Full text of Federal Reserve Governors Conference : Meeting Documents : December 11-14, 1916, Ninth Conference of Governors of Federal Reserve Banks : Proceedings, Volume 3: December 13 & 14 1916

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NINTH CONFERENCE i
OF

GOVF{RNORS O F FEDERAL RESERVE
BANKS

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Federal Reserve Bank of St. Louis

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CONFERENCE O F GOVERNORS O F FEDTRAL RESERVE BANKS.

Shoreham Hotel, Washington, D ° C.,
Wednesday, D e c e m b e r 1 3 , 1916.

The Conference reconvened i n the Conference R o o m a t

the Shoreman Hotel a t 9:30 o'clock a. m., pursuant t o the
adjournment o f yesverday.
Apprearances

The Chairman:

a s p r e v i o u s l y noted.

T h e m e e t i n g w i l l c o m e t o order.

Governor W a r b u r g h a s r e q u e s t e d t h a t w e c o m e o v e r t o
his office,

a n d w e w i l l g o now.

(The Conference thereupon adjourned t o the Treasury
Building f o r a meeting with Mr. Warburg o f the Federal

Reserve Board.)

12720 o'clock p.m.
The Conference reassembled a t the Shoreham Hotel.
The Chairman: G e n t l e m e n , y o u will please come t o
order.

Governor McDougal:

M r - Chairman, I

would like t o re-

port o n behalfof t h e Committee appointed t o confer w i t h the
Board. I

refer t o the matter o f securing,

the c o o p e r a t i o n

o f t h e Board

i f w e could,

i n the matter o f getting t h e

Comptroller t o change h i s policy o r his rulings w i t h a view
to not permitting member banks t o count their transit items
as part o f their optional reserves.


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Federal Reserve Bank of St. Louis

306

Mr. Fancher, M r . W o l d a n d 1 had a talk with Mr- Delano.
Mr. Harding was n o t present, b u t Mr- Delano S a i d that h e
would receive t h e message o n behalf o f the committee.
Mr. D e l a n o s t a t e d t h a t t h e y w e r e

i n rather

a n unfor-

tunate position withregard t o helping u s for the reason
that until after t h e reserve adjustments h a d been completed
they felt t h e y d i d n o t want t o interfere.

H

e said i t

was o n e o f t h o s e c a s e s o f d i v i d e d a u t h o r i t y a n d w a s a

ter o f embarrassment;

mat-

t h a t after t h e adjustment h a d b e e n

made t h e Board would n o t hesitate t o correct that condition.
He s a i d u n t i l t h a t t i m e h e f e l t t h e y w e r e n o t i n a

position

to afford u s very great help.
The Chairman:

T h e substance o f your report i s that

nothing c a n b e d o n e a t p r e s e n t

t o change t h e situation a n d

we w i l l h a v e t o m a k e t h e b e s t o f i t u n t i l t h e r e a d j u s t m e n t
is m a d e ?

Governor McDougal:
The Chairman:

Yes.

M r - e Jacobson brought o v e r a memorandum

with reference t o the number o f forms. N o * 3 4 that t h e y
proposed

t o have printed f o r t h e u s e o f e a c h Federal reserve

bank f o r t h e current year.
the Governors,

H e asked m e t o submit this t o

a n d i f the amount t h e y contemplated h a v i n g

printed m e t t h e requirements o f the Governors, t h a t t h e y
QO. K. i t and return i t t o him a t our early convenience.
Governor V a n Zandt:

The Chairman:
I suggest,

W h a t i s F o r m No: 3 4 ?

D a i l y statement.

i f there i s n o objection, t h a t w e take u p

for consideration subtopic (t) o f Item 6 on the program.


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Federal Reserve Bank of St. Louis

307

(t) U s e of words "collectible a t par
through Federal reserve banks."
Governor McDougal a n d myself asked t o have this topic

put o n the program and I am going t o take the liberty o f
stating t h e c a u s e o f t h e i n q u i r y o n m y part.

We h a d a letter f r o m Mr- Thrall,

o f the Clearing

House Section o f the American Bankers Association asking
if we were not willing t o cooperate with them i n having
that legend removed f r o m the checks because,

i n the judg-

ment o f the clearing house s e c t i o n o f that association,
checks w e r e n o t c o l l e c t i b l e

a t par.

I feel very strongly that w e should not cooperate with
Mr- Thrall o n that pointcharge,

a s I

see i t , h a s

T h e imposition o f the service
n o more bearing

u p o n checks

being

collectible a t par than the internal c o s t o f handling
those checks i n the b a n k i s a part o f the operating cost o f

handling the checks, a n d is not a n exchange charge:
does n o t affect t h e checks b e i n g p a r checks.

I t

I t i s a part

of the operating cost o f the bank i n handling those checks,

and I submit that i t would b e very injudicious for this
Conference

t o cooperate

i n a n y s u c h activity o n the part o f

the Clearing house section o f the American Bankers' A s s o ciation.

Governor McDougal: I

think your statement i s exactly

in accord with the facts, Mr. Chairman, b u t I believe that
in the Boston district y o u are probably n o t subjected t o
the same confusion a n d criticism that w e are i n Chicago-


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Federal Reserve Bank of St. Louis

I a m not discussing this topic because o f a n y request

3508

ofMr. Thrall's, although I have Mr. Thrall's letter here.
I had intended t o bring i t u p a t this meeting prior t o the
receipt o f this letter from Mr. Thrall.

W h i l e i t is

literally true that w e c a n stand behind t h e expression
that these checks a r e collectible a t par through t h e Federal
reserve b a n k s ,

y o u m u s t qualify t h a t b y stating t h a t t h e y

are collectible b y a member bank.

T h e checks coming into

the hands o f the public w i t h these stamps o n them, cause
confusion. I

suggested t h e topic f o r discussion a n d I will

say that while a t one time I
phrase I

a m not encouraging

encouraged t h e u s e o f the
i t a n y more, a n d I

would l i k e

to have a n expression o f the views o f some o f the other
Governors o n the matter.
The Chairman: I

would like t o ask i f that expression

of view i s only a n expression o f the views o f the nonmember
banks through w h o m the checks g o for collection?

Governor McDougal:
member banks.

No. I

I t i s confusing t o the public, i n t o whose

hands these checks come.
ceived a

am not referring t o non-—

T h r e e years ago, i f y o u had r e -

check o f that character,

as a

banker,

y o u would

have understood that i t could b e collected without a n y deduc-~
tion.

T h e public s e e m t o look upon i t i n that w a y a n d

there i s where t h e trouble comes in-

Governor Fancher:

A n d d o not the clearing house regula-

tions m a k e i t more confusing?

W h e n these checks g o into

the clearing house, o r into cities where t h e y have clearing

house regulations, then they are subjected t o clearing house
charges i n one formor another?


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Federal Reserve Bank of St. Louis

309

Governor McDougal:

O f course that h a s a direct bearing o n

the whole matter.
Governor Fancher:
Governor McDougal:

Y e s , it: b e e .
I f , f o r instance, o u r Chicago

banks, through their clearing house association, h a d been
liberal enough t o give preference t o the checks t h a t w e

could handle, a n d had made i t possible for Federal reserve
banks t o handle these particular checks a t a very small
Charge=--~ which possibly might have resulted i n their absorbing i t entirely--- this matter would n o t b e u p for discussion now.

The Chairman:

I s i t not a fact that i f we discourage

the use o f that w e discourage i t i n the interest o f the
clearing house associations that a r e opposing t h e charges

and not i n the interest o f the development o f the par collection S y s t e m i n w h i c h t h e F e d e r a l r e s e r v e b a n k s a r e i n t e r ested?

Governor McDougal: I

think that i s quite true:

A t

the same time t h e question i s whether w e c a n conscientiously
encourage t h e u s e o f t h a t p h r a s e

a t t h e present t i m e a n d

under current conditions, where y o u have t o put out a check
which makes o n its face a

ing.

I

statement which i s very mislead-

f we had used the term "collectible through a

Federal reserve bank} o f course that would not have created
any discussion.

The Chairman:

M y idea was not t o take action t o push

the extension o f i t o r t o interfere w i t h the practicés
now prevailing i n the different Federal reserve banks i n


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Federal Reserve Bank of St. Louis

310
that connection, b u t merely t o get a n expression o f opinion
at this conference, w h i c h c a n b e handed t o Mr. Thrall,

to

the effect that t h e Federal reserve banks d o not care t o
change t h e practice which they have established i n that r e spect.
T h a t i s entirely agreeable t o me.

Governor McDougal:

I should like a t this time t o attain m y o w n object a n d a s certain w h e t h e r

o r not t h e banks

i n other districts

are

experiencing t h e same difficulties w e are,
I

The Chairman:
orderly manner, I

n order t o take t h e matter u p i n a n

would suggest i f there i s anyone inter-

ested i n the contention I make, t h a t t h e y offer a resolution
to the effect t h a t i t i s the sense o f the meeting that
the practice o f the reserve banks should n o t b e changed.
Governor Miller: I

will second it. I

Governor Seay: I
gay t h a t 1

will make s u c h a motion.
would like t o

wrote t o t h e S e c r e t a r y o f t h e A » B . A . e x p r e s s i n g

the views expressed byyou i n almost t h e identical language.
Governor Miller: I

did alsoa m quite sure that t h e public will

Governor “eay: I

very quickly come t o understandwhat t h e phrase means o n
these c h e c k s .

Governor McCord: I
tion.

would like t o explain o u r posi-

W e have insisted f r o m the first that t h e language

used should b e "collectible through F e d e r a l reserve bank

of Atlanta a t par."

W e entered into agreements with non-

member b a n k s t h a t t h e y w o u l d b e p e r m i t t e d

if they would remit t o us- I


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Federal Reserve Bank of St. Louis

t o put that o n

want t o take care o f m y

Mea So

agreements w i t h those people, a n d for that reason I shall
vote i n the affirmative.

(The motion was duly carried.)
Governor McDougal:

M y request is, Mr- Chairma,

that w e hear from-the other Governors a s t o whether o r
not t h e u s e o f t h a t t e r m h a s c r e a t e d i n q u i r i e s

o r confusion

in their districts.
Governor MeCord:

N o n e w i t h us.

Governor Fancher:

W e did not incorporate that i n

our collection circulars a n d t h e point h a s n o t come up.

I t

has n o t been made a n issue b y a n y o f the banks i n our district.

The Chairman: G o v e r n o r Wold?
Governor Wold: I

a m inclined t o agree w i t h Governor

McCord i n his contention, that i t does not really state the
conditions o r convey what really hapgns t o those checks:
They a r e n o t c o l l e c t i b l e

bank.

a t p a r through t h e federal reserve

T h e y are collectible through t h e banks subject t o

a service Charge. A

number o f the state banks have joined

the system and told their customers their checks were collectible a t par through t h e Federal reserve banks:

T h e y

now find that t h e ones t o whom those checks a r e sent
are Subject t o pay not o n l y t h e service charge b u t a n additional charge. I

think t h e matter was phrased unfortunately,

although 1 was i n favor of it at the time I

believe i t

would b e very much better i f we used the phrase "collectible
through a federal reserve bank."

A

s suggested b y the

Chair, w e d o not want t o accede t o the request o f Mr- Thrall.


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Federal Reserve Bank of St. Louis

312-313
Governor McDougal:
to this subject.

M a y I say one more word i n regard

I t i s not m y intention a t this time t o

Suggest t i a tthe t e r m b e abolished, b u t i t was m y intention
to S a y that i t would n o t b e best t o push t h e matter.
The Chairman:

G o v e r n o r Miller?

Governor Miller: I

wrote t o Mr. Thrall using almost

the identidal words that you used, Mr. Chairman. I
posed t o a c c e d i n g t o h i s request.

I

am op-

L hope i t w i l l b e l e f t

just a s i t is without any effort t o push i t at this particular time:
The Chairman:

G o v e r n o r Seay.

Governor Seay: I
and I

adhere

have expressed similar sentiments

t o them:

The Chairman: G o v e r n o r Rnoads?
Governor Rhoads: I
The Chairman:

feel the same way, Mr: Chairman.

G o v e r n o r McCord?

Governor McCord: I

have expressed myself.

W e , are

not pushing t h e matter, b u t w e propose t o stand b y our cone
tracts.

The Chairman:

G o v e r n o r V a n Zandt?

Governor V a n Zandt:

W e a r e n o t pushing it.

W e put

that i n our original circular, a n d w e d o not feel like w e
- ought t o d o anything t o call i t back now.
The Chairman:

G o v e r n o r Treman?

Vice Governor Treman?
territory:

I t i s not used v e r y much i n our

T h e r e has b e e n some complaint t h a t i t was n o t

based o n actual fact.

W e r e w e t o d o i t over again i t might

be wiser t o make a different phrase.


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Federal Reserve Bank of St. Louis

However, I

think i t

would b e unwise t o make a n y change a t present.

The Chairmant D o e s that satisfy your i m uiry, Governor McDougal?
Governor McDougal:

Y e s , except t h a t I

would like t o

offer a motion that the Secretary b e instructed t o communicate with Mr. Thrall t h e action o f this committee i n re-

gard t o this matter.
Governor Fancher: I
The Chairman:

I

second t h e motion.

s t h e r e a n y discussion.

(Ther was no discussion and the motion was duly
carried.)

The Chairman:

T h e next topic is (x)

(x) A c t i o n of A- B. A. Committee.
Mr+ Curtis:

A s you all know, a committee o f 25, ap-

pointed a t the American Bankers Association meeting held
last Summer, h a s gotten o u t a questionaire.

T h i s was ori-

ginally sent to each of the State Bankers' Associations
with a request t h a t they send copies t o their members.

That

was d o n e b y a l l t h e s t a t e a s s o c i a t i o n s e x c e p t t h o s e o f

Illinois a n d Maryland.

T h e r e w a s some mix-up i n those t w o

states a n d t h e q u e s t i o n a i r e w a s t h e r e u p o n S e n t o u t d i r e c t

to the banks i n those states b y Mr. Thrall himself.
Twenty-seven t h o u s a n d i n q u i r i e s w e r e s e n t out.

About

7800
2600 r e p l i e s w e r e received.

Mr. Thralls t o l d m e h e d i d n o t feel a t liberty t o tell
me all t h e data that h e h a d received, b u t h e would give m e
an approximatéon,


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Federal Reserve Bank of St. Louis

a n d the understanding was that that

315
approximation w a s n o t t o b e c i r c u l a t e d a r o u n d i n advance o f

the meeting of the A* B. A. Committee i n Chicago.
Governor Miller:
Mr. Curtis:

T h a t m e t a few days ago, d i d i t not?

I t met o n Monday, t h e d a y that w e met.

He gave m e this, a n d I will a s k the Conference t o
treat i t confidentially until i t i s published b y the other
committee,

i f i t i s published.

all banks, s t a t e a n d national,

T h e questionaire w e n t t o
a n d t r u s t companies.

(Mr- Curtis thereupon read from the péper referred to, which t h e stenographer w a s i m t r u c t e d t o omit

from the record.)

(Informal ciscussion followed»)
The Chairman:

I f there i s n o further discussion o f

this topic a n d n o action t o b e taken, w e will pass it.

(y) S t a t e banks remitting a t par.
Mr. Treman wishes t o have that removed from the program.
(8) H a n d l i n g o f tine items.
I put that o n the program because o f a quite active
demand among o u r banks f o r some facility f o r clearing t i m e
items through us, looking forward t o the time when their
deposits w i t h their c o r r e s p o n d e n t banks i n the cities
would n o t b e available f o r reserves, a n d when they would b e
greatly reduced.
That matter w a s discussed a t t h e meeting o f the transit
managers a n d t h e y p a s s e d t h e f o l l o w i n g resolution:


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Federal Reserve Bank of St. Louis

"We recommend that the Federal reserve banks prepare

316
to o p e n c o l l e c t i o n d e p a r t m e n t s f o r t h e h a n d l i n g o f various

formsof collection items b y February 1 , 1917.

"Mr. Lawder, o f Dallas, asked t o be recorded a s not
voting, f o r t h e reason that h e did n o t know t h e attitude

ofthe executive officers of his bank on this subject.
"Mr. Flemming, o f Cleveland, also d: sired t o be recorded
as not voting.”
I would like a n expression o f bdpinion from the Governors a s t o t h e d e s i r a b i l i t y

o f undertaking s u c h operations

and a s t o t h e t i m e w h e n w e m i g h t u n d e r t a k e t h e m ,

i f you see

fit t o d o so.
Governor Seay:
apparently.

T h e banks have b e e n communicated with,

T h e y received notifications f r o m t h e Comptrol-

ler t o the effect that t h e Federal reserve banks were n o w
prepared,

o r permitted,

b y amendment t o the Act, t o handle

time items, a n d they are n o w acquainted w i t h the fact.
have h a d a

number

o f time items sent

Governor McCord:

W e

t o us.

D o you mean for discount, 9

just

collection?

Governor Seay:

F o r collection-

W e have i n all

cases offered t o collect t h e m subject t o a n y charge that
might b e made, a n d h a v e a d v i s e d t h e m e m b e r b a n k s t h a t t h e

other member banks were n o t compelled t o handle s u c h items
at par a s they were i n the case o f checks.

I agree with you, Mr- Chairman, that w e should b e prepared t o handle them; t h a t w e should communicate w i t h o u r
member banks a n d have i t distinctly understood that w e are
not able t o handle these a t par, b u t subject t o such charges


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Federal Reserve Bank of St. Louis

as the collecting b a n k might choose t o impose.
The Chairman: I

should like t o a s k i f y o u would con-

template t h e imposition o f a collection charge b y ihe Federal
reserve b a n k sufficient t o cover t h e operation o f that
department -

T h a t w o u l d b e a n expensive d e p a r t m e n t

t o oper-

ate, especially i n the large centers l i k e N e w York, Philadel—
phia, Chicago a n d Boston, where w e will receive a
number o f i t e m s w h i c h woulda r e q u i r e a

Governor Seay! I

number

large

o f messengerss

d o not k n o w that I dam prepared t o

say whether i t would b e advisable t o put a special charge
on those items.

T h e number o f such items i n proportion t o

the number o f checks t h a t y o u get i s o f course v e r y small,
probably n o t five p e r cent, a n d I d o not know whether i t
would a d d a p p r e c i a b l y
I a m not prepared

t o t h e c o s t o f y o u r t r a n s i t department.

t o s t a t e that.

The Chairman:

with us, because a

I

t would b e a

t C apomot t h i n k 2 % would:..
very considerable i t e m

great m a n y notes, f o r instance, are,

payable a t various banks i n Boston, notes that a r e held
all over t h e country.

N e w York, Chicago, a n d possibly

Philadelphia, w o u l d have a larger amount o f busiress a n d
it would b e a more expensive operation w i t h them, probably,

than with us. I

would like to ask Governor Treman how

he feels o n the matter.
Vice G o v e r n o r Treman: I

if w e are t o have a

t h i n k t h e r e i s n o question,

satisfactory collection system, b u t

what t h e Federal reserve banks w i l l have t o d o i t ultimately.
We h a v e d i s c u s s e d i t , b u t a r e n o t p r e p a r e d t o u n d e r t a k e

it

yet, because w e realize i t i s going t o involve quite a n


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Federal Reserve Bank of St. Louis

318

expense.

I

t seems t o me i t would d o a good deal towards

popularizing the Federal reserve banks, i f we should give
this added service, doing i t for a very small charge,
any charge i s made. I

if

think i t would help t o break down

the antagonism towards t h e present check collection operations.
Governor Fancher:

a bearing o n it?

D o e s n o t this feature h a v e quite

H o w c a n w é consistently a s k a member

bank, t o whom we send a maturing bill t o be collected and

credited t o out account,to do it free, when they have been
in the habit o f making a nominal charge o n those items a s
distinguished f r o m the mere collection o f checks?

H a v e

we not g o t t o recognize t h a t there i s compensation d u e t o
the member banks f o r the handling o f those items?
Governor V a n Zandt:

Governor Fancher:

Y e s ,

w e have.

W e must p u t i t o n a n entirely dif-

ferent baSis.
Governor Wold:

W e are handling

c o l l e c t i ornoour
sf

member banks subject t o charges m d e b y the collecting
bank.

W h i l e w e are n o t encouraging i t w e are n o t discour-

aging it.

T

h

e volume o f that business i n Minneapolis,

at g r a i n m o v i n g periods,

i s v e r y large.

Vice Governor Tpeman: W h a t is the average charge i n
your district?

C o u l d you give any fair approximate idea?

Governor Wold: I
right o f a

would b e disposed t o question the

member b a n k t o c i e s

m o r e than one tenth o f

one p e r cent, with a minimum charge o f a quarter o n small
items.


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Federal Reserve Bank of St. Louis

W e believe t h e y are entitled t o a minimum o f 2 5

319

cents, a n d that t h e y should b e allowed o n e tenth o f one
per cent o n items o f a n y consequence.
Governor Seay:

D o you impose g

service charge?

Governor Wold:

W e have n o t been making a n y separate

charge, although i t involves s o m e additional c l e r k hire a w
expense.

W

e think that i s o n e place where w e c a n render

service t o the member banks w h i c h they will a p p r e c i a t e ,..
and i t will create better feeling.

Gove rnor Van Zandt:

A s I understood it, Mr. Chairman,

your idea was that your bank being a collecting bank, i t
would e n t a i l l a r g e e x p e n s e

The Chairman:

o n y o u r bank.

I

s that t h e idea?

Y e s -

Governor V a n Zandt:

T h e n i f y o u should make those col-

lections either f o r your member b a n k o r for some other
Federal reserve bank, t h e n your charge should b e that o f
the collecting bank, a s Governor W o l d h a s said, s a y a t t h e
rate o f o n e t e n t h o f o n e p e r c e n t w i t h a

per item.

minimum o f 2 5 cents

B u t i f items were received f r o m your member

banks ani s e n t t o another Federal reserve b a n k o r sent t o
another m e m b e r bank, t h e e x p e n s e

o f your b a n k would not b e

so great t h a t y o u would want t o make a charge o f your o w n

in that transaction.
The Chairman: I

have h a d n o experience i n that.

The whole matter o f charges would h a v e t o b e left t o a com—
mittee o f men who have experience i n operating t h e collection department o f the banks.
Governor McCord:
On U S .


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Federal Reserve Bank of St. Louis

T h e r e w o u l d b e considerable e x p e n s e

520

Governor Wold:

T h e practice w e have folloved i n

sending o u t items f o r collection i n our district w a s n o t t o

send them t o the federal reserve bank but t o send them t o
the member bank i n that district w i t h instructions t o remit t o t h e b e a s p a d r e s e r v e b a n k -

I

n that w a y t h e Federal

reserve bank i s put t o no extra trouble and the member
bank gets the exchange, which i t is entitled t o deduct.
(At this point Governor Harding and Mr. Hamlin
of the Federal reserve Board entered t h e conference

room.)
The Chairman: Gentlemen, will you not sit with us and
take part?

W

e were discussing t h e matter o f the establilh-

ment o f a time collection department i n each bank, merely
to get a n expression o f opinion f r o m the Governors o f the

aifferent banks o f their feeling i n the matter. I
stated t h a t i t s e e m e d t o m e t o b e a

had

facility t h a t t h e m e m -

ber banks would appreciate a n d that w e should take u p the
question o f charge f o r such services.

I w a s j u s t stating

to Governor V a n Zandt that i t seemed t o m e that i t should
really b e left t o a committee off men who are experts i n
that e n d o f the business a n d who handle t h e business,

that committee t o consult with the Board a s t o the basis o n
which i t should b e developed.
I would like t o hear further expressions o f opinion
on this matter.
Governor V a n Zandt:

M

y question was whether o r not

in y o u r o p i n i o n a n d i n t h e o p i n i o n o f t h e o t h e r G o v e r n o r s

of the Federal reserve banks, t h e bank which does t h e col-


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Federal Reserve Bank of St. Louis

321

lecting i n its o w n sity, a n d thereby i s required t o have
additional messengers t o d o the collecting, should n o t b e
entitled t o the same charge f o r those items t o which the
member b a n k would b e entitled f o r collecting i n its o w n
city?

The Chairman:

M y feeling h a s been that w e should

exact t h e smallest possible charge w e could make f o r the
service,

t o cover t h e expense

there i s a n y r e a s o n w h y a

o f operation.

L a o m o n think

Federal r e s e r v e b a n k s h o u l d o p e r -

ate a department o f that kind a s a source o f profit.
want t o gét o u r dividends,

W e

o f course, b u t w e want t o give

service, a n d I think i n this w a y w e would popularize these
_banks with t h e member banks.

Governor Wold: I
city c o r r e s p o n d e n t s

do not think i t is customary for

o f country banks

t o make a

the collection o f items i n their o w n cities.
polis

charge f o r

I n Minrw a-

i t i s n o t t h e case.

Governor Fancher: The Chairman:

I t i s not i n Boston.

Governor Wold? L
make a

Tt is not t h e case i n Cleveland.

d o not think i t i s necessary t o

Charge t o the member banks f o r handling items o n a

federal reserve city.

O n items collectible outside o f the

city i n which the bank i s located, t h e cost t o which t h e
Federal reserve b a n k i s put should b e charged.
The Chairman: I

did n o t put t h e topic o n the program

with the idea o f having t h e Conference w o r k o u t a n y schedule
or a n y b a s i s

o f charges. I

simply p u t i t there t o g e t a n

expression a s t o whether i t was desirable t o set a committee


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Federal Reserve Bank of St. Louis

ee

to work t o -evelive: a

that

scheme; ~

to us, f o r t h e u l t i m a t e a p p r o v a l

t h e y should submit

o f t h e Board, s o m e d e f i n -

ite basis o f operation, a n d thén w e could decide whether o r
not w e wanted t o go ahead with it.

Governor Fancher: I
take up>

think i t is a matter w e must

W e are having collections s e n t t o u s and w e have

been collecting i n our o w n dis trict.
collecting items outside,

W e have also been

s o far a s w e could.

T h e r e is a

growing demand for such a department and I think i t is a
matter that w e should take u p a n d have s o m e preliminary work
done,

i n view o f working o u t a

plan t o b e adopted a t s o m e

time i n the near future.
The Chairman:

G o v e r n o r Wold, w h a t d o you think o f

the g e n e r a l p r o p o s i t i o n ?

Governor Wold: I

think w e have g o t t o meet t h e situa-

tion a n d perform that service f o r our member banks.
The Chairman:

G o v e r n o r Miller.

Governor Miller:

T h e Kansas City bank has: been hand-

ling collections o n Kansas C i t y f o r the past s i x months.
We c h a r g e a

minimum f e e o f t e n c e n t s a n d a

maximum f e e o f

25 cents f o r doing t h e work, according t o the size o f the
item.

T h a t i s a mere messenger fee.

W e handle outside

time items a n d charge t h e member bank just what i t costs us.
The Chairman:

G o v e r n o r Seay?

Governor Seay: I

feel that a s a matter o f course w e

must give that service t o our member banks. I

a m inclined

to think that t h e terms u p o n which i t can b e done will vary
in t h e d i f f e r e n t d i s t r i c t s .


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Federal Reserve Bank of St. Louis

I

t should b e left t o e a c h

323
Federal r e s e r v e b a n k t o n o t i f y i t s m e m b e r s t h a t i t w i l l

perform t h e service a t a minimum charge without a n y idea
of m a k i n g r e v e n u e o u t o f it. I

think w e will h a v e t o d o

it and that i t Should b e undertaken
The Chairman:

a t once.

H o w d o you feel o n the g-neral proposi-

tion, Governor Rhoads?

Governor Rhoads: I
in t h e r e c o m m e n d a t i o n

should approve o f concurring

o f t h e transit managers, l e a v i n g t h e

details t o the committee t h a t will work out t h e plan o f operation.

The Chairman:

W h a t i s your feeling, Governor M c -

Dougal?
Governor McDougal:

w e are already performing that

service t o a very small extent f o r some o f our member banks,
and I believe w e have been making n o charge. I

think, h o r -

ever, that i f such business a s that develops, w e should b e
careful i n the matter o f charging sufficient t o cover t h e
expense involved, partly f o r the reason that this activity
would inean a

considerable e x p e n s e ,

benefits w i l l b e r e c e i v e d o n l y b y a

a n d partly because t h e
f e w banks,

and I

think

those b a n k s s h o u l d n a t u r a l l y p a y f o r t h a t service.

The Chairman:

H o w do you feel, Governor McCord?

Governor McCord:

W e are confronted b y two conditions.

One i s t h a t o u r c i t y i s a

very large insurance c e n t e r a n d

the member banks i n Atlanta, unless a

charge w a s fixed

sufficient t o cover the expense, would have u s doing all
of t h e i r i n s u r a n c e c o l l e c t i n g , c o l l e c t i n g premiums,
forth.


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Federal Reserve Bank of St. Louis

and so

524

On the other hand, o u r clearing house protests o u v
collecting incoming drafts d r a w n with exchange a s a n encroachment o n their legitimate business outside o f check
collection.
The Chairman:

B u t a s a general proposition? I

want

to get primarily a n expression o f opinion a s t o the general
proposition.
Governor McCord: I

think sooner o r later w e must

adopt some s u c h system.

The Chairman:

W e l l , sooner o r later.

Governor McCord:
The Chairman:

Sooner.

G o v e r n o r V a n zandt, what i s your opin-

Governor V a n Zandt: I

a m i n favor o f concurring i n

the vote o f the transit managers, w i t h possibly t h e exception o f changing t h e date t o March 1 ,
having a

committee

a

n

d

o f these transit managers g e t together

and work o u t a dstailed plan.

U n d e r t h e present system w e

are d o i n g S o m e c o l l e c t i n g a n d w e a r e a s k i n g s o m e o f t h e

other Federal reserve banks t o d o some collecting f o r us-

The Chairman: G o v e r n o r Treman?
Vice Governor Treman: I

think w e should adopt some

such plan as ssoon as we can+ T h e earlier it is done the
better.

The Chairman:

G o v e r n o r Harding, would y o u like t o ex-

atoress y o u r views o n this subject?


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Federal Reserve Bank of St. Louis

Governor Harding: I
The Chairman:

think not, Mr. Chairman.

M r . Hamlin

Mr. Hamlin?

N o , I think not.

The Chairman:

W i l l someone offer a motion t o crystal-

ize this matter?
Governor Fancher: I

move t h a t t h e Gonference concur

in the action o f the transit managers’ meeting, recommending
the establishment o f a department f o r the handling o f collection items,

t h e date f o r t h e establishment

o f such de-

partments t o b e s e t after t h e matter h a s been considered a n d
a plan o f operation submitted b y a committee o f three a p pointed b y the Chair, s u c h committee t o report t o the
next conference o f Governors.
The Chairman:

I s there a

Governor Wold: I
The Chairman:

second t o that motion?

will second the motion.

I s there a n y further discussion?

(There was n o further discussion and the motion,
having been duly seconded, was carried.)
The Chairman:

W e will adjourn a t this time until

(2:30 o'clock p. m., if someone will make that motion.
(On motion duly seconded the VYonference recessed
at 1:15 o'clock p. m. until2:30 o'clock p. m. o f the same
day.)


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Federal Reserve Bank of St. Louis

Tie C o n f e r e n c e

o f Governors

reconvened

a t the Shoreham

Hotel} a t 2 3 0 o'clock p. m.
The Chairman: G e n t l e m e n ,

w e will come t o order.

The Chairman will appoint a s a committee t o consider
the matter o f establishing collection departments

i n the

Federal Reserve Banks t o report t o the next Conference,

Mr. Fancher (Chairman), Mr. Rhoads and Mr. Hendricks, o f
the Federal Reserve B a n k o f New York.

Governor Fancher: C o u l d you not make that committee
outside o f the Governors?
The Chairman: I

think, Governor Fancher,

i t i s going

to b e important t o have a Governor o n that committee.
The n e x t t o p i c t o b e c o n s i d e r e d

i s No’l4.-

i4. U n i f o r m i t y i n treatment o f organization expenses.
Mr- T r e m a n ,

y o u a r e listed f o r that-

Vice Governor Treman: I

wiil read what I have, i f

that i s agreeable t o the Conference.

"Governor Strong, i n several letters t o the bank, has
expressed himself strongly i n tavor o f uniform treatment
of organization expenses.

I

t has been o u r custom from

the very beginning, w h e n t h e earnings o f our bank were
limited,
that a t a

t o amortize a l l o f o u r o r g a n i z a t i o n e x p e n s e s
given t i m e t h e y w o u l d b e paid-

so

T h e Federal

Reserve Board apparently agreed w i t h o u r method a s they
advocated t h a t o t h e r F e d e r a l r e s e r v e b a n k s e s t a b l i s h a


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Federal Reserve Bank of St. Louis

527
Similar practice.

T h e treatment

o f the organization expenses

should b e uniform a s i t affects t h e distribution o f investments purchased b y us-

I f one bank should charge o f f all

of its organization expenses a n d another bank amortize them,
it would s h o w decreased earnings f o r the b a n k charging
off t h e s e e x p e n s e s a n d c o n s e q u e n t l y t h e i r a l l o t m e n t w o u l d

be proportionately larger t h a n t h e bank that amortized i t s
organization expenses.

I n a s m u c h a s the Federal reserve

banks h a v e n o w e m e r g e d f r o m t h e p e r i o d o f l i m i t e d e a r n i n g s ,
it w o u l d a p p e a r e m i n e n t l y p r o p e r t h a t a l l o f t h e o r g a n i z a -

tion expenses w i t h t h e exception o f the unissued Federal
reserve notes b e charged o f f s o that a t the beginning o f

the year 1917 all banks would b e o n the same basis."
Governor McDougal. I

a m sorry that tannot b e made

retroactive a n d b e a basis f o r distribution u p t o date.

The Chairman:

A r e there any further remarks?

Governor Fancher:

W o u l d i t b e a good idea t o find

out w h e t h e r e a c h b a n k h a s c l e a n e d

u p its organization e x -

penses?

The Chairman:

w h a t have you t o say, Governor wold?

Governor wold!

w e were all cleaned u p a month ago.

Governor Miller:

“ e have »35,000,00 yet t o pay, but

we have funds t o pay-


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Federal Reserve Bank of St. Louis

The Chairman:

V

Governor Miller:
Governor Seay:

o y o u propose

t o clean u p this year?

Yes:
w e were a l l cleaned u p a year ago.

Governor Rhoads:
Governor McDougal:

W e are all charged off.
O u r organization expenses h a v e

been d i s p o s e d o f .

Governor McCord:

A l l disposed o f ayear ago:

Governor V a n Zandt:

W w e were cleaned u p a year ago.

Vice G o v e r n o r Treman!

W

e have n o t cleaned

u p yet,

but w e expect t o charge o f f this month.
N o action i s necessary o n No. 14, a n d

The Chairman:

it w i l l b e d r o p p e d f r o m t h e program.

No. 1 6 i s next.

16. R e d u c t i o n o f vaid-in capital o f
Federal reserve banks.
Governor Seay, y o u are t o deal w i t h thatGoverner Seay:
ment i n t r o d u c e d

T h a t h a s been covered n o w b y a n amend-

b y t h e Board: I

have b e e n d e s i r o u s t h a t

the Board should adopt that position f o r a long time-

W e

have h a d a great deal o f correspondence i n regard t o it,
and n o w ,

a n d were informed yesterday, t h e r e i s

a S welnow,

an amendment permitting t h e m t o make t h e deduction f o r a n y

bank which may desire t o have it:
covered, I

S o , the matter is

consider.

Governor Fancher:
Governor Seay:
The Chairman:

Governor Seay:
to g o o n record,

B y the Board amendment?

B y the Board amendment; y e s sir.
T h e n , what i s your desire?

I t might be well for the Governors

i n order t h a t t h e subject m a y come before

us- W i t h that in view, I move that it is the sense of the
Governors' Conference that the lew should b e so amended
qs t o permit t h e Board t o reduce t h e capital stock o f a n y
pank upon request o f that bank t o a pain-in capital stock


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Federal Reserve Bank of St. Louis

329
of 1 - 1 / 2 p e r c e n t o f t h e c a p i t a l a n d s u r p l u s

Governor Wold! I

o f t h e bank.

would like t o amend that t o provide

that t h e b a n k m a y r e d u c e i t s c a p i t a l s t o c k w i t h t h e c o n s e n t

of the Board.

Governor Seay: I
The Chairman:

accept that amendment.

W i l l y o u recite t h e motion a s amended?

Governor Seay:

I t i s the sénse o f this Conference

that the law be s o amended that Federal reserve banks might,
with t h e c o n s e n t o f t h e Board, r e d u c e t h e a m o u n t

o f the

paid-in capital stock to 1-1/2 per cent o f the capital and
surplus o f the member bank.
The Chairman:
ed.

‘ Y o u have heard t h e motion.

I t i s second-

I s there a n y further discussion o f the motion?
Governor Fancher:

W o u l d y o u want

t o incorporate

that resolution that t h e remaining subscriptions stand,

i n

or

is that inferred?
Governor Seay:

T h a t i s inferred.

Gove r n o r McCord:

M r - Chairman, w o u l d

i t b e possible

to get i n there t h a t t h e lien o f the Federal reserve banks
on the member banks should b e the amount o f the subscribed
capital? I

d o not k n o w i f that could b e incorporated

in the law, b u t that would b e a great benefit i n the small
banks.
Governor S e a y :

Governor McCord:

I

t i s there.

N o , i t is not.

Governor Wold: V a p i t a l stock paid-in is there.
Governor McCord:

I f w e reduce i t t o 1-1/2, t h e n t h e

lien w e w o u l d h a v e o n t h e s e l i t t l e b a n k s w q i l d S i m p l y a m o u n t


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Federal Reserve Bank of St. Louis

550
to nothing.

I

f w e c a n incorporate

i n the l a w that t h e

Lien s h o u l d b e u p t o t h e a m o u n t o f t h e s u b s c r i b e d c a p i t a l

and upon their assets, t h a t would b e better.
The Chairman:
motion.

‘ h y not a c t upon Governor Yeay's

T h e n y o u c a n make a

supplemental m o t i o n ,

i f you

desire.
Governor McCord:
The Chairman:

T h a t i s all right:

I s there a n y further discussion?

Vice G o v e r n o r lreman:

I l have n o t ,

o f course, g i v e n

this proposition a s much consideration a s some o f you, b u t
it does n o t appeal t o m e a s a wise thing t o do, t o the best

of m y judgment.
York banks,

I n the first place, y o u take the New

a n d w e reduce

t o one-quarter:

have about 95,500,000 actually paid in.

W

e would

I f we enter into

relations a b r o a d , t h e r e w i l l b e s o m e q u e s t i o n a s t o what

the effect would b e i n regard t o a bank o n the cther side
in respect t o dealing w i t h a bank with a s small a capital

as $5,500,000. T h e n , again, i t seems t o me there i s a
limitation t o the amount t h a t w e could grant t o any one
acceptor based u p o n t e n per cent o f the capital a n d surplus.

That i s the law, I think. T h a t would b e another limitation which might work t o our disadvantage.
Governor Seay:

T h a t i s a regulation o f the Board

merely.

Governor Treman:
Governor Seay:

I t i s a regulation o f the Board?

Yes.

Governor Miller:

N e w York need n o t reduce i t s capital

because M i n n e a p o l i s d o e s .


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Federal Reserve Bank of St. Louis

BOL

Vice Governor Treman:
whole system. I

I t seems t o m e y o u weaken t h e

say stop right where y o u are-

Y o u r capi-

tal i s not t o o strong w i t h t h e amount o f business y o u are
called u p o n t o do.
In m y opinion,

I t ssems t o m e y o u weaken t h e system.

i t is a

s t e p backward.

T h a t i s simply m y

point o f view.

Governor Wold: I
that because I

would n o t want i t t o b e inferred

vote f o r this motion I would t u r n around t o

my people a n d suggest t h a t t h e y reduce t h e capital a t
once.

I

t m a k e s i t optional w i t h t h e banks:

Mr+e Curtis: I

was not quite clear i n regard t o what

was said about the law on capital stock, and 1 would like to
read a

paragraph f r o m t h e law:

"The shaire holders o f every Federal reserve bank shall
pe held individually responsible, equally « n d ratably, a n d
not o n e f o r another, f o r all contracts, debts,

a m engage-

ments o f such banks t o the extent o f the amount o f t h e i r
subscriptions

t o such stock a t t h e p a r value thereof

in

acdition t o the amount subscribed, whether s u c h subscriptions s h a l l h a v e b e e n p a i d u p i n whole

o r i n part, u n d e r

the provisions o f this Act."
Governor e a y :

T h a t was m y impression.

Governor McCord: I

was l e d t o believe otherwise.

(Informal ciscussion followed.)
The Chairman:

T h e motion i s now before us.

A l l

those i n favor o f the motion will signify i t b y saying aye.


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Federal Reserve Bank of St. Louis

(The motion was carried.)
Vice Governor Treman: I

wish t o b e recorded a s voting

Governor Van Zandt: I

The Chairman: I

wish t o be recorded a s voting

wish t o b e recorded a s voting i n the

negative.
Wwe have n o w d i s p o s e d

o f t h e program w i t h t h e exception

of two small topics, w h i c h are 8 , Gold Settlement Fund,

and 9, Currency and reserve, a n d also the reports o f the
various a m e n d m e n t s h a n d e d t o u s b y t h e F e d e r a l R e s e r v e Board.
Mr+ C u r t i s h a s c a l l e d a t t e n t i o n

21 has n o t been touched upon.

t o the fact t h a t No:

T h a t i s proposed b y Mr. Cal-

kins, of the Federal Reserve Bank of San *rancisco, who is
not here.

D o e s anyone wish t o speak o n that topic? i

not, i t will b e left o n the program until t h e next confer-

ence.
Governor wold:

T h e Federal reserve Board asked u s

consider that.

el. G h a n g e branch Federal reserve banks t o
offices o r agencies.

Governor McCord, your bank is the only one that has
had a n y e x p e r i e n c e

i n o p e r a t i n g branches.

P e r h a p s you

would l i k e t o s p e a k o n that.

Governor McCord:

W e have h a d a peculiar situation

down there, M r + Chairman.

T h e expense

o f operating

sie

branches i s pretty heavy.

agencies:

w e would favor officers o r

S o far as the Federal reserve Bank of Atlanta

and t h e branch a t New Orleans a r e concerned,
satisfied


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Federal Reserve Bank of St. Louis

w i t h conditions

d o w n there.

W

w e are well

e would

n o t favor

4

oF)
the e s t a b l i s h m e n t

o f a n o t h e r branch.

Y o u might p u t a n

agency i n Nashville o r Jacksonville t o handle exchange
questions a n d commodity loans, b u t 1

d o not favor a

branch

bank very much.
The Chairman:
McCord?

w h y are y o u opposed t o it, Governor

A r e y o u opposed

t o i t because

o f t h e expense

and t h e cumbersome m c h i n e r y involved?
Governor McCord:

yes sir. I

have t o dictate i n Atlanta what shall b e done

in New Orleans.
down there.

T h e cumbersome m a c h i n e r y involved;

T h a t , o f course, results i n criticism

W e are n o t i n entire harmony, although w e

get a l o n g p r e t t y well.

T h e y feel that t h e y should d o the

same things w e d o i n every instance.

w

@ Cannot permit

that i n everything.
The Chairman:
of opinion,

I

n order that there m y b e a n expression

d o y o u care t o make a motion?

Governor McCord: The Chairman:

would prefer n o t t o d o so.

t h e r e a n y further discussion o f

this question?
Governor S e a y >

I

s i t n o t possible

o r probable t h a t

one o f the views t h a t was h a d i n mind when t h e subject o f
branch b a n k s w a s p u t i n t h e a c t w a s t h a t t h e b r a n c h w o u l d
be a b l e t o p a s s u p o n l o c a l c o n d i t i o n s a n d w o u l d a i d i n

the matter o f redcdiscounts i n the imnediate district i n
which t h e branch was situated?

i

t seems t o m e that t h e

cevelopment o f the Federal reserve system has made i t entirely easy t o determine t h e question o f eligibility o f
paper.

I t i s not a question o f local credit a s i t i s with

the i n d i v i d u a l


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Federal Reserve Bank of St. Louis

bank.

T h e idea has occurred

t o m e that

534

this matter might b e reached through a n agency i n a more
economical m a n n e r t h a n i t c o u l d b e t h r o u g h a
it w o u l d b e a

branch;

that

less c u m b e r s o m e s y s t e m o f operating, i n v o l v i n g

far less machinery; a n d w e might accomplish t h e same object
in a more simplified manner.
Vice Governor +reman:

H o w would i t b e t o make a

recommendation t h a t i n cases w h e r e
inaugurate b r a n c h e s ,

i t seems advisable

t h a t f o r t h e present agencies

to

b e estab-

lished rather than a full branch bank?
The Chairman:

Y o y o u offer that a s a motion?

Vice G o v e r n o r Treman:

A

s a

recommendation t h a t i f i t

is n e c e s s a r y t o d o i t , y o u S t a r t w i t h a n a g e n c y r a t h e r t h a n

a branch bank.

T h e n that c a n b e developed later, i f neces-

sary.
The Chairman: I

understand t h e motion t o b e that t h e

sentiment o f the conference i s that when conditions i n a
district seem:

t o necessitate t h e establishment o f addi-~

tional facilities i n cities e r e e e t h a n those i n which t h e
Federal Reserve B a n k i s located, t h a t those facilities b e
offered through agencies bather t h a n through branches,

as

now c o n t e m p l a t e d u n d e r t h e law.
Is t h e r e a

second t o t h a t m o t i o n ;

o f i s there f u r t h e r

discussion?
Governor Wold: I

meant b y “agencies”.
The Chairman:
of a


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Federal Reserve Bank of St. Louis

w o u l d l i k e t o inguire w h a t i s

W h a t functions d o they perform?
I t would b e the function o f a n agent

Federal r e s e r v e b a n k .

