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Federal Reserve Bank of St. Louis
NINTH C O N F E R E N C E
GOVERNORS O F FEDERAL RESERVE BANKS
SHOREHAM HOTEL
WASHINGTON,
D . C.
December 11 to 14, Inc., 1916
WALTER
S.:.:OX
S H O R T H A N D REP\_R E R
COLUMBIAN BUILDING—T L . M. 8324
WASHINGTON,
D.
=GOND DAY.
CONFERENCE O F GOVERNORS O F FEDURAL
RESERVE BANKS.
Shoreham Hoted, Washington,D.C.,
Tuesday, December 12, 1916.
The Conference reconvened a t 9:30 o'clock ai m.; purSiant t o the adjournment o f yesterday.
A p p e a r a
s previously
n c ae s
noted.
Present also, Mr. L . H. Hendricks, Assistant Cashier
of t h e F e d e r a l R e s e r v e B a n k o f N e w York:
Mr. CG. G. Bullen, Auditor o f the Federal Reserve
Bank o f Boston
Mr. A . H. Hale, Auditor o f the Federal Reserve B a n k o f
St. Louis.
The Chairman: G e n t l e m e n , t h e meeting will come t o
order.
T o d a y ' s program i s the most formidable a n d the most
serious that will confront us. I
a m going t o repeat what
I said yesterday about t h e desirability o f having a
that t h e r e p o r t e r c a n g e t accurately.
sible I
T
report
o make that pos-
a m going t o ask the members o f the Conference t o
address their remarks t o the Chair, 8 0 far a s p o s s i b l e , o
t
try n o t t o h a v e t h e i n t e r e s t i n g a n d S o m e w h a t f r e e a n d e a s y
discussion
o n t h e s e questions. I
make t h a t r e q u e s t s i m p l y
in order t o have t h e record more clear, a n d i n the interest
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Federal Reserve Bank of St. Louis
of progress.
We are going t o take u p this morning question No. 6 ,
Collections a n d clearances,
a n d i n t h i s c o n n e c t i o n i t seems
to m e very desirable t h a t w e should a s k the members o f the
Committee o n Glearance o f the Federal Reserve Board t o sit
with us.
I
f there i s n o objection I
will a s k G o v e r n o r W o l d
to communicate w i t h G o v e r n o r H a r d i n g o f t h e F e d e r a l R e s e r v e
Board,
t o advise h i m that this topic i s the principal o n e
for d i s c u s s i o n t h i s m o r n i n g a n d t h a t w e w o u l d l i k e t o h a v e
Such m e m b e r s o f the Board a s are interested i n i t attend.
Pending t h e arrival o f the Board w e will discuss s o m e
minor matters.
(Governor W o l d t h e r e u p o n c o m m u n i c a t e d w i t h t h e
Federal Reserve Board, extending t h e invitation o f the
Conference.)
The Chairman:
I f agreeable t o the Conference w e will
take u p some o f the matters o f less pressing importance,
_ pending t h e arrival o f members o f the Board.
We did n o t finish Topic N o + 5o0n the program, n o t hav-
ing touched upon item (g).
(@) Committee o n form of statement for service charges.
Mr. Hendricks, that was left with you.
Before Mr+ Hendricks begins 1 would like t o say that we
are today t o have a report f r o m t h e meeting o f auditors a n d
the meeting o f transit men.
M r + Hendricks i s here represent
ing the committee o f transit managers, a l s o Mr. Bellen, f r o m
the Federal Reserve B a n k o f Boston a n d Mr- Hale, f r o m the
Feveral R e s e r v e B a n k o f St. L o u i s , r e p r e s e n t i n g t h e auditors.
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Federal Reserve Bank of St. Louis
1354
a s has been the custom i n
If there i s n o objection,
the past, w e will a s k them t o sit with u s today.
Mr. Hendricks, w i l l y o u make your report.
Mr. Hendricks:
W h e n I
was a p p o i n t e d
o n tle Commit-
tee t o report o n the f o r m o f statement f o r service charges
I did n o t Know whether i t referred t o charges between
Federal reserve banks o r between Federal reserve banks a n d
their member banks. I
guess i t is particularly between
Federal r e s e r v e b a n k s .
Mr. Curtis:
N o , between reserve banks and their mem-
ber b a n k s .
Mr. Hendricks:
I t covers either,
a m i t does n o t make
any difference.
The c o m m i t t e e r e c o m m e n d s t h e a d o p t i o n o f t h e f o r m o f
Sta.vement Concerning service charges n o w i n use i n the Philadelphia Bank, which c a n b e used i n duplicate o r not,
am
which shows daily (under date o f receipt) t h e number o f
‘items received subject t o the service charge and total for
the calendar month;
a l s o t h e amount o f the total. charge
made.
We a l s o r e c o m m e n d t h a t ,
i n accordance w i t h t h e a c t i o n
of the Conference o f Transit Managers, t h e service charge a s
between Federal reserve banks b e made uniform a t 1-1/2 cents
per item.
The Chairman:
D o e s that constitute your report, Mr.
Hendricks?
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Federal Reserve Bank of St. Louis
Mr. Hendricks:
The Chairman:
Y e s sir.
A r e there any inquiries t o be made or:
is t h e r e a n y d i s c u s s i o n ?
o I
D
Governor McCord:
uncerstand y o u w a n t t h e s e r v i c e
o r a s o f the date
charge entered a s o f the date o f advice,
of t h e r e c e p t i o n o f t h e i t e m ?
Mr. Hendricks:
T h e advice i s a s o f the date o f the
receipt o f the item.
I t e m s received o n the second will
be made a s o f the s econd, a n d n o t a s o f the 6th, 8 t h o r
LOth.
Governor Miller:
Mr. Hendricks:
B u t n o t sent out?
N o , n o t sent out.
I t i s a monthly
Statement o f the service charges, w h i c h gives t h e charge
at the date that t h e items were received.
Governor McCord:
this:
O n e trouble I
think w e will f i n d i s
F o r instance, w e receive o n the 12th day o f Decem~
ber a letter from you with advice from you “Received too
late for today.”
T h e entries will b e made tomorrow, a n d
the c h a r g e w i l l b e m a d e a s o f tomorrow.
Mr. Hendricks:
T h a t , o f course,
does n o t really m e a n anything:
i S a variation which
T h e cate that t h e work i s
put through i s really the date received.
Governor Fancher:
W
e h a v e found,
i n the matter
of
service charges, t h a t t h e matter o f the d a y o f receipt a n d
the d a y o f credit i s rather confused.
W e have adopted a
plan o f identifying the items with the amount o f the letter,
Our s l i p g i v e s t h e d a t e o f t h e i t e m s a n d t h e a m o u n t
o f the
letter sent omitted. I r r e s p e c t i v e o f the date o f credit
or the date o f receipt y o u have t h e letter total t o identify
that particular number o f items.
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Federal Reserve Bank of St. Louis
T h a t i s what w e have i n
156
use w i t h o u r m e m b e r b a n k s ,
a n d i t i s i n fact u s e d i n render-
ing o u r statements t o the Federal reservebanks-
W e have
found that t h e confusion a s between t h e date o f credit a n d
the d a t e o f r e c e i p t e x i s t s
items.
W
e have attempted
i n attempting
t o check u p t h e
t o check u p t h e items o n l y i n a
general s o r t o f way, n o t t r y i n g t o b e approximate,
the
idea being t o know that t h e totals a r e right.
Governor Wold:
at present a n d I
M r - e Chairman, Governor Harding i s out
a m trying t o locate Mr. Delano.
Governor Fancher: I
in s u c h a
might s a y t h a t w e r u n o u r l e d g e r
way that w e have a
the letter o f credit,
memorandum o f t h e i t e m with
s o that i t i s a very simple matter
to render these statements, making a
mchine operation,
which w e d o i n duplicate.
A s the report submitted b y Mr. Hen-
The Chairman:
dricks i s the result o f the deliberations o f that committee,
would i t not b e well t o adopt i t s report?
does n o t estop a
O f course t h a t
bank from making minor modifications t o
suit their particular needs.
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Federal Reserve Bank of St. Louis
Having heard the report of the Committee, what action
the Conference t a k e u p o n it?
Governor V a n Zandt: I
Governor McCord: I
The Chairman:
move t h a t i t b e adopted.
will second t h e motion-
I s there a n y further comment?
(There was n o further comment and the motion was
duly carried.)
The Chairman:
W e will n o w discuss Topic No. 13.
137
Conversion o f one year 3 per cent Treasury
notes i n t o t h i r t y y e a r 3
p e r c e n t bonds.
Governor Rhoads and Governor Wold are responsible for
that question.
G o v e r w o r Wold, w e will hear from you.
Governor Wold:
M r . Chairman, t h e purpose o f putting
that o n the program was t o get t h e views o f the other Governors a n d t o express m y own.
we h a v e a
market, a p p a r e n t l y ,
I t seems
t o m e that n o w that
f o r thirty y e a r conversion
three p e r cent bonds, i t i s highly desirable that t h e banks
Should b e r i d o f t h e o b l i g a t i o n w h i c h i s i m p o s e d u p o n t h e m
through r e n e w a l f o r a
period o f t h i r t y y e a r s
o n these o n e
year three p e r cent notes.
I believe t h e l a w provides t h a t t h e Secretary o f the
Treasury,
i n his discretion, m a y convert these notes i n t o
thirty year three p e r cent bonds.
T h e rate o f interest
would b e t h e same, a n d t h e o n l y d i s a d v a n t a g e
t o t h e Govern-
ment w o u l d b e t h a t t h e y w o u l d n o t h a v e t h e p r i v i l e g e
ing t h e m o u t a t t h e e n d o f a n y o r e y e a r .
mediate fubure I
o f pay-
B u t i n the i m -
see n o possibility o f the Government b e i n g
able t o r e t i r e a n y l e r g e a m o u n t
o f i t s obligations,
a m
if
they d o they have t h e threes a n d t h e fours o f 1925 t o look
after.
We feel a t Minneapolis a s though w e would like t o convert o u r t h r e e p e r c e n t n o t e s i n t o t h i r t y y e a r bonds,
can s e l l t h o s e bonds.
really creating a
I
a s we
t seems t h a t t h e bond committee
is
market f o r them which will enable u s t o
dispose o f a s many a s w e c a n get b y this conversion.
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Federal Reserve Bank of St. Louis
Governor McDougal:
T h a t subject i s one which I believe
was discussed before t h e Federal Reserve Board b y the
Advisory Council, t h e Advisory Council making the recommendation that efforts b e made t o have t h e Treasury Department
convert those notes i n t o thirty year bonds.
O
n yesterday
I asked Mr. Delano h o w the Board w a s taking t h a t ,and h e
said t h e Board, h e understood, w a s i n favor o f i t and h a d
taken t h e matter u p with t h e Tr-asury Department.
There-
fore i t i s a t least under way.
The Chairman:
G o v e r n o r Rhoads, w e will hear j r o m you.
Governor Rhoads:
A l l I could a d d t o what h a s been
said i s that i f w e g o o n taking o u r yearly quota o f two
per cent bonis a n d convert them, i t will o n l y b e a short
time until t h e Philadelphia b a n k will have more o f those
one y e a r n o t e s
o n its books t h a n I
think i t w o u l d b e d e s i r -
able t o carry.
We are reluctant t o sell t h e m with that renewal
liability.
M y thought i n making this suggestion f o r t h e
program was, i f the Governors agreed,
Situation t o pass a
i t might h e l p t h e
resolution asking t h e Federal Reserve
Board t o present o u r case t o the Secretary o f the Treasury
and a s k h i m t o modify his ruling which,
ed u s f r o m c o n v e r t i n g t h o s e n o t e s ,
to some extent, i f not
a e
s o far, h a s prohibit-
a n d a l l o w u s t o convert
f u l l extent t h a t w e might
desire-
The Chairman:
T o get action o n this topic, k a s some-
one a resolution t o offer?
Governor Wold: I
move you, Mr- Chairman, that i t is
the sense o f this Conference t h a t i t i s desirable that t h e
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Federal Reserve Bank of St. Louis
139
Federal reserve banks b e permitted t o exchange their one:
year t h r e e p e r c e n t T r e a s u r y n o t e s i n t o t h i r t y y e a r t h r e e
per cent conversion bonds, a n d that the Federal Reserve
Board b e requested t o take t h e matter u p with t h e Treasury
Department w i t h a view t o obtaining t h e consent o f the
Secretary o f the Treasury t o such conversion.
Governor Treman: I
The Chairman:
will second t h a t motion.
I s there a n y further discussion?
(There w a s n o further discussion and the motion
was carried.)
The Chairman:
L e t u s n o w take u p Topic 17.
Amendment t o Section 5200 permitting t h e
national banks t o l o a n u p t o 100 per
cent o f capital a n d s u r p l u s w h e w p r o p e r l y
secured.
Governor McCord, w e will hear from you.
Governor McCord: G e n t l e m e n o f the Conference, t h e
power o f acceptance
o r the privilege
o f accepting paper
will s e e m t o relieve t h e situation that I have brought
up f o r discussion.
B u t t h e trouble
i s this:
W
e have
quite a number o f small banks o f from $50,000 t o $100,000
capital that, a t certain seasons o f the year, have considerable amounts o f deposits t h a t come
t h r o u g h the
natural course o f selling t h e agricultural products o f t h e
district.
T h o s e people, gentlemen,
their credit.
to loan,
d o not care t o loan
T h e y have money o f their o w n that t h e y want
t o make u p for s o m e short earnings
a t other per-
iods.
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Federal Reserve Bank of St. Louis
If they are under t h e National B a n k Act t h e y are limited
140
to t e n per cent o f capital a n d surplus o n a loan, whether
a m t h e result o f i t i s that
it i s secured o r not secured,
when y o u a s k a state b a n k t o come into t h e national system
Lt Beye Non?
I
t says, " I do not want a rule like you
nave there about loans. I
of Alabama
can stay i n the state system
o r o f Georgia a n d I
on direct l o a n s
a m limited
t o m y customers,
t o t e n per cent
b u t when I
put u p a
commo-
dity i t i s a secured l o a n a n d I can loan m y o w n funds without having t o loan m y credit, a n d I get t h e benefit o f that
loaning o f m y own funds.”
In discussing this subject I wish t o Say that w e have
quite a
number o f banks i n the Sixth district whose capital
runs: from $25,000 t o $100,000, and in some instances
w200,000, who desire t o take care of the trade conditions
Surrounding t h e m i n helping care f o r the commodities raised
in t h e i r i m m e d i a t e s e c t i o n ,
b e t h a t cotton, c o r n , o a t s ,
wheat, tobacco o r other commodities w h i c h are readily marketable f o r cashUnder S e c t i o n 5 2 0 0 t h e y c a n l o a n 1 0 p e r c e n t o f t h e i r
capital a n d surplus, b u t i f they handle t h e proposition o n
a trade a c c e p t a n c e , t h e s e c o m m o d i t i e s a r e u s u a l l y s o l d f o r
cash, a n d the seller does n o t want t o be obligated f o r 6 0
or 9 0 dayS o n a Sale o f commodity that h e c a n sell t o other
people f o r cash- H e n c e a
trade asceptance cannot b e
handled b y a national b a n k under this section i n excess o f
10 p e r c e n t o f i t s c a p i t a l a n d surplus, b e c a u s e t h e s e l l e r
will n o t agree t o b e bound t o the maturity o f the trade a c ceptance f o r such commodities a s c a n b e sold f o r cash.
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Federal Reserve Bank of St. Louis
141
Our relief o r remedy could b e obtained b y a ruling o f
the Comptroller o r o f the Pederal Reserve Board that these
trade a c c - p t a n c e s c o u l d b e d r a w n p a y a b l e s a y 9 0 days, a n d
accepted b y another party, w i t h the commodity attached,
with s a y a
m r g i n o f 2 5 per cent, a n d l e t t h e seller endorse
the paper without recourse, o r to insert i n the face o f the
trade acceptance t h a t t h e liability o f the drawer ceases o n
the acceptance o f the papers
T h i s would give t o the
bank purchasing t h e acceptance, t h e name o f the a c c e p t e r . d
n
a
the commodity properly stored i n warehouse a n d insured, w i t h
a margin o f s a y 2 5 per cent, w h i c h t o m y mind would b e a
very satisfactory l o a n f o r a n excess amount o v e r a n d above
10 per cent o f the capital ami surplus.
"I also suggest that i n view o f the m a n y state laws o n
banking which permit t h e state banks t o loan i n excess o f
10 per eent o f their capital w h e n t h e same i s properly
secured b y commbdities, that Section 5200 should b e amended
to allow this same privilege t o national banks o r t o such
state b a n k s w h o b e c o m e m e m b e r s
o f t h e Federal Reserve S y s -
tem; that any member bank o f the Federal Reserve System
would b e p e r m i t t e d
t o m a k e e x c e s s l o a n s t o a n amount a g g r e -
gating n o t e x c e e d i n g
5 0 p e r c e n t u m o f their capital,
or
33 1/3 per cent of their deposits, when said loans are
secured
b y ready marketable collaterals u n d e r t h e condi-
tions h e r e i n r e f e r r e d t o ;
a n d that this privilege c o u l d
be granted t o one customer o r a combination o f Bustomers,
the total excess lines n o t t o exceed t h e amount herein
indicated.
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Federal Reserve Bank of St. Louis
142
Then i f a bank should desire t o exceed this 5 0 per cent
of capital o r 33=1/5 per cent o f deposits, whichever would
produce t h e best results, t h e n upon application t o the Fed-
eral reserve bank o f their district, with the deposit o f
the l o a n s a n d t h e c o l l a t e r a l ,
n o t under discount b u t simply
to hold, a n additional amount could b e granted u p t o 100
per cent o f their capital a n d surplus, a n d notexceeding twothirds o f their deposits, whichever would produce t h e
greatest results;
a n d that these notes could b e made o n a
collateral f o r m o f note, o r i n the f o r m o f trade acceptances
or i n the f o r m o f the bank accepting t h e paper i t was yYolding f o r i t s customer,
w h e n t h u s secured.
With these privileges granted, I
think there i s full
safety t o the depositors o f the bank, a n d when excess lines
are g r a n t e d o v e r a n d a b o v e t h e l i m i t w h i c h t h e y c o u l d t a k e
in general business, t h a t t h e Federal Reserve B a n k o f their
district would b e apprised o f these facts a n d conditions,
and could checkmate a n y inflation o r overextension o f
loans.
Y e t a t the same time t h e member b a n k would b e per-
mitted t o e m p l o y i t s o w n deposits
a t certain seasons
o f the
year, when they are running large and not have t o be put
to t h e n e c e s s i t y o f t u r n i n g t h e i r c u s t o m e r s a w a y , a n d f o r c ing t h e c u s t o m e r
t o go to a
larger i n s t i t u t i o n ,
w i t h wtwhish
larger institution t h e same b a n k would probably have o n
deposit sufficient funds t o take c a r e o f that loan, a n d r e ceiving o n l y 2 per Cent o n its balances f r o m the larger
institution.
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Federal Reserve Bank of St. Louis
If this amendment w a s allowed t o Section 5200, w e would
143
have little difficulty i n having quite a
number o f good large
state banks join the Federal reserve system; but with this
embargo p l a c e d
o n them, a n d t h e y b e i n g a b l e t o d o t h i s
under t h e i r s t a t e c h a r t e r s
s o long a s they remain f r o m
under the Federal Reserve System, 1 believe i t will b e exceedingly difficult t o get them t o become members o f a
System t h a t w o u l d c i r c u m s c r i b e t h e i r r i g h t s r a t h e r t h a n t o
give t h e m e v e n w h a t t h e y h a v e a t t h e p r e s e n t t i m e b y remain-~
ing u n d e r s t a t e charter.
Governor McDougal:
M y opinion i s that i f a n y such
plan a s t h a t s h o u l d b e f o l l o w e d w e w o u l d b e t a k i n g i m m e d i a t e -
ly a long step towards dangerous banking methods: I
be-
lieve S e c t i o n 5200 i s one o f the best safeguards t h a t sur-
round the National Bank Act B e y o n d that I believe I am
safe i n saying that a large majority o f the bank failures
that h a v e c o m e c u r i n g t h e l a s t t w e n t y y e a r s c a n b e t r a c e d
straight to a violation of that section. Those failures
have u s u a l l y b e e n explained,
comes,
u p t o the t i m e that t h e trouble
b y t h e R e n k e n S t a t i n g t h a t h e knows t h i s b r i c k y a r d
that h e had loaned forty o r fifty per cent o f capital T e
that t h e y h a v e a l l t h e b o n d s l o c k e d u p i n t h e v a u l t a n d t h e y
are m a k i n g money, o r , h e k n o w s S o m e t h i n g e l s e t h a t m a k e s i t
absolutely secure, and you can criticise i t but he will carry
it just the same- I
do not believe w e should encourage a n y
laxity i n that direction.
Governor McCord:
M r - Chairman, m a y I reply t o Gover-
nor McDougal?
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Federal Reserve Bank of St. Louis
The Chairman‘ C e r t a i n l y , Governor McCord.
144
Governor McCord: I
agree w i t h Governor McDougal
that Section 5200 i s a safeguard.
B u t I also wish t o
out that Since t h e National b a n k charters were granted i n
1853--- a n d there a r e o n l y 7,500 i n this country while there
are 16,000 s t a t e banks,
i n fact, I
think nearly 20,000---
it h a s l a r g e l y b e e n d u e t o t h i s r i g i d r u l e i n t h i s p a r t i c u l a r
instance t h a t t h e number i s s o small. I
agree w i t h
Governor McDougal t h a t bonds o n a brick yard o r o n a
school o r anything o f that kind should n o t come under this
provision.
However,
i f h e had noticed m y argument h e
would have known that I stated that I referred t o ready
marketable collaterals, placed i n warehouse a n d insured
with a margin. I
d o not care t o g o beyond s u c h a limit
as that.
Governor Seay: S t a p l e products?
Governor McCord: S t a p l e products, yes. I
must say
that G o v e r n o r M c D o u g a l m u s t p o i n t o u t t o m e a n y b a n k t h a t
ever failed under s u c h conditions. I
Governor McDougal: I
never heard o f one.
understood Governor McCord t o
say that h e proposed t o loan u p t o 100 per cent o n commodities w h i c h h a v e b e e n S o l d t o a
purchaser w h o s e c r e d i t
might n o t b e known; t h a t h e i s willing that t h e paper
Should be. carried a s the basis o f security alone.
T h a t
in i t s e l f s h o u l d n o t g i v e t h a t c l a s s o f p a p e r p r e f e r e n c e - - -
Governor McCord: I
Governor McDougal:
said with a
25 per cent pargin.
T h a t paper, unless i t is backed b y
reasponsible individuals w i t h financial strength should not
be g i v e n a n y p r e f e r e n c e
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Federal Reserve Bank of St. Louis
i n l o a n i n g money.
145
would l i k e t o a s k G o v e r n o r M c C o r d
Mr. Gurtis: I
whether h e i s aware o f the fact that t h e Federal Reserve
trade a c c e p t a n c e , w h e t h e r
Board h a s r u l e d t h a t a
o r not ac-
is
companied b y a n y evidence o f title t o the merchandise,
a bill o f exchange d r a w n i n good faith against actual
existing values, a n d i s excluded from the limitations o f
Section 5200?
a m aware o f that, b u t that does
Governor McCord: I
not meet t h e conditions.
Governor Seay: I
would like t o have Mr+ Curtis repeat
that.
Mr- Curtis:
T h a t a
trade a c c e p t a n c e , w h e t h e r accom-—
panied b y any bill o f lading o r a n y evidence o f title t o
the g o o d s
is a
bill o f e x c h a n g e d r a w n i n g o o d f a i t h a g a i n s t
actual existing value, a n d therefore n o t subject t o the pro-
visions o f Section 52C0.
Governor Seay: I
would like t o say that we have had
correspondence running over a period o f three weeks»
W e
have s e n t a representative t o Washington t o discuss t h e matter;
w e have discussed i t with counsel o f the Federal R e -
serve Board a n d w e have discussed i t with the Chairman o f
the Clearing Committee-
T o the best o f m y knowledge n o
such d e c i s i o n h a s b e e n rendered.
Mr- Curtis: I
have i t i n black and white i n New
York.
Governor Seay: I
ing,
i n writing,
have b e e n promised b y Governor Hard-
t h a t t h e Board w i l l m a k e a s liberal a
con-
Struction a s possible o f that, b u t that construction h a s n o t
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Federal Reserve Bank of St. Louis
yet been made.
Governor Wold: I
believe M r + Curtis h a s i n mind a n
opinion rendered b y the counsel o f the Federal Reserve Board
to that effect.
Mr. Curtis:
Mr. Warburg: I
N o . I
have i n mind a
letter written b y
asked h i m that direct question a n d got a
direct r e p l y , s a y i n g t h a t t h e B o a r d h a d p r e p a r e d a
rule a n d
~ BULNOPIT Zed h i m LOo-So6 s t a t e .
Governor Seay:
Mr- Curtis:
T h a t t h e Board h a d prepared a
rule.
Y e s , a n d i t authorized h i m t o s o state.
Governor Seay: I
can produce documentary evidence
that the rule h a s n o t been made.
Governor McCord: I
recognize t h a t a
bill o f exchange,
drawn i n good faith, i s not under Section 5200.
T h e point
is that t h e m a n who sells t h e goods will n o t become liable
on that trade acceptance w h e n h e can sell f o r cash. T h e r e
is a
difference
i n t h e t w o propositions.
Governor Miller:
Y o u want t o accommodate t h e buyer o f
the c o m m o d i t y ?
Governor McCord Y e s , a n @ accommodate the bank i n asSisting i t t o get its loanable funds out.
Governor Miller:
B u t t h e idea i s t o accommodate t h e
Governor McCord:
Y e s .
buyer.
T h e m a n who draws t h e a c -
ceptance i s not willing t o b e o u t o n that paper 6 0 t o 3 0
days.
H e has g o t t o show i t i n his statement w h e n h e asks
for credit.
H
e m a y b e perfectly safe i n margins, b u t h e
does not want that liability standing out against him-
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Federal Reserve Bank of St. Louis
147
Governor McDougal says that I want t o loan u p t o 100
per cent o n the commodity o n the name alone, without r e gard t o the financial standing o f the party. I
point o u t t h a t i n m y argument I
wish t o
said i t w a s l i m i t e d
50 per cent i n such transactions
to
i n a total, b u t that i f
the Federal reserve b a n k o f that district s a w fit t o let
him g o further,
h e could deposit t h e notes w i t h them.
The Chairman:
you p r e p a r e d
T o get action o n this memorandum, a r e
t o offer a
Governor McCord: I
resolution?
move y o u that t h e Secretary frame
a resolution diplomatically,
i n keeping with t h e usual cus-
tom, asking t h e Federal Reserve Board t o see i f they c a n
get a n a m e n d m e n t
t o Section 5200 a l o n g t h e line suggested
by me.
The Chairman:
motion-
Y o u have heard Governor McCord's
I s the motion seconded?
Governor McCord: I
would l i k e t o s a y t h a t I
know
Governor Harding i s i n favor o f i t t o a certain extent,
but. f-de-mot say-to this Limit.
The Chairman?
I s Governor McCord's motion seconded?
Governor V a n candt:
T o get i t before t h e Conference
I will second it, but I will vote against it.
Governor McCord: I
d o n o t w a n t sympathy. I
would
ratherhave i t die t h a n b e sympathized with.
Governor Seay:
T h e r e i s o n e w a y i n which that c a n
bedone now, Mp. Chairman. I
am reciting what Governor
McCord already knows, b u t there i s one way i n which that can
be done, through t h e acceptance o f a member bank negotiated,
not held i n its o w n portfolio.
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Federal Reserve Bank of St. Louis
T h a t i s one way, o f course,
in w h i c h i t c a n b e done.
know, b u t t h e y want t o employ
Governor McCord: I
tell y o u frankly I
their o w n funds. I
cannot g e t a n y
statebanks t o come i n i n m y district unless something o f
that k i n d i s p u t i n .
Governor *eay:
employ a
T h a t w o u l d give t h e m opportunity
to
very large percentage o f their o w n funds, making a
difference b e t w e e n t h e r a t e a t w h i c h t h e y l e n d a n d t h e r a t e
at w h i c h t h e y c a n o b t a i n a
acceptance.
reasonable d i s c o u n t
o r sell t h e
T h a t i s a very large margin o f profit.
Governor McCord:
T h e y d o not want that:
(Informal discussion followed which the reporter
was directed n o t t o take-)
The Chairman:
I s there a n y further discussion o f the
motion, t h e motion being t o the effect that w e recommend t o
the Board that they recommend t o Congress a n amendment t o
Section 5200--—
Governor McCord: I
discussion. I
will w i t h d r a w t h e s u b j e c t f r o m
d o not e@are t o force i t o n this b o d y a n d I
do not care t o force a n y good brother t o come t o m y relief
to b r i n g i t b e f o r e t h e body. L 8 i m p i e y - O L f L e r i t - f o r d i s =
cussion.
Governor Seay:
Perhaps
The Chairman:
I s i t withdrawn 6 r not?
Governor McCord: I
The Chairman:
T h o s e
aye a n d those opposed no.
lost.
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Federal Reserve Bank of St. Louis
w e w i l l v o t e f o r it.
will l e t i t stand.
i n favor o f the m o t i o n will s a y
T h e chair declares t h e motion
149
Mr. Curtis h a s just handed m e a telegram f r o m Governor
Strong.
I t i s addressed t o Jd. F. Curtis, Shoreham Hotel,
Washington, LD. C., a n d reads a s follows:
"Tt i s a great disappointment t o be unable t o attend
your conference,
which I
hope w i l l b e m o s t s u c c e s s f u l .
Denver offers m a n y attractions f o r t h e next meeting, w h i c h
I can certainly attend i f held here o r not too far away.
Please g i v e t h e boys m y best wishes f o r a merry Christmas
and Happy New Year. (Signed) Benjamin Strong."
Let u s take u p a discussion o f topic 18.
Regulations governing loans o n farm lands
and other real estate.
Mr- Fancher, y o u are reasponsible f o r that.
Governor Fancher: I
the p u r p o s e
put t h a t o n the p r o g r a m w i t h
o f ascertaining f r o m t h e other governors whether
they were having numerous inquiri.s from their member banks
with regard t o the matter o f farm loans, and a s t o just how
the banks c a n operate.
I t seems t h e y are confused with
respect t o the provisions o f the A c t a n d t h e regulations
of the Board.
A great m a n y o f these inquiries h a v e b e e n ansvored b y
the law department o f the Federal Reserve Board, o r by the
informal rulings i n the Bulletin, b u t i t was suggested a s
more desirable t h a t a l l o f these b e consolidated i n t o o n e
regulation.
T h e inquiries m a y be Summarized i n general
as follows:
L. A r e loans made under Section 2 4 o f the Federal
Reserve A c t eligible f o r rediscount?
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Federal Reserve Bank of St. Louis
150
2.
D o the limitations a s t o aggregate amount embrace
also t h e t o t a l o f r e a l e s t a t e l o a n s a c q u i r e d f o r p r e v i o u s
debt, etc., under Section 5137 R. S.
3
D o e s f a r m land include a n y real estate located
within t h e limits o f a n incorporated t o w n o r city?
4s D o e s “other real estate embrace business property
such a s stores, d w e l l i n g s , a p a r t m e n t s , e t c . , w i t h i n i n c o r porated t o w n s
o r cities,
a n d d o e s i t a l s o e m b r a c e manufac-—
turing plants outside o f incorporated towns a n d municipalities?
5.
I n the event o f non-payment o f real estate loans
at the expiration o f one year m a y they b e extended i n good
faith o r must n e w loans b e executed?
6.
I s i t required t h a t insurance u p o n improvements
be taken a n d assigned t o the lending bank?
tom A r e there prescribed forms o f notes, mortgages,
applications, statements, certificates, etc., a s indicated
in the existing regulations?
8. D o e s t h e F e d e r a l R e s e r v e B o a r d r e q u i r e r e p o r t s
to
be made t o it or to Federal reserve banks relative t o such
loans, a n d are there blanks f o r such reports?
Those a r e s o m e o f t h e q u e s t i o n s p r o p o u n d e d
our m e m b e r b a n k s , i n d i c a t i n g t h a t t h e y a r e i n a
t o us b y
rather c o n -
fused state o f mind a s t o what the Act permits them t o do
in the matter o f real estate loans.
The Chairman: G o v e r n o r Fancher would like t o ask if
there a r e o t h e r b a n k s t h a t h a v e i n q u i r i e s
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Federal Reserve Bank of St. Louis
Governor Miller:
W e do:
o f the s a m e sort?
W e a r e right i n the midst o f
151
an agricultural country a n d w e have t h e m three tines a n hour
sometimes.
The Chairman:
W o u l d i t not b e the most satisfactory
way t o h a n d l e t h i s t o h a v e a
committee a p p o i n t e d
t o make
recommendations t o the Federal Reserve Board that t h e y consolidate theirrulings a n d make recommendations covering these
details.
W o u l d that b e acceptible, Governor Fancher?
Governor Fancher: I
think that would b e a very good
way t o h a n d l e t h e matter.
The Chairman:
W i l l y o u move that s u c h a committee b e
appointed?
Governor Fancher: I
Governor Wold: I
will make s u c h a motion.
will second the motion.
W e have
had similar inquiries, m a n y o f themGovernor McCord:
H a l f o f our correspondence
is on
that subject.
Governor Seay: I
would like t o ask Governor Fancher
if h e has a n y doubt a s t o the answers t o a n y o f those questions 7
Governor Fancher:
N o . However, 1
think w e are i n
just a little bitof doubt, Governor Seay, i n the matter o f
the ore y e a r loans o n improved property, a n d the procedure
at t h e e n d o f t h e year.
Governor Wold:
T h a t matter h a s b e e n determined.
Governor Fancher:
clear i n t h e m i n d s
about it.
o f t h e member banks-
T h a y a r e confused
T h e y d o not know just what t o d o and they write
to u s a b o u t i t .
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Federal Reserve Bank of St. Louis
I t has been determined, b u t i t is not
I t . i s v e r y desirable,
t o m y mind, t h a t a
clean c u t r e g u l a t i o n b e i s s u e d b y t h e Board.
The Chairman:
Y o u have h e a r d t h e m o t i o n o f Governor
Fancher that t h e Chairman appoint a conmittee o f three t o
take t h i s m a t t e r u p w i t h t h e F e d e r a l R e s e r v e Board.
I
s
there a n y further discussion?
(There was n o further discussion and the motion
was carried-)
The Chairman:
T h e C h a i r w i l l a p p o i n t Messrs. F a n c h e r ,
Wold a n d Miller o n that committee.
Let u s n o w discuss T o p i c 1 9 .
National Banks a s Insurance Agencies.
Rulings o f State authorities.
Governor Fancher:
T h a t t o p i c w a s proposed, M r :
Chairman, before t h e receipt o f a communication which w e h a d
from t h e Board: i
a i e
o
f a controversy into
which o n e o f o u r m e m b e r b a n k s h a d g o t t e n w i t h t h e i n s u r a n c e
commissioner o f the State o f Pennsylvania, w h i c h resulted
in a n exchange o f letters.
