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V O L U M E .
FOURTH C O N F E R E N C E
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Federal Reserve Bank of St. Louis
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W
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S, COX
SHORTHAND REPORTER i
COLUMBIAN BUILDING—TEL. Mm. 8324 :
WASHINGTON, D. c.
FOURTR
CONFERENCE
of the
BOARD
O F GOVERNORS
O F T H E FEDERAL R E S E R V E BANKS.
Chicago, Illinois,
Monday, J u n e 14, 1915,
11 o ' c l o c k a.m.
The C o n f e r e n c e w e n t i n t o f o r m a l s e s s i o n i n t h e H o t e l
Blackstone,
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Federal Reserve Bank of St. Louis
a t 1 1 o'clock a . m.
PRESENT:
Benjamin Strong, Jr., Governor, Federal Reserve
Bank o f New York.
B. McDougal, Governor, Federal Reserve B a n k o f
Chicago,
R. McKay, Deputy Governor, Federal Reserve B a n k
of Chicago,
J. Seay, Governor, Federal Reserve Bank o f
Richmond,
L. Aiken, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f
Boston.
Rollo Wells, Governor, Federal Reserve Bank o f
St.Louis.
J. A . McCord, Governor, Federal Reserve Bank o f
Atlanta,
Theo.
o l d , Governor, Federal Reserve B a n k o f
Minneapolis,
a
Russell Lowry, D e p u t y Gevernor, F e d e r a l R e s e r v e B a n k
of San francisco.
J. Rhoades, Governor Federal Neserve Bank o f Philadelphia.
L. V a n Zandt, Governor Federal Reserve B a n k o f
Dallas.
R- Fancher, Governor, Fecvcral Reserve B a n k o f
Cleveland.
M. Sawyer, Governor, Feceral Reserve B a n k # f Kansas
CIty.
F. Curtis, Ccunsel, Federal Reserve B a n k o f New
York, and Secretary o f the Board o f Governors o f
the F e d e r a l R e s e r v e B a n k s .
The Chairman:
T h e cenference w i l l c o m e t e arder.
This i s the Fourth Conference o f the Governors,
and -
our first order e f business will b e t o act o n the minutes
ef the last meeting.
T h e y have b e e n furnished i
a l l cof
the members, and, unless i t i s your pleasure t o have t h e m
read, t h e y w i l l b e approved w i t h o u t r e a d i n g
i n detail.
What i s yeur pleasure about t h e minutes, gentlemen?
Gevernor McCerd: I
move that they b e a p r oved with-
eut reading.
Governor Wold: I
The Chairman;
_the m i n u t e s
I
will second that motion.
t has b e e n moved a n d seconded t h a t
o f t h e l a s t m e e t i n g b e a p p r o v e d w i t h e u t reading.
Is there a n y discussien?
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Federal Reserve Bank of St. Louis
(There w a s n o discussion a n d t h e motion was p u t
and carried.)
The Chairman:
B e f o r e taking u p the program I want
te c a l l y o u r a t t e n t i o n t o t h e f a c t t h a t a
diiferent a r -
rangement h a v been made dividing a l l t h e subjects selected
for discussion under general headings, a n d t h e result h a s
been the development o f a very l o n g program,
b y far the
longest w e have y e t consid ered.
I would l i k e t o ask, f o r t h e purpose o f making progress, t h a t e a c h s u g g e s t i o n
o n the program b e taken u p
first b y the member w h o m d e t h e suggestion i n the first
instance, w h o will thereby establish a basis o f discussion
by means o f his preliminary statement.
A n d i n order alse
that progress m a y b e made, i f that statement c a n b e embodiec
in a resolution f o r discussion i t will a i d very m u c h i n
getting t h e r e c o r d
i n c l e a n s h a p e f o r t h e Secretary.
Governor Fancher: I
offer a
resolution that that
be our procedure,
Governor told: I
The Chairman:
second that motion.
Y o u have heard Governor Fancher's motion
as t o the order o f procedure duggested b y me.
I s there
anything further?
(There was n o further discussion a n d t h e motion
was p u t a n d carried.)
The Chairman:
I t e m No, 2
port o f the Clearance Committee,
is Chairman.
submit?
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Federal Reserve Bank of St. Louis
o n the program i s the r e o f which Governor McDougal.
G o v e r n o r Mecbougal, have y o u a report t e
4
have n o report t o submit. I
Governor McDougal: I
felt that,because o f the fact that e a c h o f the Governors
copy o f t h e minutes
has b e e n s u p p l i e d w i t h a
ing, p e r h a p s t h e y w o u l d r e c e i v e a n d a
o f e a c h meet-
cept t h o s e m i n u t e s
have corresponded w i t h t h e Secretary,
as a report. I
Mr. Curtis, o n the matter, and suggested that h e bring the
complete minutes a n d records along i n the event t h e Conference wanted t e go into t h e matter further.
Mr. Gurtis: I
desires
have the minutes here i f anyone
t o h a v e t h e m read.
The Chairman:
Governor Wold:
D o e s anyone desire that?
T h e r e would perhaps b e n o purpose
served b y reading them.
have a short memorandum o f
Governor McDougal: I
the m e e t i n g s t h a t h a v e b e e n held.
I
t i s not p r e p a r e d
in the f o r m o f a report, n o r i s i t intended f o r a report.
Governor Seay: I
Chairman;
W
think i t i s a matter o f history, Mr.
e are a l l thoroughly familiar w i t h i t a n d
4t w o u l d h a r d l y s e r v e a n y p u r p o s e
haps c e r t a i n f e a t u r e s
t o g o i n t o i t now.
P e r =
o f i t m y c o m e u p f o r discussion
as w e discuss things generally, b u t I
d o nat believe i t
weuld serve any purpose t o go inte i t formally.
Governor Wold: I
is due this committee.
think the thanks e f t h e Governers
T h e y have served this Confer-
ence well a n d have given a good d e a l o f time t o it. I
am sure t h a t t h i s c o n f e r e n c e ,
a n d e a c h Governor, a p p r e ~
ciates t h e efforts a n d results ebtained b y this committee.
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Federal Reserve Bank of St. Louis
The Chairman:
I n brief, Governor McDougal, t h e
5
committee h a s actually completed i t s work
a s t o the inter-
district collection system, a n d t h e system i s i n course o f
establishment b y all o f t h e banks, a s I understand i t ?
Governor McDougal:
The Chairman:
T h a t i s true.
T h e y have also concluded their work i n
regard t o the establishment e f t h e gold settlement fund,
which i s n o w i n operation.
Governor McDougal:
T h a t statement w o u k c o v e r t h e
work w h i c h h a s b e e n done, e x c e p t p e r h a p s
w e have taken i t
upon ourselves t o g o further i n some respects t h a n t h e
authorization given u s b y the b o c y o f Governors.
We f o u n d t h a t t h i s c o m m i t t e e w a s c a l l e d u p o n t o h a n d l e
various subjects, a l l pertaining, I
directly,
think, directly o r in-
t o the subjects t h a t were given t o u s t o handle.
I should like very much t o have this Conference a p p r o v e
in a general w a y what w e have done, o r have t h e matter
epened f o r discussion,
The Chairman:
I t has b e e n suggested t o m e that in=-
asmuch a s this committee h a s b e e n considering a
number e f
subjects referred t o i t b y the Federal Reserve Board,
it
might b e vell t o consider t h e advisability o f extending
the scope o f the work e f the committee, creating i n fact a n
executive committee, mnsisting a f that Same committee
with possible t h e addition o f one o r two others whe are
accessible f o r frequent meetings.
H e w would that idea
appeal t e you?
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Federal Reserve Bank of St. Louis
Gevernor McDeugal:
T h a t idca weuld appeal t o me
6
favorably. I
think v e have g o n e f a r enough t e know there
is need o f such a committee.
AS a matter e f fact w e have felt a
little delicacy i n
handling some things o n behalf o f the Gevernors w h i c h w e
were n o t authorized b y the Governors t o handle, o u r reason
fer s o doing being that otherwise i t would h a v e been
necessary t o have called a l l t h e Governors together.
And t h e p r o b a b i l i t y
i s there will b e other u s e f o r s u c h a
committee.
The Chairman:
T h i s siggestion came frem Governor
Fancher. S u p p e s e w e ask him t e submit for consideration
a resolution embodying h i s ideas.
feel abeut a s Gevernor McDougal
Governer Fancher: I
does. I
was t h e author o f the original resolution
creating this committee.
has been very much P
T
‘ I think i t s original scepe
a
T h e y have b e e n called
upon t o d o some things that i t was not contemplated t h e y
sheula d o a t the time t h e committee w a s created;
a n d there
has been streng indication that t h e Federal Reserve Beard
would l i k e a committee o f Governors, t h r o u g h whem they
could work, t h a t would b e accessible,
N e w that t h e
original committee has accemplished what i t was given t e
de, i t seems that w e could with prepriety fellew t h e
precedure o f the Federal Reserve B a n k o f Kansas C i t y a n d
have a n executive committee.
It was m y thought that w e could add t e that committee
Governor Rhoades,
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Federal Reserve Bank of St. Louis
o f Philadelphia.
H e i s accessible, b u t
we w o u l d b e p e r f e c t l y w i l l i n g
i o g o further v e s t i f w e
ean find recruits.
I would o f f e r a
resolution t h a t a n executive c o m m i t -
tee o f s i x o r s e v e n o f t h e G o v e r n o r s
b e elected.
Pessibly
the make-un o f the conmittee should b e left t e the Uhairman.
Mr- “hairman,
h a v e y o u given that matter a n y considera-
tion?
The Chairman: I
have t h o u g h t
have mentioned this committce.
o f the matter since y o u
I t is a geographical
difficulty m o r e than anything else,
GOvernor Fancher:
Y E S ; -D.reaiiage that,
Governor “old: I
would second Governor Fancher's
motion,
Governor Rhoades:
I s not a conmittee o f five suffi-
ciently large f o r the purpose?
i t i s pretty hard t o get
them together now.
Governor Fancher:
Y o u are accesible, Goverher Rhoades,
and I think y o u c a n d o considerable w o r k o n the committee,
Governor Rhoades: I
would b e glad enough t o d o it.
The more members y o u have o n the committee t h e more dif+
ficult i t i s t o get them together.
Governor Fancher: I
suggest s i x members a n d I
do that
because you, Governor Rhoades, a r e accessible a n d c a n work
on t h e committee.
Governor Khoades:
M
y feelings will n o t b e hurt i f you
keep“ the membership a t five.
However, I
glad t o d o anything that I can.
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Federal Reserve Bank of St. Louis
will b e very
8
The Chairman:
T h e most important t h i n g i s t o get a
committee t h a t c a n have frequent meetings without t o o serl f other m e -
inus inconvenience t o any O f the members.
bers o f this b o d y are able t o serve o n the committee a n d will
volunteer I
would like t o suggest t o the Conference t h a t
they b e a p p o i n t e d
o n t h e conmittee.
Governor Aiken:
and +
G o v e r n o r Rhoades volunteered t o m e
will p a s s h i s n a m e t o t h e c o n f e r e n c e
s s very accept-
able.
Governor McCord:
M a y 1 ask this questien?
committee o f five large enSugh?
I
he cannot meet w i t h the committee
I s a
n case a n y member sees
a n d thinks i t i s neces-
sary that h e b e represented, t h e n I suggest t h a t h e b e
authorized t o designate same other Governor t e sit i n his
place.
T h a t will hold t h e committee d o w n %*e five a n d
contingencies c a n b e met i n that way.
Governor McDougal: I
would
s i e n
i n the event
that i t is the purpose t o appoint a larger cemmittee than
a cemmittee o f five, t h a t a
to d o business o f f i c i a l l y .
very much. I
majority o f three b e authorized
T h a t w o u l d h e l p t h e c i tuation
think i t weuld b e difficult t e g e t five
er s i x members together a t one time, b u t i f three o f those
members c a n transact business there would b e n e delay, a n d
I think i t advisable t o ,ive t h e m authority ‘te c e that.
The Chairman:
W e have Governor Fancher's metion,
which p r o v i c e s f o r t h e a p p o i n t m e n t
of a
committee o f six,
censisting o f the members o f the former clearance cemmittee,
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Federal Reserve Bank of St. Louis
Rhoades:
with t h e a d d i t i o n o f G o v e r n o r
Y o u r suggestion,
Governor MeDougal--Governor McDeuval:
a
I s that three constitute
a
Y e s ; t h a t three constitute
The Chairman:
a n amendment
And t h a t y e u o f f e r a s
quorum.
quorum.
t e Governor F a n c h e r ' s
motion?
Governor MeLeugal: I
porated
would l i k e t o have s t inoor=
i n t h a t motion,
Governor Fancher: I
have i t
shoulda be very glad t e
a n d I assent t o it.
incorporated i n the motion
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Federal Reserve Bank of St. Louis
that motion?
f a s there a second t o
The Chairman:
Governor Wold: I
The Chairman:
time ago.
seconded that motion some
seconded.
T h e motion hes b e e n
I s
there a n y further discussion?
b u t calls for
(There was n o further discussion,
the question. )
)
duly put and carried:
(The motion was thereupon
The Chairman:
committee
carried a n d t h e T h e motion hes been
i s appointed.
Item Ne. 3
l e f t o n the preconsists o f four matters
the last meeting.
gram and not dealt w i t h a t
I f any o f
u p any ene o f these subjects
those present care t e bring
I
t h e m u p now- O t h e r w i s e
for discussion w e c a n take
b e e n o n the proassume t h a t t h e y have
t
o
f
a
i
r
i
s
i
t
think
drepped.
gram l o n g e n o u g h t o b e
Governor Aiken: I
matter
would like t e bring u p one
thematter o f rebating interest
under item 3, and that i s
in c o n n e c t i o n w i t h a@iscounts.
10
The Chairman:
T h a t c o m e s u p l a t e r o n t h e program.
Boverner Alken:
V e r y well.
would l i k e t e bring u p the item
Gevernor McCord: I
ef "number e f forms", I
think, accerding t o the original
plan, t h a t w e have a superflueus number o f ferms i n the
W e have s e t aside o n e o r twe o f them
discount cepartment.
would l i k e t o know what t h e ether
and have gone a h e d. I
Governors are doing.
Governor Wold:
W e have s e t all o f them aside b u t
ene o r two.
T h e n there i s n o further discussien
Gevernor McCord:
necessary.
Governer Seay:
W e have made considerable changes
and have substituted forms f e r ethers.
Geverner McCord; I
Governor Seay.
would like t o ask you one thing,
H e w d o yeu notify yeur members?
dO i t o n the slip, 4 s originally,
D
e yey
o r d e y o u send t h e regular
@iscount sheet i k e the New York o r “hicage banks,
centaining t h e items listed f e r discount? -
Governor Seay:
w e do not have a slip for each item.
Governor McCard: I
that. I
just wanted t e find out abeut
will change that myself. I
had been thinking
ef deing it.
_Gevernor Seay’ T h a t is a far mere convenient end
safer practice.
Governer McCerd: I
Geverner Rhoades:
think so, teo,.
W o u l d i t b e pessible t o have a
sert @f clearing house for ferms between our auditors
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Federal Reserve Bank of St. Louis
bank?
or some other official o f the
The Chairman:
should b e dealt
T h a t i s a matter that
sor accounts o f the reserve
with b y a committee o f esuagito:
should h a v e a meeting
I t i s important a n d they
banks,
the
the.e matters o f detail i n
ever
g
o
a
n
d
long
very
before
banks.
in
discount h a s a l ® come u p
The question o f forms f o r
our bank.
many forms provided
e know t h e r e a r e t r o
w
o f them.
and w e are not using 4 nuaber
I n our bank w e have absolutely
Governor Fancher:
own.
forms a n d substituted o u r
adiscardea a number o f the
using some other form?
Governor Mecord: A r e y o u
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Federal Reserve Bank of St. Louis
i n place o f that one o r have
That is, are you using 4 form
you discarded i t entirely?
Governor Fancher.
Others
are using.
c o m e o f t h e forms w e
a n d discarded t h e original
w e have substituted i o r
entirely.
w
our o w n forms.
e have worked e u t
Governor McCord:
t h e subjects
B u t y o u are treating
in each case?
Yes.
Governor Fancher:
Governor Seay:
I
a r e many cases
n our bank there
f r o m the bookkeepers h a s
where t h e securing o f figures
hove substituted a differW
i
e
back.
department
held t h e
liability ledger
k e also changed o u r
ent system.
i s this.
w a y w e get around i t
Governor McCord: T h e
passed f o r
t h a t h i s paper i s
p
a
n
k
member
t
h
e
I notify
later.
c l e r k w i l l advise h i m
discount a n d t h e discount
goes out.
The next day the informatien
12
The Chairman:
the meeting a
W o u l d y o u feel willing t o submit t o
resolution f o r adoption,
i f agreeable, p r o -
viding that t h e Executive Committee might call f o r a meeting o f the clerks o r officers o f a number o f reserve
banks, t o b e selected,
t o :4a Giscuss this question o f
forms a n d make reconmendations?
will offer that resolution i f
Gevernor McCord: I
I can get a second t o it.
second t e it.
Governor Fancher:
Y o u have a
The Chairman: I
have i n mind t h e thought t h a t y o u
and Governor V a n Zandt a n d Governor Seay have had more
experience i n discounting t h a n t h e rest o f us.
Governor Seay:
T h e question would cover more than
the forms i n the discount cdepartment--The Chairman:
Y o u r ’ motion h a s been seconded, Gover-
nor McCord.
Governor McCord:
is put:
M a y 1 suggest this beforethe motion
I t vould b e a nice plan t o let Dallas, Xichmond
and Atlanta, b e i n g contiguous, f o r m a committce o f m e n
from each e f their banks ;
t h e n have N e w York, Philadel-
phia e n d Bosten f o r m a committee;
l e t t h e m get together
and interchange views i n that way, i n s t e a dfo calling a
convention o f m e n frem all over t h e U n i t e d States: I
think p r o b a b l y t h a t w o u l d w o r k o u t better.
Governor Fancher:
I
t occurs t e m e that this matter
ef forms p e r t a i n s n o t only t o a change o f forms i n the
discount departments, b u t t e other forms covering operations i n other departments o f the bank; t h a t is, n e w forms
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Federal Reserve Bank of St. Louis
13
that t h e accountans a n d auditors a r e bringing o u t a l l t h e
time, I
think the auditors w h o held a meeting i n *ash-
ington i n January have, b y this time, worked o u t a number
of things that would b e o f advantage t o the banks.
can b e brought together;
and forms discussed, I
The Chairman:
I f they
i f information c a n b e exchanged
think much good will come o f it.
G o v e r n o r McCord's original m o t i o n was
to provide f o r appointment o f a committee o f that character
by the executive committee, w h i c h committee vould arrange
for a meeting for the purpose o f discussing this matter o f
forms.
Does your motion stand, Governor McCord?
will l e t i t g o for approv-
Yes. I
Governor McCord:
al o r disapproval.
The Chairman:
I s there a n y other discussion?
(There was n o further discussion and the motien
was duly carried.)
The Chairman:
G o v e r n o r Aiken, I
was mistaken i n re-
gard t o the question o f rebating o f interest.
come u p o n the program later.
Governor Aiken: I
last week o n trips I
I t does n o t
S h a l l w e discuss i t now?
would l i k e t o say that i n the
have made d o w n i n Maine t w o o f our
Lerger Maine banks h a d h a d t & borrow f r o m their correspondents f o r a very short period, s o m e three o r four days.
Neither of. the banks had e n o u ,jh paper maturing i n the
course o f three o r four days t e provide a
amount o f lean they wanted.
T h a t i s a very desirable
sert o f rediscount f o r u s té@ get.
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Federal Reserve Bank of St. Louis
tasis f o r t h e
é e could n e t handle i t
14
without taking notes f o r i t and rebating t h e interest o n
it.
T h e y would n o t rediscount w i t h u s for t w o o r three
weeks t o the extent o f ;100,000 f o r the sake o f getting
the l e a n f o r t h r e e o r f o u r days, w h e n t h e y c o u l d g e t i t a t
one o f our large Boston banks o n a certificate o f deposit.
That question brings u s face t o face with a problem
that w e must meet i n some way.
Governor McDougal:
Governor Aiken: I
L i d you handle the transaction?
cid n o t handle it.
T h e y did n o t
ceme t o us.
The Chairman:
H a v e y o u a n y further suggestions a s
to a recomnendation t o b e submitted t o the Federal kKeserve
Berd, Governor Aiken?
Governor Aiken: G o v e r n o r McCord tells m e that h e c a n
give u s some light o n the subject through what h a s b e e n
done i n the Atlanta: Vistrict, a n d I would b e glad t o
hear it.
The Chairman:
G o v e r n o r McCord?
Governor Meccord:
T h e discounts a r e short t e r m paper
with us snd w e rebate with a nominal penalty o f one per
cent.
F o r instance i f w e discount f o r t h e m a t four p e r
cent w e allow a rebate a t three,
W
e simply p u t that
penalty o n i n order t o prevent t h e misuse o f the discount
feature o f the bank.
I t has proven v e r y satisfactory, a n d
we are meeting the situation that Governer siken has
spoken o f i n this way; t h a t o u r bankers a r e learning t e
shape their portfolios s e a s t o have t h e paper available.
It 1 8 a new system, a s y e u all know, a n d t h e y have net
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Federal Reserve Bank of St. Louis
heretofore arranged t h e i r portfolios s o a s t o handle it,
In the City o f Atlanta especially ¥ expect a large number
of people there t o discount paper a t four days, f i v e days,
six days o r ten days without a n y difficulty o r without a n y
trouble, because t h e y are arranging their portfolios i n
that shape.
T h e y a r e reguleyr customers.
T h a t i s the
way we are handling it, Governer Aiken.
Governor Seay: G o v e r n o r Aiken's description o f the
Situation applies t o his district a n d t o ..everal others,
It i s something that has not yet arisen with us; b u t I dv
not see why h e could not act a s a member bank may act
under t h e circumstances o f this situation.
We have adopted a
plan o f not granting rebates t o our
member b a n k s u n l e s s t h e y ,
ers.
i n turn, p a y i t t o t h e i r c u s t o m ~
B u t that i s a situatien entirely distinct f r o m
the one described b y Governor Aiken.
bates w e make full rebates.
W
W h e n w e make r e -
e find nothing leaves
such a bad taste i n the mouth a s failure t o m k e f u l l r e bates when t h e difference perhaps i s s8© small that i t
gives t h e b a n k j u s t g r o u n d f o r c o n t r o v e r s y w i t h you.
When we do make rebate we make it at the minimum rate and
count f u l l r e b a t e f o r t h a t time;
b u t w e only d o that i n
case t h e bank itself i s called u p o n t o make i t t o a cus-
temer;
i n other words, t o save the bank harmless, I
do
not s e e the least objection t o Governor Aiken handling i t
as h e may please o r t o any other bank meeting circumstances
in order t o accommodate a
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Federal Reserve Bank of St. Louis
Governor McCord:
I
bank desiring discount.
n view o f the fact t h a t t h e
16
i n e a c h o n e o f t h e dcistricts I
conditions a r e d i f f e r e n t
will offer this resolution:
That the question o f rebating b e left t o each Federal
Reserve B a n k t o handle a s conditions i n their district
may justify.
see n o occasion f o r passing a n y
Governor McbLougal: I
such resolution,
W
e are already separate f r o m and inde-
pendent o f each other.
I n s o far a s the Chicago b a n k
is concerned, t h e matter o f rebating interest w a s a
ques-
tion which arose v e r y s o o n after t h e bank opened i t s
doors a n d w e adopted a
policy undcr which w e i n f o r m
banks w h e n they asked t h e question, t h a t » e cannot promise
to rebate i n full t h e interest o n the paper w e take from
them,
O
n the other hand w e have i t definitely under-
stood that w e rediscount s u c h paper a s they offer t o
maturity.
I
n the event a
question a r i s e s s u c h “ s G e v e r n o r
Aiken has referred t o v e would u s e o u r o w n discretion.
seems t o m e i t w o u l d b e a
v e r y e a s y matter,
take s u c h rediscounts, without hesitation,
W
I t
e would
u p t o any
peint o r date desired--The Chairman:
W i l k y o u reBate i t i n full f o r t h e
balance o f the tim® t h e paper h a s t o run?
Governor McDougal:
Y e s . However, I
think this i s
a situation e a c h bank ought t o meet b y itself independent
of any action o f this organization.
The Chairman: G o v e r n o r McDougal, yeur idea i s that
the difficulty Governor 4iken has referred t o could b e met
by having a contract made i n davance o f the maturity o f
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Federal Reserve Bank of St. Louis
17
disof the maturity o f the paper
a Giscount irrespective
counted.
I think that could b e done satie~
Governor McDougal:
done.
I think i t should b e
factorily a n d properly, a n d
The Chairman:
That i s m y o w n view o f it.
Mr. McDougal:
discuss
I think i t i s well w e should
t o m e that a n y definite a c ~
the matter here, b u t i t seems
this meeting would b e out
tion taken i n the premises a t
ofplace.
these things as they
w e will have t o handle
come up--- these a n d other questions.
not b e
On the other hand might i t
The Chairman:
Federal
g e t a ruling f r o m the
most desirable i f w e could
discount f o r a specified
Reserve Board that a contract f o r
number o f days, irrespective
paper discounted,
be able a t once
ef the maturity date o f the
could b e permitted,
because t h e n w e would
f o r disceunt f e r
t o publish a special rate
just what the peard desires t o
short term paper, which 1s
pring abeut.
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Federal Reserve Bank of St. Louis
Governor Wold: I
nor McDougal has said. I
pank t o handle itself.
liquidation,
Goverthoreughly agree with what
each
think i t 1s a question for
encourage
O u r policy has been t o
ré~bill w h i c h had been
i f the maker o f the
t o rebate.
digpunted with us desired
W
e would not re=
o f t h e bank, however.
pate f o r the convenience
o f Governor MeDeugal what
I would like t e inquire
paper
that brought i n sixty d a y
rate h e would quote 4 pank
i n twenty
& contract t o retire i t
and wanted t o enter into
yeur thirty
rate being greater t h a n
days--- your sixty d a y
day rate?
H o w would y o u get away f r o m that?
Governor Mc.ougal:
should n o t hesitate,
stances,
I
f I
understand y o u correctly, I
i n loaning money under those circum-
t o make t h e rate t o conform with t h e period f o r
which y o u are taking t h e discount.
Governor Wold:
T h e n I think i t i s quite necessary t o
take t h e matter u p with the Board f o r their approval,
Otherwise w e a r e liable t o get i n difficulty w i t h t h e
Board o n the rates which w e quote,
The Chairman:
Governor Wold:
W i l l y o u offer a resolution?
C o u l d n o t t h e matter b e taken u p
through t h e ixecutive Committee?
The Chairman:
W e are all here now;
t h e matter i s
on the program a n d w h y not dispose o f it?
Governor Wold: I
move that i t i s the sense o f this
conference t h a t t h e Federal Reserve Banks b e authorized
to quote a
minimum r a t e o h paper w h i c h m a y b e carried
to
maturity a n d which, under t h e published rate, would require
a greater rate o f interest), provided a
contract i s entered
into between t h e endorsing bank, o r member bank, a n d the
Federal Reserve B a n k t o retire t h e paper within t h e period
for which the l o w rate was quoted. I
ae n o t know whether
that covers i t correctly e r not,
Governor Lewry:
W h e n a bank i n San Francisco wanted
te r e b a t e p a p e r e r w a n t e d t o t a k e u p p a p e r t h a t a
customer
was ready t o pay, w e follow t h e policy o f making a rebate
interest
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Federal Reserve Bank of St. Louis
o n t h e b a s i s e f t h e r a t e f o r t h a t period,
For instance,
i f paper was discounted a t a
ninety
day rate and taken u p thirty days
before i t s maturity,
rebated interest a t t h e thirty
d a y rate.
W e found t h a t
left the situation i n a very catisfactory
way;
have discouraged t h e Practice
we
b u t we >.
o f the b a n k taking u p paper,
a8 Governor W o l d h a s Said, f o r
their o w n convenience,
The Chairman:
O f course, Mr. Lowry there
i s the
possibility o f large banks rediscounting
large amounts o f
paper a n d taking advantage o f
t h e reserve b a n k b y taking
back their o w n paper i n order
t o get their money out.
T h a t
being the effect o f such a transaction
i t weuld really make
the rate o f no avail t o protect
t h e bank against sudden
loss o n a large volume o f discounts.
U n d e r present condi-
tions that question may not arise,
but i t may conceivably
arise a t a time w h e n the reserve
b a n k would b e seriously
inconvenienced t h r o u g h t h e
a b u s e o f that privilege,
Governor Lowry:
W
e have not encouraged o r
permitted
them t o take u p paper merely
because t h e y have funds, b u t
only i n cases where a customer
wishes t o take u p & note.
There are two questions involved;
e n e i s the question e f
dealing with the smaller member banks
where a customer
wants t o anticipate t h e payment
o f a note, a n d t h e other i s
@ matter o f accomiedating the larger
reserve bank o n shert
time discount for making good depletion
i n reserve o r debit
in the Clearing house.
I t seems t e m e i t would b e
quite
desirable i f w e had a ruling f r o m
the Board s e that i n case
a bank wanted meney for eight days
--- with maturity a t
thirty days--~ w e could discount
that nete f o r eight days,
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Federal Reserve Bank of St. Louis
20
Mr Curtis:
Y o u r proposition i s one o f making a
contract a t the timeof making y o u r rediscount a n d also
refers t o a n instance where i t i s desired t o change a
pre-
existing contract--Governor Lowry:
The Chairman:
T w o questions,
A r e n o t there r e a l l y three questions?
First i s the matter o f rebating notes f o r convenience o f
Customers o f member banks; s e c o n d i s the question o f
making a short discount f o r t h e members banks without
regard
to t h e m a t u r i t y o f t h e p a p e r o f f e r e d f o r d i s c o u n t a n d
the
third i s a
special r a t e f o r s h o r t d i s c o u n t ?
If Governor Wold will withdraw his motion possibly
we c a n offer a resolution i n the form o f a
reconnendation
to the Board covering all three questions,
GOvernor Wold: 5
ee
b
e very glad t o withdraw m y
resolution.
The Chairman:
resOlution,
W i l l y o u state f o r t h e record a
i n the form o f a recomuendation t o the
Reserve
Board, t h a t will cover all three points?
Governor Wola: I
would ‘suggest that Mp. “urtis sub-
re Ai
a fe
The Chairman:
T h e Seerctary is asked t o distate a
resOlution covering these three points.
Mr- Curtis: I
move that this Conference recommend
that t h e F e d e r a l R e s e r v e B o a r d a u t h o r i z e t h e
establishment
ef rates f o r s h a r t t e r m paper,
n o t e x c e e d i n g f i f t e e n days,
and t h a t t h e y authorize Federal Keserve Banks
a t their dis-
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Federal Reserve Bank of St. Louis
el
cretion t o discount p a p e r o f a
longer m a t u r i t y f o r a
time
less t h a n t h e a c t u a l m a t u r i t y o f t h e p a p e r
a t a n ap;:ropriate
rate f o r the time t h e discount i s agreed u p o n
t o run,
Governor Lowry:
b o e s n o t that amount t o a direct
loan t o a member b a n k o n the security o f its
bills receivable?
The Chairman:
question.
I t amounts t o a n evasion o f that
very
T h a t matter w e have been trying
unsuccessfully
to evade for a long time.
Novernor Mcbougal:
T h e r e i s a question o f danger i n -
volved there unless w e c a n i n some w a y l i m i t t h e
operations under this p l a n b y which w e approve a
rediscount f o r
a Stated period regardless o f the maturity o f the
note.
Unless that i s done i t will n o t b e utilized b y
the large
city banks a l o n e b u t t h e c o u n t r y b a n k s w i l l
b e very quick
to avail themselves o f that i f w e let them
d o it,
(Informal discussion followed which the stenographer was directed not t o report.)
The Chairman: G o v e r n o r McDougal's motion i s a n
amendment,
a s I understand i t , t o the original resolution
to the effect that t h e discount o f paper will b e
a t the
discretion o f the reserve b a n k a n d that seme check
shall
be interposed t o t h e abuse o f that privilege b y
country
banks who really desire t o borrow money for the full
rate,
sixty o r ninety days, b u t will make this
a
advantage o
f the t e n o r fifteen d a y rate.
means o f taking
I s there a n y
objection t o that amendment?
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Federal Reserve Bank of St. Louis
Governor Seay:
I t is a hazardous thing t e undertake
22
with regard t o t h e small banks o f a n y district.
very necessary thing t o provice for, I
believe,
I t is a
i n dealing
with the large banks, b u t i t i s a hazardous thing i n dealing with the smaller banks o f every district, w h o will
take a d y a n t a g e
o f any opening y o u give t h e m a n d devise
an excuse sufficiently plausible t o justify themselves.
The Chairman:
T h i s matter h a s been discussed b y our
directors i n New York i n response t o a suggestion f r o m t h e
Federal Reserve Board t h a t w e consider t h e establishment
of a
short r a t e s u c h a s w e h a v e d i s c u s s e d h e r e ,
a n d our
beard w a s o f the opinion i t would b e quite inadvisable
for t h e N e w York bank t o make a move i n the direction o f
establishing s u c h a rate just now, a s i t might give t h e
impression throughout o u r o w n district a n d i n other parts
of t h e c o u n t r y t h a t t h i s s p e c i a l r a t e f o r v e r y s h o r t l e a n s
could o n l y b e a v a i l e d o f b y t h e l a r g e b a n k s
i n New York and
might have t h e appearance o f turning o v e r t h e resources
of the Federal Keserve Bank t o the big Wall Street institutions a t p r e f e r e n t i a l rates.
is t o avail
o f the privilege
O u r intention
i n New York
o f establishing t h e l o w rate
probably after a l l t h e other Fed. ral “eserve Banke have
taken that action.
T h i s w i t h a vew t e overceming a n y such
impression.
Governor Lowry:
T h e board o f directors o f eur bank,
about a month ago, established a rate of 2-1/2 per cent fer
15 d a y paper.
B u t that rate w a s not approved
b y the
Federal + t e s e r v e B o a r d .
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Federal Reserve Bank of St. Louis
Governor McCord:
T O get back t e the preposition I
235
made --~ I did net get a second t e it, as is the usual
custom around t h i s board--- this question should b e left
to each bank t o handle according t o the conditions i n its
own district.
Governor Sawyer:
A s I uncer tand t h e object o f i t
it is t o get the consent o f the Federal “eserve Board t o do
this i f w e desire t o d o it. A f t e r w e get that consent t h e n
we w i l l h a n d l e o u r affairs
Governor ~eay:
t o us.
T h e r e a r e limits within which w e c a n
exercise o u r discretion,
excersise
a s m a y s e e m proper
i t below a
w
e are n o t a t liberty n o w t e
m i n i m u m r a t e w h i c h h a s b e e n approved
by the Board,
Governor McCord:
T h a t i s true-
I
n m y district
have what a r e known a s commedity loans o n cemand.
we
These
refer t o c o t t o n o r naval s t o r e s a t t h e p o r t s r e a d y f e r
Shipment. I
have asked f o r a ruling o f the Board o n that.
One o f the member banks would offer a
by a commodity.
demand l e a n secured
A t the time they offered i t they would
give t h e number o f days t h e y wanted i t discounted for,
not exceeding fifty days;
t h e y would name ten, twenty,
or thirty days, a n d 4 was authorized b y the Board t o discount that paper a t the minimum rate o f m y bank---+
demand paper,
The Chairman:
T h a t i s a different question.
value i s fixed a t maturity snd i s binding upon the
maker o f the note.
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Federal Reserve Bank of St. Louis
Governor McCord:
N o , o n the member bank.
The Chairman: W e l l , i f i t is binding upon the
bank i t becomes b i n d i n g u p o n t h e m a k e r o f t h e note.
Governor MeDougal's objection would n o t apply t o such cases
because t h e maturity a s o f the member b a n k weuld b e also
the maturity a s o f the maker o f the note,
Governor McDougal:
M r + e Chairman, t h e recordsef this
meeting b e l o n g t
o the organization a n d d o not g o outside
of it?
The Chairman:
T h e y d o not t e m y knowledge.
Governor McLougal: I
some action.
think i t would b e well t o take
T h a t i s emphasized b y a letter I received
from a member e f the Board this morning calling our attention t o the fact that Chicago a n d seme other Fed. ral Reserve
Banks have arranged i n New York t o carry excess balances
for exchange purposes;
t h a t is, t h e y would n o t settle t h e
account i n full weekly.
T h e y seem t o find objection t o
that although i t c a n b e overceme n o deubt. I
a m just
calling your attention t o this t o emphasize t h e fact i n your
minds that t h e Beard h a s its c y e o n te,
The Chairman:
G o v e r n o r MeDeugal, t h a t subject i s
on our program f o r discussien later,
Geverner McDougal: I
have just received a
leng let-
ter regarding i t i n which they speak of several banks having
arranged
poses.
i n New York t o carry balances c a x 6
T h e y h a v e n o n o t i c e o f that f a c t e x c e p t
New Y o r k bank.
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Federal Reserve Bank of St. Louis
chneaae p u r i n the
25
The Chairman:
T h e r e i s a motion before t h e meeting
in regard t o short loans a n d short rates o f discount.
is your pleasure i n regard t o that motion?
seconded:
shat
i t has been
D o you wish t o bring i t u p to a vote b y calling
for t h e q u e s t i o n ?
(The question was called for, and, there being n o further discussion,it was put and carried.)
Does anybody care
The Chairman: .
to bring u p for discus-
sion t h e t h i r d sub-item, p a r a g r a p h 3
of item 3
of t h e pro-
gram, "lethod o f collection?"
Mr. McCord: I
should l i k e t o see «:hether w e are i n
harmony with each other about that.
O u r policy i s t o serd
back all items o f discount t o the member banks s i x days
before t h e i r maturity.
The Chairman:
M a y I
r e f r e s h y o u r nemory,
i f you d o
not already remember t h e actionof t h e former meeting o f
Governors o n this subject?
I
n connection with the dis-
cussion o f the effect o f the statutory form o f endor sement
requiring t h e waiver o f demand, notice a n d protest i t was
deciced t h a t a s a matter o f policy, w i t h discretion,
of
course, i n each bank, that discount paperbe sent back
directly t o the bank discounting i t for collection a sufficlient number o f days i n advance e f its maturity t o insure
the pretection o f the claim o f the member bank e n all endorsers, and s e far a S I am aware most o f the banks have
fellewed t h a t p r a c t i c e
u p t o t h i s date.
T h a t applies
only t o paper d i s c o u n t e d f o r m e m b e r b a n k s a n d p a p e r p u r -
chased i n the market;
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Federal Reserve Bank of St. Louis
t h a t is, acceptances a n d municipal
26
warrants, w h i c h appear o n the program later f o r discussion
aS t o methods o f collection.
S
o that w e are n o w con-
Sidering simply t h e method o f clearing p
a p es counted
ri .d
for member banks.
Mr. Wold:
T h e policy o f the Minneapolis b a n k has been
that t h e rediscounted paper f o r member banks a t a peint otmer
than where t h e bank was located, f o r whom Gis count was o n tained, w a s cleared through ether sources--=<
The Chairman:
Y o u nee
n n
c
e
o f that character
through other banks than member banks?
Go ernor “eld:
A s a safeguard t o us, a s a safeguard
against kiting o f paper.
W
e have had paper come from
a member b a n k i n Wisconsin o r Michigan, payable t e Minneapolis o r St. Paul, a n d i t would s e e m rédiculeus t o send
that paper b a c k t o Michigan f o r collection,
The C h a i r m a n
for discussion.
G o v e r n o r MeCord brought this i t e m u p
A g I understand it, Governor MeCord
wanted t o ascertain what t h e practice w a s i n other banks.
Mr. McCord:
T h a t ‘ a the idea,
The Chairman:
I s there a n y further ciscussion o n
this i t e m ?
Governor Rhoades:
W e have pursued t h e unifor, prac-
tive o f collecting paper direct wherever i t was possible
in our district, with the result that w e have i c k good
many renewals i n that way, a n d w e have sometimes twenty
protested notes b y the process, a n d w e feel i t safer t e
do i t wherever i t i s possible.
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Federal Reserve Bank of St. Louis
Governar Weld:
T h e same thing has ceme t e our
ar
netice.
P a p e r would b e vrotested
e r renewed,
a n d then
we would b e offcred i t a few days later and w e would deCline t e take it.
W
e would k n o w then whether i t was
really trade paper o r accowmodation paper.
Governor McCord:
C a n w e n o t discuss t h e q u e s t i o n
of paper outside o f the district?
The Chairman:
T h a t c o m e s u p later.
Governor McCord?
The Chairman:
the passage
ef a
A l l right.
L o e s this subject appear t o require
reselution
o r recommendation
b y the
twelve banks?
Governor MeCerd:
N o ; I
jus t
simply asked f o r
inforinatien s o that I would know.
Governor Rhoades: I
should b e glad t o have a n
expression o f opinion a s t o what i s the sense o f the
Governors,
The Chairman:
Governor Rheades,
W e u l d y o u offer a resolution,
i n order that w e might have a
vote ¢
that?
Governor Rhoades;
F o r the sake o f the discussion
I would mowe tiat i t i s the sense o f the Governa’s t h a t i t
is desirable t o collect paper direct wherever i t i s possible without o u r districts.
Governor Seay: I
ciple, sir. I
believe that t o b e a sound prin-
do not think any of us could dispute
that a s a sound banking principle;
b u t under t h e con-
ditiens that have prevailed w i t h u s w e have n o t thought i t
expedient
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Federal Reserve Bank of St. Louis
a t t h i s t i m e t o p u t i t i n t o ferce.
23
Geverneor Alken:
I
s n e t this another c a s e where
it
must b e left t o the discretion o f the bank ?
Governor Seay: I
think that i s true.
w e know
perfectly well that w e are not scrutinizing i t , b u t w e
require statements directly a f d g e t themdfrectly a n d i n
fact w e a r e t o o l i b e r a l
i n that respect.
W
e want a l l
the credit requirements w e can get, a n d a s time goes o n w e
are getting mere a n d mere, b u t nevertheless there i s a
great d e a l o f c o t t o n m i l l p a p e r
i n o u r district.
T h e r e
is a special rgling b y the Federal Reserve Board o n cotton m i l l paper.
I
t is a
deal vith separately.
