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Federal Reserve Bank of St. Louis
VOLUME 1
PROCEEDINGS
CONFERENCE O F GOVERNORS O F THE FEDERAL RESERVE B A N K S
TREASURY BUILDING
WASHINGTON, D, C,
MARCH 26-29 1923
WALTER S. COX
SHORTHAND REPORTER
COLUMBIAN BUILDING
WASHINGTON, D.C.
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Federal Reserve Bank of St. Louis
PROCEEDINGS
OF A
CONFERENCE
O F GOVERNORS
of t h e
FEDERAL RESERVE. BANKS
Washington, D . G e y
Monday, M a r c h 26, 1925.
A conference
o f Governors
o f t h e Federal Reserve Banks
convened i n the assembly r o o m o f the Federal Reserve Board,
Treasury Building, Washington, D . C., o n Monday, March 26, 192%
at 10 o'clock, a . m.
Present:
D. R. Crissinger, Comptroller o f the Currency and
ex officio member o f the Pederal Reserve Board.
G. Miller, member, Federal Reserve Board.
S. Hamlin, member, Federal Reserve Board.
P. G. Harding, Governor, Federal Reserve Bank
cf Boston.
H. Case, Deputy Governor, Federal Reserve
Bank o f N e w Y o r k
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Federal Reserve Bank of St. Louis
B. A. Hekinney, Governor, Feceral Reserve Banlz
of Dallas.
George W . Norris, Governor, Feccral Reserve B a n k
Philadelphia.
3. Re. Fancher, Governor, Federal Reserve Bank o f
Cleveland,
George J . Scay, Governor, Federal Reserve B a n k o f
Richmond.
Adelson, D e p u t y Governor, Fecaeral R e s e r v e
Bank o f atlanta.
ticDougal, Governor, Feccrai Keserve Sani: o f
Chicago.
Biggs, Governor, Fedcral Reserve B a n k o f
St. Louis.
Bailey, Governor, Peceral Reserve Bank:
jensas C i t y .
Young, Governor, Feceral Reserve B a n k
jiimneapolis.
Callins, Governor, Federal Reserve B a n k o f
San Francisco.
Barrows, Federal Reservo Bank o f New York,
acting secretary t o the Conference o f Govere
nOrs .
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Federal Reserve Bank of St. Louis
see Seo eS
Governor k e b ugal:
Gentlemen, I
talked a
minute o r
two with Governor Humlin this morning, a n d h e told m e h e
understood t h e plan for t h e conduct o f this meeting con-
templated this body going shead with their work i n advance
of m e e t i n g w i t h t h e F e d e r a l R e s e r v e Board.
I have a
telegram f r o m G o v e r n o r S t r o n g
i n which h e
states that he will be unable t o attend the Governors'
vonference.
w
e h a v e n o vice chairman, a n d h e requested
me t o c a l l t h e m e e t i n g
t o o r d e r which, c o n s e q u e n t l y , I
am doing.
The Comptroller o f the Currency i s here, a n d I
sure t h a t b e f o r e
am
w e p r o c e e d w i t h o u r conference, “Mr.
Comptroller a n d M r . Hamlin, t h a t w e w o u l d b e v e r y g l a d
to h e a r f r o m y o u w i t h r e g a r d
Mr. Hamlin: I
sents t h e Bard,
t o t h e conference.
will a s k the Comptroller, w h o repre-
i n Acting Governor Platt's absence.
Governor Fancher: G e n t l e m e n , I
Governor M c D o u g a l
desire t o nominate
a s C h a i r m a n o f t h i s conferonce.
(The motion, h a v i n g been duly secondsd, W a s unanimous-~-
ly wrried.)
Mr. Crissinger: G e n t l e m e n , I
have n o t come t o make
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Federal Reserve Bank of St. Louis
4
a speech t o you.
T h i s meeting w a s t o have b e e n presided
over b y Governor Platt, b u t y o u a r e all aware o f the bad
news w i t h r e g a r d
t o t h e d e a t h o f Mr. M i l o Campbell,
one
of t h e members o f the Board, a n d Governor Platt i s attending his funeral.
T h e Board itself will have n o formal
meeting today, b u t w e have felt that that fact should n o t
keep t h e Governors f r o m a consideration o f their program,
with such little time a s w e might b e able t o drop i n and
talk m a t t e r s o v e r w i t h y o u i n your deliberations.
ie have a few matters i n addition t o the program that
we want t o call your attention t o first, because i t will
pe n e c e s s a r y f o r y o u t o p r o v i d e t h e time.
First o f all, Judge Lobdell,
desires a
o f the Farm Loan Board,
joint meeting o f his board w i t h this board o f
Governors, p r o b a b l y tomorrow,
row t o have t h e meeting.
i f you o a n find t i m e tomor-
H e would like t o have y o u f i x
the hour, w h i c h c a n then b e communicated t o Judge Lobdell,
and h e will bring h i s board i n t o discuss w i t h y o u whatever h e h a s i n mind.
Secondly,
w e have a
dinner a t the Metropolitan C l u b
tonight, a n d there Secretary Hoover h a s agreed t o speak
to the Governors
o n some matters w h i c h h e thinks a r e o f
importance, a n d which I think, a n d the Board thinks are
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Federal Reserve Bank of St. Louis
es.
of groat importance a s bearing u p o n t h e policy that ought
to be pursued b y the Governors o f the various reserve
banks.
I, i n looking o v e r this program, f i n d that y o u have
laid o u t a very ambitious program, w h i c h will take quite
a little time, e v e n i f you consider i t briefly; I
find i n
it many subjects that are o f great interest t o the Board,
some o f them being o f particular interest t o the members
of t h e Board, because t h e y have occasioned a
of d i s c u s s i o n
great deal
i n B o a r d meetings.
It has been thought proper that your sieeting with te
T h a t w i l l g i v e y o u t w o days
Board b e h e l d o n tednesday.
to deliberate u p o n your program,
t o meet t h e members o f
the Farm Loan Board, a n d t o transact such other matters
as m a y n a t u r a l l y c o m e b e f o r e y o u , a n d I
think o n e d n e s d a y
morning t h e R e s e r v e B o a r d w o u l d l i k e t o h a v e i t s m e e t i n g
with the Governors.
I t may be possible that that meeting
may have t o be postponed another day, a n d I think you
gentlemen who have been arranging for transportation had
better n o t b e i n too big a
hurry t o get away, because w e
feel that t h e things t h a t will b e u p f o r consideration
are o f s u c h v i t a l i m p o r t a n c e
t o t h e system that w e should
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Federal Reserve Bank of St. Louis
6
thoroughly discuss them and come t o some understanding,
and that this Board o f Governors should n o t adjourn until
we have arrived a t a working conclusion.
I d o n o t c a r e t o m a k e a n y f u r t h e r speech,
and I
be-
lieve that covers a l l t h e matters t h a t w e wish t o submit
to y o u now.
(whereupon, t h e Governors o f the Federal Reserve
Banks entered i n t o conference, Governor J . B. MeDougal,
of the Federal Reserve Hank o f Uhicago, presiding-)
The Chairman: I
imposed a
realize t h a t y o u gentlemen have
big responsibility u p o n me. I
feel that i t
would p e diffic ult, a n d imeossible, f o r m e t o take a n d
satisfactorily f i l l t h e vacancy temporarily made b y the
absence o f Governor Strong.
w
e regret under a n y circum-
stances t h a t h e should n o t b e here, b u t particularly because o f the cause which prevents h i m from being i n a t t e n d ‘ance today.
The first business i n order will b e the selecting o f
a S e c r e t a r y f o r t h e meeting.
w h a t i s y o u r pleasure,
Gentleman?
Governor Fancher: I
move M r . B a r r o w s
b e made Secre-
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Federal Reserve Bank of St. Louis
tary o f this meeting.
The Chairman: I
might say, i n that connection, t h a t
Mr. Harrison i s also ill.
A
s I understand i t , Ur. Bar-
rows h a s been instrumental
i n gathering together t h e neces-
sary d a t a a n d i n f o r m a t i o n f o r t h i s meeting.
(The motion o f Governor Fancher having been d u l y
seconded, w a s unanimously carried, a n d Mr. Barrows w a s
appointed t e m p o r a r y s e c r e t a r y o f t h e meeting.)
The Chairman:
S o w , gentlemen,
i t occurs t o m e a t
this time that i t will probably b e appropriate t o give
consideration a s t o w h a t w e s h o u l d
Campbell, i f anything.
d o with respect
M r . vamp bell's funeral occurs
today, I believe, a t 2:30. I
felt, although I had never
met Mr. Campbell b u t once, t h a t h e was a
liarly fitted,
t o Mr.
man who Was pecu-
b y integrity a n d intelligence, a n d his know-
ledge o f agricultural a n d live stock affairs,
t o have dis-
charged t h e duties h e was called u p o n t o discharge a s a
member o f the Board. I
loss, a n d I
feel that t h e Board i s a t a great
should l i k e t o h a v e a n e x p r e s s i o n
o f t h e views
of this Conference a s t o what, i f anything, ‘ e can d o or
should d o that would b e appropriate a t this time.
Governor Norris: I
move t h a t a
committee b e appoint-
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Federal Reserve Bank of St. Louis
8
to d r a f t a
report r e c o r d i n g t h i s C o n f e r e n c e ' s s e n s e o f
loss a t Mr. Campbell's death, a n d submit that for adoption b y the Conference a t the meeting this afternoon o r
tomorrow.
Mr. Case: I
would second that.
{The motion, h a v i n g been duly seconded, w a s unanimous-
ly carried.)
The Chairman: i
will a p p o i n t
o n that committee
Governors Norris a n d Seay, and, i f the Comnittee wishes
me to, I will be glad t o work with them.
Now,
i n view o f Governor Strong's absence,
a n d because
of it, I think w e should follow our usual custom and
express o u r r e g r e t
a t h i s absence.
Governor Calkins: I
to send a
move t h e Chairman b e requested
telegram t o Governor Strong expressing o u r re-
gret a t his absence a n d o u r hope f o r his speedy recovery,
or whatever h e sees fit t o say.
Governor S e a y : I
will s e c o n d that.
(The motion, h a v i n g b e e n d u l y seconded,
w a s unanimous-
ly carried.)
Governor Callins: I
would l i k e t o repeat that mo-
tion, substantially, with regard to Mr. Harrison. M r .
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Federal Reserve Bank of St. Louis
2
Harrison h a s a c t e d a s s e c r e t a r y o f t h e s e conference e s f o r
a long time;
h e i s now flat o n his back i n Baltimore,
and I think a message o f that sort should b e sent t o him.
I therefore m o v e that t h e vhairman b e requested t o take
similar action with regard t o Mr. Harrison.
Governor Norris: I
will second that.
(The motion, having been duly seconded, w a s unanimously carried.)
The Chairman;
T h e Vomptroller ha; requested that
we p roceed with our deliberations a n d meet the Board
on wednesday morning.
I
t i s only necessary a t this
moment that w e bear that fact i n mind.
Governor Norris:
call t h a t h e referred
M r . Chairman, y o u will also ret o t h e desire
o f the Farm Loan
Board t o meet with us tomorrow, i f convenient t o us.
The Chairman:
Y e s , h e expressed a desire that w e
arrange a meeting for tomorrow, i f convenient, with the
members o f the Farm Loan Board, a n d i t is evidently the
desire o f the Farm Loan Board that that meeting b e set
for tomorrow.
Mr. Case: I
The Chairman:
suggest ten a. m., Mr- Chairman.
I
f there a r e n o objections
t o the
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Federal Reserve Bank of St. Louis
10
plan, I
will appoint Governor Young t o wait u von the Farm
Loan Board a n d make arrangements f o r s u c h a meeting,
or
at least notify t h e Board o f our willingness a n d desire t o
meet w i t h i t a t that time.
Now, a r e t h e r e a n y s u g g e s t i o n s
a s t o action with re-
gard t o any other matters before w e proceed w i t h the program
as arranged?
I f not, w h a t i s the desire o f the confer-
ence a s t o the order i n which w e shall proceed?
we take t h e program a s i t i s arranged,
Shall
c r proceed other-
wise?
Mr. B a r r o w s c a l l s m y a t t e n t i o n
to a
transposition
in
the program o r 4 rearrangement o f it, s o that t h e topics
suggested b y the Reserve Board come first.
desire
I s i t the
o f t h e Conference t h a t w e g o o n with t h e other
section o f this program,
o r shall w e look over those
topics suggested b y the Board a n d s e e i f there i s anything
we can do with respect t o them?
spect t o Topics 1 , 2 and 3
I t seems t o me, with re-
of the Board's program, t h e t
the Board would desire t o b e represented w h e n they are
discussed, a n d i f there i s n o objection,
w e will s e t them
aside f o r the present a n d g o o n with t h e rest o f the pro-
gram, t h e first topic o f which is,
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Federal Reserve Bank of St. Louis
Sredit t r a n s a c t i o n s a n d p o l i c i e s
Be R e p o r t o f Comnittee o n Centraitized e x e c u t i o n o f purchases a n d
sales o f Governnent securities
for account o f Federal Reserve Banks.
Governor Strong, ilew York, Chairman.
(See Appendix A, this volume page 205~a)
= presume y o u have a l l seen that report.
Governor Seay:
r v , Chairman, =
move t h a t t h e -repors
of the committee b e adopted, w i t h special reference t o
the resolution which was adopted a t a meoting o f the com-
mittee held i n Boston, February 5, which reads a s follows:
"In view o f the present credit conditions, t h e committee recommends t h a t t h e present policy b e continued
and that, f o r the present,
Governors,
o r until t h e next conference o f
o p e n narket investments
b e equalized between
the Twelve Reserve Banks, a s far a s possible, without
putting further Federal Reserve funds i n t o t h e market
through open market operations."
= have p a r t i c u l a r r e f e r e n c e
t o t h e opening clause
that,
"rn view o f present conditions t h e comuittee recom~
mends that the present policy b e continued"
and move t h e adoption o f the report w i t h particular reference t o t h a t clause,
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Federal Reserve Bank of St. Louis
The Chairman:
I f I understand you, y o u wish t o
move t h e adoption o f the report, a n d a l s o that t h e policy
referred
t o i n t h e o p e n i n g l i n e s o f t h e p a r a g r a p h b e con-
tinued f o r t h e p r e s e n t ?
Governor Seay:
rep ort.
Y e s sir; t h a t i s the essence o f the
T h e rest o f i t i s merely a
tabulation o f the
transactions o f t h e committee.
Governor Norris: I
had supposed w e had a l l received
a letter from the Federal Reserve Board, including Dr.
Miller's s u g g e s t i o n
a s t o open market investment polic y ,
and the recommendation which h e makes there would n o t b e
consistent w i t h t h e adoption o f the resolution which
Governor S e a y h a s just offered.
(At this point a recess o f five minutes was taken,
during w h i c h r e c e s s
a n appropriate r e s o l u t i o n w a s d r a w n u p
with regard t o Mr. Campbell's Gceath.)
Governor Norris:
M r . Chairman, y o u r committee i s
ready t o submit i t s report.
The Chairman:
W e will hear i t now, Governor Norris.
Governor N o r r i s :
Y o u r committee submits f o r adop-
tion b y the Conference, t h e following resolution:
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Federal Reserve Bank of St. Louis
13
"The Governors o f the Federal Reserve Banks assezibled
in Conference a t Washington desire t o record their regret
at the news o f the sudden death o f Mr. M i l o D. Campbell,
the newly appointed member o f the Federal Reserve Board.
While t h e y have n o t h a d t h e privilege o f m e t i n g Mr. Campbell, t h e y feel that his personal character justified t h e
belief t h a t h e w o u l d h a v e p r o v e d a
useful m e m b e r o f t h e
Board, a n d d e s i r e t o c o n v e y t o t h e m e m b e r s
o f his family
their p r o f o u n d s y m p a t h y f o r t h e l o s s w h i c h t h e y h a v e s u f -
fered, a n d t o the Federal Reserve Board for the loss o f a
fellow member.
J.B. McDougal, Chairman."
Governor Harding: I
move the adoption o f the reso-
lution.
(The resolution, having been duly seconded, was
unanimously adepted.)
Governor Norris:
I t is assumed that this will b e
sent a t once b y wire, a n d a copy submitted t o the Federal
Reserve Board. :
Mr. Case: A n d a copy given to the press?
The Chairman:
W h a t i s the wish o f t h e Conference
with regard t o giving t o the pess a copy o f this a t this
time?
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Federal Reserve Bank of St. Louis
14
(It was the sense o f the Conference that a copy be
given t o the press, a n d i t was s o ordered.)
The Chairman:
N o w , Governor Seay, w i l l y o u repeat
your motion?
Governor Seay: I
move t h a t t h e report o f the Co-mittee
on Centralized Execution o f Purchases a n d Sales o f Government Securities f o r Account o f Federal Reserve Banks b e received a n d adopted.
Governor Bailey: I
tion Mr. Chairman.
would l i k e t o interject a
ques-
w h a t does that mean? S u p p o s e a mem-
per bank has $100,000 worth and wants t o sell them to us2
Are w e restricted i n that?
The Chairman:
G o v e r n o r Bailey, I
can speak f o r t h e
Chicago Bank, b y saying that w e are transacting a
large b u s i n e s s
very
i n that regard e v e r y d a y f o r member b a n k s
in b u y i n g a n d s e l l i n g G o v e r n m e n t s e c u r i t i e s .
Governor licKinney: w i t h o u t passing i t through the
committee?
Governor Norris:
was a d o p t e d
M a y I say that when this policy
b y the Conference transactions between reserve
banks a n d their member banks w e r e expressly excluded.
Governor Bailey:
T h a t h a s been m y understanding o f
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Federal Reserve Bank of St. Louis
15
it a l l t h e time. I
wanted
t o emphasize
i t here, t h a t i s
ll.
The Chairman:
Y o u r understanding o f it. i s correct,
Governor Bailey.
I understand, Governor Seay, t h a t your intention i s
to a p p r o v e t h e r e p o r t
Governor Seay:
The Chairman:
o f t h e committee-~---
a n d continue t h e committee.
i n d continue t h e committee, w i t h the
understanding t h a t t h e policy,
a s outlined, w i l l b e con-
tinued f o r t h e present?
Governor Seay:
F o r t h e present, yes-
Governor C a l k i n s :
L
Governor Harding: I
l will s e c o n d t h a t .
wo uld suggest that consgidera-
tion be given t o this memorandum submitted b y Dr. Miller
before t h e m o t i o n i s put, b e c a u s e t h a t m e m o r a n d u m p r o v i d e s
for a
discontinuance
o f this committee a n d i t s reorganiza-
tion, a s I understand it.
Governor S e a y :
D o e s t h a t c o m e before u s a s a
part
of the program o f the Board, Governor Harding?
Governor Harding: I
do not know h o w many members
of the Conference h a v e h a d their attention brought t o it.
It was sent t o m e the other day. I
notice y o u r motion
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Federal Reserve Bank of St. Louis
16
wag that this committee b e continued, a n d I
would like t o
make some observations, whenever t h e y are i n order,
o n this
memorandum o f Yr. Miller's.
The Chairman:
M a y I interrupt j u s t a minute t o see
how m a n y o f y o u g e n t l e m e n h a v e c o p i e s
o f that memorandum?
I do not s e e m t o have o n e myself.
Governor Harding:
H e might b e right about it, a n d
I would like t o make some observations o n it. I
pefore t h e r e s o l u t i o n
think
i s a d o p t e d c o n t i n u i n g t h e committee,
in v i e w o f t h e f a c t t h a t s o m e c f u s h a v e b e e n p u t o n
eded
noticeé--- I sucec/Governor Morss a s a menber o f that committee--- a n d this having been sent t o me the other day,
that I
should a t least call t h e attention o f t h e other
Governors t o i t before t h e motion i s adopted.
The Chairman: I
would s u g z e s t t h a t w e h a v e t h s s e c -
retary read t h e memorandum.
Mr. Barrows:
T h e memorandum
i s headed " O p e n Market
Investment Policy", a n d i s as follows:
"-hereas, t h e Federal Reserve Board, u n d e r t h e powers
given i t i n Sections
1 5 a n d 1 4 o f the F e d r a l R e s e r v e Act,
has authority t o limit e n d otherwise determine t h e securities a n d i n v e s t m e n t s p u r c h a s e d
b y Federal r e s e r v e banks;
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Federal Reserve Bank of St. Louis
17
"jhereas t h e Fed:ral R e s e r v e B o a r d h a s n e v e r p r e -
scribed a n y limitation upon o p e n market purchases b y
Federal reserve banks;
"“hereas t h e amount, time, character, a n d manner o f
such purchases m a y e x e r c i s e
a n important influence u p o n
the money market;
“hereas
a n open market investment p o l i c y f o r t h e
twelve banks composing t h e Federal reserve system i s necessary i n t h e i n t e r e s t
o f t h e maintenance
o f g o o d relation-~
ship b e t w e e n t h e d i s c o u n t a n d p u r c h a s e o p e r a t i o n s
o f the
Federal reserve banks and t h e general money market;
"Whereas n o such System policy has been laid down b y
the Federal Reserve Board n o r developed b y the Federal r e serve banks;
"jhereas i t a ,pears t h a t during t h e year 1922 t h e
Federal reserve banks have made large purchases o f investments
i n the o p e n market m a i n l y f a r t h e purpose
o f as-
suring t h e earning o f their expenses a n d dividends, without much regard t o the bearing o f such purchases u p o n the
money market a n d general credit requirements o f the country;
Whereas t h e total earning assets o f the tweive Federal
reserve banks f o r t h e year 1922 have approximated 1 2 0 0
millions, w h i l e aggregate earning asset: f o r t h e twelve
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Federal Reserve Bank of St. Louis
18
panks
o f approximately 8 0 0 millions w o u l d h a v e sufficed
to have enabled t h e banks t o have earned their expenses
end dividends;
“ihereas approximately 4 0 0 millions o f money has been
put into t h e money market b y the action o f the Federal
reserve banks a n d maintained there i n excess o f their earn-
ing requirements into a time when the general credit
gituation needed restraining influence rather t h a n
stinmalus;
Njhereas s u c h p e n market purchases h a v e consisted
very l a r g e l y o f U n i t e d S t a t e s G o v e r n m e n t s e c u r i t i e s ;
“Whereas h e a v y investments
and
i n United States securities,
particularly short-dated certificate issues, h a v e occasioned embarrassment t o the Treasury i n ascertaining t h e
true condition o f the money a n d investment markets f r o m
time t o time,
"THEREFORE,
B e I t Resolved, T h a t t h e Pederal Reserve
Board, i n the exercise o f its powers under the Federal
Reserve Aat, l a y down and adopt t h e following principles
with respect t o open market investment operations o f the
Federal r e s e r v e banks, t o - w i t :
"(1) T h a t the time, manner, character and volume
of open market investments purchased b y the Federal re-
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Federal Reserve Bank of St. Louis
19
serve b a n k s b e g o v e r n e d w i t h p r i m a r y r e g a r d
t o the ef-
fect o f such purchases o r sales o n the general credit
situation.
"(2) T h a t i n making the selection of open market
purchases, careful regard b e always g i v e n t o the bearing
of purchases
o f United States Government securities, e s p e -
cially t h e short-dated issues, u p o n t h e market f o r s u c h
securities, a n d that open market purchases b e mainly
commercial investments, except that Treasury certificates
be dealt in, a s a t present, under so-called 'repurchase'
agreement.
"(3) T h a t in order to enable Federal reserve banks
to earn their dividends w i t h a minimum volume o f open
market purchases a t times w h e n there i s n o active rediscount demand m a d e o n Federal reserve banks, o p e n market
purchases m a d e b y r e s e r v e b a n k s s h a l l b e p
ro-rated
among t h e m i n accordance w i t h their respective requirements.
"Be I t Further Resolved, That o n and after 4 p ril l,
192%, t h e present Committee o f Governors o n Centralized
Execution o f Purchases a n d Sales o f Government Securities
be discontinued,
a n d b e superseded
by a
new committee k n o w n
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Federal Reserve Bank of St. Louis
20
as the Open Market Investment Committee f o r the Federal
Reserve System, s a i d C o m m i t t e e
t o consist
o f five repre-
sentatives f r o m t h e reserve banks a n d t o be under t h e ex-
officio chairmanship o f the Federal Reserve Board; a n d
that i t be the duty o f this Comnittee t o arrange for the
purchase a n d s a l e a n d d i s t r i b u t i o n
o f t h e o p e n m a r k e t pur-~
chases o f the Federal reserve banks i n accordance w i t h t h e
above principles."
Governor Valkins:
M a y I ask whether that resolu-
tion w a s 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 o a r d ?
Governor Harding: I
do not think i t has been- [
have the letter transmitting i t t o me, which says, " B y
direction o f Mr. Miller, I
a m sending y o u @ copy o f the
following memorandums, ( 1 ) , p e n Market Investment Policy,
and (2) N e w Plan f o r Stating Reserve Position o f Bederal
Reserve Banks."
Both o f these matters n e e d t h e attention o f this conference.
T h e n e w plan f o r stating t h e reserve position o f
reserve banks advances t h e theory that t h e Federal Reserve
Board h a s t h e right t o prescribe, f r o m time t o time, t h e
amount o f gold reserve against Federal reserve notes, a n d
at the proper time I want t o discuss that, a n d shall take
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Federal Reserve Bank of St. Louis
issue with that proposition.
Governor Calkins: I
think, before w e discuss t h e
w e should b e informed
memorandum with regard t o purchases,
as t o whether t h e Board itself h a s acted o n the suggestion
or not.
Governor Harding:
B u t whether the Board has acted
on the suggestion o r not, I
discussion, and, i f i
think there i s basis for a
a m i n order, I
would l i k e t o s a y a
few words o n the subject.
Governor Norris: I
think t h e fact that i t was trans-
mitted i n a letter, w h i c h speaks o f i t a s a memorandum
and not a s a ruling,
o r anything else that h a s been adopted
py t h e Reserve Board, indicates plainly that i t has not
I t is Dr. Miller's
peen adopted b y the Reserve Board.
suggestion f o r discussion.
H i s suggestion i s a very dif-
o the policy recommended
ferent thing from a n a p , - r o v a l f
py t h e committee a n d very diff rent f r o m a continuance o f
that present committee.
I
n fact,
o n the contrary,
commends t h a t t h e p . esent c o m m i t t e e
it b e s u p e r s e d e d
adopt a
by a
n e w committee.
h e re-
b e discontinued a n d that
Therefore,
i f we
resolution approving t h e report o f the committee,
continue t h e committee, a n d commit ourselves t o a continu-
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Federal Reserve Bank of St. Louis
22
ance o f i t s policies,
w e a r e p r a c t i c a l l y precluded,
i t
seems t o me, f r o m having a n y discussion o f Dr. Miller's
suggestion;
i n other words,
w e a r e turning i t d o w n with-
out discussion o r consideration.
Governor Hard ing:
I f w e adopt t h e resolution con-
tinuing t h e present committee w e d o it, o f course, subject
to the approval o f the Federal Reserve Board, because t h e
Board h a s t h e right t o say that t h e y d o not approve o f the
committee.
Governor Norris:
I f w e adopt a
resolution n o w that,
upon subsequent discussion o f Dr. Miller's memorandum,
we conclude t o change,
. ¢ put ourselves
i n the position o f
voting o n one thing o n Monday and for annther thing o n
Tuesday o r Wednesday.
Governor Handing:
W h y not pass the whole thing un-
til w e hear f r o m the Board o n it?
Governor Seay: I
will modify m y motion i n this way,
that the report o f the Comnittee o n Open Market Purchases
be received a n d filed, a n d that will leave o p e n for discussion t h e entire matter, including t h e recommendation b y
Dr. Miller. I
which I
feel confident, f r o m t h e communication
received, t h a t this i s a t present merely a memoran-
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Federal Reserve Bank of St. Louis
dum of Dy. Miller's views.
Governor Harding: I
think i t i s really more t h a n
that, Governor SeayGovernor S e a y : I
mean t h a t i t h a s b e e n p r e s e n t e d
to
the Board b u t h a s n o t been adopted b y the Board.
Governor Harding:
the Board, b u t I
I h a v e n ' t talked w i t h a n y member o f
am quite s u r e that t h e Board i s going t o
adopt t h i s proposition.
Governor Seay:
Y o u think i t has gone that far,
Governor H a r d ing?
Governor Harding:
Yes. I
think I know o f some
things thatare going o n under this roof t h a t will make i t
very certain that t h e Board will adopt it.
Governor Seay: I
would like t h e privilege o f expres-
sing m y sentiments o n the subject, also.
Governor M c K i n n e y :
Y o u t h i n k w e should d e f e r a c t i o n
on i t a t this time until w e receive t h e report o f the
committee?
Governor Harding:
T h e r e a r e certain indications h e r e
that a n argument i s going t o be made i n the Board t o re-
organize the committee, a n d why showld w e be s o precipitous
to g o ahead now, w h e n t h e matter c a n b e taken u p later.
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Federal Reserve Bank of St. Louis
24
The Chairman:
T h i s committee w a s conceived b y the
Federal Reserve Board, o r , i n any event, t h e appointment
was approv e d by the Board, a n d any action that w e take
today o r any action that w e have taken i n the past, h a s
always been made subject t o the approval o f the Board.
Governor Fancher:
A n d t h e approval o f o u r respective
boards o f directors.
The Chairman:
Mr. Case:
Y e s , o f course.
I t seems t o me, i f Governor Seay's motion
prevails, t h a t t h e report b e received, t h a t i t leaves t h e
matter entirely open.
Governor Harding:
proposition--- I
T h e Board feels this w a y o n the
might s a y I
a m i n sympathy w i t h Mr. Miller
on this, a s I see what h e has i n mind.
T h e Federal R e -
serve Board h a s this statutory power a n d responsibility
imposed upon it; t h e r e isn't any gestion about that.
Governor Seay: I n c l u d i n g a limit a s t o the amount
of purchases?
Governor Harding: Y e s ; t h e whole credit policy.
The Treasury's policy has been a very large part, a s you
all know, o f the whole general credit situation f o r the
past four o r five years.
mer
tls fn
D u r i n g t h e w a r time, o n account
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Federal Reserve Bank of St. Louis
25
of this situation, t h e Treasury found i t convenient t o
take t h e s e m a t t e r s
u p directly w i t h t h e Governors
Federal R e s e r v e B a n k s ,
o r a
committee
o f the
o f Governors,
and
gradually c a m e more a n d more i n t o a position o f ignoring
the Federal Reserve Board.
W e all kmow t o what extent t h e
Treasury's policy dominated t h e credit situation i n 1918.
Now, t h e responsibility f o r a situation that might arise
out o f t h e use o r abuse o f credits i s not imposed b y law
on the Treasury Department, b u t i s imposed o n the Federal
Reserve Board.
S o m e o f t h e m h a v e b e c o m e r a t h e r restive,
sitting here, having that responsibility, without knowing
definitely w h a t has been going on, o r not being a
part o f
it, and I think the idea i s t o let the committee proceed,
but t o have t h e Treasury understand t h a t t h e Board m s t b e
informed o f all these things, a n d that t h e Chairmanship o f
the committee will b e here i n the Board.
Mr, Case: I
saw a
copy o f this memorandum w h e n I was
up at Dr. Miller's, and this suggestion about being under
the e x officio chairmanship o f the Federal Reserve Board w a s
changed t o r e a d “ u n d e r t h e s u p e r v i s i o n o f t h e F e d e r a l R e -
serve Board", a n d I understood that was the way i t was
going t o b e presented.
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Federal Reserve Bank of St. Louis
26
Governor Harding: I
be worked out. I
resp onsibility,
4% i s p r e p a r e d
do not know h o w i t i s going t o
am satisfied t h a t t h e Board, feeling i t s
i s determined t o assert itself, a n d I
think
t o a n d should.
Governor Fancher:
T h e n this h a s n o t Deen u p proved
by t h e Board?
Mr. Case: N o ; I think it is just Dr. Miller's suggestion.
The Chairman: I
understand t h a t a
motion t o receive
the report and file i t has been made, a n d that wili leave
the matter u p e n for discussion.
Governor Harding:
J e have plenty o f time t o settle
this thing later on, after w e have heard f r o m the Board,
{t seems t o me.
(The motion, having been duly seconded, was Carried.)
The Chairman:
T h e next topic i s (b) under No. 1.
(b>) R e p o r t o f Standing Committee o n
Open Market Conditions a n d ‘perations, Governor Fancher, Uleveland,
Chairman.
Governor Fancher:
follows:
T h e report o f the committee i s
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Federal Reserve Bank of St. Louis
REPORT J F T H E S T A N D I N G C O M M I T T a ®
CUNDITIOUS
u N JPEN
Since i t s last report i n October, 1922, y o u r conmittee
has continued t o receive f r o m t h e several reserve banks
weekly reports o f conditions
i n their o p e n markets, w h i c h
have been sunmurized f o r t h e committee b y its secretary.
The committee h a s also received f r o m a
banks m o n t h l y r e p o r t s
Copies
o f conditions
number o f reserve
i n t h e i r distzicts.
o f these reports h a v e b e e n furnished
b y t h e secre-
tary t o the Uivision o f ‘Analysis a n d Research o f the Federal
Reserve Board a n d t o t h e governor o f each Federal reserve
bank.
Since t h e l a s t r e p o r t o f y o u r c o m m i t t e e t h e d i s c o u n t
market h a s been more active a s i s substantially indicated
by the volume of dealers’ transactions i n the New York
market.
F o r t h e four months ending January 27, their
purchases a g g r e g a t e d £§615,000,000,
a n increase
o f 27% over
the previous f o u r months, a n d their sales totalled
#606,000,000,
a n increase o f about 15%. S l i g h t l y in-
creased u s e o f a c c e p t a n c e c r e d i t w a s i n d i c a t e d t o w a r d t h e
end. of t h e y-ar.
A n estimate o f bills outstanding a t the
close of December indicated a b o u t $600,000,000 a s com~
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Federal Reserve Bank of St. Louis
28
pared w i t h 4565,000,000 l a s t ‘stober.
B u t since t h e n e w
year there h a s been a considerable reduction, w h i c h i s
partly seasonal b u t which appears particularly i n the
relative volume o f export bills w h i c h h a s been decreasing a s the marked advance i n American prices progressed.
The volume o f domestic bills continues t o decline.
Barly l a s t a u t u m n t h e d i s t r i b u t i o n o f b i l l s w a s d i s -
tinctly sluggish a t the level o f rates t h e n obtaining, s a y
3-1/4 t o 3-3/8%, which were too low i n a firming money
market t o attract investment buying-
I
t was t h e consensus
of o p e n market o p i n i o n t h a t t h o s e r a t e s w e r e t o o l o w cnom-
pared w i t h increasing yield o n Treasury certificates a n d
money rates generally, w h i c h were advancing.
B i l l rates
consequently sere gradually advanced t o bid 4-1/8%, o f fered 4%, a t which level a
effected.
fairly good distribution w a s
A f t e r t h e t u r n o f t h e year, w h e n usual release
of funds i n intei:est a n d dividend payments, augmented b y
heavy Treasury disbursements
i n the retirement o f war
Savings S t a m p s a n d c a l l e d V i c t o r y notes, c a u s e d a
arily easier money condition, a
developed.
Dealers!
temp>r-
brisk demand f o r bills
portfolios w e r e rapidly depleted a n d
they found considerable difficulty i n satisfying t h e
yather c a p t i o u s d e m a n d f o r p a r t i c u l a r n a m e s m a t u r i n g w i t h i n
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Federal Reserve Bank of St. Louis
29
sixty days.
ket f o r a
S a v i n g s banks w h i c h h a d b e e n o u t o f the mar-
long p e r i r d b o u g h t a
of t h e bills.
fairly substantial a m o u n t
T h i s demand, a c t i n g o n a
limited s u p p l y ,
resulted i n a slight reduction i n rates during t h e last
half o f Jamary when 4 % was bid for the best known names
and their 90-day bills were offered a t 3-7/8%.
level demand w a s n o t sustained a n d after a
4
t this
few weeks o f
effort t o move bills a t 3-7/8% the old level of 4-1/8% was
reinstated a n d obtains a t this writing.
The better distribution a n d revival o f investment d e mand a t 4 % i s r e f l e c t e d
i n smaller F e d e r a l r e s e r v e b a n k
holdings which, o n February 14, totalled {1€4,000,000 a s
compared w i t h about ,260,000,000 during November a n d
§238,000,000 o n September 27.
Your committee i s mindful o f the impediment t o the
freer
use
o f bankers acceptance c r e d i t
i n a
market ‘shere
discount r a t e , a d d e d t o a c c e p t a n c e c o r m i s s i o n e x c e e d s t h e
cost o f money borrowed o n the most favorable terms, b u t
is a l s o m i n d f u l
o f t h e proportion w h i c h Federal reserve
bank holdings for themselves and for account o f foreign
panks bears t o the total volume o f bills.
T h i s propor-
tion i s estimated t o b e about 4 % o f the bills which a r e
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Federal Reserve Bank of St. Louis
30
really salable a n d outstending a t the present time. T h i s
large p r o p o r t i o n h e l d b y r e s e r v e b a n k s i n d i c a t e s t h e
limited i n v e s t m e n t d e m a n d f o r b i l l s
level
a t the present price
o f 4%, w h i c h c o m p a r e s w i t h c o m m e r c i a l p a p e r a t
4~3/4%, t i m e m o n e y u t 5 % a n d a
to corporations,
yield o f i n c o n e t a x e x e n . t
o n six-months Treasury certificates a n d
short Treasury notes o f from 3-3/4 t o 4-1/2%.
vhile y o u r c o m m i t t e e b e l i e v e s t h a t a
larger v o l u m e
of
bills circulating i n the market i s eminently desirable,
it i s convinced t h a t this cannot b e brought about a t this
time t h r o u g h l o w e r r a t e s
a t Federal r e s e r v e b a n k s t h a n w i l l
permit t h e primary distribution o f bills i n the market,
upon which depends the acquisition o f the indorsement
essential t o Federal reserve bank purchases.
In the meanwhile discount rates i n London continue
materially lower than this country, being a t present 2-1/2%
for 90-day bills, a n d t h e freer u s e o f sterling credits,
your committee i s iniormed,
i s increasing,
bot
o n account
of the lower discount r a t e a n d t h e continued improvement
in sterling exchange.
The attention o f the conference i s called t o the
vacancy which exists i n your committee through the resig-
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Federal Reserve Bank of St. Louis
ol
mation o f Governor Morss o f Boston, a n d recommends t h a t
that v a c a n c y b e f i l l e d
a t t h i s conference.
Respectfully submitted,
E. R . Fancher, Chairman.”
Governor Fancher:
t i o w , i t would s c e m t o m e that t h e
report o f this committee should t a k e t h e same course a s
the other, b.cause i t would seem that if Ur. Miller's
sugzestion i s adopted these committees w i l l b e combined.
The Chairman:
M a y w e have a
Governor Fancher: I
motion t o that effect?
move t h a t this report b e handled
in the same way.
Mr. Case: I
will second that.
(The motion, h a v i n g been duly seconded, w a s carried.)
The Chairman:
T h e next i s (c) under Topic No. l.
(c) R a t e s o f Discount.
1. ‘ u t o m a t i c adjustment o f Is i t p o s s i b l e
Governor Harding:
o r expedient?
M y . Uhairman, I
pose o f that i n short order. I
think w e c a n dis-
su_gested t h a t topic
in order t o satisfy t h e Harvard C o m i t t e e
o n Hoonomic
Research, headed b y Profe:cor Puliock. P r o f e s s o r Sullock
ig very much worried o v e r t h e situation. I
asked h i m
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Federal Reserve Bank of St. Louis
32
just what particular features o f i t worried him, a n d h e
didn't know, b u t h e was afraid o f the large reserves t h a t
were being held.
H e said that the business conmunity ought
to h a v e s o m e b a r o m e t e r
t o guide them; t h a t i t i s very i m -
portant that they should l o o k ahead a n d foresee, f o r a
period o f months, w h a t t h e discount r a t e i s going t o be.
Of course i t would b e a
f i n e thing i f they could d o that.
I told h i m t h a t i t w o u l d b e e q u a l l y a
good t h i n g i f t h e
eusiness c o m m n i t y could tell exactly what t h e weather w a s
going t o b e for t h e next s i x months,
s o that i t could
form some definite i d e a a s t o the size o f the crops. I
told h i m I would bring this u p f o r discussion d o w n here,
and I
gave h i m m y o w n v i e w s v e r y plainly.
I do not believe that a formla for the automatic
adjustment o f discount rates i s either possible o r expedient,
because there are s o many things that affect rates; t h e
reserve position, f o r instance; a
sugzest s o m e t h i n g b a s e d
Federal reserve banks.
f o r m a w o u l d naturally
o n the reserve position o f the
N o w , Governor Normane, o f the Bank
of #ngland said once, when he was asked what considerations
brought about a
change o f the discount rate, t h a t w h e n t h e
general b o a r d m e t , w h i c h o - r r e s p o n d s
t o o u r directors,
and
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Federal Reserve Bank of St. Louis
it was t h e c o n s e n s u s
o f opinion t h a t rates should b e
changed, t h e rates were changed; o t h e r w i s e t h e y were left
alone.
T h e v e r y fact that credits a r e expanding
at a
given time a n d under certain circumstaices, d o e s n o t indicate, n e c e s s a r i l y , d a n g e r ,
discount r a t e s , b e c a u s e
o r t h e necessity o f revising
i f t h e volume
o f production i n -
creases, distribution i s good, consumvtion i s normal, a n d
the ultimate consumer absorts t h e goods that a r e produced,
that i s a
process n a t u r a l l y r e q u i r i n g a
credit t h a n s h e n p r o d u c t i o n
limited.
larger v o l u m e o f
i s slack a n d consumption i s
T h e danger i n that situation i s that, w h e n pro-
duction keevs u p and t h e manufacturer either i s unable t o
dispose o f his goods o r sells t h e m t o the middleman a n d
throws t h e m into a warehouse a n d borrows m o n e y o n them,
or, i f t h e y r e a c h t h e retail,
h e i s unable
t o sell t h e m
and they remain o n his shelves and h e borrows money i n
order t o carrythem, w h y , t h e n t h e r e i s a
that needs lLonking into.
entirely,
I
credit s i t u a t i o n
t i s a dirferent proposition,
w h e n those three great economic processes functirn
in a n easy w a y a n d there i s n o clog anywhere, generally
speaking busine-s i s good, and the expansion of credits,
if liquidated i n due course b y the operation o f those pro-
o&
cesses,
i s i n a healthy condition.
T h e n , o f course,
the bank has g o t t o take into consideration t h e demands
made u p o n it, h a s g o t t o p u y some little attention,
course,
b u t t h e point I
very o f t e n t h e r e i s a
want t o stress is, t h a t
shars d e m a n d f o r c r e d i t a c c o r m o d a t i o n ,
due t o some seasonal operation.
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Federal Reserve Bank of St. Louis
a n d t o the whole gen-
t o its o w n reserve vosition,
eral situation;
of
i
n advance i n the dis-
cout rate might have t h e effect o f imposing a n unnecessary
additional burden upon trade, because experience shows t h a t
whenever t h e F e d ral reserve bank discount rate advances,
the member banks advance their rates i n a ¢ .rresponding
way and impose a n additional burden o n the public without
any particular benefit, s o far a s I can see, and unless there
are s o m e e l e m e n t s
-gerve p e r c e n t a g e
o f danger
i n the situation a
a t one time may not call
certain r e -
f o r a n y adjust-
ment i n rates, while, a t another time, i t would call for
a very drastic readjustment
Governor Bailey:
i n rates.
U p o n shat theory o r rule could
you predicate a n automatic adjustment?
Governor Harding: I
do not see any rule. I
asked
the Committee t o give m e t h e biunefit o f their ideas, a n d
they had absolutely n o suggestions t o make.
T h e y merely
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Federal Reserve Bank of St. Louis
35
said that there ought t o be some way devised b y which the
average business m a n could l o o k ahead a n d foresee what t h e
discount rate was going t o be. I
they discovered t h a t system I
told them that whenever
wished t h e y would pass i t
on t o mé,
The Chairman:
- o u l d i t suit your purpose t o have t h e
record s h o w t h a t t h i s m a t t e r w a s d i s c u s s e d a n d t h a t a n y
such p l a n w o u l d s e e m t o b e n o t f e a s i b l e ?
Governor Calkins: I
being a
think w e would b e justified i n
little more definite t h a n that, Mr. Chairman.
Governor Harding h a s described t h e course o f business movement i n this country i n such a way a s t o indicate beyond
question,
i n m y opinion, t h a t a n automatic discount rate
could n o t b e adopted.
t i e have seasonal operations w h i c h
cause a n increased demand o n credit, a n d which d o not
justify a n y alarm o r a n y disturbance o r a n y incrsase i n
rates.
Gov ernor Harding:
bring about a
T h o s e v e r y seasonal o p e rations
normal a n d natural liyguidation a
little later
on.
Governor McKinney:
very readily,
I
a s y o u know,
n our district o u r loans expand
i n June, J u l y and 4ugust, a n d
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Federal Reserve Bank of St. Louis
Liquidation comes i n “ctober.
Governor Harding:
Yes.
Governor McKinney: P e r f e c t l y normal o p erations.
Governor Seay: I
would m o v e y o u , b r . C h a i r m a n ,
that i t
is the consensus o f opinion that i t i s the experience o f
Federal reserve banks t h a t t h e automatic adjustment o f discount rates i s neither possible n o r expedient.
Governor Harding:
T h a t would b e very gratifying t >
me, o f course.
Governor Calkins: I
would reverse it, b y saying
neither e x p e s i e n t n o r possible”.
Governor Harding: I
have reczived many calls from
these gentlemen a n d they s e e m t o b e insistent about it.
The Chairman:
I s there a second t o that motion?
Governor Norris: B e f o r e the matter i s disposed o f 1
would like to add a word t o what Governor Harding has
gaid. I
had the benefit of a three hours' call from Pro-
fessor Bullock also very recently, and i n that conversation
the point h e was driving a t was; not, t o m y mind,
matic adjustment o f discount rates.
T h e p
a n auto-
oint h e made
with us--- a n d I think i t i s worthy t o b e borne i n mind--was this,
f o r example, t h a t N e w Y o r k a n d B o s t o n b a n k s r e -
37
cently increased their rates a t a time w h e n their reserves
were h i g h a n d rising,
and at a
time w h e n i t w a s g e n e r a l l y
believed there w a s nothing dsngerous i n the situation.
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Federal Reserve Bank of St. Louis
was i t done?
‘ h y
T h e General public i s very much a t sea a s
to why i t was done. P r o f e s s o r 3ullociz's theory,
a s he
expounded i t t o us, w a s this, t h a t a time will come i n the
near future w h e n y o u will consider i t advisable a n d necessary
to m a k e a
general a d v a n c e
do t h a t f o r t h e p u r p o s e
i n discount r a t e s ;
y o u might
o f checking business expansion,
and
could y o u not convey a n idea t o the general public o f the
sort o f conditions t h a t lead y o u t o make advances i n discount rates, c o u l d n o t y o u g i v e a
general i d e a o f t h e k i n d s
of situations t h a t move y o u t o make a
Governor Harding: I
change o f that kind?
lunched w i t h Professor Bullock
the d a y before these changes w e r e announced, a n d h e was
urgent a n d i n s i s t e n t t h a t t h e r a t e s b e a d v a n c e d - - -
Governor Horris:
O h , Mr. Harding,
h e was n o t critic-
ising y o u a t all, b u t was discussing t h e ignorance o f the
general public a n d suggesting t h a t «shen the necessity
arose t o change t h e m t h e public b e given a n inkling o r a n
{dea o f the conditions t h a t caused u s t o advance t h e rates.
Governor Calkins:
o f course t h a t h a s nothing t o d o
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Federal Reserve Bank of St. Louis
with a n cutomatic adjustment o f rates.
. Governor Norris:
T h a t i s w h y I made t h e statemeat
that h e didn't say a word t o me about a n automatic adjustment.
Gov ernor Harding:
s h e n I submitted this topic I was
following his exact language.
H e said there ought t o be
some formula o r some automatic method o f d etermining discount rates.
r Norris:
o
Hn e didr n o t ues e t h v
e wordo “sutomatic"
G
with me.
The Chairman: i
think this question h a s been pretty
well discussed, a n d Governor S e a y has proposed a
resolution
to the effect that a n automatic adjustment o f discount
rates w o u l d n o t b e possible,
n o r would
i t t e expedient.
Is t h a t m o t i o n s e c o n d e d ?
My. Case: i
think this question o f credit transac-
tions a n d policies under I t e m (c), Rates o f Discount, a n d
its three subdivisions, automatic sdjustment, uniform rates
and open market rates, i s one o f the most important things
to come before us.
the s a m e e x p e r i e n c e
Harding.
T h e officers o f the New York Bank had
a s h a d Governor N o r r i s a n d Governor
v e had a call from Professor Billock two weeks
ago Saturday, a n d h e spent three hours w i t h us, a n d o n e o f
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Federal Reserve Bank of St. Louis
og
the things h e said was that w e h a d a n abnormally large
gold basis, t h a t t h e public h a d been educated t o lonk a t
the reserve ratio, a n d when they s a w i t 7 7 per cent t h e y
couldn't understand w h y a rate increase should t a k e place.
I do not think there i s a n y occasion f o r this Conference
tn
go o n record, close the door, a n d tell the Harvard Bureau
that a n automatic adjustment i s impossible.
i
t seems t o
me that this Conference should t a k e s o m e affirmative action
and should make some statement a s t o the various factors
relating t o a change i n the discount rate.
A f t e r our
telk with ii. Bullock, Mr. Jay and I got together and w e
have just prepared a
little memorandum, w h i c h might b e
something f o r this conference t o shoot a t and w i t h your permission I
would like t o have t h e Secretary read this memo-
randum f o r t h e benefit o f the conference.
Mr. Barrows:
T h e memorandum i s a s follows:
"As usual, t h e subjects discussed b y the semi-annual
confe.-ence o f the Governors o f the twelve Federal reserve
banks include m a n y questions o f operation,
a s well a s
business a n d credit conditions i n the various districts,
and t h e general credit policy o f the Federal reserve banks.
It w a r e p o r t e d t h a t following t h e recent increuse o f the
40
rates a t the Federal reserve banks o f Boston, N e w York,
and San Francisco from 4% to 4-1/2% the question has been
raised b y newspapers . h e t h e r r a t e s s h o u l d b e i n c r e a s e d
while the reserves o f the system were s o high as a t present.
I n view o f these expressions, t h e ornference feels
it a p propriate t o indicate s o m e o f the various factors
which a r e g i v e n c o n s i d e r a t i o n
i n establishing discnunt
rates.
The reserves o f the Federal reserve banks a r e always
a factor.
T h e i r maintenance a t a level whic h
will sustain
public confidence i n the entire bankin. a n d currency system
of the country i s the fundemantal d u t y o f the Federal r e serve banks.
S h o u l d t h e reserves f a l l s o lew a s t o cause
apprehension, t h e y might become the only factor i n determining discount rates.
B u t neither t h e l a w n o r t h e exper-
fence o f other banks o f issue indicates t h a t t h e reserve
ratio i s a
gauge b y t h e r i s e o r f a l l o f w h i c h a l o n e d i s c o u n t
rates a r e t o b e determined.
The Federal Reserve A c t provides t h a t disce-unt rates
"shell b e f i x e d w i t h a
business.'
i
view o f a c c o imodating c o m m e r c e a n d
n determining whether a
rate will a c c o m o d a t e
commerce a n d business several o f the following factors,
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
beside r e s e r v e r a t i o ,
a r e z i v e n consideration:
1l- T h e r e l a t i o n o f t h e v o l u m e
o f credit
i n use
to t h e v o l u m e o f t h e production, d i s : r i b u t i o n
and c o n s u m p t i o n
o f gonds.
aggregate loans a n d deposits o f the banks o f the
country r e p r e s e n t t h e v o l u m e o f c r e d i t
i n use.
conmnerce
and b u s i n e s s a r e w e l l accenmmodated w h e n s u f f i c i e n t c r e d i t
is called i n t o use.
of c r e d i t
T
h
e results
o f t h e exce:sive u s e
i n late 1 9 1 9 a n d e a r l y 1 9 2 0 a r e f r e s h i n the
minds o f all.
Le O p e m “aarket r a t e s f o r v a r i o u s c l a s s e s
o f paper.
These rates a r e always clear indications o f the demand
Eat c o p e o r .
F e d e r a l r e s e r v e b a n k rates,
i f they reflect
prevailing credit conditions, a r e likely t o approximate
market rates.
3. G o l d movements, existing o r prospective.
Gold i m p o r t s m a y i n c r e a s e t h e v o l u m e
o f credit
i n use
and raise t h e reserve ratio, w h i l e gold exports m a y cause
a rev.rseé process, depending u p o n « redit conditions a t the
time.
T h e high reserve ratios, a n d the g-eat increase i n
bank deposits a n d loans during t h e past year, a r e d u e mainly
to the inflow o f over ¥1,000,000,000 o f gold since January
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Federal Reserve Bank of St. Louis
42
+6 a p e s
H o w m e c h o f this gold will r e .ain here perman-
ently cannot t e estimated.
B u t experience shows that gold
in excess o f the needs o f a country inevitably flows o u t
in timé, a n d p r e s e n t reserves r a t i o s s h o u l d b e r e a d t i t h
this i n mind."
Governor Harding:
of the whole matter.
T h a t iirst paragra:h i s the srux
T h e average man talks o f the tremen-
dous amount o f gold held b y t h e Federal reserve banks,
of
the vary large ratio, a n d t h e large volume o f credit t h a t
it will sustain.
W
e ought t o remember that since the
Reserve System was established there h a s practically been
no time w h e n t h e disesunt r a t e h a s operated t o have a normal
and natural control o f the gold supply.
B e f o r e the war
the whole theory i n Europe was that a n advance i n the discount r a t e restricted t h e flow o f gold f r o m a country a n d
attracted g o l d t o it, a n d vice versa;
b u t i n view o f the
situation o f p r a c t i c a l l y a l l o f t h e r e s t o f t h e world, o u r
discount r a t e f o r the time being h a s n o effect upon gold
movements i n and out o f this country.
all realize t h a t there h a s been a
of gold i n t o this country. I
4 t the same time w e
very abnormal movement
sometimes think that i t i s
unfortunate t h a t i t i s necessary i n this country t o have a
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Federal Reserve Bank of St. Louis
43
statutory reserve. I
do not s a y i t i s unfortunate t h a t
we h a v e them, b u t u n f o r t u n a t e t h a t i t s e e m s n e c e s s a r y
have them.
to
T h e trouble w i t h the statutory reserves i s
that they f i x a kind o f ideal i n the public mind.
i
n
1920, f o r instance, o n e great problem that w e always h a d
to c o n s i d e r w a s t h i s - - - s u p p o s e t h e a v e r a g e r e s e r v e
of a
federal reserve bank should fall below 4 0 p er cent, which
was t h e figure t h e public h a d i n mind o n accnunt o f the
gstatut-ry r e q u i r e m e n t s a g a i n s t n o t e issues,
a n d 5 5 per cent
against deposits, a n d then people thought t h a t t h e whole
credit structure w a s tumbling, a n d i t seemed necessary t o
maintain t h e reserves i n the federal reserve banks above
that limit. C o n v e r s e l y , w h e n t h e reserves a r e 7 5 o r 8 0
per cent, p e o p l e v e r y n a t u r a l l y s a y , “ S e e h o w v e r y s t r o n g
these banks are, a n d h o w m u c h gold t h e y have hoarded away;
their legal reserves a r e only forty p e r cent, a n d they have
nearly eighty per cent."
I f we could only get away from
that fetish o f a legal minimum a n d get t h e public t o bear
in mind that t h e whole discount r a t e structure i s based
not s o much upon t h e amount o f gold h e l d o r the actual r e gerve figures,
b u t u p o n t h e general situation,
would b e g r e a t l y improved.
t h e situation
44
we a l l l m o w t h a t a c t i o n i n v i t e s r e a c t i o n ;
t h a t this
abnormal f l o w o f gold i n t o this country, w h i c h has given
us a
far g r e a t e r p r o p o r t i o n
than w e e v e r h a d before,
of it, sooner o r later,
o f t h e world's s t o c k o f gold
a n d m o r e t h a n o u r normal
position
u s the world becomes stabilised a n d
political a n d economic conditions abroad become normal, t h a t
there i s going t o be a
freer granting o f foreign commercial
credits b y this country t o other countries, t h a t o u r gold
receipts a r e g o i n g t n cease, a n d t h a t t h e r e w i l l b e , n a t u r -
ally, s o m e outflow o f gold, a n d s o you s e e i t would b e a
very f o o l i s h a n d u n f o r t u n a t e p r o p o s i t i o n
present a b n o r m a l s t o c k o f g o l d a
t o build u p o n t h e
tremendous c r e d i t s t r u c t u r e
which would find itself undsrmined w h e n the process goes
in the oher direction and the gold begins t o leave us.
~e have g o t t o bear i n mind that i n effect w e hold a large
part o f the gold really a s trustees, a n d t h e public ought
to familiarize itself w i t h a n idea o f anywhere f r o m 6 0 t o
75 p e r c e n t a s b e i n g a
normal r e s e r v e , i n s t e a d
o f 40 p e r
eent.
Governor Calkins:
I
t seems
t o m e that Governor Hard-
ing's very lucid statement, reduced to a few words, means
that t h e public mast b e educated, and, i n order t o educate
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
45
it, i t will b e expedient t o tell i t the treuth, which i s
that there i s n o relation between t h e rediscount rate, a n d
no possibility o f relation between t h e rediscount rate a n d
the gold reserve o f the federal reserve banks a t the present
time.
T h e r e was a
time w h e n t h e d i s c o u n t r a t e s
were m o r e o r L e s s automatic.
there was a
A
i n Eurnge
s h a s b e e n recently said,
time w h e n t h e inflow a n d outgo o f gold fixed
the rediscount rate and the policy of the Bank of #ngland;
but n o w that i s fixed, a s Governor Harding said a
moments a g o }
o n the consensus
few
o f o p i n i o n o f t h e directors,
without a n y relation a n d without a n y consideration,
matter o f fact, t o the movement o f gold.
country a n d this system,
as a
W i t h this
i n possession o f t h e trenendous
volume o f gold which w e hold, t h e public needs t o know that
the m e a s u r e
o f t h e g o l d reserve,
o r t h e g o l d ration,
o r any-
thing y o u please t o call it, does n o t mean anything a n d
cannot b e wsed f o r the purpose o f fixing t h e discount rate.
I do not know h o w that i s going t o b e gotten home t o the
publi¢.
T h a t seems t o b e a very difficult matter.
writers, even,
i n the alleged financial papers,
T h e
d o not
understand t h e situation.
Governor Seay: G o v e r n o r Harding, y o u mentioned a fen
46
moments a g o , a
conversation w i t h t h e G o v e r n o r
o f the Bank
of "ngland i n which h e said that w h e n t h e Bank o f tngland
thought t h e rate should b e raised i t raised t h e rate.
i s it,
It i s never t h e custom anywhere e l s e i n the world,
for central banks t o ,ive o u t t o the public their reasons
for raising rates?
Governor Harding: I
Governor Seay:
while I
a m prepated
education
have never heard o f it, no.
I t seems t o m e that i n this country-t o admit t h a t there i s necessity f o r
o f t h e public---
t o me
a t t h e s a m e t i m e i t seems
that the less we are drawn into discussion and into giving
reasons f o r o u r actions, t h e better i t will b e for us.
Governor Harding: I
agree fully with that. J
think
any general public discussion o f discount rates i s very
dangerous.
Y o u all imow o f the bills t h a t have been in-
troduced i n Congress f r o m time t o time i n the last twélve
months.
T h e r e havebeen various propositions turned d o w n
in the Senate.
M m e was that t h e discount r a t e should a t
all times b e uniform; a n o t h e r w a s t h a t s h e maxinmam discount rate o f the Federal reserve banks should never exceed
for p e r gent; a n o t h e r that i t should never exceed f o u r
and a half p e r cent, a n d another f i v e p e r cent.
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Federal Reserve Bank of St. Louis
A
l
47
those propositions h a v e been brought u p i n the S é m t e i n
the past twelve months.
I
t i s very desirable,
i f i t can
be done, t o have the Federal reserve system function without t o o m a n y b o s s e s
o r t o o many people participating
i n the
discussion.
Governor Seay:
I f y o u give a
you do, i t i s prolific,
reason f o r everything
i t seems t o me, o f unending discus-
sion, p u t s y o u i n the attitude o f always being o n the defensive, w h i c h i s not a strategic position t o occupy.
Governor Calkins: I
would l i k e t o ask, i n respect
to this discussion, whether t h e r aising o f the rediscount
rate, without giving a n y reason f o r it, does n o t d o more
to p r o m o t e p u b l i c d i s c u s s i o n t h a n a n y t h i n g e l s e w e c a n d o ?
I believe i t does, h a s i n the past, a n d will i n the future.
Professor Bullock's rejuest, a s I understand it, was
that i t b e highly desirable that, w h e n t h e Federal reserve
benks increase t h e discount rates, t h e y give some reason
showing t h a t i t w a s a
rational a c t i o n a n d n o t a
Governor Harding: I
made
will tell y o u t h e statement I
i n Boston w h e n t h e r a t e w a s raised f r o m four t o f o r
and eae half.
esuse
mere notion.
O
f course,
t h e real, p r i m a r y v e a s o n w a s b e -
t h e New York bank h a d raised
i t s rate.
I
n view
o f
the peculiar relationship between t h e banks, B o s t o n being
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Federal Reserve Bank of St. Louis
48
so close by, i t was practically a
matter o f necessity f o r
Boston ton follow suit. H o w e v e r , I
that publicly,
did n o t care t o s a y
s o I said t h e rates were raised i n order t o
conform m o r e n e a r l y t o t h e g e n e r a l r a t e s p r e v a i l i n g
i n
other sections o f the country.
The Chairman: G e n t l e m e n , t h e question before t h e
meeting i s o n Govefnor Seay's motion.
f s I understand it,
Mr. Gase feels that rather t h a n g o o n record a s i t has been
suggested, t h a t w e might allow this matter t o rest, w i t h
the u n d e r s t a n d g
n
i that t h e consensus o f opinion i s i n ac¢ ordance w i t h the motion a s put.
Mr. Case:
I s that t h e idea?
M y idea, v e r y briefly, w a s this, t h a t in-
stead o f g o i n g b a c k t n t h e H a r v a r d B u r e a u a n d s a y i n g t h a t
“we have considered your suggestion and w e think there i s
Hething
i n te", 1
should l i k e t o s e e t h i s c o n f e r e n c e t a k e
some affirmative action--- a s I
say this memorandum I
read
is something t o shoot at--- and I would like t o see the
conference tale some affirmative action which would b e a n
answer,
i n a n affirmative jay, i f you please,
t o the Har-
vard Bureau, rather than t o simply say that w e see nothing
in the automatic discount rate, that i t is impossible, n o t
feasible, a n d s o on. I
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Federal Reserve Bank of St. Louis
would like t o see t h e conference
AQ
undertake a
little educational o r k ,
a s Governor Harding
has suegestéd.
Governor Harding: I
as a basis,
suggest, w i t h your memorandum
i f w e agree o n it, t h a t w e submit t h e matter
to the Federal Reserve Board and. have t h e m i v e o u t t h e in-
formation, because, afterall, t h e y have t o stand the brunt
of this thing, a n d i t i s a very f rtunate t h i n g f o r t h e
Federal reserve banks t h a t t h e y do.
i n fact, o n e o f the
most useful features o f the Federal reserve Board h a s been,
.and will continue t o be, t h e fact that i t i s a shock absorber
between t h e public a n d the system.
i t i s betker t o have
attacks o n the Board t h a n o n the banks.
The Chairman: I
think y o u are right about that.
W e
can adopt i t and have the Board's approval and have them
give i t out?
Governor Seay:
I had i n mind,
te express a
T a k i n g t h e other view, w h i c h was what
i t seems t o m e that i t i s not without value
clean-cut, d e f i n i t e o p i n i o n o n t h e s u b j e c t
without dismissing i t abruptly a n d closing t h e door, a s
Mr. C a s e h a s suggested;
said t h a t t h e e x p e r i e n c e
a n d I
had t h a t i n mind w h e n I
o f t h e Federal reserve banks h a s
proved t h a t i t i s neither possible n o r expedient--- a n d I
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Federal Reserve Bank of St. Louis
50
believe that i s a correct expression o f our experience-~-that i f w e a r e t o judge b y o u r o w n e x p e r i e n c e a n d o u r
knowledge
o f t h e variable demands
o f t h e d i f f e r e n t districts,
then t h e experience o f the Federal reserve banks justifieg
a conclusion u p t o this point that i t i s neither feasible
nor expedient t o automatically adjust i n advance,
o r estab-
lish a formula i n advance f o r t h e adjustment o f rediscount
rates.
Governor Harding: I
think i t i s entirely possible
to reconcile a n d harmonize Governor Seay's views w i t h those
of Mr. Case, a n d I suggest that a committee o f three b e appointed t o draft a
memorandum o n the subject a n d submit i t
to a ljater meeting.
The Ghairman: I
can see no objection t o the motion
put b y G o v e r n o r S e a y , n o r c a n I
might a r i s e b e c a u s e
see a n y d i f f i c u l t i e s t h a t
o f t h a t a c t i o n here.
I
t i 3 not m y
understanding t h a t a n y action that w e take i s t o be reported
back to the Harvard Bureau or anyone else, excepting the
‘:
C
Federal Reserve Board.
Governor Harding:
I
f there i s anything
i v e n out,
let t h e Bard ,ive i t out.
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Federal Reserve Bank of St. Louis
The Chairman:
T h i s would b e merely a n expression o f
St
the views o f t h e Conference, f o r submission t o the Board,
as I
e certainly s i v e n o publicity
d
understand i t .
t o our
action i n regard t o these matters.
Governor Calkins:
T h e discussion o f t h e discount rates
will not e n d with a discussion o f this special question.
i apprenend t n a t b e f o r e t h e C o n f e r e n c e
i s over there will
be a Giseussion which will b e applied directly t o discount
rates, a n d i t s e e s t o m e that t h i s question might b e incorporated
i n s o m e l a t e r a c t i o n t o b e t a k e n b y t h i s Confer-
ence, b u t I think ths appointwent o f a coumittee a t this
tine would b e helpful i n preparing u s f o r such 4 discussion.
The Chairman:
T h e question before t h e Conference i s
G o v e r n o r Harding h a s offered a
Governor s e a y ' s motion.
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Federal Reserve Bank of St. Louis
substitute, I L presuiis.
will offer that ¢ s 8s substitute
Governor Harding: I
to Governor seay's motion, i f he will accept it.
will accept it.
Governor seay: I
Governor Harding:
s i y motion i s that a
three b e appointed b y the Chairman t o draft a
committes o f
memorandum
covering everything included under Topic {c}) of Topic l.
Governor Fancher: I
will second that.
(The motion, having been duly seconded, w a s unanimously
carried.)
The Chairmsn: I
will appoint o n that Coiuittee
Governor Seay, ur. Harding and ur. Case.
T h a t committees
is t o deal with subtopic C , rates o f discount, Nos. l ,
2 and 3 thereunder.
it seems
t o m e w e ought
t o h a v e a n e x p r e s s i o n o f opin-
fon from atlanta with regard t o their views o n this matter
before the conmittee goes t o work.
Y o u have submittea the
question o f uniforin rates, mr, Adleson.
ur. Adleson:;
O n the yuestion o f uniform rates, w e
recognize t h a t d i f f e r e n c e s
i n coumercial ratesprevailing
in various sections o f the coustry, a n d seasonal operations
argue a g a i n s t a
level r a t e i n t h e F e d e r a l R e s e r v e system;
but thers i s one class o f borrowing that h a s slightly
changed f r o m t h e time w h e n w e gave apreferential rate t o
it, a n d that i s Governient bonds.
T h e large subscrip-
“tions are practically out of the banks now, fhey have tem-
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Federal Reserve Bank of St. Louis
porary investiients
i n Treasury certificates,
a n d occasion-
aily, ahen their deposits decline they have t o make a
porrowing against 1t, a n d i f w e have o n e rate i n one dis-
triet and a lowsr rate i n another, w e receive criticism. They
i see n o reason why, against government loans, t h e y must
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Federal Reserve Bank of St. Louis
53
pay a higher r a t e i n our district,
a s compared w i t h New
York o r Boston, w h e r e t h e y c a n g e t a b o u t t h e s a w e s e c u r -
ity a t a lower rate f o r short tine borrowing.
I
t seems
to u s thst, s o far a s Governuent securities a r e concerned,
we ought t o have a level rate;
o r , i f w e cannot h a v e i t
in straight o u t d i s c o u n t r a t e f o r s h o r t p e r l o d s ,
a t least,
say thirty days, w e should have a re-purchasing agreement.
Toen, a f t e r they have gotten out o f their class o f temporary
borrowing, a n d i f the b a n k still wants t o retain that
security,
p u t i t a t t h e coumercial r a t e o f borrowing
a direct note.
I
on
n that w a y w e would get a w a y f r o m the
criticisin o f o n e s e c t i o n o f t h e c o u n t r y b e i n g m o r e f a v o r -
able t h a n anothsr.
Governor Harding:
a u r . Chairman, I
important matters t o attend t o while I
have a good many
a u down here, a n d
I would prefer t o be excused from any committee work,
especially something which will take
a s much time a s
this i s l i k e l y t o take.
The Chairiian:
i
@ will, o f course, excuse you, a n d
i will appoint Governor Calkins i n your place o n that
conmittse.
ir, A d l e s o n : ; I
would l i k e
t o hear s o m e discussion
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Federal Reserve Bank of St. Louis
54
on that i f the Governors d o not agree with Atlanta's
view o n it.
the Chairman:
I f I
undsrstand i t , y o u want t h e
privilege e f ascording t o your borrowers, w h e n there i s
a disparity between your discount rate and that o f New York,
or any other city, o f loaning against Government securities;
is t h a t t h e idea,
a t t h e minimum rate prevailing
i n any
district?
int. Auleson:
i
n a n y district, y e s .
Governor Harding;
i t ssens t o me your remedy would
be t o establish a special rate o n Government securities a n d
qsk the Board t o approve it.
wr. Adleson;
B u t that would b e getting b a c k t o the
old preferential rate o n Government cecurities.
Governor Calkins:
w h y not handle i t with open mar-
ket transactions a n d make your o w n rate?
Governor Young;
wuinneapolis,
T h e same difficulty came u v i n
w e have sone T w i n City banks w h o occasional-
ly borrow i n New York because t h e y g e t a
Governnent obligations. I
lower rate o n
locked into i t s s carefully
as i could a t t h e time when there was a four p e r cent rate
in N e w York,
and I
found t h a t i t s i m p l y i n v o l v e d a
million
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Federal Reserve Bank of St. Louis
55
dollars 2 n d two o r thres banks, s n d I just dropped it.
Governor mwcKinney:
H a v e y o u purchased s n y Government
obligations s i t h a re-purchase agreement?
ur, Adileson:
never w i t h a
¥ Y r o m t h e l o a n banks, t h a t i s all;
msidber bank,
The Chsirman:
I
t seems
t o b e obvious t h a t w i t h a
rate o f f o u r p s r csznt i n N e w Y o r k a n d B o s t o n a n d 4 - 1 / 2
per cent elsewhere, t h a t t h e large users o f credit a t
minneapolis a n d Chicago, a n d other centers, wholmye
established their lines both i n the esst a n d i n t h e west,
will o f course g o t o the east f o r their iioney.
T h a t was
the result, v e r y noticeably, d u r i n g t h e period when those
conditions prevailed,
N e w York w a s called u p o n t o 4a much
greater extent t h a n they would have b e e n i f t h e rate h a d
been uniform, a n d t h e demands u p o n u s were relatively less,
when the rates w e r e adjusted,
I t was very noticeable, ur.
Case, t h a t customers returned.
wWi?. Case;
T w o wezks after o u r rate w a s rsised f r o n
four t o four a n d 4 half percent, o u r earning assets went
off 9112,000,000, and, speaking for mr. uc@ay, while you
were temporarily absent, Governor ucvougal,
h e t o l d m e that
the loans h a d gone u p something like thirty o r forty million
56
dollars.
effect.
i
t seemed t o m e just 9
i t effected a
c l e a r c a s e o f cause a n d
redistrobution o f those loans
throughout t h e o t h e r banks,
Governor Young: I
Ways.
would l i k e t o s a y t h a t i t w o r k s b o t h
T h e other banks reduced their rediscounts l o n g
before winneapolis did, a n d there w e s a tine w h e n t h e strain
wes very heavy onus, a n d I think that w e have kept the
rate u p d e l i b e r a t e l y
t o k e e p s o m e o f t h e c r e d i t insoime o f
the o t h e r districts.
The Chairman:
u r , Adleson,
h a v e y o u a n y further com-
ments with respect t o sub-topics 2 and 3 under (c) ?
ut, Adleson: w # i t h respect t o sub-topic 3, under
(c), Open uarket Rates, sinc. the establishment o f the
system w e have h a d frequent dis cussions o f creating a
broad market for bankers! acceptances, L a s t year, when
the comercial rate was at practically 4-1/2 per cent, except N e w York, B o s t o n a n d s a n Francisco,
* h i c h had four
per cent, t h e open market rate s o closely approximating t h e
coumercial r a t e m i l l i t a t s s a g a i n s t c r e a t i n g t h a t b r o a d
market.
w
e cannot h e l p t o e s t a b l i s h t h e d o l l a r c r e d i t
if the discount r a t e a n d the o p e n market r a t e i s 4 per cent
as against 2-3/16 o r 3 per cent i n other countries. I
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Federal Reserve Bank of St. Louis
57
recognize that w e haven't a
sucficient number o f large
corporations o r concerns t h a t a r e attracted t o t h e low rate,
end w e must f i n d some n e w source t o distribute t h a m in;
but before doing that t h e system should establish t h e rate
and l e t i t b e known that i t will b e stabilized around that
figure a n d kept low; t h e n ,
i f possible, educate t h e large
takers o f credit, s u c h a s s t o c k b r o k e r a g e concerns,
invest a
part o f t h e i r w o r k i n g c a p i t a l
t o
i n those biils,
knowing that whenever t h e y have t o make u s e o f t h e money
it will not b e subject t o the fluctuations o f the cqil
money market, b u t t h e y know they a r e going t o get t h e
money a t a very l o w rate.
B e f o r e t h a t c a n b e done, however,
the F e d e r a l R e s e r v e s y s t e m w i l l h a v e t o p r o m u l g a t e a
rate
“and keep i t there.
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Federal Reserve Bank of St. Louis
Governor Seay:
ure Adleson;:
B u t isn't that practically dons now?
N o t t o a n y large extent, because t h e
rates that a r e established i n the open market a r e t o o close
to t h e c o n m e r c i a l rates.
I f w e take t h e purchase
o f two
or three hundred million dollars o f bankers! acceptances,
in the Syatem,
primarily,
a t what might b e called a n artificial r a t e
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Federal Reserve Bank of St. Louis
58
and then begin our process o f education a n d s e e i f w e cannot
educate t h e m w i t h o u r r e s e r v e p o s i t i o n a s f a v o r a b l e
as it
is noW--- i t locks a s if, i f w e are going t o attempt some
education o f that sort, t h e time i s ripe for i t now.
Governor seay:
Y o u might establish a n srbitrarily
low rate without reference t o the real rate f o r credit i n
the market.
ur. Adleson:
T h a t i s the only way I see that i t can
be started,
Governor harding:
i n s t d o t h e banks p a y i n interest
on deposits i n your district?
ur. Adleson:
T h r e e a n d a half, a n d some four.
Governor Harding:
his m o n e y
T h e n why should t h e broker put
i n bankers a c c e p t a n c e s
a t thrse a n d 4
half w h e n
he can put i t i n the bank and get three and 4 half for it.
ur. Adleson: I
know, but when he needs money, a n d
the open tiarket rate i s very high, h e knows h e can ilquidate those bills a t a low rate.
Governor Harding:
H e has a
balance i n the bank o n
Which h e i s getting three a n d a half p e r cent, a n d h e c a n
liguidate that, c a n h e not?
mur, Adleson:
H
e muld
d o that, y e s .
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Federal Reserve Bank of St. Louis
Governor Seay; v i d n ' t you, a
little while
c6xperiencs w i t h a low open itarket rate, w u i c h perhaps
mores o r less artificslly, o n s s o l o w a s t o
market,
he Chairmen:
s o t o spsak, a n d thess s a s n O Gamand f o r
T h e facts are, while wr. Adleson m a y
not know it, thst t h e very plan o r policy t h a t y o u have
outlined hss b s e n followed o r ssasavored t o b e followed f o r
a long tiue after w e began indulging i n this matter o f open
market onpsrations,
S v e n last ysar--- I
think ur,
will
low.
T h e rates current o n bankers acceptances were not
at a i l i n harmony s i t h t h e current m o n e y rates,
s n d the re-
sult w a s t h a t t h e s s b i l l s
the o n l y
adepenaablé s o u r c e
i n which t h e s e b i l l s w u l d f i n d a
The s a w e thing i s trueat t h e preset ©
inarket.
sa: extent,
andI believe w h a t y o u would have u s d o i s the thing that
we have b e e n doing,
wr. Case: I
A
m J] not right about that, ur. Case?
think so.
Governor Norris: I
think t h e i u e s t i o n t h a t A t l a n t a
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Federal Reserve Bank of St. Louis
60
raises, raises i n turn 3 very important jusstion.
a large subject a n d I do not want t o start a
I t is
uiscussion o n
it unless t h e members here want it, b u l that i s thse fallacy
of having a uniform rate f o r all kinds o f paper. I
cannot
see the logic o f it, that a n y reserve b a n k should n o t have
two o r three rates f o r aifferent classes o f pap er.
Tne Chéeiriu.an:
Y o u feel that i t should have?
Governor Norris;
Toe Chairnuan: I
S
e
ted hoped w e had gotten away f r o m
for all time.
Governor Norris: I
cannot s e s t h e logic o f having
one rate for all kinds o f paper 2nd all maturities.
The Chairman:
U n l e s s y o u insist u p o n it, Governor
Norris, wé@ will n o t enter into e
Governor Norris: I
The Chairman:
discussion o f that now.
do n o t insist.
w r . Adleson, are you willing t o per-
mit these topics t o rest w i t h t h e cownittee, a f t e r what has
been said?
ur. Adleson:
Y e s , ur. Chairman.