T h e Commissioner h e l d that t h e
provision o f t h e A c t d o e s n o t p r e c l u d e h i s r i g h t
the privilege. I
t o grant
have h e r e t h e l a s t l e t t e r , w h i c h c a r r i e s
it a l o n g f o r t h e time, a n d w e a r e s i m p l y l e t t i n g t h e m a t t e r
drift. I
have here acopy o f a letter re:cived o n the
27th o f November.
"The attached correspondence relates t o the action o f
the Insurance CommisSsioner o f the State o f Pennsylvania,
who has refused t o grant licenses t o Naiional banks t o act
as insurance brokers o r agents.
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Federal Reserve Bank of St. Louis
Wy
Vhile I agree with Mr- Wills that the attitude o f the
153
Gommissioner i s more o r less arbitrary, I
do not thirk i t
advisable a t this time f o r a n y o f the b a n k s o
t undertake
to mandamus t h e Commissioner i n order t o require h i m t o
issue t h e l i c e n s e
“There
i n question.
i s n o w pending before t h e Supreme C o u r t o f t h e
United States a case involving the constitutionality o f Section 1 1 (k) o f the Federal Reserve Act, which authorizes
National banks t o act a s trustee, exécutor, a n d s o forth,
with the approval o f the Federal Reserve Board:
T h e de-
cision o f this case will probably have a n important bearing
On the question o f the right o f National banks t o act a s
insurance agents.
I t m a y develop that t h e license o f the
Insurance C o m m i s s i o n e r w i l l n o t b e necessary.
it seems
t o m e advisable
n a n y event
t o defer a n y action o n this ques-
tion until w e have obtained a
decision i n the pending suit
before t h e Supreme Court o f the United States:
pect t o m a k e a
I
W
e ex-
motion o n December 4 t h t o advance t h i s c a u s e
on the docket, a n d hope t o get a hearing i n January o r
February."
That i n d i c a t e s t h e s i t u a t i o n a n d s i m p l y c a r r i e s
it
along.
The Chairman:
H a v e y o u a n y resohution t o offer?
Governor Fancher:
N o , I
do not wish t o offer a reso-
lution.
The Chairman:
U o you withdraw the topic?
Governor Fancher:
The Chairman:
Y e s sir.
M a y I ask Governor Wold when w e are
going t o hear f r o m the Federal Reserve Board a s t o their a t -
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Federal Reserve Bank of St. Louis
tendance here?
Governor Wold:
T h e last information I had was that
Mr. Delano w a s endeavoring t o learn whether o r not there w a s
going t o b e a board meeting this morning.
not h e w o u l d c o m m u n i c a t e
with
I f there w a s
u s a n d advise us.
G o v e r n e r
Harding i s out o f the Treasury o n some other matters a n d
could n o t b e reached->
S h a l l I
communicate w i t h t h e m
again?
The Chairman: I
matter.
W
t h i n k i t w o u l d b e w e l l t o pursue t h e
e w o u l d l i k e t o t a k e u p t h a t q u e s t i o n o f collec-
tions and clearances a s soon a s possible.
we will take u p Topic No- 20.
Accumulation o f gold.
Wwe will hear from Vice Governor Treman.
Governor Wold:
I f you will pardon m e a moment, I
would
like t o advise t h a t t h e Secretary o f the Board h a s advised
mé that t h e y are still endeavoring t o find o u t whether o r
not there will b e a Board meeting, a n d just a s soon a s they
ascertain that t h e y will communicate w i t h us.
Vice Governor Treman:
M r . C h a i r m a i , I have b e e n in-
terested i n this matter o f the accumulation o f gold, because, a s y o u know, there h a s b e e n this unusual influx o f
gold into N e w York City, amounting now, since t h e l s t o f
January, t o practically $500,000,000.
‘ h e gold has been
pumped o u t o f the Federal reserve banks s o that since t h e
first o f May, 1916, w e have paid over $400,000,000 into the
gold settlement fund. I
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Federal Reserve Bank of St. Louis
d o not know, w i t o u r present
155
machinery,
banks.
a n y w a y o f holding t h e g o l d i n t h e F e d e r a l r e s e r v e
W e have b e e n trying,
membership
i n New York, t o educate o u r
t o sorting o u t their g o l d certificates, b e c a u s e
it i s a very noticeable f a c t that i n the pockets o f the people t h e r e i s a
very unusual accumulation
Probably a l l o f you have noticed that.
ing t o a s c e r t a i n t h e e x a c t f i g u r e s ,
o f g o l d certificatés.
W
e have b e e n try-
i f possible,
a s t o the
amount o f g o l d t h a t i s i n c i r c u l a t i o n b u t w e find, e v e n
among t h e authorities, t h e r e i s wide difference a s t o the
amount.
T h e minimum seems t o be around ~600,000,000.
There are other estimates a s high a s 900,000,000.
T h a t is
gold i n t h e h a n d s o f t h e people.
In New York w e have written t o a Large number o f member banks asking t h e m t o sort o u t their g o l d certificates
and t o s e n d t h e m i n t o u s f o r credit;
rency needs,
o r , i f they have cur-
t o permit u s t o ship t h e m Federal reserve notes
in place o f them. .
W
e hope thus t o put a certain portion,
at least, o f the Federal reserve notes i n t o circulation a n d
have t h e m remain i n circulation.
W e would withdraw t h e
gold certificates s o that, s o far a s possible, t h e y might
be retained.
sent machinery,
O
f course w e realize that, u n d e r t h e p r e w e cannot h o l d t h a t g o l d except
i n part.
The method w e have been following h a s been i n the shape o f
a letter, rather t h a n a circular,
much o f a
public S
have responded.
e
s o a s not t o make i t too
b u t nearly a l l o f o u r banks
T h e y have said t h e y would b e very glad t o
separate s u c h gold certificates a s they could sort o u t o f
also what t h e y might
their i n c o m i n g c a s h y a n d h a v e
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Federal Reserve Bank of St. Louis
i n excess
o f their
o w n reserves,
156
My personal t h o u g h t
i s that b y having t h e m give atten-
tion t o that there will b e a gradual withdrawal o f gold certificates s o that their o w n reserves would b e a larger
proportion o f gold certificates, a n d second, i f they send
them i n t o u s i t would b e better t h a n having t h e m i n the
hands o f the people+
Up t o last week only a portion o f the banks i n our district h a d been circularized,
o r letters h a d been sent t o
them, a n d w e have gained i n two o r three weeks a
and a half through this particular channel.
seventeen c e n t s p e r t h o u s a n d
t o get iti
million
I t cost u s
T h a t i s merely o n e
phase o f the gold certificate question.
I would l i k e t o submit a
statement i n regard t o how i t
works out s o far as the regulation o f the New York Clearing
house i s concerned, w h e r e ,
a s y o u know,
w e receive o u r
balances i n silvers a n d legals, a n d w e p a y out o u t gold
through t h e gold settlement fund.
Governor wold: B e f o r e y o u proceed, Governor Treman,
let m e s a y that Mr. Delano informs m e that t h e Board c a n
meet us at 11 o'clock either here o r in the Board room.
The Chairman:
W i l l y o u tell t h e m that w e will b e
very glad to have them join us here at 11 o'clock:
Vice Governor Treman:
tlement F u n d a s applied
T h e operation o f the Gold Set-
t o this b a n k requires
u s t o settle
in gold b a l a n c e s d u e t o other Feceral reserve banks built
up With u s b y their remittances o f N e w York Exchange,
in
payment f o r which w e receive practically nothing b u t silver
and legal tender notes.
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Federal Reserve Bank of St. Louis
S i n c e t h e inauguration o f the Gold
iby
Settlement F u n d i n May, 1915, u p through t h e settlement o f
wednesday, September 6th, w e have lost t o the fund
3182 ,000,000, of gold, and at the close of business that
day held legal a n d silver certificates amounting t o
24,000,000.
It has been possible f o r u s t o provide t h e gold wherewith t o m a k e s e t t l e m e n t w i t h o u t d e p l e t i n g o u r o w n g o l d
only t h r o u g h t h e c o u r t e s y a n d c o o p e r a t i o n o f s o m e o f o u r
large member banks a n d others i n New York who have given u s
of their ,;old i n exchange f o r silver a n d legals o r our
cashier's checks, which, when settled through the clearing
house,
obvious
w e a r e a b l e t o p a y i n silver
that
o r legals, b u t i t i s
w e cannot continue indefinitely
t o get more
in this w a y o r depend u p o n i t even f o r a short period» T h i s
enormous drain o f gold through u s from the banks a n d bankers
in NewYork City gives rise t o serious thought a s t o where
a continuance o f this process will lead us, a n d what conditions w i l l c o n f r o n t u s w h e n g o l d m a y b e r e q u i r e d
for export.
i n vclume
N e w York Yity i s the principal reserve center
of the country.
T o i t naturally a great amount o f recent
importations o f gold have come.
F o r e i g n balances h a v e
been built u p in New York both through credits ani collections.
“ h e n t h e time c o n s f o r those balances t o b e with-
drawn t h e b a n k s
i n New York a n d the reserve b a n k particularly
must b e i n a position t o furnish gold freely, otherwise o u r
position a s a n important world financial center will b e seriously i m p a i r e d a n d t h e ccenficence t h a t h a s b e e n c r e a t e d
by
the establishment o f the Federal Reserve System will b e dis-
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Federal Reserve Bank of St. Louis
Ssipated.
During the period from May 15, 1915, t o September 2,
1916, the clearing house banks o f the City of New York have
Zained i n gold »35,000,000, their total holdings “eptember
2nd amounting t o $315,000,000.
v u r i n g the same period
Silver and legal tender notes have decreased only 46,000,000,
their holdings o f these kindsof moncy o n September 2, 1916,
being
»130,000,000. U u r i n g the same period their net de-
posits have grown from $2,000,000,000 t o 43,000,000,000,
an increase i n net deposits o f %~910,000,000;
reserves have decreased ~55,000,000,
September 2,:1916,
a n d excess
t o a total h e l d o n
o f 9113,000,000, a n d today's clearing
house s t a t e m e n t s h o w s a c t u a l e x c e s s r e s e r v e
o f only
69,000,000.
The increased n e t ceposits i n clearing house banks
of N e w York approximate o n e half o f the increase i n jross
deposits o f all t h e national banks i n the United States
during t h e same period.
T h e figures o f the n e t deposits
of all t h e national banks a r e n c t readily available-
T h e
increase during t h e same period i n gold held b y all o f the
national banks, estimated from the Comptroller's reports,
is »154,000,000.
The combined figures o n all o f the state banks i n the
country f o r June, 1 9 1 6 , a r e n o t y e t a v a i l a b l e f o r c o m p a r i -
son with their figures o f June, 1915, b u t i t i s clear from
the above that t h e increase i n gold holdings b y the m t i o n a l
banks throughout t h e country i s much greater i n proportion
to their increased deposits t h a n the increase i n gold held
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Federal Reserve Bank of St. Louis
159
by the N e w York Glearing House banks i n proportion t o their
increased n e t deposits.
The Federal reserve bank i n New York during the period from M a y 21, 1915, t o September 2 , 1916, h a s incr ased
its gold holdings b y 458,900,000, against increase o f net
deposits d u e m e m b e r b a n k s a n d t h e U n i t e d S t a t e s G o v e r n m e n t
during the same period of »65,000,000, and the gold hela
by the Federal reserve agent i n New York against Fe. eral
reserve notes hasincreased during t h e same period b y
43,000,000,”
I apologize f o r n o t having this u p t o date, b u t t h e
fact i s for t h e last t w o o r three weeks w e have n o t been
in a position t o work u p any briefs i n New York Vity:
W e
have h a d sickness, absence a n d a pressure o f business,
so
that w e could n o t g e t this u p t o date.
so f a r a s t h e a r g u m e n t
T h e m a i n facts,
i s concerned, a p p l y :
Of course t h e Federal reserve b a n k cannot impound gold
in excess
o f 100 p e r cent o f its reserves e x c e p t through t h e
issue o f Federal reserve notes, b u t i f i t had w o t settled
in gold f o r t h e balances o f exchange created i n favor o f
other Federal reserve banks, o r if the Federal reserve banks
had n o t a c c u m u l a t e d t h o s e b a l a n c e s f o r s e t t l e m e n t
b y with-
drawals o f currency from N e w York t o the interior, t h e gold
position o f all o f the banks i n New York might have been
much stronger,
a n d i f transfers
o f currency t o t h e interior
had been required i n volume equal t o the transfers o f gold
from New York through the Gold Settlement Fund, i . e.,
182,000,000, every dollar o f legal tender and silver notes
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Federal Reserve Bank of St. Louis
held b y the New York clu aring house banks might have been
shipped and the New York bank's reserves i n vault would
have been all gold and still leave a margin o g 5 2 , 0 0 0900,
of gold that could have been impounded against Federal reserve notes b y the Rederal reserve bank in New York.
You will remember that t h e Executive Committee o f the
Conference o f Governors o n “ygust 10, 1915, adopted t h e following resolution:
"RESOLVED, that should a n y Federal reserve bank accumulate a
large a m o u n t o f s i l v e r c e r t i f i c a t e s t h r o u g h d e a l -
ings i n donestic e x c h a n g e
b y other Federal r e s e r v e banks,
on notice s u c h b a n k o r b a n k s s h a l l c e a s e s u c h d e a l i n g s
i n
exchange.”
On l a s t Saturday,
a n d Tuesday a n d Wednesday o f this
week w e were paid credit balances a t t h e clearing house
amounting t o approximately $40,000,000, o f which about
38,000,000 were silver and legnl tenders, and on Wednosday
of t h i s w e e k s h o w e d n e t b a l a n c e d u e t o t h e o t h e r F e d e r a l
reserve banks o f over 30,000,000, largely accumulated
through their dealings i n exchange, a n d although w e withheld
from settlement,
b y transfers t o investment accounts a n d
otherwise, more than 10,000,000,
w e lost i n gold o n settle-
ment and through transfers more than $25,900,000.
Through t h e c o u r t e s y o f t h e b a n k s w e w e r e p e r m i t t e d
607 thet.
W
e a s k e d t h e m f o r t h a t permission:
to
D u r i n g the
last three o r four weeks i t has b e e n running e v e n heavier
against u s »
O u r transfers i n one week amounted t o , i f I a m
correct, $41,000,000- T h a t i s what we paid into the Gold
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Federal Reserve Bank of St. Louis
Settlement F u n d week before last.
' Aside f r o m t h e fundamental unsoundness economically o f
our poSition in being required to pay in gold for items
thet w e cannot collect i n gold our. situation i s further
aggravated b y the practice o f other Federal reserve banks
in purchasing New York exchange o r taking New York exchange
for immediate credit a t par, which i s equivalent t o a purchase, w h e n w e could n o t purchase exchange o n them i f w e
wished i t because i t is not available i n New York, and while
we, conforming t o sound banking practice,
d o not take items
on other cities f o r immediate credit.
It may be argued that i n buying or in taking New York
exchange f r o m their members f o r immediate credit that t h e y
aré o n l y granting t o their members t h e facilities o f the
System i n providing t h e m a n easy means o f effecting needed
transfers
expense
o f currency t o the interior without t h e r i s k a n d
o f c u r r e n c y Shipments.
B u t t h e ordinary need f o r
currency i n the interior i s not for gold b u t f o r small bills
for general Circulation, payroll a n d similar purposes.
This h a s b e e n demonstrated within t h e past f e w weeks b y requests f o r s h i p m e n t o f s m a l l b i l l s
t o other Federal reserve
banks, and the large demand that w e have had i n our district
from o u r m e m b e r b a n k s f o r s h i p m e n t
o f bills o f s m a l l d e m o m i n -
ations.
That d e m a n d h a s b e e n accentuated,
a s y o u know,
i n the
last month, a n d ones a n d twos were almost unobtainable,
at
least i n New York- T h e r e was a very great demand for them,
and not only that, b u t also f o r halves a n d quarters.
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162
During this period przctically a l l o f the large banks
in the city with out-of-town correspondents h a v e
also s h i p p e d t h e i r a v a i l a b l e s u p p l y o f small b i l l s a n d have
come t o u s f o r a d d i t i o n a l s u p p l i e s
o f small s i l v e r a n d
legals a s well a s Federal reserve notes:
T h i s small ecur-
rency has been actually shipped b y us and ether New York
banks, but the balance i n the Gold Settlement Fund September
lst was 104,000,000, a decrease o f only $6,000,000 from
the p r e v i o u s w e e k , b u t a n increase o v e r t h e m o n t h previous,
ie e., July 28th, when the balance was »102,000,900, which
month h a s c o v e r e d p r a c t i c a l l y t h e e n t i r e seasonakh m o v e m e n t
OL C u r r e n c y T o “ t n e w n T e r i o r .
It d o e s n o t s e e m t h a t t h e c o m p a r a t i v e l y t r i f l i n g a d -
vantage t o individual banks i n the inie rior should b e allowed t o outweigh t h e great disadvantage t o the banks i n the
principal r e s e r v e c e n t e r o f t h e c o u n t r y a n d t h r o u g h w e a k e n ing t h e i r p o s i t i o n
Primarily I
t o the system a s a
whole-
telieve that w e should n o t b e required t o
settle exchange balances i n gold.
Secondly, I believe that other Federal reserve banks
should n o t b e permitted t o create balances w i t h u s arising
from purchases o f exchange o n New York unless those balances
be left w i t h u s until withcrawn through like process, i . e.,
sale o f their drafts o n us; a n d further, t h a t t h e y should
not b e p e r m i t t e d
t o receive
o r accept f o r deposit
o r other-
wise exchange o n New York excepting o n a deferred time o f
credit basis n o t less t h a n t h e deferred t i m e o f credit basis
upon which w e would accept items payable i n the principal
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Federal Reserve Bank of St. Louis
o f their districts.
cities
Governor Wold:
terrupt again? I
M r . Treman, w o u l d y o u allow m e t o in-
will say that Mr- velano advises u s that
Governor Harding h a s a great m a n y engagements w h i c h would
make i t inconvenient f o r h i m t o come o v e r here a n d s i t with
uS-« T h e y were under t h e impression that w e were going t o
have a
committee c o n s u l t w i t h them, a n d t h e y s u g g e s t e d t h a t
we s e n d o u r c o m m i t t e e over.
T h e y n o w request t h a t t h e
Conference meet them at 1 1 o'clock, a n d that Mr. Harding
will devote a s much time a s h e c a n a n d the rest o f the members will devote a l l o f their time, practically.
The Chairman:
W i l l you please tell them that w e will
be there.
Vice Governor Treman:
I f y o u care t o have t h e matter
pursued further, I might say that u p t o November 1 4 I had
figures prepared showing that New York had los t from May
20, 1915, t o October 19, 1916, $223,816.00»
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Federal Reserve Bank of St. Louis
Chicago had lost »7,206,000, according t o our figures.
Boston had increased $17,600,000.
Philadelphia had increased 448,187,000.
Cleveland had increased $11,733,000.
Richmond h a d increased 24,021,000.
Atlanta had increased 21,175,000.
St. Louis had increased 410,439,000.
Minneapolis h a d increased $6,152,000.
Kansas Cyty had increased ($25,260,000.
Dallas had increased 435,406,000.
San Francisco had increased 31,049,000.
164
The total loss to New York we find, up to October 19,
was $223,816,000.
It m a y b e o f interest
t o know that t h e total changes
in
ownership o f gold t o October 19, 1916, equals 5.15 p e r cent
of the total obligations settled.
Governor Say: G o v e r n o r Treman, when you say "lost"
you mean "Shipped"?
Vice Governor Treman:
Yes.
O f course 1
understand
that i f n o t p u m p e d o u t t h r o u g h u s tit would b e p u m p e d o u t
in other ways.
W e could not hold i n New York Cyty all the
gold that comes i n there.
Governor Seay:
cruse".
Y o u r stock o f gold is like the "widow's
Y o u keep shipping i t out, a n d yet, i n the end,
you h a v e a s m u c h a s y o u d i d w h e n y o u began.
Vice Governor treman: T h a t is trueGovernor S e a y :
sult?
I
s not that bound
t o b e the net re-
T h e r e a r é only a limited amount o f legals a n d silver
certificates t h a t N e w York banks c a n p a y yous
T h e y pay
you all they have, which we will say is 950,000,000, and
you pay back $50,000,000 o f gold- T h e n they return the
favor a n d pay i t back t o you.
I t i s swapped:
Y o u will
not u l t i m a t e l y h a v e a n y m o r e t h a n t h e y h a v e o n hand. I
can c o n c e i v e h o w t h e s h i p m e n t
“entails e x p e n s e ,
but 1
for y o u t o suffer a
o f the g o l d i s a
hardship a n d
cannot c o n c e i v e h o w i t i s p o s s i b l e
loss greater t h a n the amount o f legals
and silvers t h e y have g i v e n you.
Vice G o v e r n o r treman:
M
y t h o u g h t w a s this. s v e t e tas
all r i g h t u n d e r p r e s e n t conditions.
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Federal Reserve Bank of St. Louis
4 s l o n g a s w e have t h e
165
gold c o m i n g i n , a s i t d i d l a s t w e e k t o t h e e x t e n t o f
55,000,000, w e will have a constant supply i n New York coming t o the various banks a n d through t h e m t o us, making i t
possible t o shift i t around.
B u t i f youreverse t h e
situation o f course y o u have a n entirely different matter.
If gold i s not coming i n we will b e the center o n which all
the demands for gold largely will fall, unless i t be San
Francisco.
Go ernor Seay: I
mean that the measure o f your gold
is t h e measure o f the deposits o f your member banks, which
they are bound t o keep with you.
Y o u cannot lose i t except
to the extent that the New York banks may te able t o pay
over t o y o u a l l t h e s i l v e r s a n d l e g a l s t h e y have:
B u t when
they have done that, they cannot d o any more, y o u cannot g e t
any more t h a n they have.
I t would s e e m t o m e they cannot
drain y o u o f your gold, except t o that extent, possibly.
Vice Governor ‘reman:
O f course the Federal reserve
bank i n New York is bearing the brunt o f the gold shipment.
That w e must expect t o d o a s long a s w e are t h e center
through which most o f the gold comes i n t o t h e country- =
ado not see h o w i t c a n b e o t h e r w i s e
T h e thing which con-
cerns m e most i s the question o f accumulation o f gold a n d
the holding o f i t i n the Federal reserve system a s a whole;
that i s , t h e h o l d i n g o f a
sufficient a m o u n t o f g o l d s o t h a t
when the demand comes o n New York we will have reserves i n
many o f t h e o t h e r F e c e r a l r e s e r v e b a n k s w h i c h w i l l h e l p u s
out, a n d also t h e secondary reserve, w h i c h i s practically
the r e s e r v e
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Federal Reserve Bank of St. Louis
o f t h e member banks.
166
of course i f Federal reserve notes were reserve f o r
member banks w e would have n o difficulty i n accumulating
gold.
B u t they are not, and | do not know that they are
going t o be-
I
f t h e y a r e not, c a n w e depend,
a s some o f
the theorists believe, o m our receiving into the federal
Reserve System t h e gold which w e will need b y the turning
out o f i t f r o m t h e m e m b e r b a n k s ?
D
o you think that i s a
sound p r o p o s i t i o n ?
The Chairman: Gentlemen, 1 do not like t o interrupt
this discussion, b u t a s we will meet with the Federal Re-.
serve Board a t 11 o'clock, i t is necessary that w e should g o
now.
In t a k i n g u p t h e m a t t e r o f collections
a n d clearances
with t h e Board, unless there a r e objections made, w e will
omit t h e discussion o f a great déal o f detail under wuestion
63 w e will discuss tuestion Hh, immediate availability o f
various items; ( 1 ) , charges t o b e collected b y member banks
from their patrons, a n d charges t o b e imposed f o r collecting
or clearing b y Federal reserve banks;
( m ) Compensation t o
member banks f o r collecting items o n non-member banks, a n d
(n), elemination o f service charge o n collections handled
for member banks.
T h e Board i s interested i n all those
matters.
(The Conference o f Governors thereupon adjourned
to the Treasury Building f o r t h e purpose o f having present
during t h e discussion o f Topic 6 , Collections a n d Clearances, s u c h members o f the Federal Reserve Board a s might
desire t o be present.)
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Federal Reserve Bank of St. Louis
JOINT CONFERENCE O F GOVERNORS O F
FEDERAL RESERVE BANKS A N D MEMBERS O F THE FED~
ERAL RESERVE BOARDs
Treasury Department,
Washington, D ° C.,
Tueéday, December 12, 1916:
There were present,
i n addition t o these previously
noted:
Governor Harding and Mr. Deland, o f the Federal Reserve
Board, a n d
Mr- H. Parker Willis, Secretary of the Federal Reserve
Board.
Governor Aiken:
w e have left Topic No. 6 on our pro-
gram, Governor Harding, f o r discussion w i t h t h e @learance
Committee a n d s u c h members o f the Board a s are particularly
interested i n that subject, and who wish to hear discussion;
and, acting o n your suggestion,
w e have transferred o u r -
selves f r o m the Shoreham Hotel o v e r here a n d w e have taken
the liberty o f bringing o u r stenographer w i t h us, because
these deliberations a r e part o f our regular record.
Have y o u a e n t b e n c k a
copy o f t h e program a n d o f the
items under i t ?
cau
e e Harding:
Y e s , I
have a copy.
@overnor Aiken: T h e r e are a number of purely routine
matters under this topic, a n d various subdivisions, taking
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Federal Reserve Bank of St. Louis
168
up t h e w h o l e a l p h a b e t ,
from A
t o Z , b u t i t seems
t o me
that i t would b e i n the economy o f time i f w e take u p the
discussion o f all t h e matters that I know a r e o f particular
importance
t o you:
Governor Harding: I
would suggest, Governor Aiken,
that i f y o u c a n confine your discussions t o these clearing
matters, a n d i f there a r e other matters t h a t y o u wish t o
discuss the appropriate committee from the Board will come
down a n d m e e t w i t h y o u i n d i s c u s s i n g them.
Governor Aiken:
W e will b e very glad indeed t o have
then, sir»
It seems t o u s that t h e topic o f perhaps t h e most i n -
terest under this heading 6-(h), i s the immediate availability o f (1) drafts o n Federal Reserve Banks;
( 2 ) checks
drawn o n member banks located outside Federal Reserve Cities,
and ( 3 )
B a n k drafts
o n member banks l o c a t e d outside F e d -
eral Reserve Cities, together with (1), (m) and (n) and such
others a s y o u and Mr- Delano might w i s h t o discuss.
Following o u r practice, I
a m going t o a s k t h e gentle-
men who proposed these different subjects t o open t h e dis-
cussion; and, taking u p Topic 6 , subtopic (h), I will ask
Governor S e a y for his views o n the immediate availability
of drafts o n Federal reserve banks.
6-(h) Immediate availability o f
(1) d r a f t s o n Federal Reserve Banks.
Governor Seay:
M r + YVhairman and Governor Harding, I
would s a y that I have about exhausted myself i n the preparation o f m y views
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Federal Reserve Bank of St. Louis
o n t h a t subject, w h i c h a r e e m b r a c e d
in a
16a
brief which was prepared partly, I
might say, a t the sugges—
tion d @ Mr. Delano, b u t more largely because i t i s one o f
the most important subjects, I
tem is now confronted. A
believe, w i t h which t h e Sys-
copy o f this has been sent t o
every Governor, a n d copies have a l s o been sent t o Mr. Delano
with the request t h a t h e give t h e m t o his associates, a n d i
believe t h e y h a v e them. I
have c o p i e s h e r e p r e p a r e d
stencil, w i t h s o m e f e w v e r b a l a l t e r a t i o n s
on
t o make m o r e c l e a r
Cortain p a s s a g e s w h i c h i n t h e m i n d s o f s o m e w h o
read them
appeared to be somewhat doubtful, and 1 would like to distribute these before taking u p the discussion.
It appears
ed t h e period,
perative
t o me, M r . Chairman,
i f w e have n o t arrived
t h a t w e h a v e approach-—
a t i t , w h e n i t i s im-—
t o settle t h i s q u e s t i o n o n e w a y o r t h e other,
to
determine whether drafts o f o u r member banks drawn against
excess balances shall b e made available f o r exchange purposes a n d for transfer purposes a t all Federal reserve
banks; a n d i n order t o give a bird's e y e view o f the various i t e m s d i s c u s s e d
i n this b r i e f I
have o u t l i n e d t h e p r i n -
Cipal features a t the beginning, a n d 1 will read those.
One o f the things o f very great assistance t o 2 e e s
believe,
i n popularizing t h e s e drafts a n d i n increasing
their usefulness, w i l l b e t o make t h e m a special f o r m o f
draft,
s o that t h e y m a y become known t h e Country over.
Feature No. 2 , a n d o n e o f the principal features,
is
that the member banks shall advise the Federal reserve bank
of all drafts drawn upon it.
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Federal Reserve Bank of St. Louis
The next feature,
N o 3 , i s that there shall b e a n
170
agreement o n the part o f member banks t h a t crafts shall b e
charged t o their account u p o n receipt o f advice o f issue b y
the Federal reserve banks.
“It i s a l s o c o n t e m p l a t e d t h a t t h e a d v i c e s h a l l b e m a i l ~
ed u p o n t h e d a t e o f issue-
The fourth feature i s a daily settlement between r e serve banks, which, while i t will n o t become imperative
under this p l a n will, I
believe, become advisable, a n d w e
have always contended f o r a daily settlement a t our bank,as
being advisable under most conditions.
The fifth feature i s a settlement o f balances between
Federal r e s e r v e b a n k s
i n lawful m o n e y a s w e l l a s i n gold.
We h a d a n e x p o s i t i o n o f t h e n e c e s s i t i e s
o f that c a s e
from the New York Bank today, a n d I take it, Governor Treman, t h a t t h e Board h a s been made familiar with t h e views o f
the New York Bank o n that subject also, has i t not?
Vice G o v e r n o r Treman:
Y o u mean, t h e p u m p i n g o u t o f
gold?
Governor Seay: Y e s . I
believe i t will become ad-
visable f o r u s t o have some means o f settling w i t h each
other i n lawful money; a n d while t h e amount o f lawful money
held b y the System a t the present time i s not large, i t i s
conceivable, t h e o r e t i c a l l y ,
t h a t t h e lawful money o f the
country might b e foisted u p o n t h e Federal Reserve Banks.
As a practical question, + do not believe i t is possible,
but theoretically i t i s a possibility.
The p u r p o s e
o f t h e p l a n is, first,
t o make a
draft o n a
Federal r e s e r v e b a n k t h e h i g h e s t a n d m o s t u s e f u l f o r m o f
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Federal Reserve Bank of St. Louis
Lk
exchange, a n d t o thus give t o member banks a
Bvailable
facility n o t
t o non-members.
That language w a s used b y Mr- Delano i n a memorandum
prepared b y h i m last J u l y and s e n t t o all o f us, I think, a n d
it s o exactly a n d accurately describes w h a t i s desired t o
be b r o u g h t a b o u t , t h a t I
purpose
have u s e d i t i n s t a t i n g th:it first
o f o u r plan.
The s e c o n d p u r p o s e
i s t o avoid imposing u p o n member
banks t h e necessity o f maintaining accounts w i t h correspondents f o r exchange purposes, w h i c h speaks f o r itself.
Third, t o provide superior facilities f o r transferring
the o w n e r s h i p o f funds b e t w e e n t h e s e v e r a l d i s t r i c t s w i t h o u t
the actual shipment o f money, except i n cases o f necessity.
Fourth,
t o provide
a n economical a n d expeditious m e t h o d
of settlement o f balances between member banks, a n d thus
minimaze t h e use o f money a n d s e t free vault reserves.
I think that i s a n extremely important feature t o aia
u® i n g a t h e r i n g i n t o o u r o w n v a u l t s a
the v a u l t r e s e r v e s
certain proportion o f
o f m e m b e r banks.
The fifth purpose i s t o render excess balances i n
Federal reserve banks readily available.
I believe that there should b e provided a n expeditious
meansof drawing o u t those balances.
available
T h e y should become
t o o u r members w i t h o u t w a i t i n g f o r t h e c o l l e c t i o n
of the draft t h a t m a y b e drawn against t h e m after having
waited t o c o l l e c t d r a f t s w h i c h t h e y s e n d u s i n o r d e r t o a c cumulate b a l a n c e s .
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The s i x t h p u r p o s e
i s t o establish t h e chief a i d i n
carrying o u t t h e purpose o f the Federal Reserve Act, t o decentralize b a n k credits--- t o lessen t h e accumulation o f
bank b a l a n c e s
i n centers o u t s i d e
o f t h e district f o r e x -
change purposes--- t o foster t h e financial upbuilding o f
each d i s t r i c t
b y keeping
from transactions
i n its o w n banks deposits a r i s i n g
w i t h i n t h e district.
Seventh, t o give t o the Federal reserve banks more
efficient control o v e r their gold supply, rendered necessary b y the operation o f the collection system.
That question applies t o the situation which has arisen
in the N e w York bank a n d which m a y arise w i t h a n y other
bank, particularly i n the large centers.
I think, Mr. Chairman, that having stated the features
of the plan a n d the purposes o f the plan, i t might b e considered o p e n f o r d i s c u s s i o n n o w , a n d a n y a r g u m e n t s t h a t a r e
advanced a g a i n s t
it I
will e n d e a v o r
t o meet b y reading f r o m
the t e x t o f t h e plan.
Governor Aiken: I
understand, Governor Seay, that
you wish t o recommend t o the Conference t h a t t h e y approve
of the plan o f making immediately available a t par a t all
or a n y federal reserve banks drafts d r a w n o n Federal reserve
banks?
Governor S e a y :
as a
recommendation
T h a t i s m y position,
t o b e adopted
and I
offer t h a t
b y t h e Governors f o r refer-
ense t o the Federal Reserve Board.
Governor Aiken:
Y o u have heard Governor Seay's motion.
Governor Harding, would you and ™r. Delano like t o state
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your v i e w s ?
w e would like v e r y much t o hear
Goverrior Harding:
your discussion, first.
Governor Ajken:
T h e subject i s open for discussion,
gentlemen.
Mr. Delano: I
took the liberty o f bringing Mr-+ Gibney
down w i t h u s , G o v e r n o r Aiken, b e c a u s e h e h a s c h a r g e o f t h e
gold settlement f u n d a n d i s greatly interested insome o f
the questions here, especially t h e question o f daily settlements.
Governor Aiken:
i t e are very glad t o have h i m with us.
Governor Harding:
w e would appreciate i t i f a per-
fectly frank discussion i s had -
W e would n o t want a n y o f
the gentlemen here t o b e influenced o n e j o t o r tittle because
of tle f a c t that members o f the Board a r e here.
Governor Aiken:
ana *
W e appreciate tht, Governor 4arding,
think that a l l feel t h a t
i t i s t o the best interests
of the development o f the plan. I
would like t o have a
full discussion o f this matter- I
know that i t has been
under consideration b y all o f the Governors, a n d that there
is a great variety o f opinion o n i t and i t seems t o m e very
necessary that w e should have a very frank a n d full discussion o f it.
Governor McDougal?
Governor McDougal:
ter, Governor Aiken,
M y feeling i n regard t o this mat-
i s that w e should b e very cautious
about plunging into it, o n such broad lines, a t leastbelieve t h a t t h e statement t h a t this would b e similar,
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Federal Reserve Bank of St. Louis
or
174
pos s i b l y e q u i v a l e n t
t o the certification
o f these c h e c k s
is: n6t- B 6 S < =
Governor Seay?
