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Federal Reserve Bank of St. Louis
CONFERENCE B O A R D O F G O V E R N O R S
Beha Sega een e e e
FEDERAL R E S E R V E B A N K S .
January 22, 1915,
DAY SESSION.
I T A T M E D
W Jodi
«
n a w
D o r y
_SHORTHAND REPORTER
COLUMBIAN BLDG. WASHINGTON, D.C,
:
P H O N E
MAIN 8324
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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
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
wishea us-- I
repeate- toe make o u r report t o }
‘né Pederal Reserve Board will undertake t o
communicate
with y o u a n d w i l l ¢cive y o u s u c h i n f e r s a t i o n
a s i t d e s i r e s tes
be given out upon the subject."
are Welie:
W h y not strike t h a t o u t o f the letter g o
refers t o a
Hr, Curt ist
statement t h a t i s promised?
W h y n o t atrike c u t those words a n d Bays
"We told t h e m a reyort w a i l d b e made t e your beard
and
You Would invest igate t h e matter a n d issue
s u c h information
63 you desire a t oa later t ime. *
That i s just what w a t o l d them, a n d a s I urmilerstand
it
it was i n aceordance w i t h the gonverastien o v e r
the phone,
At the same time, I
want y o u gentlemen t o
i understeed Gevernor Hamlin t e s a t h a t
would issue a
statement.
And I
put that i n the letter,
And t h a t i t w a s o n l y u p o n t h e s r e u n d t h a t
will issue a
HY. Weligst
statement that w e weald not,
i f l remenber correctiy, y o u came baok
t¢lephone;
s e n e q u e s t ion W a s a k e d you, a n d y o u
replied, “Naturally I did not ea: thate™® D i d not
that r e fer
te how they would handle it? S o m e o n e asked you, "Did he
sey how they would handle it?*- a n d you said “Naturally
I
did not a s k h i m that*?
Wr. Seay? i
believe i did,
(Purtherinformal discussion followed.)
fhe Chairman: i
think i ought t o repeet t h e statement
made t e u e last night b y Geverner Delane,
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Federal Reserve Bank of St. Louis
a 0 that w e micht
have a
recerd o f i t a m w a y ,
# 2 thet h e x some bearing
o n this
letter a n d the expression o f our denires.
Goyernor Delane etated thet a nusher o f Mewspeper men,
whe h e d been a t our seeting, h e d eslled o n Gevernor Hanlin
late i n the afterncen, after w e left the board room; that they
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Federal Reserve Bank of St. Louis
were very mach incensed a t the idea that a threat wasn t e b e
mede t o the press, a n d that they had decided, s a a matter o f
esprit
d e corps, t o atand b y Nr. Iden, and intimated that
if the statement which w u s read t o then w e s € iven t e the
press they would reply with a n attack e f e aaa Rind a n d defend
him; a n d they intixeatedé that i t might moke a
trouble.
good deai o f
T h e effect o f the stetement made b y the newspaper
men upen Governor Hamlin seemed t e be such that h e a t once
called w e over the phone, froo his house, e m é said t e me
that h e a n d Mr. Telane h a d agreed that i t would b e umrise
to icsue the atatement and thet h e how ¢ chat m e would net d o
BO. I
asked h i m i f that w e e a reque et tion ‘he Federal
H e said h e would mot s a y t h a t i t Was a ree
Reserve Board,
quest b u t h e wanted t o s a y that h e begge ¢ er u s that w e issue
W r . T e l a n e a l s e i n f o r m e d o a Last, hight
ne etatements,
that t h e newapaper m e n h e d requested Govrermer Hankin t e en=
desyor to arrange with us to withdraw the statexent end not
isaue it+« i
ecammot help but feel that Gererner Meniin aust
have hewn influenced by a vigerwus «atatement fram the
representatives
o f the presse w h i c h w a e c o u c h e d
an lengua
thet wight h e eonstrued a p a threat, a n é naturally that
@letent sught.te b e considered i m ave iding what\kind o f
® cownnicat ion w e should n e w send t e Governor Hanlin, a t
wheee tequest we have changed our dec inion a e to issuing
the atatenent.
ifr. S e a y
L o m eetieficed,
f r a n t h e nature a n d tone
ef our oomversation ever t h e phone,
t h h a t s e s Governer
Haclin’s impression; t h a t h e was impressed with t h e idea
thet @
spirit o f a n t a g o n i a m h e d b e e n r e i c e d
i n t h e n e w e r a per
nen a m d t h a t t h e y
retort i n t h paper,
The Chairman:
a x e y o u F e a d y t e consider t h e letter,
gentlemen?
Tire’ p a r t o f your statebe read b y the stenocrasher?
d t may b e that I
miaundere
eteod it.
(The Reporter thereupon rereated the first part e f the
iatatenent b y the Chairman.)
The Chairman: i
time o n this.
our b e l i e f
think w e cught n e t t e srend t e s mach
T h e meat o f the matter i s w e are ezpre saing
i n the advisability
e f releasing t h e s t a t e n e n t
requesti
n
g a n invest isat icon. i
w i l i f f a d t h a t sentence:
"In f o r w a d i n g t h i s p r e p e s e d p u b l i c a t i o n
t e you t h e Governors
dewire t o Teiterate i n the atroncest terme their belief i n
the advisability o f it being released and their desire
thet i t shall new be given t o the presse,"
We a r e e111 i n t e r e s t d i n t h i e m a t t e r a n d I
thoucht
we
anould arrive p r o m p t l y a
t # 1 expression o f the consensus
of o u r V i e w s ,
That i s cefrect,
T h a t i s correct a e t o
my Pet¢ling o f the pesition w e sheuld take,
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Federal Reserve Bank of St. Louis
The Chairman?
Wr. U e K a y ? I
W r . Mekay? W h a t have you
think t h e m e t t e r o u g h t
£ @ be
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out o f the hands o f the m e m b e r s f
o the Boérd a
which m i g h t b e t t e r
b e handled after w e heve s e e n t h e s u b s e
?
Suppose t h e y r e a d t h e r e s t o f t h e
the views e f Severnor Wells
"“iney also feel i t t o h e only fair t e ¥ r Iden t o s a y
them a l l yery favorably a t the meeting
explai
h i e erticle,
e n d that h e did n e t retract
far a p i t a f f e c t e d y o u r b o a r d ; n e r d i d
Willis, d a t e d c e n b e r 26, 1914, centain a n y
retraction
o r medifieation
o f his original publication.
I n e
ceec h e stated that the article h a d not b e e n officially denie@
he had net been requested t e retraet a n y o f it,"
i euggeat t h e t w e might,
i n eacluding t h i s letter,
we @egire t o veiterate what Governor Seay s a i d t e
is, that w e certainly h a v e n e desire
the Federal Reserve Board i n their procedure,
and that i n writing this l e t t e r w
e feel that w e are complying
with hic-requesat o f making a
repert t e them which contains
the express ion o f views o f the meeting.
Myr, Seayt
T h e w a y I feel about i t i a that the w a y the
Letter i s coneliuded drawg t h e isaue sharply.
H i t h e r the
névepaner men are t o blame or. semebedy with official cennecna i t i s their d u t y t e find o u t which
That i s the conclusion I
draw from the situation,
Chairman? G e n t l e m e n , t h i s matter i s i n your
hands
we
W
e a-parentiy a l l esree a n t e the terms o f the
Letter, w i t h the possible exception o f Geverner W e N g w h e
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Federal Reserve Bank of St. Louis
of a y opinion.
your wishes i n rehas n o w b e e n r e a d
right ewaye
Dees t h e r e «
Lis a e r s e s
the o t h e r
fair
t o irs
recerd t o anybody until h e hed a n oppore
lity t o reed i t . I
herve t o l d Mr. I d e m that tmless I
was
LvG On opportunity t e
ha i s te have unlimthet h e h a s m e d @ e
its t e modify h i s
meenn o f €
to correet a n y typee
different m a t t e r a n d
iBe
hey are going inte
to 4 r .
ldan
t o torn
The Qhairment Gevyerror Fains has made a motion t e
appreve t h e leticr a n d t e diraet that i t b e sent a t once.
I’seecond that motion.
Is there any forther disenssion?
(There w a s n e further discussion; t h e motion w a s p u t
ave and ney vote, and carried.)
*.
The Chairman:
I t see@as t e mea thie lett-r sherld b e
edadressed infermally t e Geverneor Hamlin:
I t should b e
addressad “Dear Governor Namlin*, a n d signed eitner b y a y
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Federal Reserve Bank of St. Louis
self o r Mire Curtise S r , 1 % may b e signed b y everybody,
if
you s e desires
Mre Seay: I
think the Seeretary should sign ifs
Tae GCasnirsan: I
think s e tee.
W r l e s s there i s o b
jection t h e letter will b e signed b y the Seeretary a n d
delivered a t o n e s
(There was ne objections)
Gentlesen, I
take t h e liberty o f suggesting that w e
defer considering t h e unfinished business i n connection
with Goyerncr McDougal's report until Severnor MePovgsl i s
heres I
will ask vou t e indicate which item o f the pro-
gran you new think w e should discusae
Mr. Welis: B e t t e r teke u p the cuestion o f check
esilections.
Mre Wold:
C a n we not discuss the rates o f int creat
and the matheéd b y which they are fixed, and get throuch with
that? T h a t i s a n important question, a n d i t is en anney=
ing qvestion w i t h os, a t leaste
fhe Chairment T I hesitate t e take u p either o f those
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Federal Reserve Bank of St. Louis
matters i n Governor MeDcougal’s abeence.
H e will b e here
very shortiy.s r v o r n e r McPougal h a s seme very decided views
om both o f those subjects.
O u r i n g t h e time Intervening
before h i s arrival w e covld take u p some matters o f less inmportance o n the program, a n d t h e n when h e dees arrive
submit somewhat t o His wishes o n his report, which i s unfinished b u s i n e s s
I move that w e take u p the items o n the
program which w e have s e t taken u p t e this time, i n their
regvler o r d e r .
The Chairwen:
MeCoré: I
The Chairman:
I s thet motion seconded?
will segond t h e motion.
I t i s moved ard secended that w e teke
up the besiness o n the program i n the order i n which it
appears.
I s thera any discussion?
(There w a s n o d i s c u s s i o n a n d t h e m o t i e n w a s ¢arri ede)
The Chairman: Excluding the report from Mr, MeDougal's
eqmititee, the next item l a Hoeds " F e uniform policy has
heen arrived a t i n regard t e reesiving o n deposit Fetional
Bank notes from sember bankse"
I s there any suggestion
in regard t e that matter?
Mre Seay:
I t seeus t o mm, sir, that the conditions
in the districts way vary quite widely. T h e r e i s not a
sub=-treasury lecated i m all the districts. I
de net mind
saving that i n our district T have felt compelled t o
deposit t h e National Bank notes when 1 % was t h e clear prre
pose t o deposit t h e m with us, check against them, a n d
produce Faw Yerk Exehangs, practically msting u s the redemp<
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Federal Reserve Bank of St. Louis
ar?
tien agency.
I t ssenms t e m e it would have the effeet o f
undoing what w e have b e e n a t such peing t o d o i n the baginn=
ings W e desire thet the aembers shevld smke their deposits
in gold, a n i w e have suceceded i n acquiring t h e bulk, i f net
almost the entire volume, o f dur reserve deposits i n golds
It they were allowed t e furnish benk notes t h e y wenld fore
ward t h e m and w e would g e t back a u c h stuff a s the Treasury
Departaent w o u l d cheese t e send us.
transformation.
I t wight rasult i n «
W e might deplete o v r gold reseurees a n i get
back t h e lnowful moneve Y e r both o f these reasons w e think
the matter ought t o b e entirely within t h e control o f the
bank i n the district t e s o govern matters a s t e prevent
any B u c h Goecurrencéss
Censidering t h e short time w e heve b e e
fore us, Governor Seay, would you b e willing t o make «4
motion that w e discuss t h a t and bring i t te a vote, beeause
the expression o f views a s t o « specific reselvtion will
bring s h e discussion t e a conclusion very much more premptly
that
a n expression o f views without a n y recomacsndatiens he-
fore t h e meetings.
Ure Sony: f
suggest, there*ere, Ure Chairman, that
weere puch deposits are net made for the purpose o f
making good the depleted reserve deposit, that i t be the
policy not t e reeeive nationsl b a n k notes f e r mere p u r p o s e s |
of redemption a n d f e r the mere convenience o f wir members wie
t them t e
wake the redemption a t cur expense; nor t e p e r m '
ereate exchange a t our expense; a n d that i t b e the Judgaent
ef this Conference that full diseretion should b e left vith
te
the exeeutives e f the banks i n the various districts
govern that situations
Mr» Aiken: I
understand t n e s v b s t a n c e
o f that i s t h a t
Gevernor S e a y desires that t h e diseretion should rest i n
the benk as te whether o r not they will aceept theme
thera a n y discussions
Ur, Aiken: S o m e t i m a s t h e conditions n e t only differ
widely i n the different districts, bet conditions change i n
the same district very radieally from time t o time.
Mr» Seay: D e p e n d i n g upon whether there i s
for currency o r note
The Chairman:
I s there any further discussion?
(There were cries for the Questions)
(The motion was put and carried.)
(At this peirt Mre MeDougal returned t o the conference
roome)
The Chairmani Governor MeDougal, befere you returned
it was acreed that w e should address a letter t e the Federal
Reserve Eoard o r t e Governor Mamlin, endlosing i n it the
statenent whieh w e had prepesed t e issue last night.
A s
you were n o t here t o take action i n ragard t e the letter I
will a s k Ur. “andricks t o show i t t e you, after 1 4 i s verite
ten, and i f you agree with the teras w e will preeeed t o carry,
eut our decisien o f sending i t right over,
I f you disagree
possibly you will b e geed emough t o express your views before i t i s sente
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Federal Reserve Bank of St. Louis
Mre MeDougal:
H a s the letter been redrafted?
The Chairman:
T h e letter i s n o w being written
will b e ready i n just a moment.
There
i s a m i t e m o f unfinished business
o n t h e proee
gram that w e deferred considering until your return, Mre
that item consists o f poragraphis A, %, ©, PR,
the program.
I n the interest o f prompt action
that t h e comalttce, appointed a t the first
conference, b e authoriged t e des] with all o f the subjects
covered b y these f i v e subheadings o f Tiem Noel, a n d that
they é e s o h y correspondence, t e the extent that i t i s neeessary,
o r W r personel communication w i t h the Secretary o f
the Treasury.
T h e r e i s n e difference e f opinion a t this
aseting as t e how that matter should b e handled,
I t is
a qaestion o f administratien rather than o f policy.
Mre Fancher:
o u l d not item Heet2 b e included i n
alse: “Relation t o cub-tressuries*?
Tre Chairmen:
W o u l d y o u care t e make «
resolution
would embody your suggestion?
Mr. Fancher: I
Mre MeD-ngal:
m a k e sueh a reaclution.
T h a t refers t e topic Foel a n d alse
All o f the subdivisions under topic Fos
1 t e be referred t e the same committee.
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Federal Reserve Bank of St. Louis
Mre MeDougel: T h a t weuld pet upen u s the question
ef negotiation w i t h the Treasury Department w i t h regard
flo?
to the fund proposed, ant other matters incidental t e the
operation e f that plan?
Tha Ghsirmanit
Y e e
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Federal Reserve Bank of St. Louis
in regaré
2a o n the
which h a s
Bre M e c
motion w a s c a r
question i s addressed
I would enaweor i n
any more meetines unless they a r e absolutely
necerscry, I T am suree
anderse t h e t satatenent.
meeting o f the Beard o f Goyar~
meating o f the committee.
av, AeDeural:
t h i n k i f you are willing t e leave i t
cousittes that w e can h a n d l e i t withoet difficulty
eee
C
x
aalline t h e Gevernors together.
That is &
in mind )
<4
s
F
s
a
e '
istiraent Z e e r motion weeltt refer those iteas
and Gewernor MeDougal will t e s that a
prompt report i s mde t o all the Sovernors e f the aotion
taken ter t h e oemalttea.
Geysrnor M e O o r d ?
D e e n t h e t a n e w e r y o u r poirt,
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Federal Reserve Bank of St. Louis
exactiy
what t
# Ca Ln At
S e
aed
we
come again i n erder t o see what
page o f o u r
items
o f
polit se”
Reserve Seard,; a clreviar
your handie« . : % Was o n t h e
—
no
s c l i e n
it
w a s
O w
t a t e n
e e s i r e
pregram of cur lact meeting ent
k e
i n regard
t a
e e n s i d a r
i t e
t h a t
a m t t e r
a o e
t a k e
a t
mmtiers?
whether t h i n i s t h e c o m p l e t e d
wi
See
s
e
n
t
to us
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
ae
y ie.
Td
the puss-book. A
savings account i s payable o n demand
with & cheek accompanied b y the pass-book, w i t h t h e previnion
that i n ease t h e bunk wishes i t they m a y demand netice.
fhe Chadrwen: G e v e r n e r Yold, o n reading the eireular
i understand that i t states that five p e r cent reserve i s
enly required o n savings acescunts. S a v i n g s accounts a r e
defined i n the regulations a c accounts which a r e speeitied
_by the bank i n its printed regulations, a n d accepted b y the
depositor a t the time the account i s epened.
U n d e r the
sub-paragraph A it. epecifies that i n such accounts
| Book, certificate o r other similar f o r m eof receipt must b e
presented t o the bank whenever « deposit o r withdrawal i s
made. T h e intention o f Paragraph EB on the first page e f
the circular, a a I understand, i s to restrain the possible
tendency that banke would have t o have @ eontract printed i n
their ordinary commercial pass books, which would give the
bank t h e r i g h t t e exact «
motice o f t h i r t y d a y s , n e t w i t h e t a n d s
ing t h e fact that the deposit i s subject t e check without |
presenting the pase-book.
t h e atatement o n the latter part
of the page makes clear that i t i s the desire o f the Pederal
Reswrve B o a r d t e protect t h e b u n k i n e e y e t e m a s a
whele
| from t h e undue develomnent e f any tendency t o put ordinary
commercial deposits, which may b a witharem without present<
| ing @ paes vock en the five per sent reserve basis,
Mrs MoCord:
own district?
M a y I relate a little experiences i n my
i
n find thet s o m e e f the leading hanks savings
departments i n the national banks have permitted t h e pass-beck
| to be left at the bank; the check is drawn and then entered
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Federal Reserve Bank of St. Louis
885
house.
stop that practice I would have the national
bank examiners
make a n examination a n d force all o f their savings aceounts
inte t h e fifteen p e r cent reserve
T h e object o f that
¢ business was t o use a s much o f their
deposits
ould i n t h e i r s a v i n g s d e r a r t m e n t u n d e r t h e f i v e P e
reserve, l e a v i n g t h e c a s e b o o k t h e r e
at the convenience o f the elerk.
T h e y have raised
& complaint and have said that T have ne
right te. dictate
to them about their savings accounts.
I
told them that I
had a right to say something about the manner
savings
in which they
Were @arrying their/aeesunte, a n d I told them that i f
they were going t e carry i t i n that a n :
would have
t o
deicare t h e m a demand deposit.
It occurs t e m e that w e are getting altegether t e o many circulars t e send t o our member banks. T
think i t could b e handled threuch t h e national b a n k examiners
much more satisfactorily.
I
f they eannet prepare a
that t h e G o v e r n o r s e a n u n d e r s t a n d a n d a c r e e
on,
cirevlar
h o w i n the
vorid a r e t h e member banks going t o eonstrue that.
L e t
them notify t h e national b a n k examiners a n d Tet t h e
examiners inatruct
The Chairman:
a
n
d e008 that they d o it.
w h a t i s yeur sugeestion i n regard t e the
circular, G o v e r n o r
Mire Volds
E
y sugeestion
i s t h a t t h e cirevliars g o t o
the national b a n k examiners a n d t e the Governors o f the
banks, a n d not t o member banks.
i t will stir them 411 u p
again o n this thing, a n d they a r e sore enough about i t now.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
@ aitiet
ee 4)Ke
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Federal Reserve Bank of St. Louis
A
c
d
7
Phe
4
: s eide
c e A2
eek ae
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Federal Reserve Bank of St. Louis
r e,ea xon
L
ey o
ae
& ~
e3
a4 ]
e
Fs
Mr, Seay? I
was Giso informed, o r at least i t was
reported t o me, that some members o f the Federal Reaerve
Board h a d intimated that t h e fees o f the members o f the
Couneii would b e the same a s those f o r out-of-town direce
tore.
K o w e v e r , that wae 4
Tne Chairman:
T
mere report.
a t h e p r e c e d u r e t h a t I T have r e c o m e n d e d
entirely satisfactory?
{The was n e response.)
The Chairman:
I
n the absence o f objection w e will cone
sider the matter disposed o f i n that way.
He. MoDouval:
M r . Chairman, t h e letter which you have
addressed t o Governor Kawlin i s entirsiy satisfactory t o
He «
The Chairman:
Gentlemen,
i f there i s n o ebjestion I
| Will a s k Mr. Curtis t o sign this Letter a s Sedretary,
a 9 that |
S46 t h e plan, a n d possibly Mr. Hendricks will b e e604 enough
to deliver it.
Goritlemen,
' ie fleeing. I
Mr. Seay:
V e dotet want t e entrust i t t o anyone else,
m y attention i s qallied t e the fact that tine
d o not want t o b e disagreeable,
Y o u a r e never disagreeable, v r . Chairman.
The Chairman:
T h a a k you, Covermer Seay.
B u t i f we
want t o get this program behind u s lst u s get a t it.
May I suggest that the same course b e pursued with
regarg t e I t e m Mo. 6 , a s w a s f o l l o w e d w i t h T t e u N o . 1 i .
itam No. 6
is o n the subject o f tonding employes o f the
Pederal Reserve Agents. i
sugeest t h a t that b e taken f r o m
our progrtm and referred t o sach bank for their individual
decision, a n d that n o genera) polisy b e considered a t the
present time,
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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
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Tre Chairnaan
I f w e fellow t h e preeedsre followed a t
the last conference, a n t what w e have dene s e fer a t this
conference, w e will make « verbal report t o tha Federal
Reserye Board i n dve
seem i t w i l l oocer,
?t
a
n
d without promising how
h e reoommendations
o f this charaeter
to t h e F e d e r a l
Reserve Board
the Secretary a n d made a matter o f records
Mre Seay: W i t h o u t desiring t e prelong the pregran,
but a s being « matter o f @mban intimate relation t o
have a a nenayes I
would like t e say that I have been i n -
foraed t h a t the Ceaptrellar h a s made «
rvling v y which h e
now c o u n t s b e r r e w e d b o n d s w i t h i n t h e L i m i t o f l i a b i l l t y
which a bank aay incure
ur. Wold:
F r o m their o m federal reserve banks?
(Disevssien followed.)
Tie Ghairser:
upon more premptiy i f you would offer 4
Mre Seay: I
i t n o t b e acted
G o v e r n o r Seay, micnt
a e offer a
resolution?
resclutica
Tnet i t be pebaltted t e the Comptreller that ‘bends borrowed
shall b e execleded from the limit o f liebility which may be
incurred b y national tanks under t h e law.
a ruling t e that effect. I
H e has made
a m not positive that h e has,
but I am informed b y ene of the banke i n o w city that
a
h r:@ed that bonds borrowed b y national
the G o m p t r o l l e r s
banks a r e n o w counted i n their liability a e bills payable
and that re~discouts a r e counted.
M y motion i s that
auch berrowed bends--- t h a t i t i s the sense o f this
meeting that such borrewed bonds sheuld net b e eccounted as
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Federal Reserve Bank of St. Louis
is the question?
re Seay: B o t the ten per cent limit, but the 100
per cent limit. I
was asked t o take i t u p with t h e Comp-
troller a n d not t e teke i t u p with this body. T h e banker
that definitely informed min me that t h e Comptroller h a d s e
ruled i n his case was a rediscounter and h e also was o lerge
perrower, presumble f o r the purpose o f helping his depositers under t h e conditions which n o w exist; a n d h e was i n e
formed b y the Comptreller that the bends berrewed b y him,
against which cirevlation h a d been paid o u t would b e ecunted
o f t h e 1 0 0 p e r cent l i a b i l i t y w h i c h h e w a s a t
as a part
IP
liberty t e ineor under t h e acte
Te G h a i r m a n t
T h i s seems t o b e a
raised b y cne bank with foverner Seay'«
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Federal Reserve Bank of St. Louis
specific q u e s t i o n
I f Covernor S e a y
is willing t e carry cut whet w a s apparently h i s original
intention,
o f omking t h e inquiry e f the Comptroller, t h a t
might a c c o m p l i s h w h a t h e h e s i n mind, a n d i f t h e r e s u l t
ef his inquiry i s conveyed later t o the Governers o f the
banks, then it may be taken up directly by correspondence
with the Comptroller.
Seay: I
a m entirely willing t o withdrew m y motion
Fancher:
T h e second t o i t hes been withdrawne
Chairmen:
I f there i s n o ebjection t h e matter
follew that ecurses
We then have t h e remainder o f the second pavee T h e
third pare i s completed,
Mere Fancher?
W h a t a r e your wishes, rentlenmene
D i a If understand f r o m the conversation
with t h e federal Reserve Zoard o n yesterday that t h e y were
axpeeting u s te discuss acesptances, and t o « k e sone recome
mendatiens?
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Federal Reserve Bank of St. Louis
The Chairman: g
P h e y apperertiy wished u s t e con=
sider t h a t m a t t e r .
are Fancher:
T h e n I move &
The moetien i s that « e
"Regulations respecting acoepteancete®
(The motion, being duly seconded, was carried.}
een ‘
Txe G h a i r m a n t G o v e r n e r M a n l i n f i n a l l y d e c i d e d n o t t e
svbait t e os ‘or consideration « draft er various drafts of
propesed regulations which they have been considering, b a t
asked u s generally f o r e n expression e f cur views o n ive o r
three points i n c o n e c t i o n w i t h that matter. Y o u will r e eall t h a t Sectinn 1 3 o f the Act provides that a n y Fedoral
feserva bank may discount aceeptances when endorsed b y at
laust o n e sesber bank. T
o m reading this incompictaly, b u t
it, will bring out the point ‘fer discussion. ‘Section 1 4
provides that any Federal Reserve bank may purchase and
sell i n the open market bankers’ acecestanees with o r w i t h
ont t h e endorsement o f a menber banks
The problem eenfracting the Federal Reserve Board, # 6
I understand it, i s sonewhat a s fellows: T h e provisions e f
Seetion 1 4 appear t e apply t o a different character o f trans+
actions f r o m the transactions contemplated b y t h e nrevisions
of Section 14. S e e t i o n 135 indicates t h a t aceeptances
s
‘will b e discounted f o r mesber banks w i t h amember bark’
endorsenents. S e c t i o n 1 4 apparently contemplates that t h e
Federal Reserve Yen’ s, upen their own initiative, - a y pure
enase i n s t r u s e n t s w i i c h a r e d e s c r i b e d n o t a s a c e
as banker's acceptances, i n the epem aarket with o r witheut
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Federal Reserve Bank of St. Louis
the endersenent o f a member bank, T h a t raised a nusber e f
questiona: F i r s t , dees the rate o f diseornt establianed w y
the reserve hanks for the discount « f paper epply t e the
diszeornt o f acesptances a s describéd i n Section 12, when
oounted with the endeorsesent o f a merber Dank, and sinpiy
make clear b y a separate section that a pert o f the discounting business o f the reserve bank shall b e the diseounting
of aceeptaness,
o r doas i t mean i m fact that Sectien 1 3 s w u l d -
be construed t o read, i n seue way, i m connection with Seetien 14, s o that the Federal Reserve banks could deal w i t h
acecptaness under both sections o f the law at the sane rate,
and t y substantially t h e same sethod?
Mrs Wold:
sion, I
I n order that i t = a y b e open f e r ¢iscus-
move v o u that w e recomaend t e the Board that, i n
dealing w i t h t h e a c c e p t a n c e s ,
w e oparate under «
conetrre=
tion of Seetion 14, witheut reference t o the discount rate;
and where t h e acceptance i s b y a menber bank 1 % m a y b e
taken without.the endorsement o f a mexber bank?
The Ghairman:
Y o u have heard Governer Yold’sa motions
Is i t seconded?
Mr. Wold:
t e t t h e m make a
ruling w i t h reference t e
open mrket operationss
Mire HeGord:
O n e i s an open market operation and the
other i s a regular re-discount.
The Chairaan: I
de net want t o say anything that would
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39¢
infleence your opinions d i e t this matter o f acceptances,
but I have « pretty strong «pinion, and unfortunately I fear
that i t i s 4ifferent f r o m thet enterteined b y the Federal
Reserve Beerd. I
will endeaver t e state the two viewn;
that i s the one that I understand i t entertained b y Mre ¥Yar=
pirg, s n d t h e one that I
expressed t e him, e n d possibly that
will give « basis for discussions
I have endeavored t e persuade t h e members o f the Board
thet Section 14. really means that the federal Reserve banks
are given e certein privilege t y t h e statute o f which they
y a regulation of the Federal Reserve
eannot be deprived b
Board, and that privilege i s te buy and sell, i n the open
market, bankere’ aceeptaness vith or withopt the endersement
of member banksy That, I claim, i s a statutory privilegs o r
right w h i c h i s expressly covered b y a n esriier section o f the
Act, which defines the powers of the Federal Reserve bank Se
I will teke the liberty here o f reading it» Section 4 of
the Act providess
*Taat t h e Federol reserve b a n k shall have power t o
exercise, b y its beard of directors or duly authorised offi~
ears o r agents, aii pewers specifically yranted b y the p r o e
vistons of this Act, on@ sveh incidental powers as shell be.
necessary t e carry o n the business e f the bank within t h e
limitations preseribed b y this Acte*
That i s te say. that paragraph Y of Seetion 4 of ths aot
ant*erigsed these banks t e buy and sel] i n the open market,
bankers’ aceaptaness wither without the andorsement o f &
member bank, and that the only limitation which’ tne Board
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hes t o impose e p e n o u r exercise c f that right t a contained
in the first paragraph o f Section 14, which stetes that
this right shall b e e x e r c i s e d b
y Federsl Reserve banks under
rules and regulations preseribed b y the Federel Reserve Boards
I have taken the position that. the words “barkers’ ace
eeptences"™ cannot b e eonstrued te mean ag¢ceptanessfo a
wenber bank only; that i t means "bankers' acceptances", a n d
not “*macber bank acceptances"; a n d that the reles and regula
tions t e be made b y the Federal Reserve Board must necessarily
ba confined t o such reasonable requirexents a s t e the Board
may impose upon the banks t e safeguard the eperations o f the
banks against t h e purchase o f bad acesptances;
t o prohibit
them frem purchasing « class e f aceeptances which might n o t
be specifically avtherised b y the statute, a n d t e require
necessary reperts t o the Federal Reserve Board o f the kind
ef aceeptences that they are buyinge
The requirecent weieh has been contemplated, and 1s contemplated b y Gevernor o l d ' s motion---that acceptances ether
than those made by sember banks must be endorsed by member
banks--~ i s in fact a prohibition arainset the exero! e
s
of the powers specifically granted b y the statutes I heve
sent & written comamication t o t-=« Beard personally i n
regard to that matter--- and not speaking for you gentisnens~ |
calling i m question their right t d impese e n y s u e h Limitations
Whether they adopt thet view o r m o t o f course I cannot saye
Bet I feel that 16 is of sufficient importance te express
thet v i e w # 6 them personally, for. this reason:
T h e obfect
of this ldw, o r one o f the principle epjects o f this l a w
was t o develop a market f o r a new class o f paper, that ify
bankers' aeeeptances; a n d toe facilitate the develop«ent o f
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Federal Reserve Bank of St. Louis
o develop ®
that merket a s preaptly a s possible i n o r d e r t
eartain class o f investaents b y banks i n the United States
that might b e made readily convertable b e t h i n the cpen mark-4
et and a t the reserve banks whenever e n oecasion arose f o r a
seaber bank t e strengthen i t s reserves.
T h e imposition e f
a requirement o f 6 aceb-r bank's endorsement o n bankers*
aceeptances will reslly m e a n that until a
considerable a d =
interest
wedewiesa rates oecurs, s e that other loans conmand
i
n
vance
higher rates then bankers’ acecptences, i t will b e impossibie t e exact that endersement. The claim i s made, I am informed, that the requirement o f endorsement b y & menber bank |
the aceeptances o f a nonenenber bank i s necessary i n ore
that the member benks shorld not gain the impression that
privileges of the system are in sone way being extended
te the banks which are net members o f the system.
T h e ane
now
ewer t o that, i t seess t o me, i s that w e are endesvoring
to secure the adoption o f a regulation which will i n fact
facilitate t h e business with every member pank;
i n other
by
words i f the mesber banks invest i n sceeptaneces made
State banks that are not member banks, their objects are
eerteinly prometed b y having that paper made liquid and avedlable f o r sale t e the Federal Reserve banks. I
can imagine
the possibility o f a restriction being imposed such a8 was
contemplated before this Act was passed, t o the effect that
might
only banks whieh had « caplitel o f a million deliars
accept. I
believe that i s contrary t e the purpose o f this
Acts. S t p p e s e i n fact that a limitation u p o n eceept ances
was placed very much higher t h e n that a n d thet only banks with
a eapitel e f twenty-five millions might aceept? T h a t
would esrtainly restrict develepment i n the discount markete
The next thing t e accomplish and what w e shovld strive fer i s
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Federal Reserve Bank of St. Louis
a condition i n the dliecount market which will result i n « rate
en that class e f paper which i s below the call rate o f col=
lateral leans o n the N e w York Steck Sxuchangej a n d that e a n
enly b e brought about b y facilitating t h s ereation e f the
largest pessidle volune e f that paper a n d t h e breadest p o s
sible aarket for it after it is create’; that is te say,
the largest n u a b e r o f buyers and sellerse
I take t h e position, a n d tase t h e liberty o f expressing
tha view, thet any regulation requiring the endorsement o f
acceptances b y e e
b a n k s i s an unnecessary limitation
to the development o f the business a n d is execseding the power
of the Federal Reserve Boards
Mr. Kaine:
Y h e t o n y b e so, a n d I may s a y that I
om
in hearty accord with everything that you have ssid; but T
think i t would b e well t o delay action e f that kind until w e
get o n cur feet,
T r e Kinds o f eeceptances that y o u contem=
plate d o not exist i n the country generally, but only exist
te a certain extent i m your neighverhood. Witimately T
think w e should 4 e everything w e cen t o encovrave that and
te have @ bread discount market, b u t e s I say, until w e get
other matters settled with regard t e our system, w e can very
wall a f f o r d
t o leave t h a t f o r a
f e w montnie
Governor Kains, you probably have in
mind=--
o r a t least I
infer t h e t y o u heave i n minde«- t h a t
News
this vrivilege o f apaegseian m a y b e used b y stste banks i n
a way that good sound practice will mot justify.
T h a t ime
pression i s apparently getting s o m e footheld i n our dise
trict; that state banks are adking ratherrmemkkexx reckless
use o f the privilege o f acceptance. f e c t i o n 1 4 preseribes that
the only kind o f seceptaness which m a y b e purchased a r e those
Which are eligible for rediseeunt,.and the only kind o f ace
Ceptances that a r e eligible f o r redisceunt arse those de«-
seribed i n Section 15, “hich arise out o f the importation
oy exportation o f goode. I
think i t i s a fair asumption
that t h e aeceptanece w h i c h c r o w s o u t o f t h e i m p o r t a t i o n
or ae
pertation o f goods, wheather made b y a atate institution e r b y
a national bank e<- that i s b y a non-member o r by a member bank
must o f necessity b e o f a character that i s generally
acceptable a s proper aeceptance. T
have n o fear that the
acceptances that will b e purchased b y the Federal Reserve
banks will b e of a n unlawful character a s you have i n mind,
because this limitation protects the bank agsinst such
purchases, and furthermore the imposition of any such restriction b y way of endersement, a s Gevernor Yold sugaekkx
suggests, w i l l n o t operate t o restrain t h e doing e f business —
one particis.
T h e State banks a r e going t o d o i t just t h e
same, T h a t simply means that there will b e i n the market a
@lase o f paper that w e ars not authorized t o invest in.
Ur. Yolds I
appreciate your point o f view, a n d i t i s
| Well taken, T h e r e i s no criticism o n my part o f the matter |
on that understanding o f it, but #wewld i t net involve the
necessity,
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Federal Reserve Bank of St. Louis
o n the vart o f the Federal Reserve Board, o f pas-
&Og
sing upon Gredit f o r u s t e seme extent?
T E i l n o t that b e
so if they are to determine what aseeptance other than acGeptances o f member banks a r e t o b e purchased b y us?
The Chairman:
G o v e r n o r Yold, I
d o not want t e make a
record h e r e t h a t w i l l h a v e t h e a p p e a r a n c e
that will indictae, t h a t I
a t a n y time,
or
a m endeavoring t o influence y o u r
own convictions about this matter, beecanee I have discussed
it at great length with some o f the Federal Reserve Board
and used every power o f persuasion that I have t o have them
make @ liberal regulation. W h a t I have stated i s practionliy
everything I
have i n mind a s a general policy. T
believe that a
ean readily
regulation c a n b e prepsred under which i t
that are what you might eall regular, a n d that w e ean d e go
with the utmost security <--- atate b a n k national bank o r
private bankers' accpptaneces <<< and without the endorsement
of member banks. A b o u t t h e same judgment i s needed t o
apply t e that business a s t e any other business i n the
hanks. I
d o not believe w e shovld r e l y upen a
definition
or Feguiation o f the Reserve Board «<--
¥ M r . Yolds
T h a t i s exactly the point. I
am afraid
if yeu a s k f o r a liberal eenstruction a t this time they will
modify it, a n d I do not want t h e m t o pase upon o u r credit.
I want t o leave that matter open t o the individval judznent
of the people managing these various banks.
The Chairman: h a t would be & good way to submit it
to then.
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Federal Reserve Bank of St. Louis
Suppese y o u h a d a foreign branch,
T h i s
405
section 1 4 allews you t o de#l i n those acceptances either
athome or abroad. Y o u gould not deal in them at ali
abroad i f they were required t e b e endérsed b y member banks.
The Chairman:
T h a t i s a very good point, Governor
Semy.
Yr. MoCord:
S u b d i v i s i o n E F of Section 1 4 govers t h e
sondition. T h a t question has been threshed out before the
Currency Cosrsission for the last eicht years and finally
belled d o w n t o that o n e particular feature.
The Chairman:
A s I understand i t Governor MeCord
refers t o Sub-division FB eof Section 14.
H e has enlled atije
tention t o the fact that o n e o f the powers extended t o the
Federal Reserve banks i s t o b u y bills o f exchange arising
out o f a n actual commercial transaction which h a s not more
than ninety days t o run, a n d which bears the signature o f
two o r more responsible parties without regard t o whether they
are. member banks, non-member banks, corporations o f the
United States o r even citizens o f the United States.
Mr. MeCord:
T h a t i s right.
The Chairman:
I
t would b e inconsistent t e make a vente
lation t o apply t o the purchase o f domestic paper which weuld|
ve so much more strict in its application then that aprlying |
te the purchase o f paper i n foreign markets.
(Informal discussion followed.)
The Chairman:
M i g h t i t not b e pesdble t o adept a reso
lution a t this meeting which will make = general recommendation t e the Federal Reserve Board i n regard t o t h e treatment
ef this matter?
T h e r e s e e m t o b a two questions.
O n e is
whether s e c t i o n s 5
1 and 1 4 shall b e considered together a n d
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
406
wade the subject o f one regulation o r whether there shall
be separate regulations applying t e acceptances and bankers?
acceptances a s described b y these two sections.
T h e other
question seems t o t e specific, a n d that i s whether e n d o r s e
ment shall b e required o n seceptances made t y other t h a n
nember banks,
Mr. Cuvtie: ©
(Yhele distributing papers) I
might say,
gentlemen, that thie slip o f paper being passed around
was hended t o m e either b y Mr. DPelanc o r some other member e f
the Beard yeuterday afternoon, w i t h & request t o gonesider
its c e n t e n t s a n d l e t t h e B o a r d h a v e t h e b e n e f i t
o f any concive
sion that w e may reach.
The Chairman:
T h a t reminds me that we are under agree-
ment t o donveay t o Governor Hamlin a n expression o f our desire
in regard t o meeting t h e Federal Reserve Board. I
think
we should communicate w i t h t h e m a s t o what w e are t o do.
I f
it i s your desire t o postpone t h e meeting o f the Hoard u n t i l
tomoerre’ morning, w e may d o that. P o s s i b l y w e can have a
very brief meeting this afternoon with the Beard, a n d devete
as much S a posdble o f the sfternoon t o the discussicr o f
Collections, reporting o n that subject matter tomerrow morning.
{Purther d i s c u s s i o n f e l i o w e d « i t h r e f e r e n c e
t e the
meeting of the Pederal Reserve Board.)
Mr. MeDouzal:
I f i t i s i n order I wili make a metion
that the plan a s you have outlined i t be followed:
T h a t
we meet with the Board, i f it is agreeable with them, a t five
e'eleock this afternoon a n d again tomerroy morning.
Mr. MoCord: I
will second that motion.
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Federal Reserve Bank of St. Louis
the tersas e f t h e aactes. s h o u l d n o t r e a s i r e t h a t F e d e r a l
Reserve banks require the endersements of: mesiber banks o n
eceaptences made b y nonemesber banks a n d other nonecenber
aceepters, uider Section i d e
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Federal Reserve Bank of St. Louis
Mre Aixent I-seecend the motions
Ure McDougal: T h a t would hawe the effect, Hrs Chairman,
ef treating Section 1 2 a s a rediscount ontter, a r d Section
14 «8 an open market purchase, indepandent o f cach other's
Ghsairman: Y e s s
HeGord: I
«a in favor o f if thene
0.Wells: ¥ o r Governor MeDeugal's information, T
¢ motion h a s been passed t o the effect
2
that }
o
f this meeting that t h e term “aceepte
ance", under Section 14, a n d t h e term *hankers’ aceeptance", —
under Seetion 144 were clearly intended to be separate and
distinst.
tire Seay:
I n reference t o that motion, i n which I
eencur, I would like t e ssy that the matter.was before the
Advisory Gouncil, o f sich you know T am also « mesiber;
that t h e Counell h a d i n viuw t h e distarbed relations
which existed i n other countries, e n t the way i n which i t hae
affected this ecuntry, and because of that condition of affairs, a s I understoed 11, they recomended that for the
present such acceptances should not b e discounted exeapt
when endorsed b y a menber bank.
A s I recollect i t that was
with the view that the firemees o f this country shevld ast
become tied u p or invelvedwith these o f other countriese
They cited this case: Suppose that such acceptances had
the
been i n t h e h a n d s o f Federal R e s e r v e b a n k s a t t h e t i m e
moratorinma was declared? T h e r e would have been a Ferry
material tie-up o f the resources o f the banks. They therefore theught that under conditions i f would d e wise n o t t o
discount such accept anmecs a t this time without the éndorse=-
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Federal Reserve Bank of St. Louis
sente o f member banks, I
did n e t understand that t e mean
that they were connecting section 1 5 and seetion 14, but
that t h e y recomsended s u c h action f r o m the viewpoint o f
pradence a t this timte
The Chairman:
T e r e h a s been same misapprehension i n
regard t o the effect o f the moraterium upon a n American bank
whieh held aceesptences i n portfolio i n England a n d a t other
foreign points when the moraterium was declared.
T h e
Commereial a n d Fineneial Garonicle e f Hew Yerk published
an article i n which they attempted t e establish t h e fact that
there w a s a very lerge amount o f Aserican banking resources-=
I think they said $280,000, 000-<<8 which had been rendered
entirely unavailable t e American bankers b y reason o f the
inability t o d e anything,. collect discounts,
bills i n portfolio i n London. 1
o r deal w i t h
sa confident that that
is an entirely aisteken impression..
B y the terme o f the
moratoriua those bllis which were extended i n that way, end
whieh were i n the han«s o f the Lendon banks a n d éiscount
neuses, could be taken at once to the Rank of Sngiend, and
aiseounted a t a n agreed rate.. A s a matter o f fact, these
pressure
benks a n d discount houses which were either under
er feared that they might b e put under pressure, discounted
as much, possibly, a s 50,000,000 pounds Sterling o f these
very bills wiich i t was clained eould n o t b e collected.
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Federal Reserve Bank of St. Louis
There i s a geod deal o f misunderstanding a s t e what actually
coecurred i n t h e market.
(Inforsal diseusaton ensued, which the stenegrapher
was directed net t e report
ee
Bre Boia:
T e retw
t o t h e motion, # h i c h h a s b e
oes
seconded, I
a m afraid i t will result i n the rather arbitrary
toord,.
W e want t e get a w a y
sheent o f a r b i t r a r y releage
W e have
thOm N O s
Chairaant Y e u r faar i s aine. I
feared
tation will b e madee-~- that t h e recemsendation o f
will preveil a n c a n arbitrary rule will b e inendersesent o f aeesttoneess W h a t
éiscretion which will enable v s te buy
geod ones a n d reject b a d onese
ire Wold:
O n the other hand the edeption c f that
rasolution will resuit i n allewing great latitude, s e far
as aceentances m a d e b y m e m b e r b a n k s a r e coneerned,
b u t when
it s e m e s t e o p e n m a r k e t e p e r a t i o n s a n d a c c e p t a n c e s m a d e
by
other. t h a n s e m b e r b a n k s , t h e r e i s where t h e a r b i t r a r y
~
rule wil) allew n o discretion o n the part o f the Federal
Reserve bdanx a s t o what 4 % will 6 akee
Tse Chairman: S u p p o s e t h e y could b e persuaded t o seke
a regulation which will avthcrize t i a Pederal Reserve banks
to b u y a n d sell a n y bankers* acceptances where t h e m o d e s
accepter published 4
statement o f his eendition,
e r furn-
ished a statement o f hia cendition, t o the Federal Reserve
Bank, which was satisfactory i n every character
re Gold:
T h a t would remove every objection,
That
is Just whet w e wante L e t t h e responsibility b e upon t h e
‘yeserve benks a s t o what t h e y tates
ire Seay: T h i s i s a tice when they aré preclaiming that
they heve t h a very best eppertunity f o r this country t e z o
after foreign business, a n d when m u c h enecsuragenent i s giver
toward the esteblishcent e f branches o f Aserican banks i n
foreiom coumtrics, ‘ C a n rou d o much there witheot t h a t regulation?
fae Chairman: I
ean oniy tell y o u what t h e situation
is in New Yerk. T h e oniy national banke=-- thet i s only
aember bank--« aceepttances made i n New York City, a s I have
been told, have been acceptances made b y the notional city
banks. I
aa informed b y the brokers that the national city
banks b u y all e f these acceptances t h a t they c a n l a y their
hands on.
O n the other hend there are a very large nember
of aceeptances i n the market there made b y trust comranies
and wary g o e d trust companies, a n d d y p i v
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Federal Reserve Bank of St. Louis
of the highest possible standing.
p r i v a t e bankers
T h e r e are 6
few aceaptances
Few
coming inte t h e market made b y member banks outside o f
York City, bet very few in number and suall i n smount
as compared with these o f the national elity tankse
(Infernal discussion felleweds)
fne Ghairwent I
understand t h e motion weuld d e that
the eonferance recommend t e the Federal eserves Board that
srch regulation a s they make t o govern t h e purchase o f
acceptanessy under the terms o f Section 1 4 o f the Act, shall
ye o f such a clmracter a s will enables Yederal Reserve Panks
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Federal Reserve Bank of St. Louis
te buy accep tancas e f sember barns, non=mesber benks, a n d
private bankers, where they cay arrange for e satisfactory
statasent eof the condition o f the acceptor, a n i that i t i s
sense o f this meeting that scech a course wil] promete
establishient o f benking relations throughout t h e world
that a r e necessary t o the nlargesent o f trade a n d commerce.
Geverner Seey: I
concur i n those viewse
(The motien was secondcde)
Mr. O,. Walls; T h a t motion was offered D y yeu,
Soyernor
Chairman:
G e t s e eerrect t h e reeerd b y making this
The m o t i o n o * f a r e d
waconded,
b y t h e Chair,
which was duly
i n regard t o any reculation issued b y the Federal
Reserve Board, under the teras o f Seetion 14, was overe
leoked, t h e question being called f o r o n the motion o f
Geyernor Seay-<-<
Mre Seayt T h a t i s o n the question t h a t a r y reervilations
mace by. the Federal Reserve Beard i n relation t e Seetion 1 4
should not restrict t h e powers granted b y the language c f
the Act itself, b u t should merely
the exercise o f those powers.
b e regulations governing
I s there & second t o that
motion?
Mry Aiken: I
second the motions
Hr¢ Seay T x e n t h e motion i s earriade
(The motion, b e i n g put t o = vote, w u s warriets}
The Chairman:
T h e last resolution w a s offered b y
Geverner Seay and has been secended. I
would like t o ask
if there i s any further discussion e f it?
Mre Kaine:
premature. I
M y only feeling i s that i t i s a little
agree with it, bet I think i t might well ¢oame
up sixty days f r o m mowe
Mre Wold: T h a t leaves i t u p te the Federal Reserve
bank t o decide f o r itaclf whether i t warnte t e enter t h e
market o r note
The Chairsan:
P e r h a p s i t weuld b e well t e review what
action has been takene T h e first resecletion paased w a s &
recomsendation t o the Federal Reserve Board that a regue
letien b e made specifically applying t e Section 14, a s diatinguished from Section 15, such regulation t e govern the
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Federal Reserve Bank of St. Louis
purchase a n d sele o f Renkers' aceeptances w i t h o r witheut
the endersenent o f member banks.
T h e second resoelstion
expressed t h e opinion o f thia meeting that a n y such regule-
tion a s that adopted should not unduly restrict the exercise
ef the statutory powers specifically conferred upon Federal
Reserve banks under the teras o f Section 1 4 of the Act. The
third resolution, wiich has new been submitted, eontem=
plates recomuending that acceptances o f meaher ban«s, nonmember banks and private banking firms, b e made eligible
for investment a m b y Federal Reserve banks when t h e aceepi~
ers furnish satisfactory statenents o f their condition; e n d
that s u c h a policy will promote t h e establishment o f venking |
relations throughout t h e werld that a r e necessary t o the
enlargenent o f trade and commerees
Are you ready for the question om the last motion?
{The motion was put and carried.)
Tre. Ghairsan:
T h e jast i t e m i n this discussion would
naturally b e the memorandum submitted b y Gevernor Hemlin,
which draws attention t o the fact that t h e discount o f
aceeptances when endorsed b y a member bank, under Section
15, i s specifically limited t e one half o f the. paid=up
eapiteal steck a n d surplus o f the bank b y which redisecount i s
made; whereas under Section 14, where the endersement i s net
required, t h i s i s the resvlt o f their action i n the matters
The Federal Reserys banks will b e under n e restriction whateyor a s t o t h e a m o u n t
t e b e purchased.
T h e r e f e r e there i s
a curieus incensiatency i n this Aety that is, they have a
limitation te 80 per cent of the amount e f eapitel stock and
surplus which applies t o billsthat ere discounted with en=
dersemant,
a n d a n unrestricted a u t h o r i t y w h i c h spplies
te
the purchase ofbankers' aceeptaness which s a y b e done withe
ont e n t h e endorsexent o f the mewber bankee I t looks a liftie
bit t e =e a s though the only action that aight b e taken now
would b e t o reecomaend some change i n the statute,
Mrs Wold:
T h a t i s the only limitation i m the entire
det with referenes t e the amount o f credit that t h e Federal
Reserve Rank will extend t e a menker bank. T h e r e i s no
other limitation i n any part o f the Aet, that I reeall.
:
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Federal Reserve Bank of St. Louis
T y e Ghaireant
O f course this question could n e t have
ayieen i m the minds o f the Federal Reserye Board unless
there hed been some discussion o s t e whether the limitation
ef Section 1 3 m i g h t n e t b e construed ito apply t o operation
under Section 14, e r possibly i t might have been suggested
that inasmuch a s Section 1 5 p l a e e d «statutory limitation
upon the amount of Mability, that i + aight be necessary,
for the sake o f consistency, t o place « similar limitation
by regulation, imasmuch a s the statute omitted t e d e it.
There i s one thought t h e t i s very stronsly i n m y wind, a n i
that i ¢ that t h e Federal Reserve Board really i s not auther=
ized t o w o herond a certain point, T h e y camot lagisiate;
the lagislation i s completed, a n d the legislation,
a s I read
it, specifically states that t h e Federal Reserve banks s a y
have the r i g h t t e 4 0 eertein things witheut t h i s limitations
I cannet see how the Federal Reserve Board can now introduce,
Beg sone othor method, @
contemplated
limitation thet i s eertainiy n e t
b y t i e Statutes
Mre Seay: Y o u mean a limitation i n the amount?
Zhe CRairnean: B i t h e r a limitation i n the amount, or,
bygetting at 16 im some wer, for instence by requiring
the a s t a b l i s h a e n t
o f standards,
e r seme other arbitrary
regulation which defeats the express purpese e f the bill t o
give these banks the right t e de certain kinds o f business.
Ure Wold:
W e cannot undertake t o stand u p o n e literal
translation o f the Act i m one place, e n d a s k for a “ifferent
construction i n anecther placée W h y not reeomiend that t h e
eee
e e b e applied t e dealings under Section 1 3 but not
applied i n open market operations, under Section 147
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Federal Reserve Bank of St. Louis
The Chairman:
I s thet your motion, Governer Wold?
Mre Wold: I
effer ouch a motion.
I t will place u s on
record, a f least.
a: I
secené the motion.
I would like t o Weve that repeated,
Shairaant F o r the purpede e f the record m y I
state t h e motion ence mere,
Yeld has offered a
A s I understand t h i s Geverner
resolution that i t i s the sensé e f this
meeting t h a t S e e t i o n 1 5 o f t h e A c t s p e d f i c a l l y i m p o s e s a
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Federal Reserve Bank of St. Louis
limitation u p e n t h e amount o f accep taness.waich s a y b e d4in-
counted for meiber banka with their mdorsement, a n d inase
much a s Section 1 4 emits any s a c h limitation, i t is regarded
as not desirable that any such limitation should b e a‘ tempted
by the Federal Reserve Board; b u t that t h e express provie
sions o f the statate should controls
Mre Wold: I
want 1 4 left t o the gJadgnert o f the
various banks theaselyas.
I f we haven't w o t t h e preper
judguent, t h e y should g e t sosebody claee
Tae Chairsan:
A n d that t h e purchase o f aceeptances
under Seetien 14, beth a s te eharacter and anend, b e left
te the Judguent o f the respective Federal Reserve bankas
{After diecuesion t h e motion was put and ecarried.}
Chairaan; T h a t disposes o f the subject o f regula«
MeCerd:
I f this reeerd i s te be conveyed to. the
Beard=<=
h
e
The Ghairsan: This record will not be conveyed te any=—
body under the principle adopted at the outset, that the
records o f these meetings a r e t h e private, confidential
records o f thesa whe attend t h e esukthinee
(further discussion o n this sebject fellowed,)
The Chairgaent M r . Gertie h a s just h e d a n interview
h Ure Idan. Pesaibly
t
i like t e heer
w a report o f
3 you would
what transpired.
Mre Curtis: I
.
asked Mre Iden t e c e over the present
draft o f the propered statement which hes not been civen t e
the press a n d c e e i f h e had e n y Gonuents e r succestione t o
meke whith respect thareete,
H e r e r i t through and made
these surgestions: F i r s t , thet i t was net ¢orreet t e quote
him a¢ replying t o %r. "illis thet n e such information had
been received Pa h i m from any official o f the Federal o9~
serve Board;
t h a t h e desired if, t o appeer i n the f o r m - —
that no official of the Peceral Reserve Board had told hia
the information———8- T
eointed cui. t o h i e t h e t e e w e r e n o t a t e |
texoting i n that portion o f the statement t o quote him, b u t
to state what the federal Reserve Seard t o l d us was reported
to them
( @ thereupon said, “That seesas t o reise e n issue
between the Soard and myself.” i
said, “There isa third
posaibility.* H e r u l l e d aad said, “Yes, 1 peresive that.*
He sugrested thet where w e stete here w h a t h e hed
said before this secting, to the effect that he mé not told:
iy. Siliis that the information ease frem any of the covernore, i t ought t o be limited t e the infermetion quoted i u
the first part o f his statement, a s o f course h e did get
from the S p c a u n e e t h e i r typeers ton @tatenent.
H e caid
that h e hed gotton someinformetion from thet statement about
eollection.
I suggested that this might simply b e amended t o say
‘that he had not told Mr. Sillis thet the inferaation he quot+
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Federal Reserve Bank of St. Louis
ed, referring t o the portions which are obicetionable, h e b d
not, gotten from the Gevernors.
i e sald that would anake
% accurpic, that thet would b e true i n two places.
after he had got through reading the article he said thet
fice ani b r i n g
$t o f 3 S
sche Bs Se @
been treated.
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Federal Reserve Bank of St. Louis
stenegravher
enepekod I t e n
Fo.l? bet
Chairman:
h
t
a
I t e4 “ m THeel7T
ta h ax s n
o tt
Ti s g e e n s g
enrssives a n d w a l k e d i n t e a
Mre HeDeugal: I
t e
k
x 2a t‘h aa t
w t
e
sr
A oa Ype u e ex p
mugzlé@.
de not think w e have
to Item How 19.
ich w a s a
. % thir
e r y seriou
thie i t a ganeral m a t t e r e f newspaper criticise...
i belleve t h e o p i n i o n h e r e w o u l d b e that a s &
O f course
r u l e newsenay
eriticianas should b e passed unnoticed.
tre Seay: T h a t i s my prefound cpinione
(Further discussion fellowed o n Item 19.4)
are
Bold
rt
© 4
3 £ 4 meve t h a t
w e v ~e a s 1 0 .
I had already made a memorandum o n u y copy
The Cheirman:
I T de net know f r e m whom t h e surgestion
Ceite
Mre Curtis:
Y a s that your suegestion, M r e Rhoades?
Mre Rhoades: I
The Gnairaan:
will take the responsibllity f e r it.
T h e n I t e m 1 9 i s passed a s requiring n o
discussion e r action a t this time.
tion
I f the
i s n e objec-
i t t s s e underatodd.s
(He objection was offered.)
fhe Chairaant T h e next item t e take u p i s Ho. 17,
"Foreign Rachang@ée" I
wa inclined t o think that n o pare
ticuler object would b e served b y discussing that yet.
Mre Faneher: I
Mr, Aiken: I
Mire MeGord: I
move t h e t w e p a s e t h a t .
second that motions
would
k e t e know a t
| we will underteax<« t o handle t h a t question and have some
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Federal Reserve Bank of St. Louis
expression o n it, f o r this reason: f o r e i g n exchange will
affect u s very materially i n the sevth commencing with the
mid-swimer.
W e would like t o get the basis o f i t prior
to that time, s o thet w e omy b e i n a position t o ergenize
our department.
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Federal Reserve Bank of St. Louis
419
Sains:
D e you have any foreign exchange i n Atlanta’?
HeCord 1 Y e a .
Sains: F r o m what source?
Record : C o t t o n .
Bains: i
thought that wes all i n New York.
MeCord:
O h , no,
Kaing:
b o you handle it. direct?
MeCord: Yfesz; w e handle i t direct.
Wolds T h a t question will not present itcelf till
summer.
" @ have lote o f time before summer.
Mp. Sea:
Y o u sell t h a t all, through N e w York, d o you
not, Mr. HeCord?
My. MeCordt
N O , W E GO nob.
(Extended diseussion followed o n Liem Ne. 17,
"Foreign rxchange", w h i c h discussion t h e stenocrapher w a s
directed not t o report.)
We. Alken: I
move that w e pass I t e m 17.
The Chairman:
i s there a second t o t h a t motion?
Mr. “aime: I
secoml the motion.
the Chairman:
I t hes b e e n moved a n d secomied that v e
pars item 17.
I s there any further discussion?
(There was n o further discussion and the motion
was carriocd.)
Mpe MeComd: I
wich t o cive notice that I would like
to have thet p u t o m the card f o r the next mecting o f the
7
Governors because w e feel ihat w e have c o t t o take sone
action o f that kind d o w n there i n the sixth district
end # 6 c o not want t o wait until t h e guuser i s upen u s t o
meEke arrangements.
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Federal Reserve Bank of St. Louis
imagine nothing would p r e v e n t you
from going ahead a m i t a k i n g whet action y o u aight think best m
your g e n conditions.
teCord : I
40 n o t w e n t t o wade inte « proposition
egntrary t o the vic*s o f the other Governors.
te. 0 . Bolle:
T y wean t o say 1 de not think there could
be any views o n the pert o f the members o f this bedy that
would p r e c l u d e g o u f r o m f o l l o w i n g o u t y o u r n a t u r e l i n c l i n a -
tion upon that subject.
t h e Chairgan:
i s i t not quite likely that t h e matter
will develop i n this way, Govermor MeCord:
T h a t i n the
course G f time, possibly soon, i n a smail way, banking
%
“
bs underteken abroad. I
generrily. I
d @ not sean abroad
would mot think of opening accounts i n some
just now. H o w e v e r , I think i t will come u p end
onding
ae. UeGord:
L n i s subjeet
T h e t
si sll right, then.
*elock ps ms, the Conference
kkDe te, O n the game day.)
The ecouference r e a r e e m b l e d
a t 3:50 e'cleck p . m ,
Governer Strong presidirg.
Mr. McDougal:
consideration
Y o u r C o m m i t t e e heer g i v e n f u r t h e r
t o leA, w h i c h n o s t o d o w i t h t h e e x p e n s e s
of
shipping currency a n d purchssing exchange i n settlemert o f
balancer b e t w e e n t h e F e d e r a l r e s e r v e barke,; a n d conreluded
that t h e Pedersl reeerve banks should c o r t i m e their relations slong t h e seme lines thet w e Keve been operating a n d
that t h e actus] settlement o f balances w h i c h heave acerued b e
deferred until s u c h time s s t h e r e w plan i s put i r operation.
It was sleo decided t o present t o the Secretary o f the
Treasury 9
plan a n d a s k fer hKie co-operation in. the matter o f
eetavlishing a gold fund b y depositing funds from the :
frensury, e p d I think i f Kr. Curtis w i l l reod t h e t w e
resolutions passed,
w e will t h e n k r o w exactly whet wes dore
in regerd t o ssking for help from the Secretery.
The Chsirmar.
G o v e r n o r HMeDougsl,
i f I
may refer
to
one t h i n g t h e t y o u esid, w e s i t m o t e u r intertior t h a t t h e
pré@eert plan o f hendlirg checks a n d o f setilirg balances
should continue, n o t necessarily that the balarces should
yasnin unsettled, but if any eettlement was required pending the »doption o f the new plan, i t should b e effected
upon the benis o f the agreement urrived a t at our Lest
conference? Mr. MeDougal:,
f a n t w a e the urderetendipg; yes, sir.
wy. Curtin: T h e resolutions were sdepted as follows:
piar
Your Committee voted, pending t h e adoption o f the
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Federal Reserve Bank of St. Louis
recommended b y the Committee taat the present method e f rsettire
balances between Pederal reserve banks b e employed, a n d
thst Hr, Kebougal b e requested t o perfect a
plan f o r
eettling t h e existing balances s t the time t h e new pian
goes i n t o effect, a r d , f u r t h e r , t h a t t h e d i s t r i b u t i o n
the @hebe fund be used ir this regerd if possible.
of
I t was
alse voted thet t h e Chairman o f the Committee b e requested
to snoly t o the Secretary o f the Treasury f o r the deposit
of, firet, s u c h sums a s Will approximately sdjust t h e
balances existing e t the time t h e n e w plan tekes effect, a n d
after t h e trenefer o f the gold furd, a n d secord, another
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Federal Reserve Bank of St. Louis
deposit o f such a m amount s o thst t h e tot«] amount o f both
deposits shall b e rot less than t e n per cent o f the
aggregate deposite o f the Federal reserve benke.
tr. MeDeugal;
T h a t will indicate what bes beer dore
by your Committee since w e left.
ur’ MeCord:
f e a s that contemplate i t should b e ter
per cant composed o f the gold fund a n d such deposits a s
he would make,
o r would i t b e ten per cent a s a n ultimete
and final deposit?
Her. ¥Yolds.- W i l l t h e Committee agree t o discuse t h e
distribution o f the gold fund, h o w i t i s t o b e apportioned?
fhe Chairmunt Y e r , 1
did rot know thet ary sgree-
ment w a s reached,
Br. Mebougal: I
d o not think a n y agreemert w a s
resehea i m thet.
“te Chairman:
T h e matter wae generally referred t e
Governer MeDeugel a s 9 special committee o f one t o work o u t
the details, Governor Yold,
Mr. uedeugek:
I t wae also urderetood thet Governor
Strong o n d Mr. M e K a y would accompany m e i n a y negotictions
with t h e Secretory.
Seay:
P e r h a p s more fully anewering Covernor
fold, i f I understood, i t s s contemplated thet the desosite
would b e made i r the barke w i t h a view o f the reeersity o f
eech bank t e settle i t e balanee.
Sf course,
i f i t were rot distributed u p o n
that besie i t would r o t erable some o f u s t o liquidate t e
omy grest extert., I
hoped w e would b e able t o liquidate
before that time.
The Chairman: i
ehepe:
underetend t h e matter i e left i m this
T h e exieting plen continues i p operation w i t h t h e
same arrangement for the adjustment o f balances b y =utual
arrangemert between t h e Federal reserve berks, ‘ w h e r the
deposit i s t o b e made,
i f i t i s serranged, i t will b e e n
mount t o be fsirly determined b y negotiation between
the Secretary o f the ressury a n d the Chsirmar o f the
, Committee, having i n mind the facet thet the settlemert o f
the «existing balances m a y p r o v i d e s u c h a
large f u n d f o r
New York, f o r inetence, that they would require n o Govern~
ment deposit whatever, t h a t a l l the sdditional deposits
would b e made f o r the benefit o f the other barke s o thet
they m a y etart with a reesonable amount i n the fund,
Mr. Yold:
I t i s very gererous o r the pert o f the
New Y o r k a n d C h i e s g o b a r k s t o ecortinue t h e arrangement,
| they are carrying the losd.
Wx. MeDougel:
T h e r e i s rothirg that hee been done
whieh will d e n y t h e individual barkea the right t o a s k
for a vettienent s t any time under the terms that w e
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Federal Reserve Bank of St. Louis
arranged a t the last conference.
Mx. Keinss R e g e r d i n g t h e gold furd, I
supsose thst
thet i s pro-rated among t h e people w h o supplied that gold
fund?
The Chairman:
G e v e r n o r Kaine, t h s t w o u l d b e e n
automatic trarpssction w h i e h w e would mot control;
simply furnish t h e machinery. I
w e would
have a letter from t h e
Chairman o f the gold fund committee, Mr. Wiggin, ,in which
he s t a t e s t h a t t h e s u g g e s t i o n t h e t 7
eosmittes
submitted
t o the
i n writing, t h a t t h i e p l a n o f d i s t r i b u t i o n b e
employed, appeals t o h i m e s 2 most reasonable sugzertion
apd that h e strengly favored i t and other members o f the
committee favored i t and n e heped that a t the proper time
the srrangement c o u l d b e made.
T h a t will result i n s
deposit o f about $18,000,000, o f gold i n the Pedersl reserve
benk o f N e w Y o r k w h i c h w i l l b e s u t o m a t i c a l l y d i s t r i b u t e d
barks
te t h e o t h e r elsever F e d e r a l r e s e r v e banks; t h o s e
it
will b e instructed b y the New York bank t o distribute
in their veepective distmiete t o menber-banks,
o f course
barks b y
| by credit o n their books a n d the nornemenber
sending thes checks, 1
Me. Keine:
suppos¢.
S u p p o s e theses menber-banrkes s a y they put
York exchange?
money i n New York originally and they want few
the Cusivman:
i
n that event I doubt i f i t i s within
desl with.
our control, b u t there a r e 1,460 e d d barks t e
e n d has
The pler under *hich the gold fund was assembled,
t o t h e Committee
been managad, g i v e s s b s o l u t e p o w e r
ir
such # way 2 2 they decide,
Sew York t o wind u p t h e fund i n
"ss practicable t o
- doubt i f they would feel thet i t
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
eek t h e opinion o f each catributing bark whether they
wanted N e w Y o r k e x c h a n g e
o r would t e k e t h e money b a c k home;
they would decide o n o r e method o f doing i t and d o i t that
furthermore, t h e agreement entered i s t o
at t h e t t i m e w a r
a
t t h e y should b e reimbursed
b y «a
deposit i n their N e w York bark a r d they were seked
time t o n a m e t h e b a n k
the Chairman:
the p r o c e e d s
i n w h i c h t h e d é p o s i t w o u l d b e wade,
f h s t wonilied t o t h e d i s t r i b u t i o n
o f ealas o f exchargs eredited
of
b y t h e shipment
of seld,
wae o n i d f o r b y t h e F e w Y o r k
Mean t h e e x p r e s s Charges.
The Cheirman;
transactions,
Y e s , b u t y o u d o net distinguish between
( m e
i a the distribution
of easles o f exchange, w h i c h m u s t b e a f f e c t e d
o f t h e procesdsa
i n New York
eat
t h e Y e w York banks would b e required
therwiee
ra
to returp t h e gold,,which,,of course, “wae rot t h e objec
The o t h e r t r a n s e c t i o n
aetusl g o l d w h i c h w a e r o t used,
secount
i s t h e return o f the
T h e ocordition o f t h e
o f t h e gold f u n d comeittee
i s thet they neve dis-
tributed #11 o f the proceeds o f exchange which hes been
sold i n vew York furds a r d t h e balance whieh they n o w hold
ise entirely gold which has been contrituted b y t h e verious
ecortributere,
p l u s i v e millier received
Sq neve s i x i t e m s l e f t o n o u r progrsm,
f r o m t h e Goverrment.
o f which o m e i s the
fixing e f the time and place o f the rext meetirg, which will
be deferred,
W h e a t i s yout pleasure s s t o t h e Pext item
for discussion?
Kr. Wolds
D i d y o u n o t have some drafts o f regulations
that w e ought t o discuss before v e attend t h e meeting.
fhe Cheirman: I
regulation
will pass sround drafts o f = revised
e s t o bankers’ s c c e p t a n c e s .
first t h r e e p e r a g r a g h s
G o v e r n o r Wells,
o f t h e proposed reguletion,
the
i t seems
to me, indicate t h a t separate procedure i s contemplated
ae t e sections 1 5 ard 14, although t h e procedure i a covered
in one regulation.
Yee; t h e t o p o f the second page gives thet
very clearly.
wre Rhoades:
F o r information, i I would like t o s s k a
question about peragraph 4 , where i t speaks o f = rate t o b e
fixed.
The Chairman: I
carrot arsawer t h s t auestion, G o v e r n o r
Rhoades, a n d sugcest that w e might sddress t h e questier t o
the Federal Heserve board wher w e meet then. i
to call a t t e r t i o n
would l i k e
t o o m e feature o f thin regulation
ir
regard t e seceptarces w h i c h besrs directly o n the point w e
were d i s c u s s i n g t h i s morning,
separation b y reguiation,
i n f a e t o n t w o pointes.
o r otherwiee,
T h e
o f paragraphe under
sections 1 5 end 1 4 o f the Federal Reserve A c t might cone
template t h e discount o f seceptances under section 135, a t
the exietirg bark rate f o r discounts, a n d t h e purehese o f
seceptances under section 1 4 s t a different e r special r a t e
fer o p e n m a r k e t o p e r a t i o n s ,
traranctions
E m b o d y i r g i r t h e regulations
t o b e corducted under bath sections o f the Act
yaturelly i m p l i e s t h a t t h e r e s h a l l b e f i x e d a
specis)
rate f o r t h e purchase o r discount o f secceptarces, t h e t
member-banks
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special r a t a
Federal Reserve Bank of St. Louis
might erjoy t h e same privilege a t the same
o f discoun y
such s o c e s tances
a e the
have. H r their portfolio, with their own endorsement a t the
special rate, j u e t sae though t h e y wers being purchased
through a broker i n the oper market b y the Peders) reserve
bark, a n d that I regard a s = very desirable feature o f
this method e f dealingwith t h e mattor b y o n e regulation.
fe what section a r e you specifically
referring now?
The Chairman:
| division 4
V n page 2, the firat paragraph o f
which states:
“ T h e Federal Rererve Bosrd h a s
determined that, i n order t o be eligible for investment b y
Pederal reserve banks a t the special rate t o be fixed from
time t o time f o r ‘acceptances’
i t i s required" a n d s o or.
There i s nothing thet I see here whieh distinguishesbetveer
the rate waich would apply to the investment transaction
with a mesberObark a r d t h e inveetmerttransaction w i t h
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Federal Reserve Bank of St. Louis
a broker through the oper mrket.
Mr. Wells:
M a y I esil your attention t o “b" o f paragraph
i t snys:
4, i n which, after deseribing there neceptances,
member-banks,
"such taceeptancas’ m u s t hrve been wade b y
nonemenber banke, trust companies, o r by private banking
i n the busiress o f
firme, persons a n d corporations engeged
accepting s n d discounting.
hereafter b
e referred t o =
S u e h aecceptarces will
“pankers” seceptances'*.
They
ever though they
may be open merket operstions altogether,
between acceptances b e r i n g endorrements,
barks a s taken under section 15. 1
o r menber-
thipk 211 o f this
will come
refers t o paper taken under section 1 4 which
bank.
under t h e endorsement o f menber
the Chairman:
D
"bankers' acceptances"
o y o u understand t h e u s e e f t h e vord
a g indicating that that distinguishes
between t h e kind o f scceptance that c a n b e dealt with i r the
open market end the kind o f eerup tense thet ear be discounted f o r menber banks?
ir. Welle:
Y o u menn o n t h e endorsement o f member
barks?
fhe Chairman:
Y e a ,
Mr. Yelle: i
a m rather o f the opinion t h e t i f “ 4
an seceptence i t might b e dealt w i t h i n the oper msrket.,
You would n o t give i t o n the discount f r o m t h e member-barks.
fhe Chairman: B e c a u s e he would sell it and avoid
putting his endorsement o n it?
Mr. Yelle:
here.
think that w e e their intention
Yeu. 1
i I do not know thst the line has been drawn sufficiently
close,
The Chairman:
of d e f i n i t i o n
T h a t i s intended t o give a
a s t o what @
standard
banker i a , b e c a u s e b a n k e r s
are s p e c i s l l y t a x e d b y t h e I n t e r n a l R e v e r u e A c t a n d t h e y
hed t o arrive s t a definition o f whet a barker w a s i n order
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Federal Reserve Bank of St. Louis
to find eut whe t o tax. W h e a t i s the pleseure o f the mecting
in regard t o the proposed revised regulation i n regerd t o
bankerea't s e c e p tances?
Mr. S e s y : i
think, G o v e r n o r Strong, t h a t t h e s a m e
thought seess t o hsve struck u s #11. at the same time s s
to whether i t i s a practicable provision for the Federal
Reserve Board t o fix a
fhe Chairman:
rate f o r secéptances?
M a y I suggest that t h e discussion e f
the question o f rates might take place at our meeting with
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Federal Reserve Bank of St. Louis
statements, I
a m rsther definitely informed that t h e
attitude o f the private barke i n F e w York will b e rot t e
furnish statement - - ~ some o f them may.
T h e a c that d o
ere likely t e b e the ones w h o want to, t t t h e y may r o t b e
entitled t o and the chercers sre thet those private barker's
acceptances thet w e will b u y will b e those which bear
endorsement enywey a n d I
do mot believe that ise is e very
imsertant l i m i t a t i o n t h a t t h e y h e e p u t in.
Mr. Wella:
‘ H o w d o y o u cover t h e metter suggested
by
you o f differertisting slwsys between peper which may b e
offered under the language o f section 15, and the sare kind
of paper which may b e cffered under section 1 4 covering
the question o f rates?
W o u l d y o u attempt t o have a
distinetion d r a w n o r let i t follow where i t would
naturally follow under 8 permanent rate.
The Chairman: I
believe i t will adjuet iteelf i n thie
way, provided the Federal Nererve Board sdepts one o f t#o
course; t h e y m a y sdopt a
course o f proving 2
minimum rate
which h a e been suggested o r extabliahed b y the Federal
reserve berk, o r they m a y adopt t h e course o f establishing
both s
minimum a n d moximum rate within t h e range o f which
‘tranecections, either b y discounts o r purchases o f
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Federal Reserve Bank of St. Louis
acceptances, m a y b e conducted,
by t h e Federal R e s e r v e B o a r d
I f that course i s pursued
i n t h e i r regulations,
then the
mctical question will b e t o f i x e rate within t h e range
for two kinds o f transactions, thet i s for the purchssce o f
seeeptances i n the oper market a n d presumably without
the endorsement o f member berks, a n d within that range
the fixing of a rate of 4iscownt rates for seceptances with
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Federal Reserve Bank of St. Louis
endorsement
o f menmber-barks, P r e s u m a b l y t h e p r e f e r e n c e
im r e t e w o u l d b e g i v e n t o t h e d i s c o u n t o p e r a t i o n t h s t g o t
the endorecesent o f the member-bank.
i wont t e eal] your sttermtion t o the fact that
specific reference i s made i p the regulstion t o the
exemption appesring i n the National B a r k A e t and t h e
Federal Reserve A c t t o the limitation o f the amount o f
paper w h i c h m a y b e purchssed..
draw agsinpsat existing values.
T h e t applies
t o psper
T h e Federal ‘eserve Act
limite t h e skvehsee o r discount o f paper o f thie character
to thet which srises o u t o f foreign commerce.
A l l paper,
presumably, t h s t arises o u t o f f e r e i e comcerce,
i s paper
which has been drawn agsinst existing values, thet i s to
gay, t h e d r a f t o r bill
o f excharge
i s g e m e r e l l y scecomparied
by the shipsing papers and i t ie quite appsrert that i t is
the kind o f paper referred t o ss rot being subject t o that
limitstion i n question. T h e r e f o r e , t h e Federal Reserve
Benke w i l l b e p r e t t y f r e e i n p u r c h a s i n g t h e t p a p e r
so
lorg a 2 i t i s o f a kind n o w prescribed b y the rtatute.
Mrs MeCord: o u l d it not also be true that even
in t h e o p e r m a r k e t t r a n s a c t i o n y o u w o u l d h a v e t w o rotes,
one f o r e n d o r s e d b i l l s a r d o r e ctherwise?
The Cheirman: I
think thet i s undoubtedly t h e
ense, t h e same differention o f Fates would apply i n ®11
tranasctions i n the market a n d you would give t h e benefit
of the lower rete t o the desler who endorsed the paper.
Mr* MeCord:
f h e n r the member bank's paper would
fell i n that class?
the Chairman:
O f the preferential reteg
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Federal Reserve Bank of St. Louis
Hr. ¥Yelie:
D e you think i t necessary a t this time t o
cover that metter b y recomendation?
The Chairman: I
esrrot help b u t feel w e have head
very little time t e consider the exect language o f thie
reguistion,
i f you w i s h m e t o make 9
ation o f t h i e m a t t e r
report o f w r c o r s i d e r
a t t h e m e e t i n g t h i a sfternoon,
what
I would naturelly easy would b e that prior t e the receipt o f
this proof,
w e had considered t h e subject e f berkers'
acceptances, a n d inform t h e Keserve Boerd generally h e t o u r
setior h a d been a n d then state,as f a r s e w e heve h e d
opportunity t o examine this proposed regulation i t seems t o
corform generally t o the recommendations t h a t w e have slresdy
adopted.
Mr. Yelle:
Y o u might g o a step further e r d s a y s e
discussed informally t h e question o f the manrer o f applying
rates t o such operations, without having arrived a t a n y
definite recomrendation,
The Chairmen:
G e n t l e m e n , a r e you ready t o decide upon
any course o f action i n regard t o the sugeested reguletion?
Mr. Seay: I
move that t h e course o f action thes
obtlined b y the remerks o f the Chairman b e pursved b y h i m
in reporting t o the Reserve Board,
Ur. Kaine: I
second t h e max& motion,
(the motion being duly seconded and put t o vote,
earried,)
fhe Chairman:
A t t a c h e d t o the regulaticn i s 2 sugs¢*}
tion f o r t h e third article o f the regulation i n regard
tocommercial paper a n d i may s a y sfter-resding this rather
hastily, h e v i n g i n mind t h e gerersl course o f the discussion
=
on yesterday,
i t eppeares t o m e thet prectically s 1 1 o f the
sugeeatione which w e made have been substantially adopted
in thie dreft? ,
Mr. Welle:
M v . Cheirman, t h e y d o not seek t o change
thet operstion o f the regulation w h i c h seems t o give
licerse t o the member-banke t o offer f o r rediscourt without
stistement i f i t dees r o t exeeed 35000,
Y o u will reeali
ore o f cur purposes i n making = recommendation w a e that t h e
Federal Reserve Banke b e clothed w i t h some disereticnary
power f e r o b t a i n i n g e r e d i t i n f o r m a t i o n e o n c e r p i n g t h e v a l u e
ef t h e paper, e v e n t h o u g h i t m e y f s 1 1 u n d e r t h i s amount.
ir, Seay: I
t h i n k i t does, s i r ,
o n t h e i a c t page,
im the third paragraph; w h i c h reads:
*It i s reeommended that every member bark maintsin a
file which shsll contain statements o f the financial condition o f borrowers, s i g n e d b y the borrowers,
o r = true c o p y
ef any original etatemert d u l y certified b y = member bark
which hse the stetemert o n file, o r b y 4 rotery waht te
who shall designate where the origins] etatement i s o n file.
All statements should cortain a l l t h e information essential
te » clear a n d correct knowledge o f the borrower's eredit
and o f his method o f borrowing. A
schedule specifying
certain information w h i e h i t i s desirable that s u c h statemerts should inelude i s hereto appended.
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Federal Reserve Bank of St. Louis
the
Whenever t h e apvlicetion fails t o indicste thet
file, then i t
etetement required inp 111 (&) hereof i e on
Bank t o tske such
shall b e the duty o f each Federal Neserve
proper evidence ¢
steps a s i t considers r e c e sary t o secure
the eligibility o f t h e paper offered f o r rediecount*.
The Chairman:
T h e a t seeme t o b e a very clear expression
of the inteition t h a t n o member bank shell construe this
regulation a s giving i t t h e right t o spply a n d exact t h e
discount o f paper less than 95,000, o r ten per cent o f enpital
im amount f o r anyone borrowing, b u t that t h e Federal Reserve
Bank shall u s e i t e o m m judgment a s t o whether t h e ststement
is necessary o r not.
Mr. Kaine:
W o u l d that mean that s
large bark, s a y 2
bank o f ten million dollars could ofly get °5,000, from u s o n
any o r e b o r r o w e r ?
Mr. Wells:
N o .
I t may d o s o without a
Mr. Wolds W i t h o u t a
ihe Chairman;
statement.
credit file.
W e have very little time left, before it
is n e c e s s a r y f o r u s t o g o t o t h e meeting.
H a v e you any
action t e sugcest i n regard t o t h e draft o f the third
paragraph e f the regulation relating t o commercial paper?
should s a y i t was quite satisfactory,
Mr. Wold: I
Gevernor Strone.
Mr, Aiken:
M y . Chairman,
o n sheet 3 , “Method
of
Certifying Kligibility*, paragraph 1 under t h e Kkading A ,
reads;
“ T h a t s u c h bil] bears t h e signatures o f the purchas¢
and the seller o f the goods a r d presents prima fscia evidencs
either b y the nature o f the bill o r b y 9 general o r specific
etatement
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Federal Reserve Bank of St. Louis
o n ite face thet i t wes issued f o r goods actually
purchased o r sold", H o w would such a n obligation cortain
prima f a c i a evidence, e x e e p t t h e a t a t e m e n t
that i t was f o r good s
t o t h e effect
actuslly purchased o r sold? W h a t i s
there i n the nature o f the bill that would b e prima facia
evidence o f that?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
t§
6 ‘ i' £ 3: : ' Q: $ ; ‘ §' %
srepersd
h y
of t h e Paderal
i08 r k *
mplianee
the r e c e n t v o t e
7%
o f t h e Soard
a r e i
$ y + . Le
G
F
o f
L T
a
f
t
V
O
P
R s
o y3 nw
2590 i n e l u s i v e a s a m e r d e d
1679, p r e v i d e
f i l :
coney
‘
b y t h e Acie
i n subetsnce
the U p i t e d S t a t e s
payments
a t t h e i r ranmipel
tolerance
stenderd eilver. dollars a r e legal tender a t their
value f o r sil debts a r d d u a p u b l i c a n d private,
ervise expresely etipulsated i r tae cortraet.
eume p o t e x e e e d i n g t e r dollsrs.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Hipor coine sre legel terder for any amount rot
tweniyefive ceria.
United “ t a t e s N o t e n «are
payment
w f u l
m o r e y a n d legal
o f e f e b t e , p u b l i c a r d private, w i t h i n
interest
public debt.
t r e a s u r y rotes
public o n d p r i v a t e debti«, e x c e p t w h e r e o t h e r w i s e
stiovlsted i n t h e cortract,
a n d s r e reeeivebie
taxes a r d all public dues, ( A e t o f duly 14,
DB. Gs 708, w e 2a}
{f) D e m a n d Tréseury rotes sre lawful merey and legal
tender i n like manrer a s United Stateer notes.
Ce) i n t e r e s t bearing ireasury rotes issued under the
of 1 6 6 5 a n d 1 8 6 4 s r e l e g a l t e n d e r
t o the same extent
-ee n o t e s f o r t h e i r f a c e value, e x c l u d i n g
provided
t h s t rotee issued under
ere n e t l e g a l t e n d e r
i n payment
t h e ’Act
o r redemption
o f 1864
o f a r y notes
by ® bapk o r barking sseociation calculated a n d
intepied
t o cireulate
e s morey.
Gold certifiecstes a r e receivable f o r custome,
mey b e counted
{Ast o f
of Maereh 1 4 , 1 9 0 0 , M a r c h
(b)
taxer,
S i l v e r eertificatesa
a n d a l l a u b l i e dies,
s r e receivable
f o r customs,
w i d m a y b e courted
the lewful reserve e f any national bank.
s s part
o f
( A e t e o f July 12,
1682, e r d February 28, 1878.)
{e}
Rational
banknotes
a r e receivable
the U n i t e d S t a t e s i m payment
a t yer
i n ail
o f taxer, a x c i c e s ,
ic leamde a r d 911 ether dues t o the Upited States,
duties
o n imports,
and d e s a n d s
owing
except i n t e r e s t
e n d a l e e f a r a l l eslseriesn a n d o t h e r d e b i s
b y the United States
o r t h e public d e b t a r d
t e
i m redemption
o f the
nations] currency. ( S e c t i o n 5 1 6 2 revised statutes. )
{3)
In m m o p i n i o n
o f A t t e r r e y Genersl] vaynre HacYeagh,
rendered J u r e 1 4 , 18612, s u b l i s h e d
i n 1 7 Op. A . Ge. p a g e 121,
it i s b e l d t h e t -"*' What i s lewful money’
i e stated
Revised S t a t u t e s 5535, a r d 3586, s m e n d e d
b y A c t o f February
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Federal Reserve Bank of St. Louis
in
and S e v i e s d S t a t u t e s 3 5 3 8 8
and
2 2.0 >
2589",
a r sot®5
4
a
t™
e 3S
‘
aise
h e 2l d i“ n4 _c i %d*e n t a lbl y
i rw et
h ;i s o x
or legal
she provisions
Stion
«rieee
%
t e n d e r b
i
l
e of
) » Federal i e s e r v e Aci under which
a r e
a s foliors:
section 1 5 whieh provides i n part
Pederal reserve bark m a y receive .
funce
FOROPVE
i n levful morey,
c ee s
cee
. e l®
patioral
N O T A a
Rc
ceees
,c
(e} t e c t i o n 1 6 which previdee i n part
reserve notes shall b e redeemed“in gold o r inwful
Federal
“
r e s e r v e b a n k , * ® a n d trast every. F e d e r a l r e s e r v e b a n k
enell piainisin “ r e e e r v e s
i n g o l d e r lewful m o r e y o f r o t
eentum s g a i n a t i t e deposits,
of n o t j e s s e t h a n
a n d reserve
4 0 per centum ageinst
i t s Federal
Yesarve notes i m actus] eirculation a n d r e t offeet b y
lawful m o n e y depesited w i t h t h e Federal reserve agert.”
seetior s l e s a r o r i d e s
t h e t t h e Federel r e e s r v e
bank s i l l w o o r d e c a n d o f t h e
reimburse t h e r e d e s o t i o n f u r d i p n w i u l m o n e y ,
"any f e d e r s l
reeerve
bank
m a
t L any tise
and
reduce
ry
i t s
liability f e r outatending Pedersl reserve notes b y depositing
with t h e Federal} r e s e r v e agert i t e Federrl r e s e r v e notes,
gold, g o l d c e r t i f i c x t e s
o r i a m o n e y o f t h e United
that “ t h e F e d e r a l r e s e r v e a g e n t s h e l l
gold certificates, o r lawful money savailabie
exclusively f o r e x c h e n g e f o r outetearding F e d e r a l r e s e r v e
‘potes s h e n offered b y t h e Pederal reserve bank o f whieh h e
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Federal Reserve Bank of St. Louis
ie s
directer.*
Section M 3 which provides i r part thst t h e
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
iffriLeet
tant
en.
Currercy r e c e i v a b l e f o r
see e x e e p t d u t i e s
o n inporte,
Stisier e x c e p t
include
SY?
£% i b
911 the
i< +23 ¢
o m
NAPS
LHe
e y
revides t h e t n a t i o n a l b e r k e m a y m a k e w i t h d r a w s l
the d e s o s i t * e f lawful m o n e y ,
Vrensuper
o r pational
o f t h e United: S t a t e s , *
of the Currency A c t o f Mareh 14, 1900,
provides t h e t t h e g o l d d o l l a r s h a l l b e t h e s t a n d a r d u n i t o f
ealue*and
n l l forme
o f money ienued
mainicined
st a
o r coired
b y t h e Onited
yority o f v a l u e w i t h
Tt i s t e b e obea@rved that t h e Act sutsorizing t h e use o f
s Iswful reserves f o r
gold certificates a r d silver c e r t i f i c a t e s =
national b e r k s w a s p e s s e d s u b s e q u e n t
Canerel a b o v e q u o t e
ful m o n e y " should
i
t e t h e opinion o f t h e
v w h i c h i t i s indicated
b e interpreted
t e mean c o i n o r
tender billie e f t h e U n i t e d S t =
previrions o f i
“lawful money" c s ured i r the
intended
opye
t o include # 1 1 currercy w h i c h
b y
1
silver dollars. United Stetes lecal
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Federal Reserve Bank of St. Louis
.eu
r
@>
“
VEDERAL
REBBRVYE
BOARD,
Regaiation Wo«
Section 15 of the Federal Reserve Act provides that acceptances, t o be
eligible for discount hy @ Pederal Reserve Bank oust comply with the following
Statutory requiramante:s
(a) A n y Federel reserve bank may discount acceptances
(1) Waieh are based on tho importation or exporta-
tion of |
(2) Which have 6 mturlty at time of discount of
not mere than three months, and
(3) Which are i n d o r s eydbat least one sesbor beniky
(b} S h e amount of acceptances so discounted shall at no time
exceed ond-helf the paid-up capital eteck and surplus of
the bank for which the rediscounts are mado;
{¢) The aggregate of such notes and bills bearing the signavure or indorsement of any one porson, company, firm, o r
corporation, rediscounted for any ome bank shall a t no
time exzmeed ten per centum of the unimpaired cupital and
Surplus of said bank; but thie restriction shall not ape
ply to the disoowst of bilis of exthange dram i n good
feith ageinet actually existing values.
» 4a.
Seotion 14 of tho Ast permite Federal Reserve Ronis, under rales and regwiations to be presoribed by the Federal Reserve yoard, to purehsse and sell in
the o o novket bankers’ acceptances with or without the indorsexent of a mem
ber danke
ali.
Seotion 14 containing the larger powers, including, as it does, all the
powers relating to acceptances conferred by Section 13, the Board has deternined, for the salm of simplicf
broader basis
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Deen
Federal Reserve Bank of St. Louis
t o s c r i b e one regulation proceeding
of gection 14 v t sortrae
v
e
engiee
operations uiier both secticne. ‘ T h e Board believes it, however, t o
bethe spirit of thie Act aud urges, therefore, that, i m traneactions
in bDenkerg’ acceptances, whenever possible, federal Reserve Banke
Bive preference t o acceptances of member banks mdoreed by member banka,
Ota that, Sailing te secure paper with member banke* endorsement,
preference be given toacceptences bearing, imaddition to the signatures of the drawer end the acceptor, the signature of another responsible partye
The Federal Reserve Board hee detemined that, i n order to be eli-
givle for investment by vederal nesexve Banks at the special rate to
befixed from time to time for"acceptances", it is required that
{a} Such “eoceptances" comply with the provisions of Clause I
hereof, excepting I, 4 :
(bo) Such “acceptances must have been made by meuber banks, non~
member banks, trust companies, or by private banking firms, persons and
gorporations engeged in the business of aceepting and discounting.
Such aceeptences will hereafter be referred to as “baukers' acceptances”*
;
{c} d n “acceptance” mast bear on ite face evidence that the seq
ceptance originated in an actual bom fide sale or consigament invelving the transportation of goods from eqne foreign country to the titted
States or from the Tulted States OF some foreign aountry, t o some other
foreign coantry;
ncn dustsdivenem dha dpate bee evan ores at
In making this definition, the Board follows ‘he analogy of the
Intermm Sevenue ict of Gotober 22, 1914.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
e r
ye e r
a,
serve bank shail, before purchasine s e c u r e a eatiofs
etatement o f t h e financial
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Federal Reserve Bank of St. Louis
widen eae
att a e s ws
oun
o F
LE SOP tans
The
5 GAS
245 Liss ry
GG T H N ? «
3 a n y newer bank applying for rediscount of a bil] efter duly iby 1915,
mist certify in the letter of application over the signature of. aduly auth
orined officer that to the best of ite knowledge and beilef the bak waa is-
sued for one. of the purp@es mentioned in Yaragvaphe I (¢) end rf {a) hereor
ami that 1 4 exuforms t o the provisions o f she Pederal Reserve A e —
t h e re- |
quirements, or tats rogiiat lune
he member bank mast algo gertify in ite appliestion, as WMliows,. |
(a) i f the bill offered for rediscount has been discounted for one of ite o m depositors, provide
etther :
(2) that ach D411 bears the signatures of the purehaser
ont the seller of the goods am presents jain feoka. ‘
evidence either by the catare of the bill or by a
general orspecific statement onitecaobthat it
W a s Semued for goole setually porchasedr
o sold, or
that the actrogate am. unt of obligations of euch de.
poattor actually rediscounted and. offered for reiis~
count does. not ennteh Live .thonsand doLlars ant in
0 event @ oun in exoess of 30) of the paddein capital of the mombex benke by
The member basik Bhali se oortify by marteing the Letter "Dp" ( signifying
Depoaitor’s Paper } on the apylieation opyosite pean pili.
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Federal Reserve Bank of St. Louis
(b)
I f the bill offered cor rediscount has been discounted
for one of its own depositors, wat does not o aform te.
the con dois desor ibed fn 21% (a). (2) om (2) hereot,
tho member bank aljell #0 certify by marking the letter
“GF signifying Customer's Peper ) on the — _
— "
s u c h balle
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Federal Reserve Bank of St. Louis
eueh biile
If the bil) basbeon dlecounted otherwise than for one ef ite
oun dupesiters, the member bank shall a o eortify b y marking
the letter "P" (signifying Purchased Paper) o n the eppligation
opposite eugh b4il.
Tf a etatenent concerking the finmneial ¢endition ef the
saeew borrower i n question ie on file, « weber bank in ea¢h of the
Saved provided f o r i n thie paragraph shedl certify t o this
effect by adding te the letter “C* or “P", os the case may be
the Letter “S" ("O8" and "PS" in euth cane indleationg
Quctonmer's Paper, Btatenent o n fiie, e r Purchased Paper
Statement on file}. ,
It i w recommended that every member bank maintain « file
whieh shall eonteain statements o f the finemedal condition o f
berrewers, wigned by the borrevers, or a true copy ef any
original ptetemont duly certified b y a menber bank which bus
the statement on file, or by & notary publie who shall designate
where the @riginal gtatement i e on ffile A l i otutemente shotid
Contain ol) the information sevential t e « elear and correct
knowledge o f the borrower's eredi¢t and o f his sethed o f verrowinge
A ethedule specifying certain information whheth 4¢ is desirable
‘iat ouch otatement should include i a hereto sppended,.
Viensver the epplieation failu t e indicate that the etaterent
required in Itt (b) hereof ie on filo, thon it shell be the duty
ef each Federal revorve bank t ¢ take such stepe a z it eonsiders
neteavary t o wecure proper evidenee ef the eligibility o f the
peper offered for rediscount.
Whenevere
h
t nember bank applying fer redisequnt of a bill
has Obtained wueh billy f r o m another member bank/, 1 ¢ may, i n
waking ite application and marking the identificatlon letters
“p", "6" , "P", "CS", or “PS”, ae suggested Jorein, sepkexaxen
rely upon the certificate o f such ether member baurik
regarding the nature of the bil2 and the finenclal condition of
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Federal Reserve Bank of St. Louis
the original berrewer, previded
wueh certifieate
3
wan C o n t a i r
thorate,
erin e
letter a c e s
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Federal Reserve Bank of St. Louis