The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
VOLUME 2
PROCEEDINGS
CONFERENCE
O F GOVERNORS
OF T H E F E D E R A L R E S E R V E
TREASURY
BUILDING
WASHINGTON,
MAY
D . C,
5 , G6, 7, 1924
WALTER
SHORTHAND
COLUMBIAN
S. COX
REPORTER
BUILDING
W A S H I N G T O N , D.C.
BANKS
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3
tke
S E C O N D
D a s s
O F FED*RAL
O F GOVERNORS
CONFERENCE
RESERV BANKS.
May 6 , 1924.
Met, p u r s u a n t
O'clock
t o adjournment
o f yesterday,
a t
e m
Present:
T h e Governors
The Chairman:
a s previously noted.
Gentlemen,
w e have t e e n unavoidably
delayed t h i s m o r n i n g b e c a u s e o f t h e m e e t i n g o f a vwery
W
important c o m m i t t e e .
gram w a s a
short o n e .
e agreed y e s t e r d a y t h a t t h e pro-
T a m afraid w e have n o t progressed
as far a s w e hoped to, m t l e t u s make t h e discussion
short a n d gg o right along with t h e program, commencing
with t h e f i r s t t o p i c t h a t i s u n f i n i s h e d
and t a k e t h e topics
u p i n order.
o n t h e program,
T h e first. topple t a e r o =
fore would t e I-(b)
(b) D i s c o u n t r a t e policy i n relation
to g e n e r a l p r i n c i p l e s d i s c u s s e d
in Federal R e s e r v e B o a r d ' s A n n u a l
Report.
This w a s s u b m i t t e d
b y N e w York.
M r . Gase, I
assume
discussion
that this c a n b e tied u p with t h e discount r a t e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
240
the Joint
which u n d o u b t e d l y w i l l c o m e a t t h e t i m e o f
Conference.
Y e s ,
Deputy G o v e r n o r Case;
i t can.
the
“ W h a t i s your wish i n regard t o
The Chairman:
matter?
Deputy G o v e r n o r C a s e :
wishes’.
here.
A
s y o u know, I
J u s t whatever
t h e Conference
expected G o v e r n o r S t r o n g t o k e
T h i s w a s p u t o n apparently
b y Mr° Harrison. I
think there i s very little t o s a y other t h a n I
a m sure
t h e princithat t h o s e o f u s v h o h a v e r e a d t h e r e p o r t a n d
rate
ples which are laid down, dealing w i t h t h e discount
and a
policy, f e e l that i t i s 4 most excellent repcrt
good s e t o f principles
t o fcllows
T h e N e w Y o r k Federal
Reserve B a n k k e p t s t e p w i t h t h o s e p r i n c i p l e s
recent r e c u c t i o n
i n its
i n the discount rate,
The Chairman:
D o y o u care t o discuss t h e subject
to a n y further extent now?
Governor G a s e :
The Chairman:
N o , I
do not
Y o u a r e speaking f a w r a b l y n o w o n
the policy a s outlined i n the Board's report?
Deputy Governor Case:
The Chairman:
Yes.
A n d y o u think i t worthy o f considera-~
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
tion?
Deputy Governor Case: ¥Yes,;.1 think 2 0 e
an-excéel+
lent s e t up, a n d a l l o f t h e c o m m e n t s a n d criticisms r e specting i t t h a t I
have s e e n h a v e p e e n m o s t f a wrable.
Governor Bailey:
I t has attracted more attention
tn our district t h a n a n y report sent out.
I t i s a revela-~
tion that t h e open market i s the controlling influence
tno eredit.
think i t has b e e n v e r y
Deputy G o v e r n o r C a s e : I
favorably r e c e i v e d e v e r y w h e r e .
The Chairman:
D
o n o t forget, g e n t l e m e n ,
that when
was
we speak o f the open market r a t e f o r money, t h a t i t
decided and agreed upon a t the Philadelphia conference
e indicated b y the
that t h e open rate f o r money s h o u l d b
a n d the
average r a t e a s b e t w e e n c o m m e r c i a l p a p e r r a t e s
going r a t e o v e r t h e c o u n t e r
o f t h e c i t y bank,
T h a t is
a good thing t o remember.
As I remember i t topics (d) and (e) o n the supplementary p r o g r a m w e r e d i s p o s e d o f .
Mr. Harrisons
Y e s sir.
Governor Harding: ‘ v a s not there a
motion that Mr.
i n this morning?
Harrison would prepare a n d bring
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
242
Wr. Harrison:
part o f t o p i c { e ) .
to me, a n d I
suggested
Y e s . T h a t h a d t o d o with the last
T h e wording o f the resolution w a s left
have t r i e d t o i n c o r p o r a t e i n t o i t t h e t h o u g h t
b y Governor N o r r i s , t h a t t h e r e s o l u t i o n s h o u l d
become effective o n May 1, 1925, a t the latest, a n d become
effective
o n earlier d a t e s a s a n d w h e n i n d i v i d u a l s t a t e -
ments a r e published. I
think i t m i g h t
b e accomplished
in this way: R e s o l v e d , T h a t t h e conference r e c o m e n d t o
the F e d e r a l R e s e r v e B o a r d t h a t t h e B o a r d a m e n d R e g u l a t i o n
A, S e r i e s
o f 1923,
paragraph p r o v i d i n g
b y adding a t t h e e n d o f Section 4 , a
i n substance t h a t i n a n y c a s e w h e r e
the b o r r o w e r h a s c l o s e l y allied, a s s o c i a t e d
companies
t h e statement
herein required
o r subsidiary
should
b e cocom-
panied b y separate statements o f said allied, associated
or s u b s i d i a r y companies, u n l e s s t h e s t a t e m e n t o f t h e b o r rower c l e a r l y i n d i c a t e s e l i g i b i l i t y
m d acceptability,
and t h a t i n o r d e r t o p e r m i t o f t h e i s s u a n c e
individual s t a t e m e n t s
o f appropriate
a t t h e u s u a l s t a t e m e n t periods,
the
Federal reserve t a n k s may waive t h e application o f this
orovision until M a y 1, 1925,
i n those cases where t h e
borrower a n d allied, associated o r subsidiary companies
have n o t i s s u e d s e p a r a t e s t a t e m e n t s p r i o r thereto.
Deputy G o v e r n o r Case: I
move t h e a d o p t i o n o f t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
resolution,
Governor Harding: I
will second that.
(The motion, having b e e n duly seconded, w a s carried.)
The Chairman:
M r . Strater,
port o f t h e S t a n d i n g C o m m i t t e e
w e are ready f o r t h e re-
o n Collections,
which we
deferred consideration o f yesterday until your arrival.
Nc report has b e e n received, I
Y o u have skipped I-(c), Mr. Chair-
Governor Calkins:
The Chairman:
believe.
W i t h o u t objection,
w e will pass that
for t h e moment a n d let Mr* Strater give his report.
Mie <oura Gers
T
o t h e Conference
At t h e l a s t C o n f e r e n c e
Leos
o f Governors:
o f Governors,
h e l d i n Novem-
o o was
VOTED t o r e q u e s t t h e C o l l e c t i o n C o m m i t t e e
t o draft
a uniform circular t o b e issued simultaneously b y
all Federal Reserve Panks, defining t h e terms u s e d
by Federal R e s e r v e B a n k s
i n connection w i t h t h e col-
lection o f n o n - c a s h items.
It w a s a l s o
VOTED t h a t a l l F e d e r a l R e s e r v e B a n k s s h a l l g u a r a n t e e
prior e n d o r s e m e n t s
o n non-cash collections b u t that
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
244
they s h a l l r e c e i v e
f o r collection only those non-
ca c=] h items o n w h i c h t h e d e v o s i t i n g b a n k h a s g u a r a n - a
teed prior endorsements."
l
Committee
us i d efr a t ieo n
con
ra s
h
that t h e Committee prepare a
7
the t e r m s u s e d b y Feceral
of
o f the Onference
t o the request
o n Collections
with t h e c o l l e c t i o n
abeen C g i v en b y the Standing
uniform circular, defining
Reserve
i n connection
! Banks
}
It i s t h e o p i n i o n
non-cash items.
of t h e C o m m i t t e e t h a t a l t h o u g h i t vould,
no doubt,
d o not
t o define certain terms those terms w h i c h
sirable
b e de-
have anunmigtakable weaning a r e s o f e w that i t would
be advisable t o define t h e m i n a uniform paragraph t o b e
included
i n the non-cash collection circular
Federal Reserve Rank,
than i s s u e a
rather
The
cular defining
Committee
One the r e s e r v e b a n k s h a s a l r e a d
of
t
e nr
im
as
tBelair
r e ron-3
c
asan
a
o f each
separate c i r -
is a d v i s e d t h a t o n e
included a
definition
*collection circular.
The C o m m i t t e s u n d e r s t a n d s t h a t t h e L e a s e d “ i r e Corvsmittee h a s s u b m i t t e d a
report
t o t h e Gonference
i n which
4% i s r e c o m
ended 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
practically
restricted
between m e m b e r b a n k s
t o telegraphic transfers
a n d that t h e use
b e
o f funds
o f the leased wires
teb> 7
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
245
¢ prohibited entirely f o r a r y purpose i n connection w i t h
rhe handling o f non-cash items.
The C o m m i t t e e u n d e r s t a n d s a l s o t h a t t h e C o m n i t t e s
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
on
o n the non-
cash collection function t o the Federal Reserve Board a n d
that this report will b e a subject f o r discussion a t the
next C o n f e r e n c e .
Tt i s not unlikely t h a t i t will b e necessary t o
revise 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 s
Reserve B a n k s a s a
o f t h e Federal
result o f t h e a c t i o n w h i c h w i l l b e
of
taken b y the Conference o f Governors o n the reports
those t v o Committees.
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
guarantee
Governors, r e q u i r i n g P e d e r a l R e s e r v e B a n k s t o
makprior endorsements, d i d not set 4 definite date for
ing t h i s r e o u i r e m e n t e f f e c t i v e .
T h e C o m i t t e e under-
has attenupted
stands that only one o f the reserve banks
Governors! C o n to carry o u t t h e recommendations o f t h e
ference a n d h a s u n d e r t a k e n
t o reauire i t s member banks
guarantee prior endorsements
Committee
o n non-cash items.
to
T h e
should
i s o f t h e opinion t h a t this requirement
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
246
be p l a c e d
i n operation simultaneously
Federal Reserve Barks,
b y all o f the
i n fact t h e requirement could m t
be enforced, unless e a c h o f the several Federal reserve
banks notified their member banks t h a t o n and after a
definite d a t e a l l Fedcral Reserve Banks would cecline t o
accept f o r c c l l e c t i o n n o n - c a s h i t e m s w h i c h d i d n o t b e a r
a guarantee
bank.
o f prior endorsements
b y t h e depositing memmer
I n numeous instances, member tanks i n one district
are p e r m i t t e d
t o forward non-cash collections direct
to a
Federal reserve b a n k o r branch o f armther district a n d i t
can b e clearly understood that unless t h e reauirement o f
guaranteeing prior endorsements i s made effective simultaneously b y all Federal reserve banks,
a n a m o y i n g ele-
ment o f c o n f u s i o n w i l l b e i n j e c t e d i n t o t h e relations
between m e m b e r b a n k s o f o n e d i s t r i c t a n d f e d e r a l r e s e r v e
banks o r branches o f other districts, unless t h e require-~meant i s n o t strictly enforsec.
It a l s o s e e m s
manner
t o t h e comzittee t h a t t h e effective
o f plecing t h i s recormendation i n t o operation would
be b y 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
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
o n t h e subject
o f each Feceral r e s e r v e
bank, t h e revised circulars o f all o f the Reserve banks
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
247
embodying this paragraph t o be issued simultaneously.
It w o u l d b e p o s s i b l e
t o incorporate
in a
revised
non-cash collection circular t h e following uniform paragraphs ¢
(a) paragraph relating t o the guarantee o f prior
endorsements 3
(b) p a r a g r a p h defining t h e terms u s e d b y Federal
reserve banks;
(c) a n y additional paragraphs which may b e required
re~
as a result o f action taken b y the Conference o n the
C o r f erence
port o f t h e L e a s e d w i r e C o m m i t t e e a n d b y t h e
or t h e F e d e r a l R e s e r v e B o a r d o n t h e r e p o r t
o f t h e Commit-
tee o n Voluntary ‘Services.
Ary o t h e r m o d i f i c a t i o n s
collection circulars,
o f the existing non-cash
i n s o far a s uniformity b s con-
cerned, which may b e wceéessary 4 8 4 result o f action taken
at t h e C o n f e r e n c e
o f Governors c o u l d a l s o t e t a k e n c a r e
of i n the revision.
Respectfully submitted,
Strater, Chairman
Walden, J P .
Atte bery
Coe
TOY.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
248
The Chairman:
Y o u have heard t h e report o f the
Standing Committee o n Collections.
W h a t i s t h e pleasure
of t h e G n f r e r e n c e ?
would like t o a s k t o have r e a d
Governor Balley: I
into t h e report o f the c o m i t t e e t h i s telegram that I
received l a s t evening.
T h i s i s a little p o s t mortem
T h i s i s from our bank.
our discussion o f yesterday.
Manalysis
o f country non-cash collections outstand-
o f items o u t
ing March 31, 1924, shows total number
I t e
a o e
t o t a l a m o u n t o f £625,467.
O f this amount
o f $25,608,
834 items for less than #100 each, a total
834 items.”
or a n average o f #30 a n item o n
I just wanted t o put that i n for your information.
Governor C a s e :
T h a t was referred
t o t h e Standing
ae
granted t o
Cormittrce o n yesterday a n d / p e r n i s s i o n w a s
i t referred t o the com~
put that into t h e report a n d have
mittee, w o u l d t h a t m e e t y o u r s u g g e s t i o n ?
The Ghairmant
I f there i s n o objection, t h a t course
will b e pursued.
Governor Bailey:
haa a
T h e t i s satisfactory t o me. I
more d e t a i l e d report,
put i t i n m y brief case.
but I
inadvertently d i d n o t
T h a t i s what w e get o u t there.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
249
I believe t h e r e w e r e s o m e t h i n g o v e r f i f t y o f t h o s e i t e m s
under o n e dollar.
I s i t possible t h a t those items t o
zr, Strater:
which y o u are referring a r e railroad drafts which a r e
taken for collection, a n d which many o f the other b a n s
take a s cash items?
Governor Bailey:
T h e y a r e all kinds o f little
N o .
duns; l i t t l e notes, t h a t w e r e g i v e n f o r subscriptions
and one thing a n d another;
bunched i n o n us,
a n accumulation o f stuff just
w e are taking t h e collection business
away f r o m t h e l a w y e r s o u t t h e r e i e S p e Ss “Ghat pe SOEs O N .
The Chairman:
w h a t i s the pleasure o f the conference
with r e g a r d t o t h e r e p o i t
a s read?
Deputy G o v e r n o r Case: I
move t h a t t h e r e p o r t b e
received a n d the recommendations o f the comnittee adopted.
Governor (Clkins:
I
t appears
t o m e that, i n a s m u c h a s
referred
a study o f t h e non-cash collection s i t u a t i o n was
to t h i s c o m m i t t e e
ence yesterday,
o n Collections
b y action o f t h e confer~
t h a t t h e Committee should
b e continued
of a
for the purpose o f that study a n d the preparation
uniform c i r c u l a r
t o b e submitted
a t t h e next conference.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
250
think t h a t i s a
Governor Bailey: I
very g o o d sug-
gestion.
Governor Galkins:
I s i s also suggested, tip. Chair-
man, t h a t i n t h e m e a n t i m e t h e F e d s r a l r e s e r v e b a n k s a l l
put i n t o e f f e c t t h i s p r o v i s i o n “with r e g a r d t o g u a r a n t e e
d o n o t think i t i s o f a n y importance
of e m o r s e m e n t s . I
myself.
The Chairman:
w h y n o t hand this matter t a c k t o
the C o r m i t t e e w i t h a u t h o r i z a t i o n
t o a c t f i n a l l y o n it.
» f u s here,
They a r e tetter qualified t o act t h a n some
I think.
Conference,
I f you put i t off until t h e next
{t will have t o b e put off again. I
would think i t would
tell t h e n
be t e t t e r t o s e n d i t m c k t o t h e c o m m i t t e e a n d
to prepare a
uniform circular i n accordance w i t h t h e
eascommendation. I
do n o t think w e would b e obliged t 9
o f the Voluntary
make a n y c h a n g e s ‘ s c a u s e o f t h e a c t i o n
give considerservices Coumittes, b u t t h e m v i t c e s would
ation t o that a n d consideration o
t h e report o f the
Leased ‘wyre C o m m i t t e e - - Governor Young:
some c o n s i d e r a t i o n
Lection i t e m s t h a t
C o u l d a w e a s k t h e committee
to t h e k i n d a n d a m o u n t
w e will handle?
t o give
o f non-cash col-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
cos
Mr. Harrisons
Young;
T h a t was voted yesterday, Goverror
k i n d a n d arount both.
The Chairman:
T h a t , o f course, w o u l d have t o b e
considered along w i t h these cuestions i n formulating t h e
new circular.
T h i s comiittee should have called
Governor Norris:
to t h e i r a t t e n t i o n t h e t r a n s c r i p t
o f t h e discussion o f
yesterday o n that subject.
The Chairman:
y e s s
wr. Harrison:
I t vould b e impossible f o r t h e cowmit-
tee t o issue a new circular embodying a n y changes i n t he
norecash c o l l e c t i o n feature,
s o f a r a s k i n d s a n d amounts
are concerned, w i t h o u t s u b s e c u e n t a c t i o n b y t h i s
ence; s o that t h e resolution o f Governor Calkins
prepare t h e uniform circular f o r t h e next conference's
consideration woulda stand p a t with t o t h o f these features
OL Uhee reports
Governor Seay:
L o u i s
t k e cce
this C o n f e r e n c e h a s n o t a d o p t e d t h e f
the
o f items
ing Committee which does define the classes
which shall b e received?
our b a n k h a s i s s u e d a
Y o u a r e probably aware that
oak
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 naloly
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
252
find i n t h a t c i r c u l a r a
description
items which shall b e received. I
o f the class o f
assume t h a t those
classes a r e t h e o n e s w h i c h h a v e b e e n s p e c i f i e d
committee
b y the
i n i t s p r e v i o u s report, w h i c h h a s b e e n a d o p t e d
by this conference.
T h e classes a r e a s follows:
All kinds o f time items
Sight o r demand drafts w i t h o r without security
Bills o f lading o r other documents
Checks o r other c a s h items which have t e e n previously
presented, d i s h o n o r e d
o r protested.
Checks o n savings accounts w i t h passbook attached
Certificates o f deposit
Matured bonds o r coupons other t h a n those o f the
United States.
It seems h a r d l y p o s s i b l e t h a t w e w o u l d h a v e f o r m u lated t h a t c l a s s i f i c a t i o n i f i t h a d n o t b e e n d i s c u s s e d
by
your conmittee a n d agreed upon.
Mr. Strater;
I
t was discussed
Governor Seay, b u t b e c a u s e
varied
s o much
b y t h e committee,
o f the f a c t t h a t conditions
i n the different districts
i t was n o t
thought advisable t o set u p a schedule a n d that was left
to each individual bank.
w h i l e s o m e o f them m a y have
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2535
put i t i n t o t h e i r circulars, I
make a complete classification.
think t h e rest d i d n o t
M o s t o f them classified
those items which would notbe received f o r collection
and they were particularly checks which could n o t b e collected a t par, o r checks o n ron-par banks, a s EP -recalleag..
Governor Seay:
have t e e n d i s c u s s e d
lir, Strater:
T h i s classification, however, m u s t
b y you?
O h , ye-, i t was discussed.
Governor S e a y :
I t must h a v e b e e n agreed u p o n a s
applicable generally, I
Mrs, SGtraver:
Y e s .
think.
T h a t covers practically e v e r y
class o f items, d o e s i t not, except checks o n non-member
banks that d o n o t remit a t par.
Y o u probably have t h a t
also i n the circular.
Governor >eay: 7
i
s a classification o f items
that w e will receive a n d does n o t incluce certain itoms
which, I
understand f r o m c e r t a i n v e n a r k s m a d e yesterday,
were bothering o n e o r two o f the reserve banks, a n d those
were p a s t d u e paper.
Governor Young:
trie G L LiS
T h e Act permits u s t o handle matur-
H a v e y o u ever consulted your o w n Counsel o F
just what
counsel f o r t h e Federal Reserve B o a r d a s t o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
the term "maturing bills" includes?
Mr, Straters
N o , I
do n o t think t h e committee h a s
that.
D o n ' t y o u think i t would t w advis-
Governor Young:
to d
o that?
think that i s t h e w a y they have
Mr. Straters I
peen c l a s s i f i e d
i n each report w h e r e reference h a s b e e n
made t o them, t h a t is, maturing notes.
That I
take it,
would mean notes t h a t a r e m o t due, o r a t least d u e a t
a future date.
The Chairman:
T h i s entire matter h a s b e e n referred
pack t o t h e c o m n i t t e e f o r t h e i r s t u d y a n d r e c o m m e n d a t i o n
which w i l l c o v e r c l a s s i f i c a t i o n a n d c h a r a c t e r
that a r e t o b e handled.
T h e mestion
o f items
i s o n Governor
Calkins! m o t i o n .
Governor Palley:
G o v e r n o r Fancher h a s furnished m e
with m y record, w h i c h I left a t home, a n d which i s a s follows:
COMMERCIAL NATIONAL B A N K
KANSAS CITY, KANSAS
April 21, 1924.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Mr. 3 . G@. H. Turner, President,
Second National Bank,
Blmira, NewYork.
Dear Sins
Yours
o f t h e 14th, c o n t a i n i n g @
c o p y o f your l e t t e r
to Hr. Barton, chairman o f our committee, w a s received
and I have awaited answering until I
could g e t further
information.
I think your letter i s the best argument f o r the
b y the
continuation o f the collection o f non-cash items
Federal reserve b a n k that I
am n o t c o n v i n c e d
banks
t o continue
that
have m a d but, nevertheless, I
i t i s w i s e f o r t h e F e d e r a l reserves
t o collect t h e s e items.
T h e reasons I
I
have i n mind a r e t o o many t o embody i n o m letter.
state a
may
f e w o f them.
bank
This p r a c t i c e h a s f o r c e d t h e Fed: ral r e s e r v e
1
to d o business d i r e c t w i t h t h e public, w h e r e a s
4t was never t h e intention that they should.
think
I t has made ©
For
sort o f 'dunning’ agency o f the Federal reserve banks.
Tenth Federal
examdle, I asked for a n analysis o f our own
Reserve B a n k o f one day's outstanding items.
warch Slst.
reli
They h a d 3 0 items under e e
T h e date was
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
items under #2,
under
under $ 4
under
under
under %
under $
under §
under §
under
218 under $100,
a total o f 634 items o u t o f 1574 items outstanding o n that
date which were under 1 0 0 a n d a large number o f them
under 3 0 .
T h e aggregate o f those 834 items was only
$25, 608.67.
Other a m l y s e s
s h o w t h a t i t costs ( t h e 1 0 t h Bank)
them a b o u t 4 5 t i m e s a s m u c h t o c o l l e c t n o n - c a s h c o l l e c t i o n
items a s i t does t o collect checks a n d last year t h e
whole United States i t cost 3 0 times a s much p e r ite, t o
collect n o n - c a s h i t e m s a s i t d i d c a s h items.
‘ T h e banks
handled 176,096,223 cash items a t a cost of §
a cost p é r i t e m o f .0064, a n d i t handled 1,252,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
257
cash items, exclusive o f Government coupons,
a t a cost
of $245,291, o r a cost per item o f .1957.
This is, I
think,
a n unjustifiable expense a n d I
feel that i t i s o n e place where t h e Federal reserve b a n k
should n o t c o m p e t e w i t h o t h e r banks.
f i n e
that o f tine
1200 banks i n the Tenth Federal Reserve District o n l y
100 are using t h e rmon-cash item collection facilities o f
the Federal reserve bank. T h e r e are 1100 who are not .
These 1100 I feel have a right t o a fair compensation f o r
collecting s t r e e t i t e m s , w h i c h r e q u i r e a
good deal m o r e
service i n many ways t h a n checks t o collect.
T h e y have
to b e presented personally, advised individually a n d
separately, etc, etc,
There are many more reasons that might t w stated,
with all o f which y o u are doubtless thoroughly familiar.
I find, u p o n pretty thorough investigation, t h a t i t
is o n l y t h e b a n k s
bing centers,
i n l a r g e centers, m a n u f a c t u r i n g a n d j o b -
t h a t a r e insisting o n a
contimation
of
this practice. K a n s a s C i t y i s such a city but, nevertheless, I
can not s e e w h y w e should support y o u r s i d e o f
the argument.
I regret that y o u c a n not b e a t the spring meeting
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
208
and still trust that i t may b e possible f o r y o u t o b e
present.
Bicereiy,
(Signature illegible)
lember E x e c u t i v e C o u n c i l ,
From Kansas, A . B. A. .®™
Governor Seay:
M a y I ask Governor Bailey i f n e
happens t o know vhether those items a r e uniformly paid ,
or w h e t h e r a
certain p r o p o r t i o n a r e returned?
Governor Bailey:
Governor Seay:
T h e y a r e pretty well paid.
T h e r e i s one thing which most cer-
tainly would keep y o u from receiving a l l those items a n d
that i s t h e i m p o s i t i o n o f a
returned items,
charge o f f i f t e e n c e n t s u p o n
T h e y could n o t afford t o pay it.
The Chairman:
I f w e g o o n with t h e discussion o f
this w e will n o t leave anything f o r t h e comritvee t o do,
Governor C a l k i n s , w i l l y o u r e p e a t y o u r motion.
Governor (Calkins:
of n o n - c a s h c o l l e c t i o n s
M y motion i s that t h e whole matter
b e referred
t o this committee
be studied, w i t h instructions t o prepares a
to
uniform cir-
cular f o r adoption b y the twelve Federal reserve banks,
upon a p p r o v a l
b y t h e next Conference
o f Governors.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
259
Deputy Governor Vase:
w o u l d y o u b e willing t o
include language t o the effect that t h e report o f the
committee which has just b e e n made b e received, a n d then
the m a t t e r
b e referred?
Governor Calkins:
Y e s , indeed.
second G o v e r n o r Calkins!
Deputy G o v e r n o r v a s e : I
motion.
Governor Seay:
matter, I
I f t h i s i s t h e t i m e t o discuss t h e
would like t o a s k ifr. Strater,if h e does n o t
think that i s pretty f a r off, a
postponement f o r action
until t h e next meeting o f Governors?
Mr. Strater:
Yes, I
doe T h a t i s going t o put i t
six months b a c k a n d then i t will t e several months after
that b e f o r e t h e c i r c u l a r c o u l d a c t u a l l y b e issued.
T h e
committee would like, i f it is possible t o do so, t o get
that circular o u t right a w a y a n d present i t pussibly t o
each Governor f o r approval, a n d then have t h e right t o sug:
gest that i t b e issued a t a definite date, s a y within
three m o n t h s
o f so,
The C h a i r m a n :
Y o u r ideas
a r e almost 4dentical
those exvressed b y Mr.» Harrison a n d myself.
with
M e e Harrison
this
brought u p t h e point t h a t there vas involved i n
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
260
undertaking s o m e v e r y i m p o r t a n t m a t t e r s ,
o n e which i n
particular h e felt really ought t o come back t o the conference,
a n d that w a s responsibility f o r determining t h e
classification o f items.
Wr. Harrisons I
about it. ~
W a s n i + that it, Mr: Harrison?
haventt a n y strong personal feeling
s h ould think that t h e O n f e r e n c e would a t
least w a n t t o have t h e r i g h t t o p a s s u p o n a n y c h a n g e s
in
the classification, b o t h a s t o kind a n d a m u n t t h a t might
I
be proposed b y the committee.
left f i n a l l y w i t h t h e c o m m i t t e e
n other words,
t o prepare a
i f it is
circular
to
be issued a s o f a given date, t h e Conference deprives i t self o f a n y r i g h t t o a
veto.
I
f they a r e prepared
to do
that all right, b u t I think that i s what this action would
mean.
The Chairman: I
think that i s one mistake the con-.
m u c h detail
ference i s making, t h a t w e u n d e r t a k e h e r e t o o
work.
I have,
W e have confidence i n these men, a t least
get
and i t seems t o m e i f they will take this work a n d
wnatever i s
away with it, prepare their circular a n d d o
receasary and present it to the banks, it will be suffi-~
cient.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
T h e question resolves i t s e l f
Governor C a l k i n s :
into a question of whether the circular issued o n this
subject ought t o b e uniform o r not.
W h i l e i t l s true
that t h e conference cannot b i n d a n y G v e r n o r t o follow
the a c t i o n r e c o m m e n d e d
b y t h e Conference,
d sirable t h a t t h e a c t i o n s
and p e r s o n a l l y I
i t seems h i g h l y
o f t h e b a n k s s h o u l d b e uniform,
c a n s e e n o w a y t o coring t h a t a b o u t 6 x ~
cept b y agreement i n conference.
I f the circular i s pre-
pared a n d submitted b y the committee t o the various Govern-~
ors I T think m o r e t i m e w i l l b e c o n s u m e d a n d l e s s a c c o m p l i s h -
ed than b y any other method that can be pursued.
W e h a v e t r i e d t h a t t w o o r three t i m e s
wy, Harrison:
and i t i s a
mistake.
a statement
o n a
be a
member
I
n o n e instance a
conmittee p r e p a r e d
uniform l i a b i l i t y clause. I
o f t h e committee myself
committee p r e p a r e d a n d i s s u e d 4
happened
a t t h e time.
to
T h e
u n i f o r m c i r c u l a r a n d for-
warded i t t o a l l t h e r e s e r v e b a n k s a n d e v e r y o n e o f t h e m
had s o m e su. zestions
impossible
o r correctios
t o make a n d i t was
t o prepare t h e clause without s o m e concert
action i n conference.
of
F i n a l l y t h a t i s w h a t happened.
“ie turned t h e m a t t e r o v e r t o arpother c o m m i t t e e
t o report
year a n d a half later
back t o t h e conference, a n d i t was a
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2Cc
before i t w a s f i n a l l y approved.
w
e could n o t g e t any-
where until i t was finally acted upon b y the conference.
I c a n just visualize this:
should m a k e a
I f tir. S t r a t e r ' s c o n m i t t e e
recormendation t h a t n o federal r e s e r v e b a n k
should handle a n y n o c a s h gollection i t e m under a
thous-
and dollars, s o m e b o d y w i l l k i c k a n d s o m e b o d y v e r y p r o b e b i y
b y the recommendation
would r e f u s e t o a b i d e
o f t h e cormit-
tee, whereas i f this i s brought u p i n conference a n d a
ywte t a k e n o n it, t h e n v e c a n g e t somevhere. I
question
whether y o u a r e g o i n g t o s a v e a n y t i m e b y l e a v i n g a
of s u c h i m p o r t a n c e
a s this t o a
comvittee
matter
t o make effect-
BeCre
Governor Seay:
M
it i s more pressing t h a n that,
to e n a b l e u s t o p o s t p o n e
ven
i f such a
ference
report v e r e b r o u g h t
I
han
I t i s more pressing t
i t u n t i l t h e n e x t conference.
t h e chief executives
pass u p o n i t .
o f t h e ratter i s that
y conception
i n to a
o f the banks
subseauent
here would
connot
t would have t o b e passed u p o n b y t h e
operating d e p a r t m e n t s
to t h e n e x t c o r f e r e n c e
i n m y opinion.
I
f i t was trought
w e p r o b a b l y w o u l d n o t a g r e s t o pass
upon i t without referring i t t o our operating denartments.
Llpealize t h a t there i s a great deal o f force i n what M r .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
263
Harrison says, b u t nevertheless 1
that t h e c o m m i t t e e
b e euporered
would suggest a n d move
t o correspond w i t h t h e
Federal reserve banks t o see i f i t 1 s not practicable t o
formulate a
circular whieh w e will a l l agree to, a n d i f
that eventuates, t h e n i t may b e sent out.
standing
think i f t h e
agree w i t h that. 1
We, Harrison: I
coumitteesapvointed b y this conf*rence could
possibly c o n v e n e a n d p r e p a r e t h e s e r e p o r t s a
time i n advance o f t h e c o n f e r e n c e ,
the difficulty y o u refer t o now.
sufficient
t h a t w e would n o t have
T h e t ouble i n the past
one
has been, a s a t this present corerence, t h a t a l l b u t
or t w o o f t h e r e p o r t s w e r e s e n t t o t h e S e c r e t a r y n o t m o r e
than a
w h i c h made i t
week i n a d v a n c e o f t h e conference,
almost impossible f o r h i m t o distribute those reports t o
the Governors.
T h e result o f i t i s that many o f these
reports e i t h e r w i l l
b e considered
m t
operating m e n a t all,
i n advance
o r else they will
further consideratione I
b y the
b e put o f f f o r
think your suggestion will solv-
for
the questicn, a n d I think that should b e the routine
all committee reports;
t h a t is, t h a t t h e committee m e e t
as s o o n a s p o s s i b l e a f t e r t h e conference,
t h a t t h e y pre-
reserve bani
pare t h e report a n d send i t t o each Federal
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
264
or t o the Secretary o f the @ n f e r e n c e f o r cistribution
among t h e Federal reserve banks, w h i c h will enable a l l o f
tne G o v e r n o r s
t o t a k e t h e matters
u p with t h e operating
men a n d report finally a t the
an orderly a n d effective w a y o f hardling t h e thing a n d
think j u s t a s e:-peditious
the c o m m i t t e e
a s i t would
b e t o lease i t t o
t o s e n d t o e a c h Federal r e s e r v e b a n k f o r
final a c t i o n individually.
Governor Seay:
S u p p o s e a l l t h e banks a g r e e u p o n t h e
circular t h a t i s f o r m u l a t e d
b y t h e committee;
i n that
event i t c a n b e done prior t o t h e convening o f the next
com erence,
of several
new;
T h i s cormittee consists o f operating m e n
o f t h e important banks a n d t h e matter
i s not
i t has t e n under discussion f o r several years a n d i t
might n o t b e necessary
t o postpone
i t until Trernexa
con
ference,
a m speaking more i n behalf o f the
Mir, Harrisons I
other banks t h a n t h e N e w York bank.
tative
o n the committes,
prepared
b y t h e comrittee
New York bank. I
standpoint.
m d
W e have a
represen~
I belisve w h a t e v e r r e p o r t i s
i t will
b e acceptable
t o the
a m not arguing f r o m a n entirely selfish
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
265
a m not arguing
Governor S e a y : I
from
a n individual
standpoint either, although w e happen t o have a
T h e operating departments
conmittee.
man o n the
o f t h e several bank.
are more o r less familiar w i t h this, a n d i t seems t o m e i t
wight b e possible f o r that committee t o formulate a
which m i g h t
t e acceptable
circula
t o t h e operating departments
of
all t h e banks.
Governor Calkins: I
disagree w i t h Governor S e a y i n
his optimistic v i e w that a l l t h e Federal reserve banks m a y
agree otherwise t h a n i n conference. I
think t h e exper-
tence w e have h a d i n the past would indicate t h a t i t i s
almost c e r t a i n t h a t s o m e b o d y w o u l d r a i s e objection. I
can
see Governor Failey with a lot o f objections i n his mind
now.
O u r operating department
Governor Bailey:
i s getting
more familiar w i t h i t all t h e time.
Governor C a l k i n s : I
agreement
think t h e r e i s n o w a y t o reach
o n uniform a c t i o n except
i n conference.
i t s
h e r e whether t h e y k n o w
the responsibility o f the Governors
arything a b o u t t h e s u b j e c t
o f not,
t o decide t h e m e s t i o n ,
and w e cannot evade t h e responsibility.
The Chairman: I
be
hav:
think i t i s very unfortunate t o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
266
these o p e r a t i n g m a t t e r s
ences.
o n the program a t these confer-
O u r program i s made u p largely o f operating matter
t
that w e could b e ielieved o f and I think w e s h o u l d e
relieved
o f and t h e responsibility placed u p o n those
whom w e have found, through experience,
sary k n o w l e d g e
t o formulate s o u n d reco’mendations
a m trying
to t h e s e things. I
program.
t o have t h e neces-
T h i s is a
i n re-ard
t o e:pedite a c t i o n o n this
good i l l u s t r a t i o n o f w h a t h a s b e n
happening f o r yrars,
~ e cone down here a n d discuss sub-
jects o f t h i s s o r t a n d c o r s u m e a
g o o d d e a l o f time; t h e n
they a r e thrown b a c k t o these committees a n d throvn b a c k
again, postponed e a c h tive s i x months, a n d I would like
very m u c h t o s e e a
comuittee c h a r g e d w i t h t h e responsi bil-
ity o f communicating w i t h t h e twelve unit banks a n d undertaking t o work this thing o u t i n advance o f the next
A f t e r i t has been gotten i n
Conference o f Governors.
shape b y t h e conmittee,
o f course
i t will h a v e t o b e sub-
mitted t o the conference,
Governor Fancher:
called a t t e n t i o n
T h e committee,
i n its report,
t o t h e action t a k e n b y t h e conference
at
endorsethe last meeting o n the question o f guaranbeed
ments.
date;
T h e y t o o k action b u t they d i d not fix-any
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Cet
there i s n o machinery s e t us, apparently,
tive.
t o make i t effec~
w h a t a r e w e going t o d o with that? T h e r e i s some-
thing o n which d e f i n i t e a c t i o n w a s t a k e n b y t h e c o n f e r -
ence last fall.
Governor Calkins: I
move
will a m e n d m y motion. I
that t h e preparation o f the uniform circular b e referred
to the standing coumittee o n collections with instruction
to prepare s u c h a circular, including a l l t h e details, t h e
necessary classification, u n i f o r m endorsements, a n d s o
forth, a n d that t h e y submit t h e circular t o t h e twelve
Federal reserve banks and, i f they reach a n agreement, pre-~
pare t h e circular f o r promulgation a t once; t h a t i f they
are u n a b l e
t o r e a c h a n agreement t h a t t h e y report
i t to
the next Conference,
will second that motion.
Governor Seay: I
wr. Strater: I
would l i k e t o s a y a
classification o f items.
ter o f p o l i c y ertirely.
word a b o u t t h e
T h a t seems t o m e t o b e a m t T h e standing committee
o n 661s
lections h a s always felt that i t was n o t authorized a n d
had n o authority t o change o r modify t h e policy o f any
f the Federal reserve banks. I
the c o m m i t t e e
a s a
auestionvery m u c h whether
whole w o u l d c a r e
t o m a k e reconmmenda-~
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
268
tions a s t o c l a s s i f i c a t i o n a n d p u t i t i n t h e circular.
They would b e glad t o make s u c h recommendation a n d report
it t o the Uonference, b u t I
tempting t o p u t i t i n t o a
ters h a v e b e e n d e c i d e d
thing t h a t r e m a i n s
a m very doubtful about at-
circular.
A l l these other mat-
b y t h e Conference,
a n d the only
t o p u t t h e m into effect i s t o publish
them and issue t h e m t o member banks, w h i c h i s a comparatively s i m p l e t h i n g t o do.
The Chairman:
Y o u might
b e aided i n your undertak-
ing b y reviewing t h e reporv o f the discussion o n yesterday.
Governor Seay:
I f the committee reaches t h e conclu-
sion t h a t i t i s n o t a d v i s a b l e
fication,
t o prepare a
1 t c a n s o express i t s e l f ;
standard c l a s s i -
t h e circular c a n b e
4ssued a n d t h e classification c a n b e left t o the individual F e d e r a l r e s e r v e b a n k s ,
Deputy G o v e r r m r C a s e : I
call f o r t h e q u e s t i a n o n
the motion, itr. C h a i r m a n
(The motion, h a v i n g b e e n duly seconded, w a s unani-
mousiy carried.)
The Chairman:
T h e next topic’is I-(c)
(c) D o m e s t i c Acceptances. R e p o r t o f
General Acceptance Committee,
Mr. Kenzel, Chairman,
Deputy Governor Case:
T h i s i s a matter which relate.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
269
to t h e s u b j e c t
a n d was
o f domestic a c c e p t a n c e s c r e d i t s
referred t o a committee, w h i c h spent t w o o r three days
on the subject.
i y understanding i s that they were r o t
in agreement a s t o the course t o b e followed, a n d they
made n o specific
o r definite r e c o m m e n d a t i o n ,
have t h e r e p o r t h e r e t o submit, I
a n d while I
would l i k e t o move t h a t
this subject b e referred b a c k t o t h e conmittee w i t h the
request that they formulate definite recommendations a n d
present t h e m t o the next conference O f Gaver norsa.
Governor Seay: I
second t h e motion.
(The motion, h a v i n g b e e n duly seconded, w a s unani-
mously carried.)
(The report o f the committee i s a s follows:)
Report o f the Meeting o f the Subcommittee o f the
Gensral acceptance Committee, H e i d i n New York on- April
6 ana. s,- Doce.
Mr. Bullen, o f Roston,
vickay, o f Chicago,
furlinden, o f Cleveland, a n d
Kenzal c f New York, Chairman,
OtHara
o f N e w York, S e c r e t a r y .
of
This meeting was called t o consider t h e subject
t o t h e Fede: domestic a c c e p t a n c e c r e d i t s a n d r e p o r t t h e r e o n
Reserve R o a r d a n d t h e c o n f e r e n c e
o f Governors,
prior to
? h
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
270
discussion o f t h e s u b j e c t
on ilay 5 , a n d t o i n c l u d e
a t t h e conference
o f Governors
i n their report s u c h other matters
relative t o acceptances a s might require consideration a t
this time.
The Chairman stated t o the committee t h a t t h e meeting
had been called following correspondence between Governor
Crissinger o f the Federal Reserve B o a r d a n d Governor Strong
of the Federal Reserve B a r k o f New York, a n d presented
to t h e c o m m i t t e e t h e v i e w o f numerous a c c e p t i n g b a n k e r s
in N e w Y o r k t o t h e e f f e c t t h a t t h e p r a c t i c a l r e s t r i c t i o n s
placed u p o n t h e u s e o f bankers a c c e p t a n c e c r e d i t
i n domes-
tic trade b y various rulings o f the Roard a n d t h publication o f opinions o f counsel approved b y the Board, h a d
the general effect o f m t e r i a l l y reducing t h e volume o f
good bills i n the market a n d o f placing merchants a n d
manufacturers w h o u s e d o m e s t i c o r o d u c t s
at a
disadvantage
as compared w i t h t h o s e w h o i m p o r t t h e i r r e q u i r e d g o o d s
and commodities.
R e f e r e n c e s w a s m a d e particularly
limitation t o t r a n s i t t i m e o f t h e u s a n c e
t o the
o f domestic b i l l s
under c r e d i t s t a k e n b y t h e b u y e r o f goods,
w h o would
that
himself draw, a n d t o the views repeatedly expressed
cither t o
domestic a c c e o t a n c e c r e d i t s h o u l d n o t b e u s e d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ev)
furnish a d d i t i o n a l w o r k i n » c a p i t a l
through p r o c e s s i n g
o r t o carry goods
o r manufacture,
It was sugyested that, i f 1 t were desired t o e m o u r age t h e e x t e n s i o n o f t h e u s e o f domestic a c c e p t a n c e credit.
within t h e p r o v i s i o n s
o f t h e present l a w t h e e n d could
be accomplished b y the rere modification o f rulings a n d
opinions;
o n the other hand, i f i t were deemed desirable
to grant further privileges i n t l exercise o f banking
discretion, t h a t a modification o f the l a w itself would
pe recessary,
to w h e t h e r
a n d i n that regard t h e committee debated a s
o r n o t t h e m e r e domestic s h i p m e n t o f goods
naturally r e p r e s e n t e d a
transaction having elements
of
self-Liquidation equal t o o r superior t o consummated
sales o f goods.
T h e committee v a s o f t h e opinion that
consumaated sales o f goods a r e inherently superior t o the
mere transportation o f goods i n elements o f self-lisuidaCLOrs
T h e committee w a s unanimous i n the view that a n y
modification b y amendment o r othervise should provide a s
the test a
high degree o f self-liquidation i n a cormercial
transaction a s t h e basis f o r accentance credit.
The cormittec regarded that t h e views expressed b y
accepting b a n x e r s
a s t o t h e practical limitation
o n donest
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Pigs
O
result o f t h e B o a r d ' s r u l i n g a n d p u b l i s h e d
drawings,
a s a
opinions,
w e r e correct,
a n d that i f greater latitude w e r e
permitted m o r e b i l l s w o u l d p r o b a b l y b e d r a w n b y b u y e r s o f
goods.
T h e r e w a s practical unanimity
sed t h a t p r o b a b l y i n c r e a s e
would
i n t h e views expres-
i n the volume
o f such paper
b e s l i g h t o n account o f e a s y c r e d i t a n d m o n e y c o n d i -
tions n o w a n d i n t h e i m m e d i a t e outlook.
There w a s a p p r e h e n s i o n e x p r e s s e d
b y o n e member
of
the committee t h a t possibly borrowers whose single name
paper would h o ineligible f o r rediscount a t Federal r e serve banks w h e n indorsed b y a member bank, because o f
deficiency i n current assets a s shown b y financial statement, c o u l d m a k e e l i g i b l e p a p e r
b y drawing
ber b a n k t o p a y f o r m e r c h a n d i s e b o u g h t ,
o n their m e m -
b u t i t was pointed
out t h a t e v e n i n s u c h a
case t h e r e s e r v e b a n k w o u l d h a v e
at l e a s t t w o b a n k n a m e s
o n s u c h paper,
1 . Ge, t h e acceotor
and indorser.
v i e w that,
One m e m b e r o f t h e c o r m i t t c e e r p r e s s e d t h e
t h e names
inasmuch a s t h e m a r k e t c a r e f u l l y s e r u t i n i z e s
buying princiof drawers a s vell a s acceptors, a l t h o u g h
a n d indorser,
pally u p o n t h e s t r e n g t h o f t h e a c c e p t o r
i t i s difficult
that a s e x p e r i e n c e h a s s h o w n s h a t
and
i f not
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
rocagS
impossible f o r a n a c c e p t i n g b a n k t o h a v e o u t s t a n d i n g
an
amount o f paner i n excess o f the amount that t h e market i s
willing t o t y a t f a i r c u r r e n t rates,
t h e operations
of
the warket might safely b e depended u p o n t o operate a s a
check u p o n t h e a c c e p t a n c e
o f unwieldy lines.
O t h e r memn-
bers o f t h e c o m m i t t e e s u p p o r t e d t h i s v i e w a s a p p l y i n g t o
well recognized names i n the N e w York a n d other large
markets b u t were a p p ehensive t h a t i n some sectiors o f
the country general purpose bills might t e accepted b y
banks whose names d i d n o t sell i n the markets a n d that
member b a n k s
serve b a n k s
i n such district m i g h t embarrass
e
r
Federal-
b y offering s u c h bills w h i c h t h e y h a d acquired
through exchange w i t h other local member banks, a n d the
view was expressed that,
volume
i n the event o f a considerable
o f paper b e i n g accepted
b y banks whose names
did
ta]
not sell well i n the market, difficulty might b e oxper-
ienced i n finding a market f o r such paper outside o f Fdders
reserve banks.
I t was regazded, however, t h a t this pos-
sibility w a s n o t s u f f i c i e n t l y i m o o r t a n t
fications i n the l a w o r regulations
t o vrevent modi-
i f they a r e generally
desirable o r important t o t h e welfare o f the business,
commerce a n d banking interests o f t h e country.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
274
The C h a i r m a n e x p r e s s e d t h e o p i n i o n t h a t l i b e r a l i z a tion o f e i t h e r t h e a c t o r t h e r e g u l a t i o n s w o u l d n o t r e s u l t
in a n unduly large increase i n the volume o f bulls a n d
that s u c h increase a s probably would occur w o u l d b e gradual
and n o t disturbing t o t h e market which,
h e expected, w o u l d
expand gradually t o accomrodate a n y increase i n the volume o f g o o d b i l l s offered.
H
e also expressed t h e opin-
ion that, w i t h even wide latitude i n the l a w a n d regulations, c l e a n credit would b e available o n l y t o strong
concerns a n d t h a t t h e m a r k e t a n d Federal r e s e r v e b a n k s
could s u c c e s s f u l l y g u a r d a g a i n s t s e r i o u s a t u s e s
i n domes-
tic credits a s they have successfully d o n e recently under
the m o r e l i b e r a l p r o v i s i o n s o b t a i n i n g
i n f o r e i g n crecits.
One member o f the coumittee s u g e s t e d f o r considera-~
tion t w o u s e s o f d o m e s t i c c r e d i t w h i c h h e t h o u g h t p r e s e n t e d
proper b a s e s p r o v i d e d t h e l a w p e r m i t t e d t h e same:
( 1 ) the
use o f a c e s p t a n c e c r e d i t a g a i n s t t h e p l e d g e o f goods a c t u a l -
ly sold b u t undelivered w h e n stored i n independent warehouse, pointing o u t that ®ederal reserve tanks could b u y
such bills n o w when accepted b y private banking firms opr
corporations b u t t h a t a
bills;
( 2 )
member t a n k c o u l d n o t a c c e p t s u c h
acceptec
t h e u s e o f acceptance creiits against
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
275
trade b i l l s l o d g e d w i t h t h e a e c e p t i n g b a n k f o r collection,
pointing o u t that while a
member b a n k ‘ight n o w accept
against s u c h b i l l s p r o v i d e d t h a t s h i p p i n g d o c u m e n t s w e r e
attached t o them, t h e m e r c h a n t a n d b a n k i n g c u s t o m s p r e vailing i n t h e u s e o f t r a d e a c c e p t a n c e s
i n this c o u n t r y
were such that shipping documents would n o t remain atta ched t o t h e t r a d e b i l l s a f t e r t h e i r a c c e p t a n c e
b y t h e drawee,
to whom they a r e sent i n the fist instance b y the drawer
for acceptance a n d return.
T h e view was expressed t h a t
one principal reason f o r t h e lack o f growth i n the use o f
trade acceptance methods i n settling accounts w a s t h e
disinclination
o f banks
t o discount a
large n u m b e r o f
small bills a n d that t h e y oreferred t o malre a loan t o
their c u s t o m e r upnon h i s u n s e c u r e d n o t e .
I t was urged
that t h e facility suggested would increase t h e use o f
trade a c c e p t a n c e s
a s well
a s bankers acceptance credit.
It w a s t h e v i e w o f t h e c o m m i t t e e t h a t b o t h o f t h e s e
transactions vresented sound bases for the g o c u uhee of
not
acceptance c r e a i t t u t t h a t t h e l a w a s a t p r e s e n t w o u l d
permit mational banks t o accept i n such transactions.
The custom o f New tngland mills dealings v i t h cotton
brokers
under sales contract notes was discussed
and the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
276
member f r o m B o s t o n e x p l a i n e d t h a t t h a t t u s i n e s s w a s o f
many y e a r s s t a n d i n g
i n Boston a n d t h e auestion w h i c h h a d
arisen i n t h a t d i s t r i c t r e g a r d i n g t h e e l i g i b i l i t y o f
bankers b i l l s
i n such transactions h a d arisen i n view o f
the Poard's attitude towards buyers' drawings a n d the use
of acceptance credit i n carrying goods into wamfacture.
The s u b s t i t u t i o n
o f a
round amount
o f tankers b i l l s
for a n equivalent a u o u n t o f o n e n a m e c o m m e r c i a l p a p e r w a s
also c o n s i d e r e d a s t o i t s e f f e c t
o n t h e market a n d t h e
operations o f Federal nexeicre vpanks i n the market, a n d t h e
effect o n t h e p r o f i t s
o f member b a n k s .
I t was suggested
that, a s t o the latter, t h e acceptance commissions earned
by v e m b e r t a n k s w o u l d p r o b a b l y o f f s e t t h e l o w e r r a t e o f
discount received b y member banks o n bills bought a s
distinguished f r o m commercial paver bought.
The C h a i r m a n e x p r e s s e d t h e o p i n i o n t h a t p r o b a b l y n o t
more t h a n $ 1 0 0 , 0 0 0 , 0 0 9
t o 1 : 2 0 0 , 0 9 0 , 00 o f s u b s t i t u t i o n
was probable a n d that would o e arrived a t very gradually.
He s t a t e d t h a t t h e y o l u n e
outstanding,
o f one name commercial paper
a s regularly reported
t o t h e Federal Reserve
averaged
Bank o f New York b y commercial paper houses,
around #800,000,000, ( t h e peak , in Jaiuary, 1920, was
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
oat
$1,300,000,000,
a n d t h e recent l o w point,
i n Jamary, 1921,
was about $650,000,000. }
It was regarded that a n increase o f from $ 1 0 0 , 0 0 9 , 00
in t h e a m o u n t o f acceptances o u t s t a n d i n g w o u l d n o t r e sult i n d i s t u r b a n c e
i n t h e market a n d t h e view w a s expres-
sed that s u c h a n increase i n the volume would probably
result i n a greater degree o f stability i n market rates
and that t h e effect o f Federal reserve b a n k operations
in the mrket, i n a s m u c h a s they would t e n d t o stabilise a
larger volume, w o u l d
b e o f correspondingly increased bene-
fit t o t h e c o m e r c i a l i n t e r e s t s
Chairman s t a t e d t h a t a
o f t h e country.
T h e
recent s u r v e y b y t h e A m e r i c a n A c -
ceptance C o u n c i l h a s s h o w n t h e a m o u n t o f d o l l a r a c c e p t -
o April 1, 1924, t o be slightly over
ances i n existence’ n
600,000,000 a n d that a recent canvass o f accepting banks
and t a n k e r s
b y t h e Council h a d shown a
of i n t e r e s t
i n the development
and i n t h e v o l u m e
o f t h e acceptance business
o f bills a c c e p t e d
in interior cities, w h o gave
Little f o r e i g n W s i n e s s
marked d i m i n u t i o n
b y banks l o c a t e d
4 6 4reason t h e fact that
w a s n o t o f f e r e d t o t h e m directly,
n o w scarce,
that participations 4nsgyndicate credits were
conditiom,
and that, w i t h e a s y c . e d i t a n d w o n e y
their
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
278
best domestic customers c o u l d arply supply themselves
through direct borrowing, w h i c h they could not d o b y taking a c c e p t a n c e c r e d i t s .
Several
o f the members
o f t h e coumittee expressed
the view that, w h i l e t h e y would n o t b e opposed t o a more
liberal e x t e n s i o n o f domestic f a c i l i t y
t o accepting banks
and bankers, t h e y were unaware o f any general demand f o r
4t i n their districts a n d that t h e y would prefer t o discuss the matter w i t h their associates a n d make inquiries
anong their member banks before making definite recommendations,
The member f r o m Boston stated that h e had already
discussed t h e question with a number o f banks a n d bankers
deand business concerms i n Boston without finding a n y
gire f o r liberalization b u t explained that,
o n the con-
inter-~
trary, B o s t o n banks a r e mot, a s a rule, particularly
acceptance
ested i n f i n a n c i n g d o m e s t i c b u s i n e s s u n d e r
credits.
com~
It was understood that the other members o f the
mittee w o u l d m a k e i n c u i r i e s
communicate
t h e results
t n their h o m e districts a n d
t o the thairman,
who,
o n h i s part,
o f opinion f r o m lead
would undertake t o obtain expressions
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
279
banks a n d bankers i n New York,
T h i s h a s been dons, w i t h
the result that i n Chicago i t was found, a s a result o f
inquiries t h a t :
‘there does n o t appear t o b e any demand f o r a n y
i n the Federal Reserve A G t a n d o m y
change
o n t h e parv. o f
one bank d i d there appear t o b e a n y desire f o r a more
liberal i n t e r p r e t a t i o n
o f t h e law.
T h e opinion generally
expressed i s t h a t t h e r e i s a n abundance
o f credit a v a i l -
able f o r d o m e s t i c t r a d e a n d t h a t d o m e s t i c t r a d e d o e s
m t
require a n y additioml financing through t h e use o f bankers acceptances beyond that already provided f o r i n the
Fec*ral Reserve Act, a n d that banks prefer t o loan their
own funds t o their customers, r a t h e r t h a n t o loan their
credit.
tions
I n other words,
o f their customers
t h e y prefer
t o have t h e obliga-
i n their o w n Bills Receivable
account, rather t h a n i n the form o f bankers bills s o l d
in the open mariret.”