I f y o u will parcon m e there, t h e
word "equivalent" i s not used.
not
Governor McDougal: I
Governor “eay; I
a m referring t o your argument,
a m referring t o some discussion t h a t I
have heard i n regard t o the matter.
Governor Yeay: T h a n k you.
Governor McDougal:
I f w e give o u r member banks t h e
full authority t o draw against u s i n this manner, w i t h t h e
understanding that t h e y are t o advise u s immediately o f
their having done so, t o begin with, i t i s quite possible,
it s e e m s
t o me, t h a t t h e y may, t h r o u g h t h a t means,
b e permit-
ted t o secure immediate credit f o r a check that i s not good.
The balances,
o f course,
i n the reserve banks, would b e en-
tirely a t t h e command o f th® m e m b e r banks, a n d t h e fact that
they a r e t o notify u s a n d give u s permission
t
o
charge t o their account i s not necessarily followed b y the
fact t h a t t h e accounts m a y b e good- I
have t h o u g h t t h a t
the plan that was suggested some time ago---— I think i t was
at B o s t o n - - - t h a t a
privilege
o f this nature b e granted
with restrictions t o some banks t h a t d i d n o t wish t o main-
tain accounts i n New York, o r elsewhere, might b e carried
out, b u t I believe t h a t w e had best b e very careful
a m pro-
ceed s l o w l y i n t h e matter.
I think i t is easily conceivable that there would b e
complete exhaustion o f balances b y banks t h a t a r e willing
to draw against their balances, a n d w e o f course would have
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to p a y those, w h e t h e r t h e a c c o u n t s w e r e g o o d o r not, a n d d e pend u p o n t h e p e n a l t y o f d e p l e t i o n o f reserves
t o bring t h e m
to time.
I think t h a t t h e p l a n might b e put i n operation w i t h
restrictions a s t o those banks t h a t need i t a n d d o not wish
to maintain e e
r e i n New York or elsewhere, but | do not
feel favorable t o the broad plan outlined here.
Governor Aiken: G o v e r h o r Harding,
i t has been the
privilege o f the Chairman o f these conferences t o speak his
own mind o n these things, and = would like t o say, from the
point o f view o f our district, that | discusseé this matter
at considerable l e n g t h with t h e officers o f some o f our
larger b a n k s a n d w i t h s o m e o f t h e m e n w h o a r e m u c h m o r e
familiar w i t h t h e operations o f domestic exchanges t h a w I.
I never h a d mich t o d o with that e n d o f the bankIn the first place, I
is a
have g o t t h e impression t h a t there
feeling t h a t w e h a v e n o t p r o g r e s s e d v e r y f a s t i n t h e
d=velopment
o f the clearing a n d exchange operations
these banks. I
of
have f o u n d that i n our district--- a n d I
have t a k e n t h e liberty o f invading Governor Treman's d i s trict, b e c a u s e I
happen t o h a v e a
good m a n y friends a m o n g
the larger banks i n New York with whom I have talked--There i s a feeling that I have found among them that o n the
whole w e h a v e m a d e e x t r a o r d i n a r l y r a p i d progress.
W
e have
been o p e r a t i n g t h i s c h e c k c o l l e c t i o n s y s t e m n o w f o r f i v e
months,
a n d w e have b e e n operating
a SyStem that h a s b e e n f i f t y years
entrenched b e h i n d a l l o f t h e f o r c e s
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Federal Reserve Bank of St. Louis
i t i n competition w i t h
i n building,
a n d that i s
o f self i n t e r e s t
o f these
176
panks, a n d I feel, myself,
am I
have found t h e feeling
very general among t h e bankers, t h a t w e have n o t only made
great progress, b u t have mace amazing progress, a n d o n extremely sound l i r s . I
have n o t talked with a single banker
who has n o t felt that w e have made n o missteps, t h a t t h e d e velopment
o f the check collection s y s t e m h a s b e e n conserva-
tive a n d sound a n d that i t has inspired a
of confidence
i n the competence
growing feeling
o f t h e Federal Reserve
System t o deal with this question.
The m a t t e r o f p a r r i n g c h e c k s
all o v e r t h e c o u n t r y i s a
o n Federal R e s e r v e B a n k s
very r a d i c a l d e p a r t u r e f r o m e x -
perience i n the past, a n d i t opens up, i t seems t o me--and I know that these banks t o which I refer a r e i n accord
with me--- infinite risks.
There i s o n e t h i n g t h a t i s a
sine q u a n o n o f t h i s p l a n
that seems t o m e i s o f doubtful efficiency i n operation.
It i s prémise@d o n the advice b y the member bank t o the
Federal reserve b a n k o f the checks drawn against i t and
the immediate charge o f these items against i t s account.
As Governor McDougal pointed out, w e have got t o pay these
checks, nevermind whether the funds are there o r not, and
we h a v e g o t t o a s s u m e t h a t t h e d r a w i n g b a n k w i l l i n g o o d
faith n o t i f y u s w h e n e v e r y t h i n g
i s easy and when a
con-
servatively r u n b a n k i s s o l v e n t a n d i s o p e r a t i n g - - -
Governor Harding:
I f 1 may interrupt y o u there,
why will y o u b e obliged t o pay checks f o r which y o u have
no funds?
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Federal Reserve Bank of St. Louis
Governor Aiken:
T a k e a bank that keeps a
deposit
Ear
with u s a n d i s sending i n daily items f o r credit:
I t would
close the bank if we declined t o pay a check for ¥1,000.0e@,
hat t h e y sent t o u s just because t h e i r account w a s over-
drawn $500 or $1,000, a s a practical operating matter.
Governor Harding:
H o w would the First National Bank,
or the Shawmut National Bank, treat a case o f that sort?
Governor Ajken: I
think t h e y would p a y i t without
question.
Governor Harding:
C o u l d y o u not impose this penalty
for d e f i c i e n t r e s e r v e s ?
Governor Aiken:
T h a t would b e effective i n normal
times, Governor harding.
Governor :
Seay: I
would l i k e t o ask right there i f
you d o not have t o pay checks now?
Governor Aiken:
Yes.
Governor Yeay:
S o in that respect there would be no
difference?
Governor Aiken:
E x c e p t t h i s would a c t a s a great
stimulus: : in t h e d r a w i n g o f s u c h checks, a n d t h e q u e s t i o n
would b e brought u p very much oftener and have t o bs
passed u p o n .
Governor Seay:
w i t h the solemn agreement, a n d the
agreement i n c o r p o r a t e d
have n o t now.
i n the instrument itself, w h i c h y o u
T h a t would b e o n e protection that y o u have
in the n e w form that y o u have n o t now.
Governor Aiken:
T h e solemnity o f t h e agreement would
not avail in times of stress, with a bank that was in real
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I
straitened c i r c u m s t a n c e s .
very convenient
t would b e a
thing f o r that bank t o forget t o advise
— —those drafts.
devseaie Seay: T h a t is, with a crooked ‘officer.
Governor Aiken:
W i t h a crooked officer. I
regret t o
say that there a r e crooked officers--—- o r with a careless
officer, a n officer who i s laboring under the strain o f
finding himself right u p against i t - i
b u t having a
him crooked,
Governor ‘eay: I
great p r e s s u r e
o n him.
hope y o u will pardon the interrupté-
tion, a n d i f 1 make t h e m t o o frequently I
call m e down.
ao: not sike- t o call
hope y o u will
T h e crooked officer does exist, b u t h e i s
a Small p e r c e n t a g e
o f t h e total.
Governor Ajken:
I t seems t o m e h e c a n draw a dozen
checks o f yl00,000 apiece a n d send t h e m broadcast o v e r t h e
country, a n d i t i s quite conceivable t h a t w e should have n o
knowledge o f those checks a t all, s o far a s o u r records a r e
concerned.
T h e time o f strain a n d stress would b e t h e
time when that would happen, a n d when t h e bank i s approaching insolvency t h e dishonest officer would b e most tempted
to d o that. I
syuper eee w i t h Mr. McDougal i n the matter
of permitting banks t o draw against certain specific banks
if they want t o create Chicago exchange o r Richmond exchange.
Let t h e m d r a w a
—
check a n d e r p r o p e r r e s t r i c t i o n s
a m d limita-
a n d i t will d o away with t h e necessity o f their
keeping a
Chicago account o r a New York account o r a Rich-
mond account.
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Federal Reserve Bank of St. Louis
Governor Harding:
Governor Aiken: I
M a y I - ask y o u a question there*
shall b e glad t o have you.
179
Governor Harding:
Y o u spoke about t h e obligation o f
the Federal Reserve B a n k t o pay the checks, e v e n i f there
was n o t q u i t e s u f f i c i e n t f u n d s ,
a m y o u referred
t o the
very a d v e r s e e f f e c t i t w o u l d h a v e o n sentiment t o w a r d t h e
issuing bank i f the payments t e r e n o t m a d e I
think that
is t r u e a s regards b a n k s a s t h e y a r e n o w r e l a t e d
another;
t o one
b u t t a k e t h e c o u n t r y b a n k t h a t h a s a n account w i t h
a correspondent f r o m the city, a n d h e i s supposed t o have
established a
for a
sort o f a
line o f credit t h a e , a n d a
large a m o u n t s o m e s i n . I
check
c a n s e e h o w t h e city. b a n k
would h e s i t a t e v e r y m u c h t o d e c l i n e
t o p a y that because
might b e a few hundred dollars short-
it
I t would b e a direct
reflection u p o n the credit o f the country bank.
O f course,
I a m not referring t o chronic casés, D u t a n occasional case.
I grant you that i f the City bank did turn down the large
check o f a country bank that h a d hitherto b e e n i n good standing, j u s t f o r the l a c k o f a few hundred dollars balance, i t
would have a
very adverse effect u p o n the credit o f the
country bank;
b u t i s i t possible t h a t this system should
be established for the Federal reserve banks t o approach the
matter f r o m a
umerstand,
just a
little d i f f e r e n t a n g l e ,
t o have a l l t h e banks
a n d t h r o u g h them, t h e public, t h a t t h i s i s
purely mechanical operation? T h e Federal reserve
through
bank does n o t extend credit 1
overcrafts,
deficient reserves o r through
b u t i t extends c r e d i t
i n certain well defined
ways which are laid down b y the l a w and d e f i n e d b y the regulations o f t h e Federal Reserve Board, a n d n o cther*s H a v ing t h e m u n d e r s t a n d t h a t , t h e n y o u w i p e o u t a
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Federal Reserve Bank of St. Louis
good v e a l o f
180
odium that would attach t o the refusal o f a country bank's
I t would mean then, i f a Federal reserve bank
check.
turned d o w n a country bank's check, n o t necessarily that
its c r e d i t w a s b a d , b u t s i m p l y t h r o u g h s o m e c a r e l e s s n e s s
or
some mishap, d e l a y i n the mails, o r something o f that sort,
the r e m i t t a n c e d i d n o t g e t i n .
Just put this right o n a United StatesTreasury basis.
It i s astonishing, t h e re:pect people will have f o r anything attached t o the Government.
T h e y would n o t expect
the United States “reasury t o do things that they would
expect
a n o r d i n a r y b a n k t o do;
a n d I
methods a r e s u c h that i f a member bank
a m told t h e treasury
a d o p t e d them
they would b e liable t o b e ruined.
Governor Aiken:
Governor Seay: I
T h e y could not do business.
would like t o ask right there, i f
the Federal Reserve B a n k granted a n immediate availability
to a n y d e p o s i t i n g b a n k i t w o u l d n o t b e p a y m e n t
check?
o f the
I t would have t h e depositing b a n k back o f i t and
it would also have t h e bank that d r e w the check back o f it.
How about t h e parring o f N e w York checks o v e r the country
now?
T h e y are received substantially a t par; t h e y have
the c r e d i t
o f t h e d r a w i n g b a n k b e h i n d then;
t h e y have t h e
credit o f t h e d e p o s i t i n g b a n k ; a n d w e k n o w p o s i t i v e l y t h a t
they are drawn against funds i n the mail.
w h e r e a s , with
these b a n k s w e w o u l d h a v e t h e d i r e c t s t a t e m e n t
o f the draw-
ing bank that i t was n o t drawn against funds i n the mail,
but a v a i l a b l e .
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Federal Reserve Bank of St. Louis
Governor Aiken:
I t would b e all right t o draw against
181
specific banks, b u t t h e opportunity t o float multitudinous
checks,
t h e opportunity
o f the unscrupulous b a n k s
multitudinous c h e c k s w i t h o u t a n y advice,
t o float
i s v e r y m u c h great-
er.
Governor Harding:
Y o u r objection i s against
having t h e s e c h e c k s p a y a b l e i n d e t e r m i n a t e l y
Governor Aiken:
Governor Harding:
payable
a t m a n y places?
Y e s , sir.
W o u l d y o u object i f i t was made
a t some particular place?
Governor Aiken:
Mr. Delano:
B e s i d e s t h e bank o n which drawn?
Governor Aiken:
Mr. Delano:
N o t a t -all.
N o t a t all t h e same objection.
I f i t were payable through the Federal
reserve banks?
Governor Aiken:
Worcester d r e w a
I f the Worcester National B a n k o f
check o n t h e F e d e r a l R e s e r v e B a n k , p a y -
able a t the Federal Reserve B a n k o f Chicago, u n d e r regulations established b y u s f o r safeguarding it, I
should think
that i t might b e quite practicable a n d workable, a n d might
be o f great advantage.
Governor Harding: I
would like t o ask Governor Seay
f i t would b e practicable u n d e r t h e p l a n which h e h a s
outlined, i n order t o get the first step started.--- I can
see i t i s quite a
revoluntionary p l a n --- t o modify i t s o
as t o p r o v i d e f o r t h e s p e c i f i c p a y m e n t
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Federal Reserve Bank of St. Louis
of a
check a t s o m e
182
particular Federal reserve bank, a n d incorporate i n the plan
some means o f making t h e Federal reserve b a n k i n which t h e
drawing b a n k i s l o c a t e d r e s p o n s i b l e
another d i s t r i c t ,
t o the paying bank i n
a n d t o h o l d t h e m harmless?
Governor Seay:
T h a t had passed through m y mind, Gover-
nor, m a k i n g t h e r e S p o n s i b i h i t y u p o n t h e F e d e r a l r e s e r v e
bank upon which i t i s drawn. I
doubt t h e right o f the
Federal reserve b a n k t o assume t h e absolute responsibility
to another Federal reserve b a n k f o r a draft o f one o f its
member b a n k s »
I
t w o u l d b e , o f course, e n t i r e l y f e a s i b l e
to confine t h e p a y m e n t
o f these checks
t o t h e b a n k o n which
they were drawn a n d t o some other stipulated Federal reserve
bank.
T h a t would b e entirely feasible; b u t t o m y mind that
might n o t b e necessary except i n cases o f checks above a
certain amount.
Governor Harding:
B u t under your p l a n t h e drawing
bank would always have t h e guarantee o f the banks f o r whom
they m a d e p a y m e n t s - ~ -
Governor Seay: C e r t a i n l y ;
ways.
o f the depositing bank, al-~-
I t would simply give immediate credit t o the bank
for t h e use o f it; b u t that bank, o f course, would underStand,
a s i t understands n o w , w h e n i t t a k e s t h e c h e c k o f
another bank i t is not paid until i t arrives a t the counter
of the bank o n which i t i s drawn.
But t o address m y s e l f p a r t i c u l a r l y
qualification,
t o which h e was prepared
t o Governor Aiken's
t o agree, t h a t i t
be stipulated o n the check that i t would b e payable a t one
particular Federal reserve bank, t h a t o f course c a n b e readily
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Federal Reserve Bank of St. Louis
183
I t would, however, limit t h e usefulness o f the ex-
done+
change.
I noticed one term that Governor Aiken used--~- "under
proper restrictions and limitations."
T h o s e are the
o f exchange.
terms w h i c h c u r t a i l t h e u s e f u l n e s s
{ a d o not
pelieve it would be necessary to adopt them, but I understand,
of course, t h a t when a n y modification i s proposed, s o m e ccmpromise will have t o b e effected w i t h those w h o think differently. I
d o n o t t h i n k differently; I
feasible a s i t i s presented,
duce a
and 1
think t h e p l a n i s
a n d Ll think t h a t i t w i l l p r o -
better f o r m o f exchange t h a n a n y w e h a v e y e t had,
d o n o t t h i n k i t w i l l e n t a i l a n y a d d i t i o n a l responsibil-—
ity u p o n a n y o t h e r F e d e r a l r e s e r v e b a n k o r u p o n a n y b a n k
which receives o n e o f those checks.
Governor Aiken: I
admit that that might ultimately
be true; b u t t h e m o s t i m p o r t a n t t h i n g t h a t w e h a v e g o t t o
cultivate f o r the development o f this system i s the com-
plete confidence o f the banks.
T h a t i s fundamental, i t
seems t o m e , f o r t h e s u c c e s s f u l d e v e l o p m e n t
o f t h e plan. I
have talked with, 1 think, a dozen large banks i n eistsh a a
in New York amd s o m e o f our larger country banks, o f about
ten o r fifteen million dollars o f resources, a n d without
exception t h e y took exception t o the plan o f making these
checks available a t par anywhere,
a n d Iam perfectly sure
that t h e y would feel that that w a s a radical s t e p a n d a
hazardous s t e p , a n d a
step t h a t w a s n o t justified
past banking experience: I
b y any
think t h e y would a l l welcome
developed, |
as a great banking convenience,
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Federal Reserve Bank of St. Louis
i f i t might b e safely t h e
184
development o f such a practice, b u t I am sure that every one
of them would feel a t the present t i m e that, f o r the first
time, the Federal Reserve Banks had taken a step i n the
check collection operation--- I
a m not talking n o w about
making i t payable t o anéther Federal reserve ban:-~- that
they did n o t believe w a s based o n their banking experience
and w a s sound.
Governor Harding:
I f Governor Seay's p l a n were adopted,
would t h e burden o f labor a n d risk fall equally o r anywhere
near equally u p o n t h e banks o f the different districts,
or
would i t b e b o r n e b y t w o o r three b a n k s , m o r e e s p e c i a l l y
than b y others,
a n d operate particularly
t o the advantage
of two o r three districts a s against t h e others?
Governor Aiken: I
think i t would b e borne almost en-
tirely b y New York.
Mr. Delano: I
a m not a t all sure o f that- I
think
you are jumping a t a conclusion there.
T h e r e are just
as m a n y b i l l s p a i d i n o t h e r places.
e are drawing
W
on
New York now because N e w York i s the only exchange that i s
good.
Governor Aiken: I
think there would b e a very heavy
amount.
Mr- Delano: I
a m paying N e w Y o r k exchange because
they will n o t take a Washington i t e m i n Chicago a m +
cannot
afford t o keep a n account i n Washington a n d N e w York a n d
Chicago, all three.
Governor Aiken: I
think there would b e a heavy volume
of Chicago exchange, too, b u t ! doubt v e r y much that there
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Federal Reserve Bank of St. Louis
would b e m u c h o r a n y B o s t o n e x c h a n g e - - -
Governor Seay:
I f you will permit me:
Y o u s a y that
the member banks t o which y o u have talked said i t would b e
a hazardous experiment.
U p o n whom will t h e hazard b e
placed?
Governor Ajken:
U p o n t h e whole banking organization
of the country, because y o u make possible t h e establishment o f
an absolutely irresponsible method o f drawing checks, a n d
put this i n the control o f possibly dishonest banking officers a l l o v e r ‘ h e country.
Governor Seay?
I s there n o t a n absolutely indiscrim-
inate method o f drawing checks now, individually, a n d a s
b
a
n ,k owithout
os t
a n y control o r without a n y agreement?
Is i t not t h e consistent practice o f all banks t o give
credit o n these things, a n d s v e n send t h e m i n the most
circuitous w a y p o s s i b l e f o r c o l l e c t i o n ?
Governor Harding:
I s it a fact that very few of the
large c i t y banks have requests f r o m correspondents t o
notify t h e m w h e n t h e y d r a w a
Governor Aiken: I
check o n them?
can only speak from our o w n exper-
ience; b u t i n every bank that I have b e e n connected w i t h
we have always advised.
W e had i n the Worcester National
Bank some very large manufacturing accounts, a n d checks
for ¥100,000 were often drawn, and we had an arrangement
by which t h e y were made payable, w h i c h arrangement w a s o n l y
possible b y a n agreement w i t h o u r bank t o advise d a i l y t h e
drafts drawn.
the morning,
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Federal Reserve Bank of St. Louis
M
. J . Whithall advised u s i n advance,
in
o f the checks t h e y were going t o draw, payable
in New York, a n d i f they were exceptionally large--Governor Harding: I
have b e e n o u t o f t h e banking busi-
ness t w o a n d a halfyears, now.
Governor Aiken:
Governor Harding:
in Philadelphia,
S o have I , sir.
B u t w e h a d three i n Boston, f u u r
a n d s o on, a n d o f a l l t h o s e c o r r e s p o n d e n t s
upon whom w e drew frequent drafts, e v e r y day, there w a s o n l y
one c o r r e s p o n d e n t t h a t e v e r a s k e d u s t o s e n d a
drafts. I
tice now.
list o f t h e
was just wondering whether i t was a
banking prac-
D o you know, Governor Fancher?
Governor Fancher: I
think that that practice prevails
on the part o f the New York banks: I
think i t i s more
general i n New York than i t i s i n the other cities a t the
present t i m e . I
think a
number
o f the banks require t h a t
drafts o v e r a certain amount b e advised daily.
Governor Harding:
H o w about Philadelphia?
Governor Rhoads: G o v e r n o r “arding, w e drew millions
of dollars
o n o u r N e w Y o r k correspondents.
of them, a n d w e never advised a
W
e had siz
single draft i n akl m y ex-
perience.
Governor Harding:
millions a
W e used t o draw as much as ten
month, a n d I never h a d t o notify them.
Governor Seay: W h a t is the chief purpose o f the New
York banks i n asking advice o f those drafts?
i s “14-06t
test whether o r not t h e member banks a r e drawing against
balances, a n d taking advantage o f the float?
D i d i t not
become the practice occasionally o f the New York banks t o
charge those drafts t o the member bank upon t h e date a s o f
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Federal Reserve Bank of St. Louis
187
which t h e y were drawn?
T h a t i s done i n many cases:
Governor Fancher: I
t h i n k t h a t w a s attempted, G o v e r -
nor Seay, b y some of the New York banks, and when the drawing b a n k g o t wise,
o f course t h e y d i d n o t permit i t . I
do not know what the New York banks had i n mind. T h a t may
have b e e n o n e o f t h e purposcs.
Governor McDougal: I
the m a i n p u r p o s e w a s a s a
drafts.
think, Governor Marding, that
safeguard
i n the matter
o f paying
D r a f t s a s they came i n were n o t paid until t h e y
were c o m p a r e d w i t h t h o s e advices.
Governor Aiken:
W h e n 1 was t h e assistant cashier o f
the C i t y B a n k i n Boston,
i n t h e d a r k ages, y e a r s a g o , i
used t o h a v e m a t t e r s
o f this sort under
mediate s u p e r v i s i o n ,
a n d t h a t w a s t h e o n l y purpose
m y m o r e o r less im-—
w e had
in having those drafts advised, a n d I plead n o t guilty t o
ever charging those things u p against the bank's acount the
day w e got t h e advice.
Governor Wold, y o u were about t o comment o n the plan?
Governor Wold:
M r . Delano raised thequestion about
what b a n k s w o u l d b e p u t t o a h a r d s h i p .
I
n the past year
I have been i n favor o f effecting some arrangement whereby
the bank might be able to draw upon the Federal reserve
bank t o which i t owed allegience a n d have the draft acceptable b y other Federal reserve banks. I
am not prepared t o
go aS far a s Governor Seay has gone. I
think we should
take o n e step a t a time. P r o b a b l y i t would o p e n u p facili-
ties t o the smaller banks that, owing to the Federal Reserve
Act, after November,
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Federal Reserve Bank of St. Louis
a t least, w i l l n o t b e able t o maintain
188
eastern accounts. I
can s e e where i t would p u t t h e N i n t h
District b a n k i n a n e m b a r r a s s i n g p o s i t i o n i f G o v e r n o r S e a y ' s
Suggestion were adopted.
I t would enable t h e larger banks
of the Twin Cities a n d Duluth t o transfer their funds a t o u r
expense entirely.
W e might not have the gold, but w e
might have silver, a n d i t would involve t h e shipment o f
funds, which i s done for the benefit o f those Twin City
Banks, a n d be done a t the expense o f all the banks.
Governor Aiken:
T h e r e i s a very large volume o f one
and t w o dollar bills used i n connection with the cotton
movement.
Y o u would accumulate a
very large volume o f
small silver certificates against which N e w York exchange
would b e created b y the banks i n the larger points--Governor Wold:
W e would b e the redemption agency f o r
all the unfit small silver certificates shipped i n t o t h e
Northwest.
Governor Van Zandt‘ W o u l d not that be overcome i f
we Should adopt this settlement f u n d a n d branch settlement
fund?
Governor Seay:
in part,
a t least,
T h a t situation was intended t o be met
by a
proposal f u r t h e r
o n i n t h e plan,
that each Federal reserve b a n k should establish this lawful
money settlement fund i n the manner described+ I
think
New York approached i t almost a t the same time, a n d I had
that p l a n incorporated i n this one, o r a similar suggestion,
showing that t h e subject h a d arisen f r o m the point o f view
of a very large bank a n d the point o f view o f a smaller
bank. I
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Federal Reserve Bank of St. Louis
would think i t would b e entirely feasible t o estab-
189
lish this lawful money settlement f u n d i n the manner described, a n d s o far from rendering i t necessary t o ship
funds, i t would g o the other way:
I t would prevent t h e
shipment t o and f r o from the centers o f the country.
Z z
will n o t s a y i t would prevent theshipments f r o m the interior b a n k s
t o whom y o u send i t o r your banks s e n d i t for
crop moving purposes, b u t i t would obviate t h e necessity
of the Minneapolis bank having t o send i t back t o New York
this Season a n d next season having t o bring t h e same money
back a n d send i t out into t h e interior.
Governor Wold:
I t would make i t necessary for us t o
do i t for them?
Governor Seay: I
do not think it would be necessary
for y o u t o d o i t f o r them, b u t I think i t would b e newessary for this lawful money settlement f u n d t o b e established
in order t o prevent y o u from having t o d o it, a s i t appears
to me.
Governor Aiken:
W e would like a n expression o f opin-
ion from every Governor here o n this matter, w h i c h i s o f
vital importance.
W e would like to have the collective
opinion o f the Governors i n the matter.
Governor Fancher:
M r . Chairman,
w e have been o n e o f
the banks that have been i n favor o f some way o f giving
the small member banks i n our district t h e facility o f making their drafts against their balances w i t h o u r bank avail-
able.
W e are finding a growing demand o n the part o f the
smaller banks;
w e are having t h e matter brought t o our
attention quite frequently b y our banks.
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Federal Reserve Bank of St. Louis
190
At t h e outset, I
think t h e p l a n proposed b y Governor
Seay is pretty broad, and + do not think 1 would favor
starting i n i n quite s o broad a
manner: I
do not think
that t h e d e m a n d a t t h e p r e s e n t t i m e exists. I
d o think that
some p l a n m i g h t b e w o r k e d o u t w h e r e b y t h e m e m b e r b a n k d r a w i n g
its exchange should b e a little m o r e particular a s t o where
the payne nt i s t o b e made,instead o f drawing indiscriminately, a s the banks do, knowing that i t will b e accepted t h e
think this facility a t the outset should
country over. I
be confined t o the small banks, t h e so-called country banks,
the 1 2 per cent banks, a n d that w e should give i t a tryout o n those lire s , watching t h e development, a n d then
possibly b y the experience which w e get, w e c a n work o u t a
plan s o b r o a d a n d s o c o m p l e t e t h a t w e c a n t h e n m a k e i t
general o n the part o f all o u r member banks: I
think a t
the outset t o give this privilege t o all o u r member banks
in our district, I
can see where o u r larger banks i n
Cleveland a n d Pittsburgh a n d Cincinnati w o u l d have a
large
volume o f exchange.
M a y I
Governor Harding:
ask Governor Fancher a
ques-
tion?
Governor Aiken:
Y e s , Governor.
Governor Harding:
any p o s t o f f i c e ,
P o s t office orders a r e payable
at
a r e t h e y not?
think s o -
Governor Fancher:
Y e s sir; i
Governor Harding:
. _Formerly t h e y used t o b e payable
only a t a specified post office, b u t that w a s changed some
years ago- P o s t office orders are limited, I think, t o
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Federal Reserve Bank of St. Louis
LOO?
Governor Fancher:
Y e s sir.
Governor Harding:
W o u l d i t be a feasible modification
of Governor Seay's plan t o have all checks drawn b y a member
bank o n the Federal reserve b a n k under a
certain amount,
say ™500, o r if that is too large, make i t $200 or some
specified amount a n d let i t b e paid a t a n y Federal reserve
bank, indiscriminately, u n d e r t h e terms suggested b y Gover-
nor “eay- W h e n a man comes i n to buy a big check, h e can
pe asked where h e wants t h a t payable, a n d i t c a n b e payable
at s o m e p a r t i c u l a r b a n k , a n d i n t h a t w a y y o u w o u l d o n l y h a v e
the s m a l l c h e c k s h a n d l e d
i n a n indiscriminate way, a n d t h e
larger c h e c k s w o u l d b e p a y a b l e
Governor Aiken: I
ing matter,
a t s o m e s p e c i f i e d bank.
think that i s a practical operat-
a n d y o u are quite right- I
think w e c a n h a n d l e
those small checks perfectly practically i n that way.
Governor Harding:
T h e principle o f it, I think, i s
this, t h a t w e are confronted n o w with a situation
where i t i s q u i t e p r o b a b l e t h a t a f t e r t h e f i r s t o f M a r c h
there will b e n o reserves anywhere except,possibly,in t h e
vaults o f the Federal reserve b a n k o f the district i n
which a bank i s located.
T h a t being t h e case, i t would
mean that there would b e a great m a n y banks t h a t would Say,
"Tt i s going t o be a very serious hardship o n us t o carry
accounts f o r e x c h a n g e purposes:
W
e want
t o concentrate;
we want t o have some place where w e c a n handle o u r exchange
business." I
think that the banks will also rebel under
this c l e a r i n g p r o p o s i t i o n w h e r e t h e c h e c k o f a n y S t a t e b a n k
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Federal Reserve Bank of St. Louis
192
or t h e c h e c k o f a n y c u s t o m e r
basis
a s a
of a
bank i s t a k e n o n t h e s a m e
check f r o m their member b a n k
reserve bank. I
o n its o w n Federal
think t h a t i s t h e p r i n c i p l e a n d t h e p r a c -
tical outlook ofthe situation.
Governor S e a y : I
think t h e w h o l e q u e s t i o n h i n g e s
upon the one basic principle a s t o whether the Feceral
reserve s y s t e m , u n d e r t h i s p l a n , w i l l a s s u m e a n y o f t h e
float, a n d i f s o , w h a t p r o p o r t i o n
o f t h e float-
T h a t is
the o n l y p r i n c i p l e t h a t c a n b e violated.
Governor Harding: I
can see some objections, b u t i t
might n o t interfere w i t h t h e plan a t all i f this b e confined
to one particular district.
Governor Seay:
plan.
T h a t h a s b e e n incorporated
i n the
I t i s difficult t o discuss t h i s plan, eighteen
pages, without reading everything t h a t i s i n it, a n d i t i s
rather t o o much t o undertake t o d o i t a t the table a n d discuss it, because w e would absorb t o o much time.
is b u t fair,
B u t it
i n c o n s i d e r i n g t h e plan, t h a t i t s h o u l d b e c o n -
sidered a s a whole. I
will maintain that a s a principle,
that i s t h e o n l y b a s i c p r i n c i p l e t h a t c a n b e v i o l a t e d
can b e invaded.
T h e check i s a
credit instrument,
or
a n d who-
ever takes i t takes i t with full knowledge a n d advances t h e
funds against i t during the process o f collection.
whole q u e s t i o n i s w h e t h e r
T h e
o r n o t t h e Federal reserve S y s t e m
by t h i s p l a n w o u l d b e b u r d e n e d w i t h a n y a p p r e c i a b l e a m o u n t
of float, a n d ,
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Federal Reserve Bank of St. Louis
i f so, h o w i s i t t o b e protected.
Governor Miller: I
would like t o ask y o u i f you thi n k
193
the N e w Y o r k b a n k s w o u l d r e c e i v e c h e c k s f r o m t h e i r c o r r e s -
ponéénts drawn o n the Kansas City Bank or the Dallas Bank
‘or the Minneapolis bank, a n d ,ive immediate credit t o their
correspondents f o r such items, although t h e Federal Reserve
Bank of New York will receive such checks for immediate
availability--Governor Seay:
D o e s i t not receive millions and mil-
lions o f checks e v e r y d a y f r o m d e p o s i t o r s
o n the s a m e
principle?
Governor Miller: I
Governor Seay:
do not think so.
D o e s i t not give credit t o any of its
depositors f o r what they p u t there?
(Informal discussion followed.)
Governor Aiken: I
will a s k Governor Treman t o tell
us New York's position and what his feeling i s about this
matter.
Vice Governor Treman:
an expert o n exchange,
M r - Chairman, I do not pose a s
a s y o u know- I
a m a fit-in, tempor-
arily. P e r s o n a l l y I feel that i n the change which w e will
have w h e n a l l t h e reserves a r e placed i n the Federal reserve
banks,
i t i s incumbent u p o n t h e Federal reserve system t o
have just a s free a n d full exchange a s possible a n d some
kind o f a system t o take t h e place,
i n s o far a s possible,
ofthe system now prevailing in New York and also in Chicago,
but largely New York. I
recognize that as a necessity, a s
it s e e m s t o me, i f y o u a r e t o m a k e y o u r F e d e r a l r e s e r v e
collection s y s t e m a
success.
However,
i t has seemed t o m e
that y o u should n o t jump from one system into another a t one
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Federal Reserve Bank of St. Louis
194
leap.
w e have a l l realized h o w the opinions differ o f the
very best experts o f the country a s t o what would take
place i n regard t o the “uropean War, a n d what w a s going t o
happen;
a n d some o f the wisest m e n have b e e n j u s t a s f a r
off i n their views a s could possibly be, i n the light o f the
events that have actually taken place.
It would s e e m t o m e that t o open u p t h e question o f
exchange a t par b y any Federal reserve b a n k o r a n y draft
drawn upon some other Federal Reserve Bank, w o u l d b e a rather
dangerous p r o p o s i t i o n
instance, I
t o i n a u g u r a t e a l l a t o n e time-
F o r
can conceive t h a t i n many places drafts will b e
drawn, f o r instance,
i n the Chicago district o n a New York
bank a n d sent t o a place t h a t might b e o n the border line,
or, i f sent t o some corporation, t h a t draft, instead o f
coming t o New York, might g o t o Cleveland o r it might g o to
Chicago.
I s the Cleveland b a n k o r the Chicago b a n k t o
pay that draft a t par?
I f so, what advice have t h e y re-
ceived f r o m the Dallas B a n k o r the S a n r a n c i s c o B a n k that
they should make that payment?