Mr- Curtis:

T h a t depends u p o n the mind o f the m a n who

makes t h e motion.
The Chairman:

P e r h a p s Mr. Treman will help u s o n

that point.

I t seems t o me it i s this:

Vice Governor Treman:

Here i s a gentleman here w h o i s the head o f one o f t h e
banks a n d w h o has a branch bank a n d knows from experience
what t h e c o n d i t i o n s a r e .

some proposition.

I

H

e states t h a t i t i s a

cumber-

t seems t o me, i f 1 were establishing

a bank o r a n y k i n d o f a n organization, I

would start w i t h

an office a n d w i t h s u f f i c i e n t h e l p t o handle s u c h m a t t e r s

as seemed advisable t o put through that office b y the
necessities

erecting a

o f t h e case; b u t I

would n o t g o t o t h e p o i n t o f

building o r renting a suite o f offices a n d

establishing a

big branch bank, electing t h e necessary

directors a n d furnishing t h e necessary machinery, until i t
had been demonstrated i n practical operation t h a t that
was a wise move. T h e r e f o r e ,

i f i t became necessary, I

should start w i t h the agency.
the limitations o f a n agency, 1

N o w , a s t o the duties a n d
should s a y that Should b e

a matter o f regulation b y the Federal Reserve Board a m
not a matter f o r u s t o determine:
Governor Seay:

M a y 1 suggest this:

T a k e the

case o f N e w Orleans, about which I know nothing,
Way.

b y the

Y o u might s a y that t h e banksof N e w Orleans,might

desire r e d i s c o u n t s , a c c e p t a n c e s , e t c . ,

i n w h i c h case,

if

there were n o agency, each individual bank i n New Orleans
would communicate w i t h t h e Federal Reserve B a n k o f Atlanta.
Suppose, however,


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Federal Reserve Bank of St. Louis

i t had a n agency.

A l l t h e banks could

336

go t o that agency a n d that agency could communicate w i t h
the Federal Reserve bank.
go through once,
is merely a

Y o u could have t h e whole thing

i n s t e a d o f each bank separately* T h a t

suggestion o f the convenience i t would afford.

The Chairman:

I t seems t o m

w e c a n feel assured that

we c a n c o u n t u p o n t h e F e d e r a l R e s e r v e B o a r d t o define t h e

function e f the agoncyGovernor Fancher:

W

e have h a d correspondence w i t h o n e

member o f the Board w i t h reference t o establishing a clcear-

ing system i n Gincinnati.
The Chairman: I

w o l d l i k e t o say that w e communi-

cated b y telephone w i t h t h e Federal Reserve Board with
regard t o establishing a check collection agency i n Burlington, Vermont, a n d t h e y gave instant approval.
Mr+ Curtis:

I t strikes m e that under t h e existing

law reserve banks have power t o establish agencies i n their
own districts.
Governor Rhoads:

I

s the word used f o r agencies i n

the United States o r only i n foreign countries?

Mr- Curtis:

T h e word “agency” only comes i n connec-

tion with foreign countries.

Governor McCord: I

think possibly I had better g o

on record a s t o m y views i n regard t o the present branch.

I would not b e i n favor o f changing:

T h e City o f New

Orleans i s o f such great importance t h a t t h e branch bank i s
almost @ssential t o handle t h e business o f that city.
to future changes, however, I


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Federal Reserve Bank of St. Louis

A s

would n o t favor more branches.

337
Governor Seay:

H o w far i s i t t o N e w Orleans?
Ph

Governor McCord:

I t . i s 500 miles.

largest p o r t i n t h e m a t t e r o f i m p o r t s

Ad.

m

I t i s t h e seé@tm

a m exports

o n the

Atlantic Coast.
(Informal discussion followed.)
The Chairinan:

I s there a n y further discussion o f

Governor Treman's motion?
(The motion, having been duly seconded, w a s

carried.)
The Chairman:

T h e n e x t i s T o p i c N6é- 8 .

Gold Settlement Fund.

(a) D a i l y Settlements.
I will call upon you, Mr. Treman.
Vice Governor Treman: I

have n o t anything t o offer,

except that t h e moment y o u get into t h e real collection
system, a n d especially i f you carry out t h e plan i e p b a
to payment o f Federal reserve drafts t o a n y extent, y o u
will have t o have a

The Chairman:

daily settlement.

T h i s i s a matter o f great importance,

and i t seems t o m e very desirable t o have a
of this.

free discussion

H a v e y o u a n y motion y o u would like t o make,

Governor T r e m a n ?

Vice Governor Treman: I

would like t o hear some ex-

pressions f r o m Governors w h o have h a d more experience t h a n
I have.
The Chairman:

T h e question really i s whether o r a

it i s desirable a t the present t i m e t o change t h e present
method o f settlement t o daily settlements.


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Federal Reserve Bank of St. Louis

338

Governor Seay, t h a t i s a matter that y o u have given a
great deal o f attention.
Governor Seay:
Washington,

B e i n g s o close t o the Department a t

t h e r e i s possibly m o r e frequent intercourse b e ~

tween o u r auditing Department a n d t h e statistical department
of the Board t h a n there i s i n some other cases.

T h e Rich-

mond Bank has for some time b e e n inclined towards substituting daily settlements f o r weekly settlements.
ly, I

d o not think that t h e matter i s a

Personal-

serious o n e n o w , b u t

I a m sure i t would b e a very serious o r e i f w e were doing
a greater volume o f collection business.
Vice Governor Treman:

Y o u would feel that t h e n i t

would b e essential?

Governor Seay: I

would feel, i f we were t o change our

collection system i n any way which would result i n doing
a greater volume o f business,
any p l a n b y w h i c h c r a f t s
received

o r i f we e e

t o institute

o f Federal r e s e r v e b a n k s w o u l d b e

b y member b a n k s a t p a r i n a large w a y , w h e t h e r

for t r a n s f e r s

o r general e x c h a n g e purpos+sS,

ably become desirable t o have a

i t would p r o b -

daily settlement.

W e have

worked o u t a detailed scheme f o r daily settlements, w h i c h

has been discussed b y the statistical department o f the
Board;

and I

a m advised t h a y t h e D e p a r t m e n t

i s more a n d more

inclined toward daily settlements, n o t due t o any pressure
which w e m a y have t o bring t o bear u p o n that, b u t a s a matter o f evolution a n d a s a matter o f scientific settlement.
Certainly a t present t h e weekly settlements
the g r e a t e r p r o p o r t i o n o f t h e r e s o u r c e s
serve b a n k , s u c h a


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Federal Reserve Bank of St. Louis

a e oekintus

o f a n y Federal r e -

great p r o p o r t i o n t h a t t h e y e m b a r r a s s

us

in o u r reserves;

b u t i t i s easily t o b e conceived t h a t

the operation o f the weekly settlement could absorb a

greater

portion t h a n w e could afford t o have t i e d u p with Federal
reserve banks.
The Chairman:

W h a t d o you have t o s a y withreference

to doing away with a n y regular settlement day?
Governor Seay:

T h a t was contemplated

already s u g g e s t e d f o r m a k i n g d r a f t s

i n the p l a n

o n Federal r e s e r v e

C e r t a i n specified sums would g o through t h e

banks:

Federal Reserve Board a t Washington. I

think that that

could b e done, leaving t h e exact settlement t o a deferred
period.

T

h

e accountants a r e rather i n favor o f a

mathematically accurate a n d exact settlement daily, b u t

that i s the accountant's method a s against the practical
method. I

b e l i e v e that,

we were t o adopt a

s o f a r a s t h e s y s t e m goes,

if

settlement b y means o f wiring i n the

amount that w e might have o n other Federal reserve banks e x ceeding c e r t a i n sums,

i t would b e just a s well t o adopt t h e

daily s e t t l e m e n t principle.

Vice Governor Treman:

W h a t would you think o f a

recommendation t h a t i n principle

w e approve

o f the daily

settlement p l a n a n d recommend i t s adoption n o t later t h a n
the date when t h e final reserves a r e t o b e transferred?
Governor Seay: I

would b e entirely willing t o adopt

that, o r I would b e willing t o offer a

resolution expres-

sing i t t o b e t h e s e n s e o f t h e C o n f e r e n c e t h a t t h e y a p p r o v e
the p r i n c i p l e

of a

when t h e v o l u m e

daily settlement

o f the transactions b e t w e e n Federal reserve

banks s e e m s t o c a l l f o r it.


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Federal Reserve Bank of St. Louis

t o b e p u t i n effect

The Chairman:

D o y o u offer that a s a motion?

acdept Mr. Treman's motion, i f he

Governor ~ eay: I
would prefer i t that way.

Vice Governor Treman: I

will accept your motion.

The Chairmant W i l l you repeat that motion, Governor
Seay?
Governor Seay:

I t i s the sense o f the Conference t h a t

the d a i l y s e s t a i G k h e e e e s n F e d e r a l R e s e r v e S a n k s i s t h e
correct principle,

a n d the committee recommends t h a t t h e

plan o f daily settlements b e worked o u t b y the Statistical
department o f the Federal Reserve Board,

i n conjunction

with a committee o f Governors t o b e appointed b y this Conference,

i n order that they m a y prepare a n d put i n force

a daily settlement whenever t h e v o l u m e f
o business b e t w e e n

the Federal reserve banks seems t o call f o r it.

The Chairman:

Y o u have heard Governor Seay's motion.

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

(The motion was carried.)
The Chairman:

T h e next i s subtopic b , under 8.

(b) S i l v e r and legals - Mr- Gidney's plan.
That p l a n has been submitted, I
nors o f all the banks.

believe,

t o the Gover-

T h e matter has h a d serious con-

sideration b y the Federal Reserve Bank of New York. I
would l i k e t o a s k G o v e r n o r T r e m a n t o o p e n t h e d i s c u s s i o n
on that.
Vice G o v e r n o r T r e m a n :

nors that we have this read?
to r e a d .


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Federal Reserve Bank of St. Louis

I

s i t the desire

o f

t l

Gover-

I t is a pretty l o n g report

341

Governor Yeay: I

have a motion I would like to make

in reference t o this plan.
The Chairman:
the Conference.

T h a t brings t h e matter formally before

T h e Chair will entertain t h e motion:

Governor Seay: I

believe t h a t some s u c h plan would

become necessary i n case drafts o n Federal reserve banks
were m a d e available a t all other Federal reserve banks, a n d
I move this p l a n b e .eferred t o the committee having that
in charge f o r consideration.

The Chairman:
meéndation.

Y o u have heard Govérnor Seay's recom-

I s the motion seconded?

Governor V a n Zandt: I

Governor Seay: I

second t h e motion.

would like t o ask if, inasmuch a s

we received this copy from the New York bank, t h e New York
bank preferg.-4 t o have i t c o n s i d e rd enread
da
i n detail now.
Vice Governor Treman: I

d o not think w e are really

prepared t o give i t the thought a n d consideration t h a t i t
deserves a t this time.

I t does n o t s e e m t o m e i t i s essen-

tial t o d o that a t the present time.

Governor Seay: W o u l d i t suit you t o have i t referred
to that committee?

Vice Governor Treman:

Y e s sir:

There i s another thing.

T h e r e h a s already been some

discussion about banks i n clearing houses i n New Y a k s e t -

tling by checks instead of by legals and silver.

A t

the present t i m e messengers a r e sent b a c k a n d forth with

a great deal o f risk. I
the Times.


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Federal Reserve Bank of St. Louis

I

have here a little article from

t i s a very short article, a n d i t might

affect t h e situation somewhat.

Governor Seay: Y e s . I

saw that article.

I happen t o k n o w t h a t t h e B o a r d desires e a r l y a c t i o n

upon this subject o f r a f t s u p o n Federal reserve banks: I
pelieve i t expects t h e committee appointed w i t h that purpose i n view t o act with reasonable dispatch.
the matter t o that committee,

i

m referring

w e are n o t postponing i t

indefinitely, b u t w e are bringing i t u p for early action.
The Chairman: I

will s a y that that committee consists

of Governors Treman, Seay, Fancher, Rhoads, a n d McDougal.
Is there a n y further discussion?

I n view o f Governor

Seay's motion, d o you care t o elaborate o n the plan submit- /
ted b y Mr- G i d n e y ?

Wiese Comerie> Treman:
The Chairman:

N o ’

A l l those i n favor o f submitting t h e

plan f o r the establishment o f a

s e t t l e m e n t fund f o r

the U n i t e d S t a t e s n o t e s a n d s i l v e r c e r t i f i c a t e s

t o the com-

mittee appointed t o confer with the Board o n the question

of immediate availability o f drafts o n Federal reserve
banks, e t c . , w i l l s i g n i f y b y s a y i n g aye.

(The motion was carried.)
The Chairman:

T h e next topic is

S e e

8 .

8-(c) Branches i n non-subtreasury f e n e r
reserve cities. 8
At the Conference a t Boston that subject w a s referred
to a

committee t h a t h a d a l r e a d y

the question o f fiscal agencies.
none


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Federal Reserve Bank of St. Louis

o f the members

b e e n appointed

I

o f that committee

t o deal w i t h

t s o happened t h a t
were located

i n non-

343
A

subtreasury cities.

s chairman o f the committee I

wrote

to the Governors o f the banks asking t h e m for their opini n regard t o the matter. I

ions a n d Suggestions

did n o t

get enough information i n reply t o form a basis f o r a report.
It s e e m s t o m e t h a t t h e c o m m i t t e e

i s not properly consti-

tuted t o deal adequately with that question, a n d s o the
Chair w o u l d l i k e t o have a

motion a u t h o r i z i n g t h e a p p o i n t -

ment o f a committee o f three a S A substitute committee for
the o n e already existing having that matter i n charge.
Governor Miller: I

move that that topic b e referred

to the same committee t h a t h a s t o d o with the silvers a n d
legalsplan, b e c a u s e t h e y a r e kindred,

a n d the object o f

suggesting t h a t t o p i c w a s t o h u s b a n d t h e f l o w o f c u r r e n c y

in one season.
The Chairman:

& g a matter o f fact, Governor Miller,

is not that question bound u p completely with t h e estab-

“lishment o f the sliver and legal settlement fund?
Governor Miller:

I . think i t i e

T h a t i s t h e reason

I think i t should b e referred t o that same committee.
The Chairman:

W h y cannot that b e withdrawn entirely?

Governor Miller:

I t can:

The Chairman: G o v e r n o r Miller moves that (c) b e
strieken i n thé program, a s the subject matter i s included

in the consideration o f the silver and legal settlement
fund under 8-(b).

The Chairman:

T h e next is (d), DLivision between

banks and reserve agents. I
separation h a s been made.


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Federal Reserve Bank of St. Louis

understand that such physical

8-(d) D i v i s i o n between banks and reserve
agents.

Is there anyone h e r e acquainted w i t h t h e facts i n the
matter?

Governor Miller:

M r . Gidney told m e this morning

that t h e physical division actually existed.

(Informal discussion followed.)
Governor Fancher: I
committee,

move t h a t t h e c h a i r a p p o i n t a

i n compliance w i t h t h e r e q u e s t

Reserve B a r d ,

o f the Federal

t o inspect t h e vault facilities provided f o r

the custody o f the gold settlement fund.
(The motion, having b e e n duly secomed, w a s car-

ried.)
The Chairman:

T h e Chair will appoint a committee c o n s

gisting o f Governors Fancher a n d McCord.

The next topic is (e).
8-(e) A u d i t o f fund.
Mr> Custis i s down for that topic.

H

e i s absent, a n d

we will pass i t temporarily.

No- 9 is the next.

T h a t i s “currency and reserve."

In regard t o (d), I understand the physical separation
of the funds between t h e banks a m t h e Federal reserve

agents has been accomplished. T h e r e f o r e , unless there i s
some objection,

w e will have that removed f r o m t h e program.

9. C u r r e n c y a n d reserves.

The topics u m e r No. 9 are t o a very considerable extent covered b y amendments t o the Federal reserve A c t which
are t o b e recommended b y the Federal Reserve Board.
the retirement o f greenbacks.


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Federal Reserve Bank of St. Louis

(a) is

9-(a) R e t i r e m e n t o f greenbacks.
T h a t i s not i n the amendinent.

Governor Seay:

Governor Miller:

T h a t would b e under No- 4 , which

is super t a x o n National b a n k note circulation.

The Chairman:

N o t necessarily, Governor Miller.
O n , nos I

Governor Miller:

beg pardon.

would like t o s a y that,

The Chairman: I

i n connec-

tion with the various amendments, Mr- Curtis has prepared
a vote covering most o f the topics under discussion. I
would like t o read i t for commént a n d criticism b y the
members o f the Conference i n connection w i t h the topics
under 9 .

(Informal discussion followed-)
The Chairman:

T h e next topic f o r discussion i s No» 9 .

Governor “eay: H a v e all those matters been disposed
of that you read, Mr- Chairman?
The Chairman:

A s + recited, M r - Curtis h a s prepared

a resolution covering topics (a), (b), (¢), (g) and (h),
umer 9 .

T h i s resolution reads a s follows:

"Resolved,

T h a t i t i s t h e sense o f t h e conference

that l e g i s l a t i o n s h o u l d b e o b t a i n e d a t t h e e a r l i e s t p r a c ticable m o m e n t l o o k i n g t o w a r d s t h e i m p r o v e m e n t

o f the

currency l a w s o f t h e country, w i t h t h e s p e c i a l v i e w o f l e s -

sening t h e number o f different issues o f currency n o w i n
circulation a n d s u b s t i t u t i n g f o r s u c h i s s u e s F e d e r a l r e s e r v e

S u c h legislation should include, among other

notes.
things,


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Federal Reserve Bank of St. Louis

t h e following:

:ae R e t i r e m e n t o f the whole o f the present issue o f

346
United States notes (greenbacks) a n d the substitution therefor o f F e d e r a l r e s e r v e n o t e s u p o n a n equitable b a s i s

t o be

worked o u t hetween t h e Government a n d t h e Federal reserve
banks.

as

T h e acceleration o f the retirement o f national

bank n o t e currency.

"3.

T h e authorization o f the use o f Federal reserve

notes a S vault reserves f o r member banks.
"4. A

provision requiring a l l Federal reserve notes

issued t o Federal reserve banks and not redeemed t o be counted a8 liabilities o f the bank; a n d all gold and lawful
money Geposited w i t h a Federal reserve agent t o reduce l i a bility o n s u c h n o t e s t o b e i n c l u d e d a m o n g t h e a s s e t s

of

the bank.

"5. A

provision authorizing the Federal Reserve Board

or the Secretary o f the Treasury t o readjust,

i n their o r

his discretion, f r o m time t o time t h e denominations
ver a n d g o l d c e r t i f i c a t e s

t o te placed

o f sil-

i n circulation,

to

the e n d that t h e silver certificates should b e placed i n

the hands o f the public and gold certificates should find
their way into bank reserves i n the hands o f the banks."
The Chairman:
that i

Solution,

I s the Conference prepared t o act upon

o r does i t prefer t o take u p separately

for discussion the topics recited under it?
Governor Seay: I

move that the Conference adopt the

resolution.
Governor Fancher: I

The Chairmon:

second t h e motion.

T h e motion made b y Governor Seay and

duly seconded b y Governor Fancher i s that t h e Conference adopt


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347

the resolution submitted b y the Secretary covering topics

(a), <(o), (ey, (2) end fh), puder Tae Oo.

I s there any

discussion?

(The motion was carried.)
The Chairman:

T h e next i s topic (d) under 9.

9s ( d ) Promissory notes o f member banks
as collateral f o r Federal reserve
notes.

Governor McDougal i s responsible f o r that topic o n
the program.
it Seale McDougal:

T h a t w a s placed o n the program a t

the suggestion o f the head o f o u r discount department, w h o
stated i n substance t h a t while h e believed t h e framers o f
the Federal Reserve A c t intended that s u c h notes should b e
eligible f o r deposit w i t h agents f o r currency, t h a t provision had not b e e n made f o r the same, a n d his opinion seems

to be endorsed b y the Board. A c t i o n has already been
taken. T h e r e f o r e , I

suggest t h a t t h e matter b e left there

and n o further action b e taken.
Governor Fancher: ©

Should there n o t b e a recommenda-

tion here?

The Chairman:

M a y 1 suggest that this matter b e defer-

red until w e consid:r t h e proposed amendments t o the Federal
Reserve A c t s u b m i t t e d

t o u s b y the Board?

Governor McDougal:

The Chairman:
subject.

T h a t will b e entirely satisfactory.

M r . Calkins was responsible f o r the next

I s there anyone who wishes t o discuss it?
9. { e ) I s s u e o f demand certificates o f
deposit payable i n gold t o member
banks depositing gold.

Governor Rhoads: I

think t h a t w o u l d s o l v e t h e d i f f i -

culty i n dealing with non-members o f the clearing house

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548

associations i n clearing balances, a n d i t w o u l d b
e quite

useful i n Philadelphia.
Governor Seay:

I s s u e d b y whom-++ t h e reserve banks?

Governor Rhoads:

M r . Warburg thinks i t is possible

to cons t r u e i t s o that w e have t h e right t o d o that.

(Informal discussion followed.)
The Chairman: I

would like t o ask Governor McDougal

if that would n o t help t h e settlement o f balances i n the
Chicago clearing house.
Governor McDougal:

I t would work exactly a s o u r pre-

sent a r r a n g e m e n t d o e s , u n d e r w h i c h t h e c l e a r i n g h o u s e s a r e
depositing g o l d a n d l a w f u l money.

there. I

I

t might b e o f use

cannot s e e a n y objection t o it, b u t | can see

that s o m e g o o d m i g h t c o m e f r o m i t -

The Chairman:
to m a k e a

D o e s any e m b e r o f the Conference wish

motionn
i regard t o that?

Governor Seay:

W h y not eliminate member banks, s o as

to make i t broad enough t o cover both?
The Chairman:

T h e Chair waits f o r a motion t o dispose

of ted5
Mre Curtis:

I t seems t o me that would b e a dangerous

thing t o start.
Governor Wold: U n l e s s there was a segregation o f
the gold.
Governor Rhoads:
Governor Wold: A

T h a t was t h e idea.
certificate o f deposit does n o t

indicate that.


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Federal Reserve Bank of St. Louis

Mre Curtis: U n l e s s this comes down t o a mere custodial

549

certificate, i t seems t o m e it would b e a bad thing t o
adopt, because none o f the otler obligations o f the Federal
reserve b a n k are necessarily payable i n gold.

(Informal discussion followed.)
Governor McDougal:

I t i s m y understanding that those

certificates would b e issued payable i n gold u p o n t h e r e o6ipt o f the deposit in. g o l d ~ and that i t would b e necessary t o warehouse t h a t gold just a s w e d o i n the clearing
house.

Governor Seay:

I t would become a n asset o f the banks,

and you treat i t a s such. I

cannot s e e t h e danger f r o m the

Federal reserve standpoint of receiving that gold deposit
and issuing a demand obligation against itGovernor Wold:

T h e danger arises f r o m t h e fact

that they accept deposits payable i n gold.

T h a t goes i n t o

the general funds o f the bank, a n d y o u might b e carrying
55 p e r c e n t r e s e r v e a g a i n s t

i t a n d b e obligated

t o pay a t

100 cents i n gold.
The Chairman:

H a s anyone a

connection with this?

resolution

t o offer i n

I f not, w e will allow i t t o stand

on the program until Mr. Calkins o r Governor Kains i s
here.

The next i s (f).

Ge CF} V a u l t reserves. T r a n s f e r of.
Amendment t o law.
That i s covered under No. 1
ménts t o the Federal Reserve Act.

of the recommended amendT h a t disposes o f every-

thing u m e r No. 9 .


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Have a l l t h e members o f the Conference copies o f the

350
memorandum given u s b y the Board a s t o the amendments t o
the Federal Reserve A c t which they propose?

Governor Wold:

I n connection with these resolutions
a m i n hearty sympathy

which w e have just adopted, while I
with them, I

do not think they have gone f a r enough i n

that w e have offered nothing constructive t o the Boardw e simply approved

we have n o t offered a n y suggestions:

of certain things being done i n a general way-

W e are not

helpful t o them at all i n solving the problems which they
have p u t u p t o u s a n d w h i c h w e h a v e p u t u p t o them.

u g

suggest there should b e a committee appointed t o confer with
the Board.

The Chairman: G o v e r n o r Wold, I had rather inferred
that b e f o r e m a t t e r s a s f u n d a m e n t a l

a s these were disposed

of w e w o u l d h a v e a m p l e t i m e t o discuss t h e m a m d t o formulate

a policy i n detail. P e r h a p s that is not true, however,
pecause t h e amendments a r e t o b e pressed a t this time.

Governor Wold:

T h i s i s a question relating t o reduc-

ing t h e v e l u m e o f N a t i o n a l b a n k n o t e s

i n circulation a n d

there i s also t h e question o f retiring greenbacks:
sides, there a r e these other questions:

I

B e -

t seems t o m e

we ought t o b e i n a position t o offer t h e m some suggestions.
The Chairman: I

think that i s a good Suggestion.

course, w e cannot n o w forumlate a
of the greenbacks.

O f

plan f o r the retirement

I t i s a matter that h a s t o b e dealt with

by a committee which will give the subject serious consideration.


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Federal Reserve Bank of St. Louis

I

t requires s e r i o u s c o n s i d e r a t i o n a n d discussion.

COL
Have y o u a n y s u g g e s t i o n s

t o offer a s t o t h e best methods

of bringing constructive suggestions t o the attention o f
the B o a r d b e a r i n g

o n the matter covered

b y these resolutions?

cannot say that I have, Mr+ Vhair-

Governor Wold: i

Vice Governor Treman: T a k i n g No- 2, for instance.
Reducing reserves a n d adopting simplified p l a n suggested b y

Federal reserve agents.
The Chairmant

W h a t i s that plan?

H a v e y o u a n y suneeeCeme, dosenbor

Wold?
Governor Wold:

T h e question i s t o o big t o b e covered

by a mere informal statement.
Governor Seay: I

think that w e should discuss these

one b y one, a n d i t will b e developed t h e n whether w e have
any concrete o r constructive suggestions t o offer t o the
Board + I

suzgest t h a t w e proceed t o discuss these o n e b y
we

one a n d a n a l y z e t h e m , a n d w e w i l l t h e n f i n d o u t w h e t h e r

have a n y constructive suggestions t o make.

Governor Wold:

W e have adopted the resolution cover-

ing t h e p r i n c i p a l topics.
Governor Seay: I

know, b u t w e c a n n o w proceed a n d

dissect t h e m

The Chairman: I

“sale s a y that this resolution which

was a d o p t e d c o v e r s c o m p a r a t i v e l y f e w o f t h e a m e n d m e n t s

to

tre Federal Reserve Act proposed i n this memorandum.

Governor “eay:

I n addition to that, Mr» Chairman,

one o r two o f the subjects a r e covered i n a different w a y
on t h a t w h e e t f r o m t h e w a y i n w h i c h t h e y a r e c o v e r e d h e r e ;


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3De

and a

discussion o f these will perhaps g o back t o that

resolution a n d w é will t h e n very likely have some constructive suggestions t o m a k e . I

a m interested i n the substi-

tute f o r making Federal reserve notes legal reserve.
The Chairman:

I f i t i s the pleasure o f the Confer-

ence, w e will proceed t o the consideration o f the amendments

as proposed b y the Federal Reserve Board i n their memorandum.

(Informal discussion followed.)
Amendments

t o t h e Federal Reserve A c t proposed

by the Federal Reserve Board.
I will read the amendments t o the Federal Reserve A c t
proposed b y the Federal Reserve Board.
a A d v a n c i n g t h e date w h e n reserves, excepting those
in Federal reserve banks a n d i n vaults o f other banks, w i l l

no longer count as reserves."
As amplified b y Governortarding this, I understand,
contemplates getting f r o m Congress authority t o advance t h e

date and make the change operative 6 0 days from the passage
of the Act. I

also understand t h a t this was submitted

to the Federal Advisory Council and was approved b y them.
Is t h e r e a n y discussion?
Governor Seay: I

move t h a t w e a p p r o v e t h a t amendment,

Mr. Chairman.
The Chairman:

G o v e r n o r S e a y moves t h a t t h e Conference

approve Amendment No. l .


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Federal Reserve Bank of St. Louis

Governor Fancher: I

second t h e motion.

(The motion was carried.)

553,
The Chairman:

S

b aero R e d u c i n g r e s e r v e s a n d a d o p t i n g

simplified p l a n suggested b y Federal reserve agents.
Has everyone here a

copy o f the proposed plan?

W i l l

it b e agreeable t o the Conference i f the Chair reads this
plan?

Governor Seay: I
The Chairman:

would like t o hear i t read-

T h i s p l a n was o n e that w a s submitied

in the f o r m i n which w e have i t b y the Federal reserve
agents a t their meeting here last week:

“The Committee o n Reserves o f Member vanks, after investigating t h e reserve situation i n all districts, h a v e
carefully considered t h e matter o f the readjustment o f the
present reserve requirements provided i n the Federal Reserve
Act, a n d beg leave t o make t h e following recommendations:
1. T h a t t h e Act b e amended b y cancelling t h e present
reserve requirements a n d substitutirm t h e following:
First.

M e m b e r banks i n central reserve cities

shall b e r e q u i r e d

t o keep three p e r cent o f their t i m e d e -

posits a n d 1 2 p e r c e n t o f t h e i r d e m a n d d e p o s i t s

o n deposit

in c o l l e c t e d a v a i l a b l e f u n d s w i t h t h e F e d e r a l r e s e r v e b a n k

of their district.
Second, M e m b e r banks i n reserve cities shall b e
required t o c a r r y t h r e e p e r c e n t o f t h e i r t i m e d e p o s i t s a n d

nine p e r cent o f their demand deposits o n deposit i n collected available funds w i t h t h e Fe:eral reserve b a n k o f their
district;

Third, Member banks not located i n Ceniral reserve
cities o r reserve cities shall b e required t o carry three


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Federal Reserve Bank of St. Louis

354

per cent o f their time deposits and six per cent o f their
demand deposits o n deposit i n collected available funds

with the Federal reserve bank of their district.
Fourth; P o s t a l savings deposits shall b e considered a s time deposits.
This leaves t o the discretion o f the member hank the
amount

o f cash i n its vaults w h i c h i t will c a r r y a n d the

amount i t will carry o n deposit with correspondents t o meet
the requirements o f its business.
shows that a

O u r investigation

mandatory regulation i s not necessary t o com-

pel member banks t o carry sufficient c a s h i n their vaults
and o n deposit w i t h other banks.
Qe U n d e r this p l a n there will b e n o necessity f o r
having l e g i s l a t i o n

t o make Federal reserve notes lawful r e -

serves f o r member banks.
aie

I t will g i v e member banks e q u a l i t y w i t h nonmember

banks i n the availability o f all tiil money.
4.

I t will strengthen t h e Federal reserve system b y

largely increasing t h e gold holdings o f the Federal reserve
banks through t h e additional deposits o f member banks.
5s

I t will encourage state banks t o join the system

by reason o f the readjustment o f reserve requirements.

om I t will make the Feueral reserve system similar
to E u r o p e a n s y s t e m s

i n leaving t o t h e determination

o f the

member b a n k s t h e i r n o r m a l r e q u i r e m e n t s f o r c o u n t e r e x c h a n g e

or remittance demands.
7.

I t will simplify reserve calculations a n d reduce

the work o f member banks i n classifying a n d assorting cash.


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555

8.

I t will prevent t h e unnatural a n d unnecessary

redemption o f n a t i o n a l b a n k notes, F e d e r a l r e s e r v e n o t e s a n d
Federal r e s e r v e b a n k notes, e x c e p t w h e n n o t n e e d e d f o r t h e

demands o f trade, thereby increasing t h e real ekasticity o f
such notes.

9.

I n addition t o increasing t h e gold reserves o f

Federal r e s e r v e b a n k s ,

10.

i t w i l l a l s o t e n d t o protect t h e m .

S i n c e these reserves t o b e kept with Federal r e -

serve b a n k s m u s t b e i n collected a v a i l a b l e f u n d s ,

i t will

make u n i f o r m t h e r e s e r v e p o l i c y t o b e p u r s u e d w i t h a l l

members i n each o f the 1 2 districts, b o t h a s t o calculation
and t h e b a s i s f o r t h e a s s e s s m e n t

o f penalties.

Ls S i n c e t h e Plan includes discontinuing a s reserve

balances with correspéndehts, and prohibits the use of
float o r items i n transit a s reserve,

i t does n o t tend t o

inflation, b u t eliminates fictitious reserves.
is

I t also disposes o f the question o f counting

as reserve t h e national b a n k notes a n d balances d u e from
the United States treasury.
13.

T h i s p l a n shall g o into «peration a t a date c o -

incident w i t h discontinuing counting balances w i t h other
banks a s reserve a n d with t h e expectation that t h e Federal
Reserve Board will b e authorized t o fix t h e date i n its

discretion carlier than November 16, 1917.
14.

T h e committee points out that the Federal Reserve

Board still h a s t h e power t o add t o o r subtract f r o m the
list o f Reserve a n d central reserve cities."


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Federal Reserve Bank of St. Louis

This p l a n ,

a s i s obvious a n d a s t h e y explained i t ,

356
dees a w a y w i t h a n y r e s t r i c t i o n s

requirements o f the bank.

o r limitations

o n the cash

T h e r s h a s b e e n a great deal o f

discussion b y the Board a s t o the percentages o f Federal
reserve b a n k r e s e r v e s t h a t w e r e a p p r o p r i a t e a n d d e s i r a b l e

for t h e three different classes o f banks--~ t h e central r e serve, r e s e r v e a n d n o n - r e s e r v e b a n k .
This p l a n i s s u b m i t t e d f o r discussion.

Governor Miller:

T o get i t before t h e Conference, I

move t h e adoption o f the plan.
The Chairman:

I s the motion seconded?

Governor McDougal: I
to that. I

would like t o offer a substitute

suggest t h a t w e approve t h e principle, b u t I

would n o t like t o b e i n the position,
the

a t the present time,

of a p p r o v i n g ,percentages.

The Chairman:

D o you actept the substitute, Gover-

nor Miller?

Governor Miller:

Y e s sir.

The Chairman: G o v e r n o r McDougal moves that the Conference a p p r o v e s t h e p r i n c i p l e

o f the p l a n submitted

by

the Federal reserve agents without committing t h e conference a S t o the percentage o f reserves t h a t i t i s desirable
to have under this modification.

I

s Governor McDougal's

motion seconded?

Governor Wold: I

second the motion. I

wish to call

attention, Mr+ Ghairman, t o the fact that the Board have
reached a

Conclusion o n this:

T h e r e i s a n agreement o n the

part o f the members o f the Board, a n d i f m y memory serves
me correctly, t h e percentages a r e changed somewhat f r o m


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Federal Reserve Bank of St. Louis

357

those s e t forth i n the recommendations o f the agents.
They a r e s e v e n a n d t h r e e f o r c o u n t r y banks;
for r e s e r v e c i t y banks;

a n d 1 5 and 5

t e n a n d three

for central reserve

banks.
The Chairman: I
Governor D e l a n o t h i n k s

will s u p p l e m e n t t h a t b y s a y i n g t h a t
1 4 p e r cent w o u l d n o t b e undesirable

for central reserve c i t y banks.
Mr- Curtis:

N o n e o f those were final.

M r - Harding

said that t h e y were still debating those percentages, b u t
that those were t h e ones t h e Board a t present h a d i n mind-

Vice Governor Treman! I

think that the Federal Re-

serve Board would like t o have this conference consider those
percentages a n d make a

definite recommendation.

The Chairman: G e n t l e m e n , y o u have heard Governor M c -

Dougal's motion, duly seconded.

T h e substance o f the mo-

tion w a s t h a t t h e Y o n f « r e n c e e p p r o v e t h e p l a n a s s u b m i t t e d

by the Fi.deral reserve agents without committing itself a s
to percentages.
Governor Seay: I

would l i k e t o speak t o that motion

before i t i s put-

The Chairman:

P r o c e e d , Governor Seay.

Gow r n o r Seay:
of t h e p u r p o s e s

A s I understand t h e situation, o n e

o f proposing t h i s p l a n i s that i t i s i n the

nature o f a compromise t o the desire o f the Board t o have
Federal reserve notes made legal reserves;

t h a t t h e Federal

Reserve Board h a s n o t met with encouragement f r o m those
who have t h e formation o f legislation i n charge, a n d i t

believes that this will be a compromise which may, i n effect,


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Federal Reserve Bank of St. Louis

558
pring about what t h e y desire; t h a t their chief desire i s
to strengthen t h e gold holdings o f the Federal reserve
banks.

Another desire o n the part of the Board, a s + take it,
is t o s e t t l e t h e q u e s t i o n o f reserves a f t e r t h e A c t h a s

gone into full effect, = hen there will b e n o central r e serve o r reserve c i t i e s .

A n d further,

t h a t i t will l e s s e n

the reserve burden upon t h e banks,particularly u p o n the
country banks.

W h a t e v e r vault reserve y o u m a y f i x b y

law t o b e held b y the country banks, i s one thing, a n d the
necessity o f o p e r a t i o n i s q u i t e a n o t h e r thing.
try

T h e coun-

b a n k s c a n d o w i t h a n irreducible m i n i m u m o f v a u l t

reserve - I

think that will b e admitted.

Vice G o v e r n o r Treman: A

factory t o w n m a y have t o

have more t h a n a country bank i n some other t o w n o f the same
size?

Governor Seay: Y e s .
between banks.

T h a t may vary very widely

S o m e banks m a y be compelled t o hold 1 5 to

20 per cent reserves, and other banks m a y be able t o do
with five p e r cent, three p e r cent o r four p e r cent r e -

serves.
Governor McCord:

W o u l d n o t that also change t h e

season a s t o the agricultural districts?
Governor Seay:
ing:

Y e s »

T h i s i s the point.

I t would b e constantly changI f y o u compel t h e member banks

to keep i n the Federal reserve banks a

higher reserve t h a n

they n o w have, f i x e d b y t h e a c t , a r e y o u n o t i m p o s i n g

additional burden upon the banks!


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Federal Reserve Bank of St. Louis

an

I f they cannot d o with

359

an amount o f reserve which, a d d e d t o the reserve required
to b e k e p t u n d e r t h e l a w makes a
with w h i c h t h e y n o w operate,

s u m less t h a n t h e reserve

y o u place a

greater b u r d e n u p o n

them.

I have kept tally of.the vault reserves w h i c h t h e member banks h a v e carried since t h e operation o f the Federal

Res erve Act.

T h e banks have found out--- the country

banks have found o u t that t h e y are able t o d o with a much
smaller r e s e r v e t h a n t h e y f o r m e r l y carried.

Not considering national b a n k notes a n d other forms
of currency,

b u t merely considering lawful m o n e y reserve,

the c o u n t r y b a n k s ,

for a

period o f y e a r s p r i o r

t o the

establishment o f the Federal reserve Act, carried about
seven a n d a

half p e r c e n t o f t h e i r d e p o s i t s

Since t h e establishment o f the Act, however,

i n t h e i r vaults.

o n November 10,

1915, t h e y got down t o 5.75 o f their total deposits.
On December 3lst o f that year they g o t down t o 5.538 o f
their t o t a l deposits,

a n d o n September last, w h i c h w a s t h e

last s t a t e m e n t w e h a v e a v a i l a b l e ,

t h e y g o t d o w n t o 5.30

per c e n t o f their t o t a l deposits.

If y o u compel t h e m@mber banks t o increase their r e serves

i n the Federal reserve banks;

i f 5 . 3 0 p e r cent, t h e

amount w h i c h they held o n September 1 2 t h last, i s the lowest S u m which they c a n keep f o r practical operations, t h e n
you are placing a n additional burden o n the country banks.
The result o f this plan, proposed b y the agents, i s
that i t requires t h e country banks,

i f they keep a reserve

of six p e r cent o n demand deposits, a n d three p e r cent o n


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Federal Reserve Bank of St. Louis

560
time d e p o s i t s ,
serve

t o keep i n the Federal reserve b a n k a

o f 5 . 1 0 p e r c e n t o f t h e i r t o t a l deposits.

law n o w t h e y h a v e t o a e

crease o f orm p e r cent.
Board suggests,

4 , 1 2 p e r cént,

re-

U n d e r the

s o i t i s a n in-

I f y o u make i t 7 per cent, a s the

t h e n y o u would r e q u i r e t h e m t o keep i n the

Federal Reserve B a n k 5.80 p e r cent a s against 4.12 p e r cent
as i t 1 S now.
Governor McCord:

Governor Seay:

I

s i t n o t 5.12 p e r cent?

N o , 4.12 p e r cent o f the total deposits.

“Governor MeCord:

O f total deposits?

Governor Seay: Y e s . I

am basing i t o n former condi-

tions, b e c a u s e y o u c a n v e r y e a s i l y c o m p a r e

tions.

o n former condi-

I f you s a y ten per cent o f demand a n d five p e r cent

of time, y o u have nothing 1.ith which t o compare it; but i f

you take the percentage o n total deposits you have a tsis
of c o m p a r i s o n w i t h f o r m e r deposits.

So, i f you make i t 7 Soe aeeh o n demand deposits and
three p e r cent o n time deposits,

a s the Board proposes,

it

would result i n keeping i n the reserve banks 5 . 8 0 p e r cent.

It i s a question o f what the country banks need: in

their vaults upon which to operate.

W e have been accustom-

ed t o supposing that t h e y kept a very considerable propor-

ee

o f their vault money i n National bank notes and other

forms o f currency.

A s a matter o f fact t h e central reserve

city banks keep but 28/100 o f their entire vault reserve
in other t h a n lawful money.

T h e reserve c i t y banks keep

nine tenths, a n d t h e country banks o n l y keep nine tenths i n
National b a n k notes a n d Federal reserve notes.


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Federal Reserve Bank of St. Louis

S61

The Chairman:

M a y I inquire i f y o u think that t h e

country banks really sort a l l that money, a s they d o not

report their till money?
Governor Seay: I

a m quite sure t h e y d o not sort it.

They get careless a n d count Federal reserve b a n k notes a s

legal tender, because they d o not take the trouble t o sort
it.
Governor McCord:

A r e n o t their figures based o n exam-

inations m a d e b y t h e e x a m i n e r s ?

Governor Seay:

T h e y are based upon the Comptroller's

reports.
Governor McCord:

T h a t report i s based u p o n t h e report

of h i S ¢ x a m i n e r s ?

Governor Seay:

N o , i t i s the published report o f the

Comptroller, t h e report h e makes five times a year.
As a matter o f fact, t h e reserve c i t y banks h a v e kept
7.6 p e r c e n t i n t h e i r vaults,

a n d t h e country banks,

o n

Neptember 12th, h a d 6.28, including national b a n k notes,
in their vaults.
with?

I

T

h

e question i s how m u c h c a n they d o

f “vow incresse t h e i r r e q u i r e d r e s e r v e to’ 5.10-<=

under the Act a s i t now stands t h e y would only have t o keep

4.80 per cent i n their vaults.
ci

cente

C a n they d o with 4.80

T h e y h a d 6 . 2 8 before.

Governor Wold:

M a y I interrupt there, Governor Seay?

Governor S e a y :

C e r t a i n l y , Governor Wold.

Governor Wold:

I s i t not true that a farge part o f

the money carried i n the country banks today i s carried
there b e c a u s e


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Federal Reserve Bank of St. Louis

i t i s required

t o b e maintéained, a

certain

362
stipulated amount t h e y must maintain i n their o w n vaults?
Of course their working cash must b e over a n d above that-

Governor “eay: ‘ Y e s .
Governor Wold:

S

o that i f there w a s n o legal require-

ment f o r a n y amount o f money t o b e carried i n their o w n
vaults, e x c e p t w h a t i s n e c e s s a r y f o r d a y t o d a y operations,

they could d o with very much less?
Governor Yeay:

Wold.

Y e s s I

a m coming t o that, Governor

S i n c e the Act was amended t o enable the w e mber

panks t o keep i n the Federal Reserve Banks a
w e have n o statistics,

reserves,

part o f their

s o w e cannot t e l l just

yet t h e minimum with which t h e y c a n operate their banks.
Governor Wold:
required

T h e y must carry more t h a n the amount

b y law.

Governor Seay: T h e y do, but they work down to
an absolute minimum,

i n a very large percentage o f the smadl

banks.
Governor Wold:

H o w much more does your report s h o w

they a r e c a r r y i n g t h a n t h e l a w r e q u i r e s t h e m t o carry?
That w i l l t e l l y o u h o w m u c h i t t a k e s t o o p e r a t e o n .

Vice Governor Treman: I

think i t is 1.10per cent.

The l a w w i l l r e q u i r e t h e m t o k e e p i n t h e i r v a u l t s 3 . 5 0 p e r cent---

Governor Wola:

H o w much does it require them to

keep now?

Governor Seay:

I t requires 5.12 now i n the Federal

reserve b a n k s .


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Federal Reserve Bank of St. Louis

Governor Wold:

H o w m u c h i n t h e i r o w n vaults?

3635

Governor Seay:

I t requires them t o keep 4.12 i n

their o w n vaults.

Governor “old:

H o w much are they carrying?

Governor Seay:

6 . 2 8 p e r cent.

Governor Wold:

T h a t would b e a working c a s h reserve

of t w o per cent above t h e requirements?

Governor Seay:

Yes.

Governor “cCord:
Seay?

D

M a y 1 make this inquiry, Governor

o not y o u r smalh member banks s a y t o y o u that

they cannot get along with less cash i n their vault s ?
Governor Seay: I

d o not think i t i s possible f o r the

member banks t o get along d i t e e e a t i c k requirement under

the Federal Reserve Act.
The Chairman:

Y o u mean they cannot g e t along a n d main-

tain their reserves?

Governor Seay: I

do not think that i s the case-

think they cannot operate.

Governor McCord:
The Chairman:

T h a t i s it.

T h e y cannot operate a n d keep their

reserves g o o d a t t h e s a m e t i m e ?


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Federal Reserve Bank of St. Louis

Governor Wold? T h a t i s the point exactly, Mr+ Chair-

Vice Governor Treman:

keeps

T h e r e i s a certain amount they

A l l above that i s what they use-

away that required reserve,

I f you

i s i t not fair t o s a y

above t h e a m o u n t t h e y k e e p a s t h e r e q u i r e d r e s e r v e

they actually n e e d f o r their current use?

is

A n y good

would probably keep o n e p e r cent beyond that.

364

Gove rnor Seay: I

a m not trying t o s a y what t h e y c a n

uSe o r what t h e y cannot use-

I l am merely trying t o compare

conditions a n d s e e w h a t t h e y m a y p o s s i b l y l e a d t o . I

not making t h e statement: I
it a n d s e e w h e t h e r

am

a m just trying t o analyze

o r n o t i t will impose a

heavier b u r d e n

on the country banks t h a n the l a w now imposes.

i f i t does,

notwithstanding o u r d.sire t o strengthen t h e holdings o f
the Federal reserve banks, w e would m e e t with very strenuous

opposition, doubtless, a n d 1 think the Board would hesitate
to i m p o s e a

greater b u r d e n o n t h e m e m b e r banks, e v e n t o

bring about this desired condition with t h e Federal reserve
banks.
I a m not making a statement j u s t yet» I

this i n hand more than two o r three days-

have n o t h a d

I a m just making

an analysis o f conditions which have existed a n d trying t o
form a

comparison w i t h w h a t t h e b a n k s c a n p o s s i b l y d o -

Of course,

i n order t o maintain their reserves u p t o

the required point t h e y are compelled t o have a

little more

on hand than they are actually required t o hold, b u t what
they c a n d o with i s difficult t o See.

T

h

e country bank

is n o w r e q u i r e d u n d e r t h e A c t t o k e e p 4 , 1 2 p e r c e n t - t h e n

the Federal Reserve A c t goes i n t o operation t h e country

pank will b e required t o keep only 3.30 per cent, with a n
optional reserve o f 2.48 p e r cent which i t m a y keep i n the

Feceral reserve bank.

I

t i s a question, under the law

aS i t n o w stands, i f the country b a n k c a n d o with less t h a n
it i s r e q u i r e d

t o keep now-

T h e optional reserve will

be equal t o 2.48 o f the deposits i n the case o f the country


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Federal Reserve Bank of St. Louis

365
bank.

T h e reserve c i t y banks w i l l b e required

t o hold

in t h e i r v a u l t s o n l y 4 . 6 p e r cent, b u t t h e y w i l l b e r e q u i r e d

to have ‘ vault reserve, either i n vaults o r i n the Feueral

Reserve Bank, o f 3.68.

T h i s Act would compel the reserve

city banks t o keep i n the Federal reserve banks 8.28 p e r cent,

whereas n o w they are compelled t o keep only 5.62 per cent.
So you have t h e reserve cities t o consider, j u s t a s well
as t h e others.

I

t increases t h e i r requirements n e a r l y

3 per cent.
Vice G o v e r n o r Treman:

B u t y o u lessen t h e v a u l t reserve,

just t h e same?

Governor Seay:

T h e Ventral Reserve Cities are re-

quired t o keep i n the federal reserve banks 6.88 p e r cent.
This a m e n d m e n t w o u l d r e q u i r e t h e m t o k e e p 1 1 . 8 0 p e r cent.

Vice Governor Treman:

Y e s , but you relieve them o f

their required vault reserve.

Governor ‘%eay: Y e s . I

am aware o f that. I

give you a comparison i n that case also»

T h e Central

reserve cities a r e n o w required t o keep 6.88 p e r cent.
have b e e n o p e r a t i n g w i t h 1 2 . 3 0 p e r cent.

io

can

They

T h e n e w condi-

w o u l d require t h e m t o keep 11.80 p e r cent i n the

Federal reserve banks a n d j u s t what t h e y could g e t along

with in their own vaults.
Vice Governor !reman;
gard: t o p e a ) ,

I s i t not fair t o say i n re-~

reserve cities t h a t they hardly ever have

a dip i n their reserve, except j u s t f o r o n e d a y o r so?


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Federal Reserve Bank of St. Louis

Governor S e a y :

T h e i r required reserve?

Vice Governor Treman:

T h e i r required reserve.

566
Mr. Seay: Y e s , I

khow, b u t suppose, f o r instance, t h e y

had t o keep n o required reserve i n vault-

H o w little would the.

be willing t o d o with o r how little é o u l d they d o with?
I s i t not fair t o say, i f you

Vice Governor Treman:

place t h e m i n a position where t h e y d o not have t o keep a n y
required reserve,

t h a t y o u could eliminate t h e 1 - 5 p e r cent

and f i n d o u t w h a t t h e y h a v e b e e n k e e p i n g a s surplus b e y o n d

their legal reserve a s a working amount i n vault?
Governor Seay:

T h a t i g true, b u t t h e question still

remains h o w much they consider necessary f o r a working
balance?
Vice G o v e r n o r Treman: I
city b a n k s c a n g e t a l o n g w i t h a

they have been carrying:

assume t h e c e n t r a l r e s e r v e
very a p p r e c i a b l e s u m l e s s t h a n

T h a t i s also the case with the

reserve c i t y b a n k s a n d t h e c o u n t r y banks.
The Chairman: I

if y o u d o not think,

would l i k e t o a s k you, G o v e r n o r Seay,

i n case this p l a n was p u t into operation,

that i t w o u l d necessitate,

o n the part o f the Federal reserve

panks, v e r y much greater facilities t h a n they have a t the

present for supplying banks. with money?
Governor Seay:
another obligation.

B e y o n d a l l question.

I t would entail

T t . would e n t a i l t h e r e s p o n s i b i l i t y

of keeping very much stronger, because other Federal reserve
banks have g o t t o have i t o r the member banks have g o t t o
have it.

O n e way o r the other i t i s a question o f how much

they w o u l d h a v e t o have..

Governor Wold:
we n o t ?


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Federal Reserve Bank of St. Louis

B u t w e would b e much stronger, w o u l d

367

Governor Seay:

Y e s , w e would b e stronger, b u t we

might h a v e i t a n d n o t b e a b l e t o u s e i t s

The Chairman:

O n the other hand; a situation that re+

quired r e d i s c o u n t s w o u l d b e p r e c i p i t a t e d u p o n u s v e r y m u c h

sooner t h a n under t h e present plan?

Governor %eay? V e r y much sooner, Mr- Chairman.
The Chairman:

E v e n . t h o u g h w e were stronger, t h e de-

mands u p o n u s w o u l d b e m u c h m o r e f r e q u e n t a n d w o u l d m o r e
nearly a p p r o a c h a

chronic s t a g e ?

Governor Seay? V e r y m u c h more:

I t is perfectly

clear there would b e a tendency t o get along with a s léttle a S was possible f o r t h e m t o handle i n their vaults, a n d
in o r d e r t o k e e p t h e i r r e s e r v e s w i t h t h e F e d e r a l r e s e r v e

banks, t h e y would have t o resort t o rediscounting: I
think there i s n o doubt o f that.
The Chairman:

T h e r e i s s o much credit i n the country

that h a s t o b e supportéd, t h a t i f i t i s not Supported i n

the vaults o f the banks, then i t will have t o be supported
by the reserves i n the Federal reserve banks.
Governor Seay!

Yes.

T h e Federal reserve banks would

not gain anything like a s much, under this plan, a s they
would g a i n i f Federal reserve notes were made lawful r e serve. I

think they have f a r more t o gain from that source

‘than t h e y h a v e f r o m t h i s source.

T h i s is a

question w h i c h

needs a great deal of analysis and deliberation t o determine
whether o r not this p l a n will impose actually agreater burden u p o n t h e c o u n t r y b a n k s a n d r e s e r v e c i t y b a n k s t h a n t h e y

now have t o bear under t h e Act. I

d o not s a y i t will

just yet, b u t i t looks t o m e a s though that would b e the


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Federal Reserve Bank of St. Louis

368
result;

a n d i f t h a t s h o u l d b e t h e result, t h e n y o u a r e s i m -

ply t h r o w i n g t
i in the air.
Governor McDougal: I
this p l a n ,

think i t i s quite possible t h a t

a s outlined, w o u l d i m p o s e a

greater b u r d e n o n

the c e n t r a l r e s e r v e c i t i e s , u n l e r s o m e circumstances.
cash, a c c o r d i n g

Their

t o m y observation, f l u c t u a t e s v e r y m a t e r -

ially from time t o time, a n d I feel very sure the management o f those large banks would feel disposed t o carry a
good c a s h reserve.

T h e y feel that t h e y must d o it- T h a t

was m y reason f o r objecting t o the percentages h e r e outlined, without a t least giving a
to them. i

very careful consideration

think i t i s a very important matter.

Beyond

that, there i s another feaviure t h a t i t seems ought t o b e
considered.

T h i s would b e practically forcing t h e banks

to d o What w e are asking t h e m t o d o now--- that i s t o keep
larger resérves w i t h us.
between a

request a n d a

T h e r e being a great difference
command,

i t might naturally n o t s i t

very well:

The Chairman: I

a m very sertain, Governor Seay, that

the country banks, i n the section o f the country from which

I come, won't stand any added burden.
about a t the breaking point now-

T h e y are just

T h e y a r e getting a c -

customed t o the present situation a n d are bearing i t with
constantly i n c r e a s i n g e q u i n i m i t y -

i

f the banks

i n our

large manufacturing centers, t h a t a r e required t o carry
large amounts o f cash f o r pay roll purposes, a n d that have
very violent fluctuations

i n cash from week t o week, a s

most o f the p a y rolls a r e o n the weekly basis, f i n d themselves


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Federal Reserve Bank of St. Louis

369
confronted w i t h t h e n e c e s s i t y o f c a r r y i n g l a r g e r r e s e r v e s

with t h e Federal reserve banks, w i t h n o practical diminution i n their c a s h holdings, because o f the peculiar nature
of their b u s i n e s s , e
h
t tendency t o b e converted i n t o trust
companies w o u l d b e greatly increased a n d t h e process o f con-

version greatly accelerated.
Governor wold:

Y o u r banks d o n o t use reserve c a s h

for p a y roll purposes.

T h e y carry t h e p a y roll money i n

excess o f their reserve c a s h
The Chairman:
take a

Y e s , t h e y do; t h a t i s true-

good w h i l e f o r t h o s e b a n k s

I t would

t o become a c c u s t o m e d

the idea o f reducing their cash holdings,

to

o r accustomed t o

the idea that t h e y could safely reduce their c a s h holdings
during t h a t period.

T h e y would b e confronted w i t h t h e

necessity o f a larger reserve w i t h t h e Federal reserve
bank, w i t h the result t h a t i n the period o f readjustment
they would b e carrying materially larger reserves t h a n
they are carrying a t present.

T h e r e would b e a spirit o f

very distinct antagonism developed, I
Governor Seay: I

a m quite sure.

believe until w e have some informa-

tion w h i c h w i l l e n l i g h t e n u s u p o n t h e m i n i m u m r e s e r v e t h a t
the b a n k s o f t h e c o u n t r y c a n o p e r a t e u n d e r ,
very h a z a r d o u s

t o attempt

The Chairman: I

i t would b e

t o p u t t h a t p l a n i n t o operation.

think this Conference should give

very careful consideration t o the recommendation o f the

Federal reserve Board upon this matter.
asked f o r a t t h i s t i m e a

great d e a l o f p r e s s u r e

be exerted t o get i t framed;


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Federal Reserve Bank of St. Louis

I f legislation i s
i s going t o

t h e session i s short a n d the

370
matter will b e hurried.

O n c e enacted into l a w w e are

going t o b e confronted w i t h this situation a n d w e will have
to m e e t

i t a s best

w e can.

I t might b e easy t o pass because

Governor Seay:

o f most o f t h e

apparently i t reduces t h e r e q u i r e d r e s e r v e

banks «

B u t whether i n effect i t reduces t h e amount o f re-

serves necessary f o r operation i s the vital question. I
ao not think w e have anything before u s that w e c a n rely
upon t o determine that question a t t h e present time.

Vice Governor Treman:
also have a

D o you not think that w e should

chance t o sound o u t some o f the banks a s t o

their views o n this situation,
pretty b i g question-

i n a quiet way-

L t ke

I f you concentrate S o much more o f

your reserves i n the Feceral reserve banks, w h e n t h e time

of stress comes you are going t o have a great deal o f pressure o n the Federal reserve banks f r o m all directions:
Governor Seay: I

would l i k e t o s a y I

had this r e -

port before m e at the time I prepared the report for the
committee o n the subject o f central reserve a n d reserve
cities, a n d 1

s o formulated that report a s t o put down

something over o n the other side t o consider, rather t h a n
something that I would b e absolutely willing t o recommend
myself, although I

put i t i n the report.

T h e r e i s this

question t o consider with relation t o the reserves w h i c h
the b a n k s m a y have.

We are going t o deprive t h e balances i n the central
reserve c i t i e s

o f t h e q u a l i t y o f reserves.

clear t o my mind that that i s going t o ©


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Federal Reserve Bank of St. Louis

I

t i s quite

induce a greater

371
competition f o r bank balances among a l l the banks, including
those i n the cexéral reserve a n d reserve cities, a n d also
among t h e larger banks a l l over t h e country, f o r the deposits
of banks i n their o w n neighborhood.

W h e n that i s started

some o f those banks that will b i d f o r those balances w i l l
probably b i d high rates o f inverest, a n d the probability i s

PMeWill attact them- T h e banks that receive them are not
so accustomed t o handling t h e balancesof other banks, a n d
they will have a

great deal t o learn b y experience. I

think there i s n o doubt that the balances o f other banks a r e
subject t o more sudden a n d wider fluctuations o r withtrawals t h a n a n y o t h e r c l a s s o f balances:

T h a t is a

tion that might lead t o complications, I

Situa-

a m iaerinea t e

think:

Governor Wola:

A l o n g that line, i n ciscus s i n g this

briefly a n d informally with Mr. Delano this morning,

i t de

veloped t h a t t h i s q u e s t i o n o f r e s e r v e c i t i e s w i l l b e t a k e n

up immediately after this legislation i s adopted,
adopted.

i f it is

B a n k s t h a t a r e handling t h e accounts o f tither

member banks o r state banks, nonmember banks, w i l l probably b e p u t i n t h e r e s e r v e c i t y c l a s s a n d a

requirement required o f them. I

larger r e s e r v e

think that will b e abso-

lutely necessary i n the case o f a city like Buffalo, f o r
instance, a n d i n a lot o f smaller communities.

(Informal discussion followed which thé reporter
was directed n o t t o take-)
Governor Seay:
report


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Federal Reserve Bank of St. Louis

T h a t discussion i s i n line with t h e

o f the committee

o n central r e s e r v e a n d r e s e r v e

372
cities, u p o n w h i c h a c t i o n w a s d e f e r r e d

The Chairman:

W o u l d i t not b e well t o take u p the

other r e c o m m e n d a t i o n s
Seay's c o m m i t t e e

b y t h e Vonference.

a n d t h e n h a v e t h e report o f Governor

c n t h e reserve a n d central reserve cities

in connection with a further discussion o f this No. 2 .
Unless there i s someobjection w e will proceed o n that theory.

The next i s No- 3. “Reducing paid-in capital o f the
banks t o 1-1/2 per cent+"
That was finally Gisposed o f o n our regular program.

The next i s 4, "Supertax o n National bank note cireculation."
Vice G o v e r n o r !reman:

Y a n y o u give u s the details

that proposed supertax, M r + C h a i r m m ,

of

o r c a n anyone here

give i t ?

The Chairman:

T h e proposition, a s I understood it,

was that banks with a circulation u p to 100,000 should
be allowed t o carry that circulation without a

tax upon it;

that there should b e a n increasing t a x o n circulation above
that amount t o gradually drive i n the National b a n k note
circulation, dispose o f the bonds supporting i t and substi-

tute the Federal reserve notes a s the circulating medium.
Has anyone a

resolution t o offer i n connection with

this?
Governor Seay:

I t has always been m y view that i t was

a mistake t o permit n e w banks entering t h e system t o take

out circulation. I

think the National bank act ought t o

be s o amended that that burden would n o t b e added t o t h e
present system b y every n e w bank coming in.


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Federal Reserve Bank of St. Louis

To

Mr- Curtis:

T h e proposal offered u s includes t h a t

suggestion.

Governor Wold: I

spoke t o Mr. Warburg about that

and S u g g e s t e d there ought t o b e a n amendment o f that kind,
but h e was n o t i n favor o f it.

H

e said that would deter

organization o f national banks.

T h e s s little banks want

to see their notes i n circulation:

T h a t i s one o f the rea-

sons w h y they sometimes organize a

national b a n k where a

State b a n k might have answered their purposes j u s t a s well.
He t h o u g h t

i t would d e t e r n a t i o n a l b a n k s b e i n g o r g a n i z e d

in the smaller communities.

Governor Seay:

H o w long ago was that?

Gove rnor Wold:

T h a t was o n yesterday.

Mr- Curtis: I

understood Mp. Harding, i n his state-

ment d a y before yesterday,
would p r o b a b l y i n c l u d e a

t o state that their proposal

restriction

new National banks t o quite a
Governor Seay:
to offer a

o n the circulation

of

conSiderable extert.

I n connection w i t h that I would like

resolution that t h e Board consider imposing a

restriction u p o n the circulation o f new banks entering t h e
system.
Governor Rhoads:

W h a t would y o u s a y w i t h respect

to the renewal o f charters?
Governor Seay?
Governor Rhoads:
be a

T h e n t h e date o f their birth would

handicap t o s o m e o f them?

Governor Seay:
Governor Rhoads:
crimination I think.


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Federal Reserve Bank of St. Louis

T h e same thing.

I t would, yes:
I t would make a very unequal dis-

37 4
Governor Wold:

N o t i f thisnew amendment went through.

Still, however, t h a t w o u l d t
o
n apply t o banks under $100,000.
Governor S e a y :

them b y imposing a

w

e a r e g o i n g t o place a

handicap

on

super tax, a n d i f w e are yoing t o d o

that, w h y n o t p l a c e a n o t h e r t a x i n t h e w a y o f a

restriction

én the circulation o f new banks?
The Chairman:
Governor Seay:

W h a t was your motion, Governor Seay?
T h a t t h e board consider whether o r

not i t would b e advisable t o restrict t h e circulation o f

new banks coming into the National system:
Governor Wold: I
Governor V a n Zandt:

will second the motion.
d u s t a moment.

G o v e r n o r Seay,

would you not be willing t o add t o that, "or renewals o f
charters?"
Governor Seay:
circulation

Yess I

will. make i t restriction o f

o f n e w b a n k s c o m i n g i n t o t h e s y s t e m o r o f banks

renewing t h e i r charters.

The Chairman:

ment.

Y o u have heard t h e motion a n d t h e amend-

I s there ant further discussion.
(There w a s n o further discussion a n d the motion:

WAS carried.)
Governor Seay: I

would n o t consider that that dis-

poses o f the question, “p. Chairman?
The Chairman:

N o . I

were disposed t o make a

Governor »eay: I

was going t o ask y o u i f you

motion covering N o o 4

would like t o hear some o f the

national bankers o n that subject.


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Federal Reserve Bank of St. Louis

Governor McCord: W o u l d not a better way to bring

375

about retirement b e t o empower t h e Board t o call i n a

cer -

tain percentage o f bonds e a c h year from each national bank,
and then require circulation t o g o Out according t o the n e d s

of trade and commerce.
out.

I t would naturally force itself

T h a t would b e better t h a n taxing them.

I

t would

pe better t o just s a y that t h e y would have t h e right t o call
in from each reserve district a

certain percentage o f bonds.

The Chairman: M i g h t I ask how the bonds would be
taken u p ?
Governor McCord:

R e q u i r e t h e Federal reserve b a n k s

to

make a deposit o f lawful money f o r retirement o f that circulation a n d take t h e bonds.

Governor Wold: I

prefer not t o be obligated for those

bones: in-our district;
The Chairman: I
No’ 4 .

would like t o get some action o n this

W e either agreeor w e d o not.

Governor Seay:
rapid r e t i r e m e n t

o f national b a n k c i r c u l a t i o n t h a n t o h a v e

a greater p u r c h a s e

banks?

I s there a n y way t o enforce a more

o f t h e bonds securing i t b y the reserve

I s there a n y other possible way?
Governor McDougal:

in m y mind.

T h a t i s the question that h a s been

F u r t h e r , h o w are these banks going t o dis-

pose o f their b o m s ?

W h o i s going t o buy them?

Governor Seay*
larger amounts. I

T h e reserve banks would b u y them i n
was wondering i f there w a s a n y possible

way t o hasten t h e retirement o f national b a n k circulation
other t h a n increasing t h e amount o f bonds t o b e purchased
by the reserve banks.


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Federal Reserve Bank of St. Louis

376
Governor McCord:

Yes.

I f the

S e c r e ftthe
a or~“reas~
y

ury offered t h e m t o the investing public a n d took bids o n
them.

The Chairman:
banks

I s there not a great injustice t o the

i n this s u p e r t a x p l a n ?

Governor McCord:

Yes.

The Chairman:

t practically forces them,

of the supertax,

i

b y means

t o market their bonds.

Governor Seay:

W i t h o u t giving .a. market f o r a

greater amount than $20,000,000 a year.
Mr+ Curtis: I
aid p r o v i d e a

think the plan Mr. Harding spoke of

rather e l a b o r a t e s y s t e m f o r t h e r e s e r v e b a n k s

to take these over, covering t h e possibility o f reserve
banks issuing Federal reserve b a n k notes against them, w i t h
a t a x provision.

The Chairman:

Y o u are quibe right about that, Mr.

Curtis.

Governor Seay:

A n d issuing three per cent bonds i n

their place.
Vice Governor Treman:

Y e s , a n d giving t h e three

per cent bonds t h e circulation privilege.
Governor Seay:

G i v i n g t h e m t h e circulation privilege

in the hands o f the Federal reserve banks?
Mr- Curtis:

Yes.

T h a t was the idea.

Governor Seay: P l a c i n g a tax o n the circulation issued
by t h e r e s e r v e b a n k s o t h a t i t w o u l d r e d u c e t h e p r o f i t r e -

ceived b y the reserve b a n k t o ore p e r cent.

T h e Government

would g e t o n e per cent, t h e Federal reserve b a n k would g s t


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Federal Reserve Bank of St. Louis

377
one p e r c e n t a n d t h e o t h e r o n e p e r c e n t w o u l d p r o b a b l y b e

covered b y the cost o f issuing:
Mr+ Curtis: I

d o n o t think t h e y have worked o u t the

details, b u t I remember h e suggested that would b e a possible w a y o f handling t h e situation.

The Chairman:

W i l l some one offer a resolution o n

this?

Governor Seay: I

will offer a resolution:

T h a t it

is the sense o f the Conference t h a t t h e more rapid retirement o f National b a n k notes c a n b e brought about only i n
one way, a n d t h a t i s b y t h e i n c r e a s e
cent b o n d s

i n purchase

o f t w o per-

b y the Federal reserve banks; t h a t i n the opin-

ion o f t h e C o n f e r e n c e t h e a m o u n t o f bonds p r o v i d e d

t o be

purchased b y Federal reserve banks i n one year Should b e increased; t h a t some equitable p l a n should b e worked o u t b y
which Federal reserve banks could, without loss issue d@irculation t o take t h e place o f the National b a n k circulation
retired.

I

t i s t h e opinion o f the Conference t h a t nation-

al bank notes should b e replaced b y Federal reserve notes,
but under t h e law, a s i t now is, i t i s impossible t o replace national b a n k notes w i t h Federal reserve circulation, a n d the l a w

should
b e amended s o a s t o permit t h e issue

of notes against g o l d a n d bills receivable.
There i s one thing t o b e considered,

a m t h a t i s that

the National b a n k circulation cannot b e adequately replaced
except b y Federal reserve notes.

I t i s perfectly certain

that w e Cannot, under t h e existing conditions o f the law,
issue Federal reserve notes t o replace t h e National b a n k note
circulation.


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Federal Reserve Bank of St. Louis

T h e A c t must b e amended

t o permit u s t o issue

$78
Federal reserve notes against g o l d a n d bills receivable,
just a s they propose.
most a

T h e y proposed that.

T h a t i s al-

Sine q u a n o n o f readjusting t h e National circulation.
The Stakkotaon I

would like t o have that resolution

repeated.
(The reporter thereupon repeated t h e above resolution, u p o n which considerable informal discussion
took place.)

The Chairman: I

would suggest, i n dealing with this

matter, t h a t w e consider t h e desirability o f expressing t o

the Board, as I have said, our d e s i r e t
o have the Federal
Reserve notes replace national b a n k notes a s rapidly a s
possible,

b u t that w e are disintlined

t o agree t o a n y p l a n

that involves t h e stibstitution o f one f o r m o f bond secured
note issue f o r another f o r m o f b o n d secured note issue.

That will put us o n record as being opposed t o eny plan
that involves t h a t a s a necessary concommitant o f it. t
would l i k e t o b e o n record t o that effect, myself.

Governor Wold: I

would like t o also.

Governor Fancher:

S o would I .

Governor Rhoads:

W e are all i n agreement o n that

point.

Governor Yeay: W h i l e I agree on that, I cannot see
any other possible method, f o r some years t o come, b u t a
substitution.

I f you wish t o retire t h e m y o u must sub-

stitute Federal reserve bank notes. I

am oppoSed t o the

principle o f doing it, but a t the same time i f they are t o
be retired, 1 recognize the necessity o f doing it.


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Federal Reserve Bank of St. Louis

The Chairman:

D o y o u not think i t i s better t o move

379

Slowlyn
i this matter:

D o you believe there i s a n y imme-

diate necessity f o r doing t h i s ?

T i r e whole financial

Situation o f the country i s abnormal a t the present time.

I t

scems t o m e i t i s not a matter o f such immediate urgency
that w e Cannot wait until t h e financial conditiors

o f the

country r e t u r n t o s o m e t h i n g a p p r o a c h i n g n o r m a l b e f o r e w e
take i t up.

Governor Seay: I
press

would b e perfectly Willing t o ex-

m y opinion that while w e believe e a r l y retirement o f

National b a n k notes i s very desirable, y e t w e d o not
believe i t i s o f such urgency a s t o b e undertaken a t this
time.

The Chairman:

I f i t involves t h e substitution o f
any

form o f b o n d s e c u r e d c u r r e n c y f o r a n o t h e r f o r m o f
bond

secured currency.
Will y o u offer a resolution t o that effect, w h i c h
will
take t h e p l a c e

o f the o n e previously offered

Governor Seay:

Yes. I

b y you?

move t h e Conference believes

it t o b e highly desirable t h a t National b a n k notes Should
be retired a s rapidly a s possible, b y t t h e Conference i s
opposed t o the principle o f Substituting a n y form o f bond
secured currency f o r t h e present national b a n k currency.
Governor wold: I

The Chairman:

Y o u have heard Governor Seay's reso-

lution, d u l y seconded.


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Federal Reserve Bank of St. Louis

will s e o o n d t h a t .

I s there a n y further discussion?

(There w a s n o further discussion a n d t h e
motion

was duly carried.)
The Chairman:

T h e next i s No* 5. “ R e n e w i n g our re-

380
comendation o f last summer f o r branch banks i n cities."
Governor V a n Zandt:

W e are o n record a s having con-

curred i n that.
Governor Fancher: I
Goce race Wold: I

The Chairman:

move that w e concur i n it.
second t h e motion.

I s there any discussion?

(There was n o discussion and the motion was duly

carried.)

The Chairman:

T h e next is No’ 6. " P r o v i s i o n for

associate o r clearing membership inthe Federal reserve

system."
I would like t o state, f r o m m y o w n point o f view, I
think i t very desirable t h a t every effort should b e made
to encourage state banks a n d trust companies t o come into

the system under existing conditions.

I

t seems t o me

sufficient r e a l progress i s being made t o encourage u s t o
think that w e might have additions t o the membership f r o m
this source: I
memberships,

do not feel that t h e plan o f associate

a S outlined, w o u l d b e effective i n inducing

the m o r e i m p o r t a n t s t a t e b a n k s a n d t r u s t c o m p a n i e s

t o join

of

the system, b e c a u s e t h e d e p e n d e n c e p l a c e d u p o n t h e m f o r t h e
endorsement

o f member banks.

I simply offer that a s m y own feeling i n the matter

gentlemen.


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Federal Reserve Bank of St. Louis

Governor Fancher? I

Governor Wold: I
Governor Rhoads:

quite agree w i t h that, M r - Chair-

a m i n a c c o r d w i t h t h a t statement.
I

f y o u open that question up, a s

382
proposed b y the Board, t h e y will just wait a n d s e e what
other gate will b e opened, a n d i t will deter t h e m from doing
anything.

Governor McDougal:
that

Y o u r contention is, Mr. Chairman,

s t a t e banks should b e admitted t o full membership

or not a t all?
The Chairman:

Y e s -

Governor McDougal: I

The Chairman:

concur i n that view,

M r Chair-

H o w d o you feel about it, Governor M c -

Cord?
Governor McCord: I

cle. I

think that i s the correct prin-

think I know what prompted Governor Harding t o

make that suggestion, t h a t t h e smaller banks, f o r clearing
purposes, w o u l d probably b e induced t o carry a n account
with the Federal reserve banks.
The Chairman:

H o w d o you feel, Governor V a n Zandt?

Governor V a n Zandt: I

concur i n what y o u said- I

should n o t l i k e t o s e e t h e s t a t e b a n k s c o m e i n a S m e m b e r s

fuk
of the system o n any other basis t h a n that o f a, member.

The Chairman: G o v e r n o r Seay (who had been absent
from t h e room),

w e w e r e d i s c u s s i n g t h e provisiorm f o r

associate o r clearing memberships in‘the Federal reserve
system. I

expressed m y feeling that i t i s undesirable

that t h e plan should b e adopted because I

d o not believe i t

would induce t h e better state banks a n d trust companies t o

come in, and that I think we had better press for additional
member ship o n the present basis.


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Federal Reserve Bank of St. Louis

382

Governor Seay: f-Puldig- concur I n bnst opinion; sir:
The question was propounded t o the Advisory Council a s t o
what should b e done t o induce state banks t o come into
system.

T h e opinion o f the Council w a s that a l l t h e

concessions t h a t should b e made t o state banks h a d been
made «

The Chairman:

W i l l y o u offer a resolution covering

the matter, embodying p e n s t h e statement t h a t a l l concesSions t h a t S h o u l d b e m a d e h a v e a l r e a d y b e e n m a d e ?

Governor Seay: Y e s , Mr. Chairman. I

move the Con-

ference bealieves t h a t t o permit associate state members
into t h e s y s t e m w o u l d h a v e a

tendency t o prevent s t a t e

banks, particularly t h e better class o f state banks, f r o m
entering t h e system, a n d that a l l concessions t h a t should
be made t o state banks t o induce t h e m t o enter t h e system
have b e e n m a d e b y t h e r e g u l a t i o n s

o f the Federal Reserve

Board.
The Chairman: G e n t l e m e n , y o u have heard Governor
Seay's motion.

I s theré a

Governor V a n Zandt: I
The Chairman:

I

second t o it?
will second t h e motion:

s there a n t further discussion u p o n

Governor Seay's motion?
(There w a s n o further discussion a m t h e motion
Was carried.)

The Chairman:

T h e next i s No- 7. " R e i n s t a t e power

to accept u p t o 100 per cent o f capital a n d surplus."


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Federal Reserve Bank of St. Louis

Governor Fancher: I
Governor Wold: I

move that w e concur i n No* 7 second t h e motion.

The Chairman:

I s there a n y further d i s c u s s i o n ?

(There w a s n o further discussion a n d the motion
was carried.)

The Chairman:
eligible

a

N o e 8. " F i f t e e n day notes t o be made

s Collateral f o r note issue."

Governor Wala: I

move that w e concur i n No. 8.

Governor V a n Zandt:
The Chairman:

I s e c o n d t h e motion.

I s there a n y discussinn o f the motion.

(There w a s n o discussion a m t h e motion was d u l y

carried.)
The Chairman:

T h e next i s Noe 9. " S e c t i o n 22-

to be clarified."
Governor V a n Zandt: I
The Chairman: I

move w e concur i n No+ 9 .

d o not think there i s necessity f o r

action o n No. 9 .

Governor McDougal:

M a y + ask what No. 9 means, Mr.

“Bhairman?

Governor 5eay: I

think i t is that section which says

that n o officer o r director o f a bank shall receive a n y
emoluments, etc.

Mr- Curtis:

Yes.

T h a t i s the section they want

clarify.

The Chairman:

N o action i s necessary a n d w e will

it, i f there i s n o objection.


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Federal Reserve Bank of St. Louis

No. 1 0 has t o d o with Section 5200.

Governor Seay: I

move that that b e concurred in.

Governor V a n Zandt: I
The Chairman:

second t h e motion.

I s there a n y discussion o f that motion.

364

(There was no discussion and the motion was carried.)
N o . ll. “ T h e $100,000 gold certificate."

The Chairman:

move w e concur i n No. l l -

Governor Fancher: I

second the motion.

Governor Wold: I

(The motion was duly carried.)
Mre Curtis:

I t seems t o m e i t would b e a good thing

to have that refer n o t only t o the Bedsral Reserve Board,
but also t o the Federal reserve banks:

I t would save u s a

lot o f trouble.

Governor Wold:
The Chairman:

W h y n o t suggest that?
T h e r e i s n o limitation o n the use o f

those $100,000 certiticatea.
Mr-e Curtis: I

do not know what they provide, but i t

may be considered t o apply only t o the use o f the Federal
Reserve Board.

M r . Harding stated a t the time, "This

will not interest anybody except the Board."
Governor Fancher:

T h e n w e h a d better modify t h e reso-

lution to the effect that we concur i n the issue of $100,000
certificates f o r t h e use o f the Federal Reserve Board a n d

for the use o f the Federal reserve bank o r for general use.
The Chairman:
nor Fancher.

I

Y o u have heard t h e resolution

s there a

b y Gover-

second?

(The motion was duly seconded and carried.)
The Chairman:

N o . 12. " T s s u a n c e o f Federal re-

serve notes against gold."


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Federal Reserve Bank of St. Louis

Governor V a n Zandt: I
Governor Fancher: I
The Chairman:

move that w e concur i n No. 1é.
second t h e motion.

I s there a n y discussion o f that motion?

$85
(There w a s

n o discussion

a n d the motion was car+

ried.)
Governor Seay: I

think W e were g i v e n t o understand

that that meant a l s o t h e issue o f Federal reserve notes
against g o l d a n d bills: receivable---~ 6 0 and 40.

The Chairman: G o v e r n o r Seay, w e have not heard the
report f r o m y o u r c o m m i t t e e

o n reserve a n d c e n t r a l r e s e r v e

cities.

Governor S e a y

T h a t report w a s offered, b u t action

was d e f e r r e d u p o n i t u n t i l w e h a d c o n s i d e r e d t h e s e a m e n d m e n t s

to the Act, a s suggested b y the Board.

Mr- Curtis: B e f o r e taking that matter u p may I make
a comment o n this last motion, Mr- Chairman?

The Chairman: Certainly, Mr- Curtis.
Mre Curtis:

W i t h respect t o No. 12, issue o f Federal

reserve notes against bills receivable, I
t have h a d q u i t e a

wish t o s a y that

correspondence w i t h G o v e r n o r S t r o n g ,

in w h i c h w e h a v e c o m e t o t h e c o n c l u s i o n t h a t t h e p r e s e n t

method o f bookkeeping b y which the liabilities o f Federal
reserve b a n k s

o n their outstanding Federal reserve notes

have been offset b y the deposit o f gold with t h e agents

and is not showni
n the liabilities of the bank ami the gold
deposited w i t h the agent i s not Shown among t h e assets o f
the banks, d e p e n d s n o t u p o n a n y p r o v i s i o n

o f law nor upon

any rulings o f the Federal reserve board, b u t upon a form
of bookkeeping arranged b y the organization committee.
After a

good deal o f study I

believe t h e l a w means,

it s t a n d s t o d a y , t h a t t h e l i a b i l i t i e s


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Federal Reserve Bank of St. Louis

as

o n all Federal reserve

986
notes outstanding should b e shown a s liabilities o f the
Federal reserve bank, which t h e y are; a n d that t h e gold
held i n temporary custody b y the Federal reserve agent should
be included a s a n asset o f the bank which,
it is;

i n m y opinion

t h a t the Board could change t h e situation without

any legislation whatsoever,

b y issuing a n order t o change

our pookeeping methods.

Governor Wold:

I n discussing that with Mr. Delano,

he expressed the opinion that h e was also i n favor o f it,
but that i t could n o t b e done-

H e

e x p r e st sopinion,
a eh dt

and S a i d t h a t c o u n s e l h a d s a i d t h a t it, could n o t b e p l a c e d

upon t h e books.

Mre Curtis:

T h e Board's counsel had said so?

Governor Wold:

T h a t i s m y impression. I

it with him some time ago. I

discussed

have always contended that

inasmuch a s t h e l i a b i l i t y d o e s n o t cease, a f t e r w e h a v e

deposited g o l d with the Federal reserve agent, although t h e
law S a y S w e r e d u c e o u r l i a b i l i t y

obliged t o pay those o n demand.

i n that way,

w e are still

Y o u are required t o pay

our notes w h e n presented t o you, e v e n i f w e have deposited
gold with t h e Federal reserve agents t o reduce o u r liability.
Mr- Curtis:

I f i t would n o t take u p too much o f the

time o f the Conference I would like t o read a letter I
wrote Governor Strong o n this matter,

Governor Seay:

i n which h e concurs.

H e did not concur i n it a year ago,

because t h a t i s one o f the first subjects I
fore t h e Conference.

H

e did n o t have that opinion t h e n

and t h e B o a r d d i d n o t either.


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Federal Reserve Bank of St. Louis

brought u p be-

(Informal discussion followed.)
Mre Curtis:

i L wiil read t h e i6tter, i f y o u d o not

object, Mr- Chairman.
The Chairman?

N o , Pead.it,.MrsGurtiss

Mr. Curtis: ( R e a d i n g : )
"My dear Governor:
I have b e e n engaged i n a somvahat v a i n endeavor t o
find t h e ruling o f the Federal Reserve Board mentioned i n

your letter o f October 18th, t o Mr- Treman under which the
liability o f Federal reserve notes i s extinguished w h e n
gold i s deposited w i t h t h e agent i n place o f commercial
paper: I

d o not find t h a t this practice w a s inaugurated

by a formal ruling.
"Ag you may remember, o n January 5, 1915, Judge Elliott
issued a

ruling concerning t h e correct procedure i n the is-

suing a n d retiring o f Federal reserve notes. .
tle later y o u wrote a

. A

lit-

long letter t o the board criticising

this ruling a n d urging that i t b e not adopted a s the position o f the board.

"On January 8, 1915, the Honorable John Burke wrote
uS a letter demanding $445,000 t o be sent t o him for the

5% Redemption Fund, t o which we replied o n the 15th that
we d i d n o t n e e d t o S e n d h i m a n y m o r e m o n e y f o r h i s r e d e m p -

tion fund a s w e only h a d t o keep a

40 per cent reserve

against Federal reserve notes i n actual circulation a n d
not offsst b y gold o r lawful money deposited w i t h the Federal reserve agent, a s provided i n paragraph 5

of section

16.


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Federal Reserve Bank of St. Louis

As I remember it, prior t o this time w e h a d h a d sever-

388

eral discussions

t o the prow i t h t h e staff o f the bank a s

per w a y o f showing o u r liability o n and reseryes against
a
Federal r e s e r v e n o t e s a n d e v e r y b o d y h a d agreed, w i t h o u t
only
ruling, t h a t t h e p r o p e r w a y w a s t o s h o w t h e l i a b i l i t y

keep
on the net amdunt outstanding, a s above deseribed, and
our r e s e r v e s

o n that basis.

“On January 17, 1916, the board sent a circular t o
each F e d e r a l r e s e r v e a g e n t s t a t i n g t h e t t h e o p e r a t i o n o f

Federal
the l a w might conceivably result i n the situation o f
silver c e r reserve n o t e s b e i n g s e c u r e d b y 1 0 0 p e r c e n t o f

tificates, w h i c h t h e board considered w a s n o t contemplated

under the Act. T h e r e f o r e , each Federal reserve agent was
b e held
instructed t h a t a t least 4 0 per cent o f gold must
either b y the bank or, i n the alternative,

b y the Federal

reserve agent against a l l outstanding Federal reserve notes,
and the agents were instructed t h a t a minimum o f not less
than 4 0 per cent o f deposits m a d e t o reduce liability must
pe i n gold o r gold certificates:
It seems t o m e tiat this order o f January 17, 1916,
that
is s o m e w h a t i n c o n s i s t e n t w i t h t h e g a n e r a l p o s i t i o n

it
the board a n d the system a s a whole h a s taken i n that
apparently r e c o g n i z e s t h e n e c e s s i t y

o f making t h e reserve

which
requirements applicable t o the amount o f notes f o r
or
the liability has b e e n reduced b y depositing t h e gold
lawful money with the agent.

"Tt find that the method o f showing the net liability
of reserve banks u p o n outstanding notes b y deducting f r o m
money
ihe total amount i n circulation t h e gold a n d lawful


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389

outin hands o f Federal reserve agents f o r redemption o f
standing notes was begun a t least a s early a s the weekly
statement o f combined resources a n d liabilities o f the
Federal r e s e r v e b a n k s a t t h e c l o s e o f business D e c e m b e r 1 1 ,

1914.

T h i s statement i s apparently t h e first weekly state-

ment published a s it is the earliest o f which we have a copy
fn our: £1 166.

"As you will doubtless remember, I have written various
memoranda o n the subject o f what i s meant b y the words

‘reducing liability’

i n section 16, i n “hich I pointed out

that there a r e various liabilities i n connection w i t h outstanding notes which might b e reduced b y deposits w i t h t h e

Federal reserve agent, t o wit:

“(1) Liability t o pay the noves when presenied,
Liability t o maintain a 40 per cent gold reserve,
Liability t o maintain a 5 per cent redemption
fund, a n d
Liability

t o p a y such t a x a s might beimposed

on

their issue b y the Federal Reserve Soard:
Umer t h e present practice i t seems t o m e clear that t h e
liabilities w h i c h have b e s n reduced b y making deposits w i t h
the agent a r e Nos- 2 , 5 and 4 above, t h e liability t o pay
the notes w h e n presented being « n e which the Federal reserve
banks cannot escape under a n y circumstances.

I f our methods

of bookkeeping were «changed s O t h a t a l l notes issued t o the
bank b y the agent were included i n our statement o f Lliabilities a n d all gold o r lawful money deposited w i t h the agent
was included i n our assets, then, I


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Federal Reserve Bank of St. Louis

believe, t h e o n l y liabilit;

LOC
which w o u l d b e r e d u c e d

b y m a k i n g s u c h deposits w o u l d b e t h e

liability t o p a y w h a t e v e r t a x m i g h t b e i m p o s e d

Reserve Board, a s our liability t o maintain a

b y t h e Federal

40 per cent

gold reserve a n d a 5 per cent redemption fund would exist
with r e s p e c t
sated f o r ,

t o all notes outstanding b u t would b e compen-

as a

practical m a t t e r ,

b y our ability t o count

the gold with the agent a s part o f the gold reserve.

"Of course, I agree with you that our position would
be much strengthened i f i t were possible t o consider t h e
gold deposited w i t h t h e agent a s assets o f the bank, a n d I

also agree (if this is your view, i t certainly being mine)
that,

aS a

practical m a t t e r ,

i n case o f the insolvency o f

a Federal reserve bank i t would make absolutely n o difference which w a y o u r books were kept s o far a s the paying o f f

of outstanding Federal reserve notes was concerned.

M y

view o n this i s that, even under present conditions, i f a
bank b e c a m e b a n k r u p t a n d i t s r e s e r v e n o t e s w e r e p r e s e n t e d

for payment, a l l its assets would b e used s o far a s they

went (including the assets held b y the Federal reserve
agent) t o pay off all o f the reserve notes outstanding, ani
I do not believe t h a t t h e first notes presented could b e
handed t o the agent f o r payment i n full, leaving t h e notes
later p r e s e n t e d

t o b e p a i d o f f i n p a r t o n l y b y t h e balance

cf the insufficient assets o f the bank- Consequently, a s
practical matter, whichever w a y w e keep o u r books o n this
question t h e assets o f the bank a n d t h e assets h e l d b y the
reserve a g e n t w o u l d b e t h r o w n i n t o a

common f u n d a n d u s e d

first t o pay off t h e notes, and, subsequently, a n y other


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Federal Reserve Bank of St. Louis

liabilities

o f t h e bank.

“However, I

am not quite clear i n my mind whether i t

would b e wise t o t r y t o get t h e board t o authorize a

change

in the system a t the present t i m e i n view o f the fact that
the a m e n d m e n t w a s p r e s e n t e d

t o C o n g r e s s a n d t u r n e d down.

If y o u think i t i s wise t o try for this.change i n practice,
4 think i t could b e done b y suggesting

t o the board that

the b a n k s b e i n s t r u s t e d s i m p l y t o c h a n g e t h e i r f o r m o f b o o k -

keeping s o that a l l outstanding notes would appear a s liabilities a n d a l l g o l d a n d l a w f u l m o n e y d e p o s i t e d w i t h t h e
agent a s a s s e t s b e m p o r a r i l y h e l d i n c u s t o d y b y t h e agent.

As a matter o f fact, t h i s would require v e r y little change
either

i n the books

o f the b a n k o r i n the weekly state-

ments o f t h e b o a r d a s t h e f i g u r e s
upon t h e s e s t a t e m e n t s

In this connection,

i n question a l l appear

i n t h e f o r m t h e y a r e i s s u e d today.

i t i s somewhat interesting t o note

that t h e amount o f gold a n d lawful money held b y the agents

on November 24, 1916, was i n excess o f the Federal reserve
notes i n circulation, both as shown i n the reserve banks'
statement a n d a s s h o w n i n t h e r e s e r v e agents! s t a t e m e n t ,

although t h e t w o statements d o not contain exactly t h e same
cipabegs
"With respect t o the legal question involved, I

am

rather inclined t o t h e view, although I think the solution i s filled w i t h doubt, t h a t t h e gold o r lawful money
deposited w i t h the Federal reserve agent remains t h e property
of the bank.

T h e r e a r e several indications t o this effect

in the statute, a s follows:


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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

392

(1) T h e use o f the word 'deposit'instead o f the
word 'transfer' o r dher s y n o n y m o u s e x p r e s s i o n
indicates t h a t title w a s n o t intended t o pass.
The explicit provision that reserve notes s o deposited s h a l l n o t b e r e i s s u e d e x c e p t u p o n c o m -

pliance w i t h the conditions o f a n original
issue w o u l d s e e m t o indicate t h a t , w i t h o u t

that previs ion, t h e notes might b e considered
as owned b y o r subject t o some claim o f the bank.
The

absences

o f

a n y

s u c h

s p e c i f i c

c o n d i t i o n

concerning t h e gold o r lawful money deposited
has t h e tendency t o indicate t h a t there m a y b e
such a claim o r ownership i n the bank:
The fact that t h e r e erve agents must hold t h e
gold o r lawful money exclusively f o r exghange f o r

notes offered b y the bank indicates that the bankis the only person that c a n ultimately obtain t h e
gold o r latful money s o deposited (except t h e
Treasurer

o f t h e U n i t e d States,

w h o m a y get some

of the gold for his redemption fund.)
It has been suggested that the Federal reserve
agent h o l d s t h e d e p o s i t s

a s trustee f o r t h e n o t e

holders, b u t t h e fact that n o individual note
holder could obtain a n y part o f the deposit e v e n
on p r e s e n t a t i o n

t o t h e r e s e r v e a g e n t o f Federal

reserve notes seems a

conclusive answer t o this

suggestion.

Of course, t h e argument o n the other side i s that the

393

Federal reserve agent i s a n agent f o r t h e Government t o
protect i t s l i a b i l i t y

o n notes a n d t h a t h e h a s c o n s e q u e n t l y

been vested w i t h full legal title t o the security i n order

to make that protection adequate. "
Governor wold: I

a m not prepared

t o g o s o far a s our

Secretary h a s gone i n claining that these funds might properly b e put into t h e funds o f the bank. I

do believe

that t h e gold held i n trust b y the Federal reserve agent
ought t o b e shown o n the books o f the bank a n d shown i n
the statement o f liability f o r outstanding notes:
Mr: Curtis:

B u t i f y o u agree t o that y o u agree t o

the other; because i f those are still liabilities w e have
not extinguished t h e m b y putting u p gold with anybody.
In addition t o that t h e gold must b e assets o f the bank o r
our liabilities a n d assets won't come anywhere n e a r agreeing.

Governor Wold: I
for t h e p u r p o s e

think they should b e segregated

o f r e t i r i n g notes, b u t n o t p u t i n t h e

general f u n d with only 4 0 per cent carried against---

Mr- Curtis: (Interposing)

T h e real question i s

will t h e Board l e t u s consider t h e m a g part o f the 4 0
per
cent g o l d reserve. I
not, because I

cannot s e e a n y reason w h y they should

really believe that i s what t h e Statute

meanS.

(Imformal discussion followed.)
Governor Seay: I

call attention t o the fact that t h e

present f o r m o f statement i n which v e show t h e full
amount
of notes issued a n d t h e amount deposited i n the hands
o f the


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Federal Reserve Bank of St. Louis

394
agents

i s the result

o f representations p r e v i o u s l y m a d e b y

the council a n d partly a s a result o f very strenuous efforts
to get t h e m t o d o that same thing fourteen months ago.

They

first held that they could not legally d o it. T h a t was
the answer t h e y made t o me-

I t was referred t o their

statistical d e p a r t m e n t a n d t h e n r e f e r r e d

t o t h e i r counsel.

Their statistical department a l s o pronounced against i t Mr+ Curtis:

I f y o u will l o o k a t the statute y o u

will s e e t h a t t h e l a u g u a g e

the way through.

i s extremely S i e n i T i C a n t a i

T h e words “reduces your liability" a n d

a variety o f sentences there a l l tend t o indicate t o m y
mind that t h e y d i d n o t intend that these things should b e
wiped o f f o u r books

a s liabilities,

n o r that t h e gold could

beforever lost t o the bank because t h e bank i s the only
person that c a n get the gold back.
(Informal d i s c u s s i o n f o l l o w e d w h i c h t h e r e p o r t e r

was directed not to take.)
The Chairman:

b

o y o u care t o modify your resolution

with respect t o recommendation No. 1 2 ?
Governor Seay: I

would suggest t h a t t h e Secretary

::
t h e :
‘
modify i t i n respect t h a t h e has himself
just mentioned,
because I

think w e should t a k e advantage o f everything

in our power t o bring this about-

T h e Conference would

not have t o act o n it again i f they approved o f that procedure.
The Chairman:

T h e n o u r approval

o f i t would b e modi-

fied t o t h e e f f e c t t h a t w e a p p r o v e t h e p r o p o s e d a m e n d m e n t

Subject t o any right that i s n o w i n the statute enabling
us


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Federal Reserve Bank of St. Louis

395
to carry o u r Federal reserfe notes a s a liabilit yand o u r

gold in the hands o f the agent as a resource.
Mr+ Curtis: I

think this can be put u p i n a rather

informal manner t o the Board.
The Chairman:

W e will n o w take u p the report o f

the committee o n Reserve and Central Reserve Cities. T h a t
is subject 5-(a) o n our prregram-

5. (a) Committee o n reserve and central
reserve Cities.

Gove rnor Seay:

was deferred-

T h a t report h a s been read a n d action

E a c h Governot has a copy o f it, and I do

not think i t i s necessary t o read t h e preamble o r the statements c o n t a i n e d n
i the beginning o f it. I

will begin

with the fourth paragraph f r o m t h e bottom o f tities first
page.
(Governor S e a y t h e r e u p o n r e a d t h e r e p o r t O F
the committee, w h i c h i s i n c o r p o r a t e d

in.

record

at pages 1 1 to 18.)
Governor Seay: I

will state again what 1

said when

I read this before, a n d that i s that t h e purpose o f this

report was t o get before the Conference something t o discuss.

I t i s just a s difficult a

question o f reserves

a s proposed

problem t o solve a s the
b y the Federal reserve

agents a n d offered b y the Board.
The Chairman:

Seay's committee.

Y o u have heard t h e report o f Governor

W h a t action does the Sai e e e wish

to take upon it?


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Federal Reserve Bank of St. Louis

Vice G o v e r n o r T r e m a n : I

move t h a t

i t b e received

596

and placed o n file a n d that t h e thanks o f the Conference
be extended t o the Committee f o r their arduous labor.

(The motion, being duly seconded, was carried.)
The Chairman:

L e t u s take u p again Nos 2

o n the list

of amendments submitted b y the Board, “Reducing reserves
and adopting simplified plan suggested b y Federal reserve
agents."
There seems t o b e a very definite difference o f obpin-

ion i n the ©

onference a s to the wisdom o f a change i n the

reserve being made a s outlined i n this plan. I

think the

Board h a s i n mind, a s a n alternative t o this, t h e recommendation t o make Federal reserve notes lawful reserve.
My own personal feeling i s that t h e m a k i n g f
o Federal re-+
serve notes vault reserveis essential f o r the development
of t h e p l a n t o accumulate g o l d i n t h e F e d e r a l r e s e r v e banks.

That i s a very m u c h simpler modification o f the reserve
requirements,
acceptible

a n d i t would p r o b a b l y b e v e r y m u c h m o r e

t o t h e m e m b e r banks.

t h a n t h e o n e outlined here.

Personally I think the method o f fixing t h e reserve t o b e
carried i n the reserve banks a s the o n l y fixed reserve i s

a more scientific one, but 1 doubt if at the present time
consideration o f the matter h a s gone f a r enough t o warrant
legislation which definitely fixes those percentages.

I

n

view o f that I think I would prefer, a s against t h e plan
outlined here, t o make Feddral reserve notes g o o d vault

reserve.
Gentlemen, t h i s conference m u s t take some action upon
this.


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Federal Reserve Bank of St. Louis

I

t i s one o f the most important matters t h a t h a s

397

peen brought before us.

W e would b e remiss i n our obli-

gations t o the Federal Reserve Board t o make suggestions
unless w e r e p o r t b a c k t o t h e m t o m o r r o w w i t h a

expression o f opinion a s t o this matter.
thing that w e have any right t o sidestep.

definite

i t 28 net a
W e must get some

action o n this a n d I would like a n expression o f opinion
from t h e Governors h e r e a s t o what recommendation w e ought
to make t o the Board o n this specific proposition.

Governor Seay: I

make this statement with all due

deference a n d w i t h e n t i r e r e s p e c t ,

b u t there i s o n e mistake

I believe the Board madé when they asked that Federal reserve notes b e made legal reserve,

a m that was i n the pro-

vision o f the A c t which empowers t h e banks t o issue notes

against bought bills.

T h a t i s a point that Mr- Glass

things i s a source o f great danger.

F e d e r a l resedve

banks might invest their assets i n bills o n the open
market, w h i c h transactions would have n o direct relation
to the demand f o r currency o n the part o f the member banks,
and there i s therefore a

danger o f inflation.

M r - Glass

said, for instance, "You might buy bills with your own currency, and, having bought them, issue currency again f o r
the same bills i n the o p e n market, a n d s o o n adinfinitum."
I also think i t was a mistake t o include bills purchased i n

the open harket a s eligible collateral for Federal reserve
notes.

I t i s true t h a t i f that w a s t h e rule i t would

modify t h e volume o f notes t h a t w e could p u t out, because
a large percentage o f the bills received a r e o f that
character.


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Federal Reserve Bank of St. Louis

398

Notes issued against rediscounts b e a r a direct relation t o t h e d e m a n d s

o f currency, e x p r e s s e d t h r o u g h o u r m e m -

ber banks. M o r e o v e r ,

i t i s not t o b e forgotten that a

discount bought b y the member b a n k acts a s a tax upon t h e
issue o f those notes, a n d renders t h e m absolutely elastic.
That i s not the case with notes issued against bills which
we b u y i n t h e o p e n market. I
has c o n s i d e r e d w h e t h e r

a m wondering i f t h e Board

i t would b e practicable

t o obtain

anamendment to that effect--+ that if, if they are willing
to alter their position i n that respect--- and not count
bills bought i n the open market a d eligible, issuing only
against discounted papér, against paper bearing t h e endorsement o f number o f member banks, y o u might say, a m against
gold.

T h e r e would n o t b e a n y practical possibility o f in-

flation through that source, i t appears t o me.
The Chairman:

W o u l d y o u propose a

modification t o

the effect that Federal reserve notes might b e made good

reserve, a s a substitute, Governor Seay?
Governor Seay: I

would b e very willing t o do s o in-

deed.
Resolved, t h a t t h e conference believes i t t o b e desir—

able that Federal reserve notes should become legal reserve,
and that t h e enactment o f the amendment proposed b y the
Board would b e a n dnefective substitute.
The Chairman:

T h a t i s simply a round about method

of making Federal reserve notes eligible, i s it not?
Governor Seay: Y e s .

I t i s a round about w a y T h e y

want t o accomplish indirectly something that will Strengthen
the system b y putting more g o l d into t h e Federal reserve

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Federal Reserve Bank of St. Louis

399

panks.

I

t seems t o m e the better p l a n i s t o continue

to work t o have Federal reserve notes made legal reserve.
As y o u all know, there h a s been a very marked change i n
opinion since that was first brought up-

(Informal discussion followed which the reporter

was directed not tot ake-)
The Chairman:

D

rssolution

o y o u w i s h t o offer a

embodying t h e i d e a t h a t y o u t h i n k i t i s d e s i r a b l e

t o press

activities looking t o the making o f Federal reserve notes
legal reserve f o r banks, a s a substitute f o r this plan?

Governor Seay:

Y e s , I dos

(After considerable informal discussion o f a proposed r e s o l u t i o n G o v e r n o r W o l d w a s r e q u e s t e d

b y the Chair

to frame a resolution, which i s as follows:)

“Governor Wold: Resolved: T h a t from statistics and
information a t hand a t this time i t i s the opinion o f the
Conference t h a t t h e su;gested amendment o f the Federal r e serve agents t o revise t h e reserves required o f member banks
would r e s u l t

i n increasing t h e total reserve required

to

be kept b y a member bank i n order t o adequately handle i t s
business; t h a t i t i s doubtful,

i f i t were adopted, t h a t

'4t would accomplish t h e purpose intended.

W e therefore

urge that i n lieu thereof the Federal Reserve Board press
the a m e n d m e n t t h a t m e m b e r b a n k s b e p e r m i t t e d

t o count

Federal reserve notes a s a part o f their lawful reserves.
The Chairman:

Gentlemen,

tion offered b y Governor WoldOi


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Federal Reserve Bank of St. Louis

y o u have heard t h e resolu-

I s there a n y discussion

4.00
(There w a s n o discussion a n d the resolution,
having been duly seconded, w a s passed.)
The Chairman:

T h e r e a r e t w o o r three minor items

om t h e p r o g r a m t h a t w e m i g h t t a k e u p a t t h i s t i m e -

Item

oes
22.

P r e s s statement.

Governor Fancher: I

move that our usual procedure

be followedin t h e matter o f press statement.
The Chairman:

Y o u mean t o leave i t i n the hands o f

the Secretary?
Governor Fancher?!

Yes:

Governor McDougal:
that w e b e furnished a

I n addition t o that I would move
copy o f the press statement.

W e

were furnished w i t h o n e formerly, b u t w e have n o t b e e n furnished with o n e a t the last t w o o r three conferences.
The Chairman:

ly followed,

T h e motion i s that t h e procedure u s u a l -

o f asking t h e Secretary t o prepare a

ment f o r t h e press, a n d providing
banks with a copy thereof,

state-

t h e Governors o f the

b e followed now.

(The motion, being duly seconded, was carried.)
The Chairman:

O n yesterday, wuring o u r meeting with

the Board, Mr. Harding said something with reference t o
uniform credit statements.

H e said that t h e matter would

be committed t o u s for our discussion.

T h e statements

have not been submitted, a n d unless someone desires action
on that matter,

i t will b e passed.

Governor Seay: |
on w h i c h w e p a s s e d a


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Federal Reserve Bank of St. Louis

Mr-+ Chairman, there was one subject,
resolution offered

b y myself,

t n which

401

I think w e made a mistake.
afterwards.

I t occurred t o m e the night

T h e Board referred t o circulars issued b y

four o f the banks which stated that member banks could count
as o p t i o n a l r e s e r v e m o n e y i n transit

banks.

t o the Federal reserve

W e passed a resolution, which 1 offered, t o the

effect t h a t o p t i o n a l r e s e r v e s s h o u l d b e c o n s i d e r e d

a s col-

lected funds i n the Federal reserve bank o r funds i n the
vault.

T h a t was n o t what t h e y h a d i n mind:

W h a t they

had i n mind was funds i n transit t o the Federal reserve banks
which h a d n o t y e t b e e n p l a c e d

i n t h e i r r e s e r v e accounts:

Therefore t h e reSolution that w a s passed d i d not cover t h e
Situation that t h e Board asked u s t o consider.
Governor McDougal: I

think o u r conference w i t h t h e

Board this morning covered that phase o f it. I

refer t o

the committee o f the C o n f e r e n c e n
i its conference w i t h t h e
committee o f the Board:
Governor Seay:

T h e n there i s nothing further t o b e

done.

The Chairman: I

understood t h e substance o f the com-

mittee's report was that the whole matter wold b e left
in abeyance until t h e n e w reserve requirements w e r e adjusted.

Governor Fancher:

A n d they knew about the new amends

ment t o t h e Act.

Salary bonuses, etc.

Governor McDougal:

T h e r e i s one matter, Mr- Chairman,

that w e might discuss, although i t i s not o n the program,


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Federal Reserve Bank of St. Louis

402

and that i s the attitude o f the banks w i t h respect t o
the q u e s t i o n o f p a y i n g a d d i t i o n a l s a l a r y t o employes

at

would l i k e t o inquire a s

Christmas t i m e o r thereabouts. I

to what h a s been done b y the other banks a n d t o s a y that
we h a v e n o t g i v e n c o n s i d e r a t i o n

t o it, b e y o n d t h e f a c t t h a t

we w o u l d d o u b t l e s s g i v e t h e m e a c h a

g o l d piete,

a s we did

last years

The Ghairmani i

would like t o ask for a n expression

of o p i n i o n f r o m t h e G o v e r n o r s

o f t h e banks

a s t o what

policy t h e y will pursue i n the matter o f the Salaries o f
their employes, because o f the high cost o f living:
is a n important matter with usnext meeting o f our board,

L t

I t i s coming u p a t a

o n a week from next Thursday,

and 4+ would like to know what the general policy of the
banks i s g o i n g t o be.

Governor McDougal:

M y inquiry i s not directed t o

the adjustment o f salariesbut t o the matter o f giving t h e m
some bonus a t the close o f the year.

The Chairman:

I t might b e i n the form o f a bonus a s

well a s a n increase i n salary.

Governor McDougal: I

think they are separate sub-

jects a n d the adjustment o f salaries h a s n o bearing o n the

matter Il refer to.
Governor Wold:

Y o u refer t o the usual Christmas gift,

do y o u n o t ?

Governor McDougal:
Gove rnor Rhoads:

Y e s , 1 -doI f that i s once «established i t be-

comes a permanent liability.


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Federal Reserve Bank of St. Louis

403
The Chairman: I

would s a y that t h e matter o f Christ-

mas gifts f o r the employes o f the banks was discussed b y
our Board last year.

W e decided that w e would n o t give

them, because w e felt i f w é did i t would establish a precedent f r o m w h i c h w e c o u l d n o t escape. A

consideration

of

bonuses i n connection with salaries places t h e matter o f
payment

o n t h e w r o n g basis.

Governor S e a y :

I

W

t is a

e d é c i d e d n o t t o d o it.
very common t h i n g i n many o f

the banks t o give bonuses f o r faithful service rendered.
Last y e a r w e gave a

bonus o f five p e r cent t o all except

officers o f the bank.
i was called o n the telephone t o d a y about i t and I
recommended t o our board that, i n view o f conditions a s
they exist, w e give a l l employes w i t h salaries ranging

up to $2,000 a ten per cent bonus.
The Chairman:
Governor Seay:

N o t a s a Christmas present?
A

s a n addition t o their s a l a r y f o r

the year.
The Chairman: A

Governor Seay:

bonus f o r t h e y e a r ?

A g a n addition t o their salary f o r

the year: S a l a r i e s above $2,000 five per cent bonus.
course t h e h i g h e r o f f i c e r s

d o not participate

i n it.

o f
T h e

amount i s t o b e reckoned u p o n the actual amount received
by the employes during t h e past year.

Governor McDougal:

A n d with n o obligations for the

future?

Governor Seay:

N o obligation for the future. T h e r e

is n o d o u b t b u t t h a t t h e s a l a r i e s p a i d t h e m i n o r e m p l o y e s


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Federal Reserve Bank of St. Louis

of

404
banks a r e v e r y small. I

so with us.

must s a y t h a t t h e y a r e g e n e r a l l y

T h e y are quite small a n d i t i s hard t o see

how eépable y o u n g men can afford t o work for salaries that
they g e t i n banks, performing t h e v e r y excellent service
that t h e y do.

The Chairman:

T h e r e i s o n e thought that occurs t o

me i n connection with that, a n d that i s that whost o f our
employes i n the banks g e t a s good i f not better salaries
than they would g e t i n a commercial office.

Governor McDougal!

O r i n neighboring banks?

A r e you

paying a little higher rate o f salaries than the commercial
banks p a y i n y o u r n e i g h b o r h o o d ?

Governor Aiken:

W e h a d t o d o that i n order t o get

of our employes. I

think o u r Salaries a r e about

those i n commercial banks.
Governor Seay:

I t was o u r intention t o have ours thet

ways B e f o r e fixing t h e salaries w e got memorandums f r o m t h e
banks o f their salary lists, a s w e did not desire t o compete with them, a n d w e made o u r list a s much a s possible
on the same b a s i s .

The Chairman: G o v e r n o r Fancher?
Governor Fancher:

N o action has b e e n taken a s yet,

but a t our meeting o f the Executive Committee o n Friday
there a r e g o i n g t o b e r e c o m m e n d a t i o n s

a s t o bonuses f o r t h e

year.

plan w h e n I

W

e f a d n o t quite worked o u t a

left, b u t

the feeling amongst t h e officers w a s that owing t o the fact
that w e h a d put o u r force t o a

good deal o f extra work

since t h e inauguration o f the clearing, because o f the extra


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Federal Reserve Bank of St. Louis

405

hours, t h a t w e would probably p a y a bonus o n salaries f r o m
the first o f July:

J u s t what t h e percentage will b e w e

have n o t y e t agreed upon. H o w e v e r , t h e r e will b e a bonus
of some sort paid t o our employes f o r t h e year.
The Chairinant G o v e r n o r Wold, what h a s been done i n
your c a s e ?

Governor Wold:

W e have done nothing a s yet except

to r e m e m b e r t h e e m p l o y e s

piece. I

a t Christmas t i m e w i t h a

gold

had t h e matter i n mind a n d I have b e e n very

much interested i n what t h e other banks propose t o do.

I would like t o ask Governor Seay i f that bonus would
apply t o employes w h o h a d o n l y b e e n w i t h h i m f o u r months,

or three months?
Governor S e a y :

I

n that case w e give t h e m t h e per-

centage o n l y o n what t h e y have received.

The Chairman: G o v e r n o r Miller?
Governor Miller:

W e p a y our employes $ 1 5 flat a s

a Christmas gift.
The Chairman:

Y o u paid t h e m that last Christmas.

Are y o u g o i n g t o d o t h a t t h i s C h r i s t m a s ?

Governor Miller:

W e paid them $10 last year and

are goin, t o pay them 1 5 this year.


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Federal Reserve Bank of St. Louis

The Chairman:

G o v e r n o r Rhoads?

Governor Rhoads:

W e have done nothing.

The Chairman: G o v e r n o r McDougal?
Governor McDougal:
The Chairman:

W e have made n o plans.

G o v e r n o r McCord?

Governor McCord:

W e contemplate g i v i n g a Christmas

406
present

o f a g o l d piece, p e r h a p s @ 1 O , a n d t h e d i r e c t o r s

have b e e n discussing a n increase i n salaries t o date Janwary t s

Governor Wold:

L a s t year o r next year?

Governor McCord: N e x t year. C o m m e n c i n g o h the first
of January.
The Chairman:

G o v e r n o r V a n Zandt, w h a t have y o u done?

Governor V a n Zandt:

W

e have d o n e nothing because

we

were Sat upon pretty hard b y the Board the first Christmas.
They said i t was a matter that w e would have t o submit t o
the board a n d have approved b y them; i t was t o o late a n d

we didn't d o anything.
mas,because

W e did not do anything last Christ-

o f that, a n d w e h a v e n o t p l a n n e d f o r a n y t h i n g

this Christmas.
Governor McDougal:

L a s t y e a r w e gave t h e employed

$10 o r }15 i n gold, depending upon their positions. ‘ p i s
year w e have done nothing a s yet.
Governor Seay: I

would like t o add that w e have sub-

mitted this t o the Board f o r approval.
taken t h e p o s i t i o n t h a t i t i s a

T h e Board h a s

salary a n d should b e a p -

proved b y them-

The Chairman: G o v e r n o r Treman, what has been done

in New York?
Governor Treman:

L a s t year the cirectorg passed a

resolution that hereafter, o n the first o f January, they
would revise t h e salary list, according t o their best judgment « I


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Federal Reserve Bank of St. Louis

assume w e w i l l d o t h a t t h i s year.

What w e will d o a s t o pure Christmas gifts, L

do not

407
know.

Y o u know i t i s a very common thing i n New York

Gity f o r t h e banking houses t o give their employes gifts.
Already s o m e o f t h e b a n k s h a v e c o v e r e d i t -

T h e Guaranty

Trust Company, i n addition t o a dividend t o their stockholders, l a s t week declared a dividend o n salaries o f from
ten-to t i f v e e n per: c e n t + t their employes.

It seems t o m e this i s a matter t h a t w e should l o o k
upon a S a

little m o r e i m p o r t a n t t h a n m e r e l y C h r i s t m a s g i v i n g -

I happen t o k n o w o f s o m e m e n w h o h a v e b e e n m a k i n g s o m e i n -

vestigations along these lines a n d t h e y find, i n nearly
every case, t h a t t h e r e h a v e b e e n a d v a n c e s

i n r a w materials

all the w a y from 2 5 t o 3 0 per cent, a n d sometimes t o over
100 p e r cent; t h a t w a g e s h a v e b e e n i n c r e a s e d f r o m t e n t o

twenty-five p e r cent.

T h e i r statistics s h o w that food

stuffs a n d clothing a n d other necessities f o r t h e keeping
of a family have actually increased during t h e last year
from 1 5 to: 20 per cént i h price.

I t seéms t o m e that y o u

gentlemen ought t o put u p t o your Boards t h e question o f
the r i g h t o f y o u r e m p l o y e s

t o m v e s o m e recognition t a k e n

of the conditions a s they exist.
I do not know what o u r directors will d o a t the meeting o n Friday,

b u t personally I

think i t should b e entirely

foreign t o the question o f advances i n wages, because w h e n
you wnce advance t h e m that means t h a t t h e y are advanced f o r
all time, while conditions will n o t remain a s they are today for all time.
we assume,

a n d yet i t i s a

not a theory. I


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Federal Reserve Bank of St. Louis

H e r e i s a condition that i s temporary,
c o n d i t i o n t h a t exists. L e - / 1 3 8

feel that w e should i n some w a y make a

408
payment t o our employes around t h e first o f January, f o r
the past year, based o n their length o f service a m t h e i r
wages o r Salaries. I

should assume i t would take t h e form

of a certain percentage o f the salawy, s a y u p t o %1,000,

$1,200, o r 1,500, and then a certain smaller percentage
on Salaries above that. I

should assume the directors will

consider h o w far i t should ZO. I

think i n our bank I

would recommend that i t include assistant cashiers,

at

least, because t h e y have b e e n facing increased costs, j u s t
as much a s anyone.

T h e y are m e n o f family a n d there are

usually two, three, four, five o r six people i n their families.

I t seems t o m e that i t i s amatter that w e

drift along i n because t h e higher salaried m e n

d o not s a y

anything, b u t a s a matter o f justice i t seems t o m e the

banks should recognize conditions a s they exist and make
some p r e p a r a t i o n f o r them.

T h a t . i s what I

shall r e c o m m e n a

at our meeting o n Friday.

Governor Wold: 1

might s a y I thought the discussion

was S i m p l y o n t h e q u e s t i o n o f bonuses f o r C h r i s t m a s a n d

Christmas gifts.

W

e contemplate revising o u r salary list

on the first o f the year, o f course:
to d o t h a t a n d w i l l a l w a y s

The Chairman:

I t is quite necessary

b e necesSary-

W e have disposed o f our program, gen-

tlemen, w i t h one exception, a n d that i s the matter o f foreign

relations, a n d also (1) under Topic 6 , "Collections a n a
clearances."
We will have a meeting with the Board tomorrow a t 11
o'clock, a n d t o give time for the disposal o f these matters


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Federal Reserve Bank of St. Louis

409
it will b e necessary t o meet promptly a t half past nine4 will b e very m u c h obliged i f everyone w i l l b e here promptly a t that time.

(Whereupon, a t 6:40 o'clock p. m., o n motion duly
seconded, t h e Conference adjourned until tomorrow,

Thursday, December 14, 1916, a t 9230 o'clock a. m.)

Be

B e

D

A

Y

.

The Shoremam Hotel, Washington, D.C.
Thursday, December 14, 1916.

The Conference reassembled, pursuant t o adjournment,

at9:45 o'clock a. m.
Appearances a s indicated o n yesterday:

The Chairman: |
time i s short,

Gentlemen,

w e w i l l c o m e t o order:

O u r

a s w e must m e e t w i t h t h e Federal Reserve B o a r d

at. L i p e bocce.

Governor Wold:

M r - Chairman, I have been thinking

over t h e last resolution w e adopted yesterday with refer“ence t o reserves; I

have talked i t over with some o f the

other members o f the Uonference, a n d I believe t h a t resolution s h o u l d b e w i t h d r a w n a n d a n o t h e r o n e p r e p a r e d w h i c h

Should have incorporated within i t something w i t h reference
to the change i n reserve cities, a n d possibly a


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Federal Reserve Bank of St. Louis

little more

410
o n the matter o f the recommenda-

definite recommendations

tions o f the agents w i t h reference t o changes i n reserves.

The Chairman: G o v e r n o r Wold, have you drafted a substitute resolution?
Governor Wold: I

The Chairman:

have n o t ?

A r e y o u prepared t o draft o n e t o meet

the situation?
Governor Wold: I

thought probably t h e committee t o

which that was referred would b e able t o get something up.
Possibly t h e Conference does n o t agree with m e o n that.
Governor Miller: I

a m i n a c c o r d w i t h you-

E e :

O b

think w e ought t o urge t h e Board t o make a n effort t o get

Federal reserve notes. made legal reserve for member banks,
for the very reason that there i s strong opposition t o i t

in Congress and they have given u p the idea, and
have Suggested this a s a substitute themselves.

Governor MeDougait I

do hot see why this Conference

should necessarily b e influenced b y the views o f Congress
on the matter.

W e are simply expressing o u r wish and ask-

ing that consideration b e given t o it.
Governor Miller:
that will benefit us.

W e are trying t o get legislation
W e should n o t a s k for more t h a n w e

can p o s s i b l y g e t b e c a u s e W i w i l l n o t g e t a n y w h e r e

ask for something that is impossible- I
ter m a k e a

i f we

think we had bet-

compromise.

The Chairman: G o v e r n o r Wold, y o u will modify your
motion, I believe, s o that i t will b e t o the effect that w e
approve o f the general plan a s Submitted, b u t feel that suf-


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Federal Reserve Bank of St. Louis

411
ficient s t a t i s t i c a l d a t a i s n o t a t p r e s e n t
it possible f o r u s t o decide d e f i n i t e l y

of the reserve t o b e held; t h a t w e feel,

o n hand t o make

o n the percentage

i n any event, t h a t

no percentage o f reserve should b e required o f the country
bank t h a t w o u l d i n c r e a s e t h e r e s e r v e s
the r e s e r v e s t h e y a r e r e q u i r e d

Governor W o l d

to a

point h i g h e r t h a n

t o hola a t t h e present time.

T h a t expresses m y views exactly- I

believe w e ought t o g o a little further a n d pass o n the

recommendation of Governor Fancher as to the manner of
designating reserve banks.

A

n

y bank which carries t h e

reserves o f a n y other bank should,
nated a s a

i t seemsto me, b e desig-

reserve b a n k a n d s h o u l d b e r e q u i r e d

t o carry

reserves accordingly.

The Chairman:
Governor Wold:

I s not that really a separate matter?
I t comes under this report o f Governor

Seay's, a n d h e makes a

very good argument u p o n that ques-

tionThe Chairman: I

think i n our report

t o the Board

that w e would cover t h e substance o f Governor Seay's r e port a s t o that, t h a t t h e reserves should b e based o n the
Character o f business.

W e should t h e n report o u r attitude

on this memorandum.

Governor Fancher: I

feel, from the discussion indulged

in here yesterday, t h a t w e are a l l i n favor o f the principle
involved i n the recommendation o f the agents. I

think i t

would greatly facilitate t h e matter o f computing reserves
on the part o f member banks a n d o n the part o f the reserve
banks a n d t h e r e w o u l d b e l e s s f r i c t i o n a n d l e s s m i s u n d e r -


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Federal Reserve Bank of St. Louis

412

standing:

W i t h only one requirement a n d with a fixed

percentage,

i t w o u l d g r e a t l y simplify,

i n m y judgment,

the

operation o f our banks.
The Chairman:
to offer a

G o v e r n o r Wold, would y o u b e willing

substitute f o r your motion o f last night,

to

the e f f e c t t h a t t h e C o n f e r e n c e a p p r o v e s t h e p r i n c i p l e s e m bodied

i n the p l a n submitted

t o u s b y t h e Federal reserve

agents, b u t feels that i n deciding u p o n the percentages o f
reserwes

t o b e held n o additional b u r d e n s h o u l d b e placed

upon t h e country banks; t h a t i t further feels that i n any

consideration o f a change i n reserve requirement the status
of cities that a r e n o w neither central reserve n o r reserve
cities, b u t are depositaries f o r country banks, should b e
taken into consideration.
Governor Wold: I

offer that a s a substitute f o r t h e

resolution adopted b y the Conference yesterday.

Governor McCord: I

second the motion.

Governor V a n Zandt:

I

n thinking o v e r t h e matter o f

percentages w h i c h y o u mentioned, I

do not quite agree w i t h

the Federal Reserve Agents' percentages because I think
there m i g h t b e t i m e s w h e n t h e s e p e r c e n t a g e s w o u l d b e t o o

high, a n d there might b e times w h e n they would b e too low.
The t h o u g h t h a s o c c u r r e d

t o m e t h a t i t m i g h t b e possible

to

have the act s o framed that the Federal Reserve Board,
in conjunction with the Advisory Council, making a body o f
nineteen men, might b e given power t o fix those percentages
on thirty, s i x t y o r ninety days' notice,

o r a certain

length o f time i n advance, according t o comitions.


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Federal Reserve Bank of St. Louis

413

do not agree with that, but I will

The Chairman: I

yield t o the majority i f they agree w i t h you.
do not agree w i t h that-

Governor Miller: I

I t would

very g r e a t l y c o m p l i c a t e m a t t e r s .

Governor Rhoads:

A l l reierence t o the matter o f Fed-

eral reserve notes being made lawful reserve i s elimimted?
The Chairman:

T h a t i s eliminated, yes.

Governor Rhoads: I
in t h e r e p o r t

would b e g l a d i f somehow o r other

o f t h e committee,

t h a t matter Should n o t b e

lost sight ofThe Chairman: I

shall report t h a t a s the general

consensus o f opinion o f the Conference.
Governor McDougal: I

believe t h e suggestions o f the

Agents' committee a r e good,
would n o t b e p r e p a r e d

i n principle a t least, b u t I

t o d e f i n i t e l y a d v o c a t e t h o s e percent-—

ages, f o r t h e r e a s o n s t h a t w e r e d i s c u s s e d y e s t e r d a y .

That

is the way 1 feel, although ! feel that the principle involved i s a

good o n e »

The Chairman:

D o you not feel, Governor McDougal,

that that i s expressed i n the resolution?

Governor McDougal: I
Governor Wold: I

presumeit is-

was hoping that the Chair,

i n dis-

cussihbg this with the Board, would advise them o f the discussion h a d here a n d o f the uncertainty o f the Conference
as t o whether t h a t would n o t increase t h e reserve requirement o f the country banks.
Governor McDougal:

T h e requirements o f the various

districts being necessarily different, t h e question i s


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Federal Reserve Bank of St. Louis

414

whether o r not i t would penalize t h e banks b y requiring
them t o c a r r y a

greater r e s e r v e t h a n t h e y a r e r e q u i r e d

to

carry under t h e present arrangement:
The Chairman:

I s there a n y further discussion o f

this?
Governor Seay:

I t m a y b e a matter o f interest t o the.

Conference t o hear the answer o f the Federal Advisory
Council

t o t h e Board's interrogatory

question. I

o n the reserve c i t y

d o n o t k n o w whether y o u w o u l d l i k e t o hear

it o r not.

The Chairman:

O u r time i s limited, Governor Seay.

Can you Live u s the substance o f it?
Governor Seay:

I n our opinion, when the banks i n

reserve cities lose their privilege o f acting as legal
reserve agents, t h e y should b e placed o n a parity a s t o
their legal reserve requirements w i t h the banks i n other
cities o f equal banking capacity.

T h e s e cities were

designated reserve cities a t t h e request a n d b y the voluntary a c t i o n o f t h e b a n k s l o c a t e d

i n them, a n d w h e n t h e i r

privilege o f acting a s reserve agents i s withdrawn, i t
would s e e m that these banks should b e entitled t o resume
their f o r m e r status.

"If there i s t o be, i n the future, a n y discrimination
in regard t o the legal reserves carried b y the banks i n

different cities, i t cannot continue t o be based, a s it
has been,

o n the fact that banks i n certain cities have

been permitted t o act a s legal reserve agents f o r other
banks.


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I

f such discrimination i s necessary o r desirable

415

at all, i t might b e based o n a combination o f their indivin d b a n k i n g capacity,

dual p o p u l a t i o n

ization o f t h e i r banks,

a s shown b y the capital-

o r i t might b e r e l a t e d

t o the aggre-

gate amount o f bank deposits carried b y the banks i n
them."
Commenting

o n t h e o t h e r resolution, I

feel,

a s w e all

do, t h a t t h e plan proposed i s extremely plausible a n d reco m mends itself t o us.

T h e o n l y question I have i n m y mind,

and i t i868 -a very s t r o n g o n e , i s , C a n i t b e p u t a n t o o p e r a apparently

tion, l i k e a good many other desirable a n d plausible
things.

A s Governor Wola's first resolution expressed it,

it w o u l d n o t b e e f f e c t e d w i t h o u t i n c r e a s i n g t h e b u r d e n o n

the member banks. I

feel, according t o the information

that i s before u s now, that s u c h would b e t h e case with
a v e r y l a r g e n u m b e r o f t h e banks,

The Chairman:

i f n o t generally.

I s there a n y Pest ney e

a e

o f

the resolution?
(The resolution, b e i n g duly seconded, w a s car-

ried.)
The Chairman: I

have here a

telegram f r o m Mr. Galk-

ins, which came i n last night after t h e meeting adjourned.

“wr. Kains' eondition today very encouraging: G r e a t l y
pleased with the message from the Conference."
There i s o n e s u b j e c t l e f t u n t o u c h e d f r o m o u r program,

the matter o f foreign relations:
great delicacy I

a m going t o suggest t h a t t h e Conference

go into .xecutive session.


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Federal Reserve Bank of St. Louis

A s this i s a matter o f

Foreign relations.
(On this matter t h e Conference w e n t into executive s e s S i o n a n d t h e S e c r e t a r y r e p o r t e d p r o g r e s s

o n the

negotiations conducted i n connection with the ustablishment o f foreign arrangements.)
(The o p e n Yonference thereupon proceeded a s follows:

)

The Chairman: |

A

committee vas appointed consis-

ting o f Messrs. Wola, Curtis a n d McCord,

t o report o n the

conditions o f attendance o f persons other t h a n Governors
of Federal reserve banks a t the Governors' C o n f e r e n c e s .
I will a s k the committee t o report a t the next conference
of Governors.

Governor Fancher:

T o p i c 18.

18. Regulations governing loans o n farm
lands a n d other real estate.

was referred t o a committee, consisting of Mr- Miller,
Mr+ Wold a n d myself,

t o suggest proposed regulations i n the

matter o f real estate loans.

T h e committee conferred w i t h

Mr. Warburg o n the matter yesterday, suggesting t h a t i t
would b e v e r y h e l p f u l

i f the Board would p u t o u t some simple

form o f regulation, i f possible. I

handed h i m the memo-

randum which I submitted here and h e i n turn submitted i t
to Mr. Elliott, Counsel f o r the Feceral Reserve Board.

Mr.

Elliott h a s framed u p some answers t o the questions a n d
Mr. W a r b u r g h a s s e n t i t back. I

think possibly a

copy o f

these answers C a n b e given t o the Governors.


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Federal Reserve Bank of St. Louis

The Chairman:

A s Chairman o f that Committee I

will

ask y o u t o assume t h e responsibility o f doing it.
Governor Fancher:

The Chairman:

Y e s , Mr- Chairman.

I n regard t o Topic 6-(1).

6-(1) Charges t o be collected b y member banks
from t h e i r patrons, a n d c h a r g e s t o b e
imposed f o r c o l l e c t i n g o r c l e a r i n g b y

Federal reserve banks.
is covered b y Memorandum 9 0 1 f r o m the Board. I

understand

from G o v e r n o r M c D o u g a l t h a t t h i s “ e m o r a n d u m N o . 9 0 1 i s n o t

definitive, b u t simply given b y way o f suggestion, a n d t h e
matter i s u m e r consideration.

I

n talking with Mr. Delano

about i t yesterday, a n d with Mr- Warburg, I

told them that

it seemed t o m e that t h e charges s e t forth here were s o
high that t h e y would b e entirely ineffective a s penalty
and would result i n d r i v i n g a l l t h e business i n t o banks
other t h a n members o f the Federal reserve system;
would n o t accomplish that purpose.

t h a t it

M r . warburg called

my attention t o the fact that these were maximum charges
and that t h e y need n o t b e levied. I

told h i m I thought

it would b e a mistake t o publish these a s maximum charges
because nothing would give more support t o the contentions
of the gentlemen w h o want their exchange o n checks t h a n
to talk about s i x cents o n a check, which looks pretty high
on

a dollar check:

Governor McDougal:

M y words t o you in r e g a r do
t this

point were given i n the presence o f Mr. Fancher a n d Mr:
Wold, a n d m y i m p r e s s i o n w a s t h a t M r . D e l a n o s i m p l y p u t t h i s
out


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t o u s f o r consideration.

Governor Seay:

T h e l a w requires u s t o put i t into ef-

fect.
The Chairman: I

would l i k e a n expression o f opin-

ion a s t o the attitude o f the Conterence i n this matter s o
that, i n reporting o n i t t o the Board a t our meeting w i t h
thema f e w minutes f r o m n o w 1

c a n express t h e opinion o f t h e

Conference.
Governor “ o l d :

A

S a

general p r o p o s i t i o n I

think t h e

member banks are desirous that the Federal Reserve Board
exercise t h e authority o f the Act i n fixing that charge.

Personally I think i t might b e well t o wait until after this
Kitchin Bill i s o u t o f the way.

The Chairman:

M a y I say t o them, o n behalf o f the

Conference, t h a t t h e Conference feels i t will b e wiser t o
defer a c t i o n o n this m a t t e r u n t i l a f t e r t h e a c t i v i t i e s

of

the Ameérican Bankers' A s s o c i a t i o n h a v e S o m e w h a t Subsided;3
that w e f e e l t h e C h a r g e s r e c i t e d h e r e a r e s o h i g h t h a t

they will support the contentions o f the banks asking for
the privilege o f charging exchange?

Governor Seay:

O n the other hand i t i s possible

that what t h e Board h a s i n mind i s the fixing o f some rea-

sonable charge t o offset the effect o f the Kitchin Bill.
They desire t o meet t h e contentions t h a t will arise i n
Congress a n d defeat t h e bill i n that Ways
The Chairman:

S p e a k i n g f o r myself, Governor Seay,

it scems t o m e that these a r e n o t reasonable Charges, a n d

that i t would simply support the contention o f those banks
desiring t o make t h e exchange charge.


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Federal Reserve Bank of St. Louis

419

(Informal discussion followed o n this matter.
It was t h e consensus o f opinion o f the Conference t h a t t h e
o f t h e regulation should b e delayed until a f t e r

promulgation

the activities of the American Bankers’ Association Committee before Congress h a d subsided; f u r t h e r that t h e charges
as o u t l i n e d

i n memorandum N o - 9 0 1 s e e m t o the G o w r n o r s

t o

pe too high.)
The Chairman?

T h e r e i s one i t e m left, a n d that i s the

matter o f the next meeting o f the Conference.
ary practice i s , i f I remember correctly,

T h e custom -

t o leave i t sub-

ject t o the call o f the Secretary o n the request o f two o r

more Governors, o r o n the request o f the *ederal Reserve
Board.
Governor Fancher: I

move t h e s a m e p r o c e d u r e

b e fol-

lowed with respect t o the next meeting.

The Chairman: :

Is there a second t o that motion?

(The motion was seconded a n d duly carried.)
The Chairman:

Gentlemen,

i s there a n y further b u s i -

ness before this Yonference? ( A f t e r a pause)

I f not,

the Chair will entertain a motion t o adjourn.
(Whereupon, u p o n motion duly seconded, t h e Ninth
Conference o f Governors o f Fedcral Reserve Banks w a s adjourned

Sine die, a t 10:45 o'clock a. m., Lecember 14, 1916-)


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Federal Reserve Bank of St. Louis

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