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Meeting o f the Conference o f Governors o f the Federal Reserve
Banke, New Willard Hotel, Washington, D. Us, December 11, 1914.
(Prior to the arrival of all of the members of the conference
@ general discussion was indulged i n relative t o the scope o f the
meeting and a g to whether o r not the sesaion shewld b e soumenced
before the arrival of all of the members. )
ii, MeGhord: I
want to make a little remark ag a southern
denosrat. I t may be almost necessary to have the twelve banks to
meet. the demandsf
o their constituents, but at the same time they
have so interwoven the proposition that it is a central bank, H o w
some of the senators have adnitted that te me, B y this system of
having one clearing house it makes them all one unit.
ir. Seay:
T h e ateeptance o f any idea invelves only a n adjustment
of the mind’- a certain adjustment.of the difference until we perceive
the ideas.
B y accepting that objection, and I believe that that is
the course which this will very probably take, what is most effective
will be brought into play, and that recognising that idea, that it
will b e genorally accepted therefore i f the central idea ia the most
practical that they will be contented to have a fora of division inte
regions with the essence of central comtrel. A l l of which is respectfully cubed teed
By the arrangement each individual a
i s relieved of pergon-
al responsibility for the acowmlation of balances in another bank, a g
4% oan be relieved, I believe, b y the contral beard o f control. . Then
I shovld think<there would be removed from it. whatever there is of
apprehension o f having balances somewhat out of our control i n another
part of the country.
My. Chairman: Possibly I take a very radioal view of the experinent ~ if we may call i t an experiment « than some o f the others, be«
cause from the standard of the New York Bank I think we would be quite
willing to say that on balances for which we were debtor te the other
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Federal Reserve Banks we would ship at any time on request the balance for which we were creditor with other Federal Reserve Danks.
We
would be quite willing to let. them acoumilate until they amount te
ten or fifteen million dollars.
It ig not going to affect our oash position one particle se long
as we treat the due from and due te each Federal Reserve Benk the sane
agcash. T h e only! two questions involved from cur point of view are:
first, how thé cost of these shipments shall be borne, by the debtor
or by the orediter bank, or shall they be divided; second, are vo
sefe in permitting the accumilation of items in the wail which would
count as reabeves at both enda of the line for a short time.
Any method o f safeguard o n the drafts o n Federal Reserve Banks
would be entirely asdeptable t o up, I n cage of any agreement that
is made hore as te a fair method of dividing the eest of shipment,
which I don't think is g o i n g o
t be as heavy as gome of us fear, will
beentirely satisfactory te usi
The shipments i f they were simply for the net balances as between
sj honk wad a2 Cie ethane would amount to agreat deal less than if
dachi bank took core o f each other bank, and be a very economical way
ofhandling the‘problem, I+ would be asaving toall the Federal
Reserve Banks,
I f you are p r
t o settle debits and credits of
each bank individually youn are going to have a great many transactions,
whereas if there is « clearing proposition put. n
i effect some place,
some how, then the only settlexents required will be the net balances
between one and 411 the others. T h u e it wilt greatly reduce the
anount of settlenents.
, P e r g o n a l l y I believe that. if we try this out, n o money will b e
shipped except possibly between Boston and Sew York, Boston and
Philadelphia, o r New York and Philadelphia.
Mr, Ehoades:
I n two days I could accwaulate es due Philadelphia
seven millions of dellars from other Federal Reserve Sanks, end I
would be whip-sawed,
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Mr. Seay: (Interposing) H o w about°in five days?
ur. Rhoades:.
Mr, Seay:
I t does just the same. :
I t could net possibly do so for a period long enough
40 =
Me, Rhoades: (Interposing) p u t I wouldn't have anything left.
li, Seay: S u t you get something for which you can demand settlement.
Me, Bardwell: Y o u are due from one. bank,
My. MoKay: Mr. Rhoades’ idea is that he runs long on cash and
short on exchange and has to be converting cash into exchange cone
timously. Isn't that the idea?
Mr, Rhoadest I
am whipsawed both ways.
Mx, Chaiemans When he gets tho settlemtnts of his soliectiong
items he gote exchange on Philadelphia which will be settled through
the clearing house in cash, and the ultimate end ise that the ameunt
of your net. outstanding due from the ether Federal Reserve banks I
beldeve cannot exceed the amount which you have in the mail, ‘the
question is how high will it rum
Me. Khoadeas V e r y high.
