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Federal Reserve Bank of St. Louis
CONFERENCE B O A R D O F
Evening Session, J a n u a r y 2
2? 9 2 5 .
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gat
Seyes «
hue i ee RFAL
#
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pikemt I
do mot @ere whet day they wake it.
mikes n O difference whether i t i s Mendey, Tucnday o r
S@GMCHe Ry .
a>. “eCerd:
t h object o f the departzent is, I think,
te gel an ices of the general camdition of the country at |
certain Intervalé, and that inferuation caning fi om the
reserve e119 bansa, would civé them the bareceter that
ey Waaid naturaliy cesk, and the others, tanning genthiy,
would w e l the full reqirescnte,
“xe A g i n g 4
igs Aizen:
i t scome t o ae,
thimk ee.
< 8 W O that,
Cheairomm,
i t seese t o a e
tint i t wakes n o difference whether i n ome reserve
city it
iG tm Sednerdey amd im amother reserve eliy it te en
hurdaye
I f don't belleve the day ef tho wOOk, taking the
country Over, snakes any difference.
The Chelona:
i e it not a feet, gentlesen, that i n
hieh
these cities where there a r e e l e a r i n g house : w o u l d i n =
eiuce sil the reserve cities, t h e t ths roperte e f the sendie
tion o f the beuke sombers o f t h e cicering h o w s uniforuly
are required « s of friday?
ap, Famenerp:
C u r e i s Thereaday,
ax. Old: i
@@ s t think thet t e ¢
i
t
. is set y
in the “pin Citlos.
MBs G e Bolle:
The Chaizewn: I
u s beve roporie i n all reserve eities<<<«
am wreag, o 6 Geual.
Cevermor Molo), parr sot.
f a m h e e y cecenied.
regn, that if we
wmlc g e t couthly reports if w e l d comvey very Little in|
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formtion e# te the condition of the country, realiy.
ue. Zedue? i
think 1 4 vould convey < l i the inforaa-
tion thet is necessary.
T h e acount o f the eaceeunte o f #11
reserve tanks really comes t e ateat coventy por cent. I
know that. ie the eaue i m our die .7iet, ami that vould clive,
eg GCovurneor “ C o r d seys, t h e bargacter, a m i wouls 6 8 lens bure
censoue® o m the small Canker i m the ¢ountrg sre cece act
urnieratend anything coeut theae #intements.
be any heardehip.
Up. Seay: i
i t vould apt
T h e y heve t e give 1 6 omee & south.
de oot want t o prolong taic
I do net see much advantage i n requiring #11 the reserve
cities t o report usleree «: fo out inte “he country.
F o r
tiae pest i t mma been irae thet the eounttry bankers
} held abl the surplus reserves o f the country.
i f you
the Coeptrolier's reports right through for «a year
, you will find thet the couniry banks hoid the surplus
reserves. i
de net think thet o u l d comrey very auch that
would b e enlichtening informition a a to the state ef tho
country. i
was aot i n fever o f the ather bane being
cniled o n sore freaaently, bat I do mol Gee any neoceseity
of calling o n tie reserve bunke weekly and o m ihe others
monthly. I
think i t ought t o be unifers.
Me. Mecord:.
i s not thie true:
T i m i “¢ ali look for<
ward t o the clearings s s reported b y Oradstireet weekly, and
they are a n indication o f ihe country largely?
ar. Alkent
Y o u got those now.
ar. Cony: W e e z y t h i e i s not a elcaringquestion.
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See Alken:
Bradetreet will oot step reporting the
veturns o f the eopuniry just beceuse e e get reperta frem thee
Banks.
te, M e c o : i
understand that; Sat I an siaply using
taet a8 an illustration, t a t it docs pave a bearing on
the eouditions, and. that i s whet the Cepartisent evidently
went.
ee. Segyt I
have given «@ great deal of attention te
Comptroller's reports end reports of that aaturc, and 1
believe thet that kind of inforsation would not be of any
use 10 mm. i
have always been 2 student ef those things,
end I kgow that partial information i e always alsleading.
“ye Kadina:
t h e proportion o f the reserve cities i g
from one te tro amd a half. ‘ T h e country benke heve one
and t h t @thers i e o end a balfy s o that i f a barometer was
required, t h e weekly statement o f the reserve cities «ould
supply that barese ter.
T h e others are reletively unin-
portent.
- Tae Coaireent Y o u r moilon wae seconded, a n d it is
your privilece t e esk fer the question unlesce scomcene offers
com more dincussion.
ure Meterd: i
Simply oade the motion i n erder t o bring
ii t O SOuG Proper etate f o r diseuseton.
te Chairmant T h e r e is, however, « motion whieh has
been séconced, end which should b e aeted upon o r amended
Mp. Meteora:
I f any geonileman prefers 11 withdrawn, I
will é o that cheerfully.
(Laughter)
Mir. Os Helle: 1 submit, MF. Chairam, thet Governor
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bank fou «hom they wers discounted. S
mow heave a rule
ing which will enable us t o send them t o ses otner Foder-
ol “everve Banke. Cerieimiy there ie not anything in this
‘et thich would prevent u s fren using any reetonable seans
to eollect @ note thet we had diccounted, even sending i t
to an attorney for collection; anf our ability to omploy
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the facilities o f the system, 114 seems t o me, i s yory
properly construed b y Judge -illett, e @ being one of tie ine
tidentel powers.
Um. Genyt
I s 44 your gener] practice t o return the
netes t o the sosber beni efter they heve been ¢lécounted? .
Tue Chairamnt
G a r prectice hes been t o do {eat o m a
certain masher o f dage i m advance, i n o m i e r t
o obviate difFicultics arlaing} ond that ie ome of the things that is «
subject o m the progran thet we weet t o diecuse.
Gy, Seine:
k L remember éineounting 600,000, I think,
or the Unger O41 Compeny, and sending tiw notes t o you for
collection s s they pare payable i n sew Tork, ond your of-
fice objected t o thet. ‘ T h i s opinies of Judge <liielt would
gupersede your inttruections given at that tiae?
the Chairman: Gevwernoer Saing, tuet heppened senc 1littie time ago, ami since then «6 e v e both the opinion of
e@uncel and further light of our Gum Goumeci, and we will
receive those notes for collection.
ig there any further cisqugedon o f iten 10 on the preorem?
i f mot, w e whil take u p item Noe 8, which beore
eomewhnt On liom Hor 10.
At the lawt weting 1 % wee decided, y o u «111 reenll, t e
recommend t o seach fecerni tguerve Bank t i t the o p i n i o n o
f
509
their counsel b e obtained a s t o the legal effect o f the
provision o f the Fed. ral Reserve A c t which required member
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banks t o waive demand, notice a n d protest o n all notes which
they rediscounted w i t h Federal Reserve banks.
If y o u will permit a suggestion, I
progress
think w e will make
i f w e adopt t h e policy o f having allof t h e s e opin-
ions o f counsel submitted t o the Secretary o f this meeting,
mailed o r delivered now, a n d that those opinions o f counsel b e submitted t o the federal Reserve Board i n support o f
the conclusion a s arrived a t a t this meeting, a n d that w e d o
not t a k e t h e t i m e t o r e a d them;
e a c h o f the Governors
undoubtedly being familiar w i t h the situation i n his o w n
district, b a s e d o n those opinions.
The question i s really whether this meeting shall make
any recommendation t o the Federal Reserve Board i n regard t o
a mandatory p r o v i s i o n o f t h e s t a t u t e t h a t t h i s w a i v e r o f
demand, p r o t e s t a n d n o t i c e b e m d e a
part o f t h e i r d i s c o u n t
transaction.
Aiken: I
believe, Mr. Secretary,
Secretary: I
MeCord:
w e have sent
have a copy o f yours.
M i n e i s rather long,
o n account o f hav-
ing s i x cities t o deal with.
The Chairman:
make a
M a y 1 ask that each o f the Governors
separate statement i n regard t o this matter?
Mr. Wold: M i n n e s o t a , N o r t h a n d South Dakota, Wiscon-
sin, w o r k under a negotiable instrument law, a n d I do not
think t h a t a d d i n g a
waiver
o f demand, n o t i c e a n d p r o t e s t
would w a n affect negotiability.
A s t o Michigan, I
I
a m unabie
te ony. I
a@ under t h e lepreseion that Mentene vorks under
the negotiable ingirument lew.
i I think #11 of our territory
is unter the negetieble in: tmaeeut Rew.
i m a Me. SeCord: T h a t could be cheeked b y cand~
Mp. “olds <
wold. l i k e ( 6 sec & hypothetical quicetion
at thie time i n referonce t o that meatier.