The Chairman was advised b y the Chicago member o f
the committee that, after careful consideration o f the
subiect h e i s o f t h e opinion that i t i s not necessary t o
remove a n y o f t h e r e s t r i c t i o n s
i n the P e d ral Reserve
Act itself relative t o bankers acceptances covering domes~
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
280
tic transactions,
b u t that there would b e n o objection
to a liberal interpretation o f the l a w b y the Federal R e serve Board f o r t h e following reasons:
‘7. T h e r e does not appear t o be any demand either
on t h e p a r t
o f the banks
ther e x t e n s i o n o f G e e s
o r their customers
f o r a n y fur-
acceptance credits other t h a n
provided i n the Federal Reserve Act, inasmuch a s there 1 s
ample credit avwiilable through direct loans a t mod‘ rate
rates.
©, T h e r e i s some danger t h a t inexperienced hanks
or t h o s e e a g e r t o e m p l o y t h e i r
credit s o l e l y f o r t h e p u r p o s e
u d 24ine. O f a 6 c e p t a n c e
o f making a
profit, w o u l d ,
4f the restrictions were removed, a b u s e t h e acceptance
privilege a n d l o w e r t h e s t a m a r d
o f bankers a c c 2 p t a n c e s ,
which should represent t h e highest f o r m o f coimercial credit
is)
T f i t i s considered advisable
t o adopt a
more
liberal attitude towards t h e use o f domestic accentance
credits,
i t c a n b e done through a
more l i b e r a l i n t e r p r e -
i n its
tation o f t h e l a w b y t h e F e d e r a l R e s e r v e B o a r d
regulations.”
made i n
In t h e C l e v e l a n d d i s t r i c t i n q u i r i e s w e r e
t h e result
Cleveland, Pittsburgh a n d Cincinnati, w i t h
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
281
that, w i t h the exception o f one bank i n Cleveland, t h e
investigation i n d i c a t e s t h a t t h e r e i s n o present d e m a n d
for a change i n the l a w a s i t relates t o the domestic
acceptances;
t h a t t h e r e i s plenty o f credit available f o r
domestic t r a n s a c t i o n s , e s p e c i a l l y s i n c e t h e amendments
liberalizing Section 5200 o f the revised statutes; t h a t
during t h e p a s t t w o y e a r s
i t has b e e n auite evident t h a t
banks i n those cities h a v e shown a preference f o r t h e loan
of funds r a t h e r t h a n t h e l o a n o f t h e i r credit;
t h a t this
is s h o w n f r o m t h e f a c t t h a t t h e y h a v e d i s c o u n t e d t h e i r
own b i l l s a c c e n t e d f o r t h e i r c u s t o m e r s a n d c a r r i e d t h e m
to maturity i n their o w n portfolios.
committee f r o m C l e v e l a n d c o m l u c e s
reached t h e t i m e w h e n s u c h a
T h e member o f the
t h a t w e have n o t yet
general b r o a d e n i n g o f t h e
acceptance p o w e r s c a n b e s a f e l y m a d e a s t o l e a v e t h e m t ter o f t h e Irinds o f credits
t o t e covered
i n acceptance
transactions entirely t o the discretion o f accepting banks
and h e b e l i e v e d t h a t a c c e p t a n c e t r a n s a c t i o r s s h o u l d
be
confined t o well defined a n d specific transactions o f &
is
practically s e l f - l i c u i d a t i n g c h a r a c t e r a n d i f t h e r e
any broadening,
i t should b e based o n this principle w i t h
well d e f i n e d l i m i t a t i o n s
a s t o the amount
o f the loan o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
282
credit o r the l o a n o f funds which a bank m a y extent t o
any one customer o r borrower;
t h a t unless acceptance
transactions a r e c o n f i n e d t o t h e f i n a n c i n g o f s p e c i f i c
transactions,
h e i s sure that t h e credits really repre-
senting t h e financing o f permanent o r fixed investments
would m a k e t h e i r a p p e a r a n c e
i n acceptances form,
and he
cormludes t h a t t h e conmittee should n o t sugsest o r reconmend a t t h i s t i m e a
gensral t r o a d e n i n g
o f t h e l a w o r regu-
lations a s they pertain t o domestic acceptances.
It i s a i t e c l e a r f r o m t h e atove that t h e bankers
demand f o r greater discretion i s n o t important i n three
of the districts represented b y the comrittee.
man,
a s arranged, h a v i n g m a d e i n a u i r i e s
T h e mair-~
o f representative
banks and bankers located i n New York City, receive: oral
communications f r o m a
mamber
o f them w h i c h indicate a
generally cifferent point o f view from that h e l d i n s t o n ,
Cleveland a n d Chicago, a n d written communications f r o m
seven b a n k s a n d b a n k e r s ,
e a c h rather s t r o n g l y represent-
ing what t h e Chairman believes t o b e the general attitide o f t h e a c c e p t i n g t a n k s a n d b a n k e r s l o c a t e d
Work A C G .
herewith.
C o p i e s
i n New
o f those communications a r e attached
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
285
The C h a i r m a n o f t h e VUonmi‘tee h o l d s v i e w s g e n e r a l l y
similar t o those expressed b y the N e w York banks a n d bankeers whose letters a r e attached.
Under t h e s e c i r c u m s t a n c e s ,
the c o r m i t t e e
as a
i t i s impossible f o r
whole t o m a k e g e n e r a l s u g g e s t i o n s
or
recomiendations w i t h r e g a r d t o t h e d o m e s t i c m a t t e r s s u b -
mitted t o it, w i t h t h e exception that i t was t h e unani mous view o f the c o n i t t e e that,
i n the event o f any change
in the law, correction should b e made o f what t h e committee believes t o b e a defect i n the present law, w h i c h
does n o t p r o h i b i t t h e e - t e n s i o n o f a
of a c c e p t a n c e c r e d i t
t o one customer
bank's e n t i r e l i n e
provided
not
than 1 0 p e r c e n t ' o f t h e b a n k ' s c a p i t a l a n d s u r p l u s
m r e
i s un-~
secured a n d this i n addition t o the full line o f money
loans w h i c h t h e b a n k m a y l a w f u l l y m a k e t o t h e s a m e c u s TOMES
The c o m a i t t e e w a s u n a n i m o u s
i n its belief t h a t t h e
combined aggregate o f money loaned a n d crevit granted t o
any o n e customer should b e limited t o a n amount more
reasonably r e l a t e d
or bank.
t o t h e capital a n d surplus
O f G A S <CPeGiny
I t suggests t h e figure o f 2 5 per cent o f the
capital a n d s u r p l u s
o f t h e G r e d i ton oanivag= eo" t o c a l i n e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
284
of b o t h s e c u r e d a n d u n s e c u r e d a c c o m m o d a t i o n t h r o u g h w o n e y
as a
loans a n d / o r a c c e p t a n c e c r e d i t s
cussions m i g h t start.
point a t w h i c h d i s -
I t refers a l s o t o t h e provisions
of the banking l a w o f the State o f N e w York, w h i c h prescribes t h a t limit f o r b a n s located i n a borough having
a population o f 2,000,009 o r over, o f which 3 / 5 must b e
secured;
f o r banks located elsewhere
i n the State t h e
Limitation is 40 per cent, o f which 3/4 must be secured,
The d e m a n d f o r d o l l a r c r e d i t
foreign c o u n t r i e s f o r t h e p u r p o s e
i n Germany a n d other
o f financing transac-
tions w i t h i n t h o s e countries, i n v o l v i n g t h e p u r c h a s e
paw m a t e r i a l s
o f A m e r i c a n origin,
by t h e committee,
w a s also discussed
t o whom t h e Chairman explained t h a t
such d e m a n d w a s c a u s i n g c r e d i t s
banks
of
t o b e opened
o n American
which
b y their foreign correspondent banks, u n d e r
96-day dollar bills were dravyn which American banks feel
they c a n n o t a c c e n t a s e l i g i b l e bills.
plained a
T h e Chairman ¢ x ~
German
typical transaction a s one i n which a
cotton trader, h o l d i n g c o t t o n
i n vrarehouse
i n Bremen o P
t o German spinother free port, s o l d i t o n 90-day terms
ners.
by a
T h e credit w o u l d b e opened
German b a n k o n
f o r account
its A m e r i c a n c o r r e s p o n d e n t b a n k
o f the spinner
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
285
tut i n f a w r o f the trader, w h o vould accordingly d r a w
90-day dollar bills o n the American bank,
T h e transac~
tion would b e a sale o f cotton ex-warehouse o r ex-railroad
cars o r steamship, w h o l l y domestic within Germany.
Neither import
m r export i s involved a n d i t i s n o t
generally regarded that t h e domestic shipment provisions
of o u r l a w a r e i n t e n d e d
t o include shipments w h i c h a r e
domestic within a foreign country. S i m i l a r cases have
arisen i n Italy a n d “ a n c e a n d a similar example, u s i n g
Holland a s t h e f o r e i g n country,
of t h e G u a r a n t y T r u s t
i s referred
C o m p a n y attached.
to in a
letter
H e r e vo;
It was regarded b y the committee that, desirable
as i t might b e for American banks t o extend their credit
and d i s c o u n t
i n t h e energencies incidental
t o present
European conilitions, dollar acceptance credit b y American
banks i n such trensactions w a s evidently n o t cormterplated
in the law.
domiciled
The recdiscount c r e d i t r e c e n t l y a r r a n g e d f o r
German trade bills drawn i n dollars w a s also explained
suggested
by t h e c h a i r m a n t o t h e c o m m i t t e e a n d i t w a s
u n d e r conitions
by t h e C h a i r m a n t h a t t r a d e b i l l s i s s u e d
such
a s those which would surround
t h e bills
t o be
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
286
created u n d e r t h a t r e d i s c o u n t ¢ : e d i t w o u l d p r o b a b l y s e r v e
the same purpose a n d requirements o f trade, domestic i n
foreign countries depending o n external credits f o r carrying o n Gomestic m n u f a c t u r i n g operations a s would ..mrican
pankers a c c e p t a n c e c r e d i t .
Respectfully s u b m i t t e d ,
zurlinden,
Kenzel, C h a i r m a n .
The a b o v e r e p o r t w a s p r e p a r e d
submitted
t o e a c h member
o f t h e C o m m i t t e e f o r approval.
It w a s s u b s e q u e n t l y a p p r o v e d
den.
b y the Chairnan a n d
b y Messrs. tieKay a n d Z u r l i n -
W r . Bullen, w h o left t h e conference a t n o o n o n
April 9
and w a s n o t present
nor t h e f o l l o w i n g d a y ,
i n the afternoon o f that d a y
h e s Gissented
i n letter addressed
to t h e chairman, d a t e d A p r i l 350, c o p y o f w h i c h i s a p -
pended hereto, together w i t h a
Wre B u l l e n which,
form o f report drafted b y
h e h a s o r a l l y s t a t e d t o t h e Chairman,
report,
it would b e agreeable t o h i m t o f i l e a s a minority
and i t i s a c c o r d i n g l y s u b m i t t e c h e r e w i t h ,
FEDERAL R E S E R V E B A N K O F B O S T O N
April 30, 1924.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ReiKenzel,. m e l i m e r ,
General A c c e p t a n c e S u b - c o m n i t t e e ,
Feceral Reserve Bank,
New York,
N . Xi.
Dear ir. Kenzel:
I have r e a d t h e d r a f t o f r e p o r t o f t h e m e e t i n g o f
the S u b - c o w m i t t e e
o f t h e Gencral Acceptance Committee h e l d
in N e w York April 8
and 9, 1924, w h i c h y o u sent m e i n
your l e t t e r o f A p r i l e v . I
desire t h a t m y n a m e b e n o t
signed t o t h e r e p o r t a s drafted.
U p t o t h e time o f m y
leaving t h e reeting a t noon o n April 9 , n o formal actions
had b e e n t a k e n n o r v o t e s p a s s e d
a s far a s I
G a n remember.
There h a d been a general discussion o f various subjects
introduced b y the tnairman a n d other members o f the Com-~
mittee b a t o n the m i n cuestion o f recommending a
general
liberalization o f the l a w a n d regulations regarding
domestic acceptance practices,
o m y t w o members o f the
other
Comittee w e r e prepared t o vote o n the subject, t h e
two m e m b e r s
expressed a
d e s i r e G o . voturn. to- t h e l r
respec
would care
tive b a n k s a n d d i s c u s s t h e m a t t e r b e f o r e t h e y
to c o m m i t t h e m s e l v e s
o n this,
t h e m a i n subject.
It w a s m y u n d e r s t a n d i n g t h a t a
further m e e v i n g o r a t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
288
least a
definite mail vote o n this ouestien should b e
had, t h e result o f which would b e the report o f t h e Committee.
A l t h o u g h three members o f the Conmittee, f r o m
a beief reference t o their opinions i n the report, w o u l d
appear t o vote i n the negative o n the ouestion o f further
liberalization o f d o m e s t i c a c c e p t a n c e p r a c t i c e s
a t this
time, t h e w h o l e t e n o r o f t h e r e p o r t c o n s i d e r i n g t h e weights
given t o d i f f e r e n t p o i n t s
o f t h e Giscussion a n d parti~
cularly t h e appending o f letters obtained b y the thairman
of t h e Committee,
a l l tending
t o support
to 4
greater
or
less degree h i s single minority opinion, w o u l d give t h e
paradoxical
impression
Specifically, I
ing p o r t i o n s
t h a t t h e minority w a s
i n t h e right.
would call attention t o the follow-
o f the drafts -
Page 2 , paragraph 1 - I do n o t remember t h a t there w a s
any a g r e e m e n t
a s t o unaniity
any m o d i f i c a t i o n
b y amendment
o f opinion
i n the view that
o r otherwise #
*
*
Page 2 , paragraph 3 - I a m obliged t o take exception
to t h e f o r m o f p r e s e n t i n g :
would a p p e a r t h a t a
this s u b j e c t
f r o m which
critical p o i n t r a s e d
it
b y o n e member
o f the
may have b e e n definitely reiected b y the majority
Committee. I
or,
do not remember t h a t s u c h was t h e case
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
289
in a n y e v e n t ,
t h a t t h e Comrittese a t t e m p t e d
t o reach a
con-
clusion. régsarding i t .
Page 4 , para-raph 4
- The conclusion introduced b y
"Tt was sug.ested that" might apoear t o indicate that
this was t h e majority opinion. I
d o not remember t h a t
such w a s t h e case.
Page 5 , paragraph 2 - This brief reference i n one
sentence d o e s
m t
i n w y o p i n i o n adeqiately express t h e
position stated b y the mewber o f the Committee from Eoston.
I t i s m y recollection t h i s member d i d n o t explain
that "The Boston hanks a r e n o t a s a rule particularly
interested i n financing domestic tusiness under acceptance é¢redits."
w h a t I
remember h i m t o have said was
thet t h e Poston banks were n o t inter«sted i n a further
extension o f domestic a c c e n t a n c e c r e d i t s f o s t e r e d
b y re-
moval o f v r e s e n t s t a t u t o r y a n d r e g u l a t o r y r e s t r i c t fous,
that t h e y r e g a r d t h e a c c e p t a n c e p r i v i l e v e
a s having t e e n
established f o r f o r e i g n t r a d e »urvosé6s; a c c e p t a n c e s b e i n g
the form o f credit instrument t o which foreign trade
accustomed,
i t was m c e s s a r y f o r American capital
to
the s a m e i n s t r u m e n t
i n c o m p e t i n g f o r t h i s business.
domestic f i n a n c i n g ,
a n entirely dissimilar
s i t u a t i o n exists
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
290
whereby through b a n k loans a n d otherwise t h e necessary
credit i n domestic transactions i s available.
T o artifi-
cially stimulate t h e w l u m e o f domestic bills t o t
market-
ed i n competition “ i t h foreign bills f o r which n o substitute instrument evists, m i g h t a t this t i m e a c t t o the
disadvantage
o f o u r f o r e i g n Mmsiness.
F r o m m y recollection,
Page 7 , l a s t p a r a g r a p h report i n d i c a t e s a
the
more d e f i n i t e c o n c l u s i o n a n d u n a n i m i t y
of opinion t h a n I remember having developed. I
do n o t
remember t h a t a n y agreement w a s reached t o refer particularly t o the N e w York State l a w ouoted a t the t o p o f
page 8 .
Appendix:- Several letters f r o m N e w York banks a n d
bankers,
s o m e o f t h e m replying
t o v e r b a l o r o t h e r inquiries,
o f domestic acceptance ©
all f a v o r a b l e
t o t h e liberalization
practices. I
feel t h a t t h e i n c l u s i o n o f t h e s e l e t t e r s a l l
bearing o n ore s i d e o f the auestion which, h a d a vote
peen taken, w o u l d h a v e b e e n a
majority o f three,
sion.
minority o f o n e a g a i n s t a
i s l i a b l e t o g i v e a n incorrect i m p r e s -
T h e s e letters s h o u l d b e excluded unless
sired t o g i v e a
not m e m b e r s
i t i s de-
general e x p r e s s i o n o f o p i n i o n o f persons
o f the Committee
i n which case there should
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
eon
also b e appenced letters f r o m bankers i n Boston, Cleveland,
and C h i c a g o e x p r e s s i n g t h e i r v i e w s
Reserve B o a r d , G v e r n o r s !
s o that t h e Federal
Conference
this r e p o r t m a y h a v e t h e o p p o r t u n i t y
o r whoever m a y r e a d
o f s e e i n g b o t h sides
of t h e q u e s t i o n a n d j u d g i n g a s b e t w e e n t h e c o n t r a r y o p i n -
ions expressed a n d t h e weights w h i c h should t w given t o
the opinions o f the respective writers.
I assume t h a t i t i s impossible t n the short time
elapsing before t h e Gvernors! Conference o f M a y 5 , t o
draft a
complete report which would meet t h e approval o f
all t h e members o f the Committee.
W e r e i t possible t o
do s o I should b e glad t o sign m y name t o a report substantially a s i n t h e e m l o s e d f o r m .
Very t r u l y yours,
{Signed)
0 . C. Bullen,
Deputy Governor,
)Draft suggested b y Mr. Bullens)
April 28, 1924.
Report o f the Meeting o f the Sub-Committee o f the
General acceptance Committee, H e l d i n N e w York o n
April 8 and 9, 1924.
Present:
M r . Bullen o f Boston
wr. McKay o f Chicago
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
“ir. Z u r l i n d e n o f vuleveland a n d
ily. K e n z e l o f N e w York, G i a i r m a n
tir. O ' H a r a o f N e w York, S e c r e t a r y .
This w m -ting w a s c a l l e d t o c o n s i d e r t h e s u b j e c t
of
domestic a c c e p t a n c e c r e d i t s a n d report t h e r e o n t o t h e
deral Reserve B o a r d a n d t h e conference o f governors,
oeior t o d i s c u s s i o n o f t h e s u b j e c t
a t the corerence
of
governors o n May 5, a n d t o include i n their r«port s u t h
other m a t t e r s r e l a t i v e
t o acceptancesas m i g h t reauire c o n -
sideration a t t h i s time.
The C h a i r n a n s t a t e d t o t h e c o m u i t t e e t h a t t h e m e e t i n g
had been called following correspondence between Gover-~
mr. C r i s s i n g e r
o f t h e Federal Reserve f o a r d a n d Gowernor
Strong o f the Federal Reserve B a n k
N e w York, a n d pre-
sented t o t h e c o m m i t t e e t h e v i e w s o f numerous a c c e p t i n g
in N e w Y o r k t o t h e e f f e c t t h a t t h e p r a c t i c a l
‘strictions
placed upon the use
cvedit i n domestic trade
and t h e p u b l i c a t i o n
o f bankers
acceptance
b y various rulings o f the Poard
o f opinions
o f counsel approved
b y
reducing
the Poard, h a d t h e g e n e r a l e f f e c t o f w a t e r i a l l y
the volume o f good bills i n the market a n d o f placing
merchants a n d m a n i f a c t u r e r s
a disadvantage
w h o u s e domestic products
their
a s compared w i t h those w h o import
at
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
295
reauired goods a n d comv*odities. R e f e r e n c e w a s made particularly t o the limitation t o transit time o f the usance
of domestic bills under credits t a k e n b y the buyer o f
goods, w h o w o u l d h i m s e l f d r a w , a n d t o t h e views r e p e a t e d l y
expressed t h a t d o m e s t i c a c c c p t a n c e c r e d i t s h o u l d n o t be:
used e i t h e r
t o furnish additional w o r k i n g capital
carry g o o d s t h r o u g h p r o c e s s i n g
There w a s a
o r manufacture.
very f u l l a n d detailed discussion o f all
considerations “ h i c h o c c u r e d
members
o r to
t o t h e Committee.
o f the C o m i t t e e w e r e orepared
O n l y two
t o commit t h e n
selves w i t h respect t o whether i t was
this t i m e t o r e c o m e n d
a n y changes
i n t h e statute
lations o r rulings o f t h e Federal Reserve Board.
Kenzel,
o r regu-
Mr.
l
e t o s u c h action,..the de-~
o f N e w York, w e s f a v o r a b
liberalization
to t
determined after further
-p, B u l l e n o f B o s t o n w a s o p p o s e d t o a n y
change i n the oresent oractices.
and sir, Z u r l i n d e n o f vleveland,
“ r . McKay o f Chicago
t h e other members
o f the
committee, drsired further t i n e t o c o sult their collea gies
and their member ban:
s
i
n }
weeting, e s s r s .
‘igkay a n d zurlinden have b y letter informed t h e Chairman
that t h e y are n o t i n f a w r
o f further liberalization o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
the domestic acceptance practice a t this time.
A number o f o t h e r s u b j e c t s w e r e d i s c u s s e d b u t n o a c -
tion was taken o r formal recomrendation made regarding
ary o f them,
Deputy Governor “ase:
W e , Chairman, i n line wit h
Governor (Calkins! statement a
moment ago, I
to offer t h e following resolution;
that h a v e m a t t e r s r e f e r r e d
reouested
t o report
would like
T h a t a l l committees
t o t h e m b y this conference
be
t o the Secretary o f tle Conference
is
within three months o f the date o n which t h e matter
submitted
t o them.
second that.
Governor Calkins: I
(The motion having b e e n duly seconded, w a s unanimously carried.)
Deputy G o v e r n o r C a s é :
T h a t will give t h e G v e r r m r s
Calkins h a s pointed out, t o lave
before t h e m t h e reports,
e n d t o come d a w n here w i t h their
minds e r y s t a l i z e d u p o n them.
Governor S e a y :
T h i s particular matter
acceptances w a s r e f e r r e d
was
o f domestic
t o t h i s c o m m i t t e e q u i t e recently,
i t not?
The C h a i r n a n s
I
been
t i s n e w matter w h i c h h a s n o t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
295
I
up v e r y long.
T h e
t w a s n o t susg-ested b y anyone,
question w a s r a i s e d a n d :ir. Kenzgel c a l l e c a
meeting o f
the committee.
I t h a s n o t b e a n b e f o r e t h i s confer-~
Governor v e a y :
ence?
M i s was a
Governor fancher:
fairly recent matter,
Hoes RaALeaan .
T h e motion just passed will n o t cure
The G i a i r m a n s
the s i t u a t i o n entirely,
Governor Vorris:
great deal,
b u t i t will h e l p o u t a
Perhaps
w e could t a k e u p another
matter referred b y the Conference t o a com ittee, w h i c h
has t o d o with topic II-(c)
(c) Regulation"J"” - Imwortance o f
issuing a
new P
a
m a LGOM s s
a 8
recomended b y the November, 1923,
Sonference o f Governors.
The Chairman:
T h e name o f t h e bank which sugg
mt d i s c l o s e d .
G o v e r n o r Seay,
haw you
say o n t h a t s u d i e c t ?
Governor ‘seay:
regard t o regulation
g
w orything w e have h a d t o d o with
“ J sccompanies t h a t regulation which
bank b y the Board o r
was forvarded t o each Fed: ral reserve
by i t s ccunseél.
w e thought o f
T h e r e w a s o r e matter which
i s fully covered b y the
considerable importance a n d that
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
296
y cur bank t o the federal Reserve Board.
Letter w r i t t e n b
Phere
is a
difference
o f opinion a s between o u r posi-
tion i n the matter a n d the position o f the Dallas Bank,
accompanbut that i s fully covered b y the letters which
ied t h e report.
wonder i f i t would b e well
Governor wicKinney?: I
to h a v e t h s e c o u n s e l
f o r the Federal
Reserve
B o a r d present
vhen v e d i s c u s s t h i s ?
o n the program
T h e Secretary p u t this
wr. Harrison:
t h e last conferas representing unfinished pusiness f r o m
ence.
something b e
T h e last conference r e c o m e n d e d t h a t
done a n d nothing hayvened.
S u b s e q u e n t t o the preparation
reserve
each Federal
3
of thié program the Board issued t o
“s# and I should think
pani a proposed draft o f r gulation
i s really before t h e confer~
4t w o u l d b e t h a t d r a f t w h i c h
ence Yow.
The Chairman: I
o f t h e las
will r e a d f r o m t h e r e p o r t
conference’
ifopic TI-(d)-(1).
respect
P o l i c y t o b e pursued w i t h
to regulation “J”.
This t o p i c w a s d i s c u s s e d
voints
o f view.
a t some length f r o m various
w h o s p o k e expresseéc
M o s t o f t h e Govw*ernors
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
297
the o p i n i o n 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 s s h o u l d c o n t i n u e
their c o l l e c t i o n s y s t e m a s a t present, a l t h o u g h i t w a s
stated specifically that i t would b e inadvisable f o r the
Federal R e s e r v e B o a r d i n i t s r e g u l a t i o n s e x p r e s s l y t o w a i v e
the l e g a l right, r e c o g n i z e d
United States,
checks
b y t h e Supreme C o u r t
o f the
o f all Federal r e s e r v e b a n k s t o collect
b y p r e s e n t a t i o n o v e r t h e country.
S
o also i t was
the o p i n i o n o f m o s t o f t h o s e p r e s e n t t h a t t h a t p a r a m a p h
in the suspended regulation J
vroviding f o r a charge f o r
the collection o f any check bearing t h e indorsement o f
a nonm-par b a n k i s m o s t u n d e s i r a b l e a n d s h o u l d b e withdrawn.
Some d o u b t w a s e > p r e s s e d a s t o i t s legality,
a n d much doubt
exoressed t o t o i t s wisdom.
After thorough consideration,
ernor Strong,
a n d upon motion o f G o v -
i t was
VOTED t o b e the’ sense o f t h e conference t h a t a
Regulation J
new
should b e adopted which will conform i n all
rssvects t o t h e present prictice b u t which will n o t i n
terms p r o h i b i t t h e e
ercise
by t h e S u p r e m e C o u r t ,
of n o n - o a r banks,
o f o u r llega’ ,
t o collect
b y agents
c
o nfirmed
a t t l e counters
a n d which will n o t require u s t o impose
charges u p o n checks tearing t h e indorsement o f non-par bank:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor S e a y v o t e d N o . "
(cr, “alter “yatt, General Counsel f o r the
Reserve B o a r d , e n t e r e d t h e U o n f e r e n c e r o o m . )
The Chairman:
v i r , Wyatt, w e will b e glad t o hear
from y o u o n this subject o f Regulation J .
was v e r y a n x i o u s
ap, wyatt: I
t o g e t t h e ideas o f
the Governors, m o r e anxious t o d o that t h a n t o offer a n y
might say, however, t h a t this regula-
my own. I
tion J
is intended
t o p u t i n t o e f f e c t t h e proposed d r a f t
that vas submitted t o the Corference l a s t fall and, I
believe, a d o p t e d
tenced t o make
by
s e (vernors Onference,
a y changss
o f p o l i c y a t all.
b u t n o t inM o s t o f the
changes w h i c h have b e e n made have b e e n wade primarily i n
an effort
t o afford t h e banks w o r e complete protection
against t h e Jalloy cecision. I
think w e have gone about
--e gan t o afford protection through regulation.
t a m still doubtful t h a t i t affords complete protection
where i t arises a n d i s handled under t h e so-called tassa-~
chusetts rule, w h i c h was t h e rule under which t h e check
was -handled i n the walloy case, because there i s considera’
doubt a s t o whether t h e terms o f Regulation J
would b e
binding o n t h e o v n e r o f t h e check, d e v o s i t e d o r i g i n a l l y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Poo
in a
non-member b a n k , “ h e r e y o u c o u l d n o t p r o v e t h a t
that depositor k n e w anything about regulation J
or had ac-
GEDecd t n e teniis-of 1 % .
I was just reading f r o m t h e opinion o f the Supreme
vourt o n Yesterday, a n d while they. d i d n o t decide this
point exactly, h e r e i s o n e statement that was made i n the
opinions.
T h e y were discussing t h e cuestion o f whether
or not this depositor h a d agreed t o the acceptance o f a n
exchange draft i n payment f o r a check.
T h e Federal r e -
serve b a n k argued that t h e collection circular a n d the
old regulation specifically authorized i t t o send a check
direct t o the draree bank, a n d claimed t h a t implied authorization t o a c c e p t
a n exchange d r a f t
i n payment.
T h e court
took t h e position that i t d i d not, because e v e n vhen they
send a check direct t h e y might s e n d scither a n e x c h a n g e
draft o r t h e cash might t e shipped i n t o the bank a n d
therefore t h e y v o u l d h o l d t h a t t h e c o m v o n l a w r u l e w o u l d
be binding, w h i c h reouired t h e cash,
Discussing t h a t point, t h e y s a i d plainly t h a t whereas
it i s t h e rule that y o u must s e n d direct a n d y o u must a c ~
cept nothing b u t cash, i t i s obvious, s i n c e t h e L a w imposes u p o n a
collecting a g e n t t h e d u t y o f c o l l e c t i n g
in
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
300
money, t h a t
m m
o f t h e various sub-agents c o n c e d i n g
the paper t o b e collected u p o n the basis o f that duty,
had waived t h e requirement o f the l a w i n f a w r o f the
take t h a t t o m e a n t h a t
agent t o w h a m i t i s transmitted. I
the c o u r t f e l t t h a t i f t h e m e m b e r b a n k r e c e i v i n g t h e c h e c k
for c o l l e c t i o n h a d n o a u t h o r i t y
t o accept
a n exchange
draft, t h a t i t could n o t authorize t h e Feceral reserve
a n exchange d r a f t .
bank t o a c c o p t
o
f c o u r s e i t could,
under t h e R e w Y o r k rule, w h e r e e a c h b a n k i s a n i n d e p e n d e n t
contractor, b u t under t h e massachusetts rule, a n d this
dictum o f the court, I
AS any nate,
anything y o u
ite
should think they could n o t d o it.
e e doubtful. I
c n p u t i n Regulation J
d o n o t know o f
that w i l l p r o t e c t
you i f the court s h u l d finally adopt that view.
out
for the Federal Seserve Bank o f St. Louis has ~orked
a scheme w h i c h
w o u l d be fine,
i f y o u would p u t i t into
simply t o
practice, b u s i t would. b e hard t o do: T h a t i s
get a l l t h e t a n k s
i n t h e country t o receive f r o m their
s i g n a t u r e cards’,
depositors d e p o s i t s l i p s o r o n their
authority t o s e n d c h e c k s d i r e c t
accent r e m i t t a n c e d r a f t s
to d o t h e s a m e thing.
t o t h e drawee b a n k s a n d
i n vayment,
would b e
B u t y o u know h o w hard i t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
301
H e i s trying t o work i t through
to get that titrough.
the c l e a r i n g house,
a n d they have adopted a
rule i n t h e
St. Louis clearing house authorizing t h e m t o d o that.
you c a n ! t d o t h a t I
think y o u w o u l d h a v e c o m l e t e p r o t e c t i o
against t h e a l l o y d e c i s i o n , I
as i t i s i n t h e s t a t e s
New Y o r k rule,
i f
think w e have vrotection
a s t o a l l c h e c k s h a n d l e d under the
b u t i n about h a l f t h e states t h e y h a v e
the W a s s a c h u s e t t s r u l e a n d I
d o n o t k n o w whether regula-
tion w i l l v r o t e c t y e u o r n o t a g a i n s t t h e d o c t r i n e
o f the
Malloy case, because i n sone way you h a w g o t t o get t he
consent o f the owner o f the check a n d i t seems impossible
to d o chat through a regulation o f the Federal Reserve
Foard, i f that view o f the court i s adopted finally.
for
we were hoping, w h e n w e finally p u t that cuestion u p
that
actual decision b y the court, t h a t t h e y would hold
give t h e Federal
the P o a r d ' s r s g u l a t i o n s w e r e b i n d i n g a n d
reserve b a n k s s u f f i c i e n t a u t h o r i t y
draft,
a n d t h e District c o u r t
t o accept t h e exchange
i n the a l l o y c a s e rather
w h i l e i t d i d not
took that view, b u t t h e suprene G o u r t ,
exactly r e v e r s e i t - - - t h e y t o o k a
different g r o u n d - - -
t h e y thought that
yet this language rather implied that
vyLlew w a s u n s o u n d .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
302
Governor Bailey:
Suppose a
commercial b a n k w o u l d
embody i n its signature cards t h e statement t h a t a l l transactions
t h e y h a d with your t a n k should
regulation
b e coribrolled
f their signa-
I
o f t h e Pederal R e s e r v e B o a r d ,
b y
ture c a r d e m b o d i e d t h a t p r o v i s i o n d o y o u t h i n k t h a t w o u l d
C O P E C O Ge by
Mr. Wyatt:
E t : mbeht. doit.
T h e y might argue
that t h e y d i d n o t k n o w w h a t t h a t meant.
T
b just
t w o u l d e
as e a s y t o g e t s p e c i f i c a u t h o r i t y t o s e n d d i r e c t a n d
accept a
remittance d r a f t a s i t w o u l d b e t o g e t t h a t
authority.
I
t would b e much better i f you could d o a s
counsel f o r the 8t. Louis b a n k did, a n d g e t t h e specific
A
L RUO1Rie.
I f i t was i n the signature card,
Governor Bailey:
printed there, that i s t h e thing that they d o business
with a n d t h e y a l v a y s h a v e t h a t i n t h e i r
P i e
( T h e y may.
Lose l e t t e r s a n d other things o f thet kind, b u t they d o
not l o s e t h e s i g n a t u r e c a r d s .
Governor Seay:
B u t a
do n o t h a v e s i g n a t u r e c a r d s .
great m a n y o f t h e s m a i i b a n k s
T h e individual c a n bring
That was t h e proposition i n the a l l o y case;
that w a s a n individual;
i t was n o t a
bank.
T h e indivi-~
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
303
o f t h e Massachusetts
dual d e n i e d k n o w l e d g e
l a w and the
court w o u l d h o l d 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 i n w h i c h
he deposited i t had n o right t o waive i t because t h e vidi=
vidual h a d not waived i t and had n o knowledge o f it.
Governor Fancher:
T h e r e i s this viewe-- although I
doubt i f the Federal reserve banics would d o this--- t h a t
where
a n agent t a k e s
i t upon himself
t o apooint a
agent h e a u t h o r i z e d h i m t o d o c e r t a i n things.
impliedly a u t h o r i z e s t h e s u b - a g e n t
ized t o do.
H
sube a t least
t o d o w h a t h e i s author~
I n a case like this one, t h e m e m e r t a n k
authorized t h e F e d e r a l r e s e r v e b a n k t o s e n d d i r e c t a n d
accept a remittance draft, a n d the Federal reserve bank
te h e l d l i a b l e t e c a u s e t h e m e m b e r b a n k d i d n o t h a v e
authority t o d o that itself, a n d therefore t h e handling
of t h e c h e c k
i n that manner w a s b e y o n d t h s scope o f t h e
authority o f the member bank. T e c l m i c a l l y the Federal
reserve b a n k c o u l d t u r n g r o u n d a n d s u e t h e m e m b e r b a n k
for authorizing i t t o d o something t h a t i t was n o t authorcreate
ized t o do, t u t you know the situation that would b e
in the system i f you tried t o d o that. S o m e o n e h a s
i n the
suggested, a n d w e thought o f this also, putting
regulation a
provision t h a t e a c h m e m b e r b a n k s e n d i n g t o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
304
a federal r e s e r v e b a n k f o r c o l l e c t i o n w o u l d g u a r a n t e e i t s
authority t o collect i n accordance w i t h t h e terms o f
regulation J
and vould hold t h e Federal reserve b a n k
harviless a n d i n d e m i f y t h e F e d e r a l r e s e r v e b a n k f o r a n y
loss r e s u l t i n g f r o m t h e f a i l u r e
o f t h e member b a n k t o
have authority t o collect t h e check i n that way, T h a t ,
in each case, w o u l d require turning around a n d filing
claim a g a i n s t t h e m e m b e r b a n k a n d p o s s i b l y b r i n g i n g s u i t
to collect,
Governor Seay:
I f the Federal reserve b a n k o f Atlant
had h a d i n practice t h e r e q u i r e m e n t w h i c h t h e i c h m n d
Bank has p u t in, t h e case would n o t have arisen.
There
isnit uniformity i n action o f the Federal reserves banks.
We w e r e f u l l y p r o t e c t e d a g i n s t t h i s .
w
e were acting a s
agents o f the Federal reserve b a n k o f Atlanta, a n d that
practice
d i d not happen
t o have b e e n put
B
the Atlanta district.
e |
i n effect
i n
Leen t h e case would not
have a r i s e n a g a i n s t i t , - - -
Governor Bailey ( I n t e r r u p t i n g )
I f the pass b o o k
of the customer o f the m e m & r bank, o r non-member bank,
had p r o v i s i o n s p r i n t e d
pir. Wyatt: I
o n it~--
think t h e d e p o s i t s l i p s m i g h t CG. LG,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
505
because t h e d e p o s i t o r m a k e s o u t t h e d e p o s i t s l i p ,
would t e charged, I
and
think, w i t h knowledge o f the terms
of t h e d e p o s i t s l i p , b u t t h e c o u r t s a r e s o m e w h a t s p l i t u p
about t h e binding effect o f notice i n a pass book.
I t seems t o m e i f the Board was
Governor Harding:
to put that clause i n Regulation J , t o which ir. “Wyatt
has just veferred, t h a t n o member b a n k with a grain o f
scnse c o u l d f o l l o w t h a t p r o c e c u r e u n l e s s
i t had authority
and p r o p e r a u t h o r i t y f r o m i t s depositors.
Mim, Wyatts
w y theught was that that w a s o n e w a y
of g e t t i n g a t it, t h a t i t w o u l d b e s i m p l e t o p u t a
elon
o r that kine
provi-
i n there,
Governor McKinney?
T h e n i f the Federal reserve b a n k
al r e s e r v e w a n k w o u l d b r i n g i n t h e m e m b e r
Governor Harding:
I t wouldn't b e w r y l o n g before
all t h e m e m p e r b a n k s w o u l d b e g e t t i n g a u t h o r i t y f r o m
thelr depositors.
Governor Seay:
v e n a s i t stards i s i t practicable
that t h e r e g u l a t i o n b e s o f r a m e d a s t o v l a c e u l t i m a t e
non- mem ber
responsibility u p o n t h e depositing b a n k o r the
bank a n y h o w ?
T h a t i s t o say, s u i t s b r o u g h t
b y t h e indi-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
506
vidual will have t o b o brought against t h e bank i n which
he deposits t h e check?
a m sure o f that where t h e state i n
Mr. Wyatt: T
which t h e check was originally deposited h a s t h e ‘tassachusetts r u l e i n effect.
Governor Seay:
Wir, Wyatt:
T h a t i s what I mean.
T h a t was t h e situation i n the walloy
Governor Seay: A l t h o u g h i t may b e that t h e individual will have t h e right a t l a w t o bring suit against
the reserve bank, t h e reserve t a n k will have t h e right t »
go b a c k u p o n t h e b a n k f r o m w h i c h t h e c h e c k o r i g i n a l l y
came ?
Yes, t h e b a n k f r o m w h i c h i t r e c e i v e d
the check.
Governor Seay:
Yes.
ir. Wyatt: I
think i f y o u put the-vrovision: 1 2sr
ferred t o i n r e g u l a t i o n J
cases.
that y o u w o u l d h a v e that:
Y o u have g o t t o deal primarily
with the member bank.
tera
i n this r e g u l a t i o n
I t seems impossible t o make regula.
bank,w h o
tion J binding u p o n a depositor i n a non-member
does
m t k n o w a n y t h i n g a b o u t r e g u l a t i o n Jd.
I f you put
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
507
that p r o v i s i o n
i n there i t w i l l e n a b l e y o u t o g o b a c k
against. t
h
e bank
i n every c a s e a n d b e protected.
Governor wsickKinney:
H o w about items s e n t t o won-
member b a n k s t h a t r e m i t a t par?
Mr. W y a t t :
Regulation J
now authorizes
t h e Federal
reserve banks t o send itcms direct t o non-member banks.
There i s one other angle t o it, however, t h a t won't
be covered,
a n d that i s where y o u receive a
remittance
draft a n d t h e n send that remittance direct t o the drawee
bank a n d a c c e p t a n o t h e r d r a f t . i n p a y m e n t
o f that.
I n that
case, i f there i s a loss resulting f r o m t h e d i r e s e n d i n g
the b a n k t h a t s e n t t h e r e m i t t a n c e d r a f t m a y m a k e a
clain
against you for a loss because you had n o right t o send
it direct t o the drawee bank. C o u n s e l for the Dallas
bank has protected t h e Dallas b a n k pretty well against
that liability b y incorporating a
provision i n the cas h
Letter authorizing t h e m t o collect 8
that manner;
n o t o n l y saying + !
remittance draft i n
t h e remittance draft
shail b e collected i n that manner, t u t when t h e remittance
43 sent i n o n the slip sent with i t h e has t h e provision,
'mhis remittance subject t o t h e terms and. comitions
your c a s h letter",
a n d that seems t o wover t h e point
of
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
pretty well.
The Chairman:
N o w , gentlemen, t h i s matter w a s
brought u p a t this conference i n the nature o f unfinisheo business.
A t the last conference i t was voted that
new R e g u l a t i o n J
be worked u p t o conform w i t h changed c o n -
ditions, a n d I understand f r o m you, Mr. Wyatt, t h a t n f
you wanted t o g e t t h e views a n d suggestions o f this con-=
ference,
and I
understand f r o m Mr. C a s e t h a t a
cornmittee
of t h e C h a i r m e n o f Federal R e s e r v e B a n k s c o n s i d e r e d t h i s
matter a n d m a d e s o m e suggestions.
H a v e you a
copy o f t h e
letter that was vritten b y that committee t o t h e Board,
or
are y o u f a m i l i a r w i t h t h a t ?
Mr. Wyatt:
N o , I
have n o t s s e n that.
Deputy Governor Case:
promulgated b y the Board I
w h e n this regulation J
was
think t h e N e w York Bank, a s
on it
well a s a n o t h e r b a n k , a s k e d t o h a v e d e f i n i t e a c t i o n
deferred, a n d Mr. Heath,
Boston,
a n d tir. Jay,
o f chicago, l r , Curtiss,
o f N e w York,
sidered i t v e r y carefully.
T
of
m e t d o w n h e r e a n d con-
t a m n o t s u r e beat what M r .
it
Wyatt sat in with them part of the time, A t any rate,
comiittee. S u b s e was v e r y carcfully consideied b y this
quently, w r . J a y wrote a
letter t o t h e Federal R e s e r v e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
309
Roard, a n d I think i t might b e helpful i f that letter
were r e a d a t this time.
T h e letter i s a s follows:
MMarch 17, 1924.
Federal R e s e r v e B o a r d ,
Washington, D . C .
Dear Sirs:
I wish t o acknowledge receipt o f the Board's, letter
ef March 8 , X~5989, transmitting a
new R e g u l a t i o n J
copy o f the proposed
t o take t h e place o f Regulation J
of 1 9 2 0 w h i c h i s n o w i n effect,
a n d asking that I
Series
advise
I
the Board o f a n y suggestions o r recommendations t h a t
this proposed
may have t o make concerning t h e form o f
regulation.
Sections I,.i1, LIT, i v ama-¥, s p r e e
t o b e most satis:
in
factory from every aspect, and, i n effect, provide
i t i s understood
express t e r m s f o r t r p r o c e d u r e w h i c h
Concerning
is n o w i n vogue a t each Federal reserve bank.
those sections o f the regulation, I
suggestions
have n o comments c r
t h e satisfac~
t o make, o t h e r t h a n t o e x p r e s s
i n the form i n which
tion o f the officers o f this b a n k
they a r e n o w prepared.
to t h e r e c o r m e n d a t i o n
commendation
poth
I n substance t h e y c o n f o r m
a n d thie -2eo f the Advisory Council
o f the Governors Corference.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
310
Section
in reserve.
V I relates
t o t h e penalties
f o r deficiencies
I t i s p r e c i s e l y s i m i l a r to. t h e f o r m w h i e h
this part o f the regulation h a d i n the draft appearing
in t h e S e r i e s
o f 1923.
T h e r e i s o n l y o n e suggestion
h f care t o make c o m e r n i n g it.
From t i m e t o t i m e w e h a v e b e e n a d v i s e d t h r o u g h e x a m iners o f t h e o f f i c e
o f the Comptroller
o f t h e Currency
that t h e y h a v e d i f f i c u l t y w i t h c e r t a i n n a t i o n a l b a n i s
in
enforcing that part o f the l a w which provides t h a t n o bani
shall a t a n y t i m e m a k e n e w l o a n s
o r p a y a n y dividends
unless a n d until t h e total reserve balance required b y
law i s fully restured.
I t appears t h a t some national
banks h a v e c o n s t r u e d t h e P o a r d ' s r e g u l a t i o n r e l a t i v e
the p e n a l t y f o r d e f i c i e n c y
i n reserves
as a
waiver
to
o f this
unequivocal p r o v i s i o n o f t h e l a w a b o u t w a k i n g n e w l o a n s o r
paying dividends.
Thile i t i s v e r f e c t l y proper, t h e r e f o r e ,
a n d highly
advisable f o r t h e “ e s e r v e B o a r d , u n d e r t h e a u t h o r i t y c o n -
ferred b y section 1 9 o f the Federal Reserve Act, t o pro~
vide t h a t p e n a l t i e s f o r d e f i c i e n c i e s
i n reserves w i l l
be
assessed o n l y u p o n the tasis o f a n average daily n e t
deposit c o v e r i n g a
weelly o r t w - w e e k l y period, n e v e r t h e -
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
SLL
less
i t is: n o t p r o p e r
f o r a n y national
loan o r p a y a n y d i v i d e n d s
bans
G o make a
o n a n y d a y within t h e svecified
period i f i t s r e s e r v e o n t h a t d a y i s b e l o w t h e a m o u n t r e -
quired b y law.
I n other words, w h i l e t h e conditions under
Which p e n a l t i e s f o r deficiencies.
i n reserves a r e t o b e
assessed i s a matter subject t o t h e regulation o f the
Federal R e s e r v e B o a r d ,
t h e r i g h t t o ‘sake loans
o r pay
dividends i s predicated o n a n uni‘paired reserve balance.
In order, therefore,
t o distinguish between these t w o
different aspects o f the situation, a n d i n order t e facilitate t h e w o r k
o f the national
ed t h a t i t might b e a d v i s a b l e
tled ‘Basic penalty",
b a n k examiners,
i t i s sug:est-
t o a m e n d p a r a g r a p h (ec), e n t i -
o n page 4
of the regulation somewhat
in the following manner;
Consolidate s u b - p a r a g r a o h 1
and subparagraph
2, sc
they vill aopear a s o n e instead o f tro para graphs,
at the e n d thereef, a d d a sentence reading a s follows~
‘The p r o v i s i o n s
the b a s i s
o f this paragraph relate s o l e l y t o
o n which penalties f o r csriciencies
i n reserve
will b e assessed, i n d nothing herein cortained should b e
construed a s a
w o d i f i c a t i o n o f t h a t p r o v i s i o n o f t h e law,
quoted above, w h i c h reads a s follows -
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
S12
“tThat
n o b a n k shall a t a n y time m a k e n e w loans
or
shall p a y m y dividends unless a n d until t h e total balance
required b y law is fully restored.'"
If this sugzestion i s adopted, t h e whole o f paragraph
(c), together with its sub-paragraphs,
o n page 4, will
read a s follows -
"(c) B a s i s penalty, ~
that t h e l a w i n respect
Inasmuch a s i t is essential
t o t h e maintenance
o y member b a n k s
of tle reoquired minimum reserve balance shall b e strictly
complied with, t h e F e d e r a l R e s e r v e “Soard, u n d e r a u t h o r i t y
vested i n i t b y S e c t i o n 1 9 o f t h e Federal R e s e r v e A c t ,
hereby p r e s c r i b e s a
reserves a c c o r d i n g
basic v e n a l t y f o r c e f i c i e n c i e s
t o t h e f o l l o w i n g rules:
lL. Deficiencies
in c e n t r a l r e s e r v e
i n
i n reserve balances o f member banks
a n d reserve cities will
b e computed
on t h e teasis o f a v e r a g e d a i l y n e t d e p o s i t b a l a n c e s c o v e r i n g
a weekly p e r i o d o f s e v e n days. D e f i c i e n c i e s
i n reserve
of o t h e r m e m b e r h a n k s w i l l b e c o m p u t e d
o n the
basis o f a v e r a g e d a i l y n e t d e p o s i t b a l a n c e s c o v e r i n g a
semi-
monthly period. P e n a l t i e s f o r deficiencies
in reserves will b e assessed monrbiuly.on the basis o f average d a i l y d e f i c i e n c i e s d u r i n g e a c h o f t h e r e s e r v e c o m p u t a ~
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
313
tion periods ending i n the prececing month.
T h e provi-
sions o f t h i s p a r a g r a p h r e l a t e s o l e l y t o t h e b a s i s
which p e n a l t i e s f o r d e f i c i e n c i e s
sessed,
as a
on
i n reserve w i l l b e a s -
a n d nothing h e r e i n contained s h o u l d b e construed
m o d i f i c a t i o n o f t h a t p r o v i s i o n o f t h e law, q u o t e d
above, w h i c h reads a s follows “tTMhat n o b a n k s h a l l a t a n y t i m e m a k e n e w l o a n s o r
shall p a y a n y dividends unless a n d until t h e total balance
reouired b y law i s fully restored.'
2. A
basic r a t e o f 2 per cent p e r annum above t h e
Federal r e s e r v e b a n k ‘discount r a t e o n Y O - d a y c o r m e r c i a l
paper w i l l b e a s s e s s e d
as a
penalty
o n ceficiencies
i n
reserves o f member banks.!"
Very truly yours,
Pierre Jay, Chairman.”
I would like t o s a y with reference t o that matter
that t h e n e w f o r m
o f tixaminer's r e p o r t
o f comitiom
o f
national banks n o w has i n i t a note reading a s follows:
imhe directors should b e advised o f the provisions
of S e e t i o n 1 9
o f the Federal Reserve i c t that n o n e w loans
may b e m a d e o r dividends p a i d u n t i l t h e l a w f u l r e s e r v e i s
intact,
tained
a n d t h a t t h e l a w requires t h e reserves
e a c h day,
e v e n though t h e penalty
t o b e wain-
i s assessed
only
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
314
on average ceficiency.'
I
n other words, National tanks
are g o i n g t o b e o n notice c l e a r l y
o
f this provision
with regard t o reserves. ‘ w h i l e i t is perfectly proper,
therefore, a n d highly advisable f o r t h e Reserve t a r d ,
under t h e authority conferred b y Section i 9 o f the
Federal R e s e r v e a c t ,
ciencies
t o provides t h a t penalties f o r d e f i -
i n reserves w i l l b e a s s e s s e d o n l y u p o n t h e b a d s
of a n average daily n e t deposit covering a
weekly period, n e v e r t h e l e s s
tional b a n k
weekly o r twe-
i t i s n o t proper f o r a n y na-
n a l c e l o a n o r p a y a n y dividends
within t h e specified period i f its reserve o n that d a y i s
below the amount required b y law", a n d s o forth. “ w h a t
follows i s really a
repetition o f what has t e e n said,and ,
if vir. W y a t t w o u l d b e w i l l i n g t o a c c e p t t h a t s u g g e s t i o n
I think w e m i g h t a c t u v o n t h i s a n d a p n r o v e R e g u l a t i o n J
with t h i s s u g g e s t e d m o d i f i c a t i o n .
vir. Wyatt: =
Governor Calkins:
e r i o u s objection t o it.
T h e r e i s o n e other paragraph I
would l i k e t o discuss w i t n ifr’ Wyatt,
i f this i s the p r o p e
time, a n d t h a t i s s e c t i o n V , p a r a g r a p n 5 , v h e c k s r e c e i v e d
by a
Federal r e s e r v e b a n k p a y a b l e
o n other d i s t r i c t s w i l l
be f o r w a r d e d f o r c c l l e c t i o n u p o n t h e t e r m s a n d c o n d i t i o n s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
LS
herein provided t o the Federal reserve b a n k o f the district i n w h i c h s u c h i t e m s a r e payable,
T h e posnticis
that t h a t p r e c l u d e s t h e F e d e r a l r e s e r v e b a n k f r o m s e n d i n g
drawn o r t o a n y o t h e r F e d e r a l r e s e r v e b a n k t h a n t h e F e d e r a l
reserve b a n k o r branch.
have
i n mind:
‘ W e have a
A G . A
branen
t
e O M Oden ebnat
kb ee
a t Spokane,
W L C
e a s Very,
near t h e N i n t h D i s t r i c t l i n e , t h e M i n n e a p o i i s d i s t r i c t
Line, and. there t s a very considerable volume o f transactSons betweer banks i n that section o f our district a n d
the n e a r b y c i t i c s
i n t h e W i n n e a p o l i s district.
this p r o v i s i o n o f t h e c i r c u l a r
U n d e r
e compelled
we w o u l d b
to
send those items which m a y b e o n banks fifteen miles
distant f r o m Helena,
t o binneapolis, timneapolis b e i n g
150 miles distant, a n d Helena t w o o r three hundred» I
wondered i f thers was a n y roason w h y a Federal reserve
bank should n o t send checks o n & bank i n a m t h e r district
direct
t o t h e b a n k o n which c r a w f o r b i e ereci:
o F tne
dissending bank i n the Federal reserve b a n k o f the payee
tricue
Mr. Wyatt: I
know o f n o legal r e a s o n
shoula n o t b e done, e x c e p t this--- there i s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
516
law t o prevent it, w t i f you have authority t o d o that
it w i l l p u t y o u i n a
position a t t i m e s o f d e c i d i n g
whether y o u a r e gcing t o send a check t o the dravee b a n k
or t o the Federal reserve b a n k o f that district.
I f , for
any reason, y o u decide t o send i t t o the Fedcral reserve
bank a n d t h a t c a u s e s
of a
delay o f s a y o n e day,
a m
o n that
day t h e drawee b a n k fails, t h e owner o f the check will
Claim that y o u are liable because y o u d i d not handle i t
in t h e m o s t e r p e d i t i o u s w a y .
T h e r e
w o u l d be a
great d e a l
of difficulty i n deciding i n s o m cases, w h i c h came pretty
near t h e border line, whether i t would b e best t o send
it direct o r send i t t o the Federal reserve tank. I
it i s a
v e r y v a l u a b l e s u g g e s t i o n myself,
would m a k e r a t h e r a
substantial c h a n g e
but I
think
think i t
i n t h e present p r a c ~
tice o f the Federal Reserve Banks, a n d proltably a change’
in t h e boundaries. I
fully b e f o r e
would w a n t t o c o n s i d e r t h a t c a r e -
1 t was
Governor C a l k i n s : I
think i t i s well taken.
appreciate t h a t p o i n t a n d I
i l y own opinion i s that i f w e send
that check o n a bank which i s 1 5 miles e a s y o f tre line,
150 miles, t h a t w e will t e charged w i t h negligence a n d y o u
y o u might
cannot e s c a p e t h a t c h a r g e b y a n y p r o v i s i o n t h a t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
S17
put i n t h e circular.