Mr, MeGhords:
I t will most likely run very high.
A s to the shipment of currency under the old
system, which we are merging out of into the new, the converting of
currency into credits. T h e new system which we are opening up will
we realise prevent such a large shipment of currency from thege
centers. A n d coming back will be the banks own credit against
ate reduction of ite lean, There will be a large amount of credits
which will be covered by exchanges of produce and not by shipments
ef currency.
Mr. Aikent I t seems to me that »e are making @ mountain out of
this expense matter. I
camot conceive of this expense running up
to any such great amount - an mount that is « serious question.
Shipments at best wont be very frequent; and in connection with
that you have to take inte consideration the expense of telegraph=
ing, which might amount to ten or twenty thousand dollars a year.
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My, MeGhords T h i r t y , I figure.
ir. Aiken:
I t seems t o me that the expense i s not s o great a s
to be a deterrent at all.
iy. Chairman: ‘ T h e motion a s prevailing provided for the appoint~
ment of a committees of three to conaider the whole subject of the
settlement of balances between Federal Reserve Banks. T h a t motion
did net specifically state that the Chairman was te appoint such a
committee, a n d I would like t o be quite clear. M r . Yancher you made
the motion, was that the intentiont
ir. Fencher: That was my thought.
My. Chairman: I f that is the thought, before making the appointmont I want to suggest one ox two things i n connection with the work
of the committecs. ,
e
n
o that if 14 is decided to appoint a settlement
agent for the Federal Reserve Bank balances it will undoubtedly require the shipment of an initial amount of reserve money by each
Federal Reserve Bank in order to create a balance for the purpose
in the hands of a settling agent. Nether for each of the Federal
Reserve Banks to make such a shipment. T h e suggestion was made the
other day thet the Secrétaryf
o the Treasury has under consideration
now a plan for making a deposit in the Federal Reserve Banks end it
might be desirable t o have a large deposit made by the Department
in the banks which i s to act as the siroulation for all twelve o f
the banks and thereby create a fund which would in fact be a reserve
fund for each bank that would be in the hands of the settling AgAHX
bank. I
think we ought to be thinking shout this matter and how
it should be considered.
Another of the subjects that I did net bring up yesterday.
Whichever one of the banks is constituted the settling agent will
thereby b e relieved o f ali expense o f shipment o f reserves for its
owm account, and, furthermore, i n affecting settlements of exchange
between its own account and thet of its member banks and that of ite
customers there may arise there profit or less by reagon of the purchase of exchange, and it seems to me we ought to have more clearly
in mind the limitations which are to surround the ability of that
bank to make profits or possibly to incur expenses - how they should
bedistributed and so on,
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Furthermore, some allowance for clerical expenses ought t o be
taken inte consideration i n connestion with the saving o f shipments
for ite owm account.
We have given a great deal of consideration to the question of
which would be in fact the most economical point of settlement bal-
ances, if that p l e n s
i adopted. I m point of time it is either
Ghisage o r Cleveland, possibly o n account o f its locality things
point most favorably to Cleveland.
O n the other hand, I think the
moment this question i s submitted t o the Federal Reserve Board I
think it would be found that they have their own ideas of how this
matter should be settled, and some members of the Board may lean very
strongly in favor of establishing a clearing fund in Washington,
which would avoid the necessity of any shipment whatever.
My, Fancher: O n e thing te take into consideration going out of
Washington and that is to find acity that hes adequate vault facilities.
W e have not got it. W e could not provide places there for
the repositery o f any considerable amount o f money, unless i t was
in very large billie and sould be kept in a very amall apace.
could not handle it because our facilities are limited.
W e
W e have no
aub~troasury, and of course CGhicage would have much better facilities
than we have in caring for the physical end of it.
My. Chairman: O u r program now calls for a decision in regard te
the method to be pursued in handling federal reserve shecks and settling resulting balances during the interval before the report of the
committee i s submitted and acted upon, I
suggest that t o aid i n the
deliberation of that matter that we decide when and where we meet the
next ting, while any period for which this temporary plan is t o oper~
ate -
Mr, Fancher: Might it not be well, taking the matter under considevation, for us to meet in some central point next time - good
railroad facilities for reaching there?
