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https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis V o l u m e W A L T E R S H O R T H A N D COLUMBIAN S , C O X R E P O R T E R B U I L D I N G — WASHINGTON, TEL. D . C. M. 8324 The Gridiron Room, Willard Hotel, Saturday, December 12, 1914. The Board o f Governors m e t pursuant t o adjournment. The Chairman: G e n t l e m e n , I have here a telegram from Wire H. GC» Burmett t o Mr. MeKay. I will read i t into t h e record: "Some banks questioning our legal right t o charge their customers’ checks against their reserve balance before t h e y receive t h e checks. from .Board. S u g g e s t y o u secure definite ruling I t occurs ‘to me everyone might b e better satisfied i f we charged all transit letters the day following thelr transmittal a n d credit a l l deposits t h e d a y follow-= ing their receipt." I should a l s o like t o read into t h o record t h e last part of a telegram addressed t o Mr. Bardwell, f r o m Governor Kains. "Hope that a condition will be brought about whereby bank acceptances farthering commercial transactions will b e readily bought ané sold." AS I understand t h e expression b y Governor Kains, h e would like t o see a policy adopted, o r some rule adopted, that would permit a t onee o f the purchase o f bank acceptances b y the federal reserve banks. f p e a k i n g f o r the bank in New York f would like t o have t h e record clearly s h o w that that i s our position: W e would like a 8 soon as possible to b e authorized t o commence t h e purchase o f banimrs’ acceptances a S contemplated b y the Act-+ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Wold: M i n n e a p o l i s i s very anxious t o d o likewise. Mr. Seay: D i d n o t one o f the circulars f r o m the Board provide f o r the same thing? The Chairman: into t h e record: M a y I ask that this expression also g o T h a t t h e Pederal Reserve B a n k o f Chicago would also like t o have such ruling o r procedure a t once, s o that they might purchase the bankers' acceptances. Mr. Rhoades: W e would like t o d o i t i n Philadelphia. Mr. MeDougal: i would like t o inquire whether a n y o f our banks have embarked i n the matter o f the purchase o f acceptances? Mr. Seay: i can s a y that some i n our district have. The Chairman: I think I can throw a little light o n that f r o m the standpoint o f New York where t h e business h a s really developed t o some proportion. T h e r e a r e t w o trust companies i n New York that are accepting very considcrable amounts o f drafts covering cargoes coming f r o m South America to this country, f r o m South American t o Europe, f r o m Europe toChina, and from India to Europe. of t h e c o m m e r c i a l p a p e r b r o k e r s handling bankers’ acceptances, I I n talking with some i n N e w York, w h o a r e n o w gathered that o n e o f the trust companies alone probably h a d their acceptances e n from ten t o twelve mililon dollars o f paper that h a d been a e chased b y the banks o r handled b y the brokers. O n e o f the national banks was estimated t o have h a d about t e n million dollars outstanding, a n d another trust company four o r five million. I would n o t b e surprised, judging fromthe general information I have gathered, i f the transaction to-day in bankers' acceptances i n New York would average f r o m two to three hundred thousand dollars a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis day through t h e brokers. The rates, w h e n first t h e acceptances appeared i n ‘ 3 the market a t New York about seven o r eight yeeks ago, were im n o case below s i x per cent. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Before I left N e w York t o attend this meeting t h e y h a d actually s o l d a t three a n d a half p e r cent. Mr. MeDougal: Quarter; W e were offered some a t four a n d a a t least I sew the broker's sheet. The Chairman: T h i s matter o f acceptances i s one o f very great importance t o u s i n New York because o f the large amount o f foreign commerce t h a t passes through t h e port o f New York a n d the large number o f banks there that have t o d o with the handling o f exchange. I f 1 t would b e o f any inter- est t o the Federal Reserve Banks, I the G o v e r n o r s a memorandum can arrange t o send t o o n t h e subject o f the purchase of bankers' a c c e p t a n c e s t h a t w e a r e s h o r t l y g o i n g t o p r e p a r e for s u b m i s s i o n t o the Federal Reserve Board, i n the hope that we will g e t a n early ruling that will permit u s t o buy those acceptances a n d t o use t h e m a s a means o f earning some part of our expenses until t h e discounts h e l p u s out. Mr. MeDougal: I would b e very glad t o have s u c h infor- mation, Mr. Strong. Mr. Bardwell: W e will b e very glad t o have s u c h a report i n San Francisco. Mr. Fancher: W e k n o w v e r y little s h o u t i t i n our district, a n d w e would welcome a n y suggestion o r information bearing upon it. Mr. Rhoades: W e would like t o have that too. The Ghailrman: I n a s m i c h a s the record o f this meeting is t o b e considered a these banks, I confidential record i n the hands o f a m a t liberty t o express o n e view that I have heard f r o m the Federal Reserve Board a s t o what their attitude will possibly b e i n the matter o f rates applying to t h e p u r c h a s e o f this class o f paper i n t h e o p e n market. It goes without saying that t h e rate o f discount fixed b y each b a n k w o u l d n o t a p p l y t o t h e s e transactions. subsequently b e d e t e r m i n e d w h e t h e r a I t mist u n i f o r m rate, d i f f e r e n t from t h e d i s c o u n t r a t e , s h a l l b e e s t a b l i s h e d f o r t h e p u r p o s e of this paper i n the open market, be p e r m i t t e d o r whether t h e banks shall t o b u y s u c h acceptances a t the best rate that they c a n i n each individual transaction. T h e opinion e x - pressed t o m e was t o the effect that t h e banks s h o u l d e s tabilish a rate which might prevail f o r one day, o r even f o r a part o f aday, subject t o thexnview a n d determination o f the Federal R e s e r v e B o a r d ; b u t nevertheless a n y paper purchased by a federal reserve b a n k will b e confined t o the acceptance of t h o s e f b r m s o r i n s t i t u t i o n s w h i c h h a d b e e n a p p r o v e d f o r purchase b y the management o f that bank. each bank would have a recorded I n other words, list o f obligations w h i c h would b e i n t h e i n s t i t u t i o n a s a c c e p t a b l e f o r purchase, and when the bank was i n the market t o buy acceptances t h e y would practically take everything t h a t was offered within t h e _ reasonable limits a t the rate established. T h a t i s i n fact licensed b y experience abroad, b u t i n m y opinion, a t the outset, I think i t would b e very unsound p a c t i c e i n this country. I n the first place, these acceptances a r e gathered together b y commercial paper brokers a n d are offered i n | lots, a n d they are mixed lots; t h e y make a rate i n New York for the whole lot, which will be higher than the rate at which y o u w o u l d b e p e r m i t t e d 'of that Lot. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis t o take a n y o n e acceptance o u t I n a b i l i t y t o discriminate a t once would always cause t h e bank t o take t h e paper a t the lowest rate. We h o p e t h a t a l l o f t h a t c a n b e d i s c u s s e d i n the memorandum which will b e submitted first t o those w h o attend t h e meeting here--=- t o all federal reserve banks, i n order that w e can get a n expression o n i t and submit i t t o the Federal Reserve Board. Is there a n y other matter that w e should discuss before going t o the meeting with the Federal Reserve Board a t t e n o'clock. T h e one matter that I recall i s with regard t o the newspapers. M r . Curtis i s just n o w preparing a state- ment f o r the newspapers bearing u p o n the meeting a s a whole. what form are I n just ommofiammmafi the notes which are Mr, FancheS: pledged with the federal reserve agent? W h a t f o r m o f endorse- ment i s t o b e used? The Chairman: W e have b e e n advised b y o u r counsel in New York that n o form o f endorsement f o r the federal reserv ¢ bank is necessary s o long as the prior endorsement makes the note negotiable, Mr. Seay: W The Chairman: e h a v e a s s u m e d t h a t i n o u r district. T h e obligation o f the Federal Reserve bank is a statutory obligation and does not need t o be repeated o n the back o f notes that a r e pledged. Mr. Fancher: E x c e p t where i t i s rendered strictly t o the order o f the bank. The Chairman: E x c e p t where i t i s rendered a s a non- "negotiable time instrument. Gentlemen, I think i t i s time that w e adjourn t o the Treasury Building f o r o u r meeting w i t h the Federal Reserve Board. (Whereupon, a t LO o'clock a. m e the Board o f Governors adjourned t o the Treasury Building f o r the purpose o f holding | a conference with the Federal Reserve Board.) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis
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