The Chairian: I
assune t h a t i n due
have 2 Giscussion here with regard t o the discount rate
question a n d t h e r a t e s c u r r e n t n o w . I
do not believe
it
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Federal Reserve Bank of St. Louis
is o n t h e vrogran.
mr. Barows:
N
o sir.
The Chairisn: I
fselthat w e should have such a discus-
dhat i s t h e sense o f t h e Conference a s t o whether
should discuss t h e present discount r a t e a t this time?
no one else cars:
p e a k
o n t s u b j e c t , < n d it i s
in ordsr, i I should like t o s a y that i t seems t o m e t h e
conaitiorm u n d e r which w e are n o w going i n some respects
are strikingly similar t o those conditions w h i c h b s g s n
dsvelop i n 1919 and continued t o i920. Cojwlierce and
4
try a r e going along a t a pretty swift pace, a n d t h e
tion i s w h e t h e r
s s haves r e a c h e d t h e p o i n t
i n wanufscturing
goods h e r e t n s output i s i n sxcess o f the legi
mand, w n i c h yusstion, I
assune,
to reach that point. I
i s c:batable.
think there i s too much m o n e y
belnug used n o w i n speculation, I
belilevs t h e available
suoply o f credit i n this country has been pretty well absorbed, a n d I think w e : w
3t a point where w e can ex-
pect, unless there i s 4 slowinz a o w , t h a t t h e member banks
Will coite i n t o ths Fed:ral reserve banks f o r assistance
to 2 lar ge extect.
h
e rates a r e n o w a t four a n d 3 half
per a s n t i n a l l districts.
T h e rates
i n t h e monsy centers
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Federal Reserve Bank of St. Louis
62
for a l l kinds o f credit a r e entirely o u t o f iine w i t h
that rate.
T h e call money rate h a s b e e n highe U n t i l
last week t h e rates over t h e counter i n Cnicago a n d New
York, winiuuxn rate:, a r e five p s r cent; r a t e s current
.ere f r o u f i v e t o f i v e a n d a
in Chicago a n d N e w York.
half p e r cent.
T h a t w a s true
T h e rates o n coumercial p a p e r
until a few days ago, best names, were five per cent i n
both eaters,
n the latter part o f t h e week,
I
not mistaken, ur. Case, those rates were adven
comuercial p a v e r m i n i m u n r a t e I
Governor seay:
t h i n k t o 5 - 1 / 4 p e r cent.
H a v e your ciscounts incressed within
the last t w o weeks?
The Chairman:
Governor Seay:
The Chairinan:
materially. I
transactions.
T h e y a r e increasing.
H a v e t h e y increased within the l a s t
T h e y did.
T h e y increased w i t h us,
think t h a t w a s due, p r o b a b l y ,
t o tax
W e feel i t usually after t h e i5th, rather
than o n the 15th o r before.
w e have siven careful con-
sidzration t o t h i s q u e s t i o n o f r a t e s
feel t h a t t h e time i s opportune
i n Chicago,
a n d we
f o r 4 general advance i n
the aisgcount r a t e s f o r t h s s n t i r e &
stem. I
would l i k e t o
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Federal Reserve Bank of St. Louis
63
see those rates fixed s t 5-1/2 p e r cent. I
am explaining,
now, m y view, a n d t h e view o f our board, t h a t they should
be advanced.
O u r board has n o t gone t o t h e extent o f
five a n d a half p e r cent, b u t I
think that a good, s t r o n g
advance now, o n the part o f t h e Federal Reserve system,
would have a d¢sira b l e effect u p o n those w h o a r e beginning
to use credit t o o freely. I
for d i s c u s s i o n h e r e ,
e m just submitting this matter
e n d i f i t i s i n order I
should i i k e
to h a v e a n e x p r e s s i o n f r o m t h o s e p r e s e n t w i t h r e g a r d t o t h e
question.
I
n 1919~-- a n d Governor Harding knows this a s
well a s I do--- i n our district,
a t least before w e were
called u p o n for ersdit, t h e member banks i n the agricultur-
sl districts, used and iiisused their own loaninz powe
because o f thistremendous spsculation, l a r g e l y i n lands,
but also i n wild c a t securities,
lieve,
t o a n extent that, I
be-
i f w e had a n y w a y o f measuring it, w o u l d make t h e
speculation i n the east l o o k like small change.
d
e had
no c o n t r o l a t t h a t t i m e o v e r t h e d i s p o s i t i o n o f e r e d i t
cane f r o m t h e banks*™. o w n l e n d i n g p o w e r ;
b u t
i t
drove those banks into o u r bank early i n 1920, a n d a t a
tine months before t h e y should have c o m e in. T h a t situa-
tion does not prevail these now, but i n other respects i t
64
seems t o me, Governor Harding, t h e situation i s very much
like t h s s i t u a t i o n
i n 1919.
P r i c e s a r e going up; c r e d i t
is b e i n g u s e d i n more v o l u m e c o n s t a n t l y ,
and I
would l i k e
to h a v e a n e x p r e s s i o n o n t h a t s u b j e c t f r o m you, G o v e r n o r
Harding, a n d f r o m others present, because I
think i t would
be very interesting.
Governor Harding: I
have been unable,
analyze t h e credit movements
be r a t h e r pecullar.
i n New England.
T h e y d o not
s o far, t o
T h e y s@sm t o
s e e m t
o haves a n y r e g u i a r
seasonal operations there, except i n t h e r a l l River, N e w
Bedford and Providence sections, where textiles are manufactured.
T h e banks there borrow more money w h e n they a r e
buying cotton t h a n they d o a t other times.
T h e Boston
banks, i n the last two months, have experienced 2 decline,
in deposits.
/The b a n k s o u t s i d >
o f B o s t o n h a v e i n c r e a s e d deposits, A
serious circumstance happened--~+ I
very
do not know whether i t
is a coincidence o r a n effect,--- but I observed within a
few days after our rate was increased, that s dozen banks
outside o f Boston took u p their rediscounts
i n advance o f
maturity, a n d g o t a rebate t o the extent o f about t e n million dollars.
T h e y borrowed money a t four per cent, a n d
when w e p u t t h s r a t e a t f o u r a n d 3
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Federal Reserve Bank of St. Louis
half t h e y limmediately
65
paid up. I
de not understand t h e psychology o f it, b u t
that i s what t h e y did.
Governor Bailey:
T h a t i s probsbly t h e margin they
were speculating on, t h a t half p s r cent.
Governor Harding:
B u t w h y shouldthey p a y u p i n sdva n c e
of maturity i n the face o f a n sdvancing money msrket?
Governor Bailey:
j
e had a lot o f money s e n t t o New
York t o b e loaned o n call, a n d that i s a disturbing factor
with us. I
prssume t h e y might have u s e d i t that way.
Governor Harding:
concerned,
w e have a
labor situation. I
s o far a s t h s Boston district i s
r e s t r a i n i n g influence, i
think, i n - t h s
have b e e n unapdle t o observe a n y dispo-
sition o n ths part o f t h e banks i n New England t o ovsr-extend
theiselves. A
good m a n y people
cern u p o n a n y t e n d e n c y t o w a r d s a
a r e looking w i t h some con-
run-away market, b e c a u s e
they k n o w # b i s going t o have a n effect o n labor.
T h e
American W o o l e n C o m p a n y a n n o u n c e d t h e other d a y a n advance
of 12-1/2 p e r cent i n the wegs scale.
T h e textile operators
in the Fall River District h a v e dsmanded a very substantial
increase i n wages which t h e manufacturers h a v e declined t o
grant. A
walk-out w a s t h r e a t e n e d t h e o t h e r d a y , b u t t h e y
heve tided things over until t h e 1 5 t h o f April, w h e n t h e y
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Federal Reserve Bank of St. Louis
66
are going t o meet w i t h t h e manufacturers a g a i n a n d discuss
it further,
The Chairman:
G o v e r n o r Fancher, w n a t d o you think o f
tne rate situation?
Governor Fancher:
W
e have noticed rather a n inersase
in our borrowings o n t h e part o f our member banks during
the past f e r weeks.
U p t o that time o u r loans h a d been
down t o a low minimum.
two causes.
d
e think w e c a n attribute i t t o
T h e raising o f tie r a t e i n New York w a s one,
possibly, a n d w e believe t h a t sowie o f the borrowings that
had been carried a t t h e l o w rats caue back t o us. B u t
I think the important r e a s o n f o r the increase o f fifteen
to t w e n t y m i l l i o n d o l l a r s
i n our loans
been the t a x paying period.
t o imeniber b a n k s h a s
d e a r s very active industrial-
ly; o u r industries have b e e n going shead, m a n y o f them, t o
capacity, yet the credit situation, generally speakinz, i n
the dis trict, i s coiifortable.
T h e banks haves taken care
of it, and w e are not anticipating, s o far 45 # 6 Can Observe the situation, a n y really marked demand upon our
credit r e s o u r c e s
i n t h s n e a r future.
O u r minimum rate
to larger banks i s five p e r cent t o best borrowers, a n d
up t o t h e present t i n s w e have notdstected a n influence
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Federal Reserve Bank of St. Louis
67
that would make i t appear desirable t o increase o u r rate.
That m a y change. I
rather anticipate t h a t t h e borrowing
we h a v e e x p e r i e n c e d
i n t h e last t w o o r three weeks w i l l
to soue extent b e lijuidated i n the near future, t h a t there
be
will not/as much two weeks from now as there i s now.
The Chairman:
G y e r n o r Biggs?
Governor Biggs:
T h e conditions
i n the Bighth vis trict
are very similar t o those o u t l i n e d y
b ur. Fancher.
having a
small demand there.
turers a r e a l l busy.
Q u r .ierchants s n d nanufsc-
E v e r y t i m e w e have a n issue o f cer-
tificates t h e y i n c r e a s e a n g t h e n g o b a c k again. A
year
ago w e had thirty millions i n bills discountable,
Saturday w e had twenty-five miilions.
time w e only h a d fifteen,
pect o u r l o a n s
Personally, I
w i e are
and
L a s t month,
a t this
A t this t i m e o f the year w e ex-
t o g o up, a n d t h e y w i l l c o n t i n u e
t o g o up.
have n o t aiscussed i t with our board, b u t I
do not s e e a n y occasion f o r a n y raise i n rates now, I
think i t w o u l d c i s t u r b t h e c o u n t r y materially.
the rates t o the extent that y o u have suggested,
I f y o u raised
i t would
scars everybody a n d they would think danger w s s ahead.
The Chairman:
G o v e r n o r Fancher,
y o u d o not f e a r 3
mis-use o f credit facilities because o f t h e disparity
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Federal Reserve Bank of St. Louis
68
between rates, w i t h a pgevailing rate o f four a n d a half percent a s against a
rete one-half t o one-fourth highor f o r
coumercisl purposes?
Governor Fancher: I
fluence.
I
t is a
have n o t detected a n y a i c h in-
matter t h a t i s a l w a y s 4
live t o p i c a t
a meeting of the Executive Committee and of tne Board, and
was given & good deal o f discussion last week; but, a s I
say, w e have not a s yet a-tected any influence.
Governor Calkins:
I n so far as our district i s con-
cerned, there h e s b e e n n o considerable change i n the recent
past.
i ¢ @ hed a n increase i n rediscounting b y t h s city
banks, w h i c h w a s partly d u e t o t h e t a x period, a n d I s not
important i n sny sense. i
aily n o i n c r e a s e
é
e e n , a s yet, practic-
i n r e d i s m u n t i n g b y c o u n t r y banks,
have held fairly level for s o e tine.
T h e y
u e anticipate a
considerable increase i n the near future, w h i c h will b e
purely seasonal. I
think probably t h e same situation pre-
vails in all of the twelve Fed ral reserve uistricts, ap-~
proximately the same, but I do not think that answers ths
question which i t seems t o m e the Chairman intended t o
indicate, a n d thst i s whether thse expansion and particularly t h e commitments o f business a t the present time, a o o r
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Federal Reserve Bank of St. Louis
69
do not indicate another burst, a n d m y own opinion i s that
there a r e indications t h a t a r e unmistakable t h a t w e are
going t o o fast a n d t o o far, w h i c h o f course itieans that w e
Will have t o come back, a n d that i s the most important
question that t h i s conference w i l l have t o discuss, t h e
question o f general increase i n the rediscount rate.
That i s a pertinent question a n d is, i n my opinion, t h e
vital question that w e heve o r will have before us.
I n
regard t o the recent inersase o f one half o f one p e r cent
in New York, Boston a n d s a n ¥rancisco,
i t seems t o m e
that w e meet t h i s situation, w h i c h i s n o t a t a l l new, s n d
which has b e e n referred t o b y Governor willer:
That a
rate increase o f one-half o f one p e r cent, w i t h n o explana-
tion as t o why the increase was made will naturally and
inevitably cause t h e people t o raise t h e -uestion w h y
such
a n increass
w a s mad2.
i
f that advance
w a s mads
order t o check a Gaangerous tendency t o expansion,
not sutficient f o r ths purpose,
a gesture--- 4
I
i n
i t was
f you want t o call i t
very popular w o r d these days--~ t h e gesture
was m o t s u i f i c i e n t l y i m p o r t a n t ;
i t was a
v e r y weak,
dcubtful a n d hesitating gestures which t h e public d i d not
apprehend w a s o f any ~ w rticular significance. I
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Federal Reserve Bank of St. Louis
think
70
the juestion that w e hsve t o consider i s whether 9
increase, 8
tlie.
reasonable r a t e inersase,
rate
i s called f o r a t this
I f there i s n o reason f o r it, a n d i f we cannot give
reason f o r it, w e certainly should n o t arbitrarily s i t
say that w e ought t o have a rate o f five and a
cent instead o f four a n d s helf p e r cent; b u t i f
we must advance t h s rate materislly a t this t i m e there
should b e some basis f o r that sdvance, something more t h a n
feeling o f the Governors here that there i s something i n the air that justifies i t .
Chairman:
I f I
understand y o u correctly,
y o u fee
> something i n the air that does justify it?
Goverror Calkins: i
aa,
The Chsirmwan: Governor Norris, what is your opinion?
Goverrmor Norris:
w e h a v e l e d s o m e increase, julite
appreciable increase, proportionately,
e n
i n borrowing b y mem-
ber banks, recently, due, particularly, I
think, t o income
tax payments and t o some shifting back t o our district a s
a result o f New York's increase. B a s t e r i s the season
of considerable l i uidation w i t h us, s o that i n the early
part o f next aionth, I
go down.
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Federal Reserve Bank of St. Louis
rather expect t o see these borrowings
Ti
But I
think t h a t t h s e n o r m o u s e x p a n s i o n
i n credit
i n
the last year has b e e n made possible particularly b y the
liquidation o f frozen loans.
T h a t process i s now a l l w e r ,
and 1 think i f business g o e s ahead there w i l l be, =fter t h e
inidule o f April, a
froii us.
p
s
i
very considerable increase i n borrowing
s the condition i n our district.
I noticed, a b o u t t w o weeks ago, 2
discussion o f this
subject i n a newspaper, w h i c h struck m e a s s o very good
that I
read i t t o o u r Board,
I
t coincided w i t h their
views and, a s this i s a general discussion a s t o t h e whole
country, I
this.
would like t o read just a“few paragraphs o f
T h e couwijient grew out o f the increase i n the New
York rate, ;
headed, "The Controlling Factor".
"The u i r e c t a n d c o n t r o l l i n g f a c t o r s h i c h c a u s e d t h e
Fedral reserve b a n k t o raise t h e r a t e w e s the outsid
money market.
A e t i o n w a s forced u p o n t h e bank, willy-
nilly, # h e n , a g a i n s t i t s r a t e o f 4%, t n e r a t e f o r b u s i n e s s
paper i n the open m e r l e twent t o 5%.
d n a t extraordinary
circumstances e x i s t e d t h a t s o u l d l e a d t h e c e n t r a l i n s t i t u -
tion thus t o consent t o “hold the bag" for the money
markst? C e r t a i n l y n o n e a t present.
I
r commercial paper
rates i n t h e martket n o w firm u p t o 5~1/2% o r 5-3/4% i G i s
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Federal Reserve Bank of St. Louis
72
conceivable t h a t t h e Fedsral Reserve b a n k m s y raise i t s
rate t o 5%, even with, say, a 90% reserve ratio.
ai
AS regards the second o f Wall street's fallacies i n
the cass there i s n o evidence o f a n over-extended ersdit
position,
o r that t h e Federal reserve action w a s directed
against it.
A s a matter o f fact, viall street “cuts very
ittle ice” i n the credit situation today.
I t s
$2,000,000,000 brokers' l o a n s a r e inconsejuential beside
the g60,000,000,000 of securities listed o n the «
The call money rate, too, has long since ceased
eriterion o f credit conditions.
d a l l street i s
croaching u p o n t h e banking credit o f the country, n o r i s
it threatening ¥ederal reserve resources.
“PRODUCTION a T CaPaciTY,
“Tt i s the couimercial demands o f the country that
have b e s n encroaching u p o n t h e creditsuppiy a n d this has
found expression i n tte coumercial paper rate a t this a n d
other centers, d r i v i n g i t w e l l a b o v e t h e b a n k rate, w h e n ,
by a l l ths tenets o f sound banking, t h e latter should b e
higher. P r o d u c t i o n i s at, o r close to, capacity a n d that
industry h a s been financed through @
dinary banking chan-
néls, without recourse heretofore t o the F e d r a l reserve
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Federal Reserve Bank of St. Louis
75
banks t o a n y material extent,
i s tie reason f o r relatively
firm m o n e y m a r k e t r a t s s a c c o m p s n i e d
b y high Fedsral Heserve
ratios.
“That ordinary banking facilities have b e e n able t o
finance rising j u s t r i a l actitity i s one o f t h e phenomena
a t h e p r e s e n t s c o n o i c situation.
i
n a d a i t i o n t o sonrie
hesitancy t h e t s t i l l exists a i o n g t h e b a n k s o f t h e c o u n t r y
to seek accoiuodation a t the central institutions, undoustsdly a n i m p o r t a n t f a c t o r h s s b s e n t h e L i q u i d a t i o n o r f o r m e r
frozen loans,
B u t money market rates indicated that t h e
tine was sporoaching w h e n couwilisrcial demands w o u l d cause
membsr banks finally t o g o t o t h e rediscount counter o f
the r e s e r v e banks.
“ O m UNsELCOuE CuNch UsNCEs,
“For the Fea:ral reserve bank t o encourage resort t o
its rediscount facilities a t this tine b y non-protective
methods would bring about unwelcome results. P r o d u c t i o n
being practically a t capacity,
supply w o u l d i n e v i t a b l y c a u s e a
This
i s t h e answer a l s o
a n increase i n the credit
sharp r i s e i n prices.
t o t h e measure
at t h e F e d e r a l r e s e r v e s h o u l d
o f re-.entment
now seek
huge potential credit supply based upon t h e
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Federal Reserve Bank of St. Louis
t o shut
$1,000,000,000
74
of gold contributed t o the country's monetary stock since
the deflation movement o f 1919.
“In other words, t o allow the full potential credit
expansion i n the Fedsral reserve system t o take place,
so
as t o cause t h e reserve ratio t o fall t o 40%, where i t went
in 1919, w o u l d c a u s e a
price u p h s a v a l w e l l n i g h disastrous.
"It i s n o idle remark b y certain F-deral reserve author-
ities that s e should regard our huge gold stock a s more o r
less i n the nature o f 4 trust.
I
t is quite possible that
Europe w i l l begin some d a y i n the n e a r future t o draw some
of t h i s g o l d a w a y f r o m us.
I n d s e a , s t e r l i n g i s already
pointing that way.
“Those who sre advocating unbridled use o f our present
credit facilities should pause a n d consiier what would happen i f w e built u p a
huze c r e d i t s t r u c t u r e ,
f o r s e d u p prices
so a s t o encourage foreign seliing o n this market a n d then
nougat about a n undermining o f that structure through the
inevitable withdrawals o f gold for export.
“During the past year 777 leading banks i n the
country increased total loans a n d diswmunts 722,000,000,
and obligations t o Fed_ral reserve oanks only 367,000,000,
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Federal Reserve Bank of St. Louis
74 In other words, 9 1 % o f t n e trades expansion h a s been financed
out o f t h e i r o w n r e s o u r c e s a n d o n l y 9 % b y l o a n s f r o m Feder-
al res
hsirman;
b
o you feel, Governor Nor:is, t h a t
such 2. w o u l d justify o r demand consiceration o f a n advance o f discount rates?
Governor Norris:
I would prefsr
m o TAs 3 6 d i s t r i c t i s concerned,
t o wait until sometime
next imonth, first,
s
i n the latter part o f
s u h e t h e r t h e waster liquidation,
which I anticipate, occurs, and, secondly, shsther t h e i m mediate e x p a n s i o n w h i c h I
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Federal Reserve Bank of St. Louis
The Chairmen:
anticipate a g a i n s t t h a t occurs.
v o y o u f e e l t h a t s h e n t h e t i m e couies
that t h a action should b e uniform?
Governor Norris: g
v i
m
y o w n feeling i s that
within a month w e will b e right u p against t h e proposition.
Governor Young:
u r . Chairinan,
the d i s t r i c t s w h i c h h a s n o t e n j o y e d t h i s e x p a n s i o n
o r pros-
rate with us o f four 3nd a half, o r five o r
five a n d a half o r even s i x o r six a n d 3 half o r a s high
as seven,
i s n o t m u c h o f a diréct penslity u p o n t h s m e m b e r
snd livestock sections, because
and t w e l v e p e r csnt. A
very
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Federal Reserve Bank of St. Louis
75
peculiar f e a t u r e o f t h i s ,
that s v e n w i t h a
half p e r c e n t r a t e o u r a d v a n c e s
Gown, down, a n d aown.
915,000,000,
four a n d a
t o iember banks h a v e g o n e
O n warch 1 5 t h they were only
I n the last couple or «weeks the Twin City
banks haves come t o u s o n account o f t a x payments, w n i c h
are only teiporary, a n d tlere may b e some expansion i n this
country, b u t n o t much i n soue lines. I
think this whols
question sized u p i s that t h e unfortunate conditions t h a t
d-veloped i n 1919 a r e t o o fresh i n t h e minds o f many psople
to permit o f a repetition of those things a t such a n sarly
date. I
think y o u will have t o g s t 4 new generation o f
bankers t o get bankers t h a t will expand a s they d i d during
that tinue. I
do not think there will b e any i n our dis-
trict, because t o o usny o f our bankers had too many
sleepless nights,
The Chairman:
Y o u r views
with m y own, Governor Young. I
i n that r e g a r d a r e i d : n t i c s l
do not peliéeve w e nesd f e a r
a recurrence o f tke conaitions w h i c h you encountered a n d
which w e encountered i n thse agricultural uistricts.
Our
experience w i t h regard t o Liquidation h a s been similar t o
yours,
and I
think i ?
to egricultural indsbtedness ev: rywhere.
Z6
there i s a
tendsney
i n other directions
t o overdo, a p p a r -
ently.
Governor Young:
concerned, I
i
n s o f a r a s the Ninth vistrict i s
will s a y that there i s nothing i n the situation
just a t t h e moment t h a t w i l l a l a r m o u r people.
O
r course,
whether w e r a i s e o u r d i s c o u n t r a t e o r n o t w i l l d e p e n d e n tirely u p o n t h e a c t i o n t a k e n b y t h e o t h e r r e s e r v e b a n k s .
we have found that credit flows where i t i s easiest a n d
cheapest,
a n d i f t h e other banks raise t h e price o f i t w e
have g o t t o r a i s e w i t h i n t w e n t y - f o u r h o u r s
selves. I
t o protect o u r -
should r e g r e t v e r y m u c h t o s e e m o n e y i n c r e a s e
cost s t this time.
i n
O u r banks have secured liquidation
Largely through the floating o f farina mortgages. I
do not
think liquidation i s coming out of the crops. D u r i n g 1919,
1920, a n d 1921, t h e price o f money w a s s o high that i t was
almost impossible t o float f a r m mortgages.
A S Money eased
up a little b i t the f a r m mortgages were floated, a n d thsy
are n o w going i n uinnesota a t rive p e r cent.
B a n k s that
have accumulated have simply transferred t h e m t o t h e insur-
comeanies and investors, where they belong.
T h a t has
eased t h e i r situation.
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Federal Reserve Bank of St. Louis
Governor Harding: i i o u l d a imeisber bank give a man t h e
Ye
same l i n e o f crsdit, knowing that t h e m a n h a d his property
mortgaged, that they would i f he diun't have i t mortgaged?
Governor Young:
I
n 192l---
[ £ do n o t k n o w t h a t y o u
suember this, b u t i t i s a fact--~ during t h e seeding
period, t h e s u m e r period, s n d t h e harvesting period, t h e
Federal reserve b a n k o f winneapolis iuade n o advances a t 311,
Instead o f that t h e advances went down.
pened i n 1922,
this.
T h e same thing b kp-
T h e difficulty i n our district i s just
T h e people a r e sfraid o f t h e banks i n a grest many
sections;
t h e y heve s o l d their crops, secured t h e cash a n d
ere carrying i t i n their pockets;
t h e y have sufficient
sesd f o r the coming season a n d they a r e afraid t o b e caught;
they a r c a f r a i d t o deposit w i t h t h e benks.
monsy.
T h e y want t h e
a S this situation eases they will get over that
feeling and will redeposit again,
I f money rates get
pretty h i g h i n the east i t has a n indirect efrect upon o u r
banks o u t there.
The Chairman:
uM. Case:
u r . Case, what i s your opinion?
a r . Chalraan, t h s directors a n d oificers
of t h e F e d r a l Reserve B a n k o f New Y o r k are watching t h e
cr=dit situation, I
think, a t t h e present tiine more closely
than w e have s t any tinie during t h e past year o r two.
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Federal Reserve Bank of St. Louis
78
4.s9id 9
few minutes a g o that w h e n New York, o n e o f tne
three b a n k s w h i c h r a i s e d t h e r a t e t o f o u r a n d a
half p e r
cent, raised t h s rate, w e lost within t w o weeks
»~112,000,000 o f earning assets and, incidsntslly, perhaps
twenty o r thirty millions o f securities t h a t w e sold t o
banks.
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Federal Reserve Bank of St. Louis
T a k e o n e bank, t h e First National Bank, w h i c h
very f r e q u e n t l y r u n s a g a i n s t t h e tide, a n d w h i l e t h s o t h e r
benks, t h e b i g city banks, w e r s off o u r books, t h e y were
borrowing u p as high a s »100,000,000 egainst Government
securities solely.
d b e n w e r a i s e d o u r r a t e t h e y Lmuuediate-
ly began t o pay off, a n d when I left, 4
were G o w n t o about »30,000,000. ¢
week ago, t h s y
h3s b 2 e n abundant
evicence o f inerezsed activity i n business, b u t I fsel, 2 8
Governor Young g n a others h a v e sald, t h a t t h e sicuory o f
1920 i s too fresh i n the mind.
facturers,
o f our iicrchants a n d méanu-
a s #ell 2 s i n the minds o f our benkers, f o r t h e m
to r u n i n t o a n y s u c h p e r i o d 3 s t h e y w e n t t h r o u g h then.
vie have been reviewing v e r y carefully t h e financial
statements o f t h e cowisreial concerns, a n d t h e n e w statements,
3 s they a r e coming o u t now, a s o f the e n d o f the
year, sneress t w o years a g o they showed tremendous intentories, y o u will find, simost without exception, t h a t they
79
are L i v i n g f r o m h a n d t o mouth.
big inventories.
N o n e o f t h e concerns h a v e
T h a t i s the great factor for safety
in the situation s t the moment, a n d I think w e all fsel
it must not be permitted t o gst out o f bounds.
take t h i s o p e r a t i o n o f w a r c h 15th,
aitions,
a s related
L e t us
t o money con-
T h e T r e a s u r y h a s c a l l e d i n froin t h e iioney m a r k e t
two hundred miilions o f dollars.
T h e y took u p from the
Fed ral reserve banks fifty millions i n certificates a n d redeemed notes,
T h a t money came from the money imerket.
ur. G i l b e r t t o l d m e y e s t e r d a y
h e had a
balance
i n the
Federsl reserve banks today o f upwards o f a hundred million
dollars, 1 0 5 , 0 0 0 , 0 0 0 ,
ebly b e 2130,000,0900
Lil e f f e c t
pulled
s n d tnat o n saturday
o r 32140,000,000,
o n t h e m o n e y market.
i t w o u l d prob-
3 n d that without a n y
p 2 0 0 , 0 0 0 , 0 0 0 have been
i n w i t h i n t h e l a s t t e n d a y s o r thereabouts, w i t h o u t
creating a n y g r e a t distress,
N o a , heppily,
Department
policy o f paying t h e going
i s comwnitted t o a
rate f o r money.
t h s Treasury
T h e y a o not undertake t o curb t h e actions
of the Feucral reserve banks i n raising rates. I
think, h o w e v e r ,
do
t h a t ths Federal reserve banks h a v e a
sonable o b l i g a t i o n
rsa-
t o s e e t o i t t h a t w h e n t h e y Gao change
their rates t h e y d o i t a t a time that i s neither immediately
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
80
after a n issue
o f certiricates, s u c h e s now, without zgiv-
ing 8 chance f o r redistrinution,
In other words, 1
o r Llmsclately prior t o a
want t o point o u t that i f
wait, perhsps u n t i l april 15th, i t would b s a
month after ‘the present s a l e o f certificates,
issue.
i
s n d 3 month
n other sords, t h e r e
issue o n wsy l5th; t h a t s 6 w o u l d have t o t:
those t r a n s a c t i o n s
make scuiswhers
a n d waxes a n y c h a n g e w e
b e t w e In:iuentally
June 1 5 operetions.
s o , Isokirng snead, t i e
going t o v e i n the nsrkst f o r large amounts o f money, a n d
LlGo t h i n k w s s h o u l d c o n s i d e r a n y a c t i o n t h a t w e p r o p o s e
to
take i n the light e f their tran-actions, because w e have
got a
pretty f f i c i e n t m a c h i n e
i n ths member banks
tributing tie securities, a n d “é@ we
our r a t s s c t i o n d o s s n o t l e a v e t h s m 1
b
i n dis-
¢ careful that
U DWith a
lot o f
low r a t e securities,
as I
statea 3
moment 3go0, ur. Ciieiriuan, N e w Y o r k i s
watching the situation very closely.
bs necessary pressntlys-- i
u @ [eel that i t may
think t h s officers have i n mind
possibly around t h e niiuule o f april--- b u t w e would take
ook e t t h e s i t u a t i o n ,
b u t they consider t h a t
Si.
the most opportune time t o sms a
change i f one should
necessary,
someone spoke about t n e call money market, a n d I
ng t o t h e Governors t o sive t h e m
this b i t o f infomation.
J u s t tsrore I
caue away w e hag
a little talk with tne oresicent o f the New York stock
Clearing C o r p o r a t i o n ,
last three ysars t h e
a n d h e pointed o u t t h a t w i t h i n t h e
a
d been n e a r l y f o u r nillion dol-
lars i n securities listed o n the New York Sto
that they had gone u p from twenty-one t o twen
Lions o f dollers, s n d I
think w e ought t o o s care
recognize t h e t s o m e o f t h i s d s f i a t i o n t h a t h a s t a k e n p l a c e
has been largely as rerunding o f obligations.
A r m o u r and
other concerns had seventy-five o r a hundred millions floating i n banks, s n d a large part o f i t has not been li-uidated, b u t i t h a s b e a n refunded,
of s e c u r i t i e s
a n d o f course t h e increase
o n t h e stock Exchange r
amount o f money t o finance it.
8
larger
T h e stock zxchsnge loans
during t h e p a s t y e a r o r tnereabouts,
h a v e g o n e sbout double;
from one billion t o two billion, half of that money coising
from outside o f New York.
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Federal Reserve Bank of St. Louis
The Chairmsn; I
suppose the amountof money o n call,
B82
or i n the tiarket, 9 s y o u express i t , i s a s high o r aporoximately a s high, 3 s a t a n y point i n the history o f the
Exchange.
Ss, i t is; b u t o f course,
i n making t h e
statsnent, w h e n y o u consider t h a t that inersase o f
billion dollars--~ I
feel tnat i f a rate increase i s neces-
sary i t will o s helpful, perhsos, perhaps not nee<ssary,
but helpful,
i f some little educational propaganda, a l o n g
the lines expressed b y Governor Earding, c o u l d b e instituted.
T h e y h a v e b e e n educated
ratio.
t o look a t t h e total reserve
I f some Little educational statsiient that w e might
agres u p o n here,
t o b e linoroved u p o n b y t h e F e d e r a l R e s e r v e
Board, could b e issued, i t would b e very desirabis t o d o it
in sdvance o f 3 rate increase.
the C h a iriman: I
assume that t h e N e w York banks a r e
advising caution, a r e they not?
wr, Case; Y a s .
d é shoula not lose sight o f t h
fact, however, t h a t o u r b i g N e w York vanks a r e financing
out o f their o w n resources, a n d 4 r e not calling o n u s
practically a nickel, unless t h e y have g o n e u p within
last f e w days. i
think w h e n I came w a y t h e Bank o f Come
merce, w h i c h uses u s very freely, j u s t a s they would a n y
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Federal Reserve Bank of St. Louis
83
otner instrument, w a s borrowing t e n o r twelve millions,
but t h s d
her banks, s u c h a s t h e C h a s e a n d t h e G u a r a n t y »
Company, a n d the Bankers! T r u s t Company, a r e a l l off o u r
books,
The Chairman: I
assume that t h e New York banks a r e
throwing o u t sords o f caution t o their custowers,
s o that
they will not come t o a situation, w h i c h y o u s a y you d o not
believe there i s danger of, s n d that i s of surplus inventories and everything o f that sort.
iar. CASE: I
shculd hope they would n o t come t o it.
I should think thers w a s t o o m u c h c o i m o n s e n s e a n o n g t h s
merchants and sianufacturers, a s sell 3 s bankers
Giatsly fall into that condition again.
t o inme-
B u t there i s no
qusstion b u t shat o u r labor i s fully employed, a n d produe-~
tion i s really a hundred p e r cent,
Governor Fancher:
u r . Case, are you advised a s to
the amount o f outsid: monsy that i s loaned o n call i n
New York?
icP. Case; Y e s , just about 3 biliion dollars.
Governor Fancher:
A b o u t h a l f t h e total?
m®. Case;: Abouthalr. R o u g h l y , you Can always
carry that i n mind.
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Federal Reserve Bank of St. Louis
I t may b e 4 5 or i t may b e 55 per
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Federal Reserve Bank of St. Louis
per cent, b u t j u s t about half.
Governor rancher:
S
o that t h e demand back home, a t
rates b e t t e r t h a n t h e c a l l rate, w o u l d t a k e a
very substan-
tial amount o f that?
mr. C a s e ;
cuss i t , b u t I
Y e s .
P e r h a p s t h i s i s n o t t h e t i n e t o dis-
d o think t h a t a l l t h e Governors
banks s h o u l d h a v e a
o f t h e reé-
very intelligent
the s i t u a t i o n t h a t i f t h e r e i s 3 d e m a n d f o r m o n e y b e c a u s e
of a low rats, a n d the other banks s a y that money i s being
loaned o n iall Street a n d insist o n calling i t back, t h e
burden i s inmsdiately thrown o n New York a n d you cannot
get away f r o m it.
The Gnairman:
“ith regard t o that very point i t must b e barne i n
ming that o u r banks i n New York City a r e 3 8 ambitious a t
present a s they have sever been i n the past f o r business,
and that w i t h r 6spect p r t i c u l a r l y
t o thse bsnks i n the
smaller cities, institutions w h i c h put money o u t i n Nev
York, t h a t they a r e orfered t h e services o f tne N e w York
banks i n the matter o f putting money o u t o n eall, a n d they
sre invitsd t o touch t h s button a t a n y tiie a n d cali o n
them.
ur, C a s e ?
Surely,
a n d t h a t i s p e r f e c t l y normal.
B u t
86
ifall t h e other Fedsral reserve banks were t o put pressure
on t h e meiioer banks,
i t would create 4
veryunhappy s i t u a t i o n
in New York,
Governor C : I
would like t o ask you whether y o u
think t h e low inventory situation h a s gons r a r enough f o r
you t o s a y t i a t t h e l e r g e r c o n c e r n s
o f t h e c o u n t r y d o not
show l a r g e i n v e n t o r i e s - - iuP. Uases A b s o l u t e l y .
Governor Calkins: I
tnink that i s not true i n some
lines, a n d w i t h s o m e conzerns.
ur. Case: w e l l , comparatively.
of three isen who sre following that very carefully.
had 3 long conference with theu just a day o r two before
I caiie away.
d
@ have h a d souethinzg l i k e 1 5 0 s t a t e m e n t s
come i n which they have revisued carefully a n d conpared,
and have s a i d that thers w a s nothing i n those stat aients t o
frignten ‘
a
i
d that the “scorched cat dreads
the fire, a n d they did not propose t o gst right into t h e
tire’. a g a i n ,
Governor Calkins;
Y o u get a n earlier opportunity t o
revisw t h o s e t h i n g s t h a n t h e r e s t o f us.
D
O you know shat
the situation i n the automobile industry i s i n detail?
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
87
No, butl should. think that that might
possibly b e a n sxcaption a t t h e monent-- t h e autosobile
Governor Norris:
B e a r i n g o n tne statement b y ur.
Cese that “ a scorched cat dreads t h e fire’, I think I have
noticed t h i s situation.
w h e n business cowisnced
and prices comuenced t o sdvance l a s t fall, a
were a f r a i d t o plunge,
goods,
have,
great imany
a n d m a k e comsaitments
t o buy
T h o s e w h o h a d the courage o r the rashness t o d o i t
i n ths last s i x months, m a d s
i
Those w h o d i c n o t h a v e t h e c o u r a g e j
vious
t o pick u p
o f those w h o h a d more courage
e
a
é
l o f monsy.
w
en-
o r more foresight t h e n
they nad, a n d they n o w have t h e disposition t o jump in,
before t h e crsam i s 311 off.
of knowing, b u t I
O f course, t h e r e i s n o w a y
woulc guess that inventories a t the s n d
of march a r e generally v e r y much larger t h a n they were a t
the e n d o f
Governor iicKinney:
i r , Chairman, t h e conditions pre-
vailing i n the sleventh District a r e somewhat similer t o
those obtaining i n the winneapolis district,
Governor Young.
v e have
u
i
d
a
t
i
o
a s related b y
n
, though,
more o u t o f the sale o f cojwnodities t h a n proozbly i s the
ease i n his district.
f o r examples, o u r c o t t o n c r o p
sold for 209,000,000 more i n our district la.t year than
the year previous, more than double the amount, a n d w e have
secured s o m e L i q u i d a t i o n
Young.
i n t h e manner i n d i c a t e d b y G o v e r n o r
G u r loans a t the »oresent time a r e only $17,000,000,
only 93,000,000 above ths low water mark for us. I
think a n increass
do not
i n the r a t e i n c u r d i s t r i c t w o u l d h a v e a
deterrent effect a t all.
The Chairman;
Y o u r s i s primerily a n agriculture a n d
live stock district,
H o w G o y o u stand w i t h respect t o rate
8S comps red to Governor Young, who states that the rates
run anysherse f r o m t e n p e r c e n t u p ?