It seems t o m e that y o u open u p the question o f taking responsibility o n the part o f the Federal Reserve b a n k
of guaranteeing that draft for a certain period, a m I do
believe t h a t a large proportion o f those checks will g e t
into other districts rather t h a n t h e o n e o n which t h e y might
be drawn,
some p o i n t
o r b e expected t o g o originally b y being sent t o
i n a district w h e r e ,
i n t h e float, t h e y m i g h t
go t o some other district.
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Federal Reserve Bank of St. Louis
Mre H e n d r i c k s
i s here a s o u r representative
i n the
195
transit department, a n d h e has charge o f a n y questions o f
that kind that s o m e up, a n d I
answer.
a m sure h e would b e ready t o
B u t m y plea i s that i f you inaugurate this, d o i t
onthe basis of making the draft credited at par in the dis trict i n which i t is drawn, but nowhere else. B e c a u s e i f
you do, i t seems t o me, a s I see it, that w e shall have t o
buy a certain amount o f float i n the outcome, which i s a
burden that you ought not to impose upon New York.
Governor Aiken: I
would like t o ask Mp-+ 4endricks to
tell u s what h e thinks about it.
H e i s the advisor i n tran-
sit matters.
Mr- Hendricks:
A s + see this situation,
i t does n o t
make much, i f any, difference a s t o the small drafts:
The
risk i s apparently nil, a n d i t does n o t make much difference a b o u t t h a t arrangement.
I
t i s o n l y t h e l a r g e amounts.
It seems t o m e i t would b e very difficult t o handle this
situation satisfactorily and leave the door open for miscellaneous drafts.
I l realize t h a t t h e situation,
a s i t stands
now, is that the balances are built u p in New York, when
they really belong i n other districts:
B u t that i s a con-
Gition and not a theory, and + realize that the other districts n a t u r a l l y w a n t t o g e t t h e s e b a l a n c e s b a c k i n t o t h e i r
district.
T h a t i s perfectly proper, too.
I do not believe that this scheme will work o u t just
that way.
I
t seems t o m e that t h e entire p r o b l e m will
be solved i f w e put a limit u p o n these miscellaneous drafts
which nobody cares anything about a n d that d o not amount t o
anything.
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Federal Reserve Bank of St. Louis
I t i s when y o u get into t h e large amounted that
196
it makes a
difference.
I
f y o u had a system o f telegraphic
transfers between Federal reserve banks i t would take care
of all large amounts, a n d n o bank, t o m y mind, i n the Min-
neapolis district, cares t o draw a draft for $100,000 o r
$50,000 o r $25,000 a n d send i t t o N e w York a n d have N e w
York t a k e i t f o r i m m e d i a t e c r e d i t a t p a r a n d s e n d i t t o M i n -
neapolis.
W h e n a bank i n the Minneapolis d i s trict wants
to transfer $25,000 t o New York, i t naturally wants t o transfer i t a t once, a n d i f the Federal Reserve B a n k i n Minneapolis made that transfer b y wire, t h e whole problem would
be solved, a n d there would b e n o float, a n d the bank would
have this money available i n NewYork where i t needed it,
and N e w York would transfer i t a t once b y wire, a n d there
would b e n o delay a n d n o need o f these miscellaneous drafts.
The @kole trouble has come because o f the fact that inmany
of the banks t h e y make a charge f o r telegraphic transfers
under t h e action o f the Conference o f Governors. T h a t seems
to m e the w a y out,,.
a
n arrangement o f that kind.
There
i8 n o advantage whatsoever i n drawing drafts o f a n y considerable amount.
T h e only reason for doing that would b e t o
avoid the telegraphic charge.
B u t i f the draft was going
to b a charged t o the member bank's account and it dia not
réach its destination for two o r three days, that bank would
lose t h e u s e o f the money.
O n the telegraphic advice t h e
banks would have the use o f the money a t once i n New York
and there would b e n o delay, o f course.
for c o m m e r c i a l p u r p o s e s 1
ference about. I
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Federal Reserve Bank of St. Louis
T h e s e small drafts
d o n o t t h i n k i t makes m u c h d i f -
d o not believe w e c a n work o u t a
system
197
that would b e sure t o protect u s i I
agree with Governor
Aiken that the majority of those drafts would be paid i n
New York, a t least 5 0 o r 6 0 per cent o f them, anyway, b e cause there i s the center, a n d there people w a n t t o transfer
money, naturally.
I s i t not agreat deal better t o transfer
by wire, w h i c h c o s t s t h e F e d e r a l r e s e r v e b a n k nothing,
with
the exception o f those that happen t o b e situated where
there i s n o Sub-treasury?
T h e transfer b a c k a m f o r t h
might b e o f s u c h a m o u h t t h a t i t w o u l d n o t c o s t a n y b o d y a n y -
thing:
N
o bank has a desire t o send i t s check o u t when
it c a n get t h e money transferred b y wire; a n d i f w e are
going t o charge the checks t o the menber bank's account
before i t reaches its destination, they will not draw them;
that: dee t d s
Governor Wold: C a n Minneapolis afford to take misceéllaneous C u r r e n c y a n d c h e c k s a n d t r a n s f e r t h a t m o n e y t o
New York b y telegraph without any compensation, when we have
to cover i t into t h e gold fund?
Mr- Hendricks:
M r . wold, m y feeling i s that the
Federal reserve b a n k should b e the reservoir f o r its dis-
trict.
T h e r e i s a great deal o f shipping o f money back
and f o r t h n o w , w h i c h i s e n t i r e l y u n n e c e s s a r y ,
ion.
i n m y opin-
I t starts one season, goes t o New York, a n d i n a lit-
tle w h i l e
i t g o e s b a c k again.
T h e s e banks
d o not d o
that shipping o f currency for their health, a n d i t seems
to m e that i f t h e Federal reserve b a n k took t h e position i n
its own district that it could take,., and as 1 believe the
law contemplates, that of a reservoir for that district, w e
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Federal Reserve Bank of St. Louis
198
would n o t have s o much difficulty.
as y o u know, a
T h e situation i s now,
charge imposed b y the Central a n d Western
banks f o r N e w York exchange,
o r for transfers, a n d frequently
it i s c h e a p e r t o s h i p t h e m o n e y t h a n t o p a y t h e charge.
Consequently, t h a t money a l l comes t o New York, a n d that
builds u p the balances i n these clearing house certificates,
and l a t e r
i n t h é s e a s o n i t i s a l l t a k e n out.
W
e have only
got $50,000,000 left o f the required reserves, a n d that i s
the result o f a non-transfer o f funds. A
bank i n any city,
Chicago o r Minneapolis o r St+ Louis, that wants its money i n
New York and needs it, i s going t o transfer that without
reference t o price,
o r anything else, a n d when i t has g o t
money in New York and wants i t in Shicago o r Minneapolis,
it i s g o i n g t o t r a n s f e r
i t b a c k there, w i t h o u t r e f e r e n c e
to
price.
Governor Wold: I
amof t h e opinion that y o u will find i f
this situation is gradually put into use that New York woulda
not receive a s large a
now receives.
proportion o f these checks a s i t
T h e reason w h y they get s o many n o w i s be-
_cause New York exchange i s taken all over, a n d they draw
New York drafts.
T h e r e i s a certain amount o f items that
reach Cleveland, New York, Philadelphia, Boston, Atlanta,
and they will never reach there under this method.
Governor Seay: I
a m very much obliged t o Mr- Hendricks
because h e i s arguing m y case-
O n e o f the essential
features o f this plan i s that these different Federal reserve banks shall become t h e reservoirs o f special currency
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Federal Reserve Bank of St. Louis
199
for a special purpose, a n d t h e transfer i s recommended w i t h
great u r g e n c y ,
a n d also t h e abolishment
charge, w h i c h w e n o w have, w h i c h ,
umer
o f t h e teleyraphic
o u r present system,
is unjust, w h e n i t was p u t there t o b e a protection.
‘not a
protection;
i t is a
burden.
I t is
T h e principal argument
of Mr. Hendricks i s the argument that I have endeavored t o
make h e r e .
Governor Aiken: I
d o not quite agree-
I l agree e n -
tirely with the cesirability o f ultimately having some lawful money settlement fund, b u t i t does n o t follow that I
agree w i t h your suggestion---
Governor Seay: I
Governor Aiken.
said Mr. Hendricks; I
did not say
G o v e r n o r “ o l d ' s i n g u i r y was, c o u l d h e a f -
ford t o allow his member banks t o deposit t h i s currency i n
New York, a n d I understood Mr. Hendricks t o say that h e did
not t h i n k t h a t w a s a
burden;
h e thought t h e purpose
o f the
Federal reserve banks was t o become a reservoir for their
own districts.
fers.
T h e other was our present system o f trans-
T h e charge f o r i t i s placing a n embargo u p o n the
transfer.
B u t there i s also a further consideration which
his argument did not meet, ani that is one put forward b y |
the Federal Advisory Council t o the effect t h a t a
bank i s
entitled t o the ordinary a n d legitimate t i m e o f the float
of i t s c h e c k s u p o n N e w York, a n d unless w e c o u l d d e v i s e a
system which would practically enable Chicago banks t o put
their checks o n New York in the Chicago Reserve Bank and draw
their c h e c k s a g a i n s t t h o s e ,
i f t h e y h a d t o receive d e f e r -
red credit f o r those checks t h e y would b e cheated o u t o f the
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Federal Reserve Bank of St. Louis
time o f their float a t the present time.
That was part o f the argument, a n d this brief intended
to meet that a n d intended t o give t h e banks t h e legitimate
time o f t h e float.
I t seems t o m e there should b e n o rea-
gon why a bank i n a Federal reserve c i t y should n o t b e given
the advantage o f mailing time which i s accorded t o a bank
outside o f the city.
Mr. Delano: I
there.
was going to interpose a question
G o v e r n o r Seay's p l a n interests
m e v e r y much, b u t I
wanted t o ask i f i t i s not a fact that a l l o f the big banks
in the country, the banks that d o large drawing, will still
find i t t o their advantage t o keep N e w York accounts,
gnd Chicago accounts s o a s t o get t h e advantage o f that
time o f float.
ter,
A s Mr- Forgan explained i t t o me i n a let-
h e said, “If we have a customer who has payments t o
make i n San Francisco, w e would rather give h i m a draft o n
New York than one o n San Francisco, even i f we had a San
Francisco account, because w e know that that draft will b e
afloat
a t l e a s t t w o weeks,
a m
w e will g e t t h e interest
on
that money all the time."
It seems t o m e that all o f the v e r y b i g banks, banks
of o v e r a
million capital, d o i n g a
l o t o f business
o f this
kind f o r their customers, w i l l still continue toavail themselves o f their o l d methods, because there i s money i n i t for
them.
W e are trying t o invent Something that will help t h e
little chaps w h o cannot afford t o keep these accounts i n New
York.
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Federal Reserve Bank of St. Louis
Governor McCord: I
think some plan a s outlined b y
201
Governor S e a y w o u l d b e a d v i s a b l e f o r s m a l l c h e c k s f o r i n t e r -
ior banks t h a t have t o p a y all their reserves i n and cannot
afford t o keep t w o balances.
B u t there i s danger o f
advices n o t reaching you, o r people would fail t o notify
you, o r there would b e something o f that kind.
Governor ~
Seay:
Governor McCord:
A n d t h e y would p a y for it.
T h e way t o penalize them, I think,
would b e t o charge t h e m a penalty f r o m the time t h e endorsement S t a m p o f t h e F e d e r a l R e s e r v e B a n k w h e r e
i t was cashed
was p u t o n .
Governor Wold:
Governor McCord:
A n d t h e date o f the draft.
A n d the date o f thedraft-»- B e f o r e
the c l e a r i n g s w e n t i n t o t h e p r e s e n t s y s t e m ,
i n July, L O L S ,
we had a small member bank i n “outh Georgia who continued
drawing o n us a n d sending i t t o New York, o r giving i t t o
a state bank, a n d they claimed t h e y h a d n o responsibility
for its going t o New York. I
days! i n t e r e s t
began t o charge them two
a t two per cent p e r annum a n d I
That w a s t h e penalty.
stopped t h a t .
Y o u have g o t t o penalize t h e m i n
some way, because t h e y use t h e float.
As to Mr- Forgan's remarks, i f that plan were carried
out there would b e n o advantage, because h e would have t o
notify t h e reserve bank, a n d i t would b e charged t o their
account i m m e d i a t e l y ,
Mr. Delano:
a n d t h a t w o u l d s e t t l e t h a t question.
I f they preferred t o d o business i n the
present w a y i t would n o t settle it.
Governor McCord:
business
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Federal Reserve Bank of St. Louis
N o ; n o t i f t h e y preferred
i n the present way.
t o do
202
A n d t h e y will,
Mr- Delano:
Y o u c a n a r r a n g e t h e s e plans,
Governor McCord:
Long a s a
i f their business
but as
i n a n eastern
bank c a n drawn o n its correspondent
center a n d g e t t h e i n t e r e s t
i s large.
o n t h e i r balances,
t h e y will n o b
o f a l l t h e p l a n s y o u m a y a r r a n g e f o r them.
avail t h e m s e l v e s
Mr- Delano: E x a c t l y .
B u t i s n o t t h e purpose
Governor Wold:
t o provide P a c i l -
ities f o r the bank that cannot maintain balances?
Governor Seay: C e r t a i n l y .
“ a c h bank will take care o f itself
Governor Wold:
and get t h e benefit o f their float i f desired?
Governor Seay: T h e r e was a little step further--Governor W o l d : I
a m not prepared
t o take that little
step w i t h you.
Governor Seay:
far a s y o u think.
J u s t a moments P e r h a p s i t is not a s
I t was a step f o r the benefit o f the
banks t h a t c o u l d n o t , u n d e r t h i s p l a n , c c o n o m i t a l l y k e e p a n
account
i n t h e east now; a n d a l s o i t was a
step t h a t w a s d e -
vised t o enable t h e other bank that probably w a s able t o
do i t but d i d n o t want it- T h e r e i s nothing i n the world
that w o u l d p r e v e n t a
enable
Chicago
bank f r o m s o u S i n g i t s f u n d s a s t o
i t t o make t h e m o s t money;
o r elsewhere
keep « x c h a n g e
in
i n the c o u n t r y f i n d i t profitable
a t a n y point
to
i n the e a s t a n d receive interest
on t h e b a l a n c e a n d t a k e a d v a n t a g e
of the checks,
a n d i f t h e banks
o f the time o f t h e float
o f course t h e y will d o it, a n d there i s
nothing i n thisto either c o a x t h e m o r prevent them.
is merely t o provide a
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Federal Reserve Bank of St. Louis
facility f o r t h e banks t h a t cannot
do i t and that want t o d o it--I f I a m prepared t o carry o u t your
Governor Wold:
suggestions, !
h o w w o u l d i t operave
i n t h e T w i n cities?
We would furnish t h e m with all their exchange a n d t h e y would
sell i t a n d they would g e t t h e benefit o f the float.
They would bring i n their miscellaneous stuff a n d make a
telegraphic transfer without a n y charge, t o New York, and
the; would g e t t h e benefit o f the float a n d t h e profit o n
it and w e have t o d o the Shipping a n d covering i n the gold
fund.
Mr.» Delano:
D o your Minneapolis banks charge your
drafts o n New York?
Governor Wold:
O h , yes:
Governor McDougal:
I s i t not true that i n addition
to t h a t y o u r b a n k s w o u l d b e e n a b l e d
t o transfer
b y wire
large amounts a n d immediately make t h e interest o n them?
Governor Wold: I
say, they have the benefit o f the
interest a n d the float.
Governor McDougal:
A n d i t seems perfectly fair under
these circumstances that your bank and the Chicago banks,
if they s e e f i t t o d o so, make a charge f o r a telegraphic
transfer.
I t i s worth something t o the banks.
W h a t has
resulted?
I t Chicago i t has resulted i n making telegraphic
transfers t o New York at ten cents per thousand, whereas
heretofore i t has cost t h e m 2 5 cents.
T h e Chicago banks
are m u c h pleased; t h e y realize that i t i s a benefit,
a m I
think i f y o u were t o depart f r o m that charge o r waive i t
we would b e a t the mercy o f the banks without a n y question.
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Federal Reserve Bank of St. Louis
204
all.
Governor Wold:
T h e r e i s n o question about that a t
W e would be-
T h e y would n o t hesitate t o use it,
either.
Vice Governor Treman: G o v e r n o r Harding,
that t h e r e a r e a
great
i t strikes m e
m a n y points t h a t a r e y e t theories
as t o the courseexchange h a s t o g o after t h e transfer o f
reserves.
I t seems t o m e that this i s a very important
question, and, speaking f o r N e w York, knowing t h a t Governor Strong a n d all t h e officers i n our bank feel that i t i s
not a
sound b a n k i n g p r o p o s i t i o n
Federal reserve banks a t par, I
t o accept d r a f t s
o n all
would suggest t h a t w e have
a committee a p p o i n t e d f r o m t h e G o v e r n o r s
t o confer w i t h a
committee f r o m the Federal Reserve Board t o work o u t some
plan that will b e another s t e p forward » u t which will n o t
caich t h e whole scheme a s outlined b y Governor S e a y a t the
present time.
T h e n t h e question o f the limitation o f the
small c h e c k o r draft,
out. I
a n d points
o f that kind,
c a n b e worked
think w e all want t h e same thing a n d want t o provide
for t h e s m a l l b a n k i n s o m e w a y t o f a c i l i t a t e t h e t r a n s f e r
of f u n d s f r o m o n e p l a c e t o t h e o t h e r i n t h e c h e a p e s t w a y a n d
at t h e s m a l l e s t expense.
Governor Harding:
Y o u r idea would b e a committee
appointed that would meet with the Board's committee and
work the matter o u t until w e get something definite?
ViceGovernor Treman: T h a t is right; a n d the New York
Bank wants t o d o its full share i n carrying o u t t h e scheme.
Representing New York, I do not fear any question about
our having more funds there t h a n w e ought t o have, a n d that
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Federal Reserve Bank of St. Louis
205
the other various centers there a r e going t o a v a i l themselves
o f s e c u r i n g l a r g e r a m o u n t s u n d e r t h i s system.
Things o u g h t t o gravitate w h e r e
i n the natural channel
of
trade t h e y will go, a n d there ought n o t t o b e any obstructions i n the w a y o f them.
W
e are willing t o take o u r
medicine i f i t is going against New York.
O n the other
hand, w e d o not want t o justify a situation that i s unsound
and that will precipitate a
crisis, greater o r less, b y
putting i n t o e f f e c t s u d d e n l y s o m e r e v o l u t i o n
i n the movements
that have b e e n going o n for a long time a n d that have developed gradually.
I f you have a
committee o f that kind that
can work out additional steps that seem advisable t o then,
we will abide b y it.
Governor Aiken:
G o v e r n o r Harding,
a s Simply a
repre-
sentative o f one o f the banks 1 agree with Mr. Treman- I
am very anxious t o see progress, a n d I recognize t h e fact
that w e have g o t t o make progress i n this matter.
There
seems t o be a great variety of opinion, from Mr. Seay's
point o f view down t o perhaps mine, a s the ultra conservative; t h e r e i s a happy medium somewhere a t which w e c a n
arrive, a n d with a body a s large a s this i t i s almost i m possible t o work o u t suddenly o r within a reasonable t i m e a
working arrangement.
I would l i k e t o ask y o u a n d Mr. Delano h o w y o u feel
about t h e a p p o i n t m e n t
o f such a
committee
i f the Conference
sees f i t t o authorize it.
Governor Harding:
W e think very well of the idea. I
have just spoken t o Mr. Delano about it, a n d w e would suggest---
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Federal Reserve Bank of St. Louis
206
not a s seeking t o influence y o u a s t o the personnel o f the
committee, b u t o f course y o u realize t h e advantage o f propinguity, a n d I think t h e suggestion could b e made that
would carry o u t the idea o f accessibility t o Washington a n d
would b e fairly representative o f the diverse views that
have been =xpressed today, a n d i f a committee o f , say,
three, composed o f the representatives o f the Federal weserve
Bank i n Richmond, Cleveland a n d N e w York, were wppointed,
would not that b e a very good composite o f the Governors’
views a n d a t t h e @
same t i m e b e f a i r l y a c c e s s i b l e ?
Governor Aiken: .
to m a k e a
I wonder i f i t w o u l d n o t b e p o s s i b l e
larger c o m m i t t e e ?
Governor Harding:
Governor Aiken:
M a k e i t larger, then-—— five.
Y e s ; ! would like t o make a committee
of five.
Vice Governor Treman: I
had i n mind five, because i t
seems t o m e that your point i s well taken that w e could
have a
committee t h a t w o u l d b e r e p r e s e n t a t i v e
o f the twelve
banks, a n d five m e n would make more headway t h a n twelve,
and 1 believe they would arrive a t some plan that would be
quite a
long step forward.
Governor Harding:
H a v e most o f them within striking
distance o f washington.
Governor ‘iken:
D i d I understand y o u t o make that a s
a motion, Governor Treman?
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Federal Reserve Bank of St. Louis
Vice Governor Treman:
Yes°
(The motion was duly seconded.)
Governor McCord:
M a y I amend that b y asking that t h e
Chair b e made o n e o f the committee?
Governor V a n Zandt: I
Governor Aiken:
second that.
R e a l l y , Governor McCord, I
much obliged t o you, b u t I
a m very
a m not a t all a n expert o n these
matters.
You h a v e h e a r d t h e motion.
I
s there a n y further d i s -
cussion.
(There was n o further discussion and the motion
was d u l y carried.)
Governor Aiken:
T h e Chair will appoint a
committee
consisting o f Mp. Treman, Mr. Seay, Mr- Fancher, Mr* Rhoads
and Mr. McDougal. G o v e r n o r Harding, I have taken into
consideration the desirability o f having the services o f
Mr. M c K a y a n d Mr- Hendricks o n call i n this matter.
They
are both experts o n this.
I did not suppose w e would get through No- 6-(h) a s
rapidly a s that.
6-(h)-(2) Checks drawn on member banks
located outside Federal reserve
cities.
Let us take up Topic 6-(h)-(2), Shecks drawn o n member banks located outside Federal reserve cities.
Governor McDougal?
Governor McDougal: I
placed that on the program at
this time, M r - Chairman, s i m p l y f o r t h e reason that w e have
had i n the past a good deal o f correspondence a n d some personal interviews
i n regard t o the matter o f placing Milwaukee
checkS o n a par with Chicago checks.
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Federal Reserve Bank of St. Louis
208
Governor Aiken:
M a y w e not consolidate No*° 2 and No.
5, Governor Miller?
Governor Miller:
Yes:
Governor McDougal:
inquiring
I t was purely f o r t h e purpose o f
o f those b a n k s , p o s s i b l y
i n Cleveland,
a s t o how
they were getting along with Cincinnati a n d Pittsburghy
Governor Fancher:
question, I
G o v e r n o r McDougal, answering y o u r
would s a y a s a
general p r o p o s i t i o n t h a t i t i s
working out very satisfactorily t o us-
T h e banks i n Pitts-
purgh a n d Vincinnati a r e maintaining their surplus reserves
adequate t o make t h e items drawn o n them immediately available.
I
t has only b e e n necessary
t o penalize t w o o f t h e
larger banks f o r failing t o keep t h e reserves; a n d that was
‘not b e c a u s e t h e y d i d n o t h a v e t h e f u n d s
up, b u t w a s S i m p l y c a r e l e s s n e s s
t o keep their balances
o n the part o f the a
of the t w o banks. G e n e r a l l y speaking t h e banks a r e keepirg
ample s u r p l u s r e s e r v e s ,
a n d t h e whole situation i s working
oub very Satisfactcrily i n our district.
Governor McDougal:
there w a s a
I n that connection, Mr. Fancher,
conference a t our bank the other d a y a t which
a Bittsburgh bank - asked a Chicago bank t o make a deposit
in our’ bank for their credit w i t h you.
T h e deposit came
‘in two hours after t h e bank h a d closed, a n d w e were n o t
able t o take it, n o t i n a position t o take it, a n d w e were
reprimanded b y the Pittsburgh bank for not giving proper
attention t o business. I
assumed that there must have b e e n
a discrepancy between balances t h a t day.
B e y o n d that I
had understood t h a t t h e same situation h a d prevailed else-
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Federal Reserve Bank of St. Louis
209
where,
i n Philadelphia, f o r instance.
L e thet d s true,
that t h e accounts a r e different because o f the fact that y o u
give credit a n d the deposit i s not made i n Chicago o r Philadelphia i n time, i t creates rather a bad condition.
(Informal discussion followed.)
Governor Aiken:
G o v e r n o r Miller, y o u are o n the pro-
gram for those two topics.
Governor Miller:
W w e have h a d a
great d e a l o f c o r -
respondence w i t h banks located i n the general reserve cities
of our district, outside o f Kansas City, u r g i n g that some
facilities b e given them whereby their checks would b e
available without having t o keep excess balances.
Governor Aiken:
D o y o u want t o make a
motion t o cor-
rect t h a t practice?
Governor Harding: I
will have t o ask you t o excuse
me a t 12:45.
I want t o s a y i n behalf o f the Board that y o u are more
than welcome t o use this r o o m during t h e time y o u are
here.
O
f course,
i f y o u desire
t o use your other r o o m
petween times, t h a t i s a l l right; b u t a n y t i m e y o u w a n t
to use this r o o m w e will suitour o w n convenience t o yours.
You c a n send u p for a n y one o f u s that y o u want t o see o n
w e d o not want t o presume t o inter-
any of these matters.
ferey o f course, with your own freedom o f action, but we d o
desire
t o extend
t o y o u i n the m o s t hospitable a n d courteous
way theuse o f this room.
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Federal Reserve Bank of St. Louis
Governor Aiken:
T h a n k you very much, Governor Harding.
Governor Harding:
w h e n the agents were here they con-
rain)
8
sidered t h e question o f uniform credit statements, a n d they
did not come t o a n y definite decision.
T h e y did n o t know
exactly what t o d o with it, a n d i t was suggested t h a t t h e
D i d
matter b e turned over t o the Conference o f Governors.
you get that? I
do not know whether y o u have i t o r not.
Governor Aiken:
Governor Harding:
N o sir.
I f y o u would b e interested i n that
I would like Secretary Willis t o send d o w n t o you the forms
they were considering:
it w a s d e s i r a b l e
T h e y made a report that they thought
t o r e a c h s o m e d e g r e e o f uniformity,
that
some o f the statements might b e a little more complex t h a n
some o f the banks might care t o use, b u t there i s n o objection t o using t h e more complex form.
That was t h e substance, I
believe,
o f the report- I
will have that report sent t o you.
There i s another matter.
Y o u know t h e Board h a s a s -
sumed voluntarily t h e custody o f a great volume o f funds
of these Federal reserve banks i n the gold settlement fund.
You are going t o consider t h e advisability o f having a
daily clearance, w h i c h will probably b e necessary, a n d w e
will b e very glad i f you would appoint a
committee o f two
or three f r o m your body t o g o over with Mr- Allen a n d Mr.
Gibney, w h o have charge o f the settling business, a n d e x amine t h e system w e have here a n d make a personal inspection o f the w a y funds a r e kept i n the Treasury vaults,
so
that y o u c a n have a committee o f this b o d y report back t o
make
you just what tie conditions are, a n d any suggestions o r
recommendations that you desire t o make for bettering those
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Federal Reserve Bank of St. Louis
conditions.
If y o u desire t o appoint s u c h a committee y o u c a n notify
Mr. Gibney o r Mr- Allen a n d y o u c a n proceed t o make t h e inspection while y o u are here.
Gove rnor Aiken:
w e are v e r y much obliged t o you for
your courtesy i n allowing u s t o use this room, a n d w e would
be glad t o a a v a i l ourselves o f i t from time t o time.
W e
are Staying a t the Shoreham, except t w o o r three w h o will
not change their habits, a n d i t i s a little b i t more canvenient i n the ordinary routine t o meet there; y e t accessibility t o members o f the Board i s very appealing, a n d w e
are v e r y m u c h o b l i g e d f o r t h e t i m e y o u h a v e g i v e n us.
I would like t o ask y o u i f y o u would like t o have u s
reconvens w h e n w e finish o u r program a n d report t o y o u what
we have done?
Governor Harding:
Y e s ; I
think t h e Board would appre-
ciate t h a t i f y o u w o u l d d o i t , w h e n y o u g e t r e a d y t o wind
up your affairs.
Governor Aiken:
M a y w e continue t o occupy this r o o m
and finish our morning's work?
Governor Harding:
Y e s , certainly.
I wish y o u would think about t h e appointment o f a committee t o look a t t h e settlement fund-
Governor Aiken:
S u c h a committee will b e appointed,
Governor Harding:
(Governor Harding then withdrew from the conference
room. )
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Federal Reserve Bank of St. Louis
Governor Aiken: D i s c u s s i n g further (2) and (3) under
ele
(h) o f Topic No* 6 , has anyone any further suggestion t o
make o r criticism t o offer? G o v e r n o r Rhoads?
Governor Rhoads: I
d o n o t know whether Governor Mil-
ler has finished?
Governor Miller:
Governor Aiken:
on the m
Y e s ; I
have finished.
M r . McDougal, would y o u like action
tter?
Governor McDougal:
Governor Aiken:
N O BIrs 2
D
Governor Aiken;
Hts
o you move that those items b e pas-
sed o r removed f r o m the program,
Governor McDougal:
tir
a s t o No* (2)?
Yes.
G o v e r n o r Miller, w i l l y o u make t h a t
motion a s t o No* 3 , that i t b e removed f r o m the program?
Governor Miller:
Y e s sir.
(The motion was duly seconded and carried.)
Governor Aiken:
M r » Delano, w i l l y o u suggest any-
thing o f particular interest under question 6
that y o u would
like t o have discussed?
Mr. Delano:
H a v e y o u disposed o f (2) a n d (3) under
(h)?
Governor Aiken:
Y e s Sir; b o t h were summarily removed
from the program, and, I
infer f r o m that, l e f t t o the dis-
cretion o f e a c h F e d e r a l r e s e r v e bank.
Mr. Delano:
to Say. I
N o , I
have n o t anything i n parcicular
would b e very glad t o remain i n your conference
while y o u a r e d i s c u s s i n g c l e a r i n g s ,
s i m p l y f o r t h e informa-
tion I would g e t f r o m it.
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Federal Reserve Bank of St. Louis
Governor Aiken:
W e would b e very sorry i f y o u did not,
213
and w e would b e very glad t o have y o u take part i n it.
I think w e c a n clean u p some o f these v e r y rapidly.
Governor Fancher:
M a y I inquire whether t h e report
of the transit men's conference might n o t have some bearing o n our future discussions here?
Governor Aiken:
Yes.
M r - Hendricks, h a v e y o u the
report o f the transit men's conference?
Mr- Hendricks:
has a
copy. I
Y e s :
w a c h of the Governors present
will r u n o v e r t h i s a n d g i v e t h e a c t i o n o n
the r e s o l u t i o n s t h a t w e r e a c t u a l l y adopted.
T h e first v o t e
was i n regard t o the issuing o f par lists, a n d i t was voted
that w e recommend publication b y the Federal Reserve Board
of a complete p a r list a s o f January 1 , 1917, a n d that
monthly s u p p l e m e n t s
b e p u b l i s h e d f o r t h e e n s u i n g s i x months;
the idea being that a t the e n d o f the next s i x months t h e
hope w o u l d b e t h a t t h e r e w o u l d b e n o n e c e s s i t y o f a
par
list.
Governor Aiken: I
was going t o suggest t h a t w e take
up this report i t e m b y item a s Mr- Hendricks reports, a n d
decide whether t o concur i n the action o f the transit manag-
ers and t o make additional recommendations i n t h e matter
to the Federal Reserve Board a s m a y seem necessary.
Have y o u anything more t o say o n topic (1)?
Mr-+ Hendricks:
N o .
T h a t was t h e reason f o r that
date b e i n g p u t i n there, w i t h t h e i d e a t h a t w i t h i n s i x
months w e would b e i n a position t o take everything, a n d
then i t w o u l d n o t b e n e c e s s a r y
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Federal Reserve Bank of St. Louis
Governor McCord:
t o p u b l i s h a n y p a r list.
M r - Chairman, the irregulatity
214
of the monthly reports a n d monthly statements might come
in there,
a n d would i t not b e better
t o have a
fixed d a t e
on w h i c h t h e y w o u l d b e issued?
Mr. Hendricks:
T h e monthly statement fixes t h e date--
Governor McCord:
I
t might m e a n a n y time i n the
month.
Mr- Hendricks:
I t i s usually published a s near the
first o f the month a s they c a n get i t out.
Governor Aiken:
T h a t would b e covered i n a resolu-
tion a d o p t i n g t h i s a n d r e c o m m e n d i n g
serve B o a r d ,
i f you make s u c h a
Governor McCord: I
i t t o t h e Federal R e -
motion.
move that w e request t h e Board
for a regular date o f issue.
Governor Aiken:
G o v e r n o r McCord moves that w e concur
in the action o f the transit managers a s outlined i n their
vote,
i n topic 1 , a n d supplement
i t b y the request t h a t
thése lists b e published a s near the first d a y o f the month
aS i s practicable.
(The motion was duly seconded.)
Mr- Delano: I
We have g o t t o have a
would l i k e t o s a y a
word a b o u t that.
little better cooperation, I
think,
from the banks, i f w e are going t o d o that successfully.
On the first o f December only two o f the banks had made
any changes i n their p a r lits, a n d i t seemed s o few changes
that i t w a s p u t t i n g a
good deal
o f expense
o n the system
to r e p r i n t t h a t e n t i r e s u p p l e m e n t j u s t f o r t h o s e s l i g h t
changes.
B u t w e asked t h e different banks w h a t t h e y
thought, a n d t w o o f the banks wanted t h e whole supplement
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Federal Reserve Bank of St. Louis
2G
reprinted,
print a
s o we reprinted it.
I
f w e are going t o re-
supplement F e b r u a r y l s t , M a r c h 1St, a n d e a c h o f
those months succeeding, I
think i t i s desirable t h a t y o u
should have some effective w a y o f getting t h e changes that
you w a n t h e r e b y t h e 2 0 t h o r 25th,
o r s o m e t h i n g l i k e that;
perhaps t h e 23rd would b e about a s late a s precticable.
Our idea i s not t o have more t h a n t h e original p a r list,
and o n e S u p p l e m e n t o u g h t t o c o v e r everything.
W
e d o not
want t o o m a n y supplements.
Governor McDougal: I
would move,
i f i t i s i n order,
then, t h a t i n order t o facilitate t h e carrying o u t o f this
plan e a c h b a n k b e i n s t r u c t e d
t o have i t s changes
i n Washing-
ton b y t h e 2 3 r d o f e a c h month.
Governor Aiken:
Y o u offer t h a t a s a n amendment
to
Governor McCord!s motion?
Governor McDougal: Y e s Governor McCord: I
will accept i t as such.
(The motion was duly carried.)
Mr. Hendricks: " T o p i c (b) under No. 1, extension of
par facilities-—- Clearing house rules governing exchange
charges."
T h e vote was that w e recommend the adoption
by a l l o f t h e F e d e r a l r e s e r v e b a n k s o f t h e p o l i c y t h a t h a s
been successful i n the Boston District, w h i c h policy necesSarily involves t h e persuading o f the Clearing House asso~
ciations i n the respective Federal reserve districts, t o
place o n their discretionary lists a l l banks checks o n which
can b e collected through t h e Federal reserve system-
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Federal Reserve Bank of St. Louis
Governor Aiken:
D o e s t h e conference w i s h t o concur
in that vote?
