Full text of Federal Reserve Governors Conference : Meeting Documents : May 2-4, 1922, Seventeenth Conference of Governors of Federal Reserve Banks : Proceedings, Volume 3: May 4, 1922

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Federal Reserve Bank of St. Louis

VoLume 3

PROCEEDINGS

CONFERENCE O F GOVERNORS O F THE FEDERAL RESERVE B A N K S

TREASURY BUILDING
WASHINGTON, D. C.

MAY 2, 3, 4, 1922

WALTER S. COX
SHORTHAND REPORTER
COLUMBIAN BUILDING
WASHINGTON, D. Cc.


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Federal Reserve Bank of St. Louis

T.8-2 R D

D A Y

Washington, D . C.,
Thursday, ilay 4, 1922,

The Conference reconvened pursuant t o adjournment

at.ten o'clock a. me

Appearances a s heretofore noted,
“PROCEEDINGS.

The Chairman,

T h e conference will core t o ordsr,.

Before coming t o the resular program I have two matters
that have just come in, that I think Governor Harding would
like t o have u s take gome action upon.

H e has received

a letter from ur. icPadden, Chairman o f the House Committee o n Banking & Currency, enclosing draft o c a: Biii,
an anendment t o the Federal Neserve Act, proposed b y
Claiborne, C h a i r m a n o f t h e C o r m i t t e e

o f Five.

T h e

oill i s a s follows:

"Subject tosuch regulations a g the Fedsral Reserve
Board m a y prescribe,

a n y Federal R e s e r v e B a n k m a y collsct

any check or Graft by sending it direct to the bank of
which i t i f G r a w a a n d m a y c h a r g e t o t h e b a n k f r o u w h i c h


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Federal Reserve Bank of St. Louis

it i s vrawn a n d m a y charge t o the bank froi. which s u c h
ehneck o r craft w a s received, s u c h exchange o r remittance
charge incurred i n the collection o f such check o r craft,
Provided:

T h a t nothing i n this o r a n y other ssction

of this a c t shall b e construed a s prohibiting a n y bank
from making reasouable charges,

i n n o case t o sxcsed t e n

per ..100.00 o r fraction thereof, b a s e c o n the total
of checks a n d r a f t s presented a t a n y one tine f o r collsction o r payment

o f c h e c k s a n d crafts a n d v e m l e s i o n t h e r e -

for b y exchange o r otherwise.
That Section 1 6 o f t h e FPedcral Reserve 4 & 4 b e anendced

to strike out the words “at par“ h i c h occur P a r a g r a p h
14 of said section."
Of course that i s a broad proposal f o r t h e sabandonvent o f the par colliction system,

I t has t h e advantage

of being straightforward,
Governor i.chksnney: i e m b e r a n d nonemember
alike,
The Chairman:

Y e e

T h e point h a s been made that

our p a r c o l l e c t i o n syst¢:. d o e s s o m e i n i u r y t o t h e f a r m i n g

interests o f the country. I

Go not see what the

argument i s , b u t i t seems t o ine that i f t h e farmers a r e


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Federal Reserve Bank of St. Louis

3

interested i n this legislation i t should be t o continue
the par collection system, because Under G2iebine c o n u l t i o s
n
if exchange w a s t o b e charged a n d permitted bylaw 4 1 1 o f
that

the country banke would t h e n b e authorized t o charge
change would have 2 conimon collection arrangement b y which
they c o u l d g e t t h e i r c o l l s e t i n g d o n e a t par,

I

n other

words t h e country banks that n o w desire t o charge exchange,
would open accounts, t h e accounts t o b e i n the w a y o f compensation, w i t h correspondents

i n the cities, w h i c h would

enable those banks t o make these collections a n d avoid

the exchange,

I t would result i n the withdrawal o f

deposits f r o m t h e c o u n t r y s e c t i o n s a n d t h e a g r i c u l t u r a l

sections i n ordsr t o put balances i n the city banks, t o
justify them i n collecting for nothing. I

co not think

th g e n t l e m e n c a n understand what t h e effect o f a n act
of this sort would be,
Governor C a l k i n s :

T a k e n b y a n d large, t h i s pro-

posal, a s w e all know, o r ought t o know b y this time,
fimply a

proposal

ig

t o extract t h e a m o u n t i n v o l v e d f r o m

the Grawers o f checks, a n d w e would b e right b a c k where
we started from, a n d those drawers o f checks i n many
cassce a r e f a r m e r s .


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Governor wellborn:

T h e y a r e t h e ones that purchased

the soods i n the cities a n d the t a x ultimately falls u p o n
them, T

have never heard, h a v e you, Governor Seay, o f

any cloim a t a l l that t h e farmers h a v e taken a n y intsrest
in this matter?
Governor Seay:

N o , n o t 2 s a body a t all.

Governor .ellborn: I

have never h e a r d a n y expres-

gion from a n y farmers bodies, a n d I have never h e a r d anyone s a y that t h e farmers were interested,

The Chairman: G o v e r n o r Iiarding has just informed
me of this, a n d I think i t i s the eutgvowth o f efforts
which have been made b y some o f t h e country banks t o get
the so-called f a r m bloc interested i n this logislation,
Governor Morss:

C o u l d not some resolution b e

drawn, w h i c h should b e drawn rather carefully, expressing
the opinion o f this b o d y o n the matter, g i v i n g some fairly
concise a n d good reason for it.
Governor Calkins:

C o u l d n o t a vr solution b e made

effective b y Guoting Governor Larding a s t o t h e amount o f
eoest s a v e d b y t h e o p e r a t i o n f
o the collection system?

The Chairman:

D o you recall that figure?

Governor Seay: I

think i t is 3132,000,000,


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Federal Reserve Bank of St. Louis

Governor Calkins: 1 7 0 , 0 0 0 , 0 0 0 .
Governor . ¢ l l b o r n :

T h e only way I

think w e c a n g i v e

consideration t o this matter would be from the standpoint,
if u a thousht i t well, o f entering i n t o a kind o f cornpro=
mise i n t h e matter,

V e want n o compromises,

Governor Calkins:

T t i g a question whetherit woulu

Governor viellborn:

not b e advisable o n d for the benefit o f the system i n a
general w a y t o compro: ise the matter i n that way.

c o ia

ig not advisable t o d o that, then o f course this should
not b e considered a t all.
Governor wveay:

T f v e could draw attention t o the

Pact that shis bill proposed b y She banke i s i n their own
inter .st, a s opposed t o public inter -st, i t might have
Bome weight.

Governor Wellborn:

T h e only way I have -ver heard

it expressed 9 s b e i n g bonsficial t o the agricultural sec-~
tion ie’ that i t helps

t o maintain t h e small bank: because

of the revenus, whi h e l p s t o ksep the bank running.
It helps t o maintain a
function,

bank whicn othsrwise c o u l d not

i f i t loet t h e = xchangs.

I have ever heard i t suggested,

T h a t i e t h e only


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Federal Reserve Bank of St. Louis

445

coubt if any good could be

Governor Lickonaey: I

accomplished a t a l l b y adopting a sesolution o n this

The Chairman: I

doubt it.

Governor Calkins: I

think t h e position alreacy taken

by the Conference, t h a t i t i s desirable t o have t h e mattere n o v i n litigation conclucea before anything i s done
is t h e p r o p o r p o s i t i o n

The Chairman:

c

t o take.

e micsht express t h a t v i e w t o Gover-

nor Harding,

Governor wellLborn;:

w h a t i s that?

Tne Chairma n; T h a t n o lcgislation i s desirable
until pending litigation i s deciced,
Governor i:ckenney:

I

n other -ords, t h a t v e would

like t o lknow what the present l a w means before w e try te
get a

new one,
The Chairman:

T h e e i s it. p u p p o s e w s have n o

resolution o f a n y k i n d , I

will e x p r e s s t i e v i e w o f t h e

Conference t o Governor Harding without t h e formality o f
a resolution.
Governor P a n c h e r ;

T h a t reaffirms t h e position

we

took o n the nar collection system matter d a y before yessI


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Federal Reserve Bank of St. Louis

The Chairman:

Yes.

T h e next topic, gentlemen,

is

No. 7 , uniform services t o member banks,
Governor Calkins:

i j a y I interrupt t o a s k 5 juestion

You said something about having referred t o y o u froii Gov-

ernor Harding a matter regarding perpetual charters for
national banks.

I s that t o b e dlecussed?

The Chairman:

T h e extension o f charters?

Governor Calkins:
The Chairman: I

Y e s sir.
have a lstt2or o n that subject f r o m

ur. Gilbert, w o u l d you like t o take that u p at this
neeting?
Governor Calkins:

I t has been suxy.ested for consider-

ation, a n d consideration o f t h e matter might afford opportunity t o evuggest--- a s Governor s e a y will suggest, I

aii Bure, that there might b e incorporated i n that bill a
provision that when national bank charters e r e extended
in perpetuity there b e a provision mace f o r t h e retirement
of their circulation,
The Chairman:

T h a t i s a l l c:alt w i t h i n the lstter

which GSeeretary lisllon has «written t o the Chsirman o f the
senate C o n m i t t s e

o n B a n k i n g a n c Currency.

I f you ars


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8
interested suppose I

ask hr. Harrison t o read that let-

ter, o r that portion o f i t bearing o n it.
ir. Harrison:

T h a t portion o f t h e letter i s a s fol-

10Ows:

lm the second place, I

think i t i s appropriatein

connection w i t h this bill t o consider t h e possibility o f
additional legislation a t this time t o provise f o r t h e
gradual retirement o f national b a n k note issues,
the intention a

I t was

t h e time o f t h e adoption o f the Federal

Reserve A c t t o retire gradually outstanding issues o f
national bank notes; and, a s y o u know, section 1 8 o f the
Federal R e s e r v e A c t m a d e p r o v i s i o n f o r t h e g r a d u a l r s t i r e -

ment o f circulation bonds a n d national bank notes u p
to a maximum o f 325,000,000 a
of c i r c u l a t i o n b o n d s

year through t h e purchase

b y Fedsral Reserve Banks f r o m national

banks u p o n application b y the latter t o t h e Treasurer o f
the United States a n d approval b y the Federal Reserve
Board, a n d the issue t o the Federal Reserve Banks a t
their option o f one~-yoar notes o r three p e r cent convergion bonds n o t bearing t h e circulation privilege.

B y

reason o f conditions resulting from the war, m d the issuance o f Liberty Bonds a n d Victory notes, these pro-


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Federal Reserve Bank of St. Louis

2,
visions o f the Federal Reserve sct have been practically
inoparative f o r several years, w i t h the result that n o
progress h a s been made i n the reduction o f the amount o f
national bank notes outstanding.

I

n fact, there h a s been

an increase, t h e amount o f national b a n k notes outstending

being today approximately “752,000,000 a s compared with
715,000,000 o n July 1, 1917.

T h i g increasse has come

at 4a tliie when currency requirements o f the country have
lessened, I

think i t i s extremely important, therefore,

in v i e w o f t h e d e v e l o p i e n t

o f our currency system a n d the

purposes o f the Federal Reserve Act, t h a t a t thistime,
when i t i s planned t o give national banks porpstual charters, more effective provision b e made f o r t h e retirement

of national bank notes, a n d that such provisions should
conteiplate t h e gracual refunding o f t h e circulation bonds
into obligations o f the United States w h i c h c o not bear

the circulation privilege a n d which will b e sold t o the
public

o n a n investment b a s i s .

I n this w a y provision

would autonatiecally b e imade for the gradual retirement o f
national b a n k notes;

a n d i t i s t o be expected that i n

the l o n g r u n ths g a p i n the currency would b e filled b y
the i s sue o f F e d e r a l R e s e r v e

n o 3 8 i n accordance w i t h t h e


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10
provisions o f the Feceral Reserve .ct.
sary, temporarily,

I t might b e n e

t o provice f o r Lsevue o f Fedsral he-

serve B e n k notes against obligations o f t h e United states
earing t h e c i r c u l a t i o n p r i v i l e g e

i n order t o m a k e p r o -

vision against undue contraction o f the cur~ency; b u t
such a n expedient s h o u l d b e o f limitedc duration.

The

Treasury a n d the Federal Reserve Board a r e both giving eqnsideration t o possible legislation along these lines; a n d

if the Committee i s willing t o consider legislation t o
this effect i n connection w i t h t h e pending bill, w i t h

which i t f e logically connected, I

belisve that i t would

be porsible t o submit, within a relatively shorttime,
suitable draft provisions,"
The Conference, after having heard that part o f the

letter read yesterday, a n d after considering the currency
program, adopted a resolution that t h e currency program
was approved b y the conference, subject t o t h e understand-

ing that eorly steps would b e takén t o sscure legislation
to effect t h e retirement o f national b a n k currency.
The Chairman:

T h e question t h a t w a s raised i n the

discussion of the lettsr was whether this should opportunity t o suggest t h a t t h e r e b e i n c l u d e d a

provision f o r


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450
=e
the retirement o f t h e circulation o f those banks whose charters a r e extended i n perpetuity. I

do not know whether

ths conference wants t o discuss that o r not,

Governor Seay:

M r . Chairman, I should think that in-

depend o f the reservations

i n approval o f the cur'ency

bill, a n d i n pursuance o f t h e opinion expressed b y t h e
secretary i n that letter,

w e might well afford t o emphasize

the opinion of this conference as to the importance of

that, s o ag to b a c k u
p the Secretary.
The Chairman: Y o u r proposal i s that w e pass a resolution endorsing the recon :endation o f the Secretary i n
this letter?

Governor Seay:

Y e s , a n d expressing o w o w n opinion

of the great importance o f it.
The Chairman:

W i l l y o u offer a

resolution, Governor

seay?

Governor Seay: I

would suggest, lir. Chairman, t h a t

it b e recorded that t h e letter o f t h e Secretary o f the

Treasury to the Chairman of the Senate Banking and Cur-ency
Bill, d a t e d April29 w a s read t o the Conference a n d the
Conference concurs i n the views expressed b y t h e Secretary
and urge both upon t h e Secretary a n d the Federal Reserve


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451
L2
Board t h e desirability o f obtaining s u c h legislation a t
this time, under t h e apprehension that unless s u c h legislation b e n o w obtained that national bank currency m a y b e
perpetvated, I

think there i s very grave danger o f it,

especially since w e are offering machinery f o r its circulation a n d a very perfect machinery.

The Chairman:

I s that motion seconded?

Governor Fanchsr: I

second it.

(The motion being duly seconded was cairied,)
The Chairman:

W e will n o w discuss topic No-

7. U n i f o r m services t o member banks,
You have a l l h a d a n opportunity t o examine t h e
resoluts o f the questionnaire s e n t o u t b y the New York
Bank,

I t would take u s a good many days t o g o over this

in detail.

I t is a fact that i n a great majority o f cases

there i g uniform practice,

a s i t happens,

s o w e have

taken, i n order t o facilitate progress, just thoge cases
where uniformity i s lacking a n d prepared recomuendations
simply t o facilitate contraction o f the meeting, a n d for

you to accept o r reject, i i m ” Harrison will have to
explain a few o f thesethings because I have not familiarized myself w i t h t h e m i n detail.


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Federal Reserve Bank of St. Louis

Governor hMorss;:

Y o u were not here yesterday after-

noon, w h e n w e started o n this, a n d perhaps i t i s well
that I

should repeat what I

said then, a n d that i s that

in our bank w e d o not think i t i f s o necessary t o have
uniformity

in a

lot o f these cetails,

Opinion o f some o f t h e others.

a s appears

to —

the

T h e fact i s that condi-

tions o 8 w e find them appear t o vary locally a n d i n
detail f r o m what t h e y a r e i n some o f t h e other dis tricts,
Our o w n methods h a v e been adopted after most careful consideration o f the facts which pertain t o our district i t -

self,

T h e r e are some things where there shonia b e uni-

formity and those things should be separated from the
othsr things where uniformity i s not essential.

There

aré a good many o f those things i n this list which w e d o
not consider essential w i t h regard t o uniformity i n our
district, ‘

f i r s t , a s t o coin 5 n d currency charges,

There are three noes i n the first c o l u m nns the rest are
‘in the second column, b u t there i s
an exception i n almost s v e r y case, s o n e times, two or three,
How a r e w e going t o reconcile those things, a n d i g i t

ecessary t o reconcile all those thinge?

w h o i s going

to give u p his exception, a n d what exceptions a r e w e going


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Federal Reserve Bank of St. Louis

14
to adopt ?

The Chairman:

W e will find that out a s ve go along,

Governor Morss,
Governor liorss:

T h e principle under which this g o e s

to the conference, a s I und rstand it, i s that w e should
have uniformity, a n d that principle i s what I

want t o ob-

ject t o i n the very beginning.
The Chairman: I

do not t i n c anything i n the prosram

that su@gests there i s going t o b e a n effort n a d e here t o

enforce uniformity.
Ls possible,

I

W

e believe i n uniformity where it

t i s n o t a l w a y s possible.

Governor Calkins: I
erhaps s o m e e e e t a

agree with Governor iiorss, with

a n d that i s that i t is sssential

that there should b e uniformity i n all matters w h i c h involve t h e question o f t h e absorotion o f expense f o r ser-

vices rendsred t o member banks.
able a n d improper,

i f y o u please,

I t i s highly undcesirf o r s o m e o f t h e banle

absorb t h e expense a n d for other bank® t o refuse t o d o
£0.

I n other matters I

essential;

do not think uniformity i s

b u t will Causé adverse criticism a n d proper

criticism i f i t i s found that some o f the reserve banls
are absorbing large items o f expense a n d other arenot.

t o


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Federal Reserve Bank of St. Louis

i

4

.

