Full text of Federal Reserve Governors Conference : Meeting Documents : December 14-16, 1915

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

VOLUME

o <<
a

mxKxecut

y
r
7

Y
A

r
f

ao

i

ive

Oo f

W O T T T I T I L G

L e e vs.

BeBe mPa OD, Dee n yORES a “
Conference
of
Governors.

Shoreham H o t e l

Wrshington,D,C,

WALTER
SHORTHAND

S. COX
REPORTER

COLUMBIAN BUILDING—TEL. M. 8324
WASHINGTON,

T U E S DC
AE
4Y1D915

C1
E51D
915
WEDNESDAY
TUIIDRCVWAY
A
t H U R O


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

i }

A
YX

D E L

A O E

E
:

D 1 9 1 5

D . C.

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

UWeeT ING O F EXECUTIVE CQAIITTEE
of

CGNPERENCE G r GOT EHORS

WRORMBAR 14 ~ 16, 1915.

AMERICAN BANK. ARS
ASBOCLTAR LON Y e d e r a l Legislative Committee.
Holationsa with Hetionsl Bonicing

Sections o f A. B. Ae, and the
Reovutéive Cormittea o f Governors.
National Banking Geotion.
Conrfereme w i t h Yrecutive C o m i t t e e
or

G o v e r n o r s .

Relation with Pederal iLepislative

Gowslttee o f A. B e Ac, and the
Bregutive Committes o f Governors

Geotions 15,
"

wv

BILLS G r LADIMAG

Boer aH

G o l i e s t i o n syetem

CaPitaL of

FEDERAL RESERVE
BATang

CHARGES ¥OR
BORAGE
CHECK COLLECTIONS
CLAYTON ACT

Capes

P

o

r Pederal Reserve Banks a n d

Podernl Reeerve Agents i n
fold Settlement Fund.
comp I@ions

O

f eolleations aml exchange
in various districts.
Of eolieetions and exchange <«
Boot on.

CON? shee

W

i

t

h Pederal Meserve Board

L

P om§=64B

With National Benkiowr Seetion
of A s B e A s , ~

BMaeoutive

Committee.

1

6
BB

DEPARRED DEBIT,
CREDIT

1

pIVIuEMDSs

O

m Capital ateck.

DOMAST M
ACCEranczEs

G

BAPRNSE

O

8
4

~
—

- 86

e

PEDERAL LEGISLARIVE
COMMITEE O F U s

AMSAIOAN B A N K S
ASE OOTAS LON R e l a t i o n s with the Rational

Benking Seetion of A. Be As,
on. Ixecutive Cormmitteo o f
Governors.
PROERAL RESERVE

ACT ~ ANERDMENTs S e o t i o n 15,

FEEERAL RESERVE

AGEMIS Yuups S e p a r a t i o n of
PepeRAL RESERVE
BOAED G o n f e r o n n e with Exeoutivre Cocmittes
of Governere

WISCAL AGZNC IES

Ienking section
PULUBE COMP ERENCES Betwoon the Nationalthe
Governcra of
and
OfAe Be Ac,Feservre
the federal

E

x

p

e

n

Sania.

s
e o f moving, b y Treasury
Devartmant.

GOLD S E M L e e r

PUNP

C

o

d

e for Federal Reserve Bank
ant Foderal Reserve Aronte.
Operation

GOT ESNORS H E

COMPEREROE

J o m u a r y 19, 1916,

HENDRICKS, l e M e
om 0 . A, McKAY


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

3;
968 ~ 99)
- 92

f mowing eawrrenucy incurred
Gf saving gale v y Treneury
Departuent.
h

GOLD

17)

w m 129)

R e p o r t

m

F

INT SRD IGTRIO?
Ve U t

2

OE i s

CLEAR A R G ? 5

WOXAY, Cs Re Alt’
leBe RemR Ions
NAV TOMUAL BAPSING
SECT T O N S OF? S s
LOAN B A R K S

AGSU T A S I O N

C o n f e r e n c e with Beeoutive Comdttee
of .Governcrs.

Relations vith Pedernl Legislative
seceer

se

o f As

B e they

a u

t h e

menwtive Comittee o f Govrerncra.

Opin at 108

O

F Gold Settlement. Pand

OV PRORA ips

SIVING cmuows

I

m other Pederal Reserve Cities.
om deferred pania.

Ageffected by increased roserves.

@uE

z

B
E
:

E O U n E V E

4

OCeuISTEE

O

f the Metionsl Banking Seetion
of t h e A . B . A . ,

‘ t h e Federal

lLegialative Committee o f the
Ae B e Ac, Quad the Mxecutive
Comittee o f Governors.

RE? 4

o P

H S

Done.

Moi ¥ AND H R I c K s

RESERVES

SEPARA TOR

STOCK


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

O

O

f Feteral heserve Agents’

f Peiernal Neeaerve Ranke.

MEETING O F THE
' EXECUTIVE COMMITTEE O F THE CONFERENCE O F GOVERNORS

Shoreham Hotel, Washington, D . C.,
Tuesday, December 14, 1915.

The Executive Committee o f the Conference o f Governors
was called t o order a t 1 0 o'clock a y m e a t the Shoreham Hotel,
Washington, D . C., Tuesday, December 14, 1915.


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

There w e r e present:

Governor J . B. McDougal, Federal Reserve B a n k o f Chicago,

(Chairman),
Governor Benjamin Strong, Jr., Federal Reserve B a n k o f

New York, (Chairman o f the Conference o f Governors),
Governor A . L . Aiken, Federal Reserve B a n k o f Boston,
Governor George J . Seay, Federal Reserve B a n k o f Richmond.
Governor E . R. Fancher, Federal Reserve Bank o f Cleveland,
Governor C . J . Rhoades, Federal Reserve B a n k o f Philadelphia,
Mr. L . H . Hendricks, Assistant Cashier, Federal Reserve
Bank o f New York.
Mr. C . R. McKay, Deputy Governor, Federal Reserve B a n k o f
Chicago.
Mr. J . F. Curtis, Counsel o f the Federal Reserve B a n k o f
New York a n d Secretary t o the Conference o f Governors.

PRO C

Boe D r

d G Be

The Chairman: G e n t l e m e n , t h e meeting will come t o
order.

‘The first order o f business would b e the minutes o f
the last meeting.

Y o u have a l l seen copies o f the minutes.

What w o u l d b e y o u r p l e a s u r e w i t h r e g a r d
Governor Strong: I

t o them?

move t h a t t h e y b e a p p r o v e d w i t h o u t

reading.
Governor Aiken: I

second t h a t motion.

(The motion was duly carried.)
The Chairman:

T h e second topic o n the program i s

OPERATION O F GOLD SETTLEMENT FUND.

(a) Administrative expense.
I, a s Chairman, w a s asked t o obtain specific figures
indicating t h e e x p e n s e

t o date o f the operation o f the Gold

Settlement Fund's administration. I
received a

c o p y o f Mr. S h e r m a n A l l e n ' s l e t t e r g i v i n g t h e

definite figures. I
part,

think you have all

beliove t h e y were o n l y definite i n

b u t they were brought

u p a n d s h o w t h a t t h e expense

up

to November 20th was $1,037.30.
Mr. H e n d r i c k s a n d Mr. M c K a y w e r e g i v e n t h a t m a t t e r t o
consider,

a t l e a s t Mr. M c K a y w a s o n iny behalf,

gestion w a s t h a t w e h a v e t h e e x p e n s e

into twelve parts. I

a n d his sug-

u p t o this t i m e divided

believe Governor Strong introduced

this subject i n the first place, a n d I think his idea was
not s o m u c h t o a r r i v e a t a

conclusion w i t h regard

t o the

expenses u p t o date a s i t was t o look forward t o future settlement


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

o f it.

W o s t h a t y o u r idea, G o v e r n o r S t r o n g ?

3
Governor Strong:
look a h e a d a
expense,
mittee

T h a t w a s m y object, M r . C h a i r m a n ,

little b i t w i t h r e f e r e n c e

and I

t o

t o the division o f

would l i k e t o c a l l t h e a t t e n t i o n o f t h i s c o m -

t o t h e f a c t t h a t t h e Board,

to o u r b a n k a n d I

i n a

recent c o m m u n i c a t i o n

think t o t h e o t h e r banks, s t a t e d t h a t t h e

expense h a d b e e n s o i n c o n s i d e r a b l e

t o date that rather t h a n

attempt t o effect a n adjustment along t h e lines o f service
that t h e y e x p e n t e d

t o p u t t h i s i t e m o f $1,037.30 i n t o t h e

general administration expense o f t h e Board a n d divide i t
up among t h e twelve banks, a l o n g w i t h their other expenses.
That, a s y o u will observe, p u t s something like 3 0 o r 4 0
per cent o f the expense o n New York when, a s a matter o f fact,
we ought n o t t o stand a n y o f it.

I t i s not a large matter

at all, b u t t h e principle o f dividing t h e expense o f this
fund a s the expenses o f the Federal Reserve Board a r e divided
is e n t i r e l y e r r o n e o u s a n d unsound.

The Chairman: I
to permit

think i f someone would make a motion

i t t o take i t s course

Satisfactory,

i n this c a s e ,

a n d that w e adopt a s a

principle

i t would b e
f o r t h e future

that i t b e divided i n t o twelve parts.
Governor Strong: I

like t h e suggestion made b y the

committee consisting o f Mr. McKay. a n d Mr. Hendricks.

N o t

that i t saves $72, o r any such sum, t o the bank of New York,
because t h a t i s o f small importance, b u t because i t brings
the matter t o the attention o f the Federal Reserve Board that
there i s one i t e m o f their expense which must b e specially
dealt with.

L e t i t b e divided i n t o twelve parts,

Please, i n s t e a d o f i n t o t w e l v e percentages.


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

i f you

D o e s not that

strike y o u a s a desirable thing, Governor Aiken?
Governor A i k e n : I

think s o , v e r y decidedly.

Goernor Strong: I

therefore m o v e t h a t t h e verbal r e -

port a n d recommendations o f the committee consisting o f
Messrs. M c K a y a n d Hendricks b e adopted b y this meeting, a n d
that t h e r e c o m m e n d a t i o n

o f t h e meeting t o t h e Federal R e -

serve Board b e that the expense o f $1,037.30 b e divided into
twelve e q u a l p a r t s a n d a s s e s s e d

aS a

special a d m i n i s t r a t i o n

expense against t h e twelve banks.
Governor Fancher:

T h a t was not a

part o f t h a t commit-—

tee's report, w a s it, Mr. Chairman?
The Chairman; I
formal r e p o r t ,

do not think i t i s a

b u t w e will accept

Governor Fancher: I

part o f t h e i r

i t a s i t h a s b e e n stated.

will second Governor Strong's

motion.
(After informal discussion t h e motion w a s duly carried.)
Ths Chairman:

T h e next topic u n d e r I t e m 2

is:

(b) E X P E N S E S O F MOVING GOLD, I F ANY, INCURRED
BY T H E TREASURY DEPARTMENT.
That was a matter that could b e handled b y Governor
Strong, a n d I think w e decided that h e should d o that.
I r e m e m b e r t h a t y o u d i s c u s s e d t h a t i n f o r m a l l y w i t h Mr.

Werburg o n e evening, Governor Strong, a n d I was wondering i f
you h a d a n y report t o m k e a s t o whether o r not there i s a n y
expense i n v o l v e d

i n favor o f t h e Treasury Department

i n the

matter o f m o v i n g g o l d u p t o t h e p r e s e n t t i m e .

Governor Strong:
the subject a t all. I

T h e y have n o t reported b a c k t o m e o n
a m not sure whether t h e y have made

any i n q u i r y o f t h e T r e a s u r y Department.

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

F r o m a

little

5
word dropped b y Assistant Secretary o f the Treasury Malburn
yesterday, I

gathered t h a t h e s t i l l h a s t h i s v e r y a c t i v e l y

inmind, because you will recall, Governor Rhoades, that he
referred

t o the transfers

the five p e r cent e

r

e

i n connection w i t h payments i n t o

f u n d , w h i c h they wanted t o

have t i m e t o carefully consider, because o f the drain o f gold
which was always o n New York. I

think y o u will find that

the subject o f t h e movement o f gold and t h e causes which
bring i t about i s very active i n their minds, because i f
they h a d t o move fifty o r one hundred millions o f gold, a s
they r e c e n t l y d i d f r o m Denver,

to what extent,

t h e y would cast about t o see

i f a t all, t h e cost o f that movement could

be a s s e s s o d u p o n t h e r e s e r v e b a n k system.
(Further i n f o r m a l d i s c u s s i o n f o l l o w e d . )
The Chairman:

W i l l there b e a n y further action taken

on this topic a t present, other than Governor Strong's rePOre’
Governor Aiken: I

understand t h a t G o v e r n o r S t r o n g w i l l

continue h i s i n q u i r i e s f r o m t i m e t o time.

to be handled diplomatically anyway.
Governor Strong: I
this f o r t h e time being,

can offer a

e

T h e matter h a s

e

motion that will cover

i f you d o not want t o devote time

to a n effort t o establish a basis o f apportionment o f that
expense.
The Chairman:
apportionment.
dricks w e r e a

finally.

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

W e have established a

basis f o r that

A t the last meeting Mr. McKay a n d Mr. Hencommittee

o n that matter a n d t h e y reported

T h e i r report was approved. I

will read i t from

the minutes.

"Mr. Hendricks:

T h e suggestion o f Mr. McKay and myself

is a s follows:

"Whereas, a n y expense that the Treasury Department might
incur i n c o n n e c t i o n w i t h t h e o p e r a t i o n o f t h e G o l d F u n d woulda
arise f r o m r e c e i v i n g d e p o s i t s
them o u t

a t another,

"Whereas,

a t o n e s u b treasury a n d paying

and,

i t i s apparent t h a t n o expense f o r t h e transfer

of gold from one point t o another could arise unless t h e
withdrawals b y a federal reserve b a n k a r e i n excess o f the
deposits w h i c h have b e e n made b y such bank i n its subtreasury,

"Now, therefore, b e i t resolved, T h a t any charge imposed b y t h e T r e a s u r y D e p a r t m e n t f o r t r a n s f e r s

o f gold caused

by the operation o f the Gold Settlement F u n d shall b e paid
pro r a t a b y t h e b a n k o r banks w i t h d r a w i n g g o l d f r o m t h e g o l d

settlement f u n d i n excess o f the amount o f gold

s u c h

bank o r banks have deposited w i t h their Subtreasury;

pro-

vided that when such withdrawal o f gold f r o m the Gold Settlement F u n d w a s n e c e s s i t a t e d

by a

another F e d e r a l R e s e r v e B a n k ,

request f o r t r a n s f e r f r o m

t h e Federal R e s e r v e B a n k r e -

questing the transfer pay such expense."
That was o u r finding and recommendation,

a s I understand

it, a n d i t i s o n e o f t h e p o i n t s t h a t w o u l d h a v e b e e n discus-—

sed b y our Conference i f we had a meeting h e r e today.
One o b j e c t i o n w a s r a i s e d
Zandt,

a n d h e appeared

I will r e a d h i s letter.


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

t o be a

t o t h e plan,

b y Governor V a n

little d i s t u r b e d o v e r that.

@

"I regret t o note that your Committee and the Federal
Reserve Board d i d n o t agree u p o n a definite interdistrict
clearing p l a n , w i t h i n s t r u c t i o n s

t o p u t s a m e i n t o effect.

"On page 6 of the minutes I see that your resolution
relative t o expenses o f operation o f the Gold Settlement Fund,

ifadopted by the Treasury Department, will probably have
the e f f e c t

o f throwing t h e burden o f cost largely u p o n those

banks which a r e n o t located i n subtreasury cities.

I n fact,

we get n o credit f o r funds deposited directly with the Gola
Settloment Fund i n Washington,

t h a t being t h e place where

nearly a l l o f o u r d e p o s i t s a r e made.

I

n o t h e r words,

we

must n o t o n l y b e p l a c e d u n d e r t h e e x p e n s e o f p a y i n g f o r s h i p -

ments t o and f r o m t h e Gold Settlement Fund, but, i n view o f
the f a c t t h a t w e a r e n o t i n a
quired

t o pay a

operations.

I

subtreasury city,

w e are re-

large p o r t i o n o f t h e e x p e n s e o f t h e e n t i r e

f m y understanding o f this resolution i s in-

correct, will you please enlighten m e o n the same?"
That report w a s adopted b y the Executive Committee,
Subject t o such action a s the Conference o f Governors m i g h t
take u p o n i t , a n d I

think i t s h o u l d g o over.

I understand n o w t h a t i t i s s a t i s f a c t o r y

t o this meeting

to permit Governor Strong t o continue t o take care o f Item

(b), "Expenses o f moving gold, i f any, incurred b y the Treasury Department"?
Governor Strong: I

will t r y t o k e e p t h e p r e s s u r e

on

and ascertain what, i f anything, h a s b e e n done over there t o
sound t h e T r e a s u r y D e p a r t m e n t


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

The Chairman:

a s t o t h e expense.

a n e next. i t e m u n d e r T o p i c 2

ja:

(ce) R E P O R T O F MESSRS McKAY A N D HENDRICKS.
The report referred t o was submitted t o the committee,
read over b y each member o f the committee, a n d i s a s follows:

"December 13, 1915.
Mr. J . B. McDougal, Chairman,

Governors! Executive Committees,
Chicago, Ill.
Dear Sir:-

"At the meeting o f the Executive Committee held i n
Washington, November 1 8 t k t o 20th, t h e undersigned w e r e r e quested

t o suggest a

plan b y which t h e operation o f t h e G o l d

Settlement F u n d m a y not become t h e instrument f o r a consider-—
able loss o f gold t o the Federal reserve system.

"You will find attached statement showing the amount o f
gold a n d g o l d c e r t i f i c a t e s h e l d b y e a c h o f t h e F e d e r a l r e -

serve banks, a l s o amounts o f legal tender notes a n d silver
certificates h e l d b y the Federal reserve banks showing t h e
percentage h e l d b y each bank.

Y o u will note that t h e Federal

Reserve B a n k o f New York, a t the present time, i s the only
one t h a t s e e m s

t o hawe a n excessive a m o u n t o f legal t e n d e r

notes a n d silver certificates.

T h e accumulation o f silver

certificates a n d legal tender notes i n New York bank has been
caused b y the large amount o f N e w York exchange which has been
sent t o the Federal Reserve B a n k o f N e w York b y the other
Federal reserve banks, o w i n g t o the fact that clearing house
balances i n New York a r e not required t o b e settled i n gold
and m a y b e s e t t l e d

i n lawful money.

T h e N e w York bank has

therefore b e e n obliged t o receive legal tender notes a n d silve


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

9
certificates

i n payment

o f clearing h o u s e balances a n d t o p a y

gold o r g o l d c e r t i f i c a t e s i n t o t h e s e t t l e m e n t f u n d a t W a s h -

ington f o r the credit o f the other Federal reserve banks.
"Owing to.the f a c t that N e w York exchange h a s been a t
a discount t h r o u g h o u t t h e country,

have b e e n accumulating a

t h e Federal r e s e r v e b a n k s

very large volume o f N e w York funds.

"In reporting t o the Gold Settlement Fund o n Wednesday,
November 24th, t h e N e w York bank withheld $19,000,006 a n d
Still h a d a

Bebit

accumulated

i n New York i n one week amounting

$25,000,000.

A

o f o v e r $4,000,000,

s a

t h e volume

r e m e d y f o r t h i s situation,

o f exchange

t o about
w h i c h might

also occur i n the Chicago, St. Louis, Philadelphia, Boston,
and possibly other Federal reserve banks, w e offer t h e following suggestions:
sg T h a t a l l Federal reserve banks b e permitted t o
receive checks drawn o n clearing house banks located i n all
the Federal reserve cities.
to some extont -

T h i s would provide -

at least

an offset against t h e accumulation o f ex-

Change o n these cities, t h e items t o b e received i n accordance with t h e schedule o f deferred credits n o w i n effect.

gos ( a ) F e d e r a l reserve banks should establish mar-ket rates f o r exchange which would have t h e effect o f controlling t h e volume o f exchange received,

F o r instance, w h e n

exchange i s being accumulated t o such a n extent t h a t t h e
banks a r e debtors i n the g o l d settlement f i n d a n d creditors
in their local clearing houses, a n d a r e receiving large
amounts o f legal tender notes a n d silver certificates

i n pay-~

ment o f clearing house balances, t h e Federal reserve banks

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

10
which a r e accumulating t h e exchange should put a discount
rate o n s u c h e x c h a n g e
Shipping t h e currency.

t o a n amount

t o equal t h e cost o f

T h e banks c o u l d s h i p silver c e r t i -

ficates a n d legal tender notes t o the Federal reserve banks
which c r e a t e d t h e e x c h a n g e i n s t e a d o f h a v i n g t o p r o v i d e p a y -

ment i n gold through t h e gold settlement fund.

T h e amount

of legal tender notes a n d silver certificates w i t h a Federal reserve b a n k would b e willing t o receive will b e
governed b y its ability t o dispose o f such currency t o its
member banks.

"(b)

E y establishing market pates for exchange Federal

reserfe b a n k s w i l l

b e able

t o sell

against t h e b a l a n c e s a c c u m u l a t e d ,

t o their member banks

w h u s relieving t h e Feder-

al reserve banks f r o m being obliged t o p a y large quantities
of gold i n t o t h e gold settlement fund.
These a r e t h e only suggestions t h a t w e have t o make o n
the subject a t t h e present time, a s i t i s difficult t o predict what conditions m a g arise i n the future.

W e believe,

however, t h a t i f the suggestions offered a r e adopted that
such d i f f i c u l t i e s

a s have b e e n experienced

bank w i l l b e g r e a t l y r e l i e v e d

b y the N e w York

o r e n t i r e l y removed.

W

e

also realize that m e x N e w York exchange goes t o a premium
that t h e c o n d i t i o n s p r o b a b l y w i l l b e r e v e r s e d a n d s o m e f u r -

ther suggestions m a y then b e i n order.


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

"Respectfully submitted,
"C. R . McKay a n d
"Ir. H. Hendricks."

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

STATEMENTS A S A T CLOSE O ¥ BUSINESS DECEMBER 3 , 1915.
FRderal R e s e r v e B a n k of:

Gold
Gold and
Settlement Fané: G o l d C e r t i f i c a t e s

Silver Ctfs.,Silver Coin
and L e g a l T e n d e r N o t e s

Total

»0054**

519,999, 004.16

26, 856, 333.25

-1458**

184, 105,723.25

6,200,370,00

2,794,752.80

Pe i aall

14,164,122.80

9,269, 000.00

10,794, 095.00

1,064,767.60

-C504**

21,127,862.60

8,705, 000.00

6,089,650.00

118, 465,55

008**

14,913,115,55

Atlanta . . .

1,359, 000.00

5,413,528.63

277,255.20

«0S95"*

Chicago

6,164, 000.00

33,964, 427.50

789,501.40

» LG e
S*

St. Louis .

7,420, 000.00

1,772,500,0

134,787.00

-0144**

9,327, 287.00

Minneapolis .

5,120,000.00

2,519, 235.00

17,761.00

-00235**

7,656,996.00

Hanses C i t y ;

3,835, 000.00

6,329,110.00

288, 982,00

e027or™

10,453, 092.00

Dallas . .

9,071, 000,00

4,107,180.00

288, 896.20

.0214**

13, 467, 076.20

San Francisco . .

POEM P

4,722 ,460.00

5,696.10

- 0004**

13,606,156.10

a T a s eae » 5,295, 000.00

$ 14,595,120,00

e 108,884.16

New York. .

9,415, 000.00

147,834, 390.00

Philadelphia .

5,169, 000.00

Cleveland .

BOSTON a

eis

Rienmoud:),

« 4

TOTALS. +--+. +

B

$79,700, 000.00 $ 2 4 4 , 342.066.13 $

*

32,746, 082.26

o f s a i d notes,

** Percentage o f Silver Ctfs., Silver Coin and Legal Tender Notes t o "Total".

40,917,928.90

.0918**3356, 788,148.39

* As heading reads "Other cash" t h i s total probably includes National Bank notes made

7,049,783.83

n o mention being

12

The Chairman:

W h a t i s your wish with regard t o this

report, gentlemon? G o v e r n o r Strong, a r e y o u willing t o
express yourself o n this report?
Governor Strong:

Y e s , Mr. Chairman.

(Informal discussion followed.)
The Chairman:

I f i t i s satisfactory t o this meeting

we w i l l a d o p t t h e p l a n s u b m i t t e d

b y t h e Committee,

be very glad t o hear suggestions f o r changes.
back t o t h e Conference,

as I

o r I

should

I t must g o

understand i t .

(Further informal discussion followed.)
Governor S e a y : I

move t h a t t h e r e p o r t b e r e c e i v e d a n d

referred t o the next Conference o f Governors.
Governor Aiken: I

second t h a t motion.

(The motion was duly carried.)
The Chairman:

T h e next i t e m under Topic 2

is

(a) S E P A R A T I O N O F FEDERAL RESERVE AGENTS' FUND.
I think Mr. Hendricks c a n explain that topic.
Mr. Hendricks:

T h a t w a s brought

u p b y one o f t h e audi-

tors o f one o f the Federal Reserve B a n k s , Ithink.

I t was

his idea that the Federal Reserve Agents' Fund and the Federal Reserve Banks' Fund i n the Gold Settlement Fund ought not
to b e i n one fund b u t ought t o b e separated. I

d o not agree

with h i m a t all.
Governor Strong: I
Governor Rhoades:

t h i n k t h e y s h o u l d b e separated.
T h e gold i s n o w i n o n e pot a n d there

is nothing b u t t h e book account t o show which i s which.
course


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

i n o u r o w n offices t h e y a r e k e p t separate.

(Informal discussion followed.)

O f

13

Governor Strong: I

move that inquiry b e directed t o

the F e d e r a l R e s e r v e B o a r d f o r t h e p u r p o s e

o f ascertaining

whether t h e y h a v e c o n s i d e r e d h o w a n y l i a b i l i t y f o r l o s s o f

any part o f the Gold Settlement Fund would b e placed o r adjJusted a s between t h e interests o f the Federal Reserve Banks
and the interests o f the Federal Reserve Agents,

s o long a s

the fund i s kept a s a t present a n d not separated i n their custody.

Governor Rhoades: I

will second that motion.

