Full text of Federal Reserve Governors Conference : Meeting Documents : January 20-23, 1915, Second Conference of Governors of Federal Reserve Banks : Proceedings, Volume 6: January 22, 1915, Evening Session

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-

CWwO N hF E Rh E NaC E :

B O A R D

i

D

U

FEDERAL R E S E R V E BANKS.

WALTER. .

COX,

SHORTHAND A REPORTER
COLUMBIAN BLDG. WASHINGTON, D.C,
PHONE

M A I N 8g 8224

A

T

j I V E R N O R S

Wilfong

CONFERENCE, B O A R D O F GOVERNORS O F FEDERAL RESERVE
BANKS.

E V E N I N G

S E S S I O N ,

New W i l l a r d Hotel,
Washington,

The C o n f e r e n c e r e c o n v e n e d , p u r s u a n t

recess,

t 6 the taking o f

a t 8:45 otclock p . m e

The Chairman: I

would l i k e t o s u g g e s t t h a t b e f o r e w e

take u p the regular program I

be authorized t o have inserted

in the record that i t was decided a t dinner that t h e next
meeting o f t h e Govenmmors s h o u l d b e h e l d i n W a s h i n g t o n

March 11, subject, however,

on

t o that course being found

satisfactory t o t h e F e d e r a l R e s e r v e B o a r d a f t e r b e i n g r e p o r t e d

to the Board.
One other matter that w e should consider this evening
in order t h a t w e m a k e g o o d o u r o b l i g a t i o n

tatives o f the press:
tion w e p r o p o s e

t o t h e represen-

W e have stated that whatever informa-

t o give t o t h e press

i n regard t o t h e proceed+

ings o f this meeting will b e furnished i n writing. I
that w e authorize Secretary Curtis t o prepare a

suggest

draft

of a statement t o the press, a n d that h e b e excused f r o m
attendance a t the early part o f the evening seaiicn i n order
that h e may dictate s u c h a statement, a n d that h e b e given such
instructions a s t o the character o f the statement a s the
meeting m a y consider wise.

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Mr, Kains: I

s o move,

(The motion was second b y Mr. Wold and Mr.

Fancher, )
{The motion was thereupon put and carried.)
The Chairman: I

take t h e hiverty o f suggesting that

Mr, Curtis follow generally t h e program o f the meeting i n
preparing that statment, following a l s o t h e policy adopted
at the last meeting,

o f giving
oS
o
S t h e press a

general i d e a o f &

the subjects disucssed, a n d a s t o those matters that have
been discussed i n response t o suggestions o f the Federal
Reserve Board that a r e made t h e subject o f recommendations
to the Federal Reserve Board, t h a t t h e character o f our dis~
cussion a n d recommendation a n d action b e not disclosed;
and otherwise t h e secretary u s e his entire discretion i n
the terms o f the statement a n d that i t should include,
Mr. Seay: I

think t h a t i s v e r y wise,

M r .

Chairman,
Mr. Wold:

Y o u d o mean that t h e statement shall b e

submitted t o the press without having first c o m e before t h e
Gevernors ?
The Chairman:
the draft,

h

, no.

M r . Curtis will first prepare

i f i t i s your wish, a n d w e will discussthat later,

For the purpose o f clearing o u r caleridar , we have a n
item, No. 23, i n relation t o the appointment o f examiners
and federal reserve agents. I

take t h e liberty o f suggest-

ing that that number b e allowed t o g o over until t h e next
meeting.


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I s there a n y objection t o that course?

(No response)
The Chairman:

T h e r e being n o objection, t h e i t e m will

be a d d e d t o t h e c a l e n d a r f o r t h e n e x t meeting.

Mr. Fancher:

H o w about No. 2 0 ?

H a v e w e given that

consideration, M r . Chairman?
The Chairman:
cussed,

N o . 20, i t seems t o me, should b e dis-

i f possible.

Mr. Fancher:

The Chairman:

C a n w e not give that consideration right

N o . 2 0 i s the question o f discount rates

and the action o f the Federal Reserve Board i n reagrd t o them,
Mr. Aiken: P r e l i m i n a r y , M r . Chairman,
sion, I

t o that discus-

would like t o call t h e Governors! attention t o t h e

exact wotding o f that paragraph (d) under Section 14, which
seems t o m e t o b e t h e e s s e n c e o f t h e w h o l e thing.

The Chairman:

W i l l y o u read t h e reference that y o u

refer t o into t h e record, Governor Aiken?

Mr. Aiken: ( R e a d i n g : )
"ESTABLISHED RATES O F DISCOUNT.

"9o1(d).

T o establish from time to time, subject t o

review a n d determination o f the Federal Reserve Board,
rates o f discount t o b e charged b y the Federal Reserve b a n k
for each class o f paper which shall b e fixed with a view o f

accomodating commerce and business,"
What I

had i n mind was t h e phrase, “establish f r o m time

to time,"
The Chairman:

T h e discussion

o f this matter h a s b e e n

undertaken a t d i f f e r e n t tiimes, i n f o r m a l l y ,

and I

that a l l o f t h e G o v e r n o r s h a v e d e c i d e d v i e w s

believe

a s t o what o u r

attitudé should be in this matter, which is very important

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446
one o f policy;

a n d i f someone would make a

motion express-

ing their pereonal views o f what action should b e taken b y
this meeting,

i t would give u s a n opportunity t o discuss i t

with some chance f o r a conclusion.
Mr. O . Wells:

M r , Chairman, I

undertake t o move that

tomorrow
during o u r m e e t i n g t o m m a m o u x W
e express

t o t h e Federal Reserve

Board i n session t h e probably effect t h a t will ensue i f the
practice o f fixing t h e rate b y the Board b y suggestion a s t o
what t h e rate should be,skould b e followed without t h e same
having b e e n initiated b y the Federal Reserve b a n k s , s
a seems
to b e clearly tibended b y the language o f the Act, those
effects being, minimizing t h e scipe o f aurhotity a n d policy o f
not only theexecutive officers o f the Federal Reserve Banks,
but t h e d i r e c t o r s

a s well;

a n d that i s doing s o w e naturally

givethem a n opportunity t o discuss with u s that matter,

in

order that there m a y b e some understanding between ourselves
as representatives o f the Federal Reserve banks i e

a t e s

of the Federal Reserve Board.
The Chairman:

G o v e r n o r Wills h a s suggested that o u r

policy should b e t o make a n expression t o the Federal Reserve
Board tommrrow o f the view o f this conference, P e r s o n a l l y ,
I a m heartily i n accord with that policy.

I t occurs t o m e

hat i t would b e very effectively made t o the Federal Reserve
Board i f we were able t o submit t o them a resdlution which
would carefully, conservatively a n d unanimously express t h e

sense o f this meeting; that resdlution having due regard
to t h e f a c t t h a t e a c h o f t h e s e F e d e r a l R e s e r v e b a n k s i s

really managed by, a n d the executive officers a r e subject to,

447

direction o f directord i n our respective districts w h o a r e
men o f importance w i t h local expreience,
very positive views;

a n d i n some cases,

a h d that while w e may b e able person~

ally t o arrange these matters i n a friendly w a y with t h e
Federal Reserve Board, w e have got t o regard t h e fact t h a t
we have dirdctors a t homw who a r e entitled t o consider that
er represent n o t o u r o w n personal views, b u t a compsite o f
the views o f the directors o f the Federal Reserve banks w h o
have great responsibilites themselves

whichw
e wahtto d i s -

charge.

Mr. Wold:

M r » Chairman, t h e directors o f the Minnea-

polis bank have carefully considered this paragraph i n
reference t o rates a n d are unanimous i n their opinion t h a t
the initiation o f the rate falls upoh t h e bank, a n d itwas
such a n & important matter that w e d o not believe w e want t o
delegate t h a t p o w e r t o ° t h e E x e c u t i v e C o m m i t t e e a n d p r o v i d e d

intheir by-laws that t h e Ghange o f rate c a n only b e effected
by a majority o f the Board o f Directors.

A n d now, t o have

the Federal Reserve Board initiate rates here a n d then
‘make i t n e c e s s a r y f o r u s t o t e l e p h o n e a r o u n d a m t t o s e c u r e t h e
Consent

o r approval

o f t h e m a j o r i t y o f t h e board, m a k e s i t

very embarrassing n o t only t o the management b u t t o the
directors themselves.

T h e y feel that i t i s a duty o f

their own.
I second Mr. Well's motion.
Mr. Seay: I

would like t o say, Mr. Chairman,: that I

feel that there i s n o one particular which would deliver t h e

management o f the reserve banks more over to°the Federal Board

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n this o n e o f fixing t h e rate.

I t i s something which takes

448
the control o f the resources o u t o f the hands o f the executives o f the Federal Reserve banks.
vital things, I

I t i s one o f the most

think, t o o u r o w n autonomy that w e have t o

consider,
Mr. Fancher:

M a y w e have t h e motion read, a s stated

by Mr. Wells?
The Chairman:

Might I

be permitted t h e suggestion that

this i s such a n important matter that I

a m going t o take t h e

liberty o f asking e a c h o f those present t o express h i s views,
based upon a

statement t h a t I made, t h a t w e are not express-

ing our individual views only, b u t i n this matter w e are
really speaking f o r a bank i n each instance which i s managed
by a

Board o f n i n e directors,

With your permission I

will a s k each o f the G o v e r n o r s

to state his position i n the matter, w i t h the fact i n mina
that y o u are speaking i n a Yepresentative capacity; a n d
at the conclusion I

will a s k the stenographer t o read

Governor Wells' motion.
Governor McDougal?
Mr. McDougal:

T h e matter o f fixing discount rates i s

one that h a s been discussed b y our board a number o f times,
and t h e y h a v e b e e n i n d i v i d u a l l y a n d c o l l e c t i v e l y o p p o s e d t o

the initiation o f the rates coming f r o m Washington, f e e l i n g
that t h e y were entitled under the act t o indicate t h e rate
that t h e y t h o u g h t s h o u l d prevail. I

feel q u i t e s u r e t h a t

they would bike t o have a n opportunity o f availing themselves
of that privilege without interference f r o m the Board; knowing,


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o f course, t h a t t h e y h a v e t h e r i g h t t o r e f u s e i f t h e y

Mr, 0 . Wells:

I

. should like t o correct that, i f I

may: T h a t they must review; not if they see fit. T h e y
must determine before o u r action becomes operative,

The Chairman: G o v e r n o r Wells,: Iwould not like t o have
that statement appear o n the record a s accepted b y the Governors
present, because I

a m advised b y counsel that that i s not

the case.
Mr. 0 . Wells: I

a m only trying t o u s e t h e language

of the Act.
The Chairman: I
in t h i s m a t t e r

will state what o u r understanding i s

o f t h e rate.

T h e Federal Reserve A c t provides

that t h e F e d e r a l R e s e r v e B a n k s s h a l l e s t a b l i s h r a t e s o f dis-~
count, s u b j e c t

t o review a n d determination

Reserve Board.

T h a t does not mean, a s w e constrye t h e

b y t h e Federal

language, t h a t t h e rate once established bythe b a n k does n o t
become e f f e c t i v e u n t i l

i t h a s b e e n reviewed,

b u t t h e minute

that t h e Federal Reserve b a n k establishes that r a t e i t c a n
commence doing business a t that arte, a n d that t h e power o f
the Federal Reserve Board i s limited t o requiring,
please, a

i f you

suspension o f the operation o f the rate until

they review i t a n d determine i t ,
My personal’ opinion about this matter, w h i c h I be~
lieve i s shared b y the directors o f our bank ---+- certainly
by Mr, Curtis, w h o h a s advised u s i n the matter = - - i s that
we are really entitled t o e s t a b l i s h arate, a n d within f i v e
minutes t o discount paper s t that rate; t h a t o u r duty i s
certainly t o report i t b y the promptest possible meanes t o


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450

the Federal Reserve Board, a n d that their buty i s undoubtedly t o review i t and determine t h e rate, finally; t h a t t h e
establishment

o f the rate

i s a

matter t h a t r e s t s w i t h i n

the

power o f the directors o f the Federal Reserve bank,
As @ matter o f faét, t h i s custom which i s developing
rod

of s u g g e s t i n g a

rate, I

believe

i s fraught w i t h danger; t h a t

it may result i n each Federal Reserve b a n k gradually getting
into t h e p o s i t i o n w h e r e i t m u s t r e s p o n d t o a
other

Vause some bank h a s established a

suggestion b e -

rate which influenees

the Federal Reserve Board t o force uniformity. I

d o not b e s

lieve that that i s going t o b e a sound development o f this
system; t h a t i f any Federal Reserve b a n k succeeds i n estab-«
lishing a

rate that i s out o f line with local conditions,

or

with conditions that necessitate rates i n other disgtricts,
be
it m a y t h e i r m i s f o r t u n e

t o b e loaded u p with discounts

that they have taken a t very lew rates, a n d i n order t o
protect themselves t h e y m a y b e obliged t o take some losses
to r e l i e v e t h e m s e l v e s

o f t h e load.

C e r t a i n l y a n y other

policy applied t o the making o f rates i s a very unnatural
banking policy, b e c a u s e i t m a k e s a

rate r e g a r d l e s s

o f what

the local condition m a y be,
Governor McCord, m a y I ask y o u t o express your views
in regard t o this matter?
Mr. MeCord:

M r . Chairman, I

think that t h e rate should

be initiated a t the reserve bank, a n d not a t the Board,

I t

should n o t b e published until t h e Reserve banl h a s determined
absolutely o n the rate, a n d due regard should b e given
to their local conditions, regardless o f those o f the entire
countrys


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The Chairman:

M.r.Aiken:

G o v e r n o r Aiken?

M l Chairman, I

be established b y ,


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Federal Reserve Bank of St. Louis

feel that t h e rates should

banks i n each district, a n d that t h e

initiative s h o u l d l i e i n t h e b a n k a n d n o t i n t h e Federal R e serve Board,
The Chairman:

Re

“

Mr. Fancher:

G o v e r n o r Fancher?

e

h

a

F o r o u r board,

v

e -

w e r a t h e r xgunkedt r e s e n t e d

these suggestion coming f r o m the Federal Reserve Board,
mentioning t h e lwoering o f rates i n some o f the other districts.

T h e y feel that t h e y were given t h e right under t h e

law t o establish rates, a n d that t h e y were best qualified t o
change conditions i n the district a n d determine what should
be the prevailing rate,

T h a t i s their privilege, a n d

should continue t o b e their privilege under t h e Act.
Vr. Kains:

M r . Chairman, t h e directors o f our board

who d o not directly o w e their appointments t o the Government,
I think a r e unanimous i n their feeling o f surpYise a n d resentment a t having suggestions made t o them. H o w e v e r , I

do not

think that that applies t @ t h e Government directors, T h a t i s
just m y opinion.

W

e have taken n o action o n the matter a t

all except that personally I

a m a believer i n the autonomy o f

the Federal Reserve banks, a n d I heartily agree with your
statement t h a t w e should establish these rates.
more about them;

w e know more about o u r local conditions

than a n y b o d y e l s e does, a n d w e f e e l c o m p e t e n t

these rates.

W e know

W e shovld be very glad to ag.

t o establish

W e do not

desire a t all t o act i n any way contrary t o the desire o f
the Federal Reserve Board, b u t w e feel that w e have that
right, a n d that w e know more about thing within o u r boundaries

than they.
The Chairman:
Mr. Wold:

Governor ¥

i r , Chairman,

t h e directors

o f our bank are

thoroughly in: accord with t h e statement m a d e b y Governor
Strong.

T h e y feel quite strongly that t h

W

w clearly i n e

tended t h a t t h e r a t e s h o u l d b e i n i t i a t e d b y t h e v a r i o u s
Fdderal R e s e r v e Banks,


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Federal Reserve Bank of St. Louis

a n d t h e y resented t h e suggestions

the F e d e r a l R e s e r v e B o a r d a s t o rates,
ahnouncement

a n d disapprove

of

o f the

o f rates f r o m W a s h i n g t o n b e f o r e t h e y a r e a n n o u n c e

ed a t the headquarters o f our bank.

T h e announcement should

be made b y the banks t h e m selves, a n d the rates should b e initi
ated o r the change should b e initiated a t that b a n k subject t o
confirmation b y the Federal Reserve Board,

O u r opinion i s

hat w h e n t h e r a t e i s i n i t i a t e d it. s h o u l d g o i n t o e f f e c t a n d

remain i n effect until t h e board have either confirmed o r
refused t o confirm,
The Chairman:

G o v e r n o r Wells, y o u r statement i s xkaxsazd

already o n the record o n the formal motion which was seconded
by Governor Wold,
Mir, O . Welis: I

s h o u l d l i k e t o add, i n a s m u c h a s t h e

expressions h a v e t a k e n t h e t u r n o f r e p r e s e n t i n g t h e o p i n i o n s

of the various boards,

whichm
y motion d i d not include, p e r = _

haps, that w e have never had a formal expression o f the attitude o f our board o n this subject,

W e have i t expressed w i t h

out a n y form, b u t I think I reflect their expression
when I

say that. they d o not regret t h e action o f announcing a

willingness t o make a
he B o a r d o f Directors

rate before i t has been discussed b y
o f t h e F e d e r a l R e s e r v e B a n k o f Dallas,

453
At our initial meeting t h e Board were o f the opinion that
his was a matter o f sufficient importance n o t t o b e dele~—
gated t e a n executive committee, b u t that w e should follow
the suggestions o f the by-laws submitted a t the conference
in October, t

h

e making o f the rate should b e vested i n

the Board o f Directors o f the Bank,
I frankly confess that w e have b e e n proceeding u p o n that
theory, a n d that i t was essential t o submit t h e rate, having
made it, f o r review a n d determination, a n d that t h e whole
operation w a s n e c e s s a r y b e f o r e t h e r a t e b e c a m e fixed,

a n d we

had n o toher thought i n mind.
The Chairman:

T h e expression o f the Governors present

apparently a r e almost identical

i n terms, a n d t h e scope o f

our resolution o r recommendation i n this matter c a n b e considerably enlarged f o r submission t o the Federal Reserve
Board over what w a s contained i n Governor Wells' m o t i o n o f
he and the seconder, Governor Wold, a r e willing f o r t h e
moment t o withdraw.
Mr. 0 . Wells: I

a m quite willing t o withdraw t h e m o -

tion, w i t h the understanding that i t will b e covered i n the
form o f a resolution o f sufficient breadth t o include t h e
expressions t o which w e have listened around t h e board,
The Chairman: G e n t l e m e n , w h a t i s your pleasure a s t o
the lethod that w e should employ i n expressing t h e consensus
of opinion o f those present w i t h regard t o this matter o f
the met hodby which rates a r e made?
Mr. Kains: I

move that t h e Chairman most respectfully

ke bring t h e matter u p t o t h e board a t t h e earliest opportunity,

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say t o m o r r o W e


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Federal Reserve Bank of St. Louis

MeDougal: I
O. Wells:
Seay:

second t h e motion.

T h a t does n o broaden it.

M r , Chairman, I

was cOnvinced,

and I

that a l l w e r e convinced, W h e n , w i t h o u t warning,

a m sure

t h e subject

was brought u p a t the Federal Reserve Board this afternoon,
you stated i n a very boid a n d penetrating way, a n d very
priefly,

t h e a t t i t u d e o f t h i s body. I

a m convinced t h a t

the C h a i r m a n h a s t h e f u l l e s t g r a s p o f t h e situation,

and he

has that faculty which retains i n the mind t h e expressions
of opinions w h i c h w e h a v e o u r s e l v e s delivered,

and I

do not

forcefully
believe i t could b e more fukkx presented t h a n i f h e
will consent t o use t h e language h e used this afternoon a n d
express t h e opinions h e has expressed t o us, a n d incorpor-

ate i t i n that portion o f our own opinion that w e have ex-~
pressed a s t o the feeling o f our boards o f directors o n
this subject. I

believe that would b e the most effective

way o f presenting t h e matter t o the board, jif the Chairman
is willing t o consent t o d o 80,
The Chairman: G e n t l e m e n , I

understand t h e difficulty

or possible danger, o r , a t a n y rate, t h e possible embarrass-=
ment, o f endeavoring t o make a
composite v i e w s o f a number o f

later, @

record that expresses t h e
d i f f e r e n t people,

a n d then

years
year o r two hence, b e i n g required t o refer t o
record,

I

t seems t o m e undesirable t h a t i n a

matter

character w e should make a record which would appear
commitment

o f t h e directors

o f the various Federal

Reserve Banks.

I f you feel like acting u p o n t h e motion that

Reserve Banks.

I f you feel like acting u p o n t h e motion

has been made, I

will endeavor t o express what h a s been

discussed here tonight t o the Federal Reserve Board tomorrow
in a verbal report, a n d have t h e Board understand that that
simply i s a verbal expression i n general terms o f the result
of the discussion;

t h a t w e pass

might a p p e a r t o b e a

n o resolution n o w that

permanent record.

o f policy adopted

by

the directors o f all o f these banks,
On the whole, I

i

|

handle i t , i f y o u agreé n

3

a wise w a y i n which t o

,

me t h e d u t y o f m a k i n g

that statement, w h i c h I will gladly do.
Zs there a n y further discussion o n the motion?
Mr. Chairman, I
in just t h e w a y that I

did not make m y statemant

should like t o have i t appear o n

statement I

spoke o f the directory

"individually a n d collectively." I
of t h e m a n injustice, b e c a u s e I

may have done some

a m not c l e a r a s t o just h o w

the so-called government directors d i d stand i n the matter,
Se I should like t o have m y statement changed s o that a l l
direttors will n o t b e implicated i n m y statenent, I

may

doing them a n injustice, Tkéimatter nad been discussed,
and’ TI know o u r directors a s a body were very much disturbed
pecause o f the fact that t h e y were n o t permitted t o establish
rates subject t o t h e later approval o f the Board.

There

may have-been t w o o r three o f the directors w h o h a d n o voice
in that discussion,


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Federal Reserve Bank of St. Louis

The Chairman: I

do not suppose a n y o f u s would feel

that w e were acting here under a

resolution o f authority f r o m

our respective boards o f directors,

W e a r e simply express+

ing o u r o w n individual opinions o f the w a y o u r banks, a s


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Federal Reserve Bank of St. Louis

managed b y boards o f directors, s h o u l d b e reprePe,

e fy

2

4

his meeting.
;

Fa) e e s a e e s We Saige. g e 5

Certainly t h

p

r

e

v

a

i

a

4

l

n a t a s e s “ t t n
eaSe
sIin
every bank,

appointed b y the Federal R P u y
—

Ss

loyalty a n d duty

i t y hae og

a: DhC AeC Yv
G 24g ee v.

have n o hesitation i n stating g n behalf o f our bank that there
that a

being made

mistake-is

to c o n v e y

you. are
,

I

will ee n d e a v o r
aa c a e
LOYrCelL u l l y

dt

o m a k e a a moderate m

os

“

a

n

statemen

a s I can that will represent a

composite

and i f any Governor present,
at i t s h o u l d b e m o d i

any way t o meet t h e situation i n his
own district, why, I will take the liberty o f inviting such
a statement

after I

. Seay:

have concluded tomorrows

T o fortify you-in your

M

r

, Chair-

I will state i n conjuetion w i t h m y previous remarks,
41% %
our
p o aoy sr

F

- d i r e c t tors,

i n framing t h e i r official

>

which w e r e a f t e r w a r d s c h a n g e d m g a v e t h e p o w e r t o

.

eS. a

S a

a

e

e

e

E S

e

r

aatigad

y

e

t

h

e

y

They t h e r e b y s h o w e d w h e r e schey e x p e c t t h e c o n t r o l

of the rates t o lie, a n d
rate t o emanate,

I a m sure that I
ment o f o u r board,
utterance h a s b e e n e

N

a m representing t h e controlling Smmkko dissent h a s e v e r b e e n expressed w h e n
rates t o


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Federal Reserve Bank of St. Louis

and t h e y h a v e b e e n v e r y

and i t has been reported
It i s something
withnour m e m b e r banks,
and w h a n w e
ness o f o u r

fortify y o u i n your position, s i r ,
for o u r o w n b a n k goes. I

d o not t

you w o u l d m a k e a n y e r r o r in. stating

Mr. Wold:Mr. Chairman, I
statement I

have made, I

majority vote, b
vote, jAcluding

i

do not care t o qualify the

think they fairly reflecty n o t a
e

y fairly reflect t h e entire

d i r e c t o r s ,

I

n fact o u r Federal

by communication t o the Federal Reserve
Board, suggested that t h e rate should initiate w i t h the
nat
bank a n d should b e announced f r o m our bank a n d f r o m thé
federal Reserve Board i n Washington.
aT

Mr. Seay:

H

e has a vertebrae.

I t seems t o me, Mr. Chairman,

i f I a m not

taking t o o much time, t h a t m y judgment a s a banker i s that
something unsound i s being attempted i n the effort t o
equalize rates where conditions vary.
The Chairman:

Gentlemen, I

amgoing t o a s k y o u w h e t h e r

you will authorize me, i n stating this matter t o the
Federal Reserve Board tomorrow,
is i n m y mind a s conjecture, I

t o refer t o one matter which
a m distinctly under t h e

impression, a l t h o u g h I admit that t h e grounds f o r i t
very slight, t h a t t h e apparent effort that i s being made
Board t o reduce rates i s originated


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Federal Reserve Bank of St. Louis

458

by pressure that i s brought upon the Board from outside
sources, I

d o not k n o w what t h e character o

is, b u t I just sense the
and: that.
shovld

i f there

b e made befni

were known ¢ % e
or an}

e

h

e Fec a

:

r v e Board that

i f it

management o f the

m that influencesof a n y kind Kave been brought

to b e a r i n c o n n e c t i o n w i t h t h e d i s c u s s i o n

matter o f rates,

o r decision

i n this

i t would b e very seriously resented b y the

management o f the Federal Reserve banks.
I admit t h a t t h a t i s conjecture; I

have’mo g r o u n d f o r

making that statement other t h a n a n instinct, possibly; b u t
it i s t h e o n e t h i n g t h a t t h i s s y s t e m m u s t b e g u a r e d against,

and I would not b e ashamed t o read whatever statement i s made
Reserve Board i n regard t o the demand that
be absolutely free f r o m a n y influence whatever i n

the rates; t h a t i t should come from the Governos o f the
Federal Reserve banks; that their dutymis t o sit there a s
a judicial b o d y t o r e v i e w w h a t w e s u g g e s t

t o them.

What we

have i n fact established a t t h e respective banks i s for them
to p a s s upon, a n d n o b o d y i s e n t i t l e d t o g o t o t h a t b o a r d a n d

tell t h e m what t h e y ought t o d o i n auggesting rates t o the
Federal R e s e r v e banks,

Mr. Kains: I

a m haertily i n accord with that, Mr.

Chairman.
Mr. Seay:

Mr. 0 .

Y o u h a v e ‘carte blanche, s i r , f r o m me.

W

o

u

l

d y o u not rather s a y the t h e sug-

gestions o f . r a t e s s h o u l d c o m e f r o m t h e b o a r d s o f directors
+ 1.

of t h e f e d e r a l r e s e r v e b a n k s r a t h e r t h a n f r o m t h e G o v e r n o r s ?

9
Chairman:

Y e s ; I

spoke i n a collective sense

a bad habit t h a t I

a m guilty of.

That i s where i t comes from, a s @ matter o f
comes f r o m t h e Governors,

O. Wel

N

o

d o e s i t not?

; i t comes particularly f r o m t h e

Chairman o f t h e b o a r d a s comings f r o m t h e board,
Mrs Wold:

I

Mr. Seay: I

t d o e s n o t i n o u r case,

would like t o mention something a n d ask

the s t e n o g r a p h e r n o t t o r e p o r t

i t a t present.

(An informal discussion thereupon.occurred

of report; aof t e r
x
the s t e n o g r a p h e r w a s d i r e c t e d o
which
following proceedings were had:)
The. C h a i r m a n *G e n t l e m e n ,
want t o hasten a

w e have a motion. I

d o not

conclusion i n a matter o f the great i m -

portance that this has, b u t I cannot h e l p but feel that
there i s such a unanimous expression h e r e a s t o what o u r
Course whould b e that i f any o f you n o w fee
call f o r a vote o n that motion w e c a n conclude this matter,
if you will permit me, after this motion i s put a n d acted
upon, b y making a

short statement o n the subject.

(Cries o f "Question.")
(The motion under discussion, h a v i n g b e e n duly

seconded, w a s put and carried.)
The Chairman:

T h e statement I

would like t o make i s

likely development
The next Mikkaiyekoo

o

f real importgnce i n

matter o f r a t e s i s t o m y m i n d o f e v e n g r e a t e r i m p o r t a n c e
than t h e o n e w e h a v e b e e n discussing.

J u s t n o w all the

Federal Reserve banks a r e loaded with money a n d there h a s
arisen s o far a n d may not arise f o r some time, n o question

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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

460
in regard t o a rate o f discount t o b e established f o r discussion between t h e Federal Reserve banks.
Having participated i n t !
to its adoption, before t h e §

i s s i t

t h i s bill prior

t e Comnittee, I

can assure y o u

hat there was n o subject t h a t caused greater concern i n New

of the
right t o t a k e s o m e / a s s e t s

o f the b a n k s o f New York

and lend them i n some other part o f the United States
without t h e banks o f New York having a n y right t o s a y whether
loan should b e made o r not.
active i n our minds,

T h a t matter h a s not been

o r i n the minds o f the member banks,

because they. are all n o w laboring under t h e impression that
no s i t u a t i o n o f t h a t c h a r a c t e r c a n arise,

a t a n y rate i n the

near future; b u t t h e action that h a s been taken b y the
Federal R e s e r v e B o a r d i n p e r m i t t i n g

any rate authorizing, a

o r suggesting,

o r at

rate o f discount i n some sections

of t h e c o u n t r y t h a t i s l o w e r t h a n t h e r a t e w h i c h h a s b e e n

authorized b y the Federal Reserve b a n k i n New York a n d i n other
districts m a y result i n the accumulation o f discounts resulting from the retiring o f the Aldricth-Vreeland currency
or the spring demand f o r money i n connection w i t h preparation f o r crop planting, a n d s o on,.or would Cause this
very s i t u a t i o n t o arise, t h a t p o s s i b l y s o m e o f t h e b a n k s

the south e r west will g e t a

in

very large line o f discount e v e n

at s u c h a point where t h e y m a y find i t desirable t o a s k f o r
one o f two methods o f assistance,
posits;

O n e i s Government d e -

t h e other, r e d i s c o u n t s ,

We have h a d two meetings o f Governors, a n d I want t o
tell y o u that m y concern which was a n honest o n e a year o r


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Federal Reserve Bank of St. Louis

461

just about dispelled.
only r e m n a n t

o f i t t h a t i s l e f t i s this:

T h e

T h a t I

would d i s -

ike very much t o feel that a n y federal reserve
der t h e n e c e s s i t y o f makinf a p p l i c a t i o n
Federal R e s e r v e B o a r d f o r a

t o the

rediscount w i t h t h e F e d e r a l R e s e r v e

Bank i n N e w York.

If any o f the Federal Reserve Banks i n the South o r West
reach a point where t h e i r resources a r e getting low,,in t h e
interest

o f the management

o f a l l o f t h e system, I

believe

it will b e highly desirable f o r that b a n k t o make direct a p plication, e i t h e r o n New York o r Chicago,

o r wherever t h e y

may feel i t desirable t o apply, f o r a rediscount. I

d o not

mean b y that that o n e o f the Federal Reserve banks which m a y
be discounting a t four p e r cent i s entitled t o come t o N e w
Yorkzand rediscount a t 4-1-2 p e r cent a n d take t h e loss,
enough

The provisions o f the Act a r e broad/so that t h e Federal
Reserve B a n k o f New York c a n establish a rate o f discount
Which will recognize t h e value o f the endorsement o f the bank
that applies f o r t h e rediscount.
ditions a s they are, I

I n other words, w i t h con-

would b e disposed t o recommend i n

New York that w e maintain o u r present rates f o r t h e time
being, a n d that w e invite a n y other Federal Reserve B a n k
that feels i t desirable t o rediscount a n y paper t o make direct
appliaation t o u s a n d t o permit u s t o establish.a rate f o r
that transaction, w h i c h will enable t h e m t o rediscount t h e
amount that t h e y apply f o r a t a lower rate t h a n they a r e
re
receiving

o n t h e i r o w n discounts,

a n d that w e i n New York

Will follow whatever procedure w e think i s desirable i n

rate effective,
The o b j e c t

i n m a k i n g t h i s s u g g e s t i o n i s this: I

that i n s o m e d i s t r i c t s t h e r e i s a

Vreeland currency outstanding.
rency i s decreasing.

large a m o u n t

know

o f Aldrich-

T h e rate o f t a x o n that cur-

T h e rate o f discount a t some o f the

panks i s lower than t h e rate o f t a x will b e i n the near furture.
If t h e a m o u n t o f discounts a p p l i e d f o r becomes excessive, I


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Federal Reserve Bank of St. Louis

hope that there will b e n o hesitation i n sending k a word t o
New York o n any ground that rediscount w o u l d b e acceptable,
and I can assure y o u that i f i t c a n b e arranged, w i t h o r
without t h e parroval o f the Federal Reserve Board,
it.

w e will d o

T h e guestion h a s n o t b e e n submitted t o t h e Federal R e -

serve Board,

and I

d o not believe t h a t I

would c a r e t o h a v e

it submitted i n anticipation o f any such transaction; b u t I
think W e would feel badly: there i f we were not permitted t o
act directly i n a transaction o f that sort without i t being
necessary t o ask someone i n between t o make t h e suggestion
cs
for u s e

Mr. 0 . Wells:

W h a t i s your constructionof.the l a w i n

respect?
The Chairman:

G o v e r n o r Wells, I

need t o r e a d t h e w o r d s a n d l e t t e r s

what w e want t o do,

d o not believe w e

o f t h e l a w t o determine

I t m a y b e that some obstacle t o a

direct procedure o f that sort will b e found, b u t I doubt i t
very much, I

d o not believe

i t i s the intention o f the

law t o r e q u i r e t h a t t h e r e s h o u l d b e a

board o f s e v e n m e n a c t -

ing a s a vrker between t h e Federal Reserve Ranks; a n d I
make t h e suggestion seriously t o you, becausé I
hat i s t h e s o u n d b a s i s

on ‘ 8

think that

business o u g h t t o b e

conducted,
Mir. Aiken: I

would l i k e t o e x p r e s s

m y hearty approval

of that, a n d t o s a y w e shall b e glad t o cooperate i n the
plan a s outhimed b y you,
ir. O . Wells:

l i n k , M r . Chairman, r e s p r e s e n t i n g a

section o f the country which i s more likely, because o f conditions existing,

t o become a

borrowing b a n k than a n y other

sections represented around this board,

i t would b e very

pleasing t o u s t o handle t h e proposition i n that manner.

W e

it i n the elements o f good sound business probelieve

i f this discussion h a d n o t a r i s e n a t

if I had been making a n application, w i t h m y
impression o f t h e r e q u i r e m e n t s

o f t h e Act, t h a t t h e a p p l i -

cation would have been made a t least i n conjunction w i t h some
approach t o the Federal Reserve Board.

W o u l d y o u not have

done 80, Governor Skxamek% S e a y ?
Mrs Seay:

B e i n g i n a district, M r . Chairman, w h i c h will:

probably h a v e f u l l u s e f o r i t s resources, I
your r e m a r k s

a s being somewhat

therefore c o n s t r u e

i n the nature o f a n expression

of cordial feeling, a n d I desire t o express a n appreciation o f
them, I

shoud, however, H a v e taken t h e course which y o u

hae outlined, a n d applied directly t o t h e Federal Reserve
pank o f New Wxsk York,
Board, I

I f there h a d been a n y reference t o the

think-that would come after I

had first opened ne-

gotiations w i t h you,
(An informal discussion t h e n occurred which the
stenographer w a s directed n o t t o report; after which t h e fol-

lowing proceedings we had:)

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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

464
Mr. McCord:

M r . Chairman, I

deeply appreciate y o u r

offer, a n d that would have b e e n m y attitude. I

would have

first opened negotiations w i t h y o u o r with Boston o r Chicago,;
pfobably,

o r some o f the districts, a

little before I

would

have» taken i t u p with t h e Board; a n d I will d o s o now i f it
becomes necessary. I

that, I

a m going t o t r y t o drive clear o f

hope t o b e able t o d o so, but i n the event that I

am not able t o d o it, I

deeply appreciate i t a n d I will cer-

tainly communicate withnyou.
Mr.-Kains:

d

o ,not anticipate f r o m S a n Francisco t h a t

we w i l l e v e r b e 5

a

t s o r t o f thing, b u t I

certainly

think that that i s the business w a y t o have this bank managed.
: C h a i r m a n :
Kains:

Seay:

P l u r a l , please, gentlemen,

Y e s - - - " t h e s e b a n k s " managed.

"

Q. Wells:

w

e think".

M r . Chairman, w h i l e I

realize t h a t w e

are only conjecturing a s t o what w e would have done,

it

Would not have been for the purpese o f obtaining i t under
the b e l i e f t h a t t h a t w a s t h e m e a n s o f o b t a i n i n g i t , b u t i t

Would have been the question o f being authorized t o discount
and o f obtaining t h e rate under which i t would b e done, a n d
I think decency would have perhaps impelled carrying o n nefotiations also with t h e Federal Reserve Banks a s t o their
wiskes o r a s t o their desire i n the premises.

B u t I still

maintain that m y natural course would h v e been t o have
handled i t a s a function t o b e negotiated through t h e
Federal Reserve Board, because o f m y impression o f the reading o f this Act, t h a t veing t h e only place i n the A c t under
which w e o b t a i n a u t h o r i t y t o rediscount.


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Federal Reserve Bank of St. Louis

465
are
The Chairman: W e / h a r d l y under t h e necessity: o f
anticipating t h e f u t u r e

i n this matter

taking some action here. I

t o t h e extent o f

d i d not want

be condluded without expressint t h a t view o f i n t e r p r e t a tion o f the meaning o f the law.

W e a r e prepared t o act i n

accordance w i t h the understanding,

a n d I believe firmly that

Mr. Curtis will support u s i n that opinion.

Vells:

N o w that the matter has arisen, Mr.

Chairman, a n d supplementing t h e statement about t h e AldrichVreeland x m circulation remaining outstanding i n the South t o
theextent t o which i t does exist, a n d the rates tending toward
@ point that might b e attractive a s compared w i t h the t a x
upon t h e Aldrich-Vreeland Bill, w i t h the further construction that h a s recently been placed u p o n t h e retirement o f the
Aldrich-Vreeland currency, w h i c h seems t o b e mandatory b y
June 3 0 --- I frankly s a y t o y o u that i n our district t h e
necessity o f having between $15,000,000 a n d $20,000,000 o f
emergency currency b i June 3 0 being that t h e problem i s

upon u s for immediate consideration, because w e will have n o
natural liquidation with which t o take care o f it, o f any
consequence, b e t w e e n n o w a n d J u n e 3 0 , a n d i t i s r a t h e r

imperative that w e look towards the retiring o f it at some
early date rather t h a n waiting until nearly t h e time s e t
for its retirement under t h e construction a s recorded i n the
paper this morning, t h a t being a
authority,

statement g i v e n out under

a s I stated, f r o m the Federal Reserve Board,

£ a m rather o f the opinion that i t m a y come u p and that i t
will b e discounted iohly t o the extent proper f o r the retirement
of this a m o u n t f
o money, a n d for taking care o f the needs o f

the s e a s o n o f producing a n o t h e r c r o p ,
without h a v i n g t h e i n t e r v i e w t a k e a
question,

from a

turn o f pressi1

practical p o i n t o f view,

view o f a n operation,

or

b u t s i m p k y f o r o u r information,

i f there

can b e brought o u t a t a n interview tomorrow some constryc~
tion o f what w o v l d b e d o n e u n d e r t h i s law,

i t might b e v e r y

helpful t o us.
Mr. MeCord:
Mr. O . Wells: I
Mra McCord:

would like t o know what w e all think.
not
D o you

Governor Strong i s the best, t h a t w e know what t h e l a w i s
ultimately, anyhow; a n d d o y o u not think i t would b e better
rather t h a n t o i n v i t e a
it otherwise,

decision

i n advance,

t o l e t u s handle

a n d t h e n i f i t t a k e s t h e i r appreval,

that w e h a v e constilted a n d i t i s a g r e e d t o ? I

w e can say

would rather

be put i n that attitude t h a n t o b e put i n o t h e r attitude,
I would tate t o have t o g o t o t h e Board a n d let i t b e said

that the Atlanta district h a d forced New York t o d o s o and
SO.
QO. Wells: I
MeCord:

did not mean that, Mr. McCord.

B u t that would b e the result i f the deci-

against u s .

Chairman: I
statement,

but I

have n o authority f o r making t h i s

have r e a s o n t o b e l i e v e t h a t t h e Federal

Reserve Board would b e very glad t o have this matter dealt
with i n such a- way that n o such situation could arise,

Mr. O. Wells: I

can see no objection t o asking for

an interpretation o f the law, whether w e d o i t a s a body.
or n o t e


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Federal Reserve Bank of St. Louis

467
e

+

h
T
Chairman:

~

see n o o b j e c t i o n t o a s k i n g t h e F e d e r -

al Reserve Board t o interpret t h e l a w o n that point, t h a t
is,

the paragraph I read under Section 11, which was not taken

down for t h e record,

if i t gave rise t o the amount o f hesita-

tion a n d doubt i n the minds o f the Federal
arose a s t o a

transattion i n v o l v i n g

Reserve B o a r d

that

the purchase o f gold to-

day «-- a n d I brought t h e matter u p not

to ask that a n y a c t i o n

be taken, b u t s i m p l y t o m a k e c l e a r o n t h e r e c o r d a n d

to y o u

gentlemen what o u r attitude i s i n New York.

Knwoing

that

attitude,-af course y o u will i n each instance follow

your

own best judgment a s t o what ought t o b e done,
Mr. Seay:

W

e first, M r . Chairman, w i l l have t o deterto whether t h e inherent right i s i n the

Vederal

Reserv

purpose.

14

Bank o f N e w Y o r k t o m a k e a

e Federal Reserve B a n k o f New

to r e p l y t h a t

rate k k f o r t h a t

York might h a v e

"We are willing t o d o it, b u t w e will have t o

ee what rate w e c a n make y o u b y reference t o the Federal
Reserve Board,"
The Chairman: I

think, Governor Seay,

if you send u s

a telegram about s u c h a matter W e could g e t y o u back a pretty
t a n s w e r apb o u t t h e mrate,

oI think so.
r I

would
p not s a y

definitely what o u r board would do, b u t I would g o s o far a s
to invite y o u t o send thetélegram,

a t a n y rate,

May w e n o w proceed t o the i t e m which appears i n letters
of fire i n the modest language "Collections": bearing i n mind
that w e are here a s the “Olizgarchy o f the Clearing House.S
.

Wold:r I

move

M

v

t w e hear
a
f r ohm Mr.w tMcKay.

He

is the m a n that i s chock full a n d running over w i t h transit mate


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Federal Reserve Bank of St. Louis

ters.

Mr. McDougal:
doing, I

Y o u all know what Chicago h a s proposed

suppose?

The Chairman:

Mr. McDougal:

W

e w o u l d b e v e r y g l a d t o hear,

T h e matter o f collecting f o r all members

in the district h a s been itabasest o n several occasions b y our
Board o f Directors, a n d also b y the Executive Committee, w i t h
the result that a few days a g o the Executive Committee formulated a

plan f o r s u b m i s s i o n t o t h e F e d e r a l R e s e r v e B o a r d

under which they will have t o begin operations w i t h our member
banks i n the districts.
The plan calls f o r the immediate credit o f items u p o n
receipt, a n d a two days’ deferred charge o n items withheld
to b e carried over i n transit account a n d charged t w o days
after receipt t o the respective accounts.
Mr. Kains:

T h i s plan also--+

E x c u s e me; b u t does t h a t m e a n that y o u send

these items a n d charge t h e m t w o days later?
Mr. McDougal:
Mr. O . Wells:
points

Yes.
I s two days sufficient t o meet a l l t h e

i n your district?

Mr. McDougal:

Yes.

Mr. O . Wells:

T h a t i s t h e average?

Mr. McDougal:

Y e s ; a n d I think i n most cases i t would

give ample time t o receipt and return.

T h e plan also in-

cludes t h e p r o p o s i t i o n f r o m t h e l o c a l b a n k s ,

t h e Chicago

banks, whereby they propose t o increase their balances with
us b e y o n d t h e s e v e n p o i n t s

u p t o nine,

o r e v e n m o r e points,

That i s putting a larger amount o f their optional reserve i n
our bank than they have b e e n carrying, thereby providing f o r

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Federal Reserve Bank of St. Louis

the float.

T h e y contend that they will b e p r f e c t l y will-

ing t o exceed their balances, f o r t h e reason that t h e y a d d
five points o f their reserve that t h e y could keep i n their
vaults across t h e street, a n d i t m d e v e r y little difference
to them.

T h a t plan has been submitted t o the Board, a n d w e

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

i t would m e e t w i t h

their approval.

Mr. O . Wells:

M a y I ask, Mr. McDougal,

i f the credit

upon r e c e i p t w a s i n t e n d e d t o g o i n t o t h e r e s e r v e a c c o u n t ?

Mr-e M@Dougal:
yes.

T h a t i s where i t i s intended t o go,

T h e plan does n o t include keeping t h e t w o accounts,

if that i s what y o u mean.
Mr. O . Wells:

Y o u d o not charge it, into t h e accounts

upon whom they are drawn, until t w o days?
Mr. McDougal:
Mr. O . Wells:
sent


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Federal Reserve Bank of St. Louis

N o t until t w o days later.
Y o y o u contemplate obtaining a n y con-

o f t h e m e m b e r b a n k u p o n w h i c h i t i s drawn?

Mr, McDougal:

N o , w e do not.

W e have reason t o be-

lieve t h a t i t will b e satisfactory t o them.
fact, I

A

think i t should b e highly satisfactory

s a matter o f
t o charge t w o

days later i f they could g e t credit o n receipt.
Mr. O . Wells:
violence

W o u l d y o u feel that i t would n o t d o any

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

Board that w e did n o t have a

o f the Federal Reserve

right t o charge t h e member

panks ?

Mr. MeDougal:

W e have n o t thought so.

O. Wells:

T h a t is, without their consent?

MeDougal:

N o .

Chairman:

D o y o u invite discussion a n d possibly

criticism o f y o u r plan?
Mr. McDougal: I
your o p i n i o n s

a m sure w e would b e v e r y g l a d t o hear

o f t h e plan.

The Chairman: I

would like t o state what occurs t o me,

Governor MeDougal, a n d ati o s Si tea “endricks will listen
carefully t o what I

say a n d i f h e thinks I

a m not sound i n

my views, h e will s a y so.
The first thing that occurs t o m e i s that t h e banks o f
the c i t y o f C h i c a g o a r e v o l u n t a r i l y a g r e e i n g

t o d o something

that i s not contemplated b y the act, a n d some d a y they will
change t h e i r m i n d s a n d t h i n k t h a t t h e y a r e m a k i n g a

voluntary

contribution that they d i d not agree t o continue, a n d they
will withdraw that additional two, three, f o u r o r even five
per c e n t o f e x c e s s r e s e r v e deposits.

The second thing that occurs t o m e i s this:

T h a t the

Federal Reserve Act provides that a certain amount o f the
gold a n d lawful money reserves o f the country should b e
assembled i n the Federal Reserve banks t o operate a s a reserve

against issues o f note, and a s the basis o f rediscount operations, a

certain limited o p e n market investment operation;

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

great m a n y

more dollars o f the reserve banks o f the city o f Chicago,
which are bank reserves, a n d should b e i n cash o r o n deposit
in the Federal Reserve banks, a n d investing t h e m i n uncollected checks.
The t h i r d p o i n t t h a t o c c u r s

t o m e i s this:

T h a t while

the Federal Reserve b a n k o f Chicago, b e i n g located i n a very’
large c i t y where there a r e some very large banks, i s able,
by a mutual a n d satisfactory agreement undoubtedly w i t h cer
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Federal Reserve Bank of St. Louis

tain o f its members,

t o establish a basis f o r handling t h i s

transit problem that might w o r k satisfactorily i n your district, b u t when i t comes t o Richmond, Atlanta o r Dallas i t
might n o t b e found possible t o make such a system work.
Chicago will b e conducting t h e clearances i n its district
upon a basis that will n o t permit t m m uniformity i n the other
sections.

You will excuse this critical statement, Governor M c Dougal. I

had n o t thought

o f everything possibly,

pro and

con, b u t those three things occurred t o m e a t once a s possibly
sound criticisms o f the plan that y o u have described.
Mr. Hendricks, w i l l y o u correct m e with t h e utmost
freedom i f y o u think what I have stated i s not »

Mr. Hendricks:

und?

Y e s sir; 1 will--- provided I think i t

is not sound.
The Chairman: I
Mr. Hendricks:

understand y o u think i t i s sound, then?
Yes.

The Chairman: I

did not want t o drag that out.

(Laughter)


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Federal Reserve Bank of St. Louis

Mr. McDougal:
know, I

M r . Chairman,

w e have realized a n d w e

think, f u l l well, t h a t i t would b e within t h e discre-

tion o f the Chicago banks, i f they s a w fit,to d r a w that extra
deposit i f they wished t o c o so, a n d perhaps t h e y might.
We also considered t h e matter o f our ability t o act o n
those lines, whereas other districts might n o t b e able t o
do sO.

B u t t h e impression that I have personally that there

would n o t b e uniformity i n the conduct o f these operations
in the various districts could not b e owing t o the different conditions prevailing.

T h e y h a d thought o f t h a e t w o


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Federal Reserve Bank of St. Louis

points, I

T h i s plan was submitted t o the board

a m sure.

after consideration.
charge i s concerned,

O f course,
i t would

s o far a s the deferred

b e satisfactory

t o us, a n d

might n o t b e satiafactory i n the California district.

W e

felt that w e were particularly fortunate there i n being able
to r e a c h a l l o f o u r b a n k s

in a

v e r y s h o r t time, a n d t h i s w a s

the p l a n t h a t w a s t h o u g h t o u t a n d a p p r o v e d a f t e r consid ering

all those subjects.
Mr. McCord:

M a y 1 ask, Governor McDougal, who shall

pay the expenses,

i n your opinion,

a s t o the clearances?

W e l l , I think the way we are earning

Mr. McDougal:

money n o w t h a t t h e b a n k s o u g h t t o p a y it.

Mr. MeCord:

W h i c h banks t o you mean?
T h e member banks ought t o pay f o r the

Mr. McDougal:

service rendered, a n d they c a n collect it.
Mr. Wold:

O n whom the check i s drawn?
T h e y c a n collect i t from the drawers

Mr. MeDougal:
of the checks.
Mr. MeCord:

D o y o u think they ought t o ?
T h e y w i l l n o t d o that, b u t t h e y c a n i f

Mr. McDougal:

they like.
Mr. MeCord:

B u t y o u think the bank o n which the

check i s drawn should p a y t h e expenses?

Mr. MeDougal:

W e do, yes.

Mr. O . Wells:

D o e s this plan contemplate a

charge,

Mr, McDougal?
Mr. McDougal:

Y o u mean a charge t o the member banks?

Mr. O . Wells:

A n y charge t o reimburse them.

Mr. McDougal:

T h a t has n o t b e e n definitely determined,


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Federal Reserve Bank of St. Louis

473
Wethought at: one time w e would b e #
absorb t h e c h a r g e a n d t h e expense,

i n a position there t o

b u t i n the p r e

look w e do.not think w e will b e able t o d o it.
How m u c h d o y o u h a v e t o d r e d i t f o r t h e

immediate u s e o f four banks?
We c a n n o t e s t i m a t e that.

guessed a t it.

W

e have rather

I t might b e from seven t o nine millions;

might b e m o r e o r less.

Mr. Aiken:

I

it

t w o u l d n o t b e a n y l e s s t h a n that.

O n what theory d o y o u give a

man credit

amd u s e a n d d e f e r t h e c h a r g e f o r t w o d a y s ?

Mr. McDougal: I

cannot tell y o u upon what theory.

They e x p e c t that.

Aiken:
tion only.

Y o u understand that this i s for informa-

Y o u are creating, a r e y o u noty a

tious c r e d i t t h a t a m o u n t s

purely ficti

t o twice your average d a i l y

transit values t o the benefit o f your member banks.
seems t o m e t h a t t h a t i s a n e x t e n s i o n c r e a t e d b y t h e

Federal Reserve bank, a n d that thst i s k just what t h e Federal
Reserve b a n k s d o n o t w a n t t o d o .
Py
fMr.

Seay:

A d n what would that-two p e r cent additional

deposit i n the bank amount t o ?
Mr. McDougal: I

said t w o p e r cent.

I t might b e more

than that; b u t t h e two p e r cent would comé t o seven o r eight
millions a

day

That would practically t a k e care o f the

I cannot d e t e r m i n e w h a t t h a t w o u l d b e ,
It m i g h t b e w e l l t o h a v e i t u n d e r s t o o d t h a t
this i s ofly a

A774
temporary p l a n . s u b j e c t

t o change,

that i t w i l l h a v e t o v e changed.

i f t h e results indicate
W

e would expect t o d o so,

of course,
Mr, Seay:

M r . McDougal,

d o y o u think w e could soundly

afford t o adopt that p l a n i f the Chicago banks d i d not p u t u p
the extra deposits?
I think that w a s a factor i n considering
the plan a s w e did,
Mr. Seay:

N o w , M r . McDougal, I

hope y o u w i l l l e t m e

ask this i n the spirit o f the utmost friendliness?
Mr. MeDougat:

ir. Seay:

Certainly.

D i d . i t occur t o y o u that having taken that

step i t might call f o r some action t o start collecting i n
other districts} t h a t t h e p r e s s u r e m i g h t b e brought

t o bear

on other districts t o start collecting because Chicago h a d
started it, without a n y particular reference t o the private
arrangements that t h e Chicago banks h a d made w i t h you, a n d
that notwithstanding s u c h a n arrangement, because y o u h a d
started that,» the demand might arise i n another district?

Mr, MeDougal:

W

e have, I think, rather assumed there,

Mr, Seay, t h a t a l l o f the districts would soon bedoing this,
We have encouraged o u r depositors,

think,

o n the strength

of promises t h a t h a v e b e e n made, t h a t p r o b a b l y a f t e r t h i s

meeting o f the Governors this matter would b e settled, a n d
that s o m e plan’would b e devised.
other districts would d o the same.

I

t has been supposed that
W e d i d realize, a n d I

think I said, t h a t your district, f o r instance, c o u l d not
undertake

t o s h a r e o n - t h e s a m e plan, b e c a u s e y o u h a v e n o t t h e

local depositors there w h o could help y o u mmrk out i n this way.

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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

475
Mr. Seay:

I f that practice would impair t h e balances

of t h e m e m b e r b a n k s w i t h you, h o w w o u l d y o u f e e l a b o u t r e -

quiring them t o maintain those balances?
Mr. McDougal:

W e would-feel that w e would have t o

encourage t h e m t o d o so, just a s w e are doing now.
had a great deal o f that t o do.

W e have

W e are

active accounts o f banks i n
had t o d o a great deal o f that b y letters,
by telegrams a n d b y telephone.

G e n e r a l l y speaking, t h e

banks have responded.to t h e action a n d they keep their reserve
in very much better shape recently t h a n they d i d t o begin
with.
%
4 ir.

Seay:

I f , as a

matter

o f practice,

y o u found that

the balances @ould not b e maintained under that plan - MeDougal:

T h e n something would have t o b e done,

Sea¥:

o y o u think something would have t o b e

D

MeDougaL: I

should think i t would be, yes, i f

there was a n y material loss i n the m m x reserves.
tended a s a permanant plan,
years f r o m now, I

I t i s not

W h a t would happen i n three

d o not know,

T h e reserve a r e all i n s

Something Would have t o b e done, perhapsy sooner.
The Chairman:

I s there a demand, M r . McDougal,

in

bailiwick, f o r this sort o f thing??
Mr, McDougal:

W

e have h a d some complaints f r o m some

sources, f r o m member banks n o t located i n reserve cities,
stating that i t was unfair t o them t o permit these other
banks t o h a v e t h i s p r i v i l e g e a n d n o t a c c o r d i t t o thems


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Federal Reserve Bank of St. Louis

476

We have encouraged t h e m t o believe that a s soon a s w e could
adjust t h e m a t t e r w e w o u k d d o so, a n d g i v e t h e m a l l t h e s a m e
chance,

You‘are d e t e r m i n e d

t o put this into effect

We. a r e not. d e t e r m i n e d

fect now.

t o p u t i t i n efs-

W e h a v e submitted i t t o the Federal Reserve Board,

and W e are ready t o act-when w e hear f r o m it?
Mrs Kains:

T h e y have n o responded yet?

Mr. McDougal:

T h e y have not responded t o our request

for their opihion o n the plan a t all.
Mr. Seay:

I s there real pressure i n your district t o

commence clearing?
Mr, McDougal:
Mr. Wold:
member banks,

I - w o u l d s a y there is.

D o e s t h e pressure,
o r f r o m customers

wr. McDougal:

o f member

T h e pressure T

have i n m i n d c o m e s f r o m

the m e m b e r banks.

McDougal:

F r o m k t h e larger banks principally; n o t

chicago banks,
Seay:

H a av e

yy o&u k n o w l e d g e 5 o f a n y d i f f e r e n t

views J

on the part o f smaller banks b y reason o f their possibly
different - - Mr. McDougal:

T h e only expression w e have h a d from the

smaller banks i s that they would like very much t o have t h e
district open,
O. Wells:

W o u l d y o u confine t h e operation

t o the


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Federal Reserve Bank of St. Louis

do; yes.
This p l a n c o n t e m p l a t e s t h a t y o u w o u l d s o

the-reserve c a r r i e d

the Chicago banks i s with y o u
This might answer.vyour question:
think t h a t o f t h e i n i t i a l deposit,
Aa

L

f

~ \.

pee,000,000 o r
Nr. O : Wells:

W h a t

e i e
S n e
Mr. McKay:

at t h e e n d o f t h r e e

for F e d e r a l r e s e r v e

did you contemplate taking
items f r o m member banks originating f r o m outside o f your
district,

o r just those comign frommember banks o n member

banks?
Mr. McDoygal:

F r o m member banks

If they came f r o m t h e

o n m e m b e r banks.

t h e n , outside o f

would n o t c o m e i n t o t h e p l a n a t all.

New York correspondent o f a member


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Federal Reserve Bank of St. Louis

bank
We c e r t a i n l y would,

is, practically a l l items?
MeDougal:

W

e would take f r o m our member banks

they h a d d r a w n o n - t h e member b a n k s

Fancher:

i n o v r district?

W o u l d y o u not put endorsements o n them?&
would n o t e

endorsemen E

alli

and Kansas C i t y ,
endorsemehts o u t s i d e

Mr. McDougal: ( I n t e r r u p t i n g )

Wold:

n

n member b a n
oks

a

t

in

u 5

S

u

z

M r . McKay has made a n

w o u l d

b e

your
p d i s t r i c t uw o u l d f l o a

the Federal R e s e r v e B a n k s

Mr. McDougal: I

e

‘

o f your district = < <

i n Chicago?

d o not think they would; no.

T h e y

Would come back through t h e member banks,
Mr. Wold: A
upon 4

bank i n M i n n e a p o l i s w o u l d n o t s e n d a

check

national b a n k i n I o w a o n w h i c h t h e y p a y exchange,
could s e n d i t t o a

Chicago c o r r e s p o n d e n t

a n d have i t

run t h r o u g h y o u without e x c h a n g e ?

Mir, McDo&gal:

A n y item o f the member banks n o w i n our

district t h a t w o u l d m x a w n c o m e s f r o m M i n n e a p o l i s
member b a n k w o u l d b e received.

is that they drift t o the par point --par point - - and all items o n member banks
Would probabigy b e concentrated a n d handled
+

banks o r through you.

to


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Federal Reserve Bank of St. Louis

479
Mr. MeKay:

No; I

d o not anticipate that. I

have heard

Several times about t h e number o f items that t h e banks m a y
handle, a n d I have made inguiries among the Chicago banks
who handle m o r e transit items t h a n a n y other banks i n the
United States, a s t o h o w many items t h e y would deposit w i t h
us i f w e opened the district.
35,000 items.

O n e o f the largest banks h a s

T h e y would deposit w i t h u s not less t h a n a

thousand items o n member banks i n our district, because o f
the fact that t h e y have direct connections i n all the large
cities, a n d most o f the smaller ones. W h e r e t h e y d o not have
accounts t h e y have arrangements whereby banks were permitted
16 cents, w h i c h i s practically par, a n d they would k e e p u p

those connections with the expectation o f getting a n account.
The largest bank i n Chicago Was over 100,000 transit items a
day, a n d they told u s that they would probably have i n the

neighborhood o f a thousand items t o deposit o n member banks
in our district.
to have a

W e d o not anticipate that w e are going

tremendous vaume o f items.

I t i s pretty hard t o

eStimate h o w many w e will reédeive f r o m all t h e member banks
in t h e e n t i r e district, b e c a u s e w e h a v e 9 7 2 b a n k s w h i c h h a p -

pens t o b e the largest number o f member banks i n any one

district.

B u t w e believe that the member banks, particular-

ly the smaller member banks located outside o f the reserve
cities, w i l l continue t o send their items t o the Chicago

banks a s they have been doing i n the past, and that they are
not going t o separate t h e items o f the member banks f r o m t h e

items o f the non-member banks, b u t are going t o send them all
to the Chicago correspondent.

T h e Chicago correspondent


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Federal Reserve Bank of St. Louis

480
in turn, w i l l s e n d t h e m o u t t o i t s c o r r e s p o n d e n t s ,
give u s o n l y t h e items,

a s s t a t e d before,

a n d will

o n points w h e r e t h e y

have n o connections.
(At this point a n informal discussion took place
which t h e stenographer w a s directed m o t t o report; a f t e r

which the following occurred: f
Mr. Hendricks:

M a y I

ask a

question, M r . C h a i r m a n ?

Chairman: C e r t a i n l y .
Mr. Hendricks:

D o y o u k n o w h o w m a n y banks

i n your

district a r e i n the habit o f charging exchange?
Mr. MeKay: I

cannot s a y h o w many i n the whole district,

but most o f the member banks i n Illinois d o not charge
exchange f o r the Chicago correspondents. E x c h a n g e charges
are more prevalent i n Wisconsin a n d Michigan t h a n they are
in either Illinois, Iowa, o r Indiana. A

large number o f

the Iowa banks were admitted prior t o the Chicago correspondents with the exception, however,

o f those located i n

the reserve cities o f Iowa, where they have clearing

house rules to charge a rate of $1 per thousand,
Mir. Hendricks:

Y o u have n o definite arrangements with

your banks t o permit t h e charging o f the items o n the two
days deferrred time?

Mr. McKay:

T h e average time i n our district for a n

item t o reach i t s destination i s one day, a n d w e have h a d a
meeting o f about a

dozen representatives o f the banks i n

the reserve cities, and they said i t would b e satisfactory t o
them i f we charged items u p i n two days time, which i s
practically the average time t o receive returns, a n d one o f
those r e s e r v e c i t i e s w a s l o c a t e d

i n one o f the farthest


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Federal Reserve Bank of St. Louis

481
sections f r o m Chicago, a n d occasionally i t took three days
to receive returns f r o m that particular city.

T h e repre-

Sentative f r o m that c i t y stated that i t would b e satisfac-

tory i f we charged the items u p i n two days' time.
Mr. Hendricks:
Mr. MeKay:

T h a t is, t o reserve cities?

R e s e r v e c i t i e s only.

Mr. Hendricks: I

a m speaking more particularly o f the

small country banks w h o a r e i n the habit o f getting exchange.
Mr. McKay: I

think there would b e n o objection o n the

part o f any o f the banks i n our entire district i f w e allowed two days before charging the items u p t o their accounts.
Mr. Hendricks:

S u p p o s e y o u sent o u t a

letter t o o n e o f

those out-of-town, so-called, country banks, w h o have b e e n
engaged i n the habit o f remitting f o r the items y o u have
been charging t o their account, a n d they should d r a w a draft
less one-tenth o f one p e r cent a n d send i t t o you, what
would y o u do?
Mr. McKay:

W e tell them that t h e Federal Reserve b a n k

of Chicago pays n o exchenge charges, a n d w e have already told
banks i n the reserve cities, a n d they have become reconciled t o the fact that they c a n n o longer charge exchange
to us; i n fact, t h e y d o not expect t o charge exchange

ultimately t o their Chicago correspondents.
As regards t h e time w e would receive returns, I

think

almost every bank i n that district would b e within two days,

anyway.
Mr. Hendricks:

S o i t would b e n o hardship t o them i f

you charged a l l the items t o their accounts?
Mr. MeKay:

T w o days after they were sent out; a n d i t


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Federal Reserve Bank of St. Louis

482
would s a v e u s a

good d e a l o f tige; o t h e r w i s e

to mark off all the remittances.

w e would have

Y o u know they a r e all o f

various member banks,

Mr, Wold:

Y o u would have t o check off the acknowledge~

ment, i n any event?
Mr. McKay: C h e c k i n g o f f the acknowlgdgment i s a much
simpler matter than putting through a n advice o f payment.
There i s very little w o r k attached t o that,
Mr. Seay:

H a v e y o u estimated t h e number o f items that

you are likely t o get under your plan?
Mr. MeKay: I

d o not know just what volume o f business

we will get, but I would say that under the present receiving
facilities w e are offering our member banks w e are receiving
about 4500 items a day.

W e have seven remerve cities i n

the district besides Chicago, a n d w e are handling items o f

about fifty banks.

O f course those are the largest

cities i n the district, a n d a large number o f items are o n
Minneapolis, Detroit a n d Milwaukee.

lir. McCord:
Mir. MeKay:

H o w does Detroit feel about that?
T h e Detroit banks have clearing houses where

there i s a charge o f fifty cents per thousand, a n d at the
beginning o n e o f the banks objected t o remitting a t par,
and o n their advices t h e y made a

memorandum o f the amount o f

exchange t h a t t h e y s a i d t h e y w o u l d c h a r g e u s .

W e told

them, however, t h a t w e paid n o exchange, a n d inasmuch a s
eventually w e would take f r o m them items o n the other members o f our district a t par, a s i t was purely a reciprocal
proposition between t h e member banks, t h e y then came t o the

conclusion that they had n o grounds t o charge exchange be-


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Federal Reserve Bank of St. Louis

cause a l l the member banks thought so.
I do not think w e will have a n y trouble t o speak o f with
regard t o exchange charges, because +

believe that a

great

many o f the banks have already become reconciled t o the fact
that exchange charges,

s o far a s the Federal Reserve Banks

are concerned, a r e a thing o f the past.
Mr. Wold:

H a s i t oceurred t o you, Mr. McKay, t h a t

in the course o f a short time these so-called country banks
will b e tired o f receiving a letter f r o m one o f the Chicago

banks and one of the liilwaukee banks and requiring remittances t o each one, a n d that they might instruct these
banks t o return a l l these items through t h e Federal Reserve
panks*

H a s i t occurred t o y o u where your reserves might

be under s u c h circumstances i f you h a d t o handle a i l the
items i n your district o n a two d a y deferred charge, immediate credit?
Mr. MeKay:

I n regard t o this t w o d a y deferred charge,

which seems t o alarm everybody, I
this fact:

would like t o point o u t

T h e custom has been f o r a great m a n y years, a n d

is now among reserve banks, f o r t h e account o f banks a l l over
the country t o credit o n receipt everything that i s sent them;
that is, a l l checks o n banks,

n o matter where t h e y are locat-

ed, i n the United States; a n d those accounts w h e n sent t o a
reserve c i t y correspondent a r e counted a s a reserve a t once

for the bank that sent it. T h a t i s nothing new. T h a t
has been going o n for a great m a n y years, a n d I believe
that w h e n w e charge t o r collecting items through t h e federal
Reserve danks, w e should adopt a s closely a s possible t h e


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Federal Reserve Bank of St. Louis

484

customs that have b e e n i n vogue f o r a great m a n y years.
That is, w e ought t o eredit o n receipt, a n d either await
returns f o r t h e remittance,

number o f days.

o r c h a r g e t h e m u p w i t h a n average

T h a t i s the custom among Chicago banks a n d

the b a n k s o f most o f t h e r e s e r v e c i t i e s , I

believe.

That is

not a n y n e w condition a t all, a s regards float. ‘ T h e float
will b e much less when the items a r e put into t h e Federal
Reserve banks a n d sent home f o r redemption a t once t h a n i t
has b e e n i n t h e p a s t w h e n i t e m s h a v e b e e n p a s s e d b y c i r c u i -

tous routes through various reserve city banks i n order t o
avoid exchange charges.

I believe that the float o n the items which are handled
through the reserve banks will b e much less i n volume t h a n
hes been the case i n the past w h e n handled through correspondent banks,
fir. Wold: I

a m not asking questions f o r the purpose

of criticising, b u t f o r the purpose o f securing information,
and y o u have n o t answered m y last question a s t o what t h e
volume might be, b u t i n answer t o your last statement, t h e
condition will b e reversed.

I t makes n o difference whatever

how much the float i s n o w that t h e national banks will b e
carrying.
fir. Seay:

I s not this true;

T h e effect o f that float

is now divided up between a larger n u m b e rf
o very large
banks?
Mr. Wold:

A l l o f t h e m l a r g e r t h a n yours,

o r most o f

them?
Mr. MeKay:

Y e s ; t h a t i s true, G o v e r n o r Seay, b u t i t i s

also true that there a r e only 7500 member banks s o far i n the

system.
The Chairman:

W i t h a reserve, however,

of

$1, 200,000 ,000.
Mr. Wold: $1,300,000,000.
Mr. MeKay: I

am’coming t o that, Governor Strong.

About o n e half the amount o f items a n y d a y are drawn o n the
member banks.
Mr. Wold:

I s i t not true that where o n e bank i n a city

is unable t o handle a

certain item upon a certain point a t

par and i t has a larger point t o which a l l other banks go,
that naturally a l l the items drift into that p a r bank? H a s
not that b e e n the experience?
Mr. MeKay: I

believe that w h e n the Federal Reserve

banks can begin taking items o n all the other member banks
at par, t h e member banks will also s t o p drawing exchange t o
their reserve c i t y correspondents, a n d slso that t h e reserve
eity correspondents will continue t o send them the items,
And, furthermore, t h e y will b e able t o take f r o m their cor-

respondents a larger volume o f items for the same amount o f
balance, o w i n g t o the fact that t h e exchange h a s been elim-

inated o n the member banks. A s i d e from that, t h e exchange
banks will also b e eliminated where there
on the non-member bamkxkuxkhaxtkownxwhosEexEheeKRxaeexEer

is a member bank i n the town whose checks are par. T h e
reserve c i t y c o r r e s p o n d e n t s w i l l t h e n b e a b l e t o h a n d l e a

-mueh larger volume o f items f o r the same amount o f balance


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Federal Reserve Bank of St. Louis

than they d o now.
Mr. W o l d ‘

Y e s , b u t i s n o t t h e m e m b e r b a n k eventually,

in a very short time, g o i n g t o Chieago i f the items a l l come

through t o all sourees? T h e r e i s n o profit init.

I t is

486
a matter o f time a n d bookkeeping a n d having them all come
through t h e Federal Reserve Bank.
Mr. MeKay:

T h e best illustration o f that i s Something

that h a s been i n effect f o r a great m a n y years, a n d that i s
the Boston clearing house plan, which i s very similar t o the
eollection o f the items f o r the federal reser¥e banks.
Bankers o f Boston d o not send all their items through t h e
Boston clearing house, although they c a n get nearly a l l o f
them a t par.
The Chairman:

M a y I interrupt y o u there b y saying that

the Boston Steading house plan takes two days deferred credit? H o w can they expect t o handle the items i n that way?
Whereas,
troduce a

b y this plan, w e are proposing possibly t o in-

system o f clearance whereby t h e Federal Reserve

banks will take these items f o r immediate credit, a n d a t the
end o f three years t h e balances n o w existing between banks
having reciprocal relations must b e withdrawn a n d deposited

with the Federal Reserve bank, o r else i t would b e a dead
balance, w h i c h w i l l n o t c o u n t a s reserve.

lir, MeKay: I

was coming t o that, too, Mr. Chairman,

and I was going t o say that the reason that the Boston banks
do not p u t the items into t h e Boston clearing house i s be-

cause they have correspondents located i n the cities where
these items are drawn. T h u s they d o not have the correspondents e v e r y d a y send them through t h e clearing house.

And furthermore, t h e competition for business among the
Boston
BxXERaHES banks h a s caused t h e m t o put a

:
Slight rate o f

exchange t o the banks i n return for the balance, a n d that
Same condition will arise w h e n the items a r e handled b y

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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

487
the federal reserve banks, b u t t h e exchange rates will b e
much less than they were formerly. I

think that there i s

reason t o believe that t h e same condition will work out
among t h e federal reserve banks a s has worked o u t i n Boston
regarding t h e Boston bank.

W e are not going t o get a l l o f

banks
the items that a r e i n our district d r a w n o n the member
now o r a t a n y other time.
Mr. Hendricks:

H a v e y o u not left o u t o f your calcula-

tion the manner i n which the member b a n k i s going t o make
his account good? C e r t a i n l y h e will n o t send y o u Chicago
exchange i f h e has a lot o f miscellaneous items a l l over
the country.

H e will send y o u those.

Mr. MeKay: I

think h e will send u s Chicago exchange,

because h e does n o t want t o sort o u t h i s member b a n k
items f r o m his non-member b a n k items; a n d a s more state
panks j o i n the system i t Will b e more difficult t o sort o u t
the items t h a n i t i s now---and i t i s difficult enough
now.

T h e mere fact that i t i s a member b a n k does not neces-

sarily mean i t i s a member b a n k o f our district.
be the St. Louis district.
have a

I t may

I t may b e true that t h e y will

list o f the member banks, b u t t h e y will not refer t o

the l i s t o f t h e m e m b e r banks, b e c a u s e

i f they c a n get t h e

itemeclosed t h e y will n o t bother about w h a b district i t is.
The clearing hanks, t h e ones i n the reserve cities, t h e y
are t h e ones that will l o o k over the list.

T h e y are t h e

only ones that will use p a r lists now--Mr. Wold:

A r e y o u not speaking o n the theory that «

everybody else i s going t o clear f r o m their districts a l l
cheeks o f the national banks a t par?

488
Mr. MeKay:

T h e member banks i n our district will

send all their items t o Chicago. T h e Chicago banks will
deposit some o f them with the Federal Reserve b a n k a t Chieago,
Where t h e y have n o connection.

A s t o items drawn o n points

in the other districts, t h e y will forward some o f them t o
the St. Louis correspondent, w h o i n turn will deposit whatever items t h e y please w i t h t h e Federal Reserve b a n k a t
St. Louis.

The Chicago banks will send t o Philadelphia the items
they have i n the Philadelphia district. T h e Philadelphia
banks will collect direct where t h e y have correspondents,
and will p u t t h e receipts i n t o t h e surplus, i n t o t h e Federal
Reserve B a n k o f Philadelphia, a n d s o o n all over the country. T h a t i s the w a y i t will b e handled.

T h e y will

only put i n the Federal Reserve B a n k o f Chicago t h e items
on t h e i r o w n m e m b e r banks, b e c a u s e

w e d o n o t propose n o w o r

at a n y other time t o have t o take items drawn o n member
banks o u t s i d e o f o u r o w n district.

Mr. Wold: I

do not make myself Clear, o r you have

misunderstood me. Y o u think that they will not sort their
checks, T h e y have got t o sort the checks. ‘They have
got t o take t h e p a r list o f their Uhicago correspondent,
unless t h e Chicago banks a r e taking everything a t par.
fir, MeKay:

T h e r e a r e small country banks there taking

everything a t par, because the exchange does not amount t o
enough t o bother about.

lir. Wold: T h a t i s news t o me. I
information.


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Federal Reserve Bank of St. Louis

am glad t o get the

T h e y all deny it.

Mr. MeCord:

M a y I ask you this question: T h e r e i s a


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Federal Reserve Bank of St. Louis

489
considered w h e r e b y t h e c u s t o m e r ' s c h e c k w i l l b e

in t h e upper left hand corner, t h e letter a n d number o f the
reserve b a n k t o w h i c h t h e y belong.

W i l l not. t h a t e n a b l e

even t h e country banker t o sort h i s checks v e r y readily?
For instance,

i n Jackson, Mississippi, t h e customen's checks

on those banks will have i n bhe upper left h a n d corner F-6,
whereas a t Cornith, Mississippi,
St. Louis, w h i c h i s 8-H.

i t will have t h e number o f

T h e lithographers a r e doing t h a t

now, a n d i t wilt finally b e t h e custom.
Mr. licKay: U l t i m a t e l y , a

good many years f r o m now,

those numbers will appear o n the checks, b u t i t will take a
long t i m e b e f o r e t h o s e n u m b e r s a r e o n a l l checks. I

have reason t o know that, because I

was connected w i t h the

inauguration o f the American system o f the American Bankers!
Association, a n d w e used every influence possible a l l over
the country t o get t h e numbers p u t o n the checks.

T h a t

was a b o u t t h r e e y e a r s ago, a n d t h e r e a r e o n l y a b o u t 7 0 p e r
cent now.
MeCords
Fancher:

T h a t was a

voluntary proposition.

Y o u c a n n o t c o m p e l t h e m t o d o it.

MeKay : B u t i t will b e unnecessary t o d o this,
Seay:

Y o u gave a n instance a

while a g o o f t w o

very large Chicago banks, either one of which would give
you more than o n e per cent o f the number o f checks t h e y handled during t h e day.
business

W h a t proportion o f the collection

i n your district

d o y o u suppose y o u would b e likely

to H a n d l e « - - f i v e o r t e n p e r c e n t ?
*

Mr. McKay:

Y o u mean, p e r c e n t a g e

o f all t h e items

on

49%
mamber ixkks banks a r e drawn o n member banks within o u r


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Federal Reserve Bank of St. Louis

district?
lir. Seay:

Yes.

ea
McKay: I

t

h
e
cannot s a y w h a t p e r c e n t a g e w o u l d be.

know.
Seay: I

a m trying t o g e t a t w h e t h e r

i f the reserve

banks u n d e r t o o k t o d o t h a t i t w o u l d s e r v e a n y - e c o n o m i c a l
purpose

o r a c c o m p l i s h a n y t h i n g m u c h b y d o i n g it?:

Mr. MeKay:

T h e exchang

z

e a n d the methods o f

handling items all over t h e United States have b e e n wrong
for a good many years, a n d i t i s m y belief that when this
act was drawn i t was wished t o provide s o m e real method o f
handling items o n the member banks,
try, a

a t least i n this coun-

better method than w e h a d formerly. E f f o r t s h a v e been

made b y banks a n d bankers’ associations o f various kinds o f
thelast t e n years t o t r y t o improve t h e methods o f handling
items t o prevent items f r o m going through circuitous routes,
going o u t s i d e o f natural channels,

a n d i t i s impossible

for the bankers i n reserve cities, particularly i n the middie part o f the country,

t o get together a n d adoptgm moderh,

un-to-date principles a n d methods o f handling these items.
In other countries t h e y have scientific methods o f handling theséd items.

I n this country i t i s every bank f o r

itself. a n d t h e merchants h a v e been strongly opposed t o
paying e x c h a n g e c h a r g e s w h i c h w e r e p u t i n t o e f f e c t

b y clearing

house rules, combinations o f banks w h o get together a n d
establish rules.

T h e merchants, h a v e suffered a

good deal

on that account, a n d they are very anxious that some better

491
means o f h * n d l i n g t h a * s u b j e c t

b e established. I

that i s the reason i t i s put i n the Act.


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Federal Reserve Bank of St. Louis

believe

T h e y s a w that t h e

banks c o u l d n o t d o a n y t h i n g f o r themselves,

a n d i t was put i n -

to t h e a c t s o t h a t s o m e b e t t e r m e a n s W o u l d b e i n v o u g e f o r

handling these items.
Chairman:

l i a y I

interrupt y o u a t t h i s point?

licKay: C e r t a i n l y .
The Chairman: I

think w e all admit that the. collection

of checks. i n v o l v e s expenses,
Clerical expense,

palitems.
timethat

a n d that outside o f the i t e m o f

a n d that expense

i s divided i n t o t w o princi-

O n e i s the amount o f interest involved, a n d the
i s taken t o s e n d t h e check t o i t s place o f payment a n d

get t h e m o n e y back. .

The o t h e r i s t h e e x p e n s e o f s h i p p i n g

the actual money i n settlement o f the check. T h o s e
items o f expense have been t h e subject o f every diverse
treatment between t h e banks all] over t h e United States.

I n

some centers efforts have been made t o control t h e matter b y
strict c l e a r i n g h o u s e regulations.

I

t h a s developed a s a

matter o f competition h o w that expense could b e handled,
distributed o r borne.

A s a matter o f fact there s e e m t o b e

four o r f i v e d i f f e r e n t m e t h o d s t h a t m a y b e a d o p t e d
Wholeor

i n part a s t o t h e f i x i n g o f t h e expense.

i n kim

O n e i s that

itshoufid b e borne b y the person w h o draws t h e check. Another,
that i t should b e born b y the person t o whom the check i s
payable.

T h e third, t h a t i t should b e b o r n e b
y the bank

upon whom the check i s drawn.

T h e fourth i s that i t should

be b o r n e b y t h e b a n k t h a t c o l l e c t s t h e check.

T h e fifth

is a new principle, t h a t i t shall b e borne b y the Federal

492
Reserve bank, a n d the principle that i t should b e borne b y
the F e d e r a l R e s e r v e b a n k i s a p p a r e n t l y b a s e d u p o n t h e a s s u m p tion t h a t t h e e x p e n s e o f c o l l e c t i n g c h e c k s

i s almost a s m u c h

a matter o
f public concern t o all t h e people o f the
United S t a t e s

a s i t i s that i t should h a v e a

prompt, e c o n o m -

ical a n d efficient service i n carrying t h e mails.
Apparently t h e theory. o f this A c t i s that that expense
shall ultimately b e upon t h e Federal Reserve Banks, a n d that
it should b e absorbed ultimately o u t o f the surplus revenues
of t h e Federal R e s e r v e b a n k s a f t e r t h i s p r e s e n t d i v i d e n d h a s
been p a i d t o t h e m e m b e r b a n k s w h o f u r n i s h t h e c a p i t a l a n d

the deposits.


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Federal Reserve Bank of St. Louis

That m a y not b e a complete a n d accurate statement o f the
problem,

but I

think i n s t e a d o f d i s c u s s i n g

haphazard m a n n e r t h e v a r i o u s p h a s e s

in a

rather

o f t h i s pbroblem,

w e should

begin t o arrange i t i n its natural parts o n a program o f
discussion and take u p one thing a t a time and dispose o f it,
and when w e have agreed a s t o that particular i t e m w e will
reduce i t possibly t o a comparatively f e w items concerning
Which a decided difference o f opinion m a y arise a s t o the
wise thing.

The principle primarily underlying t h i s matter is, i n
fact, h o w the expense o f collecting checks a n d settling
balances shall b e horne.
I have been listening t o this discussion a n d taking
centinuously

part i n i t mumkinuaikkx f o r some months past, a n d i t has become q u i t e a p p a r e n t
arrive a t a

t o m e that t h e o n l y w a y i n which w e m a y

solution o f t h i s m a t t e r i s t o d i v i d e t h e w h o l e

subject u p into i t s natural component parts a n d discuss i t i n

493
wav a n d decide o n e thing a t a time, a n d not continue a
haphazard discussion o f such a
Personally, I

complicated matter.

would n o t like t o undertake t o l a y out

&@skeleton plan a s t o this collection business, b u t i t seems
to m e that w e could get somebody w h o i s perfectly competent-a great deal more competent t h a n I

a m =- t o l a y i t out, a n d

then W e c o u l d t a k e i t u p i n a @ more o r d e r l y f a s h i o n t h a n w e
have heretofore. I

a m a s k i n g y o u t o make progress a n d

arrive at. a decision.
Would i t not b e possible f o r Mr. McKay a n d Mr. Hendricks
who have a s great a s i f not greater familiarity t h a n anybody
else w i t h this subject t o act a s a committee, n o t t o decide
the matter, b u t t o l a y out t h e simple essential principles o f
this business that w e have m e t t o discuss a n d decide i f possible?

W h e n w e get that i n front o f u s I believe w e are

going t o cut t h e time d o w n about 7 5 per cent: i n arriving
at a decision.
Yhat i s your judsment a s t o following s o m e s u c h
course, gentlemen?
lir. O. WELLS: I
at a

point

think w e will a l l agree that w e are

w h e r e w
e are willing t o t r y almost a n y suggestion

that m a y b e made, a n d that seems t o b e a logical o n e t o me,
The Chairman: I
the meeting.

d o not want t o impose m y wishes o n

T h e s e a r e not m y wishes,

a s a matter o f

fact; b u t w e must b e brief i n this meeting.


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Federal Reserve Bank of St. Louis

W e have pos-

sibly three quarters o f a n hour tonight a n d possibly t w o
hours tomorrow. I

d o not believe w e c a n get a n y satisfactory

results f r o m t h e k i n d o f discussion

w e a r e n o w having.

If someone else will suggest @
progressive,

program that will b e

w h e r e w e e a n take u p a n y part o f this subject a n d

have i t out a n d put i t down finished, a n d then take u p the
next one, I

believe w e will g e t somewhere,

Mr. Seay: I

believe i t would have t o b e approached

in @ logical manner b y these subdivisions a n d passed. upon
just a s w e have disposed. o f every other question that h a s come
before us.
The. Chairman:

I

f f e l t t h a t t h i s preliminary talk

that w e have been engaging i n might perhaps b e necessary, I
should b e i n favor o f it, b u t I

a m persuaded that i f this were

@lj1 w e were going t o d o we wial plunge into’ t h e thing blind-«
folded, unless w e take i t i n some fashion that will actually
analyze t h e subject.

W

e have g o t t o decide u p o n o n e after

the other, o r we positively will never b e able t o r e a c h a
conclusion,
I believe I

have a n a l y z e d

Mr. McDougal:

i t v e r y fairly,

Y o u have called u p o n Chicago first, a n d

we have taken a great deal o f your time.

B u t i f it is pos-

sible t o obtain a n expression f r o m the other governossas
to their tendency i n the matter o f opening u p their districts
in a few years I would like very much t o hear it. I

d o not

think i t i s possible that w e are t h e only ones who have
been getting ready t o d o this.

I f w e are, I

would like t o

know i t , o f course,
The Chairman:

G o v e r n o r Seay, w o u l d y o u b e willing

state what t h e disposition i s towards this matter i n your
district?

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Federal Reserve Bank of St. Louis

495
Mr. Seay;
any means a

M r . Chairman, I

shall a d m i t t h a t I

a m not b y

transit expert, a n d nedtther i s m y experience i n

that particular branch o f banking o f much value either t o
myself o r t o others.

W e realize that w e have got t o take

an initial s t e p m w in the clearingmatter. I

think w e ought

to determine what t h e scope o f that s t e p will b e and that
we will a t this meeting h a v e t o determine what w e are willing
time,

to undertake t o d o this/ h o w limited i t shall be, a n d
we must decide whether w e will take a n initial step.

W e must

decide what that d e p shall be, a n d h o w w e c a n safely a n d
prudently take that step. I

cannot contribute anything more

to t h e s o l u t i o n o f t h i s q u e s t i o n t h a n t h a t statement. I

am

very glad you suggested what y o u did, a n d I hope these t w o
gentlemen will undertake t h e matter f r o m that point o f view
and wEsank present t o u s some expert advice a s t o what w e c a n
undertake a t this time a n d the manner i n which w e can undertake
it, a n d give u s their definite recommendation, a n d then let
US pass upon those things.
Mrs McCord:

G o v e r n o r Strong,

divided o n this subject. I

m y district

have quite a

i s very much

number o f protests

from member banks aga@inst the enforcement o f this part o f
the law.

T h e situation i n our district i s probably

different f r o m that i n any other,

o n aceount o f the small

number o f national banks a n d the greater preponderance o f
state bahks, I

have been importuned b y the members n o t t o

take a n y immediate action i n this matter, b u t would await
further consideration o f the subject, g o i n g i n t o i t cautious-


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y a n d carefully.

May I give t o this meeting o f Governors t h e conténts


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Federal Reserve Bank of St. Louis

496
of a

letter t h a t I

received t h i s m o r n i n g ? I

delay t h e proposition,

but I

d o not want t o

think i t i s

ject.
The Chairman:

Certainly.

Mr. McCord: ( R e a d i n g : )
FOURTH N A T I O N A L BANK,

Atlanta, Ga.,
Jan, 20#1915.
Se H A G ngs.
r Federal R e s e r v e Board,
Washington,

D.C,

My d e a r S i r

The Atlanta C+earing house Association h a s f o r a
number o f years served t h e banks o f this c i t y i n the matter

of collecting direct items o n the states o f Alabama
Florida a n d Georgia.
Since t h e establishment o f the Sixth Federal Reserve
District,

t h e y have h a d i n mind enlarging t h e territory

covered a s outlined above t o include t h e Sixth District,
pending t h e F e d e r a l R e s e r v e B a n k e x e r c i s i n g i t s c o l l e c t i o n

facilities t o handle items o f members a n d non-members.
The Georgia State Bankers h a v e i b process o r organization
a State Clearing House organized b y the State Banks a n d
to b e operated b y State Banks, b u t t o which National Banks a r e
eligible t o membership, f o r t h e purpose o f clearing items o n
the State o f Georgia.
The w r i t e r h a s h a d s e v e r a l c o n f e r e n c e s w i t h Mr,

Coles, V i c e President o f the Central Bankn& Trust Corporation

497

of this city who is the leading spirit o f the State Bank
Clearing H o u s e i d e a ,

A

s 4

result

o f these conference

idea h a s been evolved between u s for organizing a
Clearing house f o r the Sixth District t o b e composed o f both
National a n d S t a t e banks,

[he purpose o f said organizatiion would b e t o handle
items o f National B a n k s n o t e l i g i b l e

t o b e handled through t h e

Federal Reserve Bank, a n d such items a s State Banks desired t o
handle through this Clearing House, I

short t o co-operate

with t h e Federal R e s e r v e B a n k i n c a r i n g f o r b u s i n e s s w h i c h

they a t this time d o not contemplate handling.
Before g o i n g f u r t h e r w i t h t h e m a t t e r M r . C o l e s a n d
I

agreéd t h a t I
get a

shovld present t h i s matter t o you i n order t o

favorable expression f r o m y o u o r the Board a s t o the

general p l a n outlined above,
It i s the opinion o f the w r i t e r that s u c h a plan would
do several things, viz:
lst

E k waukd g k Maintain a

close a n d friendly feeling between

the system o f state a n d Nat ional banks,
end

I t would give State banks a voluntary opportunity o f

trying o u t t h e system o f clearing country checks along
the
line o f the Federal Reserve system.
ord

I f i t worked satisfactorily i t would have a tendency

to unify t h e two systems.
4th

I t would bring about a

unified a n d scientific manner

of handling state b a n k checks i n this District,

Of course t h e detailed plans Would b e submitted
f o you
but I

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Federal Reserve Bank of St. Louis

would like t o have a n expression a s t o the general
We-would n o t desire t o proceed along t h e lines n o t
in}

harmony With the idea o f

r

a

l Reserve Board.

Should there b e a n y features o f the pkan which d o not
make themselves clear t o you, I

will b e glad t o g o into t h e

matter w i t h you,’ a n d should y o u desire, M r . Coles a n d I would
come t o W a s h i n g t o n

t o c o n f e r w i t h y o u i n person.

Awaiting your further favors a n d with kindest personal
regards, I

am
Yours v e r y truly,

(Signed)

J

. K. Ottley.

Carbon c o p y t o
Mr. Jos. A . MeCord, Governor
Federal R e s e r v e Board,
Atlanta."
I telegraphed M r . Coles, a l s o , t h i s morning,
me & @ prospectus

t o send

o f t h e p l a n b y special d e l i v e r u a t 1 2 o'clock

today, a n d i t will b e here a t six o'clock i n the morning.
The Chairman:

G o v e r n o r Aiken, w i l l y o u m a k e a n expres-

sion o f your views i n this matter?
Mr, Aiken:

O u r f i r m has condition that a r e differ-

ent f r o m those o f any other district.

M r . McCord h a s

spoken of. the B o s t o n C l e a r i n g H o u s e arrangemtn,

foreign department, w i t h which y o u a r e familiar,

the

T h a t

department h a n d l e s b o t h m e m b e r a n d n o n - m e m b e r b a n k c h e c k s

on our district, a b o u t 6 0 0 banks i n all, about 2 0 0 o f which
are non-members,

T h a t department o f the Boston Clearing

House h a s a check collecting facility that i n its completeness a n d efficiency w e cannot compete w i t h a t all.

T h e

result i s that o u r member banky s o far a s I have been able
to discoverp h a s not t h e slightest interest i n oru handling


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Federal Reserve Bank of St. Louis

499
intra-district clearing transactions, and, i n fact, m o s t o f
them want. iit- left alone.

B u t t h e y a r e solicitious t o have

soon.as p o s s i b l e h a n d l i n g s o m e i t e m s o u t s i d e

district i n t h e district items, a n d a s a result I

o f our

have given

some little attention t o t h e matter o f out intre-district
clearing. I

can seé n o reason a t the present t i m e f o r u s t o
more
try t o make any. S o m e o f our axkhaxkkins
in Bosten have been very anxious that w e should step i n and
do what w e c o u l d w i t h o u r N e w E n g l a n d items, b u t i t s e e m s t o

me, a n d I

K a e pave represented t o the baord a n d several o f the

representatives o f the larger banks w i t h whom I have lunched
every week o r two t o talk things over, t h a t i t i s a very great
mistake f o r u s t o greatly impair t h e efficiency o f our N e w
England o r g a n i z a t i o n j u s t f o r t h e s a k e o f g i v i n g t h e a p p e a r -

ance o f being busy; that i t seems t o me t o be very unwise,
Vy disposition i s t o approach t h e whole clearing proposition
from a n o t h e r e n d f r o m t h a t s u g g e s t e d b y t h e g e n t l e m a n f r o m

Chicago.

I - s h o u l d like t o begin o n very limited inter-

district clearings under t h e plan that w e suggested f o r t h e
settlement o f balances, a n d gradually increase a n d let o u r
own district «--- I recognize t h e fact that conditions i n the
other districts a r e s o different i t may make a

different

feeling i n the matter ---~ let o u r o w n district s t a y a s i t
is until w e have developed t h e inter-district organization.
It seems t o m e w e c a n progress b y small steps a n d gradually perfect t h i s machinery. I

believe under this plan

of settlement w e will have a n entirely satisfactory basis f o r
Cleaning u p a l l t h e b a l a n c e s c r e a t e d


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Federal Reserve Bank of St. Louis

i n that w a y between us.

500
That, t o m y mind, i s the e n d o n which w e should begin.
The Chairman:

G o v e r n o r Rhoades?

Mr. Rhoades: I

suppose, M r . Chairman, t h a t n o Governor

here i s less competent t o speak o n the subject o f check
collections t h a n I am.
The Chairman: I
Mr. Rhoades:

disagree a b o u i

G o v e r n o r Rhoades.

B u t I T a m m u c h i m p r e s s e d with t h e s u g e e s -

tion that t h e Chairman h a s made, t h a t w e lay out.a definite
program t o b e settled,

o n e item at a

time,

a s t h e acientific

way o f approaching t h e subject.
The Philadelphia district i s roughly divided into t h e
Philadelphia institutions a n d all t h e rest, a n d a s i s w e l l
known, t h e Philadelphia institutions h a v e artifically a t tracted a

great d e a l o f b u s i n e s s

t o Philadelphia f r o m ali

over the country b y the so-called free collections.
more t h a n

thatthose institutions a r e now/willing t o give that
business u p i f all their competitérs will give i t u p at
the
same time s o that w e c a n have t h e shrinkage i n deposits
uniform.

T h e city institutions would b e delighted i f the

federal r e s e r v e b a n k s w o v l d a b s o r b t h a t expense,

The country banks i n m y district a r e most o f them
reaping a

certain amount o f profit o u t o f the exchange,

I a m confident

i f w e c a n make t h r o u g h o u r district a

ment o f the difficultiesin a

state-

way that t h e y could grasp

they would b e more than content t o allow t h e matter t o
until w e c a n solve i t o n brodd lines.
The Chairman:

T h e r e i s one striking change t

from-the statements s o far made, a n d that i s
that there a r e
Conditions

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Federal Reserve Bank of St. Louis

i n this matter

t h a t a r e peculiar

t o e a c h dis-


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Federal Reserve Bank of St. Louis

Erie <

G o v e r n o r M c D o u g a l h a s e x p l a i n e d a n d Mr. M c K a y h a s

explained t h a t t h e r e i s a

situation p e c u l i a r

t o the Chicago

district, t h a t they have seven reserve cities, f o r instance,
outside o f Chicago, a n d the largest number o f member banks
in any district, and, recognizing t h a t situation, t h e
Chicago b a n k s a r e a p p a r e n t l y w i l l i n g t o c a r r y t h e l o a d i n

order t o get the benefit o r advantage o f having this system
put i n operation.

Governor McCord calls attention t o the fact that conditions i n his district a r e peculiar, because t h e y have tlere
such a

tremendous p r e p o n d e r a n c e

are n o w o r g a n i z i n g a

o f nonemember b a n k s w h i c h

c o l l e c t i o n s y s t e m o f t h e i r own.

Governor Aiken calls attention t o the peculiarity o f
his district, t h a t t h e y have a country collection system
which affects t h e operation o f the intra-district c l e rings.
Governor Rhoades calls attention t o the peculiarity o f
Philadelphia, w h i c h i s that they have a n abnormal volume o f
unnatural exchanges a t Philadelphia driven there b y the
exchange charges imposed i n New York. I
New Y o r k h a s a

a m frank t o say that

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

no other district, a n d that i s going t o add t o t h e difficulty
of arriving a t a solution o f this problem.
Governor Fancher, w h a t a r e t h e peculiarities o f your
district?

Mr. Fancher:

W e have g o t a different situation t h a n

has b e e n e x p r e s s e d here.

reserve cities.

W

e h a v e i n o u r d i s trict f o u r

T h r e e o f them are pretty nearly relatively

the same size--= Pittsburgh, Cleveland a n d Cincinnati.

W e


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Federal Reserve Bank of St. Louis

502
“great p r e s s u r e p u t u p o n u s t o u n d e r t a k e

ting country checks. I

calied a meeting

of the representatives o f the reserve c i t y banks i n
a
Cleveland
about fourweeks a g o t o discuss several items bearing
=

on this, a n d w e h a d a n alli d a y conference, a n d t h e result o f
it was that amongst other resolution passed was o n e that
they approved t h e conservative

u r s

t

the Federal Reserve Banks i n District No. 4

h

+h

e officers o f

were pursuing anid

advised caution i n undertaking t h e matter o f colkecting checks
in the district,

o r the general r u n o f covntry checks,

There h a s b e e n a t t r a c t e d t o C l e v e h a n d - - n o t s o m u c h i n

Cleveland a@gi:in Pittsburgh - - a rather abnormal deposit b y
reason o f the very liberal collection facilities a n d a prett
of interest o n balances.

I n some cases some o f

the b a n k s W o u l d l i k e t o h a v e t h e F e d e r a l R e s e r v e b a n k t a k e o n

the load a n d relieve t h e m o f some o f these items,
I have asked t h e larger banks i n Cleveland, w h i c h handles about 35,000 country items a

day what items they

Would probably give u s i f w e undertook t o collect t h e
checks o n member banks,

T h e y have not given m e those

figures, b u t rather intimated that a

great m a n y o f them

hat volume would not come t o us.
It i s not t h e general habit o f banks i n District No, 4
to charge exchange o n their items, although i t does exist i n
some parts o f Ohio a n d i n Kentucky.

S o m e iof the remote

points have t h e customm that t h e y charge exchange o n items

which t h e y r e c e i v e f r o m t h e r e s e r v e c i t y correspondents.

Vistrict N o e 4

could n o t undertake t o collect t h e member

checks o n the plan which has been outlined i n District No. 7 ,
because t h e float there would amount t o a large i t e m a n d
would t i e u p a great part o f our resources,
have t h e b a n k s

a S w e would not

i n the reserve c i t y t o help u s c a r r y t h e

load.
I believe t h a t i n any operations t o b e undertaken i n
District N o - 4


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Federal Reserve Bank of St. Louis

w e s h o u l d s t a r t i n i n a very. m o d e s t w a y , p o s -

sibly, trying o u t o n the lines t h a t have b e e n tried o u t i n

District No- 7, taking the items from the reserve banks in
reserve cities o n l y a n d making a

start along those lines.

The Chairman:

W h a t a r e y o u doing now?

Mr. Fancher:

W e are doing practically nothing.

The Chairman:

Mr. Fancher:

Y o u a r e a n ultra reactionary conservative?

W e are adhering very closely t o the plan

mapped o u t here i n the meeting i n October, a n d sitting v e r y
tight.
Mr. O . wells:

D o y o u contemplate taking items o n

reserve cities?
Mr. Fancher:
The Chairman:

W e d o not g o that far.
Y o u take everything that was authorized

at t h e c o n f e r e n c e e x c e p t i t e m s

o n reserve c i t i e s a n d i t e m s

on Federal Reserve hanks, those being the only two classes
mentioned i n that meeting. I
Mr. Fancher:

W

congratulate you. (Laughter)

e have b e e n taking drafts

o n the member

banks a n d o n the reserve c i t y banks i n the district.
Mr. O . Wells:

T h a t i s all w e are doing.


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Federal Reserve Bank of St. Louis

The Chairman: G o v e r n o r Kains?
Mr. Kains: District No. 1 2 i s a district o f magnificent
distances,

have here a

a n d the Chicago p l a n would hardly suit us; b u t I

suggestion that w e have b e e n thinking o f putting

into practice.
We a r e u l t r a conservatives,

district, b u t w e propose a

l i k e Governor Fancher's

system o f deferred credits a s

being two desirable results. First, i t will enable each
member bank, i f i t wishes,

t o meke i t s customary checks

available f o r credit a t par i n the Federal Reserve c i t y o f
its district, a n d therefore throughout t h e district. Second,
it enables Federal Reserve banks t o protect themselves f r o m
the depletion o f their reserve, which would result f r o m the

unrestricted deposit with them of $15,000,000. worth o f
transit items p e r day, a n d w e g o o n and allow t w o days deferred credit f o r Los Angeles, f o u r days f o r Portland, f o u r days
for S a l t L a k e C i t y ,

s i x d a y s f o r Seattle,

s i x d a y s f o r Spo-

kane, s i x days f o r Tacoma, a n d give immediate credit t o items

in San Francisco. (Laughter)
Mr. MeKay: I
days o n Seattle.

would like t o a s k why y o u take o u t s i x
C a n y o u not g e t returns

i n four days?

Mr. Kains: No, w e cannot get returns i n four days;
it takes s i x days.

F o u r days f r o m Portland, a n d i t takes

two days f r o m Portland t o Seattle - - - a day each way.
Mr. McKay:

W h a t i s the train time between S a n Francis-~

co and Seattle?
Mr. Kains:

I t i s bad between Portlend a n d Seattle.

You cannot g e t a twain.
Then w e h a v e a n o t h e r l i m i t e d s e a l e f o r i n t e r d i s t r i c t

transactions.
Mr. Fancher:
Mr. Kains:

W h a t i s your plan a s t o deferred credits?
W e will take these items a t par and allow

this time, a n d will save o u r balances.

W e d o not propose

to lose o u r gold.
Mr. Seay: W o u l d y o u get the items, Mr. Kains---

Mr. Kains: I

do not know whether w e could o r not.

I have b e e n getting along like t h e lawyers i n Hell--- b y

degrees. (Laughter).
The Chairman:

That, I

understand,

i s the plan which

you are n o w contemplating carrying o n i n your o w n district
for intra district clearings between certain points where
you establish these rules b y agreements w i t h the banks i n
those districts?
Mr. Kains: Y e s .

D o you s e e a n y objection t o that,

Governor Strong?
The Chairman: F r a n k l y , Mr. Kains, I
jection i n stating a

do not s e e a n y ob-

plan that will n o t b e availed o f b y

member banks.

Mr. Kains: T h a t i s the way I felt myself. (Laughter)
The Chairman:

O f course, the advantage o f that plan

is that the Federal Reserve bank i s protected a s to, I suppose, t h r e e q u a r t e r s

o f all o f the objections t h a t a r e r e -

ceivad t o the plan o f immediate charge a n d immediate credit,
‘and those banks that agree t o conduct their business b y methods that would give a

better service, b u t involve investment

in float, a n d s o on, would b e permitted t o continue t h e same
relations t h e y n o w have with their correspondents, except
that a t the e n d o f three years,


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Federal Reserve Bank of St. Louis

b y reason o f the shift o f

506

reserves, a n d n o longer being permitted t o count balances i n
the reserve cities i n these transit accounts a s reserves,
they might gradually b e driven t o a greater u s e o f the system
that y o u n o w propose t o try; a n d o f course a t the same time
the danger o f that i s that i t does not offer t o the member
penk anything that i s even substantially o r approximately
equivalent t o what h e i s n o w getting, a n d i t might drive
him out o f the system into t h e state b a n k system.
Mr. Kains: P o s s i b l y . B u t I know i f w e d o not d o that

we will have a float of $14,000,000, and having a float of
$50,000,000 i n the whole district, and $30,000,000 i n the
member banks, I

would lose a l l m y gold.

The Chairman:

O f course, Governor Kains,

i t i s neces-

sary f o r m e t o here state that i f you decide t o change y o u r
program a n d undertake t o open your district w i d e I

would

not like t o withdraw m y offer about rediscounts until w e

see what happens. (Laughter)
Mr. Fancher:

D o I understand t h a t y o u have b e e n ac~

cepting drafts o n these reserf¥e cities a n d n o w propose detferred credit?
Mr. Kains:

N o ; w e have never b e e n doing anything more

than you.
Mr, Aiken:

H o w many reserve cities a r e i n your dis-

trict?
Mr. Kains: S e v e n .
Mr. O . Wells: U n d e r t h e proposed n e w plans would y o u
accept items o n other member banks t h a n those?


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Federal Reserve Bank of St. Louis

Mr. Kains:

N o ; w e w o u l d not.

W e would g i v e checks

on those cities.
Mr. O . Wells:

B u t y o u would take individual's checks

on those cities?
Mr. Kains: Y e s .
Mr. O . Wells:

Y o u would enlarge y o u r handling b y the

extent o f bearing other items, b u t y o u would restrict t h e
erediting t o a

deferred p a y m e n t i n s t e a d

o f t o immediate

payment a s you have b e e n doing i n the beginning?
Mr. Kains: Y e s .
Mr, O . Wells:

T y i n g u p i n one respect a n d liberating

in another?
Mr. Kains:

Yes. I

a m going t o wait] now,and have

Chicago p u t this p l a n into force. I
safe a l l t h e w a y along.
let d o w n the bars; b u t I

a m going t o play

I f they d o very well, w e might
certainly a m not going t o risk

any diminution o f my gold. I
There i s n o d e m a n d f o r it.

do not think i t i s required.

T h e b i g bankers,

laugh a t m e i n San Francisco.

a s y o u know,

T h e y have told m e very frank-

ly i t would b e very foolish.
The Chairman: I

would like t o get your impression,

Governor Wohd, a s well a s that o f Mr. Wells.
Mr. Wold: M i n n e a p o l i s h a s n o plan.

H e r situation

is different f r o m a n y o f the others. ( L a u g h t e r ) B o s t o n
has h e r clearing house, a n d Philadelphia h a s absorptions,

‘and I- learn, much t o m y surprise, that Chicago i s absorbing.
We o n l y h a v e t w o r e s e r v e c i t i e s c o n n e c t e d
ten m i l e s apart;

s o that t h e collections

b y trolley,

o f items

o n member

banks i n federal reserve cities h a s not proved burdensome.


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Federal Reserve Bank of St. Louis

We have n o t h a d any.

W e have considered this subject a t

aifferent times with the T w i n City banks.

T h e y are not

urging us. T h e y realize t h e problems which confront t h e
establishment o f any basis.

‘ h e pressure h a s come t o us, w e

thought, f r o m Washington, a n d also f r o m jobbers a n d manufacturers i n the T w i n Cities, w h o think they ought t o b e
| relieved f r o m the exchange charge. P e r s o n a l l y , I

would

much rather n o t commence it; but~if Chicago were t o start, w e )
would feel disposed, I

think,

t o begin operations along the

game lines a s the Chicago plan. I

hardly think i t would b e

they
very m u c h w i t h n e w i t e m s f r o m t h e T w i n C i t y b a n k s w h e r e

have n o correspondents, a n d the member banks would not b e
disposed t o send items t o us, I - d o n o t think, b u t would send
them t o the regular correspondents, w h o would s e n d them out
if they h a d direct relations, a n d where t h e y d i d not have

direct relations, a n d our figures would indicate that w e
might possibly get half a million a day.
"he suggestiog o f Governor Aiken o f opening u p interState districts would n o t appeal t o us. I

can see h o w t h e

east would like t o have that a n d w h y they would like t o

have it. I am not blaming them for that. b u t our reserve
cities a r e largely east ofus, a n d they are a l l par.

Our

people h a v e n o difficulty i n handling checks u p o n eastern
reserve cities o r reserve cities anywhere, f o r that matter,
but I

imagine Boston banks have difficulty i n collecting

items u p o n r e s e r v e c i t i e s west.

D e t r o i t c h a r g e s exchange.

The Twin Cities charge exchange, s o that our problem, y o u
see, i s different f r o m Boston's problem.

W e are rather i n

@ Waiting mood, a n d inasmgch a s Kansas City i s handling

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509

obliged
items a n d St. Louis i s handling items, w e would b e
open
+o commence i f Chicago opened up, a n d w e would probably
up o n the same basis a s Chicago.
The Chairman: G o v e r n o r Wells?

Mr, 0. Wells: I

would like t o say that there i s a

the
distinct pressure i n our district f o r the beginning o f

operation of transit functions o f the federal reserve banks,
put I

do not believe that t h e y a r e confidently expecting that

we will d o something i n the early future.

T h a t h a s grown out

of the fact that a t a conference i n Washington i t was recommended thet w e d o cettain things a t the outset, w i t h the suggestion that i t b e followed u p b y other developments shortly
thereafter.

T h e r e w a s a discussion a t the conference i n

the
December, trying t o solve t h e inter relations between
federal reserve districts, w h i c h was rather coupled with the
‘ gecond problem o f intra-relations.

T h e present limited

we
funetions i n our district a r e n o t satisfactory ones, a n d
rather assumed t h e attitude that i t would make some changes,
either enlarging t h e functions a S & means o f gradual developments,or t h e alternative o f abandoning a n y transit functions

now employed. I

realize that this i s a very large national

and local question, a n d I had hoped that there would b e
that uniformity which would bring about t h e adoption o f certain principles, a n d that t h e localizing o f the application


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Federal Reserve Bank of St. Louis

of the principles would b e simply i n degree according t o

o f that character.
@istance o r time elements, o r something
We have a

widely separated district, t h a t is, a

district

that would apply i n
of great distances, a n d the same thing

510
Chicago could not, o f course, a p p l y i n the l i t h district.
I have n o plan, b u t I
question,

have thought a

great d e a l about t h e

a n d i t seems t o m e that there a r e three elements

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

the probable functions.
First, I

would s a y that i t might h a v e t o b e dne o n

some reciprocal basis which would contemplate t h e obtaining
of the consent o f the participating member banks.
As a matter o f economic principle,
right t o undertake a

i t might n o t b e

plan o f charging t h e items into t h e

account o f the member banks.

T h a t might b e covered b y ob-

taining t h e coasent o f such banks a s desired t o employ t h e
facilities opened up.

T h e adverse,

o r the other function

usually mentioned i n connection with t h e charge p l a n i s that
of divided entries.

A n y plan which w e adopt,

i t seems t o

me, o u g h t t o b e a l o n g s u c h l i n e s a s w o u l d b e r e a s o n a b l y w o r k -

able; otherwise w e avail nothing, a n d i f there a r e a n y
purposes i n the employment o f transit functions i n the

Federal Reserve panks they will not b e served unless the
items a r e handled a n d the facilities a r e o f some value t o t h e
member banks,
fhe deferred credit plan,

i n m y opinion, w o u l d not b e

employed, because a s long as we are dividing the carrying
of reserves with other reserve agents o f member banks who
are giving immediate credit f o r items, those items would b e
sent t h r o u g h t h e c h a n n e l s e s t a b l i s h e d , b e c a u s e t h e p r o c e e d s

them would render available a

portion o f the reserve f o r men-

ber banks u p o n the immediate credit basis, a n d therefore


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Federal Reserve Bank of St. Louis

of

any deferred credit p l a n which y o u m a y employ would n o t g e t
the items.
Therefore I

think that w e m a y b e compelled t o adopt some

plan o f immediate c r e d i t w h i c h w o u l d b e i n c o n j u n c t i o n w i t h

an immediate charge against t h e banks u p o n whom the items
were drawn.

T h a t could b e cone, i n m y opinion, o n l y upon

the t h e o r y o f reciprocal r e l a t i o n s h i p ;

t h a t is, i t could

be d e f e n d e d u p o n t h e t h e o r y t h a t w e a r e a l l o w i n g t h e p r i v i l e g e

to a sending bank, a n d therefore m u s t have t h e privilege
of charging h i s account w i t h the items t h a t have b e e n drawn
on him.
The second principle w h i c h i t seems t o m e should b e injected into itis t h e time element o r the zone plan o f creating
districts o f one, two, three a n d four days removed f r o m the
location o f the federal recerve bank, a n d credit t h e bank with
the item upon t h e d a y that i t reaches i t s destination,
which o f course would include carrying t w o accounts. I
would n o t c r e d i t f o r t h e i t e m o n Dallas

it arrives. I

o n the d a y o n which

would n o t credit t h e item o n El Paso o n

the d a y that i t reached E l Paso, a n d H l Paso would b e charged
upon t h a t day.

The third element would b e a n overhead charge against
the m a m a m s e n d i n g b a n k o f s o m e f e e p e r i t e m w h i c h w o u l d t a k e
care o f t h e c l e r i c a l f o r c e . I

may not b e able t o defend this

plan, o r this skeleton of a plan, but ! believe that those
three e l e m e n t s c a n b e i n j e c t e d i n t o a

plan w h i c h w i l l m a k e i t

workable a n d will a c t a s a governor o r a leveler o f arbitrary
rates, w h i c h I believe w a s intended i n the Act, j u s t a s the


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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

Act was intended t o cover district operations,
Mr. McCord: I
in o n e particular,

would l i k e t o a m e n d m y Statement t h e r e
W

e have f o u r reserve cities

No* 6 , d i s t r i b u t e d o v e r t h e district.
tion f o r a n o t h e r

t o become a

W

i n district

e h a v e a n applica-

reserve c i t y s i n c e w e h a v e b e e n 3

clearing o n the four, a n d there h a s been a tentative proposition m a d e . b e t w e e n t h e b a n k s a t i n t e r e s t t h a t b a n k s

towns o f 65,000 inhabitants o r less b e allowed a

of $1 per thousand on-all items.

in

differential

T h a t i s all I have t o say,

Mr. Chairman.

Mr. O. Wells: _ I want to add just one more thing, and
that i s t h a t i f t h i s p l a n c o u l d b e e m p l o y e d
might b e a l s o m m a p p l i e d

i t i s one that

t o the intradistrict arrangement

later.

The Chairman:

T h e situation i n New York Bas, I think,

been already explained.

A l b a n y i s the o n l y reserve c i t y out-

side o f Greater N e w York.

T h e r e a r e o n l y three banks

in

Albany, a n d w e are charging t h e m with items that w e receive,
giving immediate credit f o r items drawn o n Albany.

T h e

peculiarities o f the New York situation o f course i s not only
the large volume within thet district, b u t the large volume
that Governor Rhoades represents j u s t n o w which m a y b e transfer
red t o our district i f the system i s generally opened up.
The volume i s not only large, b u t t h e amount i n dollars i s
very considerable,
member b a n k s

T h e inquiry t h a t w e have made o f the

i n our district leads u s t o believe t h a t i f t h e

whole district w a s opened u p and w e d i d all t h e business
within t h e district,

w e might b e called upon t o handle f r o m

513

200,000 t o 250,000 items per day, exclusive o f
those that
g°0 through t h e “ e w York clearing house, a n d
a r e handled sim-—
ply between t h e banks o f the city.

T h e s e reciprocal relations

between t h e banks would continue t o prevail.

T h e r e i s this

peculiarity about N e w York, however, t h a t
t h e national banks,
the large national banks o f New York city
have f o r years
maintained t h a t t h e y a r e a c t u a l l y l o s i n g
m o n e y i n collecting

checks. I

think they are all o f them watching with
a certain

anticipation o f pleasure a n d r e l i e f t h e
possibility

o f our

opening t h e district a n d Opening t h e
country t o the free collection o f the checks,

i n which event t h e y m a y dump a

large a m o u n t o f b u s i n e s s

o n us, u l t i m a t e l y ,

very

a s these recipro-

cal r e l a t i o n s a r e b r o k e n up.
_‘The o n l y p l a n t h a t w e h a v e c o n s i d e r e d
within o u r awn
aistrict w a s t o t e s t t h e a b i l i t y o f
t h e b a n k t o conduct

clearances o n the basis o f immediate charge
a n d credit w i t h

a limited number of banks, say in cities o f 500,000
inhabitants o r over, making a n arrangement w i t h
them i n advance t h a t
we w o u l d m a k e c l e a r t h a t t h e y h a d t h e
right t o make t h e

charge before w e have received t h e item
f o r examination.
Whether w e shall d o s o o r not depends v e r y
largely o n two
things:

F i r s t , t h e position o f this conference,
and, second,

what m a y b e the result o f the conference w i t h
representatives
of t h e e i g h t g r o u p s

o f t h e b a n k s o f t h e state.

The Federal Reserve b a n k o f New York i s
clearing v e r y
few checks now, because there a r e n o great
number o f banks
in reserve cities outside o f the City o f New
York.


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Federal Reserve Bank of St. Louis

It is 12 o'clock, gentlemen, a n d before w e
get t o a n

514
adjournment I

think i t i s proper n o w t o suggest s o m e méans o f

bringing this matter t o a conclusinn. tomorrow.
Mr. Wold: F o r the purpose o f getting i t into the
record I would like t o a d d that while o u r information leads
us t o b e l i e v e t h a t t h e i t e m s w h i c h w e m i g h t g e t i f w e w o u l d

open u p now would b e only half a million today, t h e out-

standings i n our district I think will run between eleven
and twelve million; t h a t is, t h e transit accounts.

Those

are items that a r e i n transit, o t h e r than those which a r e

sent out and charged t o the banks.
considerable i f w e g e t them all.

B u t the volume i s

O n e d a y would clean u s

up.
Mr. O . Wells: I

would like t o have p u t o n the record

that w e have s i x reserve cities i n our district, f o r the
benefit o f anyone w h o peruges t h e record.
The Chairman:

I t occurs t o m e that w e ought t o divide

bur time tomorrow i f we meet a t t e n o'clock i n such way
as that t h e discussion will b e strictly limited t o the

discussion o f suggestions. W e have heard expressions from
the G o v e r n o r s

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

less y o u object,

and I

propose,

un-

t o a s k each o n e who desires t o discuss this

matter t o confine his remarks more t o constructive suggestion a s t o what w e should do, a n d i n the meantime possibly
for & portion o f the meeting tomorrow morning, e v e n a t a
personal sacrifice t o themselves, h a v e Mr. M c K a y a n d Mr.
Hendricks before t e n o'clock consider whether they cannot
divide this subject u p i n such a way that w e c a n get r i d
of parts o f i t and decide what t o consider a n d what t o


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Federal Reserve Bank of St. Louis

recommend.

Mr. MeKay: I

think the plan could b e outlined i n @

very short time b y which the different headings o f the subject s h o u l d b e t a k e n i n t h e p r o p e r w a y a n d e a c h o n e d i s p o s e d

of.
The Chairman:

I s there @

motion t o adjourn?

(On motion, d u l y made a n d seconded, the, conference
thereupon,

a t 1 2 o'clock, midnight, adjourned until t o -

morrow, Saturday, January 235, 1915, a t 1 0 o'clock a . m.)


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Federal Reserve Bank of St. Louis


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