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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 .
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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.
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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.
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*
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.
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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.
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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.
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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,
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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.
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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,
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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.
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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
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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
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t e
LS
e
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tahGtoanethe
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e
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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
%
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: r1
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p a s are f
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corigin,g but 1 think 1 % wild hurt e@¢
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bed vw
Gi Ghevke o m Ohie irem ouatern banka, there i s a_
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y h i s yaar.
‘Wapping b a s i e f o r the grester part ofce
t
s
Boh:
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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
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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
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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.
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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,
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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
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Federal Reserve Bank of St. Louis
“Lb
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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
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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.
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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
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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
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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
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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
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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
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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.
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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
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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.
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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.
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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
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iunch with him, and they agreed with the reprerentetives from
Pittsburg @nd Cleveland thet i t would not b e well for them to
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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
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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-
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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
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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
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Federal Reserve Bank of St. Louis
16 /
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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
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Federal Reserve Bank of St. Louis
Mae
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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
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Federal Reserve Bank of St. Louis
G2
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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.
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Federal Reserve Bank of St. Louis
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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.
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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.
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do not s e e w h y w e should not
J I cannot conceive that the rete o f exchange
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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.)
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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
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Federal Reserve Bank of St. Louis
But
don't think he nee@ worry.
I t ean all
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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
PUPPOBesȤ :
|
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,
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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
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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
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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.
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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?
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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?
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Federal Reserve Bank of St. Louis
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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:
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Federal Reserve Bank of St. Louis
I t doeq not make very much difference whether
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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
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Federal Reserve Bank of St. Louis
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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
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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,
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Federal Reserve Bank of St. Louis
t T have n o ides a s t o whether
76
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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
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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.
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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?
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Federal Reserve Bank of St. Louis
My. Aiken: I
do not know just what sort o f a motion t o
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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:
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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.
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Federal Reserve Bank of St. Louis
a
yr, Seay:
i f w e adopt t h e conception thst w e are a
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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
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Federal Reserve Bank of St. Louis
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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
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Federal Reserve Bank of St. Louis
fort
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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.
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Federal Reserve Bank of St. Louis
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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
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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& 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
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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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.
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Federal Reserve Bank of St. Louis
I t i s simply & watter o f s h i p -
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Federal Reserve Bank of St. Louis
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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
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Federal Reserve Bank of St. Louis
shipment..of ourrenoy?
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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:
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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,
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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?
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Federal Reserve Bank of St. Louis
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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.
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Federal Reserve Bank of St. Louis
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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.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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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
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Federal Reserve Bank of St. Louis
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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
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Federal Reserve Bank of St. Louis
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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
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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
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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."
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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
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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
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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?
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Mr* Seay;
Mr. Welle:
I t would not curteil your liberty o f action.
W e take that action o n federal reserve bank
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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?
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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?
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Federal Reserve Bank of St. Louis
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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.
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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.
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/¢ 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.
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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
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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
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,y
r
B
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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.
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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
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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,
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