(The motion was duly carried.)
The Chairman: I

would l i k e t o t a k e u p T o p i c N o - 5 ,

SHOULD F E D F R A L R E S E R V E B A N K S A T T H I S T I M E B E

PERMITTED T O RECEIVE, I N ACCORDANCE W I T H T H E
SCHEDULE F O R DEFERRED CREDITS, CHECKS O N MEMBER BANKS LOCATED I N OTHER FEDERAL RESERVE
CITIES.

I think this topic has been disposed o f i n the discusSion o f Topic 2-(c).
the program. I
Mr. McKay:

I f that i s right w e c a n mark i t off

think that t h a t i s covered
Y e s ;

The Chairman:

i t i s covered

i n t h e report.

i n t h e report.

T h e n that topic will b e marked off.

Governor Strong:

S h o u l d w o not t a k e u p Topic 6

in

Connection with this?
The Chairman:

Y e s ; w e will take u p Topic No. 6 .

CQDE F O R TRANSFER O F GOLD FUND BETWEEN FEDERAL
RESERVE BANKS A N D FEDERAL RESERVE AGENTS.
Mr. M c K a y has taken that u p o n behalf o f our bank. I
believe t h a t m a t t e r w a s l e f t w i t h t h e C h i c a g o B a n k -

Before leaving Washington Mr. M c K a y took this u p with
Mr. Willis a n d w e heard nothing from him. I


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

have a letter

14
here dated December 1 , which i s addressed t o H. Parker Willis
Secretary t o the Federal Reserve Board:

“You will remember that o n November 20th, a t the time o f
the meeting o f t h e Executive Committee o f t h e GomPrence o f
Governors o f Federal Reserve Banks, I

tock u p with y o u the

matter o f arranging telegraphic ¢@ode words f o r the use o f

the Federal Reserve Agents and also the Federal Reserve Banks
in making transfers f r o m the accounts o f the Federal Reserve
Banks i n the Gold Settlement F u n d t o Federal Reserve Agents,
am v i c e versa;

o w i n g t o t h e fact that under t h e present

practice i t i s possible f o r eithcr t h e Federal Reserve Agent
or t h e Governor o f the Federal Reserve B a n k t o direct transfers t o b e m a d e i n t h e G o l d S e t t l e m e n t F u n d o f a m o u n t s s t a n d i n
to t h e c r e d i t o f t h e o t h e r w i t h o u t t h e k n o w l e d g e

o r consent

of the other officer.

"As this matter was left t o the Federal Reserve Bank o f
Chicago t o take u p with the Board,

i n view o f the approaching

meeting o f the Conference t o b e held i n Washington t h e 14th
instant, I

would a p p r e c i a t e

i t i f y o u will kindly advise u s

if any action haé been taken i n this matter b y the board,

so

that w e will b e prepared t o render a report o n this subject

to the Governors! Conference."
That l e t t e r w a s s i g n e d b y me.

As n o reply has been received t o that letter I

asked

Mr. M c K a y t o see Dr. Willis yesterday, a n d I think h e c a n
tell u s w h a t transpired.
Mr. McKay: I

s a w Dr. W i l l i s y e s t e r d a y a n d h e s a i d t h a t

there had been s o many matters o f importance before the Board


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

15
he h a d n o t h a d t i m e t o p r e s e n t t h i s o n e ; t h a t h e w o u l d
present

i t t o d a y i f possible,

a n d h a d n o doubt b u t w h a t t l e

Board w o u l d t a k e f a v o r a b l e a c t i o n o n it, a n d t h a t s u c h a c t i o n
would b e t a k e n v e r y quickly.

The Chairman:

I f Mr. McKay's report i s satisfactory

the m a t t e r m a y a a a
allowed

w h e r e i t i s f o r t h e present.

a

t

t o s t a n d a s i t i s w e w i l l f o l l o w i t u p ourselves

and report a t t h e next meeting.
We might t a k e u p now Topic No. 7 :
OPERATIONS O F PHYSICAL AGENCY FUNCTIONS F R T H E
UNITED STATES G O V ERNMENT.
In Chicago w e have made some investigations a s t o t h e
probable requirements

i n handling Government accounts, a n d

there a r e s o m e f e a t u r e s

have t o b e reconciled.

o f t h e w o r k t h e r e t h a t w e thought w i l l

F o r instance Government officers

there a r e i n the habit o f throwing their deposits i n t o a
bushel basket,

s o t o speak, without sorting them, a n d then

Quietly waiting f o r a n officer o r two o f the Chicago bank t o
come a f t e r t h e deposits.

A l s o , t h e y a r e n o t i n t h e habit

a@ making their deposits during business hours.
Having this matter i n mind, i n addition t o some other
features o f t h e work, w e decided t o take i t u p with Mr. Malburn a n d Mr. McKay came d o w n i n advance o f t h e meeting t o take
this matter u p with h i m o n yesterday: F o r t u n a t e l y w e found
that Governor Strong, Governor Aiken a n d Governor Rhoades
were here a t that t i m e f o r this v e r y purpose, a n d I

know i t

would b e interesting t o those w h o were not here t o know what
has been accomplished,


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

Governor Strong: I

would like t o report o n that matter

16
this afternoon,

i f satisfactory, because I

have e x t r a c o p i e s
of t h e o f f i c e r s
prepared

of a

have arranged t o

memorandum t h a t w a s prepared

b y two

o f o u r bank covering t h e w h o l e investigation,

s o that e a c h e n e h e r e s h o u l d h a v e a

notes m a d e o n m y c o p y a n d I

can report

in a

copy. I

have

very f e w minutes

the gist o f the discussion w i t h Secretary Malburn.

T h e

memorandum i s quite long and covers t h e whole subject, a n d I
would r a t h e r r e p o r t t h i s afternoon.
The Chairman:

W

e will b e v o r y glad t o postpone action

on this matter until this afternoon.
CONFERENCE W I T H EXECUTIVE COMMITTEE O F NATIONAL
BANK SECTION O F AMERICAN BANKERS! ASSOCIATION.
The matter o f inviting t h e Executive Committee o f the

National Bank Section o f the American Bankers' Association
was left t o Governor Strong b y this Commit tee.

A t the time

the s u g g e s t i o n w a s m a d e i t w a s s u p p o s e d t h a t t h a t m e e t i n g

would b e with the full Conference o f Governors a n d n o t w i t h
the Executive Committee.

i

n view o f these facts I

would b e v e r y n i c e i f G o v e r n o r S t r o n g w o u l d c o n s e n t

think i t
t o take

charge o f the joint meeting.
Governor Strong:

M r . Chairman, I

have h a d very exten-

Sive c o r r e s p o n d e n c e w i t h t h e s e g e n t l e m e n s i n c e t h i s m a t t e r
developed.

(Informal discussion followed a s t o the meeting
of t h e E x e c u t i v e C o m m i t t e e w i t h t h e N a t i o n a l B a n k S e c t i o n o f
the A m e r i c a n B a n k e r s ' A s s o c i a t i o n ,

a n d also a

meeting

o f the

National B a n k Section o f the American Bankers' Association a n d


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

L7
the E x e c u t i v e C o m m i t t e e

o f the Conference

o f Governors w i t h

the Federal Reserve Board. )
Governor Fancher: I

move that t h e matter o f the meetin

of the two committees w i t h t h e Federal Reserve Board b e left
in t h e h a n d s o f Mr. Curtis;

t h a t h e communicate w i t h t h e

Board a n d ascertain

e hour they wish t o meet with us.

t

h

(The motion was duly carried and Mr. Curtis scommuni+
cated with t h e Board i n compliance w i t h t h e motion.)
The Chairman:

T h a t practically covers T o p i c No. 8 ,

which is "Conference with Federal Reserve Board."
Topic No. 3

will n o w b e considered.

CHECK COLLECTION:

(a) R e p o r t o f Messrs. Hendricks and McKay.
(The report submitted b y Messrs+ Hendricks ani McKay w a s t h e r e u p o n r e a d b y t h e i n d i v i d u a l m e m b e r s

o f the com-

mittee.)
The Chairman:

W h a t i s t h e pleasure

o f the Committee

in

regard t o this report, w h i c h has t o d o w i t h t h e five questions
submitted t o u s when w e were here a t o u r last meeting?
Governor Aiken: I

move t h a t t h e e

e

t h e commit—

tee consisting o f Messrs. M c K a y a n d Hendricks, together w i t h

exhibits A and B, be adopted and communicated to the Federal
Reserve B o a r d ; t h a t t h e B o a r d b e a d v i s e d t h a t t h i s r e p o r t h a s
not b e e n s u b m i t t e d

t o o r r e c e i v e d t h e approval

Federal R e s e r v e B a n k s w h i c h a r e n o t r e p r e s e n t e d

mittee;

o f the s i x
o n this com-

t h a t t h e Board b e advised that i f a n y further state-

ments o r détails i n regard t o this matter a r e desired, i t


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

18
is r e q u e s t e d

t o indicate u p o n what particular p o i n t

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

i t wishe:

further r e p o r t

i n connection w i t h t h e plan already recommended

or w h a t e v e r p l a n m a y b e a d o p t e d f o r t l f u r t h e r d e v e l o p m e n t

of the collection system.
Governor Fancher: I

second t h e motion.

(The motion was duly carried.)
(Upon motion, duly seconded, the committee recessed
at 1:30 o'clock p. m. until 2:45 o'clock p. m.)

Aol 2 oe F

K E

OES 8

The committee reassembled a t 2:45 o'clock p. m.
(Informal discussion took place with reference t o opinions submitted b y counsel o f several o f the reserve banks

with reference t o the amending o f Section 1 6 of the Federal
Reserve Act a s affecting the inter-district collection plan.)
Governor A i k e n : I

m o v e t h a t Mr. C u r t i s

b e requested

ask t h e F e d e r a l R e s e r v e B o a r d n o t t o i n c o r p o r a t e

to

i n their

inquiries o f the Attorney General t h e suggestion made b y
him a s t o a

service c m r g e

as a

possible o f f s e t f o r a n e x -

Change charge made b y member banks i n remitting checks sent
them f r o m F e d e r a l r e s e r v e banks,
in t h e o p i n i o n o f t h i s c o m m i t t e e
to p u t i n t o o p e r a t i o n s u c h a


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

Governor Strong: I

i n view o f the fact that
i t w o u l d n o t b e practicable

plan.

second t h a t motion.

(The motion was duly carried.)

19
The Chairman:

G o v e r n o r Strong, I

believe y o u suggested

that w e t a k e u p t h i s a f t e r n o o n T o p i c 7 , w h i c h i s

OFE RATIONS O F FISCAL AGENCY FUNCTIONS F O R T H E
UNITED STATES GOVERNMENT.
I understand y o u have a

memorandum o n this subject a n d

we would b e very glad t o hear f r o m you.
Governor Strong:
Item No. 7

A l l o w m e t o s a y that t h e placing o f

o n the program was t h e result o f personal effort

on the part o f o u r bank i n New York, i n which effort Philadelphia a n d Boston joined after s o m e telephonic conversation,
to get more light o n the whole subject o f t h e fiscal agency
matter.

W e anticipated t h a t t h e subject w o u l d come u p a t

this meeting f o r discussion a n d w e desired t o know something
about it. G o v e r n o r Aiken, Governor Rhoades a n d myself came
over t o Washington a

day ahead o f this meeting, a n d w e spent

yesterday w i t h t h e A s s i s t a n t S e c r e t a r y o f t h e T r e a s u r y Malburn,

Mr. Delano, Mr. Warburg a n d Mr. Harding i n discussing this
matter.
The m e m o r a n d u m w h i c h I

have h a n d e d y o u w a s p r e p a r e d

by

two m e n i n our office after a study o f the operations o f the
Government depositary a n d fiscal agency functions i n New
York a n d after discussions w i t h t h e collectors o f internal
revenue, t h e collectors o f customs,
York. I

o r their clerks,

will suggest that y o u read i t paragraph b y para-

graph, a n d after y o u have read a

paragraph I can give y o u the

substance o f what Mr. Malburn said o n that subject.

C r ;

ot n

perhaps, y o u prPrer ©


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

i n New

The Chairman: I

go t h r o u g h i
t in detail?
think w e h a d better

g o through i t i n

detail. I

should l i k e t o d o so.

(Governor Strong thereupon submitted t o the Committee a

memorandum o n the subject o f items t o b e discussed

in r e acting a s Government depositary a n d fiscal agent, p r e pared b y Mr. S a i l e r a n d M r . K e n z e l ,

Bank o f New York.

o f t h e Federal Reserve

T h e memorandum was considered i n detail.

Governor Strong stated that t h e memorandum would b e redrafted
and again submitted t o the Committee a t a future meeting. )
Governor Seay:

A

s Governor Strong h a s signified h i s

willingness t o furnish this report t o the cther Governors
who a r e not members o f this committee, I

move that t h e com-

mittee express i t s thanks t e Governor Strong f o r this report
and t h a t i t r e q u e s t h i m t o g i v e t h e o t h e r F e d e r a l r e s e r v e

banks t h e benefit o f it.
Governor Fancher: I

will second that motion.

(The motion was carried.)
Mr. Curtis;

M r . Chairman, I

desire t o report t h a t I

have s e e n Mr. D e l a n o a n d t h a t t h e f o u r t h q u e s t i o n

i n the let-

ter o f inquiry t o b e submitted t o the Attorney General h a s
been s t r i c k e n out.

The Chairman:

T h e r e a r e t w o topics remaining»

O n e

is the date o f the next Conference c f Governors, w h i c h i s
PODUCOAN O s .hO%s

(Upon motion duly made and seconded the date o f
the n e x t c o n f e r e n c e

o f Governors w a s s e t f o r J a n u a r y 1 9 ,

1916, a t Washington, D . C.)


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

The Chairman:

T h e next i s topic No. 4 .

21
AMENDMENTS T O FEDERAL RESERVE ACT.

(a) C l a r i f y i n g Section 13.
Mr. Curtis:

A t the last meeting w e had gotten down t o

the third paragraph o f Section 13.

As t o Section 1 3 I have suggested that w e omit the
whole o f the third paragraph o f this section.
Dy sthe f i f t h p a r a g r a p h I

have s u g g e s t e d t h a t w e s t r i k e

out t h e whole o f the paragraph a n d substitute t h e following:

“any National bank may accept drafts o r bills o f
exchange drawn upon it, arising o u t o f actual commercial
transactions, a n d having n o t more t h a n s i x months' s i g h t
to run, a n d a n y member b a n k other t h a n a National B a n k
may accept. such bills
such a c c e p t a n c e s

o f exchange p r o v i d e d t h e making

i s n o t i n contravention

of

o f the l a w o f the

State i n which such member bank is situated; but no member
bank s h a l l a e c e p t s u c h b i l l s

t o a n amount e q u a l a t a n y t i m e

in the aggregate t o more than t h e capital s t o c k a n d surplus

of such bank."
(Informal discussion followed.)
The Chairman:

W i t h o u t objection w e will n o w proceed

to the next one, Mr. Curtis.
Mr- Curtis;
, I
bankers",

W i t h regard t o Section 14, first para-

have ht h e suggestion
t oa strike oru t t h e words
p
g

"and

s o a s t o read a s follows:

(Mr Curtis thereupon read the paragraph referred
to.

A f t e r considerable informal discussion Section 14of

the Act was drafted b y the Committee a s follows: )


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

"Every Federal reserve bank shall have power

Ze

"(a) U n d e r rules and regulations p r e s c r i b e d b y the
Federal Reserve Board t o purchase a n d sell, w i t h o r without
its e n d o r s e m e n t

i n the o p e n market a t h o m e o r abroad e i t h e r

from o r t o domestic o r foreign banks, firms, corporations
or individuals acceptances o f the kinds a n d maturities b y
this a c t made eligible f o r rediscount, c a b l e transfers,
demand o r sight exchange, a n d other bills o f exchange w i t h
or without t h e endorsement o f a member bank.

*()
abroad,

T o deal i n gold coin o r bullion at home o r

t o make loans thereon, exchange a n d re-exchange

Federal r e s e r v e n o t e s f o r gold, g o l d c o i n o r g o l d c e r t i f i -

cates, a n d t o contract f o r loans o f gold c o i n o r bullion,
giving t h e r e f o r e ,

w h e p necessary, a c c e p t a b l e s e c u r i t y ,

in-

cluding t h e hypothecation o f United States bonds o r other
securities w h i c h F e d e r a l r e s e r v e b a n k s a r e a u t h o r i z e d

to

hold.

"(e)

T o buy and sell", a n d s o forth.

Omit the original subsection (c).
we

T o establish from time t o time", etc.

"(e)

T o establish accounts with other", etc.

The Chairman:

W i t h o u t objection w e will proceed

to

Section 15.

Mr- Curtis:
tion 1 5 I

I n the fourth line o f paragraph 1 of Sec-

have r e c o m m e n d e d t h a t w e s t r i k e o u t t h e w o r d

"may" and insert instead the word "shall", s o that i t will
read:

"The moneys held i n the general fund o f the Treasury,
except t h e f i v e p e r c e n t u m f u n d f o r t h e r e d e m p t i o n o f o u t -


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

23
standing N a t i o n a l b a n k n o t e s a n d t h e f u n d s p r o v i d e d

i n this

act f o r t h e redemption o f Federal Reserve notes shall, u p o n
the d i r e c t i o n o f t h e S e c r e t a r y o f t h e Treasury,

b e deposited

in Federal Reserve Banks, w h i c h banks, w h e n required b y the

Secretary o f the Treasury", a n d s o forth.
In l i n e 9

o f t h e first paragraph, s t r i k e o u t t h e word

"may" a n d insert instead t h e word "shall",

s o that i t will

read, “and disbursements shall b e made b y checks drawn
against such deposits."
In the second paragraph o f Section 15, strike o u t t h e
whole o f the proviso a n d substitute therefor t h e following:

"The provisions o f this section shall b e carried into
effect b y t h e S e c r e t a r y o f t h e T r e a s u r y a S s o o n a s practic-—

able, b u t i n n o event later than December 31, 1917, after
which d a t e i t s h a l l b e u n l a w f u l f o r a n y b a n k o t h e r t h a n a
Federal R e s e r v e

Bank

t o receive

o r retain deposits

o f any

Government funds, provided t h a t a n y portion o f the revenues
of the United States m a y b c deposited i n a member bank when
the S e c r e t a r y o f t h e T r e a s u r y s h a l l b e s a t i s f i e d a n d s h a l l
So c e r t i f y t h a t s u c h a c t i o n i s n e c e s s a r y f o r t h e p r o t e c t i o n

of the revenues."
In another part o f Section 1 5 I have suggested that w e
add the following n e w matter:

"The Secretary o f the Treasury shall cause the funetions
end operations n o w e x e r c i s e d

c r conducted

b y t h e Assistant

Treasurers o f the United States t o b e transferred t o the
several Federal reserve banks i n such manner a s i n his
judgment m a y b e expedient, a n d such transfers shall
b e com-—


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

24
pleted b y December 31, 1917, a t which t i m e the office o f
Assistant

Treasurer

o f the United States

a n d a l l other subcr-

Ginate officerSto s u c h office, shall cease a n d determine,
and t h e S e c r e t a r y o f t h e T r e a s u r y i s f u r t h e r a u t h o r i z e d
transfer t h e s u b t r e a s u r y b u i l d i n g s
now s i t u a t e d

- t Boston,

to

o f the United States

N e w York, P h i l a d e l p h i a , C h i c a g o ,

St. Louis and San Francisco, t o the Federal Reserve Banks o f
the said cities respectively."
(After c o n s i d e r a b l e i n f o r m a l d i s c u s s i o n

o f this sec-

tion, a t 6:35 o'clock p. m., the committee adjourned until
tomorrow, Wednesday, December 15, a t 10 o'clock a. m.)


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

a2. 0 On: Dp D R X ,

Shoreham Hotel, Washington, D . C.,
Wednesday, December 15, 1915.

The meeting o f the Executive Commit tee o f the Conference o f Governors reassembled a t 10:30 o'clock a . nm.
There were present t h e members o f the Committee,

as

indicated o n yesterday.
There were present a l s o members o f t h e Executive Com-—
mittee o f the National B a n k Section o f the American Bankers!
Association,


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

a s follows:

Mr. J . E. Cox, President o f the Commercial National B a n k
of High Point, Chairman o f the ixecutive Committee.

H. E. Otte, Vice President o f the National City
Bank o f Chicago.

Oliver J. Sands, Prosident o f the American National
Bank o f Richmond.
W. H . B a t h o l z , V i c e President cof the Omaha National Bank, Omaha, Nebraska.
W. M . VanDuesen, National Newark Banking Company,
Newark,

N o w Jersey.

Fred W . Hyde, Cashier o f the National Chautauqua
County B a n k o f Jamestown,

N e w York.

J. S. Calfee, Cashier Mechanics' National Bank o f
St. Louis.
F. E . Farnsworth, General Secretary o f the American
Bankers A s s o c i a t i o n .

26

Mr. F. R. Wilson, Assistant General Seéretary o f the
American Bankers! Association.
Mr. T . B. Paton, General Counsel o f the American Bankers
Association.

PROC

E E D 1

8 G S&S,

Governor Strong (Presiding): G e n t l e m e n , t h e meeting
will p l e a s e c o m e t o order.

This meeting, gentlemen, developed a s a result,
first i n s t a n c e ,

o f the organization

i n the

o f t h e National B a n k

Section o f t h e A m e r i c a n Bankers! A s s o c i a t i o n ,

a n d o f the cour-

tesy o f the Executive Committee o f that Section i n inviting
the officers o f the Reserve B a n k o f Now York t o meet with
them when they held their first mecting i n New York City.
When t h e suggestion f o r a joint meeting w a s first made
to t h e E x e c u t i v e C o m m i t t e c

o f the Conference

o f Governors

of t h e F e d e r a l R e s e r v e B a n k s i t w a s v e r y gladly,
joyously r e c e i v e d b e c a u s e
the o f f i c e r s

i n fact,

i t h a g become quite apparent

to

o f the reserve banks during t h e first y e a r o f

organization w o r k , w h i c h w a S v e r y engrossing,

t h a t the mem-

bership o f the Federal reserve system a s a whole h a d n o t
been brought i n t o sufficiently close contact a n a harmony
with t h e actual management o f the reserve banks.

i

n the

perfection o f your organization a n d t h e appointment o f
a
representative b o d y i n t h e f o r m o f a n e x e c u t i v e c o m m i t t e e

the means have b e e n created b y which t h e whole management o f
reserve l a nks a n d o f t h e s y s t e m e c h

b e brought i n t o imme-

diate t o u c h w i t h t h e w h o l e b o d y o f m e m b e r s h i p o f t h e
Federal


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

reserve s y s t e m ,

Speaking f o r myself, I

think t h e time h a s arrived w h e n

we ought t e b e working together i n greater harmony i n all
of t h e p l e n s f o r t h e d e v e l o p m e n t

o f t h e reserve banks,

so, i n behalf o f our crganizaticn I
express o u r a p p r e c i a t i c n
desire

and

take t h e opportunity t o

o f your being here a n d o f o u r

t o c o n d u c t t h i s w o r k i n y o u r interests.

At the meeting i n New York i t was arranged that there
should b e submitted t o the Chairman o f yeur Executive C o m —
mittee a

list o f varicus topics t h a t h a d been discussed a t

our meetings,

T h a t w a s done, a n d I understand that f r o m

those thirty o r more subjects y o u have selected certain m a t —
ters thet y o u would like t o discuss h e r e this morning.
I a m sorry thet a l l o f our organizatisn i s not present

today.

T h e Federal Reserve Board was not prepared t o hold

the conference t h a t w e h a d arranged f o r the entire membership
of t n e C o n f e r e n e e

ing b e simply a

c f Governors,

a n d they asked that this meet-

meeting o f the Executive Committee, consist—

ing o f s i x g o v e r n o r s o u t o f t h e twelve,

a s

o u r conference h a s

therefore b e e n deferred until January.
I thought, b e f e r e t h i s m e e t i n g i s concluded,

might decide t o hold another joint meeting.

that w e

i f that i s your

wish, w e will take that subject u p before adjournment.

Will i t be satisfactory t o you t o undertake a t n c e a
discussion o f the matters w h i c h y o u have i n mind,

o r would

you prefer t o have a general discussion before doing that?

Mr+ Cox: G o v e r n o r Strong and gentlemen, w e are very

much pleased t o meet with you this morning; w e are glad of


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

28
this o p p o r t u n i t y

t o b e w i t h you.

I

n a

conference y e s t e r -

day w e d i s c u s s e d s o m e m a t t e r s t h a t w e r e o f peculiar i n t e r est t o us.

T h e r e a r e five items that w e were particularly

interested

i n a n d w e r e discussed m o r e t h a n a n y cther items,

and i f i t meets w i t h your approval, sir, w e will b e willing
to t a k e u p t h o s e items.

The first i t e m i s “Bills o f Lading", a n d I will a s k
Mr. Paton, t h e attorney f o r t h e American Bankers' Associa~
tion, t o s a y a few words t o y o u upon that subject.
BILLS O F IADING.
Mr. Paton:

M r . Chairman a n d gentlemen, t h e subject

of bills o f lading i s a matter o f Federal Regulaticn a n d i s
not a matter o f amending t h e Federal Reserve Act; b u t i t i s

one of the subjocts with rcgard t o which the American Bankers!
Association felt i t would b e very desirable,
have t h e e n d o r s e m e n t

i f possible,

to

o f y o u r b o d y a n d o f t h e Federal R e s e r v e

Board o f legislation which has been introduced i n Congress
on the subject.

S e n a t o r Pomerene h a s introduced a

bill a t

this session o f Congress-—— t h e s a m b i l l that passed t h e
62nd a n d 63rd Congresses. I

believe i t i s Senate Bill No.

Los T h a t bill, unlike most o f the bills which were introduced, i s the product o f not kess t h a n four years o f care-

ful thought b y the commissioners o n uniform state laws,
an adjunet o f t h e American B a r Association, a i d e d b y the
advice

o f shippers

a n d bankers,

recomnended

b y the Commis—

Sioners f o r State Cnactments, a n d n o w enacted a s the
law - f
some f i f t e c n states,


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

i n order t o make u n i f o r m t h e l a w o n

29

bills o f lading.

I

Federal e n a c t m e n t ;

Senator Pomerene;

t has been taken u p and adopted b y

i t h a s b e e n introduced

i n Congress

by

i t has t h e endorsement o f the American

Bar A s s o c i a t i o n a n d t h e a c t i v e s u p p o r t
ers' A s s o c i a t i o n .