Governor ucKinney: I
a m satisfied t h e y would r u n
right a l o n g with him, a n d psrtaps b e a t h i m i n sole c a s e s ,
vur deposits o n the Slst day of vecenber, both member and
non-member b a n k s o f t h e vistrict,
w e r e o n l y 350 per cent
below what t h e y were a t t h e high water mark i n the middle
of 1920.
N e v e r t h e l e s s t h e member panks o f t h e district,
snd the non-meinbers, have probebly profited b y the exper-
ienceé which has been referred to here, end,thersfore, I do
not t h i n k w e n e e d i n o u r d é t r i c t
t o increase t h e r a t e t o
restrain t h e m from abusing t h e privilege.
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Federal Reserve Bank of St. Louis
2
Governor Harding: I
wonder i f Governor :ickinney
would object t o answering t w o o r three questions t h a t I
would like t o a s k him,
I f h e does, I
Governor wcKkinney: L
will withdraw than,
would b e glad t o answer them,
Governor Harding.
Governor Harding; I
would like t o know h o w nsny banks
you h a v e o n t h e s p e c i a l list,
a s c o m p r e d w i t h this t i m e a
year a g o ?
Governor licKinney
& bundped b a n s
at
h
d
e had, a
year ago, praucticoliy
s head office,
as our daily scrutiny list.
o n what w e regarded
A t pressnt w e have 4 5 banks
on that list, a n d o f our total loans o f 317,000,000 t o member banks, I
approximatet
a
h sbout t e n millions a r e t o
those forty-five banks.
Governor Harding:
lions f r o m banks
S o y o u only havs about s e v e n mil-
o n the uaily scrutiny list?---
Governor wexinney:
Y é s , a n d a very interssting t h i n g
‘is the f a c t that w e are along i n our plantin:z season and
yet the member banks ars not making any dsmands.
d e have
attached t o the Houston Branch 1 4 0 banks. C o t t o n i s u p i n
the southern portion o f Texas, a n d yet those 1 4 0 banks have
used only a million dollars, exclusive o f their obligations
secured b y governmsnt ismeés.
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Federal Reserve Bank of St. Louis
90
Governor Harding:
D o you note any improvement i n t i
benks o n your daily scrutiny list?
Governor meKinney:
Yes.
W e have been able t o elim-
inate 55, a n d t h réuainin: banks s h o w substantial iuprovement. I
de not belisve, applying t o our ais trict
that i t would serve any useful purpose t o advance the rate.
However,
i t i s only fair t o say, a s Governor Young hss
stated, t h a t a
four a n d a halfper cent r a t e i
s 6 very l o w
rats, 9 8 comps red t o @ similar r a t e i n New York, w h e n y o u
take into csnsideration t h s rates sharged b y our member
banks, I
belisve w e have o n call i n New Y o r k from the
Dellss banks twelve t o riftesn siillion dgllsrs, which i s
almost a s m u c h a s o u r rediscounts.
Ch3irwan:
A r e t h o s 3banks borrowing f r o m you?
Governor weKinney:
N o , not one o f them. N o n e o f
the city banks are borrowing a eent from us.
au, AGLESOn;
country b a n k s
ing demands,
W e have recsntly recsived from the
i n t h e sxtreme southern
S e n
tions
s a n e scatter-
b u t o u r c i t y b a n k s a r e bormw w i n g v e r y little.
They a r s taking care o f their decline, m u c h o f which reprethe
sents income tax period, b y cailing call loans. f
stand t h e y h a v e g o t t e n t h e m d o w n p r e t t y l o w .
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Federal Reserve Bank of St. Louis
W
under-
e d o not
91
gnticipate e n y great demand f o r several imonths.
T h e ac-
esleration i n business i n our section isnot l i k e that which
has occurred i n other districts.
tant t o s t e p o u t ,
in cur section,
B e f
g
T h e y a r e s o very hesi-
e woula w a n t t h e r a t e i n c r e a s e d
w e would like t o s é
h e e f f e c t o f a higher
rate i n the sections t h a t a r e affected b y the scceleration
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Federal Reserve Bank of St. Louis
which has already ozcurred, t h u s driving back t o u s 2 lot
of t h e loans t h a t a r e i n those cections, a n d then w e c a n
tell better what should b e done w i t h o u r r a tes.
Y o u #ould b e i n favor c f 32dvancing
The Chairman:
you retaining your lower rate?
mr. AGLleson:
P o r t h e t i u e bSing, y s s .
Governor Balley:
Y e are i n just about tle s a m e f i x
s wzinneapolis a n d pallas, I
would w a y .
v
e have g o t a
lot
of call monsy loaned f r o m our district i n New York. P r a c tically n o clearing house c i t y has a n y money borrowed f r o m
us.
I
country.
t i s pactically a l l f r o m t r
J
n a l l banks i n t t
e have increassd o u r reciscounts w i t h t h e siell
country banks, w h i c h represents seasonal demands, something
like t e n million dollars i n the last isonth, a
a low point then. I
have talked t o sous o f the Large
bankers t h re, a n d they d o not f e e l that t h e y a r e going t o
y1
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Federal Reserve Bank of St. Louis
oe
call o n us for s n y great amount, b u t that t h e banks w i l l
take c a r e o f t h s i t u a t i o n ,
a n d t h e s m a l l banks,
t h e banks
with half a millicn o r a million o f ceposits, a r e writing
for commerclal paper all tke time. T h e r e i s a feeling
among the people o u t there that they g o t s t u n g s o hard that
a great many o f them haven't a r
credit, b u t t h e y a r e trying t o get out.
I t l s more a pro -
position o f getting out t h n i t i s o f getting in.
used t o say, they are playing close t o the table.
a thing that 1 s going o n ont thers now, I
A S we
T h a t is
do not think w e
would o e a f f e c t s d a t all, o t h e r t h a n t o c r a a t e q g Suspicion
in t h e m i n d s o f people t h a t soiucthing w a s w r o n g u p hears,
I have t h a t s u s p i c i o n n o w ,
Governor icxinney:
I n connection with the heavier
borrowing o f the smaller banks, y o u give them individusl
treatment, rather than raising the rate, don't you?
Governor Bailey:
Yes.
w e are geing t o haves
sonal demand f o r cattle movement.
out thers, a n d w e exp
a
v
e have great pastur
t s e a s o n a l demand.
Way our member banks h a v e inproved wonderfully i n the
district.
out.
W e have the scrutiny list pretty nearly wiped
T h e r e are a
few banks t h a t a r e going t o get through
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Federal Reserve Bank of St. Louis
93
if w e have a good crop--- i f w e don't, g o o d night,
have more failures.
I t will depend o n the crop.
w e will
I n @ gén-
eral w a y the financial situation i n our district i s very
satisfactory a n d w e are right comfortable.
Governor Calkins:
Y o u say the conditions i n your
district a r e n o r m a l a n d c a u s e n o apprehension.
i o u l d you
say that y o u think t h e condition o f the country i s normsl?
Governor Bailey:
N o , I do not msan that i t is normal
in our country, but I say that there i s a restricted feeling, that t h e f e l l o w s a r s n o t g o i n g o u t o n t h e linub 3gain,
as Governor Young said, I don't belisve.
The Chsiriians G o v e r n o r s e a y ?
Governor seay:
w r . Chairnan, t h e situstion sssms t o
show
be quite healthy, o r at least to/very reuarkable recupe ration, I
think a n y i n c r e a s e i n t h e r a t e w o u l d b e p r e m a t u r e
and very harmful ard c c u l d not b e justified.
t h e r e are
two v e r y g o o d a n d s u b s t a n t i a l r e a s o n s f o r t h e i n c r e a s e d
One i s the increased activity o f business,
and w h e n I
s a y that, I
other i s t h e i n c r e a s e
materials,
mean a
legitinate increase;
i n prices.
t h e
C o n s t r u c t i o n prices,
a n d s o forth, h a v e i n c r e a s e d
raw
1 1 o r 1l2 p e r cent,
or something o f that sort, which i n itself elways absorbs 4
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Federal Reserve Bank of St. Louis
94
larger amount o f credit.
I t seems, thersfore, t h a t w e would
have n o g r o u n d f o r r a i s i n g o u r rates, e x c e p t u p o n apprehen-
sion, a n d apprehension i s a very poor resson f o r raising
rates,
Governor Bailey:
I
f y o u edvanced t h e rats t o 5-1/2
per cent out i n our district t h e little country banks would
closé up; t h e y would b e scared t o déath.
Governor Seay:
T h e activity i s t o a considsrable ex-
tent seasonal, s n d f o r thst reason i t takes more money,
That Knowledge justifies t o t h e fullest sxtent t h e argument
advanced b y the Federal Reserve Bosrd a n d t h e Federal r e serve banks that «zoney razes w e r e n o t controlled b y the
Federal Reserve banks, b u t e r e controlled b y the demand
fo y r credit a n d c a p i t a l
i n t h e o p e n market.
it i s that demand now, a n d a
egitimate deuand, I
cOuwerclal paper,
believe, w h i c h i s raising t h e rates o n
a n d t h e r a i s i n g o f t h o s e cousmercial r a t e s
not resulted i n throwing any unusually neavy demands 9 1
Fed:ral reserve banks.
j h e n there i s activity there
always w i l l b e a certain degree o f speculation, b o t h i n
coumodities a n d naturally i n securities o f those activities
which h a v e s e c u i t i e s
o
n t h e market.
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Federal Reserve Bank of St. Louis
95
Now, going back to January 10, and takins the Board's
stateuent, w h i c h I sent f o r for t k purpose, y o u will rind
that t h e total earnings asssts o f t h e tederal reserve banks
They a r e »1,154,090,000 now.
o f
ug change i n the nature o f those
s:séts. I
find that their bills discounted w e r e
woo0,000,000, a n d t h é
~ M l y ..278,007,000 now; b u t that
trifie.
The Cnsirman:
securities.
Bills bougnt i n thse open market,
ywoeo,000,000, - a n d =237,000,000 now, &
pie ,000, 000.
a
diirerencs o f
t m a k e s about 60,000,000, w h i c h i s 5s
ecourss t h e r e h a s bé6éen considsrable
some slignt increase i n our g o l d holdings, b u t y o u cannot
justiry,
b y taking a
reserve > a n k s ,
comparative s t a t e m e n t
a n increase
Chn2irisan:
o f ti.e F e
i n rate
N o t b a s e d o n the demands u p o n t h e
system.
based o n t i e d-inands u p o n t h e
system, n e ,
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Federal Reserve Bank of St. Louis
>A)
The Chairman:
B u t bssedupon t h e observation o f prac-
tically a l l t h e veriable credit outsice t h s system, a n d
based upon the gathering momentum.
Governor seay:
as,
A s long a s i t remains so, yes;
i n your judgiuent, t h e r e a r e indications,
a s
rather
than @pprenensions t h a t d:mands o n the Federal reserve banks
are going t o increase largely, t h e n I
you w o u l d b e j u s t i f i e d
that extent,
d o not belisve that
i n r g i s i n g y o u r rate, c e r t a i n l y
to
u r . C a s e inentioned souwething about t h e figures
Showing increased uses f o r money o n the Stock xchange,
which has head a great revival i n speculation.
H e is per-
fectly right i n saying that i f all t h e Federal reserve banks
should single o u t those institutions w h i c h might b e lending
money o n the stock Zachange snd call it, that i t would
create a n u n f a v o r a b l e condition.
I
t stikes m e that t o 4
certain p o i n t i t i s n o t t h e p a r t i c u l a r c o n c e r n o f t h e
Federal reserve banks w h e t t h e member b a n k
its monsy.
I t i s alwaysthe concern o f the
bank what a n excessively borrowing b a n k i s doing with its
money;
b u t t h e reasonable u s e c f money b y a n y borrowing
bank I f think i s within thsir discretion.
T h e r e w3s one
thing that absorbed t h e extraordinary amount o f credit i n
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Federal Reserve Bank of St. Louis
97
this country before, a n d that w a s the activities o f t h e
larger banks, I
d o not c a r e s o imuch about t h e interior
country banks, because,
i n the 3 2
g i t h e y would n o t
absorb s u c h a n sxtraordingy amount o f erzdit; b u t there i s
no reason f o r believing t h a t the larger banks have not
learned 3
time.
it. I
lesson which they could not forget i n this short
T h e i r present activities s h o w t h a t t h e y d o reimember
noticed i n ur. Jarburg's address before the
Acceptanee Council 4
little while back h e takes t h e posi-
tion that t h e largest s n d proudest banks ought t o resort
to t h e Federal reserve banks o n l y i n case o f necessity;
that ordinarily t h e y ought n o t t o b e borrowing. i
v
Hekis6
that t h e largest e n d proudest banks have almost s o m e t o
thst conclusion. I
do not think there i s snything i n the
posi ition o f t h e Fed:ral reserve banks that c o u l d afrord
an argunent t h a t could b e sustained f o r a n advance i n
discount rates a t this tine,
premature. I
I n m y judgment i t would b e
do think that i t would b e 3 very wholssoiic
thing i f the Governors o f the banks w o u l d g e t together
more t h a n o n e s e v e r y s i x m o n t h s a n d t a l k a b o u t t h i s p r o -
position.
T h e situation i s such that i t justifies their
coming together a t least every sixty days t o exchange opin-
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Federal Reserve Bank of St. Louis
I w o u l d l i k e t o s d d t o m y raquarks
that there isn't anything i n the Boston cistrict upon whic h
we m i g h t p r e d i c a t e a n y a d v a n c e
trict itself
1 0 s
j
company t h a t i s disposed
i n rates,
s o f a r 3 s t h e dis-
e have only one large trust
a t times
t o iuake d.meands t h a t a p -
as t o o heavy.
the s i t u a t i o n 9 s s o o n a s I
Boston,
a n d made i t m y businéss
business, I
and s o forth.
went t o
t o familiarize myself w i t h thet
had i t all tabulated a n d examined t h e reports
4
n advence
i n rates w o u l d n o t h a v e a n y e f -
fect u p o n tiat concern a t all.
be a d v a n c e d p a r i passu,
s o I
A l l t h e other rates would
want t o t h e president
o f that
bank 6 few days ago, a n d showed him what inicruation I had,
what information I had about his business, a n d ».ked him
why h e was i n so steadily.
H
e remarked that h e found i t
expsnsive t o b e a mewber o f the Ked-:ral Reserve bystem,
admitted, practically, t h a t hse was rediscounting f o r
sake o f profit, I
delicately advanced some views t o
and I do not anticipate any trouble with him whatever,
because I
told h i m I
was g o i n g t o w a t c h h i s deposits,
watch his gensral business, a n d whenever his line got out
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Federal Reserve Bank of St. Louis
99
of proportion I
woule 1
offerings, a n d s ¢
Governor Seay:
e
w i t h particular c a r e h i s
h o h e y u l a n o t get excessive.
T h e r e i s one other thing I
would like
to say, a n d that i s that t h e city banks i n our district
have c o u p l a i n s a t h a t t h s r a t e s h a v e b e s n s o l o w t h a t b u s i -
has not b e e n profitable.
t h e y have n o t b e m sable t o
@ great deal o f money i n the past t e n o r twelve jonths.
are very
e d t o have a n y pretext f o r advancing rates,
i can recell when some o f tie larger banks lowered the
to four perceit,
w e exchansed 6x»:
city banks, 2 n d t h e y vsntured
n e e s w i t h some o f our
t o express t h e hope that that
action sould not b e followed i n our bank, t h e t i t might producs ertificially l o w rates a n a Gamands f r o m tie ir customers
for d i s c o u n t r a t s s t o w h i c h t h s y i e r e n a d e n t i t l e d ,
The Chairman:
d n a t interest r a t e d e your c i t y banks
on b a n k deposits?
Governor seay;
T h e y p a y approxinately
3D
s
per cent,
Tost i s t h e general rate, i s it?
Governor s e a y :
The Chairman:
Governor seay:
S
e
A n d o n savings, what d o they pay?
N o t over tiree p e r cent o n savings.
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Federal Reserve Bank of St. Louis
LOU
Ciiairman: I
think this discussion i s interesting
bs hslpdul i n what m a y c o m e later. I
that
I Was s u r p r i s e d m i t h e v i e w s e x p r e s s e d
acknowledge
b y Chicsgo, w h i c h 6
pressed t h e v i e w s o f o u r board, w e r e n o t i n h a r m o n y w i t h
these expressed generally here. I
would take i t froia
Governor seay's renarks t h e t h e feels w e nesd have n o concern b e c a u s e
o f t h e increasin., spread b e t w e e n t h e g o i n g r a t e
snd the Fedsral reserve bank rate.
T h a t i s interesting,
but I ado not agree w i t h h i m o n it. H o w e v e r , gsntlemen,
it is now five minutes after one, s n d unless there i s objection, t h e Conference will take a recess a t this tine
until 2:30 o'clock p . m.
(dJhereupon, a t 1:05 o'clock p . m., a
recess w o s taken
until 2:30 o'clock p+. m.)
iS
The c o n f e r e n c e r e c o n v e n e d , p u r s u a n t
8,
t o t h e taking o f
recess, a t 2:45 o'clock p. m.
The Chairman:
T h e confermece w i l l pleass c o m s t o
ord=r,
The following telegram has been prepared t o b e sent
x-
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Federal Reserve Bank of St. Louis
to Governor S t r o n g : .
"warch £26,
“Benj. s t r o n g , E s q . ,
Cragmore Sanitoriun,
Colorado Springs, Colo.
Conference h a s requested m e t o send y o u this expression o f
the sincere regret o f t h e Governors assembled i n jashington
that your i l l health m p events y o u r attendance.
A l l miss
you a n d h o p e f o r y o u r s p e e d y a n d e f r e c t i v e recovery.
I. B. webDougal, Chairman.”
And t h e f o l l o w i n g t e l e g r a m h a s b e e n p r e p e r
sent t o iir. Harrison:
“arch 26, 1923.
Gsorge L . Harrison, Esq.,
Union Protestant Infirmary,
1514 Division Street, Baltimore, ud.
Conference rejuests m e t o s e n d this expression o f sincere
regret that 111 health prevents your attendance, Governors
extend s y m p a t h y a n d h o p e f o r y o u r e a r l y recovery.
J.Bs. s¢vougal, Chairman."
Governor Young:
u r . Chairman, I
wish t o report that
the Farm Loan Board will b e very glad t o niset sith us 3 b
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Federal Reserve Bank of St. Louis
10:30 o'clock tomorrow norning.
Case: I
would like t o say that Under-secretary
Gilbert w o u l d like t o ineet s i t h t h e Conference s o l e time
when i t i s convenient.
Tne Chairman: I
suggest that t h Secretary communi-
cate with mr” Gilbert e n d tell him w e would b e glad t o have
him a t a n y time other t h a n tomorrow m o m i n g ,
s t which time
with t h e Farm Loan Board,
‘Now, gentlenen, t h e next topic o n the program i s (d).
(d) R e b a t e s o f discounts.
That i s submitted b y hichond.
Governor seay: i a r . Chairiian, t h e resolution o r
recomisniation embraces both the argument a n d the conclusion,
I think. I
will read it.
the policy o f granting rebates should b e uniform
auong t h e Federal reserve banks;
t h a t i t shoul
t
h
e
regular practice o f reserve banks t o grant a t e s ; a n d i f
and w h e n rebates a r e granted, t h e r s should
son for s u c h action a n d the benefit s h o u l d accrue t o the
customer o f thse ttember bank; t h a t rebates should not b e
made o n member bank obligations (except o n obligations
secured b y Governient bonds, when the bonds are sold prior
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Federal Reserve Bank of St. Louis
L103
to maturity o f t h e obligation); t h a t rebates o n red& counted
paper s h o u l d b e g r a n t e d o n l y i n c a s s s w h e r e s u c h p a p e r i s
enticip t e d b y t h e i e m b e r b a n k ' s custonier, n e c e s s i t a t i n g
repayment o f the paper i n advance o f maturity b y msiuber
bank,
a n d w h e r B thse member b a n k s m a k e r e b a t e s
customers;
t o such
t h a t w h e n Federal reserve banks grant rebates
in such cases, t h e rebate should b e a t the rate a t which
the p a p e r w a s rediscounted, p r o v i d e d t h a t r a t s w e s n o t
higher t h a n ths rate prevailing s t t h e time t h e paper i s
paid,
i n which c a s e rebate s h o u l d b s made a t t h e r a t s t h e n
subject o f reoates h e s coue before t h e
Fedsral reserve banks a n d aid come before t h e m very early
in their organization, a n d while I
sannot find that a n y
conclusion w a s ever srrived at, n o r that a n y ruling b y t h e
Board,
i n s o f a r a s i t l a y within t h e p o v i n c e o f t h e
Board t o m a k e rulings,
w a s s v e r given, t h e r e d i d a r i s e
an
understanding, a s I recall, a n d what i s recited i n this
recomucndation was the understanding arrived at.
I tind that the matter was submitted t o the #ederal
Reserve Bosrd, a n d i f you will look i n the report o f the
Board f o r 1915, y o u will f i n d that t h e language o f t h e
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Federal Reserve Bank of St. Louis
104
counsel o f the Board i s that i f and when rebates a r e granted
there Should b e some good reason for such action, a n d the
benefit shoulé accrue t o the customer o f t h e menber bank.
That w a s t h e position taken a t that tiize b y t h e Board, a n d
it has always besn understood, I
believe, that i n cases
wheres w e w e r e a s k e d t o r e b a t e p a p e r w h i c h h a d b e e n a n t i c i pated b y t h s c u s t o n s r
o f t h e .ienber bank, t h a t w e m s d e t h e
rebate t o save t h e bank f r o m loss.
During the war there grew u p the pactice, w h e n the
benks w e r e greatly expanded a n d the resources o f tie Federsl
reserve b a n k s w e r e f u l l y l o a n e d out,
rowing b a n k s
o f allowing t h e bor-
t o anticipate, e l m o s t a t t h e i r plsasure, p a r t i -
eularly w i t h o b l i g a t i o n s s e c u r e d b y Govermment c e c u r i t i e s .
The matter has come before u s several times recently u p o n
complaint o f some o f our jiember benks that have been in-
formed, s o they write us, that member banks i n otrer districts a r e able t o obtain rebates a t their plessure; t h a t
they were allowed t o rebate a t will, a n d that the Federal
reserve b a n k hss maae full rebate.
Governor Harding:
T h e Bosrd nas always taken the
position that that was a matter f o r adminitration i n each
bank rather than for a ruling b y the Board. I
can see n o
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Federal Reserve Bank of St. Louis
105
objection
t o h a v i n g t h e s a m e u n i f o r m p r a c t i c e a g r e e d upon.
if w e c a n agrees upon i t i n conference,
Governor Calkins: I
do not think Governor S e a y i n -
tended t o s a y that t h e twelve banks have reached a n agreemen’
Waye
s s t o w h a t t h e practices s h o u l d b e , e x c e p t
i n @ gensral
I f they a i d reach a n agreement t h s y violated t h e
agreement a t once, because there h a s been n o uniform pracDace,
i n m y opinion,
I
o pE
disagree w i t h a l m o s t 3 1 1 i n c l u d s d y
in Governor Seay's resolution, B
not
that b a n k s s h o u l d / b e p e r m i t t e d
s e r e e with him
t o withdraw r e d i s c o u n t s a n d
secure rebates unless t h e y h a d good reason ;
the t e m “good rsason® i s a broad one. I
rebates m s d e s h o
h
N o w ,
also agree that
e s a u e rate unless that rate
is higher t h a n t h e prevailing rate, A
gooa reason f o r
recalling redisccunts before maturity i s t h e condition o f
the bank. B a n k s ! rediscounting facilities a r e r o r t h e
purpose c f enabling t h e m t o maintain a reserve.
I f the
opsration o f thse bank brings o n 4a concition wherein t h e
bank has a n excessive reserve a n d wishes t o recall rediscounts, t h a t i s a good reason t o d o so, a n d i t should
be permitted» t o d o it. i
only b e p s r u i t t e d
s u g g e s t i o n i s that t h e y should
to antici~e
t mathrities w h e n t h e maturi-
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Federal Reserve Bank of St. Louis
anticinated b y their customers.
situation s t all. A
man might have rediscounted
paper which i s anticipated, b u t w h i c h h i s customer d i d not
s
t and have othsr paper which i t had not redis-~
anticirs,
younted anticipsted, a n d b e lert w i t h very large reserves,
Ero u c h l y i s . I
think w e s h o u l d t a k e t h e heart o u t
of h i s r e s o l u t i o n a n d s a y t h a t w e s h o u l d n o t a c e s p t a n t i -
cipation o f maturity except when there i s gooa reason for
it, which will leave i t entirely i n the judgment o f ecah
individual bank.
Governor veay: u r . Gnairman, I was intsrrupteca i n
the midst c f m y rauarks---
Governor Calkins: I
beg your pordon, Govérnor Seay,
I thought y o u h a d finished.
Governor Seay; I
h a d not fully stated everything I
intendsd t o say,
one thing i
do believe t o be dzsirable, a n
that i s that i n the practice o f waking rebates there should
be uniformity among the Fedsral reserve banks.
not place me, necessarily,
i n the position o f sdvoc
everythin: that I put down here, b u t i t hed t o @ iis before
this Conference for discussion, a n d in order to ao it it
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Federal Reserve Bank of St. Louis
was necessary t o state something, e n d therefore S
to state t h e different phases o f t h e situation.
One thing I
do believe
t o b e desirable i s that there
should b e = uniform practice i n this respect a m o n g thse Federal
tear
to each Fedsral reserve b a n k a s t o whet i s gooa a n d sufficient reason, b u t thet there s h o u l d b
e 4 varying practice
I do n o t think i s very wholesoine. I
récall that a t our
last mesting this matter w a s brought u p b y mr, witcnell o f
the Board.
I t was n o t o n thse program, b u t I refiember he,
st tnat time, expressed the opinion that csrtain practices
the F e d e r a l r e s e r v e b a n k s d i s p l a y e d l a c k o f u n a n i i t y ,
that i n his opinion i t w a t very desirable a n d also, a t
same t i m e v e r y e a s y ,
t o bring about uniformity.
i
L am
not prepared t o admit that i n all practices i t i s possible
to bring about uniformity i n the f¢
nor would I argue that
b u t I
think this i s o n e i n which
&6t a uniform conclusion. I
doubt
the advisability o f allowing t h e insmber benk t o anticipate
at will.
The Chairman:
Governor 3 s
w n a t i s your m
O
u
actice?
r practice h a s o g e n what h a s b e e n
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Federal Reserve Bank of St. Louis
108
described. A
very f e w o f t h e Governors w h o a r e here were
here from the beginning. I
do not think I am wrong i n
seying t h a t w h e n t h i s m a t t e r w a s d i s c u s s e d
i n ths beginning
the conclusion w a s arrived a t that i f the member banks d e -
sired to rebate, there should be a good reason for it, and
that its customers shouldget t h e advantage o f the rebate.
That w a s stated then, a n d stated directly, I
think, b y mur.
Warburg who, a t that time, was regarded a s the best informed
man O n central banking practice. I
was n o t t h e c u s t o m o f central b a n k s
remember h e said i t
t o r e s e l l t h e i r bLits:
it s a s n o t t h e custom with central banks t o resell their
bankers e c c e p t a n c e s , - - -
Governor Harding: I
think w e want t o svoid the theory
that t h e position o f t h e Fedsral reserve banks i s analogous
-to that o f the central banks o f durope.
Governor Seay: I
Governor Harding:
it 1 s 3
I
t i s not.
want t o avoid that, too, sir.
T h i s i s not 5 yuestion of bills;
question o f redisccunts
t o m e n b e r banks. L
think
it would b e very unwise f o r this Conference t o put itself
in the attitude o f asking the Federal Reserves Board for a
ruling o n this mattsr,
T n e Federal Keserve Board i s not a
legislative body; i t has the Federal Reserve Act for its
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Federal Reserve Bank of St. Louis
109
can make rules a n d regulations
with that ect.
i n ccnformity
T o a s k t h e Fed.ral Reserve Board, without
ny specific authority i n ths act, t o rule, w o u l d b e a
pecies o f l e g i s l a t i o n c o n c e r n i n g t h e i n t e r n a l o p e r a t i o n s
fed oral reserve banks, h i c h Hee expressly covered
in the provisions o f sectinn 4 , a n d sould, I
think, b e a
step i n the wrong direction, w o u l d l e a d t o other lezislative acticns b y the Board, w h i c h would g e t t h e Board a n d
probably t h e w h o l e s y s t e m i n t o trouble.
I
d
o n o t think
this i s 4 matter t h a t ovght t o b e brought t o the Board
or that t h e Board ought t o consider.
h e n I
was o n the
was brought t o the attention o f the Board several
times a n d I
have b e e n consistent i n that attitude.
the F e d e r a l nkeserve B a n k s c a n a g r e e
principle, I
i f
o n soxe uniforn
think t h a t i s a l l t h e y c a n d o , a n d I
think
youhave m a d e a forward step.
Governor S e a y :
I
t i s far f r o m m y intention
the Federal Reserve Board t o rule o n the subject.
always regarded t h a t a s the peculiar province o f the Federal
reserve b a n s ,
a n d whet I
there a r e s o m e p a c t i c e s
stated before I
repeat now, t h a t
o f t h e Federal reserve banks t h a t
ithink should b e measurably uniform, a n d i t would b e very
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Federal Reserve Bank of St. Louis
110
n
i
desirable i f w e cmuld arrive a t a common u n d e r s t a n d g
did n o t desire t o submit i t t o the
on the subject. I
Board. I
a m very much opposed,
a s I said before,
to
centralizing t h e administration o f Federal reserve banks
in .ashington o r anywhere else.
do not believe y o u have a n s wered
The Chairman: I
the q u e s t i o n y e t a s t o w h e t h e r
interest o n request,
o n rediscounts?
W o t a t the will o f the member bank,
Governor Seay:
no, w e d o not.
w
o r not y o u d o rebate
e follow t h e practice which h a s been
outlined h e r e , a n d w e d o n o t l e t a
member b a n k a n t i c i p a t e
but i f i t is paic t o the bank's customer, a n d
the b a n k m a k e s a
rebate,
The Chairman: I
w e rebate
Pf
t o t h e m e m b e r bank.
am going t o ask those whose banks
do make a practice o f rebating atlrequest o f the member
banks w h o want t o pay i n
e e
t
o signify i t b y rais-
ing their hands.
(Zleven o f the Governors raised their hands.)
The Chairman: S p e a k i n g for Chicago, this matter was
very carefully considered i n the early days a n d w e reached
the conclusion that, n o t o g rating f o r profit, t h a t w e
should c e r t a i n l y a c c o r d t h e m e m b e r b a n k s t h e p r i v i l e g e
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Federal Reserve Bank of St. Louis
a4
of paying i n udvance i f they wanted t o d o so.
is, a n d i t i s 4 matter o f record,
O u r plan
a t least o n our minutes,
thet w e will rebate o n request o f member banks, a n d w e
rebate d t the current rate o f discount, t h a t is, t h e rate
current a t the time the request i s made- I
think i t i s impos-
we have suffered a n y evil results. I
sible,
do not think
o r a t least i t i s impractical, Governor Seay, t o
follow t h a t thing through a n d take t h e responsibility o f
determining that, w h e n a rebate i s granted, t h a t t h e customer gets t h e benefit o f it- I
do not think i t should
be confined t o such paper which w e m a y have under rediscount, b u t I
think t h e privilege should b e permitted,
particularly because w e are n o t i n business f o r profit.
s o m e o f you know
kmong t h e c o m e r c i a l banks, a n d probably
more about i t thah I do, although I
remember something
about it, there i s n o uniform custom.
will permit payment i n advance e.-
U s u a l l y t h e bank
I t depends a
good deal
on the money market.
Governor McKinney:
T h e vast majority o f them rebate,
i think.
The Chairman: I
know o f one bank i n vhicago that
has a rule under which they d o permit t h e customer tno take
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Federal Reserve Bank of St. Louis
Liz
the paper up, b u t t h e y charge a
slight f e e f o r it, pos-
sibly a half o f o n e per
I
Governor Bailey:
n the counercial banks I
ested i n , i t depends o n the customer.
a m inter-
I f i t happens t o
pe some fellow I don't care anything about I don't give
it t o him, b u t w e always r e b a t e
t o o u r r e g u l a r customers.
I believe this thing would restrict the rediscounting b y
member banks,
und I
believe w h a t w e w a n t t o d o is. t o m
the banks feel good natured toward usMr. Case: I
think i t w o u l d t e n d t o d r i v e s o m e b o r -
rowing b y s m a l l b a n k s i n t o t h e b i g c i t y b a n k s i n s t e a d
coming
r e s e r v e banks. T
t o t h e Federal
country b a n k s
s a y t o m e time a n d again,
of
have h a d t h e
y i t h respect
t o
_their N e w York correspondents, t h a t a l l t h e y have g o t t o
do i s t o get o n the wire, c a l l t h e bank u n d a s k for a
credit o f {50,000 o n demand, which gives them the right t o
porrow f o r a few days a n d p a y off w h e n they like.
Governor Fancher:
V i t h o u t s t a m p i n g t h e note.
Governor Calkins:
T h e y don't even have t o do that,
Mr. Case, b u t t h e y leave instructions t o draw agsinst t h e
sccount w h e n e v e r t h e v e i s a
Governor Seay:
balunce w o r t h while.
: @ would have n o objection shetever
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Federal Reserve Bank of St. Louis
1135
to following t h e practice w h i c h i s uniform among t h e
Federal reserve banks, b u t I
am quite s u r e I
a m correct
in saying that i n the early history, when-these bills were
offered
t o us,
w e did n o t permit o u r member banks
them back a t their will.
S o far a s I
t o take
can recall, t h a t
is what w e have stated here, a n d i f you will 29° back into
the history o f the discussions t h a t have taken place y o u
will find that what I
we adopted.then.
have p u t d o w n here w a s t h e practice
O f course,
i f conditions h a v e grown
up i n the various banks making i t judicious o r wise t o
adopt a
tous;
diffcrent p r a c t i c e ,
t h a t i s p e r f e c t l y agrceeable
b u t these are things that vere done i n the early
history o f t h e banks,
w h e n w e had a
few bills a n d d i d n o t
Like t o p a r t w i t h t h e m w h e n w e g o t them.
Governor Fancher:
T h e procedure outlined
i n the
resclution w a s t h e procedure followed i n the early days
and continued until the banks began t o borrow freely from
us, during t h e w a r period.
tions a s t o rebates,
T h e n w e waived t h e restric-
a n d e v e r since h a v e allowed rebat-s
any time t h e y were asked for.
Governor Seay:
I f that i s regarded a s good practice
and desirable practice,
w e are perfectly willing t o con-
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Federal Reserve Bank of St. Louis
114
form t o it, b u t I
believe i t i s desirable there should
be a consensus o f opinion t o that effect. I
was eleven t o one just now. I
believe i t
a m perfectly willing t o
conform t o it, e n d t h a t w i l l m e k e i t unanimous.
(After further discussion.)
I will make a
bank g r a n t s a
motion that w h e n a Federal reserve
rebate t h e r e b a t e s h o u l d b e a t t h e r a t e a t
which t h e p a p e r w a s r e d i s c o u n t e d ,
provided that
rate was not higher than the rate prevailing a t the time
the paper i s paid, i n which case the rebate would (bewade)jat t h e rate t h e n prevailing.
The Chairman:
u
@ have followed f o r a long time t h e
policy o f rebating unearned discount o n the basis o f the
current rate, a n d i n the long y u m I think i t works o u t
well.
Governor Fancher:
Y o u rebate
at a
higher r a t e t h a n
your prevailing rate?
The Chairman:
Y e s , w e would, a n d w e have not suffer-
ed from i t a t all.
Governor Harding:
the sentiment I
F o r t h e purpose o f ascertaining
will move t h e question.
Tre Chairman:
G o v e r n o r Seay, w i l l y o u restate your
motion?
Governor seay:
T h e motion i s that w h e n Federal r e -
serve banks grant rertates t h e rebate should b e a t the rate
at which t h e paper w u s redisec-~unted, provioed t h a t rate
was n o t higher t h a n t h e rate prevailing a t the time t h e
paper w a s paid,
i n wihich case t h e rebate should b e made
at the rate t h e n prevailing.
The Chairman: I
could n o t vote f o r that.
(There were calls f r
a
n
dt
motion,
having been d u l y seconded, w a s carried.)
The Chairman: I
.ould have t o be recorded a s voting
ageinst that u n d i n favor o f rebating a t t h e current rate.
Governor Bigzs: i
uill vote with you o n that, tr.
Chairman.
Governor iehinney: I
o u l d l i k e t o inguire
you would d o iith partial payment?
h a t
D o y o u accept partial
payments a n d r e b a t e t h e i n t e r e s t ?
Governor Bailey:
w @ make adjustments o n that.
‘m this matter that Governor S e a y brought
up, w e all agree t h a t i t i s desirable t o have uniformity,
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Federal Reserve Bank of St. Louis
and I
think Governor S e a y has v e r y nicely given a a y t o
the v i e w s
o f t h e other Governors w i t h respect
t o this p r a c -
116
tice, a n d i n view o f the fact that there were ten here
who v o t e d t o follow t h e p r a c t i c e
o f rebating a t t h e rate
at which t h e paper w a s discounted, o r , i f there i s a lower
rate,
a t t h e l o w e r rate, 1
a m wondering
i f y o u would n o t
be willing t o come along with the rest o f us, Mr. Chairman,
and have a n absolutely uniform practice.
The Chairman: I
should l i k e t o d o that, b u t there
are some questions involved there; I
do not know what
they are, but they came u p a t the time w e were fillowing
that practice a n d caused u s t o change o u r plan;
sequently,
a s much a s I regret it, I
a n d con-
would n o t b e able t o
vote with the rest o f the Uonference o n that.
Governor Seay: I
am quite sure that the thing i s
somewhat twisted i n your mind, Mr. Chairman.
i t seems s o
logical and forceful t h a t Icannot imagine a reason for
contrary action, a n d I cannot imagine a n argument which
would support the position y o u take, i f you will pardon me.
Mr. Case;
i f y o u discounted f i f t y million dollars
of p a p e r t o d a y a t f o u r p e r c e n t f o r t e n days, a n d t o m o r -
row you should raise your rate t o 4-1/2 per cent, y o u would
permit a bank to rebete for nine days at 4-1/2 per cent,
and t h e n come back t h e following day?
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
The Chairman:
Mr. Case:
N o .
T h a t i s just where I
think y o u have i t
twisted, M r . Chairman.
The Chairman: I
say, a s the resuit o f operating
under o u r plan there h a s hever b e e n a n y abuse o f it;
w e
do not tolerate it.
Governor Seay:
i f i t i s done a t all i t i s a n abuse.
it seems t o m e you are paying t h e m for t h e privilege o f
handling t h e paper.
Governor Harding: I
think t h e Federal Reserve Board,
under i t s a u t h o r i t y t o a p p r o v e d i s c o u n t r a t e s , w o u l d a t
least t a k e jurisdiction over this phase o f the question,
and I
think they would make a
ruling o n that subject,
as
to what rate should b e allowed t h e bank receiving t h e repate.
< I think i t would b e very proper f o r the Board t o
assume jurisdiction over that phase o f it.
Mx. Case:
I t should not b e a t a higher rate than
the race a t which i t was discounted;
point.
t h a t i s the whole
T h e ikew York bank, u n d e r o u r present practice,
has rebated whenever requested t o do so, and rebated a t
the rate a t which the paper w a s discounted o r the advance
made, e x c e p t w h e n r a t e s h a v e b e e n r e d u c e d s i n c e t h e p a p e r
118
was discounted, a n d t h e n the rebates a r e made a t the lower
rate.
Mr. Adleson: D o n ' t you have criticism from the
mernber D a n k s
o n keeping t h a t e x t r a h a l f o f o n e p e r cent?
Mr. Case: A b s o l u t e l y not.
T h a t i s the custom.
A commercial b a n k will discount paper a t s i x per cent, a n d
when rebate i s requested t h e y will rebate a t four, frequentlyGovernor S e a y : I
can recall w h e n i t w a s t h e practice
in some o f the reserve banks t o retain o n e p e r cent i n
the beginning.
The Chairman: I
pelieve
i n uniformity,
think y o u a r e right about that. I
but I
do not believe
lutely n e c e s s a r y t h a t w e h a v e u n i f o r m i t y
i t i s abso-
i n everything;
I fail t o see anything brought o u t of this discussion which
indicates t h a t a n y b o d y h a s e v e r g o t t e n i n t o t r o u b l e b e c a u s e
of lack of uniformity i n this question, a n d I am not i n a
position t o state that w e will b e willing t o g o along
with y o u o n that, because there i s a feature involved t h r e
that, w h i l e I
a m not informed about i t now, I
a m sure a
question did come u p and w e settled i t i n this way.
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Federal Reserve Bank of St. Louis
Governor Calkins: OCriginally the Federal reserve
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Federal Reserve Bank of St. Louis
1193
banks r e f u s e d
t o permit a n y banks
they were adamant o n that point.
have learned a
t o anticipate maturities;
S i n c e that time t h e y
good deal b y experience, a n d a s a result
of i t they have changed t h e i r views a n d come t o the view
that has been expressed here today.
W e should reach a
conclusion i n regard t o this matter,
a d that conclusion
should b e unanimous, a n d I
insisting
liable
o n the rebate
can see n o reason whatever f o r
a t t h e c u r r e n t rate.
t o b e taken advantage
Y o u are
o f i n e v e r y way, a n d y o u c a n
not b e i f y o u r e v e r s e t h e process.
The Chairman: I
d o n o t a n t i c i p a t e a n y trouble
a t
all a n d I will a s k that m y vote b e recorded a s stated.
Governor Harding: i
for a
think w e should a s k the Board
ruling o n that, b e c a u s e
i t i s related
t o t h e dis-
count rate, w h i c h they have t o approve.
Governor Calkins:
T h e i r ruling will unquestionably
be i n favor o f our position.
T h e y could n o t rule other-
wise.
Mr. Case;
D o y o u want t o present that matter t o the
Federal Reserve Board?
Governor Harding: I
do.
< I move that i t be referged
to the Federal Reserve Board f o r a ruling o n the rebate
propos ition.
Governor Fancher: I
The Chairman:
will second that.
w h a t i s your motion?
Governor Harding:
T h a t the question o f the rate a t
which r e b a t e s h o u l d b e a l l o w e d b e r e f e r r e d f o r a d j u d i c a -
tion t o the Federal Reserve Board.
The Chairman: I
thought I understonrd y o u t o say that
that question should n o t b e put u p t o the Board?
Governor Harding: I
said the general question o f
whether t h e y should allow rebating w a s a banking question
and not f o r
the board;
b u t here i s a question intimately
connected with the Board's statutory authority t o approve
discount rates.
(Discussion followed,'and Governor Harding withdrew
his motion for the time being.)
The Chuirman:
T h a t brings us to topic (e).
{e) Repurchase agreements i n connec-~
tion with rediscounted p a p er.
That was submitted b y Richmond.
Governor S e a y ; I
would l i k e t n r e f < r
fence w h e n t h e stamp t a x l a w was passed.
t o o u r exper-
I t was intimated
to us then that paper might b e taken f r o m member banks,
under a
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Federal Reserve Bank of St. Louis
repurchasing agreement i n bulk, a n d I believe t h a t
121
we were, perhaps, t h e first Federal reserve bank, o r
among t h e first banks t o insti:ute t h a t pactice.
we have found i t has n o w become t h e practice o f all city
banks t o discount w i t h u s i n that way.
I t was a t a time
when o u r resources a n d loans were gradually expanding and,
looking ahead w h e n the time w o l d c o m e whenwe would b e
still further extended t h a n w e were extended, a n d w e
thought w e would n o t have sufficient paper i n proper f o r m
to enable u s t o rediscount.
T h e bulk paper -ie had a l l
came f r o m the city banks i n that form, a n d o f course i t
was f o r the purpose o f avoiding stamp taxes o n their obligations.
points
w
e think i t i s bad practice f r o m a
o f view, a n d o n e o f t h e m i s this:
good m a n y
I t does n o t
enable u s t o k e e p t r a c k o f t h e q u a n t i t y o f p a p e r w e h a v e
of a n y o n e borrower, a n d i f the Federal Reserve Board
should e v e r rule u p o n the proper i n t e r p r e t a t i o nfo the
word "borrower" a n d should take a view contrary t o the
view expressed b y a majority o f the counsel o f the banks,
that the word "borrower" means the maker o f the note, then
I think i t would b e impossible for us t o keep track i n
our liability ledgers o f all paper o f a n y o n e borrower
that
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Federal Reserve Bank of St. Louis
w e had.
#
@ know t h e member banks themselves
are
122
accustomed t o taking paper f r o m merchants a n d granting
credit
o n the endorsements
o f those w h o o w n t h e paper a n d
offer i t t o them; t h e y d o not keep liability ledgers t o
show t h e quantity o f paper t h a t t h e y have o f a n y one name.
I d o not s e e h o w i t i s possible
t o keep liability ledgers
in a way which will keep track o f the paper that will b e
offered
i f w e were t o accept repurchase agreements
number,
a n d i t should c o m e t o b e a
i n any
general practice.
ve, therefore, do not believe, under the provisions which
permit menber banks t o borrow o n fifteen day's time, o n
bills receivable a s collateral, t h a t w e should take that
paper i n bulk a n d give a
fictitious maturity t o i t and per-
mit them t o borrow i n that way.
v
e are opposed t o the
repurchase agreements.
Governor Calkins:
under t h e p r o v i s i o n s
I t appears t o m e i t i s impossible,
o f t h e law,
member banks t o do that.
t o refuse
t o permit t h e
T h e only thing you could d o is
to impose a penalty i n the shape o f a stamp %°:: on the
member bank's note.
count a n y maturity,
T h e l a w pr-vides t h e y shall redisn o t e x c e e d i n g f i f t e e n days, w i t h exact-
ly the collateral you are talking about, a n d the only restrictive provision i s the requirement o f the stamp.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
123
kur, Case:
A n d that makes t h e rate prohibitive.
Governor Calkins:
Exactly.
taking a w a y b y i n d i r e c t i o n a
per b a n k s
I
n other words, y o u are
privilege g r a n t e d
t o t h e mem-
b y t h e Federal Reserve Act.
The Chairman:
w i t h instruments o f that character,
Mr. Case, d o you not require t h e member banks t o execute
their o w n notes?
Mr. Case;
N o .
The Chairman:
Mr. C a s e :
w
Y o u take them i n bulk?
e t a k e t h e m i n bulk,
f o r t h e period
agreed upon, five, t e n o r fifteen days.
Governor Seay:
them u p a t a
D o they give a n y obligation t o take
specified t i m e ?
Mr. C a s e :
Y e s , ' they give a
Governor Seay:
m e m o r a n d u m o r letter.
H a v e y o u had cnunsel pass
o n the
question o f whether o r not that agreement t o take them u p
at a specifien time requires a
Mr. Case;
revenue stamp?
Y e s , o u r counsel h a s passed o n that.
Governor Seay:
O u r counsel h a s taken t h e position
that i t would require a
revenue stamp.
been passed on, t o your knowledge,
Internal R e v e n u e s ?
H a s t h e matter
b y the Commissioner o f
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Federal Reserve Bank of St. Louis
124
took i t up informally with
Governor Harding: I
Roper, a n d h e said i t would n o t require stamps.
Mr. Case:
T h e brokers i n New York today berrow
straight loans a n d d o that v e r y thing.
would like t o inquire how many
‘The Chairman: I
the F e d e r a l r e s e r v e b a n k s
d o make advances
i n the way
New York makes them, against bills receivable i n tulk,
without t h e execution o f a note o n the part o f the borrowing bank?
Governor McKinney:
Governor Bailey:
The Chairman:
w e d o not.
w e d o not-
Governor Seay:
w e d o not.
Governor Young:
The Chairman:
i e d o not.
j
e rediscount a n d permit rebates.
w h a t action d o you want with regard
to this topic, Governor Seay?
Governor Seay: &
consensus o f opinion o f those
here- T h a t always has great weight with me, the consensus o f opinion.
Governor Fancher:
i t i s our policy i n the centers,
to t a k e l o n g t i m e p a p e r u n d e r a g r e e m e n t
t o purchase
at
a shorter time, within fifteen days, say, and I would s a y
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Federal Reserve Bank of St. Louis
125
that 6 0 t o 6 5 p e r c e n t o f t h e b o r r o w i n g s
are d o n e i n that way.
o f those cities
T h a t p r a c t i c e h a s b e e n s o thor-
eughly established that you could not very well disturb it.
The Chairman:
< L have stated t h a t w e d o not l o a n
money i n that way. I
think I
a m right about that, a n d I
do not think i t should b e done. I
believe w e insist
upon taking t h e member banks' n o t e w h e n they borrow against
maturities o f that sort. H o w e v e r , Governor S e a y wants
an e x p r e s s i o n o f o p i n i o n a s t o w h e t h e r
advisable
i t i s deemed
t o c o n t i n u e t h a t practice.
Governor Seay: I
would l i k e t o call attention t o
one thing before asking f o r a n expression o f opinion o n
thats. I
think w e a l l a g r e e t h a t t h e t e n d e n c y i s t o w a r d
relying u p o n t h e credit o f the bank a n d n o t upon t h e eligib tility o r goodness
o f t h e p a p e r o f f e r e d b y t h e bank,
because, under that plan, y o u won't b e able t o keep track
oF it.
D o e s a n y bank assume t o keep track o f liability
paper offered i n any o n e day?
Governor Fancher:
T h a t i s exactly what w e do.
w e
take t h e p a p e r a n d r u n i t t h r o u g h t h e l i n e s a b s o l u t e l y ;
we post i t out and post i t in;
w e apply t h e same tests
to p a p e r o f f e r e d f o r f i f t e e n d a y s t h a t w e d o t o t h a t o f f e r e d
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Federal Reserve Bank of St. Louis
tao
for discount, because oftentimes t h e same paper will b e
offered a t the end o f fifteen days f o r diseount--Governor Seay:
Y o u pass t h e paper through t h e liabil-
ity ledger?
Governor Fancher:
Governor Seay:
Y o u a r e quite positive o f that?
Governor Fancher:
Governor seay:
Myr. C a s e :
Yes.
I s that t h e pr. ctice i n Kew York,
Y e s .
Governor Fancher:
sion, I
Yea.
T o bring t h e matter t o a conclu-
move i t i s the sense o f the Conference t h a t
advances under repurchasing agreements extend a
facility
to which member banks are entitled, a n d which they should
not b e p
recluded
My. Case: I
f r o m using.
second t h a t motion.
(The motion, having been duly seconded, was carried.)
The Chairman:
T h e next topic i s l (f), interpreta-
tion o f word “borrower” i n Section 1 3 of the Federal Reserve Act.
Governor Norris.
T h e r e hasn't b e e n a n y opinion b y
the Board's counsel a s yet, has there?
The Chairman:
I d o not think so.
ilo.
(After discussion:)
Governor Calkins:
I
n order t o save tine, I
offer
a motion that t h e Federal Reserve Board b e requested t o make
a r u l i n g u p o n t h i s yuestion.
{The motion, h a v i n g b e e n duly sesonded, w a s carried.)
The Chairman:
T h e next topic i s 1 (g},
(g) Desirability o f malting eligible
for discount sight drafts w i t h
bills o f lading a t t ched.
I think that h a s been disposed o f b y the A c t o f Von-
gress.
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Federal Reserve Bank of St. Louis
Governor Harding:
The Chairman:
that w e w i l l p a s s
T h a t i s covered b y the new law.
I f there i s n o action necessary o n
t o t h e n e x t topic,
Liability o f Federal Reserve Banks
for s e c u r i t i e s a c c e p t e d f o r s a f e keeping, w h e r e k n o w l e d g e e x i s t s t h a t
they are property o f someone other
than m e n b e r b a n k f r o m w h o m accepted.
Governor Mchinney:
D a l l a s s u b m i t t e d t h a t topic.
have h a d a good many bank failures i n our dis’ rict, a n d
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Federal Reserve Bank of St. Louis
128
the course o f liquidation o f those banks w e have develop-~
ed « a great many legal juestions that perhaps haven't
shown u p i n other districts m o r e fortunate t h a n ours.
-e have followed t h e practice o f issuing trust receipts
to metber banks i n the past f o r government securities,
where w e w e r e o n notice t h a t t h e s e c u r i t i e s r e a l l y b e Longed
t o custorzicrs o f t h e m e m b e r b a n k s .
1
@ have reached
the cemslusion that . e have some liability, possibly, a n d
also that i t i s bad practice generally.
v i e had a case
some months ago where a member bank left .,80,000 worth o f
Liberty bonds w i t h us;
w e issued a
trust receipt i n
that particular bank's name, without anything being put
on the receipt t o indicate whose bonds t h e y really were.
{thin our Imowledge, however, a n individual i n Gallas
e
i aes =
: See
t h e memhad a sort o f equity o r claim against t h e bonds,
per bank w.thdr.w the bonds and sold them, a n d subse,uently failed.
T h a t individual n o w asserts a
claim against
the
us for about 54,000, representing the differeace i n
with us
price o f the bonds a t the time they were left
and the time h e says w e unlawfully converted them.
In addition t o that w e have h a d a
great m a n y member
banks a s k u s t o k e e p b o n d s f o r m a n i c i p a l i t i e s
a n d counties,
129
where t h e y advise u s a t the time that t h e y belonged t o
those subdivisions o f the government, a n d , a s a matter
of fact, aside f r o m the legal liability,
w e felt w e were
not called u p o n t o perform that service, a n d that upon
redelivery o f t h e bonds
w e m i g h t i n c u r s n m e liability,
esp e c i a l l y i n t h e e v e n t t h e b a n k w a s c l o s e d a f t e r t h e r e delivery,
w e having knovledge
a t t h e t i m e o f celivery
that somebody else had a right t o those bonds.
:@ had still another c a s e where a
member bank failed
and a t the time t h e bank failed t h e y had presumably.in
+heir own possession 477,000 worth of Liberty bonds
belonging t o the city i n which the bank was located.
The b a n k f a i l e d a n d t h e c i t y m a d e i n g u i r y o f u s w h e t h e r
we ha@q ever had the bonds, a n d fortunately i t developed
we h a d not. A p p a r e n t l y t h e i r i d e a w a s i f w e h a d h a d t h e m
and had delivered them back t o the bank, knowing their
ownership w a s i n the c i t y t h e y w o l d probably have tried
to have held u s accountable f o r delivery back t o the bank
that was, i n our knowledge, insolvent.
Our theory i s that t h e right t o deposit bonds o r
money w i t h a
Federal r e s e r v e b a n k o r w i t h a
conrmercial
pank does n o t necessarily c a r r y w i t h i t the right t o with-
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Federal Reserve Bank of St. Louis
130
draw, a n d I wanted t o find o u t from the members o f the
Conference what t h e y thought w i t h reference t o obligations
of that character, where you had kmowledge that the securities did not belong t o the member banks offering them for
safe-keeping.
The Chairman:
T h e only way t o get that information
is t o € 9 &round t h e table.
Governor Bailey:
w e have n o such condition.
Governor McKinney:
I f y o u are n o t o n knowledge a s
to ownership y o u might receive s o m e securities f r o m member
panks.
Governor Bailey:
n e receipt right straight t o the
bank, a n d i t has never been drawn t o my attention that w e
have h a d a case o f that ‘kind.
Governor S e a y :
i
e d o not, w i t h knowledge, r e c e i v e
for safe keeping a n y securities t h a t a r e n o t the property
of the bank offsring them.
w @ d o not think i t is good
practice, a n d w e think i t interf<cres w i t h t h e safe deposit
business o f member banks, a n d i e think i t i s subject t o
risk.
The Chairman:
ities?
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Federal Reserve Bank of St. Louis
D o e s t h a t extend t o Government secur-
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Federal Reserve Bank of St. Louis
Governor s e a y :
A l l securities.
Governor Harding: I
do not know o f a n y case o f that
sort t h a t h a s e v e r enome u p i n Boston, c e r t a i n l y n o t w i t h i n
the last sixty days.
I f i t snould,
w e would either
decline t o receive them, o r w e would issue a receipt
under uhich t h e parties a t interest would h a v e t o agree
to the surrender.
Governor Fancher: I
d o not recall s u c h a situa-
tion arising i n the Bank o f Vleveland.
Governor Biggs: i
any.
d o not recall that w e have h a d
I f s e did have a n y w e would refuse t o take them.
n@ are not situated t o take them.
v é @ haven't the vault
space.
Governor Calkins: I
but I
do not recall a n y such instance,
think i t i s s a f e t o s a y i f s e c u r i t i e s w e r e o f f e r e d
to us with information that they «ere not the property
of the hank orfering them,
w e would decline t o accept
them; b u t i f we have not that information w e are not
chargeable w i t h liahility.
Governor Norris:
“
@ o n l y extend t h e safe keeping t o
securities q m n e d b y the member b a n k depositor.
I f w e knew
that anybody clse owned them, w e would decline t o accept
Y «
Loz
them.
ot
S i n c e this g e s t i o n w a s p u t o n t h e p r o g r a m b y
Dallas, I
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Federal Reserve Bank of St. Louis
directed t h a t there b e added t o the f o r m o f re-
ceipt that i e zive for securities the words “ahich are the
property o f t h i s bank".
Governor Young:
.
@ uccept securities f o r safe keep-
ing from member banks only, b a t I
a m satisfied a
great
number o f those belong t o customers o f the banks. =
never h a d thisquestion brought u p before.
Governor McKinney:
I n those cases y o u would not be
einer ship?
Governor Young:
% h , yes, I think w e are o n notice.
That arises i n this way. M i n n e a p o l i s a n d St. Paul are
full o f a lot o f hold-up men; b a n k robberies a r e common
out there; t h e banks i n the country have small saf s
that d o not amount t o very much a n d e a n b e easily broken
into, a n d w e have simply done i t t o help protect o u r member
benks.
I
n addition t o that w e have banks deposit Govern-
ment s e c u r i t i e s w i t h u s f o r s t a t e t r e a s u r e r s a n d t o w n s h i p
treasurers, a n d things o f that sort, and that receipt goes
right t o the state treasurer.
Governor Mchinney:
you a r e a u t h o r i z e d
D o y o u think that i s a service
t o perform?
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Federal Reserve Bank of St. Louis
13s
Governor Young; I
but i t i s a
do not know ‘nether i t i s o r not,
condition o u t t h e r e t h a t i s a
pretty b a d thing.
.6 may b e urong about it, b u t t h e question never cane t o m e
before.
«
@ have experienced
n o d i f f i c u l t y w i t h i t s o far.
lted o u r attorney about it.
L d 0 n o t know o f
anything i n t h e l a w t h a t w o u l d p r n h i b i t - w s f r o m a c c e p t i n g
that. stuff.
F o r 3
V E@
t o n k t h e other day---I
not know w h o i t belonged to--- ,80,000,
do
o f the money that
was stolen a t the Denver iiint.- T h a t i s i n our bank now.
Governor Bailey:
Governor Young:
O h , i t has been sent d o w n t o you?
Governor Bailey:
Y e s .
Governor Young:
i t any rate, t h e Secret S e r v i c e .
men came in; t h e y had t o ceposit t h e money sone.
They wanted t o keep those bills t o use them a s evidence,
and w e took t h e money f o r safe-keeping,
i v i n g t h e chief
of Detectives i n St. Paul a receipt for it, subject t o
his order.
Governor Seay:
Governor Young:
T h a t was a
special c a s e ,
o f course.
e s .
#@ would n o t think o f taking securities
from member banks where t h e y are t h e property o f their
I have here a
upon it; I
long legal opinion f r o m o u r counsel
won't read it, b u t h e makes t h e point that
where the bank i s a gratuitous bailee its responsibility
runs o n l y f o r cross rezgligence
5
c
o
m
-
pensation i t i s responsible f o r ordinary negligence.
Then h e ~oes o n t o say that i t u o u l d s e e m the federal r e serve bank has t h e right t o receive property o f that kind
in trust f - r member banks f o r their customers, without
any obligation t o inquire u s t o the terms o f the
Of course,
i f the member bank violated t h e terms
trust a n d t h e Federal reserve b a n k h a d knowledge
such violation,
o r i f the bank profited i n any w a y for
such violation, i t sold b e liable, but otherwise i t appears n o t .
My. i d l e s o n :
v
e d o n o t knowingly accept securities
that b e l o n g t o a n y o n e else.
Governor Harding:
I f Governor McKinney o u l d h a v e
his counsel look u p the .labama Keports I think h e sould
find that about ten years ago a case was tried b y the
Supreme Court o f -lehama which involved s o m e o f the principles t h a t h e h a s l a i d down.
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Federal Reserve Bank of St. Louis
T
t seems t h e r e w a s a
bank
1355
thet r e c e i v e d f o r s a f e k e e p i n g f r o m a u customer c e r t a i n
securities.
T h a t tank turned o v e r f o r safe-keeping t o
another tank a n d told t h e bank t o take good care o f them,
that t h e y vere n o t theirs, a n d although t h e y put that bank
on notice,
t h e y d i d n o t r e v e a l t h e n a m e o f t h e customer.
However, t h e y did have notice that they didn't belong t o
the bank from which they received them.
T h e n , l a t e r on,
the small bank went back t o the larger bani: a n d asked f o r
securities, s t a t i n g that t h e customer santed them,
they were surrendered.
S t i l l t h e larger bank d i d
know t h e name o f the customer.
T h e n i t turned o u t
that t h e s m a l l b a n k m a d e i m p r o p e r u s e o f t h o s e s e c u r i t i e s
and t h e owner o f them brought s u i t a g i n s t t h e larger bank
and t h e courts, a l l the w a y through, t o o k the position
that t h e o w n e r
o f t h e securities w a s n o t damaged
b y the
larger bank, because he, himself, h a d picked n u t t h e small-
er bank u s the custodian o f his securities, that the
smaller b a n k h a d p u t t h e securities w i t h the larger bank
and that after t h e smaller b a n k received t h e m bck, s o far
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Federal Reserve Bank of St. Louis
as the ouner w a s concerned h e wus exactly i n the same
position a s though those securities h a d been locked u p i n
the v a u l t s
o f t h e s m a l l e r b a n k a l l t h e time.
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Federal Reserve Bank of St. Louis
Governor Bailey: I
would l i k e t o a s k whether i t i s
c ustomary f o r t h e F e d e r a l r e s e r v e t a n k s
of s e c u r i t y f r o m t h e m e m b e r bank.
w
t o take a n y kind
e have confined o u r -
sélves absolutely t o Government bonds a n d municipal bonds
lately-
< € are not taking any other kind.
Governor Seay:
T h e r e w a s a time w h e n w e came into
po ssession o f securitics, p u t u p a s collateral b y a member
bank for Government deposits, a n d w h e n those deposits
were paid o f f w e were left - i t h many o f these securities
on hand, a n d have continued t o hold a
number o f them.
do not, h o v e v e r , i n v i t e p r o m i s c u o u s s e c u r i t i e s .
‘ e
" e @ have
it understood t h a t w e will accept government securities,
and i f there a r e others occasionally s e n t t o us, w e d o
not decline t h e m o r scnd t h e m back.
Governor Young:
The Chairman: I
u @ take anything.
would l i k e t o h a v e t h e Governors
indicate b y vote those banks w h i c h take securities other
that Government securities.
(The count indicated that eight Governors voted i n
the affirmative.)
Governor Calkins:
2 @ came into possession o f every-
thing b y reason o f t h e fact that t h e banks depnsited a l l
157
sorts o f securities f i
m
e G e p o s i t s , a n d w e took
them « n d held them.
Horris;
o l d y o u take them,now, anyhow?
Governor WUlkins:
Governor Bailey.
N o sir.
e s advertise t h a t w e will t a k e
Government e n d municipal bonds, b u t that i s a s far a s # e
Ze
The Chairaan:
I
n Vhicago w e take negotiable securi-
ties w i n e d by. t h e banks.
»
@ take a
signed c e r t i f i c a t e
to
the effcct t h a t t h e y are mined b y the banks, a n d w e have
recently issued a
bulletin which contsins t h e provision
that t h e Chicago bank will b e responsible o n l y f o r t h e
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Federal Reserve Bank of St. Louis
same diligence t h a t i t iould u s e i n caring f o r its o w n
property.
(after further discussion:)
hy, Mesinuey,
d o y o u wish a n y action o n this subect?
Governor iickinuey: I
The Chairman:
think not, cir. Chairman.
T h e n w e will pass t o the next one.
Governor vase:
B e f o r e passing t o the next topic,
there i s one matter that m a y b e o f inte-est t o the GovernaYSs
D o m i n hew York s e d o hold miscellaneous securities
for member banks.
#
@ pecently, a f t e r v e r y careful con-
138
ideration, h a v e d e c l i n e d
t o execute c r d e r s f o r m e x b e r
anks f o r t h e purchase o r sale o f stocks.
lutely discontinued t h a t practice.
them L i b e r t y b o n d s
i
o r municipal b o n d s ,
for collateral, e i t h e r f o r l o a n s
i
e have abso-~
e buy o r sell f n r
s u c h a s a r e éCligible
o r i n the w a r Loan deposit
account, b u t w e will not exesute orders f o r t h e purchase
or sale o f stock. _
h a v e discontinued that.
found t h a t w e will b e a s k e d t o e x e c u t e
:
@ have
a n order t o b u y o r
a thousand shares o f Maricopa oil, l e t u s say, a n d t h e
person for uhom we did it would say, "ihy, the Federal reserve bank i s the purchaser o f this," and s o we got out o f
ite
The Chairman;
T h a t question was discussed here a t
length some time ago, and I think i t developed that the
banks, generally, were not doing anything of that sort.
Governor Norris: [
we l i k e t o ask lir. Uase i f
he refuses t o accept orders f o r t h e purchase o r sale o f
bonds?
iy. Gasei io--~- I said Liberty bonds and municipal
bonds, b u t 1
a m urong about that, b u t w e d o not execute
erdérse f o r stock.
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Federal Reserve Bank of St. Louis
Governor ilorris:
4 e will exeoute a n order for the
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Federal Reserve Bank of St. Louis
Lor
purchase o r sale o f any security that a bank would b e likely t o invest i t s o w n funds in, b u t w e d o not accept orders
for stock o r speculative bonds.
The Chairman:
T h e next topic i s (i),
(i) I m p o r t a n c e o f New York Call
Loan Market.
My. Case: I
think that w a s touched u p o n this mern-
ing during t h e discussion o f the credit policy. I
do just
want t o point o u t that today t h e call l o a n market employs
two billion dollars o f money, o n e billion o f which comes
from banks located i n the other eleven Federal reserve
districts. I
am not holding a brief for «all Street, but
I do feel, a n d have felt a t times, t h a t there w a s a misunderstanding ahout t h e importance a n d desirability o f the
call l o a n market.
« h e n w e stop t n consider that during
the past three years, during t h e period o f so-called liquidation, t h e r e h a s been a tremendous amount o f refunding,
so
that t h e l i q u i d s e c u r i t i e s h a v e g o n e u p f r o m 2 1 b i l l i o n
to 25 billion dollars, w e mist. keep i n mind that that i s
a very important machine f o r melting daown, i f y o u please,
frozen loans, a n d i t i s merely that w e should a l l have a
sympathetic understanding o f t h e importance o f the call
loan m a r k e t a n d n o t p u r s u e d r a s t i c m e t h o d s
i f presently w e
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Federal Reserve Bank of St. Louis
140
get into a little blow und the demand for credit increases,
because i f i t isn't treated i n a reasonable way, i t can
cause quite a flurry i n the financial centers.
Governor Builey: i
think most o f the call money i n
our section o f the ccuntry i s lent therebecause i t i s the
best market, a n d t o maintain a n e q u i l i b r i u m d
n
a t o b e used
as a convenience.
The Chairman:
T h e call money market dominates t h e
open market rate f o r money. I
remember a
long while a g o
a committee w a s appninted charged w i t h t h e responsibility
of investigating t h e feasibility o f doing a w a y with the
call money market and establishing i n its place something
else.
Mr. Case:
T h a t was referred
t o t h e warburg American
Acceptance Council, and they never made a report.
fact o f t h e m a t t e r i s t h a t i t i s a
T h e
v e r y h a r d n u t t o crack.
(Discussion followed o n this subject.)
The Chairman:
L e t u s proceed t o the consideration 8
our next topic,
(j) Credit statements o f holding
corporations- S h o u l d s t a t e m e n t s
of s u b s i d i a r y c o m p a n i e s b e r e q u i r e d
Federal r e s e r v e b a n k s ?
Governor Seay: I
would like t o read a
memorandum
by
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Federal Reserve Bank of St. Louis
141
which was prepared i n our bank o n this matter, w h i c h i s
as follows:
‘Trem time t o time during t h e last f e w years o u r
2 r e s a
c
S
Credit Department h a s had’more o r less embarrassing situation w i t h r e f e r e n c e
t o t h e p a p e r o f c e r t a i n ecnrporations
arising o u t o f the fact that t h e statement o f the borrowing corporation d i d n o t disclose t h e trze assets a n d liabilities o f the corporation b u t was made u p b y combining i t s
assets a n d liabilities w i t h t h e assets a n d liabilities o f
one o r m o r e i n d e p e n d e n t l y c h a r t e r e d c o r p o r a t i o n s k n o w n a s
subsidiary companies.
I
n some cases t h e information
is
given that t h e parent owns a l l o f the stock o f the subsidiaries.
I n other c a s e s ,
i t has o n l y a
partial vocwner-
ship.
Under t h e s e circumstances,
i t i s manifest t h a t t h e
borrowing corporation m a y b e purely a flLaanté-veorporation,
with n o liquid assets o f its own, while t h e subsidiary corperations m a y hold a
sufficient amount o f liquid assets
to m a k e t h e c o n s o l i d a t e d s t a t e m e n t r e f l e c t a
excess
satisfactory
o f q u i c k a s s e t s o v e r c u r r e n t liabilities.
eaoh c o r p o r a t i o n i s a c t i n g u n d e r i t s o w n charter,
Since
they
are i n d e p e n d e n t p e r s o n s b e f o r e t h e law, a n d t h e a s s e t s
of
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Federal Reserve Bank of St. Louis
142
one o f the subsidiary companies could n o t b e held i n all
cases f o r the Webts o f the borrowing corporation.
More-
over, w h e n the parent corporation i s doing a l l o f the borrowing a n d f o r t h e p u r p o s e
o f making advances
t o subsidiary
corporations, y o u c a m o t estape t h e conviction that t h e
paper o f t h e muabaicdiangy p a r e n t c o r p o r a t i o n c o m e s u n d e r
the following description quoted f r o m Regulation A
Federal Reserve Board defining eligibility:
be a note, draft,
have b e e n u s e d
of the
" I t must n o t
o r bill o f exchange t h e proceeds o f which
o r are
t o b e used «+* *
*
for t h e purpose
of lending t o some other borrower."
In a d d i t i o n t o t h i s c o n s i d e r a t i o n t h e r e a r e ,
i n our
o pinion, many objections from a credit standpoint. S u p pose t h e p a r e n t c o r p o r a t i o n
h a s borrowed a
considerable
sum f o r t h e p u r p o s e o f l e n d i n g t o s u b s i d i a r i e s
BD, while subsidiary a
B , C G and
owns t h e quick assets w h i c h gave
p roper color t»% the eonsnlidated statement.
w h a t could
prevent t h e p a r e n t c o r p o r a t i o n f r o m b o r r o w i n g a d d i t i o n a l
sums e n d p l e d g i n g a s c o l l a t e r a l t h e c a p i t a l s t o c k o f
subsidiary A ? T h i s , i f done, would, u p o n receivership
give a preferred c l a i m t o the sesond class o f lenders a n d
deprive t h e first class o f all t h e security which they had
143
relied o n i n lending t o the parent corporation o n the
consolidated s t a t e m e n t .
In January, 1919, Governor Harding o f the Federal
Reserve Board addressed a
letter t o i'r. Treman, Deputy
Governor o f the Federal Reserve B a n k o f lew York,
i n which
this subject w a s reviewed a n d i n which Governor Harding
wrote:
"From time t o time t h e attention o f the Board h e s
been called t o the present custom o f a number o f large
corporations
o f submitting
t o banks
far use
as
of credit, financial statements w i t h o r without a n u d i -
tor's Certificate, showing the oondition of the parent o r
principal corporation only, without refe:-cnce t o the intercorporation a c c o u n t s
o r bank loans a n d other indebted-
ness o f i t s s u b s i d i a r y corporations.
"Such statements are incomplete, a n d i f credit
grantors are t o be fully advised, t h e Board believes that
the i n f e r m a t i o n s u b m i t t e d s h o u l d i n c l u d e a
statement
addition
o f parent
consolidated
a n d a l l subsidiary corporations
i n
t o separate statexents f o r e a c h subsidiary c o m -
pany."
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Federal Reserve Bank of St. Louis
while t h e prohlem was approached i n the letter quoted
144
from a
different a n g l e ,
i t i s p e r f e c t l y c l e a r fihat t h e
Board expressed t h e opinion that theFederal reserve bank
was entitled t o have, a n d i n fact should have, n o t only
the c o n s o l i d a t e d s t a t e m e n t b u t s e p a r a t e s t a t e m e n t s
subsidiary corperations.
I
o f the
n o u r opinion t h e Federal r e -
serve bank should undoubtedly h a v e a t least t h e separate
statement o f the borrowing corporation showing its assets
and liabilities, a n d showing a l s o i t s stock holdings i n
other o r subsidiary corporations a s stock investments.
ue have h a d a number o f experiences during t h e last
few years,
i n which a n insistence u p o n complcte informa-
tion has caused u s t o change materially o u r attitude
toward p
aper offered, u p o n p r e s e n t a t i o n
o f t h e complete
information, u n d we aré inclined t o the opinion that Federal reserve banks should refuse t o rediscount paper
oe a f t e r a
reasonable t i m e h a s b e e n a l l o w e d
i n each
case, p r o v e r i n f o r m a t i o n w h i c h w i l l e n a b l e t h e b a n k t o
determine the eligibility o f paper offered and its acceptability f r o m a credit standpoint i s refused.
Seven years a g o our credit files contained v e r y f e w
vorrowers' statements o f a n y description.
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Federal Reserve Bank of St. Louis
T h e r e was a
very general feeling a t the time that satisfactory informa-
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Federal Reserve Bank of St. Louis
145
tion could n o t b e obtained i n anything l i k e t h e majority
of cases, a n d t h e banks would b e seriously embarrassed i f
they w e r e r e q u i r e d
t o a g k borrowers
f o r statements
submitted t o the Federal reserve bank.
t o be
¢ h i l e o u r policy
of requiring statenents w a s deveioped gradually a n d diplomatically,
i t w a s n e v e r t h e l e s s d e v e l o p e d w i t h firnness.
In the case o f a n y given bank, w h e n w e felt that suffricient n o t i c e h a d b e e n g i v e n a n d s u f f i c i e n t t i m e a l l o w e d
in which t h e bank could procure borroiers' statements,
we
pegan declining t o take t h e paper unless acanmpanied b y
& s a result,
satisfactory credit information.
w e have
in our files today sovzething like twelve o r fifteen thous-
and borrowers! statements, “any o f which reflect conditicns
year a f t e r y e a r f o r s e v e r a l y e a r s .
.e@ have h a d cases involving consolidated statements
in w h i c h t h e p a r e n t c o r p o r a t i o n ,
u p o n o u r r e f u s i n g t n o as-
cept t h e i r p a p e r w i t h o u t s a t i s f a c t o r y i n f o r m a t i o n ,
has
furnished u s directly u n d confidentially w i t h all nesessary information.
It i s true that other Federal reserve banks a r e askjing for complete information i n many cases. lHevertheless
they are taking paper of a number o f corporations having
146
subsidiary c o m p a n i e s
i n spite o f t h e f l a t refusal
corporation t o give proper information.
o f the
I t has been urged
fn this connection that the Robert Morris Associates i s
engaged i n educational w o r k along this: line, w h i c h i t i s
hoped will eventually result i n a change o f heart o n the
part o f some o f the larger corporations.
H o w c a n w e ex-
pect theRobert Morris issociates b y expressions o f opinion t o fight o u r b a t t l e f o r u s w h e n v e s l e a r l y h a v e m o r e
power i n a day t o accomplish o u r lesitinate object t h a n
they could expect t o exert i n years?
T h e demand f o r
complete i n f o r m a t i o n b e f o r e a d v a n c i n g m o n e y o n t h e p a p e r
of any particular borrower i s theroughly reasonable, provided,
o f course, t h e b o r r o w e r
i s given reasonable t i m e
in w h i c h t o collect a n d f u r n i s h t h e information.
to r e q u i r e
i t under r e a s o n a b l e c o n d i t i o n s
Failure
i n a n y parti-
cular case makes i t exceedingly difficult t o cbtain i t
in other cases, a n d t h e known practice o f one o r more
Federal reserve banks o f first asking f o r information a n d
then acting without i t must o f necessity p u t other Federal
reserve banks i n a very embarrassing position, n o t only
with reference t o cases i n which t h e paper involved circulates i n several reserve districts a t the same time b u t
also w i t h r e f e r e n c s
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Federal Reserve Bank of St. Louis
t o cases confined
t o single reserve
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Federal Reserve Bank of St. Louis
districts.
we think i t would b e a step tewards a
very desirable
end i f the Federal Reserve Oystem would t a k e t h e position
that when a corporation o f that character, which offers
its paper o v e r t h e ccuntry generally, offers paper tno the
Federal reserve banks, that t h e banks should require f r o m
that s o r p o r a t i o n a
iés.
statement w i t h r e g a r d
t o its subsidiar-
I n the case o f Armour & Company, whose last state-
ment indicated w h a t t h e situation would b e after consolidation w a s accomplished,
s h o w s t h a t i t i s impossible f o r u s
to t a k e t h e p a p e r o f t h a t c o r p o r a t i o n e x c e p t u p o n t h e
general theory o f its h i g h standing, a n d s o forth, a n d k n o w
what y o u are doing, unless y o u get t h e statements o f t h e
subsidiary corporations.
Inasmuch a s w e r e q u i r e v e r y c o m p l e t e c r e d i t i n f o r m a -
tion from other smaller borrowers, I
do not see why we
should n o t t a k e t h e p o s i t i o n t h a t t h e F e d e r a l R e s e r v e
System should require i n the case o f either large o r small
corporations,
w h o s e p a p e r i s offered
t o i t f o r diseount,
credit s t a t e m e n t s w h i c h w i l l e n a b l e t h e b a n k t o h a v e a
com.rehensive
view
o f the financial
situation
o f t h e scom-
pany, a n d you cannot get that view, i n the case o f nolding
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Federal Reserve Bank of St. Louis
148
corpovations, without statements o f their subsidiary
companies.
Because a
company i s l a r g e a n d h a s h i g h
eredit w e d o not think a
sufficient reason f o r making i t
an exception, a n d w e should l i k e t o see, i f there i s a n y
unanimity o f o p i n i o n - r v i s i o n t a k e n b y t h e F e c e r a l r e s e r v e
banks, t h a t s u c h statements a s t h e y see f i t t o call f o r
in order t o perfect their credit information, s h o u l d
either b e furnished b y the corporations i h i c h are asked
for them, o r that i t b e given o u t that s u c h paper i s not
otherwise acceptable.
Mr. Case;
I n New York i t i s our practice, a n d I
am
reading from a memorandum furnished b y our loan department,
when t h e facts clearly demonstrate t h a t t h e borrower i s
purely a holding company, n o t engaged i n direct operations,
4ts s u b s i d i a r i e s b e i n g t h e a c t u a l o p e r a t i n g c o m p a n i e s ,
not
to decline s u c h p a p e r
o n t h e g r o u n d t h a t i t i s /issued f o r
business p u r p o s e s a n d t h e r e f o r e
count. I
i s n o t eligible f o r redis-
think i t i s very desirable t o pursue t h e eourse
you suggest a n d have eomplete statements, n o t only o f the
parent b u t o f the subsidiary company 4 s yell. I
do
think, however, i f you are going t o follow that prac tice,
for instance i n the case o f armour & Company, that you men-
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Federal Reserve Bank of St. Louis
149
tion, t h a t w e w o u l d h a v e t o p u t f o r w a r d t h e d a t e a f t e r
which y o u would n o t discount s u c h paper.
d i n other words
I do not think y o u could s a y arbitrarily that w e would n o t
take a n y m o r e a r m o u r p a p e r u n t i l
w e had a
statement
in
accerdance w i t h your views, b u t that o n and after January
lst w e w i l l n o t d i s c o u n t t h e p a p e r o f a n y l a r g e concern,
with three o r four subsidiaries, without having a complete
statement o f the subsidiaries.
Governor Seay: I
hold t h a t identical opinion, a n d
discussed t h a t v e r y point,
a n d t o make a
local a p p l i c a t i o n ,
in the case o f the Virginia~Carnlina Chemical Company,
we made a
demand a
few years a g o o n them and t h e y a t first
declined t o aocede t o it, a n d w e simply advised t h e m that
the paper would n o t b e acceptable.
f
e told t h e m that
if they s o elected they might zive u s those statements i n
confidence, a n d they decided t o give us’ the statements.
we were unable t o get s u c h complete information a s w e
desired t o enable u s t o absolutely determine o n the
eligibility o f the paper that was offered t o us until w e
got the statements;
Governor Bailey:
w e insisted upon them and got them.
“ e @ have a great many lumber com-
panies that have fifteen o r twenty plants
150
and w e h a v e i n s i s t e d
o n the
Sidiariess f i l i n g s t a t e u e n t s w i t h t h e p a r e n t conipsny.
Governor seay:; i
k n o w gonerally tnet auring t h e
War t h e a c c e p t a n c e b u s i n e s s w a s v e r y m u c h s b u s é d b y
eat
packing corvorations.
Governor Calkins:
a n d others.
(After further discussion: )
Governor Norris:
I t seems t o m e i t would b e best
let 8 Cconuittee b e appointed t o rrame =
recoumendation
the subject, t o define i t a Little more accurately a n d
what would b e re:uired. 4
report s h o u l d p
e made t o the
Yonference later, s n d adopted.
Governor Calkins:
7
@ have n e v e r hesitated
t o demand
information which we thought was necessary to enable
us to
determine t h e acceptability o f a n y paper.
The Chairiman:
A s I understand Governor Norris! mo-
tion i t was that a coumittes b e appointed t o rormulate
this
in derinite terms a n d submit e
ences f o r adoption.
recomuendation t o this eonrser-
I s that your plessure,
o r d o you e@sire
to further discuss t h e motion,
(There w a s n o further discussion, s n d t h e motion,
having b e e n duly seconded, w e s carried.)
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Federal Reserve Bank of St. Louis
The Chsirman:
T h e Chair will sppoint o n that con-
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Federal Reserve Bank of St. Louis
Mr. Uorris
wittee/ar. Calkins a n d ur. Fancher. (3)
I understand wr. Gilbert h a s signifiedhis desire t o
come into t h e conférence, a n a until h e gets here w e may
proceed w i t h S s c t i o n 2
o f t h e program.
If, C o l l e c t i o n s a n d Clearances,
(a) K e p o r t o f standing Vonmittee
on Collections.
The Chairnian: B e f o r e taking that up, however, I
like t o state,
would
i n the interest o f uniformity, t h a t Chicago
Will reverse its vote with regard t o the matter o f rebating.
without g o i n g into detail, t h e r e w a s a very g o o d reason
at t h e time that rule was put i n t o effect, a n d I think there
1s g o o d r e a s o n y e t , b u t t h e r e i s n o n e e d t o g o i n t o =
cussion o f the matter.
dis-
T h a t leaves i t eleven t o one, a s
I understand it.
Governor Biggs: I
will b e very g l a d t o reverse m y
vote also, lure. Chairman,
The Chairmen:
T h a t makes i t a unanimous vote.
Now, w e will a s k the secretary, u r . Barrows,
t o point
out the salient points i n this Collection Comnittee’s report.
Ye Barrows:
u r , Strater,
i n his letter transmit-
ting the report, states t h a t i n his opinion t h s report i s
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Federal Reserve Bank of St. Louis
152
such that i t cannot b e approved a n d adopted 2 s a wholeby
the Conference o f Governors, t h a t many o f the points
covered d o not carry w i t h t h e m a recousendation regarding
the course t o b e followed;
t h a t t h e really vital part o f
the report i s contaired i n the first f e w pages, w h e r e h e
points o u t that cight o f the Federal reserve banks h a v e
adopted circulars enbodying t h e identical wording a s recom-
mended; that is, Boston, N e w York, Philauelphia, Cleveland,
Chicago, S t . Louis, Kansas C i t y s n d S a n Francisco, a n d that
the F e d e r a l r e s e r v e b a n k s o f HKichmond a n d A t l a n t a h a v e
Signifiled their intention o f issuing n e w circulars a t a n
early d a t e , e n b o d y i n g t h e r e i n t h e r e c o n m e n d a t i o n s
conmittes a s approved,
o f the
T h e report o f t h e conmittee is:
"To the Conference o f Governors:
In the report o f thé standing Coumittee o n Collections
made t o the Confsrence o f Governors, held o n Uctober 10,
i922, i t was recowiended that e a c h federal reserve b a n k
issue new check collection and non-cash colisction circulars,
i n which certain portions
with i
¢ntical w o r d i n g ,
o r paragraphs s h o u l d b s used
i n order t h a t c e r t a i n v a r y import-
ant conditions necessary t o the circulars o f a l l o f t h e
banks might b e uniform a n d idsntical.
f h e report o f the
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Federal Reserve Bank of St. Louis
153
Couimittee w a s approved b y the Gonference w i t h the proviso
that each Governor might discuss w i t h t h e Chairman o f this
Committee t h e propriety o f making slight changes o r suggest
possible anendiuents t h e r e t o f o r c u r r e n t considsrsation b y
this Coiuittee.
T h e following eight banks have since is-
sued n e w c i r c u l e r s e m b o d y i n g ,
i n identical w o r d i n g
mended, t h e various portions o r paragraphs which i n the
opinion o f y o u r C o m m i t t e e s h o u l d b e uniform:
Boston
C
New Y o r k
h
i
c
S
a
t
Phiieaelphia
K
Cleveland
S
a
n
g
o
. -L0uas
s
a
a
s City
n trancisco.
The Federal Reserve Banks o f Richiiond and Atlanta have signified their intention o f issuing n e w circulars a t a n early
date e m b o d y i n g t h e r e i n t h s recoiunmendations
as
by the Conrerence o f Governors.
"Several changes o r additions have been sugges
the Federal Reserve Banks o f ninneapolis a n d Dallas, T h e s e
changes o r additions affect o n l y t h e persgraoks defining
general conditions u n d e r which Federal reserve banks w i l l
receive checks a n d non-cash collection items f r o m their
menber b a n k s
s n d f r o m other Fedsral
reserve banks
a n d branches
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Federal Reserve Bank of St. Louis
154
or direct sending banks o f other districts.
T h e Comittee
has given the suggested changes o r additions very careful
thought a n d i s of the opinion,
a s stated i n its previous
report, t h a t t h e » a r a g r a p h s d : f i n i n g g e n s r a l c o n d i t i o n s
should s t a t e a s c l e a r l y a s possibie,
i n a
liability o f the Fedsral reserve banks.
that the changes o r sauitions are sugeé
to p r o v i d e p r o t e c t i o n
complications,
general w a y , t h e
I t i s appsrent
i
n a n effort
i n t h e event o f possible f u t u r e
b u t your Comulttee
i s of t h e opinion that
such a contingency i s already covered i n the uniform paragraph i n general terns. Y o u r Couwittee has recognized
from the outset that a
psragraph t o b e uniform e n d 3cespt-
able t o a l l F e d = r a l r e s e r v e b a n k s c o u l d n o t b e p h r a s e d t o
cover particulisr cases o r temporary conditions peculiar t o
g district but must b e t n general terms t o b e susceptible
of interpretation a s covering all conditions.
"The Federal Reserve Bank of minneapolis has indicated
its willingness t o adopt, f o r use i n its check collection
circular, t h e uniform Liability paragraph sugseuted b y the
Co.mittee, b u t desires a l s o t o insert i n its circular
under the eeaine, “Ttems Received", a clause intended t o
eliminate liability i n certain specific cas¢s.
:
This
clause, w h i c h t h e C o m i t t e e believes i s i n effect n o a g e
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Federal Reserve Bank of St. Louis
155
than a n amplification o f the unifori general liebility
parggraoh i s a s follows:
"The practical way of collecting checks not drawn o n
banks
i n minneapolis
o r St. P a u l i s t o f o r w a r d t h e m d i r e c t
to the drawes banks,
A s exigencies m a y srise niaking this
inadvisable, t h i s b a n k reserves t h e right o n rsceipt o f
any
ths
s
G
]r
o sdvise t h e sending bank b y w a e ,
special
instructions,
2
t o hold
23 n d thencerorth.
a t £
the risk o f t h e owner, hendle t h e cheek i n accordane
inst.uctions received."
"As explsined t o the C o m i t t e e
b y a representative o f
the uwinneapolis r e s e r v e b a n k , t h i s a c d i t i o n i s p r o p o s e d
in o r d e r t o iisget a
conaition w h i c h i s more uivricult
t o
handle i n that district t h a n i t i s i n certain other districts.
T h e Couwlttee, notwithstanding t h e consitions a s
explained t o it, i s unaniixously o f t h e opinion that i v the
winneapolis reserve bank, knowing these conditions, t a k e s
thisprecaution t o protect i t s enuorsers,
i t i s certainly
exercising d u s diligence a n d care, 3 s provided i n the unifori paragraph recos..endsd b y this Comuittse, s n d that particular r e r s r e n c e
t o spe
l e c a s e s would only tend t o
weaken t h e uniform liability paragraoh.
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Federal Reserve Bank of St. Louis
156
"The Federal Reserve Kank cf Dslias proposes t o insert
in the liability paragraph o f its check collection circular,
thes following acoition:
dsral reserve banks will not b e held liable
for t h e acts o r omissions o f any other banks o r collisctors
to w h i c h s u c h c h e c k s
o r o t h e r c a s h i t e m s m a y b e transniitte
as herein provided . o r f o r t h e loss i n transmission."
and i n the liability paragraph o f its non-cash collection
circular t h e following acdition:
“That the Fed:ral reserve banks will not b e held
liable f o r t h e scts o r omissions o f any other banks o r collectors t o which such non-cash collection items m a y b e
transuitted a s h e r e i n provided,
o r f o r loss
i n transnission,
either o f t h e itess thenselves o r cocunents attached
thereto."
"The Federal Reserve Bank o f vallas states that the
audition o f this language i s desirable because i t rormed the
basis f o r a decision b y the Supreiie Court c f Texas i n favor
of & Commercial b a n k which used this language i n outlining
the terms s n d conditions und¢r which i t received checks.
"as stated previously i n this report, parsgraphs t o be
uniform a n d a c c e p t a b l e
t o all Federal reserve banks c o u l d
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Federal Reserve Bank of St. Louis
157
not b e phrased t o mest particular cases o r conditions sand
the Conmittce i s o f the opinion that t h e uniform: liability
paragraphs,
a s approved, a f f o r d t h e D a l l a s r e s e r v e b a n k
ample p r o t e c t i o n ,
s i n c e t h e bank only 3
grees
due diligence a n u care o n its part s n d consequently cannot
be h e l d r é s p o n s i b l e f o r t h e s e t s o r omissions
o f others
or f o r l o s s i n transnilssion.
last report o f the ctanding Coin..ittse o n Collections réconuended f o r m letters t o b e exchanged between Federal reserve banks o n the subject o f cirect routing o f
checks a n d n o n - c a s h c o l l e c t i o n i t e m s b y t h e i r iisiuber banks.
This letter provided t h a t each rederal reserve b a n k would
be a u t h o r i z e d
b y t n e other Federal reserve banks
t o receive
and h s n d l e c h e c k s a n d n o n - c a s h c o l l e c t i o n itsius f r o m i.aaber
banks
o r non-iember c l e a r i n g b a n k s
o r other districts
i n
all respects i n the s a e manner s n d subject t o the same
terms a n d c o n a i t i o n s t h a t a r e p r e s c r i b e d
b y tne receiving
Fed-ral reservs bank f r o m tiie t o time f o r t h s handling o f
items f o r w a r d e d
t o i t b y other Fedsral reserve banks o r
by its o w n member banks.
O n the other hand, t h e circulars
issiéd b y e a c h r e d = r a l r s s e r v e b a n k p r e s c r i b e t h e teriis a n d
conditions u n d - r w h i c h i t w i l l r e c e i v e i t e m s f r o m i t s i e m -
ber banks.
T h e recommendation o f t n e Committee, therefore,
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Federal Reserve Bank of St. Louis
158
that t h e s e l e t t e r s b s e x c h a n g e d w a s p r e d i c a t e d u p o n t h e a b solute u n i f o r m i t y o f t h e l i a b i l i t y p a r e g r a p h s r e c o m e n d e d
in the Committee's report and the Committee i s unaninously
of t h e o p i n i o n t h a t u n l e s s theses p a r a g r a p h s a r e untirornly
used i n a l l o f t h e F e d - r a l r e s e r v e b a n k s , v i t h id. ntical
wording, t h e r e i s great possibility o f conrusion,
b y reason
of t h e fact that t h e terms a n d conaitions applicable b e tween a Federal reserve bank a n d its members w i l l vary f r o u
the terms a n d conditions applicable between i t s members a n d
Other Federal reserve banks, a n d u n d . rsuch concitions n o
Federal reserve b a n k could s a y t o its .éuber banks i n its
liability paragraphs t h a t “every b a n k sending items t o u s
orto another Fed:rel reserve bank for our sccount will be
understood t o have agrsed t o the teria and conuitions o f
this circular."
I t can be plainly sean that, i f the
Fedsral Keserve Banks o f iinneapolis a n d vallas insist
upon t h e changes o r additions w h i c h they proposs, t h e other
FeG.ral reserve banks w i l l b s c o m e l l e d t o alter a n a revise
their circulars, sight o f which, a s stated before, have
already b e e n i s s u e d e m b o d y i n g t h e u n i f c r i p a r e g r a p h s s u g gested b y t h e Comiiittese.
T h e Colwilttee a l s o t h i n k s
i t is
probable t h s t i f t h e e s s e n t i a l u n i f o r m i t y d o e s n o t exist,
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Federal Reserve Bank of St. Louis
159
¢ reserve banks may feel itnecessary t o withdraw
the letters, w h i c h they n a v e alredy sent out, giving blanket
guarantee o f sndarseuent o n all items farwardsd uirect b y
their m e m b e r o a n k s
t o o t h e r srederal r é s e r v e banks.
ters referred t o have already b e e n sent o u t b y 31ll o f the
reserve banks except minneapolis.
"Phe Counittee i s strongly of the opinion that, i n
order t o o b t a i n t h e n e c e s s a r y u n i f o r u i t y ,
e a c h *edsral r e -
serve bank, w h i c h h a s n o t s l r e a d y d o n e s o , s h o u l d s d u p t a l l
of the uniform paragraphs spproved a t t h e last Conference
of Governors,
a t least until s u c h a time a s i t ceenis
advisable t o issue n e w circulars o n these t w o subjects,
when a n y c h a n g e s t h a t experiences m i g h t p r o v e
t o b e desirable
and susceptible o f being auspted b y 31l t h e Fed=ral reserve
banks c o u l d be m
i
t seens t o t h e Conmittee t o b e
unnecessary t o point o u t t o t h e C o n f e r e n c e
o f Governor
in the event a n y reserve b a n k issued circulars esubsdying
any wording which W a y possibly b e construed : s 3 variation
from t h e i d e n t i c a l
l a n g uSa g e
w h i c h h a s a l r&s a d y
b e e n used b
sight o f t h e banks a n d which t w o other psnks have signified
their intention o f using, t h e long uesired uniformity o f
regulation a n d p r o c e d u r e b e t w e e n F e d e r a l r e s e
b a n k s #ill
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Federal Reserve Bank of St. Louis
becoue Imporsible o f achisvement."
ur. Case:
T h i s is a
v e r y l o n g report,
but i t is a
very i m p o r t a n t o n e , 3 n d i t d e v e l o p s t h a t t e n o f t h e b a n k s
are o f one mind w i t h regard t o t h e circular.
hed a
beautiful i l l u s t r a t i o n
o f uniformity,
W e have just
and I
a m wonder-
ing i f t h e other t # o banks w o u l d n o t b e willing t o join
with the t e n banks f o r t h e sake o f uniforwity, a n d if, later
on, t h e practise should prove, s a y within t h e next s i x
months, t h a t i t would b e néecsssary t o revise t h e circular,
that could b e brought u p , e n d i t could b e : a i d
E
S
think i t would b e certainly most desirable i f w e could have
a uniform circular
The Chsirnan:
a t t h i s tine.
I f wallas i s willing t o accede t o the
uiginent o f tne Coniittee o n that o n e point,
t o the effect
Dallas i s afforded a l l t h e protection that i t seeks,
Dallas would b s o n the right side, but I und:rstand
Governor Young that there were some things concerning
Which h e asanted t o expresshinself.
Governor wekKinney:
A s t h e report o f the committee
indicates, t h e language ewbodied i n our addition i s ianguage construed b y the Supreme Court o f +exas a n d was used
on 2
cash lstter that w e s construed b y the Supreme Court o f
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Federal Reserve Bank of St. Louis
161
Texas, and, Knowing thst b o t h judges a n d lawysrs d o not alWays exactly understand t h e technical dstails o f banking,
we thought i t w e s very desirable t o get what t h e lswysrs
sometimes c a l l a “horse case" onthem---
i n other words,
this language h a s b e e n approved b y the Suprenie Court o f
Texas, a n d ».s thought i f w e had i t i n our circular w e would
toward getting o u r circular i n setisfactory
however,
w e are just s s much impressed saith the
necessity s n d a-sirabllity f o r uniformity 3 s t h e rest o f
you, s o w e have dstermined t o waive this aaditicn a n d g o
along with the rest o f tne banks.
Governor Seay: I
mr, C a s e said,
would like t o say, s u p p l e . . e n t i n gt
a
h
w
a t t h i s i s one o f t h e most perplexing things
to handle that t h i s Conference h a s ever h s d t o consider,
It has b e e n pending f o r two years, a n d I believe that a l l
the Federal reserve banks h a v e b e e n conlpelled t o give a n d
take i n order t o get i t into this present shape. I
know
that w e h a v e s u r r e n d s r e d s o m e o f o u r v i e w s a n d opinions.
the o p i n i o n t o w h i c h G o v e r n o r ieKiiunsey r e f e r s w a s l a i d
before o u r counsel, a n d h e consiasred i t sand advised u s
thet notwithstanding the decision o f the state Court, h e
wes, nevertheless,
o f t h e opinion that y o u would b e sufrfi-
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Federal Reserve Bank of St. Louis
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d o not k n o w o f a n y subject
ciently protected. I
o n which
there i s 3 s great neccssity f o r uniforsity a s there i s o n
this c o l l e c t i o n subject.
“ i e c a n accept t h a t r e p o r t
in
statu 2u., a n d then, a s Govsrnor Case has said, i f conditions
arise subseiuently which make i t neci:ssary, a u e n d i t b y a
subsequent Conference;
b u t unless
w e start w i t h something
we Will have expended o n nothing 9 great a e a l o f lsbor.
Governor Young: d
a g r e s d o n this report,prac-
tically o n everything, b u t this i s one clause that v e u o
not like t o give i n on.
éither right o r wrong. t
T h e report o f the couwuittses i s
s
wrong and does not protect
ininneapolis i n the proper way, w e should not have that
uniform circular, a n d there c a n b e n o ywsstion sbout that.
de h a v e e m p l o y e d t h e b e s t l e g a l t a l e n t o f t h e Northwest;
we have soe 496,000 worth of items now, and it is a
tion whether w e should p a y t h a m o r not.
w e have already
settled with regard t o »,20,000 o f them, paid the money.
Theres are conditions i n our district t h a t epperently y o u
people d o not realize a n d d o not und: rstand.
v e r y day
there i s laid upon m y desk a list o f the banks that a r e a
day o r more late i n their remittances t o us, end that will
run t o approximately 1 2 0 0 banks every day, t h a t a r e fron one
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Federal Reserve Bank of St. Louis
L63
to t e n days lete:
200.
W i t h the Hslena Branch i t runs u p t o
i n winneapolis i t involvss ,1,500,000, a n d i n wontana
about Ȣ00,000.
O u r bank: s
i willing t o take that chence,
so long a s s e can, a n d t o t r y t o work that situation out;
but i n the State o f south Dakota right a t t h e moment, t h o s e
banks a r e being held u p b y the state Departient. I
d o not
know w h e n they a r e going t o get t o t h e end o f their resources, b u t t h e y arsat s o m e tine, a n d i n 311 probability
#e@ W i l l h a v e f i r s t n o t i c e o f it, a n d w e d o n o t p r o p o s e
to
sena checks o u t t o 3 bank that «se know cannot p s y t h e chec ks,
because w e feel that w e are not exercising d u e care a n d
diligence i n cases o f that kind.
checks o u t there.
w & Cannot s e n d those
T h e W a r Finence Corvorstion refussd t o
send notes o u t t o pupal; a n d t h e T w i n City Banks rerused t o
send notes t o them. |
The s s t legal talent w e c a n employ
says t h a t t h i s g i v e s u s a l l protsetion,
t h i s liability clause
that w e want t o add, a n d w e ought t o either use that o r
discharge t h e attorney, | ‘This i s simply t h e opinion o f
collection n e n i n the Fed:ral reserve banks./ I
may b e
wrong. | (It centers right d o w n t o a legal guestion, e n d i
believe t h a t before this report i s sprcroved, i t ought t o
be r e f e r r e d
t o t h e counsel
o f the Fed-ral
Reserve Boerd
t o
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Federal Reserve Bank of St. Louis
164
fing o u t whetlier t h e F e d r a l R e s e r v e K a n k o f winneapolis
is right, o r whether i t i s wrong. | Our psople a r e satisfied
that they are going t o lose L o a n e r
b u t there has t o be
a limit t o the amount o f money t o b e lost und=r those conGaitions.
Governor ssay;
W é @ have a great . a n y similar cases,
Which are exceptions, s n d w e are willing t o take whatever
risk m a y b e involved.
ly 23nd technically,
I
d
t m a y b e that y o u a r e right legal-
e know that w e will have t o d e t h e
same thing, nevertheless, w h e n s e d o that thing w e are
willing t o take t h e risk involvea, because w e do. not be-
lieve i t i s going t o amount t o anything practically.
Governor Young: H a v e you paid any checks yet?
Governor seay: ‘ N o , w e have not.
uP, Case;
Willing
A s I understand it, Governor Young i s
t o g o @ l o n g w i t h t h e rest
o f t h e Governors
o n this
report, subject t o approval o f counsel f o r t h e ¥ed°ral
Reserve Board that ininneapolis i s protected. |
Governor Young:
N o , I
will not d o that.)
lur. Case: I
thought y o u s a i d y o u w o u l d d o that.
The Chairmsn;
T h e clause thet y o u want t o insert,
Governor Young, according t o the judgment o f t h e coumittee--
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Federal Reserve Bank of St. Louis
165
[ think they express i t i n this way--- i s appersntly nothing
more t h a n what they c a l l a n amplification;
i t does n o t
strengthen t h e thing i n any way.
Governor veay:
a s far a s this being only t h e report
oliection m e n o f the Federal reserve banks i s concerned,
good aes] more. I
know o n e o f t h e officers
of o u r b a n k w e s o n t h e c o u m i t t e e w h i c h p r e p a r e d i t , a n d I
know h e c o n s u l t s d w i t h t h e superior o f f i c e r s
o f t h e bank,
and I know t h e y consulted counsel o f t h e bank, e n d I know
thst probably t h s sane course w a s
reserve banks, T h e r e r o r e , I
believe i t i s more t h a n a n
expression o f opinion o f the Collection iuen o f t h e banks.
ecognize t h a t i n s o m e o f t h e exceptions,
t o w h i c h Gover-
nor Y o u n g h a s alluded, t h e r e m a y b e r i s k s o n t h e p a r t o f
the Fedatral reserve banks, b u t w e d o n o t shrink f r o m taking
that risk.
Governor Young: w i n n e a p o l i s h a s n o t b e s n negligent
in this, j o v e r 4 year ago I took this up with ur. Harrison
and h e a g r e e d t h a t o u r s u g sestions s e r e a l l right
t o put i n
that circular.| - = t i l l nothing w e s dons b y t h e mmmittee.,
it sent o n from one mesting t o another until w e sere forced
to a n issue o n it. I
had t e 3 s k psmmission o f this colle e -
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Federal Reserve Bank of St. Louis
tion committee t o permit o u r u e n t o appear before them.
I think this is a legal question, a n d 1 ac not know anything
about i t .
Governor ucKinney:
v o e s y o u r c i r c u l a r sitibody t h i s
language--Governor Y o u n g :
the o t h e r b a n k s
Y e s .
t o get u p a
J
e got tired
o f waiting
ror
uniform circular s n d w e put o u t
our own, t h e s a m e a s N e w Y o r k did.
Governor weKinney:
sending o f s
U
n the uestion
o i siligence,
the
wire b s c k t o t h e s e a d i n g b a n k m i g h t i n v o l v e
some aelay, wight i t not?
Governor Young: I
do not think
aey.
Governor Calkins:
G o v e r n o r Young's position,
a s IL
und rstand it, i s this--- a n d I might s e y thet a n inrormal
conferencs w a s h e l d o n t h s t r a i n c o m i n g f r o m C h i c a g o
‘ashington,
to
o f which Governor ucvougal w a s chairuan---
that b y inserting t h e clause proposed b y the kinneapolis
Bank i t will b e protected t o a greater extent than it i s
by t h e d a u s e c o n t a i n e d
the committee,
i n the uniform circular proposed
T h a t is a
legal question,
h e says,
a n d?
by
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Federal Reserve Bank of St. Louis
167
while i t might b e subnitted t o t h e counsel f o r the Federal
Reserve Board t o rend:r a n opinion o n it, t h a t would b e only
One m o r e opinion.
opinion.
O t h e r counsel might r e n d r
a contrary
T h e r e i s n o neans o f escertaining until t h a t
question i s edjudicated, a n d s o I think w e should take u p
the y u e s t i o n i n t h i s c o n f e r a n c e
o f whether t h e c l a u s e t h a t
or does
Governor Y o u n g wishes t o insert does n o t orfer h i m a n y
mors p r o t e c t i o n t h a n t h e S t e e o n e ,
anywhere t o s a y i t i s a legal matter.
I
t does n o t g s t u s
I
t i s also a
tion o f policy a n d judaguent, a n d n o t necessarily only a
legal matter,
Governor seay:
s n o t h e r point i s that already eight
of the Fedsral reserve banks have i s s u e d circulars o f a
uniform nature,
a n d t h e assiranility
circulsrs p r e c i s e l y u n i f o r m
o f having a
i s 42 very s t r o n g
one
very justifieble one.
Goverror Calkins: f
have d u e regerd f o r t h e
opinions o f counsel, b u t sometimes i
think practical m e n
are guite a s competent t o give opinicns o n subjects o f
this kind e s are the legal men,
Governor harding:
v o s s y o u r counsel understand t h e
proposition thoroughly, Governor Y o u n 2
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Federal Reserve Bank of St. Louis
168
GovernorYoung:
Y o u mean o u r counsel
Governor Herding:
Governor Young:
i n linneapolis?
Y e s .
W e have had cases i n which he has con-
sidered the arguments o f the other side and told us to settle.
T a k e t h e case o f 4 niember bank that w e have every
reason t o believe---
i n fact w e know--- i s insolvent;
bank s h o u l d b e closed,
a n d there i s a
possibility
t h e
of a
100 per cent assessment o r action b y thse dirsctors t o get
money i n , w h i c h t a k e s t i m e . :
a c t i o n t a k e n b y u s under
those conditions precipitates t h e closing o f the bank when
it might b e a good thing t o keep t h e bank open.
(after further discussion: )
The Chsainian:
crete, I
I
n order t o g e t d o w n t o something c o n -
am going t o ask the Secretary t o read ths para-
graph i n the so-called uniform circular, a n d also t o read
the paregraph which Governor Young would like to substitute.
Governor Young:
W o t substitute, b u t put i n in sddi-
tion,
(The Secretary tie reupon read the two clauses.)
Governor Young:
this legal question.
A s i say, I
am not prepared t o discuss
T h a t i s what o u r counsel tslls u s t o
do, a n d I a m quite #illing t o drop t h e whole subject a n d
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Federal Reserve Bank of St. Louis
1o9
have o u r counsel put u p hisargument
i n writing t o t h e
other counsel, a n d have i t d.termined w h o i s right.
If
our counsel] i s right, t h e n that ought t o g o into the uniform c i r c u l a r ,
The C h a i r m a n :
A
S I
understand
the situation
w e ars
cieven t o one o n it, and i t doesn't seem that w e are going
the nistter.
ire Chairman, I
W h a t i s y o u r pleasure?
move t h a t t h e matter b e re-
ferred b a c k t o the cosmittee w i t h instructions t o take t h e
matter u p with Governor Young's counsel a n d see i f they
cannot c o n s t o soue agreauent o r have h i n sgree t o t h e unifori c i r c u l a r w h i c h h a s b e e n a p p r o v e d b y t h e other e l e v e n
banks.
The Chairman: I
ani afraid that w i l l not suit Gov er-
nor Young.
Governor Young?
Ths Chai rusns T h e n , i f there i s n o objection o n the
part o f t h e Confersnes, t h a t course w i l l b e taken.
There a r e other topics i n this report w h i c h I will a s k
the s e c r e t a r y
t o p o i n t out.
iY, BSrrows: 1
nex
n
y i s “Liebllity o f Federal
endorseients
o n checks
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Federal Reserve Bank of St. Louis
recsived
f o r collecticn.
“Thistopic w a s subuwittea t o t h e l a s t C o n f e r e n c e
of
Gove>nors b y the Feds:al Recerve Bank o f Dallas e n d by the
Conference s u b m i t t e d
t o t h e Standing Committee
The C o w w i t t e e h a . r e c e i v e d f r o m G o v e r n o r «
setting f o r t h h i s v i e w s
o n Collections.
hinney 2
letter
i n c o n n e c t i o n w i t h t h e topic, e n d ,
the Coimittee hes given the matter careful censid*ration,
Principal point brought o u t b y Governor wcikinney i n
Comuiunication i s that t h e phrase guaranteeing prior
al reserve banks i n their e n dorsement i s ultra vires und=r Regulation J
of series o f
i920, issued by the Fed:ral Reserve Bosrd, which reads, i n
part,
a s follows:
“in handling itens for member end non-member clearing
banks, @
F e d r a l reserve b a n k will a c t a s egent only. T h e
Board will rejuire that e a c h menber 2 n d nommasber clearing
bank suthorize i t s Federal reserve b a n k t o send che
for collection t o banks o n which enscks a r e drawn,
tor negligence s u c h Federal reserve b a n k will assume n o
liability."
"There a p n e a r s
t o b e sore juestion a s t o t h e application
of t h e a b o v e - j u c t e d s e c t i o n o f R e g u l a t i o n J .
w a s i t in-
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Federal Reserve Bank of St. Louis
171
tended t o prevent s
Federal reserve b a n k f r o m assuming t h e
liability o f s guarantor o f endorse.
aid t h e paying bank?
i
n
t snd
a
& between itself
t o prohibit t h e gusranty
of endorsements t o the paying benks,
i t appears doubtful a s
to whether o r not t h e provisions o f t h e regulation would b e
held binding u p o n non-.. guaber banks w h i c h have n o cecasion
examine t h e regulations o f the Feaer3l Reserve Board
or t h e c i r c u l a r l e t t e r s
o f i n s t r u c t i o n i s s u e d b y t h e Hedseral
reserve banks,
The Cousittsce i s of t h e opinion that t h e point reised
by G o v e r n o r w c K i n n e y
therefore,
i s a legal o n e a n d t h a t i t should,
b 2 referred t o the Couns
F e d e r a l Re-
serve B o a r d f o r a n opinion,
fn order
t o place pefore t h s Sonfermece
o f Governors
the practical probleis involved i n ths possible slimination
<A
oi t h e g u a r a n t y f r o m t h e e n d o r s e n e n t
o f Federal r e s e r v e
banks, t h e Comulttese desires t o subi.it t h e following:
1. A l t h o u g h a t t h e last Confsrence o f Governors i t
developed t h a t s e v e r a l
o f t h e banks w e r e n o t u s i n g t h e guar-
anty o f prior ¢miorsements,
t h e Comalttes i s now edvised
that the guaranty i s being used uniformly b y each o f the
Ssral Federal reserve banks. T h e : e f o r e ,
3 8 a metter o f
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Federal Reserve Bank of St. Louis
practice t h e use o f the guaranty i s now uniform.
Ss T h e guarnty o f prior endorsements i s i n use b y
the lsrge iusjority o f banks i n tne United states and i n
Sous cases i t s u s e i s required unuer clearing house regulations.
Oe
I f the guaranty w e r e oniitted f r o m the endorssment
of F e d e r a l r e s e r v e banks,
i t i s extremely likely that t h e
prompt a n d expeditious collection o f checks w o u l d b e sere
lously i n t e r e f e r e d w i t h , s i n c e i n uwany c a s e s t h e p a y i
banks know nothing o f preceding bank eniorsers w h i c h s r e
often located i n cbscure sections.
T h e paying bank would
therefore hesitate t o rely u p o n a n unknown enuorser f o r
protection i n case i t should later develop that 3s previous
enuorssement w s s f o r g e r y .
4.
I f the Federal reserve banks should b e success-
ful i n evading liability o n such guaranty, t h e reders]
Reserve syatem will probably b s subjected t o serious criticism and t h e impression would b e crsated among both meuber
end non-iember banks t h a t t h a position taken b y the Federal
reserve b a n k s w a s t e c h n i c a l a n d unfair.
The Committee belisves that t h e point raised b y Governor
wuCtKinney i s a very important o n e a n d that imicdiate action
suould b e taken t o clarify t h e situation.
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Federal Reserve Bank of St. Louis
173
if, a s contended
by G o v e r n o r kcKinney,
hegulation J
t h e F e d e r a l r e s e r v e banks, u n d : r
of the Fea-ral Reserve Board, h a v e n o right t o
guarantee prior encorsenents,
t h e gusranty s h o u l d either b e
abandoned completely o r the Federal Reserve Board b y revision o f Rezulation J
should expressly sanction t h e guaranty
by Fedsral rsssrve banks i n thsir own bekif.”
(After d i s c u s s i o n o f t h i s s e c t i o n o f t h s report,
the
following occurred: )
Governor N o r r i s : I
move t h a t t h i s C o n f e r e n c e u n a n i -
mously agree upon the f o r m o f uniform enaorssient reconiuwended b y the Coimnittee, a n d that i t s action b e conimunicated t o the Federal rkeserve Board i n order that thse Board
way wake a n y chan 6 s that i t might consider nscessary i n
Regulation J .
Governor wicKinney: I
will s e c o n d t h a t motion.
(The motion, having bsen duly seconded, w a s carried.)
wt, Barrows:
headsd:
T h s next subject i n the report i s
“ I n advising payment
o r non-payment
b y wire o n
cash o r collection items, should the telegram show all
wire charges?"
"This j u e s t i o n w a s s u b m i t t e d
t o t h e Conwiitbee b y t h e
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Federal Reserve Bank of St. Louis
174
FeGeral Reserve B a n k o f S a n "rancisco a n d syidently arises
out o f 2 desire o n the part o f that b a n k t o b e i n a position t o credit m e n b e r b a n k s w i t h t h e p r o c e e d s
c f collec-
tion ites, less all aeductions, s o that n o further clsim
for expense n e s d b e m a d e .
"The San Francisco reserve bank refers t o a recommendation m a d e a t a
Trsnbit C o n f e r e n c e h e l d i n C l e v e l a n d
o n June
25, 1919, a n d approved b y t h e Fed-ral Reserve Board, w h i c h
reads a s follows:
"“Thet definite advice o f payment o f a collection iten
from a
pederal r e s e r v e b a n k o r b r a n c h c l o s e s t h e i n c i d e n t
so far as exchenge i s concerned."
ihn P
This recoliendation w a s adopted a s a practice b y all
of the Federal re.erve banks,
i n order that there might b e
no possibility o f a coliection i t e n being credited s t par
and followed b y 3 charge for exchange a t 4 later date and
was n o t intenasd t e inciude telegraph charges,
9 8 a t that
time thsse charges were being absorbed b y t h e F e d r a l r e serve banks,
"The Comittee i s of the opinion that i t would be impractical t e include a tismerandum o f the telagraph charges
incurred i n 2li tsiegrains sdvising payment.
2 0 0 0 BO
would probably result i n unnecessaryly a-laying t h e dis-
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Federal Reserve Bank of St. Louis
175
patch o f the telegram a n d i n some cases might result i n
the collecting b a n k absorbing chsrges o f which they were
at the time the telegram wes sent. Frurthernore,
it i s t h s u n d e r s t a n d i n g
as a
result o f custoin t h a t t h e p a y -
ment o f & collection i t e m i s subject t o furthsr deductions
for cost s f hsndling which i n the majority o f cases consist
of the cost o f telegran.s.
T h i s being t h e case, t h e Con-
mittee believes that member banks will not protest agsinst
€asubseyuent charge f o r such costs."
Governor v a l k i n s : I
move that w e edopt t h e C o m i t e
tee's reconsasndation, w h i c h i s that s u c h advice b y wire
should n o t include charges incurred i n the telegram.