I f oe bad a
piees e f paper, discount paper, i m Now York Gity, o m which
Our ucioer cank ang waived notice, ca@sam a m i pretest, a n d
they require endorsement o m t o who bave mot wolved, are v e
Going t o send that oul, proicet o r m o protest:
the Cimiroac: G o v e r m g o r “old, a a y i sugezest that a c this
is esgent heliy « iegel matter that “a efk counsellor Curtis |
to gaxe 8 statement for ihe record e f ale views i n regerd
bebie possibilities of aiffialiy erising by rearon of this
provision i m the etetute, ani i t amy be thet our disc cusaion
of ine maéter w11l be brought t o « canclusiea very such core
promptiy b y lisiening to whet he noe to say.
che -eerctary: I
have not investignied the lew «ith
rogpoct £9 sluies where ihe segeiiable instrument law ia net
in ofieet.
i n the states where 11 ia in effect i beliove
that the Waiver b y a sembar bank would probably bave the
efses. o f molding that seaber bane, bul releasing prier en~
dereeve i n cause the feéeral “ecarve Hank wee nesligent i n
presoniing «= nOte for demand o r protcut.
O m the other
igi, thare ie a poweibility t e t « teriain phrase i n the
négeliatic iaslruaent law ef moat sistedy whieh proves that
® party 46 a sete is cischarged Dy the clecharge of « prior
fue heAbrt-
endorser a i g S e held by the courts t o }Seach
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Federal Reserve Bank of St. Louis
had waived t h e demand, notice a n d protest b y a prior endorser
who had not waived i t was discharged b y the negligence o f
the holder.
Mr. Weed, t h e counsel o f the Boston bank, wrote a n opinion o n that i n which h e cited t h e opinion o f the late Janos
Barr Ames, w h o was Dean o f the Harvard L a w School a n d w h o was
instrumental i n getting this Act passed.
H e felt that the
provision was a very serious drawback t o the act, and urged
that i t b e not put i n o n the ground that i t might operate
to have this effect o f discharging a n endorser w h o h a d
waived h i s rights because a
prior endorser w h o h a d not waiveé
was discharged,
My o w n v i e w i s t h a t t h e p r o v i s i o n w a s m e a n t t o b e s u b o r -
sik
t i e waiver, b u t the natural effect o f the waiver i s t o
give u p your rights m m @ i o have a notice, demand a n d protest,
and that t h e section o f the statute meant other forms e f dis~
charge t h a n discharge o n something that y o u had already
waived--=- i f I make myself clear.
But there i s that doubt which has b e e n expressed b y
very high authority o n negotiable instruments, a n d conse-
quently I feel that it is e bad thing to have in this lew
and t o have a s a mandatory requirement t h a t the banks either
Ought t o adopt a practice o f having t h a t waiver appear o n the
face o f the instrument where i t binds a l l subsequent parties
or have t h e statute amended a n d that provision repealed.
The Chairman:
F r o m t h e standpoint o f a layman e n d
after discussion w i t h Mr. Curtis this matter appears t o m e
somewhat i n this way:
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Federal Reserve Bank of St. Louis
W e are requiring f r o m our member b a n
& waiver o f demand, notice a n d protest b y virtue e f this
etatute, w h i c h may resvit i n their right of, recourse against
& prior endorser being imperiled o r los ; Sand if, a s «a
ree
Sulit o f our negligence o r even, possibly,
ssthat m a y b e beyond o u r control, t h a t a
4 8 4 result o f cauge
member benk loses
the right o f recovery f r o m a prior endorser,
h e might t h e n
une that a g & defense t o hia o v n licbility a s a n eniorser,
That s i t u a t i o n a i g h t a r i s e b y w h i c h s e m e bank, n o t p o s s i b l y
& bank that was i n setive operation and one that #as i n
liquidation, w h e s e affairs were i m the han
where t h e reseiver o f the bank mimht feel under « legal:
ole
ligeation t o the crediters o f the bunk t e dfend t h e
bank
against the liability that h e did not think could b e on}
forced under t h e statute.
T h e same kind o f a danger
srises when one i s de@ling with any fiduciary, n o matter
what h e might regard t e te his moral obligations-<but
neverthe}
less
i t follows a s a matter o f duty t o hie trust that
he
must omploy every means that the law afferds t o require
payment o f the debt.
Theses questions o f endorsement are sore likely t o arise
in those Gases wher: member banka fail t h a n they a r e
in
the case o f a soiling bank, beeeuse any going bank would
noti
riek t h e impairment o f ites erediters v y interposing
s u c h 4;
defense,
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S
u
t i f @ large bank should
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seetion i n ihe negotiable inairusent lew which provides thet
the Muigequent excorser t a diecherged o n the dlccharce o f
the prior enderger where t i e subsequent endorser hes waived.
Laat he
C@ BOL believe Mimmme le discharged, but Loere i s a n op~
portunity £06 Aitigete ihai qiasiion.
‘8. (itent-
j e neve Geemed 1% ouly safe to protest any
aotes t a e t are m o t paid, i n epite o f the -aiver ané@ i n spite
of the risk 1 we itke O f having t o siend fer the pretest feos.
Our teehler bas. been lustracted L e scplest the waiver entirely.
The Cheairwens
C o you collect your notes direct,
-ovrernoe ALken?
We. Aikent Z e a .
tet Caeiresa:
Be. Aizen:
Y o u do net cené them t e the seuber bank?
O h , we d o s o m thes t e the momber bank.
Var Llosel notes i n Bosten w e collect. theres, owery c a y a t
fron 126 mxiinecquntiing bank i n t h country.
-net i e gent, t e them for sellection.
raeiscou
Tim Chadpomas S 2 0 % t o Seeent, a f to demand, notice
anc protest rpally doce not affect you, inasmuch a s vou put
Lhe bucden o f orotenting o n tho seaber bask w h e has wadvod?
Mn. A l l o
s a a t i s ime,
Mw. Aatcwpee o n s Of gur aguber banks are very such stir+
TOG U p about that smiter,
o m ihe theory t h e t w e would colleet
at some place foreizn t e thenselves.
3ne Chsi ran:
T a e 2iffieulty i m Nowe Yerk scems t e be
that senber benks w h o heve r o d i s e m m i e d p a p e r with us are
naturally inelined t o fost thet being a now organization v e
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my web b e a8 @ereful a g ail;
PETSSE Ba
Wiaate f e O R E i
t a e
v 8
tf
Ss
Soro
Law b e e a e r d e d
e i e i k j
Chai roars
t 2 Srevision
i g r a u t h e r b a c seconded that
» «1
gam a
e e a
| l a m S fP
=
;
a e s
4 2
ema o@
“ reenll
the discuseion
the only
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Federal Reserve Bank of St. Louis
verses 1 6 that suggestion chieh hes been advanced can m d e
by Gmermer Sebongel, who i s supported b y en opinion of
his counse lp, Se. Powell. :
( eresaae AG. Ougel, hawe you any su: gestion?in regard t o
ihe eotilon?
ay, @ebeugel:i i
vonid net vs inclined t o wuppert that
meticre
am. Ge Gelles I
sould He dispeced, Sr. Chairann, t o
dceling t o Support the aotion.
ed
€ woala like t e iknow more about the
effect it weuld heve upen the Regal Status of ihe five states
r Dieiriet.
i n Texea@ the lew aukes a provision for
entering @uli during the first term of the Court follering the failure t o pay, and b y doing s o helding ihe encorser.
S@ thet in foxes where the larger volume of bueiness vould
natapelly Tall, - @ gould pretest curcelwes b y euch procead<
ure.
i t is the cocegn peeetice t e eapley the w iver of de~
eam, BGLice ami pretest acong commertial banks.
“r. Senyt
G n the face of the note?
“P. O. Welhe:
U p o n the face e f Lhe nete o r upon the
endorsement.
Me. Somyt J
w i d pather take ay changes t o have
ciiner tie waiver of the nete, or, i f aot, t o beve ail the
emorsers wubject t o the general len.
Om. Sains:
T i e t ie it.
i Songs (Contigwing) S a t h e r inem te beve a
single enierser waiwe.
i f secu t o we 5t is bowel te come
Plieate the quostien tvoe any point. eof view, i f the waiver
is o m the face o f the note all are bound.
i f s Single
emioreer Weives and others d g not miive, i t is bomd t o add
& compli¢ation the exact resulte of which I camnot say.
i therefore think it would b e mest more Toctes] not to have
the provision i n the law. ,
I woncer i f it wes put there
by & lawyer o r an-one che vas aceastosed t @ prelect theacelves
by puiting i m ali. kinie o f thince o f thet kind tiet h e a
suything to do with it, or whether 1¢ wes gut im there b y a
eoepetent lawyer. i
think { 1 would b e safer t o have i t
Cui o f the jaw.
iy, “VeCords
i r e t i e calverst o m tho fase o f the notes
binding o n «11, endersers?
The See-ctary?
t h e y certalmiy are under the nogotiable
insirusent Lar.