5

.

4

i n the first place, o f t h e proprisby

It will b e a question,

of our absorbing t h e expense i n some cases where t h e

O n the other hand we have had the

other banle d o not,

question frequently asked u s “Why does the New York Bank
absorb t h e expense w h e n the S a n Francisco bank refused t o

do £0? T h e y are all operated under the same conditions.”
I agree w i t h Governor iiorss s o far a s what h e says applies
to those cases that d o not involve t h e w e s t i o n o f absorption o f expense o f operation.
The Chairman:

I f you will examine t h e questionnaire

you w i l l f i n d t h a t i t w a s b a s e d o r i g i n a l l y e n t i r e l y o n
the q u e s t i o n o f expense,

“ v e r y b a n k w a s a s k e d t o report

what i t cost t o do this, a n d whe re they were doing a
thing for nothing, t o deseribe theprietice m d s o on, I t
is m a n i f e s t l y c i f f i e u l t

t o maintsin satisfactory ralations

with the member banlke i f they hear that o n e bank L s inaintoining t h e c o s t o f s u c h a n d s u c h a

service a n d that t h e

other banls a r e charging for it.
Governor Calkins:
forse t h e conufsrence I

I

n ordsr t o get t h e matter b e -

mive t h a t i t i s t h e sense o f this

Gonfsrencs that t h e Federal iicserve Ba, ks should reach
a valforn practices i n all mattcrs involving t h e absorp-~


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Federal Reserve Bank of St. Louis

tion o f expense,

Governor Fancher:
The Chairman:

‘ O i l second that,

I s there a n y discussion?

Governor Horss:;

r e thee

Mepis

i n this list that

not involve exper e ?
The Chairman: P r a c t i c a l l y nothing.

Governor liorss; T h e n you accept t h e whole o f this
if y o u &pprove t h a t resolution.

The Chairman:
ity. I

i e d o not cormit ourselves t o uniform

do not think there i s a n y cormitment here,

Governor Morss;: Y e s , y o u do, s s
if y o u accept

i . Calking! resolution,

t h a t i n all o f these

matters w h i c h involve expense there should
b e uniformity,
If they sll involve expense y o u a r e conmitted
t o uniformity o n the whole list,

Governor :ellborn:
that,

I T agree with Governor o r g s o n

T h o s e thinge ought t o b e left t o eash district,
Governor :.eDougall:

i y , Calkins intended t o cover

expenses involved i n connection w i t h our services render8d t o iusmber banks gynto non-meihber banks
?
Governor Calkins:
Governor iicbougall:

A n d n o t t h e general e x p e n s e


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Federal Reserve Bank of St. Louis

account ?

Governor Calkins: C e r t a i n l y . ”

Governor NeDougall:

T h a t would clarify i t t o some

extent,
The Chairman: I

think i f w e will just g o ahead with

the program and listen t o the items, that your doubts will
be resolved about t h i s matter, because there a r e very f e w
changes

i n t h e p r e s e n t p r a c t i c e s r e a l l y involved.

Governor Horss:

o f course,

i , Chairman, I

would

not have brought t h i s u p i n juite that way, except t h a t

this letter which came from ii. Harrison with the question-~
naire lays a

great doal o f emphasis o n uniformity.

I t

says w e might b e prepared t o estate whether, for the sake
of uniformity, w e will b e willing, i f i n the minority,

toadjust ourselves and accept. the plan adopted by the
majority,
a Litera,

T h a t was the principle that I wanted t o offset
A S a matter o f fact i n these replies [I

think the Boston Bank i n every case i s with the majority,

f o that w e probably w o u l d n o t have

selves i n adopting these practices;

m y trouble our-

b u t s o much emphasis

is laid o n uniformity i n this letter that I thought s o m é - .
thing ought t o b e s a i d t o offset it.
es


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Federal Reserve Bank of St. Louis

The Chairman:

S u p p o s e w e proceed a n d s2e ~hether

we can get anywhere toward uniformity without discussing
principles,

W i l l y e u withdraw your motion, Aasernor

Colkins?
Governor Celkins: I

will suspend t h e motion.

Governor Fancher: I

will withdraw m y second,

Governor Calkins: I

would lile t o inject o n e further

remark, a n d that is that this involves ths gesstion of
whether w e are operating a system o r twelve incepencent
bank,

The Chairman:

Y e will find that out a s w e g o along.

Now, i f you will b e good enough t o turn t o the folder
on this subject, where t h e resume appears o f t h e replies
from e a c h a n k , o n page 1 , w o will proceed,
Governor McDougall:

I n regard t o that particular

case, w e discussed that yesterday, a n d St, Louis wished

to vote yes i n the first columm instead o f no.
Governor Biggs: ;

L e2

mistake thers,

These a r e t h e recormendations f o r d s cussion: F i r s t ,
incoming a n d o u t g o i n g s h i p m e n t s

t o members,

c o i n alone,

It is recouwiended that reserve banks absorb all costs
incident

t o t h e shipment

o f c o i n t o a n d f r o m m e m b e r banks,


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458
For the sake o f progress I will offer that a s a
resolution,
T h e S a n Prancisco B a n k seems t o

Governor Calkins:

bs the only one that says no.
c : O u r answer h a s b e e n changed,

Governor ‘ellborn:
ue p a y both wyes now.

D o you mean all colin?

Governor iiiller:
The Chairman:

T h i s means a l l coin.
w e cannot d o that,

Governor Willer:

The Chairman:

T h i s i s to menber baniec.

Governor iiiller:

t i e cannot d o that i n our territory

because i t would cost t o o much.

T h e y u s e 4 great ceal

of sdliver there.

Governor licDougall:
Governor Miller:

N o , n o t what silver dollars,

Governor McDougall:
Governor Miller:

Y o u are doing i t now,

Y o u r answer i s "Yes",

T h a t w a g a mistake, a n d i t i s s o

noted there,
Governor ickenney:

w

e would vote y e s except o n out-

going gold and o n silver dollars.
thovsand t o s h i p a
of o u r district,

thousand dollars

I

t costs 33,50 a
i n gold t o some parts


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Federal Reserve Bank of St. Louis

459
I

Governor Calkins:

n our case t h e expense would b e

greater than i n any other istrict. ,
Governor Lior es:

A n d i n ours i t would b e less,

The Chairman: T

a m offering this resolution simply

to get action p r o a w con, I

onthese matters. I
the other,

I

a m not stating m y o w n views

will just vote with you one way or

z t h e motion seconded?

Governor iior ss:

{ T will second it.

I t i s i n agree-

ment w i t h our practice,

I t is i n agreerient with our practice

Governor Sesy:

and i t would not w o r k a n y hardship o n us.
Governor Biggs:

T

t would work s great hardship o n

us i n Arkansas a n d iilsgissippi a n d i n t h e cotton district

there i n shipping silver dollars down there.
@ worse t h a n i t i s out west.

dollar,

I t would

T h e y prefer t h e silver

d e vouldn't have much sold but w e would have a

1ot e f Etiver.
Governor seay: T h e r e i s a s situation where i t igs a

mattsr o f practice,
the other,

I f you refuse them one they will take

T h e y can get along with the other,

The Chairmian:

“ h a t o u t acding a specification

that w i t h regard t o those districts t h a t have t h e silver


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Federal Reserve Bank of St. Louis

dollar problem that w e except silver dollars,
Governor Miller:

W

e p a y the express charges, incone-

ing and outgoing o n minor coin.

The Chairman:

Now,

Governor iiiller:
The Chadian;

Y e s , b u t n o t o n silver dollars,

H o w soout you, Governor B i g s ?

Governor Biggs:

S o far a g the minor coin i s concern-

ec, w e d o not care anything about that; that doesn't
amount t o anything;

t h e gold doesn't amount t o anything

with us, b u t i t i s the silver dollars t h a t w e obisct to,

The Chairman:

I s there arreesment o n the shipment o f

Coin t o and from member banks, exclusive o f silver dollars?

Governor Ualkins:

Y e s sir. If San #rancisco adopts

that practice 4 t will pay the cost o f shipment o f cold
coin from S a n Franciseoe t o Seattle,

o n orc r s from lew

York,

The Chairman:

T h e n suppese u e except fron uniformity

the shipment o f silver dollars a n d gold-coin,
Governor isiller:

I s that b o t h o n outgoing a n d in-

coming?

The Chairman:

i i y point i s this, that whore w e can


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Federal Reserve Bank of St. Louis

461
get uniformity i t is desirable, that where w e cannot
get i t do not let us attempt t o force it. H e r e i s a fituation that i s different i n your district f r o m t h e one
which prevails i n ours, s o I would offer a

resolution

stating that i t i s recommended t h e t reserve banks unifornmly absorb a l l the cost o f shipment o f coin t o a n d from
member banks, w i t h t h e exception o f the cost o f shipments
of silver dollars a n d gold coin t o é n d from member banks
where t h e practice i n each district shall b e that suitable
to t h e conditions i n the District.
Governor Lorss:;

T h e n w e are right b a c k ihers we.

are now,
The Chairman;

E x c u s e me;

i t makes a

uniform prac-

tice a
s t o shipments o f all minor coin.

Governor Lian s&: Y e s , i t does that.
Governor

i o Ss:

w h y not state t h e resolution posi-

tively instead o f putting i t i n that way.
The Chair man: I
Governor iat 88;

thought I did state i t positively.
Y o u make i t the exception, i n s t e a d

eof making the resolution i n the for: that o n minor coin
we s h o u l d p a y t h e expense.

Governor Galkins:

T h e resolution i s t o the effect


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Federal Reserve Bank of St. Louis

462

that w e shall pay these expenses except o n silver dollars
and gold coin i n all districts, incoming o r outgoing.

The Chairman: S u p p o s e you reframe it, Governor

Gov srnor lior ss:
The Chairman:

N o , youre i s just a s good.

T s e there a n y further citscussion?

(There woe no further discussion and the motion, being
duly seconded, was carried.)
The Chairman:

N o w , t h e next proposal

i s o n incoming

ehipments o f coin f r o m non-member banks.

that r°serve banks absorb all costs incident t o incoming
Bhipments o f coin f r o m such non-member banks a s remit a t
par,

I

n order t o p r e s e r v e u n i f o r m i t y w i t h t h e previous

resolution t h e y should also acc:pt silver dollars a n d
mold coin.

T h i s i f only o n incoming shipments f r o m

non-imember banks «hsi'- w e will p a y t h e cost o n such in-

coming shipments i n the case o f non-member banks that
emit a t par, oxcept i n the case o f silver dollars a n d
gold coin, a n d t h a t a s t o t h e n o n é m e m b e r b a n k s w h i c h d o

not renit sat per, w e make t h e m pay t h e cost.

I

s that

clear,

Go‘ srnor ijeDougall: I

belisve that the bank shovld


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Federal Reserve Bank of St. Louis

4.63

ay t h e charges w i t h respect t o shipments o f money f r o m
non-inember banks forwarded i n return f o r c a s h items,
The Chairman:

later,

“ @ Will cane t o the currency matter

v e are just dealing with coin now.
Governor incvougall: I
The Chairman:

#

a m spesking n o w o f money.

e will dsal w i t h that later.

w e wve

divided i t up, Governor lkieDougall, a n d i n your Gistrict i f
you want t o p a y the cost o n incoming shipments o f silver
dollars a n d gold coin y o u would c o it.

4 8 ars not attenpt-

ing t o get uniformity i n that respect.
Governor ucbougall:

T h s n does this require a n y ac-

tion h e r e ?

The Chairman: I

think it does, if we are soing to

edept a n y s c h e m e o f uniformity.

T h e exceptions c o v e r

your case,
Governor HeDougall:

v i t h that understanding f

should b e i n favor o f it,
Governor Fancher: I

second the motion,

Y o u offered

it a s a motion, c i d you, ir. Chairman.

The Chairman:

Yer.

Governor Mancher: I

second it.

(The motion being Culy secondsd, wa: carried, )


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Federal Reserve Bank of St. Louis

464

The Chairman:

A l g o related t o coin, outgoing ship-

ments t o non-members,

i t i s r e c o m e n d e d that outgoing

shipments o f coin t o non-member banks b e made a t “ h s
expense o f the non-member banks.
Governor Bigss: I
The Chairman: I

will second that,

want t o make this statement i n connece-

tion with t h a t , i
n our district, I

regret t o say, and. pos-

sibly i n some other districts, t h e r e seems t o have b e e
some sort o f a n arrangement m a d e w i t h some o f the non-

member banks that w e would pay the cost o f currency and
coin shipments where they «emitted a t par.

w e cannot

Just notify that bank that w e are going t o discontinue
that i f there has been a bargain made, a n d s o far as New
York is concerned, w e are willing t o conform t o the practice o f uniformity o n this particular t o p i c just a 2 soon

as we can effsct arrangements t o that degree,

I t will

take time, a n d w e will b e guided i n making our arrangements
by this resolution,

Governor Fancher: T h a t 5nplies t o those banks that
ars n o w remitting a t par o n d you a r e n o w paying o n ship-

ments o f currency and coin t o those banks?
The Chairman:

Y e s , and w e are going t o undertake,


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Federal Reserve Bank of St. Louis

455

just a s promptly a s w e possibly can, without raising cain
in o u r p a r c o l l e c t i o n s y s t e m ,

t o revise that.

a perpetual understanding, o f course,

I t was n o t

T h e point i s i f

we vithcraw that arrangement i t undoubtedly zives t h e m the
privilege o f withdrawing their remitting a t par, 2 n d w e
have g o t t o chal with i t a little carefully.

any objection t o this?

I s there

I t i s moved : n

(The motion having been culy secondec, was carried.)
The Choirwan:

N o w , a s t o paper currency, I

me c a n Gispatch this v e r y promptly.

action required,

think

T h e r e i s very little

T h i s i s first with regard t o incoming

anc o u t G o i n g s h i p i e n t s

Governor Ualkins:
The Chairnan:

I

o f paper currency.

T h e r e i s uniforiity now.
t i s vecommencec t h a t reserv

sbeorb a l l costs incident t o the shipment o f paper cur-

reney t o and from member banks.

T h a t i s the practice,

and i n order t o have t h e r scord complete, I

offer that a s

a motion.
Governor Fancher: s e c o n d e d ,

(The motion, beings culy seconded, was carried.)
The Chairman;
none-iembers.

I

T h e next i s incoming shipments f r o m

t i s recoinmended t h a t r e s e r v e b a n k s a b s o r b


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Federal Reserve Bank of St. Louis

£66
all costs incicent t o incoming shipments o f paper currency from such member banks a g remit a t par.

T h a t is

uniform now and I offer that a s a motion,
Governor Biggs: I

will second it.

(Ths motion, being duly secondtd, w a s carried.)
The Chairman:
to non-members,

I

T h e n t h e next i s outgoing shipments
t i s reconmended t h a t outgoing ship-

ments o f paper currency t o non-member banks b e made a t
the expense o f the non-imember banks, except where agresients
to the contrary have been ente:ed into b y the reserve

banls . T h a t i s our case now, t h e same a s with coin,
and we will have t o so through tie sane process that [I
have r e f e i r e d t o ,

T h a t i s offered a s a

Governor Fancher: I

motion.

second it.

(The motion, beings duly seconded, w a s carried,)
Page 3 is shipments t o country covrespondents w i t h i n t h e F e d s r a l v e s e r v e d i s t r i c t m a d e a t t h e

revuest o f member banks,

T h a t i s prssumbbly i n a city

where t h e reserve bank i s locatza o r a branch,

recoumendec that shipment

I t is

r e g u e s t o f a city bank

to its country covrespondents w i t h i n t h e same district b e

mca vithout cost only where similar shipments would b e


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Federal Reserve Bank of St. Louis

467
mace “<ithout c o s t i f t h e wejuest h a d b e e n m a d e d i r e c t

the reserve bank,

to

T h a t i s t o say, w e adopt t h e sane

princi»vle o f a b s o r p t i o n o r non-e-absorption o f c o s t s w h e r e
>

recuset f o r shipment comes direct t o the reserve b a n k
or through a momber bank,
Governor ¥ancher;

T h a t meons,

i n effect, t h a t t h e

larger c i t y banks c o u l d pass o n t o y o u all their requests

for shipmente o f currency t o their members a n d non-:
and those shipments would take the same form as tough they
came t o the federal reserve bank.
The Gheirman:

Y e r .

Governor Fancher:

I

n other words, y o u tske u p t h e

work o r a s s u m e t h e w o r k o f t h e i r s h i p p i n g cepartients,

The Chairman:

T h e r e isn't a

great Geal o f that work

left t h a w e have not already assumed, I
Governor i-cDougall: I

imagine.

should coubt t h e propristy

of t h i s confsrenecs G o i n g o n r e c o r d a s b s i n s w i l l i n g t o
render t h a t s e r v i c e a n d a b s o r b t h a t e x p e n s e w h e n t h e b a n k s
involved w e r e n o n e m e m b e r b a n k e .

The Chairman;
Governor o r e s ;

T h a t i s covered b y the resolution.
C h a r ge i t t o the bank ordering the

shipment w h e n i t i s a non-imsiuber bank,


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Federal Reserve Bank of St. Louis

468

The Chairman:

T h a t i s covered b y the resolution

absolutely.
Governor Morse:

T h e n i t isn't a s you understand it.

Governor Fancher:
more a

I

n regard t o the b i g banks i t i s

jvestion o f the labor involved i n making t h e

shipment.

I f the member bank requested t h

Gireect y o u would perform that service, a n d i f i t was a
non-member b a n k y o u would perform t h e service b u t y o u would
not p a y the charges?
live Harrtigeon;:

I f a member b a n k i n the c i t y requests

us t o ship currency t o another member within the district
we absorb that,

I f they request u s t o ship t o a non-

mamber b a n k v e d o n o t a b s o r b i t .

Governor Fancher;

I t i s n o t t h e q w s t i o n o f absorp.

tion o f cost s o much a s i t i s t h e w e s t i o n o f the labor
3
,devlov2
ni

The Cheirinan:

T h e differentiation seems t o arise b y

using the words “city bank’,
Governor Fancher:

v e have had that situation

arise with one o r two of ovr large banks i n the centers,
which s i m p l y p a s s a l o n g t o u s a l l t h e i r r e q u e s t s f o r c u r -

rency,

j e s t o p p <that.

W e c o not think that i s a


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Federal Reserve Bank of St. Louis

service w e ought t o perform,

Governor Calkins: T h a t matter is covered by the statsment that t h e shipment woulcbe made onl; w h e n i t would
be m a c e i f r e q u e s t e d Girect.

The Chairman:

v o u l e i t make this a

if i t yvead “at t h e recuse

little clearer

o f t h e city member bank"? T h e n

the non-member b a n k i n the federal reserve c i t y o r branch
bank city would n o t sppearto have b e e n civing t h e privilege
of coming i n anc using our currency p a r t m e n t .

Governor Fancher:

T h e only point I had i n mind i s

that there i s a sort o f tendency o n the part o f one o r tie

ofthe large banks t o simply pass on to us all of their
rejueste f o r shipmente o f currency e a c h day,

I n other

verds t h e y will practically l e t d o w n o n their o n currency
shipping department i n the bank a n d pass i t o n t o us.
The Cheirman: I

ean reorganize t h i s a

ese i f i t will not cover t h e point,

litle bit t o

I t i f récoiim nded

that when shipments a r e made a t the :cquest o f the city
member bank t g ite country correspondent within the
Bane cistrict, t h a t s u c h Pteuiars

& s are made will b e

nade without c o s t o n l y when similar shipments w o u l d b e wade
without c o s t i f t h e »eyuest h a d been made direct t o the


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Federal Reserve Bank of St. Louis

470

reserve bank.

T h a t i s t o say i t excludes t h e idea that

you are inviting t h e c i t y banks t o callupon y o u t o perform all o f the work that i s now being performed i n their
currency cepartment.
Governor Fancher:
have a

T h e r e a r e some member banks w h o

fixed rsserve w i t h us, where t h e reserve i s sinply

kept a t a level a n d they d o not s h i p u s currency a n d they
Go n o t r e j u e s t i t .

T h a t b a n k i n the ordinary course

Would not ask us for currency.

T h e y depend on their city

bank: f o r a l l t h e currency shipments,

The Chairman:

B u t let u s assume, Governor Fancher,

that y o u havea condition i n Clsveland where y o u feel that
you are going t o b e flooded with unreasonable requests o f

that kind.

Y o u will just say, ‘.e are notshipping that

way", a n d tell t h e m t o ehip i t themeelves.

I n a s m u c h as

you would make n o shipments o f that character n o question
ofc harge would arise,

B u t i f you d o make shipments

then t h e fact that this resolution o f uniformity h a s been
passed will control your charge.
Governor iancher;
to m k e clear,

T h a t i s exoctly t h e point I

want

I d o not want t o b e put i n the position o f

stepping i n and taking over the shi-ping departments o f


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Federal Reserve Bank of St. Louis

the large member banks,
The Chairman: I

think this resolution takes c a r e

ofthat:

lir. Lorrison;

T h e w a y i t i s corded i t merely means

that t h e y p a y charges under certain conditions w h e n y o u

Go make shipments, but you d o not have t o make them.
Governor é‘‘ancher:;
charges, b u t a

I t i s not a

p e s t i o n o f shipping

w e s t i o n o f t h e labor, t h e question o f tak-

ing over t h e currency departiucnts o f t h e baniks.,
Gavernor i.cDougal: I

nove t h e adoption o f the reso-

lution a s last read.
Governor Young: I

second it.

(The motion having been duly seconded, was carrisd,)
The Chairman:

G o v e r n o r Calkins, y o u are interested

in this subject o n page 5. f u n d e r e t a n d that was acted
upon t o the satisfaction o f the conference, a n d we will
pass t o page 6 , currency shipments t o government G i s -

bursing officsrs,

I t i = recommended that the cost o f

shipping currency t o Sovernient Cisbursing efficers, either

direct o r to the banks f o r eredit o f their account, b e not
absorbed,

T h a t i s offered c s a

Governor F a n c h e r ; I

motion,

will s e c o n d t h a t motion,


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Federal Reserve Bank of St. Louis

AT2
(The motion, being dul. seconded, was carried.)
The Chairman:
tions.

T h e n w e come t o page 7 , check collsec-~

A L L o f the reserve banl# a r e engaged i n this ser-

vice without charge,

I t is reconmenced that n o change

be made,
Page 8 , check collections, c o s t o f telegraphing ad-~
of payment o r non-payment o f c a s h iters.

tir, Harrison:

T h e recoiiendation i s that wire costs

beabsorbed on t2lesraphic advice of non-payment on ites
of {500 o r over,

o s t o f the reserve banks make that ex-

ception, that is, that i t must b e 3500 o r over,
second,

i t i s further recommended that a l l special

requests f o r wire information, after the item has been
deposited,

b e m i d e a t t h e e x p e n s e o f t h e depositor.

It i s a l s o recoumended that items deposited w i t h reguest t o w i r e a d v i c e o f f a t e b e a c c e n t e d f o r c o l l e c t i o n

only 8 8 non-cash items,
The Chairman:

T h e last o n e i f whers a new mestion

arisce, because o n the first two I think w e are now uniform,

3 m 6

a r e uniform a g a vesult o f previous action

at one o f our confsrence, y o u will recall, where w e dedidec

this iwetion of absorbing the wire costs,


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Federal Reserve Bank of St. Louis

473

Governor Fancher: I

will ask Mir, Harrison to read

that third reconmendation again.
ir. Harrison;

I t i s also recommended that items d e -

posited with the request to wire advice of fate be accepted
only ror collection a s non-cash items,
The Chsirman:

T h e point o f that i s obvious, t h a t

when a cash letter containing notation f o r a special advice : squires spocial treatment o f that item, i s put i n
for collection instead o f through c a s h credit,

Governor Fancher.

S h o u l d w e not receive such items

as c a s h items w i t h advice o f payment b e i n g made over conmersciLal wires,

b y the paying b a n k t o the bank re“ussting

such information, a n d have t h e Federal Reserve b a n k entirely o u t o f i6? T h a t i s the practice o f conmercial
banks i n many cases,
The Cheirman;

T h e

yusstion really i s this:

lection s y s t e m n o w xequires
cially b o c a u s e

O u r col-

u s t o treat t h e s e itens g p e -

o f t h e i r nuitber, t h e y iiust b e i d e n t i f i e d

anyway, a n d they are more satis fsctorily identified i r
put i n f o r c o l l e c t i o n t h a n t n a

Governor Hancher:

o f

a e

c a s h letter,

y o u Ssneounter t h e sane

opposition from o u r large member banks,

V e r y frequently


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Federal Reserve Bank of St. Louis

474
those items a r e items o f large amount.

O f course i n

some cases there a r e special circumstances w h e r e t h e y want
to b e sure o f their advice before certain transactions a r e

closed un, and I think they would make n o objection i f w e
singled out those items a n d daducted t h e m from t h e onbrne
letter a n d entored themfor cash.

T h a t 1 8 a custom pre-

vailing n o w i n the conmércial banks.

The Chairman; S u p p o s e w e act upon the first two
points, o n which w e are all agreed,

T h e recoumendations

have been read b y “ur. Harrison that wire costs b e absorbed
on telegraphic a d v i c e o f n o n - p a y m e n t

o f items o f 3500 o r

over, a c that all special vecuests for wire information
afterthe item has been p o s i t e d b e made a t the expense o f
the depositor,

T h a t i e offered a g a motion,

Governor Fancher; I

will second. it.

(The motion being duly seconded was carried.)
The Chairman:

N o w , a s t o the third recoiinendation

I co not think the necessity o f uniformity i: obvious a t
S11.

I t ison the first two, but this o n e i s simply a n

interior bookkeeping proposition.

(After Ciscussion this item was withdrawn.)

The Chairman:

T h s next is page 9, cash letter forne,


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Federal Reserve Bank of St. Louis

AIQ5

svpplies, stamped envelopes f o r remitting a n d s o forth.

It i s reconmended that each bank decide questions o f this
character o n the basis o f local conditions.
fered a s a motion.

T h e a t i s of-

I s that seconded.

Governor ilorss: I

will second it.

(The motion being duly seconded w a s carried.)
The Chairman:

F u r n i s h i n g stamped addressed snvelope

for remitting carries t h e same recors:endcation, w h i c h i s dffered a s a motion.

Governor!ancher: I

will second it.

(The motion being culy seconded was carried.)
The Chairman:

O n page ll, a n y other items o f this

nature, that ie, sornishing forme a n d s o forth,
a «;

e

a

c

h bank d:cide weetions

is of local conditions.

m d i t is

o f this character

T h a t i s offered a s a

not ion.
Governor :.0rses: 1

#econd it.

(The motion, being duly sscondad, vas carried,)
The Chairman:

P a g e 18, I

co not k n o w t o what extent

you gentlemen have d z eloped these local clearing zones.
ve are n o w absorbing a l l c e ts involved i n maintaining
them a n d I

imagine t h a t

w e are the only bank that has s u c h


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Federal Reserve Bank of St. Louis

costs o f a n y importance,
Governor Calkins:

d @ have consid:rable c o s t f o r the

item.

ir, Harrison:

G o v e r n o r Norris n o t being present T

Bay that Philacelphia h a s too,
Chairman: A p p a r e n t l y w e are a l l absorbing costs
the reconnendation i s that w e continue t o absorb
That i s made a s a motion.
Governor vLalkina: I
The Chairman:

second it.

I s t h e e a n y dissent?

I t Coes n o t af-

any districts b u t Philadelphia, S a n “yancisco, N e w
and Lt. Louis.
Governor o r g s :

I

t coes n o t apply t o local clear-

ing houses?
The Chairman:

N o .

(The motion, beings duly seconded, w a s carried, )
The Chairman:

T h e v e i s n o action nscessary with re-

gard t o p a g e 1 3 ,

ix, Harrleon:

T h i s i s the sane a s page 12;

includsd w i t h i n 1 2 ,

The Chairman:

O n page 1 4 we have uniformity a t pre-

sent, a n d n o action i s required.


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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

477
Page 15, incoming shipments o f coupons o r maturing
bonds.

I t i s r e c o m e n d e d t h a t shipments o f this nature

be m a d e a t t h e x p e n s e o f t h e s h i p p i n g bank,

N e w York

is the only exception, a n d w e propose t o conform.

h a t

is made a s a motion.

Governor Fancher: I

second the wotion.

(The motion being dul; seconded, was carried,)
The Chairman:
or m a t u r i n g bonds.

P a g e 16, outgoing shipments o f coupons
I t i s r e c o m m e n d e d t h a t t h e expense

of

euch shipmente b e absorbed i f tne cost cocs n o t exceed o n e
dollar,

T h a t i s ovtgoing shipments o f coupons o r matur-

ing bonds. T h a t is where ve are collecting them.
Governor Fancher;

H o w will that w o r k out w e r e t h e

banks a r e taking o n a large voluine o f securities f o r safe
keeping, miscellaneous securities, f o r their non-inember
bane,

The Chairman:

W e are paying those costs now, a n d

th°re dig n o sxzception,
Governor F o n c h e r ;

Y o u ean

o n their corporation a n d

municipal bonds?

The Cheirnan;

Y e s . C l e v e l a n d i s doing that.

ot sI49 l e s t y e a r .

I t


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Federal Reserve Bank of St. Louis

A478

Governor liores: I

would like t o say, Mr. Chairman,

that that i s one good result t h a t w e got o u t o f this questionnaire,

I t i s a fact that w e paid f o r that service

12,000 last year, which i s too much, a n d we revised that
very materially.

T h e information nscessary t o d o that w e

set o u t o f t h i s q u e s t i o n n a i r e ,
Governor Fancher:

“ W h y could w e not p u t that <

on the receiving bank?
The Chairman:

Y o u mean t h e depositing bank,

co o u

not?
Go'e rnor #"ancher;
bank.

Y e s , I

mean t o the depositing

v h y i s t h a not a n expense that properly belonzs

there?
The Chairman:

T h a t i s what w e propose,

Goernor a n c h e r ;

B u t j o u a r e going u p t o ons dollar.

I mean w a i v e i t all,

The Chairman:

i

@ are proposing t o make t h e denositing

bank p a y all o f these charges, unless t h e y are trifling.

Governor “anchsr:
The Chairman:

B u t you say u p to a dollar,

w h e r e they a r e lees t h a n that w e

absorb them.
Governor #ancher:

T h a t is, below a

dollar a n d u p t o

& dollar y o u a b s o r b t h e c h a r g e s ?

Governor icbougal:

W e absorb most o f the expense,

I would suggest cutting i t out

Seay:

W e make i t u p t o 2 5 cents,

LieDougal :

A n d w e male i t u p t o 5 0 cents,

Suppose w e change t h e resolution a n d
pro pose that that expense b e absorbod b y the depositing
bank, w i t h t h e e x c e p t i o n t h a t w h e r e t h e c h a r g e s a r e t r i f -

ling, where i t costs more t o collect t h a n i t i s worth,
that t h e y not b e collected,
Governor iforss:

T h a t w o u l d c h a n g e t h o practice,
Yes,

Governor Fancher: - I

T h a t

i s offered

as a

motion.

will second it.

The motion, b e i n g d u l y seconded, w a s carried.)
The Chairman

r a g e 17, unpaid coupons o r maturing

bonds returned unoaid,

I t i s recommended t h a t charges o f

between r e s e r v e b a n k s b e a b s o r b e d

b y the re-

serve benk returning the item, a n d that the matter o f
a b s o r b i n g Oo c o s t s b e t w e e n a


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Federal Reserve Bank of St. Louis

reserve

b a n k a n d its member

b e


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Federal Reserve Bank of St. Louis

discretionary.
That, I
convenience.

presume,

i s recommended f o r ithe purpose o f

I f i t works o u t i n substantial uniformity,

it i s v e r y much sasier t o absorb t h e charge-than i t is.to
collect it, a n d i f i t i s fairly evenly balanced between
2 it will just save a lot o f bookkseping, settlete, a n d exceptions i n the accounts,
Governor F a n c h e r ;

s h o u l d not returned coupons

to

the member banks f r o m ths fsad-ral veserve banks b e a t t h e
2¢ o f the noneiiembéer bank?
Governor «ucvpougall:
yy memorangu::
selcom h a v e =

ctarge

o f more t h a n t e n cents,

The Chairman:
ciscretionary,
of r e r e r v e b a n k s “ h e r e s e r v e b a n k r e t u r n i n g t h e i t e n

Governor M o r s e : I

will s e c o n e A G - m M o T L o n . ,

(The motion beings C u l : s
The Chairman:

P a g e 18,

J.
6 same principls exactly,

481
rvé banke t o the depositing bank, a n d that i s Left

jonary except a s between reserve.banls , T h a t will
‘ered a s a motion,
Governor Biggs; s e c o n d e d ,
(The motion, b e i n g duly seconded, w a s carried; 4
The Chairman:

N o w , page 19. T e l e g r a p h i c payment

or non-payment o f collection items,
Governor i.cDougall:

w @ coulc n o t indulge i n wiring

non-payient o f items, regardlees o f aiiount; t h a t would not
practical, I ain sure.
The Chairman:

T h i s i s a n important

it would b e pretty heavy,

Governor \.ellborn: g
Chairman:
read t h e p r o p o s a l ,
d

1

s about 32500,

I f you have page 1 9 before you I will
I

t i s recormenced t h a t w i r e

b
o
s
b
a
o ne items
o nr which
telegraphic
advice o f fate has

been r e vested, but that the practice b e watched carefully
bo a v o i d abuses, t

i s further r e c o u m s n d e d t h a t t h e c o s t

.t i n the vegular course o f business

Governor Le: T e l e g r a m s s e n t a s & special x s
i
We G o not absorb,
b u t w e absorb i n the regular c o u r se o f


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Federal Reserve Bank of St. Louis

ness,

Governor *ancher:

W e are dstseting i n our bank a n

increased amount o f instructions o n smail, unimportant

collsction items a n d I think w e ough: t o cut i t off.

T I

do not think w e should stand any go’ f it, a n dA+ think u e
Should b e uniform o n that,
The Chairman:

Y o u will observe

russtionnaire o n page 19, i t seer
uniforuly absorbing these c o

Governor fsnacher:
Chairman:

u

s uniformly not d o it.

i y disposition

i n this matter w o u l d b e

fors-end t h a t f r o m n o w o n e a c h r s s e r v e b a n k m a k e a n

idea o f ultimately coinpletely
absorption o f these costs; t h a t , t h e
vransenent n o w a p p e a r i n g t o b e uniforin w i t h a l l o f t h e
reserve bank:

o f absorbing these c o

f

e n o t imaeciately

ontinue t h e prac
Governor Fancher:

tion passed that w e n o w a g r e ,

3 c a t e , s a y duly 1 ,

or S o m e p o s t cate.
Governor Uilkins:

ity %


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Federal Reserve Bank of St. Louis

b e i n g abused, (

i

s gui C O V I O U R

N

b e

s e e r 1

S York »12,000, Cl=veland

37600 and so on, over 350,000 for the system,
Governor iWellborn:

I t cost u s 2500 and Dallas- 37,000,

Governor “ a n c h e r : I

a m having p u t o n m y d-sk e a c h

day the transfer report i : and out o f our bank arm i t is
surprising h o w the number o f unimportant collections i s
increasing,

I

t i t a practice t h a t i s prowing a l l t h e time,

“& are n o w endeavoring t o relieve o u r conzested wire

service, but w e are finding i t becoming more con ested
because o f the fact tiat these instructions a r e becoming
more numerous,
The Chairman:
be reluctant

W i t h h a t I know d o u t this, I

t o m a k e a n absolute c o n m i t m e n t

would

o f myself

to

say no, that w e will discontinue t h i s entirely, because
I think 1 t might getus i n hot Waters ‘but Ja. R e a r t i l y
favor o f t h e p r i n c i p l e fo G i s c o n t i n u i n g

in

i t just a s pronptly

@a& possible,

Governor Fancher;

I t i s a certvite that the cormer-

cial banke h a v e never assumed, I
The Chairman:

think.

T h e y are p r o b s b y
l charging a

lot o f

their customers forservices which we perform for nothing,
Governor Fancher: é b s o l u t e l y , a n d I think w e ought
to c o n e s q u a r e l y o u t a n d a g r s e t h a t w e w i l l c e a s e t o
perform B


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Federal Reserve Bank of St. Louis

484
this service a n d absorb t h e expense, a n d set a date o n

which i t is t o take effect, i n the near future,
Governor ..ellborn: I

will make a motion that w e dis-

continue i t after J u l y 1.

Governor Young: I

will second that motion,

(The motion being dul., seconded was carried, )
The Chairman;

P a g e 20, cost o f registration o f im-

portant papers f o r your o w n protection.

I t i s recomucnded

that t h e F P dsral reserve banke absorb s u c h charges i f
they
aeem i t nscessary t o werister,
Governor Calking:

W

e a l l d o now, apparently.

W e are a l l coing t h e same thing,

£0 let's pass it,
Governor i.cLougall:

A n d for t h e additional reason

that i t i s very mecessary t o continue t o ®

i t i n our

interests,

The Chairman:

T e e n I move that n o change b e made

in that practice,

Governor “ancher: I

second it,

(The motion, b e i n g c u l y s e c o n d e d ,
The Chairman:

collections.
bemde


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Federal Reserve Bank of St. Louis

w a s carriaed,)

r a g e 2 , service Charges

o n unpaid

i t 4&8 reco nenced that 9 services charge

o n all uncollected items returned without
protest,

485
a

a

n

d that thisservice charge b e retained b y the reserve
bank, unless the collectingbank specifically .makes-‘the
renuset f o r 16,

Governor Fancher:

Y o u will recall that was imposed,

in s e t t i n g u p o u r c o l l e c t i o n s c h e m e ,

t o protect

u s against

unimportant dunning crafts a n d I think i t i s quite important that w e continue that practice,

The Chairman: I

would rather s e e the resolution b e

that w e retain t h e service charge ond strike out the
Last part o f it,
Governor Biggs: I
Governor licDougal: I
The Chairman:

vould s o move, s r e Chairman,
will second that.

T h e n t h e r e s o l u t i o n w o u l d be.

I t is

récomuisnced that a service charge b e made upon all uncoliset3d items returned without protsst, a n d that thie service charge b e »stained b y ‘the r serve bank.

{The motion, being duly seconded, w a s carri
The C h a i r u g ; T o e Gent 1 6 pace 22, collect ion-or
service charges made b y collecting agents.


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Federal Reserve Bank of St. Louis

that s u c h charges b e p a t

I t i s recon-

t o the encorser,

Governor Calkins: I

make a

Govornor “"ancher:° I

second it,

m o t i o n t o t h a t sffect,

486

(The motion, being dul, second:d, was carried,}
The Chairman: P a g e 23, transfers o f funds.

I t

is r e c o m e n d e d t h a t a l l costs b e absorbed o n wire transfers
of funds b-tween federal reserve bank: a n d between a

re-

ferve b a n k a n d a n out o f town member either way.
Governor Calkins; I

make a

Governor : . c L o u g a l;1 I

motion t o that effect.

will second it,

(The motion being duly seconded, w a s carried.)
The Chairman:

T h a t covers pages 2 4 a n d 25,

tronsfers t o the ‘ive p e r c e n t recenption fund,

P a g e 26,
i t Ze

recormended that t h e use o f wires f o r this purpose
b e disc o u r a g e d So,e a n d that a l l such transfers b e made b y mail
where practifable,
Governor iicbougal: I

make s u c h a motion,

Wee covercad b y t h e p r o c e c u r e a g r e e d
u p o n yester-

The Chairman:

T h e n n o action i s required o n pages 26

and 27.

P a g e 2 8 . c h i n p m s n t e o f bills p u r c h a s e d

banls .

I t i s recoime ncecd that t h e cost o f s u c h shipments

t o msiuber

be absorbed b y ieserve banks.


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Federal Reserve Bank of St. Louis

Governor i:chesen ‘sy: T
Governor Young:

Oo

s o Move, ir, Chairman,

487
Governor

(The motion being duly seconded, was carried, )
The Chairman:
ana reciecounts,

N o w , o n page 29,. c o l l a t e r a l o
t adyanced

( A ) I n c o m i n g shipments.

uicnued t h a t a l l i n c o m i n g s h i p m e n t s

I t i g recom-

b e m a d e a t t h e expense

of t h e member bank,

Governor “ancher: e

are all following that practice

Governor iicKenney: A b s o l u t e l y .

The Chairman:

o n oubgoing shipments, i t i s recornmended

that a s a matter o f principle outgoing shipments b e
made
at the expense o f the member bank,

w i t h Giscretion, how-

ever, o n the part o f t h e reserve b a n k t o avoid
Gpifling
charges,
Governor i.cDougall: I

Governor “ancher: I

will s o move, i r e Chatvman,

will second that,

(The motion being seconded, w a s carried.)
Chairman:

i t h r e g a r d t o page 50, incoming ship-

ménts f o r s a f e keepir

ing shipments


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Federal Reserve Bank of St. Louis

5

a C o n u i s n u e d t h a t a l l incon-~

b e meade a t t h e expense

o fths inember bank,

Governor Fenchtr:

A n d 1 would ‘s0 move,

Governor Caliciy

w

(fhe motion,

i 1

3 E es

488
The Chairman:

T h e r e Ls no change i n practice, with

the exception o f some small expense which N e w York d i d

incur, a n d which we will dis continue.
Page 31, ovtgoing shipments, bills a n d securities,

I t

is recowiended, a g a matter o f principle, outgoing shipments b e made a t t h e expense o f t h e member bank, i t being
discretionary, however, w i t h each reserve b a n k t o absorb
euch costs u p t o a maximum o f one dollar,
Governor Fancher; I
Governor Young: I

80 move,
willsecond it.

(The motion, b e i n g duly seconded, wags carried.)

The Chairman: Page 32, war loan collat:ral, incoming
shipments.

i

e

s m e e n c e c that a l l incoming shipments

be mace a t t h e expense o f t h e cepositary bank.

Governor i.clousall: I
Governor “ancher:
The Cheirman;:

£0 move,

T h e same o n incoming a s outgoing?

T h i s i s inconiing a n d 2 s t o outgoing i t

is the same, with the provision that i t is discretionary
with e a c h r e s s r v e b a n k

a g t o the absorntion o f t h e trifling

charges,


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Federal Reserve Bank of St. Louis

Governor jiceYourall: I
Governor Panchsr: T

will s 0 move, iir, Chairman,
second that,

’

(The motion, being seconded, wa: carried, )
The Chairman:

P a g e S34, b i l l s a n d securities p u r c h a s e d

and sold, outgoing shipments,

I

t L s recommended

a matter o f principle, outgoing shipments b e made
expense o f t h e m e m b e r bank,

i t b e i n g aiscretionary, h o w e v e r ,

with each reserve b a n k t o absorb s u c h costs w h e n trifling,

Governor “ancher: I
Governor iicDousal: L

so move.
Will second thet,

(The motion, b e i n g d u l y seconcec, w a s e a r r i e d , )

The Chair.:n:

T h e same with shipments o f securities
it being recourisnded that a l l incoming

shipments b e madeat t h e expense o f t h e member bank,
Governor Fanch=r:
Governor Calkins: S e c o n d - d ,

(The motion, beins cul. eeconcaed, w a s carried,)
Chairman:

B a g s Oo, securities o w n e d b y

bank o r its customer,

i t i s rscorn-enasd that n o

tiation b e mad
of a member bank, a :


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Federal Reserve Bank of St. Louis

S property

Governor Seay: I

will second that,

(The motion being duly second:d, wat carried.)
The Chairman:

P a g e 37, Government bonds and notes;

permansnt-teinporary exchanses,

I t is recomaended that a g

requested b y the Treasury Demrtment, reserve banks continue
So absorb shipping costs o f these transactions,
Governor iscDougall: I
Go'rnor Seay: I

so move.

will eecond that,

(The motion, being duly seconded, was carried.)
The Chairman:

s

a

m

exchange o f denominations,

e v i t h regard t o page 38;
I

t i s réco.umended that t h e

ehipping cette o f such transactions b e not absorbed b y
the reserve bank,

Governor anchor: I

woulc s o move,

Gover nor worse:
(The motion, b e i n g d u l y seconded, w a s c a r r i e d , )
The Chairman:

tions,

P a g e 39,

T t is recomended

miscetlensoug

6 : n e g r a i

A l l o t h e r e x c h a n g e ti-ansac-

i

t t h e shipping expense o f

G i o

o f government bonds

and notes b e n o t absorbed b y reserve banks.


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Federal Reserve Bank of St. Louis

Governor fancher:

LOMOULC

Governor Seay: I

will s e c o n d that,

B o nove.

491
(The motion, being culy seconded, wascarried.)
The Chairman;

P a g e 40, shipments o f foreign currency.

It is recommended that a s a matter o f principle, outgoing
shipments b e made a t the expense o f the member bank, i t
bein” discretionary, however, with each reserve b a k t o
absorb trifling charges.
Governor zicDougall;: I

Governor Mancher: I

woulc s 0 move,

will second that,

(The motion being duly seconded was carried.)
The Chairman:

T h e next i s 41, miscellaneous,

of town tslephone calls,

Out

I t is reconmended that each

reserve b a n k vse i t e o w n discretion i n the matter o f absorb-

ing the costs o f out of town telephone calls, and that
uhere absorbed t h e practice b e watched carefully t o avoid
abuses,
Governor Calkins: I
Governor Seay;

woulé # 0 iove, ur, Chairman,

W i k i S e c o n d tnat.

(The motion, b e i n g duly seconded, w a s carried.)
The Chairman:

P a g e 42, Miscellaneous wires,

I t ip

recouusended that c a c h reserve b a n k u s e i t e o w n discretion

in the matter o f cbsorbing the m s t o f miscellaneous tele&

G r a m s , a n d that where absorbed the practice b e watched care-


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Federal Reserve Bank of St. Louis

fully t o avoid abuses,

Governor Calkins: I

would s 0 move,

Governor Fancher: I

will second that.

(The motion, being duly seconded, w a s carried, )
The Chairman:
Grafts

P a g e 45, furnishing member banks with

o n reserve b a n k s ,

I

t i s recomunended t h a t e a c h

reserve b a n k d e c i d e f o r i t s e l f w h e t h e r

o r not i t should

fupply m e m b e r b a n k s w i t h d r a f t s w i t h o u t c h a r ge,

Governor hcDougall: I
The Chairman:

would s o move, iirs Chairman,

I s there a

Governor iiorss: I

second?

will second that,

(The motion, being duly seconded, was ca: ried, )
The Chairman:

P a g e 44, exchange a d transfer drafts

is recomiconded t h a t e a c h r e s e r v e b a n k d e c i d e f o r i t s e l f

whether o r not i t will furnish member banks vith exchange
and t r a n s f e r c r a f t e w i t h o u t costes.
Governor ieYouzall: I

Governor Young:

woulc 8 0 move, lir, Chairman.

i L -wili-second that,

(The motion, b e i n g duly &sconcsd
The Chairman:
recouiended

P a g e 45,

c a r r i e d , +}

i

that e a c h vessrve banks decide

Bopoii: ees eeees
f o r itself

the

character o f forms that should b e furnished b y i t t o its


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Federal Reserve Bank of St. Louis

menbsr banks, w i t h o u t c o a t ,
- .

Governor Horss: I

would s o move, lir, Chairman,

Governor hi¢Dougall: I

will second that,

(The motion being duly secondec, w a s carried, )

The Chairman:

P a g e 46, other service, miscellansous

in characted, n o t covered b y these resolutions a n d which
were n o t covered b y the questionnaire,

i t i s recommended

that the absorbtion o f such costs b e left discretionary
with each reserve bank,
Governor “ancher: I

Governor jicDovgall: I

would S o move, iir. Chairman,

will second that,

(The motion being duly seconded wag carried.)
The Chairman:

W i t h regard t o furnishing clerical a s -

sistance t o member banks i n cases o f emergency where t h e y

need such assistance, i t i g recoumended that the furnishing of clerical assistance t o menberbanke b e discretionary
with cach rescrve bank,

Governor “ancher: I
Governor vellborn: I

would s0 move, iir+ Chairman,
will s e c o n d that,

(The motion being duly seconded was carried,}
Governor Young:

on page 47, I


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Federal Reserve Bank of St. Louis

i y . Chairman,

a s t o the last i t e m

wat t o a s k s question. I

notice t h t innea-

494
~olig i s the o n l y bank that h a s m

“50,000,

N o one else has,

The Chairman:
ne f i e s

T S outs

expense o n that,

H o w about that.

v e have had a lot o f expense, but can
w e just s e n d men around,

Governor Calking:
Governor Young:

h a t i s that item?

l i e n sent o u t t o help member banks

in cases o f illness, d¢falcation, a n d other causes,

The

other banle m u s t have that ¢xpenze,
Governor Calkins:
ac that,

W e have, b u t not t o such a n amount

w e have sent m e n out very frequently.

Governor inecKénneyy

Governor Young:

. @ have sent m e n out fvery often,

V i e have charged i t t o the banks a n d

expect t o collect it.
The Chairman: G e n t l e m e n ,

w e n o have before u s the

last item o n ovr progam, which is s further dis cusdon,
and i f possible, some uncer tanding asto what should b e
the policy o f the reserve banks i n the matter o f investments
in United Stateseecuritics,


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Federal Reserve Bank of St. Louis

I had a talk with the Secretary about this this

He i s very much interested ins hat action, i f
taken a t this meeting.
I have given a sood deal o f thought t o i t a n d I

an

495
rather uncertain a s t o what t o sugsest,

o r whether y o u

want @ sug~estion,
There a r e c e r t a i n t h i n g s t h a t w e might a g r e e t o do,

however, t h a t would a i d i n the determination o f a policy,

and let me propose this one. T h i s ariginated, really,
with Governor iiorss, G o v e r n o r HMorss had drawn off from
the books o f the Boston bank a statement showing just e x actly what t h e totdl o f the earnings o f the bank vould b e
on all investinents o f the bank o r loans h e l d b y the bank
if they were carrisd t o maturity,

o r t o the e n d o f the

year i n case they matured bsyond t h e year 1922.

T h e n

he fisured what t h e requirements o f t h e banks were f o r
earnings

i n order t o cover exvenses

m a civicends, a n d

the difference w a s the s u m o f s r n i n g s requirsd, which,
reduced t o a four per cent basis made i t necessary f o r
them t o invest o

siven amount, a m i that gave a picture o f

how t o figure o n what t h e requirements o f the bank might
be i n order t o cover expenses a n d dividends.

“ @ have

Gone the s a e thing i n New York and have found it very
Llluninating.

I

f all t h e vessrve banks w i l l d o that a n d

do a s w e have, imake a rough estinats o f what t h e amount
of discounts w o u l d


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Federal Reserve Bank of St. Louis

c e l y

w

e Will a:rive a t a n approxi-

495

mation o f the amount o f investments t h a t will b e required

for the system as a whoke, outside of the regular discounts
which w e anticipate t h a t member banks w i l l require,
It i g s i m p l y a

susgestion o f a

basis f o r d e t e r m i n i n g t h a t

investments a r e required, v i e w i n g the subject simply f r o m
the s t a n d p o i n t

o f sarnings, I

make t h a t s u g g e s t i o n a s

You may all have done this all‘ ready,
Governor Young:

W

Governor Calkins: I

e have done it.
think w e have cone approximately

that.
The Chairman:

B y one method o r another

rived a t tome sort o f a record,
Governor rancher:

T h a t i s what w e have done i n our

bank,
Governor :cKe ney:

v e have done substantially t h e

same thing.

The Chairman:

N o w , assuming that w e all have done

that, w e will be justified shortly i n modifying that
figure w h e n w e arrive a t the probable reimbursement f o r

fiscal agency expenses, under the terme o f ur. Gilbert's
Lsttsr.


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Federal Reserve Bank of St. Louis

Now, i f you are willing t o g o that

497

for with me, t o the extent o f submitting the matter, h o w
would i t d o t o report those figures t o some central body,
the Fedoral Reserve Board o r a coiiittee o f governors,

anc t o lay a foundation for a n investment policy,

Then

if w e d o report t o the Reserve B a r d o r t o a committee,
as w e used t o d o i n buying bills, t h e guestion arises a g

+o what our policy shall b e as t o the amount t o be invested,
anu secondly what our policy shall be a s t o the way i n
which buying and selling orders are t o be handled,

Does

not t h a t b r i n g t h e q u e s t i o n t o a focugz a s t o policy,

one

thing covering t h e amount a n d the other method o f siving
orcers?
Governor Norris:
that m a y lead us,

L e t u s l o o k t o the point t o which

v h a t were t h e total expenses o f t h e

Federal R e s e r v e Banle

i n t h e l a s t year,

i f t h e figures a r e

avallable?

The Chairman >
the e x p e n s

a

estimate made s o m e t i m e a g o was
r i i v i d e n d s required

a n income o f sone-

thing like 342,000,000 but a revised estimate o f ixpenses,
especially since w e have started a

real program o f reducing

every possible i t e m that c a n b e cut o u t o f ovr expenses
end t a k i n g i n t o c o n s i d e r a t i o n t h e r e i m b u r s e m e n t


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Federal Reserve Bank of St. Louis

o f ovr

498
fiscal agency expenses, w i l l undoubtedly b e greatly reduc-~

ed,
Governor Norris:

A n é @ o n the other h a n d w e have a

constant accretion o f capital.

340,000,000,

L e t u s take that a t

I f we average four per cent o n all our in-

vestments t h a t would take 2 5 times 340,000,000 o r one
billion dollars.
The Chairman: O n e billion dollars, yes,
Governor Norris:

O n e billion dollars o f earnings

assets that vould b e requized,

S

o that i f our advances

to member banks a r e 3500,000,000, t h e a d o p t i o nfo this
policy wouldauthorize a n investment o f .3500,000,000 i n
Government securities, w h i c h i s about w h a t w e have now,

The Chairman:

W e have today betwsen 31150,000,000

and ..1,200,000,000; b u t w e have t o bear i n mind thig,
Governor Norris, t h a t s o m e o f the ressrve banks a r e n o t
xequired t o make a n y investment a t all, because t h s y have
sufficient earning assets, t h r o u g h their discount accounts,

and that other reserve banks will require a very considerable amount o f investments,

« @ have n o figures o n what

those requirements a r e i n detail for each bank, assenbled
so that w e c a n tell what t h e systemrequirements are, o n a


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Federal Reserve Bank of St. Louis

“499
basis o f estimates,

w

e know w h a t t h e present: investned

is, and wie know what the present earnings are,
The gross earnings, current expenses a n d net earnings f o r the first quarter w e r e a s follows:

Gross earnings o f the
warch, ..14,000,000
Expsnses o f the system,were about °37,700,000,

Net sarnings o f the system, applicable t o dividends
in the first quarter, 36,150,000,
The fact i s thst w e are earning now cartainly double
our divicencs,

Governor Norris:

4 n d the system as a whole about

four times that,
The Chairnan:

T h e system a s a whole, yes.

T h a t

ee per cent s i v e n I do not think i g quite accurate, because
i co not think i t allows f o r t h e accrual o f dep: eciation,

insurance a n d other charges which should come off, B u t ,
on the other hand, those will b e much more t h a n offset
by the reimbursement o f fiscal age:
Governor valkings:

= x p onses,

T h s cslculation that h a s just b e e n

mads seems inconsistent w i t h t h e statement o f estimate
by
Governor Norris t h a t i t w i l l r e q u i r e i n v e s t m e n t s ,


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Federal Reserve Bank of St. Louis

loang

500
and s o forth o f a billion dollars t o p a y the expenses o f
the banks, a n d w e have invested .1,172,000,000,

The Chairman; T h a t i s not a sound calculation.

The

fact i s that i n some o f t h e reserve banks t h e y have v e r y
largs amounts o f loans a t four a n d a half a n d five p e r
cent, a n d the earning o n the gross o f their investments a t
those rates reduces considerably t h e percentage returned
on the capital stock,
Gov ynor Norris: I

think t h e overage f o r t h e system

how i s probably i n the neighborhood o f 4.20 o r 4.25,
The Chairman:

Y e s , s o that i t will b e illuminating,

irrespective o f this cash statement o f sarnings a n d expenseés, t o have these estimates carefully made, allowing
for t h e accrual o f reservezr t o b e s e t up, which i s the
only i m p o r t a n t i t e m t h a t <coes n o t appscar; a l l o w i n g f o r
reimbur:enent

o f f i s c a l s g e n c y expenses,

t o sse where w e

etand 5 8 a system o n our investment policy.
think, w e ought t o do,

d i g kts eee Ei

I t will sive e a c h one o f u s a

picture o f the situation which w e d o not get f r o m these
Lisguresr,
Governor worse: I

want t o s a y that s h a t i t e m o f

42,000,000 f o r expenses a n d dividends l a s t year
was just


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Federal Reserve Bank of St. Louis

501

taken off of each bank as they came, before they were
fully revised, a n d they.are practically correct.

The Chairman:

T a k e the New York Bank, a n d the set-

up that w e made f o r our expenses f o r this year i n the
beginning o f the year contemplated effecting a

in our expenses o f 31,250,000.

reduction

A s a mather o f fact w e

have had an expense account which has run froma f e w dollars t o thirty thousand dollars per month less than that,
and this m o n t h I

understand i t will b e fifty o r sixty

thousand dollars less t h a n t h e sstimate,
will x

s o that there

obably b e a reduction i n the Newyork bank o f a mil-

lion and a half anyway i n expenses which they have allowed
For,
Governor ceay;

E a l f a million doll r s i n the month

of iiarch between this year and last year,
The Chairman:

a n a furthsr t h a n that, i f w e c a n get

prompt w o r k o n this insurance metter, t h e r e i s a
saving
of from three t o five hundred thousand dollars f o r the
system,
Governor “jellborn:; T o u c h i n g t h i s matter o f
the banks
refraining f r o m purchasingeu? j

s o v e r n m e n t

securities, isn't

there someplan w e could work out b y which t h e banks


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Federal Reserve Bank of St. Louis

508
that have a n over s u p p l y f
o rediscountse could sell. those
to the otherbankt without having t o endorse them?
The Choirman: I

shoulcd t h i n k t h a t w a s possible,

Governor Vellborn:

O

f course I

would h a v e n o s p e c i a l

sire t o -ivevp a n y o f mine, because I

would just a s soon

show 4 profit a s not, a n d I regard t h e m a s good. I
if thebanks t h a t receive a

thought

liberal amount o f those would

pass them around t o the other banks they would show earn-

ings.
Govsarnor Seay;

B u t that w o u l d not fill a grea b i g

gap, G o v e r n o r iellborn,.

The Chairman;

N o , i t would n o t fill a big gap.

Those banks that have a surplus o f normal esrnings a:sets,

without investment, havsu't got enough t o repair the deTiciencies
depets,

i n the other banks which have insufficient earning

A v e y o u willing t o pass a

.esolution that e a c h

bank p r e v a r e

o n e s t i m a t e o f e a r n i n g requirsmentse

basis t h a t I

have a t t e m p t e d t o , describe, w h i c h G o v e r n o r

“ores h a s d o n e a n d w h i c h I

Governor Pancher:

o n the

have d o n e i n N e w Y o r k ?

T h a t w o u l d incluce a l l ceprecia-

tion s e t ups s n a things o f that sent?


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Federal Reserve Bank of St. Louis

The Chairman:

w o u l d a includs everything a n d make

505

allowance for reimbursement for fiscal agency expensss,
Governor Norris:

o u l d

i t also include a

s u m suffi-

cient t o add t o the surplus, commensurate w i t h t h e addition t o capital during thse year?
The Chairman;

Y e s , where t h e capital h a s b e e n incorrecponding i n c r e a s e

included a s a vegquirenent. I

o f surplus,

think the

snould show what i s required f o r expenses alone,
and a n additional requirement f o r cividends a n d then the
total requirement allowing f o r surplus,
Governor iilller:

The Chairman:

“ o u l d y o u allow anything a t all

That is a

reserve f u n d ,

Are y o u w i l l i n g t o p a s s a

sesolution providing f o r

the l i m e c i a t e p r e p a r a t i o n o f t h o s e fisures.
s

I

J u s t t o make

" 1ea
thought
w e should
take
t h e om u p one
a t ap tine,
s
e
r
g
r
r]

Governor Young: I

will make such a motion,

Governor i'eDougall:

M e y w e have the outline o f

that p l a n again?


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Federal Reserve Bank of St. Louis

The Chairman:

I t i s a l l i n t h e r e c o r d there,

Governor :.cLDougall: T

w e not i n the room, lr. Ghair-~

504
The Chairman:

O h , t h é plan i s simply t o prepare

an estimate o f probable earning

r e q u i r ef meach
e noJederal
t s

Reserve Bank, i n order t o enable i t this year, first t o
meet i t s expenses, s e c o n d t o provide f o r i t s statutory
furplus a n d third t o p a y its dividends, t h e expenses t o
incluce a l l rescrves r e q u i r dto b e s e t u p for building
depreciation,

expscted losses

o r anything else, insurance

fund, 2 n d 2 6 On,
Now, when y o u arrive a t thot figure t h e formula i s

to take all existing loans a n d investments a n d calculate
the revenus f r o m those i f carried t o maturity,
they m a t u r e b e y o n d t h e e n d o f t h e year,

o r where

t o the end o f

the year only, a n d then the sseiimate o f what i s expected

to be the normal bovrowing o f the member banke,

T h e n yo

@ asficieucy i n earnings @ f there i s a c*ficiency,
y

h, reduced t o a four p s r cent basis would require t h e
given gum,
Governor i.cDougall:

i

e nothing i n this pro-

posed istolution that would establish san inflexible policy
réspect t o the aimount o f securities t h a t a

bank imi ght

buy i n the open market,


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Federal Reserve Bank of St. Louis

The Chairman:

I t onl; contemolates Siving t h e inforna-

tion.

Governor Seay:

I s each bank t o send thisestimate t o

every o t h e r b a n k ?

The Chairman: I

was coming t o that next,

a r e you

in favor o f a motion providing f o r t h e preparation o f

Governor Young; I

will make euch a motion.

Governor Fancher:

t T Witl eetond It.

(The motion, being duly seconded, w a s carried.)
The Chairman:

N o w , t h e y v e s t i o n ils s h a t d o y o u w a n t

to G o with t h e stateinsnt, C e r t a i n l y e a c h bank should have
it, but ite i t t o g o t o a central comiittee o r t o the
basie o f t h e dissemination
of a n y p o l i c y o f a n y kind?

Governor B i g s :

S h o u l d not that g o t o t h e Board?

In that w a y the Board would know w h e n a mank was purchasing a n emor:ious amount a n d keep t h e m nearer i n line ac-~
cording t o the avera;
and’ buy Fifty a
ions,

T h a t woul:

2

F
n

o


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Federal Reserve Bank of St. Louis

w e micht g o out

d Kansas C i t y only b u y five mil-

enable 4

is t o h o w f a r w e s h o u l d B O s
The Chairian:

r instance,

O f cour

gensral

idea

506
situation, Governor Biggs, where a n effort w i l l b e made,
if i t i s your wish,

t o arrive a t some policy a s t o how

much w e shall buy, a n d then whether w e cannot arrive a t
an understanding aiong t h e reserve banks a s t o the extent
of this investment account i n Government Securities,
Governor Callcins:

T h e action taken b y the last

resolution coes notin a n y w a y conmit anybody,
The Choirman:
about t o a r r i v e

N o t s particle,

at a

policy,

N o w that w e are

t h e first t h i n g f o r discussion

here i s what that policy shall be. I

assume t h e situa-

tion i n each ressrvs b a n k i g substantially t h e same; t h e y
directors m e e t i n g s ,

t h e y hear t h e reports

o f t h e offi-

theofficers m a k e yr commendations o s t o these policies
ivectors almost invariably adopt them.

T e n ' t that

about t h e situation?
Governor Calkins; I

should s a y that probably t h e

situation was abou' t h e same i n all o f the banks, but
not quite that. I

think i n many coses t h e directors

will bemors seriovuslyconcerned about t h e earnings o f the
banks t h a n the o f ficers’ f
o
words, t h e Cir:
very r e l u c t a n t


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Federal Reserve Bank of St. Louis

c

a

b a n k will be,

I n other

t ‘ h e surfaceof things, a n d are

t o s26 t h s earnincs

g o b e l o w a n amount >

necessary t o pay expenses a n d cividends,
The Chairman: ‘ i / h a t I

a m proposing i s Simply t o ar-

rive a t something which w e c a n recommend t o our directors,
That i s t h e whole story, I r r e s p e c t i v e o f a n y opinion

which w e may m o w that ovr directors hold o n the subject,
vence decide o n what i s a

wise policy

end t o them and say “Ye have agree

onthis i n conference a s a wise policy.*
Governor Norris;

v h e n that information comes i n

Will not alter t h e present situation a t ail, W i d l o i

en't every bank at the present tine a volume o f sarning
assets which, i f continued, will more than mset all these
requirenents f o r t h e year?
Governor Sanchor; I

do not think G o v e r n o r

Norris,
(During t h e a b s e n c e f r o m t h e c o n f e r e n c e F o o n f o r a

the


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

oe uiTTTas O N OPait
NO T O THE

YONCT OF GOV RNONS o F TM Fup RAL
SEGURVE BANKS.

last report i n cctober, 1921, your co:mittee

508
hos continued t o receive f r o m the several reserve banks
weskly reports o f open market conditions w h i c h have besn
euimarized f o r t h e cormittse b y its secrétary i n New York,
sarly t h i s y e a r ,

i n order

t o avoid u n n e c e s s a r y d u p l i c a t i o n

of work, t h e monthly resorts theretofore s e n t b y the varbanks t o the Division o f Analysis a n d Research
neserve Board i n New York wereconbinsd with
mouthly r e p o r t s w h i c h t h e r e s e r v e b a n k s h a d b e e n s e n d -

to the secretary o f the committee,

T h e s e combined

reports w e r e a.ended s o a s t o provide more vniforn a n d
conprehensive inforuation a n c have e a c h inonth been sunmarized b y the coimittee's secretary a n d sent t o the governor
ofeach bank,

T h e Division o f Analysis a n d Research h a g

also been using these combined reports a s 4 basi
monthly reviews o f the bill market i n the #ederal Reserve
Bulletin,

since your committee's l a s t report t h e iarket Supply

of bills has been small and i n diminishing volune, a s evidenced b y a ceersase f r o m about »L,000,000,000 bills out~tancing a t the e n d

M

e year 1920, t o approximatsly

565,000,000 a t the last s3stimats made i n February,
1922,
This reduction m a y b e attributed principally t o the
de-


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Federal Reserve Bank of St. Louis

509
cline i n conumodity values,

t o a tendency o n the part o f

suropean purchasers o f imerican goods t o provide sight
tather t h a n time credit i n view o f t h e instability
in the exchanges, w i t h t h e resulting instability o f forsign
prices

o f i m p o r t e d g o o d s sand co.sodities, t o . t h e d u l l n e s s
“Vite S o u t h Anerieca a n d u n t i l r e c e n t l y . i t h t n e

Orient, a n d also with regard t o v o l u n e o f domestic
8 recuction c a u s e d p a r t l y b y e a s i e r m o n e y conditions,

some domestic users o f credit t o finance
tlore cheaply through bank loans a n d commercial paper sold,
aud partly b y their n o t having acco:modated their dom:stic
sales, involving shipment,

t o acceptance practice,

further influence o n t h e svlii
¢
.
bills h a s b s e n t h e tance:

Sporting: Credits,
eterling excnangs,

du n

Y

pa

E

v

the volume o f collar
e

G

o the use o f

t o t h e improving sorition o f

t h e l o v e r G i s count r a t e s

i n London,

and t h e more liberal practices o f British banks a n d bankers
than was until recently permitted b y our regulations,

\
Under t h e n e w » e g u l a t i o n s r e c e n t l y p r o m u l g a t e d

by

ra, however, your committee hopes
and belisves


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Federal Reserve Bank of St. Louis

2

G G A S volume

o f dollar b i l l s W i L l matear-—

set Inerease t o the point o f pro-

510
viding t h e v o l u m e r e q u i s i t e s n d n e c e s s a r y f o r t h e m a i n t e n -

ance o f a n erfective o p e n ciscount market.

A l r e a d y your

committee leanne that important hougss, b o t h inoorting
anc. sxporting, w h i c h f o r eighteen months h a v e used sterling erscits exclu:ively because their business d i d not
permit c o c u m e n t s

t o b e furnished

t o t h e a c c e p t i n g bank,

5

returning t o t h e u v C L i d o l i e r c r e d i t s .

-ithin t h e period covered b y this report, o p s n market
sve Gaclined gracually f r o m 4-5/8% b i d t o
rerale rates h a v e declinsd
The principal impstus
jecline h a s been t h e recurring
ana i n c r e a s i n g cemand a g s i o n e d b y the i n v e s t m e n tfo
foreign o w n e d f u n d s

i n o u r b i l l market,

ence w a s m a d e i n your committee's

last

period v i a s

S Ven e p

e V LEW

in t h i s market

h :

than formerly. i

P

e e n

O

L


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Federal Reserve Bank of St. Louis

f

o employed

o f a somewhat different cnaracter

n e n a

c u r i n s last Buvjer v e r y

important a m o u n t s .ereheld h o r e
which i n t h e sutuia

t o which refer-

b y the B r i t i s h G o v e r n m e n t

511

s come t o this market fndm-to principal sources.
e., t h e avails

o f f o r e i g n l o a n s p l a c e d i n this m a r k e t

anc not sntirely withdvawn, a n d the accusiulation o f Yfor€isn bank bal-nces i n this country, including t h e e h e l d
indirectly f o r account o f German nationals,

Thus, a

ore

general investment o f foreign funds here h a s developec,
from t h e p a r t i c u l a r e m p k o y m e n t

o f tem

porary specisl funds,
The effect i n the bill daveet o f foreign demand has
besn a

Geersagsed G e i a n d f r o m d o m s s t i c banke a n d corpora-

Sions o£, u.ith the establishment o f lower rates, short

Government obligations with theirtax exempt features
offered better returns t o these classes o f domestic

investors. Likewise, offerings t o Federal reserve bank,
which generally have operated t o give effective stability

to existing market rates, have become rslatively larger
and holdings o f bills purchased b y Fedsral reserve banks
have increased gradually from the extreme l o w of last sum-

mer to a present volume of possibly 1 5 to 20% o f the total
volume o f bills outstsandin

T h e s e holdings

o f Federal

resarve banks, however, include their advinees t o the Giscount market, t h e volume o f which fluctuates w i t h rates


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Federal Reserve Bank of St. Louis

512
in the call money market.

T h e s e constitute a

ing b u t i m p o r t a n t p r o p o r t i o n

fluctuat-

o f t h e entire holdings

Federal reserve banks o f bills purchased,

by

a s for instance,

at the N e w York bank o n December 3 1 , bills h e l d under sales
contract exeseded 345,000,000 a n d o n January 1 5 these
had all been taken o v t a n d none was s o held,
At t h e time o f w i t i n g this report three months bills

in Landon are quoted at 2-1/2% discount, a s compared with

the 3-3/8 offer:d by the American discount market,
Your c o mittse coes n o t recon.end for t h e American discount
market closer competition i n rate w i t h the London market
under present conditions,

a s i t believes t h a t t h e London

rate i s artificial and temporary and that a 2-1/2% rate
in this market w o u l d b e impracticable a n d inadvisable a t
this time,

I t does recommend t h a t t h e market operations

of the iederal reserve banks b e directed t o maintaining
stability o f ratesesta lished b y snd i n the American marse ree


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Federal Reserve Bank of St. Louis

( S i g n e d )
ores

Kenzel C o m m i t t e e .
Fancher,
Chairman

(Governor Strong thereupon resumed the chaix,)

513
The Chairman:

T h a t report i s ordered accepted a n d

placed i n the record,
The next p o i n t t h a t I

want t o b r i n g u p i n c o n n e c t i o n

with the transactions i n government securities, i s this,
and t o see i f w e camot g e t into agreement vpon that here:
“fe have very large orders t o execute for the Treasury.
Some of the other reserve banks have orders from time t o
time, b u t I

York,

think a t t h e p r e s e n t t i m e t h e y a l l c o m e t o N e w

s e e r e t a r y o f the Treasury vould like t o have

an understanding about the handling o f these orders under
which the reservebanks will not interfere with the execution
of these orcers b y the execution o f orders fortheir o w n

account, I

am going t o proposs that a

understanding

be arrived a t here, i f agreeable t o you |ll, that whenever
we are i n receipt o f buying o r selling orders f o r
Tscasury,

t h e NewYork bank.will telecraph e a c h o f

reservebanis a t once s o that they will know and will avoid
any conflict o f interest o f the reserve banks w i t h the in-

“srest o f the Tressury,
Governor Fancher;

A n d would y o u also telegraph u g

when the order h a d been filled?


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Federal Reserve Bank of St. Louis

The Chairman: g

w

e wi

e l e g r a p h when

the order h a s besn filled,
Governor a n c h e r :

A n d during t h e interval v e will

Etay out o f t h e market f o r these particula: secuvities,

The Chairman:

Yes.

Governor tieYougalls

T h i s question i s something

that w e h a v e ~ i v e n c o n s i d e r a t i o n t o ,

w h i l e t h e condition

to which you refer h a s existed a n d w e have known it, t h e
cifficulty h a s b e e n b e c a u s e

o f t h e failure

o n the part

of the Trsasury t o notify us.
The Chairman:

T h i s i s p r o p o s e d t o r e m o v e that,

Governor i.cDougall: I

think this notice should come

from the Treasury, a n d I think pot sibly same o f the other
banks c a n participate i n supplying what h e wants,

I siuply stated that I would b e regpousing that t h e notice w a s sent. I
Chat w e will s e n d them,

co not niean

I t will quite probably c o n e

cirsetly from the Treasury,

I f you will leave i t t o ine

i will make a n a:vaxrgement w i t h =r, Gilbert o n that point.


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Federal Reserve Bank of St. Louis

Governor 7ouns? I

Governor Norris:

will m a k e t h a t a g a

motion,

b o n ' t y o u think that that h a d bet-

governor r a t h e r t h a n t o s o t h r o u g h t h e d e -

S15
The Chairman:

I f you will leave that matter t o m e f £

Will take i t u p with lir, Gilbert a n d gee just howhe does

wart i t done.

I t if a matter really for him to dster-

mine,

Governor Norris: I

think there i s considsrable r i s k

a G s l o s i n g these operations t o the public a t
t h e twelve
cifferent p o i n t s ,
The Chairman;

T h e y c o i t n o w v e r y largely.

Governor écDougall:

Y o u say the danger would be

greater b y extending i t t o several points?
Governor Norris:

B y cissemination information a t

tuclve different pointe,

Governor iicDougall:

I t hag got t o be disseminated

anyhow.
Governor Norris:

Y e e , but I

think i t h a d b e t t e r

be

cisessminated only for the invovisation o f the
Governors,
i mot g o through the hands o f the peoplein
t h e telecraph

The Chairman:

I w i l l propose a general :ezolution

covering this point,


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Federal Reserve Bank of St. Louis

i f i t i s satisfactory t o you,

at she Chairman o f the meeting b e

516
to arrange w i t h the Under Secretary o f the Treasury that
suitable notice, properly safeguarded,

b e convsyed t o

every reserve b a n k Governor whenever t h e Treasury Dspartment i s doalings i n the market f o r t h e purchase o r sale o f
Government securities, I
nesolved, t h a t i t is t h e policy o f the reserve banks
not t o sxécute a n y ovcers i n the market f o r the purchase

or gale ofthose escurities, for the bank's o w n account,
when t h e Treasury h a s unsxecuted orders i n process,
Governor Young: I
Governor W o r r i s :

will make s u c h 9 motion,
f r e n o t t h e Trsssury a

dere i n

market nearly a l l t h e t ine?
The Chairman:
Governor seay:

N o .
T h i s proposes t h s t t h e Treasur

notify t h e reserve banks w h e n i t has execu
The Ghairman:

w

o r d e r s ,

e should a d a t o the resolu-

tion that similar notice shall b e ‘iven upon t h e completion o f the Treasury ord:
Governor Biges: I

will second Governor Young's m o -

tion,


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Federal Reserve Bank of St. Louis

(The motion, being duly seconc-d,
The Chsirman: I

a m going t o ssk Hr. Harrison t o read

S17

a letter ritten b y Secretary Mellon o n this subject.

The letter is cated April 25,
i. Harrison;

T h e letter i s a s follows;

‘Uy dear Governor:
I notice f r o m the statement o f the Federal Reserve
Board 9 & t o the condition o f t h e Federal Reserve Banks a s
at the close o f business April 19, 1922, t h a t t h e 1 2 b a n k

held o n that date about 192,000,000 o f Treasury certificates o f indebtedness (other t h a n Pittman Act) a n d abouw

254,000,000 o f United states bonds a n d notes, chiefly
Victory notes a n d Trsasury notes, a

most 3450,000,000, I

combined total a f al-

notice further that these holdings

show a n increase o f about 70,000,000 within two weeks,
ana of about 325,000,000 since December 29, 1921. I
unm: “retand that for the most part thesebonds, notes and
certificates have been aciuired and are now held b y the
ed ral Heserve Banle f o r investient.
over 3 4 0 0 , 0 0 0 , 0 0 0

T h i s means that

i n Fedsral Reserve f u n d s h a s b e e n p u t

out into the market, apparently t o enable the Federal Reserve Banke themselves t o earn monsy.

C e r t a i n l y these

securities h a v e n o t been acquired a t t h e request
Treasury.


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Federal Reserve Bank of St. Louis

A

B a matter o f fact i t has b e e n with much con-

518
cern that t h e Treasury h a s watched t h e growingaccumulation

of Government securities i n the Federal Reserve Banks,
and o n several occasions .ithin t h e past f e w months i t h a g
called the situation t o the attention o f the Board.

The

Treasury h a s followed, e v e r since t h e beginning o f t h e war,
the policy o f not calling o n the Federal Reserve Banke
for cirect loans o r advances i n any form axcept a t infrequent intervals u p o n d a y t o d a y Treasury certificates o f
ese i s s u e d i n a n t i c i p a t i o n o f a s s u r e d r e v e n u e s
he r e e e i v t

o f f u n d s f r o m depositories,

T h e Treasury's

current financing i s firmly established o n a n investment
bssie a n d all ovtstanding issuss o f Government bonds, notes
and certificates issued

t

h

e beginning o f t h e w a r en-

joy a broad m d active market a t o r about p a r o r aven better,

I n the present state o f s e c u r i t y markets, theree

fore, theretan b e née o u n

o f c a p a c i t y o f the public

to absorb Governusnt securities for investrnent, a n d there
i= n o r e a s o n f r o m t h e p o i n t o f v i e w o f t h e T : :

they should b e curried i n the Peccral hererve
tam writing about t h e matter a t this time bscause o f
the approaching meeting o f the Ped-ral Advisory Council a n d
conference o f the Governors o f t h e Federal Reserve Banke,


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Federal Reserve Bank of St. Louis

519
and i n order , first, t o make clear t h e position o f the
Treasury, a n d , s e c o n d ,

t o suggest t h a t t h e q e s t i o n

of

FeceoralNessrve B a n k investments i n Government 8 ecurities
for their o w n account should have full consideration b y
the governing authoritiss o f the Federal Reserve vysten,
with a visw t o the adoption o f & proper policy f o r t h e

oystem., I

should regard i t as particularly unfortunate i f

incicental questions o f expenses a n d divicends w e r e t o b e
-ermitted t o control o n qwestions o f major policy, a n d
with magy o f the banks,

a t least, t h e r e i s n o incication

that any other policy is being followed i n this matter
than the accumulation o f enough securities t o mest expenses

and civicends,

I n this connection, I have been interested

to note the following resolution o f the Federal Advisory
Council, a c o p t e d November: <l ,

“The Council stated tha

i

s n o t disturbed b y the

fact that the earnings o f the Federal Resorve Banks a r e
dec casing because o f the accumulation o f idle funds,

The

Banks w e r e n o t c r e a t e d f o r p r o f i t a n d
@ Council

i s mindful

o f t h e f a c t that,

a f p a Ps t e x o sS r - 3

isnee has shown, times o f temporary idleness o f funds
are bound t o b e folloued b y periods


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Federal Reserve Bank of St. Louis

o f greater demands f o r

520
money,

b e they seasonal o r emergency requirements,"
Very truly yours,
‘. w e MELLON,

Secretary,"
The Chairman:

I

n another letter received b y Gover-_

nor Larcing f r o m Secretary mwellon, d a t e d April 29th, h e
states:

“ I havenoted w i t h particular interest a

resolv-

tion o f the Council, under recommendation 9, a s to Federal
Reserve B a n k investment i n Government securities, a n d shall
be i n t e r e s t e d t o k n o w w h a t p o s i t i o n i s t a k e n i n t h i s r e gard b y t h e F e d e r a l R e s e r v e B a n k s a n d t h e F e d r a l R e s e r v e

Board as a result of their further con#i@dmation of the
matter i n the light o f the recommendations o f the Federal
Advisory Council,’
Those a r e t h e recommendations w h i c h y o u have slready
hearc, a n d which were adopted a t the meeting o f the
acvigory Council o n April 28th.
Now,

s o far i e have agreed t o t h é preparation

o f the

and w e have asrsed w i t h rogard t o a policy
of keeping o u t o f the market w h e n t h e Treasury i s i n the
market.


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Federal Reserve Bank of St. Louis

The n e x t q u s s t i o n i s a g t o o u r p o l i c y i n «taking i n -

521
vestments.

w h a t shall o u r policy be?

D

o y o u want t o

Ciscuss that with a view t o mseting the situation i n your
own banks a n d t o meeting t h e views exprsssed b y the Secre-

tary of the Treasury?
Governor Norris: I

listened v e r y attentively t o the

Seerstary's letter, and he eslle attention t o ce-tainfects
with which w e are a l l familiar,
these various recawendations
great interest a n d s o forth.

H e says that h e has noted

o f the Advisory Council w i t h
d o e s n ' t s a y that any-

thing that has been done has i n any way prejuciced the
Trcasury Department,

n o r « o e s h e express a n y s n p r e n s n s i o n

thot anything that might b e done would. I

take i t that h e

‘oes f e e l foie s u c h apprehsnsion.
The Chairman:

H e ftels i t very strongly, Governor

Governor Norris:

C a n y o u tell u s why h e feels L t ?

Can y o u tell u s i n what w a y i t has interfered w i t h a n y

osTreasury Department, and what the danger i z

The Chaiiman: I
then o n e , 1

think hia apprshensions are more

g & that a

very large investment i n these

eecurities, especially when t h c y are conducted a g they
have


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Federal Reserve Bank of St. Louis

522
been recently, without any coordination between the reserve banks, Willhave the sffect o f putting the government s e c u r i t i e s u p o n a

false i n v e s t m e n t b a s i s ;

t h a t is,

if w e are all buying a t once w e may rush t h e price u p and
establish a n interest basis u p o n thet class o f security
which coes n o t really represent a

true market condition,

further apprehension i s that a n unrestricted i n in Government securities b y the R e erve Banks,
just f o r the purpose o f earnings, a n d especially i f they
buy nore t h a n a r e required t o e2rn their expenses a n d divicends only, w i l l result i n a n inflation o f credit a d i n
a Cisturbance o f economic conditions

i n the country,

He feels that i n the past, t h e actual execution o f
these orders, without regard t o whether t h e Trsasury h a d

ordsrs o r not, was prejudicial t o the handling o f the
Treasury's business through the reserve B a w a I

think

those a r e t h e c a u s s s o f h i s a p p r e h e n s i o n ,

the last, wehave dealt w i t h that, I

resolution;

think, b y a

a s to the first, t h e investment basis, I

am

“Yank t o s a y I think his apprehension h a s h a d some foundation,

F o r instance, I

find, u p o n careful inquiry being

made i n New York, t h a t apparently t h e dealer


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Federal Reserve Bank of St. Louis

523
to think there i s n o top t o the price f o r Government secure

ities, a n d they now hold, just four o r five a :

n

o

w

hold not less than $65,000,000, principally o f notes,
Treasury notes, n o t t h e short certificates, w i t h which t h e y
appear

t o be hung u p a t ©

price w h i c h t h e y c m n o t

n o w real-

ize i n the market,

Governor iicDougall: D o e s n ' t that serve t o create
an erroneous impression w i t h respect t o the point expressed

in this letter, indicating, a s I vemember it, that the
Treasury found itself i n a position where three successive
izsues o f notes a n d certificates h a d found a ready market,

implying that they were spread, while a z you say thereis
& very large a

ount being held b y Galers,

a n d that coming

cown t o the latest issue, t h e 3-1/2 p o r cent issue, that
thsy were n o t sold well, w h i c h was evid nce b y what happened inneaiatsly after t h e s a l e h a d closed.

P e n i

certain o f the Pedzral Reserve Ban's --~ v e bought
2

t e

few o f

them ourselves--- h a d not supported the market ther: s t
would have been v a t h e r unfortunate v o r t h e Trsasury,.


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Federal Reserve Bank of St. Louis

The Chaixman: G o v e r n o r licDousall, I
is almost a

am ofraid that

complste confirmation o f the

the seciistary, that i s »

thet t h e purchase

524
of over »300,000,000 o f these securities i n the m s t f e w
months a n d not less than 370,000,000 i n a period o f two
weeks, created hisher prices than the market conditions
real ly justified,

I t may be that the Trsasury has effer-

ed a n fsesue o f 3-1/2 w r c e n t notes w h i c h would n o t have
besn justified i f the market h a d been noxmal a n d ordinary,
without o u r buying,

a n d those m a y now sell a t a discount,

and that i s prejudicial t o the interests o f the Treasury.
In othe w o r d s , i t m a y b e that w e have n o w reached t h e
point where i t i s Cisclosed that purclmsed b y the Reserve
banks h a v e created a false market f o r securities, w h i c h

is detrimental t o the Treasury's interests.
Gov =ynor Seay:

I g i t known whether t h e Treasurer

consulted a n y o f the reserve banks a z t o the rate o n this
last issue o f certificates?
The Chairman:

T h e y always t a l k t o u s t o some e x -

tent, b e c a u s e t h e p r i c e i s r e a l l y m a d e i n N e w York, z

did not discuss t h e matter w i t h hr, Gilbert;

i t

cussed b e t w e e n u r e Gilloert a n d ur. C a s e ,
Now,

a

w e cannot tell, e x c e p t

by a

comporison o f t h e

reserve b a n k states f r o m time t o time what i s being done
in t h e N e w Y o r k m a r k e t


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Federal Reserve Bank of St. Louis

b y t h e other reserve banks;

v e

have n o meansof telling,

N o w a n d then t h e brokers g i v e

some incication that they have out o f town ordre f o r
large amounts, w h i c h w e think w e c a n icentify a s coming
from reserve b a n k s . T h e n sometimes i t i s disclosed t o
us b y the
they have these orders,

what I waht t o bring strongly t o the attention o f
Conference i s this: t h a t the Secretary o f the Treosury
that h e i s entitled t o not o n l y certain vervicor,
but t o certsin general cooperation i n policy, a n d a g

long @ 8 secretary lellon feels that h e may not be getting
that, 1 t would b e exceedingly #ifficult for u s t o adjust
our rslations with the Treasury.
Governor iniller:

H e should tell u s his p o l i c y s o

that w e w o u l c k n o w h o w t o adjust o u r t r a n s a c t i o n s ,

The Chairman: a

c o not think there i s any-

thing i n the correspondence t h a t indicates a

Gosire t o

crack t h e whip over t h e reserve banics a t all, a n é the
mere
hat y o u m e n t i o n

nay b e b y reason o f his dsare t o avoid getting i n t o that
position,


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Federal Reserve Bank of St. Louis

Governor Fancher:

You"made mention of the fact that

26
a purchase o f seventy millions o f these short time securities w a s made b y the banle i n a period o f two w e e k s ,
The Chairman:

Y e s ,

Governor Fancher: I

a m wondering whst proportion that

seventy million dollars w o u l d bear t o the total transactions i n government securities b y the rank a n d file o f
investors w h o invested i n that same period?
The Chairman:

T h e r e i s n o w a y o f telling, because,

S58 you know, none o f the securities w h i c h were being

dealt with eng which are the subject o f Gis cussion are
Le n o record o f the sale.

I t is a l

done o n t h e street,

Governor i . c D o u g a l:1

The Chairman:

T h e Victories a r e listed,

T h a t would not give u s any line o n
securities,

Governor Fancher:

W h a t impressed m e wos

transactions during that s a m ? period must have
very large, independent o f a n y purchase o f the ~70,000 ,000
by the reserve banke, a n d what i s rucsming through m y
mind L s how largs a factor that 2?9,000,000 purchase was
in ©


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Federal Reserve Bank of St. Louis

market f ao r securitiss
The Chairman:

i n that particular period,

o p s a k i n g f r o m t h e standpoint o f the

market,

i f there a r e n o gertificates o n the market, t h e

purchase o f very much legs. than 70,000,000 worth would
have a very etrong influence, a n d within the last two or
three weeks, during t h e time that t h e reserve banke w e r e
buying these certificates, t h e r e w a s not o n e t o b e had i n
New York, n o t one,

w e scraped t h e market i n oider t o fill

an order f o r the Treasury, a n d a week o r two after w e found

out that thers were 365,000,000 there, I

mean b y that that

going back t o a normal level,
Governor Fancher:

I

n our investiszents w e have n o t

in any case placed any market orders,
either b e e n f r o m banks

i n our

‘banks o f New York and Chicago,

O u r purchases have

o n cistrict

o r through t h e

I n one o r two cassse w e

have consicered offerings b y dealers, b u t i n n o case have
we gone out 2 n d placed a n orderto b e filled i n the market,

we have only considered the offerings.
The Chairman: v h n a t d o you want t o do,

D o you want

to ignore t h e expression o f views b y the Secretary, w h i c h
sré i m p l i e d c l e a r l y

i n h i s letter,

o r d o y o u want t o arrive

at a policy that would meet his visws?
want


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Federal Reserve Bank of St. Louis

t o cdo?

s h a t d o you

Governor i o r s :

I

t would s¢¢i

in the marlet w e r e caused t o a considerable extent b y the

fact that the purchases weremade i n such a short time, but
they were made b y the banks without a n y knowledge o f the
Treasurer! s

s

, o r without a n y kno: ledge

of t h e p o l i c y o r w h a t t h e y w e r e t r y i n g t o do.

The Chairman:

A n d i n the absence o f a n y policy b y

the reserve banks,
Governor llorse:
POLicy,

A

T h a t i s very true, a n y acknowledged

t t h e same time most o f t h e men around this

table have s a i d that they have made a n estimate o f t h e
amount o f securities t h a t t h e y would n e e d t o meet their
I co not know that anyone hss s a i d s 0 i n those

but they have indicated that they were adopting a policy which would reach that amount practically.
Now, w e have resolved here that w e would k e e p out o f the
market w h e n w e were informed that t h e Treasury w a s i n
the morket.

u & have a g r e e d t o figure o n what w e would

néed t o make o u r expenses, a n d the question that arises
in m y mind i s whether thesecretarythinks t h s t w e will

interfere with his operations if we hold the 500,000,000
of securitics a t this time, provided that they have been


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Federal Reserve Bank of St. Louis

529
bought under t h e regulations w h i c h w e have just adopted
ourselves a n d been spread over a

considerable period, n o t

t suddenly, a n d bought with due regard t o the Treasury's
position,

H a s h e any objection t o ovr holding thes ecur-

ities that w e have bought?
The Chairman: I
about that, I

woule n o t attempt t o speak f o r h i m

c a n o n l y surmise,

but I

believe t h a t h r ,

Gilbert,and possibly t h e secretary, thinks t h a t t h e investments b y the Reserve bank: h a v e b e e n overdone i n this short
period,
Governor Horses; “ V i t h o u t s o m e e x p r e s s i o n o f o p i n i o n

from h i m how d o w e know what h e wants along those lines?
The Chairman: I

talked with both t h s Secretary c n d

ue, Gilbert sbout i t this morning.

i r . wellon could not

be here a t this meeting this morning; h e had to g o t o the
Capitol t o attend a hearing; b u t ir, Gilbert w i l l b e glad

to neet the Governors today, but expressed the view that
he woulé prefer t o join the meeting after w e have arrived
at fo0ue sort o f conclusion,
Governor

mission,

»eDougsall:

I

T recall

that

w e were

eiven

per-

i f w e cared t o d o 80, t o g o into t h e market a n d

purchase Victory notes which could be turned over o n the


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Federal Reserve Bank of St. Louis

530
first o f t h e year i n payment o f our franchise tax,
asked Newyork t o help u s out i f they could,

get a bond from NewYork,

v e

W e d i d not

/ 6 bought, however, o n our own

account, s e v e n million dollars o f Victories a t par, o r bet-

ter, f a ourselves, a t the same time that other banks were
buying a t par o r over, I

do not belisve there w e r e a n y

bonds boucht b y anybody a t t h e rate a t which w e picked
them up,

The Chairman:

Y o u are ciscussing a propogition that

occurred before this t h i n g d veloped a t all.
Governor i:cDougall: I

undsrétand,

O u r invsstinente

began t h e n o n d h a d stopped se:eral months AGO, but. I
take i t from what y o u said, Go:ernor strong, t h a t w h e n

startec w e all rushed i n and bought a t any
Wwe did not d o that,
The Chairman:

O f course I

am sped: ing generally.

ie a fact--- a n d nobody watchss this m a r k t
‘enember t h a t w e e x e c u t e d o v e r a

ar closely
billion

ecutivg t h e m wight alonge-- a n d tine after t i m e
it was reported that t h e Treasury h a s been outbid;
been outbid b y t a


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Federal Reserve Bank of St. Louis

w e have

turn ovt to come from some other reserve bank,
Now, I

a m not guessing a t this.

T h e s e a r e t h e reports

which we have recurrently i n the bank,

T h e fact i s that

eince January t h e reserve banle h a v e bought, without a n y
policy, s o m e h u n c r e d s

o f millions

o f t h e s e securities,

They had a perfect right t o d o it. N o b o d y i s objecting
to it, b u t theSecvetary o f t h e Treasury n o w says, “That

policy, ve find, has a bearing upon our policy, and a
very important bearing, a n d I

a m interested n o w t o know

what the reserve banks are going to do.” I

feel very

strongly, after the charocter o f letter that h e has written and thet it, Gilbert has written, that i f we d o not
do something they will,

T h e Federal Reserse Board has

powsr t o regulate this matter,
GOVErnor Loree:

T h e real difference,

as I

see it,

between t h e F e d e r a l r e s e r v e b a n k s a n d t h e s e c r e t a r y o f t h e

Treasury i s f

d

o have s o m e

anxiety about their
The Choirman:
Governor [ 1 ;

a n d t h e only practical place i n

which t h e y s s e that t h e y c a n replace thoss earnings, w h e n
their l o a n s


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Federal Reserve Bank of St. Louis

g o down,

i s i n government securities,

F o r

552

that reason the Fed:ral reserve banks own $500,000,000,
roughly,

o f government securities, a n d they really want

to buy enough securities t o meet their earnings, whether
it i s “500,000,000 o r 750,000,000.

N o w , will i t make

any great difference i o t h e Treasury i f they

d o buy enough

to make t h e e earnings, provided that t h e securities a r e
bought i n a n orderly manner?

The Chsirman;

N o w , that w e can find out; b u t w e

camot f i n d i t out until w e know w h a t isdesired.

W e can

not find o u w h a t his attitude will b e upon a hypothetical picture o r figure.

i e cannot t e l l until w e get a n

actual fisure,

Governor jiorss:

T h a t i s v e r y true, y o u ought t o put

the fisure down, b u t a t t h e same time, t o put i t another
Way, i f the feceral reeerve banks h a d already bought a
billion dollars w o r t h o f these securtties, a n d suppose
they should have been accumulated i n 9 year o r f0, w h e n

no market sffect woulc result? W o u l d h e care anything
about that?


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Federal Reserve Bank of St. Louis

he Chairman: I

do not know. I

have not a : k e d a n y

hypothetical ‘iuestiong,
Gov 2rnor o r e s ;

t a i n o n l y sskins t h e s e w e s t i o n s

5 33
in orcer t o clear u p the situation,

o r a t least w i t h

the hope o f doing so,

The Chairman: N o w , let m e make a proposal for discussion,

i f you please, a n d that i s i t i s the sense o f

this meeting that each governor shall recormend t o his
cirectors t h a t i t shall b e the policy o f t h e Fedsral
reserve banis

t o invest

i n govermasnt o b l i g a t i o n s

n o more

than i s required t o maintain their earnings a t a point
vhere t h e y c m p a y their expenses

The point i s really, and the Secretary's letter incicates i t , that h e feels thet t h e investment i n Govern-

ment securities has been made simply for carnins-simply for carnings--- t o a point which has, o r is,
likely t o simbarrass t h e Treasury i n its policy, without
stating t h a t t h e . e s e r v e banle s h o u l d n o t e x e r c i s e t h e

powers conferred u p o n them b y the ict.
Governor li¢cDougall;: I

geta slightly different

viewpoint f r o m the letter a s i t w s read, a n d that i s
N€ expceting a volume o f purchases
rade Guring t h e last f e n months

b

e a n incic ation o f

what i f going t o be done i n the future.
clearer,


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Federal Reserve Bank of St. Louis

O r , t o make i t

h e might have interpreted t h a t a g a policy o n

534
the part o f the Fedsral rsserve banks t o keep going
without a n y Limitation;
coeded,

b u t a s this discussion h a s pro-

i t seems t o m e perfectly plain that n o n e o f the

Federal Reserve Banks h a v e a n y disposition t o purchase
Governinent bonds f o r earning purposes beyond t h e point o f
ta: ing c a r e o f t h e i r c o i m i t m e n t s f o r s x p e n s e s a n d dividends,

whihlipossibly o n e exception, atid that i s Chicago, where
we have adjusted o u r purchases t o take care o f a little
cushion i n case o f loss,
The Chairman:

4 r e é you gentlemen willing,

ing a recommendation t o your directors,

i n mak-

t o make i t accord-

ing t o the policy that y o u have just expressed,

Governor i.cDougall;: I
Governor iliorss: I
The Chairman:

D

would b e willing t o d o that.

would,
o y o u offer t h a t s s a

Governor i.cDougall:

resolution?

N e e sir,

Governor Young: M i g h t i t not b e statsd?
The Chairman;

T h e result o f i t i s to this aegfect,

that i t i s t h e s e n s e o f t h e c o n f e r s n e e t h o t

G o v e r n o r

rve b a n k W i l l reécormend t o h i s c i r e c t o r s t h a t

each bank acoptasa matter o f policy t h e principle that i t s
investments


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Federal Reserve Bank of St. Louis

i n Government b o n d s s h a l l b e L i n i t e d t o s u c h

535
amount a s i s required,

o v e r aperiod o f time, t o mest

its e x p e n s e s a n d dividends a n d n e c e s s a r y reserve,
Governor Mores: I

second that,

(The motion, b e i n g duly seconded, w a s carried,}

Governor Norris: I

would like t o put into the re-

cord the fact that I vote aye o n the resolution with the
u n c é r e t a n d i n gt
a
h
t i t carries

n o reflection u p o n anything

that t h e reserve B a n k o f Philadelphia h a s done, w h i c h h a g
purchased government securities t o the t o t a l extent o f
lisse thon two-thirds o f its capital a n d surplus, h a s a t
no time cealt i n government securities, s e n t o u t n o order

for s::ecution for account o f the Government, even consicering i t a natter o f honor t o turn over t o t h e Government i n December l a s t t h e securities t h a t i t h a d bought

for the franchise tax, inst2ad o f rstaining them,
The Choirman:

N o w , gentleien, w e have passed that

rcsolution a m that brings u s t o }
find u p o n p r s p a r a t i o n o f +

e x t step.

I f we

taccsiientes provided f o r i n

tas previous resolution, t h a t . e have more investments

than are required t o meet that formula, what ere we going
to c o about. i t ?


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Federal Reserve Bank of St. Louis

i v e w e soing

Governor ..cjoucvall:

t u i c a t e s o m e o f them?

536

Governor Fancher:
The Chairman:

Y e s , a n d not replace them,

D o you offer that a s a resolution?

Governor licDougall: 1
Governor Fanchsr:

The Chairman:

I w i l l second that,

I s there any discussion o f t h a t

Governor Norris: I
The securitiss

80,

#

am opposed t o the resolution,

6 bought,

a s I have statsd, h a v e b e e n

very limited i n amount, l e s s i n proportion t h a n
those that

have been bousht b y the other banks i n the system; they
have b e e n bousht i n pursuance o f what t h e boaré
of ci
tors conceived t o b e a wise provision against
a n anticipated
ruiming o f f i n our loans;

t h e y a r e a t the present t i m e

more t h a n sufficient t o take care o f our necessities,
but I

a m satisfied that t h e b a r d o f directors w o u l d
be

unwilling t o authorize their sale,
The Choirman:

O n your reco-.iendation?

Governor Norris;
The Chairman:

Yon,

Y o u mean that t h e y would b s unwilling

to let t h e m r u n off as t h s y iwatured s n d not replace
them?


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Federal Reserve Bank of St. Louis

Governor Norri

N o n e o f t h e m mature t h i s year,
all right, G o v e r n -

537

But you d o not limit i t t o t h

Governor Norris:
ar.
The Chairman:

I think so, I

said “run off when

Shey mature’,
But i f they mature next ysar o r

Gover nor

the year sfter-eThe Chairman:

The principle s t i l l applies, doesn't

Governor i : c D o u r a l:
L
l

Is

h

o

u k lnyiodh
u ta r e i n a

strong position, Governor Norris
shen they r u n off I

Gov. r n o r N o r r i s ;

would replace

them,
The Chairman:

You may, unless y o u have sufficient

earning a s s e t s otherwise,
Governor Norris:
sufficient

I con't w n t t o agree, i f we have
e ete w h e n theese mature
a
n o t t o re-

place them,
The Ghairman:

Governor Norris, t h a t wse conplitely

COOVered py.

YSseo0lution,

nowstands t h a t point

completely c o v e r e d


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Federal Reserve Bank of St. Louis

r o nNor
r e v ies
oG
The Cheir-an:

A g s the xssolution

on rertisction ©
é

toink i t ts.

f u r t h e r dist cussion?

(There w a s n o further dis cussion a n d the motion,

being duly seconded, was carried.)
The Chairman:

N o w w e are making progress, gentle-

Governor liiller: l i r . Chairnan, I want t o make a report w h e n y o u a r e reacy f o r it.
The Chairman:

hub o f the thing,

N o w , gentlemen,

w e are coming t o the

T h e next point i s can the reserve

banks a g r e e u p o n some method o f placing a m executing
yoth buying a n d selling, that w i l l relieve t h e
market,

i f you please,

o f the appearance o f orders occur-

ring a t t h e s a m e time, a n d i n s u c h a

way that i t will n o t

crsate a n artificial market a n d not interfere w i t h t h e

Treasury.
My proposal would b e something like this:
We h a v e c o v e r e d t h e i v e s t i o n o f i n t e r f s r e n c e w i t h

actual orcers, a n d m y proposal would be, first, that t h e

principle b e adopted that n o action should b e recommended
by the mesting which would i n a n y way limit t h e federal
reserve banis

i n t h e b u y i n g o f government securities f r o m

their members, o r sellins them t o their meubers, within
the principles whitch\ w e have olready


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Federal Reserve Bank of St. Louis

539
say, y o u have certificates a n d bonds offered t o you b y t k
meniber banks a n d they frequ:ntly come i n and wat t o buy them,
and t h i e t y p e o f t r a n s a c t i o n b e t w e e n a

reserve b a n k o n d

its members does not directly bear upon orders i n the market,

m d there n e e d b e n o limitation,

i t seams t o me, a s

a matter o f policy, a s t o the dealings between the reserve
banks a n d their member banks i n these securities.