(The notion, having b e e n duly seconced, w e s
wt, Barrows:
T h e next subject i n the report i s
“Uniform method c f handling demand a n d time certificates
of deposit, d r a f t s w i t h p a s s b o o k a t t a c h e d s n d arsfts
on
nSilroad Companies."
“The Comaittee wasalso asked b y the
Banks o f st. L o u i s a n d Kansas C i t y t o c o n s i d s r t h s v a r y i n g
practices w h i c h n o w e x i s t w i t h r e s p e c t
certificates
o f deposit,
t o the handling
b o t h G e m a n u a n d time, c r a f t s
rsilro3d companies, a n d drafts w i t h passbook atteched.
of
on
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Federal Reserve Bank of St. Louis
it sppears f r o m a summary o f replies t o letters s e n t
out b y t h e above-iientioned b a n k s t h a t i n s o m e c a s e s t h e s e
items w i l l b s handled a s non-ca
O L ]
o n l y , snd i n
cases, t h e y will b e received a n d handicd s s cash
iteuws i n exectly t h e same w a y a s cheeks a r e received.
“The Coumittee i n considering t h i s matter h a s h a d i n
wind t h a t t h e f F e d s r a l K e s e r v e
Board has defined
the
'check' a s applying only t o desand drafts drawn uzon banks
by t h e i r c u s t o m e r s
o r correspondents
a n d that
t h e Board
has r u l e d t h a t u n d e r t h i s d s f i n i t i o n c e r t i f i c a t e s
o f deposit
may b e handled a s collection i t e s .
“In nany districts certificates o f deposit circulate
as freely 4 s checks and the paying banks prefer t o receive
them i n their regular c a s h letters.
n é e Committee believes
thet a n y v a r i a t i o n
i n t h o s e d i s tricts
i n this practice
would result i n adding a n unnecessary burden t o t h e noncash collection departments o f t h e Federal reserve banks,
as well a s i n annoyance t o the paying banks.
I t i s also
true i n many districts that arafts o n railrosd companies
ars p a y a b l e t h r o u g h t h e l o c a l c l e a r i n g housss
quite a s f r e e l y s s b a n k checks.
i
s n d circulate
t i s undoubtedly t r u e
that i n the districts where this practice prevails t h e elin-
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Federal Reserve Bank of St. Louis
zTT
ination o f r e i l r o s d d r e f t s f r o m t h e c l a s s o f items w h i c h
Wlll b e handled a s cash would make their collection much
more b u r d e n s o m e a n d difficult.
“The Committee i s o f the opinion that inasmuch a s custom and practice prevailing i n the various F e d rel reserve
districts s h o u l d govern t h e manner o f hsndling items o f
this charecter t h a t i t would b e practically impossible t o
make a
recouiendation w h i c h c o u l d b e unifornly a p p l i e d
to
all districts."
The Chairman:
I f -thsre i s n o objection, t h e Coummit-
tee's suggestion i n that regard will be concurred in.
wPe Barrows:
T h e next subject i s “should a rederal
Reserve B a n k collect notes a n d drafts i n citiss s n d towns
there t h e r e i s n o t a
par remitting bank?"
“This juestion w a s subiiitted t o t h e Committee b y the
Fed ral Reserve B e n k o f New York a m a p e r o n t l y arises o u t
of the procedure rollowsd b y soiie o f ths Federal reserve
banks which decline t o handle ana return without presentation non-cash collection iteus payable a t points i n their
district where t h e y a r e unable t o collect checks s t par.
“hile the pronciple und-rlying this question involves
@ q u e s t i o n o f policy, t h e r e a r e c e r t a i n p h y s i c a l p r o b l e n s
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Federal Reserve Bank of St. Louis
178
to b e met which the Committee h a s given careful consiceration a n d which i t believes w i l l b e o f inter-st t o the Conference o f Governors a n d say p a sibly a i d i n fornulating a
uniform policy with respect t o the matter.
"The Federal Reserve Board i n its letter A-3014, dated
January 4 , 1921, coiisenting upon the r ecom.endations made
by t h e Governors o f t h e Fedsral reserve banks a t their Con-
ference o n October 14, and 15, 1920, quotes from the action
taken a t that Confsrence, i n part, 6 s folloius:
“Thepropriety o f Fedaral rs.erve b :
5 b g
collec-
tion items t o ienber a n d nonpimenber banks i n other districts,
with instructions t o rewit t o the nearest Federal reserve
banks f o r the credit o f the senuing red:ral reserve bank.
“ACTION:
T h e Conferences voted that ‘this privileg
shoulda not be pornitted, unless the tis.e involved i n the
collection i s such that t h e Federal reserve b a n k sust
necessarily s e n d t h e itsws airect,
i n order f o r collection
to b e made before t h e maturity o f t h e i t aus. n e f e r e n c e
to the recent ruling o f the Federal Reserve Board
permitting Fed*ral reserve banks t o receive collection
items d i r e c t f r o u siember b a n k s o f o t h e r districts,
and
@llowing t h e m t o pernit their ma.ber benks t o route
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Federal Reserve Bank of St. Louis
collections d i r e c t
t o o t h e r F e d -ral r e s e r v e b a n k s ,
the periaission o f such other Federsl reserve banks h 3 s b s e n
obtained b y t h e F e d r a l r e s e r v
} EE
t h e dicstrd
Which the meauber bank reyuesting t h e privilege
i
n
i s located.
it i s r s c o m u e n d e d t h a t m e m b e r b a n k s b e p é m u i t t e d
t o send
collection itsus direct t o Fed: ral reserve b a n k 2 # other
Gistricts,
a n d t h a t s l l # e d e r a l r e s e r v e o a n k s b e rejyuired
to accept n o n - c a s h i t e m s f o r c o l l e c t i o n w h e n r e c e i v e d froii
menber b a n k s o f o t h e r districts;
that t h s F e d e r a l R e s e r v e B o a r d m a k e a
ruling t o that effect, «
GOnnNT
T
h
mandatory o r d 7 r
# « =,
e Board concurs
i n t h e abovs,
s n d mskes
the mandatory ruling requssted through t h e iisdium o f this
"In issuing cireculsr letters covering non-cash
tion items,
i t appears t o b e t h e gsenusral practice
of the Federal reserve banks t o enumerate certain
of negotiatble
i n trumwents which will b e recsived b y them
for c o l l e c t i o n w i t h o u t r e s t r i c t i o n o f a n y k i n d é s
place o f paynient,
Couuittes bselisves thet t h e circulsr lett
issued,
i n connection w i t h t h e niandatory ruling o f t h
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Federal Reserve Bank of St. Louis
180
Board, ebove referred to, justify t h e sssu.ption o n the
of e v e r y F e d r e l r e s e r v e b e n k t h a t n o n - c a s h c o l i s c t i o n
items forwarded b y s t o t b y its cirect sending banks will
be handled i n acevrdance w i t h t h e ter.s o f the non-cash calo f t h e c o l l e c t i n g F e d e r a l r e s e r v e bank.
lection c i r c u l a r
Yonsequently, w h e n such items a r e returned veering 3 notation t o
6
]
L
a
t t h e points a t which they a r e pay-
able a r e m t o n the par list o r that t h e receiving “ed-ral
reserve
b a n k prefers
not
t o n3ancle,
t h e pending
reserve b a n k o r its direct
liability b y
reason o f the delay i n presentation.
"it will be noted that a #ed-ral reserve oank receiving
pack f r o m s n o t h e r
F e a r a l reserve
bank s
collection
item
which has not b e e n forwarded t o t h e point o f payinient, w i l l
under the terms o f the Board's ietter/ X-5014, b e helpless
to w a k s c o l l e c t i o n o r s u c h i t e , p s c a u s e
i t i s prohibited
from routing collection items direct t o banks i n other
Federal reserve districts. Consequently, undsr sush conGitions n o Federal reserve b a n k could s a y t o its member
penks
i n its norecash collection circular t h a t i t w i l l col-
lect waturing notes, urafts, a n d cther non-cash collection
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Federal Reserve Bank of St. Louis
ites p a y a b l e a n y w h e r e
i n t h e U n i t e d states.
"Conditions existing i n some o f the districts may justify t h i s procedure.
T h e Conmittse
i s o f t h e opinion,
nowsver, t h a t f o r t h e protection o f all of. the Fea+ral
reserve b a n k s s a c h o f t h s reserve b a n k s s h e i
undertake
to collect non-cash items payable anywhere i n its district.
If f o r sound. a n d sufficient r e a s o n s t h i s i s impractical,
sone e f f e c t i v e w e a n s s h o u l d b s d s v i s e d # n i c h w i l l m a k e i t
possible
t o determins
i n sdvance ahetiier o r n o t a
collec-~
tion item will b e forwarded t o the point o f payment i n accordance w i t h t h e t e r m s o f t h e rec-.iving r e d e r s l r e s e r v e
bank's circular letter."
Goverror seays
in t h e c o n c l u s i o m
w i . Walr.an, I
o f t h e coimittee
move that w e acquiesce
o n t h a t tonic.
(Ths motion, bein,; duly ceconded w a s carried.)
ur. Barrows:
T h e next subject 1
returns,"
ComuiLlttee h a s a i s o h a d
“
Y
r GOncia.:.ration t h e
practice o f all o f the
the snacsrsing b a n k o f f s i l u r e
from memoecr o r non-iismber b a n k s
t o receive rsturns
to
been dispatched b u t covering w h i c h n o renittanes o r
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Federal Reserve Bank of St. Louis
of c r e d i t h a s b e e n received.
"The form of advice used varies sonewhat i n the different aistricts.
I n a s m u c h a s the purpose o f t h e advice i s
merely t
o protect the collecting Fed ral reserve bank snd
the snaorsing benks agginst possible l o s s srising f r o m delay i n p r e s e n t a t i o n o r n o t i c e o f non-payment,
i t 1 s sssen-
tial t h a t i t b e i n s u c h f o r m a s w i l l r e a d i l y e n a b l e t h e r e ceiving b a n k t o l o c a t e i t s e n d o r s e r s a n d a d v i s e t h e m i n a
Similar manner.
aahen returns a r e recsived covering items which have
been reported a s outstanding, a
similar advice reporting
that the outstanding items have been accounted for, i s forwarded through t h e saue channel a s t h e advice o f n o returns.
"The C o m m i t t e
- e t e that a n advice o f n o rsturns cover-~
ing items w h i c h have been outstanding more t h a n @ reasonable tine i s advisable s n d necessary.
I
t slso believes
that this practice c a n b e carried t o extreies.
criminate u s e o f such @ form covering every i t e m outstanding l o n g e r t h a n t h e s c h e d u l e d t i n e f o r r e c e i v i n g r e t u r n s
will result i n such a volune o f aavices being Issued a s
will d e t r a c t f r o m t h e e f f e c t i v e n e s s
o f t h e ecdvice.
"The Conmittee, therefore, recommends t h a t t h e use o f
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Federal Reserve Bank of St. Louis
183
this f o r m b e restricted,
a s m u c h a s possible, a n d , t h a t w h e n
uséd care shcula b e exercised t o give o n l y s u c h inforsstio n
as i s v a l u a b l e
t o the bank
t o w h o m sent.
T h e Coim.ittee
bslieves t h a t i t i s very desirable t o show t h e date a n d
the total o f tre c a s h letter o f the cepositing bank, place
payable,
a n d t h e amourt
o f e a c h item.
T h e advice should
6@lso c l e a r l y s t a t e t h a t i t d o e s n o t n e c e s s a r i l y i m p l y n o n payment,
b u t t h a t a d v i c e o f credit,
has n o t been received.
as p r o m p t l y a s p o s s i b l e w h e n
o r semittance f o r t h e
T h i s should b e followed
s t a d
h a v e been recsived
@ Simllar advice showing t h e date o f t h e advice o f
turns, a
r
by
e
complete description o f the i t e m o r iteiis,
stating thet they h a v e b e e n accounted f o r sither b y
tance o r b y rsturn a n d sre n o longsr outstan
Committee d o e s n o t t h i n k i t p r a c t i c a l
o r necess
second adviee b e i n t h e f o r m o f e n sdvice o f sctual payment.
"The attention of the standing Conmit tee on Collections
has b e e n called t o a certain degree o f confusion arising
out o f shecks G r a w n o n banks located i n cities other t h e n
Federal reserve bank o r branch cities where ar.angenéents
have b e e n made f o r t h e payment o f such items, s i t h e r
through c l saring hous n
Feceral reserve cities o r b y
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Federal Reserve Bank of St. Louis
184
immediate credit a t the Fed ral reserve bank of ths district.
"In iany sases, checks o n these banks which indicate o n
their face that they are pay-ble at, o r receivable for iigqediate a v a i l a b i l i t y
i n a Fed«ral r e s r v e c i t y , a r e h a n d l e d a s
adsicrred itess b y banks i n other districts snd as 3 resul
the banks forwerding them for collection lose the benefit
of the shorter tine required t o collect ana the bsnks
upon which they a r s arswn are subjsct t o criticism f r o m
their c e p o s i t o r s b e c a u s e t h e i r check.
s p p r e n t l y aoe not
circulate a s freely s s special arrangement f o r their collection would warrant.
"The Couiittee, ther;fore, recommends that each federal
ressrve b a n k incorporate i n its tine shedule t h e following
notation:
“Checks crawn o n banks not located i n a #ed-ral re-
serve city but bearing upon their face a notation that they
are payable a t o r receivable f o r liuuediate dvaliability i n
a Fediral reserve city will b e scecepted o n ths saiuie basis
as checks d r a w n o n banks located i n that city."
Definition o f t h e Terms “wire Fate", “ i r e
Payment o r Non-Payment" a n d “wires Credit."
Uthe Federal reserve b a n k o f
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Federal Reserve Bank of St. Louis
185
Cou ittee a subject regarding t h s terms “ wv
w?i r e Fats", i i r e
Payment o r Non-Payment", a n d “iiire Credit", n o w used b y
Federal reserve banks a n d their airect sending «o.bers
when forwarding collection itaus s n d asking f o r iniormation.
"It would secm thst the t rus “Yiire Pate" a n d “ i r e
Payment o r Non-“syment’ w e r e foruerly u s e d b y comercial
banks t o mean that t h e endorser o r drawer o f t h s ite: was
interested i n its fate a n d not i n a transfer o f funds,
since t h e Federal Reserve syste. has come i n t o sxictence
with its private w i r e system a n d free trensfer o r funds, i t
has not been possible a t all tines t e deteriine t h e meaning
of the phrase “.iire Psymeat o F Non-Paylent".
f t would
seen that these terms should b e siven a definite ieaning
so that there will b e n o confusion between t h e Fed-ral reserve b a n k s
i n wiring credits
o n c o l l e c t i o n items.
"The Coumittee, therefore, recommends that the use of
the phrase,
“ i r e Fate"
b e used only when a
bank i s n o t
in the -ctuai crecit b u t o n l y desires inrornetion
as t o whether t h e i t e m itsed has been paid:
t h a t the use
of t h e phrase “Jire Payment o r NonyPsynent",
b e uiscontinuec
in its place t h e phrase “\jire G i t " , should b e used.
in a c c o r d
w i t h t h e recent decision
o f t h e Governors'
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Federal Reserve Bank of St. Louis
186
Conference, w h i c h states that a
wire coming f r o m snother
Federal reserve b a n k passing credit must read, “ W e credit
your account",
T h e Conmittee also recommends that each
serve bank,
a s f a r a s possible,
should educate
ts imenbers i n t h e c o r r e c t u s e o f ti.ese terms.
Resectfully submitted,
H. F. strater, Chairman,
UO. m. Attebery,
d,' 3S, 3t0Jhen, J F . ,
C. H . C o e ,
do wee S O F eGovernor u¢eKinney:
w i t h regard t o the question o f
returns, i t is our judgment that the siember bank i s ei. titled
to definite a n d specific advice a s t o the final fate o f a n
item concerning which previous advice has b e e n given t o
the effect t h a t t h e F e d e r a l r e s e r v e b a n k w a s w i t h o u t return.
The Committee doesn't agree with u s i n that connection, b u t
we feel that when the integrity c f the final payment o f
check h a s b e e n chalisnged o r raised b y notice o f t h e ?r:
that t h e bank i s without returns, t h a t t h e member bank a n d
its customer,
o r i t s e n d o r s i n g customer,
i s entitled
to
definite snd specific information a s t o what happened with
regard t o that check,
Governor seay: “ A p l a n s t i o n i s subsequently mades
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Federal Reserve Bank of St. Louis
187
sometimes a letter i s lost o r delayed i n transit.
I f it
is a n unreasonable time, o r i f for other reasons a notice
of n o retuvn i s given, because a n unusual t i n e has expired
in the matter,
i t m a y b e that t h e bank will receive returns
for that, a n d therefore t h e committee recognizes t h a t w h e n
it does receive returns,
i t cancels i t s n o return notice.
That leaves i t i n the situation i n which i t would have b e e
when originally received a n d advice o f fins] payment w i l l
be made i n due course.
Governor isacKinney:
W e have notified o u r e m o r s e r
and it, i n turn, notifies i t s endorser, a n d that causes
everybody t o withhold payment i f they a r e n o t satisfied
of the solvency o f t h e sndorser, a n d i t seems t o m e that
the bank i s entitled t o d-finite sdvice a s t o just how
the i t e m was disposed of.
T h e i t a m g y b e returned o r i t
may b e misplaced i n the mails, a n d t h e member bank,
i n mak-
ing u p the transaction i n its o w n office, weculd not know
exactly what sort o f information t o give t o its enuorsers.
What i s the difficulty about saying just what happen-
vovernor seay: A
tail w a i t i n g f o r a
ve y practical one.
I t would en-
much l o n g e r t i m e , u n t i l f i n a l p a y m e n t
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Federal Reserve Bank of St. Louis
en rezeived, bercres y o u voulu
that t h e no-return proposition h 2 d bes
finel payment Lit entails iurther waiting,
6r, t o bring t h s matter t o 2 le 3d, and i n ords
not t o p r o l o n g t h e d i s c u s s i o n unnecessaril;
the report o f the coumittee i n this respect
The Chainuen:
Y o u refer
b s sdopted,
t o r e c e i c t o f advices o f n o
returns, a n d definition o f “wire fate"?
Governor osay:
T h e t t h e report o f the ca.mittee w i t h
regard t o thase points b e received 3 n d adopted.
Governor Norris;
# L 1 l s e c o n d that.
(un s vote taken b y the rsising o f hands, t h e motion
WSs carried nine t o three.)
Govsrnor Calkins:
u i l l the vote just taken compel u s
to a b a n d o n c u r p r a c t i c e
o f cdvising t h e b a n k s s
o they will
know w h a t h e s hsppensd?
The Chairman:
T h i s action should
roriity, butI d o not titnk i t will be. I
wish you sould
state y o u r p o s i t i o n w i t h v e g a r d t o t h i s r e p o r t , u o v e r n o r
oeay.
Governor .eay:
w r , Chairnen, t h e polnt t h a t s e have
just d e c i d e d u p o n the.3,
i n accepting t h a t report
o f the
Conmittee, doe. not bear upon the formulation o f the
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Federal Reserve Bank of St. Louis
189
phraseology o f the uniform circular,
Sion o f w h a t s h o u l d
I
t i s just a
b e t h e uniforin p r a c t i c e
discus
o f t h e Federal
reserve banks, with regard t o the interpretation which mig ht
be p u t u p o n n o t i c e s w h i c h w e r e s e n t b y t h e F e d - r a l r e s e r v e
banks;
i n other words,
i f one Federal reserve b a n k should
cancel i t s no~return notice, t h e n a n d her Fedsral reserve
bank, a f t e r having aecepted t h e report,should n o t construe
that a s final a n d actual payment, t h a t i s all. I
do n o t
see snything t o prevent Governor Calkins f r o m iaking his
advice a s broad 4 s h e chooses t o make it, b u t mere cancellation o f n o e r e t u r n n o t i c e
b
y o n e Fed-ral reserve bank,
should not b e notice t o another Feusral reserve b a n k that
actual payment h a s been recsived o n the item.
Governor Calkins: I
take i t that lesves t h e situation
in such a way that, i f w e see fit, « e may render better
service t o our member banks t h a n t h e rest o f you, a n d that
there will b e n o objection t o that.
Governor meKinney:
W h a t i s t h e particular ob/ection
to meeting o u r position i n this matter?
Governor seay: T h e r e would not b e a single ob{ection
on my, part, whatever,
I f sverybody w o u l d sgree t o putting
thet i n the report a n d sending i t back t o the conmittee, a n d
190
having t h e conmittee reewrite a report which they
have
spent t w o years i n foriulating, continuing t h e
matter i n definitely, t h e r e would b e n o objection whatever.
I f that
had been put i n the reportI would have agreed t o it,
but a s
long 48s it is not i n the report, w e must sdopt L o e thing,
either n o w o r Subsequently.
iar, Case;
W @ é can a d o p t t h e report a n d t h e n smend
it, end there i s nothing t o hinder u s from doing that right
now.
Governor Young:
m a y I ask i f the other Federal reserve
banks have t h e sane diificulty that w e d o i n winneapolis?
dé send items out t o benks a n d they remit o n
Chicago o r
bndlwaukee o r Sioux City, o r Bisnark o r where-not--- w e
try t o keep them cown s :
‘ @ Gan, but w e haven't been
successful i n getting winneapolis exchenge i n all cases,
or ot. Paul exchange, o r available exchange. I
assume
that t h e reason for sending out a notice, s u c h 38 i s recommended b y the committee,
it i s p a i d o r not,
for.
item:
i s because w e d o not k n o w whether
o r that t h e items have b e e n accounted
T h e y a t least express a willingness t o pay the
b y sending u s a draft o n Sioux City, b u t w e cannot
give advice o f d:finite psyment.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
191
Governcr icKinney:
I
n thet c a s e w e would not s e n d out
the check notice until t h e draft g i v e n i n payment has b e e n
converted i n t o available funds.
Governor s e a y ; I
on this topic, b u t I
a m sorry t o have spoken s o much
was t o l d b y the officer o f our bank
who has been o n the committee that t h e conmittee felt t h a t
unless t h i s r e p o r t s h o u l d g o t h r o u g h t h e t i t w a s i n dispair;
that there w a s practically n o use f o r i t t o attempt t o
frame a report; t h a t i f i t was n o t objectionsble s n d could
be a c q u i e s c e d
i n i t w o u l d relieve t h e committee o f a
den w h i c h h a d b e e n u p o n i t f o r t w o years,
bur-
a n d subseyjuently
if w e found that i t needed amendment i n any o f its particulars i t could b e awended;
a n d i t i s for that reason I
ask your indulgence f o r talking s o much o n the subject
which, f e e l , i s of great importance.
The Chairmen:
i y unaerstanding o f the situation n o w
is t h a t t h e commnittse r e p o r t h a s b e e n r e c e i v e d a n d h a s b e e n
adopted,
w i t h exception o f the part t o which Governor Young
wants t o have h i s counsel take i t u p directly w i t h t h e committee, w i t h a view t o a satisfactory conciliation o 1 t h e
question involved,
Governor Seay;
I s that the w a y i t stands?
# i t h one other point, t h a t i n adopting
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Federal Reserve Bank of St. Louis
this r e p o r t t h e F e d e r a l R e s e r v e B o a r d b e a s k e d
whether a n y p r o v i s i o n o f i t i s i n conflict,
guaranteed e n d o r s e m e n t s ,
The Chairman:
b y reason o f
w i t h Regulation J .
T h e n w e c a n p r o c e e d t o t h e n e x t topic.
Governor Norris:
H o w about t h e blenket guarantee which
has been exchanged b y ell the banks b u t one.
I t seems t o
me that bank ought t o give t h e other eleven banks 4
guarantee
or they ought t o withdraw their guarantee from that twelfth
bank,
Governor Young;
winneapolis
i s t y i n g i t u p agein.
Our people refuse t o give that guarantee, largely because
of the condition o f a lot o f o u r member banks o u t there.
I understand the conmittee wants this gusrentee because
they feel that it is not necessary for than, with it, to
check anything; t h e y can hendle items through member o r
non-member clearing banks without checking a n y lists t o
see whether t h e y a r e protected.
I t oceurs t o m e that i t
is dangsrous f o r o u r b a n k t o g i v e a
thht k i n d f o r s l l t h e b a n k s
i n o u r district,
as saving any work i s concerned, I
any -ork,
F o r instance,
blanket g u a r a n t e e o f
a n d i n so far
do not see how they save
i f the Federal kes-rve B a n k o f
Cleveland gets itens from Clark Brothers i n montsna, they
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Federal Reserve Bank of St. Louis
193
have got to refer tosome list t o find cut whether Clark
Brothers a r e menbers; a f t e r referring t o th&t list, i f
they f i n d they a r e n o t member, t h e y have t o rerer t o another
list t o find out whether t h e y have a
non-clearing account.
If they find o u t that they haven't a
non-clearing account,
or find that i t i s possible t h e y m a y have come i n within
the last f e w days, t h e y wire t o find out whether t h e y c a n
handle that i t e m o r not, e n d therefor ,
i t seems t o m e that
the o n l y practical w a y o f handling this i s t o get a guarantee
covering e a c h specific bank. C o n s u l t o n e list a n d that
would e n d it.
W i t h respect t o 3a national bank, a
national
bank i g a member u p until t h e time i t closes, 2 n d when i t
closes i t i s not a menber,
s o our attornsy t e l l s me,
I t i s 4 member until i t goes into
Governor Calkins:
the hands o f a receiver.
The Chalriman:
G o v e r n o r Norris,
with regard t o this matter.
Governor Norris:
Governor Fancher:
d o y o u want a n y actlon
I t i s not o n the progrom.
N e s ? -l-think 21¢ is.
O n page 4
of this report, a n d i t i s
as follows:
"The last report o f t h e <térding C o m i t t e e o n Collections r e c o m e n d e d f o r m letters t o b e exchanged between rederal
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Federal Reserve Bank of St. Louis
194
reserve banks o n tke subject o f uilrect routing o f checks
and non-cash collection items b y their member banks.
This
letter provided that e a c h F e d ral reserve b a n k would b e
authorized b y the other Fedsral reserve banks t o receive a
nd
handle chscks andnon-cash collection items f r o m fiember banks
or non-member clearing banks o f other districts i n all respects i n ths same manner a n d subject t o the sane terns a r d
conuitions that are prescribed b y ti.e receiving Federel reserve bank from time t o time f o r the handling o f items forwarded t o i t b y other Federal reserve banks o r b y its o w n
member banks,
O n the other hand, t h e circuiars issued b y
each Federal reserve b a n k prescribe t h e ter.s a n d conditions
und.r w h i c h i t w i l l r e c e i v e i t e m s f r o m i t s m e m b e r banks.
The r e c o i m e n d a t i o n
o f t h e Coiuaittee,
t h e r e fSo r e ,
;2
,t
h a t these
letters b e exchanged w a s predicated u p o n t h e absolute uni-
formity of the liability paragraphs reconmended i n the Conmittee's report a n d the Committee i s unanimously o f t h e
opinion that unless these paragraphs a r e uniformly u s e d b y
all o f t h e Fed r a l reserve banks, w i t h identical wording,
there i l s great p o s s i b i l i t y
o f confusion,
b y reason o f the
fact that the terms vary from the terms a n d conditions
applice b
l
e between i t s menbers a n d other Federal reserve
195
banks, a n d under s u c h wnditions
n o Federal reserve b a n k
could s a y t o its member banks i n its liability paragraphs
that “every bank sending i t e m s to us o r t o another Federal
reserve b a n k f o r o u r account w i l l b e underbtood t o have
agrssd t o the terms a n d conditions o f this circular." I t
can
b e plainly s s e n that, i f the Federal reserve banks o f
milnneapedlis s n d vallas insist u p o n t h e chan zes o r iduitions
Which they propose, t h e other Federal reserve banks will
be c o m p e l l e d
t o a l t e r a n d r e v i s e t h e i r circulars, e i g h t
ot which, a s before stated, h a v e slready b e e n issued eubodying the uniform paragraphs suggested b y the Conmittee.
The
Coumittee a l s o thinks i t i s probable that i f the essential
uniformity doe. n o t exist, some o f tie reserve banks m a y
feel i t necessary t o withdraw t h e letters, w h i c h t h e y have
already s e n t o u t , s i v i n g b l a n k e t g u a r a n t e e
on a l l i t e m s f o r w a r d e d d i r e c t
Federal reserve banks.
o f endorsement
b y their member banks
t o other
T h e letters refsrred t o have al-
ready b e e n sent out b y all o f the reserve banks x c e p t
winneaoolis,"
(further discussion followed, a n d at 5:55 o'clock
p.m.
U n d e r secretary Gilbert
o f t h e T r e a s u r y vepartiment
entered t h e C u n f e r e n c e r o o m a n d t h e followings e c u r r e d :
)
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Federal Reserve Bank of St. Louis
196
The Chairman:
u m e Gilbert,
w e are very glad t o have
you here with us, a n d w e will b e giad t o hear f r o m y o u w i t h
respect
t o a n y matters
o f importance t h a t y o u m a y have i n
wind i n which w e are mutually interested.
ur. Gilbert: I
am not sure h o w f a r along y o u a r e
in these matters, t h e question o f credit policy. I
open m y reimsrks b y making y o u a n orfer.
might
T h e t a x payments
for this quarter have c o n e through v e r y well.
d é were
estimating $400,000,000 and w e are going t o gst about
y4#50,000 ,000.
T h a t has a
very helpful effect o n the
whole course o f the year's operations. , 5 0 , 0 0 0 , 0 0 0 more i n
warch roughly means »200,000,000 more for the calendar
year, a n d i t means that m u c h less borrowing o n the certificates a n d notes,
I
t h a s a n immusdiate e f f e c t
i n that w e
have much more money with the Fedsral reserve banks than
we o u g h t t o have a n d m u c h m o r e t h a n w e c a n u s e f o r a n y
ordinary current purposes,
T h e Trzasury's balance with
the reserve banks t o day, taking into account t h e gold which
we could d e p o s i t ,
normal b a l é n c e
i s a little over 150,000,000,
e n d our
i s around 3 5 o r 4 0 millions, souwetines r u n -
ning less t h a n thet, I
a m surprised that there has n o t
been more stringency i n the money market t h a n has already
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Federal Reserve Bank of St. Louis
197
shown u p a s a result o f these balances, b u t t h e whole market
seems
t o have withdtood t h e s e exceptional withdrawals v e r y
well.
The Treasury h a s meturing o n way 20th, about
of Victory notes.
w
$800,000,000
e have tried b y every means a t our com-
mand t o g e t h o l d o f s o m e o f t h e notes,
b y offers
t o redeem
sinking f u n d operations, a n d w e have also sdvertised t o the
limit o n the redemptton o f t h e g o l d notes, o f which there
are still 380,000,000 out, b u t i t seems aliiost impossible
to g e t a substantial amount o f those notes in.
w h a t we
would like most o f a l l would b e t o redeem 8 large ainount
of t h o s e n o t e s
i n advance,
W
e prepose
t o continue
t o try
to get them, b u t o u r prospects a r e very -siim,
Governor harding:
w h a t i s t h e amount o f Victory's
ourstanding?
ure Gilbert: =
called,
»800,000,000 n o t c a l l e d a n d .~80,000,000
w e h a v e maturing o n June 15, »~227,000,000 o f
Treasury certificates,
T h o s e a r e t h e only renaining matur-
ities. f o r this fiscal year, a n d t o a large extent t h e y
merge i n t o one, b e c a u s e t h e V i c t o r y n o t e s a r e n o t L i k e l y
to come i n all a t once, t h o s e being t h e rensinder o f four
and a
half b i l l i o n d o l l s r s
of a
popular l o a n .
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Federal Reserve Bank of St. Louis
L98
The Fec.eral r e s e r v e b a n k s h o l d $ 5 3 , 7 4 4 , 0 0 0
o f t h e Jure
l5th certificates, a n d 917,000 i n unce lled Victory notes.
We are quite prepared, f r o m tlhe point o f view'of the
Treasury,
t o r e d e e m all. o f t h o s e n o t e s abt p a r a n d a c c r u e d
interest o u t o f our balances, a n d t o ®
Governor Calkins;
wre Gilbert:
many advantages.
i t right away,
H o w many uncalled Victories?
g 1 7 ,550.
I t seems t o me that has a good
T h e withdrawal o f those funds f r o m t h e
market has really already been accomplished .
ei50,000,000
i n the reserve banks,
T h e r e are
a n d i f w e r e d e e m ».50,000-
000 there will still b e 100,000,600,
a n d w e hope t o pay
that o u r gradually i n the course o f the next t w o o r three
weeks,
b y insaking calls o u t s e l v e s a n d p a y i n g intsrest,
ticularly a r o u n d A p r i l 15th.
pore
B u t h a v i n g i n mind t h e fact
that really that money i s elready in, i t seems t o me that
is an ideal way of clinching it snd retiring those certifte
cetes,
Governor weKinney;
H a v e y o u a record o f how i t i s
segregated?
ur, Gilbert:
Y e s .
T h e s e figures a r e a s o f .arch 15;
wo,850,000 i n Botton; n o n e i n Ne. York; 5 , 5 1 0 , 0 0 0 i n
Philadelphia; 4 9 , 8 2 6 , 5 0 0 i n Cleveland; n o n e i n nichmond;
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Federal Reserve Bank of St. Louis
199
g7,500,000 i n Atlanta, $15,525,000 i n Chicago; .,1,343,000
Louis; $ 1 8 4 , 0 0 0 i n minneapolis; 3 , 7 8 5 , 5 1 0
i n Kansas
City; y994,500 i n Dallas, a n d 67,125,500 i n can “rancisco.
Governor s e a y :
any;
T h a t w o u l d n o t relieve t h e market
i t would just relieve t h e Treasury o f some p o d , 0 0 0O00,
of its funds;
b u t t h e money would still b e i n the banks.
ure Glibert:
the same time, I
of V i c t o r y notes,
I
t aoes not relieve t h e markst, b u t a t
have p u t i n a n order today f o r {10,000,000
a n d w e will have s o m e difficulty
i n fill-
ing that order very quickly i n the present narrow market.
There i s n ' t u u c h s l s e w e c o u l d b u y i n t h e market.
Will, o f course,
i e
b e paying out these balances i n ths next
two o r three wesks, but the cost o f payments i s against u s
as a rule, a n d I think t h e market w l l l gradually b e relieved.
nP, C a s e ;
T h a t i s only another w a y o f saying thet
you would like t o use »~50,000,000 o f excess receipts t h a t
you h a d n o t c o u n t e d o n ?
ir, Gilberts:
I
n debt redemption.
T h a t i s its proper
purpose anyway.
Governor Fancher;
d n a t i s t h s total outstanding f o r
June 15?
mP. Gilbert: g e e 7 , 0 0 0 , 0 0 0
o n June 15, a n d w e will
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Federal Reserve Bank of St. Louis
200
have 2
lease a
consid r a b l e h a n g - o v e r
o f V i c t o r y notes, p r o b e b l y a t
couple h u n d r e d m i l l i o n t h a t w i l l s t i l l b e out.
its
enough p a y m e n t s
o n June 15.
T h e ».»95,900,000 o f c e r t i f i c a t e s
in the rex -rve banks d o n o t help,
s o far a s the market goes,
in mesting the tax payments anyway.
so I
There
i t isall i n the banks,
d o n o t s e e that o n June 1 5 we w i l l b e a n y worse o f f f o r
having gone thet, a n d i t means t h e saving o f interest o n
#95,000,000 f o r p r o b a b l y s e v e r a
ur, Case;
Y o u r o f f e r i s t o t a k e t h o s e a t par?
wre Gilbert,
a t par and accrued Interest. T h a t hap-
2 redenption.
Governor Norris:
A t 3-3/4?
ure Glibert.,
Governor Calkins:
Ets Gilbert:
i thought I
( H s v e y o u wired that offer?
N o ; I
haven't coiuiunicated i t t o anybody.
would p u t i t u p t o y o u o v e r here.
perticuler reason for wanting t o d o it within a day o r two,
because i f w e
i
¢ t h e Treasury balance w e ought t o
do i t before t h e next statement. I
~150,000,000 on
do not like t o see
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Federal Reserve Bank of St. Louis
201
Governor Norris;
Y o u mean before t h s Federal Reserve
consolidated stateiient?
wr. Gilbert:
uP, Cases
O
n Wednesday, y e s .
d i t h 6 per cent c a l l monsy i n New York
today, i t might properly b e pointed out thet the Treasury
is causing s o u e embarrassment
i n the money market b y having
an abnorually large balance.
Governor Fancher;
ur. Case;
T h i s wouldnot relieve i t .
I t sould relieve t h e balance, a n d
not b e such a lerge target t o shoot at.
Governor seay:
I t would furnish @ rational explans-
tion for it, which i s always a
wre Gilbert:
good thing.
Y e s , i t doesthat very well.
Governor Seay:
I t would still further reduce t h e
sarning assets o f t h e Federal reserve banks.
wr, Gilbert:
borrow,
I
t will d o that unless t h e banks will
T h e y h a v e apparently n o t h a d t o borrow s s m u c h
as o u r e x c e s s balsnce.
W i t h that amount
o f money
v e are
almost forced t o consider something like redeposits, unless
we d o this, a n d I hope t h a t w e will not have t o g o into t h e
question o f re-deposits,
Governor seays T h a t shows a right healthy state o f
the money market.
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Federal Reserve Bank of St. Louis
202
ure Gilbert:
O f course re-deposits w o u l d quite suto-
matically p u t t h e rate d o w n t o four p e r cent. I
think that
is t h e only other slternative, because that h a s t h e effect
of casing t h e market,
wr, OCAase:
v i t h money a t 6 per c
i have n o doubt
i t hes h a d a
n t i n New York today,
more o r l e s s d e p r e s s i n g e f f e c t
On what has b e e n a very bouyant s t o c k market.
Governor Calkins:
depress t h e o p s r a t o r s
uP, Care: I
b o you think six per cent will really
o n t h e s h o c k market?
think i t hashad that s
Governor seay:
I t doe. until t h e y g e t used t o it.
uh. CASE; T h i s i s going t o mean, with the redemptions
of warch loth, really ~100,000,000 t a k e n i n from t h e market,
plus t h e 100,900,000 t h s t y o u have reansining, s o that t h e
money warket really ought t o feel the efisets o f that
withdrawal
t o somes extent,
and i
should t h i n k t h a t s o u l d
have : u l t e a n effect o n the stock market a n d tend t o bring
down t h e Stree
Governor Norris:
A s t o our 3,000,000, I
will recom-
mend t o our Exscutive Coiuit tee, shich meets a t half past
ten o n weanesday morning, that w e sell you those.
mx, C a s e ;
N e w Y o r k ha. n o t ony,
o r otherwise
w e would
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Federal Reserve Bank of St. Louis
203
w e have yl0,000,000 o f
bs l a d t o off-r t h e m t o you.
Treasury notes, a l l w e have remaining, a n d w e will offer
you t h o s e a t a n y s a t i s f a c t o r y prices.
O u r holdsings a r e small, a n d i t i s
Governor Young:
actuestion whether s o m e o f them d o not belong t o the Land
Bank--ur. GLllboert:
I t i s understood that they a r e not r e -
purchase agreements.
W
Governor Young:
e will b e gled t o turn i n what w e
have.
The Chairmisns
wether.
w
T h e Chicago B a n k seems
e have g15,000,000
t o b e the bell
i n those n o t e s ,
and I
should
be very g l a d t o take t h e matter u p b y telephone tomorrow
morning a n d r e c o n m e n d t h a t w e permit t h e i r r e t i r e m e n t
i n
advance.
int. Gilbert:
The Chairman:
o y o u meet o n wednesday morning?
D
d
e d o not, b u t I
the situation, a n d I prefer
Governor Fancher:
are s h a n
think I
can find out
t o submit i t berore ecting.
000
O u r holdings a r e ,500/more than
on that paper y o u hsve there.
10,300,000 a n d some odd.
T h e y are
w e acquired 5 0 0 , 0 0 0 recently.
I will take the questionup with our people tomorrow and ses
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Federal Reserve Bank of St. Louis
what h e i r attitude is.
The Chairman:
H o w d o you fesl i n rezard t o the mat-
ter, Governor Fancher?
Governor Fancher: I
think w e are likely t o accept
the Treasury's offer, but I will see what the situation
is.
Mr. Gilbert:
I s i t likely t h a t either Chicago o r
Cleveland h a s those under repurchase agreement,
o r any
part o f them?
The Chairman:
a
m s p e a k i n g n o w o f t h e approximate-
Ly $15,000,000--Mr. Case; I t . d o e s n ' t show, b u t t h e repurchases a r e
in the last linenf t h a t statement y o u have there, Mr.
Gilbert.
T h e y a r e n o t included, a p p a r e n t l y .
Governor Calkins:
I w i l l b e very glad t o get o n the
wire a n d t o recommend t o our C o m i t t e e t h a t w e sell t h e
seven million that w e hold.
Governor Biggs: I
a m quite sure that w e will l e t
you have what w e have.
Governor Bailey: I
will wire recovmending t h e
sale.
Governor Mchinney: I
will wire Dallas tonight a n d
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Federal Reserve Bank of St. Louis
advise y o u tomorrow, M r . Gilbert.
Governor Calkins:
Y o u l d i t not b e wise f o r y o u t o
wire each o f the banks making the offer, and then the
Governors
c a n wire t h e i r banks r e c o m s e n d i n g t h e accept-
ance o f the offer?
Mr. Gilbert: I
will d o that i n the morning. I
will
wire each o f the banks a s sugzested, a n d t h e n y o u gentlemen c a n w i r e r e c o m u e n d i n g t h e a c c e p t a n c e
The Chairman:
o f m y offer.
% e have n o t heard f r o m Mr. sdleson
on it.
will b e very glad t o take i t u p
Mr. Adleson: I
with o u r bank a n d recommend t h e sale, M r - Gilbert.
(.psreupon, U n d e r S e c r e t a r y G i l b e r t r e t i r e d f r o m
the Gonference room, t o meet i i t h the Governors tomorrow
morning, Tuesday, M a r c h 27th.)
The Chairman:
N o w , gentlemen, s h a l l w e proceed w i t h
further discussion o f our program?
Governor Fancher:
M y . Chairman, I
move thet w e
adjourn, u n t i l t o m o r r o w e
The Chairman:
is always
I s that seconded? 4
motion t o adjourn
i n order.
(The motion, h a v i n g b e e n duly seconded, w a s carried,
and accordingly, a t 6:20 o'clock p. m. the Conference
adjourned until tomorrow, Tuesday,tiarch 27,1925 a t 10 aeme)
c05-a
REPORT o F T H R C U s n I T T a n
U F GUVLRNUKS
U N CaNTnabLiaop
BAwCUTIUN u r P U R C H A S E S A N D S A L b S U F G U V e n N u a N T
sedi
TethS, B Y FEDLKAL KioanVe BaNKS SUBsifTap Tu ThE
GUVELANUAS! CONFpriiiCs O N wakCh 26, 1923, CUVEnLNG
aCTiViTinS s I N C H n e P u n T sUBsilTTev a l C u N F e r u N C i
hbiv vCTuBEK 10, 1922.
jerewith i s presented a brief j
and operations
t h e activities
o f t h e C o n u i t t e e c o v e r i n g t h e p e r i c d ~ fron
September 20, 1922, (ths date o f the last repert) t o
FPebruary 2i,. i923,
peetings:
F o r m a l isetings e f
Federal Reserve Bank o f Clevelend o n ucteber 51, 19Ze,
and a t t h e Federal Reserve B a n k o f Boston, February 0 ,
1923.
Atthe meeting cf the Coumittee held i n Boston,
February 5 , 1923, t h e following memorandua w a s adopted:
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Federal Reserve Bank of St. Louis
“In view o f the present credit conuitions,
the Committee recommends that the present policy
be continued and that f o r the present, o r until the
next Governors’ Conference, o p é n marked investments
be equalized between the twelve reserve banks a s far
putting
as possible, without/further Federal reserve funds
into the nerket through open market operations."
With t h e e x c e p t i o n o f a
small amount a l l o f t h e
transactions s i n c e that time b y Fedsral ressrve banks f e r
their c w n accounts h a v e been consunmiated within t h e syste.n,
the N e w York bank having s o l d frou i t s holdings 46,500,000
Treasury certificates t o the Federal Reserve S a n k o f
Atlanta, a n d 1,500,000 Treasury Notes t o the Fedsral
Reserve B a n k o f kansas City.
Transactions
Securitiss
i n Governuent
b y Fed+ral n e -
serve banks f o r thsir o w n
Accounts.
Operations b y Federal reserve banks covering transac-
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Federal Reserve Bank of St. Louis
tions i n Government securities sffecting their o w n investment acesunts since t h e report dated september 20, 1922,
submitted t o the Governsrs' Conference o n uctober 10, 1922,
have efrsected a reduction i n the total holdings o f a l l
Federal r e s e r v e b a n k s ( i n c l u d i n g Pittnian a c t c e r t i f i c a t e s
and s a l e s contracts)
o f 84,000,000
f r o m t h e total holding
of §438,000,000 a s shown i n the follewing scusdule:
DEDUCTIONS
Tr. Ctfis. d u e Oct. 1 6 , 1922 1 5 , 0 0 0 ,000
=.
" . Dee. 15, 1922 6 2 , 0 0 0 , 0 0 0
Victory Notes
3
Treasury N o t e s
6
9
,
,
0
0
0
0
Pittman Act Certificates
0
0
,
,
0
0
0
0
0
0
5 2 , 0 0 0 , 0 0 0
_20,000,000
w200 ,000,000
ADDITIONS
Ctfs. d u e liar, 15, 1 9 2 3 $ 1 4 , 0 0 0 , 0 0 0
=
u
m
e
1 5 , 19235 1 6 , 0 0 0 , 0 0 0
" - sept.15, 1 9 2 3 3 1 , 0 0 0 , 0 0 0
Wosbee. 15,
Contracts
2
0
3 5 , 0 0 0 , 0 0 0
,
0
0
0
Total _
,
0
0
0
9116, 000,000
Net Deduction @
Holdings, February 21, 1923
84,000,000
$ 3 5 4 , 0 0 0 ,000.
buring t h e entire pericd covered since t h e Coumittee
has been i n operation, the Governnent security holdsings
of the Federal reserve banks (including Pittman act Certificates) h a v e s h o w n a
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Federal Reserve Bank of St. Louis
reduction o f approxinately 2 7 5 , 0 0 0 , 9 0 0
4
from t h e h i g h p o i n t o f y~629,000,000
o n June
the 3 5 4 , 0 0 0 , 0 0 0 n o w o n hand g20,000,000 i s
f
o
r
m of
sales C o n t r a c t s .
In considering t h e question o f further reduction f r o m
the present total o f 4354,000,000 i t should b e borns i n
mind that about »62,000,000 a r e Treasury certificates nsturing O n march 16, i924.
Treasury h a s s u g g e s t e d t h a t t h i s » 6 2 , 0 0 0 , 0 0 0
of
warch 15, 1923, csrtificates b e allowed t o r u n off a t maturity without r e p l a c e m e n t .
Treasury
Orders,
T r e a s u r y orders pending s t the time o f the last r e y given t o Fea ral reserve banks
covering t h e purchase a n d sale o f GOverni:uent securities a r e
as follows:
(5G
Datee o efn Ot re ae
de
r
e
c
A c c o ue n t
e
i
s
e
sn
u s ommnnn
e
P
r
i
c
e Atiount
Sept.21,1922 Civil Service D e c . 3-1/2% warkst 42,000,000
Retirement « bis- a
ability Fund,
22,1922 R e d e m o t i o n
4
o t i s .
P
a
r 2 , 0 0 0 , 0 0 0
16,1922 C u n u l a t i v e S i n k - C a l l e d V i c t o r y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ing fund
N
o
t
e
s
1 0 0 . 5 0 10,086,700
5
s e c t, 8
.1922
1
26,1922
Alien Property
Ctfs.
Custodian
Issue
any
Alien Property
laarket
18,500,000
Par
10,000,000
Custodian
26,1922
Farm L o a n B o a r d
; warket
8,500,000
Cumulative sSink-
10,000,000
ing Fund
938,000
Redemption
Cumulative S i n k ink F u n d
dige gies Ses ee SE
Alien Property
Sept.ctfs. w a r k e t
P a r
10,000,000
4-1/4% Bonds
2,000,000
Custodian
7,192
7,1922
Cuitulative S i n k
ing F u n d
War F i n a n c e
7,1922
16,1922
17, 1922
Liberty
Bonas
25,000,000
Treasury
Notes
25,000,000
iL. L.Bonds
20,798,000
Alien Property
Custodian
3,800,000
Alien Property
Custodian
market
+5 t e 39,
War F i n a n c e
Treasury
1922
Corperation
Notes
To Y i e l d
10,000,000
‘17,1922
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Federal Reserve Bank of St. Louis
Cumulative s i n k -
ing Fund
Called V i c .
Notes
15,000,000
25,1922
27,1922
31,1922
14, 1922
27, 1922
6, i2 =
14,1922
6, 1922
9 -& 1 2
igee
18, 1922
Alien Proverty
Custodian
Treas.
Bonds
OE 4 9 5 2
Alien Property
Treas.
Gustodian
of 1 9 5 2
market
1,500,000
Cumulative S i n k ing F u n d s
Called V i c t cry N o t e s w a r k e t
10,000,000
Cumulative S i n k ing F u n d
Called V i c t ory n o t e s l u a r k e t
10,000,000
Cumulative s i n k -
ing Fund
Called V i c t ory N o t e s
Cumulative S i n k -
Uneallsd V i c -
ing Fund
tory n o t e s
Alien Property
a r c h 4 2af
%
Custodian
Certificates 100-1/8
Alien Property
custodian
Any C e r t i ficatss
P
Purchases f r o m
Proceeds T r s e s -
43% Notes P a r
marks
$2,000,000
Bonas
4,975,550
market
a
r
30,000,000
5,000,000
15, 000, 000
June 1 5 , 1 9 2 5
20,000,000
ury notes.
29,1922
88,1925
8,1923
Cumulative S i n k ing F u n d
Uneailed V i c tory Notes. w a r k e t
5,000,000
Cumulative s i n k -
ing f u n d
Third 4 2 %
L.L. Bonds jnarkest
8,000,000
Farm L o a n B o a r d
D e c ,.51925
1
4% Ctfs.
22,1923
o1, 1923
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Federal Reserve Bank of St. Louis
P a r
Alien P r o p e r t y
bec. 15,1925
Cus t e d i a n
4% Otfs.
Alien Property
Custodian
march 32%
Ctis.
14,400,000
10,000,090
5,000,000
2,1923 Alien Property wuarch 3-1/2%
Sustodian
@lo,090,000
C e r t i r i c a t e s
5,1923 A l i e n Property
5 , 9 0 0900,
Custodian
opsrty
a r c h 3-l/:
1,000 ,000
Certifics
9,302,800
wiscellaneous U r d e r s
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Federal Reserve Bank of St. Louis
Seb aes
Postal s a v i n g s
9,375,000
system
6375, 489,850
These o r d e r s
h a v e b e e n complisted t h r o
OU
gh p u r c h a s e s
the different b a n k s a s s h o w n i n ths f o l l o w i n g
Trs
which f i g u r e s a l s o r e f l e c t t h e cis teibution o f a l l
orders f r o m the time t h e Committee b e g a n operations t o
September 20, 1922, a s well a s during t h e sntire p e r i c a
by
From May 17,1922 F r o m Sept.20, 1 9 % F r o m way 17,1922.
to Sept. 20,1922
R e b . 2 1 4 1 9 t o : Feb. 23,1025,
Boston §
30,249,500 g
New York 8 3 , 9 0 0 , 2 5 0
27,891,350 5 8 , 1 4 0 , 8 5 0
2 7 3 , 167,550
#
3
5 067,890,
Philadelphis 17,733,000 2 3 , 6 0 3 , 9 3 0 4 1 , 3 3 6 , 9 0 0
Cleveland 3 , 3 0 0 , 0 0 0
Richmond
-
9
- 3 , 3 0 0 , 0 0 0
1 9 9 , 3 0 0
4 1 , 4 5 0
Atlenta 2 , 5 3 2 , 2 0 0
7 2 , 1 5 0
Chicago 4 1 , 4 7 4 , 0 0 0 3 8 , 7 7 9 , 5 0 0 8 0 , 2 5 3 , 5 0 0
St. Louis 6 , 1 8 3 , 7 0 0 2 , 4 1 9 , 9 0 0
sinneapolis
Dallas
1 , 2 0 0 , 0 0 0
-
K nsés C i t y
O
-
3 , 0 1 1 , 9 5 0
o
-
San Fiancisco }§ 12,940,600
p199,712,500
1
,
O
9
5
2
,
6
0
8 , 6 0 3 , 600
4 , 2 1 1 , 9 5 0
~
O
-
0
1 , 9 5 2 , 6 0 0
5 , 6 4 9 , 5 0 0
1 6 , 5 9 0 , 1 0 0
3 7 5 , 4 8 9 , B50 $ 5 7 5 , 2 0 2 , 4 0 0
* O f this amount t h e r e were purchased a n d sold o n the
New Y o r k s t o c k E x c h a n g e L i b e r t y L o a n b o n d s s n d V i c t o r y n o t e s
auounting t o 9147,371,000
o n Tressury orders w h i c h contained
instructions t h a t these transactions b e executed i n this
manner,
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Statements refiecting the result o f the Committee's
activities a r e a s follows:
Exhibit “ A " - Government security Holdings o f Federal reserve banks a s reported t o the Committee o f
Governors s t t h e close o f business February
ei. 1925.
Exhibit " R * C o m p a r i s o n o f t h e Government o s c u r i t y Holdings
by waturities
R
e
s
e
r B a n k s Jombined
as o f a y 1 7 , June 30, September 20, 1 9 2 2 a n d
February 21, 1923.
Exhibit "C" - \ieekly Statement o f United states securities
(ixclusive o f Pittman Certificates) h s l d b y
ral R e s e r v e B a n k s f r o m January,
Date,
Exhibit "D" - Synopé#is of United states Securities a s Conpared with All Other Earning Assets Held by
dcral R e s e r v e B a n k s s n d n e f l s c t i n g t h e N e t
Change o f B a c h C l e s s d u r i n g t h e P e r l o d Covered.
Exhibit "BE" - Statement Showing Changes i n Gold 3nd Government Security H o l d i n g s f
o Reserve Banks a s
Compsred w i t h R e c o r d o f G o l d D u p o r t s a n d x ports o f t h e U n i t e d States.
10
Exhibit “F" - statement o f »stimated Earnings a n d uxpenses
of All Federal Reserve Banks f o r t h e Year 1923,
Based o n Expenses f o r 1922 a n d Earning Assets
held February 21, 1923.
Exhibit "GY" - Purchases and Sales o f United States Gov srnment Securities b y Federal reserve banks a f fecting their Investments -
January 2 4 t o
Pebruary 21, 1923, inclusive.
Exhibit “ H " ™ -
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Federal Reserve Bank of St. Louis
Ghart showing C&
omparison
ederal R e s e r v e s B a n k s
the C o m m i t t e e .
o f barning Assets
S i n c e Forination
o f &
of
EXHIBIT “A”
Maturities
B
o
s
t on
G
N
O
e
V
E
-0~<-
N
M
E
N
T SECURITY HOLDINGS O F FEDERAL RESERVE BANKS
AS R E P O R T E D T
O THE COMMITTEE O F GOVERNORS A T THE CLOSE O F BUSINESS FEBRUARY 21, 1923
A t l a n t a
w York P h i l a d e l p h i a C l e v e l a n d R i c h m o n d
March 1 5 , 1 9 2 3 $13,525,000. $15,000,000, $
Victory Notes 520823
R
-0=
S t . L o u i s M i n n e a p o l i s K a n s a s City D a l l a s
5,030,000. $14,865,500. $
1 1 6 500. $ 6,456,000. $
-0=
C h i c a g o
-0@
9,813,500.
394,000. $
fis
be
-0=
4,500,000.
15,525,000.
1,349,500.
84,000,
410,500.
1 5 , 1 9 2 3
3,850,000.
1,000,000.
September 15,1923
4,844,000.
She
557,000,
3,898,000.
je
-0=
17,549,000.
2,994,000.
-0=
345 ,500.
5,015,000.
«He
abu
17 ,990,000.
6,009 0004
150,000.
48 3 s 0 0 0 ,
June
3 2610
0 0 0 .
December 1 5 , 1 9 2 2
-0-
Treas.Notes 1924/7
4,680,700.
10,000 ,000
22,638,400.
11,420,200,
535,150.
1,148,750.
1,799,700.
949 ,400,
$ 27,434,250, $27,148,750.
$29,067 ,100.
1,269,662. 16,441,500.
- 0 =
Miscellaneous
TOTAL
Sales Contracts
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Federal Reserve Bank of St. Louis
AGGREGATE
f »190
,900,
$37 ,552 ,1000$1, 340,900.
-Ce«
a
l
l
e
50,000. $
abo
$10,013 ,000,
C=
$ 28,704,512. $43,590,250. $29,067,100. $37,552 ,100.$1,340 , 900. $10,013,C00,
1,787 9006.
4,425 ,600.
10,934,700.
7,314 4005
$72,143,000, $23,995,600.
225456006
-0=
$74,397,600, $28,995,600.
- O -
6,351,500. $
S a n Francisco
569,000,
alin
-O»
3,785,500.
944,500.
“
O
T o t a l
6 $62,357,500.
5
-0=
7 , 1 2 5 , 5 0 0 ,
ae
51,587,500.
2 9075,0004
woffa 33,742,000.
171 ,500,
5,000,000,
-Oe
4,699, 700¢
275232 400.
1,100 ,000,
6210,110.
3,497,800.
Qu
$11,454,310,
-
0
-
$11,454,310
1,414 ,500¢
34,531,000.
17,463 3005
112,590,300.
2,029,500. 105157 ,800,
39,259,110.
$42,453,200, $11,718,000. $34,746 ,600,
$334,067, 410.
==
19,965,762.
$42,453,200. $11,718,000.$34,746,600.
$354,033.172,
-09
o
O
e
EXHIBIT "B"
COMPARISON OF THE GOVERNMENT SECURITY
HOLDINGS BY MATURITIES OF ALL RESERVE BANKS
COMBINED AS OF MAY 17, JUNE 30, SEPTEMBER 20, 1922
AND FEBRUARY 21, 1923
Holdings when Committee
was formed May 17, 1922
Holdings o n
June 30, 1922
Certificates a n d
Victory Notes matured 1922
March 1 5 , ° 2923
$ 321,622, 450.
46,131, 5006
29,8965 5006
1 5 , 2923
-O~
September 15, 1923
-0=
December 1 5 , 1923
Treasury Notes
87,542, 6006
Viecellaneous Govt. Bonds
53, 681,0106
7.0 7 A L
Pittman A c t Certificates
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Federal Reserve Bank of St. Louis
ARTY
A
A
AGGRSGATE
123,816,900.
114,897,600.
47,812, 5006
Oe
n
62,357,590
=u
3,211, 0006
33, 742,0006
-0=
121,721, 2006¢
112, 590, 300.
37,175,990»
39,259,110.
334,967, 410.
360,636, 2906
80,000,090»
74,900, 0006
52,000,000.
534,005, 3666
é
51, 587,5006
460,005, 3666
-O=
Holdings o n
February 21, 1923
35,828, 0006
5606
$ 508,977,
-~O=
Sales C o n t r a c t s
48635,500
-0=
Victorys maturing 5-20-23
June
$ 218,454,900» $
Holdings o n
September 20, 1922
~26, 245, 4000
438, 881,6906
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Federal Reserve Bank of St. Louis
HELD B Y FEDERAL RESERVE BANKS
FROM JANUARY 1922 T O DATE
~{ r m WilIions }
o
w io
o>
i io
i
New York Philadelphia C l e v e l a n d R i c h m o n d A t l e n t e C h i c e g o
6206
2
.
4
3003
2
.
7
6
3
?
8
0
5
7
7
7
b
6
1
2
2
2
3
3
5
1
2
6
2
5
20-6
28.8
1204
9867
129.4
9205
13003
143.0
9 i b e
1 1 .
1 4 .
1 4 .
1 4 .
1 4 .
1 4 .
5
8
.
1
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0
0
0
.
0
4
4
l
1
4
9
0
5
6
6
11926
1 4 . 7
3
5
0
6
114.8
10202
1 4 . 8
1 4 . 8
3
3
6
7
0
0
8
8
10507
1 4 . 7
4
1
.
6
134.4
13929
161.8
187.2
190.1
166.3
164.3
171.8
170.8
184.4
11967
159.0
151.2
179.8
168.0
168.7
139.1
1
1
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133.6
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a
wr
e
e
l
e
c°
l
e
e
l
e
°
N
D
N
N
N
N
N
Y
A
N
.
o N
o
e
N
e
o N
e
a N
a N
Y
a N
aY
N
R
e
e
Ce N
S t e Louis Minneapolis K a n s e s City Dalles S a n Francisco A l l Banks
P
17 Committee
(Appointed
Atlanta
Bicogo
SteLoute
63, 482
59,960
42,374
5,181
83,766
35,565
37,200
26,778
73,041
59,712
36,517
5,170
83,572
32,203
43,514
26,564
68,745
32,807
18,248
43,669
5,164
99,034
47,967
34,483
49, 381
26,563
12,702
164, 596
99,111
63,129
31, 762
172,010
49,016
41,997
5232
85,172
45,039
37,930
26,614
70,797
27,291
240,654
67,007
68,997
31,765
16,720
43,551
48,106
4,665
93,056
42,950
41,070
23,689
6)1
All other earning assets
U. &. securities
92,966
26, 440
258,947
61,522
68, 488
31,619
92,908
38,217
48,905
4,155
91,1779
43,136
November 15, 1922
All other earning assets
U. 8. securities
100,664
19,984
269,656
574520
70,176
31,135
93,876
37,506
454956
4,173
87,628
40972
22,215
All other earning assets
U.S&S. securities
93,416
19,244
221,202
49,521
54,217
30,135
92,965
27,202
50, 306
4,189
915969
37,704
105,952
19,725
193,397
58,943
16,642
108, 897
26,685
50,013
3,693
105, 386
29,635
395953
All other earning assets
U. S. securities
96,959
19,519
266,971
64,727
17,093
29,635
107, 318
26,719
43,522
4,074
114,076
42,761
42,230
21,210
21,445
11,593
1
All other earning assets
U. S. securities
91,506
18,860
235,106
73,083
29,135
115,184
26,709
42,079
3,195
96, 706
42,254
40,369
21,116
1
All other earning assets
U. S. securities
87,629
31,214
183, 581
15,351
35, 343
109, 805
30,233
43,670
3,209
93,958
63,828
December x
All other earning assets
U. 8. securities
95,677
32,086
190,599
116,687
16,455
42,575
103,983
32,223
40,247
2,673
15,287
237, 380
40, 806
121, 369
69,953
34,100
99,108
48,759
Boston
New York Philadelphia
. 1
All other earning assets
U. S&S securities
44,081
30,748
139,153
162,692
58,774
34, 380
Octoder 11, 1922
All other carning assets
U. S. securities
55,044
259
235,856
60,122
154, 401
33,072
18,3:
All other earning assets
U. 8. securities
54,518
187,907
134,247
1 9 2 2
All other earning assets
U. 8. securities
56,241
28,633
Nove: 2
All other earning assets
U. S. securities
Federal ReserveBenkof:
2
Novembe
B
S
All other earning assets
U. Ss securities
31,094
December 6, 1922
Pi
All other earning assets
U. 8 securities
Fob
63,316
128, 468
Cleveland
Aggregate
TOTAL
San Francisce
Minneapolis Kansas City mDallas
669,654
483,341
24,532
19,010
22,318
43, 869
32,138
8,481
18,277
23,861
19,788
43, 408
30,625
8,481
18,195
51,975
771, 406
12,519
474,564
1,245,970
23,275
24,190
40, 313
3,110
11,056
19,241
767,914
446,902
1,214,815
23,958
11,939
23,557
35,623
13,275
19,881
42,416
127,090
408,636
1,135,726
23,195
26,547
42,198
335974
13,025
82,687
12, 602
41,367
848,422
360,312
1,208,733
40,237
23,715
22,420
12,594
27, 862
41,098
35,028
13,025
17,887
47,367
899,068
346, 589
1,245,657
41,732
21,456
12, 586
36,665
12,938
71, 380
41,992
913,699
325,714
1,239, 413
21,340
12,104
355596
12,864
19,498
36,803
871, 596
295,119
1,166, 715
42,846
21,883
909, 322
12,758
36,209
13,164
89,437
21,710
36,802
304, 461
1,213,783
32,128
39,197
37, 472
12, 864
85,569
36,302
971,772
311,802
1,283,574
21,299
12,384
31,747
394597
39,322
11,963
84, 766
36,098
922,330
307,238
1,229,568
41,475
26,118
21,432
13,107
34,668
4,437
11,939
62,187
41,098
867, 286
431,240
1,298, 526
99,862
19, 389
42,810
31,117
21,079
14,108
40, 886
37,597
11, 439
78, 580
46,099
876,178
457,883
1,334,061
39,348
9,344
93,889
56,195
39, 447
24,546
35,135
45,158
394558
13, 308
81, 469
38,767
882,827
17,312
25,157
39,298
21,709
21,251
42,092
30,838
51,976
51,407
51,407
1,152,995
456 554
1,339,382
137,809
1
All other earning assets
U. S. securities
58,138
205,576
154163
45,765
19, 565
9,442
80, 532
10,745
28,939
146, 479
59,648
39,600
32, 398
38, 696
25,711
15,809
43,114
13,758
615177
28,099
212,127
110,949
61,216
28,905
70,838
28,300
18, 372
38, 264
68,579
29,214
69,047
38,756
19,134
All other earning assets
U. & securities
2,167
65,904
24, 450
11, 308
43,5219
12,358
1
All other earning assets
U. 8. securities
67,609
248,707
~96,850
66,777
29,391
10, 285
26, 334
29,820
2,429
17,419
48,615
30,023
29,178
24, 243
18, 602
8,790
18,657
38,524
66,193
38, 852
508,176
1,245,985
40,767
714,680
412,432
1,127,112
38,082
12, 358
68,356
34, 166
174, 282
352,819
1,127,102
38,111
67,039
34,766
185,817
353,735
1,139, 552
12,158
36,515
64,067
34, 742
154,254
353,124
1,107,378
1
All other earning assets
U.S&S. securities
279,649
19,069
18,575
3,541
66,168
67,965
30,353
26,156
19,041
29,184
56,599
26,324
28,801
294069
9,941
16,694
38,522
All other earning assets
U. S. securities
68,718
28,112
248, 443
52, 306
718,824
29,098
51,150
36, 289
25,426
5,807
69, 482
74,938
26,619
28,878
21,356
10,932
18,159
38,523
4 , 2
All other earning assets
U. 8. securities
64,974
28,244
324,943
535235
82,275
29,097
64,829
38,818
1,341
23,336
10, 355
15,119
24,220
28, 780
21,085
18,162
38,185
5,114
10,943
38, 523
11,918
67,634
4,143
837,915
3539523
1,191,438
ry81 other earning assets
U. 8. securities
12,442
261,159
43,590
84, 268
64, 842
37,552
25,689
10,014
25,398
29,067
43,301
1,341
78,892
28,698
74,404
28,992
23,902
11,458
17,772
42,453
38, 200
11,718
67,813
34,747
810,276
354,034
1,164, 310
All other earning assets
U. 8 S securities
28,361 +
2,050 =
128,606 +
25,4944
5,313 =
1,360 +
259 =
119,102 =
22,408 «
3,360 =
16,685 =
4,833 ¢
4,815 = 11,802 =
38,839 @ 2,214
10, 464 =
17,229 =
140,622
129,307 =
All other earning assets
U. 8. securities
6
P.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a:
92h +
13h =
43%
15% =a
36,406
244
mks
do
Nhe
Zo
93% ¢
109Ste
8 ¢ hs
1,258
6,062
3,237 @
34°
Me 1as
t+
aye
1,305 ¢
4%
STATEMENT SHOWING CHANGES IN GOLD AND GOVERNMENT SECURITY HOLDINGS OF RESERVE BANKS
— — -AS COMPARED WITH RECORDF
O GOLD T u d P O R D
TNSEAX P O R T SFO THE UNITED STATES _ _ _
( In Millions )
Increasé or G o v ' t Security P i t t m a n
Gold
G o l d
G
o
l
d D e c r e a s e of I n v e s t m e n t s
Holdings I m p o r t s E x p o r t s
inSystem o f US
c
t
o f US. Circulation P i t t Ctmfcsa_Acnates
Monthly 9.0 Monthly 3.4
5
2
6
515.0
517.7
.
4
540.9
554.2
444.6
482.6
8 0 . 0
7 8 . 5
7 7 . 0
7 7
7 5
7 4
0 7 4
,
.
,
.
0
5
0
0
476.5 ©
74,0
482.7 7 4 , 0
8 7 4 . 0
8 7 2 . 0
3,045.3
3,054.5
4
4
6
6
7
8
.
.
3,071.4
4
2
6
.
9
7
0
.
5
3 , 0 7 1 . 6
4
2
2
.
7
6
9
.
0
3,066.4
3,061.8
3,063.4
4
4
4
2
1
3
1
8
5
.
.
.
1
7
0
6 7 , 5
3,060.8
os067.2
451.6
441.8
386.9
400.9
3061.9
3 076.9
w
W
w
eaw
s
w
W
W ©
o
y
e
K
322.3
312.1
294.2
We
3oODW
8Ww
3Ww
8OnV
° 3N
ww
d
O
w o
2
o
w
435.3
428.5
403.4
367.6 w
s
s> wO
28
O
s
o
e
r
o
o
w
o
2 6 6 . 6
281,0
s
c ow S oa
o
c a e so
n
o
o
o
o
e
290.3
288.7
417.2
445.9
:2
2
8
8
8
O9
38
o
2
o2
o
o
o
32.8
8
.
5
1 l . 1 -
5.6
* Estimated exports and imports
New York City
456.6
5082
412.4
352.8
3 5 3 . 7
353.1
353.5
o3
for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
A
G o l d in E x c l u d i n g C e r t i f i - ~
z.0
5.3
b e
354.0
for February are based o n figures obtainable
EXHIBIT "¥F*"
EXPENSES
B
o
s
S
t
o
T
n
A
T
N
e
E
M
E
N
T OF ESTIMATED EARNINGS AND EXPENSES O F AIL FEDERAL RESERVE BANKS FOR THE YEAR 1923
BASED O N EXPENSES FOR 1922 AND EARNING ASSETS HELD FEBRUARY 21, 1923
w York P h i l a d e l p h i a Cleveland R i c h m o n d A t l a n t a
K
a
S i cagot hM i .nC Louis
n e a p o l i s
n
s
a
s
City Dallas S a n Francisco T O T A L
Total Expenses for Year
Ending December 31,1922 $ 2,022, 4000 $ 6,776,530. $ 2,053,919 $ 2,461,266. $ 1,631,3560 $1, 293,0530 $ 4,080,057e $ 1,623,222, $ 1,084,942. $ 2,010, 8200 $1,515,391
$3,006,387. $ 29,559, 343.
-Less 10% Arbitrary Basis 2 0 2 , 2 4 0 6 7 7 . 6 5 3 6
To Give Estimated
Expenses for 1923
$ 1,820,160.
Dividend Paid for Year
Ending Dec. 31,1922
$
6,098,877.
2 0 5 , 392» 2 4 6 , 1 2 7 6° 163,136. 1 2 9 , 305. 4 0 8 , 0 0 7 »
$
1,848,
527. $
2 , 2 1 5 , 1 3 9
$
1,468,220.
$ 1 , 1 6 3 , 7 4 8 .
$
3 , 6 7 2 , 9 5 0
487,000 _ 1,724,000 5 6 0 . 0 0 0 6 7 0 3 , 9 0 0 » 3 3 7 . 0 0 0 6 2 6 3 , 0 9 0 8 9 1 , 0 0 0 .
1 6 2 , 322. 1 0 8 , 494.
$
1,460,900.
$
9 7 6 , 4 4 8 ,
201,080.
151, 5396 3 0 0 , 639. 2 , 9 5 5 . 9 340
$ 1,809, 7400 $1,363,852. $2,705,748. § 26, 603, 4096
2 9 0 , 0 0 0 . 215,090.
277,000. 251.9000
465,000.
6 , 463,090
Estimated Total Expenses
for 1923, including
vidend
$
,527+ #,2.915513»
, $.1.5
422,877-2$ 2,4086
7 $1,804
8
.
5,220. $.41563,0506
$1,750,900 §1,191,443.
3
+
0
6
1
a
—
$ 2,086,740. $1,614,352, $3,170,748. 33,066, 409.
EARNINGS
Earning Assets Held b y
all Banks Feb.21,1923(a) All other earning
72, 442,0000$267,759,0000$ 84, 268,0000$ 64,842,0000§ 43, 301,0000$25, 689,0000$ 78,891, 00009 25, 398, 0005 $23,901,000.
assets $
(b) U.S. securities — 2 8 6 9 8 , 0 0 0 5 _ 43, 590,000 0 6 7 , 0 0 0 . 2,0000__1,341,0000_10,014,900~0 74,404,900. 28,992,000. 11,458,090.
TOTAL
$ 1 0 1 , 1 4 0 ,0000$311, 349, 0CC.$ 113, 335,0900$102,394,9000$ 44,642 ,0000$355 703, 00008153, 295, 00008 54,390,000. § 35, 359,000.
$17,
7 7 2 , 0 0,09000°67,813,000.
00 $ 03 82,
$810, 276,000.
42, 453,000e_11,713,000+_34,747,0000 _354,034.0906
$60, 225, 0 0 0 0 $ 4 9 , 9 1 8 , 0 0 0 + $ ,1 1
064
2,.
5310,000.
6
$
00
0 ,0
Earnings which Holdings
Feb. 21,1923 ( at 4%)
would Produce during
1923
4
,
0
4
5
,
6
0
0
.
1 2 , 453,9606
4 , 5 3 3 , 400.
4,995,760.
1 , 7 8 5 , 6806
1 , 428,120.
6 , 1 3 2 , 8006
2 , 1 7 5 , 6006
1 , 4 1 4, 360-
2,409.9000 1,996,720» 4,192, 4000$ 46,572, 400.
Balance o f Earnings
After Expenses are Paid $ 1,738, 440-$ 4,631,083.$ 2,124, 8730$ 1,177, 5216
1
,
3
7
2
0
$ 1,568, 75008 424,700. $ 222,912. $ 322, 2600$ 381,868.§ 931,652.68 13,505,991.
Represents Holdings
(at 4% yield) i n Excess
of Estimated Requirements
Amounting t o
$ 4 3 , 461,0000$115,717,0758
0 53,121
$ 2,9584o420,525.
$ 3 4 , 3000$ 39,215, 7500$ 10,617,500. $ 5,572, 2006 $ 8,056, 5000$ 9,546, 7900823, 291, 30008 337,649.775+
~ Met.
Deficit After
Expenses are Paid
To cover Deficit Addition-
alAssets (at 4% yield)
will b e required
Amounting t o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
EXHIBIT "G"
PURCHASES A N D SALES O F UNITED STATES GOVERNMENT SECURITIES
AL RESER2V4EtBoAFEBRUARY
NKS
BYFEDERJANUARY
AFFECTING THEIR INVESTMENTS -
21, 1 9 2 3 INCLUSIVE
Issue
Seles
Bank
P
u
r
c
h
a
s
e
s
, March 15, 1923 Certificates ( t o market)
(
t
o Treasury)
March 15, 1923
4
5,000,000.
10,000 ,000. %
% December 15, 1923 Certificates ( f r o m market) $
4
5,000,000.
New York $
10,000 ,000. f
June 15, 1923 e
March 15, 1923
(
t
o Atlenta)
h 15, 1923
(
t
o Treasury)
2,500,000. %
March 15, 1923
(
t
o igen |
2,500 ,000. %
1,500,000. %
(
t
o Atlanta)
June 15, 1 9 2 3
Sept. 15, 1926 Treasury Notes (to Kansas City)
e
c
e
4
#
5,000,000,
4
0
M
a
r
c
J
u
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1,000,000.
1,000,000.
5,000,000. 4
—
—
$
i
e
1 5 , 1923
e 1 5 , 1923
n
f
% December 15, 1923
4
S
e
p
t
e
m
b
e
r
o
“
June 1 5 , 1923
2 , 5 1 5 , 0 0 0 .
Kansas City 1 , 5 0 0 , 0 0 0 .
m
a
mDelles )
"
Treasury
N e w York
i
r
k
a
e
r 15,1923
"
t
York)
S e p t e m b e r 15,1926 Trecsury Notes (from New
J
u
n
e 1 5 , 1926 "
M a r c h 1 5 , 1926 "
" ( f r o m market)
Reng ese
December 15, 1923 Certificates ( f r o m Treasury)
2
,
0
0
0 ,C00. a
2,000,000.
$
$ 49,000,000.
$ 60,400,000.
NOTE:
c
1 5 , 1923
S e p t e m b e r 15,1923
4
, December 15, 1923
M
y 1 5 , 1923 f
10,000,000. %
1,885,000.
h
June
2,500,000. “
St. Louis
r
1 5 , 1923
March
2,500,000.
3,000,000.
5,000,000,
5,000,000,
a
(
March 1 5 , 1923
1,500,000. 7
chicago 2 , 0 0 0 , 0 0 0 .
S
% December 15, 1923 a
0 ,000. (
0
M
m b e r 15, 1923
% March 15, 1923
4 June 15, 1 9 2 3 Certificates ( f r o m Trecsury)
Cleveland 5 , 0 0 0 , 0 0 0 .
,
o Chicego)
o Chicago )
o Treasury)
1,000,000.
1
t
(
D
1,500,000. ,
Atlenta
(
t
t
5,000,000.
5,000 ,000.
o f t h e above transactions
I
t will b e noted t h a t t h e majority
have b e e n executed within t h e System.
June
3
3
1 5 , 1923 Certificates its a t a |
% September 15, 1923
omitted)
1,000
n
k
1
earning |
t
o
t a
1HpA}d garni ‘nmeht securitie
ee
eine
aa e s
|f
;
+4 vefet I
|
feubusliond’ a
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
e
e5
j
;
70
i }
i
a
a
e as o l }
o a
f
{
i o u s eee: |
|
ous eee i t y |
4
ia
tt
e of
4
a
S
ip f e
a
e Li
s
900 assets o f all Federal Aisévea e t e diese formation of the’ ‘Committee.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis