Full text of Federal Reserve Governors Conference : Meeting Documents : May 5-7, 1924 : Joint Conference Proceedings, May 7, 1924, Morning Session

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

PROCEEDINGS

JOINT

CONFERENCE

BOARD

O F

WITH

THE

T H E

OF T H E F E D E R A L

TREASURY

FEDERAL

GOVERNORS

RESERVE

BUILDING

WASHINGTON,

D . Cc.

MAY 7 , 1 9 2 4

WALTER
SHORTHAND
COLUMBIAN

S. COX
REPORTER
BUILDING

WASHINGTON,

RESERVE

D. Cc.

BANKS

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

JOINT C O N F E R E N C E

O F T H E FEDERAL RESERVE

BOARD “iITH T H E G O V E R N O R S

O F FEDERAL R E S E R V E

BANKS.

Washington,

D . Ce, M a y 7 , 1924,

EO LOLOCK. Bie. Tig
The j o i n t c o n f e r e n c e
with t h e G o v e r n o r s

o f t h e Federal Reserve B o a r d

o f Federal r e s e r v e b a n k s c o n v e n e d

in

the h e a r i n g room, F e d e r a l R e s e r v e Board, T r e a s u r y B u i l d -

ing, Washington, D . C., M a y 7, 1924, a t 1 1 o'clock a.m.
Present:

D. R. Crissinger, Governor, Federal Reserve Board

Kdmund Platt, Vice Governor, Federal Reserve Foard,
Adolph C. Miller, Member Federal Reserve Board
Charles 8 . Hamlin, Member Federal heserve Board
Rdward H. Cunningham, M e m b e r Federal Reserve Board.
Harding, Governor, Federal Reserve B a n k o f
Boston,
J. H . Case, D e p u t y Governor, F e d e r a l R e s e r v e Ban'c
of N e w York,

Geo. W . Norris, Governor Federal Reserve B a n k o f
Philadelphia,

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

a
BG. R. Fancher, Governor Federal Neserve B a n k o f
Cleveland
George J . Seay, Governor Federal Reserve
Richmond,
B. Wellborn, G o v e r n o r F e d e r a l
Atlanta

B. MeDougal, G o v e r n o r f e d e r a l R e s e r v e
Chicago,
D B O AOk, wards <

Sanie o f Min-=

J. B a i l e y ,

Governor federal Reserve

Bank

of

Kansas C i t y
h “eKinney.,..coVvernor .Peverad R e s e r v e B a n e o f
Dallas,

Ue scvaliins, Governor: r e n e
Francisco. .

PROG: DINGS.
Governor ficDougal:

G o v e r n o r Crissinger,

a n d members

of the B o a r d , t h e conference h a s completed discussion o f

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

its program, i n c l u d i n g t h e s e v e r a l t e p i c s s u b i t t e d

the Federal Reserve B o a r d which, I

by

understood, y o u wished

us t o d i s c s s a n d e x p r e s s v i e w s u p o n .
Takine

u p t h e Poard's topics first,

which t h e e s t a b l i s h m e n t

1 , principles

b y

o f Federal R e s e r v e B r a n c h B a n k s

and their serviceabllity a r e t o b e tested, w h i l e there
were m a n y o p i n i o n s e x p r e s s e d , I

think t h e c o n s e n s u s c a n

be s u m m e d u p b y s t a t i n g t h a t i t w a s t h e g e n r a l b e l i e f
that t h e o u t s t a n d i n g p r i n c i p l e

the q u e s t i o n o f service,
was i n a

o f importance

would

k e

a n d that “here t h e parent b a n k

position t o r e n d e r t h a t s e r v i c e w i t h r e s p e c t

to

currency, c r e d i t a n d t r a n s i t m a t t e r s p a r t i c u l a r l y , r e n d e r -

ing the service promptly, satisfactorily a n d adequately,
that t h e r e w e r e n o g o o d r e a s o n s f o r Sivineg abe wote ble
consideration

t o the establishment

o f Wwanches;

t u t that

on the contrary, where prompt and satisfactory service
could m t b e given from t h e parent tank, t h e n t h e suestion
of tranches b e c a m e a
ation,

matural a n d p r o p e r o n e f o r consider-

a n d that where cormitions j u s t i f i e d t h e estab-

lishment

o f branches t h e y s h o u l d t e established,

b u t not

pefore giveings careful consideration a s t o whether s o called agencies, s u c h :as have been established, w o u l d

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

answer t h e purposes, a n d m i n the event t h e y would,

of

course t h e conference w a s i n f a w r o f establishing agencies.
Another t o p i c s u b m i t t e d

b y t h e Board w a s t h e auestion

of procedure followed b y the several reserve banks i n
the m a t t e r o f d i s p o s i n g o f n o t a r y f e e s .

A f t e r canvassing

the s i t u a t i o n i t d e v e l o p e d t h a t t h e r e w e r e s e v e n o f t h e

banks w h o were having their work done o n the outside,
and t h e r e w e r e f o u r h a v i n g t h e i r w o r k d o n e

o n the inside,

that o n e b a n k w a s h a v i n g i t s w o r k d o n e o n t h e inside,

but was having returned t o the b a n k what t h e y termed
excess f e e s ,

which was a

w

percentage

o f the

do notthink w e need g o into parti-

fees involved. I
culars.

considerable

e c a n state that those banks having

done o n the inside were, I

t h e worit

think i n every case, d o i n g

condi4t upon t h e advice o f counsel, a n d doing i t under
tions w h i c h t h e y b e l i e v e d i n v o l v e d
Mee M a l e s

D

n o risk.

o I T understand t h a t t h e R o a r d ' s i n t e r -

est i n this matter i s merely seeking information,
soe r e c o m m e n d a t i o n f r o m t h e G o v e r n o r s
matter s h o u l d b e s t b e handled?

or

a s t o how this

H a v e y o u a n y fisures

fees is, paid o u t b y
showing w h a t t h e a m o u n t o f notaries

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

the different banks?
Governor McDougal:

F i g u r e s w e r e n o t vresented o r

referred t o except b y two banks.

O n e was t h e Chicago Bank.

Our f e e s r u n a t t h e v a t e o f a b o u t $ 2 9 , 0 0 0 p e r annum, w i t h
respect o f w h i c h v e f e e l t h a t w e a r e m a k i n g a

saving o f

the larger part b y having t h e work done inside.
think t h e figures i n the

Deputy Governor Case: I

matter have already b e e n supplied t o the Federal Reserve
Board b y e a c h r e s e r v e b a n k .

My. Miller:
conference

has

T h e n m y understanding i s that t h e

n o recommendation

t o make

o n that subiect

with a view o f improving t h e existing situation a n d pracCLS?

Governor McDougal:

T

t has none, sir.

I f w e had

brought i t t o a vote i t would h a v e b e e n a divided vote.

Those who are having i t done outside feel that that i s
the b e s t w a y f o r t h e m t o d o i t ; t h o s e w h o a r e d o i n g i t

on the inside feel that t h e y a r e safe. I
briefly w i t h t h e s e matters. T

will g o along

have n o d o u b t t h a t s o m e

of t h e s e c u e s t i o n s w i l l r e q u i r e f u r t h e r discussion.
Mr. H a r r i s o n h a s c a l l e d m y a t t e n t i o n t o o n e m a t t e r
of i m p o r t a n c e ,

a n d that

i g that while

w e hadno figures

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

6

to indicate t h e proportion o f items t h a t were protested
which were i n amounts less t h a n $20--- w a s that it, Mr.
Harrison?

My. Harrison:

Y e s .

Governor iicDougal:

~ - - that a committee w a s asked

to make a n investigation a n d study o f the situation a n d
see w h a t e f f e c t

i t would h a v e i f w e raised o u r limit t o

$20, instead o f keeping i t at #10.
In regard t o t h e m a t t e r

o f effecting arrangements

by which a member b a n k might b e supplied w i t h currency
requirements

b y a

Federal R e s e r v e

B a n k other t h a n i t s own,

it w a s c o n s i d e r e d t h a t i t w o u l d b e o b j e c t i o n a b l e
intc a n y p o l i c y o f t h a t s o r t a s a

t o enter

general policy,

b u t that

on the other hand i n cases o f emergency s u c h a s have occurred a n d w i l l occur,

a n d also w i t h respect

t o certain

4solated t o w n s

o r banks w h i c h h a p p e n t o b e g e o g r a p h i c a l l y

Located n e a r e r

t o t h e Pederal reserve

b a n k outside

o f

that
the district t h a n t o its o w n Federal reserve C P R S
arrangements o f that sort might proverly t
Another g u e s t i o n w a s t h e c o n s i d e r a t i o n
Reserve Agents!
Bila.

effected.
o f the Federal

r e p o r t relating t o t h e so-called Fulmer

and
T h a t matter w a s considered v e r y carefully

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

7
views o f conclusions

o f t h e Agents! C o m m i t t e e w e r e h e a r -

billy concurred in, F u r t h e r m o r e ,
the s t a n d p o i n t

i t was considered f r o m

o f t h e proposed amendments,

a n d w e felt

that t h o s e a m e n d m e n t s m a d e t h e b i l l s t i l l m o r e unsatisfactory a n d p r o b a b l y dangerous.

Governor Crissinger:

W i l l t h a t b e reduced t o writ-

ing, t h e recommendations a n d report o n that?
Governor McDougal:

T h a t “ill come through i n writ-

ing. B e f o r e going o n now with respect to’ some o f the
important m a t t e r s d i s c u s s e d

o n t h e o t h e r program,

w e

understand very plainly now, through t h e resolution
recently a d o p t e d

b y t h e F e d e r a l K e s e r v e Board, t h a t w i t h

respect t o operating matters a n d t o matters t h a t were
treated b y t h e c o n f e r e n c e h e r e w h i c h did. n o s P e q u i re,

under t h e law, o r did n o t require under regulations o f
the Board, a t t e n t i o n

b y t h e Board, t h a t t h e y w i l l b e

adopted a n d p u t i n t o e f f e c t w i t h o u t a n y a c t i o n b y t h e

Board, t u t a t the same time w e understand that t h e Board
will b e f u l l y i n f o r m e d a n d p r o m p t l y i n f o r m e d w i t h r e s p e c t
to a l l a c t i o n s t a k e n ,

That,

w e believe,

w a s embodied

in

the resolution t o which I have referred.
In regard t o open market operations,

t h e report o f

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

8
the committee w a s read, w a s approved, a n d i s available
to t h e R e s e r v e R o a r d .

T h e r e was discussion based o n the

assumption that carnings might n o t b e sufficient t o meet
expenses a n d d i v i d e n d reauirements,
submitted

t o t h e Conference

a n d t h e matter w a s

a s t o t h o s e t h r e e points:

whether t h e Federal reserve banks under those circumstances
would b e i n f a v o r o f c u r t a i l i n g services,

a n d incidentally,

of course, expenses; w h e t h e r t h e y would resort t o open
market operations,

o r whether t h e y w o u l d p a y dividends o u t

of a c c u m u l a t e d surplus.

The first choice o f nine banks w a s i n favor o f
paying d i v i d e n d s o u t o f surplus,
three b a n k s w a s i n f a w r

T h e first choice o f

o f c u r t a i l i n g services.

T w o

banks w e r e i n favor o f r e s o r t i n g t o t h e o p e n market,

very strongly i n favor C r AN, I

might s a y with regard t o

reserved t h e
that that other banks w h o voted o n the matter
resort
right a n d s a i d t h a t t h e y m i g h t h a v e t o

market transactions
ments m a d e I

t o opsn

statet o protect themselves, b u t the

O t soi
think c l e a r l y r e p r e s e n t t h e r e s u l t

canvass.

There w e r e r e p o r t s r e n d e r e d

b y t h e committees

o n non-

wire comeittee.
cash collections, a n d b y the Leased

Both

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

9

of those reports a r e available a n d will b e handed t o the
Board a t once. T

c a n comment

o n them,

i f y o u like, b u t

will postpone i t for t h e moment.
The question o f discount rates, t h e policy with regard t o discount rates,

a s discussed i n the Federal Re-

serve B o a r d ' s r e c e n t a n n u a l report,

w a s considered a n d

the principles outlined therein were very strongly comnended.

In regard t o R e g u l a t i o n J
, it 1 s the sense o f the
Conference t h a t t h e Governors!
lections

b e requested

Standing Committee

o n Col-~

t o c o n f e r w i t h Mr. Wyatt, i l i agree-

able t o him a n d t o the Board, w i t h respect t o the draft
of a

n e w regulation.

I

t was t h e feeling t h a t that mat-

ter s h o u l d t e a t t e n d e d t o .

With respect t o the m a t t e r o f counting currency i n
transit a s p a r t o f t h e r e s e r v e r e q u i r e m e n t s ,

s e v e n o f the

governors w e r e opposed t o it, f i v e were i n favor o f it.
The ouestion o f legality h a s b e e n raised o n the part o f
counsel o f several o f the banks. I

do n o t remember

whether i t was t h e thought t h a t i t would b e vell t o have
an expression from t h e Board's counsel i n regard t o that
Or. O t .

10
Ve. H e r r i s o n s :

B o u g a l e§
: ev, M e V


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

T h e r e was

n o action taken

o n that,

p a g ae n a liy s ien g s
o G
r r iis sri neg epr '!s l eot t e rY aa n d }blueprint
Governor
l

1923 e x p e n s e s w a s received.
9

mate o f t h e i r e x p e n s e

2

T h e G o v e r n o r s w a d e n o esti4

.

T h e y w e r e n o t prepared

to d o that, Governor Crissinger, b u t voted,
was t h e c o n s e n s u s

o f opinion,

o r rather

t h a t a l l t h e banks

i t

are now

making e v e r y p o s s i b l e e f f o r t t o p r o m o t e e c o n o m y a n d e f f i -

ciency, a n d that t h e Board's recornenaation

b e handed

on t o t h e e c o n o m y a n d e f f i c i e n c y committees,

o r whatever

i n each o f the Federal reserve banks,

they may b e termed,
with i n s t r u c t i o n s

t o give v e r y careful considerationio

the same; a n d i t i s a l s o r e c o m m e n d e d t h a t e a c h Federal

reserve b a n k give careful consideration t o the question

of establishing a tmdget system, which i s now i n force
in a t least t w o o f t h e r e s e r v e b a n k s a n d w h i c h n o w i s
o f g o o d results.

being q u i t e p r o d u c t i v e

There were other noports submitted, copies o f which
the b o a r d w i l l a
by t h e C o n m i t t e e

e

promptly.

T h e r e was a

o n Standardization

o f Supplies,

matter o f 1ife a n d automobile insurance,
ing credit information,

report
o n the

o n cost o f secur-

a n d s o forth.
ce

With regard to, the ouestion o f what, i f anything,

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

Po
should b e done t o enlarge ‘sembership i n the system, w h i l e
most o f t h e b a n k s r e v o r t e d t h a t t h e y a r e a t t e m o t i n g

no

°
active steps,

o r a t least t h e y were n o t conducting vigor-

ous c a m p a i g n s

t o s e c u r e members,

important

i t was felt that i t was

t o continue, w h e r e possible,

t o enlarge u p o n

the p r e s e n t p r o g r a m o f e d u c a t i n g t h e public,

a s well a s

the banks, i n the operations m i purposes o f the reserve
system,
I a m s o r r y t h a t lire D a w e s

i s n o t h e r e now.

H e attend-

ed o n e o f o u r sessions, e x p l a i n e d t h e p r e d i c a m e n t w i t h
which h e w a s confronted,

a n d suggested t h a t w e give con-

sideration t o t h e m a t t e r

o f increasing t h e amount p a i d

for bank reports from $4.50 t o $10.

I t was the general

view t h a t t h e s e r e p o r t s a r e m o s t h e l p f u l

t o t h e Federal

reserve banks, a n d that t h e Federal reserve banks should,
wherever possible, c o o p e r a t e

the Comptroller;

i n every possible w a y w i t h

b u t i t was thought a t t h e same time that

this matter should b e f i r s t presented t o the Federal
Reserve Poard, a n d i f the Federal Reserve Board felt
favorably inclined,
banks

t h a t t h e y a d v i s e t h e Feceral r e s e r v e

s o that those banks could submit

own b o s v d s . . o f d i r e c t o r s .

t h e matter

t o their

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

Le
Wwe also h a d a vist f r o m Under Secretary ‘vinston,
who s t a t e d t h a t h i s d e p a r t m e n t w e
of p r a c t i c i n g econony.

e

d

i

n

g with a

view

e s t a t e d that a t t h e b e g i n n i r g

H

of the next fiscal y e a r t h e w a r savings organization would
be disbanded, a n d that t h e reimbursable expense would b e
confined t o the cost o f handling n e w issues o f certifl~
cates; t h a t t h e a p p r o p r i a t i o n f o r m e e t i n g t h o s e e x p e n s e s

would b e reduced from $270,000 t o §2Q,000.
That report c o ers, I

think, t h e more important
have n o

matters w h i c h w e h a v e considered,

s o m e o f which I

doubt w i l l b e C i s c u s s e d f u r t h e r . -

I t w a s expected, G o v e r -

mr Crissinger,

t h a t y o u a n d your associates

o n the Board

would probably want t o g o a little deeper i n t o some o f
these subjects,

e glad t o
a n d i n any event w e w o u l d b

have t h e B o a r d t a k e u p w i t h u s a n y m a t t e r s t h a t t h e y f e e l

like taking u p with u s a t this time.
Me. Hatain:

“ W h a t was t h e sround o f those banks

that t o o k t h e p o s i t i o n t h a t t h e y p r e f e r r e d

t o dip into t h e

surplus rather t h a n investing i n open market investments
to e a r n o v e r h e a d a n d d i v i d e n d s ?

Governor McDougal:
at l e a s t o n e , a n d I

o f those w h o spoke o n the subject,

think v e r h a p s o t h e r s , f e l t t h a t a

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

20
surplus, w h e t h e r

i t b e the surplus

o f these corporations

or o f c o r p o r a t i o n s t h a t a r e o r g a n i z e d f o r profit,

i s estab-

lished f o r just such contingencies a s this; t h a t a s
business goes along year after year w e are liable t o
have t w o o r three years o f harvest a n d w e are liable t o
have periods o f famine, a n d that rather t h a n resort t o unnatural m e a n s o f s t i m u l a t i n g earnings,

t h a t t h e Federal

reserve banks might d o properly w h a t other corporations
have d o n e a n d w h a t t h e y a r e d o i n g n o w , v a y i n g t e r p o r arily,

a t least, d i v i d e n d s f r o m surplus.

not put i n exactly this way, I

‘ h i l e i t was

t was t h e view o f
thinki

all t h e banks, e x c e p t p o s s i b l y orm,

Tie

o y V I O Oy Woe V

Onn:

much more desirable t o p a y dividends f r o m surplus t h a n
it would b e t o pass a dividend.
Mr. Hamlin:

B u t w h y w o u l d o p e n market operations

be c a l l e d u n n a t u r a l o p e r a t i o n s ?

I s n ' t that a

legitimate

way i n which banks m a y earn a dividend?
Governor M e Dougal:

t T regard i t so, f o r myself;

t o this matter
I have always f e l t that way. “ 4 4 t h regard
of enormous expenses,
our eyes shut.

w e did n o t g o into this expense w i t h
it with tne understanding

t h e o p e n “arket t o
that i f i t b e c a m e r e c e s s a r y w e h a d

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

14
depend upon.

C o n d i t i o n s h a v e c h a n g e d somewhat, i n f l u -

ences have b e e n brought t o w a r ,
that t h e y a r e n o t q u i t e

a n d the banks feel n o w

a t liberty

t o exercise their

own

judgment w i t h r e g a r d t o t h e s e things, b e c a u s e t h e y a r e
acting

i n cooperation w i t h e a c h other a n d u n d e r t a k i r

handle t h e things i n that way.

t o

“ h e n v e offered these

voluntary services--- t h e y were n o t asked for, t h e y were
offered,--- I

can remember v e r y vell that w e looked for-

ward t o a tine w h e n w e would have l e a n earnings, a n d
whether o r n o t they all felt that way, I

felt that they

would b e taken care o f b y the very matter t h a t y o u are
referring

t o now.
D o e s t h e A c t provide f o r accu-

Governor Crissinger:
mulated d i v i d e n d s ?

Governor McDougal:

L E S cS Ll sy

Governor Crissinger:

T h a t would indicate t h a t they

did n o t e x p e c t y o u t o m a k e m o n e y e v e r y year.
Deputy G o v e r n o r a s e :

e

of t h e s u b i e c t w h i c h i t s e e m s
answer

r

e i s o n e practical p h a s e

t o m e would b e a

direct

t o Governor Hamlin's cuestion, w h i c h h a s n o t b e e n

alluded

quired a

t o yet, a n d t h a t i s this:

T h a t while w e have a c -

portfolio o f #235,000,000 o f short governments

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

a6
since last December, t h e earniny assets o f the tvelve
banks have gone off%400,000,000,

and p e r s o n a l l y I

have

entertained i n m y o w n mind a doubt, i f w e were i n fFaxa
of g o i n g o u t a n d u n d e r t a k i n g

to

acquire a

sufficient

amount o f earning assets m o w t o

cover a l l expenses, w

ther,

could d o it, because

as a

practical m a t t e r ,

v e

he-

there i s a little recession a n d

earning a s s e t s a r e n a t u r -

ally s l i d i n g o f f ;

we h a v e b o u g h t 2 3 5 , 0 0 0 , 0 0 0

s o that while

in goverrnment securities, w h i c h

are a v a i l a b l e a n d c a n

be resold o n the market,

not only n o t added any-

i t has

thing t o our earning assets, b u t points M e c k t o the fact

that earning assets have gone off $400,000,000,
a practical m a t t e r I
stem a s a
millions

do n o t believe
whole

o f additional

i t w o u l d b e possibile

t o acquire

earning a

S o as

ssets

four

o r five hundred

without just

deliberately pouring money i n a n d going into cometition
with member banks a n d raising prices.
Governor ilcDougal:

There

that w e all agree w i t h you, b u t
have h a d opportunities--~-

ian't a doubt, w m e G s e ,
on t h e o t h e r h a n d

we

w e have lost t h e m f o r t h e time

being, b u t w e will have t h e m again, a n d advantage will b e
taken o f them when they come t o lay i n a back-log f o r

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

AEs

this. v e r y purpose,

L T think 1 0 emould bs. dome, b u t t n e

time c e r t a i n l y i s n o t o p p o r t u n e n o w .
Vie - @ v e r n o r Platt:
earning a s s e t s

Y o u could n o t increase y o u r

b y going i n t o t h e market without paying

off these rediscounts,

i f you have any.

i

e o f lars OF a=

count that does n o t affect a r e those that a r e taking care
of c e r t a i n b a n k s t h a t c o u l d n o t p a y anyway.

T o try t o

create earning assets b y going into t h e market would d o
no good,
Governor McDougal:

T h a t i s a t present.

Vice G o v e r n o r Platt:

Y o u c a n buy two p e r cent

bonds which secure circulation, without having a n y effect,
and that t e the only t i m e y o u c a n buy. ° A s 4a matter. o f
fact y o u ought t o b u y those whenever v o u g e t a chance t o

s o far a s 1 tan' see.

do L t 3tae your dont,

Y o u only

take t h e m i n s m a l l m a n t i t i e s .

Governor ‘cDougals

of thos,

B u t t h e market i s almost b a r e

T h e y are selling a t a high premium.

Mr. Hamlin:

D

o y o u uncerstand t h a t were v o u pour

money i n t o t h e m a r k e t i t s i m p l y m e a n s t h a t y o u r d i s c o u n t s

apr o r ?
Govrnor McDougal:

N o t recessarily.

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

ay
Mr. Hanlin:

T h a t h a s b e e n t h e plea within
the

last t w o o r three months, a n d I think money
i n circulation h a s i n c r e a s e d v e r y l a r g e l y - - -

Governor McDougal:

Y o u a r e perhaps better informed

with regard t o that during t h e last three
months t h a n I
am.
Me, Hamlin:

T h a t i s what o u r bulletin f o r April

pointed out.
Governor McDougal: I

think during t h e last t w o

or t h r e e m o n t h s t h e a c t u a l m o n e y i n c i r c u l a t i o n
s
a
h in.

creased, b u t n o t v e r y much.
lip, Hamlin:

I f ,

i n the past t w o o r three months

this m o n e y p o u r i n g i n t o c i r c u l a t i o n h a s i n c r e a s e d
the
amount b u t h a s n o t n e c e s s a r i l y
reduction

i n t h e rediscounts,

w e n accompanied

by a

t h e n could i t n o t b e that

the banks were simply investing i t and not expanding o n
Lt?
Governor McDougal:

i f the Federal Reserve System

were t o g o out today a n d undertake t o put »lL00,000,00 0
more i n the market b y acouiring a
market i n v e s t m e n t s

like amount o f open

i t would h a v e t h e effect o f recucing

the direct discounts a n d maturing bankers acceptances-~-~

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

Governor Calkins:
We. Hamlin:

A n d o f lowering t h e rate,

B u t couldn't y o u t r y i t slowly t o s e e

whether that result would follow?
Deputy Governar Caset
months I

p e r i e n c e i n the past s i x

think c e m o n s t r a t e s t h a t p r e t t y clearly. I

remem-

ber G o v e r n o r S t r o n g t o o k t h i s u p i n December.
at a

time w h e n b u s i n e s s w a s p r e t t y a c t i v e a n d t h e e a r n i n g

assets

o f t h e s y s t e m w e r e n e a r l y $ 1 , 3 0 0 , 0 0 0 ,000,

1, 297,000,000.

H

e s t a t e d t o t h e B o a r d t h a t i n aconir-

ing these t h e earning assets o f the system would perhaps
run u p t o t h i r t e e n o r f o u r t e e n h u n d r e d million.

T h e

facts are, a s these figures show, t h a t w e have

$1, 297,000,000 i n earning assets o n December,
#847,000,000
o r thereabouts
od

i n the latter part o f April.

the m e a n t i m e w e h a v e a b o u t 2 5 5 , 0 0 0 , 0 0 0
ments,

2 6 , and

T h e arswer i s there h a s

e

i n govern-

n less d e m a n d f o r

credit, t h e banks h a v e b e e n able t o pay o f f a n d are n o w our
Wldings.of b a n k e r s a c c e p t a n c e s h a v e b e e n v e r y m e t e r i a l l y
rudeced.

I

t seems

t o m e that i n a

ness i t works automatically,

veriod o f o u i t e b u s i -

a n d i f w e were t o g o out

row w e w o u l d c e r t a i n l y c h e a p e n t h e c h a r a c t e r

o f credit a

great d e a l a n d p u t t h e p r i c e o f g o v e r m e n t s e c u r i t i e s

up

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

a great deal higher,
Mie. Hamlin.

L o w e r i n g t h e discount r a t e would t e n d

todo. that; too, wouldn't it?
Governor Gd@ee.i: S u r e l y .
ire , Hamlin:

I n o t h e r words,

i f y o u l o w e r t h e dis-~

count rate, doesn't i t g o with that that y o u c a n g o into
the o p e n market,

a n d i f y o u raise t h e discount r a t e I

can s e e w h y y o u m i g h t n o t w a n t t o g o i n t o t h e o p e n market.
Deputy G o v e r n o r U a s e :

I

T think w e h a v e g o t t o b e

governed b y the actual existing conditiors a t t h e time
that t h e fate i s lowered.
our r a t e i n N e w York.
lower,

A s you Know, w e just lowered

T h e trend h a s b e e n cistinctly

b u t i t has h a d s o m e slight t e n d e n c y t o further

cheapen money.

I t has b é e n reflected i n the price o f

bankers bills, short goverrmments, cormercial paper and
time loans,

T h e y have a l l b e e n steadily coming d o n .

Wr. H a m l i n ;

H o w have your ciscounts

Deputy G o v e r n o r Case:

run?

O u r ciscounts s i n c e t h a t

time have m t changed waterially.

T h e y have fluctuated.

On Friday they went u p a little,

3 0 O r 4 0 million dollars,

and fell o f f Saturday a n d Monday.
Mr. Hamlin:

T h e y a r e a little higher t h a n they were

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

before?
Deputy G o v e r n o r (Case:

T h e y might

be a

trifle higher,

not much,

ir. Hamlin; H
mariet,

ow much would y o u have t o m y i n the

i f i t could b e done successfully,

t o make

earnings f o r t h e year, a b o u t 9 0 million?
0 t o 1 0 0 mitlion; réeoubly

9

Deputy G o v e r n o r C a s e :

100,000,000.
e

ir. Hamlin;

B u t y o u think that that could n o t b e

done a s a fact?
would

Governor C a s e ; I

done « I

m t say

think i t might b e done.

very unwise. I

f o o .

Oo not, b e

I - t h i n k i t would b e

think i t would b e v e r y m u c h tetter i f w e

had b e e n p u r s u i n g t h e p o l i c y o f s y n c h r o n i z i n g w i t h t h e

program suesested a n d laid c o w n i n this tenth annual
report

o f t h e Board.

I

t seems

t o me, j u s t

a s Governor

we Dougal h a s said, t h a t w e a r e running through a
period,

lean

ouba n d i t w o u l d t e v e r y m u c h twetrer t o s h o w t h e

it
lic t h a t o u r e a r n i n g s a r e g o i n g t o b e m u c h less, a r d

would b e wiser t o dip into t h e surplus t h a n i t would b e
to t r y t o acquire 1 0 0 , 0 0 0 , 0 9 0
assets,

i n additional earning

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

oa
Vice G o v e r n o r Platt:

D i p p i n g i n t o t h e surplus

wouldn't amount t o much, w o u l d it,with each bank?
Deputy Governor C a s e :

N o .

T h e r e a r e $200,000,000

Surplus a n d t h e t o t a l d i p w o u l d n ' t e x c e e d p r o b a b l y e i g h t
or -nlrie. Million o u t o f t h e $200,000, 000,

Viee Governor Platt:

W h a t would i t amount t o i n

your b a n k i f y o u t o o k t h e w h o l e t h i n g o u t o f surplus?

Deputy Governor Case:

I f w e are $100,000,000 short

it would amount t o about »4,000,0°0.
Viee G o v e r n o r Platt:

I

t wouldn't

be a

big item

in the surplus o f any one o f the banks?
Deputy G o v e r n o r ( M s e :
Governor Calkins:
call a t t e n t i o n

N o y v e r y small.

M r . Chairman, I

t o the fact

t m t

mwrely w a n t t o

t h e discussion

that has

gone o n here w o u l d s e e m t o i n d i c a t e t h a t t h e d i s c u s s i o n
the Governors! C o n f e r e n c e w a s o n a

that which we really discussed.

in

different s u b j e c t f r o m

w e did not begin t o

discuss t h e ovestion o f paying dividends f r o m accumulated
surplus.

Y e began t o discuss this matter under t h e

topic suggested b y myself i n regard t o open market transactions,

a n d t h e suggestion w a s o n the importance

comucting

o p e n m a r k e t operations,

of

w i t h o u t considering

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

co
the earnings o f the reserve banks a s a determining factor.

T h a t is a

very different question f r o m t h e ques-

tion h e r e w h e t h e r

» e s t o u l d d i p i n t o t h e reserves

TD t H n k I t i s o b v i o u s
bariks w e r e i n a

o r not.

t 6 €li-of u s t h a t i f t h e r e s e r v e

position t o g o i n t o t h e o p e n m a r k e t f o r

the simple purpose o f making earnings, t h a t a n y effective
operation

i n the market

o r that a n y desired influence

to

be e x e r t e d u p o n t h e market, w o u l d b e c o m p l e t e l y l o s t .

In other words, w i t h open market operations carried o n
o f m a i n t a i n i n g earnings,

exclusively f o r t h e p u r p o s e

would r e c e s s i t a t e t h e b a n k s b u y i n g w h e n t h e y s h o u l d

i t
m t

buy and selling when they should m t sel], a n d i t would
be i n e f f e c t i v e .

Consedauently,

o p e n market operations
:

should n o t b e carried o n with earnings a s a determining
factor, b u t only a s o n e factor. I
talking about a
vital importance,

think w e have b e e n

l e r subject, a n d a s this matter i s o f
i t vould

b e cesirable

t o have i t dis-

cussed f r o m t h e p o i n t o f v i e w o f t h e Board.
wp, H a m l i n :

I s one

o f the reasors

to g o i n t o t h e o p e n m a r i e t a

f o r n o t w a n ting

fear t h a t y o u w i l l d i s a r r a n g e

the Treasury overations, Governor case?
Deputy G o v e r n o r C a s e s

L e t m e answer t h a t i n this

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

25
: “when the committee's operations w e r e started t h e y
met a n d set a tentative amount t o b e acquired o f
100,000,000.

“ h e n that was acauired they a g a i n m d a

meeting, a n d they thought i t was advisable t o raise t h e

amount t o »~200,000,000, and that was done. M o r e recently
it was fixed a t »250,000,000.
acquired $235,000,000.

U n d e r that proposal w e

A t the last meeting o f the com-

mittee, t h e under Secretary, w h o m e t with t h e conmittee,

said that the Treasury was interested i n knowing the maximim amount t h a t w e had i n mind, t h a t these operations d i d
have a n effect o n Government securities, a n d that t h e
Treasury vould like t o know just what o u r program was,
and t h e f e e l i n g o f t h e c o m m i t t e e w a s ,

a s expressed t o

Mr, Winston, that w e ought t o have a s a minimum i n the
neighborhood o f 300,000,000 a s a n amount which would b e
of sufficient s i z e and importance t o b e effective a n d

useful when the time arrived t o use it.
Governor c D o u g a l .

T h a t w a s irrespective

o f earn-

ings?

That 300,000,000 has
nothing t o d o w i t h e a r n i n g s
Deputy G o v e r n o r C a s e :

e p tall.
Y e s , irrespective

o f earnings

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

24
Governor icDougals: I
Hamlin's a u e s t i o n ,

would like t o answer ir.

i f you will permit me,

b y saying that

in m y o p i n i o n c o n s i d e r a t i o n o f t h e T r e a s u r y ' ,
been t h e m o s t i m p o r t a n t s i n g l e i n f l u e n c e

i n t h e matter

of determining o u r o p e n m a r k e t p o l i c y f o r a
of time.

i

long period

L think 1 2 4 m right -a but t h a t ,

Deputy G o v e r n o r C a s e ;

Y e s .

Governor icDougal: I
410 OG. I

policy has

have some views o n that sub-

rmever agreed with t h e Treasury w h e n they felt

so g r e a t l y c o m e r n e d b e c a u s e
an excéss a m o u n t

w e h a d what t h e y considered

o f government s e c u r i t i c s .

O u r expenses

are enormous, b u t they have b e e n taken o n with our eyes
open;

t h e b a n k s h a v e o f f e r e d services v o l u n t a r i l y ,

and

they have done i t o n the basis t h a t they h a d a way o f protecting themselves, a n d that w a s i n the open market. I
agree h e a r t i l y w i t h ur. C a s e t h a t t h i s i s n o t t h e t i m e

but t h e time vill come, a n d when that time
does come a l l o f the Federal reserve banks ought t o lay
in, i n d e p e n d e n t

o f t h o s e o t h e r funds,

specific p u r p o s e , a
open

b u t just forma

back l o g o f g o v e r m n e n t s e c u r i t i e s a n d

securities t h a t a r e available, longer maturiHAN
other/market
ties,

i f you want, possibly equal t o our combined capital

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

25
and surplus,

a n d l a y t h e m away.

is really inconsiderable.

T h e amount involved

I t i s not material w h e n y o u

compare L t w i t h t h e t r e m e n d o u s v o l u m e o u t s t a n d i n g . I
think t h e F e d e r a l r e s e r v e s y s t e m c o u l d v e r y well, w h e n

the opportunity offers, create a back log o f that sor t
in volume e q u a l t o t h e i r capital a n d surplus, w i t h o u t

endangering their a&ility t o meet their obligations. I
think i t was a
BO. I

mistake t o let o u r goverrment securities

said s o a t t h e time. I

that i t w a s a

mistake

think w e a l l b e l i e v e n o w

t o l e t t h e $650,000,000

i n securi-

ties g o when w e did. A c c e p t a n c e s a r e t h e most céesirable
open m a r k e t s e c u r i t i e s t h a t a r e available. I

think t h e y

are coming t o t h e point r o w where t h e y should g o into
wider d i s t r i b u t i o n i n t h e hands
but

w e cannot always depend

Vice G o v e r n o r P l a t t s

o f corporations

a n d banks,

u p o n acceptances.

T h e r e is a

time l i k e l y t o c o m e

when w e w o n ' t h a v e a n y s h o r t t i m e governments,

a n d you

will either have t o b y y bonds o r acceptances.

Governor HicDougal:

t T beiieve I t wilh: netoge = ser-

tous matter f o r these banks t o l a y i n a reasonable supply o f longer maturity goverrment bonds,

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

Wr, Millers I

wauld like t o a s k whether t h e

Conference h a s given a n y consideration t o t h e general question o f o p e n m a r k e t p o l i c y f o r ,

w e will say, t h e rest o f

tie year” 2924,

or-unts., 2 h Bee rate, t h e autumn conference

has convened.

D

forence

o I

understand t h a t s o f a r a s t h e c o n -

i s concerned t h e present p r o g z a m o f buying

250,000,000

ONG: O F i ,

o f short t e r m government p a p e r i s t o b e t h e

I f so, that program presumably will b e com-

pleted w i t h i n t h e n e x t f e w weeks.

Governor iigDougal: I
stodd definitely.

d o n o t think that i s under-

T h e understanding n o w i s that w e are

working h a r m o n i o u s l y .

T h e r e Ig m

indication a t present

of a n y b a n k o p e r a t i n g c o n t r a r y t o t h e o p e r a t i o n s
committed.

T h e committee's efforts

be d e v o t e d exclusively,
possible,

o f the

a t present a r e t o

a s a n d where c o w i t i o n s

t o increasing t h i s special fund.

make it

T h e fund i s

not within t h e control o f the banks, b u t i t i s agreed
upon f o r a

special p u r p o s e t h a t w e s h a l l g e t t h e m a x i m u m

amount that has been sooken of, $250,000,000. ‘Then as
time g o e s o n , c e r t a i n c h a n g e s m a y m a k e i t n e c e s s a r y L o r

sore banks toavail themselves o f their privilege, e v e n
though i t m a y

m t

b e i n harmony w i t h t h e operations

of

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

at
the committee,

o f going i n t o t h e o p e n market f o r invest-

ment,

Deputy G o v e r n o r C a s e :
moment

o r two, a n d I

I

t would n o t take b u t a

think i t w o u l d p e r h a p s

b e well t o

have this report read,
Mr. Harrison:

T h e report

i s a s follows:

“Since t h e joint conference o f governors a n d agents
marizet I n v e s t m e n t C o m a i t t e e h a s

entered a

new phase o f its activity b y recommending a n d

carrying t h r o u g h a

cormon policy f o r t h e Federal Reserve

System i n the purchase o f govern-ent securities f o r a
special i n v e s t m e n t a c c o u n t .
At t h e j o i n t c o n f e r e n c e

o n November l e , 1 9 2 5 , t h e

chairman o f t h e O p e n w a r k e t I n v e s t m e n t C o m m i t t e e r e c o m
mended

t h e resumption

o f purchases

o f U . 8 ° g o v e r rment

securities b y the Federal Reserve Banks i n the open market
in t h e e v e n t t h a t b u s i n e s s c o n d i t i o n s p r o v e d f a v o r a b l e

to acquiring a portfolio.
Market I n v e s t m e n t

Board a n d a

Comittee

O n December 12, 1925, t h e Open
m e t w i t h t h e Federal

plan v a s f o r m u l a t e d f o r t k e p u r c h a s e

goverment securities u p t o 100 million dollars,

Reserve

of

a s far a s

4t c o u l d b e d o n e w i t h o u t d i s t u r b i n g t h e m a r k e t f o r . s u c h

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

28
securities,

securities

a n d under t h e further condition t h a t s u c h

e held f o r t h e 1 2 banks i n a special
shouldb

investment a c c o u n t a n d s t u l d

b e subject

direction o f the Dederal Reserve Board.

t o sale a t the

T h e participa-

tion o f a l l 1 2 Federal r e s e r v e b a n k s i n t h i s p l a n w a s
secured a n d purchases w e r e m a d e g r a d u a l l y u p t o 1 0 0 m i l lion dollars.

A t meetin-s

14 and February 8

o f the committee

o n January

readjustments w e r e recommended i n the

maturities p u r c h a s e d a n d t h e a u t h o r i z e d b u y i n g p r i c e s
which p u r c h a s e s w e r e made.

at

F o l l o w i n g t h e recomvendation

of a meeting o n February 2 5 the amount authorized t o b e
purchased f o r t h i s s p e c i a l i n v e s t m e n t a c c o u n t w a s i n c r e a s e d

At
to 200 million dollard, a n d a t a meeting o n April o e
was again increased t o 250 million dollars.

T o t a l pur-

chases h a v e amounted t o 255 million dollars.
In t h e c o u r s e o f t h e s e o p e r a t i o n s d e c i s i o n s h a v e
been r e a c h e d
pution

on a

number

o f securities

perience

o f points c o n c e r n i n g t h e distri-

b e t w e e n t h e reserve banks.

T h e

e x -

o f t h e committee n a s l e d t o t h e discouragement

of special purchases f o r individual banks, apart f r o m
the r e g u l a r a l l o t m e n t s

o f purchases f o r t h e s p e c i a l i n -

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

29
vestment account, because o f the serious interference
with t h e general p r o g r a m which was found t o result f r o m
such special purchases-

I n creer t o meet t h e needs o f

banks desiring larger amounts o f holdings f o r the purpose
of m a i n t a i n i n g t h e v o l u m e
tribution w a s

o f t h e i r e a r n i n g assets, r e d i s -

i n several instances

secured

t o such banks

from the allotments o f other banks, w h i c h were willing t o
forego a

A

part o f their allotments.

n accompanying

statement indicates t h e extent o f such redistribution.
The s a m e p r i n c i p l e

allotments

h a s b e e n applied

t o purchases

and

o f bankers a c c e p t a n c e s .

At the meeting o f the committee o n Anril e2, 1924,
it w a s r e c o m e n d e d t h a t t h e b u y i n g r a t e o n three m o n t h s '

pills b e recuced from 4-1/8 to 4 per cent, and the rate
on shorter bolls f r o m 2 to 3-7/8 a n d 3-3/4 p e r cent, a t the
option o f t h e banks.
Results
ing p r o g r a m a

o f Operation:
portfolio

A

s a

result o f t h e purchas-~

o f 2 3 0 w o Yvon-doliars

o f govern

ment securities h a s w e n acquired, w h i c h m a y b e sold t o
the market a t any time that i t seems wise.

I t i s believed

that these securities h a v e b e e n acquired without affecting
unfavorably t h e g e n e r a l c r e d i t s t t y a t i o n ,

i n facet c u r s e

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

350
the period w h e n purchasing w a s going on, f r o m the latter
part o f D e c e m b e r u n t i l t k e p r e s e n t ,

t h e total earning

assets o f t h e F e d e r a l R e s e r v e S y s t e m h a v e d e c l i n e d a p p r o x -

imately 400,million dollars. I n c r e a s e s i n holdings o f
U. S

securities h a v e t e n m o r e t h a n offset

of 2 0 0 m i l l i o n d o l l a r s

advances,

recrease

o f bankers acceptances,

i n holdings

and o f a l m o s t 4 0 0 m i l l i o n d o l l a r s

by a

i n discounts a n d

stimula-

D u r i n g t h e period there has b e e n m

tion o f s t o c k e x c h a n g e a c t i v i t y o r h i g h e r c o n m o d i t y
prices

as a

able e f f e c t s

result o f t h e purchases.

I n Dae

c e OuSery—

o f t h e purchasing program h a v e b e e n largely

Gonfined t o t h e government securities market. D u r i n g
the p e r i o d o f t h e o p e r a t i o n s
been a

o f the committee t h e r e h a s

brisk d e m a n d f o r s i m r t t e r m g o n e r n m e n t s e c u r i t i e s ,

due t o t h e f a c t t h a t t h e d e m a n d f o r f u n d s t o c a r r y o n
business o p e r a t i o n s h a s t e e n limited. A

further i n f l u -

ence m a k i n g f o r g e n e r a l l y e a s i e r w o n e y c o n d i t i o n s w a s

the continued inflow o f gold from abroad a t the rate o f
more t h a n 1,million dollars a

day-

I t i s worthy o f

o n short
note that t h e downward movement o f the yield rates
b e e n parallel
term goverrmment s e c u r i t i e s h a s i n t h e m i n
with t h e c h a r g e s

i n rates f o r c o m m e r c i a l p a p e r ,

a n d the

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

31
o n Liberty tonds.

yields

T h i s would appear

t o indicate

that t h e downvard movement o f yield rates f o r certificates
and n o t e s h a s b e e n d u e m o r e l a r g e l y t o g e n e r a l c o m i t i o n s
in t h e m o n e y m a r k e t s t h a n t o t h e a c t i v i t i e s

o f this com-

mittee.
Future Program:

A l t h o u g h purchases t o the amount

of 250 million dollars h a v e been authorized,

t l committee

has n o t b e e n a b l e t o s e c u r e t h i s f u l l a m o u n t b e c a u s e

the scarcity o f offerings o f securities.

of

T h e prospect

for t h e immediate future appears t o b e for still easier
money conditions.

B u s i n e s s h a s srown less active

in

the past f e w weeks, g o l d imports continue a t a rapid rate,
and t h e usual seasonal tendency a t this time o f year i s
for lower rather t h a n higher rates.

U n d e r these circunm-

stances further purchases o f government securities m a y b e
difficult f o r some weeks t o come.
It i s clear that a n y further extension o f purchases
for this account beyond the:250,000,000 n o w authorized,
n
should t
e carefully reviewed i n the light o f c u r r e t
business a n d c r e d i t c o n d i t i o n s a r d t h e T r e a s u r y f i s c a l

program.

B u t with t h e continuea *nfips o r gold: from

that the
abroad i t s h o u l d w & t o r n e i n m i n d c o n t i n u o u s l y

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

oe
danger o f credit a n d price inflation a n d a period o f undue s p e c u l a t i v e a c t i v i t y i s a l w a y s present.
best s a f e g u a r d s a g a i n s t a n y s u c h d a n g e r
by t h e F e d e r a l r e s e r v e b a n k s o f a

i s t h e possession

large p o r t f o l i o

of

portfolio s h o u l d b e

S u c h a

readily s a l a b l e s e c u r i t i e s .

O n e o f the

obtained, however, without ercouraging t h e very speculation which t h e portfolio i s designed t o combat, a n d with~
out affecting injuriously t h e market f o r government
securities,
I

Vice G o v e r n o r Platt:

s i t t o b e ¢xpected w i t h

of the western reserve banks t h a t their fall demands
relieve t h e situation somewhat?
Governor McDougal:

W e canot depend u p o n t h e fall

demand i n the oypectation that i t will take t k e place
of a

reasonable a m o u n t o f e a r n i n g assets.
Vice C o v e r r o r Platt: ‘ “ ‘ o u l d t h e w e s t e r n r e s e r v e

banks h a v e a

large a m o u n t

o f paper,

comes t h a t c a n s h i p t h a t p a p e r

out

and if a

t o the other banks-~-

Governor M c Dougal: ( I n t e r r u p t i n g )
think I

demand.

w r . Case, I

a m right i n stating that t h e acceptances n o w held

they
by t h e s y s t e m w i l l b e r e d u c e d v e r y rapidly, w i l l
not?

Deputy Governor (Case:

T h e y a r e running o f f v e r y

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

3535

rapidly now.

T h i s folder shows that while w e hade

356 million acceptances o n December 26, o n April 235 i t
a n d i t i s very m t e r i a l l y below

was d o w n t o 1 4 0 million,

that now, s o that 2 0 0 million bankers acceptances haverun
off i n the last four months.
Governor McDougal:
the r a t e o f a

million a

A n d t h e others a r e going a t
day, a p p r o x i m a t e l y ,

a t the present

time.
H a s t h e conference taken into

Vice Governor Platt:

consideration what effect t h e reduction i n taxation m a y

have?

T h e Goverment has put $307,000,000 into the market

during the past year, a

a n d i f the reduction goes through that

meet t a x payments,
won't

considerable portion o f i t t o

and

b e d o n e a n y longer,

Wouldn't t h a t m a k e a

difference?

Governor W e Dougal:

T h a t has not been considered.

Vice G o v e r n o r Platt: I

market $500,000,000
it would b e m i t e

i t m a y b e t h e other way.

think i f t h e y f é d i n t o t h e

i n addition t o the sinking fund, t h a t

a n item.

Deputy Governor Case:

I n addition t o the sinking

$200,000
funda t h e r e a r e t h e B r i t i s h p a y m e n t s a p p r o x i m a t e l y

000, a n d t h e Treasury h a s a surplus f u n d which m a y amount

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

to 250 o r 300 million--Vice G o v e r n o r Platt:

A b o u t 3 0 0 million has t e n

paid into t h e warket o n September 15, December 15, a n d
March 1 5 o f e a c h year.
Deputy G o v e r n o r C a s e :

T h e y h a v e t h a t surplus,

and

together w i t h t h e B r i t i s h p a y m e n t s t h e y h a v e p r e t t y n e a r ly enough,

as I

understand i t , t o p a y o f f t h e J u n e 1 5 t h

maturities w i t h o u t r e c o u r s e
ice Governor Platt:
through,

t o t h e market.
t

b

h

Ge tease: piel D O C S

o r s o m e k i n d o f t a x r e d u c t i o n g o e s through, t h o s e

payments w o n ' t b e m a d e i n t h e future,

a n d i t i s going t o

make c o n s i d e r a b l e d i f f e r e n c e .

Deputy Governor Case: T h e r e will b e 250 million
or thereabouts w h i c h i s p r o v i d e d f o r f o r t h e s i n k i n g fund.
Viee G o v e r n o r Platt:

T h e sinking fund will c o n -

tinue a n d also t h e British payments, b u t i n addition t o

that there has been 3300,000,000 put into the market
right a l o n g . .
Mr. Miller:

S u p p o s e y o u put 5 0 o r 100 million

dollars i n t o t h e open market n e x t month, o r , i n the next
two weeks,

a n d w h a t w o u l d h a p p e n i n respect

York banks, tir. @ s e ?

o f the M e w

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

55
Deputy G o v e r n o r C a s e :

tically a l l o u t o f debt.

T h e N e w York banks a r e prac-

w h e n I

say that I

d o n o t mean

that t h e Bank o f Vomrerce o r the Bankers! Trust Company
or some other large company m a y n o t come i n i n July f o r

$10,000,000 o r 620,000,000, b u t I mean they are practically a l l o u t o f d e b t n o w , a n d a r e a c t i v e l y s e e k i n g o u t l e t s

for their money, a n d a s I view it, i f w e were t o d o that
at this time, i t would b e clearly i n direct competition
with them, a n d our combined efforts t o invest funds,
our e f f o r t s a n d t h e i r e f f o r t s
we w o u l d n o t b e s o careful

t o g o o u t a n d buy--- a n d

a s r-gards price,

a n d w e need

not te, perhaps a s they should @-~-- would materially
further cheapen o p e n market rates, a n d I cannot help
feeling t h a t i t w o u l d b e a n u n f o r t u n a t e t h i n g t o do.
would l a y u p o p e n p e r h a p s
mPro Millers:

h

y

jectionable thing? I

I t

t o considerable criticism.

d o you think that would

b e a n ob-

assume t h a t t h e N e w York banks

would b u y essentially t h e same type o f securities t h a t
you would boy.
Deputy G o v e r n o r C a s e :
Ves

e r :

Y e s .

T h e n t h e y w o u l d g o i n f o r earnings a n d

also f o r e x p e n s e s ? - - =

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

Deputy G o v e r n o r C a s 6 :

Dr. Miller,

T h e o n l y reason I

would see,

i s that w e have g o t t o live with those fel-

lows i n New York.
Me, Millers

A n d o f course t h e y have g o t t o live

you.
Deputy G o v e r n o r C a s e :
believed

Y e s : t h a t L e tras.

I f 2t-were

t o b e t h e G o r r e c t t h i n g t o do, a n d s o m e t h i n g

that o u g h t t o b e done,

o f course w e could d o it.

P u t

experience h a s s h o w n t h a t w h i l e w e c a n c o n t r o l t h e purchase o f g o v e r n m e n t s e c u r i t i e s ,

v e h a v e n o control o v e r

the reduction i n rediscounts, o r , a s a matter o f fact,
over wdaring bills, unless there t o o w e t a k e them away
from t h e p r o s p e c t i v e m y e r s n o w . I

learned y e s t e r d a y

that t h e dealers w e r e paying 3-3/4 o r thereabouts i n b u y ing bankers a c e s p t a n c e s

a n d there was a

for them, a n d they were sellin m>

very great demand

i n the market a t

around 3-1/2 w i t h a n insufficient supply,

s o that, a s I

see it, while w e would b u y fifty millions i n governments,
it would actually m t increase o u r earning assets. I
would werely b e a shifting.
tier
ana t h e n

S u p p o s e y o u went u p t o 100 million

t o 150 million.

T h e n

i t would increase

t h e earn-

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

37
ing assets

o f t h e banks.

I

n t h e first place i t would

take o u t o f the reserva banks whatever there i s there
in t h e w a y o f reiiscounts,

b u t after that point y o u d o

add t o y o u r a c t u a l e a r n i n g a s s e t s

b y purchasing.

Y o u

haventt m d e clear t o m e just what t h e obiection t o that
procedure i s , except that your banks wouldn't l i k e it.
Deputy G o v e r n o r C a s e s
driving m o n e y t o w a r d a
Wr, Miller:
per c e n t r a t e .

A n d except t h a t y o u a r e

t w o p e r c e n t rate.

O f course w e drive i t toward a
w

e drove

i t towards

two

t h e two per cent

rate when the discount r a t e was lowered f r o m 4-1/2 t o

4, 4 4 s nearer 2 than 4-1/2.

Y o u do m t mean by

that that money would b e 2 per cent i n New York?
Deputy G o v e r n o r

s e : I

think i f were t o p u t o u t

$150,000,000 that i t would g o very low indeed.
iirc .Hamlin:

T h a t i s , i f y o u d i d i t o v e r night.

Deputy G o v e r n o r C a s e : i

over night.

w

i

e

iS noe UL W e O P

O t

e

G

s thinking i r w e were t o d o i t over 4a

period o f thirty t o s i x t y days, t h a t with t h e present trenc
of t h e r a r k e t t o l o w e r - - Mrs W i l Pers

C a l l w o n e y m i g h t g o t o t w o p e r cent?

Deputy G o v e r n o r C a s e :

W o y

T t a m thinking o f o p e n

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

38
market paper.

H e r e i s what I

mean;

S h o r t t e r m govern~

ments a n d T r e a s u r y c e r t i f i c a t e s d u e J u n e 1 5 a r e

m w auoted

on a 2-3/4 basis.
Mr. Miller:

Y e s .

Deputy G o v e r n o r C a s é :
Hy. Miller:

A n d t h a t i s s h o r t t e r m money.

Y e s .

Deputy G o v e r n o r C a s e :

Y o u l e t u s g o o u t a n d under-

take t o c o l l e c t 1 0 0 o r 1 5 0 m i l l i o n m o r e o f t h e m a n d y o u
would f i n d t h e c e r t i f i c a t e s q u o t e d a t t w o p e r cent.
WE nolL

e e t

U e la

Deputy G o v e r i o r C a s e :

A n d with a

reduction a l l along t h e line. I

have a

corresponding

feeling that w i t h

the T r e a s u r y o p e r a t i o n s c o m i n g a l o n g i t m i g h t u n d u l y a c centuate a

rise i n price o f fsovermments a n d w o u l d c r e a t e

a rather a r t i f i c i a l p o s i t i o n f o r t h e m i f t h a t w e r e t o

be done i n the next month o r s i x weeks,
have a n artificial

mrket

s o they would

i n w h i c h t o f l o a t t h e n e w issue.

hundred million would take care o f

ifr, Hamlin: a

your b a n k all right, w o u l d i t rot?
Deputy G o v e r n o r C a s e :

Y o u m e a n additional e a r n i n g

assets?

Mr. Hamlin:

I

n addition t o the 100 million,

i f you

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

keep t h e 5 0 m i l l i o n discounts.
Deputy G o v e r n o r (Case:

I

f w e should acquire a

hundred

million more, yes, b u t f o r t h e system a s a whole i t requires 3 0 0 m i l l i o n nore.

H i s Wehieeneeg U U s err2lloloaulee 20squlaliaelooe

500 m i l l i o n m o r e w o u l d b e n e c e s s a r y

i f y o u want t o acauire

enough t o cover t h e expenses o f all t h e banks.
ile. Willer:

S u p p o s e w e d i d n o t have t h e Treasury

to consider, w h a t o b j e c t i o n d o y o u s e e t o g o i n g r i g h t
straight a h e a d a n d a d d i n g e a r n i n g assets,

not at a

that w o u l d d e m o r a l i z e t h e s h o r t t e r m m o n t y tmarket,

rate
as

presumably y o u would have some cffect there i n lowering
the r a t e u n t i l a

n e w demand f o r money comes o u t o f trade

conditions, b u t vhat objection would there b e t o a
cedure o f t h a t k i n d ?

Teputy Governor s e :

well, I

feel this w a y about

it, t h a t t h e F e d e r a l R e s e r v e R a n k s h o l d t h e m s e l v e s o u t

more o r less a s stabilizers o f money comitions,
a time l i k e this,

w h e n there

sion

a n d certainly 4

i n basiness,

for cormercial credit,

i s apparently a

and at

slight reces-

warked decrease

i n demand

s o that o u r tanks being o u t o f

debt a r e forced t o g o into t h e open market,
me t h a t w e w o u l d b e d o i n g v i o l e n c e

i t seems t o

t o t h a t principle, that

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

40
we a r e t r y i n g t o k e e p t h i n g s f a i r l y stabilized,
would certainly,

and

a s itp: t h e s e s h o r t o p e n m a r k e t i n s t r u -

ments, d r i v e them, i n yield, d o w n t o a very l o w basis,
and I

think s u c h a
fie M i l i er:

course w o u l d b e improper.

Suppose

w e have t h e p r e s e n t i n f l u g o f

gold continuing n o t only through t h e rest o f this y e a r ,
but i n t o t h e y e a r 1925, w h e r e i s t h e r e s e r v e s y s t e m g b i n g

to be?
I

Deputy G o v e r n o r Cas6é?

t i s g o i n g t o b e v e r y easy,

there i s n o d o u b t a b o u t that.

Mrs Millers

V e r y easy;

b u t what point o f contact
pen i s i t g o o d

are y o u g o i n g t o h a v e w i t h t h e market? ¥

policy t o t r y t o increase t h e contact v i t h t h e market,
if y o u a r t i c i p a t e a

Comevan>

Deputy G o v e r n o r ( s e :
only e x p r e s s

To o s p S
is o f a

D r . Miller,

m y o v n personal

ways

T

O L . 6010?

i n t i

opinion,

t u t let

f this lattle recession

temporary c h a r a c t e r ,

situation h a s c l e a r e d u p t o s o m e © )

cial b a n k s

substantial

can

m e express

i n business

a n d this autumn w e may see

business p i c k i n g u p again, p a r t i c u l a r l y

if t h e r e w a s a

o f course I

demand

i

i f the political
t seems t o r e

f o r @ r e d i ty i n t h e c o m m n e r —

a t that time t h e y would m t u r a l l y b e g i n t o

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

41
part w i t h s o m e o f t h e i r govermments,

a n d i t might b e a n

opportune t i m e f o r u s t o i n c z e a s e o u r p o r t f o l i o s a n d t a k e
them o v e r a s t h e b a n k s a r e t u r n i n g s o m e o f t h e m out;

b u t

at a time like this, speaking f o r N e w York, where o u r
banks o w e u s p r a c t i c a l l y m t h i n g ,

the mrket,

a n d they a r e going into

e desiri t does r o t s e e m t o m e that i t w o u l d t
would rathé:

able f o r t h F e d e r a l r e s e r v e b a n k s t o g o in. I
wait f o r t h e r e v e r s e s i t u a t i o n .
Mr. Miller:

W o u l d y o u rather b e g i n t o a c c u m l a t e

at a time when the market i s active, when you might possibly b e unduly adding t o the amount o f money i n the market
used more o r less f o r speculative activities,

o r would

you rather g o i n and acouire a t a time when things a r e
dull a n d n o adverse affects a r e t o b e anticipated, a n d
induce y o u r m e m b e r b a n k s t o d o p r a c t i c a l l y t h e s a m e t

hing

by forcing t h e discounts o u t o f the reserve banks.
Vice G o v e r n o r Platt:

“ g u l d n ' t y o u have a

stabiliz-

in
ing effect b y doing just that, rather t h a n taking
buying
securities w h e n t h e warket i s active--- rather t h a n
when things a r e low--Mre Miller (Interposing): I
Governor Platt,

think that depends,

o n the period o f time i n which t h e stabil-

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

42
iging -eie0Ct-i8. Gr6need.,

I f you look ahead a period o f

two o r three years instead o f dix t o nine months, y o u
have w a citferent situation,

I f w e pursue a

policy w e a r e l i k e l y t o d o i t a t t h e e x p e n s e
Peibeeecis

short-sighted
o f t h e real

C f y e e C oumuay.

Viee Governor Placts
est r a t e h a d a n y e f f e c t

H a s t h e lowering o f the inter-

o n t h e g o l d imports?

Presumably

if i n t e r e s t r a t e s w e r e l o w e n o u g h t h e g o l d i m p o r t s w o u l d
StOD.~

Deputy G o v e r n o r Case:

certain,

U

U n d e r e x i s t i n g conditions,

p t o the present t i m e w e have n o t observed

any s l o w i n g d o w n o f g o l d i m p o r t s
interest r a t e s .

a s t h e result o f lower

G o v e r n o r N o r r i s j u s t m a d e a n interesting

observation w i t h r e g a r d t o t h a t suggestion,
it m i g h t

a n d I l think

b e i n t e r e s t i n g f o r h i m t o s p e a k o f it.

Governor Norris: I

werely a s k e d w r . d a s e

attention t o the fact that i f » e pursue a

t o call

policy that i s

going t o d r i v e o u r a l l o f o u r f o u r o r f o u r a n d a

half

a
percent d i s c o u n t s a n d s u b s t i t u t e t w o a n d t w o a n d

half

twice a s
per cent paper f o r it, that w e have g o t t o have
that w e
much o f t h a t p a p e r t o g i v e u s t h e s a m e e a r n i n g s

are getting f r o m our present investment.

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

43
ir. Milier:

B u t t h e y d o n o t jump f r o m 4-1/2 t o

2 per cent.

am: nov speaking o f -4-jomp.....1

Governor Norris: i

am speaking o f the present market.
Mp. Miller:

A g s you put money i n there will b e a

terdency f o r r a t e s
resistence

t o soften,

t o t h e softenimw

t t there i s a

o f rates

i n t h e market.

probably w o u l d f i n d i f y o u 2 0 a h e a d o v e r a
weeks

a n d

o r two months

p u r chasé a

good d e a l o f

hundred

period o f s i x
a n d fifty

whole,

for t h e s y s t e m a s a
pronounced s o f t e n i n g

m i l -

t h a t is,

t o a d d t o v o u r portfolios,

lions o f i n v e s t m e n t s

Y o u

y o u would c o i t without a n y

o f rates

a t a n y point,

a n d with n o

very w a r k e t d e c l i n e o v e r t h e w h o l e p e r i o d o f s i x weeks.

You might g e t down, w e will say, f r o m a n average of. Poor
or a

little l e s s t h a n f o u r o n c e r t a i n t y p e s o f o p e n m a r k e t

paper t o t h r e e a n d a
Governor Norris:

reduction i n rates. I

half.
T a m n o t sosaking o f a

general

a m speaking o f a substitution o f

short t i m e g o v e r r m e n t o b l i g a t i o n s f o r Giscounts.
called a t t e n t i o n a

few moments

a g

“ r r . Case

t o the fact that June

certificates were selling now on a 2-3/4 basis.
wr, M i l l e r : I

think w h a t

h e said has

n o value

for

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

44
argunentative purposes.

D o n ' t t a k e J u n e 15, b u t l e t

us t a k e 1 9 2 6 a n d 1 9 2 7 maturities.

Governor Worris:s

T h e lonzer maturities a r e selling

Oia T o u r p e r M e n t teagis.

Mr. wetiler:

t f you think that b y purchasing

150 m i l l i o n i n t h e c o u r s e o f t w o m o n t h s t h a t y o u w i l l
bring t h o s e d o w n t o e v e n a

three a n d a

half t a s i s - - ~ I

not think y o u would anywhere n e a r d c i t .

do

I d you got

it down to 3-7/8 or 3-3/4 I should think that was pretty
extremg
a a n effect

o n «ates

in a

market w h e r e t h e r e a r e

some s i x o r s e v e n b i l l i o n s o f s h o r t t i m e p a p e r e f l o a t i n g .

150 million von't d o it.

w e ought n o t t o predicate

our d i s c u s s i o n u p o n extremcs.
that p o l i c y e n d found,

I

f y o u entered u p o n

f o r instance,

t h a t t h e purchase d i d

weaken t h e rates v e r y ~aterially, y o u would have t o reconsider it.

I T a m asking this m e s t i o n because I

think

the Federal Reserve System h a s taken a very short l o o k
inte: h e future, h e r e i t ought t o b e taking a long look.
To m y mind, w h e n y o u t a k e a
what c o n f r o n t s
flux o f gold,

long l o o k a n d know that

u s i s t h e probability

of a

contimed in-

a n d t h e b a n k i n g s i t u a t i o n o f t h e countryis

outside t h e reach o f the system,

i t means, I

think, t h a t

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

45
in tines o f a v i e t n e s s y o u h a v e g o t t o c o n s i d e r w h e t h e r
the o p p o r t u n i t y

i s a

suitable

that w i l l e n a b l e u s a t a

one

t o l a y i n something

later t i m e t o g e t i n t o u c h w i t h

the situation,

For instance, I
the s y s t e m m a d e a

c a m o t agree w i t h Mr. McDougal that

mistake

i n l e t t h n g t h e o p e n m a r k e t vort-~

folio r u n o f f f i v e o r s i x h u n d r e d million.
to b e a piece:

P

t turned. o u t

o f rather g o o d f u r t u n e t h a t w e h a d s o m e t h i n g

that w e c o u l d l e t o u t t o t h e a m o u n t o f f i v e o r s i x

hundred millions a t a time vhen business w a s beginning
to get speeded u p very consideratly, a n d I anticipate t h a t
within t h e next year o r year a n d a half w e wili have a
situation

i n which 2 5 0 million

i n govermment socurities

will h a v e a t o u t a s m u c h r e s t r a i n i n g i n f l u e n c e u p o n t h e
bulge o f c r e d i t a s a
about a s m u c h chance,

snowball w o u l d h a v e i n Hades--- j u s t
w

y m i n d i s workin:

t o w a r d this:

whether w e should n o t g o ahead and, wherever w e c a n do
it without a n y t h i n g a p p r o a c h i n g d e r o r a l i z a t i o n , o f m a r k e t

conditions,

d o it, quite irrespective o f whether t h e memg o i n and

ber b a n k s l i k e i t o r m t ;

M y governments,
2

2

4

not
e y

Le

of June 15, 1 9 2 4 maturities, b u t later maturities, 1 9 2 6
48

*

9

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

46
adding, a d d i n g a n d adding a t a tine when y o u have
worse e f f e c t t h a n d i m i n i s h i n g t h e r a t e a t w h i c h m e m b e r
banks h a v e g o t t o g o o u t i n t h e b i g c e n t e r s a n d l o o k f o r

business, a n d i n the meantire having something that y o u
sell w h e n y o u f i n a l l y g e t i n t o a

situation where y o u

have g o t t o restrain t h e market.
Governor iicDougal:
or n o t w e m a d e a

mistake

Y o u will remenber that whether
i n disposing

o f our large hold-

ings o f goverrment securities, t h a t t h e most important
influence

i n that w a s t h e pressure

ment, urging u s t o let t h e m g o .
reluctantly.

o f the Treasury Depart-

W e l e t them g o very &

T h e Chicago b a n k was t h e last one.

When

I came t o “ashington I was t o l d that w e were t h e last.
we f i n a l l y l e t t h e m go.

W

e a r e discussing t h i s matber

now, ir, Case, f r o m two angles, whereas i t ought t o bediscussed f r o m the first standpoint, w h i c h has t o d o with the
special i n v e s t m e n t f u n d ,
fund w a s c o m e i v e d

N o w , t h e special investment

f o r t h e exvress purpose

an i n f l u e n c e o v e r o p e n m o ney m a r i e t rates.

o f exercising

I

t was dis-

tinctly unierstood that t h e purchased w e were making were
made f o r the vurpose o f putting ourseives i n a position
to s u p p l y t o t h e m a r k e t s h o r t t i m e g o v e r m m e n t s e w u r i t i e s

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

n there w a s demand
e
h
f o r them,

and a l s o b we p r e p a r e d

T h a t was the

buy i n t h e m r k e t w h e n t h e y : e r e lagging.
Moisive, = f thrms:

to

a r e n o t favorable

N o w , then, c o m i t i c n s

at t h e v r e s e n t t i m e f o r i n c r e a s i n g o u r tmasikmess l o l d i n g s

e should undertake t o d o it, w e would
in that fund, a n d i f war
e

working i n jus t theb o p p o s i t e direction.
Hr. i i lier: h

Go you say comitions

y

a r e n o t favor-

able?
Governor iic Dougal: B e c a u s e ,

a s a matter o f fact,

if we put m n e y out now w e are puttin

money i n t o t h e m a r k e

when w e o u g h t t o b e d o i n g

Mr, Miller: W h y should you?
Tat

vernor McDougal:

But l e t u s

Governor Mclougal:
standpoint
hav

rot teen permitted,

not proceed

o n assumptions.

L e t m e finish, please. F r o m the
v

o f carninzs

o f t h e assump-

i s t h e basis

e

r

y different matter.

i n our ciscussion,

t o consider

this f r o m t h e d o u b l e b a r v e l e d s t a n d p o i n t .

umer

t h e impression t h a t f r o m t h e standpoint

impression i s from t h e

‘We

We h a v e b e e n

o f the
Standpoint

ard, t h a t i t would b e inacvisabl:

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

48

for u s t o a c c u m u l a t e a

o f bills f o r o u r o w n

portfolio

purposes.
HPs

MiLler:

A L E Signi.

N o w , proceed w i t h what

you t h i n k i s t h e a d e f f e c t o f s u c h a

policy n o w ?

Governor wicDougals “ h e t h e r t h e effect i s b a d o r
whether
basis

i t w o u l d b e t h e reverse, I

a m speaking n o w o n the

o f the assumption that t h e

the e s t a b l i s h m e n t

M

o f t h e special

Governor McDougal:

t h a t v e b e prepared t o

t4

r

s s o u n d one .

take o u t o f the market securities w h e n securities w e r e
dragging---

t h e y a r e n o t doing that now--- a n d t o supply

a n overto t h e w a r k e t g o v e r r m e n t s e c u r i t i e s w h e n t h e r e w a s

a t the
abundance o f idle money, w h i c h c o m i t i o n prevails
present moment.
the fund,

t f w e should b e doing anything with

to
i : would r o t b e out o f line “ith o u r policy

be feeding o u r securities
Deputy G o v e r n o r C

i

n

k if w e h a d probably

sidrring
erhaps, letting t h e m go.

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

49

Deputy G

overnor C a s e :

olio w e perhaps would

I

f w e had had such a

vort-

m t have considered lowering

the rate.
presume v e are all referring t o genera

we, willler: I

rinciples, t h o s e l a i d down i n the open market Presolu-

tion, that operations were t o b e determined primarily
a 3

with reference t o c.edit a n d money conditiorm.

what
think “hat w e are concerned w i t h here i s t o find o u t
there i s i n the present situation that indicates t h e
course o f application o r operation o n that principle.
m y mind,
The most important thing that w e have to, i n
whoever i s
take cognizance o f i n this situation i s that,
it, o r whatever i s doing it, v e have a
competitor f o r t h e c o n t r o l

very strong

o f t h e A m e r i c a n m o n e y market;

shipments
that whoever i s responsible f o r t h e continued
hand o f the Federal
of gold here i s playing against t h e
mind a
“Reserve System, w h i c h constitutes tomy.

e r y dite

impossible situaficult, extremely delicate, a n d perhaps
n

f oo r ui s t to

get ahead of. B u t we have gob vo try

58

to g e t ahead o f it.
or s l o w l y adrift.

a chance
w e have either g o t t o take

Y o u cannot

help b u t sensé

t h e s i tuaulon

o f gold flowing into this
that, w i t h a million dollars

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

50
country f r o m d a y t o day, w i t h t h e average ratefor this
year c o n s i d e r a b l y

i n advance

o f t h e r a t e f o r l a s t year,

$350,000,000 i n the last twelve months, w e have a probLem o f d i f f e r e n t d i m e n s i o m ,

o n e calling f o r different

techniauc, f a r less certain i n its indications t h a n was
have n o t been

true a year o r a year a n d a half a g . T

able t o s e e anything w i t h a n y degree o f clarity, b u t
T have n o t been able,

o n the other hand, t o see a n y course

s open t o less objection t h a n t h e o n e that means

going into t h e market whenever y o u c a n d o i t without de-~
moralizing,

e v e n t h e m a r k e t f o r money,

a n d loading u o with

when w e want
something w i t h which y o u c a n play later o n
to e x e r c i s e a

restraining i n f l u e n c e .

I

f this present

f o r the
thing keeps up, instead o f having earning assets
system a s a whole o f between 8 0 0 a n d 900 million,
be down t o 500 million, a n d our experience,

w e will

l e o ,

2 8

t h a t wit’
the y e a r 1925, h a s p r e t t y t h o r o u g h l y d e m o n s t r a t e d
but 2 0 0 m i l l i o m - -

ap1 9 2 3 demonstrated t h a t w e needed

volume o f open marroximately 5 0 0 million--- a n d with a
a m o u n t y o u can,
ket h o l d i n g s a p p r o x i m a t i n g t h a t

i f you

e n o u g h o f a: 7rejudiciously t i m e y o u r sales, e x e r c i s e

u n o n t h e market a s t o
straining a n d corrective influence

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

51
give t o 1 t a
against a

L

little m o r e s e r i o u s tone.

E SOU, 2 6 5 U p

s i t u a t i o n s u c h a s w e n a d i n 1925, a n d I

w e will b e u p against

pate b e f o r e 1 9 2 5 h a s r u n i t s course,

a very much more serious o m ,

w e have something t h e n that

we c a n p r o p e r l y t a l k o f i n terms o f inflation.
by a

antici-

W e might,

well p a r a l l e l e d d i s c o u n t a n d o p e n m a r k e t policy,

b e

able t o d o something, whereas, i f we move along mow, with
total holdings o f say 250 t o 300 millions, w e are going
to f i n d o u r s e l v e s

i n a

position where

w e are absolutely

high a n d d r y b e f o r e t h e n e x t t w o o r t h r e e y e a r s a r e g o n e

vy . S o that i n m y application, Governor MeDougal,
the principles w h i c h h a v e b e e n l a i d down, I

of

a m thinking

of a period that runs f a r beyond t h e next s i x months
tires year 1 9 2 4 , a n d f o r t h a t r e a s o n I

a m eager t o g e t

Light o n what h a r m o r w h a t i n j u r y o r w h a t o b j e c t i o n a n y

of you think c a n b e urged against a

bolder policy o f

investments
acquiring a portfolio i n the open market o f
fifty p e r cent o r
at t h e present time, t h a t m a y Y u n u p
maybe a

have s e t a s
hundred p e r cent more t h a n what y o u

your L i m i t ?

out
T h e o n l y thing t h a t has b e e n brought

b y Mr. Case, t h a t t h e
so far has “been that brought o u p

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

52
m ember b a n k s w o u l d n o t l i k e i t a n d t h a t i t might p o s -

sibly force d o w n t h e buying rate o n Treasury securities,
to their disadvantage,

Deputy Governor (Case: I

am quite sure the lreaury

would r o t like i t a t t h e present time. I
correct

think I

am

i n that,

Wr. Yiller:

T h e Treasury vould m t l i k e it, prob-

ably, b u t a f t e r a l i c e c o u r s e o f a c t i o n o r a
not b e p r e c i c a t e d

policy c a n

o n the assumption that i t i s going t o

be 1 0 0 p e r c e n t good, t h a t i t i s u t t e r l y f r e e f r o m s o m e

kind o f objection.

“ c o have g o t t o balance these factors.

@vernor Crissinger:

A r e w e t o understand that this

gold t h a t i s c o m i n g f r o m a b r o a d i s c o m i n g f o r t h e p u r p o s e
of c o n t r o l l i n g t h e m o n e y market,

o r i s i t coming t o p a y

debts -nere.
Leputy G o v e r n o r
the c h e a p e s t

place

Gse:

t o sell

I

t i s coming because this

i t a n d t h e securest

place

i s

t o

have i t .
Vice G o v e r n o r Platt:

B u t isn't t h e whole curront

of gold imports likely t o turn against u s a n y minute?
The b a l a n c e

o f trade does

not seem to be i

when y o u c o n s i d e r a l l t h e items,

ourtevor

a l l t h e i n v i s i b l e items.

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

535
People b u y Axnerican s e c u r i t i e s a t r o a d i n order t o h a v e
something t h a t d o e s n o t fluctuate,

I

going t o d o that?

hey

b u t h o w long are t

t 1 s probable that t h e current o f

gold imports m a y turn during t h e course O f She year, o r
at l e a s t possible.

Mr. Millers

T h e r e i s t h a t possibility, b u t there

is nothing i n the future t h a t indicates a n y change i n
the m e n t a l o u t l o o k o f Hurope t h a t t h e U n i t e d S t a t e s
good p l a c e

can g e t a

i n which

t o have t h e gold, first,

tecause

is a
you

return o n it, a n d secondly, b e c a u s e y o u c a n a l -

ways g e t your gold.

W e ought m t t o overlook t h e fact

steadily
that c h e figures indicate t h a t Great Britain i s
going a h e a d a n d b u y i n g A m e r i c a n securities,
private S e c t o r s

t h a t is, t h e

a r e steadily g o i n g ahead a n ® buying

American securities.
T h e gold

Vice G o v e r n o r P l a t t :

and
country tecause o f the purchase o f American securities
not tecause o f any trade reasons.
all against it;
seems

T h e trade reasons a r e

i t ought t o b e going t h e other way, i t

t o me.
Governor M e D o u g a l :

D

o I

understand

as e x p r e s s e d a r e i n f l u e n c e d s o m e w h a t

that your views

b y t h e n e e d o f earnin

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

for t h e federal r e s e r v e h a n k s ?
Watt

i e dec10%

of earnings

N o w a t ais

H i e peiitleneenipge biasive mare miedeel speeaes|

a t all,

Governor iicDougal*

Y o u a r e m t thinking i n terms

of earnings?

Mr. tiller:

N o e

Governor iicDougals i

should l i s a g e i n to-go o n

record a g being i n favor o f laying i n a supply o f suc h
securities, .overnment bonds, i f they a r e t h e only
available, w h e n the timc i

O p c

S

, Lor: earning {

poses, a n d I believe that t h e system should d o it, a
and p o l i c y w h i c h h a s h é r e t o f o r e b e e n discouraged, I
by t h e F e d e r a l R e s e r v e B o a r d ,
Vice G

overnor Platt:

as i t w a s i n t e n d e d
t

a n d certainly

I

plan
think

b y t h e Treasury.

f the s y s t e m h a d operated

t o operate w h e n t h e bill w a s p a s s e d

Would: n o v pave. 210 0 m i l t o n

ofS

per
cent government
Bs

securities t a k e n i n place o f t h e t o n d s t o s e c u r e c i r c u l a tion, a n d w e w o u l d n ' t h a v e a n y ocuestion o f e a r n i n g a s s e t s

Bberore u s today.

T h e o n l y reason y o u have i t i s ‘ c a u s e

you have r o t done that.

a

g t a k 2 5 , 0 9 0 , 000 a

year i n ten years i t vould have anmpunted t o p250, 9006, O00
and t h e b a n k s w o u l d h a v e h a d t o c o m e t o y o u t o g e t c u r -

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

rency.
Deputy Governor Case:

I n that connection, t h e r e

are atoput 120,000,000 o r thereabouts,

a s I recall it,~of

these t o n d s t o s e c u r e c i r c u l a t i o n t h a t t h e T r e a s u r y w i l l

redeem next year, o r may redeem next year; o f course,

I carmot say what the treasury will d o about it. I

had

some talk with wir’ Gilbert about i t and I know h e was very
mach i n sympathy w i t h retiring those, a n d that, o f course,
would accomplish precisely t h e same thing.
Governor P l a t t s

T h a t would help a

Governor Case:

lot.

I t would, yes.

Have y o u ever thought o f this a s a pos-

sible rough guiding principle: T h a t is, gauging your
purchases o f open market securities

b y the influx o f gold

at a time when there i s nothing i n the offing that indi~
cates t h a t t h e influx o f gold i s stimulating sneculatéive
activity o r price,

s n that y o u would a t least b e matc h -

ing the potential power o f that n e w gold, a n d you have
got s o m e t h i n g w h i c h l a t e r o n , s h e n e v e r t h e g o l d b e c o m e s

active, y o u c a n i n a weasure counter actit with.

L f your

gold stops coming i n the course o f a year, unless y o u
haw a

changed condition, y o u might readily s a y that

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

56
s o t o speak,

the invisible enemy,

m t a s iong

i s gone,

as t h e gold comes in. t h e great problem before t h e Federal
reserve system i s going t n b e t o cevise ways a n d means
by which t h e y c a n maintain some kind o f contact w i t h the
future warket, a n d t o b e i n a position t o maintain that,
i - c a i m o b See,

you h a v e g o t t o b e i n t h e e x i s t i n g market.

under existing circumstances, w h a t h a r m would result f r o m
i n the weakening

that procedure, e x c e p t
sible o v e r s t i m u l a t i o n
ties market. I

o f t u y i n g i n t h e G o v e r m e n t securi-:

think t h o s e a r e a l l t h i n g s

in t h e a p p l i c a t i o n
of i m p o r t a n c e

uf a

t o b e considera:

policy f r o m w e e k t o w e e k a n d a r e

a s o p e r a t i n g matters,

they t o u c h t h e e s s e n t i a l o r i n c i p l e s ,
ts g e t ,

o f rates a n d pos-

but I

do m t think

u p o n which m y mind

a s t o what t h e o p e n market policy shall

b e based

upon a t t h e p r e s e n t t i m e .

Governor McDougal:

G o v e r n o r Crissinger,

very glad t o hear f r o m y o u o n this subiect,

w e will b e

o r any other

matter.
Governor C r i s s i n g e r : T

ite, Hamblin: I

a m just list

think Dr. Miller h a s

views,

vir, Cunningham:

T t +00g-Am a e s listening.

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

Viee Governor Platts: +

Be

buying m o r s g o v e r m e n t .securities

Deputy Governor C é I
this y e s r e r d a y

T I t t l e aoupt ra “about
a t t h e praesent t i m e .

think i n our ciscussion o f

i t was pretty generally t h e feeling o f the

G overnors t h a t i t w a s v e r y m u c h t o b e resxreted t h a t w e

did not have, a s -e-had a year or-s0 a m , &

portfolic o f

million dollars, i n s t e a d o f w h a t w e h a v e a t t h e p r e s e n t

time. I

know that o u r banks have b e e n considering

pretty actively f o r t h e past three o r four weeks t h e
question o f reducing o u r discount rate,

i n order that o u r

rate might more clearly a n d more nearly reflect t h e
actual m o n e y conditions i n the financial centers.
have b e e n selling around 3-3/4 a n d 4 per cont a n d sivrt
time g o v e r n m e n t s a r e o f f e r e d a s l o w a s t h r e e
and u p t o f o u r o r thereabouts.

in-discussine “twee

h a d

the program recomiencied b y c h e Open Karket Investment
Committee o f increasing o u r purchase
felt t h a t w e s h o u l d d o t h a t p e r h a p s

a n d I think they
i n advance

o f the

time «when w e raised o u r rate, a n d not proceed t o lower
the r a t e a n d t h e n a l s o j u m p i n a n d buy. I

think o u r

directors h a d auite that feeling i n mind. i - d e - t h i n g
that D r . H i l l e r s a i d a b o u t t h e g o l d i s a n important m a t -

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

5?
it i s w r y c r e d i t a b l e

t o the system a n d

the b a n k s a n d t i e c o m m e r c i a l i n t e r e s t s

o f t h e country ,

that t h s f a r what g o l d has come i n has hardly h a d a n y
way o f p u t t i n g p r i c e s
speculation,

I

u p o r encouraging

n other vores, t h e r e i s a

great p l e t h o r a

of credit, a n d there i s n o stimulation o f prices, t h e y
have receded somewhat, rather t h a n going up. I
is a

think that

very creditable performance f o r t h e country a s a

whole.

T h e r e i s one thing clear, a s a result o f 1920,

that b o t h t h e b u s i n e s s m e n a n d t h e b a n k s a r e g u n shy,

and a r e going t o b e w r y careful n o t t o get into t h e
jam that t h e y g o t into i n 1920.
Governor Seay:

M i g h t a s k the members o f the Board

if they have a n y considered opinion upen t h e topics which
they h a v e p r o p o s e d
which t h e y c a n g i v e

t o t h e G o v e r n o r s f o r discussion,
t h e Governors t h e p e n e tus

o f

F o r

tnatanee,; topic No. i ,

ment o f Branch Banks m a y b e tested."
Governor wicDougals
Governor C r i s s i n g e r
with r e g a r d

w e would b e glad t o hear f r o m

o r from a n y other member o f the Board

t o t h a t subiect,

these subjects.

o r w i t h rervard t o a n y o f

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

58
Governor Crissinge)
isn't

a n y rule

a

m of t h e opinion t h a t

b y which y o u c a n show that they

gught t o establish tranches. I

think there ought t o b e

some rule b y w h i c h w
e could disestablish Federal reserve
bank branches i n s t e a d o f e s t a b l i s h i n g m o r e o f them,

Vice Governor Platt: I
are a n y p e n d i n g a p p l i c a t i o n s

d o n o t understand that there
f o r W a n c h e s t h a t t h e banks

favor v e r y much.
Governor M e D o u g a l s

N o t t o m y Knowledge.

Vice Governor Piatt: I

do m o t think t h e Board i s

in favor o f any that i t has heard of.
G overnor WcDeugals:

ced
a a s e w c l e S e tsuiPmkonst Worl Mole dnavevine

which s h o u l d b e t h e g u i d i n g factor,

i t seems t o me,

in

determining t h a t question.
Mre Miller: I

think w h e n a

branch o r w h e n t h e banks

within t h e territory assigned t o a branch o r 4 bank, a r e

within overnight mail o f the head office, that i t is difficult f o r m e t o s e e w h a t a d v a n t a g e t h e b a n k s o t h e r t h a n

those i n the Federal reserve branch city, get.
Governor i c Dougal:

i ore
T h a t i s the whole t h i n g n

sentence.
wp. M i l l e r s

N o r does

2 F o s Se o g
W
a
t
e +
i t appear t h a t t h e banks i n

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

BY
t o that b r a n c h g e t a n y advantage

territory a s s i g n e d

reduced r e s e r v e r e q irement---

what a m o u n t s t o a

i n

so

that i f I were g o i n g through t o revise e u r disposition
of twanches o n that principle, I

would b e disposed t o

lopp o f f a l l o f t h s e t h a t d i d n o t y i e l d s u b s t a n t i a l a d v a n t -

age t o other member banks t h a n those t h a t a r e i n
where t h e p a n c h i s lecated.
come within t h e latter class;

T h e majority o f our branches
t h e y constitute s o r t o f

LAttle pocket bureaus f o r t h e banks i n t h e city where t h e
a t m

branch i s located,

e x p e n s e o f probably t h r e e mil-

lion a year, possibly more t h a n that,
to t h e system.

I

n other words,

i n operatire costs

i n order t o give t h e m

an advantage possibly i n the shape o f a d itional earnings
of l e s s t h a n h a l f a

million a

year,

w e incur a n expense

that m a y r u n a s h i g h a s t w o o r t h r e e million. I

believe

ie
reason w h y
this i s what i s ahead o f us, and i t i s one

,

i t a s a very serious thing,
a o t regard
I
€
personaly should

that i n c o n n e c t i o n w i t h a

good operating c r e d i t p o l i c y

vhere there a r e
some banks, e s p e c i a l l y t h o s e i n districts

p a y their divid
a good mary branches, coulda n o t
i t makes s o m e difference
member banks wight f i n d o u t that
tow many branches 2

take
federal reserve b a n k has got t o

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

60
care o f i n r e g a r d t o t h e q u e s t i o n o f e a r n i n g d i v i d e n d s

for t h é bank,

I n other words,

that t h e s e w a n c h e s
dividend

i t might readily avpear

a r s maintained

a t t h e expense

of a

t o s h e m e m b e r b a n k i n t h e district.

Governor seay:

H a s i

§-ever ten=-considsred,-

or.

Willer, w h e t h e r t h e r e a r e o t h e r fesgal- dirficnulticse t n t i e

way o f disestablishing a
L

e

?

¢

O h , I

Niet Hamlin: I

branch?
think so.

d o n o t t h i n k w e h a v e a n y power.

counsel c a n mwer that cuestion.

O u r

w r . Wyatt can give

an o p i n i o n o n that.

hr, Wyatt: I

rendered a n opinion some time ago

to the effect that while t h e l a w i s not clear s n the

question, and we could m t b e sure about it, I could find
no a u t h o r i t y

i n the a c t for closing u p 4

® .aneh, — In o t h e

words, t h e Congress appears t o have reserved t h e right
to pass u p o n t h e cuestion o f whether y o u could close u p
a branch, w h e n t h e occasion arose.
Vice Governor Platt:

A s I

remember y o u r opinion
ao

it did n o t g o s o far a s t o s a y that t h e Federal Reserve

Bank could m t close a wanch, b u t that the Board could
not order a branch closed, isn't that it?

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

Mr. ‘ryatt:

Nagas

Governor Seay:

ask, w i t h a l l p r o p e r d e f r e r -

M a y I

ence, whether t h e Poard considered,

i n its recen

b y w h i c h b r a n c h e s s h a l l b e govern-

sion o f t h e r e g u l a t i o n s

ed, w h e t h e r t h e y w e r e n o t a d d i n g p e r m a n e n c y

branches

t o the

b y increasing t h e directorate a n d i n the appoint-

ment o f a managing director, a n d s o forth, thereby increasO f course I

ing the independence o f the branch?

a m speak-

ing o f this: scadeni cart ye =
Governor Crissinger:

Y o u refer t o regulating t h e

Of CAipec sors:
I a m referring
which w i l l t a k e e f f e c t
of d i r e c t o r s

t o t h e regulation

i n 1925, w h i c h s p e f i f i e s t h e n u m b e r
a s seven,

o f branches

Governor Crissinger:

whereas---

H o w vould t h a t affect i t ?

I don't s e e h o w t h a t w o u l d S E r e c i n i e .
Governor Seay:

whether

i t would n o t have a

tendency

o f permanency o f
to g i v e g r e a t e r f o r c e t o t h e q u e s t i o n
branches,

the idea o f
i n case t h e P o a r d should e v e r h a v e

disestablishing a

tanch,

and I

a m assuming t h a t proposi-

w h i c h I have just asked,
tion a s bearing u p o n t h e question
that i s , w h e t h e r

there

e p e

a n y aifficulties

i n the w a y o f

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

twanch. l t - s e e m s I f There a r e

Gisestablishing a

that t h e y w i l l l i k e l y b e a d d e d t o b y i n c r e a s i n g t h e d i r e c CORACS «
r

T h a t w a s m yM i d e a i n v o t i n g f o r i t .

Hamlin:

I have b e e n a minority o f one.

bank at ichita. I
cently l a i d down,
banks, I

te
I T woted t o give a

ranch

took the view that Mr. ‘arburg reH e wanted t o have a

smaller numberof

i n k h e said eight, w i t h 6 0 o r 6 5 tranches,

H e

said h e thought i t would b e the logical development o f
the Federal reserve system f o r t h e Federal reserve b a n k
to t a k e c a r e o f i t s o w n city,

a n d the vest o f the work i n

the district b e done b y well organized branches, t h e
Federal resérve b a n k being, o f course, t h e central bank.
i-daresay I
associates

know h o w m y

advocated t h a t v i e w alone. I
probably feel anout it, e a d [

juetitied

for t h a t reason, t h a t o f d e v e l o p i n g w W a n c h e s a n d m a k i n g
them m o r e a n t o n o m c u s a n d m o r e i n d e p e n d e n t .
Governor S e a y :
exist

a n y idea

T I was j u s t wondering,

o f d i s e s t a b l i s h i n g M@Wanches,

i f there does
which the

t h e difficulties
Governor o f t h e B o a r d intinated, v h e t h e r

were w t being increased.
Governor C r i s s i n g e r : I

do not think what y o u said

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

i n the w a y

would i n e r e a s e t h e d i f f i c u l t i e s

ing o r disestablishing a
Governor S e a y :
siving a

B

branch,

y increasing t h e directorate a n d

greater i d e a o f p e r m a n e n c y

Governor Crissinger: I
You h a d t o h a v e a

t o t h e branch.

do n o t think that follows.

directorate b e f o r e a n d y o u had d i r e c t o r s

befere.
Governor Seay:

B u t n o t a s many.

Governor C r i s s i n g e r :

in s o m e places;

Y o u m a y n o t have h a d

a s many

y o u w a y n o t h a v e a s " a n y nov, b u t t h a t

wourd n o t affect t h e legal status o f the thing. I

think

a federal r e s e r v e h a s t h e r i g h t t o c u t o f f t h e f u n c t i o n -

L

ing o f a wanch bank a s much a s i t wants

t can. Cus

it down until t h e branch don't amount t o anything, c a n ' t
teiee
Governor veay:

I

t i s a n offshoot

o f t h e parent b a n k

should s a y yes, b u t I

and I think that i s trues I

am

aking f r o m t h e l e g a l s t a n d p o i n t .
Governor C r i s s i n g e r :
parent

I

t i s t h e offspring o f t h e

b a n k and t h e parent bank c a n bring

it i f i t wants ‘bo.
Governor weDougal’

T h e y are not a

i t i n and spank

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

64
“ e h a v e o n e n o t a t l e exception.

the p a r e n t bank.

That

was n o t o u r child.

unterstood y o u t o s a y i n

Vice Governor Platt: t

o f currency b y some other b a n k

regard t o t h e f u r n i s h i n g

or b r a n c h t h a n t h e b a n k i n w h i c h t h e m a m b e r b a n k i s l o -

cated--- i f you could work that o u t i n a few isolated
cases where there i s some demand f o r it, wouldn't t h a t
cut o f f a

o f demand f o r branches?

certain a m u n t

T a k e

a bank down i n Illineis,

m d i f that bank wanted t o get

currency fram Chicago, I

do not see why i t should have

it?

I t c a n get i t more cheaply.
Governor M c Dougal:

O u r idea was that i f w e under-

took to do anything of that sort, that it would lead to
complications,

perhaps l o s e
a n d t h a t t h e districts w o u l d

their identity.

W e do not know “hat complications

would b e raised.
Vice G o v e r n o r P l a t t :

I

t seems

t o m é that t h e

lines, a n d
business h a s g o t t o b e done along workable
d o i n g s o m e o f i t The arn
that t h e F e d e r a l R e s e r a e B a n k i s

unnatural way.

a n d they
s c r a n t o n i s i n Pennsylvania,

from New York t han
could get their currency much cheaper
from Philadelphia.

i s con5 ° f a r a s getting currency

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

65
cerned, o n e bank could a c t for amither.,

T h e y could n o t

pay o f f t h e n o t e s o f s o t h e r bank, b u t t h e y e o u l d f u r -

risen pais small changes,
Governor wcKinney:

T h e trouble i s t h e next thing

that would c o m e along would b e the c a s h letters, a n d things
Of tines Jama:
T h e y are run o n a

Deputy G o v e r n o r Uase:

time s c h e d -

ule, s o i t does r o t really affect them.
would like t o a s k the Board

Governor sicbougal: T
a avestion

o n m y o w n responsibility,

or not t h e Board a s a Board,
look w i t h f a v w r

o r any members o f the Board,

o n this proposed # u l m e r Bill.

Vice C o v e r n o r P l a t t s
really a

a d t h a t i s whether

t h e y do mb,

I m tact 1 6 . 1 8

dead issue.

Governor

did n o t t h i n k i t was a

i c Dougal: ~

dead

issue, because i t was o n the program.
Vice G o v e r n o r P l a t t : I

d o n o t think there i s a n y

Banking a n d
chance o f i t ever being taken u p witn t h e
Currency Committee.

.
T h e y have n o t even c o n s i d e e d i t .
.

Governor M e b o u g a l :

Bate

G o v e r n o r Crissinger, i

would

this after mon.
a s k i f we a r e g o i n g t o b e here

Of course,

b u t w e have prac
w e are available t o the Board,

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

66
tically c o m p l e t e d o u r o w n prograim a n d w e n o w o f c o u r s e

await t h e pleasure o f the Board.
wir, Hamlin: T

would l i k e t o s u g g e s t t h a t b e f o r e

the G o v e r n o r s a d j o u r n R e g u l a t i o n J

b e Left. i n the p r e c i s e

shape i n which they want i t left.
Governor M c D o u g a l s T h a t w a s l e f t t o a

committee.

What c o m a i t t e e w a s t h a t ?

Deputy Governor Casé:

w r . Strateb!t, committee, t h e

“tanding Uommittee o n Collections.

P

e Strater c a n stay

over with lr, ‘wyatt;
Mie. Hamlin; I

think w e ought t n put that e u t 2 s

once.

Vice G o v e r n o r Platt:

I

s there a n y objection t o i t

the
in t h e f o r m i n w h i c h i t w a s r e c e n t l y s e n t o u t t o
Governors.
Governor weVYougals
I would 1 i k
whether

T h e r e w e r e o n e o r t w o suggestions

s n a u i r e f r o m Governor Fancher

Strater
i t w o u l d n o t b e p o s s i b l e f o r Hr.

stay h e r e a n d a c t a s a

committee

to

o f o n e f o r t h e conference

with regard t o Regulation J .
Governor F a n c h e r : I
+o: . 8 C o n n GESes. t

understand

that was rererred

indid o m o t k n o v - h e t h e r Mr’ s t r a t e r

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

67
vidually would want t o act f o r that committee o r not.
I think h e h a s p l a n n e d

t o have t h a t committee

eet

at

a v e r y e a r l y date, p o s s i b l y n e x t week,
Governor M c D o u g a l :

igs a

w p .

Hamlin h a s said that this

matter t h a t s h o u l d b e c l e a n e d u p a n d n o t c a r r i e d

Over, I

think w e a l l a g r e e w i t h h i m o n that.

‘ v e all

agree t h a t i t o u g h t t o k e s t r a i g h t e n e d o u t a n d t h a t
Regulation J

should

b e f o r t h c o m i n g v e r y soon.

fine Governor Fancher: I

think t h e Chairman o f the

Comnittee f u l l y appreciates t h a t a n d intencs t o get t h e m
together v e r y promptly.
Mr. Hamlin: I

understand t h e B o a r d h a s a g r e e d

some furon this a n d i s ready t o send i t out, subject t o
ther i n f o r m a t i o n c o m i n g f r o m t h e committee.
Governor Seay:
which a r e b e l i e v e d

all o f u s , I

T h e r e a r e sows changes
t o b e important

b y some

i n phraseology

o f us,

ww

cannot s a y ; b u t y o u w i l l r e c a l l t h e a c t i o n

o f the Sta ming
of t h e c o n f e r e n c e w a s t h a t t h e meintears

a s prompt a
Committee o n Collectiom s h o u l d have

confe:-

Board, o f course
ence a s possible w i t h counsel f o r t h e
t h e purpose o f
with t h e permission o f the Board, f o r
agreeing u p o n t h e phraseology.

T h a t was purely from

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

68
an operating standpoint. I
felt t h a t R e g u l a t i o n J

was

but t h e r e a r e s o m e p h r a s e s

think i t was quite generally
i n quite satisfactory shape,

i n there w h i c h n e e d t o b e

int c a r e f u l l y considered, p a r t i c u l a r l y w i t h r e s p e c t

to

Section V .

Governor Crissinger:
Gov’ rnor Seay:

H a v e y o u considered them?

I t was considered b y the conference

of Governors, b u t i t was thought t h a t they were operating
matters a n d that t h e standing committee o n collections,
which consists o f operating men, could g i v e valuable
sugvestions

t o counsel f o r t h e B o a r d f o r t h e p u r p o s e

ef

framing this definitelg a n d finally, a n d for t h e purpose
of submitting i t t o the Board right away, without a n y
undue delay.
Governor Crissinger:

T h e Governors w a n t t o come

back a n d s a y that i t i s wrong again,
Governor Seay:
to d o that.

i s that it?

T h e Govevnors w i l l n o t b e disposed

w e have referred i t t o these operating m e n

to agree among themselves a n d get i t i n -finel spepe 3 6
there w i l l

b e n o further AlLscuss i o n

Vice Governor Platt:
gencrally

I n other words, i t is pretty

i n proper f o r m r o w ?

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

Governor McDougal:
Governor S e a y :

Yes.

Y e s sir.

T h e r e a r e n o principles

involved, b u t there a r e some operating questions w i t h
reference t o phraseology used i n Section V , which might
be a e r e e d upen.

Mir, Hamlin:
sugsestions

A r e t h e Governors r e a d y t o accept t h e

o f the operating committee?

Governor Seay:

I t w a s s o understood.

Vice G a v e r n o r Platt:

Governor Seay:
Mr* Millers

p

T h e c o m m i t t e e h a s power, t h e n ?

k

M r . Strater i s i n town now, a n d w h y

couldn't t h a t b e d o n e r i g h t n o w ?

Go vernor hicDoug2l: I

would like t o explain with

respect t o this a n d other operating matters, t h a t t

he

men who a r e entrusted w i t h this responsibility a r e trained
along this line a n d are tetter able t o determine these
fine p o i n t s t h a n a r e t h e G o v e r n o r s t h e m s e l v e s .
we w o u l d h a v e d e t e r m i n e d

i t here.

Otherwise

D r . Miller h a s called

attention t o t h e f a c t t h a t t h i s s u b j e c t h a s b e e n b e f o r e
the b a n k s f o r s o m e t l e .

T h a t i s true.

A s Governor S e a y

has said, f r o m t h e standpoint o f most o f the banks a t

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

20
least, t h e regulation,

i n the f o r m last submitted i s satis-

factory, a n d a s Governor S e a y h a s also stated, t h e r e a r e
possible o b j e c t i o n s t h a t w e w a n t e d t o a s c e r t a i n d e f i n itely w h e t h e r t h e y w e r e w o r t h y o f consideration,

But why does i t take s o long t o get
action u p o n t e c i m i c a l

a n d operating matters

i n the reserve

banks?

Governor MceDjugals I

would like t o answer that

aestion, Doctor, a n d I think you are one o f those who
will understand a n d appreciate it.
When t h e s e c o n f e r e n c e s f i r s t b e g a n t o m e e t w e m e t

rather freavently, a n d w e vere developing a n organization
which i n c l u d e d c e r t a i n c o m m i t t e e s .

O n e was a

committee

of practical e x p e r h e n c e d o p e r a t i n g m e n , m e n w h o h a d l e a r n e d

through practical experience,

o r attained knowledge s u c h
t o deal “ i t h these m a t -

as p u t t h e m i n excellent p o s i t i o n
ters s u c h a s a r e r e f e r r e d t o .

¥

e also established a

committee which, f o r want o f a better name, w e called the
Bxecutive C o m m i t t e e
referred

o f Governors.

T h e first committee

t o h a n d l e d w a n y o f t h e s e t e c h n i c a l matters.

They b r o u g h t t h e m u p t o a

point f o r s u b m i s s i o n t o t h

so-called H x e c u t i v e C o m m i t t e s

o f Governors.

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

ie?
then took them u p a n d approved o r modified t h e recommendations a n d brought t h e m t o t h e Governors! Conference i n
finished s h a p e , r e a d y f o r action.

T h e r e w a s n o delay

and n o difficulty a t all, “ o e were recuested t o disband,
which w e did, a n d w e have wmver felt a t liberty r o operate
in t h a t w a y since. I

this.

think I

a m i n place

i n mentioning

I t i s a matter that w e have discussed, n o t fre-

ouently,

b u t i t has b e e n more o r less referred to, a n d

I think that i s a n answer t o your susstion.
Goverror Miller:

W h y couldn't t h i s m a t t e h a v e

1

referred

t o your technical committee?

the hands o f the Board f o r some time.

Ithas

t e n out of

D o y o u recall h o w

long?
Governcr S e a y :
Mx

A o o u t thirty days.

M L L Ler? T h i r t y d a y s a t least.

T h e presumption

was a t this t i n e y o u would finally dispose o f i t and
the regulation could b e issued, A p p a r e n t l y , y o u have
referred

t t to a

committee.

T h a t committee

i s then

to come here t o Washington t o talk with t h e Board,

so

that p o s s i b l y w e w i l l h a v e t h i r t y d a y s e l a p s e tefrore t h i s

thing i s finished, T t : i s . n o t 8

difficul ( t H e .

~The

mails a r e open a n d w e have provided telegravhic service,

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

ea
which w e ‘waintain a t g r e a t expense,
of t h e b a n i s c o n n e c t e d

a n d w e h a v e h a d several

b y telephone.

every facility that can b e cesiz
we n e v e r d o m y t h i n g u n l e s s a

‘ f e have v r a c t i c a l l y

a n d yet i t seems that

bundh o f m e n c o m e together,

with t h e probability t h e n that n o definite action will
a m inclined

be taken. I

t o think that i f a

single r a n

t o sit down with some

were a p p o i n t e d

t o d o t h i s thing,

representative

o f t h e Board, t h a t t h i s c o u l d b e c o m p l é t e d

before the week was over. O t h e r w i s e , i t will simply
arift along.

Governor “arding: I

would like t o move that w e re~

consider t h e motion passed o n yesterday, referring this
watter t o t h e c o m m i t t e e

o n collections,

a n d also move that

t b e referred t o the chairman o f that committee w i t h power
1310 ae Wowres

Governor Seay:

B e f o r e t h e motion i s put I would

like t o a t t e m t t o answer Dr. Miller.

T e i teye t a e

board r e a l i z e s t h a t t h e r e i s n o s u b j e c t c o n n e c t e d w i t h
Federal r e s e r v e b a n k i n g w h i c h h a s a s w a n y r a v i f i c a t i o n s

as the collection business, t h a t there a r e more angles t o
it t h a n a n y o t h e r b u s i n e s s t r a n s a c t e d

b y t h e Federal e s e r v e
°

benks.

T

t has w e e n felt f o r a

long t i n e t h a t i n d e a l i n g

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

fn
with t h a t b u s i n e s s

i t was desirable

t o have a

practice among t h e Feverdl reserve banks,
is t h e r e a r e d i f f e r e n t c o m i t i o n s e x i s t i n g
districts,

a n d i t h a s happened,

uniform

m t t h e fact
i n different

n o t once m u t

t e e

that i n t h e f o r m a t i o n o f t k e c o l l e c t i o n c i r c u l a r
cularbank w o u l d d e s i r e

times,

o n e parti-

t o provide f o r certain conditions

existing i n its district, w h i c h d i d not exist i n other
districts.

N o w , i f these exceptiors a r e entertained

and p r o v i d e c f o r t h e r e c a m o t

b e such a

thing a s u n i f o r -

wity, a n d i t i s only i n a n effort t o tring about uniformity a n d t o s h a p e u p a

circular w h i c h w o u l d b e a c c e p t a b l e

to all t h e Federal reserve banks t h a t t h e delay has
been caused.

I t might b e proper t o s a y that this cir-

cular w a s believed t o b e praticaliy i n its final forn,
that is, this regulation,

a s far a s t h e opinicns o f the

Governors w e r e concerned,

b u t i t s o happened t h a t o n e

Governor o f a

f a r s o u t h e r n bank, p r o m p t e d

b y h i s counsel,

thought that there ought t o b e a limitation i n one o f
the provisions

t o provide f o r conditions w h i c h existed

for
his district, a n d h e asked t o b e heard b y counsel

the Board, I think.

T h o s e are the things which retard

in

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

74
tle p u t t i n g i n t o e x e c u t i o n o f t h i s thing, t h a t 1 s t o say,

a desire t o bring about absolute uniformity i n the prac«
tice o f t h e F e c e r a l R e s e r v e b a n k s

i n dealing w i t h t h e col-

lection bisiness a n d i n s o forming t h e regulation that
its various provisions a s t o meet t h e views o f all, o r
at least t e reach a stage where i t c a n b e acauiesced in,
whether w e fully agree w i t h i t e r m t .
think this s t a t e m e n t m i g h t c l a r i f y

im, Harsison: I

the situation a little.

A t the last conference o f Gvern-

nors, w h i c h w a s i n November

o f last year,

i t was voted

to t e t h é sense o f the conrerence t h a t i t would b e most

desirable t o issue a new Regulation J , and that recom mendation w a s t r a n s m i t t e d

t o the Reserve R o a r d within a

after t h e action o f the Conference.

week

O n tlarch 8th o f

this year copy o f proposed regulation J

was forwarded t o

each Federal reserve b a n k for coimment.

G . tar a e f k a o w

Federal
each reserve b a n k dic s e n d i n its conments t o the
before
Reserve Board, a n d t h e recom endation which i s n o w
us f o r c o n s i d e r a t i o n

is a

regulation t h a t w a s drafted

i f not all
from t h e Warch 8 one, w h i c h embodied many,
the s u g w e s t i o n s r e c e i v e d
w~

serve banks,

b y t h e B o a r d f r o m t h e Federal r e -

not
T h e last copy, s o far a s 1 know, was

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

eéived b y a n y o f u s until t h e latter part o f April,
I think about April 22nd, s o that a s a matter o f fact

it has m t really been before u s for a e r y long time ,
and i t contains a

lot o f technical s u g e s t i o n s t h a t vere

made b y t h e v a r i u s r e s e r v e b a n k s a s a

result o f t h e origin.

al o r preliminary draft o f “arch 8 , that w a s sent t o each
reserve b a n k .

Governor C l k i n s : I

would like t o second Gover-

nor Hasding!s motion, a n d i n doing s o I would like t o s a y
that I

see n o reason whatever w h y this regulation could

not b e p u t i n i t s f i n a l s h a p e , 41e- t h e 1
adopted, w i t h i n o n e o r t w o days.

eaolution i s

T h e final draft o f

regulation J was received b y the Feceral Reserve B a n k o f
wan Francisco i n a letter f r o m the Secretary o f this con(pri

2ord,

cisco o n l y t w o d a y s t f o r e I

left.

ference d a t e d

N e w York

a m reacher

S a n Fran-

T h e r e has been r m

completion
delay o n o u r p a r t i n m a k i n g p r o g r e s s t o w a r d t h e
of t h e regulation,
I can see m

a n d i t i s s o f a r completed n o w that

possible r e a s o n w h y t h e chairman

standing G m m i t t c e

o n Collections

o f the

a n d ths Gounsel

of t h e

i t i n s h a p e tomorrow.
Federal Reserve B o a r d c a n n o t p u t
(The motion, h a v i n g b e e n d u l y seconded,

wously carried.)

w a s unani-

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

76
Governor icDougals:

G o v e r n o r Crissinger states

that t h e r e a r e o t h e r m a t t e r s

o f importance c o r erning

which t h e 2oard would like t o confer w i t h the Governors,
and i n t h a t e v e n t o f c o u r s e w e w i l l h a v e t o h a v e a

meeting this afternoon.
nw,

w e are therefore,

i n position

i f you gentlemen s e e fit, t o adjourn a n d meet

again this afternoon.

(vhereupon,

a t 1 o'clock p . m , t h e Joint Confer-

ence o f t h e F e d e r a l N e s e r v e B o a r d w i t h G o v e r n o r s

o f the

Federal R e s e r v e B a n k s rece: s e d u n t i l t w o o ' c l o c k p .

m. o f the same day.)

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