A

S I

stated,

o f the American Bank-

i n t w o preceding sessions

of Congress i t went through t h e Senate a n d fell i n the House.
Probably t h a t w i l l b e i t s h i s t o r y i n this n e x t C o n g r e s s u n less s o m e a d m i n i s t r a t i v e r e c o m m e n d a t i o n c a n b e m a d e t h a t w i l l

hasten its consideration b y the House Committee o n Interstate
and F o r e i g n Commerce.
This b i l l i s o f g r e a t i m p o r t a n c e

t o bankers, b e c a u s e

it properly a n d adequately regulates t h e subject o f the validity o f bills o f lading. A

bill o f lading i s a document o f

security which i s issued b y carriers i n the movement o f
crops, a n d i s loaned o n b y the banks o f the country t o the
extent o f billions o f dollars yearly.

I t i s therefore a

most important t h i n g that t h e bill o f lading should b e a n
adequate a n d v a l i d security.
Unfortunately,

u n d e r t h e c o m m o n law,

the S u p r e m e C o u r t o f t h e United S t a t e s , a
agent i s s u e s a

a s declared

by

carrier w h o s e

pill o f l a d i n g w i t h o u t r e c e i v i n g t h e goods,

either t h r o u g h c o l l u s i o n w i t h t h e Shipper,
to a c c o m m o d a t e a

shipper w h o p r o m i s e s

o r m e r e -o1 Ger

t o have h i s goods

delivered a t a later date, i s not responsible.

T h e car-

rier'whose agent does that i s not responsible w h e n h e adon
vances t h e bill o f lading where t h e goods have never been
received.

A s the result o f that rule t h e bill o f lading

is n o t a n adequate security.


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

T h i s proposed bill r e g u l a t e s

30
that subject,

a s well a s many other minor points, b u t that

is t h e v i t a l p o i n t

i n this p a r t i c u l a r bild.

carrier r e s p o n s i b l e u p o n a

I

t makes t h e

bill o f l a d i n g s i g n e d b y i t s

authorized agent, although t h e goods m a y not have b e e n received.

I n other words, i f makes t h e bill o f lading a

valid document a s representing t h e goods stated o n its face,
the S a m e a s a
posit o f a

warehouse r e c e i p t

o r t h e certificate

o f de-

bank.

There h a v e b e e n m a n y l o s s e s

i n t h e p a s t t o banks,

o n

account o f this r u l e o f law, a n d t h e American Bankers'
Association has, f o r several years, b e e n advocating this
measure

i n Congress,

b u t o n l y w i t h partial success-

I

t

would s c e m that t h e Federal Reserve Board would b e largely
interested i n the s u b j e d

o f bills o f lading a s security,

because t h e y would form t h e basis o f rediscounts.
could b e m a d e a

g

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

Federal ReserveBosrd, a n d i f i t was s o endorsed, I
it w o u l d h a v e a

S ee © ©

think

fair c h a n c e o f p a s s i n g a t t h i s s e s s i o n . .

I think, gentlemen, t h a t I

have sufficiently covered

that point.
Governor Strong:

I

s that t o b e introduced

a t this

session?
Mr. Paton:

I

t i s t o b e reintroduced

Governor Strong:

a t t h i s session.

I s not that substantially t h e same

as t h e Stevens Bill?
Mre Paton:

T h e Stevens B i l l h a d t h e sane o d j e c t

in

view, b u t r e l a t e d S o l e l y t o t h e p o i n t o f security,
which I


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

31
have mentioned.

T h e Pomerene B i l l adopts

as a

basis t h e

uniform bills o f lading act, which covers n o t only t h e point
of security,

b u t codifies,

i n a

regard t o bills o f lading.

way, t h e w h o l e l a w w i t h

I t cofiseian order bill and a

Straight b i l l , a n d s t a t e s t h e i r essentials.
they m a y

b e transferred,

I

t states h o w

a n d d e f i n e s t h e r i g h t o f t h e ship-—

per i n t h e c a s e o f s h i p p e r ' s l o a d a n d count,

a n d tarious

matters which the shippers desired placed i n a bill, which
were n o t c o n t a i n e d

i n t h e S t e v e n s Bill.

Governor Stronz;:

i

s this b i l l supported

b y the

railroads g e n e r a l l y ?
Mr. Paton:

T h e railroads

universally So.

h a v o p p o s e d t h e bill, b u t

T h e eastern carriers have n o t objected,

but t h e r e i s o p p o s i t i o n f r o m s o m e o f t h e s o u t h e r n a n d west-—

ern carriers, because i t imposes a

liability o n the rail-

roads, which does n o t n o w exist t o a n y considerable e x t e r
throughout t h e country.

Mr+ V a n Deusen:

T h e railroads m a k e t h e point, I

think, t h a t t h e y c a n n o t a f f o r d
and t h e y t h e r e f o r e

t o hire responsible agents

d o n o t w a n t t o b e responsible w h e n a n

agent s i g n s t h e b i l l o f l a d i n g f o r g o o d s w h i c h h e h a s n e v e r

received, although h e signs for them i n his official capacity.
Governor Strong:

W e discussed t h e Stevens Bill w i t h

Some railroad men, a n d they always ra&sed t h e point that
it
did n o t c o v e r t w o situations.

O m e was t h e case where t h e

bill o f lading a n d t h e entire transaction was fraudulent,
——_ y o u could n o t cover t h a t b y law-——


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

Mr. Patron: (Interrupting)

N o ; you could not

cover t h a t b y law.

A n d t h e other objection t h a t some

Governor Strong:

bale o r b o x o f goods d e l i v e r e d

of t h e m m a d e w a s t h a t a

to a

railroad i s absolutely unknown a s t o contents t o t h e agent
either a s t o q u a l i t y o r character,

a m

i t i s pmpossible

to

fairly f i x the liability upon t h e railroads f o r tlhe representations c o n t a i n e d

i n the receipt w h e n t h e a g e n t h a s n o opport o verify t h e character

tunity n o r m e a n s o f g a i n i n g k n o w l e d g e

of the goods received b y the railroad.
think that could probably b e covered b y

Mr. Otte: I

having the bill o f lading read "said t o contain", t h e same
warehouseman,

as w a r e h o u s e r e c e i p t s . A

i n taking i n a

pack-

o r a n y t h i n g t h a t h e h a s n o t inspected,

age o r b a l e o f goods,

will issue a warehouse receipt containing the words "Said t o
contain".

T h a t i s notice t o whoever takes i t out that h e

must m a k é i n s p e c t i o n i f h e i s d e p e n d i n g

T h a t i s probably i m the Dri.

Governor Strong;
Mr. P a t o n :

T h a t

Bovernor Seay:
bills

i s c o v e r e d = b y t h i s Act}; y e s .

I s that identical w i t h t h e uniform

o f lading a c t ?

Mr. Paton:
Same

o n that.

N o , i t is not.

I t is substantially the-

T h e Uniform Bills o f Lading Act speaks o f a negotia-

ble bill and a nonnegotiable bill. T h i s
changed t o “order bill".

T h i s cevers bills o f la ding issuc

in interstate a n d foreign commerce.

T h e uniform bills o f

lading a c t does n o t cover foreign commerce.
bills

T h e uniform

o f l a d i n g a c t h a s n o p r o v i s i o n w i t h r e g a r d t o shippers’

boad .and


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

h a s been

c o u n t , s u c h a s i s contained

i n t h i s bill; b u t

oo

in the main this bill i s the s a m e a s the Uniform Bills o f

Lading Act.
Governor Aiken:

D o e s a l l t h e opposition t o this come

the railroads?
Mr. Paton:

Y e s .

Mr. V a n Ducsen:
Mr. Paton:

I t started i n Georgia, I

think.

T h e chief opposition comes f r o m tho Chair-

man o f t h e H o u s e C o m m i t t e e

o n I n t e r s t a t e a n d F o r e i g n Commerce.

They went d o w n there originally a n d h a d a very short bill
drawn u p just covering t h e liability o f the carrier f o r the
act o f its agent i n issuing a bill o f lading without receipt
of t h e goods. ©

The b i l l c a m e b e f o r e t h e H o u s e C o m m i t t e e

on

Interstate a n d Foreign Commerce, a n d Chairman Anderson-——~
he was n o t then Chairman, w a s only a minority member o f the
committce--— f r o m t h e s t a r t e v i n c e d a

opposition,

i f I may s o state. I

sort o f p r e j u d i c e a n d

think this i s not a mat-

ter o f confidence, because everybody knows it, b u t h e was
rather Sarcastic i n his opposition.

H e said, " W h y d o y o u

not entitle t h e measure ' A bill t o enable bankers t o conduct
their b u s i n e s s w i t h o u t t h e s a m e r i s k s a s t a k e n b y private

business.'"

H

e seemed t o take t h e ground that i t was a

masure simply t o enable t h e bankers t o d o their business
without r i s k ;

that a

carrier w a s s i m p l y e n g a g e d

i n the busi-

ness o f transporting goods a n d w a s not engaged i n the business o f issuing negotiable paper.
As a

matter o f facet t h i s p a p e r w h i c h t h e carriers i s s u e

has e n t e r e d t h e c o m m e r c e

o f t h e country t o the extent o f

billions o f dollars, a n d t h e commerce o f t h e country could


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

34
not b e c a r r i e d
this paper.

o n without t h e loans m a d e b y t h e banks

on

T h e small shipper turns o v e r h i s capital a

hundred times,

H e has o n e o r two thousand dolla r s and buys

so m a n y b i l l s o f leading o m s o m a n y c a r s o f w h e a t . . H e m u s t

cash them i n immcdiately i n order t o make a second pur—
chase, a n d

S o on. U n l e s s t h e bill o f lading o n which h e
the

obtains a d v a n c e s

i s s a f e i t w i l l o n l y b e i n cases w h e r e ,ship-

pers w h o s e r e s p o n s i b i l i t y

i s beyond q u e s t i o n t h a t s u c h a d -

vances will be made- h e r e the shipper i s of unknown responsibility h e will not b e given the accommodation.
therefore a

mcasure

i n the interests

I t is

o f t h e small shipper

and i n the interest o f the enlarged commerce o f the country,
and f o r t h e p u r p o s e

o f f a c i l i t a t i n g t h a t commerce.

Governor Strong:

H a s this bill b e e n referred

t o com-

mittees o f both houses?
Mr. Paton:

T h i s s a m e bill passed t h e Senate last

Congress a n d w a s r e f e r r e d

t o the House Committee

State a n d Foreign Commerce.
preceding, 6 2 n d Congress.
64th Congress.

I

o n Inter-

T h e same t h i n g s
i true o f the

T h i s coming Congress i s t h e

t was passed i n the Senate i n both the

62nd a m d 63rd Congresses.
The i n t e r e s t

o f Senator P o m e r e n e

i n this measure h a s

come through t h e shippers! organizations t h a t a r e behind
this bill.

I

t h a s b e e n p a s s e d i n t h e Senate.

ferred t o t h e H o u s e G o m m i t t e e

I

t was r e -

o n Interstate a n d F o r e i g n

Commerce a n d t h e Chairman o f that Committee would not arrange f o r a hearing.
gress.

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

T h a t was t h e history i n the last Con-

W e hope i n this Congress t o have a hearing.

35
The history o f this bill o f lading legislation i n the
former c o n g r e s s w a s this;

t h e Stevens B i l l passed t h e House

ané fell d o w n i n the Senate.

T h a t was o u r measure, too.

In order t o collaborate w i t h the shippers a n d cooperate
with them, w e adopted a n d got behind t h e Uniform Bills o f
Lading Act.
Mrs Curtiea: &

Mr. Paton:

hat i s the title o f the Pomerene Bi117

I t is Senate Bill 19, a bill relating t o

bills o f lading i n isterstate a n d foreign commerce, introduced b y Senator Pomerene o n December 7th.
Governor Seay:

D

o t h e railroads suggest a n y modifi-

cation t o w h i c h t h e y a r e w i l l i n g

t o agree,

o r i s their o p -

position simply o n general principles?
Mr. Paton:

T h e opposition i s chiefly t o the section

which m a k e s t h e c a r r i e r l i a b l e f o r g o o d s a l t h o u g h n o t r e -

ceived. I

cannot, without reading through the bill,

point definitely t o the provision which covers t h e second
objection t o the Stevens Bill, b u t I

can s a y that this

measure does n o t make t h e carrier liable f o r the contents

of packages.

I n other words they are simply liable for

what: they receive, because there are provisions i n the bill
which will allow a carrier t o say, "Condition o f contents

unknown".

I t is not given i n those words, but it is allow-

able u n d e r t h e law.

Governor Strong:

T h e n t h e railroad i s not necessarily

assuming liability f o r staple cotton when i t receives a
bale,which

i t certifies

i n its bill o f lading i s said t o

contain staple cotton, although i t m a y only contain linters?


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

36
Ve. Paton:

State.

N o .

T h e y a r e liable s i m p l y f o r what t h g y

i t simply makes t h e railroad liable f o r t h e truth

of w h a t i s s t a t e d

i n t h e b i l l o f lading.

to prevent t h e c a r r i e r f r o m p u t t i n g

T h e r e i s nothing

o n t h e b i l l o f lading,

"shipper's l o a d a n d count; c o n t e n t s unknown",
they choose.

W h e r e they issue a

o r anything

bill o f lading saying t h e y

received 1 0 0 b a l e s o f c o t t o n o r t w o c a r l o a d s

o f Shingles a n d

have n o t received t h e cotton o b the shingles, a n d t h e bank
advances t h e value o n the faith o f the bill i n cash o r draft
and t h e d r a w e e

o f the draft pays

for t h e g o o d s w h i c h a r e S u p p o s e d

o n the f a i t h o f t h e bill
t o come, a n d i t t h e n d e v e l o p s

that t h e r e w a s n o c o t t o n o r n o Singles,

a n d t h e shipper

is

irresponsible s o there c a n b e n o recourse o n him, then, under
this bill, there would b e recourse o n the railroad; a n d i t
seems n o more t h a n right,
should b e so.

i n our modern commerce, t h a t i t

T h a t i s the l a w o f New York State a n d o f the

leading commercial states,
the same act, I

S o m e o f our states have passed

think perhaps fifteen o f them.

1

s

act

when passed i n the states, w o u l d only cover intra-state
commerce.

I t i s doubtful i f i t would cover interstate c o m —

meree.

Governor Strong:

D i d the committee take action t o in-

dicate just what procedure should b e followea t o facilitate
the p a s s a g e o f this bill?


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

Mr. Paton:

O u r commit tee?

Governor S t r o n g :
Mr. P a t o n :

N o .

Y e s .
N

o procedure

h a s b e e n discussed.

W e

37
Simply d e s i r e f r o m t h e F e d e r a l R e s e r v e B o a r d a
tion

o r a n endorsement. I

determined

presume

b y t h e c o u r s e o f events

t h e procedure

i n Congress.

be l e f t i n t h e h a n d s o f S e n a t o r P o m e r e n e ,
it goes t h r o u g h t h e Senate.

recommendawould

I

b e

t would

w h o will s e e that

W h e n i t comes t o t h e House

Committee o n Interstate a n d Foreign Commerce t h e n t h e procedure would b e t o bring o n the hearing a s soon a s possible
before t h e H o u s e Committee. I

think there i s n o question

but what t h e bill will g o t o that Committee t h e same a s i t
has i n previous congresses.

T h e n t h e question will come

up, “ H o w c a n w e get a hearing a n d h o w c a n w e get that bill
reported out?"
Governor Strong:

W o u l d

i t b o satisfactory

t o your

Committec t o furnish us with a brief statement o f the purpose
ofthe bill, together w i t h copies o f the bill,
submit t h e m a t our meeting i n January,

s o that w e c a n

i n the meantime

taking t h e matter u p with the Federal Reserve Board a t a
meeting w h i c h w i l l b e h e l d b e f o r e w e l e a v e h e r e now.

I

n

that w a y the reserve banks themselves w i l l b e familiarizing
themselves w i t h t h e o b j e c t s
our n e x t C o n f e r e n c e

o f t h e b i l l a n d possibly a t

o f Governors

containing. arecommendation.

B

w e c a n pass a

resolution

y f u r n i s h i n g t h e banks

i n

advance w i t h copies o f the bill t h e y c a n familiarize t h e m —
selves w i t h t h e objects o f the efforts t o get t h e bill
passed,

a n d w e w i l l b e a b l e t o discuss

i t intelligently a n d

not w a s t e t i m e w h e n o u r n e x t C o n f e r e n c e t a k e s place.
Mr. Paton:

W

e w i l l b e v e r y g l a d t o d o that.

whom shall t h e y b e forwarded?


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

T

o

38
Governor Strong:

I f they a r e forwarded t o m e i n New

York I will s e e that they a r e distributed t o the other banks.
Y o u want t o discuss t h a t matter before y o u

Mre Cox:

Y o u probably w o u l d n o t c a r e t o pass

endorse i t .

o n it

new.

I t would b e rather unusual f o r u s

Governor Strong:
to p a s s a

resolution c o v e b i n g a

matter o f t h a t s o r t w i t h o u t

giving consideration t o i t amd discussing it.
Mr» C o x :

W

e d i d n o t e x p e c t t h a t y o u would.

Another m a t t e r t h a t i s o f interest

t o u s i s a n amend-

ment t o S e c t i o n 1 9 o f t h e F e d e r a l R e s e r v e A c t r e l a t i n g

to

bank reserves, a n d Mr. Otte will s a y a few words o n that
Subyect.

AMENDMENTS

Mr. Otte:

O F SECTION 19-A, RELATING T O
BANK RESERVES.

A t the meeting o f the Convention o f the

American Bankers! A s s o c i a t i o n ,

h e l d i n Seattle,

l a s t Septem—

ber, a n d a t a meeting o f the Executive Committee o f the

National Bank Section of the American Bankers' Association
held h e r e yesterday, a

resolution w a s p a s s e d f a v o r i n g a n -

amendment t o the Federal Reserve Act, t h a t is, that portion
that relates t o reserves, a n d with your permission I will
read t h e d r a f t o f t h e b i l l p r e p a r e d

b y t h e counsel

o f the

’ Association proposing a n amendment t o Section 1 9 of the
Federal Reserve Act relating t o reserves:


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

"A BILL
PROPOSING A N AMENDMENT A S T O SECTION 1 9 O F ‘THE
FEDERAL RESERVE A C T RELATING T O RESERVES.
Be i t enacted b y the Senate a n d House o f Represen-

59-40

tatives o f the United States o f America i n Congress assemblec

that Section 19, subsection (a) o f the Act approved December
twenty-third, nineteen hundred a n d thirteen, k n o w n a s the
Federal R e s e r v e A c t b e a m e n d e d a n d r e - e n a c t e d

s o a s t o read

as follows:

"Section 19, (a)

< A bank not i n a reserve o r central

reserve c i t y a s n o w o r hereafter defined shall hold a n d
maintain r e s e r v e s e q u a l t o 1 2 p e r c e n t u m o f t h e a g g r e g a t e

amount o f its demand deposits, a n d five percentum o f its
time deposits,

a s follows:

"In i t s v a u l t s f o r a

period o f t h i r t y - s i x m o n t h s a f t e r

said date five twelfths thereof ani permanently thereafter
four twelfths.

"In the Federal Reserve Bank o f its district, f o r a
period o f t w e l v e m o n t h s a f t e r s a i d d a t e t w o twelfths,

and

for each succeeding s i x months a n additional o n e twelfth,
until f i v e t w e l f t h s h a v e b e e n s o deposited,

w h i c h shall b e

the amount permanently required.

"Por a period o f thirty-six months after said date the
balance o f the reserves m a y be held i n its own vaults o r i n
the Federal Reserve Bank,

o r i n National banks,

or central r e s e r v e c i t i e s

a s now defined

i n reserve

b y law.

"After said thirty-six months' period said reserves
other t h a n t h o s e h e r e i n b e f o r e r e q u i r e d
vaults

t o b e held in~the

o f the member b a n k a n d i n t h e Federal Reserve bank,

Siiadeke p e “held i m n e
Federal R e s e r v e

Bank

o the member bank,
v a u l t f
o r i n National

Banks

o r inthe

i n reserve

o r

central reserve cities a s n o w o r hereaéfiter defined b y law


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

4]
within a

r a d i f uthree
os
hundred miles o f the member bank o r

within t h e Federal Reserve District i n which t h e member bank
is located,

a t t h e option o f the member bank."

This d r a f t o f a

bill w a s p r e p a r e d f o r t h e b e n e f i t o f

the non-reserve c i t y t e nks. I

want t o make this point v e r y

clear t o you, a n d t h a t i s that i t i s r e a l l y g o i n g t o b e a

benefit t o the country bankg t h e non-reserve c i t y k a nk.
We have t a k e n this matter u p with a number o f non-reserve
city banks;

a n d w e have come t o the conclusion that t h e y wilt

have t o c a r r y a n a c c o u n t w i t h t h e b a n k s

i n the commercial

centers n e a r them, undoubvedly i n the reserve cities nearest
them, o r one o f t h e central reserve cities, a
their present reserves,
present time I

portion o f

t o get t h e facilities t h a t a t the

d o not imagine t h e Federal Reserve Banks will

want t o give. I

do not believe, f o r example, t h a t t h e

Federal reserve banks will want t o b e bothered w i t h giving
the c r e d i t i n f o r m a t i o n t h a t w e d o give, t h e a d v i c e w i t h re-~
gard t o b u y i n g c o m m e r c i a l p a p e r ,

and a

things t h a t w e d o for o u r customrs.
burden o n t h e c o u n t r y banker.

I

whole l o t o f o t h e r

T h i s i s really a

t may seem a

very Small

matter, b u t t h e country banker h a s g o t t o figure v e r y
close.
allowed,
quite a

W

e figure t h a t t h i s t h r e e present w h i c h h e will b e
i f w e c a n p u t this amendment through, w i l l m e a n

good d e a l

equitable thing.

t o him,

T

o our mind i t i s a

fair a n d

U n d e r t h e o l d system t h e banker was c o m —

pelled t o c a r r y 1 5 p e r c e n t r e s e r v e ,

a n d nine p e r cent o f

that w a s i n the bank i n the reserve o r sentral reserve city.
Under t h e p r e s e n t s y s t e m h e i s n o t a l l o w e d


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

t o carry a p y o f

42
that.

W e would like t o get your cooperation along this

Pine:
Governor Strong:

T h e suggestion,

aS I

understand i t ,

Mr. O t t e , c o n t e m p l a t e s t h a t t h e c o u n t r y b a n k w i l l h a v e t o
carry b a l a n c e s w i t h o t h e r n a t i o n a l b a n k s a n y w a y ?

Mre Otte:

Y e s , w e figure o n that.

Governor Strong:

A n d undvur the provisions o f the

Federal Reserve A c t that balance w i l l n o t count a s reserve,
and t h e c o n s e q u e n c e

o f the passage

o f t h e amendment

i s that

while nominally h i s reserve requirements have b e e n reduced
yet,

aS a

matter o f fact,

h e must carry a

balance

i n order

to get t h e service performed, a n d the reduction i s only
nominal a n d n o t a c t u a l

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

I think I express t h e views o f our committee, a n d i n
fact,of a l l o f t h e G o v e r n o r s

o f t h e banks,

i n saying that

all o f the difficulties t h a t y o u have mentioned, a n d some
others,

i n regard t o t h e position o f t h e c o u n t r y banks, h a v e

been q u i t e a p p a r e n t

t o usin o u r discussions

o f t h i s matter,

Nothing h a s given us, more concern o r uneasiness t h a n
the a p p a r e n t i n a b i l i t y

country b a nks.
of t h e l a n g u a g e

the r e s e r v e s
safe.

t o deal w i t h t h e situation a s t o the

I n the first place, underneath t h e surface
o f t h e Act,

i s a

requirement

a s to

o f country banks t h a t m a y prove t o b e quite

T h e y h a v e g o t t o c a l c u l a t e t h e i r reserves,

act takes full effect,
heretofore prevailed.

after this

b y a different method t h a n has
T h e y w i l l n o l o n g e r b e permitted

to c o u n t t h e i r c a s h letters


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

there

o n t h e w a y t o their reserve

43
agents,

a S cash reserves,

with their reserve agent.

o r a t least a s reserve o n deposit
T h a t , coupled w i t h what y o u reffer

to, a n d a g a i n w i t h o t h e r lossess, w h i c h i t i s f e l t w i l l b e

put upon t h e country bank, s u c h a s t h e loss o f interest o n
balances, a n d loss o f exchange charges, a l l s e e m t o have a
cumulative effect a s t o the earnings o f t h e country bank,
and t h e country banker i s feeling it.
about it.
Should

H e i s protesting

W e have b e e n a good deal puzzled a s t o how i t

b e dealt w i t h . I

a m not a t all sure that t h e sug-

gestion made will receive v e r y favorable consideration b y
the Federal Reserve Board.
sidering v e r y seriously.

I t is, however, w e l l worth conI f i t were possible f o r u s t o

recommend that, o r s m e modification o f it, o r something
along that line, I

feel sure that w e would b e very glad t o

do i t and d o anything that w e could t o make t h e country
banker feel more sympathetic toward o u r work.
Mr- Otte:

A s t h e matter stands n o w t h e national banker

in t h e s m a l l c i t i e s

i s supposed

t o be at a

decided d i s a d -

vantage i n competition w i t h the state hanker. I

was talk-

ing with a tm n k e r f r o m Nebraska l a s t night a n d I

think h e

told m e that within t h e

l a s t yea r

withdrawn f r o m the system.
foe

36 national banks have

S o m e o f y o u other gentlemen

t h a t statement.

Mr. Bucholsx: I
Mr. Otte:

understood h i m t o s a y 3 1 tanks.

T h e only reason f o r that w a s that t h e y were

placed a t a decided disadvantage

i n competition w i t h the

state banks.


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

Governor Strong: I

would l i k e t o i n t e r r u p t y o u a t t h i s

44

point t o make a statement w i t h r e g a r d t o our proceedings
that I should have made a t first.
We have eslways h a d a recoid t a k e n e f the discussions
at these méétings because t h o y a r e frequently long, a n d i f
we preserves n o record o f them the value o f them would largety bo. O s t .

I

t i s understood, h o w e v e r ,

are confidential.
Board>

t h a t o u r records

T h e y are n o t submitted t o the Reserve

T h e y a r e n o t submitted

t o anyone else; n o t e v e n

are they submitted t o our o w n directors.

W e have a n under-

Standing that o u r discussions w i l l b e frank, e v e n t o the
point o f criticisn.

