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Federal Reserve Bank of St. Louis
VOLUME I
QONFERENGE O F GOVERNORS O F THE FEDERAL RESERVE
BANKS f
FEDERAL RESERVE BOARD
Treasury Building
Washington, D.d.
May 9 - 1 2 , 1 9 2 7
Walter § . C o x
Shorthand R e r o r t e r
Washington, D.C.
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Federal Reserve Bank of St. Louis
1
CONFERENCE O F GOVERNORS O F THE FEDERAL RESERVE BANKS,
Washington, D.C.,
Monday, M a y 9, 1927,
10 o'clock a.m,
A Conférence o f Governors o f the Federal Reserve Banks
was convened i n the Hearing Room, Federal Reserve Board,
Treasury Department, Washineton, D.C., o n Monday, May 9,
1927, &t 10 o'clock aim
PRESENT: o D . R, Orissinger, Governor, Federal Reserve ‘
Board.
Edmund Platt, Vice-Governor,, Federal Reserve Board,
Adolph ©. Miller, Member, Federal Reserve Board.
Charles S$, Hamlin, Member, Federal Reserve Board.
George R. James, Member, Federal Reserve Board...
Edward H,. Guihtheham,; Member, Federal Reserve Board,
Walter Wyatt, General Counsel, Federal Reserve Board.
PRESENT ALSO: T h e Governors o f the Federal Reserve
Banks:
W. P. G. Harding, Governor, Federal Reserve Bank. of
Boston.
Benjamin Strong, Governor, Federal Reserve Bank o f
New York, and Chairman of the Conference o f Governors.
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Federal Reserve Bank of St. Louis
2
George 7 . Norris, Governor, Federal Reserve B a n k o f
Philadelphia,
E.R. Fancher, Governor, Federal Reserve Bank o f Cleve—
land.
George J . Seay, Governor, Federal Reserve B a n k o f Rich—
mond,
M. B, Wellporn, Governor, Federal Reserve Bank o f Atianta
J. B, McDougal, Governor, Federal Reserve B a n k o f
Chicazo,
C. Biggs, Governor, Federal Reserve B a n k o f St.Louis,
A, Young, Governor, Federal Reserve B a n k o f lLiinneapo-
J. Bailey, Governor, Federal Reserve B a h k o f Kansas
City,
Lynn PF, Talley, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f Dallas.
J. U. Calkins, Governor, Federal Reserve B a n k o f s a
Francisco,
G,L. Harrison, Deputy Governor, Federal Reserve Bank
of N e w York, a n d Secretary t o the Conference o f Sovernors,
Present also: M r . Newton D, Baker, o f Cleveland, Ohio.
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Federal Reserve Bank of St. Louis
P R O C E E D I N G S .
Governor Grissinger., T h e meeting will come t o order.
Since the last meeting o f the Governors there has arisen
T w o little banks i n
a controversy i n the Sixth District.
the Sixth District have been writing cashiers! checks with
a notation o n them "Not payable a t aFederal Reserve Bank";
a
they have also had their customers put out checks "ith
like notation, w e think nossibly i n an attempt t o undermine
the par check clearing system that w e have i n vogue. F e e l —
ing the importance o f it, and having the whole subject o f
the p a r c o l l e c t i o n o f c h e c k s
i n mind,
t h e Board has asked
Mr. Baker t o review the lecal aspect o f tnose checks that
have been presented i n thatmanner,
o r written i n that manner,
with a view o f determining unon a policy that shall b e uniform throughout t h e System,
t o b e followed.
T h e feeling
nas been here a t the Board that this was a preliminary s t e p
towards a
veneral attempt, r o s s i b l y , a m o n g c e r t a i n c l a s s e s
of banks, t o break down the par clearance o f checks system,
and f o r that reason w e have felt i t o f sreat importance t o
have a
full consideration o f i t before a n y further steps a r e
taken.
The B o a r d h a s a c q u i r e d t h e s e r v i c e s
o f Mr. B a k e r t o w r i
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Federal Reserve Bank of St. Louis
an o p i n i o n a n d t o c o m e h e r e t o d a y t o discuss t h e m a t t e r
with the Board,
H e is here this morning and I will now
turn the matter over t o him.
Governor Seay,
W a s that action o n the part o f a bank
instigated b y anybody i n particular?
Governor Crissinger.
W e haven't a n y proof o f that o r any
evidence o f that kind, W e d o not know. Governor Wellborn
tells m e that t h e banks have never talked with them about
it a n d w e r a t h e r s u s p e c t e d t h a t t h e r e w a s p r o b a b l y a
little
movement o n foot t o spread i t gradually and get i t started
gradually d o w n there.
‘ h o i s a t the head o f i t w e have n o
knowledge.
Governor Seay.
T h a t i s n o evidence o f activity o n the
of the Claiborne section?
Governor Crissinger.
N o , S o m e o f that faction i s i n
great trouble down i n Mr. Wellborn's district now.
lir, Baker. Governor Crissinger, a n d gentlemen, t h e question presented i s exceedingly samelicetes and difficult because i t i s o n e o f t h e s i t u a t i o n s t h a t w a s n o t f o r e s e e n b y
the drafters o f the Act. There i s n o specific provision i n
the F e d e r a l R e s e r v e A c t i t s e l f t h a t m e e t s q u i t e t h i s s i t u a ~
tion,
A n y course o f action that c a n b e recommended
t o you
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Federal Reserve Bank of St. Louis
&
argumentative
will have t o be built u p by @ more o r less
inferenoe a s t o the intention o f the Act.
ought t o take micht b e
The c o u r s e o f a c t i o n + c a t y o u
from the
one of several. of different dezrees of strength
litigation point o f view.
Hart—
mhe facte are quite eimple. This National Bank at
cashiers! checks
ford has stamped across the face o f its
B a n k o f ntleia. ©
"Not payable through t h e Federal Reserve
not stamped
Sofar as I know that particular bank has
it is enthat unon the checks of any of its depositors; put
thet cashiers’
tirely clear that if they can stamp-it' on
checks they can put it on their depositors’ checks, if they
consent.
can do that,
I f the National Bank o f Hartford
that the practice i s on
every other member bank can do it; g 0
which,
n o t merely injure,
i f i t were nermitted t o grow, w o u l d
o f the Federal
out would destroy the par clearance features
Reserve banking system.
since I came here
I have talked this over with ir. Wyatt
one
n
d I find his mind and mine are almost
this m o r n i n g , a
about it, perhaps quite a t one.» I
have thought about i t a
had some o f my
very great deal out i n Cleveland and have
reached this veneral
people work o n i t with m e ?a n d I have
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Federal Reserve Bank of St. Louis
judgment.
In the first place, J
demonstrable,
think i t i s demonstrable, l e g a l l y
the satisfaction
a n d c a n b e rroven i n court t o
the Federal
of a court, t h a t o n e o f the primary purposes o f
was a
Reserve A c t was t h e par clearance systen, t h a t that
system not f o r the
the Federal Reserve bank, o r
f t
o
b e n e f i
o f the pubfor the benefit o f a member bank, b u t a s A part
a
lic fiscal policy o f the country a n d therefore
legislation intended for the veneral good,
piece o f
4 % i s imfortant
with
to establish that because the rules o f interpretation
jAberal t h a n
regard t o acts o f that kind a r e very much more
i s de-—
when some special benefit o f a pecuniary character
sired f o r a particular person o r group o f
p e r s o n es hrule
.T
i s enacted
ig that whenever a n act o f e nubdlic legislatjon
to redress a n evil o r provide a
public good, t h a t t h e act i e
to b e a s liberally construed a s i s necessary,
is susceptible o f that construction —
5 0 far a s i t
a s liberally construed
that Congres,
as i s necessary t o accomplish t h e public purpose
a
had i n mind. W h e r e a n act i s passed t o confer
benefit u p o n a group, a t the expense o f others,
special
i t i s con-
t o the exact l a n —
strue@ narrowly s o a s t o limit t h e benefit
guage o f the gift.
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Federal Reserve Bank of St. Louis
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that I thinkIn this case w e have t h e benefit o f the a c t
a part o f the
we oan demonstrate i s for the public good a s
w e are enpublic fiscal policy o f the country. Therefore
as generously a s may
titled t o ask the court t o construe 4t+
Congress h a d i n
be necessary t o carry o u t the purpose that
mind.
no specifig
T h a t helps u s over the faot that there i s
provision i n the Act which meets this situation,
i f we oan
which
find in the act a purnose which is pubTue andi language
; u g “Aterpretation,
h4 ;
looks i n that direction and i s susceptible o f
That I
think w e c a n find.
o f the
The difficulty w i t h the case grows largely o u t
so-called Richmond case, a
case that was tried i n Richmond,
o f North
which grew out o f the action o f the Legislature
a s against
Garolina, reserving t o sts banks certain rights
the par collection system.
W h e n that case was before t h e
Brandeis,
Supreme Court o f the United States Mr. Justice
in
part o f the purpose o f
his opinion, s a i d that i t was n o t a
establish a uniCongress through the Federal Reserve Act t o
versal p a r clearance,
o f the
H e admitted that i t was pany
l e a d t o @ univerpurpose t o establish facilities w h i c h might
Congressional pursal par clearance, b u t that 4 + was not t h e
therefore said i f
pose t o establish i t compulsorily, a n d h e
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Federal Reserve Bank of St. Louis
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the F e d e r a l R e s e r v e b a n k s r e c e i v e d a
check w h i c h t h e y c o u l d
not collect because i t was not o n a member bank -——- as i t was
in that case n o t a member b a n k — - a n d the bank declined t o
remit a t par, t h e n t h e obligation imposed p y the statute u n o n
the F e d e r a l R e s e r v e B a n k c e a s e d a n d t h e y w e r e f r e e t o d e c l i n e
to attemnt
t o collect t h a t check.
On the basis o f that deoision,
o r that language, because
undoubtedly t h i s bank has. been encouraged t o believe that i t
was not a part o f the national purpose that Congress h a d i n
mind that a universal par clearance system should necessarily
be established, gard. that i s the only obstacle that w e have,
Now let us see what the case actually is; let us see
what strength i t has, M r . Wyatt and I acreed i n the Pasca—
goula case, W e had the legislative history collated, s h o w i n g
the Congressional debates o n the act, a n d the history o f the
act showed that imari-: clearance was one of its primary pur-—
poses,
A s s u m i n g that o n e o f the primary purposes o f Con-
gress w a s t o establish a
par clearance system,
i t necessarily
follows t h a t i f this thing could b e done b y this bank, o t h e r
banks can d o the same thing and therefore the purnose o f
Congress would b e frustrated b y the action o f those banks,
whether acting i n concert o r not.
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Federal Reserve Bank of St. Louis
9
"he Hardwick amendment which, a s Mr. Justice Brandeis
says, restored t o the banks, members and non members, t h e
right t o collect exchanges charges s o long a s they were n o t
charged t o t h e F e d e r a l R e s e r v e B a n k s ,
a s i t s l a s t paragraph,
its last sentence, t h e statement "No such charge shall b e
made against the Federal Reserve Bank,"
thing
My personal belief i s that that i s the strongest
we have i n our favor, from this point o f view:
I f Congress,
member
in express language has prohibited the member and non
banks —
i t must m e a n a non member clearing bank — — but i f
from
Congress i n express language has prohibited those banks
making a n exchange charge against the Federal Reserve Sys—
b e implied
tem, t h e n f o r t h e stronger reason, t h e r e mist
in that a
prohibition u p o n member a n d n o n member clearing
evil
banks from doing any other thing that would be a worse
charge.
in t h e s a m e d i r e c t i o n t h a n m a k i n g a n e x c h a n g e
That
a
is t o say, i f they cannot impose a n exchange charge o n
their
Federal Reserve Bank, clearly they cannot prohibit
checks f r o m being paid through 4
Federal Reserve Bank, b e -
charge
cause t h e denial o f the right t o impose a n exchange
their
ig the lesser evil than prohibiting the circulation o f
checks through Federal Reserve Banks.
S o I think w e have a
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Federal Reserve Bank of St. Louis
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Federal R e perfectly g o o d legal ground f o r saying that t h e
are
serve Act, i t s history, i t s intention a n d its language
the ab—
all fairly clear, they are argumentatively clear, i n
that
sence o f express and definite language, t o the effect
d o the
a member bank o r a non member clearing bank m a y not
thing which t h e Hartford bank i s here doing.
Now, a s t o what f o r m t h e remedy shall take, t h a t i s
really a
difficult question. T h e question w a s asked Governor
concerted
Crissinger a s t o whether there w a s a n y evidence o f
had the opinion
action. W h e n this ouestion first c a m e t o m e I
that w e might f i n d that there w a s 4
conspiracy t o obstruct
General
the laws o f the United States a n d that t h e Attorney
send f o r these
might instruct t h e local district attorneys t o
i n con—
bank officers and ask them whether they were acting
cert i n this a t t e m p t
I confess I
else. I
States
t o obstruct t h e laws o f t h e United
anything
thought that would k e i h terrorem than
b e asked
thought i t would a l a r m those officials t o
I thought i t prob—
whether t h e y were acting i n conspiracy a n d
ably would have a
rather disquieting effect u p o n them, B u t I
it, that there
am satisfied, upon a thorough examination o f
4s n o t m u c h i n that. I
quite r e a c h e s t h a t far.
d o not believe t h e conspiracy statute
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Federal Reserve Bank of St. Louis
i
There a r e three o r four nossible remedies,
I n the first
place a suit might b e brought o n one o f these checks b y the
Federal Reserve Bank o f Atlanta, i f it owned the check, b u t
that would p u t u s i n the nosition o f plaintiff, w h i c h I would
prefer n o t t o occuny i f rossible, I
would rather that t h e
legal attack o n the System come from those who are the
aggressors against the System and put us i n position o f defending t h e System rather t h a n attacking a
member bank.
I discard f o r the moment t h e question o f bringing a
S o
suit
by the Federal Reserve B a n k o f Atlanta,
I think i t would b e wise first t o amend t h e regulations
ofthe Boafd, ©
“si: the Board has the power to amend its
regulations prohibiting this kind o f endorsement o n a check,
I have drawn u p some language which may o r not fit, but I
will submit i t t o ir, Wyatt.
H e tells m e that t h e regulations
are i n process o f amendment now. I
think there will b e
plenty o f time f o r that. w e t h e r . T h e regulations ought t o
be amended t o nrohibit this kind o f legend o n a check, either
a cashier's check o r a depositor's check,
A n d follow that
through, after the rezulations shall have been s o amended,
if i t 1 g your judgment that i t should be, i n this way: J u s t
as soon a s a n y check i s issued a t a n y time which violates
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Federal Reserve Bank of St. Louis
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b e requested b y the
that regulation, t h e Comptroller should
attention o f the
Federal Reserve Board t o bring i t t o the
Directors,
t h e individual Directors
o f t h e b a n k i n question,
bank charters
The etatute with rezard t o the forfeiture o f
sought b y a suit
requires i n this instance that i t should b e
in the district court filed b y the Comptroller.
O n e o f the
a suit i s brought
provisions o f the statute i s that whenever
knowledge
the members o f the Board o f Directors must have
the
of the wrongdoing first, a n d i f they d o not discontinue
t h e n cancun per~
objectionable p r a c t i % ® t h a t t h e directors
sonally liable f o r the consequences.
That is again in terroren.
C a .
tT the Comptroller
of the Currency should write t o the farmers and merchants
members o f the
in some small c i t y i n the South w h o were
t o them —
board o f directors o f a bank, w r i t e directly
not
t o the scattered
to the executive officers o f the bank, b u t
t o the statute
members around the board table, citing them
a regulation
and telling them thet their bank was violating
was being
of the Federal Reserve Board, that their attention
that they
called t o i t under this section o f the statute,
found o u t that i t
would a l l read that statute a n d when they
imposed a
personal liability u p o n them for a n y irregularity
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Federal Reserve Bank of St. Louis
13
e an immediate
prought to their notice, ...°~ there w o u l d b
o see whether they
holding of hands and @ hunting of c o u n s e l t
that might ‘enreally were involviig themselves i n anything
there might b e a
tail apersonal responsibility, a s indeed
t pring a
e n o u g ho
personal responsibility i f it went far
conse—
suit for forfeiture of charter, with the irievitable
o protect against @
quence of a receivership for the b a n k t
run on it as soon as a suit was filed.
Whether or not that would be a wise thing to do I think
Happens i n another
we cannot determine until w e s e e what
1
s e c t i o n6
direction, T h a t other direction is this: Under
Reserve bank must reof the Federal Reserve Act a Federal
a n d I believe i t is
ceive ahy check drawn o n a member bank,
b a n k i n question —
entirely lawful f o r the Federal Reserve
instance — — to
the Atlanta Federal Reserve Bank i n this
o f the member bank.
oharge t h e check t o the reserve account
ought t o b e received;
I think those checks w h e n t h e y come i n
them a s can be zottgr
effort should b e made t o zet a g many o f
o f Atlanta.
and send them i n to the Federal Reserve Bank
daily cash letter
They ought t o be sent with the ordinary
that restric—
to the Bank of Hartford, o r whatever pank puts
b e returned
tive endorsement o n a check; they will doubtless
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Federal Reserve Bank of St. Louis
14
made
to the Federal Reserve Benk o f Atlanta and notation
a
that t h e y h a v e b e e n r e t u r n e d b e c a u s e o f
restrictive e n d o r s e -
o f Atlanta’,
ment “Not payable a t the Federal Reserve B a n k
bank; t h a t t h e y
and restricted f r o m circulation through that
f o r instance, i n are not returned f o r a n y other reason, a s ,
itself, ber
sufficient funds or any irregularity i n the check
oause then, o f course,
i t will b e sent back t o the depositing
bank and dealt with i n the ordinary way.
B u t i f they send
that t h e y h a v e unde
it back f o r n o other reason than t h e fact
t h e Federal Reserve
taken t o restrict i t s circulation through
Bank o f Atlanta, I
think the Federal Reserve Bank o f shtenta,
o f the bank
ought t o charge the check t o the reserve account
s o charged,
in question a n d notify t h e m that i t has been
came i n intq
That would force the bank from which the checks
bring suit azvainst ,
the position o f being obliged either t o
t o preus, o r against the Federal Reserve Bank o f Atlanta,
vent i t e c h a r g i n g t h o s e c h e c k s
t o i t s r e s e r v e account,
o r tq
having a n inprevent imposing t h e penalty which arises upon
sufficient reserve account.
I
t might ultimately get t o the
f o r that b a n k |
point where there will b e n o reserve account
s o many checks a n d
because o f the fact that t h e y would s e n d
b e i n a posi-~
have s o many penalties asessed that they might
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Federal Reserve Bank of St. Louis
15
tion where t h e y would n o t have a n y reserve acoount a t all.
The strong likelihood i s that that course o f action will
do
force them into the position o f plaintiff, a n d when they
that t h e n w e are i n the position o f defendant.
Governor Harding. I
recall that nine o r t e n years a g o
there was a bank i n Nebraska, a
National bank, 8 member bank,
which were
receiving checks f r o m the Kansas C i t y Reserve B a n k
the Nebraska
charged face value against their account, a n d
pank credited a quarter i n exchange. T h e thing rubbed along
with &@ constantly inoreasing aifference i n the reconcilement
of the account until i t reached pretty nearly t w o thousand
up
dollars, M y recollection is that the bank finally threw
its hands, reconciléd the account -—- am I right about that,
Governor Bailey?
Governor Bailey, Yes, i t did, Governor.
Governor Harding.
I n this case i t would be very much
more in amount when the entire amount of the check was charget
merely
against the account t h m i t would b e i n the case where
@ quarter i n exchange was charged.
Mr. Baker. T h e r e i s just o n e other thought,
o r one othe:
o r i t may
idea, a n d that i s if none o f these things work out,
bringing 4
work out where w e are forced into the position o f
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Federal Reserve Bank of St. Louis
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suit ourselves,
desiri n which c a s e i t seems t o m e highly
check that comes
able that suit should b e predicated u p o n @
Federa/ R e from some other bank i n the country, s o m e other
serve district,
t o the Atlanta District, F o r instance, t h e
Cleveland District sends a
Atlanta f o r collection,
check t o the Federal Reserve o f
W e have t h e additional statutory man—
collect.
date that t h e Federal Reserve B a n k o f Atlanta must
#eyi the Federal Reserve Bank o f Cleveland.
T
o attempt t o
prohibit t h e Federal Reserve Bank o f Atlanta f r o m performing
the function especially enjoined unonnit b y the statute,
character,
would give u s a n additional reason o f a defensive
way.
or offensive character, i f we had t o use i t that
So i n substance,
m y recommendation a t the moment i s -—-
and i t 1 8 a very difficult question,
i t i s a delicate ques—
the retion, i t i s obscure — — butmy recommendation i s that
this
gulations b e amended s o a s t o specifxoally prohibit
o r a depositor!
sort o f a legend either upon 4 cashier's check
check,
Governor Calkins. M r . Baker, i n your opinion has the
check
Federal Reserve Board power t o prohibit the drawer o f a
from putting a
notation o n i t i n regard t o the course o f its
collection? T h e s e checks that you have been discussing are
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Federal Reserve Bank of St. Louis
cashier's checks?
Mr. Baker,
Yes.
prosuppose t h e B o a r d h a s v o w e r t o
Governor Galkins. I
hibit the notation o n it by the bank itsel?.
M y question i s
check,: rou:
whether i t has power to prohibit the drawer of a
doing
who would b e presumed t o have made t h e notation, f r o m
it, whether i t be printed, stamped o r written?
Mr. Baker,
No, I
d o not think i t would have that power,
prohibit t h e member
but I think t h e Board would have power t o
banks from procuring them t o be 60 endorsed,
Governor Crissinger,
W a s there not one o f the checks
drawn b y a depositor?
Mr. Baker,
that
Y o u told m e that there w a s 4 check o f
sort, b u t I have not, seen such 4 check,
First
Mr. Wyatt. Y e s , there was one, 4 check o n the
National Bank o f Samson, Alabama.
Governor Crissinger. A
depositor drew a check of that
kind?
Mr. Wyatt. Y e s , I
understand i f that i s the result o f
inducement b y the member bank, that i t could b e prohibited
by the Board's regulations.
Governor Harding,
I f it i s refused for this one specif
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Federal Reserve Bank of St. Louis
—~Treason i t c a n b e charged t o the account o f the bank
Governor Crissinger.
I t covld b e handled i n the same
way.
protestéd
Governor Harding. Y e s , unless i t was returned
t o their
for lack o f funds, O t h e r w i s e i t could b e charged
kaooae’ . 3
was
Mr. Baker, Y e s , i f the only reason for. the return
the restricted endorsement. This restricted endorsement,
under the negotiable instruments act, i s rather a doubtful
imnnlhein:
the
I t rather h a s t h e aspect o f cross checks a n d
authorities are very much j p doubt about. it.
o the Federal ReGovernor Strong, I f the y e o u l a t i o n sf
for. actio
serve Board a r e amended s o a s t o lay the foundation
in this matter,
i t would b e neoessary f o r the reserve banks
i not?
wouldt
to change their colleotion circulars uniformly,
Mir, Baker. Y e s ,
Governor Strong,
I t just occurs t o me that i f the recor
mendations o f counse} were expressed
i n very speoific advice
character:
to each Reserve Bank, a s t o how any check o f that
escape some
coming into its hands should b e handled, w e might
slip-up somewhere that would make a bad record for us.
your dis} nave had a 1ittle trouble with one point i n
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Federal Reserve Bank of St. Louis
19
cussion, M r . B a k e r ,
I
f a
casnier's c h e c k o f t h a t c h a r a c —
collectible
ter i s issued b y a member bank and stamped "not
through a Reserve Bank",
w e c a n presume t h a t i t intends
that when that check i s presented a t the bank f o r payment,
would
that i s the bank drawing the check, that then they
effect the payment o f i t by drawing 4 draft o n their reinstead o f
serve acoaunt a t the Federal Reserve Bank, a n d
forcing a n exchange charge o n the collection o f the check
reduction i n
they simply will save, f o r a period o f time, a
their reserve balance, and it might not necessarily result
in any exchange charge a t all.
I t would impair t h e collegt-—
to
ibility o f the check because i t would force t h e holder
for
wait until h e got the Federal Reserve funds i n payment
the check,
The other diffioulty that occurs t o me, and which i s
common enough i n all the Reserve Banks, i s this: Whenever
we have a
dispute w i t h a member bank about t h e charge t o thei:
those e x
account, i t becomes what w e call a n "exception", a n d
the
ceptions may continue for a long neriod o f time, U n l e s s
Comptroller o f the Currency i s willing t o bring proceedings
bank t o
because o f impaired reserve balance andforce the
quit making loans a n d paying dividends,
a s provided i n the
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Federal Reserve Bank of St. Louis
20
statute, w e simply would have n o remedy, except a dispute,
They would claim that they h a d a teserve balance a n d “:.y
we would c l a i m that t h e y d i d not have.
Mr. Baker. They would have acamlated penalties, how—
ever.
Governor Strong, Y e s , but their position i s based o n
their
the theory that w e have n o right t o make t h e charge t o
account.
Mr. Baker, O l e a r l y that i s true unless —
Governor Strong.
M y difficulty, through that method,
w can avoid being plaintiff i n a
is finding means w h e r e b y e
putt.
Mr. Baker, I
think I understand t h e point y o u are
do not
making, although i t involves banking practice that I
know much about,
M y hope i s this, that i t would lead them
have n o c e t
to be placed i n the position o f plaintiff, b u t I
tainty that i t would,
by
Governor Strong. I f they are smart they can avoud i t
claiming
simply maintaining their tight t o this practice o f
that w e had no right t o make the charge t o their account,
have t c
Mr. Baker, Ultimately would n o t those exceptions
be reconciled i n some way?
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Federal Reserve Bank of St. Louis
a1
Governor Strong.
ed f o r a
W
veriod o f years.
e have had excertions that have lastW e have t h e m i n the Treasury D e -
partment right along, T h e question i s who i s going t o force
bring suit t o
this thing? a r e we going to/force them to maintain their
balance a n d force collection o f these venalties,
o r will t h e
Comptroller bring suit t o forfeit their charter for viola~
tion of the law?
I n other words, that this method does not
seem t o me t o be a n effective t o bring them i n as plaintiff
ina suit, However, t h e other G o v e r n o r e y
a
m t»ink different-
ly.
Governor Harding,
where y o u charge a
I n the case of the country banks
number o f these checks against t h e i r r e —
serve, t h a t impairs t h e reserve a n d the Federal Reserve B a n k
imposes the renalty, they simply draw azainst the reserve and
inorease the deficiency —
Mr. Baker,
crease?
I
B u t what hanpens as the deficiency does in-
t goes o n until the reserve has disappeared and
they have n o reserve,
Governor Harding, Then tre law says that the bank cannot
pay any dividends o r make any new loans.
Mr, Baker,
B u t Governor Strong's point i s that they
can force u s into t h e position o f plaintiff, t h r o u g h t h e
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Federal Reserve Bank of St. Louis
Comptroller, w h i c h o f course i s 80.
Governor Seay, Conceivably t h e amount o f checks o f such
nature might absorb t h e entire balance o f a member bank,
that is, through the action o f the Reserve Bank. T h e n let
us suppose that t h e bank itsélf should d r a w i t s draft u n o n
the Aeheres Bank; i t would have n o balance; t h e Reserve Bank
would refuse t o nay its check against that balance, T h e n
suppose t h e court should decide i n favor o f the drawing bank
and the Reserve Bank would b e i n the position o f having r e fused t o pay the draft o f that bank upon i t s balanoe, a n d
the Reserve B a n k might b e held f o r punitive damages also,
Mr. Baker, Y e s .
Govenor Seay.
I t has occurred t o me, a s a possible
way o f meeting t h e situation,
t o have some other bank take
the same action i n a friendly spirit.
Governor Calkins. T h e r e i s one point which Governor
Strong d i d not state, a n d which I have h a d i n mind, a n d that
is there will be no difficulty, s o far as the member bank is
concerned,
i n evading a n y controversy whatever f r o m a de—
pleted reserve, because while i t might not reconcile its account t o meet the exceptions, i t might maintain a sufficient
reserve balance nevertheless f o r a n indefinite length o f time
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Federal Reserve Bank of St. Louis
23
Re—.
4n which case neither t h e Comptroller n o r the Federal
serve Bank would have anything t o say.
Mr. Baker,
T h a t i s if it maintained a n adequate r e —
serve a n d maintained a
reserve t o meet t h e exceptions a t the
same time?
Governor Calkins. Y e s .
Mr. Baker,
O f course that i s perfectly true, but the
effect o f that would be, a s I gather i t -- these things
any at—
get about i n banking circles, that nobody wasuipaying
tention to that restriotion, the checks would keep o n coming
in and n o harm would b e done.
Governor Harding W o u l d the Board have the legal right,
under its regulations, t o allow the Federal Reserve Bank
4n another district t o send that check direct t o the bank w i
which i t was drawn? W h a t the country bank i s after i s the
exchange.
I f it doesn't get the exchange i t might forse i t
to say "Not payable through any Federal Reserve Bankt, which
would broaden the whole situation.
Mr. Baker, Y e s .
M y memory for the moment i s weak o n
the question o f whether the statute requires banks i n other
districts t o clear through the Federal Reserve Bank of each
district o r whether i t merely permits it.
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Federal Reserve Bank of St. Louis
24
I t merely permits it. I
Mr. Wyatt,
recently considered
the question.
I f the Federal Reserve B a n k o f Boston should
get a cheok I
think i t could s e n d i t either t o Hartford ~ -
Governor Harding (interposing: )
T h a t i s what I came
pretty nearly doing when that check came back.
Mr. Baker,
I t seems t o m e that would force t h e m t o widep
,
the situation and w e would see i f they were attacking the
whole Federal Reserve System.
sugzestion i s concerned,
S o far as Governor Strong's
i t seems t o m e that method mjght
makfail t o force them i n the position o f plaintiff, b y just
far I have n o t
ing a n exception, a n d i f i t does that, t h e n s o
action exbeen able t o devise i n my own mind any course o f
cept t o get the Comptroller t o file a suit,
Board
Governor Crissinger. Does not the Federal Reserve
have the power t o order the institution o f suits?
the righ}
Mr. Baker, Y e s , the Federal Reserve Board has
to direot the Comptroller t o bring suit,
Mr. Hamlin,
Mr; Baker,
I n the name o f the Federal Reserve Board.
I n his.own name, a s I recall it.
Governor Orissinger.
I n the name o f the Comptroller.
We did it when I was Comptroller i n the case of a Frederic!
bank.
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Federal Reserve Bank of St. Louis
85
lad
Baker, —
G G o v e r n o r Seay. W o u l d i t serve a n y alvantage, M r .
some
to get someone t o act i n the w a y I have suggested, g e t
bring
other bank t o follow t h e same course, h a v e that bank
way?
a suit against t h e Federal Reserve System i n a friendly
merely
There would b e n o hostility between the two factions but
a friendly action t o determine the legal rights i n the sase.
Sys~
Some bank could bring a suit against the Federal Reserve
tem i n that w a y i f that woyld serve t h e purpose.
Mr. Baker, I
have a
shrinking f r o m friendly lawsuits.
i n that
It is possible sometimes t o frame a friendly issue
h a s a n adverse
way, b u t whenever y o u do, anybody w h o really
that h e
interest t o you, i s free t o come into court and say
comes i n amicus curiae, but he really has @ hostile inter~
a fencing
est and he charges that you are merely conducting
matoh when he wants a fight,
H e then takes c o n t r o lfo the 1:
suites, a n d
igation. That very often happens i n taxpayers!
of a
representatives! suits. F o r instance, t h e etookholders
becauge
corporation will bring a suit against the cornoration
there i s some doubt s e a
t h e validity o f some part o f their
o f it.
corporate papers and they want t o get a n adjudioation
a n d say h e
Some adverse stockholder will come into court
the litigat
wants t o be a party t o it and he gets control o f
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Federal Reserve Bank of St. Louis
28
a position
s concerned, y o u are i n
and, s o far a s the C o u r t i
f o r the Gourt, T h e r e f o r e
of having framed a n academic issue
my inclination i s t o avoid a
friendly suit.
provision i n regard t o
Governor Strong, H o w about t h e
i n the Federal
requiring a bank t o retire from mewbership
Reserve System?
& National Bank unless
Mr. Baker, T h a t cannot apply t o
4t surrenders i t s charter.
them t o surrender .the
Governor Strong, C a n ve not force
charter?
Mr. Baker.
independent
you coul take
O f course that is @ remedy
of the Comptroller
if their reserve g o t t o 4
the
improper t o have t h e m i n
place where y o u felt i t was
bank that its membership
System, Then you could notify the
i s a provision of the Act,
would have to be withdraw. That
the Act t o that eftir. Wyatt. There i s a provision o f
t State member banks.
fect, but i t only a p n l i e s o
not be the vest vlan
Governor Yellborn. W h y would i t
a
h it is on the broad
totake your first suggestion, t
o f the Federal Reground that i t is against the principle
amendment? I
serve Act as stated i n the Hardwick
would
concert o f action i s concerned,
like t o say, s o far a s a n y
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Federal Reserve Bank of St. Louis
a7
that w e d o not think there i s any.
it i n o u r district,
I n fact I
tion discussed a t all, I
W e have never heard o f
have n e v e r h e a r d t h i s ques-—
have never heard a n y officers m e n —
tion i t i n any banks i n the District.
I
n fact, I
have
never heard any member banks discuss i t i n the last three
or f o u r years.
Mr. Baker,
B u t i t igs a bit t o o inzenuous, I think,.
to have occurred simultaneously i n different places,
Governor Wellborn,
O n e o f the banks wrote t o one o f
our officers, and we thought that there was a lawyer behind it, who had evidently written a
letter f o r the bank,
Governor Harding. T h e d a n t roller tokd m e that i t
looked like some collusion, that that very sound little
banks were doing it, and that he could not order frequent
examinations o f them a s a n excuse t o g e t a t them i n some
other way. W o u l d i t strencthen your case i f you could
force t h e b a n k s t h a t a r e d o i n g t h i s t o u s e a
stamp i n s t e a d
ofsaying "Not payable throuzh the Federal Reserve Bank
of Atlanta", b u t "not nayable through any Federal Reserve
Bank"?
Mr. Baker, T h a t w a s t h e suzgestion.
Governor Harding, I f you want t o do that, have another
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Federal Reserve Bank of St. Louis
28
bank outside o f the Atlanta District s e n d cireot t o those
banks a n d demand p a r remittance i n some f o r m o r other,
and then i f the Atlanta Bank has a n y o f those checks,
they s e n d t h o s e checks, w i t h o u t e n d o r s e m e n t ,
if
b u t merely
t o iden—
having some sort o f symbol o n the face o f the oheok
tify it, t o some other bank, a n d let that b a n k send then,
as soon a s the bank sees that i t isn't getting any letter,
any
they will either p u t o n the check "Not payable through
altoFederal Reserve Bank" o r they will quit t h e praotice
the .
gether, I have had a lot o f experience dealing with
Ameribanks i n Alabama and I reoall making a deal with the
can Trust & Savings Bank, They had a lot o f small checks,
15
just like I aid. T h o s e banks would make a charge o f
cents, They would vive u s the 1 5 cent rate o n a hundred
dollars.
W e would either have t o hold u p the checks f o r a
along a n d
week t o vet a hundred dollars! w o r t h o r send them
stand the excessive charge.
T h e American Trust & Savings
Bank carried %150,000 with me without interest. I took all
of their checks and collected them for them. 1
gota
number o f letters saying " I notice that y o u are taking
checks from the American Trust & Savings Bank and we are
degoing t o charge y o u separately o n those checks", w h i c h
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Federal Reserve Bank of St. Louis
feated m y nurnose.
T h e n I had a little rubber stamp made
with the letter "a" ~ ~ I had i n mind Hawthorne's Seorlet
Letter - — and I stamped that o n the face o f those checks.
To all intents a n d nurnoses i t had t h e legal effect o f a n
endorsement a n d I had n o more trouble,
T h e y never g o t onto
it,
Mr. Baker, I
largely feelings.
have t w o feelings about this.
I n the first place I
T h e y are
do not like the
idea of the Federal Reserve Bank having t o go t o court with
+heir member banks, I
wish w e could find, I
hope w e oan
find, s o m e internal method o f discipline rather than taking
the member banks into court, because I would like t o build
up the idea a s expressed b y itr. Justice Brandeis i n one o f
his oninions - — I forcvet which one —
tion b e t w e e n a
member a n d a
that there i s a distinc-
n o n m e m b e r bank,
H e says that
so far a s the member banks a r e concerned t h e Federal Reserve
Board has large powers and influence,
N o w , a s far as pos-
gible I would like t o build u v the idea that t h e things that
this Board determines t o b e f o r the benefit o f the country
are within i t s regulatory powers a n d internal discipline w i l l
accomplish t h e m rather t h a n litigation b y the Board against
a bank, S O far as that can be done I hope i t will be done i n
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Federal Reserve Bank of St. Louis
that way.
against
The other feeling i s that whatever c a n b e done
b e done
the Federal Reserve B a n k o f Atlanta obviously c a n
i n the
against t h e System a s a whole, T h e r e f o r e w e have
Atlanta
aotion taken against t h e Federal Reserve B a n k o f
that which would be involved if the endorsement stated
"Not payable through a n y Federal Reserve Bank",
s o that
them
it i s h a r d l y n e c e s s a r y f o r u s t o w a i t until. theyforoe
into that nosition. I f we have any power w e can aot before
they d o it,
Governor Wellborn: Following that line of discussion,
ithas been suggested in the Federal Reserve Bank of At~
discuss
lanta that w e have a conference with these officers,
o f view,
the matter w i t h them a n d get their point
t o see i f
defere
we could not influence then. H o w e v e r , that has been
some me6r
red until w e had your opinion o r until w e received
it, T h a t i a :
sage f r o m the Federal Reserve Board regarding
t h e y have
be « ‘weiss good plan t o work that o u t a n d see what
to say about it.
that
Governor Crissinger, D i d I understand y o u t o say
they h a d counsel w h o h a d advised them?
Governor Wellborn. I
think t h e y have counsel judging
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Federal Reserve Bank of St. Louis
31
from the letter t h e y wrote t o us, T h e y stated plainly that
they wanted the exchange. Y o u have the letter o n file here
somewhere,
@ vernor Seay.
M a y I ask ir. Baker whether the
Position taten b y this bank i s known t o its directors?
Mr. Baker. T h a t I do not know, Governor Seay. T h a t
was the reason I suggested that i f we get t o a place
where they d o not sue as plaintiff, after the regulation
e x
of the Board h a g b e e n amended s o a s t o b e perfectly
plicit a n d not a matter o f interpretation o f general
policy a n d phraseology, t h a t t h e n w e notify t h e individual
directors t o see whether o r not t h e y would n o t bring about
an abatement o f the practice.
Governor Seay, D i d I understand counsel for the Board
to say h e believed that the Federal Reserve Board could
authorize t h e Federal R e s e r v e B a n k i n a n y district
t o send
checks direct t o é neehek pant i n other districts?
ux. Wyatt. Theat is what I said, but I do not believe
that a bank i n the drawee bank's district c o u l d send that
check t o @ Federal Reserve Bans i n another district.
The
fact i s I know i t could not d é that. T h e Act prohibits
the Federal Reserve Bank f r o m receiving checks f r o m another
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Federal Reserve Bank of St. Louis
32
in
Federal Reserve B a n k unless t h e y are drawn o n 4 bank
{ts o w n district.
Governor Harding. G o u l d a
Federal Reserve Bank, having
received it, send i t t o another Federal Reserve Bank?
ure Wyatt.
I f a Federal Reserve Bank receives a
check from someone other than another Federal Reserve
Bank.
do not like the idea of setting
Governor Strong. I
t o meet a
up < special procedure o f collections i n order
special situation, something thich would defeat the general scheme o f collections.