I
f w e have a
check d r a w n o n a
bank o n t h e w e s t e r n e d g e o f t h e i M n n e a p o l i s d i s t r i c t a n d
we t a k e i t u p o n o u r s e l v e s
t o s a y that w e will s e n d that
t o b e returned
check t o Minneapolis,
Federal reserve b a n k t o within a
b y t h e vtnneapolis
few miles o f t h e point
where i t started from, w e will b e chargeable w i t h negligency a n d I
d o n o t t h i n k y o u c a n e s c a p e Bees
Mr. Wyatt:
t
T d o r o t t h i n k y o u w o u l d b e liable b e c a u s e
the regulation requires y o u t o d o that.
under t h e r e g u l a t i o n s
Y o u are acting
a n d also t h e authority t h a t y o u g e t
from t h e m e m b e r b a n k .
a m n o t s o sure alout t h e effect
Governor C a l k i n s : T
E e
of that authority a s some o f t h o others s e e m t o hese
other words, I
d o n o t believe y o u c a n p u t i n t o a
regula-
tion o r a n agreement, w h i c h i s n o t actually executed, p e r mission t o d o something t h a t i s bad business, a n d then g e t
away w i t h i t .
Governor Mckinney:
T h a t would mean the breaking
down of district lines all the way along, wouldn't it?
Governor Calkins:
Mr. Harrison:
regulation s u c h a
I
I
n a good many instances, Ves.
the
s there a n y occasion t o p u t i n
p r o v i s i o n a s p a r a g r a p h 5 , w h i c h neces-~
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
518
sarily limits t h e right o f the Federal Reserve R a n k t o
e-ercise a n y judgment i n the matter?
Governor Calkins:
T h a t i s e x a c t l y t h e point.
suggestion w o u l d b e t h a t t h e p a r a g r a p h
Mr. Harrison:
A
t Leastiuwt oust:
M y
b e eliminated.
1 o p e modisiLed.to
include t h e b r a n c h bank.
Me. Wyatt:
Well, I
think i f you are authorized t o
send i t t o t h e F e d e r a l r e s e r v e b a n k t h a t y o u a r e a u t h o r i z e d
to s e n d i t t o a
branch o f t h e F e d e r a l r e s e r v e bank.
is n o l e g a l d i s t i n c t i o n b e t w e e n a
and a
There
Federal r e s e r v e b a n k
Federal r e s e r v e b r a n c h b a n k , b u t i t c o u l d b e p u t
ine there.
Governor C a l k i n s :
i t i s perfectly obvious,
a n d exper-~
fence h a s s h o w n u s t h a t i n h a n d l i n g c h e c k s u n d e r t h e prp-
visions a f the l a w w e cannot escape risk, risks t h a t a r e
involved
i n other b u s i n e s s t r a n s a c t i o n s .
siderable r i s k s i n v o l v e d
the provisions
T h e r e a r e con-
i n the collection
o f t h e Federal Reserve Act.
been demonstrated,
o f checks u n d e r
T h a t has
2 n d the only question i s which o n e o f
the series o f risks shall
b e selected b y the sending Federa.
its own responsibility.
is that t h e paragraph b e eliminated.
i f y sug. estion
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
519
Governor Norris:
I t would s e e m t o m e that t h e risk
of sending b y a Federal reserve b a n k t o the reserve b a n k
or branch i n the other district vioould b e less t h a n the
risk that t h e reserve b a n k would assume i n undertaking t o
decide f o r i t s e l f a s t o t h e r e s p o n s i b i l i t y
a f banks
i n
other r e s e r v e districts.
The Chairman:
That, I
take i t , i s a
sugvestion t h a t
is q u i t e f a m i l i a r a n d i s v u l g a r l y k n o w n a s p a s s i n g t h e
buck. B e i n g i n doubt a s t o whether i t i s safe t o d o a
thing y o u s e n d i t o n t e s o m e b o d y e l s e . I
d o n o t believe
that i s t h e e f f e c t i v e p r a c t i c e
i n t r a n s a c t i n g business.
I believe t h a t w h e n y o u h a v e a
transaction
o n your hands
you a r e put upon your o w n responsibility a n d have t o decide
as t o what t h e best method i s o f transacting it. I
will
refer t o Governor Young's district a g a i n a n d s a y that i n
many instances--- I
do not know h o w “iany~--~ b u t i n many
instances w e have sent drafts a n d checks d r a w n o n banks
im Bie dilateict, a n d that before t h e y could have b e e n returned t o t h e b a n k s
o n which t h e y w e r e d r a w n t h e banks
would h a v e b e e n closed, w h i l e t h e y m i g h t h a v e b e e n collect-
ed i f sent direct, a n d w e were charged w i t h notice i n a
general way.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
320
overnor Y o u n g s a i d y e s t e r d a y
Governor HceKinney: G
that h e has agents a t séveral points i n his district a t
the p r e s e n t t i m e ,
Y o u might s e n d a
check d i r e c t
to a
member b a n k i n his district where h e i s collecting through
the m e d i u m o f a n a g e n t a n d y o u m i g h t b e g u i l t y o f negli-~
gence there i n exercising t h e discretion which i s suggestel b e given.
The. chairman:
indicated, I
T h a t i s cuite true, b u t a s I have
do n o t |
o v e w e could escape t h e charge
think w e s h o v l d t a k e t h e r e s p o n s i b i l i t y
of negligence. I
and d é a l w i t h i t .
Deputy G o v e r n o r C a s e ?
PeonoOwla
l i e
Fo, a s k ir.
Wyatt w h a t t h e legal effect o f i t would b e i f w o omitted
the clause referred t o ? W o u l d i t lcave t h e
serve b a n k s f r e e f r o m a
their d i s c r e t i o n
Mr. Wyatt.
legal s t a n d p o i n t ,
t o
a s t o where t h e y sent them?
Offhnand, I
t h i n k i t would,
I
haven't g i v e n much study t o it. F r a n k l y ,
section 5
any absolute necessity f o r having this
i n here.
was aovroved b y
Tt was i n the regulation o f 1923, w h i c h
the C o n f e r e n c e
o f Governors. I
of tle r e g u l a t i o n o f 1920,
thini: i t v a s t a k e n o u t
b u t igunees. h a v e n ' t a
copy o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
the 1 9 2 0 r e g u l a t i o n here.
Governor Wellborn:
this d i s c u s s i o n
A
L 6 Chairman,
i s i t intended
in
t o take u p t h e general subjects under topic
II, subheading ©, "Regulation J"?
T h i s subject w a s p u t o n the program
The Chairman:
because,
a s I have stated tefore, i t was unfinished busi-
M y understanding o f the matter n o w i s that Hr.
ness.
.Wyatt i s busy a n d has b e e n busy undertaking t o work out a
suitable revised Regulation J, and he statea that h e wanted
to g e t t h e benefit o f the sugyestions o f the conference,
have a
Governor Welltorn: T
statement h e r e p r e p a r e d
by our counsel o n this matter which m a y b e o f interest,
which I
will h a n d t o t h e S e c r e t a r y a n d l e t h i m read.
i t
iste s n o r y “Leuver*
T h e letter
Mego Harrisan:
dated M a r c h 20th, 1 9 2 4 a d r e s s
i s a s fellows:
F
O nt
J < L e Campbesti«
The Chairman: W h o i s Mr. Campbell?
D e p u t y Governor o f the Federal Reserve
wir, Harrison:
Bank o f Atianta. I
this L e t t e r
by a
would like t o preface t h e readingof
statement o f v n a t J
t
h
e status
s o far a s the
of t h i s p a r t i c u l a r d r a f t o f R e g u l a t i o n J ,
Conference
i s concerned,
i
G P a business
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
322
the last Conference, a n d i t i s a repetition o f the request a n d recommendation made a t that time that t h e Board
issue a
new Regulation J .
O
n fiarch 8
the board s e n t e a c h
Federal r e s e r v e b a n k t h e r e v i s e d d r a f t o f p r o p a s e d
X~-5989a
lation J/and asked e a c h reserve b a n k t o send i t s comments
or suggestions t o the Reserve Board,
which tir. Case referred a
T h e letter t o
little while ago, contained t h e
comments o f tr. J a y a n d t h e officers o f the N e w York Bank,
I presume t h e other Federal reserve banks also made sug-~gestions.
T h e draft o f Regulation J
which i s tefore u s
compilation o f the
presume, a
is X-4095, w h i c h contains, I
suggestions a n d criticisms m a d e b y
the r e s u l t o f t h e r e q u e s t o f M a r c h 8 .
T h i s revised
this latest draft, X 6 5 9 5 v a s sent t o m e b y mur. Eddy
april w i t h t h e r e q u e s t t h a t I
serve b a n k t o t e c o n s i d e r e d
where
s e n d i t t o e a c h Federal re-
a t t h i s conferences.
t h e matter stands now. I
do not know whether
i t
ever s a n t t o vir. S t r a t e r ' s comnuittee.
It w a s
H O Ls,
While t h e N e w Y o r k B a n k approved,
8 0
as the provisions o f the ifarch 8 draft were core erned,
present o n e h a s a
great m a n y c h a n g e s
i n it. I
mention
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
525
that because this letter which Governor ‘ellborn h a s
handed m e refers t o the ifarch 8 t h letter o f the Board,
The letter t o Mr. Campbell, b e p u t y Governor o f the Neserve
Bank o f Atlanta,
i s a s follows:
‘we have your letter o f March 18th, enclosing copy
of the Board's letter written under date o f “arch 8, 1924,
X-3989, subject, proposed regulation J , Series o f 1924,
together vrith c o p y o f t h e p r o p o s e d r e g u l a t i o n }
copies
a n d also
o f y o u r c i r c u l a r s F - 4 a n d F-6, c o v e r i n g y o u r p r o c é ~
Gure i n handling checks.
You a s k u g t o consider t h e letter o f t h e Board i n
which y o u a r e requested,
a t your earlicst convenience,
t o
gestions
review t h e praposed regulation a n d make a n y s u v
with respect thereto w h i c h y o u m a y desire t o make,
You a l s o a s k u s t o r e v i e w y o u r c i r c u l a r s a n d t o a d ~
se whether t h e
any r e s p e c t t i t h t h e v r o p o s e d r e g u l a t i o n J .
“6 a n s w e r y o u r q u e s t i o n s
(1) e
see n o t h i n g
i n inverse order,
i n your
the Foard.
or a t variance w i t h t h e proposed regulation o f
(2) a f t e r a
regulation,
a m
somewhat c a r e f u l s t u d y o f t k s p r o p o s e d
Wit r
?
=
b a a l
a
y1
o f t h e c a s e o f walloy B r o t h e r s v s . F e d e r a l
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
924..325
Reserve B a n k o f Richmond, a n d i n the light o f some o f
your o w n experiences, particularly those leading u p t o
the i n s t i t u t i o n o f t h e s u i t o f C a p i t a l F e e d a n d G r a i n
Company a g a i n s t F e d e r a l x e s e r v e B a r k o f Atlanta,
row pending,
which
w e suggest t h e following additions t o the
proposed regulation:
(a) A f t e r t h e words “ a t par i n funds" a n d tefore
words “acceptable t o the Federal Reserve Bank" a s used
subsection 3
of Section V , w e vould insert t h e words
including exchange drafts."
while w e t h i n k t h a t t h e w o r d s ‘ f u n d s a c c e n t a b l e
to
t o ine
the Federal Reserve Bank" a r e sufficiently broad
e see n o harm i n removing ail
clude exchange d r a f t s , w
doubt a b o u t t h e matter.
Aawraciesiuagrale eis e a e
of t h e M l l o y c a s e ,
v e r y irportant, p a r t i c u l a r l y
f o r Federal
reserve banks
clear, u n a m b i g u o u s r i g h t t o a c c e p t d r a f t s
i n view
t o have t h e
i n remittance f o r
eash letters.
The s u g s e s t e d a d d i t i o n would,
i n o u r opinion,
considered
harm, e v e n t h o u g h i t m i g h t k &
d o no
a s adding noth-
ing vo. tae regulation.
(o)
W e suagest
a n additional p r o v i s i o n ,
t o b e in-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
526
corporated
i n Section V
and t o r e a d s u b s t a n t i a l l y
a s fol-
lows:
(A Federal R e s e r v e B a n k w i l l
a t all times
b e protect-
ed i n conclusively presuming that a n y national o r state
bank w h i c h i s p e r m i t t e d
its business,
b y the Federal o r State authorities having
supervision thereof,
mentality t o t
t o r e m a i n open, a n d t o t r a n s a c t
i s solvent a n d i s a suitable instmu-
utilized i n collecting checks o b other
items, ~hether d r a w n o n itself o r o n other banks.!
This suggestion i s due directly t o the experience o f
your bunk,
I n a number
o f instances,
y o u have continued
knew, o r
to handle items drawn o n memter banks w h i c h y o u
had reason t o know, w e r e extended.
I n 4 number o f cases
was having trouble
you h a v e k n o w n t h a t t h e m e m t e r b a n k
items.
remitting f r o m day t o d a y f o r i t s c a s h
however, f e l t t h a t t o r e f u s e
in
Y o u have,
t o handle i t e m s d r a w n o n
o f them, a n d y o u
such banks would result i n the closing
have felt that t h e bank had a
from its difficulties,
I
chance t o extricate itself
n a mumber o f cases, however,
the member banks have suspended business.
b e e n tade o n you
In several instances demands h a v e
continued
rased o n t h e c l a i m t h a t y o u
t o send items
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Set
direct
t o the failed b a n k although y o u k n e w t h a t t h e
bank w a s i n b a d condition.
One s u c h c l a i m h a s r e s u l t e d
in a
suit f i l e d b y t h e
ovner o f a check, drawn onthe Merchants Bank o f IMontgom~ery, Alabama, w h i c h y o u h a d forwarded t o that b a n k f o r
collection shortly prior t o its failure.
The r e m i t t a n c e d r a f t o f t h e M e r c h a n t s B a n k w a s d i s -
honored f o r lack o f sufficient funds, a n d the bank was
closed b e f o r e t h e r e m i t t a n c e d r a f t w a s covered.
Legation i s m a d e i n t h e s u i t t h a t y o u s e n t t h e i t e m t o
the Werchants P a n k although y o u had knowledge t h a t i t was
41,a failing condition, a n d that this a c t constituted
actionable n e g l i g e n c e ,
“hile w e t h i n k t h a t w e c a n d e f e a t t h i s p a r t i c u l a r
suit, because t h e facts were n o t a s alleged a n d tLecause
y e t the
of other elements w h i c h enter into this case,
question i s c e r t a i n t o r e c u r f r o m t i m e t o time.
It s e e s
be a u t h o r i z e d
all m e m b e r s
should
t o u s that t h e Federal Reserve Banks
by a
regulation w h i c h v o u l d b e binding u p o n
o f t h e system,
t o rely u p o n t h e conclusion
i s permitted
presumption t h a t a n y b a n k w h i c h
t o remain
i s a suitable instru-~
open i s i n @ solvent condition, a n d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
228
mentality t o avail o f i n the collection o f checks; othero r less
wise t h e r e s e r v e b a n k s ( n a t u r a l l y b e i n g m o r e
familiar “ith the affairs o f their member banks), must
assume a
possible l i a b i l i t y
i n hindling
i n t h e usual w a y
checks d r a v n o n members k n o v n t o b e i n 3
weakened c o n d i -
tion, o r else, b y refusal t o handle s u c h items i n t h e
usual way, perhaps precipitate failures which they a r e
trying t o avert.
“6 peturn- herewith t h e c i r c u l a r s
redraft o f revision o f
the other enclosures, a n d also a
Section V
o f the Board a n d
i n accordance w i t h t h e suggestions h e r e i n c o n -
tained,
Very truly yours,
Randolph &
Par'sek &
Fortson,
General Counsel.”
(The p r o p o s e d r e v i s i o n o f s e c t i o n ¥ , R e g u l a t i o n J ,
Reserve P o a r d h e r e b y authorizes,
each m e m b e r
a n d non-mesver
clearing b a n k will
to a u t h o r i z e t h e F e d e r a l R e s e r v e R a n k s
received
o n deposit
and
t w reqired
t o handle cheeks
o r f o r c o l l e c t i o n a s follows:
Federal r e s e r v e v a n k w i l l a c t a s a g e n t o n l y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
329
and w i l l a s s u m e
n o liability except f o r i t s o v m negligence
and i t s g u a r a n t y o f p r i o r i n d o r s e m e n t s .
(2 A
Federal R e s e r v e B a n k i s a u t h o r i z e d
t o present
or send checks f o r payment i n cash o r exchange draft direct t o t h e b a n k o n w h i c h t h e y a r e d r a w n o r a t w h i c h t h e y
are payable,
o r i n its discretion t o forward t h e m t o
another Agent w i t h suthority t o present o r send them for
payuent i n cash o r exchange draft direct t o the bank o n
which t h e y a r e d r a w n o r a t w h i c h t h e y a r e payable.
(3) C h e c k s r e c e i v e c
by a
Federal r e s e r v e b a n k o n
its m e m b e r o r n o n - m e m b e r c l e a r i n g b a n k s w i l l b e forwarded
or p r e s e n t e d d i r e c t
be r e o u i r e d
t o s u c h banks,
t o remit therefor
a n d s u c h banks will
a t p a r i n funds ( i n c l u d i n g
exchange drafts) acceptable t o the Federal reserve w@nk,
or t o a u t h o r i z e t h e F e d e r a l r e s e r v e b a n k t o c h a r g e t h e i r
reserve a c c o u n t s
o r c l e a r i n g accounts; p r o v i d e d , however,
that t h e Federal reserve b a n k reserves t h e right t o charge
such items t o t h e reserve account o r clearing account o f
such b a n k a t a n y t i m e ‘ h e n t h e F e d e r a l r e s e r v e b a n k d e e m s
4t recessary t o d o so.
(4) A
orotected
te
Federal reserve b a n k will a t all times
national
i n comlusively presuming that a n y
or
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
550
state b a n k w h i c h i s p e r m i t t e d
act i t s t m s i n e s s
t o r e m a i n o p e n a n d t o trans-
b y t h e Federal
ing s u p e r v i s i o n thereover,
o r Stats a u t h o r i t i e s h a v -
i s solvent a n d i s a
suitahle
instrumentality t o t e utilized i n collecting checks o r
other items, whether drawn o n itself o r o n other banks.
'(5) C h e c k s received b y a Federal reserve bank pay~able i n o t h e r d i s t r i c t s w i l l b e f o r w a r d e d
t o t h e Federal
reserve b a n k o f the district i n which such items a r e payable.
(6) A
Federal reserve bank will charge back the
amount o f any check f o r which payment either i n cash o r
in t h e p r o c e e d s
o f a n exchange d r a f t h a s n o t a c t u a l l y b e e n
received, regardless o f whether o r not t h e check itself
can b e returned."
The Chairman:
G o v e r n o r Seay, I
take t h e c h a i r f o r a
Govrnor Seay:
ference,
i t appears
will a s k y o u t o
f e w moments.
( I n the Chair) G e n t l e m e n o f the cont o t h e temporary chair t h a t this sub-
ject i s very prolific o f discussion a n d that w e could pro-~
long i t here indefinitely a n d then possibly n o t arrive a t
any s a t i s f a c t o r y conclusion.
Governor F a n c h e r ?
W h a t h a s b e e n done b y the Atianta
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
S31
Bank i n r e f e r r i n g c e r t a i n f e a t u r e s
o f Regulation J
to
their attorneys, h a s probably b e e n done b y the other banks.
Our a t t o r n e y h a s g i v e n c e r t a i n s e c t i o n s
lation J
o f t h e n e w regu-
considerable thought a n d has prepared a
dum, w h i c h I
d o n o t believe I
alaaues a I t s e e m s t o m e t h a t a
memoran-
will s u b m i t t o t h e meetsolution o f this p r o p o s i t i o n
would be, i f agreeable t o ilp. vyatt, t h a t this whole m t ter b e r e f e r r e d t o wir. W y a t t a n d t h a t h e h a v e t h e S t a n d -
ing Committee o n Clearings a n d Collections s i t i n with
him and whip into shape regulation J . I
continue
think w e could
t o discuss t h i s t h i n g a n d t h e w r i o u s features
of i t for a lon» time a n d n o t come t o a n y conclusion.
If that i s agrecable t o Mr. Wyatt, I
as a
will o'fer that
motion.
Deputy G o v e r n o r C a s e ; I
will s e c o n d that.
(After further discussion, v h i c h t h e reporter w a s
directed n o t t o take: )
Deputy G o v e r n o r Vase:
I n view o r the fact that this
motion i s a c c e p t a b l e , t o i r . Wyatt, I
The Chairman:
move i t s adoption.
I s there a n y further discussion?
T h e
comotion i s that t h e standing Committee o n Collectiom
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
332
operate w i t h M r , “Yyatt i n the p r e p a r a t i o n o f a
final f o r m
ef R e g u l a t i o n J .
(The motion, having been duly seconded, was unanimusly carried.)
Governor Young: I
would like to say t o Mr. “iyatt
that w e are quite willing t o withdraw t h e suggestion that
we made, and that will clear the atmosphere a little bit.
I refer to the one we submitted before,
you this morning I
T h e one I gave
think should h e discussed.
(Thereupon wr’ Wyatt «etired from the conference ronm..
The Chairman:
T h e next t o p i c f o r c o n s i d e r a t i o n
is
TI-(d)
Should a member b a n k b e allowed t o
direct-route i t s o w n d r a f t s d r a w n
on a correspondent, t o a n o t h e r
Federal r e s e r v e b a n k f o r c r e d i t o f
tts o w n F e d e r a l r e s e r v e b a n k ?
Governor (Glkins:
i e , Chairman,
t h e r e a r e dangers
an Chie sererr ies y
the
First, credit i s given b y the reserve banks u p o n
date t h e i t e m s h o u l d b e c r e d i t e d
WOLGn t o t s S e n t .
will a r r i v e
second,
b y the reserve b a n k t o
T h e r e i s n o assurance t h a t t h e i t e m
a t i t s destination.
b y one
i t i s auite possible t h a t t h e eredit
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
53535
reserve b a n k will m t synchronize w i t h t h e payment o f
the i t e m t o t h e o t h e r r e s e r v o b a n k , t h r o u g h s o n e d e l a y
in transit.
C r e d i t having b e e n given, t h e funds m a y b e
withdrawn a n d the direct-routing b a n « m a y then fail before
its draft h a s b e e n presented f o r payment.
T h a t is a
large a n d i v m i n e n t danger.
Third, u n d e r t h e present transit rules, f o r items o f
3500 o r other, contained i n a direct routing cash letter,
wire a d v i s e o f m n - v a y m o n t
ing member bank,
i s given direct
t o t h e forward-
b t i t i s not obligatory u p o n t h e collect~
ing r e s e r v e b a n k t o w i r e m n - p a y m e n t
t o the reserve b a n k
with w h i c h t h e f o r w a r d i n g m e m b e r b a n k i s affiliated.
Ordinary judgment, however,
o n the part o f the collect-
ing federal reserfe t m n k would dictate t h a t a wire should
routing
be s e n t t o t h e r e s e r v e b a n k w i t h w h i c h t h e d i r e c t
bank i s affilltated.
There a r e some methods o f eliminating t h e practice:
first.
I n l i e u o f t h e m e m b e r b a n k ? s o w n draft,
the
funds coulda b e transferred j u s t a s e veditiously b y wire;
4f the drawee b a n k i s located i n a Federal reserve o r
f course b e made without char:
branch city, transfer c o u l d o
over s h e p r i v a t e wire.
I f t h e drawee b a n k i s located o u t -
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
554
side o f a
Federal r e s e r v e
be rade without charge -
o r b r a n c h city,
i t could also
if the drawee i s a remter b a n k -
as such wires f r o m a member b a n k t o its Federal reserve
bank are a t present b e i n g absorbed b y Federal reserve
banks, a n d from that point t h e wire would o f course g o
over ths private wire, vithout charge.
I f the drawee bank
is a non-member bank, situated outside o f a Federal r e serve o r branch city, t h e r e would b e a telé,-raphic charge
in connection with t h e transfer, w h i c h must b e absorbed
by the member b a n k ordering t h e transfer.
Second,
“ h e n a bank direct-routes i t s o w n draft,
it i s o n l y l o g i c a l
t o assume t h a t i n most instances
is drawing against a
it
balance standing t o its credit w i t h
the drawee bank, t h i s balance having b e e n created b y the
redeposit w i t h t h e d r a w e e b a n k o f c h e c k s a n d o t h e r i t e m s
ceived b y the forwarding b a n k f r o m its depositors.
The
funds w o u l d h a v e b e c o m e availiable a s e x p e d i t i o u s l y
t o the
direct-routing bank, however,
i f the checks a n d drafts
b e e n directreceived f r o m its depositors h a d themselves
bouted.
T h i s method would entail a
minimum r i s k o n t h e
t h e depositin;
part o f the Federal reserve pank, f o r should
i t s failure
bank fail before t h e items h a d been collected,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
tol)
would
m t prejudice t h e final payment
o f s u c h items, w h i c h
of c o u r s e w o u l d n o t h o l d t r u e i f t h e i t e m i n transit w e r e
the d e p o s i t i n g b a n k ' s o w n d r a f t d r a w n u p o n 4
correspond-
ent."
It involves, M r . Chairman, a n d I think i t should b e
eliminated.
The Chairman:
as
I s t h e r e a n y f u r t h e r d i s c u s s i o n opiate. a u
matter?
Governor iicKinney: I
of Governor Calkins.
practice
t h o r o u g h l y a g r e e w i t h t h e views
s o m e t i m e a g o w e diminated t h e
i n our district a n d w e d o n o t handle drafts f r o m
member b a n k s i n t h e m a n n e r i n d i c a t e d .
The Chairman:
“ h a t i s your pleasure, gentlemen?
Governor Young:
M r . Chairman, I
think i t i s a matter
that e a c h b a n k h a s t o d e c i d e f o r itself.
do t h a t i n s o m e c a s e s w h e r e a
W e hav* h a d t o
bank w a s involved a n d h a d
w a s t h e quick:
to g e t m o n e y f r o m t h e t r a n s i t i t e m s a n d t h a t
est a n d s a f e s t w a y t o g e t i t . I
do not think I
would w a n t
there
to g o o n record t h a t «‘e should n o t d o it, tecause
are times w h e n w e would have t o d o it.
Governor ifeKinney:
accomplished
C a n o t t h e same thing always b e
b y w i r e transfers, G o v e r n o r Y o u n g ?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Young:
The Chairman:
N o .
T h e question seems t o the Chair t o
be w h e t h e r t h i s i s a
matter w h i c h w i l l b e l e f t t o t h e i u r i s
diction o f e a c h F e d e r a l r e s e r v e b a n k o r whether
sufficient importance t o adopt a
G@vernor C a l k i n s : I
i t is of
general rule o f conduct,
see n o o b j e c t i o n
t o leaving
it t o the judgment o f each bank.
Governor WeKinney:
N e i t h e r d o I.
W e d o not d o i t very often.
Governor Bailey:
“ e have
had t o d o i t onceor twice.
The Chairman:
T h e suggestion h a s b e e n made tratthis
matter b e left t o the management o f each Federal reserve
bank, a n d unless there i s a motion t o the contrary, t h a t
will b e taken t o b e the consensus o f opinion.
Governor Mckinney:
T h a t m a y well b e m d e applicable
to the next topic, (e).
The Chairran:
T h e n e x t t o p i c i s (e). S h o u l d a
member b a n k ' s o w n c r a f t d r a w n o n 4 cor. espondent
b e ac~-
a federal
cepted a s a transit i t e m for deferred credit b y
reserve bank?
Covernor C a l k i n s :
Governor Young:
T h e t o p i c s a r e related.
I t is the same thing, fon't. ib?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
oot
The Chairman:
U n l e s s t h e r e ils a
wotion t o the c o n -
trary t h e same action will b e taken w i t h r e s p e c t
t o sub-
topic (¢), that. 198, that t h e practice sleli b e Left t e
the r e g u l a t i o n o f e a c h F e d r a l r e s e r v e b a n i .
The next topic i s (f) under No. IL.
(f) Authority o f a Federal reserve
bank t o a c c e p t
i n payment
of a
collection i t e m a bank draft
given i n e x c h a n g e f o r t h e d r a f t
of the drawee,
would like t o move that t h e Stand-
Mr. Harrison: I
ing C o m m i t t e e
o n Collections
b e requested
in c o m n e c t i o n w i t h t h e i r c o n s i d e r a t i o n
t o consider t h a t
o f Regulation J .
will second that motion.
GovernorFancher: I
(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:
T h e next topic i s II-(g).
(g) ‘ “ i t h d r a w a l s f r o m t h e p a r list.
That i s s u b m i t t e d
that
i n order
b y N e w York,
t o protect
b o t h member
a n d i t i s recommended
b a n k a n d reserve
bank against ioss, t h e Standing Committee o n Collections
be r e q u e s t e d
t o formulate a
uniform p r o c e c u r e
t o l e follow-
ed b y all reserve banks i n handling direct-sent items
drawn o n banks r e m o v e d f r o m t h e p a r l i s t b e t w e e n i s s u e s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
358
of t h e F e d e r a l R e s e r v e P o a r d ! s m o h t h l y s u p o l e r e n t
t o the
par list.
Governor Fancher: I
s o move, Hr. Chairman.
Governor Young: S e c o n d e d .
The C h a i r m a n :
I t i s rcecomended
that this matter
b e
also referred t o the Standing Committee o n Collections t o
formulate a
uniform procedure t o b e followed b y all t h e
Federal r e s e r v e b a n k s .
(The motion, having b e e n duly seconded, w a s unani-
mously carried.)
Governor McKinney:
W i l l t h a t b e referred b a c k t o
the conference agin, a l o n g vith t h e other matters?
The C h a i r m a n :
I t is a
ocuestion
o f operation
a n d prac-
tice, a n d I doubt, t f it comes t m ck to this conference,
whether
w e c o u l d f i n i s h t h e d i s c u s s i o n o f t h e matter. I
pelieve t h a t a
decision arrived
more a p t t o c o m m e n d i t s e l f
a t p y t h e committee
t o t h e Governors t h a n a
sion r e a c h e d h e r e b y t h e e x e c u t i v e h e a d s
Governor licKinney:
i s
deci-
o f t h e banks.
T h a t i s auite acceptable t o me.
I simply wanted t o have a clear understanding Of. “Ft,
Governor Young:
The Chairman:
I t will b e referred t o every bank.
f h e C h a i r understands t h a t i t will
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
be formulated a n d referred t o cach bank.
Governor Young:
F o r approval.
But I
same time,
think i t i s u n d e r s t o o d
a s w e a l l h a v e f o u n d b y experience,
of t h e s e m a t t e r s a r e a
a t the
that a
case o f g i v e a n d t a k e a n d I
lot
hope
that great .espoct will b e given t o the cecision o f the
Standing Committes,
a n d that n o purely formal
o r technical
objections will b e made, a n d i f i t c a n b e adopted,
i t is
so much f o r t h e good o f t h e system.
Governor McKinney:
T
t think i t i s rather
a n import-
ant aestion, b e c a u s e w e may sometimes incur come liability b y a r b i t r a r i l y t a k i n g a
bank S t t t h e p a r l i s t a n d 1re«
turning items.
The Chairman:
so small,
T h e Chair h a s w v e r h e a r d anything
i n connection w i t h t h e collection business,
as
to n o t b e o f importance, t h e r e b e i n g s o many ramifica-~
tions a n d anglcs, m o r e r a m i f i c a t i o r m a n d angles, t h a n t o
any o t h e r b u s i n e s s t h a t t h e banits transact.
The n e x 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 N o s Lit;
III -
Coin, C u r r e n c y a n d Circulation.
Under t h a t i s s u b - t o p i c ( a )
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
540
Report o f S e c r e t a r y r e l a t i v e t o
the r e c o m i e n c a t i o n o f t h e N o v e m -
ber, 1925, Conference c o m e r n i n g
increase o f Gold holdings i n the
vaults
Reference
the m i n u t e s
is mde
o f Federal r e s e r v e b a n k s ,
i n that heading t o paragraph 4 2 o f
o f tke N o v e m b e r Conference
Mr, Harrison:
o f Governors,
T h e r e i s n o t v e r y much t o say o n
this t o p i c t h a t h a s n o t b e e n c o v e r e d
by a
sent t o e a c h G o v e r n o r t r a n s m i t t i n g a
tentative d r a f t o f
report p r e p a r e d
b y ir. Hand,
corcerning this subject.
letter t h a t I
o f t h e Treasury,
a n d myseff,
A t m y request Mr. Winston,
some time i n February, called a meeting of representatives o f the Federal Reserve Board, t h e treasury and three
reserve b a n k s
t o consider a
number o f c u r r e n c y matters.
He also asked that the committee specifically consider
this auestion o f gold holdings o f the reserve banks, a n d
the general committee appointed Mr. H a n d a n d myself a s a
subcommittee t o make a report. I
prepared a letter and
sent a copy o f i t t o each Governor, a n d that constitutes
now m y report back t o this conference.
T h a t mépsortis a s
follows:
"PROPOSALS F O R COINING G O L D A N D PRINTING
GOLD CERTIFICATES.
On January 30, 1924, t h e total deposit a n d note Liabi.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
341
ties o f the Fecéeral Reserve System aggregated $4,015, 599, Q000,° T h e total g o l d reserve o f the system a s o f the same
date amounted t o $3,142,717,000, T h i s represents a gold
reserve o f 78:3 p e r cent against t h e aggregate n o t e a n d
deposit liability o f all twelve Federal reserve banks.
The F e d e r a l r e s e r v e B o a r d s t a t e m e n t
a s o f J a n u a r y 3 0 indi-
cated t h a t t h e t o t a l r e s e r v e s a g a i n s t t h e c o m b i n e d l i a b i l -
ities were 81.3 p e r cent, tecause i t included t h e “lawful
money" r e s e r v e a s w e l l a s gold.
T h e s e reported reserves o
the system, h o w e v e r , g i v e a n inaccurate i m p r e s s i o n a s t o
the a c t u a l a m o u n t o f p a y a b l e g o l d h e l d b y t h e system, s i n c :
the g r e a t e r v a r t o f t h e g o l d p e l o o s l i o n . . .
. I n fact,
onJanuary 31, 1924, t h e total “nayable" gold held b y the
Federal Reserve Banks a n d agents amounted t o $6352, 604,000.
and
Of this amount $204,727,000 consisted o f gold coin
the talance, § 4 2 7 , 8 7 7 , 0 0 0 , c o n s i s t e d o f g o l d certificates.
The t w o t o g e t h e r ,
comprising
t h e entire hand
t o hand sup-
54,013, 599,00
ply o f gold, r e p r e s e n t o n l y 1 5 . 8 p e r c e n t o f
of deposit a n d note liabilities o f the several Feceral
has 4
reserve b a n s . ‘“tYhile o n e o f t h e i n d i v i d u a l b a n k s
reserve
t o about
o f gold coil a n d certificates e q u a l
deposit liabilities,
25 p e r c e n t o f i t s t o t a l n o v e a n d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
many o f t h e others h a v e less t h a n 2 per cent.
In view o f these facts, a n d i n view o f the nature o f
the obligations o f the Federal reserve banks which hold
the r e s e r v e d e p o s i t s
o f t h e c o r m e r c i a l b a n k s o f t h e coun-
try, i t appeared t o t h e G m m i t t e e t o b e vitally important
to consider s o m e plan whereby t h e reserve stock o f payable
gold i n e a c h F e d e r a l r e s e r v e b a n k m i g h t b e i n c r e a s e d
some percentage approximating a
to
more conservative regogni-
tion o f the nature o f the liabilities o f 4 reserve institution. V a r i o u s figures w e r e considered, b u t i t was con~
cluded that while t h e final choice must b e more o r less
arbitrary,
i t would b e both satisfactory a n d practicable
to establish a reserve o f wold c o i n a n d certificates
in
the reserve banks eaual t o 2 0 per cent o f the total n o t e
and deposit liabilities o f the system a s a whole.
20 per cent,
O f this
i t was concluded that about one-third should
consist o f coin a n d two-thirds o f certificates.
The following table prepared u p o n t h e tasis o f the
figures already referred t o above, will portray graphicall:
the p o s i t i o n o f t h e F e d e r a l R e s e r v e B a n k s
i n this r e g a r d
t h e amount
(as o f January 30, 1924), a n d will indicate
of c o i n a n d c e r t i f i c a t e s
t o b e minited
o r printed onthe
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
basis o f t h e p r o p o s a l
o f t h e Committee,
Federal R e s e r v e N o t e a n d F e d e r a l R e s e r v e
Deposit Liabilities.
Notes
$
2
,
0
2
2
Deposits _
, 514,000
ts 991,065,000
& 4 , 0 1 3,9,6
05
00
‘Payable’ Gold Holdings o f the Federal
Reserve Banks.
Coin
$
2
0
January 3l, P r o p o s e d b y N e c e s s a r y
1924 C o m m i t t e e I n c r e a s e
4 , '72'7,000 2 6 7 , 573, 000 &
62,846,000
Certificates 4 2 7 , 8 7 7 , 000 6 5 5 , 1 4 7 , 0 0 0
e
en emerenaneitamreneee: ret ieeeetre <i meets
w
e
e
e
e
s
1 0 % 270,000
e e r n e n t r eensence,
en re amen
e
$652,604,000 $ 8 0 2 . 7 2 0 , 0 0 0
Percentage
o f total
‘payable g o l d t o
mote a n d d e p o s i t
liabilities
1 5
.
8
%
2
0
%
Po provide this increase i n both coin a n d certificates,
i t would b e necessary t o coin n o t only t h e
$62,846,000 estimated t o b e necessary t o buiid u p the
requisite supply i n the Federal reserve banks, b u t i t
would b e necessary also’ to coin »35,757,000 essential
under t h e l a w a s a basis f o r t h e issue o f 3197,2'70,000
additional certificates.
I n other words,
t o supply t h e
Feceral r e s e r v e b a n k s w i t h t h e p r o p o s e d a m o u n t o f c o i n
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
544
and certificates,
~98,803,000,
i t would b e necessary t o coih
o f which $62,846,000 would g o t o t h e reserve
banks, a n d 355,757,000 t o the Treasury.
On J a m a r y 30, 1924, t h e total g o l d coin held b y the
Treasury was »559,416,000.
T h e total amount o f gold cer-
tificates outstanding w a s $999,707,000.
requirenents
o f t h e law, t h e a m o u n t
U n d e r t h e present
o f gold coins w a s o n
that date approximately only w6,000,000 i n excess o f the
amount r e q u i r e d
as a
tasis f o r o u t s t a n d i n g c e r t i f i c a t e s ,
This amount i s s o insignificant t h a t i t was n o t considered
by t h e C o m n i t t e e
i n det«=rmi ning t h e a m o u n t o f additional
gold c o i n necessary a s a base f o r t h e additional certificates r e c o m e n d e d b y t h e c o m m i t t e e
t o b e supplied
I f the. r e c o m e n d a t i o n s
Federal r e s e r v e panks .
t o the
o f the
committee o u t l i n e d a b o v e a r e c a r r i e d o u t , t h e g o l d s t a t e ment o f t h e T r e a s u r y v o u l d a p p e a r
i n p a r t a s follows:
January 3 0 , 1 9 2 4
Gold coin
O
Gold Certificates
O
274,747,900
, 416,000 $
6 9 9 , 7 0 7 , 0 0 0
If, therefore,
coin h o l d i n g s
9
P r o p o s e d
1
, 1L06;28°7OOC
a s the Committee recomrends, t h e gold
o f t h e T r e a s u r y i t s e l f s h o u l d n o t b e less
than $500,000,000,
i t would b e necessary t o coin a n addi-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
345
tional $135,000,000 over and above the 498,695,000 already referred to. T h i s , together w i t h the amount already
recommended w o u l d i n v o l v e a
gold c o i n a g e p r o g r a m o f a p -
proximately $225,000,000. The Committee has been advised
that i t w i l l b e possible f o r t h e M i n t S e r v i c e i m m e d i a t e l y
to enter u p o n a ®20 gold coinage program t o produce
$22,000,000 monthly t o continue f o r s i x months, without
in a n y w a y i n t e . f e r i n g w i t h t h e s i l v e r - d o l l a r c o l n a g e pro-~
gram a n d w i t h o u t n e c e s s i t a t i n g a n y o v e r t i m e
tional a p p r o p r i a t i o n s .
T h e Comittee
o r a n y addi-
h a s already recom-
mended i n a preliminary veport that t h e i n t should inmediately commence minting g o l d i n accordance w i t h this
estimate.
I f the Mints produce t h e full amount o f the
estimate, $1352,000,000 will have b e e n minted at. the e n d
of s i x months,
w h e n i t i s understood t h a t t h e Mint ser-
vice vould have t o devote t h e petter vart o f its efforts
to the coinage o f subsidiary silver.
4 owe.
e m o e S possible
i v e n assuming that
t o continue minting a n y gold f o r
lapse o f
the t a l a n c e o f t h e c a l e n d a r y e a r 1 9 2 4 a f t e r t h e
in
these s i x months, i t will mean that only $93,000,000
year i n order fully
gold coin will have t o b e minted next
to c o m p l e t e t h e p r o g r a m r e c o m z e n c e d
b y t h e Committee.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
546
Temporary T r a n s f e r s o f L x i s t i n g S t o c k s
“hen Necessary.
If, pending completion o f the entire p r o g r a m
it
should b e c o m e r e c e s s a r y f o r s o m e o f those r e s e r v e b a n k s
which n o w h o l d g o l d c o i n r o r e d e p o s i t t h a t c o i n w i t h
the T r e a s u r y
i n order
t o permit
o f the printing
o f gold
certificates, t h a t i s a matter i n which Federal reserve
banks w i l l m
doubt co-operate w i t h a
view t o facilita-
ting t h e ultinate accomplishment o f the Committee's program.
s o , also, i f i t should t e deemed desirable f o r
some o f t h e r e s e r v e b a n k s w h i c h n o w h o l d r e l a t i v e l y l a r g e
supplies o f gold certificates,
t o ship some o f those cer-
tificates t o other reserve banks holding a
small supply,
t h a t also i s a
serve b a n k s w i l l
matter
relatively
i n which Federal r e -
n o doubt co-operate.
I t may
b e that
in the process o f completing the Committee's program,
other s h i f t s t e t w e e n t k e T r e a s u r y 2 n d t h e r e s e r v e b a n k s
or b e t w e e n t h e s e v e r a l r e s e r v e b a n k s , m a y b e a d visa ble;
but t h e s e a r e w e r e l y m a t t e r s
the m a i n p u r p o s e
o f detail incidental
to
o f t h e Comvittec's Program.
Reserve S t o c k s
o f C O r vai hGa ves.
o the printing o f certificates already
In a d d i t i o n t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
347
referred t o above, t h e Committee recom:ends t h e establishment o f a reserve stock o f gold certificates
i n the de-
nomination o f 410, $20, $50, a n d 4100, aggregating
$1,000,000,.
00
On January 31, 1924, t h e Treasury's reserve o f gold
certificates, including t h e amount h e l d i n the N e w York
Assay Office, agzregated $1,200,330,000.
O f this amount,
however, only £97,614,000 were i n denominations o f 1 0 0
and under, ‘ s h e t h e r o r n o t r e s e r v e b a n k s g e n e r a l l y e s t a b -
lish t h e policy o f voluntarily paying o u t gold a s has
already b e e n done b y two o f the largest banks, t h e C o w
mittee b e l i e v e s t h a t t h e p r e s e n t r e s e r v e s u p p l y o f g o l d
certificates
i n the smaller derominations
adeauate a n d s h o u l d b e b u i l t
soon a s m a y b e p r a c t i c a b l e .
i s wholly i n -
u p o n “ h e proposed f i g u r e a s
T h e Committee sugzests t h e
following apportiomment o f this $1,000,000,000 reserve
supply o f thesmaller denotinationss
BA A s
v
o
r a 0 , Q00,000
4 5 0 , 0 0 0 , 00
100,000, 0
100,000,000_
1,000,000, 0
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
548
Mir. H o r r i s o ‘ .
So f a r a s I
know, t h e T r e a s u r y D e p a r t m e n t h a s n e v e r
made a n y formal approval
subcommittse, I
o f t h e recormnendations
o f the
d o know, h o w e v e r , t h a t t h e T r e a s u r y h a s
expedited t h e gold coinage wrogram o f the mints t o such
a point t h a t t h e y w i l l i n c r e a s e g o l d h o l d i n g s # v a i l a h l e
for distribution among t h e Federal Heserve banks, a n d
available a s a tasis f o r n e w certificate issues,
point w h i c h w i l l a l m o s t a c c o m p l i s h o u r p r o g r a m
to a
b u t there
has never b e e n a n y formal aetion b y the Treasury defin-~
itely accepting this report a n d t h e tasis o n which i t
distributes g o l d t o the Feceral reserve banks, I
while I
hope
a m i n washington t o have another t a i k with if.
Winston a n d s e e i f w e c a m o t g e t approval o f t h e report.
Governor Fancher:
D
o y o u k n o w whether there i s a n y
stock o f free minted gold accumulated yet for distribution,
o r whether
t h e Bold minted
u p t o t h e present
4s f o r m i n g t h e b a s i s o f t h e i s s u e o f certificates?
time
H a v e
you h a d a n y d i s c u s s i o n o f t h a t s i n c e t h e m e e t i n g (one eaticis)
committee i n February?
ie. Harrison:
Governor,
I f I understand your osuestion,
a t t h e t i m e t h e comuittes met, t h e r e a s u r y
held i n the Gold Account only $6,000,000 above what was
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
549
necessary a s the tasis f o r outstanding issued o f certi-~
ficates,
s o that e v e n i f the Federal Reserve Banks h a d
at that time adopted t h e policy wnich has t e e n recommended
by the Treasury,
o f paying o u t g o l d certificates,
it
would h a v e b e e n i m p o s s i b l e f o r t h e T r e a s u r y t o p r o t e c t
the certificates o n account o f t h e fact that t h e y d i d n o t
have s u f f i c i e n t g o l d basis,
Governor Fancher: .
xcept t h a t i t c o u l d h a v e t a k e n
the larger certificates, cancelled them, a n d issued smallei
a6rominatiors.
I s n ' t t h a t possibis?
Mr. Harrison:
O n l y i n s o f a r a s i t would h a v e b e r n
from
possible f o r t h e m t o g e t t h e l a r g e r c e r t i f i c a t e s b a c k
the Federal reserve banks which held them. I
the m i n t i n g p r o g r a m h a s p r o g r e s s e d
outlined
i n t h i s report,
million dollars a
understand
o n the f&sis which i s
a t t h e rate o f about 2 2 o r 2 4
month, a n d wr. Winston has also t o h d
me that there i s a substantial excess n o w which w i i
available
as a
that i t w o u l d
basis f o r n e w c e r t i f i c a t e i s s u e s ,
be
but
b e essential t h a t t h e T r e a s u r y s t o p t h i s
t o the
gold c o i n a g e p r o g r a m s o m e t i n e a f t e r July, o w i n g
necessity o f coining subdidiary silver.
B u t even i f
600,000
we have increased t h e gold basis b y sore pied,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
we have accomplished a great deal.
I think that while t h e Treasury,
s o far a s I ‘now,
has never taken a n y formal action o n this report, t h a t
informally t h e y all agree t h a t i t i s advisable, particularly w i t h r e s p e c t
t o t h e latter p a r t o f t h e report w h i c k
relates t o the printing o f a reserve stock o f gold certi-
ficates,
I t is true they had atout a billion and a
quarter r e s e r v e s t o c k o f g o l d certificates,
all i n the very high denominations, a
b u t they were
thousand dollars
and over, a n d a t that time t h e entire reserve supply a f
unissued certificates o f $100 a n d under w a s less t h a n
$80,000,000.
H a d there b e e n a n y demand f o r the payment
of gold, a n d h a c t h e F e d e r a l r e s e r v e b a n k s m a d e a n y
requisition o n the Treasury for smaller derominations
than those certificates,
i t would have b e e n impossible t o
meet it, f o r t w o reasons, f i r s t o n account o f the shortage o f gold coin, a n d second o n account o f the fact that
i thor
they h a d n o reserve s o c k o f unissued c e r t i f i c a t e s . n
Genominations »
cured
Both o f t h o s e -defects h a v e b e e n c u r e d o r a r e p e i n g
as the result o f t h e recommendations o f the committee
made t o the Treasury.
(Governor McDougal resumed the chair.)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
301
ir. Harrison;
I f there a r e a n y further ouestions
that a n y «overnor vould l i k e t o a s k with regard t o action
talen b y t h e committee, I
shall o f e o u r s e
b e glad t o
answer t h e m .
The Caairman:
I
f there a r e n o cuestions
w e will
proceed t o t h e n e x t topic, I I I - ( b )
(bo) C u r r e n c y i n transit t o a n d from
Federal
Heserve Banks.
This “ a s p u t o n f o r d i s c u s s i o n b y S a n ¥ r n n c i s c o a n d
New York.
Governor Calkins:
Federal R é s e r v e B a n k s
W w e corresponded w i t h a l l o f t h e
t o ascertain v h a t h a s b e e n done
or what would b e done i n this matter, w i t h t h e result
that s i x b a n k s r e p l i e d t h a t t h e y v e r e i n f a v o r o f consider-
ing currency i n transit i n the computation o f reserves,
and s i x r e p l i e d t h a t t h e y w e r e opnosed;
a t least, t h a t
they were not i n favor o f it. T h e banks:in favor were
Poston, Philadelpnia, Cleveland, Atlanta, S t . Louisy a n d
Kansas C i t y .
T h o s s o p p o s e d wwe
N e w York, R i c h m o n d ,
Chicago, Minneapolis, Dallas a n d S a n Fframeisco.
Governor >seay: I
undéeretand o u r d i r e c t o r s v o t e d
to c o n c u r
i n t h e intimations t h a t w e r e s o forcefully
presented
i n the communication
t o t h e r e s e r v e banits f r o m
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
the Board.
was about t o a d d that while s i x
Governor Calkins: I
are n o t i n fawr, s e v e n a r e conforming.
Governor Seay:
Governor,
w h e n y o u s a y Richmond,
y o u mean the
i n this case.
Governor Calkins:
T h a t includes Richmond, w h i c h was
not i n favor, b u t which i s doing i t just the same.
fhe correspondence that I refer t o was undertaken
because t h e directors o f the S a n Francisco b a n k w t e d
to adopt the sugzestion offered b y the Federal Reserve
Board i f t h e o t h e r F e d e r a l R e s e r v e B a n k s a d o p t e d E C s
We thereupon wrote t o the other Federal reserve banks w i t h
the result t h a t w e found s i x were i n favor a n d s i x were
opposed, a n d I
do n o t Imow n o w where I bm.
I a m , “myseit,
violently opposed t o it and iviolently" i s the right
word,
Governor N o r r i s :
Outside
o f yourself
i t stands
seven t o f o u r ?
Governor Calkins:
The chairman:
D
S e v e n t o five.
Gowero y o u w a n t a n y a c t i o n o n this
nor C a l k i n s ?
Governor Caticins: I
would l i k e t o h e a r f r o m vir.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
553
I a m opvosed
which should’
t o i t and I
think i t i s a
practice
b e discontinued.
Deputy G o v e r n o r C a s é :
w
e feel t h e same w a y about
it, that i t i s a bad practice a n d w e are n o t doing it.
I do notthink w e are likely t o put such a rule into e f POCts
‘ v e are decidedly opposed t o i t i n
The Chairman:
Chicago.
Governor Calkins:
should b e r e v i s e d
I f the member bank's reserves
e done scientifically a n d
it shouldt
not b y inaiveetion,
C o n s t a n t w h i t t l i n g a w a y o f reserves
is c e r t a i n l y u n d e s i r a b l e .
Governor Seay: I
would like t o s a y that m y o w n
views w e r e u n c o u i v o c a l l y o p p o s e d
t o it. I
think i t i s
wrong i n principle, a n d I te lieve i t i s wrong i n practice.
Deputy Governor Case: I
believe there i s a question
as t o i t s legality.
Governor Calxins:
T h e r e i s a question.
will g o f u r t h e r a n d s t a t e t h a t
The Chairman: I
from the standpoint o f legality I
questionable.
do not believe i t i s
J I think i t i s illegal. I
tice igs dangerous.
I
think t h e prac-
t i s n o t because o f t h e amount i n -
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
554
volved being large i n our case, b u t o u r counsel recom,ended v e r y s t r o n g l y a g a i n s t u n d e r t a k i n g
our o p e r a t i o n s a n y p r a c t i c e
Governor Fancher:
t o inject i n t o
o f t h a t sort.
H a s your counsél rendered
an
opinion t h a t i t w a s i l l e g a l ?
H
The Chairman:
e said i t would easily give rise
to some legal complications w h i c h w e could well afford
to avoid b y staying o u t o f it.
Governor Harding:
complications
I t seems t o m e that a n y legal
t o which i t might g i v e r i s e w o u l d b e i n t h e
Comptroller's o f f i c e .
U n d e r o n e theory t h e b a n k would
be within its reauirement o f reserves a n d could p a y dividends a n d make loans, a n d under arpther application o k ee
it° GoRtd THU.
f h e auestion i s what i s the duty o f the
regulation, containing permission
reserve b a n k under a
of that sort, issued b y the Federal Reserve Board?
i n
Boston w e d o not consider i t from the same standpoint
Minneafrom which i t i s consid«red i n San Francisco a n d
Do.Ls%
W e consider
land District. I
i t f r o m t h e standpoint
o f t h e N e w tng-
think i f I were i n Governor Calkins!
position, w i t h a tremendous territory, t h a t I
opposed t o it. I
would b e
a m not sure, i f I had been upon t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
355
Reserve Board a n d looking a t i t from a country-wide
standpoint,
is a
that I
would h a v e c o n s i d e r e d i t .
B u t here
proposition p u t u p t o e a c h o f t h e reserve b a n k s
where t h e y c a n d o i t i f t h e y w a n t t o , a n d i f t h e y d o n o t
want t o d o i t they d o not need to.
T h e average time o f
transit b e t w e e n t h e B o s t o n b a n k a n d c o r r e s p o n d e n t b a n k s
is about s i x hours, a n d i t does n o t c u t a n y figure w i t h
I t makes t h e member banks feel
us o n e way o r the other.
better, a n d w e found o u t that t h e y were i n f a w r o f it.
Nobody s a w a n y o b j e c t i o n
t o i t a n d i t has n o t increased
o n e w a y o r t h e other.
the c u r r e n c y t r a n s a c t i o n s
T h e Com~
mittes o n Voluntary Services discussed that feature o f it.
I want t o s a y o n e t h i n g further, t h a t w e h a v e a
very
Federal
strong i d e a i n t h e N e w E n g l a n d D i s t r i c t t h a t t h e
Reserve B a n k i s kind o f a mutual b a n k owned b y the stockholding member banks a n d i s not a government b a n k prima
Tacwes
T h e y like t h a t i d e a a n d t h e orohulgation
idea h a s b r o u g h t a b o u t a
o f that
w t t e r g r a a e o f cooperation a n d
petter feeling a l l around.
S o I feel called upon t o
have
take issue w i t h t h e Board o n something that t h e y
voluntarily p u t u p t o u s .
The Chaircan:
D o e s that satisfy San Francisco a n d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
356
New Y o r k ?
I
f t h e r e i s n o f u r t h e r discussion w e w i l l p a s s
the matter.
Deputy G o v e r n o r Case:
J u s t a
moment.
T i b e t Ss sicecet
matter itn which t h e different banks a r e pursuing different courses, I
would like t o a s k i f the Counsel f o r the
Federal R e s e r v e B o a r d h a s e v e r r e n d e r e d a
legal o p i n i o n
with regard t o the practice, a n d i f not, i f there i s any
objection t o asking counsel f o r the Federal Reserve fPoard
to render a n opinion respecting it.
and I think there i s grave doubt,
I f there i s doubt,
a s t o legality, w h y n o t
ask the Federal reserve B o a r d t o have i t s counsel pass
upon t h e o u e s t i o n ?
w h y n o t l e t a n y bank that wants
Governor H a r d i n g :
tovaise the question with the Federal Reserve Board?
Doputy Governor Cases
O f course y o u c a n d o that,
but a s long a s w e are sitting here i n Conference I
think
we would all. b e interested i n a n opinion b y counsel f o r
the B o a r d i n respect
t o it.
I t seems
perfectly p r o p e r f o r t h i s c o n f e r e n c e
t o m e i t would
be
t o a s k f o r t h a t opin-
ion.
Governor Harding:
T h e presumption is the, Foard was
advised that i t was legal tefore t h e y issued t h e letter.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
357
Governor Seay:
s s i b l y v o u will vecall t h a t there
was s o m e a n i m a t e d d i s c u s s i o n b e t w e e n Hr. J a m e s a n d my-
self a t the last conference o n the subject, i r . dames contending t h a t t h e t i t l e t o c u r r e n c y b o t h w a y s was, a c c o r d ing t o t h e o p i n i o n o f counsel,
i n t h e Federal Reserve
bank, a n d n o m a t t e r w h e r e t h e c u r i e n c y w a s i t perhaps
could b e c o u n t e d a s a
part o f t h e r e s e r v e o f t h e bank.
I d o m t k n o w whetner
h e went t h a t f a r o r Tote p e u t S O E
o f t h e currency i s governed
sel contends t h a t o v m e r s h i p
member b a n k
by t h e p r a c t i c e a n d u n d e r s t a n d i n g t e t w e e n t h e
and t h e r e s e r v e b a n k ,
there i s a
H o w e v e r , that m a y b e , I
deepsr p r i n c i p l e i n v o l v e d
wliieve
i n i t than the mere
technical o w n e r s h i p o f t h e currency.
T h e reserve
i s not
a n d I do
in the possession o f the Federal reserve b a n k
is.
ret k n o w t h a t t h e B o a r d h o l d s t h a t i t
Deputy G o v e r n o r a s e :
S e c t i o n 1 9 o f t h e a c t defin=_
are to ®
itely f i x e d t h e t e r m s u n d e r w h i c h r e s e r v e s
ried,
and i
o f the
d o n o t thinis s h e t b y a n y c o n s t r u c t i o n
law i t i s p o s s i b i e
to o r f r o m a
car-
t o construe t h a t currency
i n passage
b a n k i s reserve.
Governor Calkins:
w a y n o t discounts i n transit?
Deputy G o v e r n o r C a s e :
Surely.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3558
The Chairman:
T h e suggestion i s that t h e subject
be referred t o counsel f o r t h e Federal Reserve Board f o r
a formal ruling o n the legal status o f this procedure.
Has that been put i n the form o f a motion?
Governor Seay:
J I would n o t d o i t i n that way.
W e
would have t o refer i t first t o the Board.
Deputy G o v e r n o r C a s e :
a k e
R e f e r i t t o the Board a n d
é p i n i o n o f counsel.
e going a
think that w o u l d b
Governor Wellborn: I
LEChLeotoO wt aus
T h a t would b e assuming t h a t t h e y have
rot consulted t h e legal aspect o f t h e question.
Governor Harding: I
think that a n y bank that wants
to d o i t should take i t u p with t h e Board the’selves, t h a t
any individual b a n k that objects t o i t should take i t u p
P e k a c e t s
w i t h t h e Board.
Deputy G o v e r n o r C a s e s [
think t h e banks t h a t a r e
doing i t w o u l d l i k e t o b e f o r t i f i e d w i t h a n o p i n i o n o f
the Board's counsel.
Governor Seay: I
would like t o a s k i f the idea i n
wr. D a s e ' s m i n d i s t h a t t h e r e i s n o r i g h t t o m a k e a l l o w -
ance unless t h e currency i n transit i s a part o f the Legal
reserve
o f t h e m e m b e r bank---~
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
559
Governor Harding:
I t i s just a
you care t o accept delivery.
question o f where
T h e Board says that here
is a shipment m a d e f r o m ifanchester, N e w Hampshire.
I f
you c a r e t o a c c e p t d e l i v e r y a t t h e p o s t o f f i c e a t M a n c h e s ter, y o u c a n d o so, t h a t t h e i n s u r a n c e p o l i c i e s p r o t e c t
aa
w e had that looked into a n d found that they do.
If the rember banks want i t done, i f there i s n o objection
raised t o i t i n the district, a n d t h e Board says t o g o
ahead a n d d o i t i f you want to, w h y shouldn't w e d o it?
Governor Norris:
w
e d o n o t credit t h e incoming ship-
ments until t h e y a r e received. T h e r e f o r e ,
n o bank c a n
draw a g a i n s t b a l a n c e s e x c e p t t a l a n c e s w h i c h a r e a c t u a l l y
in ‘our possession. e
d o draw agsinst t h e i r accounts
and deduct shipments t h e moment w e send then out, s o that
always
the r e s e r v e b a l a n c e t h a t t h e y h a v e w i t h u s i s
an
actual realized balance i n our possession, a n d i t i s n o t
o
r deficient
until i t comes t o a calculation o f v e n a l t y f
reserves t h a t t h i s p l a n e v e r b e c o m e s o p e r a t i v e .
Governor Harding:
t i a:
a
to t h e f a c t t h a t t h e p r a c t i c e e x i s t s
S a s e ' s attention
i n N e w Y o r k City,
or
w o u l d credit t h e
used to, under which t h e large banks
country b a n k ' s a c c o u n t ,
b u t n o t f o r interest purposes--~
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
60
Deputy Governor C a s e ;
T h a t i s customary through-
out t h e country.
Governor Harding:
T h e y would n o t credit f o r inter-
est purposes u n t i l t h e n e x t day, b u t f o r t h e actual
balance t h e y gave imrediste credit.
The Chairmans
instrument
T h e s e credits a r e n o t made until t h e
o f credit o r curiency i s i n t h e hands o f t h e
érediting bank.
Governor Yorris:
C r e d i t i s made a s o f one d a y f o r
one p u r p o s e a n d a s o f another d a y f o r a n o t h e r purpose.
Governor Xiellborn:
T h e gentleman w h o just spoke
scemead t o o v e r l o o k t h e r e a l r e a s o n w h y t h a t w a s p u t i n t o
effect, w h i c h w a s t o g i v e t h e o u t l y i n g b a n k s t h e privil-
eges that were given t h e banks i n the reserve cities.
The Chairman:
T h a t i s true,
Governor Norris: I
think t h e Governors w h o d o m t
approve o f this p l a n are under t h e impression that t h s
adoption o f t h e p l a n a m o u n t s
requirement
tc a
reduction
o f t h e c o u n t r y baulks, I
i n t h e reserve
do not look a t i t
in t h a t way.
Deputy G o v e r n o r Casé?>
Governor Norris:
T h e y l o o k a t i t i n t h a t way.
O n t h e contrary, failure t o adopt
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
S61
4t requires t h e country banks t o keep a
with u s a n d a
certain reserve
certain a d d i t i o n a l r e s e r v e . i n t r a n s i t b e -
tween them a n d us.
I n other words,
i t penalizes them.
The City bank, t h e minute that i t parts w i t h its money,
is credited f o r that money w i t h u s a s reserve.
try b a n k i s required,
i f t h e practice
T h e coun-
i s n o t adopted,
t o
keep i t s f u l l r e s e r v e v i t h u s a n d i n a d d i t i o n w i l l a l w a y s
have a
considerable a m o u n t o f m o n e y i n transit.
t think Governor Strong wrote a
Reserve Board o n this subject a
mevorandum t o the
couple o f months ago, a n d
he was g o o d enough t o send m é a copy o f iv. W h a t struck
n@ as a sensible argument m a d e i n i t was that this was a n
unjustified favor t o the country yanks, Pistified b e cause
the d i s t a n c e f r o m t h e r e s e r v e c i t i e s a n d t h e d i s a d v a n t -
age t o which that subjected t h e m had b e e n already taken
into a c c o u n t
i n the reduced reserves require
o f them a s
compared w i t h c i t y i n s t i t u t i o n s ,
Governor Seay:
A n d i n the practice
o f deferring
charges f o r checks u p o n them--Governor Norris:
“ i e
t h e point Governor strong
o f the
made i n his argument w a s t h e o n e that t h e reserves
their distance
country b a n k s w e r e m a d e l o w e r b e c a u s e o f
from t h e r e s e r v e b a n k . I
wrote
t o Senator Glass
and ask
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
362
him w h e t h e r t h a t h a d t e n c o n s i d e r e d
i n fixing t h e re-
duced reserves o f t h e countrybanks i n the Federal Reserve
Act, a n d I
think t h i s c o n f e r e n c e w i l l b e i n t e r e s t e d
his reply, which i s a s follows:
in
( M a r c h 14, 1924)
‘ty Gear Mr. Norris:
"Respomiing t o yours of March 13th, I am quite sure
that t h e Barking a n d Currency Committee o f t h e House o f
Representatives
provisions
h a d n o t i n mind “ h e n w e ~rote t h e reserve
o f t h e f e d e r a l r e s e r v e b i l l a n y scuestion o f
adjusting t h e inequalities
i n time a n d distance.
A s I re-
call, w e considered primarily a n d chiefly t h e variation o f
reserves u n d e r t h e n a t i o n a l b a n k a c t a n d w e r e c o m s t r a i n e d
by e x a c t l y t h e c o n s i d e r a t i o n s w h i c h y o u mention,
t o wit:
(1) T h e fact that country banks carry n o reserve
balance o f o t h e r b a n k s a n d
(2) T h a t their relative turnover i s slower t h a n
the c i t y banks,
A very considerable reduction i n all b a n k reserves
was m a d e f o r t h e t w o - f o l d r e a s o n t h a t t h e c o m m i t t e e felis
that t h i s s h o u l d b e done, p a r t i c u l a r l y w i t h r e s p e c t
to
country banks, f o r t h e reason t h a t n o payment o n reserve
balances w i t h t h e f e d e r a l r e s e r v e b a n k s w o u l d b e permitted.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
563
and, i n the second place, because s o m e o f u s were l e d t o
believe
o f many bankers t h a t
b y t h e frantic insistence
the f e d e r a l r e s e r v e s y s t e m w h i c h w e w e r e p r o p o s i n g
up would result, momentarily,
a t least,
contraction o f comercial credits.
i n a dangerous
A s I remember, M r .
Forgan especially urged this ‘menace t o banking”
United States,
was t h o u g h t ,
tion,
t o set
i n the
T h e great release o f reserve funds,
would certainly safeguard
it
u s a g a i n s t contrac~-
a n d this p r o v e d abundantly true,
At this t i m e when t h e enemies o f the federal reserve
system a r e s o i n c e s s a n t l y s e e k i n g t o d i s c r e d i t
the country bankers, I
ifference
i t with
should think there would t e n o
o f opinion a s t o the advisability
o f “the region-
be
al b a n k s d o i n g e v e r y t h i n g t h a t p r o p e r l y s n d s a f e l y m a y
done t o adjust t h e essential disadvantages o f the country
baniers
a s contrasted w i t h t h e banks
i n the larger c i t i e s .
the
If this were done w e should, perhaps, h e a r less o f
importunate a p p e a l s f o r p a y m e n t
balances.
o f interest
o n reserve
should
I t i s m y considered judgment t h a t this
e alloved.
I wish I
length; b u t I
had t i m e t o g o into t h e matter
a t greater
n o w and
a m dreadfully h a r d pressed right
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
364
have given y o u briefly m y recollection o f events o f eleven
years a g o . I
t o b e i n g quoted.
make n o o b j e c t i o n
“ith
cordial regards,
S i n c e r s i ve vours 4
Carter Glass."
Deputy G o v e r n o r C a s e : I
think y o u c o u l d g e t a
unanimous v o t e o f approval o f that letter o f Mr. G a s s ' .
He merely states t h a t h e thinks t h e regional banks should
do everything that may, vroperly a n d safely b e done f o r
the b e n e f i t o f t h e c o u n t r y b a n k s ,
and I
think w e a l l f e e l
thate
Governor Norris: I
think
requirements
uced
r
t h e ie r
were n o t i n any sense intendec t o compensate t h e m for
their disadvantage tecause o f distance from the reserve
panks, a n d that that does n o t have reference t o t h e ques~
tion a t issue i n any particular.
The Chairman:
this suffictently.
Gentlemen, I
T
think w e h a v e d i s c u s s e d
Y a c s Guedtlon onownieh Guere t e e
division o f o p i n i o n w h i c h c a n n o t
v e r e c o n c i l e d here.
question w o u l d b e o n t h e m o t i o n o f Mr. C a s e .
T h e
H a s that
motion b e e n s e c o n d e d ?
Governor Seay:
w i t h d u e deference w i t h rererence
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
565
to t h e s t a t u s
o f t h e w h o l e matter, I
doubt t h e advisabil-
ity o f referring i t t o t h e Board, w h i c h must have considered t h e s e p h a s e s
o f it.
I
t is-not b i n d i n g o n the reserve
banks, a n d w e have entire latitude i n dealing with it.
I must s a y t h a t I
says. I
concur
i n a great d e a l t h a t i r . v a s e
believe i f certain other Federal reserve banks
had n o t a l r e a d y a d o p t e d t h e p r o c t i c e t h a t m o s t p r o b a b l y
our directors would n o t have s o rapidly voted f o r it, b u t
44 h a s c o m e t o b e considered t h a t « h e n t h e b a n k s
Aaistrict h a v e t e n a c c o r d e d c e r t a i n p r i v i l s g e s
i n one
b y one
Federal reserve tank, t h a t i t offers ground o f complaint
by member banks i n arother district i f equal privileges
i t does
are w t accorded b y its Federal reserve benk, a n d
on
create sone disturbance, m t w i t h s t a n d i n g t h e belief
let t h e m a t my part that i t would b e more advantageous t o
ter s t a n d w h e r e i t is.
The Chairman:
T h a t o e s t i o n h a s b e e n raised,
you
say?
Governor Seay: R a i s e d w i t h whom?
The Chairman:
B y t h e member banks i n one district
to
that they vere n o t being accorcac equal orivileges
regard t o this questhose g i v e n b y a n o t h e r d i s t r i c t w i t h
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
tion?
feel some confidence t h a t i f t hey
Governor Seay: I
had h a d knowledge o f the fact that 1 t was being done b y
other f e d e r a l r e s e r v e b a n k s t h a t m o s t p r o b a b l y i t would
have b e e n r a i s e d
i n o u r district, p a r t i c u l a r l y
if con
tiguous federal reserve banks h a d adopted t h e practice.
The Chairman:
M r . Case, a r e y o u willing t o l e t t h e
matter rest?
only want t o s a y this, t h a t
Deputy Governor Case: T
year agm, e n d i f m y memory
I attended t h e C o r e r e n c e 2
serves m e correctly there a r e eleven banks that were opposed t o t h i s p r x t i c e ,
a n d G o v e r n o r Norris' was t h e o n l y
bank tnat was carrying on, a n d after a little good natured
joshing about i t Governor Norris, I
think agreed t o g o
alon. w i t h the majority, a n d i t seems rather strange that
after twelve men sit around a table and discuss a thing
and a g r e e o n a p r o g r a m t h a t a
seven o f them adooting a
Governor Norris: I
year h e n c e w e f i n d s i x o r
different course.
did g o along f o r t h e sake o f
uniformity a n d I did i t vith perfectloyalty t o the other
members
o f t h e vorference. I
rever t o o k t h e s u b j e c t
again i n any w a y with anybody. I
did write a
up
wemorandum
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
567
immediately following t h e conference, b u t I asked y o u
before I
d i d that; I
asked y o u i f y o u h a d a n y o b j e c t i o n
to m y d o i n g i t a n d y o u s a i d y o u h a d not.
T h e n the
Federal R e s e r v e B o a r d o f t h e i r o w n m o t i o n t o o k i t u p a n d
brought i t u p f o r discussion a t the conference s i x months
ago a n d subseouently issued this permissive ruling under
which certain others have acted. I
pose y o u r m o t i o n i f i t i s put, w
do n o t want t o op-
cause I
d o n o t want t o
seem t o b e fearful o f that t h e decision o f the Counsel
of t h e F e d e r a l R e s e r v e B o a r d w i l l b e , b u t I
d o think i t
rather savors o f discourtesy o f the Bo2zrd t o a s k them t o
get a n o p i n i o n f r o m t h e i r c o u n s e l
a ruling w h i c h i s n o t n o w pending,
nearly s i x m o n t h s
a s t o t h e legality o f
b u t which was made
a g a n d upon which i t i s presumed t h e y
did seek opinion f r o m counsel before t h e y made it.
Governor “ell born: I
think Governor Norris i s ¢z-
actly correct a n d that I endorse everything h e has said.
Governor Norris:
I
f t h e ruling were pending n o w
I think i t woulda b e entirely prover a n d I
& glad
shouldt
the
to vote f o r a resolution that, tefore t h e ruling o f
Poard's counsel
Board was promulgated, t h e opinion o f the
should b e asked; b u t I
do n o t think i t i s entirely courtec
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
368
to d o that months after t h e ruling has b e e n promlgated
and a c t é d upon.
Deputy G o v e r n o r C a s e :
D o y o u think there i s a n y
discourtesy w h e n i t develops t h a t counsel f o r five o f
the Federal reserve banks h a v e s a i d that i n their opinfon it: i s Lilegel.
Governor Norris:
any i m p r o p r i e t y
I d o n o t telieve there would b e
i n any o n e o f the banks doing it, s u t l
it.
do n e t t h i n k t h i s C o r f erence s h o u l d d o
Governor Seay: I
welieve i t would b e w r y whole-
adopted t h e
some i f t h e i n d i v i d u a l b a r k s t h a t h a v e n o t
practice w o u l d t a k e t h e m a t t e r
u p with the legal point i n
view.
Deputy G o v e r n o r ( a s e : e
are quite willing t o d o
that.
Governor Calkins:
A s a
matter
o f fact, t e c h n i c a l l y
t h e subject.
the B o a r d h a s n o t r u l e d o n
has n o t been secondThe Chairman: i i r . case's m o t i o n
the subject.
ed, and without objection w e will pass
o f the program,
That brings u s n o w t o seetion I V
which is “Operation”,
I t occurs t o me, Mr, Harrison,
w e might take u p Governor
that i n connection w i t h that
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
569
Governor Crissinger's letter, w h i c h was presented yester~
day,
a s t h i s w o u l d b e a n opportune t i m e t o discuss i t .
copy o f the blue-
Bach o f y o u g e n t l e m e n h a s r e c e i v e d a
I
print w h i c h a c c o m p a n i e d G o v e r n o r C r i s s i n g e r ' s l e t t e r . . n
that letter h e requested that a
study b e made o f this
t the
exhibit, a n d that discussion b e had with r e s p e c t : o
prospects
o f t h e e x p e n s e a c c o u n t f o r t h e c u r r e n t year.
Governor Seay, h a v e y o u made a study o f this exhibit?
Governor Seay:
The Chairman: I
O n l y a cursory study..
wonder i f you have gone f a r enough
to lead this discussion a n d take u s through this blueprint. I
have n o t studied it.
Governor Seayr
W e have b e e n recently t o u g h t i n t o
intimate relation w i t h the Board i n the discussion o f the
operating expense o f the Federal reserve banks i n the
performance o f the separate functions. I
that i s a
very i n t e r e s t i n g s t a t e m e n t
the b a s i s f o r f u r t h e r a n a l y s i s .
T
s h ould s a y that
i f i t b e used a s
t i e m o t c o n c l u s i v e tro:
any point o f view a t all because there i s t o b e considered
the volume o f business t h a t i s transacted b y each federal
incur~
reserve b a n k a s c o m p a r e d w i t h t h e v o l u m e o f e x p e n s e
I
red i n c o n d u c t i n g t h a t v o l u m e o f business.
would s a y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
570
4t4 would b e constructive i f that ahalysis w e r e submitted
to the operating heads o f each Federal reserve b a n k a n d
they w o u l d o c c u p y t h e m s e l v e s
their own.
i n waking comparisons
T h i s i s but t h e beginning a
of
real analysis
of t h e w h o l e b u s i n e s s w h i c h w o u l d g i v e t h e o p e r a t i n g e x -
pense considering t h e volume o f business conducted b y a
reserve bank, i n comparison w i t h other banks.
F o r instancc
T see that t h e Richmond B a n k i s sight f r o m t h e highest
in t h e t o t a l v o l u m e
anything.
o f its expense.
g h e n y o u consider
T h a t doesn't m e a n
b y further analysis t h :
business performed b y each Gepartment o f the bank a n d then
compare t h e v o l u m e o f business
ing i t w i t h s i m i l a r v o l u m e
t o t h e e x p e n s e o f perform-
o f business a n d e x p e n s e i n c u r -
red b y some other bank, then you arrive a t some conclusion
This analysis i s merely a
basis f o r further study o f the
question.
The Chairwan: ‘ w h e r e d o y o u get t h e figures showing
that y o u are eighth?
Governor Seay; R i g h t s a t c h e bottom.
I t shows t h e
t o t h e other
position occupled b y each bank vith respect
panks w i t h regard t o total volume o f expense.
N e w York
largest volume o f
naturally i s first because i t has t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
business.
Governor Calkins: (Chicago i s second.
Governor Seay:
Atlanta,
Atlanta
i s e l e v e n t h f r o m t h e highest.
a s w e know, i s not performing t h e same volume
of c o l l e c t i o n b u s i n e s s
a s manyof t h e other t a n k s a r e per-
a n d consecuently,
forming,
t h a t being o n e o f t h e most e x -
pensive functions o f the banks, i t s expenses a r e n o t relatively a s large.
Gvernor Yellborn:
O
n the other hand i t i s n o t
conclusion, because t h e statement shows t h a t t h e salaries
paid b y t h e A t l a n t a B a n k t o i t s o f f i c e r s a r e v e r y high,
which o f c o u r s e i s a g a i n s t t h a v .
erplanation.
w
e h a v e s i x branches.
Classification b y t h e B o a r d o f o f f i c e r s
i s nos the
I n some
same a s the classification i n the separate banks.
of t h e b a n k s t h e h e a d s o f d e p a r t m e n t s
officers,
board.
to
T h a t i s subject
a n d they a r e n o t classified
a r e classified
a s -oitficers
T h e w h o l e thing. nes¢s z o m p l e t e a n a l y s i s
Federal R e s e r v e B a n k , a n d t u i s 4
The Chairman:
as
b y the
b y each
very w o r k a b l e beginning
T a k e , f o r instance, t h e winneapolis
bank, w h i c h ranks twelfth,
h e r e
a reason that d o e s n o t affect
i s good reason for that.
t h e other banks.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Young: I
beg your pardon, Mr. Chairman,
but y o u have t h a t turned around.
W o r a r tipstw:. I
ehougel
Iwas going t o get a little glory o u t o f that b u t I guess
Lam m o t going t o get it.
The Chairman’
N e w Y o r k naturally h a s t h e largest
volume o f expense, a n d that could not b e otherwise.
Chicago naturally h a s t h e next largest volume.
Deputy Governor C a s e :
N o , t h a t could n o t b e other-
wise.
The Chairman:
“ s h a t i s G o v e r n o r Fancher'sg l o c a t i o n ?
i n s i z e a n d f o u r t h i n posi-
Governor Fancher:
T h i r d
The Chairman: I
do n o t believe this i s a
tion.
real p i c -
ture o f t h e situation.
Governor s e a y :
S o f a r a a 20" S0gs3.
t i a
e l i eins,
but i t does n o t begin t o cover t h e whole subject.
The Chairman: I
will a s k Governor S e a y t o make a
motion t o c o v e r t h i s matter.
Governor S e a y : I
pose o f t h e C o m m i t t e e
m o v e that@=in furtherance’
o f t h e pur:
o n Efficiency a n d Economy t h i s anal-
ysis o f t h e expense o f t h e several federal reserve banks
be referred b y the executives o f each bank t o the operatin:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
EVs
departments f o r t h e p u r p o s e
o f intenal analysis. I
lieve i t w o u l d s t r e n g t h e n t h e p r o p o s i t i o n a n d I
that s e v e r a l b a n k s w i l l b e i n a
position
be-~
believe
t o take u p the
argument w i t h t h e B o a r d w h e n t h e B o a r d d r a w s c o n c l u s i o n s
from that statement which verhsps m a y n o t b e justified
when t h e volume o f business conducted b y the Federal r e serve b a n k s i s t a k e n i n t o account,
Governor Calkins: I
would suggest t h a t t h e m t i o n
be a m e n d e d t o p r o v i d e f o r r e f e r e n c e
t o t h e committee
of
each f e d e r a l reserves b a n k o n e c o n o m y a n d efficiency.
Governor Seay: I
just t h a t s i t u a t i o n
accept t h e amendment, h a v i n g h a d
i n mind.
Governor Norris: I
would l i k e t o a s k a
auestion.
Isn't this blueprint sheet that w e have t f o r e u s simply
a total o f t h e f o u r q u a r t e r l y r e p o r t s t h a t h a v e a l r e a d y
been n a d e ? R e s o l u t i o n h a s b e e n o f f e r e d t h a t t h i s parti-.
cular sheet, w h i c h I see i s rerely a n addition o f the
four o r e v i o u s t o t a l s , s h o u l d
t e referred
t o t h e Committee
on Economy a n d Efficiency i n each Pederal reserve b a n k .
I would l i k e
t o a s k t h e question whether
cach
o f these
quarterly r e p o r t s h a s n o t a l r e a d y b e e n r e f e r r e d
comaittees o f each bank t o aralyze a n d study?
t o those
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
374
Deputy Governor Case? I
would like t o say i n reply
to Governor Norris! q u e r y that i n the N e w York Bank, i n
addition t
o the Committee o n Economy a n d Efficiency,
have a
budget committee.
we
W w e have a budget which has
been operating f o r t w o years, a n d w e find that having a
budget under which w e c a n give t h e total t o the manager o f
each department f o r t h e current year, h a s t e e n most helpful i n keeping expenses d o w n t o the minimum.
T a k i n g the
figures f o r t h e o p e r a t i n g e x p e n s e s f o r t h e p a s t y e a r a n d
going over t h e m with t h e managers o f each department,
we
find that i n certain instances t h e r e has t e e n reduction
in t h e v o l u m e
o f work a n d allowance
i s made f o r that.
W e
find, a s a matter o f practice, t h a t t h e officer takes a
a great d e a l o f p r i d e i n u n d e r t a k i n g
tive department within t h e budget. I
t o operate h i s respec-
would suggest i n
this connection, a n d i t seems t o m e to b e very pertinent,
that i f the Federal reserve banks would inaugurate t h e
budget system i n their banks t h e y would find i t w r y
helpful.
The Chairman:
read a
I
n support
o f that I
would l i k e t o
brief communication that w a s sent t o each o f the
officers o f the Federal Reserve B a n k o f Chicago, a n d indi-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
375
rectly t o the Department heads, d a t e d February 25, 1924.
A s a result o f deliberate
imo the Officers o f the Bank,
amd careful consideration t h e conslution h a s b e e n reached
that m t e r i a l s a v i n g s
i n the operating expenses
o f the
bank c a n b e effected, a n d with this object i n view t h e
officers i n charge o f the departments a r e hereby requested t o p r e p a r e
a n estimate
o f their probable require-
ments f o r t h e future, w i t h respect t o persomnel a n d other
expenses f o r t h e i r v a r i o u s d e p a r t m e n t s
year.
T h e w o r k will
f o r the ensuing
b e c a r r i e d o n under t h e i m m e d i a t e
supervision o f the Procedure comuittee f r o m which source
I t is
suitable forms a n d sugwesttons will b e received.
confidently e x p e c t e d t h a t t h e o f f i c e r s w i l l c o o p e r a t e
the g r e a t e s t p o s s i b l e d e g r e e
forth.
i n t h i s undertaking",
to
and so
A s a result o f putting that budget p l a n i n opera-~
tion i n our bank a t that time there have been already produced v e r y satisfactory results.
use i s interesting t o anyone.
vide t h e m with them.
T f the form that w e
w e will b e very glad t o pro~
A s Mr, C a s e says, s u c h a budget
plan would b e very advantageous, Wwe believe,
t o those
banks t h a t h a v e n o t a d o p t e d i t .
Covernor s e a y :
I f that paper
i s referred
t o the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3576
mittee o n efficiency a n d economy i n each bank, I
a m sure
that that committee will know t h e best use t o which i t
can k e put. I
will s a y for o u r bank that w e take with
the u t m o s t s e r i o u s n e s s t h e s e r e p o r t s f r o m t h e C o m m i t t e e
on Efficiency a n d tconomy w h e n they come f r o m t h e Board.
we subject t h e m t o very minute analysis.
this b e r e f e r r e d t o t h e c o m a i t t e e
M y idea i s that
o n efficiency a n d economy
in each bank for s u c h study a s the committee m a y see f i t
WoreLye -bo0-- i, I
a m sure t h e y will k n o w what u s e t o
make o f it.
The Chairman:
Y o u have made that i n the form of a
motion?
Governor Seay:
Yes.
Deputy G o v e r n o r Case:
o adding t o
w o u l d you o b j e c t t
that that they give consideration t o t h e question o f adopting t h e b u d g e t s y s t e m ?
Governor Seay:
N o n e whatever. I
accept t h a t w r y
cheerfully.
Deputy Governor Case: I
The Chairman:
would like t o see that g o
I s there any further discussion?\
\
\
unanimous
(The motion, having been duly seconded, w a s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ly carried.)
The Chairman:
T h e next topic i s IV-(a), Economy
and efficiency--Governor Calkins:
T h a t i s what w e have just b e e n
discussing.
w e have not heard f r o m t h e Governors
The Chairman:
present a s t o what they a r e doing.
into four sub-heads under (a).
T h i s ~s0pie Le-diviged
T h e first i s No. 1 .
Iv-(a)-(1) G e n s r a l discussion o f progress r a d e .
Governor Fancher:
concerned,
S o far a s the Cleveland B a n k i s
which
w e h a v e analygwed t h e q u e r t e r l y r e p o r t s
come f r o m t h e B o a r d ' s C o m m i t t e e
Comparisons a r e m a d e a n d a
o n E c o n o m y a n d Efficiency.
very careful analysis
aifferent functions a n d costs o f operation. e
and have b e e n alive,
i n our organization,
o f the
a r e alive,
t o the import-
a n d operate
ance o f g e t t i n g i t d o w n j u s t a s c l o s e a s w e c a n
efficiently.
times.
w
I t i s a very live subject i n our bank a t ai3
e have s h o w n q u i t e r e m a r k a b l e r e d u c t i o n s
of o u r d e p a r t m e n t s
The m a t t e r i s a
Eypas iileae e B ekesye
a n d some
i n some
o f our particular functions.
very l i v e o n e a n d i s under consideration
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
378
Governor Young: I
will report f o r Minneapolis t h a t
tt i s a live subject u p there a l l t h e time.
W e try t o
keep e v e r y t h i n g d o w n a s l o w a s w e c a n a n d t r y t o o p e r a t e
in a n 6conomic way.
O u r expense h a s b e e n a n d i s increas-
ing very rapidly, a n d w e c a m o t s t o p it.
I f these banks
are going t o continue t o close i t i s going t o b e very
expensive
t o u s because w e have t o put m e n a t each o f the
closed banks,
I n addition t o that, w e are going into
our n e w building, w h i c h will call f o r aaditional expense.
The b e s t w e c a n d o i n iMinneapolis
i s t o continue
t o cut
down o n some o f the o l d functions.
Governor W e l l b o r n s
T h e suggestion from aur bank
4s that i f reports w e r e adopted slowing t h e cost a n d
volume f o r principal departments o f the bank, instead o f
having i t s o widely distributed a s t o all functions,
believe s o m e b e n e f i t m i g h t
w t derived.
we
T h e principal u s e
of i t n o w i s f o r s t a t i s t i c a i p u r p o s e s ,
The Chairman:
I n Chicago, since January lst,
have reduced o u r operating force i n the bank itself
employes;
w e have reduced t h e tuilding maintenance
employes, m a k i n g a total o f 2OCy T h e s e r e d u c t i o n aea
accounted f o r b y increased efficiency o f employes a n d also
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
379
by a lower turnover, establishment o f the budget system,
which i s c o m p e l l i n g c o n c e n t r a t i o n
strict e c o n o m y
i n personnel,
o f executives u p o n
a n d everything else;
cer-
tain changes i n handling t h e work and, i n some departments, a
falling o f f o f work. I
do not know whether y o u
have a l l h a d t h e experience w e have had, b u t u p until
less t h a n a
year
a g t h e turnover
i n our bank was a
vwry
big one, a s t o the work b y employes operating machines
and d o i n g w o r k t h a t d i d n o t r e q u i r e s k i l l ; t h e r e w a s a
shortage
over.
o f help a t that t i m e a n d there w a s a
B u t we see a
begimning t o h a v e a
big change
i n that;
t i g turn-
t h e employes a r e
higher a p p r e c i a t i o n o f t h e i r positions,
and there i s a marked inprovement i n efficiency.
been o n e f a c t o r a n d t h e b u d g e t h a s t e n a m t h e r
T h a t has
or.
I think, i f i t i s satisfactory, t h a t w e might j u s t
take a vote’ o n this subject. I
assume t h a t t h e banks a r e
giving careful aitention t o the matter a f economy a n d
efficiency a n d t h a t t h e y a l i h a v e a
necessity o f d o i n g s o .
realization
o f the
A l l those w h o a r e doing that will
please r a i s e t h e i r r i g h t hands.
(All members o f the Corference raised their right
hands.)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
580
The Chairman:
T h e next topic o n the program i s IV-
(a)-2,.
2. R e p o r t o f committee o n standardization o f supplies.
Deputy Governor Case: I
letter f r o m Mr.
have here a
“orthington, Chairman o f that Comittee,
w h o says thatthe
work o f the committee will probably b e discussed, a n d
encloses copies o f the minutes o f the first meeting, w h i c h
were sent t o the Governors o n tiarch 2oth. P r a c t i c a l l y
all t h e ocuestiomnaires s e n t o u t with the letter o f a r c h
25th have been returned,
elapsed
m t sufficient time has not
t o c o m p l e t e l y a n a l y z e a n o d i g e s t t h e replies.
I t
is hoped that this w o r k will effect considerable saving
to t h e System,
a n d definite results w i l l t e reported a t
the time o f the Conference n e x t fall.
Committee o n Standardization a n d Purchase o f Sunoplics
Minutes
o f M e e t i n g F e b r u a r y 6 , 1924,
a t Federal K e -
serve B a n k o f C h i c a g o .
The first meeting o f the d m m i t t e e
and P u r c h a s e
o f Supplies a p p o i n t e d
o n S t a m ardization
b y t h e lastGovernors'!
Conference a t t h e sugyestion o f the Poard's C o m i t t e e
on B c o n o m y a n d Efficiency,
day, F e b r u a r y 6 .
w a s h e l d i n Chicago
o n ‘iednes-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
io a s foliows;
.. “orthington,
D e p u t y Governor, F e c - r a l N e s e r v e
Sank o f Kansas C i t y , vuhairnan.
J. H. Dillars, Controllcr o f Administration, redsral
Reserve B a n k o f C h i c a g o
S. ialdem, Jr., Gontroller, Federal Reserve B a n k
of Richmond.
Aubrey Huston, Ppurehasing A g e n t , F e d e r a l R e s e r v e
Bank o f Philacelphia.
3, © . Lauckmer, m a n a g e r ,
e t h o d s a n d Supplie
Federal e s e r v e
Ban
o f W:
Secretary.
At the recuest o f the Chairman, e a c h member o f the
cormittee
w a s asked
t o t w i n g » ith h i n
and i n f o r m a t i o n r e l a t i ‘ e
b y the
o n zconomy a n d Ufriciency w h i c h was
turned o v e r t o h i m b y «ir. A p u c s ,
Comittee.
I n addition, «ir. Lauc!-
t o being t h e infornation assembled
Roard!s V o m r i t t e e
data
t o t h e suantity
used i n his o w n institution.
was a s k e a
t o t h e meeting,
t h e sec.etary
T h e data turned over b y the
o f that
a r o vom"Lttes
price o f five
had ~erely t o d o with t h e ouantity, s i z e a n d
suovlies u s e d i n t h e C a s h D e p a r t m e n t s
o f t h e var-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
lous F e c e r a l r e s s r v e b a n k s .
The m e e t i n g w a s c a l l e d t o o r d e r a t 1 0 : 1 5 a , m m b y
Chairman “iorthington.
A l l t h e C o m ittse m e m l e r s w e r e p r e -
sent w i t h the exception o f sir. Huston, w h o was unable
to a t t e n d t e c a u s e o f iliness,
T h e Chairman gave a
brief
outline o f what i n his opinionthe Committee w a s expected
to accomplish a n d what h e considered t h e results might
be.
A f t e r s o m e discussion,
t h e Committee c a m e t o the
conclusion that i t would b e advisable t o formulate a
gram o f procedure,
pro-
t o request necessary information f r o m
each o f t h e F e d e r a l r e s e r v e b a n k s a s s o o n a s p o s s i b l e
and t o r e p o r t
t o t h e n e x t Governors! v o n f e r e n c e t h e a i m s
of t h e committes,
t h e procedure agreed u p o n t o carry o u t
that program a n d the work already done.
One o f the v e r y first things discussed b y the Covmittee w a s t h e o u e s t i o n o f s t a n d a r d i z a t i o n a n d j o i n t p u g s
chase o f accounting forms.
that s u c h a
T h e consensus o f opinion was
thing w a s a u i t e i m o r a c t i c a b l e a n d t h a t t h e
committee would n o t attempt a n y w o r k a t all i n this conconsideranection w u t w o u l d d e v o t e i t s e n t i r e t i v e t o t h e
tion o f supplies.
vost o f t h e data which e a c h committee member brought
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
583
with h i m w a s c o m a r e d w i t h t h a t o f t h e o t h e r c o m m i t t e e
members a n d i t soon became evident t h a t t h e four bank
reoresented
a t this meeting w e r e paying widely varying
prices f o i exactly o r substantially t h e same articles opr
The w i d e s p r e a d i n p r i c e w a s a l s o c h i e f l y r e flected
i n the data assembled
Narticularly
i n t h e c a s e o f w o n e y straps, l e a d seals,
and c o i n a n d c u r w e r c y
peared
b y t h e B o a r d ' s committee,
g s .
I t was agreed t h a t there a p -
t o b e n o good reason w h y there should
variance
i n price, p a r t i c u l a r l y
b e such a
i n t h e c a s e o f l e a d seals,
where t h e a r t i c l e i t s e l f w a s a l r s a d y s t a n d a r d i z e d .
case o f m o n e y straps,
there a p p e a r e d
i t was t h e consensus
I n the
o f opinion t h a t
t o b e n o zood reason i h y some kind o f
standardization, particularly concerning ‘asic
desien a n d method o f printing s h o u l d n o t &
From anamilysis
would g e e m t h a t a
established.
o f the Board's, Committees
saving o f a b o u t .2£0,000 p e r a n n u m c o u l d
pe effectec f o r t h e system,
supply coulcG b e «sts
s h e
i f standardization i n this o n e
t
many o t h e r i t e s ‘ e r e c o m p a r e d
i
e opice a n d character
o t h e r economies w e r e
forecasted.
The c o r r i t t e e a d j o u r n e d f o r l u n c h a t
of
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Pomvencd a t i e s l o p s i .
sfter c o n s i d e r a e
l
d discussion o n the coin a n d currency b a g situation,
( u p o n w h i c h n o definite corclusion
was r e a c h e d i n a s m u c h a s t h e e x p e r i e n c e
o f t h e v a r i o u s Fed-i:
al rescrve banks differed considerably i n this rsgard)
it vas sug:ested b y the hairian that t h e co:mittee m k e
no immeciate attempt t o sug. est changes t o the other
Federal reserve banks i n c o m e c t i o n w i t h t h e kind
sources of suoply of any of the supplies used, m t that
through t h e c o m u i t t e e a
letter s h o u l d
& % addressed
t o all
Feceral reserve banks clearly setting forth its purpose,
aim, a n d t h e methods b y which i t sought t o accomplish i t s
results.
l i v . iorthing stated that h e believed t h a t i f
such a letter were carefully vorxed o u t a n d clearly sinwed
a spirit o f friendly cooperation, t h e c o m i t t e s w o u l d
achiéve T i n e results.
Attached
lomaire l i s t i n g 2
plies o n “hich,
t o such
cout
i n the opinion o f the comuithe:, considere
ped? -¢thiaebhist—to- ince Lude
those items already conside.ed b y &
3 0 £g
The other sneibers o f t h e cowruttes w o r e t
comuttes).
a s k e d for
their ideas a n d all agreeé w i t h t h e hhairman: ‘Su-vesti
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
385
o f toth
t o t h e contents
were m a d e a n d a c c e p t e d r e l a t i v e
T h e present short-
the p r o p o s e d l e t t e r a n d ouestionnaire.
ened n a m e f o r t h e c o w i t t e e w a s a l s o a g r e e d upon.
Upon m o t i o n o f tir. Dillard,
d u l y seconded
by
‘“alden, m r . L a u c k n e r w a s e l e c t e d S e c r e t a r y .
It was t h e n decided that t h e sec.stary dpuld send
o f this m e e t i n g
out t o e a c h c o m i u t t e e membs.. t h e m i n u t e s
a n d a sample o f a
letner
t o c a c h F e d e r a l r e s e r v e banikx
o f the comiittee together
setting f o r t h t h e purposes, o t c . ,
v
with a n accompanying questionnaire.
a
g a g r e e d that
upon r e c c i p t o f t h e s a m p l e l e t t e r a n d a u e s t i o n n a i r e ,
each
committee member would wead them over carefully a n d note
any c h a n g e s w h i c h i n h i s o p i n i o n s h o u l d
ters a n d a u e s t i o n m i r e s
then
b e turned o v e r
t e made.
P h e let-
v i t h t h e sug.ssted ch:ngés
t o the
vill m a k e a n y c h a n g e s w h i c h
m
a
n o f the Committee
who
h e has i n mind a n d will t h e n
instruct t h e s e c r e t a r y t o r e l e a s s s h e c o r r e c t e d L e t t e r
and c u e s t i o n n a i r e
t o e a c h # e d s r a l preserve b a n k .
I t was
orevailing ooinion that i n all vrobability i t woul d
advisable
t o have a n o t h e r r e t i n g
the r e o l i e s
“ e r e received
o f t h e committee w h e n
a n d tabulated.
other menay, valden, “ h o was concurred w i t h b y the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
586
ters o f the committee, s t a t e d that i t was a most important
matter f o r t h e q u e s t i o m a i r e
to Sa
e
n
r
e and to
be s o p h r a s e d a s t o c o v e r e v e r y p o s s i b l e b i t o f informa-
tion desired b y the Committee a n d i n such a way a s t o
insure uniformity tetween t h e answers t o the ouestionnaires
o f t h e s e v e r a l F e d e r a l r e s e r v e banks,
the c o m m i t t e e w i l l b e &Hle t o s f f e c t a
types, Quantities a n d costs.
i n order t h a t
true c o m a r i s o n
of
T h e information received
would theh b e studied a n d tatmlated b y the committee.
Bach tank would probably b e furnished with a condensed
recapitulation f o r their information a n d use, together
with a n y sugv»estions t h a t t h e c o m v i t t e e m i g h t c a r e t o
OL Per.
A. K e Lauckner, Secretary,
Note:
T h e letter o f a r c h 2 5 addressed t o each
Governor forms a
part o f the minutes o f this meeting:
wareh 25, 1924.
HP yg 3 Cr ei ere eyes ee COU SE NOY
Federal Reserve B a n k O f waeceeereeeuee
Dear
G O V ELMO
R e e
s o erate ice ee 8
At t h e l a s t Governors! C o r f e r e n c e ,
there was appointed a
a s y o u w i l l recall,
committee o n Stanfardization a n d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3a7
Purchase
o f Supolies, t h e versonnel o f which i s a s follows:
“-orthington, D e p u t y Goverror, Federal Reserve
Bank o f Kansas C i t y , G n a i r m a n .
H. Dillarc, Controller o f Administration, Federal
Bank o f Uhicago,
alden, Jr., Controller, Fed«ral heserve S a n k
of Richmom.
Aubrey Huston, P u r c h a s i n g A g e n t , * e d e r a l h e s e r v e
Bank o f Philadelphia.
kK, Lauclmer, Manager, e t h o d s a n d Supplies Dept.
Reserve M a r k o f New York,Secretary.
The c o m m i t t e e h e l d i t s f i m e e t i n g s e v e r a y w e e k s
ago
t o discuss
t h e o r o bable s c o p e
o f i t s work under
resolution a d o p t e d B t t h e Governors!
the f a c t t h a t t h e s t a n d a r d i z a t i o n
Uonferencee
the
I n view
o f inter-*sederal
fan kk forms h a d b e e n the subject o f much study
vork b y a former c o v m i t t e e
o f t h e Governors! cornferen:
which has compl¢ted i t s reports,
t h e commityee w a s o f
opinion that a s auch h a d already b e e n accomplished i n
this direction a s was possible, t h a t 1 t was n o t oracticable
to undertake anything further i n the matter o f standardizing forms,
a n d i t should c e w t e
i t s efforts entirely tothe
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
588
consideration o f supplies.
that i t was inadvisatle,
T h e cormittee a l s o felt
i f not:impractia@ble (certainiy
at this tine) t o attempt t o arrange f o r t h e joint
of s u p p l i e s
b y all Federal reserve banks, t h r o u g h
tral purchasing office,
could
b e accomplished
ardizing supvlies
gveat deal
m t belicved that a
i n t h e w a y o f economy throu-h s t a n d -
m w i n use, w h i c h will admit o f stand-
ardization, a n d b y furnishing a11 o f the Peceral reserve
banks
w i t h information
t o keep t h e m posted
a s t o t h e low-
a”
est o r i c e s
a t which supplies
o f e v e r y character c a n b e
obtained, p u t t i n e t h e m i n p o s i t i o n
t o effect economies
where possible b u t leaving t h e n free t o act f o r themselves.
ach member o f the committee brought w i t h hi» t o
the m e e t i n g d a t a a n c i n f o r m a t i o n r e l a t i v e
t o the quantity
f r o m which i t was
and p r i c e o f s u p p l i e s u s e d i n h i s bank,
disclosed t h a t t h e b a n k s a r e p a y i n g w i d e l y v a r y i n g p r i c e s
for s t a n d a r d a r t i c l e s cles.
i n some cases t h e identical arti-
o f these
T h e committee v a s o f opinion t h a t i n most
stances t h e b a n k s w e r e n o t i n f o r m e d
a s t o t h e orices
being oaid b y other reserve banks f o r t h e same articles
and t h a t t h e y w o u l d w e l c o n s
with s u c h i n f o r m a t i o n .
t h e opportunity
t o b e supolied
I t f s t e l i e v e d t h a t t h e c o m LUTeEe
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3589
can b e o f v a l u a b l e s e r v i c e
i n this c o n n e c t i o n
b y acting
as a "clearing house" f o r all o f the reserve banks i n any
matter p e r t a i n i n g
t o s u p p l i e s w i t h o u t e v e n t h e SUE. eS~
tioh o f d i c t a t i n g
t o a n y Federal r e s e r v e b a n k t h e quality
of supplies t h e y s h o u l d u s e o f f r o m w h o m t h e y s h o u l d
te
purchased.
In pursuance
o f this p r o g r a m
t h e committee hopes
to
have t h e hearty co-operation o f each bank, a n d i t i s
remested t h a t t h e enclosed schedules listing a
plies w i t h r e s p e c t
tion,
few sup-
t o w h i c h t h e conmittese d e s i r e s
b e carefully completed a n d returned within t e n
days t o the Secretary, wr. 4 . *. Lauckner, c / o Federal
Reserve B a n k o f N e w York.
If y o u r b r a n c h e s
d o their
o w n purchasing
supplies, s e p a r a t e r e p o r t s s h o u l d
b e prevared
o f these
b y them;
extra s c h e d u l e s f o r t h i s p u r p o s e a r e erelosed.
I f the
purchasing i s done a t t h e head office t h e branch figures
may b e s h o w n s e v a r a t e l y
any o f t h e s u p p l i e s
o n your report.
purchased
f o r t h e branches
tical w i t h t h o s e o f t h e h e a d o f f i c e
and price,
port a n d a
I f , however,
a r e iden-~
i n material,
t h e t w o m a y b e shown i n orm figure
size
o n the re-
notation m a d e t h a t t h e amoumts a r e inclusive
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Of t h e s w a n c h fTicures;
As s o o n a s a l l o f t h e r e p l i e s a r e r e c e i v e d t h e
information w i l l
b e tabulated a n d furnished
t o each
Fed ral reserve b a n k for its information, together w i t h
any s u g w e s t i o n s t h e c o m m i t t e e m a y h a v e t o offer.
Very t r u l y y o u r s ,
C;: A a VORCOIng ton, Che iiian,
By
Secretary, C o m m i t t e e o n Standardization a n d P u r c h a s e o f
supplies.“
Deputy G o v e r m o r Case: I
left w i t h t h i s c o m m i t t e e
move t h a t t h i s s u b j e c t
be
o n Standardization a n d Purchase
of Supplies.
The Chairman:
‘ v i t h o u t objection,
that course will
be folloved.
The next i s IV-(a)-3.
o. e v o r t o f Insurance Vommittee o n
nd Automobile Tnsurance,
. Kenzal, Clreirman.
Since i t s last report submitted t o the Conference
of Governors h e l d N o v e m b e r
matters
have
1 2 t o 16, 1 9 2 3 , t h e f o l l o w i n g
h a d the attention
o f t h e cormittee,
1. T h e legal qmestions involved i n the plan submitted t o t h e l a s t c o n f e r e n c e f o r i n t e r - i n s u r a n c e
b y the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
391
twelve b a n k s
o f t h e e x c e s s b a n k e r s b l a n k e r b o n d risk.
2. C o n s i d e r a t i o n
of a
plan f o r s e l f - i n s u r a n c e
of
the e m p l o y e e s g r o u p l i f e risk.
Oo. A
r e v i s i o nf
o the primary bankers blanket. bond: for
the p u r p o s e o f c l e a r i n g u p d o u b t f u l p o i n t s a n d broaden-
ing the coverage.
4&4. C o n s i d e r a t i o n
in t h e c o s t
o f possible p l a n s f o r r e d u c t i o n
o f automobile insurance.
5. G o n s i d e r a t i o n
o f rates c h a r g e d f o r re-istered
insurance.
The f o l l o w i n .
report i s submitted w i t h respect
to
of. these matters.
The legal questions invol v d i n the plan submitted t o the last Gonference f o r inter~insurance b y the
twelve b a n k s o f t h e e x c e s s b a n k e r s b l a n k e t b o n d risk.
This c o m m i t t e e s u b m i t t e d
t o t h e last Conference t h e
outline o f a possible p l a n f o r t h e inter-insurance b y
the t w e l v e b a n k s
o f the risl o r d i n a r i l y covered
by a
bankers blanket btond i n excess o f t h e prirary coverage
of »500,000 n o v carried
b a n k s .
took t h e f o l l o w i n g a c t i o n w i t h r e s p e c t
t o t h i s report.
‘vorED that the confe:ence should report t o the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
592
Federal
eserve
B o a r d that because
o f the difference
of opinion expressed b y counsel o f the various Federal
reserve b a n k s
n o action c o u l d b e taken b y t h e Governors
Conference u n t i l t h e q u e s t i o n o f l e g a l i t y i s f i n a l l y d e termined
b y t h e a p v r o p r i a t e l e g a l authority.
Under d a t e o f J a n u a r y 4 , 1 9 2 4 ,
t h e conmittee m a d e i n -
quiry o f t h e Federal Reserve H o a r d a s t o t h e status o f
the matter m d under d a t e o f “arch Sl, 1924, a
letter
was received f r o m lr. Eddy, Sec. etary o f the Federal R e serve Board, stating that t h e Poard has W e n advised b y
its c o u n s e l t h a t t h e p r o p o s e d p l a n w a s o f v e r y d o u b t f u l
legality a n d t h a t t h e B o a r d h a d c o n s i o e r e d a n d a p p r o v e d
this-opinion,.
©. C o n s i d e r a t i o n o f a plan f o r self insurance o f
the e m p l o y e e s g r o u p l i f e risk.
The l a s t C o n f e r e n c e r e f e r r e d
mittee t h e r e c o m e n d a t i o n s
t o t h e Insurance C o m -
o f the Ward's Comittee
4
Beonomy a n d e f f i c i e n c y c o r c e r n i n g t h i s i n s u r a n c e .
recomendation o f the b a r d ' s C o m i t t e e
o n
T h e
o n Economy a n d
Efficiency w a s t o t h e e f f e c t t h a t s o m e p l a n b e c o n s i d e r e d
under w h i c h
t h e reserve banks might themselves
carry under
a single group t h e insurance o n the lives o f all employees
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
in the twice banks.
A study o f t r e i n f o r m a t i o n a v a i l a b l e i n d i c a t e s t h a t
the approximately 12,000 employes i n the Federal Reserve
System make a
to represent a
group o f sufficient s i z e a n d distribution
good insurable r i s ‘ i t h ample scone forthe
operation o f t h e l a w o f averages,
a n d that t h e banks
collectively might well insure this r i s k themselves a t a
F o r each b a n k individually
considerable saving i n cost.
to u n d e r t a k e s e l f - i n s u r a n c e
o n i t s o v n employees a l o e n
would b e very different a n d extra hazardous end, i n the
opinion o f t h e committees, u n w i s e , e s p e c i a l l y f o r t h e
smaller banks.
This i n s u r a n c e
i s n o w costing t h e s y s t e m avproximate-
ly $100,000 per a m u m net, a n d the losses paid b y the
companies aporoxivate $60,000 p e r a m u m .
‘ h i l e the
figures o f the individual banks h a v e varied considerably
from y e a r
t o year,
t h e totals
f o r the system have remained
practically c o n s t a n t f o r t h e » a s t t h r e e o r f o u r years,
4t i s t h e v i e w o f t h e c o m m i t t e e t h a t a
and
plan o f opera~
tion c o u l d b e worked o u t w h i c h v o u l d r e s u l t
in 4
s a ving
to the system o f the major part o f the difference w t w e e n
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
premiums a n d losses, n a m e l y « 4 0 , 0 0 0 p e r amum,.
It w a s t h e v i e w o f t h i s c o m m i t t e e t h a t a n y p l a n d e signed t o e f f e c t t h e inter~-insurance
o f this r i s k might
meet with t h e same legal objections t h a t h a d been raised
in t h e c a s e o f t h e i n t e r - i n s u r a n c e
o f t h e excess bankers
blanket b o n d risk, a n d for this reason i t was consicrred
advisable t o defer t h e working o u t o f a detailed p l a n o f
operation until t h e legal scuestiow involved h a d b e e n settled.
A s already stated under t h e prececing subject, a
letter w a s r e c e i v e d f r o m t h e s e c r e t a r y o f t h e F e d e r a l R e -
serve F o a r d under date o f a r c h 31, 1924, stating, w i t h
respect
t o the proposed inter-insurance
p l a n f o r t h e exces:
bariers blaricet bond risk, t h a t t h e Board h a d w e n advwiswas o f very
ed t y i t s c o u n s e l t h a t t h e p r o p o s e d p l a n
doubtful l e g a l i t y a n d t h a t t h i s o p i n i o n h a d b e e n a p p r o v e d
by t h e Board.
O n April 3
a letter v a s a d d r e s s e d
t o the
Board asking whether o r not i t was definitely opposed
to inter-insurance plans i n principle as, i f it were not,
$t w o u l d s e e m t h a t i t m i g h t &
possible
t o rork out a
r i s k which
plan with respect t o the @roup Life insurance
might m e e t a n y l e g a l o b j e c t i o r s
n d
t h s permit t h e banks
through t h e
to effect t h e substantial economy possible
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
395
inter-insurance o f this rick.
received
5. A
N o reply has a s yet b e e n
t o this l e t t e r .
revisionf
o the primary bankers blanket b o n d
for t l p u r p o s e
o f clearing u p doubtful voints a n d broaden-
ing t h e coverage.
Several m e s t i o n s h a s t e e n r a i s e d w i t h r e s p e c t
to
the exact coverdge afforded under t h e banvers blanket
bonds n o w carried b y all banks i n identical form.
I n
order t h a t a n y d o u b t f u l p o i n t s m i g h t b e cleared a n d a l s o
to i n s u r e t h a t t h e b o n d w o u l d m e e t t h e r e q u i r e m e n t s
every tank, t h e c o m ittee addressed a
of
letter t o all banks
prior t o t h e e x p i r a t i o n date, a s k i n g f o r sugeestionms w i t h
respect
t o t h e improvement
o r clarification
o f t h e bond.
The c o m m i t t e e s u b s e q u e n t l y r e o p e n e d r e g o t i a t i o n s w i t h t h e
committee
o f umnerwriters w i t h t h e result t h a t f o u r
portant c h a n g e s
i n the language
i m
o f the bond were finally
agreed upon. C o n s i d e r a b l e delay v a s experienced i n mak-~
ing the changes actually. effective o n the bonds d u e t o
the fact that t h e surety Association meets v e r y infrequesntly.