W h e n anyone feels justified i n indulg-

ing i n criticism h e i s a t liberty t o d o so. I

think w e

should have i t understood a t this meetingj a n d a t a n y
Simpler meetings, t h a t anybody i s a t liberty t o s a y anything,
even t o the point o f giving offense,

a m going t o ask m y colleagues i f they

means progress. I
will f a c i l i t a t e a

i f h e feels that i t

discussion

b y telling y o u frankly i f t h e y

fecl that t h e y c a n favor e r cannot favor a n amendment t o
the A c t o f this character, a n d I will a s k them t o give
their reasons.
Mr+ Hyde:

W e have understood that, Mr. Chairman.

yesterday t h e r e p o r t e r s c a m e f r o m t h e n e w s p a p e r s

O n

t o see u s

and wanted t o know just what w e were going t o discuss.

K e

had a n understanding that w e would not even give out the
topics f o r discussion.
Governor Strong:

M r - Curtis calls m y attention t o the

fact t h a t i t w i l l b e n e c e s s a r y


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

t o lay o u t our program f o r

45
a meeting w i t h t h e F e d e r a l R e s e r v e B o a r d a s t h e F e d e r a l R e -

serve Board i s n o w awaiting word f r o m u s a s t o when w e shall
meet w i t h them.

W e h a d received w o r d last week that t h e

Board would b e unable t o hold a

meeting until tomorrow. I

learned this morning that i f y o u gentlemen feel disposed t o
devote t h i s afternoow o r a part o f it, t o a joint meeting

with the Federal Reserve Board, that i t could probably b e
arranged. I

might s a y t h e r e i s s o m e a d v a n t a g e

that, b e c a u s e t h e B o a r d i s l i a b l e

and I

i n doing

t o interruption tomorrow

d o not think i t will b e interrupted today.

i t you

care t o push the discussion along this morning, giving a
general o u t l i n e

o f w h a t y o u h a v e i n mind,

i t m a y save going

over t h e same g r o u n d twice a n d economize o u r time. I

think

we c a n arrange f o r a meeting w i t h t h e Board this afternoon,
Mr. C o x : I

think a l l t h e m e m b e r s

o f our committee

have engaged reservations f o r tonight a n d expect t o leave

this evening o r tonight.

I t will certainly suit u s t o

meet with t h e Federal Reserve Board this afternoon.

I

n view

of t h a t f a c t w e w i l l h u r r y a l o n g w i t h t h e o t h e r q u e s t i o n s

that w e have t o submit.
Another matter that w e have o n our list f o r discussion

is "Interlocking directors."

M r . Calfee will say some-

thing o n t h a t subject.

Guernor Strong:

i t there 1 8 u p opjection 2 w2t. e n e

deavor a t this t i m e t o arrange f o r o u r meeting this afternoon with the Federal Reserve Board, a s soon a s it-can b e
arranged after lunch.


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

Mr. Cox:

T h a t i s entirely satisfactory t o us.

46
Governor Strong:

B e f o r e leaving t h e matter w e have

just discussed I would like t o ask i f some o f the Governors
of t h e r e s e r v e b a n k s h e r e f e e l d i s p o s e d
views

t o express t h e i r

o n S u c h a n amendment.

Governor McDougal, w h a t i s y o u r opinion?
Governor McDougal:

M r . Chairman, I

feel t h a t 1 have

not g i v e n t h e m a t t e r s u f f i c i e n t c o n s i d e r a t i o n .

I

t seems t o

m a t the moment that s u c h a n amendment would b e i n such
direct contrast w i t h the purpose a n d intent o f the Act
itself that I would like t o give some study t o i t before I
expressed a n opinion. I

would n o t like t o express a n opin-

jon a t this time.
G o v e r n o r A i k e n , w i l l y o u express

Governor Strong:
your o p i n i o n ?

Governor Aiken: I

have felt that t h e remedy lay i n a

reduction o f t h e r e s e r v e r e q u i r e m e n t

o f the country bank

rather than i n a change i n the fundamental arrangement o f
the law. H e r e t o f o r e a part o f the reserve has been fictitious because o f the carrying o f float.
duce t h e reserve requirements
practically t h e e q u i v a l e n t
would a f f o r d r e l i e f
conflict

I f we could re-

s o that t h e y would represent

o f t h e actual reserves n o w i t

t o t h e country b a n k a n d would n o t b e i n

w i t h t h e purposes

o f the Federal

Reserve Act:

Governor Strong: G o v e r n o r Seay?
Governor Seay:
Chairman,

T h e danger,

a s i t seems t o me, Mr.

i s i n a n invasion o f the reserve principle

present Act. I

O f une

think i t has always b e e n demonstrated,

in

times o f trouble, t h a t that portion o f t h e reserves o f t h e


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

47
country that were deposited w i t h other banks, d i d n o t have
the real quality o f reserves.

I t was a

withdrawal o f that

portion o f t h e r e s e r v e w h i c h a l w a y s o c c a s i o n e d t h e t r o u b l e
and contraction.

I

n view o f t h e f a c t that,

b y the Act it-

self the reserves h a v e been diminished-++ i n the case o f
the country banks practically three p e r cent o f deposits—~and o n top o f that that these balances i n other banks would
be pyramided j u s t t o that extent, o f course i t would insidlously invade t h e reserve principle o f t h e Federal Reserve
Act a n d would have t o b e vory carefully considered.

I

t is

three-twelfths n o w and you propose that the optional reserve
shall b e kept a t three twelfths.
principle I

I f you once invade that

think t h e r e i s d a n g e r o f f u r t h e r i n v a d i n g a n d

undoing the work t h e Federal Reserve A c t was intended t o
perform.

T h a t i s the w a y i t strikes me.

Of course this should b e considered also, t h a t t h e r e sources

o f the Federal reserve banks will probably b e dimin-

ished b y that sum, a n d t h e aggregate reserves h e l d b y the
banks, although optional, w o u l d b e lowered, a n d t h e ability
of the system t o meet t h e exigencies o f a n y situation o f
stress that might arise would b e just s o much diminished.
I a m a very f i r m believer i n tue concentration o f reserves
and i n the use o f such reserves,

S o concentrated, wherever

a condition o f s t r a i n arises.

t t h e present t i m e I

A

a m very

much a f r a i d o f a n y i n v a s i o n o f t h a t principle.

Mr. Paton:

T h e provision a s i t now stands allows a

bank t o keep three p e r cont i n its vaults, a n d t h e y need
not g o t o t h e F e d e r a l R e s e r v e B a n k a t all.


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

48
Governor Seay:

A s a matter o f fact t h e y m a y b e kept

in one o r the other»

T h e chances a r e overwhelmingly large

that a certain proportion will b e kept i n the Federal r e serve bank. I

think t h e optional reserve o f the country

banks would amount t o about $125,000,000, according t o
recent r e p o r t s

Mr. Otte:

o f t h e Comptroller.

W i t h regard t o t h e statement y o u made about

scattering t h e reserves, I
a sufficient reserve,

would like t o s a y I believe that

o r a large cnough balance would b e

earricd w i t h the Fedcral Reserve B a n k under this amendment
to g i v e t h e b a n k a l l o f t h e r e d i s c o u n t i n g f a c i l i t i e s

would require,

it

i n fact, give t h e bank a s much a s i t could

take advantage o f , o r that i t had available paper for, b e cause I

think y o u will find t h a t a

country b a n k s

great m a n y o f these

d o n o t h a v e a l l o f their paper,

part o f t h e i r p a p e r , a v a i l a b l e f o r rediscount.
Stance

or a

large

F o r in-

i t i s quite common i n the country t o make loans

on

real estate, f a r m loans a n d s o forth, l o n g time paper that
is not available.

I

n the larger cities t h e y might make

loans o n local stocks a n d bonds o f local concerns.

T h e y

have h e r e t o f o r e b e e n a b l e t o p u t u p s u c h s e c u r i t i e s w i t h
the b a n k s

i n the regerve

o r central reserve cities.

is p r o b a b l y d u e t o t h e p e r s o n a l e q u a t i o n t o a

T h a t

certain e x -

tent, a n d y o u are going t o eliminate a l l o f that sort o f
thing i f y o u a r e t r y i n g t o g e t t h e b a n k s

tirely w i t h the Federal Reserve Banks.

t o d o business e n -

Y o u will find that

these b a n k s h a v e n o t a l l t h e p a p e r t h a t t h e y r e q u i r e a t c e r -


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

49
tain s e a s o n s

o f t h e y e a r f o r r e d i s c o u n t i n g purposes.

Governor Seay:

T h e Federal reserve b a n k o f Richmond

has h a d v e r y a c t i v e r e l a t i o n s w i t h a

very large p r o p o r t i o n

of its member banks, something more t h a n two-fifths o f
them.

T h e demands

o f these c é u n t r y banks u p o n u s b e a r n o

relation t o the amount o f their rescrves.

P r o b a b l y i t would

surprise y o u t o f i n d t h e p r o p o r t i o n o f c l i g i b l e p a p e r t h a t

all o f those banks heave.
kept w i t h u s b u t a

I t i s true that t h e y have n o t

small p r o p o r t i o n o f t h e i r r e s e r v e s a n d

their demands u p o n u s a r e very greatly i n excess o f their
reserves. I

refer t e the borrowing banks, a n d i n the bor-

rowing regions t h a t would always b e the case.
Governor Strong:

G o v e r n o r Fancher, h a v e y o u anything

to s a y ?
Govcrnor Fancher: I
the A c t o f c o u r s e . s t r i k e s
requirement

think this proposed amendment t
a t t h e foundation

o f t h e Federal Reserve Aet. I

o f the reserve
cannot h e l p

but feel that there i s something i n the position which t h e
eountry b a n k m u s t o c c u p y i n t h e m a t t e r o f i t s r e l a t i o n t o

its correspondents i f the reserve requirements o f the Federal
Reserve A c t a r e met.

T h e r e i s quite a

question w h e t h e r

the Fedcral Reserve Bank c a n afford t o offcr t h e things
that these Small banks have been receiving. I
whether

i f will n o t b e necessary t o continue

wonder
i n some w a y

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

The matter o f some collection service i s going t o enter into
it. i

think J t i s a

-meattor-in which: t h e s m a l l c o u n t r y

banks a r e v e r y interested, t h a t is, just h o w their needs a n d

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

50
requirements

in a

number o f w a y s a r e g o i n g t o b e m e t a n d

taken care o f after t h e reserves h a v e a l l been transferred.
As t o whether t h e r e i s s o m e m e t h o d w i t h r e g a r d t o reserve

transfers t h a t c a n meet t h e situation i s a question that I
would like t o give more thought t o before expressing m y -

selfs However, If do believe there i s considerable i n the
thought t h a t t h e s m a l l c o u n t r y b a n k s m i g h t b e g i v e n s o m e
option a s t o w h e r e t h e i r a d d i t i o n a l r e s e r v e s h o u l d b e c a r -

ried.

Governor Strong: G o v e r n o r Rhoades?
Governor Rhoades:
is s u c h e

T h e problem o f t h e country b a n k

real o n e t h a t I

have s o m e s y m p a t h y w i t h t h e

thoughts t h a t have b e e n expresscd.
tical politics I

A s a matter o f prac-

doubt whether a n amendment s u c h a s has

been p r o p o s e d w o u l d p a s s t h e p r e s e n t a d m i n i s t r a t i o n ' s s c r u -

tiny.

I t might possibly b e obtained b y a reduction i n the

reserves n o t c o u n t e d a s reserves-

T h a t i s the o n l y compro-

mise I see a t the present time that i s practical.
Governor Strong:
two things.

I

T h i s proposed amendment accomplishes

t does a f f o r d s o m e relief

t o t h e c o u n t r y Dank,

which i s a thing w e want t o bring about.

I t does result

in the continuance o f certain deposit accounts w i t h reserve
city banks w h i c h Congress h a s decided tohave discontinued.

One o f the defects i n this proposed amendment i s undoubtedly t h e d i f f i c u l t y t h a t w o u l d b e e n c o u n t e r e d

i n per-

suading Congress t h a t i t i s proposed i n the interest o f the
country banks.

i

f the balance

i s to. count a 6 r e s o r v e 1 1

means that t h e reserve c i t y bank has got a

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

cinch o n that

51
business.
means

I f the reserve requirement i s reduced, w h y i t

t m tthe country banks will have greater facility i n

doing business without loss, b u t i t will n o t give a n advant—age t o banks i n reserve a n d central reserve cities.
Mr. V a n Deusen:

T h e r e i s o n e point i n the proposed

amendment, a n d that i s that t h e additional three p e r cent
must b e carried within a

radius o f 300 miles o f the bank o r

within the Federal reserve district i n which i t is located,
which I

think w o u l d meet,

to a

certain extent y o u r o b j e c t i o n

and also Governor “Seay's objection i n regard t o the o l d s y s tem o f pyramiding:-

U n d e r t h a t o l d s y s t e m o f pyramiding a

country bank i n Iowa would c a r r y reserves i n Ste Louis a n d
St» Louis i n turn would p u t part o f that i n New York.
is not just t h e proper comparison, b u t i n Ohio a
carry t h e r e s e r v e

i n Cleveland,

a n d Cleveland

That

bank would

i n turn would

put i t i n C h i c a g o a n d N e w Y o r k a n d e v e n t u a l l y g e t i t a l l

in New York o r Chicago, t h e central reserve city.
to a

I t would

large e x t e n t o v v i a t e t h e o b j e c t i o n o f pyramiding-

the r e s e r v e c i t i e s n o t reduced,

W i t h

a n d w i t h t h e added facili-

tics o f the Federal reserve system t o t h e reserve c i t y bank,
4t would t o a certain extent, a n d I think entirely, overcome
the objection under t h e o l d system that t h e central reserve
system h a d n o final source o f supply o r o f aid except i n
importing g o l d f r o m Europe.

Governor Strong:

O f course i t i s necessary that a n y

suggestions f o r a n amendment

t o t h e Act b e made under s u c h

auspices a n d b e s o framed a s t o encounter t h e least opposition. I


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

think everybody here w h o has expressed h i s views

52
realizes t h e d i f f i c u l t y o f g e t t i n g a n amendment

t o t h e act

which reaches t o the very heart o f the whole scheme o f the
Federal Reserve A c t i n the elimination o f the scattered
and p y r a m i d e d r e s e r v e a r r a n g e m e n t u n d e r t h e o l d system,
old n a t i o n a l b a n k act.

the

T h e n there i s another v e r y i m -

portant point t o b e considéréed, a n d that i s that y o u want
to g e t action,

y o u want t o g e t something done, a n d I

fear

very serious opposition t o this program i n the Federal R e serve Board itself.
Mr. Bucholz:

T h e thought occurs t o me,in connection

with this proposed amendment, t h a t i t would b e a very distinct benefit t o the country banks. i

believe a n y public

official would say that i f they looked into the matter carefully. T a k e , f o r instance, o u r bank locatcd i n Fremont,
Nebraska, w h i c h i s about 7 0 miles f r o m Omaha.
keep t h r e e p e r c e n t o f i t s r e s e r v e

I f i t would

i n Omaha--- a n d u e have

to keep a n account a t Omaha anyway-~- three p r e scnt o f the

balance there would probably b e a really liquid balance and
would n o t b e float.

T h e y would h a v e t h e added facility i n

time o f stress o f discounting s u c h paper a s i s eligible w i t h
the F e d e r a l r e s e r v e b a n k , a n d c e r t a i n o t h e r p a p e r w h i c h t h e

local correspondent would know a l l about.

I t would a d d t o

the facilities f o r doing business, a n d meet any crisis and
take care o f any proper business expansion.

A n y t h i n g you

can d o t o show t o the country banker that h e has a n advantage b y belonging t o the system makes h i m Satisficd a n d also
makes h i m the envy o f the state bank, h i s competitor, a n d


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

BD
makes t h e s t a t e b a n k a l s o a n x i o u s

t o come in. I

understand

the purpose o f the bill i s t o have the Federal Reserve System the o n l y banking system o f t l c o u n t r y when i t i s fully
developed.

Y o u cannot m a k e t h e state banker believe t h a t

when h e f i n d s e v e r y n a t i o n a l b a n k g r o a n i n g u n d e r t h e b u r -

dens o f i t and c a n sée n o sdvantage i n it.
w e are eneountering difficulties

Governor Strong:

the country bankers i n getting their cooperation i n cerof o u r plans,

a n d t h e question i s h o w effective would

an amendment b e i n getting t h e m into line?
t h i n k i t w o u l d b e v e r y effective,

Mr. Bucholz: I

self; I

my-

think i t would b e o f great help.

Governor Strong:

I

n other words, w o u l d a n amendment

of this character bring w i t h i t such a n endorsement o f t h e
system a s t o give u s a chances t o develop o u r collection
plan?

Mr. Buchols%:

O f cours ¢

the collection plan, speaking

personally, now, according t o m y judgment should b e deferred
for a

little w h i l e . i

course o f time. I
undue i m p o r t a n c e

Mr. Otte: I

t h i s 24. c n o u l a b e developed.

think t h e Federal reserve banks give
t o t h a t m a t t e r r i g h t a t t h i s time.

believe there i s a decided advantage i n

a plan o f this k i n d o v e r a
reference

in

reduction

i n reserves.

W i t h

t o the p o i n t y o u make i n regard t o probably n o t

being able t o convince Congress that i t would b e a help t o
the country banks a n d n o t f o r the direct benefit o f the
national b a n k s

i n reserve a n d central r e s e r v e cities, I

think i s o n e t h a t c o u l d b e d e v e l o p e d


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

by a

canvas:

o f the

54

country bankers cither b y your body o r the Federal Reserve
Board,

o r t h e American Bankers' Association,

we w o u l d f i n d a

very large percentage

and I

believe

o f t h e country bankers

would b e i n favor o f a move o f this kind-

i = you -give- the

country banker relief b y reducing h i s reserve requirements,
he h a s g o t t o c a r r y a
Carry i t w i t h a

balance s o m e w h e r e a n y w a y a n d h e would

state bank.

T h a t gives t h e state b a n k a

strong a d v a n t a g e a n d p r o v i d e s t h e m w i t h a

good r e a s o n f o r

not coming into t h e system.

Governor Aiken:

B u t why should h e carry i t with a

State bank?
Governor Strong:

I f i t €i4 not count o & reserve T e

could carry i t anywhere.
Mr- Otte:

T h e r e i s n o resérve requirement i n Illinois,

but t h e y carry 1 5 o r 1 8 per cent c a s h means.
Governor Fancher:

M a y I

inquire

i f y o u r commit tee

has discussed t h e matter o f not permitting t h e small country
banks

t o count a s r e s e r v e t h e i t e m s w h i c h t h e y r o u n d u p

and charge i n o n the d a y they round t h e m up?

T h e reserve

requirement h a s b e e n lessened f r o m fifteen t o Lwelve p e r
cent.

T

h

so mething

e point I

a m making i s this:

A s s u m i n g that

o f this s o r t might b e brought about, t h a t this

optional t h r e e p e r cent,

i f t h e country b a n k chooses

it with its nearby reserve agent, w o u l d b e reserve.

t o carry

I t

would n o t b e reserve until t h e reserve agent received t h e
items and gave h i m credit.
item o f f l o a t


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

T h a t would d o away with this

i n reserves w h i c h h a s b e e n g o i n g o n a n d w h i c h

55
has added v e r y much t o the pyramiding o f the reserves.

Has

that p o i n t e v e r b e e n discussed, M r . O t t e ?

Mr. Otte:

N o . I

d o not know that t h a t was under

consideration a t all. I
Governor Strong:

did n o t look into i t personally.

T h e effect o f the present l a w i s t o

ultimately e l i m i n a t e t h a t t y p e o f f l o a t f r o m t h e r e s e r v e o f

the country bank, because t h e a c t provides t h a t these r e serves o f certain percentages must b e established a n d maintained c i t h e r

i n t h e v a u l t o f t h e b a n k o r o n deposit

i n the

Federal reserve bank»
Mr. Otte:

W e d i d net consider that.

Governor Seay:
Whether

I s not this t o b e considered also?

o r n o t t h e maintenance

o f that small proportion

of

reserve, t h r e e twelfths, would b e o f sufficient value t o the
reserve c i t y banks t o cntitle t h e country bank t o much
privilege?
Mr. Otte:

N o .

A S o matter o f fact 1 believe i n a

great m a n y c a s e s t h e c o u n t r y b a n k e r w i l l h a v e t o c a r r y m o r e

than that, b u t i t gives h i m just that m u c h relief.
I a m interested i n a little national b a n k that comes
under t h a t c l a s s , t h a t i s , a

non-reserve c i t y n a t i o n a l b a n k

on the outskirts o f the City o f Chicago.

W e used t o carry

about 1 5 o r 1 6 p e r c e n t r e s e r v e u n d e r t h e o l d l a w -

N o w

we h a v e t o c a r r y a b o u t 1 7 o r 1 8 p e r c e n t f o r t h e s i m p l e
reason t h a t w e h a v e got, t o c a r r y a n a c c o u n t
give u s t h e f a c i l i t i e s

w e want.

i n Chicago t o

T h a t reserve will probably

be increased later.


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

Governor Strong?

I t will b e increased b y the amount

of s u b s e q u e n t r e s e r v e t r a n s f e r s i
Mr. O t t e :

right there.

Y e s .

That. is a

T h e bank I

practical i l l u s t r a t i o n

a m interested i n right n o w carries

about 1 8 p e r cent.

Governor Scay:

T h a t i s duc t o the fact that n o collec-

tion s y s t e m h a s y e t b e e n d e v e l o p e d ?

Y o u s r e only offering collection facilities

Mr. Otte:

to national banks.

W e have a great m a n y ctate banks i n that

section o f the country whose checks h a v e g o t t o b e collected.
Mr. Calfees:

T h e n t h e r e s e r v e m o n e y i n excess

o f the

legal roquirements would find i t s w a y into t h e National
and state banks.
Mr. Y a n Deusen:

G o v e r n o r Aiken asked y o u w h y that

excess should b e kept i n stato institutions i f the reserve
requircments a r e r e d u c e d ?
Governor Aiken: I
Mr, V a n Deusen:

asked w h y t h a t s h o u l d b e d o n e ?

A case came t o m y attention 9» day o r s o
ago i n w h i c h a

engaged a
ness.

large t r u s t c o m p a n y i n St+- L o u i s r e c e n t l y

very competent m a n t o g o aut after just that busi-

T h e y feel that w h e n t h e reserve requirements a r e m e t

they will have a much better chance t o get that business
than i n the past.

T h a t i s t h e attitude that i s being taken

by 2 good m a n y o f the city institutions
citics, I

think.

i n the larger

T h e y are going after that business a s a

practical proposition, a n d t h e y feel that t h e y c a n get it.
Governor Seay:
then.


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

T h e y will b e o n a n equal footing,

Mr- V a n Deusen:
Mr. Otte:

Yes.

T h e n another thing.

T h e s e so-called r e -

serves would b e i n banks o v e r which t h e Federal Reserve
Board h a d control.

T h e r e i s another advantage i n that.

Governor Strong:

T h i s matter has been di seussed i n

some o f our meetings.

I t has n o t been discussed v e r y e x -

haustively, b u t i t has been discussed a s one o f t h e various
means that might b e employed t o bring some relief t o the
country banker.

T h e r e w a s n o t m u c h hope o f anything o f

that sort being done o n account o f our knowledge o f the
general legislative situation over here i n regard t o this
Act.

T h i s i s a matter that ought t o b e discussed v e r y

fully with the Reserve Board.
of o u r views,

A f t e r getting a full record

w e c a n follow i t u p w i t h t h e m frequently a n d

have constant meetings w i t h them t o sce what c a n b e developed.

Mr. Van Deusen:

O n e of the principal objcétions pre=

sented b y m y state banking friends t o coming into the system
is the addi tional expense t h e y would b e under i n tying u p
their r e s e r v e s w i t h o u t interest.

W h e n y o u a s k their r e a -

sons f o r n o t j-cining t h e s y s t e m t h e y h e m a n d h a w a n d f i n a l l y
get d o w n t o that.

Governor Seay:
not required,

T h a t i s due t o the fact that they are

i n m a n y states,

t o keep a

big percentage

of

reserve.
Mr. V a n Deusen: I
banks a r o u n d N e w Jersey.


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

was speaking especially o f state
T h e y have a

fixed reserve.

Their

58
reserve i s 1 5 p e r c e n t o n d e m a n d deposits a n d n o r e s e r v e

on

time deposits.

Governor Seay:
are r e q u i r e d

Mr. Otte:

T h e y have h a d n o reduction i n reserves

t o keep?

A c t u a l c a s h reserve.

Mr. V a n Deusen:

I

t 1 S t h r e e persecent c a s h and: t i o

other twelve p e r cent they c a n keep practically i n any bank.
Governor Seay:

T h a t i s the load that t h e national

bank system has h a d t o carry i n times past.
Covernor Alien: I

would l i k e t o ask, Governor Strong,

for i n f o r m a t i o n a n d n o t a s a

criticism,

if a

broader a m e n d -

ment with regard t o the place where these optional reserves
would b e carried would b e more popular w i t h the country
banks than a reduction o f the reserve requirement.

Which

do y o u t h i n k t h e c o u n t r y b a n k wotild r a b h e r have, M r . O t t e ?

Mrs Otte: I
that. I

do not know. I

have net considered

have always gone o n the theory that the Federal

Reserve Board would p r e f e r t o have these optional reserves
carried i n banks o v e r which they h a d control.
quite natural.

T h a t seems

S o m e o f the states have framed l a w s a n d

some have passed laws--— I believe South Dakota a n d North
Dakota have laws t o that effect~-- that state banks m u s t
carry a

state. I

portion o f t h e i r r e s e r v e

i n the state banks

i n the

believe i f the l a w were amended i n that w a y that

it would afford relief t o the country banker.

I t i s true

it would give t h e national banker i n reserve centers a n
advantage o v e r the state banker, b u t w h y not?


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

Governor Aiken:

H

e should have it.

59
Governor Strong:
Mr. Ort.e:

Y e s ; h e should have a n advantage.

W h y not?

we are paying f o r it.

F

e a r e members

o f the system a n d

W e are paying f o r t h e stabalizing

of the financial structure o f the country.

T h e cutsiders,

aS I call them, t h e state banks, a r e criticising u s a n d
telling u s how t o r u n this thing, b u t they a r e not helping
to pay for it.

Governor Strong:

® u r critics, t h e state banks, over

whom w e have n o control whatever, a r e sometimes a
the flesh;

thorn i n

a t least w e h a v e found i t s o i n N e w Y o r k o c -

cassionally, e v e n though some o f u s were state bankers b e ~

fore w e got into the system. ( L a u g h t e r )
May I

ask what course o f procedure y o u r committee

would l i k e t o h a v e u s t a k e i n c o n n e c t i o n w i t h t h i s p r o posed a m e n d m e n t ?
Mr. O t t e :

W w e were i n hopes t h a t y o u w o u l d a p p r o v e

of

an amendment o f this k i n d a n d i f y o u did approve o f i t recom-

mend i t t o the Federal Reserve Board.
a

b e t h e procedure;

W e assumed that

t h a t y o u would recommend t h e s e

things t o the Board a n d that t h e Board would f a v o r a n amendment o f this kind, provided w e decided later t o present a
bill asking f o r it.
Governor Strong: I
understand w h a t I
_

a

bargain,

do not want y o u gentlemen t o mis-

a m going t o say, because i t i s not propos-

but I

would l i k e t o a s k y o u t o t h i n k a b o u t

this feature o f the matter, Mr. Otte, o n e o f t h e difficulties t h a t w e a r e e n c o u n t e r i n g

i n carrying o u t t h e expressed

injunction o f the l a w a s t o the management o f these banks


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

60
is t o find a

way b y which t h e country banks c a n b e persuaded-

not forced necessarily-——— b u t persuaded t o abandon charges,
or possibly o n l y excessive charges, f o r exchange.

T h e

country b a n k e r s a l l c l a i m t h a t t h e y depend u p o n t h e r e v e n u e
thus d e r i v e d a n d t h a t i t i s a

venue t o their banks;

necessary a n d essential r e -

t h a t they could not afford t o give

it up, a n d i f t h e y d i d t h e y w o u l d h a v e t o g o o u t o f t h e

system.

W e d o not a l l o f u s believe that i t i s quite a s

important a s that t o the country banks.

I would b e hopeful that a n y amendment t o the Act o f
a character designed t o give relief t o the country banks
would b e coupled i n some w a y with a better undurstanding
with the country banks-—— b y possibly a n amendment t o the
Statute--- t h a t w o u l d p u t t h e r e s e r v e b a n k s

in a

position

to collect checks without t h e deductions a n d exactions that
are n o w imposed b y many country banks. I
is imposed

do not m e a n i t

b y a l l o f them, b u t i t i s b y m a n y - o f t h e m , a n d

such a n arrangement w o u l d p u t t h e reserve system a s a
whole i n a position t o perform a

service w h i c h some d a y

it m u t p e r f o r m f o r t h e members, a f t e r t h e reserves a r e a l l
transferred.

Mr. _Otts:
gi agree with y o u o n the question o f exchange, a n d I
agree with y o u that t h e charges o f a great m a n y o f the
country banks a r e cxorbitant;

but I

d o not believe t h a t

they a l l t r y t o p a y their entire running expenses o u t o f
the exchange accounts.

O

f course w e all realize t h a t

the r e a l b a s i s f o r t h a t i s t h e c o s t o f t h e t r a n s p o r t a t i o n

of currency t o the center o n which they draw. I


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

have n o t

41
given this m u c h thought, b u t I think y o u might l e o k into
that feature o f it.

Y o u r body here might b e able t o for-

milate some rule, o r law, i n regard t o a charge o f that

kind, based o n the cost o f the shipment o f currency.

I t

would h a r d l y b e f a i r t o a s s u m e t h a t i f t h e c o s t o f S h i p p i n g

currency from, w e will say, Colorado t o Chicago,
a thousand,

i s 2 5 cents

t h a t t h e exchange charge ought t o b e 2 5 cents a

thousand.

O t h e r things enter into it.

used a s a

basis.

Governor Strong: I

B u t that might b e

would like t o say that w e have

been trying f o r over a year t o penetrate t h e
darkness t h a t surrounds t h a t whole subject.

rived} I think,

W e have a r -

a t a conclusion o n the subject under cer-

tain interpretations o f t h e l a w a s t o what ought t o b e done.

I would like t o suggest, without suggesting this i n
the w a y o f a tM rgain a t all, because t h a t i s not what i s i n
my mind, t h a t a n y effort m a d e t o bring about relief t o the
country banks should b e made t h e basis o f a better underStanding o f how that subject will b e dealt with.

T h e y claim

that their losses o f imterest a n d exchange a r e serious.
propose n o w t o g o t o Congress p o s s i b l y w i t h a

W e

scheme f o r

amending this Act, b y which their condition will b e ameliorated, a n d why should t h a t b e undertaken unless w e accom—plish t h e p u r p o s e

o f t h e A c t a s t o this o t h e r matter?

You s p e a k o f b r i n g i n g about,

b y investigation, a

bet-

ter understanding a s t o the cost o f remitting exchange, a n d
SO on.

W e have investigated t h a t pretty fully a n d discus-

sed i t a t great length.
theory, I

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

T o deal with t h e subject o n that

believe, means that a charge f o r the collection

62
of checks--- that is, a

charge b y the bank t o its customer

for c o l l e c t i n g c h e c k s dcoposited a n d a

charge b y t h e b a n k

which c o l l e c t s t h e c h e c k i n t h e c o u n t r y o r remits

i t for

its o w n check, instead o f being abolished b y the terms o f
the Federal Reserve Act, will b e made universal.
will p a y o n a l l c o u n t r y checks.

Everybody

T h e condition o f the coun—

try, resulting f r o m a n y such effort a s that will b e o n e o f
turmoil.

T h i s provision

i n the statute w a s originally

intended t o relieve t h e merchants a n d manufacturers f r o m the
annoyence a n d expense o f cxchange deductions.
pointed o u t t o t h e Reserve Board,

A S we

i f we undcrtook t o p u t

into o p e r a t i o n e a system o f universal c h a r g e , w h y , t h e w h o l e
purpose

o f t h e l e g i s l a t i o n w i l l h a v e b e e n defeated.

body will h a v e t o pay o n checks.

W e are really n o w a t this

point i n connection w i t h that matter:

W e believe t h e

checks s h o u l d b e c o l l e c t e d , a n d n o t c a s h e d , b y a

system.

W

E v e r y -

clearing

e believe t h e intention o f the Act was that

these checks which w e receive o n deposit should b e received
without a n y deduction b y u s f o r exchange o r collection, b u t

that w e should b e authorized t o say t o our depositor, " W e
are performing a

service f o r y o u f o r which w e are justificd

in making a charge, a

service charge", e n d that every member

bank’that makes t h e deposit w i t h u s i n turn i s justified i n
putting t h a t e x p e n s o u p o n i t s c u s t o m e r a n d m a k i n g t h e c u s —
tomer p a y a

service c h a r g e ; l i k e w i s e t h e c o u n t r y b a n k o n w h o m

this check i s drawn i s entitled t o the cost o f "collecting
and remitting", a s the statute described it; a n d w e are
justified i n erllecting what w e d o collect f r o m a member


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

63
bank a n d t h e country b a n k i s entitled t o get f r o m u s t h e
actual cost o f furnishing t h e exchange a n d cevering i t s
checks.

T h a t is a

very p r e t t y t h e o r y ,

tice, a s n e R e e t
general,

b u t i n actual p r a c -

i s attempted t o b e enforced a n d made

i t means t h a t t h e depositing b a n k will absorb a l l

the expense o r will

m a k e t h e collection charges univer-

Sal b y c h e r g i n g e v e r y b o d y t h a t d e p o s i t s c o u n t r y checks.

Inasmuach a s the t h e principal charge, a n d t h e most difficult charge t o deal w i t h and adjust i n most cases,

i s the

Charge o f exchange imposed b y the bank upon which t h e check
is drawn,

w

e a r e confronted w i t h t h e difficulty o f

dealing w i t h t h a t bank.

T h e actual administrative expense

or collecting checks i s a small matter compared t o that,
and w e f e e l t h a t i t m i g h t b e p r a c t i c a l l y a b s o r b e d

b y the

depositing b a n k a n d n o charge b e made t o t h e customer.

If the country bank can be compentbeted i n some way b y
some s u c h a m e n d m e n t

a s y o u have suggested a n d b e willing t e

forego exchange charges, a n d w e are able t o make i t u p t o
them i n some way--- a n d I advance this suggestion v e r y diffidently--- i t might b e that y o u would find a

more welcome

reception f o r your suggestion t h a n y o u would when y o u cffer
nothing i n exchange.
Mr. Otte: I

really t h i n k t h a t i s a n o t h e r m a t t e r - I

think y o u will find i n certain sections o f the country that
the b a n k s

d o n o t g e t e n o u g h exchange,

o r d o not g e t enough

checks o n centers t o create exchange f o r them.

T h e y fre-

quently h a v e t o deal among themselves a n d b u y it.
Small c o u n t r y t o w n o f C h i c a g o , f o r example.

W

T a k e the

e occasionally

have t o buy New York exchange f r o m other banks. ( L a u g h t e r )

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

1
Wilf.

Mr. Buchoazs I

can give y o u a n idea o f the attitude

of the country banks, I

do not believe a n y state i n the

Union has given more trouble t h a n t h e State o f Nebraska i n
the charge business.

W e are able t o make o u t fairly well,

or practically so, i n every state i n the Union except our
own state, a n d w e live right there.
thing.

W

larceny. I

T h a t i s a peculiar

e have exerted every effort t o stop this petty
have a n o l d f r i e n d w h o i s a

director

i n the

Fed_ral Reserve B a n k o f Kansas City, a n d h e i s o n e o f the

biggest offenders. I

spent about an hour with him ia his

private office until I

simply beat i t out o f his head,

use a l l sorts o f arguments.

F o r instance,

W e

w e tell t h e state

correspondent that a national bank check can be cleared
through t h e F e d e r a l r e s e r v e b a n k ; t h a t w e w i l l h a v e t o s e n d
his p a p e r t o a

Federal r e s e r v e b a n k t o g e t i t parred.

does n o t want t o d o that, s o h e comes across.
ment, h o w e v e r ,

i s this.

H

H

e

H i s argu-

e h a s m a n y accounts,

y o u know,

i n

the little towns, w i t h some little meat market o r grocery
store m a n t h a t w i l l c a r r y h i s m o n e y t o O m a h a o r Kansas C i t y
or St. J o e ,

t o t h e central market,

a n d h e does n o t h a v e a

cent o n deposit w h e n h e s e n d s t h a t c h e c k o u t -

to rustle a n d g e t t h e money i n due time.
sented, a n d possibly a

$15 check.

H

e expects

T h e check i s pre-

charge o f 2 5 cents i s made f o r a

H e goes o n the theory that h e makes a profit

on i t i n t h e h o p e t h a t s o m e t i m e p e r h a p s t h a t a c c o u n t m a y b e


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

65
worth m o r e i n t h e r e g u l a r way.
is p a y a b l e

a t h i s counter;

H

e claims t h a t t h e check

t h e c h e c k i s d r a w n o n h i s bank,

and i f anyone gets hold o f i t and wants t o handle t h e check
he i ¢ e n t i t l e d

t o pay: f o x it. O t h e r w i s e

h e will b e moyey

out a n d p a y c a s h a t h i s counter.
That i s t h e c o u n t r y b a n k e r ' s a r g u m e n t

in a

nutshell.

There i s n o doubt about that.
Governor S e a y ?

T h e r e i s o n e v e r y important considera-

tion that w e found w e had t o reckon with. I

d o not k n o w

whether these gentlemen have c o m e i n contact w i t h i t yet.
I think I

a m not mistaken i n saying that there i s a very

pronounced feeling t h a t a s f e w amendments a s possible o f
this A c t should b e asked f o r a t this Congress; a n d without
expressing a n y o p i n i o n o f t h e r e l a t i v e i m p o r t a n c e
thing I

think there i s a

o f any-

feeling t h a t b e f o r e a s k i n g f o r a m y -

thing there will b e a necessity o f doing i n this a s w e have
to d o i n a l l legislation;

t h a t i s ascertaining w h a t o p p o -

sition i s entertained i n high quarters.fo a s k f o r one thing
when t h e r e m i g h t b e a

pronounced o p p o S i t i o n w o u l d h a v e a

ten-

dency t o w a r d d e f e a t i n g s o m e t h i n g e l s e w e m i g h t w a n t t o a s k
for also.

B o t h i n respect

t o this proposed amendment a n d

others t h a t i s o n e o f t h e m o s t i m p o r t a n t c o n s i d e r a t i o n s

have t o weigh. I
desirable

think that améndments a r e felt t o b e

i n different quarters,

together t h e y m a k e r a t h e r a

afiong all those a

we

few e

e

a n d i f you put them all

formidable Showing;

and yet

b e selected i n order t o b e

reasonably assured o f getting a n y legislation.


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

Whether you gentlemen have encountered that I do not

66
know, b u t I

a m very sure that w e have.

Mr. B u c h o i l s :

W

e feel, M r . S e a y , t h a t t h i s F e d e r a l

Reserve L a w o f course h a s n o t b e e n operating under normal
conditions, a n d w e are mindful o f that a l l t h e time i n suggesting a n y c h a n g e

t o t h e l a w itself, b e c a u s e

i t really

has not h a d a chance t o operate under normal conditions.
War has been o n ever since i t has b e e n started,

that we ought to bear that i n mind. I

s o I think

can see the reluct-

ance o f t h e A d m i n i s t r a t i o n t o w a r d h a v i n g t h i s b i l l t a m p e r e d

with b e f re it has been given a fair show.

Governor Strong! I

would like t o state i n connection

with this subject that you gentlemen will find i n discussing
it w i t h t h e F e d e r a l R e s e r v e B o a r d t h a t t h e s u b j e c t

o f reserves

and t h e amendment which y o u suggest a r e hopelessly intermingled w i t h t h e subject o f collections i g their minds,

We, Bueholz: C o l l e c t i o n o f checks, y o u mean?
Gov.rnor Stron;:Yes, t h e collection o f checks a n d the
reserve balances a r e largely going t o b e treated i n discusSion with the Board a s one subject, I
and i m o u r d i s c u s s i o n s

think y o u will find,

o f these t w o subjects w i t h t h e Board

at different t i m e s t h e i r a t t i t u d e h a s g e n e r a l l y b e e n o n e o f

Sympathy, I

think, f o r t h e position o f the country banks i n

this whole matter, a n d a n effort t o introduce a

system o f

collections w h i c h w i l l i m p o s e t h e l e a s t h a r d s h i p u p o n t h e

country banks-as distinguished f r o m the C i t y Banks.

W e know

perfectly w e l l t h a t i f t h e p r e s e n t i n t r a - d i s t r i c t s y s t e m
could b e f o r t h w i t h e x t e n d e d
the c o u n t r y i t would


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

be a

t o m a k e i t universal throughout

benefit

t o s u c h banks

a s those w h i c h

67
most o f you represent, w h i c h a r e located i n reserve a n d central reserve cities.

I t would b e a fine thing t o b e able

to c o n v e r t a l l y o u r c h e c k s i n t o c a s h b y s e n d i n g t h e m t o t h e
reserve b a n k a n d h a v e n o m o r e w o r r y a b o u t c o l l e c t i o n s . i

think i t i s fair t o say that t h e effort t h a t w e will m a k e
and are making will b e directed towards making that system
bear a s lightly a s possible u p o n the country banks.
that respect o u r feelings a r e i n entire sympathy, I

I n
believe,

with this suggestion that h a s b e e n made that i t tends t o the
rellef o f the country bankers, a n d i f you feel that w e

have discussed the subject as fully as you care to at this
meeting I would like t o conclude i t with the suggestion that
you likewise discuss i t with n o reservation whatever w i t h
the members o f the Federal Reserve Board a n d get your o w n impressions f r o m what t h e y s a y a s t o this specific amendment
and their feelings toward t h e country banks a n d h o w t h e
country b a n k i s g o i n g t o b e affected

Mr. Hyde:

b y t h i s problem.

M a y I ask one question?

I s the aim of.

the Federal Reserve Board a n d the Federal ReserveAgents,
is the c r u x o f this matter o f collections,

t o use a s a whip

that i s t o bring u s into t h e collection system?
us t o b e e n t i r e l y frank.

Y o u asked

T h a t question h a s c o m e up.

I

s

that t h e whip that i s t o b e used t o bring u s into t h e

lection system?
Governor Strans:

No. I

t h i n k y o u misunderstand,

pos-

sibly, w h a t w e have said.
Mr+- Hyde:

Y o u said i t was intermingled s o closely

with the collection system---


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

68
Governor Strong:

O u r discussion o f t h e matter o f

colicctions h a s laid great emphasis u p o n t h e fact that t h e
law i n providing o r suggesting a

scheme f o r collecting

checks a n d i n the arrangements o f t h e reserves h a s i n fact
increased t h e r e s c r v e r e q u i r e m e n t s
rather t h a n r e d u c e d them.
peatedly

o f the country banks

T h a t h a s b e e n brought o u t r e -

i n our discussions.

I

f w e should introduce

this

system w h i c h w e d e s c r i b e a s t h e i m m e d i a t e d e b i t a n d c r e d i t
system,

t h e effect u p o n t h e rescrves

o f country banks r e -

moke f r o m t h e r e s e r v e b a n k s w o u l d b e v e r y s e v e r e indeed.

Of course reserve requirements
or f o u r d a y s f r o m t h e r e s e r v e

or ¢ i g h t d a y s c a s h l e t t e r

What I

i n the case o f a tMnk three
b a n k would

b e equal

t o six

i n t h e mail.

intended t o suggest, Mr. Hyde, w a s that t h e sub-

ject o f c o l l e c t i o n s

i s just n o w a

very active a n d préssing

one w i t h u s a n d w i t h t h e R e s e r v e B o a r d , b e c a u s e - - -

am I

want

to make this statement w i t h t h e utmost frankness--- t h e
men w h o f r a m e d t h i s a c t h a d b e e n a d v a n c i n g a

lot o f rather

vague, ill-defined thcories i n regard t o what a check was,
and that some w a y o r another a

check might circulate through-

out t h e veins a n d artcries o f our commerce a s a bank note,
and that whenever a

man happened t o become possessed o f a

check h e ought t o b e able t o g o t o a bank a n d get c a s h for
it, without regard t o who drew it, o r o n whom i t was drawn
or how i t was drawn, a n d w e had t o make a n assault u p o n
Some o f these theories, w i t h some little success, trying
to p e r s u a d e t h e m t h a t a

check i s a

piece o f p a p e r t o b e c o l -

lected i f i t i s good, a n d not t o b e treated a s cash.


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

I n the

69
course o f these debates o n the subject o f collections w e
have brought o u t the fact that t h e theory that Congress
had i n mind, o r their advisers h a d i n mind, about checks,
would i m p o s e v e r y serious h a r d s h i p s u p o n t h e r e s e r v e s y s t e m

and upon some o f the member banks.

S o when y o u come t o

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

they a r e going t o consider that t h e requirements a n d the
collection plans a n d t h e necessities o f the country banks
are a l l p r e t t y m u c h i n t e r m i n g l e d a n d i t i s o n e subject.

You will have difficulty i n separating it, I think, p o s i n discussion.

sibly,

There i s o n e d e s i r e j u s t n o w , I
directly

i n Congress,

development

think originating

t o make m o r e rapid strides

o f t h i s c o l l c c t i o n matter,

i n the

a n d naturally t h e

Federal Reserve Board feels that i f your proposals a r e i n
the direction o f making progress i n that matter, o r c a n b e
so treated t h a t t h e y w i l l f a c i l i t a t e p r o g r e s s
ter,

i t would g i v e y o u a

i n that m a t -

better o p p o r t u n i t y a n d g i v e u s a

better o p p o r t u n i t y o f cooperating.

liz, Buchoiz,

I t seems t o m e they will bring that about

by allowing t h e country b a n k t o b e i n touch with i t s nearby
city bank a n d l e t h i m use his influence t o make these collections

o r a t least bring t h e m down t o a

reasonable b a s i s .

Y o u w i l l have more results.
Mr- Cox:

T h e next question that claims o u r atten-

tion i s interlocking directors.
Mr. Calfee:
Act .—~


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

“ M r . Chairman, t h a t section o f the Clayton

70
Governor Strong:
calls

m y attention

E x c u s e m e o n e minute,

to a

M r . Curtis

matter t h a t m a y h a v e b e e n l e f t i n

an uncertain status i n your minds i n discussing this p r e vious subject, a n d that i s that a t m o time h a s t h e reserve
board,

o r have t h e reserve banks considered t h e u s e o f t h e

reserve S i t u a t i o n a s a

banks i n t o a

club i n influencing

o r driving t h e

system f o r handling checks. P e r s o n a l l y I

never heard t h e subject suggested.

have

P o s s i b l y that answers

that quwstion, M r - Hyde.

Mr. Hyde: T h a t is what I had in mind.
Mr. Calfee:
it r e f e r s

T h e question o f interlocking directors

t o national b a n k s

i n the Clayton A c t i s a

of serious c o n c e r n t o q u i t e a

as

matter

number o f o u r members.

I

n

almost e v e r y city directors o f national banks have become
interested i n trust companies.
measure does n o t compete.

T h i s line o f business i n a

T h e Clayton Act, w h i c h will g o

into e f f e c t n e x t O c t o b e r , w i l l p r e v e n t q u i t e a

number o f

directors acting i n the t w o capacities.
We f e e l t h a t t h i s l a w w i l l w o r k a n i n j u r y t o t h e National

banks inasmuch a s it will take from them i n quite a number
of cases e x p e r i e n c e d a n d t r a i n e d b a n k e r s ,
in t h e b a n k i n g b u s i n e s s f o r m a n y years,
this t i m e i t i s a

m e n who have been

a n d w o believe

matter t h a t w e n e e d t o cover,

at

t o use all

the strength possible i n handling banks a n d bank busimess.
A number o f national b a n k officers i n large banks a r e
interested

i n s m a l l e r b a n k s , s o m e i n t h e i r o w n city, a n d s o m e

outside o f t h e city.

T h i s l a w will sever that connection

and m a k e i t i m p o s s i b l e f o r a n o f f i c e r o r d i r e c t o r


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

of a

71

national bank o f resources o f $5,000,000 o r over t o become
a director i n a smaller national bank.
prevent h i s becoming a

B u t i t does n o t

director i n a state b a n k outside o f

the c i t y i n w h i c h h e i s located.

We feel that i t would b e t o the interest o f all national b a n k s

i f this p a r t o f the Clayton A c t c o u l d b e repealed

and n o t affect national banks.

W e should like t o have y o u

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

ence t o this matter.

W

e feel this, that i f i t is found

that i t i s impossible t o have this section repealed,

we

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

legislative committee o f the American Bankers’ Association
when t h e bill was being considered, a n d enact i n its place
the following:
"Whenever a n officer o r director o f a bank o r trust
company, m e m b e r o f a
officer o r d i r e c t o r

Federal r e s e r v e b a n k , s h a l l a l s o b e a n
o f o n e o r more banks o r trust companies

located i n the same city, whether o r not members o f a
federal reserve bank, a n d which institutions a r e doing a
substantially c o m p e t i n g business,

a n d i t shall a p p e a r t o

ben e s e r a t Reserve Board u p o n satisfactory proof, after
due notice o f hearing, t h a t s u c h officer o r director i s
abusing h i s position i n the w a y o f destroying competition
between s u c h i n s t i t u t i o n s

over such institutions

o r exercises

a n undue control

i n the granting o r refusing o f

credit, t h e Federal Reserve Board shall have power t o compel t h e d i s c o n t i n u a n c e

o f s u c h practices

o r t o require t h e

resignation o f such officer o r director f r o m one o r all o f


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

72
the b a n k s

o r trust companies w h i c h a r e members

o f t h e Federal

reserve bank."
In other words, leave t h i s entire matter t o the discretion o f the Federal Reserve Board.

W

e would b e glad t o

have y o u consider this, a n d i f later o n i t i s found advisable t o introduce a

bill repealing this, t o give i t your

support.

Governor Strong:

M r . Calfee, t h e r e has been a

great deal o f discussion o f that matter a t our meetings,
and other meetings o f those connected w i t h the reserve banks.
Possibly I

might state what h a s s o far transpired.

The Federal Advisory Council h a s made a recomnendation
for amendment t o t h e Clayton A c t which possibly does not g o
aS far a s your suggested amendment.

T h e y d i d not recommend

repealing that section o f the Clayton Law, b u t they recom-—
mended a

change which would permit a

director

i n both a

same city.

man t o serve a s a

national b a n k a n d a

state b a n k i n t h e

A n effort h a s also b e e n made b y some other

banks independent o f t h e reserve systom,

t o secure a n amend-

ment t o the Claytos Act, a n d their representative w a s here

in Washington recently and discussed i t a t length with the
Reserve Board, a n d I think made considerable impression u p o n
them.
The difficulty t h a t has b e e n experienced i n New o r k ,
as y o u m a y i m a g i n e ,

h a s been the feeling that N e w York

is

regarded w i t h distrust i n connection w i t h these matters, a n d
any r e c o m m e n d a t i o n e m a n a t i n g f r o m t h a t s o u r c e w o u l d p r o b a b l y

not promote a


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

change i n the law, b u t might e v e n defeat it.

73
Your first suggestion f o r repeal o f that section o f
the statute I

personally believe i s hopeless t o expect.

T h e

other recommendation, t h a t that section o f the Clayton A c t
Should b e t a k e n o u t o f t h e C l a y t o n A c t a n d m d e a
the F e d e r a l R e s e r v e A c t , w h e r e i t belongs,

part o f

a n d b e dealt w i t h

by the Federal Reserve Board, i s just what h a s b e e n i n the
minds o f a good many men.

I t ought t o b e brought about,

and i f y o u a r e a b l e t o impress y o u r v i e w s u p o n t h e F e d e r a l

Reserve Board a n d get their cooperation, I
find a

great m a n y b a n k s w i l l i n g

believe y o u will

t o support y o u w h o would n o t

be willing t o take t h e initiative f o r fear that i t would
have a

bad effect.
Mr. VanDeusen:

W h e n t h e Clayton Bill w a s i n Congress

the Sengqte struck o u t t h e entire section regarding interlockiag directors,
i

a n d i t was put b a c k i n conference.

[ I

know a t that time there were several members o f the House
Judiciary Committec, several o f the Democratic members, w h o
were o p p o s e d

t o having t h i s section p u t in.

T h i s proposed

amendment t o leave i t t o the Federal Reserve Board h a d t h e
support o f a number o f the Democratic members o f t h e House

Committee at that time.
Governor Stronc:

I t was proposed to them then.

There are a

been suggested a n d discussed.
asked o n l y t o p a s s a

number o f P l a n s t h a t h a v e

O n e i s that Congress n o w b e

statute w h i c h w i l l e x t e m i t h e t i m e f o r

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

period

of years, possibly until something more scientific c a n b e
devised; because i t i s highly unscientific.
strike a t the root o f the evil a t all.


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

I

t does n o t

I t i s just o n e o f the

74
evidences

o f t h e possible existence

o f a n evil. A

number

of different suggestions h a v e been made f o r a modification
of t h e statute.
that I

T h i s o n e that y o u make i s a new variety

have n o t h e a r d before.

h

e have

a t o u r Conference

made a recommendation somewhat similar t o that made b y the
Federal Advisory Council already, a n d that i s before t h e
Federal R e s e r v e Board. I

d o n o t k n o w h o w m y associates f e e l

about this, b u t speaking f r o m t h e standpoint o f a New York
banker I think y o u have g o t v e r y m u c h better chances o f
Success possibly t h a n some o f the m e n o n this committee
would have i n urging that amendment.
Mr. Paton:

D o y o u suggest t h a t such a n amendment b e

introduced independently b y our association?
Covernor Strong:

N o ; I would suggest y o u r taking i t u p

with t h e Federal Reserve Board first.
Mr. Paton:

T h e amendment suggested b y the Advisory

Council simply relatos t o the b i g cities.
Movernor Strong:

T h a t i s all.

There is,a manifest unfairness

i n prohibiting directors

ig a National Bank i n a big city from holding a directorship
in a

b a n k elsewhere, a

national b a n k , a l t h o u g h h e m a y h o l d

a directorship i n eight o r ten or any number o f state banks.
There i s absolutely n o competition between those t w o
banks.
Mr. V a n Deusen:

Y o u a r e familiar w i t h t h e situation

in New York?
Governor Strong:
Mr. V a n Deusen:

Yes.
A n d i n the suburbs o f New Jersey

and Long Island, a n d those communities?


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

75

Yes.

Governor Strong:
Mr. V a n Deusen:

W i t h respect t o many o f the small

banks i n New Jersey t h e y have several o f their directors
who will b e m e n who a r e connected w i t h competing N e w York
banks, m e n who live i n that locality.
ample. A

W e s t f i e l d is

a n ex-

great m a n y o f t h e b a n k e r s t h e r e a r e c o n n e c t e d

with N e w Y o r k banks.

T h e y live i n that town,

naturally b e c o m e c o n n e c t e d w i t h t h e l o c a l banks,

t h a t they
and the

Advisory Council's amendment, o r proposed amendment, would
not g o far enough t o permit that.
Governor Strong:

N o , i t would not.

Mr. V a n Deusen:

B e c a u s e t h a t covers t w o banks i n the

Same city.

Governor Strong:

T h i s i s a particula r l y fortunate

time t o take this matter u p with the Reserve Board, b e cause t h e B o a r d r a t h e r l e a n s

t o t h e view, I

think, t h a t t h e

privileges o f national banks m u s t i n Some w a y b e enlarged.
and d e v e l o p e d

s o that t h e y m a y b e able t o meet competition

of s t a t e institutions.

Y o u have already observed t h a t that

has b e e n evidenced i n the treatment t h a t t h e Comptroller
has decided t o extend t o National banks t h a t want t o consolidate w i t h S t a t e b a n k s a n d m a i n t a i n b r a n c h e s t h a t t h e s t a t e

banks have established.
The Clayton A c t i s inconsistent w i t h what undoubtedly
will b e a t t e m p t e d
of t h e p o w e r s

i n t h e n e a r fubure; t h a t i s , t h e e x t e n s i o n

o f National b a n k s

branches directly.
large b a n k a n d a


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

8 0 that t h e y c a n establish

T h e present relationship between a

number

o f small banks

i n t h e same c i t y grows

76
out o f t h e natural d e s i r e

t o establish b r a n c h relationships

which are not permitted directly b y law. I
receive some encouragement

think you may

i n this matter i n debating i t

with t h e F e d e r a l R e s e r v e B o a r d ,

a n d w h e n y o u arrive a t a n

understanding y o u m a y find i t desirable t o g o ahead a s
an o r g a n i z a t i o n o f t h e National b a n k s w i t h p r o p o s e d l e g i s lation a n d endeavor,

i f possible,

t o get t h e cooperation o f

the Board a n d o f the reserve banks i n bringing i t about.
It i s a matter, though,

i n which y o u had much better take

the initiative yourselfes, I
Mr. Curtis: I

believe.

think y o u said m e n i n the small banks

and i n competing N e w York banks.
Mr. V a n Deusen:

N o .

Y o u meant noncompeting?

W h a t I

meant w a s o n e o f the

small country banks would have maybe threeor four directors
who were officers i n New York banks, w h i c h N e w York banks
are c o m p z i n g banks.

they have a

F o r instance, I

know o f a

case w h e r e

man connected w i t h t h e Chase B a n k a m w i t h the

Irving and Park, maybe.

T h o s e three banks would b e compet-

ing banks. °
Me. Curtis: I

thought y o u m e a n t t h a t t h e N e w Y o r k

bank was a competitor o f the small country bank.
Mr. V a n Deusen:

N o ; b u t m e n from these compting N e w

York banks will b e o m the board o f one bank i n the country
which i s not a competitor o f t h e N e w York bank.
Mr. Curtis: I

was afraid that a

wrong impression would

get into t h e record there.
Mr. Otte:

T h e s a m e condition prevails

every large c i t y i n the country.


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

i n practically

W e have t h e same condition

TL
in Chicago a n d i n a large area i n different parts o f the city.
Business c e n t e r s h a v e s p r u n g u p a n d b a n k s h a v e b e e n e s t a b ~
T h o s e banks

lished t h e r e t o m e e t t h e l o c a l requirements.
are s t r i c t l y l o c a l .

T h e first t h i n g t h a t t h e y d o i n that

locality i s t o consult s o m e b a n k e r

i n the downtown district

in Chicago a n d g e t his advice i n regard t o ity a n d probably
ask h i m t o serve o n the Board.

T h e y want h i s advice o n the

board i n regard t o making investments.

H e i s a real help

to that bank i n that way, a n d that i s a condition that probably p r e v a i l s e l s e w h e r e .
evil,

T h e r e a l evil,

o r i f t h e r e t s a n evil,

i f there w a s a n

i s not remedied

b y the Clayton

Act a t all, because there i s nothing t o prevent a

man from

putting i n o let o f dummies, a n d controling t h e m i f h e wants
to.
Governor Seay:

I n the event that y o u should n o t

think i t desirable t o ask for t h e repeal o f that, y o u have
a definite, c l e a n c u t recommendation t o submit t o the Board,
have y o u ?
Mr. C a l f e e :

W

e have decided

t o a s k the Board t o sup-

port t h e amendment w h i c h was suggested t w o years a g o w h e n ’
the C l a y t o n A c t w a s f i r s t enacted.

Governor Seay:
Mr. Calfee:

T h e o n e that y o u read?

Yes.

Governor Strong: I

should like t o state that i t has

been arranged t o hold a meeting w i t h t h e Reserve Board a t
three o ' c l o c k t h i s a f t e r n o o n ,
past twelve, I

a n d i t i s n o w t e n minutes

should l i k e a l s o t o e x t e n d

a n invitation

to y o u gentlemen t o take lunch with u s here a t the hotel, i f


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

To
that i s agreeable,

s o that w e c a n g o right

t o t h e meeting

from lunch.
Mr. Hyde:

T h a t will b e agreeable t o the committee.

Governor StronG:

B e f o r e going ahead with t h e program o f

discussion which y o u have laid out, I
the v i e w o f t h i s c o m m i t t e e

Should like t o ask What

i s with rcgard t o t h e relations

between your committee a n d o u meetings a n d t h e Federal

Legislative Committee o f the American Bankers' A s m ciation?
Mr. H i n c h ,

t h e C h a i r m a n o f t h a t Committee,

h a s suggested

that i t was desirable i n legislative matters t o have some
cooperation between t h e t w o organizations.
Mr. Cox: I

think Mr. H y d e c a n make that clear, Gover-

Governor Strong:

W

e naturally d i d n o t want t o get i n

between t h e t w o organizations a n d suggested y o u r working
that o u t between yourselves, a n d i f y o u desired a

meeting

over here i t might b e arranged for January, when w e mect
again, a l t h o u g h i t c o u l d n o t v e r y w e l l h a v e b e e n d o n e t h i s

time, a s I advised him.
Mr. Hyde; G o v e r n o r , o u r idva i s that w e have peculiar
problems, t h a t is, problems t h a t a r e peculiar t o the national
banks,

a n d t h e Federal Legislative Committee represents t h e

entire association composed o f state banks a s well a s national banks, savings banks, a n d i f w e desire t o cooperate w e
have t o w o r k a l o n g t h e s a m e l i n e s w i t h y o u a n d l a y emphasis
on t h o s e m a t t e r s t h a t a f f e c t u s vitally;

national banks.
lative c o m m i t t e e


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

t h a t is, our

T h e request t h a t t h e meeting o f the legisb e h e l d simultaneously w i t h o u r o w n came

from them.

V e did not ask that we be included, tut when

they asked t o come, w e could n o t very well refuse.

I t would

have b e e n a n ungracious thing t o do; a t least w e felt so;
and y e t w e were merely t o present a n d press o u r o w n claims.
Governor Strong:

M a y I say t o Mr. Hinch, then, that i t

will b e desirable t o arrange f o r further meetings,

e s

you

and h e have reached a n understanding a s t o the character o f
the meeting that i s desired, a n d when i t shall b e held, a n d
so forth?
Mr. Hyde:

I f a further understanding i s necessary,

the C o n s t i t u t i o n o f t h e A m e r i c a n Bankers!

Association makes

all o u r work submitted t o the Legislative Commit tee; b u t
at your request, giving u s t h e opportunity t o b e heard, w e
felt that i t was a great opportunity f o r u s t o present o u r
own particula r

claims, a n d w e believed t h a t t h e y a r e i n

entire consonance w i t h the views o f the Legislative Commit-

tec, that is, of the American Bankers' Association.
Mr. Farnsworth; I
on that subject,

think I can throw a little l i g h t

a t least o n the rules o f the Federal Legis-

lative Committee a n d a l l o f the Section o f the Association,
and I think perhaps y o u r remarks w h e n y o u first m e t with
this c o m m i t t e e a p p l f e d p a r t i c u l a r l y

t o that.

T h e Section

of the Association, a l l o f the Sections o f the Association,
are n o t i n a

position t o t a k e a n y r a d i c a l a c t i o n o n matters

of legislation.
very sections,

T h e Constitution provides t h a t these
i n case they believe that there i s certain

Federal legislation which i s needed, c a n get together a n d
discuss t h o s e q u e s t i o n s a n d t h e n d r a w t h e i r c o n c l u s i o n s ,


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

80
and if, i n their judgment, certain legislation i s required,
or certain amendments t o this Act, t h e n suggestions m u s t b e
submitted t o the Federal Legislative Committee, a n d the Federal L e g i s l a t i v e C o m m i t t e e ,
Bankers' A s s o c i a t i o n

w i t h the approval

o f t h e American

o r i t s Executive Council,

o r its Ad-

ministrative Committee, c a n authorize that action.
Your suggestion made i n New York was that i t was very
desirable f o r this section o r a section t o get together w i t h

the Conference o f Governors, or, a s i t happens i u this case,
the E x e c u t i v e C o m m i t t e e ,

various subjects.
judgment

f o r t h e purpose o f discussing t h e s e

A f t e r this sessiog i s over if, i n the

o f the Executive Committee

Section, t h e r e a r e c e r t a i n m a t t e r s

o f the National B a n k
o f legislation w h i c h i t i s

believed the Federal Legislative Committee should take hold
of, t h e y p r o b a b l y w i l l s u b m i t t h o s e s u g g e s t i o n s

t o the

Fedcral Legislative Committee; b u t i t seoms t h e wisest
course h a s b o e n taken; w h i c h w a s t a k e n o n t h a t suggestion,

that the committee get together with you i n conference and
exchange ideas about these features o f legislation a n d amend-—
ments.
After a d j o u r n m e n t t h i s c o m m i t t e e p r o b a b l y w i l l m e e t

again, a n d i f i n their judgment i t has gone f a r enough o r
they have h a d enough information f r o m you, o r the suggestions
that come out f r o m this meeting seem desirable t o shbmit t o
the Federal Legislative Committee--- these Suggestions w h i c h
they desire t o b e taken hold c f b y the Federal Legislative
Committee i n the shape o f amendments--- t h e n t h e Federal
Legislative Committee will b e i n a position t o act.


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

Governor Strong:
Colonel F a r n s o w r t h ,

O u r position will be, I

presume,

t h a t w e will proceed u p o n t h e assumption

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

these matters, a n d s o far a s the organization o f t r American
Bankers' A s s o c i a t i o n

i s concerned,

y o u will t a k e necessary

action directly with the Legislative Committee t o see that
they a r e i n f o r m e d a n d h a v e o p p o r t u n i t y t o deal w i t h t h e m a t -

ter, according t o the rules o f your association.
Mr. Farnsworth:

Mr. Paton:

T h a t i s m y judgment o n that.

T h e Constitution provides that subjects

of legislation originating i n any section shall n o t b e
urged independently b y the section, b u t shall b e presented
when decided u p o n amd urged b y the committee o n Federal
Legislation.

In regard t o the subjects already discussed here, t h e
subject

o f bills

locking d i r e c t o r

o f lading a n d t h e amendment
provision,

o f the inter-

b o t h subjects a r e i

hands o f the Committee o n Federal Legislation.

the

T h a t is to

Say, w e g o ahead without a n y further authorization o r sSanctuo.

o l e s

t h i n g s h a v e a l r e a d y b e e n decided,

the C o m m i t t e e

o n Federal L e g i s l a t i o n

s o far a s

i s cogcerned,

On this matter o f the reserve, t h e

e r s

o n Federal

Legislation takes t h e v i e w that t h e y d o not want t o urge
anything u n l e s s t h e N a t i o n a l B a n k S e c t i o n w h i c h &@t affects

s0 deSires;

a n d this meeting here i s simply f o r considera-

tion and discussion.

W h e n w e s a y w e propose t o urge legist

lation, t h a t i s really saying t h a t t m Federal Legislative


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

Committee proposes to urge the legislation. T h a t is t h e
status.
Governor Strong: I

guess y o u c a n leave i t that way, a n d

if I hear from Mr. Hinch again I will write t o Mr. Hyde t o
bring a b o u t S u c h a n arrangement

Mr. Hyde:

a s s e e m s i n y o u r interests.

W e will communicate w i t h the Chairman o f

the Federal Legislative Commit tee. 3
Mr» Cox: I

had some correspondence w i t h Mr. eenck,

Mr. Farusworth: I
has b e e n a e .

think Mr. Hinch's idea all along

t h a t h a d h e attended this meeting h e would

be p r e s e n t w i t h h i s c o m m i t t e e f o r t h e w i n e s

arguments.
any action.

o F hearing

t h e

O f course they would not b e i n a position t o take
I t was t h e plan o f this committee, t h e execou-

tive committee o f t h e National B a n k S e c t i o n ,

i f the Feder-

al L e g i s l a t i v e C o m m i t t e e h a d m e t a t t h i s time, t h e t w o c o m -

mittees would hold a meeting and discuss the matters again.
The Federal Legislative Committee would n o t b e i n a position
to a c t e x c e p t u p o n m a t t e r s w h i c h Mr. P a t o n h a s b r o u g h t

up

here, m a t t e r s w h i c h a r e o u t s i d e o f t h e F e d e r a l L e g i s l a t i v e

Committee,
Governor Strong:

I

t i s rather important t h a t o u r e f -

forts, whatever they may be, shall not b e confused and xo
conftict

o f interest m a y b t i n t r o d u c e d

b y the appearance

of

state bank m e n who m a y have interests quite contrary t o
those t h a t r e a r e seeking t o protect.

Frankly, I

was a

little fearful o f the possibility o f the Federal Legislative
: Committee, w h i c h was a mixed body, representing b o t h classes
of institutions, n o w being able t o put itself squarely i n

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

the shoes o f the National Bank Section.
Mr, Farnsworth: I

took just exactly t h a t position

with o u r correspondent, Mr. Hinch.

W h e n I found i t seemed

to y o u that i t was n o t desirable f o r b o t h committees t o meet,
I wrote h i m along this line, t h a t i t Was a n entirely different problem;

t h e national b a n k section i s really a

part

now o f your system, a n d t h e Federal Legislative Commi t t e e
represents various banking interests, a n d I have n o doubt
but what t h e conclusions were drawn o n that account.
Mr. V a n Deusen;

T h e purpose

o f t h e provision o f the

Constitution o f the American Bankers' Association i s o f course
to prevent a n y one section f r o m urging legislation which
would b e injurious t o a n y other considerable b o d y o f v e

members o f the American Bankers' Association.

T h a t is, i n

the n a m e o f t h e A s s o c i a t i o n t h i s s e c t i o n w o u l d b e p r e v e n t e d
from u r g i n g l e g i s l a t i o n w h i c h w o u l d b e i n j u r i o u s

t o trust

companies, i n the name of the American Bankers! Association.
It w o u l d i n l i k e m a n n e r p r e v e n t t h e t r u s t c o m p a n i e s

or

state banks using t h e name o f the American Bankers' A s s o ciation t o urge legislation which would b e injurious t o the
national banks.

T h e purpose

i s t o bring a

harmony o f inter-—

est, a n d that would b e obtained i n this case.

Governor Seay: Should this body, then, meet with the
Legislative Committee after having m e t with this, that would
be going

o e

e x a c t l y t h e same ground?

Mr.e V a n Deusen:

Yes.

Governor Fancher:

I

t seems

t o m e that

o u contact

should p
e with this committee, a n d y o u r mutual problems should

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

4
be taken u p with the Legislative Committee, a n d that i t i s
not necessary f o r our committee o r t h e Conference o f Governors t o have contact w i t h t h e Legislative Committee.
Governor Strong:

% e must b e very certain,

a s officers

of the reserve banks t h a t w e know that w e are acting i n the
interests o f our o w n members, a n d o f course occasions m a y
arise when t h e interests o f state banks will b e quite contrary t o plans that m a y b e developed.
unfortunate

t o have o u r efforts

I t would b e most

a t harmony destroyed

b y the

introduction o f t h e interests o f state banks e v e n through
the Federal Legislative Committee a n d i t s membership.
have a d o p t e d t h e n a t i o n a l b a n k s a n i t h e i r i n t e r e s t s

W e

i n such

& whole-souled f a s h i o n i n t o o u r p r o g r a m t h a t w e d o n o t
want
to h a v e a n y t r o u b l e a r i s e t h a t w o u l d c a u s e a

ests. I

Split o f i n t e r -

think with Mr. Hyde's cooperation w e can work that

matter out, however.
Mr. Otte:

I t seems t o m e that that matter could b e

handled very easily i f the Federal Legislative Committee wants
to t a k e u p a n y s u b j e c t w i t h you,

i f they notify y o u i n ad-

vance, a m l i f t h e s u b j e c t h a d a l r e a d y b e e n d i s c u s s e d
national b a n k section,

b y the

y o u would simply advise t h e m that i t

had already been discussed i n detail, a n d w e could work i n
that way.

Mr. Cox:

T h e fourth matter w e h a d under discussion

was d o m e s t i c acceptances.

Mr. V a n Deusen:

M r . V a n Deusen.

P o s s i b l y that i s a matter t o which

there will n o t b e a s much opposition a s t o some o f these
others. I


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

know a t the time the Federal Reserve A c t was pre-

85

sented i n Congress the Senate incorporated i n it a proviso
for d o m e s t i c acceptances. I

believe t h a t w a s t a k e n o u t

very largely o n Mr. Glass! insistence,

h e feeling that there

would b e a certain expansion--- " a saturnalia o f expansion",
I think h e expressed i t .
was p a s s e d a

number

S i n c e t h e Federal R e s e r v e A c t

o f states, i n c l u d i n g N e w Y o r k a n d N e w

Jersey, h a v e given t h e privilege o f domestic acceptances t o
their state institutions, a n d there a r e a considcrable n u m ber o f states throughout t h e Union which have given that
permission

t o t h e i r o w n institutions.

I

t has not resulted

in a n y g r e a t o v e r e x p a n s i o n o r a n y a b u s e o f t h a t privilege,

and w e feel that i f that permission were extended t o the
national b a n k s

i t would d o n o more t h a n p u t t h e m o n a n

equality w i t h s o many o f the state institutions a n d would
give t h e m a n a d d i t i o n a l s o u r c e o f s e r v i c e a n d o f profit.

It would not only d o that, b u t i t would t e n d toward t h e
development

of a

class o f p a p e r w h i c h t h e F e d e r a l R e s e r v e

Board andthe Federal Reserve Banks h a v e been seeking t o encourage;

t h a t i s , t h e foreign acceptance a n d t h e trade

acceptance.

I

t w o u l d e n c o u r a g e t h e dv.velopment

of a

specially g o o d c l a s s o f p a p e r a n d w o u l d a l s o t e n d t o d e -

velop along safe lines t h e commercial interests o f t h e country i n the financing o f them.
Governor Strong:

W e have already made s u c h a recom—

mendation t o the Board, a n d I think t h e Board a s a whole
would favor it, f r o m what w e have gathered f r o m our meetings
with them, a n d s o f a r I
dis cussi on.

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

d o n o t t h i n k t h e matter i s o p e n t o

T h e v i e w s a r e a l l w e l l known.

I

t would b e

86
well t o submit t h a t t o t h e B o a r d a s t h e o p i n i o n o f y o u r
body. I

think t h e Board would r e g a r d i t a s a n advantage

to

have that expression f r o m this Committee s o that t h e y could
Say that t h e body that represented t h e National banks o f the
country h a d r e c o m m e n d e d i t .

Mr. Glass,

b y the way, h a s been, I

think,

i n frequent

consultation w i t h the Board o n this subject, a n d I think
his views a r e well known t o the Board.
Mr- V a n Deusen:

H a s h e changed h i s views i n that r e -

gard?

Governor Strong: I

have heard i t suggested that h e

had c h a n g e d h i s v i e w s s o m e w h a t ;

i n Fact, f

think y o u wild

find that t h e whole temper o f the Board i s t o encourage
legislation mbthat will p u t national banks o n a parity with

State banks.

M r . Glass' position was certainly based upon

what a n
a misconception o f timm acceptance w a s a n d what inflation was,
BLeO, 1. think,
Mr. Cox:
tention,

T h e r e w a s another matter that claimed o u r at-

a n d that w a s t h e question o f the capital o f the

Federal Reserve Banks.
Mr, Buecholz:

B e f o r e proceeding t o the main subject

I would l i k e t o s a y briefly, h a v i n g been chairman o f the
Committee o n Federal Legislation last year, t h a t this c o m mittee comes t o y o u a s particula r

spirit o f cooperation.

friends.

W e cone i n the

W e feel that i f there i s anything

that w e c a n suggest that would better o u r business condition,
that w o u l d a p p e a l


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

t o y o u a s fair a n d would solicit y o u r c o -

87
operation a n d y o u r e n d o r s e m e n t a n d t h a t o f t h e F e d e r a l Re-—

serve Board,

i t would b e much better t o have those things

rectified t h a n t o d o i t through the Federal Legislative C o m mittee,

w h o d o n o t operate

s o much through your Committee

or

through t h e F e d e r a l R e s e r v e Board.
They h a v e q u e s t i o n s t h a t a f f e c t t h e b a n k i n g b u s i n e s s

as

a business i n all lines a n d would proceed through t h e members
of Congress t o get legislation which they would desire.
that o u r p o s i t i o n i s q u i t e d i s t i n c t

i n this.

W

S o

e feel w e

have a personal interest here, t h a t w e a r e talking t o our
friends, a n d w e want t o cooperate w i t h them t o make this system a

success e v e n t u a l l y ,

a n d satisfactory

t o all.

One o f t h e t h i n g s t h a t t h i s c o m m i t t e e f e e l s w o u l d h e l p

to d o that i s this matter o f capital stock.
reserve b a n k s h a v e m a d e a

a majority, I

profit; a

under:tand, h a v e not.

S o m e o f the

great m a n y h a v e n o t ,

Y o u put a

burden upon

the r e s e r v e b a n k t h a t h a s t h a t s t o c k t o m a k e e a r n i m s i n o r d e r

to satisfy t h e stockholders, a n d i f that question were removed
from it, i f the Governor a n d t h e Directors w h o manage t h a t
bank w e r e n o t c o m p e l l e d

t o make a

profit

it seems t o m e that i t would take a

o n the capital stock,

tax o f f t h e m a n d off

their members.

Speaking more dircctly for the tenth district, with
which I

a m the most familiar, t h e y have made good there.

Times have been exceptionally g o o d since this Federal Reservo
Law has been i n force.

T h e y have h a d good crops, and, o w -

ing t o the war, exceptionally h i g h prices.
filled u p with money a n d have a

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

T h e y have b e e n

surplus. P e r s o n a l l y , I

88
mentioned this t o one o f the directors, a

very. high class

who

man, Came t o us and said, "We would like t o have you redis-—
count a

hundred t h o u s a n d d o l l a r s . "

bank, a

nice gentlemanly o l d chap, w h o loved t h i s fellow,
was

going t o d o it, a n d told h i m so. I

T h e president

said, “Why, Senator,

here i s o u r r e s e r v e f r o m 5 0 t o 5 5 p e r cent.
&

discount a n y paper?

o f the

h y should w e

W e d o not need t h e money.

W e would

not b y y c o m m e r c i a l p a p e r a t t h e r a t e t h a t w e
have t o P y d o w n

there. I

a m perfectly williy

t o d¢join y o u i n a n assessment

or a contribution i f they necd that t o make a dividend."
So I takked i t over with h i m and h e said, " I t i s
simply t o
help u s make good.
not make a

T h e y will abolish this bank i f w e d o

dividend here, a n d t h e country banks a r e all

dQlamoring f o r earnings o n capital stock.

W e have promised

them last year that w e were going t o make s i x p e r
cent divi-

denés, a n d a lot more, a n d we cannot d o ity and therefore
I
am calling o n our friends t o try t o help us out."
The reason was that they had t o make a dividend o n the
Capital stock, o r at least make their expense account.
believe that some o f that would b e eliminated. I

W e

remember

distinctly w h e n this bill w a s under consideration
I was asked
to a p p e a r b e f o r e t h e S e n a t e C o m m i t t e e

a s t o certain amend—

ments a n d certain things that t h e y were
wrangling about, a n d
quite accidentally I was backed i n t o a

corner where I

had

to declare that I was not i n favor o f having
any capital
stock.

f t had n o t fully considered i t , b u t that
w a s m y off-

hand judgment o n the thing, a n d I had quite
a
hands. I

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

row o n m y

did the best I could a n d managed t o keep
u p m y end

89
Olt t i

I

t seems

t o m e that t h e experience

o f most o f the

bankers h a s shown that y o u d o not need that capital s t o c k
pPeid i n a t a i l s

Governor Strong:

W e needed a

little o f i t a t t h e time.

We h a d t o s p e n d i t .

Mr, Buchols: I

think i n that case a n assessment would

have b e e n very cheerfully paid.
The average country banker

i s a close figurer.

H e

hes $3,000 invested i n stock i n the Federal Reserve Bank
and n a t u r a l l y h e h a s t o p a y f o r i t s s u p p o r t a n y h o w ,

can get money cheap there.

and he

H e sees fs no way o f profit, a n d

he g e t s n o r e t u r n o n h i s c a p i t a l s t o c k , a n d h e p u t s u p a n

awful loud holler which permeates through the district
where h e l i v e s a n d m a k e s t h e s t o c k unpopular.

We feel that this capital s t o c k that has b e e n discus-—
sed might b e returned t o the subscribing banks, t o b e handled a s the Federal Reserve Board m a y request.
That e m b r a c e s o u r p o s i t i o n
for c o o p e r a t i o n a n d

Governor Strong:

p e n e

o n that, a n d w e a r e a s k i n g

o n t h a t score.

V e have already recommended t o the

Federal Reserve Board t h a t that b e done.
Mr. Bucholz: I

Governor Strong:

a m very glad t o know it.

A t o u r meeting i n Minneapolis t h a t

matter w a s acted upon, a n d s u c h a recommendation made, a n d
as a

matter

o f fact t h e suggestion I

think i n that instance

was made b y some members o f the Reserve Board themselves.
They a r e just a s conscious

aS we are.

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

o f the difficulty o f the matter

O f course conditions i n the different districts

are different.

Mr. Bucholz:

Y e s , I

Governor Strong:

understand that.

A n d whereas i n Atlanta a n d Dallas a n d

Richmond their earnings a r e n o w considerable ani t h e y might
even b e able t o p a y 2 dividend,

s o far a s earnings alone a r e

concerned, a n d their capital probably i s what i t should b e ,
no smaller t h a n i t should b e , i n New York w e have a rather
unusual situation:
of $200,000,000,

O u r deposits a r e i n the neighborhood

b u t w e have o n l y $11,000,00¢

in, a n d t o r e a u c e t h a t t h r e e o r t h r e e a n d a

o f capital p a i d

quarter m i l l i o n s

would make a rather grotesque condition o f it.
I think y o u w i l l f i n d t h e r e s e r v e b a n k s a l l s y m p a t h e t i c
with y o u r idea.
imous
words,

Q u r recommendation

t o effect a
t o return a

reduction
prt

a t Minneapolis w a s unan-

i n paid-in capital,

i n other

o f t h e capital temporarily a t least

to t h e banks.
ir, Becheiz:

O

u

r requirement w h e n t h e capital

paid i n would b e $90,000 o n a million dollars capital.

i s all

S a y

at f i v e p e r cent, w h i c h w e g e t s o m e t i m e s o u t o u p way, t h a t

would b e $4,500.

W e lose that. earning power a n d get nothing

back a m p u t i t i n a place where t h e y d o not need it.
Governor Strong: I

think ultimately t h e r e w i l l b e

no doubt of reserve banks returning dividends o n capital
stock.

Mr. Bucholz:

W e believe that; but a t the same time we

have h a d n o dividends.

W

e w o u l d b e very. glad t o p a y a n a n -

nual assessment f o r the safety a n d the sheltering c a r e that
the system provides f o r national banks i f they d o not make

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

our hardships t o o strong.

Mr. Curtis:

D o not forget that the Attorney General

has p r o t e c t e d y o u a g a i n s t abolition.
Mr. V a n Deusen:

T h e reserve b a n k s c o u l d build u p a

surplus w h i c h i n t i m e would e l i m i n a t e a n y c h a n c e o f t h e
banks b e i n g c a l l e d o n f o r p a y m e n t o f t h e c a p i t a l s t o c k
Subscription
Peegture,

i n o r d e r t o m a k e u p losses.

tos

I

T h e r e i s another

f the Richmond B a n k earned a n d p a i d a

dend, a n d t h e P h i l a d e l p h i a b a n k d i d not,

divi-

i t would make m e m —

ber b a n k s u p i n t h e P h i l a d e l p h i a d i s t r i c t e v e n m o r e s o r e
than t h e y o t h e r w i s e w o u l d be.
Governor Rhoades: I

Governor Fancher:
comes

hate t o b e p i c k e d o u t .

T h e r e i s this feature o f i t that

i n i n c o n n e c t i o n w i t h c a p i t a l s t o c k payments.

Act p r o v i d e s a

T h e

matter o f l i a b i l i t y w h i c h i s o f c o u r s e a

claim u p o n t h e p a i d - i n c a p i t a l stock,

a n d i n dealing w i t h

the s m a l l m e m b e r b a n k s a n d discounting,

a S w e have, s o m e

weak paper that w e could n o t find o u t a whole l o t about,

a matter o f having a little "velvet" rather appeals t o us
at our bank.

W h e t h e r i n the return o f a large part o f

this capital, t h e subscription o r t h e amount o f the subscribed c a p i t a l t h a t t h e m e m b e r b a n k s w e r e e n t i t i e d
would b e a

to

preferred c l a i m - —

Mr. Otte: I

think,. however,

i f y o u look into that

matter y o u will find t h a t t h e percentage o f losses i s com—
paratively small.

I t has been m y experience a n d t h e exper-

ience o f other m e n I have talked w i t h i n the banking business that e v e n a little country bank whose paper i t i s very

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

92
hard t o investigate,

i f i t gets i n t o difficulty, y o u realize

something o n your paper, a n d your bank, i f i t i s a national
or a state bank, i s never i n such bad Shape b u t what y o u c a n
easily c o m e o u t o n e h u n d r e d c e n t s

Governor Fancher:
manner.

o n the dolla r .

B u t w e déal i n a little different

O u r dealings w i t h national banks,

o r loaning t o

banks h a s been o n their miscellaneous bills receivable, w i t h
@ very considerable margin.

W e are in.a Littie different

position f r o m the position that y o u are i n with a liberal
margin o f collateral.
Mr. Otter P o s s i b l y y o u will b e i n a position t o know
more about national banks w h e n y o u get a little closer t o
them a n d e x a m i n e t h e m yourself.
Governor Fancher: I
Governor Seay:

have b e e n S o m e 2 5 years.

T h e r e i s this t o say, t h a t t h r a m o u n t

of such possible losses i s very small i n proportion t o the
liability o f t h e 6

per c e n t u n e a r n e d dividend,

but I

will

Say that there i s such a thing a s a reserve b a n k taking extra
collateral i n order t o meet t h e exigencies o f a prticular
bank t h a t i s i n need.

T h e r e i s w o reason w h y i t should

not, a n d I have known such things t o b e d o n e - — I will m o t
say where.
Mee a y e s

Governor,

y o u have listened

v e r y patiently

to us i n regard t o the problems t h a t w e have presented. Z
feel i t would b e o f a great deal more value t o u s i f y o u a n d
your a s s o c i a t e s w o u l d n o w i n d i c a t e

t o u s where w e could m o s t

profitably a i d o u r f r i e n d s a n d i n what direction.
the p u r p o s e

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

t o combat t h e exchange proposition?

S
W

e

b

e are

93
members o f the same family, a n d I think t h e purpose o f the
National B a n k Section i s t o help make this a

success.

These

propositions t h a t w e s u b m i t t e d t h i s m o r n i n g h a d o c c u r r e d

to

us a n d w e d i s c u s s e d t h e m a n d v o t e d t o present t h e m t o you.
Now, c a n y o u n o t w i t h y o u r a s @ c i a t e s
in i n d i c a t i n g f r o m t h e r i p e n e s s

b e o f great v a l u e t o u s

o f your consideration w h a t

line w e should best follow o u t now?

W h a t can we d o to

be o f service t o the Federal Reserve System? I
we w o u l d a l l b e i n t e r e s t e d

i n and will profit

think that
b y your views

on that.

Governor Strong: I

think each o f those present might

State h i s o w n feelings i n that regard, Mr. Hyde. I

attempt-—

ed a t the outset o f o u r meeting t o state what o u r great
problem was.

I t i s t h e exchange a n d collection problem.

Nothing t h a t w e h a v e h a d t o d e a l w i t h h a s p r e s e n t e d t h e c o m —
plications a n d d i f f i c u l t i e s t h a t t h a t does. I
have a l l c o m e
tures

think w e

t o the conclusion that a l l the various

o f the Federal

now, a w d p r o b l e m s

Reserve

fea-

A c t a r e largely administrative

o f organization a r e being worked o u t w i t h

a considerable d e g r e e o f success, e x c e p t t h a t o n e a i f f i c u l t y

of dealing w i t h 760@ national banks where e a c h one has h i s
own view o f how checks should b e handled a n d what h e should
be entitled t o m a k e o n a collection charge o r a n exchange
charge.

O u r difficulties a r e complicated b y the fact that

the g e n t l e m e n w h o d r e w t h i s s t a t u t e d i d n o t u s e l a n g u a g e t h a t
made i t perfectly. clear.
Mr. Hyde:

I

New Y o r k d i s t r i c t I

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

n the latest circular s e n t o u t f r o m the
notice t h e r e i s o n e a d d t i

o n t o the for-

94
mer list o f the national banks w h o have come i n t o t h e collection system.

M

a

y I ask what i s being done b y the dif-

ferent d i s t r i c t s

t o induce t h e banks

t o come in.

I

s there

any missiozary w o r k being done?
Governor Strong:
tions a r e d i f f e r e n t

I t varies i n each district.

i n e a c h district, M r . Hyde.

I

Condi=
n Boston

Mr. Aiken c a n explain t h e condition that i s pecttliar t o that
section a n d which does n o t prevail i n any other.
Mr. A i k e n w i l l m a k e a

Possibly

statement w i t h r e g a r d t o collections

in the Boston district.
Governor Aiken:

T h e situation w i t h u s i s a little pe—-

culiar i n that w e have, a s y o u gentlemen know, a n d have h a d
in operation f o r almost twenty years a

system o f collections

through t h e B o s t o n c l e a r i n g h o u s e a n d t h e i r f o r e i g n d e p a r t —

ment.

T h e r e a r e something over 6 0 0 members, a r e there not,

Mr. McKay?
Mr. McKay:

Y e s .

Governor Aiken:

S o m e t h i n g o v e r 6 0 0 members w h o remit

through t h e B o s t o n c o u n t r y c l e a r i n g a n d a l l b u t a b o u t 1 0 0

remit o n receipt o f checks a t par i n Boston.

T h a t covers

the State banks as well as nabional banks with us. T h e result h a s been that w e i n our district h a v e not h a d anything
to offer t o our banks b y way o f collection facilities.
need n o t o n l y t h e s a m e f a c i l i t i e s ,

T h e y

b u t facilities f o r hand-

ling state bank checks a s well through their Boston corres-—
pondents.

T h a t h a s arisen through competitive conditions.

We h a v e n o t d o n e a n y m i s s i o n a r y w o r k a t all. i

am perte.¥

sure that with the personal acquaintance I have among our

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

bankers t h a t i f I had gone o u t I

95
could have gotten a great

many banks i n New Ergland t o come i n o n the present plan, b u t
it s e e m @ t o

matical.
changes

m e t h a t t h e development

o f the p l a n was proble-

I t seemed t o m e obvious that w e had t o make some
i n it, s o I

was n o t d i s p o s e d

to b e a r o n t h e banks.

T h e feeling

t o bring a n y pressure
i n N e w Lngland h a s g r o w n

msidcrably stronger since t h e Federal reserve b a n k was i n
operation,

i n favor o f par remittances, a n d I

do not think I

am violating a n y confidence i n saying that matter o f cajoling o r coercing t h e banks w h o a r e n o t remitting a t par i s
under s e r i o u s c o n s i d e r a t i o n .

O u r situation f o r working

out a remittance basis i 8 peculiarly faverable, because i f
our systemis a d o p t e d I

think w e c a n t a k e o v e r t h e Boston

Country clearing system a n d p u t i t i n the hands o f t h e
Boston Clearing House a n d d o i t through t h e Federal reserve
bank.
Mr.

V a n Deusen:

B o t h state institutions

Governor Aiken:

Yes.

a n d national?

T h e r e i s n o reason w h y w e

could n o t handle checks o f state institutions a s well a s
national banks.
Mr. Hyde:

W e have t o take all t h e checks.
W h e n t h e question o f changing t h e collec-

tionsystem i s b r o u g h t

u p with t h e country banks

i n the lo-

cality from which I come the question i s asked: “Whatadvantage d o w e g e t ?

W h a t advantage

present system? I
condition.

i s i t t o m e t o change

a m entirely satisfied w i t h t h e existing

w h y should I

change?

h t e desire

and s u p p o r t t h e F e d e r a l r e s e r v e s y s t e m ,
pondents

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

my

t o b e patriotis

b u t these corres—

o f ours h a v e c o l l e c t e d o u r c h e c k s f o r s o m a n y

95~1/2
years a n d have performed s o many other services f o r u s that
we d o not s e e w h y w e should desert t h e m when there i s nothing
else that gives u s a n y greater advantage."
argument I

have h a d to. meet a

Governor Strong:

T h a t i s the

number o f t i m e s

i n u r g i n g this.

T h e country banker h a s been able t o

collect h i s c o u n t r y c h e c k s u p o n a

favorable b a s i s b y u s i n g

his reserve balance w i t h the reserve agents, b u t when these
balances n o longer count a s reserves a n d a r e transferred t o
the reserve banks, w h a t i s h e going t o d o about collecting

his checks?

I s he going to maintain a reserve balance with

uS and maintain a big balance with his correspondent i n order
to compensate t h e correspondent f o r making collections?

Mr. Hyde:

M r . Hinch's resolution i s i n that direc-

Tron, 2 6 ° 2 % n o t ?

Governor Strong: L x a c t l y , a n d f o r that reason I

say

it will b e impossible t o separate these t w o subjects w h e n
they a r e discussed.

Mr- Hyde:
Mr. Otte:

T h a t i s a point I wanted t o bring out.
I t is just one o f the services performed;

that i s all.
Governor Strong:

i t i s one o f « number -of services.

There a r e o t h e r s t h a t w e c a n p e r f o r m u n d o u b t e d l y ,

ably will perform. I
put i n t o o p e r a t i o n

a n d prob-

have n o doubt t h a t a scheme will b e

i n time b y which w e c a n collect their

coupons a n d drafts, a n d also collect items o n state banks,
in time;

b u t w e m a y n o t b e a b l e t o b u y c o m m e r c i a l p a p e r anda

securities f o r them.


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

I f w e do, i t may take some time t o

96
develop o u r o r g a n i z a t i o n

to a

point w h e r e w e c a n p e r f o r m

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

i n t h e past.

But t h e country banker does n o t today realize that i n order
to maintain t h e existing relations h e has g o t t o maintain
a considerable balance, w h i c h will b e a source o f great e x pense t o him, a f t e r t h i s t r a n s f e r

o f reserves t a k e s place.

He d o e s n o t c o n n e c t t h e t w o p r o p o s i t i o n s

Mr. Hydes

a s h e should.

H e c a n either d o that o r g o into t h e state

system.

Governor Strong:

W e have been reminded o f that fact

by the state banks quite frequently.

While a

few o f them

have given u p their national charters, y e t i t i s a fact that
that d e v e l o p m e n t h a s n o t t a k e n p l a c e i n a

very significant thing h a s occurred.

large way.

O n e

W h e n t h e Federal R e -

serve Banks were first organized t h e Federal Reserve Bank
of Kansas C i t y a n d t h e Federal Reserve Bank o f St- Louis,
aS y o u know, b o t h u n d e r t o o k a

plan f o r c l e a r i n g c h e c k s w i t h i n

the district that was mandatory; that is, they received :
deposits

o f checks

a t once d r a w n o n all their member banks

and undertook t o collect t h e m free o f exchange.
months a g o w e a d o p t e d a
Banks, a

A b o u t six

plan f o r a l l o f the Federal Reserve

voluntary p l a n , f o r c l e a r i n g c h e c k s

of immediate charge a n d credit.

b y the method

I n St- Louis t h e y felt

that t h e y s h o u l d p u t t h e i r o p e r a t i o n s u p o n a

voluntary basis

and give their members there a n opportunity t o withdraw f r a n
the mandatory p l a n i f they desired t o d o so. I

think there

were seven o r cight hundred members i n the St* Louis Distr
and o n l y 9 6 o f t h e m withdrew.

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

Mr. C a l f e e :

9

5 o f t h e m withdrew.

Mr. Curtis:

I n other words, 8 0 per cent o f them stayed

Governor Strong:

A s a matter o f fact t h e opposition

to t h i s p l a n n o w i n o p e r a t i o n
the e x c h a n g e c h a r g e s

i s n o t necessarily based u p o n

o r balances.

I

t i s based upon a

cer-

tain a m o u n t o f i n e r t i a d u e t o t h e r e a l i z a t i o n t h a t u n l e s s

they all come i n i t i s a n unbalanced operation a n d that t h e y
are n o t able t o send a s many checks f o r collection a s are
charged against them.
Mr. Otte:

H o w a r e y o u going t o b e able t o take care o f

the state banks, w h e n y o u have checks d r a w n o n state banks
at different p o i n t s ?

I

n our district I

believe w e h a v e

nine hundred o d d banks members i n the system, a n d while I
may b e off i n these figures, I
those b a n k s h a v e c o m e i n .

Mr. MeKay:
Mr. O t t e :

E

believe only 1 1 0 o r 115 o f

s that riche?

1 1 6 have c o m e in.
T h a t is a

v e r y s m a l l percentage.

B e f o r e

this cohlection scheme w a s p u t into effect w e were benefited
more-—-— snd I

a m talking about o u r o w n b a n k - — b y the Federal

reserve s y s t e m t h a n w e a r e a t present,

f o r the simple reason

that w e were able t o deposit w i t h the Federal reserve b a n k
checks

o n cities l i k e D e t r o i t a n d I n d i a n a p o l i s — - I

do not

know whether t h e y have come into t h e system n o w o r not, b u t
they w e r e n o t i n a

short t i m e ago, w h e n I

made t h e c o m p a r i -

sone


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

Mr. McKay:

D e t r o i t h a s c o m e i n but Indianapolis h a s

98
Mr. Otte:

T h e y a r e b i g cities, anyway, where w e had

a large volume o f business.

E e were a b l e t o send those

over t h e n a n d w e are n o t able t o d o i t now.

W e could send

them over a n d have t h e m collected immediately, b u t w e cannot
do i t now.

I n exchange f o r that w e are given that privil-

ege i n small t o w n s l i k e Monmouth, I l l i n o i s , w h e r e w e h a v e
about t w o c h e c k s a

day, t h e t o t a l a m o u n t n o t e x c e e d i g
n 150;

and therefore t h e real benefit t o u s i s less t h a n i t was
before.
The Chairman:

Y o u would b e benefited

if a

system w a s

adopted which was universal a n d complete throughout t h e e n tire Country:
Nee O p t e s

Y e s .

Governor Strong:
banks u n d e r t o o k

H o w would y o u feel i f the reserve

t o collect checks

on a

system o f deferred

debit dnd credit; that is, cut dewn the present transit time
by a

considerable amount, w h i c h w o u l d b e m a d e possible

on

account o f the relations between t h e reserve banks, a m d
abandon t h e i m m e d i a t e d e b i t a n d c r e d i t p l a n i n f a v o r o f a
deferred c o l l e c t i o n p l a n ?
Mr. O u v e s

T h a t is a

pretty b i g subject. P

have n o t g i v e n i t a n y t h o u g h t a n d I
record h e r e a s f a v o r i n g

really

would n o t w a n t t o g o o n

i t o r not favoring i t , o r anything

of that kind, until I have h a d time t o digest i t and make a
study o f it.
Governor A i k e n : I

have b e e n very m u c h i n t e r e s t e d

to

n from the gentlemen here o f how t h e y think
have a n e x p r e s s i o
a universal p l a n o n a collection remittance basis, w i t h defer
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

99
red c

r e d i x tmandatory
—« —
plan-—- would operate? I

a m iyg-

terested t o know i f they think i t would b e successful a n d
Satisfactory a s compared t o the present methods o f collectlon?
Governor Strong:

I

n o t h e r words, s u p p o s e t h e r e s e r v e

banks s a y t o their member banks, " W e will receive o n deposit
from y o u a n y check drawn o n any member b a n k i n the United
Statesand g i v e y o u credit f o r i t after t h e lapse o f a
sufficient number o f days f o r that check t o reach its destination a n d come b a c k t o the resérve b a n k o f that d i s —
trict-— n o t t o us——— b u t t o t h e reserve b a n k o f that p a r —

ticular district".

T h e minute w e s a y W e will receive

any c h e c k o f t h a t c h a r a c t e r n a t u r a l l y w e o p e n t h e d o o r
to

the deposit o f checks drawn o n banks which make a practice
of charging exchange, a n d i n some cases excessive exchange.

Would that b e a facility t o the member banks that they would
take advantage o f a s distinguished f r o m the present p l a n o f

clearing within the district?

H o w d o you feal about that,

Mr. Bucholz?
Mr. Bucholz:

T h e r e a r e some things about i t that a p —

pear t o m e t o b e a little difficult.

F o r instance, c o u r t

decisions have held that a check cannot b e sent" around
Robin Hood's barn"but must b e sent directly t o the place
where payable within t h e shortest time possible.

I f you

could be supported by a decision to the effect that sending i t through t h e Federal Reserve B a n k t o which i t belongs
is t h e d i r e c t a n d p r o p e r w a y t o h a n d l e t h e check, p e r h a p s

you might overcome that.


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

LOO

I would l i k e t o make this suggestion.
the F e d é r a l R e s e r v e B o a r d r u l e o n a
just a s w e l l a s t h e y c a n r u l e o n a

W h y could n o t

proper e x c h a n g e c h a r g e
proper i n t e r e s t c h a r g e ?

There would b e very little cost involved i n this thing i f
you allowed t h e small country bank, f o r instance, t e n cents

a hundred o n letter footings. |

Our main objection has

been that t h e banks i n the country d o not charge o n letter
footings, b u t they have checks o f different amounts a n d they
take a

p e r s o u t o f cach check, a n d sometimes y o u a r e i n

the p o s i t i o n o f p a y i n g 2 5 p e r c e n t e x c h a n g e
I d o n o t s e e w h y y o u could m o t bring about a

o n t h e total.
plan w h e r e t h e

clearing would b e compulsory.

Governor Strong:

Y o u r idea would be that the Board

would f i x b y rule the charge which t h e country bank shall
impose f o r "collecting &a n d remitting",
Mr. Bucholz:

a s the statute reads?

Y e s .

Governor Strong:

A n d that t h e reserve bank, i n turn,

would l e v y a n assessment o n the depositing b a n k f o r reim-—
bursement.
Mr. Bucholz: I

d o n o t believe y o u would f i n d o n e com-

plaint i n a hundred i f that w a s done.

T h a t i s m y judgment

ofit.
Governor Strong:

D o - you feel t h a t t h e banke

i m tne

reserve cities would b e satisfied w i t h such a n arrangement
and p a y the assessment?
Mr- Bucholz:
course. I

department


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

W

e would. I

a m s p e a k i n g f o r myself,

know o u r transit department

i n t h e bank;

i t takes a

of

i s the most expensive

whole l o t o f p e o p l e t o

Lol
handle it-

W e have got t o check u p the checks t h a t a r e

charged o n and those that a r e not, a n d i t i s a n interminable
process a n d v e r y expensive.

Governor Strong:

Y o u spoke o f t e n cents a

hundred

on letter footings?
Mr. UGacholz:

Y e s .

Governor Strong:
Mr. McKay:

W h a t would thet amount t o ?

T h a t would d o away with all p a r lists.

Mie B u e aod 2 ¢ Y e s .

T h e c o u n t r y b a n k c o u l d m o t oab-

ject because y o u would b e conceding h i m a deccnt profit.
Mr. V a n Deusen:

Y o u would h a v e t o make i t universal

because y o u would r u n u p against a

district l i k e N e w Eng-

land w h e r e t h e c h e c k s a r e p r a c t i c a l l y

Jersey,

a t p a r now,

o r New

o r a good m a n y other sections o f the country where

we h a v e b e e n a b l e t o collect p r a c t i c a l l y

a t par, a n d y o u w o u l d

put those sections o n an exchange basis.

T h e ultimate re-

sult o f t h a t w o u l d b e t h a t t h e c o u n t r y a s a
subject

t o more e x p e n s e

been i n the past.

whole w o u l d b e

i n collecting checks t h a n i t has

I t would average m u c h higher, e v e n a t one

tenth o f o n e p e r cent.

Mr. Buecholz:

I f you c a n show t h e country banker where

he can make some money, I do not think you will offend hin.
Goversor Strong: %

ho will pay the bill?

Mr. Bueholz: U l t i m a t e l y t h e customer w h o deposits t h e
checks.
Governor Strong:

T h e n l e t m e rrefrest y o u r m e m o r y a s

to the history o f this legislation.


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

W h e n this A c t was first

102
drawn i t p r o v i d e d t h a t a l l c h e c k s w o u l d

b e parred,

was t h e e f f e c t

o f t h e statute;

Change charge.

F o l l o w i n g t h a t famous meeting

That

t h a t there would b e n o e x i n Beston,

an a r m y o f c o u n t r y b a n k e r s m a r c h e d d o w n h e r e t o W a s h i n g t o n

and told Congress t h a t t h e y were going t o drive t h e m out o f
business

o r o u t o f t h e system.

C o n g r e s s then put a

pro-

viso into t h e bill t o the effect t h a t nothing should prohibit
a bank from charging t h e actual c o s t o f colle cting a n d
remitting funds.

A

s Someone h a s aptly said t h e statute

provides n o w t h a t y o u s h a l l r e c e i v e

o n deposit

checks u p o n which exchange i s not charged.

a t par

T h a t i s what i t

means,

Mr. Bucholz:

T h a t would b e the Subject o f a m amend-

ment, Mr. Strong,

a n amendment t o change t h e l a w i f neces-

sary i n o r d e r t o m a k e i t a
Governor Strong:

reasonable thing.

T h e n y o u come right b u m p against o u r

difficulty here, t h a t i f w e attempt t o carry o u t t h e statute
and put i t into effect w e make universal t h e charge
exchange,

o f

T h e statute provides t h a t t h e Reserve Board

shall s a y what t h e member bank Shall charge i t s customer,
and t h e r e i s i m p o s e d u p o m t h e c u s t o m e r s

o f t h e banks t h e

necessity o f paying some exchange o n all country checks.
Some p e o p l e h o l d , a n d p a r t i c u l a r l y t h e c o u n t r y banker, t h a t

where there i s a State bank i n the s a m e town, i f they endeavor t o reimbugse themselves f o r that service charge t h e y

will drive their customers t o the state bank a s they d o not
want t o b e a n n o y e d


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

Governor S e a y :

b y these little charges.
D

o y o u contemplate t h a t t h e country

103
bank would p a y f o r having t h e checks w h i c h i t received o n
deposit

o n cther country banks---

Mr. Bucholz:

Y e s ; a

reasonable charge.

T h a t would

drive t h e m t o send t h e m t o the Federal Reserve Banks i n
place o f t h e i r c o r r e s p o n d e n t s .

Governor Svcy:

T h e n t h e question weuld b e whether t h e y

paid m o r e t h a n t h e y received.
Mr. Buecholz:

Y e s ;

t h a t would

b e t h e question.

(Informal discussion followed.)
Governor Strong: I
with r e g a r d

deal.

would l & k e t o a s k another question

t o this matter,

o n e that h a s puzzled

W h a t weuld b e t h e effect

into operation a

u s a

o f o u r undertaking

good

t o put

plan which would b e mandatory--—— that i s t o

Say o n e t h a t w e w o u l d e n d e a v o r

t o make mandatory---

every m c m b e r b a n k w e u l d b e r e q u i r e d
par f o r c h e c k s w h i c h

b y which

t o remit e v e r y d a y a t

w e sent t h e m direct

t o the bank

o n

which drawn?
Mr. Bucholz: I
objection t o that. A

think there would b e pretty strenuous
banker i s like a n y cther human being;

he does n o t like t o b e forced i n t o anything.

to force him he shows fight a t once.

W h e n y o u try

I f you submit a pro-

positicn t o h i m t h a t i s f a i r f r o m h i s s t a n d p o i n t a n d f a i r

from the standpoint o f the business world i n general, y o u
would b e v e r y l i k e l y t a k e n u p a n d y o u r p r o p o s i t i o n accepted.

Governor Strong:

T h e n I understand y o u think that

whatever p l a n i s a d o p t e d s h o u l d b e u n d e r t a k e n
tary b a s i s w i t h a


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

o n the velun-

view o f g r a d u a l l y w o r k i n g t h e s y s t e m i n a n d

104
i t univer-

developing a d v a n t a g e s w h i c h w i l l u l t i m a t e l y m a k e
seal?

Mr. Buchelz:

i f the

W e would l i k e t o see that done.

Federal R e s e r v e B o a r d w o u l d e s t a b l i s h a

uniform r a t e o f e x -

chang e—-—

Y o u mean a uniformservice charge?

Governor Strong:
Mr. Bucholz:

C a l l ‘ i t that i f y o u wills

Perhaps

it

sounds better.

I f y o u say, “ a uniform rate o f ex-

Governor Strong:

change" t h e Federal reserve bank o f Chicago will withdraw
from the system. (Laughter)
Mir. V a n - Deusen:

D o e s n e t t h e experience

o f Kansas C i t y

and S t . L o u i s b a n k s t e n d t o d e m o n s t r a t e t h a t i f y o u a d o p t a
compulsory s y s t e m o f i m m e d i a t e r e m i t t a n c e ,

t h a t while there

would b e s o m e objections, possibly t h e b e n e f i t s

o f i t would

very s o o n b e seén and t h e objections w o u l d die o u t before
very Long?

I

f that w a s extended t o the interdistrict

proposition t h e y w o u l d n e t o n l y b e a b l e t o g e t c h e c k s
their locality,

b u t p r a c t i c a l l y a l l o f t h e i r checks,

o n
cole

lected free, a n d that would offset i n most cases--- i n some
entirely--- a n y expense that t h e y might b e under i n making
T h e y would n o t b e under t h e expense

imnediate r e m i t t a n c e .

of maintaining additional reserves t o take care o f the
immediate charge o f those items t o their accounts, a n d that
would offset t h e cost o f the transfer o f cash. I
cost o f t h e t r a n s f e r
considered-

I

o f c a s h i s a n element t h a t i s not always

t i s n o t always n e c e s s a r y

by remitting currency.


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

think thet

t o make exchange

T h a t i s a seasonal proposition

105
almost always.

A

u times t h e flow o r exchange

i s against

them s o that they have t o remit currency t o cover t h e ex-—
change that t h e y wraw.
Way.

A t other times i t i s the opposite

T h e necessity o f remitting currency t o cover exchange

is n o t a

d a y b y d a y propesition,

a n d i f you base a n ex-

change charge o r service charge o n the cost o f remitting

currency from the local point t o the center i t would b e unfair.

I

t would n o t b e f a i r t o t a k e i t f o r t h e e n t i r e y e a r

and y e t simply p u t that charge o n during t h e time when i t i s
necessary

t o m a k e t h e exchange.

Governor Strong: A

charge o f a dollar a

thousand,

such a s y o u suggested, Mr. Bucholz, w o u l d operate quite u n evenly,

i f that were considered

t o b e t h e equivalent

of a

charge f o r shipping currency, because t h a t varies considerably a.cording t o the distance o f the member bank from the
reserve bank, t h e denomination o f the bills shipped, a n d s o
forth.
Mr. V a n Deusen:

U n d e r present conditions t h e local

bank does n o t have t o ship currency unless i t has a surplus
of currency.

T h e y c a n make exchange o r rediscount.

Governor Seay:

T h e plan a t present used b y Kansas

City m a y n o t b e m o v i n g a s s m o o t h l y a s y o u m i g h t t h i n k i t is,
unless y o u a r e f a m i l i a r w i t h it.

Mr. V a n Deusen: I
Governor Yeay:

have n o t b e e n i n touch with it.

I t has developed Gonditions t o which

all o f our members would n o t b e willing t o assent.

T h i s

immediate credit a n d debit system has produced overdrafts
to a very large extent.

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

106
Mr. B U C h O L Z s I

have h a d s o m e e x p e r i e n c e w i t h that.

One d a y w e received a

letter containing $160,000.

N o n e of

that h a d been endorsed b y the Federal Reserve Bank.
count w a s c h a r g e d w i t h t h a t a m o u n t

o f money. A

C

u ace

$40,000

item was n o t e v e n signed b y the officialof t h e bank that d r e w
the draft o n us,

O f course ouraccount w a s charged w i t h

that, a n d w e s e n t t h e l e t t e r b a c k f o r correction.

i

m Lae

meantime w e "stood i n the red" i f anything h a d happened.
Another institution w a s overdrawnthe minute their letter w a s
sent o u t a n d t h e y w e r e w i r e d t h a t t h e i r a c c o u n t w a s o v e r d r a w n

¥30,000 a n d t h e y must m a k e good a t once b y wire.
the difficulty y o u have.

S o y o u sée

I n addi tion t o that y o u d o not

know w h e t h e r t h e m a n w h o d r a w s t h e c h e c k h a s t h e m o n e y o n

dcuposit, whether t h e signatures a r e genuine a n d s o forth.
object most strenuously t o having t h e account o f our bank
charged w i t h i t e m s u n t i l t h e y a r e received.

The Chairman:
business I

I f you have "stood i n the red" i n this

will t e l l y o u t h a t w e h a v e also.

B u t yours i s

just i n k a n d ours i s blood. ( L a u g h t e r )
Mr. Bucholz:
of a

Chicago bank.

Y o u k n o w Mr. M c H u g h ,
I

l happened

w h o was a

director

t o meet h i m o n the train a n d

he told m e that h e had maintained w i t h the Federal Reserve

Bank o f Chicago, t o which he belongs, $150,000 more than the
law re~uired h i m t o keep there, a n d y e t h e said there h a d
not b e e n a

moment w h e n h e w a s i n t h e b l a c k o n t h e b o o k s

tnere;
Governor Strong:

T h a t i s u n d o u b t e d l y d u e t o t h e prac-—

tice t h a t h a s b e e n p e r m i t t e d u n d e r t h e o l d l a w , w h i c h i s g o i n g

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

=
to b e discontinued,
letter a s reserve.
from t h e a c c o u n t

o f permitting a

1

0

7

bank t o count i t s cash-

B u t t h e r e d i n k would b e eliminated

b y deferring t h e charge until t h e i t e m h a d

reached i t s d e s t i n a t i o n a n d r e t u r n h a d b e e n made.
serve r e q u i r e m e n t

o f t h e b a n k would b e increased

T n e reb y the fact

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

t o c o u n t i t a s reserve.

Mr. Bucholz: I

believe t h a t this collection matter

by Federal R e s e r v e B a n k s i s g e t t i n g u n d u e p r o m i n e n c e
present time.

I

a t the

n the first place t h e ccuntry b a n k has

been accustomed f o r years a n d yrars,
bank w a s o r g a n i z e d ,

i n fact ever since t h e

t o send i t s correspondent a

job lot o f

items, charging i t t o them o n the books a n d drawing against
it the next minute.

T h e country banker i s pretty apt t o

consider that t h e same thing w h e n h e sends h i s items t o the
Federal reserve bank.
items

t o g e t there,

there, a n d I

W h i l e i t m a y take t w o days f o r those

s o f a r a s h e i s concerned,

think t h a t i s a

they are

matter t h a t c a n o n l y b e cerrect-—

ed b y gradual education.

aovernor Strong:

T h e difficulty arises t h a t this l a w

is mandatory i n its provisions:
serve b a n k s s h a l l r e c e i v e
attempts

I

t says that Federal r e -

o n deposit

t o afford c e r t a i n relief

a t par, a n d t h e n i t

b y p e r m i t t i n g t h e m t o charge

their m e m b e r b a n k s f o r t h e service,

a n d t o allow t h e expense

of remitting a n d collecting t o the members t h a t collect a n d
remit.

Mr. Bucholz:

T h e cnly thing I

can s a y there i s that

the F e d e r a l R e s e r v e A c t w a s f r a m e d a n d p a s s e d b y m e n w h o d i d

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

not f u l l y u n d e r s t a n d b a n k i n g practice.

Governor Strong:
Mr. Bucholz:

W e agree with y o u there.

A s w e get better acquainted h e r e w e

Should m a k e s u c h a m e n d m e n t s
pusinese i n t e r e s t s

Mr. Otte:
wise,

t o the l a w a s will h e l p t h e

o f t h i s country.

A l o n g that line, w e u l d i t not probably b e

o r a t least would i t n o t b e a

the F e d v r a l R e s e r v e B a n k s t o make,

fair p r o p o s i t i o n f o r
t o a s k that this part

of t h e F e d e r a l r e s e r v e A c t b e s u s p e n d e d f o r s o m e t i m e i n o r d e r

to give t h e m a chance t o work i t out.

M y private opinion

is that this whole thing i s a mistake. I

believe that y o u

can probably succeed i n the course o f time, b u t y o u have
got t o b r i n g i t a b o u t
is r e a l l y u n f a i r

by a

slow process

o f evolution.

I t

t o y o u gentlemen h e r e t o expect y o u t o w o r k

this o u t i n a very short time.

Y o u cannot d o i t and that

is-eld there L a 2 6 tmat.,
Governor Strong:

Y e t t h e y claim w e have b e e n wmalinger-

ing with it,
That suggestion h a s b e e n frequently made, a n d again w e
are confronted w i t h this difficulty;

w e are going t o get

these r e s e r v e b a l a n c e s t h a t h a v e b e e n t h e b a s i s o f t h e c o l -

lection arrangement o f the country banks.

T a k e a typical

country b a n k t h a t s e n d s % 2 , 0 0 0 a d a y t o i t s r e s e r v e c o r r e s p o n d -

ent.

H o w i s i t going t o make arrangements t o epllect that

cash l e t t e r a f t e r t h e reserves a r e t r a n s f e r r e d

t o us and the

compensating b a l a n c e w i t h i t s c o r r e s p o n d e n t b a n k n o l o n g e r

counts a s reserve? L v i d e n t l y t h e country bank i s going
to, b e i n a


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

hole.

109
Mr. Otte:

B

y having t h e l a w amended

as I

proposed a

minute ago-~--

Governor Strong:

I f you gentlemen will develope that

with t h e R e s e r v e B o a r d I

will s a y t h a t w e w i l l n o t i n t e r f e r e

with a n y e f f o r t t h a t w i l l r e l i e v e

u s o f this p r o b l e m f o r a

while.. (Laughter)
But this emphasizes t h e point t h a t was made before,
that w e cannet s e p a r a t e t h e p r o b l e m o f t h e c o u n t r y b a n k ' s r e serve f r o m t h e p r o b l e m o f t h e c o u n t r y b a n k ' s collections.

They are one and the same thing, a s this statute i s now drawn.
Mr. C o x :

M r . Strong, I

presume w e w i l l a d j o u r n v e r y

Shortly, a n d some o f us are n o t quite clear a s t o just what
you w o u l d l i k e t o have o u r c o m m i t t e e d o .

W

e will b e glad

to cooperate w i t h y o u i n any w a y w e can,to assist you, a n d
any t i m e w e c a n b e o f s e r v i c e a l l y o u h a v e t o d o i s t o i n dicate

i t a n d w e will b e g l a d t o m e e t you.

I

f y o u desire

to have u s meet w i t h y o u again i n January o n the 19th, w h e n
I understand y o u will have y o u r full Board o f Governors, I
am s u r e t h a t t h i s C o m m i t t e e w i l l b e v e r y g l a d t o d o so.

Governor Strong: I

d o not hesitate t o s a y that I be-

lieve personally, a n d I think t h e other members o f the Committee will agree w i t h me, that yourinterests a n d o u r interests w o u l d b e promoted

we have a

i f y o u would m e e t w i t h u s whenever

meeting o f the Governors.

T h a t does n o t neces-

sarily m e a n that i t would interfere w i t h o u r devoting a
portion o f t h e t i m e w h i c h i s n e c e s s a r y

t o the discussion o f

problems o f organization a n d administration i n which y o u are
not particularly interested; b u t w e have problems before u s

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

110
that must b e worked o u t i n cooperation,
what y o u r a t t i t u d e w i l l b e w i t h o u t

W e cannot assume

a n interchange

o f views,

and I think w e would a l l welcome s u c h a meeting next month
it 1 % c a n b e arranged.
Mr. C o x :

T h a t expression f r o m y o u means t h a t w e will

be only t o o glad t o meet with you.
Governor Strong:

T h e chances a r e t h e whole problem

of amendments will b e actively under consideration a n d i t
may b e that y o u c a n b e o f considerable service i n that matLer,

Mr. Cox:

I f y o u have a n y suggestions t o make a s t o

topics t h a t y o u w o u l d l i k e u s t o consider,

w e will b e g l a d

to take t h e m up.
Governor Strong:

W e certainly will d o that, Mr. Cox.

Before w e g o o v e r t o m e e t w i t h t h e B o a r d t h i s a f t e r n o o n

I would like t o s a y that w e are going t o uphold your hands
and your arguments i n any w a y that w e can.

O a r Deli et i s

that y o u are o u r clients, o u r stockholders a n d that w e are
responsible t o you; that w e have n o interests t o serve that
are n o t yours,

a n d w e a r e anxious

t o gét y o u t o verify t h e

conservative e x p r e s s i o n s t h a t w e h a v e m a d e t o t h e B o a r d

about collections a n d some other matters. i
help u s i n o u r w o r k v e r y much,

W

Ane 2

o t

e a r e n o t a t all k e e n about

some o f thes« theoretical banking ideas that have b e e n i n ~
troduced i n t o t h e law.

W e would l i k e t o have y o u express

your o w n views about t h e m just a s frankly a s w e do.

W e

need e n d o r s e m e n t s o c c a s i o n a l l y f r o m p r a c t i c a l bankers.

ter.)

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

(Laugh-

Sik
I think y o u will f i n d t h a t s o m e o f t h e members

o f the

Board a r e j u s t a s m u c h p e r p l e x e d a b o u t t h e s e p r o b l e m s
we are, a n d t h a t t h e y w i l l w a n t help.

as

T h e y a r e a l l sensi-

ble m e n and a r e very m u c h interested i n making this system
a success.
Mr. Cox:

I f y o u have anything o f a private nature

that your Committee would like t o take up, we will be very
gled t o retire.
Governor Strong: I
unless s o m e m e m b e r s

do not think w e have anything,

o f our committee h a v e suggestions

to

make.

(No further business w a s transacted, a n d a t 1:20

o'clock p. m. the Committee adjourned until tomorrow, Thursday, December 16, 1915, a t 9:30 o'clock a. ma, and the Lxecutive Committee o f the National B a n k Section o f the American
Bankers Association a n d t h e Executive: Committee o f the
Governors

o f t h e Federal R e s e r v e B a n k s c a l l e d u p o n t h e

Federal Reserve Board,

a t 3 o'clock p . m., f o r the purpose

of having a joint meeting.)


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

OD: eeMeeeSage

D

A

Y

Shoreham Hotel, Washington, D . C.,
Thursday, December 16, 1915.

The ixecutive Committee o f the Conference o f Governors

reassembled a t 9:30 o'clock a. m.
Appearances a S indicated o n first d a y o f meeting.
Governor J . B . McDougal, chairman o f the committee,
resumed

t h e Chair.

PROCLEDINGS.
The Chairman:

M r . Curtis,

w e will proceed w i t h t h e

discussion o f the amendments t o the Act.
Mr. Curtis: I

had just p u t into t h e record some

Suggestions w i t h regard t o Section 18, about what t h e
Secretary o f t h e T r e a s u r y m i g h t b e required. toe do, a n d t h a t

matter really h a d n o t been discussed w h e n w e adjourned.
The Chairman: G e n t l e m e n , w h a t chall w e d o with these
Suggested changes?
Governor Strong: I

move t h a t w e r e c o m m e n d t h e f i r s t

change with regard t o psragraph 1 of “ection 1§, and suggest t h e second.

(The motion was duly seconded a n d carried.)
Mr- Curtis:

T h e next suggestion i s with regard

to

section 16.
(After considerable information discussion w i t h
regard

t o peragraph 1

o f S e c t i o n 1 6 , i t w a s moved, s e c o n d e d ,

and t h e motion carried, t h a t t h e following suggestions o f


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

onanges f n paragraph 1 of Section 1 6 t o be made: )
"Fedural reserve notes, t o be tissued a t the discretion o f the Federal Reserve Board, through t h e Federal R e serve agents a s hereinafter s e t forth, a r e hereby authorized
and s h a l l b e i s s u e d f r o m t i m e t o t i m e f o r t h e p u r p o s e
ing advances

t o Federal R e s e r v e B a n k s a n d f o r t h e o t h e r p u r -

poses s e t forth i n this Act.
tions

o f mak-

S a i d notes shall b e obliga-

o f t h e United S t a t e s a n d s h a l l

b e receivable

b y all

National a n d m e m b e r b a n k s a n d F e d e r a l r e s e r v e b a n k s , f o r a l l
taxes, c u s t o m s ,
deemed

a n d o t h e r p u b l i c dues.

T h e y shall b e re-

i n g o l d o n demand a t t h e T r e a s u r y D e p a r t m e n t

o f the

United States, i n the City o f Washington, District o f Columbia, o r a t a n y subtreasury o f the United States, o r i n gold

or lawful money a t any Federal reserve bank. N o t e s s o redeemed w h i c h a r e u n f i t f o r f u r t h e r c i r c u l a t i o n m a y b e c a n ~

celled a n d destroyed a t t h e point o f redemption a n d reimburse-

ment o f the amount paid i n redemption therefor shall b e
effected b y the filing c f a certificate t o be made under
rules a n d r e g u l a t i o n s

o f t h e Federal R e s e r v e Board, w h i c h

which
certificate s h a l l b e f i l e d w i t h t h e b a n k t h r o u g h t h e n o t e s

were originally issued."
(Further informal discussion followed.)
The Chairman: I
to i n q u i r e w h e t h e r

am going t o interrupt this discussion

w e will have t o have another meeting

with t h e F e d e r a l R e s e r v e B o a r d . I

understand t h a t w e a r e e n -

tirely through with the Board, a n d i f that i s t h e case Il
would l i k e t o s u g g e s t t h a t w e appoint a

which committee I


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

committee n o w ,

on

would b e very glad t o serve, t o wait u p o n

114

the Governor,

o r some member o f the Board, a n d ascertain f r o m

them t h e p r e s e n t s t a t u s

o f this proposed c o l l e c t i o n system,

asking f o r permission t o notify a l l the Governors t h a t a r e
not p r e s e n t here.

Reserve Board;

w

e h a v e h a d n o advice f r o m t h e F e d e r a l

w e came here f o r t h e purpose o f ascertaining

that, a n d I think 1 % would b e well t o make t h e inquiry.

(Following the statement made b y the Chairman, h e
(Governor McDougal), retired f r o m the hearing r o o m t o con-

fer with the Federal Reserve Board.)
Governor Seay:

( P r e s i d i n g a s chairman)

S h a l l w e not

proceed?

‘ps Curtiss
Paragraph &

T h e next suggestion i s i n reference t o

o f Section 1e.

(Informal d i s c u s s i o n f o l l o w e d
Section 1 6 ,

a n d the following

o n paragraph 2

w a s decided u p o n

of

a s the recop-

mendation t o b e made;)

"Any Federal reserve bank may make application t o the
local Federal reserve agent f o r such amount o f t h e Federal
reserve notcs hereinbefore provided for. a s i t m a y require.
Such application shall b e accompanied w i t h a tender t o the
10cal P e c e r a l reserve, a g e n t o f collateral i n / a m o u n t e q u a l t o
the s u m o f t h e F e d e r a l r e s e r v e n o t e s t h u s a p p l i e d f o r a n d
issued p u r s u a n t

t o s u c h application.

T h e collateral s e c u r

ity thus offered shall b e notes, drafts o r bills o f exchange
accepted f o r r e d i s c o u n t u n d e r t h e p r o v i s i o n s

o f Section 1 3

of this Act, o r acceptances a n d bills o f exchange bearing
the e n d o r s e m e n t


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

o f a

member b a n k purchased

under

t h e provi-

115
sions o f Section 1 4 o f this Act, o r gold o r gold certificates, a n d a

Federal r e s e r v e a g e n t S h a l l e a c h d a y x o t i f y t h e

Federal Reserve Board o f all issues a n d w i t h d r a w a l s o
f Federal
reserve notes t o and b y the Federal reserve b a n k t o which
he & 8 accredited.

T h e Federal Reserve Board m a y a t a n y

time call upon a

F e d e r a l Reserve Bankfor additional secur-

ity t o protect the Federal reserve notes issued t o it."
(Governor McDougal entered t h e hearing r o o m and

resumed the chair.)
The Chairman: G e n t l e m e n , I did not get what 1 went
after, I

refer t o definite word from the Federal Reserve

Board with regard t o t h e present status o f the collection

plan. I

tried t o get their sanction o f a notice that I

should send t o the cther banks, a n d Hovernor Hamlin s t e a
that w e had better l e t i t rest until this afternoon.

H e

Stated that h e would b e very glad t o meet those members o f
the committee w h o would b e here this afternoon a t three
o'clock; t h a t t h e y would b e glad t o hear what w e had t o s a y
about t h e proposed amendments, a n d that a t that time h e would

undertake t o give u s some word which w e could send t o the
member b a n k s w i t h r e f e r e n c e

t o t h e c o l l e c t i o n plan.

It w i l l b e u n d e r s t o o d t h a t t h o s e o f y o u w h o h a v e n o t

left Washington a t that t i m e will meet with t h e Federal R e serve Board a t three o'clock this afternoon.
(Further informal discussion o f paragraph 2

of Section

16 followed. )
The Chairman:

I f there i s n o objection w e will proceed

to t h e n e x t paragraph.


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

116
Mr- Curtis:

T h e next suggestion i s t o strike o u t

the whole o f the t w o centences i n paragraph three, beginning
"Whenever Federal reserve notes issue@", etc., a n d ending
"face value o f notes s o paid out."

(Informal discussion o f paragraph 3 of Section 1 6
followed, a t the conclusion o f which, a t 1 o'clock p. m.,
the Committee recessed until 2:25 o'clock p . am.)

Felees ee ae R E C E S S .

The Committee reassembled a t 2:15 o'clock p. m.
The r

e n

W

e w i l l p r o c e e d w i t h t h e s e amendments.

(Further informal discussion o f paragraph 3 of
Section 1 6 followed: )
The Chairman: I

d o n o t think i t i s possible f o r u s

to g o a n y further w i t h the discussion o f these amendments
today. I

think w e should decide n o w whether

o r not w e are

going t o report b a c k t o the Governors’ Conference covering
the a m e n d m e n t s

a s f a r a s w e have gone,

a n d also what w e

Shall d o with the balance o f the proposed changes.
(After further informal discussion t h e following

agreement was made.) :
The Chairman:

I

t i s understood t h a t t h e record m a d e

in regard t o amendments t o the FederalReserve Act, u p t o
this p o i n t , r e p r e s e n t s s i m p l y

a n informal d i s c u s s i o n

o f the

tentative suggestions submitted t o the committee; a n d i t i s
understood t h a t t h e changes offered i n the suggestions s u b -

mitted are to embodied i n a redraft o f these suggestions t o


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

4

be f u r n i s h e d

t o t h e Executive Committee f o r further s t u d y

and c o n s i d e r a t i o n b e f o r e t h e n e x t C o n f e r e n c e

o f Governors.

(Whereupon, a t 2:45 o'clock p. m-, the meeting of the
Executive Committee adjourned, subject t o the call o f t h e
Chairman, a n d with the understanding t h a t those members o f

the committee who were i n Washington a t three o'clock this
afternoon should call upon the Federal Reserve Board.)


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

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