I f we can d o it and not de-
part f r o m the regulations o r t h e general scheme o f collec-
tions, which i s intra-district a s regards interior checks,
and between t h e Federal Reserve Banks a s regards exterior
checks, i t seems t o me a much stronger position would b e
held, A
better.
friendly s u i t between Reserve Banks would b e
O f course i f w e could force t h e m t o sue i n order
to accomplish the purpose o f defeating the exchange charge,
then w e would b e i n a n ideal situation.
Mr. Baker, Exactly,
Governor Syrong.
I t might b e accemplished,
i t seems
i n until
to me, b y just charging these checks a s they come
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Federal Reserve Bank of St. Louis
they g e t u n d e r t h e i r reserve,
a n d then c a l l i t t o the
attention o f their directors, call the attention o f the
directors t o the penalties $ 0 which t h e y a r e personally
liable i f they continue t o pay dividends o r make loans
W e could d o that andthen see
under those conditions.
what the effect w u l d be.
Governor Calkins. B u t i f the bank i s smart enough
to m a i n t a i n a
reserve account notwithstanding t h e charges
against it, there would b e no ground whatever t o go upon.
Governor Strong. B u t they would n o t d o that,
Governor Calkins.
W h y not?
Governor Strong, They would be pumped dry in time.
wir, Baker. W o u l d n ' t that defeat their purpose?
That would make them carry a larger reserve without receiv
ing any interest o n it,
Governor Calkins. Yes, but it would defeat our vurpose a s well, w o u l d i t not?
e paying t h e checks a t
Governor Fancher, T h e y w o u l d b
wir. Baker.
W e could stand i t a s long a s they could.
They would be losing interest o n their money instead of
getting a n exchange charge.
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Federal Reserve Bank of St. Louis
34
Governor Harding.
W e stood i t three o r four years
in the Kansas City case and d i d not lose a n y sleep o v e r
it.
Governor Bailey.
I n that case i t was only t h e e x
change charge that w a s charged against t h e reserve.
I n
this c a s e i t would b e the whole check.
Governor Harding, Y e s , i t would b e much larger i n
this case.
Mir. Baker.
Y o u would favor the proposition o f forcing
them into t h e position o f plaintiff b y charging i t against
the reserve account?
Governor Strong. Y e s . T h a t seems t o be the only way
possible t o make them fight it.
Governor Harding,
T h a t w a s your original suggestion,
ur, Baker.
Mr. Baker. Y e s .
M y hppe w a s thet i t would accomplish
that purpose, b u t I began t o feel a little shaken w h e n G o v
ernor § r o n g - brought t o m y attention t h e question o f maintaining those exceptions, w h i c h could b e done f o r a long
time.
I is a question about that reserve
Governor B a i l e y , t
e
h
T maintain that they have it,
balance being m a i n t a i n e d , y
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Federal Reserve Bank of St. Louis
35
that i t is not @ question o f deficiency, b u t they say w e
hed n o right t o charge them vith the item,
Governor Seay- Y o u r exceptions were never large
enough t o absorb t h e balance o f t h e reserve?
Governar Strong. N o , t h e y have been small.
idx, Wyatt, I
have not thought i t out and I. do not xnow.
what the legal conclusion would be, I t is merely a suggestion, but i t might b e possible for the Comptroller o f the
Gaurrency t o force the issue with regard t o these exceptions
by taking the position that they are making a false statement about maintaining their reserve a n d making false r e —
ports.
Governor Harding. I
took that up with the Comptroller
in the Kansas C i t y ease a n d b a could not d o anything about
it.
Governor N o r r i s .
I t seems t o me i t would b e a n im.
portant thing for u s to know i n advance whether the C o m p
troller would cooperate with u s o r not,
Governor caeihace:. J
think h e will, s o far a s that
is concerned.
Governa Norris.
I f we follow this practice of charg;
these checks t o the account o f the member banks, t h e menbe
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Federal Reserve Bank of St. Louis
36
banks will b e deficient i n their reserve o n our books W h i l e
on their ovn books their reserve will b e all right, When
it comes t o a n examination o f t h e bank t h e Comptroller's
examinerswill f i n d that, according t o their books, t h e i r
reserve has been all Tight, b u t i f he verifies that from
our books h e will f i n d that i t has not b e e n a l l right.
cording t o our books t h e y will b e deficient.
Ac-
I f the C,mp-
troller will take o u r calculation o f their reserve t h e n h e
will b e i n a position t o say t o them "Your reserve has
been chronically deficient for a period o f months,"
H e
can call attention o f the directors t o the fact that t h e y
are not only violating t h e law, b u t i a t e a c h individual
director i s practically a n endorser
o n every loan t h a t
they have made during that whole period.
A t @ recent c o n
ference i n our office t h e Chief Bank E x a m i n e r t
u
p that u p
to the directors o f a bank a n d t h e effect o f i t was electric
Mr. Baker. E x a c t l y .
Governor Strong.
Governor Young.
further,
just from @
i f think that is a most salutary thing
L e t u s follow o u t your idea @ little
practical standpoint.
I t i s quite
true that checks might c o m e i n s o rapidly that vossibly i n
three o r four months t h e bank would not h a v e a n y reserve a ’
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Federal Reserve Bank of St. Louis
37
all. T h e n a draft would b e presented b y someone, s a y f o r
five o r ten thousand dollars, a n d would the Federal Reserve Bank refuse t o pay that draft?
tical standpoint I
N o w , f r o m the prac~
do not think there i s @ Governor around
this table w h o would refuse a
draft o n a perfectly solvent
National Bank.
Governor Strong. I t is not likely t o go a6 far a s that,
Governor Young.
Governor Young. The position o f the Comptroller o f the
Gurrency i s a
g o o d d e a l t h e same. H e r e i s a
bank t h a t i s a
good bank, a solvent bank, able to pay its depositors, and
the Comptroller of the Ourrency is requested b y the Federal
Reserve Board to bring suit against that solvent bank to
cancel its charter, F r o m a practical standpoint I do not
think i t will ever b e done.
Governor Crissinger.
I t has been done.
Governor Young, T o a good solvent bank?
Governor Crissinger. Y e s , a good solvent bank,
Governor Young. W e l l , i t i s a dangerous thing.
Mr. Baker. I
true. I
think Governor Strong's statement i s
do not think i t will ever get that far. J u s t a s
soon as the regulation was amended so as to be explicit i n
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Federal Reserve Bank of St. Louis
38
its prohibition upon that point, t h e first time we had @
notation o n a checr issuing f r o m a bank, after the amended
regulation a n d t h e amended collection circular, t h e C o m p
troller would notify t h e members o f the board o f directors
of the m n k i n question that their bank w a s violating @
regulation o f t h e Federal R e s e r v e B o a r d .
H e might p o i n t o u t
that h e learned f r o m t h e Federal Reserve B a n k o f Atlanta
that their reserve wes already deficient b y virtue o f the
violation, a n d I think they would put a n e n d t o it.
[ | think s o too,
Governor Harding.
Governor Baker. I
think those boards o f directors are
not going t o assume that responsibility.
Governor Young. W e l l , i f they g e t t h e onvosite k i n d o :
advice f r o m attorneys w h o m they feel a r e competent, t h e n
a ban’
what? T h i s has occurred t o me i n this case, H e r e i s
that stamps some oashier's checks "Not payable through the
Federal. Reserve Bank o f Atlanta." I
amounts t o anythin g
do not think that
at all. T h a t will spread t o their
customers ultimately. T h a t i s their idea.
N o w let u s assum
that w e g o ahead, a s Atlanta has already gone ahead, a n d
just r efuse to handle the checks, That will result i n its
spreading.
I f i t does n o t spread very f a r n o harm i s den
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Federal Reserve Bank of St. Louis
39
prought t o the attention o f
If i t does spread i t will b e
u p {in Congress and
the American public and i t will come
will absolutely vrohibit at.
Legislation will b e passed that
o f it as anything
That seems t o me t o be as good a solution
I know of,
hazard to the colGovernor S ¢rong. B u t it is @ great
lection system.
ir. Baker. I
b y Cona m less optimistic about action
i n the world. Gover-gress than I am about any other abject
h e was always interested i n
nor Hughes once said t o m e that
the victorics o f optimism,
I n my experience I have never
won a n y victory w i t h regard t o Congress.
I n that hubbub
i t was a n attempt o n the
there would b e the statement t h a t
some sort o f coercion o r
part o f the System t o bring about
its customers.
some trouble between t h e bank @ n d
I pring it up, W e
Governor Young.. That is one reason
quite a s bad a s th:
lost a case o n goercion that wasn't
around t h e table here.
Mr. Baker.
somewhat d i f
B u t after a l i t h e coercion i s
‘coercion i n Catt les—
W e have had cases o f alleged
isnot the sort o f coerc®
burg, a n d some other places. T h a t
statute, T h e statute, su’
which violates the mandate o f the
ferent.
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Federal Reserve Bank of St. Louis
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tion 16, does s a y that Federel Reserve Banks must receive
checks dramm a t par o n menber banks i n its district, b u t
it does not s a y that some kinds o f checks andnot other
kinds o f checks.
I t says "checks." I
think the Federal
Reserve Bank o f Atlanta might perhaps find itself i n a
very difficult situation i f one o f the checks came through
and it refused t o accept it, because i t would probably b e
held a s a matter o f law that i t should disregard the restrictive mdorsement and take the check under Section 1 6
ef the Act,
Governor Young, That has been a question i n our bank
for a long while. 1
have always taken the checks, large-
ly under section 16. Y o u have @ member bank i n the country,
a four o r five days point i n remitting.
Y O u pet more
checks a n d y o u send more checks o u t there, I
Would ube negligence. t
think i t
have often wonderedmether w e
could refuse t o send those checks, I
d o not think Seo-
tion 1 6 c a n g o s o far a s t o compel t h e Federal Reserve
Bank o f idijnneavolis t o assume a
not c a r e t o assume. I
we c a n refuse.
are.
responsibility that i t does
think there a r e circumstances where
A t least Judge t i a n a t e l l s m e that there
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Federal Reserve Bank of St. Louis
Governor Wellborn. i r , Wyatt, i n his memorandum,
o n the
states that o u r bank refused t o handle t h e checks
ground that they were non-negotiable.
T h a t i s a mistake,
We have never taken that vosition with regard t o those
checks.
W
e sent t h e m back because
i t was stamped o n then
"Not payable through the Federal Reservé Bank." O u r attornotation o n
ney tells u s that i t is negotiable, that the
there does not render i t non-negotiable,
Wir. Baker. T h a t i s a very doubtful question. I t i s a
restriction o n a check saying that the check is not pay~
able through t h e Federal Reserve B a n k o f Atlanta. ~.3%.:
Syppose the next check they send out is endorsed “Not vayable through a n y Federal Reserve Bank "¥ S y o r n o s e t h e next
one i s endorsed "Mot payable through any bank exceot John
get
Smith's bank", a b some varticular place? Y o u finally
to the point where under t h e negotiable instrument a c t y o u
it
have restricted the negotiability o f the instrument a n d
ceases t o be a negotiable instrument? Jy,st where that
point i s I do not snow, I t is a doubtful question o n the
facts a s they are.
Governor Strong. T h e r e i s one thing about all this
litigation a b o u t t h e p a r c o l l e c t i o n s y s t e m w h i c h i t s e e m s
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Federal Reserve Bank of St. Louis
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to me should b e clearly brought out, a n d that i s that t h e
Federal Reserve Banks are entitled t o know, either from
the Supreme Court, Congress, o r somebody, whether the act
intendedthat w e should have a
par collection system o r not,
That i s the real question, W h e t h e r the veople i n this
country a r e entitled t o have checks drawn o n member banks
Cleared through t h e Reserve Banks a t par.
I f the court
holds that Congress intended that w e should have a par collection system a n d w e are t o follow t h e letter o f the statute
then w e c a n g o t o Congress f o r o u r remedy, I
think t h e i n —
tention o f Congress was clear enough.
ar. Baker. I
think some o f y o u were present i n the
Supreme Court d u r i n g the argument i n the Pascagoula case
and will remenber that wr. J,,stice McReynolds asked wr,
Sp,ith, counsel f o r the Pascagoula Bank, " I s this a member
bank, a
National Bank?"
A n d Spith s a i d yes, a n d h e said "Dc
you mean t o contend that t h e Government cannot control i t s
own creatures?"
proposition.
4 1 1 the other members nodded assent t o the
T h e y were all clear about that, I
think i t i s
true that t h e par clearing system h a s already proved t o b e
of great benefit t o the business interests o f the country
and that i f there were a n y court decision which held that
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Federal Reserve Bank of St. Louis
AS
vressure
the thing w a s t o g o b y the board, t h a t oublic
from t h e business o f the country o n Congress
t o re-estab—
lish i t would b e very great,
Governor Strong,
I f w e could just g e t before t h e
I
S,preme Court o n that very ground, that i s a decision
would like t o see the Supreme Court make.
Mr. Baker. I
have a lot of confidence i n the belief
say this
that the Richnond o r North Carolina case, a n d I
with due deference and with all respect, was wrongly decided, I
have always felt that that case was wrongfully
i t will
decided. -However that may be, I feel quite certain
down there
never b e pushed any further. T h e doctrine laid
is that the State of North Carolina, a s a part of its polic
regulation o f
powers, h a d the right t o make this internal
the business o f the people.
State which i t recognized. I
I t was a police vower o f the
d o not believe that t h e Syprer
as a
Court will ever extend that t o an individual bank
banks
member o f this System and particularly t o the member
that a r e parts
o f t h e f i s c a l s y s t e m o f t h e Government.
connec
Mr. Strater. T h e r e i s a mechanical problem i n
account that
tion with charging checks t o the member banks
Might happen;
may have some bearing o n t h i s . T w o things
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Federal Reserve Bank of St. Louis
The checks b e charged t o the menber bank's account a n d
forwarded t o the bank.
I t could either accept t h e check
or r eturn it. T h e inference i s that they would return it.
Now, what would b e the position o f the Federal Reserve
Bank o f .tlanta, having charged the check t o the member
bank's account, i f it came back t o their hands b y register—
ed mail, o r ordinary milf? ‘ h a t would they d o with it?
Mr. Baker. T h e y would just keeo it.
T h e mechanics o f
it, i n practical banking, a s I understand it, although I
am not a
practical banker myself, w o u l d b e that t h e check
would c o m e i n i n ordinary course; y o u would s e n d i t t o the
Hartford bank f o r payment.
T h e y would send i t back t o you
with the statement that the endorsement o n i t restricted i t
from being collected through the Federal Reserve Bank. Y o u
would s e n d the check bacs t o them marked "paid" a n d tell
T h e -
them that y o u had charged i t t o their reserve account.
they would send i t back t o you i n a registered letter and
deny y o u r r i g h t
t o c h a r g e i t t o t h e i r r e s e r v e account.
Y o u
would t h e n file i t among your confidential papers a n d t h e
check i s naid t h e reserve account charged, a n d that t h e
exact amount o f their reserve i s s o many dollars; t h a t y o u
are holding the check i n custody subject t o their order.
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Federal Reserve Bank of St. Louis
That would s é e m t o m e t o b e the vractical w a y t o d o it.
ir. S t r a t e r . I
a m just wondering what happened when
the Federal Reserve Bank accepted t h e check back.
Mr. Baker.
Y o u cannot h e l p accept w h a t somebody vuts
into your pocket. They send it to you and send it after you
have given t h e m complete opportunity t o take t h e check,
which i s marked paid.
S o far as you are concerned y o u send
them the check, which you have charged t o their account,
and s a y "Here i t is."
Mr. Strater. S u p p o s e they accept the check but deny
your right t o charge it?
wip. Baker, That raises the exceptions that Governor
Strong spoke about. Ultimately their reserve would g o t o
@&place where t h e internal discipline o f t h e System would
impose penalties a n d ‘they would b e charged with that.
You
would notify them that you hed charged that penalty. Y o u
would notify them that there was s o much i n their reserve
account, that the reserve was deficient and that you had
imposeda penalty.
Y o u keep o n imposing t w o o r three penal-
ties i n the meanti me, and I think i t would not get very
far before t h e Comotroller woudd notify t h e individual
members o f the board o f directors a n d they would find o u t
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Federal Reserve Bank of St. Louis
what liabilities t h e y were incurring.
Mr. sijller. S y p p o s e i t was a
national member b a n k
which made a practice o f stam ping checks "Not payable
through a reserve bank"? W o u l d . y o u feel that constituted
ground f o r forfeiture o f membership i n the Reserve System?
Mr. Baker. I
think i t would, but i f that question i s
raised with a national bank, w e are very much stronger w i t h
the national banks — ~
- air, adiller (I,terposing:)
B u t w e have n o remedy, W e
can cancel t h e membership o f the State bank b u t not t h e
membership o f the National bank.
iir, Baker.
T o the extent that we have power t o elect
where w e will put pressure, t o use the word i n its least offensive sense, I
would hope i t would b e with the National
bank, because o f course everything ought t o be done that can
be done t o induce rather than reduce t h e membership o f
State banks of the System, However, t o answer your question
categorically, I
think i t would b e ground.
Mr. wiiller, I
a m have not been able, i n following
your analysis o f the suggéstions made, t o s e e that *
we would have a n y effective remedy. I
should assume that
the procedure i n the case o f the Hartford bank i s a step i n
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Federal Reserve Bank of St. Louis
47
@ broad a t t a c k u p o n t h e v a r c l e a r a n c e s y s t e m t h a t i s b e i n g
taken under t h e advice o f able counsel,
a s I presume i t i s
being done, and they will b e very careful t o note that they
must b e very careful n o t t o put u s i n a position o f being
defendants.
I n other words, t h e y will t r y t o throw upon u s
if they can the onus o f being the egeressor, I
have not
seen anything yet which indicates a point a t which w e can
take any form of action against then that does not seem t o
me to go beyond the strict purview of their rights i n the
Federal Reserve System, W e have got to go into adjacent
jurisdiction, the Comptroller's office, and I think Governor Young asked a question which has not been answered, a n d
which I do not believe can be answered .
Governar Crissi ancl.
W o u l d these suggested amended
regulations that y o u speak o f cover it?
wip» Baker. I
suggest the regulations with great diffi-
dence because they have t o be fitted into the legal contents
of the regulations a s they are. M r . W y a t t would b e much
more skilful i n doing that than I would:
“snd eoch member benk cad non-member clesring
bonk s h a l l c o o p e r c t e f u l l y i n this s y s t e m o f
check collection and settlement o f bslcnces"
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Federal Reserve Bank of St. Louis
48
Governor Calkins. Pursuing Dr. iller's point furB o a r d ' s regulations were s o
ther, isn't i t true f s
amended, andif a
State member bank then violated that
a
h the Board would have power t o cancel i t s
regulation, t
.
membership?
wir. Baker. O b v i o u s l y ,
i n m y judgment,
Mr. gller. T h e n w e have a remedy tiere.
Mr. Baker. Y e s .
Mir. oigller.
B u t w e have n o remedy t o enforce a com-
pliance w i t h the obligations o f membership o n the part o f
National Banks,
Governor Harding.
W e have a remedy through t h e Comp—
troller o f the Currency.
Mr. James. Yes, w e have t h e right t o direct t h e Comp-troller t o bring suit,
Mr. willer. Yes, for violation o f mhat?
Governor Crissinger.
Mr. Baker.
O f the regulations.
I f I a m right, I believe that w e can demon
strate that this par clearance system is an object of the
Federal R e s e r v e A c t , t h a t i t i s y e l s t e d
t o the oublic fis-
broe.d)
cal policy o f the country, t h a t t h e Statute i s t o b e
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Federal Reserve Bank of St. Louis
construed t o accomplish that, a n d that the Federal Reserve
Board has power t o make suitable regulations i n furtherance
of that.
T h e n the regulations become a part o f the Act.
The Supreme Court h a s over a n d over again held, w i t h regard t o regulations adopted b y the Interstate Cqmmerce
Commission, t h e Federal Trade Commission a n d other commis—
sions, t h a t where administrative power i s given, p o w e r t o
make regulations, that s o long a s they are for the purpose o f furthering the purpose o f the Act they become a
part o f the Act i n their legal effect, s o that your regulation would then become a part
Mr. Miller.
o f the iaw.
T h e ict reads "Should a n y National bank~
ing association i n the United States now organized fail
within one year after the passage o f this Act t o become
- and s o forth, T p a t i s all right. T h e n
a@member b a n k " —
it says “ a n y non-compliance w i t h o r violation o f this a c t "
Governor Harding,
O r of regulations o f the Board made
f the terms o f the Act.
in p u r s u a n c e o
ir. willer. Thereis nothing here about regulations.
Governor H a r d i n g ,
N o o n e h a s vgywer t o m a k e r e g u l a t i o n e
except i n a c c o r d a n c e with t h e terms o f t h e Act, a n d those
regulations,
a s far a s the member banks a r e concerned,
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Federal Reserve Bank of St. Louis
become a part o f the Act.
wir, Baker. I
think so, a s long a s they are consis—
tent with the terms o f the Act.
alr. wij ller.
B u t I d o not s e e anything here that
touches o n that.
Governor Harding, N o t i n that varticular case, but
in every case where t h e Board h a s power t o make regulations
it i s so. L o o k a t sections 9
and 13.
Governor wicDougal, ifr. Chairman, I would like t o ask
Governor Well,orn whether o r not this practice has conti.
nued, whether i t i s the regular da@ly practice o f this b a n k
to issue their cashier's checks i n that form,
Governor Wellborn,
received o n e a
W e have n o t received a n y more.
f e w days a g o f r o m a
Y e
bank i n C i n c i n n a t i a n d
we returned it. They wrote us that they didn't see why ao
check lixe that could not b e collected through the Federal
Reserve Bank.
Governor MoDougal, T h e n there i s n o indication o f a
disposition t o increase n e volume o f then?
Governor Vellporn. N o .
Governor sgDougal,
M r , Baker, I
would understand
from y o u r d i s c u s s i o n t h a t y o u h a v e r e a c h e d t h e c o n c l u s i o n
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Federal Reserve Bank of St. Louis
ol
that a
bank i s not within i t s rights t o draw checks i n
this manner?
wir, Baker, I think nuf,a member bank.
Governor McDougal, T h a t question was raised by our
counsel a n d h e said h e thought i t was a dbubtful question
as t o whether o r not they were within their rights.
Mr. Baker. I
admit t h e delicacy o f the question, b u t
that i s my own judgment, that a bank i s not within its
p the power o f the Board i n
rights, M r . Wyller i s l o o k i n g u
the matter o f r egulations.
Mr. s i iller.
I t strikes m e that t h e action o f t h e
bank amounts t o a nullification. T h e r e i s n o remedy a n d i n
the absence o f a remedy t o cancel membership w e are virtual
ly powerless.
Governor Crissinger. I
d o not think w e are powerless,
Dr. Miller,
ir. ijller. I
mean without resorting t o some action
that has n o immediate relation t o it.
lir. Baker. I
a m obliged t o admit that
i t has t o b e
argumentative. There is no explicit statement, butthe Hardt?
wick amendment says this:
T h a t nothing i n this Art ony
other section o f this s c t sholl b e construed 2 s prohibiting 2 member o r nonmember b a n k f r o m mak ing
ressoncble cherges, t o b e determined s n d reguisted
by the Federol Reserve Bocrd, b u t i n n o ccse t o ex-
ceed 10 cents per $100 or froction thereof” -
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Federal Reserve Bank of St. Louis
Mr. Myller. I
Mr, Baker.
think thet i s ell clear.
L e t m e follow this through:
"_-based o n the totsl of checks snd drefts
presented «ct m y o n e time, f o r collection o r
pesyment o f checks o n d drafts a n d remission
therefor b y exchenge o r otherwise; b u t n o
such charges shcll b e msde sgeinst t h e
Federal Reserve Bonks."
And the last provision o f that i s that n o such charg—
es shall b e made against Federal Reserve Banks.
Now that I
think i s a sufficient basis f o r a comprehen.
sive regulation b y the Board saying that member a n d n o n —
member bants m a y collect s o much a n d only s o much b y w a y
of exchange charges from everybody but the Federal Reserve
Rank,k,put i t may not collect a n y from the Federal Reserve
cirBank and may not put o n its checks any orohibition o f
culation o f those checks, because that i s perfectly germane
to it.
Mr, Miller. I
see n o means i n the Act b y which w e can
enforce t h e purposes o f the A c t through regulations b y the
Board o n recalcitrant National Banks.
Mr. Baker.
I f y o u are dissatisfied w i t h the remedy o f
——
a suit b y the Comptroller b y the direction o f the Board
the remedy i s there, a l t h o u g h i n your judgment i t i s not
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Federal Reserve Bank of St. Louis
Eo
adequate o r satisfactory, still i t is the only one w e
have.
Mr. waller.
B u u t i t strikes m e that this forces y o u
to seek a remedy a t sone voint which has n o relation t o
the failure to comply with the regulations. of the Board,
but forces you t o g o out o f your way for it,
wir. Bakers W e l l yes, that is so, but I think this
attack, which i s a very ingenious one, was one that was not
anticipated and. covered b y the express language o f t h e Act
and therefore you have t o take the intention o f the Act and
enlarge its scope s o as +o meet this thing which, w e all
agree, i s hostile t o the policy o f the Act. Y o u agree t o
that. Y o u say you think i t woulk act as a nullification?
Mir, Mgller. Y e s , I think so, and i t can only b e met
bycoercion, I
cannot see that we possess any coercive
pover that i s germane t o this particular breach.
ir. Bakers I
a n not sure that I
others seé i n action b y the Comptwller.
see the difficulty
W h y d o you think
it i s not germane?
Mr. wyller. W h y , h e is disciplining a member bank, onof h i s Natiional Banks,
n o for a
violetion o f i t s d u t y a s
@ member o f the par clearance system, b u t f or a violation
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Federal Reserve Bank of St. Louis
54
of its duty
i n some other principle which m a y o r m a y not
ve related renotely o r directly with t h e terms o f its
par clearance obligations.
wr. Baker,
i s this:
I n other words, m y question,
I n a private proceeding I think i t
would b e entirely germane. I
am just wondering whether
the Board, i n concert with the Comptroller, should g o out
of its way t o find a roundabout course b y which i t can g e t
back a t a bank “hich feels t h a t i t i s being aggrieved a n d
that i s within i t s rights.
Mr. B a k e r .
3 , t isn't this what i s hapynening?
The
Comptroller i s disciplining a National Bank for violating
the regulations o f the Board which results, o r has a tend
eney t o result, i n a depletion o f its reserve, which i s
a thing the Act i s aimed t o protect i n the interests o f
the solvency o f the general banking situation?
Mr, Hamlin. Section 1 9 o f the Act provides "The required balance carried b y a member bank w i t h a Federal R e —
serve B a n k may, u n d e r t h e regulations a n d subject t o such
penalties a s may b e vresoribed b y the Federal Reserve Board,
be checked against a n d withdrawn b y such member b a n f o r
the purpose o f meeting existing liabilities." T h e r e i s
sufficient authority f o r u s t o fix, b y regulations, e
very-
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Federal Reserve Bank of St. Louis
55
thing connected with t h e reserve balance.
I t follows that
the Comptroller c a n charge that t h e y have violated o u r regu-
lations with regard t o the required reserve.
Mr. willer, I
think the argument i s that since the
Federal Reserve Banks are required, b y section 16, t o accept a l l c h e c k s d r a w n o n auuner b a n k s , t h e y m u s t o f neces-
sity accept them and charge them to reserve account, and
this attempted limitation oreates a notion i n the drawer
bank that i t still has a dequate reserve = =
Mr. Hamlin,
a n d they are violating our regulations
prescribed i n Section 19,
iit. Baker. Y e s , I think 50.
Governor Strong,
M r . Baker, t h i s c h e c k o f course i s
h
T Feéeral Reserve Bank i s only the
owed b y s o m e b o d y , e
collecting agent, a n d if thebank o n which i t is drarm ob-
jects to its payment by this method, and we charge it agains
the reserve balance i n the Federal Reserve Bank, what step
can they take to maintain their position unless they vay
the same check t o the real holder, thereby vaying i t twice-.
in other words, i f the real holder o f the check gets the
money a s the result o f this charge, aren't they then accep*
ing p a y m e n t o f t he check, except a s t o t h e exchange
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Federal Reserve Bank of St. Louis
charge? H a v e t h e y a n y w a y o f making a n exchange charge?
The result o f charging the check t o the account o f the
menber bank i 8 going t o be that the real holder gets his
money.
I f he gets his money and the member bank assents
to the holder getting t h e money, t h e n c a n they deduct a n
exchange c h a r g e ?
I f w e charge t h e check t o our member
bank's account the original holder o f that check i s going
to get his money.
H e i s going t o get all o f the money.
The member b a n k says w e maintain y o u have n o right t o charge
that t o our account.
I t i s going t o stop t h e holier o f the
check from getting the money, o r else they will pay i t
over again.
Governor Harding. When the checks come t o the Atlanta
bank t h e y send them t o the Hartford bank a n d they a r e re-
turned o n account o f the stamp.
T h e Atlanta bank charges
4t t o the Hartford bank's account.
A s soon a s the Hartfora
bank realizes that the original holder o f the check has got
ten h i g money t h e y a r e going t o b e very keen t o get posses—
sion o f the check again s o that t h e y c a n charge i t t o the
account o f the drawer.
O t h e r w i s e t h a drawer might c o m e i n
and a s k "What isnmy balance?"
H e i s told that h i s balance
that much more than i t ought t o be. H e draws that balance
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Federal Reserve Bank of St. Louis
out a n d t h e b a n k i s o u t t h e money.
Governor Strong. I
think t h e member b a n k i s i n a posi-
tion w h e r e i t h a s g o t t o accept t h e f a c t o f payment a n d
charge it to their customer, i n whosever interest the check
is issued, a n d then the only issue between the menber bank
and the Federal Reserve bank i s the exchange charge,
wiz. Baker, A n y suit brought would b e a suit t o collect
exchange charges f r o m the Federal Reserve bank,
Governor ideDougal, W o u l d that be involved i n the case
of cashier's checks?
“air. Baker. The same thing unless it is a cashier's
check i s s u e d i n s o m e t r a n s a c t i o n b e t w e e n b u s i n e s s m e n a n d
not for account o f a customer, W h e r e you get that i s where
the check relates t o somé payment m d é i n behalf o f the cus—
tomer,
Governor Talley,
this m a t t e r t
I t seems t o m e thereis o n e noint about
hat h a s n o t b e m t o u c h e d upon.
Reference has
been made t o section 16, b u t o n l y partial reference.
T h e
entire section 16 referring t o clearing functions will have
to b e considered.
I t i s true that Section 1 6 i s mandatory
with reference t o Federal Reserve banks accenting checks
drawm o n member banks.
B u t section 4 6 also goes o n t o say
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Federal Reserve Bank of St. Louis
that a t the direction o f the Federal Reserve Board t h e
Federal Xeserve Banks must a c t a s clearing houses f o r their
member banks.
N o w i t seams t o m e that t h e function o f e
clearance house i s merely t o receive checks andpresent
then a n d account f o r the vroceeds o f the check itself,
I think ~ * ought t o consider whether o r not w e are not
approaching rather dangerous ground, a n d orobably upset
the w h o l e t h e o r y o f o u r c o l l e c t i o n system,
b y trying t o
become responsible, i n our clearance house function, f o r
the act o f a member bank i n its attitude towards t h e pay—
ment o f a n y certain check, I t i s not anything t o u s whether
they p a y i t o r whether they d o not,
S e c t i o n 1 s says
that Federal Reserve banks must receive checks from banks,
other reserve banks o r their member banks, b u t i t does not
say that w e should receive t h e checks i f they are dratm i n
certain form, t h a t i n the absence o f restrictive o r crossing endorsements t h a t w e should receive them,
I t says E f
they a r e dratm o n a mexnber b a n k w e should receive them, I t
seems t o m e all w e haye t o d o i s just t o receive the check,
send i t to the bank o r g y on, a n d let the bank o n which i t
is drawn d o anything that i t pleases w i t h reference t o payment.
59
t o nay
If they send i t back a n d the encorser bank refuses
it because i t wasn't peyable throuvh t h e Federal Reserve
Bank o f Atlanta, i t i s nothing t o us.
The Federal Reserve System, I think we can assume,
has been accented by the majority of the nublic anc the
majoTity of the banking fraternity. .
I think w e are getting unduly exercised over the action
what t h e y
of some small, recalcitrant c r o u p a n d inferring
be returned t o
might do, L e t it go to the bank drawn on,
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Federal Reserve Bank of St. Louis
t o the enthe Federal Reserve B a n k a n d then send i t back
vith
dorser;then derend uron t h e reaction o f rudlic oninion
o f banks.
reference t o that particular b a n k o r *rouv
TeI think i f we <et into the position where w e are
w i t h the check, t h a t
sponsible f o r what t h e mewber bank does
— respons—
then we agsume resnonsibility i n other directions
ibility for collecting checks, getting the money naid t o
our . .
them — - r a t h e r t h a n c o n f i n i n g / r e s p o n s i b i l i t y
t o w h a t i t is.
Vhat w e are trying t o uphold i s the collection system
of
and we snould merely verform our clearing house function
receiving t h e cheoks a n d nresenting them.
Governor Yellborn,
I f this practice erreads i t will de-
etroy t n e p a r clearinz system.
59-A
Governor Talley.
I f the public don't want it, l e t i t
be destroyed.
Mr. Miller,
D o y o u assume that t h e lanzuace o f the
act makes clear that there i s a n obligation o n the Federal
Reserve B a n k s a n d t h e F e d e r a l R e s e r v e B o a r d t o e s t a b l i s h a
universal system o f nar clearing?
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Federal Reserve Bank of St. Louis
iir. Baker,
Mr, killer,
Baker.
S
o far a s its meuwbers a r e concerned, yes,
A n d i t i s our duty t o see that that i s
Y e s , sir,
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Federal Reserve Bank of St. Louis
I
Mr >hiiier.
f the regulations a r e amended
the line sugvested b y you, w h y coulc y o u not bring
toenjoin a member bank from nrrintine on its draft
nayable through a
Reserve Bank"?
Lr, Baker, T h e only difficulty with that i s that a
bill for equitable relief i s denied where there i s adeouate remedy a t law.
I f the Court ehould hold you had
of
power t o discirline a member b y this internal method
charginz t o their reserve accounts and that a suit b y the
Commtroller f o r forfeiture o f charter w a s t h e statutory
remedy exclusive o f any other,
i t might defeat equitable
jurisdiction.
Governor Strong, S u p r o s e a
case arose like this, a
case o f the most extreme tyne, where a customer's check
on a meuber bank bore this legend o n its face, t h e case
is t r i e d a n d t h e m e m b e r b a n k m a i n t a i n s t h a t t h e i r r e s e r v e
account w a s n o t i m p a i r e d b e c a u s e t h e y d i d n o t a d m i t t h e
right o f t h e R e s e r v e R a n k t o c h a r g e t h e c h e c k t o t h e i r r e —
serve account?
T h e n i t wes s h o w n o n the trial t h a t n o t —
withstanding their effort t o maintain that nosition they
had actually charged the customer's check t o the customer's
account.
I t would embarrass t h e m very much, w o u l d i t not?
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Federal Reserve Bank of St. Louis
Mr, Baker. Verymuch, yes.
Governor Strong,
ser h a d issued a
t was a case where t h e oash—
Sunposei
check t o some customer w h o wished t o
h
make payment o u t o f the oity, w
t h e case,
c ih
is frequently
the
If that i s refused, t h e check i s chargeable against
oircun—
member bank's aocount — - but possibly under those
would
stances the provisions o f the clearing house act
be e f f e c t i v e
——
think you have t o go o n
Mir. Baker (Interposing:) I
the assumption a l l t h e e y
c h o u
i n consideration o f
itself being a
this that t h e Federal Reserve Board n o t
that i t was
bank, b u t being a governmental agency, f e l t
o f the Act
charged w i t h t h e duty o f enforcing t h e rolicy
that interfered
and could n o t auite s i t silent a n c s e e
b u t bewith, not because i t had any financial liability,
o
f the Act.
cause o f its funetion t o enforce t h e n o l i c y
Governor Strong,
a y
I ask Sovernor Yellborn whe-
ther t h e H a r t f o r d B a n k d e r o s i t s c h e c k s
o n him for c o l l e c
Z
tion?
Governor Wellnorn.
Yes.
Governor Strong. They d o that regularly?
Sovernor MWellpnorn..
Yes.
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Federal Reserve Bank of St. Louis
62
Governor Strong. I s n ' t theiz argument really this,
that t h e Federal Reserve A c t conferred certain powers
Con—
upon reserve banks t o perform certain functions that
gress intended they should perform, a n d that i n all this
do
type o f cases what t h e member bank i s endeavoring t o
o the par collection sys-—
is to enjoy all of the b e n e f i t s f
that
tem but still retain the advantages of not having it;
the law
they are seeking t o defeat the broad nurposes o f
in the most selfish w a y nossivle, b u t still g e t every ad-
vantage out o f it i n defeating it?
Mr, Baker, - I t nute them.in a
very inequitable nosi-
tion, o f course,
Governor Wellborn,
Y o u have a letter from one o f the
banks stating that their nurnose w a s t o vet exchange,
That was a letter written i n renly t o one from Lr. Robb,
Chief National R a n k Examiner o f our District.
ed h i m t o write,
v e request—
a n d the rerly was that t h e idea was t o
get the exchange,
Mr. Baker,
O n their cashier's check, because they
either h a d t o charge f o r them o r get a n exchange charge
in order t o make some money, N o n e o f fheir customers had
ever vaid f o r a cashier's check, t h e y said.
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Federal Reserve Bank of St. Louis
63
Vice Governor Flatt,
I s there a n y question about
our right t o fix a small charge for the nayment o f checks
from other sources t h a n a Federal Reserve Bank, s a y con—
siderably less t h a n one-tenth o f one v e r cent?
Mr, Baker, Y o u are limited t o a reasonable charge — +
Vice Yovernor Platt, Supnose w e mede i t one one~hundredths o f one p e r cent?
Mr. Baker,
Y o u a r e o n e n t o attack a s t o whether
is reasonable o r not.
it
I f they were able t o snow that y o u
had done i t s o a s t o destroy t h e privilege which Coneress
theoretically tried t o restore t o them, then i t might b e
held t o b e unreasonable,
Mr, Hamlin.
S e c t i o n 1 seems t o me to give u s absol-
ute power,
ir, Baker,
Mr. Hamlin,
T o make regulations a n d enforce them,
I t i s one o f the functions a n d services
that w e are called o n nov t o nerform — ~
Mr. Baker, a n d i t i s clearly i n harmony with the dev-—
elopment o f tne last fifty years i n Federal lecislation,
that i s , h a v i n g C o n g r e s s a n n o u n c e nolicgies a n d t h e n t u r n
over t h e administration o f them, t u r n over t o a n adainis~—
trative board t h e carrying o u t o f those nolicies b y suit—
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Federal Reserve Bank of St. Louis
64
able regulations,
I t i s thoroughly i n harmony w i t h that.
Governor S e a y ,
I s there a n y other menber b a n k i n the
same nlace, Governor Wellborn?
Governor Wellborn, N o , t h a t i s the only member bank,
ir, Baker, G o v e r n o r Orissinger h a s handed m e the
bill o f comlaint i n the suit brought, t o which h e referred,
and in the bill of complaint the officers and directors of
the bank itself are charged with failure t o establish and
maintain the reserve required b y law, a n d s o forth,
a
h
T was @
Governor O r i s s i n g e r , t
solvent bank,
i n answer
to the question which y o u asked, Governor Young, a n d the
Court aonointed a receiver f o r the bank immediately.
Mr. Baker, “overnor Youns, that noint i s i n rert a t
least answered b y what Mr. Wyatt calls m y attention t o here,
:3 T h e Court stated:
" T h e complainant i n this case does
not allege insolvency o f the bank a s a reason for forfeiture
of charter", a n d s a forth.
Governor Crissinger, T h e Attorney General refused t o
pring t h e suit, however, u n t i l t h e Federal Reserve Board,
while Governor Harding w a s Governor, authorized a n d directed
4t t o b e done,
Governor Young.
I n that case there w a s n o dispute —
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Federal Reserve Bank of St. Louis
65
ir. Baker,
I n the case decided there i s a dispute
as t o which one i s right —
Governor Orissinger, T h e n i t would become 4
question
of fact.
Mir. Baker, I t has n o peril i n it unless the situation
has arisen which y o u have described, o f the check having
and
been turned back, t h e question o f inadequacy o f reserve
arising, ©... “eing
Governor Harding. T h e Reserve Bank's contention w a s
i n that there w a g n o nenalty f o r turning back
upheld,
checks,
tir. Mgller, Doesn't that put the Federal Reserve Bank
in a nosition o f taking advantage o f the member bank's re~serve ~ ~
Governor Hardins., T h e y charge o n notice. T h e member
bank would send for the check and charge i t u p t o the cus—
tomer, T h e y would n o t dare n o t d o that.
Vioe-Governor Platt, ‘ I n the case o f cashier's checks
7 are already charged,
Governor Harding,
I t doesn't make any difference.
Let
nold them i n custody subject t o the order o f the member
whenever t h e y w a n t i t .
Governor Seay.
T a k i n g a
hypothetical question, surv--
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Federal Reserve Bank of St. Louis
66
pose there were another member bank i n that place; t h e
Federal Reserve Bank might send that check to another
member bank i n the same place that w a s not i n sympathy
with it, D o you think the fact that the check had stamped
on it "Not payable through a Federal Reserve Bank", would
violate that clause i f i t wae sent t o another member bank
in the same rlace a n d rresented b y that member bank?
Mr, Baker,
A n d they presented i t a t the counter a n d
collected i t there?
Governor Seay, Y e s .
ur, Baker, N o , I do not think that would violate the
policy at all, but it does not help raise tne issue,
Governor Seay, Except that i t prevents the member bank
from obtaining the exchange, which i s the nurnose o f it.
Mr. Baker, Y e s ,
Governor Seay, I f the other mewber bank was not i n
sympathy with it it could ve defeated entirely,
ur. Baker, I
o
think i t i s a nerfectly ~ractical t h i n g t
doand I think it is rerfectly lawful, but it does not do
the thing: w h i c h I have assumed v e all want t o do, which i s
to establish t h e nar collection system b y every legal ric..
buttress w h i c h i t needs,
s o that everyoody w i l l k n o w that
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Federal Reserve Bank of St. Louis
67
it i g here and that i t has got t o be wrotected a t every
point.
Governor Seay. I
understand that,
D o you think that new regulations should
Mr. Hamlin,
be at once framed?
ir, Baker,
A s a practical course I
vould sugzest t h a t
the Board authorize me, i n conference with Mr, vyatt, t o
draw u p a regulation that will fit i n with the existing
regulations that are now being amended, a n d submit i t to
the Board,
Ur, Hamlin. I
s o move,
Governor Strong, a n d t o include all o f our circulars.
Governor Crissinger.,
M r . Hamlin,
w e will have a mueet—
ing of the Board i n e fev minutes when that motion should
be made,
Mr, Baker, T h e second sten I vould sugrest i s that the
policy b e a d o n t e d a t o n c e b y t h e F e d e r a l R e s e r v e B a n k o f
Atlanta o f not returnin> the checks b u t o f chareing them
ageinet t h e reserve account o f the bank, sending t h e m f o r
collection, a n d when they come back, when attention i s
drawn t o n o other defect i n the check except t h e restrio~
tion "not payable through a Federal Reserve Bank", that
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Federal Reserve Bank of St. Louis
68
they b e charged t o the reserve account, a n d that t h e y begin
the process o f accumulation, a n d t h e minute that bank's
reserve i s below the appropriate amount, that the Comp—
troller b e requested t o notify the directors o f that bank
of what is going on,
Governor Fancher, T h a t apnlies t o both cashier's
checks and customers! checks?
hr, Baker, Y e s ,
Governor Seay, T h e ouestion has not arisen with regard t o customers! checks, has it?
ir, Baker, I
think i t has,
liz, Fancher, Y e s , w e had a case,
4
Governor Crissinger. T h e r e are customers! checks involved,
ir, Baker, I think a small check came throuch the
Oleveland Bank.
ur, Strater, T h a t was « cashier's oheck.
Governor Crissinger, T h e r e i s a gustomer's check here
somewhere on. the bank of Samrson, Alabama.
Mr, Baker, b r , Tyatt iad a copy of thet check a moment
azo,
I t i s a versonal check o n the bank o f Samneon,
Governor Crissinger, H e r e i t is (indioatine). I t is
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Federal Reserve Bank of St. Louis
a oman ter
e s
o f
dewsiver Seay.
o n e s
epperently.
q s i t known whether i t was & counter
oheok given t o the customer o r whether i t was a customer's
own check which h e had rrinted?
ifr, Wyatt, :
think i t was a
F i c ar check a n d ‘thea
@ rubber stamp endorsement p u t o n it, b u t 5
a a “not e e r —
tain. —
think w e ought t o cet photostats
Governor Strong, I
of all these checks. |
Governor HcDougal,
H a s that check ever zone through?
kr, Wyatt, T h i s check was presented, t
think,
Governor icDougal. This Hartzoré ease i s not t h e
case i n question, then?
Mr.
Wyatt,
a 6 .
governor Orissinger, M r . Baker tells me, gentlemen,
se h a s another engagement, b u t i f you wish t o discuss
. further h e will come back later,
Governor iigDougal,
I + seems t o m e that notwithstandin
what has been stated o r determined hepe, that i t would recon
perfeotly DPRPE Se for the Atlanta Bank t o undertake t o
oile this matter direct with its meyer bank, It might be,
as a result o f a conference, t h a t t h e y would b e willing
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Federal Reserve Bank of St. Louis
to d i s c o n t i n u e t h e practice,
have had some experience. i n
Governor Harding, I
dealing w i t h t h e yanks d o w n i n that seotion, a n d [ know
their psychology. I
e in
think t h e Atlanta Bank w o u l d b
a much better position t o talk t o those banke after. the
regulations are nromulvated than i t woujd b e now,
f F have
been amongst them and I know them, ,
Governor Crissinger.
wr , n e e
I f there 4 s nothing further fror
a t this time h e has stated that h e will return,
Mr, Baker, I
have t o vive testimony i n a matter whict
took vlase while I was Secretary o f “ar, i n & matter about
which I
k n e w n o t h i n g a t t h e time, a n d t h e r e f o r e k n o w l e s s
know less t h a n
about nov, i f i t i s nossible f o r anyone t o
nothing,
I t is i n the Court o f Claims. I
presume you
gentlemen will b e j n session a l l day.
Governor Strong, Y e s ,
Er, Baker,
(Whereupon,
Then J
will c o m e b a c k t h i s afternoon,
a t 1 3 o*oelock Noon, t h e e m b e r s
o f the
Federal Reserve Board and ir. Baker retired from the
Conference shat, a n d the nrocegdings o f the Conference
of Governors c o n t i n u e d
a s follows: )
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Federal Reserve Bank of St. Louis
71
meeting will
The Gheirman (Governor Strong: ) T h e
come
t o order.
I . think I r . B a k e r e x n e c t s
t o hear some
expression f r o m t h e meeting avout these suggestions
Does
that h e has made a s t o the course o f rrooedure,
the w a y o f aprro-—
the meeting w i s h t o take a n y action i n
val or disapproval, o r definition? I
I had i n mind.
M r . Baker acrarently i s expecting,
there i s n o serious disagreement,
in the nature
would explain what ©
if
t o prepare something
Reserve
o f avery specific advice t o the
o f the
Banks, f i r s t a s t o changes i n the regulations
circulars o f the Reserve banks,
ns
i
the
Board and c h e n g e
a s t o the wisdom
ana I take i t there will b e n o dissent
of his going ahead with that.
Governor Young, I
I s there any dissent?
come d o w n t o the ouestion i n m y
let i t die a nat—
mind a s t o whether i t i s not better t o
mind, But i f
ural death?) R e a l l y that i s what I had i n
should v o ahead
4t te@ the opinion o f the others that w e
right
with i t t o find out where w e are, i t will b e all
with me,
Governor JoDougal.
I f this c o u l d b e handled without
giving i t e n y vublicity I
better position,
think w e would b e i n & much
A n y vcublicity riven t o i t might arouse
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Federal Reserve Bank of St. Louis
71-A
interest i n some o f the other banks., That i s the reason I suzzested that t h e Atlanta Federal Reserve B a n k
might be-able t o handle t h e situation, I
do not-seé a n y
reason w h y i t should n o t a t least undertake to. do eo, ‘in
so far a g that o n e i
n s
t se concernec..
n i
c e
I
d o not know
what bank t h e check w a s drawn o n o f which w e s a w a Covy,..
It was o n the same bank, was i t not?
Governor Orissinger, N o ; t h i s i s a counter check
drawn o n a member bank a t Samson, Alabama,
Governor ijcDougal, H a v e any o f those checks reached
your bank, Governor ellborn?
Governor Yellborn,
T h e y come t o the bank a n d w e send
them down, Sometimes they take them and do not raise the
‘issue,
Governor Norris,
A r e those t w o towns near together,
Geveraor Yellborn?
Governor Yellborn, Y e s , t h e y a r e very close together,
Governor Bailey, a g this las one a national, bank or
&@state b a n k ?
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Federal Reserve Bank of St. Louis
72
Governor Seay. I
would like t o ask Governor Well-
born i f h e thinks o r suspects that this practice h a s
sufficient animus behind i t t o induce other banks t o
follow it?
Governor Wellborn, I
people,
have heard nothing from these
h a d heard nothing until this matter c a m e u p t h e
other day, I
was away when Governor Harding ~rote t o us.
I do want t o say this, t h a t I
concerted m o v e m e n t
d o not think there i s a n y
b y a n y m e m b e r bank,
o r a n y conspiracy.
Governor. Hardéng, T h e w a y the thing works o u t i s that
these banks have group meetings, t h e y have their State asso-
ciations, a n d pretty.soon some o f the little country banks
at those meetings will s a y that they have found a
way t o
beat the exchange, they will tell how they d o it, some-
body will say "Well, that i s a good idea", and the first
thing y o u know i t will spread like measles»
The Chairman,
w r , Harrison calls m y attention t o the
fact that Section 5, Regulation J of the Federal Reserve
Board, provides that a n y Federal Resg@rve Bank m a y reserve t h e right i n its check collectjon circular t o charge
such items t o the reserve account o r clearing account o f
sny e h b
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Federal Reserve Bank of St. Louis
73
case the
any such bank a t a n y time o r i n any particular
Federal R e s e r v e B a n c d e e m s
Gevernor Wellporn, I
i t necessary
t o d o so,
did not understand that, Gov-
ernor Strong.
a
The Chairman, Regulation J, Section 5, contains
reserve t h e
provision t h a t a n y Federal Reserve Bank m a y
charge such items
right i n a check collection circular t o
to t h e r e s e r v e a c c o u n t
o r clearing account
o f a n y such bank
Reserve
at any time o r 4n any particular case the Federal
Bank d e e m s i t n e c e s s a r y t o d o 80.
D o e s y o u r check collec-
tion cirovular vontain the provision t o charge items t o
the member bank's account when you decide i t i s desirable
to d o s o ?
Governor Wellborn,
O u r checks collection circular
is uniform.
which
The Chairman, Then you d o not make that charge
you have the right t o make?
Governor Wellborn, Governor sicDopgal said he thought
we might adjust i t with these banks, D i d I so understand
you, Governor McDougal?
Governor iicDeugal. I
say I thought i t might b e possil
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Federal Reserve Bank of St. Louis
to d o so.
Governor Wellborn,
W e have discussed that i n our
bank, T h e matter w a s referred t o Mr, Baker a n d w e thought
it would b e best not t o do anything until action was taken
up here because w e might make some mistake, a n d i n case
of a law suit w e thought w e should b e very careful.
Governor Biggs.
D o you snow t h e officers o f the bank
personally?
Governor Wellporn. Y e s .
I t i s a good bahk.
The
president d o e m ' t c o m e t o the bank very often, probably
once o r twice a year,
H e does not borrow a n y money f r o m
us and does n o t rediscount a n y paper with us.
Governor Young.
ing
I n Mynneapolis
s great feeltherei
o n this p a r collection o f checks o n the part o f the
member banks a n d I think t h e y would adopt anything that
was brought t o their attention. I
thing might d i e a
was hoping that this
natural death.
Governor Bailey.
A r e your banks a l l against t h e par
collection?
Governor Young. Yes, everywhere y o u go, T h e y a r e
bitter a b o u t i t .
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Federal Reserve Bank of St. Louis
75
Governor Seay. D o you mean the banks o r the public?
Governor Young, T h e banks.
I f a check o f that kind
came to Minneapolis I would send it out there; i f they
Sent i t back a n d would refuse t o handle it, call i t t o
the attention o f t h e Board t o see i f w e were operating
along the right line. W e just lost one case. I
do not
know enough about the law to sveak.intelligently upon it.
I have p u t s o m e o f t h o s e c a s e s u n t o o u r c o u n s e l s i n c e
this Hugo decision and he seems to hesitate about it and
wants more time t o look i t over.
The Chairman, I
a m just trying t o make a record f o r
Mr. Baker. H e is coming back thisafternoon, I
will suggest
one, just as a method f
o procedure, and when I have finished y o u may shoot at, ity
That in considering the statement made by lir. Baker,
in regard t o the legend stamped o n checks b y certain banks
in the dtlanta Reserve District, t h e meeting, after discusSion, came t o the following conclysion:
First, that mr. Baker b e ask eg to advise the Federal
Reserve B a n k o f Atlanta a s t o the desirability o r undesir—
ability o t endeavoring t o adjust this practice b y negotia.
tion rather than t o instituteany preceedings o r take a n y
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Federal Reserve Bank of St. Louis
76
steps preliminary t o the institution o f proceedings ~ — that
he b e asked
Second:
a s t o the wisdom o f that.
I
n case i t i s decided n o t t o attempt t o
negotiate a n adjustment o r settlement o f the difficulty,
the meeting favors t h e procedure which h e suggested a n d
request h i m t o redu c e i t t o writing i n the form o f a
letter, s o that the Atlanta Bank i n handling the checks
whichw
e may send t o hin, a n d t h e other Reserve Banks i n
handling these checks, m a y b e guided i n their procedure;
that w e hope t o receive h i s advice a s t o amending present
Regulation J
of the Federal Reserve Board a n d the circul-
ars o f t h e Federal Reserve Banxs governing this point, a n d
that i n our opinion i t would b e desirable that t h e Feder—
al Reserve Bant instruct their transit department t o b e o n
the lookout for checks o f this character, o f all o f which
photostatic copies should b e taken f o r t h e use o f counsel.
This i s the sense o f the meeting a s I get i t from the
general discussion,
I s there a n y objection t o this?
Governor Calkins. T h a t i s based yoon t h e assumotion
that mr. Baker's first suggestion b e followed; that is,
that the Board make a regulation and then ask the Comp troll.
to take action i f the bank violates t h e amended regulatioa?
i
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Federal Reserve Bank of St. Louis
77
The Chairman, I
u n d e r s t o o d h i s a d v i c e a t present o n l y
to gO s o far as t o indicate the course o f action i n hand—
ling the checks, a s willreséeq founiation later if it was
then decided t o call upon t h e Comptroller,
o r have t h e
Federal Reserve Board ask the Comptroller, a s the statute
provides,
t o b r i n g a c t i o n a g a i n s t t h e b a n k o r t o give n o t i c e
to its directors, prelimimary t o action, that they are viola—
ting t h e l a w because o f their impaired reserve.
Governor Calkins, T h e r e i s one question which occurs
to: me t o b e vital a n d which h a s not been adequately discus—
sed. I
would like t o ask Mr. Harrison, i n his capacity
as c o u n s e l f o r t h i s C o n f e r e n c e , w h e t h e r
i n his opinion that
regulation o f the Board permitting o r giving t h e Federal
Reserve ~ ~ . banks the right t o charge t o the member bank's
reserve account items drawn o n the member bank, w o u l d apoly,
or i s valid and enforceable,
a s applied t o checks drawn b y a
depositor o f the member bank, bearing s u c h notation a s has
been under discussion?
H a s t h e Federal Reserve B o a n d , n
i
other words, b y regulation, power t o direct a Federal Reserve
bank t o charge t h e account o f t h e First Nationa} B a n k o f
Hartford a
check drawn o n the First National B a n k o f Hart—
ford b y John Smith, bearing the notation, placed o n the
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Federal Reserve Bank of St. Louis
78
check b y the drawer, providing that i t shall not be paid
through a Federal Reserve bank. I
do not believe the Board
has a n y such power. |
ir. Harrison. I
want to deny the compliment that I am
counsel for the Conference.
I n “he second raze. I
would
hesitate, without a n y consideration o f t h e matter, a n d I
have given i t n o consideration until t h e meeting here today,
to render a n informal opinion which seems t o b e contrary t o
what Mr. Baker says, because h e has given a great deal o f
thought t o it.
M
y own reaction a t the moment would b e to
accept f o r granted Mr. Baker's judgment o n that point,
Governor Calkins.
ment
B u t Mr. Baker did not give his judg-
o n t h a t point.
Te Chairman, Y e s , h e did, v e r y clearly.
Governor McDougal.
H e gave i t i n answer t o m y inguiry
as t o whether h e thought t h e y were within their rights i n
putting i t on.
H e said h e thought t h e y were without their
rights.
Governor Calxins.
I f the bank outs i t on,
M y question
4s w hether i t i s within t h e power o f the Board t o prevent
John Smith from making such @ notation.
The Chairman,
H e answered that question syecifically.
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Federal Reserve Bank of St. Louis
79
He said h e thought i t was a very clese question and one
that r a i s e d m a n y d i f f i c u l t p r o b l e m s ,
be a n s w e r e d a r g u m e n t a t i v e l y
because
i t could o n l y
a s t o what t h e i m p l i c a t i o n s
of
the statute were rather t h a n t h e specific language o f the
statute.
ie. Harrison, I
should think, Governor Calkins, that
if Mr. Baker's judgment i s correct that the Board could prohibit t h e banks putting i t on, because o f t h e general philo—
sophy and theory o f the act, that i t might reasonably b e
from
presumedthat the Board could prohibit the member bank
entering into an arrangement o r egreenent with one of its
depositors which w ould be equivalent t o the same thing.
The Chairman, A r e n ' t w e really wasting our time i n
discussing this question when w e have retained eminent coun.
sel learned i n the law?
Governor Young. Y e s , I think s0.
The Chairman, W h y not take some such action a s suggest—
ed a n d l e t c o u n s e l s t r u g e l e w i t h t h e s e l e g a l q u e s t i o n s ?
the
Governor Seay, ‘ i t h reference t o the amending o f
regulations o f t h e Board, t h e r e still lingers i n m y mind
this matter
the question o f whether w e are not treating
too seriously. J
am inclined t o think that a n amendment t o
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Federal Reserve Bank of St. Louis
80
the regulations o f this character i s more o r jesa o f a serious
thing a n d would, u p o n i t s face, i m p l y that this w a s 2
situa
tion i n the country generally which needed t o be met.
The
question i n m y mind i s whether o r not, before this r e g u l a
tion i s prepared, t h e r e should n o t b e some effort o n the
part o f t h e A t l a n t a B a n k t o g e t t h i s b a n k t o abandon i t s
position i n the matter,
The Chairman, T h a t i s all covered i n m y statement,
Gov
ernor Seay.
Governor Seay.
V e r y well, I
did not understand i t
that way-
The Chairman. I said i t i s the sense o f the meeting that
Mr. B a k e r b e asked t o advise t h e Federal Reserve Bank o f
Atlanta, before undertaking t h e prooedure, t h a t
i s suggested,
whether i t should n o t b e o r could n o t b e handled without u n -
dertaking that,
Governor Seay,
Y o u mean before t h e passage o f the Tegu-
lation?
The Chairman.
Y e s , b e f o r e anything
Governor S e a y , J
i s done,
agree with that, I
do not under—
stand t h e motion t o b e t o that effect.
Governor Talley. M r . Chairman, I d o not believe I would
81
i f I did not
be properly representing t h e views o f our bank
amending t h e
ask’ counsel w h o i s considering t h e question o f
t o l o o k c a r e f u b l y i n t o t h e e f f e c t o f s u c h regu-
regulations,
Fed—
lations upon t h e liability a n d responsibilities o f the
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Federal Reserve Bank of St. Louis
eral Reserve Banks i n reference t o the collection o f al}
other k i n d s o f checks. I
to d o that. I
think w e o u g h t t o a t l e a s t a s k t h e n
have this paragraph, under another subject,
which is quoted from the opimion of our counsel:
" W e are
square-—
of o p i n i o n t h a t t h e F e d e r a l R e s e r v e B a n k s h o u l d s t a n d
ly upon the s oundness o f the present method o f co}ilecting
checks a n d should assume a n inden 0 8 for duties o r responsi-
bilities.
T o g o beyond this gradually leads t o the Fed-
eral Reserve B a n k should insure t h e collection o f checks
and places us beyond the category of using ordinary care."
The Chairman.
I s not that a
question f o r y o u t o present
to the counsel o f the Board?
Governor Talley,
Y o u started o u t b y saying that a n y re—
actions that w e had should g o to gounsel i n connection with
their further study, and that would b e i n order.
The Chairman. W e are going t o see the amended regulations
before t h e y are put out, I
think t h e real question i s raised
an
by this subsequent discussion, which is, t o my mind,
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Federal Reserve Bank of St. Louis
83
i s going t o be wise,
important one, a n d that i s whether i t
these two isolated
as a matter o f tactics, i n the case o f
the regulabanks, t o let that b e the reason for amending
drawing attention
tions a n d all o f the circulars a n d thereby
have t o b e c o r
of all par banks t o a practice which would
deal i f it spread.
rected and which might enbarrass u s a good
consider, I
That i 8 a question that counsel ought t o
secure a
transcript o f the statement 1
will
made about t h e sense
point about
of the meeting from our Reporter, adding this
practice.
giving notice t o all member banks o f the
Governor Well,porn, I
think Gowernor Harding covered
t o spread because
that pretty well when h e gaid i t i s liable
a n d state convenof the banks attending these group meetings
tions, a n d s o forth,
The Chairman,
ir. Baker's
T h a t ought t o be brought t o
this morning.
attention, because i t was not mentioned
motion duly
(Whereupon, a t 12:30 o'clock p.m, u v o n
3 o'clock p.m. o f
seconded, t h e Conference recess until
the same d a )
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Federal Reserve Bank of St. Louis
AT T E A
2 2
C2
a a ,
The Conference reassembled after recess a t 3o'clock
P.m., o n May 9, 1927.
The Chairman.
T h e meeting will come t o order.
Governor Norris. M r . Chairman, m a y w e not dispose o f
Topic I - H before Mr. Baker arrives?
I. OQREDIT TRANSACTIONS AND POLICIES
He T h e possible effect o f decision o f Supreme Court
of Texas i n rendering trade acceptances non-negotiable where
they contain the clause:
" T h e obligation o f the acceptor
hereof arises o u t o f the purchase o f goods f r o m the drawer,
of aes
maturity being i n conformity with the original terms
chase, "
The Chairman.
A r e you ready for that, Governor Talley?
Governor Talley, I
do not «now that that i s anybody's
trouble but our own right now, T h e day I left we bought
some bills f r o m a local bank, banker's bills, a n d the eligibi™
ity stamp o n the bill said that thas bills arose o u t o f ex-
port and import transactions, and so forth, They embodied
the same language,
o r similar language,
t o that which was
used i n this trade acceptance case, which w a s held b y the
Supreme Court o f Texas t o render trade acceptances non-nego-
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Federal Reserve Bank of St. Louis
84.
tiable. I
w e would b e
have just been wondering whether
buying bankers! bills
stopped, under this d eoision, from
that have any e ligibi}ity stamps on them,
I t is my un~
the trade acceptance, t h a t
derstanding that t h e language o n
arises out of the
the obligation o f the acceptor thereof
maturity being i n conformpurchase o f goods f r o m the drawer,
i s a n eligibility
ity with the original terms o f p u r c h a s e
h
t eligibility. stamp o n the bankers!
evidence and t h e r e f o r e e
non-ne, .r e n der t h e bills
bills, u n d e r this d e c i s i o nwould
gotiable,
o n that matter.
The Chairman, .We have a suggestion
f
i 1 may, our
Covernor Talley. While I have the floor,
w h i c h i s a s folcounsel w r o t e m e a very brief memorandum,
Lows;
quoted from
tWhile we d o not agree with the statement
I do not believe that the
the opinion o f our. Supreme Court,
o f authority and
holding i s i n conformity with the weight
w understand that a motion for repest line o f r e a s o n i n g , e
t h e case i s n o w t h e e s t a b
hearing h a s been overruled a n d that
lished law of this State,
W e believe, hoever, that its er.
t o the wording referred t o i n
fects will b e confined largely
and do not anticipate
the opinion or other similar wording
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Federal Reserve Bank of St. Louis
85
that t h e decision will have t h e effect w h i c h might b e imagined
from the language employed i n the opinion.
I t would appear
from a literal interpretation o f the language u s e d b y the
Sypreme Court that the only negotiable instrument would b e
one executed a s a n accommodation, B u t we feel sure that the
Sypreme Court had n o such intention and that the decision will
not serve as a dangerous precedent along this line. W h i l e i t
will be inconvenient from the business public to depart from
the l a n g u a g e f o r m e r l y
i n general u s e similar
t o that. o n t h e
trade acceptance involved i n the case o f Lane Company vs.
Crum, e t a1, still this obstacle i s not insurmountable and;
therefore, w e are not inclined t o fear that the effect o f
the c a s e w i l l s é r i o u s l y e m b a r r a s s t h e p r o p e r h a n d l i n g o f
business o n a trade acceptance basis."
I infer fron that h e means that the language left off i n
future transactions, t h a t t h e trade acceptances will b e eligible a n d that t h e banks handling then would b e put o n inquiry
as t O what transactions they represented.
The Chairman, The impairment of nggotiability arises
from the u s e o f t h e words "maturity being i n conformity w i t h
the optcsial S o n e o f purchase. "
Governor Talley,
H e did not think so, H i s inference was
86
that i t wes t h e entire clause. I
asked h i m i f the decision
would have been likely i f the language y o u just quoted h a d
been o m i t t e d a n d h e s a i d h e d i d n o t t h i n k 8 0 ,
“ion
Mir. Harrison. W o u l d the object/ do you think, b e as
great i f t h e f o r m o f a c c e p t a n c e w e r e a m e n d e d
t o comply w i t h
the suggestion o f mr. Paton, counsel f o r t h e Amerban Bankers!
Association, changing t h e f o r m from the o n e which was issued
in that case thatrehs "The obligation o f t h e acceptor h e r e
of arises o u t o f t h e purchase o f goods f r o m the drawer,
"ents instrument arises o u t o f t h e purchase o f goods a
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Federal Reserve Bank of St. Louis
| ee e e
e
sgueptor, b y the acceptor from the drawer?, T h a t almost
paraphrases t h e provision i n the m e gotianie instrument a c t
which says that a n instrument w i l l not b e rendered non-nego-
tiable because i t has such a clause.
Governor Talley. T h a t langu age i s pretty well i n consonance with the instrument itself, T p a t i s practically what
the instrument states.
Governor Norris.
A s I understand # h e dew, under the
negotiable instrument l a w the ‘.pbligation m a y contain a
state-
ment o f t h e transactions whigh give rise t o it.
Wir. Harrison.
W h i c h give rise t o the instrument?
Governor Norris.
Y e s , without affecting ite negotiabil-
87
ity,
"drawer"
I f the clause quoted stopped after the word
itwould be within this provision.
I t goes further, however,
uncertain.
and i n terms leaves the maturity o f the obligation
.
The Chairman (after Mr. Newton D. Baker had entered t h e
we
Conference Room:) Gentlemen, Mr. Baker hes returned and
further
will drop this topic f o r t h e time being f o r a little
di s c u s s i o n w i t h hin.
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Federal Reserve Bank of St. Louis
about
Mr. Baker, after you left w e had 4 further talk
w e t o o k n o form.
this p r o b l e m a n d w h i l e t h e r e w a s n o v o t e a n d
arose
alaction, I would like to recount the suggestions that
o f the
in the course o f the discussion, a n d give you a n idea
reaction o f t h e meeting.
The first suggestion that two o r three here seemed t o
a
w whether i t would be wise to
think might be c o n s i d e r e d , s
have a
Bank o f
conference w i t h t h e c o u n s e l f o r t h e R e s e r v e
the matter
Atlanta and consider whether some adjustment o f
could be arranged with these member banks, b y which they would
issue altodiscontinue the practice and s o avoid raising the
gether.
I t was brought out that such @ conference might have
the effect of endangering subsequent legal proceedings if
e wanted t o ask y o u
jncautious arrangements were made, a y a Ww
what y o u thought o f it.
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Federal Reserve Bank of St. Louis
The second suggestion was a s to the advisability o f
an amendment t o Regulation J and t o all the twelve circulars o f the Reserve Banks o f a character which would d r a w the
attention o f every bank i n the country t o a possible means
of evading o r defeating the par collection system and whether
or not i t might n o t inviite a widespread attempt t o d o so»
The third point, t o which I think quite a little importance w a s attached, w a s a d ottiac the varticular procedure
which you have i n mind, a n d the change i n the regulation,
might i n any way involve a n abandonment o f a n y o f the positions which w e have taken i n previous cases o r effect a n y
considerable change i n the procedure o f the Reserve Bank i n
handling items, s o that w e would possibly add some new peril
or liability t o the operation o f the collection system,
With thee suggestions i n mind, I
think i t was t h e gener—
al feeling herg that w e all want t o follow your advice a s to
how these checks should b e dealt w i t h a s they come through;
that after you had comidered these suggestions and i f you
felt t h a t w e should pursue s o m e sortvouiae course, that i t
would b e very helpful i f you would give u p very particulary
e pursu e d F o :
directions a s t o just h o w that course s h o u l d d
example, t h e question w a s raised a s t o whether that check
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Federal Reserve Bank of St. Louis
be
sent t o the First National B a n k o f Hertford should
time
charged t o their account immediately according t o the
schedules under which w e would charge i t t o the member's:
account, o r whether w e should wait until the check was réturned and then charge i t t o the member's account? T y a t i s
simply a semple of the possible differences i n methods,
W e
advice
feel t h e directions given should n o t onjy comprehend
to the Atlanta Bank b u t also t o those Reserve banks w h i c h
collection
may happen t o receive same o f those checks for
and forward them t o Atlanta.
I t was also suggested t h a t i t
ourmight b e well,if w e pursue a n y given course, t o fortify
these
selves b y getting photostatic copies made o f all
checks which may come into the possession o f any o f the
what
Reserye banks o r their branches, i n o r d e r t o see just
the development amounted to,
Mr. Baker.
J f have considered, s i n c e w e were here this
morning, some of the caceeneinne that grewout o f the meeting.
I know
Governor Wellporn's suggestion has been i n my mind.
very intimately the quality o f ming, t h e conduct, discretion
and judgment o f Mr, Paryer, w h o i s counsel for the Atlanta
Bank,
action that
H e would b e very sensitive t o any possible
might b e against subsequent Litigation. T
was going t o
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Federal Reserve Bank of St. Louis
90
come
suggest t o you that i t seemed t o m e wise that Mr. Parker
to Washington a n d sit i n with Mr. Wyatt a n d m e while w e talk
this whole thing over, a n d get pretty thoroughly i n his head
ssa P c a d e i
L e g a l steps would be, T h e n when h e went baok
to Atlanta h e could sit i n with Governor Wellporn, o r whoever
was going t o see these gentlemen, a n d b e present 4 6 advising
lawyer a t least s o that there would n o t b e any likelihood
of anything being s a i d that might subsequently b e regarded
as oppressive o r prejudicial t o litigation.
Governor Wellporn, I
think that would b e a oroper thing
to do, t o have h i m come u p here,
H e has written m e a letter
that I would b e very glad t o turn over t o you (handing paper
to Mr. Baker).
Mr. Baker. J
would like t o see it, a n d I would aiso
like t o see Mr. Parker.
Governor Wellborn. I
a m surehe will b e glad t o come a n d
we c e r t a i n l y w i l l b e g l a d t o h a v e h i m come.
H
e has charge o f
all o f o u r }itigation,
Governor Seay, W i t h reference t o your suggestion a s
to the time w h e n these checks should b e charged t o the mem-
ber bank's &egeunt, i t is well to bear i n mind that there are
two methods o f collection used b y the Reserve Bank, O n e is
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Federal Reserve Bank of St. Louis
aL
the renittace method a n d the other i s t o oharge after t h e
lapse o f a certain time,
I t will b e well not t o overlook
those t w o methods,
Mr. Baker.
M a y I take u p the second suggestion t h a t Gov-
ernor Strong made? T h a t o n e h a d not occurred t o me, that
we M i g h t b e putting t h e m o n notice b y putting something i n
the regulation t h a t would s h o w them all h o w t o d o it.
I t
seems t o me, from reading the regulation since 1 have been
here this morning, that really
m o change i n the regulation
of reviis wecessary, but as the regulations are i n course
sion anyhow, i t occurred to me we might add to the second
portion o f Section 2 of the regulations the sentence which
now reads "Bach Federal Reserve Bank shall exercise the functions o f a clearing house and clear checks under the general
terms and conditions herein set forth", t h e words "each m e m
ber bank and non-menber clearing bank shall cooperat efully
in the system o f check collection", p u t i t i n the affirmative,
and n o t s a y that t h e y shall n o t d o this, t h a t o r the other
thing which they might thereby b e tempted t o do.
B y expres—
ging it in the affirmatveit is their duty to cooperate, and
then of course any obstructive thing that they do is doubly
not cooperative. The language suggested here is Mr. Wyatt's.
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92
t h e danger that
I think t o put i t i n the affirmative obviates
we were discussing,
I am not
Now as to the thii suggestion o f Governor Strong
i s newdlanquite sure that I got just what that m e ays, that
traditional
gers that might b e incurred b y departing f r o m t h e
methods o f dealing with these things»
The Chairman,
someone
Y o u have a n opinion o n that f r o m
in your office, have you not, Mr. Talley?
Governor Talley, Y e s . I
read this morning f r o m a n opin—
rejon o f o u r bank o n the question o f requiring examination
opinion does not dis.
ports from non-member banks. W h i l e the
i t i s germane
cuss t h e question that w e are discussing n o w
to i t i n my judgment,
I t is:
Reserve
trocordingly w e are of the opinion that Federal
soundness
Penks should stand s q u a r e l y u p o n t h e
o f the present
should assume n o
established method o f collecting checks a n d
uncalled for duties o r responsibilities.
To go beyond this
gradually leade to the thought that the Federal Reserve Bank
places u s beyond
should insure the collection o f cheoks and
the category o f using ordinary care. *
t o this ques—
It would seem to me that that was germane
collecting
tion because we might assume respoggjbility for
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Federal Reserve Bank of St. Louis
93
them i f we charge the check t o the reserve account, which i s
responsibility that w e assume i n connection with a n y
not a
other check,
W e simply endeavor t o exercise the functions
of a clearing house, t o recei v e the checks, sendihem out
according to the method which, i n our judgment, is the best,
without a n y responsibility for having done so, I f the check
is not paid i t merely comes back and we return i t t o the endorser.
lect a
S o it seems t o me that i f we should undertake t o colcheck o f this character | simply b y reason o f having
been forced t o take i t under t h e terms o f Section 1 6 g i w l y
agd go so far as to charge it to the member bank's reserve
account, t h a t w e are establishing a
precedent under which w e
undertake t h e actual collection o f a check, instead o f merely
its p r e s e n t a t i o n
t o the drawee b a n k a n d a
report t o t h e o w n e r
of the check»
Governor Norris. I
should think that this could be dis-
tinguished i n such a way a s not t o serve 4 8 & precedent,
by
reason o f the fact that what w e are aiming t o overcone o r
checkmate here i s a peculiar distingtion against us. H e r e
is a check that i s collectible i n any way i n which i t comes
except through a
of a
certain agency, through t h e single agency
reserve bank.
94
idr. Wyatt.
regulation J
W h e n the committee w a s drawing u p this
we had i n mind t h e very danger that Governor
Talley has mentioned, that i f you reserved the right t o
charge t h e checks t o the member banks w e were afraid i n some
cases where y o u d i d not charge t h e m you might b e held liable
for n o t having charged them,
s o the provision
o f regulation
J authorizing t h e Federal Reserve Bank t o reserve t h e right
to charge was written very carefully, I
would like t o read
it t o you;
"provided, however, that any Federal Reserve Bank may
reserve t h e right i
n its check collection circular t o charge
such i t e m t o the reserve account o r clearing account o f any
such bank a t a n y time where i n any particular o a s e t h e Federal
Reserve Bank deems i t necessary t o d o so,"
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Federal Reserve Bank of St. Louis
This c o u l d b e u s e d t o c o v e r s p e c i a l e m e r g e n c i e s
cial cases, a n d those would b e such cases.
i n spe-
I n fact the Atlante
Bank's collection oiroular has followed that language almost
exactly.
Governor Seay, I
contingencies i n mind,
might add that there weretwo particulas
a s I recall, w h e n that was made.
O n e
was that the menber bank might not remit t o then, might not
gend i t s check f o r t h e remittance i n time,
‘a
i t might t a k e i t s
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Federal Reserve Bank of St. Louis
95
own time; t h e o t h e r w a s thet t h e Federal Reserve Bank might
have k n o w l e d g e
o f t h e fact that t h a t b a n k w a s i n a
precarious
condition a n d might exercise i t s right t o charge t h e check
to the bank a s soon a s it knew it had reached it.
Mr. Wyatt, T h a t i s what w e had i n mind, yes.
Mr. Baker. I
think i t might well b e that after y o u had
tried that out for a while you might feel that the thing was
carrying t h e S y s t e m i n t o a
practice w h i c h y o u d i d n o t w a n t
to grow up as an established practice, and some shorter cut
might t h e n b e necessary, a f t e r y o u had Learned what t h e d i s
position o f these recalcitrant banks w a s going t o be.
the o u t s e t I
A t
have s o m e c o n f i d e n c e i n , a l t h o u g h G o v e r n o r H a r d
ing has warned us not t o have too mich, a peacable solution.
Second, I
think that when these checks are sent for renit—
tance a n d they a r e sent back t o the Federal Reserve B a n k a n d
the bank i s then notified that that check h a s i n fact b e e n
charged t o i t s r e s e r v e account,
that a
very different atmos—
phere will exist i n those banks a n d they will begin t o b e more
serious about it. T h e n i f the Comptroller, cooperating w i t h
you, will notify the individual directors that that bank i s
at variance with the regulations, w e can see whether i t does
not produce the proper psychological effect, During that
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Federal Reserve Bank of St. Louis
96
their disposition,
l e n g t h of time w e will discover more about
whether
whether these are just exceptional, sporadic cases,
that they
they will see that they have made @ mistake, s a y
i t is
are sorry, a n d t o discontinue the practice, o r whether
o f the
a settled, concerted plan which t h e o l d adversaries
it,
par «@ollection systen have devised t o attempt t o defeat
who
whether t h e y are backed b y any organized group o f banks
know
are going to help them stand the pressure -—- then ae will
exactly what mrt o f mntest w e are in,
GOveul 4es
The Chairman,
A n d that will b e disclosed very promptly
if we charged the cheoks.
idr, Baker, Y e s .
@
Governor Seay. There.must b a a distinction between e
hc
i
t h a cashier's
cashier's check and a. c u s t o m e r,k'cWes
pay
check, with this legend upon it,.a bank might. refuse to.
it because i t came from a, federal Reserve Bank, but a differ—
ent situation arises with a customer's check.
ifr. Baker, I
see some obvious differences, Governor,
but which one seems. the more important one to you?
Governor Seay. Governor Talley did not want. the. Federal
to
Reserve B a n k t o b e placed i n the position o f undertaking
collect a n y kind o f check i n any event. I
say a s between
97.
those t w o situations there i s a palpable difference.
Here
is a check dravm b y the bank itself, .
wire Baker.
Y o u think i t i s a
in.
s t r o n g é
es
r a.cthe case
of a cashier's check?
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Federal Reserve Bank of St. Louis
Governor Seay, V e r y much stronger because @ratmm b y the
other
bank itself, a n d because o f the fictitious Treason i n the
case -—wir. Baker. I
grant you i t is different.
The Chairman
I n the carly days of the problems o f the
collection system w e undertook t o give immediate debit a n d
immediate credit, w h i c h was unworkable.
attempt
A s I recall it, o u r
t o d o s o was based w p o n a n opinion which w a s given
which r a i s e d c o n s i d e r a b l e d o u b t a s t o whether
w e h a d t h e right
to make that charge unless t h e member bank agreed t o it. T h e
first attempt a t establishing 2
nation-wide collection system
was based upon a cizmular o r regulation which was, i n fact,an
agreement u p o n t h e p a r t o f e v e r y m e n b e r b a n k t h a t w e m i g h t
charge checks against their account immediately when t h e y
reached o u r hands.
O f course w e all discovered shortly t h e
absolute folly o f that plan.
T o charge a member bank's
check a g a i n s t r e s e r v e a c c o u n t m i g h t b e m o r e j u s t i f i a b l e u n d e r
the terms o f the circular and the regulation than t o charge
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Federal Reserve Bank of St. Louis
98
any b a n k w i t h a n y o h e c k w h i c h o a m e b a c k f r o m a
member b a n k ,
drawn b y a customer, j u s t because i t bore that legend o n its
face.
Governor Galkins.
T h e distinction which Governor S e a y
calls attention t o would not exist, however, i n case the
menber bank h a d induced t h e customer t o make the notation
on the check, b u t only i n c a s e the customer had, o f his own
motion, made that restriction.
I f it was possible t o show
that t h e member b a n k h a d induced i t s customer t o place t h e
notation o n the check i t seems t o m e there would b e n o distinction.
Governor Fancher.
M a y I inquire f r o m Governor Wellporn
what procedurehe enploys i n sending o u t these checks t o the
menber banks?
D o y o u send o n the remittaoe basis o r d o y o u
wait f o r the transit t i m e and charge t h e reserve account?
Governor Wellborn.
W e wait for the transit time and
charge i t up. T h a t i s the o n l y fair w a y t o d o it.
Mr. Baker.
I n the conferenoe I am suggesting t o be held
between Mr. Parker, Mr, Wyatt a n d myself, I
think we would
have t o consider the two methods, t h e remittance method and
the time charge, a n d outline a course o f vrocedure t o follow
which w e think would b e more desirable under t h e conditions.
99
we.
Governor Talley. M r , Chairman, m a y I observe that
reserve
gend checks o n the remittance basis only a n d d o not
to ourselves,
i n our collection circular, t h e right t o charge
rethe total amount o f remittance letters t o menber banka?
serve accounts?
of
W e d o not want t o b e put i n the position
t o recover
having seized any part o f the member bank's assets
payment o f checks thich w e have received f o r collection.
The Chairman. T h e n you have no float d o m there?
Governor Talley, W h a t i s that?
The Chairman,
Y o u have n o {ntradistrict float.
Governor Wellporn,
I n this proposed meeting w e would wel~
a n d give u s
come somsone f r o m the outside t o come with u s
the benefit o f their persuasive povers. 1
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Federal Reserve Bank of St. Louis
do not think all
the responsibility ought t o b e thrown uvon the officers and
counsel o f the Atlanta Bank.
I t seems t o b e & very serious
get i n t o it.
question,and t h e more w e discuss 4 t t h e depper w e
Governor Seay, M a y I ask Mr. Wellyorn 4 f this situation
is known to the Atlanta menber banks?
Governor Wellporn.
N o , w e have never s a i d anything about
it. W e have kept iiha profound secret and we are just waiting
on what i s d one u p here s o we cen proceed,
W e have discussed
that w e ought
it i n the bank a n d one o f our officers thought
100
to send for these people right away, I
did not think it was
the prover thing t o do. J I thought w e ought t o act o n the
advice o f counsel because there was liable t o be a lawsuit,
and i f you are going t o have & lawsuit y o u aught t o be carefule |
The Chairman: S p o u l d not the decision a s to how that
meeting should b e arranged rest with countsel after they have
mét here with Mr. Wyatt? —
Governor Wellporn. Y e s , I would like t o have Mr. Wyatt
and Mr. B a k e r — -
Mr. Baker.
W e would have t o consider that,
L e t them
see that outside counsel were interested too?
Governor Weilporn. I
think it would b e the part o f wis—
dom for someone t o come ins
Governor Seay,
O n the other hand, might that not cause
the bank to think that the matter is béing treated with a good
déal o f importance?
Governor N o r r i s
t h e y could t h i n k w e are magnifying
the situation,
Governot Seay.
I t seems t o me it would b e well t o have
a course mappe d out and yet the Federal Reserve Bank authorities pursue i t t o t h e a@d.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
101
Governor Wellborn.
W e have already given i t some i m -
Examiner t o
portance b y requestingr.the Chief National Bank
write t o one o f the banks.
H e wrote t o t h e m and they replied
exchange.
jmmediately and said that they wanted t o make the
i s here
I do not remenber the exact words but that letter
somewhere. I
think t h e Conference ought t o get t h e benefit
of that letter t o see what their attitude is,
wr. Wyatt, I
have t h e letter from t h e First National
Bank of Samson, Alabama, to the National Bank Rxaminer.
t o the
The Chief National Bank Examiner addressed a letter
Bank o f
bank and this i s the reply o f the First National
follows:
Samson. I t i s dated April 19, 1927, and i s as
why w e
"angwering your letter o f the 15th, regarding
FEDERAL
stamp o n the face o f our checks ‘NOT PAYABLE THROUGH
t o keep from
RESRVE BANK", b e g t o advise that this i s done
b e compensated
renitting a t par, a n d i n order that w e might
in a small measure for issuing cashier's checks.
I t has
t o charge
never been the custom of banks i n this territory
for i s s u i n g c a s h i e r ' s checks,
i n fact n o n e w o u l d p r o b a b l y b e
t h e check ac~
issued i f they did, a n d the customer w h o buys
and
cepts same with this stamp o n it, and they are issued
sold with this understandings
W e seld them at par with
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Federal Reserve Bank of St. Louis
102
and
n them, o r the customer h a s t o pay f o r them,
the s t a m p o
we h a v e n e v e r b e e n p a i d f o r o n e yet.
"There i s no discrimination against the Federal Reserve
Bank. T h e y lose nothing b y not handling it.
ing,
I t is a
matter t h a t c o n c e r n s
W e do the los_
u s a n d o u r c u s t o m e r s only.
w e are,
"With kind personal regards,
"Yours truly. "
The Chairman, T h a t i s the same bank o n which a customer
drew a check that bore that exact language?
Mr. Wyatt, Y e s .
to
I would suggest that y o u gentlemen invite wir. Strater
sit i n with y o u o n this matter.
Mr. Baker.
W e should b e very glad t o have idr, Strater,
Mre Wyatt, I
would l i k e t o correct t w o statements made
here this morning, I
was asked this morning i f the Federal
draver b a n k i n the Atlantic Dist.
téuthe
Reserve Bank of Boston could send these checks direét:
for payment,
statute,
W
and I
said yes, I
wags c o n s i d e r i n g o n l y t h e
e could n o t d o i t under the existing regulations
whim
because the regulatiom require: the Federal Reserve Bank
receivesa check o n a n o t h e r district GQ."
send i t t o the Feder~
al R e s e r v e B a n k o f t h a t district.
The Chairman’ They could not d o it under the law?
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Federal Reserve Bank of St. Louis
103
t h e regulations.
Mr. Wyat t . Y e s , b u t not under
Appar-
checks w o u l d b e sent t o
ently Congress intended that s u c h
district o n which they a r e
the Federal Reserve B a n k o f t h e
payable, b u t i t d i d not require it,
W e take the position t h a t
checks upon them from
since they have authority t o receive
authority t o colother districts that they incidentally have
require it but
lect such checks: T h e law does not distinctly
not f o r t h e regulations.
I think t h e y could d o it 4 f i t were
apparently contemplated,
It would b e contrary t o what Congress
and I think it would be inadvisable to do it.
was the statement
The other statement Ihad reference t o
made in my
ofGovernor Wellborn; chalienging the statenait I
Atlanta had taken
memorandum that the Federal Reserve Bank of
would
the position that the checks were not negotiable. I
Bell, cashier
like to read a paragraph from a lester from Mr.
the Boston Bank, @ 6
of the Atlanta Bank, + o Mr. Wizlett o f
follows:
d
n
a w e believe a l s o the
"In the opinion o f our c o u n s e l ,
Board | such checks a r e not
counsel o f the Federal Reserve
order for
negotiable, i n that they are ngt an ynconditional
n eash, and that a s a consequence
the payment o f f u n d s 4
or authority to require
Federal Reserve Banks have no power
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Federal Reserve Bank of St. Louis
104
their checks t o remit f o r
member banks using this phrase o n
the conditions o f the
such checks a t par, Therefore, under
they cannot b e handled
Federal Reserve B o a r d Regulation J ,
because they are
by Federal Reserve Banks for collection,
not payable a t par."
Governor Wellborn.
T h e paragraph j u s t above t h e o n e you
and he is
read refers t o checks payable i n curren % exchange
referring t o such checks a s those, not the others.
in the case invdlving
we
Mr. Baker. Y o u will remeber that the Alabama statute
-- i t simply
succeeded i n getting Mr. Parker t o lose his case
the Boaré o f G o v
held that the act was unconstitutional and
b e unwise t o
ernors, a s I recall it, agreed that i t would
appeal that proposition,
W i t h t h e judgment i n the District
t h e Alabama a c t t o
Court a s t o the unconstitutionality o f
start with, i t is rather a helpful situation.
T h e other thing
is if we ever
Mr. Wyatt refers t o is also helpful, and that
g e t a check that i s
bave t o bring suit o n a check a n d w e can
t o be co}
sent i n from some other Federal Reserve District
o f Atlanta, then we
lected through the Federal Reserve Bank
take n o other
can say that under the regulations i t could
much stronger
course for collection, a n d i t would b e a very
the
case for us than a doriestic check, that is domestic to
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Federal Reserve Bank of St. Louis
district.
Federal Re-.
Before any further advice goes out t o the
desirdle that
serve Bank, even, I think j t would b e very
look. out for these
each Governor instruct his transit man t o
tratment f o r
checks, a n d not devise different courses o f
then, b u t send then a l l i n i n the normal course,
t o the bank
of the district o n which they are payable.
Governor Wellborn.
D o y o u mean return t h e m t o the banks
that send them?
check b n your
wir. Baker. N o , I mean i f Bost o n gets a
send i t direct o r
district. t h a t i n s t e a d o f attempting t o
t h e Federal
r eturning i t a s not being collectible through
t o you for colReserve Bank o f Atlanta, that they send i t
Lection.
w h y not
Governor Harding, I f that i s to be the case,
i n Atlanta?
have a l l t h e photostats o f t h e checks made
Mr. Beker.
I f that i s the only place t h e disease breaks
out, y e a ,
that legend
Governor Seay, A t l a n t a , w h e n they find
stamped
c h e c k i n t o t h e bank,
o n a check, o u g h t t o s e n d t h a t
the only
Mr. Baker. Clearly, s o as t o make sure that
reason f o r refusal i s the legend. I
¢
think perhaps i t would
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Federal Reserve Bank of St. Louis
106
letter a n d then
be well t o send t h e m i n i n the ordinary c a s h
if they send them bac, calling attention t o the legend as
should
the only reason f o r n o t paying o r not remitting, y o u
notify t h e
then charge t h e m t o the reserve o f the bank and
bank.
Governor Seay,
A s I understood Governor Wellporn
h e
said h e had stoppe d receiving checks o f that character.
Governor Wellporn.
they h a d d e c l i n e d
Yes.
W e sent t h e m back because
t o p a y them,
Conference R o o m . )
(Whereupon Mr, Baker retired f r o m the
the
The Chairman’ T h e Board i s waiting for a meeting with
open market committee now.
J f there i s n o objection this
tomorrow
Conference will adjournat this time and reassenble
morning a t 9:30 ofclock a-m,
(Whereupon, upon motion duly seconded, t h e Conference
adjourned,
May
a t 4:15 o'clock p.m,, until tomorrow, Tuesday,
10, 1927, at 9:30 o'clock a.m, )
—_— o
e
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Federal Reserve Bank of St. Louis
SECOND
D A Y .
a.m.
Tuesday, M a y 10, 1927, 9 : 3 0 o'clolck
to
The Conference o f Governors reconvened, pursuant
adjournment o f yesterday, a t 9:50 o'clock a.m.
PRESENT:
( A s indicated i n yesterday's record, )
PROCEEDINGS:
The Chairman, T h e meeting will. come t o order.
s here from Gleveland.
Strater i
M r .
H e arrived here ahead o f
for
ir. owzs,, 6 0 we will hear from him first, his report
the collection committee, Topic 2-4.
II. COLLECTIONS AND CLEARINGS.
A.Report o f Standing Committee o n Collections,
Mr. Strater.
T h e report i s short, Mr, Chairman, a n d I
think the best t a
d o would b e to read it,
The Chairman, V e r y well, procesd.
Mr, Strater.
on
T h e report o f the Standing Committee
as follows:
Collections o f the Conference o f Governors i s
TO THE CONFERENCE O F GOVERNORS
The Standing Comnittee o n Collections begs t o submit
herewith its report o n the following topics:
FLOAT
REVISION O F TIME SCHEDULES WITH A VIEW T O REDUCING
A N D
AVOIDING EXISTING INEQUALITIES.
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Federal Reserve Bank of St. Louis
168
Committee a t
This topic w a s first submitted t o this
1 9 2 5 , a n d the
the Gonference o f Governors held i n November,
o f the progress
Committee h a s submitted periodjocal reports
and inconsistenmade i n attempting t o qorrect inequalities
time.
oles i n the time schedules i n effect a t that
t o facilitate
For the convenience o f t h e Conference a n d
that
consideration o f this report, t h e Committee believes
4+ i s d e s i r a b l e
t o summarize i t s activities
i n connection
with this topic u p t o the present time,
o f the
Assuming that the intra-district time schedules
were regponably
several Federal reserve banks a n d pranches
minimum
accurate and that each reserve bank was carrying a
o m district,
amount o f cloat o n checks payable within {$6
for
4t was déemed advisable t o compile a tabulation showing
o f days o f
each F e d e r a l r e s e r v e b a n k a n d b r a n c h t h e n u m b e r
payable i n each
deferred availability given o n country items
of
state o r part o f state i n other districts, a n d the number
t o exdays actually required t o collect s u c h items according
a
isting time schedules, T h i s tabulgtion was submitted a s
o f Gov
part o f the report o f the Committeg t o the Conference
reernors held i n March, 1926. T h a t @onference voted t o
quest t h e Standing Committee o n Collections t o make a
study
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Federal Reserve Bank of St. Louis
109
of the present t i m e schedules a n d prepare a
scientific revi-
sion o f them i f that should b e necessary.
inThe tabulation referred t o above shows i n detail t h e
equalities a n d incors istencies i n the time schedules o f the
various Federal reserve banks a n d t h e Gommittee then attempted
Fedoral.
to reconcile these b y correspondence with each o f the
reserve banks.
E a c h o f t h e reserve b a n k s a n d branches w a s
asked t o prepare accurate figures covering the collection
a weel
of checks payable i n ite district for the period of
in order t o enable the Committee t o determine upon a n
and c o r
acourate basis for the construction o f scientific
rect interdistrict t i m e schedules.
In several instances, i t was found that states wholly
within a given district were split as to availability o f
checks i n that state i n t o t w o o r more divisions.
I n order t o
states, i t
simplify t h e r outing o f checks payable i n these
was thought desirable t o determine u p o n @
fair average t i m e
to b e given t o reserve banks a n d direct sending member banks
of other districts only. W i t h the cooperation o f the reserve
banks concerned, what i s believed t o be a n equitable average
was arrived a t a n d was very useful i n compiling inter-—district
time schedules f o r submission t o each o f t h e reserve banks,
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Federal Reserve Bank of St. Louis
110
the Conference
The Committee explained i n its report t o
of Governors i n November, 1 9 2 6 , the basic principle which
acientifie
should, i n its opinion, govern the construction o f
reduce float
and accurate time schedules a n d a t the same time
to the lowest possible point consistent w i t h expediency o f
operation.
Some o f the major inequalities, however, existing i n
the time schedules o f certain o f the Federal reserve banks
still appear t o b e irreconcilable since these banks h o l d
an
the f i r m conviction that i t i s impracticable t o adopt
accurate t i m e s c h e d u l e c o v e r i n g c h e c k s p a y a b l e
i n adjoin-
one
ing districts f o r whioh they n o w give credit a t least
because their
day i n a d v a n c e o f t h e t i m e r e q u i r e d t o c o l l e c t
member banks, having enjoyed the benefits o f a n admittedly
a
incorrect #ime sohedule f o r s o many years, w o u l d oppose
change which would result i n their being obliged t o assume
addi tional fl@at o n checks payable i n adjoining territory
wherea large proportion o f their volume centers.
I n some
ef these instances, checks payable not p n i y i n adjoining
districts b u t also i n districts beyond g r e received f o r
eredit a f t e r t h e l a p s e o f t w o b u s i n e s s days.
in t h e s e d i s t r i c t s a r e n o t c o l l e c t i b l e
C h e c k s payable
i n t h e time specified
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Federal Reserve Bank of St. Louis
Li
but require a t least three business days a n d i n some cases,
four t o convert into available funds.
I n other instances,
where states lie partly i n one district a n d partly i n another,
checks payable i n the entire state are accepted o n the same
deferred basis.
The net result, therefore, o f the Committee's activities
is that negotiations with t h e several Federal Reserve banks
have enabled i t t o compile n e w scheduleswhich are more consistent w i t h the actual t i m e required t o effect t h e collection o f checks p a y a b l e
i n o t h e r districts.
I t i s true that
of
the major inequalities in the time schedules of certain
the reserve banks still exist a n d cannot b e reoonciled b y this
Committee because the reserve banks are o f the opinion that
their policy o f years standing cannot b e changed a t this
time without disastrous results.
There are attached hereto and made a part o f this report,
tabulations showing for each Federal reserve bank and branch,
time s c h e d u l e s f o r t h e c o l l e c t i o n o f c h e c k s p a y a b l e
i n states
outside o f their respective districts and payable i n other
Federal resrve bank a n d branch cities, w h i c h schedules a r e
acceptable t o them and which t h e Committee understands e a c h
Federal reserve bank a n d branch i s willing t o adopt a n d t o
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Federal Reserve Bank of St. Louis
112
Conference.
make effective u p o n the approval c f the Governors’
that
The Committee i s unanimous i n ite opinion, however,
these s c h e d u l e s cannot,
i n a l l cases, e n t i r e l y a c c o m p l i s h
i t appears
the o r i g i n a l p u r p o s e i n t e n d e d b u t i n a s m u c h a s
to
will tend
be the best that can b e done a t present a n d a s they
to correct some o f the many inconsistencies,
i t i s hoped that
they will meet with the avproval o f the Conference.
The
show
Committee, therefore, recomnends that the deferred time
the Conference
upon these schedules b e approved a n d adopted b y
and b y each of the reserve banks concerned, and that a defin.
effective.
ite date b e fixed upon which they shall b e made
CASH ITEMS
A STUDY O F THE WHOLS QUESTION O F THE COLLECTION O F
voted t o
The Conference o f Governors o f November, 1926,
t o continue its
request the Standing Committee o n Gollections
i n mind particularly
studies o f the collection problem having
whether a
Federal reserve bank m a y not shorten t h e actual
lacated i n
transit t i m e b y sending direct t o member banks
banks
other districts under arrangements w i t h Federal reserve
question o f
of those districts |and aiso t o s t udy the whole
t o the Confer.
the collection o f c a s h items a n d t o report b a c k
might b e
enoe what, i f any, modifications o r improvements
i n order %t.
made either b y a ruling o r a n amendment t o the l a w
113
effect a better a n d more scientific collection system.
I t
was understood that i n taxing this action, t h e Standing Committee o n C o l l e c t i o n s m i g h t c a l l u p o n r e p r e s e n t a t i v e s
o f any
order t o aid
Federal reserve b a n k i f they care t o d o s o i n
their
or assist t h e m i n their studies f o r the preparation o f
report.
one which
T h e problen presented t o this Committee i g
will require careful and diligent study and investigation
which must necessarily consume a great deal o f time.
Any
this
change i n the existing check collection machinery which
its
Committee might recommend, would be so far-reaching i n
feels
effect a n d have s o many ramifications, t h a t t h e Gommittee
the G o v
it cannot a t this time suggest anything definite for
ernors! consideration.
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Federal Reserve Bank of St. Louis
The Committee feels that e a c h Federal reserve bank should
be called upon for suggestions a s to how the collection machin
each
ery can best be modified or improved, and plans to ask
o f their
of the Governors t o obtain f r o m the officer i n charge
in
Check Collection Departments a n y ideas which they may have
this connection i n order that the Committee may have the full~
est possible information upon which t o base its study, T h e
Committee feels that it may be necessary u e desirable t o
reserve banke
call a meeting o f representatives o f all Federal
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Federal Reserve Bank of St. Louis
114
familiar with this subject, o r t o have the Chairman o f the
Conference call s u c h a meeting s o that a
full a n d complete
discussion m a y b e h a d a n d n o v o s s i b l e i m p r o v e m e n t s
b e over—
Looked.
Respectfully submitted,
Standing Committee o n Collections,
H.F. Strater, Chairman
M. Attebcery
S.Walden, Jr.
H, C o e
Mi T O F . *
Now, attached t o this repart a r e voluminous schedules
that a r e rather h a r d o n the eyes, b u t i t w a s the only w a y w e
could compare t h e m ~ithout making t h e exhibit still more cum-
bersome, T h e r e i g nothing much t o be said about them,. except
I might mention that i n the case o f Chicago there apparently
was a n error i n their time between M,chigan a n d Indiana. H o t h .
States were shown o n the two-day basis a n d they should b e
threee
Governor MeDougal;
Mr, S t r a t e r ,
Y e s , a n d t h e r e a r e three changese
Governor i:icDougal,
ow n understanding?
ulese
D i d you hear from iir. Bachman?
A n d those were i n harmony vith your
I t was a mistake i n preparing t h e sched~
INTRA - DISTRICT T I M E S C H E D U L E
showing t h e deferred t i m e given b y each Federal reserve b a n k a n d branch t o
Federal reserve banks, branches, a n d direct sending member banks o f other
districts, f o r country checks payable i n the states o r parts o f states
in
their respective districts.
I t i s believed t o b e acceptable t o each
Federal reserve b a n k a n d branch concerned a n d forms t h e basis f o r t h e interdistrict t i m e schedule submitted b y the Standing Committee o n Collections
to t h e Conference o f Governors M a y 9 , 1927.
STATE
C O L L E C T E D BY INTRA-DIST.
|
STATE
C O L L E C T E D BY
TIME
ALABAMA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
Dist. O - COls.
FLORIDA
GEORGIA
IDAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
Atlanta
New Orléans
Birmingham
El Paso
Los Angeles
St. Louis
Memphis
Little R o c k
San Francisco
Los Angeles
Denver
Boston
New York
Philadelphia
Richmond
Jacksonville
Atlanta
Spokane
Salt L a k e C i t y
Chicago
St. Louis
Chicago
St. L o u i s
Louisville
Chicago
Kansas C i t y
Cincinnati
St. Louis
A
D
D
N
W
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A
U
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N
A
O
N
M
N
A
U
V
N
Y
N
A
N
A
Y
N
N
W
N
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Louisville
LOUISIANA
New Orleans
MAINE
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MASSACHUSETTS
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Boston
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Dallas
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Federal Reserve Bank of St. Louis
Boston
Chicago
Detroit
Minneapolis
Minneapolis
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Memphis
St. Louis
Kansas C i t y
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Helena
|
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NEBRASKA
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Philadelphia
MEXICO
| YORK
NORTH CAR.
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TEXAS
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Philadelphia
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Boston
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Atlanta
Nashville
St. Louis
Memphis
Dallas
UTAH
VERMONT
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WASHINGTON
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Salt L a k e C i t y
Boston
Richmond
Spokane
OREGON
PENNA.
RHODE ISLAND
SOUTH CAR.
SOUTH DAKOTA
TENNESSEE
El P a s o
Portland
WEST VA.
Seattle
Pittsburgh
Richmond
Baltimore
. WISCONSIN
WYOMING
Chicago
Minneapolis
Omaho
INTRA-DIST. |
TIME
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Time Schedule Showing Deferred Availability
Given by Each Federal Reserve Bank and Branch
for Checks Payable in Other Federal Reserve Bank and Branch Cities
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Federal Reserve Bank of St. Louis
115
Mr. Strater.
N o , i t was not a mistake i n prenaring the
Schedule, b u t t h e correct schedule w h i c h c a m e back d i d n o t
have that change made.
H e referred t o them i n his letter
but h e d i d n o t c h a n g e t h e sohedule,
I t w a s overlooked
in
compiling it.
Governor M,Dougal., But the changes you speak o f harmoniz:
with iir. Bachman'ts ideas a n d your own?
iv. Strater.
Y e s . T h a t i s what h e stated i n his letter,
Theremay b e other corrections necessary, b u t w e cannot tell
much a b o u t i t u n t i l e a c h b a k h a s h e d o p p o r t u n i t y t o g o o v e r
it again. I
would recommend t h a t that b e done before this
_is finally adopted.
Governor Wellborn,
I n response t o your request, w° have
prepared a memorandum i n regard t o the subject o f collec.
tions, alr. Strater.
air, Strater. I
will b e very glad t o have it, Governor
Wellborn. N o w , i n connection with thegp inconsistencics
that we have attempted t o correct, m e would like t o refer
to the schedules which were a part o f the former report o f
this committee w h i c h show for e a c h bank, f i r s t t h e number
of days o f deferred availability given o n country items
payable outside o f their district, a n d then t h e actual number
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Federal Reserve Bank of St. Louis
of days required t o collect.
In the c a s e o f Boston there h a s been absolutely n o change
made o f any kind,
T h e Boston Federal Reserve Bank prefers
to let i t s schedule remain exactly a s i t is,
of
In the case o f N e w York t h e principal inconsistency,
course, has been the fact that the New York Bank has Bostony
Philadelphia,
day basis.
a n d a part o f the Cleveland District o n a two-
I t also has Virginia o n a two-day basis.
N o
change i s made there, but all o f the other inconsistencies
have b e e n c o r r e c t e d a n d p r e t t y g e n e r a l l y t h e y c o r r e s p o n d
as
to the actual time required t o collect.
The same thing is true of Philadelphia. C l e v e l a n d i s
all practically reconciled. T h e same is true of Richmond azd
Atlanta, a n d i n fact the rest o f them.
I n the case o f
Dallas a n d San Francisco their intrastate t i m e schedule h a d
three o r four divisions for states within their home dist—
ricts, w h i c h they have all agreed t o give a n average t i m e
for the whole State, which simplifies the sort and the deter—
mining o f available dates rene mache
I do not think there i s a n ything e l s e t o comuent o n a t
this t i m e b u t I will b e glad t o answer a n y questions thich
the G o v e r n o r s m a y h a v e i n mind.
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Federal Reserve Bank of St. Louis
117
Governor Seay, H o w mich consideration did the Committee
to give t o the question o f direct sendings b y Federal reserve
banks t o menber banks i n districts other than their own?
Mr. Strater.
T h e Committee really hasn't h a d a n opvor—
tunity t o give a n y real study, Govermor Seay. i
was away ill
fer a month during the last s i x months and i t took me about
a month t o recover f r o m that.
O f course during that time
they could not have any meeting o f the committee, a n d i t
would really require a tremendous lot o f thought and study.
Yesterday Mir, B aker suggested that i t might b e wise not t o
attempt to do that, i n connection with the Alabama bank which
is attempting t o avoid t h e Federal Reserve B a n k collection
channels —
Governor
I n that particular case, yes.
o t
Mr, Strater.
I n that particular case;
o f course any
change made in the regulations ~wouli affect the status of that
case right now. B e f o r e anything definite i s done i t seems
to me that =:: that case and any other similar cases should b e
gotten o u t o f the way.
Governor Seay,
cability o f it. I
J ] refer more particularly t o the practiobserve that counsel s e e m t o think that
the Board has power t o make these réfulations a n d I have been
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Federal Reserve Bank of St. Louis
unable t o see that t h e Board h a s that power.
Mr. Strater.
I f y o u are referring t o copy o f a letter
from Mr, Wyatt, y o u will note that t h a t i s just 4 hurried
opinion a n d h e did not have opvortunity t o g o into i t thoroughly.
Governor Seay.
J I refer particularly t o his casual renarkt
of yesterday i n which h e ststeed substantially what y o u have
just said.
Mr. Strater. I
asked f o r his opinion a n d h e wrote m e
@ preliminary one, i f it might b e termed that, i n which he
said h e thought i t could very r e a d i y b e done a n d would n o t
require a n amendment t o the Act, b u t thought i t would b e
necessary t o change Regulation J , which could b e very easily
done i f there were n o obstacles raised.
The Chairman, T h i s report, I understand, h a s eliminated
the inconsistencies from the schedules.
liz. Strater. S o m e o f them, yes.
The Chairman,
I s the net effect o f i t to incréase o r
reduce the float w e carry?
Nir. Strater. W e l l , i t would b e pretty hard t o say defin-—
itely, I
t will d o two things.
think t h a t i
I t will reduce
the float which t h e Federal reserve banks oarry somewhat a n d
119
will also reduce t h e float which t h e member banks m a y have
to carry i n some instances.
I
n other words, the more dis-
tant p o i n t s a r e c u t d o w n i n m a n y instances,
Governor Harding, I
would like t o ask Mr. Strater a few
questions,
Wir. Strater. O e r t a i n l y .
Governor H a r d i n g ,
I s i t intended t o frame a
mathematical1:
exact t i m e schedule w i t h a view o f sliminating float entirely?
Mr. Strater., T h a t w a s o n e o f the purposes, Governor
Harding.
N o t eliminate i t entirely but bring i t d o m —
Governor Harding.
H o w m u c h would y o u regard a s exces—
sive floats, what percentage o f items?
wr. Strater. W e l l , t h a t would depend —
Governor Harding, T h e r e i s some practical consideration
in this.
W e have ta'’cen uo this proposed revision that you
sent us and on way 3rd, which was not a very heavy day, a
light d a y rather, v e had a n analysis made o f the country
items handled b y the Federal Resepve Ban‘ o f Boston, showing
the number and amount o f country letters prepared under the
pitemeritand under the proposed schedule.
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Federal Reserve Bank of St. Louis
T h i s analysis (indi-
cating paper) goes through the whole thing and gives the ,
amount a n d number o f letters required under t h e present vrac.
120
tice a n d those required under t h e n e w practice.
H e r e is a
general summery o f it:
Omitting N e w York, Philadelphia and Chicago, o n which
points n o change i s recommended, t h e r e w a s prepared under
the schedule n o w used 2 9 letters averaging B S items, totaling
$7,378 p e r letter, w h e r e a s u n d e r t h e p r o p o s e d s c h e d u l e
it
would have been necessary t o prepare 4 5 letters averaging
55 items, totaling $4,755,
O u r country letters t o New York,
Philadelphia and Chicago contain 7 0 per cent o f the total
number a n d 7 5 per cent o f the total amount o f items handled,
‘The minor effect o f the proposed changes may b e observed
by examining E l Paso and Memphis,
O u r letter o f slay 3 as pre-
pared under the present schedule contains 9 items totaling
$301, T h e proposed schedule would require u s t o re-sort this
letter i n t o t w o groups, o n e containing t w o items totaling
$136 and the other containing seven items totaling $165, L y x e wise, o u r setter t o Memphis under the present schedule con—
tained 18 items totaling $998. A
be required,
wine ©
re-sort o f this letter would
letter containing t w o items amounting
to $79 and another o f 16 items totaling $919."
I could not understand w h y this schedule would require
additional l e t t e r s f r o m t h a t bank.
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Federal Reserve Bank of St. Louis
W
e a r e very much opnosed
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Federal Reserve Bank of St. Louis
121
to making any change.
W e d o not have much float, only about
it.
two per cent, we are accustomed to it and satisfied with
wit «Strater.
Harding,
O f course that is accomplished, Governor
sane points t o offset
b y putting longer time o n
the time that i s $00 short
o n others.
W h i l e i f the volume
I
was very small that m i g h t b e justifiable,
see f o r m y part w h y i t i s necessary t o have a
really cannot
time schedule
for
which i s perhaps nearly twice a s long 4s i t should b e
some points a t remote distances.
Governor Harding. ‘Well, as a matter of fact, if you
letters
want t o use special delivery stamps and send the
w e could make
out every hour o r 80, and tratch the trains,
most o f t h e c o l l e c t i o n s
i n the actual t i m e that w e n o w have
as a theoretical proposition.
Mr, Strater.
W e do that now wherever possible,
W e
a t three o'clock
make i t a point t o start sending letters out
in the afternoon t o connect w i t h trains,
W e feel that w e
quickly a s possible,
owe i t t o our member banks t o gollect a s
Governor Seay, Syppose, for the sake of the argument,,
that i t did result i n increasing the letters from <5 to 55%
t anything, would
As a practical matter it wouldn't a m o u n t o
Lt?
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Federal Reserve Bank of St. Louis
1228
Governor Harding,
very much greater.
I t would make the total increase
T h e s e are only certain specified c a s e s
that w e have analyzed.
wr. Strater.
T h e direct sending member banx would b e forc
to make a t least 7 0 letters o r nearly that —
69, T h e y have
to t o route direct t o their Federal reserve bank a n d branch
and there i s n o possible w a y o f overcoming that.
O f course
if they put them all into-your banx, which necessitates
extra handling o n your part, 1 can see, i f you increase the
o f divisions
number
o f y o u r t i m e schedule, w h e r e t h e y w o u l d
have t o make a number o f extra sorts, possibly two o r three,
but obviously t h e y could not send y o u the whole State o f
Pennsylvania.
P i t t s b u r g h a n d Philadelphia,
i f they a r e
routed correctly, have got t o b e divided t p and made two
letters.
However, t h e Committee has expressed its ovinion and I
think i t i s now u p t o the Governors t o decide what t h e y want
to do.
Governor Harding. I
report.
think y o u h a v e m a d e a
very e x c e l l e n t
u
t and well worked out.
I t i s well t h o u g h t o
Governor Calkins. 2
vnderstood from My. Strater's ren
marks that h e intendedto suggest that this was @ progress re*
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Federal Reserve Bank of St. Louis
banks,
port, that i t should b e submitted t o the twelve
I s
considered, discussed and adopted a t a later conference,
that correot, cp. Strater?
wir. Strater. W e l l , I imagine that that would b e the
still
best thing t o do, Govemor Calkins, because theremay b e
n o t tell, until
a few adjustments t o b e made std«h y o u could
over c a r e
each bank has had opportunity t o checks the thing.
fully, j u s t what those are.
by de
Governor Seay, N o t h i n g practical will b e lost
laying putting the schedule into force.
wir, Strater. N o , I do not think 60- I
think i t would
fall conference
bejust as practicable to adopt it at the
b to adopt i t now,
as it w o u l d e
b e reGovernor Seay, T h e n I sugzest that t h e report
Reserve
ceived and committed t o the study o f the Federal
,
Bank 8.
The Chairman.
T h e r e are two points about the report,.
meeting some—
I understood f r o m Mr. Harrison that a t t h e Hest
one r a i s e d a
question a s t o whether
w e might n o t have a
more
scheme f o r t h e vur-—
general revision o f the whole collection
frontiers o f
pose o f eliminating the difficulties along the
basis, I
the districts a n d put i t o n a much more scientific
124
o F not.
do not know whether the committee has concideses that
ir. Strater.
in
Y e s , the Committee has considered i t
report states,
a general w a y but t h e y felt, a s the
not t o overlbak a n y possible improvement,
i n order
w e ought t o g o a
each o f the
Little bit deeper into i t and get the ideas o f
Chairman
twelve banks before us, and then, possibly, ask the
operating offiof t h e Conference t o callie meeting o f t h e
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Federal Reserve Bank of St. Louis
o f them present.
clals o f the banks a n d consider i t with all
The Chairman,
W e have a time schedule averaging three
d o w e not?
or four days, o r b e t w e e t h r e e a n d four d a y s,
Mr. Stertiern.
D o you mean for the whole System?
The Chairman, For the whole System.
Mr, Stretonn. I n t r a - d i s t r i c t ?
that i t takes
The Chairman, N o , I mean the average time
dollars i n checks.
to collect s i x o r eight hundred million
whole country?
Between three a n d four days f o r t h e
districts.
Mr. Strater. T h a t m a y vary i n the different
The Chairman,
that
B u t i t would work out rovghly about
average, would i t not?
Mr, Strater. I think lixely so, Very likely it would
average around three o r four days >
illustrate only
The Chairman, W h a t was i n my mind was + o
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Federal Reserve Bank of St. Louis
125
that i f it were possible i n practice t o lengthen the whole
time schedule b y one day. i t twuld force the banks t o borrow
150 to 200 million dollars from us; that, i n turn, would give
us opvortunity
t o buy one o r two hundred millions o f securi-
ties and then they would vay for their borrowings and we
could get our portfolio back, I
don't suppose w e could make
an increase o f a day i n the time o f collecting checks without
raising c a i n in the country banks, but the whole tendency
it seems t o me should b e t o reduce t h e float that w e carry.
Governor Fancher.
Y o u s p e a k o f raising cain. I
think
you would start the party right i n your own home town.
The Chairman, Y e s , that i s juet where it would start,
I imagine. Therefore i t i s proper f o r m e t o make t h e sugzestion.
Governor Fancher. I
think t h e first s t e p would b e t o
bring into line the three districts o f New York, Boston and
with the
Phidalphia, and have a time schedule really square
actual time.
The Chairman, W o u l d you like t o see New York o n a
three.day basis?
Governor Fancher.
Y o u would decrease t h e three bank
perhaps 2 0 t o 2 5 million dollars i f you lengthened t h e time
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Federal Reserve Bank of St. Louis
schedule f o r three days -—~
The Chairman,
I f we did that would you fellows b e will-
ing t o d o it?
Governor Fancher. N o , ™ e are not -—Governor Seay,
I t needs such action o n the part o f
Boston and Philadelphia and your bank t o put the System upon
an e q u i t a b l e a n d s c i e n t i f i c basis.
jir:Harrison, This was discussed a t the last conference
think
when y o u were unable t o b e present, Governor Strong, I
before w e d o ; =
a d m i t that w e cannot collect these
checks o n a two d a y schedule that w e should review t h e wnole
collection system, a s recommended b y the Conference last
fall,
a n d s e e whether t h e r e i s anything
t o b e accomplished
by a general r evision which would expedite collection gener—
make
ally throughout t h e country, a n d which possibly might
it quite feasible for us to maintain our two-day schedule
by overlooking district lines i n that closely congested area
it
of the Northeast, ‘Whether i t would be practicable t o do
I do not know, b u t that i s a matter now before the Committee,
I myself w o u l d p r e f e r n o t t o change o u r schedule,
o r that
of Boston and Philadelphia, until after the conference has
the r e s u l t o f t h e s t u d i e s
o f Mr. S t r a t e r ' s committee,
and is
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Federal Reserve Bank of St. Louis
137
h
t collection
qhite satisfied that i t i s impossible t o o m m e n d e
system i n a way t o make i t possible f o r u s t o keep o u r t w o
day points.
The Chairman , I
would l i k e t o s e e n o general r e v i s i o n
attempted until after this Atlanta situation h a s been dealt
with, Furthermore, when it comes to any radical change, it
seems t o me it would b e a good thing t o consult wr, Baker
as t o the legal effect a n d legal bearing i t would have upon
all this litigation.
idr. Harrison, I
thinks the time will come when w e have
either g o t t o actually collect that large volume o f checks
in two days o r else amend o u r schedule.
B e f o r e amending o u r
schedule I hove wir, Strater's Committee will exhaust every
possible means of study to find out whether we can actually
collect t h e items i n two days.
The Chairman. I
would rather put the district o n a
three-day basis i f we could get the benefit o f it in our port—
folio, B u t I am afraid, a s you say, that i t would raise cain.
Governor Seay, T h e Committee maid its respects t o that
time-honored principle o f precedence.
The Chairman,
basis.
N e w York has always been o n a two-day
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Federal Reserve Bank of St. Louis
28
Governa S e a y , F o r which there i s n o logical defense.
d o rot think i t would give u s a n o p p o r
wir. Harrison. I
tunity t o i n c r e a s e t h e portfolio, b e c a u s e I
think i t i s v e r y
probable that t h e N e w York Clearing Hove would reestablish
a country collection department a n d then actually collect
those checks i n two days, a s they used t o d o before t h e Federal Reserve System took over collections.
W e figured i t
out, after considerable study, t h a t i f w e c o u s e n d direct
to fifteen cities, o r perhaps i t was eighteen, i n New England,
we could collect actually i n two days 8 5 per cent o f the
volume o f checks that w e are sending t o Newingland.
Mr. Strater. P r o v i d e d those banks that y o u have i n
mind would b e willing t o accept the checks from you and re~
mit f o r them a t par.
Me. Harrison.
Mr. Strater.
O f course.
Y o u would have t o make that arrang enent
Say with Philadelphia, a n d each o n e o f Governor Harding's
member b a n k s a n d a
l o t of. non—-menber b a n k s w o u l d g e t t h r e e
letters n o v instead o f one.
wir. Harrison,
T h a t i s not neéaviy
a s Many letters a s
they used t o get.
Governor Seay, A n d get their checks one day sooner,
Mir, Strater.
The Chairman,
Yes.
get—
A f t e r all whet y o u are discussing i s
ting right back to the fundamental question of whether the
district l i n e s a r e r i g h t o r w h e t h e r t h e o p e r a t i o n o f t h e c o l e
lection system has not disclosed that t h e natural district
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Federal Reserve Bank of St. Louis
Lines have not been met b y this particular division.
Governor Norris,
in
i r . Harrison called o u r attention,
the discussion last fall, t o the fact that these district
lines were made with regard t o other factors than the collection, that the collection system was n ot i n view when the
district lines were made.
Governor Seay, T h a t mould probably b e true n o matter
what district lines were used, unless y o u established a
cork
sorew district with an irregular coast line.
The Chairman,
W e might have a jerrymander.
Governor 3 eay, Y e s .
iit. Strater.
I f that weredone i t "ould p r o b a b l y elimi.
nate ten o r twelve collecting centers completely, S o m e o n e i n
the N e w York Bank h a s prepared a
map showing t h e logical
railroad centers t o operate this, with a collecting center
in a particular place,
I t might eliminate a lot o f brenches
and i n fact some Federal Reserve Banks are collecting agents
entirely, i f you follow that out. Undoubtedly it would sin-
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Federal Reserve Bank of St. Louis
plify the collection o f checks»
Governor Seay,
I t mould a l s o disturb t h e member banks
their’ corres—
which have a practice o f keeping accounts w i t h
pondents.
T h e y have built u p their connection there,
Yes.
vir. Strater.
Governor Seay,
A n d i t might have t h e effect o f break~
ing a great m a n y o f t h e e connections,
I t i s a n exceedingly radical thing e v e n
air. Strater.
to consider, I
suppose i t mould require a n amendnent o f
the Bot. t a - 1 0 1%.
The Chairman,
the
W e would n o t w a n t t o d o i t without
advice o f counsel.
ir. Strater, y o u r suggestion i s that this revort b e
looking t o
filed a s a reoort o f progress a n d that n o action
t h e report i s sub—
a change o f time schedules b e taken until
mitted a t the fall meeting?
wir, Strater, Y e s , Mr, C h a i r m a n . Governor Seay, I
i addition t o that that each
s u g z e s t 'n
in
Federal Reserve Bans b e requested t o submit its comments
I
writing upon t h e revort t o the standing committee,
‘under—
I be~
stand Boston has made some study o f it and Atlanta
lieve has handed i n a revort.
D o you wish that, ir. Strateri
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Federal Reserve Bank of St. Louis
Mr. Strater. Y e s , i t would b e very welcome.
‘The Chairman, S u p p o s e the resolution includes a request
that ur, Strater adcress a
communication t o each o f the Re-
serve banks describing i n what shape h e would like t o have a
report. D o e s that meet your views, Mr. Strater?
Y e s , Mr. Chairman,
Mr. Strater.
I s there any further discussion? Y o u of.
The Chairman.
fered t h e r esolution, Governor Seay?
Governor Seay, Y e s , Mr. Chairman.
Governor McDougal, I
will second it.
(The motion having bean duly seconded, was unanimously
carried.)
The Chairman,
er than necessary.
W e do not want t o detain Mr. Kenzel long4 1 1 i t b e agreeable t o take u p Topic
4-H, report o f the Pension Committee?
Iv. B R A T I O N A N D ADMINISTRATION.
H, Pension Bill.
1. Report o f Pension Committee.
2. Discussion o f plans for again taking u p Pension
Bill.
Mr. Kenzel,
Governors!
T h e remrt of the Pension Committee t o the
Conference
i s a s follows:
GOVERNORS!
REPORT O F T H E PENSION COMMITTEE T O THE
CONFERENCES, M A Y 9, 1927.
—.
—
w
time t o
Your Committee deems i t appropriate a t this
Committee a n d its
review briefly t h e history o f the Pension
work.
March, 1909,
The Commyttee w a s first appointed a t t h e
Conference
o f Governors.
I
t was authorized t o employ actua—
enploy t h e f o l l o w
ries a n d other experts a n d d i d subsequently
ing;
ur. Henry Moir a s consulting actuary,
ir, George B e Buck a s working actuary,
wir. sionel] Sayre asimpension advisor, a n d
ix, James F. Curtis a s counsel.
other pension
After a careful study o f a large number o f
a s applied t o the Fed—
plans a n d o f t h e whole nension problem
eral R e s e r v e System, a
and
vlan w a s e v o l v e d w h i c h w a s o u t l i n e d
and the Federal
recommended t o the Conference o f Governors
04, 1921. T h i s reReserve Board i n a report, dated February
Board and the
port was considered b y the Federal Reserve
of 1921, with
Governors! Conference i n February and April
t o secure Federal
the result that i t was decided t o endeavor
charter f o r a
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corporation
t o operate t h e f u n d a n d Congressional
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t o such fund.
authority t o the banks t o contribute
committee o f
With a view t o securing such legislation a
Reserve
the Conference of April 12, 1921, and the Federal
result t h a t h e Board waited o n Senator Smoot w i t h the
a s necessary i n
suggested certain modifications o f the p l a n
enabling aci, his
his judgment t o assure the passage o f the
should assume o n l y oneprincipal noint being that t h e banks
t a t e condition
half instead o f a l l o f the accrued ieceheaee:
Ourtis in
was met and a dill was accordingly prepared byMr.
the Board to Senator
May of 1921, I t was transmitted b y
that i t be enacted
Smoot o n June 10, 1921, with the request
a
into l a w a s e a r l y a s p r a c t i c a b l e a n d w i t h
statement t h a t i t s
general details were approved b y the Board.
w a s accepted
‘During the s u m s © and ‘autwan o f 1921 t h e ples
ae e a c h o f t h e twelve
and approved b y the ‘poards o f “Se pestered
federal reserve banks.
T h e bill + 0 incorsorate the pension
fund was not B a a r s however , until Mar ch, 1926. 0 9
Pe iho.
iar ch 22, 1936, i t was o c ucend b y genator George
Lean, Ghairman of the Senate Committee on Ban'cing and Ourrency
S B caatoe.
‘and w a s cpoapiae r e f e r r e d t o t h a t
held two hearings o n the vilk, o n f o r
That C o m m i t tee
1 3 cond april a7, 1928,
b y representatives
respectively, p o t h ‘of which were ,attended
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Federal Reserve Bank of St. Louis
134
of your Committee.
T h e Senate fommittee w a s favorable t o
discussion had
a pension plan for Federal Reserve Banks; i t s
amount o f any
to d O mainly with t h e fixing o f a limit o n the
pension that could b e paid from the banke! contributions.
n
o this
In order t o meet a n y criticism that might d e v e l o p
point, t h e Senate Committee amended the bill b y inserting
that
a clause specifically limiting the emount o f pension
employer t o
could b e paid o u t o f the funds contributed b y the
and
30 per gent of the mxi-mum salary paid, O u r actuaries
not interyour Committee believe that such limitation would
plan.
fere with the contemplated operation o f the proposed
but i t did
The Senate Committee reported t h e bill favorably
not come t o a vote i n the Senate a t the Spring Session.
bill i n the
Simultaneously w i t h the introduction o f the
in
Senate, steps had been taken t o secure its introduction
the House, through Representative Louis T . McFadden,
M r . Me-
t h e passags
Faddeén b e i n g especially desirous o f securing
of his banking bill, d i d not consider i t wise t o introduce
of, s o no
the pension bill until the banking bill was disposed
House during the
action o n it was had i n his Committee o r the
1926 Spring Session.
w a s promp
When Congrees m e t i n December o f 1926 t h e bill
135
taken u p in the Senate and was passed o n December 17, 1926,
which automatically referred i t t o the House.
Committee o n
In the House t h e bill w a s referred t o the
Mr,
Banking and Currency o f which Mr. MeFadden i s Chairman.
par—
McFadcen w a s still s o much engaged with other legislation,
ticularly the bancing bill, that it was not until February
bill.
that consideration could b e obtained f o r t h e pension
1 1 and 16,
The House Committee held t w o hearings o n February
representa~
1927, resvectively, b o t h o f which were attended b y
tives of your Committee. Unfortunately, the billencountered
some opposition, largely political, i n the House Committee,
Notwithstanding,
Comnit—
t h e bill w e s reported o u t b y the House
for passage, but
tee o n February 26, 1927, with recommendation
reason
there was also a n adverse minority report and for this
Rules Committee
it was not possible t o obtain a rule f r o m t h e
i n the House
that would give i t opportunity t o be voted o n
of your Comnit—
prior t o adjournment o n warch 4, I t is the view
out b y the House
tee that i f the bill could have been reported
Qmmittee at an earlier date, there would have been little, i f
the closing days
any, difficulty i n securing its passage, p u t i n
of the session there were s o many important matters t o be
t o have
dealt w i t h that t h e legislative leaderswere unwilling
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136
brought u p measures t o which there was considerable political
opposition, M r . McFadden and other members o f the House,
ijnchuding some o f the signers o f the minority report, h a v e
advised that the bill oan b e passed promptly a t the next session o f Congress.
Your Cogmittee held a
meeting o n April 20, 1927, f o r the
purpose of reconsidering the bill in the light of experience
before the Senate and House Committees, a n d the steps which
Congress.
should b e taken f o r its reintroduction i n the next
much o f
While y o u r Committee w a s informed andbelieves that
the opposition that developed w a s not sincere a n d was o f a
the
petty character a n d based largely o n misunderstanding o f
provisions o f the bill, nevertheless i t was deemed desirable
been
to meet s o far a s possible t h e criticisms Which have
that
raised b y changes i n the language o f the bill wherever
opera—
can b e done without seriously affecting the purpose a n d
tion o f a sound a n d adequate pension plan.
The Committee decided, therefore, to redraft the bill
and i n t h e redraft:
Re(a) T o change t h e name o f t h e fund f r o m the Federal
Fund and to
serve P e n s i o n F u n d t o Federal R e s e r v e R e t i r e m e n t
from the
eliminate, s o far a s possible, t h e word "pension"
137
body o f the bill. This wes suggested b y Mr. MoFadden and sev~
eral other menbers o f his Committee.
(b) To change the language of the amendment made by the
Senate Committee t o Section 4 of the bill, which established
the limit o f the amount o f any pension that could b e paid
from employers! contributions a t 5 0 per cent o f a maximum
salary, substituting the expression o f the sane limitation b y
using t h e language o f the Rogers Bill, i . @ , @
percentage
"of the average salary o f the last ten years o f service."
T he words "maximum salary" were t h e oceasion f o r a good
deal of confusion and misunderstanding and one of the principal
points raised by an important member of the House Committee who
joined i n the minority report but has since indicated that with
sescertain amendments t h e bill should b e passed a t t h e next
sione
It seemed that a
number o f the menbers o f the House Commit
tee had difficulty i n satisfying themselves that this was a
from
limitation upon the amount o f pension that could b e paid
the
empLoyers' contributions a n d not @ method o f determining
amount o f pension.
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(c) T o include i n the bill a provision requiring return
of their contributions t o employees leaving the service. T h i s
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Federal Reserve Bank of St. Louis
138
was not mentioned i n the original bill but was a provision o f
the plan.
I t was one of the points raised i n the minority
report a n d t h e r e c a n b e n o h a r m i n i n c l u d i n g
i t i n t h e bill.
It was decided b y your Committee t o retain the provision
that would permit member banks t o participate i n the pension
plan with t h e approval o f t h e Federal Reserve Board, W h i l e
it i s vealiaea b e your Committee that this provision i s by no
means essential t o the success o f a retirement system f o r
Federal reserve bank employes, i t is deemed by your Committee
and ite advisors a s a most desirable feature far member banks
and i n the public interest, I t i s also desirable from the
point o f v i e w o f t h e a d m i n i s t r a t i o n o f t h e f u n d i n t h a t i f
used b y any considerable number o f member banks the administration c o s t ratio would b e materially reduced.
It developed i n the discussions o f your Committee that
quite a number o f member banks are much interested i n this
feature of the bill and that some, at least, are deferring
taking some independent action towards establishing pension
provisions for their employees, hoping t o participate i n our
system.
@ensideration was given also t o that portion o f the minor
renort relating t o Section 6 of the bill, which i s the section
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13
that reserves t o Congress the right t o alter, amend o r repeal
the a c t a n d which further provides that t h e contbactan) rights
of any individual shall not b e affected thereby. O o u n s e l f o r
your Committee advises that f r a n @ legal standpoint t h e seo—
tion could b e omitted without hazard, f o r the reasons that
it is, o f course, e r t a e that Congress miy alter, amend
Oonorrepeal any of its acts and that, i n his opinion, the
stitution o f t h e U n i t e d S t a t e s g u a r a n t e e s
t o individuals t h e
necessary protection of their contract rights; nevertheless, |
headvised that, if possible, the clause should be retained,
as i n modern times i t has become customary t o include s u c h a
clause i n all legislation o f this cots
I t was, therefore, de.
cided t o retain this section for the present a t least but with
the t h o u g h t t h a t i t c o u l d b e o m i t t e d i f i t b e c a m e t h e s u b j e c t
of serious controversy.
It was also decided to reinstate i n more specific languag«
that provision o f the bill which was eliminated b y amendment
on the floor o f the Senate, which provided for inclusion
within t h e benefits o f the plan o f the employees o f the fund
itself. T h e provision i n the original bill was t o include
the officers and employees of the Pension Fund, but when the
bill w a s debated o n the f loor o f the Senate, o n e Senator o b ~
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Federal Reserve Bank of St. Louis
140
jected t o this provision o n the ground that i t would provide pensions for the incorporators and trustees e f the fund.
While this was, o f course, a mistaken view, Senator McLean
promptly surrendered this minor part t o obtain prampt pass-
age o f the measure.
I t i s inconsistent, however, i n establish—
ing a retirement fund t o exclude from participation i n it
the fund's own salaried officers and employees, a s originally
provided.
In the hearings before t h e Committees b o t h i n tie Senate
t was apparent that some ,embers expected the
and the House,. i
major provisions o f the plan t o be’ stated i n the bill and
while your Committee had carefully considered this question
prior t o deciding that t h e terms o f the pian s h ould not b e
incorporated
i n t h e statute,
t h e y have again considered
and could o n l y arrive a t t h e same conclusion.
it
T t was again
emphasized b y your Committee's advisors t h a t a s pension provisions mist l o o k a
long w a y i n t o t h e future a n d a s pensions
cannot become effective until many years after provision for
them has been undertaken, i t i s most unwise and unsound t o include terms i n the charter,
T h i s was formerly t h e practice,
with the result that many of the older pension systems abroad
became entirely inadequate with changed economic conditions.
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Federal Reserve Bank of St. Louis
L41
For instance, a
pension o f 1 0 pounds @
year that was ample i n
the days o f Queen Anne would b e ridiculous i n modern times.
The function o f modern pensions i s to permit orderly retirement o f super—annnuated employees. This cannot b e effected
unless the pension i s moderately related t o the salary enjoyed
when the employee comes t o pension age. T h e scheme o f working
on averages i n the plan evolved b y your Oommittee embraces
flexibility sufficient t o reasonably overcome t h e effects
of changed economic conditions, salry levels, etc., without
disadvantage t o or discrimination against either the employee
or the fund.
I t provides for the automatic correction with
soundness o f changes that may take place during the term o f
employment o f the individudl f o r whom retirement provision i s
made. Therefore, t o incorporate terms i n the charter provisions o f a retirement fund i s not only unscientific but also
could work grave hardships i n individual cases and i n the mes
unless orompt charter revision were possible a n d i t i s deemed
by your Committee that i t would b e both unsafe and undesizr—
able t o depend upon pram a c t i o n b y Congress t o amend charter
provisions a s to the terms o f pensions a n d hence they believe
that the terms should not b e i n cluded i n the bill.
Another point made i n the minority report deals with t h e
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Federal Reserve Bank of St. Louis
143
manimum amount of salary that may be ¢éonsidered as a basis
for pension and suggests $10,000 instead of $18,000 as that
maximum, t h e argument being that i n the bill for the State
Department employees $9,000 w a s the maximum o f salary taken
as a basis for the calculation o f pension benefits, T h e fact
is that $9,000 i s the maximum salary that c a n b e paid under
the present l a w t o any State Department employee eligible f o r
pension, excepting o n l y a n ambassador promoted f r o m t h e s e r
vice ~- there i s one such case a t present. Y o u r Committee
believes that there i s n o valid argument o n that account f o r
the reduetion i n the maximum salary provided i n your bill a s
@ basis f o r pension caleulations.
O n the contrary, y o u r C o m
mittee believes that t h e fact that Oongress adopted t h e maximim salary paid t o 5 tate Department employees a s the basis
for retirement allowance clearly indicates t h e appreciation
by Congress o f the necessity f o r a reasonable relation b e ~
tween terminal salaries a n d t h e retirement annuity» W h i l e a
less than $18,000 basis would provide adequate pension provision f o r the lower salaried officers a n d employees o f Fed—
eral Reserve Banks, t h e provision would b e entirely inadequate
in respect o f all higher salaried officers, a n d your Committee
believes that i t would be a great mistake for any plan t o
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the higher
omit provision f o r the orderly retirement o f
Salaried personnel, a n d it regards the figure o f $18,0cO
provided i n the bili a s the minimum that c a n b e considered
at
as permitting reasonable retirenent o f such personnel
age 65.
Your Committee also considered t h e problem o f accrued
liabilities, which has become increasingly difficult with
should
the lapse o f time since 1920, a n d believes that there
be a recalculetion made b y the actuaries t o ascertain exact—
ly the condition of accrued liabilities i n order that pos
sible changes o r modifications
i n the plan might b e adopt ed
par~
that would permit t h e older m e n with years o f service t o
ticipate when t h e fund becomes operative.
a s of
The accrued liabilities were figured exactly,
October 1, 1920, a t $1,973,519. Without seauring complete
accrued liabilidate t h e actuaries made a n estimate o f the
they
ties a s o f October 1 , 1924, w h e n b y such calculation
were found to be approximately $6,000,000, Your Committee
new data
recomnends that a n exact calculation b e made from
1927on present employees as of June 30,
Bill
Your Committee believes t h e passage o f the Pension
a n d i f so,
at t h e next session m a y b e reasonably expected
144
data collected a s o f Jyne 30, 1927, c a n b e used i n setting
up the pensil plan more promptly than would b e the case
if data h a d t o b e assembled a n d the calculations m a d e after
the passege o f t h e bill.
I t i s believed that t h e actual oper—
ation o f the plan might b e begun six months earlier with
data as of Jyne 30, 1927, than would be possible if the calcula~
tions were deferred until after t h e passage o f the bill.
The original appropriation made i n 1920 for t h e expenses
of the Committee amounted to $27,500, o f which $20,000 was
apportioned f o r t h e actuaries a n d other experts, a n d $7,500
for counsel fees.
T h e attached statement shows the amounts
expended t o date against these appropriations.
F r o m i t will
be noted that against the $20,000 appropriation there has
been expended $19,105.51. T h e r e i s payable against t h i s
fund $500 t o Mr. H e n r y itoir , being t h e balance o f h i s stipul-
ated fee of $3,000, T h e r e i s a n unexpended balance o f $2,100
in the aopropriation f o r counsel fees, w h i c h i s insufficient
by more than $1,000 to discharge the Committee's debt t o counsel f o r services a n d expenses incurred.
The unexpectedly l o n g time which h a s elapsed since t h e
Committee first began its work and the vast amount o f detail
Work which it has been necessary for the actuaries and coun-
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145
sel t o d o i n conneotion with t h e restating o f the plan a n d
the preparation and presentation o f data a t the hearing before the Congressional Committees, added materially t o the
expenses
o f t h e Committee.
Your Committee recommends, therefore, that there b e
appropriated a n additional $10,000 for its expenses, which,
with t h e balance remaining f r o m the original appropriation,
is believed t o be amply sufficient t o permit t h e new actuarial
work which i s recommended, a n d t o pay such other necessary
expenses a s will b e incurred within one year. Assuming
that the bill will vass the next Congress, i t is believed
that expenses incurred this year will substantially reduce
the expenditures that would otherwise have t o be made a t the
time o f organization.
Respectfully submitted,
& R . Fancher,
James B. McDougal,
Z R . Kenzel, Chairman.
April
STATEMENT S H O W I N G E X P E N S E S
FROM 1919 t o DATE.
2 ,
1927.
O F PENSION COMMITTEE
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Disbursements A p p r o p r i a t i o n
ToMr. George B. Buck,
for a o t u a r i a l w o r k a n d
expenses, $10,919.53
To Mr. Henry soir, consulting
actuary 2 , 5 0 0 .0
To Mr, Monell Sayre,pension a d —
visor,
5
, 000. 0
itiscellaneous expenses, t r aveling, eto.
7 1 5 - 9 8
egtel nw66 e e e om a e e ,
ed
$ 2 0 , 000. 00
To mr. James F. Curtis, counsel,
for legal fees, expenses, print—
$ 5,403.71
7
, 500. 0
$24,539. 22 $ 2 7 , 500. 00
EXTRACT FROM CONGRESSIONAL RECORD O F DECEMBER 17, 1928,
SENATE DEBATE O N FEDERAL RESERVE PENSION BILL.
FEDERAL RESERVE PENSION FUND
The bill (8.3657) t o incorporate the Federal reserve
pension fund, t o define jig Winctions, a n d for other p u r
poses, was announced a s next i n order.
The PRESIDING OFFICER.
I s there objection t o the pre-
sent consideration o f the bill?
Mr. KING. I
shall not object t o the consideration o f
147
the bill, b u t I
wish w e could have a
the five minute rule permits,
little more time than
T h e Senator from Connecti-
cut (Mr. McLean) has been very considerate, and I shall not
objet t o its consideration.
The Senate, a s in Committee of the Whole, proceeded to
consider t h e bill.
The first amendment o f the Committee o n Banking and
Ourrency was, o n page 5, line 24, after the word Yemployer,”™ tc
insert the following additional proviso:
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And prbvided further, That no pension shall be paid
out o f the amounts contributed o r t o b e oontributed
bythe Federal reserve banks, the Federal Reserve
Board | and the Federal reserve agents a t a rate i n
excess o f 3 0 per cent o f the maximum annual salary
received b y such officer or.
The amendment w a s agreed to.
oir. KING.
M r . President, I
invite t h e a t t e n t i o n o f
the Senator f r o m Connecticut t o the provisions o n page a
and the provisions on page 3, which extend the operations
of the bill to State panks o r trust companies or State institutions i f they shall ever become menbere o f the Federal
reserve system, I
would like t o know the theory upon which
148
the Federal Government, i f my interpretation o f the bill
ig right, intrudes itself into the State and says t o the
State institutions, " W e have provided a Federal board that
shall determine the pensionable status o f employees i n your
various banks a n d trust companies."
Mr, MeLEAN. Y e s ; they are private institutions the
same a s national banks.
tion.
T h i s i s merely a
voluntary proposi-
T h e y c a n come i n i f they s o desire o r remain out.
Mr. KING.
I t i s voluntary i n s o far a s joining t h e
Federal reserve system i s concerned, b u t i t i s involuntary
so far as forcing State benks and State institutions, which
may b e members o f the Federal reserve system, under the provisions and operation o f this bill.
Mr. MoLEAN.
I f they become mewbers o f the Federal Re-
serve system, t h e n they give i t jurisdiction.
Mir. MOSES. M r . President, may I ask the Senator fran
Gonnectiout i f this i s anything more than a n enabling act for
banks which wish t o establish a pension systen?
Mr; giocLEAN. Theat is all.
Mr. MOSES. I am glad to see the junior Senator from Uteh
so vigorous i n defending State rights, becayse that question
.ts coming u p here presently i n a much higher f o m .
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Mf. KING. I
hope I shall always b e a defender o f
local self-government against t h e n e w federalism which tries
to destroy t h e same.
B u t I ask t h e Senator f r a n donnecticut
again i f he thinks i t is wise o r proper t o establish a
Fed
eral corporation which will project itself into the States
and say to State institutions, which may have voluntarily
come into the Federal reserve system, “ W e are going t o i m employes,
pose upon you a pension system with respect t o your
willy-nilly. *
ir. WALSH o f Montana. M r . President, will the Senator
kindly call our attention t o t h@e pfovisions of the bill
which i n his judgment s o operate?
A s I read th=bill,
i t pro
vides pensions o r other funds o f support for the officers
and employes of Federal reserve banks, o f the Federal Regerve Board, a n d Federal reserve agents.
Mr, KING. I
was asking the Senator from Connecticut be-
on
cause I have not had time t o read the bill, Paragraph ( 0 )
at
page 2, and paragraph (d), o n page 5, indicated t o me or
least, a s I hastily examined them, led me to the view that
the position which I just suggested was right. I
will read
them:
(c) T o provide pensions o r other forms of
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support for officers and employees (and for persons
who may be o r who may have been dependent upon such
officers or envloyees) o f any bank or trust company
that i s o r shall b e a member b a n k o f a n y Federal
re
serve bank, a n d who shall b e deemed entitled t o t h e
assistance and aid o f the corporation,
o n suoh terms
and conditions, hbwsver, a s the corporation may fram
time to time approve and adopt.
In paragraph (d) i t is provided:
(ad) I n general, t o do and perform all things
necessary
o r appropriate
tO a
corporation c r e a t e d f o r
the purpose o f providing pensions o r other forms o f
support f o r officers a n d employees o f Federal reserve
banks, Federal Reserve Board, Federal reserve agents,
and member banks o f F e d e r a l reserve banks a n d f o r persong w h o have been o r may b e dependent u p o n such officers
or employees—-—
And s o forth,
Further o n it provides that the —
corporation m a y establish andmaintain appropriate
activities | agencies, a n d institutions a n d may a i d o r
make use o f such activities, agencies, o r institutions
161
asmay be now or hereafter #8tab lished for like or
Similar purposes — —
dna
forth,
It i s very clear t o me that this i s for the purpose
of reaching State institutions which m a y b e members o f t h e
Federal reserve system. I
think the Senator ought t o agree
to strike out those provisions, :
Mr. McLEAN.
M r . President—
The PRESIDING OFFICER.
D o e s t h e Senator f r o m Utah yield
to the Senator f r o m Connecticut?
iir. KING. I
idm. McLEAN.
yield.
T h e imoortant provision o f the bill, I
will say to the Senator, i s to authorite the Federal Reserve
Board a n d t h e F e d e r a l p u a s s v e b a n k s t o e s t a b l i s h p e n s i o n s y s -
tems. I
think something like 100 systems o r more were ex-
amined b y t h e e x p e r t s w h o w e r e i n t e r e s t e d
i n t h e matter.
They
recomnended this provision, which permits a member bank t o come
into the corporation, i f it i s formed, f o r the purposes o f
é
economy, thinking possibly that i t might b e a n invitation
to the State banks t o come into the system.
The S e n a t o r w i l l r e a l i z e t h a t t h e F e d e r a l r e s e r v e b a n k s
now are laboting under a great disadvantage because o f the
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pa
absence o f any pension system. T h e i r good men aré leaving,
and leaving constantly, because o f increased salaries offered
them by the outside banks, I t was félt that this provision
would make t h e Federal reserve system more popular a n d tend
to invite State banks i n t o t h e system, because a
good many
of the State banks are not large enough t o establish a pension system; that is, i t was thought wise that i f it could
all b e managed under one head i t wuld b e very much petter and
very mich more sa@isfactory a n d inexpensive.
If the provision r e f e r r e d t o i s going t o defeat t h e
bill a n d carry i t over today, I
would rather have those vro-
visions taken out; but the bill has not passed the House,
and I hope the Senator will l e t i t g o through a s i t is, b e ~
cause I think t h e provision i 8 a proper one.
wr, FLETCHER. M r . President, m a y I suggest t o the Senator that i t i s purely voluntary?
Me. McLEAN.
T h a t i s just what I have suggested.
Mir. FLETCHER.
T h e y are ctebie authorized t o consider i t
and go into the system if they want to do so.
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Mr. MoLEAN.
T h a t i s all. There i s n o compulsion.
I t
does n o t interfere i n any way with the rights o f the State
banks o r State superviBion over State banks, but i f such a
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153
bank c o m e s i n t o t h e s y s t e m a n d d e s i r e s
t o j o i n this c o r p o r a —
tion a n d come ywnder t h e provisions o f this pension system,
it c a n d o go,
T h a t i s what I
ide, FLETCHiA.
yaderstand t o b e the
point which has been made b y the Senator from Utah. that if
these banks came into the system they would b e obliged t o
become a part o f this corporation i n & way, a n d t o accept
reference to
the provisions that might be laid down with
the c o r p o r a t i o n u n d e r i t s r u l e s a n d regulations.
T h a t i s merely permissive.
Mr. McLEAN.
The PRESIDING OFFICER. T h e time of the Senator fran
Utah h a s expired.
air. KING.
I t has been used b y others, f a r better,
perhaps.
The PRESIDING OFFICER.
T h e Senator from Florida ( iM,
Fletcher) h e s the floor,
Mr. FLETCHER.
M r , President, I
wish t o call attention
of the Senator from Utah to the provision o n page 6; which
reads.
o r hereand such banks o r trust companiés a s may b e n o w
after be member banks o f a Federal r eserve bank are
t h e orhereby authorized t o contribute t o the cost o f
154
¢orboration a n d t h e e s
ganization a n d operation o f t h e
funds.
tablishment and maintenance o f the said
do it; they are
Such banks are simply authorized t o
not obliged t o d o it.
S o 1 think t h e voint made b y the
o f the bill,
Senator from Utah i s answered b y that provision
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Federal Reserve Bank of St. Louis
t o become a
The particular banks a r e not compelled
part o f this
system.
had noticed the
Mx. WALSH of Montana, M r , President, I
b y the Senator f r o m Florida
provision o f the bill referred t o
a r e authorized t o conto the effect t h a t t h e member banxs
cornoration,
tribute t o the organization o f the
I t might b e
bank will b e a t liberty
inferred f r o m that provision t h a t a n y
t o join t h e corporation; b u t
to join this corporation o r not
attention has
subdivision (ec), in section 1, to which our
seems t o b e inconsistent
been called b y the Senator f r o m Utah,
with that.
language that t h e
I t i s perfectly l a i n f r o m the
board i s authorized—
o f support
To provice oensions o r other forms
for officers a n d employees x
x x o f any bank o r trust
bank o f a n y
company that i s o r shall b e a menber
b e deemed enFederal r eserve bank, a n d who shal!
a i d o f the corporation
titled t o t h e a s s i s t a n c e a n d
155
the c o r
en such terms end conditions, however, a s
a n d adoot,
poration m a y from time t o time aoprove
State
Mir. MMoLbZaN. T h a t te, provided always that the
bank desires t o come in.
not Say
wir. W A L S H o f Mgntanar Y e s ; but the bili does
the
sO. T h e board i s s i d e lass t o vrovide vensione for
enployeeb o f those bane.
{ t i s true that t h a t seems
i n Ser
rather inconsistent with the provisions which are found
tion 4 on page 6} 4 t 48 equivocal, t o say u a Yeast.
I f this
it at
be entirely voluntary, J should have no objection t o
advice o f the
all, but I shoujd cortainly want t o take the
State banks “ e e a r e members o f the Fed-ral feserve system
m y approval, vroof m y State pefore I could give the measure
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Federal Reserve Bank of St. Louis
vided it was wiieoty:
a n d it certainly looks that way from
the provisions o f subdivision C +
the
fhe initiel paragraph, paragraph (a), states thet
purpose o f the corporation i s —
o f supvort
{a) T o provide pensions o r other forms
for officers and employses o f the Federal reserve
banks, Federal Reserve Board. a n d Federal reserve
agents, who by reason of long and meritorious ser.-Vico.
And
s o forthe
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Federal Reserve Bank of St. Louis
156
It w i l l b e o b s e r v e d t h a t i n t h e p u r p o s e o f t h e corpora.
tion as indicated in paragraph (a) the employees of the
member banks d o not come i n at all; and yet when w’ cane
dom t o subdivision (c) i t is found that the board, i n addition t o providing a
systen o f retirement p a y for employees
in the Federal Reserve banks e n d the Federal Reserve Board
i t also empowered t o vrovide
and t h e Federal reserve agents,
pensions f o r the enployees o f the other banks. T h o s e t w o
sections a r e inconsistent w i t h e a c h other.
ur, wdoLEAN. I
would not say they were inconsistent,
though t h e first section referred t o may b e a little i n c o m
plete,
ir. GLASS.
M r . President
The P R E S I D I N G OFFICER.
D o e s t h e Senator f r o m wpntana
yield, a n d i f so, t o whom?
Mr. W A L S H o f Mpntana. I
yield t o the Senator f r o m Vir-
ginia.
wir. GLASS.
I t occurs t o m e that that i s a pertinent i n -
quiry. W h a t "other banks" are referred to? S u c h "other
banks" a s may voluntarily come into the system.
wir. WALSH of Montana,
refer?
T o what does the Senator now
Loy
Mr. GLASS. I
think t h e provision o f the bill o n page
6, where i t states that t h e s e banks a r e authorized t o d o
this, means they a r e authorized t o d o i t f o r just such
banks a s voluntarily come into t h e system.
Mr, WALSH o f wontana. Y e s ; but observe that under section subdivision (c) the power i s given t o provide the system,
and under section 4
a bank i s authorized t o take money o u t
of i t s assets a n d make contribution t o the systen provided
by the corporation as set forth i n subdivision (c) o f section
de
wre GLASS, I
read subdivision (c) i n conjunction with
the other provisions o f the bill.
Mr. WALSH o f iipntana.e $ 8 6 do I.
wir. GLASS.
A n d not separated f r o m t h e other provisions.
Mx. WALSH o f Montana.
I t i s i n a measure inconsistent,
The proposed corporation i s empowered t o provide the systen,
but otherwise the bank would say, "We have vive power t o use
our money i n this way." S e c t i o n 4, h i c h i s found o n page 6,
authorizes t h e m t o u s e t h e m o n e y f o r t h a t purpose.
The PRESIDING OFFIGER.
Montana h a s expired.
fl00r.
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T h e time o f the Senator fran
T h e Senator f r o m Virginia h a s t h e
158
page
wir. G L A S S . . I think the provision o f the bill o n
6, where i t states that these banks are authorized t o do
this, means t h e y a r e authorized t o d o i t f o r just such
banks a s voluntarily come i n t o the system.
Mr. WALSH o f Montana. Y e s ; but observe that under sec-
tion subdivision (c) the power i s given to provide the system, a n d under section 4 a bank i s authorized t o take money
out o f i t s assets a n d make contribution t o the system pro-
vided b y the corporationse set forth in subdivision (c)
of section 1.
Mr. GLASS. I
read subdivision (c) i n conjunction with
the other provisions o f the bill.
Mx. WALSH of Montane..
Mr. GLASS.
A n a not separated f r o m the other provisions.
Mr. W A L S H o f Montana..
The p r o p o s e d c o r p o r a t i o n
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S o do I..
I t i s i n a measure inconsistent,
i s empowered
t o provide t h e system,
use
but otherwise the bank would say, " W e have n o power t o
our money i n this way.” S e c t i o n 4 . which i s found o n page
6, authorizes t h e m t o use the money for t h a t purpose.
The PRESIDING OFFICER.
Montana has expired.
Mr, GLASS.
T h e time o f the Senator fram
T h e Senator from Virginie has the floor.
T h e provision would not compel t h e kank t o
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Federal Reserve Bank of St. Louis
159
not wish
use their money for that purpose; s e that i f they d o
in,
to b e the beneficiaries o f the system they need not come
Mi, KING, T h e language does not s o provide.
Mr. GLASS.
T h e whole purpose o f the provision was t o
@weate a purely voluntary arrangement.
Mr. REED o f Missouri, M r . President, I
should like t o
to
have this bill g o over until w e m y h a v e a n opportunity
study it. I
have never seen i t and never heard o f it. I t
is called u p here i n the torning hour under the five-minute
rule, w h e n there i s n o time t o discuss it. I
tain that i t needs some study. I
a m very cer-
therefore ask the Senator
from Connecticut t o let the bill g o over until tomorrow.
Mr. MoLEAN.
M r . President, I
will s a y t o the Senator
fran swissouri that I brought the bill u p at the last session
and I have tried t o do my duty b y it at this session, This
ig the third time I have endeavored t o have i t considered;
be p r o
bu: t h e Senator f r o m Missouri h a s not happened t o
sent o n the previous occasions. I
a m very desirous that ac-
tion shall b e had uoon it.
As the Senator knows, t h e Federal reserve system i s
laboring ynder a great disadvantage,
me t o press t h e bill.
T h e board i s urging
I t i s approved b y the Secretary o f
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Federal Reserve Bank of St. Louis
160
draymm and ought
the Treasury, a n d I think i 6 very carefully
to b e disposed of.
T h e Senator understands t h e concition
we a r e in,
Mr. QOURTIS.
M r , President
The PRESIDING OFFIGLIR.
D o e s t h e Senator f r o m Missouri
yield t o the Senator f r o m Kansas?
care t o
wr. REED o f w@issouri, I will yield, b u t I do not
have a l l m y time consumed.
Mir, OURTIS.
M r . President, I
was going t o sugezest that
sf the State small banks were eliminated, verhans, there
would b e n o objection t o the measure.
wir. REED of wissouri.
i r . President, I have another
and get Light
objection t o the bill, a n d I cannot present i t
on i t i n five minutes’ time, I
oresume. H e r e i s a provision
provide f o r pensions
empowering t h e proposed corporation t o
for p e r
or means o f support n o t only f o r the employes b u t
officers o r
sons w h o may o r have b e c n dependent u p o n s u c h
Board a n d
employees. T h i s applies t o the Fed-ral Reserve
branch
the Federal reserve agents and the Federal reserve
banks.
T h e Government h a s a n interest
serve branch banks, t h e district banks,
i m the Federal
re
I t pas a n interest
easily s c e h o w
in the profits which m a y b e made, a n d I can
161
this could b e employed s o that the moneys that are set side
for t h e benefit o f this corvoration b y the Federal reserve
banks - - I do not mean t h e mere member banks, b u t I
mean t h e
district b a n k s — w o u l d a l l come o u t o f that part o f t h e fund
in which t h e Government o f the United States i s entitled t o
participate.
J I wish t o know something about this bill.
mr, McLZAN.
M x . President,
t h e amendment w h i c h t h e C o m m i t
tee offers limits the pensions t o 30 per cent o f the salary.
There are about 10,000 employees, and it is estimated it will
cost not t o exceed $600,000 a year under the limitations provided. T h a t may give the Senator information which h e desires,
Such a n expenditure would n o t seriously effect t h e income o f
these institutions, a n d it is believed that i t would b e a n
ex @llent investment, a
paying investment.
Mr. REED of Missouri, That may be, but I want time t o consider it.
fir. wWeLSAN.
I t will invite willing a n d efficient service,
something greatly t o b e desired.
iir. BRUCE.
M r . President, I note the absence o f a quorum.
The PRESIDING OFFICER, D o e s the Senator from sdissourt
yield for that purpose?
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Mr. R E E D o f Missouri.
Yes.
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162
The PRESIDING OFFICER,
The c l e r x w i l l c a l l t h e roll.
The legislative clerk called the roll and the following
Senators a n s w e r e d
t o t h e i r names:
McLean
Simmons
Ashur st
Fletcher
Bingham
Frazier
MoMt
aser
Smith
Blease
George
idoNary
Snoot
Borah
Gerry
Mayfield
Steck
Bratton
Gillett
wetcalf
Stephens
Broussard
Glass
Bruce
Goff
Neely
Swanson
Cameron
Gould
Norris
Trammell
Oapper
Hale
Oddie
Ty son
Copeland
Harris
Overman
Wadsworth
Couzens
Harrison
Pine
Walsh, Mass.
Ourtis
Heflin
Pittman
Walsh, sont.
Dale
Howell
Ransdell
Warren
Deneen
Johnson
Reed, wid.
Watson
Moses
Sterart
Dill
Jones, Wash,
Reed, Pa.
Weller
Bdge
Kendrick
Robinson, Ind.
“Sheeler
Edwards
Keyes
Sackett
Willis
Ernst
xing
Schall
Ferris
Lenroot
Sheppard
Fess
McKellar
Ship stead.
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The PRESIDING OFFICER. S e v e n t y — s e v é n Senators having
answered t o their names, a quorum i s present,
T h e question
is o n the passage o f the bill.
viz. WALSH o f Mantana.
M r , President,
some objections which have been made, I
i n order t o mest
offer a n amendment, t o
add a n additional section, a s follows:
No member bank shall b e required t o contribute
to any fund, t h e creation o f which i s herein provided for, unless i t shall elect t o participate
in the operation a n d maintenance o f the said Fed—
eral reserve pension fund.
ir. MoLEAN, I
ghall b e glad t o accept that amendment,
The amendment w a s agreed to.
iir. WALSH o f w:ontana. A n o t h e r matter, Mr. President:
I desire t o make a n inguiry o f the Senator having t h e bill
in charge. O e r t a i n persons designated i n section 1 of the
bill a r e declared t o be, w i t h their successors, a
body c o r
fund. I
porate b y the name o f the Federal reserve vension
am troubled t o know w h o the successors o f these gentlemen
will b e and h o w they shall b e selected. I
see t n the bill
no provision whatever looking t o the filling o f vacancies
that may occur.
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164
wir 4
FLuTCHER,
i r . President, i f the Senator will turn
to page 4 , line 16, h e will s e e that i t provides h o w t h e
trustees a r e t o b e elected.
wi.
WALSH of wzontana. I
on
find/that page the following:
The constitution shall prescribe t h e qualifica—
tions o f members w h o m a y o r may not b e restricted
to the same persons w h o are trustees o f the cor-
poration, t h e number o f members who shall constitute a guorum f o r the transaction o f business a t
meetings o f the corporation, t h e number o f trustees
by whom t h e business a n d affairs o f the corporation
shall b e managed | and t h e qualifications, powers,
tenure o f office, a n d manner o f selection and o f
fixing t h e compensation o f the trustees, managers,
officers,
a n d employees
o f t h e corporation.
FLETCHSR. B e g i n n i n g i n line 16,
WALSH OF m,ntana (reading)——
Provided, however, That the trustees o f the corporation shall consist o f not more than 6 6 persons,
of whom 12 shall be elected, one each by the respect
ive boards
o f directors
o f t h e several Federal r e -
serve banks, a n d of whom 12 shall b e elected, o n e
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Federal Reserve Bank of St. Louis
each b y t h e r e s p e c t i v e e m p l o y e e s
o f the several
Federal reserve banks, a n d of whom oné shall b e
elected b y the Federal Reserve Board, a n d o f whom
one s h a l l b e e l e c t e d
b y t h e employees
o f t h e Federal
Reserve Board.
air. BRUCE.
I t does not say anything about the duration
of their services.
Wr. FLETCHER.
I t says that the constitution shall pre-
scribe the manner o f selecting and o f fixing the compensation
of the trustees, managers, officers, a n d employeesuof the
corporation.
Mir. WALSH o f Montana. I
suppose probably t h e words
"tenure o f office" might cover that. I
ask the Senator
from waryland (wr. Bruce) i f he agrees with that.
ir. BRUCE. Y e s ,
Mr. KING.
W h a t i s the tenture o f office?
ir. WALSH o f montana. L y n e ll, page 4:
The constitution shall prescribe x x x the number
of trustees b y whom the business and affaires o f the
wedoeret ice shall b e managed, a n d the qualifica-
tions powers, tenture o f office, and manner o f
selection a n d o f fixing t h e canpensation o f the
trustees, managers, officers, a n d employees o f the
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Federal Reserve Bank of St. Louis
corporation.
I think that i s taken care of, then.
The PRESIDING OFFICER, W i l l the Senator send the
amendinent t o the desk i n order that i t m a y b e stated f o r
the information o f the Senate?
wit. WALSH o f Montana. Certainly.
The PRESIDING OFFICER.
T h e amendment will b e stated.
The Legislative Clerk,
I t i s proposed t o add a s a new
paragraph:
No member bank shall b e required t o contribute
to any fund t h e creation o f thich i s herein provided
for unless i t shall elect t o participate i n the
operation a n d maintenance o f the s a i d Federal r e serve pension fund.
The amendment w a s agreed to.
idr, KING:
M r s President, o n page 3 , beginning with
the w o r d " e x c e p t , "
4 n lined, I
move t o strixe o u t lines 1 4
to 19, both inclusive, i n the following words:
Except that t h e corporation m a y vrovide p e n
sions o r other forms o f support f o r i t s officers
and employees and their dependents, under the same
terms a n d conditions a s are provided f o r officers
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Federal Reserve Bank of St. Louis
167
and employees o f Federal reserve banks and their
dependents.
This bill create@ & corporation, and names, as Senators
will perceive,
i n t h e f i r s t section, M r . C r i s s i n g e r ,
who is
the chairman o f the Federal Reserve Board; mr; Harding, the
former chairman o f the Federal Reserve Board. a n d various
other persons w h o are, I
presume, connected with some o f
I t
the F e d e r a l r e s e r v e b a n k s t h r o u g h o u t t h e U n i t e d States.
constitutes them a corporation.
N o t satisfied, apparently,
with p r o v i d i n g f o r p e n s i o n s f o r e m p l o y e e s
o f t h e banks n o w
in existence o r those that hereafter shall b e organized
under the Federal reserve system, w e now g O further, a n d
provide that t h e members o f this corporation shall b e ta*en
care o f and their families and their dependents.
If we are so solicitous for the officials of this corporation, which ics created for some quasi-public duty, there
ig n o r e a s o n w h y t e s h o u l d n o t t a k e c a r e o f t h e m e n b e r s
of
the S h i p p i n g B o a r d a n d t h e i r d e p e n d e n t s a n d t h e i r families,
and every other Government organization o r corporation that
may now exist o r may hereafter b e aseated for the purpose o f
aiding i n carrying out some alleged o r supposed purpose o f
the Governmat,
o r pérhaps, f o r some legitimate puroose o f
168
the Federal Government.
W h i l e w e are taking care o f the en-
Ployees o f the banks, I
see n o reason w h y Mr. Crissinger a n d
Mr. W P. G. Harding and others should be taken care of. Most
of these men are within o r outside o f banking circles, a n d
they a r e all receiving very large salaries.
Mr. McLEAN.
M r , President, t h e members o f the Federal
Reserve Board a n d t h e governors o f the banks a r e excluded
from the bill, N o n e of them, I think, come under the provisions of this bill, and it is limited to salaries of $18,000
@ year;
s o i t w o u l d a p p l y o n l y t o t h e subordinates.
iy. KING. I
a m not sure about that, T h e language i s _ —
except t h a t t h e corporation m a y provide vensions
or other forms o f sunvort f o r i t s officers a n d exnployees.
That would include sir. Crissinger, certainly.
T h a t would
include iy. W . P. G . Harding, certainly,
Mr. McLzaN.
I f he is a member o f the Federal Reserve
Board, h e is excluded. U n d e r the terms o f the bill the members
of the board d o not c o m e waies it.
Mr. KING. I
a m not sure about that, T h e n , i t i s incon-
sistent b e c a u s e t h i s has n o limitation r a
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Federal Reserve Bank of St. Louis
except t h a t t h e corporation m a y provide pensions
or other forms o f support f o r i t s o f ficera.-
It does not say "unless they shall b e members o f the
Federal Reserve Board—~"
and employees a n d their dependents, u n d e r t h e same
terms a n d conditions a s are provided f o r officers
and employees o f Federal] reserve banks and their
dependents.
It seems t o m e that t o o much solicitude h a s been exhibited
for this board; a n d i f w e take care o f them, a n d give t h e m
and their f a m i l i e s d
n
a their dependents a l i o f the e r e e i t s
that are extended t o employes of the Federal reserve banks
who a r e t o b e pensioned, o b v i o u s l y o t h e r p o a r d s F e d e r a l
in
character o r supposed t o be, discharging some Federal o r
governmental function, w i l l demand that there shall b e n o discrimination, a n d that w e give t h e m a pension system.
I move t O strike out those linss.
The PRESIDING OFFICER.
T h e question i s o n the motion
of the Senator from Utah t o strike out, o n page 5, lines 1 4
to 19, both inclusive beginning with t he word "except."
(Putting the question.)
B y the sound the "noes" appear to
have it.
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Federal Reserve Bank of St. Louis
Mr. KING. I
suggest t h e absence o f a quorum, a n d shall
demand t h e y e a s a n d nays.
The PRESIDING OFFICER,
T h e absence o f a quorum being sug—
gested, t h e Secretary will a l l t h e roll.
The legislative clerk called the roll,
Senators a n s w e r e d
and the following
t o t h e i r names:
Ashurst
Fletcher
McKellar
Shipstead
Bayard
Frazier,
McLean
Shortridge
Binghem
George
McMaster
Smith
Blease
Gerry
moNary
Smoot
Borah
Gillett
Mayfield
Steck
Bratton
Glass
Means
Stephens
Broussard
Goff
Bruce
Metcalf
Stewart
Gooding
Mos 68
Swanson
Cameron
Gould
Neely
Trammell
Capper
Hale
Norris
Tyson
Copeland
Harris
Couzens
Harrison
Overman
Walsh, ilass.
Ourtis
Heflin
Pine
Walsh, wont.
Dale
Howell
Pittman
Warren
Deneen
Johnson
Ransdell
Watson
Dill
Jones, N.Mex.
Reed, ilo.
Weller
Edge
Jones, Wash.
Reed, Pa.
Wheeler
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Federal Reserve Bank of St. Louis
Oddie
Wadsworth
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Federal Reserve Bank of St. Louis
171
K e n d r i c k R o b i n s o n , Ind. W i l l i s
Edwards
Ernst
K
Ferris
Fess
e
K
y
i
e
n
S a c k e t t
s
g
S
L e n r o o t
c
h
a
l
l
S h e p p a r d
The PRESIDING OFFICER. EBighty—one Senators having answer—
ed to their names, a quorum i s present.
T h e question i s o n
agreeing t o the amendment offered b y the Senator f r o m Utah.
Mr. “oLEAN., M r . President, I
think t h e proviso o n vage
3 takes care of the objection offered b y the Senator from
Utah, but I am very anxious t o have this bill acted upon
to-day,
and I
accept h i s amendment.
The amendment w a s agreed to.
The bill was reported t o the Senate a s amended and the
amendments were concurred in,
The amendments were ordered t o be engrossed, a n d the
bi] 1t o b e r e a d a
third time.
The bill wes read the third time and passed.
—
o
e
wr. Kenzel, T h i s report, copies o f which y o u have, h a s
attached t o it a copy o f the bill which passed the Senate
House Committee
and a copy o f t h e favorable report b y the
and also the minority report o f the House Committee. T h e r e
172
the Congres
4g also attached t o the report a transcript o f
bill i n the Senate,
sional Record showing t h é debate o n the
In 1921, after consideration b y this Conference, t h e
Federal Reserve, a n d all the Federal Reserve banks, through
their directors, i t was decided t o try t o secure F e d e r a l
the plan
legislation t o permit formation a n d operation o f
as recommended b y the committee.
Senator Smoot. A
T h a t w a s taken u p with
u
b I + was not introduced
bill was p r e p a r e d : t
t h e Banking a n d
until April, 1926, w h e n Senator McLean o f
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Federal Reserve Bank of St. Louis
the Senate
Gurrency Committee o f the Senate intromuced i n
ed
were t w o
w h i c h was referred t o his committee, T h e r e
a way t o
hearings o n i t a n d the Committee amended i t i n
which I will refer later,
t t was amended o n the floor o f
the Senate t o a minor extent.
committee o f the House.
I t then went t o Mr. McFadden's
H e was engaged with the bamk ing
committee while that
bill a n d feared t o take i t u p with the
was pending,
w a y this
A s s00on:s t h a t b i l l was o u t o f the
a n d that prefarm l o a n matter w a s referred t o his committee
o f Febvented him from taking i t u p until about the middle
ruary, t w o weexs pefore the end of the session.
were at—
His committee had two hearings, both of which
tended b y members o f your committee.
A t those sessions some
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Federal Reserve Bank of St. Louis
173
opposition developed,
I t was largely o f a political nature
and I was assured b y wr. McFadden and others that i t was not
sincere.
T h e r e was also some ,pposition developed o n
the p a r t o f t h e w e t r o p o l i t a n
L y f e I n s u r a n c e Company.
They
had been working for several years o n a plan o f selling
annual deferred annuities, a n d put then i n effect all over
the country generally. I
a m convinced myself that their
main reason for opposition t o this plan i s the feature which
permite u s t o include t h e member banxs. I
do not believe
they would seriously object t o a pension plan just for the
Federal Reserve banks, but i n the feature which permits u s
to include t h e member banks i n the System they s e e a good
deal o f competition. I
a m convinced t h a t was t h e reason
for the opposition, although i t was not disclosed,
they a p p e a r e d b e f o r e t h e c o m m i t t e e
idents a n d actuary,
W h e n
b y o n e o f their vice-pres-
t h e y t r i e d t o talk i t t o death b y c o n
suming all the time o f the committee.
T h e y have since denied
that they are opposed t o it, but said they were heartily i n
favor of a pension, heartily i n favor of this particular one
and would d o all they could t o assist, B u t that was not sincere, F o r t u n a t e l y I
was a p p r i s e d
o f what t h e y w e r e g o i n g t o
do a n d w e fortified ourselves w i t h t h e testimony f r o m other
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Federal Reserve Bank of St. Louis
174
insurance companies, t h e N e w York Life Insurance Company,
the New York Mutual Company and the Equitable,
W
e had
letters f r o m their presidents a n d vice-presidente-stating
that they supported the plan strongly. A l s o one-of the vice—
presidents and actuaries o f the
E q u i t a belmdown
aec and testi-
fied a t the hearing f o r us.
The bill a s finally reported o u t o f Mr. McPadden's Committee w a s only t w o o r three days before t h e adjournment o f
Congress, i n the first part o f March, T h e Rules Committee,
upon w h o m w e had depended f o r a rule t o bring i t u p out o f
its turn, felt that i n a matter where there was a s serious
Opposition a s had been developed i n this minority report,
that t h e y c o u l d n o t v e r y w e l l r e p o r t i t t o t h e H o u s e a n d g i v e
it the necessary time i n the last few-days o f the session.
Therefore t h e y d i d n o t g r a n t @
rule a n d C o n g r e s s a d j o u r n e d
with n o action.
Mr. Burton, w h o was a member o f the Ry,les Committee o f
the House, explained that t o me and said there was n o doubt,
as h e had been informed, t h a t t h e opposition w a s largely based
on misapprehension; that the only Republican member wha signed
the m i n o r i t y r e p o r t h a d a n i d e a t h a t t h e p e n s i o n s w e r e t o
of
be paid t o the higher salaried o f ficers, fifteen, t w e n t y a n d
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Federal Reserve Bank of St. Louis
17S
thirty thousand dollars.
T h e y apparently were v e r y much per—
plexed over the language snd intent o f the amendment that the
Senate Committee put in. T h e Senate Committee amended the
bill s o a s t o provide that
n o more than 3 0 per c e t o f the
maximum salary o f a n officer o r employee could b e m i d a s a
pension o u t o f t h e p e n s i o n c o n t r i b u t e d
the bank,
b y the employees
of
N o w t h e effect o f that w a s a limitation that
aimed a t practically the same limitation m Y ee was contained
in the Rogers Bill, b u t that w o r d “naximum salary" j u s t stuck
out like a red flag t o certain members o f the House Committee,
Mr. MoFadden, s i n c e the adjournment o f Congress, h a s advised m e that there i s n o doubt that this bill c a n b e passed
very promptly a t the opening o f the next Congress; that his
Committee has nothing ahead of it and he can take it up the
first thing and put it tight shroush. I
have no doubt that
Senator McLean c a n have reenacted t h e legislation ehacted before. .
:
Since the witeur mci o f Congress this Committee has had
a full meeting of all members and all its advisers and has
considered very carefully,
i n the light @ f the discussions
onthe floor of the Senate, i n the light of the discussions
that developed a t the hearings before the Senate Committee
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Federal Reserve Bank of St. Louis
176
and the House Committee, what, i f any, amendmente o r alterations t o the bill o r plan should b e made,
W e have decided
to recommend certain changes i n the language o f the bill,
which, hovever, d o e s n o t change t h e plan.
The first o f them is to "change the name o f the fund
from the Federal reserve pension f u n d t o Federal reserve retirement f u n d a n d t o eliminate | s o far a s possibie, t h e
word ‘pension! f r o m the body o f the bill,"
Governor N o r r i s .
A r e t h o s e i n y o u r r e p o r t . , Mr. K e n .
ZzeL?
Mr. Kenzel. Y e s , y o u will find then o n page a.
I t
developed i n t h e hearings before t h e McFadden Committee
that t h e word "pension" i s rather like waving a red flag a t
a bull t o quite a number o f the people i n the House, A
gentleman f r o m Massachusetts,
f o r instance, h a s suggested
this change, and then Mr, McFadden recommended it:
"To change the language of the amendment made b y the
Senate Committee to seetion 4of the bill, which established
the limit o f the amount o f any poet ie that could be paid
from employers! contributions a t 30 per cent o f the maximum
edlary, substi tuting the expression o f the same limitation
byusing the langu age of the Rogers Bill, 4.e., a percentage
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Federal Reserve Bank of St. Louis
177
of the average salary o f the last ten yeareé of service."
Governor Norris. W h a t i s the Rogers Bill, a State bill?
My. Kenzel, T h e Rogers Bill i s the State Department. :
Tetarement. plays a s a us
M e m b e r s o f t h e Committee could
not get i t out o f their heads that the words Tmaximum salary*
was not a limitation but rather indicated a method o f deter
mining the amount o f pension»
Then we decided t o insert i n the bill a provision r
—
quiring return o f their contributions t o enployes leaving
the service.
T h i s was not mentioned i n the original bill
but was a provision o f the plan, T h e minority report comment—
edupon the absence of that provision, and there ie no
harm i n putting i t ine
Then they aleo objected t e the participation a f member
banks. B u t it was decided b y your committee t o retain that
provision, which would permit t h e member banks t o participate
in the plan, with the approval o f the Federal Reserve Board.
While i t i s realized that this provision i s by no means essential t o a successful retirement system f o r t h e Federal
Reserve Bank employes, your committee felt that it was a
most desirable feature for the member banks and was also i n
the public interest.
I t i s very desirable f r o m the point
178
of view of administration o f the fund because i f any mater
ial number o f member banks ‘participate i t would reduce the
cost o f administraticn,
It has been brought t o the attention o f varbous m e n
bers o f your committee, a n d t o the committee a s a whole, that
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Federal Reserve Bank of St. Louis
it,
a large nwiber o f member banks are very much interested i n
Some o f them are just waiting t o see what i s going t o happen
here, Boedore they take some other independent step t o 6 s
tablish their own retirenent fund.
I n New York quite @ num-
ber of the larger NewYork }anks who have no formal plan are
waiting tosee what will happen t o this.
The minority report o f t h e House Committee protests sec-
tion 6 of the bill a s reserving the right t o Congress t o
alter, amend o r repeal the act, a n d further provides that
the contractual rights o f the individuals shall not b e affect—
ed thereby.
O u r counsel advises u s that, f r o n a legal stand—
point, t h e section could b e omitted without hazard, because
44 i s obvious that Congress m a y alter, a m e n d o r repeal a n y
of its acts; that i n his opinion the Constitution o f the United States guarantees t h e individual necessary nrotection
of their contractual rights; b u t he nevertheless advises that
it should b e retained, because i n modern times i t has become
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Federal Reserve Bank of St. Louis
x79
customary t o incorporate euch a clause i n all legislation
of that s o r t .
W e therefore decided t o retain that b u t w e
thought i t could b e omitted i f i t became the object o f serious controversy.
In the discussion o n the floor o f the Senate, a s these
extracts from the Senate debates will show, considerable confusion did arise b y people who did not read the bill, a s to
whether o r not t h e inoorporators o f the bill o r t h e trust.
ees o f the fund, being officers o f t h e fund, would b e entitled t o a pension a s suoh, a n d Senator f i n g mentioned
several names.
H e wanted t o know i f the Governor o f t h e
Federal Reserve Board should b e entitled t o i t why not t h e
chairman o f some other, Federal Board —
the Shipping Board.
I
think h e mentioned
O f course they a r e explicitly excluded
by t h e terms o f the bill, b u t Senator wicLean, w h o was quick
to surrender a minor point t o get his bill through, allowed
the deletion o f four o r five lines andthat was t h e part o f
the bill which provided for including within the terms o f
the pension plan the employes o f the plan itself o r the fund
itself.
I t seems almost ridiculous t o have a pension plan
and = - have the enployees a n d paid officers o f the fund ex.
cluded from it. S o we decided t o reinstate this i n a way b y
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Federal Reserve Bank of St. Louis
using language that w i l l b e a little easier t o pass,
The Chairman.
T h e act itself provides t h a t the incorpora-
tors a n d trustees would receive n o compensation f r o m which
@pensien would b e paid.
Mr. Kenzel.
Yes.
T h e y a r e specifically excluded i n
the language o f t h e bill.
shall b e included,
T h e bill says, a s first drawn, w h o
a n d then i n another portion i t says that
members o f the Federal Reserve Board shall not be.
O f course
there i s no compensation t o the trustees. T h e r e would b e no
basis f o r any.
I n the c a s e o f the employees themselves,
Governor Seay,
who were not employees of the Federal Reserve banks, who
would make contributions equivalent t o that m d e b y the enployees o f the bank,
Mr, Kenzel, T h e fund, the employer.
The Chairman’
I t would b e wart o f their compensation?
Governor Norris.
I t would b e part o f the overhead o f
the fund,
Governor Calxins. Y e s , i t would be part o f the cost o f
operation.
The Chairman.
of operation,
I t would just be in additign t o the cost
181
idx, Kenzel.
N o w at the hearings i n both the Senate
and the House i t was very apparent that some members expected
b e inthat t h e major provisions o f t h e plan, a t least, should
serted i n the bill.
O f course your Committee had given care-
ful consideration t o that question long before the bill was
n
a determined that t h e terms o f the pension plan
drafted, d
should n o t b e a part o f the charter,
W e have again considered
it and w e cah come t o n o other conclusion,
1 % i s most unwise,
I think, I have a very interesting communication from wr. sionell
Sayre, that he prepared for the Senate Committee, and which I
would b e glad t o r e a d if the Governors would like t o hear it,
but t h e report speaks for itself.
I t i s a cuestion o f the a d
viebllity o f providing years and years ahead t o meet economic
conditions which cannot b e foretold,
i t h everything work ed
onaverages and ace siaee, a s we plan, there istmat flexibility
inherent i n the plan that would t a e c a r e o f and adjust itself
to changes i n economic conditions.
B u t t o write i n t o t h e c h a r
ter the terms of the plan and the limitatiom i n dollar amounts
or anything o f that specific nature i s most unwise, I
do not
think there will b e any necessity for doing it.
The Chairman,
I t is practically the only important point
that is not met by amendments to the bill, isn't it?
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Mr. Kenzel. Yes, and the maximum salary.
the
The Chairman Tyat is merely @ matter o f expression,
way i t i s expressed i n the bill?
Mr. Kenzel.
N o , n o t entirelys
to
The Chairman. M a x i n g the reduction from eighteen
ten? :
wir, Kenzel. Y e s . T h e r e again i t i s a question o f put—
vlans
o
f
ting limits i n the bill. T h e r e were h u n d r e d s pension
provid
established i n England during the 18th Gemtury which
quickly
ed perfectly adequate pensions for the time, but which
a
became absolutely obsobete, S u c h pensions a s sven pounds
had
year, t e n pounds a year, They were ridiculous, a n d they
to be mtirely redrafteds
day to
The Chairman Y o u could not cite Queen Anne's
those c o m n i t t e e s
w a eas
Mr. Kenzel,
The Ghairman.
s u b jecting y o u r s e l v e s
t o ridicule,
i t was effective with the Senate Committee.
I t would n o t b e effective w i t h some o f
the House committees, I
can assures you.
iir. Kenzel, Now, with regard to the maximum amount of
pension
salary which could b e used a s a basis o f comouting the
raised
this Board will remeber that t h e Federal Reserve Board
that v e r y question a t t h e outset,
f h e minority report o f the
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Federal Reserve Bank of St. Louis
183
House Gommittse recommended ten thousand ifstead o f eighteen
thousand. Mr. Stevenson, w h o apparently h a d something t o do
with that portion o f the minority report,
i n correspondence
with Mr. Platt, which you have seen, stated that they favored
$9, 000 as the limit because that i s the limit i n the Rogers
Bill, b u t i f they want t e n thousand a n d t h e Committee thinks
it should be ten thousand, all right, ~ © SSR
4
t e 8
ag...
a
y
5
S e t h e Shot: We. thes $9,000 i n the
Rogers Bill is equivalent to no limit for us, because $9, 000
is the m x i m u m salary paid t o any State Department employee
with one exception, and that i s am ambassador who has been
p romoted from the ranks. T h e r e i s only one such case a t pre-:
gent, Mr. Fletcher,
The Chairman, There were two —
Mr. Phillips?
Mr. Kenzel, There were two, but only one now,
The Gnairman® T h a t i s so,
M r . Phillips h a s resigned.
Mr. Kenzel. C o n g r e s s , i n using the $9,000 max iman
providing
salary, clearly zr ecognized the necessity o f a plan
a pension which bore a moderate a n d reasonable relation t o
the salary, Y o u could not pay a man twenty or thirty thousand d o Liars a @ year a n d t h e n p a y h i m a
thousand d o l l a r pension,
because h e would not retire. W i t h a n $18,000 limit i t woul
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Federal Reserve Bank of St. Louis
184
pension, a n d t h e
give practically $6,000 extreme limit o f
amount t o anything
cases would b e very rare i n which itwould
like that. $5200 or®5300 or#5400 would be about the practical
Limit.
W e believe that i s a s moderate a
could have that w o u l be reaso n a b l y @
man drawing 18,000 o r more salary.
pension a s y o u
xpected t o affect a
S o w e propose t o retain
the $18,000 figure and fight for it.
Governor Nertis.
Y o u have fixed $18,000 simply because
have a n y chence
that i s the highest figure that y o u think y o u
of getting through?
and its
ie, Kenzel.
T h e Committee advisors thought there should
a
be no limit, with one exception. T h e $18,000 figure was
compromise, a n d with the Board also.
problem
Now the other real problem, r e a l l y a more serious
liabilithan I have yet discussed, i s the question o f acerued
ties.
T h e accrued liabilities h a v e never b e e n definitely
first real actuar—
and positively ascertained since w e had t h e
ial computation backs i n 1920,
A t that time they were about
and this Confe:
$1,900,000, and it was assumed b y the Committee
ence that the bante would absorb the antire amount. Senator
i t should
Smoot thought that that wes a bad provision, that
b y the employees.
be fifty-fifty, t h a t half should b e absorbed
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Federal Reserve Bank of St. Louis
185
We had a recomputation —
a n estimate, not a recomputation —
probably they were
made i n 1924, a n d i t was thought that
what they
about $6,000,000 at that time. W e do not know
are somewhere i n
are a t the present, but w e believe they
the neighborhood o f eight o r nine million.
years o f service,
Now, t o permit t h e older men, with
available, s a y
to participate i n this plan, when i t becomes
tremendous contribu
within a year o r so, i s going t o make @
advised that &
tion necessary f r o m them, a n d w e are
contribu-
absolutely impraction o f more than ten per cent o f salary i s
ticable.
o f accrued
S o we have got t o deal with the question
adjustment, b y maybe
Liabilities i n some way, through some
and there, not t o do
spine little juggling of the rates here
o any members, b u t possibly lower just
a wrong o r i n j u s t i c e t
a luttle bit the ohare s o G i a
e e s lietie more than what
be done w e should
they pay for. homeiber, 26 find out what c a n
estimate and calcule—
have another careful appraisal actuarial
would have t o be
tion made o n the present employees, T h a t
into effect.
done i n any event before the plan could g o
W e
we are told
expected it would be done by the organizers, but
putting the plan into
we can save a t least s i x months’ time i n
o f this year, Thereeffect i f w e had i t done a s o f Jyneé 30th
186
t o have
fore w e recommend that t h e Gommittee b e authorized
o f June 3 0 t h o f
an actuary g o ahead a n d make calculations a s
immedithis year 8 0 as t o have our plan i n water-proof shape
ately w h e n w e g e t legislation.
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Federal Reserve Bank of St. Louis
Governor Young, I
Mr. Kenzel.
so move, wir. Chairman.
o
“ a n authorization
“ e had a n appropriation, r
preparaoriginally,of $27,500 for expense i n working out the
tion o f the plan.
The Chaizmman, A n d you want $10,000 more?
Mr. Kenzel, Yea, we want $16,000 more.
fhe Chairman, I
port now. I
wonder i f we could not act o n this re-
do not believe there will b e any trouble about
o f chang~
the money, T h e question i s about t h e general scheme
ing the bill.
by
A r e there suggestions o r changes offered
any o f the members present?
Governor Seay.
A s I recall, the inclusion of member
the bi}l was
banks under the operation o f the benefits o f
would
made because at that time i t was estimated that it
have a favorable eftect o n legislators. I
should like t o see
fact that
that eliminated from the bill, notwithstanding the
that any
the Ohairman o f the Pension Committee has reported
have
loading of the plan, a s I understood him to say, would
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Federal Reserve Bank of St. Louis
187
the effect o f reducing the pro rata expense o f the Federal
Reserve Bank very materially, I
should like t o see i t con~
fined t o the Federal Reserve System,
‘
Af
The Chairman, Isn't it a fact that/this pension plan
proves to be a real success that it would be possibly quite
effective a s a n inducement toward membership i n the Federal
Reserve System a n d b e a very distinct penefit that t h e m e m
bers would enjoy, a n d that many of then would ultimately get
anadvantage which they could not get by any other method?
Governor Seay, That is a matter I doubt. I
wrong,
may be
O f course, b u t I believe t h a t some o f the larger men—
ber banks have latger personnel, of as great, and greater
than the average Federal Reserve bank, and probably would put
in their o w n pian, S o n e o f them might prefer t o aid i n the
employes i n
operation o f this insurance p l a n t o aid their
carrying i t out,
B u t if the member banks o n any great
scale should participate I
imagi n e that t h e thing might be~
come burdensome,
Governor Calkins. Burdensone t o whom, Governor Seay?
Governor Seay,
T h e operation o f the plan might become
purdensome t o the Federal Reserve System.
I t might become
too large, have too many employes, a n d s o forth. O f course
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Federal Reserve Bank of St. Louis
188
Little o r
4£ only a few should participate i t would have
no effect.
Governor Fancher. I
am convined, f r o m talking with many
the larger a n d
of the banks about this matter that many o f
medium sized banks would adopt the plan, I
the matter with o u r Cleveland banks,
have discussed
O n e o f o u r banks h a s
ago and i t
@ plan which was p u t into operation some years
now, and they
has got t o be revamped, T h e y are studying 4 4
how successare really marking time until they can determines
ful w e are going t o be with this bill.
S o m e o f t he smaller
employes, which
banks with a hundred and fifty t o two hundred
would e m
are not large enough t o work o u t their o w n plan,
brace i t a t once i f they h a d a n opportunity ,
I t i s going
Reserve
to b e a n inducement i n strengthening t h e Federal
System i n m y judgment. I
do not share Governor Seay's thought
I
about t h e cumbersomeness o f t h e operation.
think w e c a n
like large ineet w p this machinery which will function just
they puild
surance companies do; build i t u p graduaily like
up a n organization, I
burden, I
do not believe i t i s going t o b e @
b e built
think that a n organization will gradually
I
up that will b e capable o f handling it.
a m convinced, f r o m
that i t
discussitig this w i t h anumber o f different banks,
189
will b e pretty generally emb raced b y many o f our member
banks.
The Chairman.
W e will have t o discuss that feature o f
it, o f course, b u t the question i s the adoption o f the plan
now recommended. I
think i t hes always b e e n the sense o f
these meetings that i t should permit inclusion o f the member
banks i f they want t o come in.
However, t h e question before the meeting i s the adoption
of the recommendations o f this report a n d t h e giving author-
ity t o the committee t o expend ten thousand dollars further,
to b e collected i n the customary way,
so move, Mr, Chairman.
Governor Calkins. I
Governor Biggs. I
will second it.
(The motion, being duly seconded, was carried. )
The Chairman, D o e s that cover the job, Mr. Kengzel?
Mr. Kenzel.
any questions, I
I t does,
N o w , i f anyone desires t o ask m e
would b e very glad t o answer theme
Governor Norris, T h e r e i s one question I would like t o
ask. I
see in the minority report o f the House Committee it
states that t h e plan i n addition t o providing pensions f o r
retired officers and employes, provides for pensions t o depend
ants s u c h a s may a t some t i m e have been dependent u p o n such
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Federal Reserve Bank of St. Louis
officers o r employes,
wy. Kengzel.
I s that true o r not?
true
I t is true a s to language but not
b y the critias t o what meaning was intended t o be conveyed
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Federal Reserve Bank of St. Louis
cisme.
The Chairman,
I f it is capable o f that construction
the language should b e qualified.
with regard
Mr. Zenzel, T h e way the thing was framed
o f deceased pensioners,
to paying benefits t o beneficiaries
are persone who
they had to be declared acs something, They
have b e e n dependent u p o n a n employees
The Chairman’
and return
T h a t i s a question o f benefits
of capital?
benefits,
we. Kenzel. Y e s , return of canital and death
The Chairman,
a r e there any further questions?
i
z
b y Dallas
not let us take u p Topic 2 - 0 which was suggested
you s s "t < 3
and then b y Boston. Governor Talley, will
state what i s i n your mind?
.
C O L L E C T I O N S AND CLEARINGS «
I
I
providing t h a t
G. D i s c u s s i o n o f ruling o f F.R. B o a r d
their o w n items
where nonmember banks desire t o receive
a t par i n satisfactory
from F.R. Banks a n d agree t o remit
exchange,
s o route t h e
i t i s incumbent u p o n F.R. Banks t o
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Federal Reserve Bank of St. Louis
items.
1. S h o u l d not member banks b e given preference i n
city
rout ing checks o n nonmember banks i n the same town o r
where such items are desired b y member banks?
3. Sbhould F. R. Banks send checks t o nonmember banks
when there i s a member bank i n the same place?
Governor Talley, T h a t has to do, wr. Chairman, with
the ruling o f t h e Federal Reserve Board providing that where
var i n acceptable
@ nom-menber bank is willing t o remit at
grmance t h e Federal reserve bans is required to send items
direct t o that non-menber bank regardless o f t he existenoe
t o receive
of member banks i n the same tovm which m a y desire
the items
I t always seemed t o us that where a case o f that
a member
kind came up, when w e had the direct application o f
items
bank t o receive a l l t h e items o n its town, including
on itself and the items o n non-member banks i n the tom,
that w e should b e permitted t o s o route them.
W e have
insistence o n
never b e e n able t o d o that b y reason o f t h e
do otherwise,
the part o f the Federal Reserve Board that w e
Regulation
ITthink y o u will recall that i n the original
banks will b e
J it i s stated that i n routing items member
given preference.
O f course t h a t was a t a time when w e had
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Federal Reserve Bank of St. Louis
192
which was afterwards
no non-member banks o n the par list,
oreated.
j u s t 4 1ittle
O u r thought about t h a t i s evidently
aifferent from that o f Boston.
I
t i s apparent, a n d i f
Governor Harding will
I a m not correct i n this assumption
t o do i n some incorrect m e later, that what Boston wents
items t o non-—
stances i s t o get a s far away f r o m sending
member banks a s they possibly can.
The Chairman. I
do not interpret i t that wey,
I t seems
i n the ruling,
to me there are two questions involved
One
o m the member
is the question which you raised a s pearing
whether t h e rebank a s our collecting agent, a n d the other
the checking b a n k —
serve banks m a y send items divect t o
Governor Talley,
The Chairman,
T h a t i s what I
mean exactly.
T h a t i s Boston's position.
B o s t o n wants t o
Governor Talley, T h a t i s what I mean,
town where there i s
send items o n a memter bank, i n the same
t o send items t o
senon-member bank which i t does not prefer
t o the member bank.
and does not desire t o send them to,
t o give the
Now the question arises that i n undertaking
nroposition i n sending
member banks t h e preference a s a broad
about enything that t h e y
items t o them, t h e question arises
a s far a s the Federal
take i n payment b e i n g actual payment
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Federal Reserve Bank of St. Louis
193
Reserve Bank i s concerned.
want t o g o
H o w e v e r , . I d o not
santo thet side o f the question,
W e don't want t o voluntarily
would like t o b e i n @
route items t o member banks, b u t w e
t o member banks
position t o send items o n non-member banks
makes a
4n some t o w where t h e member b a n k
special request
the non-member
for the item, regardless o f the fact that
a t par o n receipt i n
bank might offer t o remit f o r t h e items
acceptable exchange.
The Chairman.
ruling o f the
D i d I understand that t h e
every Federal
Board, which I haven't before me, would require
bank ,
Reserve B a n k to send iteme direct t o any non-member
t o remit a t par?
non-,enber p a r remitting bank, w h i c h agreed
Governor Seay,
The Chairman.
I n satisfactory funds.
W e cannot always abide b y that.
Governor wicDougal,
W e are not abiding b y it.
W e have
f r o m t h e Board a n d there
never h a d any such order o r ruling
ig nothing o f that sort i n our files,
Governor Norris. I
The Chairman I
questions involved,
would like t o see that ruling,
would clearly think there were t w o
as
O n e the relation w i t h member banks
the other a credit
distinguished from non-member banks, and
t o pass for itself,
question Upon, which every bank has got
i n that connecGovernor Talley, D o not misunderstand m e
194
o latitude,
tion. T h e Federal Reserve Board gives us plentyf
t o nonplenty o f disoretion i n the matter o f sending items
member banks,
W e have, however, o n e o f the strongest a n d
most direct letters that w e have received, coming from the
Federal Reserve Board o n that question.
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Federal Reserve Bank of St. Louis
The Cpairman,
H o w did t h e question c o n u p originally,
Governor Talley?
Governor Talley, T h e question came u p b y the omission
of that statement from Reguiation J,
h e original Regulation
J stated that i n so many words, that. in routing checks &
member bank should b e given preference.
The Chairman,
I s not the present regulation satisfac.
tory t o you?
Governor Talley, ‘Well, t h e present regulation d o e s n o t
state that,
The C,airman,
B u t i t i s satisfactory and you can o p e r
ate under it.
Governor Talley,
B y reason of the fact that that author-
ity t o give member banks preference was omitted, then the
question came u p i n reference t o routing items from non-member
banks t o member-banks i n the same town,
W e have many let-
ters o n the subject where t h e Federal Reserve Board holds
the opposite view, i n view of which fact w e have never felt
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Federal Reserve Bank of St. Louis
4,95 «
that w e were p e r m i t t eodtdo thats
I is s
The C h a i r m a w s . t
problem for _
i m .
p operating
l
n y
a
the bank to decide. ,Youchave the Board’ s Regulation and
think t h e other -barkg a r e sending
you c a n i n t e x p r e t it... I
items either; direot-or not direct, according t o conditions
that. govern and-the matter o f safety. .
Governor Yourig,
Governor Galkins.
W e have had the samg trouble,
A s a
m a t t fe fact
r
o
the
m a t ts e
now...
ir
.
optional with the Federal Seserve Bank, I f we do not receive:
remit tanve i n satisfactory funds-we d o not send checks t o a-
bank that does not .renit in satisfactory funds, :
i
Govertior Talley, B u t that question i s not i n v o l v e dn
my question here a t ail. ~.
Governor Calkins. - { ufderstend.that question is not-im ..
volved,
b u t I-am c i e h e s
c s o
t h a t i s n o t t h e .question
...
you are really talking abouts
Governor, Talley, N o , n o t a t alle- .
The Chairman,.I see no reason-for raising the question.
You are o p e r a t i n g n
i the w
a yu .owish
y
t o down there, are you...
not?- ¢
Governor Talkey,
N o , w e a r e noty..,
Govezror Youtig,. W e have gone all through this i n Minnea-
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Federal Reserve Bank of St. Louis
196
4g I am wrong. Y o u
polis. Governor Talley can correct me
have two banks i n the tom, a
State bank, & non-member a n d
good banks,
a national bank, a member, B o t h are
W e ate now
bank, a n d they
sending items o n the State bank t o the State
are remitting {nm satisfactory exchange.
T h e member banks
o them, T h e t i s the probrequest that w e send those 4 t e m s t
ien,
way w e can fag~
W e have refused t o do it, because a n y
licked any way
ure i t out the non-member banks have got u s
we turn,
Governor Bailey,
W e think where they asx us to do &t
both
we should do it. B u t assuming a proposition where
w
e have i n e
a member andnon-member bank are good b a n k s ,
non-membe?
structions from the Board t o send them t o the
bank.
reflected
t h e member bank feels that i t is being
t h e bvatent and wants
upon because i t i s helping t o support
to the nonto get the advantage of the checks that. come
member bangs,
Y e are then confronted w i t h the propositions
t h e non-member banks
fhe Board has adVised u s t o s e n d t h e m t o
it.
and our member banks d o not went u s to do
W e would
it was not for
rather send them to the member ban¥, and if
between the two
the decision t e would not have t o deoide
banks,
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Federal Reserve Bank of St. Louis
19%
Gevernor Byggs.
W e heve overcam that i n as many a a f i t
teen ot twenty cases two or three yearé ago, W h e n we had
two good benks, o n e a member and one & non-member, a n d the
non-member wanted u s t o send them, w e took the position that
we could not d o i t unless they opened u p & par gecounts with
us. T h e y have done that and we send the items and they keep
a sufficient account t o cover all letters that w e send them.
Tat is the way we have handled it, and it hag beeg very
siccessful.
The Chairman,
{ T t seems t o me jt would b e better t h
leave i t where i t i s and let each reserve bank work i t out,
Governet Bailey, B u t i n the face o f this ruling, which
the non-meniber bank knows, i f w e d o not s e n d them, w e a r e
then asked why we d o not send them,
Govetner Wellborn,
W e have almeys considered that a
matter t o determine ourselves.
W e change i t a n y time w e
chooses
Governor wcDougal, This collection system was set u p
with the undeftstanding that jn determining this question
i t would
tf the member bank wag i n reasonably geod condition
t h i n k it
be given pref étence, T h a t has been foliewed and
should be followed. ‘They are depositors and stockholders,
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Federal Reserve Bank of St. Louis
498
and ordinary banking custom would dictate such procedurs,
ITao net s e e that this question h a s any place here, I
think
4t i g one f o r e a c h bank t o détermine i n Bcoorda@ce w i t h t h e
attending oltoimeténcee, a n d I would l i k e t o see the disous-
Sion closed o n ite |
fhe Chairman’ I
J think t h e true
do not agree with that argument a t all,
e i t
i s that t h e nommember banks a r e
willing t o surrender t h e exchange facility a n d are asking i h
eonsideration o f their doing s o this return, a n d i f they
are i n good order a n d can remit i n satisfactory e x c h a n g e —
i think we ought t o send the items t o them
Governor Bailey, T h o s e are the instr uctions the Board
has sent t o us.
Governor Young,
T h a t i s the Board's tujing, just
that view, and Governor Talley complains ebowt it. H e
wants t o send to the member banks,
Governor Fanoher, {
am convinced that the sending t o
non-member banks has resulted i n oun getting members, I
think t h a t h a s b e e n o n e o f t h e t h i n g s t h a t h a s t u r n e d b a n k s
to a favorable consideration o f membership and has brought
them in. 2
think this matter should b e left t o the banks
themselves t o determine,
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Federal Reserve Bank of St. Louis
199
Governor Seay, I
n
would lime te say that i n our exper i
enoe atid our opinion there are twe considerations which te@ti«
f the practite of sending direct t o non.
fy to the w i s d o m o
member batiks when they are in ehtigfactory conditich and when
they will remit i n aqceptalile furids. O n e ie to do the contrary a t ofce and place a n sutomitic Limit upon taking non.
member banks into the par system, The other is that inveriably
iy our experience sooner o r later dissatisfaction arises a s
between ouy member banks t o whom we ate sending items, i f we
do send them, and ourselves,
T h e y are not satisfied t o con.
tinue the arrangement, S o m e condition may arise locally
mhich w i l induce the member bank, which has agreed t o Te~
T h e n y o u cannot g o t o your
ceive t h e isems,
t o discontinue,
non-member bank.
A l w a y s , without exception,
w e have found
that it was an unsatisfactory experience to send items on
non-member banks t o other bantés i n thet lecation $ f the nonmember bank i s tilling t o take then,
The Chairmen. Governor Harding, { ~ think i t i s time for
your comment o n this,
Governor Harding, I
just proposed this topic i n order
tobring out some interestifig points. Some time ago the Taldo
Trust Company of Belfast |Maine, failed.
W e had been send.
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Federal Reserve Bank of St. Louis
200
First
ing their checks t o them o n their reque %, although the
Nationel Bank o f Belfegt wes willing t o take them,
W e have
no statements P o o n these non-member banks a n d d o not k n o w
is
anything about them, T h e only thing w e have t o go b y
their promptness i n renitting,
T h e y ware always v e r y prompt.
They failed, a n d w e had $7500,
W e had some items i n transit
which w e stopved, a n d there wag n o trouble there, b u t w e had
$7500 which had gone through and been charged u p to the depositor.
W e had cheeks o n @ Boston bank i n payment o f them, o n
which payment w a s refused,
W
e went through m e files a n d
we charged back t o the various member panks w h o had sent u s
these checks these &mbunts,
selves whatever.
W e had n o trouble about i t OUTW
W e are ,rotested b y our agreement anh th
them a n d I notice that t h e courts generally uphoid t h i s ages.
ment, There has been a recent case i n the Supreme Court o f
Missouri deciding that thet absolutely protects t h e reserve
pank, despite the oid common J a w ruling thet you mast send
& check t o the bant o n thich d r a m ,
Now the point i s this: “ W e charge c u r dépositing banks
back with these items a n d w e a r d free, T h e y i n turn charge
then t o their o m dépositora, but somebody has a loss which
might have besh avoidedhad w e sent thme checks o n non-member
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Federal Reserve Bank of St. Louis
BOL
o r against, t o 4a membet
banks about which w e knew nothing for
ethics o f that case are.
was just wondering what t h e
bank. I
c o m i n that may work
There i g another factor that has
or may not. A
and we had ten
little bank i n Kingston failed
W e took that up
thousand dollars tied up in the same way.
that such
with the Rhode Ieland authorities and they held
remittance
constituted
a charge a n d g a v e U s t h e p r e f e r e n c e
and w e collected every cent represented
by those checks.
get it established generally,
That i s a good thing if you can
and w e are trying t o do it i n Maine,
Governor Bailey,
W e have i t established
1a missouri,
trouble. S o far a s the
Governor Harding, There i s no
We esare protected.
Federal Reserve Bank i s concerned w e
“bs
a
e
courts a n d a r e
p r e f e r @ c e i n the Rhode Island
b o o k i n g a t it from
trying t o do the same thing i n Vaine.
itself provides a
the member banks! standpoint, the jaw
the collection facilities
means for nonmember banks t o use
that they shill oarry
of the Federal Reserve Bank b y saying
at l e a s t a
sufficient a m o u n t
t o offset t h e i t e m s
i n transit
therefore they may gend the
that they may send, a n d that
and have them collected.
checks t o the Federal Reserve Bank
of
banks which avail themselves
Ay, the present t i m e w e have n o
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Federal Reserve Bank of St. Louis
203
they want it.
that privilege, b u t i t i g there i f
T h e law
u s consider what w e have
does provide that means. N o w , let
got i n the case o f the member banks.
W e have their s t a t e
ments, w e know what they are doing.
W e have their reports
W e have their uncollect-
and w e have their reserve baiance,
a day or two, 5 0 that
ed transit items which wili mature i n
set-off, I n the case o f
in case anything happens w e have a
oi a lites bank w e have not,
W e have had some cases where
o n would not remit,
non-member banks t h a t w e received Stems
them that w e are going t o
and i n all such cases w e have t o l d
are protected.
discontinue sending items unless w e
us, under a
quire t h e m t o deposit securities with
W e relegal agree-
‘ @ set-off against
ment that w e can hold the securities rag
any deficiency i n renittances.
Sometimes after w e have held
after t h e y have established
the securities f o r a fewaonths a n d
a record f o r r e m i t t i n g pranptly,
securities
t o then,
t h e n w e have released t h e
{ I do n o t w a n t a n y action. {
merely p u t
t talk about it.
this o n the p r o g r a m o
Governor Talley.
to
W e feel that 4 f w e should undertake
colleotion, against a n y
offset t h e proceeds o f checks o u t for
our status
i our hands, that w e would then relinquish
assets n
as agent a n d would o w n the checks,
W e believe that sets u o a
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Federal Reserve Bank of St. Louis
303
bad situation.
against
W e never o f f s e t o u t s t a n d i n g checks
, regardiess o f whether
any assets that w e have i n our hande
4+ i s a member bank o r non-menber bank,
W e feel that i f we
transit sending,
should t a k e the seourities t o cover t h e
that w e
that then w e are guaranteeing payment o f the checks
receive o n the bank.
The Chairman,
this tovic,
D o you want some action o n
Governor Talley?
N o t unless Governor Harding asks for
Governor Taliey.
The Chairman:
J I mean o n your eriginal question, which
ig not the one being discussed now.
Gevernor Seay.
Y
e have recently h a d a
suit i n w h i c h
o f the
counsel for the other side argued that i t was the duty
the status o f
Federal Reserve B a n k t o inform itself a s t o
collec
these non-menber banks t o which they sent checks for
tion. T h e Court, however, d i d not adopt that view.
Governor Galkins.
W e have h a d both kinds o f suits.
One i s n o w being avpealed, I
believe. I
think i t i s .
well
banks
established b y the experience o f all o f the reserve
bank against
that s o far a s the protection t o the reserve
o f the
loss i s concerned, i t i s better protected i n the case
trensaction
kind Governor Harding has described, where the
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Federal Reserve Bank of St. Louis
204
w e are not presumed
ie with a non-member bank regarding which
than i n the
to have information, T h e y are better protected
&
case where t h e transaction involves
member bank where w e
the condition o f the
are supposed t o b e fully informed o f
o f the
bank, W e are better protected under the provisions
bank regarding which
collection ciroular i n dealing with a
w e a r e when - e 20: “ M h
we have n o specific information t h a n
we a r e p u t o n notice.
air. Cpairman, I
therefore move that n o action b e taken
on Topic IIo,
Governor Talley
The Chairman: I s that satisfactory t o you,
Governor Talley. Y e s , siz. I
myself a
committee
will b e giad t o constitute
o f o n e t o t a k e i t u p w i t h t h e Board,
unanimous conThe Chairman’ T h e subject is referred, b y
sent, t o Governor Talleyyou a letter t o
Govemor Fancher. M i r . Strater, have
this office from the Board?
that I could find
Mr. Strater. There i s only one letter
which bears o n l y indirectly o n it.
[ I wondered i f i t was t h e
ruling in the %-letter of June 29, 1926, to which Governor
Talley referred.
par list a
I t refers t o striking f r o m the
t o remit a t par and
non-member State bank which has agreed
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Federal Reserve Bank of St. Louis
205
the Board rules that the Federal Reserve banks may, o f their
bank
own volition, renove from the par list any non-member
which repeatedly failed t o renit promptly for cash letters
sent t o them, and s o forth,
Governor Talley, That i s the letter J referred t o incid—
entally a while a g o when I
spoke o f the Board giving u s plenty
the
of latitude t o renove t h e names o f non-member banks f r o m
par list, But there were several letters prior t o that,
ir. Strater. There may b e correspondence with your bank
that I do not have. I
can find n o general ruling o f the
kind.
Governor Talley, I only meant t o imply that the Board
our corhad ruled i n reference t o a specific case s e t U p i n
respondence,
The Chairman. Gentlemen, w e have discussed T i c s C and
D also, Governor Talley and Governor Harding both say that
they desire n o action. T h e next topic i s II-—e.
Il. C O L L E C T I O N S AND CLEARINGS.
BE, Possible reductions i n mumber o f checks handled b y
drivers!
F. R , Banks account o f automobile regystrations a n d
licenses.
Governor Norris. I
put t h a t o n the program, a n d when I
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Federal Reserve Bank of St. Louis
206
sent i t t o Mr. Harrison I
on
stated that I was putting i t
littie information,
the program simply t o get a
It does
not require a n y action.
In Pennsylvania
branches.
no
the State Highway Department has
Harrisburg and i t reI t operates entirely from
cars and drivers! licens—
quires applicants for registration of
orders, a n d even i n the
es to send checks, n o t cash o r money
fleets o f trucks,
oase o f corporations that operate
cabs,
required a
w p tintil t h i s y e a r t h e y
o r taxi-
separate c h e c k
Jicense.
for each car license and driver's
T h e result i s
each
a n d & half million items
they have handied about five
heretofore has been for the
year, a n d the general practice
those checks through their
State Hyghway Department t o put
Treasurer, w h o outs them
work, then send then t o the State
them in 4 non~member
through his work, who then deposits
send them t o tivo national
trust company i n Harrisburg; t h e y
send them t o us. T h e n :
banks i n Philadelphia a n d they
part o f the State, w e have
as to the checks i n the western
or to Governor Fanchto send them to the Pittsburgh branch
send them t o the bank o n which
er's ynstitution, a n d then they
they a r e drain.
that i n January and
The result o f this thing has been
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Federal Reserve Bank of St. Louis
207
chest load.
February w e get dollar checks b y the
W e had
t h e postage w e s $18.
one shipment t o Pittsburgh u p o n which
send the PitteThis year w e got the State Treasurer t o
purgh checks direct t o Pittsburgh.
H e sent them t o the 2
o n the phone and
bank i n Pittsburgh and they called us u p
suddenly reasked u s i f we could tell then why they had
that they h a d
ceived nine hundred thousand dollar checks
never had to handle before.
I n New Jersey they have three
State.
or four branches i n different parts o f the
is all zoned.
The Chairman, T h e y have i n New York, .[t
Governor Norris. I
that s y s t e m ,
urged our State Treasurer t o adopt
a n d h e reported
H e said h e would l o o k into i t
official i n
shortly afterwards t h a t h e had consulted t h e
h i m that h e was
charge i n Jersey andthat official t o l d
branches i n Pennsyllucky that h e didn't have t o have a n y
branches.
S o h e i s not disposed t o have a n y
vania,
t h i s srouble that w e
I just want t o find o u t whether
States o r not.
have been having existed i n any other
I t
I would like to get
would only take a moment, and therefore
that information f r o m a e
t
h
e larger cities i n other
States.
The Chairman’
I n New York it is zoned and broken up
into small sections.
I n Iylinois i t i s not zoned,
Governor iicDougal,
was o f course o u r troubles would b e somewhat less. -
I f it
All pay—
ments i n Illinois a r e made i n Springfield.
Governor Norris.
a n d t h e bulk o f t h e m are sent t o you
or they come t o you?
Governor wicDougal, I
Governor Norris.
Governor Harding,
presume t h e y do, yes.
H o w i s i t i n Massachusetts?
I n Massachusetts t h e y a r e two-—dollar
checks instead o f one-dollar checks.
Governor Norris.
H a v e they three o r four zones i n Massa—
chugetts?
Governor Harding.
Y e s , b u t they a r e two-dollar checks
instead o f one-dollar checks,
Governor Fancher.
I n Ohio w e have differmt agencies
authorized t o issue licenses and accept payments. I
do not
ynow t h e number b u t there a r e quite 4 number o f agencies
that issue. licenses.
Mir. Strater.
T h e r e i s a t least o n e i n every lerge t o m ,
Governor Fancher. I
d o n o t “now t h e number b u t I think
it i s i n every important c o u n t y seat a n d town,
.it-is largely broxen up,
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Federal Reserve Bank of St. Louis
A t any rate
309
Governor Oalkins.
than a n y other State.
of issuing licenses,
G a l i f o r n i a h a s more automobiles
T h e State i s zoned f o r the purpose
T h e y have also established a
large
number o f agencies, t h e largest o f which i s the Automobile
Association, which issues licenses and handles the transac.
tion.
The Chairman D o e s that answer your question, Governor
Norris?
Governor Norris. Y e s , thank you.
The Chairman.
W e will then pass t o topic TI~f,; p u t o n
by Minneapolis.
II. C O L L E C T I O N S A N D CLEARINGS.
F. R e m o v a l f r o n Par List o f nonmember banks because
of inability o r unwillingness t o furnish exchange i m m e d i a t e
ly available.
Governor Young. W g n n e a p o l i s a t the present time has 350
banks Which d o not remit i n Twin City exchange.
T h e great
majority of them cannot furnish Twin City Exchange. They fur—
nish Sioux City exchange o t Milwaukee exchange and I learned
yesterday t h a t w e a r e c o l l e c t i n g
should n o t te.
in a
wey t h a t p o s s i b l y w e
I n other words, w e send those Milwaukee checks
right t o iiailwaukee a n d d o not send them t o Chicago,
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Federal Reserve Bank of St. Louis
W e send
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Federal Reserve Bank of St. Louis
210
i s some—
the Sioux City checks right t o Sioux Citye/ T h i s
to
thing that developed away back i n 1919 when w e tried
make the entire country par.
W e entered into i t as & + epor—
bad ever since i t
ary arrangement. C o n d i t i o n s h a v e been s o
the par list.
would seem advisable t o throw a lot o f banks off
I do not think w e would d o i t n o w except t h a t information
ancompetiis noised around more o r less a n d undoubtedly when
tor finds o u t that a
State bank i s ranitting i n Sioux C i t y
exchange, C h i c a g o exchange,
dothe same thing.
position,
o r what—not, t h e y will want t o
I t places us in a rather embarrassing
tempted | b y
s o much s o that o u r peoole a r e almost
cannot furnish
demanding available exchange o f those banks that
it, t o throw them off the par list.
W e have 1100 off the
taking that
par list now, 3 5 0 m a e would b e 1480, B e f o r e
action I
thought I
might a s k a n expression o f opinion f r o m
it.
the Governors a s t o the advisdility o f doing
Governor Seay,
D o you require immediately available
funds i n all cases?
do not get
Governor Young, N o , that i s the trouble, w e
Governor Seay,
available funds?
I s i t your rule t o require immediately
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Federal Reserve Bank of St. Louis
aii
like t o have,
Govemor Young. T h a t i s a rule we would
yes.
your
Governor Bailey, That i s a rule you have with
member b a n k s ?
Governor Young. N o , that i s a rule v e would like t o
bank
have; but then you have a menber bank and @ nonmember
on
in the same t o m y o u cannot treat the non—menber pank
the
more favorable terms than you treat the member bank, a n d
condition is spreading and growing»
Governor Seay,
a s a matter o f practice d o you specify
,woich
the funds that y o u will receive f r o m non-member b a n k s
are not always immediately available funds?
I
f you do
very
not accept t h e m i t would limit t h e non-member banks
much more seriously - —
Governor Young, T h a t i s the question.
Governor Fancher.
W e have i n the fourth district @
num
reserve
ber o f small non-menber banks that maintain their
accounts w i t h C o l u m b u s a n d Toledo.
W e accept t h e i r r e m i t —
banks,
tances o n those banks i a those aities- T h e Columbus
tH
whereby
retain those balances, h a v e effected a n arrayjgement
member—
they are charged against the balances o f the Columbus
banks w h e n they come i n t o o u r hands,
6 0 that there i s n o floe
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Federal Reserve Bank of St. Louis
218
so f a r a s t h a t i s concerned.
The d r a f t i s c h a r g e d sub-—
paying tank,
ject t o final payment a n d reaches t h e
t f 2
must remit i n funds
undertook t o Bey t o the small banks y o u
of their accounts
available i t would mean the closing u p
would inevitably
in Cleveland, Pittsburgh and Cincinnati, a n d
result i n our losing a
to renit a t par.
number o f state banks that a r e willing
remitting
I f w e were t o insist u p o n their
a number o f banks d r o p
in available exchange w e would have
off o u r par list b t w e would regret that.
have raised the
Governor Seay, W h e r e the menber banks
that we were taxing
issue and where it has been pointed out
doing s o i n the
the best funds that couldbe obtained a n d
nothing further
interest o f the member banks themselves,
was heard from it.
Governor Calxins.
Gov
W e have had cases like those
have taken t h e same posi-:
ernor Fagcher h a s mentioned a n d w e
tion h e has taxen.
that
A s a matter o f fact, i t appears
a
when w e have h a d long experience with
member bank which rée-
c o u provide
mitted promptly i n the best funds that i t
r efuse t o continue t o
that w e had n o ground upon which t o
permit them to cooperate,
The Chairmen
been reduced
O f course our par dist has
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Federal Reserve Bank of St. Louis
213
mich more than the proportion o f the reduction which would b e
explained b y bank failures o r consolidations.
O u r par banks
have gone d o m f r o m 18,605 i n 19280 t o 13,781 i n February o f
1927.
T h e nomremitting banks not o n the par list have only
gone down fran 3800 t o 9300.
T h e non—par list banks have
increased from 2,040 t o 3833.
Governor Young, I n w h a t time?
The Chairman.
I n the last five o r s i x years,
Governor Fancher.
T h e r e i s practically
n o change i n
the Fourth District. W i t h 1900 members and non-members, w e
have only ten banks n o t on. t h p a r list.
Governor Young, T h e worst showing perhaps i s i n wiinnea-
polis.
That
W e had 4,000 in 1919 and 1,200 have elosed,
brings i t d o m t o 2,800.
1 1 0 0 are off the par list a n d
that brings i t down t o 1700.
Govern
o r Seay, I t i s not germane t o this immediate
question, b u t f o r fear that I
may overloox i t I would like
to s a y t h a t t h e r e h a s r e c e n t l y b e e n a n e x t r e m e l y i n t e r e s t i n g
of our
decision b y the United States Circuit Court of Appeals
with
District, growing out o f the North Carolina statute
reference t o par collection.
Y o u recollect that that
statute provided that when checks were sent t o a
o r :
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Federal Reserve Bank of St. Louis
214
banx might p a y
bank b y the Federal reserve b a m t h a t that
a n d that
them i n a n exchange draft o n i t s correspondent,
T h e Court held
the drawer o f the check was not released.
that inasmuch a s the statute provided that a n exchange
draft could b e sent i n as payment that i n acceoting i t the
Federal Reserve B a n c was n o t guilty o f negligence, s i n c e
was
the statute provided also that t h e drawer o f the check
Liable wntil that exchange draft was vaid.
Governor Talley, W a s that i n the Stave court o r the
Federalscourt?
Governor Seay, T h e Circuit Court o f Appeals?
Governor Talley.
H a s that gone t o t he Supreme Court,
do y o u know?
Governor Seay. I
d o n o t know.
I
t h a s n o t g o n e yet.
you
The Chairman, G o v e r n o r Young , what action would
like t o have taken o n this matter?
J e are inclined t o throw these banks
Governor Young.
off t h e var list.
The Chairman,
3 5 0 more o f than?
Governor Young. Yes, sir.
The Chairman.
Governor Young.
D o you want any aetjon o n this?
No, I
d o not need a n y action. I
am
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Federal Reserve Bank of St. Louis
simply stating what I
The Chairman,
a m thinxing o f doing.
I s there a n y objection?
resvectfully suggest that h e hesitate
Governor Seay, I
a lang time.
think i t i s a very drastic proposi-
Governor Fancher. I
tion,
Governor Talley,
W e follow the practice i n principle,
but i t does not amount t o s o auoh i n volume,
W e only recent-
ly discontinued accepting from non-member banks remit tance
drafts d r a m o n other non-member banks, a n d a s @ eonsequence
we h a d t o t a k e o f f s o m e c i g h t e e n o r t w e n t y banks f r o m t h e p a r
List.
The Chairman:
Y o u would accept drafts
o n balances d r a w n
on a non-member bank, would y o u not?
Governor Talley, Y e s .
The Chairman. W o u l d you accept a draft o n a city where
you did y,ot have a branch?
Governor Talley.
Yes.
fhe Chairman, T h e n you are doing just what Governor Young
is proposing t o blackball 350 menbers ‘fer doing.
Governor Talley, I
assume the basis for his position
is thet these non-member bankssending remittape drafts o n
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Federal Reserve Bank of St. Louis
other n o n - m e n b e r b a n k s a r e r e n o t e f r o m idgnneapolis.
The Chairman,
A n y bans, meaber o r non-member.
Governor Talley,
W e find that the chief opposition comes
from the non-member banks through our attempting t o act a s
correspondents f o r t h e collecting non-member bank.
the bank that raises a
row with us.
T y a t is
I t i s not t h e remitting
dank. T h e bank o n which i t desires t o draw i s the o n e that
raises the row with us,
The Chairman,
A s I understand,Governor Young's position
arises from this: These 350 non-member bans on the par list
+, p e m i t
i n settlement
o f c a s h letters.
immediately available in wynneapolks.
f u n d s which a r e not
I s that right?
Governor Young. Y e s .
The Chairman, Whether they are drafts d r a m o n menber o f
non-member banks they are not imnediately available, s o he
has t o g o through another collection p r o ess. T h e r e f o r e h e
proposes,
o n that account,
t o discharge these gentlemen f r o m
membership i n the c l u b a n d possibly raise t h e club dues a
little bit.
I s that the idea?
Governor Young. T h a t i s the idea; reise the dues o f the
members,
Governor Wellborn,
W e have been confranted w i t h t h e
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Federal Reserve Bank of St. Louis
al?
same trouble that winneapolis h a s had, but with fewer banks,
I supnose.
G o v ernor Young i s pasing h i s idea upon self-
preservation, a n d i n that caseé h e ought t o d o whatever h e
mat—
thinks i s wise a n d whatever h i s board determines i n the
ter.
Governor Young. There i s some liability i n handling items,
which oan be guarded against pretty well.
F o r instance, i f
exchange,
we accept anything other than immediately available
we are out o f luck, i f a bank closes.
W e usually g e t suffi-
actual
cient warning s o we can get out from under before they
of cases,
ly close — not always, but i n the great majority
We w o u l d r e g r e t
t o seco a n y F e d e r a l R e s e r v e B a n k t a k e t h e
draft that
position, after they have accepted a remittance
in
was not imnediately available o n receipt, hate t o see i t
@ position where i t would suffer liability for having accevt~
ed that draft or for having accepted the chece i n the first
and
instance, because o u r collection circular vleinliy states,
sodoes Regulation J, that a Federal “eserve Bank might accept
a remittance draft i n payment o f & cash letter. I
would
hate t o see the precedent established o r t h e question arise
i n pays
that i f a Federal “egerve Bank shoulreceive a draft
ment o f items sent i t that i t would b e under a n y liability
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Federal Reserve Bank of St. Louis
draft.
whatever for having accepted the remittance
of
The Chairman, H a v e you had sufficient expression
views t o satisfy you?
o f opinGovernor Young. T h e r e seems t o be a aifference
will g o right o n or quit, whichever you say.
jon, I
Governor Fancher.
T h e question o f solvency i s not s 0
mich involved?
Governor Young. W i t h regard t o these bank?
Governor Fancher.
Governor Young.
Yes.
X t cannot say about that.
bank i s weak you
‘Governor Fancher. W h e r e you think a
take then o f f anyway.
“Governor Young.
I f for four o r five years they have
a l l right, w e throw
remitted promptly, a n d they g e t slow,
them off.
Mr. Fancher.
Y o u throw t h e m off anyhow.
o f the most difThe Chairman. H a v i n g been through five
now o n that those
ficult years, isn't i t t o be expected from
afford t o take
troubles will b e somewhat reduced, a n d you can
further impair the
this less available exchange rather than
par system b y such a
trict?
disbig lass o f remitting panks i n your
219
inW h a t i s taxing place now is, for
Governor Young.
>
. We May accept Chicago
stance, that we may accept a c h e c k , "
with their neighexchange from one bank a n d they g o and talk
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Federal Reserve Bank of St. Louis
bor, w h i c h m a y b e a
member b a n k ,
a n d t h e member b a n k insists
gain one day
on remitting i n Chicago exehange too, a n d they
onme.
N o w if that keeps o n spreading i t is only a ques—
the float,
tion o f time until Minneapolis i s going t o have all
wonder ing whether
Then w e m y have t o take action a n d I was
4+ was good volicy t o head i t off a t this time,
W e have h a d those cases —
Governor Fancher.
n o t many o f
some other center
them - — where a member bank h a s h a d funds i n
that they have
outside t h e district a n d w e have suggested
i n Oincinnati,or
funds transferred, w h e r e they have accounts
Pittsburgh,
a draft
t o transfer t h e funds t o Chicago a n d draw
in the regular w a y —
Governor Young. I
have suggested that t o them also, but
they d o not d o it.
Governor Seay,
opera.
I s the immediate eredit symbol i n
tion i n your District?
Governor Young,
W o t that }
xnow of,
T h a t i s it?
member
Governor Seay, I t is a n arrangement which your
b y which t h e y
banks m a y affect w i t h their correspondents
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Federal Reserve Bank of St. Louis
B20
ae.
t=
of their
agree to permis you to charge to their account checks
Reserve
correspondents upon thenselves sent t o the Federal
bank.
Governor Young.
No-
enough
The Chairman. Governor Young, have you now heard
this drastic action
discussion t o justify y o u i n withholding
temporarily?
Governor Young.e I
will b e glad t o withhold action i f
that i s the unanimous view.
The Gpaimman, I
think that i s the sentiment here, that
banks,
we regret t o have such a big loss of remitting
Governor ‘Young. V e r y well.
W e will g o along for a while
longer a n d see how i t turns out.
Governor Oalkins.
T h e r e a r e two questions which have
s e e m t o me should be.
not b e e n very clearly defined a n d which
perhaps necessary
The first is, whether i t i s expedient a n d
t o the solvency
to remove from the par l i s t abank i n regard
question but what
of which you have any doubt. There is no
t o do it and should d o
we have all done i t and will continue
should make a s u m
it. T h e second question i s whether y o u
does not remit i n
mary rule t o the effect that 4 f the bank
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Federal Reserve Bank of St. Louis
221
facto, b e thrown
immediately available form it shall, ipso
entirely.
off the list. T h o s e are separate questions
The Chairman,
II-B,
W e will now proceed t o discuss Topic
that partiT h e first gentleman having t h e floor i n
cular matter should b e Governor Fancher, w h o brought i t u p
first with the Secretary.
II.
COLEECTIONS AND CLEARINGS.
5. ‘for. Cash Collections.
Board
1. Discussion o f ruling o f Fedcral Reserve
oollection
as t o optional charges for handling non-eash
inneapolis method
items, a n d situation arising f r o m the
ofhandling non-oash collection items.
to
2. Resolution o f Governors Conference submitted
non-cash c o l l e o
Federal Reserve Board o n the questiom o f
of Novtions. (See paragraph 28 of Seoretary's Minutes
enber, 1926, Governors’ Conference. )
out of
Governor Fancher. T h i s proposition has grown
o f Minneapolis
correspondence i t h the Federal Reserve Bank
one o f our
in relation t o two colleetions set u p there for
B a n k a n d Trust
menber banks payable a t the Midiand National
of one
Company o n which a collection charge of one tenth
per cent was made, arioynt ing to. $17.
W h e n that charge
222
Federal Reserve B a n k o f
was made w e corresponded with t h e
was i n accordance
Minneapolis a n d were advised that that
Banks
with their notification t o the other Federal Reserve
and that the charge would have t o stand.
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Federal Reserve Bank of St. Louis
I wrote t h e Federal Reserve Board specifically a n d
a n d that the
called attention t o the Board's letter %-4677,
procedure W i c h w a s p r e v a i l i n g
to
i n Minneapolis w a s c o n t r a r y
the Board's letter,
the very clearly expressed language i n
a t street addresses.
that t h e option applied t o items payable
letter
I
That resulted i n a n exchange o f letters.
wrote a
get a
to the Board o n Maroh a n d a n d did not
reply t o m y l e t —
b y the Board that
ter until April 7th, and then was informed
b a n k permission,
the Board h a d i n fact given t h e wWgnneapolis
t h e iynneapolis
and i n accordase w i t h t h e permission given
over t o member banks
bank t h e y could turn a l l non—cash items
charge.
for collection and subject them t o @
under date o f May
The last letter I had from the Boardc
5, sent m e copies o f correspondence
with Mr. Mitchell, Chair—
o f Minneapolis,
man o f the Board o f the Federal Reserve Bank
b y the Board o f t h e wynnei
in reference t o the resobution wssed
resolution passed,
polis bank, which was rescinded, a n d another
w a s given t o the iijnnea_
and under that resolution permission
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Federal Reserve Bank of St. Louis
283
b y turning t h e m
polis B a n k t o handle a l l n o n - c a s h i t e m s
over t o a manber b a n k f o r collection, W i t h o u t a n y notice
tothe other eleven banks that arrangement had been permit—
ted which did not conform t o the Board's e t t e r X_46775
o n the part
that i t hag raised sane embaruzassing situations
i n handling
of our bank, a n d perhaps some o f the other banks
non-cash items vayable i n Mynneapolis.
the MinnNow the effect o f that i s that, o n ? eceipt o f
eapolis letter advising u s o n February 1
that t h e y were
our direct
going to put this plan into effect, we notified
to
sending member banks that w e understood t h e arrangement
Board —
be, lacking any advice from the Federal Reserve
of
we assumed that the arrangement applied t o the handling
a n d we
non-cash items s o far as the charge was concerned,
member
found ourselves somewhat embarrassed w i t h o u r larger
bsnks.
Cincin~
W e had vrotests f r o m banks i n Columbus a n d
nati e n d vrotests f r o m some o f o u r smaller banks.
W e had
colthe case the other day of a fair sized bank with many
lections, both dramm o n their t o m a n d collections which
they send out, and they have always handled the collections
we sent them at par.
T h e y had a collection i n wig nneapolis
a question
on which a charge was made recently and i t raised
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Federal Reserve Bank of St. Louis
a chargé,
in their minds why, i f Minneapolis i s t o make
we have
they should not n o w make a charge for items which
been sending t h e m a n d which t h e y have been quite willing,
on @ reciprocal basis,
change charge?
t o collect without effecting a n ex-
I % opens u p the question i n the minds o f
some o f o u r s m a l l e r b a n k s t h a t h e r e i s a
service t h a t v e r h a p s
they should charge f o r now,
The Chairman, There i s a very fundamental misunderstand—
been
ing about this thing, F o r three o r four years w e have
and to
discussing t h e handling o f non-cash collection items,
refresh your memory, w e undertook that service i n the first
given i n
instance b y approval o f t h e Federal Reserve Board
1917.
at
I t was undertaken, notwithstanding the fact that
s l o w about
our meetings w e h a d all advocated going pretty
opening u p t h e d o o r s
to @
mass o f direct i t e m s t h a t w o u l d
come i n t o t h e Reserve Banks.
W h e n t h e service was first under..
o f 15
taken t h e regulation provided f o r & per i t e n charge
cents. W h e n we got, vossibly,unduly optimistic about +
that
earnings a n d gervices o f member a n d non-member banks,
charge was abandoned with the other charges for our collec
tion department, I
have always regretted i t very muchs
Now that w a s t h e situation until various o b jections
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Federal Reserve Bank of St. Louis
335
were raised a t our meetings t o a continuance o f that service, a n d I think I
can state what those objections were.
One was the great expense and possibility that i t might
cost, a c c o r d i n g
dollars.
t o o n e estimate,
t e n o r fifteen million
A n o t h e r w a s the objection o f member banks that
it was competition, A n o t h e r w a s the technical o b jection
which w a s r a i s e d t h a t t h e r e s e r v e b a n k s w e r e i m p o s i n g m o r e
onerous c h a r g e s f o r i t e m s t h a t w e r e p a y a b l e
a t street a d d r e s —
ses than the commercial banks imposed, a n d the final argument, which I think had more influence with the meeting than
any other, was that advanced by Governor Young, that it was
& very great credit risin and responsibility i n his district
in handling this type e f collection items, d u e t o the condition o f ban*xing there.
I do not recollect -—- I have not been a t all the meetings——
but I
d o n o t r e c o l l e c t t h a t a n o b j e c t i o n c a m e up, O r w a s g e n -
b anybody a t our meeting, which had to do
erally e x p r e s s e dy
with t h e compensation t o member banks f o r collecting items,
When I first learned o f this, Governor Young, i t struck m e
that i t must b e a n effort o n your part t o evade some o f your
responsibilities u p there i n handling items o n banks i n uncertain condition,
b u t i t seems that what i s really involved
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Federal Reserve Bank of St. Louis
2236
is t h a t t h e F e d e r a l R e s e r v e B a n k o f winneapolis w a n t e d t o
discontinue collecting items i n sinneapolis for various
local and technical weasons, s o they turn them over t o the
member banks, which now charge for items payable both a t
street addresses a n d a t banks.
Governor Young,
I s that correct?
T h a t i s correct.
The Chairman, T h e unfortunate consequence o f this break
in the levee,
s o t o speak | i s that i t i s going t o spread,
and a s one after another b a n k i s called upon t o pass charges
back t o their customers f o r collection o f items which have
heretofore been made without a
collection charge -—- and
this i s simply a collection a n d not a n exchange charge —
reprisals will b e mde,
and I
a m fran* t o s a y that i n time
4+ will embarrass u s very much i n maintaining our position
with t h e N e w York c i t y banks,
I n due time, w h e n t h e member
bank gets their teeth firmly set i n the idea that there i s
univer—
a big revenue here, instead o f paying eschange charges
sally o n the collection o f items, w e will have t o pay collection charges,
T h e unfortunate part o f i t i s that i t was
tried out a s an experiment,’ .
without consultation with
the other reserve banks a n d without apparently consideration
as t o what t h e situation would b e i n their districts, I
am
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Federal Reserve Bank of St. Louis
227
very much afraid o f i t and I think i t i s causing dissension
may
which i s spreading throughout t h e other districts and
upset t h e apple cart.
posiAs I see it, the other reserve banks are i n this
finally
tion, a f t e r three o r four years o f struggle w e had
o f the Feder—
gotten what I understood was the final approval
al Reserve Board with regard t o the non-cash collection ser-—
vice -- we were approaching i t a t any rate —
a n d now this
certain—
experiment that i s being attempted i n Mgnneapolis i s
ly going t o defer t h e settlement o f that vexing question.
Now, what t o d o about i t ?
W e have been here a t these
meetings a l w a y s w i t h n i n e b a n k s r e g u l a r l y a n d c o n s i s t e n t l y
performing it;
voting t o perform the service and we were
with a
it
collection committee always reporting i n favor o f
and now, unfortunately, t h e spread that the Barton committee
om
was most anxious t o see developed h a s n o w developed i n our
ranks. I
think i t is very unfortunate, Governor Young.
Governor Young. I
4s correct. I
think e v e r y s t a t e m e n t y o u h a v e m a d e
will not cont r@dict i t a t all.
The Chairman. Couldn't w e get a t this i n some other way
than through experiment?
Governor Young. Y e s , I think there i s another w a y t o
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Federal Reserve Bank of St. Louis
228
get a t it. I
have heard t h e discussion around t h e table
this morning t o the effect t h a t conditions i n each district
are entirely different a n d that while uniformity i s desired
in many things,
i t i s not practicable.
I t i s not practicable
in your o w n district, w h e r e y o u collect o n N e w England i n
two days.
W e can get a vote around here any time o f eleven
to o n e o n that.
I have tried t o put Minneapolis i n a position before
this Conference - — not only once, b u t several times i n the
last seven years — - where i t would b e underst ood, b u t I
do
not s e e m t o get t h e story across.
I propose that t h e Chair appoint a
committee a n d send
{t out t o Minneapolis t o see what the conditions are, T h e y
can g o into i t themselves, and, s i x months from now, report
back t o t h i s Conference,
The Chairman
W e could get our collection committee t o
go u p there,
Governor Young. F i n e .
The Chairman,
I T r e n o objection t o that,
Governor Biggs. I f you wait six months you are going
to have serious trouble i n our sectton. M e m p h i s a n d Little
Rock a r e just waiting o n this thing a n d they are raising
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Federal Reserve Bank of St. Louis
trouble. I t i s causing more trouble than the flood.
The Chairman I
will tell you the unfortunate part o f
Now
it. W e did not have a hack at this before it was done.
s further denon—
e q u i re
if there i s a situation u p there thattr
a n d investigate
stration w h y not h a v e somebody g o u p there
it _ -
reason o n
Governor Young, Mygnneapolis will listen t o
t o the method o f
anything a t all that does not s e t i t back
in ope ration
handling non-cash collection items which was
previous t o February 1 , 1987,
I t is a
Gevernor S e a y ,
revenue p r o p o s i t i o n t h a t y o u
in the iynneapolis banxs, isn't it?
Governor Young, W i t h the Federal reserve bank?
Governor Seay, N o , the member banks.
revenue proposition?
Governor Young. A
revenue proposition.
Governor Seay. A
Governor Young,
I m results i n a revenue propesition t o
them.
states
Governor Seay, Because the letter distinctly
that i t was not a
after
collegtion charge p e r i t e n they were
but a n exchange charge.
Governor Young, Y e s ,
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Federal Reserve Bank of St. Louis
250
Governor Seay, T h e n j t i s a revenue proposition.
Governor Young.
Governor Norris.
a A revenue vroposition.
O n that point I think i t would b e
just a s w e l l t o h a v e o n t h e r e c o r d a
statement
o f the e n o r
mous tax o n business that this constitutes, t h e enormous
source o f profit t h a t i t i s t o the menber banks i n sgnnea—
polis,
I n Philadelphia last year w e handled 86,349 non-
cash collection items amounting t o $170,309,259, T h e actual
cost t o us for collecting those items was $11,783.47.
I f
handled under the wsinneapolis procedure the cost would have
been $170,000,
The Chairman T h i s percentage cherge j s certainly going
to raise cain. T h i s business o f uniformity i s not applicable
to every last item i n the way o f collecting checks, a n d 8 0
on, but i f there i s any one thing where i t ‘ o e
o n l y appli-
cable but absolutely essential, i t i s i n the charge for a
service.
W e have struggled w i t h this, w e made a recomnenda-
tion t o the Board t o reconsider the rulings and allow each
addresFederal Reserve B a n k t o decide f o r itself about street
made
ses, a n d despite o 1 1 thet t h e Federal Reserve Board has
a private arrangement | without notice t o anybody — —
Governor Young,
L e t m e correct t h a t . -
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Federal Reserve Bank of St. Louis
231
The Chairman’
New York.
W e never got any notice o f it i n
Governor Young. They got your protest.
The Chairman, A f t e r i t was done.
sinneapolis
Governor Young. O h , no, T h e arrangement with
Conference went
was entered into after the resolution o f this
to the Board.
The Chairman,
Y e s , but the Conference passed a resolv.
the ruling about street
tion asking the Board t o reconsider
address qtems.
Governor Young. I
think y o u are confused just a bit.
Seserve
Previous to the last Governors! Conference the Federal
ruling that w a s i n
Board issued a letter which contained t h e
this memorandum o f Governor Fancher'sir. Harrison, That was September, 1926,
the last’ Conference
Governor Young, W e discussed that a t
i t was utterly
and I very frankly told the members here that
impossible f o r Mynneapplis
pish anything b y it.
accom.
t o take advantage o f that o r
A t that j l o c e n o n nine Governors
felt ‘that the Board had made @ mistake inmaking that ruling,
and a
resolution w a s passed,
to
n o t unanimously , w h i c h w e n t
suggested t o Governor
the Board along i n November, a n d 4st was
Bailey and myself to go ahead and act —
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Federal Reserve Bank of St. Louis
The Chairman”
W h o suggested it?
Governor Young. A
member o f the Board a n d t h e result
was I went back a n d framed u v something, s e n t i t t o the Feder—
al R e s e r v e B o a r d a n d t h e y a p p r o v e d
The Chairman,
i t and I
put i t i n ,
T h e Board never acted upon the request
of the Conferenoe t o r econsider their action,
Governor Young, B u t they h a d a n expression o f opinion
from this Confrenoe.
The Chairman. Well. 4¢+ was a poor w a y t o work together.
lie. Harrison. a s Secretary o f t h e Confermoe, a n d a6
directed b y the Conference, I
transmitted t o the Board i n a
special. letter t h e r e s o l u t i o n p a s s e d o n t h e s u b j e c t
cash eollections, t h e substance o f which w a s a
o f non—
protest w i t h
regard t o the option _- t o make i t optional with street a d
dresses, a n d asking t h e BoaTé t o f i n a l l y s ettle t h e whole
question o f non-cash collections once and for all by some uniform ruling, I, a s Seoretary o f the Conference, have never
received any acknowledgment o r ruling with reapect t o that resolution o f the Conference, a n d a s a n operating official o f
the reserve b a n k Inever heard anything a t all about t h e proi Mynneapolis
posed v o r o c e d u r e n
e got your letters s a y —
untilw
a of a certain
ing that y o u were going t o make i t e f f e c t i v e s
2535
date.
S o that, a s far a s the Federal Reserve Board i s con-
cerned, w e have never had any ruling o r any advice from them
that there would-be s u c h a ruling made i n your case.
The Chairman, A n d no advance notice that would permit
ofany exchange of views with the Board,
Governor Young.
o do with that.
O f course I had n o t h i n g t
The Chairman, I
do not know about that, K,owing the senti-
ment o f the m e n h e e about uniformity, t h i s i s a n a t tack
really upon a bulwark of t he System, and I cannot escape that
conclusion, because i t was a direct arrangément with you which
had the effect o f defeating the action of the Combrence with.
out i t being brought o u t a t t h e O o n f e r e n.
e
c
f h e Conference
certainly had a wish, b y a vote o f nine t o three, t o have a
ruling r eversed which the Board had. made. in order that we
might have uniformity, something which wee being destroyed by
that ruling.
Governor Young,
there w a s a
W e had a
vote o f f o u r t o one. T h i s S s o e idea. I
fron Governor Harding.
to m e like a
committec a p p o i n t e d h e r e i n w h i c h
got i t
I t i t was a suggestion which sounded
good one.
The Chairman T h e r e was never a n y report b y the Committee.
wr, H a m l i n g o t u p and left, Governor Harding left, a n d y o u
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
t o g o because w e
and Fancher a n d I remained | and w e had
couldn't g e t a n y action.
Governor Harding, I
wasn't h e r e a t t h e last Confer~
ence.
The Chairman.
O n the question o f uniformity, y o u raised
York. T h e analogy
the question about t h e two days' t i m e i n N e w
is not a good o n e f o r this reason:
P O
R e
>
whether a
i n our district ,
mebber o r non-member,
isn't o n e exception.
W e have n o difficulty i n
E w e r y bank i n our District,
i g o n our par list. T h e r e
I f this thing was p u t through y o u
I
would destroy uniformity i n the System.
think i t i s going
a n d the fact that
to reach into the cash colle ction system,
vorked u p between
it grew out o f a n arrangement w h i c h w a s
o f the Board, y o u
the Board and the bank, a t the suggestion
sey —- I will admit all that _-
Governor Young (Interposing-) I
am not going that far,
o n t o t h e Board,
I do not want t o put anything o v e r
Y o u know
t o get rid
what I have worked for from five t o six years,
o r t h e other. I
of the non-cash collections i n one wey
am
o n the Federal “‘eserve
not eachibier dans responsibility b a c
Board.
I n fact I do not push any of it there, I
simply
the Comnittec,
qguoted a conversation that occurred before
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Federal Reserve Bank of St. Louis
which I think Governor Bailey will verify.
Governor Harding.
the draft i s not a
B u t a charge based upon the amount o f
service charge.
I t i s a n exchange charge.
The Chairman, I f we took that position i n handling the
there
open Market operations, handling t h e m indepdéndently,
wouldn't b e a Fedoral Reserve System s u c h a s there i s now,
We have surrendered, o t h e r banks have surrendered their indi-
vidual views i n matters of equal importance with this because
it was t h e desire o f this Conference, a n d what rather hurts
me about i t i s —
Governor Young,
A m I being accused o f not having fallen
in line with the open market operations, a n d innumerable other
things that have occurred i n the System?
The Chairman N o t a t all, but i n this one very puzzling
thing — —
Governor Young. T h a t i s right; y o u said i t —
puzzling.
The Chairman, Very puzzling, w e all agree, but a ques—
tion where uniformity i n charging for items i s an essential
requirement o f the System,
O u r whole vosition before t h e
i certainly
public, t h e member banks and among o u r s e l v e s s
throm i n t o confusion which will extend v e r y widely. H e r e ,
in t h e face o f the desire o f nine o f the Reserve banks t o
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Federal Reserve Bank of St. Louis
236
one
conduct this business i n a certain way, t h e desire o f
member bank t o conduct i t i n another way, i t looks a s though
it were going t o force nine o f the members of the Conference t o surrender their convictions. T h a t i s the aifficulty
about t h e ruling.
Governor Harding,
I t seems that i t affords the Feder-
alReserve Board a chance to function, T h e y must aot as a
ought t o
coordinating body , but i t seems t o m e that they
about uniformity
lay down some pronouncement t h a t will bring
in this matter,
a
Governor W e l lporn. Didn't t h e Board s e n d out
letter
going t o
after o u r last conference, advising u s that t h e y were
permit minneapolis t o try this experiment?
The Chairman, I have never seen such a letter.
Governor Vellborn.
I t seems t o me a s though I saw such
a letter a s that,
a letter,
Governor Bailey, Y o u and I might have gotten
v
and they
Governor Yellborn, coaciad’ | h a a n a proposition
Governor Young
advised u s not t o nut that i n ope wption until
experimented with his.
w e r e written to.
The Chairman, A p p a r e n t l y o n l y t w o banks
t o l d n o t t o g o ahea.
Governor W e l l b o r n a n d Governor B a i l e y w e r e
237
with their plans because t h e y wanted t o give Mynneavolis a
Six months! t r i a l o n its plan,
Governor Wellborn, T h a t i s the letter I refer to,
The Chairman, ir. James told m e that h e wrote the letter.
Governor Wellporn. I
ernor Young's position,
want t o say this, i n regard t o G o w
O f course h e is fighting for what h e
believes i s right a n d what h e wants.
cerned, w e want the same thing,
Clearly a few minutes ago.
8 0 f a r a 5 our bank i s con-
Y o u stated the reason very
W e think there i s one point you did
not mention, a n d that da: that w e think t h e member banks i n
the
Teserve c i t i e s a n d b r a n c h c i t i e s a r e t r e a t e d unfairly,
a n d with
diserimination, i f they are not allowed t o charge for handling
collections a n d obtain t h e revenue f r o m it, when other banks
throughout the district a r e permitted t o d o 60,
Governor Harding. Don't they get compensating advantages b y
Securing other advantages from the Federal reserve banks i n
those cities?
Governor WYellporn. T h o s e other advantages a r e just natural
advantages that t h e y have.
The Chairman,
I f w e w e i g h t h e a d v a n t a g e s o u t side o f t h e
geographical position o f the menber banks | w e haye quite a
our hands,
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Federal Reserve Bank of St. Louis
job o n
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Federal Reserve Bank of St. Louis
238
B u t I do not think i t ought t o be
Governor Wellborn.
put u p o n the ground that because y o u are @ Majority o f nine
and w e are a minority o f three that w e are disturbers o f the
o r anything o f that «ind,
peace,
I t seems t o m e i t would b e well t o
Governor Harding,
as t h e Federal Reserve Board t o go ahead and make a settlement o f the whole thing.
The Chairman, F o r all the bans, n o t for the one bank.
Governor Calkins.
I n regard t o the 9 to 4 proposition,
can a n y o n e r e c i t e a n o t h e r p r o p o s i t i o n
i n which a
majority o f
nine has not prevailed i n the deliberations o f this Conference? I
cannot think o f any, 4
good deal o f loose t a l k has
been indulged i n b y u s i n regard t o the uniformity i n this,
uniformity o f practice i n rega
‘that a n d the other practice, &
to d
e t a i l s i s o f n o consequence;
4s o f v i t a l i m p o r t a n c e
b u t uniformity
t o the s y s t e m a n d unless
i n principle
i t i s maintain-
ed the systen i s going k o b e destroyed b y that very lack o f
uniformity i n principle, A
a collection charge.
vercentage charge cannot b e c a l l e
I t i s not a
collection charge.
I t is an
exchange charge.
Governor Talley.
H o w would you define a collection charg:
Governor Galcins, A
per item charge gndverhaps a charge
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Federal Reserve Bank of St. Louis
239
that involved a n addition t o the per i t e m charge f o r some
responsibility assumed,
o r s o m e s e r v i c e performed,
b u t not
based unon a percentage o f the iten handied,
have
Governor Bailey, D o you think i t would b e fair t o
hundred
the same charge o n ten dollars that you would o n a
thousand dollars?
said with perhaps some addition for
Governor Calkins. I
the service performed, that i s t o say for the risk imvolved,
if any, a n d for the labor involved,
age.
i f any; p u t not a
percent—
charge i s
Y o u may feel, I may feel, that a percentage
not e@ collecright and just, but it is an exchange charge and
tion charge t h e minute y o u base i t upon a percentage,
it
The Chairman, ‘ o u l d this b e fair —~ I do not offer
as m y o m v i e w b u t j u s t a
suggestion —
b u t would t h i s b e
Board, leava fair position t o take with t h e Federal Reserve
ing Governor Young out o f it:
banks a r e e n t i t l e d + o a
T h a t all the Federal Reserve
ruling i n this m a t t e r w h i c h p u t s a l l
t h e same basis?
the Puders) “eserve Banks o n identically
‘Gowernor Calkins,
W e have taken that position,
the Board,
The Chairman, s t a r t i n g from that premise, then
o f volicy a n d not
it seems t o me, h a s t o decide t h e question
the question o f detail operation, That i s to say first, shall
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Federal Reserve Bank of St. Louis
240
not?
we handle non-cash collection items o r
T h e y directed
they want
us t o d o s o and that question w a s decided, unless
to reverse themselves.
a charge b e made?
shall
T h e n i f we are t o handle them,
a
I f a charge i s to be made shall i t be
percentage c h a r g e o r a
service c h a r g e a n d i s i t t o a p p l y t o
all items o r only t o some items?
G a n Federal Heserve banks
their members
consent t o the imposition o f a service charge b y
outside t h e dis—
which i s only imposed upon items coming f r o m
districts, t h a t
trict a s against t h e banks within their o w n
being a
free s e r v i c e ?
I f the Federal Reserve B o a r d w o u l d
take t h e responsibility o f saying 4 n this instance,
this p r e s e n t s i t u a t i o n ,
t o meet
t h a t t h e y direct t h e reserve b a n k s
dollar a n d 4 half
to agree t o the imposition o f a charge o f a
the result going
on all non-cash collection items, w h a t i s
a particular instance
to be? T h a t i s what t h e y have done i n
where t h e f a c i l i
on items payable i s s Federal “eserve C i t y
t h e y are i n any
ties f o r collection o f them are better t h a n
other city?
Governor. Calkins.
I f those items come from outside the
District?
The Chairman, Yes.
I f the Federal Reserve Soard will
take the responsibility f o r maxing that a
universal ruling
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Federal Reserve Bank of St. Louis
241
for all of the “eserve banks, i t will result in the imoosition of an ultimate charge of some milli@ns of dollars a
o
H many I
year o e r t a i n l y , ’ w
do n o t know,
W e eet nothing o u t o f
it. W e pass i t o n t o the banks , In other words, f o r the first
time i n t h e h i s t o r y o f t h e S y s t e m w e a r e s e t t i n g u p . a s y s t e m
of c h a r g e s o
f percentage o n items w h i c h i
g to be paid t o
those particular b a n s which we, i n one way o r another, a r e
able to favor in getting those charges. That is what it
amounts to.
Governor Calkins. G o v e r n o r Young h a s made t h e sugges—
tion that a committee b e appointed t o observe the situation
in ulinneapolis,
J I am just wondering whether w e could get
anything o u t o f that o r not, I
think myself that i f t h e d e c i
s postponed for another six months or
sion in this matter i
another year that t h e damage done will b e such a s cannot b e
repaired i n the system.
in the
I t might b e oompared again t o a break
repair a break i n a levee after i t
o .Y
l e v e uecannot
has been running for six months o r a year,
I am wondering if it wguid be possible for the Confer—
ence to pass a resolution appointing a committee to observe
and report a t t h e next Conference, w i t h t h e agreement t h a t
the operation o f the plan n o w i n operation i n winneapolis
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Federal Reserve Bank of St. Louis
should b e s u s p e n d e d d u r i n g t h a t time.
The Susirman...
Gover
W e cannot d o thet n o w without
nor' Y o u n g ' s a g r e e m e n t .
Governor Wellborn,
I n asking the Board t o make a ruling,
this Gonference t o a n official
I want t o call t h e attention o f
September 24, 1926,
letter of the Federal “eserve Board of
which I think i s fundamental.
I t i s constitutional,
you
letter that t h e provisions
might say, T h e y state i n this
d
o not require Fed—
of the Federal Reserve Aot authorize
items, a n d the inauguraeral reserve banks t o handle non-cash
o f a n order b y the
tion o f the function w a s not t h e result
a
Federal Reserve B o a r d but rather
Governor Bailey, I
Kansas C i t y which,
suggestion.
want t o read the plan prepared b y
a
i f put i n t o operation would eliminate
I
good deal o f this trouble a t slimneapolis,
think:
"December 15, 1926,
"NON..OASH COLLECTIONS.
TO THE MEMBER TANKS O F DISTRICT No, 103:
“eserve Bank
"Effective January 1, 1927, t h e Federal
o f its non-cash colof Xansas C i t y will limit t h e operation
items dram o n of
*xection department t o the handling o f
handling
payeble at banks (x), and will discontinue the
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Federal Reserve Bank of St. Louis
243
of items payable a t street addresses, which necessitate
either presentation o r notification, T h e following condi-
tions, effective January 1, 1927, should therefore b e carefully observed:
Section 1 . G E N E R A L PROVISIONS.
a Collections.
Character o f Items Which way b e F o r w a r d e d s
Member banks may forward to the Federa] “eserve Bank of
Kansas City for collection and credit, checks o r draf t s
o deposit; coupons
drawn o n or payable a t banks. c e r t i f i c a t e s f
and bonds payable a t banks; notes and acceptances payable a t
banks. orders o n savings banks; checks previously protested; 3
and other similar items draym o n o r payable a t banks.
t e
Will a l s o handle f o r collection, coupons detached f r o m bonds
y Federal Reserve Barks f o r their member
held i n s a f e k e e p i n g b
banks, a n d sight o r demand bill o f lading drafts disconnted b y
Federal Reserve Banks for their members.
Items which will Not Hereafter b e Handled.
The Federal Xeserve Bank o f XYansas City will not here
after handle f o r collection, promissory notes; time, s i g h t
and demand drafte; creamery checks; city, county, soehool dis
trict and state wer rants; o r items o f a similar nature; except
in cases where any such items are drawn o n o r payable a t banks.
“(Footnote t o record page 243) (x) “Whenever the word ‘banks!
is used i n this letter, t h e word shall b e held t o mean incor—
porated banks o r trust companies, o r regularly organized
commercial banking institutions receiving deposits subject t o
checks
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Federal Reserve Bank of St. Louis
244
The Chairman,
the
A s I understand it, y o u aoplied t o
d o that?
Federal Xeserve B o a r d t o give y o u permission t o
Governor Bailey, I
did not apply. 1
told them we were
going t o do it, thinking I already had the authority. T h e n
they a s k e d u s t o h o l d t h i s u p .
same
The Chairman, S u v o p o s e Governor Wellporn a t t h e
time, under the previous ruling, h a d applied t o the Board
for authority t o d o this o r h a d submitted a
plan t o make a
suppose
service charge o n all non-cash collection items; t h e n
handle
Governor S e a y had informed t h e Board that h e wanted t o
their
the thing i n a way where h e would n o t handle a n y o f
them a t street addresses, a n d where would the system be?
Governor Bailey, I
xnow where our ban‘ would be.
I f
want
we could keep t h e m i n off the street, that i s what w e
to do. I
think this i s a very liberal compromise,
i n view
Board.
of the fundamental position o f the Federal Reserve
L e t ' s have
We were going t o asx y o u gentlemen t o d o that,
d q the same thing —
uniformity and let's get sziynneapolis t o
The Chai rman, I
remenber t h e compromise between t h e man
O T a yellow
and his wife a s t o whether t h e y would b u y a green
rug.
T h e wife wanted 4
@ yellow rug.
yellow r u g s o t h e y cogpromised
I t doesn't look like a compromise t o me.
on
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Federal Reserve Bank of St. Louis
245
t is always a
Governor W e l l b o r n , I
good plan t o compro-
mise e n a close question —
Gevernor Talley.
I t doesn't s e e m t o m e t o b e a close
question with a vote o f nine t o three.
Governor Wellbern., I
say t h e fundamental proposition i s
a close question.
Governor Talley, I
do not think i t i s very close.
Governor Seay- W i t h reference t o the fundamental pro-
position in the communication from the Federal Reserve Board,
it was stated that t h e Federal Reserve banks h a d not been
orderedrito establish this system, I
think.
[ I think i t was
an order e d Mr, Harrison can correct m e about that.
The Obaizman.
O h yes, i t was a direction. |
Governor Fancher. I
and ocaliedt a e d
wrote t o the yederal Reserve Board
a t tention t o their Letter o f 1917 and they
said afterwards that they were misingormed o n the point.
The Chairman, J I want to “pring out an absurdity about
this thing which has not been mentioned, but which struck
me right away a s too ridiculous for words. T h a t is, d o you
realize that this arrangement with Minneapolis does not meet
any o f the objections that have been filed with the Federal
Reserve B o a r d a b o u t t h e n o n - c a s h c o l l e c t i o n s y s t e m ~—- n o t
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Federal Reserve Bank of St. Louis
246
any o f them?
A s a matter o f fact these objections h a d t o
do a y y handling a n y street address items through banks a n d
ae
noth
F e d e r a l Reserve banks performing t h e service f o r
ing, a t a n enormous expense, because this volume o f street
address items w a s very heavy, a n d there i s n o compensation
to the Federal Reserve Banks for the non-cash collections.
I do not see the reasonableness o f it. :
Governor Fancher.
T h e y are charges that were established
exchange,
more than twenty years a g o when t h e question o f
was
the e x p e n s e o f s h i p p i n g c u r r e n c y a n d c h a r g i n g e x c h a n g e
involved, which question does not prevail a t present.
be
Governor ii,Dougal, T p i s p l a n o f mr, Bailey's would
4n complete harmony, I
think. w i t h the Board's September let—
not t o
ter, because i t contained the option t o continue o r
oontinue, but that does not cover the Manneapolis case.
The Chairman, H o w difficult i t i s going t o make i t for
col~
all the other Reserve banks i n handling their non-cash
and
lection items, when they find out that qpme banks d o
some d o n o t h a n d l e s t r e e t a d d r e s s items.
Governor Norris. I
would l i k e t o c a l l a t t e n t i o n
to
another difficulty that i t seems t o me would necessarily
t o continue.
arise i f the minneapolis procedure i s permitted
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Federal Reserve Bank of St. Louis
847
the member
If that largesse o r bonus i s t o be distributed t o
will
banks a t wjinneapolis, manifestly a l l t h e rest o f u s
York,
have t o distribute similar sums t o the banks i n New
and i n Philadelohia, a n d we will have something like $170,000
to distribute among our member banks i n Philadelphia.
Now
on what basis are w e going t o distribute it, and how are
we going t o avoid the charge o f favoritism?
The Chairman, ‘ h a t banks handle the items i n sijnnéapolis,
Governor Young?
Governor Young.
A l l of the member bankg i n proportion
to the reserve balance that they carry with us, I
would
like t o correct one statement y o u sade, i f I may.
The Chairman, Please do, I
did not mean t o Make an
incorrect atatement.
a
h not corrected many
Governor Young, T h a t w a n n e a v o l i s d
things that w ere complained about ~The Qyairman (Interposing!)
standpoint
o f t h e Reserve b a n s
Governor Young, I
a r e you speaking from the
o r t h e member banks?
am talxing about the Reserve pank.
You will renenber in:1923, ‘24, 'a5, '286 and 127 my complaint
was not made about charges but i t was because o f the liability
that ™e were having under this. This has corrected that
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Federal Reserve Bank of St. Louis
848
through with it.
liability, gotten r i d o f it, a n d w e are
for the
The Chairman, Y o u have dumped all these items
whole district onto your member banks?
Y e s e
Governor Young.
wir. Strater,
N o t f o r t h e whole district?
Governor Young.
The Chairman,
N o .
W e l l , h o w does i t relieve you?
Governor Young.
the Twin
I % relieves m e o f liability o n
Cities,
The Chairman,
to
H a s there ever been muoh liability
speak o f ?
Governor Young.
Y e s , w h e n y o u tacce a million dollars’
a n d have t o take
worth o f grain drafts o n the grain exchange,
what y o u get, there i s liability,
cash o r a certified cheok,
Y o u g o down there for the
I f they give y o u a check i n pay—
check cashed, a n d i n the
ment f o r i t y o u have t o g o get t h e
grain m a y b e some distance
time taxen t o d o that, t h e c a r o f
a
w
yr f
a m othere.
Governor Fancher.
y o u would
Y o u a r e i n the s a m e position
get p certified check
be i n a commercial bank, G o u l d n ' t y o u
before delivering the documents?
Governor Young,
No.
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Federal Reserve Bank of St. Louis
Governor Fancher,
W h y not?
I t would raise a
Governor Young,
Governor Fancher.
r o w with t h e grain men.
B u t you would only have one row with
them.
Governor Young, The difficulty i s if you send a collector o u t with one o f those $100,000 drafts, send i t t o a dealer.
a check i n pay—
that y o u don't xnow anything about, h e offers
anes wid yon a t i
t o take i t and you tel] him you want a
a certified
certified check, T h e man has t o g o down t o get
h
t
i
w the
check and the dealer hasn't made any a r r a n g e m e n t s ,
with his papers,
bank; t h e man has g o t t o stand around there
afternoon,
and finally, some time after two o'clock i n the
he will get a certified cheok.
M o w i t i s not m y idea that
the System should do that and do it for nothing.
Governor Fancher. B u t isn't that @ very. much mag,ified
situationt
Governor Young.
T t i s cheaper for the commer cial bank
to d o i t —
Governor Fancher. I
overdram.
think t h a t situation i s v e r y m u c h
Y e all have drafts w i t h documents attached every
day a n d w e have n o trouble o f that sort i n our cities.
get certified checks.
W e
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Federal Reserve Bank of St. Louis
250
The Chairman,
I f the Btard should rule that w e would
not h a n d l e s t r e e t a d c r e s s i t e m s w o u l d t h a t s a t i s f y y o u ?
Governor Young. A b s o l u t e l y not. T h e City National o r
Guaranty Trust o r a n y o f them could easily stamp o n there "Pay—.
able a t the Federal Reserve Bank", o r "Payable a t the Northwestern", o r ‘Payaable a t anf place they want to, and there
isn't a n y w a y y o u c a n stop t h e m - —
Governor Bailey.
I f they stamped o n i t that they would
have t o pay i n Federal exchange would y o u take: them that way?
Governor Young. W h a t ?
Governor Bailey, S u p p o s e t h e draft w a s payable a t the
Northwestern Bank, but with the understanding that when they
paid they paid i n Federal exchange? Y o u wouldn't take the
cashier's check?
Governor Young, I
think w e would g o to the Northwestern
National Benk and wresent that —-The Chairman (Interposing: ) D o you get any drafts o r
seourities attached from us, from “ye Federal Reserve Bank of
New York?
Governor Young, I got one from the National City the other
day , which wasn't a draft a t all.
The Chairman.
H a v e w e ever sent a
draft w i t h s e c u r i t i e s
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Federal Reserve Bank of St. Louis
attached f o r o u r member banks — ~
Governor Young. Y e s ,
The Chairman. H o w long ago?
Governor Young, Right along.
B u t w e are not taxing those.
The Chairman.
Governor Young, They. come from the direct sending banks,
W e haven't opened the door t o having
The Onairman'
a member bank dump all their security collections o n us.
I t is rumored that Philadelphia has
Governor Young.
dumped them o n you,
The Chairman,
r
o
O n New York?
n r e v
Young,
o
T don't k n o w a b o u t i t .
G be
The Chairman, Securities i n the New York market, h o w do
you collect t h e m —
Governor Young (Interrupting:) T h e y send the securities
to us.
The Cyairman, T h e y ayy have to stop it»
Governor Young, That i s all I want t o do i n Minneapolis.
The Chairman, That i s @ Wwery different matter, Governor
Young.
Miny Strater.
M a y I ask t h e risk involved i n collecting
at
a note o n the Great Lakes Coa} & Dook Company | payable
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Federal Reserve Bank of St. Louis
252
the siijdland National B a n k & Trust Company, either f o r t h e
Midland National B e n k o r for t h e Federal Reserve Bank?
Governor Young.
wr. Strater.
N o risk,
W h a t i s the justification f o r charging one~
tenth o f one per cent?
Governor Young, Y o u are asking m e what justification
there i s for t h e charge?
wir, Strater.
Yes,
d o not t h i n k there i s any.
Governor Young. I
do not either,
wir. Strater. I
I f there i s justification,
real o r fancied, what difference would therebe between maxing
a charge o n such a note a n d a charge o n a check payeble
through t h e clearing house?
Governor Young,
on that. I
N o difference i n the world,
J y s t a momen‘
do not k n o w h o w t h e ifidland National B a n k collects
this Great Lakes Coal & Dock Company,
Y o u cannot charge a
note i n signnesota, even i f i t i s payable a t a bank,
W e have
to go out and collect it.
Mr. Strater.
D o they actually make a practice o f s ending
then t o be collected o r do they get the customer's authorization t o charge their account?
Governor Young, I
do not know,
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Federal Reserve Bank of St. Louis
253
E N
a
Pe
e
s
that
conditions,
Governor Fancher.
e e
g
e “no 4
a t
Guat
m e e e those
I t i s reasonable t o assume that this
particular c o n c e r n k e e p s
&
a n account w i t h t h e M i d l a n d B a n k
Trust Company.
Governor Y o u n g , I
Governor Fancher.
think i t keeps s i x o r s e v e n accounts.
I t i s reasonable t o assume, because
wes one of their
they made it payable at that bank, that that
depositing banks.
Governor Young, Y e s ,
o f talk
Governor Talley, M r . Chairman, w e d o & lot
here, but if there is
ing down home, J I do not do very much
one thing I am clear o n i n m y o w n mind,
i t i s this o n e thing,
minority o f three that
In the first place I agree with t h e
the handling o f these items i s a nuisance.
a
t the same time
Reserve Bank was ex—
I have always assumed that the Federal
line, I
pected t o do some work somewhere along the
think
and i n that
there i s a question o f principle involved i n this
respect I
agree with Governor Young; b u t I
d o not g o along
Federal reserve
with h i m a s a matter o f practice b y singie
banks. I
cannot g o that far with him.
The principle involved i s this:
T h a t you have exactly
collecthe same right o r same authority t o deliver non-cash
a04
s you d o t o
own t o w n a
tion items t o a member bank i n your
city.
send i t t o a member b a n k outside o f the
T o illustrate that clearly,
right.
Y o u have that
i f y o u have @ member
bank i n your o w n city that i s not a
menber o f your clearing
t o deposit checks o n
house, t h a t m e m b e r b a n k h a s t h e r i g h t
member banks i n that same town with you, Under the present
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Federal Reserve Bank of St. Louis
o r usage t h e member
set u p o f t h e non-cash collection system
cashier items
bank i n your owncity h a s the right t o deposit
s a question of principle. B u t
with you on that city, T h a t i
of twelve
you cannot come here and nave the representatives
not agree o n
Federal Reserve banks sit around the table and
o u t o f the prinoiple
uniformity o f practice i n the carrying
and g e t b y w i t h i t , t o s a v e y o u r life,
Y o u cannot
d o it. I
o reconcile the proposition, b u t I have
have been a n x i o u s t
collection
been a n advocate o f turning over the non-cash
c i t y and i n your branch
,tems t o your member banks in. your o m
cities,
a n d have t h e m make a
charge.
Y o u cannot h e l p it.
i t is an e x
Whether i t is a collection charge o r whether
because you
change charge, I think that i s splitting hairs,
account t o the endorser
cannot help it.- A l l you can d o is to
of the i t e m for t h e proceeds that y o u get.
The Chairman’ I f you have one bank that is going to do
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Federal Reserve Bank of St. Louis
255
this service f o r a charge o f t e n cents a n i t e m and another
one that i s going t o charge one-tenth o f one per cent, there
ig a great responsibility i n imposing t h e larger chargé o n
any Member bank —~Governor Talley.
B u t that becomes &
question f o r your
lecal banks t o work o u t among themselves.
The Chairman, A
question o f competition?
Governor Talley, A
question o f competition between your
member banks,
The Chairman T h e n you g o a step further, a n d the member
banks will fix this thing u p amongst themselves, a n d the
first thing y o u know they will b e doing their o w n collecting.
Governor Talley, B u t you must bear i n mind the fact
that charges have been m d e b y the banks ovtside o f Federal
Reserve a n d branch cities ever since this thing started a n d
3 5 cities
you are only dealing here with banks i n probably
in which this question arises o f turning items over t o the
——
member banks i n your o w n city a n d i n your branch cities
this i s simply t o develop t h e point that thereisn't anything
in the contention o f the menber banks i n the Reserve cities
and branch cities,that i t is an expense + 6 the Federal re~
serve bank t o handle these things and therefore i t shgyld
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Federal Reserve Bank of St. Louis
256
trying t o create
be abandoned, b u t that they were really
exchange. I
an issue o u t o f their desire t o charge
think
this time h a s thorwhat t h e winneapolis B a n k has done u p t o
oughly d e m o n s t r a t e d that, J
d o n o t t h i n k t h e r e i s a n y ques-
that w e advo—
tion about it, T h a t was the principal reason
Young's
cated that i t not b e done, because when Governor
there "Well,
letter came d o m t o us I said t o our folxs down
our
we will just g o along and we won't d o that n ow because
branches
bancs i n Dallas and Houston and El Paso, where our
a s soon a g they
are, are not raising that question, a n d just
t o them and
raise t h e question w e will t u r n t h e items over
reference
then w e will s e e what t h e reaction i s o n them i n
other Federal
to having t o pay collection charges o n every
i s the whole story
reserve city point a n d branch point. T h a t
as far a s I see it.
The Chairman, Gentlemen,
things.
w e have t o provide f o r t w o
openmar—
O n e i s the completion o f the report b y the
meeting,
ket committee, which I wo yld like t o submit t o this
Reserve
and subsequently i t must b e taken u o with the Federal
with the
Board, I think we have got t o have a special meeting
can hear
Federal Reserve Board on this topic, where the Board
the views o f the men here.
D o you agree t o that, Governor
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Federal Reserve Bank of St. Louis
Young?
Governor Young, Y e s , sir.
The Chairman
I f the Conference i s willing t o defer
meeting again this afternoon f o r 8 little while, t h e open
market comnittee could lunch together a n d discuss what sort
of report i t will make.
meeting after lunch,
T h e n take that u p i n a very short
T h e n the question i s when d o w e want
to m e e t w i t h t h e B o a r d f o r d i s c u s s i o n
o f this iten that w e
have been discussing this morning? W y t h o u t objection i t
will b e understood t h e t w e will further discuss this matter
with t h e Board.
wr. Harrison.
a n d I have prepared a memorandum o f the
upon
way w e feel i n New York about t h e situation which bears
the transactions o f the open market committee. That memorandum
igs unusual and required special consideration,
W e would like
to h a v e t h e G o v e r n o r s t h o a r e n o t o n t h e o p e n m a r x e t c o m m i t t e e
read this memorandum during the lunch hour, i f possible,
confidentreating i t a s very confidential because i t i s a very
tial memorandum, a n d bring that memoragdum back and return
4t t o Mr, Harrison, because i t i s only a draft.
(Whereupon, a t 1 o'clock p,m, t h e Conference re-
cessed until 2:30 o'clock p.m o f the same day.)
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