S
conditien t h a t i t h a s h a d t o
o I think that what might b e true
in o n e d i s t r i c t w o u l d n e t b e a l t o g e t h e r e x p e d i e n t
other. I
i n an-
think y e u will have t o deal with i t according
to the conditisns a n d t h e discretien o f the reserve banks.
Governer McCord:
T h e e s justifies t h e means.
The Chairman: G o v e r n o r Rhoades' motien has not
been seconded, and, having allowed sufficient t i m e f o r
discussien a n d a second, w e will pass this tepic,
The next topic i n the business h e l d o v e r f r o m the
last conference i s “collections outside e f the districts".
Does anyone w i s h t e bring that up?
ante
I
t will come u p
i n relation t o acceptances a n d varrants.
Governor McCord: I
suggest w e pass i t and handle
the whole subject a t one time.
The Chairman:
L o e s anyone care t e bring u p either
(a) or (0) 2
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Federal Reserve Bank of St. Louis
Governer Mecord;
A s t e item (c) there i s a n a c c u m -
29
lation o f national bank notes, I
arranged with the
Treasurer t h a t h e would give a n open account w i t h
u s there,
and w e send i n our national b a n k notes w h e n they are
pay-~
able, either i n treasury notes,
Silver certificates,
i f h e has them, o r i n
o r that h e will credit t h e member
bank f o r the five percent f u n d a t our request;
thatis,
we carry t h e balance there, a n d i f a member
bank wants u s
to remit t o the five p e r cent fund w e tell h i m t o charge
our account<-—-
Mr. Wold:
C a r r y t h e balance w i t h whom?
Governor McCord:
The Chairman:
T h e ‘4reasurer o f the United States.
I s not that encouraging a
practice,
Gevernor McCord, that will later arise t o trouble us?
Governor McCord:
Governor Seay:
I t may do so; I do not know.
H o w long does i t take y o u t o get
advice o r credit from the Treasury Lepartment?
Governor McCord:
Governor Seay.
I t does n o t take s o very long,
W e send u p the bills a n d there i s time
to
verify t h e account «and get a n acknowledgement.
Governor VanZandt:
T h e Treasurer h a s refused t o d o
the same thing for us.
Governor Wold:
T h e statement w a s made member banks
should request u s t o make a ceposit o n account
o f the five
per cent fund, a n d w e have asked t h e N e w York
Federal R e serve B a n k t o m a k e t h a t aeposit,.
The Chairman:
W e should b e very glad t o handle those
items a t N e w Y o r k i f w e w e r e r e q u e s t e d
t o d o so, p r o v i d e d
the Treasury Lepartment machinery would
enable u s t o d o i t
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Federal Reserve Bank of St. Louis
30
promptly.
W
endorsements
e h a d difficuity
i n getting t h e necessary
o n the checks t h a t came t o u s f o r that purpose.
Governor Fancher:
M a y I inquire, fr. Chairman,
if
you were requested t o make a deposit f o r t h e credit
o f the
five p e r cent fund o f certain o f our member
banks y o u
could u s e your silver certificates?
The Chairman:
Yes;
w e could u s e f o r the five p e r
cent fund lawful money, which i s the Obligation
o f the
member b a n k that h a s t h e ‘¢irculation.
Governor Seay;
w o u l d y o u d o t a t b y your o w n check
payable through t h e clearing house,
o r would y o u make t h e
deposit o f money with the Treasurer?
The Chairman:
O u r difficulty i n New York h a s b e e n
really arising i n a different wey, GOvernor
Seay,
T h e
banks outside o f our district t h a t want t o
make payments t o
their redemption fund i n New York have b e e n
remitting
checks o n the other 1 1 Federal Reserve Banks
directly t o the
assistant T r e a s u r e r
a t N e w York, a n d t h e A s s i s t a n t t r e a s u r e r
at New York hasendeavored t o collect those
checks b y
sending t h e m i n t o us, n o t directly,
h e having n o account
with us, but through the member banks,
T h e treasurer o f
the United States does not p u t a character
o f endorsement
On that check that would enable a n y member
i n New York t o
bank a check f e r that purpose,
A l l these checks w e have
been obliged t o advise t h e ASSistant
Treasurer i n New York
to s e n d back.
i
f t h e member banks
o f each district c a r e
to employ their own federal reserve bank o f
their Own district f o r t h e Purpose O f making these payments
into the
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Federal Reserve Bank of St. Louis
OL
Treasury redemption fund, t h e y ought t o d o i t through 4
transfer arrangement,
s o that w e could make t h e transfer
in N e w Y o r k a n d t h e y w o u l d p a y t h e m o n e y i n t o t h e i r
local
federal reserve bank, a n d then a t the end o f each week the
account would w a s h out through t h e gold settlement fund.
By that method v e would really b e o f some service t o
the
member banks, although a t seme seasons o f the year i t
might result i n a volume o f transactionsthat would inconvenience u s .
that d o you suggest a s a matter o f pelicy? T h a t i s
in fact a matter where a n absolutely uniform policy
shoule
be adopted,
Governor Wold:
I t seems t e me, Mr. Chairman, w e
should request e u r member banks that wish t o replenish
their five per cent fund t o do i t through their federal
reserve bank.
T h e n w e would m a k e tequest o f ~
The Chairman:
. you,
M a y w e not have that a s a resolutien
to g @ before the management o f all twelve o f the banks?
Governor Wold: I
The Chairman:
offers a
offer such a resoelutien.
T h e n I understand t h a t Governor Weld
resolution i n the form o f a recommendation
t o all
12 o f the Federal Keserve Banks b y this conference
that
hereafter member banks desiring t o make payments for ac-~
count o f t h e i r f i v e p e r c e n t r e d e m p t i o n f u n d d e s o b y
transfers d i r e c t l y t h r o u g h t h e Federal R e s e r v e
Banks, a n d
not b y drawing checks o n the Fedtral Reserve Banks,
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Federal Reserve Bank of St. Louis
Mr- Fanche®: I
second that motion,
(There being n o further discussion, t h e questien
wes put and carried, )
The Chairman
T h e next i t e m i s item (d). I
sug-
gest that i t e m (d) b e dropped f r o m this place o n the program a n d t a k e n u p l a t e r w h e r e i t cemes u n d e r t h e s u b j e c t
of intra-district clearings.
Governor McCord:
The Chairman:
U n d e r i t e m Mo. 1 4 ?
Yes,
I t will t h e n come u p under ( a )
in item No. 14.
We have about a n hour before lunch.
reached i t e m No. 4 , "Examinations",
W e have n o w
T h e first item, (a),
is su; gested b y the Federal Reserve Board.
I t relates t o
the examination o f member banks, a n d I undersf#and t h a t the
Baard desires discussien o n the general subject o f examinations o f member banks.
May I
ask the Secretary t e read that part o f t h e let-
ter e f the Federal Reserve Board relating t e this subject?
The Secretary: (Reading): “Experience as te the
eperation o f examinations ought t o b e compared w i t h respect
te examinations a i member banks.
I
t might b e interesting
to learn what progress has been made i n developing cooperatien between chief examiners a n d lecal examiners i n
each district.”
The Chairman:
b @ I uncerstand f r o m that letter, Mr.
Secretary, t h a t i t i s the desire o f the Federal Recerve
Board that w e sh&ll discuss the subject o f examinations
ef member banks a s one tepic, a n d cooperation between
chief examiners a n d lecal examiners o f federal reserve
banks a s another topic?
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Federal Reserve Bank of St. Louis
oS
The Secretary:
N o ; i t i s all put i n under o n e
heading.
Governor Aiken, I
should judge f r o m that letter,
Mr- C h a i r m a n , t h a t w h a t t h e y r e a l l y w a n t i s a
report o f
the experience o f the banks under existing conditions w i t h
their chief examiner a n d his local examiners,
i s i t not?--
how t h e p r e s e n t s y s t e m i s w o r k i n g ?
The Chairman:
W i l l i t b e satisfactory t o the meet-
ing i f I ask each o f those present t o make a brief state~
ment o f t h e s i t u a t i o n
i n his r e s p e c t i v e d i s t r i c t
i n regard
to cooperation w i t h t h e chief examiner o f his district a n d
the federal reserve banks i n regard t o information about
tke member banks? I
understand t h a t i s what t h e board
desires, Mr. Secretary?
The Secretary:
I t seems s o t o me, ( R e a d i n g ) :
"i xperiences s
a t o the operation o f examinations
ought t o b e compared w i t h respect t o examinations o f mem-
ber banks.
I t might be i n t e r e se learn
t itn what
g
pro-
gress has been made i n developing cooperation between
chief examiners e n d local examiners i n each district!
Governor Wold:
W h a td
o they mean by "local exam-
iners"?
The Secretary: I
Governor’ Wold:
do not know.
L o they contemplate a force of examin-
ers for each federal reserve bank?
The Chairman:
N o ; it’ means the cooperation between
the chief examiner of each district and the other national
bank e x a m i n e r s
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Federal Reserve Bank of St. Louis
o f t h e district w h o a r e n o w classed a s local
34
examiners u n d e r t h e d i r e c t i o n o f t h e c h i e f examiner.
The Secretary :
C o o p e r a t i o n between those o n the
one Side a n d t h e Federal Reserve Banks o n the other?
The Chairman:
Y e s ; t h a t group o n the o n e side e r a
the Federal Reserve Banks o n the other.
Governor McCord:
D o I uncerstand t h a t t h e local
examiners a r e appointees o f the Comptroller o f the Currency?
The Chairman:
Yes,
Governor McCord:
T h e chief examiner i s largely a n
appointee, a n d probably entirely a p p o i n t e e o f the
Federal Reserve Board?
Governor Seay:
The Chairman:
O f the Comptroller o f the Currency.
G o v e r n o r Wells, will y o u state f o r
the purpose o f the record what t h e situation i s i n your
district i n respect o f cooperation between the chief examiners a n d local examiners a n d t h e federal reserve banks w i t h
régard t o credit information about your member banks?
Governor W e l l s :
T h e position o f chief examiner
our district i s now vacant.
in
T h e r e h a s b e e n t h e utmost
harmony between the bank and the subordinate examiners,
We never failed t o get a l l the information w e desired.
The Gomptroller i s anxious t o find a successor t o the
‘chief examiner, a n d Owing t o the absence o f a chief exam-
iner the district i s not thoroughly organized,
Governor Seay:
M a y 1 ask i f you have hed frequent
oceasion t o request i n f o r m a t i e n f r o m t h e l o c a l e x a m i n e r s ?
Governor e l l s :
N o ; n o t a n y particular information.
We get b a n k statements;
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Federal Reserve Bank of St. Louis
w e get t h e notes a n d anything
35
mace b y the local examiners,
information that w e desire,
I f w e have a n y special
w e have n o trouble i n obtaining
it.
The Chairman: G o v e r n o r Fancher?
Governor Fancher:
S e v e r a l m o n t h s agow-~- J
might s a y
three months ago-~— w e had correspondence vith the Comptrol~
ler's office about locating t h e chief examiner i n the building where t h e Federal Reserve B a n k i s located, w i t h the re-~
Sult that arrangements w e r e made, and the examiner took
offices o n the second floor above us.
U
his headquarters had been i n Pyttsburgh.
and t o o k a small suite o f rooms.
p t o that t i m e
H e came w e r
W e assisted h i m i n get-
ting his files and the statements frem the Comptroller's
office f o r our member banks---
E e
land a n d were p u t i n these filed,
g a g s e n t o n t o CleveW h i l e t h e correspond-
ence was going o n I was i n the Comptroller's office discus~
Sing some plan o f cooperation,
W
nine d i s t r i c t e x a m i n e r s ,
tried t o g e t f r o m t h e C o m p -
a n d I
e have i n our district
troller just t h e plan o f contact between the chief examiner
and t h e district examiners o n the o n e Side, a n d just t h e
relations between those m e n and t h e Federal seserve Banks.
The Comptroller s a i d t o m e that this P l a n was being worked
out, a n d t h e p l a n o f o p e r a t i o n w o u l d b e f u r n i s h e d t h e
chief examiners a t a n early date.
or u p t o the last time I
ago,
U
p t o the present time,
saw o u r examiner, s o m e two weeks
n O w a k i n g p l a n h a d come.
H
e did n o t know a t t h a t
time just what supervision h e had over t h e district examiners,
or i n just what way t o adjust his point e f contact.
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Federal Reserve Bank of St. Louis
I n
36
reference t o access t o the reports, o u r chief examiner i s
still continuing his work,
H i s v o r k takes h i m from
Gleveland, a n d v h e n h e ,0es8 t o Pittsburgh h e i s away s o n
two o r three months.
s t first h e locked t h e office u r 2 a 2
gave o u r F e c e r a l R e s e r v e a g e n t t h e key, a n d t h a t permitted?
Our golng u p and looking a t t h e files,
M o r e recently h e
has p u t i n a clerk a n d h e has given instructions t o t h e
Clerk that those files a r e accessible t o the Federal Reserve
Agent m d h i s deputy a n d t o the Governor.
the s i tuation a t t h e p r e s e n t time.
ter with ~
I
T h a t i s about
n discussing t h e mat-
t h e Comptroller I suggested,
i n fact, m a c e
the request, t h a t a s soon a s some p l a n was worked o u t I
wished t o have t h e chief examiner a n d t h e deputy examiners
have a
day o r two's conference together o v e r o u r situa-
tion.
H
e said, “That i s very fine. I
heartily approve
of that, and I hope you will d o that a t a very early date.”
But nothing h a s come o f it,
(At this psint a n informal discussion took place
vhich t h e stenographer w a s directed n o t t o report; after
which the following occurred.) «
The Chairinan. G o v e r n o r o l d , w o u l d y o u repeat y o u r
former s t a t e m e n t
s o that r e c a n have i t i n the record?
Governor wold:
I c o n o t k n o w t h a t i t i s well t o put
my former statcment i n the record i n reference t o matters
that o c c u r r e d b e t w e e n o u r F e d e r a l K e s e r v e a g e n t s a n d t h e
Comptroller o f the Gurrency. I
thought i t might b e inter-
esting t o the Governors t o know t h e position that t h e Comptroiler h a d taken,
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Federal Reserve Bank of St. Louis
37
Our situation 1 s exactly Similar t o Cleveland's, with
the exception that there i s n o removing o f the chief examiner,
H
e has n o t been able t o g e t a n y plan f r o m Washington
as t o h o w h e c a n o p e r a t e
o r v h a t h e c a n d o o r w h a t sauthor-
ity he may have, o r how much of a n office force h e may have.
In t h e meantime,
his clerks,
H
w e a r e furnishing steno:raphers
a n d all
e i s using o u r force.
H
e has his office
with u s and everything i s accessible,
H
e and I are very
anxious t o have a l l these examiners called i n and spend
two o r three days i n going over t h e situation, I
nave i t
in mind t h a t w e will a s k these examiners, w h e n they find
a bank that i s rediscounting w i t h us, t e check every note
that i s rediscounted a n d report specially t o u s direct.
The Chairman:
Y e u have access t o the reports o f
examiners which n o w are all assembledin y o u r district i n
your chief examiner's office?
Governor “old:
T h e chief examiners' reports give
me full information.
T h e r e i s the utmest harmony
between t h e chief examiner a n d us, a n d hewould l i k e t o continue t o b e right i n our office.
T h a t i s where h e pre-
fers t o be.
The Chairman:
G o v e r n o r Sawyer?
Governor Cawyer:
about a
O u r chief examiner w a s appointed
month ago, a n d h e tells u s that a l l these reports
are t e be sent inte his office and written there; that the
examiner will make a
rough report a n d that report will
go to the Comp-.roller's office after being written i n his
office.
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Federal Reserve Bank of St. Louis
H
e will have copies
o f all these reports a n d
38
we h a v e f r e e a c c e s s
t o them.
w h e n w e started t h e b a n k
we sent t o each examiner i n that district t o get a
line
upon all o f our member banks, t h a t is, a genersl line, a n d
we have a line o n all o u r member banks i n the district a n @
have h a d i t since t h e beginning.
jent a n d a good guide.
I
t has been very conven~
H e has given u s such information
as w e h a v e a s k e d f o r , v e r y f r e q u e n t l y ,
and a
pears
to
feel that v e should h a v e access t o all information that
he m a y have, I
might s a y that v e have asked h i m t o call
the examiners o f our district together, f o r t h e reason that
we have learned t h a t some o f these local examiners a r e
rather antagonistic t o the Federal Recerve banks i n the
Federal Reserve System, a n d w e have asked h i m t o call a
little convention o f those examiners s o v e could g C over
the F e c e r a l R e s e r v e A c t .
T h i s would h e l p u s i n a
of education w i t h the member banks.
W
campaign
e expect t e have
that i n a little while, a n d I believe i t veuld b e a good
thing.
The Chairman: I
think i t would t e advisable t e have
this discussion g e t o n the record s s f a r a s possible.
Governor Fancher:
a
t the time I
with the Comptroller, w h i c h was, I
had m y discussion
think, a t either a
committee meeting or one of the Governors' conferences,
probably i n March, t h e matter had b e e n reported t h a t some
examiner h a d taken icsue w i t h the bank a s t o eligible paper.
I brought that u p i n m y talk with the Comptroller a n d said
it was brought t o the attention o f one o f the Federal Reserve
banks t h a t the examiner w a s n o t fully i n harmony a s t e what
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Federal Reserve Bank of St. Louis
39
e wanted t o bring the examiners i n
h
what eligible paper.
and g o very carefully o v e r certain features o f the Act a n d
try t o impress t h e m a s t o what was eligible paper a n d what
we w e r e t a l k i n g about,
a n d attempting
t o do, s o t h e y c o u l d
help u s i n naking i t plain t o the member banks t h a t they
could make the paper eligible.
H
e said, “That i s fine.
That is just exactly what w e want done.
I n reply t o your quesy, reperts f r o m
Governor Yold:
the examiners i n the field a r e n o w m i n g i n t o t h e chief
examiner,
I
The Chairman.
s that t h e c a s e t i t h Governor Sawyer?
Governor »~ wyer : I
think so.
instructions t o send t h e m in.
A t a n y rate t h e y have
T h e j.xaminer has a number
of reports t h a t w e r e f u r n i s h e d h i m f r o m fashington.
T h e y
were instructed t o make duplicate reports w h e n t h e system
was established.
T h e y were sent t o Washington, a n d I
think h e has h a d those returned t o him.
The Chairman:
A n d t h e s e reports a r e accessible
to
your bank?
Governor Sawyer:
Y e s ;
w e have access t o them.
A n y
information w e a s k f o r h e w i l l f u r n i s h us.
Governor McCord:
W
e have only recently received
notice o f the appointment o f the chief examiner.
T h e exam-
iner has n o t y e t appeared i n Atlanta t o take u p his
duties.
T h e first notice I
received w a s a t t h e P a n - A m e r h -
can Conference, when the Comptroller told m e he had ap~pointed a
chief examiner f o r the Atlanta Listrict.
have n o e x p e r i e n c e t h u s f a r r e l a t i v e
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Federal Reserve Bank of St. Louis
W w e
t o t h e relations b e -
40
tween t h e chief examiner a n d t h e examiners o f our district .
However, s o m e o f the examiners i n the district have called
at t h e b a n k e n d h a v e d i s c u s s e d w i t h m e t h e v a r i o u s q u e s -
tions, s o m e o f whith Gevernor Fancher spoke of, about t h e
eligibility o f paper. I
have endeavored t o give our
views o f what was eligible.
The Chairman:
H a v e y o u access t o the Examiner's reports
as y e t ?
Governor MeCord:
N o , because the chief examiner
understand h e i s t o take u p
has n o t come t o the city. I
quarters i n the building i n which w e are located, a n d I
anticipate t h a t o u r relations will b e very harmonious,
because w e know t h e man,
H
e i s from Birmingham, Alabama,
near us, a n d w e think they will g e t along very harmoniously.
The understanding, o r at least our understanding o f the re~lations will b e that the examiners i n the field, s o t e
speak, will report t o this chief examiner a n y criticisms,
the same a s they send t o “ashingten, a n d that u e will have
access t C those reports; f u r t h e r m o r e , t h a t t h e chief examiner will a i d u s i n any w a y that w e m a y ask, t h a t is, a n y
reasonable way,
The Chairman:
G o v e r n o r Aiken.
Gevernor Aiken:
O u r chief examiner h a s a separate
office, entirely outside o f our bank.
very v e l l w i t h us.
I t i s working o u t
T h e reports f r o m t h e local examiners
have been coming i n and everything i n the office has been
placed a t our disposal,
N o t only that, b u t a s t o a n y
special p o i n t s t h a t h a v e c o m e u p t h e c h i e f e x a m i n e r h a s c o -
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Federal Reserve Bank of St. Louis
41
Operated i n every w a y t o
jive t h e information
we Wanted b y
communicating w i t h the
lecal examiners, I
should have
no criticism e r Su_gestion
t o make a g t o a n y change
i n the
Operation o f t h e o f f i c e
a t t h e Present time,
The Chairman:
G o v e r n o r Rhoades¢
Governor Rhoades:
tery,
O u r situation i s most
unsatisfac-
T h e m a n «whe i s p r e s u m a b l y
chief examiner b u t
who
has not yet been definitely
appointed h a s his office
in
the pest office building
seme blocks a v a y from
us.
H e is
out e f the city a great
deal o f the time, a n d
when h e i s
away netody i s permitted
t e Mave access t e his
offi ce.
has n o back file o f reperts,
H e
H e does recveive t h e
new
reperts
a s they :ome in, which
h e will n e t l e t u s
see, b u t
from w h i c h h e m a k e s
abstracts a n d tells
U S verbally o r
gives u s brief written
notes,
T h e result i s that
we
C@ not feel v e have real
information a t all.
Governor Sawyer:
I
f you will allew m e
Just a minute
of the time, | referred t o
a juestien blank Sent aut
to
the examiners w h i c h gives
a
general l i n e o n the
banks,
will take m e but a moment
t e show i t t o you.
i t
T h e differ-
ent examiners have f@und
i t very useful, T h e s e
blanks are
very uceful i n the files
and will save a lot
o f time: - r ¢
the bank i s i n first
class condition w e get
t h e infor.ng-
tion without 80ing t o
the files,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(4p. Sawyer here exhibited t o
the Conference a
Sample o f blank used b y
his bank, a
copy O f which h e
Stated h e uould furnish t o
each Governor. )
we found that blank o f
very great service t O
us.
W e
42
have h a d i t o n our credit files i n all o f
our member banks.
The Chairman:
T h a t would imply, Governor sawyer,
that without examining t h e facts disclosed b y
the examination o f the examiner f o r the Yomptreller y o u
would accept
his judgment a s t o vhat that examination Giscloces a s
to
the condition o f the bank.
Y o u feel justified i n passing
On the credits i n reierring t o this resume o f
the judgment
of a n examiner,
a s I uncerstaad it.
Governor Sawyer:
O
f course,
v e make a
further
eyamination i f tAais report does n o t s h o w the bank
i n good
condition.
Governor Aiken;
The Chairman:
the b e n e f i t
i t puts y o u o n notice?
T h e n y o u consider t h a t a s giving
you
o f the expression
also, h a v i n g a c c e s s
o f t h e examiner's views,
t o t h e reports
and
o f t h e examination,
you c a n verify t h e m b y your o w n judgment o f
vhat t h e examination means?
Governor Sawyer:
Yes.
I n the first instance w e feel
it i s a great service t o us.
The Chairman:
G o v e r n o r McDougal, w i i l y o u repert
as t o the relations between t h e chief examiner a n d
the
local e x a m i n e r s
i n your district w i t h t h e Federal veserve
bank?
Governor -icLougal;:
M r » Chairman, t h e chief examiner
for our district h a s n o t y e t p u t i n a n aspearance.,
His
appointment t o o k p l a c e t w o o r t h r e e m o n t h s
ago, b u t h e
has b e e n detained i n waShington o r elsewhere
o n account o f
complications,
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Federal Reserve Bank of St. Louis
Hovever,
w e have h a d here a substitute,
43
and w e have been given free access t e the files i n the
examiner's office, w h i c h include copies o f all o f the reports
o f all examinations t h a t h a v e b e e n m a d e s i n c e O u r b a n k
opened f o r business.
w
e have n o t waited until w e h a d
received a p p l i c a t i o n s f r o m banks, b u t , a n t i c i p a t i n g b u s i -
ness w i t h them, w e have b e e n a t vork f o r ceveral hours
perhaps each day and got .sen in the examiner's oifice who
are going ahead a n d taking these reports - s they come i n
and making notes w i t h respect t o whatever m a y b e interesting and helpful i n the matter o f passing upon leans o r dealing with the banks when t h e oceasion arised.
T h e informa-
tion w e have wanted h a s b e e n cheerfully given, a n d t h e rela-
tions are very pleasant.
‘ h a t the plan may be o f the
chief examiner w h e n h e comes, I
do not know,
b u t I be-
lieve i t would b e a n excellent t h i n g t o follow t h e p l a n that
has been suggested b y one o f the other governors, t h a t there
be a conference h e l d a t the center,of a l l o f the examiners
in the district. I
am led t o that belief b y one instance
in which w e feund occasion t o write t o a n examiner a n d h e
responded briefly that v e would have t o confine o u r in-
vestigation, i n so far as the affairs o f his bank were concerned,
t o the chief examiner
i n Chicago;
t h a t h e was n o t
permitted t o discuss matters w i t h u s o r anybody e s e . I
believe
i f - e could g e t t h s t e x a m i n e r i n t o t h e c i t y h e r e
we could have a
very vrofitable conference.
Our relations w i t h the examiner, however, a r e very
pleasant and v e are getting infornation that has been very
helpful f o r u s i n t h e m a t t e r o f p a s s i n g u p o n l o s n s f o r r e -
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Federal Reserve Bank of St. Louis
discount.
The Chairman:
G o v e r n o r Lowry?
Governor Lowry:
M r . Chairman, t h e situation i n San
Francisco i s not greatly different f r o m that i n Philadelphia.
T h e chief examiner
o f our district
i s also t h e
deputy reserve agent a n d a member o f our board o f directors,
but h e does net have a n office i n San francisco.
H i s
office i s i n Oakland, across t h e bay. t h i l e h e will give
to the Chairman of our Board, i n the form of letters o r
w e c o not have a c -
memoranda, brief expressions o f opinion,
cess t o his records, a n d h e has advised t h e cifferent e x aminers i n the district that t h e y have n o right t o give u s
any information thatever. I
suggested t o h i m a t a meeting
that w e g e t such information a s Governor Sawyer h a s concern=ing every bank i n the district, a n d asked h i m i f h e would
write t o the different examiners f o r that purpose:
i t e
said h e would not, t h a t h e had n o right t o give a n y such
H e claimed that h e was acting u p o n t h e ad-
information.
vice o f t h e C o m p t r o l l e r
i n t a k i n g t h a t position.
S
o that
.e d o not get a n y great amount o f information.
The Chairman:
G o v e r n o r Seay?
Governor Seay: G o v e r n o r Strong,
examiner f o r about t w o months.
w e have h a d a chief
B e f o r e h i s appointment w e
o r forty
had applied t o the Comptroller i o r some thirty
w e respecial statements o f banks, e n d after some months
ceived t h o s e t h r o u g h t h e c h i e f examiner.
H
e permitted
of
them t o come i n t o o u r possession, a n d w e made copies
them all.
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Federal Reserve Bank of St. Louis
“
e have understoodthat o u r exeminer, wane just
45
came t o u s ,
came f o r a n o f f i c e t h e r e a t t h e s u gestion
of the Comptroller.
t
e did n o t have i t t o give, s o w e
has his office i n the Post Office building. e
been l e d t o understand t h a t copies
have
o f all reports o f the
local ¢xaminers would b e cent there, I
think there i s
reason t o say that some change has come over the relation
of the examiners with respect t o the Federal Keserve banks.
You w i l l p r o b a b l y r e c a l l t h a t t h e c l e a r i n g c o m m i t t e e m a d e
representations
t o the Fedcral Reserve Board o f the extreme
importance o f having access t o all o f those reports prior
to the establishment o f a cle ring system, a n d w e were
led t o believe t h a t t h e r e w o u l d b e c o r d i a l c o o p e r a t i o n
with them and that w e would have free access t o them.** O n
e vent over to learn something
the la&t occasion on’ w h i c h w
t handle
as to one of our’ inember banks ve vere not allowed’ o
the r
e
p
ot rwastIread
.
to u s by the chief examiner.
W e
were allowed t e make certain memoranda from it that satisfied us; b u t 1 think that a t ihe recent Pan-American Gon-
gress there was some informal consultation between’ certain
OF the Federal Reserve’ Agents and the Federal Reserve
Board, and? the intimation rather came out that there was”
t the’ feceral reserve ~
some halt i n the procéss o f g i v i n g o
o i
banks free a c c e s s t
trict examiners. I
n
f
o
r
m
must say that we
y ithese’
ad e
tb r
i uoq cndisa
t ato
f o u n
dh t be the
c a s neithe last spplication've mace for information.” 1
do not believe there is that perfect uncerstanding and
Reserve Board and the Comptrolh nt
Federal
accord b e t w ee e
ler's office now t
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Federal Reserve Bank of St. Louis
w
would prevail wien we made
t
h ea thought
46
application
t o t h e m t o establish s u c h relations f o r t h e
benefit o f t h e b a n k s w h i c h w e r e p u t t i n g i n t o o p e r a t i o n a
clearing system.
Governor VanZendt:
O u r chief examiner w a s appointed
on June lst, b y wire, a n d O n Jure l s t w e sent h i m over t o
one o f our members i n Louisiana « n d h e i s still there.
We d o n e t know what instructions h e has,
w
e have h a d
very poor success i n getting a n y information f r o m the Comp-
troller's office relative t o our banks, under any cirecumstances.
w
e have h a d half a dozen occasions
o n which
I think t h e Federal Keserve agent wrote t h e Feccral Reserve
board asking for information from the Lomptroller's office,
and I have also «ritten t o the Comptroller's office myself
asking f o r informatien w i t h respect t o certain banks, a n d
my letters have never b e e n replied t o , I
cde not know what
conditions w e will have after o u r chicf examiner gets
installed a n d gets h i s cata.
H e i s i n harmony w i t h t h e
office a n d v e all like h i m very much, I
know h e will d e
everything that the comptroller will permit h i m t o do,
The Chairman:
T h e situation i n New York has
been, briefly, about a s follows:
P r i o r t o the adoption
of the plan f o r intra-district collections o u r board o f
directors passed a
resolution i n which t h e attention o f the
Federal Keserve Board w a s directed t o the importance o f
the matter o f credits w i t h respect t o membe: banks, although
the whole question o f relations w i t h examiners h a d n o t a t
that time arisen,
T h e efficers o f the bank reported t o
our directers t h e recojiendations e f the clearing comnittee
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Federal Reserve Bank of St. Louis
47
of the Governors t h a t t h e clearing p l a n should n o t b e
adopted until credit information w a s available t o all o f
the banks,
S o m e time following that, o r a t about that
time, t h e chief examiner o f our district w a s appointed.
He is our deputy federal reserve agent.
T h e question
then arose a s t o information about t h e member banks.
W e
had already h a d conferences w i t h all t h e local examiners
of the district « n d gotten f r o m them a brief verbal statement o f the condition o f each member b a n k that e a c h examiner
covered, which was put into our credit file, and a copy
of the ins. ructions was sent t o the Comptroller's office
in ‘ashington.
M o r e recently o u r board consicered
just vhat information i t was desirable f o r u s t o have i n
reference
t o t h e condition o f member banks, f e e l i n g t h a t
more resonsibility was given t o the bank i n having it.
They passed a resolution which cefined their viewof what
information i t was proper that w e should have a n d h o w i t
should b e obtained.
T h e arrangements with the chief
examiner were delayed somowhat a s the result o f that discussion, a n d f i n a l l y t h e o f f i c e r s
o f the bank ,
not h a v i n g
made satisfactory progress w i t h him, i t was taken u p with
our board a n d t h e federal reserve board t o see i f a bet-~
ter relationship could n o t b e established.
T h e matter
has not yet been disposed of, but I think i t is fair t o say
that u p t o the present t i m e w e have h a d a n y specific information which v e asked about a n y specific b a n k given t o u s
very freely, generally b y telephone, b u t we have not had
access t o the reports o f the local o r chief examiner, n o r
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Federal Reserve Bank of St. Louis
48
heve v e had means o f acting o n our o w n judgment i n respect
to those reports. é
h a v e h a d information given u s
Princically b y telephone regarding t h e concitions o f the
member banks o f tie district.
Governor Sawyer:
v i n c e v e have a right, under t h e
law, t O examine o u r wember banks, I
cannot s e e t h e purpose
of any objec.ion i n the Comptroller's etiice t o allowing us
access t o his examiners’ reports,
The Chairman:
for t h i s m e e t i n g
“ o O you not think i t would b e desirable
t o discuss i t , a n d i f w e : a n agree,
t o make
some recounendation t o the Federal heserve board a s t o
what
should b e cone i n regard t o relations w i t h the whole examining jiorce o f each district a n d the machinery t o bring about
a Satisfactory :elatienship?
(At this point a n informal discussion t o o k place
Which t h e steno: rapher w a s i r e c t e d n o t t o report;
after which the following occurred.)
Governor McDougal:
T h i s informatien h i c h ive usk
to have suvplied freely i s neces.ary.
I t i s t o b e placed
in the hands o f the federal recerve agénts, a n d accessible
te some o f our officers.
it.
T h a t i s the w a y w e are treating
i t i s n o t general information a n d does n o t get into
. our general credit files, but it is availablee
t us.
Governor V a n Zandt:
formation I
d:sirec
N e t being able t e get t h e i n -
o n this L o u i s i a n a b a n k w h i c h 4
was cpeak=-
ing o f a few minutes ago, acting under Seetion 2 1 7 c f the
Federal Reserve A c t i sent o u t vice-governor o v e r
there t o
make t h e examination,
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Federal Reserve Bank of St. Louis
a n d o n the Strength o f that I
got
49
the c o m p t r o l l e r
t o s e n d i n o u r c h i e f examiner,
pointed, a n d w e closed t h e bank.
w h o was ap-
B u t i f w e c a n get that
information a t the expense o f the b a n k b y one o f our o w n
men, w h y s h o u l d t h e r e b e a n y i m p r o p r i e t y
i n the national
bank examiner furnishing u s vith t h e information?
The Chairman:
“
@ have examined o n e bank i n our
own Cistrict f o r o u r o w n protection--=- o n l y o n e
bank---
and a S t o that bank v e feel that n o w w e have a very good
line o n their condition a n d a very 0 0 d understanding
of
where their difficulties are.
frankly,
# é @ vould b e reluctant,
t o send o u r o w n m e n out t o make special examina-
tions o f banks that vere applying t o u s for rediscounts
for
fear that i t i g h t causc comment i n a country town that
would actually 4njure t h e credit o f the bank o r possibly
Cause & @ pun o n it; w h e r e a s examinations
ler's r e g oS
ular examiners
b y the Compt rol-
never cause any c o m m e n t
a n d would
not involve a n y special responsibility t e us,
Governor Seay: I
do not think that anything vill b e
perfectly Satisfactory except a
copy o f that repert t e g o
to the Federal Keserve Agent o f the bank.
The Chairman:
“ n d t o b e cenficentially examined only
by certain o f the officers o f the bank?
Governor Seay: i x a c t l y .
promising
i n this matter.
factory °s8 that, I
N o t h i n g e l s e w i l l b e a s satis-
do not . e e w h y v e should take a tempor-
izing attituce i n the matter, I
those reports.
w
T h e r e i s n o i.ay o f com-
believe w e ought t o have
e have t h e pewer t o ce t h e same thing
ourselves, a n d i t is only technical concitiens, I believe,
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Federal Reserve Bank of St. Louis
50
that a r e disclosed i n those reports, a n d : e eCught t o have
then.
Governor Aiken: I
would l i k e t o s a y that t h e com-
plete report i s a t our entire disposal a t a n y time.
w e
walk into h i s office m a d h e gives u s all h e has.
The Chairman:
L o e s n o t this discussion disclose o n e
very a p p a r e n t f a c t , a n d t h a t i s t h a t c e r t a i n o f t h e b a n k
examiners have, either upon their o w n responsibility o r
acting upon instructions which they have received, b e e n
others,
willing t o give complete information 3
of instructions,
either i n the absence
o r o n definite instructions a n d n o t cesir-
ing t o act upon their o w n discretion, a r e refusing t o give
that information.
T h e r e seems i n some districts t o b e com-
plete harmeny and i n other disiricts there does not seem
te be.
(At this point a n informal discussion took place
which t h e steno, rapher w a s directed n o t t o report; a f t e r
Which the following oceurred.)
The Chairman:
W h a t a r e v e g o i n g t o reconmend,
we are going t o receniend anything,
i f
o r what action a r e y o u
going t o take i n response t o the suggestion b y the Reserve
Board t h a t t e discusa t h i s subject? I
presume i t i s
your desire that a report o f the matter b e made t e the
Reserve Board, a s has been done w i t h respect t o the topics
we have ciscussed heretofore, a n d I cannot help but feel
that i n mking thie suggestien the reserve board had@ i n
mind a
desire t o accomplish what w e all want,and t h a t
is c o o p e r a t i o n a n d results.
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Federal Reserve Bank of St. Louis
51
Governor Sawyer? I
think w e ought t e pass 4
resolu-
tion.
h t a meeting o f the clearing coamit-
Governor Aiken:
tee o f the Federal Reserve Board, i f I a m not mistaken,
Comptrolwe esked them if they could not arrange with the
the hands
ler's department t o have all the information i n
of t h e e x a m i n e r s p l a c e d a t o u r disposal,
at that time that that would b e done.
s n d w e were assured
I t seems t o m e that
the
is the whole thing--- getting all the information that
examiner has;
a n d I think v e @ught t o have definite ad—-
vices t h a t that has b e e n done.
Governor Vanzandt: I
think a resolution should b e
and that
passed stating that w e have discussed that subject
a l l o f the inwe feel that i t i s o f vital importance t h a t
the examinformation obtained b y national bank examiners i n
the cisposal o f the
ing o f their banks should b e placed a t
Federal Keserve Banks, and that the Federal heserve Board
s u c h a n arrangement
be requested t o use i t s efforts t e have
made.
The Chairman:
very
G o v e r n o r V a n Zandt has made 4
comprehensive motion covering this matter.
Governor Sawyer: I
Governor McCord: I
second t h e motion.
would like t e make this amendmat,
Federal e s e r v e
that i t b e placed a t the disposal e f the
Agent ---
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Federal Reserve Bank of St. Louis
Governor Wold:
N o .
Governor Van Zandt:
Federal R e s e r v e B a n k ,
T h e executive conaittee of the
52
Governor McCord: I
can s e e v h y they c o not want i t
to go down into the bank's records.
Governor \iold:
least a
T h e Governor i s supposed t o b e a t
managing officer o f the bank,
has t o b e a t t h e d i s p o s a l
Governor McCord: I
m d this information
o f the Governor
o f t h e Bank.
uncerstand i t t o include that,
Governor o l d , b u t t h e motion i s s o broad that i t would b e
furnished t o the bank.
T h e y d o not want t o d o that. ¥
think they are willing t o give i t t o the head officers o f
the bank.
Governor told:
t h o i s the head officer o f the bank?
Governor McCord:
T h e Governor,
Governor V a n Zandt:
offered b e read? I
M a y 1 ask that the motion a s
vould l i k e t o change that t o the
executive committee o f the Federal e s e r v e Bank.
The Chairman.
W h y not s a y t o the executive officers
and t h e executive committee?
Governor Lowry:
S o m e objection might arise i n the
ease o f t h e e x e c u t i v e c o m a i t t e e ,
because
i n seme d i s t r i c t s ,
as i n ours, t h e exccutive conmittee i s composed d i r e c t l y
of e n in banks, and some o f the member banks may object
to having their rivals scrutinizing the reports.
The Secr tary:
H o w vould i t do t o cay the Governor
and other «appropriate officers?
Governor Lowry:
I
f I may b e permitted t o suggest
an amendment there, l e t u s s a y t o have these reports g o
to the banks umier s u c h safeguards a s the Comptroller shall
suggest.
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Federal Reserve Bank of St. Louis
object, M r . Chairman.
N o ; I
Governor Aiken;
I
Governor Savyer:
f that resolution contained such
a suggestion a s y o u mace some t i m e a g o I think i t would
w
Strengtnen it, sir.
e have t h e right t o make these
examinations, u n d e r t h e law, b u t r e had better g e t t h e
same i n f o r m a t i o n t h r o u g h t h e reports,
i f that c a n b e i n -
jected into it.
The Chairman:
M a y 4+ suggest a five minutes recess
with instructions t o our secretary t o .raft a resolution
covering this point which shall embody what Governor Vanzendt has offered, « i t h amendments t h a t have b e e n suggested
in regard t o the danger o f special examinations b y examiners
of the Federal iieserve Banks?
(At this peint a n informal ciscussion t o o k place
which the stenographer was directed not t o report, after
which the following occurred: )
Governor Cawyer: I
should like t o uiggest for the
consideration o f the Secretary i n framing that resolution
that w e apply directly, s s a matter o f routine, f o r a copy
of t h e reports
t o b e furnished
Governor “cbougal:
a s made.
T h e examiner's repert contains
a @ull statement o f all that h e knovs with respect t o the
condition o f e a c h b a n k h e examines,
H i s r e p u t a t i o n de~-
pends u p o n it, a n d i t seems t o m e i f you could cevise a
plan w h e r e b y e a c h b a n k ‘ o u l d b e g i v e n opportunity,
are here i n Chicago,
a s ve
t o see a caplete c o p y e f the
e:aminer’s report o f his examination o f each bank, y o u would
be g e t t i n g a l l y o u c o u l d want, e x c e p t i n g t h a t b e y o n d t h a t
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Federal Reserve Bank of St. Louis
54
we uould like t o have t h e examiners instructed i n a way
that they would feel a t liberty t o confer o r correspond
freely directly w i t h some officer o f the b a n k i f w e s a w
fit t o c o m m u n i c a t e v i t h him.
B
u
t t h e report
i n itsel f
is enough i n ordinary cases.
The Chairman:
G o v e r n o r MoDougal, l e t m e state what
is really the point o f difference between the chief examiner
of our district a n d t h e officers o f our bank, w h i c h I
think i s similar t o what i s i n your mind.
w
e object t o
relying upon t h e judgment o r the conclusions o f the bank
examiner a s t o vhat h i s o w n report means.
w e should like
to examine t h e reports o f the examiners m a d e b y the examin-
ers in our district, draw our own conclusions from those
reports a n d make o u r o w n abstracts f r o m them for o u r reference files,
Governor McDougal:
Governor Aiken;
The Chairman:
sarily,
T h a t i s what w e are doing, exactly.
T h a t i s what v e are doing,
W
e d o not w a n t copies
o f those, n e c e s -
o n file i n our office s o that t h e y might cause
comment o r dGissatisfaction t o t h e particular banks that
were examined, b u t we desire t o make our own abstracts
frem them a n d l e t those abstracts represent o u r o w n conclu-
sions drawn frem the work o f the examiner himself.
Has this discussion reached a point where y o u would
care t o entrust Mr-> Curtis v i t h t h e preparation o f a res3~-
lution following Governor Van Zandt's motien and the dis~
cussion fellowing it, s
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Federal Reserve Bank of St. Louis
Governer Fancher:
that we c m a c t e n it?
T h e r e i s one thing that comes t o
55
my mind.
t o the execuI n making those reports necessible
available t o certain
tive committee, I think vhey should b e
officers, a n d only
officers, t h e Governor a n d certain other
abstracts t o the committee.
The Chairman:
w e d o not feel that t h e bank directors
o n the executive
ef our district whether t h e y a r e serving
inte our bank end
coumittee o r net, should b e able t o o m e
o f their competitors;
look a t examiners' r e p o r t s
would n o t b e permitted i n our bank.
a n d that
O u r board h a s passed
director o f that
a resolution which would prohibit a n y
character h a v i n g a c e e s s
t o t h e s e reports,
of a
that w h a t e v e r i n f o r m a t i o n w e d o g e t
b u t w e a r e willing
confidential c h a r -
Governor a n d Fedtral
acter should b e a t the disposal o f the
Reserve Agent, o r the deputy Governor,
i f h e i s not dis~
o n e o r two other
qualified b y being a director, a n d possibly
t o the informaconfidential clerks who would have access
tion t o keep t h e filles up.
Governor McDougal:
I f anything that I have stated
co.anittee goes
would indicate t h a t e u r board o r executive
because e
ever these reports, that is not correct,
have
office.
never had a single examiner's repert i n our
T h e
examiner's office
plan which ve follew i s t o g o t e the
from them and
and examine the reports, take what w e want
bring i t back and put i t away.
however,
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Federal Reserve Bank of St. Louis
I t is not disclosed,
any way, n o r i s
t o the directors o f the bank i n
b u t acted u p o n
it @isclosed t o the full executive cemmittee,
y o u have s u ggested
by the officers j u s t i n the line t h a t
you were deing.
56
Governor Seay:
w i t h reference t o the abstract f r o m
that report a m t h e complete report, I find that a t certain
times there a r e certain features o f that full repert t o
which I would give more attention than a t others, a n d
that later o n some other question might arise a n d I would
have t o go back again t o the files o f the special agent.
I a m sure, f o r o u r o w n purposes,
i f w e could have copies o f
that report t h e y would b e guarded j u s t a s sacredly a s
might b e desired, a n d i n the e n d i t would b e the only complete a n d satisfactory way.
The Chairman:
G o v e r n o r Seay, i t seems t o m e che
peint y o u raise i s that a s t o prebably 9 0 per cent o f all
the reportsof examinations a
ly superfluous.
complete report would b e real~-
W h e r e you have a bank with a n absolutely
clean bill o f health and with n o items subject t o criticism
it would seem te be a superfluous thing t o copy every line
or letter o f the repert.
O
n the other hand, where a
bank 1 s repor ted t o b e i n doubtful condition, y o u r ab~
stract,
s o to »
eak, m i g h t b e every line a n d letter i n
the repert and you might want t o have the complete schedule
of a l l i n f o r m a t i o n d i s c l o s e d
files.
b y the examination
i n your
T h e plan that Governor McDougal has suggested I
do not understand would prohibit doing that, would it,
Governor McDougal?
Governor McDougal:
Governor Rhoades: I
N o , indeed,
coneur i n dovernor Seay's
remarks that I would like t e have i n our office copies o f
the reports.
T h e f e w that I have been able t o get held
of, I photographed s o a s t o be sure I had the whole thing.
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Federal Reserve Bank of St. Louis
5?
(At this point a n informal ciscussion took place
Which t h e stenograp h e r was directed n o t
t o report,
after which t h e following occurred: )
The resolution framed b y the secretary was
read five
times b y him, w a s duly seconded b y Governor
MeCord;
i n
the course o f informal discussion various
amendments were
made t h e r e t o a n d i t was p u t a n d adopted,
T h e resolution
as finally adopted i s a s follows:
"whereas, t h e Federal Keserve Banks are
authorized
by l a w t o examine n e m b e r b a n k s
"And Whereas,
i n t h e i r districts,
i t might b e a cause c f comment u p o n
2
member b a n k i n its community i f such
a n examination Should
be made i n audition t o the examinations
o f the national
bank examiner, until s u c h examinations
a r e reguh rly made;
"tnd whereas,
i t i s considered reeferable
a t present
to have t h e necessary examinations
m e d e b y the National
Bank examiners e x c e p t
i n unusual c a s e s ;
“And whereas, i t is © nsidered b y this
conference that
it i s of vital importance t o the Safety and
welfare o f
the Federal Reserve Banks t o have unhampered
access t o
national bank examiners' reports and complete
information
with respect t o all member banks,
"Be i t resolved, t h a t the Federal “eserve
Board b e
requested
t o make arrangements w i t h t h e Comptreller
o f the
Currency whereby complete copies o f all
reports made b y
national b a n k examiners w i t h respect t o
member banks shall
be g i v e n t o t h e Federal sieserve B a n k s
t o b e open t e the
cenfidential tnspection o f the Governor,
t h e Federal heserve
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Federal Reserve Bank of St. Louis
58
m a y b e apAgent, a n d such other officers o f t h e bank a s
proved b y the Federal Necerve Board ;
“Provided, that nothing herein contained shall be
conferdeemed t o limit i n any way the right o f examination
red b y law upon t h e Federal Reserve Banks."
a m asked b y Governor McDougal t o ad-
The Chairman: I
o f Trade
vise the m e t i n g that the President o f the Board
a t the
of the City o f Chicago h a s invited o u r attendance
80--~
Board o f Trade f o r a short time--- five minutes o r
either today @
tomorrow.
Governor McDougal:
The Chairman:
Y e s ; a n y time while y o u are here,
G o v e r n o r Mcbougal h a s advised h i m that
such
we are very busy a n d i t may n o t b e possible t o arrange
attendance b u t that h e would submit t h e invitation.
w h a t
is your pleasure about it?
Governor Rhoades: I
meve that w e express o u r
prevents
appreciation, b u t t h a t t h e pressure o f business
our accepting t h e invitation.
Governor McDougal: I
sent word t o him stating that
we probably would n o t b e able t e get over there.
N e v e r the-~
less, i t is a n invitation and I think I understand the
situation w e l l e n o u g h t o e x p l a i n i t .
The Chairman;
M a y w e n o t a s k Governor M c D o u g a l
t®
express o u r very w a r m thanks, a s Governor Rhoades suggests,
and e x p l a i n t h a t w e h a v e g o t t o m e e t morkhing, a f t e r n o o n
and e v e n i n g w h i l e w e a r e here,
a n d i t will v e r y likely b e
impossible f o r u s t o accept t h e invitation?
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Federal Reserve Bank of St. Louis
(There being no objection the aggestion was
agreed t o .
The Chairman:
I
t i s n o w quarter p a s t one.
Vhnat
is your pleasure a g t o taking a recess t o r lunch?
Governor Aiken: I
meve w e take a recess a t this time.
(The motion was duly seconded, a n d a t 1:15 the
conference t o o k a recess until 2:30 o'cleck
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Federal Reserve Bank of St. Louis
e e e
Se i e a Ss
The Conference reassembled a t 2:45 o'clock p. m.
Hon. A . C . “Miller, Member o f the Federal Reserve Board,
was a guest o f the Conference during a
portion o f the after-
noon proceedings,
The Chairman:
T h e discussion that was concluded
before l u n c h covered items ( a ) a n d ( b ) o f Topic 4 .
Item (¢c) was not specifically referred t e and comes from
Governor Rhoades,
Governor Rhoades: I
Governor VanZandt:
think that h a s been covered.
T h a t was covered i n the ciscussion
of items (a) and (b),
Governor Fancher: I
think t h e r e s o l u t i e n p a s s e d
covers those t w o items,
The Chairman: I
have just explained t o Lr» Miller
what w e covered i n the morning discussion.
T h a t i s the
only really important thing covered, a n d i f i t i s agreeable I will a s k Dr. Miller t o look over t h e program a n d
Suggest himself a n y item that h e would l i k e t e have ciscussed while h e i s here with us.
bre. Miller: I
of t h e proceedings
co n o t want t o interrupt t h e course
a n y more t h a n I
c a n help.
T h e r e were
two o r three i t c s that t h e Board felt i t would perhaps
be worth m y while t o discuss w i t h y o u i n vie
that I was going through Chicago a t this time.
o f the fact
O n e ef
those items concerned particularly t h e matier o f some
sert o f a more o r less standardized procedure i n the
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Federal Reserve Bank of St. Louis
examination
o f state b a n k s . t h a t a p p l y f o r m e m b e r s h i p
in
any federal reserve bank,
I have just told Governor Strong that Mr- Broderick,
our c h i e f o f audit a n d examination,
i s h e r e a t t h e hotel.
He came here a t the direction o f the Beard i n order that h e
might confer w i t h you, s o far a s y o u desire respecting a n y
of the details o f procedure that would recommend itself.
Another q m estion
i s the matter o f the issuance o f
regulations c o n c e r n i n g t r a c e a c c e p t a n c e p a p e r .
The Chairman:
T h a t q u e s t i o n w a s d i s c u s s : dthis
morning.
Br. Miller:
ing a
days,
T h e third question i s that o f autheriz-
special r a t e f o r s h o r t m a t u r i t y o f t e n a n d f i f t e e n
A l l o f the banks h a v e b e e n apprised
o f the fact
that some o f the banks have requested t h a t t h e Board
authorize s u c h a
rate a n d w e f e e l t h a t s o o n e r
O r later
that will b e done, and w e feel also that that question
ought t o be canvassed fromthe point o f view o f a l l o f the
banks.
T h a t i s one o f the matters which, f r o m the point
of v i e w o f t h e board,
i t w o u l d b e w e l l t o Giscuss,
and
that has been suggested t o Governor Strong.
The Chairman:
w e h a d that matter u p this morning,
Dr. Miller, a n d have passed a
resolution f o r transmission
to the Board which contains t h e unanimous v i e w o f this
meeting a 6 t o two points.
w
e were a l l quite agreed this
morning thet i t would b e highly desirable t o have a special
rate f o r the discountof paper f o r a peried n o t t o exceed
fifteen days, believing that conditions i n the different
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Federal Reserve Bank of St. Louis
62
cistricts would m a k e i t necessary t o have that cate a p ply for a longer period, cay, i n a district like f a n Francisco, t h a n i t would, say, i n New York where distances a r e
shorter;
a n d i n t h a t c o n n e c t i o n u e a l s o r e c e nmended
that paper might b e ciscounted f o r member banks for such
short periods a s was established f o r t h e rates irrespective
of the actual maturity o f the netes discounted,
s o that
a member b a n k might discount paper that matured thirty o r
sixty days hence, f o r a
period o f seven, t e n o r fifteen days
at that rate.
Governor A i k e n called o u r attention t o a case i n his
district where a
member bank i n the “tate o f Maine desired
to discount f o r a few days o n l y but d i d n o t have sufficient paper that would mature within that length o f time
to get that accommoc ation.
bank i n Beston.
T h e y had t o g o t o a member
T h e necessity f o r metting conditions
of banks that haven't paper that matures i n the period o f
the l o w e r r a t e a r e q u i t e pressing.
Governor Seay:
G o v e r n o r Strong,
y o u omitted
to
mention t h e rebate feature.
The Chairman:
yes.
T h e paper vhich vas supplied
misht b e discounted uncer a coniract b y which i t would b e
rebated f o r t h e unexpired time, t h e contract t o b e made
in advance,
o f course---
Mr. Miller: ( I n t e r p o s i n g )
T h a t i s a phase o f the
matter that h a d net been considered b y the Board. I
de
not think i t suggested itself t o anyone.
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Federal Reserve Bank of St. Louis
The Chairman:
“ e @ mace a very radical suggestion that
63
it might b e dealt w i t h b y making mamber banks leans u p o n
collateral o r eligible paper.
Dr. Miller:
tion.
T h i s i s possibly a
step i n t h a t d i r e c -
I t i s a very ,ood suggestion :nd, y o u cay, that
action was taken this morning.
The Chairman:
Yes.
Dr- Miller:
H
a
v
e y o u fixed a n y time v h e n i t
is t o g o into effect?
The Chairman:
T h e procedure w e have taken simply
consists o f a recommendation,
b y resolution,
t o the Boards
First, that these special rates b e authorized and second,
in orcver that they might b e o f use t o the member banks,
that t h e y discount o n that basis a n d that a rebate f o r the
unex.ired t i m e b e permitted.
Frankly I
think t h e c o n -
census o f opinion a t this meeting 1 s that «any banks would
find difficulty i n availing o f that rate unless they were
permitted t o rebate f o r t h e unexpired t i m e t h e note h a d
to run beyend t h e period o f short discount S a y o f seven
or t e n days.
Ur, Miller:
T h e r e i s not very much said i n this
memorandum regarding trade acceptances, b u t one o r two
of the banks h a v e corresponded w i t h the Board about that.
It has not b e e n acted u p o n b y the Board b u t simply informally c o n s i d e r e d f r o m t i m e t o time,
T h e theory v e have
with respect t o that i s that w e must foster t h e _rowth o f
paper O f thas k i n d t h a t i s i n c o n t r e v e r s y
i n t h e Act,
the proper kind o f paper eligible f o r a reserve vank.
ss
w e
have not i t i n adequate volume a t the present time s o we
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Federal Reserve Bank of St. Louis
64
must a d j u s t t h e o p e r a t i o n o f t h e s e b a n k s
t o t h e situation
that exists a n d i n the meantime s e e what w e c a n d o t o
foster t h e growth o f another system, naturalizing, perhaps,
tima forms o f paper i n the banking practice o f this country
that a r e f o r the moment unusual, a n d t o d o this, perhaps,
by making some concessions i n rates that will make i t
worth the while o f the member banks a n d borrowers t o make
the adjustment i n their prrctices, a n d t o d o that always
with the view o f getting t h e kind o f paper that is, a s near
as t h i n g s c a n h u m a n l y b e , l i q u i d p a p e r , w h i c h v o e s n o t d e -
pend o n anything aside f r o m t h e actual transaction that t h e
paper i s b o t t o m e d o n .
If the Board takes action o f that kind, a s 4 think i t
will d o sooner o r later, w e d o not want t o d o anything that
will, s o t o speak, traverse t h a t action,
w
e d O not want
to work toward t h e treatment o f commercial paper a s collateral---
Mr. Seay: (Interposing)
contemplate that.
O u r resolution did not
I t was t h e out-and-out discount o f paper
running, say, thirty, s i x t y o r ninety days, w i t h a rebate
agreement.
w
e make rebates now, frequently t o member
banks, w h e n tneir customers retire paper, d u e t o the sale
of a commodity.
Dr. Miller: I
believe a l m o s t a l l e f u s h a v e c o n e
that, b u t i t does n o t occur with great frequency. .
The Chairman:
venience
I
t would b e a
t o some o f t h e member b a n k s n o t t o b e able t o re-
bate s o m e s p e c i a l n o t e w h e r e a
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Federal Reserve Bank of St. Louis
matter o f serious i n c o n -
custoner
of a
member b a n k
65
had a
special arrangement t o take i t up.
I n New York w e
have a l w a y s r e b a t e d a t o n e p e r c e n t b e l o w t h e d i s c o u n t
rate s o that i t was n o t a n entire loss t o us.
Governor Fancher:
T h i s situation h a s developed-
A good many o f our smaller member banks t a k e a l l their
notes w i t h interest-<- a
six months note w i t h s i x per cent
interest--- a n d i t i s the custom a n the bank, i f the party
disposes o f any particular commodity, f o r h i m t o come i n
at t h e e n d o f t w o o r t h r e e o r f o u r m o n t h s ,
and pay the interest u p t o that time.
p a y his note
I f we discounted
the paper and a particular transsction o f that sort came
up they would feel that i t was a loss t o them.
T h e y only
pay t h e d i s c o u n t f o r t h e t i m e t h e n o t e h a s b e e n i n o u r
files a n d u p t o the time t h e customer takes i t up.
Governor Seay:
I t is the general practice i n all
the Washington banks t o take paper w i t h interest.
heve a
T h e y
great many very large notes and thet has been the
general practice.
Dr- Miller:
W h a t i s the practice i n your bank, Mr.
Lowry?
Hovernor Lowry:
M o s t o f the banks i n the District
take notes w i t h interest.
payable a t maturity.
1,000 notes. I
W
I n t e r e s t follows t h e note,
e have rediscounted something o v e r
think w e have been called upon t o rebate
less than half a dozen.
S u c h calls were i n cases where,
as Governor Fancher explained, t h e customer paid t h e note
and the bank released the obligation upon payment o f interest u p t o the payment o f the note.
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Federal Reserve Bank of St. Louis
T h e n our custom was
66
to r e b a t e t h e u n e a r n e d d i s c o u n t
yet t o run.
I
a t the rate f o r t h e peried
f the note w a s taken u p 2 8 days before i t s
maturity w e rebated interest a t the thirty day rate.
Governor Seay:
F o r the full time?
Governor Lowry:
The Chairman:
there a
‘ o r the time yet remaining.
D
o y o u figure a
new principal?
I
s
note drawn «ith principal a n d interest, a n d d o y o u
ciscount t h e n e w p r i n c i p a l ?
Governor Lowry:
The Chairman:
Y e s sir.
T h a t i s t h e custom i n New York,
Governor Lowry:
v
é discount t h e s u m that t h e bor-
rower will have t o pay a t maturity.
Dr. Miller:
M r . Lowry, I have just recently received
a letter f r o m California.
payment o n account =
t h a t d e y o u d o i n case o f the
t h e berrower t o a member b a n k whose
note y o u have discounted.
Governor Lowry: I
think we only had one case o f that
kind arise, a n d w e credited t h e amount o f principal
paid; e n d o r s e d t h e payment o n the note a n d left t h e a d ~
}
justment o f interest until maturity, anticipating t h a t there
z:
might b e further payment.
w
/
e did n o t attempt t o pe-
adjust the amount o f discount until the note expired.
Dre Miller:
S o that i n that snes *eekaagt oe practic-
ally the same facility a s given b y any bank?
Mre Lowry:
Dre Miller:
Y e s sir.
i
f
O n e of the other questions thst we wish
toask you to discuss, or rather that we wish,lt call to
your attention, i s the matter o f the expense$ o r expenditures
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Federal Reserve Bank of St. Louis
/
‘
t
67
of federal reserve banks i n the development o f
some standard v y w h i c h y o u c o u l d c o m p a r e t h e e f f i c i e n c y
a n d economy
of o p e r a t i o n o f t h e d i f f e r e n t b a n k s ; something
looking
toward t h e establishment o f a unit cost.
W
e would like
to receive your suggestions o n that, a n d + would
like t e
Say just @ word-=- n o t more t h a n t w o o r three words
--- o n
that subject.
On the first o f July t h e board, according t o
its
Previous announcement,
i s going t o publish t h e expenses
of the twlve banks, distinguishing o f course
between t h e
Organization expense a n d t h e operating expenses,
Until
we had announced o u r policy o n that subject
there were
constant applications coming t o the Board for
information
regarding the expenses o f the banks i n general‘or
regarding
particular banks,
S o m e o f these requests c a m e w e think
from people w h o were curious t o know a n d “ l o
wanted t o
know whether o r not the system, from that point o f view,
would stand a. reasonable test.
T h e i r criticisms were
Plainly inspired b y the desire
t o find fault with the
banks. “ o m e o f them were clearly malicious and were
intenced f o r use a s ammunition i n attacks u p o n
the reserve
banks. L a t t e r l y there has been nothing, b u t I am
sure
there are a great wany people t h a t are lying i n
wait
and whe are curious t o see what i s B0ing t o develop
when
this first statement i s published,
S
o this h a s been
a thing that the Board has had constantly i n mind,
W e
have had i t i n mind sometimes t o a very unpleasant
degree
as pegards our own operations.
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Federal Reserve Bank of St. Louis
T h e last committee upen
68
which I sat was t h e purchasing committee which was making
estimates o f expenditures f o r t h e next half ycar.
W e ex=
pected t o let you off with an assessment o f probably not
mote t h e n o n e t e n t h o f o n e p e r cent.
Y o u see,
w e are
getting down pretty close t o the bone, w i t h the object o f
economy i n every conceivable direction,
We are operating t h e gold settlement fund, a n d expect
to b e operating i t for seme time, without a s much a s a
Single dollar o f additional expense.
w
e found public
men, without cost, t h a t a r e able t o d o i t and willing t o
de it, s o w e simply s e t t h e m t o work o n i t until t h e thing
grows a n d reaches a
magnitude that will justify o r neces-
Sitate t h e a p p e i n t m e n t
o f special m e n t o h a n d l e i t .
W
e
have f e l t that that ought t e b e brought t e your attention.
The Chairman:
W e have i t under four heads o n our
program,
Dr. Miller: I
presume y o u have a l l been thinking
about i t and worrying about it.
w e want some suggestions
so t h a t w h e n t h e i n q u i r i e s a r e a d d r e s s e d
t e u s v e c a n dis-
pose o f them i n the most satisfactory way.
The Chairman: A
good m a n y o f the subjects contained
in the program, w h i c h have b e e n placed there a t the suggestion o f different officers e f the banks, have t o d o
with t h e detail management o f the banks;
t h a t i s t o say,
matters o f accounting, expense, a u d i t a n d s o on, which
really cannet b e satisfactorily dealt w i t h a t a meeting
such a s this, where w e really a r e discussing a
pelicy i n
s
regard t o that matter rather t h a n t h e details o f it.
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Federal Reserve Bank of St. Louis
69
At the meeting this morning i t was decided t o convert
the c o m m i t t e e , w h i c h h a d f o r m e r l y c e a l t w i t h t h e c o l l e v t i e n
matter, i n t o a
permanent e x e c u t i v e committee.
mittee w a s instructed t o arrange,
T h a t cem-
a t a n early date, f o r a
meeting o f accountants, auditors o r experts f r o m certain
of the banks,
t o take u p this question o f detail.
T h a t is
one of the subjects that I had i n mind, then we come t o it
on the program, t o suggest turning over for detail treatment i n that way, a n d discuss t h e principles u p o n which i t
should b e handled s t this meeting.
Probably a
good deal
of our work will b e done b y that method a s w e g o aleng, b e -
cause Our pregram i s very extensive.
Dr» Miller:
T h a t i s undeubtedly true.
The Chairman: I
think w e would a l l like something
in the way o f an expression from you i n regard t o the matter o f rebate,
B u t i n one phase o f the matter there a r e
a great many little details arising i n the relation between
the reserve banks a n d the member banks where some technical
difficiulty will arise affecting the ability o f the reserve
bank t o d o for its member banks what they have been i n
the habit o f having done for them b y their correspondents.
But w e c a n d e away with a lot o f those things b y telling
the member banks that t h e y a r e going t o b e properly accommo~
dated without regard t o too much red tape o r too many
technicalities,
I f w e G o that I think v e are going t e
make friends very m u c h faster.
T h i s matter o f rebate
is just o n e o f the little things that will a c t a s a pin
prick t o discourage them i n taking their business t o the
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Federal Reserve Bank of St. Louis
recerve banks,
Dr+ Miller: I
think this i s one o f the matters t h a t
has got t o be handled, t o use our President's phrase,"oen
the lines o f accommedation;"
i t is a matter i n which we
must g o just a s f a r a s w e safely c a n i n adapting t h e eperations o f these banks t o the actual necessities o f the existing situation, b u t not t o a point where y o u tend t o include
elements i n the existing banking practice that a r e o u t o f
gear, s o t o speak, w i t h the underlying theory a n d purpose
of the Federal Reserve System.
Thisis t h e first time this matter has ever been brought
to my attention o r that 1 have ever thought o f it.
own a t t i t u d e t o v a r d 1 t w o u l d b e determined, 4
think,
M y
b y my
guess a s t o whether o r not that kind o f accommodation was
virtually a
paper;
lean t o a member b a n k instead o f a discount o f
a n d secondly, t h e effect that i t might have i n
diminishing t h e habit o f producing, providing o r having a
supply o f paper o f a kind that is, properly a s well a s
tefhnically speaking, e l i g i b l e f o r disceunt under t h e
Federal Reserve System,
I have a letter here, Mr. Lowry, from Mr. John Perrin,
of your district, w h i c h contains a
tion with respect t o this:
pretty sage observa-
T h e letter i s very brief and
4 think 4 will read it.
"I a m not prepared t o say that I advocate immediate
action, but I would like t o bring before the Federal Reserve
Board, f o r its consideration, t h e desirability o f a u t h o r - izing special rates t o induce t h e creation o f acceptances
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Federal Reserve Bank of St. Louis
71
covering ordinary settlements between customers o f banks
in t h e p u r c h a s e a n d s a l e o f goods,
T h e differentiation
between ordinary advances b y banks, o f t e n capital advances,
and those extensions o f credit involving goods whose disposition would provide t h e means o f payment, seems t o m e
entirely possible
t o bring about i n increasing measure i f
the selfish interest o f profit seeking c a n b e made t o exert
potent
its influence
I
f regulations c a n be formulated which will
satisfactorily define eligibility o f paper subject t e the
special rates, i t appears t o me that rates one per cent less
than the current rates for other eligible paper might
wisely b e established.
“ry assume that i n other Federal Reserve Banks the
customers! paper accepted for rediscount t o a consix erable
extent m u s t r e s e m b l e t h a t w h i c h w e a r e accepting,
W
e must
not blind outselves t o the fact that much of i t is not of
a class which will certainly convert itself into money a t
maturity i f there were a n y credit strain, j u s t a 8 a member
bank's loans t o its customers will not yield i t much money
under t h e pressure o f a ericis, f o r instance,
a s i n 1907,
So, while i t is unquestionably wise t o begin our rediscount
operations b y accepting the best paper that our member banks
net have, nevertheless i t appears t e m e desirable t h a t
more influence should b e applied t h a n i s n o w being exerted
t@ improve the character o f the paper.
O f cOurse influence
ef this kind will b e more readily exerted when credit
conditions become less easy, but the matter seems t o be one
well worth considering now.
(signed) JOHN-PERRIN, F . R. A."
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Federal Reserve Bank of St. Louis
72
. I think that i s a wise peint o f view a n d ene that w e
mst.not lose sight of
\My first reaction o n this matter
or long maturity,
a s t o handling paper
o n the basis e f seven, t e n o r fifteen
day advances, would be that it might perhaps tend to postpone the development o f paper e f the kind that will ulti-
mately b e the paper « é want for ciscount a t Federal keserve
banks.
The Chairman:
H o w are we t o evercome the difficulty
ef the trade disceunt?
now. I
T h a t i s almest insuperable
mean the difference i n rate e f interest would b e
slight compared t o the difference i n intcrest a s between a
merchant and his customer on a trade discount for a like
peried e f time.
T h e rate te-these people i s two per cent
fer sixty days and one per cent for thirty days.
T h a t is
12 per cent per annum, and u n l e s s y
e
u can change the basic’
fradé system and ‘make all t r a n s d c t i ’
ohn
or‘
s ascen acceptance,
it 18 g e i n g t
e be almost
i m p o s s oiintroduce
b tl e
that
elass f
e paper except as te thése customers whe are t h e ~
poorest c u s t o m e r s , e
h
w always take the time and never avai'l
themselves e f the trade discount,
W
e have discussed
that matter with aaancern in New Yérk whe teld Mr.-day-- |
that they had 20,000 ‘customers e n their books, = -They
said that i n going ever their books i t was quite clear that
the only ones whe would avail themselves 6f ‘any such arrangement were t h e ¢whe were habitually straining their
credft t o the limit i n making deferred Payments fer goods.
They cited A s a n i l l u s t r a t i o n alarge class o f custemers
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Federal Reserve Bank of St. Louis
ae
73
whose accounts w e r e really consignment accounts a n d w h o
took advantage o f every technical defect, shortage o r difference i n the quality o f the goods, t i m e o f delivery,
or
other conditions t h a t might arise i 8 they were n o t able t e
turn them over.
Dr. Miller: I
time.
suppose t h a t i s t r u e a t t h e p r e s e n t
P a p e r o f that kind i s usually weak paper, I
suppose
the question i s whether i t i s desirable t o t r y t o establish
. berrowers,
two-name paper, n o t for t h e largest —
a s they
would not resort t o it, but a t any rate for a considcrable
class o f the smaller borrowers w h o a r e b y n o means weak,
and t o de that b y giving them someinducement i n the matter
of rates.
You must not lose a ght o f the fact that sooner o r
later the pressure i s going t o be very streng upon the
reserve board t o formilate regulations under which Federal
Reserve Banks will have t o g o into the open market, under
the privigsions e f Section 14, a n d b u y paper. A
great
many sug} Suggestions a n d some cemands h a v e b e e n made .
When I was i n San Francisce I was interested and surprised t o hear o n e o f the largest bankers there s a y h e
believed that t h e Federal Reserve Banis never would become
really serious factors i n the money market o f that disirict
until they did it. I
was very much surprised t o hear
that from, I think, Mr. L o w y ,
Anderson,
H
y o u r largest banker, Mr.
e said that these banks never would amount
to anything until they do that.
I t is not quite clear
to a n y o f u s h o w w e c a n d o t h a t safely. I
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Federal Reserve Bank of St. Louis
a m interested
74
in seeing i f w e cannot devise a
method b y which w e c a n
begin t o operate under Section 1 3 o f the law,
putting thet
date o f f t o a s distant a
point a s possible.
The trade acceptance t h a t I have i n mind, o r the
Board h a s i n mind--- although w e have never
dealt W i t h i t
formally o r rather extensively---
i s a n acceptance t h a t
would b e eligible f o r discount under Section
13, giving
those w h o a r e intercsted i n getting larger
facilities a t
the Federal Reserve banks a n avenue o f approach
through
their member banks.
The Chairman:
W o u l d y o u deal w i t h t h e m a s bills o f
exchange?
Dr. Miller:
Y e s ;
The Chairman:
O
a s bills o f exchange,
r would y o u deal with them a s notes
ef hand?
Dr. Miller:
The Chairman:
A
S bills o f exchange.
T h a t would involve a t the same time,
would i t not, t h e whole subject o f domestic
ag¢ceptances
and h o w they m a y b e distinguished f r o m purely
finance
acceptances?
Dr- Miller:
acceptances;
W e have i n mind, o f course, tankers’
j u s t straight acceptances,
The Chairman:
O f course a great many o f the large
commission merchants i n New York a r e n o w
longer commission
merchants b u t bankers w h o are leaning money i n
one f o r m
or another,
to give a
T h e y would look for domestic acceptances
better rate a n d convert a l l their loans into
that f o r m o f paper.
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Federal Reserve Bank of St. Louis
75
Dre Miller: I
d o not know h o w much y o u m e n i n the
New York banks hear o f these matters, b u t a great m a n y
people n e v e r h e a r d o f a n acceptance u n t i l t h e F e d e r a l R e -
serve Banks began t o operate.
T h e y were very much im-
pressed w i t h t h e f a c t t h a t t h e a c c e p t a n c e s t o o k a
low
rate a n d wondcred why, i f the acceptance w a s entitled t o
better credit, w e did n o t advise t h e same f o r m o f accept=
ance f o r domestic use.
I feel reasonably sure wewill have great difficulty
in gOing ahead and authorizing bankers' acceptances originating i n trade between t w o foreign countries until w e have
done something t o remove the disparity i n rates between
acceptances a n d domestic rates.
A n d i f w e c a n bridge
that cashm safely and properly, b y establishing a rate for
has alz the
a certain type of domestic paper that -
q u a l i t y of
good p a p e r e v e n t h o u g h i t i s w i t h o u t t h e v e r y b e s t e n d o r s e -
ment, I
think w e have protected ou. selves.
Governor Seay:
T r a d e acceptances w e r e common i n
a S m l l w a y fifteen o r twenty years ago.
Dr« Miller:
I
t seems
t o be a
usual f e r m o f p a p e r
in the south.
The Chairman: T h i r t y o r forty years ago i t was a
universal f o r m e f paper,
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Federal Reserve Bank of St. Louis
76
S u p p o s e s u c h a draft were offered
Governor Lowry:
with
to us
a
t h e endorsement o f a member bank, c o u l d ’ e
w buy i t
in the open market?
Mr. Miller: I
think the intention
o f the Board i s
to limit that paper t o paper that comes w i t h t h e endorsement
of a member bank.
Governor Wold: I
have a tentative regulation here
along those lines, dealing with contempkated o p e n market
operations w i t h that class o f paper.
G o v e r n o r Delane
sent m e t h i s l a s t week.
Mr. Miller:
T h e r e are three tentative drafts. I
do not know what t h e Board will do, b u t m y best guess i s
that i t will begin conservatively, w h e n i t deals w i t h t h e
subject, a n d limit 1 t t o operations under section 15.
We have safe-guards there.
w
e have the member banks
interested i n protecting u s o n this kind o f paper, a n d
of c o u r s e t h e r e s e r v e b a n k i s protected v i t h t h e e n d o r s e -
ment o f the member bank.
A f t e r w e watch operations under
that w e can best determine how far i t is advisable t o go
in a u t h o r i z i n g b a n k s t o g o a h e a d a n d p u r c h a s e t h i s p a p e r
on their o w n initiative.
The Chairman:
T h i s situation possibly applies more
to N e w York than a n y other section o f t h e country.
B u t
looking a t this f r o m the standpoint o f earnings o f o u r banks,
if w e are t o rely for earnings u p o n t h e creation o f trade
acceptances, a n d o u r ability t o get them from the member
banks with their endorsement, t h e situation will b e a little different f r o m what n o w exists,
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Federal Reserve Bank of St. Louis
s o far a s o u r earnings
77
are concerned.
E v e n with a
more f a v o r a b l e r a t e f o r t h a t
class o f paper than f o r the present n o t e o f hand, which i s
considered eligible, with {200,000,000 surplus reserve
held b y the clearing house, there i s almost n e chance for
us t o do any business with the member banks a t all.
I notice b y the last report o f the Comptroller, o r
an analysis o f his report, that o f the {734,000,000 o f surplus r e s e r v e s s h o w n i n h i s r e p o r t o f M a r c h 4 , m o r e t h a n
One-half o r just about one half o f all o f that surplus i s
held b y country banks and not b y banks i n the reserve o r
central reserve cities, which weuld indicate that i t would
not b e available t o one using the facilities o f reserve
banks i f lower rates were established than are i n existence
now.
Mr, Millers
N o one has i n mind the development o f
this kind o f paper now with a view o f forcing its use.
The present situation, o f course, i s a transitory one.
Funds will not always b e as easy.
tion o f principle. I
I t i s rather a ques-
think sooner O r later w e have g o t
to face t h e question o f principle.
That question was discussed m o r e o r less a t the
meeting o f the last advisory council, I
remember
that Mr. Forgan recited h i s experience,
The Chairman:
Mr. Miller:
H
Yes.
e is"“dead agin"it.
T h e r e a r e o n e o r t w o members
of the council that h a d a n Open mind o n the aibject a t a n y
rate.
A t least one o r .wo seemed t o think that i t would
be well worth while t o initiate t h e experiment.
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Federal Reserve Bank of St. Louis
The Chairman:
meeting pass a
W o u l d i t be of value t o have this
resolution, w h i c h I think would b e
unani-
mous a S most o f our reselutions a r e ,o--
Governor Sawyer: (Interposing)
M r . Chairman, w e
are confronted a t Kansas C i t y with
t h e question o f grain.
The grain '
draft i s paid o n arrival o f grain, bill
of
lading attached.
T h e y a r e d r a w n t o b e paid o n the
arri-
val of the grain, bill o f lading attached.
W
e have been
trying t o devise s o m e plan, within t h e
law, whereby w e
could handle this i n some ways
I
assistance t o the member banks;
b u t w e have n o t been
t would b e o f great
able t o think o f any Way o f doing it.
T h e r e i s practically
no definite t i m e o f discount,
Governor Seay: C o u l d you not d o that b y
making a
certain specified time, ample t o cover
it, w i t h a rebate?
Governor Sawyer:
Governor Wold:
subject with me.
W e could d o i t b y rebate.
G o v e r n o r Warburg discussed
that
W h e n conditions are normal w e might
Secure a great many arrival flour drafts;
t h a t is, ship-
ments covering the sale o f flour east sometimes
take
thirty days, sometimes two weeks, sometimes
three weeks
and a r e sometimes indefinite, t h e customer
t e pay the
draft o n arrival.
made for ten days;
I t was suggested t h a t t h e draft b e
w
e could discount i t for ten days
on arrival and make a n agreement with the
bank that i f it
Was Outstanding a t the end o f thirty
days i t would b e
censidered due and would b e charged
t o their account,
That would net b e practical with a grain draft.
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Federal Reserve Bank of St. Louis
Three
or four days would cover that.
Governor Sawyer:
H a r d l y that.
S o m e t i m e s theve
is congestion o n the railroads a n d i t takes three o r
four weeks f o r them t e get through.
W h e n t h e war broke
Out the grain did not arrive for ten days o r sometimes two
or three weeks,
O f t e n , w i t h a heavy crop, a
condition a r i s e s a n d t h e g r a i n i s delayed,
definite time.
congested
T h e r e is no
T h e y cannot figure out i n advance how
léng it will take that grain to arrive at destination.
Governor McCord :
I n the Sixth District w e have
another condition, a n d that condition relates t o cotton.
The c o t t o n r e a c h e s o u r perts a n d t h e b u y e r o f t h e c o t t o n
makes a
demand note with t h e member banks.
know when that cotton c a n b e shipped;
when they C a n get shipping room.
T
T h e y never
t h e y d o not knew
e make that time
paper would absolutely preclude u s frem getting the paper.
They would say "We may get shipping room i n six days, o r
it may be fifteen days."
I communicated with =
Board o n the subject o f naval
stores, a n d they gave m e the privilege o f making a special
contract w i t h a member bank t o take a demand naval stores
bill under a thirty day contract with a member bank, with
the right t o rebate interest.
W
e are thereby enabled t e
meet a situation that w e could n o t meet otherwise, b e cause w e could n o t hepe t o get that business.
W e ceuld
net get i t unless w e handled i t the way w e have been handling it.
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Federal Reserve Bank of St. Louis
Gevernor Wold:
W i t h a discownt o f abeut 3 0 days?
Governor McCord:
Yes.
The Chairman:
A n d a rebate after the bills are re-
leased through shipment o f the stuff?
Governor McCord:
Yes.
T h a t w a s a commodity loan,
and the board gave m e the right t o make the commodity
lean, and i t proved t o be very satisfactory and advantage-~
ous.
Mr. Miller;
Yes; I
remember that instance.
I suggest that y o u get the subject under discussion
at this conference, a n d that y o u appoint a continuing c o m -
mittee, representing some o f the districts that would be
most interested i n the development o f paper o f this kind,
to see what c a n b e done t o get i t started, u n d e r restricr
tions that will protect i t against abuse and will yet
make i t possible t o operate it.
Governor McDougal:
M a y I ask you this question: |
Whether y o u o r the board believe t h a t t h e paper w e are
now permitted t o re-discount i s technically not eligible
under t h e Act?
Mr. Miller:
W e l l , the Act i s very widely drawn;
4t is drawn i n extremely liberal terms and the reguletiens o f the Board are drawn i n pretty liberal terms.
Boiled d o w n t o this point i t practically says t h a t i f the
member bank and the Federal Reserve Bank are satisfied,
with such evidence a s i t chooses t o exact, o f the eligibil4{ty o f the paper, t h a t i t i s eligible paper,
W e did that
because w e realized that i f these banks were t o be banks
they would have t o adapt themselves t o commercial practices
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Federal Reserve Bank of St. Louis
as t h e y were,
I think certainly a majority o f the Board would
feel that there i s a good deal o f paper that i s coming
into t h e banks that i s technically eligible b u t i s not
actually o f the best type.
I t i s conceivable t h a t i f w e
had s a y more than half o f the available resources o f the
e
i
Tome
banks invested i n paper of this type, and there came a
real stress o r strain, the Federal Reserve Banks might b e
in a very bad plight i n trying t o realize o n this paper
as i t matured;
b u t under those circumstances t h e fact
would b e demonstrated t h a t t h e paper d i d not really have
the essentials o f liquid paper.
Governor Seay: I
can very frankly say that a great
deal that w e take, although using the very best care and
judgment, falls short o f m y own definition o f eligible
paper under the Federal Reserve Act. I
am just a s con-
scious o f that a s anybody can be; and a t the same time
paper that comes t o us i s a very m u c h better class o f
paper, I
think, t h a n goes t o N e w York, o r t o any other
bank, attached a s collateral.
I t i s the best class o f
paper that w e have get, y e t tested b y the real definition
of eligible paper, which I believe i s made with the purpose a n d intention o f being paid a t maturity,
i t falls
short.
The Chairman:
at maturity,
brokers.
T h e real paper that i s always paid
i s commercial paper that i s sold through
T h a t is the ca8@ where the maker of the paper
does n o t know where i t i s going t o turn u p when i t matures.
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Federal Reserve Bank of St. Louis
82
“Governor Wold:
I s that always paid?
I
s not that
Paid b y selling somebody else t h e note?
The Chairman:
I t frequently is,
actual payment i s concerned,
B u t s o far a s
i t i s paper where t h e maker
keeps h i s account w i t h the bank a n d comes
i n and says that
the bank will have t o renew that o r he Will take
his account away.
B u t that paper i s paid.
L a s ® fall w e made
inquiry i n New York, I think i t was about the lst
of
September,
a s t e how much paper was maturing before
the
first o f January that h a d been seid b y
the note brokers
in New York City alone, and i t exceeded 500,000,000;
and
it was a l l paid, too.
Governor Wold:
A n d these conditions arese a t
a
very Opportunt time, t h e liquidating period
o f t h e year,
A lot o f commercial paper i s made during
t h e Spring a n d
Summer and i s resold before the liquidating peried
o f that
particular business comes areund,
I
f i t happened t h a t
those conditions arose a t a peried o f the
year when i t was
easy f o r o u r peeple t o liquidate, W i t h
the hervesting o f
their crops disposed of, 1 t would b e all
right---
The Chairman: (Interposing)
W e l l , things moved
pretty slowly last fall f o r some time, until
after these
banks opened.
Y o u will remember t h e fact that
there
was over $500,000,000 o f paper sold b y brokers
i n New York
alone, o r sold throughout t h e country
t e the little ceuntry
banks, and that i s a pretty good demonstration
that that
> = PABEE i s based u p o n sound business
principles,
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Federal Reserve Bank of St. Louis
Governor Seay:
T h e ideal paper, a s I take it, i s
83
that which i s paid a t the consummation o f the transaction
upon which
i t was based.
F o r e i g n acceptances were held
up last year b y prevention o f consummation o f the transactions o n which they were based.
Mr. Miller:
Yes.
I
t i s impersonal paper.
ao n o t l o o k t o t h e c r e a t o r o f t h e notej%
the transaction.
Y o u
y o u look t o
T h e name i s important, b u t i t i s o f
secondary importance.
T h e transaction takes care o f the
paper.
Governor Seay:
I s i t contemplated t h a t t h e paper
you have under consideration n o w shall carry documents?
If i t does not, h o w a r e y e u going t o get away f r o m the
name.
T h a t i s t h e o n l y t h i n g y o u h a v e t o g o on.
Mr. Miller:
Y o u cannot g e t away from the name o f
the company, a n d that i s the reason i t i s suggested,
at
the beginning, t h a t this paper come t o the Federal Reserve
Bank with the endorsement o f the member bank.
Y o u have
got t o rely more o r less upon the knowledge that the member bank has o f the paper o f different concerns, a n d the
judgment o f the member bank.
A t a n y rate i f the member
bank has got t o make good the reserve bank can protect itself b y simply pointing t e the regulations.
T h e expec-
tation should b e that that paper i s going t o b e paid a t
maturity, a n d that there i s n o questien about it.
Governor Wold: I
am a firm believer i n the kind o f
paper--- i f w e c a n get i t back t 3 that~--- the old fashioned
kind i n vogue twenty five years ago, where reputable,
respsnsible dealers gave their obligations
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Federal Reserve Bank of St. Louis
i n settlement
of t h e b i l l a n d d i d t h a t a s a m a t t e r
o f course,
T h e y
did that nine times o u t o f ten i n Settlement o f a
past d u e
bill, a
bill past maturity,
o n which they wanted further
time.
The Chairman:
Is not a very large amount o f that actually created
in order that t h e seller o f t h e goods m a y finance
his own
customers a n d carry them sixty o r ninety days?
Governor Wold: A c c o m m o d a t i o n ?
The Chairman:
Yes.
Governor Wold:
W e have some o f that.
The Chairman: I
think the great volume o f paper
dealt i n i s o f that character--- capital f o r
the merchant
to use i n carrying his customers.
Governor Fancher:
T h e r e a r e a great many lines o f
industry where the particular transaction does not
culminate i n d a n e d a y s f r o m t h e time i t i s begun. S o m e t i m e s
a product i s not paid f o r before eight o r nine
months have
passed,
Mr, Millers
W h e n i t comes i n t o t h e bank l e t i t
come Within t h e ninety d a y limit.
Governor Seay: I
was talking t o the president o f
one of the large Pittsburgh banks the other day o n the
train.
H e said that o n e o f his customers c a m e t o him and
wanted t o borrow fifty o r Sixty thousand dollars and
he
could only d o it o n his credit.
I
n discussing the mat-
ter the President found that hé had made a sale of just
about that amount whith involved s o m e coal shipments.
asked him if he could not draw a draft o n the consignee
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Federal Reserve Bank of St. Louis
H
e .
85
and h e r e p l h e d t h a t i t w a s n o t t h e practice,
asked h i m i f h e cowld n o t d o it.
"I d e not think I can d o it. I
H
e then
T h e customer replied,
should n o t like t o ask
that because i t would injure m y credit i f I did.
B u t he
happened t o know t h e consignee a n d h e asked t h e
consignee
if he would not b e willing t e accept his draft, ami
the consignee said that h e certainly would be,
T h a t i s a case
where t h e m a n who seld t h e goeds was unwilling t o
ask f o r
an acceptance because h e thought i t would injure
h i s credit,
In another case a corporation had t o previde for the
payment o f interest o n its bonds.
of that kind too.
I t had a transaction
I t had a beok credit b u t i t absolutely
refused t o ask fer acceptances.
T
h
e other party i n
the case was seen and h e said also t h a t h e wnuld
b e per-
feetly willing t o accept.
Y e t the first man whould not
ask i t and actually sold treasury bonds a t a low price
because i t had not b e e n t h e custom t o ask for acceptances,
I believe i f the Reserve Banks should t a k e i t u p
with
the clearing house member banks i n the larger cities a n d
get t h e clearing house members t o put the Stamp o f
their
appr Oval u p o n t h e a c c e p t a n c e b u s i n e s s ,
w e could get i t into
practice quicker i n that fashion t h a n w e could i n any
other
way.
Mr. Miller:
take time.
I
t will i n v e l v e cducation a n d probably
I t will grow slowly, but i f you can set the
_Stamp o f approval upen i t and show that i t is
not only ad-~
missible paper, b u t i t i s b e t t e r paper,
within t h e scope o f that definition, I
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Federal Reserve Bank of St. Louis
i f i t i s genuine
believe y o u will find
86
a number o f member b a n k customers t h a t
would avail themselves o f it,
I do n o t expect t h a t Single name paper will
e v e r disappear.
I t seems t o m e that i t i s the class
o f borrowers
midway between t h e very biggest a n d best
a n d t h e neakest
and poortest that might b e induced t o borrow
i n this form
through the member banks, operating under
t h e influence o f
the reserve banks, and feed into the reserve
banks a very
considerable volume o f paper that i n
a time o f stress
might b e amongst t h e very best paper
t h e y would have,
The Chairman;
T h e influence o f the Reserve banks
has already b e e n felt i n two directions
t h a t impressed m e
as being hopeful.
I firmly believe that the regulation which takes
effect
July 15, with regard t o the requirement about
statements,
is going t o have a very wholesome effect after
a while b y
giving the member banks the excuse for asking
their customer for a statement, whereas heretofore t h e y
have hesitated
because the customer would leave the bank,
N o w they have
the means o f approaching t h e subject.
We, i n New York, have certainly s e e n t h e influence
in some ways o f the regulation about municipal
borrowings.
Most of the banks i n the East-=- and I know Governor Kains!
bank i n the west, and others--- have gotten u p
a little
Standard form for use.
W
e get inquiries from the
brokers i n advance n o w about t h e requirements
o f the
feceral reserve banks i n the borrowing o f money
i n order
that t h e b o r r o w e r s m a y c o n f o r m t o t h e requirements.
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Federal Reserve Bank of St. Louis
T h a t
87
subtle influence o n the borrower o f having his
borrowings
come o u t o f the largest possible pocket i s geing
t o reach into
the question o f settlements a n d m a y b e made t o work
with
trade acceptances, I
hope i t will.
I f w e c a n stimulate
it b y a preferential rate that i s certainly going
t o help.
Mr. Miller;
T h a t i s one o f the questions t h a t w e
Shall have t o take u p i n the autumn, a n d i f
your ideas c a n
erystalize i n that t i m e s @ t h a t w e c a n have t h e
benefit o f
your judgment,
i t would simplify o u r task a great deal,
ef course.
Hnother quustion i s the examination o f state banks
that want t e come in,
i n our circular regulations w e
promise t h e m a certain degree O f immunity o n d tell
them
that the examinations will be, a s far as possible, i n co
operation with t h e state bank examinations a n d b y
examiners
of the beard o r of the several Federal Reserve Banks.
I
Buppose a l l o f these banks h a v e o n the personnel o f their
staffs men whe are competent t o conduct these examinations,
and, for the time being, a t any rate, have the time t o
do it;
b u t one o r two experiences w e have had indicate
the desirability o f canvassing the matter i n advance
and
coming t o some s o r t o f a n understanding a s t o
just what
the scope o f these examinations should be, h o w far they
should g o into certain classes o f detail a n d h o w far they
should avoid that; t h a t is, safely aveid g o i n g into a
mass o f detail that might perhapscause iritation o n the part
of the banks that are examined.
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Federal Reserve Bank of St. Louis
To assist i n that phase o f the distussion w e have h a d
20
e
e
e
n
U
e |1
* " ' m “hsgoat
88
Mr. Broderick come here a t this time
and hold himself i n
readiness t o take part i n the discussion
o f this matter a t
any time you care t o call him.
I
have n o t anything v e r y
definite i n mind, nor has the Board
anything very definite t o auggest, except that this
matter Ought t o b e given
attention before the acthal work
o f examining the banks
is undertaken.
does n o t
Itglook o 8 though w e were Boing
t o have
& Stampede o f state banks, a n d
y e t inquiries a r e coming in,
I noticed, Governor Aiken, t h a t
t h e Old Colony Trust
Company i s ready t o come in.
Governor Aiken:
yes, I
have been i n almest daily
conference with them,
Mr. Miller;
T h e y wanted t o know what
they should d o
and h o w soon t h e y could g e t
in,
We all know i n a general way
that the state bank examination i n Massachusetts i g
very thorough, H o w t v e r ,
« e can-
not simply let the matter g°
O n general repute, and:so the
Board h a s got t o devise
Some sort e f procedure f o r
determin—
ing the character o f State b a n k
examinations.
The Chairman: I
was going t o ask yeu i f it would
be
ef value t o do as we have done
i n some cases, that is,
get a n expression o f views frem
each o f the Governors o f
the banks a t this meeting a s t o
the character o f examina ti ons
conducted i n their sections.
Mr, Miller: I
h e s
0
think i t would b e of value.
a e s r;s
aar
e
w ete,
would b e able t o answer that
without v e r y much examination,
A
s t o tae Character o f
the examinations w i t h o u r districts w e might have
some that
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Federal Reserve Bank of St. Louis
-
89
would pass a n absolute unqualified recommendation,
and others
that would b e doubtful a n a others t h a t
vould b e condemnec.
A discussion o f that might assist the
Board i n determining
to what extent i t should g©, i n
the outset,
i n accepting
examinations without further inquiry.
I a m sure Governor Aiken would S a y
that i n Massa-=
chusetts t h e examination i s o f a
character that would a l most allow acceptance without
question, I
would certainly
Say that with respect t o both New
York and New Jersey,
where t h e e x a m i n a t i o n h a s b e e n
developed
t o a
very h i g h
Standard i n recent years.
Mr. Miller:
4 n d I suppese i t i s i n the
State o f
California,
Gevernor Lowry:
I n California t h e examination
is
very thorough, but I cannot speak
for other states i n the
district,
Governor V a n Zand $:
I t is very thorough i n Texas.
There a r e four examinations a
year a n d they are very
thorough.
The Chairman;
Governor iiold:
inations,
T h e r e a r e t w o i n New york.
I n Minnesota
w e have very g0ed exam-
N o r t h Dakota h a s a 890d
o n e a n d Wisconsin also.
I would not be able t o recemmend
South Dakota. I
am net
in a position t o state just what
the conditions are i n
Mont ana. I
expect t o b e out there Sometime
i n September,
and will b e able t o speak more definitely
after that time.
The Chairman: M r . Miller, would
y o u care t o have us
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Federal Reserve Bank of St. Louis
90
take u p i n detail a discussion o f the Subject o f
state
bank examinutiens t o see t o what extent i t m a y
b e necesSary t o have those examinations conducted b y
arrangement
with t h e state authorities?
Mr. Miller:
Yes. I
a m not prepared t o d o that m y —
self, b u t I think i t would b e well, perhaps,
f o r a committee o f Governors t o handle that matter,
a n d t o have Mr,
Broderick called i n when y o u are ready t o take
i t up.
The Chairman:
Y e s ,
H e knows o u r district i n New
York very well.
Mr. Miller:
H e has been getting a n impression o f
the situation.
H e has b e e n going through the country.
in Dallas
He has just b e e n i n San Francisco.
H i s examina tion,is
gOing o n now,
H e has come u p here for a day o r two and
will g o baek t o Dallas,
It occurred t o m e that perhaps t h i s might b e wise;
for each one o f the b a n k s - - = - but n o t necessarily
now--
to sooner o r later designate the man that i t is going
to
use i n making these examinations.
I t would perhaps then
be well t o have these m e n meet o t some conventent
time and
place
i n c o n f e r e n c e w i t h Mr, B r o d e r i c k a n d t o
have a
dis-
cussion o f the general p l a n a n d method o f the
examination
60. far a g that could b e done,
O f course all sorts o f ad-
justments weuld have t o be made t o fit conditions
i n particular states, b u t a t any rate they should
arrange t o
have t h e examination, whether conducted b y
one bank o r b y
another bank, w i t h a certain degree e f
uniformity,
the examiners ,when they come t o make a
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Federal Reserve Bank of St. Louis
s o that
definite recommenda-
91
tion t o t h e Board, would have a knowledge o f who were m k ing t h e examinations a n d a
knowledge o f the general basis
upon w h i c h t h e y w e r e b e i n g made,
T
h
i
s should b e dene
in order that t h e sdmission o f a state b a n k t o a n y Federal
Reserve Bank, where permission hes got t o be obtained
from the board, would b e made substantially u p o n t h e same
basis;
n o t o n o n e basis
i n one district o n d o n another
basis i n another district, b u t a. certain degree o f uniformity should b e observed, a n d that I suppose could b e very
easily worked out,
The Chairman:
W i t h the larger cempanies, l i k e t h e
large trust companies i n New York,
i n order t o remove t h e
obstacles i n the w a y o f their admission t o membership,
it
is going t o b e necessary t o minimize t h e actual expense a n d
labor involved i n making the examinations,
Mr. Miller:
T h a t i s true.
The Chairman:
I n New York State a
trust company i s
required t o be examined b y a committee o f its directors
twice a year.
partment.
I
I t i s examined twice b y the banking d e n the past i t has b e e n examined twice, a l -
though that i s not obligatory, b y the Clearing House Association.
I f the Federal Reserve System imposes i n ad-
dition another examinatien upon those trust companies,
have estimated
we
a t the Bankers' Trust Company that there
would practically b e n o time throughout the year when they
would n o t have examiners i n the bank,
Mr. Miller:
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Federal Reserve Bank of St. Louis
Of course that i s exactly what w e want t e avoid.
The Chairman:
T h a t ought t o b e avoided o f course.
92
I a m very hopeful, w h e n the facts a r e gone into with refer-
ence t o New York tity--- and Mr. Broderick will b e o f
great service there--- that that situation c a n b e changed
60 that when the question o f admission o f institutions o f
undoubted standing comes u p we can take the report o f the
last examination m d e b y the State B a n k Department b y agreement w i t h that department,
o r the cxamination made b y the
Clearing House Examiners b y agreement with that institution.
T h o s e cxaminations a r e filed i n the institutions
themselves a n d c a n t
ghecked u p and looked over a n d i f
necessary those matters t h a t require i t c a n receive special
study.
W
e could t h e n use those examinations a s a basis
for admission.
I f we do that w e are going t o overcome a
great many of the objections,
Mr. Miller:
W e will g e just a s far as we posal bly
can i n making i t easy for banks i n that condition t o come
in.
Governor Wold: I
notice i n your regulations y o u
refer t o paragraph 2 , article 5 : " s h a l l invest o n l y i n
loans o n real estate o r mortgages o f a character and t o a n
extent which, considering the nature o f its liabilities,
would not impair its liquid condition."
tion the f o r m o f mortgages.
mortgages?
b
Y o u d o not men-
o y o u refer t o real estate
D o e s that imply that a bank may hold a mert-
gage security upon city property?
Mr. Millers
tively.
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Federal Reserve Bank of St. Louis
W
O h , yes.
T h e proposition i s put pesi-
e tried t o phrase i t negatively.
W
e do not
93
take cognizance o f real estate leans a s such.
take c o g n i z a n c e
W h a t we
o f i s t h e c o n d i t i o n o f t h e bank.
E
n
e
bank's condition is safely liquid, s e that it is not going
to be embarrassed, that is, b e a n embarrassment t o the
Federal Reserve Bank, and s o that i t can really avail
itself o f the facilities o f that bank, t h e n w e feel a real
estate loan i s safe, B u t , a 5 a matter o f fact, a s I say,
we d o not take a n y reckoning o f a real estate loan.
W h a t
we leok t o i s the liquid condition o f the bank,
W
e feel
that this i s a s liberally drawn a s i t could be.
I
t might
give rise, o f course, t o a good deal o f difficulty i n pass ing upon t h e eligibility o f a n applying bank.
might h a v e 2 5 p e r c e n t o f i t s l o a n s
haps n o t b e i n a liquid condition;
O n e bank
i n real estate,
a n d per-
a n o t h e r might perhaps
have fifty o r sixty p e r cent o f its loans i n real estate,
er farm mortgage loans a n d yet b e i n a very good conditien,
I think t h e r e a r e i n s t a n c e s
o f thet
i
n Governor
Sawyer's district,-Governor Cawyer:
(Interposing)
Y e s ;
w e handle f a r m
leans,
Mr. Miller:
Y o u have farm loans which, i n a time
of stress might prove t o b e t h e very best resources o f
any O f the banks i n your district.
Governor Sawyer:
T h e y have v e r y f e w e f the same learns
in the bank over four months.
Mr. Miller:
T h e y make new loans.
S O that practically what “ e s a y here
is that o n matters o f importance t o the reserve bank the
bank i s t e use its banking judgment.
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Federal Reserve Bank of St. Louis
94
Governor McCord: I
want t o a s k a
qestion. I
have difficulty w i t h one o f m y saving banks a n d trust
companies i n my city just before I left home.
T h e y had
a mortjust received t h e regulatiens a n d wanted t o know i f
per cent
gage o n city property o n a safe valuation o f say 5 0
was a l l right, a n d whcther t h e y ©
Reserve System.
uld j o i n the Federal
H e said that h e understood t h e regulation
governed f a r m loans-<-~
Mr. Miller:
W e l l , h e i s i n error. I
hope with
Governor MeDougal's aid to persuade the best companies i n
the c i t y t o c o m e i n a n d c o m e i n v e r y promptly,
a n d they
ef course h a v e very large r e a l estate loans.
Governor McDougal: I
can g o a little further a n d
, alarge one, is already
say that one of our city b a n k s very
in under those very circumstances.
T h e y have a large
amount o
f city l e a n s .They© lean on city property.
@overnor McCord: I
tome.
Will state what statement was made
H e said, "Ihave been carrying a subsidiary re-
serve i
n standard stacks a n d bonds, b u t when the exchanges
close I de not have any subsidiary reserve."
H e said,
"T ean convert that into commercial paper and carry the
subsidiary reserve in them i f Iam admitted into the systam
with city mortgages."
r
M Miller, there i s another phase o f
‘je C h a i r m a n : .
this “same question of city ‘banks taking membership, which
it seems t O me will necessl tate a more er less formal
s iin thearrangement With the state authorities, a n d t h a t
6
f reports... M o s t of the states that have good
matter é
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Federal Reserve Bank of St. Louis
banking departments require regular reports f r o m t h e
95
state institutions a n d they have n o w a n arrangement b y
which the date o f these reports i s the same date o n
which
the Comptroller o f the Currency makes a call.
I t would b e
well i f we could make a n arrangement w i t h the Federal
Reserve Board, a n d a t the same time with the state
authori ties, f o r t h e applying member banks t @ use that identical
form and not require a
of business,
Separate f o r m o r a separate analysis
T h a t would remove a
serious b a r t o their
admission,
“Mr. Miller:
T h a t i s true.
The Chairman:
I n the large institutions i t will take
every available minute o f time,
T e n days i s allowed i n
New York City t o prepare t h e necessary i n f o r m t i o n
t o get
up one o f those reports,
T h e y are not the form required b y
the Comptroller's Report, but they are very complete.
Mr. Miller: I
suppose i n some cases w e could bring
Some pressure t o bear upon t h e State Banking
Department t o
amend their form o f report i f i t i s really essential.
Bythe way, Mp. Broderick attended the Convention ef
the State Bank Superintendents i n San Francisco lest
month and he reported in general their feeling toward the
Federal Reserve System was o n e o f sympathy
a n d accord.
did not think there w a s very m u c h doubt,
H e
i f any, b u t that
& very g00d working arrangement could b e effected with
them.
Governor Aiken: I
had quite a
talk with Mr. Thorn-
dyke, t h e bank 6xaminer f o r Massachusetts,
t h e other day,
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Federal Reserve Bank of St. Louis
96
and h e told m e h e and his department would b e very glad t o
coopécrate w i t h u s i n any way.
Governor Fancher: I
Ohie. I
think that i s t h e attitude i n
think Mr. Hall, t h e superintendent t h e e , w i l l b e
very glad t o cooperate i n the form o f examination, o r i n
the matter o f uniformity o f statements. I
think h e i s
very friendly towards us.
Mr. Miller: I
thought, Governor Wold, w h e n y o u spoke
a moment ago} t h a t y o u were going t o call m y attention t o
item 4 i n article 5 , a s follows:
"Shall maintain such improvements and changes i n its
banking practice a s may have been specifically required o f
it b y the Federal Reserve Board a s a condition o f its a d -
mission, and shall net lower the s t a n d a r dfo banking then
required o f it;"
f course, gives a n y Federal Reserve B a n k
That, o
very considerable discretionary latitude.
I think seme o f the Board, a t the very last moment,
before t h e circular went t o its final draft, b e g a n t o fear
that w e might get a good many state banks t o apply for
membership that were not altogether desirable members, a n d
that under the terms o f our circular they might say that
‘they had a right t o come in, and even mandamus the Federal
Reserve Board i f they refused t e admit them.
T h e r e
therefere might b e some difficulty i n exercising discreticn
against a
bank where y o u could not actually s e t forth ac-
ceptible and convincing reasons for refusing t o admit them.
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Federal Reserve Bank of St. Louis
97
My suggestion has b e e n t o put i n the paragraph above
a phrase a s follows. I
de not know that i t would b e o f
any value, b u t I would put i t in:
of t h e Federal R e s e r v e B o a r d ,
company « .
«
_ « .
" I f , i n the judgment
a n applying b a n k o r trust
conformsto a l l t h e requirements o f
the Federal Reserve A c t a n d these regulations a n d i s other-
wise qualified for membership", a n d s o forth.
I think possibly that might help i n the case o f 4
bank t h a t w a s d i s p o s e d
t o resort t o court proceedings
order t o determine i t s rights.
A
in
t a n y rate i t would per-
haps discourage t h e m o r b e t h e means o f putting i t off.
There is, o f ceurse, the possibility that, i n our
solicitude to make the gateway into the Federal Reserve
System easy t o banks t h a t w e want t o get in, w e may have
opened t h e door s o wide that w e cannot b l o c k t h e door t o
banks whose membership i s not s o desirable. I
think
probably that can be handled, i f not through resorting t o
provisions o f the Act, a t a n y rate b y the repeal o f some
of t h e p r o v i s i o n s
o f t h e circular.
But the matter o f some sort of joint procedure betwenn
our division o f examination and that o f the reserve banks,
and between both and the state bank authorities,
w e feel
is very important and ought t o be developed just a s quickly
as possible,
ceive a
s o that when state banks apply t h e y m a y re-
prompt answer.
The Chairman:
Mr. Miller,
W o u l d i t be satisfactory t o the Boar,
i f we make a recommendation a n d convey back
to the Federal Reserve Banks t h e recommendation that t h e y
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Federal Reserve Bank of St. Louis
98
so organize their offices t h a t they will b e i n a position
to make these examinations w i t h their o w n men, under a
superivision that will b e arranged b y the Board?
Mr. Miller:
Yes, I
think that would dispose o f the
matter a s a matter o f record,
T h e n they could designate
the men, indicate t o the board w h o those m e n are, a n d o u r
examination division can get i n touch with them,
The Chairman:
F o r t u n a t e l y w e have some v e r y excellent
men i n our o w n bank f o r that purpose.
O n e o f them hap-
pens t o be a n old examiner for the State.
Mr. Miller:
M r . Broderick tells m e that t h e banks
examined s o far not only have expellent men, b u t m e n who
have h a d a great deal o f experience i n the matter o f examination,
s o that i n certain cases i t will b e very simple,
It will b e simple here i n Chicago, with Mr. McDougal's
experience,
T h e same i s true o f St. Louis, because Mr.
French was a n officer o f the clearing house there.
S a n
Francisco i s likewise i n the same position, N e v e r t h e l e s s ,
there mast b e some uniform procedure a
The Chairman:
e
W o u l d n o t the reserve board also
disposed a t this time t o consider having the officers
the federal reserve banks open, i n a preliminary way,
a@iscussion with the state authorities o n this matter?
Mv. Miller: I
point.
sould n o t p e a k f o r the board o n that
O f course i t would b e unefficial a n d informal.
The Chairman:
S p e a k i n g always f o r o u r o w n district,
the examiner i n New Jersey i s a n officer o f Governor
Rhoades! bank and the superintendent i n New York happens
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Federal Reserve Bank of St. Louis
99
to b e a perscral friend o f some o f o u r officers, I
am
very h o p e f u l t h a t t h e B o a r d i n W a s h i n g t o n w i l l o c t u p o n
Some recrmmoncatlons, w h i c h I hope w e will make t o them,
that w e c a n cstabiish a
relationship w i t h t h e city author-
fijes right away that will clear the deck for the best
possible procedure,
Mrs Milter: I
would s a y i n that case that perhaps y o u
had better advise t h e Board o f what y o u a r e doing, o r what
you have i n contemplation, s o that i f i t 1s deemed advisable Mi. Broderick c a n join i n i t and b e definitely informed
of just what takes place s e that there would b e no working
at cross purposes o r o n defective information.
uovernor Wolds
L e t m e a k e t h i s inquiry.
I s it
cortenplated, i n a case where a state bank examination i s
net satisfactory, f o r the reserve bank t o continue the
examinations periodically,
o r will t h e y call o n the National
bank examiners?
Mic. Miller: I
do not think 1 quite understood that,
Governor,
Governor Wold: A
membership.
factory;
W
state bank makes application for
e examine i t a n d t h e examination i s n o t satis-
i t is not the character o f examination that w e
would b e willing t o accept.
I s the Federal Reserve Bank
to thereafter make a periodical examination?
Mr. Mille»:
C e r t a i n i y y o u would have t o d o t h i .
Ccovernor Wold:
tain’ng quite a
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Federal Reserve Bank of St. Louis
Mr. Miller:
T h a t might involve keeping o r iaciz -
department f o r that purposc,
I t might i f there i s enough o f thai.«lné.
100
I do not know just what would happen, b u t w e should prob-
ably have t e enlarge our examining force.
B u t w e will any-
way, i n the near future, m a k e t w o appointments j u s t a s soon
as we can get hold o f the right sort o f men, and the e
men
will assist i n that way, even i f they d o not d o all o f it
or work a t i t all t h e time.
I t has even been suggested
that for a while, a t any rate, the reserve banks might
accommodate o n e another.
T h e Board will n o w a n d then want
to borrow a n officer o r examiner f r o m one o f the Federal
Reserve Banks s o that i t can b e loaned t e another one.
I n
time w e c a n organize a n adequate examining force, s o that
all o f this w o r k c a n b e conducted b y seme sort o f a central
organization.
Governor Fancher:
I f the sami chie department o f
some particular state was u p t o a high standard,
i s i t con-
templated t h a t t h e examinations o n the part o f the state
departmentwlhl b e i n conjunction with the examination o n the
part o f t h e Federal Reserve Bank---
Mr. Miller: (Interposing) Y e s . T h a t is what we
had i n mind.
point.
W
W
e want t o cooperate with them at every
e want t o make our examinations a t the time
when they are making theirs and join with them hand i n
hand.
Governor Sawyer:
I s 1 t cotemplated t h a t y o u will
accept
the examination made b y the state examiners i f you
are Satisfied w i t h the report o f that examination a n d a r e
furnished a copy Of 4%?
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Federal Reserve Bank of St. Louis
Mr. Millers Y e s ;
W
e suppose that i s what i t would
101
be i n fact, but we would not ef course want t o announce
that such was t h e case. I
do not suppose t h e Board o r
any Federal Reserve B a n k would have t h e right t o take that
responsibility, b u t i t could u s e i t s judgment, a n d doubtless
wherever there are good examinations, a s long a s they con-
tinue good, accept them. A
part of the Beard's work with
regard t e its examination division would concern itself
with examining t h e examiner,
s O t o speak; t h a t is, k e e p
itself thoroughly informed o n the quality o f the examination rather than participate actively i n the examination
itself.
The Chairman:
W e have thought i t might b e possible
say, a t one o f the two examinations e a c h year, o r possibly a t both o f the examinations
i n New York City, t o have
the Board authorize t h e having o f say o n e o r two m e n t o
join with t h e state examiners a n d have t h e examination con-
ducted s o that they would b e o n the spot and b e able t o
discuss matters w i t h the examiners.
T h e r e i s a very great
advantage i n having the original examination for entrance
coincident with the regular state examination, a n d i t would
be well t o have a representative o f the Reserve Board o r
the bank present a t the time,
T h e n i t will n o t attract
attention, a s will a special examination, a n d n o embarrassment will b e likely t o arise i f the member i s not admitted,
or the applicant i s not admitted.
Governor Fancher:
W e had i n mind that once a year,
at one o f the examinatiens,
t o have some representative
of our bank i n the member bank t o take part i n the examinc
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Federal Reserve Bank of St. Louis
tion with t h e State department,
Mr. Miller:
T h a t would b e i t exactly,
Governor McCord:
T h e State banks i n our locality
have
S0me apprehension a s t o that.
T h e y s a y that t h e state
examiner will want t o show h i s ability
a n d will b e exacting,
and vice versa, a n d t h e y weuld b e
between t w o fires,
Mr. Miller: I
think I have taken u p about a l l t h e
time o f t h e C o n f e r e n c e t h a t I
The Chairman:
care t o .
P e r h a p s w e c a n get y o u t o stay
a while
while w e g o ahead w i t h o u r program,
of subjects t o pick from here,
I
W e have a
variety
f there are a n y i n
which you are particularly interested we
can turn the pro@ram around,
The next matter that. would c o m e
u p i n the regular
course o f the program would b e
i t e m D under i t e m 4, which
is a technical matter:
" A p p o i n t m e n t o f representative
to
examine Federal Reserve notes sent
t o Washington f o r de-
struction,"
This i s a matter that w e must dispose o f
a t this meet-
ing. U n d e r the terms o f the National
Bank Act i t is
necessary t h a t every National B a n k
have a
representative
present i n Washington t o witness
a n d certify t o the destruction o f national b a n k notes which
a r e macerated,
Governor Aiken has raised t h e question
a s t o whether
the Federal Reserve B a n k should
n o t j o i n i n the appointment
of a similar represent::tive i n
Washington t o witness officially t h e destruction o f Federal
Reserve notes whi ch
the Federal Reserve banks are o f
course obligated t e pay.
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Federal Reserve Bank of St. Louis
103
Governor Aiken, w i l l y o u explain that
point?
Governor Aiken:
T h a t statement covers t h e whole
point, Mr. Shairman.
I t occurred t o m e that
w e might have
Oné representative w h o m u l d d o a
variety o f things; t h a t
Perhaps t h e auditor w h o represented u s
a t the audit o f the
gold fund account could d o that too; t h a t
the various duties
Could b e consolidated a n d covered b y one
person,
T h a t
person c o u l d a c t f o r a l l t h e banks,
The Chairman:
T h e t w o matters have t o b e
dealt with
a little differently,
T h e destruction o f notes i s
a mat-
ter o f constant occurrence a t the Treasury Department,
whereas the audit o f the gold fund, under the
terms o f
the regulation, would occur every three months
and will b e
conducted b y some o n e appointed b y this meeting,
I
think
we should take advantage o f this meeting to
appoint a
representative o f the banks t o make t h e
audit.
W
e then
Should have a regular representative i n Washington t o
witness t h e destruction o f the notes,
Governor V a n Zandt:
I s that necessary?
A s I
understand i t the reserve notes are obligations o f
the
United States Gowernment direct.
W h e n t h e y are redeemed
our redemption account i s charged w i t h t h e m
and when o u r
redemption account i s exhausted w e get those
notes bank,
The Chairman:
Y
o
u mean you get new notes t o
take
the place o f those destroyed, «
Governor Van Zandt:
Governcr Wold:
notes i s s u e d ?
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Federal Reserve Bank of St. Louis
Y e s ,
a r e you referring t o Federal Reserys
I t seems
t o m e that w h e n w e have delive-s¢
104
the gold t o the Federal Reserve Agent our liability ceasea
On those a n d w e are under n o Obligation t o witness
their
destruction~--~
Governor Seay:
T h e l a w says they shall b e paid
upon presentation t o the bank, a n d a s long a s they
are out
we have t h e obligation t o pay them.
T h e y have g o t t o b e
destroyed,
Mr. Miller;
O f course y a a get t h e receipt o f the
Comptroller when they are returned,
The Chairman:
I
n one aspect o f the m t t e r i t i s
superfluous w o r k a n d i n another aspect o f the
matter i t i s
an additional assurance t o the b a n k that t h e office
that
is charged w i t h t h e duty o f destroying those
notes does
extinguish t h e note i n such a fashion that
i t finally
extinguishes t h e m a s a liability against t h e
bank, ---
Governor Wold: (Interrupting)
Y o u have deposited
the money with the Government, a n d that ought
t o b e good,
The Chairman:
4 r e y o u not assuming that those notes
wlll come i n for redemption a s national b a n k
notes d o ?
Isn't i t a fact that you will b e redeeming them i n
your
own office a n d will have a n accumulation o f
worn out notes
unfit for circulation?
Governor Wold:
Y o u can present them t o the agent
and get gold for them,
(Further informal discussion followed.)
The Chairman:
about this?
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Federal Reserve Bank of St. Louis
G e v e r n o r Aiken, w h a t i s your feeling
Y o u a r e responsible f o r the item.
Gevernor Aiken: I
a m disposed t o feel that i t woul3
105
be desirable t e have t h e notes checked i n Washington,
just a s they d o with National bank notes.
Mr. Curtis:
T h e only point I find o n it is Section
16, t o the effect that Federal Reserve notes unfit f o r
circulation s h a l l b e r e t u r n e d
b y t h e Federal Reserve a g e n t
to the Comptroller o f the Currency f o r cancellation a n d
destruction,
Governor Van Zandt’
T h a t i s a matter between the
Federal Reserve Agent and the Comptroller.
Mr. Gurtis:
I t would seem so from that.
Governor Aiken:
W o u l d w e really b e relieved o f all
responsibility when they are turned over t o him for redemption?
de
a m not entirely clear o n that. I
Mr. Curtis: I
not know just what that practice would be,
Governor Aiken:
I f that i s so, I should think there
would h e no necessity for having anyone there.
Governor McCord:
W o u l d they n o t b e treated a s
Treasury notes a n d sblver certificates w h i c h t h e Govern-
ment itself assumes responsibility on?
Governor Seay:
I t i s a kind o f joint liability.
Mr, Curtis:
There is t h i s feature o f it.
T h e bank would net be
protected i n case those notes were shipped t o the Comptrol-
ler and somebody i n the Comptreller's office, instcad o f
destroying them, re&ssued them.
Mr. Miller:
T h e y could not reissue them.
somebody--could steal them.
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Federal Reserve Bank of St. Louis
Mr. Curtis:
T h a t i s what I
mean.
O
f corryse
106
When t h e Federal
Mr. Miller:
Reserve Agent returns
the Comptroller,
a note h e gets a receipt from
there i s pretty adequate.
otection
to m e a s though the pw
of course,
fhe m a n who i s not protected,
It looks
is the Comptrol-
the Federal Reserve
t h e m over t o
T h e bank turns
Agent turns
the Federal Reserve
receipt;
his
gets
ngent a n d
ler.
and gets his receipt.
them over t o the Comptroller
The Chairman:
much aifference
There i s not really s e
f o r this reason.
in the l a w a s would appear,
The Govern~
the
the notes and s o is
a
f
payment
the
ment 1 8 liable for
Bank is charged
the National
is
that
bank, T h e presumption
witnessing
with regard t o
duty
tional
addi
with some
maceration
the
alone
of its own notes because i t
or destruction
4s liable, and the obligation
to destroy them is entrusted
National
The law provides that the
to the Comptroller:
o f the United
o f the general fund
out
payable
are
Bank notes
New
surety lawyers i n
able
very
some
know
States, and I
States
opinion that the United
York who will render a n
for the payment
obligated airectly
is
actually
Government
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Federal Reserve Bank of St. Louis
of National
Bank notes,
(Further
The Chairman:
whether
informal
discussion
The question
followed.)
before the meeting i s
to
Federal Reserve panks
the
f
e
r
well
it would p e
appoint 4 representative
in Washington
to witness the de-
R e s e r v e no&es.:
struction o f Federal
Governor Aiken, 1
make a
think i f y o u will
motion 1 5
action.
this matter w e will g e t
Governor MeDougal:
b e handled
T h i s matter could
107
economically, because there are only twelve federal reserve
banks whereas there a r e 10,000 national banks, a n d there i s
a constant destruction o f t h e national b a n k notes.
T h i s
could b e done economically b y arranging t o have i t done a t
the same time that t h e audit o f the gold fund i s made.
Comptroller,
that time.
The
n o doubt, would b e very willing t o d o i t a t
T h a t would b e four times a
The Chairman:
year,
T h e y have t o be checked up.
Governor Wold: C e r t a i n l y .
I t involves a good deal
of work,
Mr. Miller:
I t may b e of interest t o the conference
if I report t h a t o n the first o f July there will b e a change
in the general machinery for handling issue@ from Washington. I
refer t o the issue o f Federal Reserve notes. T h a t
has been i n the hands o f t h e Comptroller u p t o the present
time.
T h e Board has satisfied itself that i t i s within
the law t o throw the burden o f previding for the physical custody o f those notes,;until they are actually
shipped t o the reserve banks;upon t h e Treasury Department.
Instead o f doing a s has b e e n t h e practice u p t o the present
time, that is, carting the netes from the Bureau o f Engrav~-
ing to the Comptroller's office, where they have rather
inadequete vaults, recounting them and having a very con~
siderable division there for handling the notes, w e felt
it was rather a n unnecessary expense, a n d f r o m the first o f
July o n the work i n the Comptroller's office with regard
to Federal Reserve notes will b e very much diminished a n d
the expense will b e greatly curtailed.
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Federal Reserve Bank of St. Louis
A l l that the
108
Comptroller will d o will b e t o handle notes returned a s
unfit.
T h o s e are the only Federal Reserve hotes that will
come inte t h e hands o f the Comptroller,
H i s functions
will b e purely bookkeeping; keeping t h e recwids o f ship-~
ments m a d e under h i s order f r o m the Treasury o r the Bureau
of Engraving t o the Federal Reserve Banks, a n d
so on.
It i s estimated that w h e n w e get u p t o a circulation
of $100 ,000 ,000 a s w e prebably will befpre t h e year i s
over, that about $60,000,000 a year will b e returned f e r
destruction.
T h a t i s a n average o f five millions a month,
and we have made our allewances o n that basis, that is, a n
allowance f o r the services o f ceunters, record keepers a n d
s@ On.
I t wbhll net amount t e that a t the present time.
It probably won't r u n o e r t w o and a half t o three mil-
lions a month. T h a t would amount t o $200,000 a day and
we will have t e previde f o r a clerical force that c a n d o
that m u c h and that c a n destroy t h e m a s they g o along.
Therefore,
i f y o u keep someone there t o witness t h e de~-
Struction a n d t o check u p the notes i n the Comptroller's
effice y o u will have t o have someone there right along,
because I do not believe the Comptroller would b e satisfied
with a periodical destruction o f say every three months,
I think h e would ebject t o that.
T h e responsibility will
be considerable a n d h e does n e t want t o take a n y unneces=
sary chances,
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Federal Reserve Bank of St. Louis
109
Governor Aiken: I
expression o f opinion.
that I
brought this u p more t o get a n
i
t i s a department o f the bank
a m not familiar with, w i t h which I have s o know-
ledge o r experience, a n d I wanted t o give opportunity t o
the other gentlemen w h o are more familiar w i t h i t than I
to give a n opinion. I
have n o motion t o make f o r t h e ap-
pointment o f such a representative.
Governor Wold: I
a m under t h e impression t h a t t h a t
matter has b e e n taken u p for a report b y the counsel. I
believe i t was referred t o Judge bliiott.
W h e t h e r an
opinion has b e e n rendered o r not I d o n o t know.
Governor Seay: I
a m sure that i t has been, because
our Federal Reserve Agent has written the board and I think
the b o a r d a d v i s e d t h a t t h e m a t t e r w o u l d b e t a k e n u n d e r
consideration.
Dr. Miller:
V e r y likely that i s true; I had not
heard o f it.
Governor Aiken: I
think w e c a n very vell leave
that matter i n abeyance.
The Chairman:
Y o u suggest, then, that this matter
be left o n the program and that n o action b e taken a t this
time?
Governor Aiken:
The Chairman:
Yes.
I n regard t o the appointment o f a
representative t o audit t h e g o l d fund, w e might take
that u p a t this meeting.
Governor Rhoades: I
to make s u c h a n appointment.
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Federal Reserve Bank of St. Louis
move t h e Chairman b e authorized
110
The Chairman:
I t might b e well t o determine whether
that should b e a special representative t o g o t o Washington,
or whether y o u prefer t o select someone already located
in W a s h i n g t o n
t o m k e t h a t audit.
I
s there a n y opinion
on that point?
Governor V a n Zandt? I
suggest that y e u change y o u r
motion t o leave i t t o his discretion i n making t h e appointment,
Governor Rhoades: I
meant that h e should have dis-
cretionary powers i n making t h e appointment,
Governor V a n Zandt: I
second t h e motion,
(There being no discussion the motion was put
and carried.)
The Chairman: I
will make the appointment, i f satis~-
factory t o the meeting, t o concur with some other meeting
that w e will have i n Washington when, possibly, Mr. McKay
and Mr, Hendricks will b e there, a n d w e c a n get t h e m t o d o
tt. ( L a u g h t e r )
Item (f) i s i n regard t o the recent order c f the
Comptroller v i t h respect t o omitting certain items f r o m
reports made b y member banks t o the Comptroller and which
both Governor Wold and Governor Fancher feel resulted i n
some disadvantage t o the Federal Reserve Banks.
W i l l you
speak o n that, Gevernor Wold?
Governor Wold:
T h e Comptroller, w h e n h e made h i s
last call, a s y o u all know, b y the letter which accompanied
it, advised t h e national banks t h a t they might eliminate
from t h e r e p o r t s e n t t e t h e F e d e r a l k e s e r v e A g e n t s c e r t a i n
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Federal Reserve Bank of St. Louis
Lid
information t h a t t o m y m i n d i s o f g r e a t { m p o r t a n c e
t o our-
selves--- t h e question o f liability o f the officers
cirectors b e i n g o n e , a n d t h e p r i n c i p a l o n e .
I
en d
t i s quite
important . h a t w e know where t n e y a r e doing business, a n d
it i s o f the greatest importance t h a t w e know t o what extent
the officers a n d directors a r e involved i n the institution,
and what officers «nd directors;
a n d i n connection with
that t h e board s e n t t o the Chairman o f our board a
letter
Y o u are probably aequointed
asking f o r instgnotions,
with that, Dr- Miller, a s t o vhat changes might b e mace
in the reports heretofore required o f natienal banks.
Our chairman has left the matter i n abeyance and has writ~
ten the board t o that effect.
w h e n I return from this
conference v e can then take t h e mattcr u p along that line.
I a m very much o f the opinion that regardless o f what else
is eliminated f r o m these statements, t h e question o f
Liability o f all officers « n d directors, either Girect o r
indirect, should c o m e t o t h e Federal Reserve Banks.
Governor Seay: I
think you will find that unanimous.
I think Mr. MeDougal had some talk o n that point with Mr.
Harding o f the Board.
Governor Mebougal: I
noticed some time ago the order.
I believe i t provided that the banks were permitted t o
eliminate f r o m their reports t h e details w i t h respect t o
the obligations o f the directors a n d officers, a n d u p o n
the occasion o f my lest visit t o Washington I took the matter u p with Wr. 4“arding and told h i m that the Board b y
such a ruling was going t o deprive u s o f that factor i n the
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Federal Reserve Bank of St. Louis
112
report that w a S m o s t intere t i n g and most helpful o f all,
and that I hoped v e r y much that t h e y would recoymider t h e
matter a n d request t h e banks t o g o back t o their original
plan a n d give u s the full details,
I
t i s interesting,
ofcourse, t o know how much fhe directors are borrowing i n
the aggregate, b u t i t is not helpful t o the extent that i t
is i f w e know t h e detail. I
want t o know what t h e presi-
dent i s borrowing, ‘ n d t h e cashier, f i r s t e f all, because
I feel that the officers o f a bank who are giving their
time t o the institution should not borrow t o the same extent, perhaps, t h a t directors might b e permitted t o borrow. I
believe,
o n the other hand, t h a t a director i n
a bank should b e permitted t o borrow f r o m his institution
as freely a s h e wouldin t h e bank across t h e street,
on
the same terms, t h a t f a r and n e farther; a n d when w e find
that a board i n the aggregate i s borrowing 3150,000, n e
want t o know :hether i t i s borrowed b y one, t w o o r three
individuals.
S i n c e the matter has been brought up, I
think i t i s perfectly proper f o r m e t o talk freely.
Harcing was n o t inclined t o agree w i t h me,
M r .
H e felt that
if we had before u s the aggregate borrowings o f the Board,
that i s all t h e information that should b e given.
g e e |
think
raised one point which indicated that they had had
some correspondence v i t h regard t o the matter a n d that
some banks h a d objected t e having t h e details o f the borrowings o f their directors reported t o the Federal Reserve
Bank. I
asked Mr, Harding t o reconsider the matter and
told h i m I hoped t h e y vould return t o the original plan,
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Federal Reserve Bank of St. Louis
113
as Otherwise w e were deprived o f very useful information
which was left o u t i n that way.
H e felt that t h e board
had a c t e d o n t h e m a t t e r a n d t h a t i t p r o b a b l y u o y l d s t a n d .
Nevertheless, I
think i t i s a matter that should n o t rest
where i t is, b u t should b e taken up, a n d this b o c y should
assert itself a n d a s k for that information,
w i t h o u t it
we are i n danger, submitted t o a danger that would not exist i f w e had that detail.
The Chairman: I
have a letter from Mr. Miller, o f
Kansas City, along the sahe lincs, Governor McDougal, i n
which he asks that v e bring that matter u p for discussion
at this meeting.
Governor Sawyer:
meeting.
W w e discussed t h a t i n our committee
O u r experience h a s b e e n that f r o m 5 0 t o 7 5 per
cent o f failures a r e caused b y the borrowings o f insiders.
It i s very important, I
think, t h a t w e should h a v e infor-
mation a s t o whe i s borrowing, individually.
gate d o e s n o t t e l l u s a n y t h i n g e x c e p t i n a
T h e aggrecompirative w a y ,
and what the total borrowings amount to, o f course;
we Ought t o know what individuals are borrowing.
but
I
t has
a great bearing o n the credit : n d standing o f the bank. i
think w e should have it, b y all means.
The Chairman:
G o v e r n o r Fancher a l s o asked t h a t this
item b e put o n the program.
Governor Fancher:
t h e n w e e r e informed o f the n e w
ruling c u r Federal Agent wrote t o the Comptroller a n d encesvored
t o b r i n g o u t c e r t a i n items.
I
t i s quite essential
that c e r t a i n i n f e r m a t i o n s h o u l d b e m a d e a v a i l a b l e
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Federal Reserve Bank of St. Louis
t o the
114
banks,
a n d i t i s o n this p o i n t t h a t w e s h o u l d h a v e de-~
tailed information o f the borrowin,s o f the officers and
W
directors.
payable,
e should a l s o have t h e details o f bills
W e stated that those were t h e t w o things t h a t
were quite essential i n determining t h e condition o f a
bank
Dr. Miller:
T h e board h a s been considering various
aspects o f this a n d related questions
two, a n d I
i n the past w e e k o r
@o not think the question needs t o b e regarded
closed question.
M o s t o f us have a n Open mind u p o n
and while i t i s acknowledged t h a t t h e question i s one
involves a
good deal o f difficulty a n d o n e that r e -
quires some insight o r judgment i n di termining j u s t t h e ex-
tent of the information that the Federal Keserve Bank is
fairly entitled t e for the u s e o f its officers a n d t h e
amount o f information that the Comptroller's office, representing t h e member banks, c a n give without a n y violation
ef the trust that those banks impose i n him, and, because
of that trust, give him the information, there i s some
adjustment t h a t could b e reached.
M r . “erding i s rather
more sympathetic with the attitude o f the banks, and feels
that they may have a grievance i f more information i s
given b y the Comptroller's office than i s absolutely
necessary f o r t h e use o f the Fed. ral Reserve Banks. I
am not n o w talking simply o f the publication, b u t t h e t w o
heng t o g e t h e r m o r e o r less.
T h a t question i s distinctly
an open question a t the present time a n d o n e upon which the
Governors Ought to, I think, f e e l perfectly f r e e t o express
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Federal Reserve Bank of St. Louis
115
themselves, a n d a n y vell considered judgment t h a t c a n b e
arrived a t will n o t only b e o f the greatest assistance t o
the Board, b u t will b e utilized b y the Board.
Governor Fancher:
T h i s i s a condition, Dr. Miller,
that a district s u c h a s Listrict No. 4
faces, t h a t a number
of our present rediscounting banks a r e o u r weakest banks,
It is very essential that w e have the fullest information
concerning them.
first opened,
W e have banks that came t o us when w e
i n November, f o r rediscount, a n d t h e y stood
on our books, a n d i t i s going t o b e a problem just h o w t e
treat that situation. I
think it is very essential that
we have those items fully.
Dr. Miller: I
the s e n t i m e n t
think y o u ought t o say s o i f that i s
o f t h e body.
Governor Seay:
L i t h e r y o u want t o send a n d examine
these banks, o r you want all the information which another
examiner h a s gotten f r o m them.
The Chairman: I
think w e should read t o Dr. “Miller
now t h e text o f the resolution that w a s passed, dealing
with item (a) under Subject 4--- items (a), (b),and (c).
Have y o u the text o f that resolution, Mr. Curtis? A
great part o f our morning session was given u p t o the discussion o f this matter, resulting i n the passing o f a resolution which was read about six times, I think, and changed
every t i n e , b e f o r e b e i n g f i n a l l y adopted.
(The Secretary thereupon read the resolution
referred to, a s follows:)
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Federal Reserve Bank of St. Louis
"whereas, T h e Fecdcral Reserve Banks are authorized b -
law t o examine member banks i n their districts;
And ¥hereas,
I t might b e a cause o f comment u p o n a
member b a n k i n its community i f such a n examination
should b e made i n addition t o the examinations
o f the
National B a n k examiner, until s u c h examinations a r e regu-
larly made;
And, “*hereas,
I t i s considered preferable a t present
to h a v e t h e n e c e s s a r y e x a m i n a t i o n s m a d e b y t h e N a t i o n a l
Bank Examiners, except i n usual cases;
"énd Whereas,
I t i s considered b y this conference t h a t
it i s o f vital importance t o the safety a n d welfare o f the
Federal Reserve Banks t o have unhampered access t o National
Bank Examiners! reports, a n d complete information w i t h reSpect t o all member banks,
“Be i t resolved, T h a t the Federal Reserve Board b e
requested
t o make arrangements v i t h t h e Comptroller
o f the.
Currency whereby complete copies o f all reports m a d e b y
National B a n k Fxaminers w i t h respect t e member banks shall
be given t o t h e Federal Keserve Banks t e b e o p e n t e the
confidential inspection o f tho Governor, t h e Federal Reserve
Agent and such other officers o f the bank a s may be approved b y the Federal Reserve Board;
"Provided, t h a t nothing herein contained shall b e
deemed t e limit i n any way the right o f examination conferred b y law upon the Federal Keserve Banks,"
Dr+ Miller: I
think that i s a n excellent w a y o f
getting t h e question before t h e Beard,
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Federal Reserve Bank of St. Louis
The Chairman: I
am sure, Dr. Miller, that i f you had
aeyy
heard t h e discussion this morning y o u would realize that
the o n l y motive t h a t actuates t h e officers o f these banks
in passing that resolution i s t o b e able t o perform their
duties a n d t o protect t h e banks.
Dr+ Miller:
T h a t is, o f course, w h a t w e assume.
Y o
méan, t o protect t h e reserve banks?
The Chairman:
Dr. Miller:
T
o protect t h e reserve banks,
T h e Comptroller takes t h e position t h a t
he has got t o protect the member banks; t h a t his relations
to the member banks a r e o f a very intimate fiduciary
Character; t h a t they repose faith i n him and m k e these
complete statements, o r at any rate that his examiners ascertain their conditions direct, either b y direct inquiry o r
otherwise, a n d that t h e y must b e treated a s extreme confi-
fences, O t h e r w i s e , t h e whole bank examination system may
break down and lose i t s value a n d character,
O
n the
other hand, recent discussions h a v e shown a tendency t o
approach this thing as one that admits o f a reasonable adjustment between what i s fair t e the member b a n k and what
is fair t o the Federal “eserve Banks, I
think i t will
take probably a consid: rable amount o f discussion before
the thing is finally i n the way o f solution,
B u t I
think there i s a solution, a n d I think that this i s a
very g o o d way t o start it, providing that i t shows a
will-
ingness t o ac-ept something short o f a n ultimatum.
My own view o f this matter i s
that unless t h e G o ernor a n d Federal “eserve Agent c a n b e
trusted w i t h this information, t h e y are n o t the proper
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Federal Reserve Bank of St. Louis
118
people .
Y o u must secure, then, a
change i n the personnel.
But you cannot administer--- I am speaking now from the
point o f view o f the Reserve Board and the Comptroller's
office--- you cannot administer those banks that are charged
with very serious responsibility o n the basis o f distrust
or doubt.
Y
o
u have g o t t o get m e n i n these positions
in whom y o u c a n place t h e fullest measure o f confidence,
and then give them the information they ask for and which
they feel they are entitled t o i n the administration o f
their banks.
W h e n I say trusted, I do not mean i n the
matter o f honor, necessarily, b u t i n the matter o f discretion and judgment, I
not think I
believe t h a t will b e done, I
do
a m going t o o f a r i n stating that that i s the
probable a t t i t u d e t h a t t h e B o a r d w i l l take.
Governor Seay:
Comptroller.
the d e s i r e
T h e r e i s this i n question with t h e
T h e Federal Heserve B a n k i s prompted b y
t o b e o f t h e utmost h e l p t o t h e member b a n k e
that i t c a n be, a n d i t wishes
t o know e x a c t l y
may g o i n extending a i d t o the member banks,
h w far it
W i t h full
information before i t i t might b e able t o g o very much
further i n extending it,
Dr- Miller:
T h a t h a s appeared i n some cases already,
I think there was a bank i n Governor Wells’ territory that
was distinctly helped b y coming into that kind o f a relation with the Feceral Reserve Bank.
I t was distinctly
hostile t o the Federal Reserve Bank, a n d they finally came
to regard i t as a big brother that wanted t o help.
course, t h e call comes really from certain «
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Federal Reserve Bank of St. Louis
o
f
119
of the member banks w h o a r e very much
afraid that t h e y
are going t o b e put a t the mercy o f
the Reserve Bank--not that they want t o conceal t h e information,
because there
is n o guilt, b u t i t i s information
that i s valuable t o
rivals sitting 6 n the boards o f these
banks a n d which will
put them i n a dis tinctly unfavorable
position,
GOvernor V a n Zandt:
O u r request o f the Federal R e -
serve board i s not that the information
b e given t o the
members o f the beard a t all, n o r t o our
entire executive
committee,
Dr+ Miller: I
notice t h a t i t i s carefully guarded
-~+
such a s are approved b y the Federal
Reserve Board.
The Chairman:
L r + Miller, w e prefaced t h e discussion
of the terms o f this regulation b y asking
each of the
Governors t o state t h e cireumstances
o f their lecal situation i n regard t o relations w i t h t h e
examiners, a n d the
result showed t h a t seven o f the banks
h a d either satisfactory relations w i t h the €xaminers o r
complete access t o
everything that theoretically
i s being diivined t o the
banks. T h e y had the reports i n their effices where they
could examine t h e m a t a n y time.
A
S t o the other five,
the information w a s either denied t h e m
o r facilities f o r
their getting i t had n o t s o far been
created.
Our p e i n t i n N e w Y o r k i s n o t s e m i c h t e have
copies o f
these reports, a s I explained t o the meeting
here, - ~ while
the resolution calls f o r copies o f the
reports, a n d that
was the Sense o f the meeting--- yet i n our
case eur atti-~
tude has b e e n that i f a bank examiner takes
h i s o w n work
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Federal Reserve Bank of St. Louis
120
and gives u s his o w n judgment,
w e are celegating o u r
judgment t o that examiner.
e want t o examine h i s work
W
and see what our judgment i s o n the facts disclosed i n the
examination,
T h a t i s t h e c r u x o f t h e whole thing.
Dr. Miller: I
think y o u are right. I
think that
is a very good f o r m i n which t o present it.
The Chairman:
I n regard t o item (f) that led u p t o
this matter, t h e discussion h a s reached a
point there w e
Ought t o b e able t o act upon the resolution,
i f Governor
Wold o r Governor Fancher would offer one, i n regard t o those
items t h a t h a v e b e e n o m i t t e d f r o m t h e d e t a i l e d c c h e d u l c s
in
the f o r m o f report made t o the vYomptroller o f t h e Currency.
Governor Wold:
I
n view o f the fact that t h e Board
requested t h e i r reserve agents t o suggest a n y changes that
might b e made i n these reports,
conference
i t would b e well f o r t h e
t o see i f s o m eliminations might n o t b e m d e
along other lines t h a h would m a k e i t a little simpler.
The r e p o r t s h a v e b e c o m e m o r e a n d m o r e extended.
thought o n loans o n farm lands.
is unnecessary now,
I
J I have e n e
t seems t O me that that
A l l w e care f o r :
i s the totals
provided t h e y are m d e under t h e rules o f t h e Federal tNeserve
Board.
I
f the repert complies v i t h those rules,
i t would
be asking f o r a s m u c h detailed information a s i s necessary.
Governor McDougal: You” have i n mind i k t h e report
is not intended for our sole benefit, have yeu not?
Governor “eld;
I
t i s likely t h a t t h e department
in Washington would l i k e that information.
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Federal Reserve Bank of St. Louis
Gevernor McDougal:
W h y should they want i t any
121-/L2
more t h a n a
the law?
detailed list o f loans made i n accordance -iith
R e a l estate « n d f a r m mortgages n o w may b e
taken legally.
Governor Seay:
W a s that submitted t o yeu?
Governor McDougal:
O u r chairman submitted t h a t t o m e
and asked that I bring i t u p here.
Governor Seay: I
think o u r reply has gone forward
and I have n o t s e e n it.
Governor Fancher:
O u r reply has gone forward.
[ I
thought I had a copy o f i t here.
Governor Wold: I
informed the board vhen | got
back that I would frame u p a reply a n d send i t on.
Governor Seay: I
do not even know myself what reply
was made,
The Chairman:
"brass tacks," A
Gentlemen,
w e a r e going t e get down t e
resolution i s wanted o n subject (f),
Governor Wold o r Gor ernor Fancher being responsible, I
Shall a s k o n e e f t h e m t o o f f e r a
Mr. McDougal;
ceed?
resolution,
M a y I make a n inquiry before y o u pre-
W h a t were t h e omissions t h a t turned u p ?
The Chairman:
D u e o r from reserve agents.
T h e
name O f the bank i s omitted--Governor V a n ‘andt:
T h e item o f bills payable w a s
emitted, too.
Governer MeLougal: I
alsc© teok u p the matter o f bills
payable with Mr. Harding, and I told him it weuld b e under
some c i r c u m s t a n c e s a
very important matter
t e b e able t o
g@erify through the detatis our own ideas o r informatien
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Federal Reserve Bank of St. Louis
123
we got fr@m other sources, a n d | was inclined t o think
that perhaps t h e y might b e likely t o a s k for that detail
again,
B u t h e was not inclined t o have .
of the individual directors reported. I
the liability
think both o f
thos éshould b e reported a s formerly,
Governor “old: I
a m not mire that 1 t i s o f great
importance t o have t h e salary given. I
do not think
that. i s important a t all,
The Chairman: I
do n o t think i t i s important.
Governor McDougal?
Governor Fancher: I
W e would rather not have it,
would offer a
resolution that
it b e the sense o f this meeting that w e recommend t o the
Board that o f the items which have b e e n omitted i n the
Statements a S rendered t o the Federal Reserve Banks, t h e
Statements show the following three items: A
the b o r r o w i n g s
o f t h e o f f i c e r s e n d directors;
of bills payable;
detail o f
details
n a m e s o f the correspondents.
(The resolution was duly seconded b y Governor
MeDeougal, and, there being n o further discussion,
it was put and adopted.)
(At this point Dr» Miller withdrew f r e m the
conference, )
The Chairman;
I n order t o take advantage o f Mr.
Broderick's presence, turn te item 13, "Admission of state
banks",
T h i s subject has been divided inte twe subjects
suggested b y the Federal “eserve Board--- "Principles o f
examinations" a n d "Principles o f admissien."
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Federal Reserve Bank of St. Louis
124
Mr. Brederick, before y o u came i n this subject w a s
diseusged with br. Miller and we had considered in a general discussion the advisability, first, o f this meeting recemmending,
s e far a s they feel able toe, which states main-
éain examinations o f state banks s u c h a s would justify
eur r e c o m m e n d i n g t h e i r a c c e p t a n c e
o r partial a c c e p t a n c e
by
the Federal Reserve Board--~ which were doubtful a s t o
the character o f the examination, a n d which w e would recommend b e not accepted.
I t was also suggested t h a t w e con-
Sider taking u p directly with the state authorities t h e
question o f c o o p e r a t i o n
porte.
%
i n examinations a n d i n m a k i n g r e -
@ also considered whether b y cooperation t h e
form o f reports now being made i n various states t e the
State authorities might not be accemmocated t o our needs
with a minimum o f changes, i f any.
generally discussed,
T h e subject was very
a n d n o w v e would l i k e t e take i t u p
in detail with you. W o u l d you b e good enough t o open the
discussien b y stating your own views?
Mr. Broderick: F i r s t , a s t o the states which main-~
tain a satisfactory standard, the information which I have
Of course i s from a knowledge and acquaintance with the com-
missioners i n the different states, and is based almost
entirely upon a knowledge which I have gained from conversation with them a s t o the methods which they pursue.
We have u p t o this tine admitted nineteen banks.in each
instance arrangements have been made t o authorize the acceptance o f the state examinations.
every instance for this reason:
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Federal Reserve Bank of St. Louis
T h a t has been done é n
T h e Commissioner thought
bat F
if w e attempted t o discriminate against a n y state i t would
immediately s t i r u p antagonism f o r t h e system, a n d w e
thought probably w e might b e able t o reach t h e desired
result i n another way;
o u r idea being a
t h o s e states
that have n o t been admitted because t h e standard w a s n o t
satisfactory,
w e could arrange t o have a
special examina~
tion made i n cooperation with the state examiners.
In that w a y w e forestall a n y antagonism, a n d w e d o
not raise t h e issue.
I t might b e pretty hard f o r us t o
Say t o a state "You d o not maintain a satisfactory standard."
T h e y would ask us t o prove it.
W e might have
some difficulty i f w e based o u r proof o n information a n d
belief. I
believe N e w York, Massachucetts, California,
Wisconsin, T e x a s a n d Minnesota h a v e excellent examination
a
stanards. I
K
believe the state o f Michigan has a good
Standard, K e n t u c k y i s improving.
lent standard. I
K a n s a s has a n excel-
say that o u t o f respect f o Mr. Sawyer.
I think t h e results e f examinations f r o m that State will
prove t h a t a s s e r t i o n i s true.
W
e have a
number o f o t h e r
states, like Oregon and Washington, where there are chief
examiners o r superintendents w h o appear t o b e very competent men, b u t t h e standard o f the cxamination itself depends
upon examination, a n d nearly a l l o f them would depend u p o n
the Federal Reserve B a n k i n the district i n which t h e state
is located.
The Chairman:
N e w Jersey h a s a pretty good examina-
tion.
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Federal Reserve Bank of St. Louis
Mr. Brederick:
P a r d o n me.
T h a t i s one state I
have
126
alse @ n t h e list, a n d i t i s
i n very goed cendition b e -
cause t h e commissioner o f banking i s
the deputy reserve
agent o f Philadelphia,
and, I believe, will continue so.
By authorizing the acepptance--- I
am talking o f the two
regular examinations a
year--- 6 f all banks i n all
States,
and then arranging t o have representatives
or a representative
of the Beard,
of the Beard, w i t h the bank, preferably,
to make t h e examination i n ceeperation
w i t h the State
examiners, w e will still maintain friendly
relations w i t h
the examining aurherities i n all states
and prebably secure a greater degree o f cooperation than
we would receive
in case w e insisted upon special examinatiens
being made
in every instance.
T h a t i s t h e attitude which
t h e Board
has taken u p t o this time, and
I think i f it meets with
yOur approval t h e chances a r e
w e will continue t o take it,
The Chairman: R i g h t a t this
point, i n order t e get
& good recerd o f the views o f
this meeting, a r e y o u ready
to consider a n d a c t upon t h e
suggestion t h a t Mr. Broder~
ick has already made?
I
f anyone feels disposed
t o make
a motion that will result i n
a n expression o f views --~Governor MeCord: I
would like t e ask mr. Broderick
ene question, a n d that i s this:
Suppose a
state b a n k
makes application te jein the Federal
Reserve System.
Ought not the first examination te be mde under
the supervision of the National Governor, i n
the Federal Reserve
System? T h a t is a very dangereus point
i n there,
Mr. Broderick: I
amination yet, I
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Federal Reserve Bank of St. Louis
had not covered the initial
ex-
was j u s t cevering t h e regular
examina-
127
tien, I
was just referring t e the
nineteen banks which
have b e e n admitted, a n d
laying down t h e principles
upen
which t h e y were accepted,
S h a l l I g o ahead
with the
initial €xamination?
The Chairman:
B e f o r e d e i n g that:
Y o u have outlined
what y o u have followed
a 8 a precedure i n the
past w i t h
nineteen applicants, b u t
I understand f r o m your
statement
that that i s what you recommend
fellowing i n the future
in
respect
t o examinations?
Mr. Broderick:
A S t o regular examinations
yes, n o t
the initial examinations,
The Chairman:
I n order that o u r
record m a y b e con-
nected, might i t not b e
well f e r this meeting
a t once t a
express i t s views a s
t o the reéemmendation
Which y e s o w
expressed? D o e s someone
feel willing t o make
a motion
which would b e a n expressien
o f eur view a s t o Mr.
Breder-
ick's statement?
Governor Seay: I
think, Mr. Chairman; that
i t is
highly ‘important, i n order
t o secure the prempt admission
ef s u c h b a n k s a s m a y d e s i r e
t o c o m e i n t e t h e system,
that
we should m e e t them with
some definite system
o f examinatien which c a n b e put into
effect wit hout delay.
There
exists o n l y t h e state examination
System which w e c a n
utilize,
W
e are not Prepared
The Chairman:
t o d o i t ourselves,
N o w y o u a r e é@eferring
t e admission,
fades
Mr« Broderigl: hes been
o
discussing v o eS. inciples
* +e pe ¢ -hi, gabe
as examination o f members
who have been admitted,
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Federal Reserve Bank of St. Louis
Mr. Broderick:
W i t h o u t regard t e
the questien o f
admission.
The Chairman:
W i t h o u t regard t o the question o f
admission, which h e i s going t o take u p next.
Governor Lowry:
#
s I understand, Mr. Broderick, a r e
you n o w i n a position t o determine w h a t state examina-
tions are defective, and what are not?
Mr. Broderick:
T h e b e s t w a y t o determine t h a t i s t o
let t h e state b a n k examiners handle that situation with
the cooperation o f examinations f r o m the federal reserve
banks, a
5 , procedure w e then determine that the state
bank examinations a r e n o t effective, t h e n w e c a n substitute
some o t h e r plan.
The Chairman:
T h a t i s m y understanding o f his state-
ment exactly, Mr. Lowry.
Governor Lowry: I
move that v e endorse t h e view
taken b y Mr. Broderick a n d recommend i t s operation.
Governor Wold: I
should l i k e t o ask one question
of Mr. Broderick i f I may.
Y o u will expect,
o f course,
duplicates o f the reports made t o the superintendentsfo
banks that t h e state examiners m a d e t * the federal reserve
banks, will y o u not?
Mr. Broderick:
Yes. I
might a d d a point there, too,
that before authorizing the examinations made b y those
authorities w e wrote t o the specific s u p e r i n t e n d e n t sd
n
a
as their examfvatton, they would agree to furnish the
Federal Reserve Board with two duplicate copies o f each
examination a n d furnish such other information a s might b e
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Federal Reserve Bank of St. Louis
129
necessary, and, further,
t o agree t o send those reperts
to the Board through the Federal Reserve Agent i n the district i n which t h e state i s located.
I
n each instance w e
received their assurance, a n d w e have received i t with
copies o f the examination since that time.
Governor McDougal:
Mr, Broderick:
H o w many states d o e s that cover?
T h a t covers<-<--
Governor McDougal:
N e v e r m i n d t h e number;
b u t there
are a number o f states a s t e which there w a s n o repert
made?
Mr. Broderick: I
we h a v e t h e a r r a n g e m e n t
Governor McDougal:
will give y e u t n e states i n which
a t t h e present time.
A l l I wanted t c know «as whether
you had corresponded w i t h all o f the state banking departments?
Mr. Broderick:
N o ; o n l y t h e commissioners o f those
banks which have already b e e n admitted t o the system.
T m t
only includes about seven o r eight--- Texas, Alabama,
Missouri, Wisconsin, Illinois, S o u t h Carolina a n d Virginia.
The Chairman:
T h e n , Mr. Broderick, t h e extension
of those srrangements i n t o other states would b e dependent
still upon the attitude o f the commissieners i n the departments o f those states?
Mr. Broderick:
Yes. I
might s a y i n connection w i t h
Alabama, t h a t t h e arrangement h a s n o t been m d e there, f o r
the reason that t h e superintendent believes h e has n o t the power under t h e law, a n d t h e question h a s b e e n refer-=red t o the Attorney General.
I n the event o f the Attorney
General's ruling adversely, arrangements w i l l t h e n b e made
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Federal Reserve Bank of St. Louis
130
to have t h e examination made b y representatives o f the
Federal Reserve B a n k a t Atlanta.
The Chairman: G o v e r n o r Lewry's motion has not
been seconded.
Governor Wold: I
second the motion.
(There being no further discussion, the question
was put and carried.)
The Chairman:
M a y I
suggest, M r . B r o d e r i c k ,
that
the next question that w e should discuss will b e the
principles
o f t h e e x a m i n a t i o n f o r admission,
Mr. Broderick: G o v e r n o r Seay took u p the question
of expediting t h e admissions, particularly those which are
known to be in a good condition.
I
n that regard I think
a procedure like this might b e follewed:
T h e form of ap-
plication will b e a little different f r o m that--- I
d o not
know whether you gentlemen have received farms e r not. I
have n o t r e c e i v e d a
printed f o r m myself,
so I
a m just t a l k ~
ing as t o the form which existed a t the time I left tashington, which was i n the latter part o f May.
The Chairman:
I t has b e e n sent t o all t h e reserve
banks.
Mr. Broderick: I
same,
think the principle i s all the
Y o u will note that this n e w form differs f r o m the
old i n that the application will b e complete i n itself when
it is filed b y the bank.
T h e difficulty was experienced
in the o l d form because i t required a
state examiner.
T
h
certificate o f the
e result w a s that i n some instances
a regular examination m a y have b e e n made t w o days before
thé apphd @tion was made out a t the bank, and the result
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Federal Reserve Bank of St. Louis
131
would n e t b e
would b e that probably another examination
I
made f o r a year--- usually, s i x months.
t was thought
t h e bank should b e
in cennection v i t h this application that
able t o f i l e a
complete a p p l i c a t i o n
a t o n e time,
s e that
o f each Federal
4t could b e considered b y the committee
Reserve Bank.
o r four mehhAs t o the examination, I think that three
choice o f any one o f the three
ods cowld b e followed, A
suggestions would b e satisfactory.
I
n the first place,
a r e usually familthe members o f the Federal Reserve Board
have facilities
far with the condition o f the bank, o r they
condition o f
for obtaining information a s t o the general
the institution from other institutions,
I t may b e that
bank i s not
of their own knowledge i t is known that the
in a satisfactory condition.
S o before taking u p that
the trouble o f
application o r putting the officials t o
out a number
examining the bank, w e might be able t o weed
of applications right there.
I f the general reputation o f
arrangements
an applying bank i s considered good, t h e n
t o con~
should b e made with the commissioner e f banking
sider t h e last report o f examination.
two
In the first instance a n examination might b e made
s i x months
months o r three months, four, f i v e o r maybe
before, and if the gencral condition of the institution
there
has been uniformly good f o r a number o f years, t h e n
medc a c t %
is n o reason w h y a recommendation should n o t b e
examinathe approval o f the examination based u p o n the
tion recently made. I
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Federal Reserve Bank of St. Louis
think that would enable u s t o e x p e
132
dite passing u p o n the applications.
I
n the event t h a t
too long a time h a s elapsed between t h e last examination
and the time the application i s filed, then the question o f
examination could b e taken up.
Y o u might b e able t o ar-
range t o have the state commissioner make a n examination
if you personally consider h i s standard proper;
o r you
might arrange t o have the auditor o r one o f your officials
or one of your clerks who is competent t o de that work, examine with t h e state examiners,
o r y o might arrange,
in
the event that you have not sufficient confidence t o take
up the matter very tactfully, that the commissioner make
a special examination.
I think any one of those three methods would b e satisfactory.
The Chairman:
I n the event that the bank itself made
an examination w i t h its o w n examiners,
i t would t h e n not
be necessary t o get the assent o f the Commissioner o f the
State?
Mr. Broderick:
N o , I
think i t would b e a little
bit diplomatic t o take u p with him and tell him you would
like t o have this passed on, and probably i t would not b e
convenient for him t o take u p the examination right away,
and i n that way you would still retain his friendly
opinion. |
State commissioners are not overly enthusiastic
about t h e Federal Reserve System, b u t I have found t h a t
_by taking i t for granted y o u can accomplish a great deal
more.
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Federal Reserve Bank of St. Louis
The Chairman:
A n d they a r e really under implied i n -
133
tention o f law to facilitate t h e admission o f
state banks
into membership, because t h e statute provides for
their
admission;
a n d while i t may direct t h e
superintendent
or
commissioner t o do any particular thing, t h e mere fact
that t h e statute has made provision f o r the admission
of
State banks t o membership i n the System i s a n implication
that they should not b e obstructed,
Governor Ceay:
a t any rate,
T h o s e t h a t I know a r e b i g enough m e n
not t O consider t h e personal v i e w a t all. I
know that i n
the State o f Virginia t h e bank commissioner i s
not permitted t o give information a s t o any institution; a n d
w e found
a way;
w e suggested t h a t w e have t h e bank pass
a resolu-
tion authorizing the state @xaminer t e appoint the
Federal
Reserve Agent atRichmond, a n d the Secretary o f
the Federal
Reserve Board a s agents o f the bank t o receive information
from the bank Cemmissioner. I
think i n a number o f states
we can do the same thing. T h e r e i s something i n
the law
which provides for getting the information, b u t I think
found;
thelr cooperation
i s very necessary. I
have
f u r t h e r ,
that o n e reason w h y they are apt t o cooperate w i t h u s i s
the fact that w e will b e holding u p their hands too.
T h g y
were told very plainly t h a t a s t o a n y State b a n k
which
was under criticism o f the State Department that should
apply for membership, i f the criticisms were mterial ones
they would not b e admitted t o the Federal Reserve System.
In that w a y w e are weeding o u t unsatisfactory
cenditions,
and institutions, and they can see where w e weuld
b e of
vast assistance t o them. I
think i f w e handle t h e state
commissieners rightly they will b e very good friends
both
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Federal Reserve Bank of St. Louis
to t h e b a n k s a n d t h e system,
The Chairman: T h e n , I understand that yeur recommendation f c r nandling t h e admission examinations provides
really f e r three possible courses;
O n e i s for the admis-~
sion t c b e based u p o n t h e examination o f the last previous
State examination, where t h e officers o f the Federal Reserve
‘Bank consider that t h e examination i s a n effective a n d efficient one,
T h e second i s t o provide f o r a joint exam-
ination with the cooperation o f the state authorities,
pessibly a
special e x a m i n a t i o n
or
b y t h e state authorities
with a representative o f the bank--Mr. Broderick: I
might say, Mr. Strong, a
special
examination o n the part o f the state authorities without
a representative present, and a special examination with
& representative present;
i n other words, leave that t o
the discretion o f the esmmittee specified i n the regulation.
The Chairman:
Exactly;
a n d b y one o f those three
methods y o u would deal with the application f o r admissien
to the system,
i n each instance being guided,
o f course,
by the best knowledge t h a t c a n b e obtained a s t e the character o f the state examination, u p o n which would b e predicated t h e judgment a s t o whether i t would b e accepted i n
whole c r i n part, a n d whether a
special examination should
be m a d e b y t h e r e s e r v e bank.
Mr. Rroderick:
The Chairman:
T h a t i s correct.
W h a t i s yeur pleasure a s t o taking
action o n this recemmendatiwn, gentlemen, a n d i f s@, will
Someone o f f e r a
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Federal Reserve Bank of St. Louis
resolutien
t e that effect?
135
Governor Rhoades: I
Governor Sawyer: I
The Chairman:
pears
make t h a t motion, M r . Chairman.
second it,
F i r s t , l e t m e a s k i f any objection a p -
t o that course?
Governor Seay:
ideas, sir, I
I t i s thoroughly i n conformity withmy
believe you, yourself, h a v e indicated
that
in your o w n district t h a t will probably b e
the only means
that y o u c a n use t o put i t i n ferce, I
believe t h e same
thing i s true a s t o all o f the districts,
Governor Fancher: I
believe i t i s practically true
in all t h e districts.
(The question was callea for, end, there
being
no further discussion,it w a s put a n d
carried, )
The Chairman:
T h e next subject, naturally, Mr.
Broderick, i t seems t o me would b e the method
o f dealing
with the regular reports made b y state
banks t o the state
authorities,
W e are n o w deailing w i t h this matter
by
the general advice o r supervision o f banks that
apply f o r
membership.
Mr. Broderick:
M a y I ask i f you c a n just shange
that order t o bring i n the question o f
examination now?
The Chairman;
Y o u weuld rather deal w i t h that
next?
| M r . Broderick:
J u s t a s you say; o n l y I think, w i t h
the question o f examination, t h e next point
a s t o naking
examinations i s t o make sure that w e have
t h e proper material i n each instance a n d t o adopt uniform
methods.
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Federal Reserve Bank of St. Louis
The Chairman:
A l l right; let us discuss that next,
Mr. Broderick,
would make this suggestion, Gover-
Mr. Broderick: I
nor; t h a t i n each district names b e given o f those w h o
should b e designated a s examiners.
The Chairman:
W i l l someone offer a resnktion which
I vill take the liberty o f dictating i n orcer t e make progress?
It i s moved that immediately after this conference
each @eserve bank designate and advise the Federal Reserve
Board o f the names o f the officers O r employes i n each
bank who n t
i e webigocd t o them the work o f making examin-
ation o f state institutions.
will o f f e r t h a t a s a
Governor Fancher: I
Governor V a n Zandt: I
resolution.
second i t .
(There being n o further discussion, t h e resolution s o offered and seconded was adopted.)
Mr. Broderick:
A
s soon a s names a r e received,
of
course t h e matter o f uniform method o f examination c a n b e
taken up with those gentlemen direct.
AS t o the matter o f report:
T h e report itself will
have t o b e made t o conform t o the state reports i n order
to insure the proper cooperation with the state authorities,
for t h e present a t least.
W
e c a n ask the state author-
ities t o obtain such additional information which w e m a y
need which i s now included i n the regular state report,
but I think i t will b e a g o o d deal better t o start o f f
with their reports a n d change t h e m o r decrease--~-
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Federal Reserve Bank of St. Louis
The Chairman:
W
e realize t h a t i n all states where
137
reports a r e regularly required f r o m state banks, m u c h o f
the material i s required b y statute.
Mr. Broderick;
Y o u are talking o f the regular re-
ports?
The Chairman:
Y e s ; I
thought that was what y o u were
referring to.
Mr. Broderick;
T h e r e will b e n o difficulty i n taking
that matter u p directly w i t h the bank itself.
in N e w Y o r k t h e s t a t e s u p e r i n t e n d e n t r e c e i v e s a
F o r instance,
copy o f
the report o f every national bank i n that state which has
been designated a s a reserve depository.
T h e r e is no
reason w h y the Governor o f each bank o r the federal reserve
agent cannot take u p with the state banks that have been
admitted the matter o f filing duplicate copies o f reports
made t o the State Commissioners.
The Chairman:
T h e n c a n w e not pass a
resolution
Stating i t t o b e t h e sense o f this meeting that a t t h e
earliest practicable moment e a c h bank take u p with t h e
bank c o m m i s s i o n e r s
o f t h e respective states
o f their dis-
tricts t h e question o f having copies o f those reports filed
at the proper time?
Mr, Broderick;
- Strong? I
M a y I interrupt a t this time, Mr.
would suggest that probably i t would b e a good
deal better i f that matter were taken u p with the member
banks a n d have t h e m file copies.
Governor Wold:
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Federal Reserve Bank of St. Louis
+
L e you refer now to the special
examination o r the reports? ‘
fr Broderick:
s
T h e reports,
w
e
s
138
Governor Wold;
T h a t 1 8 one of the requirements o f
its admission.
Mr. Broderick:
T h e y take t h e reports t o the Comp-
treller o f the Currency.
Governor Wold:
S t a t e banks?
Mr. Broderick:
T h e state banks that have been admit-
ted have t o make reports o n the forms prestbed b y the
Comptroller o f the Currency.
M r . Strong's point is, I
believe, that o n the state forms there i s more helpful information with regard t o those state institutions than
you could get i n the national form which i s now being used
by the state banks,
The Chairman:
I n our state that i s so.
Mr. Broderick: I
think the state banks should b e
required t o file copies o f the reports which they file
with t h e state commissioners, a n d those extra copies c a n
be abtained b y taking i t u p i n each instance with the
member banks,
The Chairman:
T h e n , possibly I
should médify that
statement b y the suggestion that w e get copies o f the forms
from the respective states a n d send t h e m t o y o u s o that
such supplementary information a s should b e obtained c a n
be set o u t i n a separate form, a n d such information a s they
will b e reluctant t o give may be @escribed a s not essential.
I d o not think i f the Comptroller omits f r o m the report s
that w e get from National banks a statement o f the galaries
of the officers o f the bank that h e should require t h e
statements
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Federal Reserve Bank of St. Louis
o f t h e salaries
o f officers
o f the state banks
that i s n o w required i n New York State,
Mr. Broderick:
I n the quarterly reports?
The Chairman:
Yes,
Mr. Broderick:
I s that something new?
The Chairman:
seme time.
Y e s ; they have had i t i n there for
A l l t h e salaries o f the officers a r e
set out
in the regular called report f r o m the
trust companies i n
New York,
Governor Wold; I
Mr. Broderick;
instead o f a
ing
think they a r e i n Minnesota, too.
W h y not try t o get the whole report
t h e question o f elimination, a t
all?
The Chairman:
T h e y objected t e i t i n New York State.
Mr. Broderick: I
The Chairman:
know that.
T h e national banks f r o m the very o u t -
set i n New York did n o t fill i n the Salary
questions a t
all i n the reports t h a t they sent t o us,
a n d w e did n o t
require t h e m t o de it.
I n most cases t h e y omitted t o a o
it.
Mr, Broderick;
D o you not think that the Federal
Reserve Banks c a n handle that matter f o r
themselves?
The Chairman: I
My. Broderick:
suppose t h e y can,
S i m p l y ask for a copy and get all
yeu can and take u p the objections later.
Governor McCord:
Mr. Broderick:
W e d o n o t get a l l o f i t now.
S t a t e r e orts?
Governor McCord:
E v e n National banks~== w e do not
get.all o f i t now.
Sr
p e e p s :
‘fhe Chairman:
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Federal Reserve Bank of St. Louis
W h a t i s your view o f that, Governor
McDougal?
think that. the more informa-
Governor McDougal: I
tion w e c a n get the better.
I t seems t o m e that Mr. Broder—-
ick's idea of asking for a complete report and not suggest~
ing any eliminations will b e all right where i t works.
If i t does n o t work, v e will have t o take what w e c a n get.
Governor Fancher:
L e t m e inquire:
W o u l d that mean
that they would send t o the Federal Reserve Agent a copy
of the report that they would render t o the Comptroller,
and also a n additional copy of the report each would render
to the state superintendents o f banks? W o u l d i t mean
that, Mr, Broderick?
Mr. Broderick:
Y e s , i t would.
I t would b e really
a double report.
The Chairman:
T h a t ought t e b e eliminated,
i f pos-
sible.
Mr. Broderick:
H e w c a n y e u climinate i t i f you want
the extra information o f the state report, unless y o u write
to each bank separately?
Governor Fancher:
I t would b e voluntary o n the part
of the state bank i f it furnished u s a copy o f its report
to the State Superintendent?
Mr. Broderick;
Yes.
Governor Fancher,
O f ceurse the report t o the Comptrol-
ler they would b e obliged t o furnish t e us the same a s the
National member banks, but i t would b e voluntary o n their
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Federal Reserve Bank of St. Louis
part i f they furnished u s with a copy o f their report t o
the state superintendent?
Mr. Broderick:
Yes, I
think y o u will f i n d that t h e
calls for reports, with the exception o f New York and a
few other states, are made concurrently with those o f the
Comptroller,
The Chairman:
T h e y have been i n N e w York State
until recently.
Mr, Broderick:
N e w York State calls f o r four a n d
the Comptroller calls for five.
N e w York State has only
been calling where they could arrange t o call privately;
but there h a s not been a s much cooperation o n that point
as there should be.
Governor Wold:
W 4 1 l they b e required t o publish
two different statements?
Mr. Broderick:
N o . T h e y d o have t o publish t h e
state reports, b u t they d o not have t o publish t h e national
reports.
McCord:
Governer r '
T h e trouble i n our state--- Georgla--
four
is that the State superintendent calls for reports simultaneously with the Comptroller, b u t h e omits the fifth one,
and usually that i s the very o n e w e want,
I t shows t h e
conditions a t certain times that t h e y would n e t like t o
disclose f r o m the state standpoint.
The Chairman:
I t imposes u p o n t h e state banks t h e
necessity o f giving not only very complete reports, w h i c h
some o f them now give four o r five times a year, but the
additional necessity o f giving reports required b y the
Comptroller showing conditions o f national banks.
forms are quive different.
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Federal Reserve Bank of St. Louis
T h e
T h e forms applying t o state
i n many
requirements
banks a r e m o d e l e d u p o n s t a t u t o r y
Comptroller
cases, a n d t h e f o r m s m a d e t o t h e
follow h i s diseretion, v e r y largely.
W
h
o f t h e Currency
y might i t not
from those states
be practicable a t the outset t o accept
just copies o f
where they cannot get forms o f reports
department?
what i s regulerly filed with the state
b u t the
T h a t probably would b e O 4 K.,
Mr. Broderick:
Federal Keserve
matter o f the form of report, under the
o f the Cur~
Act, i s i n the discretion o f the Comptroller
rency.
The Chairman:
that
T h e n why can te net recommend
t o avoid making
the Comptroller exercise his discretion
t o the State banks
this report matter a perfect nuisance
that w e are seeking t o bring into membership?
Mr. Broderick:
your powere
O f ceurse i t i s within
to make t h e recommendation.
T h e only point I
can see,
h e has a very com~
from his standpoint, i s the fact that
his office, a n d i t m a y b e
plete statistical department i n
f o r a l l the member
necessary t o get t h e later information
banks.
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Federal Reserve Bank of St. Louis
Boernor Wold:
the
H e makes his reports based upon
h e net?
National Banks, and not upon member benks, does
Mr. Broderick:
Y e s } t h a t i s true.
Governor Fancher: I
offer a resolution recommending
that i n those states where a
vory full a n d complete report
when
4s made b y the state banks t o t h e state authorities,
the calls from
the calls for conditions are concurrent with
i n lieu o f a
the Comptroller, those reports b e accepted
b y the Comptrolrepo:t m a d e i n this special f o r m provided
Ler,
O f course, a 8 t o making t h e calls
Governor Seay:
uniform---
think i f the resolution offered b y
The Chairman: I
i t stands i t
Governor Fancher should b e passed j u s t a s
would produce a
certain amount o f pressure f o r uniform date
and ultimately uniform Hanks t o b e used.
will s a v e e x p e n s e
C e r t a i n l y it
i f i t i s construed t h a t t h e Federal R e -
membership
serve A c t requires e v e r y state bank that takes
does, because
to publish i t s report just a s a national b a n k
there would b e a duplication o f the expense o f publica-
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Federal Reserve Bank of St. Louis
tion.
Governor Van Zandt: I
second the motion.
(There being n g further discussion the motion
was put and carried.)
Mr. Broderick:
of
Y o u want t o take u p next t h e form
examination?
The Chairman:
I t seems t o m e w e ought t o have some
take.
discussion o f what form the examination shall
W
e
it.
certainly would like t o get your views about
Governor Wold:
W h i l e i t i s o n m y mind I would like
a n examiner
to inquire i f there i s a n y objection t o naming
examiner
of a bank the chief examiner w h o m a y b e a chief
in the bank?
Mr, Broderick:
C e r t a i n l y not.
T h e only point i s
to keep down the expense o f the examinations.
T h e examin-
B a n k examiner--~ations are made b y Mr. Kerst a s t h e National
144
Governor Wold:
S u p p o s e t h e y a r e made b y h i m a s ex~
aminer o f the Federal Reserve Bank.
Mr. Broderick: I
right. J
should imagine t h a t would b e all
have a form here.
I t is not very lengthy.
I t
gives m y ideas a s t o the points which should b e covered.
The Chairman:
Mr. Broderick:
W h y not let i t be put into the record?
I t is the only copy I have.
I t will
not take more than three minutes t o read it.
(Mr. Broderick thereupon read the form referred
to, a s follows:)
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Federal Reserve Bank of St. Louis
INITIAL EXAMINATION O F STATE BANKS APPLYING
FOR
MEMBERSHIP I N THE FEDERAL RESERVE SYSTEM.
In addition t o signing t h e regular certificate, t h e
examiner should b e requested t o furnish t h e following
information a n d statements concerning t h e bank examined:
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Federal Reserve Bank of St. Louis
a R e p o r t o f condition.
( S a m e f o r m t o b e used a s
that m a r k e d E x h i b i t 1 , f i l e d w i t h t h e
applica-
tion f o r stock.
Copy o f the daily statement certified t o b y
an
officer o f the bank,
Memorandum o f the date u p e n which t h e
last state
examination was made--- name o f examiner.
i f
a trust company, plese state i f trust investments a n d securities w e r e examined.
State w h e t h e r p e r i o d i c a l e x a m i n a t i o n s a r e
made
by directors.
State l a w limitatiens.
(a)
A S t O secured a n d unsecured loans t o
any o n e firm, c o r p o r a t i o n
o r individual.
(b) L o a n s secured b y real estate mortgages
or
other real estate collateral.
(e} Investments.
6. L o a n s s n d discounts.
(a) A m o u n t loans i n excess o f 10 per cent
of
capital a n d surplus ( n o t including undi-
vided profits) o f the applying bank.
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Federal Reserve Bank of St. Louis
146
Amount e f past due notes a n d loans.
Amount o f notes o r other loans i n default s i x
months o r more which are n o t properly
secured o r i n process
o f collection.
Amount o f loans maturing after o n e year.
Give details,
Amount
o f d e m a n d l o a n s u p o n w h i c h n o interest
has b e e n paid f o r o n e year o r more,
Amount o f loans secured b y o w n bank stock,
with details,
Amount o f leans secured b y stock o f other
banking institutions.
G i v e details.
List o f l o a n s o v e r a n amount e q u a l
per cent capital a n d surplus.
t o five
G i v e name o f -
borrover, business, address o f borrower,
amount o f loan. A p p r o x i m a t e depestt balance.
Real estate loans:
(a) H o w i s the value o f property determined?
(bo) M e n e y i s advanced t o what percentage o f
the appraised value o f the properties?
Make comment a s t o the loans t o individ-
uals connected with real estate trading
corporations, w i t h a description o f collateral,
(d)
i f any.
I s title t o the mortgaged property held
by banking institutions?
(7) R e a l estate owned:
(a) H o w acquired.
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Federal Reserve Bank of St. Louis
147
(b) M a k e comsent a s t o prior mortgages - assessed
valuation -
est -
income -
taxes ~ - expenses -
appraised value -
inter-
when a n d b y whom a p -
praised.
(8)
Investments.
(a) G i v e list o f investments i n detail, showing
Securities par value -
rate o f interest o r dividena book value -
and valuation based
upon currect o r last available quotations.
(b) L i s t o f investments
i n default.
(c) Provisiens f o r depreciations.
(d) A r e book values adjusted periodically t o
agree w i t h current valuatiens?
(9)
Directors a n d officers.
{a) P l e a s e g i v e a
memorandum o f t h e names o f
officers a n d directors dress =
business -
jations ~
post office a d -
firm and corporation affil-
liabilities a s payer -
liabilities
as endorsers a n d guarantor,
(bo) L i s t e f loans m d e t o corporatiens which are
Owned o r contrelled b y officers o r directors
of the banking institution.
(10)
Assets a n d liabilities w h i c h are n o t entered u p o n
the books o f the banking institution.
(11)
Notes a n d bills rediscounted, bills payable a n d
certificates
o f deposit r e p r e s e n t i n g m o n e y b o r -
bewed.
(a) W h a t i s the present amount o f indebtedness?
(b) W h a t assets have been pledged a s security for
indebtedness,
(12) C o n t i n g e n t liabilities.
(a) O n bills rediscounted o r endorsed- guarantees all other -
give particulars -
notes a n d
securities pledged o r sold with agreement t o
repurchase,
(13). A s s e t s pledged a s security f o r deposits o r other
purpose e x c e p t m o n e y borrowed,
(a) G i v e
particulars.
Examiner's opinion and comment:
Examiners are requested t o cover the following points
in t h e t e x t o f their report:
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Federal Reserve Bank of St. Louis
(a) Character o f the business i n the community
in which c h e institutien i s located.
Character o f the business o f the bank.
Is the institution solvent?
Is its business conducted strictly i n accordance w i t h t h e p r o v i s i o n s
o f t i e state
law?
Is the management o f the institution competent?
Do you consider the loan policy safe and con-*
servative?
Are there a n y unsafe o r unsound tendencies
apparent?
Has there b e e n a n increase i n undesirable a s sets during t h e past year?
Do officers a n d d i r e c t o r s g i v e p r o p e r t i m e
and a t t e n t i o n
t e t h e affairs
o f the institu-
Is the stock control o f the institution held
by a a y o n e p e r s o n o r group?
What i s t h e p o l i c y o f t h e i n s t i t u t i o n r e g a r d -
ing loans t o officers a n d directors o r t o
enterprises w h i c h they control o r are interested in.
Is the institution i n a position t o meet with
the r e s e r v e a n d l o a n r e q u i r e m e n t s
o f the
Federal Keserve Act?
Comment a s t o the l a w suits i n which banking
institutions m a y b e interested.
(At this point a n informal discussion occurred which
the stenographer was directed n o t t o report; a f t e r which
the following proceedings were had: )
The Chairman:
M r . Broderick, d o e s i t not boil down
to this, t h a t y o u have t h e choice o f three courses; o u t side ofusing your O w n m e n y o u c a n call i n the examiners
from the Comptroller's office; y o u can call i n clerks from
the s u b - t r e a s u r y o c c a s i o n a l l y ,
o r y o u c a n possibly g e t
assistance f r o m the other Federal Reserve Banks. I
rather h a v e y o u c o m e i n w i t h a
m a n f r o m Mr. F a n c h e r ' s
would
or
Mr. MeDougal's bank than either o f the other two, and examine o u r bank, a n d I would a great deal rather j o i n i n
lending o u r m e n for that purpose t h a n t o have t h e examinations conducted b y the use o f many m e n outside o f the system.
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Federal Reserve Bank of St. Louis
150
(At this point further informal d i s c u s s i o n
was h a d which the stenographer w a s directed n o t t o report;
after which the follewing occurred: )
The Chairman:
G o v e r n o r McDougal,
jection t o this course?
d e y o u see a n y ob~
I t appeals t o m e very strongly a s
giving o u r m e n a chance t o get information a n d education.
Governor McDougal: I
think t h e plan y o u suggest o f
loaning m e n t o each other i s a very good one.
be entirely satisfactory t o me.
I t would
T h e reference I
made t o
borrowing help from t h e bank itself was that I know, o f
course, that o u r banks a r e large eneugh t e take from one
department s o m e m a n who has n o knowledge whatever o f another department, a n d possibly w e might help y o u out.
But
if we can loan hin, that would b e a very nice and satisfactory solution.
Mr. Broderick;
J L o not think, gentlemen, that I do
not appreciate t h e point which y o u raise,
A s a matter o f
fact, I think I will b e able t o use them, becausevery often
we u n d e r e s t i m a t e t h e a m o u n t o f w o r k required.
Again,
our
institutions are entirely different from the commercial o r
investment bank in that we simply have a certain line and
they are operated not for the purpose o f profit but for the
purpose o f the general good.
(At this point further informat discussion arose
which the stenographer was directed not t o report; after
which the following proceedings took place.)
The Chairman:
W i l l someone offer a motion,
if I
understand the sense o f the discussion correctly, signifying
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Federal Reserve Bank of St. Louis
our approval o f the suggestion made b y Mr. Broderick and,
éxamingenerally, o u r desire t o cooperate i n this matter o f
ations?
make such a motion, Mr. Chairman.
Governor Ajken; I
second t h e motion.
Governor Fancher: I
(There being n o further discussion, t h e motion
was p u t and carried.)
M r . Strong, m a y I ask the privilege
Mr. Broderick:
of about t w o minutes o n seme other points?
The Chairman:
C e r t a i n l y , sir.
Mr. D r o d e r i c k s :
n the first place,
I
t h e question has
clearing
arisen a s t o payment o f entry f o r membership i n the
nouseé. I
know what method has been pursued b y a certain
institution I have examined. I
would l i k e t o know whether,
from the representatiives o f the other five institutions,
it
is required t o pay a n entrance fee i n the clearing house
association?
Governor McDougal:
dues. I
W e pay here the dues, the annual
believe t h a t i s all.
Governor Aiken:
T h a t i s what w e pay i n Bosten.
Y o u have the record o n us.
Governor McCord:
Governor Wold:
W
e have n o t used t h e facilities o f
4
the clearing house a s yet, although w e are elected t o
nominal membership without liability o f any kind, a n d I supof
pose i t would b e without payment o f dues o r anything
that kind, except o u r proportion o f the clearing house dues.
Gevernor Fancher:
W
e are not members o f the Associa-
joining.
tion, Mr. Broderick. P r o v i é i o n s h a v e been made f o r
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Federal Reserve Bank of St. Louis
152
but w e have n o t y e t joined.
The Chairman:
L o y o u know w h a t our situation i s ?
W e
pay a fee for clearing, o f $500 every six months, subject
to readjustment, a n d w e have t h e privilege o f using t h e
vaults
u p there, w h i c h i s w o r t h ®
great d e a l m o r e t h a n
that.
Mr. Broderick:
opinion.
A n o t h e r question,
i f I may a s k your
T h e r e i s considerable difference o f opinion a s
to t h e p r o p e r m e t h o d o f c a r r y i n g m u n i c i p a l warrants. I
have recommended t o the Board t h a t all municipal warrants
should b e carried o n a discount basis.
T h a t is, that
warrants b e carried a s investments f o r the amount which
will b e received f o r them a t maturity.
D
o I make that
clear?
Governor Fancher:
Mr. Broderick:
F a c e a n d interest?
F a c e a n d interest;
a n d t h e differ-~
ence between t h e cost a n d t h e amount which y o u will have
received a t maturity i s t o be transferred i n the same manner a s discount.
The Chairman:
S y p p o s e y o u bought t h e m a t par and
jnterest?
Mr. Brerbrick: C a r r y them a t par and the amount o f
interest which y o u receive;
i n other words y o u c a n buy _
your warrants i n two ways.
S a y y O u purchase i t a t a dis-
count, and you probably pay $49,700 for it. T h e n you might
buy them at $50,000 and interest a t maturity.
I f you
carry them both o n the par and interest bases i t will
simplify t h e accounting system a n d enable y o u t o carry your
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Federal Reserve Bank of St. Louis
investment~--The Chairman:
B u t o n y o u r plan, M r . B r o d e r i c k ,
i f you
buy a warrant f o r $50,000, a n d g e t three p e r cent interest
on i t a t its maturity, a n d then y o u carry i t i n your banks
at #50,000 plus the three per cent interest and discount
that a t three p e r cent, y o u are investing your interest
before y o u get it?
Mr. Broderick:
N o ; y o u m a y invest y o u r interest;
that i s the w a y i t i s being done a t the present time.
idea i s simply t o simplify t h e present method.
The
U n d e r the
former system y e u have g o t t o carry your warrants i n two
ways, a n d i t i s intricate a n d i t never works out.
The Chairman:
M i g h t t h a t not b e made u p a s a memoran~
dum which w e c a n transmit?
Mr. Broderick:
Y e s ; I
a m asking that t h e suggestion
be made t o all the Federal Reserve Banks.
The Chairmans B e f o r e y o u leave, Mr. Broderick, I
would like t o ask i f you expect t o be here tomorrow, a n d
whether you will b e available?
My. Broderick:
Y e s ; I
will b e here tomorrow.
The Chairman: B e c a u s e w e have o n our program various
things, a n d i t seems t o S e
a e g e t a great deal o f ad-
vantage b y having you here, and i f agreeable I should like
to skip item No. 5 and all o f the subjects covered b y that
until tomorrow morning, i f Mr. Broderick i s able t o be
here then.
Mr. B r e d e r i c k :
evening, unless I
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Federal Reserve Bank of St. Louis
Y e s ; I
will b e h e r e u n t i l t o m o r r o w
can b e o f a n y assistance l a t e r t h a n that.
154
The Chairman:
B e f o r e y o u go, I would l i k e t o s a y
that a question has been raised a s t o whether i t i s clearly
understood b y everybody a n d should b e s o understood that
these examinations o f state institutions for admission t o
the system are t o b e a t the expense o f those institutions
in each instance?
Mr. Broderick:
T h a t i s a point which has n o t been
taken u p with the board. I
think that i s the proper prin-
ciple, Mr. Strong,
Governor McCord:
T h a t i s the w a y w e understand i t
down m y way.
Governor Wold:
T h a t would make a double expense,
Mr. Broderick:
W h a t d o you mean b y expense?
do you think proper f o r expenses?
W h a t
J u s t t h e incidental
expenses o f the examiners?
Governor Wold;
I t raises t h e whole question.
o f
course i f w e send examiners o u t o f our offices t o Boston
to make examinations, naturally the bank examined would
pay t h a t expense.
Mr. Broderick:
Governor Wold;
of the city.
Y o u mean, inside o f your own district?
N o sir; i n our district but outside
B u t the question i s whether t h e actual o u t
of pocket expenses o f the examination shall b e mmhoan
alone paid, o r whether the applicant shall b e required t o
pay a n amount for the making o f the examination which would
include t h e out o f pocket expenses plus t h e time o f t h e
examiner--- whether there shall b e any expense imposed upon
the applicant, a n d i f s o what i t shall consist o f ?
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Federal Reserve Bank of St. Louis
155
Mr. Broderick: I
think that i s a matter y o u had bet-
ter take u p with the Board, P r o b a b l y i f you would lay
down the principle here a n d send i t down t o them a s the
consensus
O f o p i n i o n o f this m e e t i n g ,
i t would h a v e great
weight with them.
The Chairman:
Mr. Brodcrick:
sible, I
W h a t i s your o w n view?
T o keep d o w n expenses a s much a s pos-
would l i k e t o s e e t h e v i e w p r e v a i l t h a t n o c h a r g e
shall b e made f o r time unless nocessary f o r the banks t o
obtain t h e service o f additional employes, f o r t h e time
for w h i c h e m p l o y e s c a n b e s p a r e d d o e s n o t c o s t t h e b a n k s
any more than i f they were i n the office, unless i t is
necessary t e get other people t o take their places t o perform the daily routine.
Governor Rhoades;
W h a t h a s been t h e practice w i t h
those already admitted?
Mr. Brodericks
Governor Wold:
N o expense h a s been incurred s o far.
Suppose a
state bank from South Da-
kota applies f o r admission--- a n d there a r e a number there
that n o w contemplate « m i n g i n and w e would like t o have
them in--- w e d o not care t o accept t h e South Dakota
examination a t the present time.
periodical examinations.
I
W
e will have t o make
s i t your thought t h a t t h e F e d e r -
al Reserve Banks should stand t h e expense?
Mr. Broderick:
N o , i t 1 s not; j u s t t o have t h e
banks come i n with the understanding t h a t those examinations
will have t o b e mace and t h e y will have t o pay the expense
ofthem. o n d i t i o n s i n your district might differ from
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Federal Reserve Bank of St. Louis
156
those i n another district, i n a compact district like New
York.
T h e y might have t o g o to Montana, 1500 miles away.
Governor Wold:
T h a t 1 s a difficult question,
The Chairman:
W e will discuss that and see if we
can agree a s t o a principle, Mr. Brederick.
Mr. Broderick:
Y o u have t h e authority under t h e law--
it i s very specific therep-~ t o Charge t h e cost o f the
examination,
The Chairman:
I n order t o conclude t h e ciscussion
in regard t o examinations, m a y w e not endeavor t o arrive
at a
recommendation a s t o h o w t h e expenscs
o f examinations
for admission shall b e dealt with?
Governor McDougal:
I t seems t o me, Mr. Chairman,
that t h e expense should b e borne b y the applying b a n k i n
the same way that i t is borne b y state banks that apply
to b e converted i n t o national banks,
I t would b e a heavy
burden t o put upon the bank t o expect u s t o meet the expenses o f that examination, a n d i t would b e a perfectly
proper expense f o r t h e applying b a n k t o pay.
The Chairman;
W o u l d y e u have that expense include
the time o f the m e n engaged i n the examination a t the rate
ef salary paid them b y the reserve bank?
Governor Sawyer: I
If yeu send a
think i t should b e made uniform.
man from one o f the banks t o examine a n d
charge f o r his time a t the rate paid b y the bank, a n d t h e
next time s e n d a n outside m a n t o examine a
neighborhng b a n k
at a higher rate, I
lot o f dis-
satisfaction.
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Federal Reserve Bank of St. Louis
think i t would cause a
Lite
Governor McDougal:
T h e question i s whether w e are
to charge anything for the men's time,
The Chairman:
Y e s ; t h a t i s the question.
e have n o men t o devote regu-
W
Governor McDougal:
larly t o that work a t the present time.
W e would have
to employ someone t o take their places while t h e y a r e
gone.
The Chairman:
D o you expect a flood o f applications
and expect t o b e making examinatiens a l l the time?
Governor McDougal: I
them.
think w e should prepare for
T h a t time will come, a n d y o u cannot change t h e pro-
cedure when once i t is started, I
The Chairman:
am afraid.
Y o u r idea would b e that each applicant
for membership i n the system should p a y t h e actual o u t e f
pocket expense C e a o n e t
i n making t h e examination, p l u s
the value o f the time o f the m e n devoted t o that work,
measured b y the amount o f their compensation received f r e m
the Federal Reserve Bank?
T h a t would b e m y recommendation.
Gevernor McDougal:
The Chairman:
I
s t h e r e a n y f u r t h e r discusad e n ?
Governor Sawyer: I
think i t ought t o b e made a
flat
for examinations.
Governor Wold:
B a s e d o n resources?
Governor Sawyer:
Yes,
Y e u are going t o cause a
good deal o f dissatisfaction i f y o u d o not d o thaty
Gevernor Seay:
I t is quite a n important matter when
the small banks apply f o r admission,
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Federal Reserve Bank of St. Louis
The Chairman:
M i g h t i t not b e proper t e d g i t the
158
way the accountant does it; that is, s o much for the man
in charge a n d s o m u c h a
Governor MeCord:
day f o r h i s assistants?
T h e Comptroller's office, under
the new rule, bases the cost o f examination o n the assets
of the bank.
The Chairman:
T h o s e a r e regular examinations a n d
not t h e casual admission examination.
Gevernor MeCord:
M i g h t i t not be done o n the same
basis?
Governor Seay: I
d o n o t s e e how,
S u p p o s e w e have
just one bank applying for admission.
The Chairman:
H o w would i t s capital, resources
and surplus b e measured?
W
e might have just o n e appli-
cant f o r examination a n d t h e only o n e f o r months a n d months.
Governor McCord: I
menn i f i t was based o n capitali-
zation w e would have t o take t h e m e n into o u r employ, p a y
that part o f i t and swallow t h e balance o f the expense,
if
any.
The Chairman: I
still d o n o t g e t y o u r point, G o v e r -
nor McCord.
Governor McCord: S u p p o s e i n your district the average
expense based o n assets i s s o much?
tion o n t h e b a s i s o f t h a t figure.
Y o u make your examinaI
f there i s a n y other
expense you take care o f it yeurself.
The Chairman: I
Governor McCord:
do not agree t o that proposition.
T h e most serious cause o f dis~
satisfaction w i t h the examinations b y t h e Comptroller i s
that t h e expense i s too great,
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Federal Reserve Bank of St. Louis
159
Governcr Aiken:
e should b e inclined
W
t o make examin-
the actual necessary ¢x@ations a t u o expense o t h e r than
pense.
think that too, decidedly.
Governor Seay: I
I
Governor Aiken:
f employes
o f the bank are sent
time.
there n o charge would b e made for their
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Federal Reserve Bank of St. Louis
The Chairman;
Y o u mean a t the beginning.
Yes. I
Governor Aiken:
d o not m e a n t o establish
a precedent i n that way.
Governor Sawyer:
man from the outside t o a neighborhng
one bank a n d sent a
bank.
man to
S u p p o s e y o u sent & salaried
i n the cost a n d i t
T h e r e would b e a difference
would cause dissatisfaction.
probable
I n the beginning i t i s not
Ga,ernor Seay:
that y o u would d o that.
The Chairman:
a t the outS u p p o s e i t was announced
apply f o r membership during
set that a l l institutions t h a t
examined b y the examiners
the calendar y e a r 1915 would b e
w h e r e necessary,
of t h e F e d e r a l R e s e r v e B a n k s ,
a t the
without any charge
actual cost o f making the examination
that not be a little ad=
for the time of the men. M i g h t
hury up and apply for admisditional inducement for them to
sion?
Governor Seay:
in now.
comé
T h e y are not very angious t o
portion o f the running
I f y o u saddle t h e m with a
examination,
salary o f the m e n who make t h e
it would pre-
coming in.
vent many a n d many 4 small banker f r o m
The Chairman:
T e m p u s fugit, gentlemen.
I t i s seven
160
minutes pust six.
M a y w e have a motion o n this subject?
second t h e motion submitted b y
Governor Seay: I
Governor Aiken,
The Chairman:
G o v e r n o r Aiken offered a
resolutien
to the efffect that f o r t h e present a n d until s i c h time
as Otherwise directed a s a matter o f policy b y the Federal
Reserve Board, t h a t examinations o f state banks applying
for admission t o the system shall b e conducted b y our o w n
empleyes, where possible,
n o charge being made f o r their
services, except the out-of-pocket expenses.
(There were calls for the question. }
The Chairman:
T h a t i s not quite i n accordance w i t h
your view, Governor Aiken?
Governor Aiken:
N o , i t 18 not, but I think i t is all
right provided w e can stop when the time comes, a t the end
of 1915.
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Federal Reserve Bank of St. Louis
T h e chances are that many o f the state banks t o
be dealt with will b e taken i n o n available information
through records f r o m t h e banking departments o r other
sources,
The Chairman:
W o u l d y o u modify your resolution b y
saying until the end o f this year, o r until otherwise directed?
Governor Aiken:
Yes.
second that motien.
Governor Rhoades: I
The Chairman:
I s there any further discussion?
(There was n o further discussion, t h e motion
was duly put and carried.)
Governor Aiken: I
woulda like t o s a y b y way o f ex-
161
planation that i t seems t e m e i t i s prebable t h a t t h e
practice will w o r k itself o u t i n this way:
T h a t the e x -
aminations v i l l b e made b y the state department a n d w e will
send o n e competent m a n who will simply supervise t h e
examinations,
The Chairman:
T h a t i s m y view o f i t exactly. T h a t
leaves o p e n t h e subject o f expense o f examinations, b u t w e
are n o t ready t o deal with that y e t anyway.
Time will n o t permit u s t o g o into a
cussion o f Item No. 1 4 before dinner. I
to suggest a
Topic No. 5
conclusive diswill a s k someone
tople that c a n b e disposed o f i n a few minutes.
goes over until tomorrow.
Governor Rhoades: I
The Chairman:
suggest Topic No. 6 .
w e will consider topic No. 6 .
I t e m
(a) i s "Communications with Federal Reserve Board - practice w i t h respect t o matters pertaining o n l y t o banking
transactions."
T h a t i s Governor wold's suggestion,
Can w e hear from ,ou, Governor Wold?
Governor Wold:
M r . Chairman,
w e have a l l h a d t h e
same experience i n dealing with t h e Federal Reserve Board.
There a r e some things t h a t really ought t o g o t o the Federal
Reserve Agents t h a t c o m e t o the banks, a n d a great m a n y
things t h a t p e r t a i n p u r e l y t o b a n k i n g m a t t e r s t h a t g o t o
the Federal Reserve Agents.
T
o illustrate, telegrams
and confirmations o f telegrams i n reference t o weekly
clearances g o t o the Federal Reserve Agents.
Matters
of some importance c o m e t o h i m and, through oversight,
or the Federal Reserve Agent's absence, they will net come
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Federal Reserve Bank of St. Louis
162
te m y attentien until a
day o r two afterwards.
One mat-
it, purely through
ter laid t e n days without m y knowing
an oversight.
ought t o be
It seems t o me the Federal Reserve Beard
Reserve B a n k upon
asked t o communicate w i t h the Federal
the bank.
matters pertaining t o t h e operation o f
I t ought
i t is a panking
to be easy for them t o determine whether
function o r w h e t h e r 5 Osacl Ie >a
matter t h a t t h e F e d e r a l
took the matter u p with
Reserve Agent has i n charge. I
said that they would try
Mr. Willis and h e apologized and
o u t i n the future.
to have t h e matter straightened
The Chairman:.
I s not this a
matter which should b e
the standpoint o f the
pretty carefylly considered from
w i t h t h e Federal
Board, a s t o whether their communications
those
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Federal Reserve Bank of St. Louis
gimply o f
Reserve Agent should n o t consistent:
g o o r m a l communica-
their personal r e p r e s e n t a
tions which they would s e n d t o
other correspondence a n d
tive i n the banks, e n d that all
b e sent t o the bank o r its
communications t h e bank should
matters?
efficers who are looking after these
Governor Aiken: I
heartily approve o f that, Mr.
Chairman.
Governor Rhoades:
I t smooths t h e w a y t o have every~
does n o t emphasize t h e
thing addressed t o the bank a n d
anyI t i s the best business practice
individual a t all.
way.
The Chairman:
Weld t o
T h e n m a y w e not a s k Governor
te see whether its
offer a resolution for discussion ,
these points?
terms meet everybody's views and cover
Governor Wold:
However, I
Y o u just stated the peints.
will offer that a s a resolution o r motion.
The Chairman: I
will ask the stenographer t o read
what I stated above,
(The reported read a s follows:)
" .eeeee W h e t h e r their communications with the Federal Reserve Agent should n o t consist simply o f those formal
communications w h i c h they would send t o their personal
representative i n the bank and that all other correspondence o r communications w i t h the bank should b e sent t o
the bank o r its officers who are looking after those m t ters."
Governor Wold:
T h e latter part o f that i s offered
as a motion.
Governor Seay:
T h e r e i s a fundamental misconception
on the part o f the Board i n this matter. I
say that
with proper deference, b u t nevertheless i t appears t o m e
to b e a fact.
The Chairman: I
ings o n that subject.
have some sympathy w i t h their fealT n e y have a
personal representa-
tive i n the bank t o whom they are called o n b y law t o
look t o personally i n regard t o certain matters. I
suppose
they ought t o b e directly i n touch with them o r otherwise
they could n o t g e t decent m e n t o represent them a s Federal
Reserve Agents i n the banks.
Gevernor Wold: W p n o are they representing i n the gold
pool?
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Federal Reserve Bank of St. Louis
T h e Federal Reserve Agents o r the Banks?
The Chairman:
T h a t is a
matter t h e Federal R e s e r v e
164
agents should have nothing t o d o with, i t seems t o me, @ x cept that t h e m might have i n the capacity o f general officers o f the banks,
Governor Wold;
A
s director o r chairman o f the
board?
The Chairman:
Y e s ,
Governor Seay: I
think with reference t o matters
which pertain t o the operation o f the bank, w h e n there
is
occasion t o make direct inquiry o n the part o f
the board,
it should b e made o f the executive o f the bank. I
Some sympathy with t h e other situation. I
have
d o not want t o
minimize i n any way the importance o f the functions o f
the
federal reserve agents, but with reference t o matters
that
pertain t o the executive administration o f the bank,
when
there i s a n official whose duty i t i s t o administer them,
I think both the inquiry and reply should proceed directly
~~~ that is, t h e inquiry should b e made t o h i m and
t h e re-
ply should b e made from him, a s i t is a circuitous and
ineffective way t o communicate with the chief executive
thregh
the u s e o f a n intermediary.
The Chairman:
W h a t i s your experience, Governor
Lowry?
Governor Lewry: I
quite agree w i t h Governor Wield i n
his view that matters pertaining t o the bank should
come
“te the ba&RK. There are occasions when the Federal Reserve |
Agent i s not there and n e one presumes t o open his mail o r
telegrams w h e n h e i s not there.
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Federal Reserve Bank of St. Louis
Governor McCorda:
W
e ado.
165
Governor Wold;
W
e have n e difficulty whatever
the ninth district s o far a s that i s concerned.
in
I t i s sim-
ply that when a matter comes i n that may be o f importance
to me, t h e Federal Reserve Agent will l e t i t lie o n his
desk a n d forget t o refer it.
T h a t i s the o n l y point.
There i s n o feeling o n e way o r the other.
(Informal discussion followed a t this peint. A
tentative resolution w a s dictated b y the Chairman a n d
:
not incorporated i n the recsrd.,
proceedings
y
y
O n pagefy4, 7 o f the
o f t h e conference w i l l b e found t h e subse-
quent action taken with regard te the abeve matter,
Showing t h e resolution i n its final f o r m duly entered
of recerd, )
The Chairman:
I t e m B ef Topic No. 6 , "Codification
or digest o f informal rulings o f Federal Reserve Board."
Governor McDougal?
Governor McDougal:
T h a t was suggested b y Mr. B o s -
worth a n d has t o de with the matter o f our bank, a n d Mr.
Bosworth i n particular, h a v i n g c a l l e d u p o n t h e B o a r d m a n y
times f o r r u l i n g s
o n various subjects. I
have h e r e a
note which h e wrote t o me and I think perhaps i t would b e
well t o read it.
The Chairman:
Yes,
Governor McDougal: “ P u r s u a n t t e eur conversatien I
would b e glad i f you will bring u p before t h e next Governors'
confe rence t h e matter o f codification o r digest o f infor-
mal rulings o f the Federal heserve Board."
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Federal Reserve Bank of St. Louis
"I have had this u p with Mr. Miller and Mr. Delane e f
“A
166
the Board, a n d a t Mr, Denalo's request I
wrote h i m o n May
26th giving h i m m y ideas o n the subject a n d enclosing a
sample o f these rulings, reqmesting h i m t o discuss t h e
matter w i t h Mr. Willis. I
enclose herewith a
copy o f the
memoranda that I gave him.
“There are hundreds o f rulings and i t will only b e a
question o f time - - and not a
long time a t that - - when,
unless something i s done along these lines, w e will a l l
be a t sea. I
of a
told Mr. Delano that i t would b e the work
f e w weeks f o r a competent clerk t o g o through t h e
Secretary's files and take off all this material.
then b e furnished - ~ a t least half a
I t should
dozen copies o f each
ruling - - t o each o f the Federal Reserve Banks. H a v i n g
caught u p t o date with t h e work i t should b e followed
up and n e w rulings furnished t o the banks f r o m d a y t o
day o r from week t o week.
"while I assume that we have received at this bank
more than one=-twelfth o f the rulings o f this kind that have
been made, w e have o f course n o t received a l l o f them, a n d
while each bank can digest the material i t has, i t will b e
far easier a n d more satisfactory f o r the Secretary o f the
Reserve Board t o cover everything and do it for all the
banks,"
The idea was t o have t h e Board prepare,a digest o f
some sort o f the informal rulings t h a t h a d been made i n
response t o inquiries f r o m t h e twelve banks.
“ e know
what w e h a v e r e c e i v e d a t o u r bank, b u t t h e i n t e n t w a s t o
do that for all the banks, t o go through t h e records
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Federal Reserve Bank of St. Louis
167
and pick these things out, p u t them i n shape, a n d hereafter
when a ruling was made f o r a n y one bank, t o give t h e other
eleven banks the benefit o f it. T n e y could b e arranged
80 that t h e y could b e readily referred t o and thus avoid
repetitien o f the same requests,
The Chairman:
W e will pretty s e e n have this d o w n t e
a code bank procedure where w e c a n turn t o Chapter so-and50, page so-and-so, a n d k n e w just what t o do.
Governor Ceay:
T h e y are being embodied i n the bule-
tins?
Governor McCord:
Y e s , b u t not codified.
He refers t o informal rulings that have t e d e with
mang subjects.
The Chairman:
M a y w e have a
resolution t o cover t h e
matter?
Governor McDougal: I
The Gevernors,
have a
resolution here.
i n conference J u n e 14, 1915, have con-
sidered a n d discussed t h e matter o f informal rulings o f
the Federal Reserve Board made t o the Governors a n d Federal
Reserve Agents o f the 1 2 banks, a n d are o f the Opinien that,
in view o f the large number o f these rulings, t h e variety
ef subjects covered a n d that t h e y are n e t made simultaneously t o all twelve banks, a
comprehensive compilation o r
digest o f them from t h e beginning, d o w n t e date, should b e
made b y t h e Secretary o f the Board, a n d t h e n kept u p from
day t o day. -
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Federal Reserve Bank of St. Louis
:
a u t 3
I would offer that resolution.
Governor Aiken: I
“
e
second t h a t motien.
i
168
The Chairman:
T h e motion has b e e n made a n d seconded.
Is t h e r e a n y f u r t h e r d i s c u s s i o n o f t h e
matter?
Governor McDougal:
A n d I would add, o f course, that
@ copy o f the resolution b e sent t o each
bank, o r say
half a dozen copies o r so; a n d that t h e additions
b e sent
forward a s they were made.
The Chairman:
I s there a n y further discussion?
(There was n o further discussion;
t h e motion
Was duly p u t a n d carried.)
The Chairman:
T h e suggestion came t o my mind when
Governor McDougal read that letter a s t o the
proceedings
of this conference, o r our conferences.
W e might very
handily codigy those proceedings a n d boil t h e m
down.
We are covering a pretty wide range o f topics i n
these
discussions t h a t O u g h t t o b e i n h a n d y s h a p e
f o r use,
g E
prepared a n index o f the volumes a n d sent
i t around t o the
Governors,
H o w would i t d o t o refer this
matter t o some
one other than the Seeretary, w h o has some
work O n hand
just n o w that ought n o t t o b e interfered with?
Governor Seay: I
move that t h e subject b e carried
ever, Mr. Chairman.
Governor Wold: I
The Chairman:
I
second t h a t motion.
s there a n y discussion?
(There was n o discussion a n d t h e motion was
duly put and carried.)
The Chairman: G e n t l e m e n ,
w e have o n l y a little time
left before dinner, a n d suppose w e
take u p item No. 11,
Item 11 is "Gold funa",
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Federal Reserve Bank of St. Louis
I t e m (a) under "Gold fund" i g
"“ttitude of tak “POR _Ra nk Joe matter of pouclemem. fund,"
(Item (a) under "Gold fund" was simply a n explanation b y the Chairman o f the Conference i n regard t e
the method pursued i n clearing u p the old exchange accounts
and establishing the geld fund.)
Governor Wold: T h e r e i s another topic under Item ll.
The Chairman: T h a t is (b). T h a t has reference t o
the metho@ o f settling overdrafts.
due t o account, Mr. McKay---
W
e have a
due f r é n a n d
i n fact w e all have-~~ a n d t h e
New York Federal Reserve Bank i n running its transactions
with the Federal Reserve Bank o f Philadelphia has converted
its aue-from account into a n overdraft b y reason o f this
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Federal Reserve Bank of St. Louis
transfer, a n d when w e reported t h e overdraft t h e y declined
te settle i t in favor of Philadelphia and Washington.
Mr. McKay:
A n everdraft o n your beoks?
Governor Rheadest P a r d o n me.
I n 4
order to
clear m y record I would like t o state that w e tried t e
flagpay that money i n ahead o f time t e you, b u t w e were
ged.
The Chairman:
W h a t I think w e ought t o d o i s
recognize t h a t these due-to accounts sometimes give
to a n overdraft w h i c h should b e settled.
Governor Wold:
W e have a topic covering that
point.
Gevernor Aiken:
H e had that Same point come u p with
regard t o a n overdraft a n d they threw i t eut.
ground d i d t h e y d e c l i n e
The Chairman:
O n what
t o d o it?
T h e y have n o t yet disclosed t o u s a n y
170
ground. I
think w e will have t o get Mr. Broderick t o
Straighten that o u t tomorrow morning. I
think h e will d o
80.
Mr. McKay: I
think their idea i s that i f a Federal
Reserve Bank i s going t o overdraw its account i n New York
it ought t o deposit with its own sub-treasury o n account o f
the geld settlement fund o f the New York Federal Keserve
Bank.
(Informal discussion followed which the reporter
was directed not te take, and at 7 o'clock p. m., o n
Menday, June 14, 1915, a recess was taken until 8:30 e'clock
Pe me)
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Federal Reserve Bank of St. Louis
Oei
S s«et
O
o Bee s o o
hy
The Conference resumed i t s session, a f t e r a recess
for dinner,
a t 8:45 o'clock p . m -
The Chairman:
W i l l i t b e satisfactory t e the meeting
to leave i t t o the discretion o f the Chair t o select f r o m
the program subjects f o r discussion?
Gevernor Aiken: I
mOve that t h e Chair b e authorized
toe select t h e subjects f o r discusd en.
Governor Fancher: I
The Chairman:
second that motion.
I s there a n y objection?
(There was n o objection offered and the motion
te allow t h e Chair t o select t h e subjects f o r discusd o n
was unanimously carried, )
The Chairman: I
"Rates o f discount", I
would like t o refer t o Item 10:
Call your attention t o the fact
that subject (a) has been discussed already under the heading o f "rebates,"
Subject (b) under item 10 is simply a general discussion o f rates w i t h a view t o reporting t h e views o f
the Governors e f the Reserve Banks o n that subject a s a
matter o f policy.
Governor Lowry:
T h e bank in San Francisco bought
in a note for »200,000 for 15 days maturity, and one of the
larger b a n k s
i n Portland s e n t d o w n s o m e paper;
b u t the
average r u n o f the paper i s longer t h a n thirty days-
I t
has been that since the rate went in, a s i t was before.
A t
the same time that that rate w a s put into effect, a s I men-
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Federal Reserve Bank of St. Louis
Ni
Got 8
b-8-8 0
8,
The Conference resumed i t s session, a f t e r a recess
for dinner, a t 8:45 o'clock p. m-»
The Chairman:
W i l l i t b e satisfactory t e the meeting
to leave i t t o the discretion o f the Chair t o select f r o m
the program subjects f o r discussion?
Gevernor Aiken: I
mOve t h a t t h e Chair b e authorized
to select the subjects for discusd en.
Governor Fancher: I
The Chairman:
second that motion.
I s there a n y objection?
(There was n o objection offered and the motion
te allow t h e Chair t o select t h e subjects f o r discusa o n
was unanimously carried. )
The Chairman: I
would like t o refer t o Item 10:
"Rates o f discount", I
Call your attention t o the fact
that subject (a) has been discussed already under the héading o f "rebates."
Subject ( b ) under i t e m 1 0 i s simply a general discussion o f r a t e s w i t h a
view t o r e p o r t i n g t h e v i e w s
of
the Governors e f the Reserve Banks o n that subject a s a
matter o f policy.
Governor Lowry:
T h e bank in San lrancisco bought
in a note for »200,000 for 1 5 days maturity, a n d one o f the
larger banks i n Portland sent d o w n some paper;
b u t the
average r u n o f the paper i s longer t h a n thirty days.
I t
has been that since the rate went in, a s i t was before.
A t
the same time t h a t that rate w a s p u t into effect, a s I men-
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Federal Reserve Bank of St. Louis
172
tioned today, a request was made for a 2-1/2 per e n t rate
en 1 5 day paper, b u t that t h e Federal Reserve Board
held
up.
A t the last meeting o f the B o r d o f directors
it was decided t e make n o Change i n the rate a n d t o withdraw t h e request f o r t h e 2-1/2 p e r cent rate.
Governor Fancher:
M a y I inquire o f Governor Lowry
what your rate i s t o your member banks i n a center like
San Francisco?
W h a t have they been loaning money for?
Gevernor Lowry:
L o y o u mean the rate t o their memn-
bers?
Governor Fancher:
Governor Lowry:
Yes.
F r o m 4
Governor Fancher:
t o 6 per cent I think.
W e r e a n y complaints m a d e o r criti-
cisms made of your making a lower rate of 3-1/2 per cent,
or did that have a n effect u p o n softening rates?
Governor Lowry:
Gevernor Wold;
N e .
M e y I ask i f any o f your country
banks have taken advantage o f the low rate t o send i n thirty
day paper a n d then renew+-«
Governor Lowry: (Interposing)
N e ; there has been
none o f that, Governor Wold.
Governor Seay:
D e y e u know t h e lowest rate a t which
the N e w York Banks heve bought paper, Mr. Chairman?
The Chairman:
T h r e e p e r cent.
Governor Aiken:
The Chairman:
T h a t i s September paper?
T h r e e p e r cent f o r three. and four
months p a p e r i s t h e l e w r a t e i n N e w York.
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Federal Reserve Bank of St. Louis
Governer Aiken:
T h a t has been true o f us.
173
Governor Seay:
b o y o u know what rate t h e y make t o
eut-of-town correspondents?
The Chairman:
minimum.
7
F o u r a m f i v e p e r cent.
F o u r i s the.
T h e r e m a y b e some business i n special cases a t
a lower rate.
B u t t h e minimum rate f o r collateral loans
with correspendents i s four p e r cent today.
Governor Seay: I
call your attention t o the fact
per c e n t
that Richmond is the only bank that had a 4-1/2 rate u p »
to sixty days i n the country.
W e have n o t thought i t
expedient t o lower that rate. I
a m quite sure w e could
have gotten half a million o r maybe a million more paper
from L i s v a n k s a t a somewhat lower rate, possibly f u r ;
but w e did n o t feel that t h e banks that were borrowing
from u s were entitled t o that rate.
heretofore, a
T h e y never h a d been
great many o f them, a n d w e did not desire
to encourage it.
The Chairman:
reduce o u r r a t e s
I
te a
n our district w e would have t o
level t h a t woulda c o m p a r e w i t h t h e
estes which t h e banks a r e allowing o n their deposit a c counts today i n order t o induce t h e m t o discount notes.
They are all over i n their reserves,
Governor Aiken:
Governor Strong, I
T h a t would b e the situation w i t h us,
was Gown i n Maine Saturday night
and the president of one of the Maine banks told me that he
had borrowed m o n e y a t three p e r cent o f his correspondent
just a little while before,
I f w e reduced o u r rate t o
three p e r cent I think i t would b e more than met b y some
of
eur local banks.
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Federal Reserve Bank of St. Louis
T h e demand f o r money i s very slack and
L174
they a r e g l a d t o g e t t h e i r m o n e y o u t
a t a l m o s t a n y price.
~If w e lower s u r rate i t will simply
m e a n that w e will push
dcewn the rates f o r the Other banks.
Governor Fancher:
at Cleveland,
T h a t i s Drectically o u r
situatiun
W e discussed t h e matter
o f lowering t h e
rate a n d what bearing i t would have
o n bringing more Paper
to us.
W
e have been advised b y
the larger banks that
their country b a n k elientelle would
m e e t a n y rate w e would
name a n d w e t h o u g h t t h a t w e p r o b a b l y
would n o t get a n y mere
business and might b e Charged with bearing
rates throughout
the district,
Governor V a n Zandt:
I n Dallas w e thought w e
would
have a s m u c h c h a n c e i f w e m a d e
o u r rate five p e r cent f o r
sixty days instead o f four--=
Governor Seay: (Interrupting)
make i t feur?
W h a t induced youte
y o u hada never b e e n accustomed
t o i t before?
Governor V a n Zandt: A
few o f our directors thought
that t h e object o f the Federal
Reserve B a n k was t o lower
rates o f interest t o the member
banks,
Governor Wold:
D i d t h e y lower the rate without
recommendation o f the Governor?
Gsvernor V a n Zandt:
ing.
W
T h e y discussed i t a t every
e have h a d t h e s a m e rate Since
February.
W
e
net changed o u r rate a t all.
Governor Wold:
L o your directors make the rate
4 committee?
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Federal Reserve Bank of St. Louis
Governor V a n Zandt:
G?verner W o l d :
I
T h e Girecters.
n the ninth district o u r
rates still
have t h e distinction e f being t h e highest.
Governor Ceay:
b e y o n d s i x t y days?
Governor Wold:
Yes.
F i v e p e r cent f o r ninety days
and five per cent for six months.
T h e Twin City banks
are carrying fifty p e r cent reserve.
feur a n d a
I f w e make t h e rate
half p e r c e n t i t w o u l d n o t p r o d u c e a n y d i s c o u n t -
ing, b u t would simply give customers a n opportunity t o
de~
mand a lower rate i n getting their regular accommodations,
and w e d o not believe t h a t i s t h e purpose f o r
which the
bank was organized.
draws a
T h o s e w h o a r e rediscounting paper that
high o f interest c a n well afford
cent f o r ninety days. I
t o pay five p e r
would l i k e t o make inquiry a s
te when @ates made b y the other banks g O into effect.
What
is your policy i n New York, Gevernor Strong?
The Chairman:
I n New York w e have a meeting o f the
directors, ordinarily every Wednesday, although
this summer w e probably will have i t every other Wednesday.
I
t
has been s o m e time since a n y change w a s made, b u t when
any
Change i s made i n rates, t h a t information i s conveyed t e
the Federal Reserve Board immediately after t h e
meeting b y
telephone ortelegraph, a n d the Board, a s a rule, sends
us
an immediate reply.
w e then send a card t o the member
banks advising o f the change i n rate,
Governor Wold:
W h a t h a s been the custom with your
institution, Governor McDougal?
Governor McDougal:
T h e custem here i s t o determine
the r a t e a n d c o m m u n i c a t e t h e f a c t t e t h e beard;
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Federal Reserve Bank of St. Louis
t o await
176
their a p p r o v a l b e f o r e w e s e n d t h e n o t i c e
t e the member
banks.
Governor Wold: P e r h a p s w e have been wrong.
W e
have felt all along that the banks themselves should
make these rates, a n d i t should stand.
disappreves
I f the Beard
o f i t t h e n i t i s n o t i n effect.
T h e last time
we changed t h e rate they wired a n approval t o u s and asked
us when i t went inte effect.
W e told them three days
before.
Governor Aiken:
W h a t was their answer t o that?
Governor Viold:
T h e y advised u s t e hold u p t h e r a t e
and n o t put i t into effect until t h e y had confirmed it.
Governor Seay: I
d o not think a n y o f the banks that
are borrowing f r o m u s could obtain from a n y o f their correspondents, f r o m whom they have b e e n accustomed t o borrow,
as l o w a rate a s w e are granting them.
The Chairman: I
far a s I
understand
think that i s a
t h e i r relations
fair s t a t e m e n t
as
w i t h their correspond-
ents i n thet secti0n,
Governor Seay: I
think u p t e the present time we have
had sufficient justification f o r t h e rates w e have fixed.
You know,
i t has not prevented t h e banks f r o m discounting
with us.
T h e y are doing i t just as freely a s ever.
We d o not want t e appear t o b e isolated i n eur view
or opinion a t all, but we just came t o the conclusion that
that w a s a fair a n d equitable rate f o r our district.
w e
did not want t o disturb t h e rates t h a t had prevailed theretofere i n our district.
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Federal Reserve Bank of St. Louis
W e thought t h e thing h a d better
177
be approached g r a d u a l l y ,
i f a t all, a n d w e h a v e s t e a d i l y
maintained t h e rate.
The Chairman:
I s i t not a fact t h a t the reserve
banks, i n determining their policy about rates, must take
into consideration--- I
do n o t mean each bank alone, b u t
all o f them together--- the situation i n the country a s a
whole? —
T h e report o f the Comptroller o f the Currency o f
March 4 , reporting condition o f member banks,
showed a
o n March 4
surplus reserve i n the hands o f all o f the national
banks o f #$734,000,000.
Governor Seay:
T h a t i s rechoning a s the Comptroller
reckons.
The Chairman:
T h a t i s c a s h reserve a n d redeposit
reserve both.
Governor Seay:
T h e Comptroller reckons t h e surplus
reserve o f t h e wmuntry upen a different principle f r o m that
reckoned b y Comptrollers heretofore, I
notice h e takes
the total deposit o f surplus reserve, a s reckoned b y law,
but h e counts a s surplus reserve t h e d u e from banks.
I t
never h a s been counted before i n this country a s h e counts
it.
Governor V a n Zandt:
The Chairman:
D o e s that represent y o u r float?
O n the other hand h e i s basing his
calculation n o w upon the elimination o f t h e deduction
from gross deposit certain items that have heretofere b e e n
deducted; t h a t is, notes o f other national banks.
Governor Seay:
H e counts a s legal reserve t h e excess
above t h e amount that the banks a r e allowed t o keep i n the
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Federal Reserve Bank of St. Louis
178
hands o f their reserve agents.
reserve,
H e counts that a s legal
T h a t has never been counted that w a y before,
(Informal discussion followed.)
The Chairman: I
was getting t o the point that t h e
report o f the Comptroller discloses a
condition that has
never existed i n this m u n t r y before, namely, t h a t t h e reserves o f cash i n excess o f what t h e l a w requires, a n d t h e
balances carried w i t h the reserve agents i n excess o f what
the law requires, today amount
Gevernor Seay:
t o ever $700,000,000.
T h a t i s due t o the reduced require-
ment o f reserve--The Chairman:
T h a t is a
conditien---
Governor eld: (Interposing)
$ 4 8 0 ,000,000 of that
is d u e t o t h e f a c t t h a t t h e r e s e r v e r e q u i r e m e n t s a r e t h a t
much less,
The Chairman:
T h a t i s the psychology o f it.
T h e
banks came t o regard that a s free balance, a s a usable fund;
that is, t h e national banks alone.
T h e state banks o f
the c o u n t r y h a v e r e s o u r c e s somewhat, l a r g e r t h e n a l l t h e
national banks a n d they a r e laboring under t h e difficulty
of a n enormous surplus reserve. T a k i n g i t all together i t
may, and probably does, exceed 1 2 o r 13 hundred mililien
dellars
Governor McCord: I
believe e a c h reserve district
has reported, except t h e sixth,
W
e believe t h a t o r
rates are just about right, considering the conditions o f
the country.
T h e r e i s a hesitation o r halt i n the busi-
ness world that hes piled u p meney i n the banks which weuld
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Federal Reserve Bank of St. Louis
179
be used i f cenditions were cifferent.
W e raised o u r rate
te 4~1/2 p e r c e n t a n d s o m e o f o u r s t r o n g e s t b a n k s t o o k
down t h e i r l e a n s a n d a i d n o t d i s c o u n t a n y more.
W h e n we
placed the rate back to four per cent for 60 days and 4-1/2
per cent f o r ninety days, a n d five p e r cent beyond,
we
began t o get back some o f the strong business.
Governor Aiken: I
will ask, a s a matter o f informa-~
tion t o me, from Governor McCord, i f those banks--- his best
banks=--+- were a b l e t e liquidate a n d p a y down when h e put
his rate a t 4-1/2 per cent, and there was a plethora o f money
in his district, what object there was i n the Federal Reserve B a n k o f Atlanta putting i t s rate back t o 4 per cent?
Governor McCord: I
will answer that.
T h e r e were
some banks that were fortunately situated w i t h regard t o
the sale o f cotton.
C o t t o n was being sold i n the spring
of the year instead o f the fall.
T h e r e w a s n o sale f o r
cotton i n the fall o f the year. A
sold i n the spring:
good deal o f i t was
S o m e o f those banks h a d forced col-
lections a n d g o t themselves i n pretty good shape, whereas
others were aiding their customers i n taking care o f the
cotton, naval stores a n d other products; a n d w e felt that
if we could b e o f service t o them a t the same rates that
they could g e t money elscwhere, a n d i f they were getting
it elsewhere a t four p e r cent f o r 6 0 days, that i t would
be satisfactory t o u s t o make the discount.
I have just had compiled a statement a S o f May 1, shewing the borrewings o f my member banks o f that date, which
shews
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Federal Reserve Bank of St. Louis
$12,000,000 for the district.
W e had a t that time
180
84,800,000 o f it, which was 4 0 per cent o f the amount o f
borrowings o f the district.
If We had raised our rate t o 4-1/2 per cent w e weuld have
lost a n €lement that w e wanted t o retain and whose friendship w e wanted a n d whose business w e wanted, a n a w e would
have h a d t o tie t o us a n element that could n o t get money
any c h e a p e r a n y h e r e else.
The average rate o f discount with us o n the first o f
May was 4.5 per cent o f all paper including cattle loans
and f a r m loans a n d other paper.
4.5 per cent,
T h a t gave u s a rate o f
O u r loans a r e running off.
T h e y were about
{5,800,000 w h e n w e met i n Washington i n March.
We reduced o u r rate t o 4 per cent pretty s o o n there-
after, and they have run off to $4,133,000--- which was the
lowest amount~-- and they are back now t o $4,500,000.
The Chairman:
T h e reason this item was p u t o n the
program was t o ascertain whether t h e officers o f these
Federal Reserve Banks felt that the situation i n the
country a 8 a whole, w i t h its enormous excess reserve, would
justify us in making a general recommendation as to policy
te the Federal Reserve Board i n regard t o rates.
Governor McCord:
W e have n o recommendation t v make,
We are satisfied that we are about on an even keel and ought
to s t a y there,
Governor Seay:
Mr, Chairman.
T h e condition I
have i n m i n d i s this,
I t is easy for banks t o borrow now.
I f we
maintained t h e rate above t h e rate a t which certain wellmanaged b a n k s c a n borrew,
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Federal Reserve Bank of St. Louis
i t i s n e h a r d s h i p a p o n them; t h e y
can get all t h e money they want.
If w e reduce e u r rate, however,
i t will have a tendency
of encouraging banks t o borrow t o excess a n d w e will b e giv-
ing those banks a lower rate than they are, i n my judgment,
entitled te, speaking w i t h respect t o their o w n cendition.
Governor Wold:
I f Il may, I
would l i k e t o read some-
thing here from the Wall Street Journal, which + got the
other day.
I t had been m y thought that these banks were
not organized f o r t h e purpose o f competing with member
banks whose reserve they were carrying, a n d therefore i t
was not necessary t o quote a
quote a
raie, a n d w e ought never t o
rate t o compete w i t h them; t h a t t h e rate should b e
a little higher.
T h i s paragraph which I will read sets
forth m y thoughts s o mich better than I could state them
myself t h a t I will, withyour permission, r e a d i t t o you.
"It has not, however, been the policy o f the bank t e
force i t s f u n d s i n t o u s e a t a
time w h e n h u g h e x c e s s r e -
serves a r e held b y the banks throughout t h e ceuntry.
the r e s e r v e b a n k s b e e n i n operation a
mulated a
f e w years,
H a d
a n d accu-
considerable l o a n and investment account their
poliey under present conditions should b e t o withdraw funds
from the money market for t h e purpose o f correcting undue
ease o f money rates, which i s only too frequently accompanied b y unsound expansion a n d Speculation.
I
n fact,
the policy o f the reserve banks i n using their funds should
be influenced b y the desire t o stabilize rates rather than
te employ their funds a t any rate, f o r the sole purpose o f
earning dividends, without regard t o the effect o f such a
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Federal Reserve Bank of St. Louis
policy."
Governor Séay:
Governor Wold:
D o y m k n o w the author o f that article?
T h a t i s a n exceppt f r o m a speech made
by Governor Strong i n New Yersey.
Governor Seay: U n d e r similar conditions, from a
different point o f view, t h a t h a s been what has
governed
us s n d w e h a v e e v e n m a i n t a i n e d o u r r a t e s
a t higher t h a n
those o f the other Reserve Banks under those conditions,
and that has n o t operated a
hardship.
W e believe t h e banks
are getting the rate t o which they are entitled.
Other
banks w h o are entitled t o a lower rate c a n get
i t without
any difficulty outside.
Governor Fancher:
wheat banks.
w e are discounting f o r some small
w e d o n o t believe their balances have war-
ranted f o u r per cent money. I
think they have h a d a s
lov a rate when they were borrowing from their
correspondents a s v e are making today.
The Chairman: I
our district,
a s disclosed
the Comptroller,
correspondents
d o not think there a r e a n y banks i n
i n t h e copies
o f the report t o
t h a t a r e borrowing a n y money f r o m their
i n New York Cyty, Philadelphia, A l b a n y
or anywhere else a t less than four p e r cent
interest,
Governor Van Zandt: I
do not know o f any banks
in our district~--- I have n o t learned o f
any a t least--who are borrowing a t less t h a n s i x per cent,
with
probably o n e o r two exceptions.
Governor Lowry:
O u r policy i n the twelfth district
has been t o place our rate Slightly above the market
rate
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Federal Reserve Bank of St. Louis
183
for t h e b e s t c e m m e r c i a l paper.
W
e have n o t o n s i d e r e d
8Q much the rate a t which these member banks could borrow
elsewhere,
a s w e have considered t h e m r k e t r a t e f o r pur-
chasing paper.
tle above that.
W e have attemptod t o keep out rate a lite
A S a matter o f fact, however,
getting that kind o f paper rediscounted,
w e are n o t
T h e kind o f paper
that w e get i s paper o n which t h e member b a n k collects a n y where f r o m s i x t e 1 2 p e r c e n t p e r a n n u m
Governor McCerd:
I
n o u r district
w e did not feel
justified i n raising t h e rate beyond what i t i s a t the
present time, especially w h e n t h e leading wholesale houses
of e u r p r o m i n e n t c i t i e s c a n g e t t h e i r m o n e y f r o m brokers
at3-1/4 and 3-1/2 per cent.
Gevernor McDougal:
Y o u are loaning money, I presume,
very largely t o the small banks?
Gevernor McCord:
and greups 2
N o ; w e loan some t e group 1
banks
and 3+--+
Gevernor McDougal: I
know, b u t a large percentage
of i t i s t o the smaller banks,
Gevernor McCord:
N o ; t h e proportion i s very nicely
and evenly divided,
Governor McDougal: wWhet Are yeur member banks charging t h e i r c u s t o m e r s
o n money w h i c h y o u l o a n them?
Governor McCord:
S i g per cent.
T h a t i s the group 1
banks.
Governor Wold:
M a y I ask what t h e ordinary rate paid
by the country banks o n depesits i s ?
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Federal Reserve Bank of St. Louis
Governer McCerd:
D e you mean where t h e y p a y interest
On deposits?
Governor Wold: Y e s ; s a y s i x months.
Governor MeCord:
F o u r p e r cent.
Governor Wold: “ o n ' t they pay more than that?
Governor MeCord:
Governor Wold:
N o sir; about four p e r cent.
Y o n ’ t they p a y five p e r cent?
Governor McCord:
Governor Seay:
N o ; that would b e a rare case.
w e consider i t quite remarkable that
we have not been called upon t e defend a 4-1/2 per cent
rate,
Governor McCord:
W e have been called o n t o defend
& four per cent rate.
W e were losing t h e business a n d
the friendship o f our customers,
W e saw i t was out of
line and w e went t o four per cent.
Satisfactory.
I t has been very
I t has n o t brought i n any paper, a s our
Statement shows.
W e have gone down i n volume.
Governor Wold:
I
s i t not m u c h cheaper f o r t h e m t o
take money from yeu than i t is t o take deposits a t four
per cent. T h e y don't carry any reserve o n their rediscounting a n d they have t o carry a reserve o n deposits.
Governor McCord:
W e d o not care anything about that.
We want t o serve the general public,
Governor Wold:
tion,
B u t that does n o t answer t h e ques<
I f they carry a reserve e n their f o u r per cent de-
posits does i t not cost t h e m more o n the deposits
than i t
does t o rediscount,
Governor McCord:
serves,
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Federal Reserve Bank of St. Louis
T h e y only carry five p e r cent r e -
185
GOvernor Wold:
T h e reports o f the Comptroller o f
the Currency d o not indicate t h a t t h e y a r e carrying a
five p e r cent reserve--+
Governor McCord: (Interrupting)
T h e y d o show five
per cent reserve o n i t i n their statements t o us.
The Chairman:
T h e real question i s not what rates
are i n existence, b u t rather o n e o f future policy,
i s it
not?
Governor McCord:
T h e judgment o f our executive com-
mittee was that i t was o u r duty t o the community, u n d e r t h e
present conditions,
days.
t o carry a four per cent rate f o r sixty
T h e y believed t h a t that would b e a just and f a i r
rate.
The Chairman; I
guessthat i s what t h e New York banks
are charging t h e banks i n that district today.
Governor MeCord:
T h e r e a r e wholesale houses i n m y
city that a r e selling their paper i n the o p e n market i n
New York at 3 to 3-1/4 per cent,
Governor Seay: I
have spoken with regard t o it as
many times a s I have rather with a view t o finding out
whether I
was w r o n g t h a n t r y i n g t o p r o v e t h a t I
w a s right.
I would judge f r o m the course o f o u r operations t h a t w e
have done approximately t h e right thing, perhaps.
The Chairman:
U n d e r present conditions i t hardly
Scems a s though i t i s possible t o make a
four end a half per cent,
rate o f four o r
A r e the reserve banks now
ina position t e safely make a n y further reduction i n rates?
Won't the consequences o f further reduction simply be a
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Federal Reserve Bank of St. Louis
186
general reduction o f interest rates, without a n y bysiness
to speak o f t o the reserve banks generally?
H e r e are seven
or eight hundred millions o f reserves unused i n the hands
of the member banks that are being held awaiting use. T h e
banks a r e n o t willing t o put the money o u t a t the rates
that t h e y c a n get; i t i s unprofitable f o r them t e d o B80,
and i f the federal reserve banks reduce t h e rates below
their prosint levels, are they not going t o reduce the rates
on e x i s t i n g l o a n s a n d f o r c e t h e s u r p l u s i n t o u s e i n o r d e r
that the banks may earn their expenses and dividends?
S p e a k i n g f o r the sixth district,
Governor McCord:
we have n o disposition t o decrease rates a t the prescnt
time,
Governor S e a y :
T h e evils attendant u p o n t o o l o w a
rate a r e greatcr t h a n those attendant u p o n t o o high a
rate.
Governor Aiken:
T h i s i s a n expression o f opinion
as a basis f o r the formulation o f ao recommendation t o the
Federal Reserve Doard.
The Chairman:
I t is a
mestion i n m y mind whether
or net w e would b e justified i n indicating the necessity
of action a t this time due t o a desire t e make money o r
of earning interest a n d other expenses a n d dividends, a n d
just mark down the rates regardless o f consequences.
is what I
a m afraid e f persenally a n d what I
That
think i s the
great danger t o this country today.
Geverner McDougal:
the Board doing that?
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Federal Reserve Bank of St. Louis
V e you feel there i s danger of
187
The Chairman:
N e , t h e Board will n o t a c t e f its
Own motion, outright, i n making the rates lewer.
What
the board might b e inclined t o d o would b e t o meet t h e
desire o f any o f the reserve banks t o cut rates a t a time
when i t involves great danger t o this country.
Governor McDougal:
T h a t matter w a s u p for discus~
Sion with a member o f the Board a n d t h e conclusion w a s reached that o u r present rates should n o t b e disturbed.
W e are
loaning money n o w t o member banks a t a four per cent rate,
a lower rate t h a n the member banks i n this district e v e r
have been able t o borrow from-their correspondents before.
It was t h e opinion o f the Board that w e would b e wrong t o
accept a
lower rate e v e n i f i t was offered us. M o r e o v e r ,
we are loa@ing quite a s much a t four p e r cent a s w e would
be if we had put it at 3 or 3-1/2 per cent.
Governor Aiken; G o v e r n o r McDougal reflects t h e
feeling i n our district, I
a m very sure, Mr. Chairman;
he
certainly reflects m y o w n personal feelings v e r y strongly.
Governor McCord:
I t i s the concensus o f opinion that
about four p e r cent f o r 6 0 days i s about t h e correct level
for present conditions.
Gor ernor Aiken:
I n the first district.
Governor McCord:
f i n d in’ the s i x t h a n d seventh.
Governor McDougal: I
Governor McCerd:
was speaking f o r o u r district.
T h e n there i s t h e first, s i x t h and
seventh.
The Chairman: I
Yerk a t present,
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Federal Reserve Bank of St. Louis
think that i s the feeling i n New
188
Governor Seays I
do not feel a t the present time
there ought t o b e such a thing a s a uniform rate over t h e
country.
Governor McCord: G o v e r n o r Seay, I can see where
you are probably justified in maintaining a 4-1/2 per
cent rate.
Y o u have t h e cotton mill industry t o take care
of and that takes a good deal o f money.
T o put a cheap
rate i n that particular locality would affect conditions.
You border o n our district a n d I have observed that.
W e
are n o t l o a n i n g a n y c o t t o n m i l l m o n e y b e c a u s e o u r p e o p l e
are able t o get the money a t o cheaper rate than we name,
The Chairman: Certainly i f a lower rate than four
per cont were justified i t would b e i n Boston, Chicago,
Philadelphia and New York to-day.
T h e Board has shown
no disposition t o reduce t h e rate below feur p e r cent.
Whether you would feel disposed t o convey any i m p r e s s i n
o
ef y o u r v i e w s
t o t h e B o a r d o r not, t h a t i s a
in yeur hands, I
matter e n t i r e l y
do net want t e suggest that o r urge it.
But i t i s a good plan f o r u s t o discuss t h o rates w h e n w e
get together. D e c i d e d l y the discussion w e have had i s
enough f o r o u r o w n guidance o r our o w n understanding o f
what t h e policy o f the other banks will be.
Governor McCord: I
will say this:
J I think the dis-
counts i n the sixth district will materially increase i n
the months o f July, August and September, b y natural conditiens, b u t they will b e o f a self-liquidating nature,
paper that ¥111 mature October 1
and b e paid October 1 ,
unless their crops a r e stopped f r o m being mrketed.
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189
Governor Wold: S u p p o s e cthey don't get any crops?
Governor McCord!
T h e y will get a crop all right.
They have g o t a crop.
The Chairman:
ject, gentlemen?
ficient
W h a t i s your pleasure about this sub-
T h e discussion that has been had i s suf-
t o r e c o r d t h e v i e w s o f t h e m e m b e r s present.
L
o
you care t o make any recommendation?
move that the Federal keserve
Governor Alken: I
Board b e advised t h a t t h e matter was under discussion a t
this meeting a n d t h e concensus o f opinion was that i n view
ef the large excess reserves throughout t h e country a t the
present time i t d i d not seem t o us expedient t o generally
reduce t h e discount rates a @ t h e Federal Reserve banks
at present.
The Chairman:
I s there a
Governor MeDeugal: I
The Chairman:
second t o that motion?
will second that motion,
I s there any further discussion?
(There was n e further discussion and the motion
was duly put and carried, )
Governor McCord:
M r , Chairman, I
believe there should
be a maximum a n d minimum rate f o r discounting b y Federal
Reserve Banks; a minimum where the bank i s perfectly willing t o take it, a n d a maximum where i t i s compulsory. I
was wiped o u t o n this proposition a t t h e March meeting,
and governed myself accordingly. N e v e r t h e l e s s [ I think
that is the correct view t o take of it: T h a t if 1 see
fit o n account e f business cenditions t e move t h e products
of our section and you other banks have money that you are
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Federal Reserve Bank of St. Louis
190
willing t e name u s a reasonable r a t e © n o n discount w e
Should take advantage o f it, T h e r e @ught t e be some lea-~
way i n the matter, I
be a higher rate,
think t h e compulsory rate should
T h e compulsory rate really Ought t e b e
the governing rate o f discount a t home,
Nevertheless,
i t d o e s n o t m a k e a n y difference
We will travel along i n eur way.
t o us.
W e have been able t o de
it so far and I guess w e will continue.
Governor V a n Zandts I
think some minimum rate should
be established f o r rediscounting w i t h other federal
reserve
banks. I
myself, I
am looking forward t o doing some o f that business
really d o not believe i t is right that we
should put out sixty day paper without endorsement o n it
and get the same rate o f interest t h a t w e receive, a n d
be
put t o all t h e expense o f examining t h e paper a n d
making
the loan,
Y e t o n the rates promulgated b y the Federal
Reserve u s e d C h e t i s what w e have t o do.
O u r sixty d a y
paper i s four p e r cent a n d t h e sixty d a y rediscount w i t h
ether Federal “eserve Banks i s feur per cent,
Go ernor Wold:
Governor Aiken:
Y o u a r e n o t required
t o d o it.
W h e n the demand ftr accommodation
is sufficiently groat i n the Dallas District t h e y c a n
properly p u t u p the rate---
Governor McCord: (Interrupting)
N o sir. T h e
business would g o somewhere else.
Governor McDougals A
bank which found itself
appreaching the time when i t had t o rediscount, then i s
the time t e put e n the brakes a n d p u t u p the rate t o
five
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Federal Reserve Bank of St. Louis
or s i x p e r c e n t
Governor Wold:
T h e y should p u t the rate u p before
that.
Governor McCord: I
condition, I
am speaking o f a crop moving
just simply mentioned t h e matter. I
particular about it. I
a m not
will withdraw it.
Governor Van Zandt:
M y idea i m stating that was this:
We have h a d a n offer from o n e brokerage f i r m f o r all o r
any part of our rediscounts a t 2-1/4 per cent.
w h y should
we be compelled t o g o t o another federal “eserve Bank
at
4 per cent when we can get a 2=1/4 per cent rate on it? I t
looks l i k e t o was a little b i t unreasojable t o me.
GOvernor Aiken:
W i l l t h e *ederal “eserve B o a r d perr-
mit a Fedcral “eserve B a n k t o sell i t s paper t o a broker?
Governor V a n Zandt: I
don't know.
O f course i t i s
previded f o r i n the Federal tieserve ActGovernor McDougal:
I
t would s e e m hardly right f o r
a Federal Keserve B a n k t o ask its neighboring reserve b a n k
to rediscount f o r t h e m a t a rate materially lower t h a n
the rate a t which the lending bank would b e putting money
out t o its o w n member banks,
I t seems t o m e that i f w e
are rediscounting f o r Dallas, Atlanta,
o r any Other reserve
ene t h a t w e should a t least have o u r minimum rate. i
believe our menber banks would object t o out putting their
money o u t i n that wWayGovernor Seay:
I t seems wuite p l a i n t o me, Governor
dcLougale-- s n d + speak i n view o f the possibility o f being
a bank that might b e placed i n that position, although I
d@ not anticipate o r contemplate it--- that that woulda b e
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Federal Reserve Bank of St. Louis
192
the time t o raise t h e rate s o that t h e rate o f the bank
applying f o r the discount weuld b e higher t h a n t h e bank
te which i t applies, I
imagine t h e bank granting t h e re«
discount t s the other bank would grant i t a t its lowest rate
for that class e f paper.
Would that b e your idea?
Governor McDougal:
4s a p p r e a c h i n g a
W e certainly think a bank that
time when i t would b e necessary
t o redis~
count ought t e put its rates u p good a n d strong: N a t u r a l l y ,
under those circumstances, t h a t weuld b e a higher rate t h a n
the rate which w e would have f o r accommodation,
Governor Seay: I
think that i s a reasonable and
sound pesition a n d I quite agree with it.
Governor McCerd:
T h e business will g e somewhere else
if the bank will not---
Gevernor Scay (Interrupting): O u g h t i t not to go
semewhere else?
Governor Wold:
T h e bank i s doing a l l t h e business
it can,
Governor McDougal:
T h e banks ought t e b e taught,
I believe, o r given to understand, that the Federal Reserve
Banks are secondary places t o come for assistance rather
than first places, under some circumstances,
The Chairman;
T h i s topic i s not o n the program, b u t
it i s a n important one, G o v e r n o r MeCord raised t h e questien.
Governor MeCtrd: I
pessibly have precipitated a dis-
cussion o f toe great length and I therefore wish t o with-
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Federal Reserve Bank of St. Louis
draw it.
The Chairmant I
think this meeting ought t o be o f
a character s u c h that a n y subject which a n y Governor wants
to bring u p c a n b e discussed.
But t h e real question i s what
i f any. action,
i n the
way o f a report, should b e made t o wind u p the ¢ciscussien
in a business l i k e fashion.
h a t d o y o u suggest?
H a v e
you areccommendation that y o u would l i k e t o submit?
Governor McCord:
N o n e whatever,
T h i s question w a s
threshed o u t a t the March meeting a n d I simply brought i t
up today.
Y o u gentlemen still s e e m t o b e agreed u p e n
it and w e will l c t i t rest.
Governor Seay: I
was a t first o f the opinion that a
Federal Reserve Banks t h a t offered i t s paper t o another
Federal Reserve Bank for rediscount might b e entitled t e
something for the vdue o f its endorsement. I
have since
changed t h a t opinion a n d Ibelieve that w h e n t h e time approaches f o r a
federal r o s e r v e b a n k t o a p p l y f o r r e d i s c o u n t
that i t should raise i t s rates.
Governor McCord:
W e would not increase our rates
when the other Federal Reserve Banks were holding their
rates down.
W e might a s k for rediscounts, a n d unda t h e
present s i tuation before me, w e would p a y y o u your minimum
rate that y o u were charging, because w e would g e t t h e gold
and w e could utilize i t for moving our crops; and the amount
of the loan w e got from you we would lean a t the same rate.
We would take care of conditions i n our district and make
some profit off the 60 per cent o f surplus that we have ad~
vanced the gold against.
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Federal Reserve Bank of St. Louis
W e would not under any circum-
194
Stances raise o u r rates beyond t h a t charged b y the other
Federal Reserve Banks.
Governor Seay:
A S a matter o f abstract principle,
Gavernor McCerd; w h y would y o u not b e governed i n your a c -
tion as a Federal 4esefve Bank b y the same principle that
would govern y o u i f y o u were b a c k t o your o l d member bank+
ship, a n d b e governed b y the demand?
Gorernor McCo@d:
I n the last analysis i t would b e
detrimental t e the member banks i n our district t o d o any
berrowing except a t the crop moving period, a n d that would
increase t h e r a t e o n thes e
banks
i n t h e @ p e n market,
W
e
have got m a e than one class o f business t o serve, and the
interest o f thes e
banks i s just a s much t o us as other-
wise,
The Chairman:
G o v e r n o r McCord, y e u are thinking
of the banks i n your district, a n d I think y o u have g o t t o
censider--+
i n fact I
t h i n k w e a l l h a v e g o t t o consider<-—«
what i s the real spirit o f this reserve act,
I
t did ine
tend t o break u p the inter bank relations t h a t exist between
the banks i n the central reserve cities and their correspendents, b u t i t did net intend t o do it i n six months,-G overnor McCord: ( I n t e r r u p t i n g )
I t does expect t o
de it,
Governor Strong:
L e t m e finish, please.
Ga ernor MeCoré: C e r t a i n l y , Mr. Chairman.
The Chairman:
T h e Federal “eserve a c t \
provides that the country banks are going t o withdraw their
balances w h i c h c o u n t a s r e s e r v e s f r o m t h e r e s e r v e a n d e e u sro)
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Federal Reserve Bank of St. Louis
reserve cities o v e r a period o f three years,
Now, y e u r proposition, carried t o its last analysis,
means t h a t while t h e withdrawal o f reserve balances i s t o
be a c c o m p l i s h e d
i n three years,
i n s i x months y o u a r e
going t o deprive those banks i n the reserve a n d central
reserve cities o f t h e value o f their customers a s borrowers a n d have t h e reserve b a n k o f Atlanta d e the lending t o
those banks i n another district s n d take that business a w a y
frem their correspondents.
(believe i t i s t h e intention o f the-act that ultimately that
should b e m n e , b u t I
do not believe i t i s intended that
it should b e done i n six months.
W h e n y o u think o f
the interest o f your customer-banks
i n your district, a n d
that this means t h a t ultimately i n three years y e u will n o t
be able t e lend t h e m money just a s cheaply a s possible,
compared w i t h the level o f rates i n other districts--- y o u
will
overlook t h e fact that this Federal Reserve A c t h a w dug
#300 ,000,000 o f deposits out o f the New York banks i n three
years,
I t i s unfair a n d improper t o impose u p o n those
bamks a t a time o f easy money, t h e withdrawal o f the
businese o f their good custonmrs which they have taken
care O f for years, because t h e Federal Reserve Banks want
to pay dividends i n six months o r i n a year.
I have stated t h a t very plainly a n d without a n y real
feeling a t all, because that would b e the effect o f your
policy a n d i t i s a mistake; there i s n o question about
it,
Governor McCord: I
te the purpose w e have,
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Federal Reserve Bank of St. Louis
beg leave t o differ with you as
w e have n o t t h e purpese t o cause
196
the withdrawal o f business f r o m the centers a t all.
W e
have n o t t h e dispositien t o make dividends u n d e r those
conditions,
B u t w e have t w o classes o f bankers t o serve.
When I tell y o u o m e things t h a t happen t h e n probably y o u
will s e e w h y w e take t h e position w e do,
When we raised the rate to 4-1/2 per q@ent the rate was
raised on some good, strong, steady banks 4n our immediate
territory a
corresponding: amount a n d was n e t raised i n
other districts. N a t u r a l l y i t would b e raised o n our
Class 1 banks i f they were borrowing.
T h e r e f o r e o u r com-
mittee felt that w e should stand o n the same basis a s other
reserve banks and d o just a s much business a s our funds
would justify u s i n doing and then stop and d o no more,
unless i t was simply t o move the crops, i n which event w e
would p r o b a b l y r e d i s c o u n t
t o t h e member banks,
i f y o u gen-
tlemen saw fit to do it, and if you don't, w e will just
Sit dewn and wait for the opportunity--Governor Wold:
the country--- a n d I
4 o t h e banks i n your district,
in
do n o t mean f o r you t o pick o u t iso-
lated cases--~ but @ ® t h e banks generally l a n money t o
their customers o v e r t h e counter a t any where n e a r t h e rate
that the banks i n New England make loans t o their custemers?
Governor McCord: I
do net know what t h e y de i n the
New England States, but I know that the banks i n my dis-
trict with a capital of $500,000 t o $1,000,000 are loaning
to their custonmrs a t s i x p e r cent.
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Federal Reserve Bank of St. Louis
197
Governor Fold: W h a t de the banks charge with a $50,000
capital?
S e v e n and eight per cent.
Governor McCord:
Governor Wold:
T h e rates a t which the Federal Keserve
banks ban ought t o have some bearing o n the rates a t which
do not believe that the Federal “eserve
we rediscount. I
Banks a r e going t o level t h e interest rates a l l over t h e
country.
The Chairman:
T h e y will i n a few years, o r come
pretty close t o it, but 1 do not think they ought t o do i t
over n i g h t r e g a r d l e s s
o f t h e consequences
i n other sections
of t h e country.
Governor Wold:
Y o u create inflation i f you offer money
at a rate s o much lower than the banks themselves are
loaning i t at, and when the three year readjustment peried
comes around, and the crisis comes, w e are going t e have
a splendid opportunity t o lend money.
Governor Seay: I
for u n i f o r m i t y
o f rates
de not believe that it is logical
t e be brought a b e u t through t h e
instrumentality o f the Federal “eserve Banks. A
Federal
Reserve Bank in a district where funds are scarce has te
draw its fund from other district where funds are mere
i 1s logical or fair that
plentiful.’ I de net believet
I am —
the rates should be made uniform by that process. “
arguing somewhat against m y o w n district, b u t a m arguing
frem a purely logical standpoint.
Governor McCord: I
agree with that. I
believe you
are correct i n your views; b u t Ido net believe i t is neéessary for the ‘sixth a@istrict t o raise its rates i n 4 crop
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Federal Reserve Bank of St. Louis
198
moving period i n order t e send t h e business somewhere else.
Governor Fancher:
I t seems t o m e you have all the
business y o u c a n take care o f when y o u have loaned yeur
resources,
The Chairman: I
think you have got the cart before
the horse, F r a n k l y this business has been done b y New
York and Chicago for years.
I t has been done at fair
rates, and New York, Chicago, Philadelphia and other banks
have held these reserve deposits f o r years.
T h e act pre-
vides that i n a period o f three years that relationship
must b e broken up. H e r e , i n a period o f great ease p f
money, w h e n a
crop moving s e a s o n c o m e s along,
t h e question
is shall they relinquish t h e only prefitable feature o f
the business that exists today i n order that the Federal
Reserve Bank o f Atlanta may take i t frem them, ana then,
by George, have that bank come u p t o New York and borrow
their money from the Federal “eserve B a n k o f New York--~their o w n money~--- a n d t h e y d o n o t b e n e f i t
b y i t a t all.
It
leoks t e me as though i t was a very unjust view and a n tine
just development i n the scheme of the Federal Seserve plan
to happen over hight a t this season o f easy money.
Governor Aiken: I
would like t e ask Governor M c -
Cord i f they have not, i n the past, always raised their
rates i n a crep moving perled down there?
Governor McCord:
B e c a u s e N e w York raised t h e m o n us.
The rates t e the custemers have n o t b e e n raised.
T h e
rates were maintained a t s i x per cent when t h e banks i n Atlanta were paying five a n d a half i n New Yerk.
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Federal Reserve Bank of St. Louis
199
I t seems t o m e y o u are looking
Governor Fancher:
at the entire situation i n that view because o f a condition
that might exist only i n 4tlanta o r New Yrleans.
as
Governor MeCord:
I n Birmingham a n d Nashville,
Governor Fancher:
T h e r e a r e hundreds o f small banks
well,
of from $50,000 t o $100,000 capital that, when it comes t o
crop moving time, have b e e n accustemed t e borrow their
money a t s i x per cent i n New York--T h e y p a y five p e r cent.
Governor McCord:
T h e y have paid s i x per cent a
Governor Fancher:
great m a n y times t h e last f e w falls, a n d have made a profit
because t h e y have charged eight, w h i c h i s t h e rate down
there.
de not s e e w h y w e should b e called
Governor McCord: I
on t o raise o u r rate just i n a crop moving season:
w e
certainly a r e n e t going t o ask f o r any lower rate.
Governor Wolds:
U n d e r what conditions ought a
to raise i t s rates,
bank
I s i t not supply a n d demand t h a t
should regulate o u r rates?
I f i t does not, w h a t should
regulate i t ? S e n t i m e n t ?
Governor McCord:
N o , that i s not it. S u p p l y and
demand ought t o regulate it.
T h e trouble o f it is the
supply a n d d e m a n d i s n o t e q u i t a b l y distributed, b e c a u s e
whenever w e raise t h e rate t h e business g o e s a w a y from us;
it i s cheaper somewhere else.
Governor Fancher:
I s not that t h e cyndition y o u wish
te reach, i f y o u are overleared?
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Federal Reserve Bank of St. Louis
200
Governor McCord:
business.
W e are not e8pccially wanting t o do the
W e will g e t along with what reserves w e have,
just move elong very smoothly--Gevernor Seay:
(Interposing)
Y o u c u t y o u r pattern.
according t o yeur cloth?
Governor McCord:
Governor Scay:
S u r e .
T h a t i s ast the spirit o f the Act---
Governor McCord:
T h e spirit seems t o be that w e ought
to raise e u r rates j u s t because there i s going t o be a dew
mand,
Governor Seay:
B u t i f your demand exceeds y o u r r e -
Scurces--= that i s the peint I
a m trying t e get at--- a n d
Tam trying t o get a t it from the same view you reach it,
{ am not arguing against you, but a m arguing-~-
Gevernor McCord: (Interrupting) W e l l , we will
Stand just where w e are a t the present time.
I f our
customers need more money they c a n go somewhere else and
get it.
Governor Seay;
Y o u would n o t raise your rates, b u t
would j u s t l e t them go?
Governor MeCerad;: I
d o n o t t h i n k w e will.
T h a t is
the policy of our committee down there, unless dher people
raise their rates,
Governor Seay;
Y o u think yeur district ought te
have the advantage o f as low a rate a s any other district?
Governor McCord:
U n d e r conditions that exist a t
the present time; yes,
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Federal Reserve Bank of St. Louis
Governor Aiken; h e t h e r y o u have the money o r net?
201
Governor McCord:
W
e have g o t t h e money. I
analyzed t h e matter f r o m more points t h a n one.
have
T h e banks
in the South have a s much money o n deposit i n New York a s
they have berrowed f r o m N e w York---
W h y d o you keep i t
The Chairman: (Interposing)
there?
Governor McCord:
I t is simply a matter o f handling
Lt. S o m e have been carrying balances and borrowing--Governor Seay: ( I n t e r p o s i n g )
I f you take t h e whole
South, they have more money than they borrow; b u t 1 do
not think that that would b e a principle b y which t o decide t h e rate,
Governor McCord:
W e l l , w e will just work i t out o n
the l i n e u p o n w h i c h i t i s moving,
The Chairman:
a n d l e t h e r ge.
A f t e r all, Governor McCord,
i t will
be a questien o f whether the Federal Neserve Bank o f Atlanta i s willing t o meet the rates o f the other districts,
ultimately.
Governor McCord:
I f the other rates are raised, o f
ceurse w e are not going t o sit down and try t o maintain a
rate lower t h a n anybody else.
Governor Aiken:
W h y should t h e bank i n the Boston
district m a i n t a i n i t s r a t e s
on a
tion i n the Atlanta District?
basis b a s e d o n t h e c o n d i -
I t would, o n Gevernor Mc-
cord's theory.
Governor Wold:
W e ought te get about 3-1/2 per cent,
because San Francisce got that---
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Federal Reserve Bank of St. Louis
Gevernor Lowry: (Interposing) T h a t was more of an
experiment t h a n anything else, Governor Wold.
The Chairman:
G e v e r n o r McCord, y o u brought u p the
question o f the rediscount rates.
W h a t disposition d o
you w i s h t o m a k e o f it?
Governor McCord: I
have asked twice t o withdraw .the
propositien,
P l e a s e understand me. I
it because I
a m satisfied t h a t y o u have whipped m e i n the
argument ( l a u g h t e r ) . I
a m sorry I
a m not withdrawing
brought t h i s d i s c u s s i o n y p
because there i s ehher important bussiness t e attends t o ,
and I move t h a t w e proceed w i t h the program.
Governor Seay: I
think i t has b e e n v e r y edifying
and I am glad that you brought i t up, for one.
Governor Aiken: I
meve t h a t w e p r o c e e d w i t h t h e c é n -
sideration o f the program,
Governor McCord: I
The Chairman:
tions:
second that motion.
I t e m 9, Governor Rhoades, "Collec-
( a ) S t a n d a r d method o f collecting notes, warrants
and acceptances;
( ® ) C e l l e c t i o n o f warrants payable Q u t -
sidethe district and i n a city where there i s n o Federal
reserve bank."
Governor Rhoades:
I t e m (a) has already been discus-
sed sometime teday. I
The Chairman:
forget when.
N o disposition w a s made o f it,
Gevernor Rhoades:
A n expression o f opinion I think
was reached.
The Chairman:
notes,
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Federal Reserve Bank of St. Louis
O n l y with reference t o discounted
T h a t i s all w e discussed,
Geverner Rhoades: I
ask, f o r informatien, whether i t
203
is the sense o f t h e Governors t h a t netes rediscounted a n d
payable outside t h e district should b e sent back t e the
Federal Reserve B a n k b y which rediscounted,
o r should w e
attempt t o collect t h e m through another Federal Seserve
Bank i n whose district the place e f payment i s located.
The same applies t o warrants.
The Chairman:
W h a t d o y o u suggest?
H a v e you a
resolution t o offer, Governor Rhoades?
Governor Rhoades: I
should advocate a
policy o f at-
tempting t o collect t h e items direct rather t h a n through
the member banks a t which rediscounted.
warrants 1
I
n the case o f
should attempt t o collect t h e m direct through
the Federal Reserve B a n k i n whose district t h e y were payable.
The Chairman:
A n d acceptances t h e same way?
Governor Rhoades:
Governor Wold:
Y e s ,
L e e s that apply t o purchased paper?
Gevernor McCord:
M a y I ask this question? S u p p e s e
your m e m b e r b a n k r e q u e s t e d y e u t o c o l l e c t t h e i t e m a t
the peint o f payment,
i n view o f t h e disposition o f the
other Federal Keserve Banks t o aid u s i n that direction?
In m y district I
York.
have discounted s o m e paper payable i n New
S o m e o f our members say they would like t e have
the paper sent forward.
I
f y e u adopt t h e rule y o u sug-
gest here y o u would have t e send i t back home.
Governor Rhoades: I
advocate t h e policy o f sending
it t e the place o f payment.
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Federal Reserve Bank of St. Louis
Governor McCord: D i r e c t t o the place o f payment?
Gevernor Rhoades:
Y e s ; or, i f i n another district,
204
you would have t o reute i t through t h e Federal Keserve
Bank.
Governor Wold:
O u r policy has been, instead o f
sending it to the Federal Heserve Bank, t o forward direct
to t h e t o w n w h e r e i t i s payable, p r o v i d e d t h e r e i s a
mamber
bank there, w i t h instructions t o remit t e their Federal
Reserve B a n k for o u r account.
W e recently discounted s o m e
purchased paper for the New york Bank, payable i n Chicago.
We got eastern exchange f o r it.
I
f w e had h a d t o send i t
back t e them we weuld have just been out the eastern ex~change, whereas w e cellected i t ourselves through the Feder-
al Seserve Bank of Chicago and got eur eastern exchange
back.
Governor Seay:
I t cellected i t free for you?
Governor Wold:
T h e Federal Heserve Bank o f Chicago?
Governor Seay:
N o , the member bank?
Governor Wold:
T h e member bank usually charges.
The Chairman:
M i g h t i t not be desirable i n many
cases, where paper i s payable outside the district, t e send
that paper t o the Federal Reserve bank o f the other district?
Governor W o l d : w
e have acted u p o n the suggestion
ofMr. McKay, which we thought was a far better method.
did save one trip,
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Federal Reserve Bank of St. Louis
I t
T h e paper would g o t o the Chicago bank,
205
for instance,
i f i t matured i n the Chicago district, a n d
they had t o reforward it, whereas,
i f we sent i t direct t o
the First National B a n k with instructions t o collect f r o m
the Federal Reserve B a n k a t Chicago,
The Chairman:
i t saved o n e operation,
I f i t was i n some c i t y i n which a
Feueral Seserve Bank was located you would send i t t o
the
Federal Keserve Bank?
Governor Wold: S u r e l y .
Gevernor Seay:
“ t the same t i m e they subjected y o u
to a charge which y o u imposed o n your member
bank, w h e n
there w a s one?
Gevernor Wold:
I f i t was done where t h e y h a d facil-
ities t h a t would enable t h e m t o collect without a
charge,
then w e would return i t t o them.
Gwernor McCord:
Governor Seay:
T h a t has b e e n o u r policy.
I f yeu had pursued the other method
of sending it to the Fedcral “eserve Bank, while i t would
have involved more handling, i t could have been collected
without t h e charge.
Governor Wold: I
:
do not agree with you. I
know thether t h e member bank would make a
& Federal Reserve Bank without charge.
do not
collection f e r
i e sent one item
to Atlanta, payable i n the district, a n d i t was reforwarded
by the Atlanta B a n k and a charge a f o n e quarter o f
one p e r
cent was m d e b y the Federal Reserve B a n k o f Atlanta,
and
we took n o exception t o it.
Governor Alken:
W e have h a d a little experience i n
collecting notes. G o v e r n o r McCord was good enough t o
cel-
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Federal Reserve Bank of St. Louis
206
lect some f o r u s which h e sent t o his bank, a n d charged u s
the rate that was charged b y the collecting bank, i f I remember right.
Governor McCord:
Governor Alken:
T h a t i s correct,
G o v e r n o r Rhoades a n d I have col-
lected some notes f o r o n e anether.
N e t e s t h a t w e have r e -
ceived f r o m Governor Rhoades t h a t were payable a t cities
where member banks were located w e have sent forward t o our
member bank and told them that i f we received n o pretest
frem them o n the day the note was due w e would charge i t
against their account.
W
e never h a d a word f r o m a single
bank and cmrged the notes u p without a n y collection charge
or anything o f the sort, S o m e o f these gentlemen from
the West expressed surprise a t that method o f treatment.
The Chairman:
G o v e r n o r Rheades, w a s yeur statement
en this matter intended a s a resolution?
Governor Rhoades:
The Chairman:
A s a n expression o f opinion, yes.
I s that motion seconded?
Governor Wold: I
will second it.
Governor McDougal:
M a y we have the motion read?
The Chairman:
T h e reporter will read t h e motion,
(The Reporter read a s follows:)
"Governor Rhoades: I
should advocate a policy o f
attempting t o collect items direct rather than through member banks a t which rediscounted, a n d i n the case o f warrants I should attempt t e collect them direct through the
Federal Keserve B a n k i n whese district t h e y are payable."
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Federal Reserve Bank of St. Louis
~Gorernor Seay; I
would like t e say that I would net
207
expect t o govern myself b y that a t the present time.
I
agree that o n general principles i t i s founda banking.
The Chairman:
T h a t would a l s o apply t o acceptances,
I understand, Governor Rhoades?
Governor Rhoades:
The Chairman:
Yes.
G o v e r n o r Rhoades' m o t i o n has b e e n
seconded,
Governor Seay:
I
f w e should pass s u c h a resolutien
what effect would i t b e expected t e have?
The Chairman:
I
t would b e a
tender o f services
of
a federal reserve b a n k t o every Other federal reserve
bank for collection purposes o f its items, warrants
and ac~ceptancecs, I
d o not think i t would b e a n y mere t h a n that,
Governor Seay: I
would say that w e would b e more
than happy t o place our collection facilities a t the
ser-#
vice o f any o f the Federal “eserve Banks, but w e would
not
expect t o send t h e paper that w e rediscount f o r other
member banks directly. I
think ! should pursue the pre-
sent policy o f sending 1 t t o the bank b y which discounted.
If any other bank desires t o collect through us we will
be more than glad t o do all the collecting w e can for
them.
The Chairman: I
(a).
W
think y o u have misunderstood i t e m
e have three classes o f paper t o deal with.
The
first class i s notes discounted f o r member banks; t h e
second
is municipal warrants purchased, a n d t h e third acceptances
purchased i n the o p e n market,
covered i n this resolutien.
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Federal Reserve Bank of St. Louis
T h e three classes a r e
208
I understand Governor Rhoades' resolution t o mean
that a s t o notes discounted f o r member banks t h e y should
be collected d i r e c t w h e n p a y a b l e w i t h i n t h e District}; a n d
where payable outside the district the other Federal Reserve Banks should b e used f o r the service where t h e service i s satisfactory f o r collecting those notes;
t h a t
where warrants a n d accepted drafts a r e payable outside t h e
district they also might b e scent t e the "ederal “eserve
bank for celloctien.
Governor Seay:
A s t o sending t o the banks within t h e
district where payable, w e do not pursue that policy a t
present,
W e send i t back t o the bank f o r which discountéd.
I expected t o céntinue that practice. I
do net under-
stand that Governor Rhoades d4ntends t o suggest any general
modification o f the policy which was adopted a t the first
conference held, which was f o r the purpose o f protecting
the m e m b e r b a n k s i n t h e m a t t e r o f e n d o r s e m e n t s
Governor Wold:
o n paper,
O u r policy has been t o make those col-
leations vhen the note was payable a t some other point than
at the place where the bank rediscounting i t was located.
Governor Seay:
J u s t se.
Governor Wold;
w h e n paper i s payable under those
conditions y o u s e n d i t b a c k t o t h e bank?
Governor Seay:
W e send it back when it is collect-
able i n the district o r anywhere else a t this time.
Governor Fancher:
T h a t i s our policy,
i f the bank
desires it; iftthey wish i t we make a n attempt t o collect
it.
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Federal Reserve Bank of St. Louis
209
Governor Seay: I
a m satisfied t h a t that i s t h e
wish o f our banks; t h e banks that pay the collection
charges, I
believe w n e n weopen u p the intrastate clear-
ing w e will. perhaps adopt some other method, b u t until tnren
4 think it ils expedient to foliew the mevhod with which
we started,
Governor Aiken: £
am coming t o the conclusion that
we are i n gross ignorance i n our district i n regard t e
ecllection charges,
Go ernor McDougal: I
believe t h e whole matter c a n
be left t o the discretion o f each bank.
W e are collect-
ing items that w e discount f o r member banks directly
through them, a n d i t works v e r y nicely.
Governor Rhoades: I
would withdraw t h e motion a n d
ask for information a s t o whether i t would b e agreeable
to the other Federal Reserve Banks f o r u s t o send items
payable i n their districts?
Governor McDougal:
S p e a k i n g f o r Chicago,
w e weuld
be very glad t o smve any of the banks i n any way w e cah i n
the matter o f collecting.
Governor Seay: Khichmond has offeredher services,
Governor McCord: A t l a n t a has done the same thing.
The Chairman:
W i l l y o u offer a motion, Governor
Rhoades?
Governor Rhoades; I
will a s k y w t o state it,
Mr. Chairman.
The Chairman: G o v e r n o r Rhoades offers a resolution
to the effect that Federal “eserve banks will b e respectilvely expected t o extend their collection facilities t o
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Federal Reserve Bank of St. Louis
i*
ether Federal “eserve Banks i n collecting
items payable
within their districts,
Has Governor Rhoades a
second t o that motion?
Governor McDougal: I
will second t h a t motion.
The Chairman;
I s there a n y further discussion?
(There was n o discussion and the motion
was duly
put and carried,)
Governor McCord:
that;
I t will b e pretty difficult t o
do
b u t i f you were t o happen t o send
m e a n item down
there where w e have n o t a rate a n d
where therc i s n o bank
that i s willing t o accept, I might
have the unpleasant
duty o f returning t h e item.
The Chairman:
T h e r e i s a very slight chance
o f that
happening, Governor,
Governor Aiken:
of acceptances I
I n connection w i t h t h e collection
have n o t i c e d t h a t s o m e a c c e p t a n c e s
have
come forward f o r collection without
endorsement.
I
t seems
to m e that t h e banks should endorse
t h e items sent forward f o r collectien.
The Chairman:
W h o i s guilty there--= New york?
Governor Aiken; I
can see n o reason W h y the bank
should n o t e n d o r s e i t S o t h a t t h e
title should appear right
on’ the paper sent f o r collectien,
The Chairman:
I n that connection I
think I will
ask “Mr. Curtis t e make a statement
a s t o one item that w e
have O n our program under the heading
of 12 (d). ‘ T h a t
item was put o n the Program a t m y
Su,gestion i n order that
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Federal Reserve Bank of St. Louis
211
Mr. Curtis might report t o this meeting the
result o f a n
investigation h e has made a s t o the previsions
and the
effect o f the provisions o f the negotiable instrument
Act
that has b e e n adopted b y most o f the
States,
Mr, Curtis, would you mina reporting the result
of
your inquiry into that matter.
Mr. Curtis; I
jooked u p thelaw o n the que stion o f
the effect o f a n endorsement o n a n
acceptance, o r , rather,
the effect o f accepting a n endorsed b i l l
o f exchange.
J I
found that the situation a t the common l a w
i s that the write
ing o f a n acceptance across t h e face
o f a bill does n o t
have any effect in the way of guaranteeing the
endorsement,
and that s o far a s the negotiable instrument
l a v is concerned that has n o t b e e n altered,
S
o that w e felt somewhat
perturbed about taking acceptances e v e n
o f well-known bank~
ing institutions where w e were n o t famillar w i t h
the endorsements, because w e had n o guarantee o f
title, o r o f the fact
that that endorsement w a s n o t a forged endorsement,
S o w e
Suggested t e a good many o f the accepting banks
that they
either also endorse under the last endersement o r
else put
on a statement t h a t t h e prior endorsement W a S
guaranteed,
It has nothing t e d o with the acceptance itself,
and an
acceptance h a s nothing t o d e with the
endorsement,
T h e
rule under t h e negotiable instrument
l a w i s that t h e acceptQr warrants t h a t t h e drawer o f
the bill w a s a real person
and that i t is his Signature, b u t i f
the drawer o f the bill
makes i t payable t o his o w n order a n d
then endorses i t , t h e
acceptor d o e s n e t w a r r a n t t h a t t h e
endorsement
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Federal Reserve Bank of St. Louis
i s cofrect,
even though i t i s t h e same person w h o drew t h e bill.
His warranties under t h e law are confined t o the face o f
the bill.
So I think t h e practice h a s b e e n since that time n o t
to take anything without either a n endorsement b y the acceptor o f some sort--- i s not that true?
The Chairman:
Yes.
A s I understand t h e common
law rule, the vendor o f the bill i s responsible f o r the
competency a n d t h e correctness a n d genuineness o f all
prior endorsements o n the bill; a n d i f w e buy a bill, f e r
instance, f r o m a member bank, whether t h a t member b a n k en-
dorsed i t or not, the member bank i s responsible a s t o
the genuineness a n d competency o f all endorsements t h a t appear o n that bill a t the time t h e member bank made t h e sale.
On the other hand,
i f w e simply b u y through a broker o f
no responsibility, w h o possibly i s acting for the vendor
and receives a
small commission f o r his services,
no p r o t e c t i o n w h a t e v e r a s t o t h e g e n u i n e n e s s
of any endorsement o n the bill.
be true
o
w e have
o r competency
T h a t same thing would
f a promissory note which y o u pur-
chase from a broker,
So we have adopted the policy, a s Mr. ‘Surtis states,
of requiring either unrestricted endorsements o r guaranteed
endorsement b y banks, generally t h e bank that accepted i n
each instance, o r i n some cases b y vendors o f the bills,
that w e consider thoroughly responsible; a n d i t may be--~
I did not know it, Governor Aiken--- that i n certain bills
which w e r e h e l d f o r a c c o u n t
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Federal Reserve Bank of St. Louis
o f other banks t h a n ours f e r
not
collection that endorsements h a v e b e e n p u t o n the bills.
That i s i n our case quite a n unnecessary precaution, b e Cause v e have observed every precaution i n purchasing those
bilis,
W
e have turned down bills that have b e e n offered
to us b y brokers o f whose responsibility w e were uncer=
tain, where there a r e prior endorsements o n the bills t h a t
he knew nothing whatever about, a n d a t the t i m e w e were
buying those bills w e sent a circular t o the reserve banks
for which w e were acting stating that i n each instance they
evary
keep a very accurate record o f i .
, endorsement t h a t was
on the bill.
Let us sippose, f o r instance, that w e bought some
bills f r o m the Guarantee Trust Company,
National Bank.
o r the First
U n d e r t h e cOmmon l a w w e would n o t require
their endorsement o n those bills a s a guarantee o f the
genuineness o f the prior endorsement, because t h e y a r e t h e
vendor.
A l l w e would require would b e ample evidence o f
what e n d o r s e m e n t s w e r e o n t h e b i l l w h e n w e P O M e K t 1 4 .
is a matter that has t o be handbéd very carefully.
I t
None
ef u s has dealt i n acceptances i n this country i n a v e r y
large way, a n d w e d o not want t e get stuck four o r five
or s i x years hence before t h e statute h a s r u n a s being
liable f e r r e t u r n o f m o n e y w h i c h w e h a v e r e c e i v e d
i n pay-
’ ment o f a bill that w e have purchased where o u r title t e
that bill was based upon a forged endersement, a n d the real
holder o f t h e b i l l h a d n o t b e e n p a i d a n d h e m a d e c l a i m
ageinst u s for recevery.
O f ceurse that liability would
not apply t e a bank which acted a s a collectien agent
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Federal Reserve Bank of St. Louis
21%
simply, a s Iunderstand t h e law. I
“~ «
do not think that a n y
question o f title there would affect t h e collection agent,
bank. I
am correct i n that, a m I not, Mp. Surtis?
Mr. Curtis:
I f they get the money o n it---
The Chairman:
N O ; but where w e are acting a s the
agent o f a bank that had a
bill o n deposit w i t h u s simply
for safe-keeping and collection?
Mr. Curtis: I
am inclined t o think--- and that bank
had not a good title t o the bill?
The Chairman:
L e t u s suppose, f o r instance, t h a t w e
hold a bill accepte@ b y the First National Bank o f Boston
for account o f the Federal Reserve B a n k o f Chicago, a n d
we send i t through the Federal Reserve Bank o f Bosten for
collection, a n d get the money from the Federal Reserve Bank
of Boston, they collecting from the First National Bank o f
Boston and w e turning the money over t o the Federal Reserve B a n k o f Chicago.
W e would b e acting Simply a s a n
agent, without responsibility?
Mr. “urtis:
B u t the Foderal Reserve Bank of Chicago,
in that case, would get stuck i f the bill i n fact had been
stolen.
The Chairman:
T h e Federal Reserve Bank o f Chicage
would b e stuck, o f course, but they could not put that
liability o n us?
Mr. Curtis:
N o .
Governor Rhoades:
W h a t does t h e rule s a y i n England
on the acceptances o f those endorsements?
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Federal Reserve Bank of St. Louis
The Chairman:
T h e y have a substantially similar
‘
re
M E ae
E R
e e
r e r e
a e
215
negotiable instrument l a w t e ours, b u t there t h e endorsement s i t u a t i o n i s quite different.
T h e bills a r e negotia-
ted from bank t o bank through responsible b i l l prokers a n d
endorsed m a n y times over b y well-knewn banks, a s a rule.
get
Here w e are doaling with acceptances where w e d o not
the member bank's endorsements;
a t least, w e d o not
get them unless w e take special care t o see that w e d o
get them:
I
t i s undoubtedly a
matter that h a s got t e b e
rezarded w i t h care a n d discretion i n dealing with these bills.
Governor Aiken:
I n the normal course o f business
an item coming t o u s f o r collection would bear t h e endorse-
ment of the bank sending it to us for collection.
O u r
cashier called m y attentien t o twe o r three that came s s
ae
ward from New York and Chicago that had not those endorse~
ments o n them, and I thought I would bring the matter up
at this meeting t o find o u t t h e reason.
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Federal Reserve Bank of St. Louis
Governor Wold:
I f there i s n o responsibility u p o n
the collecting bank, what i s the necessity for the endorsement i f the helding bank takes its chances i n forward~
ing through the mails t h a t instrument?
Governor Seay:
J u s t t h e tracing; t h a t i s all, i s
it not?
Mr. ‘urtist I
think there would be a responsibility
there,
Gevernor Wold:
Mr» Yurtis:
W h e t h e r t h e y endersed i t o r net?
M y point was that where the collecting
agency h a d g e t t h e money a n d had n o t remitted i t along t o
the realowner o f the bill, I think they weuld b e lible+
but where that money had gone to the owner of the Dill)
of course that bank would be liable fori i n fact, + . ,
had n o title t o it.
a mer
T h e process would simply b e pexeraele
it would hold them all back until they finally got the pro-
ceeds.
B u t I think Mr. Aiken's point is that for a cor-~
rect tracing o f the course o f that bill i t should b e endorsed,
Governor Aiken:
T h a t i s i t exactly, Mr. Curtis. I
wanted light a s t o whether there was a n y reason f o r not
endorsing it, whether there was involved a n y peculiar
liability.
The Chairman:
Governor Aiken,
T h i s i s the first I had heard o f it,
W h a t dispositQon would y o u like t o have
made o f this subsect?
Governor Aiken:
I f there i s n o llability attached
I should like t o have the endorsement a s a matter o f re~
cerd.
I f there is, I should say that we d o not endorse
any such bills w h e n w e send them forward.
The Chairman:
M a y I suggest, a s a maans o f getting
a record o f this matter for eur minutes, that w e
ask
Governor Aiken t o shbmit the question t o his counsel
and
send copies o f his reply t o the New York Reserve
Bank and
the other eleven reserve banks?
Governor Aiken: I
The Chairman:
will, with pleasure.
W o a l d y o u like t o have another endorse-
ment o f the sending b a n k o n it?
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Federal Reserve Bank of St. Louis
Governor Kiken:
The Chairman:
Yes; I
think w e are entitled t o it.
W i l l yeu ask him t o send a copy o f his
Opinion o n that matter t o Mr. Curtis?
Governor Aiken: I
The Chairman:
will.
G o v e r n o r McDougal, y o u suggested
Topic No, 16, "foreign exchange".
Gevernor McDougal:
T h a t was suggested simply f o r
the reason that i t had been u p befere, a n d 1 think nothing
had beendene b y the banks i n regard t o entering that branch
of the business, a n d I wondered i f anything h a d been done
at the last mecting?
The Chairman:
once,
I t has b e e n discussed i n Washington
t e m y knowledge, a n d there h a s been some correspOnd-
ence between some o f the reserve banks about it.
Governor V a n Zandt:
O u r cashier cerrespended, [ I
think, with the other reservé banks o n that subject, a n d
I have all of that correspondénce here with me if you want
to go inte it.
I t is rather voluminous.
I t seemed te
be the coné@ensus o f e@pinion from that correspendence that
the Federal Keserve Banks did not care t o even consider
that $ «4. of the Federal Resorve Act at the present time,
under existing- conditions, with the war going on, and'so” |
ferth.
The Chairman:
Governer VanZandt, that is very
clearly our opinion i n New York,
S o f a r a s we are cen-
cerned we weuld not want te purchase any leng bills that
were n o t domiciled i n this country, and, furthermore,
if
our export business c a n b e conducted u p o n the basis o f
dollar credit w e will b e furnished w i t h a supply o f paper
for investment that will b e freed o f the e xchange specula-
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Federal Reserve Bank of St. Louis
tion which i s just n o w a fairly dangerous commodity,
that i n your d i s t r i c t
o r Governor MeCord's district,
when
eotton i s moving t o market abroad, i f the bills that
are
drawn f o r t h e purpose o f financing t h e movement
o f that
cotton c a n b e accepted b y American banks instead o f b y
foreign banks, the foreign bank o r the customer o f
the
foreign bank will assume a l l t h e Speculation a n d
exchange
and will b e able t o buy the bill payable i n dollars
and
be insured ageinst a n y exchange speculation
a t all. T h a t
is what w e are hopeful o f bringing about a s one o f
the re-
Sults of this Federal Seserve ActOn the other hand, i f the purchase o f exchange
i n the
sense that possibly you and Governor McCord had
i t i n minc
means really t h e purchase o f a draft o n New York
with a
cotton bill o f exchange attached, there i s not
any reason
in the world why that paper should not come through New
York for t h e purpose o f making N e w York Exchange,
a n d then
those drafts would b e collected b y the Federal teserve
Bank o f New York from the member banks, e n w h i c h they
would b e drawn, a n d t h e exchange would b e simply
a New yerk
exchange,
Governor McCord: ‘ S u p p o s e i t i s net drawn o n a member
bank.
The Chairman:
tion:
T h e n w e are u p against that proposi-+
Y o u mean, suppese i t i s drawn o n the Guarantee
Trust Company?
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Federal Reserve Bank of St. Louis
Governor Mecord:
Y e s , o r the bank o f America,
Governor V a n Zandt:
O r George H . McFadden & Brother,
2181/2
The Chairman:
I n that event i t would not be a n item
that t h e Federal Reserve Banks could handle, unless w e
give a
construction
t o Section 1 4 that would permit u s t o
bug those a s a n open market proposition.
Governor McCerd: I
do not mean that y o u would pur-
chase, but you wOuld handle them for us for collection.
The Chairman:
W h y , then, i f w e are going t o handle
non-member items, o f course w e would.
T h a t opens u p the
whole subjeet t h a t i s under.another section o f our program
as t o what treatment w e will aceord non-member items,
Governor McCord.
Gevernor McCor@: T h e a t i s the point with me.
deo not
a y
W e
f e r s handling a n y foreign exchange under t h e
present conditians.
w e would n o t think o f it.
B u t
there i s a good deal o f exchange é¢reated i n m y city a n d
Other cities i n our district that would b e very naturally
drawn o n the Guarantee Trust Company o r the Bank o f America.
The question comes t e m y mind a s t o whether y o u would b e
willing t o cellect those for us and give u s eredit for
them.
The Chairman:
w o u l d you feel authorized t o take them
from your member banks?
Governor McCord: W e l l , I woeld not do it unless
you take t h e m from u s f o r collection,
o f course 4 wonld
defer payment twe days until 1 got it.
e
The Chairman:
W h a t i s y o u r feelingabout the provi-
sions o f the law in that respect, Governor MeCord?
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Federal Reserve Bank of St. Louis
Governor McCord: R e a l l y , I do not think that you
219
would h a n d l e i t unless
i t would b e purely 4
tesy f o r our bank. I
believe
matter o f c o u r -
y o u wanted
y m could d o i t i f
LO.
The Chairman:
would permit it?
L o you think the law
Yes.
Governor McCord:
Governor Seay:
those a s
h o u l d y o u expect t e take
cash, Governor McCord?
Governor McCord:
P w o days @eferred payment.
member
Would y o u b u y t h e m f r o m y o u r
The Chairman:
banks, take t h e m o n deposit--Governor McCerd:
subject t o
T a k e t h e m o n deposit
ultimate payment.
The Chairman:
T a k e them for collection?
Governor McCord: ‘ Y e s .
Governor Seay:
days' disO r charge them with twe
count?
two days discount.
Governor McCord: C h a r g e them with
Governor Wold:
Which?
4&
W o u l d y o u take t h e m
a discount--Governor Mecord: t
would handle t h e m both ways.
both ways under the
I believe I have the right to ce it
law,
The Chairman:
new g o through
O f course, those items
to the N e w York correspondent
of your member banks just
would ge@ through.
as a n y other collection i t e m
T h e y
attached, a n d presented,
are sent t o New .ork with documents
a n d t h e n later i n the d a y
and t h e documents a r e presented,
draft with the documents a t the bank that presents t h a t
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Federal Reserve Bank of St. Louis
tached gets the check and credits 16s correspondent i n
atlanta?
Governor MeCord:s
The Chairman:
Y e s sir,
Y o u r proposition i s that y o u will
accept those drafts o n depesit f o r collection a n d remit
them t o u s s o a s t o make N e w York exchange?
Governor McCord:
I f agreeable. 1
said i t is purely
a matter o f courtesy whether y o u would d o i t o r not.
The Chairman:
W e have not tho slightest objection
to doing it, provided t h e system will work, o r provided i t
is considered w i s e f o r u s t o begin t o take non-member
items.
O f course, that means that the same privilege
ought t o b e extended t e other banks a s t o items i n your
district,
Governor McCord:
I f you were t o send m e a check o n
the Central Bank and Trust Gerporation, the only State
bank member o f our clearing house i n Atlanta, I would
take pleasure i n collecting t h a t f o r you and placing i t t o
your credit.
The Chairman:
Y e s ; b u t o f course, Governor McCord,
those
you realize that there a r e over #300 ,000,000 o f
items that some t o these three o r four non-member banks i n
New York Gity alone.
Governor McCord: I
The Chairman:
understand that thoroughly.
L v e r y season.
Y e a r befere last
there were about $400,000,000 neatly, that came t o New
York.
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Federal Reserve Bank of St. Louis
Governor McCord:
F o r instance, a member bank can send
it to the National “ity Bank @
t h e National Park Bank,
and then i f they want t e convert that i n t o money, t h e y just
draw their check o n whatever b a n k
The Chairman:
T h e r e is a
i t may want-<-+
questionwhether
v e should
not c u t out a double process thore.
Governor Fancher:
be w a r r a n t e d
them?
J u s t under what section would y o u
i n collecting items
i f y o u d o n o t discount
I s i t purely a.collection matter?
Governor Seay:
I t i s a n arbitrary adjustment o f
a banking prantive.
Governor McCord: I
have b e e n doing it.
T h a t is
all I know.
Governor Fancher: I
was just wondering under what
Section o f the Act y o u were doing a collecting business,
That would be a collecting business.
Governor McCord:
w
e are members o f the Atlanta
Clearing House Assotiation, a n d one o f the ‘ederal Reserve
Banks sent t o me an item o f the Federal Trust Corporation,
and I did n o t hesitate t e put i t into clearing a n d
get
the money o n it,
Governor Mebougal:
C o u l d y o u send a draft o f that
kind through t h e clearing House?
The Chairman:
N o .
Governor McDougal:
W h y could you not, i f it i s
payable t o the Guarantee Trust Vompany? I
would,
i f it
is drawn on the Guarantee Trust Company.
The Chairman:
T h e y d o not send a n y documentary papers
through t h e clearing house a t all, because i t necessitates
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Federal Reserve Bank of St. Louis
time f o r the examination e f the documents,
I really think, Gavernor MecCerd, t h e t i t i s not a
question o f w h a t w e would b e w i l l i n g
willing t o d o anything.
I
t o do.
W
e would b e
t i s a question o f policy f o r
allthe banks a s t o whether w e are going t o open the sluice
gates here t o non-member items.
Governor MeCord: I
understand that thoroughly,
and I vould n o t have sent y o u a n item until 4
your consent t o d o it, o f course.
all right.
first h a d
B u t w e c a n handle i t
W h e n a member bank sends i t t o the National
City o r National P a r k Bank---
The Chairman:
A l l items that come through drawn o n
member banks, o f course w e c a n handle, a n d there i s a very
considerable volume o f those,
A
s t o the great bulk o f
th e items drawn o n member banks, I realize that--«Governor McCord: A
straight check o n the Bank o f
Americe c o u l d b e handled b y you through the Clearing House?
The Chairman:
O o h , yes.
Governor Aiken; I
a m going t o ask y o u t o excuse me,
gentlemen.
(At this point Governor Aiken withdrew. )
The Chairman;
H o w d o your members feel abeut this
matter o f handling non-member items?
D
o ya, i n Chicago,
take items drawn o n non-member banks?
Governor McDougal:
W e are going t o take items o n
all Clearing house banks.
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Federal Reserve Bank of St. Louis
The Chairman:
L o e s t h e A c t permit that?
Governor McDougal:
N o sir.
W e take them anyhow.
(Laughter)
I t is a n incidental power.
The Chairman:
l i a s that been u p t o the tederal Reserve
Board i n any way for ciscussion?
Governor MeLbougal:
N o , b u t I think i t will come up.
1 think possibly our rignt t o do that will be questioned.
The Chairman: I
have a feeling that i t Will, too.
And y e t I have b e e n recently advised b y
one o f the membe rg
of the Federal Reserve Board that t h e y
have a n Opinion f r o g
thelr counsel t h a t under some provision
o f the statuiea
Federal “eserve b a n k o n Some terms C a n
handle checks drawn
On non=member banks,
Governor Seay:
I t has b e e n intimated a t more than
One conference with the Federal Keserve
Board.
Governor Sawyer;
T h e question might b e suggested
When Dr. Miller i s here tomorrow.
Governor MeDougal:
W e will continue t o do i t until
they stop us,
The Chairman:
y o u senda the items t o us until w e
squeal, anyway, Governor Mecord,
(At this point a n informal discussion was
had
which the stenographer was directed
not t o report; after
which the following occurred )
The Chairman: G o v e r n o r McDougal has
just handed m e
a letter bearing o n the Subject, dated
Washington, June e e
1915, t h e last Paragraph o f which
i s a s follows:
"At the suggestion o f a number o f
bankers w e have
been discussing whether w e are
n o t authorized under t h e
act t o permit Federal Reserve
Banks t o accept checks o f
non-
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Federal Reserve Bank of St. Louis
224
member b a n k s f o r collection.
missible;
I
t seems t o m e this i s per-
i n other words, there i s nothing i n the l a w
which says i t shall n o t b e done. F u r t h e r m o r e ,
i f checks
on State banks were received through member banks, there
would certainly b e noobjection t o their being received,
and
in the opinion o f many bankers, w i t h whom w e have talked,
this would d o a great deal toward making t h e collection
System a success.
I t would h e l p t o popularize i t i n
the Chicago district, I
suppose.
Yours v e r y truly,
(Signed)
F ° A. Delano,
Vice-Governor."
Governor Wold:
prohibited,
I f we can d o everything that i s not
w e will b e doing some business after a
while.
The Chairman:
O n the subject o f foreign exchonge,
I understand thereis n o motion before the house that we
should b u y foreign bills, a n d n o action i s desired
on
that subject.
O n the other hand, I understand that Gover-
nor M e C o r d p r e p o s e s
t o send u s somo items
O n non-member
banks f o r collection this fall which v e will handle
until
we strike a
snag.
Is there a n y other question o n this topic o f foreign
exchange?
(At this point a n informal discussion occurred which
the stenographer w a s directed n o t t o report, after which
the following proceedings t o o k Place; )
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Federal Reserve Bank of St. Louis
The Chairman:
W o u l d y o u care t o have a n y action taken
225
at this meeting
i n regard t o the subject o f
handling non-
member bank items, Governor MeCord?
Governor McCord: I
have that down f o r discussion
here under a different heading.
The Chairman:
T h e n w e c a n consider t h e
Subject o f
foreign exchange a s closed f o r
tonight?
Governor MeDougal,
Governor McDougal:
t h a t i s y o u r topic,
M y object i n opening the
topic
for discussion was t o ascertain
whether a n y o f the banks
had taken steps towards the organization
of a foreign exchange department.
The Chairman:
W
e have n o t i n Chicago,
W e have n o t done s o i n
New York, a n d
do not contemplate it.
Governor McCord:
W e have n o t done s o i n Atlanta
and will not, under present conditions,
The Chairman: I
have b e e n advised t h a t t h e
condition
of transportation i n Chicago
i s such just now that some
of
the gentlemen i n attendance
a t this meeting m a y have
to
walk home, a n d Possibly i t would
b e well f o r u s t o adjourn
to suit their convenience,
Mr. McKay: I
move w e adjourn.
(On motion, duly seconded, the
Conference, a t
10:50 o'clock p. m., adjourned until
tomorrow morning a t
9:30 o'clock.)
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