Mr. Seay:
A t the risk of having my innocence misinterpreted b y
reason of my being in such close proximity to Washington, I should
like to have the members consider in that connection that whatever
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we may do at any time is subject to final determination by the
Board at this point, ane in our deliberations w e might oven have
to consult them before we reach a decision in many cases.
I f we
were to meet at one of the more centrally located cities and then
have t o send a conumittee perhaps to Washington t o report the ree
sults of our deliberations, possibly after all there would be more
delay i n that manner than b y the one which i s apparently adopted,
that of meeting in Washington.
Mr. Chairman:
W e can at least possibly decides separately by
separate motion when we will meet again.
Mr, MeDougals D e . you thiskk we would require more than a two
day session? I f not, I would suggest that we make 14 either Friday
the 28nd or Friday the 29th 4f that comes within the limit of our
resolution ~ whatever that may have been ~ Friday the 22nd or
Friday the 29th of January,
Me, Ghairman: T h e question of date is still open, w e can fix
any date.
Mr, Seay: I
believe s leter day wonld be preferable.
Ur. MeDougall:
H o w late can we effect 14 in accordance with the
resolution?
My. Seayt T h a t has not been formulated. T h e 29th of January
I shevid think would be a very favorable date,
Mr. MeDougell: I
would offer as a motion that our meeting for
the purpose cutlined be held om the 29th end 30th of January. T h a t
will be Priday and Ssturday, i f thet is aatisfactory.
Mr. Chairman:
I s thet motion seconded?
My, Aiken: Seconded.
Myr. Wells:
I s the first o f February o n Monday; o u r board moots
on the first Tuesday?
Me, MeDougall: Y o u can readily sot that back to some other date.
(Then followed 4 general discussicn as to whether or not the
nembers of the conference would be able to attend o n the dates pro-
posed or whether some other dates would better suit the ajority. )
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Federal Reserve Bank of St. Louis
My. iieDougall; M r , Chairman, 1 % seems thet a week sariier would
suit geome of the géntlemen better. I t would sult me just as well;
let's make di the 2 n d end 23rd. ‘Therefore I change my motion to
ind4eate the @fnd and Cird, for the next meeting.
My, Aikent Seconded.
Mr, Sawyers T h a t is the time of cur directors’ meeting; I missed:
one this week, I
prefer a later date.
liv. Seay: Can't you postpone 147
ir, MeDougalls . Mr. Sawyer, this meeting ran into our directors’
meeting and I sat it ahead two or three days.
Mir, Seay:
I t ran inte cia and we sat 1% ahead,
Wr, Aikent I
missed a directors' moeting yesterday.
(Then followed a further general discussion ag te whether or not
the membera of the conference wowld be able to attend on the dates proposed or whether some other dates would better suit the majority. )
“vy. Cheirwean:
T h e metion a s made b y Governor Mebougall, a n d
seconded, is to hold our next meeting on the 22nd and 23rd of January.
Isthere sayfurther debatef
othat motion? Ifnot, Iwill askthose
infavor to signify by saying “Aye”. (“Ayes" responded.) Carried,
My, Chairman; N o w let's discuss the place of meeting.
Mx. MeChord: I
move that the place be Washington.
iy, Rhoades: I
second toast.
Sie, Uhaixvuan:
lip, Seay: I
A n y debate?
think that you will have to establish a n office and
& representative i n Washingten.
Mr. WoUhord: I
think i t is almost necessary t o have the next
meeting herve because of the unsettled relations with the Soard.
lie. Chairman;
I s there any further debate on the motion? I f not,
ZIwill put the question. A l l in favor of holding the next meeting in
Washington please say “aye”. {("Ayes" responded.) Carried.
ir, Chairman: e f o r e we take up the rest of the business of
this meeting should not we have a littie better understanding o f
eur organization? Shall we ecemtinuef Shall we assemble the records
of this preceeding a t New York and send the necessary advice for the
members, and until the next meeting have li. Curtis act as the inter
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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request the anount e f balance for which v e varg debtor t o any
Foderal Recerve Banks.
W e would be q u i t e willing alao t e let
%o agowmiLate wntad
*
uot going t e affect our cagh position one particle s
Long a s w e treat t h e d u e f r o m a n d d u e t e each Pederal Neserve Bank t h e
game o a cash. T h e only two questions invelved from our péint e f view
firat, how the coat of these shipudnts shall be borae, b y the
——
We Log
or d i
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y b e divided;
S O C ,
Bre
we safe i n porwitting the accumlation e f itoma i n the mai}. which
Would count 28 reserves a t both aude o f t h e Mine fer a anoet thie.
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Any wothod e f settling balances reeulting
drvofts o n Federal R e s e r v e Banke would b e entirel
sey agers
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niively
antasiactory
for the not balances a a
between o n e bark a n d @ l l t h e othera, would amount t e a i eat deal
lewe then if each bank settled with every other bank, and that wavid
be a Very edonomi¢eal way e f handling the problem.
guving 1 6 ai) the Pederal Reserve B r
r
he1d
great wany trananotic
p
a
f you ara going t e vetile
l
debita and cradite o f ench bank indivi
I t would b e a
y you are going t e have *23a
e i s a cloering plan put
s 42 1
effect at vous place, then the only settlements required wili be
met balances betvoean o n e a n d all t h e e t h e r s :
i
t wild greatly
Bat
Personally I believe thet
v
e try the present plan out,
a
no
money will b e shipped exeapt possibly betrsen Rosteon and New York,
Boston and Philadejphia, o r Now York and Philadelphias
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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did not specifically stat that the
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g te. appoint
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made t h e m e t
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Federal Reserve Bank of St. Louis
a TRESS
70 appoint a
settle»
V e d e r a l Reserve Tank balencea 1 %
“wey &
bien
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sarve
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for
My y p e o s
RIV E e y
ever o n o o f
ont A ¢
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int ‘
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relieved
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G E s h i v a e# n t « ea s e r™ v e s for
i t on p eos ywin
aetquint,
furtherners,
fer
‘eihte o r ies
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Federal Reserve Bank of St. Louis
amaeg a i e
L O T R
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A POMire
Pe
nneghion
adopted.
porsibiy
I n point
e n account e f ite
Cleveiant.
to t h e Feternl
em Adeas o f how this natier ehevuld h e settle:
o a giorae
any considerable ancunt o f money, “sleon it was
fox the raousiteryPi e f
in vary Lares
aud gould be
mot h i m e
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t r e a s u r yd,
na
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ee a sys
caring for the physital end of it.
Rive ¢
A e y o t Yan $
Guy program now onlio for a decleion i n ree
vt) he pursued i n Handling federal reserve checks
SOvtLing
n
a PreswulLting
d
“whences during t h e interval befere the revert
of the comsittios
t euqpedt that te aid in
the teliberstion
snd where w e ment t h e
next tng,
R o h 3
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e tne veried f o r
t e m p e r a r y piah
is te onerabe «
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Might 2 % not b e tel,
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t
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reodhing thereat
risk o f being ciaintorprated b y reason. o f
my h e i n g La such
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TRUS
n
any <
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and
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the fourd
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at thie
i point,
night e v e n have t e cendult t h e m b e f o r e e
w
youth @ decision i n many
eases,
gemtrnlly Located sities
aad then have t o send a comclitee perhaps t ¢
W o e k h i n g t pi eh
X f w e wore t e moot a t o n e 6 f the wore
of our deliverations, poss
te. report t h e
all there would b e
more d e l a y
in that m a n n e r t h a n b y t h e o n e whieh i a
apparently
decide aoparately b y
geparate motion whor
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Federal Reserve Bank of St. Louis
wiii m e a t
29th of Jawmuary.
Still epan, w e ean fix
4
be praforabho.s
sccordanee w i t h
resoluhs
foyuubated, T h e 29th o f Jensen
“LG Geko.
vs Moheugealis- T
would offer aa. 2
the purpose ewhlined b e held o m the ?oth and
ties A k o n ?
it, Veolia: I e the firet of February o n
av. the firat
Bite SOUeur
tewhether
nombers o f
Y whether some other
* U C T ,
bs 64 i 3
Wowk:
Let's make
the 224 and 23d, for t h e next mootings
wyort x i a |
missed o n e thie week. I
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Federal Reserve Bank of St. Louis
t h e time o f our directors
prefer a
iater date.
m2
* meeting;
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Federal Reserve Bank of St. Louis
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