Does

that impress y o u a g a sounc proposal?
Governor Norris:

“ e s , a g f a r a s i t goes,

about t h e dealer---

The Chairman: I

am coming tothat, I

these u p one a t a time,

am taking

I n other words, a n y susgestion

that w e may later consider s s t o the execution o f orders
will b e applied o n l y t o orders a s cistinguished f r o n
normal transactions between t h e veservs banks a n d their
menibors,
Governor Norris:

u h a t I

have i n visw i s not t h e

e-acution o f a n orver, b u t a n ofvering. S u p p o s e a
sentative

repre-

o f _alo..on Brothers c o m e s i n t o o v r o f f i c e a n d

a huncrod thousand i n certivicates, a n d a t t h e
time h e m a k e s

t t o i e

t a t e s t h a t i t i s a n offer f r o m

ene o f o u r wieiber -banke p u t s i i


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Federal Reserve Bank of St. Louis

a n d *

execution,

540
s directly t h e y have eubmitted
that instead o f c a l l i n g u

it to him.
The. Chairman:
what I

T h a t case will b e covered later, b y

a m going t o propose,
Governor Norris:

T . a m just calling your attention

to the fact that there i s a n intermediate thing between
éfirect purchases f o r member banle a n d putting i n a n order
to buy i n the market,

The Chairman: T h e r e is, and w e will talk about that
later,

H o w s o u t t h e proposal not t o change o r limit

the program o f the character o f transactions between member b a n k s

a n d r-serve banks?

Governor .icDousal:

N o limitation with respect t o

buying o r selling i n behalf o f member b a n k ,
The Chairman;

I

n orders y o u get f r o n them o r offer-

ince made t o you b y them?
Governor Norris: I

will second that,

(The motion, beings culry seconéd:-d, w o e cerricd.)
The Choirisan:
be: Giscussed,

N o w , t h a t leaves onl. o n e matter t o

i t s2sms t o me, a n d that i s t h e providing o f

a method o f executing orders, where w e have orders t o buy
oY “5611 2 6 r o u r o u n a c c o u n t ,


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Federal Reserve Bank of St. Louis

541
Governor Norris;

T h a t does n o t intsrest u s because

we never b u y that way.
The Chei man;

T h e n y o u would n o t b e opposed t o any

principle, w h i c h would not affect you, i f you have n o
such orders o r n o such practice,
Governor Norris:

j

e h a v e n e v e r p l a c e d a n order

the purchase o f government securities,

The Chaiman; S u p p o s e , Governor Norris, that w e had
& succen change i n conditions s n d your member banks came

in and began to-borrow very heavily from you, a n d you might
want t o sell some o f those government securities;

how

would y o u handle that?

Governor Norris: w e l l , that o f courses i s a theoretical possibility.

O u r purchases h a v e b e e n g o limited

anc o u r a v a i l a b l e f u n c s a c e s o l a r g e t h a t a 8 4
matter

w e d o not consider

The Chairman:

it 2

practical

possibility.

B u t w i t h othe: federal reserve banks

it might b e a possibility.
Governor Norris:
The Chairinan;
have a
ed?


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Federal Reserve Bank of St. Louis

Y e s ,

D o you think i t L s a good thing t o

common policy a s t o h o w these ord®rs shall b e execut-

Governor N o r r s :

Yes,

The Chair. an: “ o u l d y o u want t o b e excepted f r o n
the o p e r a t i o n o f t h a t p o l i c y ?

Governor Norris:

N o .

« @ would want t o avail ovr-

ESLVon a : 4%,
The Chairman;

T h e n t h e question i s d o tie want t o ate

tempt t o get t o a common policy w i t h regard t o thoexscution o f orders?
Governor Fancher:
The Chairman:

D o you mean selling

B o t h selling a n d buying.

Governor Hores:

N o w , what a r e y o u leading u p to?

fell u e t h e object o f it.
The Chairman: I

am leacing u p t o one thing thet i t

“Oo me has g o t t o b e done i n some way, i f ths victns

e Treasury Department are t o be met, i f you
do not want t o meet them, t h a t i s for y o u gsntlenen t o

gay.

B u t the point i s unless orders a r e handled through

Some cormon source w e w i 6 - 1 3

s a m é f i x i n selling

as w e m a y b e i n buying t h e m in, a n d harm does arise f r o m
having n o organized method,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Gov synor F o n c h e r :

H a v e you a

The Chsixman;:

v

a

e

T

h

plan

t o sus:
3.05

e only plan that w e

5435
have ever tried was this buying o f acceptances, w h e r e w e

had a formula, a s you will remember, under which we used
to divide t h e m around amon s t the banks,
Governor Norris:

T h e s e a r e onl: t w o practical ways

of reaching the result,

O n e i s b y 4 csntralized joint

buying a n d selling agency, a n d the other i s b y a pariodical
agresment o n prices.
Governor :.cDouzall: I
have,

on a L

would like t o s a y that w e

s e , a n d carefully, enaeavored t o d velop

fome sort o f a market i n C h i m g o f o r securities s u c h a s

you are discussi ng.

A s a

matter o f interest I would

like t o report that since t h e first o f t h e year,

u p to

April 27th, w e have handled i n behalf o f o u r member banks
and o n behalf o f other federal reserve banks, transactiovs
in Treasury certificates

m d Victory notes,

i n number o f

transactions, 9,167, involving t h e sale o n d purchase o f

2018,000,000,
The Cheirman:

T h a t m a r k e t h a s g o t t o b e protected,

of course,
Governor :.cDougall: I

mention that simply t o have

it unc retood that w e have a nice little market t h a t w e

have hancled o n a satisfactory basis; that w e have worked at


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

544

all times i n harmony with ur, Kenzel, o r at least w e
are sduduny tne with himat all times, a n d we believe i t
is a good thing for the whole situation t o support that
market.
The Chairman:

I s that i n bills a n d certificates?

Governor «cDougall: L i m i t e d t o certificates a n d
Victory notes, a n d we are handling bills, o f course, a s
you know.

The Chairman;

I

t has besn going through m y mind that

the principal sarket f o r these o v e r n m e n t recurities a n d
notes i s i n C h i m go, Boston, Philadelphia a n d ‘ e w York,
Of course t h e y have a market o u t o n the coast, b u t I
Supposs & good veal o f that reflects t h e N e w York market,
aoes i t not, Governor Calkins?
Governor Calkins:

Y e s , a n d t o some extent t h a t i s

true i n -v-ry other case, T h e Philadelphia, Bosten and
Chicago markets reflect t h e siew York market constantly,
The reflection isboth ways,
The Chsirman:

Y o w would i t d o t o have a cormittee

of those banks t h a t a r e affected t o work o u t 2 program
2

for t h s e - s c u t i o n


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Federal Reserve Bank of St. Louis

o f orders?

Governor N o r r i s : ,

Centralized:

sellin:

645

ofcourse, not invelve any necessity for the execution of
orders

i n a s i n g l e market,

T h e agency c o u l d distribute

those o r d e r s w h e r e v e r t h e : s w a s a

The Chairman: Absolutely. I
very unfortunate t h i n g t o have a
the market i n any one place,

substantial market.

think it would be a
conmon agency concentrate

T h s Secretary c c s n o t want

that t o happen,
Governor iiores:
loc: 1 markets--- I

o f course w i t h respect t o these

a m speaking o f Boston, anyway--- t h e y are

secondary a n d very much secondary t o N e w York.

B u t we

are Guéhe jeslous o f our o w n market a n d o f maintaining i t
both for bills s n d governuent secur.ties,

a n d we d o not

want t o give u p the v s e o f it,

The Chairmen:

A n d you should rot. I

think that

would b e Catrimental t o the trsasury, i f w e should give i t
up for a n y other rsason,
Governor ilorss;

I t tiould seem t o v s a s i f thet w a s

a backward s t e p i n t h e G

vslopment

o f t h e B o s t o n market,

while i t is secondery t o sie, York, still i t is our own and


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Federal Reserve Bank of St. Louis

we think a lot o f i t sven i f i t i s emall,

how u c h i s i t necessary t o do i n addition t o shat
e5

-

N ow iyt >? Sp

S

e

z =e N

ase

e hP A R R A S

t o b e i n fO o r m e d

S RG
S 2A 83 e e ‘

o f Trea

s r yJ

546
ope ations a n d we are t o refrain f r o m going into t h e
“manket w h e n -there are Treasury operations i n the markt.
Is theve some other f o r m o f cooperation that w e c a n bring

up b y which n o Federal reserve bank will d o anything,
without examining conditions a t least?
The Choirman:

T h e sare y r asonable control o f the

execution o f orders, within t h e general limitations o f
policy whi h

we have discussed here ought t o beefiacted,
by some coumittee,

Boarc,

i f y o u please,

b y the Fedsral Reserve

o r i n some way, S o 3 8 hot t o asstroy
G:.ffexeut cities, b u t a t the tine

eane tine w e will have a n orcerly sxscution o f orders i n
all o f the markets t h a t n e e d t o b e preserved,
Governor iiorss;

s x . Chairman,

w e are willing t o

cooperate w i t h anybody o n anytaing f o r a z00d purpose,

The Cheir an;

b o you think that i s a good purpose,

Governor i o r
Governor
The Chairnans

o

m

s

Governor Morris: a

h

o


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Federal Reserve Bank of St. Louis

y make a

proposal?

n y heserve B a n k contenplatss

the possibility of having to s
>
Sry much oto its inteves

a

a n y securities, i t is

1 a v e ¢

f

céatralized, J

547
Anyone w h o knows anything about t h e security market knows
that i f t w o o b t h r e e o r d e r s c o m e i n a t t h e s a m e t i m e t o

Sek Ie £ay one million dollars e a c h o f ® c e r t a i n o n e o f
cecurities t h a t w e are talking

about, those orcer

become known t o all t h e dealers, a n d

information g o out a s it ough t o g o ovt t h a t t h o s e ordsrgs
are for three million, t h e idea will

get o u t t h a t theyre

911 thirty million i n the market.
Y anc

v e r y

bhe p r i c e w i l l r u n

centralized s e l l i n g a g e n c y a n d
three o r d e r s

t o sell

million d o l l a r s

the p e o p l e w h o w s r e atscenting t o t h e
order w o u l c n o t < 2 9 11

in boncs came in,
SrScur Lon 202--b n a b

three m i l l i o n a l l a t o n c e i n t h e

market i f i t wos soft, b u t t h e y woul: s wait, a n d would
half s

million o x

& million, a n c woul¢ h m d l e t h e
“nabls

you p r o p o s e Govésrnor

Governor
narket


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Federal Reserve Bank of St. Louis

t o buy

t e s t e

pag oY

oy

sell

bis
that t h e y b e -iven t o 4 cowaittee w h i c h will
heir o w n best
fudement a n c cisersti 1

cistribute ¢

n proportion

& c o ..ittce o f G o v e r n o r s
Governor Novris:

to

S 8 4

t o the s i z e o f those

e a l with t h e m a t t 2 r ?
O

f c o u r s e soneon:

York should b e chairman o f that comwaittse,

feels aoout his local mar"TS t 8 a poor tains. b u t
thet o u g h t t o

PES ea dle: C o v i l e u s

Ind


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Federal Reserve Bank of St. Louis

o b v i o u s l y

Governor

3 a n

ls C h i c a g o

Francisco,

o

n

e 3 O ub v i o u s

dF

O S s

o n v

O€9

market i s applicable t o all of the reserve bank cit eg,
I a m sntirely i n sympathy w i t h t h e proposal o f Covernor
Norris,

b u t i t should not b e made w i t h s u c h provisions

to imply o r put into opsration t h e idea that there ar:
only one, t w o o r three markéte i n the country,
Governor Norris; I

cic not put i t i n that way,

I said w i t h r e g c
a r d t o a l lO e x iis t i n g o markets,

The Chsirman:

w h y not have a cormittee o f those

Your governors w h o have b e e n named w h o are uearby, a n d
have i n s t r u c t i o n s cgiven t o them,

i f y o u pleass,

t o have

due r3gard t o all o f t h e markets i n all o f the twelve
B O S O M SO) toe.

GOw ynor Calkins: I

too large,

think a covinittee o f four i s

I f you will make i t o coumittee o f three ft

will second t h e motion,
The Chairman:

T h a t i s liisatsrial t o me,

Governor Calkins: &

make a motion that a

comiittes

of the Governors o f the N e w York, Chicago a n d Boston
bank

b e appointed,
Governor i o r s i

think t h a t g o e s p r e t t y f a r ,

f T

not have some so:'t o f bureay o r

Coimittee o r something which, i f y


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Federal Reserve Bank of St. Louis

Federal reserve bank

5BO

wishes t o g o into t h e market, w o u l d b e i n a position t o
receive injiuiries f r o m the reserve banks a g t o conditions,
Giving some indication t o the coiwittse o f what t h e y want

to G o or propore t o do, and keep the committee thoroughly
informed s o that i f m y b a n k was not informed o f conditions i t could inform itself o f them o n shovt notice a n d
the matter c o u l d b e taken care o f i n that way.
likely t o i n q u i r e

o f N e w York,

in New York s n d Boston,
selves w a l ; 3

i

v

u @ ars

@ have brokers t h a t a r e

w e inquir= o f them and keep ovrsheoule b e v e r y glad i

3 committee t h a t w e c o u l d a s k a b o u t conditions,

probably sive t h e committee s o m e in. ication o f what w e
thousht w e vould like t o c o and g e t a n expression
o f opinion from them a s t o whether
not t o d o that, b u t I

The Chsirvuan;

j

i a n opportune t i m e o r

G o n o t t h i n k w e s h o u l d £20 m u c h

‘ W a y not h a v e t h e b S e t i o n

mcthod o f executing orders referred 5
Governor Calkins: I
that thse
of e x e c u t i n g o r c
be r e f e r r e d


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Federal Reserve Bank of St. Louis

to

was about.

o f orderly

committee?
L E S Ya

moron

551

the New York Bank, t h e Chicago Bank, t h e Boston Bank and
the Philadelphia Bank,
Governor Fancher: I
The Chairman:

will second that motion,

I s there a n y further discussion?

(There was n o further discussion a n d the motion, b e i n g

culy seconded, was carrisd,)

The Chairman: N o w , gentlemen, that was the last
topic o n the prosran, a n d i f w e hear committee reports w e
Will b e late---

v e are already late f o r luncheon with

the Board,
Governor iilller: I
minutes. I

c a n s i v e m y report

i n a very few

hac a n i n t e r v i e w w i t h G o v e r n o r *~arding a n d

an i n t e r v i e w w i t h iy. G i l b e r t ,
shat J u l y 1

I

t has besn suggested

of 1922 i g t h e d a t e o n which reimbursement

a

shall begin, which i s the beginning o f the new fiscal year,
and that i t will n o t b e retroactive,
Governor Young:

l y . Chairman, o u r coumittese t o o k

up with the Comptroller the cost o f these reports o f
examiners, c u s t o d y a n d a vailablility, a n d also t h e reasibility o f s e j u e s t i n g t h e C o m p t r o l l e r

t o admonish s o m e o f theee

banks t h a t d o not keep their reserves up.
proposition I


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Federal Reserve Bank of St. Louis

4 m not g o i n g t o Giscuss.

552
On the cost o f the rsport t h e Comptroller takes this
position, t h a t h e wante t o bring t h e examination o f t h e
national syste,

u p t o just a s high a stancard a s h e can,

and f o r t h a t r e a s o n h e s e u e s t s t h a t w e c o n t i n u e

t o pay for

these reports,

The Choirman: P e r m a n e n t l y ?
Governor Young:

w e l l , indefinitsly.

e a e t h i n g w e c a n d o i s t o pass t h e -cost b a c k t o the
member b a n k ,

a e w e G o n o t d o t h a t h e passes t h e s u s s t i o n

back t o u s a e t o whether .ewill o r will not b u y them,
and i f w e willnot b u y them h e intimates t h a t t h e reporte

may not b e furnished,
The Comptroller states thst i t costs h i s office

reserve
.1,980,000 2 year t o operate, o f which eum the/banks last
Pal
year, curing t h e fiscal
yoar, p a i d 2135,000, a n d I think /. "+,
ty

that »135,000)
money well
He h a s =xplained t h a t t h e good
are p a y i n g l a r g e f e e s n o w a n d t h s p o o r b a n k s a r e n o t

paying fses, a n d his plan i s t o get special m e n t o o O
into t h e poor banks a n a s t a y i n thereuntil h e gets t h e v
&

f i t u a t i o n ironed.out.,


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Federal Reserve Bank of St. Louis

T h e v e s t i o n i s , i s that w o r t h

3135,000 a

year t o the Fedsral Reserve System?

Onthe question of the custody and availability of
the reports, I

think t h e Comptroller i s very determined

that t h e s e r e p o r t s w i l l n o t b e f u r n i s h e d

t o t h e branches,

although h e does n o t object t o a sunmary o f the reports
going t o t h e branches, I

a s k e d h i m a b o u t t h e Governor,

the Agent, the Daputy Governors a n d the .ssistant Cashiers
and the men i n the discount cepartment a n d h e hag n o objec-

tion to that, but that they should have access t o the ree
Dot oc. I

then asked h i m about t h e directors, a n d h e

Governor Fanchsr: entlenien, b e f o r e w e adjourn, I
want t o m o v e t h a t G o v a r n o r s t r o n g a n d ir, H a r r i s o n b e

Chairiman a n d teeretary, rsspsctively,

o f t h s n e x t confer-

ence o f Governors,
(The motion, b e i n g culy « s n e a ,

w e u n m lmously

carrie d.)
Pos Ch: iyemento s t efi n o w < < >

this conference

adjourned,

(whereupon,

a t 1:25 o'clock p . im. the conference

adjourned subfect t o the esall of the Chair.)


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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis