t to a vote, that i s if he is willing t o accept the amendment. Mr. Seay: S i n c e there appears t o be some hesitancy about adopting a plan of the comprehenpiveness o f this kind thet i s submitted t o us, I think i t might aleo consider a n y other plen. Mr. Aiken: T h e smendment t o the motian has not been Beconded 1 believe. ‘ir, Chairman: T h e amendment o f the original motion offered by you I believe, Governor Seay, was for the addition t o Mr. Fancher's motion thet the committee should not confine its deliberations t o the consideration o f this one report. I s thet motion seconded? T h a t motion apparently frile for want of a setond. Mir. McChord: I second i t for the sake of getting a vote, for the sske of doing something. . a r. Chairmen: ‘ t h e motion and the amendment t e the motion have been seconded. ‘ T h e question now stands o n the amendment that the seope of the committee's work shall b e within the plan submitted b n the plan b y W r . liekay. /Are you ready for the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ,y r B https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis amendment? Question. A l l those i n favor o f the amendment will please s a y "Aye". Mr. MeDougall: J u s t what. i s the motion? Mr. Chairman: Governor Fancher's motion was t o submit the plan t o a committee o f three. Governor S e a y offers a n amendment t h a t their consideration should n o t b e confined t o thet plan. I call again: f o r the vobe o n the amendment. All those i n favor say "Aye", opposed "No" The "“Ayes™ have it. Ve willl n o w ¢all f o r the gnestion o n the original motion as amended. Ali i n favor o f Governor Fancher's motion please say “Aye". (No answer) My. Wold:. Yhat i s the question now? Mr. Chairman: Y e heave reached a point where w e will vote to appbint a committee o f three t o consider Mr. MeKay&s p l a n and report o n it to-morrow morning. All those i n favor o f thet motion s a y “Aye”; opposed "No", The motion i s carried; a n d a s this committee has a matter of much importance t o consider, I don't know but what w e ought to call f o r volunteers. Mr.Aiken: B y what process wokld i t be possible t o get a reconsideretion o f that motion. I didn't understand exectly what i t was. Y e are most o f us very tired end i t is after 1 1 o'clock. I understend t h a t t h e committee w a s t o report t o this board within three o r four days. I t seems t o m e that i t i s im- possible for any committee t o give intelligent consideration to this whole question a n d report to-morrow morning. 11:30. I I t i s now would like t o ask i f i t i s not still possible t o consider a n o t h e r m o t i o n . amendment! Question. A l l those i n favor of the amendment will please say “Aye”. Mr. McDougall: J u s t what i s the motion? Mr. Chairman; Governor Fencher’s motion was to submit the plan t o a committee o f three. Governor Seay effere a n emendment thet their consideration should not be confined t o that plan. I call again for the vate o n the amendment. A l l those in favor say “Aye", opposed "No." T h e "Ayes" have it. We will noW e n il for the question o n the original motion as amended. A l l i n favor of Governor fancher's motion please say "aye". (No. enswer) Wr. Wold; W h a t i s the question now? Mr’ Chairman: W e @re about to reach # point where we st will vote t o appoint a committee three t o consider br. iMeKay's plen and report o n it to-morrow morning. A l l those i n favor of that motion s a y “Aye"; opposed “lio”. The motion i s carried; a n d es thie committee*har w matter of sane importance t o consider, I don't know but what w e ought + to call for volunteers. ir. Aiken: B y what process would it, be possible t o get : a reconsiderat ion of thet motion. I whet i t was. o'clock. I didn t understand exactly W e are most o f us very tired and it is efter 11 understood t h a t t h e committee wae t o report t o thie boerd within three o r four deys. I t seems t o me that 1 % is impossible for any committee t o give intelligent considerntion to this whole question and report to-morrow morning. I t is now 11:30. I would iike t o ssk if it i e not still possible t o ERK Consider another motion. Vr. Chairman; A n y b o d y w h o voted"Aye" m a y move t o re. consider. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Sawyer: I move t o reconsider that motions Mr, Aiken: I second the motion t o reconsider, itr. OUhairmen: R e b a t e , Imay say, ought t o be excluded on thie motion s a we have voted o n it. The vote i s now t o reaonsider the motion. All i n favor say “Ayes opposed say"No", The motion t o reconsider ie¢ now garried, ond T believe I am gorrest i n saying w e have t o vote o n the original motion a s anended. All those i n fevor o f that motion phease say “Aye”; those opposed, “ N o ? I f thie vote i s caverta i t means t h a t the committee must make a report a t to-morrow's meeting, o n this subject. I f it 18 lost i t ie still open, a n d w e have t o recone sider entirely the whole subjest o f what w e will do. I now ask o e committee o f threes for the vote o n the original a p p o i n t m e n t f Those i n favor say “Aye” , opposed , “He", The motion i s lost, gontlesen. T h e subfect i s nev right where w e begen before. Wr. Aiken: I move that the matter be referred toe & sommittee o f three which shall report 6 b t h e next goneral meeting of governors, I e that motion seconded? : M r . Yold: I second the motion. Ur, Chotrman: he motionis aade and seconded thet a coumittee of three be apphinted to consider the whole question of settlements betwoen toderal reserve benks and make their report a t the next reneral mecting o f the governors o f the benks, the motion i e geconded and I will ask those i n favor o f it t o } gay “Aye”, those opposed, "fo." The notion i s unenimouely carried thie time. If the Chéir. i e permitted t o offer a motion, 1 % would ve thet we defer considering until to-morrow, ghat we shall d o to~ morro. Mr. “Olle; I would l i k e t o move thet w e potene t h e poliey 1G g o ir, Sawyer: I Kr. Aiken; I . move t o reconsider that motion. second the motion t o reconsider. The debate, r I may say, ought M t o be excluded Chairman: from this question e&® we have voted o n it. T h e vote i s now to reconsider t h e motion. A l l i n favor e n y “Aye”; opposed s a y "No." The motion to reconsider i s now terried, and I believe I am correct i n saying w e have t o vote o n the original motion a s emended. A l l those i n favor of that motion please say “Aye”; those opposed, “No.” I f this vote i s carried i t means that the committee must make a report a t to-morrow's meeting, o n this subject. I f tent i t is still open, and w e have t o reconsider entirely the whole subject o f what we will do. I now ask for the vote o n the original appointment o f a committee o f three. Those i n favor say "Aye", opposed, "Mo". T h e motion i s lost, gentlemen. T h e subject i s now right where w e began befors. Mr. Aiken: I move thet the matter b e referred t o a com- mittee o f three which shell report a t the next general meeting of governors. I s that motion seconded? Mr. Wold: I second the motion. lir’ Chairmen; T h e motion is ma@é and seconded that a committee o f three b e appointed t o consider the whole question of settlements between federal reserve banks and make their report a t the next general meet ing of the governors o f the banks. That motion is seconded and I will eek those in favor of it to Say "Aye"; those opposed, "No." The motion ie unanimously carried this time. ifthe Cheir is permitted to offer a motion, i t would be thet we defer considering until to-morrow, whet w e shall de to-morrow. Mr. Wells; I-would like t o move that w e pursue the polig https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis outlined b y Mr. Seay, i f T can get a second t o that. Mr. Chairman: S i n c e i t is after 11:30 o'clock, I may suggest that ase a metter o f exact parliamentary proceedings, sanybody i n thie room can’ make a motion to adjourn o n their own account. I move that w e adjourn. Mr. Seay: I Wr- Chairman: second the motion. I t is moved and seconded that w e ad- journ--Mr. Wells: U n t i l what hour? Mr. Chairman: ---say 10 o'clock to-morrow morning, t o the hour o f ten. A motion t o adjourn until 9:30 the following morning was carried and the meeting then adjourned, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis