Full text of Federal Reserve Governors Conference : Meeting Documents : December 11-14, 1916, Ninth Conference of Governors of Federal Reserve Banks : Proceedings, Volume 1: December 11, 1916

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PROCEEDINGS OF THE
NINTH CONFERENCE OF' GOVRRNORS OF

FEDERAL RESRRVE BANKS,

Shoreham Hotel, Washington, D.C.,

Monday, December ll, 1 9 1 6 .

The Ninth Conference of Governors of Federal Reserve
Banks convened at

t h e S h o r e h a m H o t e l , W a s h i n g t o n , D: C . ,

at 12 o ' c l o c k M., Monday, December l l , 1 9 1 6 .

There were present:
A. L. Aiken, Governor, Federal Reserve Bank of
Boston, Chairman.
G. J. S e a y , G o v e r n o r , Federal Reserve B a n k o ! R i c h -

mond,

C. J. Rhoads, Governor, Federal Reserve Bank of
Philadelphia,
Rollo Wells, Governor, Federal Reserve Bank or St.

Louis.
Theo. w o l d , Governor, Fe©oral R e s e r v e Bank of Minnea-

polls,
J. A. McCord, Governor, Federal Reserve Bank of
Atlanta,

R. H. Treman, Deputy Governor, Federal Reserve Bank or

New York,
J. Z. M i l l e r , Governor, Federal Reserve Bank of
Kansas City,

R. L. Van Zandt, Governor, Federal Reserve B@nk of


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Federal Reserve Bank of St. Louis

Dallas.

2

•

R. Fancher, Governor, Federal Reserve Bank of
Cleveland,

J. B. McDougal, Governor, Federal Reserve Bank of
Chicago,
J. F. Curtis, Counsel for the Federal Reserve Bank of

New York and Secretary to the Conference.

INFORMAL POCJEDINGS.

Mr, Curtis:

The Secretary of the Conference being

the only permanent officer or the organization present,
will entertain a motion for the selection of a chairman
to preside.

Governor Seay:

I move that Governor Aiken be request-

ed to act as Chairman or this Conference.
(There were several seconds and the motion was unani. . -- -...mously c a r r i e d . )

FORMAL PROCEIDINGS.
The Chairman:

Gentlemen, the Ninth Conference of

Governors of Federal Reserve Banks will please come to
Order.

I am very much obliged to you all for the compliment
You have paid me in asking me to preside at this meeting.
The first business before us is the adoption of a program.

A program has been prepared »y the Secretary and

SUbmitted to each of the Governors,
Governor Fancher;

I move t h a t the program, as submit-

tea By the Secretary, be adopted.


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Federal Reserve Bank of St. Louis

Governor F1ancher moves t h e .t the pro-

The Chairman:

gram, as submitted, subject to such changes in order as may
seem expedient, be adopted.

Will you accept that, Gover-

nor F a n c h e r ?
Governor Fancher:

Yes, Mr: h a i r m a n .

( The motion, being duly s e c o r e d , was carried.)
The Chairman:
MINUTES

Topic No. 3
F THE EIGHTH CONFLRENCE OF GOVERNORS.

The stenographic report of that Conference and the
minutes of the Secretary have been submitted to all members.
Governor Van Zan&\: I move that we dispense with
reading the minutes.
The Chairman:

And also the adoption of the"steno-

g r a p h i c report of the proceedings.

Governor Van Zandt:
Governor Fancher:

Yes•
I will second the motion,

(The motion was duly carried.)

The Chairman:

Before taking up any other business

on the program I would like to suggest to the Conference
the propriety of our sending a telegram to Governor Strong,
expressing our regret that he is not here, and our affectionate interest in his progress.
Governor Fancher:

I would further suggest that we

send a telegram to Governor Kaina.
The Chairman:

Yes•

Governor Wold:

I move that the Secretary be instructed

to Prepare such telegrams and that they be sent immediately.
Governor McCord:


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Federal Reserve Bank of St. Louis

I will second that motion•

4

{ f h e motion was duly carried.)

Governor McDougal:

Before proceeding with the program

I should like to inquire whether anything was accomplished
at the meeting this morning about which those who were not

present should be informed,
was taken at

the

I am not aware or what action

meeting this morning,

Governor McCord:

If you will pardon me, Governor Mc-

Dougal, I would 11ke to say that at the suggestion of Governor Harding, or the Federal Reserve Board, I was requested
to communicate with the Governors of the banks to ask them
if

it

would be t h e i r p l e a s u r e to have Mp. Walker, the man-

ager of our branch bank in New Orleans, attend the conference; not so much to enter into the discussions, and in no
event to v o t e , but s i m p l y to have t h e b e n e f i t of t h e d i s c u s -

sions that would occur at the table, for his guidance in
t h e management of the branch in New Orleans.

I wa.s cosniza.nt of our resolution at Minneapolis, and
for that reason I took the matter up with the various
Governors.

You all know what has transpired, and I there-

f o r e move, if it

is in o r d e r , t h a t Mr. Walker be i n v i t e d

to Sit in the Conference w i t h me, not as a member of the

onference, but simply for the benefit that he may derive
f r o m being p r e s e n t .

Governor Seay:
The Chairman:

I second the motion.
Gentlemen, you have heard Governor

McCord's motion, duly seconded by Governor Seay, that Mr.
Marcus Walker, t h e manager of t h e New O r l e a n s branch of t h e

Federal Reserve Bank of Atlanta be invited to attend as a


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Federal Reserve Bank of St. Louis

5

Is there any dis-

guest of the Conference at this session.
cussion of that motion?

With regard to this motion, Mr, Chair-

Mr• Treman:

n , Governor McCord wrote to me and I told him that so far
ae we were concerned we would be very glad to have his repIt seems to me, howevar,

resentative attend the meeting,

that we should make some definite rule for the guidance of
the Conference hereafter:

If we elaborate on the number

or branch banks, we may have a situation om our hands that
would become very embarrassing*

I think

we

are all agree-

able to having him here today, as he is the only representa-

tive of a branch bank; but it seems to me that this is s
time when we should consider a matter of policy,

*

•

I

.

mind, after this motion was

I had in

Governor Wold:
,

Put, to offer another motion that hereafter any requests
'

for attendance, outside of the Governors, be submitted to
the

'

• S e c r e t a r y of t h e Conference of Governors and t h a t he

communicate w i t h the Governors direct.
I

The Chairman: • There is a motion before the house inv i t i n g M r . Walker to

j o i n us

at

t h i s meeting:

I would sug-

gest, before he is . asked ' to come i n , that the matter of
general p o l i c y be discussed.and settled.
Gentlemen, you have heard Governor McCord's motion,
duly secomed.

Is t h e r e a n y f u r t h e r d i s c u s s i o n ?

(There was no f u r t h e r discussion and t h e motion was duly
carried.)
I

Governor MeCord:

was not my purpose to do this,


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Federal Reserve Bank of St. Louis

•

I wish to say, gentlemen, that it
It did not originate with

6

I was instructed by the Governor of the Federal Re-

me.

I raised the point with him and he

serve Board to do it•

insisted that I should write the Governors, and I have just
'

carried out his instructions.

I knew the sentiment r!'

this Board; I knew how I felt about it, that we ought
not to have too large a body.

The Governor of the Federal

Reserve Board stated that it was not their purpose to have
these branch managers attend each and every session; that
it

was simply the purpose to have them attend a session

and get the general run of the situation and then not come
back; that if another one was introduced that he would be
given the benefit of the same practice.
position.

I was in a peculiar

I had to comply with the request of the Governor

of the Board•

I knew it would he embarrassing, but I

could not do otherwise.
Governor Wold#

tor the purpose of arousing discussion,

if for no other purpose, I move that hereafter any Governor
Wishing to send a substitute in his place to any of these
conferences, or who submits a request for permission to
have anyone represent his own institution, or a branch, make
such request of the Secretary of the Conference, who will
communicate with the members of the Conference if necessary,
or Will bring the matter up at the next conference,
Governor Miller:
Governor Wold:

Would you include the vice Governors?
I think we should include any subs ti tu-

t1on.
Governor Fancher:

Mr. hairman, was not there a resolu-

tion passed at the Minneapolis Conference that covered the


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Federal Reserve Bank of St. Louis

7

matter?

It had to do with a paid fficer or a salaried

officer representing the bank•

Perhaps

Mr·

'-'urtis has

that.
Mr• C u r t i s :

I have not the record here, but I can re-

cite what took place.
The Chairman:

There is a point that comes up in this

matter different from that which has arisen before,

A ppar-

ently Mr. Walker comes at the request or the Federal Reserve
Board.

Governor Wold, do you intend to incorporate in your
motion that a. request be made to the Federal Reserve Bonrd
that when they desire to have additional representatives of
any bank attend these conferences that they so report to
the Secretary of the Conference?
Governor Wold:

My resolution applied to the banks

and not to t h e Board.

If a n y bank wishes to substitute or

send an additional representative, it seems to me that we
should be the judges as to who shall participate in our
deliberations.

Governor McDougal:

I suggest that Mr: Curtis give

us the substance of the resolution passed at Minneapolis.
Mr. Curtis:

The action taken there was to the effect

that h e n any uovernor found he was unable to attend he
Should send a r e q u e s t to t h e Conference f o r p e r m i s s i o n to
have as a d e l e g a t e o n l y p e r s o n s who were paid o f f i c e r s of

the bank, such persons to represent the Governor prsonally.
In o t h e r w o r d s , t h a t 1 t was not a bank m e e t i n g , but a perSonal meeting of t h e Governors.


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Federal Reserve Bank of St. Louis

That d i d not i n c l u d e any-

8

thing except a.restriction on t h e class of persons who would
be acceptable for nomination, as it were.

It did not mesn

,

anybody who m i g h t be named by A Governor w o u l d neces-

that

sarily be accepted by the Conference.
Governor Miller:
Mr• Curtis:

Even if he were a salaried officer?

Even if he were a salaried officer.

The

i n f e r e n c e was that no Governor would send the name of any-

one who was not a salaried officer.

The practice, of course,

has been that every time a Governor found himself unable to
be present he has sent a letter suggesting that Mr: So-andso--- for instance Mr: Hoxon and Mr. Calkins--- be authorized to represent him.

That has a l w a y s been presented and

is a matter ct f o r m a l procedure here, and the v e p u t y Governor,

or whoever he might b e , i n v i t e d to a t t e n d .

The Chairman:

It seems to me this 1s a situation with

regard to which there might be some misunderstandings unless we are p r e t t y careful as to the wording of a n y resolution passed with r e g a r d to it.
I would like to suggest, Governor Wold, that you modify
Your motion, referring it to a committee, of which the
Secretary shall be one, and the committee shall draft a
resolution covering our practice in the matter for the
future.
Governor Wold:

I gladly accept your suggestion, Mr.

Chairman.
The Chairman:
t1on.

You have hoard Governor V•old 1 s mo-

Is there a second?

Governor Fancher:
The Chairma n:


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Federal Reserve Bank of St. Louis

I second i t .

Is there any further discussion?

(There was no further discussion and the motion
was d u l y carried.)
The Chairman:

The c h a i r w i l l a p p o i n t a committee con-

s i s t i n g of Governor Wold, Mr· C u r t i s and Governor McCord

and will ask them to report at their convenience during the
Conference.
Governor MeCord, will you be good enough to ask Mr.
Walker to join us.

Governor McCord:

Yes, Mr• Chairman,

(Mr. Marcus Walker, Manager or the New Orleans
Branch of the Federal Reserve Bank of Atlanta was thereupon
requested to attend the Conference.)
The Chairman:

No.

4 on the Program is

UNFINISHED BUSINESS.
(a)

Distribution of expanses of moving gold
for gold fund. (Mr. Kains)

(b)

Retroactive liability for expenses of
operating gold fund, (Mr• Kaina)

Governor Kaina is absent, owing to illness, and I doubt
if

there has been a n y development that makes necessary any

further report at this time on this subject.
Does any gentleman present know of any suggestion from
the Treasury Department that there will be any charge for
such transfers of gold, since the last meeting?
Governor Miller:
Sbd

Since that question has been discus-

at several conferences, I think the very fact of carry-

lng it on the program 1s suggestive and i move that it be
dropped from f u t u r e programs until we hear s o l ' rteh3i n g a.long
that line from the Treasury Department,


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Federal Reserve Bank of St. Louis

r

o

n

r

e

v

o

G

1

I will second that motion, especially

Seay:

in view or the fact, as I understand, we were advised that
there had been no charge and it was intimated to us that it
would be perhaps inexpedient to bring the question up.
You have heard Governor M1ller1s mo-

The C h a i r m a n :

tion, duly seconded by Governor Seay.

Is there any further

discussion?
Governor Van Zandt:

Does not that cover both para-

graphs (a) and (b)?
Governor Miller:

Yes, it covers both (a) and (b).

(There being no further discussion the motion was
d u l y carried.)

(c)

Disposition of matters reported to Federal
Reserve Board.

The Chairman:

Mr. Secretary, we will hoar you on

this topic.

Mr• Curtis:

On September l2th I wrote a letter to the

Federal Reserve Board, reporting on the events of the Conference held at Boston in August, of which a copy was sent to
each Governor:

I never received an acknowledgement or

the receipt of that from the Board:

That report only con-

tained one recommendation from the Governors, and that was
With respect to the mailing of correspondence between the
Board and the Reserve Agents and the executive officers of
the banks.

a

About.._ dnys ago I wrote a letter to the Board calling their attention to that recommendation and asking if they
Would let me have a reply in order that I might submit it to


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Federal Reserve Bank of St. Louis

11

the Governors I Conference.
I have received no acknowledgement of that letter.
Gentlemen, you have heard the Secre-

The Chairman:
tary's r e p o r t :
(d)

I think no action is necessary.
C o l l e c t i o n s and c l e a r a n c e s ,

That s u b j e c t w i l l come up l a t e r on under Topic 6.

5.

Committee reports:
(a)

Committee on r e s e r v e and c e n t r a l r e s e r v e

cities.

Governor Seay, are you ready to make a r e p o r t ?
Governor bee.y:

I have a r e p o r t which is not the re-

Port or the Committee, but is a report prepared by the
Chairman, who extends his humble apologies to the committee f o r not s u b m i t t i n g it

upon i t .

to them in time for t h e m to pass

But realizing that it was a very broad subject,

and that the purpose in appointing a committee was to bring

something definite before the Conference, I have prepared
something definite.
It

is a q u e s t i o n which t h e Board h a s s e e m i n g l y a p -

proached with some reluctance and some doubt in its own
mind.

It is a part of the whole question of reserves, and

there is a separate report that the Board itself d e s i r e s
us to consider on the question of reserves, and you will
find that question is in a measure touched upon in this report.

I hope the other members of the committee w i l l a b s o l v e
me from trying to commit them on this subject.


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12

Governor Miller:
Governor Seay:
as

it stands.

You are absolved, Governor Seay.
I will just submit it for discussion

Is it the pleasure of the Chairman that I

S h a l l r e a d it'?

The Chairman:

If you please.

Governor Seay:

Section 2 of the Act, last paragraph,

provides that:
"The organization of reserve districts and Federal
resorve cities shall not be construed as changing the
present status of reserve cities and central reserve cities,
except in so far as this Act changes the amount of reserves
that may be carried with approved reserve agents located
therein."
Section 11 of the Act, paragraph "e", authorizes the
Federal Reserve Board:
"To add to the number of cities classified as reserve
and central reserve cities under existing law in which
National banking associations are subject to the reserve
requirements set forth in Section 19 of this Act; or to
re-classify existing reserve and central reserve cities,or
to terminate their designation as such."
The Act further provides that after thirty six months
from the establishment of the Federal reserve banks a l l reserves shall be kept either in vaults of member banks or
in the Federal reserve banks as specified•

Therefore,

after November l6th, 1917, balances kept on deposit with
banks now classified as reserve agents will no longer be
Permitted to count as reserve, and such banks will cease to


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Federal Reserve Bank of St. Louis

13

be reserve agents, but, nevertheless, such cities will
under the law continue to be reserve and central reserve

cities, respectively, and the member banks therein will
still be required to hold the reserve now specified for

banks in such cities.
It is to be taken into account that banks in these
cities will doubtless continuo to be the depositaries to a
very large extent of surplus funds of other banks:

It

cannot be assumed that this relation will be broken off
except gradually, if at all.
The principles which have governed the creation of reserve cities, and at the same time have governed the amount
of reserves to be kept by banks located in those cities,
are, first, population, and, second, character of deposits.
The N a t i o n a l Bank Act provides that o n l y cities hav-

ing a population of 2 5 , m a y become reserve cities, and
Ohly cities having a population of 2 , m a y become
central reserve cities.
The size of the population, therefore, being fixed at
such a small figure in either case, cannot be considered to
be the determining factor, nor can the volume of deposits
be so considered, although the volume of deposits is inti-

mately related to population and is to be taken into account.
The character of deposits would seem to be the chief
consideration in fixing the amount of reserve to be
held.

The Federal Reserve Act has recognized the principle
that the character of the deposits
should govern the amount

or the reserve required to be held, and has made a very


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Federal Reserve Bank of St. Louis

14

marked distinction between deposits subject to withdrawal
upon demand and deposits classed as time deposits,
The one class of deposits which would appear to he
subject to more sudden withdrawal without notice, and to
Wider fluctuations, is deposits of banks with other banks.
Such deposits are not only subject to the ordinary ebb and
flow governing commercial deposits, but they are likewise
subject to the exigencies Which may govern both depositors
and borrowers of the banks having the balances with other
banks.
The individual deposits of commercial banks are to a
very considerable extent rendered stable by the fact that
the depositors are at the same time usually indebted to
the bank:

This situation does not exist between banks to

anything like the same extent, and the extent to which it
does exist will be modified by the conditions brought
about by the Act.
The fact that balances carried in the banks of certain
cities have been allowed to count as reserves has in itself
attracted balances to those particular oit1es•

The Comp-

troller's report of September 12, 1916, shows that the amount
due by the banks of the reserve cities to other banks,
Which amount may be taken as representing bank deposits, was
1 , 1 6 1 , , , while the amount due by banks in the country

at large to other banks was only § 3 4 2 , , .

It is probable that when the Act goes into full effect
it Will reduce to a much larger extent the balances kept
With other banks in all reserve cities, and that there will


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Federal Reserve Bank of St. Louis

15

then develop a sharper competition among banks for the deposits of other banks; particularly will this be true because of the fact that holding such deposits will probably
n o t hereafter carry with it

the obligation of undertaking

to make loans to the depositing banks in times of emergency,
and, on the other hand, because of this fact-- their
balances will be subject to unrestricted withdrawal and will
b.come a gr-eater h a z a r d to the banks·which h o l d t he m
Since the reserve banks will be the source of credit
upon which chief reliance will he placed, and since bank
balances will not count as reserve, banks having surplus
funds will probably deposit them where it

can be done to t h e

best advantage, and the amount of interest bid for such dep o s i t s will doubtless be a primary consideration.

If this should result in greater competition between
banks for such deposits then it is all the more important
that a high reserve should be required against this class
of deposits.

Small banks, possibly not qualified by exper-

ience, ma.y become competitors for such deposits.
It

is b e l i e v e d that t h e character of the deposits

should be the chief factor in determining the amount of re','

serve required to be held by banks.
In considering the percentage of reserve required
Under the Act it should be borne in mind that the classificnt1on of deposits between demand deposits and time deposits,
and the wide difference between the percentage of reserve

required in each case has brought about a greater reduction
in reserve requirements than appears to be generally under-


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Federal Reserve Bank of St. Louis

16

stood.

To illustrate:

The time deposits of country banks

are equal to about 3 p e r cent of their total deposits•
This results in a reduction of reserve to 9.9 per cent of
total deposits, against 15 per cent reckoned upon the old
basis.

This is not taking into account the 5 p e r cent

redemption fund which formerly counted as reserve and now
does not, and which is equal to about 1/2 of l per cent on
deposits.
The time deposits of reserve city banks are equal to
12 per cent of their total deposits, w h i c h results in a r e -

serve of 13.8 per c a t for all banks in reserve cities,
against 25 per cent upon the former basis.
It is suggested:
lst.

That t h e d e s i g n a t i o n "reserve" and " c e n t r a l r e -

serve" cities be terminated since t h e y will be misnomors.
It 1s believed to be desirable that Federal Reserve
Bank cities should be looked upon as "reserve cities" and
that the term should be applied only to such cities.
2ud.

It is believed that, considering, the number of

banks or t h e country, t h e wide a r e a over which t h e y a r e

scattered, and the varied character of business done, a
minimum reserve should be required to be kept by all banks,
and that the percentage of reserve f i x e d by the Act f o r
country hanks -- viz, 12 per cent on demand deposits
and 5 per cent on time deposits, is a reasonable minimum,
being equivalent to about 1 p e r cent on total net deposits

as determined under the old law.
be
To determine the amount of reserve to held according


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Federal Reserve Bank of St. Louis

17
to population, and to arbitrarily require a small bank lowhich
cated in a city of, say, 5 , p o p u l a t i o n , under the law
is compelled to have a capital of 2

,

, to keep a higher

r8serve than a bank in a city of 4 , , when the same
character of business is done in both cases, would be inequitable and it
3rd.

is believed unnecessary.

That whenever the amount of gross balances due

to other banks is equal to l p e r cent of the total deposits
or any bank the amount required to be held against all
demand deposits (including bank deposits) shall be 18 per
cent,
To fix a special and higher r a t e upon hank deposits

only would perhaps not give an adequate protective reserve,
81nce

a special class of deposits subject to sudden and wide

fluctuations intimately affects the total of reserve held

against all classes of deposits.
To illustrate:
Take a byarnaknwiidt hr Odemand
p o,s8i t4s$ , , 1 , , 4
, , 3 7 ,d5e 2

bank deposits
12 % on demand deposits
25

%on bank

deposits

Total reserve
18 % on all demand der,osita
fluctuations in bank deposits, say 25 per
cent, would reduce the reserve held in the first case to

#481 8 0 , , equivalent to only about l p e r cent on total demand deposits.

desirable.


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Federal Reserve Bank of St. Louis

A greater protective reserve would appear

18

Mr. Chairman, the chief object of this report was to
present an idea for discussion as a point of departure or
as a p o i n t of agreement.

We were advised by the Board, in our joint conference
this morning, that we would have before us for consideration
a plan for abolishing all fixed reserves to he held by
Federal reserve member banksin t h e i r own vaults, and f i x i n g
a new ratio of reserves to be carried with the Federal reserve banks.

While I have had t h a t p l a n b e f o r e me, it

is

not b e f o r e t h e Confer ence, and l would not now d i s c u s s any
of i t s f e a t u r e s .
it

I would like to discuss it, however, when

comos up.
As distinguished from that plan, this plan provides for

a uniform percentage of reserves in the case of all banks to
be departed from only in the case of banks which carry, to

a large extent, bank deposits, and any bank carrying an
amount of bank deposits equal to ten per cent of its gross
deposits, should be required to carry a.higher reserve upon
t h o s e deposits.

There is another alternative, which is that we should
make three c l a s s i f i c a t i o n s of reserve, one f o r bank deposits,

one for demand, individual deposits, and one for time depoSita.

Those seem to me to be the three or four factors

to be considered by us in determining this question of r e Serves.
The Chairman:

The Gonference has heard the report of

Gove
rnor Seay's Committee.
lake upon it,


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Federal Reserve Bank of St. Louis

gentitleLemen!

What action would you like to

19

I move that it be filed and discus-

Governor Miller:

sed again in connection with the proposed amendment No• 2
suggested by the Board.
I will amend that by moving that it be

Governor Wold:

passed until we come to that matter and that we discuss the
report of this committee in conjunction with the suggested
amendment No• 2 •
I will accept the amendment, Governor

Governor Miller:
Wold.
The Chairman:

You have heard Governor Miller's mo-

tion, amended by Governor "old, that the consideration of
Governor Seay's report concerning Central reserve and
reserve cities be deferred until Amndment No• 2, submitted
by the Federal Reserve Board this morning, comes up for conSi,

era.tion.
Is there any further discussion of the matter?
(There was no further discussion and the motion

wan duly carried.)
The Chairman:

Governor McDougal stated that he would

like to have a statement made of the substance of the Conference with the Federal Reserve Board this morning.

I

Will ask Mr, Curtis to report to the Conference the subStance

of that meeting.

Mr, Curtis:

Governor Harding stated that the Board

had adopted a new policy; that at all gatherings of the AdVisory Council, t h e Federal Reserve Agents and the Governors
of the Banks, it suggested that they come in and have a preliminary talk with the Board, during which talk the Board


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Federal Reserve Bank of St. Louis

d

l

u

o

w

2

give them the substance of their views on policies
and matters of important moment to them.

He said that had

worked e x t r e m e l y well with t h e A d v i s o r y Council and w i t h the
Agents; that it saved a certain amount of crossing of wires,
and a good deal of time at both the other conferences; that
he hoped it would do the same with the Governors•
He stated that the Board had gone over the program,
of Which I had sent them a copy, and there were several
topics that they hoped we would give p a r t i c u l a r consideration, and upon which we would make recommendations to the
Board.

These topics were 5-(f)

"Committee on Uniform

reports of r e s e r v e s , and enforcement of r e s e r v e pena.ltiea•"
He said that the whole of topic No' 6 was or great
importance to the Board, and he called attention to three
sub-headings under (h)

"Immediate availability of

(l)

drafts on Federal reserve banks;

(2)

checks drawn on member hanks located outside
federal reserve cities

(3)

bank drafts on member banks located outside
Federal reserve cities."

They desired to get the position of the Governors on
those matters.

He stated that they knew there was a great

deal of difference of opinion among the Governors on those
topics which he hoped might be composed at this conference,
because, if they were not, the Board might feel obliged to
step in and compose
them themselves.

Topic No. 8 was also one on which they hoped we would
&1ve them definite remommensntions, expecially (a), a i l y


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Federal Reserve Bank of St. Louis

21

settlements.
Topic No. 21 is also one upon which they want recommendations, "Change branch Federal reserve banks to offices
or agencies."
He said doubtless there would be a good deal of pressure brought on the Federal Reserve Board and the Federal
reserve banks in the future, to establish brunches or offices

--- whatever they might be called, branches under the exist1ing law--- in different sections of the district;

that he

thought we ought to take this matter up now, because otherWise there might be a situation where it would be thrown

into the general public building pork barrel situation, by
which every Congressman would insist on having a branch
Federal reserve bank in his town.

The Board thought that

would undermine the System.
He also referred to Topic No. 9, "Currency and reserves."
He said the Federal reserve agents had passed resolutions
With respect to practically all of those topics, urging
that action be taken in regard to the retirement of greenbanks I

the acceleration of the retirement of national bank

notes, and so on, and that in connection with that the
Board was going to lay out a program of what they wanted to
do.
He closed that portion of his remarks with a statement
that
the Board wanted to impress again upon the Governors

hat

while there were
it
hehere, theney were a111 a
r
twelve entities

Part of

one great system, that we were all working in a

Bingle cause and that the utmost cooperation ought to exist


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Federal Reserve Bank of St. Louis

22

between the Governors and the Board.
He then went on to outline the twelve amendments which
the Board proposes to request Congress to pass at this time,
This matter is

n a t u r a l l y to be t r e a t e d w i t h s t r i c t c o n f i -

He gave a little explanation of each amendment,
The drnfts of those amendments which I have here give simp l y t h e t i t l e s and do not &ive what the Board proposes to
do e x a c t l y .

He then gave an outline of the history, and the reasons
for the recent announcement concerning the French and
British Treasury bills.
I t h i n k everyone was p r e s e n t a f t e r t h a t , when M r , r,ar-

burg spoke about acceptances.

Governor Miller:

There were t h r e e or four of te

Governors who came in after Governor Harding had given his
e x p l a n a t i o n of Nos. 1, 2

and 3.

Would you briefly state

the argument on each of those?
Mr. u r t i s :

With r e f e r e n c e to No. 1.

"Advancing

t h e d a t e when r e s e r v e s , excepting t h o s e in Federal r e s e r v e

bn ks and in vaults of other banks, will no longer count
as r e s e r v e s . " , he s t a t e d , as has been p u b l i s h e d in t h e

Preas, that the Federal Advisory Council wns in favor of
advancing t h a t d a t e by l a w d u r i n g t h i s s e s s i o n ;

that a l s o

the Agents and the Board were in favor of it; that a bill
has been prepared moving that date forward to 6 a a y s after
' h e passage of such bill.

No. 2 is "Reducing r e s e r v e s and a d o p t i n g s i m i p l i f i e d
Plan suggested by Federal Reserve Agents."


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Federal Reserve Bank of St. Louis

23

ne stated that the plan which has been discussed a good
deal lately was to the effect that the required reserve be
s i m p l y t h e r e s e r v e to be h e l d w i t h Federal Reserve Banks,

and t h a t no bank be required to hold any reserves in its
v a u l t , l e a v i n g t h a t amount to t h e good s e n s e of t h e bank in

having their t i l l money; but c o n c e n t r a t i n g the whole of the
required reserves with the Federal reserve bank and reducing
the amount.

He gave some figures, Which have been tenta-

tively s u g g e s t e d , of the amountsto which t h e y might be r e duced, which were as follows:
Country banks, 7 per cent of t h e i r demand deposits and
t h r e e per cent of t h e i r time d e p o s i t s .

Reserve c i t y banks, l p e r cent of their demand d e p o s i t s
!'.nd

t h r e e per cent or t h e i r time d e p o s i t s .

Central reserve city banks.
Various suggestions as.to
their
demand deposits, say 12 or 13 per cent, or somewhere
in there, and three per cent on their time deposits,
Those are the percentages the Board has in mind now• He
Stated as a c o r o l l a r y to t h a t t h a t t h e F e d e r a l reserve banks
Should

k e e p a normal reserve themselves of approximately

7 p e r cent.
Governor Miller:

Does not that double the reserves in

the F

ederal reserve banks?
Mr. Curtis:

Yes.

Governor Rhoads: That was not the required percentage,
but that
was simply a suggestion?
Mr: Curtis:

that

Not required.

they keep approJt1mately t h a t •


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Federal Reserve Bank of St. Louis

They simply suggested

24

Govrnor McCord:
Mr. G u r t i s :

Was that cash reserve or gold reserve?

He d i d ot

say:

I suppose he meant cash

reserve.

Governor McCord:

Mr. u r t i s :

I presume he did,

No. 3.

"Reducing paid-in capital of

the banks to 1/1/2 per cent."
That they proposed to ask an Act of Congress authorizing the Board, in their discretion, to reduce the paid-in
capital of any particular bank that desired i t , - - - and the
Board thought it was proper--- from 3 per cent to 1-l/2
per cent, leaving the amount of capital that could be called
the same as it is at present, and leaving it to the discretion of the Board what, if any, reserve banks might have
their capital reduced.
No. 4.

" S u p e r t a x on National bank n o t e c i r c u l a t i o n . "

That is a supertax on national bank note circulation.
The idea there was to encourage the retirement or that cir-

culation, making t h e supertax on t h e l a r g e r banks,

Say

a bank with a c a p i t a l of over $ 1 5 , w o u l d have t h e t a x

imposed, making it gradual, so that the tax would be on
everything over 75 per cent of the capital the first year,
t h er n perhaps s i x t y per
e cent t h e s e c o n d py e a r , and down to 5

cent the third year, bringing it downultimately so that
the Circulation could not be more than 5 p e r cent of their
capital.

It was not to apply to the l i t t l e banks.

No. 5 was "Renewing our recommendation of l a s t summer
f o r branch banks in c i t i e s . "

That was the amendment they offered last year.


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Federal Reserve Bank of St. Louis

He

25

stated he understood that some of the opposition that developed last time to that probably would not develop now,
and they hope to have it passed.
No. 6.

"Provision for aaoociate, or clearing member-

Ship in the Federal Reserve Systdm."

That was a plan to permit non-member banks to obtain
the benefit of c l e a r i n g through the Federal r e s e r v e c l e a r -

ing system, by keeping the required reserve with the Federal reserve banks, but not having them take out stock membership in t h e banks, and not e n t i t l i n g them to the rediscount p r i v i l e g e s of t h e Reserve System, except through a

member bank upon certain terms,
No. 7.

" R e i n s t a t e power to accept up to 1 p e r cent

of c a p i t a l and s u r p l u s . "
That was knocked out through a c l e r i c a l e r r o r in t h e

Conference committee report at the l a s t "Sess1on of Congress,

It has gone back to fifty per cent•

It was purely a cleri-

cal e r r o r a n d d o u b t l e s s w i l l be remedied at t h i s s e s s i o n .
No. 8.

"Fifteen d a y notes to be made eligible as col-

lateral for note issue."
He said he had an opinion from their counsel to the
effect t h a t fifteen d a y notes for advances made direct to
member banks, even though accompanied by the collateral
that was put up by the member banks are not now eligible
for collateral to be handed to the Federal reserve agent t o r
the issue of Federal
t«
that
i1
to
1
reserve notes;
1al the1ey were going
re

w«

ask Congress to authorize those notes for use as collateral.


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Federal Reserve Bank of St. Louis

26

(Informal discussion followed which the reporter
was d i r e c t e d not to t a k e . )
The Chairman:

Gentlemen, is there any further comment

on Mr• C u r t i s ' r e p o r t ?

(There was no comment.)
Governor Fancher:

Mr, Chairman, I move that we take

a recess until 2:3o'clock.
(The motion was duly carried.)

(Whereupon, at 1 : 3 ' c l o c k p. m., t h e Conference
took a r e c e s s u n t i l 2 : 3 ' c l o c k p. m. of the· same d a y . )

AFTER RECESS.

The Chairman:

Let us reconvene, gentlemen, and take
•

Up the businessof t h e Conference.

You will please come to

Order.

We have gotten down to Topic No. 5, sub-topic (b),

Committee on Allotment of Investments.
Governor Seay, I believe you are Chairman of t h a t Committee.

I will ask you to report.

Governor Seay:

Mr• Chairman, at the last onference

or the Governors that committoe was requested to make out
a Sheet Showing the new distribution, and that was all it

was requested to do.

On behalf of the Committee I have

had that done, and we have the sheets.


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Federal Reserve Bank of St. Louis

27

The distributioe is in accordance with the plan which
was adopted by the Conference, and which is well u n d e s t o d
by us all.

I would like to say that the Committee received

several communications from the New York Bank asking it to
take into consideration the position of that bank with respect to the allotments, and to consider whether or not the
present plan was an equitable one•

When the present

Plan was adopted the committee met with the officers of
the New York Bank and

the facts, as they then presented

themselves to all of us, were considered;

and the plan

adopted there was agreeable to the New York Bank, but in the

course of events different conditions have arisen which
operate

i n e q u i t a b l y under the o l d p l a n .

The New York

Bank, therefore, askedthe committee to consider certain
things, and the committee replied that under the instructions of the Conference it could only present what the
Conference had asked it to present, which was a new distribution, but that the matters covered by the New York letter
would be laid before the Conference.

The New York Bank is

of the opinion, as I understand i t , t h a t the entire deficit
for the period or organization should be taken into account,
rather than the deficit of the current year.
words I

In o t h e r

the question has now resolved itself into this: How

Soon can the deficit for the entire period of organization
be made up, and whether or not the distribution or investments should not be upon a principle which will entitle
each bank to its pro rata according to the deficit for the
©ntire p e r i o d .


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Federal Reserve Bank of St. Louis

I b e l i e v e t h a t t h e Committse is in agreement

28

With the New York Bank, that it would be more equitable, instead of taking the deficit for the current year and ignoring that that has gone before, to take the deficit which now
remains in all the banks and apportion the investment as

may be necessary to take up that deficit.

If I u n d e r s t a n d

t h e Committee's d e s i r e s in t h e matter, and I b e l i e v e I d o ,

the Committee would recommend that instead of the basis
for distribution which has prevailed up to the present time
being continued, a new distribution be worked out, which
would be based upon the principle that I have just explained; that is, upon the principle of apportioning the allotment according to tho deficit now to be made up, taking
into account the transactions of the bank from the period
of organization.
(Informal discussion took place which th reporter

was directed not to take.)
The Chairman:

I understand. t h a t t h i s committlte s u b -

mi ts a basis for distribution on the old plan of distribution,
but recommends t h a t a new b a s i s be e s t a b l i s h e d by them,

taking into consideration the accumulated deficits since

the opening of the banks?
Governor Seay:

That is t h e o p i n i o n w h i c h , if

committee will l e t me s p e a k f o r it, I present
cei

the

I d i d re-

ve a letter from Governor Rhoads, who is a member of

t h a t committee, a p p r o v i n g t h a t p o s i t i o n .

While I d i d

not receive one from Governor Aiken definitely stating his
p o s i t i o n , I understand f r o m previous correspond*nce t h a t he
d i d s u b s t a n t i a l l y approve cf


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Federal Reserve Bank of St. Louis

it.

29

Before you put that motion, Mr• Chairman, I would like
to read

a

letter that I received from the New York Bank on

that subject.
"Decem ber 6, 1 9 1 6 .
"Dear M r . Seay:

"We have received your letter of November 27th regard-

ing the allotment of investments, and regret that we have
not made clear how simply the figures required for our
method might be obtained.

We agree with you that the ex-

Pense of a bank should be taken in total Recording to its
own method of keeping its books in so far as that method is
in accord with correct principles of accounting*

we s h a l l

be perfectly satisfied with the figures now reported by the
banks to the Federal Reserve Board, with the single exception as stated below.

Perhaps it would be wise for us to

try again and see if we cannot state our ideas regarding
the method of allotting
investments so that they will be
easily understood.

The following statement of basic

principles may assist:
1

That distributable investments be apportioned

on the basis of the necessities of each Federal reserve bank
to meet its current expenses, its current dividend and a
fixed Proportion of its net deficit to the close of business

December 31, 1916, including dividends accrued but not paid
to that date.
"2.

That when these needs have been obtainec
ed the

Investments
rtio
that
n
be distributed in the proportion
deficit
hat the aerie
of each bank bears
to the deficit of all the banks,


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Federal Reserve Bank of St. Louis

3

"

,

3

That if the bank earns all its requirements in

accordance with the following schedule, it be not allowed
to participate in investments.
"4.

That in determining the needs of'each bank the

Procedure be as follows:
"1.

Add current earnings for quarter including

s e r v i c e charges received.

"2.

Deduct the sum of
(a)

Current expenses f o r q u a r t e r i n c l u d i n g s e r -

vice charges paid.
(b)

Current d i v i d e n d requirements f o r q u a r t e r .

(c)

Thre-Twelfths (or some other proportion
to be determined) of deficit from operation
to December 31, 1916, i n c l u d i n g accrued
dividends,

"3. Find the difference between earnings and expenses.
"4,

F i n d the per cent t h a t e a c h d e f i c i t bears to

the total deficit and allot on that b a s i s .
COMMENTS:
"This plan is in exact accord with your own ideas except
that

we do not approve of the method employed in the November

Bulletin, page 596, in the eighth line of figures where
tr

x p e n s e of T r a n s i t Department" is deducted f r o m "Gross

Exp

enses" and so f r o m "Net Earnings."

It is improper ac-

counting to single out one department, estimate its cost
Opei:-e.t i o n and deduct t h i s cost f r o

or

current expense whether

r not a part of this cost is returned.

It is better

accounting ana., t h e r e f o r e , a b e t t e r ba11s f o r dis_tributing
htYeatrnents, to i n c l u d e a c t u a l r e c e i p t s tor s e r v i c e charges

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Federal Reserve Bank of St. Louis

31

among the earnings and actual payments for service charges
among the expenses, leaving the cost of operating the transit department in current expense, where it belongs.
"This subject will be discussed at the auditors'
conference and the New York representatives will urge most
strongly a change in the method of reporting in the bulletin.

We have heard from other auditors and know that

they agree with us in this respect.

If the matter of reporting service charges received
and paid and transit cost id adjusted in accordance with
these ideas, the only earning and expense figures required

urner our

plan are those now reported on forms 286-b and

287-b to the Federal Reserv
e Board at the close of each
month. A sheet of carbon paper will furni
sh a copy for
the representative of the Investment Committee.
"In our letter of the 24th instant we referred to
studies we had been making
In these we were endeavoring
to equalize charges for amortization and depreciation. It
is evident that some of the banks showing small percents
I

of net earnings are writing off organization expenses more
rapidly in proportion than other banks showing a greater
percentage of net earnings.

These differences ought to.

aajusted upon some uniform basis to be agreed upon, and
we only omitted from our
ide
ak
earlier letter the idea
oof making

be

3

such an adjustment in order to have the plan more simple

In operation.
Th
1 ' h e worki
ng out of the net deficit to December 31, 1916,

Presents some difficulties the solution of which must be
Arbitrary.
The following plan appeals to us:

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Federal Reserve Bank of St. Louis

32

"Each bank will calculate its net gain or loss from
organization to the close of business December 31, 1916:
Let them deduct from the net gain, or add to the net loss
if

any, the amount of dividend accrued but not paid to

the c l o s e of b u s i n e s s December 31, 1916.

Then, let the

conference of governors decide what they think will be a
reasonable time for the banks to work off these deficits.
Let us assume that they think the deficits should be worked
we should t h e n burden each b a n k ' s

off in twelve months.

requirements for a quarter with three-twelfths of its deficit including dividends unpaid to the close of business
December 31, 1916, in addition to the requirements for
c u r r e n t d i v i d e n d s and c u r r e n t e x p e n s e s .

"Barring the inequality of charges to current expenses
for amortization and depreciation, we think this plan ls
Simple a n d w i l l r e q u i r e p r a c t i l l y no information to be

furnished by the banks.

It can be adjusted quarterly and

thus keep the distribution of investments more nearly in
harmony with current requirements and will, we believe,
Provide a r e a s o n a b l y e q u i t a b l e distribution.
"Very t r u l y yours,
J.

Governor McDougal:
Governor Seay:

F. C u r t i s ,

Secretary,"

That Is the New York letter?

That is the New York letter.

It

seems to me, Mr• Chairman, that it will be difficult to have
or to make or to induce t h e Federal Reserve Banks to keep

their books in identical fashion, but it will not be necessary to wait to bring about that result.


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Federal Reserve Bank of St. Louis

Speaking for the

33

Committee, as I understand it, and for myself positively, it
appears to me that the proper method to pursue is to take
the net deficit of the bank, t h a t i s , including all expenses
f r o m t h e b e g i n n i n g , expenses of e v e r y kind, o r g a n i z a t i o n and

otherwise, and the dividend requirements, and from the sum
of those deduct the earnings of the bank and apportion the
distribution upon that net deficit.
be entirely fair.
in

That seems to me to

It then makes the share of each bank

t h i s a p p o r t i o n m e n t based upon

its requirements.

It is

a simple way of getting at the matter.
Governor Wold#

If I recall it correctly, the New York

Dank has a fixed amount of investments f o r itself before
distributing anything.
Governor S e a y :

Yeo.

Governor Wold:

And that fixed amount was based upon

what?
Governor Seay:

The expenses.

That does not oper-

ate as long as the New York Bank has more than one amount.
Governor Wold:

I am trying to learn upon what basis

the fixed amount of investment
was apportioned to the New
York Bank before distribution to the other banks; whether
it

was on the basis of actual operating expense, without

taking into consideration dividend requirements, or whether
in fixing the volume it was necessary for them to have divident requirements taken into consideration.
Governor Seay':

I can say that it was based upon

expenses n d the dividend requirements for the current
Year, leaving out everything that had gone before.


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Federal Reserve Bank of St. Louis

In

34

case of t b e i f bank, they take the deficit for the current
year, without taking into account transactions of t h e bank
before the beginning of the year.

Upon that basis the New York Bank

Governor Wold:

would earn its share, while the ther banks might not earn
anything.

Governor e a y :

No:

Governor wold:

They have to have a. stated amount

before distributing to the other banks?

Mr. u r t i s :

I think it was only on the basis of

what would make up the expense•
The purpose of my inquiry was to learn

Governor wold:

whether thet p r o v i d e d for the d i v i d e n d s or just operating
expenses.

Mr, Uurtis:

That was for the operating e x p e n s e s .

Governor Miller:

That was without reference to any

United States bonds I might have, or bills f r o m member
banks, was it not?
Mr, Curtis:

Yes, I think

Vice Governor Treman:

SO•

Our expense is short of

¥ 5 , a n aour c a p i t a l is

less than ( 1 1 , , o r

12,.0J

cent t h a t would make p r a c t i c a l -

1

ancl at

s i x pr

ly ? 7 , o o o , in r o u n d numbers, f o r a s i x p e r c e n t d i v i d e n d .

Governor Miller:

e

Vice Governor T r m a n :

Governor Miller:

a r e t a l k i n g about e x p e n s e s .
Oh, " 2 5 , . .

6 y @ @ ® w a s to take care of the ex-

penses?

Vice Governor Treman:


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Federal Reserve Bank of St. Louis

Yes•

35

Governor Miller:

That was without reference to bonds?

It has no reference to i n c o m e account?

I have been think-

1ng recently that this investment ought to be pro rated
among the banks without taking into consideration the investment in United States bonds, because that is a matter
in Which everybody is free to invest, to buy or not to buy,
The Kansas City Bank saw fit to buy ; 1 , , o f those
bonds.

It has been reduced to a very small proportion of

the allotment of investments,

We think we should have had

more of i t .
The Chairman:

Is it not the fact, Governor Miller,

that you have elected how you wish to invest this money?
You have elected that you wish to make the investment in
Government bonds.
Governor Miller:

That election is not such that it

would Prohibit any other bank from doing the same thing,
Whereas the securities we are discussing now are of acertain amount; that is to say, there are so many and no more.
The C h a i r m a n :
do t h a t .