T h e chanzes h a v e r e c e n t l y b e e n apvroved
the u n d e r w r i t e r s
effective.
a n d a r e r o w i n process
T h e y are a s follows:
by
o f being vade
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
396
(a) A
change i n Apragraph “ A " o f the bond which
broadens t h e coverage sufficiently t o inclure employees
assigned
t o w o r k o u t s i d e o f t h e bank,
at a closed bank.
a s f o r instance,
T h e language w a s also changed s o a s t o
specifically include t h e Federal Reserve Agent, Assistant
Fed: ral K e s e r v e A g e n t s a n d o t h e r e m p l o y e s
o f t h e Agent's
Department.
(bd) A
placement"
change i n Parabraph "GO! adding t h e word." MiSt o the coverage afforded under this vara graph a r
also extending t h e transit r i s k t o incluc’ p r o p e r t y i n
transit within t h e entire United States rather t h a n restricting i t t o the particular reserve district a s i n the
original b o n d .
(c) A
change i n Clause “O" o f Paragraph ‘ o N sneci=
fically e x e m p t i n g t h e t a n k s f r o m t h e r e q u i r e m e n t
nishing s e r i a l m u m b e r s
o f fur-
o f money o r o f a n y United States
Goverment obligations i n conrection w i t h the description
require
o f a n y l o s t property.
(ad) A
change i n Para eraph HOMbo gLvece 1 UL w e e
which
instatement o f t h e policy w i t h respect t o losses
t h e loss f o r
may h a v e o € c u r r e d b e f o r e a s w e l l a s a f t e r
waich t h e reinstatement premium i s paid.
T h e original
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
policy r e i n s t a t e d t h e a m o u n t o n l y f r o m t h e d a t e o n w h i c h
mtice
o f l o s s w a s given.
These changes, w h i c h were obtained without increase
in the premium,
i n the judgment o f t h e comnittee material-
ly troaden t h e coverage afforded t o t h e reserve banks.
4. C o n s i d e r a t i o n o f p o s s i b l e p l a n s f o r a
veduction
in the cost o f automobile inrurance,
The r e c o m i e n i a t i o n o f t h e B o a r d ' s V o m m i t t e e
o n Econ-
omy a n d B f f i c i e n c y w i t h respcéet t o t h i s k i n d o f i n s u r a n c e
was t h a t investigation b e wade t o see whether o r not m r e
favorable r a t e s
biles
c o u l d ‘te obtained
i f a l l o f t h e automo-
o f the system vere insured undsr a
single p o l i c y
or through t l e same chamel.
The c o m m i t t e e i n v e s t i g a t e d t h i s m a t t e r a n d f o u n d
that i t would
b e possible
t o obtain a
substantial r e d u c -
tion f r o m t h e m a n u a l r a t e s f o r a l l c l a s s e s
insurance
s v making arrangements
o f automobile
f o r t h e insurance
o f all
the cars i n the system under what i s known a s a "fleet"
policy. R a t e s w e r e obtained f r o m several different companies t h r o u g h i n d e p e n d e n t b r o k e r s ( D e L a n c y &
and a f t e r c o n s i c r a t i o n
o f the rates submitted
DeLancy)
a n d also
of the standing of the companies, class o f service, that
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
598
could r e a s o n a b l y
reco
e m
b e expected, e t c . ,
i t was decided t o
t o t h e b a n k s t h e i n s u r i n g o f t h e automobiles
under t h e proposal submitted b y Messrs, C h u b b & Son representing t h e Fecieral I n s u r a n c e C o m p a n y w h o w o u l d i n s u r e
against fire, theft, collision and property famage, a n d
the U n i t e d S t a t e s G a r a n t e e Vvormany w h o w o u l d i n s u r e
against legal liability.
U n d r this proposal t h e banks
can b e insured a t rates guaranteed t o t e n o t less t h a n
30 p e r c e n t b e l o w t h e s t a n d a r d v a n u a l r a t e s a n d a t t h e
game t i m e o b b a i n a
somewhat b r o a d e r coverage.
T h e poli-
cies t o b e issued w i l l c o r b a i n f e a t u r e s w h i c h a r e n o t
usual i n automobile insurance, s u c h a s the following:
(a) T h e cars will b e insured for a stated value
and i n t h e e v é n t o f a
total l o s s t h e f a c e a m o u n t o f t h e
policy will b e paid without suestion a s t o the value o f
the c a r a t t h e t i m e o f t h e loss.
(0) T h e policies will automobically cover any new
cars p u r c h a s e d f r o m t h e d a t e o f t h é p u r c h a s e
a t pro rata
rates a n d will also permit t h e cancellation o f any insurange d u e t o d i s p o s a l
o f car with a
pro r a t a r e t u r n o f
o r e
The c o m m i t t e e a l s o g a v e c o n s i d e r a t i o n
t o t h e amounts
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
599
and limits o f insurance which t h e reserve banks should
carry i n order t o reasonably pretect themselves a g i n s t
loss, a n d while recognizing t h a t e a c h ban's should deéetermine f o r itself t h e limits o f its insurance, t h e committee d i d make suggestions a s follows:
Fire a n d Theft:
That f i r e insurance b e carried o n all equin”ent
and t h e f t i n s u r a n c e
trucks
o n equipment o t h e r t h a n a r m o r e d
o r o t h e r specially b u i l t e q u i p m e n t o p e r a t e d u n d e r
conditions m a k i n g t h e f t impossible,
a n d t h a t s u c h insur-
ance b e o n t h e t m s i s o f c o s t l e s s a
reasonable d e p r e c i a -
tion o f f r o m
1 5 per cent
t o 2 0 p e r c e n t p e r year,
Property Damage:
That p r o p e r t y d a m a g e i n s u r a n c e
b e carricd
in
connection w i t h a l l c a r s f o r 4 1 , 0 0 0 e a c h , t h i s b e i n g t h e
amount p r e v i o u s l y c a r r i e d b y n e a r l y a l l o f t h e banks.
Collisions
Because o f the high cost o f this insurance i t
was sugeested, e s p e c i a l l y
this i n s u r a n c e m i g h t
i n c o n n e c t i o n w i t h trucks, t h a t
b e eliminated,
t u t i f carried t h a t
it b e w r i t t e n w i t h t h e »l00O d e d u c t i b l e clause.
Lia biiity:
There w a s f o u n d
t o v e a
wide v a r i a t i o n
i n the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
400
limits carried b y the several banks against this hazard,
the range being all the a y from »5/10,000 u p t o yl00/
300,000 vith a majority o f the banks carrying »25/50,000.
In v i e w
o f the increasing number
and t h e t e n d e n c y
o f automobile accidents
o n t h e vart o f jurors
t o largely i n -
crease awards for damages, t h e committee considered i t
advisable t o suvgest that all baniss carry $50/100 .090
that i s a
limit o f 5 0 , 0 0 0
f o r injury t o a n y o n e pereon
and ,»100,000 f o r a n y o n e accident.
The c o m u i t t e e b e l i e v e d
i t “ould b e t o t h e interest
of a l l t h e b a r k s i f a u t o m o b i l e i n s u r a n c e
w e r carried
i n
reasonably u n i f o r m a m o u n t s a n d t h e a b o v e s u , zestions w e r e
made w i t h t h i s
‘ f h e fleet policies w h i c h a r e
i n mind.
now - e i n g w r i t t e n w i l l ;
ovever,
permit
o f the insurance
of the cars o f any bank a t such livxits a n d i n such
amounts
a s t h e i n d i v i d u a l b a n k m a y ceslire.
A sufficient n u m b e r
willingness
o f banxs h a v i n g indicated their
PAI w n
t o insure under these fleet policies, t h e
plan i s~ n o w i n o p e r a t i o n a n d t h e l o w e r r a t e s a r e avwailable t o e a c h o f t h e b a n s .
U p t o t h e time o f oreparing
this s e v o r t o n l y o n e b a n i h a d i n d i c a t e d i t s o r e r e r e n c e
e
not t o change existing arrangements.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
401
5, v o n s i d e r a t i o n o f rates charged f o r registered
mall insurance,
The committee, h a v i n g i n mind that t h e rates o n
registered m a i l i n s u r a n c e w e r e c o n s i d e r a b l y i n c r e a s e d
about t w o years ago, h a d hoped that t h e experience o f
the u n d e r w r i t e r s u n d e s t h e n e w r a t e s w o u l d j u s t i f y a
duction.
re-
T h e matter w a s recently t a k e n u p a n d t h e c o m
mittee h a d r e a s o n t o f e e l t h a t i t s r e c u e s t f o r a
review
of the rates vould receive f a w r a b l e consideration, b u t
unfortunately before t h e definite arrangements h a d been
completed.
t h e large*loss
and t h i s w a s f o l l o w e d
will r e s u l t
a t Harvey, T i i i n o i s ,
b y other substantial losses w h i c h
i n wiping o u t t h e margin w h i c h
had h o p e d t o a p p l y t o 4
of t h e circumstances,
t o o k place
t h e committee
weaquction af. préemiuns.,
I n view
i t i s t h e opinion o f the committee
that t h e p r e s e n t o u t l o o k a s t o t h e r a t i o o f losses
premiums f o r t h e c u r r e n t y
the banxcs i n r e q u e s t i n g a
i
s
decrease
to
not such a s t o w a r r a n t
i n premium a t this
tine.
Conclusion:
For t h e reasons stated above, t h e committee i s
male
unable t o / f u r t h e r r e c o m m e n d a t i o n s
a t this t i m e w i t h respect
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
402
te m a k i n g o p e r a t i v e t h e p r o p o s e d p l a n s f o r inter~insurance
o f t h e excess bankers
lives o f employees.
blanxet vond risk and o f the
T h e committee believes t h a t a
siderable s a v i n g c o u l d »
effected
of t h e e m o l o y e e s “ r o u p l i f e r i s ,
the i n t e r e s t
b y t h e inter-insurance
t h a t i t weuld a l s o b e t o
o f t h e s y s t e m t o have i n oneration a
for t h e i n t e r - i n s u r a n c e
o f the «
i n the case
plan
cess b a n k e r s h l a n k e t
bond risk, i n d that this plan vould a l s o ef"ect a
economy
con-
con-
o f t h o s e b a n k s sho. are” n o w
providing o u t s i d e covera..¢ Pore a e e y o f b i e 2
Bats
The committee sug.ests t h a t i f the Converence a n d
s
t
the s e d o r a l R e s e r v e B o a r d a r e i n f a v o r olamm nial: auonaubiagemiqoue,
of mutual s e l f - i n s u r a n c e ( i n t e r - i n s u r a n c e )
i n t h e excess
Liability risks and/ér the group life insurance risks,
that l e g a l m e a n s
Attorney Gencral)
b e sought (possibly a n opinion o f the
t o permit i t s operation b y the banks
collectively.
cegnoectfully submitted,
James H . Dillard,
e
i
s e ec na e m e ehOOs
E. Re. Kenzel, C h a i r m a n .
% Since t h e above report w a s »ritten, t h e Federal
to
‘eserve Foard has informed t h e Uommittee, referring
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
403
inter-insurance f o r sroup life insurance,
"This p l a n u p o a r e n t l y i n v o l v e s
a s follovs:
exactly
t h e same
legal cuestion a n d i s open t o the same leszal objection
as t h a t r e r e r v e d
t o i n the Board's letter
o f # a r c h 41st.
“The Board has not cecided whether i t is opnosed
to i n t e r - i n s u r a n c e p l a n s
of policy):
i n principle ( i . e . ,
b u t the Board
as a
w o u l d b
e unwilling
matter
t o apvrove
any s u c h p l a n u n t i l C o n g r e s s h a s aisended t h e l a w i n
such a
was a s t o s e m o v e a l l d o u b t a g t o t h e l e g a l i t y o f
Federal r e s e r v e banits p a r t i c i v a t i n g h
The Chairman:
arrangements."
‘ h a t Gisposition s m l l v e make o f
this r e p o r t ?
Governor Seay: I
that t h e c o m m i t t e e
move t h a t i t b e r e c e i v e d a n d
b e requested
t o continue i t s s t u d y
of t h e e n t i r e i n s u r a n c e c u e s t i o n .
Governor Fancher:
i
t second t h e motion.
(The motion having b e e n duly seconded, w a s unani*ous~
ly carried.)
(“hereuvon, at ]
m
cessed until t r o o'clocx p . m
.
, the conference re-
o f the same day.)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a che a
R @ B C E S S
The conference met, pursuant t o recess,
a t two
Ol clecktin. Mm:
The Chairman: G e n t l e m e n ,
is with u s this afternoon.
T l am sure-we a r e all very
glad t o see ir. Delano, who, a s most o f you know, w a s a
member o f t h e f o a r d f o r a
l o n g time, a n d i s v e r y c l o s e t o
the Board a t the oresent time.
dr, Dawes, t h e Comptroller, h a s expressed t h e desire
to c o m unicate sonething t h a t i s i n his mind, a n d 1
think h e will b e here i n a moment.
I n the meantime, I
think w e had better g o right along with o u r program.
This meeting, .ir. Delam,
was s t a r t e d
i s one of the meetings which
when y o u were here A n d Whteh
L S Stidd going
on. ‘ W e have n o t finished.
wr, Delano: I
this v a s a
pougal I
this.
wanted t o s e e y o u all, a n d I thought
good w a y t o d o it. I
promised @ v e r n o r c ~ -
would n o t make a speech, b u t I cannot h e l p saying
who
I t reminds m e a little o f the story o f the m a n
went t o v i s i t o n e o f t h e s c h o o l s n e a r Boston;
man o f m t u r e years l i k e myself.
was,
a n d they s a i d that i t was a
H e asked what t h e class
class
i n arithretic.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
405
He said, ‘“‘ell, what are they studying this morning?"
and they answered " T h e y a r e trying t o find t h e least com-
mon denominator."
H e replied “That's funny.
h e n I was
in school t h e y were looking f o r that same miserable
thing.
A r e they looking f o r i t yet?"
Delano t h e r e u p o n r e t i r e d f r o m t h e c o n f e r e n c e
The Chairman:
T h e next subject o n the program i s
IV-(a)-4.
4, R e p o r t
o f Committee
t o Study cost
ofs e c u r i n g Credit Information.
12
I will a s k wir. H a r r i s o n t o s u b m i t t h i s report.
Mr. H a r r i s o n s
by a
letter
T h e r e p o r t i s a s follows ( o r e f a c e d
t o .r, Harrison):
ir, George L . Harrison,
secretary, Governors! C o r 6.ence,
Federal R e s e r v e B a n k o f N e w York,
New York, N . Y.«
Dear Mir. Harrisons
4t the Governors! Conference o f November 12-16, 1923,
the Committee o n “conomy a n d efficiency submitted t h e
following r e c o m m e n ation:
“3. R e c o m m e n d a t i o n f o r t h e Investigation o f the vost
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
of securing Gredit Information.
In connection with t h e study b y the Committee o f the
Loans, Rediscounts a n d Investments" functions o f the b a n k s ,
is w a s n o t e d t h a t t h e r e
i s a
wide v a r i a t i o n
i n the cost
of o p s r a t i n g t h e s e v e r a l C r e d i t Departments.
This C o m i t t e e o b t a i n e d f r o m e a c h b a n k a
of i t s p o l i c y i n s e c u r i n g c
edit information,
statement
a n d from
this d a t a i t would appear that either some o f the banks
are d o i n g t o o m u c h i n this respect,
o r others a r e
m t
doing enough.
The C o m m i t t e e d o s s n o t c o n s i d e r t h a t i t c a n m a t e
any d‘finite sugzestions
o n this subject a n d recommends
therefore t h a t t h e m a t t e r
b e referred
b y t h e Governors
to
a Committee o f Federal Reserve credit m e n for investigaBlLon- a n d r e p o r t .
Pursuant
were a p p o i n t e d
t o this recommendation,
ag a
committee
report o n this subiect,
t h e uncersigned
t o further investigate a n d
w e a r e pleased t o submit o u r
report a t t a c h e d hereto.
Very truly yours,
«%, H .
t
S Louis Federal
Glasgow,.
Reserve B a n k ,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ror.is
9
New Y o r k w e d e r a l R e s e r v e
fank
Kent -Gy UnLive,
GUhicago Sederal R
Chairman.
Report
o f t h e Committee Appointed
b y Governors!
Conference t o Investigate t h e Credit Information
Operation o f Feceral R e s e r v e
The c o m m i t t e s
o n Economy a n d ufric
al R e s e r v e j o a r d r e p o r t i n g
o
f t h e Feder-
o n the cost o f overating t h e
Rediscounts z n d Investments” function o f the
Federal r e s e r v e tanks, n o t e d that f r o m data obtained
it a p p e a r e d t h a t t h e w i d e v a r i a t i o n
i n t h e c o s t o f operat-
ing t h e s e v e r a l c r e c i t d e p a r t m e n t s i n d i c a t e d t h a t t h e
creait d e p a r t m e n t s
o f some o f t h e banks
e r e elther
doing t o o m u c h o r others w e r e n o t G o i n g enough. P u r s u a n t
to their r e c o m endation, t h e
November 12-16, 1 9 2 3 , r e c o v e n d e d t h a t a
credit m e n o f t h e Federal v e s e r v e b a n k s
further investigate
beams
a n d report
committee
of
b e aovnointed t o
o n this v a r t
STOR.
Previous r e p o r t s s u b m i t t e d
t o t h e CUmmittce
Feonomy a n d » f f i c i e n c y w e r e b a s e c
on
o n t h e e n t i r e “Loans,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
408
I t aopears
Schedule & .
variation
a s shown b y
a n d Investments” f u n c t i o n ,
Rediscounts
t o vour compittee t h a t t h e wide
i n costs w a s d u e l a r g e l y t o a c c o u n t i n g m e t h o d s
o r fully cover t h e scope o f the
which d i c n o t s n e c i f i c a l l y
Y o u r committee,
evedit activities o f the various banks.
therefore, o b t a i n e d d a t a from’ the s e v e r a l r e s e r v e b a n k s
regarding t h e credit information operations, “whether s u c h
operations w e r e » e r f o r m e d
or i n o t h e r d e n a r t m e n t s
i n the Credit Department prover
T h i s data was
o f the ban.
aptained u n d e r t h r e e m a i n h s
Obtaining credit inforsation
credit i n f o r m a t i o n
and f i l i n e c r e d i t i n f o r m a t i o n .
r
In a n
e
d
u
c
e
t h e costs
t o a
unit basis,
a
w given t o three orincival items a s t h e
c o n s i d e r a t i o ns
basis f o r a
unit comparison; n a m e l y ,
t h e number
o f credit
statePileg,. She: m a m b e r o f c o m m e r c i a l a n d a g r i c u l t u r a l
es maintained.
ments analyzed,
4 comoarison o f unit costs ° ¢ p u r e a
iiptle value,
character
method
o n these bases proved ©
and
T h e great difve:ence i n eoncitions
o f bisiness
o f maintaining
i n t h e d i f f e r e n t districts;
e v e d i t files;
the
t h e c a r e necessary Hee
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
409
analyzing s t a t e m e n t s ;
a n d t h e need o f m i n t a i n i n g elabor-
ate a n d c u r r e n t b a n k files, r a d e i t i m p o s s i b l e
t o compare
the costs o f the various banks - basis, t h e s e o r a n y other
units -
without giving consideration i n each case t o
conditions u n d e r w h i c h t h e b a n k s m u s t n e c e s s a r i l y o p e r a t e
in e a c h district.
After s a r e f u l s t u d y , g i v i n g f u l l c o n s i d e r a t i o n t o t h e
various units sugsestec,
to a
credit o p e r a t i o n s
operation i s m t a
i t avpeared impossible t o recuce
unit c o s t basis,
mechanical
o r clerical o p e r a t i a n w h i c h
san b e weasured b y the same standards
is a p p a r e n t
l e cause t h e c r e d i t
I t
i n all b a n s .
t o y o u r c o m m i t t e e t h a t t h e a m o u n t o f vorkre-
aquired a n d t h e e x p e n s e i n v o l v e d
i n the operation o f any
eredit d e v a r t m e n t d e p e n d s e n t i r e l y o n t h e m e d s
o f the
particular bank, w h i c h neecs a r e governed b y the m h a r a c t e r |
Conditions
of i t s business.
i e e e
a n d wroblems a r e different
c L atrict,
In s u b m i t t i n g t h i s r e p o r t , t h e r e f o r e ,
i t i s the
be
opinion o f y o u r c o r m i t t e e t h a t i t s o b j e c t c a n b e s t
informaattained »svy setting o u t t h e c o s t s o f t h e c r e d i t
tion o p e r a t i o n s
the r e a s o n s
o f t h e various banks a n d a
f o r the cost
i n e a c h case.
statement
A n atverpt
of
hes
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
A410
brief p i c t u r e o f t h e s c o p e o f t h e s e
been m a d e t o g i v e a
o f seach r e s e r v e b a n k v i t h t h e t o t a l c o s t a s
operations
determined b y your c o m i t t e .
I t i s noted that t h e varia-
tion i n costs i s c o m o i v a t i v e l y a m a l l c o n s i d e r i n g t h e ¢. d i t
needs o f t h e d i f f e r e n t b a n k s a s b r o u g h t o u t i n t h i s s u y m a r y
CONCLUSION:
Suis i c t u a l c o m p a r i s o n
o f costs
o f crecit information
operationf
o the several #eccral reserve banks b y reducing
to a unit basis t s impossible,
2. G o r m a r e d - i t h t h e w r i a t i o n n o t e d b y t h e C o m i t -
tee o n Zconomy « n d a f “iciency, t h e variation i n costs,
as d e t e r m i n e d f r o m i n f o r m a t i o n r e c e i v e d f r o m F e d e r a l
serve o a n t s
i s small.
b y your c o r i t t e e ,
your c o m m i t t e s ,
t h i s variation
I n the o o i n i o n
m a y b e -accounved t o r
by the local reeds, ‘cconomic conditions o f the soveral
a n d t h e requirements
districts,
vethods u s e d a p v o e a r
character
hoards
o f business
o f local boards o f
t o o e consistent
vith the
d o n e a n d t h e reoulrescnts
O f
o o n
o f directors.
4, T h e v a r i a t i o n
substantial
o f operation
is
b y t h e veauirerents
o f
i n elaborateness
a n d i s accounted
for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4i\1
the local o f ®icers a n d Girectors. 4
careful study o f
this report b y each bank m a y result i n a greater degree
of u n i f o r m i t y
i n this particular.
Respectfully s u b m i t t e d ,
(Signea) ‘ , H , Glasgoe,
St. L o u i s F e d e r a l R e s e r v e
(sivned), Je-Tnctorvis,
New Y o r k F e d e r a l ‘ieserve
nent. Cc. Childs,
Ghicago Federal "Neserve B a
Chairnan,.
The Chairvan:
T h a t report i s accompaniec
b y some
ect maGs 3
wr, Harrisons
Y e s ,
I n the bocy o f the repart
there i s o n e s e n t e n c e w h i c h m a y v e r h a p s
b e snlightening:
caveful s t u d y , v i v i n g f u l l c o n s i c + r a t i o n
.wested,
i t appeared impossible
t o the
t o reruce c r e a i t
overations t o a unit cost tasis, because t h e credit opsra-’
tion i s n o t a
mechanical
o r clerical o n e r a t i o n w h i c h c a n
be measured b y the same standards i n all b a n s . "
Deputy G o v e r n o r (Case: I
move t h a t t h e r e p o r t
receiveo a n d a c c e p t e d a n d t h a t e a c h G o v e r n o r
with a
banks.
be
b e furnished
copy o f i t f o r t h e u s e o f t h e resvective r e s e r v e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
412
(The motion, h a v i n g b e e n duly seconded, w a s carried.)
Me, Harrisons:
Nos. 2 , 3
T h e three reports under topic IV-(a),
and 4, might well b e referred t o the Board's
eonomy a n d sufficiency Cormittee, cecause e a c h o f the reports
i s t h e result
o f pecommendations m a d e b y that c o m
mittee a t t h e l a s t c o n f e r e n c e
o f Governors, u n l e s s t h e
i the usual
conference desires i t otherwise w e w o u l d , n
course, s e n d them t o the Board's Economy a n d Efficiency
Cormittes,
The Chairman:
D
o y o u want t h a t included
i n the m - ~
tion?
ite, Harrison:
Yes,
The Chairvan;
W i l l y o u include t h a t i n your motion,
Mr, C a s e ?
The C h a i r m a n :
T h i e n L v e s eso u n d e r s t o o d .
The ne:t topic i s IV-(b)
(o) R e p o r t o f Pension Committee,
vir, Kenzel, C h a i r m a n .
have a
“have
m o report
that they
message f r o m ir. Kenzel, s t a t i n g
expressing a
t o submit a t this time, b u t
the Pension Committee.
Gesire t o have another meeting o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
413
Wir. Harrison:
circumstances, I
M r . Kenzelts note is: “ U n d e r the
d o n o t think i t i s necessary o r cesirable
for the Committee t o make a
report t o the Corference n e x t
week, b u t i t might b e well f o r y o u o r Governor Fancher t c
explain that w e desire t o have another w e eting with o u r
expert advisers before making further recommendations, a n d
that i t w a s i m p o s s i b l e
t o g e t o u r advisers t o g e t h e r f o r
such a meeting heretofore o n account o f the illness o f -ir.
aid
Thayer, /the a b s e n c e f r o m t h e c o u n t r y o f Mr. Curtiss.
That
will constitute the report o f the committee."
Iv-(d), Legality o f Insurance Plan,
is i n c l u d e d
i n I t e m IV-(a)-3.
The Chairman:
there i s w
W w e will discuss IV-(d) first.
I f
objection w e will receive t h e report f r o m Hr.
Kenzel a s the report o f this committee, a n d Governor
Fancher a n d I , w h o a r e t w o o t h e r m e m b e r s
o f t h e committee,
will arrange f o r a meeting w i t h Mr. Kenzel later on.
Governor Cal-ins:
tes h a s m a d e a
D
o I
understand t h a t t h e coimmit-
report?
The Chairman:
J u s t t h i s report, t h a t i s all.
They
have n o report t o make now.
IV-(2) h a s b e e n discussed, a n d IvV-(d), a s stated,
is
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
414
eovered i n i
K e n z e l l ' t s r e p o r t f o r t h e I n s u r a n c e (Qonmit-
tee.
v-(a) h a s b e e n disposed of; V - ( b ) h a s t e e n disposed
of, w h i c h brings u s t o No. V I o n the Program, Relations
with m e m b e r banks.
embers,
Vi-(a) i s Volumtary servi e s Performed f o r
o n Voluntary Services
Report o f C o m m i t t e e
b y Governor
Fancher.
Governor Farcher:
T h a t was covered i n m y report
adopted.
of yesterday, which was discussed a n d
The Chairman:
Y o u were t o make a
Governor Fancher:
which t h e c o m m i t t e e
supplemental report
T h e r e a r e three other topics
i s considering.
W
e willl h a v e a
sup
plementary report o n those three topics t o submit t o the
conference tomorrow.
T h e report
i s n o w i n course o f
preparation.
The chairman:
sent.
T h e n w e will pass i t for the pre-
T h e n e t topic i s
VI-(»o) i n l a r g e m e n t o f M e m b e r s h i p i n
the F e d e r a l R e s e r v e S y s t e m .
“hat, i f anything, s h o u l d b e
done t o e n l a r g e m e m b e r s h i p .
Deputy Governor Case:
i e . Chairman, t h a t topic w a s
having a
put o n h e r e t e r e l y w i t h t h e v i e w o f
brief c i s c u s -
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
415
sion a n d o f g e t t i n g t h e v i e w s o f t h e O o r f e r e n c e
as to
whether o r not i t was desirable t o d o anything more t h a n
is b e i n g d o n e a t t h e p r e s e n t t i m e w i t h a
ing membership.
P i n k
v i e w t o enlarg-
| e w i e n beiwell
t o -nave-a-das—
cussion a r o u n d t h e t a b l e a b o u t t h i s m a t t e r b e c a u s e
a very imvortant one, a n a I
i t is
underst
along pretty well with o u r program.
w i l l y o u l e a d t h e discussion,
The Chairman:
Case?
i h ee f o e
Deputy Governor (Case:
C
c
in’ core
mon “ i t h a l l t h e othe. b a n k s , d u r i n g t h e p a s t t w o o r t h r e e
years w e h a v e d i s c o n t i n u e d a c t i v e s o l i c i t a t i o n o f m e m b e r
banks.
O u r ember
an o r g a n i z a t i o n
o f four
m e n t e r banks o n c e
in most cases,
B a n k Relations
m e n who
o r twice a
Comaittee consists
g o atout
year,
i G o
a n d visit
t h e .
o f
the
Custom,
t o drop i n t o t h e state canks a n d pass t
he
-ime o f day with them, a n d keep o n a friendly basis, b u t
without active solicitation i n the w a y o f asking t h e n t o
che system. I
thought it might be interest-
to Find o u t “hat t h e others a r e doing, t h a t i t might
be heloful t o all o f u s 1
f o r instance, t h e r e i s anythin;
we are failing t o d o that would tend t o bring t h e m in.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
A16
Boston, f o r instance, h a s a stockholders committee,
and I suppose t h a t that organization perhaps might b e doing
something
i n t h i s rogard.
The Chairman:
OP 2s 6 L e i a
Y o u a r e n o t engaged
in a
canpaign
eo?
Deputy G o v e r n o r C a s e :
The Chairnan:
G o v e r n o r Harding?
Governor Harding:
Boston L i s t r i c t I
a b s o l u t e l y not.
r , Uhairvan, t h e situation i n the
think i s t h a t t h a t . d i s t r i c t s t r i k e s
as b e i n g p r e t t y m u c h o f a
me
finished district. Therehcdesia ty
much t o c o i n any line o f tbsiness beyond what i s being
done already.
O u r efforts a r e directed mainly t o holding
onto what w e have pot, rather t h a n t o getting a n y more.
“e@ have o n e trust company which has filed notice a s o f
bie f i v s t o o l l o r i d e r i t s i n t e n t i o n
t o withdraw.
That
a trust c o m o a n y a t N e w Haven, C o n n e c t i c u t a n d i t i s
ing i t p u r e l y o n a c c o u n t
o f t h e c o s t o f membership i n -
In G o n n e c t i c u t t h e y h a v e t o c a r r y d o u o l e reserves.
The s t a t e
l a w requires
them
t o carry a
reserve incependent
of what i s carried i n the Federal reserve bank. I
think
the only opportunity f o r increasins membership would b e t o
take i n the mutual savings b a n s , w h i c h would involve
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
417
legislation a n d e v e n t h e n I
doubtful plan, because a
favorably, I
believe
1 t would b e a
very
plan that would attract t h e m
doubt would a d d very much t o the strength
of L h e banca.
W w e c a m o t discount anything f o r them ex-
cept p a p e r s e c u r e d
b y g o v e r m e n t obligations,
a n d they
can g e t t h e i r a c c o m o d a t i o n f r o m t h e b a n k s t h e y d e a l w i t h
now.
t a that Bhout a l i there ie: for w s t o d o is: te” i i d
onto w h a t w e have,
O u r stockholdersig committee h a s b e e n
a distinctly h e l o f u l i n f l u e n c e , I
was s u r p r i s e d
t o find
when I went there that t h e majority o f sentivent among the
banks a g reported b y our membership relations m e n was i n
favor o f p a y i n g i n t e r e s t
o n deposits,
a n d w e w e r e receiv-
ing inauiry a s t o why w e didn't d o it.
all c l e a r e d
u p a n d there i s m
feel that way. I
dozen v o t e s
T h e y have t h a t
longer « n y disposition t o
do m t believe i t would get a half
i n t h e whole d i s t r i c t today.
I t i s out o f
their h e a d s entirely.
The r e l a t i o n s b e t w e o n t h e F e d e r a l R e s e r v e B a n k a n d
member b a n k s ,
s o far a s I
close, a n d .very co.dial.
pected t o d o f o r t
h
can mwmwer ascertain a r e v e r y
“ e have d o n e a l l w e c a n
more. T
maybe
i
e d nm
think 4 @ tout 2 2 1
ye have t o d o t s t o hold onto what v e have, a n d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
we will b e doing fairly well.
The Chairnans:
Governor
H o w a b o u t y o u , G o v e r n o r ‘ e l l born?
“wellborn:
“ i e endcavor
t o get
the
state
b u t w e a r e v e r y varticular aboutthe
tanks i n t o m e m b e r s i p ,
ones w e s p e a k t o a b o u t i t .
‘
e f i n d that w e g e t applica-
extendtions f r o m nonoember banks, b u t they a.’ heavily
members hip
ed u n d r e a l l y i n b a d s tape, a n d w e h a v e d e c l i n e d
to m a n y b a n k s
o n t h a t account.
‘ - ¢ have t o d a y a
great
b u t w e d o not
many o f vhat w e regard a s good state banks,
make a n y h e a d w a y w i t h them.
T h e y feel that they a r e
getting t h e benefits o f the system through their corresoondents, ,ax n d t h e y c2 o m e r i g h t
o u t a n d s a y fransly that
is t o o e x o e n s i v e f o r t h e m t o becone m e m b e r s
The Chairvan:
“ e @ have n o t recently carried o n
any s o l i c i t a t i o n o f r o n - e m b e r banks.
relations d e p a r t m e n t
managers
o f t h e system.
S a n “rancisco?
Govermr Calkins:
of t h e Bank, e
i t
’
@ have n o b a n k s
i s separate f r o m other departments
have f i v e m a n a g e r s a n d f i v e a s s i s t a n t
w h o are scattered throushout
who d o t h e w o r k o f t h e r e m e r
t h e district
and
b a n k rslations department.
b a n s , visit t h e m
They come i n contact - ith our member
member b a n i t s
h e n s ver o p v o r t u n i t y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
42°
Have o c c a s i o n a l a v n l i c a t i o n s f o r membership,
many . T h e r e i s a
over t h e s u b j e c t
good d e a l o f agitation,
a n d there i s n o
can s e e o f their coming in,
Governor B i c e :
W
e a r e carrying o n r o cavpaign a t
all t o s e c u r e n e w members,
O u r banks velations cepart-
ment i s workin, v e r y effectively.
T h e member banics a r e
much h a p p i e r f r a m e o f m i n d t h a n t h e y v e r e t w o y e a r s
in a
ag
o f course,
o f b r a n c h banking, w h i c h h a s k e p t s o m e
large i n s t i t u t i o n s o u t o f t h e system,
prospect t h a t I
b u t not very
a n d t h e y a r e d o i n g g o o d w o r k w i t h t h e i r neighbors.
‘hene ver t h e y g o i n t o a
town t h e y call o n non-embers,
usually accompanied b y a n officer o f a member bank, b u t
they d o n o t a s k them w h y they d o n o t come i n anc d o n o t
ask a n y ouestions, a n s w e r i m ,
however,
a n y ouestions t h a t
they m a y vish t o ask.
Governor Fancher:
“ P e Chairman,
r e d o n o t conduct
an a c t i v e c a m p a i g n f o r s t a t e b a n k members.
O u r banks
relations department c2lls o n our menters about twice a
year;
t h e y also call o n mneuentkrs,
est i s n o t e d o n t h e p a r t o f a
a r w h e r e some inter-
state b a n k a s t o wiembershin,
inovuiry i s made, o r some intersst shown, t h a t i s reported
by t h e f i e l d r e p r e s e n t a t i v e a n d t h e n t h e m a t t e r
i s follow-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ed u p from the office b y correspondence,
some officer o f the bank.
o r b y a call o f
Y e really g o into t h e situa-
t i o n to see i f they a r e interested a n d t o see i f there i s
a possibility
o f g e t t i n g t h e m i n t o membership.
B u t we
h e r e b y s o m e o f o u r national
have h a d s o m e c o n s o l i d a t i o n s
banks h a v e s u r r e n d e r e d t h e i r n a t i o n a l c h a r t e r s a n d j o i n e d
with s t a t e banks.
I n t h o s e c:.ses w e h a v e b e e n varticular-
ly active t o see that t h e state b a n k maintains i t s men~
bership, T h e r e have been ore o r two instances, o n the
part o f small b a n k s w e r e w e h a v e l o s t members,
but as a
rule w e have h e l d t h e state banits. R e c e n t l y o n a consolidation i n fFoledo w e brought t h e state b a n k into ‘ve mbership p r i o r t o t h e c o n s o l i d a t i o n w i t h t h e n a t i o n a l b a n k .
That w a s t r u e o f t h e c o n s o l i d a t i o n t h a t t o o k p l a c e reé-
céently-in Gincinnati,
bank.
o f a state b a n k a n d a national
‘ © have b e e n adding some n e w “embers, b u t w e are
mt a s a g e r e s s i v e
a s w e were several years a g .
Deputy G o v e r n o r C a s e :
Governor Fancher:
H o w m a n y ‘sembers h a v e y o u .
W w e have 8 7 7 members, 1 2 0 State
banks a n d 7 5 7 n a t i o n a l b a n k s .
T h e capital
o f members
is »~79,000,000 a n d there a r e 820 cligible non-member
with a capital o f 75,000,000,
s o that we have a little
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
421
nore t h a n f i f t y p e r c e n t o f t h e @ p i t a l . o f
banks r e v r e s e n t e d
b y membership
| G o v e r n o r Cases:
t h e state
i n t h e System.
F i f t y v e r cent o f your capital
is in
State b a n k members?
Governor Fencher:
N o , I
per c e n t o f t h e c a p i t a l
by present m e m b e r s h i p
corbined
c a ital
say a little more t h a n fifty
o f state banks i s represented
i n t h e system.
I n o t h e r words, the
o f the ¢lizible s t a t e banks,
members
and
non-"ienbers, i s about .155,000,000 and
the wenber banks i s atout $80,000,000.
“ h a t i s t h e p r o v o r t i o n o f capital
Governor C a s é :
that has b e e n paid i n b y your state b a n k riembers ?
Governor Fancher:
j e e o s m o c e u b i n k t h a t ts. s h o w n Nere.
I carmmot t e l l y o u exactly.
Governor Young:
memberships
i n o u r district,
very carefully.
institutions
Gee.
I
r y . Chairman,
v e d o not solicit
b u t “ e follow u p inouiries
“ i t h consolidateo banks t h a t a r e gooa
. e t r y t o have t h e m r e t a i n t h e i r n a t i o n a l char:
f i t looks
lic a
poor c o n s o l i d a t i o n
w e let them
go under t h e state charter,
Governor S e a y :
ducted a
u s have n e v e
c a m p a i g n o f solicitation.
H e e Chealroan, ~con‘ e d o o u r b e s t t o cul-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
422
tivate a
friendly feeling a n d friendly relations w i t h t h e
non-member banks o f the district w i t h which,
we have come i n very intimate contact.
best t o s h o w t h a t m e m b e r s h i p
a t times,
‘ v e also d o our
i n the system i s o f some
value, endeavoring t o demonstrate w h a t value i t has a s t e
national banks a n d also state banks, whether t h e y become
members o r m t .
T h a t i s t h e most t h a t w e have dene,
leaving i t t o the m n - m e m b e r b a n k t o take s u c h action a s
it-may s e e fit. t o take.
Governor Bailey:
w
e h a v e m a d e y o a c t i v e campaign.
We occasionally take o n a new member,
W e have turned
down several t h a t have applied because t h e y were n o t i n
such shape that w e can take them.
S o m e state banks get
hard u p a n d g o t o their correspondents a n d urge t h e m t o
come a n d dump i t o n us, b u t w e refuse t o t k a dumping
ground.
The Chairman:
G o v e r n o r lorris?
Governor Norris:
" w e have b e e n following a b u t t h e
same lines 2 s are reported b y the other Federal heserve
Banks, b u t the suestion has occurred t o u s recently whether
the time i s m o t coming when, without making a n y canpaign
or drive,we ought t o make stronger efforts t h a n w e have
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
423
been making t o get t h e state banks i n a s emt@rs,. A
suppose w e all realize t h a t t h e twenty year period f o r
which the Federal Reserve B a n s e r e chartered i s n o w
practically o n e half over, a n d “ithin a
few years t h e
question o f the rerewal o f the charters a n d continuation
of the System will become a
subject o f active a n d immediate
discussion i n Congress a n d elsewhere.
i t occurs t e u s
that t h e odponents o f the system m a y v e r y likely say,
"Here i s a system that was created with a membership obligatory o n a l l n a t i o n a l b a n k s ,
a n d optional
o n s t a t e banks,
and only about t e n per cent o f all t h e state banks have
come in'=--- o f course the proportion o f eligible banks
would b e larger---
b u t that i s about t h e oresent propor-
tion o f a l l s t a t e banks:
t h a t if, o n l y t e n per cent o f
them have c o m e i n that i s pretty conclusive evidence t h a t
there i s somethin.
w r o n g o r u n p o p u l a r w i t h t h e system,
that i t does n o t anpeal t o t h e banks generally, a n d that
it i s m t suited t o t h e needs o f the country.
However
specious o r fallacious t h a t argument m a y be, i t seems t o
us i t i s one that i s likely t o b e made.
There i s another relations question o n which I would
like t o s a y a
word now. I
would l i k e a l s o t o h e a r t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
424
views o f tle others o n it.
education o f t h e p u b l i c
Of c o u r s e ©
T h a t i s the ouestion o f the
o n t h e F e d e r a l R e s e r v e system.
I c n o v w t h a t ninety-nine p e r cent o f t h e
prejudice a g e i n s t t h e s y s t e m a n d t h e o p p o s i t i o n
based u p o n e n t i r e i g n o r a n c e
o f Wate
t o it is
t s . what 2 6 i s
doing, a n d the ouestion i s what i s teing done t o remove
that itenorance a n d t o e ucate t h e nublic o n the subiect?
“hen this m e s t i o n comes u p there will b e people i n and
out o f Congress w h o will make a l l sorts o f wild statements
i n opposition
t o t h e s y s t e m a n d t h e gencral public
will b e enitrely iznorant a n d will n o t know vhether those
statements a r e t r u e o r not.
T h e y will n o t b e fortified
with a n y arguments i n favor o f the continuance o f the
system,
T h e r e i s n o doubt about t h e fact that t h e great
majority o f t h e o f f i c e r s
o f the n o n - e m b e r state banks
unoy that the system, although they are not members, i s
sorry t o
very valuable t o them, a n d they would b e very
see the system v o out o f existence.
“ e have a
feeling---
diswe haven't reached any conclusion o n it, but we are
o f t h e others
cussing i t a n d w o u l d l i k e t o h e a r t h e v i e w s
t o call
on ite-- t h a t t h e t i m e i s c o m i n g w h e n w e o u g h t
this s i t u a t i o n
t o t h e attention o f t k s bisher 2
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
428
ficers o f the state banks, m e n who have some bredth o f
view and who, i n the public interest, w o u l d b e likely t o
become members, e v e n though i t meant a
loss o f two o r
three o r possibly five thousand dollars a
year, a n d w e be-
lieve s o m e b o d y o u g h t t o b e d o i n g s o m e t h i m a l o n g g e n e r a l
educational lines. T h e r e f o r e ,
giving a
a s I say, w e have b e e n
g o o d d e a l o f serious t h o u g h t l a t e r l y t o t h e q u e s -
tion o f whether w e ought n o t t o b e a little more active
i t i s good policy j u s t t o
whether
than w e h a v e been;
effort
accept t h e p r e s e n t s i t u a t i o n a n d n o t m a k e a n y
to
improve i t a n d t o strengthen o u r position.
H a v e y o u reached a n y conclusion,
The Chairran:
Governor N o r r i s ?
Governor Yorris:
a conclusion.
W e
c a n n o t s a y that w e have reached
P e s
+ 3 . s o n c l u s i o n t o this extent
i n that direction.
that our minds a r e running v e r y strongly
u p a n y possible
we a r e i n t h e p o s i t i o n o f t r y i n g t o t h i n k
objections t o the course, a n d m
occurred t o us.
ourselves
i n a
O f course,
scrious obisctions h a v e
w e d o n o t oropose t o put
position o f soliciting
o r o f running a n y
w e think i t would b e a
kind o f a drive o r campaign, b u t
t h i n g f o r t h e officers
A Ne
aesirable
t o g e t i n pretty c l o s e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
426-427
touch w i t h t h e o f f i c e r s
Lions <
o f some o f the good state institu-
I n o u r district,
and I
suppose t h e s a m e i s
true i n other districts, t h e r e a r e certain state banks
which,
i f they came in, would probably b e followed b y
half a
dogen o r w r e o t h e r s
i n t h e i r neigh.-borhood.,
I n
several o f those cases, h a l f a dozen o f them a t least, t h e
president
Lt >,
o f it, t h e eashisr i s i n f a w r - o f
i s i n fawr
and all b u t o n e o r two o f the board o f directors a r e
in favor o f it, a n d they gust take t h e position that they
60 not want t o d o anything o f that sort against t h e opposition o f wir, Jones,
o r some other director, a n d they
have stated t o u s that that i s the situation, a n d w e
have done nothing about it. T h e r e are a good many of
push
those institutions where a l l t h e y n e e d i s a little
to shove t h e m over t h e line a n d bring t h e m in.
Governor Bailey:
“ h e n the Congressional committee
was a t Kansas G i t y t a k i n g evidence,
i t developed t h a t
in a good many cases t h e y rade a
specialty o f getting
certain o f t h e g o o d s t a t e banks,
k e y banks,
w h o admitted
system practicthat t h e y were getting t h e penefits o f the
t h a n have t h e syst«
ally without a n y cost, p u t that rather
fail they would join.
a n y o f them said that.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
128 2
Deputy G o v e r n o r C a s e :
e have b e e n around t h e table o n
t
The Chairman:
T h a t i s t h e + h o l e story.
Governor N i n n e y ,
w i t h t h e cxesvtion
cuestion i s “ h a t a r e y o u d o i n g t o s t i m u l a t e
part o f s t a t e b a n s
i n mesbership.
A r e y o u concuct-
4 campaign o r n o t ?
Governor Uckinney:
campaign
I s arernot c o n d u c t i n g a
Three o r f o u r y e a r s a g o v e w e r e o u i t e
soliciting aoplications b y state banks; b u t
Curing t h e l a s t t v o o r t h r e e y e a r s w e h a v e b e e n r a t h e r
inactive e x c e n t a l o n g g e n e r a l l i n e s
sentative
o f h a v i n g t h e -revre-=
o f o u r member:
the s t a t e b a n i s a n d i n
its overatiors
any s p e c i f i c s o l i c i t a t i o n . 6
admitted a
few,
s o r e h a l f dozen,
have
i n the present y e a r
a n d w e have bern very
careful t o g o into e a c h avolication a n d a n l y z e i t very
carefully w i t h a
view o f a v o i d i n g t a k i n g i n a
would n o t m a k e a
d e s i r a b l e member.
w
e have,
recently a d m i t t e d t w o b a n k s “ i t h c a p i t a l
bank h d e n
b y t h e way,
of
under t h e s i x p e r c e n t amendment.
The chelrians
I
n Chicago :'¢ are i n about t h e same
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
429
position a s s o m e o f t h e o t h e r t a n k s r e g a r d i n g this.
“ie a r e
m t conducting a
c a m a i g n f o r membership,
through o u r b a n k r e l a t i o n s d e p a r t m e n t
but
w e a r e constantly
mn- |
in very close touch with the/member banks,
i n connection
with our calls u p o n member banks, a n d have succeeded i r
keeping t h e m informed with respect t o t h e advantages o f
the system, a n d letting i t rest there.
% e a r e more
concerned with t h e cuestion o f whether w e c a n retain o u r
present membership.
‘ w e have indications f r o m a mumber
of directions o f a n inclination under present conditions
towithdraw from tho system and to put their deposit
where i t will return something o f a substantial nature
in t h w a y o f interest a n d s o forth.
Governor Norris, y o u said y e u would like t o have
s to what t h e y were doing
an exoression o f o p i n i o n a
in the matter o f publicity. I
thought a t first y o u
public
were speaking f r o m t h e standpoint o f educating t h e
they
as t o what t h e Federal resorve banks a r e a n d what
I
are not, a n d a t t h e c o n c l u s i o n o f y o u r r e m a r k s
thought
the
you got back t o the v e r y topic w e are discussing,
f o r mere
question o f engaging i n a more active campaign
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
430
Governor Norris:
man.
Y o u a r e quite right, Mr. Chair-
M y address w a s mixed. I
topics. I
started
o n t h e s u b j e c t t h a t i s under. discus-
sion a n d b r a n c h e d o f f f o r a
ecucation,
did touch o n both these,
moment
t o t h e t o p i c o f general
a t t h e enn.
a n d t h e n came b a c k t o this topic
I woulda like t o know what, i f anything,
particularly i n the southwest,
public
means
i s being done,
t o educate t h e general
i s and what i t
o n vhat t h e F e d e r a l r e s e r v e s y s t e m
man in
t o t h e public a n d t o t h e avorage business
suppose i f a
this courtry. I
popular v o t e w e r e t o b e
N e w Jersey
taken i n New ungland, N e w York, Pennsylvania,
I n d i a n a , I11lia n d p o s s i b l y t h r o u g h Ohio,
and Delaware,
nois, a l t h o u g h I
d o n o t k n o w m u c h a b o u t conditions there,
i n fawr o f
that there would b e a n eror*ous majority
continuing t h e system. I
x presume, f r o m what I hear,
p a r t s o f t h e ‘vest t h e r e
that i n t h e S o u t h a n d i n s o m e
of
a large wafiority against 4 t . T h e attitude
sections a n d the fact
many Representatives f r o m those
that s o m e o f t h e m w e r e G l e c t e d
tn opposition
o n platforms d i s t i n c t l y
w o u l d indit o t h e F e d e r a l R e s e r v e Systen,
sectiors o f the
cate that prejudice existed i n those
country.
A
s l
exists,
say, v h e r e t h e yvrejudice
i t is
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
431
always founded o n ignorance.
the situation, I
source,
I f you want t o correct
always b e l i e v e
i n getting d o w n t o t h e
t o the bottom o f it, a n d i f w e want t o strengthen
the Reserve System a n d d o all that w e c a n d o t o assure
its continuance, I
think w e have g o t t o make s o n e effort
to educate the. general public, particularly i n those sec~
tions.
Governor w e l l b o r n :
w r . Chairman,
going around t h e table,
a s a
result
o f
i t appears t h a t a l l o f the Federal
Reserve Banks have been i n rather close touch with the
non-member b a n k s a n d h a v e v i s i t e d t h e m t h r o u g h t h e i r
bank relations committee, b u t that t h e y d i d n o t seem t o
get a n y good results i n the w a y o f membership.
S o m e
banks s p o k e o f t h e i r t a s k b e i n g t o t o l d t h e m e m b e r s h i p
that t h e y have, T
notice
i n Governor Norris! r e m a r k s
he said there a r e several state banks that just reed
a little p u s h t o p u t t h e m over.
course h e would d o that.
kind all the tim. e
banks. I
W e carry o n a canpaign o f that
try t o get i n those good state
think i t i s utterly impossible, I
what p u s h y o u g e t b e h i n d i t , I
them in. I
d e s H O U LG c i a n s en tye Ors
do n o t care
do not think y o u c a n get
helieve i f every member o f the Federal Reserve
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
432
Board would g o through t h e Sixth District a n d make acanvass t h e m s e l v e s t h e y c o u l d n o t g e t h a l f a
dozen banks t o
JOLn.
The thairman:
W i l l y o u speak t o the other point
raised b y G o v e r n o r N o r r i s ?
Governor Wellborn: I
was coming t o that.
red t o the prejudice i n the South a n d West.
H e refer-~
T h e r e is no
prejudice o r feeling i n our district against t h e Federal
Reserve System. I
do not k n o w o f but one public m a n
in t h e S o u t h w h o e v e r w a s o p p o s e d
Syatem, a n d h e i s dead.
formerly a
t o t h e Federal Reserve
T h a t was Totn Watson.
H e was
Populist a n d a radical o n the currency cues-
H e was t h e o n l y prowinent m a n that w a s opposed
tion.
to t h e F e d e r a l R e s e r v e System.
fundaments.
H
H
e was ovposed
t o it on
e thought t h e g o v e r m e n t s h o u l d issue t h e
money itself, t h e currency, a n d n o t t h e banks.
T h a t was
the only point o f attack that h e ever made.
with r e g a r d
t o t h e business m e n o f t h e s o u t h a n d
the banlers themselves, t h e non-member ban's, t h e y a r e n o t
opposed
t o t h e system, a l t h o u g h t h e y h a v e b r o u g h t s u i t
dovm t h e r e o n t h e p a r c o l l e c t i o n f e a t u r e
never r e g a r d e d t h a t a s a
o f it.
“ l e have
most e s s e n t i a l p a r t O f vone 2. Saere
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
433
Reserve Syatem,
s o w e have w v e r considered that really
as a n attack o n the System, b u t only certain functions
feMigog
The Chairman:
Y o u feel, then, t h a t t h e public i s
well informed a s t o what this system is, a n d that y o u have
their s u p p o r t ?
Governor “jell born: I
would like t o touch o n that.
At the conference l a s t autumn I
brought u p that subject
think that i s a-committee t h a t w e
of public relations.» I
needed more t h a n a committee o n member b a n k relations.
We have never h a d a member b a n k relations committee i n
W e never thought t h a t w e needed it, b u t I
our bank.
urge u p o n t h e B o a r d h e r e t h a t w e t a k e u p t h e m a t t e r
public relations. I
did
of
do n o t think that matter ought t o
be taken u p b y the individual banks, b u t i t ought t o b e
done through t h e head office heve i n Washington,
cause
it t a k e s v e r y c a r e f u l t h o u g h t a n d v e r y p r o f o u n d t h i n k i n g
t h e System.
to bring o u t t h e right k i m o f literature f o r
Reserve Board
I think that ought t o b e done b y the Federal
The Chairman: I
wanted t o a s k Governor Young about
the p u b l i c i t y business,
moment.
W
b u t w e will postpone t h a t f o r t h e
us. ™
e h a v e Gomptroiller D a w e s w i t h
'
v e r y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
434
glad t o s e s you, Mr. Dawes, a n d i f you have something
you w i s h t o p r e s e n t w e w i l l p o s t p o n e f u r t h e r d i s c u s s i o n
of this matter until w e have finished w i t h yours.
Mr. Dawes: G e n t l e m e n , I
BSL. G a t . I
will b e a s brief a n d direct
do n o t think there i s anything t o b e gained
by camouflege a n d I will come directly t o the point.
are c h a r g i n g $ 4 , 5 0
reports
t o t h e Federal reserve banks f o r t h e
o f examination
o f individual b a n k s w h i c h w e f u r -
nish t h e i n d i v i d u a l b a n k s .
necessity
‘ve
i G o . NOt Tala
E n e r es a a n
t o g o i n t o a n y general discussion a s t o what
is a fair basis f o r the report,
o r yvhether «re should
charge a n y t h i n g f o r t h e report,
o r h o w much---
am not going t o oresent i t i n that way. I
a t least I
do n o t want
you t o g e t t h e i m p r e s s i o n t h a t t h e f i r s t t h i n g w e d o
is t o g o a f t e r t h e e a s y m o n e y ,
without
trying
t o d o what
we c a n t o eff ect e c o n o m i e s o u r s e l v e s t h a t w i l l r e l i e v e
our situation.
T h e n I want t o tell y o u what w e expect
to d o w i t h t h e money,
a salesman, I
a n d then, w h i l e I
hope a n d believe t h a t i f I can make plain
to y o u t h a t i f w e c a n g e t a
our service,
a m not much o f
w e c a n make a
than a $4.50 report.
little m o r e m o n e y t o i m p r o v e
ten dollar report cheaper
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
435
To g o back t o the basic elementt i n the situation,
first w e have t h e a u e s t i o n o f g e t t i n g g o o d men. ‘ e s e have
some v e r y competent men. I
examiners, p a r t i c u l a r l y ,
think some o f our chief
a r e g o o d men,
B u t I
do not
know, i f they would consider nothing i n the world b u t t h e
money involved, h o w they would stick along a t the price
we are paying themi
I n one case w e have a
man w e are
paying $10,000, a n d t h e statement w a s made t o m e that
while they cottld not i n decency make him a n offer, that
they would give him $20,000 a year any time h e could pro-~
perly l e a v e t h e d i s t r i c t .
