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Federal Reserve Bank of St. Louis
VOLUME 1
PROCEEDINGS
CONFERENCE
O F GOVERNORS
OF T H E F E D E R A L
RESERVE
TREASURY B U I L D I N G
WASHINGTON, D. C.
MAY 5 , 6.7, 1 9 2 4
WALTER’
SHORTHAND
S. COX
REPORTER
COLUMBIAN BUILDING
W A S H I N G T O N , D. C,
BANKS
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Federal Reserve Bank of St. Louis
PROCEEDINGS
OF A
CONFERENCE
O F GOVERNORS
THE FEDERAL RESERVE BANNS.
Treasury Building,
Washington,
D . C.,
Monday, M a y 5 , 1924,
The C o n f e r e n c e
o f Governors
o f Federal R e s e r v e
convened i n the hearing r o o m o f the Federal Reserve
Treasury Building, Washington, D . C., a t 1 0 o'clock
Monday, M a y 5 , 1924.
PRESENT:
J: B. McDougal, Governor, Federal Reserve B a n k
Chicago, Chairman,
4, P . G,. Harding, Governor, Federal Reserve B a n k o f
Boston,
J. H. Case, Deputy Governor, Federal Reserve B a n k
of New York.
Geo. W . Norris, Governor, Federal Reserve B a n k o f
Philadelphia.
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Federal Reserve Bank of St. Louis
R. Fancher, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f
Cleveland,
Governor, F e d e r a l R e s e r v e R a n k
Richmond,
B. Wellborn, Governor, Federal Reserve B a n k
Atlanta,
GC. Bigys, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f
Lows ;
A, V O u n see GOVeLnOr, F e d e r a l R e s e r v e B a n k o f
Minneapolis,
J. Bailey, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f
U. C a l sins, 2 3G o v e r n o r
San Franciaco, .
F e d e r a l Reserve
Bank
of
and
Reserve
George L . Harvison, D e p u t y Governor, Federal
Bank o f N e w Y o r k a n d S e c r e t a r y
of G o v e r n o r s .
t o t h e Conference
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Federal Reserve Bank of St. Louis
Governor Crissinger:
Gentlemen, I
would s u g g e s t
that t h e Governors n o w o r g a n i z e t h e m s e l v e s a n d g e t d o w n
to. business.
W h e n y o u have gone over your program a n d
have found a convenient place, w h e r e y o u would like t o
have t h e Foard come in, t h e Board will b e glad t o come
in t h e n a n d d i s c u s s t h e s e m a t t e r s w h i c h y o u f i n d s h o u l d
have been talking with mr.
be taken up with the Foard, I
Harrison, w h o says that that has b e e n the better policy t o
follow,
s o that y o u will k n o w what y o u want t o
a t least,
discuss, a n d w e will n o t b e going over a
that a r e n o t v e r y interesting;
will p r o c e e d
t o organize
have this room.
lot o f details
s o that i f you gentlemen
w e will
b e very glad t o let y o u
N h o i s going t o b e your Chairman?
Goverror Fancher: I
move t h a t G o v e r n o r w e D o u g a l
act a s Chairman o f this conference.
Governor Young: I
second the motion.
(The motion, h a v i n g b e e n d u l y seconded,
w a s u n a n i mous..
carried.)
Governor CGissinger:
G o v e r n o r vicDougal, w i l l y o u ta.
the Chair, p l e a s e ?
(The F e d e r a l R e s e r v e
a r d
thereupon retired f r o m the
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Federal Reserve Bank of St. Louis
conference r o o m a n d t h e C o n f e r e n c e
o f Governors p r o c e e d e d
as f o l l o w s : )
The dhairman:
eome t o order,
e n t l e m e n , t h e conference will kindly
T h i s p r o g r a m t h a t w e have f o r considera-
tion i s divided,
a s y o u have noticed, i n t o several sections
under the headings “Credit Transactions a n d Policies",
ficgllections and clearings", a n d other matters which include s o m e i m v o r t a n t t o p i c s t h a t h a v e b e e n s u g g e s t e d
py
the F e d e r a l R e s e r v e B o a r d a n d o t h e r s t h a t h a v e b e e n p l a c e d
upon t h e p r o g r a m b y t h e Treasury.
I will f i r s t a s k t h e p l e a s u r e
respect
o f t h e conference w i t h
t o t h e o r d e r o f procedure.
n the absence
i
of
any suggestion ~ e will proceed w i t h t h e vrogram i n the
order i n w h i c h i s i t arranged.
The f i r s t m a j o r d i v i s i o n o f t h e p r o g r a m i s
Credit T r a n s a c t i o n s
a n d Policies.
Sub-topie ( a ) under that i s
(a) O v e n Market V o n m i t t e e Operations
1 Report
Deputy G o v e r n o r C a s e ?
o f Ghairman,
I
G o v e r n o n Strong.
n the absence
o f Governor
Strong, t h e r e h a s b e e n a report o f the Open Market Investment C o m m i t t e e prepared, c o p i e s
o f i t have b e e n distribut«
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Federal Reserve Bank of St. Louis
5
I think, a n d what i s the pleasure o f the Conference, t h a t
I read a t ?
The Chairman:
think i t i s well t o read these reports,
those matters. I
and t h e m e m b e r s
Y o u k n o w m y position w i t h regard t o
o f the conference c a n follow their capies
as i t i s read.
s o move, M r . Chairman, t h a t
Governor Fancher: I
ir, C a s e r e a d t h e report.
The Chairman:
W i t h o u t objection,
t h a t course will
be pursued.
Governor Calkins:
M r . Chairman,
i s i t t h e intention,
in r e a d i n g t h e report, t h a t w e d i s c u s s t h e Y a r i o u s i t e m s
as i t i s read, o r that w e wait until i t i s finished a n d
discuss
i t afterwards?
The Chairman: I
thirk t h e r e p o r t h a d b e t t e r b e
read, a n d comments m a d e later. I
will a s k Mr. Harrison
to r e a d t h e report.
ir, H a r r i s o n s
ment c o m m i t t e e
T h e report o f t h e O p e n Market Invest-
i s a s follows:
"since the joint conference o f koverrors a n d agents
Last November, t h e Open Market Investment Committee h a s
entered a
new phase o f its activity
b y recommending a n d
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Federal Reserve Bank of St. Louis
6
carrying through a
common policy f o r t h e Federal Reserve
sys tem i n the purchase o f goverrmment securities f o r a
special i n v e s t m e n t account.
At the joint conference o n November 12, 1925, t h e 3
Chariman o f t h e O n e n M a r k e t I n v e s t m e n t C o m m i t t e e r e c o m mended t h e r e s u m p t i o n o f p u r c h a s e s
o f U.
a
S. g o v e r m e n t
securities b y the Federal Reserve Banks i n the open market
in t h e e v e n t t h a t b u s i n e s s c o n d i t i o n s p r o v e d f a v o r a b l e
to a c a u i r i n g a
On December 12, 1925, t h e Open
portfolio.
Market I n v e s t m e n t C o m m i t t e e m e t w i t h t h e
GW
ederal R e s e r v e
i
Board a n d a plan w a s formulated f o r t h e purchase o f Govern
ment secubities u p t o 100 million dollars,
a s far a s i t
s u c h securGould b e d o n e w i t h o u t d i s t u r b i n g t h e m a r k e t f o r
ities,
securitie
a n d under t h e further condition t h a t s u c h
should b e h e l d f o r t h e 1 2 b a n k s i n a
account a n d s h o u l d b e s u b j e c t
ederal R e s e r v e
eserve b a n k s
chases
Board.
t o sale a t the direction
T h e participation o f all
i n this v l a n
were m a d e g r a d u a l l y
special i n v e s t m e n t
WAS
u p t o 1 0 0 m i l l i o n elepirikcear
s ee oen tJta niu m
a rmy o 1c4
wer
la
stnemtsujdaer
oS
secured a n d p u r -
recommended
At
and F e b r u a r y 8
i n t h e maturities p u r c h a s e
and t h e a u t h o r i z e d b u y i n g p r i c e s
at
vhich purchases w e r e
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Federal Reserve Bank of St. Louis
Following t h e recomnendation o f a meeting o n
February 2 5 the amount authorized t o b e purchased f o r
this s p e c i a l i n v e s t m e n t a c c o u n t w a s i n c r e a s e d
lion dollars,
increased
amounted
and at a
meeting
o n April
t o 2 5 0 m i l l i o n dollars.
t o 2 0 0 mil-
2 2 i t was again
T o t a l purchases h a v e
t o 2 3 5 m i l l i o n dollars.
In t h e c o u r s e o f t h e s e o p e r a t i o n s d e c i s i o n s h a v e
been r e a c h e d
on a
numter o f points c o n c e r n i n g t h e d i s t r i b u -
tion o f s e c u r i t i e s b e t w e e n t h e r e s e r v e b a n k s ,
perience
T h e ex-
o f t h e comnaittee h a s l e d t o t h e d i s c o u r a g e m e n t
of s p e c i a l p u r c h a s c s f o r i n d i v i d u a l b a n k s , a p a r t f r o m t h e
regular a l l o t m e n t s
account, b e c a u s e
o f purchases f o r t h e special investment
o f the serious interference w i t h t h e
general program which was found t o result f r o m s u c h specia?
purchases,
I
larger a m o u n t s
n order t o m e e t t h e needs o f banks d e s i r i n g
o f holdings
f o r t h e purpose
o f maintainirg
the v o l u m e o f t h e i r e a r n i n g assets, r e d i s t r i b u t i o n w a s i n
several i n s t a n c e s s e c u r e d
t o s u c h banks f r o m t h e allotments
of o t h e r banks, w h i c h w e r e w i l l i n g
their allotments.
A
t o forego a
part o f
n accompanying statement indicates
the extent o f such redistribution.
T h e same principle ha:
been a p p l i e d t o p u r c h a s e s a n d a l l o t m e n t s
o f banixers accept:
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Federal Reserve Bank of St. Louis
ances,
At t h e m e e t i n g o f t h e c o m m i t t e e
o n April 2 2 , 1 9 2 4 ,
it w a s r e c o m m e n d e d t h a t t h e b u y i n g r a t e o n t h r e e months!
bills
b e reduced f r o m 4-1/8
to 4
p e r cent, a n d t h e r a t e
on shorter bills from 4 to 3-7/8 and 3-3/4 ver cent, a t
the o p t i o n o f t h e banks.
Results o f operation.
ing p r o g r a m a
portfolio
A
s a result o f the purchas-
o f 23: m i l l i o n d o l l a r s
o f govern-
ment securities h a s b e e n acquired, w h i c h m a y b e sold t o
the warket a t a n y time that i t seems wise.
I t i s believed
that these securities h a v e t e e n acquired without affecting
unfavorably t h e general credit situation,
I
n fact during
the p e r i o d w h e n p u r c h a s i n g w a s g o i n g o n , f r o m t h e L a t t e r
part o f December until t h e present, t h e total earning
assets o f the Federal Reserve System have declined approximately 4 0 0 million dollars.
I n c r e a s e s i n holdings o f
U. S . s e c u r i t i e s h a v e b e e n m o r e t h a n o f f s e t
by a
decrease
of 9.00 million dollars i n holdings o f bankers accentances,
and o f 450 million dollars i n discounts a n d advances.
During t h e period there has b e e n n o stimulation o f stock
exchange activity o r higher commodity prices a s a result
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Federal Reserve Bank of St. Louis
9
I
of t h e p u r c h a s e s .
n fact t h e observable effects
purchasing p r o g r a m h a v e b e e n l a r g e l y c o n f i n e d
government s e c u r i t i e s m a r k e t .
operations
t o the
D u r i n g t h e period o f the
o f t h e committee t h e r e h a s b e e n a
for s h o r t t e r m g o v e r n m e n t s e c u r i t i e s ,
the d e m a n d f o r f u n d s
o f the
brisk demard
d u e t o the fact that
t o c a r r y o n business o p e r a t i o n s h a s
further influence making for generally
been limited. A
easier money conditions w a s t h e continued inflow o f gold
from a b r o a d a t t h e r a t e o f m o r e t h a n o n e m i l l i o n d o l l a r s a
day.
I t i s worthy o f note that t h e downvard movement e f
the y i e l d r a t e s
o n short t e r m vovermment securities h a s
in the main been varallel w i t h t h e changes i n rates
commercial p a p e r ,
a n d t h e yields
o n Liberty bonds.
would appear to'indicate t h a t t h e downward movement
yield rates f o r certificates a n d notes h a s b e e n dise more
largely t o general c o n d i t i o n s
the activities
i n t h e money markets t h a n t o
o f this committee.
uture Program.
i l t h o u g h purchases t o the amount
of 250 million dollars h a v e b e e n authorized, t h e conmittes
of
has n o t b e e n a b l e t o s e c u r e t h i s f u l l a m o u n t b e c a u s e
the s c a r c i t y o f o f f e r i n g s
O f Securit Les.
for t h e i m m e d i a t e f u t u r e a p p e a r s
T h e prospect
t o b e for still easier
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Federal Reserve Bank of St. Louis
10
money conditions. B u s i n e s s h a s grown less active i n
the past f e w weeks, g o l d imports continue a t a rapid rate,
and t h e usual s e a s o n a l t e n d e n c y a t t h i s t i m e o f y e a r i s
for l o w e r r a t h e r t h a n h i g h e r rates.
o f gowerrmment s e c u r i t i e s
stances f u r t h e r p u r c h a s e s
difficult
.
f o r same weeks
U n d e r these circum~
may be
t o come.
It i s c l e a r t h a t a n y f u r t h e r e x t e n s i o n o f purchases
for this account beyond t h e 250 million dollars n o w authorized, s h o u l d b e c a r e f u l l y r e v i e w e d
i n t h e light o f current
business a n d credit conditions a n d t h e Treasury Tiscsi o r o
gram.
B u t w i t h t h e continued i n f l u x o f gold f r o m atroad
4+ should b e borne i n mind continuously t h a t t h e danger
of @ r e d i t
a n d =prace i n f l a t i o n
lative a c t i v i t y
i s always present.
guards a g a i n s t a n y s u c h d a n g e r
period
and a
O n e
o f undue specu-
o f the best safe-
i s t h e possession
b y the
Federal reserve banks o f a large portfolio o f readily
saleable s e c u r i t i e s .
S u c h a
portfolio s h o u l d b e o b t a i n e d
however, w i t h o u t e n c o u r a g i n g t h e v e r y s p e c u l a t i o n w h i c h
the p o r t f o l i o
i s designed
t o combat,
a n d without affecting
injuriously t h e market f o r goverrment securities.
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Federal Reserve Bank of St. Louis
INDEX O F EXHIBITS,
(A) Statement showing United States Government Securities p u r c h a s e d f o r S p e c i a l I n v e s t m e n t A c c o u n t f o r t h e
Federal R e s e r v e S y s t e m a n d t h e i r a p p o r t i o n m e n t
t o all
Ranks.
(B) S t a t e m e n t s h o w i n g p u r c h a s e s
o f bankers acceptanc-~
es b y Federal R e s e r v e S y s t e m a n d t h e i r a l l o t m e n t u n d e r
the d i s t r i b u t i o n p l a n .
(C) C o w a r i s o n
o f earning assets h e l d b y a l l Federal
Reserve Banks f r o m December 27,1922,to April 25, 1924.
(D) S t a t e m e n t s h o w i n g r e d i s t r i b u t i o nfo O p e n M a r k e t
Investments
o f Federal R e s e r v e B a n k s u n d e r C o m m i t t e e ' s
Action o f F e b r u a r y 8 , 1924.
(B) S t a t e m e n t s h o w i n g e s t i m a t e d e x p e n s e s
a s report-
ed b y all Federal reserve banks a m armount o f earning
assets r e o u i r e d
t o cover
s u c h expenses
f o r t h e year 1924,
(F) C h a r t showing money rates i n the New York and
London M a r k e t s 1 9 2 2 - 2 4 ,
(G) C h a r t showing t h e relation between prices, b a n k
devosits a n d U n i t e d S t a t e s g o l d s t o c k p l u s c a r n i n g a s s e t s
of t h e F e d e r a l
Reserve Banks.
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Federal Reserve Bank of St. Louis
10-b
Statement S h o w i n g U n i t e d S t a t e s G o v e r n m e n t S e c u r i t i e s
Purchased f o r S p e c i a l I n v e s t m e n t A c c o u n t f o r t h e F e d e r a l
Reserve S y s t e m a n d t h e i r A p p o r t i o n m e n t t o a l l B e d e ras.
Reserve Banks a t the Close o f Business, A p r i l 50, 1924.
Apportionment.
Gert
Boston
o f ind.
& 4,957,500
Treasury N o t e s
& 15,020,900
Total
19,978, 400
15,973, 0
5
48,370, 0
6
64,544,100
Philadelphia
2,143, 500
6,825, 500
8,969,000
Cleveland
5,748, 000
17,415,000
Richmod
n
972, 500
2,811,700
0
0
New Y o r k
Atlanta
23,163,000
Chicago
9,601, 500
29,097, 800
38, 699, 300
St. L o u i s
1,830,000
5,135,800
6,965, 800
Winneapolis
4,120,500
8,013, 200
12,133, 700
Kansas U i t y
2,741,500
7,930, 700
10,672,200
Dallas
2,560,000
11,533, 600
14,093, 600
San F r a n c i s c o
5,381,000
16, 302, 300
21,683,300
$56,029, 0
5 $168,
457,100
Purchases f o r f u t u r e d e l i v e r y a n d
apvortionment
$224,486, 0
6
10,000,000
$234,486,0
6
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Federal Reserve Bank of St. Louis
Recapitulation o f Purchases.
Made b y
Boston
New Y o r k
Philadelphia
Amount
¢ 8,748,500
218,307,000
2,029, 500
Cleveland
340, 000
Richmond
600,000
Atlanta
1,144,000
Chicago
7,150,000
St. L o u i s
761, 600
Minneapolis
113,000
Dallas
130,000
San i‘pancisco
1,163,000
#240, 486, 600
Sod f r o m - s y s —
tem afe to
Treasury
6,000,000
$234,486, 0
6
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Federal Reserve Bank of St. Louis
Recapitulation
o f Purchases
b y Maturities.
June 15-16,
1 9 $ 1 9 , 3 1 5 , 200
Sept.
i e
8 ,
Dec. t
2
iarch ‘
2
t
March
,
0
0
4
, 840, 500
4
,
0
0
0
6 8 , 9 7 4 , 0 0 0
June :
Dec.
3
2 1 , 9 5 0 , 000
5 , is 2 5 , 1 8 8 , 0 0 0
9
2
6
1 6 , 2 6 9 , 9 0 0
$234, 486, 600
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Federal Reserve Bank of St. Louis
Statement Showing Purchases a n d Allotments o f Bankers
Acceptances s i n c e t h e I n a u g u r a t i o n o f t h e D i s t r i b u t i o n
Plan December 12, 1925, t o April 23, 1924, Inclusive.
(000 Omitted)
AMNOUNGL CVeEr- o r
Short s o t P R O
Purchases
3oston $
Allotments
& 37,403
26,174
New York
L
o
5
,
6
2
5,767 sOver
eam!
6
(given t o Dallas)
R i c h i m od
n
Atlanta
10, 647
Chicago
67,793
8,658
St, Goulds
Minneapolis
Kansas
LO. 267
City
Dallas
San F r a n c i s c o
Total
oo a p e O W E D
4,941 S h o r t
, 0G
Philadelphia 6 2 , 0 4 0
~
L. C l e v e l a n d
Rata S h a r e .
S 4 4 0 , 675
Richmond began participating Feb. 2 0 but
ments g i v e n t o Dallas.
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Federal Reserve Bank of St. Louis
10-f
Atlanta b e g a n p a r t i c i p a t i n g F e b . 2 0 , a n d d i s c o n t i n u e d
taking a l l o t m e n t s A p r i l 9 .
St. Louis b e g a n participating January 2 4
Kansas V i t y b e g a n p a r t i c i p a t i n g F e b r u a r y 6 .
Above f i g u r e s i n c l u d e s p e c i a l o r d e r s . d u r i n g
the p e r i o d o f :
10,000,000 f
Cleveland
3,006,000 “
iinneapolis
7,000,000 "
Kansas City
55,042,000
D a l l a s
$75,048,000
which w e r e c o m p l e t e d
a s follows:
& 2,500,000 Atlanta portfolio
9,001,000 Philadelphia "
3,906,000 Dallas
16,445,000 N e w York
Special purchases
44.096.0900
as
}
$75,048,000
i n N.Y.market
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Federal Reserve Bank of St. Louis
10-2
Comarison
o f Z a r n i n g A s s e t s H e l d b y A l l Fed’ r a l R e s e r v e
Ranks f r o m December 27, 1 9 2 2 t o April 25, 1924,
(OOO Omitted)
Total
They 4
y
harning
Assets.
*Government *
Bankers
B
i
l
l
s
Securities A c c e n t a n c e s D i s c o u n t e d
eel, 322,061
$445,883
$246,293
&629, 885
1,139,652
353,755
188, 566
597,251
iy dooy tebe
363,074
207,678
595, 760
254,251
700, 060
274,041
636,638
257,818
731,050
1,203,720
174,963
176,864
760, 539
173,485
815,518
1,126,334
178,124
862,008
1,180,652
204, 698
883,800
794,381
1,167,999
104,158
857,151
B i l i s
Goverrment s e c u r i t i e s B a n k e r s
Special y e c e p t a n c e s D i s c o u n t e d
Own I n v e s t m e n t
account
Purchases
N ,635 2 7 1 , 792 5 2 2 , 3 0 7
A
914,881 73,137
950,801 71,911 8 3 , 8 9 0
942,080 77,463 1 7 9 , 7 9 3 2 0 2 , 4 5 8
S
1,008,883 "77,562
f yeu
B
L
a
o
e Te
ehyaoe 8
5
2
9
, 559
MPSo daar oiiy One 2 1
2 S )
o
7 686
H
912,968 7 5 , 7 8 1
L
O
, 886
1 7 6 , 680
Be Gis: F o ,e0e
1
9
8 , 586
1 4 0 , 424 4 7 2 , 8 4 3
4 6 9 , 5 7 0
Net C h a n g e
Des. et, tea
to
Apr. 2 5 , '24
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
454,448 A
T
1
0
5
, 869
1 5 7 , 0 4 2
* i n c l u d i n g s a l e s cConpvacts.,
ae E x c l u d i n g $12,000,000 Pittran Act Certificates
redeemed Decerber 31, 1922,
Statement showing Redistribution o f Onen Market Investments
of Federal Reserve Banks under Committee's A c t i o n o f
February 8 , 1924.
R
Selling
B
Date
a rik
e
c
e
i
v
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
126,000
n
g
. :Bank,.
K a n s a s City
Feb. 1 8 N . Y . $4,000,000 Bilis (portfolio)
20 R e o n 7
i
'
A m o u n t
( a g g r e g a t e daily D a l l a s
allotment o f
D i s ese Lven= 1 p
Feb.20 t o date)
D a l l a s
5,000,000 ( p o r t f o l i o )
8,000,000 .°* :
D
a
l
l
a
s
daily D a l l a s
Phila. 7,484,100 Gov.Sec.(ageregate o f s e allotment
cubities g i v e n
up Fen. f i o
war. 1 7 )
( a g g r e g a t e daily O t h e r parti-
4,042,600 "
allotment o f s e - c i p a t i n g
cutities g i v e n b a n i t s
up: Hare O t o
date)
(ageregate d a l l y O t h e r partieiallotment
o f se- p a t i n g banks
curities g i v e n u p
Mar.6 t o date)
Dallas
B
i
l
l
s (portfolio) l f i n n e a p o l i s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Phita. 2 , 8 8 4 , 8 0 0 Gov.sec, ( a g g r e g a t e daily A i n n e a p o l i s
allotment o f seécuritiss g i v e n u p
W e n 7 tO foe. 2 )
Atdenta. 5 , 2 0 5 , 9 0 0
previously
apportioned)
0 per cent
5
- " (participation
‘ n n e a p o l i s
5
0
% Kansas C .
a g e r e g a t e d a i l y O t h e r parti-
St. Louis :
allotment o f s e - c i v a t i n g
COMI Glos e a ven b a n k s
od
21
£47,984, 0
3
up Apr.@ t o date)
S
h
o
|
=
T
A
R
T
E
E
M
E
Q
N
U
T
SHOWING ESTIMATED EXPENSES A S REPORTED B Y ALL FEDERAL RESERVE BANKS AND AMOUNT O F BARNING ASSETS
I
R
D T O COVER SUCH EXPENSES F O R T H E YEAR 1924
E
Ee
on
N
B o s t o n
S| E x p e n s e s
fa
2,132,000 §
Estimated Current Expenses $
4
e
w York Philadelphia Cleveland R i c h m o n d
6,735,000
1
, 8¢0,00C 6 1 8 , 0 0 0
8
0
,
0
0
0
Estimated Reserve for De=
1 5
preciation, etc.
0
,
0
0
0 1,760,000
Estimated Dividends
¢ % 2,632,000 §
1
0
2,720,000 $1,650,000 $
4,405,000 $1,500,000 $
1,344,160 $
2 7 5 , 9 5 0
& 5 0 ,000 2 0 0 , 0 0 0
2 5 8 , 5 2 7
9
2
T o t a l
ae
30,793,578
§
3,049,000
%
1,380,000
§
1,230,170 $ 2,016,248
S t . Louis Minneapolis K a n s a s City D a l l a s S a n Fran.
C h i c a g o
3 5 0 , 0 0 0
7 6 0 , 0 0 0
0 , 0CO
A t l a n t a
3 0 0 , 0C0 2 1 0 , 0 0 0 2 7 2 , 9 8 2 2 5 1 , 4 2 9 4 7 5 , 0 6 0 6 , 7 1 6 , 3 6 1
5 ,000
3 9 1 , 1 8 0 5 0 9 , 7 2 0 6 5 5 , C 0 C _1,0C0,0CC 6 , 6 3 1 , 6 2 4
1 0 0 , 0 C 0
6 5 7 , 1 9 7
6
5
$2,831,350 §$2,798,95C $2,286,429 $4,524,000 $44,141, 3
Total Estimated Expenses $ 2 , 7 6 2 , 0 0 0 $10,295,000 $3,350,000 $4,330,00C $2,200, 00C $1,876,637 $5,987,197 $1,900,000
Earnings
Earning Assets at 4% Required
149,679,925 4 7 , 5 0 0 , 0 0 0 4 5 , 7 8 3 , 7 5 0 69,973,750 57,160,725 113,100,000 1,103,539,075
to Cover Estimated Expenses 69,050,000 257,375,000 8 3 , 7 5 0 , 0 0 0 108,250,000 5 5 , 0 0 0 , 0 0 0 4 6 , 9 1 5 , 9 2 5
Average Earning Assets Held
Weekly Jen.2 t o Apr. 23/24 _65,952,000 198,659,000 8 4 , 4 5 6 , 0 0 0 _
58,013,000 89,803,000 960,096,000
98,187,000 5 8 , 5 9 8 , 0 0 0 5 9 , 1 3 0 , 0 0 6 121,279,000 4 4 , 8 9 4 , 0 0 0 3 2 , 5 7 8 , 0 0 0 48,607,000
Average Holdings o f Earning
Assets Jan.2 to Apr. 23/24
in Excees o f Estimated
$852,275
$3,558,000
$ 706,000
Requirements
S
a
ae ageeiae a a a
n
$
1
7
,
3
3
0
,
3
5
0
$ 1 2 , 2 1 4 , 0 7 5
t
e
—
e
—
—
S
r
Average Holdings o f Earning
Assets Jan.2 to Apr. 23/24
Short o f Estimated
Requirements
$ 3 , 0 9 8 , 0 0 0 $58,736,000
$ 1 0 , 0 6 3 , 0 0 0
&
x
3‘
$28,400,925 $2,606,000 $13,205,750 $21,366,750
S
o
o
“
a
o
e
S
o
B
E
S
T
e
S
e
e
S
O
S
S
Aversge Earning Assets Short o f Requirements
2 4 6 . 6 5 3 , 0 0 0
Assets April 23, 1924
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
o
S
S
T AVAILABLE BOCURVERTT
N
e
———_—
’ pies
$54,129,000 $120,° ”
$54,258,000 $145,147,00C $71,577, 000 $100, 538,000 $70,220,000
e
s
P e Py e e
5
.4
rn
Actual Holdings o f B a
-
o
a
7 2
2
4
$ 2 3 , 2 9 7 , 0 0 0 $ 1 6 0 , 7 7 2 ,5
sil
$143, 442,075
£ 0 0 $49,678,000 $45,851,060 $87,901,000 $887,613,000
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
COMMERCIAL
PA\
e
e
e
| BANK of ENGLAN
DISCOUNT RATE
‘TAP. RATE
ea
New York Money Rates
London Money Rates
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
GOLD,BANK DEPOSITS,
&&
BILLIONS
P R I C E S EXHIBIT“¢"
OFDOLLARS
JOT
Pee
~
) — WeiarshaScheer iit
GENERAL PRICE |
LEVI
|
DEN
ND
o a
1917. [9191921 «1945-1925
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Federal Reserve Bank of St. Louis
Governor Norris:
T h e footing a t t h e bottom o f the
page, t h e total o f $171,000,000 government securities
should b e plus instead o f minus, s h o u l d i t not?
etic
I t certainly should. T
Deputy Governor Case:
that this dates b a c k t o December, 1922, a n d not 1925.
Governor Norris:
O b ,
s e c .
think that should have
Deputy Governor Case: I
been December, 1923,
Governor Harding: I
statement
i n the middle
would like t o a s k atout t h e
o f page 2 , where i t says t h e
total earning assets o f the Federal reserve system have
declined
a n d where y o u s a y
00,000,
a p p r o x i m a ,t 0
e 5l £y
that s h o u l d b e $400,000,000.
T
t its n o t v e r y c l e a r f r o m
the text because it goes én to say: “Increases i n holdings o f U . S . s e c u r i t i e s h a v e b e e n m o r e t h a n o f f s e t
by 4
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Federal Reserve Bank of St. Louis
ie
decrease o f 100,000,090 i n holdings i n bankers acceptances,
a n d o f $450,009,000
i n discounts a n d advances.
That makes $450,000,000, b u t taking into consideration
the two hundred o d d million that y o u have purchased,
it
makes t h a t $250,000,000 figure correct a s y o u first h a d it.
Deputy G o v e r n o r C a s e :
are CUAPpS. P i eats
morning.
It i s a
( n e a t - 2 s Meu f e m cleae
o w
I T did n o t s e e t h e s e e x h i b i t s u n t i l t h i s
T h e y just cawe in. I
saw the text o n Friday.
fact t h a t 1 m B x h i bit G C yow ser. t h e -sompiets p i c +
ture, y o u take December 26, 19235, a n d i t shows total earning assets o f $1,297,000,000, w h i l e i n April there a r e
’887,000,000 a reduction of about 9400,000,090, shoving
the n e t c h a n g e a s c o m o a r e d w i t h 1l¢eec. I
think w h a t w e a r e
interested i n i s a comparison r i t h December 2 6 , 19235,
and that shows %410,000,000.
The Chairran:
satisfaction,
I s that point cleared u p t o your
G o v e r n o r Harding?
Governor Harding:
Y e s , i r . Chairman.
Deputy Governor Case:
while p u r c h a s e s
I t i s interesting t o note that
o f Governnent securities f r o m December
26 have i n c r e a s e d
s o largely,
t h e bankers acceptances
have gone off from $336,000,000 t o (G140,000,000, nearly
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
15
$200,000,000,
a n d t h e total earning assets h a v e g o n e o f f
nearly $400,000,000,
s o that our purchases d i d not inthe System.
fixhibit © shows t h e estimated expenses reported f o r
eral reserve banks a n d the amount o f earning assets
to cover s u c h exnenses.
T h e first b l o c k there shows t h e
total estimated expenses, including
d e n d r e s e r v e for
and then, u n d e r t h e c a p t i o n o f earnings,
the earning assets a t four v e r cent required t o cover t h e
estivated expenses a n d the average earning assets h e l d
sines satiery, 19ee%
page,
T h e n below,
a t tre f o s t o f the
i t shows t h e a c t u a l h o l d i n g o f e a r n i n g a s s e t s a s
5rd,
of Apri.
e n d practically
i m e v e r y instance,
with
the exception o f C l e v e l a n d a n d Richmond, t h e amount o f
actual holdings i s way below what the average has been.
Cleveland a n d Richmond appear t o b e up, a n d s o are S t .
Louis a n d Minneapolis, apparently.
Tee C r a n i a l ¢ “ t h a t i g t h e p l e a s u r e
with r e g a r d t o t h i s r e p o r t
Governor Norris:
questions
mObLONs
O n
o f t h e conference
a s submitted a n d read?
H a d n ' t w e better discuss t h e t w o
i t h e report before adopting a n y
s u g z e s t e dn
i u ¢
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Federal Reserve Bank of St. Louis
14
The Chairman:
W h a t a r e those suggestions, G o v e r n o r
Norris?
N o s ; 2
Governor Norris:
gested
a n d S o n t h e orogram, s u g -
b y S a n Francisco.
The Chairman:
T e e p e
issgne
w c
that i s all right, Governor Norris, b u t I
O f tue, C o m e r e n c c .
d o n o t think i t
is necessary i n dealing w i t h this report.
Governor l o r s :
you p r e f e r
Y y n a t S a n Mrancisco prefers?
“ould
t o have t h e revort adoptea a n d then discussed
o r Giscuss i t first, Governor ‘alkins?
afterwards,
The C h a i r m a n s
the C o n f e r e n c e ,
I
f there i s n o objection
t h e report,
a s submitted
o n the part
a n d read,
will
be approved.
we W i l l p a s s n o w t o T o p i c @ .
Effect o f o p e r a t i o n o f t h i s c o m m i t t e e a n d
the d e s i r a b i l i t y o f t h e i r c o n t i n u a n c e ,
Phat i s submitted for Giscussion b y San francisco.
Governor Calkins:.
T O D
T h e sub-headings 2
and 5 are o n e
T h e y were p u t o n the program f o r t h e purpose o f
provoking,
i f y o u olease, C i s c u s s i o n
rather t h a n f o r t h e p u r p o s e
views about them.
o f those mestions,
o f advancing a n y v e r y definite
I t appears t o u s that s o long a s the
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Federal Reserve Bank of St. Louis
avis,
operations
tion
o f t h i s c o m r i t t e e a r e t i e d u p w i t h t h e aues-~
o f earnings
b y t h e banks,
t h a t t h e operations
t o a
committee w i l l b e hampered, a n d ,
will b e ineffective.
T
o b e sure,
o f
t h e
considerable e x t e n t ,
i t has b e e n pointed o u t
to m e that t h e Attorney General h a s renderec.
a n opinion
that F e d e r a l r e s e r v e b a n k s m a y p a y d i v i d e n d s f r o m a c c u m u lated surplus,
and I
have n o d o u b t a b o u t t h a t , t h a t i s ,
about t h e l e g a l e f f e c t o f it;
t h a t mestion has teen
put u p t o t h e F e d e r a l R e s e r v e B o a r d ,
in effect,
a n d t h e Board replied
a s I understand it, t h a t i t would n o t pass
upon t h e q u e s t i o n a s t o w h e t h e r a
Federal r e s e r v e b a n k
may p a y d i v i d e n d s f r o m a c c u m u l a t e d s u r v l u s u n t i l t h e a u e s -
tion was asked a s applying t o payment o f dividends a t a
specific. time.
The i n e v i t a b l e c o n s e q u e n c e
the d i r e c t o r s
o f t h e consideration o f
o f t h e various b a n k s o f t h e cuestion O f sarn
ings i s that t h e y reach, I
think i n all cases, a
position
where t h e y a r e reluctant t o consider t h e possibility o f
discontinuing dividends, a n d i f they were assured ‘by 2
ruling o f the Federal Reserve Board that they might p a y
dividends f r o m a c c u m lated surplus, t h e n ’
t h e question
hampe:
of investment policy c o u l d b e discussed without t h e
ing question o f
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Federal Reserve Bank of St. Louis
I therefore t h i n k that i t i s practically difficult,
perhaps impossible,
t o carry o u t a n investment policy s u c h
as that which has b e e n discussed,
t o its full ami logical
extent, unless t h e question o f the payment o f dividends i s
disposed o f ,
I
t appears t h a t t h e o p e r a t i o n
o f t h e banks ,
when they are operated with t h e object i n the minds o f the
t o e a r n sufficient
directors
t o p a y dividends will,
i n
most cases, interfere w i t h t h e operations o f this committee.
I
n o t h e r words,
San Francisco,
i f o n e o f the Federal Reserve Banks
f o r instance,
i s short o f carning assets
and requests t h e committee t o make a
special purchase f o r
it i n order t o bring its earning assets u p t o a volume
sufficient
t o make earnings
t o m e e t e x n e n s e s a n d Gividends.
of
the c o m m i t t e e w i l l t h e n b e f a c e d w i t h t h e a u e s t i o n
whether
OL D O ts
i t i s a t that t i m e desirable
T h e committee appears
t o increase purchases
t o have reached t h e con-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
AY
clusion that i t should b e relieved o f that obligation,
which means t h a t t h e b a n k s should contemplate operation
regardless
o f earnings.
The further suggestion i s that unless t h e m e s t i o n
of earnings i s disregarded a n d the open »arket investment
policy o f the banks i s carried o u t without considering
that question, t h e n t h e result will b e that t h e system w i l
put money into t h e market w h e n i t i s easy, a n d take i t
out o f t h e m a r k e t w h e n i t i s l e s s e a s y ,
o r when t h e ten-
dency i s t o w a r d t i g h t e n i n g u p , w h i c h i s e x a c t l y t h e r e v e r s e
of w h a t i s desired,
are t o f i x o u r m i n d s
as I
see it,
I
i f we
n other words,
o n t h e a u e s t i o n o f carnings,
our earning assets g e t down i n volume,
and
w e will want more
assets probably a t a tive w h e n t h e market should n o t b e
disturbed b y the purchase o f governvent securities o r o t h e
securities.
O n the other hand,
increase a n d w e w a n t t o d i s p o s e
i f the discount demands
o f our earning assets
a time w h e n t h e y s h o u l d n o t b é p u t i n t o t h e market,
only w a y t h a t w e c a n s o c a r r y o u t 4
at
the
logical a n d e f f e c t i v e
open market policy i s b y the entire disregard o f the question o f earnings.
Governor Fancher: T
think a l l t h e mermters o f t h e
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Federal Reserve Bank of St. Louis
18
Open M
arket Investment C o m i t t e e h a v e fully appreciated
that o u r o p e r a t i o n s w e r e n o t o n a
were asked,
normal basis:
i n fact, almost compelled,
t h a t we
t o divest ourselves
of all o f our government securities a n d then w e determined
to a c c u m u l a t e a
substantial a m o u n t
decision w a s a r r i v e d
a t at a
i n o u r portfolio;
that
time w h e n ‘ o n e y w a s i n a
per-
iod o f e a s e , a n d t h e s e p u r c h a s e s h a v e b e e n m a d e i n t h e
face o f a
rather e a s y vroney makket,
a n d t h e operation
o accumulate
would have been more normal h a d w e b e g u n t
the p o r t f o l i o
i n t h e e a r l y p a r t o f t h e f a l l o f 19265, a n d
our p o s i t i o n w o u l d a p p e a r
we m i g h t t h e n h a v e b e e n
t o m e t o b e more normal because
i n a
position
t o l a p u p some.
this v e r y e a s y m o n e y t h a t i s l i k e l y t o a p p e a r
of
i n t h e inm-
mediate future, a n d for t h e sake o f having something that
we c a n exert some influence i n the market with, i f w e
really have t o g o into t h e market a t times w h e n p Beie Fe
not a
natural operation.
Governor Calkins:
T h a t i s t h e a u e s t i o n exactly.
i n almost e v e r y instance?
A
disposed
she t i m e v h e n t h e F e d e r a l r e s e r v e b a n k s a r e
to
wontt t h a t b e t h e c u e s t i o n
go i n t o t h e market, w o n ' t t h a t b e a
not d o so;
a n d at a
t
time w h e n t h e y
time w h e n t h e y a r e d i s p o s e d
t o take
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
19
money o u t o f the market, t h a t will b e a time when they
should m t b e doing so.
T h a t will b e true a s long a s
they c e n t e r a t t e n t i o n u p o n earnings.
T h a t w a s argued
at the time this policy w a s discussed before, t h a t t h e
operations o f the Open Market Investment domrittee might
be s o carried o n a s t o avoid fluctuation i n discount
rates;
we
i n other words w h e n t h e market w a s unduly easy
low we
might t a k e t h e m o n e y o u t o f it, a n d w h e n i t w a s
A
might put some money into Lt.
s a matter o f fact the
oppooperation o f t h e c o m m i t t e s h a s b e e n a l o n g e x a c t l y
site lines;
i t was
i t has p u t money into t h e market w h e n
out
unduly e a s y a n d i t will, contrawise b e taking money
of t h e m a r k e t w h e n t h e m a r k e t
i s beginning
t o tighten.
t h e Federal
I have always thought i t was a mistake f o r
investments
Reserve System t o dispose o f the large
in
were disposed o f
goverment securities a t the time t h e y
that time i t was
and i f i t was a mistake t o d o that a t
also a
buy 200
mistake t o g o back into t h e market a n d
there was n o necesmillion dollars worth a t a tive w h e n
sity f o e . . .
h a d a n y appreciab.
T h e f a c t t h a t i t hasn't
b y the reduction o f the
influence u p o n rates i s indicated
New York rate t e four p e r cent.
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Federal Reserve Bank of St. Louis
20
The Chairman: I
would l i k e t o s a y o n behalf
o f the
committee t h a t t h e q u e s t i o n s y o u h a v e r a i s e d h a v e b e e n
very c a r e f u l l y considered,
a n d t h a t t h e s t a t e m e n t s y o u have
made a r e a p p r o x i m a t e l y c o r r e c t , a l t h s u g h v e r h a p s a
T h i s committee h a d wished u p o n i t a
exureme.
out a n d m a k i n g i n v e s t m e n t s
tion w a s n o t favorable.
h
at a
little
job o f g o i n
time w h e n t h e m a r k e t s i t u a -
T h e y have dore t h e best they
e committee w a s v e r y strong i n its contention
Cou.
T
that a
mistake w a s m a d e i n r e d u c i n g t h e h o l d i n g s
ment s e c u r i t i e s f r o m u p w a r d s
tically nothing,
i n Govern:
o f 600 millions d o w n t o prac-
a n d was also strongly o f the opinion
that i f w e h a d b e e n p e r m i t t e d
t o have retained perhaps
300 m i l l i o n o f t h o s e a t t h a t time, t h a t o n M a r c h last,
when t h e m a r k e t
w a s shot.
t o pieces
a n d call money went
down t o two a n d a half p e r cent, t h a t this committee woulc
along
have b e e n f u n c t i o n i n g a n d f u n c t i o n i n g b e a u t i f u l l y
that were intended. F u r t h e r m o r e , t h e committec
has g i v e n v e r y c a r e f u l c o n s i d e r a t i o n
t o this whole aues-
endeavored t o
tion that y o u have brought out, a n d w e have
operate w i t h t h e least p P s i b l e d i s t u r b a n c e .
Lixe w o g o
[ feel t h i s w a y a b o u t i t , a n d l s h o u l d
o f t w o things h a s t o
on r e c o r d t o t h i s e f f e c t , t h a t o n e
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Federal Reserve Bank of St. Louis
Re
be done b y the Federal reserve banksj
T h e y have either
got t o reverse themselves w i t h respect t o the very liberal
services t h e y a r e offering t o member banks a n d absorbing
expenses,
o r t h e y h a v e g o t t o ultimately g o into t h e mar-
ket a n d b u y s o m e t h i n g f o r e a r n i n g purposes,
thing, u n d e r p r e s e n t c o n d i t i o n s ,
a n d that some
i f t h e market w e r e advan-
tageous, w o u l d b e govermment securities. I
would like
to s a y further t h a t w e feel w h e n t h e time comes, n o t
now, t h a t t h e twelve units will a c t together-~- rememberin;
that t h e responsibility o f this committee i s broad, a n d
that w e expect t h e committee t o b e the medium through
which a n y transactions i n open market operations a r e carried o n ;
tions
a n d I
would l i k e t o s a y w h e n t h e m a r k e t c o n d i -
d o r e v e r s e t h e m s e l v e s a n d o p p o r t u n i t y presents,
that
it would n o t b e a bad thing f o r this onmganization t o consider f o l l o w i n g t h e e x a m p l e o f Philadelphia,
and p o s s i b l y M i n n e a p o l i s ,
o f investing a
f o r instance,
good portion o f
the capital a n d surplus i n government securities o f longer
maturities f o r earning purposes.
that o r r e v e r s e o u b s e l v e s
W e must either d o
i n the matter
o f undertaking
to
absorb expense, t h e aggregate o f which i s a t present enor-
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Federal Reserve Bank of St. Louis
mous a n d i s disturbing.
Governor Calkins:
L e t m e s a y t h a t m y r e m a r k s impliecé
no c r i t i c i s m o f t n e conmittee,
ing o u t a
policy a d o p t e d
T h e committee w a s carry-
b y t h e conference.
T h e questien
a n d n o t whether t h e com-
ie w h e t h e r t h e p o l i c y w a s right,
mittee!s a c t i o n s w e r e right.
The Chairman:
Anything I
to c o n v e y t h a t beltef.
have said was n o t intended
“ e have h a d a
problem w h i c h h a s
been a very difficult t h i n g t o handle, a n d t h e committee
has succeeded a s best t h e y could;
b u t w e have p u t money
into t h e market a t times w h e n t h e market ought t o have
had money taken out o f it. I
think Mr. C a s e will agree
to that.
N o , I
Deputy G o v e r n o r C a s e :
I f I may just s a y a word o n
altogether, w r . Chairman.
that, I
d o n o t agree t o that
fully a g r e e w i t h w h a t G o v e r n o r C a l k i n s s a y s , a n d
I believe t h a t i s t h e o p i n i o n o f p r a c t i c a l l y e v e r y o n e
of the governors, t h a t a mistake w a s made i n practically
forcing t h e Federal Reserve Banks t o divest themselves o f
this s u b s t a n t i a l p o r t f o l i o
or t w o a g o .
T h a t was a
o f government securities a
mistake;
year
b u t w e have g o t t o keep
in m i n d t h a t t h e s y s t e m i s new, r e l a t i v e l y ,
anc I
pre-
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Federal Reserve Bank of St. Louis
25
sume w e shall make more mistakes, a n d I hope w e shall
profit
b y them.
In i n a u g u r a t i n g t h i s p o l i c y I
recali t h a t G o v e r n o r
Strong stated t o the Federal Reserve Board, a n d I presume
to t h i s conference,
t h a t i f this p r o g r a m b e approved
he
felt that this portfolio o f government securities would b e
acquircd w i t h o u t m a t e r i a l l y i n c r e a s i n g t h e e a r n i n g a s s e t s
of t h e System.
I
n o t h e r words,
in r e c o n m e n d i n g this,
i t w a s n o t h i s purpose,
t o start o u t a n d b u y 4
large p o r t ~
folio solely w i t h a view o f increasing t h e earming asscts.
It was t h e thought t h a t w e might have something that cauld
be used, s o l d i n the market w h e n occasion required, a n d
it appears t h a t t h e o n l y t h i n g t h a t w e c a n acquire a n d s a
use i s governnent securities i n the portfolio.
N e w , then.
as has been shown, while w e have acquired something less
than 2 5 0 millions i n gnvernvent securities, t h e earning
assets
o f t h e system h a v e b e e n materially reduced ¢
I n
ether words, w e are i n a period o f business recession.
Now, I
do not quite agree w i t h t h e Chairman's v i e w o f it.
I think h e takes a
little pesimitic v i e w with regard t o
to
continuing o u r services t o member banks w h e n w e happen
be i n a
a
period s u c h a s t h e p r e s e n t o n e , w h i c h i s n o t
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Federal Reserve Bank of St. Louis
24
very happy situation.
w e have g o v e r m e n t assets--- w e
have charges, rather, t h a t require total earning assets o f
ton o r eleven hundred million dollars, a n d a t the presat
time w e h a v e a t o u t 8 0 0 m i l l i o n s
i n e a r n i n g assets;
s e that
if w e w e r e t o a d o p t t h e p o l i c y t h a t w e m u s t h a v e s u r r i c i s n
earning a s s e t s
t o cover expenses a n d dividends
w e vould
at this time have t o g o out and buy $300,000,000 worth o f
securities, p u t $300,000,000, i f i t were possible, addisuspect that w e might
tional funds i n t o t h e market. I
buy f i v e o r s i x h u n d r e d m i l l i o n s m o r e o f g o v e r n m e n t s e c u r i
ties w i t h o u t i n c r e a s i n g t h e e a r n i n g a s s e t s
o f the System
one dollar a t a time like this, because y o u r bills a n d
your direct loans w o u l d r u n off.
B u t I
do think t h e
idea o f h a v i n g i n t h e p o r t f o l i o s o m e e r e d i t i n s t r u m e n t t h e
can b e sold i s a principle t h a t i s very desirable, and,
be
as I have stated, t h e short time governments appear t o
the only thing that w e c a n have i n that fashion.
Governor C a l k i n s :
Y o u have injected
game q v e s t i o n i n t o t h e discussion.
once more the
Y o u have stated what
the
was s a i d a t the conference l a s t fall, t h a t unless
called voluntary
Federal r e s e r v e b a n k s d e c r e a s e w h a t a r e
t h a t i t would
services a n d the expense incident t o them,
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Federal Reserve Bank of St. Louis
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necessary t o g o insistently into t h e open market, a n d
that cames right b a c k t o the question o f whether t h e bamks
must a t a l l t i m e s e a r n t h e i r e x p e n s e s a n d dividends.
we c o n t i n u e
t o render t h e s e voluntary services---
and I
inject right here t h e opinion that w e should continudie™
that will raise t h e ouestion o f whether w e must e a r n
enough t o carry o u r expenses a n d dividends.
Reserve B a n k o f S a n d o u l a
T h e Federal
a n d I think this i s true
of most o f the others--- h a s sufficient accumulated surplus t o pay dividends f r o m n o w o n for forty t o fifty years
hence.
T h e r e s h o u l d b e n o a n x i e t y i n regard t o that,
and
that question should b e removed f r o m t h e discussion, a n d
the operations o f the System should w
carried o n ffee
from the hampering, a n d n o t only hampering, p u b trom t he
actually determining factor o f earnings,
o r otherwise w e
never could d e a n y effective w o r k i n open market transactions.
Governor Norris: I
suppose w e a r e a l l f a m i l i a r w i t h
the f a c t t h a t t h e A t t o r n e y G e n e r a l h a s g i v e n a n opinion
that dividends m a y b e paid from accwmlated surplus.
there a n y reasonable doubt about i t ? I
Governor C a l k i n s
I s
understand
t o s a y that t h e Federal R e s e r
B o a r d has
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Federal Reserve Bank of St. Louis
26
said t h a t t h e y w o u l d n o t w a k e a
specific r u l i n g o n t h e
subject u n t i l t h e q u e s t i o n w a s a c t u a l l y raised;
but is
there, o r c a n there be, a n y doubt a s t o what their ruling
will b e when t h e question i s raised?
Goverror Calkins:
a ruling,
a 8 1 see it.
T h e r e c a n t e doubt until there i s
T n e view seems t o b e held b y
same members o f the Board, perhaps b y all o f them, t h a t
the b r o a d p r o v i s i o n s
which a r e i n doubt.
o f the l a w will cover s e m e things
T h e Board o f Directors o f the S a n
Francisco B a n k p a s s e d a
resolution s o m e t i m e a g o e x p r e s s i n
divi
the b e l i e f t h a t t n e B a n k s h o u l d e a r n i t s e x p e n s e s a n d
dends, a n d i n advising t h e Board o f that t h e y were informe
i n the
that t h e r e s o l u t i o n m i g h t n o t h a v e b e e n a d e p t e d
the directors
form i n w h i c h i t w a s a d o p t e d b y t h e B o a r d i f
were a s s u r e d t h a t t h e y c o u l d c o n t i n u e p a y i n g d i v i d e n d s
regardless
replied,
o f whether t h e y e a r n e d t h e m o r not.
T h e Boarc
a s I have stated, s a y i n g that t h e y would n o t
rule u p o n t h a t m e s t i o n u n t i l
i t was raised
in a
specific
ease.
The Attorney General o f c h e United States, under
date o f A p r i l 2 7 , 1 9 2 2 , r e n d e r e d
a n opinion, w h i c h e n d s
b y the
i> therefore concur i n the conclusion reached
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Federal Reserve Bank of St. Louis
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General Counsel f o r the Federal Reserve Board, t h a t a
bank w h i c h h a s a c c u m u l a t e d s u r p l u s h a s l e g a l a u t h o r i t y
under t h e provisions o f Section 7
of t h e Federal Reserve
Act t o pay out o f such surplus funds t o its stockholders,
the member banks, a
dividend f o r that year i n which t h e
current earmings o f the Federal Reserve Bamks a r e insuffi-
cient far this purpose;" b u t that does not dispase o f
the o u e s t i a n o f w h e t h e r t h e F e d e r a l R e s e r v e B o a r d might,
under i t s g e n e r a l a u t h o r i t y , d e c l i n e
The Chairmans
matter have, I
O u r discussions
t o permit i t .
i n regard t o this
think, always b e e n based o n the assumption
that 1 f necessary w e could pay dividends from our accumulated: surplus.
G o v e r n o r Calkins, I
would suggest that
perin view o f there being some doubt i n your mind, a n d
haps
i n t h e m i n d s o f others, t h a t i f i t i s a g r e e a b l e
you y o u formulate a
to
motion asking t h e Federal Reserve Boarc
to act i n advance i n advising the Federal Reserve Banks
dividen
as t o whether t h e y will avprave o f the payment o f
from surplus
visable
adi n case conditions m a k e i t necessary o r
t o d o so.
Governor Calkins: I
think, M r , Chairman, t h a t b e ~
cuestion shr
fore m k i n g s u c h a request o f t h e Board, t h e
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Federal Reserve Bank of St. Louis
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be more extensively examined,
t has b e e n examined
t h a ni
F o r instance,
by this conference.
i s i t the view o f this
conference that, i f w e find ourselves i n such a position
that w e are n o t earning enough t o cover expenses a n d dividends
w e should curtail o u r services?
should w e d o that?
decrease
A
s a
S h o u l d w e contemplate a
i n t h e services r e n d e r e d
of lack o f caryuings?
last resort,
radical
t o m e m b e r b a n k s becauseé
A r e those services justified a n d
should t h e y b e contimued,
o r are t h e y without justifica-
tion a n d should t h e y b e ciscontinued? I
think that i s
the v i t a l p a r t o f this d i s c u s s i o n ,
The Chairmans
Y o u a r e n o w touching u p o n a matter
that will come u p later i n this conference, a
has b e e n c o n s i d e r e d v e r y c a r e f u l l y
matter that
b y Governor Fancher's
,
committee o n Voluntary Services, a n d I would assume w e
would like t o let this matter r e s t i n abeyance until w e
hear f r o m t h a t committee.
Governor Calkins: T
have i n m i n d t h e r e p o r t
committee, w h i c h I have read,
port a n d I
will
o f that
I t i s a very excellent r e -
b e elad t o move i t s adoption without t h e
it, b u t lI
change o f a syllable i n it, s o far a s I recall
think t h i s
i s the time
t o discuss
t h e related auestion
of
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Federal Reserve Bank of St. Louis
earning assets.
Governor Seay:
T h e report t o which y o u refer, f r .
Chairman, c o v e r s o n l y o n e s p e c i a l v o l u n t a r y service,
not v o l u n t a r y s e r v i c e s
The Chairman:
and
i n general,
I t will cover t h e m before t h e conmitte
think t h e Committee will have s o m e recom-
is through. I
mendations t o make, w i l l i t not, Governor Fancher?
W e hope t o make a supplementary
Governor Fancher:
report t h a t w i l l c o v e r t h e q u e s t i o n o f expenses i n v o l v e d
in the handling o f currency, s a f e keeping, a n d leased
wires.
T h o s e a r e t h e other three ttems specifically
given t o the committee t o give consideration t o and o n
which t o m a k e r e c o m m e n d a t i o n s .
T h e r c will b e a
supplemen
al r e p o r t c o v e r i n g t h o s e t h r e e t o p i c s p e f o r e t h e adjourn-
ment o f the Conference.
I n order t o start t h e thing, i f
Governor Calkins:
possible, I
would like t o express this further view:
That
4f all twelve individual Federal reserve banks a r e n o t
to b e assured,
o r are n o t sure, t h a t t h e y m a y p a y dividenc
regardless o f earnings,
tive t h a t t h e c o n t r o l
i t would s e e m t o m e t o b e impera-
o f investments
b y these banks b e
t o the
returned d e f i n i t e l y a n d w i t h o u t a n y r e s t r i c t i o n
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Federal Reserve Bank of St. Louis
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banks themselves, a n d thereby these individual bamks b e
left t o handle t h e question o f whether t h e y will e a r n
dividends
o r n o t f r e e f r o m a n y enantrol b y a n o p e n m a r k e t
investment c o m n i t t e e ,
T h a t i s really t h e heart o f the
Governor Wellborn?:
S i n c e i t has b e e n suggested that
we a s k t h e B o a r d ' s a d v i c e a b o u t w h e t h e r w e c a n p a y d i v i dends f r o m surplus, I
e well f o r t h i s b a d y
think i t w o u l d b
to d i s c u s s t h a t m a t t e r v e r y f u l l y b e f o r e w e a s k a n opin-
ion b y the Board.
sirable
I , myself, t h i n k 1 t would n o t b e de-
t o p a y d i v i d e n d s f r o m t h e surplus, t h a t i t w o u l d
undoubtedly weaken t h e system a n a there m a y b e times w h e n
we m a y need that surplus.
in 1920;
infact
W e came v e r y near needing i t
w e d i d n e e d it.
I
t strikes
m e that
we should discuss t h a t pretty fully before w e a s k a n
opinion o f t h e B o a r d o n t h e subject. T
feel t h a t i t
t h e voluntary
would p r o b a b l y b e b e t t e r t o c u t o f f s o m e o f
services w h i c h w e m i g h t b e a b l e t o do,
establishment
o r discontinue
t h e
o f more branches.
The Chairman:
A t t h e p r e v i o u s c o n f e r e n c e t h e meetii
canvassed f o r t h e p u r p o s e
o f ascertaining,
a s l I remer.'
banks
an e x p r e s s i o n o f t h e v i e w s f r o m t h e t w e l v e
a s
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Federal Reserve Bank of St. Louis
ol
t> the policy t h e y felt should b e pursued, a n d a t that
time t h e banks, a s I remember it, were a l l i n favor o f
adjusting earning assets i n such a way a s t o secure earn~
ings s u f f i c i e n t
t o m e e t e x p e n s e s a n d o t h e r commitments,
including dividends, a n d they were opposed,
it, i n principle,
t o t h e payment
a t least,
from a c c u m u l a t e d surplus.
T
t might
a s I remember
o f dividends
b e helpful
i f we een
re-canvass t h e situation, because i t i s possible there
may have b e e n some changes i n the minds o f those present.
Governor Young:
w r , Chairman, t h e matters o f earnin
is a serious thing w i t h t h e Federal Reserve B a n k o f Mimnea
5
Sie
w e have large expense there.
T t has cost u s
almost $150,000 a year. “ v e may get sore o f that back,
Pett c o u t is.
Minneapolis
w e have t o rely upon t h e market i n
t o e a r n sufficient
Governor C a l k i n s s a y s ,
h e has a
A s
t o p a y o u r dividends.
surplus s u f f i c i e n t
mit h i m t o pay dividends f o r forty o r fifty years.
t o per-
A s
near a s I can estimate i t the Federal Reserve B a n k o f
years
Minneapolis c o u l d p a y dividends f o r about seven
from the surplus t h a t w e have.
B u t f o r t h e life o f me
I cannot s e e h o w the member banks i n our district a r e
going t o borrow a n average o f $40,000,000 continually
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Federal Reserve Bank of St. Louis
32
from us, a n d that i s what w e need t o earn t o offset j u s t
our e x p e n s e s a n d dividends,
t o s a y nothing o f t h e losses
we might have.
Governor M c K i n n e y :
W h e n y o u s a y s i x o r seven years
you m e a n w i t h o u t r e g a r d t o p o s s i b l e l o s s e s ?
a m eliminating losses, a n d
Governor Young: I
say this, t h a t i f the banks o f our district borrow a n aver-
age of $40,000,000 from us continually that we will cease
tc b e a
Federal r e s e r v e b a n k .
i n m y opinion.
only o n e solution o f this mestion,
T h e r e is
i n m y opinion, a n d
that i s t o cut off a great number o f the voluntary service:
that w e have i n the Federal Reserve System.
“ h a t i s your surplus, Governor
Governor Calkins:
Young?
Governor Young:
S e v e n million.
A n d your annual dividends?
Governor Calkins:
Gevernor Young:
A p o u t $230,000.
Governor Calkins:
Governor Young:
A n d twenty times that would be~--
T h a t i s all right, b u t i f your aver
age for the year o f income i s $540,000 and your expenses
$1,600,000 now--- a n d they are going t o b e 4 hundred
ithere s
ge
thousand more w h e n w e g e t into t h e n e w building---
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Federal Reserve Bank of St. Louis
a million d o l l a r s s h o r t e a c h year,
The Chairman: I
will g o a r o u n d t h e t a b l e o n this
question t o a s c e r t a i n w h e t h e r vor n o t t h e b a n k s h e r e r e p r e ~
sented a r e i n favor o f p a y i n g d i v i d e n d s f r o m t h e i r surplus,
provided their earnings w i l l n o t permit t h e m t o d e so,
and i f they a r e i n favor o f i t whether t h e y a r e i n favor
af i t a s a continuing policy,
o r whether t h e y a r e i n faver
of i t simply once o r twice o r something like that.
more, a s t o whether o r n o t they a r e still i n fawr,
whether their views have b e e n modified,
“open m a r k e t
o f going into t h e
i n order t o secure t h e s e earnings
Governor Calkins:
M y , Chairman, I
i f necessary.
was going t o ask
you t o a d d t o y o u r s t a t e m e n t s o m e t h i n g c o m p a r a b l e
what y o u h a v e stated.
or
to
T h e aquestion’is n o t o n e question,
but two o r three questions combined. I
think i t desir-
able t o bring o u t a n expression f r o m those present a s t o
all o f t h o s e m e s t i a n s ,
because i t i s not simply o n e
question.
The Chairman: I
will b e g l a d t o h a v e y o u r s u g g e s t i o r
as t o the w a y i n which i t should b e taken up.
Gevernor Calkins: I
should
r t
b e included
do n o t mean t o s a y that t h e y
i n o n e a n s w e r , perhaps,
b u t i f they
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Federal Reserve Bank of St. Louis
54
are, t h e answer must b e given i n such a way a s t o indicate
what t h e policy i s t o b e with regard t o A, B , a n d © , f o r
instance.
A , e a r n i n g e n o u g h t o p a y d i v i d e n d s w i t h o u t cur-
tailment o f services n o w rencered;
B , earning enough t o
pey dividends w i t h censiderable curtailment o f services r e r
dered, a n d C , either A
or B, resorting t o the open market
to m a k e money.
The Chairman: I
would like t o see t h e question ap-
proached f r o m t h e s t a n d p o i n t
o f contiming
t h e services
as
they a r e n o w rendered.
Governor Norris: P e : h a p s putting t h e auestion i n t h
form w o u l d r e e t b o t h views, G o v e r n o r Calkins:
Assuming
that earnings a r e insufficient t o meet expenses a n d divi-
dends, would you:
the open market,
( a ) curtail services,
( b ) resort t o
o r (c) p a y dividends f r e m surplus, w h i c h
will erable e a c h member here t o s a y which o f these three
things h e prefers doing.
The Chairman:
G o v e r n o r Bailsy, I
ane
will a s k y o u t o
start t h e discussion.
Governor Bailey:
T h e Federal Reserve B a n k o f Kansas
City i s i n f a w r o f doing a w a y with t h e non-cash collectio
service, w h i c h w e find a very expensive one. ‘ v h i l e t h e
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Federal Reserve Bank of St. Louis
55
answers t o the ouestionnaires s e n t o u t a r e rather indefinite, a
close c a n v a s s
o f t h e m a j o r i t y o f member b a n k s
I
shows that t h e y a r e n o t i n f a w r o f it.
360,000 a
t costs “us
year a n d i t i s a n amnoying thing. I
will just
tllustrate t h e situation w e are i n b y what came u p the oth:
day i n the northwest.
U
p around Seattle a n d -verett t h e y
have large c a m i n g factories canning fruit a n d fish a n d
they h a v e a
preferential r a t e .
T h e y s e l l t o concerns
in southern Kansas, “‘ichita, Coffeyville, a n d towns o f
that kind.
T h e y serd a traveling m a n out a n d h e will
sell goods t o a wholesale hause a t Indge City, i150 miles
from “wichita, and-another a t Coffeyville, Oklahoma City,
and s o forth, a n d they will make u p a
o stuff
c a r l o a df
and shiv i t down t o wichita t o a broker, a n d they will m a k
a sight d r a f t a t t a c h e d
t o o n e b i l l o f lading---
a s man y
sight d r a f t s a s t h e r e a r e m e n w h o h a v e b o u g h t t h e s t u f f
and those t h e y send t o u s for collection.
T h e y will c e n
“{chita w i t h
a-stent drafts o n t h e F i r a t N a t i o n a l B a n k o f
instructions t h a t t h e y a r e n o t t o deliver t h e bill o f lading until a l l these drafts a r e paid.
w e have t o write
down t h e towns u p o n which they a r e drawn a n d the amount
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Federal Reserve Bank of St. Louis
36
represented i n each town, a n d they cannot make bill e f
lading until that i s all done, a n d sometimes twelve o r
fifteen sight drafts against o n e bill o f lading will b e
sent, w h i c h n e c e s s i t a t e s
u s notifying e v e r y o n e o f these
different t o w n s w h e r e t h e l i t t l e j o b b i n g h e u s e i s t h a t h a s
bought a
part o f t h e stuff-~--
i t is a
complicated t h i n g
and involves t h e writing o f a lot o f letters, a n d i t sometimes h o l d s
up a
bill o f l a d i n g t w o o r t h r e e weeks. dilevese’
be
another thing, t h i s cellecting business i s getting t e
a regular dunning agency through us.
w e have lots o f
I
drafts s e n t t o u s for less t h a n a doitar.
made o u t a n d I dAscovered that I
and have wired f o r it.
had a list
did n o t have i t with m e
I t ought t o b e here this morning.
cents t o a dollar a n d
The drafts r u n from 5 0 cents a n d 7 5
dollars, a n d i t
two dollers--- h a i f o f them a r e below t e n
those places
keeps o u r boys o u t o n the streets g o i n g t o
apd c o l l e c t i n g t h o s e i t e m s \ \ ‘I
contemplated, ‘ir. hairman,
don't b e l i e v e
i t was e v e r
t h a t w e were t o b e a
collecting
t o g o out a n d come i n
agency o f t h a t kind, » h e r e w e h a d
time.
contact w i t h t h e p u b l i c a l l t h e
W
e believd t h a t i t
b a n k i n g business a n d
isa p a r t o f t h e regular cammercial
a w a y f r o m them. I
that w e are taking that business
beli
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Federal Reserve Bank of St. Louis
3
it i s t h e m o s t u n p o p u l a r
o f a l l t h e services t h a t w e a r e
rendering, a n d i t i s a very expensive one.
e
L Ge
is
grow m o r e a n d m o r e a s t i m e g o e s o n , a n d t h i s c e r t a i n l y
a place w h e r e w e c a n l o p o f f s o m e e f t h e expense.
The chairman:
T h a t i s all very interesting, Goverwo:
Bailey, b u t I believe possibly y o u have misunderstood
nie.
W
e carmot g o into t h e s e functions separately,
but
view-~
we will have t o consider t h e matter f r o m t h e broader
pcan.
I
f I
now i t i s a
understand t h e m a t t e r
westion
w e a r e g o i n g t o discus
o f p a y i n g dividends.
e
e
e
a
going t o p a y them, a r e w e g o i n g t o d e i t t h r o u g a
curtailment o f the services rendered,
a e
general
o r b y wesorting t o
sui
o a r e W e going t e p a y dividends f r a m
vhe o p e n m a r k e t , r
plus?
want t o p a y dividends o u t o f
Governor Bailey: I
the extent a f
earnings, a n d I want t o recuce expenses t o
a n d thes 1 S “the answer,
these rmon-cash ccllection items,
Tie Ghairmans
your
A a d you are going t o adjust
investments a c c o r d i n g l y ?
to
Y e s , t h a t i s what w e are going
Goverror Bailey:
Governor Seay:
A
s a
rule o f conduct, M e , Chairman,
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Federal Reserve Bank of St. Louis
38
I should f a v o r p a y i n g d i v i d e n d s o u t o f a c c u m u l a t e d c a r n
ings, i f m t earned,
Governor Calkins:
C a r n o t w e take t h e questions u p
in turn a n d a s k each one t o answer w i t h regard t o A ,
C?
a m willing t o answer t h e m i n
Governor Seay: I
Governor Norris:
A
s I
understand t h e a u e s t i o n
is w h i c h o f t h e s e t h i n g s w o u l d y o u d o ?
says t h a t h e w o u l d c u r t a i l s e r v i c e s .
G o v e r n o r Bailey
G o v e r n o r S e a y says
that h e w o u l d p a y d i v i d e n d s f r o m surplus.
Governor S e a y : I
intended
a m willing
a l l thrce
and
t o d o s0.
Deputy Governor Case:
Bailey,
t o answer
A s I understnod Governor
h e said h e would curtail services, a n d also resort
to t h e o p e n m a r k e t
t o cover,
s o that h e has answered A
and B .
Governor Seay: I
will take them-in order, i f that
is the wish o f the conference.
A is, s h a l l w e c u r t a i l t h e services. I
opinion t h a t w e s h o u l d n o t b e s o ~ W a c i l a t i n g
am o f the
i n our prac-
the simple reasc:
tice as t o curtail services o n e year f o r
that
h a v e failed t o earn a
dividend t h a t year.
There
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Federal Reserve Bank of St. Louis
59
ought
t o b e some permanency
our member tanks.
I think i t i s a
i n dealing witi
W h e n i t tomes t o curtailing
a t o which
matter o f s e l e c t i o n s
we s h a l l curtail;
that t e c a u s e
t o o u r practice
b i t : t a m very. f i m o l y o f t h e o p t i o n
o f anunfawrahle
year and a
deficit
i n our
earnings w e ought n o t t o b e s o vacilating a s i n that particular year t o curtail o u r services t h a t w e have teen rendei
ing, a n d , v e r h a n c e t h e f o l l o w i n g year, w h e n o u r carnings
are g o o d ,
f u r n i s h those services.
I
f w e curtail
i n one
year twcause o u r earnings w e r e n o t good, a n d the follow-
ing year they were good and we put them back, w e would
be i m p o r t u n e d
b y our member banks
t o restore
that w e had curtailed, a n d therefore I
t h e services
do not think w e
should b e i n haste t o curtail a n y o f the services which
we have b e e n i n the habit o f renéering, b u t t h e matter
ought t o b e considered very carefully.
I a m also firmly o f the opinion t h a t t h e o p e n m a r k e t i n v e s t m e n t s
banks,
o f t h e F e d e r a l reserv:
i f they a r e t o b e o f t h e service which t h e y were
intenced t o perform, w i l l h a v e t o b e p e r f o r m e d i n d e p e n d e n t
ly of the earnings o f the banks.
I t is a broader princi
than m e r e e a r n i n g s w h i c h l i e s u n d e r n e a t h t h e p e r f o r m a n c e
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Federal Reserve Bank of St. Louis
40
of o p e n m a r k e t f u n c t i o n s .
T h e r e i s n o doubt i n m y mind
whatever t h a t t h o s e f u n c t i o n s o u g h t t o b e p e r f o r m e d u p o n
a principle w h i c h i s e n t i r e l y i n d e p e n d e n t
o f our earning
Capacity .
With r e g a r d t o a u e s t i o n C , P a y i n g d i v i d e n d s o u t o f
surplus, I
a m o f t h e opinion t h a t w e should p a y dividends
out o f o u r s u r p l u s w h e n w e f a i l t o e a r n them. I
think i n
the case o f a varticular b a n k i t might depend upon how
far short o f earningutheir dividends t h e y would come.
Our expenses might b e very large i n a given year, a n d i t
would b e not only a shortage vith regard t o dividends, b u t
it would b e a failure t o earn a portion o f our expenses,
which m i g h t b e v e r y large,
a n d i f t h e o p e n market comult-
tee i s n o t functioning, t h e n o f course i n the absence o f
paper o f f e r e d t o u s f o r r e d i s c o u n t o u r r e v e n u e s a r e g o i n :
to fall short.
I t never occurred t o me, since w e receiver
communication f r o m the Board that t h e Attorney General
confirmed t h e o v i n i o n o f c o u n s e l
o f the Board t h a t
banks h a d t h e pight t o p a y dividends c u t o f earnings,
when u n d e r t h e A c t t h e m e m b e r b a n k s h a v e t h e r i g h t t o
receive dividends---
i t m v e r occurred t o m e that there wa:
any westion o f the authority o f the banks t o pay dividens
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Federal Reserve Bank of St. Louis
4
Of c o u r s e w e c a m o t
s a y o n what g r o u n d t h e B o a r d m i g h t
vithhold i t s authority, e v e n i f i t had power t o d o so.
if a
member b a n k h a s t h e r i g h t t o receive, a n d ,
a s matter
of law, t h e Federal reserve banks have t h e right t o pay,
then i t s e e m s t o m e i t devolves u v o n t h e d i r e c t o r s
o f the
A s a matter of-polloy 2
Federal reserve tanks t o pay.
surplus
believe that dividends should be paid out of earnings 6y/
and paid continuously, b u t I
can see h o w i n the case o f a
particular r e s e r v e b a n k s o v e t h i n g m i g h t d e p e n d u p o n h o w
far s h o r t t h e y were,
Governor Harding:
L e t u s assume, f o r instance, t h a t
the Board should take t h e position that t h e dividends
should b e passed i f not earned. I
take i t that under t he
present d i c t u m t h e y w o u l d n o t m a k e t h a t r u l i n g a f t e r s o m e
bank had ordered a dividend paid and advised the p o s r g 4
that effect.
B u t suppose t h e b a r d should acknowledge
the receipt o f a resolution atout paying a dividend, a n d
say, “We do not approve;
w e forbid you to pay this divi-
dend tecause you haven't earned it."
opinion w h a t i s t h e p r o b a b i l i t y
A n d then, i n your
o f some member bank,
or
group o f member banks, instituting legal proceedings o n
n
a
t t o p a y dividends
the t a s i s o f t h e r i g h t o f t h e r a g é r y e k
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Federal Reserve Bank of St. Louis
the objection o f the Poard notwithstanding?
Governor seay:
I t i s oulte probable, a n d I think
there w o u l d b e a u i t e g o o d g r o u n d f o r i t .
T h e Federal r e -
serve Board would b e placed i n the position o f having given
an arbitrary opinion, w h i c h was contrary t o the advice o f
counsel,
tcked
Of course,
u p b y t h e o p i n i o n o f t h e A t t o r n e y General.
i t i s n o t m y purpose
t o cispute t h e authority
of the a r d .
Governor Harding: I
uncerstand that, b u t I
a m just
wondering v h a t t h e attitude o f some menber b a n k might @ .
authority
t never occurred
I
Governor Seay:
a n d the right
t o pay a
t o m e t o doubt t
dividend
out
he
o f accumulate
surplus i n view o f the communication received f r o m t h e
Poard.
The Chairman:
D i d i t ever occur t o y o u i n the event
it t e c a m e n e c e s s a r y t o v a y f r o m t h e s u r v l u s t h a t y o u w o u l d
o the Federal Reserve PBard?
have t o have v e r m i s s i o n f
Governor Seay:
N o t after t h e apinion o f their o w n
counsel h a d t e n c o m m u n i c a t e d
t o u s a n d after t h e Attorney
General h a d considered t h e Act.
Governor Bailey:
“ h a t euntiletive d i v i d e n d s means 1 s
that w e e x p s e t t o v a y them,
a n d i f v e cidn't h a v e t h e m i t
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Federal Reserve Bank of St. Louis
would g o aver until w e did have them,
Governor Seay:
T h a t is a
stronger r e a s o n w h y t h e
member banks have t h s right t o receive i t i f w e have a n
accumulated surplus.
I t i s contrary t o common sense t o
have a n accumulated surplus a n d then allow dividend charges
to accumulate---
Governor Bailey: I
think t h e Inference i s that i f
you d o n ' t p a y i t t h i s y e a r y o u w i l l p a y i t n e x t w i t h a c c u m u
lated dividends.
Governor Seay:
B u t what i s t h e purpose
o f a n accu-
mulated s u r p l u s ?
T o provide against losses.
Govermor Bailey:
Governor Seay:
T o protect against loss, a n d t o give
you a fund i n years o f prosperity o u t o f which t o p a y dividends.
A l s o i t has t h e effect t o strengthen t h e systén,
but o n e o f t h e p r i v a r y p u r p o s e s
o f the accumulation o f
against
surolus i s t o protect yoursslf i n prosperous years
lean years, especially since t h e dividend h a s t
en made
cumulative,
Governor Young: I
sons.
would curtail services f o r two ré&
O n e reason i s that certain services I
have w v e r
believed t h e Fed: ral r e s e r v e b a n k s s h o u l d p e r f o r m .
T A S
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Federal Reserve Bank of St. Louis
44
second r e a s o n i s t h a t t o c u t e x p e n s e s I
would c u r t a i l e e r -
tain s e r v i c e s . A s f a r a s r e l y i n g u p o n t h e o p e n m a r k e t
concerned,
t o secure sufficient earnings
expenses, I
is
t o offwet your
a m thoroughly convinced that y o u could m t
rely o n the open market.
W w e have tried t o d o i t far the
last five months a n d w e have n o t been successful.
L E ae
had t e e n successful i n going into t h e open market w e woulc
have interfered w i t h t h e Central Investment G@mnmittee,
which w o u l d h a v e b e e n a
mistake,
o f a r a s paying divi-
S
dends o u t o f survlus i s concerned,
i f w e were short a n y
great amount a t the Federal Reserve B a n k o f ifinneapolis,
as w e a r e l i k e l y t o be, I
would n o t r e c o m e n d
ors t h a t t h e y p a y d i v i d e n d s o u t o f surplus,
reason.
t o o u r direct
for a
v e r y go00c
w e have five a n d a half million dollars a t the
moment t i e d u p i n closed banks.
W w e believe t h e p a p e r w i l t
pay o u t about §5,£0,000, b u t i t represents s l o w assets a t
best.
" w e have $3,500,000 t i e d u p i n a building, w h i c h i s
another s l o w asset, a n d w e consume o u r entire surplus f u n d
with a s s e t s
o f t h a t character,
and I
think i t would b e a
mistake f o r the Federal reserve banks t o pay a dividend w h
they really h a d t o use t h e reserves o f the menter tanks t o
sloeans®
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Federal Reserve Bank of St. Louis
45
I believe
a s l o n g a s w e have these s l o w assets t h e
Federal r e s e r v e b a n k s s h o u l d n o t p a y a n y dividends a g a i n s t
them, unless t h e y e a r n them. I
do not think m y directors
will agree with m e o n that, however. I
pay a
dividend
think they would
i n t h e n e x t s i x months,
quite a g r e e w i t h t h e s t a t e m e n t
Governor Fancher: I
made b y Governor S e a y about t h e curtailment o f service, whe:
our earnings a r e l o w o n e year a n d w e feel w e have g o t t o
economize, a n d w e begin t o c u t here a n d there o n services
think i f t h e r e i s g o i n g t o b e
t o t h e banks. I
rendered
any c u r t a i l m e n t
o f service,
t h a t o n e o f t h e great services
we have g a t t o give consideration t o i s t h e collecting o f
checks,
T h e matter
o f m n - c a s h items
in the matter o f experse,
i s o n l y a n incident
i t i s only a small incident, whil
large
great expense i s incurred i n collecting t h e very
volume o f checks.
I f there i s going t o b e any curtailment
whereby t h e F e d e r a l N e s e r v e R a n k s w o u l d t
earnings,
benefited
in
i t has g o t t o u s i n connection w i t h that great
service o f collecting t h e great volume o f checks. 1
fee
very strongly that there should r o t b e any curtailment
in, Hervice,
As t o r e s o r t i n g
t o t h e o p e n market, m a n i f e s t l y t h e
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Federal Reserve Bank of St. Louis
46
if
open m a r k e t c o m a i t t e e c o u l d h o t f u n c t i o n a s i n t e n d e d
the tanks individually a r e going t o resort t o t h e open
market f d r t h e s a k e o f m a k i n g e a r n i n g s s u f f i c i e n t
expenses a n d p a y dividends.
t o meet
f that were t o b e done
I
the situation w i t h regard t o control o f the o p e n market
very m u c h »eakoned,. I
h a d supposed, u n t i l t h e o u e s t i o n
was raised here, t h a t t h e opinion o f the Attorney General
permitted u s ,
i n the event w e failed
t o make s u f f i c i e n t
t o p a y d i v i d e n d s f r o m surplus,
earnings,
and w o u l d
strongly that w e should p a y f r o m surplus rather t h a n curtai
services
o r resort individually
The Chairman:
t o t h e o p e n market.
A r e you i n fawr
o f o r opposed
to
earning your dividends?
Governor Fancher:
S p e a k i n g f o r o u r part, Mr. Chair-
man, o u r board a r e committed t o the policy o f earning
dividends,
i f possible.
The Chairman:
T h e y a r e firmly c o m i t t e d t o it, a r e
they n o t ?
Governor F a n c h e r :
Y e s ,
o f earning dividends.
W
e
are n o t f a c e d y e t w i t h t h a t s i t u a t i o n o f n o t e a r n i n g d i v i -
dends, because o u r operations h a v e shown a very comfortable
surplus f o r t h e first four months o f the year.
w e have
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Federal Reserve Bank of St. Louis
AY
earned a
dividend a n d a r e c o m f o r t a b l e
o n t h a t point,
and
the question o f having t o p a y dividends f o r t h e current
year f r o m surplus does n o t confront u s a t the present time.
believe, Governor Fancher, t h a t
The “Ghairmans I
you a r e c o n s i d e r i n g t h i s m a t t e r f r o m t h e s t a n d p o i n t
ditions a t the present moment.
o f con-
T h e time will come again--
we have l o s t s u r o p p o r t u n i t y f o r t h e present. I
do not
believe anyone h e r e would care t o undertake t o t e a k over
this thing a n d g o into t h e open m a r k e t , s c a u s e t h e y
are working harmoniously v i t h t h e committee, b u t just a s
surely a s w e have h a d i t i n the past w e will have i t i n
the future, t h a t is, opportunity t o retrieve t h e strong
position w e vere i n a year ago, a n d when t h e time comes
it should b e done.
might s a y this, w r . Chairman,
Governor Fancner: I
that i f our Board would consider A
having s u f f i c i e n t e a r n i n g s
and C , f o r the sake o f
t o p a y dividends without g o i n g
into surplus o r curtailing service, I
Board ‘ o u l d b e i n f a w r
do not think o u r
o f G i s c o n t i n u i n g t h e service,
tut
would be in favor of continuing it, and if necessary, i f
fell short i n earnings, p a y dividends from surplus.
That i s u n t i l y o u r s u r p l u s v a s e x h a u s
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Federal Reserve Bank of St. Louis
Governdédr Fancher: I
b e g y o u r pardon.
say until y o u r surplus w a s exhaustec
The Chairman: I
Governor Fancher:
O f course that i s looking « = good
way into t h e future. I
would n o t attempt t o look t e n o r
fifteon years ahead a n d s a y what w e might do. I
at c o n d i t i o n s
a s t h e y e v i s t today,
a m lookin
o r a s w e c a n judge t h e m
in t h e i m m e d i a t e future.
Governor »cKinney:
“ h a t effect d o y o u think i t
would h a v e o n t h e p u b l i c m i n d f o r u s t o e n c r o a c h t o o m u c h
upon t h e s u r p l u s
i n order t o p a y d i v i d e n d s a n d expenses.
Governor Fancher:
W
e might h a v e t o change t h e policy
at that time; b u t w e are n o t facing that.
Governor B i g g s :
a m not i n f a w r o f curtailing a n y o f
ing services. I
the s e r v i c e s
T h e f i r s t q u e s t i o n i s a s t o curtail-
think
a t t h e present time, I
with s o m e e x p e n s e s t h a t w e have,
do a w a y v i t h a
and I
great m a n y expenses.
w e can d o away
think w e o u g h t t o
Perhaps
w e have
been s p e n d i n g t o o m u c h m o n e y f o r s o m e o f t h e services,
in a gensral w a y I
do not think w e should curtail them.
“ith regard t o the o p e n warket, I
be p e r m i t t e d
m t
feel that w e should
t o g o into t h e o p e n market a s w e have b e e n
in t h e l a s t year,
n o t f o r t h e purpose
o f making expenses
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Federal Reserve Bank of St. Louis
altogether, b u t w e are permitted b y the A c t t o d o that.
I think i t was contemplated that w e w u l d have fat years
w
and l e a n years.
e a r e probably g o i n g through a
lean
year now, a n d maybe i n a year o r two w e will havo o t h e r
fat years, a n d i t i s i n the f a t years that w e l a y u p a surpilus.
I n m y judgment t h e surplus should p e used t o pay
dividends,
s o long a s our surplus i s not impaired b y
frozen l o a n s
o r b a d losses. I
would n o t w a n t t o c o m m i t
myself o n a five year proposition, b u t w e would g o along
in the best possible w a y a n d takc e a c h year a s i t comes,
At t h e p r e s e n t t i m e i n t h e E i g h t h District, I
a m sure that
our directors w o u l d p a y a dividend e v e n i f we d i d not earn
t. I
have never felt that w e ought t o g o into that
mestion e v e r y d a y o r every w e e k a n d t r y t o make earnings
for a
particular w e e k , a
particular m o n t h o r f o r a
year.
‘We are maintaining o u r dividend a t the present time a n d
have a l t tile. surplus.
P r o b a b l y w e will h a v e s o m e losses
in the fall o f the year, b u t w e will come back a n d recoup
w i e A o not expect t o make money i n the f a
them n o doubt.
of t h e year.
I
f we had a
lot o f banks t h a t w e r e i n b a d
condition, w i t h frozen loans,
t o the extent o f . $ 1 0 , 0 0 0 , 00
b u t we
or so, t h e n I would s a y w e would r o t pay dividends,
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Federal Reserve Bank of St. Louis
50
should o p e r a t e t h e b a n k j u s t a s w e s h o u l d o p e r a t e a
cial b a n k o r a n y o t h e r business,
such t h a t I
commer:
a n d v h e n conditions w e r e
d i d n o t t h i n k i t advisable
t o pay a
dividend
I would n c t p a y it.
W i t h regard
Deputy G o v e r n o r Case:
t o question B , t h e
question o f going i n t o t h e o p e n market, I
d a n o t know that
I quite g o t y o u r position, G o v e r n o r B i g g s .
Governor Biggs: I
was i n f a w r
market a n d a c q u i r i n g i n v e s t m e n t s ,
paying dividends,
o f going i n t o t h e
n o t f o r t h e purpose
of
b u t f r o m time t o time buying i n the
open market a s w e felt comlitions warranted, j u s t a s this
committee h a s t e e n functioning i n the last year.
mt b e e n p a r t i c i p a t i n g
W e have
i n i t recentiy.
Deputy Governor G a s e :
D
o I understand y o u t o s a y
you think t h e twelve banks should b e permitted t o g o i n
separately a n d b u y ?
Governor Biggs:
N o t t h e twelve banks; n o , I
do not
Timi 5 0 .
Governor
Boil I
wanting t o d o a t .
Governor
Bed P E G .
g
e I
ae
do n o t want
t o t
o f record
as
W e want t o function with t h e committe
think t h e committee h e s function¢
T h e y h a v e m a d e s o m e mistakes,
b u t i n time
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Federal Reserve Bank of St. Louis
51
I think i t i s going t o b e necessary f o r u s t o d o that
very thing.
Governor Norris:
services,
M r . Chairman, w e would n o t curtail
w e would n o t resort t o t h e open market,
i n the
sense i n which I take i t w e are discussing i t here, b u t
think t h e m e s t i o r
we w o u l d p a y d i v i d e n d s f r o m surplus, I
of paying dividends f r o m surplus i s one o n which there i s
scriptural authority, "That all things t h a t are lawful are
mt expedient." I
gard t o t h e p a y m e n t
think that i s the situation with reo f dividends.
I
n the opinion o f the
counsel o f t h e Board, a n d i n the opinion o f the Attorney
General t h e r e c o u l d n o t b e a n y d o u b t a b o u t t h e l e g a l r i g h t
to p a y d i v i d e n d s f r o m surplus;
might a r i s e w h e r e °
dends would exist,
do it.
I
b u t o f course c o m i t i o n s
a l t h o u g h t h e l e g a l r i g h t t o p a y divi-
i t would b e e x t r e m e l y inexpedient t o
f your surplus w a s t i e d u p i n p i e d ness
e n :
loans, o r i f the bank anticipated losses t h a t were going
to absorb a
large part o f its surplus, then, although
they h a d t h e legal right t o pay dividends f r o m surplus,
would b e very unvise f o r them t o d o it,
it
T h e same consid:
ation would apply t o the Federal Reserve Banks that would
apply t o a n y business corporation.
w e have a
trifling
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Federal Reserve Bank of St. Louis
52
w e have n o b a d loans, a n d w e anti
investment i n buildings;
clpate
W
n o losses,
t o p a y o u r divi-
e have e n o u g h surplus
s o w e undoubtedly w o u l d g o o n
dends f o r o v e r t h i r t y years,
paying dividends f o r quite a n i n d e f i n i t e period.
Governor Mckinney:
U n l e s s y o u fail t o earn your
but then that would t
Governor Norris:
different.
W e w e r e paying dividends a n d the
residue o f expenses o u t o f surplus u n t i l t h e s u r p l u s g o t
down t o a
pretty s m a l l amount, a l t h o u g h I
looking unnecessarily f a r ahead.
now,
think t h a t i s
F i v e o r t e n years fror
i f conditions r e m a i n j u s t t h e s a m e a s t h e y a r e nov,
Bie,
we m i g h t c h a n g e o u r opinion;
0 6 f o t t h i n k i t i a woeee
while f o r a n y o f us t o look too f a r ahead.
W e are really
discussing this question w i t h t h e expectation that within
the n e x t t h r e e t o f i v e y e a r s
pay dividends,
w e might h a v e t o continue
a n d would n o t resort
to
t o either o f t h e otner
expecients.
Governor Welltorn:. I
think i t w o u l d
b e well t o c u r -
tail sone o f the voluntary services, a n d also t o cut down
some o f the expense.
W e would n o t b e i n f a w r o f paying
dividends o u t o f surplus.
ated d i v i d e n d s .
E
d
T h e l a w p r o v i d e s f o r accunul-
o not-think:-1t wassever
intended
that
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Federal Reserve Bank of St. Louis
53
they s h o u l d b e t a k e n o u t o f surplus. I
think t h e l a w i n -
tended that i f w e d i d n o t carn o n e year, t h a t is, i f w e
had a lean year, t h a t a
good year would make u p f o r it,
and therefore t h e y provided f o r accumulated dividends.
do not know t h e minds o f the Reserve Board t u t I should
not t h i n k t h a t t h e y w o u l d a u t h o r i z e
t h e Federal reserve
banks t o pay dividends o u t o f surplus, because,
a s I under~
stand it, t h e surplus really belongs t o the Government
Governor Seay:
Subject
t o t h e right o f the banks t o
receive accumulated dividends,
Governor Wellborn: I
think t h e surplus w a s really
created s o a s t o s t r e n g t h e n t h e Federal R e s e r v e S y s t e m .
Governor Harding:
‘ i p , Chairman,
a t the meeting o f
our stockholding banks l a s t December b y unanimous v o t e
the voluntary services rendered b y the Federal reserve b a n
were aporoved.
T h e resolution also contained a
k extended. I
that i f possible t h e y s h o u l d i
provision
think,
however, t h a t w e wouldhave n o difficulty i n reconciling
our m e m b e r b a n k s w i t h r e s p e c t
t o curtailment
o f some o f
collection,
the voluntary s e r v i c e s , s u c h a s t h e non-cash
if w e h a d good reason f o r it-
S o far a s the dividend i s
considered
concerned, t h a t h a s never t e n w r y seriously
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Federal Reserve Bank of St. Louis
54
by o u r b o a r d o f d i r e c t o r s f o r t h e r e a s o n t h a t s o f a r w e
have always t e e n atle t o earn t h e dividend a n d w e are
ahead o f o u r d i v i d e n d r e q u i r e m e n t s f o r t h e p a s t f o u r m o r t h s
I a m q u i t e sure,
i n v i e w o f o u r position,
quite like t h e position o f Philadelphia,
which i s
s o far a s slow l o a
and b a d debts a r e concerned, t h a t there i s n o occasion t o
hold t h e surplus i n t a c t
contingency. I
t o provide f o r a n y unforeseen
feel quite certain that o u r directors,
in t h e e v e n t t h e r e s h o u l d c o m e a
six months p e r i o d where
the d i v i d e n d s h a v e n o t b e e n a c t u a l l y e a r n e d d u r i n g t h a t
six months,
t o g o ahead a n d order t h e dividend p a i d i n
any event.
So far a s open “arket affairs a r e concerned, 1
ervpress
my Opinion auite fully a t the conference i n March, 1925,
and I
have n o t h i n g f u r t h e r
to s a y t h a t w e a r e e n t i r e l y
t o a d d o n that subject exceot
i n accord w i t h t h e i d e a that
its operations should b e conducted i n a broad w a y a s
system operations,
j u s t a s t h e y a r e n o w being conducted
by the open market committee.
any i n t e n t i o n
T h a t , however,
i s without
o n t h e p a r t o f o u r P o a r d o f cirectors
to
federal
wai ve what t h e y regard a s a statutory right o f t h e
reserve b a n k s
t o engage
i n t h e s e o p e n m a r k e t operations.
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Federal Reserve Bank of St. Louis
55
By their o w n voluntary a c t t h e directors h a v e ordered t h e
operations t o b e ongaged i n through t h e medium o f this
central conmittee, b u t that does n o t accept t h e principle
that t h e b a n k h a s n o t t h e r i g h t t o e n g a g e
i n a p e n market
operations.
The Chairman:
G o v e r n o r McKinney?
Governor icKinney:
M r , Chairman,
w e d o not favor
T h e four items
curtailment o f any voluntary services.
for consideration b y the committee a t this time, reports
concerning which are t o b e made a t this conference, involve
rather a
negligible ampunt o f expense a n d require o n l y a
negligible amount o f earnings. I
:.
doliars
assets —
i n earning /
think about a
‘
million
a
g S o u r case, w i l l t a k e c a r e o 1 o u r
- -
ox 42,000, 000--- will take care o f the free service t h a t
werender, and for the system as a whole I think forty
or fifty million dollars will take care o f the four items.
It seems t o me, therefore,
i n line with Governor Seay's
statement, t h a t w e should n o t g e t panic stricken just
pecause o f one year and do away with this free service
that w e probably w o u l d b e glad t o rerew when w e again bega:
to expand a n d more favorable times c a m e again.
as t h e o p e n m a r k e t o p e r a t i o n s a r e concerned,
S o far
t h e Federal
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Federal Reserve Bank of St. Louis
56
Reserve B a n k o f Dallas w a n t s
t o subordinate i t s position
as much a s possible without,
a s Governor Harding said, w a i
ing a n y o f its legal rights,
t o the interest o f the general
SLUuaAbLon.
W
e w a n t t o h e l p t h e committee. I
might say,
though that, a s this i s a system matter, s o m e o f the more
fortunately s i t u a t e d b a n k s m i g h t g r a n t G o v e r n o r Y o u n é
and m e s o m e s p e c i a l f a v o r s o n c e i n a
while
i n order t o take
care o f o u r p e c u l i a r situation.
we h a v e a t t h e p r e s e n t t i m e a b o u t t h r e e m i l l i o n d o l lars t i e d u p i n assets
o f f a i l e d banks, t h a t i s , p a p e r a c -
quired f r o m f a i l e d banks,
losses
a n d w e have a
a t t h e present tive.
A
million s e t u p f o r
t t h e present t i m e o u r
demands f r o m m e m b e r b a n k s a r e o n l y a b o u t t h i r t e e n m i l l i o n
dollars, a n d a t that rate w e are o n l y behind a
million dol
year a s a g a i n s t t h o s e p a r t i c u l a r i t e m s ,
O t Our asse
lars a
short o f dividends a n d expenses, I
aporehend probably
our earning assets will n o t reach over $25,000,000 this
year,
a n d therefore,
as p r a c t i c a l ,
o f holding
stantial a m o u n t .
in rediscounts
w e a r e u n d e r t h e necessity,
A
o u r earnings
u p to a
s Governor Young h a s said,
s o far
rairly s u b i f we g o u p
i n order t o e a r n d i v i d e n d s a n d expenses
in o u r district,
i t would b e a
rather u n h a p p y s i t u a t i o n
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Federal Reserve Bank of St. Louis
at this time.
I believe o u r d i r e c t o r s w o u l d f a v o r p a y m e n t o f divi-
dends out o f accumulated surplus, a t least for a while. If,
by r e a s o n o f l o s s o f o p e r a t i n g e x p e n s e s
i t should become
too great, I think prnbably w e would have t o change our
Jone Monon
The Chairman:
M r , Case, w e would like t o hear f r o m
you.
Deputy Governor Gase:
item A , I
~ r . Chairman, w i t h regard t o
feel t h a t i f t h e F e d e r a l R e s e r v e S y s t e m i s t o
continue t o have t h e public confidence w h i c h i t now enjeys,
it should n o t b e jumpy.
W e hold ourselves o u t a s a n
organization t h a t i s d e s i g n e d
t o produce a
of s t a b i l i t yni see situation.
certain a m o u n t
w e undertake t o d o that
$n the matter o f interest rates a n d I certainly think that
sjnasmuch a s w e must have t h e good will o f our member banks
we should b e fairly stable i n the matter o f services t h a t
we P o n d a ? .I
think i f w e are rendering a n y service
about w h i c h t h e r e i s s o m e doubt,
i t i s v e r y well,
matter o f principle t o consider that;
as a
p u t 2 em-in-tawer
of continuing t h e present services a n d not curtailing then
is
in any particular a t all, a n d that unless t h e matter
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Federal Reserve Bank of St. Louis
taken u p f r o m t h e v i e w p o i n t
thing t o do.
services
S o I
o f principle,
i t i s t h e wrong
should n o t b e i n faver o f curtailing
i n a n y respect.
Tho N e w York Federal Reserve B a n k would n o t b e i n
favor o f g o i n g i n t o t h e o p e n m a r k e t a n d a t t e m p t i n g
quire s u f f i c i e n t e a r n i n g a s s e t s
its e x p e n s e s a n d dividends.
t o ac-
t o enable i t t o caver a l l
A t the presont t i m e w e a r e
$100,000,000 short o f the amount sufficient t o do that.
Our average thus f a r has b e e n somewhat higher.
We think that would b e a mistake.
that t h e o p e n m a r k e t functions,
I t seems t o u s
t h a t is, t h e operations
in
the open market through t h e functions o f a committee, a r e
wholesome a n d s h o u l d b e c o n t i n u e d f o r a
I a m concerned, I
while.
would b e i n favor o f paying a
S o far a s
dividend
frem surplus, a n d i t seems t o me, gentlemen, t h a t there i s
a matter w h e r e w e c a n e x e r c i s e a
degree o f s t a b i l i t y a n d
not b e jumpy.
As I
see i t , o u r s i t u a t i o n i s v e r y m u c h l i k e t h a t o f
a Largs, s u c c e s s f u l c o r p o r a t i o n ,
fat years,
W
e have had some very
s o that today, w i t h $100,000,000 capital w e have
%200,000,000 surplus.
L e t u s take t h e United States S t e e l
Cerporation a s a n analogous c a s e ,
T h e y have a
large s u r n ]
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Federal Reserve Bank of St. Louis
59
ef five o r s i x hundred million dollars a n d $500,000,000
in common stock. I
think i t i s unthinkable foar-a corpora-
tion o f that size, w i t h t h e b i g carnings t h a t they have
had through periods, j u s t a s w e have had, s h o u l d quit paying their dividends extirely, a n d I think f o r a few years
they would d o the natural thing.
T h e y might eliminate ex-
tras, b u t they vould p a y dividends f r o m surplus. f a m e Sok eal
we should follow that course. I
courses.
W
e a l l k n o w that,
think i t i s the natural
as a
result o f t h e b i g eéarn-
ings o f 1920, w e have b e e n charged w i t h being profiteers.
Some p e o p l e h a v e n ' t g o t t e n t h a t o u t o f t h e i r m i n d s
the p r e s e n t moment. I
believe
when i t i s k n o w n t h a t r e c e i p t s
up to
i f w e h a v e l e a n periods
d o n o t comer o u r Expenses
and dividends, t h a t i t will b e wholesome a n d educational,
and I think that t h e proper thing t n d o i s t o p a y dividend:
from surplus.
The Chairman:
B e f o r e calling o n tir. Galkins, I
would state this, t h a t while there i s aoundant cause, I
think,
t o s h o w t h e advisability o f discussing t h i s whole
matter a t this conference, t h e r e i s also n o indication o f
any o f t h e b a n k s b e i n g s t a m p e d e d t e c a u s e o f t h e f a c t that,
temporarily, t h e y a r e n o t earning their dividends.
c S F o'5
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Federal Reserve Bank of St. Louis
60
however, t h a t i t i s a
very o o d t h i n g t o considsr t h e whole
F o r m y part I
subject.
a m hot i n f a w r
o f a n y general
curtailment o f the services w e are rendering, although
before w e get through with this conferenco there m a y b e
some m i n o r matters.
market, I
i ) respect
t o going into t h e
think w e all understand that w e are i n the iden-
tical position that t h e Boston bank i s in, according t o
Governor Hardingts statement, t h a t is, t h a t mone o f u s have
surrendered o u r r i g h t t o g o i n t o t h e o p e n market.
4s something,
That
o f course, t h a t rests w i t h t h e Board o f Direc-
tors o f the individual bank.
I t i s true, however, t h a t w e
have a l l voluntarily cooperatcd w i t h this committee a n d I
think w e are a l l going t o d o that. I
believe this, t h a t
even though i t would b e a very inopportune t i m e n o w t o g o
into t h e m a r k e t f o r t h e p u r p o s e
o f accumulating anything
for earnings, t h a t t h e time will c o m e again when w e will
be i n a
more f a w r a b l e p o s i t i o n a n d w h e n w e w i l l
possible g o o d b y g o i n g i n .
T h e n I
d o some
think these banks h a v e
gone f a r enough t o justify t h e belief that i t would b e
wise t o l a y i n a
ments,
back log, p o s s i b l y o f l o n g t i m e G o v e r n -
o r w h a t e v e r m a y b e available;
i t certainly could
dv n o harm a n d i t might b e beneficial t o all concerned.
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Federal Reserve Bank of St. Louis
61
With regard t o the payment o f dividends, I
speak f o r o u r b o a r d
o f directors,
but I
cannot
can speak f o r my-
self, a n d I say that i f w e c a m o t m a k e o u r dividends a n d
expenses t h i s year I
certainly would recommend that w e pay
our dividends f r o m s u r p l u s
o r t h e super-surplus--- t h a t i s
a word t h a t i s s o m e w h a t u s e f u l h e z e a t least--lieve t h a t o u r B o a r d w o u l d a c t accordingly.
a m I
be-
s i e avalon
though, t h a t t h e banks must m t forget that that surplus
is n o t t h e r e e x c l u s i v e l y f o r t h e m a t t e r
o f p a y i n g dividends.
It i s there f o r those purposes w h i c h have b e e n enumerated
here, n o t the least o f which i s the matter o f taking care
of losses,
T h e banks west o f Cleveland a r e i n a very
difficult position a t the present time, a l l o f them, I
think, a n d I will include C h i c a s o , a n d w e are going t y
have u s e for a little o f our surplus, a n d w e all might
have before w e g e t through, f o r t h e purpose f o r which that
surplus w a s established,
t h a t is, t o protect o u r s e l v e s
against losses a n d things o f that sort.
Mr, Calkins, t h i s subject i s yours, a n d I hope w e will
hear f r o m y o u n o w a n d a l s o t h a t w e w i l l g e t f r o m y o u s o m e
recommendation
a s t o h o w t o d i s p o s e o f it.
Governor Bailey: I
would like t o ask one ocuestion.
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Federal Reserve Bank of St. Louis
I notice t h a t t h e Open Market C o m i t t e e deals i n the
market
i n f o r e i g n investments,
a n d t h e question accurs
me, w h e n w o a r e n o t m a k i n g o u r earnings,
te
w h y t h e committee
should g o into t h e market a n d handle foreign investments.
The Chairman:
G o v e r n o r Bailey h a s pointed o u t that
acthe C o m m i t t e e h a s t e e n b u y i n g a c c e p t a n c e s f o r f o r e i g n
count.
“ h a t Information
d o y o u w a n t o n t h a t matter,
Governor Ealley?
Governor Bailey: I
would like t o know why i t i s
w h y isn't i t given t o u s i f w e a r e n o t mal~
given t o them;
ing o u r earnings.
Deputy G o v e r n o r Case:
T
e
n
i
s
t t ou cnes “On ay Very
“hether o r
big international ouewtion, a n d that i s this,
employed i n this
mt i t i s desirable t o have foreign moneys
country? I
think t h a t t h e g e n e r a l f e e l i n g , c e r t a i n l y
and a b o u t N e w York,
i s that i t i s most desirable
foreign m o n e y s e m p l o y e d h e r e ,
our v i e w p o i n t s
w
in
t o have
e a r e always a p t t o have
a n d opinions c o l o r e d b y a
temporary s i t u a -
j u s t now. B u t
tion that exists, a n d I mean such a s exists
a n d through a
the facts a r e w h e n y o u g o i n r e v e r s e
such a s the war period, a
period
period w h e n eredit i s strained
idea o f the Bank
and there i s not e m u g h t o g o around, t h e
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Federal Reserve Bank of St. Louis
63
of Japan putting twenty t o thirty million Gollars o v e r
here, a s they did, a n d having i t invested i n our market i n
bills, s h o r t governments, a n d s O On, W a s a
helpful a n d strengthening thing.
worth w h i l e a s a
matter
wonderfully
N o w , i f the thing i s
o f principle,
y o u camot
b e just
a fair weather fellow a n d s a y w e are o f course g l a d t o
have your money a n d take i t when the country i s under a
credit strain,
w e are glad t o get every Gollar that w e can,
but i f you vant t o establish relationships w i t h foreign
centers,
i t seems
t o m e that y o u have g o t t o play along wit
them i n s o - c a l l e d f o u l w e a t h e r
a s w e l l a s f a i r weather,
As a matter o f fact, t h e volume o f business a t tre pre-~
sent time i s relatively negligible. I
do not think the
total amounts t o more t h a n twenty t o twenty-five millions,
so far a s w e are concerned.
The Chairman:
ir. C a s e s
t i s something l i k e seventeen millior
I
T h e r e i s probably a
Pioelskonm -dolars. 1
foreign moneys employed i n this market, a n d I think i t is
a good t h i n g f o r t h e country, G o v e r n o r Bailey,
would b e u n f o r t u n a t e
that s o r t
a n d that i t
i f w e d i d n o t Gevelop a n d encourage
o f relationship.
Governor H a r d i n g :
A f t e r
y o u have two
o r three years
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Federal Reserve Bank of St. Louis
64
of stable conditions i n Europe most o f the money will have
gone b a c k home; t h e y w i l l n e e d i t o v e r t h e r e themselves.
Governor Calkins:
fairly s u c c e s s f u l
is very desirable.
to s a y t h a t w h i l e
M r . Chairman, I
i n provoking a
seem t o have b e e n
discussion,
which I
think
B e f o r e answering t h e questions, I
i t appears
want
t o m e that there i s n o doubt
as t o the right o f a federal reserve b a n k t o pay a dividend
from accumulated surplus, a n d a s i t appears t o m e that t h e
provisions
o f t h e l a w l o o k d i r e c t l y t o that, y e u 1
can
see the possibility o f a few o f the Federal Reserve Board
opposed t o t h e p a y m e n t
plus. I
o f dividends f r o m a c c u m u l a t e d s u r -
think i t would b e undesirable t o have t h a t aues-
tion raised a t the moment w h e n i t was proposed t o pay t h e
dividend, a n d think i t desirable t h a t t h e banks should b e
advised
i n advance a s t o t h e p o s i t i o n o f t h e Federal R e s e r v
Board with regard t o that matter,
2
Lt W a s c o e s u g g e s t e d h e r e t h a t t h e a c c u m u l a t e d s u r -
plus belongs t o the Government.
I t certainly does not, f o
shall b e paid
the provision o f the law i s that the banks
f r o m surplus before
at t h e r a t e o f s i x p e r c e n t p e r a n u m
t o the government
the liquidation o f the banks a n d payment
of t h e balance.
T h a t i s a s explicit
a s anything
i n the
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Federal Reserve Bank of St. Louis
65
law, a s I see it.
N o w , a s t o the payment o f dividends
from accumulated surplus,
i t seems t o m e that i n this sys-
tem a s w e l l a s i n a l l o t h e r b a n k i n g c o r p o r a t i o n s ,
pose o f a c c u m u l a t e d profit,
only purpose,
t h e fyrst purvose~--
b u t t h e f i r s t purpose,
t h e purn o t the
i s t o assure m o r e o r
less regularity i n the payment o f dividends, a n d o f course
there a r e other purposes t o o numerous t o mention.
therefore, t h i n k w e s h o u l d have,
d e g
a s c l e a r l y a s possible,
a statement f r o m t h e F e d e r a l r e s e r v e b o a r d w i t h r e g a r d t o
its p o s i t i o n
i n t h e matter.
It i s m y v i e w t h a t t h e r e s h o u l d b e n o c o n s i d e r a b l e cur.
tailment i n the services r o w rendered b y these banks.
The
question o f stability which has b e e n mentioned here i s one
of very vital importance.
T h e Federal reserve banks s h o u l
establish policies w h i c h c a n b e followed continuously
without fluctuation.
Now, w e seem t o b e discussing this m e s t i o n w i t h the
view i n the minds of some of us at least that conditions
will continue f o r a long time under which w e will n o t b e
earning our expenses a n d dividends. I
do not anticipate
any s u c h c o n d i t i o n c o w e r i n g a n y c o n s i d e r a b l e l e n g t h o f time.
and I
do consider
t h a t t h e accumulation
o f surplus
was for
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Federal Reserve Bank of St. Louis
the p u r p o s e
o f t a k i n g c a r e o f s u c h pericds.
In regard t o r e s o r t i n g t o t h e o p e n m a r k e t g e n e r a l l y ,
I should s a y t h a t w e a r e i n favor o f r e s o r t i n g
t o the open
market u n d e r f a v o r a b l e c o n d i t i o n s f o r t h e p u r p o s e o f m a k i n g
some addition t o our earnings.
T h e r e is, Rowever, a
reservation i n regard t o that.
I f conditions w e r e unfavor-
able I should. noe. c e is.
With regard t o the payment o f dividends f r e m accumulated surplus, I
a m quite sure t h e Board o f Directors o f
our b a n k w o u l d a t t h e p r e s e n t t i m e p a y a
dividend i f i t
was necessary, f r o m the accumulated surplus.
Having answered those qestions, I
the d i r e c t o r s
want t o s a y that
o f t h e S a n F r a n c i s c o R e s e r v e B a n k a r e i n ac-
cord w i t h a l l o f t h e o t h e r b a n k s
i n the matter
o f open
market operation, b e l i e v i n g t h a t t h a t i s t h e o n l y s a f e a n d
c a n b & carried on.
reasonable w a y t h a t s u c h operatiors
There is, hovever, s o m e doubt i n m y mind, a n d I think some
doubt i n the minds o f our directors,
has b e e n a c h i e v e d
u p t o t h i s time;
a s t o the success t h a t
also a
reservation,
which has b e e n mentioned b y several, t h a t t h e y believe that
they a r e n o t p r e c l u d e d f r o m g o i n g i n t o t h e o p e n m a r k e t
themselves
i f t h e y s e e f i t t o d o so.
T h a t ,
i n m y opinior
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Federal Reserve Bank of St. Louis
67
is t h e m o s t v i t a l a s p e c t o f o p e x m a r k e t o p e r a t i o n s
comnittee which w e have discussed,
te attack,
i f unsuccessful.
I
b y the
t i s certainly e p e n
I f i t is’ nesdessary for: thse
Minneapolis R e s e r v e B a n k t o s a r n e n o u g h t o c a r r y i t s ex-~
penses a n d d i v i d e n d s a n d i t c a m o t
ticipation i n t h e i n v e s t m e n t s
d o s o twcause o f its par-
o f t h e Open Market
emmittee,
it should n o t b e orecluded f r o m operating o n its o w n account, a n d c o u l d n o t b e ,
i n m y opinion, b e c a u s s t h a t r e o f t h e Minneannlis
spcnsibility r e s t s w i t h t h e directors
Bank a n d not with anyone else.
I have k e p t a
rough r e c o r d o f t h e answers,
I a m suvject t o correction,
o f course,
a n d a l t hou;
i t appears f r e m that
record that t h e first question, s h o u l d w e curtail services,
is answered affirmatively b y three banks; t h r e e banks a r e
in f a v o r o f c u r t a i l i n g s e r v i c e s ,
a n d nine a r é opposed t o
Eps
with regard t o the second question,
o f resorting t o t h
open market, t h e answers were quelified i n many cases, a s
was m y own, b u t there apparently a r e nine banks that a r e
in favor, u n d e r certain conditions,
open market,
a n d t h r e e a r e opposed,
o f resorting t o t h e
I
n regard t o t h e pay-
ment o f d i v i d e n d s f r o m surplus, a p p a r e n t l y t e n b a n k s a r e
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Federal Reserve Bank of St. Louis
68
if
in favor o f paying dividends f r a m accumulated surplus,
necessary, a n d t w o a r e opposed t o it.
tabulated t h e a n s w e r s
Governor Norris: I
i n a
little
different way, i n frying t o get a t the first choice a s
between t h e t h r e e a l t e r n a t i v e s . I
might s a y t h a t t h e firsi
choice o f n i n e b a n k s w a s t o p a y d i v i d e n d s f r o m surplus.
The f i r s t c h o i c e o f t h r e e b a n k s w a s t o c u r t a i l services;
two b a n k s s t a t e d t h a t t h e y w o u l d r e s o r t
t o t h e open market
as their second alternative.
a m inclined
Governor S e a y : T
a very gholesome influence
t o think i t would have
i f w e were called u p o n t n p a y
dividends f r o m surplus.
Deputy G o v e r n o r Case:
Governor Seay:
with reluctance.
I
O dO. 4 . = Governor.
B
T h e r e i s another matter t h a t I
t s e e m s f r o m t h e consensus
mentio:
o f opinion
around t h e table that o n those occasions “ h e n t h e executive:
of the banks believe a
has b e e n due, I
wrong policy h a s b e e n pursued,
believe,
t o extraneous pressure
it
o L adiffer-
ences o f fiew which were rather imposed u p o n t h e Federal
reserve b a n k executives. I
a m alluving t o the investments
in goverrment s e c u r i t i e s w h i c h w e r e m d e e a r l i e r
operations, a n d I a m alluding,
i n our
i n times past, t o policies
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Federal Reserve Bank of St. Louis
with respect t o discount rates.
would like t o a s k i f any Gover-
Governor Harding: I
nors p r e s e n t t h i n k t h a t t h e p r e s e n t a b n o r m a l l y e a s y c o n d i tion i n m o n e y i s l i k e l y t o p r e v a i l f o r a n y v e r y c o n s i d e r a b l
period o f time, a n d i f so, would even a drastic curtailment o f voluntary services enable t h e banks t o g o o n and
pay t h e i r d i v i d e n d s w i t h o u t e n l a r g i n g t h e i r i n v e s t m e n t s
cannnt recall, f r o m a n y experience
in the open market? I
IThaw e v e r h a d i n m y whole recollection, t h a t w e have
ever h a d very distinctly e a s y money conditior f o r more
ighteen m o n t h s
at a
stretch. I
can r e @ ll that w e
have h a d tight money f o r seweral years o n 4 stretch, b u t
I cannot r e m l l w h e n w e have h a d country wide c a s y money
for longer t h a n eighteen months o n a stretch.
Governor S e a y
T h e r e i s h a r d l y a n y year, G o v e r n o r ,
I dare say, i n which t h e variation between t h e high a n d
the l o w i s n o t appreciable.
Governor H a r d i n g : :
year.
O u r operations
C O U l E Cc. 1 9 1 5 w a s a
w e néeglisible;
very e a s y
s c o u n t rates w
effective, b u t yet i n that year w h e n w e had probably
gold i m p o r t s t h a n w e h a v e h a d i n a n y o n e year, c o n d i
tions began t o tighten u p i n the fell o f 1916 after about
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Federal Reserve Bank of St. Louis
70
eighteen m o n t h s
o f e a s y money, w h i c h w a s a b o u t a s l o n g a s
it lasted.
I
Governor Callrins:
n answer
t o Governor Harding's
perfectly obvious t h a t K a y curtailmen
services which w e could bring about, without violation o f
the law, w o u l d s u f f i c i e n t l y r e d u c e o u r o p e r a t i n g e x p e n s e s
to e n a b l e u s t o c o n t i n u e d i v i d e n d s b e c a u s e t h e v o l u n t a r y
ices rendered b y the Federal reserve banks a r e neglias c o m o a r e d w i t h t h e s e r v i c e s r e o u i r e d
Governor Harding:
Governor Seay:
services r e q u i r e d
b y t h e lav,
T h a t i s true.
i x c e p t that, w i t h r e s p e c t
t o certain
b y lew, t h e r e e : i s t s t h e r i g h t t o i m p o s e
a charge f o r t h e service.
The Chairman:
jects,
and I
G o v e r n o r Calltins, t h e s e a r e y o u r
understand f r o m y o u r s t a t e m e n t t h a t y o u b e -
elieve, t h a t i t would b e advisable t o have
he Federal Réserve Board i n advance o f
the time when this m e s t i o n might arise.
h a t suggestion
have y o u t o m a k e u p o n t h a t ?
Governor Callzins: I
t h i n k i t w o u l d b e desirable,
Mr, Chairman, although I do not know o f any way that w e
could g e t that m e s t i o n t o the Fedcral Reserve R o a r d s o
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Federal Reserve Bank of St. Louis
Th
as t o compel a n answer. I
on their p a r t t o answer.
can see reasons f o r reluctance
T h e o p i n i o n o f o u r counsel c o n -
curring i n the opinion o f the Attorney General a n d o f the
Board's c o u n s e l
i s that t h e B o a r d h a s n o power t o prevent
the payment o f dividends b y the banks, b u t w e d o not want
to raise a n issue there, o f course. I
able t o h a v e t h i s c o n f e r e n c e
three questions,
tion. I
o n record
think it.is desias
i n regard t o these
o r the three subdivisions o f the one ques-
think i t desirable t h a t t h e conference should
go o n r e c o r d f i r s t a s t o t h e @ e s i r a b i l i t y o f c u r t a i l i n g
services n o w rendered, second,
a s t o the desirability o f
resorting t o t h e open market t o make dividends a n d expenses,
and third, a s t o whether w e should p a y dividends f r o m
accumulated surplus.
Deputy Governor s e : I
would like t o ask Governor
Calkins i f we would have any objection t o having Item ©
presented f i r s t ?
Governor Calkins:
Governor Young:
answer that mestion.
N O .
T e i
pots i t h e
i n s t a n c e ,
a position o f Philadelvhia, I
d i t e
i f our bank was i n
think I would recommend t o
our people that we pay dividends out of surplus; but the
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Federal Reserve Bank of St. Louis
ya.
position o f the Minneapolis b a n k i s entirely dcifferent.
If w e s h o u l d g o t h r o u g h t h i s y e a r a n d e n d u p w i t h a
deficit I
think i t w o u l d b e a
%500,00
great m i s t a k e f o r o u r institu.
tion t o p a y d i v i d e n d s o u t o f surplus.
B u t w e have 1 1 5
Closed member tanks i n our district t h a t closed because t h e
were p a y i n g dividends.
Governor Harcing:
I s nut t h e attitude o f the Federal
Reserve Board, under i t s supervisory powers, a
like t h a t o f t h e C o m o t r o l l e r
good deal
o f t h e Currency?
T h e Comvo-
troller o f the Gurrency would object t o a national b a n k
paying a
dividend i f i t h a d n ' t e a r n e d i t .
H
e would point
out t h e non-liquid assets a n d t h e actual o r probable
losses,
a n d hold that i t was necessary t o conserve c v e r y
dollar o f resources
can s e e w h e r e a
o f t h e banks;
bank w i t h a
b u t i n other cases
pericd o f s l a c k business,
but
which h a d a n accumulated s u r o l u s a n d u n d i v i d e d profits,
where t h e directors m i g h t
g o ahead a n d declare t h e usual
vidend a n e t h e C o m p t r o l l e r n o t o b j e c t t o it.
Governor Young: I
do n o t think t h o Board would
obiect t o o u r p a y i n g divicsends f o r t h i s s i x months, b e c a u s e
we a r e n u t s h o r t a
great deal.
" w e have h a d over s e v e n m i l
lions i n long time goverrment bonds i n our institution f o r
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Federal Reserve Bank of St. Louis
73
a couple o f years,
a n d t h e y h a v e g i v e n u s a n income o f
around 3300,000 a year. I
felt entirely justified i n car-
rying t h o s e l o n g t i m e g o v e r m e n t b o n d s w h e n w e j u s t h a d
our s u r p l u s i n v e s t e d
i n them; b u t n o w o u r s u r p l u s
i s vir-
tually turned over t o take care o f these closed banks,
which cannot g e t a n y less, a n d which i s bound t o get larger
if these banks k e e p o n closing.
have t h r e e a n d a
I
n addition t o that w e
half m i l l i o n t i e d u p i n a
n e w building,
and i f there i s a n y great deficit i n Minneapolis, I
it w o u l d b e a
Now, I
mistake
think
t o p a y d i v i d e n d s o u t o f surplus.
do n o t think m y directors w o u l d agree with m e i n it.
It i s only m y o w n view.
F o r those reasons j u s t mentioned,
Governor Seay:
Mr. Chairman, I
think perhaps t h e Federal Reserve Board
would m t b e disposed t o answer a n abstract question, b u t
that i t w o u l d b e a
matter f o r t h e i n d i v i d u a l j u d g m e n t o f
the directors o f each Federal reserve bank, a n d that each
case would b e passed upon, i f i t needed t h e sanction o f
the Federal Reserve Board, separately.
Governor Young:
T h e r e i s another phase o f this whole
m estion with regard t o voluntary services, a n d that i s
transit items, t h e p a r collection o f checks.
Y e s e t down
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Federal Reserve Bank of St. Louis
74
the figure t h a t i t costs u s s e much, b u t that i s the actual
w e d o n o t f i g u r e w h a t i t c o s t s u s i n losses.
labor;
O u r
bank i s going t o lose i n the neighborhood o f $700,000, a n d
I can make t h e statement without a n y hesitancy a t all
that that entire $700,000 i s lost because o f the par collection o f checks a n d non-cash items,
T h e r e isn't a n y
argument about that,
The Chairman:
A s I
understand it, Governor Case's
question t o Governor Calkins w a s this, t h a t i f the subject
is p r e s e n t e d
t o t h e Federal R e s e r v e B o a r d t h a t question No.
3 be made question No. l .
Deputy Governor Case:
T h a t w a s j u s t m y thought. I
would m t like t o s e e this conference pass o n the auestionwe cannot b i n d t h e boards o f directcrs, b u t merely c a n express o u r o w n views infcrmally, I
whereas
would suggest this:
w e have t w o hundred millions
That
o f surplus t h a t h a s
been accumvilating over t h e t e n years t h a t w e have b e e n
in business;
whereas
i t n o w aopears t h a t s o m e o f t h e t w e l v
Federal reserve banks will n o t earn enough during t h e present y e a r t o c o v e r t h e i r e x p e n s e s a n d dividends, t h e r e f o r e ,
Be i t Resolved, T h a t i t i s the senae o f this conference, t h a t there could b e n o objection t o the directors o f
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Federal Reserve Bank of St. Louis
=
the respective F e d e r a l reserve banks paying out o f accu~
miulated surplus,
i f s u c h c o u r s e m e e t s w i t h t h e i r approval,
the r e c e s s a r y dividends,
o r s o m e t h i n g o f t h a t sort.
T h a t
is the thought t h a t was i n m y mind, a n d then these other
questinns a r e r a t h e r s u p p l e m e n t a l
Governor Calkins:
t o that.
I f you will offer that a s a reso-
Imtion. I will second 1t.
Deputy Governor Cases
Y e e ; I
think that c a n b e put
in a little better form.
Governor Harding: I
moment. I
would like t o discuss t h a t a
would first like t o a s k i f the Federal Reserve
Board a s k e d t h e c o n f e r e n c e
t o c o n s i d e r t h i s matter,
or
whether i t was brought u p o n the initiative o f Governor
Calkins?
The Chairman:
I t was brought
Governor H a r d i n g : I
sion and I
u p b y S a n Franeisco,.
t h i n k i t i s a v e r y t i m e l y discus-
a m glad that i t has b e e n brought up, a n d I would
ilke t o s a y this; o f f t h e record %
%
*
(Discussion followed which the reporter was directed
ast to take.)
Governor C a l k i n s :
matter.
Y o u have touched
Y o u have s a i d t h e operations
t h e heart
o f this
o f this committee
Wot
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Federal Reserve Bank of St. Louis
76
not i n any w a y interfere w i t h t h e acquisition o f earning
assets b y a member bank, t h a t this committee would b e
the m e a n s o f purchase--- t h e r e i s t h e w h o l e m e s t i o n .
I f
the question o f ecarning assets i s t o b e controlled b y the
directors o f the twelve banks h o w a r e they t o acquire asset
whenever t h e y think they should, e x c e p t through t h e commitISS
Governor Harding:
W i l l y o u let m e answer that?
Governor Calkins:
Certainly.
Governor Harding: I
it authoritatively,
do n o t know that I
can answer
b u t l e t u s suppose t h e latter p a r t o f
June t h e F e d e r a l R e s e r v e B o a r d s h o u l d t a k e t h e p o s i t i o n tha‘
they w o u l d a p p r o v e d i v i d e n d s p a i d , t h a t t h e y s h o u l d m a k e
a statement t o the bank that they were willing t o approve
a reasonable a m o u n t
o f unearned dividends f o r a
relatively
short period o f years, f o r those banks whose assets a r e i n
licuid condition a n d that have n o t a n y large amounts t i e d
up i n slow assets,
o r with losses impending o r accrued,
but that a s far a s t w o o r three banks a r e concerned, t h e i r
condition w a s s u c h t h a t w e c a m o t c o n t i n u e
their dividends unless sarned,
that position, w o u l d n ' t
t o approve
N o w , i f the Board t o o k
i t b e within t h e power o f the com-
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Federal Reserve Bank of St. Louis
77
mittee t o say t o the Federal reserve banks w h o felt that
the B o a r d w o u l d a p p r o v e t h e i r p a y i n g dividends,
evem if
unearned, t h a t i t would allot t o the t w o o r three banks
referred t o o u t o f t h e s t o c k o f g o v e r n m e n t s e c u r i t i e s
on
hand a
sufficient a m o u n t t o e n a b l e t h e m t o p a y t h e i r d i v i -
dends?
P h e r e i s one possibility where t h e committee
n o t mak-~
could b e o f very great u s e t o those banks t h a t are
ing their earnings.
Governor Calkins: I
think i t c a n b e o f great u s e
assets,
in allotting t o the banks t h e required .amount o f
notin
and o f great u s e i n purchasing those assets, b u s
determining what shall b e purchased o r allotted.
for t h e d i r e c t o r s
o f t i s individual b a n k s
Governor Harding: I
T h a t is
t o say.
agree w i t h y e u that when t h e
need s o much
directors o f the individual banks think they
market a n d b u y it,
and they are able t o g o out into t h e
a n d get G s
why t h e y s h o u l d g o i n t o t h e o p e n m a r k e t
Governor Calkins:
T f the Committee received a
re-
Francisco t o
auest from the Federal Reserve Bank o f San
a n d bankers ac~buy $25,000,000 i n short time governments
ceptances,
disturb t h e mark
a n d should r e p l y t h a t i t would
t o m e that t h e corto w y t h e m a t that time, t h e n i t seems
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Federal Reserve Bank of St. Louis
78
mittee would control, a n d n o t t h e Federal Reserve B a n k
of S a n “rancisco, a n d that i s really t h e question I
am
dodging around, a s t o what i s t o b e the procedure.
Governor Harding: I
think i t will b e understood
that n o b a n k w o u l d w a i v e i t s l e g a l r i g h t u n d e r t h e statute,
voluntary t r a n s a c t i o n w h e r e t h e b a n k t r a n s f e r s
but h e r e i s a
its prerogatives
t o the committee.
The Chairman:
T h a t i s understood.
Governor N o r r i s :
ant.
G o v e r n o r Calkins!
point i s
I f the S a n Francisco b a n k wanted t o acauice
five millions there might b e eight o r t e n other banks
that wanted t o acouire anywhere f r o m twenty t o fifty million, a n d their alternative would b e t o take what they
could g e t t h r o u g h t h e committee,
themselves.
I
o r g o into t h e o p e n market
f t h e y a l l w e n t i n t o t h e market, w h i c h t h e y
certainly would nave t h e right t o do, y o u can readily
imagine w h a t would occur w i t h s i x o r eight o r t e n o f them
bidding against e a c h other i n the N e w York market f o r these
securities.
A n d that i s the whole justifica-
Governor Calkins:
tion for this conmittee,
Governor N o r r i s :
Y e s .
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Federal Reserve Bank of St. Louis
79
Governor Calkins: I
think t h e o b v i o u s cauestion i s
what i s t o b e t h e p r o c e d u r e ?
I
s i t t h e t t h e determina-
tion o f t h e v o l u m e o f e a r n i n g a s s e t s
Coumittee
o r t o t h e directors
Governor Norris:
A
i s t o b e left t o t h e
o f t h e twelve banks?
t t h e present t i m e t h e federal
reserve b a n k s h a v e v o l u n t a r i l y a g r e e d t o l e a v e i t t o t h e
committee, a n d they have done i t without waiving their
legal rights.
T h a t i s perfectly understood. I
will c o n t i n u e
t o d o i t because
what t h e c o n s e q u e n c e s
think ther
i t i s perfectly manifest
t e i f any one bank bolted
would
and undectook t o operate o n its o w n account, t h a t i t would
be destructive t o tne interests o f all.
Governor Calkins:
The (Chairman:
T h a t i s t h e h e a r t o f t h e auestion,
T h e question n o w i s o n ¢gonsideration
of t h e s u g g e s t i o n o f Mr. C a s
w i l l y o u r e p e a t that, M r .
Case.
Deputy G o v e r n o r C a s e :
The Chairman;
O
n w h a t point, iir°e Chairman?
Y o u r p l a n t e submit t h e matter t o the
Federal Reserve Board,
Governor Calkins: I
will withdraw m y second,
Deputy G o v e r n o r C a s e :
I t s e e m s t o me, that t h e minutes
of t h e r e c o r d w i l l s h o w p r e c i s e l y t h e v i e w p o i n t
o f the
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Federal Reserve Bank of St. Louis
80
conference,
T h e s e minutes will g o t o the Board, a n d I
would
would assime that you, a s Chairman o f the conference,
o r t o the Board
probably mention t o Governor Crissinger,
this
Stself w h e n w e meet with them, t h a t w e had considered
intermatter, a n d that, without i n any w a y undertaking t o
fere w i t h t h e p r e r o g a t i v e s
pank directorates,
o f t h e several Feceral reserve
a s a matter o f principle w e c a n s e e n o
instance--objection--- taking t h e N e w York Bank, f o r
to p a y i n g d i v i d e n d s a u t o f surplus, p r o v i d i n g ,
the directors agree t o it.
4n the record, will
Mr. Harrison:
wre.-Case:
v
i
o f course,
A l l that discussion will b e
r
” Harrison?
Yes.
aiter
A n d while circumstances naturally
consensus o f vpinthe case with respect t o some banks, t h e
t o it, i f deemed
ton was that there vould b e n o objection
necessary »
The Chairman:
gatisfactorily
Governor
D o e s t h a t dispose
o f t h e s u b ject
t o you, G o v e r n o r C a l k i n s ?
Calkins:
The Chairman:
Y e s .
T h e n w e will
posed of.
Now, i f there i s n o objection,
w e will s c
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Federal Reserve Bank of St. Louis
81
this point.
do,
and I
N o o n e misses Governor Strong more t h a n I
know w e a l l miss
h i m v e r y greatly.
=
< COe R O G
know w h e t h e r c i r c u m s t a n c e s a r e s u c h a s t o m a k e i t proper
that w e s e n d a
to m a k e a
communication
t o him, b u t i r not, I
want
matter o f r o c o r d t h e f e c t t h a t w e a l l d o m i s s
him very much.
We h a v e s o m e i m p o r t a n t m a t t e r s
Treasury, a n d I
t o discuss
with the
a m going t o a s k Wr, Young a n d wir. Case,
if i t i s agreeable t o t h e conference,
t o see Mr. “inston
and ascertain what his oleasure i s with regard t o sitting
with ts.
(On motion, d u l y seconded, t h e conference t h e reupon
recessed f r o m 1 o'clock p . m
of the same day.)
until t w o o'clock D. m .
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Federal Reserve Bank of St. Louis
a t &
OFGLOCK D e W e
Met, p u r s u a n t
t o recess,
The C h a i r m a n s
T h e conference w i l l kindly c o m e t o
onder.
The next topic i s 1-(b), su.gested b y New York, b u t
Mp, C a s e i s n o t p r e s e n t m o w a n d w e w i l l d e f e r d i s c u s s i o n
of t h a t t o p i c a n d p a s s t o l-(c).
(c) D o m e s t i c Acceptances.
Report
o f General A c c e p t a n c e C o m -
mittee,
r . Kenzal Chairman.
I will a s k M r - H a r r i s o n
wr. Harrisons
distributed.
t o s u b m i t t h a t report.
T h e report o f the committee I
T h a t report, l i k e m o s t o f t h e o t h e r r e p o r t s
of s t a n d i n g c o n m i t t e e s ,
w a g «
onlyat t h e last minute,
s o that I
distribute
have jus
i t armong t h e g o v e r r o r s
presented
t o t h e Secretar)
did not have time t o
i n advance.
T h i s report
4s o n e prepared b y this committee o f four, b u t i t does n o t
revresent a n y k i n d o f unanimous o v i n i o n ,
T h e best thing
to do, perhaps, w o u l d b e t o have t h e several G o vernors
read i t over, a n d perhaps discuss i t later.
T h e r e is
nothing that could b e done about i t now.
The Chairman:
T h e r e i s nothing t h e conference c a n ¢
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Federal Reserve Bank of St. Louis
about i t .
I t i s a matter t h a t came up, I
Mr. Harrisons
stood f r o m tir. Kenzal,
under-
a t t h e request o f Goverror Crissingei
and i t i s likely t h e Board m a y want a n expression o f opin-ion from the Conference after a
which g i v e s t h e d i s c u s s i o n
Governor Fancher:
reading o f the report,
o n a l l sides.
“ t e , Chairman, I
move that t h e topic
be p a s s e d f o r t h e present.
The Chairman:
W i t h o u t objection,
t h a t course will b e
followed.
That concludes topic 1 , under credit transactions
and policies...
The n e x t s e c t i o n o f t h e r e p o r t
eS
IL C o l l e c t i o n s a n d Clearings.
(a) R e p o r t
o f Standing Conmittee
on Collections, iir- Strader,
Chairman.
