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Federal Reserve Bank of St. Louis
Votume
2)
FOURTH CONFERENCE
BOARD O F GOVERNORS, F E D E R A L RESERVE
BANKS.
Blackstone Hotel, Chicago, I1ll.,
Tuesday,June 15, 1915, - NIGHT. SESSION
Wednesday,June 16,1915 - DAY SESSION
WALTER
SHORTHAND
S. COX
REPORTER
COLUMBIAN BUILDING—TEL. M. 8324
WASHINGTON,
D . C.
et
S
BoRek
e
y
a a
U s
‘The confcrence met at 8:45 o'clock p.m. pursuant t o
the taking o f recess.
The Chairman:
M r , Aiken will b e here i n the morning
ana there a r e a few topics l e f t f o r consideration when h e
is with us.
Governor V a n Zandt:
Y o u left out (b), stating that
you were waiting for Mr. McKay's attendance.
The Chairman: Y e s .
“ r e MeKay, Itom 8-(b), "Trans-
I t is under too sub-headings.
fers",
O n e i s "Charges"
and the other i s "[xtension o f facilities t o non~-joining
banks ." I
believe you suggested the first sub-headcing.
Have you any report t o make o n that subject now?
Y o u
aid not refer t o the forms that w e r e t o b e used f o r transfers
I s that covered i n that?
of funds.
Governor McKay:
fers o f funds, I
I n regard t o the charges f o r trans-
think that matter w a s practically settled
by the schedule w h i c h was made u p which proviced t h a t
items could b e received f o r immediate credit a t the rate
of five cents p e r thousand dollars p e r d a y f o r t h e time
that i t would t a k e f o r mail transfers;
a n d then i f any
Federal eserve Bank wanted t o make a greater charge than
that, I
think i t was a t liberty t o d o 650. T h a t was con-
sidered «8S a basis o f charge, a n d particularly w i t h t h e
Federal Keserve Banks located outside o f the subtreasury
cities. I
think i n their case they would m k e a differ-
ent charge,
a n additional c h a r g e s u f f i c i e n t
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Federal Reserve Bank of St. Louis
t o cover t h e
432
cost o f shipping currency t o the neqrest sub-treasury
city, provided i t is necessary t o do se, and 1 believe that
matter could b e best rcgulated b y each Federal Reserve
Bank.
Does that cover t h e question, Governor Strong, regard~
ing charges t o b e made o n transfers?
The Chairman:
for the program, I
M r . MeKay, t h i s i t e m was suggested
believe,
Governor MeKay: I
i tem. I
b y you?
d o not remember sug:y,csting that
might have h a d some correspondence w i t h Mr.
Hendricks about it.
Governor Seay:
W a s n o t the question o f charges i n
some measure covered b y the recommendation o f the clearing
cemmittee t o the Federal Reserve Board a t their request?
The Chairman: I
thought i t w a s c o m p l e t e l y c o v e r e d
by t h e r e p o r t t h a t w e m a d e f o l l o w i n g t h e c o n f e r e n c e
in
Washingten o t which y o u will recall Mr. Harding sugzested
the necessity f o r an extra charge a t seasons o f the year
to p r o t e c t s e m e o f t h e m e m b e r banks.
W
e t h e n agreed
to
recommend a n d submit a memorandum a o charges f o r
telegraph and mail transfers, and I understand that that
report i s complete and ready for submissien; i n fact, i t
has already b e e n submitted t o all t h e banks f o r their
adoption.
Governor McCord:
T h e report from the Board a t fash-
ington?
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Federal Reserve Bank of St. Louis
Gov ernor Seay:
I t was forwarded b y the Board. A
433
copy o f our report w a s sent b y the Board t e the banks.
Governor McKay:
I t was i n the hast’ mecting of the
clearing committee.
Governor MeCord:
I n the absence o f any instructions,
if I am not intruding o n this subject here, w e have adopted thie plan, t h a t ‘ © charge e v e r y member bank f o r all the
items coming from beyond the district i n a total s u m b y
the week, and credit them with the outgoing exchanges o n
the other Federal Reserve Banke.
F o r instance, a bank
puts i n five hundred thousand dollars exchange, a n d w e pay
600,000 for it.
W w e charge them on G100,000 beeause that
produces $500,000 against their $600,000,
Governor Wold: P r o d u c e s i t how?
Governor MeCord: P r o d u c e s exchanges.
I t is a bene-
fit t o us.
Governor old:
A n d gives the bank the benefit o f itR@
Governor McCord:
benefit o f it.
duces, {
W
N o ; ~ e g o not give that bank the
e give i t the benefit o f what i t pro-
wondered whether there i s any uniformity about
that o r what system i s obscrved b y the other Feceral Reserve
Banks.»
The Chairman:
G o v e r n o r McCord,
i s that i n connection
with chirges for transfers that are m d e n o w b y the use o f
checks o n your bank?
| g o v e r n o r MeCord:
The Chairman:
Y e s sir.
C a n you not induce your member banks
to make these transfers b y making remittanees t o youe-=-
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Federal Reserve Bank of St. Louis
Governor NoeCord: ¥ e s ; I do that t o a certain extent,
434
but nevertheless t h e y are issuing their exchanges o n m e ,
and whether t h e y want. to-send<them o u t o f the district . .
or not ‘they
d o . g e t .e odistrict
uh t ot f and come in;. and
besides t h a t ; inember b a n k s s a y , “ W e d O n o t w a n t that;
w
e
will take any check that comes o n us." S o m e of them come
from beyond t h e dis trict, a n d w e charge t h e m with the
cost o f i t i n the clearings.
Governor Sawyer:
we have a
I n that connection, Mr. Chairman,
bank i n one o f o u r reserve cities that brings
its c h e c k s
o n u s t o N e w Y o r k f o r credit,
a n d they send
their eastern exchange t o Kansas City and get the benefit
of t h e intcrest there f o r several days.
I t pays f o r the
ceOst o f the transfer.
Governor MeCord:
‘ T e d o not a l l o t h a t , G o w ernor
Sawyer:
The Chairman:
T h a t ought t o be stopped, Governor
Sawyer.
Governor Wold:
I t is getting t o be a hardship for
banks located a t cities where there i s n o assistant
treasurer to make transfers themselves.
I t is getting to
be very much easier t o have t h e transfer made b y the check
agaomt o f the member bank, owhng t o the fact that they are
not allowed t o maintain a n account that permits u s t O draw
against it.
I
f they would allow u s to mintain a n ac-
count with you in sufficient size so that.we could draw apd
sell our own drafts, i t would obviate that necessity.
The o n l y time t h e y call upon u s f o r exchange i s when there
is not a n y i n the market.
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Federal Reserve Bank of St. Louis
435
The Chairman:
I t seems t o me, following oup discus-
Sion o f today, t h a t i t would b e f a r wiser f a r t h e
banks
that need t h e N e w York exchange a n d a r e able
t o accumlate i t i n that way t o g o right a t the problem a n d
take i t
up With the Board toe have i t Qnderstood a s
a n arrangement
to meet t h e situation.
Governor Yold: I
d o not care t o prolong this dis-
cussion, b u t I would like t o make a n inquiry f r o m
Mr.
MeKay:
H e suggested a
that o
e
Mgnneapolis?
minimum o f five years:
H o w does
e a s t e r n exchange i s a t a discount
at
I
t might b e 2 5 cents discount.
I
n Minne-
apolis i f they take castern oxchange a t par
o r a t t h e market rate, a s the case m a y be, a n d i f the eastern
exchange
is selling a t a discount, a
Cnough
w e will have a
Governor Seay:
o e discount i s large
profit i n the transaction.
Y o u will. make the transfer for
nothing?
Governor Wold:
L o you imagine w e could charge five
cents above p a r that N e w n a e
i s quoting a n d 2 5 per cent
discount?
GOvernor Seay:
N o ; b u t i f y o could b u y N e w York
exchange a t less t h a n par y o u could make
a
profit, b e -
cause there would b e a creditin t h e g0ld
settlement fund.
Governor Wold:
I n the shipping season eastern ex-
change i s usually a t a discount,
@evernor Seay:
B u t y O u c a n clear a l l that
a t par
in the gold settlement fund and you are
just tuat much
ahead i n exchange,
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Federal Reserve Bank of St. Louis
Governor Wold: T e n y e a r s ago eastern exchange
was at. a discount probably f o u r months o f the year.
is getting now where eastern exchange i s at a discount
hardly sixty days i n the year.
Governor Sawyer:
I n Kansas Gity i t is from ten t o
éleven months i n the year a t a premium.
Governor Fancher: I
think o u r cituation i n District
No. 4 is going t o be rather a difficult one under a l l the
circumstances,
A s y o u know, Cleveland i s n o t a sub-treas-
ury City, a n d N e w York exchange rules a t a premium practically t h e entire y e a r i n the reserve cities,
I t is a
subject w e have b e m g i v i n g a great deal o f thought to, t o
dnow j u s t h o w t o take care o f i t properly.
T h e dcemand
is practically f o r one sort o f exchange, a n d o n what basis
we c a n m k e those transfers a n d what charge w e c a n make t o
save ourselves i s quite a problem. I
had put u p t o me,
not s o recently, but i n the last two o r three months, from
our local Cleveland banks, the matter o f bringing into use
currency and making a transfor i n New York.
currency w o u l d b e a
:
w
miscellaneous
That
r u n o f national b a n k
h
a
notes a n d probably several certificates.
t
J u s t , basis w e
K
can make that transfer o n and a t the same time replace t h e
amount i n our settlement fund without depleting o u r gold
settlement f u n d i s quite a problem.
It seems t e me a s theugh the banks i n Pittsburgh,
possibly i n Columbus, a r e outof i t practically entirely b e cause i f a t a time when currency i s redundant a
is made, i t means a
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Federal Reserve Bank of St. Louis
transfer
transfer probably t o the sub-treasury
437
at C i n c i n n a t i i o r o y r
tHe * ‘gaime p a s t e !
ae
e a
w i t h t h e S r e n e Fee made. o n
“ e t n e a m n d tt Bajng | @cub-frelioury city,
can a
banks i n p h e r e
over o a .
t o make a g o a t s
Cleve~
for our account and make a transfer o n some basis.
i n and
land c a n come t o us and bring the certificates
make a
isa
deal. T h e p r e s e n t situatiOn i n our district
very complex one.
should think that inyour district
Governor McKay: I
you could make a
charge f o r transfers i n accordance w i t h
what i t costs t o create t h e kind o f exchange y o u wanted,
cithcor the cost o f shipment t o the nearest subtreasury city
or where i t might b e necessary t o ship currency, I
do
not know whether your sub-treasuries will exchange gold
certificates f o r lawful money o r not, W q l l they d o that?
a a
Y
e
s
, they will d o that; b u t we are
w e take
hampered a s i n the matter o f national b a n k notes i f
them.
Governor Wold:
D o you take them?
W e have not, b u t w o are going t e
Governor Fancher:
be importuned t o take them.
T h a t i s the basis ofthe
I f we can confine ourselves t o
transfer proposition.
lawful money that i s one situation.
T h e matter o f a
trans-
fer based u p o n national b a n k notes i s another situation.
refused t o d o that last year.
Governor Seay: I
Y o u will have t o d o it.
Governor McCord:
Governor Fancher;
Governor Seay:
can d o it.
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Federal Reserve Bank of St. Louis
C a n you stand up?
I t might n o t b e expedient, b u t you
438
{At this point a n informal discussion took
place which t h e stenographer was directed n o t t o report;
after which the following procecdings were had:)
The Chairman:
I s not this a
fact about t h e use o f
these checks o n federal recerve banks a s transfers, t h a t
it c a n b e controlled b y one o f two methods, either o f
which would b e effective a n d woulda pro bably result i n the
use o f a Federal leserve v a n k transfer, w h i c h i s what w e
want t o bring about?
I n one case the Federal heserve Bank
on which the check i s drawn c a n impose a
charge against
the member bank that draws t h e check that will b e prohibi-
tive, and by the oti r
system the Federal Reserve bank
to which the check is remitted f o r ercdit e a n defer credit
for a sufficient length o f time s o that i t is n o Longer
a desirable form of making transfer.
I n other words, thht
matter c a n b e controlled a t edther ond.
W
e have attempted,
by imposing a time schedule o n the credit of these: checks,
to arrest the use a@ checks o n federal reserve banks for
the purpose o f making transfers, a n d 2 6 soon a s v e adopt a n d
put into practice kenerally, if we can, the system of
benk transfers with a very medcrate charge far the service,
we will pretty s o o n ascertain f r o m experience whether i t
is the preferable form and will b e used b y the member banks,
or whether they will continue t o use the drafts o n the
Federal Reserve Banks.
AS soon a B v e have t h e experience w e c a n then deter=
mine whether t h e bank o n which the check i s dravn will
make a
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Federal Reserve Bank of St. Louis
charge t o the member b a n k that draws t h e check, o r
439
vhethor the bank that receives i t for credit will defer
credit for a sufficient length o f time t o stop that, o r
whether o u r charges a r e t o o high a n d need t o b e reduced.
H o w are y o u going t o find o u t what
Governor Cawyer:
are transfer checks a n d what a r e not?
A n d =
a r e you
going t o apply that t o all checks o r just above a certain
amount?
ally
The Chairman:
W e have t o uraw the line geographic-—
b y devising a
system whihh will limit t h e circula-
tion e f checks, unless the circulation outside o f the dis~
trict i s a t a charge which will b e equivalent compensation
to a bank transfer.
Governor Sawyer:
A n d apply i t t o all the checks?
The Chairman: U l t i m a t e l y .
Governor Fancher:
T h a t will necessitate i n Governor
Mecord's district rather a changing policy and will be
going b a c k o n a custom that h e has been encouraging.
I f
we i n Cleveland say that crafts o n the Federal Recerve
Bank o f Atlanta are going t o be eredit subject t o two
days, w e cannot differentiate between a transfer draft
and a
draft t h a t i s d r a w n f o r s u n d r y remittances.
T h a t
is going t o be forced right bank, Governor McCord, a n d i s
going t o have a n effect u p o n the policy t h a t y o u have e n couraged d o w n there, a n d rather upsot it.
Governor McCord:
W
e have net encouraged it, but
there has been such a n urgent demand b y the member banks
that w e tried t o meet their views.
fer says about it:
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Federal Reserve Bank of St. Louis
H e r e i s what m y cash?
140
"The matter of deferred credits on items by our reserve banks will d o the Federal Reserve B a n k o f Atlanta a
great deal o f harm, f o r our members c a n n o longer check o n
us i n payment f o r collections, s u c h checks being received
in other Federal Reserve Cities o f the United States o n
two days’ deferred credit. T h i s works splendidly for
New York, Chicago and St.Louis, but not for us.®
I agree with y o u thoroughly that these transfer items
ought t o b e handled i n some w a y o r other, a s collection items
would be, i n the sense that t h e y a r e a part o f the trade
and commerce o f the country a n d would b e keeping u s o n
an even keel.
Governor V a n Zandt: W h e r e i s the difference between
paying c h e c k s f o r c o l l e c t i o n a n d t r a n s f e r s ?
Governor McCord:
I f the checks a r e issued f o r col-
lection they carry their reserve balance w i t h us.
I f
they a r e transfer checks t h e y t a k e t h e m out o f our hands
and place t h e m where they g e t t w o per cent.
Governor V a n Zandt:
bank that sends a
O v e r i n Dsllas w e charge every
check o u t o f the district f o r a n y pur-
pose whatever.
Governor McCord:
W e are making a charge agsinst
every member bank for anything they send out o f the district, regardless o f whether i t b e a transfer o r otherwise, sufficient t o cover o u r cost o f the gold pool.
F¥e
are doing that, a n d i t does n o t make a n y difference h o w i t
arises;
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Federal Reserve Bank of St. Louis
w e a d d that u p a s a n item agdnst then.
The Chairman:
G o v e r n o r McCord,
i n our former discus-
441
siom
o f this .metter w e have a l l taken the view that
this is a matter of ‘ctual accommodatéon. —
Governor McCord:
The Chairman:
sure.
4 8 I understand
o
i e
R
t
h
e im-
position o f two days deferred credit y o u would consider
works a
disadvantage i n Atlanta?
Governor McCord:
The Chairman:
Yes.
A n d the same would apply i n Cleveland
and in Chicago and St- Louis. L a s t year when we were
taking these cheeks a t par for immediane credit i n New
York, the balance ran against you as high as over $2,000,000
and i t was a matter o f some embarrassment t o make good
those balances, a n d i t imposed a n expense o n both o f us.
if we take those cheeks for immediate credit a t pr, a s
Suggested b y your cashier,we a r e Simply going back t o a
Situation t h a t e m b a r r a s s e d y O u a t t h a t time,
as J
under-
Stand it.
Governor Seay: T h a t is what 1 wrote you, Governor
MeCord,
i n explanetion.
Governor MeCord: I
know that; b u t y o u m s t remember
One thing, that a t that time w e had n o system o f clearing
between each other a t all, a n d i t was a n accumulation
all o n e way.
Governor Lowry.
S p e a k i n g f o r S a n Francisco,
w e were
very highly pleased t o think the other Federol Reserve
banks c a n take checks o n us o n the deferred basis,
for the
very reason that y o u spoke of} a n d o u r experience
with
the recent plan might b e o f some interest t o you. P e r -
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Federal Reserve Bank of St. Louis
442
haps a n a
clearly, ! A
o
f i t would present t h e matter.
mest
bank in San' ‘Pratielves . just Before. T
left,
wanted 200,000 transferred t o New York.
would make that transfer f o r t e n
cents a
W e told them we
thousand.
is the rate w e have established tentatively.
T h a t
They said
"Why cannot w e craw our check o n you and
send i t t o New
York?" I
said, "You can do that, but we will charge
you
exactly the same, and your check will
not b e received for
limediate credit i n New York,"
S
o that was sufficient i n e
ducement t o them t o give u s a check o n
ourselves, and upon
that check w e made t h e transfer f a
them,
S o 1 t worked o u t
very nicely,
The Chairman: G o v e r n o r Lowry, I
think I ought t o
explain a little bit about t h e
situation i n New York.
AS you know, t h e Clearing House Asm
ciation a good many
years a g o e s t a b l i s h e d
a cértain limited n u m b e r o f
points
that a r e really i n practice p a r
points, a n d a s t o all t h e
rest o f the country they imposed a
schedule o f charges,
When our bank was Organized w e
submitted t o them t h a t a s
we were going t o take these federal
Reserve checks a t
par
for immediate credit a n d expected
t o take membership i n
the clearing house, a limited membership,
i t would involve
& necessary violation o f their rules
fer charges for col~«
lection, a n d t h e y a t once modified
their rules s o that a l l
the checks o n all the Federal
Reserve Banks might b e received
at par through the N e w York
Clearing House o r b y the
mem«
bers
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Federal Reserve Bank of St. Louis
i n N e w Yerk,
T h e result
o f that w a s t o c r e a t e
443
this flood o f transfer checks, a n d when t h e comiittee t h a t
was consideking this matter o f transfers recommended t h a t
we c h a n g e t h a t p r a c t i c e a n d r e c e i v e t h e s e c h e c k s
for de-
ferred credit, w e took the position t h a t i t was
n o t a mat-~
ter that interested t h e federal Reserve B a n k o f
New York,
but that i t wos a
matter that interested every other Federal
Reserve Bank, a n d that i t shoula Say t o us what their preference w a s a s t o the extent o f the deferred credit t h a t
we
should impose u p o n their checks t o protect them.
T h e
result o f that has been that they are conferring with
all
of the others, a n d I
understand that Governor McCord h s s
ezpressed t h e same view, t h a t c a c h o f them has,and advised
us t o what extent t h e y wanted deferred creditimposed u p o n
checks drawn o n their o w n banks.
Schedule exactly.
W e had t o follow t h a t
P h i l a d e l p h i a a n d Boston wanted i m -
mediate credit a t par, a n d w e said w e would take t h e m
for
immediate credit a t par,
S a n Francisco, I
satisfied w i t h s i x d a y s d c f e r r e d c r e d i t .
understand, w a s
M r . McKay han-
dled t h i s m a t t e r a n d k n o w s h o w i t w a s t a k e n u p W i t h
each
bank,
But t h e p o i n t I
want t o b r i n g o u t i s this; t h a t i t
necessitated a n o t h e r c h a n g e
b y the N e w York Clearing
House association a n d when w e submittea t h e proposed
schedule o f deferred credits that had been adopted
and
advised t h e m that i t would t a k e effect o n
a certain date,
the 1 5 t h o f June, I
think, t h e y a t o n c e a d o p t e d t h a t
Schedule a s their o w n b y a new rule which
made a charge
@n all checks except San francisco--<
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Federal Reserve Bank of St. Louis
444
Governor McKay: I
would like t o ask there i f they
are going t o defer interest o n the items?
The Chairman:
T p a t i s a matter that the clearing
house does n o t attempt t o control, a n d i t would b e most
unwise f o r them t o attempt t o control i t i n any way.
T h e y
never have ass: umed t o say anything about interest o n a
balance o r o n loans.
Governor Lowry: I
might just add t o that illustra-
tion, Mr. Ghairman, that this San Francisco Bank immediately dcposited with us $200,000 i n gold i n mint sacks.
The Chairman:
developed,
ties.
T h a t i s a subject that can also b e
T h i s thing i s full o f interesting possibili-
T h e r e a r e certain cloaring houses i n the w u n t r y
that settle entirely in gold; a m o n g others, Philadelphia;
and Governor Rhoades and I have conferred o n that matter
and w e find that the Philadelphia banks require a very
large amount.
T h a t has been s o for some years, a n d under
our arrangement h e permits these transfers.
mnducted a t par,
T h e y are
H e gets paid f o r these transfers i n
gold i n Philadelphia, a n d i n New York where w e make these
payments, where w e have silver i n such form that w e c a n
work i t off, w e work off o u r silver, a n d t h e result i s
that that transfer arrangement i s dumping gold into the
clearing fund for our credit and w e are performing a ser=
vice i n a sense for the member bank.
B u t really w e are
creating a machinery where the New York Bank i s getting
rid o f the silver and the Philadelphia bank is accumlating
gold for us.
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Federal Reserve Bank of St. Louis
446
@overnor Lowry:
I f we pay that gold t e the sub-treas~
ury t o g o into t h e gold pool i t still remains i n
the sys-
tem, whether i t is that gold orother.
I t does not mat-
ter,
Governor McCord:
h
e reverse o f that 1 s the caso
with us. O f course one of our banks comes in with
$100 ,000
of national bank notes and w e deposit i t t o
his credit and
ask for a transfer t o N e w York,
W e have n o sub-treasury
to deposit i t in, a n d i f w e did, w e could n o t
deposit
those national b a n k notes.
O u r procedure h a s been this,
that w e would charge t h e cost o f transmittal o f
these
national bank notes t o Washington, a n d then take
transfer
cheeks t o New York--- no, t h e y will n o t give
them t o us t o
New York, but t o Chicago o r any sub-treasury but
New York
Or Philadelphia--- and b y that means w e have been
creating
funds,
T h e r e i s a n expense o f Shipping that,
and ve
charge t h a t into t h e remittance f u n d o f the
gold pool a n d
pro rate i t according t o the service,
The Chairman: I
honestly b e l i e v e t h a t w e a r e m a k i n g
& mistake i n attempting, before w e
have really started
Our transfer plan, t o review t h e whole subject
once more
without experience, a n d w e are w i l l i n g
n
i New York, and I
believe all the rest of you are willing,
t o suffer m me
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Federal Reserve Bank of St. Louis
446
inconvenience a n d some expense a n d s w a p accounts around
in any w a y i n order t o gain the experience o f
how t o
deal with this matter.
W h y c a n w e n o t g o ahead w i t h the
program that h a s been worked o u t b y the Committee
and ask
Mr, MeKay, w h i c h I
was propesing t o d o i n just a minute,
to furnish u s with the ferms that h e and Mr. Hendricks
haye worked up, and let us push the transfer plan as
rapidly a s we can, with our member banks, s o that
a t our
next meeting w e c a n determine where a n d h o w these
charges
or deferred credits m a y be shifted and changed s e
as t o
Control the matter.
Governor Seay:
M a y I ask this, hypothetically?
If you should desire t o take a check o n Atlanta, f o r
in-
Stance, for immediate credit a t par, c a n you do s o now
at your discretion?
The Chairman:
I n the reserve bank of New York?
Governor Seay:
Yes.
The Chairman: H a r d l y ;
o u r Plan has not contemplated
doing that. A c t u a l l y , I do not think w e are under
any obli-+
gation t h a t w o u l d P r e v e n t o u r d o i n g i t u n l e s s
y o u objected
to it.
.
Governor Seay;
T h a t i s what I am asking this hypo-
thihtical question for, t o see a s t e the status
q u o o f tHs
matter.
I
f Governor M e C o r d d e s i r e d y o u
t o receive c h e c k s
on Atlanta a t the old standard, i s there anything
i n your
relations t o your Clearing house n o w that would
prevent
your doing that?
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Federal Reserve Bank of St. Louis
The Chairman:
Yes.
W e would have t o g o back again.
447
IThad understood, a n d I think Mr. MeKay a n d Mr. Hendricks
worked this o u t a n d had a
clear understanding w i t h t h e
Federal Reserve B a n k o f N e w York.
W
e simply wantcd t o
know definitely what deferred credit w a s Satisfactory t o
every o t h e r r e s e r v e b a n k s ,
a n d w e would impose whatever
defSrred credit t h e y asked, a n d once having done that w e
have advised t h e clearing house a n d they have taken action
@n the matter and, frankly, I
do not want t o g o back a n d
change i t all again.
Governor McCord:
W
¢
e would n o t a s k you t o d o that.
We d o not went t o work a n y hardship o r any constant
shifting o r changing o f conditions.
trying t o find a
W
e are just simply
basis u p o n which a l l t h e bysiness c a n b e
handled legitimately a n d satisfactorily t o all parties
concerned.
W e are not disposed t o be arbitrary about
the matter, o p even t o try t e insist upon a thing that i s
unreasonable.
O u r effort h a s been t o try t o m k e o u r
member banks transfer through us instead o f sending their
checks out,
The Chairman:
T h a t i s w h a t o u g h t t o b e done,
Governor McKay:
A n d that i s the very thing that woula
help t o d o that, Governor McCord.
The Chairman:
T h a t would drive them t o you.
further,
‘Governor McCord: I
member b a n k kiting,
two minutes,
it.
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Federal Reserve Bank of St. Louis
would say, t h a t when w e find a
S O t o speak, w e d o n o t stand for i t
W e will n o t allow it; w e will n o t permit
448
The Chairman:
M a y I ask 4f it will not be entirely
satisfactory t o you for us to try the arrangemerit which
we have figured out and which I honestly thought was entirely satisfactory t o y o u a n d ha& been made a t your o w n
suggestion, i n fact?
Governor McCord: I
have not raised a n y point about
it, except that I was trying t o see what could b e @ ne
for the member banks. I
can do for them.
feel i t m y duty t o a
what I
O f course, i f it is not a n agreeable
and pleasant situation all around I would not insist o n it
twe minutes,
Governor Fancher:
A s t o Governor McCord's Situation,
it seems t o me, Governor, that your having your member
banks d r a w their drafts upon y o u i s creating a
fusing si tuation. I
very con-
do not know o f any other Federal
Reserve Bank that is permitting that. I
know we are not,
and i t is a confusing situation t o say t o our member banks
in Cincinnati o r Pittdhurgh, " W e are geing t o impose a twe
day time limit o n a little miscellancous draft o f $24.75."
for some Kittle sundry remittance.
W
e cannot differen-
tiate between that and a transfer craft o f w25,000.
I t
Scems t o me that i f we are going into this transfer system at all we have all got t e work aléng o n the same
lines and not permit our member banks to draw overdrafts
against the balances ang circulate outside of your district.
W
e cennot takeup ‘the broder proposition until
we
have inter-district clearings.
I t puts'ithe Federal Re-
serve Bank that joins your district i n a rather disadvay-
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Federal Reserve Bank of St. Louis
449
tageous position.
W e are going t o be i n a controversy
i m m e d i a t e l yh
t
i
w our Cincinnati banks when w e impose this
time limit.
GOvernor McCord: A p p a r e n t l y w e have b e e n encouraging
that, b u t that i s not t h e case.
O u r member banks have
rather taken advantage o f the situation a n d triea@ t o d o
it.
The Chairman:
C a n w e not agree n o w o n this matter
and still g o ahead, a s I suggested,
o n the basis o f the
deferred credits a n d the bank transfer arrangements through
the Federal Reserve Banks o n its proper scale o f charges,
and let us work along until w e have the next meeting?
Governor MeCord:
M o s t assuredly w e agree t o it.
W e
do not want t o cut bias across t h e cloth.
The Chairman: I
think that will enable u s t o pass
this particular topic.
,
(At this point a n informal discussion took
place w h i c h t h e stenographer was directed n o t t o
report;
after which the following proceedings were had: )
Governor Wold: I
dO not care t o prolong the dis-
cussion, b u t i t seems t o m e i t would b e a Surprising t u r n
le we encourage our banks t o carry excess with us and
draw against i t and w e are n o t taking a n y exception t o
the
deferred credits that these banks have made. P h i l a d e l phia banks have written t o Minneapolis and@ asked them i n
settlement o f collection charges t o send t h e m Checks
upon
the reserve bank o f Minneapolis.
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Federal Reserve Bank of St. Louis
... (Governor Wold t h e n m d e a
statement which t h e
450
stenographer w a s d i r e c t e d n o t t o r e p o r t ;
a f t e r which the
following proceedings were had:)
Governor Fancher:
I
f w e w e r e t o permit o u r b a n k s
to draw miscellaneously o n every bank i n Cleveland a n a
meét the demand for New York exchange, w e would d o nothing
else but p u t u p millions o f éollars.
Governor Seay: I
would like t o know whether I had
reccived a wrong impression.
M y impression was that the
members o f the collection system who created a n cxcess
balance were going t o be permitted t o check against that
©xcesS b a l a n c e a n d s e n d i t w h e r e t h e y pleased;
t h a t such
check would b e received b y you i n New York and subject
to two days, a n d that would b e a check against it. I
was
under t h a t impression.
Governor Wold:
The Chairman:
T h a t i s m y impression.
T h a t i s correct. I
would like t o
ask Mr. McKay's opinion about this, that i f Governor
Fancher i m p o s e s t h e d e f e r r e d c r e d i t w h i c h i s p r o v i d e d
in
the schedule, w h e t h e r t h a t w i l l e f f e c t u a l l y p r o t e c t h i s
bank f o r the inconvenience t h a t h e refers to.
I t may sub-
ject Governor McCord's member banks t o some inconvenience
before theyfind @ u t there i s a deferred credit u p there
i n
Cincinnati, b u t i t will check the use of these drafts for
transfers a n d have t h e effect o f driving t h e m t o the use o f
the transfer c h e c k for which a charge will b e made.
Governor Fancher:
T h a t i s m y thought e x a c t l y , G o v e r -
New York
nor Strong. The/banks actually need about two days' time
limit upon drafts o n the Federal Heserve Bank o f Cleveland.
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Federal Reserve Bank of St. Louis
451
Governor McKay: I
would like t o s a y ,sa a matter e a e
information, t h a t beginning. teday t h e Chicago b a n k puts i n
this s y s t e m o f d e f e r r e d c r e d i t
o n all federal reserve
banks, w i t h the exception o f Boston, Philacelphia, N e w York
and St. Louis.
I t e m s o n federal reserve banks i n those
cities w i l l b e t a k e n f o r i m m e d i a t e c r e d i t
the market rates.
a t par o r a t
T h a t will g o into effect today, a n d
that w i l l t e n d t o prevent o u r g e t t i n g c h e c k s
o n some o f t h e
federal reserve banks t h a t a r e located outside o f subtreasury cities.
Governor Wold: I
do not see how i t is possible,
unless yeu are going t o allew a bank after i t has created
an excess,
t o use i t i n some way.
Governor Seay: I
was contemplated p a r t
was under t h e impression that that
errors
system.
N o w d e I under-
stand that you will charge your members, notwithstanding
the deferred credit t h a t i s dmposed b y other Federal Reserve
Banks, u p o n checks upon y o u outside o f the system?
Governor Fancher:
W h a t I
a m striving t o d o i s this,
that i f it is going t o be a transfer through us I will
see about t h e transfer a n d will t r y t o make a charge that
will offset that t w o days, a n d i f there i s a n y prefit i n
the transaction I would t r y t e make it.
The Chairman:
and distinct things.
w e are discussing t w e very separate
W e discussed what Governor Bancher
ought t o d o i n regard t o his member banks drawing drafts
on his bank and circulating them out o f his district, a n d
I believe that w e have n o t much t o de with i t except that
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Federal Reserve Bank of St. Louis
452
he should impose such deferred @redit a s he asks u s t o
impose.
AS f a r a s G o v e r n o r ? ‘ e r a s i t u a t i o n i s c o n c e r n e d
he has already agreed t o a time schedule which we have already adopted, ani his cashier demurs t o that o n the ground
that it is going to put the Federal Seserve Bank of Atlanta
at a disadvantage. I
think we ought t o have more exper-
ience with the operation o f the present deferred credit
scheme before w e attempt t o change it.
W e have n o t started.
The Federal Reserve Bank of New York got the arrangement,
through the clearing house and put i t in operation o n the
15th o f the menth,
a n d i t would b e a shame t o g o back
and a s k them t o change i t now.
Governor MeKey:
T h e scheme only goes into effect
today i n Chicago, a n d naturally w e will not know what the
results are going t o be until w e have had some experience
with it.
The Chairman:
W e are really threshing over o l d stzaw
here t h a t w e have discussed a t these meetings without
limit; a n d our committee having worked o u t its plan, a n d
our committee having adopted it, can we not stick t o it
and give i t a fair trial?
Governor McCord: I
for discussion. I
did n o t bring that question here
just accepted t h e vote o n the s i tua-
tien and went on. S u p p o s e a Macon bank sends a check t o
an Albany bank and the Albany bank puts their endorsement o n the b a c k a n d sends i t t o New York o r Cleveland
or
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Federal Reserve Bank of St. Louis
453
Chicago.
O f course t h a t i s a deferred payment.
W h e n
that comes back t o m e I a m going t o charge that bank with
the cost o f making that settlement. I
am going t o stand
by that.
would
Governor Sawyer:
T h e y would n o t make i t but once.
Governor McCord:
H o l d on; I
b e twice.
A j b a n y takes a
The Chairman: I
want t o s h o w w h e r e
it
chance---
think Governor Sawyer has answered,
it, because M a c o n will s e c t o i t that Albany does i t only
Once.
M a c o n Says t o Albany, “you have imposed a charge
on us and used o u r check a s New York exchange, a n d w e can-
not s t a m f o r it."
Governor McCord:
that.
T h a t i s t h e only difficulty w i t h
W e will work i t out; don't you worry.
The Chairman: I
think w e c a n work i t out, b u t I
not think w e c a n work i t out theoretically. I
do
think w e
will have t o d o it b y actual trial o f the scheme.
Governor Seay: T h e r e i s this new situation, though,
that n o w you are receiving o n l y f r o m members i n your c e l ~
lection system items that will create excess balances.
Governor McCord:
T h e other members a r e sending i n
money.
Governor Seay:
F o r what purpose;
n o t f o r the crea-
tion o f excess balances?
Governor McCord:
Y e s ; a n d they will send checks t o
Atlanta.
Governor Seay: B u t y o u are not taking them, are you?
I thought w e agreed that w e would not take them from mem-
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Federal Reserve Bank of St. Louis
bers o f the collection system.
Governor McCord:
Governor Wold:
What--- a
W
check o n Atlanta?
e d o not take a
The Chairman: I
check o n Minneapolis.
honestly think that w e are going
over o l d s t w a w t h a t w e h a v e a l r e a d y t h r e s h e d Over, a n d
we have decided t h i s matter.
Governor McKay: I
have some f a m s requesting trans-
fers o f funds that I should l i k e t o distribute.
(The forms referred t o thereupon were distributed
to the members present.)
The Chairman:
T h e s e forms a r e submitted a s a result
of the work that was referred t o you and Wr. Hendricks,
as I recall?
Governor McKay: I
just received these forms from
Mr. Kendricks, and we have made up a form at the same time
that i s shmilar t o i t but not quite t h e Same.
T h e form
that w e made u p i n Chicago leaves out the words "Federal
Reserve B a n k a t
o
e
O u r form reads this way:
"Please charge our account and transfer b y mail o r tele-
graph to the
b
a
r
R
n
P
e
k of =
e a
o
r
e
aici
l
e
d
We did not think i t was neecessery t e say through what
“ederal Reserve Bank the transfer should b e made, because
the member bank mightnot know i n what district the other
momber bank was located, a n d w e would have t O check i t u p
anyway t o see i f i t was correct.
The Chairman:
I f they are stamped o r written i n it
provides the very simple index b y having i t o n the face o f
the o r d e r ,
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Federal Reserve Bank of St. Louis
455
Governor McKay:
Yes.
T h e n , i n Chicago w e thought
the amount ought t o b e written a s well a s placed i n figures,
and we put i n the word "dollars" down o n this blank line
(indicating) f o r the use o f it. T h i s i s a very simple
matter that c a n b e taken u p b y a n y federal reserve bank
in any w a y they want to.
The Chairman:
I t i s merely a suggestion.
I f you will b e a little generous w i t h
me w e will conclude t h e evening session b y completing
Item 8 and consider t h e subject o f extension o f facilities t O non-joining banks.
T h a t applies t o the transfer
facilities.
I will ask Mr. Curtis t o read the extract from the
letter received f r o m the Federal Reserve Board suggesting
this topic.
The Secretary;
any reasons,
I t i s very briefly stated, without
i n the same letter f r o m which I read portions
before:
“Should transfer facilities b e given only to such
member banks a s have joined the clearing Sys tem?”
The Chairman:
I s there a well crystallized opinion
aS t o whether the system o f bank transfers t h a t w e aro
about t o adopt should b e extended t o all member banks
or only t o those banks which have joined t h e intra-district
clearing system?
Gov ernor McDougal: I
should think i t should b e ex-
tended t o all member banks.
The Chairman.
P o s s i b l y t o throw a little light o n
this, i t occurs t o m e right here t h a t there i s very
little,
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Federal Reserve Bank of St. Louis
456
if any, relation between the intra-district cle-ring sys tom
and a system o f bank transfers.
Governor McCord:
The Chairman:
N o n e whatever
A r e y o u ready t e offer a
motion t o
ansver this positively and a t once without further discusai on?
Governor McDougal: I
would move that the privilege
of transfering funds b e extended t o all member banks o n
the same terms.
Governor Fancher: I
second t h e motion,
(After informal discussion, which the stenographer
was directed not t o report, the motion was put and carried.)
(ihereupon,
a t 1 0 o'clock p.- m., t h e conference
adjourned until tomorrow, Wednesday, J u n e 16, 1915, a t
9 o'clock a. m )
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Federal Reserve Bank of St. Louis
fl: Sa a a ©
D A Y .
The conference rcassembled a t 9:30 o'clock a. m,
pursuant t o adjournment.
The Chairman:
T h e meeting will come t o order.
(An informal discussion w a s h a d a s t o the advis-
ability o f inviting a member o f the Federal “eserve Board
to b e present a t future conferences o f the Governors o f
the Federal Keserve Banks.)
The Chairman: I
will suggest t h a t b y resolution
the Conference authorize t h e Chairman t o extend a n invitation t o t h e B a r d
t o have o n e o f i t s members present
at
our future conferences, s u c h invitation t o b e sent t o the
Board prior t o the next meeting.
Governor iMeDougal: I
would b e very glad t o make
such a motion, and there might b e incorporated i n the motion that h e i s invited f o r the purpose o f discussing particulerly s u c h topics a s the Board itself introduces.
The Chairman:
Yes.
I s there a n y further discussion
of t h a t proposition?
Governor Sawyer: I
very desirable t o have a
The Chairman:
second the motion. I
think i t
member here,
I f there i s n o further discussion J
will p u t t h e question.
(The motion was duly put and carried.)
The Chairman: G o v e r n o r Alken, m a y w e not take u p
“tem No* 22, which is "National banks-- letters of credit --
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Federal Reserve Bank of St. Louis
458
recent instructions o f Comptroller", t h e latter part o f
which refers t o recent instructions given t o bank examiners b y the Comptroller o f the currency i n regard t o national
banks guaranteeing letters o f credit.
the i n s t r u c t i o n s r e f e r r e d
w e have a copy o f
t o which might b e read a n d p u t
into the record,
Governor Aiken:
T h e bank examiner called m y atten-
tion t o a situation i n one o f our banks i n Boston where
they had been issuing letters o f credit i n sterling, a n d
were guaranteeing the London Bank acceptances m d e o n ac-~
count o f those letters,
T h e bank examiner received a
let-
ter from the Comptroller o f the Currency calling his atten-
tion t o the fact that such guarantees o n the part o f a
national b a n k were n o t permitted under t h e law.
That is a very serious interference, a s I see it, with
the development o f the acceptance business i n this country.
It i s quite conveivable t h a t t h e exchange market will b e
such i n South America, f o r instance, that a merchant i n
Boston m a y want t o b e able t o settle i n Sterling a n d have
the bills accepted i n London.
W h e n that situation i n
the exchange arises, unless a bank can issue a letter i n
sterling, t h e bills t o b e accepted i n Lendon, w e have
practically g e t t o stop doing that business.
I t seems t o
me that is.a very strict construction o f the law and i t
also seems t o m e that i t would b e desirable t e have that
matter t a k e n u p with t h e Comptroller's office, perhaps}
Mes
through the Federal Keserve Boerd t o see if we cannot get:
a more liberal interpretation o f the lawin that respect,
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Federal Reserve Bank of St. Louis
459
because while w e are doing everything w e c a n t o pro-mote t h e e x t e n s i o n o f t h i s b u s i n e s s ,
here i s a
ruling
that checks i t very materially i n its development.
Tae Chairman: I
have a
copy o f the letter addressed
to the National bank examiners which you were good enough
to send me, a n d I will r e a d that portion o f i t that relates particulerly t o this matter:
"Unless t h e liability o f the bank i s o n account o f
acceptances
s o authorized
i n t h e sections q u o t e d a
bank has n o right t o .
a party w h o h a s n o t t h e amount
national
issue letters o f credit t o
t o his credit o n the books
at the time t h e letter i s issued.
I t has b e e n uniformly
held b y the Courts t h a t a national b a n k cannot guarantee
the obligations o f other parties,
o r lend its credit, a n d
this applies t o all transactions except those authorized
as indicated,”
Mr. Curtis will correct m e i f I a m i n error, b u t
I Go not think there i s anything i n the national
bank act
which prohibits a national bank guaranteeing a
commercial
letter o f credit except o n the theory t h a t itjultra
vires
for t h e national b a n k t o make a n y obligation
o r guatantee
which i t i s not specifically authorized t o
make b y law.
“ost o f these letters o f credit a r e Suaranteed
either o n
the faith o f the credit o f the customer o f the
bank o r o n
his credit supported b y ade..uote collatergl,
a n d t h e question arises whether t h e Comptroller i s justified
i n reStricting t h e operations o f a national b a n k
t o simply
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Federal Reserve Bank of St. Louis
460
guaranteeing t o pay money that i s
o n deposit with i t and
appropriate f o r t h a t purpose.
Governor Aiken; I
wrote a letter t o Ma, Warburg
in regard t o this case, because i t seemed
t e me thar the
attitude o f the Comptroller's office
should be different.
it is e a s y , b y fiction, t o set
u p a credit against
which guarantee coula b e madc, t h a t
i t seems t o me that
fiction ought not t o be forced upon
the banks»
aS I understand it, issue a
cefinite a n d f o r m a l a g r e e m e n t
O u r banks,
letter o f Credit against a
o n the part o f the party t o
whom the letter i s issued, agreeing
t e pay t h e bank
i n
funds t o meet those acceptances a certain
number o f days
before the acceptance falls due, I t
ought not t o be neces-—
sary f o r the bank t e use that agreement
a s a basis f o r
actual credit o n the books.
I t 1 8 purely a fictitious
operation and would not change the
real situation i n any
respect, b u t whether i t would comply
technically with t h e
law, I
cannot Say.
Governor Wold:
T h a t i s a subject t o which I have
not given very mech consideration,
b u t i t seems t o m e there
is clearly a
contingent liability there that Ought
t o be
Gisposed o f i n some way.
I f the customer for whom the
guarantee i s given fails t o pay the
bank will have t o
pay.
T h e liability i s the same a s i t would
b e upon a
rediscount O f yeur customer' g s bills.
Governor Aiken: T h e account is set up on
both sides
of the statement Showing amount o f
the letter o f credit
Outstanding a n d the liability, a n d
t h e contract w i t h t h e
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Federal Reserve Bank of St. Louis
461
customer t o take c a r e o f that liability
o n the asset Side.
It is set u p i n the form of a statement.
T h e actual
amount o f the letter o f credit i s
n o t passed t e the credit
of the individual Customer,
The Chairman:
Y o u mean h e makes good
i f the letter
is used?
Governor Aiken:
The Chairman:
Yes,
This q u e s t i o n o f a
bank guarantéeing
Obligations i f carried t o the very
last extreme, could b e
applied t o the business o f the
national b a n k a n d would
prove t o b e s o embarrassing
business.
Government.
that t h e bank could n o t d o
Take this practice t h a t i s
required b y the
They will n o t make retransfer
bonds except o n a guarantee o f
the bank.
of government
T h a t i s a nation-~
al bank i n most cases, and when
the national bank buys some
government honds a n d wants t o
have t h e m transferred
have g o t t o Guarantee t h e Signatures,
they
Creating a n obliga-
tion that exists & 8 long es
the statute runs.
I t is just
48 ultra vires for a national bank
t o guarantee Signatures
in that way, i t seens t o me,
a 8 i t i s t o guarantee a
ter of credit.
let-
I t is merely another form
o f extending
the credit.
I think the ruling i s Simply
a n extreme r u l i n g that
will simply cause enbarrassment
and d o n o &000 whatever,
Governor Alken: I
would like t o a s k what y o u
think
would b e the best way t o deal
with it. I
acknowledge
that m y knowledge i s Only academic
with regard t o these
matters, Y o u have had a great
deal o f practice i n dealing
with t h e s e c o m m e r c i a l credits,
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Federal Reserve Bank of St. Louis
862
man, GCotimnons:
T
h
i
s matter will probably
cause a great deal o f embarrassment later on.
J u s t now
it would b e i n isolated cases itke t h e o n e y o u speak of.
AS o u r a c c e p t a n c e b u s i n e s s d e v e l o p s t h e c u s t o m e r
of
an American exporter i n a foreign country i s probably going
to be able t o draw either i n sterling o r dollars, according t o the rate.
H e will elect t o draw i n dollars w h e n
the discount i n New York i s favorable t o the dollar draft,
and h e will draw i n sterling w h e n the discount i n London
is favorable t o the sterling draft.
I
f the American
bank c a n n o t e s t a b l i s h s u c h a r r a n g e m e n t s w i t h a
bank i n
London a s will enable a n exporte® t o elect which kind o f
a draft h e will draw t h e n w e are going t o attempt t o
force h i m t o always d r a w i n dollars, a n d t h e minute w e
attempt t o force h i m t o always d r a w i n dollars, t h e n h e
is g o i n g t o h a v e t w o s e p a r a t e d r a w i n g a r r a n g e m e n t s i n s t e a d
of one-
H
e c a n arrange h i s crawings a t present w i t h
one b a n k i n New York o r Boston provided t h a t b a n k c a n
make similar s n d equally advantageous banking arrangements
for h i m i n London. I
believe t h a t the American banks ulbi-
mately have g o t t o b e i n a position t o facilitate giving
customers, American exporters, t h e privilege o f drawing
either i n dollars o r sterling.
T o d a y that involves the
American banks having a relationship with the knglish
exporter t h a t w i l l i n d e m n i f y t h e E n g l i s h exporter.
T h e
emerican b a n k will b e i n a position o f accepting t h e re-
sponsibility o f reimbusing the London bank, which now i s
entirely arranged i n London.
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Federal Reserve Bank of St. Louis
463
Governor Aiken:
I t seoms t
e us that the effect of that
will b e t o drive that business b a c k entirely inte t h e
hands o f the private banker i n Boston.
w e have t w o large
banking houses there--=- t w o large ones a n d o n e smaller one-that have done practically a l l that business.
T h e First
National Bank, a t great expense a n d vith a great deal o f
commendable energy, h a s built u p the foundation f o r a n excellent foreign business.
I t seems t o m e that t h e carry-
ing o u t o f this ruling will interfere w i t h their business
SO seriously that i t will have t o g o back into t h e hands
of the private bankers.
The Chairman:
meeting,
W h y not pass a
resolution a t this
i f the others agree, f o r the purpose o f getting
it before the Federalkeserve Board for investigation. I
have t a k e n the liberty o f also sriting Mr. Warburg about
it.
Gove rnor Seay:
U p o n what ground?
The Chairman:
W e would have t o base i t upon o u r
belief that i t will interfere w i t h t h e development o f
our foreign exchange business b y member banks a n d drive i t
to private inst&htutions,
Goernor McDougal:
Governor Strong-
I t will g o further t h a n that,
I t will restrict them i n a matter o f
budness t h a t t h e y have always conducted. I
have n o doubt
that the banks i n New York have a large amount i n letters
of credit issued both f o r cash a n d under guarantee,
have here, I
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Federal Reserve Bank of St. Louis
know,
W e
464
Governor Aiken;
I t i s just as true o f travelers! let-
ters a s i t i s o f commercial letters.
Governor Wold; I
was speaking t o Mr. Forgan last
week and he said they had be.n issuing them for forty
years a n d w o u l d c o n t i n u e
The Chairman:
ing éredits
t o issue t h e m u n d e r guarantee.
T h e American b a n k s h a v e b e e n guarantee-
o f that k i n d f o r a l l t h e c o p p e r t h a t
isexported
from Chile,
Governor L o w r y :
I
t has b e e n t h e common practice
in
“an ¥rancisco for many years t o issue these letters
of
credit vith guaranteesin Sterling exchange.
A n y interfer-
ence o f that kind with that P l a n would b e
quite a
thing t e t h e i m p o r t e r s
The Chairman:
serious
i n t h a t section.
T h e attention o f the Conference having
been drawn t o the letter o f the Comptroller o f
theCurreney
dated Jyne 2nd, addressed t o the national
bankers,
in
regard t o guarantees o f commercial and other
credit b y
national banks,
i t was o n motion d u l y seconded, resolved
that the Federalkeserve Boara be requested
t o obtain if
possible a
vithdrawal o f these instructions,
i t being t h e
conviction o f the Conference that these
instructions,
if
literally enforced, would seriously interfere with
an ime
portant business now being conducted b y
member banks and
further interfere w i t h t h e development
i n the future o f the
acceptance business, which should b e encouraged,
The Chairman;
D e e s t h a t cover what y o u have i n
mind, Governor Aiken?
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Federal Reserve Bank of St. Louis
Governor Aiken:
Yes.
Governor Rhoades: I
second that.
(The motion was duly put and carried a s above
stated.)
The Chairman:
Reserve notes",
I t e m No- 23, "setirement o f Sederal
i t seems t o m e has b e e n already pretty
well covered b y our previous discussion o f the method o f
handling federal reserve notes.
Suggested t h e topic, 1
I f agreeable, a n d a s I
will m a r k i t a s already cow ered.
i would l i k e t o have y o u now indicate w h i c h o f the
last four items y o u wish t o discuss first.
Governor McCord: I
think w e c a n get through with
Topic 1 4 pretty quickly.
The Chairman:
W e will consider Topic No- 14, "Intra-
district collections,"
I t e m (a) "collection o f checks
drawn o n a l l b a n k s w i t h i n d i s t r i c t
w i t h nominal compen-
sation f o r collecting checks o n non-members
i n member bank's
y
own town! w a s Suggested b y Gov. ‘nor McCord:
Governor MeCord:
& A good many o f the banks i n our.
cistrict h a v e expressed a
willingness a n d desire t o enter
the clearing system provided w e collect a l l checks, national
and state.
T h e question w a s taken u p with a
member o f t h e
Board at Washington and it was stated by Dr. Willis that
the word "member" i n reference t o checks was i n there b y
inacvertance, b u t that the matter could b e handled under
the open market transactions.
Our people whuld like t o know i f i t would b e desirable o r possible t o collect f o r member banks checks that
they m a y have o n all state banks o r non-member banks a t a
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Federal Reserve Bank of St. Louis
466
nominal r a t e o f exchange,and t h e rate sugecsted b y them
is one-eighth o f one p e r cent, u p t o 3,000 inhabitants,
1/10 of one per cent up to 25,000 inhabitants, and 1/20
of one p e r cent above that, reserve cities free.
I would like t o hear a n expression from the other
Governors a s t o whether they think i t is feasible
and practicable, whether they would c a r e t o do
i t o r not d o a
and whether there would b e any objection t o doing
it.
The Chairman:
W h e would p a y the charge?
Governor McCord:
W e would pass i t o n t e the bank that
put i t i n and time his paper.
The Chairman:
Y o u would select a
charge o n the non-
member bank's check?
Governor MeCord:
The Chairman:
Yes.
A n d would pass t h a t o n t o the member
bank that deposited t h e check?
Governor McCord:
The Chairman:
xyes,
W h e woulda pay the one-eighth o f one
Per c e n t o r t h e o n e - t e n t h o f o n e
p e r cent?
Governor McCord:
T h e depesiting bank.
T h e charge
would originateat the point o f destination and b e charged
back t o the bank that put t h e i t e m in.
The Chairman:
W o u l d it not work just the other way?
Governor McCord:
The Chairman:
N o . I
d o n o t s e e why.
S u p p o s e w e call t h e depositing bank
Bank A, and the bank o n which the check is drawn Bank
B.
You would give Bank A, when i t deposited that check,
credit
for the face ameunt o f that check, and would expect
to
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Federal Reserve Bank of St. Louis
467
give the depositing bank A alse one-eighth o r one-tenth?
Governor McCord:
N o .
Y o u d o not understand me.
Your member b a n k a t the collecting point would g e t
the
exchange f o r the service,
The Chairman:
t h e n y o u would send t h e check o f a non-
member bank t o one o f your members i n the same town?
Governor McCord:
GOvernor Aiken:
Yes.
T h e depositing b a n k would g e t credit
less one-eighth o f one per cent
Governor Fancher;
A n d you would pay the one-eighth
of o n e p e r cent t o the collecting bank?
Governor McCord:
The Chairman:
W o u l d that work i n your district?
Governor MeCord:
The Chairman:
Yess
I t i s working.
I f i t would w o r k i n our district I
would l i k e t o s e e i t done.
Governor MeCord:
I t i s working i n our district
right now; o u r members a r e par .cipating i n it, state
banks a r e participating i n i t and also that i s known a s
the Atlanta clearing house, which vwovers Georgia, Alabamn
and Florida,
Governor Wold:
Y o u are recognizing right there the
principle t h a t t h e exchange i s a credit, sOmething w e are
trying t o get away from.
W e have t a k e n t h e position that
the deduction o f exchange was a charge that was not justified.
T h e drawer o f the check was t h e one w h o ought t o
pay and n o t t h e bank o r the person w h o happened t o get
possession o f it. I
think w e should handle t h e checks
upon Our member banks advantageously a n d satisfactorily b e
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Federal Reserve Bank of St. Louis
468
fore w e c o m m e n c e
t o a t t e m p t t h e c o l l e c t i o n o f checks
non-member banks,
Governor McDougal: I
d o not s e e that i t would b e
very advisable t o und«rtake anything o f that
kind a t the
present time.
O n e reason, a m o n g others,
i s that w e are
loaning now--- y o u c a n call i t a collection
plan, b u t
have
it is really a clearing house System=-and we something
to charge everything against that w e take
over the counter
or through the mail.
I f the pian were extended t o accept
items o n non-member banks ¥ithin the district
there i s
no bank t o which the Charge c a n be made,
a n d it creates
a float, does i t not?
Governor McCord:
N o , there i s n o float.
Governor McDougal:
Governor McCord:
I t consumes y o u r resources.
N o . I
b e g y o u r pardon. i
Sai
time t h e items,
The Chairman:
as effective.
M i g h t not this idea b e j u s t about
I f we said t o t © member banks which came
into the collection System, "We will receive
from you
items o n state banks" possibly not all state
banks i n the
Listrict, but b y a gradual increase i n
area increase the
amount o f state banks, "and give you
deferred credit for
them a t par, provided o f course w e
have a
Similar clearing
bank i n the t o w n i n which t h e State
bank i s located,
which t h e d r a f t i s drawn,
on
W h a t t h e effect o f that would
be, i t seems t o me, would b e t o include
a lot o f items
that t h e clearing banks would sena u s
a 5 a n offest, a n d
we would t h e n b e able t o collect state
b a n k checks i n
towns where w e had clearing members, free
o f exchange, b y
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Federal Reserve Bank of St. Louis
4.69
sending t h e m t o those banks a n d giving t h e m t h e benefit
of the offset.
Governor Wold:
T h e trouble w i t h that theory i s
that i t would make i t that much more difficult f o r member
banks t o provide excess funds t o meet that.
T h e y will
have t o provide funds t o mect such bank's checks as well
as others,
T h a t i s t h e complaint
v e m a k e now.
I
t As
not s o much the protest agsinst t h e less o f exchange a s
it i s a protest against maintaining a n excess balance t o
provide f o r t h e i r checks.
The Chairman:
A S i t i s n o w the member b a n k that
clears receives o n deposit a
stato banks.
good many cheeks drawn o n
T n o s e checks i t m s t s e n d t o some other
collecting agent,
h o r e i t is obliged t o maintain abal-
ance f o r collection purposes.
sity o f two transfers;
T h e y a r e under t h e neces-
t h a t is, o n the collection through
their collecting b a n k and ther -
transfer f o r their credit
with the reserve bank against which their items will b e
charged.
T h a t would n o t enlarge t h e number o f items which
we will receive from them.
B y receiving items o n state
banks located i n towns where w e have a
clearing arrange-
ment w i t h a n y member bank, why, they, w e are going t o cut
the state b a n k i n that t o w n o u t o f exchange charges, because
to t h e extent t h a t w e get items f o r collection drawn o n
state banks i n towns where w e have collecting banks, w e
can send t h e m directly t o that town a n d get t h e m collected
over t h e counter f r e e o f exchange charge.
T h e influence
upon t h e state b a n k i s going t o b e t h e increasing o f the
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Federal Reserve Bank of St. Louis
4.70
it
yolume o f items drawn o n the bank which has been t h e custom
in t h e p a s t t o r e m i t - - -
Governor Wold (Interposing):
I t will result i n
the national b a n k providing funds i n reserve
take c a r e o f state b a n k checks.
i n order t e
I t will make t h e state
bank's checks par a t the reserve center without a n y effort o n his part a t all.
Mr. L o w r y :
Suppose
in a
al banks and one state bank.
town there w e r e t w o nation-
O n e o f the national banks
joins the collection plan andthe other does not-
I f
wesend to the joining bankg checks on itself and on the
state b a n k and refuse t o handle checks o n the other nationin
al bank that does n o t foin the collection p l a n w e are
a position o f discriminating against one o f our member
banks.
H e i s discriminating against him-
Governor McCord:
self.
The Chairman:
W e are discriminating now, i n a sense,
handle
it seems t o me, because i n our district w e d o not
their checks a t all-
Mr. Lowry: k x a c t l y .
Y o u w o u l d offer facilities
for collecting checks 6 m a bank that h a d n o connection
withethe s y s t e m whatever a n d refuse t o collect checks
capital
on a bank that was a member o f the system, h a d i t s
in
invested w i t h you, b u t simply d i d not choo se t o join
your cooperative plan.
Governor Seay:
I f v e d i d that w e would probably
have t o take checks for collection and not f o r immediate
the
ercdit--- checks o n non-assenting member banks i n
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Federal Reserve Bank of St. Louis
ATL
same place.
e would.
Mr. Lowry: U n d o u b t e d l y w
W e would doubt-
less b e forced t o apply t h e same pressure t o the non-clearW
ing bank a s w e d o t o the non-member bank.
e will b e
offering facilities f o r collection t o the n o n member bank
equal t o what w e would b e offering t o the member bank.
The Chairman:
I n our district these state banks
charge exchange o n their checks, a n d i f all the che eks
@rawn o n the state bank,
i n the town which y o u refer to,
came t o that state b a n k through 4 member b a n k i n that
town that cleared, t h e s.iate bank would lose i t s exchange,
would i t not?
Governor Seay:
I t would f a c e t h e m into a
very ser-
ious position.
Governor Wold:
I t would not improve their position
by joining theo system.
The Chairman:
Y e s sir, i t would.
the bank would b e improved,
T h e position o f
i f . 6 joined t h e system,
to
the extent t h a t checks o n his bank w u l d t h e n circulate a t
par within the district, w h i c h they d o not d o now, b e c a u s e
they are subject t o exchange a n d collection charges,
Governor Seay?
mos t
H e could p u t t h e m i n himself i n the
convenient form, b u t 1 f they went t o the member
bank they would have t o b e paid i n cash i n all probability,
unless there was a private arrangement t o the contrary.
Governor Wold:
I n the customary setttement o f balan-
ces between banks i n the country c o m m e n
of the paying bank.
a t the convenience
I f they have excess currency t h e y
give t h e m currency, a n d i f they have n o t t h e y give t h e m
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Federal Reserve Bank of St. Louis
exchange a t par.
A l s o , s o m e o f the b a n k s
prefer t o have their neighbor across t h e street g e t t h e
items.
T h e y give t h e m exchange acceptable t o
The Chairman:
T h e y would give them exchange o n
the collecting bank.
the Federal Reserve Bank i n their district.
I
Governor McCord:
to
f t h e y d & n o t s e n d t h e checks
a
the bank they are drawn o n they will come i n and raise
row about it.
T h e merchants will say, " I want m y checks
sent t o m y bank. *
know i f w e should notify o u b member
Mr, Lowry: I
panks that v e will take f o r collection checks o n the First
National Bank of Stockton, w e will say, and o n the State
National Bank of Stockton, but that we will not handle
{in any way shape o r manner checks o n the Fifth National
w e would have a l l kinds o f trouble o n
Bank o f Stockton,
our hands right away.
Governor Seay:
Mr. Lowry:
T h a t position could not b e defended.
W e have t a k e n the position i n our dis-
have
trict that unless t h e bank assents t o the plan w e
proposed w e will n o t handle items o n that bank either f o r
credit o r for collection.
The Chairman:
T h a t i s o u r position.
Governor Seay: T h a t is our position, and 1 think
the position o f all o f us.
Mr. Lowry:
I f we agreed t o take checks o n banks
not i n a n y w a y c o n n e c t e d w i t h t h e s y s t e m a n d r e f u s e d
to
take checks o n banks that a r e members, b u t which d o not
i n all
happen t o like o u r plan o f collection, why, t e are
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Federal Reserve Bank of St. Louis
kinds o f trouble.
The Chairman:
w e put. oub a circular i n which w e said
we would o n l y recbive o n deposit certain cheeks o n the
member banks t h a t cleared;
t h a t i s t e say, w e would accept
checks d r a w n o n member banks i n the reserve a n d central
reserve citics i n our district, member banks, a n d w e would
receive o n deposit checks drawn o n any member b a n k which
had joined t h e collection system a n d receive o n deposit
subject t o the time echedule, checks o n Federal Reserve
DARKS =~ 649
# 8
Mr. Warburg a t once called m y attention t o the fact
that t h a w a s a
violation
o r evasion o f t h e express provi-
sion o f the l a w which requires u s t o receive o n deposit a t
par checks d r a w n o n solvent member banks. I
told h i m w e
would modify t h e circular i n the next edition.
It may b e that the Federal Reserve Board will call
our attention formally t o the fact later o n that the terms
of t h e circular i n respect t o ~ot receiving o n deposit
checks d r a w n o n member b a n k s w h i c h d i d n o t c o m e i n t e t h e
plan i s a violation o f the l a w which the Board cannot conntenance a n d that w e must receive those checks o n deposit
at par o n the same terms.
The Bard has made a ruling that "par" does not mean
necessarily i m m e d i a t e credit.
C o n s e q u e n t l y w e a r e gradu-
ally moving t o the point where w e distinguish between a
check o n the clearing bank and a check o n the member
bank that d o e s n o t clear, giving immediate credit i n one
case a n d d u f e r r e d c r e d i t i n t h e other.
A
B I
view t h e pro-
position w e probably will have t e d o that later-
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Federal Reserve Bank of St. Louis
T h e
minute w e d o that « e have g o t t o have a collection
facility;
w e have got t o have a bank to send those items
to for collection.
W
e want t o avoid t h e exchange charge
and t h c way w e d o that--- t h e o n l y w a y that I see t o cb
it --- is t o enlage our clearingplan s o that we will have
the a r e a o f o u r d i s t r i c t s m o r e n e a r l y c o v e r e d
b y banks
that clear, and w e can use those banks a s collecting
agents;
a n d w h e n w e d o that t h e n w e m a y b e i n a
position
to enlarge o u r operations andreceive checks o n state
banks a s well a s non-clearing banks vithin the radius o f
each of our clearing banks i n the different sections o f
the district.
We are restricting our operations now t o a n extent.
We have far greater leaway under the act, but we are doing
it O f course b y necessity.
Mr. Lowry: T h e n , a S I understand you, you d o take
for collection checks o n member banks that have not
assented t O the plan?
The Chairman: N e , we do not, and we are in the same
position that a l l t h e other districts a r e in, o r almost
all o f them, a n d that i s o f violating t h e l a w i n that r e spect.
O u r circular i s quite specific i n stating that w e
are v i o l a t i n g t h e law, u n f o r t u n a t e l y ,
a n d when w e put o u t
another circular w e will try t o avoid that.
Mr, Lowry:
W h a t does t h e Board object t o ?
D o they
Object t o the circular o r t o the fact?
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Federal Reserve Bank of St. Louis
The Chairman:
I t objects t o the statement o f racts.
Governor Seay: I
re call distinctly that that ques-
475
tion was discussed w i t h t h e Board a n d they agreed a n d
acquiesced i n i t o r winked a t i t i n the beginning.
Miller himself
S i r e s
t h a t language. I
Dr.
a m sure that
that w a s t h e decided understanding, t h a t i t would b e undertaken i n the beginning i n that manner.
The Chairman:
S o m e unkind member b a n k i n our dis-
trict whnt through o u r circular a n d called t h e attention
of the Board t o the fact that w e were violating t h e law.
I think that was t h e cause o f this communication.
i
t
would not make a bit o f difference t o u s i f we stopped t e -
day and said t o the member banks i n our district, " W e will
receive o n deposit a n y checks o n any member banks i n this
district, b u t will only give y o u credit o n those checks
drawn o n clearing banks "<--- because w e wouldn't g e t a n y
checks o n the other b a n k s - T h e y would g e t immediate
credit f r o m their correspondents, a n d a r e getting i t now-
Governor Aiken:
I n our district w e would get
& good m a n y and would have t o use t h e Boston Country
clearing.
items now.
T h e y don't get immediate credit for those
Credit
i s deferred t w o days.
I
t would s i m p l y
mean that w e would g e t those checks a n d send t h e m out
through the Boston clearing.
Mr, Lowry:
expensive.
I f we did that i t would b e extremely
L o s Angeles makes a
charge o f five cents a
hundred o n all items they collect f o r San Francisco.
I f
we agreed t o take checks o n member banks i n Los Angeles
at par, w h e t h e r f o r immediate c r e d i t
o r deferred c r e d i t ,
we would g e t from Los Angeles checks deposited i n San
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Federal Reserve Bank of St. Louis
476
Francisco, t o the amount o f thousands o f dollars, a n d w e
ooOuld n o t c o l l e c t t h o s e a t par.
The Chairman:
H a v e y o u a n y bank i n Los 4ngeles t h a t
is i n the clearing plan?
Mp. Lowry:
N o .
(Informal discussion followed which the reporter
was directed not t o take.)
The Chairman:
G o v e r n o r McDougal h a s offered a
resolu-
tion, i f I heard h i m correctly, t o proceed with item 14=(b).
Governor Wold:
T h e condition resulting from Federal
member
Recerve Banks accepting items u p o n federal 4eserve banks
in federal reserve cities would n o t affect those banks
located
i n cities w h e r e t h e r e i s a
sSub-treasury,
b u t with
those banks t h a t are located i n 4 city where there i s n o
subtreasury,
i f checks o n uenber banks i n those cities a r e
generally accepted b y other federal reserve banks, i t will
j
make i t difficult ana S S S
E S t h e m t o make settlement
in the gold pool.
There h a s been a little o f that done. i
®
n o t like
to charge t h e Atlanta banks w i t h a n y more things t h a n she
is now charged with, but Atlanta has sent u p some items
that w e have taken.
T h e y have not been o f a size that
would c a u s e a n y cencern,
b u t t h e y m a y r e a c h that.
think Chicago h a s sent u s a fev. I
B s
would like t o know
what t h e attitude o f the other banks is.
O
f course w e
areaccepting checks drawn upon banks i n the Chicago
dis~
trict and the New york district because w e need that exchange;
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Federal Reserve Bank of St. Louis
i t i s for the purpose o f Settling something.
I f
477
one O f the accepting banks i s i n our debt w e have n o
objection,
o f course, t o their sending checks t o u s drawn
upon member
b a n knsi
our city, but I think there ought
to be some understanding a s to just how. far it should go.
‘Governor MeCords
W e have t o do one thing o r the
other; w e have te send them regularly or not send
them:at e e e
Y o u Ae)
r e g u l a t e t h a t w i t h your member
banks bacauce they do not k n o w t
h
e onditio& f
o your account ‘with m e o r m y account w i t h you,
I f we'take a
one d a y ne: eee g o t t o take t h e m continuously.
I
few
f we d o
not take them a t all, why, that i s all right.
Governor Fancher:
W
e h a v e s e n t ‘ a circular
t o the
member banks saying that we would take certain exchanges,
confining it to cities right around our territory. d
n
a
central reserve c i t i e s s u c h a s B o s ton a n d Philadelphia.
We are not atte apting now, o r are our members asking u s t o
flo it, t o take checks o n member banks i n Dallas, Min.eapolis o r Kansas City. I
think when y o u g o into that
proposition y o u are starting something o n pretty broad
lines that i s going t o work a hardship o n banks located
like the bank in Minneapolis ond Cleveland.
The Chairman: ,
Gentlemen, this item is also covered i n Item 15. M a y
we consider this brief informaldiscussion o f Item 1 4 a s
preliminary t o onsidcring i t e m 1 5 and proceed w i t h the
program?
Governor McCord:
I t e m (c) under subject 14, b y
Governor Rhoades, h a s n o t been heard from.
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Federal Reserve Bank of St. Louis
The Chairman:
B u t before coming t o that I was
478
g0ing t o suggest,
a s a means o f dealing w i t h
this Subject
raised b y Governor Wold, t h a t w e pass
a
resolution which
I will take t h e liberty o f dictating.
after informal discussion o f reeares
i t was
resolved that before a n y reserve b a n k
undertakes t o receive
On deposit items d r a w n o n member banks
i n their Gistri ects
it will first effect satisfactory arrangements
w i t h the
federal R e s e r v e B a n k o f t h a t
district.
Governor Fancher: I
Governor W o l d : I
The Chairman:
second tnat resolution.
move i t s adoption.
I s there a n y further discussion?
(There was n o further discussion a n d
t h e resoly-
tion was duly adopted.)
Governor McDougal;
M e y I state that i n our collec}
tion circular w e offer t o take f r o m
member banks w h o have
joined t h e C O l l e c t i o n p l a n i t e u s
d r a w n O n member b a n k s
the
the Federal
in
ieserve System located a t
four points f r o m
which we take exchange at par for immediate
credit, Boston,
New York, P h i l a d e l p h i a
d
n
a
- St. Bouis.
W o u l d that b e i n
violation o f t h e r e s o l u t i o n
t h a t w e have j u s t passed?
The Chairman:
I t would b e i f w e had
passe@ a
resolu-
tion before y o u Started t o d o
it; b u t having startea t o
do i t now y o u vill have t o
square your account v i t h t h e
resOlution b y a little discussion
w i t h the banks,
As t o New York, Govemor McDougal,
4 want t o reiterate what has been Jrequently stated
a t thése meetings,
that w e are willing t o t r y
anything a s long a s t h e money
lasts, a n i i f i t does n o t work
w e will l e t y o u know.
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Federal Reserve Bank of St. Louis
(Further informal diseussion followed.)
Mr. Lowry: I
would l i k e t o explain o u r position i n
San *rancisco i f i t would b e o f interest t o t h e Governors.
We have notified o u r member banks t h a t w e would charge
them t e n cents p e r thousand f o r paying checks Crawn o n us
by them end coming t o us f r o m other federal reserve banks
from outside t h e district.
The question h a s been raised b y some o f the Federal
Reserve Banks a s t o what basis w e will take items drawn o n
member banks a t San *rancisco, a n d w e have thought i t was
only fair t o impose t h e sane charge.
W e have t o deposit
gold i n the sub-treasury t o make o u r seitlements good,
and eventually that gold will have t o be moved.
T h e Pacif-
ic Coast i s t h e o n l y section i n the United States, practically, where geld originates, a n d during t h e last three
years t h e r e h a v e b e e n received
40,000,000 i n gold.
T h e y have a t presmt 4120,000,000
in the sub-treasury.
Situation.
W
i n t h e sub-—-gressury
W
e have n o t been happy o v e r that
e w o u l d r a t h e r h a v e t h e g o l d i n N e w York.
Ihave s o m e figures h e r e t h a t w i l l s h o w s o m e w h a t o u r
position there.
W
e have received i n cash from other
districts $11,000,000.
T h e y have sent u s for investment
purchases b y us, $2,000,000, making 413,000,000.
w e have
sent c a s h letters t o other districts amounting t o
y4 ,000 ,000.
W e purchased exchange t o the amount o f
5,600,000, sone o f which w e got a t par and some of which
we p a i d a
p r e n i u m for.
v
e have s e n t gold order certi-
ficates t o New York t o the amount o f 55,900,000, T h e s e
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Federal Reserve Bank of St. Louis
480
certificates Simply m e a n that t h e
G0ld remains a t San
Francisco a n d i s Paid o u t a t N e w
York.
T h a t o f course
will n e t cost u s anything, b u t
w e are anticipating a
cost
in the future w h e n t h e €0ld does
have t o b e moved,
The Chairman:
T h a t i s fust the point
I
fear.
you know, t h e g o l d i n m o s t p a r t s o f
t h e country,
A s
w i t h the
exception of San Francisco, goes promptly into
the subtreasury a n d i s represented b y
issues o f gold certifi cates.
*hese certificates are nore largely presented
a t the New
York Sub-treasury for gold than i n
any Other part o f the
country.
B y establishing the gold fund
i n Washington,
which i s not a n exchange center, which
results i n moving
the gold from the New York Sub-treasury t o
Washington,
we are going to have imposed
upon us an expense, b y the
establishment o f the gold fund and
the maintaining o f it
in Weshingtony that otherwise would
not b e imposed upon u g
Mr. Lovry:
I f we attempted t o take items
o n can
Prancismo a t par, a n d S a n B r a n c i s c o
banks receive a
large
number o f items i n their district
f r o m N e w York o p from
other eastern Centers, and i f instead
o f remitting for
them would wait for the New York
bank t o draw o n them,
we would have t o make the transfers
i n very large quentities a t a c o s t which w e could
o n l y guess at.
i t o b e ten cents a thousand
.
W e guess
h e may b e guessing very
wrong, b u t that i s the Preliminary
rate that w e have made.
On that basis ve shall be Slad t o handle items
o n wsember
banks a t S a n francisco f o r other
federal reserve banks.
We m a y change that rate.
will change it.
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Federal Reserve Bank of St. Louis
I f i t i s found t o b e t o o high
we
481
Governor Wyld: I
a m not clear o n this point a t all .
As I understand t h e operation o f the gold pool w e under-
Stood w e might b e required t o pay a certain portion o f
the expense o f moving t h e gold f r o m one part o f the
country
t o t h e o t h e r i n c o n n e c t i o n w i t h t h e g O l d pool.
But i f you desposit the coin i n the sub-treasury a t San
“rancisco and get gold order certificates and send then
to New York the New York bank o r your bank will not b e
expected now, o r at any other time, t e make a n y contribution t o the expense o f moving that gold.
T h a t is a
sub-treasury operation,
The Chairman:
Yes.
Governor Lowry:
T h e y reserve t h e right t o meke a
charge.
The Chairman:
method.
T h e y protect themselves
b y another
T h e sub-treasury system has adopted a
policy,
in order t o proiect these sub-treasuries where there i g
a drain o f gold, o f only receiving gold o n deposit f o r
transfer t o other districts, s a y a t N e w York, where t h e
drain occurs, b u t never recelving i t a t San *rancisce a n d
Other points.
T h e y reported t o us, f o r instance,
i n con-=
nection with this plan originally t h a t they would n o t re-~
“webve deposits o f Bold a t S a n “rancisce i n order that pay-
ments might b e made a
New York was constant.
New York, because the drain i n
I f you wented t o make payments
in San *raneisco you could deposit all the gold you wanted
tO i n N e w Y o r k a n d t h e y w o u l d m a k e a l l t h e p a y m e n t s y o u
wanted t o make i n San Francisco; a n d that i s the w a y they
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Federal Reserve Bank of St. Louis
482
protected t h e N e w York Sub-treasury f r o m t h e
drain.
Governor Seay:
T h e y are actually doing what t h e y
say they will n o t do.
The Chairman:
Mr. Lowry:
S u b j e c t t o a fubure charge.
N o t subject t o a future charge i n
ordi-
nary transactions.
A n y bank i n San * rancid sco
can take
gold t o the Sub-treasury, g e t order certificates
payable
in New York, and they aré actually doing what they
formerly ceclined t o de.
The Chairman:
B u t there i s a charge f o r Shipments
and insurance o n those other certificates, w h i c h
affords
them some Protection, whereas,
i f they receive t h e gold i n
San Francisco a n d issue certificates i n
New York the only
course i s a
telegraphic c o u r s e w h i c h t h e y m a k e
yOu pay i n
most cases. T h a t puts a drain on the New York subtreasury without any restriction Vaakoveosua
Me. Lowry; (Interposing) T h e banks of San FranCisco, w h e n they send s u c h certificates,
ordinarily i n -
sure them at a cost of 2-1/2 cents a thousand.
-
They
very much prefer t o deposit gold w i t h
u s and let u s get
the c e r t i f i c a t e s a n d s e n d them.
T h e y argue that i f a
certificate gets lost i n the mails w e could
get i t replaced
with very much less trouble t h a n t h e y
can,
b e e bank i n
San Franciseo h a s a n experience O f
that kind some years
BGO.
T h e y sent a Shipment o f these orders
t o p a y o n the
New York Sub-treasury a n d d i d n o t
insure them, a n d the
certificates became l o s t o r destroyed
i n the mails,
I t
took t h e m the better part o f a year
t o get duplicates, a n d
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Federal Reserve Bank of St. Louis
483
it required a
special a c t o f C o n g r e s s b e f o r e t h e
matter w a s
finally clearea up.
Mr. McKay: I
think w e are talking about t w o separate
things i n regard t o this Gold settlement fund.
I
where a
think
shipment o f gold f r o m o n e Sub-treasury c i t y
to
another S u b - t r e a s u r y
city w o u l d b e r e q u i r e d t h a t t h e
Govenn-
ment expects there would b e « 4 charge f o r
that service,
but that would o n b y b e i n a case
where gold certificates o n
ene Ssub-treasury w e r e p r e s e n t e d
a t another Sub-treasury,
Under t h e gold settlement f u n d i t
will n o t b e necessary t o
have such transactions a t all, and the
only Charge that
will b e liable t o be incurred i n the
gold settlement fund
is where a
bank, w e will S a y t h e federal reserve
bank i n
Philadd phia, shoule d r a w o u t o f the
sub-treasury i n Philadelphia m e r e money t h a n they have
o n deposit there i n the
fund, which would necessitate t h e shipmenty
frem some other
Sub-treasury t o the Sub-treasury i n
Philadelphia, o f g2ld
for the purpose o f paying the Federal
“eserve bank this
gold. I
think that was the understanding when
w e had the
matter u p i n Washington, t h a t that
Would b e t h e o n l y time
a charge would necessarily b e made,
W h e n a
sub-treasury
was not able t o supply this fund a n d waula
have t o call o n
another sub-treasury t o ship gold i n
order t o pay the
federal reserve bank its excess i n the
geld fund a charge
would b e made.
withdrawn
T h a t would only take place i f the amount
b y t h e federal reserve b a n k would
b e i n excess
of the amount t h a t they h a d originally
deposited i n the
Subtreasury,.
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Federal Reserve Bank of St. Louis
T h a t i s m y understanding o f it.
484
Governor McCord:
T h a t would b e charged t o that opera-~
tion only e n d not t o the general operations o f the sub-treas-
ury.
Mr. McKay:
Yes.
Governor Seay:
T h a t i s correct.
T h a t is the under-
standing o f the Federal Neserve Board, a n d m y understanding
Of it.
Governor Fancher:
T h a t was clearly m y understanding
OF 30s
Governor McCord: I
had i n mind, w h e n y o u were speak-
ing o f transfers, iiat w e might b e called o n t o pay for
the transfers o f all t h e other business interests o f the
country.
I f San “rancisco issued certificates payable
in New York and the gold fund was depleted i n New York, and
thoy had t o move the money, they might suy that the gold
pool. would h a v e t o b e a r t h i s e x p e n s e « H o w e v e r , t h i s e x ~
planation
b y Mr. M c K a y c l e a r s t h a t up.
The Chairman?
W e are a little b i t a w a y from the
subject, w h i c h i s item 14-(b), “Receipt o f items drawn o n
member banks i n other federal reserve cities."
T h a t
subjecs has b e e n sufficiently discussed, and we will
pass it,
W
e have passed a resolution o n it and w e will
now take u p item 14=(c), "Will Federal Reserve Banks under~
take the collection o f time items a s well a s cash items,"
and will a s k Governor Rhoades t o make a statement.
Governor Rhoades?
I n view o f the ultimate transfer
of reserves i n the case o f small country banks they will
have n o balanecs
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Federal Reserve Bank of St. Louis
t o handle t i m e items.
W h i l e I
would n o t
485
advocate taking the matter u p now, J would like
t o ask i f
we c a n h o l d o u t a n y h o p e o f u l t i m a t e l y t a k i n g
u p that
business
a s a n inducement t o bring banks
i n t o t h e col-
. lection plan,
Governor Weld:
W e will not cross that bridge for
two years, will we?
W i l l w e cross i t until the
reserve adjustment i s complete?
I t seems t o me that
we h a v e p l e n t y o f t i m e t o c o n s i d e r t h a t
a t s o m e f u t u r e m e c t=
ing.
Governor Rhoades:
W w e have h a d a great m a n y
inquiries
as tO whether w e would ever undertake that
business,
Mr. MeKay: I
should think member banks would col-
lect those items directly themselves probably
asadvantageOusly a s the federal reserve banks c o u l d
i n many cases,
The Chairman:
L e you suggest, Governor Rhoades,
time
that w e s h o u l d n o w undertake t h e c o l l e c t i o n
o f items?
Gow ernor Rhoades:
N o sir. I
asked t h e question
fer information, a s t o whether i t is the sense
o f this
conference t h a t w e could e v e r hold
o u t t h e hope t o country
banks o f undertaking t h a t business?
Governor Seay: I
believe w e shall have t o do it
when w e are t h e only depositories
o f the banks.
AS Governor Wold Says, w e have
ample time t o consider
that when w e approach t h e withdrawal
o f balances f r o m r e
serve banks f o r deposit i n federal
reserve banks.
I cannot s e e a n y w a y o f escaping it.
I
B u t
think i t will b e
thrust u p o n u s a n d w e shall have
t o provide f e r it.
The Chairman:
T h i s question won't come u p for twe
years, O r probably longer.
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Federal Reserve Bank of St. Louis
486
Gowe rnor Rhoades:
T h e question i s answered, Mr.
Chairman:
The Chairman:
I
n connection w i t h the topic which
we have just passed I have j u s t read o v e r a letter f r o m
our office which seems t o m e t o have some bearing o n the
matter.
A s you know, the New York clearing house set-
tles i n gold a n d silver certiticates o r legal tender notes
and not i n national b a n k notes,
M r . J a y writes me:
"Our silver and legal tender certificates h a v e been
piling u p a t a tremendous rate."
Our silver had gotten down on the 7th to $7,000,000.
On the 9th of June i t was v24,700,000, a n d o n the 14th
of June i t was $29,000,000.
Legal tender on June 9th was $7,400,000, and on Jyne
léth i t was $12,800,000.
"At t h e close o f business J u n e 9 , Chicago h a d o n
deposit with us (2,700,000; a t the close o f business June
14it had $8,200,000,
"At the close of business June 9 other Federal re-
Serve banks owed us about $150,000;
a t the close of
business June 1 4 we owed other federal reserve banks
$8,100,000,
"During this same perlod a l s o member b a n k
deposits
have increased frem $135,300,000 to $138,200,000.
"I am not a n expert o n these things, but it looks
to m e a s though t h e other federal reserve banks
a r e piling
up credit here established through the deposit o f New
Yerk exchange, w h i c h i s paid t o u s i n Silver,
a n d will re
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Federal Reserve Bank of St. Louis
487
quire u s t o transfer i t t o them i n gold through
the scttle-~
mnt fund tomorrow evening."
That i s where t h e Pump works t h e other
way.
I f we
can work that silver off, w h e n y o u
gentlemen i n Chicago
craw enough against y o u r exchange balance,
i t would not
have any material effect o n the g0ld situation.
I f , how-
ever, y o u let these excessive balances r u n
over a settlement period w e are not able t o work o f f
the silver.
Y o u
yould b e paying gold o u t i n Chicago
a n d w e would b e absérb-
ing silver and paying out gold,
I t seems t o m e i n taking
exchange f n New York i t Ought t e be
well t o bear i n mind
that i t has that effect o f increasing our
holdings o f sil-~
ver, a n d unless y o u exceed these balances
b y drawing N e w
York exchange, w h i c h w e c a n settle through
the Clearing
house with silver certificates, the amount of
gold that
we would accumulate will disappear,
Governor Wold;
I s not that just one m a e reason
why
drawing
we ought t o be permitted t o maintain a c c o u n t s
with
you?
The Chatrman:
Mr. McKay:
Yes.
T h a t will work t h e other w a y when
the
exchange market changes a n d G°e€s t o
& premium.
I t will
be wiped out agein t o some extené.
The Chairman:
Y e s , b u t Suppose w e have n o t
the
means t o settle through the Clearing
house with anything
but gold, w h i c h Situation semetimes
will arise? I
mean
to say that our clearing house gets
glogged with bills
there; the clearing house banks have
Small bills i n hand,
and the facilities for counting this small
money a t the
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Federal Reserve Bank of St. Louis
488
clearing house a r e inadequate.
I f , just. for mechanical
reasons, w e vere not able t o get rid
o f this silver and
legal tender, t h e n w e are forced t o
lose o u r f0ld i n order
to p a y o u r b a l a n c e s
i n accordence w i t h t h e
clearins house
rules,
Mr. MeKey:
T i l l your Sub-treasury exchange
certificates f o r silver certificates?
They will
G0ld certificates f o r Sliver certificates
here,
The Chairman:
I f w e should t r y t o d o
that, i n the
volume t h a t w e m i g h t b e c a l l e d u p o n
t o d o it,
i n N e x York,
you would certeinly “hear something drop",
I
at o n c e o p e n t h e d o o r t o a
t would
demand u p o n t h e G o v e r n m e n t
to
convert five hundred million dollars
i n silver outstanding
into gold,
lr, MeKay:
W e have been getting some gold
e t the sub-
treasury here i n that way,
Governor McCord:
Y o u h a d better k e e p that guilet,
Mr,
MeKay. (Laughter),
Mr. Lowry. I
would like t o make a Suggestion, t o be
considered b y the committee appointed t o
consider reletions w i t h sub-treasuries,
and that 1s:
i f some arre nge~
ment could b e made b y which national bank
notes can be
presented for redemption a t the
sub-treasuries. insteed
of at Vashington, i t woula result
i n these Sub-treasuries,
such a s the o n e located a t S e n
Francisco, peying o u t sold
and getting rid of that gold, a n d
the national bank notes
would come o n to Washington finally.
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Federal Reserve Bank of St. Louis
Governor MeDougal: I
will s a y t h e t t h e S u b - t r e a s u r y
The Chairman:
T h e same thing
i s true i n New
Yorx,
h
T
e New York
Sub-treasury
would nevep
Permit u s t o
dump
e mass
h
t
o f national b a n k
notes f o r redemption
i n that
y that might
a
w
b e imposed u p o n
them.
I t would b e
e to l
b
i
s
s
o
P imforce upon t h e
treasury t h i s
whole Subject
of
e conversion
h
t
o f #1500 ,000
,000 o f paper
money into geld.
Mr. Lewry: ‘ t h o
Only thing i n San
“rancisco would
e the difficulty
b
,
o f handling it,
l
a
T h e force i s
very
l
m
s
T h e y Simply
Cannot handle
t h e netienal
bank
r t h e p r e s een t
d
arrangement,
d
e
t
s
e
n
u
notes
T h a t was
the reason
I
e
g
u
S
that t h e matter
b e referred
t e that committee
Secretary
ef the Treasury,
I t h i n k i t Would
b e o f great
advantage
t and t o
s
a
o
t o the Pacific
C
the Treasury itself
i f that COuld
b e done,
t woula result,
I
f gold there,
i n reducing
very much the
accumulation
o
Governor Seay:
W i t h the
expectation,
w h i c h seems
to
e rather widespread,
b
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Federal Reserve Bank of St. Louis
that the Federa}
Reserve Banks
Mr. Lowry:
V e r y likely y o u are right.
The Cnsirman:
M r . Lowry, I would like t o call your
attention t o one thing i n connection with your suggestion,
and t h e t i s that t h e g o l d i n t h e t r e a s u r y
States
O f the United
i s divided i n t o t w o classes; f i r s t ,
t h e gold that
is h e l d i n t r u s t t h e r e f o r t h e p a y m e n t o f g o l d c e r t i f i c a t e s
which the treasury has issued o r held i n trust for the
redemption o f legal tender. notes.
the so-called trust fund.
T h a t i s t h e f i r s t class,
T h e other class refers t o what-
ever gold may happen t o be i n the general. fund o f the
United States Government, a n d that general fund includes
Such money as,is d e p o s i t e d b
y national banks a s a redemption f
u
nr otheir
df
national b a n k notes.
L e t u s suppose
that t h e redemption o f national b a n k notes w a s forced
upon the. general f u n d a t a rate m u c h greater than t h e
rate a t which they receive gold i n the general business o f
the treasury.
T h e y would b e absolutely prohibited f r o m
paying gold f o r national b a n k notes a t S a n Francisco, b e cause t h e y would have t o use the trust fund gold.
Mr. Lowry:
T h e inconsistency
o f their p o s i t i o n
lies i n the fact that p a y m e n o
t the
s
t
redemption fund are
made constantly i n San Francisco whereas the actual redemption takes place only i n Washington.
I f t h e fund i s
placed i n San Francisco for the purpose o f redemption
why should not the redemption b e made there?
Governor Seay:
T h e fund i s not placed there i n
gold, i s it?
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Federal Reserve Bank of St. Louis
Mr. Lowry:
Y e s ; e v e r y dollar o f i t i n geld.
491
The Chairman:
T h e y a r e using t h e gold that y o u
pay i n out there t o augment t h e general fund o f t h e
Government i n gold. I
suppose t h e y a r e wise enough i n
Washington, w h e n t h e redemption takes place,
silver o r legal tender. I
t o p a y out
am satisfied, f r o m the volume
of silver certifigates that came out from Governor Rhoades'
bank recently, t h a t t h e y a r e paying o u t silver a t the
Philadd phia sub-treasgury pretty fast,
I would like t o suggest i n connection with this discussion another feature o f the matter that i s o f equal, i f
not more importance,
a n d might prove t o b e the solution
ofthe difficulty about the shifting of gold.
We have a feeling i n New York that a part o f the
process o f developing t h e use o f federal reserve banks,
and a very important part, i s a n accumulation o f gold
which takes place against t h e issue o f our Federal r e serve notes.
I f means c a n b e found t o disconhinue t h e
issuing o f ten and twenty-dollar gold certifrates t h e
tendency would b e t o drive out of bank reserves other
bills o f small denominations a n d drive i n t o t h e bank
reserves a l l t h e gold certificates which would thereafter
be o f f i f t y d o l l a r d e n o m i n a t i o n s
not s t a y i n circulation.
o r over, a n d w h i c h w i l l
T h e y a r e like a check.
T h e y
some i n for cellection o r come i n for deposit i n the bank.
With t h e d i continuance o f the issue o f t h e t e n a n d twenty
dollar gold certificates the first tendency would b e t o
put into circulation a n d keep i n circulation a greater
portion o f the silver certificates a n d legal tender netes,
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Federal Reserve Bank of St. Louis
492
and i f that process could b e carried f a r enough s o that
the great mass o f the gold certificates could g e t into
the bank vaults, t h e n a very considerable portion o f the
paper money i n circulation would undoubtedly become federal
reserve notes, a n d i t i s net iapossible t o
assume that,
after a great m a n y years,
o r at l e s t some years, t h e
notes o f the fedcral reserve banks would n e t have
t o be
gold certificates,
The p r o c e s s
s o far a s their security w a s concerned.
o f issuing federal reserve notes against p a p e r
discounted b y the Federal Reserve banks would b e
what w e
might describe a s a n ermegencty issue, a
sort o f expand-
ing issue o n top o f the normal issue secured entirely b y
gold.
Of course i f the Federal Reserve banks should accumlate some hundreds o f millions o f gold a s the result
of
that process, t h e difficulty o f s h i p i n g g o l d would b e
a very Slight matter.
W e could very m i c h enlarge t h e gold
fund o n deposit i n come w a y and probably avoid
a n y question
of expense o f shifting gold around the country.
However, I
d e not believe w e c a n g e t anywhere
b y dis-
cussing this matter until t h e whole subject gradually
unfolds itself b y the process o f normal, s l o w development.
T h a t will b e much facilitated
i
f this com-
mittee t o be appeinted can make progress tith the freasury
Department i n working o u t some o f these things.
Is a n y a c t i o n s u g g e s t e d
o r required
i n connection
with items (a), (b) and (c) under heading 14?
I f not
possibly w e c a n preceed t o item 17, which I imagine
w e can
dispose e f without a
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Federal Reserve Bank of St. Louis
prolonged discussion.
493
Mr. M c K a y :
T h e r e i s o n e qucstion w i t h regard t o
intra-state commections that I
de not see h o w t o overcome.
1 do not know whether i t could b e introduced now,
but i t
Camé u p w i t h u s t h e o t h e r day.
W
e have postponed a
deci-~
Sion i n the matter because i t brought u p a n
entirely n e w
Situation,
A bank i n Siuox City, which i s a member o f the
collec-
tion system, wanted t o know i f we wouldpermit them
te
advise a l l o f their correspondents, whether members
of
the collection system o r not, O r w h e t h e r t h e y
a r e members
of t h e federal reserve system o r not, t o
send t o u s f o r
the credit o f this bank i n Sioux City items o n
banks who
are members o f the collection System.
T h e y claim that
by doing that t h e y will quickly g e t deposited
i n Chicago
all items o n other member banks t h a t have
joined t h e collection S y s t e m i n o r d e r t o o f f s e t
quickly checks t h a t t h e y
would h a v e o n this bank i n Sioux City.
W
e told t h e m w e
were n o t ready t o make a decision i n the
matter a t present,
but that n o doubt i t would c o m e u p i n the
future. I
thought i t proper t o introduce t h a t question
before t h e
Governors here.
The Chairman: I
suggest w e l e t Mr. M c K a y t r y i t o u t
and let us know how i t works.
L
o you want action o n
that suggestion?
Gevernor McKay:
Subject
s e that
up w i t h us.
N e ; I just Simply i n t r o d u c e d e
h
t
y m woulda k n o w s o m e t h i n g a b o u t
h o w i t came
T h e r e is a
q u e s t i o n t h e s e a s t o whether
it
would b e justified o r not.
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Federal Reserve Bank of St. Louis
Governor McDougal: I
would like t o have action o n
494
that, Mr. Chairman,
T h a t would simply result i n
Siv-
ing t o non-member banks t h e facilities o f
our collection
system, a n d w e take t h e stand t h a t w e could
n o t afford t o
accept r e m i t t a n c e s f r e m t h a t s o u r c e ,
b u t w e have n o t
answered t h e c o m m u n i c a t i o n definitely.
I
t would h e l p u s
a whole l e t i f w e could g e t a n expression here
a s t o the
propriety o f s u c h a
The Chairman:
procedure,
H o w a o you feel about that, Governor
Wold?
GOvernor Wold:
I t seems t o m e that such a broad
authorization would m k e i t difficult f o r
you t o decline
an individual remiitance b y a member bank
t o you f o r the
credit o f the First National B a n k o f Sioux
City, which i s
a member of the collection system, would i t not?
Governor MeKay:
System,
I f i t i 8 a member o f the collection
o f course t h a t question would n o t
arise,
Garernor Wold:
T h a t would b e all right.
I t isa
member o f the collection System and a federal reserve
bank. B u t pending in a remittance Yer an amount by
a
bank that was a member, i t would b e difficult f o r
ym to
refuse,
Governor Seay;
I t , depends upon what h e sent,
I f he
sends something acceptable, a check o n
the bank, that you
would receive a t par, I
think i t i s a matter for each n k
to settle f o r itself,
Governor Meiiay;
I t would b e good banking practice,
providing t h e member banks @ i d n o t Object-teit.
Governor Fancher:
lel,
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Federal Reserve Bank of St. Louis
O u r situation i s not quite paral~
I n view o f our c i t y being a t one
side o f our district,
495
we have made this arrangement between some o f the centers:
They send their items direct a n d advise u s o f the total.
Pittsburgh sends their drafts o n Cincinnati banks direct
to Cincinnati,
a n d advises
u s that they have sent s o many
checks, a n d w e debit t h e Cincinnati account.
Governor McKay:
Governor Seay:
T h a t would b e a little different.
W h e n w e begin the interd@istrict clear-
ing w e would have t o enforée i n many cases a
practice s i m -
ilar t o that, having itoms forwarded direct instead o f going back and going forward,
Governor McDougal:
I f this practice i s indulged
in it will result i n our taking checks o n member banks
from non-member banks, a n d I think i t would b e questioned
by the banks u p o n which t h e y are drawn.
W e c a n handle
this, o f course, ourselves, b u t i t was a n interesting
Subject, a n d I thought perhaps i t might properly b e rforred t o here.
Governor Seay:
I s i t not a n indirect violation o f
what w e undertook t o correct?
W e would b e doing i t i n that
way, although i t is for the benefit o f a member bank.
Governor McDougal: I
formation i n the matter.
told the b a n k that w a s m y inO n the other hand, there woulda
be the advantage o f quick action, a saving o f two
days
time, probably,
i f i t could b e done,
The Chairman:
trict, after a
lies
A s the plan now operates i n our dis-
very brief experience t h e chief difficulty
i n the fact that member banks which a r e n o t
i n the
clearing plan send their items i n for collection through
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Federal Reserve Bank of St. Louis
496
banks which are members, a n d the amount o f charge very
materlally exceeds t h e amount o f offset.
T h e plan which
you suggest would i n a measure correct that; a t Least, i t
would i n a measure provide t h e offset,
I t i s extending
the same privilege i n the matter o f depositing checks
that w e are extending t o other banks i n the matter o f the
collection o f checks.
Governor McKay:
O f course, t h e offset would b e for
the bank for which t h e credit w a s given.
I
t would n o t
increase the amount o f the charges t o be m d e t o the others,
Governor Fancher:
W o u l d not that same volume, come
through your Sioux City member bank?
I n other words, i s
not t h e object o f this t o facilitate a n d make more direct
the collection o f the items?
Governor McKay: ‘ Y e s ; I think possibly that i s se.
(Informal discussion then occurred which the
Steno:rapher was directed not t o report; after thich the
following proceedings were had:)
The Chairman:
H a s this discussion reached the
point where y o u feel satisfied w i t h t h e expressions o f
views?
Governor McDougal: I
feel satisfied that we can han-
dle t h e subject ourselves.
The Chairman: I
gram b y reading a
should like t o interrupt t h e pro-
statement f o r the press that Secretary
Curtis has prepared; a n d let m e sugg s t that i f anybody
sees a n y reason t o change a n y part o f the statement a s I
read it, let him say s o while I am reading i t inorder that
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
we c a n change i t a s w e g o along.
(The chairman read the statement referred to,
and o n motion-of Mr, Fancher, duly scconded,
t h e statemént was approved, )
The Chairman:
M a y w e not take u p item Noe 17, “estab-
' lishment o f branches o f Federal “‘eserve
banks", Sugee sted
by Governor McDougal.
W i l l y o u refer t o this matter,
Governor McDougal?
Governor McDougal:
T h a t subject w a s suggested f o r
the reason that it had been discussed a t former
confer~
ences, and m y impression was that the
Board was inclined
to establish some branches here and there,
and 1 snoula
like’ e
t know whether any progress has been
made i n that
direction,
T h a t w a s t h e Object i n sending
t h e topic i n
to you.
The Chairman:
I s i t your feeling, Governor
McDougal,
that w e should undertake a t this
time t o develep t h a t
Subject? with any recommendation t e be
made t o the Federal
Reserve B o a r d ?
Governor McDougal:
U n d e r m y belief, Judging f r o m
our o w n céndition, there i s n o occasion
f e r i t a t thepresent time, a n d I
d o not think there i s a n y occasion
for
action here, Mr. Chairman.
y would Like io: hace team the
Governors tvhether o r n o t a n y
progress h a s b e e n m a d e i n
that direction,
W h a t d o y o u k n o w about tht,
Mrs Lowry?
Governor Lowry:
Governor McCord:
T h e r e h a s been none i n our
district.
N e w Orleans h e s made a “trenuous
effort t o get the bank, but i t
could not get it.
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Federal Reserve Bank of St. Louis
498
A plan was taken u p with Atlanta and New Orleans, causing
a visit o f New Orleans bankers t e the meeting o f our directors
i n Atlanta,
and a
resolution w a s p a s s e d t h a t w h e n e v e r
it was deemed advisable f o r a branch o f the Atlanta b a n k
to b e destablished, t h a t branch should b e established i n
the city of New Orleans.
S o we have settled the question
to that extent- B i r m i n g h a m wanted a
branch a n d Jackson-
ville wanted it, and Nashville wanted i t and somebody
else wanted it.
T h a t i s all that has been done i n our
district.
The Chairman:
T h e mest significant statement o n that
subject that h a s been made h e r e has been made b y Governor
Lowry with relation t o their collection plan.
S a n fran-
cisce undoubtedly i s the one district that would require
branches sooner than any other. I
think we would all
like t o hear how thcy feel out there about it.
Governor Lowry:
O u r feeling i s this, that w e real-
ize that eventually w e shall have t o have branches, but
we are n o t disposed t o start branches f o r the purpose o f
facilitating a
heart.
collection p l a n i n which w e have n o special
I t would b e a n afiditional source o f expense, a n d
there i s no particular occasion now for a branch t o be
established for any other purpose. R e d i s c o u n t s c a n be
handled quite readily from San *rancisco i n the Limited
volume i n which w e are called u p o n t o make them, a n d t h e
idea o f building u p a n expensive branch f o r the mere purpese
of assuming a function o f that kind does n o t appeal t o u s
at all. T h e r e i g n o pressure, s o far as we can discover,
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Federal Reserve Bank of St. Louis
499
in the district f o r the sstablishment o f those branches.
(At this point a n informal discussion arose which
the s t e n o g r a @ r
e
h was directed n o t t o report; a f t e r which
the following occurred: )
Governor Seay: I
meve t h a t i t x s the sense e f this
conference t h a t i t i s inexpedient t o undertake a t this
time t o establish branch banks.
Governor Fancher? I
second t h e motion.
(There being no further discussion, the question
was p u t a n d carried.)
The Chairman:
M r . Curtis h a s just received a
com—
munication from the Secretary of the federal “eserve
Board which I sould like t o have him read.
(Mr. Cubtis then read t o the conference a letter received f r o m the Secretary o f the Federal Reserve Board
requesting a n account o f t h e meeting o f the Board o f Governas
i n Chicago,
bulletin.
t o b e printed i n the Federal Keserve
G o v e r n o r Fancher moved that t h e Secretary
be r e q u e s t e d
t o f u r n i s h t h e S e c r e t a r y o f t h e F e d e r a l Ke-~
serve Board w i t h a n outline o f the work accomplished.
The motion was duly seconded b y Governor Rhoades, and, there
being n o further discussion, i t was put and carried.)
Governor Lowry:
M
a
y I
interpose a
of m y associates i n San Francisco?
word o n behalf
W e were very much
disappointed t h a t t h e Governors decided n o t t o come t o San
Francisco a t this time, a n d I want t o e xtend a n invitation
to meet there a t the next meeting; a n d i n that connection
I understand that objection was raised t h a t some attack might
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Federal Reserve Bank of St. Louis
500
result i f a trip were ma.e across t h e M u n t r y resembling
a junketing trip and i t might b e made t h e a b j e c t
tical comment.
o f poli-
I f the next meeting should b e held i n Sep-
tember, either just before o r just following the Wmerican
Bankers' Convention i n Seattle, i t seems t o me that the
stinger would b e removed f r o m that objection, a n d v e should
be m o t
happy t o have y o u come o u t there a s o u r gueats
at the conference,
The Chairman: G o v e r n o r Aiken, how do you feel about
that?
Y o u live the longest distance awayGovernor Aiken: I
should like very much t o go,
but I think there would b e some objection t o it. I
would
not let that interfere with the action o f the committee.
Governor McCord:
I
n view o f tha fact that m y direc-
tors have granted m e a leave o f absence w i t h compensation
to take t h e Seattle trip, t h a t will suit m e very nicely
indeed.
The Chairman: I
should like very much t o sée a
meeting held o u t there, I
know there i s a sentiment i n
one o r two o f the banks, a n d i t would develup a
little bit
in our bank, and i t might b e misunderstood.
Governor Aiken: I
e m sorry you celled o n me for a n
expression o f v i e w i n regard
t o that, b e c a u s e I
think t h e
attitude o f the people i n New England i s peculiar.
They
are peculiarly conservative about it, and I woyld rather
not have our feeling make any difference a t all. I
it might b e brought around »
i t could b e done.
think
Y o u must
recognize that i n New England a trip from Boston t o SanFrancisco seems a great deal longer than a trip from Can-
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Federal Reserve Bank of St. Louis
501
Francisco t o Boston.
I t i s a n event o f a lifetime f o r a
New Lnglander t o cross the conténent, while i t is a semiannual o r quarterly event f o r a San Franciscan t o g o t o
New England.
The Chairman:
M i g h t n o t that matter b e taken u p
immediately after the adjournment o f this meeting, w h e n
we réturn home, s e that the matter c a n b e broached t o the
Girectors o f the Reserve Banks? W h e n we have considered
the subject w e might possibly persuade t h e Federal Reserve
“oard t o give u s a n informal suggestion that would indicate
that they waild b e glad t o have these meetings held i n this
way s o that w e might b e able t o visit the other banks.
Governor Lowry; N o t h i n g would b e s o delightful i n
my district a s t o have that sugsestion come from the
Federal Keserve Board.
Governor Fancher:
T h a t would b e very effective i n
eur district.
The Chairman:
W h a t i s y o u r pleasure a s t e the
very kind invitation that Governor Lowry has exeended t e
us to have the next meeting at San “rancisco?
Governor Rhoades: I
think t h e suggestion o f the
Chalrman i s the best way t o deal with it.
W e all appre-
ciate it, of wurse. ,
Governor MeCord: I
move thet w e adopt t h e course
Sugeested b y the Chairman.
Governor Rhoades: I
Governor Seay:
ef t h e invitation.
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Federal Reserve Bank of St. Louis
second it.
C o u p l e d w i t h a sense o f appreciation
502
(There being n o further discussion, t h e
question
was put and carried, )
The Chairman:
I f w e have a meeting t n
San "raneciseo
at about t h e 6 t h o f S
e
i t might b e desirable t o
hold i t before t h e convention rather
t h a n afterwards.
The reason for suggesting that i s
that i f We Can spend
two o r three days o n our program
a n d get i t all cleaned up,
_then w e might b e able t o get t o
the Convention while the
convention was i n session and not
have t o g o out i n advance a n d attend t h e convention a n e
then break u p engage =
ments whieh might b e made for the
purpose o f attending our
own meeting.
Governor Wold,
t
already
=
y
have a n e n g a g e m e n t f o r S e p ~
tember 2nd and 3rd i n Montana, and
i f we had a meeting o n
the w a y i t might e m c t e i c e s
The Chairman: :
m
y b e i n g Present,
a t least
We have only t w o general subjects
left o n the program, and I suggest
that w e take up No, 18,
"National Bank nenurvos <i
Governor Mavotcal?
Governar McDougal:
Mr. shi
S e
T h a t was placed o n the progran,
f o r a n expression o f epinion
a s t o whether
Feder 1
Pisani “ B o t e s Ceuld properly
b e counted a g reserve,
Or whether i t would t a k e a n
act o f Congress. I
de n o t
know test they enn be counted
a t all.
The Chairman:
I t would take a n act of
Congress;
I think that is pretty clear, Governor
MeDougal. T h e
National Bank Act Specifies what
character of money is
now permitted t o b e counted
b y a national b a n k a g lawful.
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Federal Reserve Bank of St. Louis
money reserve.
Governor McDougal: I
do not believe i t does specify
re de I t specifies the legal tender; but the United
“tates notcs, f o r instance---
think you will find that the Act m s
The Chairman: I
been interpreted t o specify certain money a s being reserve
M r . Curtis, correct m e i f I a m i n error o n that.
money.
think i t says lewful money- I
The Secretary: I
de
not think i t has been defined b y statute.
Governor McDougal?
T n e r e a r e inquiries h e r e a n d
there a s t o whether o r not they can b e counted a s reserve,
and o f course they can i n state banks.
T h a t I believe
you a r e a l l a g r e e d upon.
The Chairman:
T h e y cannot i n New York State, because
it i s prohibited,
Governor Van Zandt: I
had our counsel look into
that question o f lawful money.
H e said there i s nothing
in the statute t h a t prescribes o r a t least defines lawful
money,
t h a t t h e only r a l authority t h a t h e ® u l d find was
adecision of the Supreme Court of the United States in
the case o f Bronson against Rhoades,
i n which i t says that
lawful money of the United States includes only gold and
silver c o i n o r that. which b y law i s made i t s equivalent,
so a s t o b e exchangeable a t par a n d o n demand, a n d does n e t
include a
currency note which, though nominally exchangeablc
for c o i n a t its face value, i s not redeemable o n cemand.
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Federal Reserve Bank of St. Louis
G evernor Seay:
I n gold.
The Chairman: G o v e r n o r McDougal, y o u may be inter:
504
ested t o know o f the discussion that t o o k
place i n New
York last August w h e n the fear arose a S
t e whether t h e al¢rich-Vreeland Act, would produce currency
fast enough t o
Satisfy t h e country, a n d whether t h e country
would b e
able t o furnish a sufficient amount o f
&0ld t o b e able t o
také-care o f maturing debts that had
absolutely t o be paid.
Sne o f the most influential b a n k officers
i n New York
very S€riously advanced t h e suggestion t h a t
t h e National
' Bank n o t e s shoulda b e p e r m i t t e d
gress
by a
special a c t o f C o n -
t o be c o u n t e ds
a reserves f o r national banks.
T h a t
at once raised a storm o f dissension f r o m
banks i n New York
who very properly, I think, took thc
position that i f a
national b a n k c o u l d t a k e i t s s e c u r i t i e s
o u t o f one box
where they did‘ not count as reserves, and
put them in
another b o x a n d g e t n o t e s f o r -thea
a n d t h e n p u t t h e notes
“in a box snd count them as Speen e S there
was n o limit
to the inflation that would result f r o m
it.
The next s t e p r e the direction o f
using t h e bank note
or the equivalent o f a
——
n o t e a s bank reserve probably
would b e t o make a bank note ahieh,
i n fact was secured
by gold, l i k e t h e bank o f ‘Engl and
notes, a n d some o f the
banks i n New York i n response t o
this suggsstion said, " I t
is °all well enough t o eve national bank
notes serve a g
reserve for national banks, Provided they
are covered b y
&01ld o r a sufficient proportion o f
gold t o insure their
conversion i n t o gold;"
a n d the next S t e p i n the argument
naturally i s n o w t o REHELCSE w h e t h e r
t h e O p e r a t i o n O F —-Ghe
reserve banks will not have the effect
o f converting teceru'
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Federal Reserve Bank of St. Louis
505
reserve notes i n t o substantially a
gold certificate o f such
quality t h a t i t will b e perfectly satisfactory
t o have i t
serve a s reserve.
in a
position
I f w e admit that w e are gO0ing t o b e
t o d o that, t h e n t h e s o l e r e m a i n i n g g u e s t i o n
is w h e t h e r t h e c o u n t r y w o u l d s t a n d f o r
it.
What i s t h e opinion i n Chicago?
Governor McDougal:
I t has h o t been discussed,
as o u r 1 6 ae4 banks a r e concerned.
s o far
I t has been u p before
atthe Governors' conferences, and 1 think I have heard
Sugge stions t h a t i t would b e perfectly proper
t o consider
it as reserve,
(At this point a n informal Giscussion arose
WiaeK t h e stenographer w a s directed n o t
t o report; a f t e r
which the following occurred. )
The Chairman:
G o v e r n o r McDougal,
d o you feel that
Opinion has crystalizea sujficiently o n the subject
o f the
quality o f fine e i reserve notes t o justify
this meeting
in passing a
resolution recommending t o the e d e r a l RKe-
serve Boord t h a t they take Steps t o bring about
a discontinuance o f the issue o f small denomination
gold certificates’
Governor McDougal: I
cannot s a y that I
Yovernor Strong. |
The Chairman:
do feel that,
,
I s tiene s e e difference ofopinion a s
to the wisdom o f that course?
Governor Seay:
Governor Wold:
N o t i n my mind,
I t s e e m t o b e a very advisable w a y
Of getting t h e small gold certificate o u t
o f the pockets o f
the people where they serve no particular purpose, no ter
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Federal Reserve Bank of St. Louis
506
purpose than a feceral résapue note would serve;
a n i if
thev couid b e put i n the federal reservs banks
i t wocld
serve a s a basis f o r credit that w e might
needin t h e futar;
and i t seems t o me that i t i s quite advisable
fcr a s t e
suggest t o the Board that that should b e
brought about.
It would injure n o one and would not interfere with
the
banks securing $50 sertificates, but would
simply substitute
Our notes f o p t h e n o t e s h e r e t e f o r e e a r r i e d
i n the pockets
of the people a s a medium of exchange.
Governor Seay: f
Chairman,
should
think we are o n regord, Mr,
t @ the effeet that i n our
Opinion a n amendme at
e a e
a
theaet against the issue o f federal
re-.
Serve notes directly against gold, are w e
not?
The e t e u c a s
I d o n o t think w e are. I
we have ever passed sych a resolution.
it a great many times.
the Federal l a b i o s
d o not think
W e have discussed
W e have discussed i t jointly
with
e e s
Governor Seay: i t w a s m y impressien that
we had put
pPurselvés o n record i n that particular.
The Chairman:
I s any action Sentecs under this
heading?
Governor MeDougal:
N o -
The Chairman. G O v e r n o r MeDougeal,
are you satisfied
tO pass this without a n y remamManeReeou®
Governor McDougal; I
Chairman.
the Chairman;
a m entirely Satisfied, Mr.
!
I t e m 18-(b), ‘Rolike o f Comptroller
withholding privilege o f deducting national
bank notes
in reserve calculation", offered
b y Mr. Fancher ,
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Federal Reserve Bank of St. Louis
507
Governor Fancher:
h a t i s a matter which I brought
up at a previous mecting o f the Gowrnors and
1 think that
you all clearly recall that the matter wes
presented t o the
Board a n d a rathor curt reply was received
f r o m the Comptroller i n the matter.
H e clearly was within t h e l a w
in
issuing such a ruling.
We are finding i n our district f r o m the sihaller
banks
considcrable complaint because t h e y a r e
not permitted t o
offset national b a n k notes i n the reserve calculation,
as
has been the custem for many, many years, and
J thought I
would bring t h e matter u p again t o the
Governors t o sce
whether t h e y would d e e m i t advisable again
t o bring t h e
question before the Federal tieserve Board.
object I
T h a t i s the
had i n mina.
(At this point a n i n f o r m l discussion t o o k
place
‘hich the stenographer was directed not t o
report; a f t e r
which the following occurred: )
The Chairman:
T h e action taken a t the meeting
held
last January w a s a s follows:
"Topic No. 7 concerning the Comptroller's recent,
ruling man with respect t o national bank notcs
was wien
taken u p for discussion.
O n motion duly made and seconded
it was voted that i t was the sense o f the meeting
that the
national b a n k n o t e s o f a n y n a t i o n a l b a n k
m h h o m bears t h e
same relation t o a national b a n k a s a
credit a n d should b e
allowed a s a n offset i n counting the reserves
o f such
banks,"
Governor “Seay: I
move that the action o f this con-
ference b e submitted t o the *“ederal deserve
Board i n writing,
and that they be requested i n behalf of the hember
banks t.
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Federal Reserve Bank of St. Louis
consid r
the matter with t h e Comptroller.
Governor Aiken: I
s e c o n d t h e motion.
(Therc was n o f u rther discussion, a n d the question was put and carried.)
The Chairman:
I t e m 18-(c), suggested b y Governor
Fancher, “Member banks having more than full reserves i n
federal reserve bank, and i n reserve agent banks should
be permitted t o show t h e excess a s bank reserve."
Governor Fancher:
T h a t i s another cause o f com-
plaint o n t h e p a r t o f s o m e o f o u r s m a l l e r m e m b e r banks,
they c l a i m t h a t t h e i r e x c e s s r e s e r v e
i n reserve a g e n t
banks d o e s n o t a i f e c t t h e m , b e c a u s e ,
n o t having a
balance,
bank
i t has n o offset.
The Chairman:
T h e y are not permitted t o deduct i t
from individual deposits?
Governor Fancher:
lating reserve.
I
N o ; and i t is confusing i n calcu-
t i s necessary t o make t h e full c a l -
culation t o find o u t what t h e deduction is, a n d then g o
aver t h e figures.
Governor Seay: I
should t h i n k t h e C o m p t r o l l e r w o u l d
be very much inclined t o allow that, ainee h e himself
figures t h e total reserves o f the country u p o n that basis.
The Chairman:
M a y I ask i f this involves a change i n
a f o r m e r practice, G o v e r n o r F a n c h e r ,
o r is a
complaint r e -
sulting f r o m a recent ruling?
Governor Fancher:
I
t i s a complaint a s a result o f
the recent ruling on figuruing recerves.
stand t h e matter, a l l t h e reserve a
ries i s s i m p l y t h e r e q u i r e d a
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Federal Reserve Bank of St. Louis
A s I undep-
Small member b a n k car-
mount a t t h e p r e s e n t t i m e
509
with their federal reserve agent bank, a n d i n their
vaults, a n d u p t o the percentage o f the ecceryi
The Chairman:
pa S
I t does n o t mean a deduction f r o m
their g r o s s c e p o s i t s ?
Governor Fancher:
The Chairman:
N o .
I n this case t h e allowance o f that
deduction i s simply permitted t o offset b a n k deposits
carried w i t h that bank?
Governor Fancher:
Governor Wold:
T h a t i s it.
I s i t not a fact, Mr. Chairman,
that t h e r e s e r v e r e q u i r e m e n t s a r e r a t h e r s m a l l a t t h i s
time under this new law, and w e ought not again t o reduce t h e m materially b y a method o f computation o f reserves?
I do not believe i n the past--~- I think Governor McDougal
would b e familiar with that--- that country banks have b e n n
allowed t o deduct excess against individual deposits.
The Chairman:
H o w would this strike you, Governor
Fancher? S u p p o s e t h e Comptroller could b e paursuaded t o
permit t h e d « duction o f national b a n k n o t e s f r o m g r o s s d e -
posits, also t o deduct federal reserve notes a s anoffset
to the d. posit liability, a l s o t o deduct duec-from banks
in excess O f reserve requirements a s a n offset, a n d then
to require b y ruling that national banks only eount a s
deposit r e s e r v e s t h e a c t u s l r e s e r v e s
i n the hands o f
their reserve agents, a n d n o t t h e amount o f checks o n the
way t o the reserve agents i n the mail.
Do y o u not believe t n a t i f that were brought about a t
a time w h e n t h e reserves
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Federal Reserve Bank of St. Louis
o f t h e b a n k a r e s o excessive.
ee
510
as they are n o w i t would cure t h e collection system o f
one real difficulty?
I t would b e a bold str@ée, a n d
would d o the thing a t once.
H o w d o you feel about that
ir. Lowry?
Governor Lowry: I
a m inclined t o a g r e e with Gover-
nor Wold that we ought not t o be taking steps t o make the
banks h a v e s m a l l e r r e s e r v e s t h a n t h e y a c t u a l l y c o have.
The mere matter o f bookkeeping does not make any change i n
their a c t u a l situation.
I
f they have excess balance some-
where a n d national b a n k notes somewhere,
they c a n use,
i t i s something
T h e mere f a c t t h a t t h e y d i d n o t g e t credit
for i t i s a minor consideration,and
i n fiew o f the fact
that i n cities l i k e Sanfrancisco t h e y have b e e n permitted
to g o dovn t o 1 5 per cent, which,
i n m y personal gudgment,
is too low, i s sufficient reason t o m e w h y w e should n o t
encourage a n y f u r t h e r a c t u a l reductions.
The Chairman:
M r . Lowry,
t h e country banks h a v e
$335 ,000,000 o f excess reserve.
Governor Lowry:
The Chairman:
L e g a l , y o u mean?
I n excess o f their legal reserves.
Let u s suppose t h a t a t a time when t h e banks a r e not able
to u s e t h e i r n o n e y t h e r e s e r v e r e q u i r e m e n t c i o u l d b e
reduced s s I have outlined, a n d then again increased b y
eliminating checks o n the w a y t o the reserve agents a s
reserves—s t h e y n o w count a s reserves--- would n o t that
increase the reserve requirements and give all the banks
a reel r e s e r v e b a l a n c e i n s t e a d o f a
hypothetical r e s e r v e
balance assumed t o b e there because t h e y think these checks
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Federal Reserve Bank of St. Louis
on the way t o the agent will b e
collected?
Governor W o l d :
L e t m e call y o u r attention
t o the
fact t h a t t w o y e a r s f r o m
n o w t h e f l o a t w i l l b e eliminated,
and t h e n w e w i l l h a v e t h i s
method o f computation
o f reserves
which would reduce t h e m below w h a t
the reserve i s now, a n d
it i s l o w enough.
I
t i s not a n y hardship f o r
a mank t o
carry t h a t r e s e r v e u n d e r t h e
method o f computation
vogue a t the present time.
in
H e c a n loan his national b a n k
notes a n d hisexcess--+
The Chairman:
H e c a n now, because i t would
not be
there i f h e could l o a n it,
Governor Wold:
Governor S e a y :
i t i s only a question o f
counting
W o u l d i t not have a
tendency t o
force t h e m t o borrow money f r o m
the federel*eserve banks?
The Chairman:
tle differently.
L e t u s state this proposition
a
lit-
S u p p o s e w e assume that a t
the e n d o f
twoyears these cheeks o n the w a y
t o the Federal heserve
agents will n o longer count a s reserves,
a n d that the re-=
serve requirements
i n effect a r e n o w t o b e increased;
we
may have tight money and difficulty
i n bringing that
about.
A d v a n t a g e should b e taken
a t t h e present t i m e o f
the a b u n d a n c e
o f money i n o r d e r t o e l i m i n a t e
this float
from bank reserves a t one Stroke
o f the p e n and b y that
Crastic action give t h e banks this
little relief o f per=
mitting excess reserve balance
a n d notes o f other national
banks a s a n offset t o the amount
o f deposits o n which they
calculate their reserves.
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Federal Reserve Bank of St. Louis
GOvernor Wold:
I n a s m u e h a s i t i s more
dangerus
Le
for a country i n a perioc o f easy money than i n a périod
of tight money, I think it-is the wrong time t o let the
bars d o w n o n reserves.
The Chairman:
~ o do I.
Governor Fancher:
A r e y o u not strengthening t h e m
for t h e time when i t i s easy f o r them to-do it?
Governor
of one o f the
ing.
The Chairman:
H o v ' m u c h d o y o u Suppose t h a t will
increase t h e r e s e r v e r e q u i r e m e n t s ?
Governor V a n Zandt:
Governor Seay:
The Chairman: I
I t would b e a materialineraase,.
%200,000,000.
a m told t h a t the investigation o f
the New York Clearing House, conducted i n 1911 and 1912,
indicated t h a t a l l checks s e n t o u t from there--- just
using this a s a very rough test--- took a n average o f
5.2 days f o r return.
C u t that i n half.
T h a t vould
mean 1 4 6 duys a n d apply i t t o the whole country.
S a y ,
in paune figures, t w o days i s the average t i m e f o r a
momh
cheek t o pass f r o m a bank i n which i t i s deposited t o the
bank where i t begins t o count a s reserve.
Someone, I
do
not know who, has made the estimate that there i s every
day 200,000,000 o f those checks sent out. T h a t vould
mean t h a t t h e r e s e r v e r e q u i r e m e n t s
o f t h e country a s a
whole would b e increased about 5400,000,000, a n d abgerb ,
at any rate, a l l the rest o f the resebves o f all t h e
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Federal Reserve Bank of St. Louis
country banks.
Governor Seay:
T h a t w o u l d b e about five p e r cent,
then; b e t w e e n f i v e a n d s i x p e r c e n t ?
(at this point a n informal discussion took
place w h i c h t h e s t e n o g r a p h e r w a s G i r e c t e d n o t t o report;
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Federal Reserve Bank of St. Louis
after which thc
llowing prod¢eedings were had:)
The Chairman:
D
o y o u desire a n y action t a k e n o n
this subject o f excess reserves, Governor Fancher?
brought t h e topic u p more with
Governor Fancher: I
a view o f getting t h e sense o f the Governors h e r e a n d
seeing whether i t was their judgment that i t was advisable t o m a k e a
recommendation
t o the Comptroller f o r a
new
method o f computing reserves, whether i t would ahount t o
anything?
Governor Seay: I
believe i t involves t o o many col-
laterial considerations t o justify o u r taking a decided
position
o n t h e matter.
(At this point further informal @iscussion t o o k
place which t h e stenographer w a s directed n o t t o report;
after which t h e following proceedings w e r e h a d : )
Governor McDougal:
T h e methodof calculating reserve
rests entirely w i t h the Comptroller.
The Chairman:
N o t entirely, Governor McDougal. I
believe h e has t h e power t o s a y whether those checks
shall b e c o u n t e d a s r e s e r v e s
Governor McDougal: I
ten h i m once t o ascertain,
o r not.
remember v e r y well having writi f I could, why, i f the banks
thagé h a d deposits f r o m banks were permitted t o deduct t h e
514
excess t h e y had due f r o m banks, a
posits f r o m banks c o u l d n o t m a k e &
similar d e d u c t i o n f r o m
I t resulted i n several letters
its individual account.
passing b a c k a n d f o r t h ,
bank which h a d n o de-
a n d t h e substance
o T tne-timat
one which fixed i t , was thet there w a s n o reason given.
We have b e e n doing this f o r years, a n d "Therefore y o u
will toll your bank that unless t h e y have bank deposits
to deduct from, the deduction will not b e counted."
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Federal Reserve Bank of St. Louis
There was n o reason given, but S a o
i t was apractivo
in use f o r a good many years,and a s the result o f a ruling
that had
t a k e n place.
The Chairman:
lot o f encouragement
T p a t offers a
as to item (c) o n our pregram.
I n other words, h e has
already taken action o n the matter.
Y woulda l i k e t o a s k t h e m e e t i n g t o p a s s a
tion, w h i c h i t h a s b e e n c u s t o m a r y
resolu-
t o pass, a u t h o r i z i n g t h e
Secretary t o reframe t h e resolutions v h i c h have been distated rather hurriedly s o a s t o correct inaccuracies o f
expression or English and put them in a little better
form.
Governor Rhoades: I
Governor McDougal: I
so move, Wr. Chairman:
second the motion.
(There was no discussion end the motion was put
and carried.)
The Chairman:
T h i s meeting h a s accomplished m a e t h a n
any other meeting w e have ever had--- 7 6 items o n the
program o n d much discussion that w a s not o n the program,
and w e a r e n o w down t o the last item.
We will take u p item 15, inter-district collections
and clearing.
T h i s w o s suggested b y Governor ‘Ceay-
Governor Seay:
M p . Chairman, m a n y subjects relating
to this heading have already been discussed here, a n d i t
was n o t m y purpose
t o have a n y prolonged discussion
reach a n y d finite position u p o n that point.
or
I t takes
Ssa very long time indeed t o consider’ t h e subject o f intra-district collections s n d t o arrive a t some definite
plan.
I t i s going t o take u s equally long, I
believe,
to
arrive a t a definite plan, a n d I think this i s dome+
thing which might well b e taken i n hand b y the executive
committee a t a very early stage, a n d I would propose t h a t
the subject o f inter-district collections b e referred t o
the executive committee f o r action a t such time a s itdeems
proper.
I
t i s confronting us.
T h e subject
o f intra-cis-
trict collections brings u s into most intimate touch
with t h e inter-district collections, a n d w e are all doing
some interdistrict collections now.
Governor Wold:
W e h a ve a letter from the Kansas City
Bank, a s follows:
"June 4, 1915,
"Since the plan o f settling balances has been put
into operation w e assume t h a t y o u are broadehing y o u r collecting functions t o sone degree, a n d w e will appreciate i t
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Federal Reserve Bank of St. Louis
if you will advise u s b y return mail a s t o what items y o u
are prepared t o take from us for credit."
516
I s i t proper t o make comment o n
The Chairman:
that letter, Governor Wold?
T t Jetn- t h e reese.
Governor Wold:
The Chairman: 1
was going t o say that Kansas City
has displayed t h a t degree o f promptness f o r which they
have been noted, b y asking i n advance.
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Federal Reserve Bank of St. Louis
my snying that, d o you, Governor Sawyer’
me a S exactly t h e w a y t o get a t it.
"What c a n you handle?"
W
Y o u do not mind
T h a t strikes
T h e y write a n d say,
e will gradually g e t down t o
that basis o f hendling this matter, a n d t h e time will come
when w e m a y want t o take items f r o m N e w York City banks
in Chicago i n order t o offset these tons o f silver certificatcs.
Governor Aiken:
k e are going t o develop quite a n
amount o f it. A l m o s t a l l the districts a r e going t o
handle items o n member banks, a n d i t i s going t o r u n into
a very large amount o f money.
W e are going t o have somo
real experience, a n d | should b e desirous o f having comple
time t o see how that works o u t before w e extend i t considerably.
The Chairman:
G o v e r n o r S e a y has offered a
resolution
to refer item 15, interdistrict collections a n d clearings,
to the Executive Committee.
Governor V a n Zandt: I
second t h e motion.
(There being n o discussion the motion was put
and carried.)
(Whereupon, a t 12:30 o'clock p. m., the Conference
adjourned subject t o the call o f the Chairman.)
cee im eet te h e er
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Federal Reserve Bank of St. Louis
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