Me MaCorels
u t . where t h e pesetiable inectrument L e w
$e not. in effert:
the “eeretery: I
a. “olor:
think the eae vould be trwe.
T h e question hae net boon decided f n sone
of ihe statce i n my @isirict —
Alebave, for instance, and
OLAGPEs
“>. Wolds
I t occurs t o me, &. Gmiraan, that wo are
avout ae e@ll off with thie welwer os we would be without it.
the g l y paper w e are bound t o leok efter mow is papor that
tes prior endorsements.
B a t where there are no prier emlors
ments t h e waiver would hold and evoid teking care o f the |
| Protests upen probably 75 per cent of the paper ve t a k e
| £4fty por cent, at least.
f
the Chudruem: M i g h t it not become 100 per cent, after
the banks have becone affected with the Idea thet there 1a,
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come rick in talcing paper of thet character for epllesiion?
snore Bill only be infrequent queetions o f possibility o f
the losses o f claims egeinct tim prier endorser only b y
redix tountping paper which has ne endorser, and they «Lil get
Lhe peorcet paper i m the portfolfes o f the banks.
ure Wold: P o e s i b l y thet. ia true.
t h i s question hes |
Gitferéat bearings i n ciiforent parte of the terrliery.
cur territory, f e r imaiance,
In |
i t im t h e cooamen practice v i t h
corporations net te take personal endorsements, but simply
& fGusranty covering the paper ehich a
— _ holds, and the
question wat raieed ag ite whether or e a
plece of paper
orferaa for rédieceunt b y o bank hed a guaranty o f the
¢iotzhelcerti, ihe quarenty auved the paper, and w e felt
eniichied that i t did. ,
fe Chairesn;
i g h t mot this nattor be settled b y
séepting thie sucgestion, Geverner Saias, that your sotion
be sumxiod # 0 e g t o recomsend that the law be amended proevidir
that the sadwer of desand, notice and pretest b e requirsd o m
oil. notes redigcaunted b y stuber banks thich bore n e prior
encerecment?
itm Seine!
Y e e . T h e a t would b e ell right.
iy. /iisemt i f there i s n o sention of it made, you could
have the waiver pul on.
A n y bank could have « vaiver put
em umieor those cireuurtances.
the Ghmirannt
I f ihe Act itecl® ankes n e such re-
quirement, i t le natural t e suppose that the sember banks
will coniend f o r the edeption o f the praeciice thet i s coa-
mon i n banking, b y which thoy rould not b e required t o
mive demand, notice ond protest, because it certainly is
aot cuilomry for benke t e require their eusgiesers t e
waive
Comint, noLide and pretest on paper that they rediecount.
Mr. fesy: x
2 valve.
believe it w o u l d b e egainst public policy
3 2 0 r e i g gang o n end@rser w h o has « very whole-
“kot M o e
f o r es protest.
S i l l l , «@ teke other paper v e
aeeepiead without suy exceptions u e ine lest omearser,
and why
soould ihore b e veriatien i m the methed o f ha ling the
|
paper we recivecunt fer a aomber bank from that
whieh would
affect all other paper i f we wore i n the genersl basking
ouaie
noes.
i t hep SLMRYS Occurred t o ae that i t might lead
Some bank inte errer. t h e s e she were agi
eniving prior eniersexents.
May * suggest tbat these Federal Xeserve
cnnks, after wil, are just bakes t h e y are net the Gevernmont; t n e y are net omidtiled t e the Rind of protection that
the Ceverngont alwaye scenn te heave, of not having any lis«
eiLity Lteeif.
if this p r e v i s i o n happened i o b e i n ihe o t tule,
eo
would b e handling discomted pager Just a s any bank does,
2K woiett “everugr Meliucal’s opiales « “Hleh l o rendered b y
a
iexyor whoa I know persennlly,
respect,
a l for whem I have great
i s based upon. t h e theory thai t h e -edersl Reserve
boning have boon given seme exeaytian Oem,
med
G d I f they
f e r a n teenieent t e the statute L h e y w u l d b e giving
“Gp Something.
P e r s o n a l l y I vould b e inclined t e cestend
ihet they hawe been g i v e n something b y the slatute shien is
aioe
a n d contrary t o c o w s banking practice » s e thet
we will ell b e afer i n relying upon the ecusteds t h a t +
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Federal Reserve Bank of St. Louis
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are Sumiliay with and asking that thie umisucl provision
tt G i s i e k e n frase t h e
et
beek t e the cothods
a?
thet w e ore o l d foemiities with.
Selig: i
think thet is rather « cowson pructice,
to ANWe @& waiver i n our notes.
ape Seay!
g a e y would not b e affecied.
ay. Setord: T h e a t i e the ¢@¢emem practice, b u t alveays
exee Wat iuvelves you Bee mol got that im it.
fhe Chairasn: Gevernor Ragas’ motion bas been seconded,
1 no a e r c i e e n y D o e g e e n O L l o r e .
H a w s tue diseuseed t h i g
untier t y a pOisl where w e are ready t O VOLe o n tat recoasem
tion f o r a n cosmdmont t e the ttataieé,
o r wili sestonm su; ceset ;
i happesdd w e be Gut. when t n e aption w a s
i just woreG that «
retosmemi a n saend-
mont (© tae lew is regard t o thie waiver.
ie MeCopd: 1
aa preperad 2 6 Vout.
(Geies o f “Gucetion”
(The motion wae p u l and duclered b y the Chairman
te b e operied, w i t h toe Gicheniiag voles, ity. M e cugel
gtml Wes O. Bolis voting ua.)
ap. Y o l a i
t i e n thet recenseniaiion g o t a there I
wish they would resoaumad t o the «mirrai Hocpa that when they
forme chet t h e y would oaderse tinea i n i e sromer way.
they come tivreugh without ony guerenty o n tiem ‘ T h e y should
require « guaranty.
fae Cheire G o v e r n o r wold, beforo w e tale that up
i went 14% oald, attention t e the fact thet thie coos befere
ccommensiation,
CR R G
is t i p Tivet
heave “ e d e thet. b e s m o t b e a n& uUnsniwmic,
sicht s s rell t e
in fover o f t h e
eon3¢ w e k e &
‘aun
motion t o =<:uccgest some
tthink the
s@tion b y w h i c h w e
rechvaenlation.s
uneniaous
ieit necessary to
Me. O.« “elle:
S28n, w i n w a L e d
miority shold
recert t h e vete?
SvVerkm; MALess Coverner
mey e P o o k i.
or myself ghoyld see fit to praesent a minority re port, i
A
think it. showld z e ee 3 % is.
Meooupget
L
tiang «8 it
It @eeme t e w e thet
VOW! sharia
S@ gannot always b e unlicd o m ail
Lia
that soue up.
are you satiefied
ane Cheiemen:
to heave t h e t r e c e c u e p e
Gation s o befere i h e Paderai Kerorve hoard ° vithoat any
minority repent?
Ge. H e -cugel: i
om writetly catiefied.
i shalk
GRUP
n o t
Present a uluority repert, f
PHibs
e
Ched pment
T
T h a t
it i G a
Shecers the only qutetion i n ay
question net of wrre
tanking prestice,
but a Little a t variance fron the subfecte v e bare iroucht
ie
he
Ligir attention before.
t
ae
Cu e%
& iis
think it is a question, i n ay oom case,
of not having atvies o f counsel sufficient t o verrent a n
atlimmiive wotes;
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Federal Reserve Bank of St. Louis
e m t Ex.
artirastive v o l e o n h i s
fhe C h a l r w m e
rte
woi'e sounsel rather precluded
path.
if n o eblection i s onde
the reeerd «ilk
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Federal Reserve Bank of St. Louis
be allowed te stami ag it is, with the vote ia fever of
Gevernor Kaine’ aotion.
Gevernar told, < o you detize t o ieing us for the purpones o f tne recernd « suggestion with t m rezerd t e the
uethed of endorsing chetke which os remit te the Federal
Reserve Goard i n paymont o f cur expenves, s n d c o on?
my. Vola:
éepesit ouly.
Taz.
T h e y have endorsed their cheeks for —
Y e mre unable t e get a guaranty, ami unable
te get tne Federal Necerve Boarh te change their motheds.
Sehave written them about it and asked them aot te qualify
their emiorsesents; b u t ihney say i t is. for protection.
(Informal discussion followed, whith the etenogreapher was directed net te reporty after which the following
eogurred.s )
The Chairman: G o v e r n o r Sabigeit Yelle, de you eich t o
bring thie u p for discussion newt
ip, G e RPalles I
am porfeeily willing t e bring i t up
new, or to defer it if you wiek to go ehenéeith the program
it is only faggested t e my cisd becacse « ¢ have Just wade a
pecovrrndation for ae amendment t o the Law, and I heave it
om my cclendar t e disduese, Dbecnuse «f will
i t
b o m e tise
ox another, when it wili b e vory dosirsbie.
Tne Chairman:
I f it is the wich ¢f the meeting ve will
az ;
take tbat eatter u p math the next subject.
Mee O. Collis: i
wilh suggest, then, i f there i s ne o b
jection, that we take i t up ae the next eubhjiest.
im. YeCora:
T h e question bofere the Bouse i s treat
sucgeation of Governor Yella’, is 1% not?
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Federal Reserve Bank of St. Louis
the Chmd sean t t e e .
‘ i t a r e t h e suggestions i n
wogard © Governor Yelis' plan of recousending that tie
Reserve Sanks b e permiticd t e make leans aecured b y elicible
paper?
oe. Mebougnul: h e a v e yuu eny idea e g . O Why that ves not
vod i m the Act, Sr. Cieirman?
T h e t would b e a great
iefaction t o us, i f w e were persiiited t e handle seper i n
Liat way. ,
By. O. Pellig: i
heve a n ides taat i t war left out o f
Aet because o f the frotue: it. diecusseious soncerning the
Subject of emunoreial paper; . ane t o iesve i t out o f
the Act will go far toward creating sirictly eomercial
paper, Oo: paper t m t i s m o w n a s trade papar perticuiarly.
Mee MeGerd: Y e o , thet war tae intention.
ine C h a d r o n
@ y i=zpreasion i g that the centieser vhs
frened this bill believed the pegpemrutingwiesiee paper which
wee die squnted b y Federal “ccorve Senks @heuld b e paid
otmiurity, ané that if the bauks deelt directly in aling
igens t o muabar banks thet i t mich necessarily exvtiablish e
new tlate of paper where the Loem would G t nesenearily b e
pede e h e n L t s e tured.
Y
o
u ere dealing direetly, then,
. the origiesl a n @ only borrower, “hertas, t h e n y o u cise
equnt paper that hea previously been Oicemintec b y e camber
bank, there f e « third perty w h e i e obiigated t o pay the
aowes, a n d neturally there i s n e direct. client o f the b a n k
vig 68m Gome t e you ond sak for an extention. i
believe,
mycelf, t h a t that w e t h e reel reason w h y collateral leans
directly ( © neaber banks vere n o t poraitied i n this act.
ie. Wold:
i n view of the fast, Geverner Stron:, that
the Beard hes imtiaated that there was s e particular objeetion to our takisy @xeers paper, helding i t es security o r
tolistewal for these notes s e did diseount i m thabee cases
where i t i s seceseary, t h e t helps us. 3
a. Babougal:s i
hewe hosgl of c u e a n intioation o n
the part of the Sond, bul. i eve soen the objection offered
ga the pert o f the €lucounting bask o a ing o r three occa=
sions.
t
e declined t o de it.
Ur. G. “Olig: ©
Gan romeis assured thet unless vo
have o n c u m i o n t t o the lew previding for the teking o f
COlinierpel, that, the obtaining o f ecdi tional collateral would
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Federal Reserve Bank of St. Louis
beWary negligible.
Y o u would get very little of it.
Gr. Senyt Z o u cen decline t o élecount.
. O. Belle: Yoo, tut thet is distPininating apeincst
the applying bank and sgeinct the prottice thich you ere
following.
om, Senys
G a juet groenie, i believe.
ie. Seids
X I @e nei keree with you. T h e r e i s no dis<
eriminetionsif the twe benke offer the same clase o f paper
you reuld not diserieinate.
ie. Seay:
Y o u are discriminating aceinst the clase of
peper ihey offer.
Decsuse the paper f e net stentard paper.
It is sol «uch ac you sould cere t o accept.
ae, Sony: 2
believe thet while that would cerve the
econvenionee of banke 1%. could be subversive of ome of the
vitel orinsipies o f tie Act.
i t . ie surely the purpose t o
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Federal Reserve Bank of St. Louis
crenie i n this couctry a clase o f paper ef which there i s
think eo all agpre-
met a t thie timer a gr cat emardene i
date 2 9 Pech thet if we ddd acetpt Lae dircet obligations
of tie hank 1% wala tend toe eke ee dece.a greet, deal of tre
Liorusver i t moult met pay die Loan;
wuld cous o6 you for fertile: seon@eeiy eaden is not the
@2jost of wae ach ty aay woena. 2
Sellewe i t Very whelesom,
@ary thet i b should b o Ghat wag.
tesias.
Ri L o l a
S y VCnaltieng D Y
G s Linas?
Dac S C S
{ e o dumivabliityg e f aaking leang t e
© Beats o n commrelal paper has uewer appeaied t o me,
ta Very stagagly in favor o
f the ree
being porulited.te aeke ieemt wader certain cone
: by bank sccephances.
T a r e is a very streng,
tial, -tauee there wlll develop
im the ccurne af fine cither certain tawke oe cortadin
Cenlern sho whil ctiumaletes lerge periisiics o f acceptances,
ané unkeer the “ceeurwe Danks ars xblo i sake loans on ee@
sepienttae, thet is, forsiem bilis thet pecrseent enles o f
coum ties shros4 o r surchese of cccuetiiies abroad, i t
witli be Ciffigult t e cet the ense freedem of dealing in bills
32 tae mevkeet thai peeweite i n every Jictoint market w e m e w
anytiving of.
The pracigce i n Londen, a 8 you koo, i ¢ t o make so-nnlled
eoven cay loons.
T h a t ie te vay, t t donlere i n acsept-
ances i u the bende sariet are able te cecelintie a loan
way thoy tarry their sted
the
ie
that
aad
Gaye,
ofsever
o f the
u s L o s e a great d e a l
m
a
k
e
t
o
woulda t e n d
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Federal Reserve Bank of St. Louis
efvilie; and unless we develop such facility in the *ederal
Segervé Sanke i een ace that those seven day loons-——— that
le, th® praciiqoof carrying these aceeptences for dealerg-—
Will motarally b e cultivated t y Lerge reserve city banks.
That, V O my Simd, l e nol « good cevelopment.
T h o s e banks
wid tien be Oblireé to coli thedy loam o r buy the paper
wncer proteure bofcre they i n turn could bring the paper t e
the “ssermve Danks for cecdiseount, o r fer gale, i f you
please.
S e y tennet take paper whieh they held a s ecllater+
el ond ge to the reserve tank end get it rediscounted without
making «O00 atv bargedin with the pledger o f that collateral.
Mee Oe Telle:
T h e y cannot do that now.
a@-Cheireant T h e y oa nnet a0 it nom.
4 8 I Say,
Govoruer elie, the desirability of the tadng sould be to
Let d u a the bars t o the oztent thet the reserve banks b e
peruiited t e anke the leans geeured mrticulariy b y benk
aocupiaasces sittch they are eutberined t e discount o r purchase
under “eetion 14 of the Act. T h a t , I think, would be «
desireable setadeent t o the act.
ie. Kaine:
Y o m moaa, make leans a t the face value o f |
thees accepinnces?
the Chairman:
H o t necescerily, Gevernor “sins.
A s
you leu, t h e discount houscs i n L o n d e n .
My. Sadner T h e y take wory clight edvances.
they
lend 100,000 pounds o n 101,606 pownls o f paper, o r leas.
the Chairsent: <xzacily.
T h a t paper, a t lenst those
loans, are achumliy peid b y tie Bank o f <ngland, ond the
Bank of Suglend dees set even take the note from the borrow-
or, * ¢ = rule.
T h e y have a lottor i n their flies which is
goncunst sballer t e the gonmersal llabliity ageoeeent thet the
banks Lave texen i n the geot from soversi ezehenge houses
which @igapiy gives tie bank a ¢laia of a certein character
againet the securities « f t a g wilaworal L O an advance, emda
i sould i k e t o see the reserve b a n s mais the seme class
| of Loans seguced b y eacceptacces, i a t i as “et yet convinced
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Federal Reserve Bank of St. Louis
bat 4% would s e desirable t e sce the reserve banke able t o
make loané aceured b y comsesGial paper t o eeaber banka.
tee Ge Solis:
E w e n i f 2% were peeioteted t e eligible
Paper a e COlistic pal?
The Chnirwant
H o g I do mot think = . Y r a n k l y , Gover=
mar “ella, 1 did think so at ose tint, tut 1 au rather ine
Glimwee W w fuck Lhe Obler w a y
ip. Meterd: M i . Ghabroan, Jdoow tho Bank of Snglend take
o note a t all i t h thoce collaterals attached’
D e they net
Siapiy andis taea o n a caaranty agreesant?
tae Chaipaans T a e y de not teke the mete at aiime. Uelorm:
i s net inal ior ihe game roesen, that they
nave a Sialiay provisica of iaw 1 6 Shet w e hevet
Tes Ghatlewen: i
reason. i
ue wOe salad 1% a6 for the Sane
do aol think thers i c emy restriction i m the
Qauk of England tint uakes if meosseary for
“ate
U y peetlicetien I g tbat the fank of caglend
hag precticelly n o limi iveatioug.
uP. “ainet
HG-
the Ghalrwat
1 6 has ac dealings i n thet way with the
market, but 1 4 is gowornea b y yoart o f peecedent ani prace~
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Federal Reserve Bank of St. Louis
iice t i m they regan a p being juct am aacred a8 iew.
My. Kaine: f e m e of thee are the bast firat i n the
There eight t e ($100,000 from Seng Komg or Shanghal
ia, and they teke for thes seewrity i m Arabia, and
ell over crery mek place, ané they bundle them all tocpether
sot d o net even register them; p u t them i n a bondle ond
tave thes over t ¢ « dissount howve.
2 5 0 peunis, sometincs,
ie ell the wergin there is oa 7150,000.
Sr. Seoayt
$ I is s general gracties that hes croen u p
from tive bememerisl, Like tne Engiich censti tation
the Chairmant T h a t is my tegreseion, but 1 cennot
gey dcfinitely thet that ie so.
ur, *ehame f
om sure that is £0.
Tho Chairannt f e r e r n e r "elle, we heve discussed thie
matier n t neas Lencth
b o you foek that this subject, %6-
9 i-~f o m ny program, i n & preper ore sow t o take u p b y r e s o
tution?
Um. O e Tlie: I
eimplg emtee =
cxpression.
i f the
MoOPnOrs generelly d o sot sppreve o f the recenmencation I
em hardly prepared t e urge ite
wr, ReCerdks
f o m o f ihe <eekere o f the Federal heserve
FeMs | Satta
Ur. Senyt I
believe, Sy. Cytiroan, thers is not «a singl
thing tnat e m t b e n e thet vould ce much ten’ to create
tho @iace eof caper thet w e desire ande i m this country es
thet o n e acrement.
“e., OG. T H l e s
think abgut wnat?
w h a t deeg t h e contlewan f r o m Chicago
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Federal Reserve Bank of St. Louis
i:
Gites. ye
Soh
| $e mot permitted t e ge thie thing that hae been sugges ed,
! &@® aré a n agrieulture] country shore obligations ere taken
| over loncer perio. .s then generally obtain i n commercial
| @ectionsf
o the country, «and i t would serve t e pul us on
s parity rith the custene prevailing among member banke o f
obteining funie from their correspontents, a n d i apprehend
that ameh of the prejudice against rediscounting e x e s
“threugh the urillingness to change their sethods of handling their bille payable.
T h e r e l s very Little redi seount-
ing in the Gleventh district. T h e r e hes been a great deal
| of hypothetation of paper sceuring bills payable, ani it
1 would enable UB vory readily te popularize the custom with; @at relinquishing any of ihe principics involved i a the
| eligibility of the paper or the principles involved in
having om @ligible pepor.
S o far ae the eleventh éistrict
ig eoncerncd, w e would be doing ane violence, i n my opinion,
t® the excelient principles involved i n the present prae~
tice, but we vould be aiding an ace pience of the previ. elons o f the “ederal “eserve Act end rendering the Pederal
- Reserve Systes mere effective; b u t fearing thet the hour
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Federal Reserve Bank of St. Louis
hes tome when At wuld be difficult to obtain « second, perheaps, t o a metion, ‘ will not «ven offer a motion o n No» 7
9 12. ( L a u g h t e r )
the Chairaant Governor celle has withdrewn from dis-
cubshon Bos 9 l<@, and unlese there arc mame further rewack t o be gade, 1 will cheek that off sg having been
sonelLaced.
ae. Sold: i
waald like t e add, Governer Strong, that
in the ninth district it vould emable us to exten! eredit
gore oreadly than ie poesible umicr the present sethed of ,
redizecuuting; but I de not think i t is advissble t o request
the Federal ecerve Board (o wake an oucndsent of this king
Since \
et thie tine wabeow the <pcten i e s o mew thet Congress might.
eosdly eed reneouebly gay thai w e have not given i t «4 fair
trial yet.
i f , after a faix terial, you fimi i t ie neces= i
cary, then it vill coor t o us amd they will give you sone
‘pelgef. B u t we beve mot given it a feiy trial yet. ‘Untill
Pes 6 @ I de not think ~ e cugnt t o go C o n g r e s s ani ask for
| any unnodensary suondments.
|
j h e Chaireen: G e n t l e m e n , w e e v e pul one ites o m the
pregraa thet was dewelemd frou an inquiry whlch we made i n
Sew York prder t o the lest mecting o f the Governers t o
Littie
throw @ Light on the talk of shipping currency betwoen the
reserve baskws i
| oy¢ and Lelenoy$,
apked Mr. Lelaney}, o f the firm of tcjan-
h o are very well known insurance brokers
in New York, about the sattor., W r . Lelanoy}, by the way,
is now in cherge of the insurance burceu of the Government
tor warine insurance, the war risk bureau. I
seked hia
to prepare a eebedule ef rater between al] of tie *edoral
| *eserve Zanke whieh wlll b e based wpom the yery best m a c e
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Federal Reserve Bank of St. Louis
tice thet he could recomend b y Ble office frou their side
experience i n thet matter.
“ — ¢ @ peoult of that inyairy, he.
mcO srrangesents for a syndicate of the lergest umoreri ters
ef goney shipecnte t e subalt quotetions, end i heve beon
informed thet generally theee quotetions are below any
that have heretofore been quoted for shipmante o f currency,
githough there may be some ¢aees whore they are slightly
abeve the cxzpense of moving currency by other sothode.
tet thece s h e ere eeguainiedc with t h e wetter tell a s that they
are the lowest reies thet they have ever seen, generally.
Before toning t o Weehingtea iar. belenoyg called o m ae t o
eay thet he had arranged for this organization o f insurers
in orter toe be ahie t o quote these low rates, and he wes
ouxious that the Governors be tnférmd of tho fact that these
erpangenents bad heen eade fer their advantage, and h e hoped
if there vere any concicerabie trentactions, that these ine |
surere vine hed repily sade o n effort t o quote very low rates,
be given o m opportunity t e handle the bucinecs.
Be. Sing:
Y e mom, these firme wintioned here?
The Simirosn:
Yes.
T h e stetement hes been furnished
8 @a0h of the benka.
Gr, eld:
A b thie tine?
She Cheirumm:
N o p at the last seciing. t h e r e is a
typerritten sheet o f publ, aitached t e ine photographic
schedules which give the neues of immrers thet have joined
| fm making thie offer. 1
cxplegned tokr. Delaneys that
almost all banke bac for years been @hipping currency, and
had their own arrangemonté, which they did net like te
| Gietarb, but that 2 would wuieli this t e the Gevernors, ealling their attention t o che fact imat be bad been good enough |
te get these rates, and sugpest that i f it afforéed any o conoay i n the shipsente o f carrency whieh aight b e necessi-
tated im settling bslanees betwoun ine reserve banks, eon| Sideration would be given to the effort that he m e a d e t o
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Federal Reserve Bank of St. Louis
effect a real ceoncay I n cattling thee balances.
He. Yedew:
H e hes made sow little crew, i m som ways
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
ey
moet a
F
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
CMeseq@ently ihe Wanice h i g h Aad peld these certi-
fiesies i n vere laforwed Sy int Glearing House that they
hud overstepped their autnerlty o m these cortificates ami
timey tGuld mel Cirtalaie quigide of the aeuberchip.
f y
iuviting us in, o r takiag ue im, a a i y a m y have dow < <
i believe they have dome i f — — thet eclves the qestion a g
60 whether or not they are within iheir rights i n paying
theis Ghouriag houses certifieates t o the banks depesiting
Limeré, G e paying a rent for recerve.
Y
e are not a t pre~-
gent seubers of the clearing house.
She Chelrcens
A g I understem] 44, sll of the banks are
eerbere of the clcearing houses exeept ihe one in Cleveland;
tr a 6 t® Chieego they preLebly ere now, or if they are not
iimy soon will be.
Ma. Mebeugal:
T h e t is « 1ttte Stroug, “0. Chairuan.
Vewil. be if ihe find thet ee necd the Clearing House
privliece.
Nm Paneher:
T h e situation in Clevelené i s « mstier
net + took up with our elearing m e e exgociaiion ang i t
mage 2% negossary for the sonstitutien end by~lews te be
enon@ea t O porali a acabcrehip such «s Up. Ustheug’ speaks
of.
l y 2@ilowing the requirceents o f cliies heving sub-
troaeuries ent where there are cenbere o f the Agsociation,
theese smondmente herve been adopted, «mi the wey has already
heen
p a v e rd
oour
f joining i m alisdted way by p e y i n g e
h
t
numa charge ef [200 for the privilage, and vithout haying |
© vole O r situming a recpomibility except the oniter of
ehertege o f acocunte.
ay. HeGonds
2 3 0 Peders] Roserve fenk of Atlante has
i@ined the Atlanta Clearing House p8oeciation purely for t m
| Parpoue of cleariag, sianding pro rata ihe expeases of the
| meaangenent; t h a t is, h e clerical cert ani rent, and ve are |
under uo obligation;
s o i subject t e sny of ite rules ead
| wAth no vote, but purcly car ie purpose of Clearing.
|
t h e Chairman:
S e socuy in feat, 16 represent the
OLigerthy of the Clearing House. I
men, w e emnet Tay
Claim t o any oneiueive privilege i n that respect, and heaving
been « little timid sbeut cujgesting what ve ought to de
| im regard te Clearing Mouse relations, I new fest quite free
| te join i m the éiccupsion o f this eattor, a s we are ali a n
| the sane beat.
the situntion i n few York in something like thie:
fhe
| New Zork Clearing Uouse Asgeociation every dey clears iteas
wegating fram 0250,000,000 t o a saxieum, I think, o n the
imegeet duy, o f ever 9705,000,0003 a m d the Slearince are n e d
led at tt tlearing house b y 0 etalff of clerie now sugunting |
to130, sbout, thet take the items 16 the cleering houce.
the oniy reason why it is poceible to nandle that volun
letay is thet they really have two cleeriags through the
_Gleeriug house. T h e y have « preliainary Clearing of large
items, cerly i m the morning, a n d a nucbor o f banks i n vow
“ork, how omy | canfot say, who heve « night force of
clerks, tandle itese that come ing thet is, both eity itess
and transit items and chearing houwe items, a n d in a recent
eouversation with « sember of the clesring house ceczal tice
whe hes beom conmected with baaking ger forty~cignt yeare i n
Sew York, he teld me that tie best cotissio h e eculd ake enc
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CGk
SC, including our own, there vould o m y be one amount.
the belances resulting from cloopingg of the New iork Cleare
ing House, running around mine, ten, tvéive or fifteen ell]
liens, roughly, o n « very ective Gays i g th «a very large
aiuuthe
Y e Deve theee bolancer rumaiag S O e r G O millions.
if theese feurthe o f thet represent t i e ciesrince a n d balances
ef the menber banks and one fourth the state Cenks, which
Sight not L e oul ofpropertion a t alls why, the recerve benk
might heve e m active trenceetion covery day i n settling the
balances o f the sember banks.
eble reeult, i believe:
i t noma ld hawe this very desir-
I t would b e i n eifeci a larger
arrangement, o r a credit arrangement, ami would mac turally
lepé t ¢ the sember banks having & longer prepertion o f
their opticasl reserve o n deposit tith the federal reserve
bank, whieh I believe i s a é:¢ireble thing t o cultivate.
S6 tuat, spesking from the standpoint of tbe éituation
thet i e @ culiar t e Sew York, o11 that i hepe t o bring
about i n ihe acar furture i s o n orrengeuent with the ceuber
banks b y which wo will cetiie their balances and go t o the
clearing house every Gay eith tacir Litine y just of any other
clearing hous¢ does.
ap. Aion: I
de mol Bmow * nether the gentlovsen will
be interemicd t e eno how that is wormed filth us in beston.
ghe eetend any or third day efter ve @pened we began set~
tling for sll elesring house banks and 4i¢ very well indeed.
tne banks like it, and it jas inercesed the amount of money
in the ¢ity very such, oni i t has been & Yory satisfectery
arrangement .«
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Federal Reserve Bank of St. Louis
ie. Fenehor:
H e w you sept your deperite against
ome clearing Dmase certificates?
i. AUeemt T h e r e ere n o clearing heuse depenit cortie
Sieates im Bostem. w h e n the Tedcral Reserve Usnk wae organized the clearing house storage eertificates rere all t e e n
up s m the money, m a t of it, was turned over te us, amd we
teok all. that the eleerines house l e t. \
Tee ceeretary?
Y o m heave ne trust companies i n une
clearing houret :
ee Alkent
o j they are net aembers, but I do ant
think iimt oakos any material @ifferenee.
h e r e i s a saall \
eitferenes i m the method of setilenent.
heChedirann:
o n e 36 slate tunke ehiech I rocall i n tis
lew York sleuring heuce, aud the 29 or 50 naidonal banks,
2achwling foderal regcrve banks, would effect
thedr clecnu~
ug8 Guecily c a 9
hewe heretefore.
T h e woeult o f the
clonriuges wold aot be ome setiling sheet ahowing alk the
aeoits aud eredite, bai two; a m i the aus of ths deblis
Gr Greditg, o g tho oneg aight be, of ihe seuber banks
well cxictiy equel the vam Of the ceblic o r crodite, «se the
tac¢ wight be, af the sonemenber bankn, end gms group would
poy i
the other, a d =
w u l d Shaply pay tho debits o r
roweive the eredite fre the whole group ef 29 or 30, ine
ii. Aikens
S e sen@ eur settling clerke and seesengors
WO ORS Sloniting house just 2 8 euy other bank dese,
t h e
abeoonger Gf the clearing hence has a n account with us, and
oll the different bamke pay Ria with o check o m the
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about. i n tine.
i t will b e of gremt conmventente t e those
Danke ami would a f the game time relieve us, I thiek, o f
MmeVving & promt deal e f currency that i e met enmly heddled
now @ % t i c l e a r i n g howoc, bet. bapdled before 14% goee tLhore
ami after i t sete b a c k - - = tigue t i c e .
Y
e heve =. diffieuit¢
preblem there, sere g o then some o f ile other e t
(© the fact t h e t w e heve but fer mational berks i n the
clearing house.
tt Chairman: U e n t i e w e n , I resily think we ehoaid onig
sone ¢ finiie report t e the Federal Resarve S e a m o n this
item, e n d 4 should appreciate L t very much i f G o w rner
aebougel wold offer « resolution which s o u l d express h i s
views, f o r the purpese o f discussion,
a t any rate, o f how
thie matter of clearing house relations should b e develeped.
Sr. Medgugal: I
de not believe 1 would be able te @
timt, op. Chaimraan.
Ther aed mnie *
i. uehayt T h e r e i s « situation i n Bamsemhanmeaens
“@verner Strong, that + de not beldeve that anybody here bas
heer about 4t, with regaré t e the tlersring hoeee. I
ime a
etter froa the aenaper o f the Kensat City Bank i n rege é te
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Federal Reserve Bank of St. Louis
he nastier to be gesigned t o the “ed. r a l Reverve fank, «
it wes 18-4, ama be enid h e wae net going t e u o that cucmber |
becouse it wip possible thet they alght <ithtray fren the
clearing hous®, . It ses on necount o f the amount of cash
they sore lesing t e the other banktti, or some euch reason es
thet, o n aecount of tuking in the whole dis triet.
5 e it
is onfortunsie that there i s nebedy heré fren Senens Citye
i thought + would wention thet, he«ever, k e comune t h e y «re
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Federal Reserve Bank of St. Louis
evidently having @ me trowble i m Kansan City there they
are a mesber o f the Clearing Eouse Acrociation,
The Chairmame U r . Metay, I think «f you hove mentioned
“eamas City, 1 ehowld state fer the purpeses of tim recon
timt « nave rocpived 4 iclegram from tp. thraii i n which he
Gimica inal Geverner oowyer received word of the death of
his sether just «co be wep about i ¢ jake the trein at Kencsas |
City; thet a y tcolegran sucgesting that m a e ether represen-
tative of Eanese attend the conference had Leen received,
bot that oP. Niiler wee at the prosent tice i m Jeune, ani
SLth beth
that Sp. Sewyer and Mr. Milier abcent £ 1 was imeeseible t e
MAVeR onyase here,
a. Fencher: i
think iheat ie cubie unfortunate, i n
view of the tramels €iccucpion w e wlil prebably indulge in,
(net me hare oot nOneORe tema Ste Louie o y Renebs City t e be
with we.
ae- Sold:
t f would iike te ask Sp, Setey how they are
peeing te cettle iwse belences b y virtue of the checks.
they heave got te give them something back, and it is just
ec engy t o do it b y the tleering hemee «es it vould b e t o
cleat thew out over the counter.
eGkag:
T h e y are ceing to have «a decrease, of
course, i m the depeeita, because they are charging thea u p
am they heave t o pay them art t o sorebody=———
the Chairwumms
i s it not Just thet way in which they
are paring ¢ood money Tor the checks thal they are buying i n
conection with this echese e f cle rence?
a, Mekay: G i n g I f they teke on two or three mlllfen
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Federal Reserve Bank of St. Louis
éollere worth a day of transit iteus, they have i o ony for
thee i n cash, o f couroe.
The Chairuant « n d in Sanmens CiSy they are weabers
of t t clearing house m d ihe paywent of these itear is
netdrally cettled threngh the clearing house, end their aaah)
ic tappec b y thet aothed, viveers othervice i t w a r e
b e tepe
pec b y their direct transit reyeont.
ve. Yeld:
I f they vere mot. sewbere o f the <lcaring
House, how wonld they scoitie belances? T h a y «auld have t e
settle i n some way.
ap. Wigkay:
T h o y sould ship currency, just se the country
bernk does.
ie. On Wills
b u t the eoaber banke of the clearing hoes
iy. Chairom, #211 wlihdrew, angi if they heve the necesoary
security, teke it Just os preedily “8 they mer take ite
the Cheiramn:
T h e i s Just the ease thing.
We. O s Telig:
T h e poiat being that we ¢id not w a d e
stand or, Thrali's comsuniention t e tr. vekey ini lasté:
thete prebeble withé¢rewnl free the clearing house «as
being amy solution of the problems which they have le fore
Lneme
:
A
p
i f a;
the-Coeteees; 1
‘tiewed if.
6.55% :
do mot think it is, tut be sively m e n e
H e did net sey mrtieulariy why. I
think it
might hove o m e beering om this propositions
ee
I n c r e a m e Ubeir difficuitiag. (Laughter)
4 «All shor you vhy.
I f thoy wero net members of the
clearing housed, cvery bank vould g o there and draw money
that they probably would mot need, bul aficr they were put
inte ihe clearing house they would cettle o m the ¢ivforence.
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Federal Reserve Bank of St. Louis
weirs f r a Gey Captie will cmable u e t o complete ithe record
“8 1 6 item Noe 22.
She Seoretery?
f h e correspondence arese from ite
foot that bm. Uetag, i e socdernl R e erve Agent, received one
| Say 2500,900 of eiiver oor ifieetes t o recuse the liebility
| @f t w bank for outetending Pedoral “eserve notes, which
ima been received b y the bank free bie u n e the previeions
of Seetion 16.
A f t e r h e Be@ poceived i t h e wae sepefied
| WEth sow @oubia as to hike right toe receive that, and o<
@nsulted teocether «¢ t o whether o r get 1 % was wlihin the
méaning O f iinat phrase i m the inw aulnorising a bank t o re-
@ace ite Mabilities for outstanding notes bydopesat*ftn
the Fed rel Reserve Agent gold, gold certificates, or leeful
Boney,
a h “iminer n e migit. peocedve silver mmekiedea cortifi-
CALE»
Becrafted a leticr te the Beami sexing for their ruling
| on iSet point.
a e . day poctived « reply from Mr. Tillis |
to ihe effect that the sreasury “epariment bes been accustonod tO told thet iewful money meat icgal tonder money and
| tiet 2028 cortifgater «ai eliver certificates were n a p r o
poriy legal tender or ieeful money, bat bed been lawful © |
YeeCIVe money foe usiijemel barrie b y the sei eof 1202.
hie comamicatiog ended a t thet point. ,
A n i
|
Se. day and i thaaght it over with sone care and docided
thet he w d not @ite enswered the qucetion.
t o wo serote
agein t o him ami geld that we st111 ned come double a s to
just chat his reply ment, ext asked Aim te place it before
tht foam for a forme ruling.
that
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VA
Federal Reserve Bank of St. Louis
Y e eubseqentiy dliecorersd
i h e firet lotier wae oe. "Lilie’ o w s lctter o n d not t h e
letier of the Boor.
[ 1 hed not been befere tneme A f i c r
som thile re received a ioticr from the Bourd to the
| following effect, that while gole eng silver certificates
@iiget net be inwhul money, under & sirict interpretetion,
| 46 wae the belief of the Board that they vere iniended ie be .
fucludeé i n the menning o f the phrese i n Section 16, ami that
| £6 wee proper fer foceral reserve agente t e reecive sliver |
| eertifieater for the purpese of reducing the banks liabli-
ity. S o that settled thet perticuler inquiry.
Them we received « letioe from the *reasurer of the
United States saying thet be was advised thet we had outetand| Snug tem million dollars worth of *oderal Secerve Hotes, and
only 555,000 of redemption fumi i m gold, and requesting that —
we deposit $446,000 sere in gold, redexption fund.
f e
| woleh ve replied that ine cituation was thet we had taken
eut ten million Gellers verth of Federal Reserve noics, but
that we had reduced our Liebility om 211 butig5,000 of the
519,000 by the deposit of gold, gelc certificates or leeful
| weney wth the *ederal “ecerve Agent, smi t i t t o deposit
{445,000 more of gold, thet vould make a (otal ammunt held
| against the exchange or redesption of the outstanding Federal
| eserve neoies on which our liability had not bean reduced
| by sugh deposit te 104 per cent of the face of the notes.
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Federal Reserve Bank of St. Louis
He sent a copy O f that couamication t o the Board, but had
me reply from the board o r from the treasurer. I
de net
know what i e casing o m that. ;
Subsequently t o thet the Geard of Direetore of tis S a n k
im How York reqiested an expression, i f posuible, from the
oog
aifiecere @ f the bank ws te «hat imey thought the phrase
“Laviul soney" I m the Podoral Reserve ast seantg
wee made ne reply. i
t e whieh
have drafted «= reply whieh I have
mere-ee 3 % i¢ abgat five e r eix pages l o n g
i n unica i aay
iat 4% soem t e we that they de monn, i n sestion 18 of thie
| Athy to inelad« a 6 lewful woncy anything thet de leet. req
serve maney, irreapeciive o f «hether it. is ln gal teader o p
mot, ami inal, sodemliy, the phrase i n feetion 1 6 dees mcan
to iaelude eiiver eertifiesion end gold eortifat:e i n the
| Plnees where gold certifientes are net specifieslly men| tieaed i n the eeetion.
h a t céction senidoned them in twe
| Piaeoe, ond doer net meniien ihem «pecifiecally i n ise etna
Pieces, and I have adopted the view thet it wae tmaricrial
| Whether tosy seniien them or moby that, they were reslly in-
cluded in all places in Seetion 16. S u t i de not went ~
Dimi the Ghairwas by ay view. l i s e hee veed the letior, tut
hae nol paeged ang coasent. o n it yot. 3
nai
‘Ps Giimee 8 lny we neve ine lotion im ithe record:
te Scaretaryi i e s , with pluseure. 1
tie Copipwant
heave it here.
I 4 16 qufte é aabihg, latier, and a yory
daxge part of it songciate of references i o and queiations
| from the Federal Reserwe Act and te etatuies, and I de set
belwve tig reeding of it now, Governor “sine, roul@ -—<
We. Solem: f
Juct wont 1t im the roecerd so inst ce
may @igent these thinge.
the Chairmen?
4 % wonld b e entirely agresabile t e me.
| Im feet, 4 vould b e very giad to hewe 2 copy of thet tekon
fete the record, if that te your desire.
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the quegiion raised by Sr. MeGord, if I may he permitted t e do co, 4 will heave you consider ss @ separate gubject ,
ond number 4% 50; anf possibly you will permit ae te start
/ the dlstuesion by sietingetet hepponed i m Pow York,
|
S
o hewe i n Sow York, towards the close of every yoar, a
wory active dewand for clean currency. T h e a t de probably
onaccount, of Christians day and Christass shépping und the
genorel ¢emand for curreney around the Christaes holidays.
ve hed iosued $1,000,000 o f Fecteral Reserve notes and paid
them ub, or paid mest of them out, and bad Geposited not
756,000 of gold in the redemption fund, bat $95,000, just
because wo did uot heppen te have hendy exactly $60,000 in
| Bilis ef the right cenpeination without opening a safe te
‘Which acetss wes quite incenventent. s e thet the oda ancunt
| @f $66,000 ie Of oO sisnificance. |
|
h e x the cemmnd for odditional curreney arose beyond the
million dollere, the aseunt of eur peper in portfolie hed
bees ee reduce? b y reasen of ite being paid that ~ e vere
iMnebdle te get out eny considerable additional angant of
| Foderel Seserve notes. B e reduced our Liebidity on the
notes which wrs eutetanding by dclivering gold certificates
|
, @ the Federal Reserve agent, end we took out of bie hands an
| cqual ameust-—y
a
s a willgen aollere——- of the paper which |
| we had recently pledges with him, which was of e e n s
| specifically sxutherined by ite act. ;
them. the demand for edditional currency was mde on us, |
the Federal Reserve Agent wac tendered e millfem dollare of
Peper which we hed in the pertfelie and thereupon he iocued
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Federal Reserve Bank of St. Louis
Lo we mother miilion collars i n Federal Seserve notes.
ft, Eglin, wien the demand arose, we redused our iiability
uy paying him suother million dolinre o m taking out «li
motes that wore i n his hess, e n d agein repledgine thom.
| ant prosess woe Continucd untdl o e had, I think, i n tie
mignberbood o f <im ami a half a i l i f e a c ef Pederel Reserve
notos,
iutl tg that time he only bad £100,000 of bilis
| that =n could use for the purpese of taking out Federal Re~
nerve notes.
e o tie last trenssctien w e md with Bia eade
it netcisery for us t o ake thirty-four subciitiutions o f the
$100,000 in papers in order te get out the last §2400,000 ef
|
| Federal Reserve motes.
(Loughtor)
i GO nol howitale te sey that that cecaeLoneé seas lara
inthe ainie ef some members of the “ederal Meserve Board.
the tressaction was completed and reported «hen ur. e r g
| mung i were e t Milte Sulpuer “oringe, auf I had t e face tip
matic o m returning t o Vashinctem o m ay wey t e Jew york.
The ispression eceese t o exist i n ithe ainés o f the Seerve
Board that this was a sothed whieh would lock up cur gold |
reserves.
4 6 « satter of fnet, 114 is a methed b y chieh vo
protest our gold reserves ead the waiter wan cxplained te
them @amg thet wo had not, i n any m y vielated ihe prévéctons
‘9f the Act, anf I think nom, individually, thoy arc guite
‘woll oniisfied that 1¢ wes = perfectly proper thing te de.
Om the Other bamd, there ere L i c e questions that heve
arisen im sennestion with it:
O m e is ehetaer or net the
: method o f checking teck the golé vine 2 6 gui. back our
Federal Reserve notes, vithout baving » g o through a redexptien process I n “ashingtes, which of course would be a very
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Federal Reserve Bank of St. Louis
sunborseme thing t e deg s e c o n d , « hethor the Act d e a i n
fact require w e t e pai u p « five p e r cent redesption Sunt
im gold with the “yoasurer ef the United States ageinet ¢
noles upen which, b y the expregs provision e f the Act w e heve
discharjed gar lisbility b y the deposit e f cold o r lawful
money; amd the third question i a the one reieed b y ihe Ped“rai Reserve D o a r , whether thie precess m i c h m e t
result i n
accumisting toe such of cur gold
reserves abehind noics
e
a
ietreg
ahibeh a
S a : romnim i n cireuletion f o r a cauciderable
rieg. of Lies.
she last qaestien I de net t h i n k ic really « ccostion &
ail.
L
EPL SE.
t 2 8 a nypotheticss poesibiiity t h a t would pove
i n the ficet place, a c demamle upon we for Currency
arise, 2 0 have got t e acest thon, eliher b y iseuing Federal
KOServe Boles, o r By muir reserves.
we pence G u r gold.
i f “6 pay out our roserves
i f we inauoe Pod«ral Ceserve netes, w e
wetein gar :044 heldings a s leng as t h e néioe remain i n
circulation.
We.
O « Belie:
u a t e&
t i e n d e r e l Aacerve Agent
Pee
teins ihes?
Tre Chafrann:
if. Eetemd:
T h e secomi poiut you raise i c «bether you
are licstie t e f i v e =
20@ Cheiraan:
« eent?
A g s t o t h e f i v e & @ & Gont v r denption friereks
vovrermer Selord, that eniter hase just been dealt with i n eo
Leng letler t e the Srvacurer o f t e U n k t o d Stisice af whieh
& COPY Was cent t e the Pederal heserve Boordy ond i f the
Cevernere desire, w h e n = ¢ get a reply t e thet letter < e
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Federal Reserve Bank of St. Louis
will hewe sepice of it incorporated i m the recserd.
My Soimes i
would wery ouch dike if.
f e have done
the cewe thing t e « octerate e x t e r qui i n tan Francie.
uy. EeComi: Iouwant te orlemliy enll your ettention te
the wowing o f the Inwr
"tut i m mo event lece then five p r cont.”
The Seeretery: " S o t effest"-—<— is set tiet i e meat
! wori~«= “mot erfset b y gold o r lewful souey”?
i. Usbeugpis
I f ga shold b e fortunate enough t e re<-
discount t w o million of peper, d e you suppose you cauld pre=
vail upon the reserve agent to let go of hie gold?
The Chairwan: I
d@ not eve how ho souli help bineself,
covernor Belougal, because thet is ehat wo sould de then.
ee would atk hie to iague t o we two eillion of Pecorel fe~| Serve netes ageinet two millions o f coom réiel pager, which
m@ waleubtedly ~ould Ga. T h e r e weeld be no reazon for
hie net doing so.
t
e woalé them here tee millions of
netes i m our possession,
‘ Y o gen af eny time ecurrender notes
| im our pescesgion t o the fecersl recorve agente and got
) Dagk geld which he holds, end t e process would ciaply b e
| peversed and «¢ would lave so such gold in cur wault.
Ur. Sengt Unsiess thet fe a theroughly legitinzate
| Prweediing I believe there is going to arise a n occasion
Guring the ¢eming seseem fer the iesue o f “edoral Reserve notes
egeimet gold. U n l e s s the large banke of the country do
| discount sufficient paper to enable them to lesue Federal
segerve noten, the membor benke will be eslled upon for
currency, a ¢ usual, eal the probability i e that they will
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Federal Reserve Bank of St. Louis
seve af uaual to ship out their gold money, their Lawful ,
woncy.
I f , however, they could deposit their gold i n i e
i *ederal, lieserve Banke, and the *ederal Neserve banks would |
\ |
_., abeelutely ingue their notes against the gold, i have fever * \
kK
\
) Peet able t o unde retand thy there wos not « Srovisilon in the |
| Ma for the Sesue Of Federal Reserve lletes sgeinst cold,
ud
t h e n they could iske new noteu and Lcene aoa egningt At,
anki the gold would be cobrailed i n Foderal ‘oserve vets ‘
ond. 4% would b e « Very fine eppertaniiy t o get i t hone.
| cat 1% oesurred t e me that there showlé b e an summiandd t o
ihe F e d e r a l Resérve Act euthorizing the bane t e insue.
, t h e Cheireamst. Governor Seny, roulé 1% be your Jud o=
m@nt, thet = e should subslt 2 recouwseriation t o the *eders]
Seeepye Seeri i n on aitermative forw, first, thet i t is the
sense of this uocting that the Fodersl Rewerve Act should
bo emiexied a9 thet the Federal Kevervwe banks aight iseue
Yederal Reserve notes direstly ageinet an «qual amount of
gold o r cold tertifiestes; seconi, i f 4t is impracticable
for the Federal feserve Board t o take steps t o p n
s u c h an
amendment t e the Act, that e y consider a m -ive necessary |
|. Malings that will justify the *ederal ieoerve Senks i n fol<
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Federal Reserve Bank of St. Louis
lowing the procedure which I have descrihed om beving deun
followed i n Hew York, s o that the s m w result can by atcon~
plished:
T o e t recouwseaiation to the “odersl Reserve Beard |
+belgeve sould be nicut the only thing now regiired to |
ensble thom te take a definite pomition in regard to ihe
icsue of Federei Keoerve notes inthose eeses thers tivre
wae mot suffieciest disequnted paper i n the hands a
the
heceorve banks te arrange for it to iseue ay ohe Pledge of
tha paper. r o r a e m m i i g , < am very angious t o ace that
aate
ier dieposed of before the dewand for currency arises.
Mi. Seng? 2 % is, es Cupiraen, and I bee put that
| ( o r ftaBos S O upon the program £10 suzgest t e you
a t this
meting herd. i
thinit the mettor is of cach tepertence thet
it may Well b e eugcected t e tie b e n t i n just. the fore
in
which you have stated 14.
Y o u here cxpreseed a y mind as
well of op belter taan I could heave done 1% myself.
at. Void: G o g there beon a raling prohibiting
that?
The Cheirvoant T h e r e lee been ne waling pr@hibiting +
thet, but I understand thet « coammicatéon ime bean mde t o
Bee. cays i
Bave not been able, yet, t o rend 2t.
f t was
either am opinton of counsel for the “ecersl Boserve Board,
OF, Poacibiy, a ruling amie to seme other Federal Reserve
Canoe
| thet Federal Reserve agente would not be authorized te make
, evditional laswes of federal reserve notes t o the benk
te
whieh they were sceredited so long an the Padepal Reserve
| Banke hed whicmued Federal “eserve notes inthetr hands.
a. “old:
(G0 ite I
I f they ind sone i n their kendes they al ght
alg may that we 434 the sase t
way i n “inegapolis,
t
h in a
modest
ni
g
i Vederel eserve Agent. «creed with
m that i t was 2 uselese eagite o f enerey t o €@ through
those
snOunie, end be sald, "It locks good to me"; end i peid in
geld for federal netes direst.
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Federal Reserve Bank of St. Louis
the Gheirsant
‘ e y Ut Stetement I onde im the form of
Wggeetion be consHcred as a setion by cevernor Senay?
a S¢ayi Y e o six,
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
@FedFRASER