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Federal Reserve Bank of St. Louis
VOLUME 2
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
S E C O N D
D
A Y.
CONFERENCE O F GOVERNORS O F FEDERAL RESERVE
BANKS.
Tuesday, M a r c h 27, 1923.
The Conference reconvened, pursuant t o adjournment o f
yesterday, a t 10 o'clock a. m.
Present:
‘ A s noted o n yesterday.)
PROCEEDINGS.
The Chairman:
T h e Conference will come t o order.
Yesterday, w h e n w e finished o u r program w e were discussing
this point involved relating t o the exchange o f letters
between the Federal reserve banks, bearing o n the direct
' sending o f items, a n d t h e Minneapolis B a n k felt that i t
could n o t d o a s the other banks have done.
W h a t i s your
desire with regard t o action o n this matter? G o v e r n o r Young,
are y o u s t i l l
i n t h e s a m e f r a m e o f mind?
Governor Young:
M r . Chairman, M r . A d l e s o n t h r e w a
little light o n this yesterday that had not come t o me be~
fore, that is, with regard t o Regulation J. T h a t may change
my p o s i t i o n a
little b i t , b u t t h e E x e c u t i v e C o m m i t t e e
o f our
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Federal Reserve Bank of St. Louis
207
bank has stated positively thst t h e y will not s i g n a n y
such agreement,
(At this point Under secretary Gilbert,
o f the Treasury,
entered t h e Conference HKoom.)
The Chailruan:
u r . Gilbert h a s come i n this morning,
and I believe h e has some other méssage that n e wants t o
extend t o us.
wm. Gilbert: I
have shown t o Governor ucvougal a
copy o f the telegram that went out t o all ths Governors
about t h e redemption o f t h e June 1 5 certificates.
T h a t
was sent out the first thingthismorning, e n d I believe that
action will b e helprul a l l s round.
There i s one other aspect o f this juestion e f t h e holding o f government securities that I
fore y o u ,
would like t o put b e -
s v e n w i t h t h e reagimption o f t h e s e 2 5 3 , 0 0 0 , 0 0 0
of J u n e 1 5 certificates,
t h e Treasury b a l s n c e w i t h t h e
Federal ieserve banks wiil b e unusually high, i n the nsighborhood o f 3 1 0 0 , 0 0 0 , 0 0 0 a n d i s y b e a
little more.
balance i s urawn a o w n b y p yments t o t h e market,
I ? thet
i t i s our
feeling here thst t h e Federal reserve banks might b e sble
to use that occasion a s a ineans o f recucing somewhat furthe
their holdings o f Government securities b y sales t o t h s
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Federal Reserve Bank of St. Louis
208
market,
I
n a s e n s e t h a t m o n e y h a s s l r u g d y b e e n withdrawn,
it goss back there m a y b e a chance t o make sales
there o f some o f the ceptember o r Decauber securities o r
of the long-term Treasury notes t o t h e market.
F r o m the
point o f view h e l d b y tne Treasury n e x t month o r t..¢ reabouts
is a good time, 4 n unusually g o o d time, t o acevmolish some
of that liquidation.
W
e are yguite a+zfinitely o u t o f t h e
narket until m a y 15th, a n d any time betwsen n o w a n d April
lSth o r April 20th, I think w e can atford t o stand whatever
softening o f t h e market f o r G o v e r n m e n t s e c u r i t i z s m i g h t b e
caused b y some further lisuidation o f Federal Keserve bank
holdings.
Governor Calkins:
Y o u r suggestion i s aimed a t t h e
entire liquidation o f Governnient securities b y Federal reserves banks?
wr, Gilbert:
N o t within t h e next f e w
Governor Calkins;
N o t within the next w e e k s ,
at t h e earliest possible moment?
wr, Gilbert; I
idea, e x c e p t
should say ultinstely that i s the
i n s o f a r a s those holdings n e y represent
holdings und3r repurchase agreements o r actual busines
transactions,
o r a n occasional holding, b u t i t would b e
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Federal Reserve Bank of St. Louis
209
With t h e idea o f the elimination o f ‘the definite investment holdings t h a t have b e e n carried.
I t has b e e n o u r
to further action w i t h respect t o rates.
F o r instance,
if you pul in. 6 five p e r cent. o x tives a n d 4 heise
rate a n d a r e still holding »3500,000,000 o f Government securities, y o u would freeze thet asset, except t o the extent
tnat i t i s liquidated b y reuemption, a n d y o u might,
meantime,
i n the
i f you raised t h e rate, g e t t h e advantage o f t h e
effect that y o u hoped t o get through raising t l e rate, b y
gradually selling Government s e c u r i t i e s a n d b y reducing
the supply o f noney i n the market, r s t h e r t h e n b y raising
the i n t e r e s t L e v e l .
Governor Calkins;
R e d u c i n g t h e supply o f money o n the
market w i l l hardly accomplish t h e same thing i n the remote
districts that thé raising o f t h e rate will accomplish.
ur, Gilbert;
I
financial centers, I
t h a s i t s greatest efiect
i n the
suppose t h e r e a r e s o u s reactions f r o m
it even i n the remote districts, n o t s o direct.
The Chalrman:
w o u l d y o u i l k e a n e x p r e s s i o n o f opin-
ion f r o m the Confsrence a s t o how t h e banks feel, banks that
are holding the Governient securities,with ressect t o letting
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Federal Reserve Bank of St. Louis
210
them all r u n off which, I
understand,
i s probably w h a t
you desire,
uP. Gilbert: I
should b e glad t o have that, i f the
Governors will give it, o r else leave i t with you t o be c o nsid:red,
The Chalimri.an; U n d - r those circumstances,
w e will ac-
cept thet f o r consideration later on.
J o u l d that b e satis-
factory t o the Vonference, gentleuen,
o r would you prefer
to discuss this matter now, while w e have i t here?
Governor Riggs: I
move that w e carry i t over f o r
further consideration,
The Chairnian:
I f there i s n o objection, t h a t proced-
ure w i l l b e followed.
Is there enything else, ar’ Gilbert?
ure Glibert:
I
f you want t o take u p t h e f e w matters
on the progra.. affecting the fiscal egency, I
think w e c a n
dispose o f them i n a moment.
The Chairnan:
T h e first i s
V. Fiscal Agency Uperations
(a) Desirability o f checking shipmemts o f redeemed securities
ageinst advices o f shipment f o r warded b y separate registered mail,
That w a s suggested b y Cleveland.
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Federal Reserve Bank of St. Louis
2L1
Governor Fancher;
T h a t grows o u t o f a sistuation,
wr. Chairman, w h i c h came u p i n our bank, 3 n d I might r e a d
this lemorandui, prepared i n the vepartment.
Recently w e were advised b y t h e Post-Urfice Inspector
at N e w v r l e a n s t h a t h e h a d c o m e i n t o p o s s e s s i o n
mail p o u c h l a b e l e d “ T r e a s u r e r
o f a rifled
o f t h e U n i t e d states, D i v i s i o n
of securities, Jashington, vb. C.", from Station 93, Cleveland,
Uhio.
9 3 i s the nuaber o f our contract postal station, a n d
consequently w e assuned that o n e o f our ship:ents o f redsemed
securities t o Division o f securities h a s b e e n stolen i n
transit.
d e Immediately requested t h e U n d rsecretary
of t h e Tressury t o have t h e Division o f securities c h e c k
the shipments received f r o m this b a n k egainst o u r advices
of shipment i n order,
shipment.
i f possible,
t o Llaentify t h e s t o l e n
U n d s r secretary Gilbert replied that t h e
"Treasurer's office i s unable f r o m i n f o m a t i o n i n their
hands t o tell whether a l l shipments w a d e b y y o u have been.
received.
S u g g e s t y o u h a v e list: o f 9811 shipments f r o m
January 1
t o d a t e m a d e a t o n c e a n d w i r e i n order t h a t
w e
may check against such list."
Apparsntly t h e a d v i c e s
o f shipuwent a n d manifests:
of
Shipuwent which w e fortiardsd actually d o not function a s
212
such
o r else t h e Livision
o r securities
wouldhave
b e e n sble
to identify t h e missing shipuwent ( i f any) without u i friculty.
At the Fiscal Agency Conference held a t the Treasury
Department
o n Feorusry 14-15, I
presentea t h i s watter f o r
agiscussion but t h e representative o f the bivision o f securities w h o was present a t the C o n f e r m c e h a d n o explanation
to offer s s t o w h y manifests o f shipment o r advices o f
Shipment could not b e checked agsinst t h e shipments actually received i n his vivision.
in view o f t h e fact tnat millions o f dollers o f re-
deemed securities a r e involved i n diipments o f this charscter snd that n o insurance i s placed o n such shipments, iruiedilate notice o f t h e loss o f a n y shipment i s extresely d e Sirable, a n d I believe that steps shoulau b e taken a t once
to the e n d that adequate record o f the securities received
© iw€@intained b y t h e D i v i s i o n o f s e c u r i t i e s a n a t h a t a l l
manifests o f shipment a n d advices o f shipuent received
Prowptly b e checked agsinst s u c h record i n order tnat a n y
loss which may occur i n transit m a y b e detected without
delay.
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Federal Reserve Bank of St. Louis
ur. Gilbert:
I t i s not a question o f checking the
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Federal Reserve Bank of St. Louis
213
securities actually received, b u t checking t h e manirest
to see wnether t h e securities have n o t been recsived?
Governor Fancher:
b O u e system s o that w e may know,
wr, Gilbert, that they have o r have not been received, a n d
estion i s w h e t h e r e
w should have b é e n advised that
particular shipment h a d not b e e n received.
am, G L lperts
A s I
understand it, t h e shipnuents w
received a n d receipted for, a n d Guplicate advice returned
to the Fedsral Reserve Bank.
I f you got n o advice, I
sup-
poss y o u would know the shipment h a d not b e e n received,
Governor Fancher:
T h i s l e f t u s i n considsrable doubt
as t o just h o w y o u r record w a s maintained.
I t seens t o
us that credit being withheld o n cancelled securities until
they a r e received, t h a t they ought t o have some check,
sone way, s o that i f @ loss occurs,
in
a s occurred i n this
case--- although w e d o not k n o w that a
finitely, b e c
we h a v e n o a d v i c e a s t o w h e t h e r t h i s q u e s t i o n h a s b e e n
cleared up--- b u t there ought t o b s sowe nicans o f hanaling
the shipment,
s o that i f a shipient g o e s astray w e c a n iden-
tify the shipment a n d know i t i s that particular shipment.
Governor Calkins:
T h e s e shipments sre, i n your case,
I think, prepared a s ours ars, t h a t is, made i n triplicate
214
and the original forwarded under separate registered mail
to t h e Division o f -ecurities, a
carbon copy enclosed w i t h
the securities, a n d i t seems t o m e i t would b e a very
Simple matter t o have those originals a n d carbons checked
up.
I t i s n o t likely that t h e y would both b e stolen o r
destroyed,
a n d t h e y s h o u l d b e c h e c k e d u p i n ordsr t o
ascer-~
tain w h e t h e r t h o s e t h i n g s h a v e b e e n r é c e i v e d
i n s é juence,
as t h e y s h o u l d b e ,
m?. Gilbert; I
matter. I
think i t i s a
very simole routine
appointed a conmittee two or three weeks ago to
revise that whole system of rec:iving securities ¢ n d kendling advice o f shipuwent o f securities. I
think t h e trouble
is i n the Treasurer's office, vivision o f securities, a n d
you have a
currency,
similer situation i n the registry o f logns a n d
However, I
have h e a r d o f n o d i f f i c u l t i e s t h e r e ,
and w e are overhsuling the vivision o f secusities a little.
Governor Cslkins:
I t seems t o ne, a s these shipments
are of large aiounts, that we ought t o know pretty promptly
of their receipt o r n o n receipt,
s o that i f a shipment h a s
gone astray w e c e n very promptly trace i t a n d find out t h e
reason f o r t h e d-lay,
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Federal Reserve Bank of St. Louis
wr. Gilbsrt: I
think there i s no trouble about doing
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Federal Reserve Bank of St. Louis
that.
ia? ,Qase:
I
t seams
t o m e that w o u l d b e a n additional
safsguard i f t h e duplicate,
w h i c h Governor Calkins h a s j u s t
referred to, w h i c h i s sent und-r veparate cover,
b e rorward-
sd i n a Later mail,
T h e y a r e required t o a o that n o w b y
wr. Glibsrt:
registered mall.
mean b y a later train, s o that i f there
mute Case: I
was a
t r a i n wreck, b o t h o f t h e m w o u l d n o t b e asstroyed.
lt certainly would b e helpful i f those could b e listed a n d
tien imusdiately shecked i n your offices here.
The Chairman:
T h i s watter has b e e n presented;
Gilbert n e s e x p r e s s e d h i m s e l f
ts a t w o r k w i t h a
that m a y exist,
b y stating t h a t a
ur.
committee
view o f i m p r o v i n g t h i s o r a n y o t h e r w e a k n e s s
i f this i s a wee ;
-
Governor Fancher,
do y o u want a n y further ection o n this?
Governor F a n c h e r :
The Chairijan:
N o .
I t that i ¢ satisfactory, then,
pass t o the naxt subject, w h i c h i t Topic V , (b). *
w e will ‘
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Federal Reserve Bank of St. Louis
Undesirability o f accepting matured
Government securities o n account o f
allotments o f original issuss o f
Treasury certificates o f Inaebtedness
or T r e a s u r y n o t e s ,
That w a s also sugcested b y Cleveland.
Governor Fancher.
T h a t m a t t s r w a s p u t o n t h e program,
wf. Chairman, j u s t t o gst a n expression o f opinion about
what t h e o t h e r F e c e r a l r e s e r v e b a n k s w e r e e n c o u n t e r i n g
that respect.
in
d e have encountered sone confusion o n ac-
Count of our smsll banks, particulserly i n the offering of
January 1 5 ,
i n r e c e i v i n g c a l l e d V i c t o r i e s a n d J a r Savings;
but o f course this w a r savings matter i s pretty i e l l over,
and the Victories w i l l s o o n b e out o f t i e way.
I t ratr.er
szens t o us that possibly, a n d I have gone into this rather
carefully, f r o u some o f t h e lengthy correspondence w e have
had with our small subscribers, that w e have been a little
too considerate and have given them a little too much tline
in c l o s i n g u p t h e i r subscriptions.
great d e a l o f correspondence. I
I
t has l e d t o a
have o n e case where a
small bank i n Kentucky subscribed f o r some certiiicates,
5
1 and they
were award-d souwe from the offér o f J a n u a r y . ,
finally closed t h e matter u p sometime i n Februsry, a f t e r
a good deal o f c o r r e s p o n c e n.ec T h e y went o u t a n d beat t h e
Sir
could t o p a y o n a subthe bushes, a n d got everything t h e y
g o t s o i y a r Savings
scription o f $5,000, a n d they finally
paid ,3700 i n cash.
and Victory called notes, a n d t h e n
That occurred sometime i n February.
O n a yl0,000 subscrip-
a n d then paid
tion they g o t i n a let o f miscellaneous stuff
o f correspondpb,290 i n cash, a f t e r a considerable exchange
ence. I
o f t h e smaller
a m inclined t o think that with some
little t o o much latitude.
banks w e have b e e n giving t h e m 4
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Federal Reserve Bank of St. Louis
ur, Gilbert:
t h a n anybody
Y o u give t h e m more t i n e
else,
Governor Fancher:
Y e s ; t h a t i s i t exactly,
a n d w e are
our office.
going t o change that procedure i n
Governor Calkins:
T h i s i s a very interesting ques-
that I
tion a n d I have a memorandum here
on it, o r otnerwise I
would like t o read
may talk a long time about it.
banks i t
"arom the standpoint o f the Federal reserve
redemptions o f p i x
is far simpler t o make straight c a s h
handle a l l subscripmaturing securities surrendered a n d
tions t o new issues a s n e w cash subscriptions.
procedure,
very m u c h simplify t h e aenounting
T h i s would
4 s well a s
subscriptions,
the handling o f the securities a n d
a n d would
f o r making errors.
very materially decrease t h e changes
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Federal Reserve Bank of St. Louis
218
The maturing securities m u s t b e redeemed whether o r
not t h e p r o c e e d s a r e i n v e s t e d
cannot s e e w h e r e a n y t h i n g
securities
o n account
Gertiticates
i n t h e n e w issues,
and I
i s gained b y accepting n a t u r e d
o f allotments
o f Indebtedness
o f original issues o f
o r T r e a s u r y Notes,
dar Loan bepositary banks surrender t o u s f o r redeinntion 811 securities received b y t h e m i n payment o f subscriptions b y their clients, s n d enter subscriptions
i n their
own names t o b e paid b y credit i n order t o have t h e redeposit.
A t t h e same time, t o assure receiving allotments
sufficient t o meet their requirements, t n e s e banks enter
their s u b s c r i p t i o n s f o r a m o u n t s f a r i n excess t h e r e o f ,
is 1 s o n e o f t h e c a u s e s
o f p a d d e d subscrijt i o n s w h i c h t h e
Treasury Department i s always instructing us to try to
prevent.
Therefore, t h e acceptance o f matured securities o n
account o f allotwents o f original issues does not reflect
the amount o f reinvestnients, s n d from our experience, L l do
not believe that i t would have any efrect o n the sales o r
final allotments,
From t h e s t a n d p o i n t
o f t h e investor, d i r f e r e n t i a t i n g
between c a s h subscriptions a n d these f o r which maturing securities a r e t o b e accepted i n payment sonstimes works t o
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Federal Reserve Bank of St. Louis
219
the advantage o f one subscriber a n d t o the disadvantage o f
another;
f o r instance -
mr. A e , w h o i s not familiar w i t h the details o f the
usual allotment procedure, h a s
3100,000 o f maturing securi-
ties, a n d g100,000 i n cash f o r which h e wishes 3,200,000 i n
new securities. H
therefore deposits t h e maturing securi-
ties w i t h his bank a n d places a
cash subscription f o r
200,000; whereas, u r e B., w h o i s thoroughly faniliar w i t h
the usual allotnent procedure, h a s t h e sane aniount o f maturing securities a h d t h e sane amount o f cash, enters direct
with t h i s b a n k o n e s u b s c r i p t i o n f o r ,100,000
by t h e m a t u r i n g s s c u r i t i e s ,
and a
t o b e psid
sepsrate subscription f o r
~100,000 t o be paid i n cash. m e a n w h i l e , w e have been
authorized b y the Treasury Department t o make full sllote
ment
o n all subscriptions p a i d b y maturing securities,
on c a s h s u b s c r i p t i o n s n o t e x c e s a i n g $100,000,
subscriptions close,
s n d sfter
w e are further instructed t o allot
75% O n subscriptions exceeding 100,000.
ur. A
I n t h i s case,
would receive »,150,000 a n d wouldbe required t o find
some other suitable investment f o r his réuaining
Whereas ur. B
2HOGal
and
:50,000;
would already h a v e received alloti.ent i n
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Federal Reserve Bank of St. Louis
220
The e l i m i n a t i o n
o f the present practice
matured G o v e r n m e n t s e c u r i t i s s
o f accepting
o n account o f a l l o t m e n t s
vYlginal i s s u e s w o u l a p u t a l l s u b s c r i b e r s
Thsrefors, a s explained above, I
of
o n a n e q u a l basis.
believe that from the
standpoint o f both the investors a n d the rederal Reserve
banks, i t i s undesirable t o accept matured Government
securities o n account o f sllotments o f griginal issues o f
Certificates o f Indebtedness a n d Treasury notes."
Vur contention i s that t h e matured securities b e receélveu a n d redseued a n d thet t h e cash subscriptions b e
received
i n d u e course.
You s e a n reusa..ed i n casn?
Governor Calkins:
uM. Gilbert:
i@ acee t
Y e s , t h a t i s what i t amounts to,
T h a t i s what i t amounts t o a n y way.
n a t u r e d securities
i n payment f o r n e w
3,the situation i s a s i f they h a d b e e n redeeined
and t h e c a s h spplied,
Governor v e a y s
- u @ s t i o n
i s a
practical
from t h e p o i n t o f v i e w o f h a n d l i n g i t , a n d L
Submit 9
short c o u m e n t
one,
sould l i k e t o
o n it.
“Gith reference t o Tepic V - B o n program r o r Governor's Conference, u a r c h 25, 1923, i t i s believed t o b e desirable n o t t o secept m a t u r e d G o v e r n m e n t s e c u r i t i s s
o n account
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Federal Reserve Bank of St. Louis
221
of allotments o f original issues o f Treasury Certizicates
of Indebtedness,
o r Treasury notes, f o r t h e following
reasons:
work in connection with t 1
securities, hannening a t t i 5
Bie
a
n
d reasnption of
u e o s d o n e w i t h more
accuracy a n d dispatch b y receiving f o r sales, c a s h a n d deposits i n the depositery eccounts, and r e d e s i uwaturing
securities t o r c a s h , t h s proceeds
on purchases o f the n e w offerings.
o f which c a n b e applied
T h e r e i s n o reason
tob e l i e v e that a smaller number o f holdsrs o f neturing
securities w o u l d purchase t h e n e w oiferings, u n u e r this
plan, s i n c e t n e p r e c e s d s a r i s i n g f r o u t h s reéa:mption a r e
avallable.
Under the present plan o f exchanging maturing sseurities f o r n e w offerings, t h e allotments o n cash sales
exchanges a r e sorate, a n d close a t & certain time.
fore, i f registered niaturing securities a r e received
exchange f o r a new oifering ( t h e subdtcription having
allotted) i t i s found, because o r defects i n assignments
or caveats being entered :
the s u b s c r i p t i o n
to
e
1
8 transfer o r payment,
w of?sring f o r which payment
is
to b e made w i t h t h e registered s e c u r i t i e s cannot t h e n b e
settled w i t h cash,
a s t h e subscription
i s recorded t h r o u g h
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Federal Reserve Bank of St. Louis
222
the recoraus, bothat t h e Feaeral reserve b a n k a n d t h s Treas-
ury De‘artii¢nt, under the exchange allotment.
s o i u e t lines
it takes a s long s s three months t o clear u p transactions
of this nature during which time the delivery o f the securitics,in many cases, t o be issued i n exchange, itheld u p for
the l a c k o f paynient.
it i s slso sspecially desirable n o t t o exchange Victory
notes s t maturity, m a y 20th, f o r n e w offerings a t a time
when t h e v o l u m e i s e x c e e d i n g l y heavy}
T
h
e b a n k s w h e n send-
ing i n the maturing securities i n uany cases, request a
certain amount t o be exchanged for Certificates o f one
series,
and a
certain a m o u n t f o r another series,
balance t o b e reaqeeued, thereby creating a
a n d the
segregation
into t h r e e t r a n s a c t i o n s u n d e r t h r e e s e p s r a t e c o n t r o l s ,
whereas o n l y o n e i s necessary,
a n d t h e proceeds d i s b u r s e d
in accordance w i t h instructions,
Frequently s e c u r i t i e s a r e s u r r e n d e r e d
some o f w h i c h a r e c o u p o n s e c u r i t i e s
nelther.of s h i c h
i s suicgielent,
i n exchange,
a n d s o l e registered,
i f separated,
t o purchase
the smallest denomination o f t h s current offering, hence,
the coupon notes are redeemed and the check held until
egistration h a s b e e n r e l e a s e d b y t h e T r e s s u r y véspartnent,
6d a S p a r t p s y m e n t
o n t h s Original subscription,
ror
Which a l l o f the notes, b o t h coupon a n d registered, w e r e
Lendsred i n exchange, a
good uweny cases cifficulties
in exchange
ns, oawnéa b y n o r s t h a n o n e person,
the securities t o b e issued i n eachange, n o t being i n
ienoullnations smaller t h a n .500, cannot b e celivered b y the
bing banks t o the owners,”
Those a r e t h e p r a c t i c a l d i f r i c u l t i s s
of
metter, t r o m our experience i n the sialler Gistricts,
ur, Gilbert: i
realize t h a t t h e r s s r e a nuiuiber o f
tactical o r sccountins dirficultles, b u t i t always ge:
to u s here that i t i s worth while t o t r y t o overcone
tor t h e sske o f getting i n the matured sscurities
chenge f o r t h e n e w securlties,
in
A f t e r all, t h a t i s the best
kind o f m o n e y t h a t w e c a n g s t f o r t h e n e y securitiss.
investnent
i s t h e t h i n g that w e a r e most anxicus
R e -
t o accom-
plish, and, assuming that thers a r e some mechanical difficulties, I
would much rather e n d avor t o simplify those t h a n
to refuse t e take t h e instured securities.
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Federal Reserve Bank of St. Louis
Governor Calkins;
w 0 . Chairman, I
want t e correct
eek
ee M r , Gilbert,
what I think i s a wrong impression that I might have g i v e n /
W@ have n o disposition whatever t o differ
Wiltn you wiun regard t o the desirability o f getting i n
thosé securities,
I t i s only t h e mechanical process t h a t
we are criticising.
w¥, Gilbert:
J
@ have a n exceptionally g o o d case i n
June, w i e r e w e want t o take t h e matured Victory notes, s n d
it seems t o me w e should, b y 311 means, make i t 2s simple
as possible, a n d a s open a n d free a s possible t o d o it.
There w i l l b e q u i t e a
voluas
o f Victory notes hanging over
unredequed,
uP. Case; D o n ' t y o u mean i n may?
uw, Gilbert;
ur, Case:
N o , i n June?
Y o u say’ you have securities offered i n may
that may b e exchanged?
wr Gilbert;
Y e s , b u t i f w e offer securities o n may
l5th, they will then be unmatured, and won't fall within
this topic; this topic relates t o matured securities.
wr. Case? Y e s , but the Victory notes are maturing and
they will b e redeamed,
wir. Gilbert;
T h e y will mature within f l v e days after
the offer o f way l5th---
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
220
ur,
A
n
d y o u propose t o offer n e w sscurities
that m a y b e sxchanped?
ur® Gilbert;
ial’,
practice
5
%
Y e s , b y all means,
w r . Chairuan, N e w Y o r k feels that this
i s a very desirable one.
d e have done everything
we could t o encourage it, perhaps e v e n t o the detrinent o f
sone o f o u r iiaguber banks,
T o d a y w e have a
nuuber
o f large
corporations w h o bring i n their matured securities direct
and tender t h e m i n exchange f o r n e w securities.
U
n march
l5th, f o r instance, t h e Interburrough Kapid Transit Company
brought
took a
i n two o r three millions i n natured securities e n d
l i k e amount
o f t h e n e w onés, P e r s o n a l l y , I
feel
thet i i t h e transaction c o u l d b e consunimated o n that basis
it would desirable a n d woulda d o sway w i t h all t h e book
credit 3 n d s v e r y t h i n g e l s e t h a t p o s s i b l y m i g h t o c c u r a t
that period.
T h e swapping o f a siatured obligstion f o r
a n e w o n e w e h a v e f o u n d v e r y simpls,
Gitficulty with it. i
a n d have n e v e r h s d a n y
think, o n this last issue o f msrch
15 w e exchanged something l i k e ,20,000,000, n o t 8 very
large anount, b u t I
think i t i s good practice, a n a will b e
done w i t h just s u c h companies a s were cited, s u c h a s
American Locoiuotive, t h e N e w York A i r Brake Company, a n d
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Federal Reserve Bank of St. Louis
220
concerns o f that sort, w h o will bring i n imatured certi
and take n e w certificates.
The Chairman: I
doubt i f t h i s jguestion w o u l d
have b e e n put o n the program i f i t had not b e e n f o r
difficultics t h a t e r e anticipated, mschsnical aifficulties,
in hendling t h e exchange o f w a r cvavin:s certificates.
That
question cane u p i n our bank, a n d i t looked a s though w e
were g o i n g t o b e a s k e d t o a o t h e impossible.
w
e concluced
to g o a h e a d a n d d o i t , a n d w e r o u n d t h a t t h s s c t u a l . i f f i culties w e r e n o t a s g r e a t a 5 W e expected,
tact i t a i d n o t d i s t u r b u s i n t h e least,
A
S 8
mMabber 3 7
a n d o u r depsrtiient
makes this co.wssent:
“uatured G o v e r n i e n t s e c u r i t i e s heave b e e n a c z e p t e d
a t
dirferent tiines 2 8 payment r o r new lssues o f Treasury
securities, a n d w e have experienced n o diririculty i n
handling t h e .
w 8 see n o objection t o t h e procedure f r o m
the standpoint o f the work involved and, 4 s a matter o f
fact,
i f there
i s a n y consid rable amount o f matured secur-
ities presented,
1 t i s easier t o apply t h e m a s payme
the new issues than it would b e t o put the matured securities
through for redemption, issue a
a
ag payimant for ths new subscription."
n
d use thse check
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Federal Reserve Bank of St. Louis
oar
which means t h a t t h e mechanics a r e really simplified
rather t h a n complicated.
wr, Case;
T h a t i s o u r feeling about it.
ure Gllibert:
douldn't
i t b e possible
t o meet y o u r
point b y making i t very clear t o t h e public t h a t these
redemptions w o u l d b e m a d e o n a
Governor Calkins:
wt, Gilbert:
preferred b a s i s ?
T h a t would help, undoubtedly.
T h a t woula remove a n y possibility o f
misunderstanding,
ur, Case:
O f course,
s o f a r 3 8 War savings stainps
are concerned, t h a t i s water over t h e dam,
wu. Gilbert:
T h e y a r e p r a c t i c a l l y o u t o f t h e uw:
de may otfer t o take t h e m again, though.
wr, Case;
Y e s , b u t t h e r e are n o t many o f them?
wr G i l b e r t :
N o t jwany, o n l y # 6 0
Governor Norris:
, 0 0 0000.,
u p , Chalruan, w e dirfer s little with
Chicaga s s t o t h é coltiparative ease o f the t w o operations.
But our view i s that exchanges are desirable, both from
the Treasury financing point o f view, a n d from thse point
of view o f the holder o f the matured se scurities.
at i t f r o m t h e m e c h a n i c a l s t a n d p o i n t ,
i t is a
Looking
simpler o n s r a -
tion t o r e d e e m m a t u r e d s e c u r i t i e s t h e n t o accept t h a m f o r
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Federal Reserve Bank of St. Louis
228
exchange,
v e d o not feel, however, under the circumstances,
that w e should ask the Treasury t o change its plan,
The Chairman:
G o v e r n o r Fancher, ..as this topic origin-
ated with Cleveland, perhaps, i n the interest o f progress,
you c a n make some suggestion.
Governor Fancher: I
have b e e n out o f t h e room for a
While, a n d I do not know what f o r m t h e discussion h a s taken,
but a s f a r s s t h e Cleveland B a n k i s concerned, I
think w e
have sufficient light on the matter. T h a t was my object
in putting the topic on, t o find out the experience o f the
other banks,
The Chairman:
A n d t o call i t t o the attention o f
secretary G i l b e r t ?
Governor F a n c h e r :
The Chairman:
Yes.
T h a t has besn done, a n d i f there i s n o
further sction necessary, w e will pass it.
Governor peay; L
would like t o ask the Secretary i f
the Department won't consider, also, t h e mechanics o f handling exchanges, p a r t i c u l a r l y w i t h r e f e r e n c e
securities,
t o registsred
i n which i t i s almost unavoidable t o experience
delay.
ux. Case:
I f a person tenders a
certain number o f
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Federal Reserve Bank of St. Louis
229
ve istered matured cscurlties o n warch 15th a n u agrees t o
accept a
less amount o f the n e w securities, t h s r e i s n o
adjustment o f interest o r anything, t h e y a r e merely held,
slivery i s held up, pending t h e tine w h e n t h e registsred
securities a r e gotten through.
Governor seay; w i f t i c u l t i e s a r i s e i n dealing w i t h
the small exchanges, a n d where t h e transfers a r e n o t
strictly i n conforuity w i t h tne reqguiresents t h e y a r e hung
up indefinitely.
T h o s e a r e the ones t o which 1
particular-
ly referred, w h e n I sugzestea that t h e department cvnsicer
improvements
i n the mechanics o f nandaling them.
Er, Glibsrt:
I
t will necessarily t a k e longer
complete the exchange o f registered securities.
to
O n the
other hand w e have felt i t was n o t proper t o discriminate
against t h e registsred securitiss.
# 8 aid feel that w e
had t o discriminate against registered iar savings certificates, because t h e y were rsgistercd a l l over t h e map.
4 think w e will have t o simplify t h e mechanical operations
9S much a s possible.
Governor Seay: That is the point to which I hed reference.
ur, Gilbert:
i
s one matter, n o t o n your pro-
230
grani, i n which y o u may b e int erested.
T h e r e have several
times b e e n presented t o you specinens o f n e w currency @ Signs.
T h a t m a t t e r h a d inade c o n s i d e r a b l e p r o g r e s s
last itonth.
S
v designs have bean subuitted a n d are i n
the hands o f the Board.
I f this Conference would like t o
lock a t t h e n e w d e s i g n s I
are s o n t < n .
i n the
wlll b e v e r y g l a d t o s s e t h a t t h e y
T h e ué@signs s u b m i t t e d a r e s i m p l y f o r backs,
but the Bureau i s ready t o procesd with those. T h e r e s have
been quite a nunber o f improveuents m a d e over t h e previous
models,
Governor valkins:
T h a t i s currency i n the
densiiinations?
ur. Gilbert;
e
w c u r r e n c y designs, Governor.
T h e
coumittee h a s n o w unanimously r-conmend<+d agsinst reducing
the size o f t h e currency, a n d w e are disposed here t o en-
dorse that recommendation, very lsrgely o n the ground o f
conservatism. r u r t h e r m o r e , theurgency with regard t o
getting new designs i s really quite serious.
T h e présent
d°signs, particularly t h e Federal reserve nates, a r e causing
ths secret service people difficulty with regard t o note
raising.
I f w e were t o recuce t h s size o f the notes w e
would have t o g o t o Congress a n d pérheps w a i t f o r a year o r
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
two b e f o r e a n y t h i n g
w
’
a s dons,
s n d i f they w e r e 6
need n e w dies andnew plates, a n d s o forth, a n d
ew designs o f t h e saue size w e have n o w w e will b e
position
t o g e t o u r t h e n e w currency w i t h i n p o s s i b l y s i x o r
6ight inonths, I
think y o u will a l l b e interested i n these
new mcdels,
(:mereupon, U n a e r secretary Gilbert withdrew f r o m t h e
Conrsrence room.)
(at this point t h e usmbers o f t h e #srm Loan Board
snteread t h e conrsrence recom, a n d a joint conierence w a s
entered i n t o , )
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Federal Reserve Bank of St. Louis
The Chairman: G e n t l e . e n , «e@ now have with us Judge
Lobdall,
o f the Federal F a r m Loan Board, a n d his
ur. R o b e r t A , Copperfisld, u r , J o h n Guill, w r , « .
and ir. ij. Ss, Landes, iueibers o f that Board.
wPe Lobdell, w e will b e very gladto hear from you and
your s s s o c i a t e s
i n regard
t o such matters
a s y o u want t o
discuss w i t h us.
ur, Lobdell: iar. Cugsirwan, a n d gentleuen, t h e Farm
Loan Board has found o n its dourstep i n the last three
months,
a n infant t h a t w a s bandied around a goou ceal before
itlanded with us, snd we hops t o ss¢ it terwarded t o you
Ss n t l e m e n . ’
N@come to you today, not that w e have anything t o
orfer, b u t t o encroach u p o n your kindness a n d good nature
for sous sugsestions a n d advices, i f w e may nave them,
This enactment seems t o be predicated, i s psedicatsd,
upon t h e theory that there exists i n t h e rursl communities
a call f o r credit o f longer t e r m than could b e held i n the
country banks, a n d i n t h e cattle growing a n d dairy uistricts,
an agency t o accumulate a type o f paper, with a
ment o f renewsl,
w h i c h becomes r a t h e r frozen,
a n d which will
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Federal Reserve Bank of St. Louis
250
find a agifferent outlet.
S
o f a r a s w e have analyzed it,
those that I have suggested s s e m t o b e t h e controlling
influences which--- a n d this within t h e cenfines o f this
room, p e r h a p s - - - w e r e b o r n o f t h e d e p r e s s i o n t h r o u g h w h i c h
industry a n d t h e b a n k s p a s s e d a
de would like t o have a
colleagues, u r . Chairman,
couple
suggestion f r o u each o f your
a s t o the extent,
in y o u r judgment, t h e r e w i l l a r i s e
9 demand f o r thistype o f
o f ysarsago.
i f any, t o which,
i n your P e d e r s ] districts,
c r e d i t , t h e f o r m i t will
take, t h e s e c u r i t y t h a t w i l l b e offered,
w i t h a n y helpful
suggestions a s t o h o w t h e same should b e hs5ndléd i n these
intermediate c r e d i t b a n k s w h i c h a r e , a f t e r a l l , m u c h l i k e
your own, o n l y banks o f rediscount.
I might s a y that while w e have n o t yet h a d opportunity
to g o very fuliy into t h e matter w i t h tis Secretary o f
the Treasury,
at least,
w e a r e convinced t h a t i n t h e first instance,
a n d perhaps p r e t t y psrmanently,
w e a r e not inclined
to ask the intermediate credit banks t o take papsr o f 4
longer maturity t h a n nine months;
t h a t i f occasion shall
ultimately a r i s e f o r a recourse t o t h e issue o f debentures,
that those shall b e offered o n l y f o r s i x o r nine months,
payable i n that p e r i o d , sand therefore eligible
f o r purchase
2
by your institutions.
As y o u discuss t h e other subjects I
should also like
to h a v e y o u r a t t i t u d e t o w a r d t h e p u r c h a s e o f t h e s e debentures,
if occasion should arise t o orfrer t h e m t o you.
institutions,
T h e new
a s you know, h a v e 2 capitalization o f five
million dollars,
a n d n o e x c e s s i v e i s s u e s w i l l b e permitted,
no issue o f debentures n o t rully sustained b y t h e line
securities,
a s well s s backed b y t h e primary capital.
d e ,
of course d o not anticipate that w e c a n otfer a discount
rate parallel t o your own.
T h e y must b u y i n the open
market, rediscount through your institutions, o r sellthet
paper
t o others,
f o r t h s funds w h i c h t h e y use, w h i c h w i l l
necessarily p l a c e t h e m u p o n a
The Chairman:
a s I
f a i r level.
undirstand it, y o u would like t o
have 39 discussion o f the opinion o n the part o f those w h o
are present here, indicating t h e nec*ssity o r demand f o r
credit o f the kind that t h e n e w institutions a r e going t o
be psrnitted t o extend. I
you want.
think that i s rrimarlly w h a t
T h e other matters,-I think,
c a n b e taken u p
later, b u t o n t h e j u e s t i o n o f w h e t h e r y o u a r e g o i n g t o L i m i t
yourself t o nine months! paper, t h a t perhaps c a n b e teken
up along with the first. one, i f you like.
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Federal Reserve Bank of St. Louis
ZOD
ur, Lobdell:
# e @ would b e . l a d t o have your advices
on that.
The Chairman: I
think w e c a n give y o u some v e r y diver-
sified opinions w i t h r e g a r d t o that, b e c a u s e
conditions i n the different districts.
o f t h e varying
I f that i s your de-
sire, w e will begin n o w with Governor Bailey.
ur, Case: B e f o r e t h a t question i s put, I
Judge Lobdell would make 3
these obligations. I
wond:r i f
little more clear t h e nature o f
a m not quite clear whether those
relate t o the Rurel Credits Act, w h i c h was recently passed,
or whether y o u a r e talking about obligations o f t h e Farm
Loan Board,
iure Lobdesll: I
Sxclusively
a m aduressing iayself a t t h e moment
t o t h e interuediate c r e d i t banks.
uP, Case:
W i l l you slaborate o n that a little. I
am frank t o say I have not r e a d t h e law, a n d I s m not clear
about
i t i n m y mind.
The Chairman:
Y o u are n o t dealing,
a t all, w i t h t h e
National Credit Associations?
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Federal Reserve Bank of St. Louis
ur, Lobdell:
N o .
T h e y a r e exclusively under t h e
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Federal Reserve Bank of St. Louis
236
viewing t h e high points i n the Act, w i t h which I
you: a r s a l l famidiar.
i
e
d
G
i
a
t
a m sure
e credit banks a r e
chartéres u p o n application o f t h e Federal L a n d Banks.
tricers o f the federal Land sans x
T h e
otricio the
orricers a n d directors o f t h e intermediate credit banks,
so that t h e machinery i s iuuediately s e t up. U l t i m a t e l y ,
if patronage develops, i t will of course b e necessery t o
add t o t h s t personnel,
b o t h e x e c u t i v e a n d c l e r i c a l help.
hese i n s t i t u t i o n s a r e p s r m i t t e d
t o rediscount p a p e r
for s t a t e a n d n a t i o n a l banks, s a v i n g s i n s t i t u t i o n s ,
and
everything that a Fedsral reserve bank may rediscount for,
with the exception o f the new agricu_tural eredit corporations, created a s nationsl agricult ur: ‘ e d i t c o r p o r a tions,
T h e y 8lso rediscount
o n borrowed paper f r o m co-
opsrative marketing concerns, b a s e d o n properly warenoused
Coniodities, f r o m live stock loan coupanies direct, o r
a.ricultural credit corvorations, w h i c h i s a
term n o t very
well ad:fined i n comusreieal usage, o r perhaps i n bank
usage, a n d which w e shall probably find i t necessary t o define before w e move into that field.
T h e banks a r e
privileged t o rediscount a n d issue against these accumulated
securities
s n d c o l l a t e r a l notes, d e b s n t u r s s .
T h a t ,
i z the
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Federal Reserve Bank of St. Louis
2o7
occasion s h a l l arise, w i l l b e a c c o m p l i s h e d
b y placing t h e
collateral w i t h the registrar i n the Land bank district,
who will hold i t a s trustee f o r t h e holders o f the debentures, issuing t h e debentures o n a form prsscribed b y us,
under a
certificate o f the f a r m loan commissioner a s t o
their sufficiency i n form e n d tax exenption.
ir, Case:
H o w l o n g are the se debentures t o run?
not
ur, Lobdell:
months,
h
T h e y may/be for a shorter term than six
e maxinun, I
think, i s five years.
A s I stated
in the first instance, t h e Board has not i n contemplation
the issuance o f debentures beyond nine months.
W e cannot
convince curselves t h s t paper o f t h e shifty nsture o f commodity loans justifies t h e issuance oflong time debentures
against it.
Mir, C a s
H a v e I covered whet y o u have i n mind, ur.
Y e s ,
The Chairman:
v
Governor Bailey;
y o u have.
e will n o w hear f r o m Judge Bailey.
u r . Lobdell e n d I
come f r o u the same
state, a n d w e know about conditions o u t there.
going t o sive m y opinion o n this law, I
I f I was
would s a y i t i s
not necessary, b u t i n view o f t h e fact thst i t i s t h e law,
I presume w e vant t o function i t i n s e r y w a y w e can.
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Federal Reserve Bank of St. Louis
258
think most o f our fgeliows o u t there have h a d too much credit
already,
a n d t h a t i s w h a t i s t h e matter w i t h them.
T h i s
new law contemplates helping t h e man who i s i n distress,
wypP2rsonal knowledge o f the Tenth wistrict, and the people
out t h e r e i s t h a t t h o s e f e l l o w s w h o c o u l d b e h e l p e d b y
this a r e s o t i e d u p n o w t h a t t h e y h a v e n o m o r e s e c u r i t i e s
to offer. I
have n e v e r b e e n a b l e t o a i s c o v e r h o w y o u were
going t o lend money t o a farmer,dairyian o r anybody e l s e
who hasn't a n y cesurity t o give you. I
to b e helpful
t o this extent--- I
think i t i s going
a m surprised t h a t t h e y
have ever extended credit t o nine wionths i n the Federal
reserve banks. I
feel a s J u d g e L o b d e l l e x p r e s s e d h i m -
self, t h a t nine months i s t o o l o n g for psper covered
byperisheble securities, without renewing it.
refuse t o r e n e w a
note,
W e never
i f b a s e d u p o n g o o d security;
treat i t a s a new nots, though.
w e
I f a man comes t o u s with
a note that w e know i s a renswal, s n d the security h a s
Shrunken,
w e will make h i m put u p more collateral.
the security h e s grown,
I f
i f they were young steers a n d are
now two years old and are worth 420.00 more, w e loan them
more money, b u t w e treat every nots a s a new one. I
really
think t h a t i n t h e e s t t l e b r e e d i n g b u s i n e s s o u t t h e r e , w i t h
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Federal Reserve Bank of St. Louis
239
those p e o p l e w h o h a v e t o h a v e 2 s s u r e d a n d permanent e r e c i t
for a
l o n g time, t h a t i n t h e w a y o f l a y i n g t h e f o u n d a t i o n
for a great industry, t h i s would b e helpful;
b u t Just h o w
it i s going t o develop that i t is g o i n g t o b e easier f o r
the f e r i c r t o g e t credit, w i l l h a v e t o b e d e v e l o p e d
by
the rulings o f your Board a n d o f t h e Fedsral ressrve Board.
alth regird t o t h e breeding o f cattle o u t there, I
want
to say that w e haven't had this sxpansion that you have had
in the bast, a n d the banks o f ths Tenth vistrict c a n take
care o f them, w i t h a little temporary relis?.
B u t I
lieve out i n the great breeding centers t h
i
dairy districts,
i f a
be-
n the
man starts o u t w i t h fifty d a i r y cows--
and h é camnot Llijuidate o n them i n six o r nine months--and i f h e has a loan thet h e knows w i l l b e extended f o r
three ysars, I
think i t will b e helpful s n d will relieve
the situation a
good deal.
The Chairman: G O v e r n o r , s e a y , m a y w e hear f r o m you?
Governor Seay: C o n s i d e r i n g t h e time o f the year i n
Which y o u will g o into operation, J u d g e Lobdell, I
am in-
clined t o think that y o u are going t o d o your business v e r y
gradually.
I
t sesms t o m e i t i s a very adventsgeous t h i n g
in the b e g i n n i n g o
t confine y o u r extensions t o nins months.
240
«n the first place i t will tend t o avoid having unloaded
upon you, a s Governor Bailey h a s s:id, a
good uany o f t h e
oblisations i n the rurel districts w h i c h a r e
stilt i n s
Seiil-frozen condition.
A n d f sbelieve, i s t e r on,
shen it
cones t o iarketing the crops, y o u will probably have
a considerable demand made u p o n y o u b y t h e cooperative asgocig.tions, I
think t h e y will b e your best customers.
I t
must n o t b e overlooked t h a t t h e provisions o f
t h e l a w which
reserve
practically e n a b l e t h e / b a n k s
t o l o a n money f o r nine months
really iteans, w h e n y o u consider that t h e y
make advances f o r
the purpose of msking the crops, and then, Later extend
credit f o r nine months f o r carrying t h e crops, t h a t
it
gives a n eighteen months period o f credit extension t o
the
Federal Reserve system.
T h e individusel country banks a r e
admirably constituted t o meet that demand, a n d
I thersfore
believe you will not be grsatly eubarrassed, particularly
if you lay down the plan i n the beginning that it will be
your purpose t o confine extensions o f credit t o nine months;
that will avoid some eubarrassment, a n d yet I belisve
that
you will g o into that business quite gradually later
on,
that you will do sows business with the cooperatives, you
Will G o some business w i t h those people w h o
desire t o hold
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Federal Reserve Bank of St. Louis
e241
tieilr cotton t o r advances, n o t f o r ordinary operations i n
the market, b u t really, legitineately,
for advances--- t h a t I
The Chairman:
t o hold their cotton
think y o u will come into graauelly.
G o v e r n o r Harding?
Governor Harding:
w r , Uhairuwen a n d gentlewen, f a r m i n g
in New England L s m e r e a
local affair, a n d 9 s a rule t h e
New #ngland farmers h a v e h a d n o difficulty i n getting w h a t
accommodations t h e y have needed s t their local banks.
I
n
fact a great m a n y o f t h e banks i n New England f i n d their
borrowing demand s o limited thst t h e y invest i n securities
in order t o make their dividends. I
ao n o t believe there
is going t o b e very much o f 2 field o f opsration f o r t h e
intermediate credit b a n k i n springfield, except possibly i n
one locality.
P r o b a b l y t h e lergest agricultural interest
in New England i s thse potsto inaustry u p i n Aristook County,
maine,
u p o n t h e Canadian border,
I
t sesiss that t h e l a n d
there i s peculiarly adapted t o potato growing.
F o r sone
ears p a s t t h e y h a v e g o t t e n v e r y s a t i s f a c t o r y prices,
the c r o p s h e v e b e e n i n c r e a s e d u n d e r t h o s e conditions.
snd
I n
lg22e a large crop w a s raised, t h e demand f e l l off, a n d t h e
result o f i t i s thst t h e fariuers have b e e n holding.
havegot a
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Federal Reserve Bank of St. Louis
half a dozen banks, welber a n d non-members
T h e y
i n that
242
county, b a n k s o f rather small capital
a n d small resources,
and they are carrying, I undsrstand, about »~400,000 for
those
potato growers. S o m e of them are getting rather restive
unaer the burden and have been renewing the notes at
the
bank, those that are pressing, and I think the
chances are
when that Soringrield bank gets into operation you
will get
Sole o f those potatoes,
T h a t i s about t h e only busin
S36 i n sight f o r it.
wr, Lobdell:
D o you rigard that a s satisfactory cecur-
ity for a ats months’! loan?
Governor Bailey: I
will answer that g u e
:
they were grown last year and you ere going to
Six months now, I
would s a y no.
growing business i n Colorado.
Governor Harding:
T h e r e a s e v e r a l conuitions about
it. A r i s t o o k County supplie
e
d potatoes, a n i they re-
gard 26 a fair price tor seed potatoes, s o l d t o
in other sections o f t h s country @ 2 a bushel.
T u s table
potatoes c o n e i n C o m p e t i t i o n w i t h p o t a t o e s f r o i
Bermuda
get a
very m u c h l e s s price. I
a m
Go n o t k n o w what t h e i r ware-
housing conditions are, but I think they carry them
in
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Federal Reserve Bank of St. Louis
their c é l l a r s a n d h a v e s o m s l o c a l
w a r e h o u ¢@s. I
have n e v e r
243
been u p t h e r e yet.
B u t p o t a t o e s a r e perishable;
freeze t h e y a r e ruined;
i f they
b u t t h e y evidently h a v e s o m e w a y
of t a k i n g c a r e o f them, b e c a u s e t h e y h a v e p l e n t y o f c o l d
weather u p there a n d they would have frozen i f they h a d been
left o u t i n t h e opsn.
Governor Norris:
if h e happens
f t would like t o ask Governor Harding
t o know h o w t h e cooperative tobacco grower
association i n the Connechicut Valley finances itself.
Governor Harding;
except I
f o a m not v e r y familiar w i t h that,
have h e a r d v e r y g o o d a c c o u n t s . o f t h e i r operations,
They s e e m t o have c o n d u c t e d t h e i r a f f a i r s v e r y successfully.
Governor Norris: I
dic not k n o w h o w t h e y finsnced
themselves.
Governor Harding: H i f o r t s have been sade t o organize
& cooperative m e r k e t i n g a s s o c i a t i o n
i n aristook C e u n t y
among t h e potato men, I s a d o r s Shapiro s e n t s
representative
up there, b u t t h e local banks d i d n o t take t o i t very kindly.
T h e y were immediately threatened w i t h the organi za-
tion o f a
large t r u s t c o m p a n y u p t h e r e t o t a k e o v e r t h a t
business i f they didn't c o m e i n , b u t I
conversation than anything else, I
trust company materialized, I
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Federal Reserve Bank of St. Louis
think that %as m o r e
haven't heard thet tke
a m told they have a
number
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Federal Reserve Bank of St. Louis
e244
of t h e p o t a t o f a r m e r s s i g n e d u p o n t h i s c o c p s r a t i v e b u s i -
ness, a n d they will probably operate n e x t season under some
new plan, sliilar t o that o f t h e tobacco growers.
have t a k e n thet p l a n 3 s a model, I
iuP?. LObdell:
They
understand.
T h a t Connecticut V a l l e y situation i s
handled b y a concert o f action o f a group o f bankers i n
hertford, Boston end New York.
Governor Fancher:
my observation, I
w r . C h a i r n e n a n d gentlenen,
from
do not snmbicipate that t h e facilities o f
the intermusdiate credit b a n k i n the Fourth District w i l l
beé very much availed of. I
think,
s o f a r a s agricultural
credits ars concerned, that the banks i n the Fourth District
are pretty well serving t h e requirements.
l y observations
are t h a t t h e W a r F i n a n c e C o r p o r a t i o n h a s l o a n e d v e r y l i t t l e
money, c o m p r a t i v e l y ,
i n t h e F o u r t h District, e x c e p t
t o
the cooperative marketing asyociation handling the Burleigh
tobacco crop.
I n the two sessons that that association
has b e s n i n operation there have b e e n very substantial
advances m a d e b y t h e d a r F i n a n c e C o r p o r a t i o n a n d i t h a s
worked o u t very nicely i n the marketing o f the Burisigh
tobacco c r o p . I
d o not k n w t h a t a n application h é s b e e n
filed f o r a n interiediate credit b a n k i n Louisville, b u t
245
I think thet s o f a r a s t h e legitimate agricultural demands
in the Fourth vistrict a r e Goncerned, t h a t thease venands
are n o w being, e n d have b e e n very fully niet b y t h e banks.
iBeecho, not b e l i e v e t h a t r e s u e s t f o r c r e d i t f r o m t h e i n t e r u e d d -
late credit b a n k i n the fourth district w i l l assume
largs proportions, e x c e p t perhaps i n financing some
cooperative marketing assuciations,
Governor Norris: I
would like t o a s k Governor
Fancher w h y t h e Burléigh tobacco growers h a d t o g o t o
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Federal Reserve Bank of St. Louis
the d a r Finance Corporation?
T h e y d i d m o t have to.
Governor Fancher:
Governor Norris:
T h e y vent f r o m choice?
Governor rancher:
The Chairman:
y e s .
G o v e r n o r Bigss,
w e would l i k e t o hear
Irom you.
Governor Biggs:
I
n ths H i g h t h v i s t r i c t
w e d o not
feel t h a t t h e r e i s a n y s p e c i a l r e a s o n w h y t h i s c r e d i t s h o u l d
be used.
W
e have 8
nuuber o f c o o p e r a t i v s m a r k e t i n g a s s o -
ciations handling tobacco, rice, cotton, a n d several other
coumodities,.
T h e y have a l l asked t h e J a r Finance Corpora-
tion for g o o d round sums, but, o f whet t h e y got, a
deal o f i t wasn't used.
great
H a l f o f i t wasn't u s e d i n many
246
instances, n o r aven t h i n d . o f Et.
T h e tobacco a m rice
people l i n e u p with t h e larger banks i n St. Louis, pooled
their interests a n d got a credit line o f two iillion and
s
half which # a g never used,
T h e smaller banks s r e begin-
ning t o complain i n Kentucky, Arkansas a n d everywhere, b e cause t h e i r f u n d s a r e n o t l o a n a b l e n o w , t h e m a r k e t i n g
asso -
clationshaving gotten accomodations elsewhere. I
think
there will be a good deal o f criticism o f these banks because
the banks there have n o place n o w t o Loan Yunds, a n d deposits
are u p and they are i n sood shape.
I d o not think t h r e
is any section of our country i n which the livestock 2nd
agricultural people cannot b e well taken care
o f through
the c h a n n e l s t h a t exist.
The Chairman:
G o v e r n o r Calkins?
Governor Calkins:
u r . C h a i r m a n e n d gentlsiuen, b s i n g
from California, i ought t o begin b y sustaining the reputeation o f California a n d talking big.
say that.
w r . C a s e Knows w h y I
T h e Twelfth Federal Reserve District colprises
nearly o n e t h i r d o f c o n t i n e n t a l U n i t e d states,
a n d contains
& greater diversity o f production than 411 the other districts combined,
C a l i f o r n i a w a s t h e original hone o f t h e
cooperative werketing association.
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Federal Reserve Bank of St. Louis
T h e best book o n co-
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Federal Reserve Bank of St. Louis
247
operative marketing recites t h e history o f the organization
handling citrus fruit.
T h e most active m a n i n spreading
the propsganda i s also s product o f Calirornia, u r . ~napiro,
to whom Governor Harding has just referred,
Now, t h e girst reaction which t h e coop:rstives n e t
generally, w a s opposition f r o m the banks. a
which cannot b e denied.
fact
T h a t l e d first t o efrorts t o
coerce t h e banks, a n d that w a s i n s w a y derlected, w i t h the
result t h a t y o u h a v e t h e f e d e r a l interiiediate c r e d i t b a n k s
in existence,
T h a t is 9
great triuich f o r t h e people
who were the original proponents throughout t h e country o f
t o all products,
coopsrative marketing a s a p p i
Now, than, there are thrss, o r psrheps four lines, i n
Which experience dill denonstrate that the Federal interiuediate eredit banks c a n opsrate w i t h satisfaction t o the people that u s e them, a n d perhaps W i t h souwe benefit t o the
country e t large,
industry.
J e n s
T h e first, I
g r o w e r s
would say, i s t h e cattle
o f this country---
entiate b e t w e e n c a t t l e y r o e r s s n d s h e e p men;
industry
t h e sheep
i s i n exsellent c o n d i t i o n a t t h i s * t i n e a n d n e e d s
repression r s t h e r t h a n e n c o u r a g m e n t - - -
b u t t h e cattle grow-
ers h a v e p a i d e x c e s s i v e r a t e s f o r t h e i r m o n e y f o r msny, a n d
248
Soui8 very obvious reasons, b u t I still s a y excessive rates.
They need money f o r longer periods t h a n t h e agriculturists,
and t h e F e d ral internediats credit banks,
i n helping t h e
cattle industry, m a y thereby d o g r e a t benefit t o
the country
at large, f o r the cattie industry i s a n important i n d u t r y
assistance,
the dairy business i s a
dirficult business t o finance.
its requirsments ars for longer credit than the cosuercial
banks should advance,
I t m a y b e that t h e rederal inter-
uecdlate credit banks c a n assist t h e aaiby interests a n d
thereby benefit t r e country,
I
f i t i s possible f o r those
banks t o s o f u n c t i o n s s t o r e n d e r r e a l a s s i s t a n c s
t o those
colipanies a n d take their Linas a w a y i r o m t h e conuercial
banks, I
think i t will b e highly d sirable and beneficiel.
Coming t o the next point f l have i n ilnd, t h e n e t p o s Sible opsration i s i n connection w i t h the cooperative
marketing association, a n d I would s a y thet unless these
banks e x e r c i s e m o r e u i s e r e t i o n t h a n c a n b e exoected,
may g e t into very d e e w a t e r ,
they
T h e r e a r e t w o schools o f
cooperative iarketing organizations, w e l l defined a n d perrectly distinct.
U n é , a
very strong school,
i s committed
to the belief, n o t always expressed, t h a t t h e
farmer i s en-
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Federal Reserve Bank of St. Louis
249
titled t o a s s i s t a n c e w h i c h w i l l e n a b l e h i m t o s p e c u l a t e
in
They c o not use the word “speculate”, b u t
say “holding for a n advance", a n d that h e shoula have
assistance
o f s o n e sort.
The o t h e r s c h o o l i s c o m m i t t e d
t o the view that t h e
coupsrative marketing association should cevote i t s prin-
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Federal Reserve Bank of St. Louis
cipal e f f o r t s
t o systematic, o r d e r l y s n d c o n t i n u o u s m a r k e t -
ing o f preducts,
a n d should n o t a t a n y t i m e withhold those
products f r o m t h e m a r k e t f o r t h e p u r p o s e o f f o r c i n g
crease
i n orice. I
a n in-
consider t h s first-nanied s c h o o l 9 s
extremely Gangerous, and, i f permitted t o have i t s way, I
believe i t will demonstrate i t s destructiveness.
if t t e s e P e d e r a l i n t e r m e d i a t e c r e d i t b a n k s c a n b e i n -
duced t o sssist t h e first school i n carrying o u t what i s
not i t s a v o w e d purpose,
b u t what I
believe
i s its real pur-
pose, tuiat is, t o assist i t t o withnold f r o m the market
goods, oscause t h e price i s unsatisfactory,
3 s they would
pelieve that t h e y would imuediately g e t into 3 position o f great danger ¢ n d destructiveness,
I have enumera t e d , roughiy, t h e three ways i n which
i think these banks mey operate, t h a t they n e y opsrate f o r
the benefit oar the cattle men, t h e dairy n e n s n d the coopara-
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Federal Reserve Bank of St. Louis
250
tive m a r k e t i n g a s s o c i a t i o n s s i t h i n i t s p r o p e r province,
In r e g a r d t o t h e c a t t l e i n d u s t r y , I
one great difficulty which I
want t o point o u t
think will b e encountered.
I attended, not very long sgo, a cattlemen's convention.
I have attended a good many cattlewen's conventions, although t h e cattle inuustry i s n o t a very large industry i n
the Twelfth vistrict, a n d a very sensible, intelligent and
prosdly e x p e r i e n c e d c a t t l e m a n s p o k e b e f o r e I
did, a n d h e
went a t great length into t h e vicisitudes o f t h e eattle
business, i t s risks, dissases, short range situation,
fluctuations o f the weather, a n d a nuuber of.other things
that, suimued up, m e a n t t h e t t h e c a t t l e i n u u s t r y w a s @
hazardous inaustry.
a f t e r h e h a d finished,
sion was intensely interesting, I
very
a n d his discus-
was called upon, talked
for a few minute, a n d then, following a bad prectice o f
mine, I
invited people t o throw things a t m e i n the shape
of yuestions,
This m a n said he wished I
would t e l l h i m why t h e cattle
msn h a s t o p a y s o m u c h m o r e f o r h i s m o n e y t h a n a n y b o d y else.
I answered, “I think that you have just told me, i n better
terns a n d more fully t h a n I would b e abie t o ao, exactly
what m y a n s w e r m u s t b e .
Y o u have v e r y thoroughly s e t forth
25]
the hazards i n v o l v e d
i n t h e c a t t l e incacustry, a n d y o u m u s t
see that t h e snswer i s that t h e cost o f uwonsy i s i n direct
proportion t o the risk involved i n niaklia: the loans.
Tne Chairian:
Y o u have made reference, Governor,
to t h e fact t h a t t h e cattle m a n pays d e a i y f o r his money.
Can you tell t h e Conferea.ce t h e range o f interes
paid i n that part o f the country?
Governor calkins: I
ment would b e justified.
should s a y almost a n y wids state-~
n e n y o u s a y “Our country" y o u
are taking i n one third o f Continental United states, nearly, a n d t h s r a t e s s r e a s various
s s t h e latitudes
o f the
district, running f r o m nothing u p t o the highest point i n
the U n i t e d states,
The Chairman: I
think that snswers t h e juestion,
Governor Calkins:
N o w , then, t n e rates v a r y widel
in s o m e s e c t i o s
going a s h i g h a s t w e l v e p e r cent.
The Chairuans
little y e s t e r d a y ,
N e were aiscussing this nstter a
s n d w e founc t h s t
i n s e v e r s l o f t h e dis-
tricts t h e rates charged were a s high a s t e n per cent,
ana i n some instsnces higher.
I
t occurred t o ine s t this
point t h a t t h e n e w banks w o u l d a t ence sxpsrience ciffi-
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Federal Reserve Bank of St. Louis
culty i n u n d e r t a k i n g
t o s u p p l y t h s cuamands o f t h o s e d i s -
252
tricts, b e c a u s e ,
i f I
und rstand correctly,
t h e n e w bsenks
will not b e periuitted t o sccept f o r rediscount a n y paper o n
which t h e borrower has p a i d a rate o f interest greater t h a n
one p e r c é n t i n exce:s
banks.
o f t h s discount r a t e 3 f t h e n e w
T h a t will, o f course, create C G N O S Rats
Anothsr thing has been sugested, a n d that i s that
While w e are touching o n a part o f what y o u want, Judge
Lobdell, nothing has b e e n said b y u s with respect t o t h e
attituds o f the reserve banks i n t h e matter o f purchasing,
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Federal Reserve Bank of St. Louis
when the tims comes, t h e debentures that are going t o b e
put out, a n d I will a s k Governor Calkins t c give u s his
views
o n t h a t point.
Governor Calkins: I
think y o u a r e taking a n unfair
advantage o f i y disposition t o talk, mr. JGhairman. I
do
not think that 1 can say. offhand, o r that a n y o f us can say
orrhand, w h a t t h s disposition o f the Federal reserve banks
with regard t o the purchase o f those debentures, w i l l be.
It depends upon 4 number o f things which I am entirely unable t o foresee o r forecast, a n d which 1 ao nad believe
anybody e l s e c o u l d f o r e s e e
desirable
course
o r forecast. I
o f events would
credit b a n k s t o m a k e l o a n s
think t h a t t h e
b e f o r t h e se i n t e r i e d i a t e
i n t h o s e sectiors
o r the country
259
where trust funds a r e scarce, a n d sell their debentures
in the other sections o f the country where funds a r e looking f o r investment.
F o r instance, Governor Harding s a i d
the banks o f New 4ngland a r e fully a b l e t o take care o f tis
nescs o f t h a t d i s t r i c t a n a frejzuentiy a r e l o c k i n g f o r i n -
vestuent elsewhere.
T h e best merket i n this country o m a
for cattle l o a n paper-~~ w h e n thzre w a s a market f o r it,
there isn't a n y now--~ wag i n Boston.
I f the debentures
of the F e d e r a l intermediate credit b a n k s c a n b e sold t o
the public, t h a t public u u s t b e found i n other places t h a n
the p l a c e s w h e r s t h e s e s a m e b a n k s mele
t h loans,
fido not think i t i s expedient f o r m e t o t r y t o outline
the policy o f t h e Federal Reserve system with regard t o purchasing these debentures,
hr. Lobdell: I
a t this sarly date.
a m very much interested i n the sug-
gestion made b y Governor C a l k i n s w i t h regard t o cattle paper.
Would y o u reconmend a longer t e r m than nine sionths?
Governor Calkins:
I f your efforts a r e directed t o
actively a s s i s t i n g t h e g r o w e r o f cattle,
from t h e feeder o f cattle,
a s differentiated
i t will t h e n b e necessary t o
make loans f o r a longer t e r m than nine inonths,
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Federal Reserve Bank of St. Louis
ur. Lobdell;
j o u l a y o u n o t prefer t o reinstate a n d
204 “256
renew t h e paper?
Governor Calkins:
length.
I f might dilate o n that a t great
T h a t i s ons o f the dirriculties t h s t y o u will
encounter a t once,
Y o u c a n n o t p o s s i b l y tiake s a f e l o a n s
on breéding cattle without well-organized inspsction.
Governor Bailey:
T h e r e i s n o juéstion but what t h e
cattle m e n a r e psying t o o much f o r their money.
I f you c a n
stabilize that situation you will haves rndsred a great
berefit.
I n enswer t o the question a s t o whether w e will
take that paper i n the Tenth wistrict,
that i s a
big cattle sistrict,
a n d i t cGsp2nas o n h o w y o u
are going t o make your cebentures.
apout it.
w e a l l know that
T h a t i s all there i s
T h e vellows that pass o n i t know the cattle
siness, a n d if the paper locks good w e will b e glad t o
of course,
the earth, I
said, I
i n u y desire t o cover
have left out most o r t h e things I
should have
should like to get Judge Lobdell's view with re-
gard t o the point y o u made just now, i n conn-ction with
another point.
I t appears t o b e luprobsble that these
banks s h o u l d m a k e c o n s i d e r a b l e s d v a n c e s
t o t h e agricultural
osnks, because o f the limitation u p o n t h e rate.
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Federal Reserve Bank of St. Louis
T h e conner-
257
clal bank will not coie t o you, w i t h t h e result that i t will
be c o m p e l l e d t o c u t i t s o w n r a t e down,
son t h a t I
intendsd
a n d that i s o n e r e a -
t o point o u t w h y y o u r g r e a t e s t a c t i v i t y
would probably b e i n dirsct transactions w i t h cattle l o a n
associations, w i t h aairy orgenizations,
a n d with cooperatives
to w h o m y o u c o u l d makes u i r e c t advances,
Governor Norris;
A s Judge Lobdell already knows there
is very little prospect o f t h e banks dosing a n y business
in the Third District a t t h e present tine.
T h e farmers o f
that district a r e utterly unorganized, a n d they a r e suffering very such r r o m i t now.
that
I t seons t o m e t o b e quitelikely
i n the comparatively n e a r future fruit growers a n d
truck growers i n the di: trict will,
i n certain localities,
at least, organize cooperative marketing associations.
I a m making some effort myself, now, t o get t h e tobacco
browers i n tne Lancaster district t o follow t h e exanple o f
those i n the Vonnecticut Valley a n d the Burleigh districts.
The Pennsylvania country banker,
3 s a rule,
progressive, h a s very little vision, a r d I
i s un-
do not think
that w h e n t h e c o o p s r a t i v e m a r k s t i n g o r g a n i z a t i o n s a r e
organized t h e y will look with a n y perticular favor o n them
or that t h e y will b e disposed t o make a n y advances t o t h e m
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Federal Reserve Bank of St. Louis
258
at the start.
as I
I f that cooperative movement d o g s develop,
nope i t will, t h e n i n t h e f u t u r e I
a prospsct o f doing good business,
business i n that district;
sée a n y p r o s v e c t
ur. Lobdell:
think t h e r e w i l l b e
3 n d reasonably s a f e
b u t f o r t h e present I
do not
o f d o i n g any.
W o u l d not t h e truck and fruit growers!
turn-over b e shorter t h e n s i x months?
Governor Norris;
C a n y o u make a n y loans f o r less t i e n
six months?
ure Lobdell:
N o .
Governor Norris:
T h e fruit p s o p l e would probably w a n t
to take s i x months paper, b u t t h e truck people c o u l d not.
mr. Lobdell:
b o you regard fruit a s a stabilized
coiwuerelal product?
Governor Norris:
w i n t e r apples, I
Governor Young: |
woula, yes.
tr. C h a i r n a n a n d gentlemen, I
have
read t h i s l e w s e v e r a l t i m e s a n d t r i e d t o f i g u r e o u t j u s t
how i t w o u l d o p e r a t e
people n e e d credit.
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Federal Reserve Bank of St. Louis
i n o u r district.
O u r banks a n d our
W h e t h e r t h e y a r e entitled t o i t o r
not i s gnotier argument.
T h e W a r Finance Corpor ation took
care o f the situation o u t the re, a
situation that really
needed t o be taken care of, and I think they loaned i n the
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Federal Reserve Bank of St. Louis
259
neighborhood o f $50,000,000.
O f course, t h a t w e s a n emsr-
gency measure, a n d they t o o k most a n y kind o f psper that
they thought w a s good.
T h a t L s gradually being paid back,
I think i t i s now a b o u t $33,000,000 t h a t i s advanced o u t
there,
Now, i f I understand t h e Federal intermediate credit
bank, i t i s not a n emergency measure,
o r a iueasure o f t h a t
nature; y o u d o not contemplate taking anything o f f t h e hands
of the liar Finance Corporation snd, i f I understand t h e law
correctly, y o u are not permitted t o Giscount o r make a n y
advances t o t h e National CreditAssoc iations,
lure. Lobdell:
T h a t i s correct;
tion, e n d I belisve I
t h a t i s o u r construec-
know what t h e intention o f Congress
was.
Governor Young;
I f I understand correctly, y o u a r e
permitted t o loan t o a bank either o n discounts o r o n
advances, t h e amount o f that bank's capital, i n the case of
a national bank, a n d i n the case o f other banks n o t t o exceed t w o hundred p e r cent o f t h e capital.
t h e r e also seems
to b e a provision i n the l a w that i f a national bank o r s
state b a n k b o r r o w s t w o h u n d r e d p e r c e n t o f i t s c a p i t a l f r o n
the Federal intermediate credit bank, t h a t thet prohibits
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Federal Reserve Bank of St. Louis
260
g any m o n e y a n y w h e r e e l s e ,
that i n s t i t u t i o n f r o m b o r r o w l n
even rediscounts w i t h the Federal reserve banks.
wr, Lobdell:
m y recollection i s that t h a t provision i s
limited t o national banks.
Governor Young;
of $25,000.
T a k e 3 national bank with a capital
b e permitted t o loan that b a n k
Y o u would
$50,000, a n d w h e n they h a d borrowed 5 0 , 0 0 0 f r o m y o u that
would stop their privilese o f rediscounting with the Federal
reserve banks o r borrowing anywhere else.
ur. Lobdells
T h a t i s m y understanding.
am correct about that?
Governor Young: I
wre Lobdell: I
Governor Young:
s o interpret i t , yes.
T h e banks i n our district that real-
ly n e e d s s c i s t a n c e n e e d m o r e t h a n 2 0 0 p e r c e n t o f t h e i r
capital. A
great number o f t h e m have already borrowed
four o r five hundred p e r cent o f their mpital;
the r e i s n o o p p o r t u n i t y
s o that
a t the present t i m e t o give a n y
assistance t o those banks that really n e e d assistance o u t
there.
I
n addition t o that there i s a spread o f one a n d
a helf p e r cent which t h e banks a r e permitted t o have, w h i c h
Will keep the best banks from going t o the federal intermsdiate c r s d i t banks.
201
what theory, t h a t that i s not sufficlent remuneration,
o r that i t would lower their current
rates?
Governor Young:
I t would lower their current rates.
That might have a different effect o n our district,
s o that
the farmer a n d cattle m a n could g e t a little lower rate o f
has really b e e n paying a
very high rate.
Governor Calkins: I
think Judge Lobdell d i d not quite
Young
clear u p the point Governor/raised, t h e act says;
"No p a p e r s h a l l b e p u r c h e s e d f r o m o r a i s c o u n t s d f o r
any national bank, s t a t e bank o r trust company,
institution, u n d : r this section,
o r savings
i f the amount o f such paper,
added t o the aggregate liabilities o f such national bank,
state bank, trust company o r savings institution, whether
direct o r contingent f o r purposes o t h e r t h a n bonafides deposit liabilities, exceeds t h e amount o f such Liability
permitted under t h e laws o f the jurisdication crsating
the sane;
o r exceeds tihg t w i c é t
e paid-in a n d unimpsired
capital a n d surplus o f such nztional bank, s t a t e bank,
trust company o r savings institution."
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Federal Reserve Bank of St. Louis
Governor seay:
ux. Lobdell:
T h a t i s t h e final limit i n any event.
B u t t h e limitation g s t o increasing
262
its discounts i n other virections i s i n the succeeding
paragraph,
w h i c h reads,
“ I t s h a l l b e unlawful f o r a n y
National b a n k w h i c h i s i n d e b t e d t o a n y Federsl] i n t e r m e d i a t e
credit b a n k upon paper discounted under this section,
Cur a n y scuditional indebtedness,
t o in-
i f b y virtue o f such addi-
tional indebtedness, i t s aggregate liabilities, direct o r
contingent, w i l l exceed t h e limitations herein contained, *
That applies o n l y t o National banks. C o n g r e s s k n e w
it didn't h a v e a n y right t o prescribe limitations f o r state
banks.
Governor Young:
T h a t will preclude every national
bank i n our district from doing business with the Federal
intermediate crsdit banks.
T h e y would not take t h e chance
of limiting the amount o f money that they c a n borrow.
Under t h e act, o r under s n en.endmert t o t h e Federal
Reserve
Act, i t prohibits
t h e Fed-ral reserve ban:s f r o n redis-
countinz a n y p a p e r o f t h e F e d e r a l i n t e r m e d i a t e c r e d
that originates
i n a state bank o r trust company t h a t i s
eligible f o r membership i n the Federal reserve system, a n d
the limits.
o f eligibility h a v e b e e n rsduced
s o that n o w s
bank with 315,000 canitsl i n a town o f 2500 people i s eligible r o r menbership, a n d that practically excludes every
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
265
bit o f state b a n k paper o r national b a n k paper i n our district,
a n d while I
d o n o t w a n t t o m a k e a n y precictiorm
a t
all, i t wesnis t o m e that your opzrations s r e going t o b e
centered entirely w i t h the covupsretive marketing associations
ana cattle l o a n sssociations.
ints Lobdells:
T h a t w o u l d not b e erfective i f i t did
not became t h e policy o f tue Intsrmedlate credit banks t o
procure funds b y rediscount.
I f the Federal] internedaliate
credit bank, instead o f rediscounting, t o o k recourse Consistently
t o i t s d e b e n t u r e i s s u i n g privilege,
t h e n that
prohibition w o u l d n o t g e t i n t h e way.
Governor Young:
eply o n that, I
T h a t i s true, b u t i f you want a
would rather n o t make i t a t this tiie, b u t
just m a k e t h e g e n e r a l s t a t s m e n t t h a t i f y o u b e l i e v e t h a t
debentures,
i t sssns t o me, b e i n g tax-exempt, s h o u l d seek
the o p e n markets, a n d get funds f r o m t n e sast, w h e r e they
are available.
O u r institution,
a t t h e present time, i s
doing every thing i t c a n for t h e l a n d banks. I
think they
are carrying i n the neighborhvod o f s¢v-ral million dollars
of Goverment securities, e n d I think,
9 s 3 sort o f tenpor-
>
ary s r r a n g e m e n t o u r b a k w o u l d b e g l a d t o a i d you, b u t t o
take t h e s e d e b e n t u r e s
o n a n d h o l d t h e m u n t i l meaturity---
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Federal Reserve Bank of St. Louis
264
Ido not want t o make a reply o n that now.
I
n addition t o
that, mr. .uamme has b e e n over t o our institution t o get as-
sistance i n his organization.
our best men, I
H e has picked out some of
wish you wouldn't d o that, but w e will
ao every thing w e c a n t o heip.
inr, Lobdell:
ation there,
W e a r e very appreciative o f your cooper-
I t has b e e n a real sarvice, n o t only t o the
bank, b u t t o the public.
The Cheiman:
u r , Case?
fal'y <Ge
e situation i n the N e w York wistrict i s
T
h
not a t all dissimilar f r o m that o f N e w Engiand,
by G o v e r n o r Harding:
A
s a
3 8 expressed
general t h i n g t h e r e i s o n l y
a very mod rate amount o f agricultural business carrisd o n
in our district,
v p o w n i n sonuouth County, N e w Jersey,
they have a potato growing section where, f o r t h e past three
years, they have had very poor results, a n d have had very
poor market f o r them, I n c i d e n t a l l y , t h e bank down thére,
Which
the principal bank, h a s finenced a
good deal o f that busi-
ness, located a t Englishtown, failed, partiy 4 s
of slow loans, but more largely a s the result o f
3a
among t h e orficers.
In New York I
think t h e principal c r o p i s winter apples,
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Federal Reserve Bank of St. Louis
265
up i n t h e n o r t h e r n p a r t o f t h e state, w i t h h e r e a n d t h e r e
some onions.
financed
T h e dairy business, ithink, i s pretty w e l l
by soe
o f t h e l a r g e t r u s t companies,
l i k e Rorden,
which finance: themselves through t h e security market.
New York, I
take,it, b e i n g t h e large money center, i s
the point t o which, perhaps, some o f those debentures will
come, a n d I would like t o get a little clearer i d e a i n imy
4
mind
8 s t o ths charecter
o f those debentures,
l e e k
say~--- t h e intermediate credit banks might f i x t h e discount
rate a t say six per cent, discounting paner that had originally b e e n t a k e n a t a r a t e n o t m o r e t h a n o n e a n d one-half
per cent higher t h a n that rate, e n d therefore, p a p e r that
had b e e n d i s c o u n t e d
s t sight o r nine p e r c e n t w o u l d n o t b e
eligible.
wr. Lobdell:
wr, Case:
T h a t is correct.
T h e n , a f t e r t h e intsrmediats credit b a n k
had a d v a n c e d t h e money,
i t would issue t h e s e debentures
against this collecteral, p u t u p with some o t its trustess,
tne Registrar, I
think y o u said, a n d the dehendutes would
carry perhaps a
one p e r cent lower rate, s a y five p e r cent.
urs Lobdslil;
T h a t i s t h e relation; a
one p e r c e n t
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Federal Reserve Bank of St. Louis
spread.
lie O a ss: A
one p e r c e n t ssread;
t h e y s r e tax-exeupt,
ana t h e r e f o r e w o u l d b e suitable f o r o p e n msrket i n v e s t m e n t .
In other words, a s I see it, they would run more o r iess
in competition w i t h Treasury certificates, a n d i f they a r e
exempt, perhaps t h e y might really s e l l i n tie
open iarkst
o n u i t e 3 s f s v o r a b l e besis, p s r h a p s m o r e s o ,
wy Opinion i s the tax-exenpt feature i s popular i n the
financial centers, a n d i f they w e r e further safeguarded,
by o e
a d d i t i o n s l colleteral--- w o u l d i t b e 1 2 0 p e
say, o r only 1 0 0 per cent?
Léki:
nm, C a c
m
T h e l e w requires o n l y
y judgment w o u l d b e that those would f i n d
a fairly g o o d cetiand i n the open market.
Tre Ch3irinan
B u t not a t rates that w o u l d b e i n
harmony w i t h t h e r a t e s o f t h s T r e a s u r y c e r t i r i c a t e s .
Treasury certificates areths obligations o f the Treasury--wr. Case: :
t
they s r e n o t tax-exempt, a n d m y
theory i s that t h e tax-exempt feature would put t h e n down
on a
parity.
The Chairman:
bonas,
P r o b a b l y o n a par with t h e Farm Loan
267
lar, Case:
Yes.
F o r instance, t h e y a r e relatively
about o n the same basis
exept,
a s Liberty bonds, w h i c h a r s n o t t a x
a n d m y theory i s that these w o u l d b e just sbout t h e
sauce basis a s Treasury certificates, because o r t e tax-exempt
feature, w h i c h i s a n added 2dvantage.
The Chainriuan:
Y o u have made reference t o the liabil-
ity o f these debentures t o investors f o r s u c h purposes;
what
would b e the a t t i t u d e o f the N e w York Bank, kr. Case?
mur. Case:
Well,
o f course that w o u l d have t o b e deter-
mined b y t h e directors a n d officers o f t h e bank.
m y per-
sonal judgnent would b e that they would b e inclined t o take
a fairly liberal attitude i f such obligations w e r e tendered
for aiscount, o u t possibly o n l y w h e n they h s d not more t h a n
ninety days t o run, o r sone s u c h feature a s that. I
sould
not think w e would want t o take t h e m f o r s i x o r seven
months. {
think t h e idea i s that t h e y ought t o b e sold
in the open market.
Then,
i f there w a s a pressure f o r
money a n d the private investor h a d t o sell, t h e y could b e
melted down a t t h e Federal reserve banks 3 s a isst resort,
and m y o w n view i s that t h e y ought n o t t o come i n until t h e y
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Federal Reserve Bank of St. Louis
‘more t h a n ninety cays yet t o run.
ur, Lobdell:
a i a t ,
i n your j u d g m e n t , w o u l d b e t h e
268
attituas o f the conmercial banks i n New York toward them?
iSs CAaSe;
u y Opinion i s that t h e y would take a
liberal attitude toward them, I
fairly
am not a t all sure a t pre-
sent that they would b u y them very extensively f o r their o w n
investment account.
Y o u recall,
of u r s
t h e debentures
out out b y t h e Jar Finance Corporation, w h i c h t h e banks d i d
take very lsrgely. I
do not think they would follow a pol-
icy o f investment w i t h them, b u t these w o u l d come elong i n
smaller units, a n d I should think t h e open market would
absorb them pretty well, and I believe the conmmerciel
banks yould l o a n upon them, e v e n though t h e y u i d not b u y
them very extensively f o r their o w n investment.
Governor seay:
T h e tax-exempt feature would n o t r u n
to @ corporation, w o u l d i t ?
ir. Lobdell:
uP, Case:
I
t would r u n t o 9 conmercial bank.
T h e t a x exempt feature w o u l d r u n t o any
holder o f those, w o u l d i t not?
mr. Lobdell:
Yes,
O u r attention h a s b e e n directed
particularly t o the Cole organization, which has loaned
a l o t o f money
t o N e w Y o r k farmers,
a n d which w a s Organized
i
and Y i n a n c e d b
y the city banks prinsrily, w a s i t not?
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Federal Reserve Bank of St. Louis
ir, Case;
V e r y largely b y private capital. T h a t i s
the organization o f iuwr, Osborn,
lide j
uP,
e
S
i s it?
.
I t h i n k t h s t was pretty largely private
capital,
urs Lobdell:;
and made quite a
T h e y have shown quite a bit o f sctivity
volume o f loans t o the farmers,
Their
recent s t a t e n e n t a n n o u n c e s t h a t t h e y h e v e t r a n s a c t e d b u s i -
ness w i t h t e n per cent o f the fearnuers i n the State o f N e w
York.
lar, Case:
duite a
volume; b u t I
think t h e amount i n -
volved w a s couparatively suall, w a s i t not?
ur. Lobdeil: &
the millions, I
ines C e e s
lew million doilars.
I
t runs i n t o
think.
Y e s . I
think undsr five million. T h e y
had a large number o f small units.
Governor Bailey:
ire Lobdeil:
The Chairinan:
b
o they l o a n dirsetly t o the farmers?
T h e organization does, yes, a n d the agency.
G o v e r n o r ucKinney,
w e would like t o
hear f r o m y o u o n this.
Governor weKinney: a
3
F e d e r a l Reserve
Ach w a s rather strongly resisted b y a great m a n y intelligent
men, W h o havs since changed their minds, causes m e t o b e
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270
somewhat loath t o express a n opinion u p o n t h e importance
and probable o u t c o m e o f t h i s n e w l e , islation.
I
t would
seem t o me i f there was any district i n the Federal Reserve
System that should profit b y t h e institution o f this inter-
mediate credit Sete i t ought t o be the vallas Listrict,
because w e are not only engaged there i n primary peiaueties
of a very extensive a n d uiversified character, b u t i t i s
also <
a
t
o sll o f you
e e
for 9
great
sae
e n
we were rediscounting w i t h other Federal reserve banks.
Heventnaiss a in ay Judgment, c e d does not exist i n the
th ;
eleven/districts a need for this particular credit.
Our difficulty down there has been pretty much a s Governor
Bailey h a s said, t h a t w e have b e e n surreit w i t h Seectt
rather t h a n otherwise, -
a
m inclined t o think that w e
have, speaking for the Federal reserve bank a t least, been
too Liberal, rather than otherwise, and with regard to loans
that w e h a v e d e c l i n e d t o take,
i t would p r o b a b l y b e unwise
for your organization t o take t h e m on.
time w e have,
A t the present
a s I said here yestsrday,. acout 1 7 , 0 0 0 , 0 0 0
in rediscounts for our member banks, a n d about 5 0 w r cent
of t h e e r e d i s c o u n t s a r e f o r b a n k s
The d i f f i c u l t y
i n e x t e n d e d concition,
w e have i n p a s s i n g o n t h e p a p e r e v e r y m o r n i n g
ei
is not t o rind soue w a y t o turn i t down, b u t t o find some
way t o take it.
what w e need most i n our district i s n o t more credit,
but more a n d better collatersl,
I
s n o t that it, Governor
Balley?
Governor Railey: 5
bility:
I
have l o s t sight o f eligi-
W e first take e¢ligible paner a n d then collsteral
it w i t h g o o d paper--Governor icKinney:;
tion o f o u r d i s t r i c t
know,
T h e most seriously e x t e n d e d por-
i s u p i n t h e Panheandke, w h i c h ,
L s cattle c o u n t r y ,
a s you
a n d a l s o t h a t portion o f o u r terri-
tory attached t o the agricultural district w h i c h is, i n like
manner, 2
stock raising district.
w
@ are trying t o ssve
those b a n k s s n d a r e c a r r y i n g t h e m r a t h e r heavily,
think w e are,
as I
you would not have.
and I
have i n d i c a t e d before, t a k i n g l o a n s t h a t
I n line with what Governor Bailey
said t o u s a t luncheon t h e other dsy, t h a t Judge Crosby,
of Houston,
h a d tendered h i m sone eight
loans, w h i c h h e p r o m p t l y d e c l i n e d ,
o r t e n millions
of
a n d that h e s a i d his
mail w a s being flooded w i t h applications f o r loans f r o m
individuais w h o thought t h a t they could make loans direct,
and showed hiin a specimen o f t h e things h e got, w h i c h indi-
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Federal Reserve Bank of St. Louis
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eve
cated t h a t u n b e s s t h e b a n k w o u l d l e n d m o n e y o n moral
character, p l u s mortgage a n d a groiing crop, thst i t would
fail t o p r o d u c e t h e r e s u l t s t h a t i t s p r o s o n e n t s w i s h e d .
fake, f o r example, o u r Houston District, w h e r e t h e crops
are p r e t t y w e l l advanced,
a n d o u r o f t h e 1 4 0 banks sttached
to thet branch, o n l y about twenty-six a r e borrowing f r o m
Sy owe u s only »~3,000,000.
Therefore,
i t doesn't s e e m t o m e a t the present tlie,
unless y o u view i t 2 s a n euergency measure, t h a t there i s
really a n y warrant f o r it.
Now, o n the question o f cooperatives, t h e y a r e taking
Some hold i n Texas, # s y o u know, and, a s has been indicated
by severel o f the Governors, perhaps that would b e the
best outlet i n a satisfactory manner f o r your funds.
o n
the other hand, althou z h the banks hsve b e e n assisting t h e
cooperatives
i n financing their transactions,
i t must n o t
be T o r g o t t e n t h a t w h e n t h o s e c o c p e r a t i v e s a r e f i n a n c e d t h e
procesas o f that financing g o into tnese banks s n d thereby
make them available t o purchase bankers! acc-ptances exscuted o n behalf o f t h e cocpsratives.
i
n other words,
t h s co-
operative associations d o not create much o f a cemand f o r
aaditionsl credit.
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Federal Reserve Bank of St. Louis
ale
as t o t h e n i n e m o n t h s p a p e r , G o v e r n o r B a i l e y , I
think that w a s a
geod
of t h e country.
once
due
insasure
Qur b u s i n e s s
ebbs
f r o m other sections
snd i l o w s
and i t ereates s o m e little hardship t o uiake
2
it wait until april l s t t o b e svailable.
it i s a seasonal operation w i t h us,
than s i x months.
have
p
es 73 at k
o ee @ eee B=
In other words,
snd t h e s e a s o n
i s more
very y e l l that you, your-
decided t o linit your agricultural operations
m
to n i n e m o n t h s p a v e r ,
Cit
a
ces r e g u i r e a
longer
tinguished f r o m p a p e r
inc
f a c t
i s thst breeding paper
period than nine months,
2 s dis-
Scecuted-py s n a e r e e r s .
Governor Bailey:
But d o n ' t y o u t h i n k i t ought
renewed o n c e i n nine months,
have d i e d
o n l y about
practically all of our paper is ssde
i n tuelve months;
i n octobsanx
as v i s w e d
rather
t o be
whether these old cows
o r not?
Governor mwckinne
agricultursi paper.
y 2;
sp¢eaking
particularly
of
now t h e y resort t o the
subterfuge o f uaking i t d u e July lst, w h i c h i s really done
r t h e purpose
o f ios k i n g i t e l i g i b l e f for r e d i s c o u n t
i n
the P e d ral reserve bank, b u t n o good i s a
having t h e m come i n o n the l s t o f July s n d renew a t the
reserve bank.
B u t i n spite o f t h e f a c t t h a t b r e e c i n g p a p e r
274
does require a longer psriod t h a n nine months t o work out
its logical result, nevertheless, r e n e w a l i s very desirable
in connection w i t h breeding a n d
I might say,
i n connection w i t h t h e operations o f t h e
Feceral r e s e r v e p a n k o f vallas,
t h a t e v e n w h e n w e were some-
what d i s c r e d i t i n g ourseéives a n d o t h e r F e d e r a l r e s e r v e
banks
by our continuance o f heavy rediscounting,
recall,
s o far a g I can
w e a t n o time declined t o accept eligible, s o l i d
paper f r o m a
bank w h o s e c o n d i t i o n w a s s u c h 3 s w o u l d warrant
us i n having transactions w i t h them.
‘ul.
T
h
“4
e recovery o f t h e Sixth Federal
reserve
aistrict, except i n a few isolated localities,
i s such that
there i s ample credit n o w available t o those w h o have
some-
thing t o ofier as security, and whose worth is such as to
entitle t h e m t o u n s e c u r e d credit.
T h e rates
i n our dis-
trict run pretty high. f
have isen them run a s high a s
i5 per cent i n sone cases,
T h e intermediate credit banks
might get some business from #lorida i n connection with
cattle. i
think more t h a n nine months credit w o u l d b e
inadvi sable, because making i t nine months would enable
you t o have reinspection, find out whether they are confornming t o t h e tick laws, a n d s o forth.
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T h e cooperative asso-
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Federal Reserve Bank of St. Louis
275
ciations h a v e b e e n able t o get fsirly cheap credit f o r
marketing. O c c a s i o n a l l y y o u would perhsps g e t a n inquiry
about financing t h e purchases o f fertilizer a n d r a w mater-
jals t o advance t o their farmers; b u t o f course most o f
those associations a r e non-capital, a n d t h e eredit w o r t h o f
those w h o make u p t h e associstion would enter i n t o t h e determination o f the credit r i s k upon them. H o w e v e r , I
do
not think there would b e very much business f o r t h e intermedists credit banks.
The Chairman:
H o w about t h e debentures?
ur. AdLeson: I
think that i s something that I
to study before making a
The Chsiruan:
would
statement o n it.
I n regard t o t h e Chicago b a n k s o f o u r
district, o u r interests a r e diversified, a l t h o u g h 1
think
it c a n b e s a i d that agriculture pérhaps pred:wminates; t h a t
is true w i t h respect t o one state, w h i c h i s practically
an sgricultural state.
purposes
T h e demand f o r credit f o r livestock
i s limited largely t o t h e demand w h i c h comes f o r
feeding cattle snd not for breeding.
I t i s also a short
credit.
The district has, i n times gone by, d e m o n s t r a t e ds
t
i
ability t o take care o f the legitimate requirements i n
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Federal Reserve Bank of St. Louis
2768
all directions.
I t h i n k w 2 c a n safely s a y that there has
never b e e n a n instance
i n which a
deserving member b a n k
has offered satisfactory paper, t h e procseds o f which was
used for agricultural o r live stock purposes t h a t i t has
been denied, I
of t h e d i s t r i c t
believe the losning power within the banks
i s sufficient
t o t a k e c a r e o f t h e legitimate
reyulirements.
In regard t o the debentures,
i t see.s t o me that you
must first establish t h e m o n a basis which will command t h e
confidence o f investors o f all sorts, a n d then I think your
problem will b e solved.
With regard t o the attitude o f t h e Chicago b a n k toward
these uebentures, I
feel that w e could n o t consistently a t
this t i m e state definitely w h a t o u r policy w o u l d be. T h a t
is goinz t o depend a good deal upon your o w n policy a n d
our o w n conditions.
We have b e e n a r o u n d the board o n this question, J u d g e
Lobdell, a i d i f there are any further questions that y o u
or y o u r e s s o c i a t e s w o u l d l i k e t o ask,
w e would b e very glad
to have y o u d o so.
ur. L o b d e l l : I
think, w r , C h a i r m a n , t h a t y o u h a v e
covered t h e fieid very nicely f o r u s a n d have b e e n very
kin
i n doing s
I
might s a y t h a t t h e r e s p o n s e s
w e re-
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Federal Reserve Bank of St. Louis
att
cleved a r e about what w e anfici:s ted.
B u t allow ms, i n
connection w i t h t h e debentures w h i c h may b e issued,
this s u g
t
w
e
l
v
t o make
e banks a r e mutually underwritten;
960,000,000 capital i s behind t h e m , a n d they a r e a unit
for t h a t purpose.
T h e s e institutions a r e n o t i n s t i t u t i o n
for deposit, a n d have n o other liability sgsinst t h e i r
capital é x c e s t h e d e b e n t u b e s t h e y m a y f r o m t i n e t e t i n e i s -
sue, s o that t h e y conie t o you, a n d come t o the investing
public, w i t h a peculiar strength. I
recognize,
a s you
have very well said, that the task i s ours, o r that o f the
managers o f our institutions,
of t h e b a s i c securities, I
t o establish t h e integrity
might s a y t h e t s i n c e t h e A c t
wes passed, a n d I have b e e n called o n t o look into conditions
particularly i n the cattle bresding a n d range country, t h a t
is, Governor Bailey's territory, t h e Texas territory a n d
the n o r t h w e s t t e r r i t o r y , I
have f e l t t h s t t h i s p 6 0 , 000,000
migh: serve t o provide t h e cattle b r e e d e r a n d t h e dairyma n
with credit,
t o the extent that w e may give assurance o f
renewal--- b u t w e cannot g i v e essurance o f renewal against
the debsntures--- w h i c h might serve t o take o u t o f t h e s m l l Sr c o u n t r y b a n k s t h e t y p e o f p a p e r w h i c h t h e y e r e c a r r y i n g - - some o f w h i c h p a p e r h a s b e e n r e n e w e d t h r e e o r f o u r y e a r s o n
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Federal Reserve Bank of St. Louis
278
a stretch--- a n d which ought n o t t o b e i n the country banks.
I think t k e c o u n t r y b a n k s e i t h e r directly,
o r b y a n asso-
ciation c o n n e c t e d m o r e o r l e s s d i r e c t l y w i t h i t , w o u l d f i n d
it a n advantage
basis,
t o transfer t h i s paper,
a s c a n b e done a n d g s must come,
o n 8
perfectly s o u n d
a n d t o that extent
relieve periisnently t h e banking situation a n d perheps stimulate a little t h e cattle industry a n d give i t a better a n d
asoencgable service.
meet t h e s e a s o n s ] c a l l s
I
f w e are able t o d o that a n d
o n the cooperative marketing c o n -
cenrs, t h e n {[ think w e w i l l h a v e a t t e i n e d o u r p r e s e n t a m b i -
tion,
Governor Bailey: s u p p o s e , i n 1920, with wheat worth
pe-50,° we
h
a
d loaned t o the cooperative asso-
ciations f o r nine months a t y2, t h e margin o f fifty cents
would have been a pretty good margin;
b u t i f we had had
to w a i t s i x months, w h e a t w o u l d h a v s b e e n d o w n t o »1.50,
and i n nine tionths i t would have been a t pl, and w e would
have b e e n i n a
pretty fix.
ur. Lobdell:
T h e regulations that w e have prescribed--
the Act requires limiting the loan t o 75 per cent o f the
market value o f t h e commodity.
Governor Bailey:
O f course y o u will have t o judge
279
that b y market conditions.
T h e t W a s e n abnormal conditio n
L referred to.
lure Lobdell:
Y e s ,
a m w e have i n our tentative regu-
lations that w i l l b e submitted t o t h e Secretary o f Agriculture, w h i c h p r o v i d e t h a t a n y l o a n o f t h a t c h s r a c t e r w i l l b e
accompanied b y @ collateral agreesiient t o ksep t h e security
up t o 7 5 per cent, o r 133-1/3 p e r cent o f t h e amount o f tte
loan, b y making the loan imuediately callable.
uP. Cheirman, c a n w e take a
get s u g e¢stiom
minute a n d g o aroun: a n d
a s t o t h e proper rate a t this time, a s a n
initial rate.
The Chairman:
Y o u mean t h e discount r a t e t o those
with w h o m y o u c a n d o business?
ir, Lobdell:
T h s l a w requires t h a t until a n issue o f
debentures i s made w e sheil establish 4
rate,
w
e have h a d
roughly i n mind about w h a t t h e rate would be, about o n e
per cent i n advance ofyours, b u t w e would b e glad t o have
suggestions a s t o a rate which a t t h e moment w o u l d s e e m pro-
per.
Governor Bailey: I
sugzest that if you start with a
rate o n l y o n e p e r c é n t a b o v e o u r rate,
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Federal Reserve Bank of St. Louis
t h e o n l y people y o u
will d o business w i t h a r e t h e coorfe rative cattle men.
The
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280
banks w o n ' t t o u c h i t b s c a u s e t h e y w o u l d n o t s u r r e n d e r t h e i r
reguler rates t o d o it.
Governor sicKinney:
I s n o t the r a t e dspendent o n your
ssle o f debentures?
iur* Lobdell:
A f t e r t h e y have b e e n sold, yes;
in t h e f i r s t i n s t a n c e
w e are required
Governor iweKinney:
T a t
but
t o promulgate a
rate,
i s b e c a u s e y o u a r e t h e n lLoan-
in: y o u r f i v e m i l l i o n d o l l a r s ?
ur. Lobdell:
Yes.
The Chairman;
I f you established @ rate o f five a n d
a half p e r cent, w h s t r a t e w o u l d y o u t h e n e s t a b l i s h
o n your
debentures?
wr, Lobdell: T h e y would be 4-1/2 per cent debentures.
Governor Bailey:
cent now.
B u t s u p p o s e y o u start a t s i x per
N o t msny banks would d o it, but the cattle men
would come to you all right, and the ccoperative men.
Governor Seay: I
would think, u r . Chairmen,
t h a t would
depend t o sowie extent o n what the current r a t e s o f t h e
Fed ral reserve banks might be.
4 s a n opinion o n conseérva-
tive action a t t h present t i m e o n agricultural transactions, I
believe
i t would b e conservative
t o plcée y o u r rate
in advancs o f that current i n the Federal reserve banks,
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Federal Reserve Bank of St. Louis
281
probably a
ons psr cent spread. I
would think, u n d e r exist-
ing conditions, t h a t whatever t h e Federal reserve b a n k rate
might be, y o u r rate would probably b e higher.
Governor Fancher;
w r e Chair.an,
i t i s m y judgment t h a t
the situation would b e pretty tiuch a s Governor Bailey h a s
expressed it, that under a rate of 5-1/2 per cent, o r one
per cent above t h e present r a t e o f the Federal reserve
banks, t h e r e vould b e vary little business d o n e w i t h t h e
bsnks,
i f any.
d h i l e t h e rates o f t h e Federal reserve
banks are 4-1/2 per cent a t the present time, m y thought is
perhaps e v e n s t a r t i n g a t 4
s i x p e r c e n t rate,
i & would n o t
be high, a n d o n that basis t h e y might d o some business w i t h
the banks,
Governor Biggs: I
feel that e v e n with a
six per cent
rate t h e y would d o very little business i n our section o f
the country. I
think that would b e quite l o w enough,
by
virtue o f t h e r a c t t h a t t h e p e o p l e t h a t t h e y a r e t r y i n g t o
help h a v e b e e n p a y i n g s n y w h e r e f r o m s i g h t t o f i f t e e n p e r
cent,
I t would b e helpful i n that way, b u t I
do not be-
lieve they would d o much business e v e n at-d p e r cent, a s
against 4-1/2 b y us.
Governor Calkins:
I
t s e e r s c u r i o u s t h a t i t i s n e c es-~
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Federal Reserve Bank of St. Louis
282
sary t o say that the higher t h e loanin; rate o f the Federal
intermediats c r e d i t banks,
t h e m o r e w e ospect t h e r e w i l l b e
of their doing business; butI think that i s the real citua-.
tion, except s o far 3 s they m a y d o business w i t h coopsratives a n d capital l o a n associations. O b v i o u s l y , w i t h a
six per cent r a t e , t h e banks w i l l b e confronted w i t h the
yuestion a s t o shether they w i l l reduce their rate,. and I
think w e a l l k n o w w h a t t h e y w i l l aecide,.
see n o pro:pect
Therefore, I
can
o f m u c h b u s i n e s s w i t h t h e banks,. even i f
their rate i s six per cent, a n d yet, t o my mind, i t could
not b e less t h a n that.
Governor Norris: I
know nothing about t h a t side o f it,
but t h e r e i s t h e o t h e r side, t h a t I
d o not suppose t h e y
would care t o establish a rate that t h e y would have t o raise
immedlately after they resorted t o the issuance o f debentures. I
should think that those debentures w o u l d have
to bear 3 hicher rete t h a n t h e f a r m loan bonds; I
should
think t h e rate o n them would have t o b e not l e s s t h a n five
per cent, a n d for that reason i t would seem t o m e t o b e
desirable n o t t o w a k e thse initial r a t e b e l o w s i x p e r cent.
Governor Young: I
should s a y s i x per cent a t tke
oresent time, although conditions m a y change very quickly.
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Federal Reserve Bank of St. Louis
283
I feel very strongly that s i x per cent shculdbe t h e minimum rate a t this tine, b o t h f o r the réason a d v a n c e d
by Governor Calkins t h a t v e r y little paper w o u l d come t o
them that was taken originally a t a less rate than seven
and a half,
S i x per cent has i t s advantages;
i t i s not
prohibitive a n d i t i s i n line w i t h ioney market conditions.
I should think s i x p e r cent, w i t h a fiv e per cent debenture,
would b e sbout right under existing conditions.
Governor mekinney:
I
the linss o f conservatism,
t i s m y judguent, speaking 2long
a s Judge Lobdsll h a s indicated,
what h e h s s i n m i n d w i t h r e g a r d t o t h e m a t u r i t y
o f notes
accepted f o r rediscount b e i n g linited t o nine tionths, t h a t
that s a n e degree o f conservatis: would cause y o u t o f i x t h e
rate a t six per cent.
T h i s crsagit, i f consuned a t sil,
will b e c o n s u m e d b y p e o p l e
t o w h o m thse r a t e o f s i x p e r c e n t
will b e fairly attractive.
ur, Adleson: I
concur i n the view that five a n d a
hlaf p e r cent would hardly attract s n y paper sat all i n
our district, a n d I Goubt v e r y much i f a six psr cent rate
would.
I t iight possibly b e s i x a n d a
The Chairiuan:
half.
i x n y thought, J u d g e Lobdell,
i s that
you w i l l h a v e t o b e g u i d e d b y t h e g o i n g r a t e f o r money,
284
and that a n y rate below s i x p e r cent a t thepresent t i n e
would not b e consistent, based o n the charscter o f business
you a r e going t o do.
Now, i f y o u gentlemen have anything further t o present
to us, s é will b e very g l a d t o have it.
iY. Lobdell:
inquiries,
and i
N o , ur. Chairuan; that concludes our
wish t o s a y t h a t w e a r e v e r y s p p r e c i a t i v e
of your kindness,
The Chairman:
d
e have b e e n v e r y g l a d t o have y o u
here, gsntisien.
(Whereupon, a t 12:10 o'clock p. m., the members o f
the F e d e r a l F a r m L o a n B o a r d r e t i r e d f r o m t h e C o n f e r e n c e
room, a n d t h e C o n f e r e n c e
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Federal Reserve Bank of St. Louis
o f Governors p r o c e e d e d
a s follows: )
285
The Chairman:
G e n t l e m e n , ur, Gilbert sugsested that
we g i v e s o m e f u r t h e r c o n s i d s r a t i o n
t o t h e .uestion o f per-
mitting o u r Government securities t o run off, or, I
assume,
permitting h i m t o retire t h e m when h e i s able, a t t h e
pleasure o f the Treasury.
D o y o u wish t o discuss t h a t now,
or d o y o u d e s i r e t o w a i t u n t i l t h e m a t t e r coines u p , 3 s t h e
Secretary s a y s i t will,
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Federal Reserve Bank of St. Louis
Governor Fancher:
i n our conference w i t h t h e Board,
T h a t w i l l cowe u p i n connection
With b r e w i l l e r ' s m e m o r a n d u m
tion o f a
o n t h e j u e s t i o n o f t h e forma-
new c o m m i t tee.
Governor Calkins:
I
t might b e well f o r u s t o discuss
it anyhow.
Tne Chalrman:
T h e Secretsry s a y s i t will c o n e u p i n
our confsrence w i t h t h e Board.
Governor Calkins: N o t w i t h s t a n d i n g t h e fact that i t
Will come u p there,
i s i t not more o r less a sirable f o r
us t o discuss i t before that time,
t o see i f w e c a n srrive
at a n y conclusion?
The Chairman:
I t seems t o b e your opinion that i t i s
desirable, a n d consequently w e will a s k y o u t o express
your views, 3G o v e r n o r Calkins,
(Discussion followed which t h e reporter w a s airected
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Federal Reserve Bank of St. Louis
not t o take,)
The Chairman:
N o w , i f there i s no further ciscussion
on this, w e will postpone i t until s u c h time a s t h e question
may core u p with the Board, a n d w e will g o o n with our
program.
We h a v e f i n i s h e d a
d i s c u s s i o n o f f i s c a l a g e n c y topics,
and that brings u s back t o the matter o f this blanket guarantee letter that hss b e e n exchanged b y 311 t h e banks w i t h
the exceotion o f Minneapolis.
G o v e r n o r Young w a s i n the
midst o f a statement concerning i t when Jught Lobdell a n d
his associates c a m e in.
Governor Young: I
concerning this report.
years ago. I
would iike t o make this suggestion
T h i s matter came u p = couple o f
think i t i s very aesirable t h a t w e have a
uniform c o l l e c t i o n edreular.
appointed, a n d ,
if I
A t that t i m e a
couwmittee w a s
remenber t h : m i n u t e s c o r r e c t l y ,
they
were t o call upon t h e banks f o r sugg@ stions. w i n n e a p o l i s
went ahead a t that time a n d prepared what w e thought should
go into t h e m l l e c t i o n circular t o protect us.
W e were
not consulted, although w e corresponded w i t h Mr. Harrison
and I
cannot r e m e m b e r t h a t h e d i s a g r e e d w i t h a n y s u g z e s -
tion thet w e msde.
T h e report w a s handed i n a t t h e last
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Federal Reserve Bank of St. Louis
287
conference ofGovernors b u t n o definite action w a s taken
other t h a n this, t h a t t h e Governors w e r e t o r e a d theses
reports, a n d i f they found a n y objections t o report t h e m
to t h e Chairman o f t h e Colisction Committee.
with o u r bank,
T h a t happened
a n d i t snded u p i n correapsndence b e t w e e n
lir, s t r a t e r a n d myself w h i c h w a s n o t v e r y satisfactory.
I rejuested t h a t o u r t r a n s i t m a n a g e r
b e permitted
t o appear
before t h e coumitbee i n Ne, York,which w a s done, a n d t h e
Comittee
i n New York could n o t find s n y objection t o t h e
Criticisms t h a t w e usde, a n d still they send i n this report a n d s a y that, s o l e l y
f o r t h e s a k e o f uniformity,
Should agree t o this collection circular.
W
w e
e still feel
that t h e conditions i n the northwest a r e such that w e cannot
operate safely under that collection circular, T h e r e i s
a lot o f i t that i s technical, a
lot o f i t that i s 9 legal
question, a n d I thersfore niake this suggestion, t h a t a
man
from each Federal Reserve B a n k b e appointed, a n d that those
men g o into Conference i n Chicago a s soon a s possible, a n d
that t h e y b e instructed t o s t a y there until t h e y d o get a
uniform circular,
The Chairman: I
complish a n y t h i n g
do not think y o u are going t o ac-
i n t h a t direction.
I
n confirmation
of
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Federal Reserve Bank of St. Louis
288
this statement, however, I
benfit o f the Conference,
would like t o read this for the
t h a t t h i s coumittee report, aniong
other things, s a y s that t h e report o f t h e committee w a s approved b y t h e conference,
w i t h t h e provis@--- t h a t i s , t h e
last revort---
Governor Young: P a r d o n me, I take exception t o that.
Tt w s s n o t a
.roved.
The Cheirian:
Y e s , Governor Young, t h e report o f the
committee w a s approved b y t h e Conference w i t h t h e proviso
thst each Governor might discuss with the coimittee t h e
propriety
o f making o r sugresting possible anendmsnts there-
to f o r consideration b y t h e coumittee, a n d
what w a s done. B u t , eleven banks have already a
this plan, a n d if i t i s not adopted, i t is going t o be
necessary f o r at least eight o f those banks t o withdraw,
not only t h e letters w i t h respect t o w h i c h w
e have b e e
speaking, b u t t h e circulars, a n d I
do not s e e h o w y o u c a n
at this time entrust t h e matter t o transit m e n with a n y
greater assurance c f satisfactory a c t i o n o n i t than was
the c a s e w h e n i t w a s t u r n e d o v e r t o t h o s e w e n , w h o a r e o f f i cers
o f the banks
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Federal Reserve Bank of St. Louis
289
Governor Young:
W n e n I said transit men, I
meant
transit officers.
The Chairman:
T h i s couuittee i s a strong co.uwittee
and its members w e r e chosen because o f their fitness t o
undertake a n d di: charge t h e responsibility.
Governor Young:
winneapolis
T h e n there i s only one thing f o r
t o d o under t h e circuiistances, a n d that i s t o
vote n o o n t h e a p p r o v a l
o f t h s report o f t h i s c o m m i t t e e ,
go
back t o minneapolis, reconsider i t and t r y t o reconcile
ourselves;
b u t i cannot v o t e f o r i t now.
Governor Harding:
w a y I ask i f this objection i s
based u p o n y o u r c o u n s e l ' s o p i n i o n ,
o r o n physical c o n d i t i o n s
out t h s r e ,
Governor peay:
N h i c h circuler e r e w e referring t o
now, t h e collection o r transit.
Governor Youngs
T h e collection circular a n d the tran-
sit circular, both.
Governor Harding:
A
s I understand it, t h e objection
is pased partly o n a legal opinion,
conditions,
a d p a r t l y o n actual
a s y o u s é e them?
Governorseay:
w a y I
ask.Governor Young i f he
referring t o @ different point f r o m the one h e madé
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Federal Reserve Bank of St. Louis
290
You a r e n o t referring,
a t the present time, t o thee xchange
of letters?
Governor Young: I
Governor Seay:
am referring t o the whole circuar,
Y o u objectsd o n one point a n d i t
was Suggested that t h e matter b e referred b a c k t o t h e committee, t h a t t h s c o u n s e l o f t h s i n d i v i d u a l b a n k s s h o u l d
writs t o your counsel, with regard t o collection cir culap-and y o u arse o b j e c t i n g seriously, n o w ,
t o t h e exchange
of
the blanket letters, a s I undarstand.
Governor Young:
The Chairman:
Y e s .
T h a t i s what h i s objection i s objected
to, because e l l these other points have b e e n settled i n one
way o r another,
Governor Fancher:
N o , ur. Chairman, they have not.
Governor Calkins:
N o .
Governor Seay:
A s I understand it, there were two
points, one bearing upon the mf besring of Hegulation J
upon this circular, a n d the dher w a s w i t h reference t o a n
entirely n e w clause which the Fedsral Reserve B a n k o f
winnespolis w a n t e d t o add t o t h e circular.
discussing a n o t h e r point,
letters.
N o w y o u sre
a n d t h a t i s t h e excnange
o f blanket
C a n you abbrogate that ohe point a n d leave the
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Federal Reserve Bank of St. Louis
2go1
matter a s i t stood w i t h regard t o the other points?
Governor Young: I
cannot.
understand this report .
I
n fact, I
do not quite
T h e y s a y that t h e clause which
winneapolis wishes t o add t o the circular i s not necessary
because i t is nothing but a n amplification o f what i s already stated i n the general clause o r uniform clause, a n d
then later o n i n the report t h e y s a y all these letters w i l l
have t o b e withdrawn becausethat i s dangerous--~ t h s t i s not
very consistent,
The Chairnian: I
question.
think w e are Grifting away f r o m the
T h e question involved n o w i s whether o r not t h e
winneapolis b a n k will b e willing t o issue, a s the other
banks have done, this so-called blanket guarantee endorse-~
ment o n a l l i t e m s f o r w a r d e d d i r e c t l y b y meniber b a n k s
to
other Federal reserve banks?
Governor Young: I
Will,
have n o authority t o say tha t we
O u r committee h a s stated very positively t h a t they
will not.
S i n c e m y attention has b e e n called t o Regule-
tion J, I
a m quite willing t o g o back a n d discuss this w i t h
our executive comuittese a g a i n a n d advise t h e banks whether
they will d o i t o r not.
I ' c a n s e e some reasons w h y they
should d o i t a n d some reasons w h y they should not.
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Federal Reserve Bank of St. Louis
292
think t h e r e i s nothing t o d o but p a s s
The Chairman: I
the subject w i t h t h e understanding t h a t Governor Young will
end savor t o reconcile their views t o the views o f the majority.
Governor Young:
along,
T h a t i s what w e have t r i e d t o d o right
a n d w e have d o n e i t o n 4
great n u m b e r o f points.
There are a number o f things i n the circular that w e would
rather not have i n there, and on which we have given way;
but this other i s too important.
The Chairman:
I
f there a r e n o further suggestions,
that policy will be pursued, and before w e adjcurn 1 am
going t o a s k the secretary t o state just what position w e
are i n with regard t o this report.
mr. Barrows:
I t was voted, w i t h regard t o the clause
suggested b y liinneapolis t o b e added t o the circular, t h a t
it b e referred t o the committee w i t h instructions
t o have
counsel o f the banks take the matter u p with counsel o f the
idinneapolis B a n k w i t h a
view t o 9
satisfactory reconchlement
of c o n f l i c t i n g views,
On the matter o f requiring the federal reserve
to m a k e u n q u a l i f i e d e n d o r s e m e n t
o f checks received,
tion o f G o v e r n o r N o r r i s t h e r e p o r t o f t h e w i m l t t e e
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Federal Reserve Bank of St. Louis
293
and that action referred t o t h e counsel
Reserve Board f o r a n opinion.
I
o f t h e Federal
n that connection, I
not b e l l e v e t h e c o m m i t t e e m a d e a n y recoiuendation,
do
b u t mere-
ly stated that t h e banks w e r e i n uniformity a s t o t h wording o f the endorsement o n checks, b u t there was n o recoinmendation.
Governor Norris:
I f i t wasn't a
recomuendation, t h e n
the phraseology ought t o b e amended t o say that t h e uniform
endorsement a s given i n the report o f t h e conmittee b e
adopted.
rectly.
However, I
do not think youhave given that cor-
D i d y o u s a y that i t b e referred t o the counsel
of t h e Federal Reserve Board f o r a n opinion?
ir. Barrows;
T h a t related t o the clause guarantse-
ing p r i o r endorsenuents.
Governor Norris:
N o t thah L t b e reported t o h i m for
an opinion, b u t that t h e action o f this Conference b e reported t o the Federal Reserve Board i n order thet t h e Board
might m a k e a n y change which i t might consider necessary
in Regulation J.
Governor licKinney:
I
n other words, w e a r e going ahead
to guarantee t h e prior endorsements a n d make unqualified
endorsement,
a n d w e call the attention o f t h e Board t o that
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Federal Reserve Bank of St. Louis
294
fact t o t h e e n d that they m a y make a n y change t h a t t h e y
may think proper i n Regulabion J o
The Chalnian;:
I
t was t h e understanding
o f o u r repre-
sentative w h o attended t h e conference i n New York that t h e
other banks w o u l d n o t insist u p o n our furnishing t h a t
letter,
d # @ f u r h i s h i t with regard t o three o r four spe-
cific banks that a r e sending checks direct.
The Chatirian:
A t any rate, y o u know how the other
banks feel new.
Governor Young: I
feed a n d 4 s t o h o w I
(Vhersupon,
am quite positive s s t o how they
feel too.
o n motion,
d u l y seconded,
t h e Conference
adjourned f o r recess a t 1310 o'clock p . m., until 2:30
o'clock p. m. o f the saime doy.)
APVoK naChos,
The conference reconvened, pursuant t o recess,
a t 2:40
o'clock p. m.
The Chairman:
I have a
T h e meeting w i l l @
me t o order.
telegram here f r o m Governor S t r o n g
i n which h e
states " A great m a n y w a r m thanks t o you a n d t h e Conference
for your telegram. I
only hope y o u miss m e a s much s s I
295
do you.
T h i s i s a n important meeting a n d I wish y o u may
énjoy t h e utmost success i n all your discussions," S i g n e d
Benjamin Strong.
Now, the next topic t o be considered i s LII-(b).
(b) U n i f o r m endorsement b y Federal
reserve b a n k s
o n c a s h a n d collecion i t e m s r e c e i v e d f r o m m e m b e r
banks a n d o t h e r F e d e r a l r e s e r v e
banks,
Was presented b y Kansas City.
Governor ucKinney:
The Chairman:
taln s e c t i o n s
t h a t h a s L e e n coversd, m r . Chair-
Y e s . I
think i t i s c o v e r e d u n d e r c e r -
o f t h e Committee
o n Collection's Sengrs,
3 2
that i s satis factory.
Governor Balley:
A
s I
understand i t , e v e r y b o d y 4 s
enaorsing?
Governor meKinney: G u a r a n t e e i n g prior endorsements.
Governor Bailey:
B o t h c a s h a n d non-cash?
ir. Adleson: i
think t h e report refers only t o cash
items.
The Chairman:
b j e c t h w a s presented covering
both cash a n d other collection items.
have been having referred t o only one.
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Federal Reserve Bank of St. Louis
T h e wlscussion w e
296
You w i l l f i n d t h i s o n pages 6 , 7
ana 8
o f t h e Commit-
tee's report.
Governor Bailey:
I ’ think t h e collection i t e m ought
to have tie endorsement j u s t 3 s well 4 s the cash item.
ur, Case:
I t certainly seems t o m e s s though that
is a matter where i t would b e desirable
t o have uniform prac-
tice i f i t c a n b e done.
Governor Bailey: I
would like t o hsvs a n expression
on that, s s t o whether t h r e i s universal endorsement o f
collection items a s well s s cash items.
Governor Case:
counsel. I
referred
W
e w o u l d b e governed
b y t h e advice o f
wonder i f that particular point c o u l d n o t b e
t o t h e Conmalttee o n C o l l e c t i o n s a n d l e t t h e m m a k e
& report o n it.
The Chairman: G o v e r n o r icKinney, w a s not this the
point that y o u raised a t one time?
Governor iicKinney:
m y point w a s only with reference
to checks a n d drafts i n the collsction department.
The Chairnian:
T h e committee deals w i t h ths Liability
of reserve banks i n waking unqueliried endorsement o n chec k s
recelved f o r collection.
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Federal Reserve Bank of St. Louis
Governor iicKinney: I
T h a t w a s f o r e check.
agree w i t h Governor Balley, t h a t
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Federal Reserve Bank of St. Louis
there ought t o b e uniformity.
Governor Bailey: I
this memorandum.
.would like t o read a little f r o m
( W o t t o b e incorporated i n the record. }
Governor Harding:
a y I
inquire what brought t h i s
topic u p f o r d i s c u s s i o n
a t this tine? I
pretty w e l l e s t a b l i s h e d
t o b e a part o f t h e c o n t i n g e n t
liability,
thought
a t least, t h a t = bank endorsed a
ag a8 cash item. I
it
check sent o u t
do not know gbout reconciling that
with Regulation J . s e c t i o n 5202 o f the Revised Statutes
is v e r y c l e a r a s t o t h e l i m i t o f l i a b i l i t y c f N a t i o n a l
banks, except a s t o deposits f e r borrowed money, a n d s o
Torth,
E v e r y nationel b a n k receives i n dsily business
checks d r a w n o v e r i t s c o u n t e r
o n e v e r y place,
a n d every one
of those shecks i t has got t o endorse and i s liable for,
and while that c o u l d not b e regarded a s a liability i n
contravention o f section 5202, i t i s certainly 6 liability.
Governor Celkins:
Ly.
I
t i s a t Isast a
contingent liabil-
P r o b a b l y 9 9 per cent o f t h e collection items endorsed
throughout t h e c o u n t r y b y b a n k s a r e e n d o r s e d a s i s p r o p o s e d
here, w i t h a qmiarantee o f endorssnisnts.
T h a t i s thegeneral
prectice among banks.
The Chairiian:
weil a s checks?
T h a t refers t o collection items s s
298
Governor Bealiley:
refer
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Federal Reserve Bank of St. Louis
T h a t refers t o checks a n d does not
t o c o l l e c t i o n items.
Governor seays I
cannot s e e a n y substantial reason
for a difference between endorsement o f a collection i t e m
and o f a check.
I t refers t o the integrity o f the previous
endorsement a n d nothing more.
I t is desirable banking
Siven
practice, however, I think, that this guarantee should be/
and I cannot s e e w h y a Federal reserve b a n k would b e willing
uniform
to have those endorsements o n cash items a n d would not b e
willing t o have i t o n non-cash items.
Governor Calkins:
conclusion, I
I
n order t o bring t h e thing t o a
will move that the twelve Federal reserve
banks b e rejussted t o submit t o their respective counsels,
whether there i s any undue liability assumed i n the endorsement o f t h a t c l a s s o f items, i n c l u d i n g n o t e s a n d arefts,
as i s here suggested.
T h e r e isan clevent o f diffsrence,
and I think w e had better b e o n safe ground e n d have t h e
matter passed o n by our counsel.
The Chairmen:
Y o u have heard the motion, gentlemen.
(The motion, having been duly seconded, w a s cerried.)
The Chairman:
Balley?
I
s that satisfactory
t o you, J u d g e
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Federal Reserve Bank of St. Louis
Governor Bailey: P e r f e c t l y , m r . Chairman.
The Chairman:
T h e next topic i s II-(c)
/
(c) Interdistrict deffered t i m e
schedule.
That i s submitted b y Richinond.
Governor ~eay:
f i r e Q,airian, this h a s t o d o with a
very important subject, n o t t o b e lightly considered, a n d
conclusion n o t t o b e lightly arrived at.
T h e occasion
for bringing i t u p was the action o f the Philadelphia Bank
in changing i t s t i m e schedule t o make i t conform t o the
schecule: w h i c h were enforced b y the N e w York s n d Boston
banks,
T h e :ffect o f the change i n the schedule o f the
Philadelphia B a n k undertook t o give credit t o those member
banks
i n less t i m e t h a n t h e time rejuired w i t h i n w h i c h t o
® llect t h e items,
of float.
t h e y therefore assumed a certain amou n t
T h a t w a s not t h s z n d o f t h e matter.
Philadelphia b a n k a d o p t e d t h e c h a n g e
w h e n the
i n t h e tinie S c h e d u l e
it s o happened that t h e member banks i n the Phils delphia
District communicated w i t h member banks i n our district a n d
called attention t o t h e fact that they n o w were i n @ position t o handle t h e accounts o f those wember banks o n more
advantageous terms t h a n banks i n our o w n district w e r e sble
to handle them.
T h e r é w a s considerable correspondence.
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Federal Reserve Bank of St. Louis
500
The Philauelphia B a n k admitted,
i n principle, t h a t i t w a s
hardly d * f e n s i b l e u n d e r t h e s y s t e m o f d e f e r r e d credits,
which w a s s u p p o s e d
t o b e the foundation o f o u r reserve
deposits, b u t stated i n view o f t h e fact that t h e time
schedules
o f N e w Y o r k a n d Boston w e r e a s t h e y . e r e i t com-
pelled Philadelphia t o take that step i n protection o f
itself,
T h e r e was some correspondence bstween o u r bank
and the Fed-ral Reserve Bosrd, during the incumbency o f
Governor harding, a n d h e finglly concluded b y witing t h e
following:
“I acing ledge receipt o f your letter o f the 13th
instant, regarding the chenges i n tine schedules b y the
F e d r a l K e s e r v e S a n k o f Philadelphia. I
had s l r e a d y r e -
ceived a letter o n this ‘subject from ur. o
C , wills,
Fedsral Reserve Agent a n d Chairmsn o f t h e B e r d o f t h e
Federal Rese
B a n k o f Cleveland, w h o takes t h e Same posi-
tion that y o u Go.
“The trouble seems t o lie with t h e Federal Reserve
Bank o f Boston.
T h e Federal Kessrve B a n k o f New York ex-
pressed willirgness, although ap>arently w i t h some relucbance, t o revise i t s schedauiss s o 3 s t o wake t h e m conform
to actual conaitions, B o s t o n , however, w a s insistent that
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Federal Reserve Bank of St. Louis
304
it b e allowed t o give i t s member banks the s a m e schedules
that N e w York offered t o theirs.
O f course, w h e n w e con-
Sider the geographical locstion o f Boston there may b e
s0..e@ justification f o r this.
A s i t is, actual t i m e sched-~
ule. i n that district might wake i t difficult f o r New Lngland banks t o hold their busine:s against N e w York.
Before
the changes i n the Philsdelphia t i m e schedules w e r e a d s
efrective, a
conference w a s h e l d here w i t h representatives
of the N e w York, Philadelphia a n d Boston banks.
represented t h a t t h e c h a n g e w o u l d h a v e little,
I t was
i f any,
effect u p o n t h s Cleveland a n d Ric: mond districts a n d t h e
Philadelphia bank was advised that ths Boerd wouldinterpose
no objection t o its trying o u t t h e n e w schedules.
evident,
I
t is
a s y o u say, t h a t unless t h e Richiond a n d Cleveland
banks c a n act a s a buffer, t h e s e changes w i l l ultinately
affect t h e whole country a n d put t h e system i n the sttitude
or giving credit f o r the items i n advance o f ths time
in w h i c h t h e y c a n p o s s i b l y
b e collected.
"“T have discussed this matter w i t h members o f the Board
and I may s a y that 1 t i s m y present intention t o 2all,
the near future, 4
in
m:sting o f t h e Advisory C o m i t t e e o f
Governors, which, a s you know, consists o f t h e Governors
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Federal Reserve Bank of St. Louis
302
of t h e Federal Reserve Banks o f New York, Philadelphia,
Cleveland, Richmond a n d Chicago, a n d i n addition,
particular c a s e , G o v e r n o r m o r s s o f Boston,
i n this
i n o r d rthat
the yuestion m a y b e fully discussed f r o m all points o f view
and I hope definitely settled.”
I think t h e matter i s of such far-reaching inportance
that i t deserves t h e disposition that Governor Harding
therein indicated.
Governor Case:
W a s t h e mesting referred
t o ¢éver held?
Governor Seay:
T h e meeting was never held. I
would
sug@ 6t, i n answer t o this query o n the program, that the
Feceral Reserve Board b e re:uested t o call such a meeting
for t h e purposs o f thoroughly considering t h i s matter o f
interdistrict t i m e schedules.
Governor Calkins: I
a m wondering whether i t would n o t
be i n ordsr t o suggest, before rejuesting that such a meebing be called, that the representatives o f the four o r five
banks concerned g e t together s n d s e e i f they cannot
straighten i t out amongst themselves.
Governor Harding:
I f you stop i t a t the torder line
of Richmond a n d Cleveland, s n d i t doesn't spread over t h e
country, i t won't make any difference.
T
h
e Boston
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Federal Reserve Bank of St. Louis
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Bank, a n d t h e New ingland banks generally have quite a
feeling o n tiis subject.
H e r e i s mr, Harrison's memnorsndum,
Which lir. Case has just handed t o me,
He says: " w h i l e i t i s true t h a t Boston a n d New York
have h a d those three states o n the t w o d a y point f o r some
time, i t his made relatively little difference t o Richmond a n d B a l t i m o r e b e c a u s e o f t h e f a c t t h a t t r e c o m p e t i -
tion of those points with NewYork i s not very keen, while
they d o f é e l t h e c o m p e t i t i o n
o f t h e P h i l s d e l p h i a banks.
Consequently, t h e change i n the Philadeiphia schedule h a s
apparently pinched Richmond a n d Baltimore t o the point o f
this sugzestion o n the program.
‘Hor your information, I would like t o refer t o a meeting h e l d w i t h t h e F e d e r a l R e s e r v e B o a r d l a s t y e a r t o c o n -
sider t h e discrepancy i n the time schedules o f t h e Boston
end N e w York banks o n the o n e side, a n d t h e Phils delphia
bank o n the other.
Y o u may reiiciuber that f o r a long
time Governor Norris insisted o n our putting N e w Jersey,
Pennsylvania, D e l a w a r e , » a r y l a n d , e t c , ,
point;
o n the three d a y
a n d t h e matter w e s o n l y finally settled a s a result
of this conference w i t h t h e Federal Reserve Bosrd, w h e n IL
represented the New York bank, ur. Bullen the Boston bank,
and Governor Norris t h e Philsdelphia bank.
A
t that tiie
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Federal Reserve Bank of St. Louis
Boston a n d N e w York insisted u p o n retaining t h e t w o
point,
i f only because o f the fact that t h e banking
business institutions
i n those sections have always
accustomed t o getting credit i n two days f o r checks n o w
our t w o d a y point.
W
e insisted that w e must maintain
two day point i f only t o give our member banks t h e same
service t o which they were accustomed before t h e inauguration o f the Federal Reserve collection system.
T h a t
argument appeared t o appeal t o t h e Federal Reserve Board,
and the difficulty between Philsdelphia 5 n d ourselves w a s
settled b y permitting Philadelphia t o establish a
two d a y
point somewhere coextensive w i t h ours.
“Now this is the interesting point:
Harding,
i n t h e c o u r s e o f t h e discussion,
could s ¢ e a n y o b j e c t i o n
two d a y point,
w#hen Governor
asked u s i f ue
t o Philadelphia's establishing a
w e said 'No, except f o r t h e fact that pos-
sibly Clevelsnd a n d Aichmond might object t o Philadelphia's
having @ two d a y point o n precisely t h e saiie ground that
Philadelphia was then objecting to our waintining it.!
The Board,
wes a
i n considering that possibility, s a i d that that
matter w h i c h t h e C e v e l a n d a n d HKichsond b a n k s w o u l d
have t o settle with the Bosrd, f o r the Board itself was, I
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Federal Reserve Bank of St. Louis
305
understand, unanimous
i n approving Philadelphis's change t o
the t w o d a y point o n the ground that i t was justified i n
the same way that w e are justified i n our two day point,
that is, that the more o r less compact eastern business
and financial areas h a d f o r s o long been accustonied t o the
two d a y point t n a t t h e system should give a t least 3 s good
service a s had existed prior t o o u r taking over t h e collection work.
“I mention all of this not a s a n argument for you one
way o r another a t the conference, b u t merely t
give
you a little o f t h e background o f the controversy w e
have already had and disposed o f with Philadelvohia."
I imagine this yuestion has come u p more importantly
in Baltimore a n d Pittsburgh?
Governor Fencher:
The Chairman:
I
this plan originated,
being pursued,
Y e s ,
t seems t o me, regardless o f where
i f t h e plan i s adopted,
i t will strike a
a s i t i s now
biow a t t h e fundaments o n
which this whole check collection system was inaugurated,
It was after very careful consideration, Governor Harding,
th-& t h s conclusion w a s reached that t h e Federal Reserve
Syssem s h o u l d n o t u n d e r k e k e
t o carry t h e floaz w h i c h would
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Federal Reserve Bank of St. Louis
506
ensue f r o m taking checks o n = basis that w o u l d require
that credit b e given bsfore y o u could secure your returns,
Governor Harding:
ler p e r c e n t a g e
T h e Boston bank i s carrying a smal-
o f flost t h a n sither Chicago
The Chairman:
o r Richmond.
T h a t may b e true, but nevertheless,
as I under tend it, the Philedelphia bank, i n order t o protset its member banks, h a s changed its schedule t o the
extent o f sccepting checks o n certain sections o f t h e coun-
try o n a basis of time a t least ons day less than they can
possiblyget r e t u r n s ,
snd I
Governor Harding: I
d o n o t t h i n k t h a t i s propsr.
do not agree that y o u c a n make
the time schedules a n y more approximately correct, because
they are more or less theoretical, but the fact is that
in every district there i s certain float carried, a n d that
demonstrates p r e t t y c l é a r l y t h e t t h e y a r e n o t mathensatic~-
ally accurate,
The Chairman; I
must grant that, Governor Harding,
but t h e fact remains t h a t they should b e a s accurate a s pos-
sible.
Governor harding:
T h e r e isn't a single plsce o n the
Bowton point that i t isn't physically possible, i f you want
totake t h e extrexe possibilities o f the case,
t o make
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Federal Reserve Bank of St. Louis
307
collections within t h e time specified, b u t y o u cannot d o
it with a foot o f snow o n t h e ground.
U n d e r favorable
coniltions i t i s possible t o d o it.
Governor Seay:
W w e gave t h i s reason t o ths Reserve
Board, "For a long tine, partly for reasons brought
about during the war, when reilrosd schedules were demoralized, w e have b e s n allowing a
number o f banks m o r e time
when need+d within which t o account f o r their items.
d e
are taking u p these cases o n e b y one, a n d i n doing s o w e
give t h e r e a s o n t h a t w e f e e l compelled,
of thesé banks,
i n the intsrest
t o require t h e paying b a n k t o account f o r
items w i t h i n t h e m i n i u w m o f t i n e rezuired, b e c a u s e
we
Should not give credit for items befors w e receive payment,
and should n o t give more time t h a n i s needed within
Which t o make p-cyiient,
T h e schecule recently pleced i n
operation b y the Philadelphia b a n k deprives o u r argument o f
all l o g i c a n d force,
3 n d m a k e s o u r section s e e m arbitrary.
The P h i l s d e i p h i a b a n k a d v i s e d t h a t t h e r e a s o n g i v e n b y
the New York bank ror its schedule i s the fact thet the
schedule i s one which was i n force among New York usuber
or clearing house banks before t h e e stablishment o f the
Fecsral Reserve system,
I t i s supposed thst the schedule
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Federal Reserve Bank of St. Louis
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was S s t a b l i s n e d f o r t h e p u r p o s e o f JSrawing business f r o m
othsr parts o f t h e country and, a s w é have seen, t h a t
schedule h a s n o w roreed t h e Federal Reserve B a n k o f Philsdelphia t o alter i t s schedule egeinst i t s o w n logical judg-
ment, f o r the protection o f its members; t h a t is, t o keep
the New York backs from drawing business from its members,
To conclude, w e again express the opinion thet this
changé s e d e b y P h i l a u s l p h i a
i n order t o pretect i t s o w n
banks against t h s competition o f banks i n other reserve
cities, will tend t o demoralize and und -rmaine the red:ral
reserve collection system, a n d will force other Feasral
reserve banks t o follow t h e same plan f o r t h e same rsason;
and i f a c t i o n o f t h i s n a t u r e
i s t o b e substituted f o r
logical principle, we'will be brought into disrepute with
our usmber banks i n supporting and derending our actions i n
other directions,"
Governor harding:
H a v e y o u a separste t i m e schedule
for ths head office i n Richsiond s n d r o r the Baltimore
Sranch?
Governor Seay:
O h , yes.
T h e y use.the actual
@élapsed time.
Governor har ding:
I s i t uniform i n both cities?
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Federal Reserve Bank of St. Louis
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Governor Seay:
time.
i
N o , i t i s different.
I t i s t h e actual
@ are having a great d e a l o f difficulty.
T h e
banks G o w n i n our section a r e clsiming that t h s y a r e entitiled t o more time a n d w e a r e claiming that t h e y a r e entitled
to n o more tinie than t h e s ctual time required.
Governor Fancher:
T h i s h a s b e e n r a t h e r linpressed o n
us, a n d has b e e n embarrassing particularly because PennSylvania
is a
split s t a t e ,
w e having a
certain part o f t h e
territory i n the west, s n d those banks u p o n the border
line, which ordinarily would sent their items t o Pittsburgh,
find i t t o their advantage t o use Philsaeiphia correspond-
ents and divert their items to Phik delphia o n 4 better
basis t h e n w e c a n handle t h e m i n Pittsburgh.
T h e matter
was promptly brought t o our attention, b u t t h e banks have
not been very insistent, a n d w e have j u s t l e t i t slump.
But i t i s likely t o break out a t a n y time.
w e heve just
let the matter drift along 9nd haven't disturbed it.
Governor Case:
T h e r e h a s b e s n @ very oractical sug-
gestion made, t h a t t h e f i v e banks i n interest g e t together
and s e e i f t h e y c a n w o r k i t out, a n d i f G o v e r n o r s e a y
is willing t o follow t h a t course,
i t seems t o m e w e might
gave a good deal o f time b y doing that.
I f that doesn't
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Federal Reserve Bank of St. Louis
310
seem reasible I
a m perfectly willing t o second Governor
Seay's motion that the matter g o t o the Board, b u t I think
we ought t o b e able t o work i t out here, without teking i t
up w i t h t h e Rosrd,
The Chairmen:
J L 1 1 that b e satisfactory, Governor
Seay?
Governor seay:
I t will b e perfectiy satisfactory.
Thet will b e preliminary, a n d i t can be determined after that
meeting whether i t would b e desirable t o take i t u p with
the Bord later,
Governor Harding:
h
o #ould you have sttend the meet-
ing? T r a n s i t men?
Governor ceay: I
think that might bedetermined b y
each bank, who. they would send t o that conference. I
think the matter could not b e deciued
b y the executives
of the banks, but i t might b e sdvisable f o r ¢sch man t o
take a trahsit man along.
I t doéssn't seem to me it is a
qucstion that the transit m e n can deciue, but seems t o ine
to involve a
principle which i s very clearly defined;
the collection business i s very huge, i t i s growing 311 the
time, a n d i t occupies s u c h @ n important place i n the bsnking administration o f the country, t h a t i t appears t o m e
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Federal Reserve Bank of St. Louis
Sil
thet i t ought t o b e placed upon a basis that c a n be definite i n principle.
Governor Calkins:
Y o u d o not m e a n that t h e time
schedules c a n b e figured down t o the hour o r minute o r day
in all cases?
Governor seay: I
think they ought t o b e figured o n
the actual time rejyuired within which t o make returns.
can very readily s e e what i t amounts to, a
Y o u
day's interest
on the volume o f float i n this country.
The Chairnien:
G o v e r n o r s e a y has stated h i s willing-
ness t o permit t h i s m a t t e r
pending a
t o rest,
a t l e a s t temporarily,
conference o f representatives o f t h e five banks
involved. I u n d ¢ r s t a n d that Governor HMancher i s i n o n that.
Governor Fancher:
The Chair sian:
Y e s , I
have t o be.
T h a t t h e n brings u s t o topic II-(d)
(d) L a r g e volune o f checks lost i n
transit a f t e r deposit i n Federal
reserve banks o r b y direct
sending.
Governor vase:
N e w York has 3
recommendstion
i n that
regard, t h a t t h Conference consider t h e juestion i n a
broad way, asseuble dats showing the amount involved during 1922, that i s the amount o f lost checks, a n d then re-
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Federal Reserve Bank of St. Louis
312
quest t h e Federal Reserve B o a r d t o take t h e matter u p with
the Postinaster General w i t h a view t o bringing about a reduction i n the number o f lost itenis.
Briefly, there has b e e n a loss during t h e past year i n
the nei-nb rhood o f 20,000 checks, aggregating nearly four
million dollars,
b u r i n g 1922 N e w York lost 6 2 letters,
containing 9 0 0 checks, amounting t o ,100,000, t h a t is,
sent t o b a n k s l o c a t e d
i n i t s district;
s e n t t o other
federal reserve banks, f i t t e e n letters containing 8 5 2
cks, anounting t o 4,100,000, a n d 205 let.ers s e n t direct
by womber banks, o r a total amount o f a million dollars; s o
there thave teen pretty close t o £20,000 checks lost,
a.ounting t o 4,000,000.
w
from a nuiber o f our
b e n k s , s a y i n g that t h e y have
a .
e have h a d great complsint
great cifficulty i n dealing .ith their customers.
They
simply g e t n o t i c e t h a t u e have s e b i t e d t h e i r a c c o u n t w i t h
the l o s t items;
t h e y thereupon und-rtake
t o charge i t
back t o their custouer, a n d the customer kicks. I
this matter could b e cisposed o f very ex:editiously,
the Conference sgrees,
think
if
b y referring i t t o the Federal Reserve
Board snd having them take i t up with the Postmaster
General a n d seeing i f something cannot b e done.
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Federal Reserve Bank of St. Louis
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The Chairman: I
to o u r e x p e r i s n e e
should l i k e t o make this rsport a s
i n Chicago.
i t e m s lost, s e n t b y this
bank t o other Fedéral reserve banks, none; s e n t b y this
bank t o other banks i n its district, 1 0 3 letters contain-
ing 1144 lteus, »87,000;
a n direct b y member banks o r
other F e .erel reserve banks, 1 4 4 letters, amounting t o
~684,000,
d
é are having about t h e saiie results,
Governor Fancher:
O u r results a r e quite diffe-ent.
Our records indicate c a s h letters f r o m mauber banks containing 2 9 4 items, amounting t o »28,000;
t o other Feders] r e ~
serve banks, f i v e letters, s i x t e e n ites, ,659.89.
have n o r e c o r d o f l o s t c a s h it ens S i e c e c e d
w e
b y j:.ember banks
to other Federal reserve banks. A p p a r e n t l y w e have n o t
suffered anything like New York and Chicago.
Governor cesy:
v
e have l o s t n o letters t o other
i ral reserve banks, b u t w e heve lost 3 3 letters containL173 items addressed t o e m b e r banks i n our ais trict.
ur, Case: I
think i t i s important e n o u g h t o have
Rosard t a k e i t u p w i t h t h e P o s t m a s t e r General.
Governor seay:
T h e officers
o f thik b c a r d ,
w h o are
not familiar w i t h t h e trcuble involved i n t h e loss o f a
Single check, d o not appreciate w h a t a
loss o f 1173 items
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Federal Reserve Bank of St. Louis
314
means.
I
t means i n t e r m i n a b l e c o n f u s i o n ,
of sufficient i m p o r t a n c e
and I
think i t i s
t o t a k e i t up.
Governor icKinney: £
would like t o ask i f you have
any r e a s o n t o a s s u u e t h a t t h e e x p e r i e n c e
ressrve banks i s any cifferent,
o f t h e Federal
i n respect t o losses, t h a n
that o f ordinary peuple?
Governor Seay;
N o , I
The Chairman: I
guess not---
understand t h e suggestion i s that
the matter b e called t o the attention o f the Feueral Reserve Board, w i t h the request that t h e y take t h e matter
up with the Postmaster General,
i n the hope t h a t something
can b e done t o luprove t h e cervice.
wt. Case;
T h a t i s correct, m r . C hairman.
Governor Seay:
m a y I
sugzest t h a t e s c h bank report
to t h e Boarc a t the time t h e nuuber o f letters l o s t a n d
the number o f items, s o a s t o give i t force?
ur, Case; I
have a n incomplete report f r o m the
banks which I will b e glad t o submit.
The Chairman:
I
t seems t o m e that t h e dsfinite infar-
mation contained i n the statement that mr. Case hes will
answer the purpose that wes intended b y the suggestion of
having e a c h F e d e r a l r e s e r v e b a n k report.
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Federal Reserve Bank of St. Louis
Governor seay: I
The Chairman:
think so, ur. Chairian,.
i f that i s t h e case, i t will.be s o c o n -
sidsred, a n d s e will proceed t o the next topic.
Governor seay: I n a s m u c h a s t h e N e w York Bank has
compiled t h e necessary infori#etion, mr. Chairman, I
sSug-
gest that the New York Bank b e requested t o address a
conuunication t o t h e Federal Reserve Board, l a y i n g before
it the information h e has referred t o i n requesting t h e
Board t o take t h e matter u p with t h e Postmaster General.
ure Case; I
haven't the slightest objection t o doing
that, b u t t h e only question i n my-.mind w a s whether i t
would n o t b e w o r e e f f e c t i v e
i f trans:itted
b y t h e Confer-
ence?
Governor Lesy:;
The Chairman:
I t i s s request f r o m the Conference.
A r e y o u willing t o ast f o r t h e Confer-
inthis respect, ir. Case?
uM. Case:
Y e s , w s Chalirican,
The Ch3ir..an:
T h e n i t will b e s o unverstood.
It has b e e n suggested t o m e that t h e Board i s desirous
of nesting w i t h u s tomorrow niorning.
s h a l l w e send t h e m a
motice thst w e will b e i n readiness t o meet w i t h them b y
10:30 t o m o r r g morning?
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Federal Reserve Bank of St. Louis
316
Governor Harding: i
suggest that we sppoint 4 coumit-
tee t o waitupon t h e Board snd, i f i t i s agreeable t o then,
to notify t h e m that w e will meet w i t h t h e m Thursday morning.
(The motion, being duly seconded, w a s carried.)
The Chairimsn:
T h e Chéir will appoint Governor Calkins
and Governor Fancher, snd will suggest that they take
the
matter
u p a t once,
the next topile i s subjitted b y san ?rancisco, a n d a s
Governor Calkins w i l l b e sbsent f o r 2 mou.ent, i e will take
up
Desiraollity o f Uniform p o Llicy
in matter o f balance rezvui red o f
non-member banks making use @-of
collection facilities.
Governor Biggs;
like infornation.
taken. I
i
T h a t i s a guestion o n which I would
t
n o t nec:ssary t h s t a n y action b e
simply s a n t t o f i n d o u t w h a t t h e p o l i c y o f t h e
other banks i n reference t o that is; w h e t h e r t h e y have a n y
basic iine o n which they figure that, o r whether they just
exercise t h e i r fudgment,
balance.
t o s26 that t h e y keep their fair
f i s there any way o f basing that o n ceposits?
Governor uceKinney:
H o w many non-member clearing banks
have you i n your district, Governor Biggs?
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Federal Reserve Bank of St. Louis
S17
Governor Biggs:
w e haven't very many; a b o u t ten.
WS have o n l y o n e very large b a n k i n :t. Louis thet i s not a
ned sr. t h e i r capital a n d girplus i s a little l e s s t h a n
three million aollars, a n d they only carry w i t h u s a n aveirage c a i l y b a l s n c e
o f f r o m .»150,000 t o p y 812 618m
T h e y are
getting e v e r y s e r v i c e t h a t t h e niember b a n k s a r e getting,
the d i s c o u n t i n g privilege.
The Chairiusn:
A n d excent t h e trensfer o f funds.
Governor Biggs:
i i ?6
»@ d o not give t h e m that.
t a*
r
funds, yes.
A t t h e sanie time, t h e r e i s some
objection o n account o f this, that, b e i n g one o f the larger
banks, i t i s getting soisthing for comparatively nothing,
just wanted t o find out swnether jie could arrive a t
of fixing t h e falr amount t h e t thet b a n k should
pay f o r t h e s e r v i c e s t h a t w e r e n d e r i t .
So fiuch mow that t h e y d o not f e e l i t necessary t o come i n t o
the system,
Governor i.cKinney:
bank i n o u r district.
i e h a v e o n l y o n e non-cleariag
s
t i s 4 Dallas B a n k a n d w e r e q u i r e
them t o carry a reserve w i t h u s Sqguivalent t o fifty
of t h e r e y u i r e d r e s e r v e s o f the m e n b e r b a n k s
town,
i n the
518
Governor Calkins:
u r e Chairuan, I
would l i k e t o
report that i t i s entirely agreesble With the Rosrd that
we weet w i t h them o n Thursday morning Instead o f Wednesday
morning.
I t meets w i t h their unqu-lifiled approval,
The Chairman: T h e n , L t will b e Thursday morning, a t
10:30 o'clock,
ttseems t o me, Governor Biggs, that thianatter can
take care o f itself.
T h e B o r d h a s indicated t h e terms o n
Which y o u c a n handle these iteus. i
what the r e s t o f the banks a r e doing.
think y o u sre o ing
b
o y i u want t o
reconsider that p l a n o r policy?
Governor Biggs;
N o ; I simply wanted t o find out what,
in 9 general way, was the practice o f the other banks;
whether there was any basic line o n which they acted.
Governor wcKinney says t h a t t h e y require 5 0 per cent o f
what t h e y w o u l d require i f they w e r e meinbers, a n d I wanted
to find out i f the other bankswere acting o n that basis o r
some other basis?
Governor wekKinney:
T h e y make reports o f their n e t
deposits i n the s a m e manner that t h e member banks do, f o r
the p u r p o s e o f a s c e r t a i n i n g t h e i r r e q u i r e d balance,
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Federal Reserve Bank of St. Louis
Goverror Herding;
T h e Reserve A c t i s fairly explicit
on that question.
mr, Case;
T h e present policy o f t h e New York Bank
is t o open accounts f o r eligible non-members, e n d permit
the use o f t h e facilities o f t h e Reserve Bank, excepting
the l o a n facilities,
t o state non-member banks f o r a period
of six months “only, during which time they are expected
to maintain approximately o n e half o f the balance t h a t they
would b e required t o maintain i f they were members.
A t
the e n d o f t h e s i x months p e r i o d t h o s e b a n k s a r e e x p e c t e d
to dstermine whether t h e y wish t o join t h e system, s n d i n
the event they d o not join w e close the account.
Now,
perhaps, f r o m some standpoints i t may b e sdvisable t o have
a uniform policy i n the matter throughout t h e system.
does n o t appear t o us, however,
Sarily requires a
It
t o b e a matter thst neces-
uniform policy.
i t may b e that different
conditions
i n different districts might justify different
policies,
W e only have f o u r o r five o f s i c h banks t o which
we give this six months' trial.
The Chairman: i
think t h e terms a r e t o o broad,
you mean literally s h a t y o u have stated.
if
Y o u said y o u d o
not g i v e those banks t h e privélege o f making transfers.
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Federal Reserve Bank of St. Louis
lure Case;
Transfers?
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Federal Reserve Bank of St. Louis
320
The Chairman:
T h e u s e o f the wires f o r t h e transfer
of funds.
fur, Case:
w e m a y d o that.
The Chairman:
I f so, i t should b e ciscontinued, be-
cause we have had that question u p with two or three of the
strong institutions o f Chicesgo, with clearing relations,
and i n every case w e have declined t o permit t h e m the use
of the telegraphic transfer privilege. I
been decided b y a vote o f the Conference. I
think that has
think y o u
Should, perhaps, look into that.
lir, Case;
T h e only bank I can think of i s the
hmpire Trust, t h e only non-member bank w e have i n New
Yore,
ure Calkins:
P a r d o n me, ur. Chairmian, but I do not
think t h e Conference e v e r voted d i ectly t h a t w e would n o t
make transfers f o r c l e a r i n g m e m b e r banks.
The Chainrnsn:
I t would b e inconsistent, a n d I
assuming t h a t t h e o t h e r b a n k s a r e n o t d o i n g i t .
are, I
I
am
f they
would l i k e t o h a v e t h e matter o p e n e d f o r c o n s i d e r a ~
G11 ¢
Governor Calkins:
ther o n .
T h e a t matter
i s o n the program fur-
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Federal Reserve Bank of St. Louis
Governor Harding:
reserve banks,
I
t s s e m s t o b s o p t i o n a l «aith t h e
T h e l s w seems
t o make i t optional
i n esch
bank, without reference t o wnat a n y other b a n k i s doing,
Governor Calkins:
I
n November, 1919, t h s Board ruled
that a reserve b a n k might reyuire a
to m a i n t a i n a
incurred
balance s u f f i c i e n t
non-member clearing b a n k
t o offset t h e e x p e n s e
b y t h e Federal reserve b a n k i n thoss collsctions
of checks.
The Chairman:
G o v e r n o r Biggs, I
think t h i s question
that y o u have presented i s one f o r your o w n determination,
because there naturally would be, s n d probably are, s o m e
cases wnere y o u would n o t want t o deal with o n e bank o n
the same terms 3 s with another bank,
Governor Biggs: I
did not bring this u p for t h e pur-
pose of having any action s t all, but f o r the purpose o f
finding o u t m a t t h e practice o f the other banks was.
The Chiruans:
W h a t i s your suggéstion a s t o t h e
a@isposition of the subject?
Governor Riggs:
T e -dismiss it; I
have all the in-
formation: Iwant.
Governor € e a y :
w r , Chairman,
w e have aisposed,
i n
consecutive order, o f all itéms-on the program-down t o
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Federal Reserve Bank of St. Louis
S22
Iie(f), excepting II-(¢), P a r Collections.
Ga a coimiittee, c o n s i s t i n g
Y
o
u appoint-
o f wr. C a s e , G o v e r n o r C a l k i n s
and myself, t o consider subtopic (c) under the first sectlon of the program, “kates o f Dis@ unt", 3 n d I am ready t o
subiiit the report o f your committee o n that topic.
The Chairnan;:
W e will b e glad t o recive it.
Ie(c) k a t e s o f viscount.
Governor ceay:
au~stion-
1.
Y o u r Comuittee reports a s follows:
Automatic adjustment o f Discount Rates;
I s
it possible. |
Answer
No,
question 2 -
Uniform Rates
Answer
Jhnile a t present a
uniform rat. m a y b e justi-
fiable a n d éxpedient, t h e discount rate o f the
various Federal reserve banis cannot b e exbected t o b e uniform under a l l conditions a n d
circuustances.
question 3
Answer
«
Open uwarket Rates.
Open market rates are goverved b y the ebb and
flow o f the credit supply e n d should n o t b e
arbitrarily dstermined.
Having i n wind t h e importance o f t h e general subject o f
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Federal Reserve Bank of St. Louis
325
an appropriate discount policy i n ths Federal keserve
end that the public m a y b e more fully infroruwed o f t h e
for such policy, y o u r coumlttse reconwend that a t t h e conclusion o f this conference t h e following statement b e sent
to the Federal Reserve Board:
“vuring t h e sead-annual Conference o f Governors w h i c h
closed today, t h e Federal Reserve Board, 3 s usuel Jiscussed
with t h e Governors isany matters o f opsration, including t h e
amésndments t o t h e Federal Reserve a c t contained i n the
Agricultural Credits Act, changes i n the Board's regulations
lade necsssary b y these amendments, t h e open market op2rations o f the system, o n d meny istters o f routine operation.
As usual, t h e Board also cis cussed with the Governors t h e
varlous factors which enter I n t o t h e consideration o f the
credit p o l i c y o f t h e system, s u c h a s g e n e r a l scononiie a n d
financlal c o n d i t i o n s ,
t h e c o n c i t i o n o f t h e reserves,
open
market rates for various classes o f paper, t h e demand for
credit and the volume o f credit i n use, gold move.ents,
present a n d prospective, sand others.
"In view o f the in-flow o f over ,1,000,000,000 o x gold
Since January 1 , 1921, w h i c h h a s formed t h e basis f o r t h e
324
recent great increase i n bank deposits a n d loans a n d has
kept t h e
e
s o f réd rel reserve banks f o r over qa year
at their present high level, t h e Conference has asked the
Board t o c a l l a t t e n t i o n t o t h e f a c t t h a t t h i s g o l d h a s c o m e
nainily from countries w h i c h before t h e w a r were o n 3 gold
How inuch of it will b e required a n d will r-nsin
heré a s & @ perumsnent a d u i t i o n t o t h e c r e d i t b a s i s o f t h e
country carnot n o w b e estinated, b u t e s experience sha.s
tnat g o l d i n excess o f t h e r e q u i r e m e n t s
of s
country ususlly
flows o u t t o other countries nesding i t more, s o u e part o f
the system's present gold holdings i s liable t o flow back
to the countries from which i t came, stabilizing their commercial a n d financisl conaition t o ths advantage o f our
and couluerce.
s u c h a n out-flow o f gold would reduce
the reserves f r o m their present Level, s u d this should b e
borne i n iiind i n reading t h e stateuent o f the Federal re-
serve banks.
I n order t o call sttention t o this elenent
in t h e reserves,
to i t f o r a
t h e Conference i a g a s k e d t h e B o a r d
number o f weeks
t o refer
i n making t h e weekly statement
of condition o f the Ped:rel reserve panks,
i n substantially
the following form:
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Federal Reserve Bank of St. Louis
“since January 1 , 1921, t h e gold held b y the
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Federal Reserve Bank of St. Louis
325
Fed ral reserve banks h a s increased b y mors t h a n
~1,000,000,000.
T h i s additional g o l d has come msinly
from countries n o t n o w o n 4 gold basis.
A S they r e -
turn t o a gold basis siuch o f i t i s liable t o flow b a c k
again, thereby stabilizing theirconaitions, and benefitting our sericulture, ine
O . . N E P Oe. o u c h an
out-flow w o u l d o f c o u r s e r e d u c e t o m o r e m o d e r a t e l e v e l s
the present h i g h reserve ratio, w h i c h should, therefore,
not b e regarded a s a measure o f the volume o f credit
now a v a i l a b l e f o r o r d i n a r y useés.
(signed} G o v e r n o r Seay (chairman)
ur. C a s e
Gevernor Calkins."
Governor Norris: I
move t h s a p p r o v a l a n d s d o p t i o n
of t h e report.
Governor Young: I
second that.
(The motion, having been duly seconded, w a s carried.)
The Chairman:
#
@ W i l l n o w r e t u r n t o No.
I I of the
program, Collections n d Clearings, subtopic (e)
(e) P a r Collections. H s t a b l i s h n s n t
of U n i f o r m “ o l i c y t o b e P u r s u e d
when F i n a l D e c i s i o n o f A t l a n t a
Case i s H a n d s d Down.
Governor Caikins:
precipitate a
w r e Chairman, I
think I might
discussion w h i c h w o u l d o c c u p y a
very c o n s i d e r -
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Federal Reserve Bank of St. Louis
326
able amount o f tine, b u t perhaps that i s n o t necessary.
It i g m y opinion that i n view a f the variousd-velopments i n connection w i t h the par collection system i t i s
expedient t o adopt a policy which m a y b e carried out a t t h e
earliest possible moment. I
anticipate a
favorable outcome
in the Atlanta Case, a n d i n the cases i n which the Fedsral
Reserve B a n k o f San *.ancisco a n d t h e Federal Reserve B a n k
of Cleveland are now involved.
w y sugsestion i s thet either
at this @ nference, o r at the earliest possible moment, w e
decide upcn a policy t o be adopted, i n case the decision
in the Atlanta c a s e i s ravorable i n the supreie Court,
Which will settle the whole question.
w e then ought t o all
follow t h s same course, n o t one bank follow oné course and
another b a n k a n o t h e r course.
T h i s collection
s y s t e ns
i
either going t o survive o r it isn't, and 1 think i t would
be highly assirable, f r o m the point o f view o f the Fedsrai
reserve banks a n d of the country generally, t o have i t
determined a t the sarliest possible date.
Governor Harding:
w o u l d i t not b e simpiified b y
eliminating those districts t h s t would n o t b e cancémned
in ite
I t would n o t affect t h e Boston vistrict a n d
would n o t a f f e c t t h e N e w Y o r k District.
w h e n I
was s
mem-
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Federal Reserve Bank of St. Louis
327
ber o f t h e F e d e r a l R e s e r v e Board, I
wade a
special s t u d y
or this, a n d i f we win a victory i n those cases, I
let human nature assert itself.
try t o get t h e L a w amended.
this colimittee,
would
T h o s e banks a r s going t o
T h e t i s o n e o f the obiscts o f
t o investigate t h e reasons w h y t h e state
panks have n o t come in.
T h a t couwmit tee o f five will prob-
ably m s k e a n efvYort t o s h o w t h a t t k e c o l l e c t i o n b u s i n e s s
is a factor init.
A s a matter o f fact, t h e collection
business i s really a n a t t r a c t i o n t
o a good many o f t h e best
banks that belong t o the system, b u t t h e y a r e going t o mske
it t o appear t h e other way, t h s t t h e banks a r e being kept
out because o f the loss o f exchange.
to m e that,
ponents
N o w , i t would s e e m
i n ths case o f sone o f those w h o a r e n o w op-
o f t h e p a r c o l l e c t i o n system, t h a t i f w e l e a v e t h e m
alone a n d decline t o receive a n y checks a t s i l from t h e m
for c o l l e c t i o n o r credit, t h a t p r e t t y s o o n t h e p r e s s u r e
on
them, f r o m sources other t h a n the reserve banks, w i l l b e
strong e n o u g h t o i n d u c e t h e m t o o p e n u p n e g o t i a t i o n s w i t h
a view t o having collections m a d e o n them.
Governor Calxins:
I t has been sussested, a n d the sug-
gestion appeals t o me, t h a t w e might g o one step further
than that, a n d I think there i s perfect justification for
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Federal Reserve Bank of St. Louis
328
doing i t i n such cases a s w e have u p f o r cons iceration,
and that i s t o say that «.e would n o t undertake t o collect
checks
o n banks w h o d e c l i n e
t o r e m i t a t par, -nor w o u l d w e
handle checks endorsed b y those banks which decline t o remit a t per.
T h a t would b e real pressure.
T h e inere re-
fusal t o collect checks o n those banks will please them.
The Cheiriuan:
I f i t i s possible t o d o it, I
think
thst would b e a trump c a r d t o play, 2 n d would solve t h e
Whole thing.
Governor Seay;
importance,
a s I believe,
system, that I
here, 4
T h e subject i s o f such transcending
t o the future o f t h e collection
would like t o be allowed t o read a memorandum
short one, relating t o the situation a s w e know i t
will b e i f the decision should b e i n our favor, s n d w e are
couipelled to take steps to collect on banks i n our district.
“Qwing t o t h e f a c t t h a t i t h a s b e e n n s c e s s a r y
t o pro-
esed with great caution i n .very respect i n connection w i t h
par collections,
of s i t u a t i o n s
w e have b e e n compeiled t o aliow a
number
t o stand which would n o t have b e e n tolsrated
under o r d i n a r y c o n d i t i o n s , "
As y o u know, f r o m t i m e t o tiine w e h a v e b e e n c a u t i o n e d
to take n o revolutionary steps while t h i s matter w a s pending,
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Federal Reserve Bank of St. Louis
529
and that i s what that opening l a u s e h a s reference to.
"To a very limited extent i n waryland a n d vest Virginia,
t o a greater extent i n Virginia, a n d t o 6 very great
extent i n North Carolina,
tory f u n d s
i n payment
w e have b e e n accepting unsatisfac-
o f c h e c k s s e n t t o n o n - m e m b e r banks,
chiefly t o r t h e reason that w e did n o t think i t advisable
to fight t h e matter o u t i n the only w a y i n which w e c a n
fight i t out. I n s t e a d o f immediately availeble funds o r
funds collectible i n one dey, w e drejuently heave t o accept
Checks d r é w n upon sienmber, a n d i n some cases non-member
banks,
t h e c o l l e c t i o n o f w h i c h r e q u i r e s t h r e e o r more a d d i -
tional days.
I
n somes extreme cases t h e non-iienber will
remit b y its check o n another non-member, t h e second will
remit b y its check o n 4 meniber, a n d t h e third will require three days f o r collection.
“Of the 250 non-member banks i n North Carolina now
remitting a t par something l i k e 1 0 0 are remitting i n unsatisfactory funds a t least a
considerable part o f the time.
Of the 2 5 0 injunction banks i t i s estimated that s t least
100 pould b e unable o r unwilling t o furnish satisfactory
funds,"
i think that i s going t o b e o n e o f t h e most interesting
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Federal Reserve Bank of St. Louis
350
probleis i n the Atlanta pistrict t h a t a
hsndle,
bank ever h a d t o
i f I may b e allowed t o prognosticate.
"Tt i s further assumed that i n t h e whole state there
are a t l e a s t 1 0 0 b a n k s t h a t c o u l d n o t a r r a n g e
t o remit
in
satisfactory funds, because t h e y have n o t and cannot o p e n
accounts i n exchange centers o r w i t h member banks t h a t
would be willing t o sllow them the imnucdiate credit symbol
privilege.
I
n other words,
w e d o not think that they a r e
able t o maintain accounts w i t h correspondents t h a t would
justify s u c h privilege.
"Our whole experience i n North Carolina has convinced
us t h a t t h e r e a r e i n t h a t s t a t e a
considerable number o f
banks that will find i t difficult, i f notinpossible, t o neet
the checks drawn upon them, i f presentations a r e promptly
made and checks drawn against actual deposits are required
in payment.
A t the time t h e par suits were instituted
we were satisfied tnat many o f the banks joined the suit
not only for the purpose o f securing the right t o charge
exchange b u t a s a matter o f self-preservation.
H o w many
of these are now i n « position t o meet thse Geiands o f their
depositors,
i f promptly presented,
w e d o not know.
W w e are
satisfied that a good many could not meet them end that a
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Federal Reserve Bank of St. Louis
certain number would never b e able t o mest them, s n d i f
the w r collection system i s perfected w i l l have t o g o out
of business
b y liguidation
o r consolidation.
“There a r e also a number o f banks t h a t remit a t p a r i n
satisfactory funds a s a rule but e r e i n such condition
thet t h e y frequently cannot obtain rfunas t o mset checks
arawn u o o n them.
T h e u s u a l n e t h o d o f imseting t h e s i t u a -
tion i s t o delay remittance o r t o iemit b y means o f a
check w h i c h c a n n o t b e c o l l e c t e d f o r souie tine.
T
o put a
stop t o this would o f course m e a n closing u p 9s number o f
banks,
"The whole situation is, i n our opinion, t h a t i f t h e
par suits a r e desiued i n our favor i t will b e necessary f o r
us t o p r o c e e d s l o w l y a n d w i t h 3
certain amount
o f caution.
To enaeavor t o put a l l o f the n o w non-mernbsr banks i n North
Carolina o n the par list a t one time, a n d t o demand satisfactory returns o f those slready o n the par list, e v e n
with thirty or sixty days' notice, would mean the closing
of @ considsrable number o f banks. u w o r e o v e r , t h e situation
in Virginia, t h o u s h n o t bad, nseds sttention, a n d there m a y
be 3 few banks i n west Virginia t h a t w i l l have t o b e brought
to pook,
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Federal Reserve Bank of St. Louis
352
“Tt i s impossible a t this time t o outline a n y definite policy t o b e pursued, except t h a t i n all probability
it will b e nscessary t o set u p some kind o f a non-par list
in N o r t h C a r o l i n a a n d t o t r a n s f e r b a n k s f r o m t h e n o n - p a r
to
the m r list gradually a s their individual cases can b e
considered a n d dealt with.
"In any event, a t some future time i t will b e nscessary
establish
i n this d i s t r i c t s o u e k i n d o f a
non-par l i s t
which c a n b e placed t h e names o f t h e banks that a r e known
be i n a n unsound condition a n d t o which checks could n o t
sent without involving risks which, i f known t o the
endorsers, would make the Federal Reserve Bank of Richmond
responsible o n the ground o f failure t o use due diligence."
If that were a condition which applied solely t o our
t i n the best w a y i n which i t
own banks w e would h a n d l e i
could b e hendiled.
B u t i t i s a condition which i s going
apply throughout t h e south.
Governor Harding:
i h y not have i t understood that
each bank shall handle its own proposition, because there
may b e sone difrerences?
Governor Calkins:
w h a t objection d o y o u see t o the
proposal which I just made, a n d which y o u formerly made.
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Federal Reserve Bank of St. Louis
Governor Seay:
T h a t i s what?
Governor Calkins:
T h a t after t h e decision i n t h e
Atlanta case, proviced that decision i s favorable, w e should
proceed
t o refuse
t o collect s h e c k s a n d i t e m s f o r t h o s e
banks w h i c h will not remit gatisfactory funds a t par?
Governor Seay: I
have alweys maintained that t h a t i s
the only effective w a y o f making a
universal p a r collection
system,
Governor Calkins:
A r e y o u willing t o d o that now?
Governor Seay: G o v e r n o r Harding h e l d that opinion a t
one time, b u t I
do not think that would fully meet t h e situa-
tlon.
Governor Calkins; I
it now, b u t I
do n o t think i t w o u l d fully meet
t h i n k 1 t w o u l d eventually.
Governor seay: I
would b e very g l a d t o have t h e
Fed:ral R e s e r v e B o a r d a p p r o v e s u c h a c t i o n b y t h e F e d e r a l
reserve banks,
Governor harding?
A s t o its effect i n the Atlanta
Histrict, l e t u s take t h e Central National B a n k o f New
Orleans,
o f w h i c h u r , C l a i b o r n i s v i c e sresident,
3nd if t
will send t o t h e New vrleans b a n k a lot o f checks that t h e y
receive w i t h t h e s m o r s e m e n t
o f some o f their country c o r -
hey
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Federal Reserve Bank of St. Louis
554
respondents,
a n d t h e y w e r e s e n t back, t h e y w o u l d t a k e t h e
position that y o u wsre n o t accommodating t h e bank, a n d
that they were a large stockholder and lsrge uepositor and
Would aemand the right t o have t h e checks collscted.
iury, Adleson:
Is i t not,
possible
T h a t would g i v e h i m just what h e wants.
e t t h e trial, b e i n g a t t e m p t e d
b y svery means
t o s h o w t h a t th-:re w a s c o l l u s i o n a m o n g t h e F e d e r a l
reserve banks t o break t h e country banks, a n d t h e adoption
of any such uniform policy would give t h e m that---
Governor Harding:
I t would mean litigation i n sny
case, a n d l t h i n k i t w o u l d b e w i s e n o t t o h a v e a n y g e n s r a l
agreement a s t o method between t h e banks.
wre AdLéson:
u v e n i f we get a favorable decision
we anticip t e that w e are going t o te raced with new lifigation.
i @ have varying laws i n the different states with
reference t o the exchange plan, a n d they are going t o inStitute a suit i n every state, regardless o f what the deciSion may b e i n the xichmond case; t h e y a r e going t o carry
it t o t h e courts.
T h e temper o f those behind i t i s t o
delay u s a s long 3 s possible.
Governor seay: I
do not think i n the “ichmond case,
that there i s likely t o b e further litigation. I
think
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Federal Reserve Bank of St. Louis
355
wany o f t h e better class o f banks there n o w regret t h a t they
ever went intc t h e situation, a n d they would like t o get
out o f i t t h e best w a y possible.
lux. Adleson:
v
e have o n e chain system that i s r e a l l y
causing t h e whole thing.
Governor Calkins:
I
t i s true that every b a n k w e n o w
have o n o u r n o n - p a r l i s t r e f u s e d t o r e m i t a f t e r h e a r i n g o f
the decision, t h e preliminary aecision o f the Supreme Court,
in which Judge Holmes made some rather unfavorable remarks
about t h e collection system.
by circular,
T h e y w e r e sdvis ed, I
think
a t the tine t h e Brooking case w a s tried, t h a t
that w a s a n opportunity t o refuse t o renit-~- a n d they believed f r o m the comments made i n the papers t h a t w e would
not undertake t o collect i n cash 3 t their counters;
they
all went o n the non-par list practically a t tte same time
and for t h e same reason. I
a m perfectly satisfied most
of t h o s e b a n k s a r e w a i t i n g f o r a
final d e c i s i o n
i n the Su-
preuwe Court a n d i f that decision i s favorable t o t h e collection system they will remit.
Governor harding: I
think they will to, b u t a s wr.
Adleson points out, t h e r e aes some peculiar concéitions i n
his district, owing t o state laws, which will bring u p fur-
ther litigation.
wre Adleson:
E v e n :‘now they have men out pointing
out t o the state banks h o w they c a n get off t h e par list.
Governor Harding:
w r e Davis, t h e General Counsel, s p o k e
to m e o f t h e welebrated c a s e o f icCullough vs- waryland,
in the o l d Bank o f the United States Case, w h e r e t h e state
of iuaryland sought t o tax thebranch, a n d the whole question
cane before the Court, a n d Chief Justice uwarshall, i n
handing d o w n t h e opinion o f t h e Court, h e l d i n favor o f the
right of Congress t o do what it did, and decided against
the state o f waryland.
Y o u would have thought that that
would have settled t h c a s e withreference t o ali ites
branches, a n d yet the State o f Ohio, after that decision
was rendered, l e v i e d a
tax o n the branch banks
a t Cinsin-
nati, and the story is, and I think it is true, that the
banks refused t o pay it.
served, t h e y sent a
T h e y had some summery process
wagon down f r o m Columbus t o collect t h e
tax i n cash and were going t o transfer i t back t o the
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Federal Reserve Bank of St. Louis
State Treasurer's office a t Columbus.
T h e n there was some
further legal procesding gotten out b y the bank, some kind
of an injunction, I
believe; t h e y h-d men o n horseback
overtake t h e wagon, a n d they g o t t h e monsy back.
B u t the
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Federal Reserve Bank of St. Louis
337
whole case h a d t o g o u p t o the supreme Court again, j u s t
as though i t h a d never b e e n acted on.
I t was tried before
another district judge i n Uhio end went t o the Supreme Court.
ire Davis s a i d that i n his opinion a l l these states, l i k e
Alabama, Florida, »ississippi a n d Louisiana, that have passed
laws legalizing exchange--- n o t o n l y i
galizing it, b u t tell-
ing t h e banks t o charge exchange--- raise a
situation
where y o u have z o t t o t r y t h e m out i n each case, s n d where
you might h a v e gotten a
decision i n one state, y o u still
have got t o g o into another state a n d t r y i t there.
probably a
L y 13
question o f seven o r eight separate suits, unless
they g e t tired i n the meanwhile- I
think probably after
they h a v e t r i e d o n e o r t w o m o r e c a s e s , t h e y w i l l quit.
Governor veay:
l y purpose i n reading that memoran-
dun was t o advise t h e other banks h e r e o f the conditions
which w e know w e will have t o mest, a n d w e will meet t h e n
to the best o f our ability.
O n e thing i s juite certain,
and that i s w e will have t o alter o u r plan o f having i t
understood that all states, including all banks i n those
states, e r e p a r states;
i t will b e inevitable that there
will b e a list o f non~par banks o n which collections c a n
not b e made.
O u r disposition i s not t o make that list l o
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Federal Reserve Bank of St. Louis
358
but t o c u t t h a t l i s t d o w n g r a d u a l l y a n d e l i m i n a t e t h e b a n k s
from the nen-parlist;
b u t there w i l l b e = number o f banks
On which collection cannot b e made w i t h a n y degree o f prudence o r safety.
Governor Harding:
A S lure Afleson hes said, a n y sgree-
ment between a n y t w o o r more o f the Federal reserve banks
as t o the course they would pursue, will b e used against
the atlanta b a n k i n further Litigation.
Governor Seay:
d
e d o n o t want a n y agreement a t all,
but w e w a n t t h e o t h e r b a n k s t o b e p r e p e r e d
t o believe t h a t
the m é t h o d u n d e r W h i c h w e a r e h a n d l i n g t h i s m a t t e r
i s the
only safe method, a n d w e want them t o give u s cerédit for
understanding our situation snd knowing that the plan w e
Propose i s the only feasible o n e w e c a n use f o r o u r protsction and their protection too.
T h a t w i l l advise some
mouification i n tne rules o f t h e clearing house banks, a n d
that J s t o report only t h o s e states a t per upon which the
Fedsral reserve b a n k undertakes t o collect f r o m all t h e
banks
i n t h e State;
of that, I
think, because i t i s not really founded o n
coumon sense,
will h a v e a
t h e r e w i l l b e somes slight m o d i f i c a t i o n
i f you t a k e into account conditions,
4
e
per l i s t w h i c h w i l l e m b r a c e a l l t h e b a n k s t h a t
559
can b e collected o n e t par safely, a n d I
ao not believe t h e
collecting banks will want u s t o accept checks o n baaks o r
institutions w h i c h involve 2 certain risk t o them, e v e n
after t h e y have exercised a l l due diligence t h a t c a n b e
exercised,
Governor Calkins:
to establish a
do not
I / k n o w t h a t i t i s expedient f o r u s
uniform practice; I
belisve there i s some
count a s t o that, but I believe very strongly thst such
may b e taken, a s may b e properly taken, s h o u l d
be taken t o have t h e matter determined a t the earlies
possible date.
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Federal Reserve Bank of St. Louis
I
n our case t h e bank which brought suit
to enjoin u s was defeated o n every point i n its application
for injunction, w h i c h was denied, except i n
we consented;
b u t t h e newspapers published
the country a n item which convinced everyone, including
people i n the Fed r a l reserve banks a n d t h e Federal K e -
serve Board, that w e had lost the case.
sion o f t h e triad, t h e m a n a g i n g o f f i c e r
A
t the conclu-
o f the b a n k that
brought s u i t s a i d t o m e that h e probably would remit a t par
soustime,
b u t h e d i d not t h i n k h e w o u l d d o i t until t h e
courus h a d decided t h e matter, a n d 1
will b e t a k e n i n almost a l l c a s e s
think that paw ition
i n o u r district.
340
Governor Harding:
H o w did he come out i n the agency
suit?
Governor Calkins:
i
g sued u s f o r $150,000,
a n d that
has not been tried. T h e r e i s no doubt about the cutcome,
He claimed damages o n two o r three counts, a n d # t t h e time
the trial judge heard the case, t h e United states District
Judge, h e stopped his attorney a n d said, “ Y o u n e s d n o t g o
any f u r t h e r i n t o t h e m a t t e r
"Bank closed! because I
o f t h e check that w a s marked
am perfectly satisfied that you
have suffered n o damage o n account o f that.
i t was a n inter-
stitial error o n the part o f the clerk."
Now, i f the same judge hears the case agein,it i s not
probaoils he will grant damages t o any extent,after having
made that statement from the bench.
Governor harding:
H e will n o t g e t more t h a n nominal
damages o n that.
Governor Calkins:
H e i s goingto c l a i m danage b y res-~
son o f o u r having maintained a n agent t o collect checks
at t h e counter o f his bank.
The Chairian:
w h e t disposition w o u l d y o u suggest
of this matter?
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Federal Reserve Bank of St. Louis
Governor Calkins: I
do n o t think h e will g e t very f a r
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Federal Reserve Bank of St. Louis
341
with that because t h e officers o f the bank testified o n the
stand thet none o f our colicctiunsgents h a d ever done anything that might b e called coercive o r not gentlenanly.
They testified that our agents had treated them with great
consideration a t a l l times, t h a t t h e y w e r e e x t r e m e l y f r i e n d l y .
To a n s w e r y o u r juestion, u r . Chairnan, I
cannot s u g g e s t
aiy action t o b e taken b y t h e comeference.
Governor Young:
from minneapolis
w r . Chairian, w o u l d y o u like t o hear
o n this tiatt er?
W
The Chairman:
Governor Young;
e will b e glad to, Governor Young.
d e have h a d n o difficulties
district about collecting -hecks.
It i s practically
o n @
banks a r e concerned,
v
e have h a d n o l a w suits.
voluntary b a s i s
I
i n our
i n s o far 4 s our
t i s quite t r u e t h a t w e took about
thirteen o f t h e b a n k s a n d a r b i t r a r i l y p u t t h e m o n t h e p a r
collection list; t h e n «sé ran into ¢ifriculties,
a n d wnere
we had a bad case w e took the bank off, a n d a very peculiar
part about i t i s that t h e bank comes b a c k a n d wants t o get
on.
w e still have 275 banks o f f o f our par list which I
aii quite sure would b e glad t o b s o n it, a
centage o f them a t isast.
have
i n the Northwest I
large pére-
W i t h t h e conditions t h a t w e
a m inclined
t o think that minnea-
342
polis w i l l c o n t i n u e
on a
voluntary b a s i s - - - t h a t i s , v o l u n -
tery on the part of the banks.
O u r great difficulty a t
the present t i n e i s t h a t t h e y w i l l not,
in available exchange.
o r cannot, r e m i t
T h a t will have t o be threshed out
some day, but I do not think w e can afrord t o do it s t this
tine.
Governor Fansher: I
would l i k e t o i n g u i r e
o f Gover-
nor Young, : i t h regard t o t h e 275 banks which h e tientloned,
whsther h e i s n o t c o l l e c t i n g i t e m s o n t h e m because t h e y d o
not remit inavailable exchange,
o r because t h e y a r e weak
benks a n d h e does n o t want t o collect t h e items?
Governor Young:
4 A great majority o f those banks a r e
weak banks, banks w e have h a d diriiculty with.
s o m e of
the banks have written t o u s stating that t h e y were going
to charge f o r collection, a n d w e have just t a k e n t h e m off
the list.
Governor Fancher:
d h e r e t h e y have n o t remitted i n
avallable exchange, w h e r e they a r e perfectly solvent, h a v e
you put t h e m o n the list?
Governor Young;
Y e s ; a n d some o f t h e m that s r e not
solvent w e still have o n ths list.
reason:
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Federal Reserve Bank of St. Louis
j e do that for this
I n the State of south vakota, a s I explained
543
yesterday,
precarious,
t h e conaition o f some o r t h e s t a t e banks
i s very
a n d t h e state tressurer h a s repeatedly p a i d o u r
transit items.
H e his charge o f the rural credits fund;
I don't k n o w how l o n g h e c a n keep that up, b u t a s long a s
he has shown @ disposition t o d o everything h e can for those
banks, t h e r e i s n o reason w h y i ¢ should throw 4 monkey
wrench into the gear case just a t this time.
The Chairnan:
G o v e r n o r Calkins,
d o y o u s e e a n y pos-
sible chance t o get uniform action a t the prssent time?
Governor Calkins:
Somenoe
do not think i t i s probable,
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Federal Reserve Bank of St. Louis
The Chairman:
o r other, iur. Chairman,
Lf
a t least.
a r e y o u satisfied t o permit t h e sub-
ject t o b e passed?
Governor Calkins: I
have just wade a
memorandum o n
this sheet, “ N o agreement e n d n o sction.
The Chairnan:
I t wlll b e s o considered.
Governor Scay: I
would like thse san Francisco Gover-
nor t o renenber that h e has a n slly i n us.
The Chairman:
IIi~(g).
T h e n e x t topic f o r consideration
is
(g) P o l i c y with respect t e handling
coupon collsctions a n d other noncash collections.
topic wes suggested b y New York.
Vases T h i s question, a n d the rollowing one, ur.
Chairman, I
think c a n b e disvosed o f very promptly i f the
Conference w i l l a d o p t t h e s u g g e s t i o n w e p r o p o s e
to refer t o a conumittee. [
have 9
t o make,
memerandum which I
would like t o submit which i s head Gd “Policy sithr espect
to the handling o f coupons a n d other nen-cash collections,
"The volume o f the business a n d the expense o f handling
non-cash collection itens i s steadily e n d rapidly incrsasing i n practically a l l F e
present a i f f e r i n g policies,
T
h
e
r
e are at
s o m e o f t h e banks
encouraging their members'to forward these i t e m s through
the reserve banks, a n d cthers s o far 2 s possible aiscouraging their meu.bers.
it i s spparent t h a t t h e p o l i c y t h r e u g h o u t
t h e system
with respect t o non-cash items should b e reasonably uniform,
If all banks w e r e t o provide t h e racilities f o r handling
all thet might b e orfered, t h e ultiuate c o s t w o u l d b e very
Much g r e a t e r t h a n i t i s now.
I
t is: obvious, t h e r e f o r e ,
that a n y consideration o f t h e policy s h o u l d b
e made w i t h
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Federal Reserve Bank of St. Louis
an understanding o f t h e cost, a n d also 1 1 any warked change
4
from the present policy wsre t o b e considered,
i t would b e
advisable t o give t h s subject f u l l con:iderstion while t h e
volume o f b u s i n e s s
1 S still comparatively small.
it t h e C o n f e r e n c e t h i n k s
inatter f r o m this standpoint,
&@c o u r s e
deg
i t 3dvis:
the f
t
o consider t h e
w i n g i
o f action
T
h
a
t
t h e matter b e referr d
to the standing Coumit-
tee o n Collections t o r aectailed ctudy a n d full report f o r
the n e x t G o v e r n o r s !
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Federal Reserve Bank of St. Louis
Conference.
T h s report t o cover ~
Present practice i n ¢ach Federal reserv
axtent
t o which Federal ressrve c i t y banks a n d
country b a n k s a r e u s i n g t h e services.
betsiled figures showing volume, sxoenss a n d cost
psr i t e m o f t h i s s e r v i c e f o r S a c h F e d s r a l r e s e r v e
bank b y years, since t h e policy w a s established.
astlinate o f ruture voluwe a n d future costs f o r each
ieral r e s e r v e bank,
vharge p e r i t e m n e c e s s a r y
t o c o v e r c o s t t o reserve
banks,
uftect
o n member b a n k s
i n various d i s t r i c t s s h o u l d
charge b e nede o r service discontinued.”
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Federal Reserve Bank of St. Louis
wr. Chairman, I offer that 9 s a motion.
Governor Young: I
will second it.
Governor Calkins:
a
n i n entire agresinent, excsnt
tnat I T sm not guite satisfied that i t would b e expedient
to assign i t t o a coumittee.
not routine, b u t policy.
services
t o the banks
I
t i s a mattsr that concerns
w e should either continue these
o r aiscontinue them, b u t I
do not
think i t would b e quite proper t o refer this t o 4 coniuittee,
Which realiy i s not composed o f m e n authorized t o aeal with
Of poOllcy,
uP. CASE;
B u t y o u would h a v e t o «refer it. t o such a
coumitt:e, I believe,
i n order t o obtain some estimate o f
whst t h e thing i s going t o cost.
Governor Norris: . A n d then when the committee report
comes
i n w e c a n dstermine t h e q u e s t i o n o f policy,
when we
have that information.
Governor Calkins: I
will waive m y objection.
(The motion, having been duly seconded, w a s carried.)
The Chairman:
T h e next topic ror consiaeration i s
fish,
h. D i r e c t sending o f country checks b y isi.ber
banks i n one district t o points i n other
districts,
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Federal Reserve Bank of St. Louis
Recent developments h a v e suggested t h e d-slrability o f
making a complete study of the subject o f “direct sendings”
and t h e v a r i o u s a b u s s s
r a e
t h a t privilege, e x t e n d e d t h e
usiiber banks under p u r present system mekes possible.
An investigation o f check “kiting” operations made a
year a g o showed cefinitely t h a t t h e uirest sending privilege
mad? p a sible sous o f the “kites” which w e detected, particulerly where the direct sendings were t o Federal reserve
banks
a t d i s t a n t points.
U n d s r t h e present s y s t e m , w i t h -
out copies o f detailed direct sending letters, wie are still
working with a n incouplete picture which wakes i t difficult
for u s t o effectively uncover a l l such"kiting" operations.
A typical instance, originally detected i n January,
1921, i s the case o f the Select Pictures Corporation,
moving pictures, NewYork City, which, w i t h its affiliates,
the selzgnick Corporation, s e l z n i c k P i c t u r e s C o r p o r a t i o n
and S e l z n i c k Enterprises, I n c . ,
a fleat o f o v e r 1 , 0 0 0 , 0 0 0 .
w e figure a t o n e time h a d
~ - These concerns, p r i n c i p e l l y
ths select Pictures Corporation, d r e w o n distant points,
largely L o s Angelés, Cal., w h i c h made this enormous float
possible.
T h e celect Pictures Corporation because o f its
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Federal Reserve Bank of St. Louis
very inuch extended concition, found i t aifricult t o rinance
its businets entirely b y legitimate iueans and resurted t o
check “kiting" o n a lerge seale.
T h i s was .ade possible
by $n arrangeuent with one of its banks which permitted it,
for & consideration,
t o drsw agsinst uncollected funds after
loanisg i t s legal linit.
A l l these
not i n finsncisl divviculties with a receiver i n bankruptey
sppointed warch 6 , 1923, i n charge o f t h s uslznick Pictures
Corporation,
T h s r e i s n o doubt tnuat c o n s i d e r a b l e l c n e y w a s
saved the banks b y Giscreetly advising then of the “kiting"
“@ hed eviuence o f it. H o w e v e r , t h e direct sending
privilege without the banks sending ¢:2ies o f the detsiled
€ to us made possible this “kiting” ope ration on a
large scale bsfcre i t w a s
4 wore regent investigation shuved rurthsr possibilities o f abuses a n d leads u s t o believe t h a t this i s o n
appropriate t i n e t o Giseuss t h e w e t t e r
a t the
Conference with a view t o selecting a couw-ittee wade u p If
the representatives o f tie various Federal reserve banks
to make @ close study o f the entire subject i n sll
cr its
phases.
fur, Case; I
appoint @
would like t o suggest t h a t t h e Conrsrence
comuittse o f three t o study t h e subject a n d
report a t t h e next meeting o f the Conference.
The Chairman:
I f there i s n o objection, t h a t action
Will b e taken, a n d I will sppoint representatives f r o m
New York, B o s t o n s n d nichmond.
Governor Seay: I
would like t o a s k whether o r not
the languages o f this topic mignt n o t b e a little misconstrued,
I
t says “Direct sendingsof country checks b y
member banks i n one district t o points i n another district.*
i presume i t means t o other Federal reserve banks o r
branches i n other districts.
The Chairman:
I f you suggest t h a t that b e chenged,
we will change i t to read “to Federal reserve points i n
other districts."
Governor Harding:
wir, Chairman,
conference.
as dangerous.
Y o u have appointed a
coumuittee,
t o study this question a n d report
t o t h e next
w r , Case has sald that they regard the matter
I t may b e several months before there i s ane
other conférence.
I
t seams t o m e i t i s rather e a s y t o
ascertain t h e f e c t s w i t h r e g a r d t e t h i s s i t u a t i o n a n d i f
it i s dangerous,
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Federal Reserve Bank of St. Louis
t h e r e m e d y i s obvious.
T h e y could study
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Federal Reserve Bank of St. Louis
B50
it f o r weeke a t 2 time a n d probably come t o t h e same conclusion, T i i a t elthsr t h e .ending banks must b e forbidden,
or there must b e some systematic s y s t e m o f xivice o n the
part o f the sending b a n k s o that t h i s thing c a n b e deter-
inlined.
I t seéeus t o me the best way t o take this thing up,
with a view t o getting prompt action, i s t o make a meniorandum orf this, appoint 2
table today,
conmittee right hereat this
a n d have t h e m prepare a
memorandum f o r t h e
Reserve Board a n d a s k t h e Board t o investigate i t a n d make
a proper ruling o n the subject.
probably i n three o r four weeks.
be 8
T h e n you will get ection
T h e other w a y i t will
g o o a d e a l longer.
wr. Case: I
ferring a
do not, personally, like the lusa
matter o f t h a t k i n d t o t h e Board.
Governor harding:'
diction of. I
I t is a
matter t h e B o a r d h a s j u r i s -
want t o remind t h e Conference t h a t this
question starts. esishtcen m o n t h s a g o a n d n e v e r g o t anywhere;
that rinally I induced ths Bosrd to take hold of it 2nd
get i t started,
I t is a very slow, cnumberso.u.s arrangement.
It i s a n interdistrict m a t t e r , a
matter c l e a r l y w i t h i n t h e
jurisdiction o f the Board, a n d 1
do not s e e any reason
why w e should try t o settle this thing outside t h e Board,
351
The Chairman: I
think t h e matter c a n b e handled
without encroaching o n any one's rights,
i f this committee
is suthorized t o investigate and make their report direct
to t h e F e d e r a l R e s e r v e Board.
Governor Harding:
T h a t w o u l d b e a l l right, s n d w e
would get sction that way.
The Chairman:
Governor seay:
I
s that satisfactory, m r , Case?
w y vlew o f t h e matter i s a little dif-
ferent f r o m t h a t t a k e n b y G o v e r n o r Harding.
T h e privilege
is one that ought not t o be abolished, i f it can b e avoided.
The purpose o f mr, Case, undoubtedly,
i n referring t o i t
is t o have t h e Federal reserve banks’ study it, confer w i t h
each other, s n d see what requirements they thenscelves might
make i n order t o preserve this privilege tothe member banks.
NO. -Ches rue w: I
think G o v e r n o r H a r d i n g h a s m a d e
a very practical suggestion, t o refer it to the committee,
let t h e conmittee study i t a n d t h e n present i t t o the Board
and ask for 4 n aliendnent t o t h e regulations.
Board h a s a
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Federal Reserve Bank of St. Louis
perfect r i g h t
O f course t h e
t o regulete without reference
to
this
Governor Seay:
T h e Board has permitted this practice;
it i s already regulated, b u t i t i s f o r u s t o determine w h a t
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Federal Reserve Bank of St. Louis
safeguards c a n b e t h r o w n a r o u n d i t .
The present regulation uncer t h i s plan
reads, “ H a c h F e d r a l reserve b a n k will receive a t par
from its member a n d clearing member banks, a n d all other
non-wember banks, whose checks c a n be collected a t par
by any Federal reserve bank,"
Now, a s I view this, i t i s nothing i n the vorid but a
credit x oposition, that i s all.
py our credit departments,
I t neers t o be studied
t o see whether w e are unwit-
tingly loaning a bank at vyster Bay or somewhere else, a
large s u m o f money,
wreck a bank,
o r facilitating something which m a y
w e found one i t e m o f 1 5 0 , 0 0 0 o n 4 man
who has recently gone t o jail, where h e was kiting
350,000 checks o n some points u p state, a n d h a d three o f
them i n t h e a i r a t o n e time.
I
t is a
credit p r o p o s i t i o n
and I think w e ought t o examine t h e situation i n ¢ach
bank t o d e t e r m i n e w h e t h e r
o r n o t w e a r e screwed u p tight
on i t o r not.
Governor Seay.
T h a t w a s m y conception o f it, before
asking the Board t o do anything, a n d that w e should not
ask t n e Board unless i t should becomes necessary.
lur, Case:
T h e B o a r d h a s t o l d u s w h a t w e might d o .
O53
There might b e a weakness i n it, a n d each bank should
into it.
Governor harding:
U n d s r your resolution, w h i c h
have proposed, t h e r e i s n o a c t i o n p o s s i b l e u n t i l t h i s
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Federal Reserve Bank of St. Louis
ference meets again.
Governor Calkins: t
o f f e r s s a n ainenament
t o t h e mo-
tion that this committee b e requested t o study t h e matter,
correspond w i t h s t h e r F e d e r a l k e s e r v e B a n k s f o r t h a t p u r pose a n d r e p o r t
uP. Case:
t o t h e Federal reserve board,
i f necessary.
T h a t ai.enausnt i s accepteble.
Governor seay: z
would susyest t h a t i o e York b e con-
sidered chéiruian o f t h e Cous.ittee.
Y o u have named t h e m i n
that onder.
The shetiriian:
T h a t u r s iny intentton, I
York, Boston a n d HRiclumond.
named N e w
T h e y a r e near together a n d
can s e c u r e s u c h i n f o r n a t i o n a s t h e y m a y d e e d f r o m t h e o t h e r
banks.
The motion,
a S amended,
i s bsfore you, gentlemen.
[t h a s b e e n seconded.
(The motion, being duly seconded was carried.)
The Chairman:
program.
W
T h a t finishes u p section I I o f t h e
e then come t o section IIIf.
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Federal Reserve Bank of St. Louis
Coin, Currency a n d Circulstion.
(a) Stanuardization o f circulating
fitness o f F e d e r a l r e s s r v e notes.
that<4
Governor «wctKinney:
w r e Chairman, b e r o r e l e s v i n g t h s
other subdivision o f the prgran., I
want t o submit 9
Letter
Which the Comptroller o f t h e Currency gave ne, f r o m t h e
Uhief National Bank uxaninsr i n our vistrict, i n whih t h e
Examiner s u g 3
that t h s Comptroller bring t o the atten-
tion = f the Governors t h e practice o f Federal reserve banks
putting 3
representative
i n a
cash letters f o r collection.
plains o f t h e practice. I
cated i n our District,
town t o psrsonal present
T h e Uhief «xaminer coipresume, inasimuch a s h e i s lLo-
h e prob b l y has reference more t o
our practice t h a n t o that o f anybody else. P r e l i m i n a r y
at Little discussion youwant t o mske o f it, I
wouid
to inguilre «whet G o v e r n o r s h a v e s e n t m e s s e n g e r s o u t
thelr ofrices f o r t h e purpose o f making presentation
ash letters f o r payment o r other disposition?
The Chairman: I
can speak for Chicago i n that regard.
There have seis a number o f instances where conditions
have made i t impsrative t o protect o u r o w n interests,
not v e r y numsrous, b u t t h e results heve b e e n
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Federal Reserve Bank of St. Louis
555
satisfactory.
i
make t h i s ¢ l e a n
f w e had n o t done t h a t t h e n w e esuld n o t
W
i neg
w
e can ake
a t t h e present
With t h e lergest number o f banks o f a n y «istrict
in t h e System,
w e haven't a n y obligations i n our transit
department t o any amount.
practice
t o sous extent
I f w e hadn't followed this
w e would have h a d sowe difriculty
and probably s o m e considerable amount o f checks t i e d up,
and probably w o u l d h ve encountered s o m e losses.
Governor wcKinnsy:
d
@ have done t h e same thing where
we Telt i t was necessary t o make presentation o v e r t h s
counter,
i n order t o show d u s diligence under t h e lav,
and w e have n o t hesitated,
i n those cases, t o s e n d a
nessenger o r representative t o the paying bank.
T h e
bxaminer says here h e does n o t think t h e l a w contemplates
the nece:sity o f Federal reserve b a n k s putting m e n o n a
train a n d c e n d i n g t h e m o u t t o p e r s o n a l l y o r s s e n t s u c h items.
Governor F a n c h e r
Governor meKinney:
i r a w n o n non-uember banks?
B a t h member s n d non-meiber banks.
The Examiner o f course o n l y refers t o national banks.
Governor Fancher;
T h e n h e has t h e imanber banks i n
mind,
Governor wcKinney:
Y e s , t h e National banks.
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Federal Reserve Bank of St. Louis
no distinction i n that regard.
The Chairman;
Y o u would like t o know h o w fiany banks
that t o any extent?
(st. Louis, S a n Francisco, Philadelphia, Kansas City,
New York, Dallas a n d iuinnespolis stated that t h e y h a d fol-
lowed the practice.)
Governor .wcKinney:
T h e Comptroller
o f t h e Currency
asked i e t o present t h i s t o t h e Conference.
The Chairman: I
believe t h e matter should b e left
to the discretion o f ssch Federal reserve bank.
Governor woKinney:
T h e r e i s hardly a
do not tind i t necessary,
i n our judgment, a n d we take
it t o be the inhsrant right o f the bank, 3
should d e c i d e
week that w e
t o t h e contrary,
t o present
B o s rd
i n person b r b y
meSSeEngers
The chsirmen: I
think, from what Governor Young
said t o me the other day, that they have 3 great many cases
of that sort a n d find i t necessary t e d o so.
Governor Young: I
think I can see the Examiner's
“we h a v e t e d 3
national s x a m i n e r t h e r e 2 n d w e
have sent t h e items t o hia and he has always helped u s out
on t h e m .
357
Governor mwcKinney:
H
e i s not referring
t o that,
We have never done that.
Governor Young: I
because o f this fact.
such a s w e h a v e
think h i s compisint i s probably
T a k e a small t o w n o f 200 people,
i n wontana a n d N o r t h Dakota,
national bank examiner i s i n the bank, a n d a representative
from t h e Fed-ral reserve b a n k comes in, a n d maybe 9
frou some other bank.
man
T h e y a r e 3 1 1 stopping a t the local
hotel, t h e people a l l know w h o they ere, a n d they g e t
Suspicious
o f t h e bank.
t h e r e i s a n examiner t h e r e try-
ing t o save t h e bank, a n d i t does d o more o r less harm.
We cooperate w i t h t h e National bank examiner just a s much
as w e can.
Governor Harding:
Governor Young:
H o w d o y o u k n o w w h e n h e i s t h e rs.
H e usually goes d o w n a t our re-
Governor Fancher:
u r e imohinney, I
would b e glad i f
you w o u l d r e a d t h a t letter.
Governor mceKinuey:
it
T h e letter i s sas follows:
AS I understand, t h e r e will b e a conference o f t h e
Governors
o f the f e d r a l reserve b a n k s
i n washington,
the
week o f march 26th, i t occurred t o m e that i t might b e
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
558
timely t o bring u p for discussion the matter o f the practice o f Federal reserve banks o f putting a representative
in a town t o personally present c a s h letters f o r collisectio
Thisis not done, I assume, except i n cases where member
banks a r e i n a precarious condition, b u t i n s e v e r a l i n stances d o w n here i t hes interfered n o little w i t h out e f forts t o save s u c h banks, a n d while 1
{ncumbent
o n the Fedsral reserve banks
recognize t h a t i t i s
t o exercise d u e dili-
gence i n handling the items sent t o them for collection,
I do not think t h e l a w contemplates t h e necessity o f such
banks putting 3 man o n the train snd sending him out t o
personally present s u c h items.
I t would s e e m t o m e that
notice t o a member b a n k that t h e Federal reserve b a n k
could n o t handle i t e m s o n a
particular p o i n t e x c e p t b y s e n d -
ing them t o the bank o n which drewn, 2 n d because o f the i n
ability ( o r other a s i gned reasons)
fsctory returns,
t o get prompt a n d satis-
t h e items c o u l d n o t b e handled
b y thse
Federal reserve bank except a t the risk o f the member bank,
should s u f f i c e ,
I
t i s t r u e t h i s w o u l d penaes g r e a
bring thse b a n k c o n c e r n e d i n t o u n f a v o r a b l e n o t i c e ,
would not be a s g r ;
but i t
having the representstive o r the
Federal reserve bank on the ground, day i n and day out.
559
“There m a y n o t b e any w a y out o f this, but, inasmuch
as t h e Governors a r e t o b e there with y o u f o r a week, i t
Occurred t o fie that i t would a t least b e a gocd time t o
discuss it, a n d I hope something w i l l come o f i t that w i l l
be helpful."
The Chairman;
T h a t i s probably d u e t o t h e iact that
it i s not unusual under certain conditions f o r several federal reserve banks t o send nessengers f r o m their o w n institu-
tions. I
feel i t should b e stated here that while w e do
it i n Chicago,
w e sre working i n complete harmony w i t h the
Netional Bank Department.
very able m e n there.
W e are fortunate i n having
N o w , i f that answers t h e proposi-
tion w e will proceed t o the next topic.
Governor meKinney: I
aii: wondsring whether I
should
not make s o m e report t o t h e Comptroller o f tie Currency
as t o the views o f the Governors o n this subject.
Governor Calkins: I
think there i s something t o b e
ssid t h a t h a s n o t y e t b e e n s a i d a b o u t this.
trict o u r troubles a r e 3 1 1 i n one spot,
I
n our dis-
i n southern Idaho,
where there have b e e n many banks i n a precarious condition
and @ number o f failures.
W e have always met with coopera-
tion o n the part o f the National bank examir rs. I
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Federal Reserve Bank of St. Louis
haven't
But i t i s
true t h a t i n a
little b i t o f a
one h o r s e t o w n , t h e a r r i v a l
of tWo men, o n e representing t h e Comptroller o f t h e Currency,
and one t h e Federal reserve bank, w i l l immediately b e known
and will precipitate trouble f o r t h e bank a t onec.
W w e have
felt that when it was necessary t o send a man t o such banks,
and w e have done s o several times,
with careful instruction
w e send. them down there
t o use discretion a n d t o avoid,
if possible, t h e presentation o f checks i n such a way a s t o
attract attention.
T h e y have been instructed t o take t h e
checks there a n d w h e n t h e bank w s s i n position t o ineet them,
if i t ever was, t o get returns, b u t t o cocperate w i t h the
examiner i r he was to there, and to protect the bank as
far a s they could i f the examiner wasn't there.
Governor uweKinney:
the same practice.
w
e have fol:owed s u b tantially
I f we send ® messenger out w e instruct
him t o u s e t h e greatest a m o u n t
o f d i s c r e t i o n possible,
t o
let n o one i n the town know what his mission i s or whom he
represents, a n d i f possible t o confine himself t o t h e chie?
executive officer o f t h e bank, a n d t o stay away f r o m t h e
bank a s much a s possible,
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Federal Reserve Bank of St. Louis
B u t w e d o bslisve t h a t occasions
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Federal Reserve Bank of St. Louis
361
arise where i t i s necessary,
of liability,
i n order t o relieve curselves
t o make presentation i n that say.
Govsrnor Seay:
I
n s o far a s I undsrstand t h a t letter
examiner does n o t appsar t o rerer t o ths exceptional
t
where h e might b e present i n a city, b u t h e r e f e r s o
eneral prectice,
[Twould move that i t i s the consensus o f opinion,
by
exchange o f experiences, t h a t i t very often becomes neces~
sary t o send personal representatives f r o m t h e Federal reserve banks, a n d that i t cannot b e avoluec.
Governor weKinney: I
The Chalrnian:
v
will second that motion.
e will n o w g o i n t o t h e n e a t s e c t i o n
of our program m d take u p topic (a).
(a) s t a n d a r d i z a t i o n o f circulating ritness
of Federal reserve notes.
San Francisco recommends t h a t t h e Tressury vepertment
be requested t o lodge w i t h each Feu'ral reserve b a n k
packages o f Federal Keserye notes, representing t w o o r more
standards o f fitness which t h e Federal reserve
ao a guide t o r the sorting o f redsral reserve currency.
Governor G s l k i n s ;
T h e r
h s s b e e n considerable Giscus-
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Federal Reserve Bank of St. Louis
364
banks
t o sort those o f our notes which might c a e i n t o t h e i r
posséssion according t o No. 1 , No. 2 , etc., standard; t h e r e by @liminating a
considerable i t e u a @ t r a n s p o r t a t i o n e x -
penses w h i c h n o w a c c r u e s
t o u s owing t o t h e fact that i n a
great tiany instances shipments o f notes r r o m other Federal
reserve banks t o u s that they consider flit, contain twenty,
thirty o r forty p e r cent o f notes which w e consider unfit
and which, u p o n rec-ipt b y u s from t h e other Federel reserve
banks,
a r e i n m e d i a t e l y s o r t e d a s unfit,
c u b up, a n d returned
to “ashington.
This would also w o r k inversely;
t h a t i s , i f another
bank were sorting o n a higher standard than #e@ were, they
would naturally b e considering s s unfit a n d cutting u p and
torwarding t o the Treasury vepartment, a
of notes w h i c h w o u l d b e c o n s i d e r e d
certain percentage
a s fit b y u s a n d again
put into circulation,’
In other sords, the purpose o f this standard package,
or these standard packages, i s to advise u s b y actual
visualization of what 1 s considered i n various places a fit
We ars nov wasting tine shipping back and forth
banks n o t e s t h a t a r e ; u s s t i o n -
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Federal Reserve Bank of St. Louis
565
ix, Case: G o v e r n o r Calkins, I
would like t o s u g zest
that i n september o f last y e a r wr, Barnes e n d ur* Gates,
of t h e T r e a s u r y Departisent, v i s i t e d o u t b a n k f o r t h e p u r p o s e
of i n s t r u c t i n g o u r m o n e y c o u n t e r s
a s t o the Treasury vepart-
ment standards o f titness f o r circulating currency.
that t i m e they left w i t h u s a package o f bilis,
ages, representing,
A t
o r two pac k -
a s they said, t h e lowest standard that
should b e put into circulation.
T h o s e peckages were used
by our counters, w h o were carefully instructed s s t o the
standard t o be followed, with the result that since that
tine w e have h a d n o complaint r r o m washington with regard
to mutilated currency t h a t w e sre sending i n for redemption, s n d very f e w complaints f r o m t h e banks t o which w e
have p s i d circulating currency.
I would like t o second Govérnor Calkins! m o t i o n o r
reconiuendation.
Governor Fancher: i
haves a recomacndation along t h e
line o f that suggested b y Governor C a l k i n s .
visit f r o m wessrs.
B a r n e s a n d Gates,
J
e had a
o f t h e Treasury Lepart-
ment, w h o discussed t h e standard o f fitness, b u t t h e y a i d
not leave w i t h u s any sample packsges, although I
was rather inferred that i t should b e done.
think i t
O u r currency
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Federal Reserve Bank of St. Louis
566
man s u g s t s that t h e y d o prepare a n d send t o u s sample packe-’
ages s h o w l n g f i t a n d u n f i t currency,
9 n d i f t h a t w a s done,
when t h e standerd w a s changed w e would know h o w t o sort.
Governor Biggs: I
think those gentlemen did that with
@ number o f the banks.
in October.
T h e y left sample packages w i t h u s
P r o b a b l y o n account o f the extreme distance
they haven't gotten t o San Francisco.
The Chairman:
i
@ had a visit f r o m t h e seme t w o gan-
tilemen, w h o h a d their samples w i t h them, a n d o n investigation i t w a s f o u n d t h a t t h e i r s o r t i n g w a s o n a
very m u c h
hisher standard t h a n ours; t h a t w e were paying notes a n d
using them t o a mach greater extent than w e would have t o
undsr t h e i r standards, I
cept o n e thing.
can s e é n o objection
t o this e x -
I t seems t o n e that Governor Calkins
sugvests t h a t h e w a n t s t o s e t h i s o w n standard.
H
e speaks
of t h e demand o u t there f o r clean currency.
Governor Calkins:
T h e r e were nerely introductory r e -
marks, ure Chairman, intended t o clear the ground for discussion.
The Chairman:
T h e n , the motion i: what?
Governor Calkins:
T h a t t h e Treasury Department b e re-
quested t o furnish each Bederal reserve bank with sample
packages o f bills.
The Chairman:
T h e motion has b e e n msde 3 n d has b e e n
seconded.
ur. Adleson:
s h o u l d w e not a d d t o that that t h e y b e
sent a l s o t o t h e branches?
The Chairman:
W i l l y o u accept that amendment, G o v e r n o r
Calkins.
Governor Calkins: C e r t a i n l y .
the Chairman:
T h e n , t h e motion being enended, w h a t i s
desire?
(The motion, having been duly seconded, w a s carried.)
The Chsiniusn:
T h e next topie i s III-(b), deposit o f
money a t close o f business b y member banks i n reserve
cities,
(bob) wvepoesit o f till money a t close
of business b y member banks i n
Fedsral reserve cities.
That w a s suggested b y Kichmond.
Governor Seay: I
would like t o ask, ur, Chairman, i f
the reserve banks themselves, o r any of the branches, have
found a n y d i s p o s i t i o n
o n the part o f certsin member banks
to turn over t o the reserve banks, a t t h e close o f business,
practically a l l o f their t i l l money, anassorted, r o r t h e
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Federal Reserve Bank of St. Louis
568
credit o f its account, a n d t h e next morning t o spply f o r
new money, d u l y s s x rted, r e r t h e purpose o f conducting t h e
day's business.
W e are finding s o m e slight disposition
to d o that i n Baltimore.
T h a t practice iniposes u p o n t h e
Federal reserve b a n k a great deal o f worke w o r e o v e r ,
it
puts t h e m e m b e r bank, looking a t i t f r o m another aspect
of t h e case, i n the p w ition o f not having i t s reserve, e x cept auring t h s night.
Governor uwcKinney:
The Chsirnian:
w h e n they don't need it.
T a n e y have n o reserve, u n d e r those cir-
cumstances, except during t h e night.
Governor ~eay:
that practice,
trolled. i
A t night, yes.
I t seems t o me that
i f i t i s a t all general, o u g h t t o b e con-
realize that i t i s within t h e province o f every
Fed«ral r-serve b a n k t o controlit,
i f they s e e i t i s being
abused, b u t m y purpose i n putting i t o n here w a s simply t o
find o u t ihether thse other f e d r a l reserve banks have h a d
that experience,
The Chsirman: i
would like t o have those o f t h e Federal
reserve banks w h o have knowledge o f this practice i n their
own banks being inculsed in, t o incicate b y ths Governors
rsising their right hands.
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Federal Reserve Bank of St. Louis
569
(Gevernors S s a y , Y o u n g , H a r d i n g a n d B i g g s s o indicated)
Governor Young :
I f you will make i t one bank, I will
keep m y h a n d up.
Governor harding: I
will qualify m y action also.
There a r é t w o banks that have done that.
very valid excuse.
O n e bank h e d a
I t was having some repairs made t o its
valuts a n d d i d not care t o trust i t s money i n the bank over
night.
T h s t ha: b e e n changed.
ing something o f the sort.
A n o t h e r b a n k h e d been do-
I t aidn't deposit a l l of the
till money b u t i t would s e n d sround three o r four hundred
thousand dollars. H o w e v e r , t h e y h ve s e e n the iight.
The Chairman:
I
t seems
t o m e t h a t i f y o u purses t h e
policy o f accepting currency u p t o the closing hour y o u a r e
pretty well safeguarded against that. I
do not seshow
a Fediral reserve b a n k c a n decline t o take deposits o f cur-
rency during banking hours.
Governor Biggs:
B u t y o u c a n decline t o give t h e m new
currency i n the morning.
Governor harding:
t h e r e i s n o trouble a b o u t control-
lin; the abuse of it.
Governor >e:y;
N o , the abuse can b e controlled, b u t
I think a n interchange o f experiences i s sometimes intsrest-
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Federal Reserve Bank of St. Louis
ing a n d enlightening.
The Chairman:
a c t i o n d o you wish taken,
Governor seayé
N o n é whatever.
The Chuirman:
T h e n
Governorvgay:
Y e r , ur. Chairman.
The Chairman:
T h e next i s ITI-(c).
w e W i l l p a s s t h e topic.
(¢) A d v a n t a g e s t o F e d ral Reserve Banks
of substituting t a x o n circulation
forGovernment p e r t i c i p e tion i n proogous Gee
the Chairman:
U n d e r that a r e some sub-headings.
Possibility o f lesislation; f i g u r e s rejuested; franchise
tax o f t w o p s r cent o n outs anding currency
not covered b y gold; possible reduction o f tsx pelow actual
franchise payment b y more close allocation of cold; keeping
larger smount i n agent's hands, and so forth.
That i s s u g s e s t e d
b y Philadelphia.
Governor M o r r i s :
T h e s e a r e academic questions,
snd
unless t h e Vonf.rence would like t o hear it, I
ao n o c a r e
60. g 0 into it. I
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Federal Reserve Bank of St. Louis
have a m iionandum o n it.
Governor Harding: I
would like t o hesr the memoran-
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Federal Reserve Bank of St. Louis
371
Governor Norris:
i
n June, 1920, t h e Federal Neservse
Board wrote a sircular letter to. ths Federal keserve Banks,
stating that they were giving sérious con:idsration t o the
savisability o f exercising t h e rignt conrerred u p o n t i e n b y
section 1 6 o f t h e r e d e r e l R e s e r v e a c t t o i m p o s e a n intsrest
chargé u p o n t h e u n c o v e r e d p o r t i o n o f F e d e r a l
outstanding.
re
T h e Bourd's letter stated that they were o f
the opinion that i t would b e well t o te.t t h e efricacy o f
r the rastrictive orovisions o r the act, m a d that t h e
large earnings o f the Banks w e r e suojecting t h e m t o constant criticism, a n d were a
source o f alssatisfaction t o
member banks, which generally overlooked the fact that thes
large earnings . e r e d u e t o a great extent tothe u s e o f
Federal reserves notes.
I
t w e s requested t h a t t h e matter
be aiscussed a t Bosrd mectings o f t h e various hanks, a n d
that sugcestions o r objections b e transmitted.
generally a l s a p p r o v e d
pub tate S i r
T
h
o f the proposea change,
T h e Banks
w h i c h was never
e Board o r t h e Philauelphia B a n k replied
that t h e o n l y ulrect a n d iimmsdiat f f e c t o f the change
would b e t o sbsorb a
portionf
o the earnings o f the Bank
as a n interest c h a r g e b e f o r e t h e e s l e u l a t i o n
ings, i n s t e a d o f a s 3
o f net earn-
frenchise t a x a f t e r t h e c a l e u l s t i o n
BT 2-575
of net sarnings, s n d that t h e iuposition o f t h e charge would
have certain indirect o r collateral efreuts thst would
be valuable,
T h e conclusion o r the Board, therefore,
Was that i f Congressional authorization couldbe secured
for t h e ap; lication o f the proceeds o f t h e “interest charge"
inths s a i s w a y i n w h i c h i t i s n o w p r o d i d e d t h s t t h e fran-
chise tax should b e applied, t h e change would be a desirable
one.
The change not having been made, seserve banks were
Subjected t o v e r y g e n e r a l c r i t i c i s n t h r o u g h o u t 1 9 2 0 , l y 2 l ,
and the greater part o f 1922, f o r t h e largs sarninzs which
they were making, a n d the feeling was kept alive that
in@i.ber banks should elitner receive interest u p o n dsposits,
or shoula b e entitled t o share i n surplus earnings i n excess
of the preset 6 % dividends,
The fact that the govern.ent i s entitled t o all excess
earnings 4 s 4 "franchise tax" gives the govermusnt a n inter.
est i n the earnings, s n d tiererore i n the expensesor the
Banks.
T h i s interest necessarily carries # i t h i t a right
ofingquiry a n d criticis.., a n d has,
i n recent legislation,
even tsken t h e form o r supervision s n d interference.
a n
1
interest i n prorits practically makes t h s holder
o f the
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Federal Reserve Bank of St. Louis
374
interest @
partner,
a n d t h e government's partnsrship
i n
tne Federal reserve banks i s o f the most objectionable
Character, b e i n g a partnership interest w h i c h carriss w i t h
it t h e right t o srare i n profits a n d t o criticise a n d
supervise, w i t h o u t a n y l i a b i l i t y f o r l o s s e s
to assune responsibility.
I
t seeis manifest, therefore,
tnat i t would b e adventageous
this quasi-~partnership,
position o f a
o r ooligation
t o the banks t o get r i d o f
b y putting t h e governnent i n the
mere t a x - c o l l e c t o r ,
instead o f a
partner.
This could b e accomplished b y a n aisnument t o the act,
substitutingfor t h e discretion g i v e n tothe Board under
section 1 6 a
provision t h a t e a c h b a n k s h e l l p a y a
fixed
rate o f intsrest o n the uncovered portion o f its Fedsral
reserve notes cutstanding, e n d that this payment shall b e
in l i e u o f t h e e x i s t i n g p r o v i s i o n f o r t h e payi:.snt o f a
Iranchise tax, a n d shall b e s j iied i n the sane w a y s s the
franchise t a x i s n o w applied.
An exsinination o f the effect o f s u c h a change u p o n t h e
Feaeral r e s e r v e b a n k o f Philauvelphia d i s c l o s e s t h e s e fscts:
We p a i d t o t h e g o v e r n u e n t
L922 ( e x c l u s i v e
855,563.90, A
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Federal Reserve Bank of St. Louis
as a
franchise t a x f o r t h e y e a r
o f adjustments a p p lI i c a b l e
t o previous y e a r s )
2% t a x o r interest charge o n uncovered
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Federal Reserve Bank of St. Louis
375
currency sutstanding would have amcunted t o 31,128,000,
showing t h a t t h e p r o p o s e d c h a n g e w o u l d n a v e a m o u n t e d l a s t
year t o a n increased payment o f (272,656.10.
due, however,
T h i s was
t o t h e tact tnat, having n o inducenent t o
keep d o w n o u r u n c o v e r e d c u r r e n c y ,
w e retained 3
l a r g e auwsunt
or gold available ror deposit with the Federal nes
'@ aéposited with the agent all thse available gold,
uncovered currency w o u l d have b é e n s o Tar recuced
that a n interest chargs o r 2 % o n t h e uncovered belance
would have amountea t o only ,501,200, w h i c h would n3ve b e m
s s a v i n g o f 7354,163 f r o m t h e f r a n c h i s e t a x a c t u a l l y paid.
Ifthe interest charge had bsen 2-1/2 per cent -- half of
the discount r a t e prevailing during t h e year - - i t would
have auounted t o only »567,850, which would still have
shown a saving o f ,291,513 i n the amount actually paid."
Governor ceay:
Govermusnt,
i t sould be t u theuisadventage o f the
w o u l d i t not?
Governor Harding.
Ono b .
w h e n I
i t uspends e
interest r a t e
appeared b e r o r e t h e H o u s e C o i m i t t e s
on
Banking « Currency t w o years a g o o n thisproposition, w h e n
they wers taiking about the earnings, they aiscussed that
and 1 pointéd o u t thst i t woula b e absolutely s u r e t o iiake
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Federal Reserve Bank of St. Louis
376
a good b i g return t o t h e Government because shenever t h e
earnings
o f t h e Federal r e s e r v e b a n k s w e r e a b n o r m a l l y l a r g e
we would have a n abnormally l a r g e uncovered note issue o n
the books, a n d they would correspond.
However, I
could get t h e Board t o recommend it.
T h e y asked m e a s t o
howthe B o a r d r e l t a b o u t i t , a n d 1
mr. Cases I
never
said they w e r e divided
think i f the Treasury Department w e r e
in s y m p a t h y w i t h i t i t m i g h t p a v e t h e way.
I think t h i s niatbter i s a n important o n e e n d I
believe
the principle u p o n which i t i s foundsd 1s. sound. w u o s t
banks o f issue d o psy t h e governuent a
ing currency; I
tax o n their circulat-
think we a r e i n sympathy w i t h this sug-
gestion andi belli:
a
t i t would b e very desirable t o
have Governor Norris, a s 4 coimittee o f one, formally discuss i t w i t h t h e U n d e r s e c r e t a r y
o f t h e treasury a n d learn
whether t h e Treasury w o u l u interpose a n y objection t o our
getting back o n some s u c h basis.
The Chairman;
I s that suggestion intended a s
tion, wr. Case?
mr. C a s e :
5
, wir. C h a i r u a n .
Governor Norris: I
would l i k e t o a m e n d i t . 1
think
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Federal Reserve Bank of St. Louis
a cOiuuittee o f one never h a s t h e standing o r effect
comuittee o f two o r three o r more.
to b e appointed, I
I f a committee
a m perfectly willing t o serve o n it,
but I think L t should b e enlarged.
The Chairman:
ur. Case:
D o y o u accept that, u r e Case?
Certainly.
(The motion, having been d u l y seconded,
The Chairnuan: W i t h o u t objection, I
will appoint o n
Cotuuittee Governor Norris a n d mr. Case.
Governor Norris.
J i l l y o u gentlemen b e good enough
to send t o ur. Case o r t o m e the figures o n this matter?
Governor harding: I
suggest t h a t y o u cover t h e years
1919, 1920 and 1921, s o as to cover both s high and a low
Ale
Governor sesyé:
G o v e r n o r Norris, I
well f o r y o u t o send out ;
by the banks,
think i t w o u l d b e
uniform blank t o b e filled out
s o that t h e rfizures will b e uniform.
Governor Norris: I
The Chairmen:
will b e glad t o do that.
N o w , gentiauen, ur. z d d y h a s samples
of the n e w design o f currency, w h i c h I
to d i s p l a y t o t h e Uonfserence;
think h e 1 s anxious
i t will only take a
moments a n d I will a s k h i m t o bring t h e m in.
few
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Federal Reserve Bank of St. Louis
o78
(whereupon, u r . H d d y , A s s i s t a n t S e c r e t a r y
t o the
Federal Reserves Roard, produced before t h e Conference
their inspection t h e n e w designs o f currency referred
by the Chairman, )
(After discussion o f this matter t h e Conference,
St G t l 5 S o eleak 6 , Ile, a u g o u r n e d u n t i l tomorrow, w e d n e s d a y ,
march 29, 1923, 3 a t 1 0 o'clock a.
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Federal Reserve Bank of St. Louis