Full text of Federal Reserve Governors Conference : Meeting Documents : January 19-21, 1916, Sixth Conference of Governors of Federal Reserve Banks : Proceedings, Volume 2: January 20 & 21, 1916

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Federal Reserve Bank of St. Louis

SIXTH C O N F E R E N C E

GOVERNORS O F FEDERAL RESERVE BANKS

WASHINGTON, D. C.

SHOREHAM HOTEL
Wednesday, January 19, 1916
Thursday, January 20, 1916
Friday, January 21, 1946

WALTER

S. COX

SHORTHAND REPORTER
COLUMBIAN

BUILDING—TEL.

WASHINGTON,

D . C.

M . 8324

SECONPRP

i

Baesas dine”

Shoreham Hotel,
Washington,

D > @.,

Janua ry 20, 1916.

The C o n f c r e n c e r e a s s e m b l e d , p u r s u a n t

t o adjournment,

at t h e Shoreham Hotcl, Washington, D . C., January 20, 1916,

gt 10:50 o'elock as. mu,
Appearances

a s o n yesterday.

There were present a l s o t h e Legislative Committee o f
the American Bankers Association,

a s follows:

C. A. Hinsch, Chairman, President, Fifth-Third National
Bank, Cincinnati, Ohio.
J. W. Perry, President, Southwest National B a n k o f
Commerce, M a n s a s C i t y , Missouri.

We A . Sadd, President, Chattanooga Savings Bank, Chattanogga, T e n n e s s e e .

Also, t h e Executive Committce o f t h e National B a n k Section
of t h e 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 ,


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Federal Reserve Bank of St. Louis

a s follows:

J. E l w o o d C o x , C h a i r m a n , P r e s i d e n t , C o m m e r c i a l N a t i o n a l

Bank, High Point, N. C.
Oliver J. Sands, President American National bank,
Richmond, Virginia.
W. M . V a n Deusen, Cashier, National Newark Banking
Company, N e w a r k ,

N . J.

General Secretary, American bankers Association,
Fred HE. Farnsworth.
Thomas B ; Paton, G e n e r a l C o u n s e l , A m e r i c a n Bankers Asso-ClgtLOn.

131

The Chairman:

T h e meeting will please come t o order.

I a m not sure that t h e sovernors o f the reserve banks
have a l l h a d i t made clear t o them t h e exact situation i n
regard t o our relations w i t h the bxecutive Committee o f the
National B a n k Section o f t h e American Bankors! Association

and the Fedcral Legislative Committec o f the American
Bankers Association.
articles

A s I understand t h e provisions o f the

o f organization o f t h e American Bankers Associa-

tion all mettors having t o do with Federal legislation must
be referred t o and approved b y tho Federal Legislative
committee o f the main organization tefore definite action
or commitment i s made o n behalf o f the Association.
Following o u r last mecting i n Washington w i t h the Executive Committee o f the National B a n k Section o f the American
Bankers Association i t w a s arranged t h a t this joint meeting
of both commitees w i t h our committec might b o held i n order
that whese matters o f legislation that w e discussed before
might b e again discussed,

i f you please, w i t h both o f these

respousible committees o f the American Bankors Association
present.
The minutes o f the last meeting were reduced t o writing

and have been submitted, I believe, t o the Federal Reserve
Board,

t o the Governors

o f the Federal reserve banks, and,

I also judge, t o Mr. Hinsch's committee.

A m I correct i n

that?
Mr- Cox:

Y e s , Mr. Chairman.

The Chairman:

S o that if, a t this meeting, t h e s e

matters are t o be dealt with a t all I assume that everybody


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Federal Reserve Bank of St. Louis

132
is informed a s t o what transpired a t the last meeting.
Mr+ C o x , m a y I

suggest t h a t y o u a r e t h e b e s t j u d g e o f

matters i t would b e desirable t o discuss a t this meetas w e h a v e a l r c a d y m e t w i t h y o u r c o m m i t t e e a n d h a v e

over the ground.
Mr- Cox:

O u r committee representing t h e National

Bank Section o f the American Bankers Association m e t yesterday morning,

a n d i n the afternoon w e had a

joint meeting

with the Federal Legislative Committee o f the American
Bankers Association, and, a S y o u Say, a n y suggestion o f
legislation h a s t o have t h e approval o f t h e Legislative
Committee.
We discussed various matters yesterday, a n d i f y o u are
ready t o t a k e u p t h o s o v a r i o u s s u b j e c t s

.do S o

a t this time,

w e can

T h e r e a r e four subjects i n particular that w e dis-

cussed yesterday, beginning with "interlocking bank directorates",

jects.

a n d w e have a

spokesman f o r e a c h o n e o f these s u b -

I f i t i s your pleasure t o hear from those gentlemen

we c a n c a l l t h e m , e n d t h e n ,

i f y o u desire,

w e c a n enter

into a general discussion o f the topic.
The Chairman:

T h a t i s entirely i n your hands, b o t h

as t o the subjects a n d t h e manner o f dealing w i t h them. I
' would like t o say before t h e discussion starts, however,
that w e h a v e accepted,

w i t h great pleasure,

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

pefore w e M g t

and I

a n invitatian
ought t o say,

o u r discussion, t h a t i t i s very likely w e

will r e c e i v e w o r d 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 t h a t t h e y
would l i k e t o h a v e t h e G o v e r n o r s m e e t t h e m t h i s afternoon.


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Federal Reserve Bank of St. Louis

133

Mr+ Cox: I

am quite sure that all o f our spoukers

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

great d e a l o f time.

I will a s k Mr. P a t o n t o say something w i t h regard t o
interlocking directorates.

Mr. Paton (General Counsel, American Bankers' Associa-

tion):

W h a t I have to say on behalf o f our committee o n

the subject o f interlocing directorates w i l l n o t take over
one o r t w o minutes.

T h e subject h a s already b e e n presented

to your Board and t o the Federal Reserve Board, both orally
and i n writing.
It s e e m s m a n i f e s t l y u n j u s t t h a t M r . A , t h e p r e s i d e n t

“and director o r officer a n d director, o f a $5,000,000 bank
in a large city, i s debarred f r o m being a

director i n a

Small b a n k i n a n outlying district i n the same city where
there i s n o competition, a n d especially i s that unjust
where t h e same Mr. A

may b e a director i n any number o f

State banks situated outside o f t h e city, provided those
State banks d o not c o m e u p t o the five million dollar limit.
That situation seems unjust a n d there should b e s o m e

remedy.

T h e Federal Advisory Council, a s you know, have

recommended legislation which would correct that matter t o
a certain extent,

b y allowing a n officer i n a city o f

200,000 o r more population t o b e i n one other b a n k o r trust
company.

T h a t offers a

measure

o f relief,

b u t i t does

not g o a s f a r a s w e would l i k e t o have i t go, o r a s far a s
we think i t should go.
We have already presented t o y o u t h e Suggestion that
those provisions o f the Clayton A c t relating t o the Federal


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Federal Reserve Bank of St. Louis

reserve b a n k s , s h o u l d b e e n t i r e l y e l i m i n a t e d ;
these p r o v i s i

that

n s h a v e n e part i n a n anti-trust a c t , a n d

that a n y regulation o n the subject sheuld b e i n the banking act.

W e feel thet there i s a basis f o r hope i n

taking that position because o f the fact thet t h e Senate
of the United States entirely eliminaled these provisi:ns
when t h e bill was before t h e last session o f Congress, a n d
they w e r e o n l y p u t b a c k i n a

conference c o m m i t t e e .

A s the

alternative f o r that, a s w e have presented it, w e urge that
the matter b e regulated b y the Yederal Reserve Board, a n d
that t h e p r o v i s i o n s

a s t o officers a n d d i r e c t o r s

i n banks

in different cities a n d places b e omitted entirely.

T h a t

has a l l been presented t o y o u a n d m y only object i n saying
anything i s this:

Y o u have o u r views.

if i t i s censistent,

N o w , w e would like,

t e get a n expression f r e m y o u a s t o

the likelihood o r possibility o f the Tederal Reserve Board
recommending t o Congress t h e passage o f legislaticn along
these lines, a n d i f thet i s done, w h a t y o u think t h e extent
of that legislation s h uld be.

A s I understand it, this

is sort e f a cenfidential cenference?

as I

The Chairman:

yes.

ir. Paton:

t i s not t o b e made public

understand,

I

i n a n y way,

a n d w e would l i k e t o really l n e v w h a t h o p e

there is. T h a t i s really all I have t o say, a n d thet i s
to simply esk the views o f the Governors o f the Federal

Reserve Banks.
The Chairman:
of u s w o u l d a s s u m e

O

f course I

do nrt believe t h a t a n y

t o s p e a k f o r t h e F e d e r a l P e s e r v e Board.

Although t h a t m a t t e r h a s b e e n d i s c u s s e d o n c e o r t w i c e a t o v

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Federal Reserve Bank of St. Louis

135
meetings 1

d o n o t k n o w t h a t t h e y have e v e r expressed t h e i r

views t o us: F u r t h e r m o r e , I

a m afraid m y o w n views o n

that subject would b e regarded w i t h a degree o f distrtst.
I can say, however, t h a t there h a s been a

very strongre-

presentation m a d e t o 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 o t h e

unwisdom o f permitting t h a t part o f the Clayton A c t t o remain a

part o f t h e a n t i - t r u s t l a w s o f t h e country.

i n e

same v i e w h a s b e e n e x p r e s s e d t h a t y o u h a v e e x p r e s s e d ,

and

that i s that i t should b e a part o f the banking l a w o f t h e
country.

Statements h a v e b e e n made t o the Federal Reserve Board
to the effect t h a t dealing w i t h that subject mathematically
is unsound; t h a t what they should deal w i t h i s the fact o f
restraining c o m p e t i t i o n a m o n g t h e b a n k s

o r improper influence

exerted u p o n t h e banks a s t h e result o f this interlocking
directorate arrangement.

I

n fact 1

think t h e Board h a s

before i t now a Suggestion a s t o a n amendment t o the l a w
that w o u l d a c c o m p l i s h s o m e t h i n g

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

Mr. Paton.
That i s a matter that ought t o b e brought t o theatten-

tion o f the Federal Reserve Board b y a n organization such
as y o u r o w n , r a t h e r t h a n b y t h e r e s e r v e b a n k s themselves.

I a m very sure i t would b e regarded a s a n unusual a n d possib]ly a n u n w i s e t h i n g f o r t h e s e b a n k s t o u n d e r t a k e

effect a

to

revision o f a statute that does n o t apply directly

to the operations o r affairs o f t h e reserve banks.

M y

personal v i e w would b e that t h e efforts o f your organization would b e very much more successful i n getting coopera-


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Federal Reserve Bank of St. Louis

136

tion from the Federal Reserve Board t h a n anything t h a t w e
might do- H o v e v e r , I

have spoken m y o w n mind o n l y a n d

there a r e others h e r e w h o m a y entertain v e r y different
views.

I

f they d o entertain different views, 1

think y o u

ought t o h e a r t h o s e views.

Mre Paton:

W e are looking for light»

I s it not your

candid opinion, Governor Strong, t h a t legislation urged i n dependently w o u l d n o t r e c e i v e m u c h c o n s i d e r a t i o n
And d o y o u n o t t h i n k t h a t l e g i s l a t i o n r e c o m m e n d e d

b y Congress?
b y the

Federal Reserve Board would g e t t h e e a r o f Congress a n d b e
considered?

The Chairman:

I

n the minds o f the public I

think t h e

Clayton Act i s associated naturally w i t h the n e w Federal

trade Commission, and it might b e that the Federal Trade
Commission could help more toward getting a n amendment t o
the C l a y t o n A c t t h a n e v e n t h e F e d e r a l R e s e r v e Board.

C e r -

tainly i f the t w o bodies together w e r e interested i n improving t h a t p a r t o f t h e C l a y t o n A c t a n d t r a n s f e r r i n g

i t t o the

place w h e r e i t belongs, t h e r e w o u l d b e v e r y m u c h b e t t e r

chance, I

should think, o f getting action b y Congress:

am told i t i s going t o b e vory difficult t o get legislation
on this subject f r o m Congress a t this time, anyway.
Mr. H i n s c h : I

had h o p p e d w e m i g h t b e a b l e t o g e t a n

expression f r o m the Board o f Governors a s t o what t h e y thsmselves think would b e fair.

W e h a d hoped t o get that w i t h

the v i e w o f g u i d i n g o u r c o m m i t t e e s o m c w h a t ,

a n d i n order

that w e might a l l work together harmoniously.

W e did not

want t o p u t u p s o m e t h i n g t h e t t h e B o a r d o f Governors w o u l d


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Federal Reserve Bank of St. Louis

137
say they d i d n o t like, a n d w e thought i f w e could w o r k t o gether i t might b e helpful.
The Chairman: a

p a r t o f the Clayton A c t was direct-

ed specifically against t h e situation that existed i n New
York.
Mr. Hinsch:

Y e s .

The Chairman:

‘ I ubierstand t h e banks i n New York have

made their plans t o conform strictly t o the terms o f the
Clayton Act; and, having made their plans, I believe y o u will
find that the New York bankers today are less interested i n
the change i n the l a w than the bankers i n any other part o f
the United States.

T h e y have become accustomed t o receiv-

ing beatings f r o m Congress a n d from others, a n d i t i s a mate.
Ler O f habit n o w for them t o readjust their plans. I
lieve w e w o u l d g e t v e r y l i t t l e c o o p e r a t i o n

be-

o r help from

New York bankers i n a n effort t o amend t h i s law.
On the other hand, t h e objections t o this that I

ee

ueard c o m e f r o m o t h e r p a r t s o f t h e c o u n t r y r i g h t now:

I t

apparently h a s subjected t h e baking instituations throughout t h e United States t o a great deal o f inconvenience, i f
not a c t u a l l o s s o f s t r e n g t h andprestige. I

do not mind

expressing m y o w n view about it, a n d that is, that t h e law
is ridiculously unscientific a n d does not reach t h e matter
baat i t was intended t o reach a t all, n o r i n fact does i t
make clear what i t s deiontian is.
overcome m i s u s e

o f influence

I f i t was intended t o

b y directors t h e r e i s n o t a

thing i n the Act that refers t o it.
must n o t


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Federal Reserve Bank of St. Louis

be a

director:

O

f course a

I t just says t h a t y o u
man c a n exert his i n -

138
fluence j u s t t h e s a m e w h e t h e r

Mr. Paton:

director

h e be a

o r not-

D o e s i t not also, i m the enforcement o f

it, impose a n onerous burdew upon t h e Federal Reserve Board
in the matter o f proccdure, hearing o f complaints, a m d s o
forth?
The Chairman:

Y e s , undoubtedly:

Mr. Paton:

t would s e e m t o b e v e r y objectionable

I

in that way.
The Chairmant

M r . Paton,

difficult t h i n g t o frame a

i t i s going t o b e a very

law which will enable a

director

to determine what h i s status is, o r authorize anyone e l s e
to determine i t for him. C o n g r e s s t o o k t h e short-cut b y
Saying that y o u must n o t b e a director under those conditions.
Governor S e a y :

T h e r e i s another b o d y whose sympathy

and cooperation could b e enlisted i n aid o f this movement,

I feel sure, and that i s the Federal Advisory Council.
Under t h e Act, +
those lines.

think their powers a r e more strictly along

L a s t y e a r I was a member o f that b o d y a n d I

know t h e position that the Council t o o k a t that time, w h i c h
is very similar t o the one opeupied b y your committee, Mr.
Payton.

T h a t b o d y could w o r k with y o , I

think, a n d i f

their views have not changed, I think you will find there
is v e r y m u c h i n c o m m o n b e t w e e n y o u s

T h e y a r e n o t connected

with the administration o f the banks, a n d there would b e
no e m b a r r a s s m e n t

o n t h e i r p a r t i n t a k i n g a n y position.

believe i f your body could g e t i n touch with the Advisory
Council that i t would further your interests a n d enlist t h e


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Federal Reserve Bank of St. Louis

cooperation o f a

Mr+ Paton:

v e r y p o w e r f u l body.

T h a t i s a very valuable suggestion, a n d

we are locking f o r suggestions.
I think y o u gentlemen realize--- i n fact w e a l l realize--- that something should b e done toward correcting this.
What w e w a n t t o k n o w i s w h a t i s t h e best w a y t o d o it.

Governor Seay:

I t would b e strictly within t h e scope,

jurisdiction amd powers o f the Federal Advisory Council,
ander t h e Act.

Governor V a n Zandt:

T h a t part o f the Clayton Act re-

lating t o interlocking directorates did not touch a sympathetic c o r d i n o u r e n t i r e section.

T h e entire country

down there i s very much opposed t o it.
The Chairman:

W h a t i s the situation i n Boston, Governor

Aiken?

Governor Aiken:
in Boston.

I t hasn't had a very serious effect

S o m e o f t h e directors were affected b y it. I

think t h e situation i s very m u c h like i t i s i n New York,
that t h e y have accepted t h e situation.

The Chairman:

I s that Sase thing true o f Cleveland,

Governor Fancher?
Governor Fancher:

Yes.

T h e r e have b e e n a

few changes

in Cleveland, a n d i n Some cases t h e Boards have b e e n reelect-~
ted with the hope t h a t before October s o m e amendment might
be h a d t o the Act.
The Chairman:

H o w about Philadelphia, Governor Rhoads:

Governor Rhoads:
delbhia-


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Federal Reserve Bank of St. Louis

T h e same Situation exists i n Phila-

S o m e changes h a v e b e e n made, a n d others a r e wait-

140

ing until the 1L5th of October t o sce whether any amendmont
is made.

The Chairman:

G o v e r n o r Kaikts, w h a t

i s the situation

in your district?
Governor Kains:

T h e bankers there have a n attitude

of good natured disgust.
The

C h a d

G o v e r n o r McCord?

Governor McCord:

I

n o u r district t h e y s e e m t o b e

very m u c h e x e r c i s e d o v e r i t .

T w o o r three institutions

will b e affected b y i t i n our district.
ao

P r o b a b l y half

”

a dozen institutions l o o k upon i t as,Boston a n d Cleveland.
-

They h a v e m a d e a r r a n g e m e n t s

t o sidestep i t i n some w a y o r

another.

The Chairman:

M r . Paton, i s i t not probable that i f

a bill w e r e i n t r o d u c e d

t o effect t h e changes t h a t y o u a n d

others might think wise, a n d i t should b e brought t o that
stage o f procedure where i t was entitled t o a hearing
before a

committee

o f t h e H o u s e o r Senate, t h a t t h e n y o u

might b e able t o m r s h a l a

prctty formidable a r r a y o f

banking t a l e n t t o e x p l a i n t h e v i e w s o f t h e d i f f e r e n t s e c -

tions o f the country, a n d n o t have this thing originate i n

New York?
Mr. Paton:

Yes.

I s it your judgment that i t would

be wise t o introduce alternative bills, o n e abolishing i t
entirely,

a s the Senate did, a n d another amendtng i t b y

some sort o f provision which would m a k e i t

Tho Chairman:

I f you realized, wr- Paton, what a mist

all t h o s e l e g i s l a t i v e m a t t e r s w e r e i n m y mind, y o u w o u l d n ' t


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Federal Reserve Bank of St. Louis

ask m e that question.

Mr. Paton:

M y thought was that if we istroduced a

bill e n t i r e l y e l i m i n a t i n g t h e p r o v i s i o n s
relating

t o banks,

o f Section 8 ,

i t would probably b e referred

Judicary Committee o f t h e House.

t o the:

i f you imtroduce «

bill

not o n l y eliminating those provisions b u t amending t h e
Federal Reserve A c t b y putting discretionary power i n the
Federal R o s e r v e B o a r d , t h a t w o u l d p r o b a b l y b e r e p o r t e d

to

another committee, t h e Bamking a n d Currency Committee, a n d
possibly m o r e hope o f success would e x i s t i f i t was before
the Banking a n d Currency Committee.

T h a t committee would

‘have more knowledge o f the conditions a n d needs o f the situa-

tion than the Cammittce o n Judichary o f the House.
The Chairman:

Y o u would have t h e advantage t h e n o f

the almost inevitable procedure o f having t h e mombers o f the
Federal Neserve Board called beforc t h a t committee t o express their views, a n d some o f thom, I

have n o aenbs. would

be sympathetic t o the suggestion that t h e Clayton A c t b e
a m e n de.Mr. Paton:

T h a t i s a very valuable suggestion, M r .

Chairman.
Governor Seay: I

might suggest, M r . Paton, t h a t i f

you will institute a movement which will demonstrate that
cities o f the second a n d third size a r e affected more u n favorably b y this bill t h a n cities o f t h e first size, - that t h e y a r e m o r e o p p o s e d
effective s t e p s

t o it--- y o u w i l l b e t a k i n g v e r y

t o b r i n g a b o u t w h a t y o u desire.

I

f you

can demonstrate t h a t i d e a c o n c l u s i v e l y y o u w o u l d s h o w t h a t

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Federal Reserve Bank of St. Louis

142
trouble i
s rot w h e r e i t w a s s u p p o s e d

t o be, b u t t h a t t h e

every d a y business o f the bankers i n cities o f a certain

size i 8 affected; a n d I think they wéala listen t o that:

The Chairmant I

hope you will understand onc thing

about the business o f this Conference o f Governors, which
is rather important t o carry i n mind,

a m t h a t i s that

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

o r the

work that h a s b e e n done b y the Governors a t these meetings.
It i s therefore rather important t h a t w e should not suddenly

appear before Congress a s a n organization,as that act might
be i n t e r p r e t e d
purpose

t o moan that i t i s a n organization f o r t h e

o f legislative m a t t e r s ,

a n d that. i m p r e s s i o n m i g h t

very w e l l b e c r e a t e d i f w e u n d e r t o o k

t o create a n y s e n t i -

ment towards t h e promotion o f amendments t o just such a n
Act a s t h i s o n e i s .

I

f i t were a

matter h a v i n g t o d o w i t h

the improvement i n the status o f t h e bill o f lading, f o r
instance, w h i c h i s purcly a n impersonal thing, i t would n o t
subject u s t o a n y e e ciclien o r misunderstanding.

B u t if

we undertook t o originate o r promote amendments t o a n Act
of this character 1 feel almost certain that some representatives would misunderstand us.

M r . Curtis knows more

about t h e procedure here t h a n I do, a m d I value h i s judgment

o n that matter.

Mrs Curtis:

M y own view i s that the Eonference o f

Governors might very well cxpress their views o n suggested

amendmonts t o the Federal Reserve Act, but 14 feel i t would
be w e l l f o r t h e m t o l i m i t t h e i r s u g g e s t i o n s

t o that a n d

not g o into these outside suggestions, except informally


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Federal Reserve Bank of St. Louis

143

with the federal Reserve Board. I
proper

think it would be very

t o d o that.

Mr. Paton:

T h a t w a s o u r understanding, t h a t w e

would c o m e t o y o u s i m p l y f o r advise.

W

to s a y t h a t y o u e n d o r s e d t h e matter.

e did n o t sunpose

W w e simply c a m e t o y o u

for a d v i c e b e c a u s e y o u a r e i n t o u c h w i t h t h e F e d e r a l R e s e r v e
a n d w e want t o learn a l l w e c a n about this subject

Board,

to f i n d o u t t h e b e s t t h i n g t o do-

s I

A

understood y o u

stated a t t h e last meeting that these were confidential
conferences,
The Chairman:

Y e s .

I

s i t not apparent

t o you, M r .

Paton, t h a t t h e Federal Reserve Board might feel somewhat
reluctant t o take t h e initiative i n legislation o f this
character.

I f , o n the other thand, legislation were under-

taken b y Congress a n d t h e y
of Congress

w e r e invited b y a committee

t o a p p e a r b e f o r e t h e m a n d express t h e i r v i e w s ,

instead o f taking t h e initiative, I

think i t might be, a n d

quite probably would be,the c a s e that s o m e o f them would
express v i e w s s o m e w h a t

o r t o some extent

i n accordance w i t h

what w e h a v e stated.

Mr. Paton: I

did have t h e idea that i f the Federal

Reserve B o a r d w o u l d r e c o m m e n d l e g i s l a t i o n
more w e i g h t w i t h Congress.

i t weuld c a r r y

B u t t h e impression I

a m acquir-

ing now is that the best procedure would be to introduce
Legislation i n d e p e n d e n t l y ,

Board,

a n d request t h e Federal Reserve

i f called upon, t o endorse i t , rather t h a n t o initiate

it.


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Federal Reserve Bank of St. Louis

The C h a i r m a n :

Y e s .

O

f course

w e all realize

the

144

developments o f the last year have resulted, a n d naturally
would result,

i n (rawing rather sharp lines between t h e

powers o f national banks a n d state banks.

T h e m e n who are

charged w i t h the supervision o f banking i n the national
system a r e naturally jealous o f the prestige, position a n d
powers

o f t h e rational institutions;

a n d t h e chances a r e

that s o u n d r e c o m m e n d a t i o n s f o r p r o m o t i n g t h e interests

of

national b a n k s a s national i n s t i t u t i o n s w i l l r e c e i v e a

very

much m o r e f a v o r a b l e r e c e p t i o n t h a n e f f o r t s a l o n g o t h e r

lines t o amend t h e banking law.
Mr. Paton:

Y e s , Mr. Chairman.

The Chairman:

T h e changes a r e that Congress will b e

mde t o realize, w h e n this subject o f legislation i s taken
up, t h e d i s t i n c t i o n b e t w e e n t h e p o w e r s
and S t a t e banks,

o f national b a n k s

a n d also t o realize t h a t t h e issue i s

being rather sharply drawn now.
Govermor Seay: I

would like t o ask Mr.

P a t o nf
i his

committee h a s taken a n y steps t o obtain a concensus o f opinion among their o w n banks a s t o how i t affects them, a n d
particularly h o w i t affects t h e m a s competitors o f state
banks.

Mr+ Paton:
point, n o . I

O n the first point, yes, a n d o n the second
have a

large f i l e o f letters

i n which t h e

banks, o r the banks! officers, complain o f the hardships
and s h o w h o w they will b e personally affected.

On the matter cf comparison of the effect as between
state a n d national banks I
ite.

have nothing particularly defin-

J I simply s a w t h e provision i n the l a w under which a


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Federal Reserve Bank of St. Louis

145
Small state bank m a y have t h e benefit o f the advice o f a
director

of a

bank would

large n a t i o n a l b a n k , w h e r e a s a

b e deprived

crimination

o f t h a t benefit. I

i n the l a w .

I

t would b e a

Small n a t i o n a l
saw that d i s -

part o f m y d u t y

to s y s t e m a t i c a l l y g a t h e r t h a t e v i d e n c e a n d p r o s e n t i t .
Governor M c C o r d :

t

s i t not true t h a t provision w i t h

regard t o interlocking directorates i s a part o f the Ulayton
act a n d t h e r e f o r e effcoctive

o n s t a t e b a n k s a s w e l l a s national

banks ?

Mr. Patons
three p r o v i s i o n s

N o .

I t affects state banks.

i n t h e C l a y t o n Act.

The f i r s t p r o v i s i o n o f t h e a c t a p p l i c s

solely. A

T h e r e are

t o national b a n k s

m a n cannot b e a n officer a n d a director i n two

or m o r e n a t i o n a l b a n k s t h e r e e i t h e r o n e h a s c a p i t a l

a m de-

posits exceediing $5,000,000.
The s e c o n d p r o v i s i o n a p p l i e s
and a l s o t o private b a n k e r s -

in a

way t o state banks

I t provides t h a t a

private

banker o r officer o r director o f a State bank,having capital a n d deposits e x c e e d i g
n $5,000,000, cannot b e a n officer
or director i n a national bank.
The t h i r d p r o v i s i o n o f t h e A c t a p p l i e s s i m p l y t o cities.

of 200,000 population o r over.

There i s nothing i n any of those provisions which would
prevent a n officer a n d director o f a national bank, i n specified c i t i e s , f r o m h o l d i n g d i r e c t o r s h i p

i n a n y other number

of small state banks, provided t h e y were n o t i n the same
Clty.

I

cation

t o state banks


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Federal Reserve Bank of St. Louis

n that w a y there i s a

Ce

Rene

a n d national banks.

b e t w e e n i t s appli-

146
Governor McCord: I

simply a s k e d t h e question

to

bring u p t h a t p a r t i c u l a r point.
Meo Sands:

H o w a b o u t g e t t i n g t h e Comptroller,

supervisory p o w e r s o v e r w a t i o n a l b a n k s ,
approve s o m e a m e n d m e n t

Governor Seay:

w h o has

t o recommend

or

t o t h a t law.

D o e s anyone know his position o n the

matter?

Mr. Sands: I

do not know it.

Mr- Paton: I

never h a v e h e a r d t h e C o m p t r o l l e r e x p r e s s

-an o p i n i o n .

Mr-+ Curtis:

T h e r e i s a n o t h e r point.

I

f a

state b a n k

joins the Federal Reserve System i t then comes i n under
that t h i r d c l a s s i f i c a t i o n

Mr. Paton:

Yes.

i n t h e law.

T h a t would b e a reason f o r i t

not joining t h e system.
Mr-e Curtis:

Y e s .

I

t would b e a

slight r e a s o n

against it, because the phraseology there i s "organized o r
operating under t h e laws o f the United States."

Mr-e Paton:

Y e s ; i t says, "or operating."

Mr- Curtis: I

think that “or operating" has been

construed t o mean operating under the Federal Reserve Act.
The Chairman:

T h e provision o f t h e Clayton A c t a n d

the restrictions o f Section 2 2 o f the Fedural Reserve Act,
taken t o g e t h e r , a r e a

very considerable b a r n o w t o t h e possi-

bility o f any interest being shown b y state banks toward
taking membership i n the Federal Resorve System.
22, a s y o u know,

i s t h e broad prohibition against a

tor p a r t i c i p a t i n g d i r e c t h y o r i n d i r e c t l y


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Federal Reserve Bank of St. Louis

section
direc-

i n a n y transaction

147
with h i s b a n k w h i c h r e s u l t s

Mre Clayton:

i n i n d i v i d u a l profit.

N o b o d y knows just h o w f a r that goes.

The Chairman:

N o .

M o s t rulings o n the subject,

I find, w i n d u p b y calling t h e a t t e n t i o w f
o the inquirer
to the fact that i t i s a penal statute,
if t h e i n t e r p r e t a t i o n

s o t o speak, a n d

i s n o t r i g h t a n d t h e y a c t o n it,

they may g o t o jail. ( L a u g h t e r )
Mr. Paton: I

endeavored t o get a

Federal Reserve Beard o n that question,

ruling f r o m the
a S t o whether t h e

cashier o f a national bank, w h o also acted a s the agent o f
an insurance c o m p a n y i n p r o c u r i n g f i d e l i t y a n d b u r g l a r y

insurance f o r his bank, taking a commission f r o m t h e insurance company, w o u l d b e viola t i n g t h a t provision.

A

GoN,

Board v e r y discrcetly S a i d t h a t that w a s a matter o f construction o f a criminal statute a n d they d a

n o t care t o

express a n y o p i n i o n u p o n d t s

Governor hold: A l o n g those lines, i t might b e interesting t o say that the Department has held that a n officer
cannot a c t individually a s the agent f o r a n insurance
company i f t h e p r o f i t s i n u r e t o t h e bank-

I

n o n e c a s e they

say h e goes t o the state prison i f h e does it, a n d i n the
other case i t brings d o w n the displeasure o f the Comptroller
of t h e Currency.

Mr- Curtis: I

Governor Wold:

had n o t heard that.

T h e ruling was made thah a n officer

of t h e b a n k c o u l d n o t a c t a s a n a g e n t f o r a n i n s u r a n c e c o m pany a n d t u r n t h e p r o f i t s o v e r t o t h e bank, b e c a u s e
would


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Federal Reserve Bank of St. Louis

b e ultra vires.

it

148
Mr. Paton:

D

o y o u m é a n procure t l e business f o r h i s

own b a n k o r f o r s o m e b o d y e l s e ?

Governor Wold:

P r o c u r e f i r e insurance f r o m anybody

pm T a r n t h e p r o f i t s

i n t o ‘the -bank.

O

f course t h a t i s

commonly d o n e .
Mr. Curtis:

T h a t is a

little d i f f e r e n t p r o p o s i t i o n ,

where a n officer o r director o f the national b a n k i s interested i n t h e i n s u r a n c e b u s i n e s s a n d p l a c e s i n s u r a n c e
property o r persons

Mr+ Paton:
received a

o n the

i n t h e bank.

T h a t i s a very common transaction.

Ihave

score o f letters i n which bank cashiers wanted

to a c k whether they c a n still d o that business:

T h e y get

a commission f r o m t h e insurance c o m p a n y f o r placing t h e

business wi.. .

v m banks a S well a s other banks, a n d I

have b e e n advised t h a t w e cannot g e t a n y opinion o n it.
It i s doubtful a n d t h e y d o i t a t their o w n risk.

(Informal discussion followed, which the stenographer
was directed not t o take.)
The Chairman: I

judge, gentlemen, t h a t w e have com-

pleted t h e discussion o f Topic No. 1
Mr. Paton:

t o your satisfaction.

Y e s , Mr- Chairman.

The Chairman:

W

e have slipped i n t o t h e discussion

of another topic unconsciously.
The next topic suggested b y Mr- C o x is:
RLADJUSTMENT

O F RLSERVES.

Mr. Cox: B e f o r e going into that subject 1 want t o
say t o y o u t h a t i n o u r c o m m i t t e e m e e t i n g y e s t e r d a y a l l o f
the s u b j e c t s w h i c h w e d i s c u s s e d w i t h y o u before,


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Federal Reserve Bank of St. Louis

a u r action

149
and o u r standing o n those things were approved b y the Legislative Committee.

afterncon.

T h a t was i m a

gencral m e e t i n g y e s t e r d a y

O n e oOtlhner thing J think nocessary f r o m the

remark that y o u just m d c ,

i s that i t might b e understood

by s o m e o f y o u r body, p o s s i b l y , t h a t w e r e n o t p r e s e n t l a s t

time, t h a t w e were expecting y o u t o approve t h e items submitted a n d the action w e have taken.

W é d o not expect that:

We j u s t b r i n g t h e m h e r e i n t h e h o p e t h a t y o u m a y e n l i g h t e n

us, possibly, a n d that w e m a y b e o f a little assistance
to you.
The Chairman:

W

e w i l l n e e d y o u r enlightenment,

pos

sibly, b e f o r e w e g e t through, m o r e t h a n y o u w i l l n e e d ours.
Mre C o x é I

will a s k Mr. V a n D e u s e n t o o p e n t h e d i s -

cussion o n the subject o f readjustment o f reserves.
Mr- V a n Deusen:

Committee, h e l d a

A

t t h e last meeting o f o u r Executive

month ago, w e put forward f o r discussion

a proposition regarding t h e readjustment o f reserves o f the
country banks.
serves

T h a t proposition applies o n l y t o t h e re-

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

I

t d o e s n o t a p p l y t o reserves

of the banks i n reserve o r central reserve cities.
proposition which w e put before y o u a t that time, a
of w h i c h a l l o f t h e G o v e r n o r s h a v e i n writing,

T h e
copy

w a s that the

optional three p e r cent a t the conelusion o f the 3 6 months
period should b e changed s o that i t could b e kept either
in cash i n a federal reserve bank o r i n a national b a n k i n
a reserve o r central reserve city.
We a r e still strongly o f the opinion that s o m e measure
of relief i s n e e d e d b y t h e c o u n t r y banks.

S o m e o f the rea-

sons f o r o u r f e e l i n g t h a t w a y h a v e b e e n o u t l i n e d a n d p r e 
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Federal Reserve Bank of St. Louis

150
sented t o y o u i n writing,

a n d y o u a l l have copies

o f those.

We still feel very strongly that t h a t measure o f relief i s needed b y the country banker.

W e feel that i f re-

lief i s g i v e n t o t h e s m a l l b a n k i t w i l l m a k e t h e s m a l l b a n k s

feel v e r y much more kindly toward t h e Fedwral reserve Systran,
and i t i s possible, although w e cannot guarantee this, t h a t
it might encourage s o m e o f t h e state institutions t o feel

more kindly toward the Federal reserve system.
As a

result

o f o u r discussion w i t h y o u a n d w i t h t h e

Federal Reserve Board, w e have thought i t wise t o modify t o
a certain e x t e n t o u r v i e w s a s t o h o w t h a t r e l i e f m i g h t b e
acco mplished-.

W

e recognize t h e strength o f t h e argument

that permission t o put a
national b a n k s i s a

portion o f t h e reserves i n other

violation o f t h e s p i r i t o f t h e r e s e r v e

provisions o f the Federal Reserve Act, a n d w e have suggcsted
instead o f that that t h e reserve requirements o f t h e countypy
banks b e reduced--- t h e y are n o w twelve p e r cent--- that
they b e r e d u c e d s a y t o nine p e r cent, f i v e p e r c e n t 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 f o u r p e r c e n t i n cash.

T h a t

would give t h e m a n opportunity, w h e r e t h e y find i t necessary,

t o carry balances w i t h banks

i n s o m e n e a r center,

for

the convenient handling o f their business.
For example, Mr. Bucholz,
attention

t o t h e necessities

a t t h e last meeting, nalled

o f some o f t h e c o u n t r y banks

in Nebraska that s h i p large amounts o f cattle t o Omaha,

where i t is necessary t o send the crafts with bills

o f lad-

ing attached direct t o Omaha, s o that the bill o f lading
may reach there a t t h e same time t h e shipment reaches t h e r e ,

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Federal Reserve Bank of St. Louis

151
and not b e delayed;

a s i t would b e i f i t went through the

federal reserve city:

T h e r e a r e Similar cases coming u p

all over t h e country.

T h i s i s simply o n e phase o f the m a t —

ter and i s one reason w h y they need a

other than their reserve city bank-

balancein s o m e bank

M a n y o f them will al-

ways have demands for New York exchange o r matters that re-

quire attention i n New York, i n Chicago o r San Francisco,
Those cities m a y not betheir reserve cities,

b u t their

business will require t h a t they. keep balances there. I
think some o f t h e cotton sections h a v e found i t convenient
to k e e p a c c o u n t s

i n Boston f o r t h e handling

o f cotton ship-

ments u p t o the Now England mills.
We feel that this suggestion about t h o reduction
the r e s e r v e s w i l l a c c o m p l i s h r e l i e f t h a t t h e c o u n t r y

bank needs

a n d a t t h e s a m t i m e will n o t violate i n

way t h e p r i n c i p l e u n d e r l y i n g t h e r e s e r v e r e q u i r e m e n t s

the Federal reserve banks.
We would b e very glad t o have a n expression o f opinion
from t h e individual Governors o n this subject.
The Chairman:

M r . V a n Deusen, before asking f o r a n

expression o f views f r o m those present, I

would like t o

ask y o u whether your committee h a s considered t h i s feature
of a n y possible change i n the reserve requirements o f the
Federal Reserve Act?

i h e estapliishment o f different r e -

serve bases f o r banks located i n central reserve a n d r e serve cities h a s been a n unscientific a n d unregulated
growth.


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Federal Reserve Bank of St. Louis

T

h

e appointment o f a city a s a reserve c i t y has

152
originated,

a s a rule, through a movement o n the part o f

banks i n that c i t y t o secure t h e establishment-of |
that c i t y a s a

reserve city.

T h e result, a s y o u will r e -

alize, i s a lot o f inconsistency i n the reserve requirements

of different cities i m the United States.
For instance, i n our district, t h e city o f Buffalo i s
not a

reserve city.

I

t has spproaching 600,000 p e o p l e a n d

has the seventh o r eighth largest bank i n the United States
located there.

T h i s a m e n d m e n t w o u l d p e r m i t t h e banks a t

Buffalo t o carry reserves o f nine per cent, whereas t h e
banks i n Dalls, f o r instance, would still b e e c c a e e s
Carry r e s e r v e s

to

o F L S p e r cent.

I a m wondering whether this matter might not receive

more dilligent attention from the Fedural Reserve Board
if i t were brought u p i n connection w i t h a general s t u d y o f
the e x i s t i n g c l a s s i f i c a t i o n
serve c i t i e s

o f the roserve a n d central r e -

i n t h e U n i t e d States.

J u s t b y one stroke o f

the pen to make the changes that were made i n the Federal
Reserve Act, a r d t h e n again t o d o i t t o a further degree
in r e d u c i n g t h e reserves

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

t o m y mind,

a very unscientific w a y o f establishing reserves t o b e carried i n cities o f different s i z e d , d i f f e r e n t p o p u l a t i o n ,

aifferent geographical location, a n d s o on.

‘ F r o m the

discussions w e have h a d here 1 feel that t h e subject that
you a r e i n t e r e s t e d

i n i s really a

eek

of a

very m u c h larger

subject, a n d that i s t h e question o f whether t h e reserve
requircments o f existing l a w a r e really arranged t o meet t h e
needs


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Federal Reserve Bank of St. Louis

a n d necessities

o f the different

cities

o f the United

153

States.

T h a t feature o f your proposal f o r a n amendment t o

tne A c t h a s n o t b e e n d i s c u s s e d

and 1

a t o u r meeting specifically,

would l i k e t o hear what views t h e otier governors

have o n t h e subject.

Mr. V a n Deusen:
thing i n regard

I f I may b e allowed t o s a y just o n e

t o that:

T h e whole matter ofvassisning

specific r e s e r v e u n d c r t h e g e n e r a l l a w a p p l y i n g
COUMUrY,

L S Unscientitve

the d i f f e r e n t c i t i e s
different b a n k s

i n dicelt.

t o t h e whole

T h e requirements

o f t h e differentsections

of

a n d o f the

i n t h e d i f f e r e n t c i t i e s a r e different.

For instance, o n e bank i n the city o f Newark, o h e
national bank, m a y b e able t o get along w i t h a five p e r
cent reserve, a n d d o i t very safely.
I a m connectcd c o u l d net d o that.
with h i n e p e r c e n t reserves.
twenty p e r c e n t r e s e r v e s

I

T h e bank with which

I t could n o t g e t along

t w i l l h a v e t o c a r r y nearer

t o handle t h e business.

There i s a n o t h e r b a n k I

have i n mind i n J e r s e y C i t y

which h a s a l w a y s c a r r i e d f r o m f o r t y t o s i x t y p e r c e n t
reserves.

T h e y have t o have that much, f r o m t h e nature

of t h e i r business.
liable

T h e y have a

few l a r g e a c c o u n t s t h a t a r e

t o p u t i n v e r y h e a v y deposits, a

lion dollars,

million o r t w o m i l -

I t may l i e there f o r a few days a n d i t m a y b e

all c h e c k e d o u t i n o n e l u m p sum.

T

o handle t h e i r b u s i n e s s

they h a v e g e t t o h a v e a n e x t r e m e l y h e a v y reserve,

a n ab-

-normally h e a v y reserve.
You c a n n o t s a y t h a t a n y f i x e d r e s e r v e
any bank.

I

i s enough f o r

t is, however, p r o b a b l y n e c e s s a r y t o have s o m e

figure stated i n the law because o f the lack o f scientific


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Federal Reserve Bank of St. Louis

164
training o f a

i m some

good m a n y o f t h e bankers, e s p e c i a l l y
I

of t h e s m a l l e r b a m k s .

f n o roserve requirement

w a s named

in t h e l a w t h e y p r o b a b l y w o u l d n o t k e e p a n y r e s e r v e s

all.

at

O n the other hand, ~ * ~ banks i n a city like Buffalo,

that k n o w t h e necessities o f their business, w i l l keep,
regardless o f what t h e l a w says, t h e reserves t h a t their
banks need ig’order t o d o business.
I think t h e w h o l e q u e s t i o n

o f reserves

i s one that

should b e left t o the discretion o f the individual bank,
and i f y o u could trust t h e m all, t h a t i s really what should
be done.

T h e matter will adjust itself i n the cases o f

large c i t i e s t h a t a r e n o w d a s s e d

a s country districts a n d

country banks, l i k e t h e City o f Buffalo.

T h a t will regu-

late i t s e l f b e c a u s e t h e b a n k e r s t h e r e a r e b e t t e r t r a i n e d

and know what t h e y necd;

t h e y know what their business

requires t h e m t o carry.
Governor McCord:

I s i t not true that t h e Federal R e -

serve Board h a s t h e right t o designate reserve cities?
Y e s , t h e y have t h e right.

Mr. V a n Deusen:
Governor McCord:

T h e n i f Buffalo i s out o f line they

possibly might designate Buffalo a s a reserve city.
Mr. V a n Deusen:
initiative,

T h e y have that right,

o n their o w n

a n d t h e y a l s o h a v e t h e right t o change s o m e

of t h e cities t h a t a r e n o w r e s e r v e c i t i e s

t o country bank

cities.

Governor Seay:

W h a t I suppose Governor Strong h a d

in mind, among other things, w a s that banks o f certain size
should,


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Federal Reserve Bank of St. Louis

b y their size, b e lifted o u t o f the category o f

155
country b a n k s a n d m i g h t b e r e q u i r e d
larger t h a n o t h e r b a n k s

t o maintain reserves

i n t h e s a m e places.

B u t there

is the practical difficulty which y o u have statedi
have a

Y o u

number o f banks t h e character o f whose busimess does

not requirethat m u c h reserve.
Mr. V a n Veusen:

O n e o f the principal reasons t h a t t h e

old national b a n k l a w h a d different classes o f reserves,
and t h e r e a s o n i t w a s p r o b a b l y c a r r i e d o v e r w i t h o u t a n y

study c f the subject,

a s a matter o f course, w a s that t h e

reserve C i t i e s c a r r i e d t h e r e s e r v e s

of a

great m a n y c o u n t r y

banks a n d t h e Central reserve cities carried t h e reserves o f
the country banks a m d t h e banks i n reserve cities.

T h e

old national b a n k l a w which established t h a t system h a d t h e
strengthen
cities

b a n k s

i n these reserve a n d central reserve

i n o r d e r t o m e e t t h e demands

depositers.

o f their country bank

W h e n t h e full Federal r e s e r v e mequirements

go into effect a n d t h e balances a r e more o r less withdrawn
from the banks i n reserve a n d central reserve cities, t h e
necessity f o r this varying o f reserves i s , t o a large e x tent, modified.

O f course these banks would still c a r r y

balances f r o m s t a t e i n s t i t u t i o n s ,

and,

to a

c e r t a i n extent,

commercial institutions; a n d i n the C i t y o f N e w York, f o r
instance, t h e r e a r e a lot o f banks t h a t a r e carrying a

heavy

amount o f bank balances a n d will probably always continue $ o
do so.

Y e t there a r e other banks

u p town that d o not carry

any, orpractically any, b a n k balances whatever,
purely a

local m e r c a n t i l e b u s i n e s s .

town, Which accommodates


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Federal Reserve Bank of St. Louis

W h i l e a

T h e y do

bank d o w n

a n uptown bank business,may have t o

156
carry a

heavy reserve t o protect it, y e t a bank uptow™ o n

Fifth Avenue,

i n the shopping district, where t h e y have

simply s t o r e a n d p e r s o n a l a c c o u n t s ,

c o u l d get along o n a

very m u c h less reservej b e c a u s e their deposits d o not
fluctuate.
Governor Seay:
widely d i f f e r e n t

T h e requirements o f the banks a r e s o

i n that respect t h a t i t :

very p r o n o u n c e d d i f f e r e n c e

in a

o f opinion.

h a s led t o a

M r . Andrew Frame

recent very long editorial i n the N e w York t i m s ,
took t h e ground t h a t t h e banks c o u l d not get along

with that reserve, a n d a s a matter o f fact I looked i n t o
what t h e y could g e t along with.

A s a matter o f factj f r o m

1909 t o 1913 t h e country banks o f the country were carrying
an a v e r a g e r e s e r v e

i n vault

than t h e y w e r e r e q u i r e d

o f about 8.2, w h i c h w a s m o r e

t o carry

U n d e r t h e operation

of the Federal Reserve Act, a t the last September statement,
they were carrying 6-1/4 p e r cent cash. W h i l e - f o r . t o u r o r
five y e a r s , d u r i n g t h e u p s a n d d o w n s

o f business, they w e r e

carrying s l i g h t l y o v e r e i g h t p e r cent, r e c e n t l y t h e y h a v e

shown their ability t o get along w i t h s i x p e r cent c a s h
reserve i n the vault.
Mr- V a n Deusen:

T h e r e is a

point w h e r e t h e q u e s t i o n

of location will influence t h e s n k reserve. A

bank i n

New Y o r k city, f o r instance, c o u l d g e t a l o n g o n p r a c t i c a l l y
no c a s h reserve, b e c a u s e w i t h i n a

very f e w ginutes t h e y

could send around t r the Federal Reserve Bank, o r t o the
sub-treasury a n d r e p l e n i s h t h e i r c a s h r e s e r v e

necessity. A


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Federal Reserve Bank of St. Louis

i n case o f

bank i n the upper part o f New York State,

167
a l o n g d i s t a n c e a w a y f r o m t h e center, w o u l d h a v e t o c a r r y

a heavier c a s h reserve because o f the time required t o
replenish i t .