Governor McDougal: I
sistent, M r - Chairman,
think i t would b e rather incon-
t o undertake t o take this s t e p until
we c o u l d p r o m i s e t h e b a n k s
i n o u r c w n districts t h a t w e
were a b o u t t o remove o u r o w n C h a r g e - - -
Governor Aiken:
W h a t d o you mean b y “own charge"?
Governor McDougal:
O u r service charge o f 1-1/2 cents.
We are hoping sometime t o b e able to.
(Informal discussion followed.)
Mr- Hendricks: I
York.
might explain the situation i n New
O u r member banks have a l l foregone their exchange,
and still agreat m a n y checks a r e subject t o exchange b y
the N e w York clearing house conditions,
tinual complaints o n that score.
W
a n d we
h e a r con-
e have t h e matter un-
der discussion with t h e Clearing House Committee, a n d w e
hope t o correct that situation, because without s o m e relief
from that situation w e are handicapped i n getting t h e thing
in operation.
Governor Aiken: I
do not wish t o interpolate anything
in here because o f the reference t o the Boston district i n
this resolution,
b u t f r o m o u r experience I
a m very well
sabisfied that t h e best w a y t o get results i n this matter
is through t h e clearing house.
I f you c a n get t h e Chicago
Clearing House and the New York Clearing House amd the Richmond Clearing House lined u p o n this basis, t h e development
of this thing would b e very, v e r y rapid.
Governor McDougal: I
think that i s true, and I am
sure t h e Chicago Clearing House h a s n o t shown a n y preference
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Federal Reserve Bank of St. Louis
ley:
to t h o s e c h e c k s t h a t w e c a n h a n d l e t h r o u g h o u r s y s t e m a s
against those checks which we cannot handle.
be, o f course, a
T h a t would
long step i n the system.
Am I right i n thinking that N e w York i s i n somewhat
the S a m e p o s i t i o n ?
Mr- Hendricks:
house h a v e .
N e w York admits that the Clearing
done a n unwise a n d i r r e g u l a r t h i n g i n p u t t i n g
the banks--Governor McDougal:
W i l l y o u please t e l l u s w h o y o u
mean w h e n y o u r e f e r t o NewYork?
Mr. Hendricks:
T r e clearing house.
Governor McDougal:
Mre Hendricks:
T h e n y o u are o n the right road.
T h e y admit i t was n o t a real fair ar-
rangement.
Governor Aiken: I
would l i k e t o s a y t h a t I
have t a l k e d
to some o f m y friends i n New York, and I think a good many
of t h e b a n k s
i n New York a r e seriously considering whether
it i s g o i n g t o b e i n t h e b e s t i n t e r e s t s
to modify those rules.
o f the whole s y s t e m
O f course, the New York Clearing
house i s Slow.
Mr. Hendricks: I
took itup with t h e Chairman o f the
Clearing House Committee, a n d they h a d a conference there
with three members, a n d I think that two o f the members were
rather i n favor o f it- T h e third member 1 think was opposed
to it, o f the ground that i f they opened i t u p t o all t h e
two d a y points,
t h e n there were s o m e o f the outside points
that wanted t o come in, a n d i t would o p e n the door t o receiving a l l kinds o f checks i n New York-
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Federal Reserve Bank of St. Louis
21.8
Governor Wold:
O u r transit manager called m y atvien-
tion t o this resolution a n d t o the fact that h e had i n mind
that t h e Federal reserve banks should d o approximately f o r
their member banks what the Boston Federal reserve bank was
doing f o r i t s member banks,
a m t h e n w e could g o t o the
Clearing House Association a n d a s k for clearing o f all t h e
checks o f each district.
W h e n they recommended t h e Boston
syStem i t meant that w e Should begin t o clear some checks
in addition t o those w e n o p have.
Mr. Hendricks:
not t h i n k s o .
items
ually.
H e m a y have h a d that i n mind, b u t I
do
T h e Boston district d i d n o t p u t a l l tke
o n t h e p a r l i s t a t first.
T h e y d r o v e t h e m i n grad-
I f we should o p e n u p and put all these banks i m -
mediately o n the p a r list, I
the business.
do not think w e could handle
T h a t i s t h e o n l y trouble.
(Informal discussion followed.)
Governor McDougal: I
would like t o ask y o u a question
aS t o whether o r not i f you h a d a n even start with u s y o u
could accomplish what y o u are accomplishing.
Governor Aiken: I
d o not think w e have accomplished
as m u c h a s y o u think.
Governor McDougal:
I s i t not true that this was de-
veloped before y o u took hold o f it?
Governor Aiken:
Y e s ; w e inherited s e v e n years o f
work.
Governor McDougal:
W
e believe
i n your s y s t e m a n d w e
believe i t ought t o b e worked out, b u t a t the same time i t
seems t o m e that w e c a n hardly consistently a s k our Chicago
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Federal Reserve Bank of St. Louis
ee!
banks t o take f r o m their depositors checks without a
I
and b r i n g t h e m o v e r t o us.
cnarge
f y o u h a d t o contend w i t h
that y o u w o u l d b e i n a s b a d s h a p e a s W e are.
d o not s e e w h y y o u could n o t g o
Governor Aiken: I
to the Clearing House i n Chicago and ask them t o see whether
they c o u l d n o t f i n d s o m e b a s i s f o r operation.
Governor McDougal:
T h e r e i s n o reason w h y | could
not d o that-
(Informal discussion followed.)
Governor %eay: I
would like t o report that the clear-
ing house o f one o f our large cities, Baltimore, h a s abolished o b l i g a t o r y e x c h a n g e c h a r g e s a l t o g e t h e r .
Governor Wold:
A l l exchange charges?
Governor Seay:
N o y obligatory exchange charges.
Governor Aiken:
o e s this conference wish t o take
any action?
Governor McCord: I
wish t o s a y that I
had t h e pleasure
of having i n 4tlanta Mr- Delano and Governor “garding, and
when they were there w e arranged a meeting o f the Atlanta
Clearing House Association t o talk with Mr. Delano and Mr.
Harding about this subject.
T h e Atlanta Clearing House
Association seemed a t that time very willing a n d ready t o
go into it, b u t after they began t o think a little more
about i t t h e y g o t f a r t h e r f r o m it. I
ience w i t h them:
have h a d t h i s e x p e r -
T h e y adopted a n overhead charge o f three
cents anitem o n all items t h a t could b e handled through
the F e v e r a l r e s e r v e b a n k s ,
those i t e m s .
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Federal Reserve Bank of St. Louis
a n d they were n o t sending
u s all
T h e y h a d c o r r e s p o n d e n t s o u t i n t h e country,
220
I
and sent them there.
n addition t o that, t h e o n l y request
I made was f o r a differential between a n item that could b e
collected
a t par a n d one that could n o t be-
I
n view o f
the fact that w e have o n l y 389 members i n the Atlanta district a n d 1700 non-member banks i n the district, y o u c a n
readily s e e what contention w e would have, a n d the Atlanta
clearing house association declined t o meet u s a n d g o into
this proposition, fearing that other cities located around,
Savannah, M a c o n a n d Chattanooga, a n d Birmingham,
w o u l d still
pursue t h e o l d c o u r s e t h a t h a s b e e n p u r s u e d f o r years,
take t h e m a t a n y p r i c e t h e y s a w fit.
Therefore I
and
have
peen trying t o d o just exactly what this resolution says,
and that is the result, and I do not see much opportunity
of going a n y further with i t unless w e c a n get t o a point
where I
a m clothed w i t h authority t o collect every check
in m y district
a t par.
Governor Aiken:
D o e s the conference wish t o take
any action concurring i n this, o r , i f not, will someone
move that i t b e received a n d passed?
Governor Rhoads: I
move that w e concur i n it.
(The motion was duly seconded and carried.)
(Whereupon, a t 1:10 o'clock p. m., the Conference t o o k a
recess,
t o meet a t t h e Conference r o o m i n the
Shoreham Hotel a t 2:30 o'clock p. m.)
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Federal Reserve Bank of St. Louis
---000-~—
fot 2
ER
R E C E S S .
The Conference reassembled a t 2:30 o'clock p. m., pursuant t o the taking o f recess, i n the Conference room of
the S h o r e h a m Hotel.
The Chairman:
T h e meeting will please c o m e t o o r d e r . .
I uncerstood i t was t h e desire o f most o f the Governors t o
hear what Mr. Warburg h a s t o s a y i n regard t o the acceptance business. I
think what h e h a d i n his mind was more
particularly t o develop some policy between t h e banks that
are most actively interested i n the acceptance business a t
the present time- H o w e v e r ,
h e said h e would b e glad t o
meet w i t h t h e Conference o f Governors a t 1 0 o'clock tomorrow. U n l e s s there i s some objection, t h a t will b e made
order o f
the business tomorrow morning a t 1 0 o'clock:
Mr. Hendricks, w e were i n the midst of the consideration o f the report o f the transit managers.
is s o m e o b j e c t i o n , I
U n l e s s there
a m going t o g e t this r e p o r t cleaned
up a n d follow with t h e report o f the auditors.
T h a t
will enable b o t h Mr. Hendricks a n d the auditors w h o a r e
here t o leave tonight, i f they care t o d o so.
In the consideration o f this matter w e h a d gotten
through Topic (b), paragraph 1 .
T h e next i s subtopic
(c).
Mr- Hendricks: (Reading):
"Policy t o b e followed i n the return o f checks o n non
member b a n k s w h o s e n a m e s h a v e b e e n w i t h d r a w n f r o m t h e p a r
list b e t w e e n p u b l i c a t i o n s
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Federal Reserve Bank of St. Louis
o f supplements
b y the “ederal
Reserve Board.
"Voted:
T h a t all Federal reserve banks continue t o
receive a t p a r f r o m o t h e r F e d e r a l r e s e r v e b a n k s c h e c k s
on
non-member banks which have withdrawn f r o m the collection
system, until the publication and distribution o f the next
supplement containing changes i n the par lists."
Governor Seay: I
move U s e s o Sonn.
Governor Van Zandt: I
object t o that. W h i l e I pre-
sume i t will b e carried, because i t has u i e e a y b e e n carried, I
want t o b e o n record a s voting against it. T h e
and s o
par lists a r e : subject t o change without notice are, printed,
and 1
d o not believe t h a t w e a r e properly developing t h e
system when w e p a y t h e exchange o r stand f o r the exchange o n
any check.
Governor Wold:
A t any rate, i t saves a lot o f use-
less correspondence.
The Che irman:
I t i s a question that has been parti-
cularly interesting t o us.
your bank, f o r instance.
W e h a d a n experience w i t h
w e had a check « rawn upon one o f
your b a n k s t h a t a p p e a r e d a s a
sent i t t o y o u for collection,
because
p a r b a n k o n t h e list.
W
e
a m t h e check was returned,
i t w a s n o t o n t h e p a r list.
S u p p o s e t h e check had
been for a considerableamount and the bank had failed, during the operation o f sending i t a n d returning i t and senddng i t forward again, w h o would b e responsible?
N o w , in
perfect g o o d faith o u r member bank deposited t h a t with u s
because the bank appeared a s a par bank.
and sent i t t o you;
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Federal Reserve Bank of St. Louis
W e accepted i t
i t was returned because t h e bank h a d
223
withdrawn from the par list without notice t o us- W h a t
would y o u have done i n a case o f that kind?
W h o m would
you have assume responsibility for that?
< i would have followed therregular
Governor V a n Zandt:
W h e n w e a r e unable
commercial practice.
t o collect
a n item
we send i t back.
B u t your list o r statement recites
The Chairman:
that i t c a n b e c o l l e c t e d
Governor V a n Zandt:
b y you.
E v e r y p a r list i s subject t o
I t i s s o printed o n the bank o f
change without notice.
it.
think t h e question might arise there
The Chairman: I
as t o responsibility.
I n explanation o f the action o f the
Mr. Hendricks:
transit m e n I will s a y that that question arose a n d the
point w a s made which I think c a n b e held t o b e true, t h a t
check like that h a s practically pur-
a bank returning a
chased t h e item.
I t i s your i t e m then.
Governor V a n Zandt:
W h o i s going t o stand t h e expense
of the exchange?
Mr- Hendricks:
are twelve banks.
T h a t i s another question.
There
T h e r e might b e a half a dozen banks
withdraw f r o m each o f the twelve districts.
Y o u c a n readily
see that i t is absolutely impossible t o send notices t o
650 b a n k s t h a t w e c a n n o t r e c e i v e t h o s e i t e m s a S s o o n a s w e
get notice from you.
T h e transit m e n seem t o feol that
this i s a better and safer method-
T h e amount o f exchange
to be paid would b e a very small matter; i t would not be
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Federal Reserve Bank of St. Louis
224
much money, I
W
mean.
e would b e getting these notices
every f e w days o f some bank having been taken off t h e p a r
list.
Y
o
u c a n s e e that w e could n o t g o t o work a n d notify
the member banks every time there i s a change i n the p a r
I t i s a physical impossibility.
list.
had t o s p e n d s o m e m o n e y i n exchange,
E v e n though a bank
i t would b e a
very small
amount comparatively.
The Chairman:
T h e a m o u n t w o u l d b e v e r y small.
I t would, t h a t i s true-
Governor V a n Zandt:
Governor Seay: T h e r e i s this t o be said, Mr: Chairthink there a r e =. few banks that a r e s o cantanker-
man I
ous a s not t o b e willing t o have their names continued t o
the n e x t m o n t h l y period.
Mr. Hendricks:
O h , yes, v e r y few.
say there would b e very few.
Governor Seay: I
Governor V a n Zandt:
I f a bank wants t o have i t s
name t a k e n off t h e list w e c a n get i t t o agree t o wait until t h e next p a r list comes out.
Governor Wold:
drawal.
W e require thirty days p e i c e o f with-
W i t h u s i t i s not a questionof notifying 7 5 0 o r
650 banks i n our district.
I t involves notifying 7,500
banks.
The Chairman:
W o u l d y o u b e willing t o put u p with
this burden temporarily?
Governor V a n Zandt:
I t i s only the principle o f the
thing that I am concerned about, Mr. Chairman.
I t is not
the burden.
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Federal Reserve Bank of St. Louis
The Chairman:
I t seems t o m e w e d o not strike a
very
2e0
severe b l o w a t t h e principle.
arise very seldom.
E x t r a o r d i n a r y circumstances
W e are simply accepting the situation
and m a k i n g t h e b e s t o f it.
Governor Wold:
I t may be interesting t o the other
banks t o know o u r practice i n that regard:
exchange
t o a
W e will n o t p a y
b a n k i f , a t t h e e n d o f t h i r t y days, t h e p a r
11st 16- n o t i n .
W
e continue
t o send t h e m i f sent b y t h e
other banks, b u t w e will n o t p a y the exchange.
Vice G o v e r n o r Treman:
H a v e y o u a n y idea what t h e
average c o s t i s b y express?
Governor Wold: I
could n o t tell y o u t h e cost b y ex-
press.
The Chairman:
will proceed.
concur
I f there i s n o further discussion,
we
G o v e r n o r S e a y moves that t h e conference
i n t h e v o t e o f t h e transit managers.
(The m o t i o n h a v i n g b e e n d u l y seconded,
Mr- Hendricks:
w a s carried.}
T h e next i s Topic 2 . R e t u r n e d items.
(a) R o u t i n g o f returned items.
(b) Uniform forms for returning items.
complving
"Discussion developed the fact that i n :
action o f t h e l a s t C o n f e r e n c e
o f Governors
w i t h the
a t Boston,
re-
quiring that unpid items b e returned through t h e channels
through which the items were presented, considerable difficulty h a d b e e n e x p e r i e n c e d o n a c c o u n t
o f the failure
of
Federal reserve banks t o receive proper advice o f the return o f such items. W h e r e u p o n , t h e following resolution
Was Submitted b y Mr. Hart, o f Philadelphia:
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Federal Reserve Bank of St. Louis
"Resolved, that unpaid items should b e returned through
226
the Federal reserve banks interested, regardless o f the
channels t h r o u g h w h i c h t h e y w e r e presented;
a n d that tele-
graphic advices o f non-payment o f items o f $500 o r over, b e
addressed t o the first member bank endorser.
"The resolution was defeated, Boston, Philadelphia and
Chicago voting "aye".
The idea was this, t h a t i t was good business t o send
the i t e m direct, a n d i t was equally true that i t was good
pusiness
t o h a v e t h e i t e m c o m e b a c k direct.
of Governors
i n Boston passed a
resolution,
T h e
e n
R E
y o u will recall,
to t h e effect t h a t items should b e returned through t h e Same
channel w h i c h t h e y t o o k w h e n t h e y w e r e s e n t o u t o r i g i n a l l y .
That h a s b e e n l e f t t o s t a n d w i t h p r o p e r a d v i c e ,
b u t the
trouble i s that t h e advices have n o t been clear. I
that t h e D a l l a s p e o p l e , b e c a u s e
think
o f t h e clearing house s y s -
tem, a r e returning a l l items direct.
Governor V a n Zandt:
W
e have t a d some trouble w i t h
those w h o s a y that t h e y got t h e items f r o m the Federal r e serve b a n k a n d therefore t h e y will s e n d them back that way.
Mr- Hendricks:
O f course, t h e member bank does n o t
always recognize t h e advice.
I t m a y not b e clear enough
to show who shall receive t h e credit.
Governor V a n Zandt: I
find that certain things have
been d o n e t o banks o u t s i d e o f o u r o w n d i s t r i c t t h a t I
not a w a r e
was
o f before.
The Chairman: W o u l d you be w i l l i n g o
t take that up
with your banks a n d have t h e m route through your banks?
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Federal Reserve Bank of St. Louis
Governor
V a n Zandt:
Y o u mean the ones
t o other dis-
tricts?
The Chairman:
Y e s »
Governor Van Zandt:
The Chairman:
Yes-
T h a t covers t h e point, then.
Mr. Hendricks:
Unless,
another d i s t r i c t s e n d s d i r e c t
o f course, t h e member bank i n
t o you:
T h e n y o u route t o
that member bank.
Governor V a n Zandt:
W o u l d i t b e all t h e same i f i t
went b a c k direct through o u r member bank t o the federal
reserve b a n k o f t h e o t h e r d i s t r i c t ?
Mr+ Henaricks:
only a
W e would understand i t then.
matter o f p r o p e r l y w o r k i n g o u t t h e advices,
I t is
s o that
the i t e m i s understood.
F o r instance, t h e Bank o f Commerce
not
gets this back with a carbon slip, which is,very distinctive.
They d o not know what t o d o with the item.
over and say, “What i s this?"
circuit."
T h e y bring i t
W e say, "Oh, that i s a short
T h e n they appoint a committee t o prescribe
forms s o that the banks will have the same forms, a m they
will a l w a y s e
b recognized a s returned items.
Governor Wold: I
The S o r e n
mittee —
move that w e concur.
T h e r e is no action necessary»
T h e com-
n o t r e p o r t e d a s yet.
Governor h a e
I s not the vote t h re?
Governor McDougal: I
move that the «ction o f the tran-
sit managers i n this regard b e approved.
The Chairman: A
motion has been made a n d seconded
that t h e a c t i o n o f t h e t r a n s i t m a n a g e r s
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Federal Reserve Bank of St. Louis
(The motion was carried.)
b e approved.
228
Mr. Hendricks:
Perhaps I
had better r e a d that.
I t
reads:
"Voted:
T h a t the Chair appoint a committee o f three
to prescribe forms f o r use i n returning items between
Federal r e s e r v e b a n k s a n d f o r r e t u r n i n g i t e m s
banks
o f other districts
w i t h advices
t o member
t o the Federal reserve
banks interested.”
The Chairman:
T a k e u p the next topic, Mr-+ Hendricks.
Mr. Hendricks:
T o p i c 3. S e r v i c e charges.
(a) A b o l i s h a s between Federal reserve banks.
"Voted:
T h a t n o action should b e taken a t present
with a view t o abolishing service charges between Federal
reserve banks."
They attempted t o get action upon that a n d t o abolish
charges between Federal reserve banks, b u t N e w York was not
in a
position t o urge that, b e c a u s e
c f the fact that w e
pay m o r e t o t h e o t h e r F e d e r a l r e s e r v e b a n k s t h a n w e collect.
Mr. Bullen:
w e have paid the other banks y300 more.
Vice G o v e r n o r Treman: I
move t h a t t h e a c t i o n b e c o n -
curred i n a s t o the votes o n topic 3-(a) a n d 3-(c).
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Federal Reserve Bank of St. Louis
The Chairman:
Y o u have heard t h e motion.
(The motion, h a v i n g b e e n d u l y s e c o n d e d ,
w a s car-
ried.)
Mr- Hendricks:
T h e next i s 4. D i r e c t routing.
(a) B e t w e e n member banks i n different districts.
(b) B e t w e e n member banks i n the same district.
(c) U n i f o r m stationery.
"Voted:
T h a t this Conference recommends the adoption
229
of t h e p o l i c y o f direct r o u t i n g
i n all cases where t h e vol-
ume o f busiress warrants, a n d where t i m e c a n b e saved; p r o vided p e r m i s s i o n
o f t h e Federal Reserve B a n k s interested
be obtained.
“Also that the committee o n returned items forms
already appointed, p r e s c r i b e f o r m s
t o b e u s e d i n all direct
routing."
There i s great necessity f o r the items being sent direct a n d t h a t s o m e u n i f o r m f o r m o f l e t t e r b e used,
i n order
that i t c a n b e recognized b y the letter that i t i s a direct
routing:
T h e difficulty h a s b e e n that i n many cases a
member b a n k has attempted t o direct items when t h e amount
did n o t warrant i t -
Philadelphia.
W e had some cases o f that kind i n
S o m e member banks i n Philadelphia sent
items i n t o o u r district a n d d i r e c t
t o o u r m e m b e r banks.
The items d i d not amount t o anything, a n d i t make a good
deal o f bad feeling.
I t was unfortunate t h a t t h e y picked
out t h e w r o n g b a n k i n t h e d i s t r i c t
t o s e n d t h e m to.
T h e s e
three happened t o b e more tender t h a n a n y o f the rest.
straightened
i t o u t afterwards,
a n d i t w a s a l l right.
W e
L
G
is all right where t h e amount i s o f sufficient s i z e t o
warrant that.
W e will notify Boston that w e are going t o
do it, a n d Boston will n o t refuse it, b u t the b a n k interested should have notice o f the thing, s o that i t does n o t
get i t a s a surprise.
Newark sents items t o Buffalo a n d Buffalo certified
the i t e m s a n d sent.: t h e m back.
T h e y were s e n t f o r a
time a n d B u f f a l o r e m i t t e d d i r e c t .
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Federal Reserve Bank of St. Louis
second
T h e y said they did not
2350
want t o ge@end t h e m t h a t way. I
choice i n the matter.
told t h e m that t h e y h a d n o
T h e n they said i f there w a s n o
choice i n the hatter there w a s n o use t o talk about i t a t
all.
I t might g r o w t o great proportions i f these banks
had five o r s i x hundred items direct.
Governor Fancher: I
move t h a t w e c o n c u r
i n the vote
of the transit managers.
The Chairman:
I t is moved and seconded that we con-
cur i n t h e v o t e o f t h e t r a n s i t m a n a g e r s
o n topic 4 , (a),
(ob) and (c).
(The motion was carried.)
Mr. Hendricks:
Voted:
e6ral r e s e r v e
( d ) Method o f handling missorts-
I t i s the sense o f this meeting that n o Fedb a n k Shoulddecline
t o handle i t e m s w h i c h a r e
inadvertantly misrouted t o i t b y other Federal reserve banks,
but t h a t i n a l l c a s e s a d v i c e o f s u c h m i s r o u t i n g s h o u l d b e
sent t o the bank making the error.”
It developed along t h e Same line a s t h e handling o f
items t h a t a r e withdrawn, t h a t i t was unwise, e v e n though
checks were s e n t w o n g ,
t o return t h e item.
T h e y should
be sent forward t o destination whatever happens t o them.
Governor V a n Zandt:
F o r credit t o the bank’ from which
it was received?
Governor Seay:
T h a t i s hetween t h e federal reserve
banks o n l y ?
The Chairman:
W
e h a d a n experience w i t h o n e o f the
reserve banks that h a s a bearing u p o n that.
W e have been
doing a great deal o f missionary w o r k i n our district, i n -
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Federal Reserve Bank of St. Louis
251
teresting banks i n routing items direct t o the Federal rebank.
e
O n
v e o f these
r banks i ne ¥ onnecticut
s had been
prevailed u p o n t o d o this.
T h e y sent a list o f the banks
in which t h e y d i d n o t a b s o r b t h e r e s e r v e c i t y a n d c o u n t r y
items.
T h e b a n k s s e n t t h e m back.
i
t s e e m e d t o us,
in
view o f the somewhat delicate relations existing, a n d a s
a matter o f comity between banks, t h a t that should b e cleaned u p a n d handled i n the bank t o which i t was sent, e v e n
though there w a s a mistake o f that sort.
Is there a n y further comment?
Governor V a n Zandt: I
The Chairman:
move w e concur i n 4-(a).
I t i s moved a n d duly seconded t h a t w e
concir i n topic 4-(d).
(The motion was duly carried.)
Mr» Hendricks: T o p i c 5 is transfers.
Governor McDougal: : I
would l i k e t o suggest, M r . C h a i r -
man, t h a t w e defér t h e discussion o f Topic 5
until a l l t h e
Governors a r e present.
The Chairman:
i
f there i s n o objection w e will c o m —
ply w i t h G o v e r n o r M c D o u g a l ' s r e q u e s t a n d d e f e r d i s c u s s i o n
of topic 5 .
Y o u d o not m e a n until t h e next meeting,
Governor McDougal?
Governor McDougal: I
mean until Governor Miller i s
here. T h e r e are also others who are absent.
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Federal Reserve Bank of St. Louis
The Chairman: G o v e r n o r s Wellg and McCord are absent.
That brings u s t o (dad) and (e), o n page 6.
Mr+s H e n d r i c k s :
(d) P r i m e Exchange.
2352
(e) G o v e r n o r Seay's plan for making drafts o n Federal
reserve b a n k s i m m e d i a t e l y a v a i l a b l e
a t all ofher
Federal reserve banks.
I really d o n o t k n o w w h a t t h a t means.
T h a t i s a n ex-—
pression from San Pana usage
"Voted:
I t is the sense o f this meeting that the
principle o f making drafts o f member b:nks o n their Federal
reserve b a n k s a v a i l a b l e f o r i m m e d i a t e c r e d i t a t p a r a v a i t
other F e d e r a l r e s e r v e b a n k s
i s approved, p r o v i d e d a
sSsatis-
factory system c a n b e devised a n d the Federal Reserve “ystem
as a whole b e relieved from carrying the float."
I think i n explanation o f that vote i t i s proper t o
Say that t h e reason that vote passed unanimously w a s t h e
fact t h a t t h o s e w h o w e r e o p p o s e d t o t h e s y S t e m f e l t t h a t n o
System could b e devised that would protect t h e banks absolutely i n d o i n g t h a t s o r t o f thing.
moment,
I
t came u p a t t h e last
a n d r a t h e r t h a n h a v e a n argument,
t h e y Said, “ L e t
it g o through."
The Chairman: A
committee h a s been appointed t o
deal with that matter, Mr. Hendricks.
discussion,
U n l e s s there i s some
n o a c t i o n w i l l b e taken.
Governor “eay, d o you concur i n the action?
Governor ~ e a y : I
think t h e m a t t e r h a s b e e n d i s p o s e d
of b y being referred t o a special committee.
The Chairman:
Mr-+ Hendricks:
L e t u s take u p the next.
T O s
G - 1 2 +E n d o r s e m e n t s .
(a) Should banks o n the par list be permitted t o
charge exchange o n items bearing t h e enforsements o f banks
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Federal Reserve Bank of St. Louis
not o n t h e p a r list.
(b) A d o p t i o n o f some method whereby state banks not
on t h e p a r l i s t o f t h e F e d e r a l r e s e r v e b a n k s w i l l b e p r e -
vented f r o m receiving t h e full berefits o f the Federal r e -
serve banks' collection system.
"Voted:
endorsements
T h a t n o discrimination b e attempted against
o f non-member banks."
This question has come u p continuously since the Federal
reserve banks started.
W e have always thought (and I
think this i s concurred i n by the majority o f transit men)
that
t o attempt
t o discriminate
against
t h e endorsement
of a non-member b a n k whose items could n o t b e collected a t
par would really amount t o a discrimination against o n e o f
the member banks whose depositor this non-member bank was.
On t h e o t h e r h a n d t h e d i s c r i m i n a t i o n w o u l d b e a g a i n s t a
check drawn upon a member bank, w h i c h would object t o disW
crimination a g a i n s t i t s checks.
e have h a d this matter
up both with t h e endorsement b a n k a n d t h e b a n k upen which
the check was drawn.
T h e y s a y y o u cannot dictate f r o m
whom t h e y s h a l l r e c e i v e deposits.
T h e o t h e r b a n k says,
"T a m a member o f the Federal reserve system, and you must
handle m y checks." I
think i t is the consensus o f opin-
ion o f the transit m e n that that i s t h e situation w e are
in.
W e cannot afford, f o r t h e purpose o f discriminating
against a non member bank, t o offend two o f the member banks.
Governor Seay:
I t is a matter o f fact, however, that
some o f the paying banks nevertheless object t o receiving
jitems t h a t c o m e f r o m n o n - m e m b e r
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Federal Reserve Bank of St. Louis
s t a t e banks.
Mr. Hendricks:
T h a t i s true.
Governor Wold: I
am confident that unless some method
is devised t o enlarge o u r par list, w e will either have t o
iscriminate a g a i n s t t h e endorsement
banks, o r w e will lose a
this time-
o f non-participating
great m a n y o f our member banks a t
T h e y are n o t going t o submit t o discrimination.
They d o n o t w a n t t o b e i n t h e p o s i t i o n t h a t e v e r y t i m e
they g e t a
check u p o n a
pay the check.
neighbor d o w n t h e l i n e t h e y m u s t
i t +6 not-fairs
W e must either put all
banks u p o n t h e l i s t o r e l s e w e w i l l m e e t w i t h t h a t s i t u a -
tion.
T h e state banks that a r e n o w o n the list a n d are
not getting t h e benefit, w i l l g e t off.
Governor Seay:
The Chairman:
T h a t i s the heart o f the whole prob-
H a s anyone h e r e a n y action t o suggest
in t h e m a t t e r t h a t w o u l d b e d i f f e r e n t f r o m t h a t i n c o r p o r a t e d
in the vote o f the transit managers?
Governor Wold: T h a t leaves i t as it is.
The Chairman:
H a v e you a
Suggestion l o o k i n g t o pro-
gress, Governor Wold?
Governor Wold: I
Governor Seay:
think w e have t o handle a l l checks.
W h a t d o you think o f the post office
question?
Governor Wold: I
think w e have t o handle a l l checks.
Governor S e a y :
Governor Wold:
I n the best w a y possible?
I
n t h e b e s t w a y possible, y e s . I
be-
lieve i f w e were t o announce that, beginning February lst,
we were going t o clear a l l state banks i n our district,
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Federal Reserve Bank of St. Louis
50
per cent would come o n the run.
The Chairman:
C a n w e take that u p under another head-
ing?
Governor Wold: I
which
think there i S another topic under
w e c a n discuss i t . i
do not want
t o vote
o n this
question until i t has been more fully threshed out.
The Chairman:
D o y o u move that n o action b e taken
Governor Wold:
Yes.
The Chairman:
T h e motion that n o action b e taken now
is d u l y seconded.
(The motion was carried.)
The Chairman:
Governor Wold:
The Chairman:
Mr. Hendricks:
"Voted:
T h a t would cover both (a) and (b) under
Yes.
L e t u s take t h e next one.
( c ) I n d i r e c t routing:
T h a t the action o f the last previous transit
managers' conference w i t h reference t o restrictions
o n en-
dorsements b e reaffirmed.
“(The action referred t o at the transit managers’
conference o f May 8-11, 1916, was a s follows: )
"Voted:
circular
T h a t the following should b e included i n the
t o member banks outlining t h e p l a n f o r t h e proposed
collection system:
" ' a A Federal reserve b a n k shall n o t re-
ceive f r o m its member banks checks o n other dbttricts bear-
ing endorsements o f banks situated i n other districts.'")
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Federal Reserve Bank of St. Louis
236
We r e a l i z e d
i n passing u p o n t h a t t h a t i t would n o t b e
entirely f e a s i b l e
t o a b s o l u t e l y e n f o r c e t h e proposition,
but n o w t h a t t h e c o l l e c t i o n s y s t e m i s r u n n i n g smoothly,
the transit m e n felt t h a t a n effort should b e made t o enforce t h a t restriction.
routing o f checks.
I
I t i s t o prevent t h e indirect
f y o u take centers
s u c h a s ®5t*
Louis, Ghicago, N e w York and Philadelphia, where they have
been i n the habit o f collecting items, i t i s pretty difficult t o a t once enforce s u c h a restriction, because t h e y
have t o change t h e i r m e t h o d s a n d e i t h e r s t o p t h e m c o m i n g
there o r collect s o m e w h e r e e l s e - I
know t h a t s o m e o f the
banks have complaints about that proposition, b u t 1 think
we must bear i n mind t h e fact that i n some districts i t i s
easier t o enforce that.
I f you take t h e central reserve
cities, especially, y o u cannot, without considerable pressure a n d time, c h a n g e t h e c o u r s e o f t h e checks, b e c a u s e t h e y
have t o b e c h a n g e d f r o m t h e beginning.
Governor Seay: I
move that t h e principle b e approved
and b e e n f o r c e d w h e r e v e r practicable.
The Chairman:
nor Seay.
Y o u have heard t h e motion o f Gover-
I t i s duly seconded.
(The motion was carried.)
Mr. Hendricks:
L O O L C
1 5 Remittances
i n payment o f
items.
(>) Compensation t o member banks for collecting
items
o n non-member banks.
"The concensus o f opinion was that compensation would
tend t o tear down what h a s already b e e n built up, rather
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Federal Reserve Bank of St. Louis
than t o g a i n n e w p a r points.
"Voted:
T h a t i s i s inadvisable t o pay a member bank
a fee f o r collecting checks o n non-member banks.
"San Francisco voted no."
We have gotten a large number o f state b a n k items c o l lected through member banks.
I
f w e were t o start i n t o
pay r e c a l c i t r a n t m e m b e r b a n k s f o r h a n d l i n g u p o n s t a t e
banks
i n their immediate vicinity,
w e could not,
i n jus-
tice, refuse t o pay banks t h a t have b e e n collecting f o r
nothing.
T h e r e i s n o stopping place.
For instance,
t a k e Albany-
I
T h a t i s the trouble.
f w e are going t o pay any
bank f o r collecting non-member b a n k items, w e will have t o
pay A l b a n y f o r t h e n o n - m e m b e r b a n k s
i n Albany.
Governor Seay: W o u l d i t not result i n this, that
sooner o r later t h e Federal reserve b a n k would n o t get
these checks?
T h e y would b e sent direct t o the state
banks.
Mre Hendricks: I
ing. I
d o not t h i n k i t would have a n y bear-
d o n o t t h i n k i t w o u l d h a v e t h a t bearing,
Governor Seay:
a t least.
I f , for instance, a state bank finds
out that i t i s Sending o u t t o a member b a n k and t h e member
bank i s getting t h e fee, t h e state banks will say, “Send
this t o u s a n d w e will remit o n the same basis-"
Mr. Hendricks: I
think i
t will raise the question in
a very unfortunate way.
Governor Fancher: I
move that w e vote that No- 1 3 b e
concurred i n .
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Federal Reserve Bank of St. Louis
The Chairman:
G o v e r n o r Fancher h a s m o v e d t h a t w s vote
238
to concur i n No. 13, a n d t h e motion h a s been duly seconded.
(The motion was carried.)
The Chairman:
T a k e u p t h e n e x t item.
Mr» Hendricks:
( f ) Transportation charges o n cur-
rency Shipments f r o m member banks.
The Chairman:
W i l t i t b e satisfactory 1 f w e take
up n o w t o p i c N o ’ 5 , w h i c h w a s t h e t o p i c p a s s e d o v e r s o m e
time a g o ?
Mr. Hendricks:
P O I
0 7 Transfers.
(a) W i r e a n d mail transfers.
(b) C h a r g e s o n telegraphic transfers.
Cc)
G a n charges o n telegraphic transfers b e elimin-
ated with safety. F
"Voted:
T h a t i t is the sense o f this meeting that
charges f o r t r a n s f e r s
b e discretionary w i t h a n d fixed b y t h e
Federal Reserve B a n k with which t h e transaction actually
originates, a n d that t h e Federal Reserve B a n k originating
a wire t r a n s f e r s h o u l d t e l e g r a p h t h e o t h e r F e d e r a l r e s e r v e
bank interested.
"Chicago voted no."
"Tse advisability o f making all mail transfers b y drawing drafts f o r that purpose w a s suggested,
b u t n o action
taken."
- T h e Chairman:
disapproval
W i l l someone m o v e t h e approval
or
o f that?
Cevernor
V a n Zandt: I
move
w e concur
i n the vote
the t r a n s i t c o m m i t t e e .
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Federal Reserve Bank of St. Louis
Governor McDougal: I
feel that y o u are going t o o
o f
259
far there, a s I stated this morning.
I t i s worth some-
thing t o the large banks, particularly those
banks i n Chicago, t o have these telegraphic transfers made.
of that, t h e y h a v e a l w a y s b e e n m a d e
heretofore,
the o r g a n i z a t i o n
o f o u r b a n k i s concerned,
cents per thousand.
with, I
at a
A s evidence
s o far a s
cost o f 2 5
W e have reduced that t o ten cents,
believe, interest a t the rate o f two
per cent f o r
the time saved.
I f they had a large balance w i t h
u s which
they wanted transferred t o New York, they
could convert that
into a n interest bearing balance.
they h a d a
large b a l a n c e
at our expense.
O
n the other hand, i f
i n N e w York, t h e y w o u l d m o v e
that
I t is a service that I think we
should
charge s o m e t h i n g for. I
believe
i t would b e dangerous
to
do otherwise.
Governor Fancher:
T a k i n g y o u r poSition, G o v e r n o r
Mc-
Dougal, would y o u not still b e i n a position t o
make a charge,
Governor McDougal:
if you thought i t desirable? a
W e would b e all right i n
Chicago, b u t w e would n o t b e protected i n Cleveland.
Governor Fancher:
W h a t i s the protection that you
need a t Cleveland?
Governor McDougal:
e l l , that i s a point that i s
not
perfectly clear.
(Informal discussion followed:)
Governor Fancher:
I
t seems
t o me, w h e n t h e t r a n s a c -
tion originates i n your Ghicago Bank and your
Chicago Bank
wants
t o make a
transfer
t o N e w York, t h a t p r o p o s i t i o n o r i -
ginates w i t h y o u arg y o u c a n control.
I t seems t o m e that
as t o Cleveland the gold settlement fund
would b e available,
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Federal Reserve Bank of St. Louis
and that presents a n entirely different situation.
Governor McDougal: I
ated provided w e could g e t
think t h e danger would b e elimint r a n s f e r funds o f the
character that t h e Bank i n Chicago would want, b u t w e cannot
get them.
w e cannot g e t what w e want through t h e trans-
fer o f the g o l d fund.
Governor Wold:
I
t all depends u p o n h o w y o u construe
where this transfer originates.
advantage:
I t might w o r k some dis-
T h e Northwestern National, o r any Twin Vity
Bank, i n the fall o f the year, i s full o f eastern exchange
and short o f currency.
I f they should telegraph t o the
Chawe National o f New York ‘-to place $500,000 with the Federal Reserve Bank o f New York for their credit, would that
originate i n Minneapolis o r New York?
The Chairman:
T h a t would originate i n New York.
Governor Wold:
T h e n w e would b e umeér obligation t o
furnish t h e N o r t h w e s t e r n N a t i o n a l B a n k c u r r e n c y t o b e
credited t o the gold fund.
Governor Seay:
Governor Wold:
H o w are w e going t o get that?
I s that a
practical question?
T h a t i s practical.
W e are furnish-
ing t h e m c u r r e n c y o n t h e i r e a s t e r n e x c h a n g e a n d c h a r g i n g
them o n the basis o f two per cent a dayGovernor McCord:
in our district.
T h a t i s also a practical objection
F o r instance, M r . McDougal telegraphed
our bank i n New Orleans t o pay out a certain amount i n currency.
M r . Walker h a d t o pay out that currency a t the
request o f the Federal Reserve Bank in Chicago»
W e had been
at t h e expense o f bringing i t t o Chicago, a n d w e h a d t o re-
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Federal Reserve Bank of St. Louis
reship, a n d Mr. Walker supplied that deficiency.
cost u s 4 0 cents a thousand.
Mr. Hendricks: I
do not u m e r s t a n d h o w that changes
the situation.
Governor Wold:
T h e y get the currency.
Mr- Hendricks:
H o w d o y o u get t h e items
i n N e w York?
It seems t o m e that i t i s u p t o the banks i n each district
to care f o r transfers f r o m their districts.
O f course,
I presume there a r e more transfers f r o m N e w York a n d Chicago
than anywhere else.
T h e difficulty i s that i n Chicago,
Minneapolis a n d St- Louis there i s a market f o r exchange
I n New York
which h a s a great bearing o n the situation.
there i s n o market f o r exchange, a n d i n Boston there i s n o
market f o r exchange.
T h e r e used t o be, b u t I understand
they d i d a w a y w i t h i t , a n d t h e y w e r e n o t swamped.
O a n a ,
not affect t h e situation a t all.
Governor Wold: B o s t o n does not have a call for crop
moving purposes.
I t i s a question o f moving currency
with us.
Mr. Hendricks:
I t is shipped back to New York.
Governor Wold: U n d e r your plan, they would draw a
draft o n New York, would they not?
Vice G o v e r n o r Treman:
W i l l someone t e l l m e why t h e
Chicago bank does not get the Federal reserve notes i n
Chicago, b u t asks t h e N e w York city banks t o come t o u s a n d
request u s t o furnish them. I
was interested i n looking
over t h e b u l l e t i n h e r e t o s e e t h e c i r c u l a t i o n
reserve n o t e s
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Federal Reserve Bank of St. Louis
a t the close
o f business
and
o f Federal
t o note that
242
Boston r a n $1},000,000, N e w York 81,000,000, Philadelphia
$8,000,000, Cleveland $8,000,000, Richmond $15,000,000,
Atlantajj22 ,000,000,
S t . Louis $13,000,000, Minneapolis
%15,000,000, Kansas City, $18,000,000, Dallas $25,000,000.
Governor McDougal: I
am satisfied that the Chicago
banks t h a t g o t those Federal reserve notes would have
much p r e f e r r e d s o m e o t h e r currency. I
a m also Satisfied
that there were n o demands made u p o n u s f o r those notes o r
for currency, because w e are supplying t h e demand.
the question has taken this peculiar turn, I
Since
suppose I
am
the o n e t o respond i n regard t o the Federal reserve notesAs a result o f the policy adopted b y the Chicago bank, w e
are n o t i s s u i n g t h o s e u n l e s s w e f i n d o c c a s i o n t o d o So.
We are beginning t o issue a
few notes, b u t a t the present
time have n o t put o u t a s many a s y o u have stated-
Vice Governor Treman: I
asked f o r n e w currency.
want t o add that they have
T h e y sent d o w n t o New York t o one
of t h e c o r r e s p o n d e n t s a n d a s k e d f o r v a r i o u s amounts.
day for a million and another day for 400,000.
stated d i s t i n c t l y t h a t t h e y w a n t e d a
O n e
T h e y
certain portion
in
new notes.
Governor Wold: I
have criticised Chicago a s much as
anybody else f o r its economy, b u t I
d o n o t think that h a s
any bearing o n the question.
Vice Governor treman: I
Governor Wold:
do not think it has:
W e are paying them out freely, but it
costs a s much a s other notes.
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Federal Reserve Bank of St. Louis
Governor Fancher: I
think t h a t o u r b a n k h a s h a d a
2435
pretty practical demonstration o f the matter o f transfers,
so-called:
I
n entering i n t o t h i s agreement,
w e granted t h e
privilege o f making transfers.to our credit t o Chicago,
Boston, N e w York and Philadelphia, a n d they have transferred i n t h a t w a y m a n y m i l l i o n s
o f dollars,
a n d those amounts
are l a r g e l y o f f s e t
b y the items w e a r e receiving
from Philadelphia,
N e w Y o r k a n d Chicago,
i n credit
a n d when w e come t o
wash o u t t h e gold fund, w e have n o t r u n a big credit i n the
gold fund through those operations:
w e have offset the
credit w e have h a d i n the pther places.
mulated a
W e have n o t accu-
large a m o u n t o f gold.
Governor McDougal:
Y o u must remember that y o u are
going n o w through easy, normal times, b u t i t seems t o m e
that t h e time m a y come when y o u would b e i n danger because
of h a v i n g g i v e n t h a t permission.
Governor Fancher: I
not s e e a n y weakness
cannot s e e i t that way-
i
e
i n the situation a t t h e present time.
I have n o t felt u p t o the present t i m e that w e are piling
up a gold balance t h a t i s going t o work t o our disadvantage.
Governor Wold: I
Mr. Hendricks.
would like t o ask a question of
I f a Twin City bank should request its
New York correspondent t o deposit a
million dollars w i t h
you t o our credit, w h y Should w e not consider that i n New
York funds?
W e will give New York funds for it.
W h y
Should w e p e r m i t y o u t o put u s a t a n expense w i t h o u t o u r
knowledge?
W
e cannot give y o u currency.
you s h i p p i n g c u r r e n c y u p o n a
‘. N e w Y o r k .
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Federal Reserve Bank of St. Louis
W e cannot hsve
deposit m a d e t o o u r c r e d i t
in
244
Mr» diendricks:
Y o u understand that this resolution
Says that t h e charge f o r transfers shall b e discretionary
with t h e bank originating t h e transfer.
Governor Wold:
“ h a t 1 want t o know i s whether you
regard that transfer a s having originated i n the Twin Cities
or i n NewYork.
Mr. Hendricks:
i f y o u do-mot p n y 1 4 yourseit. «1%
would originate i n New York.
I f y o u bought t h e transfer,
then y o u o r i g i n a t e i t .
Governor Wold: I
cannot s e e t h e difference.
result i s t h e s a m e t o us,
Mr-e Hendricks:
T h e
i t seems t o me-
T h a t i s so-
Here i s the situation a s i t n o w stands.
Y o u are mak-
ing a transfer t o New York a n d also f r o m N e w York.
Y o u
are buying a n d selling N e w York Exchange. T h e r e f o r e , y o u
control t h e market b o t h ways.
Y
you please for buying and selling:
anything t o d o with it.
o
u make t h e charge a s
N e w York does not have
Y o u telegraph N e w York a
pay
your bank a million dollars o r 500,000, a s the case may
be,
Governor Wold:
T h e gold i s put i n the gold fund a n d
it is available i n New York.
~The Chairman:
T a k i n g Governor lMicDougal's case, i s
it a n y g r e a t e r h a r d s h i p f o r h i m t o m a k e s u c h a
payment
than i t i s f o r N e w York o r Boston t o make s u c h a payment?
Mr. Hendricks:
W e haven't the kind o f currency they
want t h e r e .
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Federal Reserve Bank of St. Louis
Governor Wold: I
am not going t o argue the Chicago
245
case.
G o v e r n o r McDougal i s competent t o d o that.
O u r
position i s somewhat similar t o the position o f s i x other
banks.
M
y inquiry is, w h y should w e p e put t o a n expense
on business originating with others because o f a n accidental
location?
I t i s a n accommodation t o your bank.
Mr. Hendricks:
should like to ask Mr. Hendricks
@§vernor McDougal: I
a question, b e c a u s e I
think t h e a n s w e r w i l l d i s p e l f r o m
the minds o f some o f those present t h e belief that t h e operations o f the Chicago b a n k i n exchange h a v e b e e n a hardship
to New York.
T h e figures that I have indicate’ that we have
peidinto the fund for New York about 30,000,000 i n excess
of what t h e y have paid i n for us- I
have been told b y Mr.
Hendricks t h a t o u r operations were perfectly satisfactory.
Is not that so, Mr. Hendricks?
Mr+ Hendricks:
Y e s sir, s o far a s the transfer o f
gold i s concerned.
bring that u p because I be-
Governor McDougal: I
lieve there i s a misunderstanding o n the part o f some who
are present.
O u r purchases and sales of New York ex-
change are not far apart.
W e have paid i n something like
$30,000,000 more for New York than they have paid for us.
It i s p o s s i b l e
t o d o what w e a r e d o i n g without punishing
New YorkMr» Hendricks:
T h . . r e i s n o doubt that i t has been n o
hardship upon New York.
T h e only question arising i s i n
connection with this transaction that took place t h e other
days
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Federal Reserve Bank of St. Louis
(Informal discussion followed.)
Governor Seay:
W e are always delighted w h e n w e c a n
find something t o d o for o u r member banks without charging
them, particularly i f it does not cost u s anything.
When
they request us t o trans fer a million dollars t o New York
for them we are glad t o do i t without charge- A
great
number o f the banks h a v e difficulty i n keeping balances
with u S -
T h e y telegraph t h e H e w Y o r k banks
t o deposit
the Federal reserve b a n k o f New York t o our credit:
i n
N e w
York w a n t s g o l d i n t h e s e t t l e m e n t f u n d a n d w e f u r n i s h t h a t
gold. I
d o not know whether N e w York wants t o charge f o r
that o r not,
o r simply does i t because
Mre Hendricks:
o f this understanding.
W e d o not charge-
W e have been beat-
en t o i t e v e r y time.
Governor 5 S Seay: I
think y o u d o charge w h e n y o u make
the credit.
Mr. Hendricks:
W h e n i t is direct.
Governor S e a y :
Y o u d o charge u n d e r t h e a g r e e m e n t
that h a s existed- P h i l a d e l p h i a does t h e same thing» W h e n
it i s a n accommodation t o get t h e gold i n the g o l d fund, i t
does t h e same.
Governor wold:
T h e r e seems t o b e a misunderstanding
of t h e situation i n Minneapolis a n d Chicago.
Governor
Seay has spoken about what h e i s doing f o r member banks. 1
think that Chicago and Minneapolis have done even better.
We will transfer t o New York for 1 5 cents discount:
$99,985 we tranferred 4100,000.
par.
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Federal Reserve Bank of St. Louis
W e did i t a t a discount.
F o r
Y o u would charge them
W h y ? B e c a u s e the market
247
was a t a discount, while w e b u y a t a straight five cents,
so that they g e t the advantage t h e other way-
T h e y are
i n New York a n d selling t o us. T h e y
aecunilaking-betance.
are not accumulating brlances with a transfer.
I f they do
that, w e give the benefit o f that marketi C h i c a g o is
doing the same thing.
Governor McDougal:
W e sell a great deal a t a dis-
count.
Governor Wold:
w e buy a t a straight five cents.
That i s equivalent t o less t h a n o n e per cent f o r t h e two
days.
Governor Seay: T h e y c h a r g e i
t against the member bank
after all.
Governor Wold:
B u t they are accumulating a balance
with u s and buying N e w York exchange;
t h e y are accumulat-
ing a balance with us and buying i n some other direction.
Governor McDougal:
banks a
w e have been able t o save the
great deal.
Governor Seay: C o u l d you not d o still better?
The Chairman:
T h e r e has been a pretty free discus-
Siton-of: t h i s topre:
Governor Seay: I
move that w e concur i n the vote o f
the t r a n s i t managers.
The Chairman:
T h e motion i s that w e concur i n —
vote of the transit managers o n Topic 5, transfers, (a), (b)
and (c).
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Federal Reserve Bank of St. Louis
(The motion was carried.)
Governor Wold: I
desire t o b e recorded a s voting i n
the negative.
Governor McDougal: I
The Chairman:
I
wish t o vote n o o n that-
t will b e recorded t h a t Governor Wold
and Governor McDougal vote i n the negative o n this topic.
wish t o offer a motion asking New
Governor Wold: I
York t o e l a b o r a t e u p o n t h i s a n d t e l l u s w h a t i s m e a n t a s t o
the o r i g i n o f these t r a n s a c t i o n s ;
actions o r i g i n a t e , d
n
a how;
t h a t i s , where t h e trans-
a n d when y o u have control o f
the situation a n d when they have control o f it.
(Informal discussion followed.)
The Chairman:
I s the matter o f source o f origin
made clear to you now, Governor Wold?
Governor Wold:
thesituation
N o t a t all.
u p o u r way.
Governor McDougal: I
I believe
W e will t r y t o control
w e a r e about
wish t o s a y a t this point that
t o embark u p o n a
practice w h i c h w i l l
develop great dangers a n d one which w e will have t o modify
at some future time.
The Chairman:
I
f there i s n o objection, 1
a m going
to ask Mr. Bullen g o report briefly f o r t h e auditors' c o n ference.
T
h
e
n w e will g o back t o Topic 6 .
M r - Bul-
len wishes t o catch a train f o r N e w York.
Mr. Bullen:
report, I
M r . Chairman, a s you have copies o f this
will start right i n with t h e recommendations.
The first recommendation,
o n page 2 , relates t o ac-
counts between Federal Reserve Banks.
“After a very thorough discussion i n reference t o
a special committee, whose report w a s discussed b y the Con-
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Federal Reserve Bank of St. Louis
ference, t h e following resolutions were adopted:
"Rach Federal reserve bank i s to keep one account with
every other Federal reserve bank. I m m e d i a t e dsbit o r
credit entry i s t o b e made i n the case o f telegraphic
A l l other debit o r credit entries t o b e deferred
advices.
according t o mail a n d time schedules,
may b e i n a
s o that both banks
position t o m a k e s i m u l t a n e o u s C n t r i c s s
every
reasonable effort being made t o synchronize a l l entries.
"In reporting t o Washington for the weekly settlement
through t h e g o l d settlement fund, e a c h bank i s t o report
the total credit side onlyin eventhousands.
“Nothing i n this plan shall b e construed a s waiving
or i n a n y w a y a f f e c t i n g t h e r i g h t n o w e n j o y e d
Federal r e s e r v e b a n k t o r e q u i r e a
transfer
b y every
a t a n y time o f
any balance due i t by another Federal reserve bank.
“Statements for the present to be rendered by both
panks daily a n d reconciled b y both banks a n d reported o n
weekly.
a
h any difference due t o a delay
"It i s u n d e r s t o o d , t
inthe mails should be allowed to adjust itself. (Washout).
But a n y difference d u e t o a n error i s t o b e corrected b y
the b a n k b y w h i c h t h e e r r o r w a s made.
“Credit f o r draft i s t o be deferred b y the drawing tank
until t h e dwawee b a n k shall have h a d time t o receive t h e
advice.
U p o n receipt o f advice t h e drawee b a n k i s t o
charge t h e account o f the drawer bank a m t o credit a
account
t o which t h e drafts shall b e charged w h e n presented
and paid.
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Federal Reserve Bank of St. Louis
special
250
The object o f this recommendation i s t o prevent t h e
confusion which h a s arisen b y reason o f the fact that o n e
Federal reserve b a n k will charge f o r credit items i n one a c count which t h e other Federal reserve b a n k involved i n the
transaction w i l l c r e d i t o r Charge
i n t h e o t h e r account; a n d ,
further, t o enable all o f the Federal Reserve Banks t o acquire experience i n the accurate synd¢ronization o f entries,
which i s necessary before a
daily statement through t h e
gold settlement f u n d will b e practicable.
"The committee recommends that the change from the
present “two” account system t o the single account system
be made a s follows:
A
t t h e close o f this year Federal
reserve banks will balance t h e t w o accounts n o w carried
with e a c h o t h e r F e d e r a l r e s e r v e b a n k a n d c a r r y t h e r e s u l t -
ing debit balance i n the "due from" account t o the debit
Side o f t h e n e w single account, a n d carry t h e resulting
credit balance i n the "due to" account t o the credit side
of the single account."
I might s a y i n explanation o f this action that Mr.
Jacobsen and Mr. Broderick o f the staff o f the Federal Re-
serve Board werepresent- W h e t h e r or not they concurred,
I a m not sure, b u t they entered quite a little i n t o t h e discussion.
W e had the benefit o f their opinions, a n d i t de-
veloped from Mr- Broderick's remarks that there have been
a lot o f petty differences between t h e Federal reserve banks
in which the junior officers a t least have spent a
very con-
siderable time which should have been given t o more important duties,
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Federal Reserve Bank of St. Louis
i n q
uarreling w i t h e a c h o t h e r a b o u t t h e w a y s
in
aoe
which t h e s e e n t r i e s w e r e t o b e made.
W
e think perhaps t h i s
Solution o f t h e p r o b l e m w i l l o b v i a t e thk..t a t least.
Governor McDougal:
M a y + ask whether o r not this recom-—
mendation o f the auditors w a s passed u p o n b y the transit
managers! bureau?
Mr. Hendricks:
I t was concurred i n -
Governor McDougal:
W h a t was the vote?
Mr+ Hendricks: M i n n e a p o l i s , Kansas C i t y ard Chicago
voted no.
Governor McDougal: I
can see very readily why, f r o m
an auditor's standpoint, they would prefer t o carry one
account.
T h i s matter, however,
i s o n e o f greater import-
ance t h a n should b e left with t h e auditors f o r final determination-
I t seems
t o m e that t h e keeping o f the t w o ac-
counts cannot b e objectionable f r o m the point o f view o f
any b a n k a b l e t o r e c o n c i l e t h e accounts,
at either e n d a r e capable men.
ter.
I
i f t h e employes
t i s a very simple mat-
I t i s a matter o f charging into t h e account w e keep
with Boston a l l t h e items w e send there o r the items f o r
which w e are yesponsible,
good reason,
a m v i c e eeee:. I
can see a
o n the other hand, f o r maintaining t w o accounts,
One that I think will b e sufficient t o warrant doing s o
is that every bank, whether i t be a Federal Reserve Bank o r
a commercial bank, wants a
control balance.
I f w e should
i i c t e e o n e account w i t h Boston a n d undertake t o keep
funds there, a l s o c h a r g i n g a g a i n s t t h a t a c c o u n t i t e m s s e n t
the o t h e r w a y ,
w e could never t e l l whether
in Boston o r not. I
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Federal Reserve Bank of St. Louis
w e h a d anything
should dislike v e r y much t o see t h e t w o
252
accounts done a w a y with.
T h i s method o f bookkeeping cannot
be criticised f r o m t h e same point o f view that h a s been
applied t o reciprocal balances. I
refer t o the criticism
of the Comptroller f r o m time t o time about their being kept
between commercial banks.
Governor V a n Zandt:
A
s I
u n d e r s t a n d t h e report,
the
charge i s not made against h i s account until h e has a chance
to k n o w i t -
I
t i s n o t u n t i l t h e i t e m g e t s there,
s o that
he Still knows where h i s account stands a l l t h e time.
Mr. Bullen:
F o r Governor MceDougal's information, I
will s a y that this statement that t h e y o e
more o r l e s s o f a
no objection,
system.
compromise.
I
e v o l v e d here i s
n the Boston bank w e had
a s several other banks did, t o the t w o account
However,
i n order t o make i t easier f o r some
banks, w e s a w n o objection t o the system, because settling
on t h e s i d e s a n d n o t o n t h e b a l a n c e
accounts.
i s practically t w o
Y o u d o not lose control,
a s y o u would i f w e set-
tled o n the balance.
Governor Wold? I
have something prepared b y our
auditor o n this question.
O u r auditor, b y the way, i s
one w h o has h a d considerable experience i n a Canadian bank.
I would l i k e t o read this.
Accounts with other Federal Reserve Banks.
(a) Goeeited aataenn of*due to' and 'due from! accounts.
The a b o v e t o p i c a f t e r d i s c u s s i o n
a t the recent confer-
ence o f Auditors resulted i n a motion being made a n d car-
ried that consolidation o f the "due to" and "due from" accounts b e r e c o m m e n d e d
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Federal Reserve Bank of St. Louis
t o t h e Conference
o f Governors.
253
"The Federal Reserve Banks o f Chicago a:tl Minneapolis
are n o t i n accord w i t h t h i s r e c o m m e n d a t i o n ,
a n d t h e latter
bank gives below i t s reasons:
While w e understand t h a t eventually a l l entries will
pe adjusted daily i n the Gold *“ettlement Fund, w e d o not
think t h e reconciling o f accounts should b e done a t W a s h i n g ton:
T h i s method o f reconciling w a s i n effect m a n y years
ago throughout t h e Canadian banks a n d was done a w a y with
by the more Srosveusins f o r t h e reason that i t was found
the branches could k e e p their entries i n accord m u c h more
readily w h e n d e a l i n g d i r e c t l y w i t h e a c h other.
Needless
delay would occur i n making adjustments f o r the reason tha}
Washington c o u l d n o t d e t e r m i n e w h o w a s a t f a u l t a n d m u s t
necessarily write b o t h banks-
E v e n then long delays
would o c c u r a t t i m e s a n d w e s h o u l d b e guided
b y the exper-
jence o f banks w h o have tried s u c h a form o f reconciliation.
The Federal reserve banks should d o their o w n reconcilW e contend t h a t t h e double account i s not trouble-
ing.
some, a n d even i f daily adjustments i n the Gold -ettlement
Fund sare contemplated,
t h e r e seems n o valid r e a s o n f o r
making a n y o t h e r c h a n g e s
i n t h e meantime.
Chief, i f not t h e only reason advanced f o r making t h e
t o single account,
change
i s t h e inability o f some o f t h e
banks t o determine i n which account certain entries should
appear.
S i n c e t h e commencement o f operations w i t h other
Federal r e s e r v e b a n k s , t h i s b a n k h a s y e t t o experience a n y
trouble i n correctly making entries.
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Federal Reserve Bank of St. Louis
Some o f the Federal reserve banks state that they are
254
unable
t o determine t h e p r o p e r a c c o u n t
i n which t o make
entries covering deposits made through t h e m for member banks
in o t h e r F e d e r a l r e s e r v e districts:
O u r p l a n o f advising
other Federal reserve banks that certain o f their members
will b e remitting f o r o u r credit relieves t h i s doubt.
Admitting that a single account might save some brain
work, i t certainly will n o t decrease t h e mamual labor-
The
majority o f auditors r e c o m m e n d t h a t e a c h b a n k r e n d e r s t a t e -
ments t o the other eleven banks.
T h i s means,
i n our case,
that instead o f sending statements covering transactions
handled f o r another Federal reserve bank, w e must also i n clude i n this statement everything t h e y handle f o r us.
Again o n the statements rendered us, w e must also check
their items u p o n which w e have already sent statements.
This means double work.
Vouble a c c o u n t s h a v e b e e n i n effect b e t w e e n c o m m e r c i a l
banks f o r many years f o r the reason that e a c h bank c a n more
readily c o n t r o l i t s o w n funds.
T h e fact that Zone commer—
cial banks use dauble accounts t o inflate balances has n o
bearing
o n accounts b e t w e e n F e d e r a l r e s e r v e b a n k s :
Canadian banks a n d European banks have maintained
double accounts w i t h banks i n this country f o r years.
Establishing o f a single account: means that a l l entries
except wire transactions will have t o b e treated o n a deferred basis:
I t means t h e double handling o f numerous small
charges f o r return items, etc. A d v i c e s will have t o b e
sent f o r all drafts drawn a n d these advices willbe used a s
authority
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Federal Reserve Bank of St. Louis
t o charge
a n account i n s t e a d o f the drafts t h e m -
255
selves:
A l l advices and drafts would require careful
checking before a n y entry coul d
be made because o f the
chance f o r advices t o b e mis-sent o r lost.
I d o not c a r e t o comment
o n it»
T h e paper speaks f o r
itself.
Mr. Hendricks: I
do not think i t was contemplated
or that t h e t r a n s i t m a n a g e r s t h o u g h t t h a t W a s h i n g t o n w o u l d
have anything t o d o with the correction o f errors.
banks would render t h e statements,
a s they d o now:
T h e
I n hand-
ling this account, t h e y would settle outside o f the account,
so that i f Chicago wanted t o hold u p %5,000,000 o f the balance, w e would settle o n the credit side o f the ledger a n d
Chicago would settle o n the debit side.
Two years ago, about o n e a n d a half years ago, I
myself
mace u p a schedule o f items t o g o into t h e t w o accounts
am
sent t h e m t o the Federal reserve banks a n d asked t h e m t o
handle t h e i t e m s o n t h a t basis. I
d o not imagine f o r a
moment that a n y o f them have that now.
O f course, these
auditors a r e very particular i n writing letters:
I t does
not take much t o le a d t o considerable confusion.
S o m e -
times i n sending a message, w e find that they say, "We
charge your account" instead o f saying "We credit your account."
that.
T h e y use t h a t form. C o n f u s i o n results f r o m
Personally, I
any difference;
d o n o t think t h e o n e account m a k e s
i f i t i s handled
o n t h e s i d e s i t i s practic-
ally t w o accounts.
Governor Seay:
long time.
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Federal Reserve Bank of St. Louis
W e have been advocating this for a
W e have had considerable trouble:
O f course,
206
it i s n o t a
sérious m a t t e r a n d t h e t r o u b l e
sioned b y us.
i s not a l l occa-
W e have had as much trouble given us, I
would venture t o say, b u t i t i s not necessary,
others.
a s w e give
A t a n y rate, w e d o find a lot o f trouble w i t h these
accounts. I
cannot s e e w h y t h e Federal reserve b a n k would
not have t h e matter just a s much i n their control a s they
would have w i t h t h e t w o accounts:
The Chairman:
W h a t was t h e vote o n this?
Governor McCord:
N i n e t o three o n the part o f the
auditors.
Mr+ Bullen:
T h i s report gives t h e recommendations
as they were passed without t h e minutes.
The Chairman:
H a s a n y o n e a n y a c t i o n t o propose
this recommendation o f the meeting o f the auditors?
suppose t h a t i s a
practical m a t t e r .
i
f there i s a
on
D S
differ-—
ence o f this sort, a n d i t goes o n for a long S e r a
S r a
disagreements c o n s t a n t l y o c c u r a n d m i s t a k e s a p p e a r ,
the
accounting s e c t i o n o f t h e F e d e r a l R e s e r v e B o a r d w i l l a d v i s e
the b a n k s a s t o t h e a c c o u n t i n g p r a c t i c e t h e y w a n t t o p u t
in operation»
I s not that true, Mr. Delano?
Mr. Velano:
Yess
The Chairman: I
banks w e r e
think t h a t i t i s probable w h e r e t e n
i n favor o f o n e a c c a i n t i n g m e t h o d w h i c h w a s c o n -
curred i n by the accounting men of the Federal Reserve
Board, t h a t method would probably b e adopted; t h a t is, t h e
banks w o u l d b e r e q u e s t e d
ing.
tion.
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Federal Reserve Bank of St. Louis
I
n passing
t o put i n that method o f account-
o n that w e should t a k e t h a t i n t o considera-
257
Governor McDougal:
I L a m inclined t o think that t h e
Federal R e s e r v e B o a r d r e p r e s e n t a t i v e
count:
T h a t w a s t h e impression I
i s i n favor o f o n e a c -
g o t f r o m Chicago. I
thought from Mr: Hendricks' remarks that h e was under the
impression that Mr- Broderick d i d favor it.
Mr- Bullen:
opinion.
M r - Broderick declined t o express h i s
w h a t h e said t o the members personally, o f course
I do not know.
W h e n h e was asked i n the meeting,
remember correctly,
h e declined t o s a y anything:
say, however, t h a t there were a
if I
H e did
number o f minor difficul-
ties which h a d arisen which h e would b e glad t o see adjusted.
The Chairman:
will entertain a
I n the interest o f progress, t h e Chair-
motion t o dispose o f this topic f o r the pre-
sent.
Governor McDougal: I
move t h a t n o definite action
be taken a t the present time.
Mr. Delano:
gestion. I
B e f o r e w e come t o that, m a y I make a
know t h a t I
sug-
a m s p e a k i n g f o r m y colleagues w h e n
I say that there i s no desire o n the part of the "ederal
Reserve Board t o force a n y particular method, especially
when the Federal reserve banks a r e trying o u t different
schemesand a r e trying t o arrive a t a standard:
W e are glad
to see a meeting o f this kind, a n d we are glad t o see that
you are trying t o agree o n a standard.
Y o u have tried
the t w o account method f o r over t w o years, I
think i t is.
Why would i t not b e a good p l a n t o t r y the other method f o r
a little w h i l e t a . s e e i f y o u c a n n o t w o r k i t ?
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Federal Reserve Bank of St. Louis
Governor Miller: I
think that i s a good suggestion:
258
imagine y o u c a n s a f e g u a r d
Mr. Delano: I
i t s o that
you won't g o o n the rocks.
talked t o Mr. Broderick. about this
Mr. Hendricks: I
H
i n N e w York.
matter
e w a s n o t s o guarded
H e thought three accounts should
in Chicago, evidently:
do not think when I
be d o n e a w a y with. I
i n New York a s
say that that I
am putting h i m i n a n unfortunate position.
Governor McDougal:
T h a t would b e equal t o endorsing
the recommendation o f this committee.
Governor Wold: I
would like t o know what t h e Audit
Department o f the Federal Res. rve Board thinks about it.
How d o they regard this change f r o m t w o accounts t o one?
Do t h e y a p p r o v e
o f t h e Auditors!
report I
a m prepared
to vote f o r i t regardless o f what o u r auditor thinks o n the
matter, b u t until i t i s definitely known h o w the accounting
department voes stand, I
shall b e inclined t o agree w i t h
my own auditor.
Governor Seay: W o u l d i t not be a good plan to sefer
this t o a committee
t o consult w i t h t h e audit department
of t h e F e d e r a l R e s e r v e B o a r d a n d g e t t h a t c o m m i t t e e
t o adopt,
with the Board's approval some plan of accounting?
Governor McDougal: I
Governor Seay:
resentatives
think that would b e all right.
M r » Chairman,
w e r e there n o t t w o rep-
o f the accounting s y s t e m o f the Federal Reserve
Board o u t there?
Mr- Bullen:
M r e Jacobsen a n d Mr+ Broderick.
Governor S e a y :
action?
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Federal Reserve Bank of St. Louis
Neither
o f those m e n d i s a p p r o v e d t h e
259
Mr. Bullen:
sed a n y opinion.
N o . E E . do not think-elther. on= -expreso opT h e y did n o t officially e n d o r s e n
pose a n y a c t i o n w e took.