OF {pPLCe,
N o w ,
w e cannot m e e t t h a t s o r t
W e d o n o t w a n t t o , o f course,
t u t nevertheless
the fact i s that when w e g e t good men, o r when our m e n
attain a degree o f efficiency, offers a r e made t o them
to g o into other tranches, i n t o banks a n d things o f that
kind.
W e dontt expect t o stop that, b u t w e d o expect t o
keep o u r good m e n longer w i t h us.
O u r chief examiners
are t h e worst under-paid o f any m e n w e have when y o u take
into consideration t h e work they a r e able t o d o a n d what
they do. T h e n , w h e n y o u g e t t o our general situation
4¢ i s really much vorse t h a n i t i s with the chief examin-~
ers.
N o w , i t i s the last thing i n the world I want t o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
456
do, t o discredit o u r o w n organization,
a n d w e have a
great m a n y v e r y c o m p e t e n t m e n , b u t n o t a s m a n y a s w e need,
think we:
in s o m e o f t h e districts. I
h a n d l i n g the
pusiness i n a fairly satisfactory way, b u t I
think i t i s
altogether d u e t o the v e r y unusual abilities o f h s “ester
and I
examiners,
feel i t i s a b s o l u t e l y n e c e s s a r y t o m i l d
up t h e g e n e r a l f o r c e o f examiners,
a n d w e cannot d o that
without having more money t o pay them.”
Now, t h e f i r s t s t e p t o t a k e i s i n o u r o w n organizahave h a d a n independent a u d i t i n g c o n c e r n g o o v e r
tion, I
the w h o l e o p e r a t i o n s
I
here,
o f t h e department,
a n d o u r records
t h a s n o t c o s t anything, b e c a u s e t h e a u d i t o r
happened t o b e a personal friend o f mine w l w a s willing
to g o t o that trouble f o r me.
prehensive a n d complete system,
H
e laid out a
very com-
s o that w e are having
our c h i e f e x a m i n e r s c h e c k t h e i r o p e r a t i o n s
casrs o f w h a t t h e y e x p e c t t o do. 6
a n d make fore-
are c h e c k i n g t h a t
each month very carefully w i t h t h e forecasrs a n d w e are
arriving a t standardized figures.
f r o m that
As a n illustration o f the benefits w e get
I find
o m
o f our offices
i s sixty p e r cent above t h e
w h i c h perhaps indioperating cost o f t h e average offices,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
437
cates that t h e average office i s perhaps about 4 0 per
w e were able t o check u p just where
cent t o o high.
these things c o m e in, a n d I think w e c a n make a very
T h e amount o f money that w e need o r
material saving.
expect t o get i s only a fraction o f what w e hoped--- t h a t
is, w h a t w e e x p e c t t o g e t f r o m t h e i n c r e a s e d p r i c e o f t h e
reports~--- i s only a
from a n increase
fraction o f what w e hoped t o get
i n t h e inter-office operations,
and I
think w e c a n imorove t h e general executive administration
of the separate districts. I
think w e c a n make savings
in examinations o f the large c i t y banks. I
find instances
where o u r chief examiner, f o r instance, h a s made a n examination o f a
t a n k i n t w o weeks, w h e r e t h e f o r m e r e x a m ~
iner h a d taken five o r s i x weeks.
T h a t was b e cause t h e
h
w d i d that has b e e n a bank president,
chief e x a m i n e r o
connected w i t h a large b a n k o f twenty o r thirty million
dollars, a n d vice president o f a m t h e r large bank, a n d h e
has beena b a n k examiner f o r t e m o r twelve years, a n d I
think i t i s r e a s o n a b l e
t o assume t h a t i n making t h e exan-
ination h e d i d n o t o m i t a n y t h i n g o f a n y importance.
make
As a matter o f fact, where w e use o u r force t o
a s the Nation.
a complete, t o t a l audit o r such institutions
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
438
City Bank, I
do m t think that i s a necessary basis f o r
these examinations a n d ought t o b e changed, a n d i f t l t
is changed there will b e a waterial saving there. I
think with a big institution of that kind, that maintains
a very efficient auditing force, t h a t o u r examiners h a d
better g i v e a
little m o r e a t t e n t i o n t o v a l u a t i o n s a n d n o t
so much t o auditing.
o f course that would result i n
very material savings. I
mention these things t e cause
I would d i s l i k e v e r y m u c h t o h a v e y o u g e t t h e i m p r e s s i o n
that w e are turning t o the Federal reserve banks '&® cause
that i s a n e a s y w a y t o g e t i t .
Another thing, I
suppose t h e obvious w a y would b e
to increase o u r charges t o the banks.
B u t w e are get-
ting constant complaints f r o m t h e little banks a s t o the
cost o f o u r s e r v i c e t o t h e m shen,
as a
they spend $100 b o $150, t h a t is, a
matter
o f fact,
small bank, f o r ser-
vice which costs us, i n spite o f anything w e c a n do,
two o r three times t h a t amount.
“ h e n y o u g o into t h e
big city banks with a charge o f frem %10,000 t o 25,000
a year,
i t i s a heavy charge, a n d t h e only way. w e e e n
justify that i s b y saying that w e needthe money andcan
practically
not g e t i t from t h e other banks, a n d that -Lt i e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
the only way we can make ends ect.
Of course, w e have h a d some complaints, n o t serious,
from some o f the larger c i t y banks, a n d m y argument h a s
been along t h e line that w e believe o u r organization i s
furnishing t h e m very material service i n the w a y o f audits
and examinations o f their cor:espondent banks, a n d i t is
impossible t o g e t t h e money from a n y other source. I
tried t o h o l d o u t h o p e s
t o them,
have
a m trying t o h o l d
as 1
out t o y o u g e n t l e m e n today, t h a t w e c a n i m p r o v e o u r s e r -
vice a s w e c a n improve t h e quality o f m e n that w e get
into it, a n d a s w e have a little m o r e money t o pay them
better salaries.
There i s just o n e other thing.
T h e reaction that
—
I lave gotten f r o m those banks t h a t I
have seen has b e e n
universally favorable, a n d I have told them that there
wes just one thing i n addition t o the indefinite hope
we are holding o u t o f tetter service, a n d that i s that
ye will n o t have o u r bank examimurs coming i n and cluttering u p the banks f o r twice t h e length o f that i t seems
to m e i s necessary. I n t e r r u p t i o n s a n d interference i n
the o p v e r a t i o m
tners
o f t h e b a n k i n having a
i n there i s quite a
lot o f b a n k exam-
serious m a t t e r
t o some O f p46
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
440
big banks.
I n the case o f one b i g bank they went i n
in January,
a n d they g o t their report o u t t w o weeks t e -
fore t h e first o f July, a n d started i n t o t h e bank again
on t r e F i r s t o f July.
w h e n w e g o into a
bank i n J a n u a r y
we hope t o b e &le t o get t h e report i n along perhaps i n
the middle o f February,
o r something o f that kind.
I n
other words, t h e y a r e going t o get less f o r their money
in bulk, a n d they will have less ammoyance, a n d I believe
that s i n c e t h e p r o p o r t i o n o f t h e e x a m i n e r
his a p p r a i s a l
i n coming t o
o f the situation will b e very much better
than where h e pays t o o much attention t o detail.
The Chairman:
Comptroller, I
I
n discussing t h i s matter w i t h t h e
told h i m that i t had been considered pre-
vicasly, a n d a s I remembered i t the s e n t i e n t expressed
was that w e would p a y f o r these reports, a n d that payment
should b e m a d e b a s e d u p o n t h e a d d i t i o n a l e x p e n s e i n c u r r e d
by the Comptroller;
t h a t w e all believed, hovever, t h a t
the a d d i t i o n a l o x p e n s e
is n o t v e r y great,
i n preparing t h e e x t r a c a r b o n c o p y
and I
have t o l d t h e C o m p t r o l l e r t h a t
if w e w e r e t o c o n s i d e r t h i s m a t t e r a n d c o n s i d e r h i s s u g -
gestion favorably i t would have t o b e from a n entirely different standpoint,
a n d that w o u l d b e from t h e standpoint
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
441
of b e n e f i t s
.eceived
f r o m the reports
o f his department.
I think y o u will remember t h a t w e h a d adjusted t h i s
formerly o n the basis o f fair compensation f o r the additional expense involved.
f h e berefite: t-think,“-and 1
can c e r t a i n l y s a y t h i s f o r o u r o w n district,
great.
A s a matter o f fact, I
from t h e C o m p t r o l l e r
a r e very
think the services w e get
t o some extent s a v e u s expense t h a t
we might b e put t o i f w e were obliged t o conduct o n a
larger scale o u r o w n examinations.
T o t h i n k o t h t s worth
a great deal t o the m n k s certainly s u c h a s ours, a n d all
of t h e b a n k s
i n t h e W e s t h a v e t e e n m o r e o r l e s s troubled,
to h a v e t h e s p i r i t o f c o o p e r a t i o n a n d g o o d w i l l s h o w n b y
the C o m p t r o l l e r a n d h i s m e n .
w
e sometines u s e t h e Comp-
troller's m e n f o r o u r o w n purposes, l
in s o m e o f t h e ‘other districts.
A
think t h a t i s t r u e
G a n y pabe, t h e c h i e r
Examiner i s always r e a d y t o instantly respond t o a request
T h a t i s t h e only twsis o n which w e could ¢con-
from us.
sider
i
p
. Dawes.
T h e matter i s o p e n f o r discus=
rnRiaWe27 T h e Comotroller h a s stated h i s case.
Mr. Dawes: T
have stated m y case, e x c e p t this.
think i t i s u p t o u s t o furnish t h e m x i m u m service that
WiC
can i n c o n n e c t i o n w i t h t h e F e d e r a l r e s e r v e banks, wheth:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
442
they p a y u s a n y t h i n g f o r o u r reports
anything. I
sense--~ I
o r d o not pay us
do not vant t o scem t o b e trading i n that
a m n o t g o i n g t o promise a n y t h i n g
additional service,
i n the w a y o f
o r anything o f that kind, because w e
promise t h e m a x i m u m s e r v i c e t h a t w e c a n g i v e now. I
want
to s a y t h a t w e h a v e a l w a y s g o t t o n t h e s a m e f r i e n d l y
treatment f r o m the banks;
w e don't want t o p i n a n y
boouets o n ourselves, because
. e are trying t o give what
we recéiveein every case, b u t t o a certain extent w e a r e
compelled
t o w o r k w i t h b l u n t tools.
S o m e o f o u r m e n have
sotten v e r y proficient a n d have passed o n into other
services.
y e have some m e n who I
service i f » e c a m o t
p a y t h e m more.
think will leave t h e
#
6 would appreciate
it a t any time i f the Governors w o u l d tell u s anything
that w e c a n d o t o i m p r o v e t h e u s e f u l n e s s
o f our departe
ment t o t h e F e d e r a l r e s e r v e banits.
we have b e e n pretty tusy, a n d I a m sorry w e haven't
brought this matter up.tefore, b u t Governor McDougal w a s
speaking
go into a
o f o n e westion,
m d t h a t w a s having o u r examiners
h
t amount o f eligible paper
bank a n d a s c e r t a i n e
that was there.
helpful thing.
I t seems t o m e that would t
a
very
I t would b e helpful t o the reserve banks,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
443
and I
think i t w e u l d h a v e a
very salutary effect o n the
management o f the examined bank. I
take i t that s o far
as t h e technical, l e g a l e n d o f t h i s t h i n g i s concerred,
we h a v e s o m e t h i n g
t o s e l l a n d w e w a n t t o s e l l i t t o you,
who a r e o u r only custamers, a n d w e hope w e c a n make y o u
feel t h a t a
t e n d o l l a r report,
i f w e g e t t h e money, w i l l
be worth more than a $4.50 report.
Gvernor Balley:
W h a t i s your concrete proposi-~
tion, tir. Comptroller?
ir, Dawes:
J u s t t o increase t h e price o f t h e re-
port.
H o w much?
Governor Bailey:
Mir. Dawes: F r o m $4.50 t o 10.
I t was a t that price
at one time and was reduced t o @4.50.
Governor ‘Yellborn:
H o w would i t b e t o make i t $10
in certain sized banks a n d » 5 i n the smaller banks?
wr. Dawes:
w
e h a v e g o t t o g e t a n average,
get s o much money, I
don't c a r e h o w i t i s charged.
I f we
The
#10 c h a r g e w i l l b e w h a t w e n e e d t o t a k e c a r e o f o u r i m m e -
diate situation.
L e s s t h a n t h e average price o f 1 1 0
would n o t s e r v e o u r purpose.
Governor < W e l l b o r n :
Y o u c o u l d m a k e i t higher,
say
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
15, a n d $7.50 o r something like that.
wr, Dawes:
Y e s , i t could b e 320 a n d |...%75, s o far a s
the patio i s concerned,
Governor Norris:
“ w h e n t h e original $ 1 0 charge w a s
established, t h a t was n o t done a s a regular thing; t h a t
was a n emergency measure.
I t was done just immediately
after Mr. Crissinger became cornptroller.
office
H e came into
i n “arch with t h e appropriations a l l u s e d u p b y
his predecessor,
a n d h e appealed t o u s t o tide h i m over
that e m e r g e n c y a n d w e d i d t h a t
payment.
b y agreeing
t o make t h e B10
m f that was n o t reouested o n his part o r accept-
ed o n ours,
o n any basis that i t vould t e “permanent,
or
continuing thing.
I would like t o a s k whether y o u have given a n y consideration t o this question:
W e have h a d serious doubt
whether w e h a d a n y authority,
a n y l e g a l authority,
t o pay.
or that y o u h a d t o receive, m o n e y f o r copies o f these
reports.
T h e contemlation
that t h e e x p e n s e s
to defrayed
y
o 1
"
o f Congress a p p a r e n t l y i s
-
a
s
h
i
n
g
t
o
n shall
b y a p o r o p r i a t i o n s t h a t C o n g r e s s m a k e s amnually,
and that t h e expenses o f your field force shall b e defrayed b y the charges which y o u make a g i n s t t h e national
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
445
banks which y o u ezamine.
“ = e have h a d t h e feeling that
if the arrangement w e r e generally k n o w n that i t might b e
the subiect o f criticism,
i n that y o u derived a d d i t i o m l
income o r r e v e n u e u n k n o w n t o Congress,
from a
source t h a t
it h a d n e v e r b e e n c o n t e m p l a t e d t h a t y o u s o u l d r e c e i v e
any r e v e n u e f r o m ,
report.
t o wit, f r o m t h e s a l e o f copies
o f your
T h a t h a s really b e e n a matter o f serious doubt
in the minds of, I thinl:, m o s t o f us.
Mr. Dawes: I
think t h e r u l e w o u l d apply t h a t what-
ever w e h a v e t k e r i g h t t o g i v e a w a y w e h a v e t h e r i g h t t o
sell.
I f there i s a n y cuestion o f the propriety o f
giving o u t t h e r e p o r t s I
should t h i n k i t w o u l d a p p l y i n
the case o f a gift a s well a s i t would i n the case o f
something which y o u paid for.
prescribes---
T h e Federal Reserve A c t
t o g o back t o the legal status o f the aues-
tion--- that t h e barks m a y have access t o our reports, n o t
them
that w e should furnish them, o r that w e should furnish
any o t h e r service.
N e i t h e r a r e y o u obliged
t o help us.
I d o n o t t h i n k t h e r e c o u l d b e a n y l e g a l question,
and I
i t down
believe i f y o u apoly t h e same reasoning a n d follow
have mueh t o
to its logical conclusion, t h a t w e would n o t
do w i t h e a c h other.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
446
Governor Bailey:
Y o u have t w o examinations a
year that would have t o b e paid for?
Mr. Dawes:
e
The Chairman:
a
a e
T h e auestion that Governor Norris
raised w a s o n e o f t h e v e r y i m p o r t a n t
things
t o b e con-
Saeed
Mr. Dawes: I
know that, Mr. Chairman.
The Chairman:
I t was approached, n o t from the stand-
point o f our legal right t o b u y something, b u t i t was a p proached f r o m t h e s t a n d p o i n t
spect t o c o n d u c t
o f t h e l a w itself w i t h re-
o f the Gomptroller's Department a n d
where h e w a s t o g e t h i s support.
{ I remember t h a t , v e r y
well,
Mr, Dawes;
D o n ' t y o u think that situation has been
sufficiently d i s c u s s e d a n d t h a t t h e p r e c e d e n t
i s estab-
lished t h a t y o u w o u l d p a y s o m e t h i n g f o r t h e report. I
think w e m i g h t j u s t a s w e l l a d m i t t h a t y o u h a v e g o n e a l l
over t h a t a n d h a v e b e e n p a y i n g f o r t h e r e p o r t s r i g h t along.
Governor Harding: I
attention t o t h e Act,
want t o @ a l l t h e C o m p t r o l l e r ' s
o n p a g e 4 6 , w h e r e i t says:
"The Federal Reserve Board, upon the recommendation
of the Comptroller o f the Curgency, s h a l l f i x the salaries
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4a7
of a l l b a n k e x a m i n e r s a n d m a k e r e p o r t t h e r e o f
Bross.
T h e expense
t o Con-
o f t h e examination herein provided
for shall b e assessed b y the Comptroller o f the Currency
upon t h e b a n k s e x a m i n e d
i n proportion
t o assets
o r re-
sources h e l d t y the banks u p o n t h e dates o f examination
of the various banks."
we had some v e r y pleasant s e s s i o w w i t h your predecessor here several years a g o o n the subject o f examinations.
M y recollection agrees w i t h that o f Governor Dorris.
money
that Mr, Crissinger c a m e i n and found that a l l t h e
that h a d b e e n a s s e s s e d h a d b e e n u s e d u p a n d t h a t s o m e o f
his examiners h a d
m t b e e n p a i d f o r t h r e e months;
that
they were behind about 1500 examinations t h a t they wererequired t o make,
a n d Mr- Crissinger a s k e d u s t o help h i m
out i n that emergency, a n d that a s soon 4 s conditions
made.
righted t h e m s e l v e s o t h e r a r r a n g e m e n t s w o u l d b e
Governor C a l k i n s :
i r . Chairman, t h e r e v a s s o m e c o n =
sideration given t o the other side o f the cuestion,and
u s something
that was that t h e Comptroller w o u l d furnish
a n d which h e was
which was v e r y valuable t o t h e banks,
l a w t o furnish. I
not required b y any provision o f the
that fact.
not think w e should lose sight o f
do
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
448
The Chairman:
T h a t i s what 1
had pointed o u t when
I said w e w o u l d h a v e t o a p p r o a c h i t f r o m t h e s t a n d p o i n t
T h e cooperation o f the Comp
of value o f service received.
troller's D e p a r t m e n t a n d o f t h e c h i e f e : a m i n e r s h a s a l w a y s
been v e r y helpful.
Governor Calkins:
T
t as
so f a r a s m y I m o w l e d g e g o e s
b e e n helpful
i n o u r bank, az.
i n a l l o f then, a n d 1
think i t
is perfectly proper f o r the Federal kKeserve Banks t o recognize t h e value o f the service received a n d which t h e
omp-
troller i s m t obliged t o render, b u t what t h e y c a n d o
about i t i n the w a y o f compensating h i m f o r i f I do n o t
know.
Governor Harding:
H a v e y o u discussed this with your
colleagues o n the Federal Reserve Board yet?
Me, Dawes: T
have n o t s s e n a l l o f them. I
have s e e n
Governor Crissinger.
Governor Harding:
B a c h representative h e r e i s t h e
chief executive o f his o w n bank, sudiect t o his o w n
poard o f directors, a n d all expenditures
b y the reserve
i t not b e
banks a r e subject t o review b y the Board. w o u l d
petter t o s u b m i t y o u r m a t t e r
t o t h e Board, h a v e s o m e t h i n g
banks a s
agreed o n and then notify t h e executives o f the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
what t h e Board would like t o have t h e m do?
Mr. Dawes:
speak, I
T h a t wowid sult me-very well. 1
think, f o r f o u r m e m b e r s
o f t h e Board,
can
w h o will
approve i t .
Governor Harding:
W h y n o t take i t u p a t a
meeting
and have formal action taken a n d the Federal Reserve Board
can notify t h e respective banks what t h e y would like t o
have them do.
Mr. Dawes:
T h a t will b e very satisfactory t o me.
Governor Harding:
that t h e e x p e n s e s
T h e provisions o f the A c t are
o f t h e Federal Reserve Banks shall
be
subject t o the approval o f the Board.
Wr. Dawes:
will h a v e t h e B o a r d p a s s o n i t
T h e n I
and w e will approach i t i n that way.
The Chairman: “ w r . C o m o t r o l l e r , I
think w e a l l f e e l
that t h e relations a r e v e r y pleasant a n d v e r y beneficial
and t h a t t h i s o u g h t t o b e a p p r o a c h e d f r o m t h e s t a n d p o i n t
of paying f o r services rather t h a n from the standpoint
of p a y i n g a c t u a l e x p e n s e .
I
f w e acted u p o n this a t this
Board,
meeting i t would b e subject t o the approval o f the
and,
o f course, s u b j e c t
t o t h e approval
o f o u r boards
of
about i n
directors a t home, a n d i f i t should b e brought
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
450
b y Governor H a r d i n g I
the w a y s u g r e s t e d
think i t w o u l d
be v e r y satisfactory.
Y o u m e a n h a v e a c t i o n b y t h e B o a r d first.
Mr. Dawes:
The Chairman:
T h a t will b e entirely satisfactory t o
Mr. Dawes:
me.
Yes.
A t the same time I
did want t o speak t o y o u m e n who
are paying t h e money before I
Board,
and I
brought i t u p t o the
want t o s u g g e s t t h a t 1 f t h e r e i s a n y s t r o n g
feeling that t h e thing i s not all right I
wish that y o u
would e x p r e s s y o u r s e l v e s .
The Chairman: I
to a n e x p r e s s i o n
think t h e vomptroller i s entitled
o f opinion.
H e a d n o t want t o tale
this u p with the Board i f h e i s going t o b e met later b y
general opposition o n the part o f the twelve units.
Governor Young: I
The Chatrman:;
a m i n f a v o r o f it, M r , Comptrol-
T h e Comptroller h a s exoressed h i s de~
sire t o k n o w h o w w e f e e l a b o u t i t .
Deputy Governor Caso: I
think Governor Harding's
suggestion i s a n i d e a l solution.
not undertake,
A s h e says,
b y a vote o f this conference,
respective b a n k s
t o this increase, w h i c h ,
w e could
t o commit t h e
i n percentage,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
451
is a very substantial increase, m o r e t h a n 100 per cent.
I think i f the matter i s taken u p with the Board and each
bank i s a d v i s e d o f t h e situation,
t h a t that will b e the
better w a y t o have i t presented.
W e all recognize t h e
reciprocal a d v a n t a g e s
having these reports.
o f having these contacts a n d o f
S o far a s I
a m concerned, I
would
much r a t h e r h a v e t h e m a t t e r c o m e u p i n t h a t w a y t h a n t o
undertake t o have action taken here.
Mr, Dawes:
H o w would i t d o t o leave i t i n that way?
I will take it up with the Board and in the meantime, if
you a r e a l l h e r e a n d t h e B o a r d i s here,
y o u may,
i f you
desire, express yourselves informally t o the Board.
Governor (Calkins: I
was going t o suggest, Mr. Comp-
troller, t h a t some consideration b e given t o the graduated
scale o f charge. A
charge against t h e banks
i n t h e east~-
ern sectian would n o t b e a charge that would b e proportionate a s against s o m e o f the western districts where
there are a large number o f small banks,
I n some o f the
eastern districts t h e r e a r e a small number o f large banks,
and I think there should b e a graduated scale.
The chairman:
T h a t i s evidenced
b y the Chicago
which
pank, which t o dete has paid a little over $45,000,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
452
could not possible b e the situation i n any other district,
for t h e r e a s o n t h a t w e h a v e t h e l a r g e s t n u m b e r
see t h a t G o v e r n o r S e a y w a n t s
banks . I
o f member
t o say a
word
about t h i s ,
just want t o say, Mr. Chairman,
Governor Seay: I
that I
believe I
can appreciate t h e position
o f the Comp-
troller i n desiring t o know our feeling toward t h e matter,
if i t went n o further t h a n that. I
Conference appointed a
can recall that t his
nor Norris w a s ore member a n d I believe I
member,
t o confer w i t h t h e C o m p t r o l l e r
and e x p r e s s
think Gover-
committee o f two. I
was the other
o f the Currency
t o h i m t h e feeling o f t h e conference w h i c h
has b e e n described here.
T h e feeling a t that tine was
thet t h e charge o f the Comptroller's office should n o t b e
more t h a n n e c e s s a r y t o c o v e r t h e e x p e n s e
us c o p i e s
although I
o f t h e report. I
o f furnishing
confess t h a t s i n c e t h a t t i m e , ©
probable shared i n that opinion,
ing has undergone s o m e change. I
m y o w n feel-
entertain n o doubt that
we have t h e right t o buy these reports,
i f w e consider
them o f valuc t o us. O f course there a r e legal phases o f
the m a t t e r w h i c h I
do not pretend
t o p a s s upon;
b u t they
n o t think
are undeniably o f great service t o us, a n d I do
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
453
the f i g u r e p u t u p o n t h e m i s v e r y h i g h i n p r o p o r t i o n
their v a l u e t o us.
to
e know t h e y a r e o f some value t o
W
believe G o v e r n o r Calkins! s u g g e s t i o n i s w o r t h y
us. I
of consideration, t h a t there probably should b e some gradation a s t o p r i c e o f t h e reports.
ning, I
T h e r e w a s a t t h e begin-
thank.
Governor Calkins:
Governor Seay: T
T h e r e was.
a m inclined t o telieve that there
entertain n o doubt atout t h e right o f
ought t o b e now. I
have
the Federal reserve banks t o buy these reports, a n d I
f the Comptroller, t h a t is,
no more doubt a l u t t h e r i g h t o
from t h e layman's p o i n t o f view,
these r e p o r t s
a s h e feels
t o get s u c h price f o r
i s the prent OYLee tO.paye
e t
do believe that t h e best w a y t o get a t i t i s t o have i t
come u p i n perfectly l e g a l f o r m , a n d I
think t h a t w a y h a s
been s u g e s t e d .
The Chairman:
M r . Comptroller, f r o m January, 1921,
to October, 1922, inclusive, t h e cost o f each report w a s
based u p o n t h e a m o u n t
examined.
o f capital s t o c k o f t h e b a n k
B a n k s from $25,000 t o $80,000 capital paid
é5, that is, w e paid $ 5 for the repcrt; f r o m 201,000
to $500,000, w e paid $20; f r e m $1,000,000 t o $5,000,000
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4.54
we paid $40, a n d for banks o f $5,000,000 and over $50.
That was t h e original schedule.
Governor Norris:
ed s c h e d u l e w a s
T h e o n l y reason t h a t t h a t graduat-
m t continued w a s because w h e n t h e second
agreement w a s m a d e i t was o n the agreed basis o f s o much
per p a g e f o r t h e e x t r a c a r b o n c o p y furnished,
inconvenience
i n accounting w e made a
the a v e r a g e n u m b e r o f pages
that a t t h a t p r i c e p e r p a g e
Mr. Dawes:
a n d t o avoid
calculation a s t o
i n t h e reports,
a n d w e found
i t w o u l d c o m e t o a b o u t 34.50.
L o o k i n g a t i t from that standpoint,
course w e w o u l d l o s e a
examinations, I
of
great d e a l o f m o n e y o n s m a l l b a n k
will t a k e i t u p w i t h t h e Board,
a n d per-
haps t h e y will suggest something i n the w a y o f a scale ,
and i t c a n b e f i g u r e d o n t o s e e h o w i t works o u t .
The Chairman:
M r . Harrison h a s just pointed o u t t o
me t h a t t h i s c u e s t i o n n a y i n v o l v e a
we h a v e thought.
H
greater m e s t i o n
than
e points o u t t h a t a t o n e t i m e t h e
Governcrs a n d A g e n t s m e t i n s e p a r a t e c o n f e r e n c e a n d I
as-
sumé, unknown t o each other, considered this subject, a n d
unanimously r e a c h e d t h e o p i n i o n t h a t p a y m e n t f o r r e p o r t s
of examinatiorm
o f national b a n k s s h o u l d b e b a s e d n o t
upon a n y p r o b a b l e
o r estimated deficit
i n the operation o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
455
the Comptroller's office, b u t rather u p o n the cost o f
preparing t h e reports w h i c h t h e Comptroller furnished, t o
the r e s e r v e b a n k s .
T h a t w a s t h e conclusion.
‘great d e a l m o r e h e r e o n t h e subject,
but I
There is a
will n o t r e a d
I only m e n t i o n t h a t i n o r d e r t h a t y o u m a y b e f u l l y
informed.
Mr. Dawes: I
have s e e n t h a t report, tir. Chairman.
Governor S e a y :
i t was unfortunate
t h a t t h e matter
was
originally p u t u p t o u s i n the tanner? i n which i t was presented, t c a v s e t h a t has probably colored o u r thought o n
tne matter.
I t was stated t o u s that there was a
in t h e e x p e n s e a c c o u n t
deficit
o f t h e Comptroller's o f f i c e a n d
we were practically asked t o make i t up.
The Chairman:
D o e s anyone e l s e c a r e t o s a y anything
on this subject?
Governor Fancher:
w p . Chairman, I
a good d e a l o f value f r o m t h e r e p o r t s
believe w e g e t
o f t h e examiners
and I think i t is Bighly desirable that the most cordial
reserve banks
relations should exist tetween t h e Federal
and t h e comptroller's department. I
dure s u g g e s t e d
believe t h e proce-
way to
b y Governor H a r d i n g i s t h e proper
submitted t o our
bring this matter u p s o that i t c a n b e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
456
respective b o a r d s ,
T h e matter h a s b e e n before o u r
boards: before, a n d 2 1 - 2 5 c a n b e brought u p b y t h e Federal
Reserve Board, a n d some communication sent b y the Board
to the banks,
w e c a n then properly p u t i t before t h e boards
of our respective banks. I
have n o doubt,
s o far a s
our bank i s concerned, t h a t w e will g o along a n d d o what
you. w o u l d l i k e t o h a v e u s Jo, M r . Comptroller.
The Chairman:
opinion,
T h a t seems t o b e t h e consensus o f
M r , Comptroller.
Mr, Dawes:
T h e n I will handle i t o n that basis,
and I thank t h e gentlemen v e r y much.
(Comptroller Dawes thereupon retired f r o m t h e confer~
ence room.)
The Chairman:
N o w , Governor Yourg,
a s t o publicity
in the Ninth District, w h a t a r e y o u doing with regard t o
the matter?
Fos)
M M .
Governor Young:§ ,A b s o l u t e l y m
y thing, m y s e l f .
Chairman,
w e a r e n o t v e r y popular
comes a b o u t f o r a
great n u m b e r
i n o u r district.
o f reasons.
“ @ are n o t
popular w i t h t h e non-member banks l e cause O f A e
lection o f checks;
That
ae
a .
w e are n o t populer w i t h some o f our
two
member banks because t h e y think they should b e paid
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
457
per c e n t u p o n t h e l r r e s e r v e b a h a n c e d w i t h us.
very p o p u l a r w i t h a
number
because w e h a v e s e n t c h e c k s
o f wholesalers
w e are not
a n d merchants
t o their correspondent banks
to collection, a n d when they come t o the Federal reserve
Bank o f iMnneapolis w e sent t h e m out t o those banks a n d
they have b e e n charged t o customers! accounts, a n d i f w e
are n o t p a i d f o r t h o s e checks,
t h e wholesaler h a s a
time understanding t h e proposition.
check;
h e has n o claim,
hard
H e has lost H i e
o r i f h e has a clain,
i t is a
poor one, against t h e maker o f vhe eheck.
There has b e e n a great deal o f criticism o f the Federal Reserve System i n our district.
ducted q u i t e a
O u r bank has con-
canpaign t h r o u g h t h e e d u c a t i o n a l d e p a r t -
ment, trying t o educatethe people i n our district.
I t
has b e e n s u c e s s f u l w h e r e t h e y have been able t o get t o
the people;
b u t f o u r o r five m e n c a m o t answer five
and a half million people;
i t cannot b e done.
I sometimes thing that this criticism o f the Federal
Reserve System a t this time i s 4 good thing, because i t
is t e n years before o u r charter i s u p for renewal, a n d
more t h e
the m o r e t h e y c r i t i c i s e a n d t h e m o r e w e a n s w e r t h e
they
public i s going t o understand t h e system, t h e more
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
458
are going t o know about it, a n d i t i s important t o have
all o f t h a t o u r o f t h e i r s y s t e m s t e n y e a r s f r o m now,
when o u r c h a r t e r
i s u p f o r renewal. I
more w e c a n d o i n o u r district.
of late:
W
do n o t know what
e have been doing this
w e find some prominent business man, connected
with some credit association,
o r whatnot, w h o i s rather
severe i n his criticisms because o f tiansit items that
have b e e n charged t o the Lank a n d not paid, a n d w e have
invited t h a t m a n i n t o o u r office, p a i d h i s e x p e n s e s i n ,
spent a
day o r two with h i m going over t h e whole situa-~
tion, a n d that has b e e n productive o f very good results,
because w h e n they understand w e find that t h e y a r e v e r y
reasonable,
The Chairman:
G o v e r n o r Calkins, w i l l y o u speak f o r
the far west?
Governor Calkins: I
for t h e far west. I
myself.
d o n o t know that I
a m afraid I
can speak
will have t o speak f o r
T h e relations o f t h e Federal Reserve B a n k o f
San F r a n c i s c o w i t h i t s m e m b e r b a n k s h a v e b e e n o n t h e w h o l e
very satisfactory,
w i t h the exception o f a
small g r o u p
of non-member banks that a r e n o t o n the par list.
O u r re-
lations w i t h t h e non-parring banks a r e extremely satis-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
459
factory. T
a m very much pleased t o b e able t o say t h a t
where condition:
i n our district h a v e b e e n worst t h e
Federal r e s e r v e b a n k h a s b e e n t h e m o s t popular.
I n that
section o f the district where there has b e e n intense distress t h e a t t i t u d e t o w a r d t h e Federal r e s e r v e b a n k h a s
changed f r o m o n e o f c r i t i c i s m a n d o p p o s i t i o n t o o n e o f
gratitude a n d support.
In regard t o e d u c a t i n g t h e publis,
i t i s difficultto
find ways t o d o effective work.
I t i s true that i t will
be t e n years b e f o r e t h e c h a r t e r s
o f t h e banks expire,and
that, perhaps, w i l l bring about 4
tion;
pericd o f less opposi-
present
b u t t h e great a n d outstanding t h i n g a t t h e
time appears t o m e t o b e t o have t h e public,
people,
m t banking
t h e Federal r e b u t t h e public, b e t t e r u n d e r s t a n d
what i t
serve systeu, w h a t i t is, what i t c a n d o and
shoulda n o t b e expscted
t o do, a n d that anything t h a t c a n
w o u l d b e helpful.
pe. done t o p r o m o t e t h a t u n d e r s t a n d i n g
i n attempting t o
We have aone some work along that line
educate vnat w e might call t h e next generation,
i n that
t
were q u a l i f i e d , o
we have sent m e n from t h e office, w h o
speak t o o r g a n i z a t i o n s
‘ganizations,
and I
oro f m a n y kinds, i n c l u d i n g s c h o o l
believewe g e t v e r y g o o d p e s u l t s
i n mos?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
+
I believe i t wovld b e extremely useful,
possible t o bring i t about,
i f i t were
t o have s o m e capable public
writer w r i t e u p t h e F e d e r a l R e s e r v e S y s t e m f r o m t h e h u m a n
point o f v i e w r a t h e r t h a n f r o m t h e t e c h n i c a l p o i n t o f
view. I
made t h a t s u g g e s t i o n s o m e y e a r s a g p a n d s e l e c t e d
as a n exatple o f what I
Cobb,
and as a
had i n mind, S a m Blythe o f Irvin
leading p u b l i c a t i o n t h e S a t u r d a y E v e n i n g
I d o n o t k n o w w h a t m e a n s c o u l d b e adopted
bring t h a t apoint. I
mentioned
i t at a
directors!
to
meet-
ing not l o n g a g a n d one o f our directors s a i d h e w a s g o i n g
to have dinner w i t h S a m Blythe that night a n d play golf
with h i n t h e n e x t d a y a n d h e w o u l d t a k e t h a t n p p o r t u n i t y
to t a l k t o h i m a b o u t i t .
S i n c e t h e n h e has g o n e o f f o n
vacation a n d I do n o t know whether h e s a w h i m o r not, b u t
there n e v e r h a s b e e n a n y r e a l g o o d d i s c u s s i o n
lic p r e s s
o f t h e Federal R e s e r v e System.
Governor Séay:
attractive
W i l l Payne h a s written some v e r y
a n d instructive articles
Governor Calkins:
asl
i n the pub-
o f that kind.
B u t only fragmentary s t u
nave s e e n it.
Governor Seay:
H e has entitled i t “Hacking a t the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
461
Federal Reserve System."
I t i s a very intelligent a n d
well written article.
B u t n o t enough o f it.
Governor Calkins:
Governor Norris: A
little booklet,
wnich y o u refer, w a s gotten out about a
Governor Calkins: I
extent.
o f the kind t o
year o r two ago.
a m not for booklets t o m y great
T h e k i n d o f publicity t h a t I have i n mind would
have t o come through some periodical rather t h a n i n booklet
form.
P e o p l e will read t h e Ssturday Evening Post w h o will
net read anything i n the form o f propaganda. I
belteve
we should have i n mind t h e necessity o i inforving t h e
public,
s o far a s v e can, o f the efficiency o f the Federal
Reserve System.
T h e r e i s n e t only ignorance among t h e
people generally, b u t very complete ignorance among business m e n a s t u what t h e System is.
Governor Norris:
next generaticn,
to high schools
O n the question o f educating t h e
w e have n o t only b e e n making addresses
a m o t h e r classes, b u t w e have fifteen
or twenty educational institutions
i n our district, a n d w e
t h e ban.
have h a d them bring their graduating classes i n t o
and h a v e s h o w n t h e m a r o u n d .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
462
The Chairman:
H a s this b e e n discussed sufficiently
to amswer y o u r p u r p o s s s ?
Deputy G o v e r n o r (Case:
The Chairman:
D
Y e s .
o y o u w i s h action?
Deputy G o v e r n o r C a s e :
Governor Seay:
N
o sir.
I t might b o well t o call attention
to s o m e v e r y v a l u a b l e w o r k t h a t i s b e i n g d o n e n o w b y t h e
State B a n k D i v i s i o n
o f the American Bankers Association
in this direction, t h e result o f which has just b e e n announced,
i n a n informal w a y .
Ia d e t a d . I
written
I t has n o t yet come o u t
suppose y o u g e n t l e m e n h a v e s e e n t h e l e t t e r s
b y t h e C h a i r m a n o f Comniittees a p p o i n t e d
charge o f t h i s s u b j e c t ,
t o take
a n d t o canvass t h e o p i n i o n o f
the non-member tanks o f the country.
T h e y have pronound-
ed some v e r y searching questions t o a number o f banks,
one o f which was whether t h e System had been o f advant~
age t o the agricultural a n d comercial interests o f their
Localities, a n d a m t h e r w e s t i o n w a s whether,
i f the
o f their
System w a s t h r e a t e n e d w i t h d e s t r u c t i o n b e c a u s e
non-membership,
i f t h e y w o u l d b e c o m e members:
a l s o that
banks h a s
the failure o f such a large aumber o f state
between t h e
tended t o call ettention t o the disparity
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
465
failures o f non-member banks a n d member banks.
W e have
received comrunications f r o m banks asking t h e reason f o r
the failure o f certain banks that were members o f the System.
for a
J u s t this w e e k w e were asked h c w i t was possible
member b a n k t o f a i l w i t h t h e S y s t e m b e h i n d i t . I
not t h i n k w e f i n d a n y d i f f i c u l t y
The Chairman:
do
i n a n s w e r i n g t h a t question.
T h a t i s a very easy question t o
answer.
Governor Seay:
B u t i n spite o f everything t h e b e -
lief i n t h e m i n d o f the p u b l i c
i s that t h e Federal Reserve
System i s m a k i n g s l o w progress.
Deputy G o v e r n o r C a s e :
good d e a l t h a t
T h e r e is a
should b e d o n e t o w a r d e d u c a t i n g t h e public.
Norris i s very modest, M r . Chairman. I
of reading a
few days a m a
over t h e radio giving a
story around them.
replies b y meil. I
-Governmr
had t h e pleasure
copy o f a talk which h e made
few facts, a n d working a little
H e tells m e h e has gotten a good m a n y
think this matter o f educating t h e
public i s something that i s worth while a n d perhaps w e
have t e e n a
little n e g l i g e n t a b o u t i t .
fact t h a t o u r c h a r t e r s e x p i r e
H
e spoke o f the
i n t e n years. T
have a
renewed
feeling that t h e question o f having this charter
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
464
ought t o b e d e a l t w i t h w i t h i n t h e n e x t f i v e years,
cause i n the last five years,
i f this matter i s allowed
to go, i t i s going t o b e w r y unsettling t o business,
if
that i s going t o b e a live, debatable topic.
Governor Harding:
I
t ought t o b e taken u p irme-
diately a f t e r t h e P r e s i d e n t i a l e l e c t i o n i n 1928,
Deputy G o v e r n o r Case:
years o r so. I
C e r t a i n l y within t h e next five
feel that i s a very ivportant thing, a n d
I could n o t help feeling, w h i l e t h e d i s c u s s i o n s
a
w going
on here, about t h e question o f publicity, t h a t i f w e had
some o n e a s c o m p e t e n t
a s Governor Norris
t o take charge
of it, t h a t w e would get somewhere w i t h it, because I
believe i t i s well worth while.
Governor Norris. I
think w e have a comnittee o n
that subject o f which Mr. J a y i s Mairman.
Mr. Harrison:
Me. Wills,
T h e committee consists o f ir. Jay,
a n d ir. w a r t i n .
The Chairman:
of procedure,
H a v e y o u a n y sugvestion a s t o a plan
o r d o y o u w a n t t o l e t t h i s go. as’ 1
Deputy G o v e r n o r C a s e :
N o , I
have n o t .
187%
T h i s discus-
sion took place o n the cuestion o f enlargement o f member-~
ship i n the System.
I n our bank t h e member banks relatior
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
465
department
i s u n d e r M r , J a y , t h e C h a i r m a n o f t h e Board,
and h e s e n t i n a little m e m o r a n d u m o n t h i s s u b j e c t which,
if y o u d o n o t object, I
would l i k e t o read.
‘Replying t o your question, "What, i f anything, should
be done t o enlarge memtership i n the System?' I
have o n l y
a few thoughts, none o f them new and none o f them involving anything v e r y radical.
I assume t h a t w e should a l l feel that o u r banking
system w a s b e t t e r c o o r d i n a t e
i f a s many a s possible
of
the soundly managed eligible state Institutions w e r e m e m
bers.
I f Congress could have proveded this a t the out-
set i n some way,
i t would have b e e n t h e simplest solution
of the question.
A s i t is, however, e a c h Federal reserve
bank has t o deal with conditions a s i t finds t h e m i n its
Oketriet.
T h e s e conditions differ greatly.
I n some
states, s t a t e H a t h m u s t c a r r y 2 0 p e r c e n t t o £ 5 p e r c e n t
reserves;
i n others o n l y 1 0 per cent t o 1 5 per cent.
lower t h e s t a t e r e q u i r e m e n t s
get members,
t h e more difficult
The
i t is to
N e w York i s one o f the most difficult
states a s the required reserved o f country banks a n d
trust companies i s only t e n per cent o n demand deposits
and n o t h i n g o n t i n e deposits.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
466
The o n l y a m e n d m e n t I
think w e s h o u l d t r y f o r i s a
revision o f the reserves w h i c h would n o t allow collected
balances t o b e deducted f r o m gross deposits, b u t would
allow c h e c k s
i n process
o f c o l l e c t i o n t o b e s o cecucted.
This,I b e l i e v e w o u l d n o t c h a n g e t h e a g g r e g a t e r e s e r v e s
naintained t o a n y extent, b u t would remove a
distinct dis-
cri-ination i n the present l a w against a l l banks, country
am others,
i n which out-of-town banks d o n o t keep substan-
tial b a l a n c e s ,
I think every Federal reserve b a n k should have a
well-organized member b a n k relatiors department.
The
traveling m e n should explain t h e system t o t h e member bank-~
ers i n the district, a n d the Federal Reserve Banks should
render s u c h reasonable a n d wechanical services a s its members v e q u i r e a n d a r e f a i r l y e n t i t l e d
t o have.
T h e member
banks should feel a s satisfied w i b h t h e system a s m a y b e
practical, b o t h t o hold t h e m a n d t o make i t possible t o
enlarge t h e membership.
w h e r e t h e city banks a r e seek-
ing t o prevent n e w banks joining,
o r t o wean away mem~
bers, w e should attempt t o convince s u c h city ranks
that i t i s t o t h e i r interest,
i n the larger political
sense, t o have a wide, satisfied membership.
T h e more
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
467
nearly m e m b e r s h i p
i s confined
ly i s t h e S y s t e m t o survive,
One
o r more
t o c i t y banks t h e less likea n d v i c e versa.
o f the Federal reserve banks h a v e estab-
lished 'key' m e n i n the various counties o r groups o r
sections o f their districts, w h o a r e especially interested
in and informed o n system matters a n d willing t o help when
anything arises i n their neighborhood.
T h i s seems t o m e
an idea worthy o f consideration a n d study b y all Federal
reserve b a n k s ,
I think w e should b e mildly aggressive i n r e g a r d
to
getting n e w members, a n d should g o a t i t i n a n organized
way t h r o u g h o u r t r a v e l i n g m e n , b u t o n l y a l o n g t h e l i n e s o f
least resistence,
a n d h e r e i n s t i t u t i o n s s e e m f a wrable
to considering membership."
The Chairman:
I
f there a r e m
further rerarks
t o be
made o n this, t h e topic will b e passed.
Governor Fancher;
a r e y o u ready t o speak o n the o n e
Shem
remaining s u b j e c t
o n y o u r p a r t o f t h e program?
N o sir.
Governor Fancher:
The Chairman:
/ Now, w i t h r e g a r d t o t h e s u b j e c t s u b m i t t e r
Federal R e s e r v e B o a r d , I
think i t might perhaps
b y the
b e well £ O
over a
us t o discuss these subjects a n d look them
little
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
468
remember o n c e v h e n w e d i d n o t c i s c u s s t h e m a t -
boptaves I
ters before meeting w i t h t h e Board that w e were t o l d thet
tt w o u l d h a v e e x p e d i t e d r a t t e r s g r e a t l y i f w e h a d d i s c u s -
sed the subiects before t h e joint conference w a s held.
The f i r s t s u b i e c t o n t h e p r o g r a m s u b m i t t e d
b y the
board i s
Principles b y w h i c h t h e e s t a b l i s h m e n t
of Federal R e s e r v e B r a n c h B a n k s a n d
the S e r v i c a b i l i t y a r e t o b e tested.
The c o w i e n t t h e r e i s " h i l e
n o branch Fe:eral reserve
banks h a v e w e n established during t h e past several years,
the B o a r d h a s w e n c a l l e d u p o n t o c o n s i d e r a n d h i s d i s approved
of a
number o f a p p l i c a t i o n s m a d e b y bankers!
business m e n t s a s s o c i a t i o n s
f o r t h e establishment
and
of
branches, a n d there i s reason t o believe t h a t there a r e
applications from several other points forthcoming.”
I d o m t k n o w w h a t w e s h o u l d d o « i t h t h a t subject. I
think i t i s a
subject t h a t p e r h a p s t h e B o a r d w a n t s
to
introduce i t s e l f .
Deputy G o v e r n o r (Case; I
think w e o u g h t t o b e pre-
f o r it.
pared t o express s o m e f i e w o n i t i f t h e y a s k
Governor Seay: I
apinions
think w e m i g h t w e l l e x p r e s s o u r
t h e estab
a s t o conditions w h i c h w e t h i n k j u s t i f y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
469
ment o f a wanch, c o m i t i o n s precedent which will justify
the e s t a b l i s h m e n t
o f a *tanch a t a n y point.
Governor Harding:
branch i n t h e Carolinas,
Governor Seay:
ig a
Y o u have n o t established a n y
h a v e you?
W e have not, b u t a t t h e same timeit
matter f o r d i s c u s s i o n a m o n g t h o s e banis.
had p e n d i n g
for two
establishment
sent a t a
o r three years applications
o f a branch.
meeting
f o r the
Y o u m a y recall y o u were pre-
o f our Board when a
committee f r e m t h e
Carolinas, representing atout 5 0 0 banks, t h e manjority o f
which w e r e n o n - m e m b e r b a n k s , p l e d f o r t h e e s t a b l i s h m e n t
of a tranch a t some point i n the Carolinas t o b e determined b
y us.
T h a t w a s a t the time when t h e Legislature
of N o r t h C a r o l i n a h a d j u s t p a s s e d a
resolution w h i c h h a d
the effect o f retarding t h e advancement o f the par collection system.
O v r cirectors t o o k t h e view that inas-
much a s o n e o f t h e c h i e f p u r p o s e s
o f every branch w a s t o
facilitate exchanges, t h a t i t was n o t a propitious t i m e
for t h e establishment o f a wanch,
application h a s w e n pending.
a revival
S i n c e that tine t h e
R e c e n t l y there has b e a n
o f discussion among t h e banks o f the district
and t h e y a r e c o n s i d e r i n g a m o n g t h e m s e l v e s
n o w whether t h e y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
AN0
can a g r e e u p e n a
locality f o r t h e bank,
agree, t h e n i t i s their purpose,
i
f T A e y -can
a s w e are informed,
to
endeavor t o make o u t a case f o r the establishment o f a
branch a n d then apply f o r it.
Deputy Governor Case:
C o u l d they n o t b e given a
currency station?
Governor Seay: I
do n o t think they vould b e satis-
fied with a n y half measures, t
cause i t proceeds o n the
{dea that t h e location o f a tranch b a n k i n a certain place
will a d d t o the prestige o f that particular city, a n d I
imagine w h e n i t comes t o a choice between cities a n d when
some o f the cities o f prominence understand t h a t i t would
be locatec i n another city, t h a t there m a y b k difficulty
tn d e d i c i n g u p o n a
location.
Governor Calkins: I
memorandum I
would b e glad t o submit a
have o n this subject, which i s a s follows:
Federal
The p r i n c i p l e s u p o n w h i c h t h e l o c a t i o n o f
reserve b a n k s w a s e s t a b l i s h e d a r e a p p r o x i m a t e l y
(1)
a s follows
of
T o facilitate t h e expecitious distritmtion
currency ;
CB).
i y a h r ore c o n v e n i e n t m e a n s
for m e m b e r b a n k s ,
o f discounting p a p e r
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(3)
T o suoervise member banks effectively.
The p r o v i s i o n t h a t d i s t r i c t s s h o u l d b e avportioned
with due regard t o the convenient a n d customary course
of business, a n d that there shall n o t b e less t h a n
not more t h a n twelve places f o r t h e establishment o f the
home o f f i c e o f Federal r e s e r v e banks, l e n d s i t s e l f
to
the theory that t h e same orinciples should b e followed i n
the e s t a b l i s h m e n t
o f w a n c h offices.
To d i s t r i b u t e c u r r e n c y conveniently,
t o act upon paper
otfered f o r discount, a n d t o supervise member banks,
would s e e m e s s e n t i a l
t o have a
it
Federal r e s e r v e Y a n k o f f i c e
within a n over-night j o u r n e y o f b a n k s o f a n y magnitude.
Small banks i n outlying communities a r e invariably served
nearby c o r r e s p o n d e n t b a n k s w h i c h h a v e a d e a u s t e f a c i l i t i e s
to mest t h e emergency needs o f the small banks provided
the c o r r e s p o n d e n t b a n k s
can e
i n these m o r e important centers
peditiously r e a c h t h e F e d e r a l r e s e r v e banks.
obvious t h a t offices c a m o t
I t is
b e established indciscriminatel;
without s e r i o u s l y a f f e c t i n g t h e s t r e n g t h o f t h e P e c e r a l
reserve b a n t s t e c a u s e
resources
o f the crain upon ths
t o e e t t h e expenses
As t o yhether a
o f o p e r a t i n g t h e branches.
branch c a n b e made seli-sustaining
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ANZ
is o f n o consequence.
[ I n fact,
t o establish branches
merely f r o m their abllity t o earn their expenses would
be dangerous f r o m t w o stamipoints:
first,
i t may not
assure t h e branch being established a t a location most
convenient t o serve member banks generally, and, second,
if e v e r y s e p a r a t e o f f i c e ( i n d l u c i n g H e a d Office) w e r e
required t o carn a t least itsexpenses,
i t would unques-
tionably result i n the cistrict b a n k earning excessively,
which m e a n s t h e e m p l o y m e n t
of i t s funds.
earn a
o f a n unnecessary proportion
I n v a r i a b l y s o m e offices w i l l regularly
surplus.
The e s t a b l i s h m e n t
new funds.
o f branches d o e s n o t create a n y
T h e legal reserves
o f t h e district will
be
carried w i t h the Federal r e s e r v e b a n k regardless o f where
its l o c a t i o n m a y b e .
does
m t increase t h e amount
In conclusion,
vice
T h e establishment
o f t h e s e reserves.
i t i s m y belief that essential ser-
i s the sole me:sure
a tranch office s h o u l d t
f o r determining whether
a n d where
~«stablished.”
Deputy G o v e r n o r Case: I
feel t h a t t h e o u e s t i o n
of establishing a d itional m a n c h e s
to progress
o f extra offices
i n v e r y slowly.
i s one that w e ought
s o s t o f t h e m a r e f o r reasons
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
473
of local pride, a n d while w e have b u t o n e branch I
can
not, a t the present t i m e quite c o m e i v e a n y s e t o f circumstances t h a t w o u l d m a k e u s f e e l w a r r a n t e d
i n establish-
ing arpther branch.
Governor Calkins:
A
the matter o f branches, I
pranches
s w e are a
shining e x a m p l e
wish t o s a y that
a e
in
O F the
o f t h e F e d e r a l R e s e r v e B a n k o f S a n trancisco w e r e
established e c a u s e
o f local pride,
o r a n y t h i n g o f that
kind.
The Chairman:
tiative
w e r e t h e y a l l established
a n the ini-
o f t h e S a n Francisco B a n k ?
Governor C a l k i n s :
Practically, yes.
‘there w a s s o m e d i s c u s s i o n p r e l i m i n a r y
O f course
t o t h e establishment
of them,
Governor Seay: D i d n ' t distance have a
Bete
ihn
great deal
S o i n your. casey
Governor Calkins:
Y e s , distance a n d t h e question o f
comiunication.
Deputy Governor Case: I
that i n a
do h a v t h e feeling, however,
district t h a t c o v e r s a
wide a r e a t h a t a
practicable p l a n i s t h a t w h i c h h a s b e e n a d o p t e d
wry
b y some
Federal r e s e r v e t a n k s o f h a v i n g c u r r e m y s t a t i o n s l o c a t e d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ATA
where a
moderate a m o u n t
in t h e v a u l t s
surance,
o f c u r r e n c y i s carried, p e r h a p s
o f t h e l o c a l banks, p r o p e r l y c o v e r e d
b y in-
a n d a l l t h a t s o r t o f thing, s o ’ that m e m b e r
vanks--- i n fact, I
assume i t might cover t h e situation
also w i t h r e g a r d t o m n - m e m b e r b a n k s - - - c o u l d b e s u p p l i e d
with currency.
I
n our district there i s certainly m
need o f anything beyond that.
our e x p e n s e s a r e a
matter
I n view o f the fact that
o f serious i m p o r t w i t h a l l o f
us, t h a t t h e y a r e b e i n g scrutinized f r o m t i m e t o t i n e b y
Congress a n d others, I
have a feeling that w e ought t o
go p r e t t y s l o w l y i n t h o m a t t e r o f e s t a b l i s h i n g a d d i t i o n a l
branches,
Governor Calkins: I
vould like t o s a y with regard
to tir. C a s e ' s s u g z e s t i o n t h a t I
alt
t h i n k i t w o u l d b e diffi-~
t o find justification f o r t h e establishmen~
rency s u p p l y s t a t i o n s w h e
V v
cation f o r t h e e s t a b l i s h m e n t
o f cur-
j o m o t also f i n d justifi-
of a
transit office.
T h e
expecitious handling o f transit ivems i s a matter o f a s
much i m p o r t a n c e
and a
t o member b a n k s a s a
supply o f cur-ency,
matter o f m o r e p r o f i t .
The (Chairmans I
will r e a d into t h e record a short
vaemorandum o n this matter.
T h e principle funetion o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
AN5
the Federal reserve banks i s one that n o other b a n k i n
the country has, t h a t is, t h e issue o f currénsy, w h i c h
may b e s e c u r e d
i n part b y c o m m e r c i a l p a p e r .
ing the question o f banches, therefore,
I
n considor-
t h principle
question i s + h e t h e r t h e F e d e r a l r e s e r v e b a n k c a n a d e q u a t e l y
serve t h e m e m t r banks i n all sectiors o f its territory
promptly
ites.
i n the mattor
o f rediscounting p a p e r a n d issuing
I f - a ’ s e c t i o n o f thée-territery o f 1. fetenmal r e s e r v e
bank i s more t h a n one d a y distant f r o m the head office
there i g some ground f o r t h e establishment o f a & anch
in that section f o r rediscounting a n d issuing notes. This,
however, c a n b e done b y the establishment o f a n agency
. than a full fledged oranch, which,
t o a consider-
able extent, w i t h regard t o other services rendered, w o u l d
merely d u p l i c a t e t h e w o r k o f t h e h e a d o f f i c e a n d c r e a t e
unwarranted additional expense.
T h a t i s our «ituation
in Detroit a t the present time. ‘ h i l e t h e branch offers
better service locally, t h e cxponse involved i s very
much greater t h a n i t would b e i f ‘ve conducted t h e activities a t home.
another r e a s o n f o r t h e e s t a b l i s h m e n t
of a
@anchn i s
o f business
the q u e s t i o n o f p o v u l a t i o n a n d t h e v o l u m e
in
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
476
the. city i n which the branch will. t
located.
E v e n if
the c i t y w e r e w e r e w i t h i n o n e d a y ' s d i s t a n c e f r o m t h e
head office,
i n the case o f large commercial centers o f
the country, h a v i n g a
population o f 500,000 o r m r e , w h e r e
the expense o f serving t h e city i n which t h e branch would
be located i s probably justified.
That m e m o r a n d u m i s h a r d l y c o n s i s t e n t w i t h m y o w n s t a t e
ment.
T h e r e a r e twelve h e a d officcs a n d twenty~three
branches s e r v i n g c i t i e s o f 5 0 0 , 0 0 0 p o p u l a t i o n o r over,
as
well a s cities o f smaller size, a n d i t would therefore
a n d in a
mean that enough tranches have w e n established,
number o f c a s e s s o m e W a n c h e s s h o u l d
b e reduced
t o agen-
cies, o r could b e reduced t o agencies without imoairing
the sevvice rendered, a n d a t t h e same tive effect a
saving i n the operation o f the system.
large
T h a t i s quite i n
line w i t h y o u r s t a t e m e n t w i t h r e g a r d t o t h e p r i n c i p l e w h i c l
should guide i n the establishment o f tranches, Governor
Calkins.
does i t
Governor Bailey: G o v e r n o r (alkins, w h a t
cost t o s u p p o r t y o u r P o r t l a n d B r a n c h ?
year.
Governor Calkins:
$250,000 a
Governor Balley:
A n d h o w much i n Spokane?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Calkins: 4
Governor Bailey:
bout $180,000, I think,
I t costs u s practically $200,000
a year t o supoort e a c h ore o f our Wwanches,.
some o t h e r a p p l i c a t i o r s
f o r mwanches,
branches s o divided that there isn't a
b u t w e have eur
bank i n the dis-
trict b u t w h a t h a s o v e r n i g h t s e r v i c e w i t h a
the parent bank. I
W e have h a d
branch o r w i t h
think that i s a s good service a s
ever could b e expected o f the Federal reserve system,
jhen t h e y c o m e i n a n d o f f e r t o p a y p a r t o f t h e expense,
I want t o w a r n y o u t h a t t h a t i s p o o r b u s i n c s s , b e c a u s e
they will b e back t h e next year a n d a s k for reimbursement.
Governor Calkins: I
want t o s a y i n r e g a r d t o t h e
latter vart o f your memorandum, Mr.Chairman, t h a t a
very
careful survey which w e made i n regard t o the Northvest
branches. c o m i n c e d
u s t h a t t h e saving i n conducting w h a t
you call a n agency a s compared w i t h t h e branch, w o u l d b e
much l e s s t h a n w e h a d emticipated.
I - a l s o call attention
to 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 B o a r d ,
b y a
recent
ruling which goes into effect t h e first o f January, 1925,
operahas distinctly s h o w n a determination t o extend t h e
tion o f m a n c h e s ,
a n d give t h e m m o r e individuality,
pro-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
478
viding f o r s i x directors, instead o f five that w e have}
providing t h a t o n e o f t h e d i r e c t o r s a p p o i n t e d
b y the bank
shall c o m e frem outside o f the town where t h e branch i s
located, a n d providing f o r a managing director a n d chairman o f the Board.
The Chairman:
O n the other h a n d they have also
very c a r e f u l s t u d y
amounced t h e i r intention t o make a
with a view t o curtailing t h e functions o f the branches,
some o f them a t least, a n d a possible abolishment o f some.
s b least g i v i n g c o n s i d e r a t i o n
Governor :ickKinney:
to
it, o r having indicated t h a t t h e y would give consideration
EO E B
The Chairman:
V e s ;
g i v i n g consideration.
‘What
disposition shall w e male o f this topic?
Governor Seay: I
would like to. say that w e h a w re-~
f r o m a n operating p o i n t
evntly m a d e a n e x t e n s i v e a n a l y s i s ,
a tanch
of view, o f the effect o f the establishment o f
in c e r t a i n s e l e c t e d p l a c e s w i t h i n a
our district.
in
i n ceitain place
T h e ideas t h a t banks havo
as t o t h e a d v a n t a g e s
of a
branch a t a
are rather vague, a n d w e believe,
leading.
given territory
particular place,
i n some cases, a r e mis-
o f tranc h
W h e n i t comes t o the establishment
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
479
banks i n certain places,
i t i s a rather serinus matter.
First t h e r e i s t h e a u e s t i o n o f additional reserve; s e c o n d
there i s t h e o u e s t i o n o f p a y i n g a t o n c e u p o n p r e s e n t a t i o n
a very large volume o f checks which they n o t have t o pay
after t h e lapse o f a certain time schedule, a n d w e have
figures w i t h r e s p e c t
applied t h e figures,
t o c e r t a i n cities,
t h a t i t meagt a
t o which w e have
cost t o t h e b a n k s
in the place o f $100,000 t o 450,000 a year.
that a n a l y s i s
I n making
w e laid d o w n three principles w h i c h w e
think should govern t h e locatien o f a Wanch, a n d sincethe
matter i s likely +o: become.2 presging o n e i n our locality,
or a t l e a s t o n e u p o n
a decision, I
conferencs
w h i c h w
e may t e called upon
t o render
think I might a s k t h e indulgence o f the
t o r e a d these t h r e e considerations.
First, t h e agzregate b a n k resources a n d bank trans-~
actions
i n the place
o r territory
t o t e served.
Second, t h e time which m a y b e saved a n d the superior
conventence w h i c h m a y b e furnishedto t h e member banks i n
a given territory b y the location o f the branch, a n d
Third, t h e economic g a i n t o the district a n d t o the
system a s a whole, I
there i s a
think w e have t o consider whether
gain t o t h e system,
a s “ell a s t h e effect u p o n
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
480
the p a r t i c u l a r F e d e r a l r e s e r v e b a n k w h i c h i s c a l l e d u p o n
to establish the branch, t h a t i s whether i t will facilitate q u i c k e r c o m m u n i c a t i o n b e t w e e n o t h e r banlts i n c u r
district b y the establishment o f the branch.
out w h a t m i g h t w
called
W e figure
a n sconomic g a i n i n a n y locality,
that i s t o say, t h e cost o f m i n t a i n i m t h e tranch figured
from all points o f view, t h e cost t o t h e banks themselves
the question o f service, t h e saving i n point o f time t o
the rest o f the district a s well a s t o the banks i n the
town effective, a n d w o figure i n some cases i t would b e
at t h e c o s t o f t h e b a n k s
ne
i n the surrounding territcry nat-
ae
Deputy Governor C a s e :
w h e n y o u s a y the cost t o the
banks themselves, y o u mean b y t h e change i n the reserve
requirements?
Governor Seay:
Y e s ,
i n t h e l o c a t i o n o f t h e place,
which becomes t h e site o f a reserve city--- I
increased r e s e r v e r e q u i r e m e n t .
w i t h respect
mean t h e
t o certain
in
locations w e find that while t h e y would gain a day
were
the collection o f certain items, that i f thdse items
collected through a
w a n c h t h e y would lose time i n collect
system.
ing o n t h e e n t i r e t a l a n c e o f t h e r e s e r v e
T h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
481
analysis w a s v e r y extensive a n d w e came t o the conclusion that unless distance required t h location o f the
branch, a n d that i t resulted i n a very material saving
of time, n o t o n l y t o t h e b a n k s w i t h i n t h e t e r r i t o r y a f f e c t tn t h e i r c o r m u n i c a t i o r m w i t h t h e r e s t o f t h e
Feceral reserve systom, t h a t there w a s a
ouestion w h e t h e r e
w o u l d b e justivied
w r y serious
i n locating a
branch.
The C h a i r m a n :
Governor Seay:
service, a
I t is a
o f service?
matter
I t resolved itself into a matter o f
matter o f what might b e termed economic gain.
%e d e t e r m i n e
t o o u r satisfaction,
puttin
a l l t h e factors
on ore s i d e a n d all t h e factors o n the other side, t h a t
so f a r a s
- e could s e e , v i t h t h i s v e r y g r e a t d e t a i l
of
analysis, t h a t i t was difficult t o approve o r justify t h e
that
Location o f a branch i n any such compact territory a s
which exists i n the Fifth District.
Governor “ellborns:
w p , Chairman, t h e Atlanta Bank,
t o estatlish a
I believe, w a s t h e first reserve b a n k
branche
It i s a
a t N e w Orleans.
* @ esta Hished t h e first W a n c h
full-power b r u n c h .
own rec iscounting
their
T h a t is, t h e y attend t o
i n t h a t zone.
w
e have branches n o w
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
482
in every state i n our district, w i t h t h e exception o f
‘Assissiopi,
o n l y half o f Mississippi b e i n g i n our dis-
trict, a n d served b y N e w Orleans.
branches
W e did n o t establish
i n Nashville, J a c k s o n v i l l e , F l o r i d a a n d B i r m i n g -
ham, A l a b a m a ,
o n t h e vasis
o f l o c a l p r i d e a t all.
T h e y
were estabhished with t h e view t o giving service t o those
communities, e s p e c i a l l y
currency:
I
i n t h e hadling o f checks a n d
n r e g a r d t o Birmingha™:, e s p e c i a l l y ,
w e had
in view that Birmingham i s a great manufacturing city, w i t h
larg p a y r o l l s a n d i t w o u l d h e l p i t v e r y m a t e r i a l l y
in
the matter o f keeping currency o n hand.
The matter o f agencies h a s w e n mentioned here.
have o n e agency. I
has a n agency.
btelisve w e are t h e o n l y bank that
% e have a
currency agency i n Savannah,
Georgia, a n d o n e i n Havana, Cuba.
Georgia,
i s very inexpensive; I
$12,000 a year t o maintain it.
T h e o n e i n Savannah,,
think i t costs about
T t serves Savannah and
its t e r r i t o r y a n d h a s t e e n v e r y h e l p f u l
t o them.
Savannah
is the second largest e.port oort o n the Atlantic seaboard, a n d they need large voluimcs o f currency t o p a y for
cotton a n d o t h e r supplies.
banks
have been
o f material
w
e feel t h a t t h e branch
service
t o those communities
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
483
where w e have established them, a n d that they have caused
a better feeling w i t h t h e member banks i n those enmmunities, because otheswise t h e y would b e a t a disadvantage
as c o m o a r e d
to a
bank located
i n the same town with a
parent bank, a n d w e d i d n o t feel that t h e banks i n the city
where t h e v a r e n t b a n k i s p e a s
s h o u l d have s u c h a
great advantage over t h e other member banks i n the disimeablonaviys
The Chairrian:
I f there i s n o further d i s c u s s i o n o f
this s u b j e c t w e w i l l p a s s t o t h e n e x t one, N o . @ .
IL. D i s p o sfe)i t i o n o f n o t a r i a l w o r k
and F e e s i n t h e F e d e r a l r e e banks.
The comment i s "“Differcnt practices vrevail arnong
the Federal reserve banks", a n d the Boarc feels t h a t a
general discussion o f the mattor would prove beneficial.
Perhaps
w e n e e d n o t g o a r o u n d tre’
can g e t a t i t i n s o m e o t h e r w a y .
L e b l eon: this,
Reference
D D
i s made t o
the fact that different practice prevails, t h a t is, t h a t
sowe banks have their w o r k done outside t h e bank a n d some
banks inside.
“ h e n t h e work 1 s done inside o f the b a n k
of c o u r s e t h e c u e s t i o n a r i s e s
a s t o t h e matter
o f disposi-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
484
tion o f t h e f e e s a n d s o m e t r o u b l e h a s e n s u e d f r o m t h a t .
just a s k t h o s e b a n k s t h a t h a v e t h e n o t a r i a l worlcdone
outside
t o r a i s e t h e i r hands,
(Seven G o v e r n o r s r e s p o n c e d
b y raising t h e i r right
hands, )
The Chairman:
A n d I
will a s k t h o s e w h o h a v e t h e
work d o n e i n s i d e t h e b a n k s
t o r a i s e t h e i r r i g h t hands.
(four Governors responded b y raising their right
hands.)
Governor Bailey:
" y ese)
t h e fees f o r t h e bene-
fit o f our welfare business a n d v e hire somebody t o d o it.
CARS
c e t O l L bdiB> 100 dees
w
e hire t h e notary
and the
notary c o l l e c t s h i s f e e s a n d deposits t h e m t o t h e c r e d i t
of a
trustee,
a n d retains w h a t w e a g r e e t o g i v e him.
cuestion h a s b e e n r a i s e d w h e t h e r
T h e
w e are liable under t h a t
oractice, b u t w e have a n all fours case holding that w e
that, t h a t t h e funds, a f t e r t h e y a r e received, t h a t
a man c a n make s u c h B i o v o s t t a s
The Chairman: I
o f t h e m a s h e wants t o .
d o n o t m o w vhother t h e other
b u t our
banks have h a d a s much business a s w o have had,
528,000,
fees d u r i n g t h e l a s t t w o y e a r s h a v e r u n
been paid a t the
and ~29,000, n e a r l y h a l f o f w h i c h h a v e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
485
haw a
Detroit Branch. T
memorandum h e r e w h i c h I
want
to submit; w h i c h is<as fort
The o u c s t i o n a s t o wherher Fede«ral r e s e r v e »banks
should h a v e t h e i r m t a r y w o r k d o n e b y persons
employ
o r b y persons
been m u c h discussed.
is o n e o f s a f e t y ,
f r o m the outside
i n their
i s one that has
T h e chief s u e s t i o n i n this connection
a s i t i s w e l l ixnown t h a t
i n a
mimber
o f
cases, p e r s o n s w h o h a vw acted a s n o t e r i e s p u b l i c h a v e
brought suits against t h e banks t o revocer motary fees
earned, a n d some o f these cases have b e e n successful.
The question i s o f importance because o f the money
4nvolved
a n d possible
saving
o f expense
t o tthe b a n k s .
have n o i n f o r m a t i o n a s t o t h e v o l u n e o f notarial f e e s
earned b y notaries public i n other banks o f the system,
batt
b h e=-bank t h e v o l u m e f o r t h e l a s t t h r e e
as. f o l l o w s
Home o f f i c e
D e p r o l t
T o t a l
16,692.95 1 2 , 3 6 4 . 0 9 2 8 , 0 5 7 , 0 4
oea4
sheet p a n t
Fs a,
16,745.55
1
2 604.09
2 0 , S02e0e
1 2 , 6 0 1 . 2 4
the
Assuming f o r the purnose o f this argument t h a t
:
volume o f f e e s i n other b a n k s r u n s portionatély™
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
486
with t h a t o f o t h e r business,
t h e total volume o f these
rotary f e e s i n t h e t w e l v e F e d e r a l r e s e r v e b a n k s w o u l d
be apvroximately $200,000.
The s t a t u t e s
o f e a c h state f i x t h e amount o f fees
collectible f o r notary work.
I n the absence o f a binding
contract, t h e r e i s n o doubt abou~ t h e right o f a notary
to collect f r o m t h e bank a n y fees collected f o r a notary's
services, w h i c h t h e b a n k might have appropriated t o i t s
own use€.
I f , however, a
dependable contract c a n b e
made, w h i c h will give t h e bank t h e benefit o f these
rotary fees, o r a considerable p a r t o f them, a n d a t the
game t i m e t h e n o t a r y b e p a i d a
for h i s services,
w e s e e n o reason w h y s u c h a
should n o t b e mde.
amount involved,
reasonable c o m p e n s a t i o n
contract
I f that c a n b e safely done, t h e
a s indicated atove,
i s too large t o hand
to some individual a s easy money.
Our o w n e x p e r i e n c e
i s that t h e actual t i m e consumed
by a notary i n his notarial w o r i s small, a n d that t h e
fees a r e a t l e a s t s e v e r a l
tines larger
t h a n his regular
wage w o u l d b e f o r w o r k i n g t h e s a m e time.
anong others,
s i x “eéssengers e m p l o y e d
F o r instance,
b y u s a r e commis-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
487
sioned a s notaries p u b l i c , t h r o u g h w h i c h a l l n o n c a s h
items s u b j e c t
t o protest a r e presented f o r p a y m e n t , a m
i t is
when s u c h a n item i s dishonored o n presentment,
at o n c e m t e d f o r p r o t e s t
b y t h e n o t a r y messenger.
T h e
completion o f the protest pavers i s made b y a typist.
The only other time o f the wessenger consumed i n notarial
work i s signing t h e protest papers.
The c o n t r a c t m a d e b y t h e b a n k w i t h a
notary s h o u l d
ORE ORT Clee
1. T h a t t h e notary should a c t a s notary public
wherever r e q u e s t e d
t o c o s o b y t h e b a n k a n d should per-
form o t h e r s e r v i c e s f o r t h e b a n k h y o
for a
w o e a
e
e
e
stated c o m p e n s a t i o n .
f o r nis. s e r
2, T h a t t h e b a n k s h o u l d p a y P h e motary.
Selee.
vices a s such notary t h e full statutory
t a n k t h e bene~
oe T h a t t h e n o t a r y s h o u l d g i v e t h e
o f the
fit o f his rewaining t i m e for: v e e consiceration
difference b e t w e e n t h e a w o u n t
the a m o u n t
o f notary fees earned a n d
o f his stipulated salary,
a s full compensa-
tion f o r a d d i t i o n a l s e r v i c e s .
The b a n k s h o u l d n o t g i v e 2
so t h a t h i s e a r n i n e s
notary a
volume o f work,
i n notarial f e e s s o u l d arount t o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
488
over 5 0 t o 6 0 p e r c e n t o f h i s t o t a l s t i p u l a t e c s a l a r y ,
so t h a t t h e r e w o u l d n o t b e a n i n s i z n i f i c a n t a:‘rount p a i d
to h i m a s c o m p e n s a t i o n f o r h i s o t h e r work.
counsel h a s p r o n o u n c e d a
contract
O u r own
o f this k i n d erfective
and binding, a n d i t has % e n estinated t h a t this contract
saves t o u s a n amount i n excess o f «25,000
Governor Calkins : T h e notavial work
Federal Reserve S a n k i s all upon t h e wrong
to
instructions u n d e r w h i c h » e a r e o p e r a t i n g w i t h r e g a r d
that work a r c absurd.
T h e fact i s that t h e majority o f
4tems t h a t a r e p r o t e s t e d
i n the banks a r e protested with-
notary.
out a n y benefit t o anybody concerned except t h e
The e n d o r s e r d o n ' t w a n t
send
i t don't want
ed a t great cost.
i t protested
i t protested,
a n d t h e banks that
a n d still
t h e y a r e protest-
T h e proper place t o begin a reform
is b y r e f o r m i n g t h e p o l i c y w i t h r e g a r d
t o those inevrue=
tions.
Governor Bailey:
‘ h a t i s y o u r plan, G o v e r n o r
r e
Kinney?
Governor Wwexinney:
A t the # 1 Paso Branch w e turn
o u t there a n d they
the c o c u m e n t s o v e r t o o u r a t t o r n e y s
retain a l l t h e fees,
reprei n consideration o f which they
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
489
sent u s w i t h o u t a n y f u r t h e r c o m p e n s a t i o n .
l a w clerk,
office w e h a v e a
w h o serves
A
G the head
a s o u r counsel,
and h e protests items u p t o t h e point “heve h e receives
w~200 i n a
A f t e r t h a t w e distribute t h e
given month.
i n t h e bank, w h o r é t a i n t h e fees.
money t o f o u r n o t a r i e s
f h e + 8 a c c l e r k f o r your. svicrmeeys
T
Governor Balley:
what i s his full salary?
Governor wicKkinney:
Governor Bailey:
notary f e e s ?
Y e s .
Governor Mokinney:
Governor
l
¢
A
Governor Mckinney:
n
Y e s .
think h e h a s a
Governor Bailey: I
against y o u ,
i f pert
a contract
d rencers y o u o t h e r s e r v i c e
o f nis time
good g r o u n d f o r
i s devoted
t o you,
t o c o v e r t h a t Data ecied: bicoeay.
There i s a
UO
casein t h e S u p r e m e
considered
District o f Uolvmbia, w h i c h t h e Board
gies
w h i c h was
ng instructions t o the Reserve Rancs,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
490
not i t s e l f
to t h e e f f e c t t h a t a s l o n g a s t h e b a n k |
appropriate
rotary,
o r get a n y part o f the fees reserved f o r t h e
t h e b a n k cowld
aggregate
anpunt
t a k e into consideration t h e
c f fees received
b y notaries,
i n det«r-
wining what i t would p a y the notary f o r other w o r k done
for t h e bank.
T h a t c a s e w a s n o t quite a s extreme a s
the o n e G o v e r n o r i c i i n n e y r e f e r r e d t o ,
w i r , Chairman, I
Gvernor Fancher:
understand t h a t
the fees that a r e earned b y the notaries i n protesting
items w e n t t o t h e n o t a r i e s ?
The Chairman:
T h e y agree
T h e y g o i n t h a t way.
W e a r e careful n o t t o give t h e m
to d o notarial w o r k .
notarial w o r k the fees o f which would amount t o a very
large propoition o f their salaries.
proportion
o f it,
i n other v o r d s ,
sible b y a p p o i n t i n g a
the n o t a r i e s
a n d t h a t i s o n l y pos-
great m a n y notaries.
D
Covernor F a n c h e r :
fects a n y saving?
T h e y d o a very stall
o I
understand
that the bank ef-
I n othee vords, t h e fess a r e paid t o
i n addition
t o what t h e y g e t a s salaries---
are t h e y p a i d
The Chairman:
y e pay t h e m salaries, yes.
Governor F a n c h e r s
Y o u r fees amounted
t o «x;
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The C h a i r m a n :
S E S Sion
A n d they a r e paid t o the notar-
Governor Fancher:
The Chairman:
T h e y a r e n o t paid t o the notaries a t
P a r d o n me, I
Governor F a n c h e r :
thought y o u s a i d
were p a i d t o t h e notaries.
The Chairman:
fits o f our bank.
T h e y a r e a l l p u t right i n t o t h e pro-
I f the notary receives a l l o f the fees
nothing else,
he i s entitled t o for t h e work he. does, a n a
-j
he w o u l d r e s e i v e a
w r y small proportion
o f h i s salary,
time given
pecause there i s a very small portion o f his
to n o t a r i a l w o r k ,
Gover nor t e s ?
for p a y i n g a
W
o a r e careful about that.
T h e banks t h a t have a n arrangement
a e
notary o u t s i d e a n d p a y i n g a o e s e
eee
acting o n advice o f counsel.
The Chairman:
T h a t i s true i n our case.
guided b y tyo opinions i n the matter.
take a
willing t o p a s s t h e s u b j e c t a n d
Governor “wellborn:
W e are
A t a n y rate,
a m
chance o n it.
Calkins
w p , Chairman, G o v e r n o r
f o r notary work.
said something about t h e necessity
Governor Calkins:
‘ h y shouldn't t h e Federal reserve
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
492
banks t a k e t h e initiative
i n reforming these instructions
t o protest checks w h e n
under which they a r e operating,
necessary a n d n o t t o d o i t w h e n n o t instructed
The Chairman:
T h a t does n o t relate
Governor Calkins: i
t o t ce
t o t h e question.
tAink- L t does, w r e - C h e l rian.
think i t 1is.a pernicious
Governor ‘-eliborn? I
e
t o d o so.
protesting
i
tt h i n g s c w h e n a
i t i s nro t n e cpe s s a r y
to" O D e e
Governor sicsinney: P r o t e s t i n g c h e c k s w a s o r i g i n a l l y
Y o w i t is
done f o r t h e p u r p o s e o f l o l d i n g t h e ¢ m o r s e r .
nenalty f o r d r a w i n g a
Governor Seay:
The Chairman:
I t has a
check t h a t i s n o t good.
w r y w h o l e s o w e influence.
H a v e y o u a n y suggestion t o make,
Governor G a l k i n s ?
Governor Calkins: I
still adhere t o the view that
the o r o t e s t i n s t r u c t i o n s
under which t h e Federal reserve
banks a r e o v e r a t i n g a r e d i r e c t l y a p p l i c a b l e
tion a n d a
part o f t h i s question,
in r e g a r d t o t h e d i s p o s i t i o n
I have n o s u g g e s t i o n
o f notarial fees, a s i d e f r o m
the q u e s t i o n o f « h a t i n s t r u c t i o n s
The Chairmans
t o this oues-
w e should opsrate unde
ay
th 9
A r e you protesting i n Sin Francisco
all t h i s c l a s s o f checks a n d p a p e r b a a t y o u r s
s h o u l d not
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
te protested?
Governor Calkins:
“ W e a r e f o l l o w i n g instructions, iir.
Chairman,
n anything
i
Governor Seay:
definitely u n l e s s y o u k n e w h o w m a n y c h e c k s o f » 1 0 o r
less w e r e p r o t e s t e d .
I t may
Governor Ugikins:
be a
small p r o p o r t i o n
T h e y are a
o f then.
large proportion.
The i n s t r u c t i o n s n o w a r e t o p r o t e s t a l l c h e c k s u n l e s s
they b e a r c e r t a i n symbols.
think t h e Chairmants suggestion
Governor Bailey: I
is a good one, t h a t there i s a variance o f opinion a n d
that each bank i s acting under advice o f counsel.
The Chairman:
T h i s i s simply a
matter
o f reporting
t
o the Federal Reserve Board.
back i n f o r m a l l y ‘
considering t h e v i e w p o i n t e x p r e s s e d
ins, a n d while I
b y you, G o v e r n o r C a l k -
consider i t a s incidental t o this subiect
I think i t ought t o t e considered a n d ought t o b e acted
upon.
Govermor Fancher:
T
t occurs t o m e i t might b e a
protssted,
better p l a n t o h a v e c a c h b a n k armalyze t h e i t e m s
we
that i s a s t o the volume o f small items, a n d I think
might i n i t i a t e r e f o r m s
here that would
b e pretty farwerch-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
494
ing a n d b e beneficial t o the great volume o f small checks.
The banks a r e handling a
very large wmumber o f checks a n d
it appears t o m e w e could g e t v e r y valuable data i f w e
classified t h e items, w h i c h would s h o w a
w r y illu™inat-
ing p i c t u r e
a s t o just h o w many small checks a r e being
protested.
I
f that were done I
think a
real s a v i n g
vould b e effected, a n d a real f o r m instituted.
“ e haveover 6,000 returned items a
Mr. Ugrrisons
day, between five a n d s i x thousand, sometimes running
over 6,000,
T h e number o f protested items e a c h year
T h e ageregate f e e s p a i d t o notar-
has r u n a r o u n d 50,000.
jes within 1923, a n outside mtary, amounted t o $54,000.
“e s p e c i f i c a l l y p r o v i d e t h a t t h e y s h a l l n o t c h a r g e m o r e
than 7 5 cents
t o protest, p l u s t e n c e n t s f o r e a c h notice,
not t o e x c e o d five.
The Chairman:
G o v e r n o r Fancher,
d o y o u want t o
make your recommendation.in t h e form o f a motion, t h a t is,
to t u r n
i t over
covmittee,
t o a
Governor Fancher:
“ h a t comittee
h a w y o u i n mind,
tip, C h a i r n a n ?
The Chairman:
T h e committee
Governor Bailey:
o n Collectios.
T h i s i s a cuestion asked b y the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Board,
The C h a i r m a n :
‘ v e are discussing a
cifferent
fea-
hare O f IG" BOW.
Governor Fancher: I
will move, M r . Chairman, t h a t
t is the sense o f the neeting t h a t t h e Standing Uommittee
o n Collections
months,
make a
study f o r a
period
o f three
i n all tvelve reserve banks o f this matter o f
mtarial fees, a n d that they classify the checks which
are protested i n t o different classes,
a s t o amounts,
to
B
y
)
determine h o w many small checks under ¥ 2 5 are being pro-
tested a t t h e p r e s e n t t i m e ?
Governor Bailey: I
think t h e motion should include
non-cash items, because w e want t o get t h e m i n too.
>
T h a t i s a n entirely different
The Chairman:
tion.
G owernor Calkins:
S p e c i f i c instructions f o l l o w
I 60 m t think i t apnlies a s the non-cash
different one.
em cuestion a
Governor
e
dI
Governor Seay:
courting
S o
second t h e motion.
I T -cannot h e l p thinking t h a t w e are
t r o u b l e f o r t h e reserve banks i n
taking t h e i n i t i a t i v e
i n a
movement w h i c h w e a r e h a r d l y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
called u p o n t o take.
The Chairman:
“ e are n o t taking t h e initiative,
except w i t h i n t h e family.
Governor Seay:
T h a t i s what I mean.
‘ W e are tak-
ing i t w i t h i n o u r o w n family,
Governor G a l } N o t w i t h s t a n c i n g t h e o b j e c t i o n
w e d i d take i t and directed t h e
to taking t h e initiative,
American B a n k é z s A s s o c i a t i o n
Governor s e a y s I
t o change t h e instructions.
thought
t h e initiative
came frow
the A m e r i c a n B a n k e r s A s s o c i a t i o n .
Governor C a l k i n s :
I
t w a s t h e o t h e r w a y around, I
think,
carried.)
(The motion, having b e e n duly seconded, w a s
The Chairman:
have h e r e a
Gentlesen, I
tion f r o m t h e Treasury,
which I
c o m unica-
will a s k t h e S e c r e t a r y
to read.
Me. Harrison:
h i e . 16" al s t r e r f r o m “ r e a .
Winston, U n d e r Secretary o f the Treasury,
deDougal,
d a t e d m a y 6 , 1924,
t o Governor
a s follows:
‘iy d e a r Governor:
a
In t h e m a t t e r
which I
vresented
o f reilnburrable
tf
t o your conference yesterday,
p H s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
49"
confirm t h e T r e a s u r y ' s p o s i t i o n t h a t d u r i n g t h e f i s c a l
year 1 9 2 5 r e i m b u r s c m e n t w i l l b e m a d e o n l y o n account
of
expenses arising through n e w issues offered during that
fiscal year o r during t h e fiscal year 1924.
A n d further,
on t h e b a s i s o f e s t a b l i s h e d q u a r t e r l y issues,
s u c h expenses
in the aggregato shall not exceed $200,000,
The items o f expense f o r t h e sales organization a n d
for t h e re-remption o f war savings certificates b e i n g
eliminated,
i t i s telicved t t will t w possible t o reduce
the e x p e n s e s f o r n e w i s s u e s
s o a s t o bring t h e total r e ~
imbursable expenses w e l l within t h e figure s e t b y the
Department.
A copy o f the memorandum o f April 24, 1924, I s
enclosed f o r your ready reference.
each b a n k a n a l y z e t h e v a r i o u s i t e m s
I t i s requested that
o f expense entering
into t h e agsregate totsl f o r n e w issucs o n the t s i s s e t
forth above,
a n d i n such connection your attention i s
invited t o t h e s t a t e m e n t s a p n e a r i n g
randum o f A p r i l 24th.
I
o n page 3
o f m y memo-
t i s further requested t h a t a s
soon a s such analysis i s m d e a n d the reimbursable
items c e t e r m i n e d
t h a t estimates
b e submitted
t o the De-
partment b y each bank, covering the fiscal year 1925."
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
498
The Chairman:
T h e comuunication which has just b e e n
read w i l l b e i n t h e record,
T h e Secretary h a s requested
us t o s e e t h a t e a c h F e d e r a l R e s e r v e b a n k h a s a
copy o f
that a n d t h a t t h e T r e a s u r y i s n o t i f i e d o f i t s action.
Governor Harding:
I t seems t o m e that a s long a s
the Board has a n &fficiency a n d Economy Corrmittee a n d that
it i s r e q u e s t i n g t h e b a n k s
matter m i g h t
b e referred
t o r e - u c e expenses,
t o t h e Board.
t
Deputy Governor Case: 3
GOomptrolier's request, I
The Chairnan:
properly
r
u
e with t h e
think.
I t i s always understood t h a t t h e Feder-
al Reserve B o a r d i s advised.
and t h e r e c o r d s
t h a t this
T h e y receive t h e minutes
o f t h e s e proceedings. I
b e s t a t e d here,
think i t m i g h t
o r w e might p r o p e r l y instruct o u r
Secretary t o s e e that t h e Board i s supplied w i t h a copy
think i t o u g h t t o b e m a d e t h e
Governor Seay: I
subiect o f i n d i v i d u a l c o m m u n i c a t i o n
t o t h e Board rather
than transmitted t o tle Board along w i
1
6 rest o f the
record.
The C o a i r m a n :
of t h e m i n u t e s .
T
t can
b e sent
t o the Board
i n advance
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Mr, Harrison:
e s .
The Vhairman:
T h e next topic submitted b y the
Board i s
Is a p l a n p r a c t i c a b l e w h e r e b y
a memter b a n k i n o n e d i s t r i c t
ean-0 b u e i n - c u r r e n c y f r o m a n d
ship. c u r r e n c y t o the. reserve
bank o f a n adjacent district,
where
t h e member
bank
is so
situated t h a t t h e t r a n s i t b i e
te tween t h e taember b a n k a n d i t s
own F e d e r a l r e s e r v e b a n k i s c o n siderably - r e a t e r t h a n t h e t r a n s i t
time t o t k e r e s e r v e b a n i o f t h e
adjacent district?
The conment o n that i s “#rom tine t o time there
before t h e Poard, f o r its aoproval, s u c h a plan, a n d the
Board w o u l d l i k e t o h a v e a n c x p r e s s i o n o f t h e Governors!
views a s t o t h e practicability o f such a n arrangement.
Governor weinney: I
practicable.
morning,
L
I think
do m t think such a plan is
i t vould result,
a s I
stated t h i s
i n the general w e a k i n g d o w n o f district Lines,
It m i g h t o v e r c o m e
some
quently r e s u l t s b e c a u s e
b a n k =Qb
9 u t
|
1
r e b m e m &
o f the inconvenience
which fre-
o f t h e l o c a t i o n o f -particuLar
i f w e started
a there probably would
i t
De. nO--End..b0- 1 6 %
Deputy G o v e r n o r C a s e ?
O
f Courses c h e s t a n c e i s n o i
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
500
great, b u t I
a m thinking o f a point between t h e Boston
stance.
f o r in-
T a k e N e w Haven,
Bank a n d t h e N e w Y o r k Bank.
I t i s t w o hours f r o m N e w York a n d three hours
from Posten.
I
t o m e t o b e ridiculous t h a t N e w
t seems
Haven would have t o ship currency t o the N e w York Federal
Reserve B a n k for credit i n Poston, a n d t o have u s ship
the c u r r e n c y t o them.
i t seems
I
t i s w r o n g i n principle,
s
e have a t t h e present t i m e a
to me.
Governor Norris:
striking case t h a n that, a
more
little t o w n called Duboise.
There i s only o n e train a day between Duboise a n d Philadelphia a n d t h r e e t r a i n s b e t w e e n D u b o i s e a n d Pittsburgh.
The d i s t a n c e
i s much shorter
t o Pittsburgh,
a n d t h e member
bank u p there i s kicking about t h e difficulty a t times
of getting currency f r o m us.
w e have h a d a n arrange-
by
ment with t h e Pittsburgh t a n c h o f the Cleveland bank
which t h e y h a v e b e e n s e n d i n g t h e m money.
w
e d i d not take
w i t h t h e Federal
it- up; e n d £ - d 0 - 0 6 9 i m a g i n e C l e v e l a n d d i d ,
that
Reserve Board, tecause i t did not occur t o us that
was a
matter that t h e Board was interestedin.
O f course
each district
4t should n o t b e done unless t h e bank i n
igs agreeable,
b u t i f arrangements
c a n b e m a d e t e tween t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
banks I
do not s e e a r y objection t o it.
Governor Calkins: I
of magnificent distances,
example.
happen t o operate i n a country
J I can furnish a n outstanding
G o v e r n o r M c K i n n e y k n o w s w h a t i t is. A r i z o n a
is divided between t h e Eleventh a n d Twelfth Districts,
In Arizona w e have member banks which, although situated
in the Twelfth District, h a v e m o s t o f their business i n
El Paso, a
Federal reserve b a n c h city o f the »leventh Dis-
trieti G l c b e , for instance, i s 23-2/3 hours train time
n
a
from Los Angeles, t h e branch o f its a f f i l i a t i o n d
12 hours from Bl Paso, t h e city i n which i t conducts
most o f its business.
M e m b e r banks situated close t o
i the Hleventh District, have asked
the E l Paso B r a n c h n
permission t o conduct their cash a n d currency transac~
tions w i t h t h e EB] Paso Branch o f the Ferieral reserve b a n k
of Dallas.
W
e have c o m m u n i c a t e d w i t h G o v e r n o r McKinney,
asking f o r permission t o make these ar.argements f o r our
member banks, t i t h e has ¢
clined t o accede o n the ground
that h e believes Federal reserve banks should adhere
closely t o the established district lines, a s fallare: t o
ao s o would probably lead t o €onfusion a n d general disregaz
of boundary lines i n handling transactions. H o w e v e r ,
h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
502
did c o n s e n t t o c o m u c t c a s h a n d c u r r e n c y t r nsactions
with those tranches situated i n the Eleventh District,
the h o m e o f f i c e s
o f which were situated
i n t h e District
and a f f k i i a t e d w i t h , t h e F e d e r a l r e s e r v e b a n k o f
#pancisco.
W r , McKinney h a s agreed t o c o m u c t c a s h
currency transactions w i t h t h e b w anches o f the Valley
situated
i n t h e # l e v e n t h District.
In c h e c k c o l l e c t i o n t r a n s a c t i o s , this p r o h l e m h a s
been overcome b y the privilege o f direct routing, a n d i t
:
D
e
a
pplied t o
s
h
o
u
l
d
r
e
a
s
o
n
i
n
g
s
a
m
e
t
h
a
t
t
h
e
would s e e m t o m e
cash a n d c u r g e n c y t r a n s a c t i o n s .
the r e c e i v i n g f r o m a
T h e r e i s mthing
member b a n k ,
o r currency
o r sending t o a
w h i c h reauires
in
member
ciscre-
bank. 9s£ h i p m e n t s
o f cash
tionary action.
S u c h shipments w o u l d n o t b e made except
upon r e c e i p t
o f collected funds; t h e r e r o r e ,
n o risk
pan spvachs cnerera..
It i s r e c o m e n d e d t h a t F e d e r a l r e s e r v e b a n k s b e permitted t o m a k e s h i p m e n t s
t o m e m b e r b a n k s o f a n adjacent
district u p o n t h e a p p l i c a t i o n a n d a p p r o v a l
reserve b a n k o f t h e d i s t r i c t
o f the Feceral
i n which s u c h member b a n k
is situated.
The C h a i r m a n :
I
t seems
t o m e there a r e isolated
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
503
ses w h e r e t h a t p l a n w o u l d b e justified.
that i t w o u l d b e u n i u s t i f i a b l e
I t seems a l s o
t o undertake
t o adopt a n y
Such p l a n “in & general way, a n d t h a t a n y s u g - e s t i o m a l o n g
those lines should b e mace only f o r em>orgency purposes ,
unless i t may b e a casé s u c h a s Governor Calkins points
out.
w e have recently taken care o F e n -enprgency cait
for currency a t Springfield, w h i c h w e could n o t possibly
reach f r o m Chicago,
OU.
b y calling o n St. Louis,
P o s s i b l y St. Louis remembers that.
emergency,
a i d t h a t i s a l l right,
but I
t o help u s
A D yn netealecietsut
a
think i t w o u l d
be a disastrous t h i n g t o let t h e bars d o w n and m k e i t
&@general oractice b y the reserve banks.
Deputy G o v e r n o r C a s e :
D o n ' t y o u think a
as G o v e r n o r N o r r i s s t a t e d i s a
The C h a i r r a n s
t
case s u c h
justifiable c a s e ?
T shoulo=oni nit Sor,
Deputy G o v e r n o r C a s e :
T n e t . L e n o t an-euergency-,
however.
The Chairman: I
say there a r e isolated cases.
Governor C a l k i n s c i t e d a m o t h e r c a s e o f . a s i m i l a r nature.
Governor Seay:
I t i s the sense o f the Uonference t h a t
there a r e many objections
t o this procedure a s a practice,
both theoretical a n d practical.
T
r
e
C e Sree
be
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
504
resorted
t o o n l y i n special c a s e s e f emergency,
a n d then
only upon t h e reauest b y one Federal Reserve b a n k o f
another,
W e had a n emergency inauiry f r o m
Govenor Calkins:
i n regard t o sup-
the F e d e r a l R e s e r v e B a n k o f M i n n e a p o l i s
plying c u r r e n c y a t a
miles a n d a t a
OP: S 0 0 miles.
distance f r o m M i n n e a p o l i s
o f 1250
distancefrom o u r Spokane B r a n c h o f 2 5 0
T h a t i s a n obvious exanple.
Governor Mcxinney:
B u t that was n o t a
permanent
arrangement?
Governor Calkins:
The C n a i r m a n s
N o , t h a t was a n etergency.
D i d y o u offer y o u r sugvestion a s a
resolution, G o v e r n o r S e a y ?
Governor deay:
Y e s , ‘ire Chairman.
Governor Y o u n g : I
second t h e motion.
(The motion, h a v i n g b e e n duly seconded, w a s carried.):
The Chairman:
T h e n e x t topic o n the Board's p r o g r a m
tee N O gna #
Report o f Federal h e s e r v e a g e n t s !
Comittee o n Reserves t o t h e
Federal Reserve Board, concerning
the Fulmer Bill, providing f o r the
reduction o f t h e r e s e r v e s o f coun~
try b a n k s f r o m 7 per c e n t TOD. D E L
cent o n demand deposits, a n d from
3 per c e n t t o 2
deposits.
per e e n t o n t i m e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
505
The comment o n that i s ‘The Board asks for a n expression o f t h e v i e w s o f t h e c o n f e r e n c e r e l a t i v e
port, a
t o this r e -
copy o f which i s attached.
Deputy G o v e r n o r C a s c :
Attached
t o our program i s
a report o n the Fulmer Bill b y the Federal Reserve Agents!
Committee o n Reserves.
Could.
m t that: 2
read, M r ,
Chairman ?
will a s k M r - H a r r i s o n t o r e a d
The Chairman:
Y e s ; I
Mr. Harrison:
T h e report i s a s follows:
"Tn accordance w i t h t h e r e m e s t
Board.
o f t h e Federal Reserve
t h e GConmittee o f Federal R e s e r v e A g e n t s
o n Reserves
has considered carefully t h e provisions o f the Fulmer
Bill relating t o the reserves required t o b e carried b y
member b a n k s n o t i n r e s e r v e
o r central reserve cities,
roth a s i t affects t h a t c l a s s o f member t a n k s a n d a s i t
affects t h e t o t a l r e s e r v e s c a r r i e d
banks.
T h e bill provides f o r a
the c o u n t r y banks f r o m 7
deposits a n d f r o m 5
i n t h e Federal heserve
recuction o f reserves
per c e n t t o 5
per c e n t t o 2
of
per c e n t o n d e m a n d
ver c e n t o n t i r e deposits
such investigaThe effect o f this reduction, according t o
b e t o reduce
tions a s v e h a v e b e e n a b l e t o make, v o u l d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
506
the r e s e r v e d e p o s m a i n t a i n e d
a t t h e Federal R e s e r v e
banks b y approximately $200,000,000. T r i s : 200,000,000.
if u s e d a s a. basis f o r c r e d i t expansion, w o u l d v e r m i t
country m e m b e r b e n k s t o i n c r e a s e t h e l r c e m a n d d e p o s i t s
the theoretical amount o f %4,000,000,000.
by
O n the basis
of 7 per cent reserves, o n e dollar o f reserve theoretically
supports f o u r t e e n d o l l a r s
o f deposits;
b u t i f reserves
are reduced t o 5 per cent, o n e dollar o f reserves would
theoretically support twenty dollars o f deposits.
thermore,
Fur-
i f part o f the potential increase i n country
bank deposits slbuld b e i n the form o f time seposits, t h e
theoretical e x p a n s i o n p e r m i t t e d
still larger.
b y the change would
be
I m practice, h o w e v e r ,
figure w o u l d n o t b e r e a l i z e d
would r e a u i r e s o m e a d d i t i o n a l
a s s u c h additional deposits
cash
t o v e carried
i n bank
vaults.
with gold coming constantly into t h e country f r o m
abroad, w i t h t h e t e n d e n c y s t o w n d u r i n g t h e p a s t f e w years
deby member b a n k s t o c o n v e r t d e m a n d d e p o s i t s i n t o t i m e
posits,
a n d with t h e tendency t o r e uce t h e percentage
reserve banlances m i n t a i n e d b y e m b e r banks,
reserve b a n k s ,
t h e Committee believes
of
i n the Sedere
i t i s extremely
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
50’
unwise a t the present t i m e t o make a n y change i n the reserve r e q u i r e m e n t s w h i c h m i g h t h e a d t o a d d i t i o n a l e x p a n Slots
The committee, t h e r e f o r e , r e s p e c t f u l l y r e p o r t s i t s
unanimous o p i n i o n t h a t t h e p a s s a g e
o f t h e suggested legis-
lation w o u l d b e unwise.
Respectfully submitted,
Respectfully submitted,
Pierre J a y ,
William McC. i a r t i n
F r e d e r i c k H . Curtiss, Chairman.
WMareh 31, ° 1924.
M r . Chairman, I
Governor Norris:
concur:
move y o u that w e
i n t h a t report.
Deputy G o v e r n o r Gase: I
Governor S e a y : I
sccond t h e motion.
would l i k e t o suggest t h a t w e
that
amend that t o say, “and i n the conclusion reached i n
report."
that, G v e r Y o u l d y o u have a n y objection t o
nor N o r r i s ?
Governor
lorris:
N O 6
(The motion, h a v i n g b e e n d u l y seconded,
w a s unani-
mously carried,.}
Me, Harrison:
taken, I
I
n reference
would l i k e t o r e a d a
t o the action already
letter
t o m e f r o m Mr. Eddy,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
which i s a s follows:
‘unen t h e conference begins discussion
o f the
called Fuimer Bill, designed t o recuce t h e reserves o f
country m e m b e r b a n k s f r o m 7
posits a n d f r o m 3
to 2
advise t h e m e m b e r s
to 5
per c e n t o n demand d e -
per c e n t o n time deposits, p l e a s e
o f t h e Conference t h a t Congressman Ful-
mer proposes t o amend t h e bill b y permitting country m ember b a n k s t o c o u n t a s reserves t h e c a s h i n their o w n
vaults and with their correspondents."
The Chairman:
The l a s t t o p i c
T h a t w o u l d n o t a l t e r o u r conclusion.
o n t h e B o a r d ' s p r o g r a m o P e N O GN
vV. P r a c t i c e o f certain borrowers filing
credit statements direct w i t h t h e
Federal r e s e r v e b a n k o f t h e d i s t r i c t
rather t h a n w i t h t h e b a n k s w i t h w h i c h
chey transact business.
Deputy G o v e r n o r Casé:
Ciuairman.
M W r e t is a
dead- 29Sue, M i .
T h e N e w York B a n k d i d receive f r o m a
large
commercial concern a statement, b u t directly their attention w a s d r a w n t o t h e f a c t t h a t t h e s t a t e m e n t w a s n o t
filed with the comercial bank, they corrected it.
Governor Worris:
H o w d i d y o u correct i t ?
Deputy Governor Case:
B y calling t h e m i n and caii~
a n irregular
s their a t t e n t i o n t o t h e f a c t t h a t i t vas
ar)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
509
proceeding a n d undesirable f r o m o u r point o f view, a n d
requesting that t h e y file a
statement w i t h their o w n tank,
They d i d t h a t t h e n e x t d a y a n d w r o t e
u s a
letter a d v i s i n g
us t h a t t h e y h a d f i l e d t h e i r s t a t e m e n t w i t h t h e i r o w n bank.
The Chairman:
T h e n t h e statement c a n b e made that
this question arose, t h e matter w a s discussed, a n d the
matter h a s b e e n reconciled:
i s that s o ?
Deputy G o v e r n o r C a s e :
The. Chairman:
. £
i
e s .
s tine, i f t i s
B e r e a ble.
i would like t o report that ur. Eddy inouired s o m e time
during t h e d a y e s t o w h e n w o u l d b e t h e m o s t c o n v e n i e n t
time T o r u s t o weet with t h e Poard,..and h é has teen.toid
L208 Ore O K g L o w i
n o w appoint Governor Calkins and
Governor S e a y t o a c t a s a
comuittee
(aiereupon, a t 6 : 1 0 0 !
r
e
t o n o t i f y t h e Board.
a e CHS e
a
adjourned until “ednesday, #ay.%, "1924, a t t e n o'clock
ane)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
>
DA
es
Wednesday, M a y 7, 1924.
The C o r f e r e n c e m e t , p u r s u a n t
t o adjournment
o f yester-
Bea 1 O>.0} G 6 6 1x
Preset:
“ T n e Governors
The Chairman:
we h a v e a
nor Fancher,
a s previousy
i toved,
T h e Corference will come t o order.
report
t o receive
a n d pass u p o n from
o n t h e m a t t e r o f V o l u n t a r y Services.
Board w i l l c o m e i n t o t h e m e e t i n g a t 10:45.
Governor Francher: i
will a s k “wr. Strater® t o
in a n d r e a d t h e r e p o r t f o r t h e committee.
UP. olLrapers
T h e r e p o r t i s a s follows:
‘Mo the Conference o f Governors:
Memorandum X - 3 6 7 6 subinitted
b y the
Board t o t h e marci 1 9 2 3 , C o n f e r e n c e
tained a
i e r a l Keserve
o f Governors, c o n -
list o f c e r t a i n v o l u n t a r y s e r v i c e s p e r f o r m e d
by
the Feceral Reserve Banks f o r their member banks, w h i c h
in t h e o p i n i o n o f t h e B o a r d s h o u l d d i s c o n t i n u e d .
Committee
o n Voluntary Services
Banks, s e l e c t e d
submitted a
A si s u m e d
T h e
F e d7 e r 5 a l : R e s e r v e
t y t h e *ederal Reserve Board, h a s already
report
o n t h e n o n - c a s h c o l l e c t i o n function,
one o f t h e i t e m s e n u r e r a t e :
i n t h e B o a r d ' s memorandcun.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
511
The other items, to.ether w i t h the estimated a m u a l c o s t
of. 6 a c h a r e a s follows:
Shipping c h a r g e s
o n currency a n d c o i n
to member a n d non-member banis
Currency -
receiving a n d sorting
1 , 0 4 3 , 1 8 4
1
.
2
0
8
e e
NOTE:-~ Part o f this expense could perhaps
be eliminates b y recuiring member a n d
nonmember banks t o make more detailed
sorts o f currercy deposited.
Securities h e l d f o r s a f e k e e p i n g
Transfers o f funds
Upon c o n s i d e r a t i o n
of a
preliminary report m a d e t o
the November 1923 Conference o f Governors a n d covering
the non-cash collection function,
i n a general way, i t
was v o t e d a m o n g o t h e r t h i n g s ~
‘That t h e c o m m i t t e e
b e reauested
t o conduct practic-
vices o f a like character which w e are n o w performing,
without charge, f o r our members *
In a c c o r d a n c e w i t h t h i s resolution,
Voluntary S e r v i c e s h a s m a c e 4
jects e n u m e r a t e d above.
t h e Committee
careful s t u d y o f t h e s u b -
T h e s e subiects a r e considered
on
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
inorder
i n -thnis report.
Currency a n d Q i n Operations:
At a
meeting o f t h e c o m m i t t e e h e l d i n W a s h i n g t o n
February, 1 9 2 4 ,
i t was decided
t o appoint a
in
subcommittee
ta b e composed o f funior officers i n charge -of currency.
and c o i n operatiors
Banks
t o prepare a
a t several
questionnaire c o v e r i n g t h e entire c u r -
rency a n d c o i n o p e r a t i o n s
o f all o f t h e Federal reserve
banks a n d t h e i r b r a n c h e s e A
prevoared a n d f o r w a r d e d
banks. A
o f t h e Feceral Reserve
questionnaire w a s a c c o r d i n g l y
t o each
o f the Federal reserve
sumnary o f the replies received i s attached
hereto, marked Hxhibit A . T h e LComuittes has made a careful s t u d y a n d c o m p a r i s o n o f t h e r e p l i e s r e c e i v e d a n d
finds t h a t w i t h r e s p e c t
t o a l l o f t h e internal operations
relating t o the currency a n d coin function, t h e Federal
reserve b a n k s a n d t h e i r t r a n c h e s o p e r a t e
in a
most u n i ~
form a n d e c o n o m i c a l m a n n e r .
Shipping C h a r g e s A s s u m e d b y F e d e r a l R e s e r v e Banits.
with respect t o t h e payment o f charges b o t h ways o n
shipments
o f c u r r e n c y a n d coin, t h e p o l i c y o f t h e - s e v e r a l
Federal reserve banks i s practically uniform, except that
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
513
the p o l i c y i s s o m e w h a t m o d i f i e d a t f i v e o f t h e w e s t e r n
banks w h i c h d o n o t a b s o r b c h a r g e s
ments
o r all shipwents
o n all g o l d c o i n ship-
o f s t a n d a r d s i l v e r dollars.
Shipping c h a r g e s a s s u m e d r e p r e s e n t a
very l a r g e p r o -
portion o f t h e t o t a l c o s t o f c o n d u c t i n g t h e c u r r e n c y a n d
coin operations o f the Federal reserve banks a n d their
branches.
T h e c o s t t o t h e Federal reserve s y s t e m i s
increasing,
i f a comparison between t h e years 1 9 2 2 a n d
1925 i s a n y indication,
D u r i n g t h e y e a r 1922, t h e
total shipping charges o n currency a n d coin assumed b y
the F e d e r a l r e s e r v e b a n k s
o n shipments f r o m a n d t o mem-
ber and mn-member banks was $1,045,184. F o r the year
1923, t h e total amount w a s $1,359,180.95;
$315,996.00.
a n increase o f
T h e total expense classified a s t o incom-
ing a n d o u t g o i n g c h a r g e s f o r t h e y e a r s 1 9 2 2 a n d 1 9 2 3 i s
as follows:
S
Incoming 192.
Enc Onno
L o
_
C hycal Gabe
O
7
8
8
, 081.39
$191,744.87
4
Outgoing ;
g
1n9
i
5
o
4
7
g
6
1
t
,
,
u
8
1O
6
1
7
.
4
8
9
.
0
4
$124,252.06
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
514
It i s n o t t h e p o l i c y o f c o m m e r c i a l b a n k s g e n e r a l l y
in reserve c i t i e s
t o absorb charges
o n shipments
o f cur-
rency a n d c o i n t o o r f r o m t h e i r c o r r e s p o n d e n t b a n k s ,
although t h e r e a p v e a r s t o e b e a
tendency
cases t o absorb incoming charges.
Federal r e s e r v e b a n k s
charges
T h e policy o f the
i n assuming practically a l l shipping
i s thersfore a
fit t o member t a n k s .
i n exceptional
broad p o l i c y o f service a n d beneT h e b r o a d s c o p e o f this p o l i c y i s
a result o f g r a d u a l d e v e l o p m e n t .
reserve b a n k s u n d e r t o o k
Originally,
t h e Federal
t o p a y t h e cost o f shipping cur-
rency o n l y w h e n t h e m e m b e r b a n k ' s r e s e r v e a c c o u n t w a s deé-
pleted b y charges covering checks s e n t t o i t for collection a n d charged t o its reserve account, a n d then only
when t h e m e m b e r b a n k w a s u n a b l e
by s e n d i n g c h e c k s f o r credit.
t o restore i t s reserve
T h i s was later extended
to cover t h e shipping charges o n all currency sent t o the
Federal r e s e r v e t a n k s .
F i n a l l y w h e n t h e functions
o f the
reserve
sub-treasuries w e r e t a k e n o v e r b y t h e F e d e r a l
banks a n d t h e i r branches,
to c o v e r s h i p m e n t s
t h e policy w a s further extended
o f c u r r e n c y a n d coin, b o t h ways.
reserve
It s h o u l d b e r e c o m m e n d e d t h a t t h e F e d e r a l
cost o f shipping curbanks v o l u n t a r i l y o f f e r e d t o p a y t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
515
rency a m coin, a n d that this service h a s b e e n o f great
penefit
t o member banks,
a n d they n o w look upon i t a s a n
incident t o membership i n the Federal Reserve System.
It w a s d e e m e d i n a d v i s a b l e
t o attempt
t o canvass t h e m e m -
ber banks relative t o their opinion 4 s t o the value o f
the service t o them and i t is, therefore, impossible t o
state t h e i r a t t i t u d e
a t t h i s time.
T h e committee
i s of
the opinion, however, t h a t i f member banks were requested
to express
a n opinion,
a containuance
t h e y would vote unanimously f o r
o f t h i s service.
The o n l y r e a l q u e s t i o n f o r c o n s i d e r a t i o n i s whether
the v a l u e o f t h e s e r v i c e t o t h e m e m b e r b a n k s a n d t h e g o o d
will t e t w e e n m e n t e r b a n k s a n d t h e F e d e r a l r e s e r v e b a n k s
as a result o f this sorvice justifies i t s continuance a t
such a large expense. R e g a r d l e s s o f what might t e t h e
decision n o w with respect t o absorbing charges were i t
presented f o r c o n s i d e r a t i o n f o r t h e f i r s t time, a
sertice
such a s that o f providing currency a n d coin t o our member banks, f r e e o f cost, w h i c h service h a s b e e n accorded
to
to t h e m f o r s o m e t i m e a n d u p o n w h i c h t h e y h a v e l e a r n e d
criticism
rely, c a m n o t n o w b e abandoned, w i t h o u t s e r i o u s
harm
on the part o f our member banks a n d without possible
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
the g o o d r e l a t i o n s
n o w prevsiling,
Your C o m i t t e e r e s p e c t f u l l y c a l l s a t t e n t i o n t o t h e
fact t h a t f r e e c u r r e n c y t r a n s f e r s c o n s t i t u t e
a t t h e pre-
sent t i m e o n e o f t h e m o s t a t t r a c t i v e f e a t u r e s
o f member-
ship t o a large number o f member banks and, i n fact, h a s
been t h e b a s i s o f t h e i r a c c e p t a n c e
their continuance i n the system.
committee
i t would b e unwise
ment o f t h i s s e r v i c e a t a
o f membership a n d o f
I n the opinion o f the
t o make a
drastic c u r t a i l -
time w h e n t h e F e d e r a l r e s e r v e
banks a r e n o t c a l l e d u p o n t o r e n d e r e x t e n s i v e r e d i s c o u n t ing s e r v i c e a n d w h e n m a n y m e m b e r b a n k s a r e r e s t i v e a n d
indicating a
disposition
t o withdraw
from the system be-
cause o f the lack o f sufficient concrete advantage accruing
from membership. A
withdrawal
of this service would,
i n the present circumstances
i n the opinion o f the committee,
adverse
accentuate t h e p r e v a i l i n g u n r e s t a n d w o u l d h a v e a n
of t h o s e m e m b e r b a n k s w h i c h a r e
ly b e n e f i t e d
t h e preb y and w o s t highly aovreciate
sent s e r v i c e .
while
The C o m i t t e e feels, therefore, t h a t
peen a
substantial i n c r e a s e
4t w o u l d b e u n w i s e
i n t h e c o s t o f this
a t this t i m e t o modify it,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
pt
the r e s e r v e b a n k s s h o u l d m a k e c v e r y p r o p e r e f f o r t t o p r e -
vent a n y abuse o f the service, a n d a t the same time continue their vigorous efforts t o effect further economies
in handling currency within t h e reserve banks themselves,
The c o m m i t t e e f u r t h e r r c c o m i e n d s t h a t i t b e r e m e s t e d
advise t h e n e x t c o r f e r e n c e
t o
o f t h e t r e n d o f expenses rela-~
tive t o this service a t that time,
Currency Receiving a n d Sorting:
The F e d e r a l R e s e r v e B o a r d i n c o m m e n t i n g u p o n t h e
cost o f r e c e i v i n g a n d s o r t i n g c u r r e n c y s u g g e s t e d t h a t p a r t
of this e x p e n s e c o u l d , p e r h a p s ,
b e eliminated
ing m e m b e r a n d n o n - m e m b e r b a n k s
t o rake more detailed sorts
of currency deposited.
naire received,
b y requir-
F r o m t h e replies t o the ouestion-
i t i s apparent t h a t sortation b o t h b y
dermmination a n d a s t o kind,
i s generally required
i n all
cases where i t i s practical t o d o s o and this requirement
is s e t f o r t h i n t h e c i r c u l a r l e t t e r i s s u c d b y e a c h o f
the F e d e r a l r e s e r v e b a n k s .
Separation
b y denomination
of s i l v e r a n d m i n o r c o i n o f f e r e d f o r d e p o s i t i s a l s o r e quired.
T h e provisions
o f t h e Gircular letters appear
to b e s t r i c t l y e n f o r c e d a n d i t i s v e r y doubtful
material s a v i n g c a n v e effected
i f any
b y making t h e regulations
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
in this respect m o r e stringent,
It. is, h o w e v e r , q u i t e l i k e l y t h a t t h e c o s t o f t h i s
branch o f the service c a n b e gradually reduced.
T h e
estimated a m u a l c o s t o f r e c e i v i n g a n d s o r t i n g c u r r e n c y
was 31,508,532.
F o r the year 1923 i t was $1,449,771; a
decrease o f $58,761 for the year 1923 over the estimated
cost f o r t h e y e a r 1922.
has b e e n a
handled,
I t will a l s o b e noted t h a t there
steady decrease
i n t h e u n i t c o s t o f blils
a s w e l l a s i n t h e u n i t c o s t o f coins handled.
The c o s t o f h a n d l i n g b i l l s i n units
o f 100 pieces decreas-
e¢from .085 in the first qu rter of 1923 to O77 in the
last quarter, a l t h o u g h t h e r e h a s t e e n a
in the volume handled.
steady increase
T h e cost o f handling c o i n i n
units o f 100 pieces decreased f r o m 015 i n the first quarter o f 1925 t o .014 i n the last quarter, w i t h a corres~
ponding increase i n the number handled.
The c o m m i t t e e r e c o m m e n d s t h a t e a c h o f t h e r e s e r v e
banks g i v e c a r e f u l s t u d y a n d c o n s i d e r a t i o n
t o t h e pos~
sibility o f further reducing t h e expense o f this function.
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 m e c h a n i c a l e q u i p m e n t f o r
be~
the c o u n t i n g o f c u i r e n c y i s n o t b e i n g p e r f e c t e d a n d
lieves t h a t i f t h i s e q u i p m e n t
i d demonstrated
t o b e practi
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
519
a waterial s a v i n g c a n b e e f i e c t e d
The c o m a i t t e s
further recommends
of r e d u c i n g t h e c o s t o f t h i s w o r
b y i t s installation.
t h a t every other means
b e availed o f wherever
possible.
Safe-keeping o f Securities:
4 gareful s t u d y o f the volume a n d cost o f the function i n d
i ) that-all
undertaking t o h a n d l e
o f t h e Pederal- neserve. b a n k s a r e
t o s o m e e x t e n t s e c u r i t i e s fuisebelalechigts:
the property o f their member banits. F i v e o f the reserve
banks h a v e i s s u e d c i r c u l a r
their m e m b e r b a n k s
h e m e OT
n s e
O r g = co
o n this subject, w h i l e s
lished n o formal rules o r regulations a n d handle t h e
more o r l e s s i n f o r m a l manner, a l t h o u g h
transactions
in 2
in a l l c a s e s
a n attemot i s w a d e v o r e s t r i c t t h i s s e r v i c e
securities a c t u a l l y o w n e d
b y t h e m e m b e r banks.
mated a m u a l c o s t o f t h i s function,
Board's m e m o r a n d u m X-3676,
T h e esti-~
a s shown i n the
w a s g190,¢
cost f o r the y e a r 1923 w a s ,194,552.
cost f o r t h e y e a r 1 9 2 3 o v e r t h e e s t i r a t e d c o s t
tively i n s i z n i f i c a n t a n d t h e t o t a l C o s t 1 . “chess w o t t o
Loto
Tt i s r e c o m e n d e d
t h a t t h e :sedere e
banks
to
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
p20
continue f o r t h e p r e s e n t
t o perform this service without
charge t o t h e i r m e m b e r b a n k s , u n l e s s t h e r e i s a n a m o r m a l
inereagce n t h e c o s t o r t s
e
r on, Pare c o l e
o e
view o f the fact that t h e service i s o f great value t n some
of t h e m e m b e r b a n k s o u t s i d e o f F e d e r a l r e s e r v e
m d branch
cities w h o s e f a c i l i t i e s f o r p r o t e c t i n g t h e i r s e c u r i t i e s ©
are inadequate.
(MiGiehowssinena)<\ aden
The L e a s e d Wires G o m m i t t s e ' s r e p o r t a d o p t e d
b y the
Conference o f Governors, w i l l vesult i n prohibiting transfers o f f u n d s o v e r t h e l e a s e d w i r e s
i n which a
third party,
other t h a n a member bank, i s the indirect beneficiary, a n d
the use of the leased wires will be limited
of b a n k b a l a n c e s t e t w e e n m e m b e r banks.
taining t h e l e a s e d w i r e s i s a
and t h e r e 1 s little,
T h e
more o r l e s s f i x e d charge,
i f any, p o s s i b i l i t y
o f reducing t h e
of
mimber o f wires n o w i n usc, e v e n t h o u g h t h e c l a s s
i s raterially
messages w h i c h m a y w & t r a n s m i t t e d o v e r t h e m
restricted.
o f handling -srans =
T h e estimated annual c o s t
fers o f funds,
a s s h o w n i n t h e B o a r d ' s m e m o r a n d u m X-5676,
was ¥ 5 9 7 , 8 6 0 .
T h e actual c o s t
the year 1923 was $444,595,
o f handling
t h e m during
a n incvease o f $46,755 over
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Hel
the e s t i m a t e d a m u a l c o s t .
T h e classes
o f transactions
which w i l l n o t b e v e r m i t t e d u n d e r t h e l e a s e d w i r e r e g u l a -
tions a s adopted b y the Conference, a r e undoubtedly o f
great value t o member banks, a n d i t i s doubtful i f those
transfers w h i c h m e m b e r b a n k s w i l l n o t b e permitted
to
send over the leased wires, c a n b e taken care o f through
correspondent b a n k s w i t h o u t r e - e s t a b l i s h i n g c o n n e c t i o n s
which have n o w been severed.
C i e V o m i c e , . Tecocn a i e
that t h e proposed restrictions will deprive member banks
of a very waluable service, a n d one that has w e n fully
appreciated, recommaencs t h a t p r o v i s i o n b e m a d e i n t h e
circular l e t t e r s
o f all Federal
reserve banks
o n this s u b -
ject t o their merber banks, f o r t h e hardling o f all transfers o f funds, e x c é p t t h o s e n o w s p e c i f i e d
i n t h e regula-
tions, o v e r t h e commercial wires a t the expense o f the
member bank.
“ h e committes further . e c o m e n d s
that the
provisions o f the vwegulatioas governing the use
Leased wires,
a s well a s the provisions f o r t h e hancling
of o t h e r c l a s s e s
o f transfers o v e r t h e commercial w i r e s
at
the expense o f the memter vanks, b e made efirective b y the
NP
issuance
o f n e w circular letters
t o member banks
o n July 1,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
L924, bo..become eifective J u l y 15,--Lee4,
Respectfully s u b m i t t e d ,
Fancher, (Chairman,
G. Harding,
vic Dougal
Me Kinney
Har:-ison.
Summary o f R e p l i e s to Q u e s t i o n n a i r e I n c i d e n t
t o Currency
and C o i n Function,
CURRENCY
Assorting.
1. W i t h t w o e x c e p t i o n s a l l b a n k s a n d t r a n c h e s r e q u i r e
sortation b y d e m o m i n a t i o n o f d e p o s i t c u r r e n c y .
Atlanta
and b r a n c h a t J a c k s o n v i l l e r e q u i r e s e p a r a t i o n o f o n e a n d
two dollar bills only, a n d receive mixed currency i n
the l a r g e r denominations.
ceives
m x e d
currency
N e w Orleans B r a n c h a l s o r e -
f r o m banks
n o t located
i n t h e city.
Be N e w Y o r k a n d P h i l a d e l p h i a reaouire s o r t a t i o n a s
to kind o f their c i t y banks, w h i l e Detroit Branch
Chicago r e q u i r e s s o r t a t i o n
jouiJudupeaagalene
b y kind o f o n e and t w o
A l l o t h e r b a n k s a n d branches
waive a n y r e q u i r e m e n t
o f sortation
o f the
b y k i n d o n ceposit
currency.
en T h e r e i s m
tendency
o n t h e part o f a n y tanksof
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5235
the s y s t e m o f r e q u i r e s e p a r a t i o n o f f i t a n d u n f i t n o t e s
Oh -AepOsit currency.
a
T h e majority o f t h e banks a n d branches report
regulations a r e v e r y generally followed.
S o m e o f then
report i n terms o f v e centages, indicating o n l y a . s a l l
number o f member b a n k s w h o d o n o t e x e r c i s e p r o p e r c a r e
in t h e p r e p a r a t i o n o f shipments.
ae V i o l a t i o n s
through
t h e mecium
o f currency r e g u l a t i o n s a r e c o r r e c t e d
o f lettcrs,
s p h o n e - calls.and per-
sonal c a l l s o f Banks Relations D e p a r t m e n t .
Replies from
most banks indicate general cooperation o f memters.
Kansas C i t y a n d Dallas d o not allow transportation
charges t o members who do not follow regulations, o r to
any r e p e a t e d offenders.
Volume.
for
on T h e total currency receipts o f the system
the y e a r 1 9 2 3 w e r e r e c e i v e d f r o m
Federal r e s e r v e s a n k o r o r a n c h c i t y b a n k s
All o t h e r b a n k s
Costs.
al t e a n s p o r t a t i o n c h a r g e s a b s o r b e d
o n mem-
ments f o r the years 1922-23, s e e Zxhibit,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2. A l l banks report transportation charges o n
incoming s h i p r e n t s
banks a r e absorbed,
o f c u r r e m y f r o m non=~ember remitting
but
m t
o n outgoing shipments
to
such b a n k s w i t h the e x c e p t i o n o f e w Y o r ,
on o u t g o i n g s h i p m e n t s f o r t h e y e a r 1 9 2 2 w a s
for the year 1923, $10,369.81.
Incoming s h i p m e n t s ,
a l l other tanks f o r the year
WwoeyotO.
Incoming shipwents, a l l other banks f o r t h e year
wl2,502.46,.
3. i n general t h e b a n k s d o n o t f u r n i s h c u r r e n c y
supplies
o f a n y n a t u r e t o members. 4
they f u r n i s h
few b a n k s r e p o r t
s t a t i o n e r y a n d forms f o r making shin-
ments, o r requisitioné f o r return shipments. T h e - r e v e r t ed expense f o r t h e year 1923 does n o t exceed ¥2,000.00.
The auestion, " T o what ertent does the policy
of absorbing transportation charges o n incoming a n c outgoing c u r r e n c y s h i p m e n t s t e n d t o i n c r e a s e v o l u m e , ” b r o u g h t
forth a
variety o f opinion.
they w e r e u n a b l e
to e
S o m e banks frankly state
timate, w h i l e t h e m a j o r i t y v e n t u r e d
an opinion i n terms o f percentages t h a t t h e turnover o r
volume w a s increased f r o m 1 0 per cent t o 2 0 per cent o n
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
o f t h e e x i s t i n g policy.
account
Federal R e s e r v e N o t e s .
1. T o t a l a m o u n t f i t n o t e s r e t u r n e d
t o issuing banks
for t h e y e a r 19235 -
$476, 110,300.00 p o s t a g e
a o .
2. o t a l a m o u n t f i t n o t e s r e t u r n e d
Gee
b y o t h e r banixcs
for t h e y e a r 1 9 2 5 -
$470,101,200.00 insurance 48,797.07.
3. I f district sortation o f fit Federal reserve
motes were w t required a saving o f $53,000.00 i n operating costs could w ® effected acco d i n g t o estimates o f
reporting b a n k s .
COIN
P
r
e
p
a
r
a
t
i
o
n
.
1. A l l b a n k s r e p o r t t h a t t h e y r e q u i r e s e p a r a t i o n
o silver a n d m i n o r c o i n f o r deposit.
by d e n o m i n a t i o n f
2, T h e r e q u i r e m e n t s s e e m t o t e g e n c r a l l y f o i l o w e d
by all wember banks.
Volume.
The t o t a l c o i n r e c e i p t s
d f ths system for
wers r e c e i v e d f r o m :
Federal r e s e r v e
Bp.
A l l other banks
o r branch c i t y banks
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Costs.
1. I n general a l l b a n k s a b s o r b t h e e x p e n s e o f transe
s
o
n all classes
member b a n s ,
o f coin shipments
w i t h exceptions
t o and from
a s follows:
Chicago d o e s n o t a b s o r b t r a n s p o r t a t i o n c o s t s
on
outgoing g o l d c o i n shipments.
St. L o u i s d o e s n o t a b s o r b t r a n s p o r t a t i o n c o s t s
on
outgoing g o l d c o i n a n d s t a n d a r d s i l v e r d o l l a r shipments.
Minneapolis d o ¢ s n o t a b s o r b t r a n s p o r t a t i o n c o s t s
on
outgoing g o l d coin a n d standard silver dollar shipments.
Kansas C i t y d o e s n o t a b s o r b t r a n s p o r t a t i o n c o s t s
incoming s h i p m e n t s
on
o f standard silver dollars a n d outgoing
shipments o f gold coin a n d standard silver dollars.
San “ p a n c i s c o d o e s n o t a b s o r b t r a n s p o r t a t i o n c o s t s
either w a y o n g i d c o i n o r s t a n d a r d s i l v e r dollars.
2, F o r t r a n s p o r t a t i o n c o s t s f o r t h e y e a r s 1 9 2 2 - 2 5 ,
660 d k a - iLDbs
3. N e w Y o r k a b s o r b s t r a n s p o r t a t i o n c h a r g e s
o n con
shipments o f non-member remitting banks b o t h incoming a n d
outgoing.
S 1 1 other b a n k s a s s u m e incoming charges only.
(See B z h i b i t ) .
general practice c o i n bags a n d coin supplies
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
are n o t f u r n i s h e d
t o member banks.
occasionally granted.
S p e c i a l requests a r e
T h e reported ¢
xpense f o r the year
19235 was insignificant, b e i n g less t h a n $209%.000 f o r
all banks,
5. B o s t o n a n d N e w York are t h e only banks supplying
service i n wrapped coin. T h e i r reported expense f o r the
year 1 9 2 5 was:
Boston $
0; °7ey OU
1
New York $ 1 7 , 9 9 9 . 0 0
General.
practically a l l banks assume t h e cost o f televhone
and t e l e g r a p h m e s s a g e s i n e t d e n t
t o m o n e y shipments.
Three
offices reported t h a t they assumed c o s t o f telegraph wessages only, nanely, Richmond, Detroit Branch a n d Oklahoma
City Branch.
T h e total expense f o r t h e year 1 9 2 3 w a s
825, 712.50
few t a n k s t h a t h a v e a d o p t e d t h e F o a r d ' s s u g gestion t h a t m o n e y
i n transit
b e considered
a s reserve
port that n o perceptible change i n volume has b e e n noticed
o n this account.
re-
Currency a n d C o i n F u n c t i o n
Operating E x p e n s e
Administration
ist G u a r t e r
dh
°
Cumrency. A l l O t h e r
Recéiving C u r r e n c y
& sorting E x p e n s e
C o i n
& 3 5 9 , 4 9 5 $120,820 $ 7 7 , 7 7 4 &
2nd
556,967
5 , 2 9
1 6 , 9 0 2
692,071
5 9 2 , 988
ord
70,02
4th
81,675 611,842
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
6 1 7 , 2 7 0
1,449,771 $511,055 $515,271 $2,414,171
Volume
NOw S i c h a s
Uni
a n d Unit Cost
Cost
N
o
.
C o i n s piguiation Corser
(100 Pieces) H a n d l e d
( 1 0 0 Pieces)
Quarter
Handled
422,242,851
Quarter
AP e y e s
Quarter
432,505,087
.087 4 9 1 , 5 8 0 , 4 4 5
fuarter
464,510,542
O77 5 7 4 , 4 4 5 , 1 3 5
741,487,755
2,075, 653,000
2
eto
.085
-085
5 0 7 , 604, 443 . 0 1 5
5 0 0 , 0 2 2 , 9 7 7
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
otal
s o u r c e s f o r Ya:
L9OP2
z
n
i
~~ omarmhong
m
rg
Ao fN
L
G h,cB50.
428 a
e
%n
s
462, 80°
Jutoin:s
Incowing
e
A. , aP e
. FC4 °T
i g
n
o
n
t
e
i
n
t
OUT O n e c u r r e n c y b o “ n o n e
7
2
1
,
5
0
COLT o t o )
coin
t o manbers
Incoming c o i n f r o m n o m e n m b e r s
Jutyouns c o i n
wl 9 0435 Fy 1 8 4 Pi OO
0
2
, 369
CURRENCY A N D COIN FUNCTION.
Currency, Coin, ierabers &
Charges Classified Incoming f o r y e a r 1 9 2 2
O
u
t
g
o
i
Non-Members
g f o r year 1922
n
Currency
$ 5 6 2 , 6 0 6 . 6 7
Members $ 4 7 4 , 4 2 3 . 0 4
Non-members 5 2 , 5 7 0 . 5 9 4526, 793.45 6 , 4 1 5 . 4 7 .. G571, 022.14
Coin
Members
7
6 5 , 2 6 5 . 1 6
1
,
0
8
9
.
0
0
Non-members _ _6,257.93 69,516.52 _4,756,54 75,845.54 _.
$ 4 4 6 , 8 6 7 . 4 8
3596, 316.52
Incoming. L o r y e a r
1 2
o
u
t
g
o
i
n
g f o r year 1923
CUP LenGy
Members p 6 4 2 , 426.91
$ 4 6 2 , 6 0 9 . 7 9
10,369.81 $472,979.60
Non-members 7 2 , 3 0 2 . 4 6
Coin
yiem bers
N o n - m 4,501.64
e m b 75,952.08
e r s _|
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
8788, 061.39
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Telephone a n d Telegraph Charges
Cost o f messages requesting o r incident
to m o n e y s h i p m e n t s f o r t h e y e a r 1 9 2 3
Cost
$25,712.50
o f Federal Reserve Notes -
Original cost including postage and
insurance
o n unissued n o t e s t o banks
$1,651,154.00
Of “Lssuec
Interdistrict w o v e m e n t
o f notes
Postage assumed b y shipping banks
32,927.53
Insurance a s s u m e d
48,797.07
b y receiving banks
1, 7352,858,80
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
582
The Chairman: G e n t l e i e n , y o u have heard t h e report,
Deputy G o v e r n o r C a s e :
I t impresses
m e as a
most
excellent report, M r . Chairman, a n d I move i t s adoption.
Governor Norris: I
Governor Seay:
second t h e motion.
D o y o u include
i n your w o t i o n adop-
tion o f t h e p o l i c y r e c o m r e n d e d t h e r e w i t h r e f e r e n c e
transfers
to
o f funds o v e r t h e t e l e g r a p h w i r e s f o r t h e b e n e -
fit -or member banks?
Deputy G o v e r n o r (Cases
Governor Seay:
and w h i l e I
do
m t
e a s =
T h a t i s quite a n important matter,
s e e a n y objection
t o it,
i t i s s o far-
reaching that i t occurs t o m e w e might have tire t o think
over t h e question.
Deputy G o v e r n o r C a s e :
W e a r e u p against
tion.
Governor s e a y :
T h a t would practically m a k e t h e
Federal R e s e r v e S y s t e m t h e ’ s o l e t r a n s f e r m e d i u m f o r i t s
member b a n k s f o r a l l purposes,
The Chairman:
Governor Seay:
The Chairman:
F o r member banks.
Y e s .
A s a
matter
o f policy,
w e agreed
on
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
that yesterday, t h a t this should b e worked o u t i f i t i s
practicable.
Governor Seay: [
ar s p e a k i n g i n opposition
now, b u t i t seems t o m e s o far-reaching that I
a m just
turning i t over i n m y mind.
Governor Fancher:
T h e r e were certain functions o r
transfer f a c i l i t i e s t h a t h a d w e n a v a i l e d o f a n d t h a t h a d
gradually c o m e i n t o u s e r e l a t i n g
t o t h e Gold Settlement
Fund, t h a t is, t h e transfer machinery o f the Federal reservi
banks h a s t e e n availed o f i n the Gold Settlement Fund.
We still have that machinery m d those transfers c a n b e
made i f the requests c a n come i n over t h e conmercial
wires a n d give u s t h e relief w e are seeking i n the leased
wire situation.
The Chairman:
T h a t was considered
of w h i c h Mr. S t r a t e r
b y t h e Uoirmittee
i s Chairman, v e r y carefully,
hesitate t o
s o that,
Governor Seay, w e should not/undertake this service.
‘ve
know that t h e load m a y b e considerable, b u t w e uncerstand
that t h e e x p e n s e i n v o l v e d w i l l b e t h r o w n b a c k o n t h e m e m -
ber tanks a n d many transfers w h i c h have heretofore b e e n
made w i l l b e eliminated.
Governor Callzins:
A
t l e a s t t h a t w a s t h e thought.
T h e expense will n o t b e thrown
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
534
T h i s provision will prevent
back o n t h e m e m b e r banks.
any c o n s i d e r a b l e r e d u c t i o n
i n the cost o f our operation
be cause t h e e x p e n s e o f h a n d l i n g t h e s e transfers, s e p a r -
ate from the expense o f the telegram itself, w i l l still
be borne b y the system.
The Chairman:
T h e t i e , the. o p e r a t i n g expense.
think this matter should b e
Governor Calkins: I
discussed
a t g r e a t e r l e n g t h t h a n i t p r o b a b l y c a n b e row,
with t h e B o a r d c o m i n g i n .
simply felt that I would like t o
Governor Seay: I
have r e a s o n a b l e o p p o r t u n i t y
t o consider t h e report care-
bit e e
wouldn't
Governor Harding:
i t b e possible
t o ap-
prove t h e r e p o r t w i t h t h e u n d e r s t a n d i n g t h a t t h a t s e c t i o n
of i t w i l l b e b r o u g h t
u p f o r further consideration
a t the
corference w i t h t h e Board?
The Chairman:
Y o u mean postponed until after o u r
conference w i t h t h e B o a r d ?
Governor Harding:.
apvrove
i t now,
been a p p r o v e d ,
No.
H y sugzestion i s that w e
s o that w e c a n s a y t o the Board i t has
with the umerstanding
t h a t certain sec-
tions o f i t will b e brought u p f o r further consideration,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
and w e will g e t t h e Board's reaction o n this.
The Chairman: I
d o n o t k n o w that w e a r e going t o
get t h e Board's reaction o n it.
T h i s i s one o f the oper-
ating matters t h a t t h e Foard wants u s t o take responsi bi:
AEN pO mae I
think w e w i l l h a v e t o a d j o u r n t h i s m e e t i n g
now a n d m e e t a g a i n a f t e r
Board.
w e a r e through w i t h t h e Reserve
I T think i t i s very essential t h a t we.get this
thing c l e a r e d u p today.
L
E tierra i s n o objection,
w e
will p r o c e e d acvordingly.
Governor Harding:
G a n t t w e approve this report w i t h
the e x c e p t i o n o f t h a t o n e s e c t i o n ?
The Chairman: T
t h i n k t h a t w o u l d be-in- t h e i n t e r e s t
Of progress.
Governor Harding:
T h e r e i s n o controversy w i t h
regard t o t h e m a i n p a r t o f t h e report.
The Chairman; “ w i l l that b e satisfactory t o Governor
Fancher?
Governor Fancher:
The Chairman:
S E G se
“ i l l y o u «odify your motion accord-
ingly, M r . “G@se?
Deputy G o v e r n o r C a s e :
Y e s .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Harding:
The Chal rman:
submitted,
t o e d , Lo SOC ONG: c i
T h e motion i s that t h e report,
as
b e received a n d approved w i t h t h e exception o f
the clause relating t o the transfer o f funds.
(The motion, h a v i n g b e e n duly seconded, w a s carriéd.)
Governor Young:
PepoPpt a n d l
M r , Chairman, I
-would i k e
have n o t seen the
t o p e r n i ted a n t i e r e c o r d as" n o r
voting f o r t h e motion,
(Thereupon,
t h e conference
o f Governors
adjourned
for t h e purpose o f entering into conference w i t h the Federal Reserve Board.)
(NOTH:
Conference
Pursuant
t o t h e adjournment
o f t h e Federal Reserve B o a r d w i t h t h e
nors o f F e d e r a l H e s e r v e “ a n k s ,
Conference
o f the Joint
at 4
o'clock p . m., t h e
o f Governors r e c e o n v e n e d a n d t h e f o l l o w i n g
proceedings w e r e had.)
The Chairman: T
é
e
piece o f unfinished
business which relates t o Governor Fancher'ts committee,
(tet. T e o bp. bile c t a t h o n
Governor Fancher:
o f w i r e transfers.
T h i s r e p o r t w a s adopted,
asI
recall i t , w i t h t h e e x c e p t i o n o f o n e r e c o m e n d a t i o n h e r e ,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Dot
with r e g a r d t o w i r e transfers,
w h i c h i s found o n page + 7
of t h e report,
The (Cnairman:
T h e report w a s aporoved w i t h t h e
exception o f one phase o f it, t h e matter o f
telegraphic
transfers
a n d recomendations
relating )
de: er..ed f i n a l
Governor Seav: 3
points
which ought
i
a
n
d Gover-
a c t i o n o n t h a t Glause,
T h e r e a r e a t least t w o
t a b e considered,
a n d concerning which,
it seems t o me, there ought t o b e uniform action.
A s
fTunderstand it, these transfers wnich cannot b e made
mow u n d e r t h e L e a s e d w i r e C o m n i t t e e ' s r e c o m - e n d a t i o n ,
will
be a d e t e t w e s n federal R e s e r v e B a n ' s o v e r t h e
outside
,
w
a n d meo w comesr i n thei auestion:
I fa w e receive tele-
graphic r e c u e s t s f r o m o u r m e m b e r b a n k s
transfers,
a r e w e expected
t o make these
t o p a y t h e cost o f the telegram
reauosting u s t o make ithe transfer?
The Giairman: I
Governor Seay:
request
would
W e pay t h e cost o f the telegraphic
t o make oresent transfers.
H e r s 1s. a-dlaas.
oF
transfers w h i c h w e a r e g o i n g t o c e a s e t o m a k e o v e r o u r
own w i r e s ,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
558
Caairmans
I
t i s a t t h e expense o f the member
Governor H a r d i n
the m e m b e r bcank.
The Chairman:
I t i s s o stated i n the report.
P p e é are things about which I think
Governor »eay:
there s h o u l d b e u n i f o r u i t y
o f action,
a n d that was o r
reason w h y I thought t h e thing ought t o &
think t h e r e p o r t
The Chairman: I
i s c l e a r o n that,
think i t states t h a t t h e transfers
Governor Ȏeay. I
will
reflected u p o n
b e effected o v e r t h e commercial w i r e s
a t the expense
of t h e m e m b e r b a n k .
Governor S e a y : I
committees,
and a
I
just a s k e d t h e C h a i r m a n o f t h e
understand
h i s reply,
t h e committee
should
dia n o t c o v e r t h a t p o i n t b u t t h a t t h a t m a t t e r
be l e f t t o e a c h bank,
he Chairman:
T h e report recom-ends t h a t provision
be m a d e i n t h e c i r c u l a r Lletrers o f t h e
banks
o n t h a t subject.
service s h o u l d
I
t -oes o n t o state that t h e
b e o f f e r e d t h e mernoer
ecnense o f t h e member banks, through
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
wires,
made
T h a t i s t h e p@int I
Governor 2¢24
whether t h a t v a s a t t h e e x p e n s e o f t h e m e m t e r
there i s a misunderstanding already--The C h a i r m a n :
Y o u a r e reverring now---
Governor reay: I
memter
bank remesting
refer t o the telegram
t h a t transfer
S h a l l
t e mde.
w e
pay t h a t o r s h a l l w e n o t ?
The Chairman:
“ v e should n o t p a y i t ?
Governor Harding:
w h y n o t s a y that a l l telegrams
over t h e commercial wire shall b e a t the erypense o f the
member b a n k ?
Governor 5
T h e member
eay:
on t h e c o m m e r c i a l w i r e t o make 2
that telegram t o us.
b a n k telegraphs
a n s i
a
u s
d w e pay for
n
h a l l w e continue t o pay f o r the
telegram t o u s from t h e member b a n k over t h e cormnercial
wipe t o make a transfer, a n d make certain classes o f
a n d charge
transfers o u r s e l v e s o v e r t h e c o m e r c i a l wire.
them f o r t h a t ?
D
o y o u include paying t h e cost o f the
from « k e m e m b e r
bani
t o t h e reserve bank.
ae,
Chairman:
I n c o m i n g a n d o u t g o i n g tcél°grams.
t o the member bank.
w
are t o b e charged
T h a t i s the idea I
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
had i n every instance, a n d I
optional w i t h t h e F e d e r a l r e s e r v e b a n k .
Governor McKinney:
W p , Chairman, couldn't w e
insert t h e language “including t h e "essage requesting t h e
transfer",
w h i c h would absolutely settle it.
Straterr
o r the advice o f credit.
find i n the last wire committee report,
Y o u wild
i n addition t o
using m a i l a d v i c e t o t h e m e m b e r b a n k r e c e i v i n g credit,
which
f
u
n
d
s /may b e a d v i s e d b y
that t e l e g r a p h i c t r a n s f e r s o f
telexraph o r o t h e r w i s e s h o u l d t e g i v e n b y t h e F e c e r a l
cases
reserve t a n k receiving t h e transfer except i n
the
where t h e credited b a n k has stated that other t h a n
say
usual mail advise i s u n n e c e s s a l y + B u t i t coesn't
at w h o s e expense.
Governor S e a y ?
I
n adopting this report
stood t h a t a l l e x p e n s e p e r t a i n i n g
mature s i m i l
b e a t t h e exocnse
Te Chairman:
t o transfers
i t is under
o f that
o f the member bank.
I t i s not s o intended, w c a u s e ,
a s Was
b e y o n d t h a t involstated t h i s morning, t h e r e i s e x p e n s e
ved i n t h e s e n d i n g o f t h e selegrans,
Governor S e a y :
i n a n d out.
Y o u m e a n bookkeeping?
Governor Harding:
“ o u L d a n ' t this cover it, b y adding
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Hae:
transfer
a n d advice
o f
SrearE' ?
The c C h a i r m a n s T
s h o u l d t h i n k tne-5- w o r d .
Governor Calkins:
G@hear
i b
A l l t h e discussion which has
been going o n around t h e tatle has been o n the assumption
that w e are going t o adopt this report o f the committee
and continue
loaded.
t o m a k e t h e s e transfers.
N o w , I
came h e r e
T h e Leased “ i r e C o m i t t e e r e p o r t w a s adopted a t
this conference, a n d the Leased “ire Comittee reports
provides t h a t telegraphic transfers o f funds b e limited
to deposits o f bank balances o v e r t h e leased wire, a n d
if Feceral Reserve B a n k transfers should b e
ye cannot l o a d ourselves u p with a large
transactions i n v o l d i n g t e l e g r a p h i c
transfers---
The Chairman:
Y o u are rot loading the «ire when
you t a k e t h e m i n o v e r t h e p u b l i c w i r e .
Governor
Calkins:
loading o u r institution.
Deputy G o v e r n o r C a s e :
T ° w o u l d i i k e t o asi".a 0 u 6 8 =
WT
eaee ie w e have a good many transfers tetween N e w
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
542
and Chicago.
T e n million dollars m a y g o t o the Con-
tinental o f Chicago, a n d t e n o r twelve million f r o m the
Continental
o f Chicago
t o the Bank
w i r e , a n d I umerstand
has b e e n going o n over t h e l
the v r o h i b i t i o n
that
o f Grmerce---
t o w e a n that i f Armour o r Sears-Roebuck
o r Comercial
é Company w a n t t h e Continental
t o transfer
five o r t e n million dollars t o the Bank o f Comrerce,
that t h e transaction c a m o t
g o over t h e leased wire?
The Chairman: LGCanne-bige: W O .
Deputy Governor C a s e :
The Chairman:
T
T h a t i s a w a n d n e w deal.
I
t could g o i n a m t h e r way.
mulations o f funds would b e come b a n k balances,
part o f b a n k balances,
a s t h e b a n k balances
f accu-
or
o r part o f
could
bank balances, t h e y could f & transferred, b u t they
not s p e c i f y t h a t i t w a s t o b e p a s s e c
Governor C a l k i n s :
o n t o t h e customer.
T h a t i s just emactly t h e
e Pacific Coast i s dotted w i t h agencies o f
w h o desire
every sort a n d cescription o f eastern houses,
to t r a n s f e r
t h e i r collectiors
freauently a s possible.
t o t h e head offices
a s
T h e member banks solicit these
accounts f o r t h e v e r y p u r p o s e
the Federal Reserve System.
o f transfering t h r o u g h
I
n our case t h e volume h a s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
543
increased t o a point wheire w e have found i t absolutely
necessary t o s a y t e the large member banks t h a t i f w e
continue
t o handle these individual f i r m a n d corporation
transfers, t h a t i t would b e at t h e cost o f service t o
them, t h a t i s , t h a t t h e u n i m p o r t a n t t r a n s a c t i o n s g o i n g
over t h e leased wire would crowd o u t t h e vitally important transactions,
w h i c h would
m t
b e consummated properly
or i n d u e tine.
G overnor Harding:
B u t that transaction wouldn't
go o v e r t h e l e a s e d w i r e a t ail.
was a n s w e r i n g M r . C a s e ' s
Governor C a l k i n s : I
gestion.
Devuty Governor (Case: I
had overlooked entirely
that this w a s a prohibition against third parties. I
thought most o f our large transfers v e r e o f a mature t h a t
benefited s o m e large corporation.
Governor C a l k i n s :
is a
t doesn't matter whether
large t r a n s a c t i o n o r a
Governor S e a y :
Like
I
it
small o n e .
T h e r e i s another question I would
t o praise.
The Chairman:
D o y o u mind remembering that f o r just
a moment, Governor Yeay?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
544
Governor Seay:
N o n , inidedd, “Tt will nold Lt. i n
abeyance,
The Chairman:
looked u p o n a s a
of a
. A s I understand it, this must t e
prohibition
o f the use o f the name
third p a r t y u n d e r a n y circumstances,
t h a t i f we d o
not handle i t that way, t h e n o f course t h e plan would
not b e effective. I
was asking wr° Strater t o confirm
that, a n d I would like t o say a
standing i s correct,
case o f “ a r s h a l l
word o n it.
I f that under-
i t would still b e possible,
F i e l d * & Company,
made o f t h a t t e n m i l l i o n d o l l a r s
i n the
t o have t h e t r a n s f e r
a s part o f a
bank b a l -
ancé=--Governor “ l k i n s :
The Chairman:
N o , M r , Chairman.
J u s t a moment.
< - ~ t o have t h e trans-
fer m d e , b u t advite t o the ultimate beneficiary would
have t o g o over tle public wire.
Gone u n d s r t h i s plan.
Unless
T h a t would have t o b e
w e a r e t o adhere t o that
we a r e g o i n g t o h a v e m o r e t r o u b l e w i t h S a n f r a n c i s c o
about it.
Governor Calkins:
Y o u are going t o have more
trouble w i t h S a n Francisco tecause w e won't carry o u t the
instructions
t o make s u c h trensfers
t o t h e exclusion
of
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
545
more i m p o r t a n t t r a n s a c t i o n s .
W w e n o t o n l y w o u l d not,
but w e simply coula not.
Governor Yourg:
D o e s this mean, Mr. Strater, t h a t
if the Northwestern National B a n k comes o v e r t o pur institution a n d asks u s t o send $100,000 t o t h e Hanover
national Bank, f o r credit, w i t h t h e Hanover National
Bank, t h a t y o u would simply s e n d i t b y co™mmercial wire?
Mr°® Strater:
T h a t i s t h e o n l v k i n d o f transaction
that i s v e r m i t t s d o v e r t h e leased. w i r e u n d e r t h e n e w
I will t r y t o tell y o u what t h e conmittee,
a n d aiso t h e Comnitt=e
wire Committee,
on
Voluntary Services, t o c k into consideration when this
matter w a s C i s c u s s e d j u s t a
few weeks a @ .
T h e purpose
of t h e L e a s e d W i r e C o m m i t t e e ' s r e p o r t a n d t h e n e w
regulations w h i c h t h e (onference h a s adopted,
o f course
is t o take t h e load o f f t h e leased vires. A
good pro-~
portion o f the l o a d Santis eed o f transfers i n which a
third party, o t h e r t h a n a
ficiary.
member b a n k w a s i n d i r e c t l y b e n e -
N o w , t h e comuittee f e l t t h a t i t was s t i l l pos-
sible, u n d e r t h e regulation a s n o w worded,
t o make these
transfers o v e r t n s leased wire, Wwcause i t w u l d b e prac-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
546
tically i m p o s s i b l e
t o put a
microscope
o n every request
for transfer that you got, even i f you could d o it, t o
determine vihether o r n o t i t w a s
a n k balance, T n e r e f r r e ,
if the transfer w e s f o r t h e benefit o f the third party,
it s h o u l d b e m a d e m e x e l y b e t w e e n t w o m e m b e r b a n k s , u s i n g
the commercial w i r e t o exnlain t h e rest o f t h e transacTONS
Deputy Governor Case:
‘ h o uses it, t h e commercial
bank?
The m e m b e r banks w i t h w h o m t h e t r a n s f e r
T h a t means that
originates.
t o some extent
t h e object
of the n e w regulation i s defeated, because y o u still g e t
your transfer, b u t t h e third party will have t o use,
or r a t h e r t h e m e m b e r b a n k w i l l h a w
wires
t o c o m p l e t e t h e transaction.
t o use t h e cormercial
N o w ,
1f s o m e a r r a n g e m e n t s u c h a s i s p r o p o s e d
the c o m t t e e
w e figure t h a t
i n the report o f
o n V o l u n t a r y services, w e r e m a d e effective,
ths member b a n k would b e willing t o consum~ate t h e whole
transcation
over t h e commercial
two transactions,
wires
r a t h e rhant h a v e t h e
@ ® cause i t wouldn'y c s t a n y more, a n d
wire b y havin
therefore i n s u r e a g a i n s t a b u s e o f t h e l e a s e d
the t r a n s f e r
g o strictly
i n a c c o r d a n c e w i t h t h e pegulation.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
547
Ns
D o you anticipate that the class
Governor Fancher:
of transactions
e have concucted, covering t h e trans-.
whichw
fer o f unimportant collection items, w i l l probably t k
entirely eliminated?
line Strater:
L o t i
sos
have p a r t i c u l a r l y
Governor Fancher: T
Vill o f l a d i n g d r a r t c o v e r i n g 2
i n mind a
shipment o f autorobiles,
transferred f r o m t h e P a c i f i c C o a s t east, a n d t h e t r a n s f e r
from tts Pacific ( b a s t o f proceeds o f drafts covering
o f t h a t sort, w h i c h a r e u n i m p o r t a n t
reight a n d things
transactions,
s o far a s amount i s concerned.
I t has t e e n our experience, a n d I
ve. Strater:
think i t h a s b e e n t h e e x p e r i e n c e
these t r nsactiors
o f every other
c a n b e so d i s g u i s é
difficult t o identify then.
i
b a n UheG
s -outce
T h e member banks have done
that a n d they will d o i t again because t h e opportunity,
even under the new regulatiom, which are very stringent,
is still there.
The Chairman:
N o w , Governor Seay, I will b e
-lad t o h e a r f r o m you.
Govrn o P Seay:a
that I
a m a s familiar
o
f course
i t i s n o t t o b e supposed
w i t h these processes
a s t h e opcras-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
548
ing men o f the bank are, b u t arpther thing I wanted t o
know was whether t h e same procedure would b e followed,
when t h e b a n k s r e c e i v e o v e r t h e o u t s i d e w i r e t r a n s f e r s
this kind,
i n m t i f y i n g t h e beneficiary,
TO. 08 8: bank, p y wire.
i f i t happens
T h e rule w w i s when a transfer
is received f o r the benefit o f a bank, t h a t i t 1 s notified b y wire, u n l e s s
mail,
i t requests t h a t i t b e n o t i f i e d
by
I s n o t that t h e case?
ur. S t r a t e r s
P h a t L s VwoPuss
I
Cvernom™s o a r s
volve a
f that i s the case i t might in-
t h i r d telegram.
The chairman:
N o , t h e memter b a n k vould m t d o
anything o f that kind, because h e c a n d o i t cheaper himSOL.
Governor Seay:
H e carmmot effect t h e transfer,
though?
Governor Fancher:
H e has t o use t h e conmercial
wire t o advise the bank bencfited b y the transfer, but
you a r e p a y i n g f o r i t e x a c t l y t h e s a m e a s b e i n g d o n e
now.
w h e n you get a
substantial t r a n s f e r
i n with some
do? Y o u send
bank a t Raleigh o r Charlotte, w h a t d o you
p a y bi 9seas
the wire over t h e commercial w i r e a n d you
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Seay:
A n d w e pay for it?
Governor Fancher:
GovEimror Seay:
That i s the point 1
T e a s
A n d under t h e n e w rule I
do not.
a m trying t o get at. U n d e r t h e n e w
rule t h e b a n k i t s e l f w i l l p a y f o r i t ?
Governor Fancher:
B b Baap ly.
eputy G o v e r n o r C a s e ? I
wonder
i f Mr. S t r a t e r w o u l d
not follow through t h e case reirerred t o b y Governor Young,
where t h e N o r t h w e s t e r n B a n k g o e s t o t h e F e d e r a l R e s e r v e
Bank and transfers $100,000 t o the #anover National a n k ,
That goes over the wire, t u t t o m y mind the Hamover
Netional
RBenk
i s not
going
t o know
what
t o
d o with
IG,
other t h a n t o p u t i t t o t h e c i e d i t o f t h e N o r t h w e s t e r n
Bank,
Sovernor Fancher:
T h a t i s a l l t h e y know.
Deputy G o v e r n o r C a s c :
U n i e s s t h e y g e t further w o r d
over tle c o m e r c i a l w i r e t h e y won't k r o w what t o d o
with t h e money.
Governor Young:
questions
u r . Strater,
w e are doing this &
l e t m e ask y o u this
cause there i s too much
on t h e wire, a n d t h e s o l e o b j e c t a t t h e p r e s e n t t i m e
of putting i n this regulation i s t o relieve t h e load
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
on t h e l e a s e d wire.
Wir, Straters
Y e s .
Governor Young:
National
L e t u s assume t h a t the lor+hvestern
B a n k comes o v e r a n d asks
u s t a make a
to t h e H a m o v e r N a t i o n a l B a n k o f N e w York,
transfer
t o t h e i r credit,
of (100,000, a n d a t the same time they send a wire t o
the Hanover Natinnal B a n k o n the commercial - i r e t o
charge their account with €100,000, andrleawe pay t o the
credit o f s o m e company.
I
t seems a b s u r d t h a t w e should
crowd o u r l e a s c d w i r e a n d a l s o u s e t h e c o m m e r c i a l w i r e .
Why s h o u l d n o t t h e N o r t h w e s t e r n N a t i o n a l B a r k c o m e o v e r
to us and say “Charge our account with $100,000 and
remit b y wire t o the Federal Reserve B a n k o f N e w York,
the H a n o v e r N a t i o n a l B a n k ,
to
t o t h e c r e d i t o f that company,
sending t h e whole thing o n the comuercial w i r e a n d leaving the:
d
. wire o u t o f it?
Mp, Strater:
T h a t i s precisely what w a s recome
Governor Young: I
Mr, Strater:
did n o t u n d e r s t a n d that.
O t h e r w i s e y e u would still have your
wire c r o w d e d w i t h a
transfer w h i c h w a s d i s g u i s e d a n d t h e
other part o f it, t h e k e y t o the situation, w o u l d have
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
S51
to g o o v e r t h e c o m m e r c i a l w i r e anyway,
of the Northwestern Bank.
to make m
a t t h e expense
T h e y would b e more likely
attempt t o disguise t h e transfer, b u t the
whole t h i n g w o u l d b e c o n s u m m a t e d
i n one wssage.
Don't
you think that i s Likely?
Governcr Young: T
think $05: tat 1 0 woud. eeiih
permit t h e third party t o get credit o v e r t h e commercial
wire,
“ur. Strater:
Absolutely,
e x c e p t t h a t t h e y will p a y
LOR a
Governor Cal'ins:
happened.
%
L e t m e illustrate
b y what h a s
, certain b a n k i n S a n #“rancisco w o u l d s e n d
to the Federal Reserve B a n k o f San Francisco request t o
transfer $10,183,000.44 t o the National Sity Bank o f
New Y o r k f o r t h e c r e d i t o f 5 4 0 b e n e f i c i a r i e s ,
refused
“when we
t o a c c e p t t h a t telegram, b e c a u s e w e t o l d t h e m
4f w e did w e could r o t carry o u t their important trans-~
action, they said, "All right, y o u make the transfer o f
funds, a n d w e will s e n d 4 separate telegram t o the
After
National C i t y Bank telling t h e m h o w t o distribute,"
t h e y G O uGete i o
they h a d b&ben d o i n g t h a t f o r s o m e t i m e
that, a n d they
cost them 1 4 cents p e r beneficiary t o dec
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
satisfied.
Governor F a n c h e r :
Governor Ualkins:
round a m o u n t s
Y o u transfer
r o u n d amounts?
‘ h a t e v e r a m u n t s t h e y want,
o r otherwise.
The Chairman:
I t seems t o m e the situation a t t he
present time i s this:
T h e committee's report h a s
been approved, e x c e p t w i t h r e s p e c t
t o t h i s o n e point.
Now, t h e o u e s t i o n i s a r e w e g o i n g t o c o r i m e
t o ObLer
services through t h e use o f t h e public wires a n d t h e
medium o f t h e r e s e r v e banks,
impose a
a n d i f so, a r e w e g o i n g t o
charge f o r a l l t e l e g r a m s i n v o l v e d ,
bank originating t h e transaction.
upon the
T h e recommendaticn o f
the committee i s that this b e done.
I s that true, G v e r r o r
Francher?
Governor Fancher:
The Chairman:
Yes.
T h a t i s t h e auestion before t h e meet-:
ing.
Governor Young?’ I
so move, t h a t w e d o so, t h a t w e
try i t f o r s i x months.
The thairman:.
in the report?
Y o u m o v e t h e a d o p t i o n o f this” clauses
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Young:
T o n .
The Chairman:
A s amended b y Govrror Harding?
Gevernor Young: I n c l u d i n g messeges requesting transfei
and advising credit,
tom o f p a g e 7
a t the e n d o f the section a t the hot-
o f tke report.
vernor Harding: I
second t h e motion,
(The motion, h a v i n g b e e n duly seconded, w a s carried.}
Voy Harrison:
the r e p o r t
T h e conference h a s already aporoved
o f t h e l e a s e d w i r e committee, w h i c h i n c l u d e s
among o t h e r things a
proposed d r a f t o f a
regulation c o v e r -
ing t h e u s e o f t h e f e d e r a l r e s e r v e l e a s e d wires,
view o f t h e a c t i o n j u s t t a x e n
b y t h e conference
and in
comerning
the transfer o f funds, i t might t e well t o reauest the
leased wire committee to revise the regulations attac hed
to t h e r e p o r t
e e e
yesterday
i n such w a y a s t o make
them c o n f o r m r o t o n l y t o t h e r e p o r t o f t h e l e a s e d w i r e
committee, t u t also t o the report j u s t adopted. O t h e r w i s e
there really will b e w r y serious confustion, b o t h i n
the # a d e r a l R e s e r v e P a n k s a n d t h e m e m b e r b a n k s
i n conformin;
to the action taken b y the leased wire committee, a n d also
the V o l u n t a r y S e r v i c e C o m m i t t e e r e p o r t - - ~ t h e t w o a r e n o t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
554
inconsistent, b u t unless b o t h are referred t o i t will
be d i f f i c u l t to. operate.
Governor Young:
u
a Ghairman, I
communication today from Minneapolis.
received. this
t h i n k the
Governors w i l l b e interested i n i t twcause i t may have
some b
aring o n some insurance matters.
the Towner Rating Bureau.
I t comes f r o m
T h e y a r e concerned about t h e
osses t h e y have t o p a y o n forged bvaner, I
don't ‘cnow
just what o u r banic ras turned i n o r what Atlanta h a s
turned in.
Governor Seay: &
gs I understand i t t h e Towner rat-
ing bureau i s the tareau through which these rates w i t h
which w e are concerned a r e fixed.
T h e commrication,
then, i s one deserving o f consideration, a n d I would
move t h a t t h e c o m u n i c a t i o n
b e referred
t o the C h a i r m a n
of the Insurance committee.
The: (eatemans I
stances
would move, u n d e r those circum-
that t h e comnunication
b e read a n d eonsidered
here.
Deputy G o v e r n o r C a s e :
W h y n o t r e f e r i t t o t h e Chair-
man o f t h e I n s u r a n c e C o n m i t t e s e .
W i e all have copies
o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5O5
it.
I t i s something o n which t h e Insurance committee
ought t o a c t b e f o r e i t comes
The Chairman:
t o t h i s conference.
I t i s a question a s t o their wil-
lingness t o continue t o protect u s against forzery, I
think.
Governor “ancher: I
have a copy o f a letter
written b y the thairman o f t h e Insurance onmnittee t o
one o f the m e m w r s
o f t h e committee, w h o i s one o f the
junior officers o f our bank, a n d i t has a
Torner letter attached,
copy o f the
s o that t h e matter i s ‘efore
the i n s u r a n c e c o m m i t t e e .
think, nevertheless, t h i s con-
Governor I
ference ought t o rever i t t o the Insurance G o m m i t t e e
so that they will get i t officially.
Gevernor Young: T
s o move.
Deputy Governor ( s e : I
secord t h e motion.
(The motion, having teen duly seconded, was carried.)
The Chairman:
I s there a n y further t s i n e s s b e f o r e
the d n r f e r e n c e ?
G overnor Young: I
move that t h e conference adjourn.
Teputy G o v e r n o r C a s e : I
m v e that a
rising v o t e
of thanks t e given t o our very efficient Chairman, «
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor McDougal.
(A unanimous r i s i n g v o t e w a s given, a n d ,
a t 5:15
o'clock p. m., the Conference o f Governors adjourned.)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis