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VOLUME. :
~a
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Federal Reserve Bank of St. Louis
f
FOURTH C O N F E R E N C E
BOARD O F GOVERNORS, FEDERAL RES*RVE
BANKS.
Hotel Blackstone, chicago, I11.,
Tuesday, J a m e 15, 1915.
DAY SESSION.
WALTER
SHORTHAND
S. COX
REPORTER
COLUMBIAN BUILDING—TEL.
WASHINGTON,
D . C.
M . 8324
Tuesday, d u n e 15, 1915.
The Conference reassembled, pursuant t o adjournment,
at 9:30 o'clock a. m.Present a s o n yesterday.
The Chairman:
Item 5
T h e meeting will come t o order.
Mr.
o n the program was t o b e neld o v e r until
Broderick arrived.
Item Ne- 6
we discussed.
Item No. 7, "Commercial Paper", has four sub-heads.
t o be used
Item (a), "Form o f application for rediscount
by
after July 15. S u g g e s t e d forms t o be submitted
Governors."
W a s suggested b y Governor Aiken.
Governor Aiken:
O n e o f the principal obstacles
t o deal
which w e meet i n getting t h e small country b a n k
formalwith u s i s the fear o f what t h e y consider needless
ity.
W
drawn
e had some tentative forms o f application
b u t the
trying t o reduce those ebstacles t o a minimum,
formidable.
minimum which w e achieved seems t e b e pretty
This s u g g e s t i o n i s p r i m a r i l y a
oziit f o r h e l p f r o m
have n o t
the other Federal “eserve Banks, t o see i f they
have. I
been able t o simplify i t further than w e
have
made, a n d I would
prought w i t h m e the last @raft which w e
done a n d what
like t o f i n d o u t w h a t o t h e r p e o p l e h a v e
their ideas a r e o n the subject.
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Federal Reserve Bank of St. Louis
The Chairman:
G o v e r n o r Aiken, t h e n e w form o f appli-
wet
catien made necessary b y the taking effect o f
a new regulation after J u l y 15, becomes complicated b y
the necessity
of showing,
i n addition t o w h a t w e h a v e a l w a y s
required
on
our application forms, t h e division between customers!
paper a n d purchased paper, evidence o f the
rating o f the
Paper a n d e v i d e n c e o f w h e t h e r t h e p e i s
a
or not.
A
Statement
o n file
m I correct i n that?
Governor Aiken:
The Chairman:
Y o u are,
M i g h t n o t that subject b e
dealt w i t h
by a n arrangement t h a t e a c h O f the Federal
Neserve Banks
Shall send t o every other Federal Reserve Bank
a copy o f
the f o r m o f application t h e y are obligated t o
use?
more interested i n
Governor Aiken:
I t might; but I have been/having
them send a form t o m e than I was i n
having t h e m sent t o
ethers,
Governor McCord:
the reserve banks a
O u r bank has sent t o each one o f
form o f application blank, w i t h the
blank made o u t Showing h o w t o use
it.
W
e will b e glad
to send o u t another s e t a n d address
t h e m t o the Governors
personally.
Governor Seay: I
The Chairman: I
think i t would b e very useful.
wonder i f i n this discussion w e
cannot b e able t o arrive a t a n arrangement
calling for a
uniform blank o r a n apglication blank
o f substantial uniformity, without going into t h e dctail
o f the form.
Seems
t o m e that t h a t would b e impracticable
I t
a t this meet-
ing.
Governor Ajken: I
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Federal Reserve Bank of St. Louis
move t h a t t h e G o v e r n o r s
o f the
228
o f the f o r m which they
banks b e requested t o send copies
the Secretary o f
propose t o use after July 15, 1915, t o
submit t h e m t o t h e
the Executive Committee a n d that s e
executive committee f o r consideration.
would suggest that t h e y send
Governor McCord: I
I
them t o the Chairman o f the Executive Committee.
think
that would b e better.
Governor Sawyer:
t h e memT h o s e ought t e g o out t o
ber banks right away.
The Chairman:
T h a t i s t h e difficulty.
T e d a y is
the fifteenth o f June.
C a n we, i n a menth, b y corres~
pondence, determine a
uniform style o f application blank
“eserve Banks i n
and get i t into the hands o f the Federal
o f July 167
time t o b e sent o u t well i n advance
Gevernor Aiken: I
dia n o t think n o w short t h e time
d o n o t t h i n k i t i s practicable.
was. I
The Chairman:
M i g h t i t not be well for each bank
forms t h e y contemplate
to send t e every other bank the
may be embodied i n
using s o that any desirable features
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Federal Reserve Bank of St. Louis
all o f them, according &
trict;
t h e requirements o f each dis-
blank c a n b e submitt h e n each form o f application
contemplating appointing
ted t o t h e c o m m i t t e e t h a t w e a r e
o f detaik?
for the purpose o f considering matters
Gow ernor Aiken: {
effect t h a t t h e G o v e r n o r s
weuld modify m y motion t o the
o f t h e banks b e requested
te
bank the f o r m o f
send t o t h e Governors o f every other
they contemplate u s i n g
application f o r rediscounting which
229
after J u l y 15, a n d statement blanks f o r use b y other banks
with their customers.
The Chairman:
I s that motion seconded?
Governor McCord: I
The Chairman:
second that motion.
I s there a n y further discussion?
(There was n o further discussion, t h e motion
was duly put and carried.)
The Chairman:
T h e next i t e m under I t e m No* 7
on
the program i s (b), "Circular No. 5 - regulation DB.” T h a t
item was suggested b y yeu, Gevernor McDougal, a n d I will
ask y o u t o make a statement i n regard t o it.
Governor McDougal:
T h e statement 1 would make there
is that the objcct i n suggesting that topic was similar t o
that which has already been accomplished through Governor
Aiken's resolution.
The Chairman:
H a s the matter been disposed o f t o
your satisfaction?
Governor MeDouzal:
Yes,
of the cxchange o f forms I
I f we have the benefit
should t h i n k that would cam er
it very nicely.
The Chairman:
T h e n that will b e considered dealt
with, Governor McDougal.
The next item under No- 7 is (c), “Uniform credit
statements." T h a t was suggested b y Governor Seay.
Will y o u m k e a
statement w i t h reference t o that,
Governor Seay?
Governor Yeay: I
do not know how it is with other
districts, b u t I think there i s room f o r improvement i n
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Federal Reserve Bank of St. Louis
230
our district i n the forms obtained b y banks f r o m their
borrowers, I
have found i t exceedingly difficult t e
get a form which was satisfactory t o me, without expressing
toe much. I
have t h e ground w o r k o f a form that hae been
prepared b y the American Bankers' Associatien, a n d which I
think i s a s p o e d a s a n y I
a m a c q u a i n t e d with.
I think this matter m a y b e one well worthy o f some
general consideration, Mr. Cpairman,
I
t i s not possible
to have o n e f o r m o f credit statement w h i c h will d o f o r
all styles o f business.
Governor Aiken: I
have here a
letter f r o m the General
Secretary o f the Amcrican Bankers! association.
the d a y before I left.
ent forms. I
I t came
I t contained half a dozen differ-
have l o o k e d t h e m ever. I
suppese t h e y w e r e
sent t o all t h e Governors.
The Chairman:
W e received that, too.
Governor Seay:
S e did we.
Governor Aiken:
M y impression o f those statements
a8 I remember them i s pretty favorable.
Governor Seay: I
think perhaps t h e y a r e the best
that I.have leoked o v e r myself.
The Chairman:
A r e y o u gentlemen sufficiently famil-
lar with those forms t o b e willing t o recommend t h e i r adopt~
-ion, with such modifications a s are required i n each disfokaeces a
matter o f pelicy?
Governor McCord:
“ i t h such modifications, I a m .
W e
have certain conditions t h a t surround u s that a r e different
from o t h e r conditions,
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Federal Reserve Bank of St. Louis
231
Governor Seay:
I n his letter sending trese forms
out t h e Secretary says, " I f y o u have a n y suggestions t o
w e would appreciate Same."
make bearing o n this matter,
I take i t from that that these forms a r e i n process
of making a n d a r e n o t o n the press, a n d a n y suggestion
that w e m i g h t o f f e r w o u l d p o s s i b l y b e i n c o r p o r a t e d i n t e
them. W o u l d i t not be possible t o @efer this matter t o
New York, Boston a n d Philadelphia,
t o a committee represnant-
ing those banks, a n d have them make recommendations a n d
see i f those recommendatiens c a n n o t b e incorporated i n these
forms. I
think i t i s the beginning o f a better system o f
Statements, a n d while w e d o not need t o adopt i t ourselves
we c a n r e c o m m e n d
i t f o r t h e present a n d until w e a r e pre-
pared t o recommend f o r m s
o f o u r Own.
know, Mr. Chairman, t h a t these
Governor Aiken: I
forms were prepared with a great deal o f care and a s a
result o f consultation w i t h some o f the best credit m e n
in New York.
Governor MeCord:
T h e s e forms furnished b y the
American BankerS' Association will d e f o r a district like
Beston, o r New York, o r Philadelphia o r Chicago, probably,
but t o undertake t o put a
form like this o u t i n the
country i n which I have t h e pleasure o f living, would n o t
bring one answer t e t e n o f the questions.
right;
i t i s a fine form.
it; b u t w e have adopted a
W
I
t i s all
e ought t o educate u p t o
very a i mple, p l a i n form, that
brings out the real facts that ve want i n a statement and
gives us an insight inte the man's business.
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Federal Reserve Bank of St. Louis
T h a t sort
232
of form suits u s better t h a n a long, extended f o r m like
this.
A f t e r a while w e m a y decide t h a t w e want a lit-
tle better form, after w e have educated them u p to the
ene w e have, a n d 6 0 On.
B u t our condition i s such that
a form like t h i s w o u l d b e detrimental r a t h e r t h a n beneficial.
The Chairman:
M i g h t i t not b e well, Governor McCord,
for u s t o supplement t h e forms recommended b y the American
Bankers' Asseciation, w i t h a short f e r m t o b e used with
customers i n the smaller country banks?
T h e form submit-
ted b y the American Dankers' Associatien, I understand, conO n e is
tains t w o plans dealing with credit information,
a brief statement a n d t h e other a very elaborate statement.
Governor McCord:
The Chairman:
Yes,
I f they were further supplemented b y
a very simple statement for the individual borrower, firm
set
er s o o n i n the country bank, would w e not t h e n have a
of forms t h a t would m e e t a n y situation i n any section o f
the ceuntry i n s bank o f any size?
Governor McCord:
Q u i t e right, M r . Chairman.
W
e
have gone t o work and o u r credit department h a s prepared
a form f o r a corporation, a
form for a firm, a n d a form
fer what i s known as the farmors' statement.
contained o n one side o f a piece o f paper.
T h a t i s all
W
e print
them i n different colors s o that t h e bankers c a n
quickly select which form they want.
advantageous.
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Federal Reserve Bank of St. Louis
W
W e found that very
e commenced o n the first o f January
233
putting that f o r m eut, a n d w e are getting good results
from it.
The Chairman:
Y o u r bonks u s e i t generally,
Governor McCord:
Y e s , I
d o they?
will b e pleased t o send
to éach Governor a complete set o f theso forms just a s
soon a s I get back home, s e that y o u c a n s e e what they
contain.
The Chairman: I
should b e very glad t o receive them,
Governor McCerd:
T h e r e w a s o n e thing w e overlooked
when w e first printed them, b u t that w e afterwards p u t
in, a n d that i s corporation insurance.
T h a t i s a very
important thing,
Gevernor Sawyer:
W e also have a
Gevernor Seay: I
complete form:
leok upon this a s one o f the most
vital features e f our credit system. T h e o r e t i c a l l y ,
the beginning,
at
i t would s c e m that these simple forms
would answer it, b u t I d:« clare, w h e n y o u come down t e t h e
actual operation,
i t dees n o t work,
get, and i n some cases more, too. A
Y o u want all y e u c a n
mamber o f our banks
alse appear t e want amplified statements.
thing t h e y c a n get alse.
mevement; b u t I
T h e y want every~
T h e y want u s t o aid t h e m i n the
a m sure that there a r e some o f the @muntry
banks, many o f them, who would find these intricate statements formidable i n dealing with borrowers.
The Chairman:
D o y e u require t h e banks that a r e
borrowing f r o m y o u t e send i n cepies o f these statements
when t h e y m a k e a p p l i c a t i o n f e r d i s c o u n t s ?
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Federal Reserve Bank of St. Louis
Gevernor Seay:
I t i s not a condition precedent, b u t
2354
we very frequently h o l d u p paper f o r it.
W h e n it is
as much a s five theusand dellars w e always a s k f o r a
statement.
W e sometimes d e that without having i t i n
hand, the first time, but w e always ask for it, and the
second time i t comes u p and they d o not have it, t h e flag
goes up.
Governor Wold:
D o I understand t h a t y o u d o discount
without a statement?
Governor Seay:
Governor Wold:
Y e s .
W e require a statement with every
piece o f paper offered, regardless o f the size.
O n farm
paper, when i t i s not secured, w e require cashier's statement.
I t would n o t have b e e n possible t a
Governor Seay:
have m e t conditions i n our district i f w e had enforced
that.
I t was n o t a regquiremenO o n the part o f the Board,
but w e adopted that a s a principle a n d w e put i t i n force.
We get i t when w e can.
W h e n we do not get i t the first
time a n d take paper again w e a s k for i t the next time.
The Chairman: G e n t l e m e n , this i s really a great
big subject t h a t n e cannot hardly dispose o f a t a meeting
of this character.
I t will have t o be handled b y a com-
mittee, o r b y the officers o f each bank temporarily, a n d
later referred t e a committee,
M i g h t i t not b e well
to exchange forms that a r e now i n use b y the banks,
in
Similar fashion t o the exchange that w e have arranged for
the application form?
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Federal Reserve Bank of St. Louis
Governor McCord:
T h a t was covered b y the resolu-
tion?
The “Chairman:
Yes.
T h e n I was going t o suggest
that instead o f a committce being appointed f r o m the
Boston, Philadelphia and New York banks t o deal with this
matter,
t o refer i t t o a committee o f credit m e n o f banks
that would b e drawn from t h e typical reserve banks+
N e w
York i s net a typical reserve bank and + certainly doubt
if Boston and Philadelphia are.
W e should take into
consideration t h e conditions a t all the districts a n d s e e
if we cannot make out a form of statement that would b e
uniform fer the reserve banks t o recommend t o their member banks,
Governor Weld: I
realize that the
p r o b l e m
is one that sheuld b e looked a t from every angle-
W
e
have not recommended the use o f any printed forms o f
statement f o r that very reason. I
believe w h e n w e pre-
pare the statements they will have t 9 be for business rather
than for individuals, firms o r corporations.
T h e y will
have t o represent business activities, a n d inasmuch a s
the American Bankers' Association i s about t o publish a
statement,
w e might b e able t o induce t h e m t o get certain
things i n thero that otherwise would n o t b e incorporated,
and i n t h e m e a n t i m e
w e have t h e benefit
o f that.
W
e have
not recommended that w e put them out ourselves: B e t w e e n
now and the first o f the year i t can b e considered:
Statement time generally comes the first o f the year. P o s sibly we can get around t e the right printed form of state~ment t o p u r m e m b e r b a n k s t h e n ,
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Federal Reserve Bank of St. Louis
236
Governor Seay:
W e
W e have adopted none o f our own.
have a c c e p t e d s u c h a s v e c o u l d g e t i n h a n d l i n g t h r e e h u n d r e d
or more thousand dollars o f paper.
I t must b e i n such
Y o u will n o t
form that y o u c a n glance a t i t end pass it.
have time t o spend five minutes o n a form.
I t will have
to be i n such shape that the machine moves with rapidity.
The Chairman:
T h e uniformity o f statement i s going
to be one o f the greatest facilities w e can have for promptly acting u p o n commercial paper, a n d w i t h a uniform statement y o u k n o w immediately where t u leok for t h e essential
information.
W e frequently spend a couple o f
Governor Seay:
hours over o u r discounts i n committee, a n d o f course t h e
other officers a m clerks spend a good decal more time i n
examining p a p e r w i t h g r e a t care.
The Chairman;
H o w vould y o u propose t o deal with
this matter, f o r the benefit o f the record o f the meeting,
so t h a t w e c a n m a k e p r o g r e s s a n d n o t a t t e m p t
t o deal w i t h
it i n detail a t thic meeting?
Governor Seay: I
suggest that a s t h e best basis
for a statement w e take the American Bankers! Association
form.
T h a t will give u s the excuse o f saying t o our
_member banks, "This i s the form prepared b y the Amcrican
Bankers' Association."
W
e could take that a s a basis
ana adapt i t t o our o w n uses a s f a r a s possible. I
each b a n k w i l l h a v e t o w o r k o u t i t s o w n s a l v a t i o n
We cannot nccomplish this a t once;
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Federal Reserve Bank of St. Louis
believe
i n time.
w e will have t o develop
237
statements. I
would suggest that w e take t h e American
that each bank
Bankerst Association forms as a basis and
possible, w i t h the u m e r adapt t h e m t o its o w n yse a s f a r a s
recommended b y the
standing that i t i s 4 preliminary f o r m
American Bankers! Ass@ciation. I
think that will give us
usé.
an excuse t o initdate i t into gencral
The Chairman:
resolution?
D o y o u offer that a s 4
Governor Seay: ‘Yes.
The Chairman:
that?
I s there a n y second t o
second it.
Gorernor Wold: I
The Chairman:
I s there a n y further discussion?
Governor Lowry: I
have n o t s e e n the statement s u b -
? would
mitted b y the American Bankers! Association and
resolution.
nardly b e prepared t o vote o n that
Governor Seay: I
look upon a n y resolution w e might
offer a s suggestive, Mr, Chairman.
o f attempting
The Chairman: G o v e r n o r Seay, t h e idea
, based upon the
to arrive a t a uniform credit statement
y
a
m
forms remmmended by the American Bankers' Association;
a t the outset.
load t o a certain degree o f uniformity
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Federal Reserve Bank of St. Louis
Governor Seay:
The Chairman:
Yes.
F a c h bank t o modify it, o f course,
district.
te meet with conditions i n their own
Governor Seay: Y e s .
The Chairman:
I s thore a n y further discussion?
(There were calls for the question.)
motien,
(No further discussion was hed and the
=,
)
peing duly put, was carried.
2358
The Chairman:
W e have a
number o f inquiries i n our
district a s t o whether w e will give credit information, n o t
only w i t h r e g a r d
banks,
ing.
t o commercial p a p e r ,
b u t w i t h regard t o
T h a t question was discussed a t a n earlier meet-
W e decided that the Federal “eserve Banks would not
give credit information t o their members.
I put t h e subject o n the program a n d i t occurred t o
me that possibly t h e matter had developed further s ince
it was last discussed a n d that w e would want t o consider
whether a n y change o f policy w a s desirable.
Governor McCord;
Gove rnor Seay:
T h e r e i s n o change o f policy w i t h
W e have received a few inquiries o f
the same character a n d have maintained t h e position which
we, a t the first consideration, d e e m e d desirable. I
am
more confirmed t h a n ever i n the opinion that i t i s desirable t O maintain t h e confidence o f our o w n members b y guarding the information carefully that t h e y give us.
Governor Alken:
W e have discussed t h a t matter a t
some length i n our bank and w e see n o reason f o r changing
our minds.
W
e think i t would b e inadvisable a n d hazard-
ous f o r u s t o check paper f r o m o u r banks.
Governor McDougal: I
should like t o inquire whether
or not there i s a n y disposition o n the part o f any o f the
Federal “eserve banks t o do otherwise than, a s Governor
Aiken, h a s suggested,
i s being done b y his bank.
that that policy i s the only safe policy t o pursue.
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Federal Reserve Bank of St. Louis
W
e think
239
Gevernor Wold:
L o y o u mean i n reference t o informa-
tion regarding banks,
o r checking commercial papex‘?
Governor McDougal; I
a m speaking particularly w i t h
regard t o the matter o f checking paper.
Governor Wold:
W e respond t o all such inquiries b y
saying that under n o circumstances w i l l w e advise people
as t o the value o f investments, t h e soundness o f any concern, o r the advisability o f R e e
e e
paper.
I f we
did that that would b e our principal function and we would
not h a v e t i m e t o a t t e n d
The Chairman:
t o t h e b a n k i n g business.
I t may b e that i n later years w e will
have t o be a little more liberal i n that respect.
I t
is going t o leave some o f the banks i n the country a lite
tile bit i n the air when you restrict their relations with
their correspondents.
Governor Wold:
I t i s possible that v e may later
have t o fall back o n one o f the phrases o f the Federal R e -
serve Board~-~ nothing herein contained shall b e construed
to prevent the modification, enlargement o r elimination
of this ruling.
Governor Seay:
The Chairman:
O r a reconstruction d e nove?
I
n answer t o your question I have
heard n o one suggest t h a t w e modify t h e policy adopted a t
our first o r second meeting, a n d I will a x i f there i s
any further discussien o n this point?
Governor McCord: I
wish t o s a y this, t h a t our bank
is willing a t all times t o give t o all the other Federal
Reserve Banks a n y informatien w e can,
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Federal Reserve Bank of St. Louis
240
The Chairman:
T h a t o f course goes without saying.
Governor McDougal:
T h e a t ansvers definitely a n d
satisfactorily o n e phase o f the matter; b u t n o w how about
the subject o f giving informtion t o banks regarding banks?
Governor Wold:
T h e only information w e are giving 1 s
W e usually
when a n application comes i n for rediscount.
check u p t h e bank with its correspondent, a n d i f they make
inquiry a s t o whether o r not w e are advancing t h e m any
eredit w e say that t h e y a r e making applications.
W e do
not give t h e amount, o r charactcr o r other details.
W e
think i t i s o n l y f a i r t o t h e c o r r e s p o n d e n t b a n k , t h a t
is giving u s information a n d possibly lending t o the same
bank, t h a t t h e y should k n o w vhether t h e y a r e getting credit
from the Federal Reserve Bank a s well.
Governor McDougal;
H e r e i n Chicago the informati@n
with regard t o member banks comes v e r y largely from the
correspondent banks.
T h e r e have b e e n occasions w h e n
we felt i t a duty t o give t o the correspondent bank, d i s -
cretely, t h e benefit o f some information w e had received,
but never any information w e had received through the
Department.
T h a t i s a s far a s w e have gone.
will write nothing regarding t h e subject.
B u t we
A n y information
that i s given will b e given orally.
‘The Chairman:
I s there any further discussion o n
the question o f information w i t h regard t o banks?
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Federal Reserve Bank of St. Louis
Governor McDougal,
Governor MeDougal :
The Chairman:
i s your question answered?
Y e s sir.
T h e next item o n the program i s Ne:
241
I t e m (a)
"pelations between Federal Seserve Banks-"
under t h a t i s 4Cipher Code a n d test word.”
This subject was suggested b y Governor Seay.
Governor Seay:
I t was m y impression that we had not
come t o a conclusion upon this matter.
cusskbd o n several occasions. I
I t had been dis-
thought G o v e r n o r R h o a d e s
test
still h a d the matter i n charge a s t o the cipher a n d
word f o r use o f federal reserve banks among themselves,
Governor Rhoades: G o v e r n o r Strong has some word
on that, t o o .
Governor Seay:
l a s i t concluded before?
Governor Rhoades: I
Governor “eay:
d o not think so.
M y impression was that we had decided
been
that i t would b e desirable, b u t that i t had not yet
perfected. I
a m under t h e impression that i n view o f
the dealings that w e have t o have with each other, that
it will soon be necessary, a n d the only idea I had a u
bringing the matter u p again was thatThe Chairman:
W e have adopted, f o r temporary use,
at Least, the code o f the American Bankers! Association:
That, I understand, i s i n the hands o f all the tederal
Reserve Banks, a n d w e are using i t i n New York a n d i n
our telegraphic communications
t o other Federal *eserve
banks.
proposed,
As t o a test word, there were t w o xhe mes
one b y Mr. Hardy, w h o i s & code expert.
T h a t i s a simple
in
open test word, and then there was one that was devised
coding
New York b y some man who had practical experience i n
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Federal Reserve Bank of St. Louis
242
but a very effec-
messages, a n d that 4 s more complicated,
tive check.
fairly common use, and
T h e scheme i s one i n
o f the message v e r y
4t protects t h e sender a n d receiver
quite a s
The other o n e I do not think i s
effectually.
o f how complicated
effectual, but i t is just 4 question
youvant t o make t h e protection.
discuss i n reference t o
We have m a e material here t o
discuss i n detail a t
that t h a n would b e pranticable t o
i s whether w e want t o
this mecting. T h e real question
adopt a
complicated,
which
put very effective, t e s t word,
will require computation
received,
each time a
telegram i s sent o r
adopt a
o r whether w e want t o
of adding a n arbitrary words
very a
mple method
w h a t 4 s your feeling about
that?
concerned t h e
A s f a r a s w e are
Governor McCord:
1 have operated
simple word would b e effective, although
t h e N a t i o n a l C i t y Bank.
under t h e o t h e r s y s t e m i n
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Federal Reserve Bank of St. Louis
T h e y
a n d i t was very effective
hed that system o f calculation
and very satisfactory.
f o r the present I
But i t seems t o m e thet
might s e n d
you
would use 68 a test and
you a list o f words that w e
w e could create a
might s e n d m e & list, a n d
list between
have
take them i n rotation, b u t
us and check off and not
w e could begin a n d s o forth,
an understanding a s t o where
line down.
so that nobody could follow the
The Chairman:
a while.
o u t after
O f course t h a t system wears
system o f checking
T h a t i s the old-fashioned
code messages.
243
T o gd straight down the list of
Governor McCord:
system o f changing from
words i s dangereus, b u t t o have &
time t o time i s very effective.
The Chairman:
Governor Rhoades?
W h a t have you t @ say,
Governor Rhoades: I
not very leng.
think those examples there a r e
example i n
I f yeu would simply read t h e
difference beeach case every one could see readily the
tween t h e twee.
the Cenfer(Thereupon the Chairman exp lained t e
t h e twe suggested
ence t h e difference i n operatien o f
systems e f cipher code.
to
T h e reperter was directed not
place this explanatien i n the record.)
Gevernor McCord: I
will make a
motion that either
system (referring t e
you o r Governor Rhoades m a k e u p that
it by mail
one of the systems above explained), and send
bank.
under seal, t e the Governor a f e a c h
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Federal Reserve Bank of St. Louis
The Chairman:
D e you mean the more elaborate sys-
tem?
Goernor McCerd: ‘ Y e s .
The Chairman:
I s that a motien?
Governor McCord:
The Chairman:
I s that motisn seconded?
Governor A i k e n : %
The Chairman:
Y e s ; I m a k e that a s a motion.
will s e c o n d i t .
I s there a n y further discussien?
the metien
(There was n e further discussien and
was duly put and carried.)
The Chairman:
T h e example given in the papers pre-
a n d n e w numbers
pared o f ceurse will b e entirely reset
244
assigned t o the code s o that there i s n e possibility o f
its getting i n t o hands t h a t should n o t have it,
The n e x t i t e m o n t h e p r o g r a m w a s s u g g e s t e d
b y Mr.
MeKay and w e will pass i t until h e arrives,
Governor McDougal:
few moments.
M r . MeKey will b e here i n a
W h e n Mr. MeKay arrives 1
be excused f o r a n hour.
should like t o
w e have a n important meeting a t
the bank and i f it will b e satisfactory t o the meeting I
would like t o b e excused when h e comes in.
The Chairman:
W e will miss you, Governor McDougal,
but you will b e back for lunch, will you not?
Governor McDougal:
The Chairman:
Yes.
W i l l y o u bring your cohorts w i t h you?
Governor McDougal: I
The Chairman:
think not, today.
w e will now consider item (c) under
Subject 8, "Credits between Federal Reserve banks and their
threatment a s reserves.”
T h a t was introduced b y Governor
Kains,
Governor Lowry:
T h a t refers t o a matter that I
think
was discussed py. thes Conference, a n d we were a little
uncertain as. t o what disposition h a d been finally made
of it.
W e have always f e l t that w h e n w e owed money t o
other Federal Reserve Banks that i t was n o t t o b e considered
as a deposit b u t a s segregated cash, a n d w e deducted t h a t
amount from our ash.
B u t the Federal Reserve Board
took exception t o that, claiming t h a t t h e item due from
banks contained some uncollected items, which i t always did.
Ag t o those uncollected items we were quite agreed, b u t a s
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Federal Reserve Bank of St. Louis
245
to items already collected,
w e felt that they should b e
regarded a s warehouse reserves f o r the benefit o f the bank
that owned them,
The Chairman;
T h e form provided b y the organiza-
tion committee a n d n o w required b y the Reserve Board f o r
making t h e reserve computation b y federal reserve banks,
4 think we have all regarded a s being incorrect and inaccurate.
I n making u p our reserve, f o r instance, w h e n w e
had a very large fund i n the reciprocal accounts, t h e y
required u s t o take the gross due t o and due from other
reserve banks i n computing our reserves instead o f the net
amount, w h i c h i s incorrect { n itself.
O f course i t should
be the net amount between each o f the Federal +teserve banks
instead o f the gross amount, because t e have consistently
and arbitrarily reduced both sides o f this account b y
exchange o f telegrams.
O u r understanding i n Washington
was that a s soon as the gold fund was established for the
settlement o f balances t h a t t h e method o f computing reserves
would b e changed and a new and correct form be issued.
That has not yet been done.
about i t a t almos t
O u r directors are asking
every meeting.
T h e y a s k why w e are
continuing t o use a n incorrect method o f computing o u r
reserves.
I would like t o suggest that this matter b e deferred
for discussion until Mr. Broderick arrives,
little later, a n d then @ndcavor,
a s h e will a
i f w e can, t o persuade h i m
that t h e whole method o f dealing w i t h reserve computations
should b e reviewed b y the F e d r a l Reserve Board a n d a correct method adopted, n o w that w e are using this gold settle-
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Federal Reserve Bank of St. Louis
ment fund.
Governor Wold:
M a y I inquire a s t o what the agree-~
ment was w i t h reference t o the n e t balances d u e t o o r from
other Federal Reserve Banks after t h e inauguration o f the
gold settlement fund?
W
The Chairman:
e have h a d n o understanding
u p to
this point with t h e Federal Reserve Board a s t o h o w the
week's items should b e dealt with. T h e r e i s a n accumulation every week.
O f course that appears i n our statement
and necessitates s o m e treatment i h the reserve calculatio ns.
We are alse without any understanding with the Federal
Reserve Board with regard t o the amount o f any balance
withheld from the weekly statement which enters into the
reserve calculation.
For instance, S a n “rancisco, Chicago, Boston and Philadelphia a l l calculate t o carry some balance w i t h N e w York
for investment purposes, w h i c h balance t h e y d o not want
cleaned u p every week through t h e gold settlement fund.
We have got t o consider whether this will b e treated o n
our books o s due t o banks a n d o n the books o f the other
Federal R e s e r v e B a n k s a s d u e f r o m banks,
o r considered
as
a warehouse f u n d which shall b e deducted f r o m our reserve
and added t o the reserve o f the other Federal Reserve
conference
banks.
I f agreeable t o the - . -° t @ I would suz,gest that
we defer t h e final discussion o n this i t e m s a r e Mr,
Broderick comes in.
T h e n h e c a n take i t u p direftly i n
Washington.
The same thing applies t o item (b) under Subject ll.
That was left open for the same purpose, i . 6., that w e
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Federal Reserve Bank of St. Louis
might discuss i t with Mr. broderick.
We now come t e subject No, 12, “Open market operations."
Item (a), “extent o f reserve banks' activities” has
been suggested b y Governor McDougal.
Governor Mebougal:
T h e matter o f how far we should
go i n the open market h a s been discussed b y our directors
and that topic was suggested simply a s a matter f o r discussion,
Ow Board o f directors believe that w e would b e justifjed i n picking u p i n the mrket,
ity.
i f we could, such secur~
W e have been buying t o the extent of perhaps$15,000,000
which would make us a n income sufficient t o take care o f
eur entire expense b o t h here a n d with t h e Board.
T h e
Board, however, has passed a resolution which I think may
be o f some interest t o you, indicating that the policy o f
the Board is against the matter of buying i n the open
market bills o f exchange.
T h i s i s the form of resolution;
"Resolved that it is the opinion of the Board of Directors o f the Federal Reserve B a n k o f Chicago that t h e Federal
Reserve Banks should b u y domestic acceptances o n l y f r o m
member banks with their endorsement."
We believe t h a t w e should k e e p o u t o f the market
far a s possible,
i n connection w i t h investments s u c h a s
commercial paper and domestic acceptances i n handling which
we would b e i n direct competition with our member banks;
but w e believe i n the policy o f picking u p acceptances and
warrants a n d s u c h investments a s w e have b e e n able t o buy
up t o perhaps fifteen millions o f dollars, i n times like
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Federal Reserve Bank of St. Louis
248
this, a n d i n times when there i s a demand from our custom-
ers, t o let them run off and t o get out o f i t entirely i f
we can.
The Chairman:
I t e m (h) under subject No. 12), "Open
market operations"+-=- (h) "purchase o f trade acceptances
oy Federal “eserve Banks"--~ was suggested b y the Federal
Reserve Board a n d I have a
communication h e r e f r o m Vice-
Governor Delano which I will read a little later.
I t re-
lates t o trade acceptances which, a s I understand, y o u de-
scribe b y the words "Domestic acceptances."
Governor McDougals I
The Chairman:
think they would b e t h e same;
A n d your statement indicates t h a t
your Board i s i n the attitude o f cenfining i t s open market
operations
t o the purchase o f warrants, dollar acceptances,
representing importations a n d exportations, a n d posal bly
government bonds.
Governor McDougal: I
believe t h a t w o u l d b e a
fair
Statement, although there might b e some other o p e n market
opportunities that they would avail themselves of; b u t
they believe i n keeping o u t o f the market i n connection w i t h
buying commercial paper a n d domestic acceptances, where i n
they would b e i n direct competition with the member banks.
They also believe i n the policy o f buying these classes
of Investments and permitting them t o run off, i f possible,
at times w h e n w e are having demands f r o m o u r member banks.
The Chairman: I
would l i k e t o a s k G o v e r n o r “ e l l s i f
the F e d e r a l R e s e r v e B a n k o f St. L o u i s h a s t a k e n a n y a c t i o n
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Federal Reserve Bank of St. Louis
249
in this matter o f open market transactions a n d t h e purchase o f domestic p a p e r ?
Governor Wells:
N o , . we have not.
The Chairman: G o v e r n o r Mcbougal, i f we defer the
discussion o f item (h) under subject 12, until your return i t will b e entirely satisfactory f o r u s t o g o ahead
in your absence w i t h the rest o f subject 1 2 7
Governor MgDougal:
I
t w i l l b e e n t i r e l y s o ; yes.
I s there a n y further discussion o f
The Chairman:
Subject (a)?
(There was n o further discussion. )
The Chairman; S u b j e c t (a) will be passed without
resolution.
Item (b), "Regulations i n regard t o warrants under
which banks may purchase entire loan o f a municipality
up t o a limited amount", was suggested b y Governor Aiken.
Governor Aiken, will you discuss that matter?
Governor Aiken:
fore a n d I
T h a t matter wasbrought u p once b e -
believe i t was decided that w e should n o t re~-
quest authority t o buy more t h a n @
p e r cent o f outstanding
current obligations o f a municipality,
the regulations.
I
i n accordance with
n the last three o r four months there
has arisen a condition w i t h u s a s follows’ A
large number
of our towns i n Mass chusetts have been borrowing money
in small amounts o f perhaps $25,000 t o ¥50,900 i n single
notes that were not divisible.
W i t h us a town's
borrowings are very rigidly safeguarded b y statute, a n d
the notes a r e registered under a
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Federal Reserve Bank of St. Louis
some what elaborate system
250
of registration with the Bureau o f Statistics o f the ComT h i s makes i t a very attractive f o r m o f obli-
monwealth.
gation.
I
t seems t o m e that w e could, w i t h entire
safety, b u y e n amount u p t o say $50,000 o f such obligations, and i f it be available for any one bank, i t could
be done without t h e necessity o f its subdivision.
S o m e
times the borrowings are s o small i n amount that i t is
not practical t o divide them--~ say 10,000,
T h e debts
of our counties a n d towns a r e i n some cases extremely
small, a n d a r e
q u i t e a s good a n obligation a s that o f
the larger cities.
I should like, both for m y own parposes, a n d for the
purpose o f distribution among t h e other Federal Keserve
Banks, t o have authority from the Federal Heserve Board
to b u y o b l i g a t i o n s f r o m a
or»50,000. I
municipality
o r town u p t o 2 5 O O O
personally think it could b e safely done
ashigh as $50,000.
The Chairman:
M a y not that matter b e dealt w i t h
without t h e necessity f o r a ruling f r o m the Federal Reserve
Board; t h a t is, could y o u notgamply purchase those issues
and divide t h e m u p o n the same basis t h a t w e are dividing
up warrants purchased i n New York.
I f the amount i s too
small t o b e divided t h e y © u l d b e sent over t o N e w York
and put i n with other purchases that w e make there, a n d
which could accumulate f o r a few days a n d then the division could b e made.
I t really would n o t make a n y sub-
stantial difference whether t h e bank gets t h e entire l o a n
er whether i t gets a
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Federal Reserve Bank of St. Louis
participation certificate i n a n un-
divided interest i n one o f those warrants.
W
Governor Aiken:
York i s doing it.
W
e would b e glad t o do tnat i f New
e would b e very glad indeed t o d o i t
if you c a n take i n everything o f that sort that will pass
u p there.
muster
The Chairman: I
think i n New York w e would b e very
willing t o accept your judgment a s t o the goodness o f
the obligation o r the legality o f the issue.
W e all
realize how strict the procedure i s that i s follow#a
i n
borrowing u p there,
Governor Seay: I
suggected that t o the Federal
Reserve Board i n the beginning, a n d they were a t that time
not entirely favorable t o it, although I never did agree
with them.
D o w n our way i t operates against our buying
the obligations o f some small municipalities that are
perfectly safe; b u t i t has n o t b e e n a matter o f sufficient
importance to take it up again with the Federal Reserve
Board.
Governor McCord:
T h e Laws o f Georgia and adjoining
states are very rigid a s t o what a municipality o r county
may issue.
T h e y may issue obligations f o r casual defi-
ciencies only.
T h e courts have been very rigid i n
their decisions. I
have asked Governor Aiken t o send
us a copy o f the regulations o f Massachusetts,
s o that
when o u r legislature meets i n June I will b e i n a position
to try t o get more satisfactory laws passed concerning
that subject.
A t present w e are afraid t o touch a n y o f
the warrants because they may not be for a casual deficiency,
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Federal Reserve Bank of St. Louis
We would have serious trouble i f they were not.
believe Governor Aiken i s right
Governor Seay: I
in his application f o r more latitude i n that direction
for the Federal “eserve Banks; b u t i f i t c a n b e managed
jn other ways there i s n o occasior,
s o f a r a s w e are
oncerned, f o r bringing i t u p for regulation.
The Chairman:
I f Governor Aiken would feel more
comfertable i n carrying out the policy that I have just
described, after getting informal relief from the Federal
Reserve Board, possibly w e could j o i n i n requesting h i m
to stbmit t h e matter f r o m this meeting a S a
r e m mmendation
ef the meeting o n the method o f dealing with these smaller
issues i n his district, f o r the benefit o f all the banks.
We are i n the anamolous position today o f being really
urged b y the Federal Reserve Board t o bring our banks u p
te a larger earning basis and a t the same time these
restrictions a r e imposed u p o n classes o f investment which
are almost the only kind that w e can get a t this time.
believe i t might b e made a means
Governor Seay: I
of popularizing Federal Reserve Banks i f they should
help communities
i n that respect.
I t would b e a good
thing t o help t h e m when they desire t o borrow,
O n e small
community i n the Carolinas c a m e t o u s and made t h e statement that t h e y could n o t g e t money under t e n per cent.
Governor Alken:
T h e y could g e t i t a t about three
per c e n t i n m y ceuntry.
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Federal Reserve Bank of St. Louis
Governor McCord: C o n d i t i o n s surrounding the warrants
have something t o d o with the rate d o w n therc.
Governor Seay:
T h a t i s natural.
A t the same t i m e
L pelieve if it were properly managed b y the Federal Reserve B a n k i t might b e a means o f popularizing t h e institution i n those localities.
I
t i s a very spreading thing
the relieving o f a community.
I t seems t o me that i f we could es-
Governor Alken:
we
tablish some standard and have i t generally known that
could help different communities, raising the present
standard, that i t would broaden our field for investment
very much, without a n y risk.
Governor Seay: Y e s .
A n d a t the same time, a s Governor
Governor Aiken:
Seay suggests, a d d something t o the interest i n and popu-~
larity o f the Federal Reserve Banks.
T h a t would give the banks a n outside
Governor Seay:
influence that would probably b e of benefit.
not have t o argue y o u r case;
Y o u would
y o u might have somebody t o
argue i t f o r you.
The Chairman:
T h e burden rests upon you t o make a
motion, Governor Aiken:
Governor Aiken:
W a s i t the intention o f the Confer-
up b y |
ence t h a t w e would seek t o have t h e matter taken
the Federal Reserve Board b y requesting a n informal ruling
from them?
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Federal Reserve Bank of St. Louis
The Chairman:
W h a t w a s i n m y mind w a s simply this;
the other
This i s a matter where y o u would b e acting f o r
Federal Reserve Banks, a n d y o u are t h e o n e that would really
254
be entitled t o whatever protection b y way o f ruling,
or
that
otherwise, c o u l d b e secured.
Governor Alken: F r a n k l y , I
ruling, I
should l i k e t o have a
d o n o t w a n t t o approve t h e s e t h i n g s a n d t h e n
find myself i n difficulty w i t h t h e Federal Reserve Board
because o f them.
Do you think i t likely, i f the matter was taken u p
directly with the Federal Reserve Board asking for the
modification o f their regulations t o the effect that w e
could b y y the entire l o a n from a minicipality o r town u p
to say $50,000, that they would feel indisposed t o grant
that authority?
The Chairman:
to grant it.
W h y , I
think they would b e disposed
T h a t i s speaking f r o m o u r experience,We h a v e
had Occasion n o w and then t o ask them f o r special authority
to exceed the limits o f their regulations a n d i n every
instance I
think t h e y have given u s that authority; a n d
we felt s o satisfied about getting i t i n one instance t h a t
we made a
purchase first a n d asked f o r authority after-
ward .
Governor Aiken:
T h a t h a s been o u r experience.
W e
have a l w a y s d o n e t h e s a m e t h i n g w i t h o u t a n y d i s a s t r o u s
results.
I therefore move, Mr. Chairman, t h a t t h e Peaeeal R e serve Board b e requested t o make a special ruling i n re-
gard t o paragraph 2, regulation (f), series o f 1915, authorizing the Federal Reserve Bank o f Boston t o purchase t h e
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Federal Reserve Bank of St. Louis
255
of a county,
total amount o f warrants outstanding, c i t y o r town within
its district, t o am amount not to exceed $50,000, for the
purpose o f enabling t h e Federal Reserve B a n k o f Boston t o
purchase f o r its o w n account o r for the account o f other
Mederal Reserve Banks.
The Chairman:
I s there a n y further discussion o f
Governor Aiken's motion?
Governor Aiken: I
should like t o ask one question
before the motion is put, and that 1 s a & t2 the amount.
Do any of you gentlemen think the amount of $50,%00
is t o o high?
W
e should n o t hesitate t o buy a s high a s
#50 ,000.
Governor Fancher:
Governor Aiken:
The Chairman:
T h a t i s abowe 10,000 population?
Y e s ; t h a t i s for a town above that.
i s there a n y further discussion?
(There was n o further discussion and the motion
was duly put and carried.)
The Chairman:
I t will have t o b e understood t h a t
Governor Aiken will submit this matter t o the "ederal Reserve Board i f agreeable, a n d that w e will not do s o from
New York.
Mr. Curtis:
T h e Board i n some cases may lift the
limitation o n debts t o 1 5 per cent instead o f 30.
Do you know the percentage o f debt i n Massachusetts?
Governor Aiken:
The Chairman: I
for u s t o pass a
1 3 per cent.
think i t would b e perfectly safe
resolution recommending t o t h e Federal
Reserve B o a r d t h a t i n t h e c a s e o f t h e E t a t e o f Massachusetts
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Federal Reserve Bank of St. Louis
256
the limit n o w imposed b y the regulation a s t o the amount
of debt of a Commonwealth be increased t o 15 per cent.
Governor Wolds
W i l l y o u not establish a
precedent
which m a y cause u s difficulty hereafter? P o s s i b l y Minnesota, Virginia,
o r some other place m a y want t h e same
ruling. |
The Chairman:
T h e Board would h a v e t o deal with that
by special ruling i n the case o f Massachusetts.
I f we
desire t o buy Massachusetts warrants t h e r e i s a good supply o f them just now, a n d w e have n o t been able t o b u y thnam.
Governor Wold:
The Chairman:
O n what basis are they selling?
T h e l a s t sale I know o f was 280.
Governor Aiken: T h e y sold $2,000,000 six weeks ago
at 280, w i t h interest following i n six months.
Governor Wold: A p p a r e n t l y t h e higher t h e percentage
of debt o n taxable property, t h e higher t h e rate.
Governor Aiken:
Y o u are entirely mistaken,
2
5
the quality o f the goods,
Governor Wold: T h e r e i s only 100 cents i n a dollar
in Mass chusetts, t h e same a s there i s i n Minnesota.
The Chairman:
I s there a n y further discussion o f
this i t e m o n the program?
I f not, w e will proceed t o
the question o f the purchase o f government bonds, unless
you would prefer t o have that deferred until Dr. Miller i s
here.
I t i s a matter where a change o f opinion b y Mr.
some coubt o n
Elliott has thrown, i
the action o f the Federal “eserve
banks i n buying Government bonds,
tory t o let that g o over?
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Federal Reserve Bank of St. Louis
W o u l d i t b e satisfac-
257
Governor Fancher: I
would suggest that w e pass t h a y
until Dr. Miller comes in.
The Chairman:
T f there i s n o objection that course
will b e followed.
The next two topics vere suggested b y me» ‘ S o m e of
them need n o discussion.
I t e m (e),"bilis o f exchange
accepted payable a t another place.”
I will make a statement w i t h reference t o that item.
We have purchased i n New York some bills o f exchange
accepted b y the Philadelphia National Bank, accepted
payable a t the Hanover National B a n k i n New York, a n d I
think m m e bills accepted a t the First National Bank o f
Boston, m d e payable a t a bank i n New York:
The q u e s t i o n h a s a r i s e n a s t o w h e t h e r t h e b a n k o n
which the bill i s drawn does n o t affect t h e recourse o f
both the maker a n d endorser o f t h e bill b y changing t h e
place of payment b y the terms of its acceptance, and one
opinion has been rendered t o the effect that when s u c h a
bill i s presented a t the place where i t i s made payable,
by the terms o f the acceptance, t h a t t h e holder
t
h eerdid
lose r e c o u r s e u p o n t h e c r a w e r a n d e n d o r s e r p r o v i d e d t h e
bill was n o t paid i n the place where t h e acceptance makes
it payable.
Mr. Surtis i s of the opinion that i f the holder o f
the bill presents t h e bill a t the office o f the acceptor
and n o t a t the office where t h e acceptor makes i t payable,
that thereby a n y defect i n the recourse o f the maker o r
endorser i s secured.
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Federal Reserve Bank of St. Louis
i
I n other words, t h e bill i s being
258
presented a t the place where,
and where,
b y its terms, i t i s payable
b y its terms, t h e parties t o the bill have b e e n
placed o n notice that i t would b e presented f o r payment,
i t seems t o me, o n which “we can take
It i s not a
matter,
any action.
W h e r e t h e member banks i n ths Philadelphia
and “oston Reserve Districts a r e making acceptances o f
that character,
i t i s u p t o them t o bring i t t o the atten-
member banks that t h e question has arisen
if that arrangement f o r
a
c
c
e
p
t
unsafe
that i t would possibly b e
tion o f t h e e
-
ances were permitted t o develop.
Mr. Curtis: U n l e s s the place o f acceptance differs from
the place o f business o f the acceptor and i s stated i n
T h a t cures a l l t h e defects.
the body o f the bill.
everybody i s o n notice a n d agrees t o that place.
Then
B u t this
question arises o n bills where t h e acceptance s a y s i t i s
payable a t another place a n d t h e drawer o f the bill a n d
the endorser o f i t have had n o notice o f any such change.
The Whitney Central B a n k i s doing that;
i t i s accept~
ing bills payable o n other cities and the question has arisen
M r . Rhoades’ counsel takes a
down i n Philadelphia.
more
o
fearsome v i e w o f t h e s i t u a t i o n t h a n I
do. I
understand
he has advised t h e bank not t o accept a n y bills payable
in any other place.
Governor Rhoades?
N o t i f the bill a s originally
drawn contemplates that.
Mr. Gurtis: I
mean i f the acceptance states that i t
is payable i n a different place,
h e has advised t h e m not
to take t h e m under a n y circumstances, h a s h e not?
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Federal Reserve Bank of St. Louis
I f
259
bill i s drawn o n a bank i n City A and t h e bank there
accepts i t payable i n City B, h e would advise them not t o
take i t under a n y circun® tances,
Governor Rhoades:
U n l e s s i t was stated i n the ori-
ginal bill that i t should b e accepted a t another place,
Mr. Curtis:
T h a t comes under t h e negotiable instru-
ment a c t o f Pennsylvania.
Governor Wold: W o u l d i t release the accepting bank?
Mr. Curtis:
N o , y o u always have t h e accepting bank.
Governor Rhoades:
T h e only acceptance o n the Phila-
delbhia National b a n k which I have seen, having t h a t
change o f place o f payment,is where t h e bill was originally drawn payable i n New york.
Governor MeCord:
Governor Rhoades:
The Chairman:
T h e n that cures t h e defect?
Yes.
T h e dealing i n acceptances i s a new
business i n this country ,
with a good m a n y o f the banks,
and there a r e a great m a n y problems t h a t undoubtedly t h e
bank o f f i c e r s h a v e n o t s t u d i e d a n d a r e n o t acqu::inted
with
in connection w i t h that business.
We found,
i n New York, f o r instance, t h a t s o m e o f
the banks were accepting bills payable through t h e clearing house, a n d that meant that, under t h e clearing house
rule, they could net b e cleared until the day after they
had matured b y their terms, a s the clearing house does n o t
clear a n y items a s o f the date they a r e drawn.
W
e took
it u p with those banks w h i c h have adopted that practice, a n d
they h a v e n o w a b a n d o n e d m a k i n g a n y a c c e p t a n c e p a y a b l e
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Federal Reserve Bank of St. Louis
through t h e clearing house,
It might b e a goodplan t o watch the development o f
the practice o f making bills payable i n places other than
where t h e y are payable b y their terms a n d t r y t o check i t
up.
T h a t was t h e object
o f putting t h e i t e m o n t h e
program,
Items (f), "Pur¢thase of domestic bills of exchange not
based upon imports o r exports", a n d (h) "Purchase o f trade
acceptances b y Federal Reserve Banks" a r e also held over as i s item (c), "Purchase o f Government Bonds," ©
for discussiOn when Governor McDougal and Dr. Miller are
here.
In regard t o Item (g),"purchases i n New York market",-Governor McCord:
b i d you check item (d),"endorsements
on acceptances under negotiable instrument l a w a n d common
law."
The Chairman:
Yes.
I n regard t e Item (g), “pur-
chases i n New York market", I wish t o say this:
W e have
of course purchased a good many bills and a good many
warrants for account o f other Federal Reserve Banks. T
do not k n o w t o what extent i t i s wise f o r u s t e have a n y
positive, hard and fast rule a s t o the extent o f the opera-
tions o f the other Federal Keserve Banks i n New York.
I want t o call your attention, however,
t e some things
that have occurred i n handling that acceunt that I think
you ought t o b e aware of.
I n one instance a
very active
firm of brokers offered some warrants i n Philadelphia a t
a certain rate, stating thet w e had purchased s o m e o f
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Federal Reserve Bank of St. Louis
261-1
those w a r r a n t s
a t t h a t r a t e i n N e w York.
W
e happened
to
New
have been negotiating for some o f those warrants i n
a n d after
York a t that time a t a somevhat higher rate,
purchased a t
some consideration w e dropped o u r rate a n d
i
ithe rate they claimed Mr. Rhoades had purchased at.
would not say that the broker lied, but the fact was~---
Governor Rhoades: I
would not hesitate, Mr. trong.
(Laughter) s
The Chairman:
Mr.
T h e broker immediately w e n t t o
had made a
Rhoades, o r t o his office, a n d said that w e
that rate
purchase a t this r a t e a n d s o h e pought s o m e a t
and the rate was too low. I
am convinced that the broker
had the
made too large a profit o n the transaction and i t
effect o f generally marking down the rate for New York City
warrants.
We want t o be frank with each other ahout these matters,
A somewhat similar transaction occurred i n San Fran-
I t was a very small matter.
cisco.
A n active form o f
prokers offered some acceptances, $193000 o r $20,000,
which they n a d offered t o u s 1 0 r discount,
T
h
e rate
the N e w York
was t o o l o w f o r those acceptances based u p o n
telegraphed
market.
G o v e r n o r Kains
m
e that h e had pur-
i n for his
chased t h e m a t a certain rate a n d t o take them
account, a n d w e did so.
all the banks.
W e have a
purchadng account f o r
T h a t incident also has the effect o f
with those
making i t a little difficult f o r u s t o deal
brokers.
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Federal Reserve Bank of St. Louis
As t o what extent w e are justified i n going i n making
263
hard a n d fast arrangements f o r our o w n protection i n the
matter o f rates I
de not know, b u t w e certainly ought t o
discuss i t and t r y not t o cross wires i n these negotiations
so that w e all are a t a disadvantage a n d will suffer a s t o
rates.
I think i t would b e very desirable t o have a
frank
expression o f views a s t o how w e ought t o handle thesematters i n New York.
O u r services a r e entirely a t the dis-
posal o f the other banks and we want t o be o f help.
Acting f o r eight o f them a s w e have b e e n right along, i f
any one b a n k i s negotiating i n our market i t embarrasses
us not only a s t o open transactions but as t o all others.
Governor Wold:
I t is perfectly evident that i f each
of us entered the market w e would depress i t and w e would
not only b e competing against New York but against ourselves,
Governor Aiken: I
that respect, I
have a
have a
sympathetic attitude i n
memorandum o f purchases b y u s for
other Federal Neserve Banks.
W e purchased a t the request
of one o f the other banks $135,000, the total issue being
$350,000. I
bought t h e m under t h e i r instructions a t
2-7/8 ana bought the rest of the issue for the rest a the
banks a t 3 per cent.
The Chairman:
I
n order n o t t o destroy o u r market
in New York w e have t o let some things g o by.
is:
W h a t I mean
I f you buy everything that comes along you will just
mark t h e rate d o w n o n yeurself right along.
T
h
e only w a y
to get a real market there i s t o let enough stuff g o b y
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Federal Reserve Bank of St. Louis
264
so that y o u c a n find o u t what t h e outsider i s willing t o
pay.
Governor Wells:
S t . Louis, a s y o u all know, i s suf-
fering f r o m want o f investments a s well a s rediscounts.
We have thought, a s far a s t h e New York market i s concerned,
that w e have n o right t o enter for the purpose o f making
purchases o f acceptances o r warrants.
W
e have t h e same
feeling with reference t o Boston f o r t h e reason that w e
understand that, through arrangements m a d e with those t w o
places: we have a n established a g e n c y f o r the purpese o f
purchadng.
The Chairman:
T h a t i s correct.
Governor Wells:
T h a t i s the position o f St-+ Louis
in the matter,
The Chairman:
O
f course w e d o n o t want y o u gentle-
men t o think that w e are making any complaint about this
matter. I
am speaking i n your own interests.
I f you want
us t o act intelligently and effectively, I would say
that i t would b e a little difficult f o r us t o d o that with
@irect negotiations taking place with reference t o these
purchases,
Governor Lowry: I
would like t o a s k what competition
yeu have to meet in New York in buying these acceptances. .
Are t h e larger banks i n New York i n the market extensively?
The Chairman:
A l l t h e time.
T h e y take p r a c t i c a l l y
every thing o f this kind that i s offered that they can
get their hands on.
them;
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Federal Reserve Bank of St. Louis
W
e have i n some instances under bid
i n other instances w e let some o f this stuff g o s o
265
that w e are n o t making a n artificial market w i t h our cheap
money.
Governor Lowry: I
would like t o s a y that i n San
Francisco--=— and w e do not want t o b e the bull i n the china
shop--- w e are i n a position o f having a lot o f money that
we want t o get invested.
W e could use a lot of these accept-
ances and warrants, s a y five o r six millions.
Governor Wold:
Y o u r position i s tnusual,
Governor Lowry: I
want t o assure y o u that w e very
thoroughly appreciate t h e v e r y invaluable service t h a t t h e
New York Federal RKeserve Bank has done for us and the Boston
Federal Reserve Bank a s well, and i f we can get a sufficient
quantity o f this paper through you, Mr. Strong,
Mr. Aiken, w e would v e r y m u c h prefer t o do that.
o r through
W e have
only gone i n once o r twice independently, because t h e paper
did n o t seem t o b e forthcoming a n d offers m a d e t o u s were
rather attractive.
However,
w e have n o desire t o depress rates o r t o
embarrass y o u i n the sLightest degree.
The Chairman:
warrants,
W i t h respect t o both acceptances and
a t the present time, t h e situation i s this:
The acceptances a r e running o f f and t h e y are not making
them.
W e b u y practically everything offered unless t h e
rate i s s o ridiculously low that w e have n o right really
to b u y it.
As a n illustration, t h e acceptance account o f the
Guarantee Trust Company has run down $20,000,000 t o
$25,000,000 i n the last few months, I guess. I
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Federal Reserve Bank of St. Louis
think it
266
is tne experience generallt t h a t t h e . amounts o f outstanding acceptances i s being reduced.
S o m e o f the accepting
institutions, like the Guarantee Trust, the National City
Bank a n d t h e Bankers’
T r u s t Company endeavor
trol o f their own acecptances.
I
n those cases they do
not reach the brokers and d o not reach us.
the a c c p t a n c e s
t o get con-
F o r instance,
o f the National C y t y B a n k a r e offered
to
their o w n correspondents around t h e country a n d they a r e
largely taken i n that way.
T h a t restricts the amount
really within o u r reach for investment.
As t O warrants, t h o s e a r e dealt i n very largely b y
brokers, a n d t o some extent directly between t h e City
of N e w York a n d t h e banks.
Where
w e are able t o deal dir~
ectly with the City o f New York o f course w e get the best
rate w e c a n without t h e broker.
W h e r e t h e y sell outside
we d o the best w e c a n with t h e broker i n making t h e rate.
Our present arrangement with the Deputy Comptroller
of the City, concluded just before I
left N e w York, w a s
to give us the first opportunity o n the next issues that
the city makes o f revenue warrants.
I t probably won't b e
until early i n July that t h e city will borrow a n y money
at all, b u t when they d o w e m a y probably b u y ten, twalve
or fifteen million dollars o f New York Citges a t one lick.
That i s very mich better t h a n letting t h e m dribble o u t
through the brokers with everybody bidding for them. j
Governor Fancher: I
think what i s true i n New York
is true i n a smaller w a y i n some o f the other centers,
have h a d t w o o r t h r e e i s s u e s
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Federal Reserve Bank of St. Louis
i n Cleveland
W e
o f warrants a n d
first o f
ana s a l e o f $950,000 o f Cleveland warrants o n the
May, w e h a d several outside concerns i n the market that
hed never c o m e there before, bidding f o r these warrants.
I think i n one particular c a s e a
firm making t h e l o w bid
Lad t h e encouragement o f being able t o dispose o f some o f
the warrants a t a pretty l o w rate and that influenced a
Low bid,
T h e warrants w e r e awarded t o them and t h e n they
suddenly found that they could only market a part o f them
and that nobody else was apparently interested,
T h e y fin-
ally h a d t o give t h e m over t o sme brokers w h o paid t h e m
42 f o r their expenses i n living a t the hotel for a week
and sgouting around.
Y o u s e e that transaction was n o t
a profitable one for that particubr firm of brokerg.
But I de think the bank o n the ground knows the situation, a n d I a m quite willing,
a s f a r a s t h e bank o f
Cleveland i s Gonverned, toleave i t entirely t o Governor
Strong o r Governor Aiken t o handle these matters i n their
localities, a n d w e will keep entirely o u t a n d n o t bid
against them.
The Chairman: I
would like t o explain also just
what t h e accounts h a v e represented t o the N e w York Bank.
I will give a
little history o f t h e accounts, because other-
wise you won't appreciate what our attitude has been.
Jyst a s soon a s the regulation w a s issued governing
purchases o f warrants w e concluded a direct negotiation
with the City o f New York t o purchase for our own account
dollars worth o f
five million/warrants o f the City of New York,
A t that
Federal 4eserve
time there was n o arrangement petween t h e
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Federal Reserve Bank of St. Louis
268
Banks i n regard t e these purchases, a n d frankly,
i t did
not s e e m t o us wise o r proper that w e should suggest o f o u r
own volition t o the other Federal Reserve Banks that w e
would make investments f o r them; t h a t i f any program o f
that sort was devised t h e suggestion should c o m e from them.
As soon a 8 i t was known that w e h a d made t h e pur~
chase w e had telegrams from mos t Of the Federal Keserve
Banks that were interested, asking u s t o buy some for them,
which w e did.
Taking t h e account a s & whole, w e have purchased a
total o f acceptances and warrants for our own account, o f
something over $19,000,000-=- between $19,000,000 and
$20,000 ,000--= and deducting the five millions, i t would
besomething over $14,000 ,000. D u r i n g this period we
have purchased something over $19,000,0%0 for the other
Federal Reserve Banks.
W e have i n fact, Since w e started
the arrangement, purchased a good deal more stuff for the
other banks than w e have for ourselves,
T h e only basis
on which we can justify that i s that we are dealing with
this matter a s one system without unduly interfering with
Other districts.
The real question i s vlether i t is preper for the
arrangement t o continue. I
personally think that it is,
but i t is a question o n which we ought t e have a fairly
definite understanding.
Governor Fancher:
M a y I inquire whether anything
has come from the Federal Reserve Board bearing o n that
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Federal Reserve Bank of St. Louis
269
the
question, whether t h e y have i n any way «anctioned
operation o r criticised i t ?
The Chairman:
W e l l , I do not think they have eritiT h e y have apparently sanctioned
cised i t i n the slightest.
it without formally doing soGovernor Aiken: T
would like t o say, o n behalf o f
the Federal Reserve Bank of Boston, that our experience
scale.
has been almost t h e same, o n a s m l l
w e have
Banks
bought for the account o f other Federal Kescrve
have b e e n
$1,770,000, a n d o u r purchases f o r o u r o w n account
approximately the same.
expressing
I would like t o take this opportunity o f
b y the B a n k o f
our appreciation o f the courtesy rendcred
made f o r
New York i n the large purchases t h a t t h e y have
use-— $668,000 i n all.
The Chairman:
W h i l e w e are o n this subject, Govern*r
of
Fancher suggests discussing, under (j), the question
between
"Basis o f allotments o f acceptances a n d warrants
Federal Reserve Banks."
G o v e r n o r Fancher thinks that
Dp. Maller i s
this i s a matter w e ought t o take u p while
here.
Governor Fancher.
I
ment s o m e consideration I
n giving this matter o f allotrather approached i t from t h e
o f the bank;
point o f first employing t h e capital s t o c k
local employ~
for instance, t h e amount o f rediscounts a n d
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Federal Reserve Bank of St. Louis
which, under capiment i n your district, t h e percentage o f
that
tal that you employ within your district, deducting
t h e basis o f allotfrom the capital, a n d then arriving a t
270
ment along thos e
lines rather t h a n total resources.
w
e
have worked out a little different basis here, for proceeding along those lines.
I n working o u t this perfentage
the N e w York basis i s practically t h e same,
basis I
understand
The Chairman:
T h e N e w York
t o b e a b o u t 4 2 p e r cent, G o v e r n o r S t r o n g ?
4 2 per cent, yes.
B y the way:
When
the Reserve Board made their report o n this matter w e feund
by some rule o f calculation t h e y h a d t h e percentage exact-
ly forty, although I admit that was a little chance, because
you cannot divide these things u p exactly evenly w h e n they
come i n odd pieces, particularly the acceptances.
Governor F a n c h e r ?
I
t changes t h e basis s o m e w h a t
cities were there a r e a number o f reserve banks,
in
T a k e
particularly i n Boston a n d Philadelphia, where i t i s the
custom o f your banks t o take them, i n times like this they
are, I believe, somewhat u p above the required amount.
That i s not the case i n some o f the other banks,
I
n
Cleveland our reserve deposits d o not fluctuate more than
half a million dollars.
I t i s not t h e custom o f the banks
to carry their deposit reserves--- I think that i s true with
you, Governor Wold?
Governor Wold:
Yes.
Governor Fancher:
S o that y o u have t o approach this
matter o f percentage b y taking the c p i t a l a n d f r o m that
deducting t h e a m o u n t t h a t i s e m p l o y e d
i n yeur o w n district
through rediscount a n d through t h e purchase o f warrants
and s © f o r t h t h e t o r i g i n a t e
i n your district,
a n d then tak-
ing the balance and o n that arriving a t a basis o f percent-
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Federal Reserve Bank of St. Louis
2714-72
age.
T h a t changes t h e basis somewhat.
U n d e r t h e pre-
sent p l a n o f a l l o t m e n t B o s t o n ' s p e r c e n t a g e
cent.
i s seven p e r
T h e plan w e worked o u t would b e ten,
42, o u r plan, 44; Philacelphia,
N e w York,
8 ; i t would b e under o u r
plan 10; C l e v e l a n d 7 , under o u r plan 10; C h i c a g o 1 6 o n
the p r e s e n t b a s i s ;
u n d e r o u r plan,
1 6 and a
fraction;
St. “ois 6; under our plan 4-1/2. Minneapolis works
our practically the same; K a n s a s City 4, our plan 3-1/2;
San Francisco 6 ; o u r plan 4 .
T h a t i s taken f r o m figures
along about t h e first o f May a s t o their present investments,
O f course that would change f r o m time t o time,
Governor Wold: I n a s i u c h as i t is purely a voluntary
courtesy extended t o u s b y t h e N e w York a n d Boston banks,
I do not see why we should assume t o say we are entitled
to any percentage whatever.
W e are simply taking what
has come t o us and have said "Thank you."
Governor Fancher; I
think w e are pretty m u c h all
of u s i n that frame o f mind.
Governor Aiken:
W e have based o u r figures o n the
relation o f the deposits i n the different banks t o one
another, because o f the limitation of ten per cent of the
deposits a s investments a n d warrants, a n d o u r figures a r e
surprisingly l i k e those recited b y Governor Fancher.
w e
have reserved t h e right, a s y o u know, t o invest a s much
as w e could o r felt disposed t o for our o w n account first,
before making the division, I
would like t o say i n
that connection that w e have seldom taken o u r full percentage.
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Federal Reserve Bank of St. Louis
W e have distributed t h e entire amount i n order
to give t h e other banks a
larger investment.
Our percentages a r e a s follows; e n d I give t h e m i n
round amounts,
it a
o r even multiples o f five, because i t makes
N e w York,
little easier:
4 0 p e r cent; C h i c a g o 1 5 ;
Cleveland end Philadelphia 10; SanFrancisco and St. Louis
7-1/2; Kansas City and Minnespolis 5.
I s there n o t another element t h a t
Governor Lowry:
the
should b e taken into cmsidoration there, a n d that i s
banks
earning requirements o f the banks ? S o m e o f the
are making considcrably more than their expenses.
are making enough t o pay their dividends. I
Some
venture t o
easily.
say that t h e banks i n the South a r e doing i t quite
The Chairman:
T h e y are not included i n this percent-
Lowry.
age, and we have not made any purchases for them, Mr.
Governor Lowry:
I n our district w e find local em-
ployment f o r b a r e l y o n e h a l f o f o u r capital s t o c k ,
t o say
outnothing o f our deposits; a n d i f i t were n o t f o r those
side investments t h a t w e have b e e n able, through your cour~
tesy, t e obtain, w e would n o t b e making o u r expenses.
4t is, w e are making a little more than expenses,
we d i d i n the month o f May.
going behind quite steadi ly.
A s
A t least
P r i o r t o that w e had been
I t seems t e m e that that i s
a factor that might reasonably b e taken into consideration,
assuming that w e have any business t o take a n allotment
at allThe Chairman:
T h i s i s going t o be a aifficult matter
to adjust around the table.
I t is one that will require
possibly some arbitrary statement. F r a n k l y , w e d o not wont
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Federal Reserve Bank of St. Louis
2l4
t o the matter,
to b e the ones t o apply arbitrary treatment
invest f o r ourselves, a s each
except possibly a s t o wheat w e
of y e u mention that y o u do.
t h e fact that i n our
I want t a call your attention t o
a t all. I
bank w e have n o demand f o r discounts
suppose
amount o f discounts
we have a s small i f not the smallest
W e have o n l y
banks.
of member banks o f any o f the reserve
~400 ,000.
Governor Aiken: $ 3 7 5 , 0 0 0 .
The Chairman:
larger a n d
O f course o u r expenses a r e
reserve banks b y ® consicerwill b e the largest o f all t h e
able amount.
W
with possibly
e have followed the policy,
b e e n running
a few oxceptions, w h e n o u r acceptances have
other reserve banks, o f
off faster t h a n tnose allotted t o
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Federal Reserve Bank of St. Louis
t o the perdividing u p everything w e purchased according
centage t h a t w a s proper. I
think there w a s o n e exception
like 2 , 0 0 0 ,O00
to that recently, w h e n w e had something
i n one day that w e
or $1,500,000 o f acceptances r u n off
had purchased s o m t i m e ago.
W e r a n them off i n advance
w e had made purchases.
of those o f the other banks for whom
this arrangement i s 6 disSo that f r o m our point o f view
W e divide everything w e buy,
tinct advantage t o u s because
w i t h t h e « xception o f B o s t o n
and n o n e o f t h e o t h e r banks,
w i t h us.
and Cleveland, m a k e similar divisions
T h a t
investment account a s
does reduce t h e percentage o f our
compared t o the other banks.
I
t had not b e e n a matter
b y correspondence, but
of sufficient importance t o take u p
i n making
I think i t ought t o be taken into consideration
i n some way.
these allotments f r o m time t o time,
Y o u see
275
buy,
f v e Givide everything w e
I
the point, M r . Lowry.
whereas e a c h b a n k i n i t s o w n d i s t r i c t
these divisions,
i s not making
f o r retaini t means t h a t o u r opportunity
ing what w e d o buy i s thereby reduced considerably.
o far a s the trelfth district i s
S
Wovernor Lowry:
divide.
concerned, there h a s b e e n nothing t o
realize that.
The Chairman: I
Governor Lowry:
there.
W
N o n e o f this paper originates
t h e S a n Francisco
e have hopes, however, t h a t
banks w i l l w i t h i n a
short t i m e , p e r h a p s , h a v e s o m e t h i n g
ef t h a t k i n d f o r sale.
S o m e o f them have applied f o r
t o accept t i m e paper;
permission, a n d have received it,
offered i n that
put s o far there h a s been none whatever
market.
do n o t b o r r o w o u t t h e r e o n t h e
Municipalities
same plan a s they d o i n the eastern states:
S o that
there h a s been n o local supply whatever.
Governor Eavyer:
ink e have none o f thet class o f
vestments a t Kansas City.
W e have m
d e n o purchases
Boston.
outside o f those w e get through you and
The Chairman:
per=
I n the original arrangements o f
the gross
centages the net figures went out instead o f
somewhat, and w e
figures, a n d i t reduced their percentage
making some outside i n have arbitrarily made that u p p y
vestments f o r them.
Governor Sawyer:
,
W e appreciate t h a t very much
Go ernor Strong.
The Chairman:
T h o h a s a suggestion t o make i n this
@
matter t h a t w i l l e n a b l e u s t o r e a c h
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Federal Reserve Bank of St. Louis
conclusion?
Y o u
276
out, Governor McKay,
at a
v e r y particular moment.
cut down the Chicago allotment i n making purchased
seventeen t o t e n per cent.
just noticed that Governor Fancher
Governor McKay: I
Said i t was f r o m 1 6 t o 10. I
just want t o say that i n
Chicago w e have n o t h a d a n y allotment o f this kind.
W e
tried t e but have n o t succeeded.
(At this point a n informal discussion took
place which the stenographer w a s directed n o t t o report;
after which the following proceedings were had.)
The Chairman: G o v e r n o r Wells suggests that this matter might b e allowed t o run along until t h e end o f the fiscal year a n d then take data f r o m the published figures a s
of June 30, a n d make a
Governor Aiken: I
The Chairman:
new apportionment o n that basis.
second t h e motion.
( A f t e r a brief conference w i t h
Governor Wells): I
find that Governor “ells’ sugges-
tion was that t h i s matter b e permitted t o r u n until t h e e n d
of t h e c a l e n d a r y e a r ,
s o that w e m a y have t h e experiences
of a full year before making a n y definite arrangement o f
percentages.
This matter embarrasses m e very much, gentlemen. I
think w e ought t o dispose o f it, b u t I would a
great deal
rather y o u d i d than f o r you t o look a t m e with t h e idea
that I could.
Governor Wold:
its adoption.
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Federal Reserve Bank of St. Louis
I f you frame a
resolution [I will move
ss =
The Chairman:
take a little time.
I f you care t o have u s d o so, i t would
E a c h o f the banks could prepare a
memorandum, a n d w e might combine that i n some way with the
figures o f capital a n d deposits a n d endeavor t o work out
a tentative suggestion and submit i t t o the other banks.
Governor Rhoades:
W e are s o grateful for anything
that w e are entirely willing t o let t h e matter rest.
Governor Fancher: I
rather feel a s Mr. Lowry does,
Mr. Chairman, that there i s a n element there o f the earning
power that t h e banks have develeped u p t o the present time.
That should b e taken into consideration. I
think there
is a n element there that might have some bearing o n this
allotment. I
think your suggestion i s 4a very good one,
that the participating banks--- tlpre are nine banks participating - - - and t h e purchasers o f warrants a n d acceptances
work out some basis end furnish figures a s t o their earnings a n d expenses a n d work out some pasis o f figures here
and submit t h e m t o y o u
S e r
S
e
o f the data given,
there may be some basis that may seem & Little more equitable that m a y b e worked out.
The Chairman:
I n point o f fact, w e have tacitly ad-
mitted ameng ourselves that earnin,s
a r e really the best
test o f a division, because i t has been asa med without any
acdiscussion t h a t w e are n o t going t o buy warrants a n d
ceptances f o r Richmond, Atlanta a n d Dallas, because t h e y
have n o discounts a n d d o not require t h e e investments.
It may b e that later o n their @iscunts will run off and
Governor McCord will be telegraphing me, “Buyi some accept-
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Federal Reserve Bank of St. Louis
278
ances u p t h e r e i n N e w York,
co se.
i n which case w e will certainly
B u t w e have already, without discussion, tacitly
admitted that net earnings i s one factor t o be taken into
consideration,
I
f w e are going t o d o t h a t a s t o those
three banks, w h y should w e not d o i t a s t o all o f them?
If you gentlemen feel willing t o trust u s confidentially
with your earnings,
o f course brought d o w n t o June 30,
and will send t h e m t o m
personally, I
will s e e that t h e y
are handled b y some confidential clerk, a n d some basis
of apportionment w i l l b e made u p which i s r e a m nable t o all
the banks.
(At this point a n informal discussion took
piace w h i c h t h e s t e n o . r a p h e r w a s d i r e c t e d n o t t o report;
after which the following occurred.)
on motion o f Governor Fancher ,
duly seconded,
it was resolved that each o f the eight reserve banks for
which t h e Federal Reserve B a n k o f New York i 8 m k i n g i n vestments, submit, a s o f June 30, t o Governor Strong a
memorandum o f earnings and expenses t o be used i n connec~
tion w i t h the amount o f capital a n d deposits o f the respective reserve banks i n figubing a
suggestion f o r re-
apportionment o f the investment account, a n d that h e i s
requested t o sibmit the suggested reapportionment
t o the
other eight reserve banks when the calculation i s made.
There being n o discussion the resolution was adopted.
The Chairman:
M r . C o x has just handed m e a typewrit-
ten resolution suggested undcr Item 6-(a) o f our program.
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Federal Reserve Bank of St. Louis
which i s a s follows,
‘Whereas i t is rep orted a t this @mnference that considerable inconvenience h a s been caused b y the failure o f
mail addressed t o Federal Reserve Agents t o b e promptly
acted upon i n the absence o f the Federal Neserve Agents,
and f o r o t h e r reasons,
o n m o t i o n d u l y seconded,
i t i s re-
Solved that i t i s the sense o f this meeting that a l l communications addressed o o the Federal Reserve Board t e the
Federal Reserve Banks should b e addressed t o the bank o r
to t h e chief executive officer o f the bank, a n d monly those
communications which pertain particularly t o the duties
of the Federal Reserve Agent should be addressed to him
personally."
Governor Rheades: I
move that this b e referred b a k k
to the Secretary with power, i n view e f the expressions
he has heard,
The Chairman:
M r . Lowry prepared what struck m e
as being an excellent resolution, and if you are ready t o
adopt that with a preamble prepared b y Mr. Curtis, I will
put the vote now,
M r , Lowry, will you read that once more?
Governor Lowry: I
will s u g g e s t a
preamble t o o ,
if
I may, Mr. Chairman:
"Whereas i t is reported a t this @onference that oc~
casionally inconvenience m d delay have been caused b y
the f a i l u r e
o f communications a d d r e s s e d
t o federal Reserve
Agents t e b e acted upon promptly i n the absence o f the
Federal Reserve Agent, o n motion duly seconded i t was re-
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Federal Reserve Bank of St. Louis
280
solved that i t was the sense o f the meeting that communi~
cations f r o m the Federal Keserve Board t o a n y Federal R e ~
serve Bank, i f relating t o banking transactions, should b e
addressed t o the bank and not t o the Federal “eserve Agent."
Governor Wells; I
suggest that you strike out the
preamble a n d confine yourself t o the resolution itself. I
do not believe t h a t that preamble i s a wise t h i n g t o put
in, a n d I think y o u will m a m accomplish your purpose b y confining yourself t o the resolution.
Governor V a n Zandt: I
think t h e preamble i s t h e
heart o f the resolution.
Governor Seay:
I t gives the occasion for it.
(An informal discussion took place which the stenographer was directed n o t t O report; a f t e r which t h e fol~
loing proceedings were had:)
The Chairman:
W o u l d you care t o entrust m e with the
duty o f explaining this situation t o br, Miller and discusSing i t with h i m quite frankly.
(No response.)
The Chairman:
F o r our record, w o u l d y o u care t o
have that res lution passed, t o be dealt with i n that way,
and not t e be made a basis o f communication t o the Board?
Governor Senay: I
think that would b e advisable, too,
‘sir, t o have i t i n our record t o be dealt with b y a personal
communication.
The Chairman;
Y o u understand, Governor Wells, that
this i s not t o be conveyed t o the Reserve Board; i t is merely
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Federal Reserve Bank of St. Louis
281
an expression o f our own views, and w e will take i t u p
for personal discussion w i t h Dr. Miller.
L o e s that meet
your view?
Governor Wells: I
a m not i n favor o f that preamble.
I base m y feelings o n m y personal experience. I
have
had n o difficulty i n my experience that would warrant m e
in dOing anything that might reflect i n any w a y upon t h e
harmonies that exist between the Federal Keserve Agents'
Department and the Governors! Department.
The Chairman:
T h e r e i s n o discord
i n o u r bank; n o t
the slightest.
Governor V a n Zandt:
Y o u c a n have n o more perfect
harmony i n any o f yours t h a n w e have i n ours; b u t these
things d o come up. S o m e t h i n g might come t o the reserve
agent o r deputy reserve agent's desk and probably b e a week
getting o - -r t o our desk,-~- n o t through a n y premedittion
or intent o n their part, but just through a n overshight.
The Chairman: I
think everybody agrees a s t e the
method t o be employed i n dealing with this matter.
T h e
question i s whether y o u want t o pass a resolution, gentlemen,
and i f y o u do, whether that resolution shall contain t h e
preamble that has b e e n read.
T h e matter i s i n your
hands.
Governor Lowry: I n a s m u a c h a s i t has t o b e taken u p
with q member o f the Federal Reserve Board, cannot t h a t
preamble b e explained?
C a n n o t the
o c c a s i o n for
the resolution b e explained, b u t n o t make i t a part o f the
record?
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Federal Reserve Bank of St. Louis
282
The Chairman:
W i l l someone offer a motion s o w e c a n
count hands, i f necessary?
Governor Seay: I
move t h a t t h e r e s o l u t i o n a n d p r e -
ample, substantially a s read, b e recorded i n our minutes;
it being borne i n mind that these are private records;
that i n the discussion o f our Chairman w i t h t h e representative o f the Board h e make s u c h explanations a s h e m a y deem
judicious
i n order that this matter m a y b e fully explained,
and above all, t e explain that t h e r e a l d s i r e
o f this
board i s t o promote t h e prompt a n d efficient transaction
of all matters relating t o the bank, and not from any other
motive a t all.
Gevernor Fancher: I
second t h e motion.
(There being n o further discussion, the motion
was put and carried.)
The Cnairman:
W e had just concluded the matter o f
allotments o f purchases o f warrants a n d acceptances, a n d
in that connection I a m going t o be mean enough t o bring
up Item 5 (k),
We are i n great doubt i n New York a s t o what policy i f
any should b e adopted i n the matter o f asking o r suggesting
any compensation t o the Federal Reserve Bank of New York
for making investments for other banks, I
that i t is justified.
do not know
I f it is justified, a n d you are
to compensate t h e bank, i t i s q question whether that
should b e a percentage o r a n annual fee, or, possibly,
takdw.- into account i n the basis o f allotment s o i t would
be automatic a n d save a
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Federal Reserve Bank of St. Louis
lot o f bookkeeping.
T h e matter
283
is i n your hands.
W
e would n o t think o f suggesting a n y
basis o f compensation,
W e would a great deal rather have
the banks f o r whom w e are acting express what would b e
Satisfactory t o them.
A n d l e t m e S a y that i f you would
prefer t o have this w o r k done without a n y compensation,
we
are quite prepared t o d o it.
Governor Fancher:
I t seems t o m e that t h e Federal
Reserve Bank i s justly entitled t o some compensation for
its services.
I
t has already assumed pretty large prepor~
tions, a n d i n active times i t seems t o m e that the volume
which y o u are likely t o purchase f o r the other banks i s
likely t o entail c o n s i d e r a b l e work.
T h e r e has t o be a
full record kept i n your office o f all purchases;
t h e mat-
ter o f clerk hire, and things o f that kind, are items
expense t o the Federal Reserve Bank d f New York. I
o f
feel,
a8 one o f the participating banks, that i t is perfectly
proper that a charge should b e made; certainly for the
actual outlay o f the bank for clerk hire a n d necessary
stationery a n d forms a n d t h e records o f allotments, c o r -
respondence and s o forth, relative t o those things.
Governor Wells: I
agree with Governor Fancher o n
that.
The Chairnan:
M r , McKay, h a v e y o u ever thought o f
that matter since o u r correspondence o f some months a g o
as t O what ought t o b e done about i t ?
Governor McKay:
W i t h regard t o apportioning the
expense connected with the purchase o f warrants b y the
New York Bank?
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Federal Reserve Bank of St. Louis
The Chairman:
Yes.
Gevernor McKay:
N e ; w e have n o t really dene anyfigure
thing about that, Governor Strong.
W e - .
that some
means ought t e b e arrived a t b y which w e should p a y o u r
Share o f the expenses that really are necessary.
The Chairman:
o
e
M a y 2 Suggest t h e advisability o f
appointing a committee o f these banks that ©
n o t ® the
buying t e consider t h e matter a m d figure e u t what i n their
@pinion would b e a fair basis o f dealing with it?
Governor MeCerd:
The Chairman:
U e you mean the other four banks?
Y e s ; three o r feur o f the other banks.
Governor McCord: I
hardly think that would b e fair
te you, because w e are not i n a pesition t e know what t h e
service would b e o r what t h e expense’ weuld be.
I t would
be purely a surmise o n eur part,
The Chairman: I
was thinking o f pessibly suggesting
te these banks f o r whom the purchases w e r e made t h a t they
themselves censider it, and that possibly w e could get
Geverner Wold a n d Governor McKay a n d Mr. Lewry t o make
upsome figures as a sugg@ stien, and then Besten and Philadelphia and Cleveland and New Yerk, that are deing seme
ef this purchasing, c a n consider what they suggest.
Governer wid: T h e r e can be n ® question, Geverner
Streng, that these purchasing banks Ought net t e be out
anything. T h e y ought te be reimbursed fer any expense
and pessibly receive s a m e compensatien.
T h e difficulty
would b e f o r e n e w h e i s n o t f a m i l i a r w i t h t h e a m o u n t
o f work
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Federal Reserve Bank of St. Louis
285
a t a proper
involved i n handling that transaction t o arriye
I t seem
figure.
t e me that the Boston and New York
a n d right
banks a r e better able t o determine what i s fair
and proper than the banks o f Mgnnespolis a n d S a n Francisco,
Governor Lowry: I
move that matter b e referred t o
the Executive Committee. I
a m quite i n accord with what
has been said i n regard t o compensation. I
think i t is
perfectly right and proper that the banks that perform this
service should receive compensation f o r it; b u t a s Governor
on
Wold sugg_sts t h e others o f u s have n o facts a t all
which
t o base a
judgment
o f w h a t i s p r o p e r compensation.
those
The Executive Committee sould readily obtain all
facts a n d act upon them.
Governor MeRay: I
think i f such a committee was
was
appeinted . t would acquire those facts a s t o what w o r k
entailed i n the Federal Reserve Bank o f New York, I
u p and
know there i s a great deal o f work i n dividing t h e m
deallotting them, a n d unless the committee who will
o r had
cide that matter knew what that w o r k amounted to,
some idea o f it, I
do n o t think they cculd correctly arrive
i the matter.
at any c o n c l u s i o n n
The Chairman:
Y o u know, where i t all goes into the
records, t 2 knowwhether i t is for your own account o r for
the account o f somebody else, i t is a difficult thing t o
get at.
O u r procedure h a s b e e n t o t r e a t t h i s p a p e r e x a c t =
Ly as though i t was our own paper, and i f it was purchased
for our own account t h e bookkeeping would b e comparatively
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Federal Reserve Bank of St. Louis
286
simple.
B u y i n g i t for account o f eight other banks, making
a record o f it, issuing certificates o f participation,
keeping track o f maturities, a n d keeping records o f everything i n connection with it,--= i t i s quite a
complicated
piece o f business, a n d the men have a lot o f work t o de i n
connection with it. I
rather l e a n t o the idea o f dealing
with i t o n the basis o f allotment rather than figuring
commissions o r a n annual fec, o r anything o f that kind,
because t h e n the whole thing i s automatic.
keeping a
Y o u are not
lot o f accounts a n d paying a n d rendering bills;
and i f when t h e allotment i s worked o u t w e were a b l e t o sug-
gest a n increase i n the percentage retained b y New York,
that would b e one way o f compensating New York.
Iam a
little embarrassed about o n e feature o f it.
If New York should enter into a definite, positive arrange-~
ment,
i n regard t o those allotments, I
do n o t know that
our directors would b e willing t o d o that.
W e have not
considered i t i n a formal way i n our board:
T h e y know what
we are doing a n d quite agree t o it, b u t i t might v e r y m u c h
restrict t h e operations o f the bank i n time o f need
New York.
i n
W e might f e e l that i t was necessary temporarily
to withdraw f r o m this arrangement f o r m@me reason, a n d [I
® n o t want t o feel that w e are tying ourselfes t O such a
very positive arrangement that i t would b e a breach o f
faith o n our prt sometime t o medify i t a t our o w n motion.
Governor Wold:
W
e a s s u m e t h a t i t i s a matter o f c o u r -
tesy e n t i r e l y t h a t y o u p e r m i t participation.
under n o obligations t e d e © whatever.
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Federal Reserve Bank of St. Louis
Y o u are
Y o u can dis-
287
continue t h e arrangement a t a n y time. I
can imagine a
condition where i t would b e a hardship f o r the bank t o participate
i n the purchase o f these warrants a n d acceptances.
Governor McKay: C o u l d i t not b e arranged o n e@ commission basis?
arrived at.
S o m e s o r t o f commission basis could b e
T h e r e would b e n o bookkceping aitached t o
it t o amount t o anything, I
should t h i n k i f some ar-
rangement o f that sort could b e made i t would b e t h e a l mplest w a y o f handling it.
T h a t ought t o b e large enough
to include t h e cost o f clerk hire a n d the work o f your m e n
put i n i n these purchases, because I
know i t i s pretty
heavy, especially dividing t h e m up.
The Chairman:
Y o u have been i n there t o see t h e
machinery involved, a n d i t is considerable,
Governor McKay: I
was i n there o n e day, a n d I
think two o r three o f them Spent the whole day o n allotments,
The Chairman:
W e have purchased, i n round figures,
say $20,000,000 for account of the other banks i n six
months,
W h a t would b e a suitable compensation o n that?
Mr. Curtis suggests that t h e Executive Committee consider
this matter and make a suggestion after considering the
actual figures o f what h a s b e e n done.
Governor Wold: I
move t h e t t h e w h o l e m a t t e r b e r e -
ferred t o the Executive Committee w i t h power t o act a n d
make r e c o m m e n d a t i o n s
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Federal Reserve Bank of St. Louis
a s t o fixing t h e o
Governor McKay; I
The Chairman:
mpensation.
second t h e motion.
H o w d o you feel about that, Governor
Wells?
Governor «ells: I
feel, Governor Strong, t h a t t h e
the
matter o f charging f o r purchasing should b e m d e b y
buying bank and the charge should b e such as may b e deemed
proper f o r t h e service rendered.
(At this point Dr. Miller, a member o f the Fedoral Reserve Beard, entered and was invited t o take part i n
the conference.)
motion i s pending t o refer t h e sub-
The Chairman: A
ject o f charges f o r making investments f o r other reserve
banks t o the Executive Committee t o make a recomnendation,
after studying the figures, which we shall b e very glad t o
submit t o the committee, I
do not recall whether that
motion was seconded o r not.
Governor Sawyer:
Y e s ; I seconded it.
(There being no further discussion, the motion was
put and carried. )
The Chairman:
been
I t e m 5-(a), Mr. Broderick, h a s
suggested for discussion b y the Federal Reserve Board.
That i s a general discussion o f daily transactions, records
the
ami reports. P o s s i b l y Mr. Curtis had better read
Reserve
paragraph o f the letter received from the Federal
Board o n that subject, t o throw a little light o n what
this refers to.
The Secretary: (Reading):
"all Governors t o be asked t o bring with them their
reports,
printed forms used f o r their daily transactions,
ete.
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Federal Reserve Bank of St. Louis
bring
I t i s suggested t h a t i f each Governor would
~ abeut
1 2 copies o f these documents, an-exchange o f ex-
perience might b e discussed a n d the best methods developed
by each bank might b e adopted b y the others,"
The Chairman:
I n considering this suggestion, Mr.
Broderick, w h i c h h a s just b e e n read, y o u realize t h a t i t
would b e quite impracticable f o r this meeting t o sit
down a n d discuss i n detail these forms a n d the daily prac-
tice i n each bank i n handling its business.
already approved a
W
e have
suggestion made b y one o f the Governors
that the Executive Committee should f o r m a n organization
of some kind o f the accountants o r officers o f the Reserve
Banks, o r o f some o f the Reserve Banks, n o t necessarily
a l l o f them, t o meet a t one time.
T h e y might meet i n
groups, o r entirely, a s the executive committee might decide, and arrange fb such meeting and have such discussion
for the exchange o f forms and for recommendations f o r uniformity o f accounting p r a c t i c e a n d methods,
a n f s o on.
Except w e deal with it generally i n that way a t this meeting i t would b e impossible f o r u s t o make a n y progress a t
all, here, and i n mnsidering this item (a) I would like
to ask whether i t might n o t b e pessible f o r y o u o r some
other representative o f the Federal Reserve Board t o at-
tend a meeting of that character and join in the discussion o f the details o f bank records.
Mr. Broderick: I
would, Governor; a n d 1 would like
to say that I can arrange a t almost any time t o have a
representative m e e t with t h e representatives o f the banks.
In fact, I
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Federal Reserve Bank of St. Louis
agree w i t h y o u that that i s the o n l y proper w a y
290
@iscussion o f technical matters woulke
to handle it. A
take some time, a n d i t might cause a loss o f much valuable
time o f the Governors i f they discussed i t i n that way.
And then, again, y o u would have t o g o back t o explain i t
to your men, a n d probably t h e y might n o t grasp t h e same
idea that you wanted t o convey.
We discussed yesterday, Governor, t h e desirability o f
meeting these m e n that were designated b y the officers o f
Federal Reserve Banks t o act a s examiners
I t might b e
T h e chances
possible t o have a joint meeting a t one time.
are that those w h o are designated a s examiners would b e
the o n e s d e s i g n a t e d
t e represent y o u a t t h e Conference.
I
The Chairman:
n many cases that would undoubtedly
be so.
Mr. Broderick: I
think thet a
great deal o f good
could b e accomplished i n getting t h e accounting m e n together a t one time.
The Chairman:
that w i l l m a k e a
W i l l someone suggest a
record
o f t h e procedure
resolution
t o b e followed
in dealing with item 5e(a)?
(On motion o f Governor McCord, duly seconded, i t was
resolved t h a t I t e m 5<(a) o f the program b e dealt w i t h b y
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Federal Reserve Bank of St. Louis
authorizing t h e executive cemmittee o f the Conference o f
Governors t o arrange f o r the appointment o f representatives
frem each o f the Federal Reserve Banks t o act a S a com—
mittee a n d meetin Washington o r elsewhere, together w i t h
representatives o f the Federal Reserve Board,
t o discuss a n d
291
report upen the files o f _daily- transactions, records a n d
reports.
There being n o discussion, t h e motion was put and
carried.
The Chairman:
I t e m 5-(b), "amortizatien e f organ-
ization expense a n d cost o f printing notes."
M r , Broder-
fick. Snes would l i k e t o hear f r o m y o u o n that subject.
Mr. Brederick:
T h e division o f expenses i n t o organ-
izatien expense a n d current expense i s made f o r the pur-
pose o f enabling the banks t e make a better showing than
they ceuld m k e i f i t was a l l considered e n e item.
intended
t o secure
I
t was
i n the i t e m o f organizatien expenses
the expenses incurred u p t o November 16, 1914, t h e inten-
tion being that s e far as may be the item of organization
expense weuld b e reduced, i
fina i n examining t h e banks
that seme banks have taken a very strict f i e w o f that i n -
terpretation and others a very liberal one--The Chairman:
M a y I interrupt y o u t e inquire what
construction w e have placed u p e n that ruling?
Mr. Broderick:
T h e New York bank has, if I
am not
mistaken, included only the amount of assessment b y the
Federal Reserve Board.
M y mind is a little hazy on that,
It includes the assessment o f the Federal Reserve Board
and probably a l l the current expenses u p t e November 16,
have n o t r e p o r t s w i t h m e new, b u t I
Governor Wold:
have a
[ I
recerd o f - - -
M a y I inquire i f you expect t o have
them include t h e entire assessment m a d e b y the Federal R e -
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Federal Reserve Bank of St. Louis
serve Beard?
Mr. Broderick:
T h a t i s being included there now.
Governor Weld:
N o t b y our institution,
Mr. Brederick:
T h a t i s t h e trouble; t h e r e i s n o
uniformity. I
believe in Philadelphia the item includes
onhy t h e s u m paid b y the Federal Reserve Board, whereas i n
other institutions t h e y have n o t only t h e i t e m o f expense
incurred u p t o November 1 6 and assessment o f the Federal
Reserve Board o n November 16, b u t alse a number o f other
€xpenses w h i c h they c l a i m e d w r e incurred p r i o r t e that
time.
The Chairman:
W e have done s o i n New York. I
was wondering w h a t y o u consider a s conservative.
I
n &
her
words, we haéé twice as many clerks in the bank immediately
at the time o f its organization,
have now,
J u s t double,
Mr. Broderick:
date. I
t o get i t Started, a s w e
a s a matter o f fact.
T h a t was not made until a later
t h i n k t h a t i s p e r f e c t l y proper. A
strict c o n -
struction o f ceurse o f the item o f "expense" w e u l d prob-
ably cause a transfer o f at least 6 0 per cent o f those
items which are being included i n organization expense
now, t e current expense,
uniferm method
T h e idea was t e arrive a t seme
o f gradually eliminating the item of
organization expense,
I n some institutiens, namely, the
southern banks, t h e y would b e able t o eliminate t h a t entiwes
ly within the next six months o r a year,
S o m e institu-
tions a r e not n o w earning more thancurrent expenses, a n d
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Federal Reserve Bank of St. Louis
295
some are not earning that much.
I t is likely that the
item o f organization expense will b e carried along for a
longer period t h a n some o f the other institutions.
formity, while desirable,
U n i -
i s not altogether practicable a t
this time.
The Chairman:
W e discussed this a t a meeting o f
our directors recently, a n d some o f our directors took
the v i e w t h a t w i t h a
fairly liberal construction, I
think,
of what was organization expense, a n d what w a s current e x -
pense, the Federal Reserve Banks would b e justified i n
amortizing t h e i t e m o v e r a
p e r i o d o f e v e n f i v e years.
Let m e call your attention t o one thing, that ought t o be
taken into consideration i n determining what i s organization expense a n d w h a t i s c u r r e n t expense.
T h e s e banks
were Organized o n November 1 6 o n notice o f about three
weeks.
I
f w e h a d pursued t h e course w h i c h would ordi-~
narily have been pursued in organizing these banks we might
have taken a s much a s six months, w i t h a considerable
staff o f clerks and experts a t work, t o get u p forms and
toorganize a completo bank.
W e started business first
and incurred practically all o f our expenses for organ~
izatien after w e had started;
a n d personally I
favor a
very liberal construction o f what a r e really organization
expenses, w h e n y o u censider t h a t w e a r e n o t yet through
“ spending meney fer organizatien. A
let of these studies
that a r e being made, e v e n the expense o f these conferences
which a r e lergely devoted t o matters o f organization, c o u l d
very properly a n d fairly b e construed a s a n expense o f organ-
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Federal Reserve Bank of St. Louis
294
ization, organizing a n institution that h a d n o t yet started business.
T h e mere fact that o u r money was p u t i n
on November 16, s o that w e nominally have a n earning power.
at that time, would n o t
a f f e c t m y judgment a s t o what
could properly b e dealt with i n that item.
Governor Seay: I
a m thoroughly i n accord w i t h that
view,
Mr. Broderick:
T h e Board i s i n accord w i t h t h e view
of giving i t as liberal a construction a s i t can possibly
do, and I a m sure they would b e guided b y a recommendation
of yeur conference.
T h e y would like a uniform method o f
dealing with it, 1f possible, to amortize the items includ~
ed i n operating. a
The Chairman: I
expenses.
was going t e ask, n o t knowing whether
it would be i n line with your own ideas, nésewle , S n e n n
of the banks b e asked b y the Federal Reserve Board t o
Serie before Jyne 5 0 a complete statement o f their organization expenses a n d everything i t contains, a n d that t h e
accountants o f the Federal Reserve Board themselves, a f t e r
examination o f those accounts, m a k e suggestions t o t h e
Reserve Banks a s t e whether t h e y are adopting t o o liberal
Or too conservative a
view a s t o what i s organization e x -
pense, and that the accounta:
S e far as possible b e re-
adjusted t o meet that view s o we can conclude the first
six months o f the fiscal y e a r o f the recerve banks o n a s
nearly a uniform basis a s possible. P e r s o n a l l y , I
would
prefer t o have the accountants o f the Federal “eserve Board
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Federal Reserve Bank of St. Louis
295
review Our ovn organization expense account and deal with
it o n such a basis a s they thought was fair.
Governor McKay: I
will s a y that t h e Chicago bank, o r
its directors, h a d that matter u p the other day, and a s
the books will b e closed o n the 3 0 t h o f this month, a n d
we had a lot more t h a n t h e current expenses, t h e i r idea
was that w e c a n wipe o u t the current expenses a n d take
whatever w e have left and put i t against organization expense.
The Chairman:
Governor McKay:
The Chairman:
W e @
n o t want t o d o that.
T h a t was their idea i n the matter.
I n New York w e would ©
i t if we had
a little more assurance a s t o our carning power f o r the
next six months or a year, andthe suggestion made b y our
a c c o un New
n t
York,
ai n
assuming
t
that the items in our
orgenization'expense account are all proper, was a s fol-
lows: First, we would start on July 1st charging to
current expenses the actual cost of preparation of all
Federal Reserve notesthat were used after July d
s °tsecond,
~
;
that w e set u p as-an accrual against expense each month
an ammount which will fairly equal the annual
assessment t o be made for the expenses o f the Federal Re-
serve Board; and, that, beginning with July lst, we establish an amortization account to be based upon a fair estimate o f the earnings o f the bank t o «éxtinguish the entire
amount of the organization account over such period as we
felt was safe a n d wise.
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Federal Reserve Bank of St. Louis
T h e result o f that will b e t o
296
start i n frem July lst t e pay out o f our earnings all o f
our c u r r e n t expenses;
t
o p a y o u t o f o u r earnings, b e g i n ~
ning with July lst, the proportion o f expenses which i s
assessed against us for the Federal Reserve Board's
expenditures, a n d t o pay o u t o f our current earnings t h e
cost o f all Federal Reserve
notes
w h i c h were issued, but
everything u p t o that date will have accumulated i n our
organization expense account, a n d b e amortized b y monthly
charge against our earnings.
sond
ouks
ER
Governor McKay: I
omitted t o say that’we h a v e made
an arrangemént previding for the cest o f issuing federal
reserve notes a n d that that will b e kept i n ‘ a ebabake d i vision o f the organization expense account, a n d that that
cost will b e wiped o u t gradually a s the federal reserve
notes w e r e actually p u t into circulation.
T h a t would be
a definite help, because we have ordered $60,000,000 werth
of Federal Reserve notes,
T h a t might last for years,
until these notes were p u t out. I
omitted t o state
that.
The Chairman:
M r . McKay, t h e expense o f preparing
notes o n the first installment w e procured
i n New York
would b e about $ 9 per thousand notes, a n d we figure that
after deducting the cost o f preparing t h e original plates,
which will have now been paid, i t will cost about $8.80
per thousand, a s I recall the figures.
T h e result o f
charging t h e actual cost o f notes issued t o current e x penses will b e t e leave o n the books o f the bank a s a n asset
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Federal Reserve Bank of St. Louis
297
the actual cost o f all notes o n hand a t all times b y the
“reasury Department at a cost of $8.30 a thousand, or whatever i t proves t o be.
W
e consider i t i s good accounting
to c a r r y a s a n a s s e t o n o u r b o o k s t h e c o s t o f p r e p a r i n g
notes that have n o t been issued.
Governor Wold:
The Chairman:
A t $6.30 a thousand.
A t whatever i t proves t o be,
Governor Wold:
W h y a r e y o u setting u p your organiza-
tion account and oxout sic for amortization over a period
of years?
The Chairman:
W w e have a n organization expense a c -
count of $180,000, i n round figures, T h a t includes $130,000
odd assessed against u s b y the Federal Rserve Board, a n d
the cost o f preparing notes, and s o on.
W
e are going t o
increase t h a t amount very materially b y separating t h e
cost o f preparing notes a n d t h e organization expense a c -
count, and then increasing the net cost b y the cost o f a
very large additionel supply o f Federal Reserve notes which
we have ordered.
I f w e consider t h a t a l l organization
expense a n d attempt t o extinguish i t right away, w e would
be assuming quite a
burden o n our earning power, w h i c h I
do not think i s justified,
Mr. Broderick:
W
e a r e i n favor, G o v e r n o r S t r o n g ,
of separating the organization expense account to,first,
one i t e m covering actual expense o f organization, and,
second, the actual cost o f the Federal Reserve notes,
think that i s a very good solution o f that difficulty.
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Federal Reserve Bank of St. Louis
O n e
298
could b e carried a s a straight asset, and the other could
be earrled a s a n expense asset.
The Chairman: lxactly- M r . Broderick, that theory
is based u p o n t h e idea that f r o m October 26, say, until
July lst o f this year, a good deal o f the expense incurred
has b e e n really t h e expense o f organization which would
have b e e n incurred before t h e capital a n d deposits w e r e p h a
paid i n under normal circumstances, a n d o u r haste i n getting the banks organized, resulting i n ineurring expenses
really afer the capital a n d deposits were paid in,
I
f thet
theory c a n b e adopted b y the Board i n considering a n analysis
of the organization expense account, I
shall b e very glad
to send a very careful memorandum o f o u r accounting t o b e
considered i n connection with t h e treatment o f this whole
subject.
Mr. Broderick:
O f course, y o u c a n realize, too,
that i t would b e impossible t o get uniform treatment o f
that account o n the part o f the Federal Seserve Banks,
because those
s a u c e
b e e n very conservative i n regardto
setting u p t h e account would n e t care t o transfer items
to organization expense.
The Chairman:
Mr. Broderick:
T h e y are o n the safe side.
I t might probably b e better t o post-
pone uniform action until the end o f the calendar year o r
until t h e e n d o f the fiscal year,
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Federal Reserve Bank of St. Louis
The Chairman:
Governor Seay:
T h a t would suit u s all right.
T h e r e i s not time, now, Mr. Ciairman,
299
to h a v e a n y s u b m i s s i o n o f t h o s e d e t a i l e d a c c o u n t s
t o the
Federal Reserve Board, a n d any analysis made b y a
representative o f the Board.
W
e could n o t render a state-
ment until a long time after the first o f July.
The Chairman;
I s there any action desired a t this
meeting i n the w a y o f a recommendation t o t h e Federal
Reserve Board o n the subject o f the items which are i n
our organization expense account now, o r a s t o a policy
to be adopted i n providing for the amortization o f that
account?
Governor McCord: I
think i t would b e right well t o
bring this t o the attention o f the Board and ask them t o
give a ruling o n i t i n order that t h e banks m a y s o adjust
their accounts that o n December 31st they will not have
the same condition o f affairs a s they have o n the 30th o f
June, I
think i t would b e better t o call their attention
to it now, i f you want tohave i t adjusted o n the 3lst o f
December.
The Chairman:
Y o u r suggestion is, then, that our
recommendation t o the Federal Reserve Board b e t o establish a policy i n the period between July lst and Lecember
Slist, and that the data upnn which that policy i s te be
predicated should b e n o w submitted t o the Board?
Governor McCord:
T h a t i s it.
T n a t i s m y idea
exactly.
Governor Fancher:
I
t oceurs
t o m e that i n view o f
the fact that w e are going t o p u lish o u r statements a s
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Federal Reserve Bank of St. Louis
320
of the close o f business J u l y 1st, w e should submit data
up t o that time, a l l t h e items s e t u p i n our organization
expense, a n d make a
very careful analysis o f it, give
very full information t o the accountants o f the board,
and then, after they have h a d a n opportunity t o analyze
these figures o f each bank, t h e y c a n arrive a t some general policy a n d m e g e n e r a l p l a n o f readjusting,
Sery, t h o s e accounts.
T h e n ,
i f neres-~
a t the close o f the calendar
year, w e c a n adept some general policy o f amortization o f
certain o f t h e items.
Governor Seay:
M r . Broderick,
d o y o u n o t think
that t h e time betwcen n o w a n d the first i s entirely t o o
Short t o attempt a n y analysis?
Mr. Broderick: I
think so; b u t I
a m not i n sympathy
with Mr. Fancher's idea that a policy should b e suggested
to be effective covering expenses incurred after July
lst.
W e might start off uniformly o n July lst a s t o
future expenses-~=
Governor McCord:
T h a t i s exactly m y view, a n d i t
called forth t h e remarks t h a t I made.
‘Mr. Fancher offered the following resolution: *
"Resolved, that i t is the sense o f this conference
that e a c h federal reserve bank submit t o the Federal R e serve B o a r d a
complete d e t a i l
o f the items which have
been included i n the organization expense a s set u p b y the
respective banks, a n d that this data b e analyzed b y the
accountants o f the Federal Rserve Board, and that i f it
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Federal Reserve Bank of St. Louis
301
suggested adjustment b e mace t o
is found necessary, a
the banks where certain items have n o t been included t h a t
they should b e properly included i n organization expense,
so that that i t e m m a y b e uniform a s nearly a s possihle i n
the banks;
a n d that, effective-July lst, a
general f o r m
of carrying the expense accounts o f the banks b e recommended
by the Board,"
would like t o make this suggestion,
Mr. Broderick: I
that t h e stenographer give m e a copy o f that resolution.
Washington tonight s o that you can
I will send i t w.to
‘
by the time y o u gentlemen reach your banks, h a v e the i n formation specified,
Governor McDougal:
D
o w e want thisinformation b e -
fore the first o f the month? k L y e r y man here knows what
to d o with his expenses.
I n our bank the organization
expenses include nothing except the expenses of the notes
which should,
i n reality, b e considered a s nothing b u t
ordinary expenses,
W
e knoy w h a t t e d e with those, a n d
we d o not want t o b e told before t h e first o f the month,
because w e will d o i t a t that time.
(At this point a n informal d& scussion took place
which the stenographer w a s directed n o t t o report, whereupon
the following proceedings were had:)
Governor McDougal:
M a y / ask whether Mr. McKay
stated the plan upon which h e proposed t o act at the end
of the month?
The Chairman:
H e did; yes.
[ I t seems t o m e w e
have all overlooked o n e important difference between these
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Federal Reserve Bank of St. Louis
302
banks a n d a n ordinary commercial bank,
now, that a
I t i s rabe,
national o r state bank i s organized without
its being paid i n at the time o f tts organization a certain amount o f surplus.
I t i s not uncommon f o r t h e m t o
pay i n their capital and surplus and a n additional small
amount per share t e cover t h e organization expense a S a
sort o f preliminary assessment u p o n t h e subscribing
Stockholders.
T h e s e banks have b e e n organized without
Surplus a n d withéut a n y fund o f a n y kind t o cover t h e
expense o f organization.
squarely.
W
e have g o t t o deal w i t h i t
I - d o n o t want t o show i n a public Statement,
by some misconception o f bookkeeping, t h a t t h e capital o f
the bank o f New York i s $150,000.
I t would b e stating
the facts faisely t o the public, Governor McDougal--Governor MeDougal: I
That i s t h e r e a s o n I
believe
agree w i t h y o u heartily.
i n what w e p r o p o s e t e do.
I would g o a little further a n d state that there i s
not
a bank here t h a t has anything i t need t o b e ashamed
of
in the matter o f expenses having exceeded their profits.
While i t m a y b e true that i n most cases n o w banks i n
organizing p a y i n something t o take care o f expenses o f
Opkretiion
f o r a
short t i m e ,
i t i s also true that a
very large proportion o f the banks that have b e e n
organ=
ized, b i g a n d l i t t l e ,
a t t h e e n a o f t h e f i r s t s i x months,
or possibly a year o r even longer, h a v e shown
exactly t h e
seme concition that t h e y d i d before.
T h e r e i s nothing
unusual about i t and nothing t e be ashamed of.
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Federal Reserve Bank of St. Louis
303
The Chairman: Governor Fancher's motien
has been
called for,
(There being no further discussien the
motion
was put and carried.)
Governor McCord:
I t i s not o n the
program, b u t I
ask the Privilege o f putting this
i n just for a moment.
The Printing o f the Federal Reserve
notes i s going t o
incur a heavy expense o n
the banks i n assorting these
notes
hereafter, a n d i t is 6°lng t o
b e a continual expense, [
notice f r o m the remarks here
that nearly every bank
ordered a n additional Supply o f
netes, a n d a little
gestion that © have here a n d
which I have Submitted
Several o f the Governors
present,
i t seems t e m e
is
ly and i t would b e right t o
correct the matter now,
The Chairman:
W411 you read it, Governor Mecord,
Governor McCord: (Reading):
ability o f Printing the destinctive
"Suggest the advis~
lbtthe or figure
designating
the Federal Reserve B a n k
o f issue i n much
larger thmm ang Clearer
type, a n d Placing t h e
same directly
below and aS near ad practicable
t o the Ycounter figure?
in the upper right hang
corner o f the notes,
"The labor ana work o f
assorting notes b y the
F. R.
Banks will s o o n require
t h e services o f a considerable
ferce m f i n each bank and
that work c a n b e made
m u c h less
difficult i f the Suggested
change i s made i n the issues
to
be printed hereafter,
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Federal Reserve Bank of St. Louis
"Phe necessity f o r this
i s shown b y the manner
o f print-
304
ing s i m i l a r distinctive lettering a n d figures o n the
national b a n k notes."
This w a s suggesicd b y m y assistant cashier, w h o has
been f e r years i n the sub-treasury a t N e w Orleans,
and
he pointed this o u t t e m e a n d showed wherein w e would b e
at a considerable expense throughout t h e years t o come i f
this system goes o n with this form o f notep t h a t i t would
be much easier and less expensive t e the banks.
There
would b e a n expense added, b u t i t weuld save t h e expense
te the banks.
I should l i k e t o submit t h a t t o the reserve board,
if i t i s agreeable,
Governor Fancher:
l o you suggest that that g o as
a recommendation f r o m this Conference?
Governor McCord:
Yes,
Governor Fancher: I
second it.
The Chairman: B e f o r e asking for a vote I weuld like
te call attention t o two other things i n regard t o Feder-
al Reserve netes that might b e corrected a t the same time,
if any change i g made»
that t h e f a i l u r e
I n the firs place I am informed
t o put t h e indication
of each bank which issues t h e notes,
b y number
o r letter
i n the border,
i n some
way, might result i n a great m a n y notes being partly mutilated i n a fire s o that i t never could b e told b y which
bank they were issued,
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Federal Reserve Bank of St. Louis
GOvernor McConm:
The Chairman:
Exactly.
A n d t h e suggestien w a s made t o m e
305
by a man o f considerable experience that
these notes were
very defective i n design because the
border did not indiCate, a S i n the case o f National bank notes,
b y what bank
they h a d b e e n issued. A
considerable p o r t i o n o f t h e
end
could remain untouched b y fire, for instance, and
still
the distinguishing mark be entirely obliterated.
I would like t o call your attentien t o that
as a
suitable recommendation t o be made i n
connection with
any change i n these notes, and t o one
other matter. §
understand the process o f laundering paper
money hare been
brought t e a peint where i t i s quite
successful, a n d a
great deal o f money c a n b e restored s o
a s t o b e put into
circulation again.
I n the case o f Federal Reserve notes
they tell m e that this r e d seal i s
printed i n such a way,
either due t o the color o r kind o f
ink used, t h a t i t prevents t h e l a n n d ering o f t h e s e n o t e s ;
t h a t t h e color runs,
and 1 t cannot b e reused.
I f W e are going t o take u p
the subject o f Federal Reserve notes I
would like t o see
Governor MeCord's resolution broadened t o
include a provision f o r remodeling t h e borders w h e n
a n y change i s made,
s0 ap t o include the number and letter assigned
t o each
reserve bank, a n d s o a s t o make Provision
that t h e y b e
prepared i n such a way that t h e y m a y
belaundered, a n d
that a
study b e m d o o f any further changes
o r improvements
_in the design o r quelity o f the note
that may be found
desirable a f t e r experience,
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Federal Reserve Bank of St. Louis
306
Governor McCord: 1
am perfectly willing t o ae-
cept that i n m y resolution i f m y second will agree.
Governor Fancher’
he Chairman:
Yes,
M y . Surtis calls m y attention t o
another matter where a change might b e desirable i n order
to c o n f o r m t o t h e statute,
T h e l a w provides t h a t t h e
notes shall b e distinct a s t o the bank that issues then,
by a serial number o r letter, a n d makes n o provision whatever f o r the name o f the Federal Keserve B a n k appearing
on the face o f the note.
T h a t was also drawn t o the ate
tention o f the Board some time ago.
Governor McCord, m a y n o t your motion include a
refer-
ence t o the fact that printing t h e name o f the
Federal
Reserve Bank o n the note does not conform t o the
provi-~
Sions o f the Statute.
Governor McCord: I
a m perfectly w i l l i n g t o have
that g e in, sir.
The Chairman:
W i t h this conglomerate addition t o
Governor MeCord's motion, are you willing t o have
the question, gentlemen?
(The question was called for, a n d there being
no further discussion, t h e motion was put and carried.)
(Whereupon,
o n motion duly mace a n d seconded, t h e
Conference, a t 1:15 o'clock p. m., took a recess until
2:30 o'clock p. m.)
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Federal Reserve Bank of St. Louis
AF T° ECR
U
S
S
e
e
The C o n f e r e n c e r e a s s e m b l e d p u r s u a n t
recess,
t o the taking o f
a t 2: 3 0 o'clock p. m .
Hon. A. C s Miller, Member o f the Federal
Reserve
Soard, was the guest o f the conference
a t the opening o f
the a f t e r n o o n session,
The Chairman: G e n t l e m e n , y o u will
come t o order,
If it is agreeable I Will repert
t o Mr. Mgller the subStance o f the action taken b y the
meeting this morning i n
regard t o c o m m u n i c a t i o n s a d d r e s s e d
t o Federal R o s e r v e
“gents.
Mr. Myller,
w e have mace i t a practice t o
diseuss
matters here pretty frankly, believing
t h a t that i s i n the
interest o f the work that i s being
done, a n d i n the course
of the meeting this morning reports
were made b y a number
of Governors o f inconvenience
that had resulted from com-
munteations which are made b y
the Federal Reserve Board
te the respective Federal Reserve banks,
but which are
addressed personally t a the Federal Reserve
Agents. T h i s
inconvenience
arises f r e n t w o o r three causes apparently.
In one case mentioned i t waS o n account
o f the absence o f
the Federal Reserve Agent with n o
provision made i n his
absence f e r having his mail opened,
was apparently
I
n another case i t
due t o the practice o f the
Federal Keserve
Agent of not submitting official mail
from the Board t e
the Bank itself b u t t o Submit
a
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Federal Reserve Bank of St. Louis
report either b y memorandum
308
Or verbal communication t h e contents o f mail.
I
n another
case mentioned i t apparently i s the p actice o f the Federal
Reserve Agent t o segregate h i s mail entirely f r o m the
mail o f the bank i n such a way that i t i s not consistantly
accessible t o the bank. I
think that covers t h e three
general classes o f objection that were m a d e t e that prac-
tice,
A t first it was determined te pass a resolution
making a recemmendation t s the Board, t h e effect o f which
would b e t o a s k t h e Beard t o address communications having
te d o with the actual transactions a n d business e f t h e
bank t e the bank itself, o r te him those sfficers o f the
bank whe are especially i n charge o f the business t o
which the correspondence related.
T h e point w a s m d e
that b y s o m e c h a n c e i t m i g h t c o m e t e t h e e a r o f t h e Feder-=
al Keserve Agents a n d give offense. L s p e c i a l l y with
reference t e the cases noted b y a number o f those present,
where v e r y c e r d i a l r e l a t i o n s e x i s t e d ,
t h e y d i d n o t want
anything t e arise t h a t would pessibly disturb those rela-
tions, and the final action taken b y the mecting was t e
convey t e you rather confidentially a n d not a s a matter o f
record, t h e feeling which i s unanimous
a t this meeting,
that inconvenience h a s resulted a n d i s l i a b l e e
t result
in a
good m a n y cases f r o m m a k i n g these communications,
which h a v e t o d o w i t h t h e c u r r e n t b u s i n e s s
o f t h e banks,
personal communicatiens t e the Federal Keserve Agents.
IThave n o hesitatien i n saying that a s t e our bank i n
New York i t has been the uniferm practice tlpre t o conSider all e f the mail a s really matter addressed t o the
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Federal Reserve Bank of St. Louis
309
bank; w e have n o t distinguished i n our files o r
i n the
method of handling the mail, and whatever Mr. Jay gets h e
Submits t o u s and vice versa.
W
e have h a d n o inconven-
dence o r difficulty a t all i n our bank.
T h a t situation,
however, does n o t prevail i n the other banks.
I would feel n o hesitation i n voting f o r a reselution
of that character, because I feel that w e would b e
occa=
Sioned inconvenience i n New York i f that wactice should
be followed b y our Federal Reserve Agent.
Mr. Miller:
O f course there ought t o be the free-
est interchange between the Governors o f the banks and
the
Fede... “eserve Agents.
Y o u know there are two general
Classes of communications that go to the Federal Reserve
Agents,
T h e r e a r e the regular official communications
that come f r o m the Executive Officers o f the Board,
w i t h the
Signature o f the Governor o r Secretary, o n e o f
the two;
then there a r e the semi-formal a n d semi-personal
communi-
cations that go from a member o f the Board t o the Federal
Reserve Agents, not binding the board and not
necessarily
dealing with matters t h a t heve b e e n under consideration
by the Board. S o m e t i m e s they are i n the nature o f
inquiries; s o m e t i m e s t h e y are i n the w a y O f suggestions, w h e r e
the Board would not care t o go on record, o r perhaps
where t h e individual member o f the Board would n o t
care t o
g© O n record i n a direct c o m m n i c a t i o n t o the operating
officer o f the bank.
convenient,
I
T h a t condition makes i t extremely
t enables u s t o d o things that perhaps yvoudd
not b e done a n d could n o t b e easily done,
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Federal Reserve Bank of St. Louis
W h e n t h e Federal
310
Reserve Agent has occasion t s act o n an informal matter
we cannot very well make i t a matter o f record.
T h o s e mat-
ters h e has g o t t o b e allowed t o have i n his record, a n d h e
must have a
little diserction a s t o whether h e ought t o p m
present t h e m ,
W h e r e v e r t h e r e i s a n y substantive m a t t e r
ina communication o f that kind, t h a t i s o f concern t o the
bank, t h a t ought t o b e sharad,
o f course, w i t h t h e bank:
Those communications should ef ther b e given t o the Governor,
shown t o t h e Governor, c o p i e s
o f them,
o r excerpts
o f them
made.
It i s possible that a
remedy f o r that would b e t o sim-
ply include aphrase i n these letters, "Please present this
matter t e the Governor a f the Bank", o r "present this letter t o the Governor of the bank."
Let m e give a n example o f the things that w e do that
it w o u l d n o t d o t o m a k e a
matter o f record.
Recently
I had s o m e correspondente w i t h t h e Chairman o f your Bank,
Governor Wells, o n the subject o f discounting o f renewal
notes.
I t i s a pretty delicate subject f o r the Board
to express itself on, and i t would not want t e do so, because i t might b e embarrassing t e g° back t o i t i n the
future.
I t might b e very valuable f o r the Federal Reserve
Agent o f your bank t o know what t h e attitude o f the
Board
is, or at least the attitude of the member of the board
who i s i n immediate connection w i t h the district, a n d
to
allew h i m t p present t h a t i n a n informal w a y t o
t h e Governor O f t h e b a n k w o u l d n o t b i n d t h e b o a r d
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Federal Reserve Bank of St. Louis
i n the future i f
5a
the board h a d occasion t o change i t s decision.
I t might
be liable t o abuse, and i n thet case w e should not want t o
be bound b y anything that could b e considered a ruling o r
an opinion, I
some leeway.
think under a n y s y s t e m there h a s g o t t o b e
I f i t does n o t work satisfactorily a n d i s
brought t o the attention o f the Federal Meserve Agent, i t
will b e corrected.
The Chairman:
O n e case mentioned w a s t h e case o f
@ telegram which reported t h e result o f settlement throubh
the g o l d f u n d w h i c h w a s r e c e i v e d
b y the Federal Reserve
agent a n d t h e advice t o the b a n k o f the actual settlement
‘ef its account that week was n o t received a t the bank.
Mr. Mjller:
D o e s n o t somebody o p e n his mail i n his
absence?
Gevernor Wold:
opens 1 t himself.
N o .
I t i s put o n his desk and h e
H e has a n assistant there a t times w h o
epens the mail, and i f he thinks i t is o f enough importance
hewill ley it on my desk, or possibly wait until he comes
in.
There i s the utmost harmony between the Federal Reserve A g e n t a n d t h e G o v e r n o r a n d t h e b o a r d a t o u r Panik, 7
teek i t u p with pr, “41l1is a n d suggested t o him, i n view
of t h e f a c t t h a t t h e s e c o n f i r m a t i o n s
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Federal Reserve Bank of St. Louis
o f the gold settlement
312
fund were strictly a
bank matter, t h e y ought t o come
direct t o the b a n k a n d the bank should g e t that informa-:tion a t the earliest possible moment.
Mr. Miller: I
think you ought t o have it.
I f they
cannot give i t t o y o u directly through t h e channel o f the
Fedcral R e s e r v e A g e n t ,
i t ought t o came t o y o u under separ-
ate cover,
Governor Wold:
n a t connection has the Federal
Resenve Agent w i t h the management o f the gold fund?
Mr. Miller:
H e has n o t any, a n d the o n l y reason f o r
doing that i s that o n the whole w e have less embarrassment
and «arking a t cross purposes i f communications
g o through
a Single channel. O t h e r w i s e w e will s o o n get t o the
point where the Secretary o r the Assistant Secretary will
determine w h a t communications
i n one instance g o t o the
bank direct i n the case o f a given district, a n d what
should g o to the Federal Neserve Agent i n another.
would have a
uniformity.
the matter. I
W e
variety o f practices where there ought t o b e
T h e r e i s a great variety now, I think,
in
know there i s direct correspondence w i t h
one o r two o f the Governors.
Experience h a s shown that t h e reserve agents a r e
perhaps a
little s l o w i n expediting business.
W e wanted
to g e t q u i c k a c t i o n a n d o u r c o m m u n i c a t i o n s w e r e m a d e t o
. those Governors directly.
The Chairman:
W e all agreed, M r - Miller, t h a t i t
would b e very unfortunate f o r the Federal Reserve B o a r d
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Federal Reserve Bank of St. Louis
513
to predicate a n y communication,
i n the direction o f
strightening this matter out, upen a recommendation o f
this meeting.
I n other words w e want t o ask that what-
ever may b e done ori_inate with the Federal Reserve Board.
Mr. Mgller: C e r t a i n l y .
The Chairman:
F o r that reason w e made this verbal
communication t o you. I
have explained m y understanding
of the Situation, a n d it seems t o me that any o f the others
present w h o want t o add t o i t ought t o d e s o a t this time
and before w e take u p the next subject.
Governor Wells: I
will s a y f o r y o u r i n f o r m a t i o n
that a t St- Louis the Federal Reserve Agent i s very careful
to provide a
carben copy o f all communications w h i c h h e
gets from the Federal Reserve Board not o f a confidential
nature t o the heads o f the various departments o f the
bank.
I t i s a very prompt arrangement and i t has workea
very satisfactorily.
Governor MéCord: T h a t is true of the Atlanta district.
The Chairman: W e have a little different system in
New York.
W e prepare 4 little dad ip about that size (indi-
cating), which contains a list o f the efficers ami the
departments, and alse shows the method of 4 dealing with
the mail. C e r t a i n items are put under "to note" "te
file""to answer", and s o on.
T h e Fedoral Reserve Agent
and a l l t h e officers o f the b a n k have these Slips o n their
desks.When the mail i s received i n the morning i t is dis. tributed t o the various departments where i t should receive
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Federal Reserve Bank of St. Louis
514
attention.
I f Mr. Jay gets a letter that h e thinks
should g o t o Mr. Surtis, having t o do with legal matters,
or t o me, o r t o some other officer,
h e just makes a
note
on the slip and i t passes through t h e office j u s t a s a n y
other mail would.
Originally t o us.
W
e d o the same with mail that c o m s
W W e d o not distinguish,
i n fact, b e -
tween the mail that comes t o the Fedcral Reserve Agent
and that which comes t o the bank, o u r conception o f the
Federal Reserve Agent's office in the bank being that he is
really one o f the officers e f the bank with dutées t o perform a s a part o f that organization.
Mr. Miller:
of it.
O f course that i s the right view t o take
B u t y o u must remember that t h e Federal Reserve
agents h a v e a position o f responsibility under t h e law.
Their duties a r e not onerous a m i w e d o not want t o breed
indifference o r indolence o n their part b y not keeping
them i n close contact w i t h t h e connections between t h e
Federal Reserve Board and the Federal Reserve BankWe make i t our practice a t the Federal Reserve Board
offices t o have a l l communications o f a n official nature
g® through one channel. O c c a s i o n a l l y that i s not done
and s o m e t r o u b l e h a s b e e p r o d u c e d
o n t w o o r three o c c a -
sions because that practice w a s n o t observed o n the part
of some o f the banks a n d o n the part o f the Board.
Very frequently members o f the Board write letters
fer t h e s i g n a t u r e
many o f that kind.
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Federal Reserve Bank of St. Louis
o f o u r secretary. I
write a
good
i v e r y n o w a n d then something happens
318
which shows that a
matter that ought t o have come t o the
attention of the Board or was intended for the attention
of the Board, has become mislaid i n some pocket, either i n
the case o f the outgoing o r incoming mail.
W e find the
Only way t o obviate discrepancies o f that kind is t o have
one simple avenue through which all mail travels t e and
from the board a n d t h e banks,
hature.
i f i t i s o f a n official
O n the other hand i t i s true t h a t some o f the
most important communications a r e not o f that official
nature a n d cannot be.
The Chairman:
W e enjoy a very favorable arrangement
with o u r members o f the Board b y being able t o correspond w i t h them with the utmost freedem o n all sorts o f
things, a n d I would n o t want t o see that disturbed i n any
way i f i t could possibly h e avoided.
Mr. Miller: I
think i n two o r three instances I
have heard o f officers o f banks magnifying t h e importance
of comminications that g o t o and from the Federal Reserve
Agents and are not given t o the banks.
S o m e o f our
Federal Keserve Agents have very active imaginations and
they a r e p u t t i n g u p t o u s a l l s o r t s o f hypothetical q u e s -
tions--- what would b e done i n this c a s e a n d i n that case+
what de you think of that and what do you think of that.
Sometimes those things are answered and sometimes they
are not answered except t o receive a
ment. I
have answered a
simple acknowledge-
great m a n y o f those things feel-
ing that i f the Fedcral Reserve agent 1 s really mentally
concerned w i t h those questions that w e ought t o give h i m
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Federal Reserve Bank of St. Louis
316
a certain amnunt o f he ring a n d cognizance.
B u t many o f
the things t h a t I have received, a n d I guess t h e same i s
true o f other members o f the Board, t h e y wish t o die
right then and there, a n d certainly t h e y would l o o k a t
it from that point o f view t w o o r three weeks o r two o r
three m o n t h s hence, b e c a u s e t h e y r e p r e s e n t
expressions o n a variety o f questions.
m n offhand
N o w , w h e n w e deal
with banks officially w e d o not want t o deal with hypothetical situations, b u t with actual Situations, a n d i n
the case o f epinions a n d rulings t h e y are carefully
considered a n d w e will willingly abide b y them.
Governor fold:
T h e only object I
had i n bringing this
subject u p was t o see i f we could n o t expedite t h e
business o f the bank,
My. Miller: I
think that c a n b e cured v e r y readily
by sending w i t h t h e letter a carbon o f i t with instructions t o deliver t o the Governor.
The Chairman:
T h a t would b e a very d.sirable a r -
rangement.
Mr. Miller:
copy o f this ©
T h e instruction could be ¢ “present a
mmunication t o the Governor o f your bank."
The Chairman:
T h a t will b e excellent.
Governor V a n Zandt:
T h a t would f i t our case exactly.
G overnor Seay: T h e r e are frequently instances
of communications made t o Federal Reserve Agents concern=
ing matters involving executive administration o f the
bank, a n d i n order f o r h i m t o reply t o that i t 1 s necessary
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Federal Reserve Bank of St. Louis
317
for h i m t e c o m e a n d d i s c u s s t h a t m a t t e r w i t h t h e bank.
H e
gathers hisimpressions from the discussion ani h e goes
back and writes hisreply.
Y o u always g e t a n indirect
reply f r o m a commmication o f that nature.
I t domes t o
the bank indireetly, a n d there i s s o much lost motion.
Mr. Miller:
Y e s , that i s tre,
a n d i t really develops
a condition that interferes w i t h t h e prompt administration
ef the affairs o f the bank and the Board, and Ss ome thing
Ought t o b e done about it.
I, myself, h a v e communicated directly w i t h the Federal
Seserve Agent where t h e communication w a s really intended
for the Governor.
T n e r e w a s recently a
case o f that
kind i n your district, Governor Wells.
Governor Seay:
W e all have i n mind t h e fact that
we a r e a p p r o a c h i n g t h e p o i n t w h e r e t h e a c t i v i t i e s
o f the
bank are broadening and those communications from the
Board t o the banks w i l l b e mare numerous, a n d i t was f o r
the purpose e f prompt, direct transaction and direct reply, a n d purely f o r the purpose o f facilitating t h e efficient
accomplishment o f such matters a s pertain t o administration
of t h e banks t h a t this questien was brought up. I
think
that was i n the ming o f everybody.
Mr. Miller:
J I think with these suggestions t h e con-~
dition c a n b e improved,
Governer Fancher:
us.
T h i s condition h a s arisen with
W e have t h e m s t harmonieus a n d close working rela-
tions.
A l l mail i s commen mail. I
see all the letters
that g o t o the agent a n d h e i n turn sees a l l t h e cemmuni-
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Federal Reserve Bank of St. Louis
318
cations t h a t come o n m y desk.
T h e following d a y a copy
Of all t h e w o mmunications t h a t have gone
o v e r the desks
of all t h e officers a r e brought t o
m y desk and I
review t h e m all.
tions a d d r e s s e d
T h e r e h a v e b e e n times w h e n communica-
t o the Agent a r e clearly intended f o r
the
Governor and I have dictated those replies
a n d sent t h e m
back over t h e signature o f the agent.
Mr. Miller: I
think perhaps there i t might b e well
for t h e Governor t o address h i s letter
t o the Board, p e r -
haps, i n case e f the Foderal Reserve Agent
and aftervehi p u t under a
cover o f its own, S O that y o u have
a
record e a c h way completc.
the best way.
I de not know that that i s
I t occurs t o m e offhand.
The point i n my mind is, a 8 I have said,
that we
want t o keep the Fedcral Keserve Agents
alive and interested.
W e want t h e m t o know what i s going
on, s o that
if a t a n y t i m e a
Situation arises t h a t makes i t
necessary
to t u r n t o t h e Federal R e s e r v e A g e n t
f o r advice h e will
be i n a position t o give it, a t any
rate s o far a s the
facts a r e concerned,
The Chairman:
is here I t e m No. 5
W
e w a n t t o discuss w h i l e M r . M i l l e r
o n the program i n regard t o the accounts
to be carried b y one Federal Reserve Bank
with other Fed-
eral Reserve Sanks,
At t h e t i m e t h e c o m m i t t e e c o n c l u d e d
i t s w o r k i n con-
nection with the establishment o f the
gold f u n d anumber
of Federal tiesefve Banks Called attention
t o the fact that
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Federal Reserve Bank of St. Louis
819
while t h e y were maing investments i n other markets, p a r ticularly i n Boston a n d N e w York a t that a
b a l -
ances were settled a n d completely wiped o u t every week i t
would cause t h e m loss o f interest a n d some inconvenience
in taking care o f the necessary payments f o r investments
that were largely being made i n New York; a n d t h e suggestion was made that either a
that purpose,
o r thet a
separate account b e opened f o r
regular stated amount b e withheld
in forwarding balances.
I have simply stated the substance o f that situation
and I will a s k Governor McDougal i f h e will e p lain
just how i t operates with the bank i n Chicago, a s he and
some o f the other banks a r e really more interested i n i t
than w e are,
Governor McDougal:
T h e Federal Reserve Bank of New
York has rendered u s valuable assistance i n the matter o f
securing i n the market there certain investments, acceptances, a n d i n many cases warrants, a n d w e have found i t
necessary, naturally, t o provide payment f o r these purchases.
W h e n the gold settlemnt fund plan went into
effect w e recommended t o your bank, Governor Strong, t h a t
in r e p o r t i n g t h e balance e a c h w e e k t h e y d e d u c t a
fixed
amount of $2,000,000, i n order that we might at all times
have a
fund there t o meet investments t h a t y o u might make
on o u r a c c o u n t ,
a n d a l s o f o r e xchange purposes.
We found that i t was useful a n d necessary t o have a
balance w i t h you; a n d the same h a s becn true, t o some
extent,
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Federal Reserve Bank of St. Louis
i n Boston.
O u r account there i s a small one.
820
But, a S bearing directly upon that Subject, I
might b e well, G o v e r n o r S t r o n g ,
f o r t h e Secretary
read a letter o f which y o u have a
presses t h e v i e w s o f t h e B o a r d
and I
think i t
copy there-
i n regard
to
I t ex-
t o t h e subject
think calls f o r some action b y this b o d y here today .
Mr. Curtis.
T h i s letter i s signed b y Mr. Delano,
Vice~-Gove rnor o f the Federal seserve Board, and is addresSed t o Mr. A. B. MeDougal, Gevernor o f the Federal Keserve B a n k o f Chicago, a n d i s under date o f June ll, 1915.
"In making, o n May 19th, for the told Settlement Fund,
its initial report o f balances d u e t o other Federal e s e r v e
Banks, the Fedvral itieserve Bank o f New York stated that?
"Three o f the Federal Reserve Banks wish t o
keep a
balance w i t h u s f o r e x c h a n g e p u r p o s e s e n d h a v e
requested
u s t o withhold f r o m o u r r e p o r t
t o the Gold
Settlement Fund, e v e n amounts a s follows:
“Federal Reserve Bank of Chicago 2 , 0 0 0 ,000
.
o f Philadelphia 1,000,000
of Richmond
1 , 0 0 0 ,000
xé@ have carried o u t their directions e n d therefore
the total balances i n the "due to" accounts with
Other federal Reserve Banks, a s advised you b y telegraph, w i l l b e 4 , 0 0 0 , 0 0 0 l e s s t h a n t h e total o f such
balances appearing i n our daily statement."
In reporting f o r the setilement o f May 27th, a
course w a s p u r s u e d
held being:
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Federal Reserve Bank of St. Louis
Similar
b y t h e N e w York Bank, t h e amounts w i t h -
Federal Res. Bank o f Richmond,
°
b
e
2
:
o
f Chicago
2 , 9 0 0 ,000
2
,
0
0
0 ,000.
With these deductions t h e Fed« rd Reserve Hank was creditor
at the clearing i n amount o f $4,909,000.
Again, i n reporting for the settlement o f June Srd, the
Federal tesenve Bank o f New York withhold the following
payments d u e t o other Hederal “‘eserve Banks:
Fedt ral Reserve Bank of Phila $ 1 , 0 G 0 ,000
. =
“
o f Richmond 1 , 0 0 0 ,000
of Chicago
2 , 0 0 0 ,000
In none o f these cases d i d the Pedcral Reserve B a n k reported
by the N e w York bank a s desiring t o keep a
balance w i t h
the Federal Xoserve Bank o f New York "for exchange pur#
poses" s o advise t h e Federal Reserve Board, a n d the
Feder-=
al “eserve B a n k o f New York has, therefore, b e e n
permitted t o withhold t h e sums named entirely u p o n its
o w n statement,
I am “riting t o you about the foregoing matter because
it s e e m t o m e i t violates o n e o f the principles o f the
Gold Settlement Fund P l a n t o accept a
credit o r debit
statement f r o m a n y one bank unless t h e bank owning
the
corresponding d e b i t
o r credit n o t i f i e s
us of a
Similar
entry a n d thuspermits uS, a s caretakers o f the Gold Settlement Fund, t o check u p one statement against t h e other.
As I see it, t h e only difficulty t h a t w e m a y ever r u n
into,
i n the care o f this Gold Settlement Fund i s the dif-
ference o f opinion a s t o h o w the balances should Stand;
and
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Federal Reserve Bank of St. Louis
Bee
f
w e a c c e p t t h e s t a t e mi e n t
»
O f the Federal Reserve
Bank
of N e w Y o r k a s t o c e r t a i n
debits a n g credits
due i t
from a n y other bank,
without insisting o n
that Statement
being checked a n g concurred
in, w e shall r u n into
trouble.
As you have been chairman
o f the Golg@ Settlement,
Fund Committee a n d c a n
readily s e e t h e difficulties
w e may
run into, a n d as w u will
b e meeting with the Governors
Of other banks, I
trust y o u will give m e
the benefit o f
& clear statement o f this
matter a n d avoid t h e
necessity
in future o f o u r a c c e p t i n g
t h e Statement
o f a n y o n e bank,
unsupported b y others. *
Governor Seay: I
would like t o say that we
adviseg
the Board t h a t w e h a d
requested N e w York
t o retain
w1,000,000, s o that i n
the case o f one bank
I a m sure
that-we have advised t h e
Board. T h e Federal
Neserve
Agent mailed t h e advice
a t m y request,
The Chairman:
M r . Miller, o n e difficulty
i n handl-—
ing investment accounts
without c a s h balances
lies i n the
fact that I think we would
b e obliged, when w e take
up
an investment f o r one o f
the other b a n k s ; ¢
6 carry i t
for o u r o w n account, o f
course adding t h e accrued
interést t o our o w n interest
earnings, until v e c a n get
exchange
to cover it. T h a t would
give rise t o a Series
o f transactions outside o f the Gold
fund i n order t o facilitate
prompt payment t o get t h e
interest,
Mr. Miller:
W h y shoulda y o u n o t
use t h e Gold Fund
for that purpose; j u s t carry
these addi tional balances
in the Geld Fund. T h a t might
necessitate m o r e frequent
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Federal Reserve Bank of St. Louis
823
Statements t h a n a weekly statement,
GOvernor McDougal:
T h a t fund i s there n o t
alone f o r
the purpose o f taking care Ofinvestments,
but f o r general
banking purposes, f o r instance---
Mr. Miller: ( I n t e r p o s ing)
We d e not know that i s the case.
Y o u must not say that.
T h e l a w does n o t
authorize that, y o u know,
Governor McDougal: I
was going t o say that we fre-
quéntly sell N e w york [xchange t o
our local banks, a n d w e
frequently b u y it, a n d ma-eover I
think w e are B0ing t o
co more f o r our member banks b y putting
funds i n New York
for them. l L v e r y day there will probably
b e a transfer t o
be made, a n d w e believe t h a t t h e
balance i s necessary,
It i s certainly convenient.
Mr. Miller:
O f course t h e theory o f
the Gold Settle-
ment Fund i s thet that money i s
N e w York's, W h e r e v e r
it happens t o be physically, b y
transfer i t becomes N e w
Yerk's,
That l e t t e r i s a
settling agents.
memorandum t h a t was prepared f e r
our
T h e y did not know what t o
@ a n d wanted
d« finite instructions f r o m the Board.
G o v e r n o r Lelane
has teken u p the matter b y correspondence
to see exactly
what t h e s i t u a t i o n w a s a n d w h a t
t h e n e e d w a s f o r these
balances which are carried te the credit of ‘Richmond,
Chicago, I
think Philadelphia, a n d perhaps
o n e o r twe
Other Federal Reserve Banks, outside
o f the Gold Fund.
difficulty,
a s t h e situation presents itself
a t the moment
is t h a t t h e s t a t e m e n t s
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Federal Reserve Bank of St. Louis
h e
o f these several banks t h a t
are in-
324
volved with the New York Bank, and the statement of
the
Gold Settlement fund d o not reconcile.
Y o u have a"due
to" o n the part o f some banks that does not appear i n
the
Statement o f the Gold Fund, a n d i f the Board deeides
to
Sanetion t h e c a r r y i n g o f t h e s e s e p a r a t e b a l a n c e s
there has
got t o be some change i n the form of statements s o
that
when o n e picks u p the statements o f the separate balances
and t h e Gold Fund statement,
h e c a n see that t h e y recon-
cile a t all points.
I think there i s a
question o n the p a r t o f s o m e n e m -
bers o f the Board a s t o the necessity o r desirability
of
this.
T h e question i s whether a l l o f t h e
purposes t h a t
are p r o p e r u n d e r t h e law, a n d t h a t a r e n o w a c c o m p l i s h e d
in
this way, could n o t b e just a s well accomplished b y
carrying a n additional balance i n the gold settlement fund,
drawing against i t b y geographical divisions e n d
transfer-~
ring f r o m Chicago t o New York o r Boston, a s
the case m a y
be.
F r o m our point o f view that raises t h e questien a s
to whether o r not w e will advance t o the point where
we
will have t o have daily settlements.
w
e will have t a d o
that i f these transactions a r e v e r y numerous.
involve v e r y g r e a t hardship.
has p r e v e d
t o be a
I t does n o t
T h e g o l d settlement f u n d
very m u c h more Simple a f f a i r t h a n i t
was first thought.
Mr. MeKey:
T h e question comes u p with u s a good
deal i n selling cxchange o n New York.
W h e n w e sell e x -
change w e have t o uraw a draft o n the Federal Heserve
Agent
at New York, a n d if all the balance there was wiped
e@ut
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Federal Reserve Bank of St. Louis
325
in the settlement fund w e would
n o t have a n y balance o n
which t o draw this draft.
T h e n when t h e draft g o t
to
New York, i f they were going t o
pay it, i t would create
an Overdraft,
a n d w e believe
w e Ought
t o provide m o n e y
in New York t o p a y these drafts
that a r e drawn O n that account.
When w e get t o eperating well
w e m a y have a
fifty, a n a probably a
dozen,
hundred drafts i n one d a y
and b e e
Sides that w e would have transfers
o f money t o b e made b y
telegraph, a n d i f w e had
t o advise t h e Settling
agent o f
all o f these telegraphic transfers
a n d also advise the
New York Bank o f all o f these
transfers i t would b e
a dupli-
cation o f the telegrams i n
the first Place, a n d a duplica-
tion of the work in New York and
also i n Washington.
I t
is t h e custom with all commercial
banks w h e n they draw a
draft, t o draw against a balance
which they actually have
and when they m k e transfers,
t o do the same way. I
think
it is good banking pw actice,
If you use the Other method
y o u are g i n g t o have
OW erdrafts o n the bank i n
New York, a n d unless y O u
can
make arrangements through
t h e Gold S e t t l e m e n t Fund
in
time s o that the N e w York
Bank i s advised that t h e y
can
credit the Chicago Bank with
the amount that has been put
through t * the credit o f the
New York Bank i n the settlement fund, i t necessitates
t h e duplication o f work
and makes
these telegraphic transfers
harder t o make.
I t would
bemore advisable, I think, fer
the Federal Keserve Bank
to have the Privilege o f
carrying accounts i n New
York and
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Federal Reserve Bank of St. Louis
326
other centers - - — possibly i n Chicago--- f o r exchange
purposes,
t o s a y nothing o f the matter o f investment; a n d
4 think i t i s just a s important i n the matter o f invest-
ments, a s i t i s i n the matter o f exchange.
way that other banks do.
I t is the
I t i s a commercial practice
of long standing.
Governor Aiken:
I s not this practically a n account
for e x c h a n g e p u r p o s e s ?
W
e have a
special i n v e s t m e n t a c ~
count i n New York against which their purchases f o r us are
charged. T h e o r e t i c a l l y t h a t account i s a n account t o pro-
vide u s with New York Exchange and t o reimburse N e w York
for the investments t h a t t h e y make f o r us,
I s not that
within t h e purview o f the law?
Mre Miller: “ e l l , I woulda not want t o expressan
opinion f o r the Board o n that question, certainly, a n d I
should hesitate t e express m y own opinion.
I t i s largely
a technical question, I think, o f the construction o f the
law; b u t I suppese t h e question will b e asked what i s the
Gold Settlement Fund?
W h a t i s i t for?
T h i s i s really
the maintenance o f a n additional f u n d f o r t h e convenience
of certain o f the Federal Reserve Banks.
Governor Aiken:
N e w York i s entitled t o be rcimbursed
at once for the purchases t h a t t h e y make f o r our account,
$0 that they will n o t suffer a n y loss o f interest i f this
comes o u t o f your credit i n the gold settlemont funda.
I t
is not a matter o f m t e r i a l consequence whether t h e gOld i s
_ actually i n the vaults i n the New York Bank or whether itis
in the Treasury vaults a t Washington.
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Federal Reserve Bank of St. Louis
327
Governor Aiken: C e r t a i n l y not;
b u t t h e y might n o t
get their settlement f o r a week.
Mr. Miller: I
admit that.
I f this practice i s
discontinued s o m e provision will have
t o b e made.
Governor Yeay;: I v e n i f daily settlements were
made
and t h e balance i s entirely wiped o u t
b y balancing t h e
gold fund, i t will multiply t h e transactions required,
that
is, telegraphic transfers through t h e
medium o f the Geld
Fund f o r the purpose o f meeting drafts t h a t
have b e e n
drawn.
T h a t i s s o even i f w e reach the
point o f daily
settlements,
Mr. Miller:
wiped o u t .
I
T h e balance o f Chicago ought n o t
t o be
f your balance i s wiped o u t
y o u ought n o t t o
draw exchange against it.
I n Chicago they simply depesit
in the Sub-treasury a n d telegraphically
Mr. McKay: (Interrupting)
Mr. Miller:
advise W a s h i n g t o n - —
Mr. Miller?
L e t m e say one word more, I
hesitate
to speak about this Subject because
I realize that even
with a warning t e the contrary I
might convey t h e impres~=
sion that I am Speaking for the Board.
A s a matter o f
fact the Board has not given anything
more than the most
cursory a t t e n t i o n
t o these matters,
T h e question w a s
raised and it was Simply suggested that
w e find out mere
about i t , a n d Mr. Delano h a s written
t o Mrs MeDougal f o r
that purpose.
B u t , inasmuch a s w e have g o t t h e
Geld
Settlement Fund w e want tpuse i t and justify
i t as much
as possible.
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Federal Reserve Bank of St. Louis
T h e settlsing a g e n t s Particularly,
I
think,
328
have a
certain pride a n d interest i n it, a n d this perhaps
would b e construed a s reflecting u p o n t h e availability
and mechanical possibilities o f that fund. T h e r e i t is
to b e used.
Governor Seay:
W h a t i s t o become o f the deposits
made under Section 1 3 by one Federal “eserve Bank for another f o r the purpose o f exchange,
i f y o u are going t o wipe
it o u t a s fast a s i t i s made?
Mr. Mgller: I
suppose i t would b e regarded a s a n
alternative procedure t o the gold settlement fund.
I f
we d i d not have t h e Gold Settlement Fund t h a t question
would hardly arise, b u t w e have t h e fund f o r t h e purposesof
exchange, a n d those a r e t h e o n l y purposes f o r which t h e
“eserve Banks c a n carry balances with one another.
The Chairman:
I f every time Chicago needs N e w York
Exchange a n d creates t h a t cxchange i t deposits t h e gold,
then all the New York Exchange 1 d
sent a
b y Chicago would repre~
depletion o f its gold reserve.
I t must g e t N e w
York exchange a s N e w York exchange, a n d not make i t all t h e
time b y giving u p its reserves, O r it would pump itself
out.
I n other words, this gold fund, a s I understand i t g
is f o r t h e p u r p o s e o f s e t t l i n g n e t b a l a n c e s w h i c h w u l d n o t
be settled b y the purchase o f exchange economically.
On any other theory t h e operation o f the Gold Fund
would b e t o arrest t h e movement o f natural exchanges a n d
reduce t h e creation o f exchange a n d shipments o f currency
or gold altogether.
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Federal Reserve Bank of St. Louis
T
h
e acceunt that Chicago i s con-
329
sidering carrying w i t h N e w Yerk, i t seems t o me, i s a n acc@unt f o r the purpose o f utilizing exchange instead o f
shipping gold, which would b e imposed u p o n £t, 47-4%- t e e
lied upon the gold fund for all its transfers.
A s a
matter o f fact most o f the Chicago balance i s n o w created
by shipping o u r N e w York exchange,
i n other words drafts o n
New York which are collected and placed t e the credit o f
New York.
Mr. Miller:
O n e o f the things that surprises m e i s
that s o m e o f t h e r e s e r v e b a n k s s e e m t e b e v e r y r e l u c t a n t
te part with their gold, even t o deposit i t i n the subtreasury t h a t i s c o n v e n i e n t l y a t hand.
T h e theory upon
which w e proceeded i s that the gold holdings o f the bank
individually and i n the aggregate, a r e s o huge i n proportion t e their needs, t h a t y e u c a n create a l l t h e exchange
you want t o o n the basis o f gold holdings without a
ship-
ment o f the gold, o r without a n y shipment t h a t involves
very much inconvenience o r expense,
the subtreasury.
that a
b y depositing i n
I f i t should develop i n any given case
bank s h o u l d o u t r u n t h e p o s s i b i l i t i e s
and would have t o buy exchange, I
suppose a
i n that w a y
new s i t u a
tion would exist for which some remedy would have t o be
previded. I
think this remedy would b e a n altogether
appropriate ono under the circumstances.
The Chairman:
T h r e u g h o u r eleven reciprocal accounts
up to this time i n New York, w e have handled $426,300,000
of exchange, a n d t h e handling o f exchange between t h e
sections o f the country means t h e using O f balances t e
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Federal Reserve Bank of St. Louis
330
avoid shipping currency. I
cannot s e e h o w this exchange
can b e created i n New York f o r the
benefit o f member banks
in Chicago except b y the use o f t
h xchange
e
e that i s i n the
market o u t here, w h i c h means using all
t h e exchange t h a t
is available a t a price which i s less
t h a n t h e cost o f shipPing t h e money, a n d only shipping money
t e the gold fund o r
Creating exchange through t h e gold fund
after t h e supply
of natural exchange i s exhausted,
AB I understand, Mr. McKay, y o u have been
shipping
us right along a l l t h e exchange t h a t
y o u c a n buy i n Chicago whenever N e w York exchange i s
a t par o r nearly par?
Mr. MeKay: I
would l i k e t o say, i n regard t o that,
that our balance with the New York Bank this
morning was
ten million dellars, because w e have been
purchasing New
York exchange a t a discount,
When N e w York exchange i s a t a discount,
i f w e c a n get
a large quantity o f it, i t will create
f o r u s a n excess
Credit i n the gela settlement fund
w h e n i t i s cleared
and will leave about a
million o r two million dollars w i t h
the bank as a working balance.
New Y o r k E x c h a n g e
is at a
O n the other hand when
p r e m i u m w e 5e€ll N e w Y o r k exchange:
and that ultimately will reduce t h e
amount o f our fund i n
gold settlement fund, but will net cause
u s t o chip
currency,
I think i t would b e profitable f o r
all t h e banks,
when they are able t o get New York
exchange a t par o r
less t h a n par,
t o buy all t h e y c a n and create
balance i n the settlement fund. I
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Federal Reserve Bank of St. Louis
a n excess
should think that w o u l
be particular advantageous i n the case o f the bank
Dallas.
season,
A t certain times o f the year, during t h e cotton
N e w York Exchange
i s at a
times a s high a s a dollar, a n d a
heavy discount, s o m e -
e
s e a s o n O f the year
the D a l l a s B a n k created a n excess i n the Gold Settle-
ment fund, then they could seil that exchange after i t
went above par.
g t would also t e n d t o regulate t h e mar-
ket f o r that exchange a n d keep i t closer t o a a r i t y t h a n
it has b e e n i n the past.
T h e member banks would appre~-
ciate that because they like t o have i t as near par as
possible,
Now, w i t h regard t o making transfers o r drawing
drafts o n New York and depositing i n the sub-treasury.
Every t i m e w e d r e w a
draft w e w o u l d n o t k n o w u n t i l t h r e e
o'clock how much we would have t o deposiv i n the subtreasury.
I t might be $100,000 o r it might be two or
three million dollars a n d might represent a
transactions.
I
great m a n y
f these transactions w e r e m a d e b y wire
it would b e toe late t o gct the credit i n New York the same
day they were made, because t h e sub-treasury would b e clesed
and w e could n o t make a deposit.
T h a t would b e one rea-
son a n d a n o t h e r r e a s o n w o u l d b e t h e m u l t i p l i c i t y
o f trans-
actions t o be totaled up, divided and sent i n to the
settling agent.
Mr. Miller:
W i t h regard t o your last point, I
should
Say that that could b e anticipated b y just increasing your
balance.
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Federal Reserve Bank of St. Louis
W h a t i s the objection
t o putting a
million,
two
332
million,
o f three o r four million
o f gold i n t o t h e sub-
treasury and having a4 large
c r e d i t i n the gold settle-
ment fund,
AS regards the former point I think
that there might
be s e r i o u s c o n s e q u e n c e s ,
I did n o t appreciate t h a t y o u
had t o b g y exchange a n d build u p
your balances i n New York
to b e used w h e n t h e current shifts.
The Chairman;
I f i t had n o t been
for that practice,
of course w e would not havehad anything
like the Sale o f
exchange t h a t w e have h a d i n
the last s i x months.
Governor Fancher:
I t seems t e m e that
t h e e xchange
operation i s 8°0lng t o b e one
method o f Strengthening
Our g o l d p o s i t i o n a t times.
Mr. Miller:
point. I
Yes. I
think that i s a very good
was not, myself, aware o f
it,
GOvernor Fancher: I
can s a y that i n our Operations
we c a n a t times Strengthen o u r
gold position i n that way,
Governor Seay:
O n the other hand t h a t
igs the w a y w e
are liable t o use u p our gold
funds.
Mr. Miller:
I t might o f course b e
said i n that
case that a s y o u build u p your
balance i t Ought t o b e
transferred to your credit i n
the gold settlement fund.
That i s a matter o f Opinion, a s
t o the feasibility o r prac-
ticability of it. I
think the board is disposed te do
anything that really makes f o r
the efficient operation o f
the banks i n regard t e this matter;
but I think that the
point i s well taken, that t h e
account o f the gold settle-
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Federal Reserve Bank of St. Louis
538
ment fund a n d o f the Federal Reserve Banks amongst themselves have t e square u p a t all points.
Governor Seay:
T h a t i s the point, Mr. Miller, o n
which w e d o not quite agree.
T h e gold fund i s f o r the
purpsse o f the transfer o f balances between federal
reserve
banks, t h e whole o r a n y part thereof, o n e t o
the other.
you settle i t will necessitate a
that i s all.
I f
duplicate transaction,
W e call i t a settlement, b u t i t i s a trans-
fer. S u p p e s e w e d e not want a l l that transfer, b u t only
want part o f it.
I f you transfer i t all i t ne¢esgitates
another transaction, a n d i f you only transfer a
part, a n d
that i s all yew need a t the time, y o u d o not have t o make
another t r a n s a c t i o n ?
Is that your point, Mr. McKay?
Mr. McKay:
Y e s ; t h a t i s true,
S u p p o s e t h e New
York Bank has a million dollars o f funds reperted
i n the
gold settlement f u n d a n d that i s all t h e funds t h e y
have :
there, according t o their beoks.
B u t they have drawn
drafts against that t e the amount o f
§750(/—"Trey report
a million dollars i n the gold settlement f u n d today, b u t
that will be wiped out tomorrow when the $750,000 i n
drafts come i n that they have drawn against the fund.
Then, i f they a r e going t o p a y t h e drafts t h e y have created
an overdraft a n d would have t e report a debit i n the settlement fund. {
think t h e fund ought t o b e there t o provide
for whatever crafts a r e drawn against i t
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Federal Reserve Bank of St. Louis
Governor Seay:
I t seems t o m e i f w e viewed t h e gold
334
fund a s a means o f transfer between t h e Federal Reserve
banks a n d such funds a s they wished t o transfer, rather
than regarded i t absolutely a s a settlement f u n d b y
which t o entirely extinguish balances,
w e could achieve
the result sought.
Mr. Millers: S u p p o s e w e had established t h e gold set-
tlement fund with the Federal Keserve Bank o f New York,
whieh might have been done?
T n e n this difficulty would
not arise, would it? S u p p o s e y o u carried a n d managed i n
your bank the gold settlement fund.
T h e n this diffi-
culty Mr. M c K e y points o u t would n o t arise.
The Chairman;
T h e banks f o u n d that t h e y would b e
able t e handle their balances w i t h N e w York exchange, a n d
there i s no such thing a s “ashington exchange.
Mr. Miller:
B u t t h e question i s whether t h e gold
settlement fund being located a t “ashington alters the
situation s o materially t h a t i t i s not operative. I
de not s e e that i t does except i n the case that Mr- McKay
points out where the Feceral Reserve Bank i s building u p
a balance i n New York for the purpose p f providing exchange
for i t s members, a n d doing that through t h e purchase o f
exchange.
(Further informal discussion followed, )
The Chairman:
I s n o t this a matter that c a n b e dealt
with better after w e have had mormexperience with i t than
we h a v e a t present?
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Federal Reserve Bank of St. Louis
Mr. Miller:
Y e s . I
think a l l t h a t t h i s letter o f
335
Governor Lelano's i s t o b e treated a s i f a n inquiry o f a n
informal nature;
a n inquiry f o r a statement o f the facts
and conditions that have given rise t o the practice. T h a t
is all.
Governor Fancher:
I t occurs t o m e that w e will have
a little additional light o n it after w e get i n operation
the transfer work i n the various districts.
that m a y lead t o a daily settlement.
T o m y mind
I f w e have a
daily
Settlement t h e transaction that Mr. Wold Speaks o f would
be done b y transfer a n d not b y drawing a draft, a n d i t
will
be wiped o u t daily.
Mr. McKay? I
think this matter will take care o f
itself.
There w a s o n e statement y o u made w i t h regard t o
buying N e w Y o r k exchange, G o v e r n o r S t r o n g ,
a n d that was
that the only way w e wuld g e t New York exchange was t o
buy it. T h e r e i s another w a y that w e c a n create N e w
York exchange,
deposit
I f i t i s a t a premium i n Chicage w e woulda
i n the Subtreasury
i n Chicago f o r t h e credit o f your
gold s e t t l e m e n t f u n d , w h i c h w o u l d g i v e u s t h e e x c h a n g e
direetly a t par.
I n that way w e could regulate the mar~
ket.
The Chairman:
T h a t i s what I Say: I
say that y o u
buy exchange as leng as it is possible t o buy it at a
rate which i s cheaper t h a n the shipping rate.
Governor McKay:
T h a t is true.
W h e n New York
exchange i s a t par w e will b u y i t and when w e have t o sell
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Federal Reserve Bank of St. Louis
336
New York exchange a n d i t is at a premium, w e can deposit
in the gold settlement fund a m i create N e w York exchange,
when i t i s necessary t o do s, but only when i t i s necessary.
The Chairman:
T h e r e i s another point i n connection
with t h e creation o f exchange b y depositing gold t h a t
should b e considered, i f what Assistant Secretary Malburn
told m e t h e o t h e r d a y i s eminent.
A
s [ I understand t h e
arrangement with the Treasury Department t o effect these
transfers i s subject t o possible later assessement f o r
expenses o f shifting gold that m a y arise b y reason o f
our transfers.
T h e diffimlty i n effecting shifts
between t h e Sub-treasuries h a s b e m t h a t N e w York i s
always paying o u t gold a n d i s running short o f gold, a n d
that geld accumulates a t t h e other sub-treasuries.
I
f
the operation that Mr. M c K a y suggests always arises w h e n
we are short o f New York exchange,
w e will force u p o n
ourselves sub«treasury shipments o f gold that will i m pose upon u s the very expense w e a r e seeking t o avoid
by this system.
Mr. M a l b u r n s p o k e t o m e w i t h r e f e r e n c e
t o the time
he appeared before t h e Committee o n Appropriations
in
regard t o the appropriations for the “reasury Department.
some o f the members o f the committee rather objected t o
the size o f the appropriation wanted b y the department
On the score that this expense t o the Treasury Department
of shifting money araund and s o on, the committce under-
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Federal Reserve Bank of St. Louis
537
Stood, was going t o be eliminated a s a
result o f the estab-
vishment of Federal Reserve Banks, and that they
ought not
to ask f o r a s large a n appropriation,
His answer was that
the system h a d not y e t gotten under s u c h
headway that they
could expect,
i n the next twelve months,
Saving i n the Treasury Department.
t o effect a n y
i f we rely upon these
transfers t o make N e w York exchange, w h i c h
i s the one that
causes expense t o the 4reasury Department,
w e ore then
liable t o bring o n ourselves the very expense
that w e want
to avoid, i t seems t e me.
Mr. McKay; I
speke o f the transaction when New York
exchange was a t a premium and New York exchange
was created
by depositing i n the Sub-treasury.
E a c h Federal Keserve
Bank w h i c h s o l d e x c h a n g e w o u l d
have a
profit
o n the trans—
action and could about pay for the cost of
shifting, cer~
tain amount o f that Currency when i t
was necessary t e do
so, a n d would b e assessed,
a s I understand it, a part
of that cost, through t h e operation
o f the gold settlement
fund.
Governor McCord: R e f e r r i n g t o Governor
McKay's
Statement Just previous t o the last, with
reference t o the
deposit of funds i n the sub-treasury, that would
b e true
of six of the Federal Reserve Banks and
would not be true
of the other six.
W
e have n o arrangement whereby w e
ceuld sell exchange o n New York and deposit
i n the subtreasury, because w e haven't g o t a n y sub-treasury.
Mr. MeKay:
I n regard t o cities outside o f
sub-treaary
cities, t h e y would b e one G a y behind
i n getting their money
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Federal Reserve Bank of St. Louis
OG
into t h e Sub-treasury, a n d they would
b e put t o the ex-~
pense o f S h i p p i n g c u r r e n c y t o
t h e Sub-treasury.
that would amount t o would depend a
What
good deal upon t h e
amount o f currency that would have
t o b e shipped, t h e denominations
that w o u l d h a v e t o b e Shipped,
had t o ship silver o r not.
a n d whether t h e y
I t would s e e m that i n a
case
of that sort these banks w o u l d m a k e
allowance w h e n they
Sold New York exchange and coula Charge
enough for i t t o
more than cover the cost o f Shipment.
S o far as time i s
concerned, t h a t cannot b e éliminated.
Graphic transfers,
4s t o making tele~
i t c c t i a r e possible f o r
those banks t o
make t h e m unless t h e y anticipated i t
b y depositing i n the
sSub-treasury
fund.
and c r e a t i n g
a n excess
i n t h e g o l d settlement
O n the other hand, they might
overdraw their
account i n New york.
Mr. Miller:
W h a t i s the objection t o
creating a n
excess? W h a t d o you mean b y "excess",
anyhow?
Mr. McKay:
B y excess I mean any amount over
0 0 0 ,000
which i s the Original amount.
Governor McCord:
T h e further objection i s
that w e
would n o t h a v e t h e g o l d t o make t h e
deposit,
probably have silver certificates.
W
e would
It would b e a pumping
dry o f our gold all the time,
1 f we dealt i n any exchanges
at a i .
-. The Chairmant
I s i t now quite apparent t h a t
w e have
devoted a l l t h e time w e should
t o a discussion o f this
subject?
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Federal Reserve Bank of St. Louis
I t i s also apparent that the best
way t o make
339
& recemmendation
that will b e o f value t o
t h e reserve
board i s t o wait until w e
have h a d more experience.
The
g0ld fund h a s been i n Operation o n l y
a few weeks, whereas
we have had nearly six months experience
with ourreciprocal accounts,
We know, for instance, that there
is
an enormous swing o f exchange through
these accounts.
Why should n o t w e take some
action that would enable
us
te gainexperience and make a
recommendatien later t e the
Board,
I n the meantime i f
the Federal Reserve b a n i
find
it necessaty o r convenient t e
withhold balances from their
settlements,
do not l e t them a s k the Board
a n d rely upon
their advice &lene, but let them
file some permanent
Statements i n Washingten that will
justify the Board i n
making settlements o n the basis
o f our advicg,---
Governor MeDougal: (Interrupting)
The criticism
offered b y Governor Delano here
i s directed against that
one matter and nothing else, and
that i s the failure o f
banks f o r whose benefit this credit
h a s b e e n arranged
to notify t h e Federal Keserve Board
o f o u r wishes i n thes
premises.
TE
I think r o y t i n d ers tand here
among ourselves t h a t
from n o w o n the banks f o r
which the balances m a y b e
rétain-=-
ed will netify the Federal “eserve
Board, that fer the
time being w e have nothing more
t o do. I
do not know that
that would require a
motion,
T h a t i s what t h e y woulda
like
us t O do=-= both sides o f
the transaction notify t h e
Board
at Washington.
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Federal Reserve Bank of St. Louis
The Chairman:
I n the form of Standing instructions?
340
Governor McDougal:
That would suit u s exactly.
Otherwise w e would have t o
notify the Board once a
week
that w e requestea you t o withhold
$ 2 ,000 ,000, T h a t
is
the fixed amount, I think, that
we intended t o heve with
you,
O r a t l e a s t t h a t amount,
The Chairman:
I would l i k e t o call your attention,
Governor McDougal,
t o the fact that
this Subject readlly
comes u p under three items that
have b e e n Suggested f o r
our program. I
will read thom.
One i s the Subject w e have
just b e e n discussing,
5<(h); a n o t h e r igs 5-(j), "Method
o f Settlement
for investmnts m d e b y one Federal Xeserve
Bank for the account o f
Other Federal Reserve banks", a n d
the third is 12-(i),
Suggested b y Governor Fancher,
"Investment
aceaunts w i t h
Federal Keserve “anks i n cities
where considerable
of investment originate,"
A
volumes
S @ Suggestion from
this
meeting a s t o the methodof
dealing with these three
subjects until w e have h a d further
experience.
GOvernor Senay: 1
Suggest, Mr. Chairman, that we
recommend t o the Federal Keserve
Board that other Federal
Reserve banks be permitted t o
mintain, for exchange purpeses, balances with each other
Outside o f the B0ld settle-
ment fund, or outside of the balances
which will be eleared weekly b y the gold settlement
fund,
The Chairman:
D o you offer that a s a
motion?
Governor Seay: S u b j e c t
t o discussien, amendment,
and 5 0 forth.
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Federal Reserve Bank of St. Louis
Governor Wold: I
will s e c o n d t h e motion,
347,
The Chairman:
i s there any further discussion o n
these three topics?
Governor McDougal: I
am not sure that that will
answer t h e expectations o f Governor Delano.
I t seems t o
mo that we can have i t understood, without
pasd ng any
resolution, t h a t every bank which asks another
bank v o
withhold a n y t h i n g f r o m i t s s e t t l e m e n t f u n d ,
w i l l advise
the Federal fRteserve Board of the particulars.
Governor Seay: I
think m y resolution needs amendment
to that effdet,
Governor Wold: G o v e r n o r Strong, l e t m e
say I think
we should b e permitted t o have a Sé€parate account
against
which investments might b e charged and against
which w e
might draw, and that would not clear through the gold
fund
at all.
Governor Seay:
T h a t was the resolution.
Governor Wold: T h a t would be a convenient way to
handle i t and each institution could withhold a
stipulated
amount f r o m the weekly settlement.
Governor Seay: G o v e r n o r MeDougal's amendment
i s that
in such case t h e bank maintaining t h e
balance advise t h e
Federal Reserve Board that the bank holding the
balance
be requested t o withhold that amount from
settlement.of the
fund,
Governor W o l d :
W h a t about?
Gevernor Seay: A
certain Stipulated amount that
the b a n k m a y desire t o maintain,
T w o million dollars i n
the case o f Chicago; a n y t h i n g y o u please
i n the case o f
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Federal Reserve Bank of St. Louis
Minneapolis, a n d a million i n the case o f Richmond,
72 Medays S o m e t i m e s t h e amount changes,
Governor Seay:
T h e n y o u c a n change y o u r advice t o
the Federal Reserve Board,
(Informal discussion followed.?
The Chairman: I
want t o ©
assume y o u gentlemen k n o w what y o u
i n the way o f handling these accounts.
somebody will offer a
resolution making a
i f
recommendation
to the Board, i n which we can all join, w e can wind this
topic up.
Gevernor Rhoades: I
will second Governor Seay's
motion.
The Chairman:
Mr. Curtis: I
W i l l the Secretary read the motion?
will paraphrase t h a t motion i f I may.
Moved that the Conference recommend t o the Federal “eserve
Board t h a t t h e Federal “eserve Banks b e permitted t o withhold balances f r o m the Gold Settlement Fund whenever s u c h
balances are held, a n d both banks will advise the Federal
Reserve Board o f the amount t o b e withheld,
Governor Seay:
I t i s questionable whether i t c a n
be done i n that language o r not.
T h e a c t permits o n e
Federal Reserve Bank t o maintain balances with
another
Federal Keserve Bank only for exchange purposes.
T h a t is
the only condition under which a bank i s allowed t o maintain a balance w i t h another Federal “eserve Pank.
The Chairman: I
resolution.
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Federal Reserve Bank of St. Louis
will a s k t h e reporter t o repeat t h e
343
(Mr. Curtis thereupon stated t h e resolution a s
fol-=
Lows: )
Moved that the Conference recommend t o the Federal
Reserve Board that Fedoral Neserve Banks
b e permitted t o
withhold, f o r certain exchange purposes, balances
f r o m the
ZOld settlement
S o
s
u
c
h balances a r e withheld
both banks will advise t h e Federal “eserve
Board o f the
amount t o b e withheld.
Governor McDougal:
M a y I make this suggestion:
That t h e last s e n t e n c e r e a d b o t h banks
t o advise t h e
“ederal Reserve Board by telegraph weekly.
Governor Aiken: W h a t is the object of
advising
them weekly b y telegraph?
Governor McDougal:
W h y not have a
standing order?
W h a t I had i n mind was that
this w e e k w e might want o n e amount held
o u t a n d t h e next
week another amount.
The Chairman:
Y o u can change the standing order
once a week, once a day, once a month, or
as frequently
as needed,
Governor McDougal:
T h a t i s true,
(Thore were calls for the question. }
(Governor Seay:made a Sugge stion which was
discussed
and withdrawn. )
The Chairman:
T h e resolution a s prepared
Secretary has been offered. I
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Federal Reserve Bank of St. Louis
Governor Rhmdes: I
Governor Aiken:
Mr. Curtis:
b y the
think I heard ao second.
seconded the motion.
M a y I hear i t read again?
M o v e d that t h e conference recommend
to
S44
the Federal Reserve Board that Federal
Reserve Banks b e
permitted t o withhold f o r certain exchange
purposes b a l ances f r o m the Gold Settlement fund,
a n d whenever s u c h
balances are withheld both banks will
advise the 'ederal
Reserve Board o f the amount t o
be withhela.
The Chairman:
ed.
T h e motion has been offered
and second=
I s there a n y further discussion?
(There w a s n o further discusd
a n d t h e motion
was duly put and carried, )
The Chairman:
M r e Miller, another Subject
held u p
for your attendance here is Subject
1 2 (c), "Purchases
of Government bonds,"
At t h e time o f the last Conference
o f Governors h e l d
in Washington o resolution was
passed asking t h e federal
Reserve B@ard--- a n g 2
a m relying o n m y memory without
refreshing i t because I have not
had time t O look over
the o l d record--- f o r 9 ruling
a s t o whether purchases
of Government Bonds made prior
t o December 2srd, 1915,
would b e taken into consideration
i n making allotments t o
the Federal Neserve Yanks o f any
portion o f the purchase
of ¥25,000,000 o f bonds which might
b e offered b y the
member banks o m m e n d i n g December
25rd, a n d a n opinion
was rendered b y the counsel
f o r the “ederal “eserve Board
which has the effect, a s w e understood
i t i n New York,
of permitting such purchases
t o b e applied o n the allote
ment but only t o take effect after
the 23rd and t o be oper=
ative during the calendar year i n
which the allotments
were made, T h e effect o f that would
b e t o deprive any
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Federal Reserve Bank of St. Louis
345
Federal Reerve B a n k o f the
Privilege o f having bonds
purchased prior t o Lecember
23rq next counted i n the
allotment o f next year,
By & subsequent Opinion,
published i n the bulletin,
a6 ve understand, counsel
for the tederal “eserve Board
hasmadified h i s view o f
this provision o f the Act
and w e
understand t h e effect
o f that t o be that purchases
n o w made
by Federal eserve Banks would
i n fact be counted a s a
Part of their allotments made
after Lecember 23rd next t o
an amount which would i n
the aggregate,
i n each instance,
exceed their possible allotment
out of the y25 ,000,000, that
it would render completely
inoperative that Section o f
the Act, a t least thig year,
because the allotment woula
be filled and no bonds coulda
be de¥ivered t o the ‘ederad
Reserve Bank o n venders
m d e b y member banks,
That affects us i n New York,
and I assume some of the
other Federal “eserve Banks
too, for this reason:
i e
have felt in New Yerk that
We would have a n allotment
of
possibly 4 0 per cent o f
all the bonds which might
b e purchased under the tendors the
nexg year, and that would
be all we would care t o take
i n the first instanee; b u t
if we are going t o be permitted
t o count purchases i n
the meantime a s a mrt o f our
allotment, w e ean buy them
now at 98-1/2 instead o f getting
them at par later, and we
would prefer t o buy them
now,
We would like very mech to know
just what our position
is, and I assume the officers
o f the other Federal eserve
banks are considering the same
thing.
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Federal Reserve Bank of St. Louis
346
Mr. Miller: I
a m sorry I cannot contribute anything
to relieve t h e @ubt o n that point.
Mr. Curtis: I
think w e have written a
letter t o the
board asking that question.
Governor Seay:
V i d y o u s a y that cainsel f o r the Board
had modified h i s first opinion?
The Chairman:
H e has rendered a n opinion i n lan-
guage different f r o m the first opinion, w h i c h winds u p
with a
proposition a s s t a t e d
i n terms o f geometry, w h i c h ,
if w e have interpreted i t correctly, means that t h e purChases will b e counted a s a part o f the allotment.
Governor Seay:
D i d you not agree with Judge Elliott
on his first opinion, Mr. Curtis?
Mr. Surtis: I
with either opinion.
tne-Firss.
never formally agreed o r disagreed
T h e second opinion i s dated before
T h e first opinion w a s dated April 2 6 t h a n d
the second opinion i s dated April 27th.
opinion
ae
t h i s statement:
H e winds u p the
"Inasmuch, therefore, a s the first fiscal year
Curing which allotments m a y b e made cannot, under t h e terms
of the act, begin prior t o Yecember 23rd, 1915, that i s to
say, two years from the passage o f the act, the bonds
acquired b y Federal “‘eserve Banks Prior t o that date c a n
not b e dcducted from the amount allotted t o any federal
teneewre Banks after this date."
The o n e published under a
different date i s changed
materially.
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Federal Reserve Bank of St. Louis
Governor Aiken:
W i l l you read that, Mr. Curtis?
347
Mr. Curtis:
A t t h e e n d o f the opinion dated t h e
zcend, h e says:
“To summarize:
I n order t o detormine the amount
any o n e r e s e r v e b a n k m a y b e r e q u i r e d
o r permitted
t o buy
under Section 18, take the entire s i m offered for sale
in this manner, allot t o each bank its proportionate share,
and deduct therefrom t h e amount o f bonds bearing t h e
cir-
culation privikege bought b y such bank i n the open market
during t h e year.
"Let X equal the amount t o be bought b y the reserve
Bank A, t h e n
( Capital and sur- )
b
l
u
s of A )
= ( Total
Xx= amount x
( Aggregate capital)
for sale
a ( n d surplus o f )
all banks. )
(
{
Amount of bonds
(
bearing circulation
-—~-( privilege bought
(
in open market b y
(
A within the year,
(Informal discussion followed.)
Mr. “urtis:
I t is left i n doubt whether he means
the calendar year o r the year beginning next Lecember
25rd.
Mr. Miller: I
presume the date would b e from the
passage of the edcral Heserve Act.
The Chairman:
W e cannot determine w h a t Judge
Liliott's epinion means witheut getting further advice
from him.
w e are n o t going t o g e t anywhere discussing
that opinion.
This w a s p u t o n the program a t m y Suggestion w i t h
the o b j e c t
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Federal Reserve Bank of St. Louis
o f dealing w i t h t h e more practical feature
of
345
the matter, a n d that i s h o w # e shall handle purchased
ecveonmea. bonis i n case se-do g e t a n opinion f r o m the
Fe@ rel teserve Board t h a t t h e y will» count a s a part o f
the allotment.
T h a t i s really a. wsetical matter, because
if each o f the Federal “eserve Danks i s advised that o n
the
25rd o f D e c e m b e r n e x t o r s h o r t l y t h e r e a f t e r t h e y
may b e
asked t o take u p their apportionment o f the
w25,000 ,000 purchased, e v e r y o n e o f the reserve banks will endeavor,
if
it is permitted,io anticipate that by buying them at the
lower price t h a t prevails today.
T h e effect o f that would
be t o a t once have a l l t h e Government b o n d brokers
hunt
around t o have a l l t h e twelve banks b u y these bonds
and w e
would p u t them a t par.
and i t might not. I
T h a t might b e a good thing t o d o
think w e ought t o consider,
a s a mat-
ter o f policy, whetner there i s a n y action that ought t o
be taken a t this meeting w i t h regard t o the policy o f
buying government bonds.
Governor Wold:
T h e “inneapolis b a n k has bought
bonds, but the policy o f our board a t present i s not
t o purchase a n y more government bonds until t h e y might b e offer-
ed b y the “eserve Boardundcr the provisions o f the ‘ieserve
Act.
Governor McCord:
I s i t not true that i f w e made
purchases a n d t h e r e w a s o f f e r e d
b y the member banks
i n the
next calendar year the full amount o f bonds, that that
allotment would have t o b e taken care o f under t h e
law?
Governor Wold:
chase them.
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Federal Reserve Bank of St. Louis
I
T h e B a r d i s not required t o pur~
t i s optional w i t h t h e Boare.
349
Mr. Curtis:
T h e y cannot require the
Federal Reserve
Sanks t o purchase more t h a n ¥25,000,000.
Mr. Miller;
T h e question i s whether y o u
c a n take
advantage o f the market, b y some sort
o f a procedure here,
anticipating
your o b l i g a t i o n w i t h r e s p e c t
t o t h e w 2 5 ,000 ,000
in bonds, o r whether i f y o u make
those purchases y o u are
Still liable--.
The Chairman: (Interposing)
I
f ve felt i n New
G
Yerk that there w a s a 1iklihood
o f our being required t o
buy ten millions o f twos a t par unless
w e had previously
Purchased them at 98-1/2, I think our
disposition woula
be to buy them at 98=1/2 now and get
the income. B u t on
the other hand i f we felt that i n purchasing
them now
they could n o t b e applied u p o n
this allotment, a n d that
we would have t o take t h e t e n
million dollars a t par any=
way, w e doubtless woulda b u y
none n o w but would w a i t until
the allotment w a s made a n d take
u p what w e were required
to take up.
Anticipating that w e m a y b e
permitted t o purchase
bonds now i n anticipation o f the
allotment,has anyone asuggestion t o make a s t o the policy t o
be followed i n buying government bende, i f such a
ruling b e mde?
Governor Aiken:
I t seems t o m e there i s only one
Practical w a y t e d o i t ang that
i s t o have o n e b a n k act
a5 agent fer the ohhers i n making these
purchases.
A
S
you have suggested, t h e Price would
g o t o par a t once i f
we began t o buy against o n e
another,
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Federal Reserve Bank of St. Louis
350
“The Chairman:
I t would be worse than that,
T h e
Price would g o t o par a n d
b e par s o hard that w e would
not
be able t o get the bonds.
A s long a s they are selling
at even a shade under par
w e always have a
market t o work
On; b u t 1 f they get right
Squarelyup t o par the banks
would
likely not s e l l them.
Governor McDougal:
V e r y f e w Government bonds
can
be h a d n o w a t t h e c u r r e n t
quohtions,
The Chairman:
I
s not that true?
T h a t i s true i n New
York, I
d o not
know h o w i t i s eélsenthere,
Governor McDougal: I
think that i s true everywhere.
We have picked u p our purchases
a
few a t a time a n d h t e
Seen the market respond
almost instantly t o
every order
that w e put out, W h e n
w e would wait f o r a week
o r two
before buying more,
W e bought three ang a
half millions
and w e did n o t buy them
with a n y idea that w e
would b e re=+
lieved o f the necessity
o f taking o u r portion
o f t h e allot-
ment. I
do not believe w e will b e
now,
The Chairman:
T h a t i s the understanding
o f the rmui-
ing,
Governor McDougal: I
do not see h o w i t will
b e pos-
sible f o r them t o permit
that ruling t o stand.
I f the
banks w a n t t o retire these
bonds after a little
while t h e y
are going t o be Permitted
t o do i t ana they have
t o be
taken care of, I t would
seem SO, a t leuast.
The Chairman: 1
think! myself, that this ruling
would
defeat t h e p u r p o s e o f t h e
acti
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Federal Reserve Bank of St. Louis
Mr. Miller:
T h a t i s not a ruling;
i t i s just a n
opinion,
The Chairman: I
mean t h e opinion.
Governor McDougal: I
might say, for the benefit o f
those present w h o are n o t already acquainted
with the
fact, that our bank originally intended t o
exchange these
twos f o r threes, b u t upon reconsidering t h e
matter deter~
mined that that vould b e t h e wrong policy,
a n d concluded
tO apply a t once for Circulation against
the twos believing
that i t was the duty o f the Board t o
keep the bank i n the
Strongest possible condition;
n o t w i t h t h e intention o f
uSing that Circulation, excepting i n
emergencies,
I
believw some o f the Other banks have
applied f o r Circula-
tion also, and w e have applied for the full
amount o n our
twos.
The Chairman:
D o you offer a motion i n connection
with this matter, Governor Alken?
Governor aiken:
J I dia not, but I will.
I move that i n case o f a ruling being rendered
by
the Federal Aeserye Board that the United
States bonds
available f o r cirmlation bought prior
t o December 23ra,
1915, shall count aspart o f the
allotment o f bonds under
the terms o f Section 1 8 o f the Federal
Neserve Act, t h a t
the Executive Committee o f the
Governors shall immediately
thereafter request o n e federal
reserve b a n k t o act a s
agent for the other Federal “eserve
Banks i n purchasil ng
such honds, prior t o Lecember 23rd,
1915, under a
plan t o be formulated b y said committee.
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Federal Reserve Bank of St. Louis
The Chairman;
I
s that m o t i o n seconded?
Gevernor Rhem des: I
second t h e motien.
(There were calls for the question.)
Governor McDougal:
M a y I
have t h a t m o t i o n r e a d
again,
The Chairman:
T h e reporter will read t h e motion,
(The reporter read the motion a g follows;
)
"That i n case o f a ruling being .rendered
b y the Federal Reserve Board t h a t United States
bonds available f o r
circulation bought prior t o December 25rd,
1915, shall
count a s part o f the allotment o f bonds
under t h e terms
of Section 1 8 of the Federal Neserve Act,
that the LExecutive Cemmittee o f the Governors shall
immediately thereafter
Reserve
request o n e Federal B a n k t o act a s agent
f o r t h e other Federal Reserve Banks i n purchasing s u c h
bonds, p r i o r t o
December 23rd, 1915, under a plan t e be
formulated b y said
Committee,"
(There were further ealls for the question.)
The Chairman:
T h e question h a s been called for.
Is there a n y further discussion?
(There was n o further discussion and the motion
was duly put and carried.)
The Chairman:
I t e m (f) under Subject 1 2 is
"Purchase o f domestic bills o f exchange
not based upon
imports o r exports.
T h a t i s likewise covered b y item
(h) under the same heading, "Purchase o f trade
acceptances
by Federal Reserve Banks,"
O n e subject was suggested
in New York a n d t h e other b y Governor
Delano.
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Federal Reserve Bank of St. Louis
I have a
letter h e r e f r o m V i c e - G o v e r n o r L e l a n o
on
Pee
this subject, I
will n o t read t h e whole letter, b u t h e
States that a t the request o f Mr. Warburg h e i s sending t w o
crafts o f the circulats, o n e o f which bears o n the
subject
of t r a d e a c c e p t a n c e s a n d t h e o t h e r i s r e l a t e d t o
purchases
of bitie-af e x c h a n g e
i n t h e o p e n market,
T h e y are too
long f o r u s t o sonsider i n detail here.
I wonder i f we might not ask Mr. Miller t o make
Statement w i t h regard t o the consideration m f that
matter has h a d b y the Federal “eserve Beard?
Mr. Miller: I
the subject already.
Spoke a b o u t a s a
have stated néarly all I can say o n
T h i s was o n e o f the m t t e r s t h a t I
m t t e r t h a t h a s n o t b e e n considered e x -
cept i n a very cursory manner b y the Federal “eserve Poard;
a matter that h a s been referred t o a f e w times i n
the
course o f general discussion o f policy t o b e pursued
by
the board, and a matter that sooner o r later would have
to
be taken u p b y the Board a n d w e s s e d
The main question, I
t o a solution.
should say, f r o m our point o f
view, i s whether w e should restrict operations t o
discounts under Section 1 3 o r authorize purchasesin t h e
open
market under Section 14,
T h e main desire+-- 1 do not
know w h e t h e r t h i s w o u l d b e t h e a t t i t u d e
o f the Board o r
not, but I think that i t probably will be--i s that i n
the beginning things should b e restricted t o the
purchase
ef bills bearing the endorsement o f member banks, i t - t e 6
& very s i m p l e p r o v i s i o n ,
a s a l l t h e s e regulations a r e ,
and there i s only one feature that contains anything
that
is o f particuk r interest,
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Federal Reserve Bank of St. Louis
T h a t i s the statement i n the
354
body o f the bill Substantially t e the following effect:
"This bill has been drawn against goods sold"or a
rider
attached t o the bill, stating, o v e r t h e s i gnature
o¢ the
drawer o r acceptor, t h a t t h e bill"™has b e e n drawn o r
accepted against a
sale o r purchase o f goods ,"
With a view o f insuring that these should b e genuine
trade bills i n other respects,
i t avails o f the prosi-
Sions i n the latest regulations u p o n the aiubject o f
commerfial paper,
The Chairman; I
would rather gather from what yeu
seid yesterday a n d from the discussions w e have
previously
had a t our meetings, t h a t i t might b e desirable t o
cone
sider a t this meeting whether t h e O p i n i o n i s
sufficiently
crystalized i n the uifferent federal reserve banks
to
enable u s t o express t o the Board h o w the management
of
the twelve banks wauld feel i n regard t o t h e Board
extending
the scope o f open market operations b y federal reserve
banks i n the purchase o f domestic trade bills o r accept=
ances, o r whether i t should b e restricted f o r the
present
to the purchase o f these bills w h e n endorsed b y member
banks. I
think some pretty strong opinions already pre-
val 1in some o f the banks o n that matter, a n d i f agreeable I will a s k each o f t h e Gevernors present t o express,
as briefly a s possible, w h a t t h e sentiment i s i n
his bank,
Mr. Millers
L e t m e add o n e word more,
. a n d that i s
with reference t o a n essential part o f each
o f the plans
here proposed, namely, t h e granting o f a
preferential
rate o n bills o f that kind.
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Federal Reserve Bank of St. Louis
T h a t I think i s a point u p o n
355
which the Board would most like t o have advice f r o m
the
Governors.
The Chairman: G o v e r n o r Wells, will you make a
statement for the record o f the feeling i n the St.
Louis bank
as t o t h e p r e f e r e n t i a l r a t e i n favor e f
p a p e r o f that
character, a n d further a s t o whether the Federal
“eserve
Banks should o r should n o t b e permitted t o
buy such bills
in t h e o p e n m a r k e t w i t h o u t t h e e n d o r s e m e n t
Governor Wells:
T h a t is a
o f member banks?
B8ubject t h a t h a s n o t
been taken u p b y the St. Louis Bank.
The Chairman:
B o v e r n o r Fancher?
Governor Fancher:
I t has b e e n discussed o n l y ten-
tatively b y our Board a t two a r three metétings.,
T h i s
feeling Prevails, however, a s t o the preferential
rate.
1 think there i s a sentiment o n our board
that for strictly
liquid paper there should b e a preferential rate for a
short maturing bill.
T h e r e i s a difference ofopinion a s
to the purchase o f bills i n the open market
without t h e
endorsement o f a mamber bank.
informally discussed, I
While I
say i t has been
rather t h i n k t h e majority l e a n tow-
ards the purchase only o f these bills
that have the endorse-~
ment o f member banks, although there
has not been any ex=
tendéd d i s c u s s n
o upon the subject.
The Cheirman:
G o v e r n o r Wold, w h a t i s the sentiment
in your bank?
Governor Wold:
O u r Board has discussed the ques-
tion o f extending O p e n market @peratiens
a n d a r e opposed t a
any further extension o f open market operations
under
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Federal Reserve Bank of St. Louis
existing conditions,
The question o f preferential rates u p o n so-called trade
paper o r acceptances h a s n o t been discussed.
M
y opinion
would b e that i t might encourage t h e making o f
more o f that
kind o f paper, “ n e t h e r that i s advisable o r
not I a m
more prepared a t this t i m e t o state,
The Chairman: G o v e r n o r Sawyer?
Governor Sawyer:
T h e question h a s been referred t o
several times i n our board meetings, b u t w e have
never
had a n y very serious discussion about it. O p i n i o n
seems
to b e divided a s t o whether o r not i t i s advisable.
I
am inclined t o think the majority o f our Board
would b e
of t h e opinion that i t i s a little early t o
take u p purchases
o n the o p e n market
The Chairman:
H o w do you feel about that personally?
Governor Sawyer: I
think they ought t o be taken o n
member banks! endorsement,
thes e
a t this time.
a s yet. I
do not believe
bills a r e numerous enough~-= regular trace
bills-—
and w e are a little afraid t o open that subject up.
The Chairman: G o v e r n o r Wold, I understood i t was
your personal view that you wild not advocate the buying
of such paper without the endorsement o f a
member bank?
Governor Wold:
M o s t decidedly not.
The Chairman: G o v e r n o r Fancher, h o w d o you
feel
about t h a t ?
Governor Fancher:
present time.
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Federal Reserve Bank of St. Louis
T h a t would b e m y opinion a t the
357
The Chairman:
G o v e r n o r wells, w h a t i s y o u r person-
al view? W o u l d you be opposed t o it?
Governor Wells:
The Chairman:
Yes,
G o v e r n o r McCord?
Governor McCord:
I t has b e é n discussed a t our board
largely because o f some transactions a t N e w Orleans,
and
it i s the congensus o f opinion that t h e y would
n o t care t o
take them except with the member bank's endorsement.
The Chairman:
[ I o y o u feel t h a t w a y yourself?
Governor McCord:
The Chairman:
G o v e r n o r Aiken?
Governor Aiken:
by our board.
Yes,
T h e matter has n o t been discussed
I h a v e talked i t over with Mr. Curtiss, a n d
my personal feeling i s that I shoulda prefer n o t t o b u y
such bills without t h e endorsement o f the member bank
at
the p r e s e n t time.
The Chairman: “hat is the condition in your bank,
Yovernor Rha des?
Governor Rhoades:
W e have never taken a n y formal a c e
tion o n the matter, but m y impression i s that our éérectors
would n o t b e i n favor,
a t thepresent time,
o f taking paper
without t h e endorsement o f the member bank.
The Chairman;
W h a t i s the feeling i n your bank,
Governor McDougal?
Governor MeDougalt
T h e feeling o f our board with
respect t o open market transactions i s that i n times
when tnere i s a good demand f e r member banks f o r r e =
discounting, t h a t w e should k e e p o u t o f the open market;
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Federal Reserve Bank of St. Louis
and o n the other hand,
through a t present,
i n times s u c h a s w e a r e going
w e should enter t h e market a n d b u y
Only s u c h securities a s w e c a n buy with t h e least h a r a
to member banks,
tith respect t o the matter o f domestic bills o f exchange, o u r board i s o f the opinion that t h e y should n o t
be t a k e n e x c e p t w i t h t h e e n d o r s e m e n t
The Chairman:
member bank.
H o w d o you feel about this?
Governor Lowry:
T h a t mat.er h a s n o t b e e n taken u p
by o u r board o f directors,
views
of a
s o I could n o t give their
o n t h e question.
The Chairman:
B u t h o w @you feel, yourself, about
Governor Lowry: Personally I feel that we are so far
away f r o m t h e s o u r c e s w h e r e s u c h p a p e r i s c r e a t e d t h a t
I
do not k n o w very much about it, b u t m y personal v i e w
is that w e would rather have t h e endorsement o f a member
bank a n d t a k e i t a s rediscount rather than a s a n open
market transaction,
The Chairman:
G o v e r n o r Seay?
Governor Seay: I
a m safe i n saying, Governor Strong,
that w e are n o t disposed t o e
chased i n the onen market.
g
b i l l s b e pur-
W e would n o t take t h e m
without t h e endossement o f member banks.
the question o f entering the open market.
T h a t i s as to
L o you wish
to k n o w a t t h e s a m e t i m e a b o u t t h e p r e f e r e n t i a l r a t e - - -
The Chairman:
Yes,
Governor Seay: I
believe, sir, t h a t i t i s o f very
great consequence t h a t some movement should b e started t o
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Federal Reserve Bank of St. Louis
359
encourage t h e creation a f such a class o f paper, a n d
if
it should c o m e u p a t a mapam proper time later o n
I would
like t o offer f o r c o n s i d e r a t i o n a
resolution
t o that e f -
fect, and I think i t might b e further encouraged.
I
am
Only offering y o u a personal opinion, now, a s
t o the
preferential r a t e ,
The Chairman:
G o v e r n o r Van ZandtR
Governor V a n Vandt:
O u r board h a s not discussed
that matter i n a very determined way. P e r s o n a l l y ,
I
a m not
in favor o f open market purchases o f acceptances
without
the endorsement o f a mamber bank, cut o f consideration
for
Our m e m b e r banks. I
a m i n f a v o r o f a preferential r a t e
as t o that class o f paper from our member banks.
The Chairman: I
think the feeling i n our bank would
be at the present time opposed t o the Federal ieserve
“enk
Purchasing such paper i n the open market, a t any rate
without t h e endorsement o f member banks; b u t
I think they
would favor a
preferential r a t e f o r t h e discount o f
such
paper o f member banks,
i n reasonable amounts,
the creation o f that class o f paper,
t o stimulate
M y own personal
view i s a little different f r o m that,
however, I
think
that whatever regulation i s made b y the
Board i t should
afiord t h a t protection t o member banks, a n d
that t h e pre-~
ferential r a t e will b e used i n order t o Stimulate
t h e making o f that class o f paper with t h e idea that
ultimately
the reserve banks will b u y that paper i n the open
market,
Whether i t c a n b e purchased w i t h o r without
t h e endorsement
of member banks will depend v e r y largely u p o n the
success
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Federal Reserve Bank of St. Louis
360
that i s realized b y the reserve banks i n creating a
for that kind o f bills,
I
market
f i t cannot b e created except
by t h e i r e n t . e r i n g t h e m a r k e t a n d d e a l i n g
i n them actively
themselves, without the member bank's endorsement, then
we believe w e have got t o do that i n order t o get the
market
gOing, even i f it amounts t o some slight sacrifice o n the
part o f the member banks i n the matter o f rates.
Might i t not be desirable t o get a congensus o f
views, inasmuch a s they are almost identical, i n
the form
of a resolution covering b o t h o f these points, first,
as
to the desirability o f buying s u c h paper only with
member
bank endorsements, and, second, a s t o the
establishment
@¢preferntial rates o r the employment o f
any other method
to s t i m u l a t e t h e c r e a t i o n O f t h a t c l a s s
o f paper?
Governor Seay, have y o u such a resolution?
Governor Seay:
W y t h reference t o the creation o f
that class o f paper, Governor Strong, i t involves some
change i n the present commercial practices.
have t o start t h e movement, I
S o m e b o d y will
a m o f the opinion t h a t the
Federal Neserve Banks probably should start t h e movement.
In talking with a bank president o f one o f the
largest
Pittsburgh banks a couple o f days &gO, h e thought that
in
this district 1 € some methods were started b y the
banks
to encourage i t i t would b e taken u p b y
the trade.
believed that quite a
large volume o f acceptances c o u l d
be made, provided some encouragement w a s
@ecered, I
have h e r e a
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Federal Reserve Bank of St. Louis
H e
r e s o l u t i o n o f t h i s character:
361
It 1s recommended t m t the Federal
“‘eserve banks
enslist the aid o f Clearing houses,
chambers o f conmerce
and credit bodies,
i n their respective districts
t o bring
abeut a change i n Commercial practices
which will cause
the creation o f trade acceptances
actions v h e n practicable,
in all commercial trans-
to the e n d that sounder credit
Practices m a y b e promoted a n d
a part o f that vast
fund o f bank accounts b e turned
i n t o trade paper eligible
for rediscount with fedoral recerve
banks, and that the
resources o f those banks m a y
t o the fullest extent a n d
on
the soundest basis b e available
f o r t h e benefit o f
the commerce of the country.
It sounds a
formidable,
little technical a n a a
litile strained a n d
but f
S m 60 thoroughly
embued w i t h the idea
that s u c h a movement should
b e considered
for t h e encourage -—
ment o f this kind o f paper
that I believe i t
i s well a t
this time t o bring that matter
u p here and now.
The Chairman:
h a t does not deal with
the preferen-
rate.
Governor Seay:
I t does not. I
had not gone that
That can be done b y a separate
resolution.
Governor V a n Zandt:
L o y o u not think,
Mr. Chairman,
that the mention o f 4 Prefernntial
r a t e i n that resolution
would a d d w e i g h t
t o t h e resolution?
The Chairman: I
Governor Seay; I
certainly do.
certainly do. I
think i t i s one
of the important things
t h a t will bring about
t h e practice.
I had not considered
t h a t Point w h e n I
had this resolution
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Federal Reserve Bank of St. Louis
362
in m y mind.
The Chairman:
W211 you not ade that t o
the resoly-—
tion, t h a t w e c o n s i d e r
the e s t a b l i s h m e n t
of p r e f e r e n t i a l
rates f o r t h a t C l a s s o f
paper proper?
Governor Seay: I
think i t would b e highly
desirable
Sir.
Governor McDougal:
I would like t o have someone
who i s better posted t h a n
I
a m State w h y that paper
i s bet-
ter than what we are handling
at the present time.
Person
ally, I
do not believe i t ig.
we are inclined
at the present
T h a t i s the kind
o f paper
to look upon with a
little Suspicion
moment.
favorof that resolution,
a Personally
would n o t b e i n
There i s one Change t h a t
I would
make t o it, I think, i f
I were t o vote for it,
and that
would b e to strike out
"clearing houses",
because i t i g not
Governor Seay:
T h e idea I had,
Governor McDougal,
was t h a t t h e b a n k s
themselves s h o u l d
Bive expression
to a
preference f o r t h a t
class o f paper i f
t h e y h a d a prefer-
ence, a n d that i f you
enlisted t h e Clearing
houses t h e y
would a i d the movement.
Now you ask also for
a n €xpressi n
o of Opinion a s t o
why that Class ofpaper
i s Preferable. I
means pose 4
d o not b y any
» Or Others,
but I believe t h a t
t h e class o f Paper
that i s the soundest
and that i s the most
€ligible f o r disceunt
f o r federal
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Federal Reserve Bank of St. Louis
363
reserve banks i s that class o f paper which arises o u t
of
a Straight t r a n s a c t i o n a n d w o u l d b e l i q u i d a t e d
Summation o f that transaction. I
b y the con-
think that acceptances
are usually based upon some specific commercial transaction, identifying t h e purchase a n d t h e sale,
a n d i t has
usually
t o b e paid o u t o f t h e commodity sold,
transaction i s completed;
o r when t h e
a n d f o r that reason, m o r e t h a n
any other, i t identifies i t a s a piece o f
liquid paper.
The practice o f Selling paper for the purpose o f
conducting business means t h e establishment o f
a continuous
credit line,
I f one piece o f paper i s paid i t i s
usually
paid b y the floatation o f another, whether t h e
paper i s
sold i n the open market o r whether i t i s
offered t o a bank,
based u p o n t h e maintenance o f a certain balance.
B u t , as
I conceive the matter, the acceptance will
b e based upon
specific transactions;
i t would b e more likely t o
b e liquia
than t h e o r d i n a r y S i n g l e n a m e p a p e r ,
o r the ordinary t w o
name paper--Governor McDougal: I
believe t h a t t h e p a p e r t h a t
would result from that practice would represent
the poorest
named, the weakest named, for the reason that the
buyers
now who ask for and obtain thirty, sixty
or ninety days
are those w h o sre n o t able ultimately t e discount
their
bills.
Governor Seay:
W h a t would i t b e i f a
preferential r a t e
were g i v e n b y all t h e banks today?
The Chairman:
question, I
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Federal Reserve Bank of St. Louis
T h e r e i s a complete answer t o your
think, Governor McDougal,
i n this way, that i f
364
a customer o f a strong house wishes t o take time for the
Setilement o f his account,
a t the present time i t lets thic
account r u n and does n o t discount t h e bill.
I
f under
the arrangement suggested f o r a trade acceptance i t
Should accept a
draft m d e o n it b y the concern t o which
it owed t h e account, why, then, t h e r e would b e created a
piece o f paper with t h e name o f the weak debtor, together
with the name o f the strong creditor available f o r use;
and when w e today speak o f single name commercial paper,
you s a y that that paper, without t h e obligation o f the
maker's customer,
i s better t h a n the same paper w i t h that
obligation o n it, w h i c h bears t h e acceptance o f t h e weak
customer o f that house,
Y
o
u are going t o get t h e same
kind o f paper, w i t h t h e same obligation attached t o it, b u t
that you are going t o get paper, instead o f book account,
and ithds this additional advantage, that i f this weak customer o f the house t h a t i s selling h i m goods i s able t o
get its obligation o n the bill i t can be discounted a t
a bank, w h i c h means that the acceptor o f that bill i s
geoilng t o b e more prompt i n paying his bills t h a n h e ever
has b e e n when h e had a n open account a n d l e t i t r u n along
for thirty o r sixty days befond t h e maturity o f t h e account.
(At this point a n informal discussion occurred
w hich the steno.; apher wes directed n o t t o report;
after which the following proceedings were had:)
The Chairman:
i t i s t o stimulate a banking practixe
that will enable s t r o n g houses t o get their customers o n
their p o o k s
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Federal Reserve Bank of St. Louis
i n t h e f o r m that w i l l enable t h e m t o collect
3565
their debts w h e n they are d u e and
n o t let t h e m r u n along
indefinitely.
Governor Seay:
a class
A n d moreover, t o create i n
volume
o f paper a b o u t w h i c h t h e r e
c a n b e nea q u e s t i o n a s
to
the commercial quality.
T h e r e i s a very great
question,
I think, a s Dr, Miller announced yesterday,
a s t o the
quality o f a
© mpelled
very large proportion
t o take n o w i n order
of t h e p a p e r t h a t w e a r e
t o a i d o u r m e m b e r banks;
and that paper i s Provided f o r
i n the circular promulgated
by the board, where i t c a n
b e identified a s the Specific
transaction
made b y t h e s e l l e r a n a t h e
buyer.
The Chairman: G o v e r n o r McDougal, I
have talked with
Mr. Forgan, who has very strong views
about this, a t
different times, a n d I know t h e
w a y h e feels about it, b u t
I cannot h e l p feeling, a n d I
think w e all do, that this
movement h a s started already.
T h e minute t h e N e w York
bank began t o accept o n import
and export bills they started a movement that i s going
t o extend t o domestic trade,
inevitably, a n a I hope that
you gentlemen are g0ing t o
be
willing t o vote for some resolution
i n some form that w e
can make unanimous a n d that
will really g e t the expres-
Sion before the Federal “eserve
Board o n this Subject,
both a s t o the making o f that
class o f Paper, a n d a s t o
the establishment o f 9 preferential
r a t e f o r it, T h e r e
will b e plenty o f Signle
name paper made b y the
customers
of banks.
Governor McCord:
T h a t movement h a s already
reached
the agricultural sections, Governor
Strong.
ing i t w m e
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Federal Reserve Bank of St. Louis
u p i n O u r district.
W e are see-
366
Governor Aiken: I
a m very sure t h a t the board o f our
bank will b e entirely i n sympathy w i t h t h e attitude
fou
take i n that matter.
“ w e will b e very glad t o a n y t h i n g
we c a n t o further this practice,
The Chairman:
H o w abeut t h e resolution that Governor
“eay h a s prepared, w h i c h was t o have a n acagition recommending t o the Reserve Board t h a t they consider t h e
question
of establishing preferential rates for this class o f
paper?
Governor McDougal! B e a r i n g the endorsement ¢ mem-
ber banks?
Governor Wold; I
a m very much i n sympathy with a n y
movement toward t h e creation o f a commercial b i l l
o f this
character, I
think a preferential r a t e will g o a long
way towards educating a n d encouraging business interests
te inaugurate that methodof settling.
Governor Aiken:
M a y w e have t h e resolution read
again, Mr. Chairman?
The Chairman: G o v e r n o r Seay, will you read it,
please?
Gevernor Leay: ( R e a d i n g )
" I t i s recommended that
the Federal Reserve Yanks enlist the aid of clearing
house, chambers o f commerce sndecredit bodies i n their reSpechive districts t o bring about a change i n commercial
CO
w h i c h will ceuse t h e creation o f trade acceptanwes
in all commercial transactions where practicable,
t o the
end t h a t s o u n d e r c r e d i t p r a c t i c e s m a y b e p r o m o t e d a n d
a
part o f that vast fund o f bank accounts b e turned inte
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Federal Reserve Bank of St. Louis
367
trade paper eligible f o r rediscount w i t h Federal “eserve
Banks,
a n d that t h e resources
o f those b a n k s m a y t o t h e
fullest extent and upon the soundest basis b e available
for t h e benefit o f the convenience o f the country.
"It is further recommended that the ‘ederal “eserve
Soard b e requested t o wnsider t h e advisability o f allewing the Federal “eserve Banks t o establish a preferential
rate for such acceptances, bearing the endorsement o f member banks."
Govcnnor Fancher: I
second t h e motion,
(There being no further discussion, the motion
was put sndcarried,)
The Chairman:
I t e m 11-(b) was left for m o nsideration
until Mr. Brocerick should b e with us.
M r . Brod. rick,
transactions between t h e Federal “eserve Bank a t New York
and t h e "ederalReserve B a n k a t Philadelphia have resulted
in a n overdraft i n one o r two cases i n the due-to a c c o u n t ,
which has b e m reported a s part o f the report o f our bank
for settlement with Philadelphia and has been eliminated
from settlement, I
think t h e matter w a s discussed b y one
of our accountants w i t h Mr. Jacobson, a n d I think t h e
men
in our office had the impression that the transaction
which resulted i n the overdraft was not thoroughly
underStood and that w e ought t o have some recommendation before
the K e s e r v e B o a r d t o C l e a r t h a t m a t t e r up.
I
do not
know that there i s any action required b y this meeting
except t o call attention t o the fact that when a n account
is overdrawn, notwithstanding t h e fact that t h e deboer
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Federal Reserve Bank of St. Louis
368
banx might have considerable o f the fund t h a t i s not being
settiea i u the weekly settlement.
Governor Aiken:
O n what theory was that overdraft
thrown out?
The Chairman:
I t becomes i n a sense a
due-from a c -
count, then, instead o f a due-to account.
Governor MeKays:
T h a t matter was brought t o the a t -
tention o f Mr. Jacobson a n d some o f the others i n the d e partment a t Washington,
M r . Broderick, I
stood it, b u t h e has b e e n away, I
believe, under-
think perhaps those
gentlemen guite clearly understand i t , b u t o u r abrangement
then was that a n y overdrafts would b e reported a S a n over-
draft, a s a due instead o f a credit, and could b e settled
through t h e fund, j u s t t h e same a s t h e credit could b e
settled through the fund.
supposed, until I
I t was all arranged, a s we
heard f r o m the N e w York Bank that they
had refused t o make a settlement f o r a n overdraft, I
think Mr. Broderick mmatm will support m e i n Saying t h a t
it was agreed upon,
Mr. Broderick:
I t was discussed; I
‘an actual agreement w a s had. I
do not k n o w that
think t h e difference o f
Opinion arose f r o m t h e different classes o f transactions
that entered i n i e t h e due-from a n a due-to accounts.
We have considered o n e question w i t h t h e Other, a n d I think
if y o u will l e t the matter r e s t without recommendation
we willhave i t straightened o u t within t h e next week o r
two,
The Chairman:
T h a t i s a l l w e wanted
t o a d w i t h this
subject, a n d w e will passit withoutfurther discussion,
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Federal Reserve Bank of St. Louis
369
going back t e the program i n its regular order.
W e will
take u p heading "5-(c), A n a l y s i s o f operating expenses."
I am taking the liberty o f making suggestions a s t o some
of these items merely t o refresh your memory a s t o what hes
gone before,
I t e m (c) would naturally b e referred t o the
committee t o be appointed b y the Lxecutive Committee, f o r
consideration i n connection with other matters o f accounting.
Governor A k e n : I
move i t b e s o referred,
Governor ‘Seay: I
second the motion.
(There being n o discussion the motion was put
and carried.)
The Chairman:
I t e m 5=(ad) should b e treated i n the
same way.
Governor McCord: I
move i t b e s o referred,
Governor Aiken: I
second t h e motion.
(There being no discussion, the question was
put and carried, )
The Chairman:
I t e m (e) should likewise b e refer-
red t o the committee,
I s there a n y oObjecticn?
(There being no objection the item referred t e
was referred t o the committee naving i n charge t h e other
items just mentioned.)
The Chairman:
I t e m (f) i s sug@sted b y Governor Aiken.
I will a s k h i m t e explain t h e matter.
Governor Aiken: I
put that i n for information a s
to who was t o bear t h e expense o f getting t h e e d e r a l R e serve notes back t ® the original b a n k o f issue; h o w that
expense w a s t o b e borne,
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Federal Reserve Bank of St. Louis
T
h
e Federal*eserve B a n k o f
3570
New York, f o r example, h a s outstanding a
much
very Asrger amount
of Fed«ral Reserve notes t h a n a n y other bank.
accumulate i n the other banks.
W
I t will
e send them t o New York.
Are t h e banks sending t h e m t o N e w York f o r redemption t c
pay t h e e x p e n s e
o f s h i p p i n g them,
o r i s i t t o b e distributed
in some way?
The Chairman: I
cannot s a y what t h e practice h a s been
with the other reserve banks.
I n the case o f the New
York Reserve B a n k w e make a shipment t o quite a
number o f
theother reserve banks every week, a n d those shipments w e
are making a t O u r O w n expense.
H a v e y o u a n y suggestion
of any other method t h a t should b e adopted i n dealing with
that, Governor Aiken?
Governor Aiken:
N o ; I
the practice h a s been.
I
simply wanted t o know what
t i s going t o put a heavy bur-
aden O n the *:? s m a l l e r banks w h i c h accumulate t h e notes
of the larger banks.
that i s a
T h e question arises a s t o whether
fair B u r d e n f o r t h e m t o carry,
has b e m o u r p r a c t i c e
t o p a y t h e expense
i n m y mind.
I
t
o f such shipments
Surselves, and I wanted t o find out what the other banks
were Going .
Governor Seay:
T h e alternative would b e f e r each
bank t o pay the charges u p o n i t s o w n notes, would i t ?
Governor Aiken:
Yes.
Governor McCord: I
represent t h e smallest b a n k , and
it would b e a n expense o n it.
I f w e send t h e m t e you they
would i m m e d i a t e l y e n t e r i n t e o u r g o l d f u n d a n d w e w o u l d b e
converting Federal “eserve notes into gold?
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Federal Reserve Bank of St. Louis
371
The Chairman:
A S a matter o f fact, w e have g o t t o
recognize c e r t a i n a b s o l u t e l y f i n d a m e n t a l principles,
I
n
connection with banking one principle i s that a note i s
redeemable a t a certain place b y law, a n d a federal reserve
note i s r e d e e m a b l e e i t h e r a t t h e t r e a s u r y D e p a r t m e n t
i n Wash-
ington o r a t the office o f the bank that issues it.
o f
course the impediment that i s applied t o Federal ffeserve
notes against their being paid out mam again gives these
particular notes a
peculiar quality that n o other circulat-
ing note has--- I mean, being paid o u t again b y a Federal
Reserve Bank that happens t o receive them. I
suppose a
Federal Reserve Bank may protect itself i n a way b y de-
clining to receive them, i f they wanted t o act to that
extreme, h u t that would b e a very extreme measure
t o adopt.
Is there a n y suggestion f r o m anyone here, after hearing
this discussion, a s t o any other practice which
should
be pursued?
Governor Rhoades:
D o e s t h e practice o f redeeming
the notes o f National banks cause a n y additional
burden?
The Chairman:
T h e burden o f redemption o - the cost
of redemption i n each instance i s borne b y
the banks t h a t
happen t o r e c e i v e t h e m ,
i f i t wants
t o r e d e e m them.
They
ship t h e m t o their correspondents, a n d gradually
i e iis
work back t @ the b a n k thet issues them.
Governor Rhoades:
I
f they a r e shipped
t o Washington,
who b e a r s t h e e x p e n s e t h e r e ?
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Federal Reserve Bank of St. Louis
The Chairman:
U p t o the peint that t h e y reach Wash-
ington i t i s always borne b y the bank that sends them.
Governor McCord:
Governor Aiken:
E x c e p t unfit currency?
T h e Federal Xeserve B a n k could n o t
decline t o receive notes o n other Federal 4eserve Banks,
could they, Governor Strong?
The Chairman:
N o p y o u are quite right.
Gevernor Aiken:
w e must take them, a n d w e cannot
pay t h e m out.
The Chairman:
G o v e r n o r Aiken, would y a u like t o
have t h a t q u e s t i o n s u b m i t t e d
t o the B a r d
i n ashington
in
order t o get a ruling o n it?
Governer A i k e n :
N e , n o t a t t h e present time;
not become burdenséme. I
i t has
just wanted t e know what the
practice w a s o f the other banks.
The Chairman:
A r e you ready t e pass that item?
Governor Aiken:
Yes,
The Chairman: " S t a n d a r d form o f financial statement, “
{ t e m 5-(g).
Governor Rhoades?
Governor Rhoades:
T h a t h a s already been dealt with,
Mp. Chairman.
The Chairman:
Y e s ; t h a t h a s been covered. I
put o n
the program f o r discussion t h e question o f the settlement
of old exchange accounts, which should b e dispesed o f new
that t h e gold settlement fund h a s b e e n established.
T h e
rule adopted a t t h e first conference O f the Governors w a s
that t h e cost o f shipping currency a n d t h e cest o f purchas-
ing exchange f o r the purpose o f evening u p balances would
be borne half a n d half b y the respective banks t h a t h a d t h e
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Federal Reserve Bank of St. Louis
R75
transactions.
“ % é have h a d s o many transactions w i t h the
other b a n k s t h a t w e a r e n o t q u i t e c e r t a i n t h a t e v e n t h o s e
accounts have been settled, a n d I would like t o ask those
here t h a t they rencer accounts against us, i f there a r e
any accounts; a n d , a d d r e s s i n g m y s e l f p a r t i c u l a r l y
McKay,
t o Mr.
i f there i s a n y credit balance---
Governor McKay:
O u r relations have been very satis-
factory, Governor Strong,
GOvernor Seay: I
would w n s i d e r
i t quite unappre-
cilative o f the large account you have now with us i f I
should charge y o u with a n y o f the cost o f settling it.
The Chairman:
I t e m (1), "Gold held b y Federal Re-~
serve Agents a s security for notes."
T h e question arises
as t o whether some means may not be devised which will b e
in c o n f o r m i t y w i t h t h e s t a t u t e a n d a c c e p t a b l e
in Washington,
t e the Board
b y which a control account m a y b e entered
On the general ledgers o f the reserve banks s o that we
will c h o w the total amount o f notes outstanding i n a complete s e n s e , a n d o f f s e t t h a t b y t h e t o t a l a m o u n t
o f ol-
lateral o r gold which i s hela b y the Federal Reserve “gent I would like t o say that w e have considered that very carefully i n New York, not from the standpoint that we should
show those notes a s a liability i n a legal sense, w h i c h w e
donot think we should do, but <* =——Ss«s—<Ct«s«COBS wdmatter
of good banking practice there should b e a control account
On our general ledger which would again be reflected a s
a total i n a subsidiary ledger, showing a s t o the bank,
and a s distinguishedfrom the Keserve Agent, all transactions
for the issuing a n d retirement o f Federal “eserve notes.
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Federal Reserve Bank of St. Louis
:
o
T
Ents
Our account,
i n N e w Y o r k a r e c l e a r l y o f t h a t opinion,
that o u r bookkeeping method i s dcficient a n d t o some e x tent dangerous n o w i n that respect.
Governor Seay: T h o s e are m y convictions, sir. .
believe that t h e books should reflect t h e actual state o f
affairs a t all times, and | do think that it would give more
accurate information t o the public a n d they would underStand i t better i f they could s e e i n the daily published
Statements the actual full outstanding circulation of the
Federal Keserve Banks, i f it 1s desirable t o separate that
partion o f them which i s secured b y gold i n the hands o f
Federal Reserve Agents from the other portions secured under
the Act and t o have both appear i n the balance sheet.
reduces i n volume t h e assets o f the bank.
I t
O u r bank has
two and a half milliongof gold behind its Federal Keserve
notes, a n d y e t i t has about t w o miliiens o f bills receivable
which,
i f some proper method mightbe devised, c o u l d b e
put u p behind these notes, A
cess o f collection. A
portion o f them a r e i n pro-
portion o f them consist o f a great
volume o f small notes o f short maturity which would have
to be taken down a s quickly a s put up.
W
e have 97,500,000
ofbills receivable, but we have only about $5,000,000 of
4b
f o r security o f Federal Neserve notes, a n d t h e other
twe and a half is gold. T h e r e should b e a control account.
The condition should b e reflected i n the books.
I t is
very difficult for a great portion o f the public t o understand h o w s e v e n t y m i l l i o n s
o f Federal “ e s e r v e n o t e s c a n b e
had, fifty o f which a r e secured b y gold, a n d yet i t dees
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Federal Reserve Bank of St. Louis
375
not a p p e a r
i n t h e g e n e r a l b a l a n c e s h e e t o f t h e banks.
The Chairman:
M r . Broderick,
w e considered t h i s
one time with you, I think, i n New York.
W w e are very
anxious t o bring this about i n New York, a n d one o r t w o
of the other Governors h a v e mentioned i t a t different times
in casual conversation,
M i g h t i t not be desirable a t
this meeting t o refer the subject t o Mr- Broderick informally, n o t officially,
t o t a k e u p a s a n accounting m a t t e r
aS t o one feature o f the subject w e a r e ciscussing, a n d t h e n
pass a resolution a t this meeting asking the Federal Reserve Board t o get a n opinion a s t o whether thare would b e
any l e g a l o b j e c t i o n
t e o u r e s t a b l i s h i n g s u c h accounts
the books o f the teceral steserve Banks?
approached from both aspects.
o n
I t has t o be
O n e is a practical account~
ing matter and the other i s a legal matter.
Mr. Broderick:
T h e San Francisco bank has a very
good w a y o f handling that point that y o u speak o f now,
They show i t a s a memorandum account o n their daily balance
sheets.
T h e y show the total amount o f Federal “eserve
notes outstanding, a n d underneath t h e y have t h i s separate
account, l e s s gold i n the hands o f agent, a n d t h e n a cross
that i t shows net liability.
t T think that would c o v e r
the p o i n t t h a t y o u a r e m a k i n g now.
The Chairman:
T h a t would cover t h e point i n the
statement, b u t i t would not cover this point, Mr. Broderick,
and that i s i f w e want t o exercise t h e kind o f control that
a bank should a s t o a note issue,for instance,
o r as t o
any liability o f that kind o f the bank, considering that
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Federal Reserve Bank of St. Louis
376
there i s n o legal question involved i n the other liabil-
ities o f the bank, w e have got t o have a n account o n our
books c o n c e r n i n g w h i c h e v e r y t r a n s a c t i o n w i l l r e q u i r e
audited entry.
an
A t present w e have n o t s u c h a situation i n
our banking, a n d I
do not like it. I
d o not think i t i s
sound.
Mr. Broderick:
M r . Strong, m a y I come back again
with t h e remark I made t h e r e a n d a s k i n what w a y y o u would
be prevented from having audited entries o n those accounts?
The Chairman:
Mr. Broderick:
is the same thing.
Y o u speke o f the daily statement--A n d t h e balance sheets, also.
t
Y o u would have a ledger account i n
your ledger showing t h e transactions
The Chairman:
I
o n those accounts.
T h a t i s all w e want.
T h a t will answer
our question completely.
Mr. Proderick:
Y o u will have a n indented account
showing the net liability a s well a s the total amount o f
notes outstanding.
I
n that way, Suppose y o u have three
million dollars o f discounts against three million notes
outstanding.
Y o u have two million notes against which the
Federal _eserve Agent holds two million dollars i n gold.
The item ofFedcral “eserve notes o n the liability side would
show i n a memorandum account the total amount of Federal
Reserve notes outstanding, $5,000,000.
T h e second line
would b e less gold i n the hands o f Federal “eserve agents,
$2,000,000;
n e t liability, w h i c h would b e i n the liability
column o f the balance sheet, 3,000,000.
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Federal Reserve Bank of St. Louis
The Chairman:
W o u l d t h a t b e treated
in a
similar w a g
on the ledger o f the bank?
Mr. Broderick:
The Chairman:
Oh,yes.
T h a t i s all w e want.
Mr. Broderick:
Y o u c a n control that i n the same
way y o u c a n control t r u s t i n v e s t m e n t s
i n the trust c o m -
panies.
The Chairman:
c a r r i e s t h e net figure into
your balance sheet?
Mr, Broderick:
b
Governor Ceay: I
i
r
.
take i t for granted t h a t t h e full
liability o f the bank should b e shown o n the balance
sheet, that its resources, although they may b e i n the
hands o f Federal Keserve Agents, f o r extinguishment o f
the notes, should likewise b e shown.
are shown.
B i l l s receivable
A n d then another thing that has occurred t o
me i s that a s the fund increases w e are going t o have
pl00 ,000,000 of gold of the federal teserve Banks which will
not a p p e a r
i n their statements.
The Chairman:
M o r e t h a n that.
Governor Seay:
to m n a m speak, I
I t will be a sequestrated fund, so
t h i n k i t quite i m p o r t a n t
t o have i t
appear o n the balance sheet.
The Chairman:
D r . Miller, h o w would you have i t
appear?
Mr, Miller:
{ I think i t might appear i n two items}
that t h e gold i n the hands o f the federal reserve agents
to s e c u r e f e d e r a l r e s e r v e n o t e s s h o u l d a p p e a r
sheet.
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Federal Reserve Bank of St. Louis
o n the balance
T h e liability might appear o n one side a n d the
378
gold appear o n the balance sheet o n the other side, s o
that the gold fund--~ and I take it that the federal reserve agent i s a n officer o f the bank a s well a s a n official o f the Government--The Chairman:
aS I
T h e r e a r e legal objections
t o that,
understand t h e l a w , w h i c h p r o v i d e g t h a t t h e o p e r a t i o n
of depositing gold with the Federal “eserve Agent i s a n
© peration f o r t h e extinguishment o f the liability o f the
bank,
W e have proceeded entirely o n the theory that
the minute w e do that the bank's liability has been entirely extinguished,
I
t is turned over t o the Federal
Reserve agent who i s under bond t e the Government f o r all
the collateral h e holds for the “ederal “eserve notes.
Governor V a n Zandt:
C o you not think that until
the note has b e e n actually redeemed a n d destroyed i t
should
show o n your balance sheet?
The Chairman: I
would rather have Mr. vurtis' opin-
ion o n that, because i n this instance t h i s i s Strictly
a matter o f the interpretation o f this law, which provided that y o u put u p your gold t o exiinguish t h e liability,
although a s a m a t t e r o
f fact you continue t o be liable.
It does not relieve y o u o f your primary liability.
is y o u r obligation;
That
b u t y o u might p a y i t out o f t h e col-
lateral that y o u have created i n the hands o f the Govern=
ment f o r t h a t purpose,
Governor ‘Veay:
Y o u would n o t accomplish a l l that
the l a w requires, notwithstanding t h e fact that
y o u report
in your statement the gold i n the hands of the “ederal Re-
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Federal Reserve Bank of St. Louis
serve agent.
The Chairman:
Mr. Miller:
L e t u s put this u p t o Dr.
Miller.
T h a t i s a legal question. I
sympathize
with Governor Seay's desire t o make his Statement
o f the
bank reflect a s much o f its condition f r o m
a banking point
of view a s possible,
T h e difficulty,
a s 4+ see it, i s t o
get i t into your statement i n proper form,
s o that i t will
Square w i t h t h e law. I
suppose i t will n o t b e a
great
while before t h e federal reverve noteswill
b e issued direct-~
ly against t h e gold, a n d then the matter
will b e Simple
of adjustment,
B u t until that i s done
I
a m a little a t
& loss t o see h o w i t could b e accounted f o r
s o as t o
Satisfy your purpose a n d Satisfy t h e law,
Perhaps Mr. Broderick might have something
t o Sugge st
here,
I t might perhaps b e set down
a s gold i n the hands
of the Federal Reserve Agents for the
extinguishment of
this liability.
Governor Ceay:
B u t expressed i n the balance s h e e t
in a manner t o conform t o the law;
i f i t c a n b e done,
Mr. Miller:
4 8 I remember,
i n our first statements
we simply expressed the net liability.
T h a t seemed t o
be very misleading, a n d I Suggested
that i t should reflect
the condition that the public was interested
in; that
thereought t o b e some Statement
a s t o the notes o u t standing.
S p e a k i n g personally, I
should sympathize w i t h
your desire t O get this gold that
i s i n the hands o f the
Federal Reserve Agents and i s a
part o f the bank's reserves Segregated a s a special fund d n
the custody o f one
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Federal Reserve Bank of St. Louis
380
of the officers o f the bank i n the general statement o f t h e
bank's condition.
H o w d o you feel about t h a t Mr. Broder-
ick?
a m sorry t o s a y I
Mr. Borderick: I
pathy with that view. I
a m not i n sym-
believe t h a t t h e purpose o f the
aw i s that t h e money shall b e absolutely segregated, f r q m
the assets o f the bank, a n d should b e s o considered: I
ao believe, hovever, t h a t i t would b e well t o have t h e bal~
ance s h e e t s h o w t h e o p e r a t i o n o f t h e F e d e r a l “ e s e r v e n o t e
account, i n order t o show the total amount that i s outstanding, a n d t h e total amount u p o n which the bank i s
liable, I
would say that 1 think that should and prob-~
ably will meet t h e point that Mr. S e a y raises.
The Chairman:
b o y o u consider t h a t the bank i s ton-
tingently liable f o r the payment o f these notes o n which
it has extinguished i t s liability,
of t h e a c t ,
o r reduced. i t s L i e p i
t o use t h e language
i y
d o not t h i n k that t h e y a r e contin-
Mr. Broderick? I
gently liable, becnuse while t h e y m a y have t o reddem some
of those notes themselves, t h e y c a n imwediately t u r n them
over t o the Federal “eserve Agents a n d obtain reimbursements
for the funds advanced.
The Chairman:
W o u l d they not b e obligated t o redeom
them, whether the Federal Reserve Agent has the gold o r not--Mp. Broderick:
Y e s ; b u t they m u l d b e reimbursed b y
applying t o Washington for the money.
The Chairman:
T h e n , i f there i s a contingent liabil-
betity, i s i t not betier banking practice a n d would i t not
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Federal Reserve Bank of St. Louis
381
ter conform t e the law t o show i t o n the books o f the bank
and i n the balance sheet o f the bank as a contingent liability?
Mr. Broderick:
Y e s , Governor Strong; but every re-
serve bank is contingently liable for every reserve note
in the country, because every reserve note now outstanding
may b e presented t o the federal “eserve H a n k o f
Yan Vran~
cisco, a n d they would have t o pay it.
Governor Ceay:
Mr. Broderick:
I n what respect?
E v e r y Federal “eserve Bank has t o re=-
deem Federal “eserve notes,
Governor Seay: T h a t is a different matter. T h a t is
a different kina o f a liability,
Governor MceCord:
T h e r e i s a P r a g r a p h o f section
16 of the act that provides that upon the request o f
the
Secretary o f the treasury t h e teucral Reserve Agent
must
send the gold into Washington. C e r t a i n l y the liability
Ought t o sease somewhere,
Governor Seay:
I t makes n o difference about the
liability ceasing, Providing the gold fund i s
there.
Y o u
do not care t o have t h e liability extinguished
i f the gold
is t h e r e f o r t h a t p u r p o s e a n d y o u k n o w i t
i s there, a l -
though i t i s i n the charge o f a n officer o f that bank
ana
he i s acting i n a dual Capacity.
Mr. Broderick: T h e r e is one other way.
W e may
have the Federal “eserve banks state their total reserves
and total liability and the amount o f geld i n the
hands o f
the Federal*eserve agents o n the one side and the federal
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Federal Reserve Bank of St. Louis
382
Reserve notes against which t h e Federal Reserve Agent holds
the gold reserves, a n d then have a second total.
The Chairman:
T h e obligation rests upon you t o dic~
tate a resolution t o meet your views and put i t before the
meeting f o r a vote,
D o you not think that the Federal
Governor McDougal:
“eserve b a n k s a r e i n t h e s a m e p o s i t i o n w i t h r e s p e c t
to
their notes t h e y have retired that t h e national banks a r e
with reference t o their circulation?
The Chairman:
N o .
Governor McDougal:
D o you not believe that when we
have deposited t h e gold o u r liability h a s been dis-
charged entirely?
would think so, Governor McDougal,
The Chairman: I
if we did not want it otherwise.
Mr, Miller:
I
t is a
re&fmbursable liability.
Y o u
are liable t o the public, but there i s a resource outside
of the immediate vicinage o f the bank out o f which i t
can reimburse tself- T h o s e notes have t o b e redeemed.
tthe Chairman: G o v e r n o r M¢Dougal, w e have devehoped
a plan which I think everybody now thoroughly approves of,
by which tne issue of Federal reserve notes i s mde the
means
o f accumulating a
large f u n d o f gold, w h i c h , u n d e r
certain contingencies, c a n b e added t o the reserve o f the
banks, and i f we get eff o n the other theory, that the bank
bees control o f this gold absolutely when i t turns i t over
te the Federal Reserve Agent, w e may b e depriving ourselves
3
*
of the advantage that has already been gained
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Federal Reserve Bank of St. Louis
b y the
whole s y s t e m ,
(At this point a n informal discussion occurred
which the stenographer was diref&ted not t o report; after
which the following proceedings were had. )
The Chairman:
which i s areally a
t e m s t n o t get away f r o m our subject,
bookkeeping matter,
a s t o finding a
means o f having those things included i n our balance sheet
contingent liability o r a memorandum account, and t o
the gold also included.
Go:ernor Seay:
T h a t would b e m y suggestion, sir,
that i t i s the sense o f this conference t h a t i t i s desir-
able that the full amount o f Federal 4eserve notes o f any
bank should b e shown, a s t o liability, i n its balance sheet,
and that the gold deposited tith the Federal “eserve
agent for the redemption o f said notes should likewise b e
shown a s a
fund a v a i l a b l e f o r t h e r é d e m p t i o n
o f those
notes o n the balance sheet.
The Chairman:
A n d i n order t o make t h a t declaration
effective, will you make a declaration a s t o a change o f
bookkeeping methods?
Governor Seay:
A n d i t i s recommended t h a t t h e
tederal “eserve Board consider whether this change i n book~
keeping methods can be made b y the Federal Neserve Bank.
(The motion was duly seconded. )
Governor Van Zandt:
o e s n o t that resolution o r ro-
commendation take inte consideration the fact that the f i t
amount mentioned i s decreasing o r will b e decreased b y
reason O f a federal reserve bank depositing with the Federal
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Federal Reserve Bank of St. Louis
384
Reserve agent notes which i t has redeemed--~ i n other words,
suppose t h e Federal Keserve B a n k o f Dallas redeems o r has
100,000 o f its own notes o n hand that i t has n o necessity
for and that i t has deposited gold with the Federal Keserve
agent t o secure.
I t goes t o the Federal iteserve “gent and
gives h i m these 100,000 o f federal reserve notes.
reduces i t s o u t s t a n d i n g F e d e r a l R e s e r v e n o t e s
Governor Seay?
then.
That
t a t much.
T h e y a r e n o longer outstanding,
T h i s applies t o the outstanding Federal reserve n
notes,
Governor V a n Zandt:
T h o s e t h a t a r e i n circulation,
so far a s banks a r e concerned?
Governor Seay:
Yes,
The Chairman:
D o y o u make t h e point that the reso-
incomplete
lution i s .
i
n that respect?
Governor V a n Zandt:
The Chairman:
O h , no.
A r e you ready for the question o n
the motion?
(The question was called for, and, there being
no further discussion, i t was put and carried.)
Governor McCord:
T h e r e i s one matter a little col-
lateral t o that which I should like t h e privilege o f mentioning t o see what t h e coneensus o f opinion is.
munts w e r e r u n o f f p r e t t y largely,
O u r @és-
v e r y heavily so.
O u r
funds will also turn largely into exchanges, and w e would
like, i f 1 t c a n b e arranged,
t e have a transfer f r o m o u r
balance o f the gold settlement f u n d being made t o the
Treasury o f the United States a r into the Federal “eserve
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Federal Reserve Bank of St. Louis
385
Board, a n d o n such cdepasit t h e Federd Reserve
4“gont i n Atlanta could release t o us o u r notes, because
i t i s going t o
be quite a
problem,
O n e half o f the bills discountea
within
mature i n probably o n e d a y o r i r e C i v e days,
a n d all o f
the money w e are getting i n is largely exchanges
ana
Cleared threugh t h e other banks f r o m the
gold settlement
fund.
I
t would necessitate q u i c k
action t o get t h e gold
back t e Atlanta, n o t having a n y Sub-treasury, a n d
put u p
the gold with the tederal neserve agent t o
g o behind those
notes.
I f some arrangement could b e made
Whereby t h e
money c o u l d b e d e p o s i t e d
i n W a s h i n g t o n direct,
t h e tederal
Reserve Agent would b e authorized t o turn
loose those
notes.
I t would a i d very materially.
The Chairman:
I s not that &
situation that i s pe-
Culiar t o the Federal Reserve Bank
o f Atlanta?
Governor McCord;
I t will b e peculiar t o Dallas,
Z should think, and elso t o Richmond, possibly.
Governor Van Zandt: D a l l a s i s the same way.
Present t i m e w e h a v e o v e r
a
The Chairman:
A t the
million d o l l a r s due--~+
W o u l d y o u not have enough
gold i n the
bank t o enable y a t o take care
o f your outstanding federal
reserve notes when the discounted
paper was withdrawn?
Governor Van Zandt;
O h , w e might have.
W e probahly
wlll have i f the Settlement fund---
Governor McCord:
B u t that settlement fund i s not
aysilable f o r t h a t purpose,
Mr. Miller:
burn?
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Federal Reserve Bank of St. Louis
y o u see,
W a s not that question p u t u p
b y Mr. Mil-
The Chairman:
Yes.
Mr. Miller:
C c tainly I have heard o f it.
M y im=
pression is--+ I speak with a very faulty recollection o f
the d i s p o s i t i o n t h a t w a s m a d e o f i t - - ~ t h a t t h a t m a t t e r i s
under consideration v i t h the Treasury officials a n d i t i s
their cesire t o s e e i f that purpose cannot b e accom-—
plished,
Governor McCord.
The Chairman:
T h a n k you, sir,
I s there a n y action y o u wish t o have
taken a t this meeting, Governor?
Governor McCord: I
just brought i t up, b u t a s Dr.
Miller states they have 4 t under consideration I
de not
think i t i s necessary t o take a n y further action, I
will
vithdraw it.
The Chairman:
D o y e u wish t o bring t h a t subject up,
Governor V a n Zandt ?
Governor V a n Zandt:
to make a
N o ; I
think i t might b e wéll
recommendation t o the Federal “eserve board
that i t investigate the matter o f transfers from the gold
settlement fund t o the treasury o f the United States, i f
such transfers h a v e n o t y e t b e e n arranged for.
Governor McCord:
I t i s provided f o r i n Section 6 ,
where t h e Secretary o f t h e Treasury c a n call i n the fund.
Governor V a n Zandt:
I t has n o t been provided f o r a s
a transfer f r o m the gold settlement fund.
The Chairman;
W o u l d y o u care t o have a n y ectien
taken a t this meeting?
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Federal Reserve Bank of St. Louis
387
Governor V a n Zandt:
N
o sir; D r . M i l l e r h a s e x p l a i n e d
that t h e Board h a s i t under consideration.
Mr. Miller: I
retary c a n m a k e a
think the question i s whether t h e iecspecial o r d e r w i t h r e s p e c t
to a
certain
reserve bank, o r whether i t has g o t t o b e done,
Governor V a n Zandt:
I t might b e well t o m n s i d e r i t
as a whole, then.
The Chairman:
I t would b e rather unfortunate i f a
settlement should b e m d e a s a result o f the application
from one o r two o f the banks t h a t would result i n a pro
rata call from all o f the banks, because i t would render
inavailable t h e n a n accumulation o f gold which has n o w taken
place; a n d a very small amount o f gold f r o m Atlanta o r
Lsllas applied i n percentage t o the whole system might
take $25,000,000 o r ¥50,000,000 o f gold eut and turn i t
into the Treasury.
Governor McCord:
O n l y when w e request it; that i s
all w e ask.
The Chairman:
D r . Miller raises t h e peint whether
it could b e done f o r any one bank without having a n equal
call mace upon all t h e other banks?
Governor Seay: W h e t h e r i t could b e done f o r all
the banks o n l y f o r their request?
Dr. Miller: I
think the law places i t i n the judg-
ment of the Secretary o f the treasury.
Governor Wold:
W o u l d i t b e possible t o order transe
fers into the Treasury, t o the redemption fund, and cover
it that way?
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Federal Reserve Bank of St. Louis
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Governor McCord:
T h e y will n o t l e t u s put over five
per c e n t i n t h e r e d e m p t i o n f'und.
Governor Seay:
A n d i s n o t t h i s t o b e considered,
whether o r not that fund i n the gold settlement under t h e
custody o f the Federal “‘eserve Board i s not effectively i n
the hands o f the Federal “eserve Agent?
Mr. Miller:
T h a t i s the bank's fund.
T h a t i s not
the federal “cserve Agent's fund.
Governor Ceay:
B u t i t i s t o be i n the hands o f a
federal reserve agent f o r retirement.
Governor McCord:
Governor Seay:
T h a t i s your point?
Yes.
A n d h e wishes t o avoid the expense
of transfering i t from the gold settlement fund t o
the
Federal “‘eserve agents--Governor McCord:
Mr. Miller:
T h m e i s t h e esscnce, G o v e r n o r S e a y .
A s I remember t h e letter that was con-
Sidered b y the Board a n d which was referred t o the
Council,
it i n q u i r e d w h e t h e r t h e b e a r d w o u l d a s s i g n p a r t o f
its bal-
ance i n the gold settlement fund t o the credit o f the
*ederal “eserve agent and he then be credited with it,as
in the treasury o f the United States i t goes out o f
the
Gold S e t t l e m e n t f u n d a n d b e c o m e s a
new fund t o t h e credit
of the federal “eserve Agent i n the United States
‘reasury.
Governor Seay:
T h a t i s what I had i n mind, whether
it m i g h t n o t b e r e t a i n e d
b y the B a r d outside
o f the settle-
ment fund,
Governor McCord:
stead o f t h e T r e a s u r e r ?
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Federal Reserve Bank of St. Louis
Y o u mean the B e r d handle
i t in-
Governor Seay: R e t a i n e d b y the Board itself.
Governor McKay:
C o u l d n o t that b e put into t h e r e -
demption f u n d ?
The Chairman:
Mr. Miller:
T h a t i s just t h e point.
T h e point really is, 2 s I understand
it, whether t h e Federal fteserve Agent c a n use t h e Treasury
of the United States t o carry a part o f the gold that i s
left with h i m for the retirement o f Federal “eserve notes.
That i s what i t comes down to.
The Chairman:
D r . Miller, w e have a curious rule
at these meetings, t h a t t h e Chairman i s permitted n e w
and t h e n t e offer a resolution a n d then t o put i t t o a
vote. I
a m going t o e x e r c i s e t h a t p r i v i l e g e n o w , a n d o f -
fer a resolution,
i f I may?
Resolved, T h a t t h e Federal Reserve Board b e requested
to ©®mmunicate w i t h all o f the Federal ResePve banks t h e
result o f its investigation of the application made
by
Governor McCord f o r a consideration o f this matter,
dust t o explain t h e object o f that, gentlemen,
highly desirable,
i t is
i t seems t o m e t h a t i f any greater per-
centage o f redemption fund should b e decided u p o n a S a
ree
Sult o f this call that develeps i n Atlanta and Dallas, w e
Should all have opportunity t o consider what effect i t will
have u p o n ourrespective banks. I
can see quite a diffi-~
culty arising i n New York i f the process that i s now taking
Place continues infefinitely i n a large way, although w e
have only $135,000,000 o f deposits i n New York. I n c l u d ing the gold h e l d b y the Federal leserve Agent,
w e have
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Federal Reserve Bank of St. Louis
390
about 3143,000,000 o f gold, and twenty o r thirty millions
of lawful money, besides that, and w e should b e
very much
diseppointed
t o feel t h a t i t was necessary
t o put u p t e n
or twenty o r thirty a n d take t h e entire amount o f
the gold
out o f the hands o f the Federal Reserve Agent, w h i c h
is,
in fact, a
s e c o n d a r y g§0ld r e s e r v e t h a t i s b e i n g c r e a t e d
for strengthening t h e bank--Governor McCord:
redemption fund.
W
e d o n o t c a r e t o strengthen t h e
T h a t i s n o t t h e purpose
Eisifapeu T h e p u r p o s e
o f o u r conten=-
o f o u r c o n t e n t i o n i s t h a t s o m e cus=-
tody o r control should b e given over that gold i n
Washington that will a i d u s i n quick retirement o f notes.
I t
hecomes t h e property, then, o f the Federal “eserve
Agent.
His bond i s liable f o r i t and i t Goes n o t enter
into t h e
Treasury, f r o m m y point o f view, a s a redemption
fund, e x -
cept a S a n account for the federal Reserve Agent.
The Chairman: I
appreciate t h a t point, Governor Mc-
Cord; b u t y o u r e a l i z e u n d e r t h e t e r m s o f t h i s
resolution
it w o u l d n o t i n t e r f e r e
i n t h e slightest degree w i t h y o u r
g0ing ahead without a n y interference a t all
i n carrying o u t
yeur plan, a n d should i t take t h e form o f a n increase
from five t o twenty p e r cent, t h e n w e would b e o n
notice
and would b e able t o deal with it.
Governor McCord:
Sure. I
d o not want i t thet way,
but .as a custodian for the Federal Reserve Agent.
That
is what I want.
The Chairman:
L e e s i t appeal t o you a s wise t o pass
such a resolution, gentlemen?
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Federal Reserve Bank of St. Louis
391
Governor McCord: I
d o not think so, because Dr.
Miller gives u s assurance that t h e matter i s being considered there, a n d o f course t h e y will give a l l d u e consideration t o that particular feature.
The Chairman:
T h e object o f that resdlution w a s
Simply t o give u s notice o f any possible increase, general
increase, applying t o all banks i n the peretntage o f the
redemption fund that m a y b e placed i n the Treasury, a n d
it was not i n any way intendcd t o hamper Governor MeCord
in undertaking a n arrangement b y which h e c a n effect these
transfers i n Washington.
Is there a n y objection t o the pessage o f such a
lution?
resoe
I t has not b e e n seconded.
Governor Wold: I
second it.
Governor V a n Zandt:
w h a t objection would y o u have
to h a v i n g 4 0 per cent o f your circulation o n deposit?
The Chairman:
T h i s objection, Governor V a n Zandt:
Possibly two years hence w e should have a situation devel¥p vhich might b e a serious one.
will be the outcome o f the war.
W
e dO not know what
W e should have a tremen~
dous demand mace upon us, such as occurred last August,
and w e h a d t o d i s c o u n t v e r y h e a v i l y f o r o u r member b a n k s ,
By reversing the pump process which is now i n operation
we c a n take that commercial paper a n d g e t back &0ld a n d
put i t i n our reserve fund--Governor McCord: I
tried t o make m y point clear, t h a t
we d o not care t o uisturb t h e redemption fund a t all.
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Federal Reserve Bank of St. Louis
The Chairman: I
have t r i e d t o m a k e i t c l e a r t h a t I
392
understand t h a t y o u tried t o make i t Clear, Governor M e -
Cord. (Laughter)
I just wanted t o make sure w e have notice a n d that
you will n o t g o right ahead a n d forget a l l about this
discussion and g o away and say "Let Governor MeCord just
send u s a note saying h e would b e glad t o have t h e Lecre-
tary o f the Treasury make some rule about it, " and then
forget a l l about this.
Governor Aiken:
W o u l d i t not b e possible t o have
a hypothetical question presented t o the Federal Reserve
Board t o find o u t what c a n b e done, a n d t h e n i f
w e found
out there would b e a prorata call upon the Fecrral Reserve
Agent w e could suggest t o Governor McCord: that h e
devise
some other w a y o f handling h i s difficulties?
The Chairman: I
do not think w e are i n any differ-
ence O f opinion with Governor MeCord i n the
Slightest
degree, a n d I do not think that h e thinks so.
Governor McCord:
N o ; I
do not think so.
(At this point a n informal discussion took
place which t h e stenographer w a d i r e c t e d n o t
t o reports
after which the following proceedings were had:)
The Chairman:
H a s t h e motion b e e n seconded?
Governor McCord:
The Chairman:
Y e s } Mr. V a n Zandt seconded it.
D e y o u favor t h e motion, t h e object
of w h i c h i s t o a s k f o r i n f o r m a t i @ n
a s t o h o w this m a t t e r
is d e a l t w i t h b y t h e B o a r d ?
(There being n a further discussion the
question
was put andcarried, )
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Federal Reserve Bank of St. Louis
393
Governor McCord:
M a y I state t o Dr» Miller a sug-
gestion o f the w a y o u t o f the proposition,
might b e considered a t the s a m e time?
s o that i t
M y last s u g g stion,
all,
Doctor, w a s n o t t o t r e a t i t i n t h e r e d e m p t i o n f u n d a t
put simply t o have either y e u r Board o r the Treasurer o f
the United States, whoever y o u might designate, advise
the Federal Reserve Agent that w e are shipping s o much money
in gur certificates, a n d upon that advice coming f r o m the
proper authority t h e Federal ‘‘eserve Agent will liberate
T h a t will b e per-
or release t o us o u r commercial notes.
fectly satisfactory t o us, and i f we can get that v e will
be satisfied.
T i m e i s the essence.
I
t amounts t o a
year,
good deal with us a t certain seasons o f the
The Chairman:
M a y I check off that subject?
Governor MeCcord:
The Chairman:
Yes.
N o . 1 9 i s the question o f the appoint-
ment o f Federal Reserve Banks a s fiscal agents o f the
United States,
I should explain i n connection with this item that I
was requested b y a member o f t h Federal Reserve Board t o
submit this for discussion t o the Governors o f the Federal
Reserve Banks.
L e t m e say i n further explanation that
this matter, I am advised, has been studied i n Washington
by the officers o f the Treasury Department, a n d f r o m a r e ~
port which i s too long t o read, that I have received, 1
am afraid that they have missed the point o f the gold fund
entirely, a n d apparently t h e y came t o the conclusion that
the establishment o f this gold fund i n s m e w a y reaches
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Federal Reserve Bank of St. Louis
394
into t h e whole subject o f gold redemption b y the federal
government o f the various forms o f Outstanding paper money.
AS i t has n o relation t o i t whatever, I
the libcrty o f laying this ©
a m going t o take
mmunication o n the table
without reading it, a n d suggest that w e carry o u t t h e r e quest that y o u have received f r o m Governor Delane t h a t w e
discuss t h a t subject generally. I
know that h e i s anx-
ious t o get a repert from this meeting a s t o the views o f
the officers o f the Federal Reserve Banks o n that subject---
how they should b e established, when, and what form i t
should take, a n d s o on,
To start t h e discussion l e t m e S a y that this has b e e n
up before. A
resolution w a s passed a t a n earlier meeting
directing that Governor MeDougal snd one o r two others o f
the clearing committee should take t h e matter u p with t h e
Federal R e s e r v e B o a r d a n d t h e S e c r e t a r y o f t h e
Treasury
with a view t o ascertaining whether o r not the gold fund
might n o t b e e s t a b l i s h e d
i n the first place b y Government
deposits w i t h t h e reserve banks.
T h a t w a s abandoned,
a8 y o u all know,
Governor Rhoades:
W h a t i s contemplated b y this---
the opening o f accounts b y the Government a n d taking care
of the drafts?
Governor Seay.
The Chairman:
T h e collection o f intennal revenue,
I t opens u p a vista o f inquiry that
would keep u s busy a long time i f w e attempted t o
thresh
it out completely.
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Federal Reserve Bank of St. Louis
395
Governor Aiken:
ciscussion, I
I n m y opinion, a n d a s a basis f o r
would l i k e t o k n o w w h a t a p p l i e s
a s t o the
duties o f the banks i n acting a s fiscal agents for the
government. I
never happened t o have b e e n connected w i t h
a bank which was a fiscal agent,
Mr. Miller: I
suppose t h a t i n the course o f two o r
three years, perhaps a t this very next session ofCongress
the question a s t o t h e future o f the sub-treasuries m a y
receive discussion;
cussed.
T h e r e is a
templation,
i n fact, i t has already been dis-~
new sub-treasury building
a n d Mr. N e w t o n , I
i n con-
think, h a s t h e m a t t e r
charge i n the lreasury Department.
in
H e sent a memorandum
to the Board three o r four weeks age, which brought the
whole matter again t o our attention a s t o what our ideas
were a S t 5 the fiscal functions t h a t were t o b e taken over
by the Federal Reserve Banks.
H
e wanted t o get a n
answer f r o m u s b e f o r e d e t e r m i n i n g h i s o w n v i e w a s t 9 t h e
necessity o f including appropriationsor estimates o f the
next appropriations t o Congress for the use o f Treasury
facilities.
T h e question was, a s I remember, very
briefly discussed a t one o f the recent meetings w h e n t h e
Secretary O f the freasury was present.
H e did not seem
at the time disposed t o ge into a discussion e f it.
H e
made i t perfectly clear that h e contemplated t h e pessibility o f feceral reserve banks i n time practically succeed~+
ing the sub-treasuries,
o r reducing their functions t o a
very modest minimum, I s u p p o s e that i f the Treasury had
Surplus funds o n hand a t the present time i t weuld b e dis-
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Federal Reserve Bank of St. Louis
396
posed t o use O r make some u s e o f the Federal Reserve banks,
and t h e q u e s t i o n m i g h t a r i s e a s t o w h e t h e r
i t will knock
at the doors o f these federal reserve banks f o r assistance.
T h e r e has been a little informal ciscussion a t every
meeting o f the Board a s t o having federal reserve banks
make leans o n the pledge o f United States bands.
The Chairman:
T h e Secretary o f the Treasury has
authority n o w under existing law, t o borrow u p t o $200,000 ,000
at n o t o v e r 3
per c e n t i n t e r e s t a n d f o r a
period n o t t o
exceed o n e year o n a treasury note; a n d h e could knock
with that very effective weapon a t our door. ( L a u g h t e r )
Mr. Miller:
A n d y o u would l e t h i m in?
Tne Chairman:
opportunity
t c g o over a
Washington. I
tion.
Yessir, I
happen t o have h a d 1
memorandum t h a t w a s prepared
in
think i t was a t Secretary Malburn's direc-
I n it was shown the functions o f the Treasury
and sub-treasurics w h i c h could b e performed b y the Federal
Reserve Banks a n d thase that could not;
i n other words,
a study o f the l a w had b e e n made t o see which functions
were w i t h i n t h e d i s c r e t i o n
o f the Secretary o f the Treasury
and which were shmumh statutory s
t o the Treasury Depart-
ment i n such a way that t h e y M u l d n o t b e turned over t o
‘a bank .
I t appears f r o m that , with t h e obligation o f
obligstion
the Bureau o f Redemption,
o
f the custody o f
the gold behind t h e gold certificates a n d the silver behind t h e silver certificates a n d t h e issue a n d reissue o f
United States notes, the functions o f the ‘reasury and subtreasury could n o t b e turned o v e r bodily t o the reserve
banks,
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Federal Reserve Bank of St. Louis
59”
Governor wold:
I s i t contemplated t h a t t h e duties
and perquisites shall b e turned o v e r t o us, a n d w e bear
the entire expense i n conducting these operations?
Governor MeCord:
T h a t i s what I have been doing
for six months. (Laughter).
W
e are practically doing
a Sub-treasury business i n Atlanta.
w e have n o sub-
treasury t h e r e , a n d t h e b a n k s a r e g i v i n g u s a
lot o f sub-
treasury work,
Governor Ceay:
O f what nature?
Governor McCord: D e p o s i t o f unfit currency, a n d
everything o f that kind,
Governor Wold:
A n d you let them d o it?
Governor McCord:
H o w c a n y o u help yourself?
Y o u
have g o t t o accept lawful money o n deposit.
The Chairman:
I s not t h e real obstacle i n the
way o f extending t h e relations o f the reserve banks w i t h
the Treasury Department o n the one hand, the fact that
the Treasury i s poor just now, and o n the other hand the
fact that even i f they had plenty o f money t o deposit i n
the reserve banks w e could not u s e it, a n d conséquently cnuld
not make enough money t o justify the expense?
Governor Van Zandt:
The Chairman; I
I t might b e lack o f confidence.
a m speaking f r o m a bank point o f
view entirely.
Go ernor Fancher: I
think, Mr» Chairman, there i s
another feature o f that, too, that a s t o m m e o f the banks
it would b e a physical impossibility until w e are i n mere
substantial quarters,
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Federal Reserve Bank of St. Louis
398
The Chairman:
Y o u would n o t permit that t o prove
a continuous obstacle t o foing t h e work that this
system
is really designed t o do?
Governor Fancher;
given time,
O h , no.
w e would have t o b e
I t would take some little t i m e before w e
could c q u i p ourselves.
Governor ?old:
W e have discussed t h a t phase o f
the question a t our Board meetings, a n d ultimately
we
hope that the condition might b e brought about, but
just
now o u r expense i s a s large a s w e like t o
see it,
The Chairman: I
there i s a
suppose y o u gentlemen know that
precedent a b r o a d f o r t h e G o v e r n m e n t
t o pay a
bank for work, clerical ana Otherwise, that the
bank does
for the Government.
I
n those cases t h e Government gets
nothing back i n the way o f dividends o r surplus earnings
whatever,
I
n this c a s e t h e Government will ultimately
possibly get a revenue from these banks from the
Surplus
earnings after paying cix per cent dividends, b u t i n
the
meantime w h e n w e have n o revenues a n d cannot p a y a n y
to
the Government, a n d i f the Government should c a l l u p o n
us t o do a large amount o f work that would cost money,
might i t not be proper, i n the right way, t o suggest
that
if these relatiens a r e established a t a time w h e n
w e cannot
atand t h e expense, a
part o f the appropriation f o r the
Treasury Lepartment which would be Saved b y having
us do
this work b e appropriated f o r t h e benefit
o f the banks
themselves t h a t d o d o it? I s t h a t a n unreasonable
business suggestion t o make?
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Federal Reserve Bank of St. Louis
Governor Aiken:
W o u l d i t net b e very difficult t e
get such a n appropriation, a n d would there
n o t b e a constant attempt t o pare that appropriatien
down? W o u l d
not that whole question b e a M e s t i o n
t h a t would come
up time after time a n d b e fought over
a t every session
of Congress?
Governor MeCord: I
should prefer t o d o some w o r k
without asking for compensation,
Governor Seay:
I n connection with the inadequacy,
Governor Strong, I would like t o inquire
i f any of the
banks have thought o f the Question o f
building adequate
homes f o r themselves?
Governor Van Zandt:
years a
W e have leased for fifteen
home that w e are memodeling.
Governor Aiken:
W e should l i k e t o extinguish o u r
organization expense account before
v e contemplate that.
Governor Seay;
I t would net come out o f expense;
it would come o u t o f Capital account,
o f which there i s a
superfluity a t the present time.
Governor Weld: I
that. I
think w e ought n o t t o discourage
think w e ought t o encourage that
idea a t the
proper time,
The Chairman;
C o u l d not a committee p e
appointed
to join with the Federal “éserve
Board o r a committee o f
the Federal 4“eserve Board, o r
a committee o f some o f the
Board a n d the officers o f the
Government,
o r anyone sug-
gested, f o r the purpose o f making
a study o f this matter,
and n o t g o a t i t haphazard, a n d
pessibly agree upon a
program for the gradual development
o f the rélations o f the
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Federal Reserve Bank of St. Louis
400
reserve b a n k s a r d the T r e a s u r y D e p a r t m e n t ?
practical w a y t o get a t it. I
T h a t i s the
should like very much t o
have Dr. Miller express h i s v i e w with t h e
object o f get-
ting something o f value before the Beard o n
this subject.
Mr. Miller: I
It i s obvious,
have n o t given i t very much thought.
o f course, t h a t when t h e Federal teserve
banks a r e full institutions t h e y c a n d O
a great deal, a n d
it s e e m s
take
t o m e obvious t h a t t h e t r e a s u r y s h o u l d
n o t under-
t o impose d u t i e s a n d r e s p o n s i b i l i t i e s
you are ready t o take c a r e o f then. I
important
do think that i t i s
t e g e t t h e r e l a t i o n established,
The Chairman:
ir. Miller:
upon y o u u n t i l
o n m a n y accounts.
S O d o I=-- m e t important.
A n d the thing that seems t o me a .
48
worth considering a t this meting, or,
at any rate, o y
a committee t h a t m a y result f r o m
this reference t o the matter, i s finding o u t what functions y o u
c a n take o n a t the
Present t i m e without unduly burdening
yourselves s o a s t o
establish the connection.
T h e r e i s a variety o f functions,
fome e f them involving a responsibility
a n d n o great e x pense,
a n d these c a n b e taken o n Succéssively
a s the banks
find t h e m s e l v e s
i n a
position
t o deo it, o r a s i n d i v i d u a l
banks find themselves i n a position
to
i t . S o o n e r or
later w e would c o m e t o the question o f the
handling o f the
Government's deposits, w h i c h i s bound
t o arise, a n d w e would
-have established a
precedent a n d a basis which i n some
way
would b e o f adventage t o the banks
a s well a s t o the Govermnment.
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Federal Reserve Bank of St. Louis
The Chairman:
M a y 1 read a
resolution that w a s passed
401
at a conference held o n tlareh 1 2
i n Rashington,
"Voted:
a s followe:
T h a t t h e Conference takeup with
t h e Feceral
keserve Board the whole subject o f
Treasury and sub-treasury relations o f the Federsl “eserve
banks b y means o f a
committee t o b e eppointed b y
theFederal Reserve Board,
the freasury Department a n d the Governors
o f the Federal
Reserve Banks, vith a view o f ceveloping
the banking business o f the Federal Reserve Banks,
n o w conducted
b y the
Treesury Department?"
The Secretary:
T h a t w a s sent t o Mr L e l a n o
shortly after the last conference.
Mr. Miller:
for a
Y o u see, t h e C e c r e t a r y h a s
been ill
long t i m c a n g m a t t e r s h a v e
b e e n brought
mal ways f o u r o r five times.
formally with Mr. Malburn,
u p i n infor-
I t has been discussed i n H e has some v e r y definite
ideas o n the Subject and i s rather
Strongly o f the opinion
that there i s a large amount o f
vork now done b y the sub-treasuries t h a t e n n b e done b y
these banks, v e r y much more
efficiently;
b u t t h e Secretary h a s never
committed h i m -
self, a s far a s J know, a n d h a s
never really given very much
thought t o it.
I f he has he has not shared his hopes o r
his fears with the Board,
O r i t may b e that h e has done
a lot o f thinking and is not yet ready
t e state his con-
clusions, i f he has reached them.
B u t it is m y belief,
ané I think i t i s the basis upon
which you ought t o proceed, thet this relationship i s going
t o be established,
and J think y o u Ought t o have a
fairly definite opinion a s
to t h e p o i n t o f contact,
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Federal Reserve Bank of St. Louis
t h e f i r s t p o i n t o f contact,
that
402
you will b e ready t o establish between t h e banks a n d t h e
“reasury.
I t i s coming, and, f o r one, I
feel that i t
is a very desirable t h i n g o n many accounts. I
think the
advantage t o the banks i s going t o b e very considerable.
Certainly i t is going t o be o f very great advantage.
Will
I t
i n time b e o f v e r y g r e a t c o n s e q u e n c e ,
S50 that I should t h i n k that t h e Su,gestion made b y
Governor Strong that y o u have a
& committee o f the B a r a
committee t e confer w i t h
w a Geetennien official o f the
Treasury Department would b e a very good w a y t o determine
just h o w t h e question c a n b e most profitably m e t
from t h e
point o f view o f the banks.
(At this point a n informal @iscussion took place
which the stenographer w a s directed n o t t o report;
after
which the following occurred: )
The Chairman: W i t h o u t considering this matter individually,
d o y o u wish t o act b y w a y o f resolution o n a
request t h a t has b e e n made b y Vice-—Governor Delano t h a t
we
Should c o n s i d e r t h i s m a t t e r a n d m a k e s o m e S u g g e s t i o n s ?
There i s n o o c c a s i o n
t o read h i s letter,
to h a v e s o m v i e w s e x p r e s s e d
but I
should l i k e
b y this meeting a s t o whether
progress should o r should not b e attempted e t this time
to make t h e first step towards establishing t h a t relationship?
Governor Aiken:
“ o u l d n o t t h e appointment o f such
a committee a s y o u suggest b e a step i n the direction
of
meeting h i s wishes i n the matter?
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Federal Reserve Bank of St. Louis
The Chairman:
Y e s .
403
Governor Aiken: I
move, Mr. Chairman, t h a t t h e
Chair appoint a committee o f three, o f which the Vhairman
shall b e one, a t its convenience t o confer with the Federal
Keserve Board and representatives o f the treasury Department
On the matter o f the relations between t h e Federal *eserve
Banks and the treasury Department. I
the Chair word that motion,
The Chairman:
would suggest that
h e being o n expert o n motions.
H o w about repassing t h e o l d resolution
which c o v e r s t h e m a t t e r a
Governor Aiken: I
little m o r e f u l l y ?
think i t is of great importance,
however, M r . C h a i r m a n , w i t h o u t u n d u e f l a t t e r y ,
that you
should b e a member o f that committee.
The Chairman: I
will read this t o the stenographer,
for the record, a n d s e e whether, Governor Aiken,
i t meets
your viows.
"Voted:
T h e a t the Conferendée take u p with the Federal
Reserve B a r d the whole subject o f treasury and sub-treasury
relations o f the Federal teserve Banks,
b y means o f a
commiitee t e b e appeinted b y the Federal Reserve Board,
the Treasury Department a n d the Governors o f the Federal R e serve banks, w i t h a view o f developing t h e banking busi-
ness o f the Federal Meserve banks now conducted b y the
freasury Department."
Governor Aiken: I
would add, “ o f which the Chairman
of this committee should b e a member." I
think that i s
ef great importance, G o v e r n o r Strong.
The Chairman: I
te that, Mr. Aiken.
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Federal Reserve Bank of St. Louis
do not attach very much importance
404
Governor A i k e n :
A s a matter o f fact, y o u know
a great deal more about i t than t h e rest o f us do, a n d
have d i s c u s s e d
i t more w i t h t h e p e o p l e
The Chairman: I
i n Washington.
should like t o have t h e privilege
of conferrring with the Federal Reserve Board t o get their
views a s t o the personnel o f that committee, Governor
Aiken:
I t seems t o m e quite important t h a t t h e y them-—
selves should consider w h o might best serve o n that com-—
mittee--—- t h e point o f convenience a n d experience, a n d
so On.
Governor Aiken:
that motion again?
W i l l y o u b e kind enough t o read
I t c a n b e s o worded that i t would
meet y o u r views,
The Chairman:
Y e s ; I
should think that would b e
very desirable.
(The m o t i o n r e f e r r e d
t o was read a s above r e -
corded. )
Governor Aiken: A f t e r the words "Treasury Department", make i t read, “and b y the Governors o f the Federal
keserve Banks i n consultation with the Federal iieserve
Board."
(After informal discussion:)
The Chairman:
on
Y o u r idea i s t o require m e t o serve
t h a t conmittee.
Governor Aiken:
T h a t i s m y intention. I
mean t o leave you a loophole for escape.
d o net
" T h e Treasury
Department a n d the Chairman o f the Conference o f Governers
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Federal Reserve Bank of St. Louis
of the Federal Reserve Banks,"
Governor Fancher: I
will second that.
(There being n o further discussion, the motion
was put and carried, )
The Chairman:
T h e next i t e m O n our program
i s
5-(m), "Weekly report o f reserve b y member banks."
Governor Seay, t h a t i s your suggestion.
Governor Seay:
I t occurred t o m e that with the in-
crease O f the intra-district collection system w e would
be s u b j e c t
t o overdrafts
o n t h e p a r t o f o u r members, s o m e -
times acquiesced i n by them, and not made a s promptly a s
might be, a n d that i t would probably b e t h e time t o take
up the question o f reports o f reserve b y member banks t o
see how they are being maintained o n their own books i n
comparison with the way i n which they are being maintained
by our books. I
occurs
de not believe that a report, unless i t
a s frequenily a s once a
week, w o u l d b e o f a n y
great value t o us, a n d i t i s a question i n m y mind n o w
whether
i t would n o t b e a d v i s a b l e
t o request t h e F e d e r a l
tieserve Board t o consider whether i t is not expedient t o
require weekly reports t o be made t o Reserve Banks o f the
balances,
(At this point an informal discussion took
place which the stenographer w a s directed n o t t o report;
after which the following proceedings were had:)
Governor Seay:
W h e n last this matter was -
considered b y us, Mr. Chairman, I think perhaps mast o f
us will remember that w e were o f the opinion that reports
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Federal Reserve Bank of St. Louis
oftener t h a n o n c e a
The Chairman:
month w o u l d n o t b e advisable.
T h a t w a s o u r l a s t a c t i o n o n this mat-
Governor Seay: A f f a i r s have changed considerably since
then, a n d I
a m o f t h e present O p i n i o n t h a t i t would b e
necessary t o have reports m o r e often,
Governor Aiken: I
would like t o s a y that nothing
that I can think o f would d o more h a r m i n our district a t
the present time t h a n the present attitude towards t h e re->
ports a n d analyses t h a t they have h a d t o prepare, a n @ calling n o w for weekly reports.
Governor Sawyer:
T h a t i s the condition i n our dis-
trict, t o o ,
Governor McCord:
The Chairman:
Y e s ; i t is dangerous.
W
e have t h e same situation i n our
district, Governor Aiken, a n d instead o f asking t h e
member banks t o send reperts o r thinking o f asking t h e m t o
send r e p o r t s ,
w e are Sending them a
weekly r e p o r t
o f what
balance o u r books show, assuming i t i s their desire t o
keep their balance intact.
O f course that o n l y applies
to t h e b a n k s t h a t h a v e a d o p t e d t h e c o l l e c t i o n P l a n ;
and for the purposes o f e m e i s a
t e s banks, m a n y o f
whom have joined rather reluctantly, I
believe i t i s going
to have better results t h a n t e require reports f r o m them
just now,
Governor Aiken: I
could never get into the bank
again i f it were noised argund that I was asking for week=ly reports,
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Federal Reserve Bank of St. Louis
«
407
Governor Wold: I
very i n a d v i s a b l e
a m o f the opinion that i t would b e
t o ask f o r a n y more reports
a t this
time. k L v e r y little additional request for information
and additional v o r k adds fuel t o the flame, a n d i t might
deter state banks that contemplate coming i n from joining
at this time.
Governor McCord: I
shOuld h a v e t
o vote against it.
Governor Seay: T h e r e i s nothing t e vote against
just at present.
T h e subject i s just being diseussed i n
the w a y i n which I hoped i t would be.
The Chairman:
G e v e r n o r Wells, h o w would y o u feel
ahout asking t h e member banks i n your district t e give y o u
a weekly report o f their reserve?
Governor Wells: I
do not believe there i s any
particular occasion f o r i t right now-
T h e ordinary s y s -
tem is working very satisfactorily.
Gevernor Weld:
M a y I inquire a s t o the ameunt of
e@verdraft that t h e member banks a r e carrying w i t h a e
now?
Gevernor Seay:
T h e last statement I
saw was abeut
geo ,000.
{At this point a n informa? * i s c u s s i e n éncuex
red, which the Stenographer w a s directed n o t t e repert;
after which the follewing eccurred: )
The Chairman: I
think 1 t has beceme n é cessary t e
push this program a little b i t o n the itemunder discussion.
W111 someone offer a reselution and let us get i n the
habit
of voting i t down o r putting i t throwgh,
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Federal Reserve Bank of St. Louis
s o a s t e make
* 408
progress.
M o s t o f u s have pretty strong views o n this
particular matter, a n d w e d o not need t o exchange t h e m
very freely.
Governor Wold: I
move that the item be carried over.
Governor Seay: I
second t h e motion.
(There being n o further discussion, t h e motion
was put andcarried.)
The Chairman:
T h e next i t e m suggested b y Governor
Rhoades h a s t o d o with the methodof endorsing commercial
paper a n d gold certificates deposited w i t h the Federal R e serve Agents.
G o v e r n o r Rhoades, w i l l y o u speak t o that
question?
Governor Rhoades: I
simply wish a n expression a f
opinion a s t o what i s the best method.
security,
O f course, f o r
i t i s better t o have them endorsed t o the egents
by title, b u t that ties i t u p t o a n individual
objections,
a m h a s some
t o m y mind.
The Chairman:
D i d w e not have a
ruling b y t h e F e d e r a l
4eserve Board covering that peint?
Mr, Broderick: I
believe t h a t question i s now under
consideration b y the Federal Reserve Board, and i t i s
probable t h a t t h e y will Rusic-..” communicate w i t h each
Fed r a l teserve B a n k within t h e next week o r two a s t o the
question
o f title o f gold o r d e r certificates a n d a s t o t h e
proper method o f endorsing,
GovernorRhoades:
is about t o b e issued I
sed .
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Federal Reserve Bank of St. Louis
I
i f endoresment i s necessary.
n view o f the fact that a
ruling
think thistopic might b e safely pas-
Governor V a n Zandt: I
The Chairman:
second t h e motion.
I n view o f the fact that i t i s under
consideration b y the Federal “seserve Board, might i t not
be advisable t o make some r e m m m e n d a t i o n t o them for their
consideration?
Governor Vigld: W h a t has been the policy o f the
New York benk, i f I may inquire?
The Chairman:
W
e h a v e m a d e o u r deposits f o r m e m b e r
banks without a n y encorsement,.
W e have deposited o u r
gold order certificates endorsed payable t o the order o f
Pdertre, Jay, Federal Reserve Agent, a n d w e have assurances
informally f r o m the sub-treasury t h a t i n the event o f
Mr.
Jay's disability they would recognize i n an emergency
the endorsement o f the deputy Federal Keserve Agent
i n order
to make t h e gold certificates available,
Governor Wold:
W e have not endorsed our bills.
In depositing g o l d certificates, o r d e r certificates a n d r e ~
tirement federal reserve notes w e have Given a
endorsement, a s e p a r a t e i n s t r u m e n t a t t a c h e d
thousand dollar order certificate.
I
separate
t o each t e n
t i s given a : num-
ber and a date and assigned t o the FederalReserve Agent.
The Chairman:
I s n ' t i t a fact that i t is undesir-
able t o endorse commercial paper anyway?
Governor McCord:
The Chairman:
W e d o not endorse commercial paper.
L i d w e not all agree about t h e undesir-
ability o f further mutilating commercial paper b y endorsement o f t h a t c h a r a c t e r ?
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Federal Reserve Bank of St. Louis
Governor McCord:
The Chairman:
Yes.
4 i d we not make a recommendation t o
the Fedcral teserve Board that i n considcring
this matter
they e n d e a v o r
t o find a
means
t o avoid t h e n e c e s s i t y o f a n y
endorsement o n such paper, a n d i f any conveyahce
o f title
is necessary that i t b e effected b y & separate
instrument?
(Informal discussion followed which the reporter
was directed not t o record.)
The Chairman:
not pass a
W i t h o u t Suggesting a means, c a n w
resolution recommending t o the Board
that n o
endorsement b e required o n commercial paper
pledged w i t h
the Federal Reserve agent?
Governor S e a y : I
will m a k e a
motion t o t h a t effect.
(The motion was duly Seconded, put and carried.)
The Chairman:
I n regard t o gold order certificates,
what i s your pleasure there?
Governor Fancher:
U p t o the present t i m e the certi-
ficates t h a t w e p u t o u t h a v e b e e n
m a d e payable
t e the
Feceral Recerve Agent, t h a t i s a part
o f them, and t h e
Others t o the joint order o f the bank
and the federal
Reserve Agent.
(Informal discussion followed about
t h i s matter
which t h e reportem w a s directed
n o t t o take.)
The Chairman:
I t has been moved a n d seconded
that
it b e recommended t o the federal “eserve
Board that the
Federal Reserve tanks deposit the gold
order certificates
with the Federal Koserve Agent, payable
t e the o:cer o f or
endorsed t o the order o f the Federal
Reserve B a n k o r the
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Federal Reserve Bank of St. Louis
Feceral 4eserve Agent.
(The motion wes duly put and carried.)
The Chairman:
8-(b) and 8-(c).
O u r program i s now clear u p t o items
I t i s doubtful whether w e want t o
bring u p item 8-(b) without Mr. McKay being here, a n d I
Suggest that w e wait.
Item 8-(c), "Credits between Federal teserve Banks Treatment
a s reserves"
is a
subject t h a t w a s sug: ested b y
Governor Kains, Mr. Lowry.
Mr. Lowry:
T h a t w e discussed t h i s morning a n d defer-
red until Mr. Broderick could b e here a n d w e w u l d g e t
his v i e w s u p o n it.
(Mr. Broderick thereupon entered the conference
room. )
The Chairman:
M r . Broderick, y o u know w e n o w have
intermediate reciprocal accounts between t h e federal R e serve banksfor t h e period o f a week, a n d i n some cases
continuous accounts f o r exchange purposes.
G o v e r n o r Kains
r aises t h e point a s t o whether t h e y should b e treated a s
due t o and dae from banks, o r whether they should t e
treated a s warehouse gold and added t o the reserve o f the
due~to banks a n d deducted f r o m the reserve o f the due-from
banks.
I will read a
resolution that h a s just been handed t o
me b y Mr. turtis a n d which was passed a t the Conference
held i n March.
"Voted:
T h a t i t if the sense o f the conference o f
Governors t h a t t h e b a l a n c e o f o n e F e d e r a l S e s e r v e B a n k
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Federal Reserve Bank of St. Louis
412
carried w i t h another should b e car ied a s the property o f
the former a n d part o f its gold reserve, a n d that conversely t h e G@ebit b a l a n c e
o f one reserve b a n k t o another should
be deducted from its cash i n CaLculating its reserve,"
Mr. Brolerick:
H a s not that question been pretty
wekl settled b y the establishment o f t h e g0ld settlement
fund ?
A t t h e time that resolution was passed n o
means
of communication existed between t h e various federal r e serve banks.
N o w the question i s simply a s t o the inter-
mediate balance between settlements,
The Chairman:
A n d a s t o these exchange balances?
Mr, Broderick:
Y e s . P e r s o n a l l y I think i t very
bad practice t o count anything a s gold unless <zold
is
actually i n the vaults o f the Federal Reserve Bank,
i n the
hands o f the Secretary o f the Treasury f o r redemption
of Fedrral reserve notes,
o r i n the hands o f the Federal
“eserve Board o r the Gold Settlement Fund.
I
d o not think
very much injustice c a n b e done a t the present time
by
adhereing t o such ideas,
i n view o f the fact that w e have
a sé€ttlement once e a c h week.
The Chairman: I
do not think s o either, except i n
a very f e w unusual cases. C h i c a g o ' s balance w i t h
u s this
week has r u n u p a s high a s t e n million dollars,
Mr. Broderick:
T h a t will become reserve o n Thursday
morning,
The Chairman;
M r . Lowry, hov & you think Governor
Kains i s going t o feel about Gealing with
these due t o and
due f r o m banks i n the intermediate period
between settle-~
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Federal Reserve Bank of St. Louis
ments?
T h a t w a s w h e r e t h e q u e s t i o n c a m e up,
Mr. Lowry:
on funds collected f o r another bank.
N o w , f o r example,
iff the New York Bank sent u s checks o n San *rancisco that
we collected o n Wednesday, t h e N e w York b a n k would n o t re-
ceive that money until the following Wednesday.
I n the
meantime w e felt that i t was only a matter o f justice t h a t
that money should b e counted a s a part o f the New York
bank's reserve a n d deducted f r o m our cash.
I n fact that
is the w a y w e have always treated it. C o n v e r s e l y , w i t h
respect
t o t h e investment f u n d t h a t w e have i n the hands
of
the New York bank, w e feel that itshould b e counted as a
pertion o f cour r e s e r v e u n t i l used.
Governor Seag¥:
M a y I ask, when you Say that that
was t h e w a y i n which i t was treated,
i f you made entries
in your books t e that effect o r just simply regarded i t
in that way?
Mr, Lowry:
W e regarded i t i n that way, because t h e
Federal Keserve Board would notpermit u s t o treat i t that
way.
Governor McCord:
W
e have regarded
i t that w a y a n
would like t o still regsrd i t that way o n account o f the
very rapid fire exchange conditions o n cotton.
w e would
be out a week without reserves, sometimes.
Governor Seay: I
think I
that resolution was offered. I
ed i t myself.
I
t was a t a
remember t h e s p l r i t
believe I probably offer-
time w h e n o u r O w n b a n k w a s
heavily i n debt t o the N e w York Bank. I
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Federal Reserve Bank of St. Louis
i n which
think i t was
414
merely f o r the purpose o f putting o n record h o w the deboor
banks felt at that time with reference t o the New York
bank, a n d w e regarded that these bills were payable i n
gold and payable on demand,
I t was more to express that
feeling t h a n otherwise, t h a t that resolution waspassed.
But I believe i t a matter entirely beyond o u r power t o
keep p u r books i n such manner that t h e y will s h o w that a n y
balance d u e t o a n y other Federal Reserve B a n k i s a part o f
its gold reserve o r that i t shall b e deducted f r o m o u r
gold reserve.
I t i s merely a n attitude o f mind towards
it and cannot have a n y effect.
Mr. Lowry:
I t comes d o w n t o this.
W e are speaking
only o f collected funds, n o t funds afloat;
t h a t is,
funds f o r which w e have actually obtained money f o r some
other federal Reserve Dank.
T h a t i s either warehouse
reserve f o r t h e o t h e r b a n k o r e l s e i t i s a
other bank.
deposit
o f the
W e d o not consider t h a t i t i s a d p o s i t o r
that w e should treat it.
A s Mr. Broderick says, i t i s
now a matter o f n o great consequence since t h e gold f t n d
has been established.
B u t there w a s a
ef c o n s i d e r a b l e i m p o r t a n c e .
time w h e n i t was
W h e n w e owed t h e bank i n
New York $3,500,000 we certainly did not count that as a
depesit f r o m the N e w York bank.
tary deposit o n their part.
I t was a
purely involun-
v e considered i t as t h e re-
serve o f t h e N e w Y o r k bank, h e l d b y u s i n trust.
Mr. McKay:
I f the d u e f r o m i s n o t considered a s
reserve money between settlements, t h e n there would b e
a big fluctuation i n our reservesin t h e Chicago bank.
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Federal Reserve Bank of St. Louis
A S
415
an illustration:
York bank.
W
e have $10,000,000 i n the New
I f w e d o not count that a s reserve t o d a y a n d
could c o u n t i t o n Thuréday,
o u r reserve would
g 6 up
10,000,000 a t one time,
The Chairman:
T h a t i n itself would n o t b e a n objec-
tion.
Mr. McKay:
reserve,
I t would b e a big fluctuation i n the
I t wouldattmact attention a n d would n o t really
show the true condition o f the bank, because i f wecleared
évery d a y w e would n o t have a n y such b i g fluctuatéon i n
reserves a t all.
Mr. Broderick: I
would like t o s a y that i n the event
of a n y u n u s u a l t r a n s a c t i o n s g o i n g t h r o u g h t h e r e i s n o
reason w h y immediate settlements could n o t b e made through
the Gold Settlement Fund.
I f the San Francinmeo B a n k
should collect for the New York Bank §1,000,Y00 ani immediate getilement .aould b e m d e b y tele,raphing “ashingtion t o transfer o n the gold settlement fund books
$1,000,000 t o New York, and in that way -ive New York
immediate credit for it.
The Chairman:
T h a t would meetthe situation suggest
ed b y Mr. Lowry, Mr. M c K a y a n d everybody else.
A n un-
usual balance m i g h t b
e dealt with my special transfer.
Gor ernor McDougal:
T h e question still remains
unanswered, however, a s t o what treatment shall b e given
these balances i n calculating ourown reserves. I
believe
the proper wiy t o do that i s t o use what w e have ct® from
other Federal Reserve Banks w h e n w e are calculating r e -
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Federal Reserve Bank of St. Louis
426
serves a n d deduct f r o m t h e deposit liability t h e amount
of t h e d e p o s i t
o n which y o u are carrying reserve---
The Chairman: ( I n t e r p o d ng)
T h e national bank
practice?
Governor McDougal:
Y e s , a n d I think w e have h a d
instructions f r o m the Board with regard t o it.
I t i s ex-
actly what w e are doing and have been doing through and
through i n our bank.
The Chairman:
M r . Broderick, w h a t i s the status o f
the subject o f method o f calculating reserve?
I s that
liable t o undergo a n y alteration?
Mr. Broderick:
are concerned I
A s far a s the Federal Reserve Banks
think not.
T h e only thing i s that for
a time there i t was n o t wmnsidered proper t o consider a
col-
lected balance with. e t h e r federal re:erve banks a s deduction f r o m deposits.
T h a t h a s a l l b e e n straightenedup
through t h e gold fund. I
believe i t i s perfectly proper
now t o ® n s i d e r t h a t excess d u e f r o m a federal reserve
bank i s a proper deduction f r o m deposits o n the ground
that i t represents uncollected items.
The Chairman:
T h e n we will consider that Item 8 (c)
is covered.
Let m e suggest that w e now take u p Item 12 (J),
"Basis o f allotment o f acceptances a n d warrants between
'Federal Keserve Banks,"
For t h e p u r p o s e s
o f t h e record I
will s t a t e t h a t t h a t
has already b e e n covered i n the discussinn this morning.
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Federal Reserve Bank of St. Louis
We will now consider item (k) under subject 1 2 "ac-
417
ceptances~ a u t h o r i z e d S i g n a t u r e s
o f a c c e p t i n g banks,
for certification o f ge nuineness."
That i s suggested b y Governor Fancher,
GOvernor Fancher:
T h e thougat I
had i n mind i n
suggesting t h a t topic w a s whether i t was
Practicable
for one Federal Reserve Bank t o furnish the
other Feder-=
al Reserve Banks with t h e signatures o f
officers aythorized t o accept bills,
i n order that t h e genuineness o f
the
Signatures might b e checked. I
had i n mind t h e fact
that t h e a c c e p t a n c e s t h a t w e h a v e p u r c h a s e d
have been
Purchasedthrough t h e Federal “‘eserve
B a n k ofNew York, a n d
I wondered i f it put upon you the burden
o f determining
the genunineness o f those Signatures, and
whether i t was
practicable t o have these accepting banks
furnish t h e
Other purchasing banks with Specimens
o f their authorized
Signatureé,
The Chairman:
I
t i s perfectly practicable
t o do
that, a n d i f each bank will send t o
u s the n e cessary
cards t h e y are n o w using f o r specimen
signatures w e would
like t o get them all together and send
them out t o the
banks whose acceptances w e are buying
s o that they c a n Sign
them u p o n one request a n d send t h e m
back all a t once,
when w e will distribute them.
May I
ask i f a n y o f t h e o t h e r banks w i l l
care t o
follow that course?
Gevernor V a n Zandt;
W
e would l i k e t o ®
that.
I f
may not b e i n the m r k e t f o r some
time, b u t t h e occasion
might arise,
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Federal Reserve Bank of St. Louis
418
The Chairman:
F o r the purposes o f the record only,
let m e just state that i f theofficers o f the Federal R e -
serve banks will a t once send t o the federal Reserve Bank
of New York t h e necessary specimen signature cards, t h a t
when w e receive t h e m all from t h e cleven banks v e will
be very glad t o get t h e signatures o f the various institutions a n d return t h e m complete.
Governor McCord:
h a t i s institutions authorized t o
accept p a p e r ?
The Chairman:
Y e s ; whose acceptances w e b u y f o r
the account o f other federal reserve banks.
Governor Lowry:
H o w many s u c h cards shall w e send?
The C h a irman:
I w a s going t o suggest that y o u look
over y o u r a c c e p t a n c e b o o k s a n d s e n d o n e c a r d f o r e v e r y
accepting institution o r firm, a n d pessibly some additional
cards s o that w e could have t h e m o n hand a t all t i m s
case additional Games c o m e in.
in
W w e are advised t h a t there
are a number o f banks that a r e going t o develop t h e acceptance business i n New Y o r k a n d i f t o u have t h e cards o n hand
it will s a v e time.
Governor MeCord:
officers
W o u l d y o u send t h e signaturesof
o f trust companies
o r banks o t h e r t h a n m e m b e r
banks w h o have filec their statements f o r acceptance a n d
of course a r e n o t i n t h e o p e n m a r k e t
The Chairman:
o n the 7
outside?
T h i s relates t o Signature canés t h a t
you would s e n d t o usso that w e might g e t t h e signatures
of accepting officers o f banks where w e were buying a c ceptances f o r other Federal Kkeserve Banks.
W e would n o t
bother y o u about getting t h e signatures f r o m member banks
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Federal Reserve Bank of St. Louis
419
in your d i s t r i c t u n l e s s
w e were b u y i n g acceptances d o w n
there through you.
Does that dispose o f this matter, Governor Fancher?
Governor Fancher:
The Chairman:
Y e s ; i t does.
I t e m (1) uncer Subject 12, "Pur-
chase o f investments b y one Federal heserve B a n k
i n figsmnr
territory covered b y another" w a s Suggested b y
Governor
Aiken, a n d I believe h a s been fully covered i n
the former
discussion.
Governor Fancher, I t e m (m) under Subject 12, "Stand-
ard forms o f municopa]warrants."
Governor Mdbougal;:
M a y I interrupt a moment and ask
that a c t i o n was taken i n regard t o item (1) under
Subject
12?
The Chairman:
T h a t w a s disposed
o f i n the discus-
Sion when Dr. Miller w a s present, Governor McDougal.
Were youoat a t that time?
Governor McDougal: I
The Chairman:
think I must have been,
D o y o u agree that that i t e m m a y pass
without further discussion, Mr- McDougal?
Governor McDougal: I
The Chairman;
do.
“ $ 1 1 y o u address yourself
t o item
(m) under subject 12, Governor Fancher?
Governor Fancher:
whether i t was advisable
W e had S h e thought i n mind
o n the part o f the Governors o f
the Federal Heserve Banks t o endeavor t o have used some
Standard f o r m f o r municipal warrajits s o that
paper might
be issued i n sone regular way.
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Federal Reserve Bank of St. Louis
I n a few occasions
:
420
where w e have puehased warrants w e have
recommended t h e
form t h a t i s i n c o m m o n u s e d o w n
i n t h e B o s t o n territory.
They s e e m tohave t h e situation v e r y well
covered there,
and w e have i n some cases suggested
those forms.
It seems t o me that i f the Federal Reserve
Banks i n
territories w h e r e municipal paper i s
likely t o b e isasd
in goodly volume, woula attempt t o have
some general f o r m
Standardized, patterned after t h e
Massachusetts form,
possibly, I
think i t woule b e very desirable.
Mr. Curtis:
T h e Guarantee Trust Company i s just
getting u p such a standard f o r m for
use i n New Yerk, a n d
it saves a
great deal o f trouble,
T h e Massachusetts
form i s avery good one,
The Chairman:
I f we can bring that about w e can
invest o u r money i n warrants w i t h
a great deal more freedom
and with less trouble a n d delay t h a n
i s now t h e case,
Mr. Curtis: I
might add that the Guarentee Trust
Company sent over their forms t o u s t o look
over
and t o make suggestions. I
went over i t and made two
or three suggestions t o them, a n d t h e y
are going t o t r y
to put i t into use with all the municipalities
that deal
through them.
Governor McCord:
M a y I ask, Mr. Curtis, i f there
are provisions i n the forms for spe cial statutes
o f various
States? S u p p o s e there i s a peculiar law
i n Georgia
that would n o t b e i n some other States,
o r a peculiar l a w
in Massachusetts that would not b e i n ®
me other states.
Is t h e r e a
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Federal Reserve Bank of St. Louis
provision
i n the warrant setting f o r t h
those
facts?
Mr. Curtis:
T h i s f o r m that t h e Guarantee Trust
Company h a s p r e p a r e d r e c i t e s t h a t i t i s a
indebtedness;
certificate
of
i t has t h e signatures o n i t and then under-
neath there i s a copy o f the ordinance under which i t i s
passed, d u l y certified t o b y the city clerk; a
certificate
by the mayor a n d t h e c i t y clerk that t h e Signatures a r e
genuine, a n d also that the ordinance w a s passed under a
certain section o f the N e w York law.
Governor McCord:
Mr. Curtis:
T h a t answers m y question,
T h e r e i s a n opinion f r o m the c i t y
solicitor o r attorney that all formalities have been
gone through and that i t i s a legal obligation o f t h e
city.
T h e n they have added a
certificate b y t h e Comp-
troller setting forth all the requirements o f fact that
we have t o have t o bring i t within the provisions o f the
regulations.
T h e date o f assessed valuation i s shown,
the fact that i t i s a h obligation o f t h e municipality;
the date whentaxes a r e due under penalty a n d s o forth.
They have t h e whole thing o n ene piece o f paper and i t is
a very c o m p l e t e p i e c e o f work.
The Chairman: P o s s i b l y Mr. Curtis would b e willing
to furnish the Governors o f the Kederal Reserve Banks
with a copy o f this form.
Governor MeCord: I
would b e v e r y g l a d t o h a v e a
copy f o r our bank.
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Federal Reserve Bank of St. Louis
Mr. Curtis: I
The Chairmen:
presume I
can get copies o f it.
W i l l i t ansver this i t e m o n the pre-
gram then i f Mr. Curtis endeavors t o get a copy a n d send
one t o each Federal Reserve Bank?
Governor Fancher:
The Chairman:
Yes.
I t i s almost dinner time, a n d 1 will
take t h e liberty o f taking u p only o n e o r two a e
that w e c a n h a n d l e r a t h e r quickly. I
items
till t a k e u p s u b -
ject 20: “ M e t h o d o f computing dividend o n three capital
stock payments."
T h a t i s suggested b y Governor Fancher.
Governor Fancher: I
of information,
wish t o inquire, a s a matter
o n what basis t h e other Federal Reserve
banks have computed this--- that is, banks w h o have i n
prospect t h e payment o f a dividend. . I think I noticed
in the Chicago statement--Governor MeDougal: (Interposng)
the statement.
W
I t was not i n
e p u t i t i n a footnote.
Governor Fancher: I
would like t o know just what
basis y o u have arrived at.
Governor McDougal: I
we calculated it. I
H o w did y o u arrive a t it?
cannot tell y o u exactly h o w
know i t took t h e m a number o f weeks
te work i t out a n d I have assumed t h a t i t i s correct.
The Chairman:
I s i t not t h e fact t h a t this divi-
dend will b e payable t o the member banks f r o m the date o f
payment,
i n n o case earlier t h a n the date r e q u i r e d b y
law, b u t i n n o case earlier t h a n the date actually made.
Governor Seay: I
will state, t h a t having i n con-
templation t h e possibility o f having t o p a y a dividend
according t o thelaw, I
have given some consid: retion t o
that and I would view i t as interest o n payments made,
not earlier t h a n the date required t o b e paid b y the law.
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Federal Reserve Bank of St. Louis
423
That i s what I have fixed i n a n indefinite k i n d o f way i n
my mind, a n d I
have i n s t r u c t e d o u r b o o k k e e p e r
t o proceed
tO gather h i s data along t h a t line.
Governor F a n c h e r ?
T h e n t h e payment. would b e N o v e m b e r
end, a n d t h e n a l o n g o n subsequent d a t e s a s t h e m o n e y w a s
actually i n hand;
a n d t h e n February 2nd, a n d d o w n t o May
end -——
Governor Seay: Precisely.
The Chairman:
I
s there a n y difference
o f opinion
on that?
Governor V a n Zandt: I
should t h i n k the first date
would b e November 16th.
Mr. Curtis:
O n e question i s raised when a bank goes
into t h e hands o f a receiver f o r a little while a n d then
comes o u t again.
O t h e r q u e s t i o n s sare r a i s e d , w h e n i t s
capital i s i n c r e a s e d
o r decreased,
a S t o the date t h a t
you figure o n and what amount y o u figure on. I
think
those a r e the principal points.
Governor Seay.
T h a t i s what I
mean b y saying,
"according t o the facts o f the case."
(Further informal @iscussion followed which
the reporter was directed not t o report.)
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Federal Reserve Bank of St. Louis
The Chairman:
I
t has n o w been moved .
Seconded
this matter b e referred f o r investigation a n d report
committee consisting o f Governors McCord, Seay and
Zandt.
I s there any objection t o that action?
(There was n o objectien and the motion was
carried, )
The Chairman:
W e will now take u p item No.
"Decreases i n member bank surplus,"
M u s t there
proportionate surrendcr o f «tock i n Federal Reserve Banks?"
That i s suggested b y Governor Fancher,
Governor Fancher:
W h a t p r o m p t s t h a t i t e m i s this:
I think probably all o f you governors have some banks that,
by reason o f temporary loss, decrease their surplus, w h i c h
may b e filled i n from carnings i n the next three o r feur
months.
I n some cases t h e banks, rather t h a n g o through
the trouble o f passingthe necessary resolution t o decrease
capital, m a y j u s t like t o hold the stock until t h e y were
entitled t o the number o f shares b y a proportionate i n crease i n surplus.
Governor Seay: F o l l o w i n g Governor MeCord's trail,
and knowing that there a r e n o precedents, t h e r e a r e o n e
or two small instances i n which I have su; gested that
course t o the bank, t h a t is, when i t involved o n l y o n e o r
two shares, t h a t i t take n o action a t the moment a n d r e store i t s surplus.
The Chairman:
A s a matter o f fact, Governor Fancher,
is not this o n e o f those things which will develop a n d
solve itself gradually b y evolution?
S o m e * ink will
come along and force the issue some day b y maxing formal
demand f o r the return o f its capital payment a n d t h e r e duction o f its surplus.
Governor McCord:
T h e y have done s o in my district
and t h e B o a r d h a s r u l e d t h a t t h e s t o c k w o u l d h a v e t o b e
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Federal Reserve Bank of St. Louis
425
correspondingly decreaseg.
came u p a n c I
T h e n t h e question o f earnings
stated t o t h e b a n k t h a t i n a s m u c h a s w e h a d
assumed the obligation o f rent contracts and one thing
and a n o t h e r I
did n o t t h i n k v e w o r e d u e t h e m a n y e a r n i n g s
at all; t h a t w e w o u l d s o c o n s i d e r i t ; a n d t h a t w a s t h e
last o f it.
Mr. Curtis:
T h e point i s that there f s a n option
given, b u t the statute i s silent a s t o who has t h e exercising o f the option.
Y o u have t w e cases, A
bank says
"I have decreased m y surplus a n d I want t o have m y capital
stock reduced," I
understand the Federal “eserve Board
has r u l e d t h a t t h e F e d e r a l R e s e r v e B a n k m u s t r e d u c e
t =
Another bank comes along a n d says, “ W e have reduced o u r
Surplus a n d d o not want o u r stock reduced."
H
a
s the
Federal Reserve Bank o r the Federal Reserve Board o r the
member bank the option o f h o l d i n
g that extra stock?
Governor McCord:
T h e explanation t o u s was that i t
was necessary t o reduce it.
Mr. Curtis:
W h o has the option? S o m e b o d y can force
that reduction.
Governor McCord:
I t i s t h e duty o f our bank t o d o
SO, because Our bank must show exactly the number o f
Shares e a c h m e m b e r i s entitled
t o quarterly
o d we can-
not allew a n y one bank t o hold a n y more Shares t h a n i t i s
legally entitled t o a t that time,
Mr. Curtis:
T h e n your ruling i s that there i s n o
eption?
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Federal Reserve Bank of St. Louis
Mr. Loury:
S e c t i e n 5 of the law says that outstand-
426
ing capital stock shall b e increased f r e m time t o time
as member banks increase their capital s t o c k and i t will
be d e c r e a s e d
a s member banks reduce t h e i r Capital stock,
My. Curtis:
that w h e n a
T h e n a little further along i t says
member b a n k r e d u c e s i t s C a p i t a l s t o c k t h e y
shall s u r r e n c e r a
proportionate a m o u n t o f t h e i r h o l d ngs;
but there i s nothing said w h e n i t reduces i t s Surplus a n d
when i t shall surrendér t h e stack--~
The Chairman: (Interposing) I
guess that i s a mat-
ter that will have t o b e brought t o the attention o f
Congress, gentlemen.
A r e y o u prepared t o make a recommenda-
tion t o Congress o n this?
Governor McCord:
N o .
L o n ' t disturb Congress,
(Laughter)
Governor S e a y ;
I
t is a
s e c t i o n o f t h e law, w h i c h
I think has some flexibility i n its enforcement.
The Chairman:
w h a t action d o y o u propose
t o tale
On this matter?
Governor Fancher: I
do not know, Mr. Chairman,
whether i t i s v i t a l e n o u g h a t t h e p r e s e n t t i m e t o
have
& recommendation f r o m this Conference t o the Board.
I t
was brought u p more t o find o u t t h e position that other
banks w e r e taking i n matters o f that sort.
"
n all cases
we have gone through t h e procedure o f the decrease
and
return o f the capital, b u t i n some cases t h e
bank has
Sald, "Well, i f it can be done, w e are going
t o restore
this amount a n d w e would l i k e t o keep t h e
shares."
have n o t insisted u p o n it, however,
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Federal Reserve Bank of St. Louis
T h e y
427
Mr. Curtis:
T h i s h a s hap.ened i n our district.
One o r two banks have reduced their surplus a n d said that
they did n o t want t o take b a c k their stock, t h a t they
would rather leave it.
The Chairman:
I s a n y action desired o n this matter?
Governor McDougal: I
her c o u r s e a n d b e a l l e w e d
would suggest that nature t a k e
t o develop.
GOvernor V a n Zandt: I
think information should b e
asked o f the Federal Reserve Board a s t o its construction
on that, a n d that t h e y g e t i t from their counsel, t h e
Attorney General,
o r someone else t h a t they consider a n
authority.
The Chairman:
G o v e r n o r V a n Zandt offers t h e motion
that a request b e conveyed t o the Federal Reserve Board
for a ruling a s t o the right practice t o be follewed where
a member bank reduces i t s surplus.
Mr. Curtis: I
think w e have already w r i t t e n a n d
asked t h e m that, b u t have h a d n o reply.
is t h a t
M y recollection
w e h a v e vritten twice.
Governor McCord:
I f you care t o take this course,
we have a case i n point, a n d w e will take i t up individually--- I mean o u r bank will s s k the board f o r a ruling
on that particular feature a n d w e will t h e n advise you.
Governor Seay:
h
e reply will c o m o u t i n the
bulletin.
The Chairman:
W h i l e w e are here discussing the mat-
ter, w h y not pass t h e resolution requesting t h e Federal
4“eserve Board f o r a ruling?
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Federal Reserve Bank of St. Louis
428
Governor MeCord:
M r . Curtis says that t h e request
has already been made.
Governor Seay: I
Sing.
W
do not belicve the mattor i s pres-
e have asked the Federal Reserve Board for too
many rulings, a n d I belicve that when w e ask for a ruling
it should b e one o f importance.
Unless s o m e o f the Governors t h i n k that t h e matter i s
pressing, I think Governor McDougal's motion t o let nature
take h e r course ought t o prevail.
The Chairman: G o v e r n o r McDougal, d i d you secure a
secend t o that motion?
Governor Seay: I
The Chairman:
second Governor McDougal's motion.
T h e motion has b e e n made a n d seconded
that this matter b e allowed t o take i t s natural course,
Is there a n y further discussion?
(There w a s n o further discussion a n d t h e motion
was duly put a m carried.)
The Chairman:
T h e next t w o items c a n b e passed
fer the moment.
I a m going t o take t h e liberty o f bringing u p the
last subject o n the program, w h i c h i s not o n the copies
of the program which y o u have, b u t which i s suggested b y
a number o f matters t h a t have been discussed a t this
meeting.
We have frequently felt i n New York that t h e proceedings
at these meetings, whilst submitted promptly t o the Federal
Reserve Board and at formal meetings, both verbally and in
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Federal Reserve Bank of St. Louis
429
writing, n a v e n o t been dealt w i t h sufficiently formally
te result
i n a s p r o m p t a c t i o n b y t h e b e a r d o n some t h i n g s
as - e “would like t o have.
I t has occurred t o m e that
we might pursue a Little different method and prepare a
Separate report a n d have t h a t sent ager i n seven copies,
or five copies, including o n e copy t o c a c h o f the active
members o f the Board, with the information that v e are
sending a
sufficient number o f copies s e that each mem~
ber o f the Federal Reserve Board c a n consider t h e subject,
and a s k that t h e y b e referred t o committecs o r dealt w i t h
in some w a y s o that w e m a y continue t h i s o s a regular,
permanent a n d continuous record a n d g e t t h e results i n
such shape t h a t w e c a n distribute t h e m t o the other banks
promotly.
W h a t i s your pleasure i n this matter?
Governor Mcbougal: I
move that that course b e pur-
sued; t h a t that b e done,
Governor Seay: I
Governor McCord:
second that motion.
S e v e n copies o r five copies?
Governor McDougal:
O n e for each member o f the
Federal R e s e r v e B e a r d ; a n d t h a t t h e r e p l y b e p r e p a r e d
such & @ way t h a t a
in
sufficient n u m b e r o f c o p i e s s h a l l b e
made t o supply each bank with a copy.
The Chairmen:
I s there a
Governor Seay; I
second t h e motion,
Governor McCord: I
The Chairman:
second t o that motion?
will second t h e motion alse»
I s there a n y furthor ciscussion.
(There was n o further discussion a n d the motion
was duly put and carried.)
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Federal Reserve Bank of St. Louis
4.30
The Chairman:
I o w s s g o i n g t o ask your pleasure a s
to the next session.
S h a l l w e meet tonight a n d endeavor
to get a s much o f the program finished a s possible,
or
Shall w e give u p the evening meeting this evening s n d e n deavor t o finish u p our program tomorrow morning?
Wheat i s your pleasure i n the matter?
I will entertain a
motion t o adjourn i f there i s
coupled w i t h i t the setting o f a n hour f o r reconvening.
Governor Fancher: I
move that « + reconvene a t 8:45
o'clock D e M e
The Chairman:
ence t a k e a
ing.
T h e motion i s made that the Confer-
recess a n d reconvene a t 8:45 o'clock this even-
W h a t i s your pleasure w i t h regard t o that motion?
Gow ernor Seay: I
second t h e t motion.
a ( T h e motion was duly put ond carried; and a t 7:15
'
© clock p. m . o n the 15th d a y o f June, 1915, t h e Conference
a
tooka recess until 8:45 o'clock p. m. of the same day.)
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