The other banks have elected not to

The theory was that the disiribution should be

made in order to provide some earnings for the banks that,
because of t h e i r l

a t i o n or other l o c a l c o n d i t i o n s , had not

an income producing investment:

The minute a bank goes

Into the field and buts $ 1 , , o f government bonds it
and

provides itself with an income-producing investment by just
that
amount reduces a n y moral c l a i m it may have on t h e
Other
banks for the distribution of investments. The Whole
theor
'y is to s u p p l y t h i s l a c k of investment.


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Federal Reserve Bank of St. Louis

36

Governor McDougal:

We are in somewhat the position

of Kansas City, except that the Chicago Bank was the first
to go into the market and buy bonds in any amount.

I do

not think we proceeded on the theory that you have suggested:
we invested in t h e bonds largely because of

the

fact that we had no other investment.

I feel that there

is something to Governor Miller's contention that those
banks that have Government bomls should not be penalized
for having bought them.
Governor Van Zandt:
The Chairman:

Oh, it 1s not a penalty.

No; no one is to be penalized:

It

seems to me, Gover nor McDougal, you lose sight of the

theory on which the New York Bank is distributing the investment. The original arrangement was
made in order that
banks that had no investment, none being made available in
their districts, should
have something to make a living
On

As to New York, it is a matter of courtesy on the

part of the New York Bank.
Governor Miller:

Oh, I do not think it is at all.

I t h i n k t h a t Kansa s City and Cleveland can go into t h e mar-

ket and buy bills in competition with New York with no purPose or si uggestion ofpf doi
ioing

that

so.

I do think that the banks

have chosen to buy Government bonds should not be dis-

©riminated against because the Government bonds have been
bought.
The market is open to all,
If the management
or the policy of the bank is against the purchase of Govern-

ment bonds they ought to suffer in earnings just to that oxtent.


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Federal Reserve Bank of St. Louis

37

Vice Governor Treman:

It seems to me that you must

recognize, Governor Miller, that the conditions surrounding
each bank vary somewhat• It mAY seem to be entirely advisable f o r you to buy a larger proportion of Government bonds
than another b a n k :

Then, again, there are conditions in

one territory that lead to large discounts.

In New

York G i t y we had an unusual condition just during the l a t
week, but there has now come a change.
been full of acceptances.

Our market has

As I understand it, we have not

distributed those upon the basis agreed upon here,

It

does seem to me if you are able to achieve a certain amount
of income, it

should be counted as a part of the income,

and I do not care whether the New York Bank shows a large
Proportion or not:

We are one unit, and we should help

each other to make enough to pay expenses.

It is proposed

here to do this in order to help each bank to pay its expen-

ses or dividends,
Governor Van Zandt:

That is the impression that I

have been under all the time, that this distribution of purChases was simply to make as n e a r l y as p o s s i b l e an e q u i t able distributi o n and to enabled e v e r y b a n k e v e n t u a l l y to

get on a dividend paying basis.

If we, through rediscount-

ing for member b a n k s , were nable to pay expenses and d i v i dends, then we should have done, as we did at the beginning,
stay

out of t h e d i s t r i b u t i o n entirely.

The Chairman:

Yes; that certainly has to be taken

Into consideration.
Governor Fancher:


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Federal Reserve Bank of St. Louis

we d i d not commence to buy Govern-

38

ment bonds until we had had an apportionment.

In eight

months it was demonstrated clearly that if we were not
going to have large rediscounts from member banks we had
to seek some employment for our funds.

It was in May or

June of 1915 that we commenced to invest in Government
bonds, putting out funds to make expenses.
we had in mind.

That is what

I feel that no matter from what source we

get Our revenues it is a matter of policy how we invest
the funds.

I think that revenues, no matter how they may

come, all accomplish one purpose.

The revenues first

take care of the operating expenses and then or the dividends.

I think in the matter of the distribution of

investments t h e New York Bank has been most l i b e r a l .

They

have been p a s s i n g a l o n g bank a c c e p t a n c e s , and p a r t i c i p a t i o n
in purchases of w a r r a n t s has e n a b l e d some banks to make a
much

more favorable showing as to earnings and capital than

other b a n k s ; a n d t h e y c e r t a i n l y s h o u l d r t a i n enough f r o m

he purchases so that they can make a relative showing as
It 'is m a n i f e s t l y u n f a i r to p a s s on e a r n i n g s

to e a r n i n g s .

that

enable one to pay dividends and at the same time not

eno.ble t h e m to make t h e same e a r n i n g s •

Governor McDougal:
that e n t i r e l y .

I cannot say that I agree with

The principal earnings are open market

transactions.

In the case of the Chiongo Bank, under the
present
I think,
nt arrangement, with total «ceptances of,
12
'IP o,ooo,ooo, we have in the neighborhood of 8 , 6 , .
Vice Governor [reman:
made u p ?


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Federal Reserve Bank of St. Louis

when d i d you have your f i g u r e s

they base their figures on a very recent state-

39

ment.

Governor McDougal:
Sunday, December l.

I am referring to the report of

That is the date of it•

The t o t a l

as Shown by that 1s { 1 1 9 , 7 8 2 , , of which we have
¢ 8 , 6 , .

On the basis of this new proposal our pro-

P o r t i o n would be v e r y much l e s s , and as we a r e located in

Chicago we feel that if we are not restricted we could do

Just as well, and probably better, in the matter of securing
a volume of the bills.
i . i n g . thn t t h i s

I have thought

allotment

ought

from the begin-

really to be mode a basis

for the total resources, but I would not be 1n accord with
t h e s u g g e s t i o n of t h e Committee t h a t it

be r e v i s e d in a c -

codance with the plan outlined, that they stay out of the

market, because we are bound to do it,

Yet, these hills

are supposed to be accessible to anyone who wishes them.
Governor Fancher:

In connection with that statement,

if there were no distribution on the part of the New York
banks on these bills they would stand today with

7 5 , , o f

bankers' acceptances in their portfolio.

In Cleveland, for instance, we would only get the tailings
enough
The New York Bank would have to make
"'
i t s d i v i d e n d s and expenses f o r t h e l a s t month•
They would

or these t h i n g s .

have first offering on these bankers' acceptances.
The Chairman:

IS it not true also that the competi-

t1on among the banks would necessitate the establishmert

or a. f i a e d rs. te by t h e Federal Reserve Board and
h i b i t i o l®
' i "" o the

that r a tt oe ??
v i o l a t i o n ofor that

Governor McDougal:


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Federal Reserve Bank of St. Louis

Yes sir.

pro-

o

V

4

you think that is desirable?

The Chairman:
Governor McDougal:

I do not think the buying of the

bills on the part of the other banks would necessarily
disturb the rate.

Mr• Curtis:· There is one point that I Should like to
mention.
Seay.

I conducted the correspondence with Governor

This proposal on the part of the New York Bank was

not made wholly with a view to benefiting the New York
Wank.

We had figures madeup showing the earnings for the

nine months from October last:

We f e l t t h a t inasmuch as

f1ve banks showed est1ma.ted : : . : g s of less than
,.. I ;Obc•;:eee, and seven showed

or o v e r ,

it

would be o n l y f a i r to change t h e b a s i s in order to a s s i s t

those five to come up nearer to a dividend paying basis.
The time has arrived when our member banks are looking to
see when we are going to pay dividends.

It is an import-

ant matter now.

Here are New York, Philadelphia, Cleveland, St* Louis
and San Francisco t h a t under the present conditions and the
Present methods of allotment a r e not e a r n i n g as much as the

Other seven banks by quite a little, and it seems to me
:.•· •

o n l y f a i r t h a t t h e y should be on a o a s i s where t h e y d o ;

and our plan was wholly to equalize the earnings based upon
the
e x i s t i n g r e q u i r e m e n t s , making a . f a i r a m o r t i z a t i o n
Charge, ta.king into consideration the organization charge,
on a Uniform b a s i s ,

and t h e n t r y to b r i n g a l l t h e banks

on a parity with their income.
fair method that we can work on.


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Federal Reserve Bank of St. Louis

It seems to me the only

41

Let us t a k e Gover¥or M c D o u g a l ' s s u g g e s t i o n :

or

course, New York w i l l be delighted to have this a r r a n g e ment b r o k e n u p .

That would earn our dividends for us

in a few months.

However, l do not think it is good

for the system,
Governor Miller:

It was not my idea at all to reduce

the minimum now a l l o t t e d to t h e New YorkBank to take c a r e
of i t s expenses.

My r e f e r e n c e was wholly to t h e excess

Which it had.to disLribute.
Governor Seay:

I would like to explain in connection

With that that in making the percentage of distribution
the 2 5 , , w h i c h the New York Bank required to produce an income to meet 1 ts expenses is not deducted· f r o m

the New York Bank's purchases.

If, for instance, it could

not buy up to that amount, it would not make any distribution.·

The distribution 1s made now upon what the New

York Bank does buy.
stand.

2

5

,

,

i

s not deducted, you under-

New York does not get the benefit of the 2 5 , , - -

under that plan.
Mr. C u r t i s :

No,

Governor e a y :

we do not sink down to it•
It does not do any good u n l e s s the

amount 1s more0 than
. 5 2 $v

•

It was because of these

matters we a r e now d i s c u s s i n g t h a t t h i s matter was referred

to a committee, and we did consider all these things, and
the
Conclusion which the committee finally reached was
drawn only a f t e r t a k i n g a l l t h e s e matters i n t o c o n s i d e r a t i o n .

The committee did not forget to bear in mind that the mar-

ke

tis open to all of us.


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Federal Reserve Bank of St. Louis

It did not forget that each bank

42

c uld go i n t o t h e mnrket nnd buy what it

c o u l d , and t h a t

Probably the New York Bank, and members of t h a t institution,
It was r e a l i z e d , however, that com-

would get the choice.

petition among all the banks in that market, which as the
I

Principal market, would be ruinous.

In consideration of

t h e f a c t t h a t t h e r e would be no competition, it was g e n e r a l ly agreed upon among us t h a t there shoula be a distribution

of these bills which New York did buy.

It is probable

t h e .t NewYork would stand t h e b e s t chance of b u y i n g t h e

bills,

we do not know.

Perhaps Chicago or any other

bank might give instructions to brokers which would lead
t h e m to g e t as many b i l l s as New York.

to t h a t .

At a l l events, it

we cannot say as

would l e a d to c o m p e t i t i o n ,

Which would be a disadvantage.
The Chairman:

Ana. t h e r e s u l t would a l s o be that t h e

cream of the a c c e p t a n c e s would go i n t o t h e New York Bank,
and t h e ones as to which t h e r e might be some i r r e g u l a r i -

ties would go into the other banks?
Governor Seay;

If any bank would go into the New

York market and underbid the New York Bank, it would get

the acceptances, I suppose.
an i rreducible minimum.

I suppose we can get down to

If we should get down to the low-

eat rate, New York would get the bills,
The Chairman:

The Government would not tolerate

a Wide spread in rates, from two to four per cent:
would have to malee a f i x e d r a t e ,
3-3/4
at various maturities.

Governor e a y :


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Federal Reserve Bank of St. Louis

They

It would be 2 and

That is entirely likely.

Then the

43

situation would be the same as if the rate had been dropped to t h e minimud, and it

is

p r o b a b l e t h a t t h e bank on t h e

ground would have t h e b e s t chance.
Governor McDougal:

It seems to me that these bills

are thrown upon the market and they are available to purchasers, and that the Federal Reserve Larue being the o n l y
purchasers in the market, the fact that one or two or more
of the banks were buying the bills, would not necessarily
disturb the market.
The Chairman:

V,e receive a.lmnst every d a y from one of

the f i r m o f f e r i n g s of b i l l s in t h e New York ma.r•ket •

have an agent who comes in to

u.8.

8,

They

l a r g e measure or major-

ity of the bills we can buy are bills as to which there is
some question.

They may be bills of a kind with which we

are pretty well filled up.

There is some reason why they

are not sold in New York before they come to us.

I have

f r e q u e n t l y made i n q u i r i e s to f i n d out why t h e s e b i l l s were
o f f e r e d to u s .
Is

t h e r e a n y t h i n g f u r t h e r in c o n n e c t i on w i t h t h i s re -

port?

As I understand i t , tho substance is as I have

You have submitted a basis of distribution upon

outlined.

the p o l i c y h e r e t o f o r e pursued, and you now recommend to t h e

Conference that the Committee make a readjustment, including
in t h e b a s i s of r e a d j u s t m e n t t h e t o t a l d e f i c i t f r o m t h e
beginning

f

t h e o r g a n i z a t i o n of t h e banks up to December

31I 1916?

Governor Geay:

That is t h e s u g g e s t i o n of t h e Committee.

The Committee did what it was requested to do in handing


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Federal Reserve Bank of St. Louis

44

to this Conference the basis of distribution on the old pl&n.
In addition to that it bases the further recommendation on
recent matters which have come before it, or which have come
up, rather; and t h e committee's recommendation now is as
you have stated it to the Conference.
The Chairman:

You have heard the report, and the Chair

Will rule that the acceptance of the report carries with it
tho power of the committee to make readjustments on the
Plan outlined.
Vice Governor Treman:

Are the organization charges

handled en the Same basis?

Governor Seay:

I take it for granted they are• If

they are not, the difference. would be so slight that it
would not a f f e c t t h e p e r c e n t a g e of d i s t r i b u t i o n .

Governor wold:

rs it not true that a number of the

banks have charged o r g a n i z a t i o n expenses off?

Vice Governor Tremant

Even then, some treat the item

as just a charge against the organization,
The Chairman:
c1

I would suggest that the committee be

Othed with the power to adjust such minor differences as

they arise in their calculations.

Does that suit you,

Governor Seay?
Governor

the

eay:

That would be entirely agreeable to

committee, but I think you will find more difficulty

in getting the Federal reserve banks to agree to the plan.
or keeping its books.
The Chairman:
That can be left to be considered later.
Governor Seay:

What you are trying to get at is the

d i s t r i b u t i o n of t h e d e f i c i t t h a t remains,


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Federal Reserve Bank of St. Louis

The d i f f e r e n t

45
Federal reserve banks have kept their own books.
Are we not now coming t o n point

Governor Fancher:

where we are going to wind up the year's business and close
up the books?

With the books closed, we will know just

how we s t a n d .

we w i l l t h e n know what our status is, whe-

ther the books have been kept in one way or whether they
have been kept in another way.
Governor beay:

It does not seem to me that it will

alter the expenses an appreciable amount:

The Federal re-

serve banks may have certain charges for certain things.
I do not believe that it will affect the distribution to any
extent whatever.
I suggested this because in tho last

Mr. Gurtis:

Bulletin the figures of the San Francisco bank were so extraordinary in their showing.

one per cent•

They showed earnings of about

I think that comes from the fact, although

I am not fully advised ns to that, that the San Francisco
Bank has been charging into its current expenses organization expense and equipment and all sorts of items that
most of the other banks have not, so that when you come down

to lock at the net earnings, those figures are extraorainary.

It

does seem to me t h a t it

makes q u i t e a d i f f e r -

ence whether or not you treat organization expenses uniformly.
if

I think the committee should be authorized to do that,

they c o n s i d e r it u o r t h w h i l e .
The Chairman:

You mean to leave it in the discretion

or the committee?
Mr. Curtis:


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Federal Reserve Bank of St. Louis

Yes.

46

The Committee will accept it.

Gove i,nor S e a y :

ever, it 1s a matter of record.
of the ledger.

How-

You have the two sides

You cannot alter those conditions.
Then there is the question of the

Governor F a n c h e r :

p o l i c y to be followed as to amortization of c e r t a i n e q u i p rnent 1 tems.

Ir one bank takes its mechanical equipment

and arbitrarily charges a certain amount for amortization,
and another bank does another thing, you have a different
Situation there altogether.
The Chairman:

Gentlemen, it seems to me that Governor

Seay is very well qualified to scrutinize this matter•
Although the allotment of the Boston Bank would be reduced
Under this new arrangement, I should be very glad to leave
the matter with the Committee to see how it works out.
Is there any further discussion?
I move that the report be accepted.

Governor " o l d :

The Chairman:

Governor "old moves that the report or

the Committee be accepted, carrying with it the powers
outlined.

Is there any further discussion?

If not,

those in favor or it will signify so by saying aye.
( The motion, having been d u l y seconded, was c a r -

ried.)

Governor McDougal:

I would like to be recorded as

voting no.
Governor Miller:

I would also like to be recorded as

voting in the negative.
The Chairman:

Please note that Governors McDougal and

MA11er desire to be recorded as voting in the negative.


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Federal Reserve Bank of St. Louis

47

Report of Committee on Uisposition of
Government Bonds.
The next is

The Chairman:

t h e report of t h e Commitiee

on Disposition of U-ovu.·nment Boril s.

Governor Rhoads, are

you ready with that report?
Governor Rhoads:

Yes.

Since the last report made to the August, 1916, Conference of Governors t h e committee held one meeting in New
York on October 31, 1916, a copy of the minutes of which
is attached hereto and constitutes a portion of this report,
The following s t a t e m e n t shows the bonds offered by
each

F e d e r a l reserve bank for s a l e under the comm! t t e e ' s

agreement with the First ational Bank of Chicago and
Messrs. Harvey Fisk & Sons of New York, the bonds accepted
by the committee and the bnras called for by the committee,
a11 or which were received and delivered and the proceeds
distributed through Chicago and New York as apportioned.
The price received for all the bonds was
11-1/2 and interest.

Federal Reserve Bonds Offered
Bank of
and accepted

-

Boston

8

New York

,

Apportioned
Fol" Chicago

Delivery
¢

For New York

Del i v o r y

7 2 8 , 'PI'.
'27

aihpledalihP9,261,52,19,214,1

dnalevelC,52,5,525
dnomhciR8,551,,27297
8,
ogacihQ8,22,58,225
•

t

S 1,

4, 5

,5 1

, 4

n aLouis
S1,59,11,591
Minneapolis
4
2
5
,
4
,
F
rancisco
1,1,6,458,6¢6,,


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Federal Reserve Bank of St. Louis

2
5 ,ooo
458,6

48

The Federal reserve banks of Atlanta, Dallas and
Kansas C i t y a d v i s e d t h a t t h e y d i d not wish to p a r t i c i p a t e

in these sales.
The committee having disposed of all the bonds cffer-

ed for thisyear, it is suggested that the committee be disCharged unless it is c o n s i d e r e d desirable that they continue to handle the disposition of bonds during t h e year
1917.

C, J. Rhoads, Chairman.
New York, October 31, 1916.
A meeting of the committee on the sale of conversion
bonds was

held at t h e office of the Federal Reser•ve Bank of

New York at ll a. m. this day.

Present:
Mr: McDougal, Mr: Treman
and l r . C u r t i s , S e c r e t a r y :

Governors Aiken, Seay and Fancher were also present,
and Mr: K e n z e l .

The committee were also in conversation

With Mr. Rhoads on the telephone.
Mr. Kenxel r e p o r t e d t h a t Messrs: H a r v e y F i s k & Sons

desired to submit an offer to the committee to purchase a
further round lot of bonds, oupled with an option on a
l a r g . r amount, and t h a t in r e s p o n s e to h i s i n q u i r i e s he

had been advised by other dealers and by the National i t y
Bank t h a t t h e y were not i n t e r e s t e d in mo.king o f f e r s f o r

large amounts at the present ti me.

Mr. McDougal introduced Mr. Hardenbrook, representing
the First National Bank of Chicago, who stated that that


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

49

institution would be interested in acquiring a block of
5

,coo,ooo

of t h e bonds f o r a c l i e n t who would p u r c h a s e t h e m

for investment purposes, so that the bonds would not come
•

in the market for resale for a. considerable time, probably
several y e a r s .
Mr. Hardenbrook then s u b m i t u e d a definite proposal,
a f t e r which Mr: W s t e r v e l t f o r Messrs: Harvey F i s k & Sons
aubmit·Led a. s e p a r a t e proposal which contained an o p t i o n

arrangement s i m i l a r to t h a t e n t e r e d i n t o w i t h t h e m under

our earlier agreement,

After several interviews with each

of t h e s e gentlemen, t h e committee d e c i ed to a c c e p t the.
f i n a l p r o p o s a l ma.de by LJi.r• Hardenbrook, and a contra.ct was

entered into with the First National Bank of Chicago as
i n d i c a t e d in t h e f o l l o w i n g correspondence:
"New York, October 3 1 , 1 9 1 6 .

Charles J. Rhoads, I s q . , Chairman,
Bond S e l l i n g Committee of Federal Reserve B a n k s ,

Philadelphia, Fa.
Dear Sir:
Pursuant to the conversations today had at the

Federal Reserve Bank in New York between our representative,
Mr. B. G. Hardenbrook, and members of your committee, we beg

to confirm his verbal contract made on our behalf for the
purchase f r o m your committee of " 5 , , p a r value of
U. S. conversion 3% coupon bonds at 11-1/2 and interest

for delivery to us in Chicago in amounts as called for by
us of not l e s s t h a n 1

,

,

o

f bonds per week in consecu-

t i v e Weeks, t h e f i r s t d e l i v e r y to be ma.de ciuring t h e week


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

n

O

6

beginning November 6, 1916.
Respectfully,
FIRST NATIONAL BANK OF CHICAGO
By D. C. Haraenbrook.

October 31, 1916.
First National Bank,
Chicago, Ill•
Dear i r s :
b e h a l f of t h e bond selling committee of t h e

Federal reserve banks we beg to acknowledge receipt of your
letter of this day addressed to Mr• Lharles J. Rhoads,
Chairman of the bond selling committee, stating:
"Pursuant to the conversations t o d a y had at t h e e d r a l
Reserve Bank in New York between our r e p r e s e n t a t i v e , Mr• •

c.Hardenbrook,

and members of your committee, we beg to

confirm hie verbal contract made on our behalf for the purChase f r o m your committee of'

;;5,o,ooo par value

f

U. S.

conversaon 3% coupon bonds at 11-1/2 and interest for
delivery to us in Chicago in amounts as called for by us of
not l e a s t h a n 1

, , o f bonds per we·ek in coneecutive

weeks, the first delivery to be made during the week beginming November 6, 1 9 1 6 , "

which is in accordance with our understanding of the
contract entered into between this committee and your bank.


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Federal Reserve Bank of St. Louis

Respectfully,
For the committee,

By J. D. McDougal,

n.H, Treman,

51

Mr, McDousal stated that he thought the First National
Bank of Chicago might be tnterested in purchasing an additional million of the bonds, and it was understood that Mr.
Hardenbrook would communicate w i t h t h e First National Bank

Chicago and make a further offer if authorized.

f

Mr.

Treman was authorized by the committee to sell an additional
million upon the same terms, and also to sell up to
5

o

,

f

the

bonds at 1 1 - 1 / 2 and interest to Messrs.

Harvey Fisk & Sons, with an option, good until January l,
1917, to purchase at the same price as many of the bonds in
excess of that amount as the reserve banks might place at
the disposal of the committee.
It was understood that the contract wtich Messrs• Harvey
Fisk &Sons had entered into would include an agreement on
h e part of the Federal r e s e r v e banks not to sell similar
bonds at a price loss than 1/4 of 1% above the selling
Price established from time to time by Messrs• Harvey Fisk
& Sons

Which would }le notified to the committee by Fisk &

Sons.
On motion, the committee duly adjourned at 4:3p.m.

November 1, 1916.

In accordance with the action taken by the committee
at the meeting of October 31, 19l6, as above described, Mr.
Treman today sold an additional million of the bonds to the
First National Bank of Chicago at the price of 11-1/2
1nte
rest as indicated in the following correspondence:


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Federal Reserve Bank of St. Louis

"November l, 1916.
Charles J. Rhoads, Zsq., Chairman,
Bond Selling Committee.of Federal Reserve Danks,
Philadelphia, Pa.

Dear i r :
Referring to your letter of October 31st wherein
we confirmed verbal contract of Mr. B. U. Hardenbrook me.de
on our behalf to purchase from your committee, under the
t e r m s e.s stated t h e r e i n , 5

,

,

o

f U. •

c o n v e r s i o n 3%

coupon bonds, this letter is to confirm our additional purChase t h i s d a y of 1

,

,

o

f l i k e bonds f r o m your com-

mittee under the same terrns as our contract of yesterday,
it being understood that this additional purchase increases
our t o t a l purchase from your cornmit tee to 6 , , p a r
value of bonds which will be delivered to us in accordo.nce

With the terms of our contract of October 31st excepting
that the amount will be 6 , , i n s t e a d of 5

,

,

,

as stated in that contract•

Respectfully,
FIRST NATIONAL BANK OF CHICAGO

By B. . Hardenbrook.
November l, 1916.
• F i r s t National Bank,

Chicago. Ill•
Dear Sirs:
On behalf or the bond selling committee or the
Federal reserve banks I beg to acknowledge receipt of your
letter or this date addressed to Mr• l.tharles J. Rhoads,
Chairman of the bond selling committee, stating


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Federal Reserve Bank of St. Louis

53

"Referring to our letter of October 3lst wherein we
confirmed verbal contract of Mp. B. C. Hardenbrook made om
our behalf to purchase from your committee, under the terms
n v e r s i o n 3% coupon

as s t a t e d t h e r e i n , " 5 , , o f U. S.

bonds, this letter is to confirm our additional purchase this
day of 1 l , , o f l i k e bonds f r o m your committee under

the same terms as our contract of yesterday, it being understood that this additional purchase increases our total purchase f r o m your committee to

6 , , p a r

v a l u e of bonds

Which Will be delivered to us in accordance with the terms

of our-contract of October 31t, excepting that the amount
will be " 6 , , i n s t e a d of, 5

,

,

, as stated in

that contract.
which is in accordance with my understanding of the ad-

ditional contract consummated today between this committee
and Your bank in accordance with negotiations begun yesterday With Mr• Mcuougal and myself.
Respectfully,
For t h e

Committee,

By, R.H. Treman•
Subsequently thereto, he also entered into a contract
with Messrs• Harvey Fisk & Sons in accordance with the terms
outlined above.

The amount of bonds to be sold to Fisk

&: sone under this agreement cannot be definitely determined

until final advices have been received from all the Federal
reserve banks in respose to inquiries as to the extent or
thei

ir

participations.
It was agreed by the committee that the Federal Reserve


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Federal Reserve Bank of St. Louis

64

Bank of Chicago would attend to the deliveries of the six
millions of bonds required to be made in Chicago, that the
Federal Reserve Bank of New York would attend to the deliveries of the bonds required to be made in New York, that
Mr• Kenzel would notify each participating bank of the respective amounts of bonds that they should ship to the
1-'ederal Reserve Bank of Chicago and the Federal Reserve
Bank

of New York to provide for the deliveries, and that

the Federal Reserve Bank of Chicago and the Federal Reserve Bank of New York would receive payments for the bonds
delivered by them and account to the participating banks
for the proceeds of their respective proportions.
J. F. Curtis,
Secretary."

The Chairman:

You have heard the report of the Com-

mitteg on the Disposition of Government bonds.
Governor McCord:

I move the receipt of the report

and t h a t the committee be continued:

The Chairman:

Governor McCord moveA that the report

of the Committee be received and that the Committee be
continued.
(The

motion having been duly seconded, was carried)

Governor beaya

In that connection, Mr• Chairman, I

Would like to take up a matter which is not on the program,
but pertains to this very thing.

I would like to ask if

the other Federal Reserve Banks understaml the position of
t h e B oard with respect to conversion during the coming year.

Do Iunderstand that we can buy bonds this year am convert


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Federal Reserve Bank of St. Louis

them even to the full amount that has been allotted?
Governor McDougal:

I think the situation is that a c h

bank may buy bonds, or could have bought them even last
month, up to the full amount of the requirement for next
year, and convert them on the first day of January, if it is
seen fit to do so.

Beyond that, in case you should avail

Yourself of that opportunity, you are not relieved of tho
responsibility of taking your full proportion of the

25,ooo,ooo n e t

e a r in case the Federal Reserve Board

decides that we should buy them.
The Chairman:

In other words, what you buy in the two

months prior to the first of January, while they can be converted under the conversion privilege, will not count on
Your allotment for the next year.
Governor wold:

Prov1ed they require it.

Governor »eay:

I have that in mind, Mr• Curtis.

The

l a w says that the Federal
Reserve Banks may not buy more
than 2 5 , , w i n one year.

Mr, Curtis:

May not be required to buy more than

I

2 5 , , w o r t h in one year.

Governor Seay:

Then does it

the T

r

mean, by implication, that

reasury ,Department cannot
,
convert
5 more than 2

4 3 , , i n one


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Federal Reserve Bank of St. Louis

year?

56

No sir; I do not think there is any neces-

Mr• L u r t i s :

sary relation between the amount that you can buy and the
amount t h a t c a n be c o n v e r t e d .

Suppose, for instance, we buy now the

Governor S e a y :

f u l l amount t h a t t h e F e d e r a l R e s e r v e Board w i l l permit to be

converted on the first of January:
we

Is it probablw that if

were r e q u i r e d to b u y 2 5 , , n e x t year t h e r e would

be any more bonds to be converted, or is
2 5 , , o r 3

,

,

a

l

this

l t h a t the Treasury Department

Will convert in the next year?
I understand it is•

Mr• urtia:

Governor beay:

So, if the Board requires us to buy

more next year, we cannot convert them.
Governor Wold:

They cannot r e q u i r e us to buy u n l e s s

they are o f f e r e d to the Secretary of the Treasury.
Governor S e a y :

That is t r u e .

Governor Wold:

I have i n f o r m a t i o n f r o m Governor Mc-

Dougal that goes further than that-

Personally, I did not

fi

nd that letter or telegram very clear. I am advised
that then they said they would convert those purchased in
Novernber and uecember t h e y d i d . not agree to convert t h o s e

we had a l r e a d y p u r c h a s e d .

We a r e o f f e r i n g t h o s e bonds

with the understanding that they will be converted just
as bonds p u r c h a s e d t o d a y would be c o n v e r t e d under t h a t

telegram or letter.
The Chairman:

I understand that any bonds could be

n v voorr tt ee dd, but t h e y would count a g a i n s t you in your a p -

Dori
V

Dn.ment.


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Federal Reserve Bank of St. Louis

You can convert out of the $ 3 , , .

57

{Informal d i s c u s s i o n f o l l o w e d . )

Governor Seay:

I think our p r o t e c t i o n is in t h e fact

that the member banks will not v o l u n t a r i l y offer these bomds
for sale.

The Chairman:

The protection lies in the fact that

there is just a ahade over par offered for the bonds
in the street.
Governor Treman, I believe you want to speak on that
heading (c), in regard to the question of purchase of
Government Bonds?

Vice Governor Treman:

In New York we raised the

question in regard to the purchase of these bonds above
par With the Federal Reserve Board.
The Chairman,

Mr: Treman:
and 9 9 .

By F e d e r a l reserve b a n k s , you mean?

Along in the fall they were offeredat 98

Then there were a few purchases made, which

Jumped the price up over par.

It raised the question

Whether there should be a committee on purchases of bonds
just as well as a committee on sales.

That was w i t h r e f e r -

ence to denying to a bank the right to purchase at acertain price to be agreed upon by the committee.

I think

You a r e f a m i l i a r w i t h t h e l e t t e r of t h e Feder al R e s e r v e

Board to the Agents, dated November 24th, If you want that
read. I will be l a d to read it here,
(Reading):

PROPOSED PLAN FOR PURCHASE BY COMMITTEE OF
UNI TED STATES 2% BONDS.

\Gopy of Federal Reserve Board's letter to Federal Reserve
Agents, Dated November 24, 1916.)


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Federal Reserve Bank of St. Louis

58

"The Federal Reserve Board has observed that certain
Federal reserve banks have recently purohased two per cent
United States bonds above par and its attention has been
directed to the fact that this price has been artificially
stimulated by the competitive bidding of those Federal reserve b a n k s .
"'While 1 t is not t h e d e s i r e of the Board to r e s t r i c t or

to limit the purchase of two per cent bonds by the various
Federal reserve banks, it is deemed advisable to point out
that this policy, which is unnaturally forcing up the price
of two per cent bonds, is fraught with certain dangers.
"Section 18 of the Federal Reserve Act provides in part
t h a t any member bank, d e s i r i n g to r e t i r e the whole or a n y

part of its circulating notes, may file with the Treasurer
of the United States an application to sell for its account,
par and accrued interest, United States bonds securing
Circulation to be retired•

1he Federal Reserve Board is

given the power to require Federal reserve banks to buy
c"

#

2

5

,

,

o

f

such bonds in any one year, less the amount

or bonds bought by such Federal reserve banks in the open
market durirg the

same

calendar year.

The power of the

E

ederal reserve banks to make open market purchases of bonds

1s not limited by law, so that strictly speaking, such banks
are acting within their legal rights in making such purchases even though their competitive bidding is forcing the
price of two's above par.
mp1
The

difficulty, however, is that this policy is creat-

ing an artificial and unnatural market for two per cent bonds.


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Federal Reserve Bank of St. Louis

59

The Federal reserve banks are afforded the privilege
of converting a certain amount of two per cent bonds into
three per cent bonds and three per cent one-year notes.
Consequently, such banks will not suffer any direct financial loss by paying for two per cent bonds practically the
same amount as the normal market price for three per cent
bonds.

The fact, however, that Federal Reserve banks may

convert bonds in this manner and that two per cent bonds
are, because of the conversion privilege worth substantially
as much as t h r e e s ' to F e e r a l r e s e r v e banks, is h a r d l y a

sound reason to justify their forcing the price of two's above
their normal market value by blindly bidding against one
nother.

"It is quite generally agreed t h a t cne of the purposes

or the Act was to promote a gradual retirement of the national bank c i r c u l a t i o n , a n d S e c t i o n 18 in a f f o r d i n g a f i x e d

market, at par and accrued i n t e r e s t , f o r two per cent bonds

Would dispose in that manner of those bonds which they are
required by the national bank act to keep on deposit with
the Treasurer of the United States.
" I t is apparent, t h e r e f o r e , that if

the

open market

Pt-ice of two per cent bonds is u n n a t u r a l l y established at
a figure above par, member banks will not be inclined to
Offer their two per cent bonds for sale through the Treasurer at par and accrued interest, even if such bonds are not

free bonds and
can not be r e l e a s e d by t h e ?-Treasurer for
u
sale in•· any manner
vided byby SSection
e c t i o 18
• ,
w
other than that providec
The
result will be that there will be an artificial stoppage


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Federal Reserve Bank of St. Louis

f

o

6

the retirement of national bank circulation in the manner contemplated by t h e A c t .
"The suggestion has been made t h a t t h e Federal r e s e r v e

banks appoint a. committee to consider the purchase of two
per cent bonds for the joint account of all Federal Reserve
banks.

The Board believes that such a course would not

only be conducive or a more healthy and normal market for
two per cent bonds, but also that it would best promote the
results intended by Congress in the matter of accomplishing
the r e t i r e m e n t or national bank circulation."

Copy of Mr• Lurtis1s letter to all Federal
reserve banks, Lated November 28, 1916:
11

In v i e w of t h e Federal Reserve B o a r d ' s l e t t e r of

November 2 4 t h addressed to each of the F e u e r a l reserve agents

with reference to the purchase of United States 2% bonds
by the Federal reserve banks, it has been suggested that the
bond committee of governors which has heretofore acted for
all twelve of the banks in the disposition of United States

3%bonds bo authorized to act for all the banks in the
acquisition of United States 2% bonds, the committee to hate

power
l.

To formulate and put in operation a plan for the

purchase of United S t a t e s 2% bonds f o r account or t h e p a r t i ©ipating

2•

Federal reserve banks.
To establish from time to time at its discretion

prices at which such bonds may be bought, which prices shall
be b i n d i n g on all Federal reserve banks.

To e s t a b l i s h r a t e s of commission t h a t may be a l l o w ed upon such purchases.


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Federal Reserve Bank of St. Louis

61

"Consent to this plan on the part of any Federal reserve bank shall not be construed as requiring it to purchase
any such bonds, nor as preventing any Federal reserve bank
from purchasing such bonds in its own district at prices
not higher t a n and subject to commissions not less than
those established by the committee.
11

It

is understood that t h i s plan shall become operative

only when accepted by all the Federal reserve hanks and
that it may be modified or revoked by the vote of any conference of governors.
"Will you please l e t me know at

your earliest conven-

ience, preferably by telegraph, whether or not you approve
or this plan, and also the amount of 2% bonds you would like
to have purchased for you through the efforts of the committee."
ABSTRACTS OF REPLIES R E C I V E D .

F. R.
Bank of Replies

Approval Modifications

Amount of Bonds to
be purchased by
the Gommittee betore /1/17.

Boston 1A1/29/16 Assents to
the plan

Will advise later
of t h e amount of
bonds desired under
t h i s agreement.

Phila. L 11/29/16 Assents

Will advise after
12/6.

Cleve- L 11/2/16 Approves Suggests commitland
tee formulate a
plan and submit it
for consideration
and a d o p t i o n at
conf·.rence of go11ernors Dec. llth.


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Federal Reserve Bank of St. Louis

None.

62

Richmond L 11/29/16 Approves Would not be willing
to abridge in any way
their right to pur-

chase from their member banks at par and
interest. Thinks Gom-

L>oes not
state

mittee should have to
do only with open mar-

ket purchases.
Atlanta L 12/ 2/16

Matter referred to
chairman of t h e board

Will hold Mr• Curtis'
letter until conference of governors.
Chicago T 12/ 1/16

Sees no occasion for
the 2% bond matter to
be given to a committee
provided the F.R.Banks
will agree that par and
interest is to be the
maximum p r i c e .

St, LouiaT 12/ 4/16 Approves hill participate to the
amount of its allotment

None

f o r year 1 9 1 7 .

Minn.

T 12/ 1/16 Approves
entirely

$3,consol

2's

Kan.City T 12/ 1/16 Disap- "Not altogether in favor
proves. of bond committee and
its powers."
Dallas

T 12/ 1/16

Thinks plan should be
fully considered by

Not in the
market.

c o n f e r e nee .

San.Fran.T 11/29/16 Approves "Provided this bank is
not debarred from purchasing locally within limit of price
fixed by the committee

"Do not wis
to make any
purchases
through the
committee
before 1/31.

SUGGESTIONS F'OR PLAN OF OPERATION IN THE PURCHASE OF U. S. BONDS, BY FEDERAL RESERVE BANKS.

l.
Federal

That a committee to consist of three governors of

reserve banks be appointed to conduct for account of


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Federal Reserve Bank of St. Louis

63
all Federal reserve banks their open market purchases,
under section 14, of United States 2% bonds.
2•

That such committee shall establish from time to

time in its discretion prices at which such bonds may be
bought, which prices shall be binding on all Federal re-

serve banks.
3.

That such committee may in its discretion employ

agents to purchase bonds for the committee and establish
rates of commission that may be allowed on purchases so
made, provided that nothing in this arrangement shall be
construed to abridge in any way the right of any Federal

reserve bank to purchase bonds directly from the member
banks in ts district at prices fixed by the committee
or in the discretion of such Federal reserve bank at a price
not exceeding par and interest; and further provided that
no Federal reserve bank shall be debarred from making local
Purchases f r o m persons other than member banks within the
l i m i t of' p r i c e s f i x e d by the committee.

4,

That consideration be given to the seasonal fluc-

tuations of prices of Government bonds which depend largely

upon the demand for tax exempt securities at certain per1oda of eae a c h y e a r ;

thus the last mont of each year gen-

erally shows higher prices caused by the demand for tax
exemption January l s t .

Prices generally recede after

January lst and remain comparatively firm until April l t ,
When there is another demand for them especially in New
'!.;,

England.

Owing to change in Massachusetts laws t h e r e w i l l

not be the same April demand t h i s y e a r ,


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Federal Reserve Bank of St. Louis

After April l s t ,

64

and until September is n o r m a l l y t h e d u l l period; in September buying for the October tax exemption stimulates prices
so that normally the month of July sees the cheapest market
prices.

5•

That consideration be given to the limitation

under
f
t h e Act oof J u l y 1 2 , 1882,
,
t h a t not, more t h a n 9

lawful money in any one month may be deposited to rel e a s e bonds for securing circulation restricts the amount

or bonds that may be released for purchase by Federal reserve banks under Section l4 but does not apply to the operation of retiring circulation and releasing bonds acquired
by Federal reserve banks under section 18 of the Act:
6.

That consideration be given to the limitations

or the National Bank hct, which prevent member banks established prior to the Federal Reserve Act becoming effective
from withdrawing all of their bonds securing circulation
for sale to Federal reserve banks, which limitations do

not apply to bonds withdrawn un der section 18•

'l'his

refers to the 5 , C O or bonds required to be kept by banks
having a capital of less than 1 5 , .
7.

{a)

Suggest that we consider also if it would

not be well during the year 1917 to make

open market

purchases under section 14 until after opportunity had
been offered all member banks to dispose of their bonds
under section 18 of the Act:
(b)

That application from member banks under section

18 shall be for the entire amount that the Board will require Federal reserve banks to purchase during t h e year 1917.


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Federal Reserve Bank of St. Louis

65

(c)

That the time of application under section 18

should be in January or early

in February, 1917, so that

a l l bonds then acquired may be converted as of April 1, 1 9 1 7 .
If the full amount of bonds for theyear 1917 were not ac-

quired under section 18 prior to April lst open market purchases t h r o u g h the committee would n a t u r a l l y f o l l o w during

the spring and summer f o r conversions as of' J u l y l s t and
September lst.

T h i a would b r i n g t h e open market purchases

at seasons when bonds are normally at their lowest and
would have tho effect of strengthening the market on Government issues at the seasons when they may be unstable.
Operations last year when open market purchases were the
r u l e and operations under section 18 the exception. r e s u l t e d

in many member banks who desired to sell their e n t i r e holdings of governments not being able to withdraw them and
t h e congestion of applications for withdrawal delayed from

month to month the sale of bonds to F e d e r a l reserve banks,
and caused also a great deal of confusion and inconvenience
in the bond market outside of the Federal reserve banks.
It would seem that all of this might be avoided next year
by

giving section 18 a try-out preliminary to open market

purchases."
The Cin irman:

Do I understand that you offer that?

Wha t action do you wish?

Vice Governor Treman:

That a committee of three be

appointed to act upon that recommendation and that the recomendation be adopted.
Governor McDougal:


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Federal Reserve Bank of St. Louis

Under t h i s p l a n as recommended,

66

What would be the right of each bask to buy for itself?
Vice Governor Treman:

To buy for itself at the price

. agreed upon by the committee, but not above par.
Governor Wold:

The committee is not prohibited from

buying at above par.

I would not want to be bound by

that.
Vice Governor Treman:

The whole purpose is to s i m p l i f y

the matter und to avoid competition in the open market.
Governor Wold:
The Chairman:

I um in favor of that:
l think the matter can be very simply

covered by inserting in paragraph 2 that such committee
Shall establish from time to time in its discretion prices
not to exceed par a n d interest.

Vice Governor Treman:
Governor Van Zandt:
Governor Miller:

Yes; that is right.
Is not that the maximum?

How would you d i s t r i b u t e t h e bonds

When bought by the committee?
Vice Governor Treman:
Governor Seay:

On order.

The process would be that you would

first communicate with the Federal reserve banks and ask
them if
they wished to buy so many bonds, and each bank
would be o b l i g a t e d to take as many bonds as it would bid
for?

Vice Governor Treman:

If you should buy a million,

t h e committe e would have to fix an apporti
onment that would

Governor Miller:
If

Suppose we all wanted a million?

You wanted to buy one million and you thought there were


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Federal Reserve Bank of St. Louis

other banks desiring bonds at t h e same time, you would
double your order,
Governor Wold:

You might get them.
On page 2 of this communication

Governor Van Zandt:

in M r : Curtis' letter I find this:
"Consent to t h i s p l a n on the p a r t of any Federal r e s e r v e

bank shall not be cons trued as authority to purchase any
such bonds, nor as p r e v e n t i n g any Federal reserve bank
from purchasing such bonds in its own district at prices

not higher than and subject to commissions not less than
those e s t a b l i s h e d by the committee."
I would not be in f a v o r of it

our own district.

u n l e s s t h e y leave out

We have no bonds in our d i s t r i c t at a l l .

I had an order passed

They are never offered for sale.

With the Federal Reserve Bank of New York for United States
bonds.

I had bonds offered me, and

We limit the p r i c e .

bought them from brokers in New York City lower than the
limit given the Federal Reserve Bank, and they advised me

that they could not get them at that price.
Vice Governor Teman:

It

is

possible that t h e Federal

Reserve Banks might not have dl t h e i n f o r m a t i o n

vailable

as to the sale of Federal Reserve bonds.
Governor McDougal:

It seems to me that a very simple

S o l u t i o n of t h i s whole matter c o u l d he had by e n t e r i n g i n t o

an Understanding by which t h e banks would not b u y b o r s

over par.

We feel that member banks are entitled to par

f o r two p e r c e n t bonds.

It seems to me t h a t it

Simple mntter to s e t t l e it, an d that
a


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Federal Reserve Bank of St. Louis

i

w o u1ld
lu

would be a

us of
relelieve
lev

68

t h e necessity of appointing a committee.

Governor Miller:

Mr. Gurtis:

I t h i n k t h a t is a good suggestion.

I think there is om recommendation t h a t

was put in this report whicn is of great importance, and
t h a t is that all member banks be given an opportunity to pre-

sent their bonds for purchase by reserve b a n k s under the
Provisions of Section 18 before the reserve banks go into
t h a market and buy under S e c t i o n 1 4 .

:-advantages to that.
tion

There a r e several

One is that there is no limita-

of 9 , , p e r month, or of the amount that they

have to have on deposit when t h e bonds are d i s p o s e d of under
Section 18, whereas
both apply under ection 14.
If we could persuade the Board to announce that member banks will be authorized to p l a c e all bonds f o r the
four q u a r t e r s of t h e year in t h e f i r s t q u a r t e r , t h e n we may

have enough to take up the whole year in that first quarter.
If we do n o t , t h e n t h e banks, under S e c t i o n l 4 , c a n p u r c h a s e
the b a l a
nce.
You will remember what a scramble t h e r e was
l a s t year to get under t h e w i r e on account of t h a t
9 , , p r o v i s i o n .

Of course, the banks n e a r e s t Wash-

ington had a few days' advantage•

A few days'difference

in t h e mailing t i m e made quite a little difference to them
in that r e s p e c t .

I t h i n k they should have t h a t opportunity

to dispose of them.

I understand it has been announc ed

th°'
t t h e y were g o i n g to c o n s i d e r t h e bonds of November and

December in making up the " 2 5 , , r e q u i r e m e n t s .
Governor Rhoads:
Still

in force?
rs


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Federal Reserve Bank of St. Louis

Is t h e p r e s e n t rule of t h e Board

Is that carriec
ed frfrom year toto year?
?

a

Mr• Curtis:

I

6

The Statute gives every member bank an

opportunity quarterly to put in an application, but if the
Board should announce that they would receive applications
f o r the whole year in the first quarter, I think we should

give the member banks a fair opportunity to sell all they
wanted for the year at par and interest, and then go into
t h e open market,

You think that would terminate on

Governor Rhoads:

January 3lst, if the Board should so rule?
Mr, Curtis:

I think we could give the banks oppor-

tunity to send in as many as they wanted to during that
quarter.
Governor McDougal: Last year, when we sent out offeri n g to buy bonds, we r e c e i v e d offerings in excess of' t h e

amount we wanted to buy.

At that time we had communica-

tions from member banks asking if we were in a position to
buy bonds at par, or any other price.

we believe we should

be in a position to buy or sell without restriction. It
seerns to me, under t h e p l a n t h a t has been o u t l i n e d , a l t h o u g h
I may be mistaken in my impression, i f , at a. c e r t a i n d a t e ,

a member bank wanted to let us have a.certain number of
t h e i r bonds, we might be d e n i e d t h e p r i v i l e g e of t a k i n g

them.

Am I right or wrong about that?

Mr. Curtis:

Not under this plan.

Governor Wold:

You can buy as many as you please

from the member banks.

Governor McDougal;


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Federal Reserve Bank of St. Louis

not the point the matter or

g

n

i

x

i

f

7

prices for two per cent bonds?
Mr. C u r t i s :

It is f i x i n g the maximum price to prevent

competitive bidding.
Governor McDougal:

I do not think that the committee

would go beyond the matter of fixing par as the highest and

lowest price,

They would not urertake to fix prices

below parat any t i m e , would they?

Mr. Curtis:

They would fix the maximum and it would

Probably be par.
Governor McDougal:

It seems to me that if these rep-

r e s e n t a t i v e s would agree t h a t t h e y would not buy two per

cent bonds above par, it would be a satisfactory solution
of the matter.

Mr. Gurtis:

Except for this point, that a half dozen

banks may send through brokers, and everybody will bid
per.

Suppose you had bought from member

Governor Miller:

banks at par and interest the amount you might be required
to take in a year, and subsequently, there being no demand
for bonds on the open market, the prices went down to 99:
You vould be p e r f e c t l y w i l l i n g to buy t h e m f o r t h e next
year t h e n ?

Governor McDougal:

We would

be

willing, but we do

not care to be a party to bringing them down to 99•
Governor »eay:

If you do

want to buy bonds in

the open market, you do not want n e c e s s a r i l y to pay p a r .

Governor M i l l e r :

If one or two banks were to buy in

the oppen market, they would get them at par.


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Federal Reserve Bank of St. Louis

Suppose, for

i n s t a n c e , we had t a k e n up f r o m member b a n k s a l l t h e y wanted

to o f f e r .

Here is this committee,

brokers have certain bonds to sell.

It f i n d s o u t , t h a t the

There is no one to

give par; so t h e y of'fer them at 99-1/2.
it.
99.

They cannot get

They want to sell the bonds, and we can get them at
The Committee would then communicate with the Federal

reserve hanks that the bonds were in the market, and it
would s a y ,

How m n y s h a l l I buy f o r you?

Governor McDougal:

Suppose the

committee did not

get i n t o communication?

Governor wold:
committee.

You are not obliged to act with the

You are not obliged to buy bonds unless you

so desire, but if

you are going into t h e open market, you

go through the committee.

You buy through the committee.

(Informal discussion followed.)

Governor McDougal:

This is an important matter, Mr.

Chn1rnnn, and I think it should be fully discussed.
The Chairman: My desire is to reduce it t o e .formal
discussion.
Governor McDougal:

I was going to suggest that Mr.

Tremen or Mr. {urtis state plainly what the rights of
©ach b a n k would b e .

Vice Governor Treman:

(Reading:)

"That such committee may in its discretion employ
agents to purchase bonds for the committee and establish
rates of commission that may be allowed on purchases so

made

'Provided the.t nothing in this arrangement shall be
o n s t rued to abridge in any way the right of any Fedral


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Federal Reserve Bank of St. Louis

72

reserve bank to purchase bonds directly from a member bank
in its district at prices fixed by the committee or in the

discretion of such Federal reserve bank at a price not exceeding par and interest; and further provided that no
Federal reserve bank shall be debarred from making local
purchases from persons other than member banks within the
limit of prices fixed by the committee."
Governor Wold:

I raise the question about the price

at which the committee might be permitted to purchase these
bonds and bind a participating bank w i t h o u t its knowledge.
You suggested that paragraph 2 be changed.

What was your

suggestion in that regard?
The Chairman: It was that such committee shall
esto time
tablisha from time",in its discretion prices not to exceed
par and interest at which such bonds shall be bought.
Governor Van Zandt:
t h e maximum

Would it not he better to say

price?

Governor Wold:
Mr. Curtis:

That is what it would really be.

That is all right.

Governor Fancher:

Do

you mean to leave it to the

committee to establish maximum prices?
Governor

Van Zandt:

The Chairman:

Yes.

Maximum prices, not to exceed par and

interest?
Governor Miller:

That is in paragraph 3?

Governor Van Zandt:
Governor McDougal:

Paragraphs 2 and 3.
I think that under that paragraph

all we would be held to would be maximum prices.


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Federal Reserve Bank of St. Louis

73

Vice Governor Treman:

It would seem so to me•

You

are held to the maximum price, but the pointis that they
have been bidding at forced prices up to 1 - 1 / 8 .

The

bonds are sometimes short, running from 98-3/4 up to par,
and an e i g h t h .

Governor McDougal:

It also reads "at a price not to

exceed par and interest", does it not?
Mr, Curtis:

Paragraph No. 3 is not quite claur, It

Beems to me it is a little misleading.
What is meant there.

I am not s u r e

I think the thought was to let

everybody go up to par if they wanted to.
Vice Governor Treman:

Why not take Governor Van

Zandt's suggestion, that the committee fix maximum prices?
The Chairman:

You suggest that in paragraph 3 it be

made to read, "In the discretion of such Federal reserve
bank at a price not exceeding the maximum price fixed by
the committee?"
Governor Seay':

I think, Mr, Chairman, if you strike

out the words " f i x e d by the committee" you w i l l have what

You want.

,,

I am referring, now, to that part which reads,

d i r e c t l y f r o m t h e member banks in i t s d i s t r i c t at p r i c e s

fixed

by

the committee or in the discretion of such Federal

reserve bank at a price not exceededining par
Mp. C u r t i s :

the

am
ami

i Interest.
n t e : st."

S t r i k e out t h e words " p r i c e s f i x e d by

comrn1 t t e e " , o.nd l e t anyone go up to p a r , if

he wants

to.
The Chairman:

S t r i k e out f r o m the memorandum in p a r a -

&raph 3, line 5, the words "at prices fixed by the committee,


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Federal Reserve Bank of St. Louis

74

or", so that the paragraph w i l l read, "ghat such committee
Shall establish from time to time in its discretion maximum
Prices not to exceed par and interest at which such bonds
may be b o u g h t . "

Are there any further amendments or changes to be made?
Govarnor vvold:

There is another thing about commie-

sions.the banks shall have for making purchases•

I think

that should be agreed upon here if it is possible to do so.
Mr. Curtis:

Of course, ordinarily there would be no

commission at all on the purchase of borxis•
low pays the commission:

The other fel-

I put that in that letter in

order to make clear that if necessary the committee might
have authority to fix a commission.
Would t h a t mean that the Chicago

Governor Miller:

Bank or the New York Bank or tle Boston Bank w h i c h h a n d l e d
t h e t r a n s a c t i o n s and r e c e i v e d and p a i d f o r t h e bor.rls, e t c . ,

could charge the regular and usual commission?
Mr. Curtis:

No,

There will be no commission to any

reserve bank:
Governor M i l l e r ,

Or to the committee?

Vice Governor Treman:
t h e o t h e rr daday,

"1

One broker came to us and said

'I h a v e been t r y i n g toto s c aalel e a t h i irr tt y - s e c o m

or- a s 1 x t y - f o u r t h o f f , but t h e y would n o t allow 1t ,"

He

s a i d ,, "I do not suppose t h e F e d e r a l r e s e r v e bank w i l l a l l o w

anv
y

commiss1 o n . "

We s a i d , "Of course n o t . "

h a t case he would h a v e toJo bvbuy
av

Governor Miller:

©nce to that?


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Federal Reserve Bank of St. Louis

What is

wiwithhoutit

And in

mi.3i
any commission.

your c o n c l u s i o n w i t h r e f e r -

Suppose you a n t e d t h o s e b o n d s ?

75

Vice Governor Treman:

We would set the price at which

we w o u l d b u y t h e m•.

Not exceeding par and interest?

Governor Mi1lert

Vice Governor Treman:

Yes sir,

That will prevent many, many sales,

Governor Miller:

because sometimes banks a r e willing to take j u s t par and no
less.

Vice Governor Treman:

Then they would sell direct to

you,
But if

Governor Miller:

the committee would not pay

a commission, t h e banks would not do so e i t h e r ,
Vice Governor Treman:

Then leave it to the Commit-

t e e to determine whether or not to pay t h e commis s i o n .
.

y

.

I think it would be well to say

Governor M i l l e r :

"par and i n t e r e s t " when purchased t h r o u g h b r o k e r s , and a

commission of not more t h a n o n e - t h i r t y - s e c o n d .
9imp1e

It is a

thing, but it may cheat you out of the purchase or

millions of bonds.
Vice G@ e r n o r Treman:

I think it would be all right

to s a y , "power to purchase on commissions when in t h e i r
'
Judgment a d v i s a b l e . "

The Chairman:

In the interest of brokers?

Governor F a n c h e r :

As I understand i t , our bond sell-

\ng committeehas been c o n t i n u e d , has it

It consists or Mr. Rhoads, who

The Chairman:

Governor F a n c h e r :

not?

It

seems to me t h a t {s a m a t t e r

'hat might be referred to this committee.


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Federal Reserve Bank of St. Louis

I move t h a t t h e

76
i.··

plan submitted by Mr: Treman be adopted and that that he
the plan under which the committee operate.
Governor McDougal:

·I think Mr, Fancher is directing

his motion to this particular feature of the report, are
you not, Mr. Fancher?

That is the matter of the method of

buying two per cent bonds.

There a r e o t h e r important mat-

ters that should be considered, I think.

Governor Fancher:

I think if you are going to have

a committee to handle United States bonds, a committee that
has served us so well in t h e s a l e of bomd s can s e r v e us
equally well in the purchase of bore s, and I am quite will1ng that this matter be referred to the committee:

I

make that as a motion.
The Chairman:

Governor

Seay,

The motion is made and seconded.
I think that it is important to get

that paragraph 3 in proper shape.

I do not think it says

What 1t means.
The Chairman:

Will you read that paragraph and make

What suggestions you wish to make?
Governor Seay:

It seems to me that it was intended to

be expressed in t h i s way:
"@

hat such committee may in its Aiscretion employ

agents to purchase bonds f o r the committee and e s t a b l i s h

rates of commission that may be allowed on purchases so
made
provided that nothing in this arrangement shall be

onstrued to abridge in any way the right of any Federal
reserve b a n k to purchase bonds directly
.
ly fr
nb
from t h ene member
banks i

n its district"---


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Federal Reserve Bank of St. Louis

77

You strike

a1t

e v e r y t h i n g e l s e in t h a t l i n e and in t h e

next line until you get to t h e words " a t a price not exceeding par and interest."
11Tha.t

It will then read:

such committee may in its discretion employ

agents to purchase bonds for t h e committee and establish
rates of commission that may be allowed on p u r c h a s e s so
made, provided that nothing in this arrangement shall be
construed to abridge in any way the right ct any Federal reserve bank to purchase bonds directly from the member banks
in i t s d i s t r i c t at a p r i c e not exceeding pnr and i n t e r e s t . "

That is on the theory that you want to leave us free
It seems to me that those other words are

to do t h a t .
contradictory.

They defeat that purpose.

Then it con-

tinues:
"And further provided that no Federal r e s e r v e bank

Shall be debarred from making local purchases from persons
Other than member banks within the limit of prices fixed
by the committee."

I think that is all right, if you modify it to that extent.
Governor Van Zandt:

I think that word "local" s h o u l d

be stricken out.
Governor Seay:

It seems to m that if we do that we

Will defeat the essential purpose of establishing this commit t e e .

If

you want bonds, t h e r e is one way to get them.

This committee will be in touch with bonds wherever offered.
Your move t h e n is to communicate w i t h t h i s committee in r e -

gard to the bonds.


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Federal Reserve Bank of St. Louis

You stand a much better chance to get

78

them than if you look for them yourselves.
Suppose they are offered velun-

Governor Van Zandt:

tarily.
Then communicate with the Committee.

Governor Seay:

Suppose the committee has a b i g

Governor Van Zandt:

order from the Federal Reserve Banke.
Governor

Then we should participate.

Seay:

Suppos

Governor Van a n d t :

t h e of f e r 1 s made to me?

Then pass it along to the committee,

Governor Seay:

and let us all get t o g e t h e r .
Mr, Gurtis:

You mean outside of the District?

Governor beay:

You could buy those bords, of course.

It t h e y a r e o f f e r e d to t h e committee, you w i l l get bor.ds
t h a t you have no knowledge o f , which w i l l compensate you

for bonds which are offered to you.
Governor Miller:

In the first part of paragraph 3,

it starts out by authorizing the committee to employ agents
to purchase bord. s f o r t h e committee and e s t a b l i s h r a t e s
of comrn1ss1on, e t c .

I said a fw

That is e x a c t l y in l i n e t·.,1th what

minutes ago.

That might mean an added expense

to par and interest.
The Chairman:

Is not the point you raised covered

by this paragraph?

Governor Miller:
S me

Yes sir, it

is,

I think that

maximum compensation as brokerage or commission should

be stated here, so that we would all know that it is right,
The Chairman:
mmittee?


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Federal Reserve Bank of St. Louis

Gan't we leave that. matter with the

I am perfectly willing to do it personally,

79

It is one-eighth in Boston.

In New York it is whatever

the street brokers can get.
If Dr: Miller insists upon that he

Governor McCord:

defeats the very object that he has in mind.
The Chairman:

I understand his final opinio• is that

this is acceptable, us it makes provision for commissions.
Is there any further discussion of the matter?
Governor Seay:

There is No' 2, that Mr. Wold desired

amended, and I think it ought to be amended, too.
The Chairman:

That is consented to?

It has been

nmended so as to make it read as follows:
"That such committee shall establish from time to
time in its discretion maximum prices not to exceed par and
interest at which such bonds may be bought."
Governor Seay:
The Chairman:

That settles the whole question.
Is there any further discussion?

those in favor of the motion as

made

All

by Governor Fancher

and duly seconded will signify it by saying aye.
(The motion was carried.)
The Chairman:

The next t o p i c is "

"Committee on reserve banks acting as fiscal
agents of the Government.
Mr. C u r t i s :

Governor Rhoads, d i d n ' t you have some-

thir
ng You wanted to say about the sale of three per cent
bonds?

•

Governor Rhoads:
hereO
t o1 'fo r e

The committed is continued with power

g r a n t e d , which includes the power to fix minimum

prices at which they may sell outside o15f tie
the commi
mitt tee•


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Federal Reserve Bank of St. Louis

We

e

d

a

m

8

a contract with Harvey Fisk & Sons to get them in the
open market at less than 12 and interest, which is the
Price that Harvey Fisk &Sons asked us to establish.

We

want that clearly understood.

Governor McDougal:

I think the price has been modi-

f l e d and changed some s i n c e our l a s t convention, has 1 t

not?
The Chairman:

uo you wish any action on that?

Governor Rhoads:

I merely want it understood.

Governor Miller:

I do not think the committee should

have the power or fixing the price so much higher than the
price at which they sold bonds themselves.

I do not see

anything in the original power given to the committee or
in the minutes of the meeting held by the Committee in

New York in June, I believe it was, which would enable
them to establish a market for the sale of bortls and then
establish a minimum price so much higher than·the sale
price they had made.

Governor McCord:

The Federal Reserve Bank of Atlanta,

I Pl'esume, is the greatest sufferer under the sale or the
three
per cent bonds. Our bonds sold at one time at
12-1/2,

factory.

and we asked if

t h e arrangements had been s a t i s -

We were told no, that 13 was the basis.

Acquiesced in that carefully.

We

I think the committee is

doing e x a c t l y r i g h t in p u t t i n g a o n e - q u a r t e r d i f f e r e n c e

Over what the bonding house wants to sell a t , because the
bondi
+1ng house has got to e s t a b l i s h a market for these bonds.
The Chairman:


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Federal Reserve Bank of St. Louis

Is there any further discussion?

81
M r . Wold:

I would like to have the Chairman of the

Bond Committee tell Mr. Miller and me the necessity for requiring us to ask a higher price for these bonds over our
counter than that at which they can be bought in the open
market,

(Informal discussion followed which the reporter
was directed not to take.)
The Chairman:

The next is subtopic (d).

Committee on Reserve Ranks acting as fiscal
agents of the Government.
I am Ghairman of that committee and I can only report
progress.
I have, in my portfolio, a mass of correspondence bearing on this.
There seems to be great confusion
of mind as to just the lims on Wlich the banks can develop
their
activities as fiscal a g e n t s for the Government, I
came

down here once and t a l k e d · the
matter
over with Mr.
,
.

Ma1burn.

I have correspondence with him, with the Board,

arious memoranda from New York and some that we have made
Up at home, and before any satisfactory report can be made
think
l
it Will be necessary for the committee to meet in

w

® a s h i n g t o n

with the A s s i s t a n t Secretary of the Treasury anp

the
Federal Reserve Board Committee having that matter in
Charge. to see if we can get a more definite line on what
@ctivities we can undertake.
atter,

and
ua

It

is a very complicated

no one seems to have any c 3le
Lde
l e a r i d e a as

to

Just what functions we can lawfully undertake for the Govrnment,

It agreeable to the Conference, I would ask to have the
°mmittee


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Federal Reserve Bank of St. Louis

continued until the next conference of Governors.

82

Governor Wold:

I w i l l so move, Mg. h a i r m a n .

Governor Fancher:

I will second that.

(The motion was duly carried.)
(e)

Cornmittee on use of p o s t m a s t e r s f o r c o l -

lecting non-member bank items.
The Chairman:

The next committee to be heard from

is that on the use of postmasters to collect non-member bank
items.
Governor Van Zandt:

Should not that come under topic

No• 6?

The Chairman:

There is a committee report, and we

Will hear it now.

The Chair does not like to exercise any authority
vested in i t , but I must s a y t h a t we have a v e r y l o n g pro-

gram and we have not yet scratched i t .
most gone.

Yet, one day is a l -

In the interest of progress, quoting Governor

Strong, I am going to ask the members of the Conference to
address their remarks to the Chair so that the stenographer
can make a proper s t e n o g r a p h i c r e c o r d :

one thnt has just been taken,

I dread facing the

I also suggest that in

making remarks you confine yourselves strictly to the subject under discussion.
it

is

it.

1

going to be a v e r y great undertaking to get through
If

3he.11

This is a long program, gentlemen,and

you will be kind enough to comply with my request

be very much obliged to you all,

Ne will hear from you, Governor Rhoads?
Governor Rhoads: The committee appointed at the
Governo'
oms' Conference in Boston to c o o p e r a t e w i t h t h e Fed-


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Federal Reserve Bank of St. Louis

83

eral Reserve Board in arranging for the collection of
checks through postmasters reports:
That they have had some correspondence with members of
the Federal Reserve Board on the subject and that it is
the general feeling that action on this subject had best
be deferred, at lenst for the present.

Both the Reserve

Board and the committee believo that blanket surety bonds
should be secured covering all items collected through
Postmasters in each Federal reserve district•

The bonds

Should be in favor of the Federal reserve banks ard be sim1lar in form to the blanket fidelity bonds now in force
covering employee.
Since it is the understanding of the committee that

no compensation is to be made to postmasters by Federal reserve banks for collecting checks, there is some doubt
Whether surety companies will write these bonds in the
form desired.
That report is signed by C. J. Rhoads, A. B. McDougal
and George J. Seay.
The Chairman!

Ia there any comment upon the report

or the committee?
Governor wold

I would like to make an inquiry. Do

we understand that we shall not make use of the postmasters?

Governor Rhoads:
The Chairman:

No, we must not.

Is t h e r e any further comment?

What

action Will the conference take on the report of the committee?
Vice Governor Treman:


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Federal Reserve Bank of St. Louis

I move that the report be re-

84

ceived and filed and that the committee be discharged.
Governor Seay:

I would think that the committee

should be continued.
The Chairman:

Vo you offer that as an amendment,

Governor beay?
Governor Seay:
The Chairman:

Yea.
Will you a c c e p t t h e amendment, Governor

Treman?
Governor Treman:

Yes.

(The motion, being duly seconded, was c a r r i e d • )
The Chairman:

The next is

(f)Committee on Uniform Reports of Reserves,
and enforcement of r e s e r v e penal ties.
Thia la a matt

to which the F e d e r a l Reserve Board

asks thnt we give particular attention, as they desire some
definite action on it:

Governor McDougal, will you sub-

mit your r e p o r t .

Governor McDougal:

Your committee recommends that

reserve city banks and other banks acting as depositaries
for banks be required to render weekly reports of daily reServe requirements, u s i n g t h e forms recommended and a t t a c h ©d

hereto.

Your committee further recommends that so-called country banks be required to furnish semi-monthly statements to
h e i r Federal reserve banks on the l5th and last days of

each month, such statements to show the daily reserve re9uirements,
and to be renndeereed on thee fc:orm recommend
mended
u•
Q

@nd

attached hereto.


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Federal Reserve Bank of St. Louis

85

Experience to date having demonstrated that a large
percentage of the member banks do maintain the required
r e s e r v e s with t h e Federal Reserve banks, d e t e r m i n a t i o n of

the q u e s t i o n as to whether these semi-monthly reports shall
be required from all country banks, or only from those
Which appear to be deficient in reserves, may rest with
each Federal reserve bank»

Your committee, recognizing the necessity of unaform
action in applying the penalty for deficiency in reservess,
t h e r e f o r e , recommends that analysis of accounts

C'f

reserve

C i t y banks and o t h e r banks a c t i n g as d e p o s i t a r i e s f o r banks

be made weekly, and t h e p e n a l t y f i x e d weekly, to be c o l l e c t -

ed monthly, and that analysis of accounts or country banks
be made semi-monthly and the penalty fixed semi-monthly,
to be collected monthly, and t h a t the r e p o r t s in t h e f o r m

above recommended be used as the basis for d e t e r m i n i n g the.
status

of r e s e r v e s , and t h a t penal t i e s be a s s e s s e d accord-

ingly.
I want to say to the two other members of this comm i t t e e , Mr: Fancher and Mr, Wold, t h a t at t h e time t h e y

Approved this report certain forms were agreed upon, but

h e r e was no form, Mp. Fancher, for central reserve cities.
I

have taken the liberty of makingone up on the same lines
&6 the
others, as I knew that would be agreeable to you.
I make t h a t r e p o r t on 'behalf of t h e committee c o n s i s t -

i n g or

Governor Fancher, Governor Wold and myself.

The Chairman:

o

May I ask if that has been submitted

the Federal Reserve Board?


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Federal Reserve Bank of St. Louis

86

Governor McDougal:

That

is another matter that I

want to refer to in connection with it.
Following the adoption of this report by the committee,
in v i e w of t h e f a c t t h a t we were e x p e c t e d to c o n f e r w i t h

the Federal Reserve Board, I sent the Board a copy, and did

not receive any reply from them for a long while,

Finally,

however, I r e c e i v e d t h i s l e t t e r f r o m Mr• W i l l i s :

"I have t h e honor to hand you h e r e w i t h copy of' a memo-

randum received from Mr, J. A: Brokerick, with respect to
the question of reports of member banks to Federal reserve
banks.

I beg further to advise you that the Board is in-

clined to think that the first addition suggested by Mr,
Broderick, namely,

® D i s c o u n t s ,

loans and i n v e s t m e n t s ' would

be wise, but that it is believed that his second, third and
fourth additions are probably not now appropriate in view
of events that have either r e c e n t l y taken place, or are in
progress."
The memorandum r e f e r r e d t o , which was w r i t t e n by Mr.

Broderick, r e a d s :
,,...,
In
December, 1914, and in the spring of 1915, consideration was given to t h e q u e s t i o n of calling for brief reports

of material items from member banks to Federal reserve
banks, and the p u b l i c a t i o n of a summary by the Federal ReServe Board.

that

In t h e l a s t memorandum it

was recommended

member banks located in reserve and central reserve

i t i e s report twit
Wice a mont1th.,
Jr

at

t

the close of business on the

Second and l a s t F r i d a y s of e a c h month, and member banks l o cated in other c i t i e s and towns r e p o r t on t h e l a s t F r i d a y .


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Federal Reserve Bank of St. Louis

87

"The calling of the reports was for a three-fold purpose; first, to keep the Federal reserve banks informed as
to encroachments upon reserve requirements; second, to
keep the reserve banks i n f o r m e d as to t h e cash and credit
conditions of member banks; and third, to keep the Federal
Reserve Board and the general public informed as to the
cash and gneral condition c£ member bunks in t h e e n t i r e

country.
"It was my understanding that there has been submitted
to the Federal Rese:rve Bou.rd a copy of a report end recommendations which are made by a subcommittee of the Conference of Governors.

The f o r m recommended is a good one

and similar to t h a t suggested by the Board some two months
ago.

If the report is approved and adopted, a call will

be made upon member banks in central resorve and reserve
Cities nnd in other large centers for a weekly report of
daily net deposits.

May I respectfully suggest for the

cons1aeration of the Board the advisability of adding to this
Proposed form the following items, to be reported as of the
Close of business on Friday of each week:

"l.

Discounts, loans and investments (exclusive of
U. S. bonds).
Gold.
Silver and legal tenders.

"

.
Balances 4
with approved reserv
e agents. ((Exclusive

or balnnceA with Federal Reserve Sanks, which will be shown
by th
e books of the latter.)

,,

The figures would be received by the reserve banks not


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Federal Reserve Bank of St. Louis

88

later than Monday or Tuesday of each week.

A compilation

could be made and summary telegraphed to the Federal Reserve
Board in time for p u b l i c a t i o n at the time of the issuance
of t h e r e g u l a r weekly s t a t e m e n t on t h e f o l l o w i n g a t u r d a y .

The procedure outlined in Stencil No. 176 could be followed.
" T h i s summary, showing t h e c o n d i t i o n of member banks

in seventy five of the largest cities in the country, and
the weekly comparison of material changes, will give a
indication
t r u s t w o r t h y Aof t h e t r e n d of b u s i n e s s in t h e c o u n t r y , e s p e c d a l ly as the banks in t h e s e cities hold t h e required and surPlus r e s e r v e s , not o n l y of members, b u t a l s o of t h e nonmember banks.

The c a l l i n g of t h e reports from c o u n t r y

banks could be d e r e r r e d tmt1l a. l a t e r d a t e . "

My own belief is that we can better afford to let this
is and not u n d e r t a k e to secu.e a d d i t i o n -

report s t a n d where it

al information in connection with that which we are wanting the most; that if they want additional information con©erning other matters they will have to get it in somo other
way.

It is a v e r y important m a t t e r .

We would have defin-

ite figures from our banks concerning the condition of their
reserves, to be used for the important purpose of determin\ng p e n a l t i e s .

That is a l l I have heard from the Reserve Boa:rd·

The

Substance of
it 1s t h a t Mr• Broderick recommends that several
things be added
to our

form, and the Board coincides

with

respect to the matter of asking for information on disand
©unt.

,loans,,investments, exclusive of Government bonds.

The Chairman:


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Federal Reserve Bank of St. Louis

I suggest to the Oonference, as a method

89

of dealing with this, that we first deal with the report of
the committee ahd then with the recommendations of the Federal Reserve Board.

Unless there is objection it w i l l be

dealt With in that wat•

You have heard t h e report of t h e Committee, as made by

Governor McDougal:

What is your pleasure in the matter?

Governor Van Zandt:

For my own information I would

like to know why there is a form on here for banks l o c a t e d
elsewhere than central reserve or reserve Cities covering
two weeks, am also covering one week?
Governor McDougal:

That is f o r the reason t h a t there

are a good many cities like Peoria, and I suppose possibly
Buffalo, from which we would want reports weekly rather
than biweekly.
Those cities do not come 1n under the
head of reserve or central reserve cities.
The Chairman:

But they do carry a large number of

bank accounts?
Governor Fancher:

That s i t u a t i o n e x i s t s et Toledo.

Toledo 1s not a reserve city, but the banks carry the
balances of a good many state banks and a good many small

national b a n k s .
The Chairman

Does that satisfy your inquiry, Gover-

nor Van Zandt?

Governor Van Zandt;
The Chairman:
the

Yes, Mr ' Chairman.

What action will the Conference take on

report of the committee?
Governor Van Zandt:

the f

I move that it be adopted with

Orms attached thereto.


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Federal Reserve Bank of St. Louis

9I

Governor Seay:
or the committee.

am in f u l l sympathy w i t h t h e report
In our district we do a little more.

c e l l f o r weekly r e p o r t s f r o m a l l of our member banks.

ask for weekly reports from all of them.

e

We

At first t h e r e

were q u i t e a number of them t h a t did not g i v e us the r e p o r t s ,
but t h a t number is growing s m a l l e r and s m a l l e r , e s p e c i a l l y

since t h e y found out t h a t if they did not g i v e us t h e r e p o r t s
they were apt to be penalized for encroachment•
Since they discovered that we have been getting reports
from all of them weekly.

While I am willing to approve

this report I would not expect to alter our own practice
at P r e s e n t .

Governor McDougal:

The committee was mindful of the

fact t h a t s e v e r a l banks have a l r e a d y proceeded in t h e matter
f u r t h e r t h a n o t h e r s , an

this,

we assumed t h a t in d e a l i n g w i t h

as With other matters, it is not absolutely neces-

S a r y t h a t t h e y adhere s t r i c t l y to t h i s form.

This is aim-

Ply a form that we believe will be satisfactory for the
purpose.

I understand there is no limitation
p o n any bank e x a c t i n g as many more s t r t e m e n t s as it
This

wishes.

is Simply the minimum?
Governor McDougal:

There is no limitation.

It was

not so intended at all.
Governor F a n c h e r :
From o
r

months.

u
r
1
member banks as to t h e net d e p o s i t s f o r s e v e r a
Oubof 756 banks we gvt r e p o r t s f r o m a l l of t h e m

Sxcept f i v e


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Federal Reserve Bank of St. Louis

We have been getting weekly reports

e

banks, for the month of November, those reports

91

being made weekly.

It was on that basis that we have

been fixing our penalties.
we f i n d , however, t l a t in get t i n g ar..weekly r e p o r t and

assessing penalties, that our periods vary

we will as-

seas for a four weeks period and t h e n f o r a. f i v e weeks p e r iod, and 1 t makes us a. 11 t t l e out of l i n e w i t h t h e c u r r e n t
month.

F'or the. t reason I t h i n k , if

by the committee is

t h e f o r m recommended

u l t i m a t e l y adopted, t h a t we w i l l be

sat1sr1ed to get reports twice a month frornour country
banks.

le will accept the reports as suggested here,

up to the l5th or l6th of the month and at the end of the

month.
The Chairman:

I u n d e r s t a n d t h a t Governor Van Z a n d t ' s

motion is duly seconded.
Governor Van Zandt.
M • "'·airrnan,
th·at
,

I will say, in that connection,

t w e e, 1:
we gett reports
k l y fr'rom a1l1- of our

banks-.__ f r o m everyone of t h e m

There were t h r e e or four

banks which would not turn them 1n.

We referred the mat-

t e l " to the Comptroller of t h e Currency and now w

get them.

I would like to get semi-monthly reports from a great number of the smaller banks that keep their required reserves
Intact at
a l l t tii e .
u
u,

I do not think there is now so much

n e c e s s i t y f o rr having them every week.

Governor Fancher:

I might add that we discovered in

a confe,:,ence we had with our examiner a. f e w weeks ago t h a t
there
Was a g r e a t deal of c o n t e n t i o n on the p a r t of t h e

sn:a_ller banks oa to how to figure their reserve, I think
we sh
8hall Put out a book for the small 12 per cent banks,


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Federal Reserve Bank of St. Louis

and if this report ±s ultimately adopted with the forms
attached, I think we shall furnish a set of forms to the
banks on which they can make out their reports twice a
month, in duplicate, telling them how to figure their reserves,

We will furnish that gratis to our banks.

The Chairmo.n=

Is there any further discussion of

t h e report of the Committee?

Governor Seay:

There is one point which might re-

quire some elucidation.

At the end the report says that

Penalties for encroachment of reserves be figured and asssesaed accordingly
that means.

I would like to know what

Does it mean the average semi-monthly or the

average weekly?

Governor McDougal:

we discussed the matter as to

Whether we should assess the penalty because of a drop in
the
reserves f o r a. d a y or two and concluded t h a t would not
be a Wise t h i n g to d o .

We d e c i d e d we had b e t t e r t a k e it

in Weekly or semi-monthly p e r i o d s ,

the

The p l a n is to a s s e s s

penalty in accordance with the arrangement of this

blank f

orm, taking the overage for those periods.

Governor Seay:
b s o l u t e l y gver

an

Does that mean that it will be taken
a v e r a g e p e r i o d , or t h a t it

s h a l l be

aken a c c o r d i n g to the facts of the case?
Governor McDougal:

A c c o r d i n g to t h e a v e r a g e f o r t h e

period.
Governor S e a y :

authority

under the law for determining the reserve on the

ven
ge period or not:


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Federal Reserve Bank of St. Louis

I do not know whether we have a n y

Would you go absolutely upon the

93

average?

Governor McDougal:

That was the u n d e r s t a n d i n g , t h e

idea being that in the reserve city banks, for instance on

Monday they might be five thousand below am on Tuesday
they might be five thousand above; but if the average for
the week was up to standard t h e r e would be no penalty.
The Chairman:

The fact is t h e bank examiners figure

monthly averages in their reports to the Comptroller: They
repol'1t t h e average for· the month prior'to t h e report, and

the warnings from the Comptroller'g office are based upon
those figures.

Would it not be proper for us to assume that

we may proceed on the same theory?
Governor S e a y ;

I do not know whether there is any

warrant at law for that either.
the

There is no p e n a l t y under

National Bank Act for failure to keep up reserves, ex-

cept that provided as to discount of paper and declaration
or d i v i d e n d s .

Governor McDougal:

And t h e appointment of a r e -

©eiver.

Governor Seay:
The Chairman:

.:··.

But there is no money penalty.
Would you s u g g e s t an amendment to t h e

report, Governor Seay?
Governor Seay:
get at what
w n a t

is meant,

I would l i k e more p a r t i c u l a r l y to

I think the report is very wise in

that
it did not recommend the practice of levying a penalty
for en
ncroachment, upon averages, because it
is so

seems to me t h a t

mething we should avoid, I do not think the law warPants our
taking a n y such position.
The law does not say


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Federal Reserve Bank of St. Louis

So.

Governor McDougal:

We make recommendation that the

p e n a l t y be f i g u r e d weekly and c o l l e c t e d monthly.

Governor Wold:

With the country banks it would he

taken on the two weeks basis?
Governor McDougal:
Governor Van Zandt:
The Chairman:

Yes.
The average for the two weeks.

Does that satisfy your inquiry, Gover-

nor Seay?

Governor Seay;
Mr. Curtis:

I t h i n k it d o e s , Mp: Chairman*

I would like to ask whether Mr. McDougal's

report recommends that it be on the average basis?
Governor Seay:

It does not.

Governor McDougal:

It does by implication.

We did

not intend to recommend that and we are not entitled to
any credit for having o m i t t e d . the d i r e c t statement to that
effect, although Governor Seay gives us credit.
Governor Wold:

As a mamber of that committee I might

s t a t e that we had in mind t h i s :

It 1s n e c e s s a r y f o r t h e

banks to operate in n uniform manner when the time comes
When penalties should he assessed.

If there was a defi-

Ciency in a country's banks reserve for a two weeks period
the

banks ought to a s s e s s t h e p e n a l t y ,

It does not prevent

assessing it for one week if they so desire; but ff there
1s a d

be

he

deficiency on t h e average f o r two weeks t h e y ought to

r
©quired to collect it.
reserve b a n k e r .

The same thing is true with

If a bank was v i o l a t i n g i t s r e s e r v e

©quirements the f i r s t h a l f of t h e week and made it


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Federal Reserve Bank of St. Louis

up in

5

the last half of the week, I think I would be disposed to
assess the penalty upon the deficiency for the first half
of the week, if they were making a practice of it.

Governor Seay:
bring out.

That is exactly the point I wish to

It is important, and I do not think it should

be allowed to pass without discussion.

I am entirely wil-

ling to adopt the report as it stands, because it does not
covet' that point; it leaves it

in t h e hands of the F'ederal

reserve bank, where it should be left.
f e e l bound, in v o t i n g

for

I do not wish to

this, to an agreement that we

Should assoss the penalty on nverages, because I do not
think the law contemplates that:

I think if we f i n d c e r -

tain banks fail to keep their reserves up deliberately that
a halt should be made.
The Chairman:

Ia there any further discussion of

this matter?
(There being no further discussion the motion
to adopt the report was carried.)
The Chairman:
the

The next t h i n s to be considered are

recommendations of M r . B r o d e r i c k .
Govevnor McDougal:

few words.

I think that can be stated in a

Mr: Broderick recommends the addition of a num-

ber of topics to this blank f 'orm.
The Federal Reserve
Board
however, s t a t e s t h a t t h e y are inclined to t h i n k
that
the first addition suggested by Mr' Broderick, name-

y,

discounts, loans and investments, would be wise, but
they b
11eve that the second, third and fourth additions
are
Probably not now appropriate in view of events that


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Federal Reserve Bank of St. Louis

96

have recently taken place or are in progress.

The matter

that the Board suggested we add to this is a request for
information, and it s u g e s t s that it ought to be reported
as of the close of business on Friday of each week.
would c o n f l i c t w i t h out

Gogernor:

f

rm, would it

Fancher:

Yes.

That

n o t , Governor

I might state, Governor

McDougal, that Mr, Broderick was at our bank about three
weeks g o .

We had t h e s e f o r m s b e f o r e us and we d i s c u s -

6ed them.

The thought that prevailed in the discussion

we had was t h a t in a number of r e s e r v e c i t i e s at t h e p r e sent time the banks make weekly statoments to the clearing
house.

In Cleveland t h e y make a r e p o r t of t h e i r l o a n s and

certain items each week to the clearing house, and that was

the information which we would ask for•

He mentioned

Friday because that custom prevailed in quite a number of
the reserve cities.
length it

After we discussed the matter at some

got down to t h r e e items, l o a n s , exclusive of i n -

vestments, g o l d , and s i l v e r and l e g a l t e n d e r .

the three principal items.

They were

The idea was that we ask for

t h a t i n f o r m a t i o n f r o m t h e r e s e r v e c i t y banks in our d i s -

trict and in several cities like Toledo, Youngstown and
C

•

anton, and t h r e e or four o t h e r l a r g e p l a c e s ; t h a t t h e y be

summarized on Tuesday or Wednesday of each week, after the
statements were in hand, and telegraphed to the Board as
1nd1oat1ng t h e swing of those items in our d i s t r i c t :

That

Was about the substance of our d i s c u s s i o n , and we discussed
that

at some l e n g t h .


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Federal Reserve Bank of St. Louis

97

The Chairman:

le have before·us now the considera-

tion of recommendations to the Board,
Governor McDougal•

That we include, in the matter

contained in the form proposed to be used,a request for
information showing discounts, loans, investments, exclue1ve of Government bonds--- that is, from the large cities.

Governor Fancher:

As I understand it, Mr: Broderick

had in mind securing information from central reserve
Cities, reserve cities and certain other places like Buffalo, Toledo and Syracuse, where bank deposits were being
C a r r i e d I but the cities not
being reserve cities.

The Chairman:

Ia there any further comment on the

recommendation to the Board.

I think this Conference

Should express an opinion upon it.
Governor Seay:

I do not think we should at this time

add these matters to our report, Mr: {hairman.
The Chairman:

I believe the Chair is privileged to

speak at these meetings, and I feel that very strongly,
Governor Seay.
Each one of these new requirements creatoe
a certain amount of friction with the banks.
..

....

.

I think we

can Well afford to proceed slowly in this matter.

Gove:rnor McDougal:

Further then that there is this

feature entering into the matter of the use of those blanks,
And
should
that is whether they be sent to all banks or sent to
A
banks
Within the discretion of the Federal reserve bank, I
h i n k the •.
request is based on the assumpt
tit lon t hnaia t we are

gotng to send those blanks to all banks:
&1ng to do.


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Federal Reserve Bank of St. Louis

That we are not

I think it would be a matter of courtesy

7
98

to s t a t e to the Board if

t h e y wish us to get t h i s informa-

tion in their behalf that we will undertake to
the principal centers.
The Chairman:

do

so from

I would prefer that they get it.

I must o n ' f e s s that I do not agree to

that at the present time.

I should prefer advising the

Board that we have taken it under consideration; that we
f e e l t h a t u n l e s s t h e n e c e s s i t y f o r it

is urgent

we

Should prefer not to include that, but that we would take
it

up f o r consideration a f t e r t h e banks have become a c c u s -

tomed to t h e i d e a of r e n d e r i n g t h e s e r e p o r t s t h a t we pro-

Pose to ask for.

I would like an expression of opinion

from other gentlemen here in regard to that.
Governor Wold:

Chairman.,

I am inclined to agree with you, Mr.

A f t e r t h e banks have become accustomed to mak-

ing t h e s e weekly r e p o r t s of r e s e r v e requirements and r e -

serve held possibly we can add loans, discounts, gold,
lawful money on hand, and so forth, and they will not mind
it; but I believe we ought to go at it slowly and get them
accustomed to giving us that information first.
Governor Seay:

There is another thought that it

might be wall to consider in that respect.

We might

©ouple with that the matter of calling to their attention
the
fact that the status of reserve and central reserve
1ties
ta about to be affected by an amendment to the law
and that it

might be wise to d e f e r in v i e w of t h a t ' !

The Chairman:
State

We will ask the Secretary to draft a

ment to the Board, and he can report later.
Governor Treman has asked me to i n q u i r e of the Gover-


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Federal Reserve Bank of St. Louis

99

nors present who are enforcing penalties at the present
time.

I will ask each Governor.

Governor Fancher:

Governor Fancher?

Yes, f o r t h e past t w o months.

The Chairman:

Governor Wold?

Governor Wold:

No sir.

The Chairman:

Governor Miller?

Governor Miller:
The Chairman:

Governor Seay?

Governor Seay:
The Chairman:

No sir•

Yea, since August.

Governor Rhoads?

Governor Rhoads:
The Chairman:

No'

Governor McDougal?

Governor McDougal:

In one case only.

We propose

to enforce them, however, for the month of December.
The Chairman:

Governor McCord?

Governor MeUord:
The Chairman:

No sir.

Governor Van Zandt?
(.

Governor Van Zandt:

Beginning eptember 6, for the

Week ecding September 6.
The Chairman:

I will answer no for the Boston Bank.

Governor Rhoads:

What was Governor Treman's answer?

Vice Governor Treman:
yet.

We have not enforced penalties

We began on the first of November to send out notices
to our books:

According

A good many banks f a i l e d to r e -

Bpond.

We sent them out again on the l5th and between the
5 t h and t
na

'heir

the 2 t h over 8 b a n k s f a i l e d to r e s p o n d as to

monthly average according to t h e i r books--- and t h a t is

"hat we want to find out.


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Federal Reserve Bank of St. Louis

We found in a great many cases

t

a

h

t

1

they were basing them entirely on charging us with
their remittances at the time they were mailed instead of
afte credit waw given, and we are fighting that matter out.
I nm entirely in sympathy with this movement.

I think we

ought to have a settlement semi-monthly with them and that
we ought to begin the e n f r cement of penalties.

I think

this thing has been running long enough now and we ought to
bring it to a head.
Governor Seay:

In view of our own experience I might

say to these reserve banks that if they have not yet begun
to enforce the penalty in order to do so it will ne necessary for them to be able to prove the deficiency in reServes.
Unless their books are kept in such manner that
they can
absolutely prove it there will be controversy
Witho ut e n d .

The Chairman:
that

Does not that bring up the question

arose at the Conference with the Board this morning as

to What items are allowed to count as reserve by the Comp'roller's office? There is a difference
between the Comptroller's office, or the practice in the Comptroller's office and the practice of the reserve banks.
le1's

The Comptrol-

office, through the bank examiners advises the banks

that

re

so far as the Comptroller's office is concerned they
g

atisfied with counting transit items as reserve.

Seems to

&1ng to

It

me a controversy almost impossible of settlement is
arise if we try to enforce penalties on our basis

And a

re confronted with a statement by the banks that the

bank

examiner and the Comptroller's office advise them that


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Federal Reserve Bank of St. Louis

11

their reservesare good.

It s e e m s to 'me we should t a k e

t h i s matter up and make a. recom menda tion to t h e Board as to
a p o l i c y t h a t will r e s u l t in the reconc ilemen t of t h e s e d i f ferences.
\

.

It is an impossible s i t u a t i o n now.

Governor F a n c h e r :

In getting up our r e p o r t s we con-

sider the difference between what we c o n s i d e r reserves
and what t h e C o m p t r o l l e r ' s o f f i c e p e r m i t s t h e bunks to
count as reserve, and f o r that r e a s o n we s i m p l y ask f o r a
d a i l y statement of deposits showing their net demands and

t h e i r t i m e deposits on he

books of the bank, and we f i g u r e

their reserves from that.

There will be no controversy

then.

Under our method the advice on t r a n s i t is given in

t h i s way.

All letters which come in show the advice in

the shape
of a s l i p which shovs a v a i l a b i l i t y e x a c t l y .
ndviee

Our

to the banks is that that available date shows the

reserve; that that is the time and the only time.
had
r some c o n t r o v e r s y .

We have

We have
o
a s s e s s e d p e n a l t i e s on 5

So banks in two month s, I t h i n k .
Wehave had some cont r o v e r s y , but
this s t a t e m e n t of deposits from the books of
Our

bank: has been
the

had

to recede from our position.
Govern or MeCor
m, o rd:.

Some

Ne

same thing, and w have not yet

de were continually writing to

of our member banks about their d e f i c i e n c y in reserves.

f

inally put in a s y s t e m of daily s t a t e m e n t s , which simPlified the work and on th dail
ily ys t a tte
ahc ed the
e m e nits
t s we showe
11e

©ted r e s e r v e a c c o r d i n g to l a s t r e p o r t , the r e q u i r e d re
-

Serve y
way of

and a n y deficit,

That h a s proved a v e r y satisfactory

getting the banks to co me around and keep up t h e i r


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Federal Reserve Bank of St. Louis

12

Several of them have come into line

required reserves.

and kept their full amount of reserve with us.

I think

that is a very nice way of getting at it.
I think Governor McCord's plan

Governor Fancher:

might work out with the small country banks where the deposits do not fluctuate very widely, but when you take the
matter of a called statement five or six times a year, and
attempt toapply those figures or reserve cuty banks where

the swing of deposits is very great, you would find you
could not base an average condition on them.
Governor McCord:

In reply tat me say that if this

eport is adopted we would have it seml-monthlY•
Governor Fancher:

From the reserve city banks you

would have it weekly.
Governor McCord•
Governor Seay:

weokly; yes.

There is another important thing to

be considered, Mr. Chairman, in connection ith the amendment to the Act covering the Board's regulation with regard

to Vault reserves.

Any member bank now keeping with us its

surplus vault reserve can take up those reserves 1n full e.nd
the reserve bank would not be in any position to impose a

penalty.

I mention that for this reason, because I know

you are all acquainted with 1t;
I received a letter from
the
Governor of the Board saying that the Comptroller was

going to take the position that the member banks' reserve
must be kept somewhere, either in its vault or in the

Federal reservebank.

The disclosure that was made to

us this morning by the Board does not look that way; n eeith
t er


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Federal Reserve Bank of St. Louis

a

13

does the last form of report sent out by the Comptroller
look that way, because it enabled the member bank to keep
its reserve by its own.books, and not by our books at all.
The C h a i r m a n :

I would like to suggest that the Con-

ference adopt a resolution to be submitted to the F e d e r a l
Reserve Board, suggesting the impossibility of satisfactorily levying penalties before the basis of figuring reserves
is a d j u s t e d as between t h e Federal r e s e r v e banks and t h e

Comptroller's office.

I think we are going to have ir-

reconcilable differences and unending trouble unless that
is done.

A uniform practice should be established.

Governor Seay:

l.Joes n,· t t h e m a t t e r come up in con-

B i d e r i n g the point the Boe.rd b r o u g h t to our attention?

Will we have that definitely before us for discussion?
The Chair man:

It

comes upunder Topic 5 - ( f ) .

Vice Governor Treman:

Why not make t h e Committee on

Uniform reports of reserves and enforcement of reserve
Penalties, a special committeo to appear before the board
and Present this matter?
The Chairman:

Vice Governor Treman moves that the

Committee on Uniform Reports of Reserves and Enforcement

or

Reserve Penalties
be made a s p e c sial
r
a commnitt t e e tto appear

before
to

the Board, to discuss this situation with them, and

report back to the Conference.
Governor Seay:

make

That being the case, ought we not to

a Pronouncement upon t h e q u e s t i o n of optional reserves

for the b e n e f i t of t h e committee in making i t s r e p o r t .9,
e

n

e

i

h a t matterr is exceedingly important because the BoBoardrd has
ha


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Federal Reserve Bank of St. Louis

14

laid down the principle in its clearing regulations that
Checks in process of collection shall not be permitted to
count as reserve either for Federal reserve banks or member
banks.
The Chairman:

That is the very point we want to have

reconciled.
Governor Seay:

That is laid down as a regulation of

the Board and it stands.
It seems to me the point is
ln
Whether,Athe optional reserve, which a bank is required by
the law either to keep in our bunks or to keep in its own
Vaults, can be i r o l u d e d
checks in process of collection?
they
Under t h regulation · cannot.
It is explicit and t h e r e

..

is no getting away from it•
The Chairm an:

Gan we not reach that by appointing a.

committee and then having the Conference adopt a resolution
expressing its opinion on that matter, the opinion to be
conveyed by the Comm ittee to the Feder al Reser ve Board as a
basis for discussion?
Governor Seay:

That was my m o t i o n e x a c t l y , M r • Ghair• -

men.

Vice Governor Treman:
The Chairman:

Vice

I will second that motion:
Governor Treman has moved the

appointment of this committee and the motion has been secondIs t h e r e any further discussion?

(There was no further discussion and the motion
Wag
carried.)
Governor Seay:

reser

with r e s p e c t to t h e subject or optional

ves, which the Board this morning referred to us for


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Federal Reserve Bank of St. Louis

15
cons1dere.tion, in considering the matter I think we should
be governed by the regulation of the Board itself and by
the law.

The regulation of the Board states that checks

in process of collection shall not be counted as reserve
either by Federal reserve banks or by member banks:

The

Wording of the law on that subject is that optional reserves
Shall be kept in the Federal Reserve Bank or in the vaults
of the member banks, and if that optional reserve shall be
allowed to consist of checks in process of collection, then
there Will be no reserve,

It will not be in the Federal

reserve bank and it w i l l not be in t h e v a u l t of t h e member

bank.

It w i l l be f l o a t i n g •

Therefore I think the idea is

diametrically opposed to the regulation of the Board and to
the wording of t h e law.

I t h i n k o p t i o n a l reserves should

be like any other reserve, a real reserve or no reserve t
all.

The Chairman:

Will you formulate a resolution cover-

ing t h a t , Governor Seay?

Governor f:>ea.y:

I move it is the sense of this Confer-

n c e that
the optional reserve
at

of

of ththe member
mbe
b baannksk be
s oeeither

©ash in its own vault or collected reserve in the Federal
reserve
a n .k
. b an

Governor McCord:
One q u e s t i o n :

reserve

e banks?

I would like to ask Governor Seay

Is that within the province of the Federal
What have we tho do w i t h t h e member bank

e p i n g its reserve.

We have the Comptroller for that

Purpo
se, and we are required only to penalize with respect
to a

certain proportion kept with us,


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Federal Reserve Bank of St. Louis

Why should be go

1.6

i n t o t h e field of t h e Comptroller and determine t h o s e r e -

serves?

Governor

I w i l l try to answer t h a t .

&ee.y:

In the

first place because the Board itself this morning referred
to us that particular question,

In the second place we

have the Federal Reserve Board and its regulations over the
Federal reserve banks, and we have the law.

If in our judg-

rnent or in t h e judgment of t h e Board t h e r u l i n g of t h e Compt r o l l e r is not in accordance w i t h t h e law, t h e n it

occurs

to me t h a t t h e Federal r e s e r v e banks have a g r e a t p r i n c i p l e

at stake, The Board itself has supervisory power, and it
lies Within the power of the Board to determine what is the
reserve to be kept under the law.
(Tho reporter thereupon read the pending motion.)
Governor Wold:

Under Topic 9-(f) we have this sub-

Ject coming up again, and we also have it coming up with
reference to No. 2 of the amendments submitted by the
Board.
The Chairman:

We have it under consideration and

Why not finish it now?
Governor Wold:

We Should have t h e recommendation of

the Agents
before us in c o n s i d e r i n g this No• 2 - -

The Chairman:

It

seems to me t h a t h e r e is

a concrete,

d e f i n i t e question of law as w l l as ot policy, and that
reg
r d l e s s of what position the Agents take on it it is well
North whil

as to

Board

e f o r t h e Governors of these banks to go on record

a Policy that should be pursued by the banks and tline
in t h e m a t t e r .


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Federal Reserve Bank of St. Louis

That is my reeling about it•

17

Governor Wold:
this matter, too,

There is an amendment in Congress on
I think all these things ought to be

taken into consideration:
The Chairman:

This is simply a representation to the

Board of our feeling in the matter.
Governor Wold:

How a r e we going to a r r i v e at a con-

clusion of what is right until you take into consideration
a l l t h e amend men ts proposed by t h e Board, t h e amendments

Proposed by Mr: Glass, and so forth?
The Chairman:

This committee will obtain all that

information from the Federal Reserve Board and will report
back to t h e Conference.

Governor Wold:

Is that all it is for?

To get i n f an-

mat1on to lay it before the conference?
The Chairman:

No,

It is to make the representation,

as outlined by Governor Seay's motion, to the Board; to
get t h e i r comments and r e p o r t back to t h e Conference.

Governor Wold:

I am not ready to vote at this time.

I am not even prepared to want to be represented by a committee upon a matter upon which I have reached no conclu1 o n myself.

Governor McDougal:
that

Are you not prepared to state

You are in favor of determining the question as to

Whether or not the country bank is permr m i t tec
t e d tto carry, as
part

of its reserve, items that are on the way to the

Feder

al reserve bank?

Governor Wold:

our

That is

o n l y ore

8e t h e r e is no argument t h e r e :


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Federal Reserve Bank of St. Louis

phase of i t •

Of .

We are all in favor

er having the actual money.
That is all this resolution

Governor Van Zandt:
covers, Governor wold.

Yeo; that is the only point covered

The C h a i r m a n :

by t h e r e s o l u t i o n •

Governor Wold:

True, but other questions are coming

up that t h i s same commit t e e can c o v e r ,

The Chairman:

we w i l l c o n s i d e r t h e m in due course

When they do come up•
Governor Fancher!

In reference to Governor eay's

motion, it does not appear quite clear to me about the optional re s e r v e .

Are we not particularly concerned at

present, w i t h r e f e r e n c e to t h e 12 per cent banks, w i t h
t h e i r m a i n t a i n i n g t e n t w e l f t h s of t h e i r r e s e r v e in t h e i r

vaults or in the Federal reserve bank.

They now have, un-

less the law has been amended, the option of carrying two
per cent
ofI the reserve with reserve agents,
nts
ntil
nt
unt

No
mb
November

17, 1917.

The Chairman:

Yes:

Governor Fancher:

Could not the matter of float be

conr1ned to the optional reserve of two per cent.

We are

only concerned, until November 17, with the matter of
ten twelfths of the r e s e r v e .
;.i.

must be

The i

Five

t w e l) f tt hh ss

1f
or teten twelfths

ither in the Federal
±l reserve b an
e i k or·
ir n

thee

vau1lt •

arger portion of it, at least five twelfths must be in

' h e Federal
116
reserve bank and the balance
in thhe v a u1ltl : s .
1a

Are we

not concerned today, with reference to the twelve


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Federal Reserve Bank of St. Louis

1.9

per cent banks, only with ten twelfths of the reserve, If
that is real reserve in the vault or in the Federal reserve
bank, and the Comptroller is willing to allow them to use
checks in transit with reference to the other two twelfths,
are we concerned with that?
Governor Van Zandt:

We a r e not permitted to penalize

the member bank if it has any vault reserve at all, so long
as it has its minimum of five twelfths with us.
Governor Wold:

You can only penalize them on that

Portion of the reserve which the law requires them to maintain with you.

They might not have any other reserve at

a l l , but if they have what the l a w r e q u i r e s t h e m to carry

With you, you cannot penalize them,

Governor Van Zandt:
1s

The Comptroller of the Currency

the only one that can penalize them for having their

vault requirements short?

Governor Seay:
to the fact.

That is the reason I called attention

When we had our correspondence with the Board.

on that s u b j e c t we c a l l e d a t t e n t i o n to t h e r e a l danger in
that,
and the Board replied that it was the purpose of the
omptr

P'roller to see t h a t those reserves were kept either
1n V'au ll t or in the Federal Reserve Bank,
Now, what I
nderstand

ruli

is referred to us is the question of whether the

ng of the Comptroller does see that the reserve is kept

there.

He does not see that it is kept there.

He allows

Natters of t r a n s i t to the Federal reserve banks to count as
rese

rves, so t h a t t h e statement of the member bank does not
8how
a deficiency. That is one thing they have had in mind


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Federal Reserve Bank of St. Louis

With respect to the amendment to the Act that permits vault
reserves to be kept with us.
Mr. Curtis:
nor Seay:

Might I Guggest this

phraseology, Gover-

"The optional reserve of a member bank shall

consist only of cash in its own vault or collected funds
in the Federal reserve bank"?
Governor Seay:
The Chairman:

I accept that entirely.
You have heard the motion, gentlemen.

Is there a second?
Governor Van Zandt:
The Chairman:

I second the motion.

Is there any further discussion?

(There was no further discussion and too motion
Was d u l y carried.)

The C h a i r m a n :

I would like to be recorded as voting

aye on that motion,
I Understand this to be the basis of discussion by this
committee with the Federal Reserve Board.
Governor McDougal:

That naturally would be a matter

to t

ake up with the Clearance Committee, in view of the sug-

&°stion made t h i s morning tha t we d i v i d e up our t o p i c s .

The Chairman:

Mr. C u r t i s was asked to d r a f t a r e e o -

lution, to be forwarded to the Board, bearing on the requirementg

or additional information on weekly and semi-monthly
Statements.
Will you read that, Mr: C u r t i s ?
Mr, G u r t i s :

© g i n n i n g of it

I have not quite finished i t , but the

is as follows:

esolved that in view of the possibility or an early
°hange in the r e s e r v e requirements of


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Federal Reserve Bank of St. Louis

member banks, an 1din

view of the disinclination of member banks to make further
reports t h a n are at present required, 1 t 1s c o n s i d e r e d i n advisable to ask for further information in connection with
the weekly or biweekly statements of reserves•"
The Chairman:

I understand.the substance ot that re-

so1ut1on was adopted.
There is one o t h e r i t e m under Topic 6, ( g )
'

On f o r m of statement for s e r v i c e charges."

"Comm1ttee

Mr: Hendricks

Will be here tomorrow, but will not be here today, and unless there is some objection we will pass that until tomorrow,
(There was no objection.)
The Chairman:

I suggest that we now clean up some

or

the

leas important matters on the program that can be settiled
much
• Withoutd1scuss1on, and that we make, unless there is

some o b j e c t i o n , I t e m No* 6, " C o l l e c t i o n s and c l e a r a n c e s " ,
the
f i r s t order of business tomorrow morning.
That is
d i f f i c u l t i t e m and promises a good morning's work,

We Will pass to Topic No. 11,
Purchases by one Federal reserve bank of in-

vestments or acceptances originating in
another district.
Governor Seay, you are responsible for that.
have

What

You to say with regard to it?
Governor

Seay:

When the Committee on apportion-

ment

or investments made i t s f i r s t r e p o r t , it was at t h a t
famous
session at which the question of clearings occupied
Buch
dominating position. This report came in at the

nd of

t h e session, when we were about
bc it brp r e aakii
llng


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

utip

i nn t o

committees, and Governor McDougal was about to leave for
Chicago.

That report originally had in it the following

clause :

"That when any Federal reserve bank purchases in the

open market warrants and acceptances created in another
district, it should make such purchases only at the rate

Which the Federal reserve bank of that district recommended
or would be willing to pa y for the investment."
The comment was made t h a t t h a t would prevent i n j u r i o u s

competition between the Federal reserve banks, ard would
further prevent brokers from taking the market away from
the
Federal reserve banks and bringing them into competition
With each other.
Just now we a r e confronted by the
the

s i t u a t i o n c r e a t e d by

acceptance business i n t o which our member banks are

entering rather freely, both member and non member. The
banks in
our district are taking up the question of acceptancea tnOl"e t \ C t i v e l y t h a n t h e y have h e r e t o f o r e , and it

to me t h a t when acceptances of member

re

b aan
n k cs
:
i

sent to New York and o f f e r e d to b r o bke
kers,

seems

n our f.:1strict
. h
t h a t

a

t

t h' e y

Should not be purchased without r e f e r r i n g the matter to the

bank of

the district in which they originnte.

It seems to

me, for instance, that if New York or Chicago would purchase
acceptances of our member banks without referring them to

s,

that we would be at full liberty to purchase acceptances

f N

ew York banks that were offered to us by brokers in
New York.
It was to have an understanding on that quesi o n that
al


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Federal Reserve Bank of St. Louis

the matter I have just r e a d f r o m t h e r e p o r t was

113
S t r i c k e n o u t , but t h e r e n e v e r t h e l e s s was a verbal u n d e r s t a n d ing at t h a t meeting t h a t acceptances or investments a r i s i n g

in one district would not be purchased without reference
to the r e s e r v e bank of t h a t d : t s t r i c t •

It is a live ques-

t1on now us to acceptances of our member banks which may be
offered through brokers.
For instance, take our own bank.

We a r e e n t i r e l y

able to handle a l ) aceptances which may a r i s e in our d i s -

trict.

If t h e y a r e s o l d to NewYor!t member banks, and a r e

O f f e r t d on t h e market t h e r e , t h e n I t h i n k t h e y become New

York acceptances and must be handled differently; but if
acceptances of our member banks a r e o f f e r e d on t h e New York

market, for instance, by brokers, I do not think those ac©eptances a r e in t h e same c a t e g o r y at a l l ;

I think they are

acceptances which o r i g i n a t e in our d i s t r i c t - - - t h e b r o k e r s a r e

fx-ee lances--- and I do not t h i n k t h e y should be purchased

by the Federal reserve bank in any district without refern c e to the reserve bank of the district in which t h e y were
made,

Governor McDougal:

from you, are t h e y not?

Those bills are hound to get away

Your bank cannot control their

destiny.

They cannot control their destiny, out

Governor Seay:

h e n offered by brokers in other cities I t t in·
h i n kt h e y shouldbe
"efepred to us.
back

If o f f e r e d to us t h e y ought to be r e f e r r e d

to New York-- we will say New York, because that is

the a
ominating
uut
market,

The Chairman:


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Federal Reserve Bank of St. Louis

Ne
New

YYork
o r kacceptances.
pt

I would answer that by saying that I

114
Weuldinot .

Governor McCord:
this question.

I would like to ask Governor Seay

Suppose the house drawing the acceptance

is l o c a t e d in t h e S i x t h D i s t r i c t and t h e a c c e p t a n c e s is

1n the second district.

The business originates in the

Sixth District and yet the acceptance is in the econd Dis•
trict.

That bank in the Second District is conflicting

With our business in the Sixth District.
Governor e a y :
the a c c e p t i n g bank.

I think it would be the district of
There is more to this than appears on

the s u r f a c e , gentlemen.
or

The accepting bank either d i r e c t l y

i n d i r e c t l y , is t h e prime mover in t h i s a<!ceptance, n o t •

Withstanding the disposition of the Board to have a free
market andhave the drawer of the bill

do

his own negotiating.

That is not done yet and it will be some time before it is
d one,
The rate at which these acceptances can be sold in
the
open market, if they a re t r e a t e d independently, is much
below the rate which is current in that district'

For in-

stance, t h e a c c e p t a n c e of a non-member bank in our d i s t r i c t
Went outside of our district and was offered back to us at
2-3/ 4

per cent, a rate to which it was not entitled, and a

riate below the.t at which we were d i s c o u n t i n g acceptances f o r

number of our more responsible member banks:

That af-

fected the rate current in our district; it affects the
ate which should be current in our district.

It seems to

that t h e q u e s t i o n of the rate on the
.ts
aces is a
nese acceptanc
very
y

ad e l i c a t e

that it


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Federal Reserve Bank of St. Louis

one.

If a. member bank, f o r i n s t a n c e , f i n d s

can negotiate its acceptances in another dis triet

at a lower rate than with us, because we do not want to
come
into competition with the rate of our member banks, then
it drives us to that low rate of the other bank•
we Will meet it every time.

Of course

We will not allow a reserve

bank in any other district to obtain acceptances originat
ing
in our di strict at a lower r a t e , if we can help i t .

It in-

volve s the p r e s t i g e and i n f l u e n c e of t h e reserve bank
in
i t s own d i s t r i c t .

we want the member banks to feel that

we are willing to give them as low a rate as they can obt a i n elsewhere.
We do not want to make too low a rate, because we bring ourselves then in competition with our other
l a r g e member bank s in t h e same d i s t r i c t who are buyi ng
these acceptance
s.
It is a far r e a c h i n g s u b j e c t , and.
i t s eems
to me that a good way to settle it woul d be to
agree that if such acceptances, not bearing t h e endorsem
ent

or anoth er member bank , a r e o f f e r e d in a n y d i s t r i c t , t h
ey

Should be referred to the reserve bank of the district in
which the bank is located.
Vice Governor Treman:

Suppose the acceptance was made

by the w h i t n e y C e n t r a l Bank of New Orlea ns and
came i n t o

the

New York mark et?

Your thoug ht would be that we should

refer it back to the A t l a n t a
Bank as to p r i c e ?
Gove rnor »eay :

It

seem s to me t h a t woul d be tr o p e r .

Vice Gove rnor Treman:
Bank

But if accepted by a New York

1 t would be proper New York business'?

Governor Seay :
Yes. It would be entirely your
busin ess.
, if the Whitney Central had negotiated it With

a Ne
w York bank and the New York bank endorsed it, then it


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Federal Reserve Bank of St. Louis

116

would be afloat in your district and would be your acceptenc.

Vice Governor Treman:

That would seem to me to be the

proper way to handle itj and that is what Mr• Kem:el says
in his b r i e f which I will read if you care to hear it.

The Chairman:

Yes.

"This subject was discussed at length with the conference of governors in April, 1916, when the governors eonsidered t h e committee's recommendation " t h a t when any
Federal reserve hank purchases in the open market warrants
and acceptances c r e a t e d in another d i s t r i c t it makes such

purchases only at t h e r a t e whioh t h e F'ederal reserve bank
or t h a t d i s t r i c t recommends or w o u l d be w i l l i n g to pay f o r
the
investment," and finally determined that warrants and
acceptances originating-in any district be purchased only

through

the bank of that district under conditions agree-

able to such bank.
this

The record of their determination in

egard appears on page 143 ofthe minutes of the Wash-

intnon Conference of April, 1916.
S i n c e

April, 1916, on several occasions there has

arisen the necessity of determining in what district business Properly belonged, and we have had to consider the
9uestio

..·

on or whether a hill accepted in another district but

Which had been discounted or sold in New York and then came
Into th
• e New York market for resale, would be considered as

an in
r

Vestment that originated in the district of acceptance

wh

ether the fact that it had been discounted in New

York b u t
"' not at t h e Federal r e s e r v e bank made it


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Federal Reserve Bank of St. Louis

N

New York

1.17

business.

Our view was that such paper offered for resale

or rediscount in New York should p r o p e r l y be

<'O

nsidered

New York business.
The question has also arisen as to whether a bill drawn
in

New Orleans on a New York acceptor was New Orleans or

New York business.

The f o l l o w i n g e x t r a c t s f r o m correspond-

ence in September, 1916, i n d i c a t e our u m e r s t anding in that

regard:
"Reeplying your wire 3 l s t , our opinion is

if

s
drafts
de-

scibed are unaccepted bills or 1t they are accepted bills
in drawer's hands offered for sale in New Orleans, they
are New Orleans business, but if acceptances for sale in
New York, t h e y a r e New York b u s i n e s s . "

It seems to us t h a t such i t e m s which a r e drawn in

New Orleans and sent by the drawer to New York or elsewhere

for acceptance are New Orleans business if they are to be
Offered for sale solely in New Orleans, but if they are to
be offered for sale in New Orleans and also in New York
they
would then be New York business. There c o u l d be no
question as to the transaction being New Orleans business
if the b i l l s were bought the re as b i l l s of exchange under-

Regulation T before acceptance had been o b t a i n e d , and it
Seems t
O us following that line of thought, it is still
New York business if the drawer s n t the bills forward and
Obtained the acceptance of them and then sold them in New
Orlean 6

as acceptances although the delivery may be made in

New York
.... or elsewhere.

I f ' , however, he ot2ffef'erecd the a c c e pptt r

n

e

d bills in New York or in any other market than the dis-


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Federal Reserve Bank of St. Louis

118

trict of their origin as bills of exchange, they must be
considered as in t h e general open market."

The question of how bills drawn abroad on New Orleans
banks covering importations of coffee to t h e United States
Should be considered, has also been c o n s i d e r e d ,

It is under-

stood that such bills are rarely offered for sale or discount in New Orleans but come to t h e New York market.

Our a t t i t u d e in regard to such b i l l s is as indicated in the

extract from our letter of "eptember lst,
"Regarding a c c e p t a n c e s of New Orleans banks o f f e r e d f o r
discount in t h e New York market, we f e e l t h a t t h e y should

be !'egarded differently and that they might be v e r y properly
offeredin the New Orleans market.

They doubtless come to

New York s e e k i n g a lower d i s c o u n t r a t e t h a n o b t a i n s in
New Orleans.

If we should consider buying such bills we

Would ask you to advise us in regard to the price they
Should fetch in New York and would be glad to purchase
any

such bills for your account upon request."
For instance, a cotton bill•

New Y
•

A great many of the

rik banks accept t h o s e , or the t r u s t companies do.

Governor Seay:

That is the point I am coming to.

the Federal
r
reserve banks are to competee with r e sh obther
there
Will not be a n y lower r a t e in New York t h a n t h e r e is
An Ne

{f

w Orleans; there should not be and there ought not to

be
•
ban

That i n v o l v e s t h e p r e s t i g e of t h e F e d e r a l r e s e r v e

to take care of i t s own d i s t r i c t ,

Governor McCord:


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Federal Reserve Bank of St. Louis

In t h e meantime it

is p r e s s i n g us

down.
Governor Seay:

Yes; it Will do t h a t .

The inevitable

development of the system will be to make uniform rates on
these matters between all Federal reserve banks.

But in

the beginning, as it seems to me, there are a great many c nSiderations

that should receive attention,

One c o n s i d e r a -

tion is that our operations inevitably bring us into competition with our member banks to some degree.
d e s i r e to a v o i d to t h e maximum e x t e n t , I am s u r e .

That we all
If t h e

acceptance of one of' our small member banks, f o r i n s t a n c e ,

Were to be offered to one of our large member banks, it would
take it, possibly, a little under the rate that we ourselves
Would give in order to get it.

But we could not stand by

and see that acceptance go to New York.

Uld not afford to,

Own community.

We would not. We

It involves our very standing

in

our

If t h e y wanted t h e acceptance of one of our

member banks which had been negotiated with a New York bank;
for i n s t a n c e , I should think they would take it a b s o l u t e l y
at

ou:r market r a t e and b u y it f r o m t h a t New York bank w i t h

1ta

endorsement at any price which you might be willing to

give

, and we would not compete with you on that; but if
they
Want the acceptance of one of our member banks and orfer it to
a broker in New York, I do not think you should
take 1 t .
am usi

ng New York just as I woulduse

d1strict.

7or

I am not giving New York as a comparison, but I
h i c a g o or any other

Do not think I am referring particularly to New-

'but I must use one of the banks for illustration:
ice Governor Treman:


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Federal Reserve Bank of St. Louis

Do you mean t h a t we s h o u l d n o t

;'

I

e

k

a

t

2

1

it or that we should not take it until after we had
consulted with you?
Governor Seay:

I am i n c l i n e d to t h i n k it

would be good

Policy if it were referred to the reserve bank or the district in Which it o r i g i n a t e s .

I do not know whether that

Would be practical or not.

Vice Governor Teman:

I am simply t r y i n g to get your

view of it, Governor e a y .

Governor Seay:
not take it

I think if you do take it you should

at a r a t e lower t h a n we t h i n k is a proper r a t e

on our member bank acceptances.
Vice Governor Treman:

If I understand you, if a draft

1s made on Baltimore, Richmond or any other bank in your
district, and is offered in New York without the endorsement of a member bank t h e r e , or a t r u s t company, or any-

thing

of that kind, it is business that really originates

in aha belongs to your district, we should r e f e r it back to
Your district and you should buy it?

Governor Seay:
ire

I am inclined to think so, under the

umstances as they are.
Governor Treman:

If there is anyone that feels dif-

{erently on the subject let us debate it.
Governor McCord:
beginning

the debate.

Let

m put in another point before

What would you s a y of a prominent

on-memb
m e r bank's acceptance in New Orleans being offered

in

N

New York?

Governor Seay:
me t

I am coming to that, 1f you will allow

develop one point at a time.


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Federal Reserve Bank of St. Louis

121;

Governor Treman asked if there was any difference of
opinion.

I would like to know if there is any difference

or opinion,
I think you are entirely right

Vice Governor Treman:
on the proposition.

There seems to be no difference of

The Chairman:

Opinion, Governor Seay*
Mr. u r t i s :

I am not quite clear in my mind as to

whether you think we should simply decline to consider it
or Whether you think that the Federal reserve bank of t h e
other district should not consider it Without consultation
With the bank of origin.
Governor Seay:

I am inclined to think, for the pre-

sent, that those bills should be offered to the reserve
bank of the district of origin.

Mr. Curtis:

And the other banks should decline to

onsider them?

Governor Seay:

Yes.

Governor Wold:

I think the same policy should apply

to dealing with acceptances as applies to warrants.

When

brokers have offered us New England warrants or New York
Warrants weha.ve said, u Offer those to the Federal reserve

Bank

of New York or the Federal Reserve Bank of Boston."

t seems to me thatEne acceptance of one of our Twin City
banks was offered to Boston or New York through a broker,
h e y should
refer that broker to us, ard the acceptance

Bhouia be offered to us.
Governor McDougal:


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Federal Reserve Bank of St. Louis

Since you are discussing the mat-

122

ter of the purchase of warrants, I will say that three or
four weeks ago we were o f f e r e d by a Chicago bank an amount
f

South Dakota warrants that they had owned and carried for

I d o n ' t kxow how many months.

They said that they were

going to sell those warrants on a three and a quarter per
cent basis to a Chicago bank unless we wanted them.
took t h e m promptly.

Mr. Wold has said that he had no ob-

jection to that at all.
Governor " o l d :

to i t .

We

Is not that true, Governor Wold?

No, I did not say I had no ohjection

Let rm finish the story.

I t h i n k t h o s e warrants

were one year warrants and ineligible.

When they f i r s t

became eligible we had been admonished by the Board against
taking on t o o many long, s i x months w a r r a n t s , and we defer-

red it.

Last week I dropped Governor lcDougal a l e t t e r

and t o l d h i m t h e r e were some of t h o s e warrants in t h e H a r r i s

Trust Company -- not a member bank, but d e a l e r s in s e c u r i t i e s - and they were now eligible for rediscoont; that we would
be gl
gad to have him look the matter up and we would either

°operatewith them in purchasing or we would take them
6.11 :

t h a t we had an o p i n i o n the. t t h e y were e l i g i b l e •

reply was t h a t he had a l r e a d y purchased them and t h a t if

His

he

had, r e c e i v e d my letter before he had made the purchase he
Would have
ve

been glad to divide.

Governor McDougal:

these
trict

hat

I have always gone on record at

Conferences as having no f i x e d agreement w i t h en y tH.s ..

except the New York district.

absolutely.

We have abided by

We have never purchased any warrants

Ori

&1nating in New York, norhave we bought any acceptances


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Federal Reserve Bank of St. Louis

I

I

123

except a few that were turned over to us by our member banks
from time to time.

I know that was satisfactory to this

Conference, because it was discussed fully and the fact
was brought out that for many years New England warrants
have been selling in hicago to Chicago banks,
dled quite a quantity of them myself.
there now through brokers,

I have han-

They a r e handled

I have s t a t e d 1::ef o r e that our

bank is not disposed to be restricted.When these warrants
are owned by the broker,

it

does not propose to permit

itself to be restricted in the matter of buying them.

We

have not bought any lately, but we have bought, from time

to time, when they were available, some of those warrants.
Governor Aiken has known of most of my purchases and has
told me t h a t it was e n t i r e l y s a t i s f a c t o r y to him.
lea at I di a cussed it

At

with h i m and the.t was my understanding.

'l'he r a t e s , I t h i n k , were in l i n e in almoo t .;every i n s t a n c e ,

Were they not, Governor Aiken?
The Chairman:

han

o u r

ur

Generally.

Sometimes t h e y were lower

market, bibut g e n e r a lLly
l y t h e y were i1in 1 line.

Governor McDougal:

I want

to have it d i s t i n c t l y

und

erstood that we do not propose to turn these things down
if they come to u s ,
We have d i s c u s s e d t h a t bet ore and I

have never been a p a r t y to any motion or r e s o l u t i o n b i n d i n g
me t,

keep our hands off.

bank t h a t

has done t h a t , b u t that

Governor Seay:
mate

I do not believe we are the only
is our s i t u a t i o n .

I think we have arrived at an approxi-

understanding on the question of warrants amd o u t s i d e

Inv88tments.


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Federal Reserve Bank of St. Louis

The acceptance lends a new feature to this

124
discussion.

Vice Governor Treman:

I would like to followup this

New Orleans Situation a little further.

Governor McCord: My question to Governor Beay was
that if a non-member bank's acceptance in aw Orleans was o f -

fered in New York---

Governor Seay:

How?

Governor McCord:

it is

Through brokers?

It doesn't make any difference how

offered, but usually through brokers.

Governor beay:

Suppos. it has the endorsement of a

member bank?

Governor !toGords
Governor Seay;

That would settle it, then,
My opinion is that the same thing should

apply to every bank in the district because it involves the

influence and prestige of the reserve bank in its own district.
As some one has s a i d , t h e s e b a n k s a r e t h e t i t u l a r elders of their district.
The Chairman:

We have quite an acceptance market in
Bost
on, and, for the Boston Bank, I quite concur in your
idea that those bills belong in the district in which the
bank is

located.

Governor Seay:

ha i nm,
· · l ,

In order to crystalize the matter, Mr.

l Will offer the following resolution:

That whanever acceptances of a member or a non-member
bani

in any Federal reserve district should be offered to

he
eserve banks of other districts, unless endorsed by a
bani
tside or the district of the accepting bank, the purhaae ot 8 acceptances
UOh"ahould


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Federal Reserve Bank of St. Louis

be d e c l i n e d and t h e y should be r e f e r r e d

125

to the reserve bank of the originating district."
Governor Wold:

That would hardly be fair.

An accept-

ance might be offered in New York by the Whitney Central
Bank, passed through and endorsed by a Boston Bank, which
would prevent the New York Bank buying it;
The Chairman:

;

I should hot feel so•
It would, according to t h i s r e s o l u t i o n .

Governor Wold:
Governor Seay:

Then it ought to be offered to the

Boston b a n k ,
The

Chairman:

It has become an open market bill and

is free for anybody to buy.
Governor Van Zandt:

Suppose it is accepted by the

Whitney Central and endorsed by the Guarantee Trust Company
or New York?
Governor Wold:

Then it would be a New York bill•

The Chairman:

Is there a second to the resolution?

Governor Wold:
Governor McCord:

I second i t .

Would it not be well to say it should

first be referrud to the bank of origin?
Governor beay:

I would not agree to that.

Governor McCord: Suppose the Whitney Central Bill is
Offered
ed to Governor Treman, endorsed by a bank outside of
my d i s t r i c t .

®ndorsed
that

You could buy that.

Suppose it comes to im

by a member bank in my district, and he will say

he Will not purchase i t ,

nstitution

That reflects upon that

He could communicate with me and hold it in

Abey

ance until I could let himknow.
Governor Treman:


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Federal Reserve Bank of St. Louis

I was going to suggest that instead

1.26

or saying it was declined it could be deferred until communication was had with the other bank.

Then I could tell

Whether I could buy it or he would bµ, it,

Governor McCord:
Governor e a y :

Mr• Curtis:

Will you accept that, Governor eay?
Yes.

I will accept that.

Does that include private bankers?

Governor Seay:
The Chairman:

Yes•
Gentlemen, you have heard the motion.

Is there any further discussion?
(The motion was carried.)
Governor Wold:

I would like to inquire as to how many

othe banks are not complying with the understanding with

reference to buying warrants and acoeptances originating
\n other districts.

Mr: McDougal has a reservation With

respect to all districts except the New York district• I

Would like to know whether any of the other banks are making
such reservations?
Governor McCord:

Are you making i n q u i r y of t h e other

banks ?

Governor Wold:
Governor MeCord:

Yes.
Not because! have any complaint to

make, b
·' Ut I will state a case.
Some S t a t e of M i s s i s s i p p i
arrants
were offered to New York
New York very promptly
@

refe
rred them to us. They were offered to Chicago and
Ohica
go very promptly referred them to us, The brokerage
house

ha

offices in St, Louis and before I could get around
h
e
5
8
price, as I was going to give the same price as offer-

mas

'o t


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Federal Reserve Bank of St. Louis

1.27

by t h e other banks, St. Louis bought them.

ea

I do not

make that as a complaint.
Governor e a y :

Mr• Chairman, I suggest we take up

Topic 15, as it is intimately conn cted with this same matter.
The Chairman:

Unless t h e r e is o b j e c t i o n we w i l l t a k e

up Topic No. 1 5 .

" I n q u i r i e s made of o. r e s e r v e bunk by member or
other banks in other districts.

Governor »eay:

I want to be p e r f e c t l y f r a n k in t h i s

discussion, because there is not anything, so far as I nm

aware of, that transpires with our bank that we would not
like

to discuss frankly with any other bank.
The cause f o r p l a c i n g t h a t i n q u i r y on t h e l i s t a r o s e

in the following mnnner:

One of our non-member banks wrote to the Federal Reserve
Sank of New
York we will say--- which was the case--- and I
want to
say we are discussing this in perfect frankness,
Mp

reman, and made inquiry of the Federal Reserve Bank

or

New- Yor-k

as to what it should do to make its acceptances
®igible in that market.
It appears to me that a good

Policy

r Or

us to adopt would be, when a bank in one dis-

tri

ct makes inquiry of that character of a bank in another
distri

ct, to refer to the reserve bank of the other disr i c t that
at

I

am

ineuiry+

would like to illustrate in that particular case. I

quite sure that the inquiry was made of the reserve bank
ow
York because t h e banks in t h a t p a r t i c u l a r p l a c e we1--e


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Federal Reserve Bank of St. Louis

128

not on t h e most cordial terms w i t h Richmond.

It was a

rival, for instance, of'Richmond, in the location of a
Federal reserve bank.

The banks in t h a t p a r t i c u l a r c i t y

have not entered very freely into the spirit of the Federal
Reserve System.

That bank I think, did not want to com-

mun1cate With the Federal Reserve Bgnk of Richmond, which
was the reason why it should have communicated with that
bank.
Governor Treman:

We

Why not specify the p a r t i c u l a r

all want to get at the root of the matter•

case,

What was the

inquiry?
Governor Seay:

I will specify.

This was the case

or the American Trust Company of Charlotte, N. C.

To 1 l -

lustrate, we received a letter from a firm of New York
brokers o f f e r i n g t h e acceptances of t h a t bank at 2 - 3 / 4 .
Wrote t h e m in r e g a r d to it and t h e brokerage f i r m wr6

We

us

hat

t h e y had been advised by the F e d e r a l Reserve Banks of
New York
and Philadelphia that all of the requirements or
the
Federal Rese l"vs Roa rd, n e c e s s a r y to make the acceptance a

of that Tpust company
ha
rket
ct
e >liµlble
l i g i l L eftt
or purchase
at open mare
rates f
Or Federal reserve banks, had been complied with,
The t
nk never wrote to us at all,
We were also informed
ru

hat

the Federal Reserve Bank of New York had s a i d t h a t
y had
so advised the Federal Reserve Bank of Richmond;
that therefore
t h e y thought, um er t h e circumstances, t h e
the

°{ferings of acceptances of that institution
1ti
niµ'ht be
bf
might
be o

nterest

ta them,

There is another matter involed.


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Federal Reserve Bank of St. Louis

Our counsel has

129

given a opinion that the acceptances of state banks in that
state are outside the law.

He has taken the position that

none of the laws of the states of our district permit the
state banks to accept.

There are such a umber of things

that might arise of that character, that it straightway occurred to me, as an illustration, that inquiries of that
nature had b e t t e r be r e f e r r e d to t h e r e s e r v e bank of t h e d i s -

trict.

Vice Governor Treman:

I think it would be at least a

matter of courtesy to take it up with you.
Governor Seay: It occurs to me it would be well, if
there
was a general understanding between us that when one
bank of ore district wrote to the reserve bank of another
d i s t r i c t upon m a t t e r s p e r t a i n i n g to the o p e r a t i o n of t h e s y s -

tem, to have them refer that bank to the reserve bank of
the

I suggest t h a t as a matter of p o l i c y in t h e

district.

operation of t h e system.

Tho present instance merely serves as an illustration.
It had not o c c u r r e d to me b e f o r e .

I had not thought of i t .

It brought up t h e s e v a r i o u s q u e s t i o n s about which t h e New

York b

ank could not possibly be advised, or about which

other bank could be advised.
Properly answered t h e i n q u i r y ,
hing, I think.

as to whether
r

'hinge to
'he

it

But it

The New York Bank very
I would have done t h e same

r e a i s e d t h e q u e s t i o n in my mind

would not be good p o l i c y to r e f e r t h o s e

the reserve bank of the district, for the good of

System.

.
The Chairman:


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Federal Reserve Bank of St. Louis

Do you offer that as a resolution, Gover-

nor Seay?

Governor Seay:
The Chairman:

I will offer it as a resolution.
Will you state your resolution for the

record?
Governor e a y :

Resolved that whenever a member or non-

rneinber bank of one district writes to the reserve bank of
another dis trict upon mattas relating to the operation of
the
reserve system, that that bank should be referred for
answer to such inquiry to the reserve bank of its district.
Governor Rhoads:
Governor Seo.y:

I will second that.
I would like to ask Vice Governor Tre -

man if he fully understands t h e s p i r i t in which I have
brought this question up. The t h i n g might occur a hundred
t i ms
e
and I would have no personal o b j e c t i o n - - -

Vice Governor Treman:
Seay,

I understand that, Governor

I have made a note to look the matter up.
Governor Seay:

I do think that since other instances

lltill:ht occur p o r t a i n i n g to t h e v e r y same q u e s t i o n s , t h a t 1t

Would be Wise to r e f e r t h e m to t h e f e d e r a l r e s e r v e bank of
'he
d i s t r i c t . i n which t h e bank making inquiry is located,

i c e Governor Treman:
I think in all t h o s e m a t t e r s
t woula
be courtesy to work together.
Mr, u r t i s :
I would like to ask Governor Seay whether
11 of t h e
correspondenc€) in t h a t matter was not referred

o

you?

Governor Seay:

Mr. Curtis:

No, it was not.

I thought it was.

(Further discussion followed which the reporter


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Federal Reserve Bank of St. Louis

was directed not to take.)
The Chairman:

Is there any further discussion of the

motion'?
(There was no further discussion and the motion was
carried.)

The Chairman:

What is the p l e a s u r e of t h e Conference

With reference to taking up fubther topics?

It is now six

'clock.

r Miller:
o
n

Ir move
e that
v we
o adjourn
G
3 until
:
9

o'clock tomorrow morning.
(There were s e v e r a l seconds and t h e motion was d u l y
carried.)

(Whereupon, at 6 : 5

'clock p. m,, the Conference

Was adjourned u n t i l tomorrow, Tuesday, Dec.4rnber 12, 1916,
at 9 : 3 o ' c l o c k a. m.)


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