T h e y were guarded
i n their r e -
marks.
The Chairman:
press y o u r motion,
D o y o u care, Governor McDougal,
to
o r modify i t b y the appointment o f a
committee?
Governor McDougal: I
prefer t o have m y motion stand
and that w e d o nothing w i t h i t a t the present timeThe Chairman:
Y o u have heard t h e motion that n o s o
tion b e taken o n the recommendation o f the m-eting o f the
auditors.
I s that motion seconded?
Governor Wold: I
The Chairman:
second it.
T h e motion i s made a n d seconded-
I s
there a n y further discussion?
Governor V a n Zandt: ©
I think i t would b e well t o d o
something p r o m p t l y o n e w a y o r t h e other, b e c a u s e t h e f i r s t
of the year i s the time t o make t h e change.
I f w e are
going t o make a change i t should b e made then.
I f w e are
not g o i n g t o d o so, l e t u s s a y s o while w e a r e i n Washington.
I think a committee should b e appointed t o get together
with t h e s e m e n f r o m t h e F e d e r a l R e s e r v e B o a r d a n d d e c i d e
on something»
The Chairman‘:
4 s a matter o f procedure i n the meeting,
if G o v e r n o r M c D o u g a l ' s m o t i o n prevails,
i t prevails because
a majority o f the Governors want n o action a t the present
time.
I f i t i s lost, t h e matter will b e where i t stood
before, a n d t h e motion f o r the appointment o f a committee
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Federal Reserve Bank of St. Louis
260
will b e i n order,
A l l those i n favor o f Governor McDoug-
al's motion will signify i t by saying aye.
(The motion was lost.)
The Chairman:
T h e question returns n o w t o its origin-
al status.
Governor McCord:
T h i s topic i s p u t d o w n t o m e - I
move you, sir, that t h e Chair appoint a
committee o f three
to confer with the Audit Department o f the Federal Reserve
Board a n d arrive a t a conclusion o n e w a y o r the other, a n d
that i t b e final a n d that each ‘bank b e notified o f the r e sult-
The Chairman:
A s I understand it, there i s & motion
that t h e Chair appoint a
committee o f three w h o shall con-
sult with t h e Federal reserve Board a n d make a
tion, w i t h t h e i r approval,
recommenda-
a s t o the accounting methods
between F e d e r a l R e s e r v e i a n k s f o r t h e a d o p t i o n o f t h e
Federal reserve banks.
Governor Seay: W i l l you let me forecast the possipilities there? S u p p o s e the result’ of that committee i s
this, t h a t t h e majority o f the Federal reserve banks approve
of the accounting system a n d the Board h a s n o objection.
Then what report would b e m d e ?
Governor McDougal:
I
f Mr. MeCord would b e willing
to withdraw h i s motion a n d somebody would move that t h e
matter b e a c t e d u p o n d e f i n i t e l y h e r e , t h a t w o u l d s e t t l e i t Governor McCord: I
withdraw
i t w i t h pleasure. I
want t o get progress here, t h a t i s all-
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Federal Reserve Bank of St. Louis
The C h a i r m a n :
G o v e r n o r MeCord withdraws
t h e motion.
Is there a n y other motion bearing u p o n this?
move that t h e report o f the auditors
Governor Seay: I
be a p p r o v e d a n d t h e i r r e c o m m e n d a t i o n
Governor Fancher: I
b e adopted:
second t h e motion.
Y o u have heard the motion which was
The Chairman:
seconded b y Governor Fancher.
(The motion was carried.)
Governor McDougal: I
The Chairman:
Mre Bullen:
wish t o b e recorded a s voting
T a k e u p the next topic, Mr- Bullen.
T h e next i s Accounts w i t h member banks. -
Gross v s . R e s e r v e Balances.
“This matter was thoroughly discussed b y the auditors
and a reSolution, endorsing t h e principle o f showing reserve
balances o f member banks rather t h a n gross balances, passed.
A poll o f the delegates present indicated t h e present practice a s follows:
"NOW S H O W I N G
Reserve B a l a n c e s :
Cleveland
G
B
r
o
Richmond
o
s
t
N
Atlanta
P
Chicago
M
St+ Louis
h
i
i
s
s Balances:
o
n
e
l
n
a
n
S
d
e
w York
e
a
a
l
p
p
o
h
l
i
i
a
s
n "rancisco
Dallas
Kansas City.
In keeping with t h e above t h e auditors recommend t h a t
in t h e d a i l y s t a t e m e n t
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Federal Reserve Bank of St. Louis
o f condition t h e following accounts
member banks -
reserve account.
member banks -
deferred credits.
Federal reserve banks - collected funds.
Federal reserve banks -
deferred credits.
Auditors recommend t h a t e a c h Federal reserve
at
bank work o u t its o w n method o f obtaining these figures
the earliest possible date."
Y o u have heard t h e recommendation o f
The Chairman:
W h a t action will b e taken?
the auditors.
move i t b e concurred in:
Governor Fancher: I
T h e motion i s made a n d s e c o m e d t h a t
The Chairman:
the recommendation o f the auditors t o the effect recited
in this r e p o r t
o n page 5
b e agreed i n -
I
s there a n y dis-
cussion?
(The motion was carried.)
P r o c e e d t o the next.
The Chairman:
Mr+ Bullen: C a l c u l a t i o n o f transit cost.
"A careful review o f methods employed b y all Federal
reserve banks i n calculating their transit cost a s reported
folpy t h e i r r e p r e s e n t a t i v e s i n d i c a t e s t h a t e a c h b a n k i s
Lowing a s C l o s e l y a s i t c a n t h e p l a n o u t l i n e d
N
conferences.»
recomended
a t previous
o changes i n the items t o b e included a p e
a t this time."
"Transit cost and service cmrge.
“That o n the statement o f condition for the last day
of t h e m o n t h ,
t h e following debit accounts
"Current expenses:
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Federal Reserve Bank of St. Louis
b e shown:
263
estimated
"To cover a l l expenses except t h e actual o r
expenses incurred i n the operation o f the transit department.
Transit Department expenses.
“Phat a new credit account be shown entitled:
Service Charge, net:
To include t h e amount collected f r o m o r assessed
against member banks less t h e amount paid t o other
Federal reserve banks.
"A11 three o f these accounts t o be carried conduring
tinuously throughout t h e year a n d n o t charged o f f
the year.
"It i s further recommended that the transit department expenses, b e i n g a
recoverable c h a r g e ,
b e grouped
on
the statement o f condition with other recoverable charges
that since
pather t h a n with current expense items, a n d
transit e x charges a r e n o t earnings, p u t a recovery o f
penses,
the
i t should b e grouped w i t h unearned accounts o n
credit side o f the statement o f condition."
The Chairman:
T h a t method i s quite essential t o the
satisfactory compilation o f statistics?
Mr. Bullen:
Y e s sir:
I t does n o t trespass u p o n
any good accounting principles.
Governor McCord:
M o s t a l l o f the banks close u p
their b o o k s e v e r y s i x months.
I
s i t proposed
t o carry
this throughout t h e year?
Mr- Bullen:
T h a t was based u p o n information w e h a d
a
from Mr» Broderick a n d Mr. Jacobsen, t h a t hereafter
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Federal Reserve Bank of St. Louis
264
orinciple would b e laid d o w n b y the Federal Reserve Board
that t h e a c c o u n t s w o u l d b e c l o s e d o n c e a
Governor McCord:
year.
T h e n those banks closing every s i x
months w o u l d c a r r y o v e r i n t o t h e n e w y e a r p e r i o d ?
Mr. Bullen:
Y e s , f o r statistical purposes t h e y could
carry t h i s o n .
Governor Fancher: I
The Chairman:
move that i t b e concurred in:
Y o u have h.ard t h e motion-
(The motion was carried.)
Mr- Bullen:
T h e next i s “veficient reserves a n d pen-
alties.
“After considerable discussion i t was resolved that i t
is t h e o p i n i o n o f t h i s c o n f e r e n c e t h a t i t would b e i n e x p e -
dient t o make recommendations
t o any particular Federal r e -
o its e x c l u s i v e d e a l i n g s w i t h i t s
serve b a n k w i t h r e f e r e n c e t
own m e m b e r banks.
“New statement o f conditions.
"The Auditors spent considerable time ciscussing with
Mr. B r o d e r i c k a n d M r - J a c o b s e n t h e r e v i s i o n o f t h e s t a t e -
ment o f condition f o r use during 1917> A
number o f import-
ant changes were made, a n d a t the sucgestion o f the Conference w e would e.rnestly recommend t h a t t h e proof o f the n e w
form t o be submitted b y Mr. Jacobson b e reviewed b y the
Governors."
Mr. Jacobson sent over some proofs o f that.
would l i k e t o look them over, I
revised f o r m (indicating)
I f you
will cistribute them. T h i s
i s i n accordance w i t h t h e changes
we have recommended i n this report, a s concurred i n b y Mr.
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Federal Reserve Bank of St. Louis
Jacobson.
The Chairman:
Mr. Bullen:
T a k e t h e next one.
C a l c u l a t i o n o f reserve o f Federal R e -
serve b a n k s .
"That i n calculating the reserve o f Federal reserve
panks, t h e following accounts b e taken into consideration:
Items against which reserve i s t o lt carried:
Due t o member banks -
reserve accounts.
Due t o other Federal reserve banks (collected funds):
Due t o branches a n d offices:
bue t o United States Government.
Cashiers' checks.
uxpense c h e c k s .
"Returned item checks.
Dividend checks.
Federal reserve drafts ( i f this account becomes necesaary) .
Deductiors
t o b e allowed:
mxchanges f o r clearing house.
Checks a n d other c a s h items.
Due f r o m Federal reserve banks (Collected funds).
Due f r o m branches a n d offices.
It was also recommenced t h a t t h e methodof stating
reserves carried a t the bottom o f the statement o f condition
be changed s o a s t o show after reducting t h e required 4 0 per
cent reserve against Federal reserve note liability t h e re-
serve carried against net deposits."
This last recommendation i s not a s y e t concurred i n b y
Mr. Jacobson's office. I
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Federal Reserve Bank of St. Louis
was appointed a
committee t o take
266
e said yesterday t h a t w e would have t o
H
that u p w i t h him.
take i t u p w i t h Mr. M i l l e r ,
w h o h a s some objection t o the
plan.
The Ghat Penk? D o c t o r Myller o f the Board?
fr» Bullen:
Y e s sir- O t h e r w i s e ,
t h e y concur
in
this r e c o m m e n d a t i o n a s t o t h e m e t h o d o f c i r c u l a t i n g r e serves a n d t h e o t h e r i t e m s
The Chairman:
o n t h e statement.
I s i t the desire o f the accountin;
o f t h e B o a r d t h a t t h i s m e t h o d should b e adopted?
department
Mr+ Bullen:
The Chairman:
which, apparently,
of the Board.
Y e s sir; t h e y concurred i n itY o u have heard t h e recommendation,
i s approved b y the accounting department
I t runs d o w n t o the last paragraph o n page
8. w h a t action does t h e conference w i s h t o take i n the
matter?
I
s a n y action desired?
Vice Governor Treman: I
move that n o action b e taken
on i t until w e shall have h a d time t o consult w i t h Dr.
Miller,
o f the Board.
The Chairman: G o v e r n o r ‘reman moves that this matter
be not acted upon until w e have m d time t o consult w i t h
Dr» M i l l e r
o f t h e Board.
Vice Governor Treman:
O r , p u t i t the other way.
approve t h e r e c o m m e n d a t i o n s u b j e c t
t o the changes
W e
t o be
recommended b y Dr- Miller.
The Chairman:
T h e motion i s modified t o the effect
that w e a p p r o v e t h e p e csmosan a o e s u b j e c t
t o such
Changes a s may be made b y Dr+ Miller o f the Feceral reserve
Board.
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Federal Reserve Bank of St. Louis
I s there a n y further discussion?
(The motion was carried-)
Mr- Bullen: I
would l i k e t o s a y t h a t i t b s v e r y m u c h
better i f w e could g e t action a s soon a s possible.
received telegrams f r o m s e v e r a l
saying t h a t t h e y w e r e a n x i o u s
the f i r s t o f t h e year.
quite a
W
e
o f the Federal reserve banks
t o get t h e matter started b y
T h e t i m e i s short, a n d i t r e q u i r e s
lot o f printing f o r t h e preparation
o f these
books.
(Informal discussion followed-)
Mr. Bullen: I
d o not believe a n y o f the banks would
be able t o tell u s h o w many Federgl lreserve notes t h e y are
going t o i s s u e n e x t year.
The Chairman:
W e haven't the slightest idea.
Governor McCord: I
think that violates t h e law: T h e
law says i f a member bank should withuraw o r change t h e
amount o f capital a n d s o on, w e must p a y t o that b a n k the
net amount o f ecarnin;s due, a n d i f w e are going t o charge
up somthing there that w e haven't taken into consideration
and have not used, I think i t is a violation o f the law.
I move that that b e not concurred in.
Governor Fancher: I
The Chairman:
second t h e motion.
I s there a n y further discussion?
(There were calls for the question and the motion
was duly carried.)
Mr. Bullen: " U n i f o r m i t y i n charging cost o f shipments between Federal Reserve Banks:
registered m a i l a n d i n s u r a n c e
T h a t the cost o f
o n notes s h i p p e d b e t w e e n r e -
Serve banks b e charged a n d advised a t the time t h e shipment
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Federal Reserve Bank of St. Louis
of notes i s made."
move that that b e concurred in.
Governor Fancher: I
(The motion, being duly seconded, was carried.)
Mr. Bullen: “ R e p o r t s t o Federal reserve Board:
Friday report:
T h e adoption a s soon a s i t c a n b e arranged
with t h e Federal Reserve Board o f practice o f reporting o n
Friday night t h e condensed statement, giving o n l y t h e
figures r e q u i r e d f o r t h e S a t u r d a y p u b l i s h e d s t a t e m e n t i n -
steod
o f the full statement o f conditions.
With r e s p e c t
t o this report Mr. J a c o b s o n t o l d u s that
he would d o all h e could t o get t h e cons e n t o f the m mbers
of the Board w h o have these matters i n charge. I
have for-
gotten w h o h e named, b u t h e said h e would t r y t o push =
along:
The Chairman:
Mr. Bullen:
Y o u refer t o just a wire report?
J u s t a
wire report.
T h a t l o n g 1100
word telegram.
Governor Yeay: I
was advised b y our Federal reserve
agent that this subject was considered a t their recent
conference h e r e a n d t h e r e w a s c o n s i d e r a b l e d i s p o s i t i o n
have t h e r e p o r t m a d e u p o n t h e f i g u r e s
instead o f Friday. I
to
o f Thursday night
would like t o ask i f y o u consider-
ed that?
Mr. Bullen:
T h a t was suggested a t o u r meeting, Gover-
nor Seay, a n d Mr. Jacobson told u s that there w a s objection
to t h a t o n t h e p a r t o f s o m e o f t h e B o a r d m e m b e r s , b e c a u s e
they wished t o have a
period that would c o m p r e w i t h the
statements o f the associated banks o f N e w York a n d other
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Federal Reserve Bank of St. Louis
269
associations;
t h a t is, that o u r statement w o u l d cover t h e
same period a m b e comparable.
H e thought there w a s v e r y
small probability o f our being able t o convince t h e members
of the Federal Reserve Board that that was desirable:
A s
an alternative t o that w e tried t o reduce t h e work o n the
report w e a r e n o w forwarding,
The Chairman:
i f t h a t i s possible.
W h a t action does the Conference care
to take?
Mr+ Delano: I
was present during that discussion. I
think M r . w a r b u r g p e r h a p s f e e l s w o r e s t r o n g l y
ter t h a n a n y o n e else.
i n this m a t -
T h e reason w e framed u p everything
for F r i d a y n i g h t w a s s o w e c o u l d g e t t h e f i g u r e s t h a t w e
could compare a n d combire w i t h t h e clearing house figures.
I think i f a little s t u d y was given t h e matter a n d i t was
Shown that t h e figures o f the clearing houses a r e largely
based o n estimates, a s I am told they are, I think perhaps
Mp. arburg would recede from his position.
There m i g h t b e a n o t h e r w a y o f g e t t i n g a t i t a n d t h a t
would b e t o get t h e clearing house banks t o change t h e
dete o f their statements.
A s I understand i t Friday night
has been the favored night because o f the Saturday papers.
The S a t u r d a y e v e n i n g p a p e r s c a r r y a l l t h e i n f o r m a t i o n w i t h
regard t o the close of the week's business.
T h e great
trouble w e have i s that w e are trying t o work o n actual
figures when, I
a m told, t h e clearing house banks w o r k
largely o n estimated figures.
The Chairman:
M r . Delano, h o w would y o u feel about
having telegraphic advice o f the Atens appearing i n the
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Federal Reserve Bank of St. Louis
270
conSoliiated statement a s made, a n d mail advice o f the details?
Mr- Delano: I
should think that would b e entirely
satisfactory.
The Chairman:
W e could have that approved b y the
Conference a n d r e c o m m e n d e d f o r t h e c o n s i d e r a t i o n o f t h e Board,
offering i t a s a suggestion o f our opinion.
Mr- Delano: I
d o not s e e a n y objection t o that.
Governor Fancher:
L
T sbhink- i t w o u l d Sreatily: Sachiapate
the operation o f the banksment requires a
T h i s large Friday night state-
good m a n y extra hours o f work.
The Chairman:
W i l l y o u make a
motion bearing o n
that s u p ject?
Mr- Delano:
I
s i t not true that whatever night y o u
choose i t will mean a great deal o f work for that night?
Governor Fancher:
Yes.
T h e idea would b e that
the principal items b e wired a n d the detailed statement m a d e
on the following day, reaching t h e Board, a s i t would, M o n day morning.
Mr. Delano:
T h e r e a r e t w o o r three banks that would
probably have t o wire under any conditions.
The Chairman:
Mr. Delano:
Mp+ Bullen:
Y o u refer t o the very remote banks?
Y e s >
I n Boston w e have always hoped that w e
might b e able t o use t h e Thursday report, sending i t out
on Friday.
T h a t would give o u r people i n the bank, w h o
have this matter i n charge, a
chance t o turn around ani t o
get this thing u p more comfortably:
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Federal Reserve Bank of St. Louis
I t i s not a vital matter,
road
fa8
but i n getting i t out the w a y i t i s done n o w i t only means
that a few m e n i n the bank spend t h e e v e n i n g there once
a week.
The Chairman:
H a v e y o u a motion t o offer, Governor
Fancher?
Mr. Delano: I
cannot h e l p thinking that i t would b e
really better t o have a
haps a
committee handle this thing.
P e r -
committee o f auditors would d o just a s well a s a
committee o f Governors: I
I think a
d o not care h o w i t i s done, b u t
committee s h o u l d b e a p p o i n t e d t h a t w o u l d t a k e
long e n o u g h t o s i t d o w n a n d t a l k o v e r t h e o b j e c t i o n s w h i c h
the members o f the Board might have.
A s I have told you,
Mr. Warburg i s the o n e who i s objecting t o a n y change more
tha. anyone else. I
think y o u might satisfy h i m completely
if y o u w o u l d s i t d o w n f o r h a l f a n h o u r a n d e x p l a i n t h e
whole thing t o him.
The Chairman: I
think that i s a n excellent sugges-
tion, Mr. Delano:
@overnor Fancher: I
this t o p i c b e r e f e r r e d
would move, Mr- Chairman, that
to a
committee
o f three,
t o b e appoint-
ed b y the Chairman, a n d that this committee confer with t h e
Board a s t o working out some uniform plan.
(The motion, being d u l y seconded, w a s carried.)
The Chairman:
W h y not make that a committee o f two?
Governor Van Zandt:
W h y not make i t two auditors, Mr.
Chairman?
The Chairman: I
the G o v e r n o r s
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Federal Reserve Bank of St. Louis
think i t would pérhaps b e better for
t o d o that.
272
I t i s a technical detail w i t h
Governor V a n Zandt:
which t h e auditors a r e more familiar t h a n w e are.
M r . B u l l e n suggests t h a t t h e auditors
The Chairman:
are a t t h e d i s p o s a l
o f t h e Governors
i f w e want t o call t h e m
in.
Governor V a n Zandt:
might b e a
committee
The Chairman: I
M r - Delano suggested t h a t i t
o f auditors.
d o not m e a n a n y disrespect t o Mr:
Delano's opinion, but the ultimate responsibility for the
operation o f the perios i s with t h e Governors, a n d the Governors would want t o pass o n it- I
matter i t would b e tetter t o have a
think i n dealing with t h e
committee o f governors.
They c a n take such auditors f r o m their banks a s they wish
toe T h a t i s m y own feeling.
Governor Fancher: I
will amend m y motion b y making
the committee consist o f two.
The C h a i rian:
T h e c h a i r will appoint Governors Fancher
and S e a y o n that committee.
Mr. Bullen:
T h e next item is "statistics".
"Considerable discussion was had i n which !r. Jacobson participated, regarding t h e statistics required o f the
banks
b y t h e F e d e r a l R e s e r v e Board.
M r . Jacobson signified
his willingness t o cooperate t o the fullest possible e x tent i n standardizing t h e requirements w i t h reference t o
statistics, a n d i n giving notice sufficiently far i n advance
to m a k e i t p o s s i b l e f o r t h e b a n k s t o e s t a b l i s h r e c o r d s a n d
thus obviate,
s o far a s possible, t h e necessity f o r repeated
search through o l d records.
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Federal Reserve Bank of St. Louis
T h e searches required a
great
deal o f time, a n d were, therefore, expensive."
The Chairman:
Mr « Bullen:
N o action i s necessary o n that.
N o .
T h e next i s "Reports o f earnings
and expenses."
"A conference was had with lir- Jacobson i n which was
discussed t h e n e w forms f o r reporting earnings a n d expenses
to be used after January lst."
The Chairman:
N o action i s recommended with respect
to that?
Mr. Bullen:
N o .
T h e next item i s “uniform acknow-
ledgment o f remittances between Federal Reserve Banks."
"That t h e acknowledgment o f letters received f o r deferred credit o f another Federal reserve b a n k b e given o n
one form, t h i s f o r m t o give date o f letter, d a t e o f availability, number o f items, f r o m whom received, f o r whose
account received a n d the amount."
Governor V a n Zandt: I
Governor F a n c h e r : I
move that that b e concurred in.
second t h e motion:
(The motion was duly carried.)
Mre Bullen:
T h o s e a r e all t h e direct recommendations
made b y the meeting o f auditors.
The Chairman:
A l l i n favor o f concurrence i n this will
Signify b y saying aye.
T h o s e opposed n o -
(The mytion was duly carried.)
(Mr. Delanos, o f the Federal Reserve Board thereupon retired f r o m the Conference room.)
The Chairman:
lar program.
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Federal Reserve Bank of St. Louis
Gentlemen,
w e will return t o our regu-
274
The n e x t i t e m i s (b), u n d e r C o l l e c t i o n s a n d clearances.
(bo) G o s t o f operating collection departments.
Items t o be included. JDistribution o f
expenses.
P o s t a g e o n mixed mail.
That i t e m w a s c a r r i e d o v e r f r o m t h e l a s t program.
I
t
was discussed a t the last Conference, b u t n o action was
taken o n it.
A s I remember t h e expression o f opinion a t
that time i t was felt that i t was a
matter f o r d i s c u s s i o n
and n o definite action b y the Conference w a s necessary.
less someone has something n e w t o contribute,
Un-
o r some defin-
ite action they wish t o have taken, t h e Chair would suggest
that a motion b e made that that b e removed f r o m the program.
Governor Wold: I n a s m u c h a s the auditors discussed
that a n d said there w a s n o very great difference i n the
method o f calculating costs i n the transit departments, I
suggest t h a t i t b e r e m o v e d f r o m t h e program.
Governor Fancher: I
second the motion.
(The motion was duly carried.)
The Chairman: 1
understand from Governor ithoads that
he wishes t o withdraw items (c) and (d).
(c) Statements from member banks showing available balances: v V a i l y , weekly o r monthly.
(a) Statements showing balances between federal ~
reserve banks.
D a i l y , weekly o r monthly.
Governor Rhoads: Those a r o i n the same situation a s
item (b).
I t was o n the program last time, and I move that
those i t e m s b e d r o p p e d f r o m t h e program.
(The motion, being duly seconded, was carried.)
The Chairman:
and take u p (g).
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Federal Reserve Bank of St. Louis
W e will skip (e) and (f) for tte present
275
(g) M e t h o d of dealing with member banks that
deduct exchange.
Should a
differential
be a l l o w e d c o u n t r y banks.
Governor Miller, w e will hear f r o m you.
Governor Miller:
T h a t W a s suggested because w e h a d
one member, the First National Bank o f York, Nebraska, that
charges o n every i t e m w e send them, a n d i t has, f r o m the
very beginning.
I t has accumulated $1070 of this exchange
against us.
The Chairman:
D o you wish that item t o continue o n
the program?
Governor Miller:
N o , I
move that i t b e stricken f r o m
the program.
(The motion was duly carried.)
The Chairman:
A S a matter o f fact t h e remedy lies i n
the Comptroller's office?
Governor M i l l e r :
The Chairman:
Y e s ,
i t does.
W h e r e you have trouble o f that sort you
can always g o t o the Comptroller a n d straighten i t out.
Governor Miller:
Governor Wold:
Yes.
T h a t will settle it.
W h a t was done with reference t o (e)
and (f)?
The Chairman: I
passed t h o s e f o r t h e m o m e n t
up Some o f the odds ana ends.
t o clean
I t e m (k).
(k) S h o u l d t w o accounts b e maintained
between F e d e r a l r e s e r v e b a n k s
has b e e n s e t t l e d .
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Federal Reserve Bank of St. Louis
The n e x t i t e m :
(1) C o m p e n s a t i o n t o member banks for collecting items o n non-member banks
276
was settled i n the consideration o f the transit maragers{
report.
Item (r)
(r) R e t u r n e d items. S h o u l d praciice b e
changed?
was s e t t l e d
b y t h e t-ansit managers report.
(u) D e l a y s i n the mails
was offered b y Governor “eat.
G o v e r n o r Seay, w h a t have
you t o s a y about that?
Governor Seay:
T h a t was offered t o find out whether
or n o t t h e e f f i c i e n c y
o f the Post Office Department
i s greater
in the other districts t h a n i t i s i n our own.
The Chairman:
w h a t would y o u suggest w i t h reference
to that topic, Governor Seay?
Governor Seay:
sit managers, I
T h e matter was discussed b y the tran-
believe, a n d i t was understood t h a t t h e y
would prepare a bill o f particulars.
T h e Post Office De-
partment will not move until you give them specific instances. I
think i t was understood a t the transit managers!
conference t h a t e a c h bank would g e t u p a bill o f particulars.
We have h a d several v e r y peculiar occurrences d o w n i n our
district.
M a i l s have b e e n thrown o f f a t night i n a n old
field; p o u c h e s have b e e n stolen a n d s o forth.
P o u c h e s
have been stolen o n four occasions.
The Chairman:
I s i t not proper that t h e Governor o f
each bank that h a s trouble d
t h a t sort should t a k e t h e mat-
ter u p With t h e Federal reserve Board f o r representations
to the Post Office Department?
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Federal Reserve Bank of St. Louis
a
w i s h t o suggest,
Governor Seay: I
this, t h a t e a c h F e d e r a l r e s e r v e b a n k
a s the outcome o f
i n s t r u c t its
transit department t o make o u t a bill o f particulars a s t o
deficiencies
i n the mail, delays i n the mail, a n d t h e
A l l that i n-
troubles o f the mailing department generally.
formation c a n b e g o t t e n t o g e t h e r a n d t h e m a t t e r b e t a k e n u p
with t h e Federal Reserve Board.
The Chairman:
T h e information t o b e presented t o the
next Gonference o f Governors:
Governor Seay:
Yer.
Governor Fancher: I
The Chairman:
would second that m o t i o n :
I s there a n y discussion?
(There was n o discussion and the motion was duly
carried.)
Governor V a n Zandt:
W i t h relation t o that .same point
I would l i k e t o know what t h e practice o f the Governors h a s
been o r w h a t i s their o p i n i o n w i t h r e f e r e n c e
t o mail t h a t
is late i n getting b a c k t o you returns f r o m items?
Would
you penalize t h e member banks o n that o r not?
( D i s c u s s i o nf
o this matter was ordered excluded
from the record.)
The Chairman: G o v e r n o r V a n Zandt, d o you wish any
further discussion o f the matter?
Governor Van Zandt:
wanted
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Federal Reserve Bank of St. Louis
N o , Mr. Chairman. I
simply
t o get some informtion.
The Chairman:
T h e next topics are (v) and (w).
(v) T r a n s f e r s between Fedsral reserve
banks.
(w) Telegraphic transfers.
They were covered at the Transit Managers' meeting.
That cleans u p the miscellaneous items.
W
e will g o
pack now to topic (e).
(e) Remittance basis for member banks.
Governor Treman i s responsible f o r that.
Vice Governor Treman:
W e have b e e n sending o u t a
letter t o our member banks asking whether t h e y would prefer
to remit direct t o u s i n payment o f t h e items w e send, a c cording t o the record that w e send them.
W
e find that a
very large number o f our banks prefer t o d o that rather t h a n
to s i m p l y h a v e t h e i t e m s c r e d i t e d
i n return, b e c a u s e w h e n
you come t o two days delay i n the mail, a n d all that, differences arise. I
mation-
w
merely report t h a t a s a matter o f infor-
e have sent o u t quite a
large number o f let-
ters, a n d 1 think the majority--- o r at least a very large
proportion--—— o f o u r b a n k s p r e f e r
are d o i n g t h a t ,
t o r e m i t direct.
T h e y
a n d i t h a s w o r k e d v e r y Satisfactorily.-
Governor Fancher: I
might s a y that after t h e inaugu-
ration o f the collection system w e sent o u t circulars t o
our member banks asking their preference.
754 member banks, 3 8 0 have accepted.
O u t o f the
T h e y are remitting
for t h e items o n receipt, keeping their balances practically dormant.
T h a t simplifies ourstatements
and our
accounting v e r y much.
Vice Governor Treman:
T h e y send t h e items i n t o u s
and w e credit t h e m o n their account.
them t h e y r e m i t o n e c h e c k t o balance.
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Federal Reserve Bank of St. Louis
F o r anything w e send
rt a
Governor Fancher:
T h e letter w e send t h e m i s remit-
ted for in a draft either o n Cleveland, Pittsburgh,or
Cincinnati, immediately available.
Governor McCord:
D o you find they prefer t o do that?
Governor Fancher:
Y e s , they do»
T h a t i s the way i t has proven with
Governor M c C o r d
G o v e r n o r Miller, y o u are responsible
The Chairman:
for a portion o f this topic.
W e have from the beginning Been
Governor Miller:
charging e v e r y t h i n g w e s e n d t o o u r m e m b e r b a n k s a n d e r e d i t ing e v e r y t h i n g t h e y s e n d u s , e v e n t h o u g h i t i s a
remit—
W e have done that under the idea that that was con-
tance.
templated by the law.
The object i n suggesting this topic w a s t o get t h e
opinions
o f t h e Governors;
t o k n o w i f i t would n o t b e prac-
ticable f o r u s t o change t h e system, because i t would reduce t h e c l e r i c a l l a b o r i m m e n s e l y
a m
b e more satisfactory
to t h e m e m b e r b a n k s .
Governor Miller:
I t seems t o u s t o b e a mere matter
of law.
The Chairman:
doubtless know.
W e h a d the same experience,
a s you all
T h e Boston clearing house operation was
on the remittance basis.
N o t h i n g would h v e b e e n simpler
than f o r u s t o have continued exactly that operation.
felt,
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Federal Reserve Bank of St. Louis
W e
i n view o f the fact t h a t t h e Federal Reserve Board i n -
280
sisted that w e should give immediate credit, though not
availability,
account, a
t o deposits, t h a t w e s h o u l d r e a l l y c a r r y a n
credit balance, a n d s o w e set u p this n e w method
of accounting.
I t has been troublesome e v e r since.
p e
you h a v e i t o n a remittance b a s i s a n d a l l o w y o u r r e s e r v e
accounts t o remain inactive, y o u have t h e cleanest k i n d o f
a clean record.
M r . Hendricks h a s just suggested that w h e n
you get a credit o n the books i t goes into t h e baox records
of the banks a n d i t i s harder t o trace through, b u t i f you
have a
forwarding a n d r e m i t t a n c e l e d g e r t h e o p e r a t i o n i s
absolutely Simple a n d positive;
y o u c a n see just exactly
what h a s happened every day, a n d when y o u come t o imposing
penalties i t reduces t h e friction i n that connection immense-
ly.
Governor ‘eay: T h e r e is this important difference,
however, Mr. Chairman.
I f they d o not remit promptly with-
in the elapsed time y o u have n o way what«ver o f reaching
them.
I f y o u have n o t given a n extension o f time between
you a n d y o u r m e m b e r bank, t h e n y o u c h a r g e i t u p t o y o u r
member bank a t the e n d o f the elapsed time.
The Chairman:
I f the remittance does n o t come i n
promptly y o u c a n d o j u s t t h e s a m e thing.
Governor Seay:
Y e s , but you would not d o it.
Governor Fancher:
The Chairman:
W e d o it.
I f y o u adopted t h e remittance method
you w o u l d w a i t f o r t h e check.
Vice Governor Treman:
the period.
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Federal Reserve Bank of St. Louis
N o t necessarily, n o t beyond
281
Go..-rnor Wold:
H o w does that avoid controversy b e -
tween member banks o n account o f late mails, i f y o u charge
Y o u have t w o sys-
it u p a t t h e e n d o f t h e p e r i o d a n y w a y ?
tems, h a v e y o u n o t ?
Governor Fancher:
W e have s o m e points i n our district
it i s impossible t o count a s t w o d a y points, a n d w e have
some four d a y points, t w o days e a c h wayPreliminary t o that matter w e made a
test o n different occasions,
very careful mail
t o know what length o f time i t
took t h e m a i l s t o g e t d o w n a n d b a c k t o t h e b u n k t h a t d e -
Sired t h e remittance basis.
worked o u t s c h e d u l e ,
in three days,
W e have a
and where 4
very carefully
remittance
i s n o t reeeived
i n the case o f a three d a y bank, i t goes into
their account.
Governor Seay:
Y o u have a double system there a n d y o u
are compelled t o watch those things.
Governor Fancher:
B u t i t i s much simpler.
I t
has s i m p l i f i e d o u r a c c o u n t i n g w o r k immensely:
Governor Miller:
V o you require those remittances
to be i n drafts o n Cleveland, Cincinnati o r Pittsburgh?
Governor Fancher?
Y e s . A v a i l a b l e funds--- nothing
else.
“Governor Wold: I
because I
am very much interested i n this
have thought there w a s advantage t o b e derived
from a remittance basis o f handling these items. I
would
like t o k n o w w h a t b a n k s a r e u s i n g t h e d e f e r r e d c r e d i t a n d
charging u p a t t h e e n d o f the period,
ing o u t u p o n t h e r e m i t t a n c e b a s i s . I
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Federal Reserve Bank of St. Louis
a m w h a t banks a r e sendwould l i k e t o h a v e
282
the information a s a basis f o r o u r o w n actions. I
must
confess that o u r transit m e n a n d auditor d o not agree w i t h
me.
T h e y believe t h e present s y s t e m o f charging i s pre-
ferable a n d m o r e e c o n o m i c a l
The Chairman:
i n accounting.
W o u l d y o u like m e t o poll t h e table?
Governor Wold: I
would, “r. Chairman:
The Chairman: G o v e r n o r Fancher?
Governor Fancher:
W e are permitting our banks that
desire t o d o s o t o remit.
The Chairman:
B u t y o u have a
double system.
There
are s o m e c h a r g e s ?
Governor Fancher:
Y e s , some Charges:
The Chairman: G o v e r n o r Wold?
Governor Wold:
W e have one system o f charge a t the
end o f the period.
The Chairman:
G o v e r n o r Miller?
Governor Miller:
W e have just o n e system, b u t w e con-
template t h e double system.
The Chairman:
Governor Seay:
G o v e r n o r Seay?
W e have one system of charging:
make our elapsed period coincice with the fact, however.
If two days schedule time i s not sufficient t o give t h e
bank whatever time i s necessary for mail t o come and go, w e
allow t h e necessary time-
W e have found o u t b y correspond-
ence with o u r member banks t h a t t h e y prefer t o advise u s o f
the credit instead o f remitting f o r it- T h a t does n o t involve drawing a check.
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Federal Reserve Bank of St. Louis
The Chairman:
G o v e r n o r Rhoads.
283
Governor Rhoads:
W e use t h e p e e
e e e credit system
The Chairman‘: G o v e r n o r McDougal?
Governor McDougal:
W e operate t h e single system.
The Chairman: C h a r g e and credit?
Governor McDougal:
The Chairman:
G o v e r n o r McCord?
Governor McCord:
The Chairman:
Yes:
W e use t h e double system.
G o v e r n o r V a n Zandt?
Governor Van Zandt:
W e have the Dallas vistrict
clearing h o u s e plan, w h i c h d o e s n o t f i t i n w i t h a n y o f
theséplans.
The Chairman:
V i c e Governor Treman?
vice. Governor Treman:
Mr- Hendricks: I
W e have t h e double system.
will report f o r St» Louis.
T h e y
do not charge anything u p t o the member banks until t h e y
either r e c e i v e a
remittance
o r advices
o f receipt.
The Chairman: S p e a k i n g for Boston, w e have the
Charge a n d credit system.
If there i s n o further discussion o f Topic ( e ) w e
will pass i t and have i t removed f r o m t h e program.
The next is topic (f)
(f) D i r e c t interdistrict routing.
Governor K a i n s s u g g e s t e d t h a t .
discuss that.
D o e s anyone w i s h t o
I f not, w e will pass i t and leave i t o n the
program:
With reference t o the subject o f district numbers o n
checks I
would like t o say that t h e Secretary h a d a letter
from Governor Strong this morning i n which h e suggested t h a t
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Federal Reserve Bank of St. Louis
284
a committee b e appointed t o confer w i t h the A. B. A. i n connection with t h e encouragement a
trict numbers o n checks.
t h e idea o f putting dis-
A s f a r a s I know w e have done
all that w e could t o encourage i t i n our o w n district.
Cer-
tainly, speaking f r o m our point o f view, w e have done a l l
we C a n t o encourage it.
Governor Fancher: I
be p u r s u e d
think the same method h a s g o t t o
i n this m a t t e r a s w a s p u r s u e d
b y the Committee
of the A- B. A. a s t o having transit numbers o n the bank
checks.
Y o u have g o t t o g o right d o w n t o the question o f
the printers a n d lithographers andget i t started t h e r e .
have c i r c u l a r i z e d
o u r member banks
and a
number
W e
o f them are
heaving t h e i r d i s t r i c t w m b e r s p u t o n . H o w e v e r , t h a t i s a
very small proportion: I
think a committee should b e ap-
pointed that would b e a n active committee- P o s s i b l y t h e
committee o f the A - B. A. c a n help materially o n that.
The Chairman:
Y o you make such a motion, Governor
Fancher?
Governor Fancher: I
The Chairman:
be a p p o i n t e d
will make s u c h a motion.
G o v e r n o r Fancher moves that a
t o confer w i t h t h e o f f i c e r s
committee
o f t h e A - 5B. A .
in the matter o f district numbers o n checks.
(The motion, being duly seconied, was carried.)
The Chairman:
a n d “‘L
reman.
1
Fancher
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Federal Reserve Bank of St. Louis
Toplo (3).
T h e Chair will appoint Governors
(j) C u r r e n c y shipments.
What have you to suggest about that, Governor %eay?
Governor ©
Chairman.
eay: T h a t m u s t be an old number, Mr.
P o s s i b l y i t has reference t o shipments o f cur-
rency o n t h e p a r t o f m e m b e r b a n k s
i n payment
o f snéene s e n t
to them:
The Chairman:
Y o u will find i n the transit managers'
report t h e y r e p o r t c o v e r i n g t h e e x p e n s e
o f all the banks
in regard t o charges f o r such currency remittances.
Governor ‘Seay: I
The Chairman:
am satisfied t o let the topic pass.
A t the request of Governor “eay Item
(j) ifs passed a n d will b e removed f r o m t h e program.
Papte: (Lys
(1) C h a r g e s t o be collected b y member banks
from their patrons, a n d charges t o b e imposed f o r collecting o r clearing b y
Federal reserve banks.
Governor V a n Zandt:
H a s not t h e Federal Reserve Board
furnished u s with a communication o f some sort o n the subject?
The Chairman:
Y e s .
T h e y have furnished u s w i t h a
memorandum marked 901.
The Chair awaits suggestions a s t o the method o f dealing with this memorandum.
Governor V a n Zandt: I
move that t h e Chair read i t
section b y section a n d that i t b e discussed.
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Federal Reserve Bank of St. Louis
Vice G o v e r n o r Treman: I
second t h e motion:
(The motion was duly carried.)
286
1. S e c t i o n 1 6 o f the Federal reserve a c t provides i n
part that:
“The Federal Reserve Board shall, b y rule, fix the
charges t o b e collected b y the member bank. f r o m its patrons
whose checks a r e cleared through t h e Federal Reserve P a n k
and the charge which may be imposed for the service o f
clearing o r c o l l e c t i o n r e n d e r e d
b y t h e Federal Reserve
Bank."
ee
I n accordance w i t h the above provision o f the Act
and i n compliance w i t h various am. sundry requests o f pa-
trons o f the banks the Federal Reserve Board has established
the following rul-s a n d scale o f charges t o b e effective
as between Federal reserve banks a n d their member banks
and a S b e t w e e n m e m b e r b a n k s a n d t h e i r patrons,
said rules t o become effective o n and after
o r customers;
L
O
L
T
.
Se F e d e r a l Reserve Banks will charge their member
banks f o r t h e collection o f items o n the basis o f crediting
items o n a time schedule n o t t o exceed one-half c e n t p e r
item, o r per check, f o r all items d r a w n against member
banks.
4. F e d e r a l reserve banks will charge their member
panks f o r t h e c o l l e c t i o n o f items c r a w n a g a i n s t n o n m e m b e r
banks agreeing t o remit at-par, w h i c h items shall b e credited a S heretofore explained, n o t t o exeeed o n e a n d o n e half
cents p e r item.
5s F e d e r a l reserve banks w i l l charge their member
banks f o r the collection o f items drawn against nonmember
banks declining t o remit a t par 5 cents per item and $1.00
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Federal Reserve Bank of St. Louis
287
per $100 gross of items and credit the items i n the manner
heretofore explained.
6. M e m b e r banks will b e authorized t o act f o r a n y
Federal reserve b a n k a s collecting agencies f o r state nonmember b a n k items, e x c e p t
cities w h e r e a
i n Federal r e s e r v e c i t i e s
or in
Federal r e s e r v e b a n k h a s e s t a b l i s h e d a
branch o r agency.
I n such cases Federal reserve banks m a y
pay f o r the service rendered b y member banks i n collecting
such nonmember b a n k items a s m a y b e sent t o them for collection a n amount n o t exceeding 3
cents p e r i t e m a n d 2 5
cents p e r o n e thousand dollars gross.
Te M e m b e r banks m a y charge their patrons,
ers, u p o n items drawn o n other member banks a
o r custom-
collection
charge n o t exceeding o n e cent p e r i t e m a n d o n checks d r a w n
upon assenting nonmember banks a
collection charge n o t
exceeding three cents p e r item, a n d o n banks refusing t o
remit a t p a r s i x c e n t s p e r item.
I
n i k e a
t i e above
collection charge member banks m a y make a n interest charge
at the rate o f 4-1/2 per cent per annum i f the depositor
or customer o f the bank desireg t h a t t h e face o f checks
be m a d e i m m e d i a t e l y a v a i l a b l e
i n the f o r m o f c a s h o r a s a
deposit drawing interest o r subject t o check without allowing time f o r collection.
a
I f , however, t h e depositor o f
o f t o w n checks accepts credit deferred
o n t h e basis
of the member bank's collection schedule n o charge i n
excess o f the collection charges already authorized shall
be m a d e .
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Federal Reserve Bank of St. Louis
288
8. M e m b e r banks will n o t b e authorized t o give more
favorable terms t o some depositors t h a n t o others, unless
and until t h e proposed terms shall have b e e n submitted t o
the Federal reserve Board a n d approved b y it."
(Discussion with reference t o this memorandum
was ordered excluded from the record.)
The Chairman:
w e will take u p topic (0).
(o) Uniformity o f service charges.
Vice Governor Treman:
T h e transit committeein May of
1916, a t Chicago, voted a s follows:
"Voted-
T h a t i n estimating t h e cost p e r item, t h e
cost o f the transit department shall o n l y include t h e
sirect e x p e n s e
of m
intaining t h a t department,
a m shall
not take into consideration t h e cost o f running t h e bank
if t h e r e w e r e n o transit d e p a r t m e n t .
T h e direct expense
should include the following: D e p r e c i a t i o n (machines,
furniture, fixtures a n d repairs); e x p r e s s charges;
light; p o s t a g e ; power; r e n t ; salaries; stationery a n d
printing;
suppers;
s u r e t y bonds; t e l e g r a m s ; t e l e p h o n e s ;
cost o f shipping currency."
In New York, i n estimating the cost of charge for
services
w e have t a k e n i n t o account a
of overhead charges. I
plated
assume that w a s what was contem-
b y the transit committee
The Chairman:
certain proportion
i n its report
i n May, 1 9 1 6 .
D o you mean by "overhead" the salary
of the Governor, t h e Deputy Governor, a n d s o o n down?
Vice Governor Treman:
No»
% 6 do take the head of
the transit department, w h o i s a n assistant cashier-
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Federal Reserve Bank of St. Louis
W e
289
charge h i s services t o the transit department expense.
we m a k e a
Then
proportionate c h a r g e f o r rent, t h a t T o o o n
space, light, a n d all t h e other charges i n connection with
W e charge t h a t t o the transit department a n d the
that.
o f collection.
cos t
B u t a n y expenses l i k e t h e Governor's
Salary o r directors’ f e e s o r anything o f tha kind are
charges that would be made whether we had a transit depart—
ment o r not, a n d therefore w e d o not include them.
U D i d Iunderstand you t o say you
Governor McCord:
charged f o r floor space?
Vice Governor Treman:
W e charge a
proportionate
amount o f floor space.
Governor McCord:
H o w d o y o u amortize t h e machines?
Vice Governor Treman: I
do not remember.the period
in which w e charge t h e m off.
Mr- Hendricks: I
Governor Wola:
think i t i s five years.
T h e Burroughs people will take i n a
machine i n five years a t aspecified amount.
W e amortize
ours o n t h a t basis.
(Informal discussion Bliowed.)
Mr- Curtis: I
would like t o s a y that Governor Strong
feels v e r y strongly t h e necessity o f getting t h e service
charges t o member banks o n a s near a uniform basis a s possible,
i n order t o avoid criticism which will doubtless arise
when this thing gets a little further advanced.
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Federal Reserve Bank of St. Louis
(Further informal discussion followed.)
(At this point Governor Fancher took the Chair,
during the absence o f Governor Aiken.)
290
M r e Treman, h a v e y o u a
Governor Fancher:
resalution
to offer o r a n y suggestion t o make about t h i s matter?
Governor lreman:
reached a
d o not think w e have
Personally 1
point y e t where w e ought t o d o anything except
keep o n s t u d y i n g t h e question,
s o that i f w e d o make a
move w e w i l l k n o w w h a t w e a r e doing.
The Chairman:
W o u l d y o u suggest keeping t h e topic o n
the program?
Y e s ; a
Vice Governor Treman:
report should b e made
at the next meeting.
Governor Rhoads: I
concur i n the view expressed b y
someone--- perhaps i t was Vice Governor Treman--- o f the
necessity o f trying t o approximate s o m e uniformity.
very embarrassing t o us, f o r instance,
trict a
I
t is
t o have i n pur dis-
charge o f o n e c e n t w h e n w e c h a r g e o n e a n d a
half
cents, because w e have banks that are contiguous there i n
northern New Jersey. I
do not see how we can ever be
sure o f operating a t t h e same expense a t which y o u operate.
We have n o t the volume o f items a n d express charges o n currency a r e v e r y h e a v y i n o u r district.
Vice Governor Treman:
I t seems t o m e that w e c a n
adjust t h a t when w e have b e e n running long enough.
W h e n
we get some real knowledge a s t o the cost and find that w e
can d o i t profitably a t one cent, while y o u charge 1 . 3
cents, f o r instance, I
think
w
e Should have power t o
adjust i t s o a s t o m a k e auniform charge.
I t seems t o m e
we will always have a feeling o f disaffection and lack o f
loyalty t o the system i f i n one county t h e y are paying a
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Federal Reserve Bank of St. Louis
291
cent a n d a
half w h i l e
i n a n adjoining c o u n t y t h e y a r e p a y -
ing only a cent, a n d t h e b a n k s
each other. I
a r e i n competition with
think w e should have a charge that ultimately
should b e practically identical, where t h e conditions a r e
as closely identified a s they a r e i n the Boston District,
the P h i l a d e l p h i a d i s t r i c t a n d t h e N e w Y o r k district.
(Informal discussion followed which the reporter
was directed n o t t o take.)
w e will take u p topic (n).
The Chairman:
(n) B l i m i n a t i o n o f service charges o n collections handled f o r member banks.
T h a t i s the question w e have just
Governor Miller:
discussed, a n d that m a y g o off the program.
I
Governor Rhoads:
g i t t o b e continued
o r dropped
from t h e p r o g r a m ?
I t c a n b e dropped f r o m the program.
Governor Miller:
The Chairman:
H e r e i s another topic w e might dispose
(p) S e r v i c e charges f o r items forwarded
direct
b y member banks f o r Federal
reserve banks.
T h a t was proposed a t the Boston
Governor Miller:
Conference.
I t was caused b y the fact that w e were having
a great deal o f discussion with the S t + Louis banks w i t h
o charges o n checks s e n t u s b y their members
reference. t
direct.
T h a t h a s a l l been straightened o u t b y experience.
The Chairman:
I t has been adjusted a n d you d o not
care t o h a v e i t discussed?
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Federal Reserve Bank of St. Louis
Governor Miller:
T h a t i s correct, Mr- Chairman.
The Chairman:
T o p i c Ca}.
(q) S e r v i c e charge o n Government
checks d e p o s i t s w i t h F e d e r a l
reserve banks.
Governor Rhoads:
T h a t was carried o v e r f r o m the
Boston Conference a n d should b e dropped.
The Chairman:
Y o u desire
i t t o b e dropped f r o m t h e
program?
Governor Rhoads:
Y e s .
I
n
m y opinion i t has b e e n
settled.
The Chairman:
T h e next i s Topic (8).
(s) C o r r e c t i o n o f time schedules o f reserve
banks.
Governor Wold:
M r : Chairman, that was o n the pro-
gram a t the Boston Conference. I
relieved m y mind t h e n
and I did not p u t i t o n a t this time.
P o s s i b l y i t was car-
ried over.
Mr- Curtis: i
carried o v e r everything that w a s n o t
finally d i s p o s e d o f .
(Informal discussion followed which the reporter
was directed not t o take.)
The Chairman: G o v e r n o r Wold, d o you want any action
taken o n this t o p i c ?
Governor liold: I
Governor Aiken:
do notI n connection with 6-(s) I
think
a committee ought t o b e a p p o i n t e d t o correct t h e discrepancies
i n time schedules.
T h a t is a
matter c o n n e c t e d
very closely with the whole question o f domestic exchanges.
The d o m e s t i c e x c h a n g e q u e s t i o n i s a
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Federal Reserve Bank of St. Louis
very complicated o n e ,
293
and i S r e a l l y o n e a b o u t w h i c h m a n y o f u s k n o w v e r y little;
that is, about its operation.
gest a
standing committee, ¢
W h i l e 1 do not like t o sugthink w e ought t o have a n ef-
ficient committee a t work o n that:
T h a t committee should
perhaps c a l l i n one o r two transit m e n t o assist t h e m i n
straightening u p the discrepancies
i n the time schedule
and reduce t h e schedule t o a basis t h a t would b e satisfactory. I
did not hear most o f the discussion o n this mat-
ter a n d I do not know whether that h a s been covered,
Governor Wold: T h e r e was n o discussion o n Topic 6-(s)
at all.
I t was brought u p b y m e i n the Boston meeting,
and, a s 1 said before, I
relieved m y mind a t that time
about t h e K a n s a s C i t y s c h e d u l e - - - w h i c h b y t h e w a y i s j u s t
the same;z~and I
did n o t intend t o bring i t u p a t this
meeting myself.
Governor Ajken:
T h e s e differences remain here irre-
concilable a t present, a n d 1 think w e ought t o reconcile
them:
Governor Wold:
I t might b e interesting for m e t o
state t h e experience I
had with Governor Miller recently,
which shows t h e result o f some o f the practices o f the
Kansas C i t y Banks>
w e h a d a n item o f some cons equence
which o u r transit manager s e n t direct t o the member bank
upon which i t was drawn i n the Kansas G i t y District, asking
them t o r e m i t t o t h e F e d e r a l R e s e r v e B a n k o f Kansas C i t y
Lor’ ours C r e a l .
T h a t b a n k d i d that, b u t i t s e n t t h e m
such exchange a s Governor Miller i s taking f r o m the member
banks, a
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Federal Reserve Bank of St. Louis
draft that was deferred four days after i t got t o
294.
Kansas City.
S o instead o f shortening the time we had a
six d a y deferred i t e m tnstead o f a two o r three days deferred item.
I stated a
t the Boston meeting t h a t I thought t h e Kansas City schedule w a s arranged w i t h t h e idea o f having Min-
neapolis, f o r instance, carry a part o f their float. I
still think, Governor Miller, t h a t your schedule i s too
long d e f e r r e d u p o n a
great m a n y points, w h i c h p r o d u c e s a
hardship u p o n the other banks handling those items.
Governor Miller:
M r - Chairman, 1
think Governor W o l d
should have stated that whole transaction.
O n e o f his
member banks sent t o the First National Bank o f Spencer,
Nebraska, a $10,000 item for remittance t o the Federal
reserve b a n k f o r credit o f the Minneapolis Federal Reserve
Bank.
A l l would have been well, and h e would have gotten
immediate credit i f that Spencer b a n k h a d stated t h e purpose o f c c item; b u t they simply,
i n a n ordinary remit-
tance letter, s e n t t h e i t e m which, under o u r schedule, w a s
deferred, without stating that i t was done b y order, etc.
we h a d n o means
i n the world o f knowing f o r what r e a s o n t h a t
remittance w a s made. I
think m y l e t t e r
t o y o u explained
that s i t u a t i o n , G o v e r n o r Wold.
Governor Wold:
you p e r m i t a
V e r y true, b u t that i s caused because
member b a n k t o r e m i t t o y o u w i t h a
upon s o m e o t h e r m e m b e r bank.
H
draft
e does w h a t h e would b e
permitted t o d o i f the i t e m had come direct f r o m you.
Governor Miller:
W e would have given y o u immediate
credit f o r i t i f h e h a d indicated that t h e i t e m was i n pay-
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Federal Reserve Bank of St. Louis
295
ment o f something your bank h a d sent, b u t i t was contsined
in a n ordinary communication a n d w e could n o t knowGovernor McvLougal: I
ler this’
would l i k e t o ask Governor Mil-
I f you had received that i t e m yourself a n d had
sent i t t o Spencer, a n d Spencer h a d r e t u r n e d
the. same funds
that i t did return, w h a t would y o u have done w i t h those
funds?
Governor Miller:
float.
S p e n c e r would have carried t h e
T h e i t e m which t h e y sent b a c k would h a v e b e e n de-
ferred a n d their reserves depleted.
S p e n c e r would have
been carrying t h e float a n d w e would n o t have b e e n carrying
it, a s i s the general impression.
Governor McDougal:
L o y o u o r d o y o u not give immediate
credit f o r r e t u r n s t h a t r e q u i r e t i m e t o collect?
Governor Miller:
T h e state banks d o not keep a n y
accounts w i t h a n y o f the reserve cities.
W e d o take f r o m
the small member banks their exchange o n their member banks -I mean nonmember b a n k exchange o n member banks.
Governor McDougal:
Governor Miller:
T h a t i s bad policy.
W e had t o d o it, because a
lot o f
the little banks around Hudson, Kansas, f o r instance, keep
only a
Hudson account, a n d nothing more.
keep a Kansas C i t y account.
arouncWichita, K a n s a s ,
City.
T h e y d o not even
T h e r e a r e a great m a n y banks
t h a t h a v e n o accounts w i t h Kansas
T h e y have Topeka accounts, Hudson accounts and
Wichita accounts, b u t n o Kansas C i t y accounts.
you going t o do?
I
f y o u are going t o collect those items
you have g o t t o take exchange f o r them.
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Federal Reserve Bank of St. Louis
W h a t are
296
Governor McDougal: I
might s a y that 1
a m not goirg
to d o anything o f the kind.
Governor Millsr:
I t might b e best n o t to, b u t w e
were trying t o carry o u t the idea o f the Board t h a t w e ought
to g i v e t h e m t h e facilities.
Governor Wold:
S u p p o s e o n e o f those state banks opens
up a n account w i t h S a n Francisco?
W o u l d y o u take S a n
Francisco items from them?
Governor Miller:
T h a t i s a n overdrawn illustration.
But i f they were carrying accounts within their neighborhood, a n d c a r r y i n g n o o t h e r accounts,
tle banks do, I
a s m a n y o f these l i t -
d o not s e e h o w w e could require t h e m t o set
up a n account i n Kansas C i t y o r i n Chicago,
o r anywhere
else, Simply t o give u s exchange i n payment f o r the times
we a r e a s k i n g t h e m t o c o l l e c t f r e e ,
postage.
I
t i s only a
Governor Aiken:
a m
t o p a y their o w n
matter o f p r a c t i c a l operation.
I n the interest o f progress, I
move
the appointment o f a committee, consisting o f Mr. Fancher,
as Chairman, Mr. Treman and Mr. McDouglal, t o consider this
whole matter o f domestic exchanges,
t o raévise t h e time
schedul<s n o w i n effect i n connection w i t h the collection
operations o f the Federal reserve banks, a n d t o report a t the
next Conference o f Governors:
The Chairman:
Y o u have heard t h e motion?
Governor Wold: I
Governor Miller:
when t h e y a t t e m p t
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Federal Reserve Bank of St. Louis
object t o that.
T h e y have a
big j o b o n their hands
t o d o that.
Governor Wold:
T h a t would give t h e committee power t o
297
fix t h e time schedule f o r a n y bank, regardless o f what t h e
real t i m e was.
Governor Aiken: I
Governor Fancher:
will m o d i f y t h e motion.
M i g h t i t n o t b e well t o have that
committee consist o f five members?
Governor Wold:
I
L think y o u w i l l f i n d a
committee
of
three m e m b e r s m o r e efficient.
Governor Seay:
M r . Chairman, I f e e l that w e are i n a
very formative stage i n that respect.
While I
do not thi n k
they w e a r e d o i n g m y t h i n g o u r s e l v e s t h a t w e a r e n o t c o m -
pelled t o do, a n d a s far a s w e are concerned w e are n o t offending, S t i l l I
believe t h a t t h a t s i t u a t i o n r e q u i r e s a
good deal o f elasticity a n d a good deal o f accommodation
to circumstances existing i n the different districts.
b e
think i t i s not s o easy f o r the Federal reserve b a n k o f
one district t o understand f u l l y t h e conditions which exist
in the other districts o n these matters.
I . d o n o t feel
that a district f a r removed f r o m ours would b e qualified t o
recommend w h a t should b e done i n our district a t this time.
If w e were doing anything o u t o f the w a y I think attention
might b e called t o it, but I am intlined t o think that that
pelicy would b e very likely t o produce discogd.
Governor Miller: I
should b e very glad indeed t o
havethat committee come out t o Kansas City and stay a
couple months w i t h u s and help u s work o u t a time schedule
with o u r member banks.
satisfactory
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Federal Reserve Bank of St. Louis
W e have never been able t o get one
t o ourselves y e t .
Governor Seay:
W w e are working over i t and readjusting
298
I
it f r o m t i m e t o time.
Governor Aiken:
t is a
v e r y i n t e r e s t i n g problem.
T h i s committee would h a v e power
to
correspond w i t h t h e different reserve banks a n d t o find
out what t h e situation is, a n d bring into t h e Conference o f
Governors recommendations b a s e d o n the results o f their i n vestigations.
U n l e s s w e have s o m e committee t h a t ties t h e
thing t o g e t h e r , m
y investigation, Governor Seay's investigation a n d Governor McCord's investigation, b e i n g entirely
unrélated, accomplish nothing.
I f w e c a n have a committee
to investigate t h e whole question,
Governors
t o make inquiry f r o m the
o f t h e banks a s t o conditions existing
spective districts, p u t those together,
i n the r e -
a m c o m e into the
next G o n f e r e n c e w i t h a
recommendation, +
think w e shall
make p r o g r e s s t o w a r d a
satisfactory adjustment
o f this-
do not think w e will make progress i f w e follow i t individually.
Governor Wold: I
Mr+ C h a i r m m ,
would like t o amend that resolution,
t o provide f o r a
committee
t o b e appointed f o r
the purpose o f investigating the time schedules, t o make a
thorough investigation o f the time schedules within e a c h
district a n d between t h e Federal reserve districts, a m d r e port b a c k t o the rext conference.
Governor Aiken: I
will gladly accept that change o f
language, because i t means t h e same thing that I
had i n
mind.
Governor McDougal:
committee 1
would l i k e t o know d e f i n i t e l y whether
we a r e e x p e c t e d
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Federal Reserve Bank of St. Louis
A s a prospective member o f that
t o deal w i t h matters
o r not
between districts
o r
289
whether w e are expected t o deal with matters within t h e
borders o f each district.
Governor Aiken:
The Chairman:
B o t h , Governor McDougal.
I s there. a second t o that motion?
(The motion was seconded.)
Vice Governor Treman: I
understand the committee
will n o t attempt t o inferfere w i t h t h e right o f each
bank t o r e g u l a t e t h e a f f a i r s
i n i t s o w n district.
L
e
anything i s found fundamentally wrong o f course t h e y would
bring i t u p for consideration.
W i t h n o reflection o n
Kansas City 1 would s a y that their method o f dealing with
the banks i s unsound a s between t h e m a n d the other districts outside o f Kansas City.
Governor Miller:
Y o u mean i n buying their exchange?
Vice Governor Treman:
without a n y c h a r g e f o r i t .
Y o u give them immediate credit
Y
o
u a r e giving t h e m practic-
ally t w o days u s e o f the money f o r nothing, whereas y o u
charge a man 15 miles outside of Sagnsas City two days b y
the d e f e r r e d c r e d i t system.
Governor Seay: I
am not opposing the committee.
I t
seéms t o m e i t would b e a n investigation which woulda b e more
apt t o determine s o m e t h i n g o f real v a l u e i f i t w e r e
directed toward t h e relations between t h e districts, because
the matter o f conditions w i t h i n t h e district i s going t o
be very hard t o investigate a n d report upon.
Governor Treman:
M
y thought
i s that w e a r e n o t doing
this t o produce a n y friction o r anything o f that kind.
Here w e have a
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Federal Reserve Bank of St. Louis
system i n a formative Stage. A
great deal
300
of it is new, certainly i n its relations between the Federal reserve banks p e r s e a n d the member banks»
to t i m e t h i n g s l i k e t h i s w i l l c o m e u p ;
F r o m time
i f y o u have n o one
to refer t h e matters y o u l a y them away i n a lobe o f your
own brain thinking that y o u will bring them. up. p u l e a s
you h a v e a
Chairman
committee
t o whicH y o u report t h e s e matters,
o f t h e Comsittee
bers o f t h e C o n f e r e n c e
in a
gradually work towards a
Governor Seay:
could discuss
the
t h e m with the mem-
pleasant w a y , a n d y o u w o u l d
better system.
I t i s quiteimportant t h a t the same
deferred tine should b e fixed between t h e Same places.
A s
Mr. Hendricks s a i d t h e time between t w o points i n different d i s t r i c t s s h o u l d b e t h e s a m e w i t h r e s p e c t
Federal reserve banks o f those districts:
t o the
i t i s a very
fruitful field f o r investigation.
Governor Miller: I
would like t o ask the Governors
present i f they discount o r defer a l l items o n reserve
cities?
The Chairman:
W h a t i s the practice i n New York, Mr.
Hendricks?
Mr. Hendricks:
W e do not take anything for immediate
credit other than clearing house business.
w e take items
from t h e B o r r o u g h o f Manhattan.
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Federal Reserve Bank of St. Louis
Governor Ajken:
Governor Miller:
Governor Aiken:
Governor Miller:
Governor Aiken:
w
e b u y exchange.
D o you pay par for it?
Y e s , f o r N e w York exchange.
W e discount i t ten cents.
F r o m time immemorial N e w York
Boston exchange h a v e b e e n interchangeable.
T h a t i s exactly t h e w a y i t i s i n the
Governor Miller:
O f course i t i s regulated b y
cities i n m y district.
commerce.
W e take items o n other cities o n the
Governor Aiken:
deferred t i m e schedule, except when w e make a specific
exchange transaction within o u r o w n control entirely.
W h a t d o you d o when y o u get a Cleve-
Governor Miller:
land craft?
I s that exchange purchased,
o r a o you take
it o n deferred credit?
Governor Aiken: S o m e t i n g s w e buy the exchange a n d
sometimes w e defer it.
Governor Miller: I
would like t o know i n what w a y that
is different f r o m the w a y Kansas C i t y i s doing i t ?
Governor Seay:
Y o u cannot interfere with deferred
credit principles i n the same way, practically, a n d call
them b y d i f f e r e n t names.
O n e i s the purchase
a t a premium o r at a
either
o f «xchange
discount, w h i c h i s a n a r b i t r a r y
interference.
Governor Wold:
T h e only thing w e take i s Twin City
exchange a t par f o r immediate credit-
W e buy, N e w York,
Chicago, Boston o r Philadelphia o n not less t h a n t w o days.
Governor Miller: I
Governor “eay: I
have made m y statement.
have a l s o made m y statement:
T h e
only exception w e have t o the deferred credit principle i s
in receiving from our country member banks New York Exchange
at par.
T h a t was done after a
New Y o r k banks,
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Federal Reserve Bank of St. Louis
conference between t h e
t h e P h i l a d e l p h i a b a n k a n d t h e B o s t o n Bank.
302
But w e d o not accept i t from the c i t y banks.
W
e d o from
the country banks merely because w e feel that t h e y must
have some method o f restoring their reserve balances.
A s
far a s I recall that i s the only departure w e make f r o m the
deferred principle.
Governor Rhoads:
W e follow the Same principle f o l -
lowed b y Richmond--- deferred credit o n all items, except
that w e w i l l a l l o w a country b a n k t o r e m i t
i n New York
funds f o r immediate availability.
Governor McDougal:
W e purchase Boston, N e w York,
Philadelphia a n d St- Louis exchange a t t h e market.
I n
some cases w e take exchange o n those cities f o r other
cities o n the deferred basis.
I t i s optional w i t h t h e
bank.
Governor Seay:
par?
D
A r e there times when you take i t at
o you call that purchasing exchange ?
Governor McDougal: C e r t a i n l y . E x c h a n g e i s bought
and sold i n Chicago just like everything else, every day.
We have brokers there w h o b u y i t a n d who deal i n it.
The Chairman:
W h a t i s the custom i n Atlanta, Gover-
nor McCord?
Governor McCord:
I w o days o n the regular deferred list,
except w h e n w e a r e i n need o f money f o r t h e Gold Settlement
Fund, when w e buy New York axchange a t par.
The Chairman:
G o v e r n o r V a n Zandt, w h a t i s the custom
in Dallas?
Governor Van Zandt:
W e accept all Federal Reserve
city exchange a t t h e market rate, whatever i t i s worth that
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Federal Reserve Bank of St. Louis
day, f o r immediate credit.
Governor Miller:
A n d frequently a t par?
Governor Van Zandt: F r e q u e n t l y a t par. S o m e t i m e s a t
a discount a n d s o m e t i m e s
The Chairman:
at a
premium.
T h e custom i n Cleveland i s that every-
thing i s deferred except items o n Cleveland banks a n d o n
mémber banks i n Pittsburgh a n d Gincinnati.
T h e y make their
checks i m m e d i a t e l y available.
Governor McDougal:
The Chairman:
Y o u a r e n o t b u y i n g a n y exchange?
W e are buying it, b u t a t a discount;
taking i t from members a t a discount.
Governor McDougal:
The Chairman:
Y o u are buying exchange?
Y e s , w e are btiying exchange.
Governor %eay:
ment reminds m e of.
‘ T h e r e i s o n e question which your com-
W e have t w o cities that agreed t o
maintain excess balances w i t h u s for payment o f checks upon
them, a n d they d o maintain those balances.
S o . they d o
not they are penalized.
penalty against
W e have levied a
some o f the banks amounting t o as high a s $700 a month, for
failure t o keep those balances.
Vice Governor Treman:
fore t h e draft comes in.
Governor S e a y :
T h e y furnish y o u t h e money beT h a t i s a different matter.
Yes.
Governor Fancher? D o e s that give you the information
you want, Governor Miller?
Governor M i l l e r : I
dum. I
think
i t i s Tweedle-dee
a n d Tweedle-—
think all of the Yovernors buy exchange a t par,
whenever i t Suits them, calling i t the market rate.
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304
Governor Fancher:
N o t i n our case.
Governor Miller: I
W e discount.
will escept y o u r came a n d will
except anyone else that needs t o te excepted. I
say
it i s pretty generally understood that sev-ral o f them buy
New York exchange - - -
Governor McDougal: I
buy New York exchange usually
at 20 cents discount.
Governor Miller:
S o do I, i n season. I
buy i t now
at t e n cents.
(Further informal discussion followed.)
The Chairman:
I f there a r e n o further remarks u p o n
Governor Aiken's motion I will put the motion.
(The motion, being duly seconded, was carried.)
Governor Fancher:
adjourn.
M o t i o n has been ma:e that w e now
I s i t seconded.
(There were several seconds,
a m t h e motion was
carried.)
(Whereupon,
a t 6:30 o'clock p. m., t h e Confer-
ence adjourned until tomorrow, Wednesday, December 13, 1916,
at 9:30 o'clock a. m.)
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Federal Reserve Bank of St. Louis