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W A L T E R S. C O X
ix
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REPORTER
COLUMBIAN BUILDING—TEL. M. 8324
y
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Federal Reserve Bank of St. Louis
WASHINGTON, D. C.
THIRD CONFLRENCE O F GOVERNORS
OF F L D L R A L R L S E R V E B A N K S ,
Shoreham Hotel, W a s h i n g t o n , DL. C . ,
March 11, 1915,
10:45 o'clock a. m.
Present:
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Federal Reserve Bank of St. Louis
Benjamin Strong, C h a i r m a n , G o v e r n o r , F e d e r a l R e s e r v e
Bank o f New York.
A. L . Aiken, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f Boston,
C. J . Rhoades, Governor, Federal Reserve B a n k o f Philadelphia.
Fancher, G o v e r n o r ; F e d e r a l R e s e r v e B a n k , C l e v e l a n d .
Seay, G o v e r n o r , F e d e r a l R e s e r v e B a n k , R i c h m o n d .
MeCord, Governor, Federal Reserve Bank, Atlanta.
McDougal, G o v e r n o r , F e d e r a l R e s e r v e B a n k , C h i c a g o .
McKay, Deputy Governor, Federal Reserve B a n k o f
Chicago.
Theo. Wold, Governor, Federal Reserve Bank, Minneapolis.
A. Kains, Governor Federal Reserve Bank, S a n Francisco.
C. M . Cawyer, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f Kansas
Odtars
L. H . Hendricks, Transit Manager, Federal Reserve B a n k
of N e w Y o r k .
2
J. F. Curtis, Counsel, Federal Reserve Bank o f New York
and Secretary t% the Conference.
The Chairman:
T h e meeting will come t o order a n d w e
will proceed w i t h o u r program.
T h e first business t o act
upon i s the minutes o f the last meeting.
furnished
T h e s e have b e e n
t o each o f t h e Governors present,
I
s i t your
pleasure t o have t h e m read o r t o approve t h e m without reading t h e m a t t h i s t i m e ?
Mr. Fancher: I
move t h a t t h e y b e a p p r o v e d w i t h o u t
reading.
Mr. S e a y : I
s e c o n d t h a t motion.
(The motion was put and carried, and the minutes
were approved. )
The Chairman:
I
t i 8 our custem t o send a
notify Gevernor Hamlin,
committee
o f the Federal Reserve Board, t h a t
the m e e t i n g i s i n s e s s i e n a n d t h a t w e s u b m i t o u r s e l v e s
the d i r e c t i o n s
to
to
o f t h e B o a r d a s t o o u r p r o g r a m o f precedure.
I think w e have a standing committee o n that matter.
Mr. Aiken: I
move that the same committee that has
acted i n the past b e authorized t o communicate w i t h the Federal Reserve Board a n d tell t h e m that w e are ready t o receive
any suggestions f r o m them,
Mr. McDougal:
M r . Wells,
o f Dallas, h a s b e e n a member
of that committee, a n d therefore there i s a vacancy.
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Federal Reserve Bank of St. Louis
Mr. S e a y : I
move t h a t t h e c @ m m i t t e e
o f t w e act.
second t h a t motion.
Mr. Kains: I
(The motion was put and carried.)
( G o v e r n o r Wold, w h o i s n o t precent
The Chairman:
a t this
moment w a s a member o f the committee, a n d Governor McDougal
G o v e r n o r McDougal,
was a n o t h e r member.
a r e y o u willing
to accept t h e responsibility o f conveying t h e notice t o
the board?
Y e s sir, I
Mr. MeDougal:
will b e very glad t o
undertake t h a t responsibility,
might s a y that last week this matter
~The Chairman: I
was d i s c u s s e d v e r b a l l y w i t h G o v e r n o r H a m l i n a n d I
asked h i m
at that time i f h e would b e good enough t o give u s word o f
anything that h e would like t o have discussed a t this meeting.
Possibly,
i f t h e Committee w o u l d l e a v e a
copy o f the program
with h i m h e can indicate i f there i s anything h e would like
to have added t o it.
Mr. McDougal;
me t o m a k e a
M r . Chairman, would i t b e i n order f o r
motion before I
leave t h e room?
The Chairman:
Y e s .
Mr. M c D o u g a l :
T h e n m y motion would b e that this meet-
ing make the matter o f intra-district sieapanee t h e first
subject f o r discussion, a n d that w e finish that before going
env. further: I
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Federal Reserve Bank of St. Louis
would l i k e t o m a k e t h a t a s a
The Chairman:
I s that motion seconded?
Mr. Kains:; I
second t h a t motion.
motion.
(The motion was duly carried.)
The Chairman:
employ
G o v e r n o r McDougal, m i g h t w e n o t
some matters o f
the interval o f your absence i n taking u p
purpose o f making
minor importance o n the program, f o r the
progress?
Mr. McDougal:
allow
Y e s ; y o u m a y d o that, o r you m a y
notice
see fit. I
Mr. MeKay t o act i n m y place, j u s t a s y o u
discussion, t h e
that y o u have here, a m o n g your topics f o r
report f r o m a sub-com~
4
matter o f intra-district clearings,
mittee.
I f you wish, I
will make that w h e n I come back, o r
Mr. M c K a y c a n m a k e t h e r e p o r t f o r me.
entered
(Governor Wold, o f Minnesota, thereupon
the conference room.)
The Chairman:
G o v e r n o r Wold,
have b e e n reappointed a
i n y e u r absence,
you
member o f a committee t o wait u p o n
t o present t o
Governor Hamiin o f the Federal Reserve Board,
w e are here a n d ready
him o u r solicitations, a n d t o s a y that
the Board.
to receive a n y communications f r o m
(The committee t o wait upon Governor Hamlin, com=
posed o f Governor McDougal a n d Governor Wold,
per
thereupon retired f r o m t h e conference r o o m t o
form their duties.)
The Chairman:
this
O n e difficulty i n dealing w i t h
a meeting o f a
clearance matter i s the {nability o f
men t o prepare a
circular which will meet t h e conditions
views o f everybody.
of each district a n d meet t h e
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Federal Reserve Bank of St. Louis
d@ e n
T h a t
would take daysof work.
C o u l d w e not employ t h e interval
while t h e committee i s absent t o discuss a
method o f arriving
ought t o
promptly a t a conclusion a s t o how these circulars
t h e line
pe prepared, t h a t is, i f w e decide t o g o ahead along
of the clearance committee's report?
would like t o see a copy o f the clear-
Mr. Kains: I
ance committee's report. I
The Chairman:
have not seen it.
M r . McKay, h a v e y o u a n extra c o p y that
you c a n furnish t o Governor Kains?
Mr. McKay:
Y e s , M r . Chairman.
(Governor Kains w a s thereupon presented w i t h a
copy o f the report.)
Mr. McKay:
A r e t h e r e a n y points t h a t n e e d t o b e dis-
cussed w i t h regard t o any differences
are t o b e sent out?
allow u s t o make a
The Chairman:
i n the circulars t h a t
C a n w e not reach some decision that will
uniform circular?
T h e r e a r e three complications t h a t w e
matter
will encounter a t once o n that matter; t h a t is, t h e
of making a n absolutely uniform circular.
O n e i s that both
circuhar
Kansas C i t y a n d St. Louis have g o t t o have a special
which will apply t o conditions created b y their present
clearing p l a n s ,
Mr. McKay:
O u t s i c e o f those t w o cities, I
The Chairman:
mean.
O u t s i d e o f those t w e cities, I
think
of
we will a l l agree that Governor Kains a n d Governor Wells
Dallas,
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Federal Reserve Bank of St. Louis
that they
a n d possibly Governor wold, a r e s o situated
6
might possibly have t o deal specially w i t h the longer distknow G o v e r n o r K a i n s ,
ances involved. I
i n talking w i t h m e
about this this morning indicated t h a t i t would b e impossible f o r them t o adopt a
four days! a c c u m u l a t i o n
plan where t h e y have a three o r
o f mail before i t e m s r e a c h t h e m f o r
clearing, f r o m some o f their more distant points.
Mr. McKay:
I s i t not u p t o the member b a n k t o say
whether t h e y w a n t t e c o m e i n t o t h e c l e a r i n g p l a n a t t h a t
distance?
The Chairman:
I t would b e covered,
fact t h a t t h e i r a c c e p t a n c e
o f course,
o f t h e p l a n i s voluntary.
b y the
T h o s e
panks a t a more distant point might f i n d i t absolutely i m -
possible t o cash three days' mail a t once.
O n the other
think Governor Kains' idea, a s h e expressed i t t o me,
hand I
was t h a t h e w o u l d l i k e t o m o d i f y t h e p l a n s o a s t o m e e t t h a t
situation.
Mr. McKay:
the b a n k s
S o that y o u could take items o n all o f
i n your d i s t r i c t a n d t h e y w o u l d n o t a l l h a v e c o m e
in under the clearing plan.
Mr. Kains:
B u t w e want t h e m all t o come i n under t h e
clearing plan.
Mr. McKay:
C o u l d w e not establish a
uniform circular
for t h e o t h e r d i s t r i c t s w h e r e G o n d i t i o n s a r e s o m u c h s i m i l a r
and t h e y d o not have s u c h great distances.
suppose
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Federal Reserve Bank of St. Louis
F o r instance,
w e include a l l t h e districts excevt thes e
The Chairman: I
mentioned
think w e ought t o d o that, i f i t i s a
possible t h i n g t o do; b u t I
w e can do i t
d o n o t believe
by considering t h e language o f a circular i n a meeting o f
twelve men.
circular,
I
t seems
t o m e t h a t t h e w o r k o f preparing 4
o r the circular itself, h a s g o t t o b e delegated
to a committee o f two o r three men.
A f t e r i t has been
prepared a n d p u t i n shape, t h e n w e have either g o t t o trust
that c o m m i t t e e a n d a d o p t w h a t t h e y prepare,
sent a r o u n d f o r t h e p u r p e s e
o r else h a v e i t
o f having amendments s u g g e s t e d
and incorporated.
Mr. McKay:
meeting?
I s i t your intention t o d o that a t this
T h a t is, t o have i t all cone here?
D
o y o u in-
tend t o h a v e t h e c i r c u l a r p r e p a r e d h e r e o r s e n t b a c k t o t h e
banks f e r approval:
Mr. McKay:
R
B h a t would y o u suggest?
e are very anxious
t n get t h e circular
I n read-
finished right here, i f it is possible t o do it.
ing over Governor Seay's circular here I
do not s e e anything
in particular that w e would object to. T h e r e might b e one
or two small changes t h a t w e might want t o make. I
have
not r e a d o v e r t h e N e w Y o r k draft, y e t , b u t I
i t is
along somewhat the same lines.
as f a r a s w e are concerned, I
imagine
I f there are any differences,
think t h e y would b e only
- gmall matters t h a t could b e readily changed.
Mr. Fancher:
C a n w e put into shape a t all a
circular
until w e are prepty well informed a s t o the legal phases
that m a y b e d e v e l o p e d ?
A r e w e sufficiently informed a s t o
our r i g h t s a n d a s t o j u s t w h a t r e s p o n s i b i l i t i e s
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Federal Reserve Bank of St. Louis
w e are a s s u m .
ing here?
Mr. S e a y :
T
- think thetcalle
o f usehave-
s p r e lun p r o a d
conception o f t h e s i t u a t i o n a n d t h a t w e n e e d o n l y t o p r o t e c t
it b y t h e p r e p a r a t i o n
guidance
o f such a
circular u n d e r s u c h l e g a l
a S m a y b e necessary.
Mr. McKay:
W e h a d t h e matter u p with our attorney a n d
he has drawn u p a form o f resolution a n d also a set o f clearing house rules t e b e subscribed t o b y the member banks, a n d
which,
i n his opinion, w i l l c e v e r a n y liabilities
o n the
part o f the Federal Reserve B a n k and will make t h e Federal
Reserve B a n k act only a s a n agent i n cothect tus these items;
that t h e y w i l l b e l i a B l e
Mr. S e a y :
i n n o o t h e r w a y e x c e p t a s agents.
T h a t w a s m y thought
i n expressing
i n the
circular that I attempted to right, a definite idea that
the b a n k w a s a c t i n g a s a
The Chairman:
c o l l e c t i n g agency.
W o u l d i t b e satisfactory t e have t h e
principles w h i c h appear i n these various drafts o f circulars
discussed here, adopted, rejected o r modified,
a s the case
may be, a n d t h e n turn t h e matter over t o a committee, w h i c h
committee s h a l l p u t i t i n t o p r o p e r l a n g u a g e ,
to censist
t h e canmittee
o f Governor Seay, G o v e r n o r . F a n c h e r ,
and Mr. Hendricks,
Mr. McKay
T h a t cemmittee ceuld have a
meeting
in New York, w h i c h would b e a fairly central point, a n d
they possibly would b e able t @ get i t out next week.
Mr. K a i n s s
2106. O F it.
T h a t seems
t o be a
very satisfactory s o l u -
I t seems t o m e i f w e just thresh this thing
out n o w and follow the procedure t h a t y o u mention, t h a t i t
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Federal Reserve Bank of St. Louis
would b e a very good one,
The Chairman:
progress
T h e important t h i n g i s t o make
a s that matter
without really wasting time i n debating words,
t w o o r three men.
can b e v e r y m u c h b e t t e r w o r k e d e u t b y
T h e
i n all o f these
committee c a n adept every idea which appears
i s sound a n d should
circulars w h i c h t h e B o n f e r e n c e a g r e e s
be covered.
Mr. Seay: I
think i t i s really necessary t o discuss
A s te the language
e be covered.
the points that o u g h t t
PS t a k e n care. o f e d
expressing those peints, t h a t matter c a n
t o b e jeet ty
the committee appointed; b u t I believe w e eught
what w e want
well fixed i n our determination a s t o exactly
to undertake t o do.
The Chairman:
form f o r o u r record,
I
n order t o have this matter i n proper
may I
suggest t h a t M r . M c K a y m a k e a
report f o r the clearance committee.
mitted a
T h e committee h a s sub-
report t @ the Federal Reserve Board, following
made a
which report t h e Federal Reserve Board h a s
decision
as to wow thie matter shall b e handled.
what
W e have n o written report here, except
Mr. McKay:
minutes o f the
is c o n t a i n e d
i n the meeting
o f t h e c l e a r a n c e committee. I
w i t h the
believe t h e Governors h a v e a l l read t h e minutés,
possible exception o f Governor Kains.
The Chairman:
T h e n , Mr. McKay, t h e report é c b e submit-
o f their meetings,
ted b y the committee consists o f the minutes
with t h e e x h i b i t s a t t a c h e d ?
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Federal Reserve Bank of St. Louis
Mr. McKay:
Y e s , Mr. Chairman.
W h i c h report and exhibits are t o be made
The Chairman:
o f our record now,
a part
a s the
f the committee
r e p e r t o
o n
clearances?
think t h a t w o u l d b e t h e b e s t w a y t o
Mr. McKay: I
i is all contained i n the minutes.
handle it, b e c a u s e t
M a y I also a s k that t h e stenographer
The Chairman:
embody i n t h e a e
S e a
e e
copy o f t h e letter f r o m t h e
Federal Reserve Board, which i s their action o n the repert
b y our clearance committee.
submitted
Gentlemen, w h a t action d o y o u propose t o take o n the
report o f the committee?
Mr. Seay: I
clearance
move t h a t t h e r e p o r t
o f the committee
b e accepted a n d t h a t i t b e made a
on
part o f o u r r e -
cord.
(The motion was duly seconded a n d carried.)
The Chairman:
culars.
W
e have before u s three proposed c i r -
O n e i s prepared
b y Governor Seay;
o n e b y Governor
Fancher a n d o n e b y Mr. Jay, a n d also o n e b y the Federal
Reserve B a n k o f Chicago.
Mr. McKay: I
would l i k e t o incorporate i n t o t h i s c i r -
cular t h e r e p e r t o f o u r counsel.
The Chairman:
W o u l d y e u like t o have Mr. W c K a y r e a d
that a n d t h e n h a n d i t t o t h e s t e n o g r a p h e r ,
go into the record.
I t is the epinion o f Mr. Powell,
counsel f o r the Reserve B a n k o f Chicag®.
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Federal Reserve Bank of St. Louis
s o that i t m a y
cee
Mr. McKay: ‘ T h e r e is a letter here, copy of the resolution t o b e a d o p t é d
b y t h e member banks, a n d a l s o a
of the clearing house rules,
copy
t o wit ah the member banks will
subscribe.
(The report o f the Committee o n Clearance, w i t h
the exhibits thereto, t h e letter o f the Federal Reserve
Board b e a r i n g u p o n t h a t r e p o r t ,
t h e opinion o f counsel
of
the Federal Reserve B a n k o f Chicago, t h e resolution referred
to, a n d a l s o t h e clearing house rules referred t o , a r e herewith i n c o r p o r a t e d
i n t h e record,
a n d are a s follows: )
REPORT O F THE COMMITTEL O N CLEARANCE.
Washington, M a r c h 2nd, 1915.
A conference o f the Governors! Clearance Committee o f
the Federal Reserve Banks w a s held i n the Grid I r o n Room o f
the New Willard Hotel a t Washington, D . C., March 2nd.
Those p r e s e n t w e r e -
Governor Strong,
Aiken,
Seay,
Fancher,
McDougal;
and
Messrs. Hendricks o f New York a n d McKay o f Chicago.
The meeting w a s cal led t o order a t 10:15 A . M. b y Mr.
McDougal, Chairman o f the Committee.
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Federal Reserve Bank of St. Louis
On motion,
C . R . M e K a y a c t e d a s S e c r e t a r y o f t h e meeting.
The chairman announced t h a t t h e meeting was called t o r
o f the
the purpose o f considering tentative Circular No. 1 1
clearings a n d
Federal R e s e r v e B o a r d r e g a r d i n g i n t r a - d i s t r i c t
Keconference h a d b e e n a r r a n g e d w i t h t h e F e d e r a l
that a
serve Board.
T h e chairman t h e n read a
number o f communi-
and
cations o n the subject between t h e Federal Reserve Board
the Federal Reserve B a n k o f Chicago.
A draft o f a proposed circular letter, c o p y o f which i s
hereto attached, p r e p a r e d
t o b e sent t o i t s member banks, w a s r e a d b y t h e Secre-
Chicago
tary.
b y t h e Federal Reserve B a n k o f
T h i s circular letter w a s written under t h e assumption
that checks o n member banks would b e received f o r immediate
be
crecit and immediate charge only and that checks would
district
taken only from and upon such member banks within t h e
o e
as agreed t o have their checks charged immediately t o
accounts
a t par.
to
A proposed re-draft o f Circular No. 1 1 t o b e sent
b y Mr.
the Federal Reserve Banks, w h i c h had b e e n prepared
of
Jay, Federal Reserve Agent o f the Federal Reserve B a n k
New York, w a s then read.
A f t e r considerable discussion
o f the
and w i t h some changes suggested b y various members
Cemmittee, Mr. Jay's re-draft o f Circular No. 1 1 was adopted
for recommendation t o the Federal Reserve Board;
c o p y o f Mr.
b y the
Jay's re-draft o f Circular No. ll, a s finally adopted
Committee i s hereto attached.
The Committee t h e n proceeded t o discuss t h e liability
of t h e F e d e r a l R e s e r v e B a n k s
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Federal Reserve Bank of St. Louis
t o their member banks which would
be i n c u r r e d
b y t h e establishment
checks c r a v n o n m e m b e r banks. A
of a
Clearing H o u s e f o r
letter: u p o n — t h i s s u b r e c t
was agreed up¢en tue be presented t o the Federal Reserve Board.
Copy o f letter h e r e t o attached.
Meeting adjourned a t 1:50 P . M.
At -6219-P.- M o t i e Committees nel’ 4
70int @oni erence
with t h e F e d e r a l R e s e r v e B o a r d a t t h e T r e a s u r y Department.
All o f the Committee a n d t h e following members o f the Federal
Reserve B o a r d w e r e present:
Governsr Hamlin,
Vics-Governor D e l a n o ,
Comptroller
o f t h e Currency,
Messrs. Hardins, Warburg, Miller a n d 4®cretary
Willis:
Mr. MeDougal reported t h e recommendations o f the
Governors!
Clearance Committee
of t h e B o a r d c o p i e s
a n d delivered
t o the members
o f t h e propesed circular
t s b e sent t o
the F e d e r a l R e s e r v e B a n k s a n d a l s e p r e s e n t e d
t o Governor
Hamlin letter t o the Board regarding t h e liability o f the
Federal R e s e r v e B a n k s
After a
i n collecting checks
o f member banks.
discussion o f t h e matters presented, M o v e r n o r
Hamlin s t a t e d t h a t t h e B o a r d w o u l d c a r e f u l l y c o n s i d e r t h e
recommendations
mittee,for a
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Federal Reserve Bank of St. Louis
o f t h e Governors' C o m m i t t e e a n d m e e t t h e C o m -
second conference t h e following day.
The joint conference adjourned: eat 5:00 P . M.
Wednesday,
M a r c h srd.
The Governors! Committee held a joint conference with
the F e d e r a l
Reserve Board
a t 12:00 noon.
Governor H a m i i n a n n o u n c e d t h a t t h e B o a r d a p p r o v e d t h e
recommendations
o f t h e Governors’
Committee regarding intra-
distrisy. clearings a n d would notify t h e Federal Reserve Banks
through t h e Federal Reserve Agents,
in a
position t o t a k e s t e p s
s o that e a c h bank would b e
t o pute t h e v i e n i n operacion,
The Board was informed that i t was the Committeels opinion
that i t w o u l d n o t b e a d v i s a b l e
t o begin t h e operation o f ths
plan until after t h e Governors! Conference t o b e held March
llth, a s many details would h a v e t o b e worked o u t which shouic
be a s n e a r l y u n i f o r m a s p o s s i b l e a m o n g a l l t h e F e d e r a l R e s e r v e
Banks. G o v e r n o r Hamlin stated that t h e Board would have n o
objection t o delaying the operation o f the plan until after
the meeting o f the Governors.
With regard t o the liability o f the Federal Reserve Banks
in collecting a n d clearing checks f o r member banks t h e Board
was n o t ready t o render a
opinion could b e obtained.
serve B a n k s w e r e e x p e c t e d
decision i n this matter until legal
I n the meantime, t h e Federal R e t o g o ahead w i t h t h e development
of the clearing o f checks a n d that e a c h bank could secure t h e
opinion o f its o w n attorney a s t o its liability a n d protect
y the terms o f the agreements
iteelf a s f a r a s p o s s i b l e b
between tne Reserve Banks and their members.
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Federal Reserve Bank of St. Louis
Joint zgonference adjourned 1 : 2 5 P . M.
C.R. Mohkey
Acting Secretazy o f Governors’ Clearance
Committee.
FEDEREO R
ES E R V E B U
PRD.
_-lutra-district C l e a r i n g o f C h e c k s a n d d r a f t s d r a w n
on
Member Banks...
the Federal Reserve Board has received and given carsfii consideration t o numerous suggestions o f methods f o r carrying out t h e provisions o f the Federal Reserve A c t i n respect
to the clearing o f checks a n d drafts b y Federal Reserve Banks,
and i t belleves t h a t t h e organization o f the reserve benks
has n o w progressed sufficiently t o warrant t h e m i n making 2 %
definite advance towards undertaking this service f o r their
member banks.
In considering the subject, t h e Board has divided the
Clearing o f c h e c k s a n d d r a f t s i n t o t h r e e stages:
(a) Intra-district clearing, i n which each Federal
Reserve B a n k c l e a r s c h e c k s
o n a n d f o r i t s o w n m e m b e r banks.
(b) Inter-district clearing,
i n which e a c h Federal
Reserve B a n k c l e a r s c h e c k s f o r i t s o w n m e m b e r b a n k s
o n all
other m e m b e r b a n k s , t h r o u g h o t h e r F e d e r a l R e s e r v e Banks,
(c) T h e settlement o f balances between Federal Reserve
Banks.
The Board believes t h a t progress m a y h e made w i t h t n e
greatest p r o m i s e
time,
o f success
i f o n e stage i s undertaken
at «
i n order t h a t experience m a y b e gained therein w h i c h m a y
later s e r v e a s the basis f o r further devolcpment.
T h i s
circular, therefore, w i l l b e doveted t o the presentation o f a
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Federal Reserve Bank of St. Louis
16
drafts drawn
plan f o r intra-district clearing o f checks a n d
satisfacon member banks, a n d until i t has been brought inta
tory a n d s u c c e s s f u l o p e r a t i o n ,
t h e development
of a
system o f
i n abeyance.
inter-district clearing must necessarily b e held
the coun
In the meantime, however, t h e circulation, throughout
development
try, o f checks drawn o n reserve banks requires t h e
in the near furture,
reserve banks.
wher c o n s u m a t e d
o f a plan f o r settling balances between
S u c h a plan i s now under consideration a n d
i t w i l l b e m a d e t h e s u b j e c t o f a m o t h e r circular.
Present. Status o f Intra-district Clearing.
In e n y p l a n w h i c h i s a d o p t e d b y a
reserve p a n k ,
i t is
i n the present
desirable t h a t n o disturbance should b e made
member banks,which
arrangements f o r handling checks drawn o n
are a s follows:
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Federal Reserve Bank of St. Louis
(a)
I n accordance w i t h t h e p l a n f o r m u l a t e d
a t the cons
o reserve b a n k directors h e l d i n Yeshing=
ferencef
Banks
ton, October e0-P2, 1914, a i l Federal Reserve
are receiving a t par for immediate credit checks
drawn b y member banks o n member banks i n Reserve end
Central Reserve Cities within their respective
districts.
The Tederal Reserve B a n k o f Chicago i s also receiv=
on
ing a t par f o r immediate eredit a l l checks drawn
Cities
member banks i n Reserve a n d Central Reserve
within i t s district.
and Kansas
The F e d e r a l R e s e r v e B a n k s o f St. L o u i s
17
immediate credit,
City a r e a l s o r e c e i v i n g a t p a r f o r
subject t o certain restrictions a s t o en@rsements,
their
all checks drawn o n all member panks within
respective districts.
Reciprocal P l a n f o r Intra-district Clearing.
is a
The p l a n p r o p o s e d b y t h e B o a r d
reciprocal o n e a n d
through t h e medium o f
contemplates t h e clearing o f ckecks,
those o f its member
each Federal Reserve Bank, o n l y between
banks w h i c h d e s i r e
t o participate
i n it.
I
t i s t h e belief
of
more rapidly a n d satisthe Board that progress w i l l b e made
factorily t h r o u g h a
voluntary t h a n t h r o u g h a
mandatory plan.
made i n several o f the
It i s evident f r o m canvasses already
member banX¥s will b e suffidistricts that t h e cooperation o f
o f a practical intraecient t o assure t h e prompt inauguration
a s i t s advantages a r e developeu
district c l e a r i n g system, w h i c h
b y most,
and u n d e r s t o o d m a y b e a v a i l e d o f
i f n o t gil,
o f the
member banks.
i n putting t h e plan
The following Steps would b e observed
into operation:
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Federal Reserve Bank of St. Louis
its readiness o n and
(a) T h e reserve bank would announce
after a
member b a n k s
specified d a t e t o c l e a r f o r i t s
banks.
checks a n d drafts drawn u p o n i t s member
t h e clearing sysEreh m e m b e r b a n k d e s i r i n g t o e n t e r
tem would,
euthorb y vote o f its Board o f Directors,
against it:
ize t h e reserve bank t o charge immediately
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Federal Reserve Bank of St. Louis
18
account, s u b j e c t
t o final payment
a t i t s counter,
checks a n d d r a f t s d r a w n u p o n i t d e p o s i t e d w i t h t h e
Reserve B a n k b y other banks which had joined t h e
clearing system.
Each member bank joining t h e clearing system would
undertake
t o m a i n t a i n w i t h t h e r e s e r v e bank,
shown b y its books, a
as
sufficient balance t o provide,
without i m p a i r i n g i t s reserve,
f o r a l l items charged
against i t under t h e clearing system; t h e amount o f
such b a l a n c e
t o b e based u p o n a
monthly a v e r a g e a n d
uponthe experience which would b e derived f r o m operation.
Fach r e s e r v e b a n k w o u l d p u b l i s h t h e n e c e s s a r y r u l e s ,
together with e list, t o be revised from time t o time,
of the member banks which h a d joined i t s clearing
system, a n d , u p o n t h e i n a u g u r a t i o n o f t h e s y s t e m
would receive f r o m them f o r immediate credit a t par
all checks drewn o n other solvent member banks which
had joined it.
Federal Reserve Banks m a y e t their discretion accept
on deposit f r o m o t h e r m e m b e r b a n k s f o r t h e p u r p o s e o :
meintaining t h e i r r e s e r v e balances,
member b a n k s
o n member b a n k s
c h e c k drawn b y
i n a n y Central Reserve
or R e s e r v e C i t i e s .
Member b a n k s w h i c h f a i l e d t o m a i n t a i n a d e q u a t e b e l -
ances might,
a t the discretion o f the reserve benk,
be deprived (temporarily o r permanently) t h e
privileges o f the clearing system.
(g) M m e b e r banks would b e permitted u p o n reasonable
notice
t o w i t h d r a w f r o m t h e plan.
and
"hile this p l a n i s besed u p o n t h e immediate credit
local condigebit o f items, t h e Board realizes t h a t owing t h e
to
tions, t h e reserve banks m a y desire i n some districts
a n d deinaugurate t h e system u p o n a basis o f deferred credit
o n the
pit, a n d i n other districts t o admit some member banks
credit
basis o f immediate, a n d others o n the basis o f deferred,
and debit.
proS u c h modifications o r extensions o f the plan
a t t h e out‘posed a s m a y b e d e s i r e d b y a n y r e s e r v e b a n k , e i t h e r
the Board f o r
set o r from time t o time, s h o u l d b e presented t o
approval.
not intended
It s h o u l d b e u n d e r s t o o d t h a t t h e s y s t e m i s
to
OG. C h e e
prohibit l o c a l c l e a r i n g s t h o u g h c l e a r i n g houses,
change o f c h e c k s b e t w e e n n e a r b y c i t i e s
o r points
o f t h e banks
t h o s e o f clearing
of w h i c h h e v e r e l a t i o n s h i p s a p p r o x i m a t e l y
houses.
T h e s y s t e m i s designed
e s t h e first-step
i n the ine
f o r collection
provement o f present methods o f handling checks
within t h e r e s p e c t i v e d i s t r i c t s ,
a n d wherever,
i n a n y districts
b a n k a n d a n y par~
by r e a s o n o f t h e d i s t a n c e b e t w e e n t h e r e s e r v e
iioate® seetion; c o l l e c t i o n
o f checks m a y b e m a d e m o r e g u i c k l y
o f the section,
by directmmmhmihm interchange between t h e bank
doubtless contim:such relations f o r t h e present a t least will
how
Experience a n d evolution o f the system will determine
"border"
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Federal Reserve Bank of St. Louis
and local situations may b e best met.
_Charges:
W e i t, h
tata nng
_-[THe Federal Reserve Act provides that charges may~be—Im= ~~
hy
posed f o r t h e s e r v i c e o f c l e a r i n g o r c o l l e c t i o n r e n d e r e d
1 S oe
the reserve banks, such charges t o be fixed b y the Board.
preasmuch a S such charges should b e adjusted t o the conditions
vailing i n each district, s h o u l d b e reasonably uniform, s h o u l d
be adopted simultaneously i n all twelve districts, a n d should
not b e retroactive,
i t i s not proposed t o adopt a n y basis o f
charge for clearing o r collection service a t this time.
A f -
Banks
ter e x p e r i e n c e u n d e r t h e p r e s e n t p l a n t h e Tederal R e s e r v e
will b e a u t h o r i z e d
t o submit t o t h e Board a
suggestion o f
charges t o b e made effective after d u e notice,
The {ct provides t h a t charges t o b e fixed b y the Board, m a y
are
be c o l l e c t e d b y members b a n k s f r o m p a t r o n s w h o s e c h e b k s
cleared.
a
h been
U n t i l t h e system o f intra-district c l e a r i n g . s
developed a n d the results o f its operation have been ascerfix
tained, t h e Board authorizes reserve banks m a x make t o
subject
charges which member banks m a y make t o their patrons,
to t h e a p p r o v a l
o f t h e Board.
The A c t provides that a
member b a n k m a y charge i t s pat-
venteetre
rons t h e actual expense incurred i n collecting a n d
funds.
the
T h e propriety a n d soundness o f this provision o f
Act i s indisputable.
‘ “ h e t h e r o r not banks will gradually
remitsucceed i n imposing. upon their depositors t h e cost o f
a distance,
ting f o r their checks which have b e e n circulated a t
can only b e determined b y experience.
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Federal Reserve Bank of St. Louis
Inauguration o f the Clearing System.
It i s t h e d e s i r e o f t h e B o a r d t h a t t h e i n t r a - d i s t r i c t
clearing system outlined i n this circular,
tion o r e x t e n s i o n t h e r e o f
should b e i n a u g u r a t e d
at a
o r such modifica-
a s m a y b e approved
b y t h e Board,
i n each o f the districts
date a s n e a r l y u n i f o r m =
a s promptly a n d
m a y b e practical.
N o t i c e of
w h e n i t publishes
such date will b e given b y each reserve bank
have joined
its rules a n d the list o f its member banks which
the c l e a r i n g system.
o f the
In presenting this p l a n t h e Board i s fully aware
i into successful
difficulties t o b e overcome i n b r i n g i n g t
operation.
M e t h o a s o f collecting checks a n d drafts which have
National
been developed a n d operated f o r many years under t h e
reserves, h o w e v e r
Bank A c t a s p a r t o f t h e s y s t e m o f r e d e p o s i t e d
either sudunscientific t h e y m a y be, should n o t b e changed
denly o r b y compulsion.
and direct a
e
T h e development o f more scientific
o f check collection siould b e gredual, j u s t
transfer
as the Federal Reserve A c t provides f o r t h e gradual
of t h e p r e s e n t r e d e p o s i t e d r e s e r v e s
be b a s e d u p o n e x p e r i e n c e
t o t h e r e s e r v e bank; s h o u l d
t o b e obtained f r o m actual operas on,
because
‘and i n t h e e n d s h o u l d g a i n t h e m e x i m u m p a t r o n a g e
the superior service a n d the advantages offered.
build u p a
n order t o
slearing,
successful a n d e c o n o m i c a l s y s t e m o f c h e c k
the c o o p e r a t i o n
o f a l l c o n c e r n e d m u s t e v e n t u a l l y b e secured,
and t h e B o a r d a s k s
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Federal Reserve Bank of St. Louis
I
of
o f member banks @
broad cansideration
o f
ae
the plen proposed i n this circular e s a first step towards
solving t h e problem o f handling o u r inland exchanges.
Washington, D . C.,
March 2nd, 1 9 1 5 .
The F e d e r a l R e s e r v e B o a r d ,
ashi neton, by. 0 s
In c o n n e c t i o n
with the proposed
plen f o r intra district
clearings, concerning which this committee i s today making
ate
a separate report, t h e undersigned desire t o call your
tention t o two matters, t h e importance o f which has recently b e e n emphasized i n the minds o f this committee a s
a result
o f conferencegwith officers
o f member benks.
First, S o m e uncertainty prevells a s t o the exact léein
gal responsibility o f reserve panks t o member banks
acting a s a clearing house.
three principal points,
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Federal Reserve Bank of St. Louis
T h e s e questions relate t o
a s follows: -
ae D o e s t h e clearing o f checks through t h e Federal
reserve b a n k c r e a t e a
relationship p e t w e e n t h e R e -
serve Banks e n d their members materially differing
from t h a t w h i c h n o w e x i s t s b e t w e e n a
and i t s c i t y correspondent,
country b a n k
s o that a n y special pre-
caution o r safeguard should b e introduced i n order
that there might b e n o doubt o f the legal right o f
the reserve b a n k t o recover f r o m t h e member bank f o r
the a m o u n t o f a n y c h e c k r e t u r n e d b y t h e b a n k o n w h i c h
it w a s drawn.
11, I f - there i s a n y doubt e s t o the legal right o f the
reserve b a n k t o s o r e c o v e r
f r o m i t s member bank,
may
this b e safeguarded a s t o those banks which agree t o the
clearance p l a n b y a
on the checks,
special f o r m o f e n d o r s e m e n t s t a m p
b y resolution o f the Board o f Directors
of the assenting bank, o r b y a form o f notice t o b e
otherwise given?
lll. I f i t i s found that a n y special safeguard o f this
character should b e introduced i n the relations between
the F e d e r a l R e s e r v e B a n k a n d t h e a s s e n t i n g bank,
not also b e necessary,
may it
t introb y notice o r o t h e r w i s e , o
duce similar safeguards a s t o those banks w h o d o not
assent
t o t h e p l a n w u t w h i c h may, n e v e r t h e l e s s , h a n d l e
checks t h a t a r e e l e a b e n t h r o u g h t h e Federal, R e s e r v e
Banks, a s may a t times b e the case?
Second:
W h a t w i l l b e t h e position o f t h e reserve banks
in those c a s e s w h e r e c h e c k s a r e p r e s e n t e d f o r c l e a r a n c e
i n ex-
cess o f the balance ~ ~ balances a t the credit o f the member
bank o n which t h e checks a r e drawn?
possible d i f f i c u l t y ,
In o r d e r t o i l l u s t r a t e a
suppose that a
lat us
large bank i s subject t o a run, o r that i t s
solvency i s u n d e r suspicion..
I
n such case i t i s quite likely
that t h e r u n o n that bank will take t h e form o f a large number
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Federal Reserve Bank of St. Louis
24
of checks b e i n g p r e s e n t e d
t o t h e Reserve B a n k f o r clearance
reserve
far i n excess o f the balance i n the clearance a n d
accounts.
the
U n d e r s u c h circumstances, p a r t i c u l a r l y w i t h
must a t once
member bank i n a distant city, t h e reserve bank
determine whether i t will clear o r refuse t h e checks, S h o u l d
t h e rethe rumor giving rise t o the r u n prove unfounded a n d
serve b a n k d e t e r m i n e
t o r e f u s e t o c l e a r t h e checks,
doubtless result i n closing t h e member bank.
i t would
S h o u l d they
would subject
clear t h e checks a n d the rumor prove true, i t
t o the liabilthe member banks which h a d deposited t h e checks
Ity-tor r e t u r n o f a v e r y l a r g e a m o u n t
o f items, t h e r e b y r a i s -
and
ing other questions a n d possibly causing embarrassment
loss.
that-of-a
This situation isaltogether different f r o m
o n a balance b y
reserve agent that simply pays checks d r a w n
n fact, t h e F e d e r a l
the b a n k w h i c h c a r r i e s t h e balance.
I
Reserve B a n k a c t s a s a n i n t e r m e d i a r y
i n such a
44 a l m o s t
way a s t o make
prompt payment
a n insurer f o r t h e t i m e b e i n g o f t h e
fact b e insolvent
of checks drawn o n a bank which might i n
willing to take
unless the Federal Reserve Bank was able and
the responsibility o f declining t o clear.
a l l t h e banks a r e
In t h e c a s e o f c l e a r i n g houses, w h e r e
agreement i n adin the same city, t h i s situation i s met b y
p r o rata a n y
vance a m o n g t h e members that t h e y will share
clearing house member
loss arising through t h e failure o f a
to meet i t s debit balance.
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Federal Reserve Bank of St. Louis
T h i s feature o f any plan c f
clearance
i n t h e opinion o f this committee s h o u l d b e care-
*ully considered b y competent counsel before t h e plan i s
adopted.
exte
The q u e s t i a n s r a i s e d b y t h i s l e t t e r a r e t o s o m e
its interp
questions w h i c h d e p e n d u p o n t h e s t a t e l a w a n d
tion
i n state courts.
purpose
C h i l e this letter
i s written
for the
o f asking t h a t counsel f o r t h e Federal Reserve B o a r d
committee
examine a n d r e p o r t u p o n t h e q u e s t i o n s r a i s e d , t h i s
should
believes that t h e counsel o f each Federal Reserve B a n k
be asked t o render a
supplementary opinion t o b e submitted
to t h e R e s e r v e Board.
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Federal Reserve Bank of St. Louis
Respectfully,
JAS. B , MceDOUG)L, C H A T R M A I
ENJ. STRONG, Jr.
B
.
GEO.
S
J . SESY
BE. R , F A N C H E R
C.R, McKAY
L. H. HENDRICKS.
(COPY)
FEDERAL R E S * R V E B O A R D
WASHINGTON.
March 4, 1915.
The F e d e r a l R e s e r v e
the p r o v i s i o n s
Board h a s determined
t o deal w i t h
o f t h e F e d e r a a l r e s e r v e a c t i n respect
clearing o f checks a n d d r a f t s
t o the
b y F e d e r a l r e s e r v e banks, u n d e r
three heads:
(a) Intra-district clearing i n which e a c h Federal R e serve bank clears checks o n and f o r i t s o w n member banks,
(bo) Inter-district clearing i n which each federal
Reserve b a n k c l e a r s c h e c k s f o r i t s o w n m e m b e r b a n k s
o n all
other member banks, either directly o r through other Federal
Reserve Banks,
(c3? T h e settlement o f balances between Federal Reserve
Banks.
The B o a r d b e l i e v e s t h a t m o r e r a p i d a n d c e r t a i n p r o g r e s s
will b e made i f one step i s taken a t a time,
experience m a y b e o b t a i n e d a s a
i n order that
basis f o r f u r t h e r development.
As a beginning, t h e Board, i s , therefore, directing Federal Reserve Agents i n districts which have n o t yet
tablished a
e
s
-
general clearing plan, t o take u p with their
respective boards o f directors t h e establishment a t a s early
a date a s practicable,
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Federal Reserve Bank of St. Louis
o f a general system f o r the clearing
ete
of c h e c k s d r a w n u p o n m e m b e r b a n k s w i t h i n s u c h districts.
The plan which has commended itself t o the Board i s
based u p o n t h e i m m e d i a t e d e b i t a n d c r e d i t o f items d e p o s -
. b y a n d drawn o n assénting member banks, under a voluntary r e c i p r o c a l a r r a n g e m e n t
b y which e a c h assenting bank
agrees t o maintain s u c h a balance a s may b e necessary a n d
authorizes t h e i m m e d i a t e d e b i t o f c h e c k s
its Federal reserve bank f r o m
o n i t received
by
_ b a n k s assenting t o the
plan.
The Board does n o t deem i t necessary a t this time t o
elaborate t h e details o f a working plan; t h i s i s left t o the
judgmentd
n
a d i s c r e t i o n o f e a c h r e s e r v e bank,
wishes, (ueeaver:
T h e Board
t o b e advised o f the action taken b y your
Board o f Directors, a n d t o b e kept informed o f the progress
made 1 4 giving effect t o the plan abové outlined.
basis j o f t h e e x p e r i e n c e t h u s obtained,
O
n the
t h e Board will then
5Gece
Mey
S i e
whether further steps should be taken to harmonize
| practice a n d procedure i n the various districts, a n d
W at! additional s t e p will b e necessary i n the further developJ e n o f clearance under t h e Pederal Reserve Act.
!
Respectfully,
C.- o s H a m e s ,
Governor.
2 a OpasiettnbesREISS SENS» beige
Cheirman, Board o f Directors,
Federal
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Federal Reserve Bank of St. Louis
Reserve
Bank
o f Cleveland.
MAYER, M E Y R R , A U S T R I A N &
PLATT
Continental a n d Commerciel B a n k Building.
Chicago, M a r c h 3 , 1915.
Mr. C . R . McKay,
Deputy Governor Federal Reserve B a n k o f Chicago,
Rector Bldg., C h i c a g o , I l l .
Dear S i r : Re I n t r a - d i s t r i c t c l e a r i n g o f c h e c k s a n d drafts.
Referring t o the matter o f putting into effect t h e
intra-district clearing o f checks a n d drafts b y your bank,
I beg t o suggest t h e following plan:
I suggest that your Board adopt regulations governing
its conduct and liability o f member banks entering the
and I
clearing system,
hand y o u h e r e w i t h a
draft o f s u c h
proposed regulations.
You c a n forward t o your banks t h e proposed regula~
tions
i n print w i t h t h e request t h a t t h e y a d o p t a
tion a g r e e i n g t o b e b o u n d b y t h e s e r e g u l a t i o n s ,
you herewith a
resolu-
and I
hand
copy o f a p r o p o s e d resolution t o b e fur-
nished b y y o u t o the member banks f o r passage a n d certification t o you.
I believe I
have b y the proposed regulations covered
thematters w h i c h w e r e u n d e r d i s c u s s i o n b e t w e e n y o u a n d m e
when I was i n your Office o n Friday.
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Federal Reserve Bank of St. Louis
B u t i f I have not,
29
additional regulations c a n b e added before being sent o u t
to the member banks,
You will observe also that i n the resolution I
have
provided that t h e member banks agree t o b e bound b y such
additional r e g u l a t i o n s
a s y o u m a y adopt unless t h e y shall
give written notice o f their election n o t t o b e bound within five days after t h e receipt o f such additional regulation.
This m a y not meet your idea o f handling t h e situation
and i f it does not, I shall b e gald t o confer further with
you a n d outline s u c h additional regulations,
tional f o r m o f p r o c e d u r e
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Federal Reserve Bank of St. Louis
o r such addi-
a s m a y s e e m t o y o u appropriate.
Awaiting your further pleasure, i n the matter, I am,
Yourgvery t r u l y ,
FEDURAL R E S P R V E B A N K O F CHICAGO.
ReIntra-district clearing of
checks
a n d drafts
drawn
o n
member b a n k s .
member o f
NWHERESS, this Bank i s a stockholder a n d 4
the Federal Reserve B e n k o f Chicago; a n d
JHEREAS,
has
t h e Federal Reserve B a n k o f Chicago
announced i t s r e a d i n e s s
o n a n d after t h e
d
a
y of
and
, 1915, t o clear f o r i t s member banks checks
drafts d r a w n u p o n i t s m e m b e r b a n k s ;
WHEREAS,
and
i t i s highly desireble t h a t this Bank should
drawn upon
have the privilege o f clearing checks and drafts
o f Chicago,
member banks through the said Federal Reserve Bank
a n d adand should b e entitled t o enjoy a l l t h e privileges
Bank o f
vantages o f its membership i n said Federal Reserve
a n d drafts
Chicago, including t h e right t o have i t s checks
so cleared through s a i d Federal Reserve Bank; a n d
t h e said
WHEREZS, t h i s Bank i s desirous o f entering
clearing s y s t e m s o t o b e e s t a b l i s h e d
Bank o f Chicago;
b y the Federal Reserve
and
has
S the Federal Reserve B a n k o f Chicago
THERES ,
governings i t s
promulgated c e r t a i n r u l e s a n d r e g u l a t i o n s
conduct,
a n d t h e conduct
o f member banks
i n clegr ing f o r
member banks,
its member banks checks a n d drafts u p o n i t s
thereof hereto
and which s a i d rules a r e a g shown b y copy
attached, a n d marked "Exhibit a."
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Federal Reserve Bank of St. Louis
NOW, T H E R E F O R E ,
First:
B E I T RESOLVED:
T h a t this bank b e a n d i t i s hereby author-
ized t o enter t h e clearing system o f the Federal Reserve
Bank o f Chicago, a n d become bound b y the rules a n d regulations o f the Federal Reserve B a n k o f Chicago s e t forth i n
Exhibit A
hereto attached, a n d such other regulations a s
may b e a d o p t e d b y t h e F e d e r a l R e s e r v e B a n k o f C h i c a g o t o
govern its conduct, a n d the conduct o f its members, i n said
clearing system, u n l e s s t h i s b a n k s h a l l g i v e n w r i t t e n
notice o f its elections n o t t o b e bound thereby within five
deys a f t e r receipt o f a n y such additional regulation,
Second:
T h a t t h e cashier o f this bank (the Secb e a n d h e i s hereby
retary o f t h e B o a r d o f Directors),
authorized t o deliver t o the Federal Reserve Bank o f
Chicago a certified copy o f this resolution."
I, t h e undersigned,
d o hereby CERTIFY that t h e fore-
going i s e true a n d correct c o p y o f a resolution o f the
Board o f Directors o f the
B
a
n
k d u l y passed a t
a regular meeting o f the said Board held a t
on the
d
present,
a
y of »
1915, a quorum being
a s fully a n d completely
a s the said resolution
reneins o f record i n the minutes o f said meeting; a n d that
said resolution h a s n o t been rescinded o r modified.
In witness whereof I
have hereunto s e t a n d subscribed
my n e m e a n d a f f i x e d t h e g o r p o r a t e s e a l o f s a i d b a n k a t
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Federal Reserve Bank of St. Louis
n
e
e
Cashier
Secretary Board o f Directors,
FEDERAL RES*RVE BANK O F CHICAGO,
Regulations prescribed b y the Federal Reserve B a n k
of Chicago, governing i b s conduct a n d t h e conduct
and
liability o f member b a n k s e n t e r i n g t h e c l e a r i n g
system o f
said Federal R e s e r v e Bank.
Kech m e m b e r b a n k s w h i c h d e s i r e s
t o enter a n d have t h e
privileges a n d advantages o f the clearing system
t o b e inaugurated b y t h e F e d e r a l R e s e r v e B a n k o f Chicago,
shall, b e fore b e i n g g r a n t e d s u c h privilege,
c o m p l y w i t h t h e following
regulations:
5 F a c h member bank shall present t o its Board
of
Directors these regulations a n d such Board o f Directors
Stall b y res®lution properly adopted, a g r e e t o b e
bound
by t h e s e regulations,
resolution
a n d furnish a
certified c o p y o f s u c h
t o t h e F e d e r a l R e s e r v e B a n k o f Chicago.
ae E a c h member bank shall authorize the Federal
Reserve B a n k t o charge against i t s a c c o u n t with
t h e Federal Reserve B a n k o n presentation b u t subject
t o final payment e t i t s counter,
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Federal Reserve Bank of St. Louis
a l l checks a n d drafts G r a w n u p o n i t
53
and dspesited w i t h t h e Federal Reserve B a n k o f Chicago b y
ovher member banks which have joined t h e clearing system,
3a E K a c h member bank shall maintain v i t h t h e Federal
Reserve B a n k o f Chicago,
a s shown b y its books, a
sufficient
balence t o provide, without impairing i t s reservesm, for all
items cherged against i t under t h e clearing system, t h e
amount o f such b a l a n c e o
t b e based upon a monthly average
end upon t h e experience which shail b e deviyed f r o m operation
of t h e system.
4. T h e Federal Reserve Bank o f Chicago i s accepting
for immediate credit checks a n d drafts drawn o n its member
banks f o r a n y member b a n k joining t h e clearing system, s h a l l
be liable t o said member bank s o depositing checks o r drafts
for collection a s a collecting agent only; a n d i n the event
such checks o r drafts a r e not paid b y the member bank o n
which t h e y a r e d r a w n o n d u e p r e s e n t a t i o n b e i n g m a d e b y t h e
Federal Reserve B a n k o f Chicago, t h e same m a y b e charged
egk t o the account o f the member bank making t h e deposit
Be f n y member b a n k m a y a t the discretion o f t h e
ioral Reserve B a n k o f Chicago b e deprived temp@aarily o r
permerentiy
a f t h e privileges
o f t h e c l e a r i n g system, f o r *
"aivure t o c o m p l y w i t h t h e s e regulations.
Member b a n k s a r e permitted u p o n reasonable notice
%LO witndraw f r o m t h e clearing system.
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Federal Reserve Bank of St. Louis
as T h e Federal Reserve B a k o f Chicago may, i n ac-
cordance w i t h t h e p r o v i s i o n s
o f t h e Federal Reserve fct,
make s u c h charger f o r the services o f Clearing checks
and
drafts f o r m e m b e r b a n k s a s m a y b e f i x e d b y t h e
Federal
Reserve Board.
ve T h e drawing o f checks a n d drafts drawn o n member
banks o f t h e F e d e r a l R e s e r v e B a n k o f C h i c a g o m a y
write o r
Stamp a c r o s s t h e f a c e o f tiwm s u c h c h e c k s
o r drafts t h e words:
"Negotiable a t par through the Federal Reserve Bank o f
Chicago;" but such endorsement h a l l never b e held t o import
that t h e F e d e r a l R e s e r v e B a n k o f C h i c a g o
i n accepting s u c h
checks o r drafts for clearing has become the owner thereof
or i s acting otherwise t h a n a s the agent c f the depositing
bank f o r c o l l e c t i o n ,
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Federal Reserve Bank of St. Louis
55
(®hereupon,
t h e committee selected
t o wait u p o n
Governor Hamlin, returned t o the conference room.)
The Chairman:
approved;
G o v e r n o r McDougal, t h e minutes havé b e e n
t h e report o f your committee h a s b e e n submitted
Mr. M c K a y a n d h a s b e e n o r d e r e d f i l e d a n d m a d e a
Pecord,
W
circular
t o b e adopted
uniformity,
by
part o f o u r
e are n o w Starting consideration o f the form o f
b y all o f t h e banks w i t h substantial
f e r t h e purpose
o f putting a
clearance s c h e m e i n t o
effect.
However,
w e woulc l i k e t o interrupt t h a t procedure l o n g
enough t o hear your report, following y o u r call o n Governor
Hamlin.
Mr. McDougal:
M r . Chairman, y o u r committee h a s waited
upon Vice-Governor Delano,
i n the absence o f Governor Hamlin,
and Governor Delano said that h e would extend o u r message t o
the Board a t its meeting which will be held this morning. H e ’
wishes
m e t o s a y t o t h e Governors t h a t h e i s pleased t o know
we a r e i n t h e c i t y a n d t h a t t h e y w i l l e x p e c t
a r e
t o hear f r o m u s
T h a t w i l l c o n s t i t u t e t h e report.
The Chairman:
I t has been arranged t h a t a t this morn-
ing's m e e t i n g w e w i l l g o o v e r a
number
o f forms
o f circulars
that have b e e n cubmitted, w i t h the idea that t h e principles
embodied
i n those f o r m s
o f circulars w i l l b e acted upon,
and
that t h e actual preparation o f the text o f a uniform circular,
resolution a n d plan, f o r clearing, w i l l b e submitted t o a
committe
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Federal Reserve Bank of St. Louis
t o b e w o r k e d o u t i n detail n e x t week.
_-We-trave b e f o r e u s , f o u r circulars,
o n e prepared
Chicago,
and o n e p r e p a r e d
b y Cleveland,
b y Richmend.
o n e prepared
o n e prepared
W h e r e would
by
b y N e w York,
y o u like
t o com-
mence i n considering t h i s matter?
Before taking u p the text o f a n y one o f these circulars
I believe this committee c a n b e trusted t o work o u t the detail o f the circular w i t h accuracy a n d dispatch a n d I hope
that w e c a n debate t h e principles without going into t h e
s e
question o f language
much.
L e t that matter be: develop—
ed l a t e r .
d o y o u w i s h t o t a k e u p first, g e n t l e m e n ?
Which c i r c u l a r
understand that w e have drafts o f
Mr. McDougal: I
circulars submitted b y New York, Cleveland, Chicago a n d
move t h a t t h e N e w Y o r k p l a n b e p r o c e e d e d w i t h
Richmond, I
first.
Mr. S e a y : I
second t h a t motion.
(The motion was duly carried.)
The Chairman:
graph;
L e t u s t a k e i t u p paragraph
b y para-
l e t e a c h o f those p r e s e n t r e a d t h e f i r s t p a r a g r a p h
and m a k e a n y Cemments
a s t o a n y m a t t e r o f principle e m b o d i e d
in that paragraph.
Mr. McDougal:
Might I
suggest that t h e Secretary o r
the Chairman read this aloud: paragraph b y paragraph.
The Chairman: I
will b e very glad t o read it, Gover-
nor McDougal.
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Federal Reserve Bank of St. Louis
The first paragraph i s a s follows:
"The Federal Reserve Bank o f New York i s prepared t o
inaugurate for its menibers a system o f intra-district clear-—
ing o f checks a n d drafts drawn o n member banks i n this district, M e m b e r s h i p i n the system will b e voluntary, a n d
clearing will b e effected o n l y between those banks which
join: 4 5
T h e items cleared will b e settled b y immediate
credit a n d d e b i t
t e t h e acceunts
banks respectively.
o f the Sending a n d paying
T h e other Federal Reserve Banks will
areee t o t h e i r m e m b e r b a n k s p a r t i c i p a t i o n
i n similar systems
of intra-district clearings."
Is there a n y comment o n that paragraph?
Mr. Seay:
R i g h t there, i f there i s t e b e u n i f o r m i t y — —
Mr. McDougal: (Interposing)
T h a t would involve St.
Louis.
Mr. Seay:
I f there should b e the adoption o f a uniform
method b y ten o f the banks i t would b e well f o r all o f the
others t o know that i t i s uniform. I
just t e make a
think i t i s sufficient
notation there a n d pass on.
The Chairman: I
was going t e suggest t h a t i t read:
"substantially similar systems".
Mr. S e a y :
On
T h a t i s just t h e idea I
mean t o emphasize
- 0 as >pOLnt..
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Federal Reserve Bank of St. Louis
The Chairman:
W o u l d n o t that cover t h e peint?
Mr. Seay: i
think so, sir. H o w e v e r ,
to b e c o n s i d e r e d f i n a l l y ,
t h e circular s e n t o u t would n o t
couched i n exactly this language.
not w o r t h w h i l e
i f all this
T h a t i s a peint t h a t
t o raise now.
Mr. McDougal: I
think this paragraph might perhaps
é
358
emberrass t h e Kansas C i t y a n d St. Louis districts, w h i c h a r e
expected t o c o n t i n u e u n d e r t h e i r p r e s e n t plan. I m m e d i a t e l y
upon seeing this, I
o m inclined t o think that t h e y might f i n d
a few banks i n their district t h a t would like t o have advantage o f the same opportunity.
Mr. Sawyer: I
take i t w e will each have t o get u p a
circular letter that will apply t o our o w n particular situations,
W e will probably have t o change t h e cireulars t h a t
are s e n t o u t b y u s a n d a m e n d t h e c i r s u l a r s s e n t o u t b y t h e
other banks,
i n order t o m e e t o u r p a r t i c u l a r situations,
The Chairman:
B y putting i n the word "substantial",
that would probably cover it.
Mr. Sawyer:
Y e s , sir.
Mr. Curtis:
T h e member banks
i n your district w i l l
hardly tead the circulars o f other districts, Mr. Sawyer,
Mr. Fancher:
The Chairman:
T h e y probably will n o t s e e them.
I t can b e n o t e d n
o the margin o f
copy, w h i c h w e will keep f o r the use o f the committee
undertakes t o frame t h e language, a
reservation a s t o
Kansas C i t y and. St. Louis,
Mr, McCord: I
a m perfectly willing t o d o that, a s
far a S w e are concerned.
The Chatrman:
f r e there any further comments o n the
first peragraph?
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Federal Reserve Bank of St. Louis
(There were n o further comments. )
The Chairman:
T h e s e c o n d paragrapdh i s a s follows:
"Tor t h e present, t h e system will n o t embrace interdistrict c l e a r i n g o f checks b e t w e e n m e m b e r b a n k s
district a n d m e m b e r b a n k s
i n o t h e r districts,
i n this
Whether
Such b r o a d e r s e r v i c e m a y b e d e v e l o p e d w i l l d e p e n d l a r g e l y
upon e:‘perience g a i n s d
i n operating t h e local service n o w
offered,"
If t h e r e i s n o c o m m e n t
o n that I
will r e a d t h e n e x t
paragraph, w h i c h i s a s follows:
“ACTION T O 3 E TACEN BY M t l u R PANES
IN JOINING CLEARING S Y S T E M , "
"Rach m e m b e r b a n k i s r e q u e s t e d
t o sisnify promptly
on t h e e n c l o s e d b l a n k i t s i n t e n t i o n o f j o i n i n -
o r o f not
joining t h e c l e a r i n s s y s t e m . "
It occurs t o me that there should b e a time limit
put o n there,
Mr. Rhoades:
C o u l d t h a t n o t b e covered b y printing
on the agreement t h a t i t must b e returned b y such a n d such
a date, instead o f putting i t into t h e circular?
It provides t h a t a n y bank m a y come i n
- i I do not think i t i s important,
Mr, MeCord: I
think there ourht t o b e a definite
time set t o determine it, W h i l e they can come i n later,
if you just leave i t open that way they will wait until
somebody e l s e t a k e s action,
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Federal Reserve Bank of St. Louis
a n d s o on.
I f you s a y " Y e wan+
an answer t o this b y such a n d such a date" t h a t
puts i t u p
to t h e m o n e w a y o r t h e other.
I f y o u leave i t open t h a t
way t h e y w i l l s a y " L e t ' s w a i t a n d s e e w h a t
t h e other fel-
“ow i s soing t o do",
The Chairman:
M a y I suggest that w e amend t h e para-
graph b y stating that t h e clearing l i s t will b e wade
up on
&@certain day.
(Discussion followed.)
The Chairman:
T h i s paragraph i s t o b e amended b y
the addition o f the statement "That t h e clearing list
will
be made out o n a date t o be named; a n d those banks which
have n o t replied t o the circular i n time t o have their
names a p p e a r i o n t h a t l i s t w i l l b e o m i t t e d f r o m t h e l i s t a t
the outset,"
The next paragraph i s u s follows:
"Hach b a n k w h i c h d e s i r e s
t o j o i n will b e reauired
"(a) “ y vote of its “oard of Directors, i n accordance
with the form herewith enclosed, t o authorize the Yederal
peserve S a n k o f N e w York t o charge imiediately u p o n receipt
against i t s account, subject t o final payment b y such mem-
ber bank a t its banking house, checks and drafts drawn upon
it d e p o s i t e d
b y other member b a n k s w h i c h have j o i n e d t h e
clearins system."
Mr, Seay:
all a r r e e d o n ,
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Federal Reserve Bank of St. Louis
T h a t i s a v i t a l principle, w h i c h w e have
The Chairman:
"(b)
T h e next sub-paragraph
T o undertake
i s a s follows:
t o provide sufficient f u n d s
to
under t h e
offset t h e i t e w s c h a r g e d a g a i n s t i t s a c c o u n t
required
clearinz system, w i t h o u t i m p a i r i n g t h e r e s e r v e
to b e k e p t i n t h e T e d e r a l N e s e r v e Jank;
t h e amount o f
monthly a v e r a g e a n d t o b e
such f u n d s
t o b e based u p o n a
determined
b y experience g a i n e d f r o m actual operations."
IThave o n e s u s v e s t i o n
i n r e g a r d t o t h a t paragraph,
and that i s that after t h e word "based" I
should s a y "for t h e present".
think w e
‘ e should not invite mem-
their
ber banks t o come i n t o a plan o f clearing where
a
impaimment o r maintenance o f reserve i s based upon
monthly average, w h e n l a t e r o n t h e “ e d e r a l R e s e r v e
may r e q u i r e a
weekly r e p o r t o f t h e r e s e r v e average,
t o change t h e
by outting u s i n a position where w e have z o t
terms o f t h i s circular.
S o I
would s u g g e s t t h a t t h e l a s t
sentence r e a d :
present
“the amount o f such funds t o b e based f o r t h e
upon a monthly average Progen:
insertine t h e words " f o r t h e present".
Mr, McDougal: I
omitted;
would suggest t h a t these words b e
upon a
" T h e aaount e f such funds t o b e based
there a n d
monthly average", a n d that i t b e taken U p from
made t o read:
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Federal Reserve Bank of St. Louis
" T h e amount t o b e determined b y ezperience
gained f r o m actual operations."
42
The C h a i m m a n :
choe
Y o u s u c Be
e st
that
w e strike o u t t h e
swords “ o f such funds t o b e based upon a monthly average",
so: that i t will read:
" T h e umount t o b e determined b y
experience gained f r o m actual operations"?
Mr. McDougal:
Yes. I
provement, P e r h a p s I
think t h a t w o u l d b e a n in-
a m mistaken, b u t i t seams t o m e i t
would b e a n improveaaent, f o r the reason that when y o u give
b e based i n
them notice t h a t every month t h e average will
that w a y they will b e a t full liberty t h e n t o
for t e n days.
balances d o w n for twenty days a n d r u n them u p
Mr, Seay!
T h e y will wait until t h e e n d o f the month
i n funds.
before makins a n y vigorous effort t o keep y o u
Mr. Wold:
thei
< A {100,000 balance o n e d a y would give
sce for the month,
The Chaimaan:
I s the suggestion made b y Governor
MeDougal satisfactory t o all present?
I t will be s o con-
f there i s n o objection.
sidered i
strike
There i s no objection, a n d we will therefore
upon a monthly
out the words “ o f such funds t o b e based
average and", leavinz i t as follows: " T h e amount
t o be
operations."
determined b y experience gained f r o m actual
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Federal Reserve Bank of St. Louis
The next i t e m is:
®
"LIST O F IANKS WHICH JOIN THE CLEARING SYSTEM.
t o inaugurate
"When t h e Tederal Reserve S a n k i s ready
the c l e a r i n g system, a
circular w i l l b e i s s u e d c o n t a i n i n g
45
it, announcing t h e
a list o f t h e b a n k s w h i c h h a v e j o i n e d
operations a n d siving s u c h
date u p o n w h i c h i t w i l l b e g i n
necessary.
further i n f o r m a t i o n a s imay b e
clearing system will
"Revised lists o f members o f the
a s occasion requires."
be published f r o m time t o time
list j u s t a s
publish a
That w i l l e n a b l e e a c h b a n k t o
frecuently
necessary.
o r as& i n f r e c u e n t l y a s i t d e e m s
A s a watter o f information, I
Mr, McCord:
want t o
List t o make t h e correction
say t h a t w e h a v e m a d e u p o u r
the 15th o f the m y sh.
every fifteen days, o n the lst and
Seay:
A s a
matter
o f fact, I
suppose w e w i l l a d -
when a
vise a l l o f ovr members i n the system
new member
joins, b y means o f a revised list.
Mer. vfeCord:
Yere-is a
m a t i s true.
“ e look a t i t this way.
h e wants % o
fellow that wants t o colle in. “ h e n
t o the world rizht
come i n he wants t h a t fact published
away.
b y d a y because
‘ “ e could n o t d o that d a y
i t i s too
a n d w e would never
expensive a n d would b e very volwainous,
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Federal Reserve Bank of St. Louis
heads o r tails o f it. “ f e decided,
i f i t was a g r e e
t h e l s t a n d t h e 15th
the others, t h a t w e would take
list b y addinz t o it.
of each wonth a n d revise o u r
The Chairman:
cure o f
T h a t will necessarily take
l a y b e intervals
itself, M r . M e C o r d , b e c a u s e t h e r e
t o make,
weeks when y o u will have n o changes
o f two
O n the other
15th of every month t o
hand, i f you adopt the ist and the
44°
make them, t h e n o f c o u r s e y o u f i x a
date w h e n t h e c l e a r i n g
begins f o r t h e n e w member, w h i c h i s t h e i m p o r t a n t thing.
Otherwise t h e m e m b e r b a n k s w o u l d n o t k n o w w h e n t o b e g i n t o
send their items through.
Mr. McCord:
T h a t i s e x a c t l y t h e point,
The Chaimaan:
E a c h bank, under t h e terms o f this
circular, would b e able k s handle i t according t o the developments
i n i t s o w n system.
Mr. McCord: I
Mr. Seay: I
simply gave that a s a thought.
time
think a specified: m i g h t b e omitted
from here.
Mr. Hendricks:
I s i t y o u r i d e a t o s e n d o u t a n entire
new list e a c h time?
Mr. Seay:
No, a
The Chairman:
supplemental list.
T h e next i t e m is: |
"SUSSEQUENT ADMISSIONS AND WITSDRAWALS,"
"Member b a n k s w h i c h d o n o t j o i n t h e c l e a r i n g s y s t e m
at the time o f its inauguration m a y d o s o a t a n y subsequent
time.
M e m b e r b a n k s w i l l a l s o b e permitted,
notice,
u p o n reasonable
t o withdraw f r o m the clearing system, likewise t h e
privileges o f the clearing system may, a t the discretion
of t h e P e d e r a l R e s e r v e D a n k ,
b e withdrawn,temporarily
or
permanently, f r o m a n y member b a n k which fails t o provide
sufficient funds t o offset items charged t o its account.”
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Federal Reserve Bank of St. Louis
Mr. McDougal: I
move t h a t that b e modified.
I t is
a n y b a n k t o anticipate w h a t
an a b s o l u t e i m p o s s i b i l i t y f o r
t o do so in
T h e y m a y undertake
t it.
member banks will underfaith, a n d that i s what t h e
h
oo
e
w o u l d c o m e i n t o t h i s system;
probably resent this.
erve b y which,
b u t they
I + seems t o m e the privilege
i f they fail t o provide sufficient
covld b e tampered i n some Wal.
Chairuan:
C o u l d i t not b e tempered b y inserting
which would indicate t h a t
i t was intentional o n
You could insert t h e word "unreasonably"---
geams to me the lan-
(Interruptins:) .
I t i s optional w i t h
is now, i s not mandatory.
each bank. I
chanzing t h e lando not s e e a n y reason f o r
some kina o f a club t o hold
suage, “ T e have s o t t o have
over them.
The thaizrman:
t o s a y "which
“ M o u l d i t meet y o u r v i e w
able notice"?
Mr.
This thought comes t o m y mind,
o f clearing
on for depriving t h e pank
failure
-facilities w o u l d y e t h e i r
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Federal Reserve Bank of St. Louis
re
funds t o offset
t
t o provide s u f f i c i e n t
h
e
i
come up? I
there nowt s o m e o t h e r r e a s a n s
that s o m e b a n k s m a y
r
may n o t a d v i s e promptly,
e
d
i a
r account. Might
have i n m i n d
i t e a s promptly,
and
two or
t n e y m a y h o l d u p checks
three days t o have t h e m made good. C o n d i t i o n s might arise}
with l i t t l e banks, w h i c h m a y n o t c o - o p e r a t e a n d m a y n o t r e spond, a n d w e w o u l d w a n t t o t a k e t h e m o f f t h e 2ist. . Taeizr
method o f receiving items, o f advising creditors a n d handling items, might n o t b e satisfactory.
Mr, Aiken:
W h y would i t not b e possible t o incor-
porate into t h e paragraph a
statement t o the effect t h a t
the “ederal Reserve T a n k reserved t h e right t o terminate
ransement w i t h a member bank? S o m e general power.
T h a t i s t h e point.
Fancher:
MeCord: Y e s ; upon unsatisfactory service.
Chaimman:
T h e n you would suggest, Governor Aiken,
striking o u t everything after t h e words ""ederal Reserve
Tank",
s o that t h e sentence would read:
" t h e privileges
of the clearing system may, a t the diseretion o f the
permaTederal Reserve “Tank, b e withdrawn temporarily o r
nently f r o m a n y m e m b e r b a n k " ?
Mr. Aiken:
T h a t i s a little severe. I
should temper
somewhat; b u t that i s what I mean.
The Chairman:
" " o r pood cause”.
“Would that meet your objection, Covernor McDougal?
McDougal:
H o t entirely.
iexay: S u p p o s e w e s a y "for failure t o comply
which this c l e a r i n g .
with t h e rules a n d regulations under
house i s operated"?
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Federal Reserve Bank of St. Louis
Mr, McDougal: I
Nr. McCord: I
because I
think that i s a good suggestion.
a m opposed t o this word "permanently", .
d o n o t t h i n k w e have t h e right t o use it.
Seay:
h e n w e will leave o u t those t w o words a n d
say "withdrawn",
The C h a i r m a n :
S t r i k e o u t t h e w o r d s " t e m p o r a r i l y or.
permanently"?
Mr.. McDougal:
N o w will someone indicate what this
change i s t o be?
The Chairman:
I t will n o w read:
" t h e privileges
of
the clearing system may, a t the discretion o f the “ederal
Reserve Tank, b e withdrawn, a f t e r reasonable notice, f r o m
any member bank, w h i c h fails t o observe t h e rules o f the
clearing plan."
Wr, Gurtis:
D o e s that mean that t h e withdrawing i s
after reasonable notice o r that t h e failure i s after reason-.
able notice?
Tailure, a f t e r reasonable notice,
to
Does n o t t h e language c a r r y that significance?
The Chairman:
Gentlemen, I
think w e have n o t e d e n o u g h
on this point t o enable t h e Committee t o change t h e language,
A r e y o u satisfied t o leave i t t o the Committee t o
elaborate u p o n t h e lanpuage, Governor McDougal?
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Federal Reserve Bank of St. Louis
Mr. McDougal: I
The Chairman:
am; yes, sir.
T h e next matter is;
MITES YWIICH VILL S E RECEIVED P R O M MEMBER RANKS."
"Tor i m m e d i a t e c r e d i t :
"From a n y m e m b e r b a n k i n District N o , 2
which
has joined t h e m m clearing system, checks a n d drafts
payable
o n presentation d r a w n o n a n y other b a n k
which has joined the clearing system.”
"Tor d e f e r r e d credit:
"Trom any member bank i n District No. 2 which
has j o i n e d t h e c l e a r i n g system, c h e c k s a n d d r a f t s
payable u p o n p r e s e n t a t i o n d r a w n o n a n y m e u b e r b a n k
in the cities listed below, b u t only a t the discretion o f the Tederal Reserve Sank, a n d only t o assist
such banks i n providing funds t o offset items charged
through t h e clearing system.
““rom a n y member b a n k i n District H i e a ,
checks o r drafts payable u p o n presentation drawn
on “ederal Reserve Sank,"
I a m frank t o s a y that I
d o not like t h e w a y this i s
framed.
lr, rancher:
T h a t paragraph really relates t o drafts
on other Tederal Reserve Panks?
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Federal Reserve Bank of St. Louis
The Chairman:
N o .
Member b a n k s
i n other Tederal Reserve
That p a r a g r a p h
is a
little b i t obscure.
The
“he ther,
p
r
o
v
i
d
e t h e men-
banks t h a t c a m e i n t o t h e c l e a r i n g s y s t e m w i t h i t e m s
to u s e a s o f f s e t s
t o charges
w e a r e s o i n g t o receive a
limited n w a b e r o f i t e m s d r a w n o n member b a n k s
i n cities
outside t h e district, a n d i f s o what cities shall those b e ?
Mr. Tancher:
C a n y o u defer a
credit c o v e r i n g i t e m s
which a r e d r a w n o n member b a n k s c o m i n s f r o m b a n k s o u t s i d e
pr n e l e t r a s
The Chairman:
“ W e would r u n a
transit a c c o u n t f o r a n y
bank w h i c h s e n t u s i t e m s f o r d e f e r r e d credit.
stance, i t e m s
having a
o n banks
“ o r in-
i n t h e c i t y o f Cleveland.
clearing house,
You,
a n d beins able t o put t h e m through
at once, w e would allow time o n those drafts a n d checks s o
that a f t e r t w o days t i m e , p o s s i b l y ,
sent t h e m i n w o u l d s e t cash.
T h e y would n o t g e t cash
credit a t once. ‘ T e would have a
those c i t i e s
t h e member b a n k that
time schedule f o r all o f
s o that t h e y could build u p a n o f f s e t after
the lapse o f the time provided i n the schedule.
we, “old: I
do n o t think under t h a t parap
would s e t a n y items o f that character.
time, l i k e Chicaso exchange,
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Federal Reserve Bank of St. Louis
w e send out a notice t o our
member b a n k s t h a t w e w i l l t a k e C h i c a g o e x c h a n g e u p o n a
two d a y s d e f e r r e d credit, w h e n a s a
matter o f f a c t t h e y c a n
get immediate credit a n y place i n the world, n
in n e e d o f Chicazo a n d N e w Y o r k e x c h a n g e
We are
a n d a s k tia our
member banks t o send i t t o us, w h y should w e take i t upon
a deferred c r e d i t ?
Then y o u t h i n k t h e c i r c u l a r s h o u l d
read " f o r i m m e d i a t e c r e d i t " ?
Aiken:
T h e Chicago exchange mitht b e without a
premium o r discount i n the different districts.
I suggest t h a t exchange t h a t has a market
cities b e taken a t the market rate.
Ve haven't a n y markets i n any o f our
would n o t f i t c u r district;
Nor ours, n o r a n y o f the smaller ones, I
“hy c o u l d n o t t h e p a r a g r a p h read,
sense o f thé C
may,
;
a t t h e i r discretion, a c c e p t
e
o r the
“ederal Reserve Danks
o n deposit f r o m member
banks, f o r t h e purpose o f maintaining their balances,
checks o n member banks i n any Central Reserve o r Tederal
peserve c i t i e s ,
Mr, MeCord:
serve c i t i e s ?
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Federal Reserve Bank of St. Louis
i n accordance w i t h t h e s c h e d u l e h e r e w i t h ?
“ h y d o you desire t o eliminate the re-
51
I think w e had better n o t open that u p
If w e take a l l o f t h e reserve cities
and o p e n t h e m u p t o t h a t extent,
w e a r e s o i n g t o have
aifficulty, because m a some o f the banks i n the reserve
cities m a y not come into t h e clearing system.
T h e reserve
bank t o which t h e items a r e sent will have t o send t h e m
for collection t o that bank; t h e r e m a y b e the question o f
a n d s o forth, w h i c h m a y b e a
puyine exchancte,
of
matter
reserve
some erpense t o them, iBmh W e are imposing u p o n t h e
bank t o which w e send that i t e m a
possible expense a n d
delay i n setting t h e cash, w h e r e a s
w e a r e giving credit
on
much,
a snort time basis, T h a t m a y embarrass u s very
Ur, McCord:
W o u l d not each district furnish t h e
i n reserve
other districtgwith t h e list o f member banks
cities t h a t w o u l d a c c e p t ?
Mr, Seay:
T h a t idea was prevalent w i t h our comnittee
substitime i t met, b u t u p o n r e f l e c t i o n w e h a v e
Reserve cities f o r Reserve cities..
I will tell y o u where i t would operate
Louis disseriously against us, L o u i s v i l l e i s i n the St.
trict a n d Cincinnati i s i n the Cleveland district.
have a
Louisville
zood deal o f interchange business between
in o u r d i s t r i c t a n d C i n c i n n a t i
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Federal Reserve Bank of St. Louis
¥ e
i n o u r Clstracus
T h e .jues-
tion has already b e e n agitated with u s a n d got u s into a
pretty g o o d stew, i f you will remember.
I f e We hed a 11st
of the member banks i n Governor Fancher's district that
would aecept, a n d o f the Cincinnati banks, w e could clear
that p a r t i c u l a r l i n e o f credit a n d n o t h i n g else.
The Chairman:
W e will g e t this thing going a t
"sixes and sevens" i f we open i t up.
Mr. Wold:
W
e will have inter-district plearing
right away.
Mr. Fancher:
T h i s i s the argument s e t forth b y one
of the largest banks i n our district, a
Cincinnati bank:
That t h e y have a large volume o f exchange between Lauisville a n d Cincinnati a n d a l » b e t w e e n Cincinnati a n d
Baltimore,
I
n the natural operation there will b e items
on Cincinnati endorsed b y banks outside o f District No. 4
that w i l l b e p r e s e n t e d
Cincinneti.
t o the First Nationsl B a n k o f
T h e y will n o t all orginate i n District No.
4; t h e y w i l l c o m e f r o m Baltimore, B o s t o n ,
a n d o t h e r places,
Ultimately should they not come i n t o b e paid through
Cincinnati?
" h a t they want i g a n equalizing influence.
The Chairman:
A n d take items o n Bel timore a n d
Louisville.
Mr. Fecnher:
I
n other words, u s e Baltimore a n d
Louisville balances t o offset incoming items a n d equalize
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Federal Reserve Bank of St. Louis
the exchange - — —
The Uhairmen:
‘ o u l d y o u b e willin’
t o heve t h e cis-
trict take i n certain outside cities f o r ~urposes o f oti‘get that would not b e taken b y New York o r Richmond?
Woukd that b e sound, d o you think?
Mr. Fancher:
I t seems t o m e that h e v i n g the interior
district thet w e have i m there, w i t h pretty importent cities
around us, end with the incoming volume, thet you hove almost g o t t o take that outside exchange t o ecualize 1%.
(Further discussion followed, )
The Cheirmen; I
a m rethner inclined t o think that
2
this deferred credit neragraph h a s g o t t o b e left t o each
district t o s
Mr, McZay: I
think there i s n o cuestion about it.
In the first plece t h e number o f days would b e aifferent
with each Pecercl Reserve city.
I m some o f them there
are certain kinds o f exchenve which hove a
merket.
I n
Kensas City thet i s true, i n st. Louis, i n Cthicazto cnt
to some extent i n Minneapolis. I
believe s u c h e x c h a n e
thet h a s c merket should b e token b y the Pecerel Reserve
benks
a t t h e market r a t e f r o m member b e n s ,
a premium o r charging t h e n ‘ i s e s e r t
The Chairmen:
ellowing them
c s the case m e y be.
“ F o v l a you b e willing t o heve this
paragraph g o throuvzh with the notation thet t h e items f o r
deferred c r e d i t
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Federal Reserve Bank of St. Louis
o n member b e n k s i n o v h e r o l t i s s s h a L i - b e
the n e c e s s i t i e s
o f e a c h district?
That i s c o v e r e d
b y their discretion
in
the m a t t e r ,
Mr, Hendricks: T h i s paragraph, Governor
purposes o f p e m a i t t i n g m e m b e r
arranced @
maintain their reserve balances.
“ h y could’ we not cut
and m e r e l y a l l o w t h e inamber b a a k s
t o send i n t o
‘eserve banks, f o r the purpose o f waintaining their
reserve, iteas of clearing house batiks, which they would
have and which would help them more than any such deferred
credit arrangement?
Mr. Metay: I
think any member bank should be per
mitted t o send t o its o w n “ederal Reserve “ a n k checks o n
any member banks located i n its o w n “ederal Reserve c i t y
recardless o f whether i t comes i n o n this plan o r not.
Mr, McCord:
O h yes; y o u vould have t o d o that,
We u r e delizthted t o s e t t h e e x c h a n g e b e y o n d o u r district.
That brings t o u s a fold reserve, a n d
we w i l l b e v e r y g l a d i n d e e d t o h a v e i t o n a n y r e s e r v e
city i n the United Statés.
Mr, Seay:
of funds a n d
T h a t means t h a t y o u c a n p a y i t i n any kind
ret g
s o l d i n return.
Mecord:
Yes.
Mr, MeDoucal: I
believe t h a t that paragraph c a n well
be left t o the Comittee,
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Federal Reserve Bank of St. Louis
a n d that
LON.
O f 1 o.
“old:
think i t ousht t o b e optional.
I
The Chairman:
C h a l l w e mark this "left optional
with e a c h b a n k " ?
should l i k e t o h a v e a n e x p r e s s i o n f r o m
Mr. Me“ay: I
the m e e t i n ¢ « t o w h e t h e r t h e y b e l i e v e
i n the principle
of
deferred credit f o r such exchange a s i s not marketable
ana f o r t h e m a r k e t r a t e o n s u c h e x c n u n g e a s i s marketable.
do not think
ir, Z a n c h e r : I
market j u e s t i o n
wy, MeXNay:
i n o u r district.
w e c a n d e a l twith t h e
‘ “ e have n o m a r k e t
O f course i f y o u have n o market
f o r
i n your
district y o u c a n take deferred credit.
(Discussion folloved:)
think this matter o f t h e location
iy. @encRer: I
of t h e c i t i e s
i n the districts
t o outside reserve c i t i e s
has s o t t o b e t a k e n i n t o consideration.
it,
Covernors
think i t w o u l d b e a
h e x Y
cood p l a n f o r t h e
o f each o f t h e “ederal Reserve “anks
t o submit
to this Committee their idea a s t o what exchange t h e y want
to take f o r immediate c r e d i t a n d what t h e y want t o take
for deferred credit.
Chairman:
Melay:
motion.
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Federal Reserve Bank of St. Louis
D o v o u imke t h u t a S a
Yes; I
motion?
will p u t that i n the form o f a
Mr. Aiken:
W h a t i s that motion, M r . Chairman.
The Chairman:
T h e motion i s that each Federal pe-
serve B a n k shall submit t o the Committee, w h i c h i s t o prepare t h e l a n r u a g e
o f t h i s circular,
on which t h a t b a n k i s w i l l i n g
t h e l i s t o f cities
t o accept exchange
o n member
banks t h a t j o i n t h e c l e a r i n g s y s t e m f o r i m m e d i a t e c r e d i t
and for deferred credit.
Mr, Wold: I
do not think that i s possible.
may b e t i m e s w h e n w e w a n t S t . L o u i s e x c h a n g e
There
t o offset
an
adverse balance w i t h t h e St, Louis "ederal Reserve Bank,
and w e w o u l d b e p e r f e c t l y w i l l i n g
t o t a k e i t a n d g i v e inm-
mediate credit t o offset, a n d then after we had covered i t
we m i g h t w a n t t o t a k e i t f o r d e f e r r e d credit.
Mr. Seay: S u p p o s e t h e season turns a n d t h e exchange
flows t h e other way. W h a t would b e immediate credit a t one
time would b e deferred credit a t another.
Mr. McCord:
I s not this true:
T h a t t h e settlements
each week a t Yashington will adjust this?
Mr, Fancher:
Mr, W o l d :
I t w i l l w h e n w e g e t them.
T h e r e i s another c l a u s e w h i c h I
ception t o myself, w h i c h i s a s follows:
take e x ~
" A n d only t o
assist s u c h banks i n providing funds t o offset items
charged through t h e clearing system."
take f u n d s
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Federal Reserve Bank of St. Louis
Y o u might want t o
i n anticipation o f making s o m e investments
in
Naw York o r Chictazo, « - The CGhairwan:
T h a t o u g h t t o b e s t r i c k e n out. I
think w e have a l l agreed t o that.
(teesmad “eipeuselon followed.)
move t h a t t h e handling o f checks, e i t h e r
Mr. Wold: I
for deferred credit o r immediate credit,
o n member banks
‘in cities where Tederal Reserve Ranks a r e located,
to t h e discretion o f the management o f the n e s t
b e left
Federal
Reserve Banks.
The Chairman:
‘Mr, Seay:
I s that motion seconded?
T h a t was i n substance t h e previous motion
to refer t o each district.
The Chairman:
Yes,
Mr. Rhoades: I
think t h e Committee h a s t h e sense o f
the meeting a s t o t h e difficulties, a n d they c a n thrash
them out.
do not think t h e Committee ought t o
Mr. McDougal: I
be bound b y a n inflexible r u l e made b y the Governors h e r e
in regard t o this matter,
W e are just going over this
informally.
Mr. Wold:
A r e t h e Governors t o b e bound b y any in-
flexible rule that t h e Committee micht bring i n ?
Mr. McDougal:
Mr. Wold:
necessary
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Federal Reserve Bank of St. Louis
W e will hear t h e Committee's report.
Then I
a t all,
do not think a n y motions here a r e
move, a s a substitute, that the whole
Mr, Aiken: I
t o t h e Committee,
matter b e r e f e r r e d
a n d t h e Committee
will report later.
The Chairman: G o v e r n o r Yold's motion, n o t being
seconded, Governor Aiken moves that the whole subject of
the paragraph referring t o deferred credit
b e referred
to t h e Committee, w i t h t h e sense o f this meeting appearing
in the record.
I second that motion.
(The motion was duly carried.)
T h e next paragraph i s a s follows:
The Chairman:
"Trom any member bank i n District No, e, checks o r
Reserve
drafts puyuble u p o n presentation drawn o n Tederal
Banks."
In other words,
a r e w e n o w prepared
t o put a
time
Banks?
schedule o n checks drawn o n “ederal Reserve
I f you do, y o u will stop the drawing o f
we, WMeCord:
checks o n Tederal Reserve Banks.
wre, MeDougal:
we
T h e n I would say, f o r Chicago, t h a t
are prepared.to h a v e i t done.
Mr, Tancher: I
Chairman:
Yendricks:
Mr. Seay:
L e t u s put i t on.
a m for it.
A r e y o u f o r i t too, lr. tendricks?
I n certain districts; yes.
yuesI n the discussion o f the preceding
tion w e h a v e l e f t i t t o e a c h d i s t r i c t
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Federal Reserve Bank of St. Louis
t o refer t o this
59
committee t h e i r v i e w s a s t o t a k i n g i t e m s f o r i m u e d i a t e
credit o n certain “ederal Reserve Banks.
T h e s e t w o cues-
tions a r e inter-related.
The Chaimman:
W o u l d y o u then refer this matter
to
Committee also, Governor Seay?
Seay: I
would s u g g e s t t h a t , s i r .
Chairman:
I s that motion seconded?
Aiken: I
will s e c o n d that.
The Chairmaan:
I t i s moved a n d seconded t h a t
matter b e a l s o r e f e r r e d
t o t h a t Committee.
(The motion was duly carried.)
The Chairman: T h a t disposes o f paragraphs &
9 being simply t h e schedule.
I will r e a d t h e n e x t paragraph:
"REMITTANCE LETTERS."
"Items s e n t f o r credit should b e divided into three
classes:
"a, I t e m s
o n member b a n k s w h i c h a r e m e m b e r s
o f the
New Y o r k C l e a r i n g Mouse,
‘tems o n o t h e r m e m b e r b a n k s
{Items d r a w n b y inember b a n k s
on memver b a n k s
i n a n y c i t y i n which a
i n t h i s district.
i n this district
“ederal R e s e r v e B a n k
is situated,"
m4
4 nat
matter i s closely related t o the two uext pre~
and
cecing paragraphs,
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Federal Reserve Bank of St. Louis
“~~
i t seems a s t h o u s h t h a t s h o u l d b e
referred t o the Committee also,
Is there any objection t o that being referred t o the
Committee?
Mr. MeCord: I
The Chaimman:
suggest that i t take that course,
T h e r e being n o objection, t h e matter
will take that course,
The next paragraph is:
"The items under each o f these divisions should b e
accompanied b y a separate letter, s t a t i n g t h e name o r
transit number o f the bank o n which each i t e m i s drawn a n d
its amount,
E a c h letter should b e footed, a n d where more
than ons letter i s used t o accompany items under a n y one
of thé three dividitns, the total of such letters should
also b e furnished o n a separate sheet."
That i s a matter o f detail a n d will b e submitted f o r
the consideration o f the Committee.
The next Paragraph i s hsaded:
"IMITEPIATE C R E D I T A N D CYARGE,"
"All items received before 1:00 p. m, Will b e cleared
on the d a y o f receipt, I t e m s received after 1:00 p , um,
will n o t b e cleared until t h e following day."
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Federal Reserve Bank of St. Louis
Mr. Rhoades:
F o w about Saturdays?
Mr, Nancher:
T h a t will have t o b e qualified.
The Chairman:
T h a t will have t o b e qualified
t o take
care o f Saturday, a n y w a y .
Mr. Seay:
W i l l n o t every b a n k have t o issue i t s
rules a n d instructions, s e p a r a t e a n d a p a r t f r o m a
circular that w e adopt?
general
“ o u l d i t not b e well t o incor-
~vorate t h e s e i n s t r u c t i o n s a n d r u l e s
in a
separate a r t i c l e
for e a c h bank?
The Chairman:
Yes,
A s t o clearing items, I
recognize
that t h e items would n o t b e cleared through t h e clearing
house until the next day, but they would b e credited a s of
hat day, w h i c h i s t h e p r a c t i c s a n y w a y .
Vr, Moetay:
I
n the tederal Reserve B a n k o f Chicago
the i t e m s a r e p u t t h r o u c h a g a i n s t t h e c l e a r i n g h o u s e b a n k s
right
i n t h e banks,
u p u n t i l t w o o'clock.
Y e would n o t
carry t h e m over.
The Chairman:
I n N e w York t h e practice w o u l d justify
our giving imnediate credit, a n d then this would appear
in our balance sheet a s items f o r t h e clearing house,
on
the n e x t day.
Mr, MeNay:
W e have eliminated that i n Chicago.
‘Ye
do not carry over clearing house items.
The Chairman:
York, b u t I
“ e m a y t r y t o d o that also i n New
do not know,
Is i t satisfactory t o refer this paragraph t o the
Comnittee also, t o adjust t h e details?
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Federal Reserve Bank of St. Louis
62
Mr. McDougal: I
think the matter contained i n this
o f each indiparagraph should b e left t o t h e discretion
vidual b a n k o n account
o f t h e aifferent hours
a t which
kind.
mails m a y arrive, a n d things o f that
The Chairman: I
McDougal,
have s o noted o n m y copy, Governor
f r o m this
s o that t h e Committee will gather
t h a t this paragraph
that i t i s the sense o f the meeting
be dealt with by each bank according
situation.
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Federal Reserve Bank of St. Louis
t o its own local
The Chairman:
T h e next i t e m is:
"All items which have been s o debited will b e mailed a t
the close o f the d a y t o the banks o n which they are drawn.
Such banks will advise t h e credit o f such items o n the d a y
they are received, r a t u r n with a c h advice a n y unpaid items
which are sent 'no protest', a n d advise that all other unitems h a v e b e e n p r o t e s t e d a n d t h e n o t i c e s p r o m p t l y m a i l -
Is there a n y suggestion a s t o that paragraph?
move t h a t t h a t a l s o b e r e f e r r e d
Mr. Seay: I
committce
t o the
t o b e considered a l o n g w i t h s u c h other rules a s m a y
be s u g g e s t e d
b y the committee. .
The Chairman:
U n l e s s there i s objection,
i t will take
that ccurse, i f that i s satisfactory.
(Reading): " U n p a i d items may not b e held f o r any purpose w h a t e v e r e x c e p t f o r i m m e d i a t e p r o t e s t ,
a n d will n o t b e
credited b a c k unless promptly returned."
Mr. Hendricks:
T h a t i s o n e o f the most important o n e s
Ghitmay a t s o b e c
Mry S e a y :
Y e s s that-is vient,
Mr. Hendricks: I
suggest t h a t t h e word "may" b e changd
toc s H e t
The Chairman: C h a n g e the word “may" t o "must".
"Unpaid items returned o n the day o f receipt will b e
creditcd t o the account e f such bank a n d charged t o the a c count o f and returned t o the bank which presented them."
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Federal Reserve Bank of St. Louis
Mr. Hendricks:
O f course, protests cannot b e returned
the s a m e day.
Mr. McCord:
I t is the rule i n our cities t o return them
by 12 o'clock the next day.
The Chairman:
I s i t satisfactory t e leave that detail
on t h e e n d o f t h a t p a r a g r a p h t o t h e c o m m i t t e e a l s o ?
(No response. )
If there i s n o objection,
i t will follow that course.
The next item i s "Endorsements."
"All items presented f o r collection through t h e clearing s y s t e m s h o u l d b e a r t h e f o l l o w i n g e n d o r s e m e n t
o f the send-
ing bank:”
Then a blank i s left f o r t h e endorsement.
ter, also, i f satisfactory t o the meeting,
T h a t mat-
i t seems t o m e
should b e referred t o counsel o f the various banks.
Mr. McDougal:
B e f o r e proceeding further, Mr. Chairman,
may I ask the names o f the members e f the committee w e are
referring t o ?
The Chairman:
T h a t , Governor McDougal, h a s n o t been
have m a d e , o f f h a n d , e
Gefinitely decided. I
suggestion a s
to the gentlemen who might take this matter up, but i t seems
to m e most logical t h a t t h e regular committee o n this sub-
ject should handle the matter, that being the committee o f
which y e u a r e Chairman.
Mr.. Rhe@aces;
[ I T move t h a t i t b e r e f e r r e d
mittee,
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Federal Reserve Bank of St. Louis
Mr. M c C e r d : I
second that.
t e that com-
Mr. McDougal: I
would like, i f i t i s proper,
Mr. M c K a y a p p o i n t e d a
member o f t h a t committee,
t o have
f o r this s p e -
cific purpose--—
The Chairman: I
would l i k e alse t o have Mr. Hendricks
serve o n that committee, Mr. McDougal.
Mr. McDougal:
Y e s sir,
The Chairman:
T h e suggestion that I made, Governor M c -
Dougal, w a s that t h e committee o r a committee, meeting i f
possible
i n N e w York e a r l y n e x t week, w o r k u p o n t h e cetail
of this statement o r this circular; a n d I suggested N e w
York because Mr. J a y has b e e n doing a good deal o f work o n
this a n d I vould l i k e very m u c h f o r h i m t o g o along with it.
He i s pretty clever i n this matter o f using language.
Mr. McDougal:
M y idea o n this matter i s that, having
in m i n d p o s s i b l e m e e t i n g s
o f t h a t kind, M r . M c K a y b e m a d e
a member o f t h a t c o m m i t t e e f o r t h i s e x p r e s s purpese:
them have a
L e t
committee f o r that purpose, climinating me, f o r
the reason that i t i s very difficult f o r us t o get away, a s
you c a n well imagine,
Mr. “Seay: I
a t the same time.
meve t h a t Mr. McKay a n d Mr. Hendricks b e
added t o that committee w i t h Mr. McDougal.
Mr. McDougal: I
a m speaking n o w because t h e matter
will n a t u r a l l y c o m e u p i n o u r b a n k a s t e w h e t h e r w e c a n b o t h
go.
W
e b o t h d o go, a s y o u know;
Mr. McKay a
weuld l i k e t o h a v e
member o f the committee instead o f simply coming
along w i t h me.
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Federal Reserve Bank of St. Louis
but I
The Chairman:
M a y I , then, suggest t h a t a s Mr. Hen-
dricks m a y return tonight o r tomorrow a n d will probably b e
able tomorrow t o take w i t h h i m a copy o f the record covering
this discussion,
t ’h a t h e a n d Mr.
J a prior.
t e this
m e e t i n ’»
B
would b e able t o make considerable pregress i n bringing this
circular along thatline o f our discussion, a n d t h e n that t h e
committee could meet, say, i n New York next week a n d could
have t h i s b l o c k e d o u t further,
a n d p e s s i b l y G e v e r n o r Seay,
Governor A i k e n a n d G o v e r n o r F a n c h e r c o u l d j o i n u s t h e r e a n d
conclude t h e whole b u s i n e s s w i t h Mr. M c K a y a n d M r . H e n d r i c k s
attending.
Mr. ¥old:
L e t i t b e understoed t h a t i f one o f the
Governors cannot attend, someone else c a n attend f o r him.
Certainly there i s ne objection t e that.
The Chairman:
I
s that satisfactory, gentlemen?
(No response.)
Mr. Wold:
I
f Mr. M c D o u g a l c a n g o a n d Mr. M c K a y c a n
net go, o r vice versa,
Mr. MeCerd;
I s i t not contemplated t h a t i f Governor
McDougal cannot g é h e has t h e power t o designate Governor
McKay t o g o ?
Mr. Wold: S u r e l y .
The Chairman:
v e would expect Mr. McKay t o b e there
anyway, a n d i t i s just a question o f whether Mr. McDougal
could come o r not,
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Federal Reserve Bank of St. Louis
If that i s satisfactory, then, t h e motion having b e e n
seconded,
t h a t this m a t t e r ’ b
e referred
t e the regular c o m —
mittee with the addition o f Mr. McKay and Mr. tendricks, I
will a s k f o r a vote.
(The motion, having been duly seconded, was put and
carried.)
The Chairman:
A s t o the @ndorsement, then, t h a t matter
is being c m s i d e r e d b y counsel.
stood t h a t t h e m e m b e r s
M a y w e not have i t under-
o f our committee w i l l b r i n g w i t h t h e m
suggestions
for discussien s u c h
a
s their counsel m a y make a s
to the f o r m o f endorsement s t a m p which shall b e prescribed
for e n d o r s e m e n t
Mr. MeCord:
o f items
t o g o through t h e clearings?
I s i t not a fact that recently, s o m e
three o r four years a g o m t h e question o f endorsements w a s
threshed o u t pretty generally a l l over t h e United States, a n d
one system o f endorsement having been adopted i t i s hardly
necessary t o refer i t t o attorneys? A t t o r n e y s d o not know
the practices o f banks.
T h e y take i t u p o n the legal
phases, a n d these questions have b e e n threshed o u t a n d set-
tled, s o far as the legal phases are cencerned.
Mr. MeKay:
F o r clearing house endorsements, items
that n o w g o through clearing houses, rules a r e drawn u p t o
the e f f e c t t h a t t h e e n d o r s e m e n t s h a l l r e p r e s e n t t h e e n d o r s e -
ment o f the bank i n fact.
I f you adept t h e regular clesring
house endorsements f o r o u r member banks, I
necessary
think i t would b e
t o put t h a t i n the agreement t h a t t h e clearing
house s t a m p s h a l l b e t h e i r endorsement,
i f i t should b e a r
the words "Cleared through the Federal Reserve Bank", o r
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Federal Reserve Bank of St. Louis
some s u c h language woulda b e necessary.
Mr. McCord: I
think t h a t t h e committee c a n handle t h a t
subject w i t h o u t c o n s u l t i n g a t t o r n e y s , b e c a u s e t h e q u e s t i o n
of the legality h a s already b e e n threshed o u t i n various
sections
o f t h e country.
Mr. Hendricks:
W i l l n o t t h e matter o f the position
taken b y Federal Reserve Banks a s t o whether t h e y are going
to handle t h e s e i t e m s a s c o l l e c t i o n a g e n t s
o r not, s e t t l e
the e n d o r s e m e n t ?
The Chairman:
G o v e r n o r MeCord, t h e r e i s a
question,
in view o f the language o f the Federal Reserve Acts, whether
he Federal Reserve Bank,
as a
i n handling these items, i s acting
clearing h o u s e o r a s a
sponsibility
collecting agent,
and the re-
o f t h e Federal Reserve B a n k m a y b e quite differ-
ent i f i t i s acting o n one theory, f r o m what i t would b e i f
itis octians.on t h e o t h e r theory.
or the other w e make that a
W h e n w e adopt o n e rule
matter o f agreement.
T h a t will
result i n our necessarily adopting o n e o r the other f o r m o f
endorsement s t a m p f o r t h e m e m b e r b a n k t o use.
make t h e stamp,
i n other words, conform t o the
which t h e a g r e e m e n t
Mr. Alken:
W w e have t o
v h e o r y on
i s made.
C a n i t n o t b e separately l e f t w i t h t h e
Chairman a s t o whether t h e y c a n get t h e advice o f counsel o n
that m a t t e r ?
Mr. Wold: I
ion o f o u r c o u n s e l
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Federal Reserve Bank of St. Louis
would l i k e t o leave a
o n that matter
copy o f the opin-
w i t h Mr. Curtis.
I s i t satisfactory t e have this ques-—
The Chairman:
tion of the endorsement stamp left t o the committee?
t fe: W I E ine.
I
Mr. MeCord:
The Chairman:
I f there i s n o objection, i t will take
that course.
" I n order t o secure uniformity a rubber
(Reading):
furnished
endasement s t a m p f o r t h i s p u r p o s e w i l l b e
t o each
pank which joins t h e clearing system."
Mr. Fancher:
Mr. Seay:
F u r n i s h e d without cost?
Y e s ; everything will have t o b e furnished
without c o s t .
have s o m e m e m b e r s t h a t w i l l protest;
Mr. McCord: I
will furnish t h e stamps.
that i s all right. I
The Chairman:
but
Y o u mean protest about your furnishing
them?
Mr. MeCord:.
Mr. Seay:
Yes.
Y o u mean, object t o your incurring a n y ad-
ditional e x p e n s e ?
Mr. McCord:
A n y expense r e l a t i n g
t o clearings.
Chairman: ( R e a d i n g ) :
"CHARGES,
charges m a y b e
"phe F e d e r a l R e s e r v e A c t p r o v i d e s t h a t
rendered b y
imposed f o r the service o f clearing o r collection
reserve b a n k s , s u c h c h a r g e s
Board.
t o b e fixed b y t h e Federal Reserve
eBihe 2 2 mage We
T h e Federal Reserve B a n k o f N e w York T e
o f its clearing
the present, m a k e a n y charge f o r t h e service
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Federal Reserve Bank of St. Louis
system,
b u t after experience h a s b e e n gained f r o m operating
the system, i f a charge i s found necessary s u c h charge will,
b y t h e Federal Reserve Board, b e c o m e effective
when a p p r o v e d
only after due notice and will not b e retroactive."
Mr. Mecord:
well t e have a
T h a t i s a l l right,
b u t would i t n o t b e
uniform system o f checking t h e overhead charges
carried o u t b y each o f the banks, f o r t h e present,
t o see
what the actual c o s t will be?
The Chairman: I
think w e eught t o take t h a t u p after
discussing t h e circulars, b e c a u s e t h a t i s a
matter,
t o adopt a
very i m p o r t a n t
a the overhed
uniform method o f a r r i v i n g t
cost o f operating t h e system.
(Reading):
"The Act provides that a member bank may charge its pa-~
trons t h e actual expense incurred i n collecting a n d remitting funds.
T h e propriety a n d saindness o f this provision
of the act i s indisputable.
w h e t h e r o r not member banks
will gradually succeed i n collecting f r o m their depositors
the cost o f settling o r remitting for their checks which have
been circulated a t a distance c a n only b e determined b y
experience.
"LOCAL CLEARINGS T O CONTINUE.
"Tt should b e understood t h a t this system i s not i n tended
t o supersede l o c a l c l e a r i n g s t h r o u g h c l e a r i n g h o u s e s
or exchanges o f checks between nearby cities o r points i n
which the banks have relationships approximating those o f
clearing houses.
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Federal Reserve Bank of St. Louis
A n d wherever,
b y reason o f t h e distance
particular s e c t i o n t h e
between t h e R e s e r v e B a n k a n d a n y
more quickly o r economiccollection o f checks i s being made
@ the section,
the b a n k s a
ally b y cirect interchange between
such relations, f o r the present,
a t least, w i l l coubtless c o n -
o f the system will d e tinue. I x p e r i e n c e a n d t h e evolution
termine e
c
b e met."
a n d local s i tuations m a y best
t
I suggest putting t h e word "border"
i n quotation marks,
o n the boundaries o f
as i t applies t o a specific situation
Federal Reserve districts.
Mr. Wold:
may é o i t
T h a t just simply tells how they
if t h e y prefer.
I
The Chairman:
t i s n o t mandatory,
I
t is a
i n a n y way?
very i m p o r t a n t n o t i c e p u t i n
t h e member b a n k m a y feel
the circular because, otherwise,
that h e i s o b l i g e d
t o mirsue a
system o f collecting h i s
the large districts, involves
checks which, particularly i n
transit between banks i n
more Gelay t h a n b y a n immediate
neabby cities.
Mr. Wold:
require@ a n y bank
T h e r e i s nothing here t h a t
bank.
to send cheeks u p o n another
The Chairman:
N o .
(Reading):
toySTEM N O W OFFLRED A
FIRST STEP.
this circular i s offer"The clearing system outlined i n
o f N e w York a s the first s t e p
ed b y the Federal Reserve B a n k
o f collecting checks
in the improvement o f present methods
within its district,
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Federal Reserve Bank of St. Louis
I t has been prepared after much con-
sideration o n the part o f the directors a n d officers o f the
bank, a n d after conference w i t h representatives o f the eight
groups
o f t h e N e w York State Bankers' Association
ing hela i n New York City February 17, 1915.
at a
meet=
T h e clearing
System n o w offered will b e subject t o such moaifications
or extensions a s may, f r e m time t o time, appear necessary o r
advisable."
he last sentence applies particularly t o the s i tuation
in New York.
Mr. Fancher: -
That i s just the form i n which each
bank c a n p u t i t o u t w i t h m e m b e r s ?
The Chairman: Y e s .
N o w , gentlemen, w e have the sug-
gestion a t the c m c l u s i o n o f this circular that i t should
embrace also some statement a s t o shipments o f currency t o
the Federal Reserve Banks f o r t h e purpose o f building u p
balances, a n d shipments o f Federal Keserve notes t o those
banks that need currency against excess balances that may
accumulate w i t h us.
T h a t i s a matter which must b e cealt
with i n each district according t o the situation i n the district,
i t seems t o me. I
understand t h a t some o f the Feder-
al R e s e r v e B a n k s a r e o f f e r i n g
at the cost o f the bank.
t o s h i p Federal Reserve n o t e s
T h e y m a y not all b e willing t o d o
that.
Mr, Seay: R i c h m o n d i s doing that a t the present time.
Mr. McKay: I
should think t h e member banks should p a y
the cost o f shipping currency i n either direction.
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Federal Reserve Bank of St. Louis
Mr. H e n d r i c k s :
Lor pay. for 3%,
I
f they need currency t h e y a r e willing
I f they d o not need it, there i s nothing t o
Et,
Mr, McCord:
Situation,
G e n t l e m e n , t h e r e i s another v i e w o f that
Y e u a r e n o t g o i n g t o get t h e cooperation
of
the banks i n getting y o r Federal Reserve notes out for the
purpose
o f carrying y o u r credits
you c a n p e e s
t
h
at a
certain t i m e unless
e situation o f shipments o f money .
é
For instance, t h e treasurer p u t i n New Orleans quite a
lot
of m o n e y t h a t w a s d e l i v e r e d o v e r t o t h e N e w O r l e a n s b a n k s
upon receipt o f N e w York exchange o r eastern exchange.
cannot puncture t h a t wall d o w n there until I
rency i n t e r e s
t h e Federal Reserve notes,
z i
ship t h e c u r e
a t the expense
of
the bank.
Mr. Seay:
T h a t is, a t this time o f the year?
Mr. McCord:
Mr. S e a y ;
Y e s ;
t h e r e a r e certain seasons
T h a t would change v e r y materially
a t other
seasons?
ir. McCord:
O h , yes; i t does change, a n d therefore n o
fixed rule weuld govern t h e year around.
Mr. S e a y :
S p e a k i n g f o r Richmond, I
have undertaken,
u p t O the present time, t o ship o u r o w n
Federal R e s e r v e n e t e s
t o the banks w a n t i n g t h e m f o r purposes
of general circulation,
out a
will s a y t h a t w e
a t o u r o w n expense, a n d w e will have
t h e e n d o f this week, I
think, o v e r three a n d a half
millions o f dollars, w h i c h i s s o mech capital.
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Federal Reserve Bank of St. Louis
The Chairman:
W
e have n o t p a i d t h e expense
o f shipping
any p a r t i c u l a r n o t e s ,
a n d w e n o w h a v e outstanding,
Mr. Hen-
dricke, nearly ©12,000,000, have w e not?
Mr. Hendricks:
Me. Seav:
J u s t about 12,000,000; yes.
Y o u p u t t h a t o u t a t t h e beginning?
The Cheirman:
T h e y are going o u t right along.
Mr. Fancher:
W e are putting t h e m out,
expense
T h e r e i s no
t o us.
Mr. McCord:
B u t vhen t h e Treasurer operates against
yeu i n one o f your leading cities, y o u have g o t t o meet
the s i tuation.
Mr. Seay:
I n our district a t this time money i s going
toward t h e centers,--Mr. Fanchers
T h a t i s something e a c h district must
govern f o r itself.
Vine MeCord:
Certainly.
The Chairman:
T h a t concludes t h e N e w York draft.
Shali w e n o w p r o c e e d
Mr. MeCord:
t o o n e o f t h e others?
H e w f a r i s that f r o m your Cleveland dis-
trict, Mr. Fancher?
Mr. Fancher:
W
e d o not think that possibly t h e Cleve-
land d r a f t c a n b e c o n s i d e r e d
a t this time, because
a letter w e have here i n a general s o r t o f way. I
i t i s only
had i n
mind that o u r attorneys would give m e a n opinion a n d some
form o f resolution a n d seme general p l a n o f operation which
would accompany this letter o f ours here. .
I t i s more along
the line o f a general announcement o f the preposition.
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Federal Reserve Bank of St. Louis
The Chairman:
Y o u would p r e f e r a t once t o proceed
to
the consideration o f the Richmond letter?
Mr. Fancher:
Y e s sin.
Chairman:
Seay:
S h a l l I
proceed
t o read t h e circular?
I f you please.
Chairman: ( R e a d i n g ) :
"LETTER
T O MEMBERS
O F THE
FEDLRAL RESERVE B A N K O F RICHMOND.
A PLAN F O R T H E COLLECTION O R CLEARING O F CHECKS
DRAWN UPON MEMBER BANKS
WITHIN D I S T R I C T N O . 5 ,
TO M E M B E R S
O F T H E F E D E R A L R E S E R V E B A N K O F RICHMOND;"
Is i t desirable t h a t t h e language o f the Act should b e
quoted?
Mr. Seay: I
that, 1
think w e are sufficiently familiar w i t h
should s a y , s i r .
The Chairman: T h i s i s in a circular t o the member
banks.
D
o w e w i s h t o call their attention
ments o f the Act i n our circular?
t e the require-
T h a t i s surely t h e ques-
tion?
Mr. Fancher:
Mr. Seay:
l a o , im-one. Section o f cure;
M y idea i n framing this circular, Mr. Chair—
man, w a s t e present i t t o this meeting f o r general discussion, a n d I could d o n o more t h a n t o put dewn s u c h matters
as passed through m y mind, a n d f o r that particular purpose.
So i t occurred t o me i n that connection, particularly i n connection with the paragraph which relates t o receiving f o r im-
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Federal Reserve Bank of St. Louis
mediate credit a t par from all member banks w h e n they are
proposing t o receive o n l y from some member banks, a n d that
paragraph relating t o charges which later o n i s referred t o ,
it might b e will t o state it.
ted t o you.
T h a t i s just a n idea submit-
T h a t i s simply b y way o f explanation o f m y
quoting t h e act, which ought t e b e well known t e all o f them,
but which I find i s really well known t o only a few o f them,
I a m having t o send copies o f the Federal Reserve A c t t o our
member b a n k s daily.
The Chairman:
a good m a n y t h i n g s
York draft.
I
n censidering t h i s circular there a r e
i n i t which have n o t been put i n the N e w
S h e u l d w e not censidor whether e a c h paragraph
is a n addition which should b e made t e the N e w York circular
and act o n it simply with that i n mind, and then the committee c a n w o r k t h e l a n g u a g e
i n a t the proper point w h e n t h e y
come t o revise?
Mr. Seay: i
think.-so;- sir,
The Chairman:
T h e question therefere i s , Shall section
16 o f t h e A c t b e q u o t e d ?
some o n e m a k e o
W h a t i s y o u r pleasure.
W i l l
motion?
Mr. Fancher: I
Mr. Aiken: I
think i t ought
t o b e quoted o r referred
should net b e disposed t o include it.
It r a i s e d t h e w h e l e q u e s t i o n o f w h a t t h e F e d e r a l R e s e r v e A c t
means, a n d u p i n New England w e will have 3 4 1 different
opinions. I
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Federal Reserve Bank of St. Louis
should b e inclined t o omit i t and simply g o
aheac w i t h the inte rpretations w e have mace, a n d n o t raise
the q u e s t i o n .
I s there a n y other debate?
The Chairman:
W i l l you
offer that a s a motion?
Mr. Aiken:
Y e s ; w i t h apologies
Mr. S e a y :
N o n e a r e necessary. I
t o G o v e r n o r Seay.
had t h e s a m e
thought i n putting i t there.
Mr. MeDeugal: I
second t h e metion.
(The motion, having been duly seconded, was put
and carried. )
The Chairman: ( R e a d i n g ) :
" T h e meaning o f the word
'par' has been defined b y the Federal Reserve Board a s
follows" —
Mr. Aiken: I
would include i n m y motion, Mr. Chair-
man, that part d o w n t o the e n d o f the quotation.
The Chairman:
y o u have Governor Aiken's
Gentlemen,
motion f o r t h e o m i s s i o n o f t h e n e x t t w e p a r a g r a p h s follow-—
ing t h e quotation.
T h i s committee m a y t a k e i n t e consideration
Mr. McCord:
the t i m e l i m i t
o n items.
I
f they h a d t h i s definition h e r e
tt w o u l d n o t h u r t t e h a v e i t g o i n t h e circular.
Mr. S e a y :
do a
I
t has occurred
great d e a l o f e x p l a i n i n g
t o m e that w e will have t o
t e our member banks w h e n w e
decline t o comply w i t h the terms o f the Act, w h i c h says t h a t
each F e d e r a l R e s e r v e B a n k s h a l l r e c e i v e
a t par.
H o w t o ex-
plain that i s a question that w e cannet g e t around i f w e d e
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Federal Reserve Bank of St. Louis
not h a v e t h e d e f i n i t i o n o f t h e F e d e r a l R e s e r v e Boar@g
upon
it T h a t immediately brings u s into a controversy,
I
think,
with o u r member banks, w h e n t h e act cistinctly says that
we
Shall c o one thing, a n d then w e proceed t o receive
f r o m part
of cur members o n l y for immediate credit, a n d from d@hers,
perhaps,
f o r deferred credit,
The Chairman:
a n d s o forth.
G o v e r n o r Seay,
w e a r e g o i n g t o receive
for immediate credit a t par all o f the items that g ° through
the clearing house f o r banks within o u r o w n district.
There
is nothing i n the Act that requires u s t o receive f o r immediate
credit a t par items drawn o n member banks o f other districts.
Mr. Seay:
N o ,
o h no; b u t w e a r e n o t g o i n g t o r e c e i v e
for immediate fredit a t par from all o f our banks.
Mr. Wold:
T h e Act says, “Every Federal Reserve Bank
shall receive o n deposit a t par from member banks o r from
Federal Reserve banks checks a n d drafts d r a w n upon a n y o f
its depositors,"
R e p o s i t o r s a n d member banks a r e differ-—
ent.
Mr. Seay:
I n this circular, a n d I think i n the New
York circular, too, i t is contemplated taking certain checks
on points outside o f the district.
Mr. Fancher;
Mr. S e a y :
F o r settling balances?
Y e s .
Mr. F a n c h e r ;
T h e A c t d o e s n o t r e q u i r e u s t o receive
at par, anyway.
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Federal Reserve Bank of St. Louis
Mr. S e a y : I
think that y e u contemplated
i n your c i r c u l e .
and s 6 h a v e i t down; c e r t a i n d e f e r r e d c r e d i t items.
The Chairman:
Y e s ; t h o s e a r e o n banks o u t s i d e
o f our
CLS trLes,
Mr. McKay:
T h e y could b e called items received f o r
deferred c r e d i t a t par.
Mr. Alken: I
think that t h e banks i n our district
would a s s u m e t h a t w e w e r e a c t i n g i n accordance w i t h t h e t e r m s
of the act. I
Mr, S e a y :
d o not believe i t would raise a n y controversy.
H o w about checks
o n other federal reserve
banks w h i c h m a y b e o u r d e p o s i t o r s ?
Mr. Aiken: I
Mr. S e a y :
think they think w e have b e e n easy.
T h i s i s not a
disputation,
a t all,. b u t i t
seems t o m e that i t i s a supject that w e will b e compelled
to e x p l a i n
t e our m e m b e r b a n k s w h e n w e d e c l i n e
t e receive
from themfor credit a t par checks o n other federal reserve
banks.
The C h a i r m a n :
G o v e r n o r Seay,
i s i t not a
fact t h a t t h e
only checks d r a w n o n a bank i n any other district which w e
are required t o receive o n deposit a t par i s a check that w e
may receive from some other federal reserve bank?
A n d if
that. isthe case w e are not i n a p o i tien where w e are depriving the member banks o f our district o f any privilege t h a t
they m a y t h i n k t h e y h a v e u n d e r t h i s A c t , b e c a u s e t h a t i s a.
privilege t h a t exists between t h e reserve banks themselves.
. Mr. Seay:
T h e A c t also says,
federal r e s e r v e b a n k . " A
" A depositor i n any
depositor
i n t h e Federal Reserve
Bank i s ene o f our members, a n d i f leach o f the Federal Reserve
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Federal Reserve Bank of St. Louis
banks i s c o n s t r u e d
t o be a
depositor
i n each, t h e n i t certain-
ly comes within t h e language o f the Act.
I f they clearly
maintain c r e d i t a c c o u n t s w i t h e a c h o t h e r f o r t h e p u r p o s e
of
granting exchange, t h e y are really therefore depositors i n
each Federal Reserve bank.
Mr. Fancher:
Seay:
T h e y a r e not treated a s depositors,
S i m p l y f o r the purpose
Mr. Fancher:
o f exchange.
T h e y d o not carry 3 5 per cent reserve
against t h a t deposit.
Mr. Seay:
Well, I
do not know.
perhaps h a s n o t b e e n t h r e s h e d o u t .
ing this, M r . Chairman. I
The Chairman:
T h a t i s a matter that
Perhaps I
a m prolong-
d i d not: m e a n t o .
I f w e omit t h e first quotationswe h a v e
to omit t h e second.
Mr, Seay: A
motion t o that e x t e n t
i s certainly i n
order, s i r .
Mr. Fancher:
T h e question c o m e s i n t o m y mind i n t h e
matter o f fixing the charge for the service rendered.
I n
the section o f our letter here w e refer t o section 1 6 a s
bearing o n that.
T h a t i s the thought w e had i n mind about
fixing t h e c h a r g e s f o r t h e s e r v i c e rendered,
Mr. Seay:
T h a t was t h e thought i n m y mind, t h a t i t was
well t o state n o t only t h e section o f the Act, b u t t h e
specific l a n g u a g e
The Chairman:
o f t h e A c t i n r e f e r e n c e thereto.
W h a t i s your pleasure
i n regard
t o the
second and third paragraphs? G o v e r n o r Aiken moved t h a t they
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Federal Reserve Bank of St. Louis
omitted, b u t his motion has n o t y e t been seconded.
I . second t h e motion.
Mr. M c D o u g a l :
(The question, h a v i n g b e e n duly seconded, w a s p u t
and carried, )
The Chairman: ( R e a d i n g ) :
" I n accordance with the
the
foregoing, t h e Federal Reserve B a n k o f Richmond, u n c e r
authority
o f t h e Federal Reserve Board, w i l l undertake
to
act f o r its members a s a clearing house o r collecting agent
upon the following plan:"
Mr. MeCord:
W o u l d i t not b e well t o strike out “in
accordance w i t h the foregoing", because y e u have eliminated
it?
Mr. Seay: R e f e r r i n g t o Section 1 6 b y reference,
merely.
do not think w e need t o discuss t h e
The Chairman: I
language h e r e , b e c a u s e
i f t h e t w o centences a r e t o b e
merged, t h i s language will a i l have t o b e changed.
Mr. Fancher:
I
t occurs
t o me, a s a
member o f t h a t
committee, that i n the opinions which may b e rendered b y
counsel bearing o n this whole proposition,
to r e f e r
py
t o Section 16.
D
o this committee
i t m a y b e necessary
want
t o b e bound
a draft o f a letter here?
The Chairman:
N o t a t all. I
going t o g e t a l l t h e a u t h o r i t y
think t h e committee i s
i t needs w h e n w e g e t t h r o u g h
with t h i s matter.
“Mr. Fancher:
there
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Federal Reserve Bank of St. Louis
W e want a broad latitude here. I
think
a r e going t o b e a number o f things opened u p and brought
‘nie this thing.
Mr. Aiken: I
understand t h a t this i s just a n expression
or o p i n i o n a s t o t h e p r i n c i p l e s t h a t w i i ] b e incorporated,
Mr. S e a y :
L e i l aalg2risiey
Mp. Aiken:
an expression
T h e cemmittee i s not bound.
o f t h e opinions
Mr. McCord:
I t is simply
o f t h i s meeting,
A s Mr. Forgan used ie say to the 6urrency
Commission, " a declaration o f principles".
The Chairman:
I f someone will offer a motion confer-~
ring u p o n t h i s c o m m i t t e e t h e a U C h o r i
yeGna t s b Ss meeting
would i i k e t o confer upon it, s o they w i l c o v e r a l l o v r
recommendations a s simply t h e expression o f views t o b e
dealt with as best they m a y - —
Mr. McCord: I
consent,
think that ought t o stand b y general
N o motion i s necessary, pecause i t has b e e n t h e
general e x p r e s s i o n a r c u n d
The Chairman:
t h e table,
I n the absence o f any objection t h e
record will indicate that t h e committee h a s ample authority
te d é a l w i t h t h e matter, I
understand, t h o n , t h a t t h i s
paragraph i s t o b e dealt w i t h b y the committee. I
Suggest t h a t w h i l e i t i s o n l y language,
would
i t m a y b e unwise
to
Suggest t h a t t h e Federal Reserve banks c a n act both a s a
clearing house a n d a s a collecting agent.
I t may b e found
necessary t o acopt o n e o r another theory a n d n o t attempt t o
straddle both.
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Federal Reserve Bank of St. Louis
Mr. Aiken:
T h e y present entirely different legal
problems,
d o t h e y not, M r . C h a i r m a n ?
The Chairman: }
Yes.
T h a t matter, I
to b e left t o the committe® also,
(Reading):
guess, will have
I t will develop itself,
" E a c h bank desiring t o avail itself o f the
collecting a g e n c y o f t h e F e d e r a l R e s e r v e B a n k s h a l l
b y vote
ot its Board o f Directers authorize t h e Reserve B a n k t o
charge immediately against i t s actount, subject t o final pay-—
ment a t its o w n counter, a l l checks d r a w n upon i t received
by the reserve Bank fer cellection."
Mr. MeCord:
D e y o u think i t i s necessary t o take
that down t e the Board o f Directors?
Mr. McDougal: I
Mr. MeCord:
Y o u de?
MoDougal:
Mr-e McCord:
think i t i s absolutely necessary.
Yes.
A l l right.
W e are going t e have wore
controversy a n d trouble a n d devilment a n d delays t h a n w e
ever had before. j
j
The Chairman:
G o v e r n e r McCord,
w e have t o consider
j
/
that m a t t e r v e r y carefully;
a n d t h i s q u e s t i o n /may a r i s e
even without anybody's wanting t e raise i t by! force o f cirj
cumstances; t h a t is, if a claim is te be made it might b e
asserted
by a
fiduciary t h a t i n t h e c a s e 0 6 / 8 f a i l e d b a n k t h e
© an
_ofticers of the bank had bound the bank, ~
which they had n o right t e bind t h e e
ef i t s b o a r d o f d i r e c t o r s - —
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Federal Reserve Bank of St. Louis
Mr. McCord: I
see,
e
obligation
w i t h o u t action
The Chairman:
N o going bank would likely welch o n a x
obligation created under i t s agreement, b u t i f a bank shonic
fail withoutstanding liabilities w h i c h t h e receiver o f the
bank m i g h t c o n s i d e r w e r e i m p r o p e r l y c o n t r a c t e d ,
b y proceeding
without authority w e might b e embarrassed i n protecting ourselves,
Mr. McCord:
I T ee¢@,
T h e n l e t m e offer this sugges-
tion, t h a t w e endeavor t o get t h e Comptroller t o send o u t
this resolution—~- ( L a u g h t e r )
Mr. Aiken: I
ask that N e w England b e excluded f r o m
that.
Mr. Fancher:
P l e a s e excuse District No. 4
Mr. McCord: I
o n that.
do not know w h e n I will ever g e t m y
folks i n line unless I can get something o f that kind,
Mr. Fancher;
Mr. McCord:
T h e y d o not have t o come i n line.
T h e y generally take i t for granted that
anything h e says has g o t t e go.
Mr. Seay:
T h a t principle i s fully incorporated i n
the N e w York circular, a n d i t i s just a question o f language.
The Chairman:
W
e w i l l l e t t h a t p a r a g r a p h pass,
b y con-:
sent, a s the hmmm two sentences are the same i n princifle,
(Reading: )
"The Federal Reserve B a n k o f Richmén* “ 1 1 7 i n return
receive f o r i m m e c i a t e c r e d i t a t p a r f r o m m e m b e r s b a n k s
granting such authority checks o n all other member banks
in the district which will grant liko authdrity.
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Federal Reserve Bank of St. Louis
"Members o f the clearing system will thus g a i n ths
great advantage o f being able t o count a s reserve
the
aggregate
o f a l l checks
o n other m e m b e r s
o f t h e systen,
as weld a s checks u p o n members i n reserve cities,
and
hereinafter provided, immediately u p o n forwarding
t o tne
reserve bank."
Mr. McCord? I
ment t o that,
court,
would like t o offer a
i n order t o m e e t a
little amend-
decision o f o u r s u p r e m e
T h e y s a y "for immediate credit a t par",
After
the words "grant like authority", a d d "all checks
subject
to ultimate a n d final payment a t the bank o n which
crawn,"
Mr. Seay:
T h a t i s p r o v i d e d f o r previously,
The Chairmani. " S u b j e c t t o final payment a t
its o w n
counter,"
Mr, McCord: I
understand; b u t this sentence, being
a complete sentence within itself, I
a m afraid o f a decision
of m y Georgia Court,
The C h a i r m a n ® I
will n o t e y o u r s u g g e s t i o n
o n this
paragraoh, also, Governor McCord:
ie McCord: I
Mr. McDougal:
should thank you t o d o that,
I
f I
understand t h i s l a s t p a r a g r a p h ,
the meaning is, Governor Seay, that this is a notice t o
the banks t h a t t h e y are t o figure their reserve o n the
books
basis o f their o w n a n d not t h e federal reserve bank's,
Mr. Seay: W e l l , as we proceed you will see that the
idea:‘is d i f f e r e n t ,
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Federal Reserve Bank of St. Louis
nf
was going t o say, i f that i s
Mr, McDougal: I
case, a n d b e f o r e w e p r o c e e d f u r t h e r , t h a t i t i s n o t
sary a t all.
W
e have learned
i n our district t h e t
do f i g u r e i t f r o m t h e i r o w n books,
Vr, Seay: I
a m s t e t h e y do---
Mr, MeDougal:
A n d will continue t o Go so,
(At this point a n informal discussion occurred
which the stenographer w a s directed n o t t o report, after
which t h e following proceedinggtook p l a c e : )
Mr, Seay:
M r , i.cDougal, m y idea i n suggesting t h a t
to t h e m e m b e r b a n k s w a s this:
I t seems t o m e t h e e s s e n t i a l
idea a n d t h e purpose o f this. letter n o w i s t o make t h e member b a n k s p r o v i d e
i n advance f o r t h e p a y m e n t o f s u c h c h e c k s
BaSe
as will b e presented t o them thrpugh t h e Federal Reserve
Bank, a n d a s a n offset t o that w e are just suggesting t o
them t h a t such checks
a s they send u s i n advance w i l l i m o
meciately c o u n t a s p a r t o f t h e i r reserves,
The Chairman:
Mp. Seay:
t would b e surplus reserve, however,
I t may, yes.
The Chairman:
take a
I
I t woulé n o t cdo them a n y good,
L e t us
vote o n this last paragrash o f l-a,
Mr, McDougal:
b referM a y I suggest that t h e l e t t e r e
red t o t h e c o m m i t t e e ?
The Chairman:
referred
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Federal Reserve Bank of St. Louis
G o v e r n o r McDougal moves t h a t i t b e
t o t h e committee,
(The mation was duly seconded, )
W h a t w e have g o t t o g e t i s t h e princi-
Mr, Rhoades:
I f N e w York h a s omitted i t , w e ought t o include i t ,
ples.
T h e principle w h i e h o u r circular h a s
The Chairman:
adopted i s t h a t t h e r e s e r v e o f t h e m e m b e r b a n k s m u s t b e
calculated
a s t h e books
o f t h e reserve bank,
I s i s n o t stated beyond peradventure,
Ne, Seay:
The Chairman:
Me, Seay:
i e s
a0. G
e are coming t o a
W
subsequent p r o v i s i o n o f
this circular which will make i t clear that that i s the
intent.
I
Mr, Fancher:
n that connection, h a v e w e anything
from t h e r e s e r v e b o a r d a s t o h o w t h e r e s e r v e s a r e t o b e
computed?
Counted
Mr, McCord:
o n t h e member bank's books,
is t h e w a y i t has been done,
Nr, M
A
The Chairman:
checks
n
d i t always will b e done,
W
T h a t m u s t b e stopped,
e cannot clear
i n our district except--Mr, F a n c h e r :
H
o
w d o w e know what t h e reserves
should b e u n t i l w e g e t t h e w e e k l y s t a t e m e n t s ?
The Chairman:
Mr, Seay:
particular,
W
B y the transit account.
T h a t i s what I
a m proceeding
t o d o i n this
e a r e r e a l l y anticipating,
The Chairman:
T h e suggestion was made that this mat-
ter b e referred t o the Federal Reserve Board f o r a ruling
as t o w h e t h e r t h e r e s e r v e s s h o u l d b e c a l c u l a t e d
books
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Federal Reserve Bank of St. Louis
o f t h e member banks
o r o n the books
o n the
o f t h e reserve
=
I would l i k e t o s u b g i t t h a t i f w e c a n a g r e e
among o u r s e l v e s
that m a t t e r
e s t o what principle
i s t o b e adopted
on
i t will b e infinitely b e t t e r t h a n t o refer t h a t
question t o t h e R e s e r v e B o a r d a t t h i s time.
with t h e u t m o s t c o n s i d e r a t i o n ,
T h e y have,
t u r n e d this matter o v e r t o
the various reserve banks t o handle a n d manage according
to their best judgment, a n d I think w e should meet t h e m i n
that sPirit a n d n o t give t h e m a question t o decide t h a t
would just have t h e appearance o f putting t h e m into a
hole ,
I think w e ought t o determine that, i f possible, ourselves,
and relisve i
a n y embarrassment o f that kind,
T h e
object o f i t is simply t o "get out from uncer" with oum
member banks i n imposing something o n them which w e know
they will not like and saying, "Oh, well, that i s the
devil down i n Washington that c i d it." I
€ principle
do ndt think
w e should f o l l o w i n endeavoring
to
thing straightened out.
MeDougals
I t may ultimately become necessary
ruling f r o m the board within s i x ma@nths o r a
year o r s o m e o t h e r time,
The Chairman: ©
Let u s g o right t o i t ourselves a n d
thresh i t ou¥,
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Federal Reserve Bank of St. Louis
Mr. MoCerd:
eis
G U
T h e whole i d e a i s t o make checks cir6éu-
C 1 vere
Chairman:
McCord:
Aemitted,
I
f that i s true there m u s t b e some basis
it, a n d i t would n o t b e cou::ted
at the initial bank
G o v e r n o r MeCord, t h e s e c h e c k s will
The Chairmen:
y o u mean,
circulate a l l r i g h t a s c u r r e n c y i n t h e s e n s e t h a t
vroviced t h a t t h e y a r e n o t p e r m i t t e d
t o s e r v e a s reserves,
as t h e y a r e now.
Mr. McCord:
T h a t i s certainly t h e point.
I
The Chairman:
are gradually,
n other words, i f the member banks
b y this clearing proposition, g o i n g t o b e
induced o r cajoled i n t o cashing those checks a n d having
real cash reserves a n d letting these checks float, i f y o u
please,
w e a r e going t o get t o
b u t n o t count asreserves,
d e succeed
a basis w h e r e w e c a n n o t c l e a r c h e c k s u n t i l w e
in p r e c i p i t a t i n g t h i s ,
D
o y o u a g r e e t o that, h r . MNeKay?
EGO:
A r e y o u ready t o take u p paragraph 2
The Chairman:
Mr, Aiken:
A r e these s i m p l y statements
o f plans o f
circulars?
operation that a r e incorporatec i n all t h e
The Chairman: S u b s t a n t i a l l y so.
Mr, Aiken:
I
s i t n o t w a s t e o f time, t h e n ,
t o take
it u p a t this t i m e
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Federal Reserve Bank of St. Louis
There a r e some n e w things t h a t ought
Gevernor Aiken,
All right, I
will withcraw t h a t statement,
Mr, McDougal: I
move t h a t t h e C h a i r m a n p r o c e e d t o
read. a n d , u n l e s s t h e r e i s objection,
h e continue
t o do so
without interruption.
Mr, M c C o r d : I
second t h e motion,
The Chairman: ( R e a d i n g ) :
"The Federal Reserve B a n k will n o t undertake a t this
time t i receive checks, whether f o r credit o r collection,
except f r o m a n d upen those member banks within t h e district
which w i l l a g r e e t h a t a l l c h e c k s u p o n t h e m r e c e i v e d
b y the
Reserve B a n k m a y b e i m m e d i a t e l y c h a r g e d t o t h e i r a c c o u n t s
as p r o v i d e d
i n Article 1 :
"Zach member entering into this agreement shall undertake t o provide t h e Resorve B a n k with funds sufficient i n
amount t o pay the checks which m a y b e recoived b y the Reserve
against it, s o that a t all times i t s reserve balance
may b e kept intact, a s requirocd b y law.
"Experience alene will determine i n the case o f each
bank t h e average amount necessary t o b e proviced t o meet
the c h e c k s w h i c h m a y b e r e c e i v e d b y t h e r e s e r v e b a n k a g a i n s t
n y o
"hs a
guide t o t h i s k n o w l e d g e e a c h b a n k m a y p r o f i t
its e x p e r i e n c e
by
i n m e e t i n g chiecks a g a i n s t i t , p r e s e n t e d
through i t s clearing house, o r b y other banks i n its o w n
city, where there i s n o clearing house, a n d checks received
througa tiie mail,
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Federal Reserve Bank of St. Louis
"T+ i s believed t h a t h e c k s
o n other members s e n t t o
the reserve b a n k b y a n y member will measurcbly offset checks
which w i l l b e r e c e i v e d
b y t h e r e s e r v e b a n k o n s u c h member,"
Those paragraphs t h a t I have s o far read, I
are u n d e r s t o o d
t o b e referred
understand,
t o t h e committee,
(Reading):
"To further provide a n offset, w h e n necessary,
to a
member bank f o r checks which m a y b e charged u p against i t ,
and t o e n a b l e
i t t o conveniently maintain funds
i n the hands
ef the reserve b a n k t o meet checks u p o n it, t h e reserve
bank will receive f r o m a member bank,
on members
i n addition t e checks
o f i t s o w n district, e n t e r i n g t h i s c l e a r i n g
system, a n y checks drawn o n member banks i n central reserve
cities, o r i n the reserve cities o f any other district,"
That matter h a s already b e e n referred t o the committee
for treatment,
a m d opens u p t h e same qrestion that w e have
discussed,
"In o r d e r t o a v o i d t h e c o n s t a n t t e s t i n g o f r e s e r v e b a l -
ances o f members a n d t e minimize t h e labor o f keeping a c counts} a n d t o better insure a t all times t h e integrity o f
reserve b a l a n c e s ,
t h e clearing
o r collection account
of
members will b e kept a s a separate account, a n d members will
likewise k e e p t h i s a c c o u n t s e p a r a t e a n d a p a r t f r o m t h e i r
reserve account,”
Mr, McDougal:
M a y I interrupt a
moment b y saying t h a t
I hope i t will not b e necessary for the banks t o maintain
two accounts unless they wish t o do so, I
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Federal Reserve Bank of St. Louis
think that you
can a r r a n g e
t o consider t h e matter a t least o f permitting
them to.do a s they like i n that regard.
The Chairman:
Y o u recommend t h a t t h e committee i n
dealing w i t h t h e m a t t e r
s o a r r a n g e that p a
O b s t i e =CLrecu—
lar t h a t e a c h f e c e r a l r e s e r v e b a n k m a y a c o p t i t s o w n book-
keeping method i n dealing w i t h transit items?
MeDougal:
MeCord:
T h a t would cover i t ?
H o w about
MeDougal: I
t h e member banks?
would recommend this, t h a t t h e com-
mittee n o t determine t h a t each reserve b a n k maintain t w o
separate accounts;
t h e y c a n recommend t h a t they d o it, but
if any o f u s see f i t t o carry i t i n one account w e would b e
permitted
t o d o se,
The Chairman:
I
s there a n y objection
t o t h a t sugszes-
tion?
Mr, MeDougal:
sary. I
O n e account
i s a l l t h a t w i l l b e neces-
k n o w t h e r e a r e Gcocided o p i n i o n s
t o t h e contrary,
but I think w e c a n handle i t better t h a t w a y for ourselves,
and I
t h i n k i t w o u l d b e mor @ s a t i s f a c t o r y
Mr, Seay:
t o t h e banks,
T h i s paragraph wes out i n with great defer-
ence t o t r a n s i t m e n w i t h t r a n s i t e x p e r i e n c e ,
but I
have
been unable t o determine f o r myself h o w this matter i s
going
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Federal Reserve Bank of St. Louis
b
e handled i n any other fashion a n d correctly hanof our member banks--- i f y o u will allow me,
Strong--~ c a m e i n t o s e e m e t h e o t h e r d a y t o s a y t h a t
- €ecide
wey: hoped. we would ‘bediar the clearing: matter. soon,
of them o e ree first w a s i n favor o f twe accounts,
One. .
T h e
other ‘at first was nét, A r t e r a few. minutes conversation
he also yeluntarily éame over t o ‘the: two: accounts . o e :
e e
hae
a n y discusston ‘with other members in, our mAnS
: The Chairmaii? “7 Phinkeat wiit;be found. that the
;
o
ae
e
large banks i n cities i n which the reserve bank i s loeated
would prefer, and it’ weuld-probably be easier, for the reserve bank itself t o handle through one account,
I n the=
fies place, i n New York, that would b e p e c u l i a r l y,os
where the central reserve city banks h a v e alarge optional
balance that they could’ éarry with us; b u t I cannot yet get
over t h e difficulty i n m y o w n mind o f how w e a r e going a
tell AG
i a e L E S reserve balances a r e being reasonabl¢ , main-~
tained op, not, unless w e have t w o separate accounts where
_the member bank wilt” biways know that this reserve balanc e
te: above o r aa
e t e
e
e
regard te this transit account ?
i s i n the transit account. by. whether i
4 0 i n eae
orblack ink, O n the other hand, Mr. Hendricks does wie
t run them all in one
agree with me about that and warits. e
account, :
Mr, McDougal: “ 1 . think the matter c a n be. left with
the committee, I
simply suggest that a s a thought, s a l e
am inaea te think that the difficulty in our district
would b e that a great m a n y member banks would n o t maintain
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Federal Reserve Bank of St. Louis
two a c c o u n t s
i f w e requested t h e m t o d o so,
The Chairman:
T h e n , cannot t h e committec b e permitted
to deal w i t h the matter o n this b a s s , t h a t whatover arrangement
i s adopted
i n this regard
i n the different districts
has g o t t o b e worked o u t b y experience, anyway, a i d that
Ve... :
o f t h e circular h a s g o t t o be/g#arded
feature
e s tentative
pending experience,
Mr, MceDougals
Mr. Hendricks:
n a t i s entirely satisfactory.
T h e a@ifficulty w o u l d b e t h a t t h e
reserve balance, t h e required reserve, fhuctuates especially
with a
pretty g o o d s i z e d bank,
I
¢ i s not just a
fixed s u m ;
4% fluctuates w i t h the fluctuation o f their deposits, a n a
if w e h a d t w o accounts i t might b e that they would have e x cess reserve, a n d n o t all the excess reserve i n their transit
accounts, a n d they might draw against i t and make a n overdraft which would impair their reserve.
r
T
.
Mr, Seay: I
Mr. McKay: I
endeavor t o treat that a
little later
think i t is impractical t o carry the
two accounts,
Mr, Hendricks:
ledgers,
Y o u would have t o have t w o sets o f
a n d t h e n y o u would u o g e t o consider b o t h balance
all the time,
(At this point e general discussion took place
which t h e s t e n o g r a p h e r w a s d i r e c t e d n o t t o report; a f t e r
which the following occurred: }
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Federal Reserve Bank of St. Louis
The Chairman!
A l l schools
seem t o b e r e p r e s e n t e d
o f thought
o n t h e committee, I
o n this subject
suggest t h a t
it b e l e f t t o t h e committee,
Mr. MeCorda:
T h a t is a
nice p l a c e t o p l a c e a l l o f t h e
questions ;
MG ge pea: I
think t h e c o m m i t t e e w i l l p r o f i t
b y this
discussion,
The Chairman: ( R e a d i n g ) :
"The reserve account o f any bank will thus have made
in i t entries o n l y w h o n n e c e s s a r y t o a d j u s t i t , a n d a l l
other entries w i l l b e mace i n , a n d all checks G r a w n againt,
the c l e a r i n g a c c o u n t ,
"When the reserve account has anyexcess balance, due
to fluctuation i n the deposits o f any member, t h e reserve
bank will, u p e n instructions f r e m t h e member bank, transfer
the excess t o its clearing aecount t o b e m e c k e d against,
and when t h e reserve account i s deficient i t must b e restorec b y transfer f r o m a n y balance w h i c h m a y b e i n the clearing
account
o r t h e deposits
o f funds a c c e p t a b l e
t a the reserve
bank,"
"tre reserve recuired t o b e kept b y a member bank with
the Federal Reserve B a n k cannot b e withdrawn o r checked
against e x c e p t u n d e r s u c h r e g u l a t i o n s
a n d subject
t o such
penalties a s may b e prescribed b y the Feceral Reserve
Board,"
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Federal Reserve Bank of St. Louis
The C h a i r m a n ?
T h o s e w o u l d a l l b e changed i f the other
were a d o p t e d ,
Mr, Seay:
T h a t i s according t o the act, there,
Ve, Wolds:
those f u n c s
o you mean
t o say that
if a
bank needed
i t could n o t u s e them?
Mr, Seay:
the Board,
D
Y e s , except uncer regulations provided b y
T h a t i s the language
Mr, Wold:
W h a t are t h e reservos f o r ?
Mr, MeCord:
Mry Seay!
o f t h e Act,
W h a t are the regulations?
T h e y are not yet made,
Mr, McCord:
O h , yes, t h e y are,
T h e original
national banking a c t regulates that.
Mr, Seay:
N o ; y o u cannot read into t h e regulations
of the Reserve Board t h e language o f the National Banking
Act unless t h e y adopt it.
T h e y have n o t adopted s u c h
regulations,
Mr, McCord: I
had a
question o f that k i n d t h a t c a m e
up, and m y attorney said, "Pay those checks,"
Mr. Seay:
T h a t was expedient, perhaps,
be right, though; I
do not know,
I t might
B u t that i s a quotation
from t h e Act and i t will have t o b e construed according t o
the--—
Mr. Kains:
Mr. Seay:
A r e y o u talking about reserves, n o w ?
Y e s , reserves required t o b e kept with t h e
Federal R e s e r v e B a n k s .
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Federal Reserve Bank of St. Louis
Mr, Kainss
I t i s t h e populer impression that they
belong t o t h e m e m b e r b a n k s a n d t h e y c a n d r a w n t h e m o u t i f
they w a n t t o ,
But t h a t i s n o t t h e l a n g u a g e o f t h e Act.
They "cannot b e withdrawn o r checked against except under
such r e g u l a t i o n s a n d s u b j e c t
t o s u c h penalties
prescribed b y the Federal Resorve Board,"
a s may b e
T h a t i s the
or the Act,
MeCord:
W h a t section?
I think i t is. section 19,
{Section 1 9 o f t h e A c t w a s t h e n r e a d b y Mr. F a n -
McCord:
or demand,
First,
i f t h e y h a d a n existing l i a b i l i t y
t h e n t h e y a r e estopped f r o m paying a n y dividends
or making any- loans until t h e y restore t h a t reserve?
I t says t h e y cannot d o i t except u n d e r
Mr, Seay:
express c o n d i t i o n s s e t f o r t h b y t h e F e d e r a l R e s e r v e B o a r d ,
Is that so, Mr? Counsel?
Mr, Curtis:
I
t means t h a t i t i s a permissive statute,
and i t m e a n s t o d e n y t h e n e g a t i v e
o f it.
(At this point a n informal discussion took place
which the stenographer w a s cirected n o t t o report, after
which, a t 1:05 o'clock p . m., t h e Conference t o o k a recess
Citi
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Federal Reserve Bank of St. Louis
eek O
CLOCK p e mM.)
roe
Conference
i t s session
resumed
a t 2:30 o'clock
ye
De M e
The Chairman:
T h e next paragragh i s as follows:
ac~
"Any b a l a n c e w i t h t h e R e s e r v e B a n k i n t h e c l e a r i n g
count o f a
member w i l l ,
the t o t a l r e s e r v e
o f course, a l s o c o u n t a s a
o f t h e member pank,
part o f
a n d when t h e reserve
account i s intact m a y b e checked against a t will without
restriction,"
That w i l l a l s o b e r e f e r r e d
t o t h e committee.
The next i s paragraph No. 6 :
“Whenever c h e c k s s h a l l b e r e s e i v e d
b y t h e Reserve B a n k
on a member b a n k greater i n amount t h a n t h e fund provided
by that member bank i n its clearing account f o r their p a y
ment, t h e reserve b a n k shall a t all times have t h e right
to withhold immediate credit f r o m t h e member depositing m h
for
such checks, a n d will a t its option forward s u c h checks
b e e n receivcollection t o b e credited only w h e n returns have
ed, notifying t h e depositing b a n k a t once o f its action,"
I presume t h a t w i l l g o t o t h e c o m m i t t e e t o o % a s a
part o f t h e general s c h e m e ,
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Federal Reserve Bank of St. Louis
The next i s paragraph 7:
"The reserve b a n k shall a t all times have t h e right
to w i t h d r a w t h e p r i v i l e g e
o f clearing o r collecting f r o m
i n its
any member which shall flail t o @eposit a n d maintain
clearing a c c o u n t a d e q u a t e f u n d s
t o meet checks received b
y
the Reserve Bank against said member,"
That w a s f u l l y d i s c u s s e d
i n t h e N e w Y o r k circular
a n d
the language w a s referred t o the committee f o r adjustment,
Mes N e x t L S spoPpasrapiuen a g r a :
"The reserve bank will furnish t o all o f its members
from time t o time a
list o f the banks which have entered
into this reciprocal clearing agreement, a n d will publish
the necessary rules a n d directions t o enable t h e business
to b e h a n d l e d b o t h b y t h e R e s e r v e B a n k a n d m e m b e r b a n k s w i t h
the greatest dispatch, convenience a n d safety.
"9
N o exchange charge will b e made b y the Reservo
Bank f o r this service, a n d o n the other hand n o exchange
will i n any case b e paid b y the reserve bank, t h i s being
@ reciprocal arrangement f o r t h e mutual benefit o f all mem-
bers entering into it. "
That i s a
very g o o d paragraph,
The next i s No. 10:
"The service t o be rendered t o member banks i n clearing i s a
separate a n d d i s t i n c t f u n c t i o n p r o v i d e d f o r i n
the Federal Reserve Act, a n d cannot b e performed without
addi tional c o s t o f o p e r a t i o n
t o reserve banks,
The Feceral Reserve A c t provides t h a t charges m a y b e
imposed f o r t h e s e r v i c e
o f clearing o r collection rendered
by Federal Reserve Banks, s u c h charges t o b e fixed b y the
Reserve
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Federal Reserve Bank of St. Louis
Board,
“Such charges, w h e n Tizéd; shall “not b e -tn-the-nature
of a n exchange charge, b u t will b e based u p o n the cost o f
_operating t h e Clearing system,
T h e y will b e very small i n
comparison w i t h e x c h a n g e c h a r g e s n o w b e i n g m a d e b y collect-
ing banks, a n d will probably b e much less t h a n the
cost o f present methods pursued b y members i n collecting
checks, while t h e plan offcrs t h e additional advantage o f
being q u i c k e r a n d safer,
"These charges will probabl¢ b e pro-rated among the
banks i n the clearing system according t o the number o f items
handled,
a n d made against t h e banks u p o n which t h e items
are drawn,
"No charges will b e made t o members a t the outset and
will n é t b o made until experience h a s furnished a n accurate
and scientific.-basis f o r d e t e r m i n i n g t h e p r o p e r c h a r g e ,
Members will b e notified i n advance o f such charge a n d
Will b e fully advised o f t h e basis u p o n which i t will b e
made,
S u c h charges will not b e retroactive,
"Momber banks may, under t h e Act, a t their option, col-
lect this charge f r o m their patrons whose checks a r e cleared
through the Federal Reserve Bank,"
The n e x t p a r a g r a p h i s No, 1 1 ?
“Any member bank entering this clearing g y stom may,
uyon t h i r t y days! n o t i c e
t o t h e Reserve B a n k withdraw f r o m
tt.
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Federal Reserve Bank of St. Louis
Do y o u n6t think that notice i s rather long?
“
M
e C o r d a ARedOkommn alae a tilua) teerye Uc)
Tle
r
Fancher:
y
T
Seay: i
So
yJ
on I
o Need tL AoNiF r
l y cays,
thought i t was rather long,
McCord:
I
f i t takes fifteen days! time.--- a n d
£ think y o u practically agreed w i t h m e that i t takes fifteen
days' time--- i n which t o prepare a n additional list, i n
order that this bank may serve a notice o n you end that
you may give t h e balance o f the d i s t r i c t t h a t notice
that i t i s off the list, w h y i t i s going t o take thirty E s
to cdo that, b e c a u s e t h e f i r s t w e e k f i v e n w i l l b e n e c e s s a r y
to. correct t h e list. I
Mr, Seay:
of members,
I
think thirty days i s all right,
t might take t h a t time t o revise y o u r l i s t
T h a t i s a cetail, though,
The Chairman:
T h e n e x t p a r a g r a p h r e a d s a s follows:
"Members are neither required nor urged t o enter this
clearing system,"
Mr. MeDougal: I
move t h a t t h a t b e s t r i c k e n o u t ,
in
for the reason that i t i s /.2plied a l l t h e w a y through;
that is, I
think i t is, a n d I believe i t would b e just a s
well t o eliminate i t here,
Mr, Wold: I
will s e c o n d t h a t motion,
(The motion was duly carried,)
The Chairman:
T h e next paragraph i s a s follows:
"It i s proposed a s a voluntary arrangement for the service o f members and solely for their benefit,
is b e l i e v e d
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Federal Reserve Bank of St. Louis
a
n
d it
t o b e t h e o n l y s o u n d p l a n under w h i c h clearing
atage o f d e v e l o p m e n t
o f t h e re-
e system,"
move that that b e stricken out.
Mr, McDougal: I
second t h a t motion.
Wold: I
Mr, McDougal: I
think thet i s understood anyhow.
The Chairman: I
think w e h a v e g o t t o e m b o d y i n this
circular e
notice t h a t t h e p l a n i s n o t c o m p u l s o r y e v e n t o
+
7
those m o m b e r s w h o a d o p t i t ,
be employing a
because otherwise t h e y might
means f o r settling thelr checks t h a t would
take m o r e t i m e t h a n fyould b e e m p l o y e d
b y direct e x c h a n g e s
between nearby points; a n d i n discussing that w i t h counsel
in New York, h e rather urged that t h e cpmplete freedom o f
each b a n k t o m e k e i t s o w n c o l l e c t i o n s
b y other methods s h o u l d
not b e interfered with, s o that w e would n o t b e assuming
responsibility i n the case o f jonger routing o f items
than i s necessary between banks t h a t are both a long w a y
from the Reserve Bank and that may have a more economical
method o f settling without sending the items t o the
Reserve Bank,
Mr, Wold@
I s not that covered i n tho tentative
draft submitted by'New York?
The Chairman:
I
t appears
a t greater l e n g t h i n the
New York circular t h a n here,
Mr. McKay:
thought
T h e reason I
suggested
i t was t h a t I
i t h a d b e e n made clear a l l t h e w a y through that
they w o u l d o f c o u r s e h a v e t h a t o p t i o n i f t h e y s a w f i t t o
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Federal Reserve Bank of St. Louis
103
exercise. 1 4 , I
cdo n o t k n o w t h a t i t w o u l d d o a n y harm,
The Chairman:
T h i s language w o u l d b e accommé a t e d
generally, anyway.
Mr, MeKsay:
Y e s sir.
The C h e i r m a n :
T h e next paragraph
i s a s follows;
"Whenever m o r e satisfactory arrangements f o r collection exist, members a r e a t full liberty t o continue s u c h
relations a s heretofore,"
"uxisting practices, connections e n d machinery i n
@ long period o f
re patience, e x p e r i e n c e a n d c o o p e r ation t o e s t a b l i s h a
n e w system,
"Members entering the system will have the grivilece
rod
of havingprinted u p p n all checks d r a w n upon ‘collectable
at par through the’ Federal Reserve B a n k o f Richmond', a n d
its effect will b e t o cause a l l checks u p o n them t o ciréu1ate a t p a r w i t h i n t h e district,
w h i c h it: i s b e l i e v e d wflit
Give t h e m a material edvantage i n soliciting accounts o v e r
cdo not enter t h e clearing system,"
Governor McDougal being o n the committee, either h e
or Mr. M c K a y w i l l b e a b l e t o discuss t h a t q u e s t i o n o f
language w i t h r e g a r d t o h o w a
check m e y b e e n d o r s e d
iis f a c e a s t o i t s b e i n g c o l l e c t a b l e
a t par,
I
on
t occurred
to m e that there m a y b e some criticism developed a n d that
discrimination might erise between member banks themselves
on a c c o u n t o f g o i n g i n t o t h i s c l e a r i n g s y s t e m ,
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Federal Reserve Bank of St. Louis
Mr. Wold: T h e r e c a n be n o distrimination s o long as
they all have equal opportunity t o have t h e clause printed
on their c h e c k s ,
A l L t h e t i s necessary f o r them t o d o
$8: t O appoLy form 1t,
T p a t i s a situation which, i n the face
Mr, Seay:
of the direct language o f the Act, w e are bound t o meet,
That i s one which disturbed t h e Federal Reserve Boarc, a s
to how w e could m a k e thet so-called discrimination a t this
f
time,
s I
remember
i t the expression o f that board w a s
that w e could g e t started i n this w a y a t all events.
Mr, McDougal® T h e guestion o f discrimination has
already a r i s e n i n District N o . 7 , o w i n g t o t h e f a c t t h a t
some o f the banks i n the Reserve Cities a r e using n o w a stamp
similar
t o this, a n d w e h a v e s e t i s f i e d ,
a t least temporarily
the complaining banks b y telling t h e m that t h e y would a l l
have a n o p p o r t u n i t y
t o s a y whether
o r not t h e y wished t o d o
this later. on.
Se have h a d that demand f r o m some o f
our people,
Mr, Seay:
s one passage i n the earlier p a r t
T h e r ei
of t h i s w h i c h s e e m s t o C i s c r i m i n a t e m o r e t h a n this, a n d
that i s where w e say that the Reserve Bank will not undertake t o receive either f o r deferred credit o r immediate creditexcept f r o m banks w h i c h enter this sytem. T
think that
this
idea w a s incorporated i n both t h e N e w York draft e n d i n
draft.
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Federal Reserve Bank of St. Louis
had more particular reference t o the
The Chairman: I
last t w o lines which say, "W4ll give t h e m a
material eadvantof enter
age i n collecting a c c o u n t s o v e r b a n k s w h i c h d o n
the clearing system,
Mr. Seay:
B u t t h a t i s w h e t w e w a n t t h e m t o feel,
is t h e l e v e r a g e t h a t w e w a n t t o use, I
that I
do not mean
sustain that language, b u t I mean that that
is r e a l l y w h a t w e d e s i r e
Mr, McDougal:
T
t o b r i n g about.
t will make thet check more valuabl e ¢
than the h e c k t h a t does not h a v e i t o n it, f o r circulating
purposes,
The Chairman: I
think that c a n safely b e left with
he committee, a n y w a y .
The next paragraph i s a s follows:
"Members should bear constantly i n mind that i n this,
the first period o f development o f the Federal R e s e r v e s y s ~
tem, t h e Reserve Banks a r e holding o n l y a
cash r e s e r v e s
basis
o f members,
part o f
t h a t these reserves a r e
o f credit already granted
b y the members
t o their
own borrowers, a n d o f additional credit granted,
granted,
o r to be
b y the reserve banks t o members, e n d further, t h a t
the reserves required t o b e held have b e e n materially lowered,"
ff t h e r e a r e n o c o m m e n t s I
will r e a d further:
"poserve belances must therefore b e kept intact i f
the e c o n o m i c s o u n d n e s s
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Federal Reserve Bank of St. Louis
o f t h e s y s t e m i s t o b e preserved.
balances
ta e l e a r i n g plan, t h a t w o u l d i m p a i r p r e s e n t
4o a n y material e x t e n t ,
a n d which might possiblg b e p u t
in practice w i t h s a f e t y e f t e r a l l r e s e r v e s
transferred
h a v e been
t o t h e r e s e r v e b a n k c a n n o t n o w b e considered,
a n d modified accordThe plan i n any event will b e developed
ing t o expericnece,
banks shows
"Tnformation recently furnished u s b y member
should undertake
that i f the Reserve B a n k o f this district
b y member banks
to h e n d l e a l l the checks n o w being handied
checks t o b e handled
of the distriat, t h e aggregate number o f
daily woulda be 145,000 and the amount 613,000,000."
Our f i g u r e s
i n New York a r e 258,000
o r 240,000,
and
the amount $46,000,000.
T h a t i s outside o f t h e City o f New York.
Mr. Curtis:
Mr. McDougal:
Mr, peay:
T h a t i s within t h e district?
W i t h i n t h e district.
The Chairman: ( R e a d i n g ) :
b a n k desiring
"Tt w i l l b e n e c e s s a r y f o r e v e r y m e m b e r
to e n t e r t h i s c l e a r i n g s y s t e m t o a u t h o r i z e
b y vote o f its
i n the foregoing
Board o f Dyrectors, t h e agreement s e t forth
the resolution o n
plan t o b e entered into, a s expressed i n
the a c c o m p a n y i n g f o r m ,
limited
"Clearing between districts, except i n the
reserve cities
way involved b y receiving checks o n central
when necessary,
a s provided herein, cannot b e undertaken
h a s b e e n 6suntil t h e operation o f intra-district clearing
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Federal Reserve Bank of St. Louis
tablished u p o n a
>
s a t i s f a c t o r y basis.
"Members will b e duly notified when this plan can be
pul i n operation,
"Tt w i l l f i r s t r e q u i r e t h e a s s e n t o f member b a n k s
will then require preperation b y the reserve banks o f all
the m a c h i n e r y o f a
collection d e p a r t m e n t e q u i p p e d
t o handle
whatever business m a y b e offered b y member banks,
a m no
unnecessary delay will occur,
"The Federal Reserve B a n k o f Richmond i s but a n instm-
ment t o be used b y its members, under the regulations o f
the A c t f o r t h e d e v e l o p m e n t a n d i m p r o v e m e n t
a f the
business o f member banks, a n d o f theircustomers, t h e prb~
ateBs
"The good t o be accomplished and the early attainment o f i t s b e n e f i c i a l p o s s i b i l i t i e s w i l l d e p e n d u p o n t h e
sympathetic, c o r d i a l a n d a c t i v e c o o p e r a t i o n o f members,
and t h e i r c a n b e n o d o u b t t h a t s u c h s o o p e r a t i o n w i l l t e n d
to bring about these t w o great aims o f sound bank manegement-safety a n d profitableness,
"Tf y o u desire t o enter t h e clearing system here proposed,
w e will thank y o u t o sign end return t o u s a s prompt-
ly a s possible t h e agreement expressed i n the form o f resolutions accompanying this letter t o b e passed b y your Board
of Directors,”
. Now, g e n t l e m e n ,
the r e s o l u t i o n ?
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Federal Reserve Bank of St. Louis
w h a t i s your pleasure w i t h regard t c
Here MeCord: “ S y p p o s e w e read i t and s e e
are a n y objectionable features i n it.
The Chairman:
S u p p o s e e a c h Governor reads t h e reso~
AGtions, a m i t h e n I will cali f o r suggestions u p o n it.
I s n ' t i t a fact that a l l o f these resolu~_
Mr, Aiken:
tions will heve t o b e submitted t o counsel?
I t is a
technical m a t t e r t h a t w e c a n n o t p a s s u p o n enyhow,
The Chairman:
Mr, Seay:
Surely.
B e y o n d doubt. t L e u e o thew i n mind.
o t
would expect t o have something t o d o i n helping counsel
frame it, but I would not venture t o carry i t along i f he
had not s e t his approval u p o n it.
Mr, McDougal:
prepared
W e have w i t h u s a
b y o u r attorney.
I
t seems
form o f resolution
t o m e i t would
very g o o d i d e a t o g o o v e r t h i s a n d determine,
be a
a m e n g ours
selves, whether o r not w e think w o have covered a l l t h e
points, P e r h a p s you will find that ours i s lacking and
perhaps s o m e o f t h e o t h e r s
Mr. Aiken: I
m a y b e l a c k i n g also,
have t w o r e s o l u t i o n s p r e p a r e d
b y our
counsel w i t h me,
Mr. MeCord:
While I
have t h e highest regard f o r
the attorneys and all that, yet when i t comes t o the in’
sede workings o f a bank, t h e official w h o has b e e n i n the
service,
i n he-ness, f o r years, knows certain features t h a t
the attorney possibly would n o t think o f because h e had
not c o m e i n contract w i t h them, T
tate
T h wowed. b e
well t o read these resolutions e n d see whether t h e y cover t h e
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Federal Reserve Bank of St. Louis
AAKeri: I
have n o objection, I
im t h e i n t e r e s t
was simply
o f progress,
After e a c h o f thdse gentlemen p r e s e n
have r e a d t h e r e s o l u t i o n I
each o n e f o r c o m m e n t s
will g o a r o u n d t h e t a b l e a n d e k
o n it, t o s a v e time,
(The members o f the Conference thereupon read the
resolution, )
The Chairman:
G o v e r n o r Wold, h a v e y o u a n y suggestions
with regard t o t h e resolution?
I have n o n e , M r , C h a i r m a n ,
Chairman:
G o v e r n o r Fancher?
Mr, Fancher: L
vant t o ask Governor S e a y df, i n Crart~
ing t h i s r e s o l u t i o n h e h a d i n m i n d t h e m a t t e r o f collections,
He specifies here, " a n y checks, drafts, notes o r other
instruments w h i c h m a y b e d e p o s i t e d
b y this b a n k w i t h t h e
Federal Reserve B a n k either f o r credit o r collection",
and s o forth,
Mr, S e a y :
W
e undertake n o w t o c o l l e c t n o t e s ,
a n d will
be undertaking t o collect bills receivable, e n d s o forth.
Whether
i t snall b e o n our o w n account o r o n the responsi-
bility @ & t h e bank f o r which discounted,
i s a qestion, I
do n o t t h i n k w e c a n r e c e i v e d r a f t s a n d n o t e s
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Federal Reserve Bank of St. Louis
Mr, Fancher (Interrupting):
I
o n sight---
t might give t h a t i m -
I did not have t h e idea o f doing a promis-~
cupus business,
a s t h a t m i g h t imply.
think
Mr, F a n c h e r : I
w e want
t o b e rather
about putting o u t enything t h a t would imply that
going t o ¢ o a n y clearing business,
think s o too,
Mr, Seay: I
B u t h o w a b o u t t h e collec-
of n o t é s ?
T h a t will b e collecting your o w n paper,
Mr Fencher:
These a r e your o w n assets y o u are handling, a n d n o t
through member banks.
Mr, Hendricks’
W
e will eventually have t o take col-
lection items.
Mr, Seay:
A f t e r w e handle a l l t h e reserves t h a t
probably w i l l b e s o ; b u t t h i s t h i n g c o u l d b e a l t e r e d a
dezen
times b e f o r e t h a t happened,
The Chairman: G o v e r n o r Sawyer, have y o u any suggestions
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Federal Reserve Bank of St. Louis
t o make?
Mr, Sawyer: I
believe n o t .
T h i s seems t o relievo
the Federal Reserve B a n k o f liability a s far a s possible,
The Chairman:
G o v e r n o r McCord?
McCord; I
have n o n e t h a t I
Chairman:
Aiken: I
Chairman:
Mr, Bhoades: I
would c a r e t o suggost.
G o v e r n o r Aiken?
have none,
G o v e r n o r Rhoades?
hate t o object t o the detail o f it,
but I think i t will have t o b e a little fuller t h e n i
Mr. Seays
te.
T h e intention i s good, i s i t not? (Laugh-
112
as
You t h i n k i t s h o u l d p e a m p l i f i e d
Mr, B h o a d e s :
covered,
‘ h a t will happe
you a p p o r t i o n t h a t
o
¢
°
I would
mayy b e o u t o f order ?p u t
I
Mr, °McDouge.t:
i
with t h e other forms
that thet f o r m b e used along
I think probably
nore f r o m verious sources, e n d
one o f
t o will b e toucned u p o n i n
the p o i n t y o u r e f e r
~vhem. I
ours, b u t p e r h a p s n o v
think i t i s t o u c h e d u p o n i n
definitely fixed t o
Mr, Seay:
W h a t i s your point, Governor
Mr, Rhoaces:
O n e o f the points I
make i s t t
woujd y o u civide losses?
Mr; MeCord:
T h i s resolution,
o r rathe t h e s e reso~
t o act a s agent, a n d
lutions, simply eurshorize t h e bank
of
incipal i s responsible f o r t h e a c t
Mer. Gurtis:
out any when
T h a t does n o t help y o u
the principal i s insolvent.
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Federal Reserve Bank of St. Louis
Y o u are o u t t h e money.
on
—Tcid not k n o w that w e were passing
2 complete instrument, I
e
. were asked
thought. w
i s here.
to make criticisms o f what there
Chairman:
Mr, Wold: I
T h a t i s all.
b e some d i f anticipated t h a t t h e r e w i l l
ferences e n d changes.
i s concerned ,
S o far a s the craft here
113
see n o particular objection;
t h a t i s t o what i s here.
Governor R h o a d e s , h a v e y o u a
memorandum
of the points y o u would like t o have caered?
Me, R
The
i
V
I p,
e
;
yes.
W i l l y o u state those?
Mp. Ehoedes:
I
n the opinion o f our counsel t h e agree-
ment should describe t h e p l a n s o that a l l banks should have
notice o f the procedure,
The right t o return items, notice o f non~payment,
liability o f endorser o f depositing bank, agreement t o
shkre i n the costs, proportion o f losses, a n d the right t o
terminate a g r e e m e n t s ,
The Chairman;
a r e t h e things I
have j o t t e d d o w n here,
T h o s e a r e noted o n the record f o r
consideration b y the committee,
Mr. Seay:
PIB
T h a t i s a part o f the agreement, the
EAL
Mr. Hendricks: I
think the resdlution ought t o con-
tain a n agreement t o provide funds f o r paying checks, a n d
it also should contain t h e provisions t h a t Mr. Rhoades
speaks of, allowing t h e m t o charge t o their account, —
Mr, Seay:
T h e agreement specifically states that,
Mr. Hendricks: I
im t h e r e s o l u t i o n 2
Mr, Seay:
think i t should b e incorporated
o f t h e board,
T h e agreement states that they are t s
be bound b y the terms o f t h e plan, a s they m a y b e s e t
s m neanl
bale
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Federal Reserve Bank of St. Louis
114
se « o sance n s r e e m e n
u g h t t o refer t o
the clearing house system o f handling i t e m s a n d that rules
should b e provided,
t o which
which t h e agreement will bind
The Chairman:
T h a t i s the
can h a v e e v e r y t h i n g
i n the resolution o r a
Simple r e s o l u +
tion acopting t h e plan, whichever W a y y o u want it,
can h a v e t h e m e@11 p r i n t e d eas o n e document,
resolution,
Y o u
a s long a s the
t h e p l a n a n d t h e authority t h e t w e
have a r e a l l
one thing,
“it, McCord:
the p l a n w o u l d b e
Mr. McDougal:
T h i s clearing house would have
rules a n d regulations t h e same a g a n y other clearing house
and w e h a v e p r e p a r e d a
s e t o f regulations - - -
The C h a i r m a n (Interposing):
W
e will take u p that mat-
ter next, Governor MeDougal,
Governor S e a y , h a v e y o u a n y sucsgestion t o m a k e ?
Governor Seay: I
The Chairman:
I
have n o f u r t h e r c o m m e n t s
s i t your pleasure
t o maxe,
t o refer t h i s r e -
cord with the crafts and circulars, t o the committee, with
the comments mace, f o r their consiceration,
£8 n o objection i s m d e , t h a t will b e done,
(The resolution submitted b y Governor S e a y i s a s
follews: )
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
115
Resolution t o b e passed b y the Board o f Directors o f Member
banks desiring t o enter t h e d l esring system o f the Federal
Reserve B e n k o f Richmond under e
serve b a n k i n i t s l e t t e r
plan submitted b y said Re-
to
the
At a regulat meeting o f the Board o f Directors o f
1 te
gees
a i
held t h i s d a y
Bank o f
a quorum b e i n g present,
t h e f o l l o w i n g r e s o l u t i o n w a s passed.
RESOLVED that this bank enter i n t o t h e clearing system
of t h e F e d e r a l R e s e r v e
Bmk
o f R i c h m o n d u n d e r t h e p l a n sub-~end
mitted b y t h a t B e n k i n i t s l e t t e r o f »
acthis bank hereby agrees t o said plan, a n d will b e bound
cording t o t h e t e r m s thereof.
That t h e Federal, Reserve B a n k o f Richmond be, a n d i s
f o r the
hereby eppointed t h e colleéting agent o f this benk
collection o f any checks, drefts, notes,
o r other instru-
said Rements which may be deposited b y this bank with the
that i n acting
serve Bank either f o r credit o r collection, a n d
as such agent will b e responsible only for the faithful percare a n d
formance o f its o f f i c e r s a n d employees, a n d for
due diligence,
a s i n the @
nduct
o f i t s o w n business.
a s our
The s a i d R e s e r v e B a n k i s e x p r e s s l y a u t h o r i z e d
direct t o
agent t o forward f o r collection f o r o u r account
the b a n k u p o n w h i c h drawn,
o r a t which t h e y m a y b e payable
eny checks, drafts, notes,
o r other instruments deposited
i s s o forwarding
by this bank f o r credit o r collection, a n d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
for direct collection t h e said Reserve B a n k shall b e held
to h a v e s h o w n d u e c a r e a n d diligence.
It i s e x p r e s s l y understood, h o w e v e r , t h a t t h e s a i d
Reserve B a n k m a y w h e n e v e r
it m a y s e e m e x p e d i e n t
i n its judgment f o r a n y reason
o r desirable
t o adopt o t h e r methods
or avenués o r egencies f o r collection,
i t 1 s hereby au-
thorized a 0 L O dod.
Lt is,
h
e
r
e
b
y understood a n d egreed that
the said Reserve Bank a s our agent i n collecting checks,
drafts, n o t e s ,
a n d other instruments payeble outside o f
District No. 5 may forward such instruments for collec
tion t o ather Federal Reserve B a h k o r agents o r directly
to the bank u p o n which drawn, u s i n g i t s best judgment
tn the selection o f such agents, a n d will b e held t o b e
responsible o n l y f o r t h e exercise o f faithfulness, c a r e
and diligence a s shown i n the conduct o f its o w n wusiness.
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Federal Reserve Bank of St. Louis
Secretary
Secretary
Ry g
The next Gocument t o b e considered i s the form o f
resolution a n d set o f rules submitted b y Governor licDougal.
think they would neturally g o i n
Mr, McDougal: I
with the letter t h a t w e propose t o send t o the member banks,
Mr: Gheirman,
i f y o u propose t o take that letter u p now.
The Chairman:
M i g h t
i t not b e desirable
t o refer
all three o f these papers t o the committee, a n d i n the
meantime d o just a s w e have done w i t h t h e resolution attachéd t o Governor Seay's circular; h e a t : 1 8 , r e a d t t y »
as
it is i n front o f us, end then ask for comments,
cular
Mr, McDougal:
n a t i s what I would like t o have y o u
The Chairman:
W e will n o w consider t h e Chicago cir-
a n d resolution,
Mr,. Seay: I
would like t o a s k with respect t o frticle
3, page 3, about this expression:
"Zach member bank shall maintain with the Federal
Reserve Bank o f Chicago, a s shown b y its books, a sufficient balance t o provide;" t o which bank c o the words
"ag shown b y its books"refer?
Mr, McKay:
T h a t i s intended
t o m e a n t h e Federal
Reserve Bank of Chicago's books, T h a t is not quite
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Federal Reserve Bank of St. Louis
I felt sure that that i s what i t meant,
is open t o question,
It should read, "As dhiown by the lat-
The Chairman:
I
t will read " a s shown b y the latter's
books",
Vr. McKay:
T h e n i t will have t o b e changed again,
because o f the expression "without impairing i t s reserves",
That r e f e r s
t o t h e member bank's reserve,
There w a s a
suggestion made here t h a t t h e first line
should read: " Z a c h member bank shall uncertake t o maine
tain,"
Mr, MeCord:
t h i n k that i s better,
The Chairman:
ted b y Chicago?
H a v e y o u read t h e regulations submit-
I s i t your pleasure t h a t they should b e
read p a r a g r a p h b y paragradh
a n d c o m m e n t e d upon,
There being n o objection, I
will d o that:
Regulations prescribed b y the Federal Reserve B a n k o f
Chicago, governing i t s conduct a n d t h e conduct a n d liability o f member banks entering t h e clearing system o f said
Federal Reserve Banks;”
sach member b a n k which desires t o enter a n d have t h e
privileges e n d advantages o f the clearing System t o b e inaugurated b y thelederal Reserve B a n k o f Chicago shall, b e fore being granted s u c h privilese, comply w i t h t h e Pollowing regulations:
nee E a c h member bank shall present t o its board o f
directors t h e s e r e g u l a t i o n s
e n d s u c h b o a r d o f directors
shall b y r e s o l u t i o n p r o p e r l y a d o p t e d , a g r e e t o b e b o u n d b y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
LLo
these r e s u l a t i o n s a n d f u r n i s h a
lution t o e c e r e
NO
B
a
certified c o p y o f s u c h
e B a n k . o f Chicago,
r m e m b e r bani shell authorize t h e
charge against i t s account w i t h t h e Federal
presentation,
b u t subject
t o final payment
drafts c r a w n u p o n i t a n d
deposited w i t h t h e
member banks which have joined t h e clearing system,
ear E a c h member bank shall maintain with the Federal
Reserve B a n k o f Chicago,
cient b a l a n c e
a s shown b y its books, a
suffi-
t o provide, w i t h o u t i m p a i r i n g i t s reserves,
for a l l items charged
against
i t under t h e e a r i n g s y s t e m
Le
a
o
the a m o u n t o f s u c h b a l a n c e
t o b e based u p o n
average a n d upon the experience w h i c h shall b e
from the operation o f the system."
Mr, Wold:
d
o not like that expression, "monthly
average",
1sstricken o u t i n the N e w York
circular.
The Chairman:
Y e s .
Mr, Wold: I
suggest the first line should read, "Zach
member bank shall undertake t o provide and maintain",
and s o forth,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Mr, Seay:
T h e words “each member b a n k shall under-~
ke t o maintain" w a s t h e suggestion,
Mr, McDougal:
I
t was sugzested t h a t t h a t b e changed
to r e a d " u n d e r t a k e
The C h a i r m a n :
t o maintain" .
i s * t h a t cad.
to t h e t h i r d p a r a g r a p h ?
Py
q
h
e, MeDoucal;
Governor
m a c e
m e suggestion
about t h e m o n t h l y averas
Mr, Wold: I
think t h e w o r c s " u p o n a
manthly a v e r a g
snould b e cut out, end i t should read
"ba ased upon the experience w h i c h shall b e derived
f r o m t h e operation o f the
system,"
The Chairman:
T h e fourth paragravh i s a g
follows:
"The PFedera s e r v e Bank o f Chicago i n
accepting for
immediate credit checks a n d Grafts d r a w n
o n it
banksfor a n y member b a n i joining t h e
clearing system
be liable
t o seid member b a n k s o depositing
checks )
crafts f o r c o l l e c t i o n a g &
the e v e n t s u c h c h e c k s
bank.
collecting a g e n t o n l y ;
o r crafts
o n which they e r e drawn o n due
presentation being
Reserve B a n k o f Chicago, t h e same
cherged b a c k
t h e a c c o u n t o f the member b a n k
in
thereos ,
ese
i n y member
b a n k may,
a t t h e discretion
o f the
Peceral Reserve Bank a f Chicago, b e deprived
temporar ily o r
permanently
failure
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Federal Reserve Bank of St. Louis
o f t h e privileses
o f the clearing
t o comply w i t h these
The words “temporarily o r permanently"
a r e t o come out,
There i s n o p a r a g r a p h n u m b e r e d
Cx
Seven
i s eas f o l l o w s :
"Member banks a r e permitted
e a s o n a b l e notice t o
of directors w i l l say, "Who
reasonable n o t i c e ?
will d e t e r m i n e u p o n a
on
4
There o u g h t t o b e
The Chairman:
S a y thirty days, a s w e did i n the
other c i r c u l a r ,
The Chairmen: P o e r a g r a p h 8
i s a s follows:
mey
ae T h aee Pederal Reserve B a n k o f Chicazo,
with the provisions o f the rederal Reserve
harge f o r t h e s e r v i c e s
o f clearing checks
or
member banks a s m a y b e fixed b y the Pederal Reserve
not b e retroactive.
That s a m e p h r a s e
3 o f language, a n d that c a n b e c u t out,
The C h a i r m e
o
v
e noted
o n the reguiations t h a t
it s h a l l n o t b e retroactive.
Paragraph 9
is a s follows:
foie T h e drawer o f checks a n d crafis d r a w n o n member
panks o f the Federal Reserve B s
o f Chicago m a y write o r
stamp a c r o s s t h e f a c e o f s u c h c h e c k s
o r d r a f t s t h e words:
Inezotiable a t par through t h e Federal Reserve B a n k o f
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Federal Reserve Bank of St. Louis
122
Ghicaro's:
t o import
b a b -sucE e n d o r s e m e n t s h a l l n e v e r b e h e l d
that t h e Federal Reserve B a n k o f Chicago i n accepting s u c h
thereof
checks o r drafts f o r c l e a r i n g s h a s b e c o m e t h e o w n o r
or i s a c t i n g o t h e r w i s e t h a n a s t h e a g e n t o f t h e d e p o s i t i n g
pam: for collection.”
I thought that was t o b e "collectable".
W e
Mr, McDougal:
t h e ‘negotiable",
man, o n recommendation, e n d w e were considering favorably
the matter o f making i t "collectable".
T h e counsel s a i d that i f the word
Mr... Hendricks:
Yoollectable” w a s used there would b e n o question a t all
about it, but i f the word "negotiable" w a s used there might
be a suit brought; t h a t even i f there w a s h e could defend
it, but that i t would b e better n o t t o have t h e suit a t all,
he Chairman: T
have mace that notation o n the regu-
lation,
Mr, McDougal: I
presume t h e r e i s n o t m u c h d a n g e r
there being a n y misunderstanding about this,
on
T h i s must
not b e confused w i t h t h e letter t h a t w e propose t o send t o
member banks.
T h i s i s supposed t o b e the basis o f the oper-
ation o f our clearing house, t h e rules a n d regulations.
Mr, Fencher:
S h o u l d there n o t b e something i n there
about t h e loss o f items, items which might b e lost i n the
mails?
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Federal Reserve Bank of St. Louis
Mr, Seay:
I s not that covered b y "due diligence"?
Governor Fancher:
S h o u l d i t not b e more explicit?
Do y o u n o t t h i n k t h a t s o m e c o n t u s i o n m i s h t a r i s e
s lot o f checks, w a s lost i n the mail?
McKay:
C h e c k s l o s t i n the mail should b e charged
S h o u l d n o t that b e provided for?
Fancher:
Menay:
T h a t could b e incluced i n the agreement,
there w o u l d b e n o q u e s t i o n a b o u t i t ,
Fencher: I
think i t s h o u l d b e r i g h t i n here,
I t could b e added i n after section 4 ,
McKay:
I f you put i n one type of liability that
Curtis:
you are excluding, y o u may g i v e t h e impression that there
are other forms a
liability---
Mp, McCord: (Interruptdng)
M r ,
If you make one exception you might be
ling some other cuestion that would come up.
I t woulda b e
etter t o let the "law merchant" govern, and the general
customs o f t h e country. I
think i f y o u p u t i n there t h a t
the reserve banks will b e liable only for cue diligence,
thet i f you start t o make a n exception o f something else,
then b y implication y o u say, "Well, @ & rorged check that
45 d i s c o v e r e d w i l l b e h a n d l e d
(TInterposing)
i n other w a y s - - -
I n other words the respon-
collecting a g e n t f a l l s u p o n u s a n d w e c a n n o t
escape i t .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ie, Wolds
f r e y o u goingoO t o put i t o n the ground o f
124
a collecting a g e n c y o r clearing?
I
f you are going t o
have c l e a r i n g y o u h a v e s o t t o h a v e r u l e s
t o cover these
points,
Mr, MeDougal:
i
f you are going t o act a s a
collect-
s
ing a g e n t y o u h a v e s o t t a h a v e rules.
Mr, Curtis: I
ability o f a
possible
think y o u have g o t t o stand o n the
collecting egent,
I
t cdoes n o t s e e m t o m e
t o w o r k i t o u t o n a n y o t h e r l e g a l basis,
Ny. McCord: I
should b e o p p o s e d
ment b e c a u s e t h e c e c i s i o n s
to a
clearing a r r a n g e -
o f t h e courts w o u l d knock y o u
right s q u a r e o u t .
nairmans
" e are gradually coming t o a conclu-
sion that there i s t o o m u c h i n c e f i n i t e n e s s
in t h e m a t t e r
on the basi
e n d uncerteinness
o f l i a b i l i t y w h e n t h i s d a t i o n m S e r t to Wiley
s
e
o eg
that a r e i m p o s e d u p o n a
house, b u t that t h e
collecting a g e n t a r e t h o s e o f c u e
a
cailisence following well uncorstooc course o f business,
can atford: to: g o o n s e e reeeets I n preparing
and I
hope t h e c o m m i t t e e
reference
i s willing t o eliminate a l l
t o clearing a n d t o p u t i t o n a
That w a s t h e c o n s l u s i o n w e c a m e t o i n Bos~
ton i n t h e c i r c u l e r t h a t w e p r e p a r e d tentatively.
inated t h e word "cleering" entirely.
I
3
@ @lim=
t coes n o t appear
im t h e -curcusar,
Mir, F e n c h e r :
T h a t
i s what
w e heave p r a c t i c a l l y
Gone
in o u r l e t t e r here; g o t t e n f u r t h e r a w a y f r o m t h e w o r d
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Federal Reserve Bank of St. Louis
"Clearing",
The Chairman:
w
@ probably c a n get
pretty close t o
the intention o f the “ct b y using
those t w o words t h a t
we h e v e u s e d
s o often
i n other connections;
that t s , t h a t
we are collecting a n d settling
balances,
Governor MeDougal, a r e y o u satisfied
t o have this a c cumulation o f material r e f e r r e d
t o t h e committee without
considering t h e circuler itself,
o r would y o u like t o have
the circular letter also Considered?
ir, McDougal: I
would like t o have o u r circular
let-
ter considered, elong with the
other matters a t the committee meeting,
a t Least,
T h a t will b e entirely satisfacdory
to me,
The Chairman:
I f they have t h e circular
e n d ell
the other documents f o r Consideration
a t the seme
you will b e satisfied t o bass tne
reading o f that a t this
meeting?
Mr, McDougal: S n t i r e l y satisfied;
yes,
The Chairman:
v e have n o w considered a l l o f
the
circulars submitted o n the matter
o f clearing checks,
Mr, Seay:
h a t about Mr, Fancher's dratt?
fhe Chairman; i
understand Mr, Pancher does n o t
desire t o have t h e Cleveland circuler
t a k e n up,
Will someone offer a
suggestion a s t o t h e procedure
from this point o n i n regard t o
t h e matter o f collection a n d
Clearance
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Federal Reserve Bank of St. Louis
o f checks?
S h o u l d
w e n o t concluce
t h e discussion
SENG
of this matter b y agreeing a s t o t h e date o f the committee
meeting a n d t h e p l a c e w h e r e i t s h a l l b e
Governor. MeDougal, w h a t i s y o u r s u c s e s t i o n ?
McDougal:
Read
at a
M
y suczestion would b e t h a t
voint t h a t i s m o s t c o n v e n i e n t
Lost n u m b e r o f t h e m e m b e r s
t o the
o f t h e committee,
no d o u b t t h a t w o u l d b e i n N e w York,
The C h a i r m a n :
T h a t wouled d o u b t l e s s
b e the most con-
venient place, H o w e v e r , t h e t i s a selfish suggestion o n
Me, MgDougal:
R h e a t=1s
woulc suggest that
the committee;
&s e a r l y next w c o e k a s possible,
Mr. Fancher:
be i n N e w York,
T n e 1 8 t h would b e t h e learliest I
T h a t would b e a
Li O e y : I
week f r o m today,
move that t h e committee m e e t o n that
ne
Mir, McDougal:
that a
could
W o u l d i t n o t b e j u s t a s well t o make
week from Friday,
i f w e are going t o make i t that
late i n the week?
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Federal Reserve Bank of St. Louis
Mr. McCord:
C a n y o u get through i n two days?
cDougal:
Perhaps
Chairman: I
alleuw a
w e cannot,
think T h u r s d a y w o u l d b e a
good d a y ,
little stretch, ’G o v e r n o ra !cDougal,
> :
127
yr, McDougal: I
be h e l d
would t h e n recowmeéend that t h e
i n N e w Y o r k o n e w e e k f r o m today,
Chairman:
T u e n i t i s uncerstood t h a t t h e committee
meeting next Thurscay,
ha
1 6 , 1915, a t
New Y o r k City.
MeDougeal:
B e f o r e w e leave t h i s subject, a n d i n
order thet t h e matter m a y b e brought before t h e Federal
Reserve Board, a n d that they m a y know exactly what w e are
doing, I
think i t would b e well t o have i t understood,
that i s the case, t h a t w e are a
if
unit i n the matter o f our
willingness a n d desire t o proceed i n the matter, a n d w e
terms
pose t o G o s o a s s o o n a s _ ° a n d c o n d i t i o n s c a n b e satis-—
factorily arranged, I
presume t h e t i s t h e u n c e r s t a n d i n g
any-
how,
tne Chearnen:
report that a
a
1 . t h i n k so... D a b 1 t misht: b e w e r d t o
c
e
e
n started n o w which will
shortly result i n the preparation o f rules a n d the eagreement o n a resolution f o r e uniform course i n tne matter,
and that that w i l l b e handled b y the same committee,
/nd r e p o r t e x a c t l y w h a t h a s b e e n d o n e i n
The Chairman:
Y e S .
Are y o u r e a d y f o r t h e b a l a n c e
o f t h e program?
would like t o suggest that w e misht consicer f o r a
few min-
utes whether i t might n o t b e possible t o adopt some scheme
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Federal Reserve Bank of St. Louis
128
Ab ons M c ersStanaine o f N o w e t h e c o s t o f
hencling this clearing system will b e cealt with i n each
we m a y a r r i v e a t a
uniform m e t h o d o f assess-
benks, i f the time arrives w h e n i t will b e neces-
Sfest that Lenses: City a n d St.
het h a v e b e e n operating, o u g h t t o b e i n p r e i t y
good position t o make u p a cost fisure according t o their
Figures,
a n d Chicago w o u l d also b e reacy t o make u p cost
figures, according t o their figures, a n d send a report t e
the c o m m i t t e e f o r t h e i r consiceration,
It would b e necessary t h a t these costs
snould b e a r r i v e d a t u p o n t h e s a m e principle.
Will i t b e s a t i s f a c t o r y
Curtis
t o send a
letter
t o esk M
t o Kansas C i t y e n d St. L o u i s r e -
questing t h e m t o g i v e u s figures
o n their experience
i n
the cost, a n d submit t h a t t o the committee i n New York for
its consideration i n order t o see whether w e c a n arrive
at a
recommendation?
(Atter discussion t h e Secretary w a s requested t o
wrdte l e t t e r s
t o K a n s a s C i t y o n d St, L o u i s
i n accord-
ence with the above suggestion, )
“ur, A l i e n : I
be i n v i t e d
move
t h a t M r , M c N a yow a n d M r , H e n d r i c k s
t o submit forms
t o b e used
i n the transit
de-
partments i n connection w i t h t h e collection o f checks,
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Federal Reserve Bank of St. Louis
ir, Rhoades; P - s e e c e n d - t h a t motion,
The Chairman:
T h e m o t i o n i s seconced,
any d i s c u s s i o n ?
(There w a s n o discussion a n d t h e motion 1x
seconded and carried.}
The Chairman:
T h e n e x t i t e m o n t n e program i s
">eport o f Subcommittee o n Feceral “eserve
tlements:
(a) M e t h o d o f settling balances existing
new p l a n i s operated,
e n d expenses thereof,
Government deposits,
Sub-treasury transfers,
General sub-treasury velations,”
Aiken:
I s Item No, 5
Chairman:
Aiken: I
open f o r Ciscussion?
Y e s s
would l i k e t o i n q u i r e w h a t t h e v r e s e n t
status o f that matter i s with t h e Federal Reserve Board.
If I a m not mistaken o u r report h a s b e e n submitted t o
the Feceral Reserve Board,
The Chairman:
T h e Federal Reserve B o a r d h e s t a k e n
no action o n the matter t h a t I know of.
It seems
t o m e almost essential t h a t t h a t
plan should b e developdéd with t h e intra-district clearing
plan,
The Chairman:
W h a t d o y o u recommend, G o v e r n o r A i k e n ?
I would l i k e t o ask i f a n y one here knows
the a t t i t u d e
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Federal Reserve Bank of St. Louis
o f t h e Federal Reserve B o a r d
o n that balance
sett Lement 02001,
The C h a i r m a n :
Aqien:
are i n favor o f the plan,
T h e n w h y d o they n o t d o something?
Chairman:
MeDougal:
Board!
T h e y
Y o u have "got me",
t would l o o k
I
very much, f r o m the
s communication, embodying t h e p l a n under which w e
were p e r m i t t e d . t o p r o c e e d
i n the intra-district clearing
matter, t h a t t h e y proposed t o l e t t h i s m a t t e r r e s t u n t i l
they c a n get into inter-district clearings,
Mr, Aiken:
T h e y g o together,
I
f y o u have o n e
you h a v e c o t t o h a v e t h e other,
The Chairman:
I f y o u think some further action
should b e teken, w h y not offer &
Aiken: I
a m perfectly willing to, b u t
he u n u s u e l r e l a t i o n s
with m e m b e r s
resolution?
o f some members
o f the Teceral Reserve
"ee
knowing
o f this council
Board I
do not know
whether t h e y might have some information e s t o the status
of the dase,
Mir, M c D o u g a l :
of t h e B o a r d I
In c o n f e r e n c e
with some
o f the members
w au
O
Y8 gi>i?v e n t o u n d e r s t a n d t h e t t h e Board,
a body, G i d l o o k w i t h f a v o r
a s
o n the plan, c x c e p t t h a t w e
had little t o hope f o r i n the matter o f their putting u p a n y
gold,
Me
Niue
sold,
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Federal Reserve Bank of St. Louis
e
Jikan:
that t h e y
I personally w o u l d r a t h e r , n o t p u t u p a n y
I would rather have
The Chairmen:
M a y 1
the b a n k s
d o t h a t themselves.
guswoegest t h a t t h e matter,
being
BE
that i t i s in, namely, t h a t w e have offered
a resolution t o t h e R e s e r v e B o a r d , t h a t i t i s proper
to
have t h i s meeting make inquiry o f t h e Board a s t o what t h e y
propose
t o d o about i t , a n d t o state t h a t n o w thet w e a r e
developing t h e intra-district clearing p l a n that i t will
be necessary that something b e cone i n regard t o the balances b e t w e e n t h e R e s e r v e Banks,
Mr. Aiken: I
will put that i n the form of a motion,
I move t h a t t h e Pederal R e s e r v e B o a r d b e a d v i s e d that,
the Governors f e e l that t h e plan f o r t h e settlement o f
balances b e t w e e n F e d e r a l R e s e r v e B a n k s m u s t b e d e v e l o p e d
with the intra-clearing plan, and that inquiry b e made
as t o t h e i r a t t i t u d e
Mr, Seay: I
o n the p l a n submitted
second t h e motion.
b y t h e committee,
G h a v e heard,
in
Some vaguc way, that t h e y had found a vault a t the Treasury
Department that w e might use,
The Chairman: I
have been advised t o the same effect,
Governor Seay.
The motion o f Governor Aiken has b e e n seconded, a n d
will p u t t h e m o t i o n i n j u s t a
minute.
Unless
w e have
a plan for t h e seitlement o f intra-district balances w e
will b e required,
i n our respective districts,
the s a m e restrictions.
t o impose
a s t o endorsements t h a t w e r e imposed
by Kansas City,
Mr, Aiken:
Mr, C h a i r m a n ,
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Federal Reserve Bank of St. Louis
T h a t i s just what w e d o not want t o do,
138
The Chairmen:
Gentlcomen,
a r e y o u ready t o vote o n
Governor Ayken's resolution, w h i c h has been secondod?
Alken: I
it before
should l i k e t o h e a r s o m e d i s c u s s i o n o f
i t i s voted,
T h e r e seems
t o be a
variety o f
opinion o n it,
The Chairmar
W
e have ciscussed t h a t matter
finally agreo .
recommencation t o t h e Board,
that i s w h e r e t h e m a t t e r n o w rests,
(The m o t i o n w a s p u t a n d d u l y carried, )
The’ Chairman:
T h a t will Gispose
o f i t e m No. 5 ,
(The n e x t i t e m i s t h e m a t t e r o f u n f i n i s h e d b u s i -
ness, "report regarding cipher code a n d cable code,"
Governor R h o a d e s a n d I
forth more o r less,
have b e e n p a s s i n g t h a t b a c k a n d
H e i s t h e Chairman a n d “the members”
of t h e committee,
Mr, Rhoades: I
thought t h e subject h a d been indefin-
ately tabled, b u t o n receipt o f your last communication I
to tell m e exactly what h e wished t o do,
written m e a
The Chairman:
letter w h i c h I
will h a n d t o you,
H o w about reading that letter?
There a r e t w o m a t t e r s f o r c o n s i c e r a t i o n really,
O n e
is the question o f comestic messages s n d code, a n d t h e other
is the qieeation o f cables a n d codes,
a specialist
pare a
i n this business,
M r . Harding, w h o i s
h a s made a
proposal t o p r e ror
very comprehensive c o c e f o r general use, which h e
proposes
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Federal Reserve Bank of St. Louis
t o c h a r g e t h e s u m o f ~10,000,
H
e says 1 t will
133~
prepare i t ; t h a t t h e v o l u m e w o u l d c o n t a i n
bages, containing 80,000 phrases, e n d 20,000 phrase
in thetables,
will require
H
e coes n o t s a y h o w m a
C a r s t u d y it
t o become familiar w i t h the ( L a u g h t e r )
ptnheless,
w e have z o t t o fet a r t e d a
Policy
preparation o f a code a n d i n the use o f a code f o r
messages,
seay: ,
I t seems t o m e t h a t w e a r r i v e d a t a
point
cetermined t o use t h e bankers! code, w i t h a
certain k e y that wes t o b e supplied,
the Chairman:
T h a t i s right, Governor Seay,
Mr, Seay; I
thought t h e t k e y was i n course o f pre-
paration,
T h e t i s m y recollection? N o w e v e r ,
how accur-
ave thet recollection may b e Is cannot
a say.
Cj
Tne Chairman:
T h a t i s exactly where t h e e e e
left, Governor Seay
ehe key i s a
out
b ya
wes
T h e question 6 f t h e preparation o f
fairly mechanical matter t h e t c a n b e worked
great m a n y d i f f s r e n t m e t h o d s ;
that is a
key o n
is based,
I thought---.and I
may b e entirely wrong--
that Governor Rhoades w a s t o see what thet k e y could
be
prepared ror; t h a t is, a t what figure i t could b e prepared,
we w e r e
t o use t h e A , B . A , Coce,
with a
key
supplement,
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Federal Reserve Bank of St. Louis
Lee
O r uLtSer T h e vote a t t h e l a s t c o n f e r e n c e
w a s that
LSE
He S e d f O r t H e present,
Ghat: t h e has E
f s
J
e would b e u s e d w i t h t h e k e y w o
thet w a s t o b e p r o v i d e
i
t C o e s n o t s a y who
the"goat" i n providing
Vey. p k e n :
v
e t h a t G o v e r n o r Rhoades
b e requested
to take u p the matter w i t h Mr. Harding a n d have h i m formuior a
k e y word, t h e e x p e n s e
t o b e prorated
the Federal Reserve Banks,
Lys I
second that motion,
whether t h e k e y i s
banks
o r only t o t h e Feceral Reserve
To t h e F e a c r a l R e s e r v e B a n k s ,
Chairman:
Reserve
I
t 1 s soing
t o b e used between
Banks
f o r t h e compilation o f a
ban
the +
test
to b e attached t o each message involving t h e payment o f
money.
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Federal Reserve Bank of St. Louis
Gentlemen, Governor Aiken has offered a
seconded,
i
resolution
s there a n y further discussion?
There w a s n o f u r t h e r d i s c u s s i o n a n d t h e m o t i o n
was Culy carried, )
Tne Chairman:
S t ) AGLLO t e b e
c o m m i t t e e
o n clearance
in Washington t h e attention o f the Feveral iieserve Bouard
called t o t h e f a c t t h a t t h e g e n e r a l a d o p t i o n o f a
intra-district
cleerinzs
a)
would result possibly
plan
i n con-
136
Siderable i m p a i r m e n t
o f t h e reserve balances,
a n d i n some
cases result i n over-drarfts, a n d unless w e were willing t o
adopt s u c h a rigorous course w i t h over-Crafts i t might result i n closing some o f the member banks.
I
t would b o
absolutely essential f o r t h e Rosorve B a n k t o know everything
that t h e r e w a s t o b e k n o w n a b o u t t h e standing, s o l v e n c y
and manegement o f the affairs o f cach member bank within
each district.
T
y cdeveloped a t that mecting that there
were overdrafts w i t h onc reserve b a n k t o the extent o f a
million dollars; t h a t i f a n y o f those banks h a d failed a t
that time t h e resorve b a n k would have b e e n stuck undoubtedLys :
The question n o w arises
a s t o whether t h a t information,
some part o f which i s now i n tho hends o f the Comptroller
the Currency, c o u l d not b e made immediatoly available
the Rescrve B a n k s b e f o r c t h i s c l e a r i n g s y s t e m m a y r e s u l t
in some overdrafts which might result i n losses, [
think
this meeting ought t o adopt a resolution which will call
upon t h e Pederal Reserve Board t o deal w i t h that subject
at onco, a n d i n connection w i t h that adopt a
resolution
which would deal gonerally w i t h t h e subject o f t h e relations
between the Federal Reserve Banks and the Bank examiners
in the various districts, a n d possibly w i t h the matter o f
mination o f S t a t e b a n k s w h i c h h e r e a f t e r a p p l y f o r
membershin.
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Federal Reserve Bank of St. Louis
What i s y o u r p l e a s u r e
i n that matter?
(Extended informal ciscussion followed, )
The Chairman:
b f t e r discussion o f item No, 7 , i n re-
gard t o t h e r e l a t i o n s
o f Federal R e s e r v e B a n k s w i t h t h e
national b a n k examiners, a n d t h e availability o f the reports
of examinations made b y the examiners,
o n motion o f Governor
Fancher i t i s resolved:
That w e request t h e Federal Reserve Board t o arrange
with t h e C o m p t r o l l e r
to t h e r e p o r t s
o f the Currency t h a t access b e given
o f examinations
t o representatives
o f the
Federal Reserve Banks under s u c h conditions a s they m a y regard a s suitable f o r their protection.
It i s further resolved that t h e Federal Reserve Board
be r e q u e s t c d
t o make a r r a m g e m e n t s w i t h t h e C o m p t r o l l e r
the C u r r e n c y f o r t h e g i v i n g o f i n s t r u c t i o n s
of
t o National
Bank Examiners t h a t i n all furture examinations i n matters
of i m p o r t a n c e r e l a t i n g t o t h e crecait o r s o l v e n c y o f m e m b e r
banks, coming t o the attention o f the examiners, t h e
mat ters b e p r o m p t l y r e p o r t e d
of C i r e c t o r s
t o t h e chairmen o f t h e boards
o f t h e r e s p e c t i v e T e d e r a l h e s e r v e Banks 3
It i s further resolved that t h e sxaminers also b e
instructed t o furnish the Pederal Reserve Agents, a t the
earliest possible moment, f u l l information u p o n all matters
whichleyre b e e n s u b j e c t s f o r u n f a v o r a b l e c o m m e n t
o r criticism,
at t i m e s o f p a s t examinations, c o n c e r n i n g a n y m e m b e r b a n k 3
It i s further resolved t o b e t h e sense o f this meeting
that t h e a d o p t i o n o f t h e p r o p o s e d p l a n f o r c l e a r i n g c h e c k s
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Federal Reserve Bank of St. Louis
138
Will i n v o l v e c o n s i d e r a b l e
hazard
t o the Federal Reserve
Banks u n l e s s t h e i n f o r m a t i o n c a l l e d f o r b y t h e a b o v e
resolution
i s available p r i o r
t o putting t h e p l a n into
operation.
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Federal Reserve Bank of St. Louis
he, oOays I
will second t h e resolutiong,
(The resolutions w e r e carried, )
Mr, Seay:
T h e r e igs o n e i t e m h e r e w h i c h h a s n o t
state
yet been touched upon, a n d that i s the examination o f
benks which might s e e k t o enter.
W
The Chairman:
e have n o t discussed t h e question o f
the method t o b e followed f o r examining state banks which
apply f o r membership.
S h o u f d n o t t h a b e taken u p with No.
Mr. Fancher:
e Chairman:
Y e s . S u p p o s e w e connect t h a t with
Mr. McDougal: I
would like t o inguire a s t o the
feeling o f the Governors i n the matter o f the national b e n k
examiners meking their headquarters
o n the premises o f the
or
Federal reserve bank, a n d i f they approve o f it, whether
free
not w e s h o u l d o f f e r t h e m t h e n e c e s s a r y o f f i c e s p a c e
or whether w e should make e charge f o r it.
Mr. Sawyer: I
to h a v e t h e o f f i c e s
that i s ,
understand t h a t t h e Board desires u s
i n t h e p r e m i s e s b u t n o t -in t h e benk;
i n t h e b u i l d i n g p u t n o t i n t h e b a n k itself.
The Chairman:
M o s t o f the bank examiners a r e i n the
get
Federal buildings i n the respective districts, w h e r e t h e y
their a c c o m o d a t i o n r e n t f r e e ,
Mr. McDougal:
Mr. Rhoades:
Mr. Seay:
T h e y a r e i n Chicago,
A n d i n Philadelphia,
T h e éxeminer o f our district came t o us a t
the suggestion o f the Comptroller t o inquire i f w e could
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Federal Reserve Bank of St. Louis
house hin.
W
e d i d n o t h a v e t h e space.
W
Me. MeCord:
e will gladly p a y f o r t h e space i f
we c a n get h i m i n the building,
1 f h e will reciprocate a n d
cooperate.
re
Mr. W o l d :
W
e expect
t o furnish headquarters a n d
pay rent i n our building a n d o n our floor,
Mr. Seay:
S e p e r a t e a n d apart f r o m your bank?
Mr. Wold:
O h , no; i t will b e one o n e side, prob-
ably i n t h e p a r t t h e t r a n s i t
Mr, MeCord: -
i s on.
They will n o t permit that will they?
Mr, Wold: I t has benn a@iscussed with them, and they
have raised n o abjection,
Mr. Aiken: T h e r e i s likely t o be a n embarrassing
situation a r i s e w i t h r e f e r e n c e
t o having t h e bank examiner
in t h e b a n k u n l e s s t h e y h a v e a u t h o r i t y directly. i
mind h a v i n g h i m i n t h e s a m e building.
I
n fact,
do. n e y
w e would
be grad t o have h i m where h e would b e accessible.
Mr. Wold:
O
u
r examiner
i s t h e d e p u t y Federal R e -
serve Agent.
The Chairman:
The c h i e f e x a m i n e r
T h a t i s our situation i n New York.
i n our district
i s t h e d e p u t y F e d e r a l Re-~
serve Agent.
Mr. Fancher:
that situation,
Y o u are probably t h e only t w o banks i n
W e have thought o f discussing t h e matter
in our committee i f was were desirable t o have t h e examiner
in the building, n o t o n the same florr, b u t t o shere quarters
with t h e bank, a n d w e s o w r o t e t h e Comptroller a n d sent h i m
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Federal Reserve Bank of St. Louis
4dr
& blue print o f that part o f one floor which c a n b e
rented
and t h e p r i c e s
o f several r o o m s available.
The Chairman:
D
o you wish, Governor McDougal,
to submit e n y recommendation t o the Reserve Board i n
conneétion with this matter?
Mr. McDougal:
N o , sir; I
think I have learned a l l
I want t o know about it,
The Chairman:
answered
by a
T h e next item, No. 8, has been partly
message w h i c h w a s t e l e g r a p h e d
t o m e from N e w
York today; t h a t is, w i t h reference t o Federal Reserve
Bank
rediscounts, I
a m advised b y Mr. J a y that t h e Federal
Reserve B o a r d h a s f i x e d s
rate o f t h r e e a n d a
half p e r c e n t
ror thirty d a y paper a n d four p e r cent f o r paper
maturing
beyond thirty days, a n d h e has advised e a c h o f the
twelve
banks that t h e apportionment o f the rediscount
fixed b y t h e F e d e r a l R e s e r v e B o a r d ,
I
w i l l be
t seems
t o pre-
Clude much discussion o n the Subject except a s t o
the custody
o f the paper which i s rediscounted a n d s o propor*
tioned.
Mr, Wold:
T h a t i s not mandatory that w e take the
paper, y o u know,
Mr, Curtis:
I
f they d o not want it, t h e y d o not
have t o take it,
Mr. Seay:
I n ordinary times i t strikes m e thet i s
a vane unscientific w a y t o d o things, w i t h d u e deference.
It places
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Federal Reserve Bank of St. Louis
you i n debt t o the verious federal Reserve Banks
L42
eround t h e country that y o u have t o settle w i t h a t some
time a n d s e t t l e w i t h m o r e e x p e n s e
other,
i n one case t h e n i n an-
I t might b e more convenient t o a reserve bank
having ea rediscount t o rediscount w i t h o n e bank than i t
would
b e with another,
The Chairman:
centlemen,
there i s a
tant principe behind this matter, I
pretty i m p o r ~
think w e have all
of u s a t former meetings agreed that there w a s t h e one
thing that each bank thought i t should reserve t o itself,
and that was t h e right t o mamh initiate a
district,
I
rate i n its o w n
f there i s a n y doubt o r ambiguity about t h e
lenguage o f the Act, t h a t c a n doubtless b e cured.by t h e
establishment o f well settled precedents i n the method b y
which t h o s e r a t e s a r e fixed.
T h a t precedent,
me, i s well i n course o f being esteblished.
i t seem t o
C h a v e t as not
the s l i g h t e s t d o u b t a s t o w h a t t h e m e a n i n g o f t h e l a n g u a g e
of the Act i s i n respect t o the rediscounts o f the Federal
Reserve Banks,
I t i s wholly within t h e power o f the Board
to f i x a rate a n d require t h e rediscount w h e n t h e five members vote i n fevor o f it, a n d while t h e Act implies ‘that
these r e d i s c o u n t a r r a n g e m e n t s m a y a u t o m a t i c a a l y d e v e l o p b e -
tween t h e banks themselves, y e t I think w e would e l l admit
that t h ere i s some p e d e
e r
c o n f u s i o n arising right n o w
in that matter, a n d i f the Board i s t o exercise i t s authority
in the matter o f rates a t all, i t should b e exercised i n connection with the rediscounts.
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Federal Reserve Bank of St. Louis
S
o far a s w e are concerned,
AS
in N e w York,
s a i d before,
as I
w e are quite willing a n d
ready t o r e d i s c o u n t e n d a t r a t e s w h i c h w e m e y a g r e e u p o n
T h e question f o r u s t o consider i s
between ourselves.
whebher w e are following a
wise procedure i n facilitating
the arrangement o f rediscount b y this method a n d reserving
to the e x t e n t t h a t i t i s possible t o ourselves t h e right
of initiation a s t o our local rates.
language
Mr. Curtis: T h e whinnmg i s t o permit i t t o b e
¥ h a t section i s that?
Mr. McDougal:
Mr. Curtis:
( b o )f
o section ll,
Mr, Rhoades:
H a v e w e the exact text o f the
Federal Reserve Board's action before u s ? I
paper clipping, b u t I
The Chairman: I
have a news-
a m not sure that i t i s accurate,
have n o t t h e exact text. I
sim-
ly have atelegram stating they have fixed t h e rates a n d have
decided t o apportion t h e rediscounts themselves.
Mr. Rhoades:
T h i s newspaper clipping says that a l l
obligations shall b e met through t h e lederal Peserve Board.
Mr. Wold:
T h e r e i s a notice posted i n the bulletin
given t o t h e press. I
d o n o t k n o w j u s t t h e w o r d i n g o f it.
I talked i t over with Mr. Warburg, a n d he seid i t is not
mandatory
desires
o n a n y b a n k t o accept t h a t proportion unless
to.
‘The Chairmen:
to apply,
F a c h bank, I
suppose, w i l l b e i n v i t e d
a n d those t h a t a p p l y will h a v e i t divided u p o n
some b a s i s among t h e m s e l v e s .
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Federal Reserve Bank of St. Louis
it
M r , Curtis, ’w yh a t i s y o u r v i e w
about this,
Mr. Curtis:
I
t seems
the Board, apparently,
t o m e rather extraordinary
that
i f w e understand
t h e rule correctly,
would n o t a l l o w r e s e r v e
b a n k A , W e will
Seve h o apply t o
reserve bank B for
rediscount, b u t would
Sey "Send i t i n
and w e will divide
u p t h e amount y o u
want rediscounted;"
and i f a l l t h e o t h e r
eleven want t o join
i n they wilt b e
entitled to,
T h a t m a y not
b e what t h e reserve
bank A
Wants a t all, They may.
want t o deal directly
with one
another,
Mr. Seay:
T h a t i s what I
The Chairmen:
ventured t o remakk,
T h e r e i s a lot i n
that.
Mr. Curtis:
O f course, apparently,
t h e mannan.
rediscounting Cannot
b e done without
their permission,
The Chairman: W h a t
i s your view about
this, Mr,
McDougal?
Mr. McDougal:
M
y view o f the
matter i s that w e
should r e s p o d t o t h e
aihiitueamhhth c a l l s
f r o m t h e other dis-
tricts which may neéd
help, but that w e
Should not b e expected t o rediscount for
any district thmnh at
less than
the minimum Prevailing
rate i n our district,
a n a that when
the t i m e comesfop Some
bank t o call f o r
rediscount, t h a t
is the time that they
should put t h e brakes
o n i n their
Own d i s t r i c t
b y reising t h e
rates,
(At t h i s p o i n t
a n informal d i s c u s s i o n
Occurred which
the Stenographer w a s
Hibected n o t t o report;
e f t e r which the
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Federal Reserve Bank of St. Louis
145
following proceedings were had: )
Mr. McCord: I
believe, w h e n i t comes t o a compul-
sory rate, t h a t t h e B o a r d s h o u l d f i x t h e r a t e o f d i s c o u n t
a t the minimum r a t e o f t h e bank w h o has furnished
possibly
the money,
b u t t h e y a l s o should permit
by a
maximum r a t e t h e
dealings between t h e Federal Reserve Banks i f they care t o
do s o a t any thing under t h e mezimum rate.
F o r instance,
4f Cleveland h a s a lot o f funds o n hand a n d Cleveland banks
do not care t o use that money, t h e y a r e n o t offering discounts,
a n d w e s h o u l d w a n t t o d e a l w i t h them. I
think
Governor Fancher ought t o b e permitted t o make t h e trade w i t h
us, and: whenever t h e i r d e m a n d s c o m e o n t h e m t h e y c o u l d r a i s e
the rate.
T h a t i s the w a y t o look a t it.
(ft this point further informal discussionwas h e d whicnu
the s t e n o g r a p h e r w a s d i r e c t e d n o t report; a f t e r w h i c h t h e
following*proceedings were had: )
The Chairmen:
ter o f rediscounts?
W h a t a r e w e going t o d o about this matI s there a n y further representation t o
be made t o the Federgl R e s e r v e Board o n thet subject.
Mr. Curtis: I
would suggest, Mr. Chairman, t h a t w e
postpone discussion until w e get t h e exact text,
Mr, Fancher:
M i g h t w e not, Mr. Chairman, discuss
the c u s t o d y ?
The Chairman:
Y e s , w e will take that up.
T h e mess
tion is, a r e w e going t o make a n y recommendations o r adopt
any policy i n regard t o the actual physical custody o f the
paper
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Federal Reserve Bank of St. Louis
which i s rediscounted between t h e Federal Reserve Banks?
1¢4:6
Mr. MeCord: I
approach that.
do not know whether w e are going t o
W e may o r may not, b u t I think w e ought
to determine t h e plan, a n d i f w e approach i t i t would b e
understood, I
discussed i t w i t h o u r chairman,
that i f t h e B o a r d w o u l d a r r a n g e a
on t h e b a n k s
a n d i t seems
plan thet w o l d
a s i t w o u l d f o r t h e Board,
b e binding
t h e custody o f the
paper s h o u l d b e w i t h t h e F e d e r a l R e s e r v e Agent,
t h e same a s
for the Government,
Mr. Seay:
Y h e n i t i s sent f o r wmllection?
Mr. MeCord:
Mr. Seay:
I
n trust.
W o u l d i t b e sent with t h e stamp o f the
bank o n it?
Mr. MeCord:
Mr. Seay:
Y e s ,
H o w could y o u differentiate between thet
and e n y other papers o f t h e bank under s u c h a condition?
Mr. McCord:
T h a t would b e i n trust; t h e assets o f
the bank would be held subject t o the Federal Reserve ‘gent.
Mr. Seay:
B u t suppose there wee a
difficulty i n the
Federal Reserve Bank, a n extreme case?
Mr. McCord:
I f i t came t o a point like that, I
think probably t h e Federal Reserve Agent would exercise h i s
right o f sending t h e paper himself,
Mr. Seay:
S u p p o s e paper were o u t i n the meantime
and t h e r e w a s n o t h i n g t o s h o w t h a t i t was p a p e r s e n t b y t h e
Federal R e s e r v e f g e n t ?
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Federal Reserve Bank of St. Louis
Mr. McCord:
T h a t i s hardly a
suppos#le c a s e ,
147
Mr. Seay:
I t i s not; a n d fev t h e method provided
for t h e custody ought perhaps t o b e s o sound thet t h e ownership o f the paper could b e established.
Mr. McCord:
T h e r e i s n o question about t h e owner ship
of t h e p a p e r b e i n g established, n o w , u n d e r t h e r u l i n g o f
the
Department, because t h e Federal R e s e r v e Agent would have
the
euthority i f w e got t o the point where w e could not put t h e
gold o r its equivalent behind our notes,
Mr. Seay: I
mean, t h e rediscounted paper.
Mr. McCord:
T h a t i s the same a s i t i s tehind t h e Fed-
eral Reserve notes, unquestionebly, u n d e r t h e same
rule.
Mr. Seay:
Reserve A g e n t ,
T h a t would b e the paper with the Federal
a n d t h i s w o u l d b e t h e p a p e r o f t h e bank, r e -
discounted f o r the Federal Reserve Bank.
Mr. MeCord:
T h e y a r e ligted separately.
O n e is in
trust f o r t h e Rederal Reserve Bank a n d the other i s i n trust
for t h e Federal Reserve notes,
%
The Chairman:
for rediscount?
H o w jong paper i s likely t o b e sent
W h a t maturities?
Mr. McCord: I
d o not know whet anybody would send.
We never considered i t ourselves because w e d i d not want
to
approach that point; b u t i f i t were, i t would b e between
thirty and sixty days paper,
Mr. Seay: I
i n m y opinion,
think t h e b a n k s w o u l d p r e f e r
t o give t h e
short date paper,
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Federal Reserve Bank of St. Louis
Mr. McCord:
T h e reason they would n o t want t o make
148
would b e that
4t less t h a n thirty days, Governor Seay,
the. s = —
d o n o t m e a n s h o r t e r t h a n s i x t y days.
Mr, Seay: I
I mean short d a y paper.
The Cheirman:
W
e have a
confusing s i t u a t i o n g r o w i n g
aount o f
of the rediscounts, because, presumably, t h e
cash reserve o f
rediscount would b e required f o r t h e
de~
“tne bank which got the discount and would result in the
p a p e r r a n off.
mand o f m o n e y t o t h a t b a n k , 4 8 S t h e
t the:
T
t h e money
two banks a r e going t o b e r u n 4 8 seperate banks,
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Federal Reserve Bank of St. Louis
should b e r e t u r n e d b y shipment,
a n d thet involves a
consider-
able amount o f currency..
just a s satisMr. McCord: F o u l d n o t a n exchange b e
COUrsct
fectory a
The Chairman:
J u s t e s satisfactory, o f course; only
the q u e s t i o n erises, w h a t
silver c e r t i f i c a t e s
f money a r e w e g o i n g t o e n i y
k i n d o
o r legel tenders
o r gold?
--Mr. Seay: S u p p o s e w e say credit balances
Mr. Fancher:
Mr. Seay:
T h a t would
b e y o u r reserve.
T h a t would be the reserve.
‘ V e have never
reserve b a n k a r é
determined whether t h e balences o f ewoiner
the equivalent o f gold?
was hed: which
(ft this point a n informal discussion
t o report; a f t e r w h i c h t h e
the s t e n o g r a p h e r w a s d i r e c t e d n o t
following p r o c e e d i n g s w e r e had: )
The Chairman:
H e r e comes t h e very important collae@
150
cral question that i f rediscounts a r e t o b e apportioned
arbitrarily among the other banks,
o r a number o f them,
you
would nat-~will heve imposed upon y o u yhe expense which y o u
S a n Franurally have t o bear o f a shipment o f currency f r o m
y o u settled
eisco t o Atlanta o n a rediscount, a n d then when
up t h e e x p e n s e s
o f shipping t h e currency b a c k there and,
it, a n d
considering t h e element o f time which enters i n t o
i t s e e m s t o m e i t makes a
all t h o s e things,
very c u m b e r s o m e
and expensive w a y o f hendling t h e accounts.
Mr. Seay:
I t i s absolutely unscientific.
Mr. Faenher:
I
t goes _ . back t o Federal bank
settlement again,
The Chairman:
W o u l d i t not b e a good plen first t o
n this matter?
get the text o f the decision o f the Board i ae:
Then w e could pass a
a e Board give
resolution p a d b a d e n c a e
us a n opportunity t o discuss t h e matter with them a n d bring
before
out a n y p o s s i b l e p o i n t s w h i c h t h e y h a v e n o t c o n s i d e r e d
they a r r i v e a t t h e decision.
Mr. MeCord: I
The Cheirmen:
think =.
T h e y m a y have v e r y g o o d reasons f o r
generous
having determined what they a r e proposing t a ad’ b y a
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Federal Reserve Bank of St. Louis
construction o f the statute i t looks a s t h o u g h they might
possibly
have t h e power t o d o it, substantially, b u t I think
no#’ i n the way they have done it.
What) a r e y o u r w i s h e s
i n this matter?
reach o n e o f t h o s e c o n d i t i o n s
W
e must n o t
o f absolute m e n t a l insolvency
and not have even a resolution t o offer.
e h a d passed t h a t a n d were considering
W
Mr, Seay:
the c u s t o d y o f paper.
text
L e t u s leave i t until w e get t h e
Mr. Facnher:
of the ruling.
Mr. Seay:
gestion o f
T h a t will n o t touch upon t h e
custody.
Mr/ MeCord:
paper,
of
™ h i l e y o u are discussing t h e custody
h a s a n y better s u g i s there a n y Governor present w h o
gestion t o make t h a n the one offered b y me?
Mr. Wold:
that
t occurs t o B e thet i n rediscounting
I
t h e matter serious
paper f o r a n p t h e r benk, w i t h o u t g i v i n g
thought, I
than
would prefer t o send 4 % t o the bank rather
to the Federal Reserve ‘gent. I
d o not know w h e t h e r t h e
f o r meking collec~
Federal Reserve /gent h e s a n y facilities
tions.
Mr. Seay:
f course i t i s a
O
matter t h a t t h e b a n k t h a t
itself.
grants t h e discount must determine f o r
The Chairman:
thet i s
I t occurs t o m e that some bank
at a neerby point could hendle anything.
F o r instance, i t
t o settle and
could b e arranged through New York Exchange
meke square some o f those balances.
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Federal Reserve Bank of St. Louis
Mr. S e a y :
E
t o r want
t o aiscount
on t h e c o n d i t i o n s t h a t n o w p r e v a i l I
f o r another
bank
would n o t h e s i t a t e
at
f p r our account w h e n w e
all t o let that bank collect paper
like anyother bank
give instructions t o that effect, j u s t
155
o f common experience.
do i n eny other banking metter
t o a #25,000 nationW e send our paper out
Mr. Wold:
not t o
I d o not s e e w h y w e should
al b a n k f o r collection.
another f e d e r a l bank.
would not
The o t h e r F e d e r a l R e s e r v e B a n k
Mr. MeKay:
collect it.
T h e bank i n Vinneapolis
would have t o collect
the nate d u e i n the Richmond District.
dure
I d o not s e e w h y t h e seme proce
The Cheirman:
Reserve Banks a s i s followed
should b e followed Detween t h e
the
a n d its member panks - - between a Federal Reserve B a n k
the member panks.
sending o f paper Girectly t o
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Federal Reserve Bank of St. Louis
Vr. Seay:
T h a t i s proper.
I t has complete control
course
desires t o take 6 different
over t h e paper, e n d i f 4 4
liberty t o d o it.
it always should remain a t
text o f the
think y o u ought t o get the
Mr, Wold: I
regulation.
(ft this point a n informal discussion
the s t e n o g r a p h e r
following
followed which
which the
wes d i r e c t e d n o t t o report; a f t e r
were had: )
proceedings
move that w e defer further discussion
Mr. Facnher: I
Board.
o f the opinion o f the
thetext
get
w
e
until
8
‘on Topic
p u t a n d carried.
The motion w a s duly seconded,
The C h a i r m a n :
T
h
e Federal Reserve
Bank
o f New York
other
a n d warrants f o r t h e
hes b e e n p u r c h a s i n g a c c e p t a n c e s
Federal Reserve Banks.
started
T h e s e transactions h a v e
I
since o u r l a s t meeting.
h a d n o t desire
went t o s a y t h a t w e
200
%
to beat a n y bank i n getting some moneyoust
a t all, b u t i t d i d
not s e e m d e s i r a b l e f o r u s t o v o l u n t e e r a n d t a k e t h e r e s p o n s -
itility o f volunteering t o the other banks t o invest their
meney f o r them.
T h e i nyveeehenk t h a t w e m a d e i n N e w Y o r k
resulted i n m y inquiry f r o m t h e other banks w h a gave u s a n
_opportunity then o n their initiative t o go ahead and d o some
work f o r them, which w e were g l a d t o do.
N o w that w e are
starting t o m a k e i n v e s t m e n t s a n d b u y i n g acceptances,
willing t o continue i t just a s freely a s possible.
w e are
T h e point
is, however, t h a t w e ought t o h a v e s o m e f a r i l y u n i f o r m a n d
definite policy both a s t o the mthods o f handling t h e account
snd t h e means o f communicating t h e wishes o f one bank, w h e t
it wants a s t o rates, a n d s o o n ~-~ t h e method o f dividing
wheat w e buy s o that i t i s a perfedtly f a i r a n d workable a r #bolnot like t o telegraph t o Governor Keins,
rangement, I
for instance, w h e n w e were buying some warrants a n d accept-
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Federal Reserve Bank of St. Louis
ances a n d have h i m come beck a n d s a y that they d i d not want
any, or inquire how good they were, although he doubtless
might have felt constrained t o sey, YA11 right; g o ahead and
buy them; y o u are good exough t o suggest it,” a n d h e might
not went them,
and adopt a
N o w that w e are here w e ought t o discuss i t
policy o f some k i n d that will work a n d b e simple
and sstisfactory s o thet n o b o d y c a n b e teking undue respons-
ibilities.
Mr, Yold: I
think w e are o n record i n Minneapolis i n
a letter t o you thet w e sre very glad t o perticipate o n that
basis.
154
Mr, Fencher:
H e v e y o u a n y plén worked o u t thet y o u
thought y o u w o u l d l i k e t o submit?
Y o u e r e entitied
compensation f o r s e r v i c e s rendered,
The Cheirmen: I
i t seems
did not think ©
t o some
t o me.
m u c h «bout that,
It involves a little work, but thet does not smoung t o very
much. I
think w e d o h e v e s o m e t h i n g o f s
sibility.
F o r instance, one day we bought $2,609,000 worbh
question o f respon-
of eccpetances.which were divided eround, e n d w e heve g o t t o
make e n e r b i t r n y d i v i s i o n o f t h o s e eeceptances.
T h e y are
all good, i n our opinion, e n d w e heve divided t h e m a s -neerly
as m e y b e e q u e l l y b o t h a s regerds m a k e r e n d s c c e p t o r sand d u e
dete,
B u t y o u cannot divide a
lot o f miscellaneous bills
ofverious banks a t maturities w i t h exect uniformity a m o n g the
Gifferent b e n k s ;
a n d i f s o m e o n e o f those b i l l s s h o u l d g o
wrong, perchence, p u n would feel v e r y much embarrassed a t
heving mede a purely arbitrery e
e
e
t i n s purchasing
benks heving a n opportunity t o say yea o r n @ y t o it.
We will like a n expression o f views f r o m t h e other benks
how t h o s e m a t t e r s s h o u l d b e handled.
Mi. McDougel:
M e y I esk whet y o u know regarding t h e
responsibility o f the drawers o f these drafts that a r e accepted?
T h e t q u e s t i o n h a s c o m e u p i n o u r b a n k e n d w e feel,
or a t l e a s t I
have felt, t h a t t h e @ u s r e n t y T r u s t C o m p a n y ' s
eccepvances a r e j u s t a s g o o d e n d j u s t a s s a t i s f a c t o r y
as t r o u g h t h e y c s a
deposit.
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Federal Reserve Bank of St. Louis
deposit
i n thst bank o n a
T h a t i s about e s fer a s I have gone,
t o us
certificate
B u t the
of
nd 5
guestion d i d arise a s t o whether o r not w e had t h e protection that comes f r o m a solvent a n d finencial maker i n
addition to-that. I
simply t a k e t h i s o p p o r t u n i t y t o i n -
qiire whether o r not y o u o e
The Cheirmen:
l o o k e d into thet.
G o v e r n o r McDougal,
i t i s elmost i m p o s -
Bible t o tell, elthough i n some cases, w e have g o t a feir
knowledge, b u t i t just happened t o b e personal information
which s o m e o f u s h a p p e n e d
t o have,
F o r instance,
take
documentary bills drewn o n Liverpool o r London o r Bremen,
and other points abroad.
T h o s e bills originsete o u t o f the
seme transaction that occurred prior t o the wer, o n d w e are
getting d o l l a r acceptances,
a n d those acceptances a r e given
by the Gueranty Trust Company not o n the faith entirely o f
the c r e d i t o f t h e d r a w e r o f t h e bills,
B u a i n many cases n o t
ah ell o n the faith o f the reputation a n d strength o f the
drawer o f the bill, b u t t h e y a r e accepted E S the eredit o f
the institution which opens the credit from the other side
in favor o f the drawer o f the bill, which i n many cases i s
worth a s much a s the acceptance i s itself, although w e are
on n o t i c e # 5 t o w h s t i t is.
F o r instence, M c F e d d e n d r a w s
on the Guaranty Trust Company today, whereas a
year a g o h e
might have drawn thet bill o n the Bank o f Liverpool, which
is e very strong institution.
T h e Bahk o f Liverpool m a y
have opened a credit i n favor o f McFPedden through t h e Guaranty Trust Company a n d w e really have acted, n o t evident
on the faith o f the bill, under t h e responsibility o f the
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Federal Reserve Bank of St. Louis
156
I t i s impossible
Bank o f Liverpool.
sibility i s b e h i n d t h o s e bills.
“ ™ e heve notinguired.
e do, however, h a v e t h e protection
W
Mr. McDougal:
t o tell w h a t respon-
represented b y
that comes f r o m a control o f the merchendise
documents.
T h o s e documents g o forward under var-~
The Cheirman:
ious terms, f r e q u e n t l y ,
receipts,
a n d possibly generally,
scceptings
but «
o n trust
i n Gollars, n o w , t h e d o c u m e n t s
o f the cotton
necessarily most g o forward t o the gonsignee
abroad
i n order t h a t t h e c o t t o n m a y realize
o n arrival. 1
thet i s accepting,
am told b y one o f the banks i n New York
n o w a c c e p t i n g i s rebated;
thet m u c h o f t h e p a p e r t h a t t h e y a r e
t o meet t h e
thet i s t o say, t h e money i s i n their hands
eeceptences l o n g before i t s maturity.
have wondered, Governor Strong, whether
Mr. Wold: I
o r the
we would have a claim against these securities
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Federal Reserve Bank of St. Louis
case o f failure.
gueranty h e l d b y the accepting house i n
N o ; y o u lose that, I . think, beyond
The Chairman:
form that i t i s
question, w h e n y o u take t h e bill i n the
af ter acceptance,
of
Y o u mean, y o u lose t h e protection
Mr. McDougal:
the d o c u m e n t s ?
h
e acceptance
F o r instance,. t
on the documents,
foreign bank.
i s not based
b u t just o n a letter o f credit o n the
a
F o u l d thet aecrue t o u s i n case o f
failure o f acceptances.
The Chairman:
T h e situetion
;
w o u l d
i n t h a t respect, a e think,/
157
depend
itself.
o n the terms o f the credit
that.
pretty difficult t o determine
I
t would b e
Y o u would probably have
credit wercin each instance.
to know what t h e terms o f the
Mr. H e n d r i c k s :
M a n y
o f those acceptances
a r e merked
tp. g.% --- bankers guerantec.
would understand, then, from your
Mr. MeDougak: +
a n d perhaps o u r only pron
opinion, t h a t w e have o u r greatest
tection i n the acceptors name.
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Federal Reserve Bank of St. Louis
would n o d s e y thats I
The Chairman: I
is all y o u c a n rely upon.
the a c e e p t o r
of
I n the case o f the feature
i t m i g h t b e t h e o t h e r way.
very good security there,
think t h a t
T h e r e might b e
F o r instance, l e t u s suppose
o f the Guaranty Trust
that this bill i s drewn b y McFadden
Company u n d e r 4
Liverpool.
the Benk o f
letter o f c r e d i t a r r a n g e d b y
h a s gotten this
T h e Bank o f Liverpool's client
the bill, a n d the Bank o f
cotton and it has got t o protect
at
that that bill i s teken u p
Liverpool would doubtless s e e
maturity.
t h e p o s i t i o n o f a n endorser.
T h e drawer i s put i n
whether t h e fund with which
fpgood deal would depend upon
h a s b e e n remitted t o the
that bill i s t o b e met a t maturity
accepting bank o r not.
Mr. Wold:
subrogation,
T h e r e would b e n o right o f
took place which
(ft this point a n informal discussion
the
n o t t o report; a f t e r w h i c h
the s t e n o g r a p h e r w a s d i r e c t e d
following occurred: )
The Chairman:
W
t h e banks a
e have sent t o each o f
158
list o f the banks o r firms a n d institutions t h e t e r e
accepting, i
n New York, a n d i t seems t o m e that i t i s
desirable t h a t e a c h o f t h e R e s e r v e B e n k s s h o u l d g i v e u s
some idee o f what sort o f a line they would b e willing t o
take o f e e c h o f t h o s e names,
in fairly definite shape.
a n d w e would like t o heve thet
I t would b e e great h e l p t o us.
We will gradually g e t u p e n experience book, i f you pleese,
or a record t o guide u s i n buying, a n d I think i t would b e
of value t o all o f us.
Mr. McDougal: I
feel thet y o u r remarks a r e very
think,
timelyi
T h e y e r e addressed, I
because
w e have received f r o m y o u 6
the expcepting banks,
checked t h a t ,
intelligently.
W
and I
t o t h e Chicego Bank,
list o f t h e n e m e s o f
must a p o l o g i z e f o r n o t h a v i n g
e a r e o n l y weiting untilwe
c e n m® s o
S o m e o f those nemes w e have never heard
of, a n d w e are trying t o work i t out, b u t i t i s v a y s l o w
work.
We d o a n o t i n d i c a t e
Mr. Rhoades:
Y
question:
w e would
e d o not know enough t o indicate i n -
telligently h o w much w e could teke.
it the other day, I
t h e amount
Z s spoke t o you abdout
would also like t o ask y o u this
“ e have o n e benk i n Philadelphig thet i s ac-
cepting with u s --- The Philadelphie Netional.
W e d o not
went t o spoil t h e rete, a n d then they contend that t h e business w h i c h c o m e s t o t h e m c o m e s f r o m t h e m d i r e c t
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Federal Reserve Bank of St. Louis
t o us, a n d
ae
en account o f the small amount o f the acceptances t h e y claim
they a r e s e l l i n g a t a
lower r a t e t h a n t h e G u a r a n t y T r u s t C o m -
pany. ,
The Chairman: I
should t h i n k e v e r y P e d e r a l R e s e r v e
Benk ought typrifimiihh t o deal with domestic acceptances f o r
its own member behks with the utmost freedom.
Mr. McDougal: T
have n o t b e l i e v e d t h e t o u r a r r a n g e
ment w i t h y o u w o u l d d e n y u s t h e r i g h t a t a n y time,
fit, t o pick u p a n item shere a n d there,
it, b u t w e h a v e h e d i t i n mind,
i f we saw
W e have n o t done
o f course.
The Chairman:
W h y , n o t a t all.
Mr. Aiken:
n Boston t h e First Nationsl B a k h a s
I
been accepting, b u t t h e smounts have been very small, m
small thst they have n o t been dévisible, a n d s o w e have
have «bought those acceptthem
ances a t two a n d a half p e r cent, a n d taken e s f a s t a s
teken them a t ea lower rate, I
they came in. I
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Federal Reserve Bank of St. Louis
arrengement,
would suggest,
i n regerd t o the general
t h e t i t has b e e n most sstisfactory
t o us, a n d
we feel under great obligetions t o y o u i n New York f o r what
you have done, I
think that y o u are entitled t o a letter
from us, a S a formality, relieving you o f all responsibility.
~ would suggest thet your attorney draw s u c h a letter, a n d
f you will send it over t o us we shell be gied to sign it,
relieving y o u o f a n y p o s s i b l e o b l i g a t i o n
The Chairman:
W
i n t h e matter,
e heve n o t purchased anything f o r a n y
bank that w e have n o t also purchased i n a large amount f o r
ourselves.
T
h
a
t i s t o sey, whatever responsibility
to a
they e r e t a k i n g i s
greater e x t e n t p u r s e l s o ,
these investments; b u t I
e s to
do o t k n o w that w e would b e
willing t o make a n y investment f o r another benk unless
we w o u l d b e e q u a l l y w i l l i n g t o m e k e i t f o r ourselves.
could r e a d i l y p r e p a r e a
Mr, fiken:
V
e
f o r m o f l e t t e r t o c o v e r t h e t point.
I t seems t o me i t is only proper, a n d w e
should b e very glad t o sign it.
Mey Veld:
that w e y ,
W
e s h o u l d b e v e r y g l e d t o rel&é@ge y o u i n
Y o u e r e entitled
The Cheirman:
to a
release,
T h a t would cover acceptances and e a r
rents that w e might b u y f r o m time t o time?
Mr. Alken:
Y e s .
S o far a s w e are concerned w e
vould like t o g o o n with t h e e
e
a r r a n g e m e n t , e n d there
is one sspect o f i t that y o u have n o t brought o u t s
cannot
d o i t i t necessitates
I f we
o u r going into t h e market a n d
a n d t h a t w o u l d r e d u c e t h e rate, u n q u e s -
buying, o u r s e l v e s ,
tionebly.
The Chairman:
Mr. fiken:
Y e s .
I f you are willing t o burden yourself
with thet w o r k f o r the sake o f protecting t h e vork f o r ell
of us, w e s h e l l c o n t i n u e
Mr. Rnoedes:
t o impose
Seriously, I
o n you,
think y o u ought. t o have
something i n the w e y o f compensetion f o r t h e actuel lahor
involved.
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Federal Reserve Bank of St. Louis
The Chairman:
W e have thought i t over e n d discussed
26d.
Disetelnoie O i . I
think t h e b e s t w a y i s t o l e t i t r u n
along a n d s e e w h a t i t d o e s i n v o l v e a f t e r a
of m a k i n g a
guess
a t i t now,
I
periof&, i n s t e a d
f you prefer
t o have
a n under-
Standing nov, a n y thing that i s satisfactory t o you would b e
satisfactory
t o us.
Mr, Rhoades:
Y
e are willing t o pay whatever y o u
charge*
Mr. Fancher:
I
f y o u have a
hendling this, y o u might, after a
department t h a t i s r e a l l y
little experience, deter-
mine t h e expense o f operating thet department.
The Chairman:
W e c e n determine later a little better
than w e c a n nov.
Mr. f#iketh:
W e should be perfectly willing to have
it retroactive i n our case, Mr. (Chairman.
Mr. Fancher:
W
Mr. ¥old: I
think w e e@11 appreciate whet y o u have
been d@ing,
e would
i n o u r case, t a o ,
a n d w e would b e willing t o refund t h e money y o u
ere o u t o n it, e t least.
The Chairmen:
things up:
O
A b o u t t h e method o f dividing these
f course,
w e have purchesed f r o m time t o time
some small pieces, $8,000 o r $10,000, which cannot b e divided
up.
I
t seems t o m e w e could g o along a little a n d let i t
when
accumulate,
a n d w e geg a
bundle t h a t i s divisable,
then we
can divide it; b u t i t would b e a n immensely-complicated a n d
hudmm burdensome thing.
or “30,000,
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Federal Reserve Bank of St. Louis
E v e r y few days we pick u p 20,000
L a s t week all the acceptances w e bought were
162
56,000.
Y
o
u c a n n o t d L y ide. Ciese.in¢
to w o r k i t t h a t way.
certain ones.
O
S
O w e are going
n t h e other hand, e a c h b a n k buys
G e v e r n o r Rhoades
i s buying BHiladelphia
Nationals; Governor fiken i s buying Firgesof Boston, e n d
there will be a few of Chicago and around the country, and
we will each b e buying t h e same thing.
Y h e n w e get a
big
jag, w e will make a division.
Toes anybody desire a n y discussion o n the subject o f
discount mapanhan rates?
Mr. Seay!
T h a t d o e s n o t refer t o rediscount rates?
The Chairman:
N o . I
will m a r k N o .
1 1 a s passed.
The r e p o r t r e g a r d i n g w a i v e r o f demend, n o t i c e a n d
protest wat p u t o n the program a t this time because there
were v a r i o u s a n d s u n d r y o p i n i o n s
and they have n o t all.come in.
o f counsel
W
t o b e furnished,
e did, however, a g r e e a t
the lest meeting t o recommend t o the Federal Reserve Board
that t h e y endeavor t o ohtsain a n amendment t o the &éct eliminating that requirement. I
think w e s r e all # & reed o n
thet, e n d i f you please w e c a n renew t h e recommendation.
Mr, MeCord:
M
y counsel g a v e m e a n opinion a n d I
filed i t w i t h t h e secretary.
Mr, Seay:
T h e opinions t h a t w e r e furnished h e r e c o -
incided s o much with o u r o w n thet w e d i d not think i t
necessery t a t a k e a d v i g e o f counsel.
The Chairman:
S h a l l w e enter o n the record a
request
that a l l o f those Governors ‘ h o have not sent t h e opinion o f
their benk's counsel t o Mr. Curtis will d o s o if they have
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Federal Reserve Bank of St. Louis
obtsined such.
At t h e last meeting w e approved a
member b a n k s
form o f report f o r
a
r
ecommend®~
B
a
n
k
s
R
e
s
e
r
v
e
t o send t o the Federal
tion
o n e monthly report,
/ thet there b e reqiired o f the member b e n k
developed t h e feelend t h e d i s c u s s i o n w i t h t h e R e s e r v e B o a r d
which
that they
ing tinah m h wes not i n our original recommendation
a while, a s the member
might l e t the matter roll along f o r
the amount o f
behks were becoming a little restive under
jnformation being called for.
member bank
Is there any recommendation i n regard t a
reports?
Mr, Seay:
I f it refers t o reports o f reserves, a
with the o
think i t ought t o b e started coincidentally
The Chairmen:
Mr. Seay:
e
D o you offer that a s 6 motion?
T e s BrP;
second it.
Mr. McCord: I
I
The Chairman:
the
t a s gered a n d seconded that
provide for the mouthly
Federal Reserve Board b e requested t o
statements b y member banks,
t o b e given a t least a s soon a s
into operation.
the system o f clearing checks i s put
The motion was carried,
The Chairman: I
would S e e t o omit, f o r t h e moment,
i f that i s your pleasure.
Item No, 14, a n d take u p Item No. 1 5 ,
SN
.
t
h
e reservesof federal
in regard t o the method o f c a l c u l a t i n g
reserve banks. I
:3
brought a
memorandum o n the subject.
O u r
syster.
t h e present
accountents s e e m t o f e e l t h a t
i s n o t a s satisfac-
prefer t o have i t chenged.
tory a s i t might be, a n d they would
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Federal Reserve Bank of St. Louis
Lay
+
I will n o t r e a d t h e e n t i r e m e m m o r a n d u m .
T
h
e question
before t h e h o u s e i s w h e t h e r t h e r e a r e a n y c o m m e n t s
t o be
made eas to the present method o f calculating the reserves
of federal r e s e r v e banks.
items
T h e m e t h o d adopted a s t o all
i n t h e statement except d u e t o and d u e f r o m federal
reserve banks i s commented o n i n our office a s being satisT h e r e i s o b j e c t i o n made, h o w e v e r ,
factory a n d sound.
t o
the method o f counting d u e t o reserve banks a s a deposit
liability a n d d u e f r o m f e d e r a l r e s e r v e b a n k s
bank account item, offsetting.
as a
due f r o m
T h e theory o f those a c -
counts would justify; except f o r t h e floaty the deduction o f
the d u e t o federal reserve bankS from the cash afta the addition o f due fromf ederal reserve banks t o the cash. W h e t h e r
we could correét t h e method o f calculating reserves W a s a
question, because w e were t h e n dealing with a fgise figure
on ecocount o f t h e f l o a t t h a t h a s n o t y e t b e e n c o n v e r t e d i n t o
the gold a n d reserves i n the hands o f the bank t o which that
check i s sent,
Are t h e r e a n y s t g g e s t i o n s
t o submit
t o t h e Federal
Reserve Board i n connection with this calculation?
Mr. McKay:
H o w i s i t cdculated now?
The Chairman:
I t is added to the deposits, the gross
deposits o n one side, a n d deducted f r o m t h e gross deposits
on t h e o t h e r s i d e ,
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Federal Reserve Bank of St. Louis
Mr, McCord:
C a r r y i n g t h e reserve o n the n e t differ-
The C h a i r m a n :
Y e s ,
“a
v
Mr. McKay:
I s not thet the way the national benks
figure their reserve - - - taking their d u e from o u t o f their
gross d e p o s i t s a n d f i g u r i n g t h e i r r e s e r v e s
The Chairmen:
N o , t h e y d o not.
o n the net?
T h e y a r e only allowed
ta deduct f r o m their gross deposit t h e itams o f due from
banks
in
t p
o w n state,
Mr. McKey:
I
n the banks i n central reserve cities
they deduct a l l items d u e from banks before figuring the
reserve, i n c l u d i n g c l e a r i n g h o u s e c h e c k s , i t e m s
o n deposit
in N e w York, B o s t o n - - -
The Chairmen:
O h , that i s a different metter, I
not r e f e r r i n g t o that, M r . McKay.
T h i s is a
am
deposit account;
it i s not a transit item. ,
Mr. McKay:
T h e y include deposit accounts too,
T h e y
deduct t h e m from their gross deposits, a n d t h e y figure t h e
reserve o n the net.
The Chairman:
kind
o f account,
Mr. McKay:
Y e s ; b u t this i s quite a
different
i t seems t o me,
I t would appear t o me, without going into
the t h i n g v e r y thoroughly,
t h a t i t w o u l d b e proper
t o d o that,
to t a k e t h e d u e f r o m b a n k a n d d e d u c t t h a t f r o m t h e g r o s s d e posit b e f o r e f i g u r i n g t h e reserve.
The Chairman:
I
t has b e e n m y view t h a t w e should n o t
consider t h a t a s a n i t e m o f d u e from, b u t t h a t i t w a s e n
item o f actual c a s h i n trust, t h a t w e would have n o right t o
mmcount 1 0 0 p e r c e n t o f t h e d e p o s i t s w h i c h w e h e l d e n d o w e d
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Federal Reserve Bank of St. Louis
166
to other federal reserve banks a s being t h e basis f o r t h e
extension o f credit i n our district and use i t as a 35 per
cent r e s e r v e
o n deposits,
Mr, Seay: I
ment a n d t h e s e n s e
o r a
40 per cent reserve
o n notes,
move, M r . Chairmen, t h a t i t b e t h e j u d g o f t h e Governors t h a t t h e balances
o f one
federal reserve bank with another shell b e eccounted a s
its
property a n d part o f its gold reserve, a n d debit belances o f
any reserve bank should b e deducted from its cash i n calcuLeting i t s reserve,
The Chairmen:
B e f o r e putting thet motion, Governor
Seay, w h i c h expresses exactly whet I
have i n mind, I
would
like t o call attentipn, without a n y invidious intention a t
ell b y m y remerks,
York.
t o the situation between itlenta e n d N e w
F t a time when /telanta w e s getting pretty well l o m e d
up ~-- I will n o t s a y over loaved, because t h a t would never
happen. - - - when they had a
pretty’big discount going down
there, f o r a while they owed New York °2,000,000, a n d thet
©2,000,000 t h e y could withdraw e t a n y time b y Signing.
us suppose that e
e
L e t
M e C o r d considered that that w a s
2,000,000 o f deposit which he held, the seme as a deposit
by one o f his member banks, s n d h e went right ahead mmbh
owing this money a n d discounting o n the besis o f having
2,000,000 more cash than he really had i n the bank. C e r tainly that would n o t b e a sound condition,
Mr. McKey: N o ; it would be eninfletion of the worst
kind.
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Federal Reserve Bank of St. Louis
The Chairman:
I
t m o u n b e a sort o f a discount with-
out e dirccount.
Mr, MecKey:
y e s .
The Motion o f Mr. Seay, b e i n g duly seconded, w e s put
Sic C a r n Leas
The Chairman:
S k i p p i n g o n the program once more, a h d
just a s a matter o f information, I
would like t o refer t o No,
17, t h e q u e s t i o n o f o u r r e l a t i o n s w i t h t h e T r e s s u r y D e p a r t ment, a n d s o on, w h i c h i s r e a l l y i n t h e h e n d s o f the’ C o m m i t t e e
which wes appointed t o deal with the establishment o f the
gold s e t t l e m e n t f u n d , b u t t h a t l e d t o m a k i n g s o m e i n q u i r i e s
over here i n regard t o verious features o f the matter, o n e
of which w a s whether there w e s e n y emisting method b y which
the U n i t e d S t a t e s G o v e r n m e n t ,
i f i t n e e d e d t h e money, c o u l d
borrow f r o m t h e r e s e r v e benks.’ I
find o n inoguiry o f t h e
Department t h a t t h e l a w i s i n such a condition that t h e
Secretery o f t h e T r e e s u r y c a n b o r r o w f o r a n y l e n g t h o f t i m e
not exceeding © yesr, a t a n y rate o f interest n o t exceeding
up t o
three p e r cent a t m y time i n his d i s c r e t i o n , i
n
g
i ae meximum
of ©200,000,000, a s I recall,
I n some way o r other I can
not help b u t feel that ti:e possibilityof t h e Government's
needing money temporarily, w i t h i t s revenues short this y e a h ,
justifies o u r teking u p with the Federal Reserve Boerd,
possibly n o t a s a
whole b o d y b u t t h e o u g h t h i s s a m e committee,
the question o f whether a
commencement cannot b e made i n
esteblishing relations w i t h t h e Government which would justify
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Federal Reserve Bank of St. Louis
these b a n k s
i n making a
discount f o r t h e G o v e r n m e n t
loen t o t h e Covernment
making a
established relations,
or
o n t h e basis t h a t i t hes
e v e n i f t h e y s r e o f a technical
character e n d h a v e n o t r e s u l t e d
i n a n y considerable
I t would b e a perfSctly normal thing f o r the
deposit.
Government t o borrow f r o m these banks i f they had accounts
O n the other
there e n d were doing some business there.
hend, i t might just lead t o some criticism, a n d i f the
Government just said, “Let u s have some money, elthough
we are not doing eny business with pou," and that was the
first business t h a t t h e coweenmerteeto d o with t h e banks,
it might b e unsatisfactory.
S
o I brought t h e t o n the
program a s a supplement t o item No, 5 , thinking possibly
thet a t this meeting y o u might decide t o consider whether
we ought n o t t o heve t h e committee take u p actively w i t h
the R e s e r v e B o e r d t h a t w h o l e s u b j e c t . o f t h e r e l a t i o n s
of
the reserve banks w i t h t h e Treasury Department a n d g e t
something started.
Vrs “old: I
move t h a t t h e m a t t e r
b e referred
t o the
committee thet already h a s dealings w i t h t h e Borrd e n d t h e
t o intra-district clesrings.
Treasury D e p a r t m e n t
i n reference
It i g n o t n e c e s s a r y
t o have more t h a n o n e committee d e a l
with t h e Department.
Mr. Sawyer: I
second t h e motion,
The m o t i o n b e i n g daily seconded,
cerried.
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Federal Reserve Bank of St. Louis
w e s put and
169
The Cheirman:
pose o f right now.
H e r e i s e a metter t h a t w e c a n d i s T h e Federel Reserve B o a r d sends u s
Guestionaire N o . 1 8 0 i n R e g e r d t o Branches
o f t h e Federal
Reserve Banks, w i t h t h e request t h a t e a c h o f the Governors
take s copy o f this memorendum a n d give t h e subject considerable thought a n d b e prepared t o discuss t h e matter a t a
later date,
T h e r e i s a copy i n the hands o f each o f the
Governors,
(Yhereupon,
a t 6:05 o'clock, p . m., t h e Conference
took e recess until 9:00 o'clock, p. m.)
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