Mis share Leon’
T h a t report h a s a l r e a d y b e e n distri-
puted b y ur. Strater,
The Chairman: t
Mr. Harrison:
a s I understand it.
did- Sot Seccive Th.
T h i s report
i s c h i e f l y negative,
be-
cause i t refers principally t o t h e action taken a t the last
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Federal Reserve Bank of St. Louis
84
conference requesting this committce t o prevare a
uniform
circular d e f i n i n g t h e t e r m s u s e d i n t h e m o n - c a s h c o l l e c tion s e r v i c e o f t h e R e s e r v e B a n k s .
T h e committee reported
matter
back t h a t t h e y r e t h e r f e l t t h a t t h i s w a s r o t a
sufficient i m p o r t a n c e
t o justify i s s u i n g a
or
n e w c i r c u l a r jus:
for that alone, a n d they recommended, therefore, t h a t they
do nothing about i t until s u c h time a s a new circular m a y
be i s s u e d f o r o t h e r reasons.
I
t also refers
t o the action
taken a t the last conference o f governors "Voted, t h a t a l l
Federal reserve banks shall guarantee prior endorsements
on ron-cash collections, b u t that t h e y shall receive f o r
collection o n l y these non-cash items o n which t h e deposit-
ing bank has guaranteed prior endorsements."
They refer t o t h e fact that o n l y o n e reserve b a n k h a s
attempted
t o put this particular provision o f t h e last
into effect. T
think i t would b e p o s s i b l e f o r
reserve banks t o do thas even though no:uniforn
fixed,
Distric
A s a matter o f fact i n the N e w York
banks
we have tried it, a n d I think w e have a l l o f our
guaranteeing p r i o r e n d o r s e m e n t s . I
see n o reason w h y t h e
even
practice c o u l d m t b e followed i n other districts,
without a n agreement a s t o some soecific date.
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Federal Reserve Bank of St. Louis
85
Governor (Calkins:
A s a matter o f fact, Mr. Chairman
banks t h a t d o endorse without oualifying their endorsement,
do guarantee prior endorsements.
Governor Seay:
A s matter o f law.
Governor Calkins:
A s matter o f law, yes.
I n our district w e were rather late
Governor Seay:
in issuing o u r circular,
s o that w h e n w e finally issued
it w e provided f o r both o f these resolutions.
Governor Fancher:
I t doesn't occur t o m e that there
is a n y need f o r discussion o f the report now. i f r . Strager,
Chairman o f the Committee, will b e here tomorrow o n annthez
matter, a n d i f there a r e a n y particular features o f the
report t h a t t h e C o n f e r e n c e w o u l d l i k e t o discuss w i t h lir.
Strager that could'be done tomorrow,
The Chairmans
A r e there a n y m e s t i o n s arising whicr
make i t necessary t o delay action?
Moy: Harri sont J
think t h e important thing t o do,
as the Chairman o f the committee seems t o imply, i s t o
effect.
agree u p o n s o m e d a v e w h e n w e w o u l d p u t t h i s i n t o
I wrote t o e a c h G o v e r n o r s o m e t i m e
i n February, s a y i n g t h a t
the F e d e r a l R e s e r v e B o a r d h a d p a s s e d a
new resolution a u t h
of
igirg reserve banks, a s the result o f recommendations
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Federal Reserve Bank of St. Louis
86
this conference,
t o put into effect a n y recommendatien what.
ever that d i d not involve,
ter o f regulation, a p p r o v a l
the m a t t e r s w h i c h I
a s matter o f law, o r a s a matb y t h e Board.
T h i s i s one o f
think t h e B o a r d a n d t h e Secretary o f
the C o n f e r e n c e a g r e e d n e e d n o t h a v e t h e a p p r o v a l
Board;
b u t even a s a
o f the
result o f t h e s e c o m m u n i c a t i o n s t h a t
were s e n t t o a l l t h e Governors, a p p a r e n t l y t h i s p a r t i c u l a r
recommendation w a s n o t m a d e effective.
Governor S e a y :
and I
w e , Chairman,
this i s a
short r e p o r t
think i t might b e well t o read i t here.
The Chairman:
Y e s , a n d I will a s k i
Harrison
t o
read t h e report.
Mr. Harrison:
T h i s i s the report o f the Standing
Collections t o Conference o f Governors May 5,
fat the last Confe: ence of Governors, held i n November
1925, i t was
VOTED t o reouest t h e Collection Committee t o draft
a uniform circular t o b e issued simultaneously b y
all Federal Reserve Barks, defining t h e terms u s e d
by Federal Reserve Banis i n connection with t h e col-=
lection o f non-cash items."
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Federal Reserve Bank of St. Louis
it was a l s o
'VOTED, t h a t a l l Federal Reserve Banks shall guarantee
prior e n d o r s e m e n t s
o n mne-cash collections b u t t h a t
they s h a l l r e c e i v e f o r c o l l e c t i o n o n l y t h o s e n o n - c a s h
items
o n which t h e depositing b a n k h a s guaranteed
priar endorsements.!
Careful
c o n s i d e r a t i o ns
a
h teen given b y t h e Standing
Committee o n Collections t o the request o f the (Conference
that t h e Committee prepare a
uniform circular, cefining
the terms used b y Federal reserve banks i n connection with
the collection o f non-cash items.
I t i s the opinion o f
the C o m m i t t e e t h a t a l t h o u g h i t would,
n o doubt,
b e desir-
able -to define certain terms those terms which d o n o t have
an unmistakable meaning a r e s o f e w that i t would b e advisable t o d e f i n e t h e m i n a
uniform paragraph
in t h e n o n - c a s h c o l l e c t i o n c i r c u l a r
bank, rather t h a n issue a
t o b e included
o f e a c h Federal
reserve
separate circular defining them.
The Q o r m i t t e e i s a d v i s e d t h a t o n e o f t h e r e s e r v e b a n k s h a s
already i n c l u d e d a
definition o f certain terms
i n its
mn-cash c o l l e c t i o n circular,
The C o m m i t t e e u n d e r s t a n d s t h a t t h e L e a s e d V i r e C o m m i t -
tee has submitted a
report t o the Conference i n which itis
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Federal Reserve Bank of St. Louis
88
recommended t h a t t h e u s e o f t h e l e a s e d w i r e s
ly r e s t r i c t e d
member b a n k s
t c telegraphic transfers
b e practical-
o f funds t
a n d that t h e use of.the leased wires
prohibited e n t i r e l y f o r a n y p u r p o s e
tween
b e
i n connection w i t h
the handling o f non-cash items.
The Committee understands a l s o t h a t t h e Committee o n
Voluntary S e r v i c e s h a s s u b m i t t e d i t s r e p o r t
o n the non-cash
collection f u n c t i o n t o t h e F e d e r a l R e s e r v e B o a r d a n d t h a t
this report will b e a subject f o r discussion a t the next
Conference.
It i s n o t unlikely that i t will b e necessary t o revise
the n o n - c a s h c o l l e c t i o n c i r c u l a r s
o f t h e Fed-ral reserve
banks a s a result o f the action which will b e taken b y the
Conference
o f Governors:
o n the report
o f t h e s e tyro conmmit-
tess.
The r e s o l u t i o n a d o p t e d a t t h e l a s t C o n f e r e n c e
of
Covernors requiring Federal reserve banks t o guarantees
prior endorsements, d i d n o t s e t a definite d a t e f o r taking
this r e q u i r e m e n t e f f e c t i v e ,
T h e Committee understands
that o n l y one o f the reserve banks h a s attenpted t o carry
out t h e r e c o m m e n d a t i o n s
has u n d e r t a k e n
o f t h e Governors!
Conference a n d
t o require i t s member banks t o guarantse
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Federal Reserve Bank of St. Louis
89
vrior e m o r s e m e n t s
o n n o n - c a s h items.
T h e Committee
is
of the opinion that this reauirement should b e placed i n
operation s i m u l t a n e o u s l y
b y a l l o f t h c F e d e r a l R e s e r v e Bank:
in fact t h e requirement c o u l d n o t t w enforced, unless e a c h
of t h e s e v e r a l Fed: ral r e s e r v e b a n k s n o t i f i e d t h e i r m e m b e r
banks t h a t o n a n d a f t e r a
banks w o u l d d e c l i n e
definite d a t e a l l F e d e r a l r e s e r v e
t o accept f o r collection non-cash items
which d i d n o t bear a guarantee o f prior endorsements b y
the depositing member bank.
I n numerous instances, m e m -
ber b a n k s i n o n e d i s t r i c t a r e p e r m i t t e d
cash c o l l e c t i o n s d i r e c t
to a
t o forvard non-
Federal r e s e r v e b a n k o r B r a n c h
of another district, a n d i t c a n b e clearly understood t h a t
unless t h e requirement o f guaranteeing prior endorsements
is made effective simultaneously b y all Federal reserve
banks,
a n a moying element o f confusion will b e injected
into t h e r e l a t i o n s b e t w e e n m e m b e r b a n k s
i n one district a n d
Federal reserve banks o r branches o f other aistricts, unles
the r e q u i r e m e n t
i s n o t s t r i c t l y enforced.
It a l s o s e e m s
t o t h e Committee t h a t t h e effective man-
ner o f placing this recommendation into operation would b e
by t h e i n c l u s i o n o f a
uniform p a r a g r a p h
the n o n - c a s h c o l l e c t i o n c i r c u l a r
o n the subject
in
o f each Federal reserve
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Federal Reserve Bank of St. Louis
90
bank, t h e revised circulars o f all o f the Reserve banks
embodying this paragraph t o k e issued simultaneously.
It w e u l d b e p o s s i b l e
t o incorporate
in a
revised n o n -
cash collection circular t h e following uniform paragraphs:
(a) p a r a g r a p h r e l a t i n g
t o t h e guarantee
o f prior
endorsements}
(o) paragraph defining t h e terms used b y Federal reserve banks;
(c)
a n y a d d i t i o n a l p a r a g r a p h s w h i c h m a y b e required
a result o f action taken b y the Conference o n the report
on t h e l e a s e d W i r e C o m i t t e e
a n d b y the Qnference
o r the
Federal R e s e r v e P o a r d o n t h e r e p o r t o f t h e C o m m i t t e e
on
Voluntary Services,
Any other wodifications o f the existing non-cash collection circulars,
i n s o far a s uniformity i s concerned,
which m a y b e n e c e s s a r y a s a
Conference
o f Governors
result o f a c t i o n t a k e n a t t h e
could also
b e t a k e n c a r e Ofisan
the r e v i s i o n .
Respectfully s u b m i t t e d ,
H. F . Strater, Chairman,
J. W a l d e n , Jr.,
Oe A t t e b e r y ,
Cre C o e ,
de Mec L O Y ,
as
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Federal Reserve Bank of St. Louis
OL
w h i l e these topics m a y b e o f minor
Governor Seay:
importance, t h e y are, nevertheless,
o f some importance
and they ought t o b e carried into effect, M r . Chairman.
The Gnairman:
w h a t would b e your recommendation,
Governor Seay?
W e might wait until a
Governor Seay:
non-cash c o l l e c t i o n s
conrerencc.
i s received
report o n
a n d acted upon
b y this
I t depends u p o n t h e action o f this conference
a s t o w h a t m a y b e mécessary.
to t h a t r e p o r t
Governor Fancher:
A n d also t h e action o f the Leased
Wire Committee.
Governor Seay:
Wire
Committee.
man t o make a
I
A n d a l s o t h e a c t i o n o f t h e Leased
t would
perhaps
b e well
f o r
the
M a i r -
note t o that effect, t h a t these matters n e e d
attention w h e n w e s h a l l h a v e a c t e d
The Chairman:
o n t h e o t h e r t w o matters.
T h e n , i f there i s n o objection that
eourse w i l l b e pursued.
The next topic i s 2-(b)
(bo) Report o f Committee o n Voluntary
Services, regarding Non-cash Collection Service, Governor Fancher,
Chairman.
Governor Fancher:
i f r , Chairman, a
has t e e n mailed, s o m e t i m e ago,
copy O f u l r s rere:
t o e a c h Governor,
and I
as-
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Federal Reserve Bank of St. Louis
92
sume t h e y h a v e h a d o p p o r t u n i t y
t o g o o v e r i t a n d familiar-
ize t h e m s e l v e s w i t h t h e r e c o m m e n d a t i o n s
o f t h e committee.
The r e p o r t w a s s u b m i t t e d t o t h e F e d e r a l R e s e r v e B o a r d o n
March 22nd, w i t h the sugzestion t o the Board t o defer forma!
action u n t i l t h e c o n f e r n c e h a d o p p o r t u n i t y
t o discuss t h e
PEDOrt-<
The report o f the committees o n Voluntary Services
umed b y Federal Reserve Banks o n non-cash vollection
Federal Reserve Board, M a r c h 24, 1924,
is a s follows:
“At t h e “arch, 1923, Conference o f Governors, t h e
eserve B o a r d s u b m i t t e d f o r c o n s i d e r a t i o n a
memoran-
dum (X%-3576) concerning certain voluntary services performed b y the Federal reserve banks f o r t h e member banks.
Upon consideration o f the memorandum t h a t Conference v o t e d
'tthat t h e services enumerated i n the Board's memorandum
should n o t t e discontinued a t this time, except t h a t with
reference
t o the item
o f non-cash collections
i t was Felt
that t h e s u b i e c t s h o u l d b e r e f e r r e c f o r c o n s i d e r a t i o n a n d
report
to a
special c o m m i t t e e
by t h e F e d e r a l R e s e r v e B o a r d . '
o f Governors
to t
selected
T h e Federal Ressrve B o a r d
accordingly s e l e c t e d t h e p r e s e n t c o m m i t t e e
t o consider t h e
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Federal Reserve Bank of St. Louis
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subject o f n o n - c a s h c o l l e c t i o n s
a s recommenced
b y that
Conference.
After a
very careful survey a n d review o f the whole
subject, t h e committee f i l e d with t h e November, 1925,
Conference
o f Governors a
preliminary r e p o r t r e v i e w i n g
the arguments f o r a n d against t h e non-cash collection service a n d recommending i t s continuance f o r the various reasons s e t f o r t h i n t h e report.
U p o n consideration
o f this
report t h e November, 1923, Conference adoptec t h e following
resolution:
‘That t h e committee submitting t h e report o n Voluntary
Services Assumed b y Federal reserve banks b e continued b y
the P o a r d a n d
b e reauested further
t o investigate
port a n d m a k e r e c o m m e n d a t i o n s p r i o r
a n d re-
t o t h e n e x t Corferemnce
as t o the following subjects:
1. H o w v a l u a b l e
{tems t o t h e m e m m r s
i s t h e service
o f collecting
mn-cash
o f t h e F e d e r a l r e s e r v e system, d i v i d -
ing t h o s e m e m b e r s b e t w e e n b a n k s l o c a t e d
i n Pederal r e s e r v e
bank a n d b r a n c h b a n k c i t i e s a n d t h o s e n o t l o c a t e d
i n those
Ciseeser
2. ‘that i s the probable growth o f the volume o f this
business a n d what will i t likely cost?
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Federal Reserve Bank of St. Louis
94
3, ‘ h a t i s the possibility o f imposing a charge u p o n
the c o l l e c t i o n o f n o n - c a s h i t e m s s i e g e
e S
a t Least. 7 e -
imburse t h e b a n k s f o r t h e c o s t o f c o n d u c t i n g t h e business,
the r e p o r t u p o n c h a r g e s
charging o n ali items,
t o consider t h e practicability
of
o r upon those items which w e class
as street address items, a n d how much such charge might
be, i f recomended
b y the committee?
4. T h a t t h e c o m m i t t e e
b e reouested
t o econmuct p r a c
tically t h e same type o f investigation a s t o all other
services
performing
o f like character w h i c h w e a r c n o t
without c h a r g e f o r o u r members,
a n d that t h e report o f the
Committee
o n W l u n t a r y Services
b e continued a s a t present
pending a
final r e p o r t
b y t h e committee
o n the above mat-
tere .'
This r e s o l u t i o n o f t h e C o n f e r e n c e w a s r e p o r t e d
to
session with the
the F e d e r a l R e s e r v e B o a r d a t t h e j o i n t
Board, a n d i t was under.tood,
a s recomvended, t h a t t l e
should pursue i t s i n committee s h o u l d b e c o n t i n u e d a n d
o f the resolution.
vestigation i n accordance w i t h t h e terms
s t u d y o f the subject
The committee h a s made a further
i t s r e p o r t herewith.
along t h e l i n e s p r o p o s e d a n d s u b m i t s
re detailing i t s recomendations concerning t h e speci’
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Federal Reserve Bank of St. Louis
95
questions presented b y this resolution, however,
be w e l l f i r s t
i t may
t o review t h e more general arguments
for
and against t h e handling o f non-cash collection items b y
the Federal reserve banks, arguments already discussed
at s o m e l e n g t h i n t h e p r e l i m i n a r y r e p o r t s u b m i t t e d
Conference
o f Governors
to t
he
o n N o v e m b e r 12,: 1 9 2 5 .
History.
The c o l l e c t i o n o f n o n - c a s h i t e m s
b y t h e Federal r e -
serve banks w a s inausurated b y order o f the Federal Reserve
Board i n September, 1 9 1 7 .
establishment
T h e chief reason prompting t h e
o f this s e r v i c e w a s t h e r e c o g n i t i o n o f t h e
fact t h a t i n a s m u c h a s t h e r e q u i r e m e n t s
o f t h e Federal R e -
serve A c t resulted i n a transfer o f the reserves o f m e b e r
banks f r o m their former reserve agents t o the Federal r e serve banks, t h e reserve banks should,
a s far a s possible,
and s o far a s consistent w i t h t h e provisions o f t h e Act,
render t h e s a m e c o l l e c t i o n s e r v i c e s t h a t m e m b e r b a n k s h a d
formerly received f r o m their reserve agents;
t h a t is,
their c i t y correspondents.
Since t h e inaughration o f the m n - c a s h collection ser~
vice i t has developed rapidly.
A t - the present time, appro:
ximately 7 4 per cent o f all member a n d non-member clearing
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Federal Reserve Bank of St. Louis
96
banks l o c a t e d
i n reserve b a n k c i t i e s
o r b r a n c h b a n k cities,
and 3 1 per cent o f all other meuber a n d non-member clearing
banks a r e u s i n g t h i s service.
Federal
D u r i n g t h e year 1925 a l l
a n d wbanches h a n d l e d a
reserve banks
total
o f
5,747,466 m n - c a s h items, i n c l u d i n g c o u p o n s o t h e r t h a n
Government coupons -
a n increase o f 1,025,466,
o r 21.75
per cent over t h e year 1922.
While t h e t o t a l miumber o f c i t y b a n k s w h i c h a r e utiliz-
ing the Feceral reserve collection system i s relatively
larger t h a n t h e n u m b e r
o f country banks w h i c h a r e using
that system, nevertheless t h e r e has b e e n a steady growth
in t h e t o t a l n u m b e r o f b o t h classes
o f banks n o w sending
their i t e m s t o t h e Federal r e s e r v e b a n k s f o r collection.
The c v e s t i o n u n d e r c o n s i d e r a t i o n
now b e a d v i s a b l e
o r proper
i s whether
i t would
t o a b a n d o n o r eurtaii: t h e
2 -
cash collection service rendered b y Federal reserve banks
or w h e t h e r
i t would b e wise t o impose a
all o r any part o f the service.
service c h a r g e f o r
I t seems obvious t h a t
whatever a r g u m e n t s m i g h t h a v e b e e n p r o p e r
t o make against
now b e
the inauguration o f this service i n 1917, i t must
considered
with t h e
i n t h e l i g h t o f present s o n d i t i o n s a n d
many member banks
full a p p r e c i a t i o n o f t h e f a c t t h a t s o
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Federal Reserve Bank of St. Louis
97
have b e c o m e a c c u s t o m e d
t o i t s benefits a n d r e l y u p o n t h e
Foderal r e s e r v e b a n k s f o r i t s use.
I
n o t h e r words,
are
the arguments against t h e continuation o f the non-cash collection s e r v i c e s u f f i c i e n t l y s t r o n g t o o f f s e t t h e p e s s i b l e
resentment a n d warranted criticism o f our member banks,
particularly t h e c o u n t r y b a n k s ,
f o r t h e curtailment
of a
service which they n o w have learned t o expect a s a n incident t o m e m b e r s h i p a n d a s a
reserve c o n t r i b u t i o n
partial c o m p e n s a t i o n f o r t h e i r
o n which t h e y receive
n o imerest re-
turn?
Arguments m a d e against t h e continuation
of the non-cash collection service.
The c h i e f o b j e c t i o n s w h i c h h a v e b e e n r a i s e d t o a
tinuation o f this service m a y b e classified generally
follows:
( 1 ) Legality; ( 2 ) Contact w i t h t h e public;
(3) Competition w i t h our menber banks;
( 4 ) Bxpense.
These objections m a y b e discussed i n turn.
(1) Legality -
I t has teen suggested t o the Federal
Reserve Board throveh certain clearing houseé associations
that t h e m n - c a s h collection service should b e discontinuec
for t h e reason, a m o n g others, t h a t t h e Federal heserve A c t
tgives n o indication that the system was contemplated t o
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Federal Reserve Bank of St. Louis
98
handle items other t h a n checks’:
i n other words, t h e legal
right o f t h e F e d e r a l r e s e r v e b a n k s
been aestioned.
T
t o render t h i s service h e
t i s the opinion o f this committee t h a t
the objection c a n nat b e sustained. S e c t i o n 1 3 originally
provided that t h e Federal reserve banks might receive “chec}
and drafts",
N o express reference t o maturing notes and
bills w a s c o n t a i n e d
i n the original provisions
o f the sec-
tion, t i t o n September 7 , 1916, t h e l a w was specifically
amended s o a s t o p r o v i d e
i n terms f o r t h e c o l l e c t i o n o f
‘maturing bills", a n d o n June 21, 1917, another amendment
to t h e l a w i n c l u d e d m a t u r i n g ‘notes"® a s w e l l a s m a t u r i n g
jopidigles oe W h i l e t h e r e m a y h a v e b e e n s o m e q u e s t i o n a s t o
the legal right o f the Federal reserve banks,
to c o l l e c t t h i s c l a s s o f items,
a t one time,
t h e express amendments r e -
ferred t o m t o n l y m w confer t h a t right, b u t d o s o i n
that same paragraph, even i
the collection o f checks.
m
e clause providirg for
I n other words, Congress h a s s e i
t o colfit t o g i v e t o t h e F e d e r a l r e s e r v e b a n k s t h e p o w e r
lect b o t h c l a s s e s
o f items,
a n d that power i s n o less a n d
than
no different i n the case o f maturing notes a n d bills
it i s i n t h e c a s e
o f checks.
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Federal Reserve Bank of St. Louis
99
(2). C o n t a c t w i t h t h e p u b l i c -
I t has b e e n sugaested
that t h e collection o f maturing notes a n d bills payable
at street addresses i n reserve b a n k a n d branch cities i n volves a n unauthorized, a n d , a t the same time, annoying
contact w i t h the public.
w h i t e 1 b i s tric thet. tne. Targes*
directly
percentage o f the reserve banks! operations a r e
with their o w n member tanks o r the Treasury, nevertheless,
in s o f a r a s t h e c o l l e c t i o n o f a
volves c o n t a c t w i t h t h e public,
incident
t o t h e exercise
of a
i t i s merely a
necessary
lawful yient, not. t o pe: tater
chatlenged o n that ground alone.
law differentiates a
maturing n o t e o r bill i n -
T h e mere fact that t h e
check-- which i s a bill o f exchange
b y a n individrawh o n a bank-- f r o m a bill o r note payable
he
dual, firm or corporation, shows thet it contemplates t
possibility
subjected
o f the very contact t h a t has b e e n
Gib Lct om.
T h e comnittee believes, therefore,
to
t h a t there
collection o f i t e
is n o lawful objection t o continuing t h e
payable
a t s t r e c t addresses,
brings t n e r e s e r v e b a n k s
e v e n though i t necessarily
i n sone cases
i n contact w i t h t h e
i s a t times a m o y public. C o m p l a i n t s t h a t that contact
have b e e n reported t o
ing t o certain individuals o r firms
and carefully considered b y the committee.
T h e r e seems n m
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Federal Reserve Bank of St. Louis
1090
doubt that i n seme districts friction does e ist, h e r e
the r e s e r v e b a n k s
o r branches,
i n making t h e collection
of i t e m s p a y a b l e a t s t r e e t addresses,
ly strict terms o f payment.
h a v e required unusual
T h e committee i s advised, f o r
instance, t h a t i n o n e d i s t r i c t d o c u m e n t a r y d r a f t s a r e n o t
surrendered e x c e p t u p o n p a y m e n t
funds,
i n c a s h o r reserve b a n k
a n d this m a y possibly involve s o m e hardship w h i c h
might h a v e b e e n a v o i d e d h a d t h e r e s e r v e b a n k a d a v t e d i t s
practice
t o t h e m o r e u s u a l a n d n o r m a l b a n k i n g procecure.
The committee understands, however, t h a t criticism o f the
non-cash c o l l e c t i o n s e r v i c e
o n the part o f t h e public
not g e n e r a l t h r o u g h o u t t h e country,
few c o r c e n t r a t e d l o c a l i t i e s
b u t emanates f r o m 4
o r f r o m exceptional sources
U n d e r these circumstances,
elsewhere.
is
t h e comittes be-
lieves t h a t t h e remedy i s n o t t o b e sought i n a n abandonment o r curtailment o f the service throughout a l l districts,
rather i n a remedy o r modification o f the oractice i n
those d i s t r i c t s f r o m w h i c h c o m p l a i n t s e w a n a t e . T h e c o m :
; believes
branch will
a
n
d
b
a
n
i
s
a c h reserve
tcucitres t h a
mittee
endeavor
s o far a
in w h a t e v e r
manner
s
i
t
e f f e c t
i s most consistent
business a n d b a r k i n g p r a c t i c e s
i t s local collections
with
i n their resvective l o c a l i -
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Federal Reserve Bank of St. Louis
“101
ties, there will b e m
content
possible ground f o r friction o r dis-
o n the part o f those bisiness houses w i t h w h o m t h e
reserve b a n k s c o m e i n contact
i n presenting items f o r pay-
ment.
The c o m n i t t e e r e c o n m e n d s , t h e r e f o r e ,
rather t h a n t h a t t h e s e r v i c e
t h a t t h i s b e done,
b e eliminated
o r curtailed
even with respect t o those items payable a t street addresses
(3) S G o m p e t i t i o n w i t h o u r m e m b e r s presented
i n some o f t h e resolutions
Another a r gument
o f clearing house as-
sociations protesting against t h e continuance o f the noncash c o l l e c t i o n s e r v i c e
reserve b a n k s
i s that t h e service “places t h e
i n direct c o m p e t i t i o n w i t h t h e i r m e m b e r b a n k s
While i t i s n o d o u b t t r u e t h a t t h i s s e r v i c e m a y h a v e s o m e
competitive &fect u p o n t h e business o f certain citt banks,
that i n itself camot b e said to be a legitimate criticism against continuing a service which has been rendered
for s i x years w i t h i n c r e a s i n g u s e b y m e m b e r banks, c i t y a s
well a s country.
I n d e e d many functions o f the reserve
banks, expressly authorized b y law, functions w h i c h the
reserve b a n k s c o u l d n o t p r o p e r l y a b a n d o n e v e n i f t h e y p r e -
ferred t o d o so, place them, i n a measure,
with city banks.
i n competition
F o r instance, t h e reserve banks compete
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Federal Reserve Bank of St. Louis
with m e r b e r b a n k s
i n a l l o f t h e f o l l o w i n g respects:
(a) I n receiving deposits which might otherwise
held i n member banks.
in making loans t o member banks
in collecting checks f o r member banks
in making wire transfers
in m a i n t a i n i n g a c c o u n t s w i t h f o r e i g n c o r r e s p o n d -
ents
In purchasing Goverrmment securities, acceptances
and b i l l s o f e x c h a n g e
and a l s o
(zg) i n collecting notes a n d bills.
While p r a c t i c a l l y a l l o f t h e s e s e r v i c e s
o f t h e reserve
banks a r e l e g a l l y a n d t e c h n i c a l l y o p t i o n a l w i t h t h e F e d e r a l
reserve banks i n that the law uses the word “may” instead
Of S i e
“ S r e y cases, nevertheless i t is doubtful i f
the r e s e r v e b a n k s c o u l d a r b i t r a r i l y a n d w i t h o u t s u b s t a n t i a l
reason refuse gencrally t o exercise powers conferred u p o n
them b y Congress
i n t l interest
member banks themselves.
I
o f t h e public a n d t h e
n any event, t h e r e seems n o
more r e a s o n t o a b a n d o n t h e s e r v i c e
o f collecting notes a n d
bills t h a n o t h e r o f t h e s o - c a l l e d v o l u n t a r y s e r v i c e s w h i c h
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Federal Reserve Bank of St. Louis
103
the r e s e r v e b a n k s a n d t h e R e s e r v e B o a r d h a v e b e l i e v e d
should b e performed f o r member banks, f i r s t because contemplated b y the l a w itself, a n d second because t h e y serve s o r
what a s c o m p e n s a t i o n f o r t h e r e s e r v e b a l a n c e s m a i n t a i n e d
by member b a n k s w i t h o u t o t h e r d i r e c t return.
offered a n d h a v i n g b e e n u t i l i z e d
b y such a
H a v i n g been
large p e r c e n t -
age o f member banks i t would b e a serious blow t o the goodwill a n d close cooperation n o w existing between member
banks a n d t h e r e s e r v e b a n k s w e r e t h e y t o b e abandoned
even curtailed.
or
comS i n c e i t has b e e n argued that this
made
petition i s opposed b y city banks, t h e committee h a s
a canvass
o f member t a n k s
i n order t o a s c e r t a i n w h e t h e r
member tank
this opposition i s truly representative o f
opinion.
A
s w i l l b e s h o w n later,
t h e great majority o f
of a
the m e m b e r b a n k s i n t e r v i e w e d a r e i n favor
continuatio:
of tis service.
o f maintaini:
It h a s a l s o b o e n c o n t e n d e d t h a t t h e c o s t
2
the n o n - c a s h c o l l e c t i o n s e r v i c e s i n v o l v e s
Forced invest-
cometition w i t h
ment o f reserve funds, w h i c h results i n
a n d that t h e serour member banks i n the investment field
vice should b e abandoned o n this account.
H v e n assuming
$1,006
that the entire cost o f the service - approximately
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Federal Reserve Bank of St. Louis
104
- had t o b e earned b y a n additional s r forced investment
of t h e F e d e r a l r e s e r v e b a n k s o v e r a n d a b o v e t h e i r n o r m a l
business,
i t would necessitate a n investment o f only some
25 millions
o f dollars, -
competitive effect.
relatively i n s i g n i f i c a n t
i n its
B u t i t i s significant t h a t t h e normal
business o f the reserve banks, e v e n when discounts h a v e
been a t a low ebb, h a s been sufficient t o cover their
expenses, including those o f the non-cash collection function, w i t h o u t a n y a r b i t r a r y i n v e s t m e n t
o f reserve f u n d s f o r
that p u r p o s e alone.
This l e a d s
t o t h e n e x t objection:
(4) Expenses.
f h e committee finds that the entire
the reserve s y s
cost o f t h e non-cash collection function o f
handling
tem for t h e year 1923, excluding t h e cost o f
most
Goverment coupons, w a s $960,850. T h i s compares
the year
favorably with a total cost o f $1,059,000 for
1922, e x c l u s i v e
o f Goverrment coupons.
T h e volume handlec
a volume
in 1923, w a s 5,747,466 items, a s compared w i t h
Goverment c o u in 1922 o f 4,722,000 items, exclusive o f
pons.
s e e exhibit A.)
While i t appears, t h e r e f o r e ,
t h a t t h e number o f items
i t was i n 1922 ( a n
in 1923 was 1,025,466 i n excess o f what
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Federal Reserve Bank of St. Louis
105
increase o f 21.7%), nevertheless the totel dollar cast
actually decreased $78,150, o r 72%; t o put it amother way,
while the per item cost was 2 2 cents i n 1922, i t was only
os
(cents 2 m 1925.
a decrease
w i t h a n increasing volume t h e r e w a s
m t o n l y i n the per i t e m cost b u t i n the aggere-
gate cost a s well.
Y o u r committee believes, therefore,
that there i s nothing i n the experience o f the last t w o
years t o indicate a n y increase i n collection costs i n the
near future sufficient t o justify a
present s e r v i c e
o n t h a t account.
curtailment i n the
P u r t h e r m o r e t h e studies
of the committee l e a d t o the definite conclusion that t h e
probable f u t u r e c o s t o f t h i s s e r v i c e h a s b e e n v e r y m u c h
exaggerated
i n past estimates t h a t h a v e b e e n called
t o its
attention, a n d that there i s n o evidence t o justify the
fear o f any great increase i n the near future.
tion i s d i s c u s s e d
i n detail
Resolution
T h a t ques--
i n t h e f o l l o w i n g pages.
o f N o v e m b e r 1 9 2 5 Conference.
When the preliminary report of the committee was considered b y t h e l a s t C o n f e r e n c e
o f Governors,
i t was f e l t |
by 2aA large majority o f those present t h a t t h e service o f
a s recom
collecting non-cash items should b e continued
mended
b y t h e comnittee
at iGo
e r e
I
n view o f the fact
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Federal Reserve Bank of St. Louis
106
however, t h a t there w a s same question a s t o how general t h e
so-called c i t y b a n k o p p o s i t i o n h a d become,
a n d considerable
doubt a s t o how much t h e volume a n d expense might ultimatel.:
grow,
t h e corference p a s s e d resolution already q u o t e d above
recamending t h e continuance
o f your c o m m i t t e e
t o study -
(1) H o w valuable t h e service i s t o city a n d ceuntyy
member banks?
What i s the probable growth o f the service a n d
its. l i k e l y c o s t ?
Is i t advisable t o impose a
service charge o n
any o r all classes o f non-cash items?
This s t u d y h a s b e e n p u r s u e d
gare, b u t i n e r r
presented
specifically
i n the resolution
b y the comittee w i t h much
t o report
o n the questions
i t was necessary
first-hand i n f o r m a t i o n f r o m a
t o obtain
r e p r e s e n t a t i v e n u m b e r o f mem-
ber banks i n each district. C o n s e q u e n t l y a
letter w a s f o r
warded t o the Federal reserve banks, asking t h e m t o interi each reserve b a n k c i t y a n d i n each
view a l l m e m b e r b a n k s ’ n
reserve b a n k branch city a n d also forty country banks i n
each districy relative t o the ouestions listed i n a gquestionnaire (Exhibit B ) prepared b y the committee.
The reserve banks subnitted replies t o each o f these
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Federal Reserve Bank of St. Louis
107
questions f r o m 3 8 4 city banks a n d 535 country banks.
These
917 b a n k s r e p r e s e n t p r a c t i c a l l y a l l o f t h e b a n k s l o c a t e d
in reserve b a n k a n d branch cities, a n d t h e country banks
interviewed w e r e selected f r o m the users a n d non-users o f
the collection system, chiefly w i t h regard t o their geograpr
ical location a n d not with a n y desire o r intention t o inter-.
view b a n k s w h o s e o p i n i o n s w e r e k n o w n t o b e f o r o r a g a i n s t
summary o f t h e s e r e p l i e s f o r e a c h d i s t r i c t
the. system. A
and for the system a s a while, i s attached hereto.
E x -
HLbLS 6).
\
VALUE O F SERVICE T O MEMBER BANKS
Opinion o f Member Banks Interviewed.
This exhibit shows:
(a) t h a t a great majority o f t h e interviewed member
banks n o w using t h e service believe t h e service o f value
to m e m b e r b a n k s ,
(1) c i t y b a n k s
Yes
No
Country b a n k
yes
No
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Federal Reserve Bank of St. Louis
108
(bo) t h a t a large majority o f t h e interviewed member
banks n o t n o w u s i n g t h e s e r v i c e b e l i e v e
i t i s n o t o f value
to m e m b e r banks.
(1) C i t y banks
Yes
No
(2) C o u n t r y banks
Yes
No
4
2
7 (16%)
5
3 (84%)
(c) t h a t a large majority o f the interviewed member
banks r o w using t h e service a r e i n favwr o f continuing t h e
service.
(i) C i t y banks
Yes
No
No o p i n i o n
(2) Country banks
Yes
No
No o p i n i o n
(d)
t h a t a
majority
o f the interviewed me»ber banks
continuing t h e
not n o w u s i n g t h e s e r v i c e a r e i n f a v o r o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1LO9
service ( i n s p i t e o f t h e v o t e r e p o r t e d u n d e r ( 0 ) above).
ely C h e y -bamite
Yes
No
6
3
5
4
5
No o p i n i o n s
(2) C o u n t r y banks
yes
No
a
6
No o p i n i o n 1 0 0
It i s a p p a r e n t
as a
result
o f this i n v e s t i g a t i o n c o n -
cerning 9 1 7 r e p r e s e n t a t i v e m e m b e r banks, b o t h c i t y a n d
country, t h a t a prepond:rance o f all those banks n o w using
the system m t o n l y consider i t o f value, b u t want i t t o
be continued, w h i l e approximately half o f even those c i t y
and country banks which d o n o t use t h e system, v o t e d i n
favor
o f its continuance.
One other interesting factor might b e mentioned a s a
result o f this investigation.
E v e n i n some o f those citie.
or distriots w h e r e t h e r e a p v e a r s
opposition
t o t h e continuance
t o b e some organized
o f the non-cahh collection
service, t h e poll o f revresentative member banks, recorded
o f the
in the attached exhibit, indicates t h a t a majority
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Federal Reserve Bank of St. Louis
110
banks favor continuance,
F o r instance, w h i l e t h e Phila-
delphia c l e a r i n g h o u s e a s s o c i a t i o n v o t e d o n J a n u a r y 1 4 ,
to r e q u e s t t h e F e d ral- R e s e r v e B o a r d t o d i s c o n t i n u e
the nen-cash sollection service, nevertheless,
delvhia b a n k s i n t e r v i e w e d
Philadelphia,
o f 2 O Phila-
b y t h e Fed6éral R e s e r v e B a n k o f
s o m e o f t h e m members
o f t h e c l e a r i n g house,
all v o t e d t h a t t h e c o l l e c t i o n s e r v i c e w a s o f v a l u e a n d t h a l
they w e r e
bi.
i n favor
o f t h e Federal
reserve banks continuing
e C VeLe Ow
It might b e suggested, therefore, t h a t some o f these
resolutions m a y h a v e been i n s p i r e d f r o m s o m e o n e c o m r o n
source i n t e r e s t e d
i n regaining t h e collection business
of
the c o u n t r y b a n k s a n d t h a t t h e y a r e n o t t r u l y r e p r e s e n t a tive o f t h e g e n e r a l o p i n i o n o f t h e b a n k e r s
i n the district
in w h i c h t h e y a r e l o c a t e d .
“mH
II P R O B A B L E G R O W T H I N T H E V O L U M E O F
COLLECTIONS A N D L I B E L Y COST.
The e x h i b i t d o e s
m t s h o w a n y v e r y s a t i s f a ctory conclu-
sion a s t o t h e p r o b a b l e g r o w t h i n t h e v v o l u m e o f n o m - c a s h
collections s i n c e t h e replies
t o t h i s p o r t i o n o f t h e conmit-
y
Tees
w e r e n o t concrete enough t o permit
inquiry
ets irre
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
definite estimate.
There were t w o m e s t i o n s
t o b e considered.
Fivet,
how m a n y o f t h o s e b a n k s w h i c h a r e n o t n o w u s i n g t h e s e r v i c e
will b e likely t o increase t h a t use.
with r e s p e c t
t o t h e first o f these questions:-
At
the o u t s e t t h i s s e r v i c e w a s n o t g e n e r a l l y a v a i l e d o f b y
member banks.
insrease
T h e r e was, however, b e e n a fairly steady
i n the number
o f member b a n k s u s i n g it,
s o that
at t h e p r e s e n t t i m e a b o u t 7 4 % o f m e m b e r a n d n o n m e m b e r c l e a r
ing t a n k s l o c a t e d
i n Federal
reserve
a n d b r a n c h cities,
and 31% o f all other member a n d rmon-member clearing banks
are actively sending collections through t h e reserve banks.
Of 369 city a n d country banks n o t n o w using t h e service
which w e r e interviewed,
1 1 6 ( t h a t i s 31%) s t a t e d t h a t
they are likely i n the future t o d o so, while 255 (or 62%)
stated t h a t t h e r e i s n o l i k e l i h o o d
the service,
o f their making
T h e r e w a s n o indication, h o w e v e r ,
we
of
a s GO=4Hox
soon t h e 31% reporting i n tle affirmative w o u l d commence
using t h e s y s t e m ,
i f a t all,
n o r was there
a n y intimation
as t o what proportion o f their items t h e y would send i f
they s h c u l d c o m m e n c e u s e o f t h e system.
As t o t h e s e c o n d q u e s t i o n : -
O u t o f 4 4 5 interviewed
me
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Federal Reserve Bank of St. Louis
ue
ber b a n k s w h i c h a r e n o w u s i n g t h e service,
2 5 2 (that is,
57%) s t a t e d t h a t t h e y a r e l i k e l y t o i n c r e a s e t h e v o l u m e o f
items which they a r e sending through t h e reserve banks,
although t h e y d o n o t i n d i c a t e h o w m u c h t h i s i n c r e a s e w i l l
be.
O f t h e s e 4 4 5 banks,
there i s n o l i k e l i h o o d
the service.
1 9 3 ( t h a t i s , 435) s t a t e d t h a t
o f their increasing their u s e o f
I t i s impossible
t o estimate f r o m these r e -
ports j u s t h o w much t h e volume o f non-cash collections will
be i n c r e a s e d e i t h e r
present u s e r s .
b y n e v users
o r b y additional u s e o f
a s w i l l b e shown,
B u t o u r p a s t experience,
dewonstrates t h a t e x p e n s e s
d o n o t increase
i n proportion
to t h s voluine.
It seems t o the committee, therefore, t h a t t h e actual
trend o f expenses
i n t h e past f e w years
i s perhaps a
better
2a:
index f o r t h e n e x t f e w y e a r s t h a n a n y a r b i t r a b y e s t i m a t e s
to t h e p o s s i b l e a m o u n t o f i n c r e a s e b a s e d o n t h e i n f o r m a l
reports
o f these non-using banks t h a t t h e y might a t some
tine i n t h e f u t u r e u s e t h e system.
S u m m a r i z e d below i s
t h a n Governthe nunber o f non-cash collection items, o t h e r
ment coupons, h a n d l e d
b y all Federal reserve banks f o r t h e
dollar aixc™
years 1920 t o 1925, inclusive, together with the
of those items.
T h e total expense f o r t h e system a n d the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
et,
B
per i t e m c o s t a r e i n d i c a t e d o n l y f o r t h e y e a r s 1 9 2 2 a n d
1923.
I t i s impossible t o obtain these figures f o r t h e
years prior t o that time, s i n c e n o comparable functional
xpense a c c o u n t s w e r e k e p t b y a l l f e d e r a l r e s e r v e b a n k s
A m o u n t
Number
E
x
p
Of I t e m s
J o n m r e r d
e
n
s
e
2,136,000 $ 5 , 3 9 8 , 421,000
5,675,000 4 , 2 6 7 , 651,000
L
4,722,000 4 , 7 6 6 , 9 7 2 , 000
5, 747000
5 , 900, 020,000
m
. Cents
o
s on
1 6 . 7 ? Cents
in this t a b l e a r e e x c l u s i v e
o f Government
coupons )
‘while n o c o m a r i s o n
i n the total c o s t o f the syste m
n
can b e m d e f o r the years orior t o 1922, i t i s s i g n i f i c a t
to t h e c o m m i t t e e t h a t t h e t o t a l e x p e n s e
i n 1925 w a s 7 2 %
less than i n 1922, i n spite o f a substantial increase o f
21.7% i n the number o f items handled during t h e same perhocd.
It i s a l s o s i g n i f i c a n t t h a t t h e p e r i t e m cost, w h i c h w a s
about 5
cents less i n 1923, t h a n i n 1922, declined quite
consistently throughout t h e year lves,
I f , therefore, t h e
operations f o r t h e y e a r 1 9 2 4 a r e c o n d u c t e d
at a
rate a s
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Federal Reserve Bank of St. Louis
114
low a s t h e l a s t q u a r t e r
calendar y e a r 1 9 2 4
the year 1923, e
m y
o f 1925 t h e aggregate c o s t f e r
b e as.,low,
t h e
i f n o t lover t h a n for
en i f the present r a t e o f increase i n
VOlUMS -COntbINUES . I t i s -certain t h a t t h e a v e r a g e p e r
item c o s t f o r t h e w h o l e y e a r 1 9 2 4 s h o u l d b e m u c h l e s s t h a n
for t h e y e a r 1925,
as a
whole, p e r h a p s s o m e w h e r e a b o u t
the f i g u r e g i v e n f o r t h e f o u r t h a u a r t e r
o f 1925.
The c o m n i t t e e its o f t h e opinion, t h e r e f o r e ,
that t h e r e i s n o t m m e d i a t e p r o s p e c t
increase
i n o p e r a t i n g expenses,
a further r e d u c t i o n t h i s year,
n o t only
%
o f a n y appreciable
b u t that there m a y
a s l a s t year,
as a
result
of the continued efforts o f the several reserve banks a n d
the P o a r d ' s C o m m i t t e e
o n Economy a n d Efficiency
i n promot-
still g r e a t e r o f f i c i e n c y a n d e c o n o m y i n
IIIT A D V I S A B I L I T Y
O F IMPOSING A
The t h i r d c v e s t i o n w h i c h t h e c o m m i t t e e w a s r e q u e s t e d
to consider w a s t h e advisability o f inuposing a collection
service c h a r g e , e i t h e r f o r a l l i t e m s o r f o r t h o s e p a y a b l e
at s t r e e t adccress<
T
h
e comnittcoe w a s unaniviously o f
the o p i n i o n that, r e g a r d i e s s
peen w i s e a t t h e o u t s e t
o f whether
t o mintain a
o r n o t i t w o u l d hav.
charge f o n
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
LDS
=
tion o f non-cash items, nevertheless, h a v i n g f o r some years
rencered
o f charge,
t h e service free
a n d having given
£2
member banks t h e opportunity t o expect i t free c h a r g e a s
4
an incident t o mevbership,
i t would b e impracticable a n d
unwise a t t h i s t i m e t o i m p o s e a n y c h a r g e f o r c o l l e c t i n g
any o n s o r a l l o f t h e
tions.
s é 2 1 classes
T h e a t t a c h e d exhibit r e l a t i v e
o f n o n - c a s h collecet o m e m b e r d a n k ovin-
jon indicates t h a t o f 435 banks n o w using t h e system only
a
132 (that i s 27%) expressed thenselves a s faworabdle t o
service charge i f i t should b e ceciced t o discontinue t h e
Free collection o f non-cash items, 3 2 2 (or 67%) were opn o oplh
posed t o a service charge, a n d o l ( o r 64) expressed
ion.
T h e comrittee, however, g a v e special consideration
to the question o f a cHarge o n items payable a t strest
addresses since i t realized t h a t t h e cost o f eorieciing
is much above t h e general average f o r t h e service a s a
whole.
A
s a
matter
o f policy,
t h e comnittes
imposing a
believes there i s n o more justification f o r
o f items t h a n f o r
charge f o r t h e c o l l e c t i o n o f t h i s c l a s s
any o t h e r class.
C l e a r l y i t w o u l d b e j u s t a s objection-
collection agenc:
able t o the country banks t o reestabilish
for o n e g r o u p o f i t e m s
On:
a s f o r all, a n d t h e i m p o s i t i o n
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Federal Reserve Bank of St. Louis
116
a charge f o r o n e g r o u p w o u l d h a v e t h i s tendency.
Further-
more, t h e difference i n cost t o the reserve tanks i s n o t
sufficient t o justify establishing a
or i m p o s i n g w h a t w o u l d i n e f f e c t b e a
different procedure
discriminatory t a x
against o n l y o n e class o f items tending t o force a l l items
I n a s m u c h a s t h e l a w contemplates
to b a n k s f o r payment.
the c o l l e c t i o n o f m a t u r i n g n o t e s a n d b i l l s w i t h o u t a n y
restriction a s t o t h e p l a c e o f p a y m e n t a n d i n a s m u c h a s
many f i r m s a n d i n d i v i d u a l s p r e f e r t h e m s e l v e s
t o s e e bills
drawn o n t h e m b e f o r e t h e y a r e paid, m i g h t t h e y n o t properly
object
to a
charge o f t a x o n t h e i r o b l i g a t i o n s w e r e l y o n
the g r o u n d t h a t t h e y a r e n o t m a d e p a y a b l e
at &
bank?
event t h e c o m m i t t e e c a r n e s t l y b e l i e v e s a l l c l a s s e s
must b e t r e a t e d alike,
I n ar
o f items
a n d that t h e reserve banks should
collect a l l items a n d collect t h e m o n the same basis,
RECOMMENDATIONS
1. T h a t t h e non-cash collection service b e continued
not only f o r items payable a t bans, b u t f o r items payable
at s t r e e t a d d r e s s e s
a s well:
REASONS:
(a) T h e great majority o f memberbanks, b o t h city b a n
and country banks, n o w using t h e service believe
it o f v a l u e
a n d cesire
i t s continuation,
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Federal Reserve Bank of St. Louis
117
The s e r v i c e i s e x p r e s s l y a u t h o r i z e d
i n t h e law,
and, though optional, m o s t o f t h e powers o f the
roserve b a n k s a r e optional.
be a b a n d o n e d a r b i t r a r i l y
N o n e a f them should
o r merely because o f
‘selfish objections raised b y certain linited
groups.
‘thile t h e volume i s increasing, t h e ver item cost
is steadily decreasing a n d i n 1925 e v e n the aggre-
gate cost decreased 72% from 1922, i n spite o f a
21.7% increase i n volume during the same period.
The non-cash collection service, l i k e t h e check
collection service,
i s a great economic saving
to the country a s a w
hole.
the reserve banks i s greatly less t h a n the cost
would b e t o many individual collecting units,
30,akso0, t h e records indicate t h a t o f the vast
amount o f country items handled b y the reserve
banks, approximately 84.8% a r e n o w collected without t h e payment o f a n exchange charge.
represents a
T h i s alone
large saving t o the business o f the
country.
aa
ties
any c l a s s
That n o s e r v i c e c h a r g e h e m a d e f o r c o l l e c t i n g
of n o n - c a s h i t e m s .
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Federal Reserve Bank of St. Louis
Costs h a v e decreased,
n o t increased,
i n the p a s t
year a n d f u r t h e r s a v i n g s a r e e x p e c t e d n e x t year.
The great majority o f member banks interviewed
opposed a
service charge.
The resentment against s u c h a charge would probably b e s o great, b o t h o n t h e p a r t o f t h e b a n k s
and t h e public, t h a t i t should n o t b e considered
unless o r until i t i s absolutely necessary t o
preserve a
free c r e c i t o r i n v e s t m e n t p o l i c y o n
the p a r t o f t h e r e s e r v e b a n k s .
T h a t time has not
yet a r r i v e d a n d t h e c o m m i t t e e s e e s
prospect
n o immediate
o f it.
There i s n o more reason i n theory o r policy t o
establish a service charge f o r items payable a t
street addresses t h e n items payable a t banks.
In either c a s e member banks would object.
I f a
charge i s m a d e f o r o n l y o n e c l a s s o f items,
charge woul dbé subiect t o fair
it discriminates against individuals w h o prefer
to m a k e p a y m e n t s
at a
bank,
a t their o w n office instead o f
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Federal Reserve Bank of St. Louis
sie
ILI. T h a t s a c h reserve b a n k a n d branch endeavor s o
far a s p o s s i b l e
t o effcct i t s local collections
i n that
manner m o s t c o n s i s t e n t w i t h e s t a b l i s h e d b u s i n e s s a n d
banking practices,
sary c a u s e s
with a
v i e w t o e l i m i n a t i n g a n y unneces-
o f possible f r i c t i o n o r discontent
o n the part
of those b u s i n e s s h o u s e s w i t h w h o m t h e r e s e r v e wmanks n e c e s sarily c o m e i n contact
i n m a k i n g p r e s e n t a t i o n o f items
for payment.
Nes
T h a t e a c h reserve b a n k a n d teanch continue
as in
the past vigorously t o promote further economies a n d efficiency i n t h e o p e r a t i o n o f i t s c o l l e c t i o n service, g i v i n g
due consideration t o t h e encouragement o f more direct sendings
b y member b a n k s a s v e l l a s t o o t h e r p r a c t i c e s d e s i g n e d
to e l i m i n a t e e x t r a
In c o n c l u s i o n ,
o r costly handlings.
t h e committee
believes
t h a t t h e present
non-cash collection system i s operated with a high degree
of efficiency a n d a t a cost considerably b e l o w t h e cost pos
sible f o r individual member banks, t h a t i t i s generally
appreciated a n d desirea b y member banks a n d the public,
that i t i g economically s o u n d a n d that i t should b e continu
put t h a t t h e r e s e r v e b a n k s m i s t a l w a y s
b e alive t o t h e
importance o f making further economies o r improvenents
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Federal Reserve Bank of St. Louis
120
the s e r v i c e w h e n e v e r t h e y a r e p o s s i b l e
member b a n k s a n d t h e p u b l i c
i n the interest
of
a s well.
Respectfully submitted,
COMMITTEE
ASSUMED
O N VOLUNTARY SERVIC#S
B Y F E D E R R E S E R V S BANAS.
E.R.
Fancher -
Chairman
Benj. Strong
J. Be. McDougal
Be. A . Mekimney.
G
o rnor
« Calkins:
the House, I
I
n order t o get t h e matter before
b e adopted a n d t h a t t h e
move t h a t t h i s r e p o r t
recommendations c o n t a i n e d
recomendations
i n t h e report
t e adopted a s t h e
o f this conference,
Governor Norris: I
second t h e motion.
Governor Failey: I
move a s a
substitute t h a t i t i s
the s e n s e o f t h e C o n f e r e n c e t h a t t h e n o n - c a s h c o l l e c t i o n s
be d i s c o n t i n u e d
y B
b y t h e F e d e v u l H e s e r v e System.
Governor Seay:
Altogether,
Governor Bailey: I
can modify it.
o r o n individuals?
will p u t i t i n t h a t w a y a n d y o u
I t i s a n intolerable nuisance w i t h us.
Governor Wellbtorn: I
Governor Young: I
will s e c o n d t h a t motion.
have b e e n against t h e non-cash c o l
lections f o r some time. A p p a r e n t l y there a r e three w h o
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Federal Reserve Bank of St. Louis
Le
are against continuing t h e function a n d t h e other nine a r e
OR 2 G .
I
t l o o k s a s i f w e w e r e g o i n g a h e a d with t h e n o n -
cash collections,
a n d o f course Minneapolis w i l l d o t h e
same a s t h e other banks. I
think, however, rather t h a n
to v o t e y e s o n t h e c o m m i t t e e ' s r e p o r t , I
would l i k e t o s a y
that 1 would like a little modification o f the revort.
A s
I understand t h e non-cash collection proposition now, f r o m
the circulars, a n d a s I understand t h e action that has b e e n
taken b y this conference o 1 Governors,
handle a n y t h i n g .
while a g ,
i t i s that w e will
N o w , while this only started a
i t i s going t o grow.
short
T h e r e isn't a n y ouestion
about that a t all. T h e r e was a bank down in. Illinois,
run b y a
bank
pretty c l e v e r c h a p , t h a t h a d 3358 n o t e s
i n Montana.
H
e sent those
t o the Federal
on a
failed
Reserve
Bank o f Chicago a n d Chicago s e n t them t o our branch, a n d
we wrestled w i t h the items f o r three months, d i d n o t collect anything,
m d s e n t t h e m back t o Chicago. I
think w e
have g o t t o b e a r i n m i n d t n a t t h e N e w Y o r k Bank, C h i c a z o ,
Wilwaukee, S t . Paul a n d Minneapolis banks, a n d the banks
in centers t h a t l o a n a great deal o f money i n the country
on so-called collateral notes secured b y customers' notes,
that o n naturing bills, t h a t just a s soon a s these N e w Yor’
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Federal Reserve Bank of St. Louis
ize
banks, Chicago banks, Minneapolis banks a n d other banks
become a s keen a s this o n e banker i n Illinois, t h e y a r e
just g o i n g t o l o a d t h e F e d e r a l r e s e r v e s y s t e m w i t h t h e s e
notes f o r collection, a n d s o far a s the reserve Bank o f
“inneapolis
i s concerned,
w e - a r e n o t g o i n g t o h a n d l e them,
and w e h a v e s o n o t i f i e d t h e o t h e r b a n k s .
Y o u have g o t t o
o n this.
put s o m e r e s t r i c t i o n
Governor Bailey:
T h e r e ought t o b e some restriction
as t o the arount, s a y ©100, o r something o
stead o f having t h e m send u s all these little dunning
lls.
“ h y
Governor Y o u n g :
e try t o collect notes
s h o u l d w
for t h e Hanover National P a n k that t h e y cannot collect t h e m
selves?
Sovernor Bailey: ‘ T h a t is exactly what + would like
to know?
Governor
n
Goverror B a i
country h a s a
¢hise service,
o r for a n y other bank?
g
v
e
r
y commercial b a n k o u t i n our
commercial agency, a n d they a r e charging f o r
and
w e will b e taking i t away from them,
items o u t
we a r e d o i n g a n i c e b u n c h o f b u s i n e s s c o l l e c t i n g
there f o r nothing.
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Federal Reserve Bank of St. Louis
123
Governor Seay:
B u t doesn't your-bank enforte t h e
charge f o r r e t u r n e d u n p a i d i t e m s ?
No, w e have n o t b e e n trying t o
Governor Fancher:
W i t h regard t o these little d u n s
that y o u speak of, i f you imposed t h e charge o f 1 5 cents
they w o u l d s o o n disapbear.
L o t s o f these o n e dollar
Governor. m i l e y :
a n d a half
bills a n d n o t e s a r e p a i d a n d w e h a v e t o s e n d o u r m a n c l e a r
over into Armourdale, t e n miles,
t o a little j u n k shop, t o
eollect,
D
Gvernor F a n c h e r :
o t h o s e i t e m s c o m e v e r y general-
ly from your banits, o r are they little items originating
with some concern selling o n the installment plan,
or
something o f t h a t s o r t ?
T h e y a c e located largely o u t o f
Governor Failey:
the Tenth District, I
will s a y that.
Governor Seay: U n l e s s m y memory i s a t fault this
conference h a s previously determined t h a t charges f o r return o f u n p a i d i t e m s s h o u l d
b e strictly enforced
b y the
Ped-ral reserve banks.
Gvernor. Young:
T h e y h a v e been,
b i t y o u cannot c
hai
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Federal Reserve Bank of St. Louis
another F e d e r a l r e s e r v e tank.
The Chairman:
I t looks t a m e a s though w e were headed
into a i o t h e r s t o r m a n d I
a m going t o a s k t h e conference
to d e f e r f u r t h e r d i s c u s s i o n
hear f r o m Hir. Winston.
o f this i n o r d e r t h a t w e m a y
T h e Treasury h a s several topics
on the program; Mir. Winston i s here t o discuss t h e m with
us, a n d i f t h e r e i s n o o b j e c t i o n t h a t c o u r s e W i l l b e pursued.
(Under-Secretary Gerrard B . “inston entered t h e
ference room.)
The Chairman:
ir, V i n s bons T
M r , Vinston,
w e are glad t o see
want t o s u b m i t a
memorandum o n
Agency expenses, w h i c h w e c a n then discuss.
The Chairman:
T h a t will b e Topic V
(b) o n the
gram.
(bo) F i s c a l Agency Expenyves.
(The m e m o r a n d u m s u b m i t t e d
V r . N e s t o n 238
April 2 4 , 1 9 2 4 .
Fiscal a g e n c y expenses.
The relationship between t h e Treasury a n d the Federal
o
Reserve R a n k s
i s two-fold -
t h e B a n k s a c t a s fiscal a g e n t s
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Federal Reserve Bank of St. Louis
5
of t h e T r e a s u r y a n d a s d e p o s i t a r i e s .
A
s fiscal a
gents
the Banks armounce issues, receive subscriptions, m a k e allotments, vreccive payments,
m a k e deliveries,
auently conduct exchange transactions
Gelivered.
a n d subse~
i n the securities
A s d e v o s i t a r i e s t h e y p a y a n y m a t u r i n g CGovwerhb-
ment obligations, i n c l u d i n g c o u p o n s , i n t e r e s t c h e c k s , d i s -
bursing officers! checks, a n d Treasury warrants.
‘ S o far
as the Banks! duties a s depositarics a r e concerned, t h e s e
Guties
bank
d o m t differ f r o m those o f a n y ordinary commercial
to a
favored customer,
a n d payment therefor
i s assumed
to t e made o u t o f the use o f the funds o f the Treasury
kept o n deposit i n the Federal Xeserve Banks.
[Tt i s essential t h a t a reconsideration o f the fiscal
agency e x p e n s e s
t o b e reimbursed
b y the Treasury b e h a d
before t h e commencement o f the next fiscal year o n July l ,
o
f the fiscal y e a r
In t h e T r e a s u r y a p p r o p r i a t i o n s r
there a r e a v a i l a b l e o n l y a v e r o p r i a t i o n s
t o cover ¢ x -
in 1 9 2 5 4 n d i n t h e p r i o r year.
There
snecific a p o r o p r i a t i o n f o r B i s c a l a g e n c y e x p e n s e s .
It i s felt, however, t h a t the Treasury would b e justiried
up to { 2 0
in using t h e .zoenses o f Loans aoppropriation
in payment
o f fiscal a g e n c y expenses a r i s i n g f r o m issues
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Federal Reserve Bank of St. Louis
126
Of °192@4-and 1925,
tailment
T h i s means, t h : a
radical cur-
i n reimbursable expenses h e r e t o f o r e m d e ;
It i s proposed:
1. T h e sales organizations o f t h e Treasury savings
certificates shall b e abandoned effective J u l y 1.5 e m
2. O n January 1, 1923, $622,000,000 o f ‘Jar Savings
certificates matured.
matured,
O n January 1 , 1924, 360,000,000
I t i s estimated that o n January 1 , 1925, t h e r e w i l
be only 2 5 , 0 0 0 , 9 0 0 maturing.
A f t e r 1°25 t h e Treasury
savings certificates mature throughout t h e year. U n d e r
these circumstances
expenses
i t i s felt that special allowance f o r
i n t h e redemption o f V a r Savings certificates
Treasury s a v i n g s c e r t i f i c a t e s
are m
it w i l l b e e x p e c t e d t h a t p a y m e n t
longer proper
or
and
o f v a r Savings certificates
will b e handled i n the same w a y a s a n y other Government
security maturing.
Sick T h e T p e a s u r y ' s f i s c a l p r o g r a m h a s b e c o v e f a i r l y
well s e t t l e d a n d n o w m e a n s
terly.
a n issuance
o f securities q u a r -
T h e banks should reduce their fiscal ageney organ-
izations
t o t h e extent necessary t o handle t h e s e quarterly
issues a n d c u r r e n t e x c h a n g e s
i n s u c h issués.
4. T h e f i s c a l a g e n c y e x p e n s e s
o f some o f t h e Banks
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Federal Reserve Bank of St. Louis
ert
are entirely o u t o f proportion t o the expenses o f the ohher
banks o f t h e system, 4
comoarative s t a t e m e n t
o f t h e esti-
mated reimbursable expenses f o r t h e current fiscal y s a r
o t h e various Banks, w i t h t h e percentage these expenses
represent t o t h e total expenses a n d t h e per centage o f new
issued handled b y the Banks during the past 1 5 months, 1 s
as f o l l o w s :
Reimbursable E x p e n s e s .
New I s s u e s
Federal R e serve B a n k
Boston
New Y o r k
Redemption
Sales
W. 8S, Gtfs. Organization
5 16,779.80 $
14,747.00
16,920.99
65,873.42
10, 214,79
5,532.81
53,758.60
24,100.00
21,323.18
23,008.62
9,750.00
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
Sit« B O U T S
Minneapolis
Kansas C i t y
Dallas
9,334.93
51,374.15
11,369.96
52,637.64
8,309.56
5,896.87
44,291.32
20,620.00
4,850.00
3,651.61
4,600.00
San Francism 16,250.77
12,126.47
30,000.00
20,000.00
32,498.24
14,996.06
12, 559.89
19,516.00
14,255.00
2,630.00
17,769.02
13,150.00
12,614.52
Total
#$38,241.20
96,191.15
48,290.95
151,009.30
33,520.39
23,989.57
117,565.92
58,275.00
35,813.18
44,429.25
27, 500.00
41,750.06
Total $ 2 7 8 , 2 4 9 . 9 6 $229,841.01 $209,115.00 $717,205.97
Reimbursable U x p e n s e s C o m o a r e d
Federal R e -
Total A m o u n t
New I s s u e s
serve B a n k .
Boston
$ 402,870,200
1,933, 255,400
New Y o r k
364, 844.500
Philadelphia
B95, 176,160
Celveland
154, 444,000
Richmod
n
139,826.600
ACen
587,193,800
Chicago
. Louis
Minneapolis
Kansas C i t y
Dallas
San F r a n c i s c o
Treasury
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Federal Reserve Bank of St. Louis
Ubomeretd)
t
208,852,100
120,178,000
130, 968, '700
120,331, 0
8
296,810, 0
8
105,133,000
Percentage
of N e w I s sues f o r
Bach Bank.
8.135
359.00
7.06
7495
ve
rl Be
Sante
11.84
4.19
2.42
2.64
2.44
Dave
fale
44957,885,000 100.00
t o M e w Issues.
Percentage o f Percentage
Reimbursable o f t o t a l
Expenses N e w r e i m b u r s a b l e
Issues f o r e x p e n s e s
Bach Bank.
e a c h Rank,
6.035
3250
6.08
20.67
53.67
1.99
19.09
S 8.66
Bee
Bayt
5.51
5.83
—
o e
100.00
9.535
13.40
6.73
21.06
4.67
3.55
16.39
8.22
4.99
6.20
5.84
5.82
oe
100.90
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Federal Reserve Bank of St. Louis
129
ir, Winston:
T h i s auestion i s ivi inent because w e
actually have n o more appropriations w i t h which t o pay t h e
banks f o r fiscal agency operations,
W e have o n e appropria-
tion, Eupenses o f Loans, w h i c h i s consigned b y s t a t u t e t
o
loans o f the curvent year a m t o loans o f the year prier
to that,
m d t h a t i s all.
W e have b e e n warned b y the Ap-
propriations C o m i t t e e t h a t w e h a v e g o t t o r e s t r i c t t h a t
expense o f loans a s f a r a s possible, a n d i f w e g o too far
in using expenses o f loans t o pay fiscal agency expenses
I a m afraid w e w i l l h a v e a
limit p l a c e d
o n t h a t appropria-~
tion which will seriously interfere w i t h t h e later fiscal
operations o f the Treasury.
A large vart o f this expense,
the l a s t page,
i s f o r redemption
o f ‘iar savings c e r t i f i c a t e s
and war savings sales organization.
about tvo-thirds;
a s y o u will notice o n
T h e y account f o r
n e w issues accounts f o r about one-third.
In r e g a r d t o n e w issues, s o m e o f t h e banks a p v a r e n t l y b u r d e r
us pretty heavily w i t h expense, a n d others d o not.
T h e
most strikin: c-ample, o f courses, i s Cleveland. C l e v e l a n d
has about eight p e r cent o f the n e w issues a n d 2 5 per cent
of the n e w issue expense, «hereas N e w York,
i n the reverse,
has 3 9 per cent o f the new issues a n d 5-1/3 per cent of
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Federal Reserve Bank of St. Louis
130
the n e w i s s u e expense.
J u s t what these items consist
in, t h a t i s , w h a t C l e v e l a n d p a y s
and what N e w York does rot, I
Governor Fancher: I
takes
i n tke e x p e n s e
o f N e w issu<«
do n o t know.
think t h a t h a s b e e n re-set.
This
u p t o ~hat date?
Me, t i n s tons
M a r c h 15th.
Governor F a n c h e r s
I
t i s amual---
T o . t h e €lose o f t h e year?
Yes.
Governor “ancher:
T h a t h a s b e e n greatly re-set a n d
cut w a y down.
put t h a t i n s i n p l y f o r t h e p u r p o s e
tir. “Winston: I
d o n o t agree. I
of s h o w i n g t h a t t h e p r o p o r t i o n s
know h o w f a r y o u c a n s u t t h i s n e w i s s u e expense,
mt think that w e are justified,
t o g o further t h a n
T h a t would m e a n a cut
from last year o f $278,000 o r $78,000
Governor Welborn: I
but
i n view o f our representa-
tion t o t h e A p p r o p r i a t i o n s C o m m i t t e e ,
$200,000 i n n e w issue expense.
do not
S S .
notice t h e d a t e o f t h e n e w i s s u e
goes d o w n t o M a r c h des say
Wir. Winstons
T h a t d a t e i s only used t o get t h e pro-
portion o f t h e n e w issues.
Governor lorris:
T h a t o u g h t t o b e easy.
p 4 5 , 000
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Federal Reserve Bank of St. Louis
1351
will come off Cleveland and that will only leave $33,000
to c o m e o f f t h e r e s t o f us.
w e have v e r y little discretion i n this
Mr. Winstons
matter because,
o f course,
w e a r e subject
what appropriations w e get. I
t o Congress
see Chicago runs a
as to
fairly
high proportion.
Governor Galkins:
e y o u propose
D
t o abolish t h e
Treasury savings organization altogether?
Mr, W i n s o n s
Y e s .
W
e have t o d o that W c a u s é
we
no a o p r o p r i a t i o n f o r i t .
Governor Seay:
Y o u mean n o t sell them?
Mr. Winston: <continue selling them,
m t without a n y
organization a t t h e v a r i o u s F e d e r a l r e s e r v e banks.
Goverror Seay:
S e l l t h e m f r o m t h e Treasury Depart~
ment?
tir, Winstons T h r o u g h t h e Post Offices. I
do m t
know j u s t h o w y o u r B o a r d w i l l w a n t t o t a k e t h a t u p , b u t tha:
take now.
is t h e p o s i t i o n t h a t t h e T r e a s u r y r e a l l y h a s t o
the
We w o u l d l i k e t o h a v e y o u t e l l u s i f y o u can, a f t e r
first o f July, c u t your expenses accordingly?
Governor Fancher:
H a v e y o u a s k e d f o r a n estimate ent,
expense f o r the coming fiscal year?
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Federal Reserve Bank of St. Louis
132
Mr, Winstons I
have n o t asked f o r i t yet, m t l I
would l i k e t o g e t i t .
Governor Fancher:
soon, I
Y o u will b e asking f o r i t pretty
suppose?
Mr. Winstons
Y e a ,
D
Deputy G o v e r n o r C a s c :
o I
understand t h a t t h e
banks will not b e asked t o sell Treasury savings certificates a f t e r July,
ir, W i n s t e n s
s o that t h e y c a n adjust t h e i r expenses?
Y o u have a n organization n o w under t h e
Director o f Savings.
Y e s .
Deputy G o v e r n o r Casco:
Mr, Winstons:
lot o f p e o p l e w o r k i n g u n d e r h i m
A n d a
pushing t h e salo o f these cortificates.
T h a t organization
will b e abandoned.
Deputy Governor (Case:
A n d these certificates will
still b e o n sale?
The Chairman:
Mr. W i n s t o n ?
e s suppose t h e y will, y e s .
a t t h e P o s t office.
Y e s ,
Deputy G o v e r n o r ©
as¢:
B u t notat t h e Federal Reserve
Banks?
Mr. Winston:
reT h e y c a n b e o n s a l e a t t h e Federal
I
serve b a n k s w i t h o u t a n y organization.
d o n o t suppose
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Federal Reserve Bank of St. Louis
133
you have many direct calls for them. I
never heard o f
that.
The Chairman:
w h e r e will they b e on sale, Mr. Win-
Mr. “finstons
A t the Post Offices.
ston?
There a r e o n e o r t w o o t h e r t h i n g s t h a t I
Wolter er o s
would l i k e
O n e o f them, a b o u t w h i c h tir. C a s e h a s t a l k e d
to me, i s with regard t o the fixing o f proper interest
charge o n overdrafts.
A f t e r consideration w e decided t h a t
we could p a y t h e banks w h a t i t was worth t o us, which w e
considered
t o b e about o n e p e r c e n t less t h a n t h e issue
rate o f the certificates t h a t w e issue, a s o f t h e date o f
the over-draft,
w
e will p a y o n e per cent less t h a n t h e
interest rate o n the short t i m e certiciates w e are issuing
with a winisrum o f two p e r cent a n d a maximum o f five p e r
cent.
The C h a i r m a n :
submitted
i r e Winston,
i s n o t susceovtible
t h i s memorardum
y o u have
o f morc t h a n o n e interoretatio
conYou w a n t t h e F e d e r a l r e s e r v e b a n k s t o s i v e c a r e f u l
sideration t o r e a d i u s t m e n t
o f t h e i r f i s c a l a g e n c y accounts,
eliminating
and y o u are going t o prodeed i n the matter o f
savings
some expense through t h e atolishnent o f the war
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Federal Reserve Bank of St. Louis
organization.
I
our c o o p e r a t i o n
s t h e r e a r y t h i n g f u r t h e r y o u want,
i n that matver?
iy. “-instons
T h a t i s what - e want, i r . Chairman.
In lookinz o v e r what w e were paying f o r instrance o n securities a n d money i t sesmed t o m e i t was excessive,
what t h e l o s s e s “ e r e .
“
the q u e s t i o n o f g e t t i n g a
just m a d e a
against 6
contract
6 have t a k e n u p i n t h e T r e a s u r y
new insurance p o l i c y a n d w e have
a t 4-7/5 cents flat p e r thousand
cents, a n d that means a
yvyoar.
Of -about.-60,000 a
i n viewof
a s
saving t o the Tr-asury
Y o u a l s o h a v e v o u r o w n contracts
for insuranco, a n d whether y o u vant t o reconsider those
and g e t l o w e r r a t e s o r not, 1
d o n o t know.
T h e aetna
Insurance Cowpany h a s taken t h e contract, » i t h -arsh a n d
Glennan agents.
Governor
2eay:
MPA W I S GOT:
Insurance
o n currency shipments?
G u r r e n c y s h i p m e n t s a n d securities:
that
is, i n s u r a n c e t h a t i s . .not ca:sried b y t h e T r e a s u r y
insurance.
“ i t h r e g a r d t o t h e V r e a s u r y s e l f insurance,
we f i n d t h a t t h e T r e a s u r y s e l f i n s u r a n c e a v p l i e d o n l y t o
the P o s t O f f i c e a n d n o t t o t h e b a n k s i
t h e Feceral
e serve banks shipped f o r Treasury account t o a commercial
bank.
- h e n t h e post office g o t control t h e insurance s
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Federal Reserve Bank of St. Louis
135
ped,
n o insurance
a n d there was
b e t w e e n t h e P o s t O f f i ce
and t h e bank, although there was a
chance o f robbery.
I t
did n o t s e e m f a i r t h a t t h e T r e a s u r y s h o u l d n o t a s s u m e t h a t
liability, a n d for that reason w e extended t h e Treasury
self i n s u r a n c e c a r r y i n g t h e p a r c e l f r o m tHe-post- o f c ice: to
the tuilding i n which t h e commercial b a n k i s located.
T h e terms o f o u r policies I
The Chairman:
think a r e
in accord with that.
Mr. ‘yinston:
T h a t i s your commercial policies.
referring t o the Treasury self insurance.
‘ T h e comuercial
bank could m t s a y whether t h e policy covered t o their
building
the
t o t h e p o s t o f f i c e o n l y , a n d conseauenc
o r covered
was they could n o t take o u t t h e insurance.
think that i s a very a00d move a n d
Governor Seay: I
ought t o help t h e banks v e r y much.
I
The Chairman:
s t h e r e a n y f u r t h e r a t e c u s s k o n o f thr:
memorandum submitted b y «ir. ‘winston?
Governor C a l k i n s : T
woud.
like
t o -as* w h e t h e r
the
banks have been, o r will ve, notified t h a t t h e Treasury
Savings
organization
ir. Yinstons
brought
will
t w discontinued?
T h e y have n o t yet b e e n netbit.6dy=
i t u p here f o r t h e first time.
i . e
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Federal Reserve Bank of St. Louis
136
Governor Calkins:
W i l l t h e banks b e notified with
régard t o t h e e x t e n s i o n o f t h e s e l f i n s u r a n c e ?
Me, Winston:
T h e y have: b e e n -mtpitied.
O
n the aues-
tion o f our insurance policy, a s a matter o f information
thought i t might b e interesting t o you, a s i t would m e a n
large saving o f money.
The Chairman: I
would s u g g e s t t h a t f o r m a l n o t i c e
be s e n t a s e a r l y a s possible,
i n order t h a t w e m a y d o fuli
justice t o those w h o a r e employed i n the devartments o f the
panks,
Mr, Winstons
Yes, 1
The Chairman:
L
will d o that.
T think w e c a n p r o m i s e y o u ,
of t h e C o n f e r e n c e h e r e , o u r f u l l c o o p e r a t i o n
o n behalf
i n t h e matter
that y o u are seeking t o bring about, a n d unless there i s
sumething further t o b e said o n this subject w e will g o
to t h e n e x t s u b i e e t .
Governor Seay:
this:
T h e Director
f - would Like. .to-ask ur.
o f Savings
i s r e g a r d e d a s a n employee
of t h e T r e a s u r y D e p a r t m e n t a n d I
presume
h e will n o t i f y
him direct?
vir. Winstons
Y e s ; w e will notify him.
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Federal Reserve Bank of St. Louis
oT.
brought this u p before i n order t o determine some o f these
things. I
thought I
I did anything.
would wait until this mecting before
T h e director o f savings i s employed b y
the G o v e r n o r a n d r e p o r t s
Governor Seay:
t o t h e G o v e r n o r o f t h e Bank.
H e reports t o the Governor o f the
Bank, b u t h e i s a n employe o f the Treasury.
Mr. Winston:
A s a general thing h e has t e e n t h e nom-
inee o f the Governor o f the Bank.
M y impression was that t h e Director
Governor Seay:
General here employed him.
Mr, vitnstons
A s h e was s o close t o t h e Governor
of the Bank, I wanted t o take i t up with you before I
took i t u p with him,
him t e fore I
I f you prefer t o take i t u p with
do---
Governor Seay: I
would prefer i t the other way.
wr, ‘Vinstons T h e n I will d o i t the other way.
The chairman:
T h e next topic i s III-(c).
(c) P a y m e n t o f Gold Certificates.
Discussion o f a d v i s b i l i t y o f
having a l l reserve banks m a k e
payments o f gold certificates
the usual course o f business,
Mr. Winstons:
F o r a
year a n d a half w e have t e e n
endeavoring i n the Treasury t o have t h e Federal Reserve
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Federal Reserve Bank of St. Louis
1358
banks pay out gold freely i n the payment o f gold certificates,
fu
N e w Y o r k h a s t a k e n i t u p a n d has b e e n v e r y success-
a t s I
think y o u r f i g u r e s s h o w t h a t i n t h e y e p r a n d
a half you have paid out over 500,090,000 i n excess o f
receipts.
Mr. Harrison:
A b o u t $550,000,000.
Mr. Winston: C h i c a g o t o o k i t u p a little b i t later
and has b e e n paying o u t over 3100,000,000
i n excess o f
receipts.
The Chairman:
Mir. Winston:
The Chairman:
kr. W i n s t e n s
W e have paid o u t atmut §200,009,000.
B u t n o t i n excess
o f receipts.
W e started i t less t h a n a year ago.
Y o u r f i g u r e s g i v e n m e o n April l l t h
showed $108,000,000 disbursements
i n excess o f receipts.
Our idea i s t o have several o f the other banks, varticularly Boston, Philadelphia, Cleveland, a n d S a n Francisco, a l s o
adopt t h e p o l i c y o f p a y i n g o u t g o l d m o r e f r e c l y u n t i l w e
get m o r e g o l d i n circulation.
T h e cther Federal reserve
banks h a v e b e e n t a k i n g t h e s e g o l d c e r t i f i c a t e s w h i c h G a m e
them.
from C h i c a g o a n d N e w Y o r k a n d h a v e b e e n f r e e z i n g o n t o
I have r e c e n t f i g u r e s a n d i t s h o w s t h a t t h e i r r e c e i v t s
of
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Federal Reserve Bank of St. Louis
139
gold c e r t i f i c a t e s a r e m u c h i n excess
o f their disburse
we would like t o have t h e other banks a t least p a y o u t
much a s they take in, s o that t h e work w e are doing i n
Chicago a n d N e w York will n o t b e nullified b y the other
banks.
( C a n you recall t h e different
Governor Yellborn:
banks ?
ipo Winstons
Y o u mean a s t o what?
Governor “Vell born:
T a k i n g i n more g o l d than they are
paying out.
s
wir. Winstons:
o
]t a
&»
report f o 2r t h e m o n t h o f
farch, w h i c h i s n o t a year a n d a half, a n d Poston h a d net
not —
|
receipts o f $388,000;
N e w York had/payments o f 351,000,900:
Philacelphia net receipts o f $791,000, Cleveland,
g224,000; R i c h m o n d , 915,000, Atlanta, 379,000; vhicago
had payments o f 330,000,000;
s t . Louis had 900,000 i n
Minneapolis $181,000; Kansas City, 290,000;
a total o f 35,750,000 t h a t came i n a s
part nullified
net r e c e i p t s d u r i n g t h a t month, w h i c h i n
the p a y m e n t s
o f N e w Y o r k a n d C h i cago.
Governor C a l k i n s :
H a v e y o u S a n Francisco?
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Federal Reserve Bank of St. Louis
My, Winstons N o y . 1 t 2 6 m t o n the 11st.
Governor Fancher: I
have t h e f i g u r e s f o r t h e C l e v e -
Pank f o r t h e f i r s t q u a r t e r o f t h e y e a r 1923.
Mr. Winston:
w h a t d o t h e y show?
Governor Fancher:
T h e y s h o w g o l d c o i n received
$1,071,000, payments $1,513,000.
G o l d coin received t h e
first cuerter o f 1924, $445,000, a n d a payment o f $45,000.
Cold certificates received 1923, $22,273,000. Payments
and redemptions 1923, $961,000.
F o r the first cuarter o f
1924, receipts $6,368,000; payments a n d recemmtions
67,017,000,
s h o w i n g that o u r payments
a n d redemptior
have
exceeded o u r receipts.
think s o m e o f t h e Federal r e s e r v e
itr, Winston: I
banks a r e doing better, I
Governor Fancher:
think Philadelphia i s teo.
" j e have n o t b e e n accumulating
certificates.
we. Winston:
I s there a n y reason w h y y o u should n o t
adopt t h e s a m e p o l i c y a s N e w Y o r k a n d cthicago w i t h r e g a r d
to p a y i n g o u t ?
Governor Fancher: I
little m o r e out.
We k e e p i t going.
think w e orobably c o u l d p a y a
e h a v e p a i d a l l t h a t w e h a v e received.
W
w
e haven't accumulated a n y g o l d i n
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Federal Reserve Bank of St. Louis
the l a s t f i f t e e n
o r sixteen months.
Governor Seay:
I t might b e well t o s a y t o Mr. Win-
ston that there i s not uniformity o f opinion about t h e
policy erncerned i n the various banks.
suppose t h e r e i s not.
Mr. W i n s t a n s I
W e have
brought this subject u p several times f o r discussion, a n d
in the Treasury,
serve Board,
a t least, a n d I think i n the Federal R e ~
i t has b e e n t h e majority opinion that w e
should p a y these out.
Governor Calkins: A
program was formulated ssme six
or nine ronths ago, b y a committee, including 4
representa-
tive from t h e Treasury Department, s e t t i n g forth t h e sequence i n which payments should b e made, a n d the character
I T think t h a t h a s b e e n followe-
Or -Garrency t o b e p a i d out.
by the S a n Fracisco bank, w h i c h has made n o special effort
to p a y out gold certificates.
Mr. Winston:
A r e n ' t y o u i n pretty g o o d condition t o t
paying o u t gold certificates?
Governor Calkins: I
think I will have t o refer t o
Governor Seay's statement, t h a t there i s not unanimity
of opinion i n regard t o the desirability of paying out
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Federal Reserve Bank of St. Louis
142
pola certificates, I
have: never, mysélir, b e e n able’ t o
see t h e argument udvanced i n favor o f putting t h e gold certificates i n t o circulation.
Govermor- Harding:
M r . ‘yington, h a v e y o u a n y i n f o r m a -
tion a s t o the amount o f United States currency, Federal
reserve n o t e s a n d o t h e r f o r m s
o f United States curremcy
Weld abroad?
Mr. “Vinstons
w
e have b e e n trying t o g e t figures
on
that, b u t w e n e v e r h a v e g o t t e n v e r y s a t i s f a c t o r y f i g u r e s .
Mr. Harding;
six weeks ago--- I
T h e Hungarian Finance Minister t o l d m e
asked h i m the cuestion because I
American c u r r e n c y c i r c u l a t i n g v e r y freely.
noticed
F o r instance,
if you had a million crowns t o b e changed, w h i c h amounted
to a b o u t $ 1 5 , y o u g o t t w o o r t h r e e d o l l a r b i l l s
i n exchange,
and the Hungarian Finance Minister t o l d m e that i n his
opinion t h e r e w e r e $ 5 0 , 0 0 0 , 0 0 0
1a tlon i n Hungary. I
i n A m e r i c a n m o n e y i n circu~
think p r o b a b l y w h a t h e m e a n t t o s a y
was that there was t h e e w ivalent o f fifty million gold
crowns
i n american money,
Mr. W i n s t o n s
which would
b e $10,000,000.
T h a t w o u l d b e more l i k e it.
ures t o m t s h o w a n y t h i n g o f t h a t kind.
O u r fig-
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Federal Reserve Bank of St. Louis
145
Governor Harding: I
imagine h e meant »19,000,000.
I know A m e r i c a n c u r r e n c y i s c i r c u l a t i n g f r e e l y b o t h i n
Austria a n d H u n g a r y a n d I
Mies Vien tors
a m told,
i n Germany.
T h e o n l y « a y y o u c a n figure i t i s t o
see h o w much currency y o u have o u t a s comoaréd w i t h other
years.
T h e r e hasn't
been such
a n increase
i n the dollar
bill,--Governor Harding:
T h e o n l y form o f Amsrican currency
discriminated against w a s t h e $10 legal tender note with
the -Burtalo o n at.
T h e y vould take national b a n k notes
or Federal reserve n o t s , certificates a n d everything b u t
the Buffalo $ 1 0 bill.
e h a v e n o t b e l i e v e d t h a t t h e r e w a s ove.
w
tir, Winston:
T h e y wouldn't t a k e that.
850,000,000 all told, outside of Cuba and Canada.
Governor Norris:
wr. A u s t i n w a s m a d e a
figures
ers;
o n that.
H
h e sent t h e m a
A t t h e conference l a s t November
com-ittee
e vrote t o a
o f one t o try t o get the
great m a n y s u r o p e a n bank-~
ouestionnaire,
a number o f the replies,
and I
have seen s u i t e
o f all t h e replies t h a t h e got
there were only o n e o r two which s a i d that t h e y krew o f
any considerable amount o f American money circulating i n
their c o u n t r i e s .
T h e pest s a r d that there w a s no-2pore=
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Federal Reserve Bank of St. Louis
ciable amount.
ie, Winstons:
T a k e t h e American Express;
t h e y bring
back a l m o s t a s m u c h a s t h e y t a k e aut.
Governor Harding:
Y a u c a n g o anywhere
i n Continental
Burooe, a n d they have railroad stations where t h e y have lit-
tle booths with a sign "Change".
T h e y skin you vretty
well o n the exchange rate, t u t they have a l l kinds o f money,
a n d s o on, a n d I
Swiss, H u n g a r i a n Czech,
would t a k e o c c a s i e r
to have change made there, a n d usually w o u l d l o o k i n
the c a s h drawer,
and I
sav vlenty o f American m n e y .
T h e y
have those booths a t the railroad stations, n o t only i n the
big cities,
b u t a t t h e waystations.
I
Goverror Fancher:
to adept a
f t h e Federal reserve b a n k s w e r e
more liberal policy i f paying o u t t h e gold,
is t h e T r e a s u r y w e l l s u p p l i e d w i t h t h e s m a l l d e m o m i n a t i o n s
tens a n d t w e n t i e s ?
Lip, “winston:
Yes. I
would prefer,
o f course, t h a t
use t h e twenties if. they will s t a y out, because w e
the tens.
O
Governor Fancher:
t C O u r s 6 The. t e n s oare
frequently i n pay rolls.
Mr. Harrison T
might s a y that after o u r t w o years
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Federal Reserve Bank of St. Louis
145
of experience w e find t h a t t h e tens s t a y out much better
than a n y t h i n g e l s e ;
i n fact pretty n e a r l y f i f t y p e r c e n t
of t h e tens t h a t w e p a y o u t s t a y out, f o r t y v e r c e n t o f
the twenties, a n d then i t goes o n down until a t reaches
about 1 5 per cent o f t h e higher denominations.
Governor Harding:
I
n those change booths i f you of-
fered t h e m A m e r i c a n g o l d t h e y w o u l d
m t give y o u a s good
a rate a s they would for American paper, a n d i n somé cases
they wouldn't t a k e t h e gold, because t h e y a r e afraid i t i s
going t o b e taken away from them.
GOVEr nor Seay:
A n d thsy a r e afraid o f the abrasion
also.
Gcverner Harding:
T h e y would not take it.
Covernor “ellborn:
A n o t h e r reason i s the transvorta-
tion i s cheaper o n paper money.
Goverror Norris:
A r e n ' t there a
number
o f countries
where t h e y won't l e t y o u carry o u t the gold?
Governor Harding
s h e n y o u l e a v e s o m e o f those
countries t h e y w a n t t o k n o w h o w m u c h m o n e y y o u a r e t a k i n g
out. I
told t h e m h e r e i t w a s ( e x h i b i t i n g money), t h a t I
had 4 0 0 crowns,
a n d t h e y l e t m e b r i n g t h a t out.
in H u n g a r y i s 5 , 0 0 0 crowns, I
Wwlieve.
T h e Limit
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Federal Reserve Bank of St. Louis
The C h a i r m a n s
I
t i s v e r y obvious t h a t s o m e twnks
pay gold out, a n d that others a r e impounding it, b u t that
that i s m t done t o a r y consideracdle extent.
t i r . ‘winston
has suggested that t h e banks g i v e consideration t o a t least
being u n i f o r m
i n t h e matter
they receive, a n d I think,
o f paying o u t a s
a t t h e same time,
a little m o r e l i b e r a l p o l i c y
i n the paying o u t o f gold
beyond t h a t point.
Governor Calkins:
I t i s also obvious t h a t i f some
banks p a y out gold a n d the other banks d o not impound it,
that t h e y w i l l
pay i t out.
m t interfere w i t h t h e program o f those w h o
T h e evidence shows t h a t t h e impounding has
not been serious s o far. T h a v , o f course, d o e s n o t touch
the o t h e r question.
Governor Seay:
status:
‘
© are differences, too, i n the
o f t h e d i f i e r e n t r e s e r v e “banks.
Richmond r e s e r v e b a n k ,
i s down
t o between fifty a n d
T h a t b a n k w o u l d h a v e n o object,
good policy,
Me, Winston:
relatively l a r g e
s lending a
w h i c h i
sum o f m o n e y a n d i t s r e s e r v e
per cenu.
Y o u might t a k e t h e
i n p a y i n g o u t i t s gold.
P
E OWOWU LG n o te aie
G
O
n o r would
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Federal Reserve Bank of St. Louis
L147
Governor Seay: P a r t i c u l a r l y since i t i s true that
25 ver cent o f the receipts o f currency that come i n are
national b a n k notes.
would n o t a s k a
wir. Winston: I
bank i n t h e position
of t h e R i c h m o n d B a n k t o d o that.
Governor S e a y :
T h e n i t has small importance
i n your
calculatiorm, a n y w a y .
w o u l d t h i n k t h a t b a n k s l i k e Cleveland.
“ip. ‘sington: T
b e i n position t o continue
Boston a n d P h i l a d e l p h i a w o u l d
the program i
e
y f e e l i n favor
Governor Norris:
ed, w e h a v e followed,
S
e
o f a r a s Philadelphia
i s concern-
a s G o v e r n o r C a l viois. saad. j u s c s o ,
the p r o g r a m g i v i n g t h e o r d e r
be p a i d o u t
e
i n which t h e money should
T h a t w a g agreed
o n i n conference a
year a n d
a half o r t w o y e a r s a @ .
Mr. winston:
D o e s t h a t order include gold?
Governor Norris:
Y e s . A s - d - wecals- Yt,- gold: was
third o r f o u r t h o n t h e l i s t .
wer, Harrison:
G o l d w a s a t t h e b o t t o m o f t h e list.
Governor Norris:
a t the tottom o f the list, yes. I
just
do n o t think that resolution accomplishec,\ perhavs,
what i t s author intenc-ed that CoS e o n s
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Federal Reserve Bank of St. Louis
148
course, g o l d c o i n w a s negligible;
i n gold certificated
they took i n $21,917,000 and only paid out #4,752,000.
we h a d c o n s i d e r a b l e r e c e i p t s
March o f t h i s year,
i n Jammary, F e b r u a r y ané¢
a n d o u r g o l d reserve g o t u p t o
$270,000,000, P r i o r t o that our gold was a little less
in p r o p o r t i o n
t o t h a t o f o t h e r b a n k s o f o u r size,
were d i s p o s e d
t o allow t h e accretion
reached. baat. a s i c .
policy,
t o g o o n until
we
H a v i n g reached it, v e changed o u r
o n the first o f April, a n d during t h e month o f April
in c o i n a n d certificates,
out $4,632,000,
Treasury,
w e received 34,676,000
a n d »aid
s o that w e only accumulated $43,000 worth
of gold i n that month.
future,
a n d we
I f that i s satisfactory t o the
t h a t i s t h e policy t h a t w e will pursue f o r t h e
o f paying o u t what “ e get in.
we, “ainstons
B u t n o t paying o u t what v o u have a c c u
mulated f r e m t h e o t h e r t v n b a n k s
i n the past year a n d a
half?
Governor Norris: I
have a n y o b j e c t i o n
ficial p u r p o s e
do n o t think o u r Board would
t o r e 'ucing t h a t s o m e w h a t
i s t o b e served
i f a n y beme-
b y it, o r t h e T r e a s u r y e s -
pecially desires it. T h e r e never w a s a n y resolution t
hat
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Federal Reserve Bank of St. Louis
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we would g o o n until w e had accumulated $270,000,000,
that j u s t s e e m e d t o b e o u r p r o p o r t i o n
ing o f the system.
mt
o f t h e g o l d hold-
" i @ pepresent j u s t about one-twelfth
of the system, a n d w e are atout t h e average sized tank.
One-twelfth o f the total g o l d holdings w o u l d b e a little
over 250,000,000.
presume
Governor Calkins: I
i n S a n “rancisce
w e have
a dastorted v i e w with regard t o the expeciency o f paying
out gold, because o f experiences t h a t none o f the other
i n t h e c i r c u l a t i o n o f zolda
Federal R e s e r v e B a n k s s h a r e d
and i n the effort necessary t o get 211 t h e gold into t h e
Federal R e s e r v e S y s t e m a t a
eble t o - d o -it:,
time w h e n i t w a s t h o u g h t d e s i r -
situation t o o u r s a t t h a t t i m e o r a
work out.
I
comparable
N o n e o f the other banks h a d 4
comparable p r o b l e m t o
t was successfully accomplished,
b u t T I think
it has h a d a psycological influence u p o n Us.
ir. S i n s tons I
Governor C a l k i n s :
circulation, I
suppose
i t has, G o v e r n o r .
w i t h regard
t o putting g o l d into
a m bound t o s a y that personally I
have n o t
been able t a uncerstand what t h e object i s i n forcing gola
certificates i n t o circulation a t this time. I
a m possibl:
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Federal Reserve Bank of St. Louis
obtuse, b u t I
a m -soing t o b e frank, a t least.
tir, Winstons
w
e are getting 3 0 much gold into t h e
country w e want t o a t least equalize t h e importa i n the
last year a m a
half.
G o l d would m t g o out o f t h e
Governor Calkins:
country b e c a u s e y o u p a i d i t out.
wr. Winstons
N o .
O n w h a t t h e o r y i s i t considered
Governor Galkins:
desirable
t o p u t g o l d certificates i n t o circulation
at
this t i n e ?
h
Me. Vinstone:
y s h o u l d i t n o t b e circulated?
‘what d o y o u want t o keep i t t n one place for? f e n ! +26. @
better t y p e o f m o n e y t h a n a n y w e h a v e ?
Governor Calkins:
Mr, “ i n s t o n s
N o , I
W w e a r e o n a go6#d basis.
Governor C a l k i n s : I
think t h e F e d r a l
is q u i t e a s g o o d i f n o t better,
vie. Winston:
d o n o t think so.
reserve note
t h a n t h e g o l d certificate,
T h e Federal r e s e r v e n o t e i s practically
a goid certificate?
Governor Callins=*
ficate,
I t is a
115 p e r c e n t g o l d r t i -
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Federal Reserve Bank of St. Louis
pees?
Governor “ellborn: I
thought t h e idea o f i t was
to k e e p p e o p l e a c o u a i n t e d w i t h t h e c i r c u l a t i o n
o f gold s o
as t o get t h e idea o f fiat money o u t o f their minds,
A n d w e also want t o have t h a t secondary
Mr, Winston:
reserve,
Governor C a l k i n s ?
T h e r e i s n o s a v i n g i n t h e substitu-
tion o f gold certificates o r federal reserve notes.
O n the
other h a n d t h e r e i s p r o b a b l y a d d i t i o n a l c o s t .
ir. H a r r i s o n s
payment
T w o years a g o w e adopted t h i s currency
n which i t was specified t h a t g o l d should
programi
be paid out last.
T h a t i s true, b u t w e have failed t o
follow that, merely because o f the fact that a t the time
it was adopted Governor Strong made t h e reservation, w h i c h
was tacitly approved b y the Governors, t h a t w e would n o t
follow .s,. b u t that w e expected t o pay o u t gold i n amounts
sufficient
t o o f f s e t t h e a m o u n t t h a t w a s b e i n g imported.
We realize,
o f course, t h a t t h e r e r e p a y m e n t
by t h e r e s e r v e banks, a f t e r o n c e b e i n g c e v o s i t e d
o f gold
i n the
of
reserve b a n k s , d o e s n o t o f f s e t t h e i n f l a t i o n a r y e f f e c t
the imports o f gold, b u t i t did offset t h e bookkeeping
effect, a n d the inflationary effect w a s perhaps being offse
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Federal Reserve Bank of St. Louis
152
by the sale o f investments h e l d b y the reserve banks a t
that time.
Governor Seay:
A t one time, sir. Chairman, o n e o f the
purposes w h i c h w a s s e t f o r t h w a s t o a v o i d a c c u r u l a t i o n o f
gald c e r t i f i c a t e s
i n t h e system. I
haven't h e a r d t h a t
alluded
t o lately, b e c a u s e
think a
very formidable attack, a n d apart f r o m that I occupy
Governor Calkins’? p o s i t i o n .
i t i s subject
T h e purpose
t o attack,
and I
o f the formation
of the Federal Reserve system was t o impound t h e gold a n d
there i s w h e r e i t h a s i t s g r e a t e s t c r e d i t strength. ‘ v y h i l e
we m a y h a v e e n o u g h o f it, o f t h e g o l d i t s e l f
lent, t h e notes,
what c o n t r a r y
o r i t s ecauiva-
t o justify t h e policy, s t i l l i t i s some-
t o t h e theory u p o n which t h e Federal Neserve
System i s founded.
Governor Harding:
ed, I
S o far a s our district i s concern-
would like t o have sore good, tangible reason w h y i t
should b e done. I
do-not want t o b e obstinate,
thing o f that sort, b u t i n m y position there, I
o r anya m merely
the officer agent o f the Board o f Pirectors, a n d when y o u
a
take t h e N e w f n g l a n d H a r d o f d i r e c t o r s a n d p r e s e n t
prac-
i n it,
tical reason, something where t h e y c a n s e e a dollar
they c a n c a t c h on. I
will t e l l y o u o n e t h i n g t h a t h a s
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Federal Reserve Bank of St. Louis
155
weakened
o u r position
v e r y ‘uch,
i n
“ w e came d o w n here
warch o f 1923 a n d your predecessor, M r e Gilbert, a n d reguestéd that everybody sell their government securities;
he g o t t h e F e d e r a l R e s e r v e B o a r d i n t o t h e idea, a n d w e
turned l o s e o u r securities. I
said I
I would consult t h e board i n Boston.
thatk o w i n g t o m y persuasion,
million d o l l a r s
for i n v e s t m e n t
T h e result o f i t was
t h e y turned loose several
o f Treasury obligations t h a t t h e y h a d bough
a n sustained a
burt their feelings v e r y much;
Of it.
did n e t k n o w b u t
loss o f a t o u t $18,000, w h i c h
b u t that wasn't t h e end
N o w , i f I g o back a n d tell t h e m that under a
new p r o g r a m t h e y w a n t u s t o g o a h e a d a n d a c c u m u l a t e m o r e
goverment securities they immediately say, “well, h o w
-
w h y didn't y o u let u s gtend pate” . - 5
about last spring?
say that the Treasury and the Board want to do it, and
after this
they say, “ W e are going t o d o our own thinking
reason why.”
and let t h e Treasury a n d t h e Poard give u s &
That i s m y position.
wr. Winston:
T h e purpose was t o be in a position
r a i s e t h e rate.
to r e s t r i c t c r e d i t w i t h o u t h a v i n g t o
There
Treasury view.
have b e e n several things affecting t h e
c o m e s u p a n d says,
course, e v e r y l i t t l e w h i l e s o m e b o d y
o f
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Federal Reserve Bank of St. Louis
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iLook a t the gold i n the Federal reserve banks; t h e y ought
to be: Using it, and: i t i s not..being used-4Governor C a l k i n s :
D
o y o u think that whatever g o l d
the F e d r a l r e s e r v e b a n k s w o u l d p u t i n t o c i r c u l a t i o n
would materially affect t h e situation?
Mr. “inston:
T t a t least will keep t h e gold down
to what i t has been.
T h e n there i s t h e feeling that t h e
public o u g h t t o b e a c c u s t o m e d
Governor Calkins:
Glined t o disaerpes. I
t o gold---
T h e r e i s exactly where I
am i n -
dea n o t d i s a g r e e w i t h r e g a r d
t o the
other argument, b u t i n regard t o accustoming t h e public
to gold circulation, t h a t i s something i n which w e have
had probably more experience t h a n t h e rest o f the country
combined.
Governor Harding:
D u r i n g t h e trouble y o u h a d i n
1SL4 y o u w e r e o n a n a b s o l u t e g o l d basis.
California r e a u i r e d t h a t t a x e s t
T h e State o f
p a i d i n g o l d coin, a n d
they h a d a n a w f u l t i m e o u t there.
Governor Calkins:
P h e public n o w distriminates
o¢-
tween t h e y e l l o w b a c k e d g o l d c e r t i f i c a t e s a n d F e d e r a l r e -
serve notes, a n d i f there was anything that i e d to.28
disposition
o n the part o f t h e public
t o hoard,
i t would
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Federal Reserve Bank of St. Louis
ke a n lied t o the gold certificate first,
Mie en ee TLS DORMS
O
f course discrimination
i s act shewn
in the N e w York banks a t all, i t comes i n just t h e same
as a n y t h i n g else, b e c a u s e t h e y a r e v e r y c o m m o n here.
not k n o w h o w c o m m o n t h e y a r e o u r west.
d
T h e r s w a s another
idea, t h a t w e would like t o have a secondary g o i d reserve.
You C e n pull t h a t e u r e i n s
1 2 totice i n e l i Fiske;
is n o t m u c h s u d d e n t a k i n g o f t h a t g o l d a w a y f r o m t h e
country.
I
t is like all these arguments o n finance,
you c a n g e t t h e o r i e s
a l l ways.
Governor ‘vellborn; I
recall t h a t m
ity t h a n “rp. W i l l i a m J e n n i n g s
not o n a
gold s t a n d a r d t c a u s e
Mr. Winston: '
1éss a n author-
Bryan has said that
we are
y o u d o n o t s e e a n y | S SAE
I t has b e e n t h e policy o f the Treasury
to try t o get this gold into circulation.
W w e want t o
get a s high a s »500,000,000 a n d maintain it.
Governor Harcing:Sa) w h a t have y o u row?
Lie
V e comme:
w e have t h a t now--- I
mean, t h a t h a s
been paid out, b u t since t h e n these imports h a v e continued a t a rate o f a million a day, a n d w e have wanted t o
get $500,000,000 plus t h e imports, w h i c h w e have n o t succeeded i n doing.
o
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Federal Reserve Bank of St. Louis
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Deputy G o v e r n o r C a s e :
I s n ' t that t h e reason that
Mr, winston advances, t h e idea o f having a
serve? I
secondary 16-
have n o t fiszured o u t w h a t t h e r e s e r v e r a t i o
of t h e s y s t e m w o u l d b e i f w e h a d t h i s 5 0 0 o r 6 0 0 m i l l i o n s
in g o l d t h a t i s i n c i r c u l a t i o n i m p o u n d e d
i n t h e Bederal
reserve b a n k s a n d federal r e s e r v e n o t e s o u t s t a n d i n g
place,
i n AGS
b u t i t w o u l d m a t e r i a l l y i n c r e a s e t h e r e s e r v e ratio,
and after all, a
thing o f this kind isn't different f r o m
any o t h e r business.
Y U L wieght
c a l l e
a certain kind o f window dressing,
choose t o apply:
e e please,
o r whatever t e r m y o u
b u t .if t h e t i m e c o m e s w h e n c o m i t i o n s
call o n
in Europe b e g i n t o become stabilized, a n d they
us f o r gold,
a n d i t s h o u l d g o o u t a t a l l rapidly,
that w e have a
t h e fact
secondary reserve o f l v e , s i n , s e v e n o F
eight h u n d r e d m i l l i o n s s e e m s
t o m e t o b e a n element
o n t h e surface.
strength w h i c h d o e s n o t a o p e a r
Governor Calkins:
of
being
w h e n y o u speak o f this a s
discussing psya auestion o f finance, y o u a r e really
chology a n d n o t finance a t all.
Mr. Case:
Partly,
tit
m t altogether. I
think
y o u vant t o see t h e
is a verynice m e s t i o n o f whether
o r n i n e t y - f i v e p e r eent.
reserve r a t i o g o t o n i n e t y
— &
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Federal Reserve Bank of St. Louis
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would personally rather s e e i t a t eighty, a n d then have
a secondary reserve t h a t y o u are reasonably certain o f
being able t o get, t h a t is, a
substantial p a r t o f it, i n
the natural course, after i t is circulated nationally
think i f you had
and people g e t used t o seeing it. I
gold o u t o f c i r c u l a t i o n f o r ten, f i f t e e n o r t w e n t y cycars,
and then undertook t o circulate it, t h a t i t would cause
a good d e a l o f conment.
last y e a r
w
e have circulated
o r two a n d there h a s b e e n
i t i n the
n o comment worthy
o f
notice,
Governor Harding: I
think i f you get the Treasury
revenue bill eracted into l a w that these other problems
will disappear v e r y mickly.
Mr. winston:
T h e last thing that w e are likely t o
get i s t h i s a m e n d m e n t
o f Mr. ,
taxing undistributed
profits, f r o m one ouarter o f one per cent u p t o forty
perc e n t of. t h e u n d i s t r i b u t e d profits.
Now, I
you.
would like t o leave this g o l d auestion with
W h a t t h e Treasury w o u l d l i k e w o u l d
b e for t h e other
banks t o g o a l o n g w i t h N e w Y o r k a n d Chicago,
a t least t o
the extent of turning out as much as they get in, s o that
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Federal Reserve Bank of St. Louis
158
the work that i s beine done b y N e w York a n d Chicage will
not b e neutralized.
There i s one other ouestion which was raised, I
think,
at a former neeting o f the Governors, a n d that h a s t o d o
with c o m m e r c i a l p a p e r a s c o l l a t e r a l f o r s p e c i a l d e p o s i t s
where t h e y b u y government securities.
The Chairman:
T h a t i s Topic V-(a) o n the program .
v-(a) C o m m e r c i a l paper a s collateral
to war Loan Deposit Acsounts.
Mr. Winston:
T h a t is a
question I
would l i k e t o h e a r
do not know much acout it.
discussed, because I
T h e ques-
tion w a s o n e l i m i n a t i n g t h e p r o v i s i o n f o r u s i n g c o m m e r c i a l
paper a s security.
o far a s t h e Treasury
S
i s concerned,
sell f r o m
it i s d e s i r a b l e t h a t t h e s e s e c u r i t i e s t h a t w e
we
time t o time b e distributed a s widely a s possible a n d
would m o t l i k e t o make
m y c h a n g e t h a t would interfere
with t h a t distribution.
Governor Calkins: I
for t h a t s u g e e s t i o n y
believe w e a r e r e s p o n s i b l e
2 s w e have b e e n several times before,
f r o m the
and i t i s always m e t with t h e same response
Treasury D e p a r t m e n t ,
t h a t t h e y w e r e unwilling t o interfere
with t h e distribution o f goverment securities.
our ovinion,
L e s s
a t least s o far a s our district i s concerned,
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Federal Reserve Bank of St. Louis
59
that i t w o u l d
tripution;
m t m a k e t h e slightest difference
i n dis-
t h a t i t would, however, prevent those banks
which a r e disposed t o d o so, f r o m practically rediscounting commercial papers,
posit account.
the d e p o s i t s
a s they d o m w ,
i n the w a r loan de-
T h a v e before m e the figures w i t h regard t o
c f one b a n k which shows t h a t i t s proportion
of c o m m e r c i a l p a p e r h a s v a r i e d f r o m 4 5 p e r c e n t t o 1 0 0
Per Cent. r u n n i n g t o r a c o n s i d e r a b l e t i m e a t 1 0 0 p e r cent;
in other words,
paper.
I
t h e b a n k p u t u p nothing except commercial
f w e raise o b j e c t i o n t h e y s a y that t h i s commer-
cial paper i s accepted everywhere e l s e a s security f o r war
loan deposits,
I s n ' t i t good?
a n d w h y s h o u l d y o u object.
There i s n o difficulty whatever,
s o far a s w e c a n see, i n
banks u s i n g f o r t h i s p u r p o s e g o v e r n m e n t s e c u r i t i e s
other s e c u r i t i e s t h a n c o m m e r c i a l paper.
w
or
e would like
to s e e i t g o out, tecause i t would save considerable e x pense a n d trouble, a n d would also prevent t h e banks redisi n our
counting i n that way, w h i c h i s highly undesirable
opinion.
Governor Fancher:
W e feel atout a s San pancisco
of
does, t h a t i t would n o t interfere w i t h t h e distribution
certificates. I
have 1 5 9 d e p o s i t o r y b a n k s a n d o n l y e i g h t
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Federal Reserve Bank of St. Louis
160
are using commercial paper.
T h o s e eight banks a r e i n
d o n o t thinkthe distritution
the p r i n c i p a l c e n t e r s . I
i t i s n o t t h e small b a n k that
would b e a f f e c t e d b e c a u s e
offers c o m m e r c i a l p a p e r a s security.
Governor Calkins:
T h e small b a n k does n o t use commer-
cial p a p e r t o a n y e x t e n t
I t i s always« t h e
i n o u r district.
large b a n k which would otherwise b e rediscounting.
Mr, Winston:
G a n w e g e t t h e views
o f some o f the
other b a n k s ?
Personally, 1
Deputy G o v e r n o r Case:
can s e e m
son f o r d i s c r i m i n a t i n g a g a i n s t c o r m e r c i a l p a p e r .
provisions
o f t h e circular--- I
rea-
T h e
do n o t just recall t h e m
in detalle-- b u t they d o provide f o r all sorts o f government paper, c e r t i f i c a t e s ,
t r e a s u r y notes, L i b e r t y b o n d s
to b e p l a c e d a s collateral,
a n d t h e n certain other boms$,
public utility bords a n d others.
T h e collateral security
f a r m loan
now covered b y the circular i s government b o m s ,
Porto
bonds, w a r savings a n d s o on, @erritory o f Hawaii,
of
Rican bonds, b o n d s o f any state, s t a t e warrants, b o n d s
any county o r municipality, dollar bonds o f a n y foreign
country w i t h w h i c h w e a r e n o t a t war;
b o n d s listed o n any
companies,
stock exchange, n o t e s o f d o m e s t i c r a i l r o a d
and
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Federal Reserve Bank of St. Louis
251,
so on, public utility companies, commercial paper, bankers! acceptances having maturity a t the time bought o f not
exceeding s i x months, a n d otherwise eligible f o r e d i s count, approved b y the reserve bank, customers!’ notes,
drafts, bills o f exchange, a n d s o forth.
(further d i s c u s s i o n f o l l o w e d w h i c h t h e r e p o r t e r w a s
directed n o t t o take.)
The C h a i r m a n s
t i r , Winston, t h e r e h a s b e o n p r e t t y
full discussion o n that.
I s there anything further i n con-
nection with t h e question?
have n o t yet found o u t what t h e
Mrs Winston: I
opinion is, although I have heard a l l sides.
The Chairman:
‘ V e r y well, w e will p u t i t t o a vote.
All t h o s e w h o a r e i n f a w r
o f discontinuing t h e acceptance
of c o m m e r c i a l p a p e r f o r t h i s p u r p o s e w i l l
s o signify b y
raising their right hands-~Governor Harding:
w e , Chairman, Governor ‘vellborn
gaid h e would like t o b e recorded a s i n favor o f taking
commercial paper.
The Chairman:
Perhaps I
that a l l t h o s e i n f a w r
should p u t i t i n this way,
o f c o r inuing t o accept commercial
paper w i l l p l e a s e i n c i c a t e
i t b y raising their r i g h t hands
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Federal Reserve Bank of St. Louis
162
ill t h o s e i n favor o f d i s c o n t i m i i n g t h e a c c e p t a n c e
o f com-
nercial o w p e r w i l l s i g n i f y b y r a i s i n g t h e i r r i g h t hands.
The vote i s three i n f a w r o f discontinuing acceptability o c c o n m e r c i a l p a p e r a s c o l l a t e r a l a n d n i n e i n f a w r
of
continuing c o m m e r c i a l p a p e r a s collateral.
Are t h e r e a n y o t h e r subjects, tir. ‘ 4 n s t o n ?
winstons
N o , I
have nothing else, tir. Chairman.
i thank yous.
(Under s e c r e t a r y « i n s t o n t h e r e u p o n r e t i r e d f r o m t h e
conference room.)
have a
The Chairman: I
letter w h i c h h a s w e n s e n t m e
by Governor Grissinger, w h i c h reacs:
‘Dear G o v e r n o r c D o u g a l :
I a m ermlosing h e r e w i t h twelve copies
tive t a l e s h o w i n g t h e e x p e n s e s
Reserve
Bans
during
comara-
o f operating t h e Federal
t h e year 1925,
you p l a c e a . c o p y o f t h e s t a t e m e n t
Governor,
of a
w i t h t h e reauest
that
i n t h e hands o f e a c h
a n d h a v e t h e conference e n g a g e
in a
general d i s -
cussion o f the probable expenses o f operating t h e system
during the year 1924."
I think n o w w e should return t o a consideration o f
Covernor M a n c h e r ' s C o m i t t e e r e p o r t
o n V o l u n t a r y Services.
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Federal Reserve Bank of St. Louis
163
The report refers t o non-cash collections, a n d a s I remenber i t a
m o t i o n w a s m a d e t o a p o r o v e t h e r e p o r t a s cubmit-
ted, a n d G o v e r n o r F a i l e y s u g g e s t e d a
substitute w a s seconded,
substitute,
which
t o the effect that t h e report b e
disapproved a n d t h a t w e d i s c o n t i n u e n o n - c a s h collections,
Governor R i l e y :
T h a t i s a little t o o drastic state-
wanted t o tring u p for discussion this ovestion
ment. I
of whether w e are supposed t o maintain a
collection agency.
I don't telieve w e should b e compelled t o take all those
things,
The Chairman:
take a
W i t h o u t objection,
w e will proceed t o
vote o n t h e s u b s t i t u t e m o t i o n , w h i c h i s t o discon-
tinue t h e non-cash’ collection function,
(The motion, h a v i n g b e e n d u l y seconded,
w a s put and
lost, Governors Young a n d Bailey b e i n g t h e only t v o voting
in f a or-of 14.)
Governor Calkins: I
call f o r m y o r i g i n a l m o t i o n , M r .
Chairman,
The Chairman:
w a s y o u r m o t i o n seconded?
Deputy G o v e r n o r C a s e : I
The Chairmans
Governor C a l k i n s ?
seconded i t .
W i l l y o u please state your motion agai.
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Federal Reserve Bank of St. Louis
164
move that t h e report o f the
Governor Calkins: I
Committee onVoluntary Services
recomendations
b e adopted a n d that i t s
b e m d e t h e recomendations
o f this con-
ference,
G@yvernor C a s e s I
aecond i t .
move t o a m e n d t h e r e p o r t
Governor Bailey: I
b y saying
that n a i t e m o f l e s s t h a n w l 0 0 s h a l l b e o f f e r e d f o r c o l -
lection through t h e Federal reserve banks.
The Chairnan:
T h e r e i s n o second t o either o r e o f
these motions.
seconded Governor C a l k i n s '
Deputy Governor Case: I
votion, t i . Chainer.
The C h a i r m a n s
m o t i o n w a s n o t second-
T h e substitute
Goverror B a i l e y :
I
t was n o t a
substitute m o t i o n .
Tt was a n amendmert, subject t o debate.
offered
i t i s this, g e n t l e m e n ,
I
T h e reason I
n t h e Tenth District
thers elves o f it;
less t h a n 100 member banks have availed
#60,000 a
i+ i g costing t h e Federal reserve b a n k
year,
of- i t withinetee.d
am t h o s e w h o h a v e a v a i l e d t h e m s e l v e s
trict a r e n o t mumerous.
I
af
t i s outside business # n d W e
called o n to pay $60,000 a year t o handle it.
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Federal Reserve Bank of St. Louis
165
doing that service;
w e are sending o u r m e n out into o p e n
contact w i t h t h e public,
i n competition w i t h t h e conmercial
banks, a n d I teliewe i t would a
tinue it.
A
lot better t o discon-
t any rate, l e t u s put a limit o n the anount
of t h e c o l l e c t i o n t h a t c a n b e s e n t i n .
T h a t i s m y reason
for offering t h e amendment.
Governor Harding:
should p a s s a
“ h a t would h a p p e n i f your directors
r e s o l u t i o n d i r e c t i n g y o u Po. M o b h y s o k
Federal r e s e r v e b a n k s t h a t y o u w o u l d n o t t a k e a n y non-
cash items f o r less t h a n 4100?
Governor Bailey: I
Governor Harding:
did m t c a t c h that.
I s there anything t o prevent
directors f r o m instructing y o u t o notify t h e banks
your b a n k will n o t take a n y i t e m for collection o f
than $100?
Gevernor Baileys w e l l , o f course w e want t o g o
to
along and d o what the rest o f you do. W w e don't want
pecome
a n outlaw.
Governor Harding:
B u t conditions i n your district
are different f r o m those i n other districts ?
Governor Bailey:
w e will certainly exercise t h a t
like t h e y have b e e n
prerogative i f they keep o n coming i n
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Federal Reserve Bank of St. Louis
coming i n siwe t h e first o f the yer.
The Chairman: G e n t l e m e n , t h e questian i s o n the adop
tion o f t h e r e p o r t a n d t h e a m e n d m e n t
t o t h e original
m -
tien.
s I
A
Governor S e a y :
understand G o v e r n o r H a i l e y a n d
Governor Young, t h e y believe a
where
line should b e drawn some-
i n h a n d l i n g t h e v a s t q u a n t i t y o f promiscuous s t u f f .
on
If you will refer b a c k t o the report o f the committee
mn-cash collections, I
think y o u will f i n d 2h: e r e
schedule w o i c h w a s i n c o r p o r a t e d
circular,
oS
i n the non-cash collection
a n d I telieve y o u could make u s e o f that t o effec
The Chairman:
W i l l y o u state your amendment again,
Governor B a i l e y ?
Governor Bailey:
a
w t o t h e effect
M y a m e n d m e n ts
there should b e some limit - - I said $100; I
that
did that t o
o
f t h e purpose o f seeing 5
pring i t u p f o r G i s c u s s i o n i
there c o u l d n o t b e s o m e l i m i t p l a c e d
o n it, s o t h a t w e
collections c o m i n g
would n o t b e b o t h e r e d w i t h t h e s e s m a l l
through us.
that
I f i t i s t h e consensus o f opinien here
our B o a r d c a n s e n d a
saycircular o u t t o o u r m e m b e r b a n k s
items, w e will
ing that o u r bank will n o t accept certain
proceed t o handle i t i n that way.
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Federal Reserve Bank of St. Louis
a2
Go vernor Harding:
y own opinion i s that there i s
M
m p o w e r t o s t o p y o u f r o m d o i n g i t , i f y o u w a n t t o d o it.
Governor Wellborn:
the a m e n d m e n t
n connection with this subject,
I
t o t h e Federal
Reserve
A c t intended
t e cover
I
t wasn't
member b a n k s t h a t d i d n o t h a v e c o r v e s p o n d e n t s ?
intended t o b e a
gereral f r e e c o l l e c t i o n system,
b u t just
intended t o provide f o r member banks that came i n which
did n o t h a v e c o r r e s p o n d e n t s ,
b u t w h i c h h a d t h e Federal r e -
serve b a n k a s t h e i r o n l y correspondent. I
a m simply
seeking information, b u t m y recollection i s that i t was
something along t h a t line, merely t o accomodate t h e member
banks t h a t d i d b u s i n e s s e x c l u s i v e l y w i t h t h e F e d e r a l K e -
serve System. I
think that was t h e purpose o f the amend-
ment.
Governor C a l k i n s :
I
t w a s u r g e d a s a n argument
in
support o f the service that some member banks were giving
up correspondents, a n d that the Feceral reserve bank would
do t h e things t h a t t h e correspondent b a n k h a d previously
done.
T h e r e i s n o discrimination indicated i n the act,
and t h e r e i s n o d i s c r i m i n a t i o n
The Chairman:
i n practice.
H a s this discussion gone f a r enough
to suit you, Governor Bailey?
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Federal Reserve Bank of St. Louis
Governor Bailey:
The Chairmans
Y e s sir.
T h e n I will call f o r t h e amendment
to t h e o r i g i n a l motion.
G o u l d i t not b e limited a s t o kind
Governor Young:
and a m o u n t ?
The C h a i r m a n s
T h e amendment
(The amendment, having b
d o e s n o t include kind.
e n seconded, w a s lost, t w o
voting i n fawr o f it and ten i n opposition t o it.)
The Chairman:
w
e will n o w vote o n the original
m o -
tion, w h i c h w a s t o a p p r o v e t h e r e p o r t a s presented.
(The motion, having b e e n duly seconded, w a s carried,
Governors Y o u n g a n d B a i l e y v o t i n g nor.)
Governor Y o u n g ? I
would l i k e t o a s k t h i s question:
That ## Minneapolis discontinues t h e non-cash collections
would t h a t i n t e r f e r e w i t h t h e o t h e r b a n k s ?
The Chairman:
in a
Yes.
w e all recognize t h a t y o u are
v e r y p e c u l i a r a n d v e r y u n u s u a l p o s i t i o n o u t there,
and n o one knows better t h a n I
ties t o m e e t a n d problems
do that y o u have difficul-
t o solve, a b o u t w h i c h w e k n o w
nothing.
Gentlemen, G o v e r n o r Y o u n g asits w h a t e f f e c t
i t would
what, G o v e r n o r
have i f t h e M i n n e a p o l i s B a n k d i s c o n t i n u e d
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Federal Reserve Bank of St. Louis
Young?
Governor Y o u n :
H a n d l i n g r o n - c a s h items.
would l i k e t o inelude Kansas
Governor Bailey: I
City i n the answer t h a t w e d o n o t ywanb t o b e a n outlaw,
yet this thing i s certainly a
burden t o us.
i t meet t h e views
vould
Deputy G o v e r n o r C a s e :
o f
these t w o g e n t l e m e n i f , n o w , t h a t t h e r e o o r t h a s t e e n
adopted,
w e referred this auestion b a c k
t o the cormittee
some
for further study a n d recommendation a s t o whether
limitation might n o t b e put upon kind a n d amount?
The Chairman:
going
matter u h a t l s c e r t a i n l y
h is 3
T
t o require study.
Devuty G o v e r n o r ( s e :
of t i m e i f w e u n d e r t a k e
Y e s , a n d i t will t a k e a
i t here.
t o discuss
I
lot
t seems t o
me t h a t w l e h t t w t h e o r o p e r w a y t o h a n d l e i t .
The Chairman:
Governor Young:
if M i n n e a p o l i s
from o u t s i d e
s
a
i
s
f
y Governor Young.
H o w much difficulty will i t cause
discontinues
handling non-cash collections
o f its district?
Governor seay?:
u i t e a
Deputy Governor C a s e :
would
t
t e v e r y embarrassing.
disturbance.
f
o
r N e w York,
it
“wie w o u l d b e i n t h e p o s i t i o n
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Federal Reserve Bank of St. Louis
170
of r e c e i v i n g f r o m m e m b e r b a n k s t h e s e c o l l e c t i o n s a n d
having t o c u t o u t t h e i t e m s
are unwilling t o handle.
o n your district w h i c h y e u
w e have enough difficulty r w ,
under t h e p a r collection list, w i t h t h e m n e r items,
and i f w e u n d e r t a k e
tMOUDLE. I
t o discriminate,
i t will c r e a t e m o r e
think t h e w a y t o d o i t i s
question o f w h e t h e r
o r r o t i t wonld
t o t a e this
b e feasible
t o place
a limitation o n it, a s suggested b y Governor T i l e y .
have n o t studied i t enough t o
Governor Bailey: I
know whether $100,would b e the proper amount o r not. I
simply w a n t e d
t o tring o u t what I
h a d i n mind,
a n d with
all t h i s t a l k a b o u t c u r t a i l i n g s e r v i c e a n d r e d u c i n g e x -
pense, h e r e i s a chance t o lop o f f a million.
Governor Young:
I
t i s n o t t h e intention o f the
any em~
Minneapolis b a n k t o c a u s e a n y o t h e r r e s e r v e b a n k
barrassment,.
W e will g o shead, sir.
W e have b e e n suf-
fering f o r t h e past t w o years under this non-cash collection proposition a n d w e will continue t o do-B0;
this question:
M e
I f w e limit t h e amount o f n o n
banks will t h e y
cash i t e m s t h a t w e a c c e p t f r o m t h e o t h e r
be e n b a r r a s s e d ?
Governor Fancher:
W a s n o t wr. Case's suggestion a
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Federal Reserve Bank of St. Louis
ad
good one,
t o turn i t back t o t h e Standing (ommittee
on
Collections a n d C l e a r i n g s ?
Governor Young: T . . d 6 . mit think so, “because “ f a m
going t o a c t p r e t t y quickly.
The Chairman:
T h i s i s a matter that must b e con-
sidered v e r y carefully,
ir, Harrison:
i t seems t o me.
Y o u will remember t h e last conference
voted t h a t y o u b e g i v e n a u t h o r i t y
t o refuse
t o handle
T h a t h a s caused a
ron-cash i t e m s
o n n o n - p a r points,
tle confusion,
m t still i t has worked,
lit-
H a v e you any
Limitation beyond that<in mind?
Governor Young:
I f some b a n k i n New York comes
into t h e F e d e r a l R e s e r v e B a n k o f N e w York----
a n d a s soon
ag they find o u t that t h e y c a n d o i t they will b e i n there-and give y o u a hundred o r a hundred a n d twentyfive notes
ona b a n k a t Fresno, vontana, f o r instance, a n d they come
to t h e W i n n e a p o l i s B a n k I
a m n o t going t o handle them; L f
am not going t o handle them;
Governor Fancher:
declining t h e m a n d sending t h e m back?
Governor Young: I
classes
o f non-cash item.
am not going t o handle
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Federal Reserve Bank of St. Louis
A
D o e s t h a t m e a n that y o u haven't
Governor Fancher:
a responsible b a n k t o s e n d t h e m t o ?
Governor Young:
I
t may.
I
Deputy G o v e r n o r Case:
t seems
t o m e that t h i s i s
going t o c r e a t e a n enormous a m o u n t o f confusion.
Governor Young:
I t i s either going t o create ¢on-
fusion i n New York o r going t o create confusion i n Mynneapolis.
I
t h a s b e e n g o i n g o n i n M i n n e a p o l i s l o n g enough,
so I guess w e will s t o p it.
T h i s is a
Governor Calkins:
ts n o t a
syatem question.
ouestion o f o n e b a n k t a k i n g o n e position
to g e t p a s t j u s t s u c h a
and
e have b e e n trying f o r years
w
another b a n k another.
I t
s i t u a t i o n a s that, w h e r e i t c o u l d
be s a i a t h a t t h e F e d e r a l R e s e r v e B a n k o f C h i c a g o d i d
something a n d the Federal Reserve B a n k o f Cleveland refused
to d o the same time. P e r s o n a l l y I
believe that t h e mem-
ber banks are entitled, a s a matter o f right, t o this
kina
o f service,
a n d that
w e should continue
t o g i v e nc:
risk.
to t h e m e s f u l l y a s w e c a n w i t h o u t u n d u e
A s w e all
from some
know i n Minneapolis G o v e r n o r Y o u n g i s s u f f e r i n g
very a c u t e oroblems.
H
e i s perfectly entitled
t o say
drafts o r mature:
that h e cannot make collection o f checks,
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Federal Reserve Bank of St. Louis
173
bills o n certain points i n his district, a n d that will
be a n accepted answer.
B u t o n the auestion o f operating
as individual banks a s against operating a s a system, I
think w e should refrain f r o m doing that t o the last gasp.
Governor Harding:
T h e former counsel o f the Federal
Reserve Board i s with us, a n d I want t o ask a few questions t o bring o u t e few points right here. I
think w e
are all i n sympathy w i t h Governor Young i n the very difficult position under which h e i s laboring, w h i c h same
conditions e~ist, probably t o a lesser extent i n two o r
three obher districts;
b u t I have never b e e n able t o
get i t into m y head--- I
I guess--- b u t I
have b e e n very dense o n this,
have n e v e r b e e n a b l e t o g e t i t i n t o m y
head t h a t t h i s c o n f e r e n c e
o f Governors
h a s a n y right under
the law, w h i c h does n o t mention e v e n the Governor o f
the Bank, t o prescribe rules a n d regulations governing a l l
twelve banks.
T h e Federal R e s e r v e B o a r d i s t h e coordinat-
ing body; t h e Federal Reserve Board is vested, b y law,
with c e r t a i n s u p e r v i s o r y p o w e r s ,
in s o r e placos,
w i t h regulatory powers
a n d i n other places
i m tne a c t discretion
is given t o each individual b a n k a n d n o approval b y the
Board i s necessary. I
want t o c a l l y o u r a t t e n t i o n
to
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Federal Reserve Bank of St. Louis
174
the l a n g u a g e
o f s e c t i o n 1 3 o f t h e act, w h i c h d o e s n o t
say that a l l Federal reserve banks, m o r that every bank
in the system shall d o s o and so, b u t i t says any f e d e r a
reserve b a n k m a y d o i t .
other t h e m a n a g e m e n t
" S u p p o s e f o r some reason o r
o f o n e F e d e r a l r e s e r v e b a n k feels t h a t
he c a m o t a f f o r d t e d o s o . G r a n t i n g t h a t i t d o e s tuhrcw
the System out o f gear, t h e ouestion i s vhere i s t h e
justice o f it, i f i t inflicts losses o n ons bank, n o t f o r
the benefit o f its o w n member banks, b u t indirectly, f c r
the benefit o f member banks o f some other district, w h i c h
are forbidden b y l a w t o rediscount w i t h a n y Federal r e serve b a n k e x c e p t t h e i r o w n F e d e r a l r e s e r v e b a n k - - - 1
think w e a r e g e t t i n g a w a y f r o m t h e s p i r i t o f t h e F e d e r a l
reserve A c t i t s e l f w h e n w e 2ssuime t o p a s s r e s o l u t i o n s
by: a majority vote governing t h e System. i
do n o t think
we have anything t o d o with t i e System i n that way.
W e
can come here, exchange views a n d agree o n things a s a
matter o f c o u r t e s y
t o o n e another,
a n d as a
voluntary
propositicn, b u t I fail t o s e e a n y authority--- a n d I
have alvays held this positiore-- e n y authority whatever
on t h e p a r t
o f o n e Governor
o f a
Federal r e s e r v e
bank
t o
o r the body o f
exercise a n y a u t h o r i t y o v e r a n y o t h e r b a n k
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Federal Reserve Bank of St. Louis
475
Governors, t o come here and say t o all banks that "You
shall d o s o a n d so.” I
fail t o see where t h e Federal
Reserve B o a r d c a n s a y t o a
Federal r e s e r v e b a n k t h a t t h e y
shall d o s o m e t h i n g w h i c h t h e A c t i t s e l f a a y s i s vermis-
sive, a n d when t h e A c t does n o t mention t h e Federal Reserve
Poard. w i t h r e s p e c t
G o bt.
Governor Fancher:
ection proposition,
T
o g e t b a c k t o t h e non-cash col-
t h a t w a s inaugurated u n d e r t h e express
instructions o f t h e Federal Heserve Board,
Governors H a r d i n g +I
Governor F a n c h e r :
sing,
understand that,
A n d this matter
w e a r e discus-
w e a r e acting o n direct instructions
t o t h e Federal
reserve banks f r o m t h e Federal Keserve Board, a n d they
have b e e n continuing t o operate under those instructions.
Governor Harding:
A t that tine d i d t h e c o w itions
obtain i n Minneapolis w h i c h e x i s t n o w ?
Governor Calkins:
Minneapolis
T h e y existed i n other banks.
i s n o t t h e o n l y one.
w e have t h e same con-
ditions i n our District t h a t t h e y have, a n d I think the
same i s true o f Kansas C i t y a n d Dallas a n d others.
Governor S e a y : I
doing a
believe w e a r e i n
great d e a l t h a t h a s b e e n d o n e b y a
committee a p -
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Federal Reserve Bank of St. Louis
26
pointed
b y this conference
f o r t h e purpese
o f considering
Gis S i u b j e C.
h
i
Governor mickinney:
Appointed
b y t h e federal R
Board.
Governor Seay:
MiP
M a s o .
Y 6 s 5
T h e C o m i t t e e w a s appointed
b y the
Feceral R e s e r v e B o a r d .
T h e purpose
Governor S e a y ?
possible,
t o draft a
o f t h e committee was,
uniform circular covering t h e col-
lection s y s t e m a n d t h e n o n - c a s h c o l l e c t i o n s y s t e m . ;
Governor Fancher:
T h a t is a
Governor Harding: I
standing conmittse.
admit t h e d e s i r a b i l i t y
o f it,
e
Pe t o e e
Governor seay: A
standing comnittee w a s formed b y
this e c n f e r e n c e f o r t h e p u r p o s e
o f considering t h i s ques-
tion a n d a g r e e i n g w p o n s o m e r e p o r t w h i c h c o u l d b e a d o p t e d
by a l l t h e Governors,
ouite sure, u n l e s s
am
b u t n o t f o r c e d u p o n them. I
m y memory plays
m e false, t h a t t
yeu
will l o o k b a c k y o u w i l l f i n d t h a t t h e C o n f e r e n c e h a s
adopted a
report o f t h e C o m m i t t e e
Governor Young: I
against it.
o n N o n - C a s h Collections.
never v o t e d f o r i t ; I
voted
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Federal Reserve Bank of St. Louis
HS
t may
I
Governor S e a y :
b e you voted against
it,
Gevernor Young.
d o not want t o b e misunderstood
Governor Young: I
by t h e o t h e r G o v e r n o r s h e r e .
Y o u put u p a
very h a r d
proposition t o m e i n Minneapealis a n d I a m willing t o g o
just a s far a s I possibly c a n i n order t o have uniformity
in the System; b u t m y bank has taken a lot o f losses already u n d e r c e r t a i n r u l e s a n d r e g u l a t i o n s t h a t a r e l a i d
down i n the transit matters. I
on n o n - c a s h c o l l e c t i o n s - ~ I
have t a k e n some losses
c a n t a k e s o m e more, b u t i g
a m concerned about t h e Federal
want t o tell y o u that I
Reserve B a n k o f Minneapolis a n d t h e Federal Reserve system.
T h e y a l l t a l k about politics d e s t r o y i n g t h e Federal
Reserve System, b u t i t i s a big question i n m y mind
whether i t will b e destroyed from the inside o r by poliGiGon I
dontt k n o w w h i c h o n e i t i s g o i n g tay B e
g e el
go just a s far a s I can i n this thing, b u t I won't g o
any further,
I
The Chairman:
seriousT think w e a l l u n d e r s t a n d t h e
regard
ness o f your situation u p there, especially w i t h
o f b a n k suspensions.
to t h e matter
proximately
w
n
d
r
e
T h e r e have b e e n ap-
d banks suspended
i n your d i s t r c s
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Federal Reserve Bank of St. Louis
in-@ V e r y shoxvt.- Lime.
Governor Young:
Y e s , a n d t h e y a r e s t i l l closing.
The chairman: I
d o not think there i s anything that
this c o n f e r e n c e h a s d o n e w h i c h c a n b i n d M i n n e a p o l i s u n d e r
those conditions.
1 - d o
m t telieve there i s anything
that has b e e n done b y this conference b y which w e want
to b i n d Minneapolis,
u n d e r conditions s u c h a s they m a y
encounter a n d s u c h a s t h e y m a y b e i n a t t h e p r e s e n t time.
It i s a
w h i c h goes right t o t h e heart
serious question,
of this e n t i r e n o n - c a s h c o l l e c t i o n function,
a question o f t h e destruction
developed
o f it, b e c a u s e
f Counce.
O
o n t h e u n i f o r m basis.
a n d this i s
i t has been
1 1 e o -Os
three o f t h e districts s h o u l d f a l l o u t o f l i n e
rest o f u s u n d e r t a k e
t o g o along,
a m the
i t would a t once l o s e
its uniformity.
Governor s e a y s
T h e s a m e c o m i t i o n exists w i t h re-
spec% t o c h e c k collection,
Governor Harding:
checks
o n your district
Governor Young:
Y o u refuse
t o handle c e r t a i n
o n certain points?
Y e s , j u s t a s m o s t o f t h e m do.
Deputy Governor C a s e I
would like t o hear a
from wir, Harrison a s t o whe her the word “may” would
word
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Federal Reserve Bank of St. Louis
179
probably b e c o n s t r u e d a s “ s h a l l ,
u n d e r t h e provisions
of t h e Act.
Mr. Harrison: I
world,
think t h e r e i s n o d o u b t i n t h e
a s w e h a v e c o n t e n d e d f r o m t h e beginning,
t h a t there
is a real difference between “may" and "shall" a s used
in t h e F e d e r a l R e s e r v e A c t .
Governor Harding:
B e c a u s e b o t h o f them are used
in different’ sections. S o m e t i m e s i t is "shall" and
sometimes "may".
Mr H a r r i s o n s I
d o n o t think there i s a n y doubt
on the part o f anyone t h a t i f all twelve Federal reserve
banks, w i t h t h e a p p r o v a l
o f t h e Federal R e s e r v e B o a r d ,
agree o f t h e i r o w n f r e e w i l l t o c u r t a i l
o r eliminate t h i s
service, t h a t they could probably d o s o legally. I
think
also w e would a l l agree that i f eleven o f the Federal r e serve b a n k s e x e r c i s e t h e i r o w n o p t i o n a n d a g r e e t o collect
'
non-cash items, under the provision that says they ‘ m a y"
do so, t h a t t h e Federal Reserve Board, a s a supervisory
body, c o u l d r e q u i r e t h e o t h e r b a n k t o d o so, b e c a u s e i f
not, t h e n the functions o f the Federal Reserve Board a r e
curtailedto a
body.
point where i t i s not e v e n a supervisory
O n the contrary,
i f the interpretation o f the
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Federal Reserve Bank of St. Louis
180
word “ m a y "
‘i
b e followed
-2
a
*
°
t o # @ § l o g i: c a l /econclusion,
e
g
i t
would m e a n t h a t t h e F e d e r a l R e s e r v e B o a r d w o u l d practical-~
ly have
r o control w h a t e v e r o v e r t h e g r e a t m a j o r i t y o f
operations o f the Reserve banks, because m o s t o f them are
exercised under some provision introduced b y the word
may"
-
Governor McKinney:
F o r instance,
t h e rediscounting
facilitiss,
Mr, Harrison:
Y e s s
reserve b a n k t o r e f u s e
I
t would permit s o m e arbitrary
t o accept
o n deposit c e r t a i n k i n d s
of currency t h e t a r e acceptable a t other reserve tanks,
and I
think t h a t t h e F e d e r a l R e s e r v e B o a r d c a n p r o p e r l y
say t o such a reserve b a n k that either t h e y must take
that particular k i n d o f currency o n deposit,
o r else t h e
officers w o u l d b e discharged.
Governor Harding:
I
n this particular c a s e Governor
Young a n d G o v e r n o r F a i l e y , s h o u l d g o t o t h e Federal R e -
serve Board a n d make their statements t o them, because
the Board has greater authority t h a n this conference.
Mr. Harrison: G o v e r n o r Harding, I
do not think anyo n any
one h e r e f o r a
moment w o u l d f o r c e h i s j u d g m e n t
other g o v e r n o r
i n r e g a r d t o t h e r u n n i n g o f h i s bank.
i t y
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Federal Reserve Bank of St. Louis
Ee
understanding h a s always b e e n that these conferences w e r e
called f o r t h e p u r p o s e
o f e x c h a n g i n g views,
b u t giving
each one oppostunity t o exercise h i s o w n independent
judgment a s t o w h a t h e w i l l r e c o m m e n d
t o h i s directors.
In specific cases, t h e Board has called upon t h e conference t o g i v e i t t h e b e n e f i t o f t h e c o m b i n e d j u d g m e n t
of
the Governors a s t o what should b e done throughout t h e
system a s a whole, a n d then they have sometimes incorporated that combined judgment into reguiations.
L200
not think anybody here wants t o force Governor? Young t o
do anything that will havm:.. his bank o r that will make
it s o difficult
t o operate t h a t t h e same practical’.
ren
sult will b e “achteved,
Governor Harding:
with t h e approval
A s s u m i n g that Governor Young,
o f t h e Federal R e s e r v e Board,
i f you
please, s h o u l d notify a l l his member banks a n d other Federal reserve tanks t h a t h e imposed a
certain limitation o n
the collection o f non-cash items which h e would receive,
then o f course t h e other Federal reserve panks i n their
circulars
‘with
t o t h e i r m e m b e r b a n k s w o u l d h a v e t o say,
e
the e x c e p t i o n o f a
trict,"
bank l o c a t e d
i n t h e Minneapolis D i s -
o f the
a n d that would b e directing t h e attention
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Federal Reserve Bank of St. Louis
182
country t o t h e f a c t t h a t f o r s e m e r e a s o n o r o t h e r t h e
iinmneapolis D i s t r i c t c o u l d n o t p l a y a l o n g w i t h t h e r e s t
of us, a n d I
presume G o v e r n o r Y o u n g h a s thought
o f this
fact, t h a t t h e y would immediately s a y that that was d u e
to t h e b a d c o n d i t i o n s o u t there.
H a v e y o u considered i t s
effect o n y o u r o w n d i s t r i c t ?
Governor Young:
T h a t h a s already happened “cause:
we f i n d i t a b s o l u t e l y n e c e s s a r y
in our district,
years a g o I
t o put a
non-par l i s t
m d i f w e had n o t done that t w o o r three
a m not prepared t o s a y that o u r losses would
have been o u t there,
Governor Seay:
Y o u recall h o w scrupulously t h e at-
tempt h a s b e e n m a d e t o p r o t e c t e a c h F e d e r a l r e s e r v e b a n k
in the framing o f this uniform collection circular, a n d
how i t w a s s t a t e d i n e a c h c i r c u l a r s p e c i f i c a l l y t h a t t h e
collecting b a n k i s the agent f o r t h e second lank and i s
not r e s p o n s i o l e ,
T h e limitation
the c o l l e c t i n g b a n k i s a t t e m p t e d
possible
o f responsibility
o f
t o b e m a d e a s explicitas
i n these circulars,
Governor Young: I
know,
b u t i f you have a
bank
in
Jontana that i s i n difficulty, a n d y o u know i t i s
a n d t hey
difficulty, a n d y o u send a bill o f lading draft,
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Federal Reserve Bank of St. Louis
183
deliver t h e bill o f lading a n d send the draft a n d payment
$s not made a n d t h e bank closes,
@ m y o u know a n y jury i n
the U n i t e d t a t e s w o u l d f i n d y o u g u i l t y o f negligence,
Governor S e a y :
T I a m n o t o u t o f s y m p a t h y w i t h Gover-~
nor: Young a t ali.
Governor Y o u n g ?
O
r course,
2 f we only had one case
men
or t e n o r twenty cases o f that kind, w e could send
twenty
out t o make presentation, b u t where y o u have n o t
or thirty, b u t 1600 transit letters a
day all t h e w a y
you
from one t o fifteen days late, involving $1,800,000,
cant d o that, a n d y o u have g o t t o take tre chance.
The Chairman:
t h e country
H o w many m e n have y o u i n
looking after those things now?
Governor Young: T
banks t h a t I
thing--- I
cantte-- I
have forty-two m e n a t closed
-dontt s e n d t h e m a s 4
regular
a r e slow.
have most o f t h e state banks o f f that
tTa m r i d i n g a
i
whole i o t e a s i e r t h e s e d a y s t h a n
some time back.
vas
come again
B u t these times a r e going t o
and are going t o come t o the other banks.
R i g h t a t the
five men a t banks
moment I would say. that I have. four-or
t o close, presentthat I a feel reasonably sure are going
non-cash
ing our transit items each day and presenting
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ttems.
Governor Mckinney:
T h o s e a r e member banks?
Governor “ellborn:
Y o u d o not send them direct t o
the member bank?
Governor Y o u r s e r s I n same cases I have to; I can
not d o anythins else. I
have g o t t o take a chance, h o p -
ing t h a t t h e b a n k w i l l p u l l through.
Governor Seay:
w o u l d y o u feel called u p o n t o re-
fuse a l l m n - t a c h items, o r only those y o u h a d t o send
think w e a l l recognize
to c e r t a i n d a n g e r p o i n t s ? I
that there a r e points t o which w e c a m o t s e n d without i n curring a b s o l u t e r e s p o n s i b i l i t y .
B u t d o you mean t o g o
so far a s saying that t h e Federal Reserve B a n k o f iiinneaor
polis will n o t undertake t o make non-cash collections,
that y o u will ouly refuse those which y o u feel y o u c a n
not collect w i t h a reasonable degree o f safety?
that I
Governor Young:
A t t h e last conference
w e agreed
c o u l d wire’ a
bank a n d tell t h e m that I
refused
accept a n item.
S i n c e then,
i n w y o w n mind I have put
I
a $500 limit o n it. a n y t h i n g under 5 0 0
but j u s t s e n d i s back. I
to r e t u r n t r a n s i t i t e m s
t o
do n o t wire,
have b e e n p r o m p s e d s e v e r a l t i m e s
o n a
member
b a n k --hen I
had
r~~”o
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Federal Reserve Bank of St. Louis
185
am
means o f getting i t there, a n d i n taking that action I
not unmindful o f Section 16. I
d o m t k n o w whether 1
have authcrity t o d o i t o r not, b u t i f you send i t out
and lose it, o r loss i s made, y o u might j u s t a s well take
T h e r e i s n o difference there.
the loss b y holding it.
Governor C l k i n s :
M o s t o f us have h a d t o deal with
problems similar t o those confronting Governor Young.
may not have h a d a s many, o r perhaps n o t a s acute a
tion, b u t t h e r e i s r i s k i n v o l v e d
transactions.
i n all kinds
T h e r e i s risk involved
W e
condi-
o f business
i n handling transit
itess greater t h e n i n handling non-cash collection items,
o that.
I think w e are pretty well protected w i t h r e g a r d t
I have n o disposition whatever t o think that this conference s h o u l d i m p o s e u p o n G o v e r n o r Young, G o v e r n o r B a t l e y
or a n y o t h e r Governor, a
cours¢ n o t r e q u i r e d
b y law; b u t
I think i t i s highly undesirable t h a t some b a n k should
follow ors course i n regard t o these non-cash collections
course,
and that t h e other banks should follow another
because
i t w i l l l e a d t o confusion, d i s s a t i s f a c t i o n a n d
difficulty i n every case.
Governor Young: I
as I
repeat that I will g o just a s
possibly c a n w i t h t h i s s i t u a t i o n ,
T h e Minneapolis
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Federal Reserve Bank of St. Louis
186
Federal Reserve B a n k i s not i n bad condition a t ali.
we only have t e n o r twelve million a t t h e moment loaned
g o o d banks
n od very
t
in t h e Northvest, a
o n Pood, p a p e r .
we have some paper tied u p i n closed banks, b u t that i s
not serious at:1l, because w e have made proper reservations t o take care o f any losses t h a t develop. I
make
that statement bec-use w i t h fifty m e n out there inspecting each a n d every o n e o f the loans, t h e y know just where
be
they a r e at, a n d know just whether t h e y are going t o
paid;
b t I
do n o t know w h e n there i s going t o b e a
repe~
tition o f 1920 a n d 1921, a n d i f sucn a condition should
imoend I
a m n o t going t o b e pound b y a n y definite agree-
ment.
The C h e i r m a n s
A r e y o u willing
t o l e t t h e matter r e s t
here, G o v e r n o r Y o u n g ?
Governor Young:
n e n Sart
d o n o t s e e h o w w e c a n ask y o u t o
The Chairman: I
do a n y more.
Governor Calkins:
T h e understanding i s that i t will
further study?
be referred b a c k t o the comsittee f o r
The Chairman:
T h a t i s t h e understanding.
Governor Calkins: I
will m a k e a
motion t o that
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ioc a.
Goernor F a n c h e r :
D
o you mean back
or t o t h e S t a n d i n g C o m m i t t e e
Governor Calkins: I
t o this committee
o n Collections?
move t h a t t h e m a t t e r
b e referred
back t o the Standing G o m m i t t e e o n Collections f e r further study a n d such reconmendations a s the committee m a y
see fit t o mle.
The Chairman:
W i l l y o u accompay that w i t h a
state-
ment o f whet y o u wish t o have t h e committee consider?
Governor Calkins:
to Yresuriet At. I
T t do met think i t is-desamaule
think t h e committee should correspond
with G o v e r n o r Y o u n g a n d a n y o t h e r s w h o w i s h t o e x p r e s s
themselves w i t h regard t e limitations, w h e n t h e conmittee
determines l i m i t a t i o n s t h a t c a n b e imposed.
The CGairmen:
G o v e f m o r Young's inouiry w a s a s t o
what e f f e c t i t w o u l d h a v e i f t h e M i n n e a p o l i s B a r k withdrew.
Governor C a l l i n s :
tion s i m i l a r
G
o verttor t a s e o f fered-a-resolu-
t o t h e o n e I offered.
Deputy G o v e r n o r C a s e :
¥ e s , Similar
t o the o n e of-
fered b y Governor Calkins, t h a t t h e points raised b y
the
Governor Bailey a n d Governor Young b e feferred t o
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Federal Reserve Bank of St. Louis
188
Standing Committee o n Collections. I
take i t t h e com-
mittee will take u p the matter i n their o w n way, m a k e a
atudy o f it, a n d r e p o r t b a c k later.
I n view o f the f a d t 2 that this
Governor Harding:
matter affects o n l y t w o banks, i t might b e well t o have
representation
o n t h a t committees f r o m o n e o f t h o s e b a n k s
so t h a t t h e a u e s t i o n c o u l d b e c o n s i d e r e d f r o m a i l angles.
The Chairman:
authorized
D o e s n ' t f o l l o w that t h e coumittee
is
t o a s k f o r assistance f r o m those tanks?
just wanted t o raise that
Governor Harding: I
POLny.
The Chairman:
T h e y certainly would d o that, I
think.
move that t h e committee b e author-
Governor Seay: I
partiized t o i n v i t e r e p r e s e n t a t i o n f r o m t h o s e b a n k s t o
cipate
i n t h e conference,
Governor Bailey:
I n c l u d i n g G o v e r n o r “ellborn.
H
e
is i n t h e s a m e position.
Governor Callins:
W w e a r e a l l i n t h e s a m e position,
and y o u m i g h t i n c l u d e u s all.
T h e y s h o u l d confer w i t h
all t h e banks.
Deputy Governor Casé:
T h e y c a n call f o r represen-
tatives f r e m e a c h bank, f o r t h a t matter.
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Federal Reserve Bank of St. Louis
would like t o have Judge
Governor Young: I
sit
Delsnd.
i n that conference.
G o v e r n o r Calkins, a r e y o u willing t o
The Chairman:
add G o v e r n o r S e a y ' s s t a t e m e n t
t o your resolution?
V e a Sir;
Governor Calkins:
(The motion, having b e e n duly seconced, w a s unani-
mously carried.)
w r , Chairman, t h e Comnittee o n
Governor Fancher:
Voluntary Services,
matters
mit a
t o consider.
a s y o u will recall, h a d three obher
w
e hope t o have a
supplementary r e p o r t
o n the matter
weeting a n d s u b ~
o f currency,
wire
transfers a n d safekeeping; b u t before w e really discuss
situation
the w i r e t r a n s f e r
i t would
b e very helpful
tothe
were
committee i f the report o f the Leased i r e Gommittee
I e tore
submitted f o r discussion a n d action taken o n t t
the meetin:
o f our Voluntary Services committee.
Lf 2 b PLease
f
e
r
> , t h a t w e take
h
t report o f the Leased “ire Commitc o n s i d e r a t i o ne
up
EN for
tee, which is Topic 4-(c).
The Chairman:
T h e report o f the Leased "ire C o m
mittee i s u n d e r t h e h e a d i n g
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Federal Reserve Bank of St. Louis
190
Iv-(c) R e p o r t o f Leased Wire Comittee,
. Governor w e D o u g a l C h a i r m a n .
it 25- recom. enae Sah
GL
e e m e e e ‘endations
the Gomaittee w h i c h m e t i n Chicago m a r c h 1le-14,
their r e p o r t a d d r e s s e d
t o w r , M r . J . B . Mebougal, C h a i r m a n
of the Leased Wire Unmmittee,
a s follows:
That telegraphic transfers o f funds b e limitcd
o f bank l a n c e s .
to t r a n s f e r s
(2) T h a t t h e leased wires should n o t b e used f o r
any p u r p o s e
i n connection w i t h handling a n y non-cash
collection items.
(3) T h a t t h e leased wires should n o t b e used f o r
reconciling e x c e p t i o n s
i n accounts b e t w e e n F e c c r a l r e s e r v e
banks e x c e p t w h e r e l o s s m i g h t
b e involved.
fe
be a d o p t e d a s t h e a c t i o n o f t h i s c o n f e r e n c e ,
w i t h t h e under-
a s reconmend‘d
standing t h a t t h e i d e n ntical c l a u s e
committee will b e incluced b y a
in their circulars t o member banks relating
graphic t r a n s f e r
O f lunes.
I will a s k Mr, Harrison
t o read t h e report o f the
leased w i r e c o m m i t t e e .
“i, Harrison:
Ss S551 o w s :
T h e report o f the leased wire committe
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Federal Reserve Bank of St. Louis
March 27,
To t h e G o v e r n o r s o f t h e F e d e r a l
Reserve B a n k s i n C o n f e r e n c e s
Sinee t h e last Conference o f Governors i t developed
that t h e l e a s e d w i r e f a c i l i t i e s
were n o t s u f f i c i e n t
a s a t present s e t u p
t o afford equitable service
Federal r e s e r v e b a n k s ,
a n d your committee
t o all
u p o n considera-
of
tion cecided that a careful a n d comprehensive study
the e n t i r e s i t u a t i o n w a s imperative.
remest
with this object i n view i t was decided t o
the Federal reserve banks o f N e w York, cleveland, Chicago
t h e officei
and S a n “rancisco t o designate f r o m their ranks
best qualified f o r this responsibility.
T h i s was done
i n Chiand subsequently o n warch 12th a mceting w a s held
cago.
t h e banks r e I n addition t o representatives f r o m
ferred to, :ir. Bddy a s the representative o f the Federal
Reserve Board, vas invited t o attend the meeting.
The r e p o r t e n s u i n g h a s b e e n a n o r o v e d
wite C o m i t t e e ,
and I
b y your Leased
respectfully p r e s e n t t h e s a m e here-
with as the comaittee's report t o the Conference,
(Signed)
J. B . McDougal, Chairman
Leased ‘ w r e Committee.
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Federal Reserve Bank of St. Louis
March 1 4 , 1 9 2 4 ,
ae. J. B e McDougal, Chairman;
Leased “ i r e C o n m i t t e e ,
At your roquest a
meeting w a s held a t the Federal
Reserve B a n k o f Chicago o n warch 12, 1924, t o consider
placing f u r t h e r r e s t r i c t i o n s
serve leased wire system,
o n t h e u s e o f t h e Federal r e -
s o that th: present facilities
t o a l l Federal.
may a f f o r d e q u i t a b l e a n d e f f i c i e n t s e r v i c e
reserve t a n k s .
The f o l l o w i n g a t t e n d e d t h e meeting:
Wr se tee a l
F
e
d
N
HP. A . W e G i i l b e r s
wagner
r
a
Reserve
l
Board
w York
e
C l e v e l a n d
Ambrose
Dillard
e
S
C
h
n Francisco
a
i
c
a
g
o
.
sessrs. Bachman a n d Pavey o f Chicago a l s o attended,
was present during part o f the ciscussion.
The v o l u m e o f business c a r r i e d
leased w i r e c i r c u i t s h a s r e a c h e d a
possible
o f the
point w h e r e i t i s i m -
during t h e
t o give prompt a n d efficient service
peak hours o f the d a y (10:30 a . m
time).
b y several
t o 2:50 D. Me, Gentral
and.
T h i s i s particularly true between Chicago
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Federal Reserve Bank of St. Louis
193
San “rancisco, i n fact, this circuit i s so drowded now
that t h e F e d e r a l R e s e r v e B a n k o f S a n “rnacisco s t a t e s
that i t cannot possibly g i v e t h e same service t o its member banks w h i c h other Federal reserve banks accord their
members .
The b a n k s r e p r e s e n t e d
a t this meeting h a s k e p t a
spe~
cial check o n incoming a n d outgoing telegrams a t their
view
offices f o r a week prior t o this meeting, w i t h a
to a s c e r t a i n i n g w h e t h e r
o r n o t t h e Leased wires w e r e b e -
a s satising u s e d f o r n e s s a g e s t h a t c o u l d h a v e b e e n s e n t
other
factorily b y mail, a n d also “hether there a r e a n y
infringements o f the present leased wire regulations.
exresult o f this survey showed that with f e w
fairly well lived u p
ceptions t h e r e g u l a t i o n s v e r o b e i n g
uses
o f t h e wires b e i n g relatively few.
After
that
consideratle discussion, t h e conclusion was reached
while s o m e r e l i e f
could
b e had
o n the leased wires
eliminating n o n - c a s h c o l l e c t i o n telegrams,
b y
b y closer c e n ~
s
reservs b a n
sorship o n che part o f the Federal
sone i n s t a n c e s a
wire rules,
more r i g i d i n t e r p r e t a t i o n
o f t h e leased
that,
i t was t h e unanimous o p i n i o n
any m a t e r i a l r e d u c t i o n
a n the load carried
t o effect
o n t h e WLPes;
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Federal Reserve Bank of St. Louis
194
further r e s t r i c t i o n s v o u l d h a v e t o i n c l u d e t h e e l i m i n a tion o f a l l t r a n s f e r s f o r t h e a c c o u n t
individuais, firms,
o f non-member banks,
o r corporations. C o n s e q u e n t l y , t h e
followin» r e c o m m e n d a t i o n s
a r c made.
de T h a t t e l e g r a p h i c t r a n s f e r s
to transfers
o f funds b e L i m e .
o f b a n k talances.
That t h e l e a s e d w i r e s s h o u l d n o t b e u s e d f o r a n y
purpose
i n connection w i t h
n
a non-cash
h a n d l i n gy
collection items.
That t h e leased wires s h o u l d m t
conciling e x c e p t i o n s
b e used f o r re-
i n accounts b e t w e e n F e d e r a l
reserve banks, except where a
loss might b e in-
volved.
These r e c o m e n d a t i o n s
a r e m a d e w i t h t h e full realiza-
tion t h a t t h e t r a n s f e r s e r v i c e
which
i s now accorded
our
service t o
member banks i s a n d has b e e n a very valuable
aes
tnem, a s well a s t o the country 4 t large.
that
It i s our understarding t h a t i t i s ne‘essary
expenses
b e c u r t a i l e d r a t h e r t h a n increased;
c o r esuent-
t h a t i n mind.
ly, w e h a v e axyproached t h e s u b j e c t w i t h
o f rules w h i c h
Attached y o u w i l l f i n d a n a m e n d e d s e t
it i s p r o p o s e d
and
t o substitute f o r t h e present rules
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Federal Reserve Bank of St. Louis
195
regulations
contained
i n t h e Poard's letter X-3557,
vided t h e r e c o m e n d a t i o n s
pro-
o f this c o m m i t t e e a r e adopted.
The following points were also discussed:
A. A t p r e s e n t a
great m a n y t e l e . r a m s
i n connection
with p a y m e n t o f f a r m l o a n c o u p o n s a r e b e i n g s e n t o v e r
the leased wires.
I t was believed t h a t t h e number o f
these could b e materially recuced,
a s the amounts invol-
ved are unusually small, a n d this comrittes h a s asked t h e
representative
o f t h e N e w Y o r k bank,
these p a y m e n t s a r e made,
a t which office
t o give this matter consideration
and m a k e s o m e r e c o m - e n d a t i o n
t o the Leased ‘ire C o m i t t e e
with a view t o recucing the number o f messages.
By T h e r e p n e s e n t a t i v e
o f t h e Federal Reserve B o a r d
was requested t o use code words o r phrases covering some
of their routine messages, s u c h a s notification o f holi-~
days, a n d w h e r e v e r p o s s i b l e
t o forward these
b y mail.
Cc. T h e l o n g m e s s a g e s s e n t b y t h e T r e a s u r y D e p a r t ~
ment w e r e d i s c u s s e d .
I t i s recormended
t h a t t h e Leased
wire C o m m i t t e e c o m m u n i c a t e d i r e c t w i t h t h e U n d e r Secretary,
with a
view t o h a v i n g t h e s e m e s s a g e s s e n t “ t y 2 6
o r as
least materially shortening t h e m b y the u s e o f a code.
“om
The q u e s t i o n o f a f f i x i n g t e s t w o r d s
t o telegrams
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Federal Reserve Bank of St. Louis
196
advising p a y m e n t o v e r t h e l e a s e d w i r e o f n o n - c a s h colléection i t e m s w h i c h h a d b e e n s e n t d i r e c t f r o m a
in o n e d i s t r i c t
t o a
Federal r e s e r v e
tnember b a n k
b a n k i n armther d i s -
trict w a s considered, e n d the committee i s o f ‘the opinion
i n view o f the fact that each
that t h i s i s unnecessary,
Federal reserve b a n k could, i f i t wished, request i t s
member b a n k t o a d v i s e i t o f a l l c i r e c t - s e n t n o n - c a s h c o l lection items.
I f the recomendation
m d e herein i s ad-
opted, namely, t h a t t h e leased wires shoulc n o t b e used
in connection w i t h w i e e i e n collection items, t h e committee igs s t i l l o f t h e o p i n i o n t h a t t e s t w o r d s a r e unnecescoaae
The questionof absorbing t h e cost o f telegrams
of
sent o v e r c o m m e r c i a l w i r e s w h e n l e a s e d w i r e s a r e o u t
service w a s a l s o considered,
a n d i t i s recomended that
when t h e l e a s e d w i r e s a r e u n a v a i l a b l e b e c a u s e
ov o t h e r interruptions,
made o v e r c o m m e r c i a l
o f storms
a n y reouest f o r transfers
“ires
standing t h a t t h e e x p e n s e
b e accepted
t o be
w i t h t h e under-
i s t o b e borne
b y the recuesting
member b a n k .
In c o n n e c t i o n w i t h t h e d i s c u s s i o n
o n free v o l u n t a r y
fact was brought
services cendered t o member banks, t h e
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Federal Reserve Bank of St. Louis
out that relatively small saving could b e -ffected
the present. e x p e n s e s
o f t h e l e a s e d w i r e system,
i f all
service
t o member banks o v e r t h e leased wires w e r e discon-
tinued,
i n view o f the fact that i t would b e necessary
to w a i n t a i n l e a s e d w i r e c o n n e c t i o n b e t w e e n a l l F e d e r a l
reserve t a n k s a n d t h e F e d e r a l N e s e r v e B o a r d f o r t h e i r c w n
business.
The question o f making a
service charge f o r transfers
of funds w a s briefly discussed, b u t d u e t o t h e fact that
we are n o t sure o f the legal status o f such a charge, a n d
further t h a t t h e c o m m i t t e e h a s n o t h a d t h e o p p o r t u n i t y
to g i v e t h i s v e r y i m p o r t a n t m a t t e r s u f f i c i e n t s t u d y t o
enable i t t o make a
d*finite recommendation,
n o opinion
Us" submitted.
the committee t h a t i f some restriction i s not put in»o effect which vill materially r e duce t h e volume o n the wires, t h a t additional facilities
should
b e provided t e t w e e n G i c a g o
m d S a n francisco
immediately.
The cost o f duplexing t h e Chicgo-San “rancisco
plus a d d i t i o n a l o p e r a t o r s !
$18,000 per anrum.
salaries, w o u l d avproxinate
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Federal Reserve Bank of St. Louis
198
The cost o f installing a n additional single circuit
from Chicago t o San “rmacisco, p l u s additional operators!
salaries, w o u l d a p p r o z i m a t e Y 6 2 , 0 0 0 p e r amunm.
The F e d e r a l
that a
8 36x R e n k o f $ a n f r a n c i s c o s t a t e s
duplex wire would n o t give i t satisfactor
as d u e t o d i f f e r e n c e
i n time, f a c i l i t i e s a r e n e
will e n a b l e i t t o s e n d a
greater n u m b e r
o f e a s t bound
messages d u r i n g
With e i t h e r arrangement,
t h e increased volume w h i c h
would t h e n b e s e n t o v e r t h i s c i r c u i t w o u l d d o u b t l e s s c a l l
for a d d i t i o n a l e x p e n d i t u r e s
f o r more facilities elsewhere
as s o m e o f t h e eastern w i r e s a r e n o w c a r r y i n g v e r y
capacity loads.
Reepectfully s u b m i t t e d ,
HDL A s e m
Gilbert,
wagner,
Ambrose,
4GULATIONS
1. T e l e g r a p h i c t r a n s f e r s o f f u n d s w i l l b e a c c e p t e d
from a n d paid t o member banks only.
T h e y must represent
bank b a l a n c e s a n d c a n b e m a d e o n l y f o r r o u n d amounts, i . ¢ . .
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Federal Reserve Bank of St. Louis
199
multiples o f $100.00.
be c o n s t r u e d
T h e term "bank balance” shall
t o m e a n a n accumulation
o f dunds c o m p r i s i n g
a permanent a c c o u n t c a r r i e d b y o n e m e m b e r b a n k w i t h a n other m e m b e r b a n k .
T h e descriptive data i n telegrams transferring
i
funds must b e limited t o the name o f the sending member
bank, n a m e o f its correspondent member b a n k requesting
the transfer,
n a m e o f t l e m e m b e r b a n k r e c e i v i n g credit,
and n a m e o f i t s c o r r e s p o n d e n t m e m b e r b a n k ,
3, T h e F e d s r a l
reserve code,
including
t e s t word,
transfer o f
must o ¢ used f o r a l l messages involving t h e
other telefunds and, i n the interest o f economy, a l l
u s e shortens t h e
grams s h o u l d b e s e n t i n c o d e w h e n i t s
message.
2
i n addition
t o the usual
ber b a n k r e c e i v i n g e r e d i t
funds, i m m e d i a t e a d v i c e
t o t h e men-
mail advice
o f
f o r telographic transfers
b y telegraph,
o r otherwise, s h o u l d
b a n k receiving t h e transbe given b y the Federal reserve
fer, e x c e p t
member b a n k has
i n cases w h e r e t h e c r e d i t e d
weueal m a i l a d v i c e i s u n n e c e s s a r
stated t h a t o t h e r t h a n t h e
transfers
5, R e q u e s t s f o r t e l e g (r a p h i c
ha
a
n
e
w
W
r
E
A +
not a c c e p t e d
o n date o f receipt s h o u l d
2
consummation
o f funds f o r
by
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Federal Reserve Bank of St. Louis
Federal r e s e r v e b a n k s l a t e r t h a n t h i r t y ( 3 0 ) m i n u t e s p r i o r
to t h e closing hour o f the Federal reserve b a n k t o which °tmansfer
A n y telegraphic transfers
i s t o b e made.
of
funds r e q u e s t e d a f t e r s u c h t i m e v i l l b e m a d e a t t h e dis-~cretion o f t h e F e d e r a l r e s e r v e b a n k r e c e i v i n g c r e d i t .
Gs ‘The leased wires shall n o t b e used f o r tracing
or a d v i s i n g p a y m e n t
o r mn-payment
o f a n y non-cash collec-
tion items, n o t f o r transferring t h e proceeds thereof.
ve T h e leased wires shall n o t b e used for reconciling exceptions
i n accounts between Federal reserve
banks, e x c e p t where a
loss might b e involved.
8. A n y loss resulting f r o m negligence o n the
the Federal reserve system i n the transmission
grams transferring funds over t h e leased wires through
rerelay stations shall b e borne b y the sending Federal
serve bank, unless responsibility c a n b e definitely placed
telegram was
von t h e F e d e r a l r e s e r v e b a n k t o w h i c h t h e
addressed.
a s possible.
9. T e l e g r a m s m u s t b e worded a s concisely
Telegrams s h o u l d
will suffice.
r t
y mail
t & sent when c o m m u n i c a t i o n b
i
P wie
a
a regula
Fes
5
F o r t h e purpose o f- 7enforcing these
>
tiom,
provision should
b e made
A
a
e
Ap 7
¢
each Federal reserve
i$ n
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Federal Reserve Bank of St. Louis
201
bank s o that a n y misuse o f t h e leased wires will b e brought
P
to t h e a t t e n t i o n o f a
designated o f f i c e r f o r r e f e r e n c e
the o r i g i n a t i n g department,
messages,
or,
to
i n the case o f incoming
t o the sending Federal reserve bank.
The above regulations a r e intended t o govern t h e use
of the leased wires b y the Federal reserve banis.
The
following clauses should b e included b y all Federal r e serve b a n k s
i n their circulars
t o member banks relating
to telegraphic transfers o f funds.
1. T e l e g r a p h i c t r a n s f e r s
o f funds w i l l b e accepted
from a n d p e i d t o memter b a n k s o n l y .
T h e y must represent
pank balances a n d c a n b e made o n l y f o r round amounts, i . é.
multiples o f $100.00.
T h e term “bank balance” shall
be c o w trued t o mean,an accumulation o f funds eomprising
a permanent account carried b y one member b a n k with an~
other member bank. T e l e g r a p h i c transfers will n o t t e
made f o r t h p u r p o s e
o f remitting t h e procesds
of
individual collection items.
2» T h e crsceriptive d a t a i n telegrams t r a n s e r r é n g
funds s h o u l d
b e limited
t o t h e name o f t h e sending member
reouesting t h e
bank, n a m e o f i t s c o r e s p o n d e n t m e m b e r b a n k
credit, a n d
transfer, n a m e o f the member b a n k receiving
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Federal Reserve Bank of St. Louis
name o f its corresponding member bank,
Se T h e Federal reserve banks maintain,
expensé, a
a t large
leased wire system over which a heavy volume
of i m p o r t a n t c o m m u n i c a t i o n s p a s s b e t w e e n F e d e r a l r e s e r v e
banks a n d branches,
M e m b e r banks a r e requested
operate w i t h u s i n a t t e m p t i n g
t o co-
t o avoid over-crowding t h e
leased wires b y not making requests f o r telegraphic
transfers
o f s m a l l amounts,
o r those w h i c h c a n b e made
as well through t h e mails.
4, T h e F e d e r a l R e s e r v e B a n k o f
F e e A
k e e n e a
e
will u s e d u e diligence a n d care i n the transfer o f funds
by t e l e g r a p h t o t h e r e c e i v i n g F e c e r a l r e s e r v e b a n k f o r
credit t o t h e account o f the payee bank, t u t will n o t b e
responsible f o r e r r o r s
o r delays c a u s e d
b y circumstances
beyond i t s control.
The C h a i r m a n :
T h e recomnendations
a s
d e
i n the
report result f r o m careful s t u d y o f the whole situation,
first w i t h r e s p e c t
t o our present facilities f o r handling
leased wire business, a n d largely, I
think, because o f
a condition vhich arose which affected San “rancisco
adversely.
T h e present wire facilities a r e n o t adequate
as t h e y a r e c o n s t i t u t e d
t o afford uniform a n d efficient
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Federal Reserve Bank of St. Louis
service t o a l l t e n a n t s
L
o f t h e wire.
i
he s i t u a t i o n brought o u t t h e i m p r e s s i o n
e
t h e study
c o n v i c -
the Leased i r e S y s t e m was being used f o r
that i f w e
purposes f o r which i t never was intended, a n d
it t o g o o n a n d d e v e l o p p a s i s t h e c h a r a c t e r
ss t h a t w e v e r e handling,
t h a t t t was g o i n g t o
increasing
involve doubling o u r capacity perhaps a n d
the investment according:y.
the r e s u l t
T h e s e recommendations a r e
o f careful s t u d y a n d I
may h a v e t h e a p o r o v a l
n
o f & i906
hove m y s e l f t h a t t h e y
i eren
T
h
e report
Contains v h a t i g <nown a s paragraph A , a s follows:
‘at present a
great many tele-rams i n connection with
4
sent over
payment o f f a r m l o a n c o u n o n s a r e b e i n g
E e
believed t h a t t h e n u m b e r o f v h e s e
could
b e mteriallh
a d .
t e a
a t vhich office t h e
tative o f the ,
ments a r e made,
a m o u n t s involved a r s
t o¢
i g s matter consideration a n d
the Leased Wire vommittee
Fa)
of messages."
pared, w h i c h i s a s follows:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Supplemental R e p o r t o f
Leased ‘sire C o m i t t e e
May 1, 1924,
To t h e G o v e r n o r s
i n Conference:
Para geaph A
referred
of t h e Leased W i r e Committeet, r e p o r t
t o t h e daily telezrams a d v i s i n g amount o f F a r m
Laan c o u p o n s c a s h e d ,
a n d t h e Federal Reserve B a n k o f N e w
York, w h e r e t h e s e p a y m e n t s a r e made, w a s a s k e d t o l o o k
into t h i s m a t t e r
a n d make some recommendation
Wire C o m m i t t e e w i t h a
t o t h e Leased
view t o reducing t h e number
of
these m e s s a g e s .
The F e d e r a l R e s e r v e B a n k o f N e w Y o r k c o m p i l e d a
of t h i s c l a s s o f telegrams r e c e i v e d f r o m t h e F e d e r a l
banks a n d w a n c h e s
1923.
f o r t h e s i x months e n d i n g October
T h i s list shows that during this period there w a s
a large n u m b e r
o f telegrams i n v o l v i n g v e r y s m a l l amounts;
many o f t h e s e f o r a m o u n t s u n d e r # 1 0 0 .
The L e a s e d W i r e U o m * i t t e e n o w r e c o m v e n d s t h a t t h e
Federal reserve banks discontinue using t h e leased wires
the Federal R e s e r v e B a n k o f N e w Y o r k o f t h e
amdunts
o f the
P e eral F a r m L o a n coupons cashed
day a n d t h a t t h e s e a m o u n t s
each
b e deducted f r o m t h e d a i l y
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Federal Reserve Bank of St. Louis
205
credits
T h i s n o t only
t o N e w Y o r k i n t h e g o l d fund.
would r e l i e v e
t h e wires
t o some extent
b u t would simplify
accounting proceqaure.
Respectfully s u b m i t t e d ,
J.-B. M c D o u g a l , C o a i r m e n ,
Leased wire Committee."
supplemental r e p o r t
That s u g g e s t i o n i s o f f e r e d a s 4
to ‘the report o f the Leased Wire committees.
Governor Harding:
The Chairman: I
Mr. Harrison:
I s that agreeable t o N e w York?
think i t is, yes.
Wegugdocé
2 ) trom t h e c r e d i t s
t o the
Gold Fund that you are wiring for your own account,
which i s different f r o m deducting i t from t h e credit d u e
to New York,
T h e n the banks that eashen t h e small
items would carry t h e float a n d they would m o t get credit
until w i t t a d v i c e r e a c h e d N e w York.
give y o u -eredit i n t h e C o l d f u n d .
W h e n w e get i t we
T h a t i s done o n a
lot
of other things, s u c h a s notary fees.
The Chairman: {
find, i f 1 didn't c n o w i t terore,
i n connecthat there a r e adjustments sivilar t o this made
tion with other transactions.
w y understanding i s not
w e carry
in harmony w i t h yours i n regard t o that, t h a t
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Federal Reserve Bank of St. Louis
206
the float.
w e d o m o t give y o u credit.
W e decuct f r o m
the c r e d i t t h a t w e w i r e f o r y o u r account.
M a k e 2 G outset y o u r gold. Y o u
@vernor Fancher:
have t h e money already, a n d w e take i t out o f your gold.
i s
The C h a i r m a n :
T h e amount involved
wp. Harrison:
I t was sugsested t h a t w e file a
::
on its
:
a
m
o
u
n
t
aes
w e did file a report. m y a / i s s o small I
think y o u w o u l d o b j e c t
t o t h i s arrangement,
not t h e w a y w e s u g - e s t e d i t .
W w e sugzested
report
did not
b u t that i s
i t the other
way around because w e had a precedent for.4%t;' t h e t ia,
there a r e o t h e r s u c h deductions.
I
f you have a
small
amount o f f a r m l o a n c o u p o n s t h a t y o u w i l l c a s h today,
fund,
rather t h a n d e d u c t t h e m f r o m t h e c r e d i t t o u s i n t h e
decuct t h e m from t h e credit y o u claim i n the fund that
day,
just
a s i s done
i n the case
o f notary fees
amoint i s P O C S T E TR F L L :
forth.
T a s /
;
o
t object,
8 0 small /that W e W L L L n
and
so
= . We
vecause o f the
proposed i t the other w a y around rerely
fact t h a t t h e r e was p r e c e d e n t f o r 2
Governor Fancher:
Y o u have t h e funds deposited
c o u p o n s mature; y o u r
with y o u a n d a v a i l a b l e p e f o r e t h e
funds a r e i n hand.
2
T h e f a r m l o a n banits d e p o s i t
G h Yeu:
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Federal Reserve Bank of St. Louis
funds b e f o r e t h e c o u p o n s a r e matured,
ey H a p r i s o n :
T h a t is. true,
The Chairman: T
(thie t h a t m a t t e r w a s considered,
This plan i s n o t quite i n accordance w i t h t h e sugsestion
you w a d e .
We, Harrison:
w W e said i n our letter t h a t i f the
committee d e t e r m i n e d
t o d o i t i n t h i s w a y w e w o u l d b e per-
fectly glad t o d o it, a n d I want t o reiterate t h a t m w .
Our o n l y o b j e c t w a s t o m a k e i t u n i f o r m w i t h e x i s t i n g
procedure
i n respect
t o other s m a l l items.
Governor Calkins: I
Leased w i r e C o m i t t e e
and I
have r e a d t h e r e p o r t o f t h e
wish t o o f f e r a s a
resolution
that t h e r e c o m m e n d a t i o n s m a d e b y t h e c o m n i t t e e w h i c h m e t
in Chicago M a r c h 12-14, 1924,
i n their report addressed
to Mr. J . B . “cDougal, Chairman o f the Leased “ire Committee,
a s follows:
That t e l e g r a p h i c t r a n s f e r s
to t r a n s f e r s
of
o f t o n k balances.
2, T h a t t h e leased wires should m t b e used f o r a n y
purpose
i n connection w i t h handling a n y ron-cash coilec-
TLoOn 2o0ens.
Os P h a t t h e l e a s e d w i r e s s h o u l d n o t
b e used f o r
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Federal Reserve Bank of St. Louis
208
reconciling ezceptions
banks, e x c e p t w h e r e a
i n accounts between Federal reserve
loss m i g h t
b e involved
be a d o p t e d a s t h e a c t i o n o f this c o n f e r e n c e w i t h t h e
understanding
t h a t t h e identical
clauses recommended
by this committee will b e included b y all Federal reserve
bans
e m a k e
ecarculars
telegraphic t r a n s f e r s
Governor Young: I
t o m e m b e r b a n k s r e l a t i n g -to t h e
o f funds,"
will second that resolution.
would l i k e t o s a y o n e f u r t h e r t h i n g ,
Mr. Harrison: I
that G o v e r n o r S t r o n g , b e f o r e h e l e f t town, s u g g e s t e d
the (Chairman o f t h e G m m i t t e e
he thought i t might t
to
o n Voluntary Services t h a t
desirable f o r that com~ittee t o
consider t h e q u e s t i o n o f t h e p r o p o s e d e n l a r g i n g o f t h e
s o a s t o include t h e s e
wire service, p e r h a p s w i t h a
charge,
other t r a n s f e r s f o r a c c o u n t s
o f i n d i v i d u a l s a n d corpora-
tior.
I
t w a s u n d e r s t o o d v e r y c l e a r l y b y ifr. Strong,
I think, a n d b y everyone i n the N e w York Bank, t h a t with
the v r e s e n t n e t - u o
o f the wire service
to a d o p t t h e r e c o m m e n d a t i o n s
i t i s very wcessary
o f the Leased W i r e G r m i t t e e .
ITwanted t o a s k ‘ir’ Fancher's Committee,
mittee h a s b e e n r e f e r r e d t h e s u b j e c t
t o which com-
o f wire transfers ,
o f enlarging
whether t h e y have considerec t h e possibility
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Federal Reserve Bank of St. Louis
the servico a t a charge?
The chairman:
T h a t matter h a s b e e n very carefully
considered, a n d @ v e r n o r Strong's wishes h a v e teen consider
ed.
T h i s committee
i s t o m e s t t o m o r r o w morning.
A s a
matter o f fact, a s Chairman o f the Leased Wire Committee,
I wrote a
letter t o the Chairman o f t h e other committee,
telling h i m that w e recognized t h a t i t was a very valuable
privilege,
i f some w a y could b e found b y which t h e service
could b e offered,
e v e n b y using t h e public wire, t h a t
heir committee ought t o consider doing s o and recommending t h a t t m t
b e done.
G o v e r n o r Fancher', committee
is t o make a report tomorrow morning.
fir. Harrison: I
mention i t n o w i n order t h a t whateve.
action i s t a k e n w i l l n o t b e considered i n c o n s i s t e n t w i t h
further c o n s i d e r a t i o n
o f the matter
b y y o u r committee,
Governor Fancher.
Governor Fancher:
T h e matter w i l l b e u p f o r c o n
sideration b y the Committee i n the morning.
Governor Calkins:
this p r o b l e m t o a
Reser v e Bank,
and m a i n t a i n a
w
e probably h a v e encountered
gréater e x t e n t t h a n a n y o t h e r F e d e r a l
a n d unless t h e s y s t o m i s p r e p a r e d
leased w i r e service sufficient
t o set u p
t o take care
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Federal Reserve Bank of St. Louis
210
of the transfers o f balances between Corporatiom, i n d i viduals a n d firms,
be curtvaited.
i t will b e absolutely essential t h a t i t
T h i s s i t u a t i o n a r o s e i n o u r district:
t o t h e extent
o f n o importance
were gvamped w i t h t e l e g r a m s
that t h e o n e s o f g r e a t i m p o r t a n c e w e r e excluded,
we r e p r e s e n t e d t h e c o n d i t i o n
them
or w o u l d t h e y p r e f e r
N h e n
t o t h e member banks w e asked
t o have
i f they would prefer
‘Ye
u s curtail
t h e service,
t o have t h e r i s k presented
having important transfers m a d e promptly.
o f not
i n every case
they amswered, obviously, t h a t they would prefer t o have
the service curtailed rather t h a n r u n t h e risk o f delay
in c a r r y i n g o u t i m p o r t a n t t r a n s a c t i o n s ,
T h e r e are a
vital o u e s t i o n w i t h us.
[ e G G e e l y
great m a n y a g e n c i e s
on the Pacific C o a s t which desire t o transfer balances t o
New York a n d elsewhere v e r y freauently, daily, s o m e o f
them, s o m e o f t h e s weekly,
intervals,
a n d some o f t h e m a t irregular
< 2 i f w e are t o provide f o r that k i n d o f teans:”
the l e a s e d w i r e s e r v i c e w i l l h a v e t o b e multinlied i n d e f i n i
fast
because transactions o f that nature will increase 4 s
as p e o p l e b e c o m e a d v i s e d
o f the fact that they c a n carry
them out.
The Chairman: I
think I
a m justified i n stating
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Federal Reserve Bank of St. Louis
=
that action o n this report,
2
1
1
i n accordance w i t h the motion,
will n o t i n any w a y prejudice t h e plan f o r constructive
suggestions f r o m y o u r comsittce,
Governor Fancher:
L e t m e read f r o m your letter t o
mé, which bears o n this.
ihe auestion o f continuing the transfer privileges,
without a n y restrictions, provided w e made a suitable service charge b a c k t o pur “ember banks, h a s b e e n considered.
Upon investigation,
w e are informed
b y Counsel f o r t h e
Federal K e s e r v e B o a r d t h a t u n d e r t h e t e r m s o f o u r l e a s e d
wire contract,
w e would m o t b e permitted t o accept o r
handle a n y class o f business o v e r t h e leased wires f o r
which a
service c h a r g e w o u l d
b e tmade t o m e m b e r b a n k s ,
The Leased Wire Committee, recognizing that the
provored v e s t r i c t i o n s w i l l d e p r i v e m e m b e r b a n k s
of a
very
valuable service a n d one that h a s b e e n fully appreciated,
Gesires t o suggest t o your Committee t h a
be g i v e n t o f o r m u l a t i n g a
d e r a t i o n
plan w h i c h w o u l d p r o v i c e f o r
those classes o f transfers, t h e elimination o f which i s
recomended
could w
b y t h e L e a s e d “sire G o m m i t t e e ! s r e p o r t .
This
accomplished b y the use o f comuercial wires
through t h e medium o f the Federal reserve banks a t the
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Federal Reserve Bank of St. Louis
expense o f t h e m e m b e r b a n k s ,
In the opinion o f the Leased sire Committee, w h i c h
this matter,
t o consider
special s e s s i o n e x p r e s s l y
has t o d a y h e l d a
such a
plan i s worthy o f your careful a n d
favorable c o n s i d e r a t i o n .
In r e l a t i o n t o t h e s a m e subject,
t h e ouestion has
arisen a s t o the justification o f the continuance o f our
policy o f absorbing t h e cost o f telegrams o v e r comvercial
wires, r e q u e s t i n g t r a n s f o r s
t o points w i t h i n o r without
the district, a n d the cost o f "essages o v e r t h e commercial
wires advising t h e member b a n k i n whose favor t h e transfer
has b e e n made,
I
t was thought t h a t t h i s matter might a l s o
properly b e discussed b y your Committee."
Governor Harding: I
a m a member o f the committee,
and before going t o t h e committee meeting tomorrow, [ I woulc
like t o h a v e s o m e i d e a a s t o t h i s p r o p o s i t i o n o f G o v e r n o r
Strong's
o f s e n d i n g o t h e r ‘te ssagé S
meet t h e situation?
o
u
l
d that
A s
ready s o b a d l y c o n g e s t e d t h a t w e a r e u p a g a i n s t t h e aques~
tion o f e x t e n s i o n o f i t , a n d i f w e t a k e c e r t a i n o t h e r w i r e s
at a charge,
S e g crealogay
ee
i t i s a auestion -hether i t will h e l p t h e
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Federal Reserve Bank of St. Louis
219
Mr, Harrison: I
want t o c o r r e c t t h a t inference.
He d i d n o t m e a n t o m a k e a n y s p e c i f i c r e c o ' m e n d a t i o n .
A l l
he wanted w a s t o have Governor fancher'ts comnittee cansider w h e t h e r
i t would
b e advisable f o r u s t o e n l a r g e
wire s e r v i c e a n d t h e n t o c h a r g e t r a n s f e r s f o r i n d i viduals s u f f i c i e n t
t o cover: t h e - i n e s s a s e d c o s t .
Governor Fancher:
B e a r i n g u p o n t h a t point, t h i s l e t -
ter says, “ U p o n investigation w e are informed b y Counsel
for t h e F e d e r a l R e s e r v e B o a r d t h a t u n d e r t h e t e r m s
of
our l e a s e d w i r e c o n t r a c t
t o ac-
w e would n o t b e permitted
cept o r h a n d l e a n y c l a s s o f b u s i n e s s o v e r t h e l e a s e d w i r e s
for which a service charge would b e made t o member banks."
Governor Calkins:
N
o relief w o u l d w t afforded
by
sending messages ofver t h e commercial wires a t cost.
The Chairman:
Y e s , t h e r e would be.
w e could still
offer t h e m a ~onderful privilege t h a t c a m o t
in any other way, I
Wr, Harrison:
b e availed o f
a m sure.
l o . express c o m p a n y o r n o telegraph
company w o u l d h a v e t h e f u n d s available’
a t t h e different
points t h a t t h e R e s e r v e s y s t e m n o w h a s t h e m available,
so that i t i s very possible t h a t Governor Fancher's c o m ~
mittee m a y w o r k o u t a
process w h e r e b y t h e s e f u n d s c o u l d
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Federal Reserve Bank of St. Louis
214
be m a d e a v a i l a b l e
b y telegraphic t r a n s f e r s o v e r commercial
MULLS Si,
The Chairman:
e have a
W
which G o v e r n o r F a n c h e r
committee appointed,
i s chairman,
o f
t h a t will hold a
meeting tomorrow morning, a n d something will result f r o m
their d e l i b e r a t i o n s ;
b u t I
do n o t think that action o n
I f i t should
this r e p o r t w i l l b e i n a n y w a y complicated.
be, o f c o u r s e y o u c a n reverse yourselves.
on t h e a d o p t i o n o f t h e r e p o r t
Governor Calkins:
The Chairman:
T h e motion i s
a s submitted.
W i t h o u t recommendation?
“ i t h r e c o m m e n d a t i o n f o r i t s approval.
That m o t i o n h a s w e n seconded.
(The motion, h a v i n g b e e n d u l y seconded,
w a s unani-
mously carried.)
The Chairman:
I
t i s understood t h a t t h e motion ap-
proving t h e r e p o r t a l s o a p p r o v e s t h e s u p v l e m e n t a l r e p o r t
submitted
b y t h e Leased w i r e Committee?
Governor C a l k i n s :
The Chairman:
Y e s sir.
T h e n i t i s unferstood t h a t i t
ebuded,
We h a v e w h a t i s k n o w n a s t h e s u p p l e m e n t a l p r o g r a m ,
under T o p i c I , c r e d i t T r a n s a c t i o n s
a n d Policies,
sub-
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Federal Reserve Bank of St. Louis
topics’ ( d y a n d (¢).
The f i r s t s u b t o p i c
is
(ad) A m e n d m e n t t o Federal Reserve
Act: t o P e r m i t A d v a n c e s t o HMember B a n k s o n t h e i r o w n Collateral: N o t e e s e c u r e d by-U. 8 ; G o v e r n ment s e c u r i t i e s a n d d r a w n f o r
periods u p t o ninety days.
That i s o n the program f o r discussion b y Cleveland.
Governor Fancher:
ference, a
w r . Ghairman,
year a n d a half ago, I
a t a
previous c o n -
brought t h i s same topic
up f o r d i s c u s s i o n a n d d i d n o t g e t v e r y f a r w i or-tt.
majority o f G o v e r n o r s
necessity f o r i t ;
t n e
a t that time d i d n o t s e e a n y great
b u t i t has t e e n o u r o b s e r v a t i o n
the C l e v e l a n d D i s t r i c t t h a t o n e o f t h e t h i n g s
small, m e d i u m sized banks object,
ing f i f t e e n d a y s n o t e s s e c u r e d
in
t o which t h e
i s the matter o f renew-
b y Government bonds. I
do not think o u r experience i s different f r o m that o f any
other o f t h e R e s e r v e b a n k s .
T h e auestion o f borrowing
conon a fifteen d a y note secured b y Government bords i s a
tinuous operation,
It places
i f the bank cares t o renew indefinitely.
i n our portfolio w h a t i s classed a s short paper
but w h i c h i n e f f e c t i s a
at t h e r e q u e s t
continuous p r o p o s i t i o n , r e n e w e d
o f t h e borrowing member bank.
I
t seems t o
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Federal Reserve Bank of St. Louis
ais
us that o n e o f the things t h a t could b e done that would
do a s m u c h g o o d a n d e n c o u r a g e g o o d f e e l i n g o n t h e p a r t o f
our s m a l l e r m e m b e r b a n k s w o u l d b e p e r m i s s i o n t o t o r r o w f o r
a period n o t t o exceed ninety days o n Government securiTies.
w
cently,
O
e h a v e fdyuadin o u r teank--w e h a d 7 2 notes t h a t m a t u r e d
were renewed.
n
o n o n e day.
e day, r e They
w e f i n d i n many cases t h a t o u r smaller
member banks have bought Government securities, subscribed t o them originally, w h e n t h e loans were completed, a n d
they keep them, a n d that i s a convenient w a y o f borrowing
from us.
W
e have t h e bonis plecged
are i n o u r s a f e k e e p i n g d e p a r t m e n t ,
find t h a t a
o n t h e loans;
t h e y
a n d our member banks
v e r y c o n v e n i e n t w a y o f b o r r o w i n g f r o m Was: >. LS
seemed t o u s i f t h a t a m e n d m e n t
t o t h e A c t was h a d i t
would b e something t h a t would b e pleasing t o a certain
at
class o f o u r m e m b e r b a n k s , w h o c o m p l a i n q u i t e p i t t e r l y
times o f having t o renew notes e v e r y fifteen days, when,
as a
matter
o f fact, t h e y a r e b o r r o w i n g t h e m o n e y f o r
w e a r e wilninety d a y s o r f o u r m o n t h s a n d t h e y k n e w t h a t
ling t o continue renewals ind:finitely.
T h e y wonder w h y
we c a n n o t t a k e t h e i r n i n e t y d a y notes.
w
e f i n d s o m e cases
f o r n i n e t y days,
where t h e m e m b e r b a n k v o u l d m a k e i t s n o t e
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Federal Reserve Bank of St. Louis
or
pass i t t o another member b a n k a n d rediscount i t for the
second member tank, waking i t a ninety d a y obligation.
The Chairman:
D
t o renew t h e n o t e
o y o u promise
indefinitely?
*
w
Governor Fancher:
b u t there i s
T h e y a r e renewed indefinitely.
no restriction imposed.
The Chairman:
e d o n o t promise,
G o v e r n o r Harding, u n d e r t h e original
Act, c o u l d p a p e r o f t h a t k i n d b e d i s c o u n t e d
a t all a t
the Federal reserve bank?
N o t under t h e original Act--- yes,
Governor Harding:
i% ¢ould,
mtes
a n d t o n d s o f t h e U n i t e d States, p a p e r s
secured b y notes a n d tonds o f the United States, b u t not
as a direct obligation o f the member bank.
T h e fifteen-day n o t e was a war
Governor Calkins:
emergency proposition a n d looked u p o n a s such a t the
time.
eligiI t i s n y own opinion that i f w e extend t h e
bLliity o f member b a n k n o t e s t o n i n e t y days, s e c u r e d
Government securities,
by
w e would b e met b y the demand that
secured
they b e m a d e e l i g i b l e f o r n i n e t y d a y s
paper, i n s t e a d o f f i f t e e n days, a n d I
expedients a r e highly undesirable.
Federal R e s e r v e A c t w a s
b y customers |
think b o t h o f t h o s e
T h e purpose o f the
t o d i s c o u n t p a p e r m a d e f o r curren.
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Federal Reserve Bank of St. Louis
218
purposes,
a m opposed t o t h e
a n d n o t t o m a k e loans. I
oroposition,
b e much more i n favor o f having
a n d would
the member b a n k note eliminated altogether. P r o b a b l y t h e
time h a s r o t arrived f o r that yet,
m t I
think i t will a r -
rive i n the comparatively near future.
do n o t agree w i t h Governor Calkins
The Chairman: I
as t o the situation that would develop i f you allowed
a member b a n k n i n e t y d a y s o n a note s e c u r e d
b y eligible
bilis,
w
Governor C a l k i n s :
Very r a r e l y w e h a v e a
e have
w r y l i t t l e o f that.
tank offer u s motes secured
by
receivables.
The Chairman:
O n t h e mntrary w e have a
considerable
volume o f member b a n k notes secured b y paper against
which * e hold excess collateral,
Governor McKinney:
The C h a i r m a n :
W
f i e have h a d t h e s a m e experience.
e would have m o r e
wasn't f o r t h e s t a m p a c t .
I
o f that
if it
f i t were n o t f o r t h e stamp
Act y o u w o u l d b e c a l l e d u p o n p r o b a b l y
ber b a n k p r o m i s s o r y n o t e s s e c u r e d
t o accept m o r e mem~
b y bills receivable
than y o u a r e now.
Governor McKinney: I
suppose
i n most c a s e s y o u m a k e
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Federal Reserve Bank of St. Louis
219
the s u g g e s t i o n o f a d d i t i o n a l c o l l a t e r a l y o u r s e l f
o n the
firteen G a y netes.
Governor Harding:
T h e Federal Reserve A c t has
always discriminated against notes a n d bonds o f the United
States,
U n d e r t h e original A c t that was t h e only form
of i n v e s t m e n t a
b a n k c o u l d take, b o n d s
United States. I
o r notes
o f the
do r o t agree with Governor G l k i n s
that i f t h e l a w s h o u l d b e a m e n d e d
s o a s t o permit discount
of member banks! n o t e s a t ninety days, secured b y Goverbment b o m s a n d notes, t h a t i t would necessarily follow
that w e would b e importuned t o extend i t t o other forms
of eligible paper. I
Governor Calkins:
do n o t think that a t all.
I - d o
m t t h i n k i t i s necessary
atall, but I think it would logically follow.
Governor Harding: I
do n o t s e e t h e logic o f it.
logical.
Mr. Harrison:
Isn't
te p e a i g o p e c e i
should e x t e n d t h e p r o v i s i o n p e r m i t t e d
ninety d a y n o t e s s e c u r e d
would
a n advance
Ll you
on
b y commercial p a p e r t h a n there
b e o n Government t o n d s ?
I
f y o u a r e g o i n g t o follow
than
it out, t h e r e w o u l d b e m o r e Logic i n p e r m i t t i n g t h a t
with t h e governments.
makes
T h e t a x r a t e o n conmercial p a p e r
i t a l m o s t prohibitive,--~-
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Federal Reserve Bank of St. Louis
220
Governor Harding:
B u t t h e fifteen d a y provision
was n o t a
war m e a s u r e
the war,
I t went i n for t h e convenience o f t h e large
city banks. I
a t all.
I
t was p u t i n long before
t h i n k t h e n a t i o n a l b a n k o f comrezvce o f
New Y o r k w a s o n e o f t h e banks c i t e d i n t h e d i s c u s s i o n o f
I think t h e point w a s r a i s e d
b y tir. A l e x a n d e r w h e n
the rebates c a m e in--- h e said t h e y might n o t want t h e
accommodation f o r m o r e t h a n t w o o r t h r e e days, b e c a u s e
most o f t h e l a r g e b a n k s b o r r o w t o s e t t l e t h e i r c l e a r i n g
house b a l a n c e s ,
Governor Seay:
4 n d for convenience i n h m d l i n g t h e
reserve accounvus.
Governor Harding:
H
e cGid n o t w a n t t o d i s c o u n t s i x t y
or n i n e t y d a y p a p e r a n d t h e n g e t a
rebate,
a n d all that
sort o f thing, a n d this aiendment w a s framed t o perml
a fifteen d a y note o n the direct obligation o f the bank,
My r e c o l l e c t i o n i s w r y c l e a r
Of t s
Later
I
a s t o t h e history
t was n o t connected w i t h w a r financirg
o n i n w a r financing,
House, I
o n tit,
when a
a t all.
bill w a s b e f o r e t h e
think i t w a s t h e V a y s a n d M e a n s C o m m i t t e e t h a t
was hearing t h e matter,
i n considering t h e war revenue a c t
of 1917, w h i c h w a s i n t i m a t e l y c o n n e c t e d w i t h t h e s a l e o f
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Federal Reserve Bank of St. Louis
eek
government b o n d s a n d notes, I
suggested
t o that committee
that t h e y e x e m p t f r o m t h e o p e r a t i o n o f t h e r e v e n u e s t a m p
tax m t e s secured b y Liberty bonds that t h e banks subscribed for, a n d they d i d that, a n d still d o it, d i d t
mot?
Governor S e a y :
Y e s .
Governor Harding?
D o e s t h a t practice still p r e wil?
Governor Fancher:
e o s
Governor Seay:
I t would b e a n undeniable convenience
to the member banks, a n d t o t h e member banks, b u t I believe t h e r e
i s one obiection to.it
more o r less unfortunate, I
o n principic.
think, t h a t w e s h o u l d t
w com-
pelled t o make advances o n notes secured b y government
bonds a t all, w c a u s e i t is a survival o f the bond-secured
currency
i n s o m e degree, a l t h o u g h o f a
different character.
If more difficulties a r e putin t h e way o f making these
short time advances, I
think i t will b e better f o r the
System, s o u n d l y speaking.
w h a t t h e Federal r e s e r v e
r i s t h e llaald- p a p e r itselt;
heaviits S h o u l d c i d e o u n s t
should f c o m e p o s s e s s e d
o f t h e paper.
1 %
v t cannot. h e l p f e e l -
ing that i t would b e unfortunate a n d would tend t o develop
the i d e a o f t h e a c c e p t a n c e
o f unliquid paper
i n t h e Federal
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Federal Reserve Bank of St. Louis
eee
reserve b a n k s i f w e p r o l o n g t h e p e r i o d o f p a p e r d i s c o u n t ed, s e c u r e d b y g o v e r n m e n t b o n d s .
Governor Fancher:
w h a t difference does i t make i n
the Liquidity a s long a s y o u indefinitely renew t h e
fifteen d a y note?
think i t - i s a
Governor Seay: {
very g o o d i d e a t o
preserve t h i s p r o p o s i t i o n t h a t t h e s e d i s c o u n t s a r e m a d e f o r
a short p e r i o d only.
Governor Fancher:
B u t i n actual o p e r a t i o n t h e y a r e
renewed a n d w e h a v e n i n e t y d a y m o n e y o r f o u r m o n t h s money.
Governor Seay:
w e d o that, t h a t l s trueé.
Governor Fancher:
J a n y banks o w n government secur-
ities j u s t f o r t h e p u r p o s e
o f keeping t h e m i n t h e Reserve
bank.
Governor Seay: I
know they do, a n d I think that i s
WrONg .
Deputy G o v e r n o r C a s e :
I t seems
t o m e this w h o l e
question r e v o l v e s a r o u n d t h e p o i n t a s t o w h e t h e r
o r not
fer a n
this i s important enough t o g o t o Congress t o ask
amendment
t o t h e Act.
Governor Fancher:
to, w h e t h e r
T h a t i s the idea I was getting
i t was desirable
t o a s k a n amendment f r o m
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Federal Reserve Bank of St. Louis
Congress
o n t h e proposition.
Gorrnor Calkins:
B y the same argument that eligibil-
ity i n this i n s t a n c e s h o u l d b e e x t e n d e d
t o ninety days
because t h e b a n k s a r e c a r r y i n g t h e s e c u r i t i e s permanently,
it s h o u l d b e e x t e n d e d
had c a s e s
t o a n y kind.
‘ w e o f course h a v e a l l
i n w h i c h t h e b a n k s h a v e c a r r i e d p a p e r o r this
=
sort o v e r a
t e r m o f years,
a n d w e m a y a s well g o t h e whole
hog a s t o extent i t ninety days, a n d s a y that member
bank notes secured b y G o v e r m e n t securities w o u l d b e ellgible for a n indefinite time.
have a
Deputy G o v e r n o r (Case: I
memorandum f r o m o u r
loan department rather favoring t h e suggestion that w e
could carry i t for ninety days a n d citing t h e inconvenience
and a n n o y a n c e a n d t h e w o r k o n t h e p a r t o f t h e m e m b e r
banks a n d t h e r e s e r v e t a n k s ;
r
b u t they, h o w e v e r , s t r e s s
ieeef you a r e going t o extend i t t o ninety
that
i
e
h
t
belief
that
daye, t h a p tb.138 I m p o r t a n t t h a t y o u s h o u l d e x t e n d
privilege
o n v o conmercial paper.
B u t , personally,
rather t h a n g o t o Gongress f o r a n amendment, I
would rather
see t h e thing left where i t is.
Governor Biggs:
banks?
D o e s this demand come from t h e small
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Federal Reserve Bank of St. Louis
224
Governor F a n c h e r f i o m t h e s m a l l e r a n d m e d i u m s i z e d
banks.
The Chairman:
I s that enough discussion, Governor
Fancher?
Governor Fancher:
The Chairman:
Y e s ,
r . Chairman.
T h e r e i s another t o p i c
mentary p r o g r a m s u b m i t t e d
o n t h e supple-
b y G o v e r n o r Fancher,
a n d that
is I-(e)
Policy o f Federal reserve banks i n
considering p a p e r o f borrowers w h o
are included i n groups consisting
of p a r e n t a n d s u b s i d i a r y c o m p a n i e s
and w h o i s s u c c o n s o l i d a t e d s t a t e ments.
Governor Fancher: I
have a
memorandum
o n that which
I would l i k e t o read.
‘Topic I - J . - C r e d i t s t a t e m e n t s
tiors
w a s considered.
o f Holding O r p o r a -
T h e sub-committee appointed
to
consider t h i s t o p i c f i l e d i t s r e p o r t w i t h t h e Conference.
The ( C m m i t t e e c o n s i s t e d
c f ‘iessrs., Morris,
Calkins
g
and
Fancher.
Upon motion o f Governor Seay, i t was
“VOTED t o adopt the report o f the sub-committee, a s
follows:
It i s t h e o p i n i o n o f t h e c o n f e r e n c e t h a t w h e r e p a p e r
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Federal Reserve Bank of St. Louis
225
of a
corporation w h i c h h a s allied, a s s o c i a t e d
jary c o m p a n i e s
i s offered f o r discount
at a
Bank, t h e t a n k s h o u l d r e q u i r e s t a t e m e n t s
associated
unless
o r subsidiary companies
t h e statement
o r subsid-
Federal R e s e r v e
o f s u c h a L Led,
a s o f t h e s a m e date,
o f the company whose paper
i s offer-
ed c l e a r l y i n d i c a t e s t h e e l i g i b i l i t y a n d a c c e p t a bility o f
the paper; t h i s o r o c e d u r e
t o b k adopted
b y the Feceral
reserve b a n k s a s p r o m p t l y a s i s p r a c t i c b l e . "
We have b e e n enieavoring t o procure separate statements o f corcerns w h o s e p a p e r i s o f f e r e d t o u s f o r rediso f t h e borrower whose
count o n c o n s o l i d a t e d s t a t e m e n t s
paper w a s offered.
ate s t a t e m e n t s
I n some cases w e have received separ-
o f the parent company a n d its allied com-
panies, included i n the consolidated statements.
other c a s e s w e h a v e s u c c e e d e d
I n
i n getting supplementary
acceptinformation w h i c h h a s e n a b l e d u s t o d e t e r m i n e t h e
ability o f the paper,
I n some cases w e have n o t been
able t o g e t s e p a r a t e s t a t e m e n t s
o r supplementary informa-
tion which would enable u s t o make a n intelligent analysis
of t h e c o n d i t i o n o f t h e borrower, C o r r e s p o n d e n c e w i t h
they a r e ex=other Federal reserve banks indicates t h a t
periencing t h e same difficulties.
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Federal Reserve Bank of St. Louis
ea
vr. M o r r i s
o f t h e Federal Reserve B a n k o f N e w York
wrote m e s o n e t i m e
a g s t a t i n g t h a t a t their recuest o n e
of t h e l a r g e commercial v a n e r b r o k e r s l o o k e d t h r o u g h h i s
accounts a n d t o l d t h e m t h a t f o r t y p e r c e n t o f h i s a c c o u n t s
were o f l a r g e c o r p o r a t i o n s y h i c h n o w i s s u e c n l y consolidated statements.
H
e further s t a t e d t h a t t h i s i s a
fair
indication o f the extent t o which loans i n general a r e
now being made o n the strength o f consolidated statements
and w h i l e t h i s s n o w s b o w i m p o r t a n t
practice,
i t i s t o correct t h e
i t also shows t h e importance o f avoiding i t s
being d o n e i n a
manner
t o cveate
a n upset c o n d i t i o n b y
rushing t h e matter t o o fast.
T have i n mind o n e instance where a
concern h a d
furnished u s i n 1 9 2 2 w i t h s e p a r a t e s t a t e m e n t s
i n order t o deter-
ent c o m p a n y a n d i t s a l l i e d c o m p a n i e s
mine t h e e l i g i b i i i t y
o f t h e par-
o f t h e i r p a p e r b u t i n i925 t h e s e p a r ‘ “ e did n o t ciscount
ate s t a t e m e n t s v e r e n o t forthcoming.
the p a p e r b u t w e w e r e i n f o r m e d t h a t s o m e o t h e r F e eral
reserve b a n k h a d d i s c o u n t e d t h e p a p e r
statement.
o n the consolidated
I t i s s u c h c i r c u stances w h i c h m a k e aovarent
the d e s i r a b i l i t y o f u n i f o r m action,
aware t h a t t h e b o r r o w i n g s
a s w e aré
w e l l
o f many large concerns a r e r o t
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Federal Reserve Bank of St. Louis
arate
_
confined t o any one district, a n d a bad reaction i s the
result w h e n p a p e r i s a c c e p t e d
i n o n e CLetiriet e n d r e r n s e d
in another,
e t o m e that three o r four months
It has o c c u r : d
prior t o January 1 , 1925, h e n m o s t o f the large concerns
Jasue their a m u a l statements, m t i c e b y all Federal r e serve banks o r b y the Federal Reserve B o a r d i n -behall o f
the Federal reserve banks, should b e given that begi nning
with J a m a r y 1 , 1925, Feceral Reserve Banks will P e e r re;
separate
Sn connection w i t h paver offered f o r reciscount,
statements
o f borrowers
sisting o f a
panies,
w h o a r e included
i n groups
parent c o m p a n y a n d s u b s i d i a r y
c o r
o r allied c o m -
i n t h e habit
e v e n though s u c h borrowers h a v e b e e n
that
of issuing consolidated statements, o r at least
the c o n s o l i d a t e d s t a t e m e n t m u s t b e a c c o m p a n i e d
b y suffi-
t h e borrower
cient supplementary information regarding
and i t s a l l i e d c o m p a n i e s
t o enable t h e Federal reserve
financial
panks t o make a n intelligent analysis o f the
i s offered a n d t o
condition o f the borrower whose paper
determine b o t h the
enable t h e federal reserve banks t o
eligibility a n d t h e d e s i r a b i l i t y
That topic i s t r o u g h
o f t h e p a p e r offered.
u p again because t h e banks d o
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Federal Reserve Bank of St. Louis
228
not seem t o have a n y very fixed policy atout this matter.
It r a t h e r s e e m e d t o m
t h a t w e ought t o have s o m e fixed
policy t h a t w o u l d b e pursued
i n a l l t h e banks, m a k i n g
the d a t e f a r e n o u g h i n a d v a n c e ;
e
n n o t i f y i n g these
comanies w h a t w e w o u l d e x p e c t o f them.
Governor Harding:
I s n ' t that a
Federal R e s e r v e B o a r d t o h a n d l e
it i s a
function o f
b y reguiation. I
very good suggestion that notice
b e given
time i n advance.
Governor Fancher:
The c h a i r m a n s
Yes.
A r e y o u aware t o what extent
policy h a s b e e n w o r k e d o u t a n d pursued?
Governor Fancher:
ence w i t h s e v e r a l
The Chairman:
W e l l , I
have b e e n i n correspond-
o f t h e o t h e r banks.
T h e r e a r e s o m e places where i t has
been difficult a n d almost impossible t o get t h e information h a s t i l y t h a t a p p l i e s
t o these corporations. I
see
there i s a n e x c e p t i o n here, “ - h e r e t h e statements o f the
borrowing c o r p o r a t i o n i t s e l f c l e a r l y i n d i c a t e s eligibility, ©
and s o -Lor ti.
Governor Fancher:
‘ c l e a r l y i n d i c a t e s s i t c i p i tity”,
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Federal Reserve Bank of St. Louis
229
The Chairman:
A n d I assume t h e banks that have
been i n touch with i t have done something towards it.
G@vernor Fancher:
I t does n o t seem that w e are all
working along t h e same lines. I
attempt
think i n some cases w e
t o correct t h e situation w i t h s o m e b a n k a n d f i n d
later that some other Federal reserve b a n k i s talking that
paper a n d n o t asking f o r separate statements,
W e find
we are working a t cross purposes w i t h some o f the other
banks.
Governor Seay:
very f i r s t m e g n i t u d e .
can--- I
w
p o s d u e s cron t s o n e o r pine
y tas
T t v i e o u r practice,
a s far
do m o t say there a r e n o t exceptions---
t o reauire
separate s t a t e m e n t s f r o m t h e b o r r o w i n g corporation;
there a r e some v e r y large corporations
as we
b u t
i n the country
which a r e composed o f such a nest o f subsidiary companies
that i t i s n e x t t o a t t e m t i n g
a n impossibility
t o deter-
mine b y a n y c o n s o l i d a t e d s t a t e m e n t w h a t t h e l i o u i d i t y o f
the p a p e r i s , a n d s o m e t i m e s w h a t t h e i n t e g r i t y o f t h e
paper i s , a n d s o o n e r o f l a t e r t h e c o u n t r y i s g o i n g t o c o m e
up against a
it i s a
staggering loss o n that account. I
question t h a t o u g h t
early date, I
believe
t o b e considered a n d a t a
think t h e r e s h o u l d
very
b e uniform a c t i o n i n
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Federal Reserve Bank of St. Louis
zr
the F e d e r a l R f S y s t e m ,
w
one t o t a k e action,
a n d that t h e System i s the
e h a v e required o f certain corpora-
tions which a r e n o t accustomed t o furnishing statements
to t h e i r o w n b a n k i n g institutions,
w h i c h banking institu-
tions t e a r s u c h r e l a t i o n t o t h e m t h a t t h e y d o n o t f e e l
in a position t o insist upon statements, a n d i n some cases
we h a v e r e q u i r e d t h o s e c o m p a n i e s
ate s t a t e m e n t s ,
before
t o furnish u s w i t h separ-
w e would h a n d l e t h e i r paper,
i n g such statements, w h i c h were
we have succeeded i n
not a c t u a l l y f u r n i s h e d
Governor Calkins:
t o t h e i r o w n banks.
O u r practice h a s b e e n t o decline
to a c c e p t f o r r e d i s c o u n t p a p e r t h a t w a s
by t h e s t a t e m e n t
and
m t supported
o f t h e maker, w h e t h e r t h e m a k e r i s a
subsidiary o f some other corporation issuing 4
statement o r not.
t f they a r e r o t willing t o furnish
that i n f o r m a t i o n t h e p a p e r
Governor Seay:
combined
i s n o t a c c e p t e d f o r rediscount..
T h a t means t h e borrowing corpora-
tion?
Governor C a l k i n s :
Yes.
T h e r e h a v e b e e n some excep-
tions w h e r e t h e p a p e r w a s g u a r a n t e e d
b y t h e parent
company »
Governor Fancher:
W
e declined t o take paper o f a
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Federal Reserve Bank of St. Louis
Lol
corporation w i t h o u t a
statement,
a n d w e learned that t h e
paper was being discounted a t that time a n d was i n the
portfolio
o f a m t h e r reserve bank.
Governor Harding:
T h e most effective w a y o f hand-
ling this would b e t o have t h e Federal Reserve B o a r d make
a regulation governing it.
T h e n everybody i s o n notice.
That w o u l d s t r e n g t h e n t h e h a n d s
o f t h e member banks
in
think s o m e o f t h e m w o u l d b e g l a d t o
many instances. I
Y o u will recall there i s a rule o f prac-~
have i t done.
tice a m o n g t h e F ;
e s e r v e banks n o t t o reject paper
originating i n the district o f another Feceral reserve
bank which i s considered eligible b y that other Federal
reserve b a n k .
Governor Harding:
That
e cured b y the Board's
c o u l d b
regulation.
Governor veay:
Paper m a y b e o f f e r e d
was c r e a t e d
M e a s
T h a t i s t h e p r e s e n t oractice.
t o o n s Federal r e s e r v e b a n k “hich
i n another district a n d accented
Federal r e s e r v e b a n k o f t h a t district,
b y the
a n d t h e Federal r e -
gerve b a n k o f t h e d i s t a n t d i s t r i c t
paver w a s
determine t o its o w n satisfaction whether t h e
reiect t h e
good o r not, a n d t h e y w o u l d s i m p l y h a v e t o
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Federal Reserve Bank of St. Louis
232
paper o r a c c e p t i t o n t h e f a c t t h a t t h e F e d e r a l r e s e r v e
bank o f t h e d i s t r i c t
as 6ligible.
i n which i t was created accepted
T h a t i s n o t a good standard;
it
t h a t i s not
@ conclusive s t a n d a r d .
I t i s c e r t a i n l y v e r y s t r o n g evi--
dence,
conclusive s t a n d a r d .
b u t i t is not a
committee
o f the conference
Governor Callins:
a n eligibility
I g n ! t there
Deputy G o v e r n o r CGase:
o f Governors?
T h e r e i s a n eligibility committee
in e a c h bank,
I
Governor Seay:
t might b e a
v e r y i m p o r t a n t aues-~
tion w i t h t h e l a r g e r lMmnks.
w e have a n eligibility com-
Deputy Governor Case:
was u n d e r t h e
mittee t h a t i s f u n c t i o n i n g c o n s t a n t l y . I
impression t h e r e w a s a n e l i g i b i l i t y c o m m i t t e e
o f t h e con-
ference.
Governor Seay:
committees
i s i n each bank,
N o , t h e committee
i n the separate tanks.
Deputy G o v e r n o r C a s e :
I
t seems
an e x c e l l e n t p l a n t o a p p o i n t s u c h a
Governor Calkins: 1
Governor Norris:
I
t o m e i t might b e
committee.
G0" woe t h i k 36.
t seems
t o me a
regulation c f
the F e d e r a l R e s e r v e B o a r d w o u l d b e t h e b e t t e r way.
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Federal Reserve Bank of St. Louis
233
I
Governor Calkins:
f y o u impose s o m e obligation
on every b a n k t o accept t h e findings o f that committee,
that might n o t b e desirable.
T h e r e does n o t s e e m t o b e unifor-
Governor Fancher:
mity o f practice;
i n o t h e r words,
working toward t h e same end.
ments,
v e d o not seem t o b e
w e endeavored t o get state-
2 n d then w e f i n d t h e paper i s b e i n g discounted
by
some o t h e r bank.
Governor Norris:
Gieatrict
P a p e r originating
i n your o w n
o r i n other districts?
Governor Fancher: O r i g i n a t i n g i n other districts,
think, s i n c e t h a t report,
Governor Norris: I
have f o l l o w e d t h e p r a c t i c e
as t o p a p e r o r i g i n a t i n g
originating
we
o f requiring t h e s e statements
i n our
i n o t h e r districts,
G i s t ty A s 1 0 p a p e r
w h e r e there i s a n y doubt
about it, w e a s k the Federal reserve b a n k o f that dis-~
trict whether t h e y consider t h e paper eligible, a n d where
they have replied that they did, w e have acted o n that
recommendation,
The Chairman:
G o v e r n o r Fancher, w i l l y o u state t h e
previous action again?
Governor Fancher:
T h i s i s t h e report
o f t h e sub-
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Federal Reserve Bank of St. Louis
committee a d o p t e d a t t h e c o n f e r e n c e l a s t spring:
"Tt i s the opinion o f the conference that where paper
of a
c o r p o r a t i o n w h i c h h a s allied, a s s o c i a t e d o r s u b i s offered f o r discount
sidiary c o m p a n i e s
at a
federal
reserve bank, t h e bank should require statements o f
such allied, associated o r subsidiary companies a s o f
the same date, unless t h e statement o f the company whose
paper
i s offered clearly indicates
acceptability
o f t h e paper;
t h e elisibility
t h i s procedure
and
t o b e adopted
practicby t h e F e d e r a l r e s e r v e b a n k s a s p r o m p t l y a s i s
able."
That w a s t h e a c t i o n a
Governor S e a y :
year a g ,
W a s there a
i n March.
reference
t o some rul-
ing o f t h e B o a r d t h e r e ?
Governor Fancher:
N O .
Governor Norris: I
ee
SAS
O e
t h i n k w e h a d t h e s a m e i d e a then,
t h a t time, t h e r e w o u l d b e p l e n t y o f
for them t o
between t h e n a n d t h e e n d o f t h e y e a r
arrangements
s o a s t o get t h e statements
i n that
for t h e following year--Deputy G o v e r n o r Case:
on t h a t s u b j e c t
W
e h a v e m a d e r e a l progress
time.
i n our institution since that
[ I
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Federal Reserve Bank of St. Louis
255
have n o t i c e d t h a t c o r p o r a t i o n s t h a t a r e d o m i c i l e d
i n our
district, t h a t w e have undertaken t o follow u p have suci n giving separate a s well a s
ceeded i n m a n y i n s t a n c e s
I t seems t o me, however,
consolidated statements.
if
there i s going t o b e a ruling b y the Federal Reserve Board,
that there ough:
t o b e a long time limit placed o n ity
say t o b e e f f e c t i v e a
year hence,
s o a s t o give t h e cor-
porations ample time t o m e e t i t and ajjust their a m u a l
statements
t o t h e requirements
Governor N o r r i s :
I
o f t h e Board.
f w e make t h e date January l ,
1925, don't y o u think that i s plenty o f time.
T h a t would
give t h e m s i x months,
Deputy G o v e r n o r (Case: A
great m a n y c o m p a n i e s m a k e
their statements a s o f December 31, b u t they d o not
come o u t until April o r May. I
should think a year i s
mt t c o long.
The C h a i r m a n s
T h e r e are a
great m a n y c o r p o r a t i o n s
that a r e o p e r a t i n g s u b s i d i a r y c o r p o r a t i o n s t h a t w o u l d
be affected b y this ruling, a n d they certainly should b e
given time t o adjust their affairs t o meet it.
Goverror Fancher:
D o n ' t y o u think that i f the Board
July, t h a t
should g e t something o u t about t h e first o f
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Federal Reserve Bank of St. Louis
that w o u l d b e a x p l e t i m e ?
The Chairman:
Y o u mean next July?
Governor Fancher:
The Chairman:
Yes.
I f July was fixed a s the time limit
T do not think i t would b e sufficient.
ments,
year,
T h e annual state-
o f course, a r e n o t put out until t h e close o f the
a n d i t would b e impossible
out prior t o February,
t o g e t those statements
a t least.
I f notice i s given before t h e
Governor C a l k i n s :
first o f July a n d the requirement imposed a s o f January
1, 1925, t h a t would b e sufficient notice.
M a y 1, 1925 would b e sufficient
Governor Harding:
notice a s t o t h e r e q u i r é m e n t g o i n g i n t o e f f e c t ?
The Chairman:
f
Governor Seay:
l -phank S O .
e -onOul c
i f i t applies
of December 31, 1924, I
ments c a n n o t
t o t h e statement
as
should think so; b u t those state-
b e gotten o u t f o r s o n e considerarle time,
as
Wr. Case has said.
Governor Calkins: I
mean t h e i r s t a t e m e n t s
a s of
January 1 , 1925, o r December Sl, 1924,
Deputy G o v e r n o r C a s e :
tion h a s b e e r c a l l e d
t o one
D u r i n g t h e p a s t y e a r m y atteno r t w o instances
where there
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Federal Reserve Bank of St. Louis
257
has been difficulty, b u t I think that w e have made real
progress a l o n g t h i s l i n e a n d t h a t w e a r e m o v i n g a l o n g a l l
right.
S o far a s I
a m concerned, I
leave t h e m a t t e r w h e r e i t is. I
would b e content t o
agree w i t h t h e o t h e r
think w e
gentlemen a s t o the importance o f t h e matter, I
are naking progress, b u t I think that e a c h Federal Reserve
Bank c a n handle t h e concerns o f its o w n district.
Governor Fancher: I
believe
i t would help i f t h e
Board would g e t o u r a regulation fixing t h e date a s far
as May 1, 1925.
The Chairman:
N r . Harrison, h a v e y o u prepared a
motion with regard t o this matter?
Mr. Harrison: ' Yes: T h a t t h e Conference recommend
to t h e Federal Reserve Board that t h e Federal Reserve
Board a m e n d r e g u l a t i o n A , S e r i e s
the e n a o f S e c t i o n 4
o f 19235,
b y adding t o
a paragraph providing,
i n substance
that i n any case where t h e borrower h a s closely allied,
associated o r subsidiary companies, t h e statement therein
required s h o u l d
b e accompanied
b y 4 a separate s t a t e m e n t
such allied, associated o r subsidiary company,
of
i t being
understood t h a t t h i s r e q u i r e m e n t s h o u l d t e c o m e e f f e c t i v e
May 1, 1925.
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Federal Reserve Bank of St. Louis
(After further discussion: )
Governor Harding:
W r . Chairman, I
would s u g g e s t
that t h e Secretary t o the Conference d r a w u p a resolution
covering this matter, t h a t h e present i t t o the conference
in the morning,
s o that t h e Conference m a y act u p o n i t
then.
The Chairman: W i t h o u t objection, t h a t course will
be pursued,
(whereupon,
a t 6:10 ofclock p . m., o n motion, d u l y
seconded, t h e Conference adjourned until Tuesday, M a y 6 ,
1924, a t 10-0! elotkze.
mo
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