Governor Seay:
tention.

‘ h a t i s the point t o which I call a t -

T h e r e a r e banks

i n t h a t position,

a w a y from

the point o f replenishment thet would conten@ that they
eould n e t g e t along.

T h e r e a r e other banks n e a r t h e point

of replenishment w h i c h c a n g e t along o n a very small percentage,

years.

T h e y have demonstrated that during a

A s t o their minimum reserves, I

period o f

do not know that

they h a v e t r i e d t o see. h o w l i t t l e t h e y c o u l d g e t a l o n g
with.

Mr, V a n Deusen: I
the r e s e r v e r e q u i r e d
provisi

think most o f the banks will carry

b y t h e i r business, r e g a r d l e s s

o f the

n s c f the law,

Governor McCord:

T h e y c a n carry that reserve t h e o ~

retically a n d net i n actual lawful money.

I n other words

they might carry a surplus o f N a t i m a l B a n k notes o r Federal
reserve n o t e s a n d m e e t t h e n e e d s
The Chairman:

o f t h e i r business.

M r . V a n Deusen,

w e have t h e s u e a l o e s

situation i n New York of a bank with from $200,000 t o
$500,000 capital, located i n a n outlying section o f the
city, which h a s n o deposits f r o m other national banks be-.
cause i t i s not located a t a central point i n the c i t y ~ —
and the central part o f New York i s like a
put which, b e c a u s e

bank,


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Federal Reserve Bank of St. Louis

o

city i n itself - -

f the fact t h e t i t i s small

i s nevertheless

o b l i g e d

158
to c a r r y 2 5 p e r c e n t c a S h r e s e r v e

i n i t s o w n vault,

or

now about 1 8 per cent c a s h reserve, a n d i n order t o conduct
its business,

i t i s obliged t o carry,

i n addition t o that,

a very considerable a c c o u n t w i t h o n e o r m o r e o f t h e larger

New York City banks, f o r the purpose o f having i t clear
different items through t h e clearing house, w h i c h i s i n accessiblg;

I

t transacts business t h a t a n y country

bank w o u l d t r a n s a c t

with its

c o r r e s p o n d e n ttuf
,bh e o p e r a t i o n

of the statute makes t h a t bank n o w carry t w o S
The l a w was intended t o require a
character

e

bank o f that

t o c a r r y a m additional r e s e r v e b e c a u s e i t w a s

darrying deposits o f other national banks, which,

this small bank i s not carrying.

i n ract,

T h a t feature o f your

suggestion was not specifically discussed a t the meeting
with the hxecutive Committee, b u t I believe your recommendation f o r a

change

i n the existing reserve requirements

for

country banks would b e strengthened a n d possibly receive
more v i g o r o u s a t t e n t i o n

i f coupled w i t h t h a t a n d w i t h t h e

suggestion t h a t t h e c h a r a c t o r
be s t u d i e d a n d d a t a p r e p a r e d

o f reserves g e n e r a l l y s h o u l d
t o seu Shatae

t h e arrangement

was n o t s o unsatisfactory a s t o justify some further revision.

Mr. Hinsch:

I f I may be permitted t o say just a word,

it occurred t o our committee that under t h e o l d l a w the
country bank o n l y had t o carry s i x per cent c a s h and t h e
other nine p e r cent could b e with reserve agents,

s o that

it only had six per cent non-productive reserves.

Under

the operation o f the Federal Reserve Act, i n the final


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Federal Reserve Bank of St. Louis

159
analysis, n e x t D e c e m b e r t h e c o u n t r y b a n k w i l l b e p u t i n a

n— .
position o f carrying 1 2 per cent in, productive reserves,
or twice a s much a s i t did under t h e o l d law.
The Chairman:

A n d ©

h a v e t o k e e p a n account w i t h

some other bank i n addition?
Mr. Hinsch:

Y e s , t o get those facilities.

I say that unless something i s done f o r t h e cougtry
bank y o u are going t o find t h a t t h e y will leave t h e system
in large numbers.
uO b e i n ,

W

W

e n o n e o f u s w a n t that.

e want t h e national banks

want t h e statc banks t o come in.

T

w

e watt t h e n

t o stay i n and w e

o make t h e system what

we really want i t t o be, wemast have a l l t h e banks o f this
country

i n t h e system.

It seems t o m e t o b e imperative almost, t h a t a t this
session o f Congress s e m r e l i e f b e given t o the country
banks.

T h e rhomnene Haims a r e becoming louder a n d louder.

In J u n e t h e y w i l l b e f o r c e d

t o carry o n e per cent more

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

banks w i t h whom they a r e n o w doing businoss.
ber i t means t h e y w i l l h a v e t o

productive reserve,

e e

N e x t Decem-

1 2 p e r cent o f non-

i n addition t o what t h e y will h a v e t o

carry with banks n e a r t o them t o take c a r e o f the facilities
that a r e n o w o p e n t o Cuan.

I think what Mr. Strong h a s said i s right, a n d that i s
that t h e r e o u g h t

t o be a

The b a n k h e s p e k k s

general r e v i s i o n o f t h e requirements.

o f i n Buffalo s h o u l d b e p u t i n a s a

reserve c i t y , a n d t h a t i s w i t h i n t h e p r o v i n c e

o f t h e Board.

Probably t h a t would b e the w a y t o correct t h a t situation.

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Federal Reserve Bank of St. Louis

160
In a

general w a y ,

i t seems t s m e that banks h a v i n g large

deposits s h ’ u l d b e r e q u i r e d

t o carry a

larger p e r c e n t a s e

of

reserve t h a n banks thet d o net have s u c h large deposits,
especially i f they have relati:ns w i t h other banks that would
make d e m a n d s

o n t h e m heavier,

a t times, t h a n w o u l d b e t h e

demands m a d e c n a bank having o n l y individual a n d corpora-~

tion accounts, a s suggested b y Mr, Strong.
Governor “old: I

de net quite agree w i t h t h e gentle-

man w h e j u s t s p o k e a s t o t h e a m o u n t
tied u p i n t h e b a n k s

o n account

o f money that h a s b e e n

o f rediscounts,

I have t h e opiniyn that t h e average country bank r e ~
serve i s e n t i r e l y t o n s m a l l n o w ,
runs,

a S y o u know, a

T h e average country b a n k

savings d e p a r t m e n t ,

a n d t h e amount o f

their time money i s frequently abrut three t e four times a s
great a s the amount o f their demand money.

T h i s time money

is carried a t five p e r cent a n d demand funds a r e carried a t
im per cent.

T h e actual figures w o u l d disclese t h e t t h e

country banker hasn't a n y mere non-preductive m e n e y tied
up t o d a y t h a n h e h a d u n d e r t h e o l d r e s e r v e r e q u i r e m e n t s .

In additicn h e has some funds released f o r loaning purpcses
which h e f o r m e r l y c a r r i e d w i t h h i s r e s e r v e a g e n t a t t w o
per (cent:

The Chairman:

t h e t i s true i n our district t c a

Siderable extent, b u t not entirely so.

cone

M a n y o f the banks

througheut t h e u p p e r p a r t c f N e w Y e r k S t a t e h a v e t h e s e

Savings a n d interest acceunts,
by t h e t e r m s

o f t h e contract w r i t t e n i n t o t h e i r p a s s bocks,

to r e d u c e t h e r e s e r v e s

Governor McCord,

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Federal Reserve Bank of St. Louis

o n which t h e y a r e n o w able,

t r f i v e v e r cent.

T h a t i s largely true with t h e Atlanta

161
agistrict:

B e f o r e t h e enactment o f this a e t h e banks d i d

not like t o show a time deposit, b u t since t h e enactment
of the l a w that i s changed a n d t h e time deposit i s a prominent f e a t u r e s h o w n b y t h o s e banks.

The Chairman:

T h a t condition i s growing all over the

country.

Mr. Hinsch:

M y suggestion o n that would b e to in-

crease t h e a m o u n t t h e y c a r r y b e h i n d t i m e deposits.

Governor Wold;
you a r e now: I

T h e n y o u would land j u s t about where

a m Strongly o f t h e opinion that i t would

be a dangerous thing t o reduce t h e reserves a n y more than
they a r e a t t h e p r e s e n t t i m e -

I

f I

a m not mistaken there

is more o r less expansion going o n now d u e t o the automatic
reduction o f reserves, a n d mainly u p o n the organization o f
these banks, whereby they were n e t required t o transfer
their r e s e r v e s f o r i n g o e t h r e e years.

I

t seem

t o me

we ought t o g o very slowly o n this question o f reducing
reserves u n t i l t h e r e a d j u s t m e n t s a r e complete:

T h e ten-

dency o f the banks n o w i s t o get o u t every cont they c a n
because rates a r e s o low, i n order t o bring u p their earnings.

W e all know i t i s easterto get money o u t than i t i s

to “sou. ie. bacle,

The Chairman:

M r . V a n Deusen, w h a t a r e your views

about t h e proposal that t h e reserves o f the country banks
should b e r e d u c e d f r o m 1 2 t o 9

Mr- V a n Deusen:

per cent?

i . a m heartily i n favor o f it, Gover-—

nor Strong, p r o v i d e d t h a t t h e r e a d j u s t m e n t w i t h respect.

the country banks b e made along scientific lines.

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Federal Reserve Bank of St. Louis

to

O f course

L62
we d o not have t h e amount o f savings aml t i m e deposits i n
our section that t h e y have i n other sections o f the coun-

try, I

think Governor wold's point 4s well taken, that

it is a little early t o do that; but 1 think eventually i t
most c e r t a i n l y s h o u l d b e done, a n d p a r t i c u l a r l y

i n view o f

the fact that the hank's eligible paper i s serondary reserve now, a n d i t never w a s before.
i a m v e r y m u c h i n favor o f t h e r e s e r v e r e q u i r e m e n t s

of

the country banks being reduced.
Governor Strong:

H o w d o y o u f e e l a b o u t t h a t question,

Governor McDougal?
Governor M c D o u g a l :

I f e e l

intent o f t h e a c t t o s e c u r e a

i t was unquestionably

reduction o f t h e reserves

to b e held b y the country bahks. I
it B s a

the

believe, however, t h a t

question a t t h e p r e s e n t t i m e a s t o w h e t h e r

o r not

they h a v e a c t u a l l y s e c u r e d t h a t r e d u c t i o n , p r i n c i p a l l y f o r
the r e a s o n t h a t t h e r e s e r v e s a r e n o w t o b e f i g u r e d a c c o r d -

ing t o the books o f the Federal reserve bank, a n d n o longer
to b e a c c e p t e d

i n accordance w i t h t h e s h o w i n g m a d e b y t h e

individual bank. I
low enough.

think t h e reserve fercentage i s quite

W e all know that m o s t o f the banks fortunately

are i n the best position t o determine f o r themselves t h e

reserves they should carry, a n d | think i t is true that i n
most instances thebanks a r e required t o carry and d o carry
a m u c h l a r g e r r e s e r v e t h a n t h e l e g a l requirement.

I t seems

to m e , t h e r e f o r e , t h a t t h e p e r c e n t a g e t h a t h a s b e e n f i x e d

is quite l o w enough f o r t h e present.

W e c a n observe

closcly a n d determine l a t e r o n , p e r h a p s , w h e t h e r


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Federal Reserve Bank of St. Louis

o r not a

further reduction would b e desirable a n d safe.

The Chairman:

H o w d o you feel about it, Governor

Miller?
Governor Miller: I

would b e o p p o s e d

in the reserves o f the country bank.

t o a n y reduction

I n the S t a t e sf
o

Oklahoma, Nebraska and 4ansas, i f a reduction were made,
they would

r i g h t d o w n t o i t and a little below it.

I n

those three states i t i s highly desirable, f r o m the very

nature o f the assets carried b y the banks, that they should
have a t least 1 2 per cent o f their assets liquid.
do n o t l i q u i d a t e t h e r e b u t o n c e i n t w o a n d a

T h e y

half years,

and

if y o u r e d u c e d t h e m t o n i n e p e r c e n t t h e y w o u l d g o d o w n t o

nine p e r cent tomorrow.

T h e y would b u y everything i n the

country that could b e bought.

O f course t h e y get a little

better rate there t h a n they d o i n the ninth district, a n d
even a t that there i s some loss attending those risks.
The Chairman:

G o v e r n o r Fancher, w h a t a r e y o u r views?

Governor Fancher:
in December,

W n e n w e m e t with this committee

i n d i s c u s s i n g t h i s m a t t e r o f reserves, I

pressed t h e o p i n i o n t h a t i t m i g h t b e d e s i r a b l e

ex-

t o give t h e

country banks s o m e considcration i n the matter o f the t w o
per c e n t , g i v i n g a

third o p t i o n a s t o t a r r y i n g t h e t w o p e r

cent reserve--—- that is, five p e r cent i n the vault, f i v e
per cent i n the Federal Reserve Bank a n d t h e third option
of carrying t h e twoper c e n t w i t h the reserve agent i n t h e
immediate v i c i n i t y ,

b y reason o f the f a c t t h a t t h e small

banks m u s t n e c e s s a r i l y ,

a s w e v i e w t h e s i t u a t i o n a t t h e pre-

sent time, k e e p that contact w i t h some nearby center. H


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Federal Reserve Bank of St. Louis

164
think t h a t t h e 1 2 p e r c e n t t h a t t h e c o u n t r y b a n k s m a i n t a i n
as a

whole i s , u n d e r t h e p r e s e n t s i t u a t i o n , p e r h a p s l o w

enough.

I f , a s v.e g o on, w e find t h e disposition o f the

member b a n k s

i s t o increase

age o f t h e i r p a p e r i n a

o r build u p a

class

certain p e r c e n t -

o f separate rediscounts,

pos-

sibly b y t h a t t i m e t h e m a t t e r o f reserves c a n b e t a k e n u p ,
and i f i t i s f o u n d t h a t t h e b a n k s a r e c a r r y i n g a

fair per~-

centage o f t h e i r l i q u i d l o a n s t h a t m a y b e r e a d i l y r e d i s c o u n t -

ed a t the “ederal Reserve Bank, thenthe necessity f o r a reserve i n t h e p r e s e n t p r o p o r t i o n s m a y b e redawed.
The Chairman:

W h a t i s y o u r opinion, G o v e r n o r K a i n s ?

Governor Kains: I

think w e should leave well enough

alone just now, a n d s c e h o w the thing pans out. L

a6 ses

believe i n a n arbitrary fixing o f reserves a t all.

T

banks o u g h t t o b e t r u s t e d

t o k n o w w h a t t h o y want,

h

e

o r at

least t h e y could b e overlooked b y some central authority.

But + would not change t h e situation just now.
The Chairman:

H o w about leaving "badenough alone"?

Governor Kains:

Y e s , I

think it' will b e well enough

to leave “bad enough" alone just now.
The Chairman:

G o v e r n o r McCord, h o w d o y o u feel about

Governor McCord:

I d o not think there ought t o b e a n y

reduction i n the reserve.

I t might b e adjusted t o allow

part o f t h e reserve t e remain i n reserve cities outside o f

the Federal Reserve Bank.

W e find ourselves i n this posi-

tion with the smaller banks t h a t w e have t o take care of:
If w e take away all o f their reserves f r o m outside sources,


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Federal Reserve Bank of St. Louis

165"
then there i s a very strong demand o n u s t o take care o f
all o f their conditions a n d necessities.
dividethat w i t h a correspondent.

W

w e find i t i s advantageous

to h i m and advantageous t o u s t o allow a
those a c c o m m o d a t i o n s . I

right. I

distribution o f

think t h e amount

agree w i t h G o v e r n o r Kains.

have t o c a r r y r e s e r v e u n d e r t h e law.

American product. I

e would rather

N
I

o f reserve

i s all

o Luropean banks
t i s purely a n

do notsee t h e necessity f o r t h e law,

but w e have i t here, and w e are used t o it. 1

think 2 2

per c e n t r e s e r v e f o r t h e c o u n t r y b a n k i s l o w enough}

but I

think t h e adjustment might b e changed.
The Chairman:

G o v e r n o r Rhoads, w h a t i s y o u r o p i n i o n ?

Governor Rhoads; I

think t h e situation i s very o b -

viously one that i s pressing o n us, b u t !
position

do not feel i n a

t o s a y w h a t w e s h o u l d d e without t h i s v e r y s t u d y

that h a s been sugested. I
to i t and,

i f possible,

basis aos c a n b e done.

think w e have g o t t o get down

p u t i t upon a s nearly a
I

scientific

t isperfectly obvious t h a t a

fixed r e s e r v e i s n o t g o i n g t o w o r k anywhere,

a n d w e must

try t o find something that will b e a s satisfactory a
compromise

a s w e c a n reach.

The Chairman:
Governor Seay:

G o v e r n o r Seay, w h a t a r e your views?
T h e r e a r e m a n y states w h i c h d o not

require fixed reserves f o r their banks. I

believe t h e mat-

ter ought t o be presented t o the Federal Reserve Board
in t h i s way:

W i t h o u t f i x i n g a n arbitrary reserve,

present t h e p r e d i c a m e n t


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Federal Reserve Bank of St. Louis

o f the country banks

w e shoulc

t o t h e Federal

166
Reserve B o a r d

and ask them

t o consider

t h e whole question

of reserves a n d s e e whether o r not some readjustment t o meet
that situation could not b e made.
the p r o p o r t i o n o f t i m e d e p o s i t s

A t t h e present time

i n a l l courmtry b a n k s

to

their whole deposits i s thirty p e r centi T h e r e f o r e a

bank

of $100,000 deposits has $70,000 demand deposits and
30,000 time deposits.

T w e l v e per cent o f the %70,°00

demand d e p o s i t s w o u l d b e 8 . 4 0 a n d f i v e p e r c e n t o f t h e

time deposits would b e 1.80, T h e r e i s 9.90 o f the whole
deposits w h i c h t h e y a r e k e e p i n g now.

in the Fifth District, f o r instance.

T a k e t h e banks

T h e i r t i m e deposits

average 4 0 p e r c e n t o f t h e i r w h o l e deposits,

now keeping o n l y 9.2 o f their total deposits:

a n d they are

T a k e the

banks o f Governor tlola's district, a n d you will find that
the t i m e deposits o u t t h e r e a r e v e r y h e a v y indeed:

a

e

doubt i f the banks o u t there c a m r y a s much a s nine p e r cent
ce their total deposits.

W h e t h e r t h i s committee h a d refer-

ence t o t h e n i n e p e r c e n t o f t h e t o t a l deposits,
they h a d r e f e r e n c e

o r whether

t o n i n e p e r c e n t o x demand d e p o s i t s ,

dive p e r cent o r time deposits,

a s a t present, I

o r

d o not

know.
: G o v e r n o r McCord:

T h a t i s five-twelfths a s the Comp-

troller calculates it.

Governor Seay: Y e s - I

believe, rather than fix a n

arbitrary reserve, b e c a u s e t h e c o n d i t i o n s

o f t h e country a r e

very m u c h varied i n the different districts, t h a t w e should
present v e r y fankly, the “predicament o f the country banks,
to the Board,

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Federal Reserve Bank of St. Louis

a s w e see it, a n d a s k them t o consider t h e

167
question o f reserves, a n d a s k whether o r not some adjustment cannot b e made t o suit t h e situation.
Mr- Paton:

A s I understand y o u r suggestion t h e 1 2

per c e n t r e l a t e s

t o the demand deposits~--

Governor Yeay:

I n my i e e e

e a s time deposits are

the most dangerous class o f deposits, notwithstanding the
fact t h a t t h e l o w e s t r e s e r v e

The Chairman:

i s k e p t b e h i n d them.

P o s s i b l y s m e o f t h e points brought

out i n t h i s d i s c u s s i o n w i t h r e f e r e n c e

be o f value.

t o this t o p i c w i l l

T h e y are certainly w o r t h considering:

W e

are i n the unfortunate position o f meeting o u r members,
who o n l y f i g u r e o u t w h a t t h e y d r e l o s i n g b y t h e o p e r a t i o n

of t h e Federal Reserve System, a n d leave i t t o u s t o point
out what t h e y a r e gaining.

T h e r e i s a good deal t o b e

said-on both sides o f this.
A banker f r o m t h e n o r t h e r n p a r t o f N e w Y o r k S t a t e
was i n o u r o f f i c e t h e o t h e r day.

H

e admitted h i s b a n k

had about $700,000deposits, o f which $450,000 were time
and i n t e r e s t a c c o u n t s ,
tract

i n his p a s s b o o k s

a n d that b y printing a

little c o n -

h e could reduce h i s reserves f r o m

le t o f i v e p e r c e n t o n t h e s e deposits.

H

e admitted

h e had

an income o f $200,800 a year from exchange, a n d the interest,
at five a n d ahalf p e r cent, w h i c h was h i s average rate,
and that time would m a k e u p the entire l o s s o f his

n a e

that is, t h e interest t h a t h e w o l d s a v e o n the difference
between t h e f i v e p e r c e n t a n d t w e l v e p e r c e n t o n h i s t i m e

deposits.
What t h e c o u n t r y b a n k e r s h a v e n o t r e a l i z e d a s a


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Federal Reserve Bank of St. Louis

disad-

168
vantage t o them through t h e operation o f this l a w i s the
point that Governor McDougal brought out.
few o f them have realized it.

A t least v e r y

T h e y a r e beginning n o w t o

wake u p t o the fact, b u t a t first v e r y few o f them realized
that that method c f calculating reserves would have the e f fect o f increasing their reserve requirements v e r y materially:

T h e unfertunate part o f i t i s that i t operates u n -

equally. A

bank that i s two days distant f r o m the Reserve

Bank has this reserve requirement increased b y the average

of two days'cash letters a s against the country bank which
is only one d a y from the Federal Reserve Bank, w h i c h has
its r e s e r v e r e q u i r e m e n t s i n c r e a s e d o n l y t h e a v e r a g e

o f one

day's cash letter.
Governor Kains h a s i n his districts banks that have t o
send c a s h letters first b y mile o v e r t h e mountains, t h e n b y
trolley a n d l a t e r b y a

s t e a m r o a d a n d ferry, a n d i t m a y

have five o r Six days' accumulations.

T h e reserve posi-

tion o f that bank i s very unfortunate.
Further consideration o f the whole Subject s i n c e
our last meeting h a s convinced m e that r e c inmendations i n
regard t o c h a n g e s

i n the reserve requirements

i n the

Fedcral Reserve Act, i n order t o reccive the kind o f
consid.ration that y o u want t h e m t o reseive, Ought t r g o
a little further a n d involve a study o f the subject rather
than t h e u s e o f t h e b a r e statement, " L e t ' s r e a u t e f r o m 1 2

to 9 per cent o n the country banks."
I have s o m e r e a s o n t o b e l i e v e t h a t o n t h a t b a s i s y o u

may b e asked t o express y o u r views t o the Board,

t o get. the

expression o f views f r o m the banks, a n i possibly t o prepaie
data b e a r i n g

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Federal Reserve Bank of St. Louis

o n the m t t e r .

169
I d o n o t suppose,

M r + Cox,

i n view o f the expressions

you have heard, t h a t youn would like a n y action taken o n
this subject a t this meeting?
Mr+ Cox: I

think not.

The Chairman: I

a m frank t o say, myself, t h a t I

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

with i s the problem o f retaining membership o f country
banks,

o r retaining t h e i r r e a l allegience a n d l o y a l t y t o

the system,

a t the time when they really wake u p t o the

fact that their reserves possibly a r e going t o b e heavier
than t h e y expented,

a n d t h a t dher losses m a y b e imposed

upon t h e m i n t h e w a y o f loss o f exchange,

is a

a m

s o on.

T h a t

problem w e have g o t t o face a n d work out, somehow o r

other, a n d i t m y b e t h a t i t w o u l d b e a d v i s a b l e

t o urge

very s t r o m g l y t h a t s o m e t h i n g a l o n g t h i s l i n e b e done-

W

e

certainly entertain rather different views among ourselves.
Mr. Cox:

T h e r e i s a great deal o f complaint i n the

South a m o n g t h e s m a l l c o u n t r y banks, b u t i f t h e r e s e r v e
be t r a n s f e r r e d

f r o m t h e Federal Reserve Banks

correspondents,

i t would relieve t h e situation some-

There i s a great deal o f complaint, I
small c o u n t r y b a n k s

Mr. McCord:

t o the City

might say, among t h e

i n t h e South.

W h e n I was o n the Federal legislative

committee w h e n t h i s l a w w a s b e i n g c o n s i d e r e d , I

was con-~

fronted with the statement from the Legislative body that
the putting into effect o f a system o f clearings would
largely overcome t h e difficulty o f withdrawing reserves
increasing reserves i n the federal Reserve Banks.


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Federal Reserve Bank of St. Louis

O f

c r

2
i7Q
course, n o n e o f u s k n o w w h e n t h a t s y s t e m o f i m p r o v e m e n t s
is g o i n g t o b e p u t in. G o v e r n o r M i l l e r m a y b e a b l e t o

give u s some ideas o n that.
Miller?

H o w about that, Governor

Y o u have compulsory clearings i n your district.

Has that affected t h e reserves any?
Governor Miller:

M e m b e r bank reserves?

Governor McCord:

Y e s ; I

Governor Miller:

m e a n t h e m e m b e r banks.

i t has n o t affected t h e reserves

aS a whole, but the reserves o f the Kansas City Bank aggregate almost within $100,000 o f the normal amount, b u t probably some bank's excess will make u p for t h e matter o f
deficit i n reserves.
Governor McCord:
Governor :Miller:

O f country banks?
Y e s , c o u n t r y banks. A

great m a n y

country b a n k s c a r r y e x c e s s r e s e r v e s w i t h u s , w h i l e o t h e r s
are m o m e n t a r i l y depleted.
Governor McCord: I

d o not w i s h t o place myself

in

the p o s i t i o n o f questionifaig, b u t j u s t f o r t h e i n f o r m a t i o n

of myself a s well a s others, h o w does i t affect t h e interests o f the bank itself--- I

mean t h e collection o f checks?

You have compulsory clearing o f checks?
Governor Miller:

W

e d o n o t c a l l i t compulsory---

it

is involuntary.

Governor McCord: I

d o not want t o diverge f r o m t h e

subject, b u t that would h a v e a

The Chairman:
matter, Mr+e Cox, I

bearing o n it.

I n calling u p the discussion o f this
would n o t w a n t y o u o r t h e m e m b e r s

of

Mr. Hinsch's committee t o feel that this committee i s un-


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Federal Reserve Bank of St. Louis

zy 8
sympathetic

t o a n y suggestions

o f means

feeling among t h e country banks.

t o promote better

T h i s has been a

constant

subject o f discussion a n d more o r less o f a night mare t o
all o f us-

W e are feeling t h e pressure i n the reserve

banks o f some dissatisfaction, b u t that feeling h a s n o t
erystalized,

a n d will n o t u n t i l t h e r e s e r v e t r a n s f e r s h a v e

proceeded further.
assent

N o t a

t o m y statement, I

man a t our meeting b u t w h o would

a m sure, t h a t i f y o u c o u l d d e v i s e

the means, w i t h your intimate knowledge o f the views o f
country b a n k e r s ,

a n d convince t h e Federal Reserve B o a r d

that t h e means a r e sound f o r promoting a
among t h e m e m b e r s

better feeling

w e w i l l d o a l l t h a t w e can, a n d t h e r e

will b e n o hesitation.
Mre C o x :

T h a t i s a l l w e c a n a s k o f you, G o v e r n o r

‘Strong.

Mr. Hinsch:

T h e r e i s o n e thought w i t h regard t o this,

and that i s the thought t h a t t h e compulsory reserve will
be 1 2 per cent, a n d then t h e compulsory reserve o f a number
of banks i n the reserve cities will increase t h a t compulsory 1 2 p e r cent, b e c a u s e n o b a n k i s g o i n g t o t h r o w o p e n o r
keep o p e n t h e f a c i l i t i e s t h a t t h e y n o w e n j o y w i t h o u t g e t -

ting a n adequate balance.

S o that i n addition t o the 1 2

per c e n t y o u a r e g o i n g t o h a v e a l l t h e w a y f r o m f i v e t o t e n

per cent reserve requirements represented b y balances
in reServe a n d c e n t r a l r e s e r v e cities.
The Chairman: I

think w e h a v e t h r e e volumes

Mr. Hinsch.


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Federal Reserve Bank of St. Louis

Mr. Hinsch: I

expect so.

o n thai,

L72
Mr. Cox: A n o t h e r subject t h a t c a m e before u s yesterday w h i c h w e d i d n o t d i s c u s s

a t o u r l a s t meeting,

a n d which

we t h o u g h t i t m i g h t b e o f i n t e r e s t

t o have y o u r discussion

of i s t h a t o f f o r e i g n connections;

a n d Mr. H i n s c h , C h a i r m a n

of the 'ederal Legislative Committee, agreed t o say just a
few words o n that.
Mr. Hinsch:

G o v e r n o r Strong,

a n d gentlemen, u n d e r

the Fedcral Reserve A c t member banks having a
a million a n d m o r e a r e a l l o w e d

t o establish,

capital o f
b y and with the

consent o f the Federal Keserve Board, branches i n foreign
countries.

O n l y o n e bank, I

itself o f that privilege. A

eee

a e

f a r , h a s availed

great m a n y banks hesitate t o

jeopardize t h e i r h o m e i n s t i t u t i o n s

b y t h e establishment

of branches i n foreign countries, t h a t a r e t o @ more o r less
extent controlled a n d operated b y foreigners.
Our attention h a s beon brougnt t o the fact that a
great m a n y b a n k s
take s t o c k i n a

i n this c o u n t r y would p r o b a b l y b e g l a d t o
bank t o b e located

i n various s o u n t r i e s ,

with some limitation i n regard t o the amount that t h e y
could s o invest, a n d w e w o u l d l i k e , t h e r e f o r e ,

t o see a n

amendment t o the Federal Reserve Act which would give banks
the r i g h t t o t a k e s t o c k i n t h e s e f o r e i g n banks,

lieve,

i n addition,

and I

be-

i t has already b e e n suggested that w e

would l i k e also a n amendment t o t h e Act which would allow
the creation o r incorporation o f a holding company having
for its purpose t h e establishment o f banks i n these foreign countries,

a n d t h e member banks

o f t h e s y s t e m b e allc”-

ed t o t a k e s t o c k i n this h o l d i n g c o m p a n y t o t h e e x t e n t o f ,


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Federal Reserve Bank of St. Louis

270
we w i l l s a y t e n p e r c e n t o f t h e i r c a p i t a l a n d surplus,
and n o more.

The thought along that line w a s this, that t h i s holding compary should wcquire probably a control i n a going

banklincated i n the Argentine o r i n Brazil, o r any other
country,in t h e s e S o u t h A m e r i c a n c o u n t r i e s ,

believe

and I

that i f something o f that kind were done quite a movement
ae

o c c u r along that line. I

to y o u r attention,

just wanted t o pring that

a n d i f y o u think favorably o f i t w e will

probably urge i t a S a n amendment t o the Federal Reserve
Act.
The Chairman:

M r . Hinsch, t h a t i s just n o w a

matter

of g r e a t i m p o r t a n c e a n d i s b e i n g v e r y a c t i v e l y considered.
I suppose y o u a r e a w a r e t h a t a
make a

aan

h e s i s proposing t o

visit s h o r t l y t o S o u t h America, a

return v i s i t o f

theone w h i c h w e r e c e i v e d l a s t year.

The general subject o f the incorporation o f banks o r
the organization o f banks t o d o business i n foreign countries a n d t o b e o w n e d b y A m e r i c a n i n s t i t u t i o n s h a s n o t ,
b y anybody b e e n thoroughly analyzed

my knowledge,
its phases.

F o r instance, I

to

i n all

have n o t h e a r d a n y o p i n i o n

expressed a s t o whether t h e ownership o f stock i n such a n
institution should b e confined t o national banks o r member
banks

o r o n l y s o m e p a r t o f i t t o national b a n k s a n d member

banks; w h e t h e r i t might a l s o b e owned i n part b y the pub-lic generally,

o r b e owned, possibly,

i n foreign countries

by interests t h e r e t h a t w o u l d p r o m o t e business.
to have e x p r e s s e d v e r y p o s i t i v e l y


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Federal Reserve Bank of St. Louis

N o b o d y cee

a n o p i n i o n a s t o whewhenr

174
such a

bank should b e incorporated u n d e r t h e laws o f t h e

various states o r any o f the states,
should p a s s a

new banking law,

o r whether Congress

i f y o u please,

t o provide

for the incorporation o f a national b a n k o f a different
type f r o m t h o s e t h a t n o w exist:

T h e general subject

of

holding stocks i n other banks, w h i c h i s important, d o e s not
seem t o h a v e b e e n c o n s i d e r e d h e r e v e r y fully.
prove t o b e u n w i s e t o a t t e m p t

I

t might

t o enter t h e f i e l d i n some

countries w i t h o u t h a v i n g t h e m e a n s l e g a l l y t o a c q u i r e o w n e r -

ship i n institutions already doing business there, either
part o w n e r s h i p

c r e n t i r e ownership. I

a m referring

memorandum o n this subject, Mr. Hinsch.
tion o f d o u b l e liability.
to r e c e i v e d e p o s i t s

to a

T h e r e i s a ques-—

| . Are t h e s e b a n k i n g c o r p o r a t i o n s

a n d b e subject

t o the provisions

of

sound banking laws i n respect t o receiving deposits?

W h a t

limitation i s t o b e put o n the business t h a t t h e y will do?
As y o u know, b a n k s t h a t o p e r a t e

i n S o u t h America t h a t

are owned o r controlled b y banking institutions abroad a r e
generally incorporated under t h e laws o f t h e buropean
country,

o f the parent owning bank-

T h e r e a r e instances,

however, where that i s not so, where they have acquired
interests i n existing banks, say, i n South America;

a n d

that would h a v e t o b e dealt with.
Another thing:
made eligible,

Should a

bank o f that character b e

o r should i t b e required

t o become a

member

of the Federal Reserve System as a distinct member having
its s t o c k o w n e r s h i p a n d r e s p o n s i b i l i t i e s
How a b o u t t h e r e s t r i c t i o n s


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Federal Reserve Bank of St. Louis

t o t h e system?

t o b e placed u p o n t h e operations

L75
of t h e s e b a n k s

a t home?

in f o r e i g n c o u n t r i e s ,

M o s t o f t h e business t h a t d e v e l o p s

a s y o u a r e aware,

i s n o t business

that i s made out o f thin air, picked u p from t h e street.
It i s business t h a t develops a m o n g t h e c u s t o m e r s

ing banks.

o f exist-

T a k e t h e Yerman bank that operates s o largely

in South America.

T h a t bank was crganized a n d i t s business

conducted f o r t h e benefit o f clients o f certain large German banking institutions.

W o u l d y o u contemplate t h a t a

new bank should b e organized t h a t would establish direct
relations w i t h t h e p u b l i c
to i n s t i t u t e

i n t h i s country,

o r establish t h e m simply b y a

o r have t h e right
finance c o r p o r a -

tion t o conduct business i n behalf o f the national banks t h a t
were stockholders
It o p e n s a

i n it?

very w i d e f i e l d o f s p e c u l a t i o n a s t o w h a t

form this development should take; a n d i f the member banks,
the national banks, w i l l undertakéd a

study o f that matter

and g e t i t before t h e Federal Reserve Board promptly, I
sure t h a t i t w i l l b e a

very w e l c o m e c o n t r i b u t i o n

am

t o their

work.
This c o m m i t t e e

i s leaving f o r S o u t h America

i n Wiarch,

and i t ought t o have i t before t h e y go- F u r t h e r m o r e , t h e y
want t o make their recommendations t o Congress.
Mr. Hinsch: I

think i n a

general w a y t h e t h o u g h t w a s

to h a v e t h e s e b a n k s o r g a n i z e d e s p e c i a l l y w i t h t h e h o l d i n g
company, o r g a n i z e d
those countries;
for a

i n t h o s e countries under t h e laws o f

and I

understand t h e s e c o u n t r i e s p r o v i d e

single l i a b i l i t y , w h e r e a s , u n d e r t h e p r e s e n t l a w , a

bank establishing a


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Federal Reserve Bank of St. Louis

branch i n these foreign countries would

176
hove its tapital h r this tourtry together with a double
liability subject t o a n y losses t h a t that b a n k might meet.
The Chairman:
to b e dealt with.

T h e r e i s a great variety o f conditions
W e speak naturally o f South America---

that i s what i s being advertised a t present--- but w e also
te

t o think o f France.

N o banking institution c a n es-

tablish a n office i n France without subjecting all o f its
assets

t o taxation

i n France.

S

o t h e l a r g e B a n k o f London,

when i t had occasion t o have i t s o w n office i n Paris, i n stead o f o p e n i n g : » a n o f f i c e o f i t s o w n there, a c q u i r e d

a small French Bank, which i s the large Bank, Limited, o f
Franch.

T h e y changed t h e name o f the bank.

I t would b e

absolutely impossible f o r a n American b a n k today o f large

resources t o open a bank i n the City o f Paris and d o any
business there.

T h e y would b e taxed o u t o f existence.

And those conditions w i l l b e very m u c h accentuated after
the W a r i n the European belligerent countries.
This i s a new venture.

M a n y o f the national banks

do not feal t h a t their organizing knowledge i s sufficient
to justify their risking their entire resrcurces, i f you
please,

i n foreign countries, where t h e y might b e subjected

to l e g i s l a t i v e a t t a c k o r taxation,

a n d possibly losses f o r

which all o f their assets a t home would b e liable, a n d
many o f them would prefer t o operate through another institution w h i c h w o u l d p r o t e c t t h e m .
Mr. Hinsch:

T h a t i s t h e m a i n thougnt t h a t t h i s b o d y

of bankers h a d already m e t o n this subject.

twelve o f them proposed t o incorporate


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Federal Reserve Bank of St. Louis

A b o u t ten or

Art
such a

bank,

o r incorporate a

holding c o m p a n y

having f o r i t s p u r p o s e t h e e s t a b l i s h m e n t
simply f o r t h e p u r p o s e

o f giving

o f these banks

t o their customers t h e

facilities t h a t t h e y would like t o offer them.
especially,

O n e bank,

i s advertising that t h e y a n d they alone c a n

accomplish that.

T h e thought w a s p r e t t y general t h a t u n -

less something o f that k i n d was done a

great m a n y institu-

tions would lose a great d e a l o f their valuable patronage
to this other institution that i s a t this t i m e conducting
a campaign,
States,

a s y o u all know,

i n every state i n the United

t o alienate y o u r b u s i n e s s a w a y f r o m you.

would g i v e a t l e a s t t h e s e o t h e r c o r p o r a t i o n s

T h i s

a n opportunity

of saying that t h e y h a d facilities b y which the necessary
credit could b e secured a n d b y which business transactions
could b e consummated w i t h these foreign countries.

Thgive this one tems, eeuthenes, igat t0 tale Soames
ly, a

Signal advantage over t h e rest o f the banks i n the

United S t a t e s , e s p e c i a l l y t h e l a r g e r banks.
while o u l b a n k c o u l d e s t a b l i s h a

Furthermore,

branch i n S o u t h America,

I would n o t w a n t t o hazard t h e m o n e y o f m y stockholders

in a venture down there i n a n unknown field, but I might
be willing t o g o i n with others,

a m t o put in, say,

$450,000, which would b e ten per cent o f our capital and
surplus. I

would not like t o hazard $4,500,000 i n such

banking institutions, a n d I do not believe i t should b e
permitted(At t h i s p o i n t a n i n f o r m a l d i s c u s s i o n t o o k p l a c e w h i c h
the s t e n o g r a p h e r w a s d i r e c t e d n o t t o report; a f t e r w h i c h


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Federal Reserve Bank of St. Louis

LO

the following proceedings occurred.)
Mr- Hinschs

W h a t would b e t h e attitude o f the G o v e m -

ors? w o u l d t h e y feel like supporting a

recommendation t o

the Federal Reserve Board o n this matter? I
would b e valuable

think i t

t o h a v e a n e x p r e s s i o n f r o m them,

i f it

would not b e asking t o o much.
The Chairman:

W e have already several matters t o

discuss w i t h t h e F c d e r a l R e s e r v e B o a r d p r e l i m i n a r y

ing a n y recommendation. I
Governors---

oppose a

t o mak-

d o not believe a n y o f the

a n d w e are a l l here a t this méeting--- would

recounendation,which w e could agree w a s s o u n d , o
t

do anything which would encourage national banks t o g o into
the field o f foreign banking.
more e x p e r i e n c e , I

G o v e r n o r Kains h a s h a d

think, t h a n a n y o f us,

i n that r e s p e c t ,

and 1 would like t o hear, and I am sure you would, what
his v i e w s are.

Governor Kains: I

do not look o n the question a s

one o f great difficulty. I
suggestion o f Mr. Hinsch. I

a m heartilv i n favor cof the
would l i k e t o see a bank o r

any bank stabted for that sort o f thing, a n d 4 do not think
it should b e attached t o the banking system a t all.
are speculative enterprises. I

T h e y

remember being taxed

out o f existence i n New Orleans a t the time ! was doing
business there f o r a foreign ingtitution until I
out o f existence.

T h e n w e simply bought a

bank a n d d i d business that way.

was taxed

little n a t i o n a l

T h e n 1 went o u t t o S a n

Francisco a n d Yeattle, representing this s a m e institution,
and did business.

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Federal Reserve Bank of St. Louis

T h e m laws a r e liberal o u t there, an¢e

179
we c o u l d

York.

d o business

o u t there t h a t w e could n o t

d o i n New

T h e r e a r e plenty o f little banks o u t there under

the laws o f foreign countries, a n d 4 think the buSiness i s
just a s safe that they d o a s the business a t home.

S o

that i f y o u put intelligent m e a a t the head o f your companies a n d s e n d t h e m d o w n s o m e p l a c e t h a t y o u h a v e l o o k e d
into,

y o u would n o t r u n a m y m o r e risks t h a n y o u a r e running

right a t home.
Mr- C o x :

Y o u s a y there i s a

committee a p p o i n t e d

t6

go o u t t h e r e n e x t M a r c h ?

The Chairman:

A n arrangement was perfected, I think ,

last y e a r , a n d c e r t a i n c o m m i t t e e s w e r e a p p o i n t e d

b y the

Secretary o f the Treasury t o return t h e visit t o South
America that t h e South Amcrican delegates m a d e t o Washington
for t h e purpose o f discussing commercial a n d banking relations b e t w e e n t h e R e p u b l i c s

o f South America e n d t h e United

States.
Mr- C o x :

T h i s committee

The Chairman: I

h a s b e e n appointed?

think t h e committce

pointed f o r t h a t purpose. I

h a s b e e n ap-

d o n o t k n o w w h o t h e y are.

but i t i s quite i m p o r t a n t t h a t a n y recommendation,
ticularly a n y t h i n g t h a t m e a n s b u s i n e s s ,

a n d par-~

i s ready t o b e sub-

mitted t o t h e F e d e r a l R e s e r v e v e r y promptly.

A

n academic

discussion o f the matter will n o t interest t h e m a s much a s
something offering.
Possibly s o m e o f t h e o t h e r G o v e r n o r s w o u l d l i k e t o
discuss t h i s m a t t e r f r o m s o m e p o i n t o f v i e w t h a t h a s n o t

been touched u p o n yet.


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Federal Reserve Bank of St. Louis

G o v e r n o r McDougal, l e t u s have ic.

180
Governor McDougal: I

a m one o f t h e number w h o feel

that t h e y a r e not well enough informed i n respect t o the
question involved t o express a n y opinion a t the present time.
I migket s a y t h a t t h e m a t t e r h a s b e e n d i s c u s s e d

t o some ex-

tent informally b y members o f our board, a n d they a r e entiued t o stréngly favor t h e procedure under which individual
banks c o u l d s u b s c r i b e
panies a n d o p e r a t e

t o stock i n these j o i n t s t o c k c o m -

i n that country--- those that s e e f i t

and want t o d o it. T h a t , I

believe,

i s i n the line o f Mr.

Hinsch's suggestion.
The Chairman:

M y views o f what f o r m this should take

are v e r y m u c h unformed,
to d e v e l o p a

b u t i t occurs

n e w business,

t o m e that i n o r d e r

a s this w o u l d be, t h e less r e -

strictions surrounding i t a t the outset would b e the best
means o f g e t t i n g a
in r e g a r d

rapid d e v e l o p m e n t ,

a n d i f all provisions

t o t h a t k i n d o f a n i n s t i t u t i o n s h o u l d d o t h e busi-

ness were v e r y generally dealt with, a n d t h e banking a c t o r
Federal Reserve A c t amended s o a s t o provide that National
~

banks m i g h t o w n s t o c k i n a
tain p e r c e n t a g e
was o f a

banking c o r p o r a t i o n

up to a

ger-

o f their capital, w h o s e principal business

character

t o b e described

i n t h e statute,

i t would

. make a Start a n d g i v e us some experience.
Whether a s generous a

or not 1 do not know.

statute a s that would b e feasible

I s this a dation H t G e n a like to

have discussed around t h e table?
Mr. Hinsch:
has been. I

@ h , L think not;

will s e e i f something o f that kind cannot

be g o t t e n i n t o c o n c r e t e f o r m .


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Federal Reserve Bank of St. Louis

n o t a n y more than i t

T h e y have thought

u p an

152
amendment. w h i c h w i l l p r o v i d e f o r t w o - p r o p o s i t i o n s ,

first, -

the taking o f stock b y member banks i n joint stock com—panies

t o b e located

i n these f o r e i g n countries,

a n d also

an a m e n d m e n t w h i c h w i l l p r o v i d e f o r t h e f o r m a t i o n o f a
ing c o m p a n y o r t h e t a k i n g o f s t o c k i n a
That p r e s e n t s

hold-

h o l d i n g company.

m a n y splendid a d v a n t a g e s , b e c a u s e a

holding

company could buy-e controlling. interest i n a bank i n Rio
de Janefro, a n d still retain i t s local business, a n d t h e
advantages t h a t would follow f r o m that - i n - s e n d i nnw
god
a
local m a n a g e r f r o m t h i s c o u n t r y t o A c t i n h a r m o n y w i t h a
manager

t o b e located right

o n t h e ground a n d chosen f r o m

the citizenship--- t h e y would b u y o u t a going business.
That i s the movement thet I
fer, I

think, a

have i n mind-

holding c o m p a n y ,

as I

T h e y would pre-

understand t h e r e i s

a Single liability i n practically a l l o f these Southern
countries,

s o that t h e a m o u n t subscribed w o u l d b e a l l

the bank could lose.
Personally, to. see that limited t o t e n per cent o f
the c a p i t a l a n d n o t i n c l u d e t h e s u r p l u s w o u l d m e e t m y views.

I think that i s enough f o r a bank t o hazard.
give t h e m a n opportunity.
@me i n t e r e s t e d

in a

T h a t would

T a k e o u r o w n case:

proposition

I f we be-

o f that kind w e could i n

a way have t h e benefit o f a bank that w a s located i n the
Argentine, B r a z i l ,

o r Chile,

o r t h e s e o t h e r countries,

whereas i f w e attempt t o establish branches o f our o w n w e
could not, p r o b a b l y , o p e r a t e a n y m o r e t h a n o n e p l a c e t o
advantage.

Governor McCord:

W o u l d n o t t h e controlling company

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

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Federal Reserve Bank of St. Louis

o f centralization?

182
Mr. H i n s c h :

Y e s ,

Governor McCord:

A n d o n e bank weuld n o t sell o u t

its interest t o the detgviment o f another.

I t would b e a

centralized efroert:
Mre Hinsch:

Mr+ Cox:

Y e s sirj3.that w a s t h e thought.

A t the last meeting w e discussed t h e question

of capital required b y member banks, a n d I did n o t intend
to bring i t u p today, b u t I

have been requested since c o m -

ing into the r o o m t o ask you, i f y o u felt s o inclined,
repeat y o u r position.

to

S o m e c f u s d i d not quite under-

stand.
The Chairman:

T h a t topic,

as +

recall, w a s a

recom-

mendation that some proportion o f the capital n o w paid i n t o
the F e d e r a l R e s e r v e B a n k s s h o u l d b e r e t u r n e d

t o the member

banks.

Mr- Cox:

Yes.

The Chairman: T h i s meeting passed a resolution some
months a g o m a k i n g t h a t r e c o m m e n d a t i o n

t o t h e Federal R e -

serve Board, t h a t t w o thirds o f the capital s t o c k payments
now m a d e s h o u l d b e r e t u r n e d
obliged,

t o t h e member banks, b u t |

felt

o n account o f t h e p o s i t i o n o f N e w Y o r k t o m a k e a

reservedvote o n that subject calling the attention o f the

Board t o the fact that i t wold leave the "ederal Reserve
Bank o f New York i n a most extraordinary situation.
would h a v e a

little o v e r t h r e e m i l l i o n s

to over $200,000,000 o f deposits;

W e

o f p a i d i n capital

h e capital representing

the proportion o f one and one-Half p e r cent t o our de-

posits.


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Federal Reserve Bank of St. Louis

T h a t might not b e a controlling influence a t all.

183
’

I voted f o r the resolution, however, w i t h that reser-

vation, a n d that was the only dissent that 1 recall t o the
proposal.
Mr+ Hinsch:

W o u l d n o t t h e fact t h a t a l l o f t h e capital

was s u b s c r i b e d c o u n t f o r s o m e t h i n g ?

T h e Federal r e s e r v e

banks a r e not asking credit, a n d i t seems t o m e i t would
be hardly material s o long a s w o i n this country k n e w t h e
sO l i d i t y a n d s o l v e n c y o f t h e s e b a n k s a n d k n o w t h a t t h e
Federal r e s e r v e b a n k s a l l h a v e a

lien o n t h e d e p o s i t a c -

count o f the Federal reserve Banks which would take care o f
the capital required a n y time i t was called for:

I t would

relieve t h e b u r d e n t o s o m e e x t e n t a n d w o u l d n o t r e n d e r t h e
efficiency o f t h e F e d e r a l r e s e r v e b a n k s a n y l e s s t h a n i t
now i s .
The Chairman:
Reserve B o a r d , I

put itas I

T h a t h a s a l l b e e n p u t u p t o t h e Federal

think,

a s strongly a s i t i s possible

T h e Advisory Council made a

recall.

like recommendation,

W h a t w e w e u l d probably

Mre H i n s c h , w o u l d b e t o m a k e a
Show t h e u n c a l l e d p a y m e n t s

t o

d o i n N e w York,

form o f statement w h i c h would

o n capital s t o c k a s a n a s s e t o f

the b a n k a n d s i m p l y e x t e n d t h e a m o u n t t h a t h a d b e e n called.
Mr. H i n s ch:

D

o y o u n o t t h i n k i t m i g h t be. proper

to

tell t h e gentlemen t h a t w e took favorable action o n that,
your committee a n d o u r committee, yesterday.
Mr-e Cox:

Y e s ; I

thought t h a t w a s understood.

There i s a n o t h e r q u e s t i o n , G o v e r n o r S t r o n g ,

retiring green backs.


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Federal Reserve Bank of St. Louis

that of

I t came before u s yesterday a n d was

184
discussed somewhat, a n d w e thought i t would b e o f interest.
Mr. Sands:
as a

w e simply wanted t o present that subject

topic w h i c h w e t h o u g h t v e r y w o r t h y o f t h e c a r e f u l c o n -

sideration o f all w h o are interested i n this matter,
is a

d a y o f preparedness,

to p r e p a r e

a n d i t would s e e m a

T h i s

good t i m e

b y getting r i d o f that b l o t u p o n o u r financial

system.

While w e have n o plan t o suggest,

w e are very much

inter sted i n the subject a n d would like t o cooperate i n
every w a y p o s s i b l e

t o g e t r i d o f t h e g r e e n backs.

has b e e n a very large expansion u p t o this time;

T h e r e

u p t o this

time t h e r e h a s b e e n n o t h i n g b u t e x p a n s i o n t h r o u g h t h e h e d e r a l
Reserve System,

a S w e s e e it.

T h e p e r capita circulation

of t h e c o u n t r y h a s i n c r e a s e d e q u a l

t o the amount

o f the green

backs i n a very short period, a n d w e have thought t h a t some
plan ought t o b e taken u p vigorously t o get r i d o f this
thing that h a s cost this country s o many millions o f dollars,
and that even though i t resolved itself i n t o a fixed charge
against t h e Government t o some extent, t h e cost would n o t
equal that which i t has already cost t h e country, a n d w e
hope t h a t t h i s s u b j e c t w i l l b e t a k e n u p a n d v i g o r o u s l y

pushed.

W

e would like t o cooperate w i t h y o u a n d t o have

your views o n that subject o f how w e might cooperate,

i f you

think f a v o r a b l y o f it.

The Chairman: M r . Sands, would you feel that it would
be u n w i s e

t o have t h e federal

omeee

B a n k s aSsSunme t h e

green backs and refund them, s o t o speak? T h a t would b e
avery s i m p l e operation o f t h e Government w e r e willing


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Federal Reserve Bank of St. Louis

to

185
give t o the Federal Reserve Banks a n interest-bearing security that could b e sold t o the public i n case o f
needed,s
We w o u l d r e c e i v e w i t h t h e liability, p r o b a b l y n o t
more than
50 p e r c e n t i n obligations
50 p e r c e n t i n gold. %
today

i n existence

backs.

I

o f the Government a n d t h e other
is quite unlikely that there a r e

quite three hundred millions

f the Govermment w e r e willing

o f Breen

t o place a

of i n t e r e s t u p o n t h e a m o u n t o f ebligations

charge

t o represent t h e

difference between the gold reserve and $153,000,000
(it
is now), a n d t h e a c t u a l a m o u n t o f o u t s t a n d i n g
greenbacks,

it would have t h o effect o f Strengthening t h e reserve
system, because those greenbacks gradually converted b y
the
Reserve b a n k s w o u l d s t i l l r e m a i n i n c i r c u l a t i o n
a n d probably

with more assurance t h a n the greenbacks h a v e
a t periods i n
our history w h e n doubt arose a s t o the gold redemption.
Mr. Sands:

T h a t w a s suggested t o our committees

yesterday a n d s e e m e d

t o b e v e r y f a v o r a b l y viewed----- t h a t

matter o f r e t i r e m e n t - - Mr- V a n Deusen:

D

a n d t h e o n l y o n e w e considered.
o you know w h e t h e

t h e Government

has e v e r charged o f f a n y amount against t h e greenbacks,
taking c r e d i t

for

i t a s a n estimated loss?

The Chairman:

N o ; t h e y n e v e r have.

T h e r e a r e gener-

ally outstanding t o d a y 3 4 6 millions a n a some
odd, w h i c h was
fixed b y statute,

a n d i t w a s otgate t h a t t h e l i a b i l i t i e s

the G o v e r n m e n t h a d t h e S t a t u t o r y vigor. I

to look i t u p recently.


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Federal Reserve Bank of St. Louis

just h a p p e n e d

T h e r e h a s been n o effort made b y

the Government t o get a n y Seigniorage,
of t h e c o n s t r u c t i o n

of

o f it.

t o t o Speak, o u t

186
Mr. V a n Deusen:

I

n some classes o f currency I

know

they h a v e t a k e n i t .
The Chairman:
a scheme

A

s t o t h e n a t i o n a l b a n k notes, t h e r e i s

b y w h i c h t h e G o v e r n m e n t g e t s t h e benefit, u l t i -

mately, o f t h e redemption money paid in.
the g e n e r a l f u n d t o c o v e r t h e n e e d s

T h a t goes into

o f national b a n k s t h a t

have always f e l t that that was o n e

go ovt o f existence. I

of t h e first a n d most important things t h a t t h e Federal
reserve s y s t e m s h o u l d b r i n g a b o u t - - -

t o get r i d o f the green

backs; a n d t h e next thing t o tackle i s the silver tertifi-~
cates.
Mr.

V a n Deusen:

W o u l d

t h e Federal

reserve banks feel

that t h e y were undertaking t o o much i f they took over t h e
interest bearing securities o f the Government a n d assumed
the redemption o f greenbacks?
The Chairman:

I

n the proportion i n which they could

be worked, b u t doing i t gradually a s they came i n i n the
necessary course o f redumption f o r reissue i n the form o f
Federal r e s e r v e n o t e s , I

would n o t f e e l S o . I

have n o t

discussed that w i t h the others, b u t t h e resources o f the
Federal reserve banks n o w a r e going t o b e very large.

W e

hold about $350,000,0000f gold i n the reserves; about
$30,000,000 o f other lawful money, a n d there i s considerably
over $200,000,000 o f gold held behind t h e note issues o f
the Federal Reserve Banks.

S o that that would b e over

$850,000,000 o f gold that w e now hold, plus, say, 150,000000, making $700,000,000 which would form a gold basis for
the liabilities, n o t e a n d deposit,


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Federal Reserve Bank of St. Louis

o f t h e Federal reserve

187
banks,

o f very great importance

think i t w o u l d b e s e c o n d
world. I

i n t h e w h o l e world.

i n amount o f a n y b a n k i n t h e

think F r a n c e w o u l d b e t h e o n l y o n e t h a t w o u l d e x -

ceed i t .

Mr. Hinsch:
you get that?

Y o u speak o f ¢$150,000;000:

W h e r e would

D o y o u refer t o the amount that t h e Govern-

ment n o w holds?
The Chairman:

Y o s ;

Mr. Farnsworth:

i t w o u l d c o m e o u t o f t h e funds.

T h e thought was that the time was

more propbdtious t h a n a n y t i m e h a s b e e n t o f u r t h e r s u c h
legislation.

Mr. Hinsch:

I

n view o f the influx o f gold.

Mr- Van Deusen: T h e e x p a n s i o n o f the currency that
has d e v e l o p e d f r o m that.
Mr. Hinsch:

I

t does n o t s e e m t o m e that i t would

create a n y t a x o m t h e F e d e r a l r e s e r v e b a n k s , b e c a u s e t h e y

could be given, say, $196,000,000 United States two per
cent bonds w i t h t h e p r i w lege o f issuing "ederal reserve
notes a g a i n s t t h e m i n t h e e v e n t o f need.
seems

S o - that i t

t o m e t h a t t h e f i n a n c i n g c o u l d b e e a s i l y accomplished.

Mr. V a n Deusen:

I t would b e better, I

think,

t o give

the Federal reserve banks securities of the Government
bearing a higher rate o f interest b u t without t h e c i r m l a tion privilege--- securities that i n case o f necessity
they could dispose o f either i n this country o r abroad,
if need be, something i n the line o f certificates.

Governor Seay: I

hope that this committee will press

that a S a recommendation t o the Federal Reserve Board:


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Federal Reserve Bank of St. Louis

I t

188
seems

t o m e that t h e opportunity

too f a v o r a b l e

t o b e allowed

Mr. Hinsechi I

a t present

i s altogether

t o pass.

think so.

Governor Seay:

A n d that i t will come with added

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

consideration b y the Board.
Mr. VanDeusen:

w e m a y not have another s u c h good

opportunity.

Mr. Sands:

I

n a general way, o r a specific w a y a s

to the method?
Governor Seay: R e c o m m e n d t o the Board that some action
be advocated b y that Board looking t o the retirement o f
the greenbacks.

Mr. Hinsch:

D o y o u not think i t might b e well--- n o t

how, but further along i n your session--- for you t o take
up and probably formulate some general idea?

I f you g i v e

us a general idea along that line t h a t w e think would b e
advisable,

w e could t h e n have o u r general counsel prepare

a bill along that line and push i t for passage.
Governor Seay: P e r s o n a l l y , I

believe t h e suggestion

offered b y you i s the proper one, a n d possibly t h e only
one;

i t i s t h e m o s t practicable.

Mr. Hinsch:
bond,

or a

T o what d o y o u refer--- t h e two p e r cent

three p e r e e n t ?

Governor Seay: A
tion.

bond, a n interest bearing obliga~

W e will n o t name a n y rate.
Mr. Hinsch:

T h a t opens u p the q i estion o f whether

it i s a bond that would meet w i t h a ready s a l e t o the public

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Federal Reserve Bank of St. Louis

189
if the Federal Reserve Banks s h o u l d eventually want t o put
them out, o r whether i t would b e a two p e r cent bondeligible
without t h e c i r c u l a t i o n ?

Governor Seay!
be a

M y o w n opinion would b e that i t would

bond t h a t c o u l d b e sold a t p a r because

rate, a n d t h a t i t w o u l d n o t b e wise,

o f its interest

i f i t c o u l d b e avoided,

to i n c r e a s e t h e c i r c u l a t i n g p r i v i l e g e

i n this country.

W e

also want t o get r i d o f those i n course o f tim.
Mr. Sands:

W o u l d i t not make i t more popular w i t h

Congress because o f the fact o f issuing interest bearing
obligations t o limit t h e Federal Reserve Banks t o the amount

actually invested, rather than t o issue bonds for $196,000,000
and p a y t h a t i n t e r e s t , w h e t h e r t h e y h a d t a k e n u p t h e s e
Treasury n o t e s

o r not?

Mr. Hinsech: I

think they ought t o b e paid o u t a s the

notes a r e redeemed.
Governor McCord:

T h e currency commission o f t h e

National Bankers' Association h a d a good deal o f discussion
and experience along this l i n e o f retiring greenbacks, a n d
they have b e e n a t i t since 1906, a n d t h e difficulties
in the w a y a r e very serious.
reserve

O n e i s that t h e amount o f

m o n e y i n t h e United States

i s limited,

a n d that t h e

banks a r e holding those greenback notes a s a legal reserve.
Thorefore t h e banks t h e m s e l v e s a r e n o t d i s p o s e d

t o want t o

see t h e m retired unless i t could b e done i n the w a y y o u

suggested here. T h e n , when we meet with Congress w e meet
with this condition, t h a t n o Gongressman i s willing t o vote
an interest bearing d e b t t o take care o f one that i s non-


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Federal Reserve Bank of St. Louis

190
interest b e a r i n g , t h a t w a s s a t i s f s c t o r y
to t h e b a n k s a s a

legal r e s e r v e ,

i n three ways, o n e

t h e cther

t o the people,

because t h e y d i d not want a contraction o f their currency,
and t h e other because t h e y d i d n o t want t o put o n a n interest bearing debt f o r o n e that w a s n o t interest bearing:
We have handled that f r o m every standpoint, nearly, a n d
the u l t i m a t e c o n c l u s i o n

soms

out

i n the Federal Reserve

Act i n this change o f t w o p e r cent bonds i n t o a n issue o f
half gold netes, a n d t h e other half i n the three p e r cent
bonds, n o t taking a w a y the rights o f circulation.
profits f r o m the federal Neserve Panks,

T

h

e

i f any ever come,

are t o inure t o the Government t o take c a r e o f these non‘interest bearing bonds b y the purchase o f gold a n d t h e
issuance o f a gold certificate t o take t h e Place o f just
s0 m a n y o f t h e g r e e n b a c k notes.

way t o get through with it.
every a n g l e possible,

T h a t seems t o b e the only

W e have handled i t from

a n d t h a t clause w a s p u t i n the lederal

Reserve Act, i n m y opinion,

t o meet that contingency,

to

allow t h e Federal Reserve Banks t o purchase t w o per cent
bonds t o clear o u t o f the w a y the national b a n k circulation
creating a

vacuum f o r Federal reserve notes, a n d dividing

those bonds o r gold certificates, a n d t h e n t h e difficulty
would b e that there would b e a demand obligation against
the Government i n twenty y e a r s o f $250,000,000. A

Surtees:

clause w a s p u t i n t h e A c t t h a t t h e b a n k s m u s t s t a n d g o o d
to redeem,

o r i n o t h e r words,

t o furnish t h e g o l d against

those certificates f o r t h e original amount t h e y take o u t
at a n y time.

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Federal Reserve Bank of St. Louis

aa.
There w a s the. difficulty,

t h r e e contending parties

did n o t w a n t t h e g r e e n b a c k n o t e s r e t i r e d - - -

t h e public

in

general, because i t would b e a contraction o f currency;
the banks, because i t was a legal reserve; a n d t h e authorities, because t h e y did n o t want t o create a n interest
bearing debt t o take c a r e o f o n e that w a s non-interest
bearing.
The Chairman:

N o effort h a s b e e n made before C o n -

gress that I am aware o f to deal with this matter since
the Federnl R e s e r v e A c t w a s p a s s e d ?

Governor McCord:
The Chairman:

N o -

A n s w e r i n g those three points t h a t y o u

raise, first a s t o the rescrve quality o f t h e greenback,
if the greenback i s retired t h e result would b e t o force
into c i r c u l a t i o n ,

i f y o u please, F e d e r a l r e s e r v e n o t e s w h i c h

do n o t count a s reserves.
practically

T h e effect o f that would b e

t o place i n circulation t h e gold certificates

you c a r r y i n y o u r p o c k e t n o w , a n d everybody,

those i n t o bank reserves where they belong.

a n d drive

T h a t may

not b e understood o r appreciated b y Cengress, b u t i t i s a
fact that b y a very small manipulation o f the denomination
of these forms o f currency y o u would simply substitute
Federal reserve notes i n place o f gold certificates t h a t
are n o w there.

B u t t h e y have t h e power

t o expand t h e c u r -

rency t o s u c h a n e x t e n d a s w o u l d b e required.

T h a t pro-

cess i s going o n now, a n d this would stimulate i t further.
In the first place, I

have n o fear o f denuding this coun~

try o f its circulating medium.


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Federal Reserve Bank of St. Louis

W e have g o t plenty more oc:

it t h e n w e need.
Governor McCord:

B u t wauld t h e public understand

that?
The Chairman:

T h e r e might b e difficulty i n getting

some sections o f the public o r Congress t o understand i t ,
but C o n g r e s s d i d s h o w i t s disposition, p p s s i b l y r e l u c t a n t ly,

t o a d d a n honest c h a r g e

o n the country's d e b t w h e n

they p a s s e d t h e r e s e r v e a c t .

on these two's.

I

t increased t h e interest

N o w w e have t h e responsibilityin t h e

Federal Reserve Board t o look t o for guidance i n legislation
of t h i s character,

a n d now that there i s a

serve m o n e y i n this c o u n t r y ,

i t seem

plethora

o f re-

t o me t o be a

opportunity t o t r y something along this line-

T

h

good

e work

ef the Currency Commission o f the American Benkers' A s sociation w a s undertaken a t a time w h e n i t was t h e least
propitious t o retire greenbacks.
Mr. Hinsch:
present a

I

f you retired t h e greenbacks i t would

m u c h s a f e r situation.

You w e r e s p e a k i n g a b o u t t h e c i r c u l a t i n g medium.
is o n e thing, t h o u g h , t h a t I

There

t h i n k s o m e o f y o u appreciate,

and that i s the lack o f bills o f small denominations:

I

n

the fall of- the year, i n and around Cincinnati, t h e demand
for ones a n d fives i s something that w e just cannot supply.
They ship t h e m i n from every part o f t h e country t o comply w i t h t h e demand t h a t a r i s e s f o r p a y r o l l p u r p o s e s ,

for t h e farns.
have a

W e just cannot g e t enough, although w e

sub-treasury.

A l l w e c a n s a y i s , " W e a r e sorry,

but w e cannot help you."

W

e have a tremendous demand

from A t l a n t a a n d N a s h v i l l e a n d M e m p h i s

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Federal Reserve Bank of St. Louis

and

t o supply small bill:

193
and i t j u s t k e e p s u s drained.

S o m e t h i n g ought t o b e done

to correct’ that.

Governor McCord:

T h e +reasury has explained the dif-

ficulty a s t o ones, a n d that i s that t h e Foderal reserve bank:

take these large {$50 silver certificates, a n d they have
becn placed around i n the clcaring houses o f these large
cities,

a n d clearing house certificates i s s u e d against l a w -

ful money, B e t a

S e n

g e t back t h e volume o f fifties t o

put o u t t h e v o l u m o o f t h e ones.

The Chairman:

T h e r e i s h i s trouble.

G o v e r n o r McCord, I

is the real troublo.

do not believe that

H e may think so, but I do not think

that i s the real trouble behind the dearth o f small bills.

For instance, t h e New York Clearing House Association
declined

t o t a k e $ 5 0 bills u n d e r t h e i r d e p o s i t a r y certificates.

Twenty dollar bills a r e the largest bills that t h e y will take.
In New York w e h a d a flood o f fiftics coming f r o m t h e
Treasury a n d f r o m P h i l a d e l p h i a ,

a s Governor Rhoads r e -

calls, a n d w e w e r e e v e n c o n t e m p l a t i n g g o i n g t o t h e c x p e n s e

of shipping those fifties o v e r here a n d having t h e m converted i n t o small bills, b u t w e hung o n until finally t h e
Troasury t o o k them off o u r hands. I
ob t w e n t y m i l l i o n s

think w e had fifteen

o f t h e m a t o n e time.

W

e shipped s o m e

i t h e n t o you, G o v e r n o r V a n Zandt.

Governor V a n Zandt: I

think they w e r e just putting

one o v e r o n Mr- M c C o r d b e c a u s e t h e y w r o t e m e f r o m w a s h i n g ton t h a t w h i l e t h e y c o u l d n o t s u p p l y m e w i t h o n e d o l l a r

bills they had $30,000,000 i n silver dollars that they covic
give m e , a n d t h e y c o u l d c e r t a i n l y i s s u e s i l v e r certificatesc


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Federal Reserve Bank of St. Louis

against those.

The Chairman: I
With that.
matter.

think economy h a d something t o d o

T h e preparation

o f those bills

i s a n expensive

W h e n y o u g e t d o w n t o o n e s a n d twos, i s s u i n g t h e m

in l a r g e volume,

t h e expense

i s tremendous,

a n d o u t govern-

ment h a s been economizing latoky.
Mr. Hinsch:
it scems

I f they would economize i n other ways,

t o m e there w o u l d b e s o m e e x c u s e f o r L f “ b u t t e

cut d o w n o n t h e c o s t o f t h e s e d e n o m i n a t i o n s t h a t t h e p e o p l e
want a n d a r e e n t i t l e d

The Chairman:
the way;

t o have, I

t h i n k i s wrong.

T h e r e a r e t w o other difficulties

o n e i s t h a t i f t h e Federal R e s e r v e B a n k s u n d e r -

take t o reissue t h e greenbacks i t would cost a
of money,

in

a n d w e could not afford

great deal

t o d o i t unless

sufficient revonuec t o pay t h o cost.

w e got

W e would b e reliev-

ing t h e Government i n that case, b u t w e would b e entitled
to, a t a n y rate, t h e r a t e o f i n t e r e s t

o n t h e bonds, w h i c h

would b e the equivalent o f t h e present expense t o the
Government,

a n d there would b e n o loss t o t h e Government

if that was done.
Another difficulty lies i n the fact t h a t t h e Act o f

1900, a s 1 recall, placed a n obligation o n the Secretary
of the Treasury t o mintain a parity o f all. forms o f currency,

a n d that section

o f the Act

i s liable

t o the construe

tion that t h e trust f u n d o f 153 millions i s equally applicable t o the redemption o f silver certificates i n case o f

need-+

T h e general fund of the United States i s running

now b e t w e e n f i f t y a n d s i x t y millions


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Federal Reserve Bank of St. Louis

o f gold-

I

f our

195
government should adopt lcgislation looking t o the retire~
ment o f the greembacks a n d give u s a l l t h e gold i n the trust
fund, t h e only gold that t h e Government w o u l d have f o r purposes

o f redemption,

t o maintain a

parity u n d e r t h e A c t o f

1900, t h a t loose gold i n the general f u n d i s :
mortgagcd s o many times f o r various payments that have t o b e
mace b y the Government, t h a t t h e y might hesitate t o reduce
their gold resources b y the amount t h a t would result f r o m
the transaction.

Then, again, Mr« Hinsch, t h e Federal roserve banks
might say, "This i s a very pretty thing f o r t h e country a t
large,

b u t after a l l w e will have a l l t h e gold u p o n which

the Government m u s t depend f o r maintaining a

parity a n d w e

are rclieving t h e Government o f burdens o f the Act o f 1900

in practice, although not b y statute,"
It i s a simple t h i n g t o make t h e plan, i t i s possibly

feasible t o get i t through, but there are s o m features o f
it t h a t h a v e g o t t o b e c a r e f u l l y studied.

Governor McCord:

T o maintain the parity of silver,

$150,000 ,000 shoulda b e exchanged into gold certificates,
thereby reducing t h e amount c f greenbacks, a n d t h e amount

to be taken over would then b o only $200,000,000, instead
of (346,000,000.
Mr. Hinsch;

B u t , a s Mr- Strong h a s just suggested,

they like t o use that t o shift around p e t e ceadey,

The Chairmen:

T h e present Federal reserve Act re-

quires t h e Federal reserve banks, within a period o f twenty
years--~ 1

refer t o t h e t w e n t y y e a r s , b e c a u s e t h e o t h e r t e n

years r u n b e y o n d t h e length o f o u r charter--- t o take over

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Federal Reserve Bank of St. Louis

196

not less than %500,000,000 o f the national bank currency.
We a r e n o t r e q u i r e d

t o c a r r y a n y reserve.

W

e are only

required t o put u p five p e r cont redemption fund,

i f we

take o u t n a t i o n a l penile notes a g a i n s t t h e b o n d s t h a t w e buy,

that is, Federal reserve notes.

D o e s i t not s e e m t o y o u

that i t is a very much sounder proposition for the lederal
reserve b a u k s
issue,

t o assume 5 0 p e r c e n t o f a

fiduciary n o t e

t h e o t h e r 5 0 p e r c e n t b e i n g gold, t h a n t o assume a

national b a n k n o t e i s s u e w h i c h i s a l l fiduciary,

which w e

have t o p a y u p o u b o f our gold roserve?
Mr- Hinsch: I
The Chairman:

do, absolutely.
T h e r e i s n o question

i n m y mind t h a t

from the standpoint o f stability o f the "ederal Reserve
System i t would have been a

very m u c h sounder proposition

to h a v e l e f t t h e n a t i o n a l b a n k n o t e s

a s t h e y were,

t o be

dealt w i t h later, a n d a t omce have retired a l l t h e greenbacks.
Mr. Hinsch: I
occurred

agree with y o u thoroughly.

t has

t o m e i n connection w i t h t h e Federal #eserve notes

that t h e r e i s s e m e opposition,

ments presented against it.
thought,

I

a n d some ground f o r t h e argu-

I t seems t o m e that t h e

o r the suggestion that I have n o doubt h a s b e e n

presented,

o f allowing t h e bank t o carry a part o f this r e -

quired lawful money reserve represented b y Federal reserve
notes w a s o n e - t h i r d

o r one-half,

t h e other

t o b e represented

by lawful money.
Mre V a n Deusen:

appeal t o Congress.

T h e r e i s one argument t h a t might

T h e Federal Reserve Act, i n its title,

I think t h e first o f its title, S a y s that i t i s a n Act
to

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Federal Reserve Bank of St. Louis

197

establish a n elastic currency.

I t has not done so, except
i f

that i t makes i t elastic i n the line o f expansion.

the greenbacks were taken out o f circulation i t would, i n a
measure,

p u t inthe power o f the reserve banks t h e ability

to e s t a b l i s h

a n elastic c u r r e n c y j u s t t o t h a t extent.

I

n

other words,

a t t h e present moment, w h e r e w e have a n addi-

tion o f four hundred millions o f gold t o our circula-

tion, the Federal reserve banks, i f the greenbacks were out
of the way, through t h e operation o f their Federal reserve
notes, w o u l d b e a b l e t o contract t h e c u r r e n c y p o s s i b l y

to

the extent o f %400,000,000 o f gold t h a t was injected i n t o
our Circulation.
W e have contracted it.

The Chairman:

ready b r o u g h t a b o u t a

W e have a l -

contraction o f t h a t character

b y issu-

ing $200,000,000--- over %200,000,000 o f Federal Reserve
notes t h a t d o n o t c o u n t a s reserves.

Mr. V a n Deusen:

B u t a t the same time a great many o f

those a r e being u s e d a s reservos b y the State institutions
andhavin: replaced

i n t h e pockets

o f t h e pcople a

certain

amount o f gold notes o r silver notes.

The Chairman:

M r . - Van Deusen, I do not believe that

the e x p a n s i v e q u a l i t i e s

o f Federal R e s e r v e n o t e s w i l l b e g i n

to operate until interest bates a r e higher.
aifferently,

Putting it

w e started completely contracted, a m i w e cannot

begin t o expand until the demand f o r expansion o f currency
arises through t h e absorption o f what i s now going around
loose.


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Federal Reserve Bank of St. Louis

Mr. V a n Veusen:

B u t i f you h a d t h e greenbacks o u t o f

198

the way, the Federal Reserve Bank c o u l d put this i n its
voult, i s s u e Federal reserve notes against it; a n d t o that
extent automatiwally reduce t h e currency i n this country
to the extent o f all o f the gold imports,
The Chairman:

Y e s ;

w e should like t o see t h e A c t

amended s o as t o provide that the Federal reserve banks
gould issue a
would b e a

large denomination order certificate, w h i c h

Federal r e s e r v e n o t e ,

a n d would b e a

convenient method b y which member banks could n o t o n l y effect t r a n s f e r s

o f m o n e y {without h a v i n g t h e s e v a s t q

uantities

of snall bills accumulate a n d p a y them out again.
Governor Seay:

T h e r e i s o n e consideration which makes

this legislation more possible n o w t h a n i t has b e e n a t a n y
time heretofore.

T h e r e a r e still those w h o n a g e t h a t
an
the issue o f currency i s a function o f Government, t h a t

has always,

a S y o u know, stood v e r y much i n the w a y o f get-

ting r i d o f the greembacks.

T

h

e note t h a t has t o b e

issued n o w i n its place i s also a n issue o f the Government.
Governor McCord:

Y e s ; i t opens u p t h e field v e r y

much better.
Governor Seay:

I t i s t h e substitution o f one govern-

ment obligation f o r another, w h i c h would placate v e r y many

people who opposed i t before.

T h e n the question o f pro-

fit arising f r o m interest o n these bonds.

G r a n t e d that

within a cortain time the Federal Reserve Banks could
earn t h e i r e x p e n s e s a n d dividends,

t h e Surplus w o u l d a c -

crue t o the Government, a n i while i t paid i t out with ome
hand i t would besathering i t i n with t h e other.


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Federal Reserve Bank of St. Louis

199
Governor McCord:

S w i t c h i n g pockets.

Governor Seay? Y e s .

B o t h o f those a r e considera-

tions now.
Mr. Cox: G e n t l e m e n , t h i s questién h a s been pretty
well c o v e r e d ,

a n d our l u n c h e o n s
i o n p r o m p t l y a t o n e o'clock.

Governor Strong informs m e that h e has something t o s a y t o
this b o d y t h a t w i l l t a k e a b o u t t e n minutes, b e f o r e l u n c h e o n ,

so 1 suppose w e should retire a n d wait o n the Governor f o r
a few minutes.
Mr. Hinsch: I

think I ought t o express t o the Board

of Governors, o u r appreciation o f meeting w i t h them this
morning. I

d o s o o n behalf o f t h e Legislative Committee.

Governor Seay:

I t i s a very mutual sentiment, Mr.

Hins ch.
Mr. Hinsch:

T h a n k you, sir.

(Whereupon, t h e joint meeting with the Committees o f
the American Bankers Association w a s concluded, a n d t h e
Conference o f Governors w e n t into bkxecutive Session,
the c o n c l u s i o n o f w h i c h a

at

recess u n t i l F r i d a y , J a n u a r y 2 1 ,

1916, a t 10 o'clock a. m., was taken for the purpose of allowing t h e Conference t o call upon t h e Federal Keserve Board.’


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Federal Reserve Bank of St. Louis

Shoreham Hotel,
Washington,

D . C.,

January 21;. 1916,

The Conference reassembled, pursuant t o adjournment,

at ten o'clock a. m.
Appearances a s noted o n January 19, 1916.
The Chairman:

T h e meeting will come t o order:

W e

will t a k e u p t o p i c N o . l .

l. E L L C T I O N O F OBFICERS O F THE CONFLRENCE F O R T H E
YEAR 1916.

(Informal dis cussion followed with respect t o Topic
No. 1 , which t h e reporter w a s directed n o t t o take.)
Governor Aiken: I

move i t i s t r s e n s e o f the Confer-

ence that
a T h e r e i s n o longer a n y necessity l o r a permanent
n
a an executive committee.
organization, w i t h o f f i c e r s d
2. T h a t i n the future t h e meetings o f the Governors
should b e called either a t the request o f the Federal R e serve B o a r d o r b y t w o o r more G o v e r n o r s ;

Se T h a t the presiding officer o f such conferences
should b e selected either a t the next prior meeting o r a t
the beginning o f each meeting;

a n d

4. T h a t f o r t h e p u r p o s e o f p r e p a r i n g p r o g r a m s , c o n ducting c o r r e s p o n d e n c e a n d reporé ing actions
ences a


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Federal Reserve Bank of St. Louis

suitable o f f i c e r

o f s u c h confer-

o r employeein o n e o f t h e Federal

201
reserve b a n k s b e a p p o i n t e d f r o m t i m e t o t i m e t o u n d e r t a k e

such activities i n behalf o f all the Federal reserve banks.
(The motion, having. b e e n duly secondéd, w a s carried.)

ARTICLE I N WASHINGTON P O S T O N RETIREMENT O F
GREENBACKS.
would l i k e t o s u g g e s t t h a t G o v e r n o r

The Chairman: I
MeDougal

b e unanimously requested

the telephone,

t o proceed f o r t h w i t h t o

t o call u p Vice Governor Delano, w h o communi-

Cated w i t h u s o n t h e s u b j e c t

o f this m e c t i n g ,

o n d explain

to h i m t h a t c e r t a i n n e w s p a p e r a r t i c l e s w h i c h a p p e a r e d
the n e w s p a p e r s t h i s m o r n i n g ,
when n o t a u t h o r i z e d

b y us;

in

m u c h t o o u r astonishment,

t h a t t h e y d i d not proceed f r o m

us, a n d that s o far a s this meeting i s concerned w e were
victimized

b y t h e incaution o f some banker

o r bankers w h o

talked t o the publicity m a n of the American Bankers’ Association.
We w a n t h i m t o understand t h a t b e f o r e a n y d i s c u s s i o n

takes place i n the Board o n the subject.

I

n that w a y w e

will h e a d o f f d i s c u s s i o n w h e n i t c o n e s u p a t t h e i r m o r n -

ing meeting.
Governor McDougal:

D o y o u wish m e t o undertake t h a t

matter?
The Chairman:

Y e s .

Governor McDougal: I

would l i k e t o inquire whether

or not t h e publicity m a n o f the American Bankers Association,

o f w h o m y o u speak, w a s p r e s e n t
The Chairman: §

H e was not-

H

a t t h e meeting?
e happened

t o b e Here

and someone i n that party must have talked t o h i m about it,


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Federal Reserve Bank of St. Louis

202
without a n y authority f r o m u s a n d i n violation o f the
understanding thet these meetings a n d discussions a r e
quite c o n f i d e n t i a l .

D o y o u not think t h e matter o f suffi-

Governor Seay:

cient importance t o request Governor McDougal t o call i n person o n G e v e r n o r Delano,

Gevernor McDougal: I
Delano

should certainly rather s e e Mr.

i n person,
Governor *¥old:

S h o u l d n o t Governor Delano b e also i n -

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

on

this t h i n g ?
The Chefirman:

Y e s ,

I t was a

matter o f informal d i s -

cussion.

ir, Curtis:

L e t m e suggestthat i t was also stated

twice a t least that this was a confidential meeting and we
had reason t o believe that part was understood b y all o f the
parties present because i t wes true a n d was s o stated.
I t was stated b y the other people,

Gevernor McCord:

Governor Wold:

T h e point w a s made that t h e y should

go t o t h e F e d e r a l R e s e r v e B o a r d direct’ w i t h t h e r e c o m m e n d a
Lions.
Governor S t r o n g ,

i n h i s talk, s t a t e d s e v e r a l t i m e s

that the Federal Reserve Board would listen t o any suggestions t h e y h a d t e make,
(Governor M c D e u g a l t h e r e u p o n w i t h d r e w f r o m t h e h e a r i n g
room t o c a l l u p o n G o v e r n o r D e l a n o

Board, )


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Federal Reserve Bank of St. Louis

o f t h e Federal Reserve


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Federal Reserve Bank of St. Louis

205

The Chairman:
TGy

W

T h e next tapic e n the program i s No.

e will s k i p No.

9 , out

o f deference

t o Gcvernor

M c

Deugal.

GOLD SETTLEMENT DUND.

(a) O u c h t Federal Reserve Agents t o ship gold
deposited w i t h them t o retire TPederal r e +
Serve n o t e s

t c t h e subtreasury f o r deposit

in the gold fund?
Governor Wold:
Very

much

interest

T I do net know whether that topic h a s
f a r

any

o f the

other

Governors,

a n d I

doa

not k n o w t h a t t h e y w i l l b e c o n f r o n t e d w i t h t h a t question,

but recently t h e Board has intimated that there might b e
some readjustment o f the bonds o f the Freteral Reserve Agents,
materially reducing t h e m a n d placing restricti~ns a n d safe~
guerds a r o u n d t h e funds, I

think i t m i g h t b e e n i n t i m a t i o n

that some o f these funds that were deposited t o retire vedera].
Reserve notes misnt b e called t e Washington,

I

n that event

of course w e would b e very much interested, a s would every
bank located outside c f the subtreasury,citics beseause the
banks a r e r e q u i r e d

t o redeem these notes

i n a n y event, w h e -

ther the gold i s i n Fashington o r whether i t is i n our own
vaults.

I

t would require t w o shipments

o f g o l d i n order

to m a k e t h e a d j u s t m e n t a n d i n v a l v e c o n s i d e r a b l e e x p e n s e , w h i c t

ought t o b e avoided,
The Cheirman:

G o v e r n o r Wold, d o y e u suggest acticn

in respect o f this questicn o f the shipment o f gold?


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Federal Reserve Bank of St. Louis

Governor W o l d :

N o t unless

seme

o f the other banks

are

204
situated similarly t o ours, a m d feel that i t i s necessary
at this t i m .
The Chairman:
accumulated

w e felt i n New York that that gold w a s

b y the operation o f o u r note issues f o r t h e

purpose o f having the gold available under certain emergencies, a n d that i t would b e a mistale

t o transfer i t t o

Wrshington unless i t was necessary f o r some good reaton,
and also t h a t i t would b e a mistake t o get i t out o f o u r
possession, o r , that is,
the Federal Reserve Agents.

o

u

t o f t h e possession o f

T h e r e a r e n o w %160,000,°000

in a e in‘the hands o f the Federal Reserve Board for accaunts
of t h e banks a n d o f the Federal Neserve Agents, a n d there i s
no reason w h y i t should n o t a l l b e over there,

s o far a s

the physical custody i s concerned; b u t w e would l i k e t o
have o u r c e r t i f i c a t e s t h e r e w h e r e w e c a n p r e s e n t t h e m a t

the sub-treasury a n d g e t t h e actual gold bars o r coin, i f
necessary.

What i s your opinion, Governor Fancher?
Governor Fancher:

k e feel i n Cleveland, n o t being a

sub-treasury city, that w e would rather prefer t o keep o u r
gold there a n d accumulate i t - B e i n g rather remote f r o m
the s u b - t r e a s u r y w e w o u l d l i k e t o k e e p t h e g o l d i i t h us.

we have ample vault space and I think w e have ample protection.

W e have felt comfortable a n d the agent h a s felt

comfortable,

i n keeping t h e funds there u p t o the present

time.
The Chairman:

Governor Seay:


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Federal Reserve Bank of St. Louis

G o v e r n o r Seay, w h a t i s your opinion?

I n our case a l l o f the gold held b y

205
the Federal e s e r v e Agent i s transferred t o Washington.
reason f o r t h a t

i s that

T h e

w e have n o t o u r o w n vault facilities.

I believe i t has a very wholesome influence t o keep that gold
at home, a n d f o r t h e member banks t o know that i t i s i n their

own district. I

have held that opinion from the beginning.

Inasmuch a s w e have n o t t h e vault facilities a n d o u r agent
is a little t i m i d about those matters, a n d m o r e o r less u n ~
easy, w e consented t o a transfer o f the gold i n his account

to the keeping of the “ederal Reserve Board.
The Chairman: G o v e r n o r Kains?
Governor Kains:;

O u r situation i s exactly o n all

fours with Mr. Seay's. I

think w e ought t o have the gold

with us, b u t o u r Federal reserve agent f e l t timid about
our vault facilities.
The Chairman:

H e would b e more timid about i t i f h e

Saw the facilities i n the Treasury Department here.
Governor Miller:

B u t there i s a personal liability

on the agent, a s I understand it. ( L a u g h t e r )
occupied t h a t p o s i t i o n I

W h i l e I

put e v e r y d o l l a r t h a t t h e K a n s a s

City B a n k p a i d i n t o m e i n t o Washington.

The Chairman:

G o v e r n o r McCord?

Governor McCord:

T h e situation i n Atlanta i s similar

to that expresscd b y Governor Seay and Governor Kains.

Our

Federal Reserve Agent felt rather timid, w i t h t h e limited
vault p r o t e c t i o n h e had, a n d b e c a u s e w e w e r e n o t a

sub-

treasury c i t y , a n d f u r t h e r m o r e a

good deal o f our gold w a s

created

t o e a s t e r n markets,

b y our products Shipping

gold being transferred i n that way
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Federal Reserve Bank of St. Louis

and the

I t would come into

208
the “ p e a s u r y a t Washington,

n o t b y s h i p m e n t s f r o m Atlanta,

but b y c r e a t i o n f r o m o t h e r sources:

T h e r e i s n o disposition

to transport t h e gold w e have i n Atlanta. A

large volume

of o u r gold lies here i n Washington:

Governor Seay:

A s Il have observed matters they are

very g l a d t o h a v e i t h e r e i n Washington. I

think s u c h

suggestions a s have reached m e rather indirectly rather
hl ow a

Satisfaction a n d pleasure

gold here. N e v e r t h e l e s s , I

i n the b a n k transferring

entertain t h e opinion which I

have expressed t o this board.
The Chairman:

T h e situation i n New York i s a little

different f r o m that i n any other district, because i t i s
at N e w York that t h e demands f o r gold for export always
arise.

M r . J a y i s willing t o retain t h e custody o f that

gold n o w , a n d w i t h t h e p r o s p e c t

o f having a

up-to-date vault i n the near futuro, I

very modern,

imagine o u r attitude

will b e t o retain t h e gold there.
Do y o u w i s h a c t i o n o n this m a t t e r , G o v e r n o r W o l d ?

Governor Wold:

N o , I

only wanted t o raise t h e ques-

tion a n d g e t t h e v i e w p o i n t o f t h e o t h e r G o v e r n o r s
too W s I

wih

t o add that t h e situation

i n respe cs

i n Minneapolis

very satisfactory t o the federalKeserve Agent.

is

T h e gold

is a d e q u a t e l y p r o t e c t e d a n d e v e r y c o n v e n i e n c e s u p p l i e d
him.

He thoroughly agrees w i t h m y view o f the matter, t h a t that
gold ought t o remain there,
This communication f r o m t h e FederalkKeserve Board r e -

lates t o safeguarding the funds o f the Federal hKeserve Agent
in s u c h m a n n e r a s t o permit a
Federal R e s e r v e A g e n t

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Federal Reserve Bank of St. Louis

reduction o f t h e b o n d o f t h e

t o t h e same amount

a s t h e b o n d require?

207
of the Governer.

T h a t l e d m e t o believe that possibly

they cmomtemplated m o v i n g t h a t g o l d t o Washington.

W

e would

not like t o see i t get away from us, f o r the same reasons
you have stated,

a s well a s f o r t h e purpose o f redemption

of our outstanding notes.
The Chairman:

T h i s leads tothe consideration o f Topic

(b); suggested b y me.

(b) ADVISABILITY OF SEPARATING PHYSICAL CUSTODY
OF THLE G O L D F U N D B E T W E E N T H E B A N K S A N D T H E

FLDERAL RESLRVE AGENTS.
When t h e committee appointed t o audit t h e gold f u n d
made their report, t h e y suggested t h a t inasmuch a s the
gold certificates w e r e held i n a common fund i n the same

vault i n the Treasury Department--- a small safe i n the
vault-—-- t h a t i f arene a r o s e i t would b e i m p o s s i b l e

t o deter-

mine whether t h e loss arose f r o m one fund o r t h e other fund.
You will recall that a t our last Minneapolis Confer ence

that matter was brought to the attention of the Board, in
our report, a n d I now have a

letter f r o m them replying t o

the report o f t h October Conference,

i n which the Board

make t h e follcwing statement:
ee H o w liability f o r loss'of a n y part o f the Gold
Settlement Fund would b e adjusted between t h e interestsof
the several Federal Reserve Banks a m t h e Federal Neserve
Agents.

"The Board holds that such loss shall b e borne
by the *ederal Reserve Bank's gold fund ani the “ederal
Reserve Agent's gold fund i n proportion
spective a m o u n t s h e l d i n s u c h f u n d s


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Federal Reserve Bank of St. Louis

t o t h e re-

b y t h e s e t w o parties.

208
That ruling would put t h e Board i e a position, i f y o u
please, o f a-bank with a common funda mingled a n d i f t h e
bank busted,

s o t o .spéak, t h e y Aoild: ILawidens p r o r a t a , -

and would p a y t o the creditors according t o what t h e bank
held.

i L a6 not know whether t h a t i s good l a w o r not.

It occurs t o me that the Federal reserve agents have a n
interest i n this subject which i s equal t o ours, and i t
might be- well t o accept tie

e e

o f the Board unless coun-

sel sees some object tok ie 14. T h e n each Governor c a n
Submit this ruling t o the counsel o f his o w n bank, ami _to
his o w n Federal reserve agent, and see whether o r not i t
brings o u t a n y conflict o f views in. regard t o the ruling.
Personally L a o n o t feel. prépared

t o S a y whether t h e ruling

meets t h e s i t u a t i o n o r not.

Governor Rhoads:

o u l d the tederal Keserve Agent

make t h a t u p o u t o f h i s o w r pocket, t h e n ?
The Chairman:
edly b e l i a b l e
authorized a

P r e s u m a b l y not.

H

e w o u l d undoubt-—

o n h i s bond, u n l e s s t h e l a w S p e c i f i c a l l y

transfer

o f t h e funds

o f which h e h a s custody

in t h e m a n n e r t h a t i t h a s b e e n transferred.

That gold i s deposited with the Federal Neserve Agent
to reduce the bank's liability off Federal Keserve notes.
The S e c r e t a r y o f t h e l p e a s u r y c a n direct t h a t a

certain

portion o f that gold b e transferred t o the ‘reasury o f
the U n i t e d S t a t e s f o r r e d e m p t i o n purposes.

T h e r e i s noth-

ing in the Act that I know of authorizing the agent to
give i t t o anybody else, a n d o n the other hand there i s
nothing that restricts h i m i n the arrangements t h a t h e shali


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Federal Reserve Bank of St. Louis

make f o r i t s s a f e custody.
Governor Miller:

The Chairman:

O

n his o w n initiative?

Y e s , o n his o w n initiative.

O f fhand

it would appear t o m e a s though the Federal Keserve Agent
was just a s respensible f « r the gold i n the custody o f
the Federal R e s e r v e Board, u n d e r t h i s arrangement,

a s

though h e had that gold i n his o w n safe.
Governor Miller:

Suppose a

Federal K e s e r v e A g e n t

should protest against holding t h e gold i n his o w n vaults
or depositing i t with the Federal Reserve Board, b u t i n sisted u p o n d e p o s i t i n g

States.

i t with t h e Treasury o f the United

T h a t woeld Limit his liability, f

think, a n d i n

fact I think i t would cause i t t o cease.
The Chairman:

T h e mere acceptance o f t h e , o 1 d b y the

Treasury o f t h e U n i t e d S t a t e s f r o m t h e Federal r e s e r v e
agent w o u l d b e tantamount, I

suppose,

t o a

request f o r i t s

D

o y o u suppose h e

deposit w i t h him---Governor Miller:

(Interposing})

would receive i t from the agent?
The Chairman: I

guess t h e y would take i n any gold

they could get their hands o n just now.
Governor Miller:

B u t just a s a n abstract proposition,

would h e receiv*# i t ?

The Chairman: I
Governor Miller:

should think so.
T h e n , i f 4+ were a n agent +

should

certainly deposit i t with the treasury.
The Chairman:

T h e n t h e whole force o f our operation

of accumuleting t h e gold behind these notes i s gone.


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Federal Reserve Bank of St. Louis

210
Governor Miller:
it i s a

S

h

a

n

S p e a k i n g f r o m t h e agent's Standpoint,

e t h a t h e i s held individually
respons-

ible, and + will just say this t o you gentlemen,
that I have
laid awake m a n y nights thinking about that enormous
liabil-—Soins

The Chairman:

E v e r y treasurer and assistant treasurer

of the United States i s under t h e same liability
f o r a vastly
greater s u m , w i t h o u t p o s s i b i l i t y o f S a f e g u a r d i n g
h i s liabilLty.
Governor M i l l e r :

T h a t i s true, b u t s o m e o f t h e m a r e

not a b l e t o p a y back.

Governor Wold: I

would like t o ask Mr. Curtis i f h e

has requested a n opinion f r o m Judge l l i o t t
Mr- Curtis: I

o n this matter.

beg your pardon, Governor Wola. I

was

not p a y i n g attention.

Governor Wold:

J u d g e uwlliott, a s + recall it, holds

that t h e Board a r e within their rights,and
within t h e require-

ments of the Federal Reserve Act, in acting
as a clearing
house for the Federal Reserve Banks, a n d further
holds that
in t h a t c a p a c i t y t h e y h a v e t h e r i g h t
of a

t o b e the custodian

fund s u c h a s w e h a v e P l a c e d w i t h them.
I

believe

that t h e A t t o r n e y G e n e r a l h a s h e l d t h a t
t h e Board i s a

ate a n d distinct body, n o t a

separ-—

branch o f the Treasury Depart-

ment, o r under the jurisdiction o f the Secretary
o f the
Treasury, but a distinct body created b y
Congress.
That being the case the members o f the
Nederal Rserve
Board a r e Government officials,
fund,


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Federal Reserve Bank of St. Louis

a m i n handling this gold

t h i s dlearing house fund, i f y o u
please, w h y would

ell
they n o t b e liable f o r a n y loss,as Government officials?
Why w o u l d n o t t h e Government

b e liable

t o t h e banks f o r

any loss occurring i n the handling o f this fund?
d o not know where

Mr» Curtis: I
fall.

J u d g e Llliott's opinion,

t h a t liabilitywould

b y the way, s a i d that t h e y

could d o i t b y holding i t themselves o r b y setting u p a n

account o n the books o f the Treasury o f the United States.
That w a s a n unnecessary thing t o add, a m d w a s n o t acted
upon.
T h a t w a s t h e basis o n which w e placed

Governor Wold:
the money with them.

have never b e e n able t o satisfy myself

Mr Cartis: I

where the liability for loss would Pally.

t e e n 3a ie

pretty academic, because wherever i t fell a bill would b e
introduced

ment.

i n Congress

t o have i t m a d e g o o d b y t h e G o v e r n -

T h e r e i s n o question i n m y mind about that- M o s t

suits f o r loss o f currency o r money are brought o n the
bonds o f the officers, a n d almost a l l t h e l a w there i s o n
this s u b j e c t a r i s e s
@ued o n his bond.

i n those c a s e s w h e r e a n o f f i c e r i s

T h e result i s that where y o u have a

Government offi cer not under bond, a n d a loss does occur,
either through his negligence o r without h i s negligence,
I d o not know what t h e liability would be.

T h a t is

situation w i t h respect t o t h e Federal Reserve Board,
understand it.

T h e y a r e not under bond:

T h e r e is

little l a w o n that subject.

Governor Seay: W h e n the principal removes the custa.
of funds f r o m its o w n agent---andthat i s t h e status betwee.

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Federal Reserve Bank of St. Louis

212
the Federal Reserve Board a n d t h e agent--- does n o t that
relieve t h e agent o f responsibility?

Mr- Curtis: I

should think so-

I f Judge Elliott's

opinion i s sound, t h a t t h e B o a r d h a v e t h e r i g h t

t o d o that,

that w o u l d s e e m t o b e s o ; b u t o f c o u r s e y o u m a y g o i n t o

court, a n d they might brush that aside a n d s a y t o the

Federal Reserve Agent, "You had n o right i o entrust this
money t o the Federal Reserve Board; t h e r e i s nothing i n
the s t a t u t e t h a t a u t h o r i z e s y o u t o d o that- T h e r e f o r e

you are responsible f o r putting i t with irresponsible p e o we
Governor McCord:

F r o m what sources d o t h e Federal

reserve n o t e s c o m e i n t o t h e p o s s e s s i o n o f t h e Federal r e -

serve agent?

I s i t from the lfreasury of the United States

or is it from the Federal reserve Board?
Mr. Curtis:

F r o m the Comptroller o f t h e Currency,

I think.
Governor McCord:

T h e r e i s n o record o f those notes

in the Treasurer's office,

i s there?

I s i t not entirely

through the Federal Reserve Board?
Governor Miller:

W

o make a

requisition

o n the Federal

Reserve Board f o r the notes.
Mr- Curtis: I
is a

record

do not know, Governor McCord.

There

i n the Board a n d i n the Comptroller's office.

£ doubt i f there is a record a t the time they are issued
in the Treasurer's office.


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Federal Reserve Bank of St. Louis

Governor M e C o r d :

i

d

o

N o t think so.

213
The Chairman?

I

s i t not t h e proper procedure f o r u s

to have this ruling from the Federal eserve Board, which
will b e sent t o each bank, submitted t o t h e counsel o f
the respective banks a n d t o t h e #ederal reserve agents,

to

see whether t h e ruling finds acceptance o r i s questioned
in a n y bank.

S

o f a r a s w e a r e concerned, I

think w e would

likely a c c e p t i t a n d l e t i t g o a t that.

Governor Fancher:

A f t e r all, i s not t h e question o f

loss very remote, o w i n g t o the form i n which the gold i s
Carried h e r e ?
Mre Curtis:

Absolutely, I

should S a y . A

loss

almost impossible.

Governor McCord:

I

n answer t o the communication

from t h e Executive Committee,

o r from the committee t h a t

handled t h i s question, o u r bank replied t h a t w e would l i k e
a segregation

o r s e p a r a t i o n o f t h e t w o f u n d s i n order t h a t

our bank would know exactly where i t stood.
(At this point Governor McDougal returned t o the

hearing room.)
The Chairman:

K o u l d you like t o interrupt the discts-

sion o n this subject f o r a moment, a n d have o u r anxieties
relieved o r increased b y what Governor McDougal h a s t o
say?
Governor McDougal: I
the situation. I

reported t o Governor Velano

told h i m h o w w e regreted t h e publica-

tion o f t h i s n e w s i n t h e p r e s s t h i s m o r n i n g
the s i t u a t i o n

t o him.

H

e said h e wished m

a m explained
t o express

to

the C o n f e r e n c e h i s a p p r e c i a t i o n o f o u r h a v i n g e x p l a i n e d t


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Federal Reserve Bank of St. Louis

214
matter-

H e said h e h a d given i t n o thought u p t o that

moment, b u t h e w o u l d b e very glad t o mehtion t o tre other
members o f the Board that I

had said t o him.

(Informal discussion followed which the reporter was
directed n o t t o take.)
The Chairman:

N o action being required o n this mat-

ter, c a n w e have a
10-(b),

resolution which will dispose o f Topic

o r d e y o u wish

t o hear t h e replies i n detail f r o m

all the banks, .xpreSsing their views a s t o a separation o f
this f u n d ?
Governor W o l d :

W h a t i s t h e consensus

o f opinion

held b y the Governors, M r - Curtis?
Mr- Curtis:

T h e consensus

be b e s t t o h a v e «

o f opinion i s t h a t i t would

p h y s i c a l separation

o f the custody o f

the agent's funds ami the bank's funds i n the gold settlement fund.
Governor McDougal:

I

s that t h e consensus

o f opinion

of t h e G o v e r n o r s ?

Mr-e Curtis:

Yes. A

Governor McDougal:

large majority feel that way.

Y o u have a l l s e e n t h e recommenda-

tion m a d e b y t h e commit tee a p p o i n t e d

t o audit t h i s fund,

which i s i n h a r m o n y w i t h t h a t statement.
The Chairman:

T h e y reconmended a

Governor McDougal:
Mr- Curtis: I
recommenda tion.

I

physical s e p a r a t i o n ,

Y e s .

have a

digest o f t h e c o m m e n t s

t was almost unanimous

o n the

o n that point.

W e

had n o r e p l y f r o m G o v e r n o r K a i n s


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Federal Reserve Bank of St. Louis

Governor K a i n s : I

replied

t o have t h e physical separa-

215
tion b y a l l means.

Mr- Curtis:

Y o u r reply probably c a m e after w e left.

The Chairman: I n a s m u c h a s I offered Topic 10-%b)

| for consid«ration I would like t o move that the Secretary
Fbe r e q u e s t e d

t o twonvey t o e a c h o f t h e Governors,

b y separate

|

/communication, t h e substance o f the ruling o f t h e federal
Reserve Board i n regard t o the separatton o f the funds h e l d

Abe the Federal Keserve Board for account o f the Federal
Reserve Agents and. the 'ederal Reserve Banks, a n d with the
suggestion that t h e views o f eseh o f t h e Governors b e fini ally conveyed t o the tederal Reserve Board o n that matter,

| after consulting with counsel f o b shen bani and the Federal
Reserve Agent o f each bank.

(The motion, having been duly :

seconded, was

carried.)
Governor McDougal:

W h a t i s this ruling t h a t y o u a r e

referring t o ?
The Chairman:

T h e board holds t h a t s u c h a loss shall

be borne b y the Federal HKeserve Bank's gold fund amd the
Federal Reserve Agents' g o l d fund i n proportion t o the
respective amount s held i n such f u n d b y those t w o parties.
ho h a e n o t discussed a

lot o f the detail difficulties

that might arise i f a loss occurs i n connection w i t h this
ruling:

M r - Curtis h a s just referred t o one.

W h e n we

com t o convey a n expression o f our o w n views t o the Board
from N e w Y o r k o n this subject,

w e will b r i n g this out;

that i f a loss occurs during the interval between settle—
ments, a n d nobody knows a s t o what date exactly t h e loss
occurred,


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Federal Reserve Bank of St. Louis

a n d t h e transactions a r e incomplete between t h e

216
two funds o f the banks a m d t h e agents, t h e r e will b e

quite a little difficulty i n alio@ting the loss between
the b a n k s t h e m s e l v e s a n d b e t w e e n t h e a g e n t s themselves.
Thee

Eee

i n theory,

with there,

2 4 separate accounts

t o b e dealt

a m t h e mechanical d i v i s i o n o f t h e loss b e -

tween t h e 2 4 g a c c o u n t s w o u l d b e q u i t e a

problem i n a n

active account s u c h a s this has n o w become.
Governor McDougal:
that w e refer

T h e point o f your suggestion i s

t o o u r attorneys a n d t o the reserve agents

this r u l i n g o f t h e B o a r d b e a r i n g u p o n a

The Chairman:

possible l o s s ?

Y e s s

Governor Fancher: I

shall a s k our attorney t o g o

a little further a n d S a y what t h e y find i n the A c t that
gives t h e Board authority t o assume custody o f such a
fund.
The Chairman:

W w e have h a d a n opinion f r o m counsel f o r

the B o a r d t h a t w n d e r t h e s e c t i o n o f t l e A c t t h a t p r o v i d e s
that t h e F e d e r a l

Neserve Board

m a y act

as a

clearing house

for the Federal Keserve Banks, there i s no doubt a s t o the
authority o f the B o a r d t
o take custody o f the funds o f

gold from the 'ederal Reserve Bank» T h i s question
arises b y reason o f their j o i n s c u s t o d y o f t h e gold from
ec
the Federal eserve Agents and mingling with i t the “O16
ro)

of t h e b a n k s w h i c h i s i n t h e i r custody,
pecomes a

more complicated

a n d t h e question

one, epnsequently,

because

the

legal basis for their action i n behalf of the #ederal Reserve Agents i s undoubtedly quite different f r o m what i t i s
on behalf o f the Federal Reserve Banks.

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Federal Reserve Bank of St. Louis

I

n the o n e instanc-:

ae
they act a s a clearing agent a n d i n the other instance t h e y
arg a c t i n g s i m p l y a s custodian, e i t h e r a s t h e a g e n t o f

the Fed.ral Reserve A g e n t , r
o possibly i n some other capacity,
or under s o m o other theory o f the lawy with which w e are
not a c q u a i n t e d .

T h e point

i s they a r e doing it, a n d t h e

‘question i s i s t h i s r u l i n g w h i c h t h e y h a v e made, t h u s f i x -

ing t h e liability o f the agents a n d o f the banks, f o r a n y
loss, a

sufficiently legal a n d binding one s o that t h e banks,

themselves a n d the agents themselves a r e protected i n operating u n d e r i t ? I

would prefer

t o have t h e whole thing

investigated further before saying finally that w e would

adopt it. B u t offhand, i f the Fedoral Reserve Board
assumes

t o p a s s o n t h e q u e s t i o n o f liability,

able foundation f o r doing so, we have a

w i t h reason-

very strong argument

to submit t o congress t o t h e effect that i t was their
own G o v e r n m e n t b o d y t h a t d e t e r m i n e d t h i s matter; t h a t w e
did n o t i n t e r f e r e w i t h i t a n d i t w a s n o t d o n e b y o u r direc-—
tion; t h a t w a a s k e d f o r t h e i r r u l i n g ,

their ruling;

t h a t there h a s been a

a n d that this i s

Loss, ythe Government

in Washington having detcrmined w h a t t h e arrangement o f
liabilities would b e , presumably under t h e advice o f
oeeneer

w ® n o w a s k Congress

t o make g o o d

replacing t h e s e r e s e r v e c e r t i f i c a t e s

that t h i s was n o t a

mtter

i s

loss b y

b y an- Act o f Congress;

i n which w e had assumed

give a n y direction o r take a n y responsibility: I
sp e a k i n g n o w ,
When i t c o m e s

o f course, f r o m t h e s t a n d p o i n t

o f t h e bank.

t o t h e Federal r e s e r v e a g e n t s , t h e y h a v e

their point o f view.

T h e y a r e bonded officers

may regard i t a s a n unsafe ruling,

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Federal Reserve Bank of St. Louis

am

T h e y

s o far a e they are con-

2E8
cerned:

T h e y m a y want t o say, “Well, w e want o u r funds

separate because w e a r e under bond.

I t i s a personal lia-

bility, s o far a s we are concerned,"
Governor McDougal:

I

n the event o f a loss t o the

Federal reserve agent f r o m the funds i n his custody, where,
in your opinion, w o u l d t h a t l o s s u t t i m a t e l y f a l l ?

The Chairman:

I t would work b a c k t o the banks inevit-

ably.
Governor M c D o u g a l : T h e bond,

o f course, p r o b a b l y

being s m a l l a s c o m p a r e d w i t h t h e loss.
The Chairman:

Y e s .

Governor; t i i e r : I

suppose

i t i s generally k n o w n

that t h e F e d e r a l R e s e r v e B o a r d c a n c e l s t h o r o u g h l y a l l g o l d

certificates coming into their hands.

T h e y perforate

them.
The Chairmans.

Y e s ; a

perforated e n d o r s e m e n t

i s put

on each certificate.
Governor Miller:

T h a t would make t h e m useless i n the

hands o f anyone?
Mr- Curtis:

Y e s ; t h e y a r e p r a c t i c a l l y non-negotiable.

The Chairman:.

W e will take u p topic 10-(c)..

TELEGRAPHIC CODE FOR TRANSFERS O F GOLD I N
GOLD SETTLIMELNT F U N D B i TWEEN R E S E R V E A G E N T S

AND BANKS.
That h a s been disposed o f b y provision b y the federal
Reserve B o a r d o f a s e r i e s

o f test words

t o b e used i n ef-

fecting t r a n s f e r s b e t w e e n t h e b a n k s a n d t h e F e d e r a l R e -

serve Agents through t h e G o l d Fund.


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Federal Reserve Bank of St. Louis

Governor Wold:

T h e r e i s just o n e thing that 1 want

2219
to bring o u t i n connection w i t h the code words.

T h i s

specific q u e s t i o n h a s b e e n settled, j u s t a s t h e C h a i r m a n

has stated, b u t some o f the banks a r e using a code t o communicate b y t e l e g r a p h w i t h us, a n d t h e n s e n d i n g a
tion t n t h e maid.

transla-—

T h e c o d e its - a p s o i i t e l
y ue pood i f i t

is g o i n g t o b e f o l l o w s d
The Chairman:

u p by a

typewritten translation.

W i l l y o u offer a

resolution w h i c h w i l l

serve t o correct t h a t s i t u a t i o n ?
Governor Wold: I

wili- b e v e r y g l e d t o d o @

, 1f t h e

secretary w i l l p r e p a r e i t .

The Chairman:

T h e n your resolution would b e that t h e

Secretary b e r e q u e s t e d

be, i n effuct, a

t o prepare a

resolution w h i c h will

request t o the various Fedcral reserve

banks t o discontinue t h e practice o f sending translated
confirmations o f code telegrams?
Governor o l d : I
The Chairman:

I

offer s u c h a resolution.
s that resolution seconded?

Governor Fancher: I

will second it.

(The resolution w a s d u l y passed.)

The Chairman:

T o p i c 10-(d) was suggested b y

Governor Kains.
(d) R E T R O A C T I V E LIABILITY F O R EXIPEUSSS.
Governor Kains:
tee a d o p t e d a

T h e Governors! a@x-Executive C o m m i t ~

resolution

t o t h e effect t h a t a n y charge

imposed b y t h e Treasury Department f o r transfers o f gold

caused b y the operation o f the Gold Settlement Fund shall
be paid p r o rata b y the bank o r banks withdrawing gold

from the gold settlement fund i n e x c e s s f
o the amount o f

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Federal Reserve Bank of St. Louis

220
gold s u c h bank o r banks h a v e deposited w i t h their subtreasury; provided that w h e n such withdrawal o f gold f r o m
the g o l d s e t t l e m e n t f u n d w a s n e c e s s i t a t e d

by a

request f o r

transfer f r o m another Federal Reserve Bank, t h e Federal
Reserve B a n k r e q u e s t i n g t h e t r a n s f e r p a y s u c h expense.

The question is:

I f the liability f o r the gold ship-

ment i s t h e r e s u l t o f several m o n t h s
mulations

o r transactions,

o r several years' a c c u -

h o w i s i t t o b e determined w h i c h

transaction rule&; t h e one refcrred t o n

the first section

or the o n e referred t o i n the second section?
The Chairman:

T o whom are y o u addressing that ques-—

tion, Governor Kains?
Governor Kains:
The Chairman:

T o this body.
Y o u have heard t h e question, gentlemen,

and the floor i s open t o anybody w h o dares t o tabkle it.
Governor K a i n s , w e r e y o u p r e s e n t y e s t e r d a y w h e n i t w a s
reported t h a t i n f o r m a l a d v i c e h a d b e e n r e c e i v e d f r o m o n e o f

the members o f the "edceralReserve Board that u p t o date there
was,

i n a l l probability,

of t h e t r a n s f e r s

n o liability f o r expense b y reason

o f gold?

Governor Kains:
The Chairman:

M a y I take t h a t a s official?

Y e s , except t h a t w e a r e bound b y t h e

organic l a w o f t h e l a n d t h a t y o u c a n r e p e a l a

any time a n d enact a

new one.

statute a t

T h e +reasury Department might

dig u p some charge, b u t t h e Board thinks that i t i s extremely u n l i k e l y a n d i t i s n o t n e c e s s a r y t o p r o c e e d w i t h
the i n q u i r y f u r t h e r a t this t i m .

Governor Kains:

T h e thing that i s bothering m e a

little i s t h e s e c o n d provision,

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Federal Reserve Bank of St. Louis

w

h

e

n this withdrawal

ieee
gold f r o m the gold settlement f u n d i s necessitated b y a
request

f o r transfer

f r o m another federal reserve bank.

When that takes place, t h e Federal Reserve Bank receiving
the r e q u e s t n a t u r a l l y g e t s a

The Chairman’

I

quid p r o quo.

n C h i c a g o t h e y d o , b u t n o t i n most

of the other districtsi

Governor Kains:

I k n o w every time + withcraw sone gold

you I naturally give y o u s o m e t h i n gn
i placef
o it.
The Chairman:

Y e s , y o u give u s checks o n New York

are paid i n silver. ( L a u g h t e r )
Governor Kains:

Y e s ; t h a t i s your pie.

Governor Miller?

I s that under t h e rules o f the N e w

Clearing House?

The Chairman:

T h a t i s t h l a w of the United States.

Governor Miller: I

thought the rules o f the clearing

house were that settlements were made i n gold?
The Chairman:

N o ;

a n d n o national b a n k c a n b e a

member o f aclearing house i n the United “tates that prohibit:
settlements

i n silver. A

statute passed i n 1882 contains

that provision.

Governor Miller:

H a v e y o u not a gentlemen's agree-

ment that everything i s t o b e paid i n gold i n New York?
The Chairman:

W

e h a v e n o agreement, g e n t l e m e n ' s

or

otherwise, a n d t h e practice i s t o settle i n c earing house
depository certificates, either silver certificates o r legal
tender n o t e s d e p o s i t e d w i t h t h e C l e a r i n g H o u s e b y members

of t h e clearing house,


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Federal Reserve Bank of St. Louis

a m s o m e gold.

I a m going over t o the Federal Reserve Board, a t

Bee
the r e q u e s t

o f Governor Velano,

it m i g h t n o t b e a

t o discuss w h e t h e r

good p l a n t o m a k ® a

this a r t i c l e w h i c h a p p e a r e d

o r not

Statement s a y i n g t h a t

i n the newspaper referred

t o an

informal discussion, t h a t n o action was taken o n i t and n o
recommencation

o r approval w a S m a c e b y this m e e t i n g

i n re-

gatd t o t h a t question.
While 1

a m gone, w i l l s o m e o n e p l e a s e t a k e t h e c h a i r ?

Governor McCord: I
the Chair.

I

move t h a t Governor f a n c h e r t a k e

s there a

second t o that?

(The m o t i o n w a s s e c o n d e d a n d c a r r i e d

a m Governor Fan-

cher took t h e chair.)
Governor Fancher:
Keins,

( T e m p o r a r y Chairman)

G o v e r n o r

d o y o u d.sire a n y further discussion o f this Topic

), o r is its present status satisfactory t o you?
Governor Kains: I
some

d a t a

o n which

would like t o get something definite,

as t o
w e c a n count on,the assessment

A

o f this

liability.
Governer Aiken:

H o w c a n w e arrive a t that?

to m é i t i s n o t p o s s i b l e

t o d o that. I

I t seems

think w e have

Simply g o t t o take a chance o n i t for t h e present a n d see
how i t Works.

Governor Fancher:

A s I understand t h e situation, Gower. -

nor Kains, Governor Strong has m a d e a very careful inquiry,
through sources that h e believes a r e very reliable, w h i c h
sources have i n turn made a n investigation i n the treasury
Department,

a n d w h i c h h a v e reported t h a t u p t o t h e present

time t h e r e h a s b e e n n o e x p e n s e incurred.


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Federal Reserve Bank of St. Louis

Governor Kains:

B u t I am not referring t o that» I


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Federal Reserve Bank of St. Louis

223
am referring t o this provision that w h e n t h e withdrawal o f
the g o l d f r o m t h e g o l d s e t t l e m e n t f u n d w a s n e c e s s i t a t e d
a request f o r transfers,

then a

I c a n quite imagine t h a t i f 1

special t r a n s a c t i o n occurs.

had a

balance w i t h G o v e r n o r

Strong, a p a r t f r o m t h e G o l d S e t t l e m e n t Fund, a n d I
him f o r t w o o r t h r e e m i l l i o n d o l l a r s
charge a g a i n s t

by

asked

o f gold a n d l e t h i m

m y b a l a n c e f o r that, t h a t t h a t w a s g o i n g t o

be held u p against m e later o n , and I would b e subjected
to the expense o f shipments o f gold from S a n *rancisco t o
New York.
Governor V a n dandt: I

d o n o t think w e have approved

or accepted t h a t r e s o l u t i o n
Governor Kains:

b y t h e L x e c u t i v e Committee.

N o , w e h a v e not, a n d I

a m not i n

favor o f it.
Governor V a n Zandt:

W

e simply l a i d i t o n the table

Sand did not e c t o n it.
Governor Kains:
us, S o f a r a s I

T h i s topic has n o t been discussed b y

know.

Governor V a n Zandt: I

think i t was brought u p yes-

terday o r the d a y before, a n d laid o n the table.

Governor Fancher: I

think i t was discussed before

you c a m e i n t o t h e meeting,
Governor Kains:

d a y b e f o r e yesterday.

S u p p o s e w e pass it. I

merely w a n t

to say £ am not. in favor o f it.
Governor McDougal:

T h i s has t o d o with the expense o f

moving g o l d ?

Governor Kains:

Yes.

Governor McDougal:
Governor Kains: I

T h e r e will n o t b e a n y now.
ean see that Governor Strong might

234
make m e liable,

d u e t o some transaction

i n which h e author-

ized: m e t o d r a w g o l d f r o m him, a n d h e c o u l d c o m e t & ck years

afterwards o r months afterwards, a n d say, “Here, this was
done

o n a n order y o u g a v e m e ; 1

paid o u t g o l d o n y o u r a c -

count, a n d y o u must make good n o w b y sending m @ some gold."
+ would t h e n have t o ship it.
Governor S e a y !

C o u l d n o t y o u have t h e expense o f a n y

such t r a n s a c t i o n a p p l y t o t h a t t r a n s a c t i o n
was m a d e ?

a t the time i t

I n other words l e t e a c h transacticn s t a n d alone?

Governor Kains: I

might b e able t o d o that. I

be glad t o d o so, b u t I

would

d o not want t o have these indefin-

ite l i a b i l i t i e s h a n g i n g o v e r m y h e a d i n t h a t way.

Governor Seay: C o u l d y m not stipulate?
Governor Kains: I

would b e very glad t o stipulate.

I a m not i n favor o f these blanket resolutions.
Governor Wold: I

raised t h a t question d a y before

yesterday a n d asked f o r information a s t o how i t applied
to Minneapolis.

N

o member o f t h e Executive Committee

felt familiar enough with i t t o say.
that h e was unable t o s e a how i t w

M r - Strong intimated

u l d apply, b u t said

that t h e r e s c l u t i e n h a d b e e n d r a w n b y Mr. H e n d r i c k s a n d M r .

McKay.
Mp. Curtis:

W e did take some action o n this, Mr.

Chairman, under the heading "Distribution o f expenses o f
moving gold % m gold settlement fund."

"Voted, t o lay this subject o n the table t o be brought
up ata later confcrence."

T h a t w a s o n the theory that a s

nothinghad s o far developed there was n o use i n going ahead
With a n argument o n i t .

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Federal Reserve Bank of St. Louis

225
Governor Kains:

‘ f r . Curtis , would y o u mind keeping

that i n limbo i n t h e meatime?
Mr- Curtis:

C e r t a i n l y not. i

Governor Kains: I

b y common consent f o r such liabil-

ity, t h a t i t would n o t a c c r u e a f t e r a

Mr. Curtis:

d o Soi

would b e v e r y g l a d t o m o v e t h a t a

definite p e r i o d b e a d o p t e d

after t h e tr-nsaction,

Wid

period o f s i x t y d a y s

o r n i n e t y days.

B u t w e might n o t b e advised b y the

Treasury i n that time.
Governor McDougal:

M r . Chairman, t h i s i s one o f the

questions t h a t t h e Lxecutive Committee,

o r the majority

of the bxecutive Committee, felt that they could not handle,
and t h e y turned i t over t r a

committee,and t h i s i s based

upon t h e findings o f that committee a s submitted.
Governor Fancher:

T h i s i s t h e result o f t h e report

of the committee consisting o f Messrs M c K a y a n d “endricks?
Governor Kains:

T h e n i t i s undesstood t h a t i t i s

not settled, b y t that Mr- Curtis w i l l hold t h e subject i n
abeyance.
Mre Curtis:

i t : wil)

Governer Fancher:

b e o n t h e mext- program; y e s .

W i t h that understanding c a n w e

pass t h e subject, Governer Kains?

Governor Kains:

Y e s ; that i s satisfactory t o me.

Governor Fancher:

T h e next topic i s 10-(e).

(e) GOMMITTI3, TO AUDIT FOR WHOLE YLAR.
Mr- Curtis: I
Chairman

can teli y o u -the history o f that, Mp.

I t was suzgzested b y the last audit committee

that i t would b e advisable f o r t h e m t o know w h o would b e
the n e x t m e m b e r s

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Federal Reserve Bank of St. Louis

o f t h a t a u d i t committee,

a m t h e Board

wanted

t o have the audit m d e o n c e a

Governor McDougal:
Mr- Curtis:

N

B u t n o specific dates set?

o s p e c i f i c d a t e s given.

Governor Wold: I
Stated p e r i o d s

d o not k n o w that they ought t o b e as

a t all.

Mr- Gurtis:
terly audit.

quarter---

B u t t h e y wanted t o have a t least a

qurr-

T h e y wanted t o have t h e rotation o f m e n t o

gd t h e auditing s e t forth i n advance.

T h a t i s t h e whole

point i n it.
Governor McDougal:
already p a s s e d a

T h a t c a n b e arranged.

resolution, I

W

e have

belicve, t h a t t h e m e m b e r s h i p

of the committee i s t o rotate among t h e banks.
Mr» Curtis:

Yes.

I s e e that Governcr Strong h a s

written out hare under the title o f "auditors" t h e name o f
each bank and I think h e was going t o get each governor t o
fill

i n the auditor

then b e a

t o r e p r e s e n t h i s bank, a n d t h e y c o u l d

rotation.

Governor Fancher: I

suggest w e pass this, until

Governor Strong comes back.

I n the absence o f abjection

that a c t i o n w i l l b e taken.

(There was n o objection.)
Governor Fancher:
here a s a

result

January 14, 1916,

of a

T h e r e h a s b e e n another trpic added
letter f r o m t h e B o a r d u n d e r d e t e o f

i n reference t o receiving deposits f o r t h e

five p e r c e n t r e d e m p t i o n f u n d a n d p a y m e n t s
tlement f u n d i n multiples

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


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Federal Reserve Bank of St. Louis

t o the gold set-

o f t e n t h o u s a n d dollars.

I s i t a long communication, Gover-

eey

Governor Fancher:

N o : I

will read it.

I t i s as

follows:

"Washington, D . C., January 14,1916
“Complying w i t h various suggestions m a d e b y the "ederal
Reserve B a n k s t h e F e d e r a l R e s e r v e B o a r d h a s t o d a y a u t h o r ized p a y m e n t s

t o b e made a t t h e request

o f member banks

by Federal r e s e r v e b a n k s , f r o m t h e g o l d s e t t l e m e n t f u n d t o
the t r e a s u r e r

o f t h e United S t a t e s f o r t h e ¢ r c d i t o f t h e

five p e r cent redemption fund accounts maintained b y member
banks against national b a n k note cancellation, provided
that s u c h transfers s h a l l b e i n sums o f t e n t h o u s a n d d o l lars o r a

multiple thereof.

"It i s suggested that notice o f this facility b e communicated

t o y o u r m e m b e r banks.

"Respectfully,

Secretary."

Wilfong fls.


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Federal Reserve Bank of St. Louis

223
Governor McDougal: I
any action here.

d o not believe t h a t requires

I t i s not going t o b e practicable, a n y -

how.
Governor Seay:

I

t requires s o m e u n d e r s t a n d i n g t h a t

we would n o t communicate w i t h o u r littlc banks a n d make i t
of any service a t all.

W e would accumulate a

little batch

of transfers t h a t w e are unable t o make a n d g e t t h e m i n
arrears w i t h t h e Department.

Governor Fancher:

I

t seems t o m e i t would l e a d t o

some confusion i f w e circulate i t around t h a t w e cannot
make transfers :except i n $10,000 o r multiples thereof.

Governor Aiken:
Mre Chairman.

I

W e decided t o do nothing about that,

t i s unfair,

s o f a r a s o u r b a n k i s con-

cerned,

Governor Seay:

W e might communicate w i t h t h e l e r g e

hanks t o the effect that i f they had transfers amounting
to t h a t w e c o u l d m a k e t h e m f o r them, s o d w e w o u l d n o t r e -

ceive a n y request t o make a transfer that w a s less t h a n
that a m o u n t .

M

a

y I

inquire h e r e

banks i f t h i s h a s c o m e t h r o u g h a

o f the Federal

request

reserve

o f one o f the

banks?

The Chairman:

I t says, "Complying w i t h t h e suggestions

by Federal Reserve Banks.”

Governor Wold:

N o t guilty.

Governor Seay:

N o t guilty.

Governor Rhoads:
Governor Fancher:

N o t guilty.
G o v e r n o r McCord, d i d y o u make a

suggestion that y o u would receive deposits a n d make trans-


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Federal Reserve Bank of St. Louis

fers i n that way?
Governor McCord:
ma d e s u c h a

doing now.

M

y Federal r e s e r v e a g e n t m a y h a v e

request. I

W e have a

d o f o t know- I

know w h a t w e a r e

non-classified account w i t h the

Treasury o f the United States, a n d w e take transfers o v e r
to t h e f i v e p e r c e n t fund.
through N e w O r l e a n s

W

e h a d t o make transfers

f o r o u r member banks

o n the five p e r

cent fund.
Governor Tancher:

T h a t i s n o t t h e g o l d settlement fund.

Governor McCord:

T h e y a r e just clarifying t h e atmos-

Governor Miller:

Y o u S a y y o u d o have a n unclassified

phere.

account W i t h t h e Treasury?

Governor McCard:
Governor Miller:
Governor McCord:
Governor Miller:
in a n y Q u a n t i t i e s

Y e s sir.
I

n Washington?

Yes.
I s i t subject t o check o r deposit

o r amounts?

Governor McCord:

L e s sir.

W

e transfer

i t over t o

the five p e r cent fund o r take transfers t o some subtreasury
on that account.

W w e have i t i n multiples, however, Mr.

Miller.

Governor wold:

D o I understand that you are permit-

ted t o c h a r g e t h a t a c c o u n t w i t h t h e T r e a s u r y o n account

the five p e r cent fund i n any amount?
Governor Aiken:

Y o u t a k e i t i n multiples

o f what?

Governor McCord: T r a n s f e r i n multiples o f $50,000
or something like that--- St. Louis o r Chicago.


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Federal Reserve Bank of St. Louis

of

250
Governor W o l d :

W h e r e does t h e balance rest-—-

with

you o r t h e T r e a s u r y ?

Governor McDougal:
Governor F a n c h e r :

W i t h the Treasury,
H o w i s that account

o f course.
made Ups

Dy.

what o p e r a t i o n s ?
Governor McCord: I

can send t h e m National b a n k notes

for redemption and send them silver certificates that are
worn, o r anything l i k e that.
Governor Miller:

A n d they just credit i t ?

Governor McCord:

W

e h a v e a n unclassified a c c o u n t

with them, j u s t m a d e u p f o r g e n e r a l d i s t r i b u t i o n ,
classify i t afterwards.
it i s t r a n s f e r r e d

I

a n d they

f w e have lawful m o n e y i n there

t o t h e f i v e p e r c e n t f u n d . i f 4%.
4 6 nee

lawful m o n e y i t i s transferred

Governor Seay:

t o some Sub-treasury.

D i d y o u establish that understanding

by c o n c u r r e n c e w i t h t h e m ?
Governor McCord:

Y e s sir; t h a t i s ,

it u p w i t h t h e A s s i s t a n t T r e a s u r e r

m y cashier t o o k

o f t h e United S t a t e s

and t h e a c c o u n t w a s e s t a b l i s h e d t h a t way.
Governor F a n c h e r :

I

can t r a n s f e r a c c u m u l a t i o n s

n your transfer operations

you

a n d use them through t h e sub-

treasury o f New Orle:ns a n d through your N e w Orleans
branch?

T h a t

i s the way you work

Governor McCord:
Governor Fancher:

i t CUuGe

T e s sir.
T h a t is a

situation t h a t u o e s n o t

exist i n a n y o t h e r district.
Governor M c C o r d :

F o r instance,

National

b a n k notes

or silver certificates o r unclassified accounts a r e
afterwards ironed o u t and distributed.

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Federal Reserve Bank of St. Louis

nod:
Governor Wold: I
necessaryson- t h a t

d o not think there i s a n y action

a t a .

Governor Seay: I
that n o o f f i c c r

would like t o establis h the fact

c f the Federal reserve banks h e r e present

made a n y r e q u e s t

t o t h a t effect.

Governor Wold:

w h e r e i s that chip, anyway. (Laughter)

Governor Seay: I

would like t o learn the source from

which s o m e o f t h e s e t h i n g s come.
Governor Kains:

T

o w h o m w a s t h a t letter addressed?

Governor F a n c h e r ?

T

o t h e agent,

f r o m the Secretary

of the Board.
Governor Miller:

D o y o u not think i t would b e a good

idea for t h e Board always t o enclose a

carbon c o p y o f

their letters t o the agents w h e n t h e subject dealt with
relates t o the administration o f our bank?

Gevernir Fancher: G o v e r n o r Miller, that suggestion was
madé t o t h e B o a r d a t a

prior c o n f e r e n c e

and t h o s e c o m m u n i c a t i o n s

o f this b o d y ,

t o o u r b a n k a r e c o m i n g i n that

form i n the last month, anything relating t o the operation
of the bank.
Governor Aiken:
Chairman,

a t all,

T h e situation

i s n o t helped, M r .

i f t h e lettcr w i t h that c o p y goes t o t h e

Federal Reserve Agent.

W h a t w e want, a n d w h a t w a s brought

out a t that meeting, w a s that i t was desirable that a

com-

munication w i t h regard t o banking matters should b e addressed t o the bank a n d g o into t h e bank's mail, and, i n

the distribution, g o t o the proper officer.

I t has arisen

a number o f time s--- n o t o n a c c o u n t o f a n y m a l i c e

o f feel-

ing i n the matter--- b u t i t has arisen a number o f times

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Federal Reserve Bank of St. Louis

2Se
recently between o u r Federal reserve agent a n d myself that
some letters h a v e n o t g o t t e n t o t h e i r p r o p e r destination.

They have happened t o get into a drawer,
where,

o r get away, s o m e -

a m t h e Federal Reserve Agent h a s raised t h e question

of w h y t h e c a s h i e r h a s n o t a t t e n d e d

t o this o r that o r

the other thing, a n d h e has replied that h e has not gotten t h e letter.

Governor Miller:
Governor Kains:

A t least,
I

t is a

i t i s a delay.

very simple m a t t e r

communications f r o m t h e B o a r d a b o u t t h e s e m a t t e r s

t o have
g o to

the bank a n d b e numbered, a n d then w e will know i f anything
is missed,

a n d i t c a m b e promptly acknowledged a n d thenwe

will know where w e are,

I f they a r e matters t h a t I

am

mot specially concerned with, t h a t i s another thing; b u t i f
they a r e i n s t r u c t i o n s

o r things t h a t t h e b a n k h a s t o p a y

attention t o a m t h e y a r e marked f o r the bank, w h y should
they g o t b e numbercd,

a n d t h e n w e w i l l k n o w i f there a r e

any missed.

Governor Miller:

M a i l t h e m directly t o the bank?

Governor Kains:
ceuse I

M a i l t h e m directly t o the bank; b e -

get t h e m i n a

very h a p h a z a r d w a y .

O u r agent might

not come d o w n f o r a day o r two, a n d t h e n I will g e t three
or four copies, n o t signed, thrown o n m y desk, marked
“For t h e Governor.”
thing a n d I

T h e r e i s n o sys t e m about t h e

d o not like it;

Governor Wold:

i t i s w o t businesslike.

I t is a

m t t e r t h a t w e have protest-

ed a t nearly every meeting, b u t w e d o not s e e m t o get a n y
action o n it.


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Federal Reserve Bank of St. Louis

Governor Seay:

T h e Fgderal Reserve Agent may write

255
to t h e Board,

a m t h e Board i s under t h e impressi6% that

it gets those things f r o m the bank, a n d i t replies t o hin,
and t h e m a t t e r b e g i n s a n d e n d s b e t w e e n t h e B o a r d a n d i t s

own agent.

I t arouses misunderstanding.

T h a t thing i s

liable t o happen a t a n y time, a n d with a n y bank.
Governor Miller: I
copics

think t h e agent ought

t o file

o f t h e s e l e t t e r s w i t h t h e banks.
Me. Curtis:

H o w l o n g h a v e y o u thought that, M r . M i l -

ler? ( L a u g h t e r )
Governor M i l l a r :

T h a t . dussetion i s o u t o f order,

(Laughter)
Governor Seay: I

want t o s a y that w e have t h e most

fullfled@ged G o v e r n o r w i t h u s

here t h a t

It i s a

Governor Mjller.

very valuable thirg,
r o nPanener
Br eev oaG :
r

i n g

w e h a v e e v e r had.

on this subject,. h e r e -is t i e

letter which was received b y Governor S t r o n g i n respect t o
the recommendations

o f the Minneapolis Conference.

"4, P r o m p t interchange o f communications from the
Federal R e s e r v e B o a r d a d d r e s s e d
or t h e G o v e r n o r s

o f t h e banks.

"It h a s b e e n d i r e c t e d
matters

o f general j n t e r e s t

Federal

Reserve Agent

accompanied

b y a

t o t h e Federal Reserve Agents

t h a t hereafter letters covering
a s well t o t h e Governor

o f Federal

a s ths

Reserve Banks shall

carbon c o p y f o r i n f o r m a t i o n

b e

o f t h e Governor

of the bank."
I a m not just familiar

with the form

o f the resolution

which w a s p a s s e d a t Minneapolis.


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Federal Reserve Bank of St. Louis

Mr. Curtis:
.

W e passed i t a t both Chicago a n d Minnea-

It w a s f i r s t h i
anded

t o lD r M i l l eor a t Chicago,
p

and

254

then t o Mr. tarburg end wr. Harding a t Minneapolis, with the
request t h a t i t b e t a k e n u p i n f o r m a l l y a n d s t r a i g h t e n e d o u t .

I d o not remember t h e exact f o r m o f t h e resolution, b u t i t
had i n m i n d t h e p r o m p t t r a n s m i t t a l

o f bank administrative

matters t o the bank officers.

would like t o mention a little in-

Governor Seay: I
stance.

R e c e n t l y t h e r e c a m e t o a l l o f “those f o r m s s u b m i t -

ted b y the Board w i t h the recommendation respecting t h e
report f r o m m 2 mber banks o n check deposits a n d balances
with t h e r e c o m m e n d a t i o n t h a t w e t a k e i t u p w i t h o u r m e m b e r

banks.

S o m e superficial criticism was made o f this, a n d

there c a m e b a c k a

letter

t o the Board t o t h e effect t h a t

the f o r m o f the report i s wholly i n the hands o f the agents.
think t h e matter o f reserves

Governor MeDougal: I

i. i n the hands o f the agents, a n d should be.
Governor Seay:

T h e report o n balances?

W h o keeps

the a c c o u n t ?
Governor McDougal:
who k e e p s t h e account.

I

t does n o t m a k e a n y difference

T h e accounts a r e available

t o tie

agent, and the agent i s a representative o f the authorities
in washington,

a n d i t i s their particular business

that t h e r e s e r v e s a r e maintained. I

t o see

think t h a t i s p e r -

fectly proper.
Governor S e a y : I
of c o m m u n i c a t i o n

d o n o t agree w i t h y o u i n the f o r m

w i t h respect

Governor Rhoads:

t o the accounts.

W o u l d i t b e in. order t o m o v e t h a r

the Secretary d r a w a draft o f some resolution o n this, i n

his usual diplomatic language. I


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Federal Reserve Bank of St. Louis

make such a motion.

235
Governor Kains: I

secdne 3 t. I

this c o m m u n i c a t i o n s n u m b e r e d

would l i k e t o get

s o that w e c a n g e t t h e m con-

secutively a n d a t t e n d t o them.

Governor McDougal: I

will s a y for t h e Chicago b a n k

that w e have h a d n o difficulty o f that kind, recently,

at

least.
Governer Wold: I

d o not think w e have h a d a t Minnea-

polis, e i t h e r , M r . C h a i r m a n ;

b u t i t i s the principk

o f

the thing.
Governor Seay:

I t has never amounted t o a difficulty

yet, b u t i t w i l l a m o u n t

to a

difficulty,

j u s t a s certain

as a n y t h i n g c a n be.

Governor Miller:
Governor S e a y :

A n d a s the business increases.
I

t i s a n obstruction

t o p r o m p t trans-—

action o f business, a n d i t i s founded u p o n a n erroneous
business p r i n c i p l e ,

i n m y judgment.

Governor McDougal:

T h i s whole question i s a very

simple one, i f they will a c t i n the matter o f directing
their communications t o the bank, those that relate t o the
bank itaedes a n d o n the other hand, communicate w i t h t h o
Fedcral Reserve Agent i n connection with those affairs i n
which h e h a s d i r e c t authority.

Governor Aiken:

I t seems t o m

t h a t that i s t h e simple

and businesslike solution o f the whole thing.
Governor Seay:

T h a t i s what w e asked t h e Board t o

do, a n d t h i s i s t h e i r reply.

T h a t f o r m o f r e p l y w a s sug--

gested o u t there b y Dr. Miller.

H e said that i t might b e

that a

t o t h e agent s h o u l d


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Federal Reserve Bank of St. Louis

copy o f t h e communication

b e sen*.

Loo
To- the. bawic a l s o .

Governor A i k e n :

B u t i t i s n o t s e n t t o t h e bank;

it

is sent t o the Federal Reserve Agent.
Governor S e a y :

Certainly;

y o u a r e right.

I

t i s evi-

dent t h a t t h e y h a v e g o n e astray.
Governor McCord: I

tions direct.
Agent a n d a

have b e e n g e t t i n g s o m e c o m m u n i c a -

T h e y a r e directions t o the Federal Reserve

copy h a s b e e n mailed

t o m e a s Governor.

N o t

im every instance, b u t i n some o f them.

Governor Miller: G o v e r n o r Kains!' suggestion that
they b e numbered would b e very apropos,

Governcr Seay: T h e r e i s n o use o f a compromise.

I t

seems t o m e w e ought t o express o u r opinion a s t o what w e
believe ought t o b e done, a n d let t h e m take t h e responstbility o f deciding otherwise,
Governor Fancher:

i f they do.

J u s t what d o you want t o embody

in your motion, Governer Rhoads?
Governcr Rhoads: I

want t h e S e c r e t a r y t o d r a f t a

lution p u t t i n g t h i s m a t t e r
ally, I

on a

business basis.

reso-

P e r s o n -

think i f all communications w e r e addressed

t o the

bank w e could very easily send them, inside t h e bank, t o
ie p r o p e r persons.

Governor Fancher:

W o u l d i t meet t h e situation i f the

copy t h a t w a s i n t e n d e d f o r t h e b a n k w e r e m a i l e d t o t h e
bank?
Governor Rhoads: I
I d o not Want just a


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Federal Reserve Bank of St. Louis

would l i k e t o h a v e t h e m signed.

c a r b o n copy, u n s i g n e d .

(At this point informal discussion arose which t h e


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Federal Reserve Bank of St. Louis

Bot
fter w h i c h t h e

stenographer w a s d i r e c t e d n o t t o report; a

following proceedings took place:}
Governor Fancher: I

want t o a s k o u r s e c r e t a r y w h a t

he t h i n k s a b o u t a n o t h e r r e s o l u t i o n b e a r i n g 6

have Suggested t o Governor Fancher

Mr. Curtis: I
that i t seems

e e e subject?

t o m e t o come b a c k w i t h another formal h a c k

at this thing would b e t o irritate t h e Board:

I t would b e

much better t o have one individual Governor explain t o the
Board that t h e practice t h e y have adopted does n o t meet t h e
requirements. I

t h i n k t o have a n o t h e r f o r m a l r e s o l u t i o n

go in, a f t e r w e h a v e b e e n a t i t t w i c e o n this s u b j e c t , m i g h t

add one more cause o f irritation.

think i f Governor Strong would make

Governor Kains: I
a recommendation

t o the Board that these communications

be

the
directed t o the bank, and, a t t h e e n d o f his letter,
suggestion that w h e n u e s

e s u s instructions

i n carbon

form, such carbon copy b e signed, I think that would b e wel’
because i t i s very unsafe, I

should think,

t o give unsigned

directions.

(At this point informal discussion arose which the
stenographer was directed not t o report; after which the

following proceedings took place:)
Govermor Rhoads:

M r . Chairman, 1

withdraw m y motion

and s u g g e s t t h a t e a c h o n e o f u s t a k e t h e m a t t e r u p indivi-

dually i n such w a y a s seems best t o promote t h e efficiency
of the service.
Governor W o l d : I

second that.

258
Governor Fancher?

I

s t h e r e a n y f u r t h e r dciscussion?

(There being n o further dis cussi on, the motion
was duly carried.)
Governor F a n c h e r :

Topic 10-(f).

W

a w a y from

e

e have e

W h a t i s your pleasure a s t o how this mat-

ter s h o u l d b e t r e a t e d

b y t h e banks?

move that i t b e left t o the discre-

Governor Wold: I

tion o f t h e i n d i v i d u a l bayks.

Governor Seay? T h a t i s m y sentiment, exactly. I
second the resolution offered b y Governor Wold, t h a t t h e
matter o f participation i n thefive p e r cent f u n d b y member
banks b e left t o the individual reserve b a n k t o deal with
its o w n m e m b e r s .


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Federal Reserve Bank of St. Louis

Governor

Tanencr:

I s there a n y furthor discussion?

(There being n o further discussion, the motion was
duly carried.)

11l-(a) P U B L I C I T Y O F FEDERAL RESERVE BANK EARNINGS.
Governor Fancher:
topic I

suggested

n o w t o Topic li-(a). ‘ T h a t

W e a r

t o Mr. O u r t i s s h o u l d c o m e u p a t t h e meot--

ing w e w e r e t o have i n December,

a n d what prompted

the p u b l i c i t y g i v e n t o t h e e a r n i n g s

o f t h e Federal R e s e r v a

Banks, I think i n the October bulletin.
ee

A

s I recall,

m e n t i o n was made o f the earnings f o r t h e month o f

September,

a n d s o m e c o m p a r i s o n s w e r e made, a n d c o n s i d e r a b l e

publicity w a s g i v e n i n o t h c r f i n a n c i a l papers:
red

i t was

t o m e that

i f those statements

not o f t e n e r t h a n e a c h quarter,

were made

EL2oCcar=

a s t o earrings

o r perhaps n o t o f t e n e r t h a n

each s i x months, t h a t would b e frequently enough.

259
Having t h a t i n m i n d I

suggested t h i s t o p i c t o g e t t h e

sentiment o f this b o d y t o see i f they were similarly i m pressed,
Governor S e a y : I
Chairman: I

a m n o t i n s y m p a t h y w i t h that, M r .

remember t h a t f o r o n e q u a r t e r l y p e r i o d , w h i c h

was t h e m o s t a c t i v e p e r i o d o f o u r operations,

i t s o happened

that w e made a t t h e rate o f eight a n d a Half p e r cent f o r the
year, a n d t o o u r e m b a r r a s s m e n t t h e t h i n g w a s t k k e n h o l d o f

and published i n the papers t h a t t h e Federal Reserve B a n k
of Richmond w a s earning eight a n d a half p e r cent.
Governor Miller:
Governor S e a y :

T h a t w a s j u s t f o r o n e month?

J u s t for a

quarter.

T h a t happened

to b e the active quarter, a n d i t aroused expedations w h i c h
We--codd

not

f a r t

Governor McCord:
press,

T h a t was given t o t h e Associated

a n d p r i n t e d a l l o v e r t h e country.
Governor S e a y :

T h e r e

a r c Some periods

o f the year

when rediscounting i s more active t h a n a t other periods,
and t h o s e b a n k s w h i c h c o n f i n e t h e i r o p e r a t i o n s m o r e l a r g e i y
to r e d i s c o u n t s w i l l m a k e h e a v i e r earnings. Biegeacs omits case
highly i n e x p e d i e n t t h a t t h e y s h o u l d p u b l i s h m o n t h l y e a r n i n g s

of the Federal reserve banks, f o r the reason that they
might create a n erroneous impressiox.
Governor sencher: H a v e y o u given that matter some thought,
Covernor M c D o u g a l ?

H o w h a s i t impressed y o u ?

Governor McDougal:

F r o m t h e standpoint o f common

banking sense, banks a r e not i n the habit o f publishing
their e a r n i n g s


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Federal Reserve Bank of St. Louis

i n t h a t way.

W

e c l o s e o u r books s e m i a n n u a l l y

240
and +

think those periods w o u l d b e t h e proper o n e s

which t o give publicity t o the accomplishments
Governor Fancher:

M r . Seay,

in

t o that date.

d o y o u h a v e i n mind a

motion t h a t w o u l d c o v e r t h i s topic,

o r a n y suggestion t o

the Board?
Governor Seay? I

move that i t b e suggested t o the

Board that publication o f monthly earnings o f t h e Federal
reserve banks m a y b e misleading both t o the public a n d t h e
member banks, a n d that t h e y b e requested t o consider t h e
advisability o f publishing earnings n o t more frequently
than o n c e a

quarter.

Governor Miller: P r e f e r a b l y every s i x months.
Governor Seay: P r e f e r a b l y e v e r y s i x months.
Governor Miller: I

second t h e motion.

(The motion was duly carried.)

11-(b) T E R M S O F OFFICE O F RLSERVE BANK iMPLOYES.

Governor Fancher:

T o p i c 1l-(b) has been suggested

bey Governor Aiken.
Governor Aiken:

T h a t was suggested f o r t h e December

meeting, based o n a letter under date o f December 23, f r o m
the Secretary o f the Board, t h e last paragraph o f which i s
- a8 follows:

"J am, therefore, instructed t o advise y o u that the
i Geral Rererve B o r r d h a s détermined

to submit o

o e

t o a s k the several banks

e v e r y year, a s o f January 1 , their

list o f officers a n d employcs,

w i t h s a l a r i e s f o r approval,

such action t o b e a matter o f regular routine, involving a
preceding annual action o n the part o f each board o f direc-


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Federal Reserve Bank of St. Louis

241
tors i n electing o r reelection officers a n d employes f o r

another year.

I t hmm is also suggested that ( i n the course

of each such year) t h e officers a m l employes o f each bank
shall b e c o n s i d e r e d

t o hold their appointments f o r t h e

calendar year a n d subject t o the pleasure o f the Board o f

directors o f eath bank.”
we felt t h a t i t was v e r y unwise,
the j u n i o r officers,

i n particular a s t o

t o depart f r o m t h e o r d i n a r y p r a c t i c e

in

commercial banks i n the appointment o f our employes, a n d
protcsted

t o t h e Board. I

understand t h e F e d e r a l R e s e r v e

Bank o f New York did t h e same.
Mr. W i l l i s w r i t e s

U n d e r date o f January 6 ,

t o Mr. J a y :

"While the general custom i s that clerks are appointed
by the officers o f the bank, t h e officers, senicr a n d junior,
aS a ruleare appointed c r elected b y the Board o f directors
of the Bank, generally t o serve f o r t h e ensuing year.

I t

would appear, therefore, t h a t this general practice ought
to b e observed a l s o b y the Federal Reserve Banks, a n d senior a n d j u n i o r o f f i c e r s o u g h t
year a n d t h e i r salaries,

t o b e appointed f r o m year t o

a s a l l others, s h o u l d b e s u b j e c t

to annual approval b y the Federal Reserve Board."
a understand f r o m t h a t l e t t e r t h a t i t i s s a t i s f a c t o r y

to t h e Board t o have t h e juniors! terms indeterminate a t

the pleasure o f the Board o f directors, and I want t o inguire w h a t t h e o t h e r b a n k s h a v e d o n e i n régard t o t h e m a t ter,
We p r o p o s e
annually,


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Federal Reserve Bank of St. Louis

t o elect t h e Governor a n d Deputy Governer

t o follow t h e u s u a l c o m m e r c i a l p r a c t i c e

i n regarc

e242
to the other officers o f the banks, cashiers, assistant
cashiers a n d s u b o r d i n a t e s b e i n g o r d i n a r i l y e l e c t e d

i n com=—

mercial banks f o r a n indeterminate t e r m subject t o the a p proval

o f t h e Board o r t h e officers c h a r g e d w i t h authority

and r e s p o n s i b l e

i n t h e matter.

It seems t o m e that i s t h e great deal better practice:
I Want

t o inquire w h a t

t h e cther banks

a r e doing

i n the mat-

Gers.

Governor Wold:
ter w a s p r e s e n t e d

I n the case o f Minneapolis t h a t let-

t o o u r Board a n d t h e y t o o k t h e position

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

and serve during t h e pleasure o f the Board o f Directors,
and a l l o t h e r e m p l o y e s a r e a p p o i n t e d
subject

t o dismissal

we d i d n o t p r o p o s e

b y t h e committee a n d

a t a n y t i m e b y t h e Governor,

a n d that

t o change o u r b y laws t o meet their o w n

by-laws.
Governor Fancher:
munication.

w

T h a t w a s t h e substance o f our com-

e c a l l e d a t t e n t i o n t o that p a r t i c u l a r s e c t i o n

of o u r by-laws w h i c h h a v e b e e n a p p r o v e d
which p r o v i d e d f o r t h a t v e r y t h i n g ,

b y the Board a n d

a n d stated that o u r a c -

tion w a s i n accordance w i t h t h e by-laws;

t h a t t h e Governor

would b e a p p o i n t e d e a c h year, a n d t h a t t h e o t h e r e m p l o y e s

were appointed a n d held their positions subject t o the
pleasure o f t h e Executive Committee a n d officcrs o f the
bank i n accordance w i t h t h e by-laws.
Mr. Curtis:
did n o t p r o v i c e


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Federal Reserve Bank of St. Louis

I

n New York, Mr. Chairman, t h e by-laws

f o r t h e annual election

o f the Governor

o r

4
16
any o t h e r officer,

s
s
a n d t h e y were changed a f t e r t h e receipt

of this l e t t e r f r o m t h e B o a r d t o provide f o r t h e a n n u a l
election o f t h e G o v e r n o r a m i t h e D e p u t y Governor, c a s h i e r ,
secretary, a s s i s t a n t c a s h i e r s ,

a n d auditor,

a l l t o hola

office f o r ayear a n d subject t o the pleasure o f the board,
and all other employes t o b e appointed b y the Governor f o r
indeterminate periods.

O

u

r Board i n New York felt

that i t was a wise thing t o have every officer w h o i s usually t e r m e d a h o f f i c e r

o f the bank come u p for action o n

his e l e c t i o n o r c o n t i n u a n c e l a r g e l y

i n order t o avoid t h e

difficulty o f getting r i d o f a n unsuitable man; t h a t i t
was

a n automatic

thing which would necessarily gome

January o f each year.

S

u p in

o they included a l l those offi-

cers d o w n t o and including t h e Auditor.
Governor Miller:

W h a t t i m e i n January d o you hold

meétings f o r that purpose, M r - Curtis?
Mr- Curtis:

I

t was n o t stated

i n t h e by-laws;

they

cimply stated that i n January t h e directors Shall elect
these officers.

I t does n o t state a t which meeting.

Governor Miller:

I t would presumably b e the first

meéting i n January?
Yes.

Governor McCord:

W h i l e i t i s not strictly germane

to the subject, w h a t h a s b e e n the action o f t h e other banks
in electing members t o the Advisory Council? I

under-

Stand that some o f them were elected i n December a n d others
in January:

Q u r board ruled

m a t the December meeting they

had n o authority t o elect members o f t h e Advisory Council

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Federal Reserve Bank of St. Louis

244
for next year, holding that t h e new members coming i n had
the right o f that vote.
members w e r e e l e c t e d

i n December.

Governor Fancher:
sed t o t h e B o a r d

S o m e o f t h e Advisory Council

W a s n e t some communication addres-

i n that connection?

inthe J a n u a r y bulletin a b a u t 10. I
our b a n k w e h a d a

T h e r e i s something
might s a y t h a t i n

cammunication f r o m M r + Forgan's s e c r e t a r y

calling o u r attention t o the fact that t h e terms o f office
of t h e m e m b e r s

o f t h e Advisory Council would e x p i r e w i t h

the present year, and suggesting that the new memberg for
our b a n k b e e l e c t e d

he b e advised. I

a t the next meeting

o f the Board a n d

wrote t h e secretary a n d advisea h i m that

we f e l t i n o u r b a n k t h a t t h a t w a s a

matter w h i c h s h o u l d c o m e

up f o r the n e w board, a n d i t would b e referred t o our board
at i t s f i r s t m e e t i n g

i n January,

a n d proper a c t i o n t a k e n

at t h a t time.

Governor Seay:

I t seems t o m e that that should g o

without saying, t h a t t h e office does n o t expire except with
the year, a n d the n e w officer should b e elected b y the incom
ing board.

O u r board t o o k that position.

Governor Fancher:

G o v e r n o r Aiken,

a r e y o u satisfied

with t h e d i c u s s i o n a s t o t h a t t o p i c ?
Governor Aiken:

Governor Seay: I
that i n answer

Y e s .

would like t o say, Mr. Chairman,

t o Govern-r A i k e n w e have t h r e e officers o n l y

in our bank, t h e Governor, V i c e Governor a n d Cashier.

Al-

though o u r by-laws provide f o r such cases, a t the last
election


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Federal Reserve Bank of St. Louis

w e reelected

a l l t h r e e officers.

w

e d o not con-

245
Sider:

t h e auditer

a n officer.

Governor Rhoads: I

should like t o ask for information

whether i t i s understcod t h a t t h e salaries o f all clerks
are t o b e p u b l i s h e d

b y the Fedcral Reserve Board; because

if that i s the cate, i t creates a very difficult situation.
Does t h a t c o m

u p later?

Governor Fancher:

T h a t i s t h e n e x t question.

Governor Rhoads: i

b e s y o u r pardon.

11-(¢) P U B L I C A T I O N O F RESERVE BANKS* S A L A R Y LISTS.

Governor Fancher:

T o p i c ll-(c) has been suggested

by Governor Strong.
Governor McCord: I

move w e p a s s t h a t u n t i l

h e re-

tumns.

Governor Fancher:

I f that i s satisfactory,

pass t h a t u n t i l G o v e r n o r S t r o n g c o m e s

back

w e will

t o t h e meetirg.

11~(a) R E P O R T O F COMMITTLE O N M i THOD O F C/LCULATING
DIVIDENDS .
Governor Fancher:
gested

W

e will t a k e u p Topic 11-(d), s u g -

b y Governor S e a y .

Governor Seay:

M r . Chairman, t h e r e w a s a

consisting o f t h e G o v e r n o r s
who w e r e r e q u e s t e d

committee

o f the three Southery banks

t o work o u t t h e dctails

o f calculation

of dividends, a n d inasmuch a s i t was n o t practicable f o r
us t o get together I simply worked t h a t u p and sent i t t o
all t h e G o v e r n o r s a n d e a c h o n e r e c e i v e d a

report.

There w a s some correspondence w i t h the Federal Reserve
Board

i n reference

t o one particular point,

was w h a t t i m e t h e i n t c r e s t


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Federal Reserve Bank of St. Louis

a n d that point

o n stock payments b e g i n s

t o acer”

246
They w e r e c a l l e d

a s o f certain dates,

s n d t h e y were paid

in

at irregular dates, s o m e o f them prior t o the date o f call
and s o m e

o f them long subsequent

t o the date

o f call.

T h e

particular. question w a s whether member banks could b e allowed interest o n their capital payments f r o m t h e date o n
which they: made 1 % o r the date o n which w e received i t , o r ,
whether,

i f made p r i o r

t o the call,

w e snould a l l o w t h e m

interest.
The B o a r d r u l e d t h a t i n t e r e s t s h o u l d b e g i n t o a o c r u e
from t h e d a t e o n w h i c h t h e capital p a y m e n t w a s received,
provided t h a t w a s n o t p r i o r

t o t h e d a t e o f cal};

a n d you

gentlemen w e r e c o m m u n i c a t e d w i t h c n t h a t subject.

letter t o the Board I
of the committee,

n my

said that i t was t h e understanding

o r a t least o f one o f the committee.

Governor McCord:
Governor Seay:
basis

I

w e joined you, s o that settles it.

T h a t calculation should b e made o n the

o f 3 6 0 days, f o r c o n v e n i e n c e a n d s a f é t y o f c a l c u l a t i o n

The l i a b i l i t y f o r e r r o r w a s m u c h l e s s u n d e r t h o s e v i r c u m stances. I
Governors

had s o m e correspondence w i t h o n e o r t w o o f t h e
i n relation

t o that report afterwards,

and I

ex-

pressed t h e personal opinion that having wtmmestablished t h e
one f a c t t h a t t h e B o a r d r u l e d t h a t i n t e r e s t

o n capital p a y -

ments s h o u l d b e m a d e a s I

a i d n o u -see

have s t e t a d , y

but t h a t t h e v a r i o u s b a n k s w e r e a t f u l l C i s c v i g
late d i v i d e n d s a c c o r d i n g

respective localities.
is 3 6 0 d a y s t o t h e year.


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Federal Reserve Bank of St. Louis

Mr: G u r t i s :

Y e s .

t o calcu-

t o the laws o r the customs

I

i n their

n Virginia t h e basis o f interest
i

n N e w Y o r k 1 t i s 566,is:

1 0 ue;

247
Governor Seay:

I d o not know. I

W h a t i t i s i m the other districts

regarded t h a t a s immaterial, b u t t h e

Board d i d n o t e x p r e s s i t s e l f

o n t h a t a t all.

I

a month t o get t h e expression f r o m t h e Board.
the l a w i n o u r s t a t e a n d b e i n g t h e p r a c t i ¢ e
generally,

s o f a r a s I ] a m aware,

caltulating

t h e interest

t took m e

T h a t being

i n our district

w e pursued t h a t p l a n i n

o n o u r s t o c k payments.

I

t seems

to m e the only question that w e all needed t o determine
for g u i d a n c e h e r e w a s t h a t point, w h e n i n t e r e s t s h o u l d b e -

gin t o accrue.

T h a t being established, a n y reserve b a n k

is a t liberty t o plan f r o m that.
Governor Miller:

Governor Seay:

T h a t w a s f r o m November 2nd, 1 9 1 4 ?

Yes.

Governor Miller:
Governor Seay:

N o t November 1 6 ?
N o ; t h e date o f the capital payment,

not the date o f the organization o f the banks.
Governor Miller:

I

t looks t o m e a s though i t

should b e N o v e m b e r 1 6 .

Governor Yeay: u x c e p t that the bank had parted with
its m o n e y - - Governor Miller:

Still,

i f y o u were going t o make

a private i n v e s t m e n t y o u w o u l d t u r n y o u r m o n é y i n t o t h e

organization before t h e organization could possibly begin
to d o b u s i n e s s .

Governor Seay:
Sidered

T h a t might v e r y well have b e e n con-

b y t h e Board;

i t probably was. i

8 0 not. knows c a n

I think a t least i t was erring o n the s i d e c f generosity
in giving t h e m e m b e r b a n k ? i n t e r e s t s i x m o n t h s f r o m t h e d a t

on which i t parted w i t h it, b u t i n order t o produce general

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Federal Reserve Bank of St. Louis

satisfaction w e fully acquiesced i n that position.
Mr- Curtis:

P a r t i c u l a r l y i n view o f t h e fact t h a t

these banks w e r e a l l organized i n May.
Governor McDougal:

A s I remember it, Mr. Seay, t h e

Committee r e c o m m e n c e d t h a t i n t e r e s t a c c r u e f r o m t h e d a t e
the c a p i t a l s t o c k p a y m e n t r e a c h e d t h e bank.

Governor Seay:
from t h e f i r s t

Y e s ; t h a t t h e y b e allowed interest

t o t h e l a s t day.

Governor McDougal:

T h a t would b e effective i n pay-

ments t h a t w e r e r e c e i v e d p r i o r t o November 2 n d ?
Governor “ e a y :

N o ; provided t h a t n o interest

b e al-

lowed o n paymentsthat w e r e made prior t o the date o f call.
Governor McDougal:

W e had calculated o u r dividends

beginning o n the date c f the opening o f t h e bank, whichwe
felt w a s t h e c o r r e c t p r o c e d u r e ,

a n d i n view o f the finding

of the committee w e went through with the process a g a i n
and w e n t b a c k t o N o v e m b e r 2 n d , w h i c h i s l i b e r a l

t o the mem-

ber banks, a n d w e have conformed w i t h the recommendations.
Governor S e a y :

Y o u understood t h a t t h a t particular

point w a s c o v e r e d b y a

ruling o f t h e B o a r d ?

Governor McDougal:

Y e s ; b u t w e d o not believe a n d

do not think i t i s right that w e should have t o clculate
dividends f r o m the opening o f the bank, because n o corporation c a n p a y dividends until i t begins t o make money.
Governor Miller: I
Governor Fancher:
has r e c e i v e d a

copy o f a

think that i s exactly right.
A s I understand i t , e a c h Governor
communication f r o m t h e B o a r d

bearing u p o n this, a n d w e have i t i n our files.


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Federal Reserve Bank of St. Louis

249
Governor Seay:

Y e s ; i t was transmitted t o the Board

detailed m e t h o d o f c a l c u l a t i o n - - ~ t h e w h o l e matter.

with a

I

Governor Fancher:

think s o far a s that i s concerned

Governor McCord: I
it i s a l l w a s h e d

is a

s there a n y action desired?

o u t about these present payments,

b u t there

future c o n s i d eration c c m i n g u p , a m d t h a t i s this:
I

n ourcase w e would

Supposing a

bank e n t e r s t h e s y s t e m n o w .

be r e q u i r e d

t o have t h e s t o c k payment p l u s t h e proportion-

ate profit that now accrues t o other members, a m that would
deter some banks coming i n t o t h e proposition that would
otherwise c o m e i n . I

think t h a t s o m e arrangement

keeping o u g h t t o b e m a d e w h e r e b y t h e p r o f i t s

o f book-

u p t o January

lst--- a s that i s the ending o f the fiscal year--- should


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Federal Reserve Bank of St. Louis

be set aside t o those member banks a s accumulated profits,
and t h e n fububre payments could b e based solely o n their coming in; because i f w e should call o n a member b a n k w e would
have t o figure o u t how m u c h net profit would have t o b e
paid i n i n order t o m a k e a

net p r o p o r t i o n

The only w a y I can see i s t o pass

u

t o the other banks

p t o the credit o f

the m e m b e r b a n k s t h e p r o p o r t i o n o f t h e i r c a r n i n g s

u p to

January l s t o r vicember 31, 1915.
Governor Miller: I

hope y o u w i l l n o t g i v e v e r y g r c a t

publicity t o that, because s o m e o f u s will have t o figure
a discount.
Governor McCord:
made a

I t i s burdensome o n u s who have

little something.
Governor Rhoads:

that i f a

T h a t suggests t h e thought

t o me

bank t a k e s o u t addi tional s t o c k t o d a y y o u w o u l d

charge t h a t w i t h a c c r u e d d i v i d ends ---

250
Governor McCord:

Y o u would have to, under t h e ruling

of t h e Board,

Governor Seay’ I

do not construe i t that way.

Governor Wold:
Mr: Curtis:

W e are n o t doing that.

W h a t r u l i n g i s that, G o v e r n o r M c C o r d ?

Governor Miller: I

d o not think i t ought t o g o down

that Small detail.
Governor McCord: I
Governor Wold:

4O- NOt e1tiers

L e t u s n o t r a i s e t h a t q u e s t i o n a t all.

Governor Rhoads: I

think there should b e uniformity

in this.

Governor Seay:
Mr- Curtis:

W e have n o t g o t that f a r yet.

A r e y o u referring

t o that opinion, G o v e r -

nor MeCord, t h a t Judge Elliott g a v e that w a s recently published?
Governor McCord:

Y e s sir; t h a t i s w h a t I

a m basing i t

(At t h i s p o i n t i n f o r m a l d i s c u s s i o n a r o s e w h i c h t h e
stenographer w a s d i r e c t e d n o t t o report; a f t o r w h i c h t h e f o l -

lowing procecdings t o o k place:)
Governor McCord: I

a m willing

t o have t h e matter

rest where i t is, but, a s Governor Rhoads says, there ought
to b e uniformity o f action.
Governor Seay:

I f you like, Mr- Chairman,

w e may

have t h i s continued f o r consideration.

Governor Fancher:

Y o u suggest that we keep the topic

on t h e program?


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Federal Reserve Bank of St. Louis

Governor S e a y :

T h a t w a s i n deference

t o Mr. R h o a d s

25k
expressed o p i n i o n t h a t u n i f o r m a c t i o n o u g h t t o b e t a k e n
in ‘the matter.

I

f i t i s desired, c o n s i d e r a t i o n w i l l b s

given t o those points which have been raised,
Governor Rhoads: I

i n due course.

move i t b e referred a g a i n t o the

Committee f o r f u r t h e r c o n s i d e r a t i o n a n d report.
Governor Aiken: 3
Governor Rhoads:

second t h e motion.
W

e might accept t h e roport a s f a r

as i t goes.

Governor Seay: I n a s m u c h a s new questions arise, that
action has t o b e taken.

(The motion was duly carried.)
Governor V a n Zandt: I

would l i k e t o a s k G o v e r n o r

seay i f h e has h a d a n y applications f o r stock i n the bank
Since h e p a i d h i s d i v i d e n d s ?

Governor Seay: W e l l , there has becn n o rush o f applicants; b u t t h e r e h a v e b e e n s o m e S m l l a p p l i c a t i o n s

f o r the

first q u a r t e r o f t h e year.
Governor V a n Zandt:

D

o y o u require t h e m t o p a y o n e

half o f one per cent p e r annum?
Governor Seay:
yet.

T h e y have n o t progressed t h a t f a r

T h e first o n e h a d

t o b e allowed,

that m a t t e r u p i n d u e course.

a n d then w e took

T h a t i s one reason I

had

for t h e continuance o f t h e commit tee, t o consider those
points.

W

e have n o t arrived there yet.

Governor Aiken: I
tigation b e i n c l u d e d

would suggest that i n that inves-

a n investigation o f t h e practice

paying o u t s t o c k surrendered,
be m a d e .


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Federal Reserve Bank of St. Louis

in

o n what b a s i s t h e payment show.

252
Governor Seay:

Clared a

dividiad,

I

n t h e c a s e o f banks t h a t h a v e d e -

o r have not?

Governor Aiken:

A n y way, w i t h the idea o f establish-

ing a unfform practice.

(At this point Governor Strong resumed the Chair, a n d
an informal discussion srose which t h e stenographer w a s
directed n e t t o report; a f t e r w h i c h t h e follcewing p r o c e e d i n g s

tcok place:)

Governor McCord: I
The Chairman:

move w e revert t o Topic 10-(c).

T h e situation o n that matter, a s has

been explained t o m e b y oneof t h e m e n i n our office after
conference w i t h Mr. B r o d e r i c k
that t h e c o m m i t t e e s p p o i n t e d

i s t h a t i t would b e desirable

t o audit t h e g o l d s e t t l e m e n t

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

year, s n d o n e n e w m a n who h a d n o t yet served,

s o that a t

each mveting there would b e o n e man familiar w i t h the
audit.

I t i s getting t o be quite a

large audit, w i t h

%160,000,000 of g o o v e r here, and the transactions becoming more complicated o n account o f the Federal Agents’ F u m .
It w e s a l s o s u g g e s t e d t h a t t h e a p p o i n t m e n t
to s e r v e a s auditors

b e made f o r a

o f these m e n

period a h e a d ,

s o that

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

regulation under w h i c h this fund i s established, w h i c h con-

templates a quarterly audit of the fund.
You a u t h o r i z e d

m e t o m a k e a n a p p o i n t m e n t before;

why

would i t not b e a good plan t o lay out a scheme o f audit
for t h e balance o f this year, selecting t h e banks i n rotation, o n e m a n t o serve f o r t w o audits i n each case, o n e n e w


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Federal Reserve Bank of St. Louis

253

man c o m i n g o n e a c h time.

Boston,

N e w York, P h i l a d e l p h i a

and Richmond h a v e already provided o n e auditor t o date.
Mr. C a d w a l l a d e r

i s t h e Richmond m o n ,

Governor Seay:

i s h e not?

Y e s sir.

The Chairman:

I f 1 should appoint Mr. Cadwallader, o r

if you should select him, together w i t h a man from Atlanta
for a n audit

t o b e m a d e r i g h t a w a y , ‘and t h e next t i m e a

man

from Atlanta w i t h a man from Cleveland, a n d t h e n following
that a

man from Cleveland a n d a

man from Chicago, a n d s o o n

right through t h e list, t h e r e would always b e one m a n
familiar w i t h t h e audit,
would

be a

a n d o n e o f these appointments

representative

o f the Federal K e s e r v e Agents a n d

the other would b e a representative o f t h e Federal Reserve
Banks.

How does that p l a n appeal t o you?
Governor

V a n Zandt: I

move that t h e Suggestion

of

Mr. Strong o f New York b e followed out.
Governor Aiken: I

The Chairman:

seeond t h e motion.

M a y I ask Governor MeCord what m a n

would probably b e selected f r o m that bank?

Goversor McCord:

T h e r e would b e two, one for the

Federal reserve agent a n d o n e f o r the bank?
The Chairman: I
to g e t t h e detail

think possibly, instead o f attempting

o f t h a t now, I

will a s k o u r Mr. J e f f e r s o n ,

who is familiar with it, to take it up by correspondence
direct w i t h t h e Governors.
Governor McCord:
chairman o f m y board


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Federal Reserve Bank of St. Louis

Y e s ; i
o n that.

W o u l d rather: c o n s u l t t h e

The Chairman:

I

f this resolution empowers

m e to do

that, 1 will g o ahead and arrange that before leaving for
Europe.

T h e n i t w i l l b e understood t h a t t h i s r e s o l u t i o n

authorizes m e t o g o ahead a n d work o u t t h e details o f t h e
arfangement.

Governor McCord:

B e f o r e y o u pass f r o m that subject,

is i t advisable f o r the man t o be selected who has the
auditing o f the bank's business,
appointed?—because

t h e auditing

the l a r g e s t p a r t o f i t a t home.

o r should another m a n b e
o f t h e bank's business

i s

W h a t d o you gentlemen think

of that?
The Chairman:
sing o n entries
and p a s s i n g

T h e q u e s t i o n o f t h e s a m e a u d i t o r pas-—

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

o n entries

o n t h e b o c k s o f operations

settlement f u n d w o u l d r e a l l y n o t b e i m p o r t a n t
ter, b e c a u s e t h e r e a r e t h r e e m e n auditing,

o f the gold

i n this mat-

e n d t h e bocks

of the bank a r e verified b y reconcilement w i t h the gold s e t tlement f u n d ,

o r reconcilement,

i f y o u conduct y o u r busi-

ness a s w e do,by some other officer o f the bank.
Governor McCord:

P l e a s e understand m e . I

a m per-

fectly willing t o leave i t t o the auditor, b u t -I was just
asking whether i t i s necessary.
The Chairman: I

d o not think i t i s necessary t o sur-

round i t w i t h a n y p a r t i c u l a r s a f e g u a r d , b e c a u s e
operating f r o m b o t h ends.

I

o f the m e n

f y o u h a v e a n y feeling o f

reservation about that, Governor ieCord?--Governor McCord:
soon e n t r u s t


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Federal Reserve Bank of St. Louis

N o n e whatever. I

would j u s t a s

i t t o m y a u d i t o r a s t o a n y m a n i n t h e bank.

205
Governor Aiken:

I s not that a

matter o f local conven-

fenee, r e a l l y ?
The Chairman: I

think s o ,

A r e y o u ready f o r this

resolution?

(The resolution, being duly seconded, w a s carried.)
The Chairman:

(ce)

I s a topic that + suggested.

I t

involves some possibly criticism o f the policy adopted b y
the Federal R e s e r v e Board:

T h e y telephoned

m e from New

York that communication has bcoen received from the Federal
Reserve Board stating t h a t t h e y have decided t o publish
the salaries o f the officers o f all o f the reserve banks
and t o p u b l i s h a

list o f amounts

c f salaries p a i d t o i n d i -

vidual employes, without naming them, b u t simply giving
their p o s i t i o n s

i n t h e d i f f e r e n t f e d e r a l r e s e r v e banks.

T h e

Board's determination seemed t o be fixed i n that matter.

I t

is really n o t o n e o f those matters where w e would b e justified

i n g o i n g f o r t h e B o a r d h a m m e r a n d tongs, b u t i f t h e

different banks feel a s w e do, under t h e terms o f our discussion yesterday, I
Say S o directly,

suppose

b u t individually,

it i s a mistake t o publish a
will m a k e u s a

i t would b e q u i t e p r o p e r
t o t h e Board.

i

to

o think

list o f salaries paid-

L t

mark f o r a m b i t i o u s C o n g r e s s m e n w h o w a n t t o

get appointments, a n d i t m a y create some feelings o f jealousy o r d i s s a t i s f a c t i o n

ferent banks. I

W

Board p r o t e s t i n g a g a i n s t


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Federal Reserve Bank of St. Louis

o f the dif-

a m very sorry i t i s going t o b e done.

Governor A i k e n :

The Chairman:

i n t h e forces themselves

e have written

t o t h e Federal

neserve

t h a t practice.

O u r Board passed a

resolution w h i c h the,

256
sent t o t h e F e d e r a l r e s e r v e b o a r d ,

b u t that apparently d i d

not d o aRy good.
Governor Rhoads:

k

e protested against t h e publica-

tion o f the salaries, f o r obvious reasons.

Governor Seay:

F r o m the officers down?

Governor Rhoads:

W e do. not object-to t h e officers,

but t o the thorks.
Governor V a n Zandt:
The Chairman:
just r e c e i v e d

i L had n o t heard o f that.

T h e letter announcing t h e decision was

a t o u r b a n k y e s t e r d a y o r t h i s morning.

Governor Wold: I

had n o t s e e n it.

Governor Fancher:

O u r Board passed a

resolution p r o -

testing against i t , a s t o publishing t h e salaries o f t h e
employes.
The Chairman:

I

t appears t h a t t h e B o a r d

i s pretty

generally informed o f the wishes o f the banks about it.

D o

you wish t o take a n y action o n this matter?
Governor McCord:

N o ; t h e y might s a y w e w e r e c r i t i c i s -

ing their actions.
Governor Wold:

W o u l d i t n o t b e w e l l t o leave t h a t

and take i t u p b y the individual banks through their c o m -

mittees, o r through the Governor? I
very m u c h o p p o s e d

think our Agent i s

t o undue p u b l i c i t y b e i n g g i v e n t o h i s

salary.
The Chairman:

W h y i s i t not a good plan f o r the gen-

tlemen w h o h a v e n o t e x p r e s s e d t h e i r v i e w s t o t h e B o a r d

to

write t h e m a b o u t i t ?

Governor Seay:
already i n print.

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Federal Reserve Bank of St. Louis

T h e probability i s that t h e matter i s

2oT
11-(e)

R I G H T O F A NATIONAL BANK? vIRECTLY O R
THROUGH O F FICLRS} T O ACT A S AGLNT F O R
INSURANCL COMPANILS.

The Chairman:

‘ f e are down t o 11-(e) o n our program.

Governor V a n Zandt:

W h a t disposition a r e y o u going

to make o f that.
The Chairman:
it?

N

G e n t l e m e n , w h a t i s your v i e w about

o action t a k e n o n the matter,

b u t consensus

o f the

meeting that it might prove useful for the Federal Reserve
Board t o have expressions o f views f r o m the different r e serve b a n k s

o n this s u b j e c t ?

Governor Aiken: I

The Chairman:

s o move, M r . Chairman.

T h e n the Secretary's record will state

that, w i t h o u t a n y r e s o l u t i o n b e i n g passed.

I should like t o leave t h i s particular subject 1 1 for
a moment,

t o report w h a t t r a n s p i r e d

a t t h e B o a r d meeting.

After some discussion, w h i c h brought o u t t h e fact that
they w e r e S o m e w h a t d i s t u r b e d a n d a

little u p s e t

b y the

newspaper article i n regard t o yesterday's conference o n
the s u b j e c t
express
done,

o f t h e retirement

o f greenbacks, I

a n o p i n i o n a s t o what,

i n the w a y o f m k i n g a

i f anything, o u g h t t o b e

statement d e n y i n g t h a t o u r

meeting h a d a p p r o v e d o f a n y p l a n s u g g e s t e d
tion. t n respect.

O r 11.

I

was a s k e d t o

n answer

o r taken a n y ac-

t o that i n q u i r y b y t h e

Board I stated what Governor McDougal h a s already stated i n
regard t o t h e c o n f i d e n t i a l c h a r a c t e r

o f t h e meéting, w h i c h

must have b e e n thoroughly understood,

a s i t was referred t o

a number o f times, a n d explained what I surmised t o be the
circumstances under which this article h a d been published,


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Federal Reserve Bank of St. Louis

258
believing,

a s I now do, that i t was probably written i n ad-

vance o f the meeting.
It d e v e l o p e d t h a t t h e g e n t l e m a n w h o w r o t e t h e rrticle

and published i t under his name, had interviewed Vice
Governor D e l a n o a s m u c h a s a

month a g o o n t h i s v e r y subject,

and explained t o h i m that h e was going t o start a
of this q u e s t i o n a n d a g i t a t e t h e d e s i r a b i l i t y

discussion

of a

plan t o

retire preenbacks.
I pointed o u t t h a t i f h e h a d o b t a i n e d h i s i n f o r m a t i o n

from anyone w h o h a d been i n attendance a t the meeting h e
could n o t possibly h a v e been authorized t o state that w e had
taken a n y a c t i o n o n t h e matter, b e c a u s e
it w a s s i m p l y a

n o action w a s taken;

general d i s c u s s i o n w i t h o u t a n y f o r m a l

informal action;

t h a t t h e views expressed a t t h e meeting,

however, s e e m e d t o b e p r e t t y g e n e r a l t h a t i t w a s a
thing i f s u c h a

or

retirement

desirablo

o f t h e grecnbacks c o u l d b e brought

about, a n d there was general sxssent b y the Federal Reserve
Board t h a t i t would b e a good thing, b u t that they feared
the reaction i n Congress b y the publication o f discussion
of this character.
Then I

stated t h a t t h e n e w s p a p e r s w e r e s o f u l l o f

news j u s t n o w that i t seemed t o m e the best w a y t o treat
the matter was t o d o nothing; t h a t i t would b e m m bmerged
in tomorrow's n e w s a n d f o r g o t t e n ; t h a t , h o w e v e r ,
inquiry w a s m d e

i f any

b y a n y C o n g r e s s m a n a s t o w h a t i t d i d mean,

1 could state i n behalf of our meeting that the meeting with
these n a t i o n a l b a n k m e n h a d b e e n a r r a n g e d
and t h i s w a s s i m p l y a


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Federal Reserve Bank of St. Louis

a t t h e i r request,

subject w h i c h h a d b e e n b r o u g h t

u p and

259-

informally discussed without a n y action being t a k e n b y
us, a n d t h a t o u r a t t i t u d e g e n c r a l l y w a s t h a t a n y f o r m a l p r o -

cedures growing o u t o f this discussion could b e laid before
the F e d e r a l R e s e r v e B o a r d
generally,

b y them i n a

proper w a y , a n d that,

o u r attitude w a s that w e did n o t propose

come i n v o l v e d

i n discussions

t o be-

o f legislation h e r e except a s

to t h o s e m a t t e r s w h i c h h a d t o d o w i t h t h e o p e r a t i o n o f t h e
Federal R e s e r v e B a n k s a r d t h e i r b u s i n e s s

Federal Reserve Law, a n d a e =

i n carrying o u t t h e

s u b j e c t s w e felt per-

fectly f r e e t o discuss t h e m a t t e r w i t h a n y o f o u r m e m b e r

banks a t a n y time a n d i n any w a y which w e regarded a s a
helpful contribution t o the development o f the system. a
advised t h e m t h a t w e h a d s p e c i f i c a l l y c a l l e d t h e i r a t t e n -

tion t o the fact that a n y discussion o f the modification o f

the Clayton Act could not b e officially indulged in;
that i t was n o part o f the Federal Reserve A c t a n d d i d n o t
directly relate t o the operations o f these banks, a n d they

ought t o prepare their program and lay i t before the Federal
Reserve Board o r the Trade: C o m m i s s i o n themselves.
Governor Seay:

The C h a i r m a n :

T h a t w a s said t o them yesterday b y

Y e s .

S

o i

think t h e Board w a s r e -

lieved a m satisfied a n d quite pleased t o let well enough
alone-

I f anything sq@me u p t h e y stated t h a t they would u n -

doubtedly c o m m u n i c a t e w i t h t h e G o v e r n o r s a b o u t i t t o s e e

whether a n y action might b e desired;

a m t h e r e t h e matter

was left.


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Federal Reserve Bank of St. Louis

I took advantage

o f t h e opportunity t o b r i n g before t h e

260
Board s u b j e c t
just a

1 2 o n o u r program,

word a b o u t i t b e f o r e

and +

w

would l i k e t o s a y

e t a c k l e lunch.

I a m not going t o surope o n the first o f February f o r
a junket. I

a m not going there f o r a vacation a n d abandon

my family that i s going t o California f o r t h e winter.

T h e

object o f the trip is to begin a n inquiry i n regard t o bank
arrangements a b r o a d a n d t o g e t a

little b e t t e r u n d e r s t a n d -

ing a s t o conditions o v e r there, a n d whether i t i s feasible
to consider

in a

preliminary w a y t h e assembling

necessary i n f o r m a t i o n a n d d a t a ,

a n d s o on,

o f the

i n regard t o

doing business abroad later.
The Federal R e s e r v e B o a r d i s v e r y h e a r t i l y
with t h e v i e w s

i n accord

o f o u r directors t h a t t h e time h a s arrived

to

at least begin t o look into matters o v e r there, w i t h a view
to d o i n g s o m e b u s i n e s s a b r o a d later.
It r a i s e s a
our b u s i n e s s

lot o f questions.

i n Europe,

as I

I

n t h e f i r s t place,

view i t , — i n t h i s m a t t e r t h e

Board i s i n entire accord--- will really b e confined t o the
investment o f our money abroad a t times w h e n i t i s profit-—
able o r desirable f r o m m o t i v e s
please, w i t h o u t r e g a r d
vestments a b r o a d ,

o f p u b l i c S p i r i t , 37: s o u

t o profits,

t o maintain large i n -

a s w i l l b e t h e case.

I t i s Simply another

méans o f p u t t i n g o u r m o n e y o u t a t interest; a n d , L o o k e d
at i n t h a t l i g h t , a l l t h e q u e s t i o n s a r i s e t h a t h a v e a r i s e n

and been discussed i n regard t o investments i n New York,
and i t simply means t h a t here i s another market, another
market t h a t o u g h t

t o b e common t o all o f t h e 1 2 reserve

banks t h a t c a r e t o e n t e r i n t o i t , w h e r e o u r t r a n t a c t i o n s


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Federal Reserve Bank of St. Louis

261
to b e h a n d l e d

i n a n orderly w a y a n d not a

disjointed way.

disorderly a n d

A s 1 gathered f r o m t h e discussion this

morning, w h i c h resulted i n a resolution being passed b y the
Board, t h e y would like t o have m e submit t o y o u for y o u r
consideration t h e suggestion that those banks which desire
to l o c k i n t o t h a t m a t t e r a n d c o n s i d e r p o s s i b l y e m p l o y i n g

funds i n that w a y later o n should signify t o u s and t o t h e
Board that t h e y desire t o d o so, a n d that t h o y should n o w
consider w i t h t h e i r d i r e c t o r s w h e t h e r

to have a

working arrangement between t h e banks w i t h some

headquarters,
handled;

i t would b e d c s i r a b l e

i f you ploase, t h e r e their accounts c a n b e

w h e t h e r t h e y w o u l d p r e f e r t o g o i t alone,

or

whcther t h e y would p r e f e r possibly t o have o n e m a n employed
by all o f the banks t o manage that business.
I d o not want t o assume t o lead t h e discussion i n this
matter. I

have a n i d e a o f t h e w a y i t o u g h t t o b e handled,

but a n y t h i n g t h a t i s s a t i s f a c t o r y
be s a t i s f a c t o r y

t o us.

R

t o t h e other banks will

e have g o t t o avoid doing t h a t

business a t cross purposes w h i c h would result t o everybody's
disadvantage, a n d w e have t o b e exceedingly careful that w e
do n o t e m b a r k i n a
tageous

lot o f operations t h a t will b e disadvan-

t o a n y o f t h e m e m b e r banks.

And I do not want t o see the Federal Reserve Banks
begin t o compete
in a

i n this m r k e t

f o r t h e purchase

w a y t h a t w i l l d r i v e t h e m o u t o f business.

o f bills
A

S a

mat-

ter o f fact, t h e e x t e n s i o n o f o u r b a n k i n g m a c h i n e r y t o

foreign countries practically depends u p o n t h e a b d izty o f
the bankers i n this country t o make money i n their foreign


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Federal Reserve Bank of St. Louis

2 Ge
exchange d e p a r t m e n t s .

T h e y a r e n o t g o i n g t o extend

unprofitable business;

an

a n d i f o u r competition, i n t r o d u c e d

right now, makes their foreign exchange unprofitable, t h e y
are g o i n g t o say, " L e t u s c l o s e u p o u r f o r c i g n d e p a r t m e n t s

instead o f extending them."
No action need b e taken a t this time.
to w o r k o u t a

plan now.

W

W e d o not

e a r e probably n o t geing t o d o

business f o r a good while, b u t I would l i k e t o be able t o
say o n t h e o t h e r side,minma i n t a l k i n g w i t h t h e bankers o v e r

there, t h a t what I

a m doing n o w i s simply representing t h e

New York bank a n d looking around discussing t h e matter i n
a preliminary way,
for o u r o w n bank,

e n d t h e result m a y b e a r r a n g e m e n t s o n l y
o r p o s s i b l y f o r o t h e r s o f t h e r e s e r v e banks.

I do not went t o hold out t o thom-

t h e possibility t h a t

it m a y erystalize i n t o arrangements f o r the system, w h e n i t
may S i m p l y b e a n arrangement f o r o u r o w n b a n k i n N e w York.
It i s r a t h e r i m p o r t a n t
reserve D a n k s .

W

e had a

t o discuss t h a t a t t h e v a r i o u s
little t a l k a b o u t t h a t l a s t

night.

Governor Kains: S p e a k i n g for San Francisco, I think
that w e would w a n t t o come i n t o a n y arrangement m a d e b y
the N e w York office. I

d o not think i t would b e a good

thing f o r u s t o g o i n t o compete w i t h each other i n business a n d d e s t r o y o u r power.
The Chairman:

W

e a r e going t o have a

very l a r g e s w i n g

some day.

Governor Kains:

Yes,

W e h a d better w o r k together.

(Whereupon, a t 1 o'clock p. m., a recess was taken un21-2200 G g elec te-n,)

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Federal Reserve Bank of St. Louis

APrTT?ER

p

e

CHS

a,

The C o n f e r e n c e r e a s s e m b l e d , p u r s u a n t

t o recess,

at

2:30 o'clock p. ms
The Chairman:

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

We h a v e not yet concluded t h e discussion o f all o f

the headings under Topic ll.

W e had reached sub-topie (e).

RIGHT O F A NATIONAL BANK, DIRECTLY O R
THROUGH OFFICERS, T O ACT A S AGENT F O R
INSURANCE COMPANIES.
Do y o u t h i n k w e h a d b e t t e r p a s s t h a t t o p i c u n t i l G o v e r -

nor Wold i s present?
Mr: Curtis:

T h a t i s under t h e wrong heading, anyway.

It got in by mistake.

I t should not be under topic ll

at all.

The Chairman:

T h e next i s subheading (f).

Weekly report o f net deposits a n d balances o f member
banks.

You are responsible f o r that, Governor Aiken.

W e will

hear f r o m you.

Governor Aiken: I
Chairman. I

have nothing t o s a y o n that, Mr.

would like i t passed. I

have talked w i t h

the different officers about i t t o find o u t what t h e y were
going t o do.

I n our district w e have practically decided

not t o a s k f o r t h o s e s t a t e m e n t s

The Chairman:
undertaken

t o make a

a t present.

A s I understand i t the Board h a s
ruling

o n t h a t matter,

going a l l over t h e country. I

t o start i t

have here a form that was

suggested by the Federal Reserve Board, and I have ~

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Federal Reserve Bank of St. Louis

had p r e p a r e d

i n t h e N e w Y o r k B a n k a n o t h e r f o r m which,

in Some w a y s , I

d o n o t t h i n k i s desirable.

Governor Aiken: A

letter, u n d e r d a t e o f J a n u a r y 6 t h ,

to the Federal Reserve Agent i n our districts i
that e a c h bank take i t u p with its member banks. I
from t h a t i t w a s optional.

W

c

a
gather

e d o not h a v e a n y trouble

with t h e reserves o f our banks.

T h e y a r e very well kept

up, a n d t h e b a n k s a r e v e r y s e n s i t i v e a b o u t r e q u e s t s f o r

additional reports o n one thing a n d another.
sent time I

A t the pre-

should b e very loath t o start it.

Governor Fancher:
considering t h e m a t t e r

D

o y o u know whether t h e Board i s

o f some penalty

t o b e imposed u p o n

those b a n k s w h o a r e a p p a r e n t l y f a i l i n g

t o observe t h e r e -

serve r e q u i r e m e n t s ?

The Chairman:

i L @6 mot think eo,

T h e last letter

we received o n that subject indicated t h a t t h e y would d o
notting i n respect t o fixing a scale o f penalties, unless
it w a s p a r t i c u l a r l y r e q u e s t e d
in o r d e r t o m e e t c o n d i t i o n s

b y some Federal r e s e r v e b a n k

i n s o m e p a r t i c u l a r district.

I a m rather u n d e r t h e i m p r e s s i o n t h a t t h i s i s f o r s t a t i s tical p u r p o s e s r a t h e r t h a n f o r t h e p u r ©

o f imposing penai-

ties.

Governor V a n Zandt: I

was i n “ t l a n t a n o t v e r y l o n g

ago a n d + found t h a t t h e Federal Reserve B a n k o f Atlanta
was s e n d i n g o u t a
ness,

form, o n c e a

month,

a t t h e c l o s e o f busi-

S o a S t o g e t t h e amount o f required r e s e r v e

t o keep

on their records, figuring that i t would not change materlally i n that short time.


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Federal Reserve Bank of St. Louis

W h e n I

got back home 1

modified

ee
their f o r m a n d g o t o u t t h i s f o r m , w h i c h I
around,

have j u s t p a s s e d

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

of the month, asking the banks t o please fill i t out as o f
the c l o s e o f business

o n t h e l a s t d a y o f t h e month.

do that without a n y opposition a t all.

They

T h e y cooperate

very freely w i t h u s o n it.
The Chairman:
the matter,

T h a t i s a very sensible w a y o f handling

i t seem

t o me.

Governor V a n Zandt:

W h e n I got this letter f r o m Mr.

Willis, enclosing t h i s form, I

wrote a n d told h i m I did not

think i t was time t o ask for weekly statements o n reserves;
I sent h i m a copy o f the f o r m w e were using a n d told h i m
we w e r e g e t t i n g t h a t o n c e a

month,

a m t h a t after w e got

oub banks i n the hahit o f furnishing this once a month,
then i t would b e very much easier t o ask them t o furnish i t
twice a

month, a n i t h e n , l a t e r o n , weekly.

Governor F a n c h e r :

I

n our bank

w e a s k e d a l l o u r menm--

ber banks t o furnish a simple statement o f their ~eserves

as o f November lst.
we w o u l d i n a
of reserves

measure

W

e thought that with that statement

b e a b l e t o c h e c k t h e c o m i n g transfers

a t t h e m i d d l e o f November.

T h i s h a s been o u r

custom, e v e r since establishing t h e intra-district clearings,

t o ask o u r intradistrict banks e a c h month t o furnish

their r e s e r v e r e q u i r e m e n t s ,

a n d

i n that w a y w e have b e e n

able t o see whether o r not they have b e e n keeping their re-serves s o m e w h e r e n e a r t h e requirement.

us e a c h d a y from these banks,

W

e have that before

a m w e have h a d n o objection

on tho part o f the intradistrict banks t o furnishing that.

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Federal Reserve Bank of St. Louis

266
They a l l furnieh it.

W

e have been doing that monthly

now f o r s i x o r s e v e n months.

The Chairman:

T h o s e banks m k e t h e calculations?

You d o not make t h e m yourself?

Governor Fancher:

N o .

I

n the last called state-

ment w e asked f o r then a s o f January 3rd, a n d t h e figures
were verified i n some i n s t a n c e s w i t h t h e called statement o f December 3 1 , which would show some variation.

The Chairman: W h a t action is suggested i n regard t o
matter, Governor Aiken?
Governor A i k e n : i

The Chairman:

d o n o t c a r e t o r a n y section 6f-1¢.

A n d t h e record will s h o w t h a t views

exchanged, b u t n o action was taken.
Governor Fancher: I

had i n mind getting a n expres-

sion from the Governors a s t o whether o r not t o a s k for
weekly statements; w h a t their attitude w a s likely t o b e o n
that?
The Chairman:

W e are o n record a s recommending t h a t

statements S h o u l d b e a s k e d f r o m banks, o u t s i d e

o f reserve

and c e n t r a l r e s e r v e c i t i e s , m o r e f r e q u e n t l y t h a n o n c e a

month, a n d that thosc statements should b e actual a n d n o t
average Statements,

f

h

e work imposed i n asking f o r a n

average statement o v e r a period o f a month, would b e
considerable.

We are also o n record a s recommending t h a t n o special

ieee
report b e r e q u i r e d f r o m m e m b e r b a n k s , u n l e s s a
ing o r equal r e d u c t i o n

correspond-

i n the amount o f information r e -

guired b y t h e C o m p t r o l l e r ' s o f f i c e s h o u l d b e effected.


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Federal Reserve Bank of St. Louis

aot
Governor Séay:

A n d w e did express t h e opinion, d i d

we not; Mr. Chairman, t h a t i t was desirable t o have that
done?
The C h a i r m a n :

Y e s .

Pending Governor Wold's return, t h e next topic t o be
dealt with i s No. 13.
ACCUMULATION O F STATISTICS.

Before referring t o this I want t o remind you that
the g e n e r a l subject o f reports t o the Federal Reserve
Board w a s ,

b y a c t i o n o f t h e Executive C o m m i t t e e m e e t i n g ,

s o

called, transferred t o the activities o f the Federal Reserve
Agents, a n d the program f o r the transfer o f these items w a s
approved

a t t h e m e e t i n g d a y b e f o r e yesterday.

I want t o m b m i t f o r your consideration a
has b e e n p r e p a r e d
amount

Nevertheless

memorandum that

i n New York i n our bank showing t h e

o f data that w e are required

t o prepare,

a n d the

amount o f duplication o f work that i t involves.
This i s just t h e regular report t o t h e Federal Reserve

Board.

T h e first pages that I am now turning over con-

sist o f summaries o f this report a n d the information that i t
contains.

T h e r e a r e n o comments here.

Beginning h e r e ( i n d i c a t i n g ) ,

of comment.

l

t tse: juste]

there are one and a

et.

half p a g e s

H e r e are the forms.

I d o not know whether a n y o f you have ever’ g o t t e n
this stuff a l l together t o inform yourselves w h a t i t all
means

i n y o u r o w n banks.

I

n New York

w e have purchased

now a total of nearly $100,000,0000f bills and warrants,
and o n e thing a n d another, a n d m u c h o f the information i n


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Federal Reserve Bank of St. Louis

268
regard t o t h e m — — - p a r t i c u l a r l y t h e b i l l s - - - d o e s n o t a p p e a r
always

o n t h e bills,

a n d w e actually i a v e t o telephone

around t o the acceptors,

t o get t h e information necessary.

in order t o fill o u t these forms.
Now, I

d o not k n o w whether t h e s e reports c o m e o v e r

here a n d a r e burried,

o r used,

work i s b u t , - - - a n d c o r r e c t

o r what t h e result o f t h e
m e i f m y m e m o r y i s i n error,

Mr- Curtis--- w h e n w e brought i t up, t h e boys i n the offiee,
the auditors a n d others, roughly calculated t h a t outside o f
the regular routine w o r k o f the business o f the bank 6 0 per
cent o f the time o f the m e n was devoted t o preparing this
data.

I s that about t h e time they said, Mr. Qurtis?
Mr+ Curtis:

I

t w a s s o m e t h i n g p r e t t y high. I

not r e m e m b e r t h e e x a c t p e r c e n t a g e ,
The Chairman:

I

Governor McCord:
work o f t h e bank,

Tho Chairman:

do

b u t i t w a s tremendous.

t r e a l l y i s tremendous.

A f t e r deducting t h e regular routine

6 0 per cent o f the t i m e i s used that way?

D e @ u c t i n g f r o m t h e service o f the m e n

in t h e bank, t h e o r d i n a r y b o o k k e e p i n g a

T

e

e that

they g o through, t h e handling o f currency a n d a l l that, t h e
balance o f t h e t i m e o n special w o r k , a n d 6 0 p e r c e n t o f
that t i m e w a s d e v o t e d

t o m a k i n g u p t h e s e reports. I

like t o p a s s t h i s a r o u n d a s a
Governor McCord:

curiosity.

M y assistant c a s h i e r s a i d h e w o u l d

like v e r y m u c h f o r t h e m t o i n d i c a t e
might e x p e c t

i n t h e future,

i n advance w h a t t h e y

a n d h e would u n d e r t a k e

the i n f o r m a t i o n u p , a n d s t o r e i t u p i n advance,
have t o d i g o v e r -d4 at. nignt,

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Federal Reserve Bank of St. Louis

would

t o get 1

ous.

t o lay

a n d not

269
The Chairman:

J u s t take this d i tuation i n New York.

Let u s s u p p o s e s o m e t h i n g l e t loose.

S u p p o s e w e had two

or t h r e e L u s i t a n i a s s u n k , a n d s o m e t h i n g b r o k e l o o s e ;
thing s t o p p e d a n d m o n e y j u m p e d u p before

our selves.

every-

w e could p r e p a r e

T h e first thing that would happen would b e a

coming
deluge o f these bills,in.

A

l

l o f the banks that have

accumulated t h i s paper, accepted bills, would just come
in and sell t h e m t o us.

T h e y would t u r n i t over promptly,

with o r without endorsement,

a s w e might require.

Y e

might have twenty, thirty, f o r t y o r fifty million dollars
coming i n i n a day o r two.
out blinking.
stuff, 1

H

o

O u r j o b i s t o take them w i t h -

w i t would b e possible

d o not. know.

W

t o prepare t h a t

e w o u l d h a v e t o h i r e m e n galore.

Of course w e want t o cooperate w i t h them.

W e haven't m a d e

any kick o n this subject, b u t what w e fear i s that t h e y have
employed s o m e p r o f e s s i o n a l s t a t i s t i c i a n s t h e r e w h o a r e i n -

terested i n dividing, sub-dividing, c r o s s indexing, a n d
cross analyzing all o f this matter t o a point that m k e s
it a

menace t o o u r organization.
Now, w h a t w i l l w e d o a b o u t i t .

of the Board i n a sense.

G

G 2nvVOhves

c r a t i c e
m

M y suggestion would be, without

hearing y o u r d i s c u s s i o n h e r e , t h a t I

should b e w i s e t o t u r n

over this analysis t o Mr. J a y a n d ask h i m t o take t h e
matter u p with the Federal Reserve Agents a n d a s k them t o
bring about s o m e understanding with t h e Board t o simplify
this w o r k a n d r e d u c e t h i s volume.

W h a t i s your opinion

on that, G o v e r n o r M i l l e r ?


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Federal Reserve Bank of St. Louis

Governor ‘filler: t

thine thet

2 6 e c b pient.

270
The Chairman:

D o e s i t not apall y o u a

little w h e n

you s e e i t all together there?
Governor Miller:
that, b u t I

O f course I

a m familiar w i t h all o f

h a d n o i d e a t h a t t h e a g g r e g a t i o n w a s s o mich.

Of course t h e Agents m a y have a great dealmore t i m e t o d o
it than y o u have, b u t t h e y would n o t have i f anything broke
loose:

T h e y would b e swamped w i t h small transactions where

you w o u l d b e s w a m p e d w i t h l a r g e r o n e s .

The Chairman:

Yes. I

think w e have a s good a n or-

ganization a s a n y o f the reserve banks.

W e have a total

of 7 9 pepple o n the p a y roll there, a n d t h e y a r e very compétent m e n ,

Y

o

u c o u l d n o t expect

t o meet t h e volume

of

business t h a t w e might have, a n d a t t h e same time d o all o f
that k i n d o f w o r k t h a t i s b e i n g r e q u i r e d
organization t h a t w o u l d b e e c o n o m i c a l

Governor V a n Zandt: I

o f u s with a n y

a t t h e present time.

think, w i t h reference t o the

points y o u m a k e a s t o t h e a m o u n t o f duplication,

taking i t

for granted that a l l t h e statistics t h e y a s k for a r e really
desirable,

that a

large a m o u n t o f t h a t d u p l i c a t i o n w o r k

might b e avoided b y the Board having o n e o r t w o clerks i n
their o w n o f f i c e h e r e c o m p i l e t h o s e s t a t i s t i c s f r o m t h e

original record instead o f m k i n g e a c h bank compile t h e m
and s e n d t h e m i n .

The Chairman:

W h a t i s the best w a y t o handle this?

I put t h e topic o n the program thinking t h a t t h e meeting
here w o u l d m a k e s o m e r e p r e s e n t a t i o n

about it.

I t might b e more advisable t o a s k o u r colleagues.

the Federal Reserve Agents,


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Federal Reserve Bank of St. Louis

t o t h e Neserve B o a r d

t o d o that.

What i s your .idea about it, Governor McCord?
Governor McCord:

i f 1 t goes t e the rignt K i n d o f

reserve agent i t i s all right. I

a m perfectly willing t o

leave i t t o m y reserve agent, because o u r relations a r e
very pleasant.
The Chairman:

G o v e r n o r Fancher,

Governor Fancher:
cord o n this m t t e r .

w h a t h a v e y o u t o say?

M r . Wills a n d I are i n thorough a c W e have discussed i t a number o f

times.

The Chairman:

h

e have practically committed ourselves

by a n arrangement w i t h r e g a r d

t o this particular subject,

to turn i t over t o Mr. J a y a n d g e t his cooperqtion.
will c o o p e r a t e w i t h u s t o t h e l i m i t

Governor McDougal: I

H e

o n it.

move that t h e procedure t h a t y o u

have outlined b e followed, t h a t t h e matter b e turned over
to Mr. J a y and b y him handled w i t h authority.
a good p o s i t i o n

t o d o that.

Y o u are i n

Y o u have t h e case a l l prepared

in beautiful form.

The Chairman:
Commit tee.

T h a t would g o t o the Agent's Executive

M r . J a y i s chairman o f that.

Governor Fancher: I

will second Governor McDougal's

motion.
The Chairman:
(There w a s

I s there a n y further discussion o f it?

n o further discussion

and the motion was

carried.)
Governor Fancher:
Topic No- 1 2 ?

A

D i d w e finish t h e discussion o f

s I recall i t w e were i n the midst o f

that topic w h e n w e adjourned f o r lunch.


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Federal Reserve Bank of St. Louis

fie
The Chairman:

T h e r e i g ‘nothing m o r e t o s a y about

it, Governor Fancher. I

do not believe there i s anything

that c a n b e done, except t o ask y o u gentlemen t o consider,
in the light o f t h e little information that w e have, w h a t
will b e a feasible p l a n f o r handling foreign accounts w h e n
we o p e n them.

Governor Fancher: P r e l i m i n a r y t o your going over,
would y o u s u g g e s t t h a t t h e m a t t e r b e c o n s i d e r e d

i n each o f

the Federal Reserve Banks a n d communications addressed t o
the Board,

o r simply make i t a

matter

i n which e a c h bank

would s a y what t h e policy might be.
The Chairman: I
sidercd

personally think i t ought t o b e con-

i n e a c h b a n k b y t h e directors.

I

t would b e v e r y

unfortunate i f i t got o u t that that subject was under
consideration j u s t now.
Govcrnor Fancher:

D o y o u not think that i s so?
T h e a t i s t h e idea I

had i n wiz:

Just h o w m u c h d i s c u s s i o n s h o u l d b e i n d u l g e d i n .

Governor McDougal: I
boards

have n o doubt that s o m e o f the

o f the banks h a v e already c o s i d e r e d t h e matter t o

some extent. I

know w e have.

Governor Seay:

I n that connection I

safe i n s a y i n g t h a t a n y p o s i t i o n t h a t I
subject w i l l b e a d o p t e d

b y m y board. I

a m perfectly

might t a k e o n t h e
a m i n thorough

sympathy w i t h s u c h v i e w s - a s h a v e b e e n e x p r e s s e d h e r e a s

to the advisability o f joint action i n this matter, a n d joint
pearing

o f expense,

b o t h f r o m t h e point

o f view o f effec-

tive a d m i n i s t r a t i o n a n d f r o m t h e p o i n t o f v i e w o f economyIt w o u l d b e t o t h e i n t e r e s t


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Federal Reserve Bank of St. Louis

o f e a c h o f t h e banks a n d i t

273
could n o t b e u n d e r t a k e n

i n a n y o t l r fashion. I

a m per-

fectly s u r e t h a t t h e B o a r d w i l l a d o p t a n y v i e w that I

might

present t o them o n it.
The Chairman:

H o w would your board feel about it,

Governor McDougal?
Governor McDougal: A

committee o f t h e board h a s dis-

cussed t h e m a t t e r informally,

a n d h a s expressed t h e opinion

that i t w o u l d b e inadvisable f o r u s t o undertake

a t the

present time t o operate t o any extent i n foreign countries.
The Chairman:

Y e s ; b u t t h e y recognize t h a t s o m e d a y

we will operate i n foreign countries?
Governor McDougal:
The Chairman:

Yes.

A n d have t h e y considered w h a t characte@

of arrangements s h o u l d b e e f f e c t e d f o r t h a t p u r p o s e ?

Governor McDougal:

N o , t h e y have not.

matter f o r consideration,
The Chairman:

T h a t i s the

i s it?

Yes.

Governor Fancher: I

might s a y that our board has

informally d i s c u s s e d t h i s m t t e r

a t t w o meetings, h a v i n g

in m i n g t h a t s o m e p r e l i m i n a r y w o r k m u s t b e u n d e r t a k e n
the n e a r f u t u r e l o o k i n g

t o t h e e s t a b l i s h ment

of handling foreign business.

in

o f some method

W e realize t h a t w e are

situated i n l a n d , t h a t w e k n o w v e r y l i t t l e a b o u t i t , a n d
thatwe m u s t n e c e s s a r i l y c o o p e r a t e w i t h a

that a r e familiar w i t h it. I

bank o r b a n k s

a m sure that o u r bank wants

to cooperate t o the fullest extent i n a n y arrangement
that m a y Seem advisable t o you, after y o u have investigated
the m a t t e r o v e r t h e r e ,


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Federal Reserve Bank of St. Louis

274
The Chairman:

G o v e r n o r Kains, h a v e t h e eastern banks

any r e p r e s e n t a t i v e s

i n S a n Francisco?

Governor Kains:
The Chairman:

T h e flongkeng &

Shanghai B a n k has.

H o w about t h e Yokohama Specie?

Governor Kains:

T h a t has, too. I

inspected that

bank f o r s e v e n years.

The Chairman:

H o w about t h e Charter B a n k o f India?

Governor Kains:

T h e Charter Bank of India has not.

It does business through London a n d Paris.
The Chairman:

D o they g e t bills there, o r forward

them t o New York?
Governor Kains:
The Chairman:

T h e y get bills there.
B u t they d o not discount t h e m there o n

your m a r k e t ?

Governor Kains:

T h e y d o not discount them.

T h e y

collect t h e m i n a n d t u r n t h e m i n t o s t e r l i n g a n d s e n d t h e m

to London.
The Hongkon;

B a n k does a

purely exchange business.

Its business there i s t o sell exchange t o Chinese, Japanese,
ana

s o forth.’

The Chairman:

T h e bills a r e purchased b y t h e agency

in the eastern section=-Governor Kains: ( I n t e r p o s i n g )

T h e y b u y bills.

buy a l l t h e f l o u r s h i p m e n t s g o i n g a c r o s s
shipments

a m a l l t h e flour

u p a n d d o w n t h e coast, f r o m t h e C e n t e n i a l

Flour Mills,

a m a l l that sort o f thing; t h e y b u y Lumber

that goes across t o China, a n d they handle those bills
the o l d Colonial clause basis, y o u know.


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Federal Reserve Bank of St. Louis

They

o n

279

The Chairman: I

was wondvcring whether a n arrangement

to b u y b i l l s f r o m t h e s e f o r e i g n a g e n c i e s m i g h t n o t o p e r a t e

in San francisco a s well a s i n NewYork?
Governor Hains:

T h o s e fellows o u t there a r e really a

funnel.
The Chairman:

T h e y d o n o t operate, r e a l l y ?

Governor Kains:

N o .

The Chairman:

O f course y o u know t h e y d o i n New York.

Governor Kains:
The Chairman:

O h , yes.
I

s there a n y further dis c u s s i o n o f

matter?

(There was n o further discussion.)
The Chairman:

T h e next i t e m i s No- 15.

REPORT O F NATIONAL BANK SECTION O F AMERICAN
BANKERS ASSOCIATION O N RECOMMENTA TIONS F O R
LEGISLATION.
Governor Seay:
The Chairman:

Governor Seay:
The Chairman:

D i d y o u not s k i p No. 1 4 ?
N o .

W e disposed o f that y e s t e r d ymor:

H o w d i d y o u dispose o f i t yesterday?
W

e a d v i s e d t h e m t h a t w e would r e p l y

and l e t t h e m know whether a

meeting could b e held there,

or

whether t h e invitation would b e considered a s individual

to

theGovernors ofthe Banks.
I suppose there i s n o doubt,

i n view o f t h e feeling

among u s about holding meetings here a n d elsewhere,

a s ex-

pressed b y the Secretary yesterday, that w e should advise
them o f the receipt o f t h e invitation, a n d that i t had been
conveyed


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Federal Reserve Bank of St. Louis

t o t h e Governors individually a n d that t h e y would

275
recéive a

reply’ from t h o m i n d i v i d u a l l y s h o r t l y ,

of that sort. I

o r some'thing

do not believe w e c a n accept a s a body

and g o out there.

W e will have t o advise t h e m politely

that t h e a c c e p t a n c e

i s individual

i n e a c h case. i

C0; 1104,

think w e should convey t h e idea t o them that w e cannot g o
out t o Kansas C i t y a n d have a meeting i f w e want t o y t h a gh.

Governor Miller: G e n t l e m e n , I should like t o see you
all come.
The Chairman:

T o p i c 1 5 o n the program was simply a

report t o this mecting, t h a t a

memorandum o f the previous

conference h a d becn submitted. A

copy has been sent

direct t o each o f the Governors a n d a copy sent t o the Federal
Reserve Board.

I s there a n y action desired i n connection

with that memorandum o f our c o n f e r m c e ? |

(After a pause)

I n the absence o f a motion w e will

pass t o T o p i c 1 6 .

RESERVES O F MEMBER BANKS —
FLOAT.
Governor Kains: I

TREATMENT O F THE

just want t o state that checks i n

transit f r o m a country bank t o its reserve c i t y correspondents a r e ,

to a

considerable e x t e n t , o f f s e t b y outstand-

ing drafts a n d orders f o r payments.
discussed

a t Minneapolis,

brought out.
ccunting,

T h i s matter w a s all

b u t this point w a s n o t werticularly

I f member banks a r e n o t permitted t o continue

a S reserves,

serve c o r r e s p o n d e n t s ,

c a s h items

i n transit

t o their r e -

i t seems o n l y e q u i t a b l e t h a t t h e y b e

permitted t o use a s a n offset outstanding orders f o r payment.


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Federal Reserve Bank of St. Louis

I merely wanted

t o c a s e t h e m a t t e r upagain.

T

L OOLnot

277
recommend t h a t a n y a c t i o n b e taken,

taken o n the subject 1

b u t i f a n y action i s

rec mmend that member banks b e not

permitted t o count o u t o f twwn items a s reserves during t h e
period f o r which credit i s deferred b y their reserve correspondents.
The Chairman:

T h e whole dispute

i n régard t o t h e

form o f the present statement hinges o n that very matter,
as. Il understand i t .

I t i s claimed that t h e y a r e counting

balances. which are really being checked o u t a n d o f course
being checked o u t a s a part o f the general fund.
Governor Kains:

I n our district t h e float i s more

than i n other places.
The Chairman:

G o v e r n o r Kains, y o u want t h e record

to s h o w t h a t y o u h a v e c a l l e d a t t e n t i o n

t o the fact that

there i s a n aff set there that ought t o b e considered.
Governor Kains:
The Chairman:

T h a t i s all; yes.
I t raises t h i s question which w e ought

to dispose o f now, I think.
ing been dissolved,

T h e Lxecutive Committee hav-

w e must make provision f o r dealing

with this clearing a n d collection matter during t h e interval between t h e meetings o f the individual Governors o f the
Reserve Banks.
It has occured t o m e that a s w e have welcomed t o our
midst Governor Miller o f Kansas City, w i t h open arms, w e
will need h i s help, a n d that i f w e differ with him, a n d h e
with us, t h e best w a y t o get together i s t o put h i m right
up a g a i n s t t h e p r o b l e m w i t h us.


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Federal Reserve Bank of St. Louis

How would y o u feel about making a

little change i n the

278
method o f dealing w i t h this matter a n d letting t h e subject,
in the intervals between meetings,
specific n u m b e r o f gentlemen,

in that number,

b e assigned t o a

a s individuals,

a n d t o include

a t m y request, Governor Miller o f Kansas

City?

Governor McDougal: I
cedure n o w t o n a m e a

think i t would b e the proper pwo-

committee f o r t h e p u r p o s e o f h a n d l i n g

this phase o f the development o f the collection system.
By the experience w e have h a d I think i t has been clearly
demonstrated t h a t i t i s n e c e s s a r y

t o have o n that committes

some practical transit men who are familiar with all phases
of t h e question.
Therefore 1

would m o v e t h a t a

committee

b e appointed

include s o m e s u c h m e n a n d s u c h o t h e r r e p r e s e n t a t i v e s

to

a s the

Chair m a y s e e f i t t o appoint.

Governor Seay: A

special committee?

Governor M c D o u g a l : A
The Chairman;

I

n a

special c o m m i t t e e
way this subject

t o handle i t .

i é the least

important a n d a e m o s t p r e s s i n g t h a t w e h a v e t o d e a l with.

It seems t o me that we ought t o call for volunteers.
is l i k e a n y o t h e r d e s p e r a t e v e n t u r e , a

I t

man works b e s t t h a t

is keen t o get a t it, a n d s o on.
Who i s w i l l i n g t o s e r v e o n this c o m m i t t e e ?
have s o m e s u g g e s t i o n s

L e t ) Aue

a s t o w h o a r e t h e b e s t m e n t o tackle

it.
Governor Wold:

W h o i s better informed t h a n those w h o

have h a d c h a r g e o f t h e m a t t e r u p t o t h i s t i m e ?

competent t o handle i t ? I


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Federal Reserve Bank of St. Louis

W h o are more

a m satisfied w i t h what t h e y have

done.

Governor Seay?

T h e .Conference does n o t s e e m t o b e

thoroughiy s a t i s f i e d w i t h t h e i d e a s p r e s e n t e d

b y that c o m -

mittee,

Governor McDougal:
PrSsent

i s this:

W

I t seems t o m e t h e situation a t

e are n o w awaiting a

decision

from the

Board w i t h respect t o some minor changes involving the
modification o f t h e plan.
plan w i l l

W h e n this decision comes that

t h e n g o into effect,

put i n t o e f f e c t a t present. I
gestion t h a t a

o r probably

n o plan will

b e

would s i m p l y o f f e r t h e s u g -

committee c o m p o s e d o f Mr. H e n d r i c k s

a n d Mr.

McKay, w i t h r e p r e s e n t a t i v e s f r o m t h i s b o a r d t e appointed.

I think Mr- Miller would b e a very good man for the reason
that h e

i

s already a t the head o f one o f the most active

systems o f the kind that h a v e been worked o u t i n the twelve
banks. I

think i t essential that w e put o n that committse

some practical m e n whom w e c a n depend upon.

W e have d e -

pended upon practical men almost entirely, and so far as
I a m concerned I

depend u p o n t h e m practically entirely.

The Chairman:

W i t h t h e exception o f Governor Wold,

Governor McDougal, Governor Kains a n d possibly Governor S e a y
we a r e a l l o p e n t o c o n v i c t i o n

o n this m t t e r ,

a f t e r proper

hearing andtrial, a n d w e would like t o exchange views w i t n
you i n this c o m m i t t e e w o r k , w o r k i n g i t o u t together,

that everybody will b e happy a n d everybody will cooperate.
Mr. M i l t e r , 1
enter i n t o t h e w o r k


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Federal Reserve Bank of St. Louis

t h i n k i t i s m o s t i m p o r t a n t t h a t y o u shoui2
o f that committee.

280
Governor Miller: I

thing I ean. I

a m perfectly willing t o d o any-

have some pretty well defined ideas about

the subject.

Governor McDougal:

T h a t i s something w e haven't

had. ( L a u g h t e r )
Governor Miller:

Probably I

should h a v e said decided

ideas.

The Chairman:

S o far:

w e have three names before us:

Governor Miller, Mr. McKay and Mr. “endricks. I

might

Say that Mr. McKay a n d Mr. Hendricks h a v e b e e n working w i t h
this w m mmittee s i n c e i t started.

W

e ought t o have t w o o r

three more o f the Governors o n that committee.
Governor McDougal, w i l l y o u serve o n that commit tee

with Mr. McKay?
Governor McDougal: I

the responsibility. I

would l i k e t o b e relieved o f

will work with Mr. Mc*®ay and d o

anything 1 can, o f course, b u t i t seems t o m e that t h e
honor c a n w e l l b e d i v i d e d a n d distributed.

The Chairman: I

join you i n expressing that senti-

MOT Gr. -Si%.
Governor McDougal:

T h i s m a y b e t h e least important

of a good m a n y problems that w e have dealt with, b u t I think
ae h a s b e e n t h e m o s t i m p o r t a n t

pended i s concerned.

i n 60 far a s the time ex-

W h a t w e have accomplished nobcdy

knows.

Governor Seay:

D o y o u not think i t i s somewhat e v i -

dent that w h e n the Board receives t h e opinion, f o r which i t
has asked,


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Federal Reserve Bank of St. Louis

i t i s going t o a c t itself?

281
The Chairman:

N

further reflection I

o sir.

I s u s p e c t e d that, b u t o n

do not believe that t h e Board will

ac¥ o f its o w n motion t o put anything i n t o effect, except
to the extent o f advising the reserve banks that t h e y have
& ruling f r o m t h e o
preparation o f a

G e n e r a l , t h a t h e authorizea@ t h e

p l a n a l o n g c e r t a i n lines,

upon t h e Governors,
prepare a

e

a n d then call

o r a committee o f the Governors,

to

plan.

Governor Seay:
The Chairman:

Governor Seay:

T o prepare the details?
Y e s .

B u t they will define t h e principles

of t h e plan?

The Chairman:

T h e y will probably adopt the principles

of the plan and then advise ts what they are.

T h e

minute y o u come t o the preparation o f a plan based u p o n
those principles, y o u open u p for discussion first t h e
plan,

a n d t h e n t h e principles,

a n d the whole thing will g o

into the melting pot again, a s sure a s fate. I
remarks a b o u t t h a t b e f o r e ,

hadheard

b u t o n t h i n k i n g i t o v e r again,

I can conceive o f n o pusetble method b y which theBoard i n
Washington could f o r m a t e a

resuletionto cover t h e detail

operation o f i n t e r d i s t r i c t t r a n s a c t i o n s .

Governor Seay:

W h a t I mean i s that when they deter-~

mine t h e i r l e g a l p o w e r s u n d e r t h e a c t t h e y w i l l i n f o r m t h e
banks t h a t a

plan f o r c o l l e c t i o n a l o n g c e r t a i n l i n e s m u s t

be devised b y them, and take the details u p with the banké.
But I believe they are going t 6 determine the question, fore
instance, o f immediate debit and immediaté credit ana deferred

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Federal Reserve Bank of St. Louis

debit a n d credit,

a n d principles

Governor Fancher:

o f t h a t kind.

Unquestionably;

a n d allowances

and things o f that sort,
Governor Seay:

T h a t i s what I

had i n mind.

T h e y are

going t o determine those points, a n d a r e going t o turn them
over t o t h e Governors

t o w o r k o u t t h e details. I

a committee o u g h t t o b e f o r m e d

believe

i n advance a n d b e prepared

to m e e t t h o s e d e t a i l s w h e n t h e y c o m e up.

Governor McDougal:
on the committee I

I f Governor Fancher would serve

think h e would b e a very valuable addi-

tion a n d would b e o f great help.

The Chairman: I
Mr. H e n d r i c k s

would like to ask to be excused.

c a n a c t f o r us, I

expect

t o b e away some

time, b u t when I get back; i f there a r e heetings o n this
matter, a n d i t i s desirable t o have either myself, M r - Curtis,
Mr. J a y o r a n y o n e e l s e f r o m o u r b a n k attend,

w e will always

do s o o n request.

Governor Fancher:

I f that matter should c o m e u p i n

the n e a r f u t u r e i t m i g h t i n t e r f e r e w i t h s o m e p l a n s I

have

made f o r b e i n g a w a y p r a c t i c a l l y t h e e n t i r e m o n t h o f February
-

I a m going t o take a

of "ebruary. I
of March. I

vacation a n d g o south o n the fourth

think I shall b e gone until about the lst
will b e quite willing t o serve o n the committee

anG C O m y part,

12 1

c a n help,

a n d t h e o n l y thing m i g h t b e

that a meeting might b e held while I was i n the south.
The Chairman:
for a


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committee, I

T o make S o m e progress toward arranging
would l i k e t o a s k G o v e r n o r V a n Zandt. i f

283
it w o u l d b e t o o m u c h t o e x p e c t h i m t o serve,

i f h e cares t o

do so.

Governor V a n Zandt: I

do. not think I could serve,

Mr. Chairman.
The Chairman:

T h e y are a little b i t tired o r the

reiteration t h e y get f r o m some o f u s o n some features o f
this matter, a n d perhaps w i t h n e w blood w e w a l a g e t better
result s .
Governor V a n Zandt: I
Governor

o r m y cashier,

could g i v e y o u e i t h e r

but I

m y Vice-—

could hot h o p e t o get a w a y

for a while now.

The Chairmant H o w do you feel about it, Governor McCord?
Governor McDorda: I
committee,

do not think I could serve o n the

f o r p e r s o n a l reasons.

The Chairman: I

move t h a t t h i s m a t t e r b e h a n d l e d

by

a committee consisting o f the former, but now disbanded ,
executive committee, exccpt t h a t i t shall b e increased b y

the addition o f Governor Miller, and that Governor McDougal
be relieved f r o m service a n d Mr. McKay t a k e his place; t h a t
I b e r e l i e v e d f r o m s e r v i c e a n d Mr. H e n d r i c k s t a k e m y place,

unless our services are especially needed, ami that Governor
Wold b e substituted f o r Governor Fancher, w h o was a member
of the original committee,


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Federal Reserve Bank of St. Louis

Governor McDord: I

will second t h a t motion.

(There were calls for the question.)
(After some informal discussion the motion was €arried )
The Chairman:

F o r t h e purposes o f the record I wfli

284

state that the committee will now consist o f “Messrs. Wold,
Miller, Aiken, Rhoads, Seay, McKay and Hendricks.
Subject t o your approval, I

would like t o have i t

noted o n the record t h a t w h e n occasion arises f o r a meeting
of this committee that communication b e had with Mr- Quirtis.
He will b e willing,

h e has just told me, t o communicate w i t h

the members o f the Committee s o that they m a y b e able t o
attend t h e meetings, f i x the date, a n d exchange information
about a r r a n g e m e n t s .
That d i s p o s e s

of a

topic i n t r o d u c e d

i n connection w i t h

the consideration o f Topic No. 16. T o p i c 1 6 has b e e n dis-—
cussed a n d n o action taken.
We h a v e u p o n t h e program,

n o t y e t considered, T o p i c

ll-(e), suggested b y Governor Wold.
11. I N T E R N A L OPERATIONS O F FEDERAL RESERVE BANKS.

(e) Right of a national bank, directly or
through officers,

t o act a s agent f o r

insurance companies.

Governor Wold:
which I

T h a t , like a

number o f other topics

asked t o h a v e p u t u p o n t h e program, I

believe h a s

been settled, n o t satisfactorily, b u t definitely.
Judge Llliott h a s rendered a n opinionon t h e matter which
makes i t unnecessary a n d useless f o r u s t o discuss i t o r
devote a n y t i m e t o i t a t all.

The Chairman: :

On the other hand, Governor Wold, t h e

proposed amendment t o Section 2 2 o f t h e Act h a s been prepared, and, a S stated d a y before yesterday, w i l l b e submitted f o r individual consideration b y the Governors o f the
can
Federal R e s e r v e B a n k s ,


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s o t h a t i f t h e y s e e f i t t o d o s o theye::

285
communicate 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 d i r e c t l y a s t o
that p r o p o s e d a m e n d m e n t

a m t h e other f o u r amendments t h a t

we have considered.
Governor Wold:

I d o not k n o w that Section 2 2 c a n b e

amendcd s o a s t o effect what w e want i n the Ninth bistricti
I do not know whether t h e member banks i n the other districts
are i n a S i m i l a r p o s i t i o n o r not, b u t i n t h e n i n t h d i s t r i c t

it i s customary--- a n d i t h a s been common practice f o r
25 o r 3 0 years--- f o r t h e s o - c a l l e d c o u n t r y b a n k s

-insurance departments a n d write f i r e insurance.

t o have

T h e agency

is heid i n the name of. a n official o f the bank, a n d i t i g
the usual custom for those profits t o b e turned into t h e

bank. C o u n s e l for the Federal Reserve Board has held
that i s ultra vires a n d must b e discontinued.

H o w that

matter has been passed u p by the Comptroller for all these
years I

do not know.

W h y one little national b a n k i n

southern M i n n e s o t a w a s s e l e c t e d a s a n example, I

know.

do not

MeDougal's
T h e exqaminer came u p from Governor, d i s t r i c t ,

the Iowa district examiner, a n d examined o n e o f our Minne-

sota banks.

H e reported that a n officer was acting a s

an agent f o r a n insurance company, a n d that t h e bank was

profiting thereby.

T h e Deprtment immediately asked the

bank t o discontinue it.

T h e matter came t o m y notice,

and t h o u g h t that t h e letter w a s written under a
hension.

misappre-

T h e y w e r e under t h e impression that t h e bank

itself w a s acting a s a representative o f the insurance
company.

T h e y immediately responded that t h e y were fully

aware o f that condition, t h a t t h e officer w a s acting, b u t


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286
that t h e b a n k w a s r e c e i v i n g t h e p r o f i t r e s u l t i n g f r o m s u c h
agency,

a n d i t w o u l d h a v e t o b e discontinued. I

up with theBoard.
who r e n d e r e d

T h e B o a r d referred i t t o Judge blliott

a n opinion u p o n it, a n d t h e y stated t h a t m c h

to their regret t h e y could d o nething. I
that I

took i t

a m sorry n o w

t o o k i t u p w i t h t h e Board.

Governor Miller:

I

n our district a

great m a n y offi-

cers h a v e b e e n a c t i n g b u t t h e p r o f i t s h a v e n o t g o n e t o t h e

bank, s o far a s I know.
The Chairman:

Apparentlythere

i s n o action w e c a n

take o n t h a t matter.

Governor Wold:

N o , I

see nothing that c a n b e done

by this c o n f e r e n c e .

he Chairman:

T h e next topic i s 17, suggested b y

Governor Kains:
APPLICABILITY O F FEDERAL INCOME T A X T O
FEDERAL RESERVE BANKS.
Governor K a i n s : I

asked t h a t q u e s t i o n o f o u r counsel,

aS t o whether t h e Federal income t a x applied t o Federal
reserve banks,
T e

a n d h e advised

m e that h e thought t h e y w e r e

See
The Chairman:

T h e opinion w a s rendered

b y counsel

for the Federal Reserve Board, o r the authorities i n the
Treasury Department--- I
Department---


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Federal Reserve Bank of St. Louis

think i t originated i n the Treasury

t o the effect that Federal Reserve Banks w e r e

not l i a b l e u n d e r t h e i n c o m e tax.
Is t h e r e a n y a c t i o n d e s i r e d

Governor Kains:

N o . I

o n this m a t t e r ?

just wanted t o know about it.


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287
T h e r e has been a

The Chairman:
@erea

formal o p i n i o n r e n -

a n d w e h a v e b e e n h e l d n o t t o b e liable.
Governor Kains:

W h o rendered t h e opinion?

think i t was the solicitor f o r the

The Chairman: I

Treasury Department.
Mr- Curtis: I

think i t was t h e Solicitor f o r Internal

Revenue,

Governor Aiken: (Reading) " S e c t i o n 7. F e d e r a l
reserve banks a r e not liable t o taxation under section 3
of the a c t o f October 22, 1914.

( S e e letter Commissioner

of Internal Revenue November 28, 1914.) "
We had only b e e n started less t h a n t w o weeks w h e n that
ruling was handed down.
The Chairman:

A p p a r e n t l y noaction c a n b e taken o n

this.
The next topic i s No. 18.
Di SIRABILITY O F APPOINTMENT O F A N ASSISTANT
FOR EACH NATIONAL BANK EXAMINLR.

This was suggested b y Governor Seay, but 1 would like
to again refer t o the Executive Committee meeting i n which
it was decided t h a t t h e subject o n relations ‘ o f t h e
Comptroller's department w i t h Federal Reserve Banks b e left

for consideration o n the program of the Federal Reserve
Agents' C o n f e r e n c e a n d o n t h e p r o g r a m o f o u r conference.

This i s properly o n our program,

Governor Seay: I
been m

de. I

i f y o u wish t o consider i t

am wondering i f a mistake has not

d o n o t s e e m t o have a n y r e c o l l e c t i o n o f

having p r o p o s e d t h a t topic.

think about it. ( L a u g h t e r )

I d o not think I

know what I

288
The Chairman:

A r e y o u ready t o have t h i s stricken

the p r o g r a m ?

Governor Wold: I

do not k n o w a s t o that. I

matter o f c o n s i d e r a b l e importance. I

think i t

have d i s c u s s e d

that matter with o u r chief examiner a n d with a number o f
the district examiners, a n d I believe i t i s important t h a t
they s h o u l d b e g i v e n assistance.

The Chairmant P e r h a p s this topic was suggested b y
you, G o v e r n o r W o l d .

Governor Wold:

N o , i t was not, but 1 am willing t o

stand s p o n s o r f o r i t .
The f a c t s a r e t h a t a n examiner g o e s i n t o a
or a n y b a n k a n d h a s t o d e v o t e

country b a n k

s o m u c h time t o checking u p

the details that h e hasn't the time t o devote t o the resources o r bills receivable o f t h e bank, a n d t h e examiner
in charge s h o u l d d e v o t e t h e g r e a t e r p o r t i o n o f h i s t i m e t o

that o n e thing.
Governor -

McDougal:

M r . Wold's statement i s very

true, a n d I believe t h e Department thinks they have taken
steps

t o correct that.

T h e y have scattered h e r e ani there

a few extra m e n a n d 1 know that i n some instances t h e y have
given help t o the examiners, particularly i n the larger
cities--~- i n the larger small cities, I
Governor Wold:

mean.

T h a t 1 8 true i n our district.<

chief examiner told m e a day o r two. before I
had b e e n a u t h o r i z e d

t o engage tentatively a

T h e

left that h e
couple o f a s -

sistants t o pass around among t h o cight o r nine examiners
to assist h i m i n the examination o f t h e Twin City banks.


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289
Governor F a n c h e r :

made a

I n our district

t h e chief examiner

classification o f o u r member banks a n d asked f o r

sufficient assistance t o furnish each examiner w i t h a n a s —
Sistant t o cxamine member banks w i t h resources o f over
9500,000, T h a t resulted i n some correspondence, o v e r a
period o f two o r three months, w i t h t h e Gomptroller, w i t h
the r e s u l t t h a t a b o u t f o u r weeks a g o h e a u t h o r i z e d t h e e x a m -

iner t o submit t h e names o f three available men, together
with t h e salaries t h a t would have t o b e paid them, w i t h a
view o f employing three assistants.

T h a t : would give five

or s i x available assistants t o b e passed around amongst n i n e
or ten examiners.

T h e Chief Examiner f e l t that t h a t would

enable h i m t o accomplish t h e purpose that h e set o u t t o
accomplish,
resources,

a n d t h a t i s that i n the banks a b o w e $500,000
t h e examiner wouldhave

a n assistant,

a n d i n the

larger banks t h e examiner would have t h r e e o r four assistants
when t h e y w e n t i n t o t h o s e banks.

The Chairman:

matter?

I

D o y o u wish a n y action taken o n this

n discussing this thing informally i n New

York w e have recommended exactly that thing.

(There was n o further discussion.)
The Chairman:

T h i s topic will b e passed f o r the time

being.

The next i s No. 19, suggested b y Governor Wold.
THE PURPOSE O F ACCUMUIATING GOLD I N THE HANDS
OF FEDERAL RESERVE AGENTS B Y THE ISSUING O F
FEDiRAL RESERVE NOTES.
Governor Wold: I

put that o n the program,or asked

that i t b e p u t u p o n t h e program,


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Federal Reserve Bank of St. Louis

f o r t h e reason that o u r

290
friend f r o m Richmond h a d elaborated some extensive statistics o n that question,

n o n e o f which covered t h e purpose f o r

which w e are accumulating gold.

I n view o f that I

thought

possibly o u r p o s i t i o n w a s wrong, a m i t h a t m a y b e s o m e o n e e l s e
had a

different v i e w , I

put i t o n for t h e purpose o f

causing discussion, a n d thinking perhaps I

might h e a r fur-

cece f r o m Governor Seay.
We t h i n k w e h a v e a c c u m i l a t o d e n o u g h g o l d i n o u r d i s trict

t o m e e t t h e needs t h a t w e h a v e i n mind, a n d t h a t i s ,

that when w e have trouble again i t isn't going t o be from
lack o f currency;

i t i s going t o b e from lack o f credit:

I f

we d o not get t h e Federal Reserve notes o u t n o w w e m i ght
have difficulty i n getting t h e m o u t when t h e time for credit
comes,
You r e m e m b e r t h a t 1

took t h e matter u p during t h e v e r y

first m o n t h o f our organization. I
happen i n o u r district

told y o u that would

i f o u r p e o p l e n e e d e d assistance.

They w o u l d n o t w a n t currency.

T h e crops h a d been moved

and the country was full o f Aldrich-Vreelana notes.
wanted c r e d i t ,

T h e y

a n d i f they d r e w against t h o s e credits a n d

sent t h e m t o N e w York, t h e y w o u l d s i m p l y d r a i n u s o f o u r

gold reserve.

W e could n o t loan but 6 5 per cent o f the

reserve.
The Chairman:

W i t h these discount arrangements a n d

with t h e gold t o assist t h e rediscounting o f the banks, w e
would have a lot o f reserve

m o n e y available t o work

around through t h e system.


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Federal Reserve Bank of St. Louis

Governor Wold:

B u t w e w o u l d l o s e t h e gold.

TRere:ds

291
no doubt about that, ani t h a t i s the reason w e accumlate
Ts

(Informal discussion followed. )
The Chairman:

T h i s i s q u i t e academic. I

d o not quite

agree w i t h y o u t h a t d e m a n d w i l l a r i s e f o r credit.
but I

think t h e l i k l i e s t d e v e l o p m e n t

is a

I

t might,

development t h a t

Will h e a n enforced contraction through t h e loss o f gold.
The g o l d r e s e r v e s i t u a t i o n t o d a y is, i n a

most e x t r a o r d i n a r y

position t h e w o r l d over.
We h a v e n o w a

that I

Situation b e t w e e n G e r m a n y a n d Holland

d o not believe h a s ever been witnesseé before since

the banks have done a n international business.

German

exchange i s a t t e n o r t w e l v e p e r c e n t d i s c o u n t

i n New York

and Dutch exchange a t t e n per cent premium.

There: te 4

theoretical w a l l e r e c t e d b e t w e e n t h o s e t w o e x c h a n g e s t h a t

are right next door t o each other, s o t o ep. eak.

I f we

could today b u y marks i n New York a n d w i t h those marks b u y
gold a n d l a y i t d o w n i n H o l l a n d a n d s e l l g u i l d e r s a g a i n s t

it, you could make $200,000 profit o n every million dollars
you could handle i n that way.

Y e t y o u c a m o t b r e a k that

Gown because t h e English Government will n o t l e t g o l d g o
into Holland.

W h a t i s g o i n g t o h a p p e n s o m e day,

process, t h a t I
gold basis

d o not think c a n b e forecast,

b y some

i s that this

o f our credit s y s t e m i s going t o b e shifted

around until i t reaches i t s normal level again.

W e are get

ting gold now, b u t later o n I think w e have g o t t o give i t
up.

T h a t i s rather a

tritething t o Say, because everybody

is saying t h e same thing.

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Federal Reserve Bank of St. Louis

292

Governor \Wiold:

H o w does i t affect u s except t h a t w e

lose o u r g o l d t o y o u t o c o v e r e x c h a n g e w h i c h i s d r a w n
against o u r rediscounts,

a n d y o u l o s e t h e g o l d i n Eurspe?

If y o u h a v e i t w h e r e y o u c a n p u t y o u r h a n d s u p o n i t y o u
won't l o s e t h e reserve,

b u t y o u will l o s e t h e gold y o u have

Segregated against Federal Reserve notes.
The Chairman:

B u t that g o l d i s not available f o r e x -

port except through t h e rodémption o f Federal Reserve
notes, o r unless t h e member banks c o m e t o u s with rediscounts f o r the purpose o f getting gold f o r export,

i n which

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

in the hands o f the Federal Reserve Agent.
(Informal discussion followed.)
The Chairman:

W e have eight hundred a n d fifty o r

eight hundred a n d sixty millions o f gold i n the system n o w
aml i f theFederal reserve note i s s u e s operate a s they have,
we will h a v e a great deal more.

I f this expansion continues

all o v e r t h e c o u n t r y w e w i l l h a v e a
Perhaps

i t i s better

great d e a l m o r e gold.

t o let things continue

even a t s o m e o x p e n s e

t o t h e System,

a s t h e y are,

w i t h the hope that b e -

fore Congress adjourndphey will be able t o realize i t i s a
foolish thing f o r us t o have vane great accumulation o f gold
taking place b y a method that renders i t unavailable a s re-

serve for credit expansion.

I t ought t o be, b y some amend-

ment t o the Act, m a d e really available a s a n emergency r e serve, i f y o u please,


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Federal Reserve Bank of St. Louis

Governor Seay:

T h a t i s the view I had, Governor Wold,

295

that there i s a very strong r u b e n c e e t h a t i f w e have
the g o l d i t w i l l b e m a d e a v a i l a b l e

antes’

t o usin some w a y b y a e

t o the law.

The Chairman:

E v e n a s a n emergency amendment w e would

get it.
Governor Scay:

Yes. I

think t h e ‘thing: t o @: 1 6 t e

get i t .

Governor Wold:

W h e n you can.

Governor Seay:

Y e s , w h e n y o u can.

The Chairman:

W e have noarly $100,000,000 o f gold

behind our notes, and you will b e surprised t o learn that
in our directtransactions w i t h banks a n d bahkers i n New
York, o u t s i d e o f t r a n s a c t i o n s t h r o u g h t h e c l e a r i n g h o u s e ,
where w e w o u l d o r d i n a r i l y a c c u m u l a t e

o r p a y o u t o u r reserves

we h a v e taken i n about 120,000,000 o f gold already,
largely g o l d that i s coming i n from Europe.
Governor Wold:

W e have a s much gold b a c k o f our

notes a s w e h a v e reserves.

The Chairman:

I t i s rather interesting, t h e w a y i t

is done i n New York, a n d i t shows y o u the process i t goes
through, t h r o u g h t h e a g e n c i e s t h a t h a n d l e t h e money.

' The clearing house i s simply a sort o f plete where,


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Federal Reserve Bank of St. Louis

i f you

want t o accumlate gold, y o u keep the gold that y o u get
through the clearings, a n d when y o u settle u p debut balances
you p a y i n Silver o r l e g a l tender.

T

h

e same things

place through t h e operations o f t h e sub-treasury.

foe

S o m e

of the banks i n New York, w h o d o not care what disposition
they make o f a n assay office check o r gold bars, o r sover-


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Federal Reserve Bank of St. Louis

294

eigns imported from England, say, “All right, i f you want
theseassay office checks, y o u give u s your checks f o r them."
We get t h e assay office check a n d g o over t o the sub-treasury

and get gold certificates.
through t h e exchanges,

O u r cashier's checks cone i n

a n d w e p a y i t o u t i n silver

o r legal

tender n o t e s t h a t y o u g e n t l e m e n h a v e p r e c i p i t a t e d

o n us

matter o f fact,

A T we

in S h i p p i n g u s exchange.

A

s a

had not been able t o make these private arrangements t o
getgold through that a n d other methods,

w e would h a v e been

swamped w i t h silver certificates a n d legal tender notes.
There w a s a time i n New York whenthe banks were having
considerable difficulty i n gettling their balances through
the clearing house because w e h a d all the clearing house
depositary certificates
had r u n s 0 continuously,

i n our vault.

O u r credit balance

b y r e a s o n o f this N e w Y o r k

exchange coming t o us, that w e were always creditor a t the
clearing house,

a n d w e were pumping t h e m out o f

clearing house depositary certificatos.
forty m i l l i o n s

o f them.

W e h a d about

T h e y were t h e n reduced

t o pay-

ing their balances t o us i n gold.

(Informal discussion followed. )
The Chairman:

Gentlemen,

d o y o u think i t i s going

to b e profitable t o discuss this matter a n y further.

W e

are all pretty familiar w i t h the subject.
Are y o u ready t o take u p Topic No. 20, suggested b y
Governor W o l @ ?

20.

T H E ADVANTAGES I F ANY, O F THE CONVERSION
OF UNITED STATES BONDS PROVID:D F O R I N
SECTION 18.

Governor Wold:

M y purpose

i n putting that topic

o n was

295
to g e t s o m e i n f o r m a t i o n f r o m t h e o t l e rGoverxors w h o h a v e

Sone bonds, and 1 would also like t o hear from the Chairman
of this Conference o n the subject.
The Chairman:

G o v e r n o r McDougal holds s o m e v e r y strong

views o n that subject, Governor Wold, a n d + would like t o
hear from h i m first.
Governor Told:,

Certainly.

Governor iicDougal:

I n December, I

think probably about

the 2Oth, w e telegraphed t o the Federal Reserve Board, indicating o u r d e s i r e

t o exchange o n e million o f o u r t w o p e r

cent b o n d s f o r t h e n e w t h r e e p e r c e n t securities.
two o b j e c t s
income,

i n view.

T h e first w a s t h e increase

W

e had

i n our

a n d t h e second w a s w e believed t h a t t h e three p e r

cent b o n d s w o u l d p r o b a b l y

b e i n demand.

W

e t h o u g h t perhaps

we might b e able t o retail t h e m o u t here a n d there a t a
profit.

T h a t belief w a s stimulated b y overtures m a d e t o

us b y o n e l a r g e N e w Y o r k b a n k a x o n e b r o k e r a g e h o u s e i n

Chicago.

W

e already h a d t h e thought i n mind, b u t that

something
A
t o d o with it.

W e thought t h a t i f these bonds,

these n e w threes, w e r e i n t h e h a n d s o f o p e n dealers,
they would c o m m a n d a

premium.

I f t h a t w a s soi. t h e r e w a s n o

reason w h y w e s h o u l d n o t t a k e a d v a n t a g e
it w a s possible

that

o f t h a t profit.

22

t o d o so.

The Chairman:

O

n that subject,

i f a plan could b e

worked o u t b y w h i c h t h e T r e a s u r y D e p a r t m e n t w o u l d a u t h o r i z e
a conversion, I

would

b e perfectly willing, t o g e t h e r w i t h

any o f the others that would agree t o d o so, t o take i n all
of the long 3 ' s that w e could g e t a n d put t h e m i n the hands


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Federal Reserve Bank of St. Louis

296

of ove o r the other o f the reserve banks, s a y Boston,
Chicago,

o r some place where there i s a good market f o r

United States bonds--- n o t necessarily i n New York--- a n d
have them sold f o r t h e account o f all o f tlese banks t h a t
were doing that business.

O t h e r w i s e w e would b e sacrific-

ing t h e valuc o f that sccurity.
us t o convert. a

I t would b e a mistake f o r

million o r two million o f our bonds a t t h e

same t i m e that half a

dozen o f the other banks were doing

the same thing, because w e would depreciate values b y
trying t o sebl t h e m all a t once. I

would agreat d é a l

rather t u r n that operation over, a s 1 suggested before,
when this w a s up, t o some other bank t o be handledneed n o t necessarily b e done i n New York.
the o n l y m a r k e t f o r U n i t e d S t a t e s bonds.
in Chicago,

I t

N e w York i s n o t
L e t 420 p e h a n d l e d

i f y o u pleasco.

Governor Seay:

I f i t develops t h a t a conversion c a n

be made a n d the 3 ‘ s sold a t a profit,

i t will result i n a

premium o n the 2's a n d that will automatically bring i t
tO a

Stop.
The Chairman:

I

t certainly would a t ance result

in

a premium o n 2's, o r a decline i n 3's t o parity, unless
it w e r e h a n d l e d ( i p o r e c t l yg: ~

U n l e s s s o m e reasonable s k i l l

and d i s c r e t i o n w a s e x e r c i s e d t h e p r o f i t w o u l d d i s a p p e a r
right a w a y -

Governor Aiken:
of t h e m e m b e r s

I

n talking i t over with o n e o r two

o f o u r Board,

i t has seemed t o u s t o b e per-

fectly obvious that i t has g o t t o b e handled i n a pool.
There 1s: n o s o u n e r ways v o c o ai.


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Federal Reserve Bank of St. Louis

297
Governor McDougal:

T h e r e i s n o necessity f o r a pool

if you carry your bonds f o r investment.
Governor Aiken:

N o .

Governor McDougal:
investment returns.

O u r preliminary object w a s t o get

W e had n o thought o f undertaking t o

dispose o f t h e m quickly,

b u t wanted

that i f a market teveloped,
Governor Wold:

t o b e i n the position

w e might d o so.

W h e n t h e question was brought u p with

our board t h e y w a n t e d .
t
o know whether i t would b e advisable
to convert t h e 2's into 3 * s a n d lose the circulation privilege.

M y thought i n converiing t h e m was simply t o i n c r e a s e ©

the rétuns o n our investment, a n d not f o r t h e purpose o f
reselling t h e 3's.

W h a t I

a m interested i n knowing i s

whether t h e other Governors'hold m y view a s t o the advis-

ability o f doing that.

I

t occurred t o me that the 3's

could b e used t o advantage i n borrowing money f r o m other
reserve b a n k s i f w e w e r e n o t i n funds

a m t h e y w e r e loaded,

or f o r t h e p u r p o s e o f b o r r o w i n g a b r o a d
notes.

I

t would b e more advisable

o n the short t i m e

t o borrow t h e g o l d o n

the bonds t h a n i t would b e issue currency behind t h e t w o

per cent bonds and pay a half o f a percent tax.

W e could

borrow gold o n the 3's a n d w e could use t h e m a s a basis f o r
Federal Reserve notes.

I t was simply f o r t h e purpose o f

bringing u p t h e d i s c u s s i o n

upon that point that I
program.

I f w e had a

t o learn i f o u r views w e r e sound

asked t o have this placed o n the
large demand f o r money a n d w e learned

that s o m e o t h e r d i s t r i c t h a d plenty,

a s t h e s i t u a t i o n develo.

ed here this last seasons i n someof t h e southern banks, i f


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Federal Reserve Bank of St. Louis

298
they h a d c o n v e r t e d t h e b o n d s t h e y c o u l d h a v e b o r r o w e d f r o m

New York a n d Chicago.
Governor Miller:

C o u l d y m n o t d o better b y offering

those r e d i s c o u n t s o u t o f y o u r p o r t f o l i o ?

Governor Wold:
borrow a

No.

I f a Southern bank offered t o

million dollars f r o m u s today, w i t h Government

bonds a s security,

w e would b e inclired

t o make a

rate t h a n w e w o u l d o n e m e r g e n c y reciscounts.

I

better

t would b e

more satisfactory t o them, too.
The Chairman:

I t saves a

lot o f mechanical bother i n

the handling a n d rehandling o f the notes.
Governor Wold :

Y e s , a n d those bonds c o u l d b e used

in normal times b y pledging t h e m i n London o r elsewhere a n d
borrowing g o l d upon them.

A t least that h a s been o u r

thought o n the matter.
The Chairman:
onversion,

f course o n e advantage

o n e argument

me very strongly,
pose

O

i n favor o f i t t h a t a p p e a l s

to

i s that i t really carries o u t t h e pur-

a m i n t e n t i o n o f t h i s law,

secured national b a n k notes,
that a r e r e q u i r e d

i n making t h e

b y doing a w a y with bond

a m converting these bonds

b y t h e Federal Reserve b a n k s i n t o a

form

of security which they could market o r borrow u p o n i n case
' of need.


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Federal Reserve Bank of St. Louis

T h e policy o f our b a n k will be, I

think,

to

deal w i t h a n y bonds t h a t w e acquire, either und.r Section
14 o r Section 18, b y that method. I

think w e will convert

them and sell o r not sell the 3's according to what seems
to b e sound business judgment.
Governor F a n c h e r :

M a y I

inquire

i f y o u have h a d a n y

299
intimation t h a t t h i s c h a r a c t e r

o f conversion i s going t o

be h e l d b a c k ?

The Chairman:

N o . R a t h e r t o the contrary. I

was

surprised w h e n t h e matter w a s first mentioned t o get a n
intimation that there might b e difficulty i n getting t h e
necessary rulings f r o m t h e Secretary o f the treasury, b u t
we have been furnished i n New York with preliminary drafts
of the regulations bearing o n the matter, a n d w e have b e e n
informed t h a t t h e p l a t e s a r e b e i n g prepared.
ably c o m p l e t e d

b y now.

I

T h e y a r e prob-

t was intimated t h a t a l l t h e y

needed n o w w a s t o s t a r t t h e m a c h i n e r y m o v i n g

b y having s o m e

bank m a k e application.
Governor Wold:

W

e c a n n o t s t a r t t h e machinery,

a n

I think Chicago i s i n the same predicament.
Governor Rhoads:

w

e filed formal application f o r

conversion o f $500,000 o f bonds i n December.

W e said w e

would s e n d t h e m o n down i f they were ready t o receive them.
We got n o answer.

W e stirred i t u p again a m g o t a

let-

ter f r o m 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 M a l b u r n t o

the effect that the mattcr was claiming the attention of
the Secretary o f the Treasury and that w e would get a n
answer a s S o o n a s h e got around t o it.

T h a t w a s t h e first

hint w e had that the thing was liable t o be blocked, because p r i o r

t o that t i m e I

had visited Secretary Malbury's

officc, w i t h Mr. Delano, a n d h a d r e c e i v e d assurance that
there w a s n o obstruction t h e n and that i t would g o through
as soon a s t h e plates were completed.


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Federal Reserve Bank of St. Louis

Governor W o l d :

I

n a

conversation

w i t h o n e member

o f

300
the B o a r d t h i s w e e k

h e intimated

t o m e that t h e matter

had n o t b e e n d e f i n i t e l y d e t e r m i n e d .
The Chairman:

V n y i s n o t this a

proper m a t t e r

to

deal with b y resolution making inquiry o f the Federal Reserve Board?
Governor Wold:

w e have made inquiry, M r - WChairman,

and G o v e r n o r M c D o u g a l h a s m a d e i n q u i r y b y w i r e

a m

b y

letter.

Governor Fancher:
Mr* Qurtis:

A n d s o have I .

T h e secretary h a s discretion, h a s h e

Governor V a n Zandt:

T h e Act says t h a t t h e Secretary

"may issue",
Governor Wold:
tary.

I t i s discretionary w i t h t h e Secre-

Y o u will remember h i s preliminary requirement w a s

that t h e application must b e i n before t h e first d a y o f
January o r t h e c o n v e r s i o n w o u l d n o t b e m a d e u n t i l t h e
first d a y o f April, t h e t t h e c o n v e r s i o n w o u l d b e m a d e q u a r terly.

W

e h a d n o means o f Knowing what character

o f appli-

cation would b e required before t h e l s t d a y o f January,
that w e c o u l d h a v e i t p a s s e d

Governor Seay: I

so

b y o u r b o a r d b y t h a t date.

see n o reason w h y w e Should not

make u n i t e d a n d c o n s o l i d a t e d i n q u i r y i n t h i s case.
The Chairman:

N o .

W h y n o t a s k Governor Wold

t o draw

a resolution.
Governor W o l d : I

will o f f e r s u c h a

résolution,te

be d r a w n b y t h e Secretary.


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Federal Reserve Bank of St. Louis

(The motion was duly seconded a n d carried.)

301
The Chairman:

G o v e r n o r McCord, y o u have t h e floor

On t o p i c c l s

MEMBER BANKS UNDER SPECIAL EXAMINATION.
What should b e t h e attitude o f the kxecutive Committeein passing upon disco u n t s f o r such banks,
and what would b e a reasonable line o f discounts
to extend?
Governor McCord:

T h i s topic w a s suggested

b y the

chairman o f m y board, n o t f o r t h e p u r p o s e o f g e t t i n g a n y
action, b u t t o f i n d o u t w h a t w a s b e i n g d o n e i n t h e v a r i o u s

districts.

W e would l i k e t o know what t h e ex&cutive c o m -

mittees o f t h e banks,
upon d i s c o u n t s

o r t h e discount committees, passing

f o r S u c h banks

a s a r e u n d e r s p e c i a l examina-—

tion, would do, a n d what would b e a reasonable line o f discounts.

I

n the s i x t h district

w e are disposed

t o help out

the situation, p r o v i d e d t h e p a p e r i s satisfactory.
would l i k e t o have t h e c o n s e n s u s

B u t we

o f opinion a s t o what

extent w e should g o i n helping o u t these banks t h a t a r e
under s p e c i a l e x a m i n a t i o n a n d u n d e r eriticism.

W

e would

like t o know i f i t i s the purposo o f the act o r o f our organization t o help these m e n get o n their feet b y taking
paper i n excess o f what w e would t a k e under other business
conditions, a n d t r y t o help t h e m get back onto t h e right
line, o r should w e hold aloof?
Governor Miller:

Y o u want t o know whether t o aid

them o r eliminate t h e m ?

Governor McCord:

Yes.

Governor Aiken:

I

t depends

o n the kind o f paper t h e y

have.


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Federal Reserve Bank of St. Louis

Governor Wold:

Y o u cannot l a y d o w n a n y particular rul:

LOr- trinG.

Governor McCord:
laid down.

W e d o not a s k that a n y rule b e

h e simply want t o know what i s being done i n

the o t h e r d i s tricts.
Governor Aiken:

H a v e y o u not g o t t o treat e a c h case

on i t s i n d i v i d u a l m e r i t s ?
Governor McCord:

Y e s , b u t w e want t o know what would

bethe general policy.
(Informal d i s c u s s i o n f o l l o w e d w h i c h t h e r e p o r t e r w a s

directed not t o take.)
Governor McCord:
on it. I

A l l Il wanted t o get was a n opinion

wanted t o know what was being done, a m d t h e

topic c a n beeliminated,
The Chairman:

I

s o far a s I

a m concerned.

s there a n y further discussion

on

this subject?
Governor McCord: I
sion. I

do not care f o r further discus-—

merely wanted t o know what w a s being done, t h a t

was all.
The Chairman:
the program.

W

T o p i c

No

2 4 i s out o f i t s place

on

e w i l l t a k e t h a t u p next.

ADVISABILITY O F SUGGESTING T H E COMPIIA TION
OF MEMBLR BANK RLPORTS I N COMPTROLLER'S
OFFICE ACCC. DENG T O FEDuzRAL RESERVE DISTRICTS.

The Chairman: G o v e r n o r McDougal, a m I! correct i n my
memory o f the action taken a t the joint meeting o f the
Executive Committees o f the t w o conferences, t h a t this i s
a topic o f a

character t h a t w o u l d n a t u r a l l y b e r e f e r r e d

to the Neserve Agents?


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Federal Reserve Bank of St. Louis

Governor McDougal:

Y o u a r e quire correct, Mr. Chair-

303

man, a n d l h a d t h a t i n mind.

M r + Bosworth requested

that w e give i t onsideration i f w e could, a n d + think that
if statistics were compiled i n accordance w i t h the boundaries o f the dis tricts, t h e y would b e very useful. I
perhaps

thought,

w e might b e a b l e t o take s o m e action t o help i t

along.

Governor Miller: I

might say that i had a conference

with Mr. Williams o n that subject and h e said, "Why, I am
doing bDelter than that; I
ways.”

a m giving 2 % t o you both

T h e n h e referred t o this statement h e r e (indicat—

ing}.
Governor M c D o u g a l ® h e would l i k e t o see i t brought
about s o t h a t t h e r e s o u r c e s a n d l i a b i l i t i e s

trict would b e shown
The Chairman:

a

i n cach dis-

s o n e bank.

G o v e r n o r McDougal, t h e r e once existed

a committee which has n o t met, known a s the program committee, consisting o f yourself, Mr. Perrin, Mr. J a y and myself.
The f u n c t i o n o f t h a t c o m m i t t e e w a s t o d i f i d e u p t h e s e topics.
Might i t n o t b e p r o p e r
Perrin,

t o prepare a

letter

t o g o t o Mr.

w h o i s Chairman o f t h e Federal R e s e r v e Agents'

organization, suggesting cemcet as what y o u have i n mind
f4mdasking i f t h e y w i l l n o t t a k e i t u p ?

Governor McDougal:

Y o u mean t o have t h i s meeting d o

that?


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Federal Reserve Bank of St. Louis

The Chairman:

Y e s .

Governor McDougal: I

think that would b e a good

thing t o do, p r o v i d i n g w e c a n a c c o m p a n y t h a t l e t t e r w i t h a

statement t h a t this b o d y approves o f that s t e p being taken.

304
The Chairman: I

think i t i s a most desirable thing,

particularly a s i t will save u s a lot o f bother i n our
own establishment which w e have h a d i n compiling information f r o m t h e r e p o r t s

w e get.

Governor McCord: I

have b e e n forced t o make m y own

compilations f o r a great m a n y o f them.
The Chairman:

W e have too, t o some extent,

i n New

York.
Governor McDougal: I

would m o v e t h a t t h a t a c t i o n b e

taken, t h a t t h e S e c r e t a r y b e a s k e d t o c o m m u n i c a t e w i t h
Mr. P e r r i n , g i v i n g h i m t h e trpic,

a n d Stating,

i f this b e

true, t h a t i t i s t h e s e n s e o f t h e m e e t i n g t h a t t h e s u g g e s tion i s w e l l m a d e a n d t h a t w e w o u l d a p p r o v e

o f steps b e i n g

taken whereby t h e figures could b e s o compiled.
The Chairman:

I s that motion seconded?

Governor Fancher:
The Chairman:

I

I s e c o n d t h e motion.
s there a n y further discussion?

(There was n o further discussion a n d the motion was
carried.)
Mr. Curtis:

A t this point 1 would l i k e t o read a

letter w h i c h G o v e r n o r M c D o u g a l h a s s s k e d m e t o read.

I t

is from t h e cashier o f the Villisca National Bank, o f
Villisca, Iowa.
"Villisea, Iowa, Dec. 2 9 , 1915.
Jas. B . McDougal, G o v e r n o r ,
Federal N e s e r v e Bank,

Chacaro,- i141.
Dear Sir: I


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Federal Reserve Bank of St. Louis

see there i s considerable c o m m e n t

of

305
the p a p e r s l o o k i n g t o w a r d p u t t i n g r e v e n u e s t a m p s

o n checks.

If this i s done i t will d o endless h a r m t o the ebuntry
banks a s w e have spent years educating farmers a n d small
tradesmen t o u s e c h e c k s

i n place o f carrying t h e m o n e y i n

their p o c k e t s a n d o u r b u s i n e s s
kind o f accounts.
revenue s t a m p s

I

i s largely m a d e u p o f these

f these p e o p l e a r e required

t o put

o n their checks t h e y will s i m p l y g o back t o

the o l d w a y o f doing their business a n d w e will lose a
large p a r t o f o u r business.

I

t seems t o m e that i t would

be w e l l f o r t h e F e d e r a l R e s e r v e B a n k s

t o lork into this

matter a n d protect t h e member banks f r o m such aninjustice
Just e s far a s t h e y can.
Very truly,
W. R . Finlayson,

Cashier."

Governor McDougal:
read i s simply this:
wes i n c l i n e d

T h e reason 1 wanted that letter

I n replying t o that I stated that I

t o think t h a t t h e Federal Reserve Banks m i g h t

be powerless t o act, b u t nevertheless I

would call t h e

matter t o the attention o f the Governors a t the first o p portunity.

W i t h t h a t d o n e m y responsibility

is

discharged.

Governor Wold: I

hardly think i t is advisable for

this b o d y t o take a n y action o n that matter.
The Chairman:

D o y o u desire a n y action, Governor M c }

Dougal?


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Federal Reserve Bank of St. Louis

Governor McDougal:
Governor F a n c h e r : I

N o , 1 do not desire any action.
have a

letter h e r e a n d w i s h

to

306
fulfill e a simiter duty.
member banks. T

t i n e : Vetter

i s from one o f our

w o u l d Like: t o h a v e t h e S e c r e t a r y r e a d t h a t

into t h e r e c o r d

i n order t h a t i t m a y b e brought b e f o r e t h e

Conference.

Mre Curtis:

T h i s letter i s from the cashier o f the

Medina County National Bank, o f Medina, Ohio, and i s as
follows:

THE MEDINA COUNTY NATIONAL B A N K
MEDINA, OHIO.

December 21st, 1915.
i.e R. Fancher, Governor,
Federal Keserve Bank,
Clevéland, O h i o .

Dear Sir:I d o n o t k n o w t h a t y o u c a n assist u s any, b u t I

want t o call your attention t o the 'printers copy' w e are
obliged

t o furnish o u r papers

statement.

I t i s s o analyzed

i n publishing c o p y o f o u r
i n its arrangement t h a t t o

the average m a n i t i s incomphehensible, a n d f r o m a price o f
we»5O p e r p u b l i s h e d s t a t e m e n t ,

o u r papers h e r e threaten

to

make ‘legal printing' o f the reports a t $25.00 per statement.
It i s quite p r o b a b l e t h a t w e a r e n o t a l o n e

i n this matter

and t h e increased c o s t will r u n u p into large figures f o r
the w h c l e n u m b e r

c f National Banks.

P l e a s e understand t h a t

I do not i n any manner object t o anything i n regard t o the
statement i n itself, b e i n g perfectly willing t o furniéh
all dveSired i n f o r m a t i o n a t a n y time, b u t i t i s o u r d e s i r e
(and I

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Federal Reserve Bank of St. Louis

believe a

laudable o n e ) t h a t v e s h a l l r e ceive ' v a l u e

307
received!

f o r a l l items

i n o u r e x p e n s e account,

a n d this

So largely i n c r e a s e s t h e p r e s e n t e x p e n s e o v e r t h a t n e c e s -

sary formerly, t h a t i t seems worthy o f consideration b y
the honorable b o d y o f Governors o f Federal Reserve Eanks
that o u r interests m a y b e pretected.
Very t r u l y yours,
B. H e n d r i c k s o n ,

Cashier."
The Chairman:

W o u l d i t b e satisfactory

take t h e same c o u r s e a s t h e r e p o r t m a t t e r ,

red t o the Federal Reserve Agents.
with t h e relations

o f the banks

Governor Fancher:

I

have
t o thet matter

a n d h a v e i t refer-

t has t o d o directly

t o t h e Comptroller.

T h a t would b e perfectly satisfactory

to me,

The Chairman. I

think i t has already b e e n discussed

by t h e R e s e r v e Agents.

long report i s reqired,

I

n N e w Y o r k state, w h e r e a

very

a s t h e result o f pressure u p o n

the State banking Department, t h e y permitted t h e omission
in t h e p u b l i s h e d s t a t e m e n t

o f the affidavit

o f the officer

who verified i t , a n d that statement w a s about h a l f a s long
as the statement o f Bigures.
Governor Fancher: I

might s a y that that communication

was dated prior t o the receipt o f the form for t h e December
Sist call.
The Chairman:
Governor F a n c h e r ,

D o y o u offer that a s a resolution,
t h a t t h a t matter b e referred

b y t h e Secre-

tary t o the Federal Reserve Agent?


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Federal Reserve Bank of St. Louis

Governor Fancher:
Governor

V a n Zandt:

Y e s sir.
° I will second t h a t motion.


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Federal Reserve Bank of St. Louis

The Chairman:

I

s there a x y further discussion?

(There w a s n o f u r t h e r d i s c u s s i o n a n d t h e m o t i o n w a s c a r -

ried. )
Governor McCord: I

do not wish t o burden t h e meeting,

but I would bike t o have this read.

I

t i s from the Presi-

dent o f the First National B a n k o f Carrollton, Georgia.
Mr. Curtis:

T h e letter i s a s follows;

"Garrollton, Ha., Jani 15, 1916.
Jos. A . MeCorcd,
Atlanta, G a .

JoOeiThe g r e a t l y i n c r e a s e d t r o u b l e

i n making o u t o u r

reports t o the Comptroller, a n d changing t h e m s o often,
and t h e menace constantly thrust a t u s o f being hung,
quartered a n d drawn i f w e should charge over legal rate o f
interest, causes u s t o seriously consider liquidating a n d
going o u t o f business o r changing b a c k t o State Bank. T h e r e
are t h r e e S t a t e B a n k s

i n our little town-- ours t h e only

National-- a n d w e cannot compete w i t h t h e m i f w e only charge
strictly l e g a l r a t e o n a l l loans.

O u r deposits a r e v e r y

small, a n d w e h a v e n e v e r r e q u i r e d o u r c u s t o m e r s

balanecs;

t o carry

n o n e o f the Banks h e r e d o so, n o r d o w e discount

notes, b u t just a d d straight interest, a n d o u r people would
not Stand f o r tither.

T h e y had rather p a y more a n d g e t

what t h e y b o r r o w i n f u l l a n d p u t t h e m o n e y w h e r e t h e y p l e a s e
For instance; a

man wants

he h a d r a t h e r g i v e « 1 0 . 0 0

t o b o r r o w @ 1 0 0 . 0 0 t w e l v e months;
o r 1 2 . 0 0 interest,

a n d get the

100,00 i n full, than to take $92.00 or have t o leave a
per cent o n ceposit.

O u r farmers c a n well afford t o p a y

509
ten t o t w e l v e p e r c e n t t h a n t o b u y o n a
do t h i s a n d t h e n m a k e t w e n t y - f i v e

credit.

T h e y can

t o f o r t y p e r cent.

If Congress will abolish t h e iniquitous bankrupt l a w
and o u r l e g i s l a t u r e w i l l p a s s a
law,

speedy a n d s u r e c o l l e c t i n g

i t w i l l d o m o r e t o m a k e c h e a p m o n e y t h a n a l l Mr.

Williams c a n ever accomplish worrying t h e little National
Banks, w h i c h h a v e b e e n a n d a r e a

great b l e s s i n g

t o our

country.
Our b a n k t r i e s

t o collect o n é p e r c e n t a

month o n

past d u e paper--- more a S a fine than anything else.

we can't get them renewed very promptly.

Then

I f we charged

only eight p e r cent all o u r paper would s o o n b e i n the past
due n o t e case.

O u r merchants c h a r g e t w e n t y - f i v e

t o forty

per cent more o n their goods f o r s i x o r eight months o v e r
the c a s h price,

a n d o u r farmers c h a r g e e a c h other a s much

for corn &c., and i t is all right, but i f a bank charges
over e l g h t p e r c e n t i t i s a

high crime,

a n d a l l t h e powers

of the Federal Government i s right after them, a n d i f this
is persisted in, i t will force all the small National Banks
out o f existence, a n d these poor devils will a l l have t o

pay forty t o sixty- per cent instead o f ten t o twelve.
Yours t r u l y ,

L. C . Mandeville,
President."
The Chairman: I

have b e f o r e m

a

memorandum submit-

ted b y the t w o committees o n yesierdat o f the topics which
they wanted discussed.

W e have t a k e n n o action,

o r have w e

adopted a n y policy a s t o what shall b e done w i t h regard t o


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Federal Reserve Bank of St. Louis

310
that meeting.
good p l a n

A

s a

suggestion only, m i g h t i t n o t b e a

t o request Mr.

Curtis

t o communicate

w i t h Mr.

Paton, w h o i s i n New York, a n d w h o i s familiar w i t h these


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Federal Reserve Bank of St. Louis

matters, suggesting that those committees prepare their o w n
memoranda f o r submission direct t o the federal Reserve
Board onthe subject o f interlocking bank directorates a n d
the s u b j e c t

pare a

o f retirement

o f greenbacks,

a n d that t h e y pre-

Similar memorandum f o r submission t o the Federal

Reservé Board and the Governors o f the *ederal Heserve
Banks o n the subject o f readjustment o f reserves, a n d o n
the subject o f foreign banking connections.

T h a t will

enable u s t o s a y that w e have referred t h e m directly t o
the Board o n those t w o matters which d o not S o directly
relate

t o o u r work,

asked t h a t a

a n d o n the other t w o matters

memorandum b e sent t o both.

I

w e have

f occasion

arises w h e n w e are i n a positicn t o push their program
along,

w e a r e t h e n prepared

t o d o it.

“Does that suggestion meet your views?

Governor Seay: I

move that that b e done, sir.

Governor V a n Zandt: 1

will second that motion.

The C h a i r m a n : -. Is t h e r e a n y d i s c u s s i o n ?

(There w a s n o discussion a n d t h e motion was carried.)
The Chairman: I

would l i k e t o read a

communication

from t h e F e d e r a l R e s e r v e B o a r d w h i c h w a s hanéded t o m e y e s ~
terday.

I

t i s d a t e d J a n u a r y 20th, 1 9 1 6 .

(The C h a i r m a n t h e r e u p o n r e a d t o t h e C o n f e r e n c e t h e
letter r e f e r r e d t o .

the record.)

T h i s letter w a s n o t t o b e placed

in

she
S&
The Chairman:
requires

T h i s letter,

a s néar a s *

n o a c t i o n b y t h i s meeting,

c a n see,

a n d i f satisfactory

it

will b e t u r n e d o v e r t o t h e S e c r e t a r y t o f o l l o w t h e u s u a l
course, w h i c h c o n s i s t s
Governors.


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Federal Reserve Bank of St. Louis

o f sending a

copy t o each o n e o f t h e

Sle
yilfong

T

h

e Chairman presented a

memorandum b y the auditor o f

Sth L u e
the F e d e r a l R e s e r v e B a n k o f N e w Y o r k i n r e s p e c t

o f the method >

of closing their books a t the e n d o f the financial year, a m d
Suggested t h e desirability o f a meeting o f some o f the auditors o f s o m e o f t h e F e d e r a l R e s e r v e B a n k s

t o discuss p l a n s

for the adoption o f a uniform method o f treating t h e items
of o r g a n i z a t i o n e x p e n s e a p p e a r i n g
Federal R e s e r v e Banks.

i n the statements

A f t e r some discussion

agreed t h a t t h e a r r a n g e m e n t s

f o r such a

o f the

i t was

meeting s h o u l d b e

made b y Mr. C u r t i s a n d t h e G o v e r n o r s k e p t advised.

9. O P E N MARKET OPI.RATIONS.
The Chairman:

W

e have n o t discussed I t e m 9 , a t t h e

foot o f t h e first p a g e , o p e n m a r k e t o p e r a t i o n s ,

and I

know t h a t i t r e q u i r e s a n y action, e x c e p t t h a t I

should l i k e

to make a

little statement about it.

do not

W e have received a n

order f r o m o n e o f t h e F e d e r a l R e s e r v e B a n k s

t o purchase

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

tem-

i n New York b y

which w e w i l l b e f u r n i s h e d w i t h n e c e s s a r y i n f o r m a t i o n a s t o
the e l i g i b i l i t y

o f those acceptances,

to t h e a r r a n g e m e n t w i t h o u t a l l o t m e n t

a n d have p u t them i n
i n a

way that will

give t h e banks which need t h e earnings s o m e little advant‘age, becaus® t h e y are buying a kind o f nete f o r which i n a


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Federal Reserve Bank of St. Louis

Sense W e a r e p e r e r a l i y

i n “Like T e rket . I

would l i k e s i m p l y

an expression o f your views--- n o t how, necessarily, b u t
after consideration--- a s t o whether a n y o f the other Feder-al R e s e r v e B a n k s f e e l t h a t t h e t i m e h a s c o m e t o a m e n d t h e i r

purchases s o a s t o include domestic bankers! acceptances

513
that a r e d e a l t

i n i n N e w York, b e c a u s e w e a r e a l r e a d y b u y -

ing t h e m f o r o n e o f t h e banks, a n d , n a t u r a l l y ,

i f we are

going t o b u y t h e m i n N e w Y o r k f o r one, t h e q u e s t i o n w i l l

arise whether i t might n o t affect your o w n policy a s t o investments

o f that character.

I would sug;est t h a t t h e matter b e dealt w i t h b y taking

it u p after you return home and «corresponding with the
Federal R e s e r v e B a n k o f N e w Y o r k a n d g i v i n g u s a n e x p r e s s i o n


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Federal Reserve Bank of St. Louis

of y o u r wish, a n d t h e n o f course w e W i l l d o exactly w h a t

you want u s t o do.
Governor McDougal:

I s there a large volume o f such

bills a v a i l a b l e ?
The Chairman:

T h e r e a r e quite a

Governor Aiken:

T h e Bankers' Trust Company are

doing m o r e o r less c f t h a t business,

The Chairman:
companies.

few.

a r e t h e y not, n o w ?

Y e s ; there a r e quite a

S o m e o f the c o t t o n mills

number o f the

i n Boston are, I

know.

Most o f those w e h a v e p u r c h a s e d a r e b a s e d u p o n c o t t o n

and rice a n d a

few things like that.

G o v e r n o r McCord

has a n enterprising branch manager d o w n there i n New Orleans w h o d o e s n o t e x a c t l y u n d e r s t a n d t h i s thing,

a n d Gover-

nor McCord i s going t o get i t all straightened out.
does n o t k n o w t h e w a y t h i s a c c o u n t

i s b e i n g handled,

H e
and

Governor McCord does, s o I would like t o get that arrangement f i x e d u p w i t h y o u a t y o u r A t l a n t a o f f i c e , G o v e r n o r

MeCord.
Governor McCord: I

desire t o say o n the part o f that

bank that possibly t h e y a r e excusable b y reason o f the fact


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Federal Reserve Bank of St. Louis

514
that I

had n o t c o m m u n i c a t e d w i t h t h e m w h a t t h e a g r e e m e n t

of o u r Several banks was sbout this thing, a n d I
take p l e a s u r e

Shall

i n communicating w i t h t h e m a t once t h a t i f

you expect t h e m t o purchase f o r t h e m i n New York they must
pay t h e c o s t o f t h e t r a n s a c t i o n j u s t t h e S a m e a s f o r a n y
other purchase.
Governor V a n 4andt:; I

talked o v e r t h a t p r o p o s i t i o n

with them, G o v e r n o r McCord.
The C h a i r m a n :

T h e i r first purchases,

I think w e r e a t t e m p t e d

G o v e r n o r McCord,

t o b e made down there before t h e

bills h a d reached N e w York for acceptance,

b u t t h e y have

been corresponding with the Guaranty Trust Company i n New
York a b o u t t h a t p a p e r ; a n d
I think arrangements

i f y o u d o not mind m y saying so,

a t l o n g range, t h a t way, w i t h t h e

Guaranty T r u s t C o m p a n y , w i l l b e unsatisfactory.
Governor McCord:

Unsatisfactory,

because

i t pries

up

the market a n d gets things a l l out o f shape a n d o u t o f
joint.
The Chairman:

(Handing a

letter t o Governor McCord)

Take that letter a s a memorandum o f t h e matter, please, a n d
send i t b a c k t o me.

T h e t W i l l t e l l t h e story.

Governor Mjller: I

should l i k e t o a s k o n what b a s i s

the w a r r a n t s a n d o p e n m a r k e t t r a n s a c t i o n s

a r e apportioned

among t h e banks, a n d particularly w h y Kansas C i t y gets f o u r
per cent a n d St. Louis six.
The Chairman:
tackle t h a t i n a

T h a t i s under (9.4),

W e will

mimte.

Governor M c D o u g a l : B e f o r e y o u leave 9-(a) I

would

O15

Like t o have y o u tell u s i f y o u cah=<-—+ o r teil mee-- ghat
New Y o r k t h i n k s

i s t h e volume o f these domestic acceptances

which w o u l d b e a v a i l a b l e

a s compared w i t h t h e volume o f

foreign b i l l s t h a t w e a r e a b l e t o get.
The Chairman:

W i t h strictly domestic acceptances

arising o u t o f demestic transactions, t h e volume i s not a s
large--- I

should s a y n o t n e a r l y a s large, b u t t h e v o l u m e

ofbills which may be made eligible for us to invest in,
including trade acceptances t h a t represent import a n d export
business,

i s v e r y considerable.

to d o u b l e t h e v o l u m e

I

t m a y i n time enable u s

o f o u r purchases.

Governor M c D o u g a l :

B u t

u p t o e ‘the p r e s e n t

trade a c c e p t a n c e s h a v e b e e n available,

The Chairman:

time the

h a v e t h e y not?

N o , they have not.

Governor McDougal:
Governor Aiken:
The C h a i r m a n :

P a r t o f them have.

N o t under fourteen.

T h e r e

i s a

very c o m p l i c a t e d

a n d diffi-

cult s i t u a t i o n t h e r e t o w o r k o u t t h a t t h e B e a r d o v e r h e r e
has n o t understood.

W

e a r e coupled

u p w i t h requirements

about statements, f o r instance, t h a t a r e very difficult t o
arrange,

a n d requirements

a s t o the eligibility o f this

paper that a r e difficult t o arrange.

W w e cannot g e t these

trade a c c e p t a n c e s c o m i n g f r o m t h e E a s t s t a m p e d b y t h e a c eeplors.

T h e y a r e drawn o n all sorts

we h a v e n o connection.

pight. next docrs

i t - i s n o t E i k e 4 a banking “institutie-

t h e y a r e silk merchants a n d importers

of jute, a n d a l l s o r t s o f things.

bought t h e other d a y cavered a


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Federal Reserve Bank of St. Louis

o f people w i t h w h o m

O

n

e bDiLl that. w e

shipment o f Panama hats f r o m

516
Japan. I

don't k n o w w h e t h e r y o u k n o w t h a t p a n a m a h a t s

are m a d e i n Japan.

T h e requirements

o f the Board could n o t

be m d e t o apply t o that class o f bills,
ing t h e s u b j e c t

s o that, consider-

o f trade acceptances t h a t represent i m p o r t

and e x p o r t b u s i n e s s , t h o s e f o r t h e p r e s e n t w i l l l a r g e l y
be d e a l t w i t h ,

a s stated

t o t h e B o a r d yesterday,

the agencics o f these eastern banks.
up y e s t e r d a y t o s a y t h a t h e h a d a

through

M r . J a y called m e

letter f r o m t h e B o a r d w h i c h

he thought w o u l d enable t h e m t o g o ahead w i t h t h e arrangements,

a n d wanted

in m y absence. I

t o know whcther t h e y h a d better
s a i d yes, t h a t I

g o ahead

thought t h e r e o u g h t

to b e a meeting o f our committee today,

i f i t could b e ar-

ranged, and a rate established and submitted for approval
by the Board, under arrangements concluded w i t h the endorsers
of these b i l l s i n s t e a d

o f w i t h t h e acceptors,

a s i n the

ease o f other bankers' acceptances, w h i c h would g i v e u s
the right t o inquire as.to t h e Origin o f t h e bill. a n d t h e
character o f transaction t h a t i t related t o , a n d g o ahead
and getthem o n a n eligible basis s o w e c a n begin t o buy
them.
I h a p p e n t o k n o w o n e f i r m o f dealers

i n New York that

have about three a n d a half millions o f these bills t h a t
they s a y they will either t u r n over t o u s enbloc,

o r pos-

sibly t h e larger part o f them, w h e n t h e y become eligible,
if t h e rate I s right.

A b o u t three fourths o f these endors-

ers a r e the: l a r g e eastern banks.
banks h a v e i n their portfolios a

T h e s e large eastern

total o f (this i s confi-

dential) $15,000,000, possibly, o f those bills i n New York.


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Federal Reserve Bank of St. Louis

rsi
By
Many o f t h e m a r e e n d o r s e d

b y m e m b e r banks.

are m e m b e r b a n k acceptances.

I

S o m e o f them

t i s just a m a s s

o f stuit

that t h e y gather u p through their fifty o r sixty agencies
in t h e e a s t a n d s h i p t o N e w Y o r k f o r t h e N e w Y o r k a g e n t t o
handle,

a m

w e w a n t t o g e t t h i n g s l i n e d u p t o b u y those.

It w i l l i n v o l v e e s t a b l i s h i n g r a t e s a n d lines,

a n d going

through a l l o f t h e r e d t a p e t h a t w e d i d w h e n w e s t a r t e d t o
Duy t o s o t h e r t y p e o f bill.

So, i f it is your wish t o get a t that w e should like
to b e advised formally b y each bank b y letter,
neve -OUr record

i n T h e rient shapes

i

s o as t o

n other w o r d s ,

w e do

not w a n t t o b e i n t h e p o s i t i o n o f f o r c i n g o u r s e r v i c e s

i n

this matter, which 1 think would b e a mistake, b u t t o have
the other bankSask u s i f w e will represent t h e m i n New
York a s their correspond ént i n buying s o m e o f this stuff,
and w e will g o ahead a n d furnish t h e m with what information

we can get and deal vith them just a s w e did i n the first
Piece.

Governor Wold:

H a v e y o u changed y o u r opinion with r e -

gard t o the advisability o f going t o t h e market o n these?
The Ghairman:
at a n y rate,

O u r attitude

i s this:

A

t t h e outset,

o f o u r operations u n d e r S e c t i o n 1 4 I

was v e r y

anxious t h a t t h e Federal R e s e r v e B a n k o f N e w York, e i t h e r

of its o w n motion o r b y the request o f t h e other reserve
banks, S h o u l d n o t e x t e n d t h e i r f i e l d o p e r a t i o n s
extent t h a t i t would c a u s e criticism.

t o such a n

Frankly, I

think

the member banks i n New York are getting used t o the idea

that w e buy this maper, a m ! think that w e can g o into


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Federal Reserve Bank of St. Louis

518
these d o m e s t i c a c c p p t a n c e s

t o some extent

a m i n t o these

trade a c c e p t a n c e s t h a t c o m e f r o m t h e E a s t w i t h o u t c a u s i n g
any p a r t i c u l a r f r i c t i o n o r comment.

h

e have become known

as buyers o f bills, now, and |! do not think they will distinguish between t h e character o f the bills w e ouy.
Furthermore,
the m a r k e t

o u r directors a g r e e d t h a t i n going i n t o

t o b u y these bills

w e should n o t interfere

in

any w a y with the desire o f cther Federal Reserve Banks t o
buy bills

i n N e w York, t h a t w e o u g h t t o r e p r e s e n t t h e m i n

doing t h a t b u s i n e s s ,

a n d i f w e represented t h e m a n d purchas-

ed bills f o r their account w e would b e subjected t o all t h e
odium.

N o b o d y knows w h o t @ purchase for, a n d w e might

just a s well b u y them for ourselves a s well.
So f a r a s w e a r e concerned,
sider t h a t w e a r e m t i r e l y

i n N e w York, y o u m a y c o n -

a t your disposal

t o handle

this matter i f y o u wish u s t o buy them f o r youGovernor V a n Zandt:
the r a t e s

D

o they make a

difference

i n

u p t h e r e o n domestic a n d f o r e i g n a c c e p t a n c e s ?

The Chairman:

T h e r e f a s beén a Slight difference,

ranging f r o m possibly o n e eighth t o a quarter, b u t |! think
we c a n promise y o u that that c<ifference i s very likely t o
disappear

a s s o o n a s w e b e g i n t o b u y them.

Governor V a n Zandt: I

should think that it: would.

I was just wendering i f that h a d not h a d i t s effect.
The Chairman:
undoubtedly.

I t will have i t s effect right away,

T h e brokers d o that, y o u know.

Governor Fancher:
dorsed


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Federal Reserve Bank of St. Louis

W i l l t h e s e trade acceptances e n -

b y the large banks

i n t h e e a s t c o m m a n d a b o u t a s favor--

519
able a

rate a s t h e p r e s e n t bankers! a c c e p t a n c e s ?

The Chairman:

T h e acceptances a t the Yokohama
Charter

e

t

Specié B a n k a n d o f t h e B a n k o f I n d i a S e l l a t @

littic h i g h e r

rate t h a n t h e acceptances o f the member banks that have hereforore b e e n e l i g i b l e r i g h t aidong.

T h e H o n g Kong-Shanghai

Bank c o n f i d e n t i a l l y i n f o r m e d u s , a n d a

broker. c o n f i r m s t h i s ,

that t h e y have some s u c h bills a s they have sold a t t w o
per c e n t n e t t o t h e b a n k a n d h a v e p a i d t h e b r o k e r o n e - e i g h t h
per annum.

T h a t means t h a t t h e difference b e t w e e n t h e

rate o n what w e have p u r c h a s e d a n d t h e r a t e o n t h e s e b i l l s

is simply t h e brokerage, a n d + think that will likely disappear, too.

O

f course s o m e o f the bills that w e get

come direct f r o m t h e acceptors, t h e Bank o f New York.
That c o v e r s t w o methods t h a t c a n b e e m p l o y e d n o w , a n a
of course t h e v o l u m e o f business d o n e individually.

The third i s a very difficult onc, a n d I d o not know
how w e are going t o handle it.

T h e acceptancesof private

banks covering importation a n d exportation o f goods have been
eligible right along, provided t h e banks would furnish state-

ments i n form satisfactory t o the Federal Reserve Board.
Of course those acceptances w i t h t h e existing regulations
in f o r c e c o u l d a r i s e o u t o f e i t h e r d o m e s t i c
actions.

T h e hurdle

o r foreign trans-

t o b e jumped t h e r e i s t h e question o f

getting statements.
I would l i k e t o h a v e y o u r e g a r d w h a t I
say a s q u i t e c o n f i d e n t i a l .

W

a m going t o

e have discussed this matter

with t h e most important o f the banking firms i n New Yerk,
either directhy o r through brokers that h a d the entre t o thei


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Federal Reserve Bank of St. Louis

320 .
offices,

and I

a m convinced t h a t a s m u c h information a s w e

would r e q u i r e o u r s e l v e s , ¢ i t h e r
statements

i n the f o r m o f written

o r verbal s t a t e m e n t s ,

c a n b e obtained.

I

n some

cases they might not b e willing t o have i t g o any further
than Mr. J a y a n d myself;

i n other c a s e s t h e y m a y b e willing

to permit u s t o furnish i t under like confidential arrangements,

t o the Governor a n d Fed.ral Reserve Agent o f other

Federal r e s e r v e banks.

W

e cannot, h o w e v e r ,

negotiating f o r statements

g o ahead i n

i n one form o r another e n d e f -

fect a n arrangement s u b j e c t

t o t h e approval

o f t h e Board a s

to t h e P o r m o f t h e statement, p a r t i c u l a r l y w h e n i t i s - ¢
verbal s t a t e m e n t ,

a m t h e n have t h e Board t u r n i t d o w n a n d

have t o g o b a c k w i t h o u r h a t s i n o u r h a n d s a n d S a y w e a r e
very sorry, b u t t h e B o a r d w i l l n o t l e t t h i s g o through.

They think y o u ought t o give u s a written statement o r a

sworn statement o r a n auditor's statement, o r some other
kind o f a statement.

S

o w e have g o t t o get around that

corner b e f o r e t h e s e bankers’

b i l l s a r e acceptable.

Our Board h a s h a d t h e view right along t h a t inasmuéh a s
they a r e r e s p o n s i b l e f o r t h e i n v e s t m e n t s
Should n o t a u t h o r i z e t h e officers

o f the bank they

t o invest

i n a n y bills

the eligibility o f which depends u p o n t h e filing o f the
statement w i t h t h e F e d e r a l r e s e r v e b a n k , a n d t h e n h a v e t h e m
as d i r e c t o r s d e p r i v e d
things

o f the opportunity o f passing o n these

b y e x a m i n i n g t h e statements.

T h a t h a s b e e n dealt

with b y t h e B o a r d b y c h a n g i n g t h e lenguage
so t h a t i t n o w p r o v i d e s t h a t b i l l s a c c e p t e d

o f t h e regulation
b y private

bankers a r e e l i g i b l e w h e n s t a t e m e n t s h a v e b e e n f u r n i s h e d

form satisfactory t o the Federal Reserve Board:

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Federal Reserve Bank of St. Louis

in

I t does n o t

say f u r n i s h e d

sel
i t means f u r n i s h e d u n d e r a n y a r -

t o t h e bank;

rangement t h a t i s s a t i s f a c t o r y

t o t h e officers a n d direc-

with
tors o f the bank, s o that t h e regulation

i n force o u k

directors have established lines b y which they would b e
willing t o have u s b u y these various private bankers! acceptances, i f being understood that their line i s fixed without
their h a v i n g o p p o r t u n i t y
to e x a m i n e t h e statement.

o r expecting

t o have opportunity

T h e y have done t h a t o n their

general knowledge o f t h e credit a m standing o f these houses,
the u n d e r s t a n d i n g b e i n g , h o w e v e r , b e t w e e n M r - J a y a n d myself,

that w e will not operate under that authority until w e have
the s t a t e m e n t s a n d h a v e a r r a n g e d t h a t t h e f o r m o f t h o s e

statements i s satisfactory t o the Federal Reserve Board and
that t h e information contained i n the statement justifies
us i n buying bills a t least u p t o the line which h a d been
appr oved b y t h e Board.

That i s the w a y the m t t e r stands today- I
to h a v e t o m a k e t h i s l o n g e x p l a n a t i o n ,
be a

a m sorry

b u t i t i s going t o

rather d e l i c a t e m a t t e r t o arrange.

F o r instance,

the firm of J. P. Morgan & Company have never made a statement i n all their history, e v e n t o the Bank o f “ngland. I
understand t h a t o n e o f t h e p a r t n e r s

ors i n the bank o f “ngland.
give m e verbally a

i s o n e o f m m h t h e direct-

M r . Morgan h a s agreed t o

statement about their affairs sufficient

to j u s t i f y m y a c t i n g

o n it.

Governor Miller: A
The Chairman: A

verbal statement?
verbal statement.

T h e understanding

with them i s that nobody will understand t h a t i s a verbal


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Federal Reserve Bank of St. Louis

322
statement, b e c a u s e w h e n t h e n e x t m a n c o m e s along,

it, h e would say, " I a m just a s good a s Morgan";

i f h e knew

s o the neces-

sity f o r a very confidential treatment o f this thing i s
perfectly apparent.
Governor Fancher:

Y o u have h a d these statements f r o m

one o r t w o ?
The Chairman:

N e s (Sirs

Governor Aiken:

H o w will y o u arrange t o satisfy t h e

Federal Reserve Board i n a case like the Morgan statement?
The Chairman:

We}1l, I

going t o be done. I

scribed involves,

think i t i s

do not know, b u t I think so.

Governor V a n Zandt:

The Chairman:

do not know. I

H o w about this regulation T ?

T h i s negotiation t h a t I have just d e i f y o u please, withdrawing that regulation,

among other details.
I should l i k e t o get this cleared b p before leaving f o r

Europe, i f possible, a s t o private bankers' bills.

T h e way

to handle i t i s t o make * t e bill eligible f i r s t a n d keep o u r
mouths s h u t a s t o h o w i t i s d o n e ,

a n d t h e n drive t h e others

im, ends t h e y w a l l - c o m e .
Here i s a

point t h a t t r o u b l e s

me a

little bit.

Suppose

we are n o t able t o affect arrangements t o give t h e other
Federal Reserve Banks information.

S u b j e c t t o t h approval

of the Federal Reserve Board i t seems t o m e t h e only w a y
it could b e handled would b e for y o u t o get y o u r Boards
of Directors t o consider i n each instance whether t h e y care
to fix a line f o r e a c h o f these names without a n y statement


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Federal Reserve Bank of St. Louis

325
at all, a n d d e i t o n s u c h i n f o r m a t i o n a s t h e y c a n obtain,

and o n such meagre information a s w e might b e justified
in giving you, without violating confidence.
Governor Fancher:

I

n giving that information, M r .

Chairman, w o u l d y o u b e g e e

t o satisfy a l l lines that

had b e e n fixed b y your board?
The Chairman:

O h , t h i n k w e could d o that; yes.
think that o u l d b e a guide;

Governor Fancher: I

you are o n the ground a n d close t o these firms a n d c a n
probably get m u c h closer informationthan w e could. a
think that would b e a guide t o our Board i n discussing
these things.
The Chairman:

banker,

I

n regard

to a

bill o f a private

y o u have got t o deal with it o n a n entirely differ-

ent basis, a n d t h e real basis is, h o w well d o y o u know
these m e n a n d k n o w t h e i r m e t h o d s a n d h o w t r u s t w o r t h y a r e
they, a n d w h a t i s their r e p u t a t i o n f o r c o n s e r v a t i s m a n d
SO o n ?

W h e n y o u k n o w t h e m a s w e do, p e r s o n a l l y ,

and

have confidence i n them, y o u fortify your opinion o f them
by getting i n some cases a

good deal o f information a n d i n

Some cases v e r y little, dependent u p o n what y o u r judgment
is i n advance

o f h e w r e l i a b l e t h e y are.

One f i r m sent oneof their partners i n the other day,
a s o n o f t h e senior,

t o t a l k t h i s t h i n g over,

that h i s f a t h e r w a s a b s o l u t e l y u n w i l l i n g
consider t h i s m t t e r .

ed them o n the subject.

their part.


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Federal Reserve Bank of St. Louis

w

a m

h e said

a t t h e outset

to

e h a d never a s k e d t h e m o r approach-

I t was quite a

voluntary thing o n

W h e n h e got through h e said, " I have got i n

324
my pocket t h e auditor's statement just taken off o f the
books o n the first o f January, t h a t I

you." I
being,

said that w e were not ready yet, the reason
o f course, t h a t w e d i d n o t w a n t t o s t a r t d o w n
the

list t o o far, that i t was a
at t h e t o p o f t h e list.

home.

expected t o hand t o

S

great deal better t o Stert right
o h e t o o k his l i t t l e statement

B u t h e has g o t i t all ready.
We d o not want t o assume t h e responsibility o f fixing

lines f o r t h e o t h e r r e s e r v e b a n k s ,

o r suggesting lines,

or

even asking o r suggesting that t h e y establish lines
without
all o f t h e i n f o r m a t i o n w e have, a n d I

how t o handle it.

a m blessed i f I

know

W e cannot take all the bills t h a t would

be o f fered b y these private banks.

too big, i n some cases.

I

t would make o u r lines

I t would mean that w e would g e t

all o f that stuff a n d y o u would g e t a l l t h e other.
Governor Seay:

Y o u would b e i n a

position t o s t a t e

to t h e o t h e r r e s e r v e b a n k s t h a t y o u w e r e i n p o s s e s s i
n
o of
such i n f o r m a t i o n

a s would satisfy y o u i n taking t h o s e bills

would y o u n o t ?
The Chairman:

O h , yes.

Governor Miller:
certain a m o u n t

A n d that y o u were going t o take a

o f them?

Governor Seay: I

do not see how anybody could ask

any More: t h a n -that.
Governor Miller:

Governor Seay:
The Chairman:

Y o u c a n m a r k u p K a n s a s C i t y o n that.

Y o u c a n mark u s u p o n that.
t e r e 1 S a Titties negotiation going t o

be n e c e s s a r y w i t h t h e Board,


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Federal Reserve Bank of St. Louis

and +

would rather n o t under-

525
take that.

W h e n this thing gets started a n d w e e a n reach

the point where w e can say, “Let u s g o ahead and work i t
out", i t may be desirable for the other banks t o write t o
the Board here i n Washington,

o f their o w n motion, a n d s a y

that t h e y w o u l d l i k e t o h a v e i t f i x e d i n a
do n o t w a n t t o a p p e a r

the other banks. I

certain w a y - I

t o b e a r r a n g i n g la t h e s e t h i n g s f o r

a m not going t o announce t o anybody i f

this arrangement c a n b e made, t h a t these bills a r e n o w eligible.

A l l w e are going t o do, w h e n t h e brokers come in,

is just t o buy then.

T h a t i s all w e need t o do. O n c e

you b u y them, w o r d p a s s e s a r o u n d t h a t y o u a r e b u y i n g t h o s e
things,

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

it was arranged.
instance,

T h e y m a y g o i n and a s k Mr. Morgan, f o r

i f w e bought t h e i r bills,

a n d Mr. M o r g a n w i l l s a y ,

"Well, w e have mado arrangements t h a t a r e satisfactory t o
the F e d e r a l R e s e r v e B a n k a n d ourselves,

dur bills,

a n d they a r e buying

a w t h a t t s all there i s t o it."

I

> thidaie- 2 6

would bring t h e others i n line i f w e g o t them--- Brown a n d
Heidletach a n d Seligman.
that.

T h a t

T h e r e i s n o action required o n

i s t h e status

Governor Miller:
The Chairman:

o f t h e matter.

Y o u have n o t arrived a t 9-(d).

T h a t involves t h e distribution

damaging statements. I

o f very

w o u l d l i k e t o e x p l e i n t h e figures

contained o n these statements v e r y briefly.

T h e y d o not

have t o b e examined i n detail.
I will call your attention first t o the fact that since
February 2 6 , w h e n w e s t a r t e d t h e s e a r r a n g e m e n t s

w e have pur-

chased $48,000,000 o f accpptances, $22,000,000 for t h e


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Federal Reserve Bank of St. Louis

326
Federal Reserve Banks and $25,000,900 o b $26,000,000 for
the N e w Y o r k Bank.

T h e fact t h a t t h e total s h o w n there

is $3,000,000 i n excess o f one half, say, o r that the percentage

i s n o t exactly

i n the proportion originally

arranged i s due t o the fact that i n the month o f December,
aS I notified y u ,

w e had t o cut dewn o n some i n order t o

keep o u r o w n e a r n i n g s s h o w i n g w i t h i n r e a s o n , p o i n t i n g o u t
at t h e s a m e t i m e t h a t a t t h e e n d o f t h e y e a r N e w Y o r k h a d
lefs a s s e t s i n v e s t e d

a t interest t h a n either B o s t o n o r

Chicago.

We have also purchased a total o f $44,000,000 o f warrants o f which $26,000,000 are for our own account and
$17,000,000 for the other banks.
in t h e s a m e way.

W

h i s i s accounted for

e have m a d e o n e o r t w o large purchases

in the latter part o f the year which were not divided up.

The net showing o n these statements i s that o n acceptances p u r c h a s e d t h e o t h e r F e d e r a l R e s e r v e B a n k s h a v e e a r n e d
$105,654.05 a n d o n warrants p u r c h a s e d ,

t h e other Federal

Reserve Banks have earned $152,409.34, t h e total being
$237,000 o r $238,000.
The commission earned b y the Federal Reserve Bank o f
New York i s slightly i n excess o f $10,000,

w h i c h , I

may

say, about pays the expense; that is, the actual clcrical
expense,

a n d s t a t i o n e r y a n d s o o n o f that d e p a r t m e n t ,

in-

cluding what w e had f o r ourselves; b u t i t does n o t allow
anything,

o f course,

the bank,

a t least o n e o f whom i s i n New Y o r k a l l t h e time

f o r the purposes

o f the officers

and p r a c t i c a l l y a l l o f h i s t i m e i s g i v e n t o it.


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Federal Reserve Bank of St. Louis

of

S27
It d o e s n o t m a k e a n y a l l o w a n c e w h a t e v e r f o r t h e e x pense t h a t i s t h r o w n 6 n u s i n c o n n e c t i o n w i t h t h e r e p o r t s

of all o f this business, w h i c h i s very considerable.

I f

anybody wants t h e j o b for t h e compensation, t h e y c a n have
it.
The obvious thing that this large statement i s intended
to show i s this, t h a t some o f the Reserve Banks a r c not
earning their expensesand a r e deficient i n respect o f discounts i n their home market, a m d t h e possibility o f making
investments u n d e r S e c t i o n 1 4 i n t h e i r h o m e markets,

a n d are

consequently m o r e largely dependent o n New York t h a n other
reserve banks.

T h a t brings o u t t h e one point which I

am

going t o g ~ ecak o f only.

You gentlemen must take u p this allotment matter among
yourselves, e x c e p t i n g

i n N e w York.

I

t i s manifestly ab-

surd that the Federal Reserve Bank o f Ncw York should b e i n
the p o s i t i o n where,

b y this arrangement

o f divisions,

it

has less o f its money invested t h a n Boston o r than Chicago.
It i s t o o absurd f o r anything, a n d I cannot conscientiously
permit t h e arrangement t o continue o n that basis a n d justify i t t o o u r B o a r d o f Directors.

Governor Fancher:

M r . Chairman,

we h a v e r a t h e r c o m e t o a

i t seems t o m e that

time h e r e n o w w h e n a

little d i f -

fernnt arrangement should: b e worked o u t for the allotting
of these investments w h i c h are purchased b y the N e w York
Bank.

W e have h a d thirteen a n d a half months o f operation

and e a c h b a n k h a s h a d a n o p p o r t u n i t y

opportunities


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Federal Reserve Bank of St. Louis

in a

way t o develop t h e

i n its particular district f o r making money.

328
It i s clearly shown-in some o f t h e districts, particularly
in District No- 4 , that o u r rediscount operations a r e
necessprily l i g h t a n d a r e p r o b a b l y g o i n g t o b e light.

O

of our banks a r e O

E

None

S the exception o f some

municipal warrants w e have b e e n able t o get t o make o u r expenses w e are largely dependent o n outside investments.

We show a deficit here of $28,000 i n earnings, and we have
got t o look,

i f w e a r e g o i n g t o i m p r o v e t h a t situation,

to a larger volume i n some w a y o f outside investments.

I t

seems t h a t i n t a k i n g t h i s w h o l e s i t u a t i o n u p a n d l o o k i n g
which

at i t the banks a r e not making their w a y are entitled t o

some more liberal consideration.
York, a m d i t applies


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Federal Reserve Bank of St. Louis

t o t h r e e o r f o u r o f t h e o t h e r banks.

I n the large statement,

The Chairman:
get a

T h a t would apply t o New

o f t h e situation,

real p i c t u r e

the m a t e r i a l s t a t e d

i n order t o

y o u ought t o Compare

o n the first schedule w i t h what appears

on the second schedule.

F o r instance, Boston Shows, leav-

ing o u t c o m m e r c i a l p a p e r entirely,

s i x and a

h a l f millions

of bankers’ aeceniances,” w e e s o n l y one half million came
from N e w York:

I

n other w o r d s , t h e y h a v e b e e n a b l e t o

invest s i x millions l o c a l l y i n acceptances.

B o s t o n

shows $3,041,000 o f warrants o f which only ¥119,000 came
from New York. P h i l a d e l p h i a has purchased two millions
of a c c e p t a n c e s

a t home a n d gotten h a l f a

million f r o m us.

They have purchased 1,350,000 o f warrants a t home and gotten $200,000 i n round figures from us.
Gleveland has purchase $804,000 o f such acceptances,
all o f which came f r o m uS.

T h e y have b e e n able t o buy

2,000,000

o f warrants,

329
o f which only $400,000 came f r o m

us.
Chicago h a s gotten a l l o f its acceptances f r o m us, b u t
they h a v e b e e n a b l e t o p u r c h s s e a b o u t a
warrants

million d o l l a r s

of

i n a d d i t i o n t o w h a t t h e y g o t f r o m us.

Se on, Tight through t h e list.

Y o u c a n analyse i t your-

selves.

Governor McDougal: I

d o not want t o have this

misuncerstood a s t o buying f r o m a local bank i n Chicago.
It i s n o t material.
The Chairman:
body h a s adhered,

N o ; t h a t i s n o t material anywayi t seem

arrangement t h a t I

t o me, v e r y t h o r o u g h l y t o a n

believe w a s d e s i g n e d

t o give t h i s business

an orderly arrangemcnt i n the N e w York market.
adhered

i v e r y -

w e have

t o i t except w h e n w e n o t i f i e d t h e o t h e r s t h a t w e w e r e

not g o i n g t o ; b u t s i n c e t h e f i r s t o f January,

w h e n w e were

authorized t o buy government bonds b y our Board o f directors,
we h a v e r e a l l y b e e n f o r c e d o u t o f t h e m a r k e t

tions o f the cther banks;

b y t h e opera-

w e could n o t d o anything.

I d o not t h i n k that t h e present arrangement
one f o r u s t o continue w h e n i t r e s u l t s
in investments

i n such a

is a

proper

disparity

a s exists n o w between N e w Y o r k a n d some o f

the o t h e r banks.

If y o u will look a t the statement o f earnin;,s y o u will
see t h a t C l e v e l a n d a n d St. L o u i s a n d K a n s a s C i t y a n d S a n

Fracisco are a t a décided disadvantage, a n d Boston t o some
extent, a n d Philadelphia t o same extent.
Governor ‘ o l d :

924,000?

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Federal Reserve Bank of St. Louis

H o w cdo y o u f i g u r e M i n n e a p o l i s

T h a t i s very cheering information t o me.

earning

330

The Chairman:

M

y dear sir, those are the figures

that w e r e t a k e n , n o t f r o m y o u r s t a t e m e n t s ,
available

t o us, b u t f r o m t h o s e p r e p a r e d

w h i c h were n o t

b y t h e Federal

Reserve Board.

Governor Miller:

Governor Wold:

I s i t a loss?

N o ; i t is 6,000 instead o f 24,000.

Governor McDougal:
was a g r e e d u p o n ?

D

o y o u remember h o w this allotment

V a s i t per capital

o r what? i

nave

forgotten exactly, m y s e l f .

The Chairman:

I t was resources, I think.

Governor M c D o u g a l .
: I

would like t o s a y this, i n re-

gard t o these investments, t h a t I

believe t h a t t h e allot-

ment s h o u l d

with
S o m e scheme

b e mad®

i n accordance

kind, c i t h e r r e s o u r c e s

o r capital o

m t h a t i t i s not consistent
earnings

o f t h e banks

S

I

t o undertake

o f that

t seems t c

t o equalize t h e

i n this w a y a n y m o r e t h a n i t w o u l d

be t o equalise t h e m b y having t h e rediscounting o f paper
distributed e q u a l l y a m o n g u s .

I

t i s n o w and always will

be s o t h a t t h e e a r n i n g c a p s c i t y u n d e r c e r t a i n c o n d i t i o n s
each district w i l l b e b e t t e r t h a n t h e y w i l l
The Chairman:

G o v e r n o r McDougal,

i n

i n others.

y o u vould t h e n favor

our r e c a s t i n g this-—~-

Governor McDougal:

W h y , certainly; yes, indeed.

think they all ought t o be considered, b u t 1

do want t o

make t h a t statement, t h a t personally I

do not believe that

it i s a n y m o r e c o n s i s t e n t

t o reconcile t h e

t o undertake

®arnings o f the banks i n this manner t h a n i t would b e t o ack
the southern banks, f o r instance,


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Federal Reserve Bank of St. Louis

t o give u s apart o f their

351
rediscounted paper.

have received a

tion.

I

t i s plainly evident h e r e that w e

larger part o f t h e earnings f r o m distribu-~

T h a t i s owing t o the method i n which the apportion-

ment was made, a n d I believe w e should continue t o d o so.

The Chairman:

T h a t i s the only thing you and I ever

radically d i f f e r e d o n .

Governor McDougal: i
here w h e n t h i s m t t e r

should l i k e very m a c h t o b e

i s setvcled, b u t !

am going away a t

ee
The Chairman:

D

o y o u anticipate a

Governor McDougal: I

long d i s c u s s i o n ?

hope not. I

a m perfectly wili-

ing t o e n t e r i n t o a n y e q u i t a b l e a r r a n g e m e n t w h e r e b y t h i s

distribution c a n b e made, based o n resources» I

think

that t h e first thing w e ought t o determine i s h o w much N e w
Vork i g shi itiet t o keen f o r Itself. I
ably t h e b e s t i n t e r e s t s

believe t h a t prob-

o f all banks h a v e b e e n served a n d

will b e s e r v e d b y c o n t i n u i n g t h i s policy. I

the allotment should b e m d e

believe t h a t

o n some such basis a s our com-

mittee a g r e e d u p o n i n t h e f i r s t p l a c e ,

a n d a t t h e time w e

thought t h a t w a s p r o b a b l y t h e p r o p e r w a y t o d o i t .

I will s a y f o r Chicago that w e have abided t o the letter b y t h e p l a n u n d e r w h i c h w e h a v e b e e n working,

and +

think

we are entitled t o a portion o f these investments commensurate w i t h o u r capital.

Governor Seay:

O r resources?

Governor M c D o u g a l : Y e s ; s o m e t h i n g o f t h a t kind; w h a t ever y o u m a y w o r k o u t a l o n g t h o s e l i n e s w i l l b e s a t i s f a c t o r y
to m e .


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Federal Reserve Bank of St. Louis

There i s o n e thing, G o v e r n o r Strong, t h a t I! think o u g h s

332
to b e undesstood. I

d o n o t w a n t t o d o anything

i n Chicago

that i s going t o result i n losses t o a n y o f the banks u n -

necossarily, but 1 would like t o have i t understood, f o r
instance,

t h a t i f w e have a n opportunity

acceptances

t o pick u p some

i n the local market that a r e offered there,

particularly f r o m our member banks--+ I

d o not m e a n Chi cago

acceptances--- w e want t o feel free t o g o ahead a n d d o it.
Governor Miller:

F r o m your member banks?

Governor McDougal:

F r o m o u r member banks,

o r possibly

from o t h e r banks.
The Chairman:
market

W h e n acceptances a r e offered

i n the

b y your member banks, t h e r e i s n o t a n y question

about that.

Governor McDougal: I
The Chairman:

understand that.

W h e n , however,

N e w Y o r k brokers h a v e

offices w i t h i n y o u r market, w i t h p r i v a t e w i r e s , t e l e p h o n e
wires

o r t c l e g r a p h wires,

i n some c a s e s ,

to m a t c h y o u r r a t e a g a i n s t o u r s ,

a n d who a r e able

a s h a s happened o v e r a n d

over again--~ I mean they have tried to——- the effect i s
just t h e same a s though y o u sat i n New York a n d did t h e
business.

Governor McDougal: I
nothing o f t h a t kind. I
The. Chairman: I

understand that.

w e have done

think y o u know that,

d o y o u not?

do not think that your m a n that has

handled t h a t b u s i n e s s h a s u n d e r s t o o d t h i s , t h a t w h e n h e
Says

to a

broker w h o w f f e r s a

warrant

at a

rate,that

w e will

take t h i s a t that rate provided i t i s eligible a n d satisfactory i n N e w York,
no m a t t e r w h e t h e r


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Federal Reserve Bank of St. Louis

y

o

w e take

u m a k e t h e r a t e o n t h a t warrant,
i t o r not.

T

h

e mere intimation

553
to a broker t h a t y o u are willing t o b u y a t that rate, p r o vided i t i s eligible,

a w t h e n telegraph u s that y o u have

made this arrangement w i t h them and that i f i t i s satiffactory,

t o b u y i t a n d p u t i t into t h e account a n d y o u take

your share, t h a t spoils ‘our market i n New York.
Governor McDougal:

C a n w e not reasonably believe t h a t

anything o f t h a t k i n d t h a t c o n e s o u t t h e r e h a s b e e n d e c l i n e d
by you?

W e have n o t b e e n buying them,

The Chairman:

a s y o u know.

E v e r y case o f that s o r t that h a s arisen,

Governor McDougal, h a s b e e n when w e have declined because
we did n o t regard t h e rate a s a right rate.
the c i t y o f Rochester warrants.

F o r instance,

W e have purchased warrants,

and d i d n e g o t i a t e f o r t w o m i l l i o n o f w a r r a n t s o

t h e City o f

New York. R e v e n u e warrants o f the city o f New York are
like cash;
any m i n u t e .

y o u c a n sell t h e m a t the drop o f the hat, a t
I

t is not

s o a s t o t h e Rochester warrant.

You have g o t t o s h o p a r o u n d a n d f i n d s o m e b o d y w h o w a n t s i t .

That rate w a s t o o low.

Governor Aiken:

A r e you buying those Rochester war-

rants?

Governor McDougal:
2-3/8, w h i c h i s a

N o . T h o s e were offered t o u s a t

better r a t e t h a n w e a r e g e t t i n g f r o m you;

but w e got Syracuse warrants a t 2-1/4.
The Chairman:

T h e s e w e r o endorsed

b y the best b a n k

of Syracuse.
Governor McDougal:

h

the rate was pretty good. I


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Federal Reserve Bank of St. Louis

The Chairman:

a

t m a y b e true, b u t w e thought
believe w e should b e entitled---

S y r a c u s e i s a better warrant t h a n

3354
Rochester, a n y w a y .

Governor McDougal: I

presume those things a l l enter

gS 7
.
2Beeaver T h e y a r e b e t t e r known t o y o u t h a n t h e y a r e t o

me.
The Chairman:

A s a matter o f fact those Rochester

warrants w e r e n o t a l l eligible.
Governor McDougal:

O f course I

can see plainly that

the impression i s created h e r e that w e are getting a
portion o f these purchased,

a m w e are getting a

portion t h a n a n y b o d y e l s e , b u t w e a r e e n t i t l e d

large

larger pro-

t o it,

on

account o f our investment o f capital.
Governor Aiken:

N o , n o t y o u r capital.

Governor McDougal:

T h a t counts f o r Something.

Governor Aiken: I

would like t o have i t based o w

capital.

Governor M c D o u g a l : W e have o u r capital t o earn u vidends upon.
tion t h a n

I

o n a

t i s harder

t o earn them o n a

large capitaliza-.

small one.

The Chairman:

W h e n y o u get i t o n a capital basis,

we will g o out o f business.
Governor W o l d :

T h i s i s largely a

poor r e l a t i o n p r o -

position, a n y w a y .
Governor Aiken:

Governor Wold:
horse i n t h e mouth. I

I

t is a

charity proposition.

I t looks t o m e like locking a
would l i k e a

gift

larger p r o p o r t i o n ,

o f

course, b u t w e will take what w e c a n get a n d s a y thank you.
Governor Aiken:

O u r figures will bear m e out a s t o

this situation, t h a t s o far a s t h e volume goes i t i s not
typical.

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Federal Reserve Bank of St. Louis

535

The Chairman:

I t just happens so. I

can s a y t h a t o u r i n v e s t m e n t

« f rediscounts

believe I
i s not typical

of the situation.
w h a t B s your idea a s t o the mat-

Governor McDougal:

ter o f bringing these others i n and letting t h e m share pro~
rata?

O f course,

i t goes without saying that w e would b e

very glad t o d o that, b u t | do not propose t o s i t here a n d
see o u r p r o r a t a i n t e r e s t d i v i d e d u p f o r t h e b e n e f i t

o f

banks that a r e n o t u p o n their carnings.
Governor Wold:

Y o u will lose o u t o n the other pro-

position.

Governor Fancher:

T a k e the case o f the New York bank,

showing %1ll i n 2 year's operations, a credit balance o f
$63 ,000+——
Governor McDougal:

T h e r e is no 2

rgument t o that,

(At this point informal discussion arose which the
stenographer w a s directed n o t t o report; a f t e r which t h e

following proceedings took place:) :
Governor McDougal:

y h a t e v e r arrangement y o u reach

will b e s a t i s f a c t o r y t o me.


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Federal Reserve Bank of St. Louis

would like t o b e included

Governor Seay: I

i n the

general scheme o f things, but 1 would most positively not
call f o r a n y d i v i s i o n u n t i l t h o o t h e r b a n k s a r e e a r n i n g a t

least a s much a s we have, i f not the entire dividend.
Governor V a n Zandt;
Governor Seay:

T h a t i s the way 1 feel about it.

A s long a g I have a

voice i n this mat-

ter, I would like t o say that i t appears t o me~-- heretofore

556

I have not felt a t liberty t o s p eak about i t because I did
not t a k e a n y p a r t i n it---— b u t i t d o e s a p p e a r t o m e t h a t t h e
only f a i r d i s t r i b u t i o n w o u l d b e t h a t N e w Y o r k i s e n t i t l e d
toa m i n i m u m t h a t w i l l c o v e r i t s e x p e n s e s b e f o r e t h e r e i s
any

distribution a t all. O t h e r w i s e ,

i t amounts t o a degree o f

positive sacrifice.
The Chairman: I

have c o m e t i m e s t h o u g h t s o .

Governor Seay: I

d o not w i s h t o give voice t o unpopu-

lar sentiment.
Governor Aiken:
banks i n v o l v e d

I t seems t o m e the rights o f the member

i n the situation a r e Something t h a t y o u could

not justly overlock.

Governor Fancher: Absolutely.
Governor V a n Zandt:

the feeling that 1

G o v e r n o r Seay,

y o u have voiced

expressed t o wp. GQurtis a little while

ago, identically, t h a t they should have a

minimum o f what-

ever t h e y figure would b e enough t o earn their expenses, a n d
then they participate t h e same a s a n y o f t h e rest o f t h e
banks.

Governor Seay;

I f it is possible for New York t o earn

its expenses b y the investment o f its capital there, I

think

it i s a sacrifice f o r them t o distribute, a n d that perhaps
it i s not t h e right thing t o do.
Governor Aiken:

M r . Chairman, granted that N e w York

keeps t h e i r i n v e s t m e n t s

u p to a

g i v e n point;

t h e distribu-.

tions after that a r e t o help i n the carnings o f these different banks.

I f that i s so, i t seems t o m e the distri-

bution o v e r a n d a b o v e t h a t m i g h t f a i r l y b e m a d e o n t h e i r

capital, because, a f t e r a l l i s said and done, t h a t i s the

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Federal Reserve Bank of St. Louis

337
factor t h a t relates t o the earnings;
of resources.

i t i s not a

question

I t i s a question o f their earning require-

ment f o r dividends o n their capital stock.
Governor Seay:
The r i g h t t o a

I t becomes a

more logical thing, then.

p a r t i c i p a t i o n m i g h t b e a r g u e d then.

that p o i n t t h e r s i s n o r i p h t o f participation.

I

U

p to

n consider-:

ation o f t h e f a c t t h a t a f t e r t h a t a l l t h e o t h e r b a n k s k e e p
out o f t h a t m a r k e t ,

a n d t h e t h i n g i s done jointly,

then you

might s a y t h a t t h e o t h e r s h a v e s o m e r e a s o n a b l e g r o u n d
ask f o r a

to

participation.

Mr. Curtis:

O f course, y o u have t o consider t h a t t h e

other b a n k s h a v e c e r t a i n minima, t o o ; t h a t t h e y a r e b a n k i n g

in their o w n markets;

y o u cannot leave that o u t o f con-

sideration.
Governor Rhoads:

W o u l d i t b e t o o complicated f o r u s

to indicate t h e minimum w e have t o have i n order t o earn
our expenses,

a n d m a t e a n o t h e r f a c t o r o f that?

Governor Aiken:

Y o u would get quite a

complicated

equation.
The Chairman:

I

t i s like a

man w h o makes a

will

and leaves more i n his legacies t h a n h e hss i n his estate.
What d o t h e y d o u n d e r t h o s e c i r c u m s t a n c e s ? I

think h i s

funeral expenses a r e usually paid first. ( L a u g h t e r )
Governor Seay:

W h a t Ihad i n mind w a s this, t h a t there

is o n e principal market f o r those things, a n d t h e
m e n o n the
ground t h e r e w h o s e i n t e r e s t s a r e c r e a t e d
that e x i s t

i n that matket

a r e entitled

that market t o that extent.


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Federal Reserve Bank of St. Louis

b y t h e interests

t o the benefit

o f

W e , o n the other side, h a v e

3583

(_-B7° ~ ~ " limited markets o f our own, ami N e w York might g o into

~~

t h o s e markets looking after things too.

I n consideration

of the fact that h e keeps o u t o f these markets a n d confines
himself t o his own, y o u d o not g o into h i s market,

Those,

therefore, s e e m t o m e t o offset e a c h other.

Governor Wold: A n d a if Boston and “ew York have got
all t h e m a r k e t t h e r e i s , t h e n w h a t ?
Governor S e a y :

T h e n I

should s a y t h a t a f t e r a

tain minimum investment t h e principle might apply.
for instance, o u r district.

cer-—

Take,

W e are buying o u r sember b a n k

acceptances d o w n t h e r e a t a

fair rate.

I f w e c a n offer

these things i n New York t o the member banks a n d get
them
taken, w e will d o it, b u t iftmeyoffer t h e m t o the
N e w York
Federal Reserve B a n k o r the Chicago Federal Reserve
Bank, i t
might b e well t o consider whether o r not y o u are not
underbidd n g Richmond f o r them.

T h e r e has been s o little o f

that t h a t i t d o e s n o t a m o u n t
The Chairman:

t o anything.

T h e r e has been a

little b e t w e e n B o s t o n

and New York.

Mr. Aiken: Y e s .
The Chairman:

W e have a rather inexpensive telephone

service between Boston a n d N e w York, a n d w e advise t h e m
by
wire w h e n such a situation arises.

T h e same w a y with

Governor R h o a d s .

Governor R h o a d s :
The Chairman:

W

e h a v e g o t some.

T h a t reminds

m e that w e mist l o o k

into t h i s q u e s t i o n o f t e l e p h o n e s e r v i c e .
when i t will b e c h e a p e r


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Federal Reserve Bank of St. Louis

T h e d a y i s coming

t o h a v e o u r o w n wires.

359
Mr. Miller, w h a t h a s happened i n this matter is, brief-

ly, this:

W

e started away back last February t o fix a

percentage f o r e a c h b a n k b a s e d u p o n t h e r e s o u r c e s

o r that

date o f that bank, i t s proportion t o the whole requirements
of the System, excluding t h e three southern banks
that wore

discounting largely.

W e have purchased about $ 4 0,000,000

of investments f o r the other eight banks that
participated,
and t h e y allowed u s a t the rate o f one-eighth
p e r cent o f

the amount, par value, o f the investment, which, o n
the
$40,000,000, amounted t o $10,000, t o da te, t o
cover the
expense.

T h e real espense

i n t h e thing i s this interminable

negotiation o f all kinds o f arrangements about
regulations
and statements, a n d s o on, i n a n effort t o
increase t h e
volume o f stuff that w e c a n handle, a n d the
preparation o f
Statistics,

a n d s o on.

I like t h e suggestion o f a minimum f o r N e w York.
i
had n o t thought o f that.

I f w e c a n figure o u t h o w much

we o u g h t t o have i n v e s t e d r i g h t a l o n g ,

a n d keep Supplied

up t o that basis, a n d t h e n everything w e get over
and
above that divide around o n the basis o f a percentage
agree-—
able t o everybody, I

think i t would meet every driticism that

might arise i n New York.
arereceiving a

A l l t h e member banks individually

certain degree o f profit f r o m this arrange-—

ment, because w e have nothad a

run-away scramble f o r i n -

vestments t h a t makc money unloanable a n d operate
t o every-—

body's disadvantage.

W e can figure very readily-—— it would

take a

very short time t o f i g u r e — — what that minimum
ought

to be.

N o t having thought o f i t a t all, I


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Federal Reserve Bank of St. Louis

cannot s a y off-—

hand «

o

Governor Wold:

40

6

I t woulh depend upon the rate, some-

what.

The Chairman:

I t would depend upon t h e rate, b u t the

minute t h e r a t e g o e s u p i t operates

t o everybody's a d v a n t -

ages; particularly i f the rate goes u p o u r volume will i n crease v e r y rapidly.

S

o i f y o u would agree t o l e t t h e mini-

mum a s t o N e w Y o r k a w a i t a n o p p o r t u n i t y f o r m e t o m a k e u p
a f e w figures

o n t h a t s u b j c c t a n d a d v i s e y o u v e r y promptly,

it need n o t interfere w i t h discussing t h e basis o f the percentage o f d i v i s i o n a f t e r N e w Y o r k h a s i t s minimum.

S i n c e

these figures were made u p w e have made some purchases o f
warrants

i n New York that will j u s t about g i v e u s t h e

minimum, I

think,

o r possibly more t h a n cover it, a n d

the mbmanm division would b e o n that basis, anyway, without
regard

t o t h a t minimum.

Governor Miller:

A s s u m i n g N e w York has i t s minimun,

then i s i t y o u r i d e a t h a t a l l i n excess

o f that m i n i m u m

should b e p r o r a t e d a c c o r d i n g t o c a p i t a l i z a t i o n ?

I

n other

words, would N e w York desire t h e n t o participate-—-Governor V a n Zandt:
The Chairman:

Certainly.

O h , yes;

t h e y would have t o a s t h e

volume increased.
Governor Miller: I
incroasing.

a m not talking about t h e volume

Y o u spoke o f your being permitted t o have a

minimum.
The Chairman:

5 pos

T h e n y o u divide i t among t h e

nine o r t e n o r e l e v e n o r t w e l v e b a n k s , i n c l u d i n g N e w York,


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Federal Reserve Bank of St. Louis

541
according t o capitalization o r resources.
Governor Miller: C a p i t a l i z a t i o n i s the logical thing,
because that i s what w e have t o earn our dividends on.

W e

are anxious t o get more t h a n St- Louis--—- that i s all.
(Laughter)
(At this point a n informal discussion arose which the
stenographer

w a s directed

not

t o report;

after which the

following proceedings took place: )
Governor Seay:

T h e Federal Reserve Board worked

these figures out.
Governor Miller:

I

t would n o t b e quite f a i r t o put

it a t double resources, because Atlanta, Richmond and Dallas

have $5,000,000 each of Government money.
The Chairman:

G o v e r n o r Miller, w h a t i s your v i e w o f

this?
Governor Miller: I

t h i n k N e w Y o r k o u g h t t o b e accord-

ed the very lowest minimum that i t would b e satisfied with,

(Laughter), a n d then apportioned according t o capitalization a f t e r that.

(At this pointfurther informal discussion arose which
the s t e n o g r a p h e r w a s d i r e c t e d n o t t o report, a f t e r w h i c h

the following proceedings took place:)
The Chairman:

A f t e r discussion

i t was arranged t h a t

the F e d e r a l R e s e r v e B a n k o f N e w Y o r k w o u l d p r e p a r e f i g u r e s
to s h o w w h a t m i n i m u m i n v e s t m e n t

i t should maintain before

executing orders f o r other Federal reserve banks t o purchase warrants a n d acceptances

i n the New York market.

(After discussion a motion was duly carried appointing
a committee, consisting o f Governor Seay, Governor Aiken a n d

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Federal Reserve Bank of St. Louis

O42
Governor R h o a d s ;

t o determine

t h e basis u p o n which t h e

a. Sears

o n the N e w

orders f o r p u r c h a s e o f warrants a n d a c c e p t a n c e s
executed a n d

York Market would b e divided a m o n g the other Federal Reserve banks.)
The Chairman: I
Reserve B o a r d w h i c h +

have a communication from the Federal
think should

b e read.

t i s dated

I

January 21, 1916, a n d i s a s follows:
of

Questions f o r t h e C o n s i d e r a t i o n

the Conference o f Governors
touching Foreign Operations.
CE) W h a t field o f operation i s there under Section
14, p a r a g r a p h E , o f t h e F e d e r a l R e s e r v e A c t ,

i n which Federal

Reserve B a n k s m i g h t p r o p e r l y e n t e r , e i t h e r n o w o r a t t h e
end o f t h e War, f o r t h e p u r p o s e o f s e c u r i n g p r o f i t a b l e i n vestments

o r for t h e purpose

o f regulating t h e foreign e x -

changes a n d t h e f l o w o f gold?
(2)

H o w could this business best b e organized a n d con-

ducted b y the Federal Reserve Banks acting individually o r
collectively,

o r i n s u c h groups

a s might w i s h t o associate

themselves f o r certain common purposes requiring t h e maintenance o f agents, etc.?
It i s suggested t h a t these questions should b e careful~
ly c o n s i d e r e d

b y t h e Conference, p e r h a p s

committee, a n d that a

by a

continuing

memorandum should b e prepared f o r

the use o f the Federal Reserve Board when i t i s ready t o
proceed w i t h t h e disposition o f the questions."
Governor Fancher: I

move the appointment o f Governors

Van Zandt, Kains, Miller a n d Wold a s a continuing committee


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Federal Reserve Bank of St. Louis

to p r e p a r e a

reply t o this memorandum,

a n d that t h e y b e em-

5435
powered,

i f necessary,

t o appoint t h e i r successors

t o take

up the work after they leave Washington.
Governor Rhoads:

I s e c o n d t h a t motion.

The Chairman:

s there a n y discussion?

(There w a s

I

n o discussion

The Chairman:

a n d t h e motion w a s d u l y carried.

T h r e n e x t t o p i c i s No=-22.

PRESS STATEMENTS -

ADVISABILITY O F

PUBLISHING CONFLR: NCE RLCO“MLNDA TIONS.

Does anyone suggest t h a t that b e omitted a t this t i m e ?
Governor Seay:
into a

I f w e omit i t 1 a m afraid w e will g e t

worse d i l e m m a t h a n i f w e f o l l o w o u r u s u a l procedure.

Mr. Curtis: I
talked w i t h h a l f a

d o not think w e should omit it. I
dozen o f t h e n e w s p a p e r b o y s a l r e a d y ,

they a r e very anxious t o have t h e statement.

have
and

I t o l d them

that w e always g a v e i t out a t the e n d o f t h Conference a n d
that i t was always purely formal, containing merely a list
of t h e t o p i c s d i s c u s s e d ,

However,

a n d n o action taken

i s ,iven.

t h e y w a n t t h o s e topics.

Governor Fancher: I

move t h a t o u r usualprocedure a s

to press statements b e followed.
Governor V a n Zandt: I
The Chairman:

s e c o m t h a t motion.

I s there a n y discussion.

(There w a s n o d i s c u s s i o n « n d t h e m o t i o n w a s carried.)
The Chairman:

T h e next topic is:

NEXT MEETING.
As w e have adopted a

resolution with respect t o that

matter, w h i c h provides f o r t h e method o f calling the next
meeting,


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Federal Reserve Bank of St. Louis

i t i s not necessary

t o f i x i t now.

544
Governor Seay! I

move that Governor Strong b e select-

ed t o preside a t our next meeting.

(There were several seconds t o this motion.)
Governor Seay? I

will p u t the motion.

A l l those i n

favor s a y aye.

(The motion was unanimously carried.)

Mr. Curtis:

F o r the benefitof t h e record, I should

like t o suggest t h a t y o u h a v e n o S e c r e t a r y f o r t h i s c o n t i n uing c o n f e r e n c e

o r committee,

o r whatever

The Chairman: G e n t l e m e n , I

i t i s t o be called.

have overlooked a

important matter a n d w e ought t o deal with it. I

very
would

like t o sugg s t that a resolution b e passcd requesting Mr.
Curtis t o attend t o the necessary details w i t h regard t o
the n e x t m e e t i n g ,

a n d requesting that h e b e good enough t o

attend a n d a s s i s t

i n the conduct

o f t h e meeting.

I a m also going t o suggest that w e arrange among t h e
banks, u p o n a basis t o b e worked o u t b y the committee that
is t o deal w i t h the matter o f the execution o f orders b y

the Federal Reserve Bank o f New York, a s t o s u i t a b l e
remaneration t o b e p a i d M r - C u r t i s f o r h i s s e r v i c e s

i n pass-

ing o n questions arising i n connection w i t h eligibility o f
warrants, a n d t h e character, t e r m s a n d form o f t h e bills
that w e b u y for other federal reserve banks.

(Thére were several seconds t o this motion and i t was
carried.)
The Chairman: I

hereby d e c l a r e t h i s Conference

adjourned.

(Whereupon, a t 7 o'clock, p . m., o n the 2lst day o f
January, 1 9 1 6 , t h e S i x t h C o n f e r e n c e

subject t o call.)


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Federal Reserve Bank of St. Louis

o f Governors a d j o u r n e d


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Federal Reserve Bank of St. Louis