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Federal Reserve Bank of St. Louis
VOLUME 1
PROCEEDINGS
CONFERENCE
O F GOVERNORS
OF T H E F E D E R A L
RESERVE
BANKS
TREASURY BUILDING
W A S H I N G T O N . D.C,
NOVEMBER
1 0 , 11, 12.13, 1 4 , 1 9 2 4
WALTER
SHORTHAND
S. COX
REPORTER
COLUMBIAN BUILDING
WASHINGTON,
D . c,
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Federal Reserve Bank of St. Louis
PROCEEDINGS O F A CONFE ENCE O F GOVERNORS
OF THE FEDERAL RESERVE BANKS.
Treasury Building,
Washington,
D . C.,
Monday, November 10, 1924,
The Conference o f Governors o f Federal Reserve Banks
convened i n the hearing r o o m o f the Federal Reserve Board,
Treasury Building, Washington, D . C., a t 1 0 o'clock a. m.,
Monday, November 10, 1924,
PRESENT:
Benjamin Strong, 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
New York, (Chairman,
J. B. McDougal, Governor, Federal Reserve B a n k o f
Chicago,
W. P . G Harding, Governor, Federal Reserve Bank. o f
Boston,
Geo. “%. Norris, Governor, Federal Reserve B a n k o f
Philadelphia,
B
E
. R . Fancher, Governor, Federal Reserve B a n k o f
Cleveland,
George J . Seay, Governor, Federal Reserve B a n k o f
Richmond,
M. B . Wellborn, Governor, Federal Reserve B a n k o f
Atlanta,
Biggs, 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 St.
Louis,
Young, Governor, Federal Reserve B a n k o f
Minneapolis,
Bailey, Governor, Federal Reserve B a n k o f
Kansas C ity,
McKinney, 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,
Calkins, G v e r n o r , Federal Reserve B a n k o f
San Francisco, a n d
George L . Harrison, D e p u t y Governor, Federal Reserve
Bank o f N e w York a n d Secretary t o t h e Conference o f Governors,
PROC. .DINGS.
Governor Fancher: I
wove t h a t G o v e r n o r S t r o n g a c t a s
Chairman o f this conferencc.
Governor R i l e y :
- i seecnd.snat,
(The motion was unanimously earried and Governor Strong
took the Chair.)
The Chairman:
T h e meeting will come t o order. I
wart
to a s k y o u r prefersance a s t o t h e w a y t h e m e e t i n g s h a l l p r o -
ceed, because o f the w a y i n which t h e program i s arranged.
The O p e n M a r k e t I n v e s t m e n t C o m m i t t e e h a s a
or a
verbal r e p o r t
t o make,
t o submit,
a s t h e c a s e m a y be, b u t t h e y h a v e
meeting, w h i c h will b e held
had n o opportunity y e t f o r ®
during t h i s conference,
report
and I
suggest t h a t w e p a s s t o p i c s l -
(a) and 1-(b) until after the meeting o f the Open Market Investment Cormittee.
As t o Topic l-(c), w h i c h was suggested b y N e w York, t h e
suggestion w a s m a d e t w o m o n t h s a g o a n d t h e s i t u a t i o n h a s
changed t o such a n extent t h a t whatever i s discussed about
open m a r k e t p o l i c y a n d d i s c o u n t r a t e w i l l p r o b a b l y i n c l u d e
that topic,
and I
would l i k e t o withdraw
if agreeable, b e c a u s e
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Federal Reserve Bank of St. Louis
i t will &
i t from t h e program
f u l l y discussed under topics
3
{a} -and(b}.
W i t h o u t o b j e c t i o n t h a t c o u r s e w i l l b e pursued,
that i s , w e w i l l p a s s t o p i c s ( a ) a n d ( b ) a n d w i t h d r a w T o p i c ( c ) .
With regard t o topic (d), t h a t will come u p i n connection
with t h e d i s c u s s i o n ?5 t h e O p e n wiarket I n v e s t m e n t Ormittee.,
ren0rt
and
a t
should t
p a s s e d f o r t h e t i m e being.
y i t h o u t objec-
tion 1-(d) will b e passed f o r t h e moment.
Topic 1-(e) w a s suggested b y Governor Harding.
Governor Harding:
I s t h a t t p p i c u p f o r d i s c u s s i o n now, i f .
Chairman?
The Chairman:
Y e s ,
1-(¢) D e s i r a b i l i t y
o f Uniform Practice
in determining “Sligibility"
as
distinguished from "Desirability".
Governor Harding: I
think i t probatle that there i s
at present n o uniform practice a m o n g t h e Federal Reserve Banks
in determining eligibility. I
have a n idea there i s a tén-
dency t o confuse "eligibility" with "desirability".
“hile I
am not sure a s t o that lack o f uniformity among t h e banks, I
do k n o w t h a t t h e r e i s s o m e l a c k o f i t b e t w e e n t h e p r a c t i c e
of
the F e d e r a l R e s e r v e B a r k o f N e w Y o r k a n d t h e F e d e r a l R e s e r v e
Bank o f Poston. I
might s a y that I
think t h e viewpoint t a k e n
by the Federal Reserve B a n k o f N e w York i s the correct o n e a s
far a s the aralysis o f statements i s concerned, a n d t h i r
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Federal Reserve Bank of St. Louis
4
treatment
o f notes o f f e r e d f o r discount.
of domestic bills,
A
s t o t h e question
i t 1 s possible that there m y b e some mis-
understanding t h e r e a l s o .
I think i t i s well understood t h a t f o r a Federal Reserve
Bank t o t a k e t h a t s t a t e m e n t
as a
basis a n d t o s a y t h a t a l l
paper i s s u e d b y t h e f i r m o r c o r p o r a t i o n m a k i n g t h a t s t a t e m e n t
4s ineligible, fo. t h e reason o f some deficiency o f auick
assets,
a s s h o w n i n t h e statement,
ment a n d has a
i s a
t r y s w e e p i n g state-
tendency t o affect unfavorably t h e credit o f
_ that f i r m o r corporation.
U n d e r t h e regulations
Reserve B o a r d t h e s t a t e m e n t m u s t ,
b e considered,
o f course,
I have f o u n d o u t t h a t i t h a s b e e n t h e p r a c t i c e
banks,
i n amlyzing a
ment a l l investments
the U n i t e d S t a t e s
statement,
o f the Federal
but
i n the Boston
t o eliminate f r o m that state-
i n stocks o r tonds other t h a n bonds o f
o r obligations
o f t h e D o m i n i o n o f (CGnada---
I don't k n o w just where t h e consistency comes i n there--- s o
that there have b e e n sotie cases where a
for d i s c o u n t
which bears
t h e enforsement
note h a s b e e n offered
o f a
and, because t h e maker's statemert s h o w s a
wellerated
firm
dficiency o f auick
assets---after there have b e e n eliminated certain items i n
the statement a s n o t i n themselves b e i n g eligible t o secure
loans, t h e paper i s rejected @ n the ground that i t i s not eli-
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sible.
ty view o f the matter i s that t h e construction o e "ol t=
gibllity” ought, t o b e a s l i b e r a l
have a
a s possible,
o f credit.
o r impairment
wholesame d e s t r u c t i o n
i n order n o t t o
banker d o e s n o t t w l i e v e t h a t t h e p a v e r o f f e r e d i s a
investnent, t h e n turn i t down,
particular. c a s e .
B u t when a
E
e the
desirable
T h a t o n l y affects t h e o n e
bank, w h i c h m a y b e a
w e a k bank,
offers paper a n d t h e y d o not want it, t h e y should b e asked t o
send something else, t h a t t h e y d o n o t want t h e paper offered:
but t c h a v e t h e F e d e r a l R e s e r v e B a n k a d v i s e t h a t t h a t p a p e r
is n o t eligible,
i s a
very sweeping t h i n g a n d i t shuts t h a t
paper o u t f r o m o t h e r reviber b a n k s w h o m a y o f f e r i t .
Then I
do n o t believe
i t i s t h e correct practice
trarily c u t o u t s o l v e n t a s s e t s
facturing c o n c e r n - - -
f r o m t h e statement
n o t assets represented
o f a
t o arbimanu-
b y plant a n d
that sort-~- b u t securities t h a t t h e y hold, perfectsalable market securities. I
think there ought t o
be some uniforvity o f practice a b o u t these i
out l a s t s u m m e r t h a t t h e r e w a s v a p e r o f a
e r s c
found
certain m a n u r a c t u r -
pegicdeni
ing c o n c e r n t h a t w a s h e l d b y t h e P o s t o n b a n k a s p e i n g
gible, b u t which was regarded b y the N e w York Bank a s eligible.
I went o v e r
and had a
t a l k w i t h vir. C a s e a b o u t L t o a n d
t e came
6
convinced t h a t t h e i r position. w a s c o r r e c t . I
practice
i n t h e B o s t o n Bank,
some i n s t a n c e s
ment,
a n d accepted
changed t h e
s o that t h e paper w a s declined
i n others,
in
b a s e d u p o n t h e invest-
t t i f i t was declined w e said w e simply d i d not want
that a n d w a n t e d s o m e t h i n g e l s e .
serious e f f e c t u p o n t h e c r e d i t
I
t would have h a d a
o f the concern
very
i f w e h a d adhered
to the position that that paner w a s n o t eligible.
There i s armther m e s t i o n relating t o domestic bills. I
was t o l d i n Chicago about t e n days a g o b y the president o f
one o f their banks there, t h a t much o f their borrowing n o w i s
in the shape o f acceptances w h i c h took a lower rate t h a n would
have b e e n t h e c a s e i f i t h a d c o m e i n t h e f o r m o f notes; t h a t
shipments o f wheat were made, carried into t h e elevator o n acceptances,
you know,
A s
a n d t h e s e a c c e p t a n c e s w e r f o l d -—-an= tae M a r k e :
3
t h e Federal y e s i
n o t originally contenplate
domestic acceptances; t h a t was a n amendment,
a n after thought,
and I think a reading o f the Act will show what I Imow was
the intent o f the Board a n d the intemt o f the (Ornuittee i n
Congress a t the time, t h a t these acccptances s h o u l d b e based
upon transportation,
upon a
reasonable t i m e i n transit.
T o
give y o u a case i n point, a t o u t a year a g o a shipment o f cotton
was m a d e f r o m Vorfolk, V i r g i n i a ,
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Federal Reserve Bank of St. Louis
t o Summersworth,
N e w Hampshire.
7
The c o t t o n b r o k e r d e c l i n e d
self,
H e “ e o l d t o r easn,
t o d r a w t h e bill o f exchange h i m T h e m i l l a t Summersworth,
Hampshire p a i d c a s h f o r t h e cotton.
New
T h e y h a d i t shipped t o
Boston b y s t e a m e r f r o m N o r f o l k a n d n o t o v e r t h r e e d a y s w a s
required
i n transit.
Ssummersworth,
F r o m Poston i t was shipped
N e w Hamshire
quired i n transit there;
with o n e o f t h e b a n k s
days o n t h a t cotton.
in transit
a t all.
b y rail t o
a n d o n l y t w o o r three d a y s w a s r e -
a n d yet t h e mill treasurer arranged
i n ston
t o accept f o r h i m a t ninety
T h a t h a d nothing t o d o with t h e time
O n e o f the banks t h e r e accepted i t .
mill treasurer d r e w a draft,
T h e
i t was s o l d i n the open m r k e t
in
Boston a n d w a s a f t e r w a r d s o f f e r e d t o t h e F e d e r a l R e s e r v e B a n k
ap a n e l i g i b l e b i l i , I
declined
t o take it.
w e decline
in
all cases t o take bills o f that sort w h e n t h e time that t h e
bill h a s t o r u n i s o b v i o u s l y o u t o f p r o p o r t i o n
time w e c e s s a r y f o r transportation.
t o t h e actual
O u r position w a s that
the m i l l t r e a s u r e r s h o u l d h a v e t a k e n h i s w a r e h o u s e receipts,
gone t o the bank a n d borrowed t h e monoy, g i v i n g his note.
if t h e w a n k w a n t e d
Then
t o r e d i s c o u n t t h e n o t e i t w a s a l l right, b u t
it would c a r r y t h e regular dediscount r a t e instead o f taking
the open market rate o n a bill.
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Federal Reserve Bank of St. Louis
Those a r e t h e points t h a t I
would L i k e t o h a v e e l u c i d a t e d
view,
with a
adopted. I
i f possible,
o f gettirg s o m e u n i f o r m p r a c t i c e
do n o t think i t would require a n y action o n the
part o f t h e Poard, b u t I
believe
if a
resolution w a s p a s s e d a t
this conference t h a t would cover it.
O n the first matter,
The Chairman:
eligibility o r desirability o f paper, I
t h e auestion o f
understand, f r o m the re-
ports t h a t a r e m a d e t o m e a t t h e o f f i c e t h a t y o u r p r a c t i c e a n d
our practice a r e n o w i n ©
Governor Harding:
mlete harmony.
N o w , yes, b u t they were n o t i n wmmplete
harmony s o m e t i m e a g o .
That, I
The Chairman:
that w a s d o n e b y conmittees
ters, a
committee
understand,
i s the result o f work
i n t h e banks w h o p a s s o n these mat-
o n eligibility,
and I
presume
i n y o u r j a nk
you h a v e t h e s a m e procedure,
Governor Harding:
The Chairman:
é s ,
Y o u r m e n work u p t h e detail
finally i t i s p a s s e d u p o n b y t h e s e n i o r o f f i c e r s ,
o f it and
o r t h e direc-
tors o f the banks?
Go vernor H a r d i n g :
The Chairman:
w
Y e s .
e f o u n d t h a t procedure,
i n cooperation
with Boston, exceedingly helpful, a n d w e have gotten uniformity
im the-two cdistricts:.
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Federal Reserve Bank of St. Louis
R a t h e r t h a n have i t referred t o t h e
9
Federal R e s e r v e B o a r d , w h i c h I
in the first place, I
understand v a s y o u r s u g g e s t i o n
womder i f w e could not make some arrange-
ment t o g e t s o m e o f y o u r " e n ,
s o r e o f o u r men, a n d s o m e m e n
of t h e o t h e r F e d e r a l R e s e r v e B a n k s
t o make a
review o f t h i s
practice a n d t o s e t u p m a c h i n e r y t h a t w i l l p e r m i t a
interchange
o f views,
complete
s o that w e m a y develop uniformity
i n the
system t h r o u g h d i s c u s s i o n a n d t h r o u g h t h e s e t t i n g u p o f c e r t a i n
standards
o f procedure. I
a m very m u c h a f r a i d o f t h e rather
rigid rulings o n these matters w h i c h sometimes g i v e u s trouble
afterthey a r e made.
Governor Harding: i
Governor Strong,
d o [ m p te trink- tiers.
s e A m y need,
f o r a n y further conference b e t w e e n B o s t o n a n d
Ne: Y o r k o n the matter o f eligibility.
o f hotes.
‘ e have a n
eligibility committee, b u t with that N e w :ngland conservatism,
that what w e have
é n d o i n g i s all right a n d that w e must con-
tinue t o d o what w e have b e e n doing, t h e y were v e r y much impres-
sed with the idea that they had t o keep o n with this.
idea i n v i e w t h a t w h e r e a
They
note w a s offered
which, f r o m a strict analysis, w a s eligible, b u t had t h e endorse-~
ment o f s o m e c o n c e r n l i k e L a w r e n c e @
(Company, t h a t t h e y s h o u l d
turn t h e paper d o w n because t h e y d i d not have a statement o n
file from the emorser. I
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Federal Reserve Bank of St. Louis
told them that that had nothing o n
10
earth t o d o w i t h i t , t h a t a n a c c o m o d a t i o n e n d o r s e m e n t c o u l d
mot possibly affect t h e eligibility o f paper, b u t that i t merely a d d s t o t h e s t r e n g t h o f t h e paper, t h a t i t d i d n o t m a k e
difference w h e t h e r t h e y h a d t h e s t a t e m e n t
o f t h e endorser
a n y
or
not, t h a t that could n o t affect t h e eligibility o f i t a n y more
than c o l l a t e r a l
on a
paper c a n a f f e c t t h e e l i g i b i l i t y
You m i g h t h a v e p a p e r s e c u r e d
o f it.
b y N e w Y o r k Central R a i l r o a d stock.
On the face o f i t i t might l o o k a s though that was a
loan for
the purpose o f carrying investment, a n d therefore n o t eligible.
But i f i t could be. shown that that note w a s issued f o r commercial, industrial o r agricultural purposes a n d matured within
the statutory limit a s t o time, a n d that t h e collatcral merely
added strength t o the paper, t h e paper i s eligible, a n d I do
not t h i n k t h e r e i s a n y s u e s t i o n a b o u t i t .
of endorsement.
T h e endorsement gives strength t o t h e paper,
i n t h e regulations
and t h e r e i s n o t h i n g
quires a n y o n e
T h e same i s true
t o get a
The Chairman:
\
o f the Board which re-
statement f r o m a n a c c o m m o d a t i o n endorser.
t the conference
i n October
resolution w a s p a s s e d r e c o m m e n d i n g t h e a p p o i n t m e n t
tee, o r these committees
o f 1920 4
o f a conmit-
o n eligibility i n all o f the reserve
banks, a n d somewhat similar action was taken a t a later meetine.
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Federal Reserve Bank of St. Louis
dd:
G overnor Harding: I
have told o u r eligibility committee
that whenever t h e y report paper which comes t o the discount
department a s being inelivible, t h a t they must give a n analysis
of their reasons, a n d i n cases where I disagree w i t h t h e m that
we are going t o put t h e paper through anyhow,
s o w e are n o t
going t o h a v e a n y f u r t h e r t r o u b l e a b o u t that.
Governor Calkins:
tice i n 1920, a
I
n the former discussion o f the prac-
discussion
o f this s a m e subject;
tion i s t h a t a n a t t e m t w a s m a d e t o s e t u p a
w y recollec-
clear l i n e o f
discrimination tetween eligibility a n d acceptability, eligibility b e i n g a
technical t e r m a n d a c c e p t a b i l i t y b e i n g a
applied t o judgment.
term that
I t was suggested that when a paper was
presented t o a Federal Reserve B a n k about which there was
any d o u b t a s t o i t s e l i g i b i l i t y o r acceptability,
p a p e r origin-
ating i n a m t h e r district, t h a t t h e bank t o which i t was presented f o r r e d i s c o u n t c o u l r e f e r i t t o t h e o t h e r F e d e r a l
Reserve B a n k a n d g e t t h e i r v i e ’ s with r e g a r d t o e l i g i b i l i t y
and a c c e p t a b i l i t y
The Chairman:
o f t h e paper.
W w e follow t h a t practice
Governor Harding:
‘ w e follow t h a t practice too.
Governor F a n c h e r :
follow that practice,
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Federal Reserve Bank of St. Louis
i n N e w York.
1
1
o f t h e Federal Reserve Banks
d o they not?
ze
think,
Governor Calkins: I
as G
overnor H a r d i n g indicates,
that i t i s v e r y u n d e s i r a b l e
t o label p a p e r o f f e r e d f o r r e d i s ~
count a s ineligible, u n l e s s
i t i s clearly ineligible.
Governor Harding:
tory purpose,
o f course
Governor Calkins:
I
f t h e paper i s n o t drawn f o r a
i t i s ineligible~-Unless
i t i s technically a n d legally
ineligible i t should m o t b e labeled,
maker o f t h e p a p e r
statu-
o r t h e holder
t o the detriment o f the
o f it;
i t s h o u l d n o t b e labeled
as ineligible w h e n really i t i s returned because i t i s not acceptable.
T h e r c
is a
that i s n o t acceptable,
great d e a l o f p a p e r t h a t i s e l i g i b l e
a n d v i c e versa.
I t seems t o m e that a
careful d i s c r i m i n a t i o n t e tween t h e meanings
what
i s needed
age t h e c r e d i t
i n our contact
o f t h e maker
o f these terms
w i t h t h e paper.
o f the paper
is
I t does n o t
t o decline
d a m
t o accept
it from a bank, b u t when i t i s indicated that. i t i s clearly
ineligible, t h e n i t does damage them.
Governor Harding:
T h a t means t h a t t h e y cannot accept
it f r o m a n y bank.
Governor ( G l k i n s :
Y e s , y o u m a y refuse t o accept p a p e r
from a weak bank without injuring t h e credit o f the maker o f
the paper a t all, b u t y o u camnot refuse t o accept paper o n t h e
ground o f i n e l i g i b i l i t y w i t h o u t a f f e c t i n g t h e c r e d i t o f t h e
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Federal Reserve Bank of St. Louis
maker,
The C h a i r m a n :
H o w c a n you bring about what y o u have
in mind? “ w h a t action shall w e take a t t h e meeting, Governor
Harding?
Governor Harding:
W e l l , I
think i f i t i s u n d e r s t o o d t h a t
when paper originates i n another district reference will b e
made t o t h e p r a c t i c e
i n t h a t district,
New Y o r k a n d P o s t o n a r e
i n harmony
there a r e s o m e d i f f e r e n c e s
t h a t i t might s o l v e i t .
i n t h e practice,
i n other districts I
a n d unless
do n t think
any particular action i s necessary o n that part o f it. I
like, h o w e v e r ,
with a
would
t o tering u p t h e q u e s t i o n o f domestic a c c e p t a n c e s
view o f ascertaining whether
ance i s b e i n g a t u s e d i n f u r n i s h i n g a
o r n o t t h e domestic acceptmeans o f credit
at a
cheap-
er rate t h a n i n the case o f a note, where t h e acceptance runs f o r
a length o f time entirely b e y o m t h e necessary time f o r transportation,
The Chairman:
T h a t comes u p later o n the program a s a
separate t o p i c , G o v e r m r ,
Governor Harding:
I f you have a shipment o f logs from
Oregon around through t h e Panama Canal,
o f course t h e domestic
acceptance would b e drawn f o r longer t h a n would b e the case i n
a shipment
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Federal Reserve Bank of St. Louis
o f c o t t o n f r o m N o r f o l k t o Boston.
14
he;
C a a s e m es
n
H o w would i t d o t o pass a
resolution s u g -
gesting t h a t e a c h G o v e r n o r i n s t r u c t t h e committee,
passed o n the question,
t o pursue t h e practice which has
formerly b e e n recommendec,
the o t h e r d i s t r i c t s
o r whoever
o f a t once referring t h e matter
o n questions
to
o f eligibility a n d desirabil-
ity s o a s t o ascertain t h e facts?
Governor Harding:
T h e r e i s one other point I
would
like t o bring u p with regard t o t h e auestion o f making a note.
Of course, u n d e r t h e Board's ruling i n the case o f a cotton
mill y o u c a n a l l o w s p i n d l e s
a t $5 a
spindle.
T h a t i s permis-
sible under t h e ruling o f the Board i n determining eligibility,
It d e e s n o t m e a n t h e b a n k h a s ‘got t o t a k e t h e p a p e r i f t h e y
do n o t t h i n k i t i s desirable;
practice
b u t i n Boston i t has b e e n t h e
t o take t h e statements t h a t c o m e i n i n which a r e
found t h e m a r k e t a b l e s e c u r i t i e s , s t o c k s a n d bonds, o t h e r t h a n
goverrment bonds that are held b y tis ecncern,
and t h e c o m m i t t e e w o u l d j u s t b l u e p e n c i l t h e m a n d s a y t h a t
the s t a t e m e n t s h o w s a
do g o a
deficiency
o f e l i g i b l e assets.
little f u r t h e r t h a n t h e r e g u l a t i o n s
o f t h e Board, b u t
the o u e s t i o n i s t h e p u r p o s e f o r w h i c h t h e p a p e r
whether
i t i s a n eligible purpose,
ourselves
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Federal Reserve Bank of St. Louis
i n the attitude
i s drawn,
a n d w e d o not want
o f telling a
T h e y
t o put
c o t t o n m i l l o r other
15
manufacturer t h a t they have g o t t o sell certain stuff o r other-
wise w e won't handle their paper.
Governor Calkins:
T h e r e are two qestions.
is, i s t h e p a p e r m a d e f o r e l i g i b l e p u r p o s e s ?
eligibility.
T h a t determines
T h e second is, does t h e statement o f condition
of t h e m a k e r i n d i c a t e t h a t i t i s acceptable,
that i t i s a good credit risk. I
tion t
T h e first
i n other w o r d s
think a careful discrimina-
tween t h o s e t w o i s a l l t h a t i s n e e d e d t o a p p l y c r e d i t
from t h e Federal Reserve Banks.
T h e r e a r e many cases i n which
such classifications a s Governor Harding describes w o u l d lead
us t o exclude paper where t h e application o f judgment a s t o
condition o f the maker shows clearly that t h e paper should not
be accepted, t a k i n g into consideration a l l t h e assets o f the
maker o f t h e p a p e r a n d t h e s i t u a t i o n o f t h a t maker;
i n other
words t o determine whether, f r o m a credit point o f view there
is reasonable ground f o r telief that completion o f the transaction u p o n w h i c h t h e p a p e r w a s m a d e w i l l p r o v i d e f u n d s f o r p a y ment a t maturity.
T h a t is a
The Chairman:
q u e s t i o n o f acceptability.
T h a t would n o t apply t o paper s o l d o n
the market, w h e r e t h e p r o c e e d &
o f t h e paper simply g o into a
common fund o f quick assets which may,
the t i m e being;
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Federal Reserve Bank of St. Louis
i n part, b e security f o r
t h e question o f eligibility o f commercial
16
paper s o l d b y brokers rests entirely u p o n examination o f the
statement o f the borrower,
I f h e has a n excess o f quick
assets w e a s s u m e t h a t t h e pzrocecds o f t h e p a p e r a r e n o t g o i n g
into plant,
but a
points o u t ,
i n some cases m a y b e invested
part o f t h e q u i c k assets,
a s Governor H a r d i n g
i n securities o t h e r
than goverment securities, a n d the m e s t i o n i s does that
impair t h e p a p e r ?
Governor lic Dougal:
T h e r e a r e t w o classes o f securities
that w e have under consideration.
F o r those w h o d o n o t know
it, t h e practice & s pursued b y the 1 2 Foderal Reserve Banks
to d e t e r m i n e e l i g i b i l i t y v a r y considerably,
so.
and I
think properly
A n y rigid p l a n undertaking t o cover a l l districts a n d all
classes
o f p a p e r w o u l d b e dangerous a n d , I
not work i n practice.
m y opinion, w o u l d
I n some districts n o w the Federal R e -
serve B a n k s a r e reqmiirim, f i n a n c i a l s t a t e m e n t s f o r a l l n o t e s o f
a thousand dollars o r over, O t h e r s v a k e their limit 35,000.
The c h a r a c t e r
o f paper discounted
i n some districts varies
greatly from that discounted in. other districts. I
move,
i f i t b e i n order, t h a t , w i t h r e s p e c t
would
t o paper t h a t ori-
ginates i n one district a n d which finds circulation throughout
the country,
o r i n other districts, t h a t t h e Federal Reserve
Banks, w h e r e t h e p a p e r i s o f f e r e d a w a y f r o m i t s origin,
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Federal Reserve Bank of St. Louis
be very
te
areful, a n d that where questions a r e involved raised b y the
Federal Reserve B a n k located i n the district where t h e paper i s
offered, t h a t that matter b e referred t o the bank i n whose
district tho paper originates; a n d that with respect t o the
other class o f paper that there h a s b e e n a n d must continue t o
be the same elasticity a s t o the question o f eligibility.
‘ie
have found i n a period o f four years that w e haven't had any
such thing, generally speaking, a s eligible paper from the agricultural districts;
b u t t h a t c o n d i t i o n i s improving.
T h e
percentage o f eligible paper i s slowly growing, b u t i f w e had
been confronted w i t h the necessity o f abiding b y some rigid,
inflexible rule, w e never could have gotten through the storm.
Governor Barding:
T h a t might apply v e r y well i n some dis-
tricts, b u t I do n o t believe i t would i n the case o f New York
and Boston.
New York,
L a r g e N e w England concerns have large accounts i n
a s large a s they have i n Poston, a n d I should n o t
think that t h e N e w York Bank w o u l d b
e willing t o let t h e Boston B a n k d e t e r m i n e f o r t h e m w h e t h e r p a p e r i s e l i g i b l e
Governor McDougal:
o r not.
B u t there was nothing i n m y state-
ment that would require y o u t o d o that, nothing whatever,
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Federal Reserve Bank of St. Louis
I would offer that a s a motion, ifr. Chairman.
Governor Seay: I
think all o f us who recall t h e course
18
of evolution o f the definitions o f “eligibility” will remem ber that these subjects h a v e been u p a n d talked P e a i e Ss
think there w a s a t the beginning a n d i s n o w t h e opinion that
the purpose o f issuc, u s e o f t h e funds, a n d the wherewithal t o
meet obligation w h e n matured were t h e elements o f eligibility.
I believe t h a t a n y Federal Reserve Bank,
eligibility
of a
i n passing u p o n the
piece o f p a p e r t h a t o r i g i n a t e s i n a n o t h e r F e d e r -
al Reserve District, o u g h t t o d o a s w e have bound ourselves t o
do here, r e f e r t h e matter first t o t h e district i n which the
paper originates.
with a r o t h e r
I
f o n e Federal Reserve B a n k does n o t agree
i n that respect
i t ought, n e v e r t h e l e s s ,
t o tke e x -
ceedingly careful i n saying that paper, eligible i n the district where i t originates,
because
i s not eligible i n its district,
i t h a d better p u t t h e refusal
o f t h e paper u p o n t h e
ground o f non-acceptability.
Governor Harding: I
Governor Seay:
think v e r y m i c h better.
T h e present r e g u l a t i o m , I wlieve, a r e
in a d m i r a b l e s h a p e t o o f f e r v e r y g r e a t l a t i t u d e
of eligibility,
i n auestions
a n d i t i s very much t o b e doubted i n m y mind
whether t h e y could b e improved upon.
T h e aestion,
to me, i s i n a p p l y i n g t h e s e r e g u l a t i o n s .
I
t ought t o b e
sufficient f o r all Federal Reserve Banks t o m o w ,
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Federal Reserve Bank of St. Louis
i t seé m s
t o understand
19
tht Federal Reserve Banks o f other districts will always refer
so t h e m o n t h e q u e s t i o n o f e l i g i b i l i t y o f p a p e r a r i s i n g
their districts, a n d I do n o t think y o u c a n pass a
here that c a n possibly g o a n y further t h a n that.
in
resolution
T h e r e cer-
tainly ought t o b e very amicable velations tetween Federal
Reserve B a n k s
i n t h e different districts
Governor H a r d i n g :
W
e ought
i n t h a t o n e particular.
t o emphasise
t h e basic
underlying principle o f eligibility,
a s defined i n the-Aco,
and then agree that i n cases where a
bank d i d not care t o
take paper that, unless t h e paper w a s palpably a n d unquestionably ineligible, t h a t i t not b e turned down.on t h e ground
of ineligibility, b u t merely o n the ground that w e d i d n o t
want i t .
a m endeavoring
t o express.
Governor Seay:
T h a t i s what I
The Chairman:
A s I understand t h e motion o f Governor
McDougal i t i s t o the effect that where a n y question arises
atout p a p e r
i n o n e district,
w h i c h i s originated
i n another
district, care should b e taken t o refer t o the bank i n the
district where t h e paper originates t o ascortain what their
practice a n d p o s i t i o n is}; b u t a s t o p u r e l y d o m e s t i c p a p e r
within a
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Federal Reserve Bank of St. Louis
given d i s t r i c t t h e p r a c t i c e s m u s t n e c e s s a r i l y vary.
Governor Calkins: I
think y o u leave o u t one important
20
clanse there,
a n d that h a s t o d o with referring
t o t h e district
originating t h e paper labeling that paper a s ineligible.
I n
other words, t h e r e s h o u l d n o t b e a n y n e c e s s i t y f o r r e f e r e n c e
in cases w h e r e t h e r e i s no’ doubt.
Governor “iell born:
B u t t h a t simply reiterates t h e pre-
sent rule.
The C h a i r m a n s :
I
Governor Y o u n g :
t reiterates
t h e recommendation.
T h a t simply applies
t o so-called commer-
cial p a p e r ?
The Chairman:
S o m e paper, t h a t i s not commercial paper,
where t h e borrowing concerns h a v e accounts i n two districts,
like B o s t o n a n d N e w York,
t h e b i g mills a n d b i g factories a n d
so forth.
Governor Young:
and I
T h e thought I
had i n mind was this,
say i t f r o m t h e limited experience I
the l a s t t h r e e o r f o u r years:
to p u t a
I
have h a d during
t i s sometimes c o n v e n i e n t
very liberal construction
o n what i s eligible a n d what
is n o t eligible; s o m e t i m e s y o u a r e compelled t o d o it.
The Chairnan:
B u t that would b e ¢onfined
t o local
paper, w o u l d i t not?
Governor Young:
I t m a y apply t o more t h a n local paper.
I have taken this view, t h a t eligibility o f a note i s deter-
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Federal Reserve Bank of St. Louis
Hes
niacd b y t h e d i s p o s i t i o n o f t h e proceeds.
tne B o a r d s a y t h a t e l i g i b i l i t y
to t h e s t a t e m e n t
m a y b e determined
o f t h e maker. I
paper f o r r e d i s c o u n t
T h e regulations
of
b y reference
have g o n o s o f a r a s t o t a k e
i n t h e F e d e r a l R e s e r v e B a n k o f !innespolis
that w a s s e c u r e d b y a
first r e a l e s t a t e mortgage,
expect t h a t t h e o t h e r F e d e r a l
Reserve Banks would
a m I
do not
d o that.
Governor nickinney:
w
e nave d o n e it.
Governor Young: I
was compelled t o d o i t a n d I telieged
that the note was eligible according t o the law and the regulations
o f t h e Board,
The Chairman:
O n the particular occasion o n which y o u
took it?
Governor Young:
Y e s .
Governor Wellborn:
I
t depends e n t i r e l y
o n h o w t h e pro-
ceeds w e r e used.
Governor Young:
The Chairman:
the p a p e r s m l l
T h a t determines eligibility, yes.
T h e regulations o f the Board provide that
n o t b e t a k e n i f t h e proceeds e r e u s e d f o r
by
capital purposes,
which may &
determined 2
examination
o f the
statement o f t h e borpower, w h i c h shall s h o w that there i s a
surplus o f quick assets--but o f q u i c k assets.
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Federal Reserve Bank of St. Louis
m t o f assets t h a t a r e eligible;
T h a t i s purely a
negative d e t e r m i n a t i o n ,
a
you please, a n d the auestion o f acccptability a n d desirabil-~
ity o f t h e p a p e r h a s g o t t o b e d e t e r m i n e d a l s o .
Governor Young:
years
b - d 0 n o t t h i n k thav- i m t o e Teast f o u r
w e have returned a
note b e c a u s e
i t w a s ineligible.
W e
have returned t h e m because t h e y were undesirable, b u t w e have
refrained from using the word “ineligible".
The Chairman:
G o v e r n o r Harding, d o e s t h e motion that
Governor McDougal h a s made meet your point?
Governor Harding:
t a n a mie SO%5 I
would like t o state
my. case without putting I t o m tae recomd,
i f 2 may c o o ,
(Discussion f o l l o w e d w h i c h t h e r e p o r t e r w a s d i r e c t e d
MoU vo. b a l e . )
Governor F P a n c h e r : I
second Goverrmr Harding's motion.
(The motion, having b e e n duly seconded, w a s unanimously
carried.)
The Chairman:
up a
T h e question o f domestic b i l l s w i l l c o m e
little l a t e r o n t h e program, G o v e r n o r Harding.
Our next topic i s (f)
1~(f) T i m e deposits a n d the manner i n
Which P e s e r v e s t h e r e o n a r e c o m
puted b y b a n k s i n t h e t w e l v e
Federal R e s e r v e D i s t r i c t s .
The C h a i r n a n s
cause o f a
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Federal Reserve Bank of St. Louis
T h a t i s suggested
b y Governor Calkins
v e r y v i o l e n t p r o t e s t f i l e d w i t h t h e B o a r d b y Mr.
Satori
a s t o t h e regulation o f t h e B a r d w h i c h makes a
defin-
ition o f time deposits a n d savings deposits t h a t does n o t exactly conform t o the practice,
s o that h e i s carrying reserve
on a large arount o f deposits w h i c h h e thinks should n o t carry
the full reserve, b u t should o n l y b e required t o carry t h e
three p e r cent reserve.
cussion p r e l i m i n a r y
T h e Board has suggested this f o r dis-
t o t h e consideration
of a
revision o f t
he
regulation a n d w o u l d l i k e a n e x p r e s s i o n o f views u p o n i t .
4m I
correct, G
oyernor C a l k i n s ?
think y o u overstate i t when y o u
Governor (Calkins: I
characterize h i s protest a s a very violent protest.
The C h a i r m a n s I
réad t h e b r i é f t h a t h e filed,
and it
struck t e a s rather strong.
Governor Calkirm:
sed b e f o r e a n d a
As I
A g s I
recall, t h i s m a t t e r w a s d i s c u s -
vote w a s t a k e n a t a
recall t h e w t e
o n t h e question o f reserve against t h e
character o f deposits described,
The C h a i r m a n s
time d e p o s i t s ?
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Federal Reserve Bank of St. Louis
to 5.
O n the ouestion o f reserve against
a s a r e described
The Chairman:
i t was 7
T h e vove.on what?
Governor Calkins:
such d e p o s i t s
Governors! C o n f e r e n c e .
i n this b r i e f .
Y o u m e a n they vated that they were n o t
24
Go vernor valkins:
S e v e n voted that t h e y were n o t time
deposits a n d five voted that t h e y were, a s I recall it.
T h e
Board has ruled o n this matter, a n d the protest i s a protest
against t h e Board's ruling, because o f a number o f qiite complicated facts running b a c k t o the time when t h e Security Trust
& Savings F a n k a n d other large savings banks were admitted t o
the system.
L - d o - n o t i m o w “nether
state this case ovor again,
i t L s n e c e s s a r y Tor: me-vo
o r whether y o u are a l l sufficiently
familiar w i t h i t t o form a judgment, b u t this immediate topic
was p u t u p o n t h e p r o g r a m n o t a t o u r suggestion,
b u t a t the sug-
gestion o f Mr. James, a f t e r h i s visit o u t there a n d aftcr a discussion o f the matter w i t h ifr. Satori a n d some o f the officers
of his bank, I
recall t h a t Governor Strong was w r y strongly
of t h e opinion that these were n o t time deposits. I
do not
think that i s the only question involved.
I have o n l y t w o p o i n t s
Board's p r e s e n t ruling,
conclusive.
t o make i n opposition
and I
t o the
think s i t h e r o n e o f t h e m i s
W h e n w e argued t h i s matter before I w a s q u i t e
directly t o l d
m t t o t a l k a*tout t h e matter,
b u t w e talked
about i t just t h e same.
Tne f i r s t p o i n t i s t h a t t h e l a w c o n t a i n s a
definition o f t i m e deposits,
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Federal Reserve Bank of St. Louis
complete
a n d that t h e B o a r d h a s n o power
PA9)
to change t h e definition containod i n the l a w through regulation.
T h i s regulation h a s perfectly, plainly, a d d e d t o t h e
definition p l a c e d i n t h e l a w a
lot o f embroidery w h i c h i s
mot even suggested b y the terms o f the law.
T h i s i s the
first point, t h a t t h e Board has n o such authority.
posits a r e d e f i n e d
T i m e de-
i n t h e law, a n d t h e y t a k e t h e position t h a t
these p a r t i c u l a r d e p o s i t s
i n amcstion f u l l y meet t h e defini-
tion i n the law.
The s e c o n d
i s a
qestion
o f expedience,
Board has made a regulation contining a
plied b y a
corscientious, p e r h a p s a
n o t law.
T h e
definition which, a p -
s t u b b o r n man,
i f you want
to put i t that way, will determinc t h a t these particular d e posits a r e t i m d e p o s i t s ,
a n d that t y p e o f m a n will c a r r y t e n
per cent reserve against t h e m because o f t mt conclusion.
Another t y p e o f manager,
i n another bank, w i l l meet fully
the d e f i n i t i o n c o r m a i n e d
i n the Board's regulation a n d carry
a three p e r c e n t reserve,
obtains
T h a t i s exactly t h e situation that
i n the twelve federal reserve districts
almost a c r o s s t h e s t r e e t f r o m e a c h other,
able size.
a n d b a n k s o f compar-
N o w , o n e o f two things should b e done.
the c o n s c i e n t i o u s
m a n should b e relieved
carrying t h e t e n per cent reserve,
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Federal Reserve Bank of St. Louis
a s tetweenbtanks
Bither
o f the necessity o f
o r the other m a n should
b e
26
compelled
t o carry a
ten per cent reserve
same i d e n t i c a l character.
I
o n deposits
o f the
t was pointed o u t t o t h e president
of t h e tank i n mestion t h a t there was n o difficulty about
meeting t h e r e g u l a t i o n
o f the Pederal
Reads
Board, t h a t a l l
that w a s n e c e s s a r y t o d o s o w a s t o s e t u p s o m e a c c o u n t i n g
procedure,
h a v e some forms printed
mandred dollars a
regulation.
H
c o s t o f t e n o r twelve
year, a n d then his bank would meet t h e B a r d ' s
o s a i d h e would
up t o this time.
at a
m t
d o i t a n d has n o t done i t
O n the other hand, t h e competing t m n k
across t h e street h a s adopted this suggestion, h a s spent a
few hundred dollars o n forms, a n d perhaps a
few hundred dol~
lars i n extra accountimgw w o r k a n d meets t h e regulation o f the
Board a n d carries a
three p e r c e n t reserve.
ous a n d improper situation,
T h a t i s a n anomal-
T h e Board should either relaxits
regulation o r i t should tighten i t u p s o that i t cannot b e
evaded b y anyone.
Governor Harding:
M
a
y I
ask i f those deposits a r e r e -
quired, u n d o r t h e California law, t o @
segregated a n d treated
as s a v i n g s d e p o s i t s a n d i n v e s t e d o n l y i n c e r t a i n w a y s ?
Governor Calkins:
Y e s , t h e y are, a n d m y s u g g e s t i o n i s
that that provision should b e included i n the Board's regulaPLON«
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Federal Reserve Bank of St. Louis
BY
The Chairman:
T h a t i s where t w p i s done t h e y woulda
be considered time deposits?
Governor Harding:
W h e r e t h e s t a t e l a w requires i t ,
Governor Calkins:
w h o r e t h e r e a r e separate provisions
of the State law. P r o v i d e d , however, t h a t whenever t h o l a w
under w h i c h t h e b a n k e x i s t s r e q u i r e s s e g r e g a t i o n o f c e r t a i n
funds f r e m t h e other funds o f the mnik, a n d permits investment
of such funds o n l y i n specified securities o r securities a p proved
b y t h e supervising b a n k i n g authority,
of pass t o o k , c e r t i f i c a t e ,
t h e presentation
o r o t h e r s i m i l a r f o r m o f receipt
when a withdrawal i s made, i t n o t b e r e cessary t o entitle s u c h
accounts i n classification a s savings accounts, a n d i n such
évent t h e bank's p r i n t e d regulation, a c c e p t e d
b y the depositor
at the time t h e account i s opened, n e e d n o t include s u c h a
requirement.
T h a t i s beside t h e question, whether t h e y
should b e classified a s time o r savings deposits, because w e
are talking a t u t t h e question whether t h e Board's regulation
should b e s o amended a n d perfected a s t o definitely make t h e m
one thing o r the other.
Governor Bailey:
T h a t i s m y contention.
T h e y always have t h e right t o take
thirty days, d o they not?
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Federal Reserve Bank of St. Louis
Governor Calkins:
Y e s ; t h a t i s a l l t h a t i s required u n d e r
a complete definition o f the law.
Governor B a i l e y s I
have h e r e a
copy o f a
check o f the
Security Trust &
Savings B a n k showing rules governing special
Savings accounts.
T h e r e i s a rule which provides t h a t t h e y
can draw against t h e account, b u t t h e bank c a n stop t h e m a t
any t i m e i t wants
t o a n d t a k e t h i r t y d a y s o n it.
Governor Calkins:
The Chairman;
kins?
Y e s ,
M a y I make this suggestion, Governor Cal-
I n the first place, w e have all observed that since
the change i n the reserve requirements, w h i c h was made i n 1917,
in June, t h e r e h a s developed a
very strong tendency, f o r which
there i s great incentive o f profit,
t o convert j u s t a s large
a percentage o f gawdiirbss o
t
n
i a class o f deposits which only
requires t h r e e p e r , c e n t r e s e r v e
from d e p o s i t s
r e q u i r i n g seven,
a s possible,
comerting them
t e n and thirteen
SoGad = T h a t i s going o n all over t h e country.
per cent re-
T h e propor-
tion o f time deposits--- n o t t h e amount, b u t t h e proportion o f
time d e p o s i t s r e q u i r i n g o n l y t h r e e p e r c e n t h a s v e r y m a t e r i a l l y
facreased a s against those that require a
larger percentage.
of course that i s a n inflationary development a n d t h e m e s t i o n
arises h o w far i t c a n g o with security t o t h e reserve position
of the banks o f the country.
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Federal Reserve Bank of St. Louis
H a v i n g i n mind that t h a t i s a
29
development w h i c h m u s t b e t a k e n i m o a c c o u n t ,
that t h e B o a r d i s c o n f r o n t e d w i t h a
of treating t h e matter.
O n e i s that i t i s strictly a
o f t h e A c t itself,
to
m e
possibility o f t w o m e t h o d s
of law, t h a t t h e Board has n o discretion;
by t h e t e r m s
i t occurs
mtter
t h a t i t was settled
a n d that b y making regulations
which a r e i n conformity w i t h the provisions o f the act t h e
méstion will t e finally settled.
I f , o n the other h a n g
i t te
not a gestion o f l a w a n d i t was n o t settled b y the Act, t h e n
the Board has g o t t o use i t s discretion.
discretion I
I
n a matter o f
do not s e e h o w they c a n take account o f the tar-
ious recommendations t h a t a r e n o w being made f o r changes i n
reserve r e q u i r e m e n t s
o r i n m e t h o d o f c a l c u l a t i n g reserve, w i t h -
out covering t h e whole ground. T h e r e f o r e , t h e qvestion i s
whether t h e Conmittee o f the Federal Reserve Chairman, w h i c h i s
tne
now a t work o n the Subject, i s m t/one t o deal with this ques-~
tion o f reserves a s a whole, t a k i n g into account t k e situation
in California,
t h e situation developing
i n N e w York,
t h e re-
quest t h a t i t e m s d u e f r o m b a n k s b e d e d u c t e d f r o m g r o s s deposits,
and s o on, a n d make a
thoroughly scientific s t u d y o f the matter
and disptch i t i n that way. I
find that t h e committee o f
Federal Reserve Agents, w h i c h i s acting.in this matter a n d
studying it, h a s just adopted a
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Federal Reserve Bank of St. Louis
report which will b e presented
30
at their m c t i n g a n d which I
would like t o read, because i t
bears d i r e c t l y u p o n t h i s matter.
Governor Calkins:
that I
amwholly
i y . Chairman, I
would like t o s a y
i n s y m p a t h y w i t h y o u r view, t h a t i t i s a n
undesirable p r a c t i c e a n d a
dangerous o n e t o c o n t i n u e
t o whit-
tle avay t h e reserves b y various a n d devious methods, b u t o n
the contrary i f the reserves,
are n o t right,
a s a t present s e t u p b y the law,
a r e n o t equitable a n d a r e n o t operating a s t h e y
should, t h e n the l a w should b e amended.
I t i s argued that
the d i f f e r e n c e b e t w e e n s e v e n p e r c e n t a n d ten. p e r c e n t r e s e r v e
is not sufficient;
t h a t a bank, located i n a Federal Reserve
or B r a n c h City, c a r r y i n g t e n p e r c e n t reserve,
with a
a s compared
bank distant f r o m such c i t y carrying s e v e n p e r c e n t r e -
serve, enjoys a
great advantage.
reserve m a i n t a i n e d
I t i s a r g e d t h a t i f the
b y the city bank i s ten per cent that i t
should b e less t h a n that i n the country banks.
T h a t might t e
an arguable point, a n d I think i t should b e determined, b u t I
am very much afraid o f the tendency t o inject a
into t h e deductible column,
on t h e a s h pile,
I think t h a t i s a
few items
t o count currency i n transit o r
a s i t m a y be, a s a
part o f t h e b a n k ' s r e s e r v e - - -
dangerous t e n d e n c y t h a t s h o u l d b e met.
I d o n o t consider t h a t meets t h e question involved
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Federal Reserve Bank of St. Louis
i n the
B u t
situation o f t h e t w o b a n k s t h a t I
have r o u g h l y described.
That i s a situation that t h e Board would have t o determine,
it seems t o me, a p a r t f r o m a n y w e s t i o n o f general reserve.
The Chairman:
4 s matter o f law?
Governor Calkins:
The Chairman:
A
s matter
o f law, y e s .
T h a t w o u l d c o m e within t h e first defini-
tion a n d i t would m t b e proper f o r u s t o take action o n that
here,
Perhaps I
should e x p l a i n t h a t M r . Harrison,
i n prepar-
ing t h e program, h a s divided t h e topic which were suggested b y
the B o a r d a n d p u t t h e m u n d e r t h e v a r i o u s h e a d i n g s
o n o u r pro-
gram w i t h t h e express p u r p o s e t h a t w e taight h a v e p r e l i m i n a r y
discussion, a n d when i t comes t o a joint conference w e would
have something definite t o say.
Governor C a l k i n s ,
H e r e 1 8 8 case I n point,
a n d i f you have a
suggestion a s t o 2
recom-
mendation t o t h e Board, l e t u s s e e i f w e c a m o t g e t i t t o a
vote, agres u p o n i t and have something definite before us.
Governor C a l k i n s :
Board i n c l u d e
in a
l y recomeendation i s first that t h e
regulation s o n e p r o v i s i o n s u c h a s t h a t
which I read, o r some wmmparable provision, b u t that i f i t
will n o t do.so,
I f It. wild n o t relax i t s regulation i n regard
to special savings accounts, t h a t i t should then redraw t h e
regulation i n such a way a s t o prevent the competivor banks
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Federal Reserve Bank of St. Louis
52
of a
security t r u s t a n d savings c o m p a n y f r o m a d o p t i n g a
tice w h i c h p e r m i t s t h e m t o c a r r y a
prac-
three p e r c e n t r e s e r v e
against those accounts.
The Chairman:
Before I
would want t o know two things:
would vote o n such a proposal I
F i r s t , whether t h a t regula-
tion i s i n conformity t o the statute, and, a s I
a m not a lawyer
I would l i k e t o h a v e t h a t a u e s t i o n e x a m i n e d i n t o .
Governor Calkins:
The Chairman:
I t has t e e n examined into.
T h e second point i s I
better t h a n I now know, whether a
of t h e B o a r d i n respect
relaxation o f the regulation
t o what i s a
three p e r c e n t reserve, i n s t e a d o f a
deposit e n t i t l e d
seven,
per c e n t r e s e r v e , - - - w h a t e f f e c t s u c h a
upon t h i s m o v e m e n t
t o the
t e n o r thirteen
regulation w o u l d h a v e
t o convert d e m a n d deposits i n t o t i m e depos-
its i n o u r district;
of hundreds
would l i k e t o know,
whether
o f millions
i t would result i n t h e transfer
o f t h a t t y p e o f deposits
i n order t o
secure t h e lower reserve. T h e r e f o r e , f r o m m y point o f view,
I would p r e f e r
t o h a v e i t p u t s q u a r c l y u p t o t h e Board.
I f it
is a legal m e s t i o n i t should b e determined i n accordance w i t h
the l a w a n d w e h a v e n o q u e s t i o n t o discuss;
that i f it is a
matter o f discretion i t i s a subject t h a t requires w r y thorough
study a n d examination t o see what t h e effect will t w before w e
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Federal Reserve Bank of St. Louis
33
begin t a let down t h e w r s . T
.d6 Bet oaind telling you,
as a lawyer, t h a t after reading satori's brief, I
a
2 t
think h e has
g o o d case, b u t I would want t o have a pretty careful
study o f i t m a d e b y s o m e o n e c o m p e t e n t
to advise,s
a t o whet
a fair i n t e r p r e t a t i o n
I
o f t h e l a w is.
n New York t h e b i g
banks a r e o p e n i n g u p w h a t t h e y c a l l c o m p o u n d i n t e r e s t d e p a r t -
ments a n d things o f that sort,
posits;
i n order t o lure i n these de-
t h e y a r e transferring deposits f r o m checking accounts
to t h e s e s o - c a l l e d s a v i n g s a c c o u n t s .
I
t is a
b i g development,
and w e h a v e g o t t o l o o k ahead.
Governor Harding: I
have talked over Satori's brief
with o u r c o u n s e l a n d h e d o e s n o t t h i n k t h e r e i s m u c h i n i t a s
relates
t o t h e Board's exceeding i t s authority
i n defining
savings accounts, b u t h e said there i s something m c k o f t l
thing tecause these special savings accounts a r e clearly time
deposits.
to make a
H
e t o l d m e i t was h i s opinion t h a t Satori wanted
test case o f it, n o t stand for t h e penalties f o r de-
ficienyireserves, t a k e n into t h e courts, a n d h e thought h e
would w i n out o n it.
The Chairman:
j n a t i s y o u r proposal, G o v e r n o r (Calkins?
Governor Calkins:
as follows:
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Federal Reserve Bank of St. Louis
T h e definition i n the regulation i s
" S a v i n g s accounts.
T h e t e r m ‘savings accounts!
shall m e a n t h o s e d e p o s i t s
asA
i n respect
t o which---
pass book, certificate, o r other similar form
of r e c e i p t ’
must
b e presented
t o the bank whenever a
withdrawal
is made,
(2) T h e depositor m a y a
a y t i m e b e required b y the
bank t o g i v e n o t i c e o f a n i n t e n t t o w i t h d r a w n o t l e s s t h a n
thirty d a y s b e f O r e a
withdrawal
i s made,
m d
"(3) T h e bankts printed regulations, accepted b y the
depositor a t t h e time t h e account i s opened, include t h e above
requirements."
That there should b e added t o that t h e following:
"Provided, however, t h a t whenever t h e l a w under which
the b a n k e x i s t s r e q u i r e s s e g r e g a t i o n o f savings f u n d s f r o m
the other funds o f the bank and permits the investment of such
savings f u n d s o n l y i n s p e c i f i e d s e c u r i t i e s
o r securities a p -
provided b y the supervisory banking authority, t h e presentation
of p a s s t o k , c e r t i f i c a t e
o r o t h e r s i m i l a r f o r m o f receipt
when a withdrawal i s made shall n o t b e recessary t o entitle
such accounts
t o classification a s savings accounts,
such e v e n t t h e b a n k ' s p r i n t e d regulations,
depositor
a t the time t h e account
such requirements."
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Federal Reserve Bank of St. Louis
accepted
i s opened,
and in
b y the
n e e d n o t include
35
The Chairman: E v e r y national bank i n the country i s operating u n d e r a
l a w w h i c h r e q u i r e s s e g r e g a t i o n o f savings depos-~
its row, under t h e terms o f t h e Federal Reserve A c t a n d t h e
regulations
o f the Board---
Governor Calkins: S e g r e g a t i o n o f deposits, b u t n o t segregation o f investments.
The Chairman: I
mean segregation o f investments.
Governor McDougal:
The Chairman:
N o t t h e national banks, n o .
E v e r y bank, e v e r y national bank, under
the terms o f the regulation,
a s I understand it, would b e pre-"
cluded from voluntarily segregating investments o f savings
funds?
Governor M e Dougal:
fhe Chairman:
N o t a t all; I
do n o t think so.
I f the national banks are not required b y
law t o effect segregation o f savings funds investments, wouldn't
they b e prohibited from doing tie kind of business that Satori
does, w h i c h i s t o have savings deposits accounts subject t o
thirty days notice that m a y b e withdrawn without presentation
of t h e p a s s b o o k ?
Act
Governor Calkim: E x a c t l y , a n d the National B a n k i s serjously defective i n that particular.
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Federal Reserve Bank of St. Louis
The Chairman:
T h i s gives t h e state banks a n opportunity,
56
where t h e y h a v e t h e s e g r e g a t i o n law,
t o o p e n t h i s t y p e o f account
and d o a n unlimited business, without giving i t t o the national
banks,
Governor Calkins:
invested a s r e q u i r e d
The Chairman:
T h a t is, p o v i d e d t h e state funds a r e
b y t h e S t a t e law.
P r o v i d e d t h e state l a w requires segrega-
tion,
Governor Calkins:
O
f course,
I
f y o u d i d n o t have a
law p r o v i d i n g f o r s e g r e g a t i o n y o u c o u l d n o t o p e r a t e
a t all.
The Chairman: H o w e v e r , Governor Calkins h a s made a
motion here,
I
s there a
' Governor Young: I
but before I
second?
am quite willing t o second the motion,
do i t I would like t o a s k Governor Calkins whether
there i s anything i n the cuestion o f Mr, Satori here that t
part o f r e g u l a t i o n D
hat
w h i c h r e q u i r e s p r e s e n t a t i o n o f p a s s books,
certificates o r other similar f o r m o f receipt b e presented t o
the bank whenever withdrawal i s made, s h o u l d b e eliminated+-whether
that wouldn't
Governor Calkins:
handle
i t better?
N o , I
think not, w c a u s e i f that pro-
vision should b e included i t would only apply w h y t h e bank i s
required t o make these investments
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Federal Reserve Bank of St. Louis
i n specific securities.
f
Governor Young: I
will s e c o n d t h e motion.
or
The Chiimacn:
T
h
e moti
~
Federal R e s e r v e B o a r d th::t t h e r c
e Peco w e r d .
v e incornoreted
t o the
i n t h e rexulatio:
new phrase. w h i c h Governor C-lkins v i l l ple:se read.
Governor G : l k i n s :
‘ t y v-otion i s t h . t a f t e r
t h e rwardts,
definition o f savinzs accounts, v h i c h i s re-ulation D , peragraph ( d ) ,
i s follows:
"Sayin. s.ccounts., een t h o s e d e p o s i t s
the ter. ' s a v i n g s .«ccounts! s h e l l
i n respect
t o --hich -
(1) T h e pass book, -ertigicute, o r other similar form
of r e c e i n t m u s t x
presented
t o t h e d a n k .henever .
withdrsval
is made,
(2)
T h e devositor « s v - t uny time b e re:uired b y the
to g i v e n o t i c e o f i n intended « i t h d r a w u l
n o t less t h - n 5 0
before « a withdrowsl i s made, u n d
ai T h e oank's crinted re,ulations, accepted o y the depositor
i t t h e t i m e t h e - c c o u n t i s onened. includes t h e - b o v e
re-uirenents.”
There s h o u l d b e a c d e d t h e following:
"Provided, however, t h a t whenever t h e l a w under which t h e
bank exists requires aec¥regation o f savings funds f r o m t h e other
funds o f the bank a n d >ermits t h e investment o f such savings
fungs o n l y i n s p e c i f i e d s e c u r i t i e s
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Federal Reserve Bank of St. Louis
o r securities a p p r o v o d
by
58
the supervisory banking authority, t h e presentation o f pass book,
certificate,
o r other similar f o r m o f receipt w h e n a
withdrawal
is made shall n o t b e necessary t o entitle s u c h accounts t o ~*’
classification a s s a v i n g s a c c c u n t s ,
a n d i n s u c h event,
the
bank's printed regulations, accepted b y the depositor a t t h e
time t h e a c c o u n t
i s opened, n e e d n o t i n c l u d e s u c h r e q u i r e m e n t . "
Governor Seay:
T h a t i s t h e very sort o f resolution that
Mp. Satori asks for.
Governor Calkins:
I t i s very nearly.
Governor Calkins:
I t i s almost verbatin.
I t occurs t o
me h a t i t does n o t meet this situation, b u t only effects a
compromise w i t h t h e m o s t a c t i v e o b j e c t o r
t o t h i s law.
W h i l e I
agree with y o u that t h e subject o f reserves needs s t u d y b y somebody, I
do not think t h e Governors should b e content t o leave
this m a t t e r
t o t h e Federal Reserve Agents without expressing
their o w n o p i n i o n t o t h e Board.
The Chairman:
w
e c a n d o that,
m t t h e question before
us i s t h e s p e c i f i c qmiestion, G o v e r n o r S e a y . A
been made a n d seconded.
resolution h a s
A f t e r w e dispose o f that w e have a
similar topic under (g}, under which w e c a n introduce s o m e
further recotimendation w h i c h d e a l s w i t h reserves.
any further discussion?
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Federal Reserve Bank of St. Louis
I
s there
39
Governor Norris:
“ i p , Chairman, w h e n this matter w a s u p
for discussion before, I
the B o a r d
thought t h a t t h e present regulation o f
w a s amistake. I
meeting where, u n l e s s
recall o n e d i s c u s s i o n
m y m e m o r y p l a y s m e false,
i n this
i t was discuss-
éd i n the morning u p t o the hour o f adjournment f o r lunch, a n d
if a vote h a d b e e n taken a t that time i t would have b e e n eight
to four f o r a regulation that would b e substantially i n accord
with t h e one which Governor C a l k i n s h a s just suggested.
Governor Calkins:
W h i c h w o u l d a c c o m p l i s h t h e s a m e purpose,
at least?
Governor Norris:
Yes.
‘ W h e n w e reassembled after lunch
two members h a d apparently changed their minds.
T h e result
was that t h e vote was seven t o five against it. I
in sympathy with Governor Calkins! motion.
it i s r e a s o n a b l y e v i d e n t
a m entirely
I t is seems t o me
t o anyone, v i t h o u t b e i n g a
lawyer, t h a t
when t h e Act says that a l l savings accounts w h i c h a r e subject
to not less t h a n thirty days notico before demand, s h a l l b e
treated a s time deposits, a n d the Board t h e n undertakes t o
add a purely mechanical requirement,
book, c e r t i f i c a t e ,
o r other similar
t o wit, t h a t t h e pass
f o r m o f receipt
must
b e pre-
sented whenever withdrawal i s made, t h a t t h e y have made a n addition t o t h e l a w w h i c h i m p o s e s a n o t h e r q u a l i f i c a t i o n ,
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Federal Reserve Bank of St. Louis
which they
40
Had n o right t o make.
W
e have t h e fact before us, however,
that they have a n opinion f r o m their counscl that t h e y d i d have
the right t o make that additional stipulation.
there i s c o n s i d e r a b l e d i f f e r e n c e
o f opinion
W e know that
i n the reserve
board, a s there i s among us, s o that i t seems t o m e that i t
would be unwise t o ask the Board t o admit that they had passed
an ultra vires resolution, w h i c h people a r e always reluctant
to admit, a n d which they would b e particularly reluctant t o admit when they h a d passed i t after their counsel h a d advised
them that t h e y h a d t h e right t o pass it. T h e r e f o r e ,
to m e that i f w e are going t o make a
i t seems
recommendation f o r a
change here, t h a t w e ought t o suggest t o them that t h e y make
the c h a n g e
i n the f o r m n o t o f undoing what t h e y have already
done, b u t i n the f o r m o f adding a
ception,
proviso o r restriction o r 6x-
G o v e r n o r Calkinst suggestion,
one defect i n it.
i t s e e m s t o me, h a s
H e has made h i s exception t o fit t h e parti-
cular c a s e o f Uglifornia.
Governor C a l k i n s :
Governor Norris:
N o .
Y e s , because y o u s a y where t h e assets
are segregated.
Governor Calkins:
I
t i s just a
matter
o f principle.
Where t h e y a r e n o t segregated t h e y a r e not entitled t o such
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Federal Reserve Bank of St. Louis
consideration.
Governor Norris: I
do not know what t h e Michigan l a w is,
whether i t i s precisely similar t o the California l a w o r whether
it differs somewhat;
b u t even though t h e Michigan l a w b e the
same, s o m e other state might pass some l a w which, w h i l e i t did
not provide f o r segregation, d i d provide f o r something which,
from the point o f view o f safety, w o u l d b e equivalent t o it,
and I think i t would b e unfortunate for the Reserve Board t o
adopt a
system o f making regulations t o fit t h e l a w o f any
particular state.
A n y regulations t h a t t h e y make ought t o b e
nation-wide a n d ought t o apply t o any l a w that has m o t been
passed o r t h a t m a y b e p a s s e d
i n a n y state.
S
o t h a t m y sugges-
tion would b e that Govermor Calkins resolution b e amended t o
provide substantially t h a t i n any state whose laws,
opinion o f t h e Board, p r o v i d e a d e q u a t e s a f e g u a r d s ,
counts m a y b e c l a s s e d a s s a v i n g s a c c o u n t s ,
of p a s s b o o k , c e r t i f i c a t e ,
be n o t required.
a
i n the
t h a t s u c h ac-
a n d that presentation
o r obher similar f o r m o f receipt
n exception o f that k i n d would s o t l o o k
te b e a n d would not b e a n exception which was made t o fit t h e
particular c a s e o f California,
fornia a n d Michigan.
o r the particular cases o f Cali-~
I t would apply t o a n y state, a n d i t i s
a f o r m w h i c h i s m o r e e r l e s s c o m m o n i n Federal l e g i s l a t i o n .
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Federal Reserve Bank of St. Louis
42
Governor Harding: I
think a t tho same time t h e Board
should t a k e c a r e n o t t o o p e n t h e b a r s t o o wide. I
in m i n d w h e r e t h e c l a i m w a s m a d e t h a t a l l o f a
have a
case
bank's d e p o s i t s
were savings accounts, a n d the Board t o o k the position that
There i s a m e s t i o n o f fact.
T h e y m a y have
been i n the form o f being subject t o thirty days! notice, b u t i t
was brought o u t that t h e y accepted accounts f r o m merchants a n d
did a
general c o m m e r c i a l t u s i n e s s .
I
these a r e clearly savings deposits.
n this C a l i f o r n i a C a s e
T h e Q l i f o r n i a law, a s I
understand i t , c l a s s i f i e d s p e c i a l s a v i n g s d e p o s i t s
a s savings
deposities a n d
certain ways.
S
o there o u g h t n o t t o b o a n y confusion
minds o f “the Board,
Calkins,
i n the
i f t h e y adopted t h e sug-estion o f Governor
t h a t t h e y were i n a n y w a y reserving their previous
decision i n the case o f the ‘:ashington L o a n & Trust Company,
to which I referred, which,
o f courses, w o u l d o p e n u p a very
wide s i t u a t i o n ,
Governor Calkins: I
well t a k e n .
think Governor Harding's point i s
W h i l e Governor Norris!
situation o f this p a r t i c u l a r b a n k ,
sugexestion w o u l d meet
the
i t would also meot m a n y other
situations w h i c h s h o u l d n o t b e met.
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Federal Reserve Bank of St. Louis
Governor Harding:
Y o u cannot g e t around Section 9 , which
refers
t o state laws,
Governor Calkins:
T h i s i s n o t made t o meet t h e situation
of a n y bank o r banks i n any one state.
I t i s made t o meet a
situation existing h e r e t h e laws which govern the institutions
require t h e m t o invest these savings funds i n some limited Way.
(There were calls f o r the auestion.)
The Chairman:
A r e y o u ready f o r t h e ouestion o n Governor
Cal'sins' motion, o r is there any further discussion?
(The motion, having been duly seconded, was carried.)
Governor Seay: I
reluctantly v o t e n o o n that because i n
my o p i n i o n i t i s n o t c o m p r e h e n s i v e e n o u g h a n d d o e s n o t m e e t
the situation which was put up to us. ‘ t h i s mestion i s definitely p u t u p t o u s b y t h e Board,
and I
d o not think w e have
answered i t i n a way which would b e satisfactory t o m e i f I
were a
member
o f t h e Board,
The Chairman:
the m a n n e r
by banks
T h e y have asked u s f o r a discussion o f
i n which reserves
o n time deposits a r e computed
i n t h e t w e l y t h Federal R e s e r v e D i s t r i c t : .
T h a t i s the
specific q u e s t i o n .
Governor Seay:
4 6 have passed a
resolution a s to t h e
way i n which w e think they ought t o be treated.
T h e Board's
resolution h a s b e e n i n effect f o r a very long time.
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Federal Reserve Bank of St. Louis
v e n if
44
should b e ultra vires,
a s many o f u s contend, a n d a s coun-
sel f o r many o f the banks contend, nevertheless there m a y not
be a n y u r g e n t n e c e s s i t y f o r c h a n g i n g t h a t r e g u l a t i o n
a t this
particular time, a n d i t might b e left there until s u c h time a s
the Board believes i t c a n cover t h e whole: situation b y amending
the l a w i n a way which would adequately protect t h e reserves o f
the b a n k s
o f t h e country.
T h a t i s m y regsson f o r v o t i n g n o
on this resolution, r r . Chairman.
The Chairman:
T h e next topic i s l-(g), b u t before dis-
cussing that I would like t o a s k Mr, Harrison t o read t h e report
of t h e C o m m i t t e e
o n Reserves,
by t h e 3 o m i t t e e
o f Federal R e s e r v e A g e n t s
tip. Harrisons
w h i c h i s going t o b e submitted
Tr:
a t t h i s meeting.
T h e r e p o r t i s a s follows:
‘“hereas, t h i s Conmittce h a s found that i t s erforts
to
devise o r r e c o m e n d t h e a p p r o v a l
meet t h e n e e d s
o r demands
o f individual proposals
o f special Sroups
to
o f member banks,
ave almost invariably l e d t o the conclusion that,
i n fairness
to a l l m e m b e r b a n k s a n d t h e Federal R e s e r v e S y s t e m a s a
whole,
no a t t e m p t s h o u l d b e m a d e t o e f f e c t a n y p i c c e m e a l c h a n g e s
in
the methods o f calculating reserves,
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Federal Reserve Bank of St. Louis
TH uxscORE B e I T R E S O L V E D t h a t :
1. I t would b e wise t o have a thorough scientific country-
45
wide study o f the whole question o f member b a n k reserves
made b y a n expert o r expert? giving their whole time t o that
study.
2. W h i l e t h e C o m m i t t e e f e e l s t h a t t h e p r o p o s a l
Federal Reserve Board (topic 6
existing i n j u s t i c e
Joint Program) w o u l d remove a n
t o country-member banks,
must s o o n b e r e m o v e d
o f the
i n all fairness
a n inequality t h a t
t o t h o s e banks, n e v e r t h e -
less t h e C o m m i t t e e b e l i e v e s t h a t i t w o u l d n o t b e p o l i t i c
at
this time t o make a n y amendments t o the l a w o r Board's regulatlons £ 0 a c c o m p l i s h t h a t p u r p o s e i f , a s recommended,
or e x p e r t s a r e t o b e a p p o i n t e d
tions w h i c h i n a
t o make a
a n expert
s t u d y a n d recommenda-
very f e w m o n t h s m i g h t r e s u l t
i n another
change i n the method o f calculating t h e reserves o f countrymember banks a s well a s city-member banks.
3. A p p r o p r i a t e
steps
b e taken with a
view
t o procuring
the amendment t o the reserve laws o f those states which d o
not n o w accept reserve requirements o f the Federal Reserve
Act f o r state banks o r trust companies w h i c h have become m é m
bers of Federal Reserve Synton. ‘
The Chairman:
T h e point that I
tion w i t h t h i s t o p i c i s i l l u s t r a t e d
have i n mind i n connec-
b y the fact that there a r e
before t h e Federal Reserve Board n o w these facts,r f i r s t a s t o
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Federal Reserve Bank of St. Louis
46
the general change o f the character o f deposits a n d i n the
character
country;
o f reserve requirencnts t a k i n g p l a c e throughout t h e
second,
get r e l a x a t i o n
t h e demand o f the c o u n t r y banks that t h e y
i n t h e reserve requirements; third,
t h e concur-
rent efforts made b y the state banks t o include foreign deposits a s d e d u c t i b l e f r o m b a n k deposits;
fourth,
t h e ruling o f
the F e d e r a l R e s e r v e B o a r d a l r e a d y m a d e w h i c h p e r m i t s r e s e r v e
banks t o count e a s h i n transit a s part o f the reserve, a n d
other matters t h a t I
do not think o f a t t h e moment, o n e being
the counting o f cash i n vault a s a part o f the reserve o r a s
a deduction f r o m g r o s s deposits,
but I
fel that I
to a c t u p o n t h i s m a t t e r p i e c e m e a l a n d r e c o m m e n d
a m not a b l e
t o t h e Federal
Reserve Board that first this deduction bemade a n d then that
one b e made, b e c a u s e ,
requirements,
i n the proposition
t o reduce reserve
t h e r e i s n o offsetting increase
correct t h e e v i l s
o r suggestion
to
i n t h e r e s e r v e s i t u a t i o n t h a t m a y exist,
and therefore m y sugzestion i s that w e make a n urgent recommendation t o t h e B o a r d t h a t t h i s s u b j e c t
the t e r m s s u g g e s t e d
method,
o f reserves, u n d e r
b y the Agentts Committee,
b e t a k e n u p a t once,
o r b y some other
o r otherwise t h e development w i l l
go s o far that i t will b e impossible t o offset it.
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Federal Reserve Bank of St. Louis
Governor Seay:
D
o y o u h a p p e n t o k n o w w h a t i s contem-
47
plated b y the Agents when they say “experts", whether they
contemplate confining i t t o the reserve organization o r going
outside o f it?
Governor Wellborn:
this c o m m i t t e e
W h a t k i n d o f people would constitute
o f cxperts?
The Chairman:
T h a t i s t h e question t h a t Governor S e a y
has just asked?
Governor weDougal: I
consider t h a t a
Chairmen m i g h t w e l l b e c o n s i d e r e d a
committee o f
committee
o f experts
on
that subject.
The Chairman:
D o y o u know what t h e y contemplate, ifr.
Harrison?
Mr. Harrison:
T h e Chairmen's committee found out, a n d
they feel v e r y strongly about it, t h a t i t i s impossible f o r them
to give the time necessary t o make a complete and effective
study o f this whole auestion.
I t was their o w n thought a n d
their o w n r e c o m m e n d a t i o n t h a t t h e y a p p o i n t a
perts t o give itsfull time t o it, a
opportunity
committee
o f ex-
committee t h a t would have
t o g o t h r o u g h o u t t h e w h o l e system, i n t o t h e s e v e r a l
districts a n d f i n d o u t h o w a n y p r o p o s a l t h a t t h e y m i g h t h a v e
in mind would apply t o a given district o r a given locality.
As t o who t h e experts should b e they h a d n o very definite
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Federal Reserve Bank of St. Louis
48
idea,
T h e r e w a s s o m e thought t h a t possibly t h e y ought t o
get somebody f r o m one o f the economic departments o f some o f
the c o l l e g e s
t o d o it, o r p o s s i b l y t h e y c o u l d g e t s o m e b o d y
properly qualified f r o m t h e Federal Reserve System, a s s i g n them
to t h i s o n e job,. s o m e o n e man, a n d h a v e h i s s a l a r y p a i d b y a l l
the r e s e r v e b a n k s r a t h e r t h a n b y o n e r e s e r v e bank. I
think
what t h e y want more t h a n anything else i s t o have t h e principle
of their recommendation approved, t h e details o f i t t o b e worked out later.
Governor McDougal:
A
s 1
-understand 1t,- y o u r i d e a i s t h a t
if a n y c h a n g e s a r e n e c e s s a r y o r d e s i r a b l e t h a t r a t h e r t h a n
treat w i t h them one b y one--- I
require a
change
i n the law--- t h a t i t was desirable
the e n t i r e m a t t e r s
do it, make a
a m speaking o f changes t h a t
o f reserves s t u d i e d
t o have
b y those competent
to
clean sweep o f the whole thing while t h e y a r e
at it, a n d I understand t h e motion i s t o that effect?
The Chairman:
T h e r e i s n o motion,
T h a t i s what t h e
committee h a d i n mind.
Governor MeDougal: I
will make s u c h a motion i f i t i s
at OPOer.
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Federal Reserve Bank of St. Louis
Governor Biggs:
T
S econ 1
te
Governor Norris:
T h a t i s t h e recommendation
o f the com-
mittee?
The Chairman:
T h a t i s t h e recomnendation
o f the commit-
tee o f Agents.
Governor Norris:
The C h a i r m a n s
W
I
s that report before u s now?
e simply happen t o have a
copy o f i t i n
the w a y o f information that w e c a n use.
Governor Fancher:
W
e d o n o t k n o w w h a t action t h e agents
will t a k e o n t h a t r e p o r t ?
Tne G a i r m a n :
N o .
Governor W e l l b o r n : - B e f o r e g o i n g i n t o that,
i s i t welt
settled in both the Agentd Conference and our Conference that
the reserves
a s a t present s e t u p a r e n o t proper?
The Chairman:
I t arises i n this way, t h a t w e haves be-
fore u s three specific requests f o r changes,
Board,
b y ruling o f the
o f the w a y i n which reserves a r e calculated, a n d t h e
kind o f d e p o s i t s
o n which a
three p e r c e n t r e s e r v e i s allowéd.
In t h e S t a t e o f V a l i f o r n i a t h e y w a n t a n i n t e r p r e t a t i o n
the l a w which will satisfy o n e b i g bank.
cases they want a ruling
carrying that reserve,
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Federal Reserve Bank of St. Louis
I n the other
constitutes a deposit
I t is a matter o f calculation.
Governor Wellborn: I
about r e s e r v e s
n e
of
had never h e a r d a n y m e s t i o n r a i s e d
i n our district
a t all,
o r a n y dissatisfaction
with them. I
wondered w h e r e t h e o b j e c t i n n c a m e f r o m ?
Gevernor Seay:
T h e r e i s alse t h e fact, M r . Chairman,
that w e r e q u i r e r e s e r v e s
i n different percentages f r o m three
classes o f banks i n the country a n d there i s t h e contention
that t h a t r e q u i r e m e n t w o r k s o u t i n e q u a l i t y a s b e t w e e n t h e t h r e e
classes o f banks,
I d s n o t fully agree w i t h t h e premiso o f
the Agents! report, because I
do not believe t h a t there i s
that i n e q u a l i t y w h i c h i s contended;
b u t I
do not think this
matter i s one that i s ever going t o b e settled unless there i s
some thorough-going inquiry into it. I
mitte o f Agents
believe that t h e com-
i s a n exceedingly competent one, a n d I
believe y o u w o u l d b e l i k e l y t o g e t a
more c o m p e t e n t c o m m i t t e e
from t h e F e d e r a l Xoscerve executives themselves, b u t I
if t h e m a t t e r
ing s o m e b o d y
do not
doubt
i s ever g o i n g t o b e finally settled without havo n the committee w h o represents t h e banks o f t h e
country.
The Chairman:
T h a t w o u l d c o m e later, G o v e r n o r S e a y .
Governor Seay: I
tee o f agents, I
know, b u t i f someone suggested a
want t o s a y that I
commit-
believe t h e y a r e thoroughly
competent, b u t I believe i t would b e a broader investigation i f
the committee w a s onlarged, a
executives
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Federal Reserve Bank of St. Louis
broader investigation t h a n t h e
o f t h e b a n k s c o u l d m a k e o f it,
The Chairmen:
W o u l d i t n o t b e possible
t o have
existing committee exnploy some expert like Professor
Persons, w h o has given a
gre:t deal o f time a n d study t o
bank reserves, a n d let h i m b e the m a n t o d o the pulling
and hauling a n d getting together o f the statistical information. i
do not maxe that a s a definite suggestio:, b u t
e i t a s a n example.
v
H e has i e n organization
at
g
there i n t h e H a r v a r d S c h o o l
jobs.
»
G. hand
up
o f Business r e a d y t o trke u p b i g
H e i s right across t h e river f r o m t h e Chairman o f this
Committee, a n d might w o r k out a scheme o f thet kind a n d have
a thoroughly scientific investigation.
H o w does that strike
you, G o v e r n o r H a r d i n g ?
Governor Harding:
H i n k e t h a t k s 6 Very. SOc.
s u ons
(After f u r t h e r d i s c u s s i o n :
The Chairman. G o v e r n o r Harding makes a
general t h e propossel o f t h e C o m m i t t e e
motion thet i n
o f Pederal R e s c r v e A g e n t s
be endorsed b y this meeting, a n d thet w e make t h e suggestion
that t h e committee b e somewhat enlarged b y appointment o f representatives o f the banks o f the country, a n d tlhi.t i t will b e
empowered t o employ,
a t the expense o f the Federal keserve
System gene a l l y sufficient experts t o make a
as contemplated i n their report.
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Federal Reserve Bank of St. Louis
Governor Norris:
[ I will s e c o n d that.
thorough study
O2
(The motion, having been duly seconded, w a s carried.)
The Chairman:
1-(h)
T h e next topic f o r discussion i s 1-(h).
H a s t h e time come f o r Federal
Reserve Banks t o consider investing
some o f t h e i r f u n d s
This i s a
topic w h i c h c o m e s t o u s f r o m t h e Board.
Governor McBougals:
Chicago,
i n foreign bills?
Mr. Chairman,
T h i s topic w a s discussed recently i n
a t a
meeting
o f the Open Market @ommit-
tee, a t which o u r Board o f Directors sat.
O u r bank prior t o
that felt v e r y favorably inclined to, a n d quite i n sympathy
with t h e r e s o l u t i o n o f t h e A d v i s o r y Council. I
made t h i s
memorandum, t h a t i t would s e e m advisable, a f t e r t h e discussion,
and i n the light o f what w e learned there,
t o wait until
England c o u l d r e e s t a b l i s h S t e r l i n g o n t h z g o l d basis, b e f o r e
purchasing bills, a n d that t h e same would apply t o bills o f
other f o r e i g n countries;
t h a t whenever Sterling bills w e r e
purchased under present conditions t h e selling b a n k should b e
required t o g u a r a n t e e t h e i r p a y m e n t
i n dollars.
W
e felt v e r y
strongly i n favor o f going into that, a n d that i s the conclusion
we finally came to.
The Chairman:
W a s that discussed subsequently b y your
directors?
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Federal Reserve Bank of St. Louis
Governor McDougal:
N o ; “net 6% 082i. W h e n I say "we", I
535
mean t h e o f f i c e r s
o f t h e bank,
T h e plan,
a s i t was outlined
there w a s that i t could b e done with safety, a n d that w e might
protect ourselves b y hedging i n the matter o f future exchange.
It w a s b r o u g h t o u t t h e r e t h a t w h i l e i t w a s p r a c t i c a b l e t h e o r e t -
ically, t h e a m u n t t h a t w e could safely indulge i n for future
exchange t r a n s a c t i o n s w o u l d b e small.
Governor Harding:
M a y I inquire i f there a r e not certain
member banks that have branches i n foreign countries t h a t have
acquired foreign bills, a n d would i t b e proper f o r them t o make
arrangoments w i t h t h e i r o w n F e d e r a l R e s e r v e b a n k s t o m a k e t h e m
E a n e s against these bills, b y which the member banks will
sell the bills i n advance, s o that the Federal Reserve Bank
has n o risk i n the exchange, P r o b a b l y two o r three banks are
doing that sort o f thing.
The Chairman:
Yes,
c o
a r o some banks doing it, and
some private bankers that are bwying bills i n London and selling future exchange against t h e m for delivery a t maturity o f
the bills t h a t they buy.
Governor Harding:
D o n ' t those banks g e t t h e bills t h a t
they send t o this country, a n d then get the Federal Reserve
Bank t o m a k e
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Federal Reserve Bank of St. Louis
a n advance?
The Chairman:
T h e o n l y transactions o f that kind that I
54
know o f a r e t h e p u r c h a s e s
o f some bills t h a t w e made o f the
Acceptance B a n k o f N e w York, a n d I understand t h e Cleveland
Bank h a s b o u g h t s o m e .
Governor Fancher:
w
e have purchased s o m e sterling bills
from one o f the member banks that has b e e n buying t h e m from
London a n d having t h e m brought over.
Governor S e a y :
Y o u take n o exchange r i s k whatever there?
Governor. Fancher:
Governor Seay:
N o .
T h i s subject
recommendations c o n t a i n e d
mittee,
i s fully covered
i n the
i n the report o f the Investment Com-
i s 1 t not, Governor Strong?
I
The Chairman:
n the minutes, yos. I
ite v i e w s a b o u t t h i s transaction,
w h i c h was made when I
in Colorado, a n d I was advised o f it. I
when I got t h e word.
development
was a little surprised
I f w e d o this, I
feel a b o u t i t t o t h e meeting,
stood that what I
would like t o
a n d h a v e i t under-
say will o f course apply t o a n y very large
o f t h i s kind.
It d o e s n o t m a k e a n y g r e a t difference, I
buy half a
was
I t was strongly advocated b y Mr. ‘iarburg
before t h e Advisory Council.
state t h e w a y I
have some defin-
suppose,
i f we
million o r a million sterling bills i n one w a y o r
the other, b u t m y understanding i s that w h e n this proposal w a s
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Federal Reserve Bank of St. Louis
54a.
first made i t was
2 t e t h e t 1 t would b e a fine thing f o r the
federal R e s e r v e S y s t e m t o ecgquire p o s s i b l y 5 0 , 0 0 0 , 0 0 0 p o u n d s
sterling bills e n d then t h e amount,
cussion,
w a s graduelly reduced until
or: 50,000,000 even.
in
i n the court o f the disi t s o t d o w n t o {100,000,000
A t one o f the diseusstons I
stated t h e t o n e o r t w o h u n d r e d m i l l i o n s w m i g t
heard: i t
b ea
good p o r t -
folio.
Now, t h e r e w e r e t h r e e a r g u m e n t s a d v a n c e d
this proposal.
earning a
O n e we.s thet i t would provide a
satisfactory
e n d income f o r the. res erve banks without produc-
ing a n y inflationary effect i n this country.
that i t would provide a
to b u y b i l l s
arily,
i n support o f
T h e other Was
place where o u r member banks w h o wanted
i n London c o u l d convert t h e m into dollars tempor-
i n case o f need, e
sort o f protection, a n d develop a
merket h e r e f o r storling bills.
T h e tiiird w a s t v a t if, would
sn assistance t o the British i n stebilizing their exchange
and r e t u r n i n g
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Federal Reserve Bank of St. Louis
Now, I
t o g o l d psyments.
hed opportunity o u t west t o think about this a
deal without being influenced b y locel discussion, a n d I
to this conclusion.
In the first place,
s o fer a s inflation i s concerned,
not m a k e o n e b i t o f d i f f e r e n c e w h e t h e r w e b u y s t e r l i n g
it
D4b
bilis
o r government securities,
our m e m b e r s
o r p u t u p buildings
o r dollar bills, o r loan t o
o r b u y railroad iron, because
as long a s w e a r e buying anything a n d putting o u r credit i n t o
the market i t creates r e s erve, a n d the infletionary result i s
identical.
T h a t argument i s completely illusory;
i t i s not a
fact.
The second i s that these investments i n sterling bills
wiich a r e made b y American banks, w h i c h m a y b e brought t o this
country, ( b u t which usuelly a r e n o t brought t o this country,)
are e n t i r e l y t h e r e s u l t o f t h e f a c t t h a t f o r a
period w e h a v e
had lower money rates i n this country f o r that type o f short money
than have existed i n London; t h a t banks were able t o buy bills
in L o n d o n a t 3 = 1 1 / 1 6 d i s count, ( w h i c h w e s t h e r a t e a t w h i c h
we bought) a n d cover t h e future sterling which would arise
when t h e bill wes paid b y sal es o f forwerd exchange o f that
amount t o American buyers w h o h a d use f o r t h e exchange a t that
time, a n d s o made «
little higher n e t rate o f interest o n the
s have t h a n would b e made b y loaning money i n New York, o r b y
buying
yf ©
Jninety-day
v
u idollar acceptances.
The n e x t p r o p o s i t i o n
i s t h e development
of a
market h e r e ,
so t o speak, f o r isnglish b i l l s f o r t h e p r o t e c t i o n o f A m e r i c a n
banks,
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Federal Reserve Bank of St. Louis
B u t there really isn't anything i n that.
55
It i s a desirable investment f o r American banks t o make, whenever t h e y r e a l i z e a
little m o r e p r o f i t b u t a t a n y m i n u t e t h a t
they w a n t t o c o n v e r t t h e s e b i l l s i n t o dollars,
t h e y have g o t
the best market i n the world i n which t o d o i t right o v e r there
in London.
A l l t h a t t h e proposal m e a n s
temporery h o l d e r
o f this paper
i n t h i s country,
affect t h e market f o r sterling bills
in London.
i s that w e would b e a
a t all.
I t always will b e i n London.
w h i c h does n o t
T h e market i s
T h e r e never was a
timo, prior t o the wir, during t h e wer o r since t h e war when
the London market machinery f o r discounting g o o d bills w a s
not a d e q u e t e
t o take care o f every bill t h a t w a s offered
that market.
W h e n t h e American banks w h o o w n those bills
in
desire t o convert t h e m into dollars, w h e n t h e r tes f o r money
in New York a r e higher t h e n they a r e i n London, t h e normal,
natural w a y o f doing i t would b e t o s e l l t h e bills i n London,
and sell demand exchange ageinst the proceeds i n New York and
so get d o l l a r s f o r them. T h a t s o r t o f thing i s going o n and i s
going t o g o o n between N e w York a n d London, I
in t h e future.
hope indefinitely
I t i s one o f the stabilizing influences between
the t w o markets. I
do not s e e a n y object whatever t o b e gained
so far a s developing t h e market h e r e i s concerned,
Cuctine t h e r e s e r v e b a n k a s a
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Federal Reserve Bank of St. Louis
temporary holder
i n intro-
o f t h e s e bills.
56
I d o s a y this, h o w - v e r ,
t h e t i f w e develop o r should d e -
velop t h i s business u p o n o u r o w n initiative a n d through o u r o w n
machinery, r a t h e r t h e n a s p r o p o s e d w e w o v l d r e a l i z e a
return u p o n
the money greater b y the amount o f the Commission which t h e Amerlicen banks e x a c t f r o m u s i n Going i t for us, a n d w e could d o i t
just a s well ourselves i n London.
determines thet i t is a
wise thing
I f the Federal iieserve System
[ O . , We N a v e o n orier T i g i t
*
w
o d I
n
- - an
sey
tvisH v a r y confidentially - - w e have a n offer
right n o w t o d o i t i n joint aecount w i t h t h e Bank o f ingland,
if w e want to. T h e r e will b e n o difficulty i n working o u t
an a r r a n g e m e n t
t o d o it, a n d sayethese commissions,
i f you
want t o d o it, a n d have t h e bills dealt with i n London b y the
best experts i n the world, e n d have a
b e t t rreturn o n them.
not
{ do think w e want t o b e deluded b y active, enterprisbankers w ° o s e e a commission a n d return i n it.
every time y o u b u y these bills y o u give t h e Americormission,
a n d w h e n y o u a d d that t o t h e discount
from the forward exchanze, y o u r n e t return i s not a n y greater
then y o u ~ e t a t h o m e hers, a n d - t h e r e s u l t
turn t o the Americen banker i s
i s th.t t h e m e t r e -
s t a b o u t equel t o t h e commis-
sion thet h e charges you. T h e r e f o r e ,
w e are going through a n
awful l o t o f motion a n d r e d tape a n d tremendous difficulties
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Federal Reserve Bank of St. Louis
57
in accounting i n l e r g e
R
w e
s e e that much i s
e:
complished.
Now,
a s t o t h e t h i r d point;
s tebilizing e x c h a n g e
w e a r e i n fact a s s i s t i n g
in
b y e v e r y d o l l a r t h a t w e l e n d t o liurope.
It i s p r o p o s e d t h e t w e i n v e s t f i f t y o r a
hundred m i l l i o n d o l -
lars i n these bills a n d accomplish something i n that direction.
In the course o f the last ye: r, just this calender year, t h e
American market, o u t side o f banking transactions, h a s loaned
to Europe,
o n securities purchased i n this country, t h e tidy
Little s u m o f 3890,000,000,
a n d what this proposed little
drop i n the bucket would d o t o w r d stebilization, elongside
of w h a t i s b e i n g d o n e t h r o u g h t h e m a r k e t
i n general
i g “Very
trifling.
I have a very much stronger objection t o doing this thet
I t h i n k o u g h t t o b e controlling.
British nation,
as a
nation,
T h e r e i s n o doubt t h a t t h e
a n d t h e banking community o f
London, is, g o i n g t o b e v e r y m u c h c o n c e r n e d a b o u t t h e r e s u m p t i o n
of g o l d payments.
T h e r e are a
variety o f reasons f o r that.
One i s thet there i s a possivility t h i s ye:r that t h e total issue o f currency notes m s e y prove t o b e i n excess o f t e maximum
of iast ye. ry before t h e yeer.i8 O V ,
a n d under t h e terms o f
the order i n Council, w r i c h controls t h e currency note issue,
that will necessitate t h e Bank o f n g l a n d securing t h e excess
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Federal Reserve Bank of St. Louis
58
issue o v e r t h e m a x i m u m f
o last year, e i t h e r
aqepiaes
o
b y t h e deposit
of
r B a n k o f E n g l a n d notes, w h i c h m e a n s t h a t i t i s i d e n -
tical w i t h t h e i s s u e o f B a n k o f Ergland notes.
I
f t h e infla-
tion i m c u r r e n c y n o t e dessus becomes v e r y c o n s i d e r a b l e
i t forces
the attention o f the nation t o the need o f doing something
about t h e B a n k o f U y g l a n d reserve,
a n d that mcans a
long s t e p
toward f a c i n g t h e q u e s t i o n o f t h e r e s u m p t i o n o f payment
i n
gold.
The second thing is that the export o f gold from England
is prohibited now, under t h e terms o f the Act o f Parliament,
which e x p i r e s
b y l i m i t a t i o n a t t h e e n d o f 1925, w h e n t h e y h a v e
either g o t t o make their arrangements t o resume g o l d payment,
or s e c u r e l e g i s l a t i o n
t o e x t e n d t h e embargo,
O
f course,
tne
British bankers a n d merchants will b e very reluctant t o take
that step.
A n o t h e r thing that has g o t t o b e taken into con-
sideration i s t h a t t h e s m a l l e r n a t i o n s
i n Burope a r e v i r t u a l l y
stabilizing their exchange, a n d that Germany,
the Dawes report,
a s a result o f
i s getting b a c k substantially t o a gold basis.
The v a l u e o f G e r m a n c u r r e n c y a n d t h e v a l u e o f dollar c u r r e n c y
will m e a s u r a b l y f l u c t u a t e
will remain afloat.
tant
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Federal Reserve Bank of St. Louis
t o see.
a t p a r w i t h e a c h other.
Sterling
T h a t , o f course, t h e y will b e very reluc-
59
I do not know what t h e British a r e going t o do, b u t I
do
not t h i n k t h e y c a n p o s s i b l y g e t b a c k t o g o l d p a y m e n t w i t h o u t
some s o r t o f assistance f r o m t h i s country,
credit,
o f a
friendly kind,
a n d s o on, a n d w i t h o u t s o m e a s s i s t a n c e t h r o u g h t h e d e -
velopment o f our policies about t h e money market.
to p r o m o t e t h a t o b j e c t a n d o u r c o n t r i b u t i o n
be a
credit, s a y ,
I f w e want
t o i t 1 s going t o
i n t h e Federal R e s e r v e S y s t e m o f s o m e u n k n o w n
amount--- w e will assume i t i s $200,000,000---
i t strikes m e
that t h e w a y i n w h i c h t o a c c o m p l i s h t h e r e s u l t t h a t e v e r y b o d y
wahts
i s n o t f o r u s t o p u t o u r moncyuo f i r s t w i t h o u t a n y obli-
gation o r understanding w i t h them that, a s t h e result o f that
they are going t o resume gold payment, b u t when the matter
u p f o r discussion, I
comes
should s a y t h e r e a s o n a b l e w a y w o u l d
pe for us t o say, "All right, w e will d o this i f you d o that;"
but i f w e d o this first, before t h e y agree t o d o that, w e m a y
simply
i e e e
a
lov o f our funds i n t o their market,
speak, w i t h o u t a n y o b l i g a t i o n
o n t h e i r p a r t a t all.
This m o v e t o b u y sterling bills w a s inspired, I
by a
varlety o f motives, o n e , u n d o u b t e d l y ,
to t h e r e s e r v e b a n k s ,
s o 76
a n d unless I
believe,
t o #ive earning assets
a m mistaken t h e need f o r
that i s g o i n g t o t a k e c a r e o f i t s e l f p r e t t y s o o n , a n d w e m o n o t
need t o worry about it.
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Federal Reserve Bank of St. Louis
I t may have b e e n inspired, I
do not
60
know, b u t i t may have b e e n inspired b y a perfectly natural d e sire o n the part o f some American banker t o transact a
profitable b u s i n e s s w i t h t h e r e s e r v e system,
and c h a r g i n g a
commission.
I
fine,
i n selling bills
t m a y have b e e n inspired
b y the
very proper notion that i t was a helpful thing f o r Europe, b u t
I do not think t h e subject w a s analyzed o r discussed fully
enough t o really give u s a n tinderstanding o f what i t all meant.
Governor Seay:
Y o u allude t o sterling bills,
D i d not
the resolution contemplate commercial bills payable i n dollars?
The Chairman:
of a
N o , i t contemplates t h e p u r c h a s e
commercial c h a r a c t e r a n d a c c e p t a n c e s
of a
o f bilis
commercial c h a r -
acter really originating i n London, payable either i n sterling,
te b e c o v e r e d
i n advance
we would n o t incur
b y s a l e s o f f u t u r e sterling,
s o that
a n y risk o f loss i n depreciation i n the
value o f sterling.
Governor Seay: D o e s n ' t the resolution say "payable i n dollars?"
The Chairman:
N o , i t s a y s s t e r l i n g billea.
Governor iicDougal:
B u t there a r e not a n y such Slits.
Governor S e a y : I
was u n d e r t h e i m p r e s s i o n t h a t i t m e a n t
comercial bills payable i n dollars, a l t h o u g h payable abroad.
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Federal Reserve Bank of St. Louis
Governor Calkins:
T h e resolution-is: " T h a t this council
61
recomend
t o t h e Federal Reserve B o a r d t h a t t h e y consider t h e
question w h e t h e r t h e t i m e h a s c o m e f o r F e d e r a l R e s e r v e B a n k s
to e x e r c i s e h e r r p o w e r t o i n v e s t s o m e o f t h e i r f u n d s
in
foreign bills with approved Americen banking indorsements
and payable b y and repayable t o Federal reserve banks i n
dollars."
The Chairman:
tPaCT.
T h a t i s all right; t h a t i s simply a con-
T h e s e a r e foreign bills.
Governor Seay:
I
f s u c h bills w e r e payable a b r o a d y o u
would have t o make some arrangements f o r collection. ‘ j o u l d the
banks a s s u m e c o l l e c t i o n o f t h o s e b i l i s ?
The Chairman:
T h e banks c o u l d b u y t h e m abroad o r those
that w e d i d b u y would b e delivered t o t h e banks f r o m which w e
bought t h e m t w o w e e k s
i n advance
o f maturity,
a n d they would
give u s collateral during t h e period o f collection.
involved a
B u t that
great d e a l o f m a c h i n e r y a n d a c c o u n t i n g e x p e n s e
order t o d o something which,
in
i f w e are going t o d o i t i n any
considerable w a y a t all, w e had better d o ourselves, a n d w e c a n
make arrangements b y cable overnight t o d o it.
Governor Calkins:
T h i s resolution i s i n reference t o
the transaction carried o u t b y the Federal Reserve B a n k o f
New York, w h i c h w a s m e r e l y a d v a n c i n g t o a
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Federal Reserve Bank of St. Louis
certain i n s t i t u t i o n
upon certein security - N o , t h e y bought t h e bills i n London a n d
Tho Chairman.
T h e y made’en actual purcnase
sold t h e m t o us.
o f the bills
for that purpose.
B u t that resolution i s misleading i n the
way i t i s worded.
W h e n t h e y s e y payable i n dollars t h e y a r e
using @
phrase t h a t expresses t h e kind o f cover y o u get when
you get somebody t o a 8aree t o furnish dollars a t maturity b y
buying f u t u r e e x c h a n g e .
A s t o o u r purchase direct
sometime ago, w h a t haonened w a s this.
W h e n w e made t h e agree-~
ment w i t h t h e B a n k o f E n g l a n d w e o p e n e d a
mentary a ccount.
or a large account.
i n London,
small, c o m p l i -
I t was n o t intended t o b e a n active account
W e knew that there w a s a passible loss
in exchange i n it, b u t i t was n o t very much, a n d w e d i d not care
much whether there was o r not.
have b e e n t i m e s
A s a matter o f fact, there
w h e n t h e l o s s h a s b e e n considerable.
T h a t ac-
count h a s b e e n t h e sole compens: tion which t h e Bank o f England
has h a d f o r a
grest d e a l o f w o r k t h e t t h e y h a v e d o n e f o r us,
such as handling the .172,000,000 o f gold, which they sent men
to Holland a n d Belgium t o take ch-rge o f and bring t o London,
and another lot o f $50,000,000.
T h e y did a great deal o f work
of thet kind, a n d the account w a s maintained simply a s such
snompensation a s w e w e r e a b l e t o p a y them.
don i n April I
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Federal Reserve Bank of St. Louis
When I
was i n Lon-
told Governor Norman that t h e y were doing v e r y
63
little n o w for us.
W e h a d a balance o f 165,000 pounds, a
con-
siderable part o f which h a d grown u p through small collection
and other transactions a n d w e had n o t drawn against it, b u t I
thought some o f it ought t o be paying income.
right, I
H e ssid, “All
will b u y 50,000 pounds i n bills f o r you, guaranteeing
them, a s w e d o for our correspondents, a n d will p u t 50,000
pounds o f i t i n special interest account."
risk o f exchange.
W e took all t h e
W e have n o t sold futures against it.
I t
was simply a means o f getting 15,000 o r 20,000 a yeer interest o n a balance o f 100,000 pounds. This other transaction had
no relation t o that whatever.
I t war proposed t o u s b y Mr.
Warburg while f was away and i t was accepted o n the basis that
it would b e a n income-producing investment f o r the System without a n y inflationary tendencies, a n d would keep u s o u t o f
competition w i t h o u b members i n buying i n the market.
T h e argu-
ment i s wholly unsound a n d cannot b e demonstrated a t all.
I think, myself, there i s a possibility o f our knowing
more about this sterling situation i n the near future.
are going t o d o anything;
i f they a
we are going t o d o anything, I
I f we
u s t o d o anything a n d
would like t o b e i n a position
to d o i t i n a large w e y a n d not feel embarrassed b y going o f f
on our o w n i n advance a n d buying a
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Federal Reserve Bank of St. Louis
o t o f sterling bills, w h i c h
64
would s i m p l y i w p a i r o u r c a p a c i t y t o d o s o m e t h i n g important.
Governor #ancher: I
think y o u m a d e t h e s t a t e m e n t
at
the m e e t i n g o f t h e O p e n i a r k e t I n v e s t m e n t C o m n i t t e e t h a t y o u h a d
at that time questioned whether t h e B a n k o f England o r the
other banks might welcome o u r doing a
kind.
limited amount a t this
D i d y o u g e t further light o n that?
The Chairman: when I
that i t w o u l d b e a
spoke w i t h Norman,
g o o d t h i n g t o d o a t all, b u t t h e i d e a w a s
if w e were going t o d o anything,
take p a r t i n i t w i t h u s ,
more, I
w e had n o thought
w e would rather have y o u
i n the w a y I
have suggested.
Further-
want t o call your attention t o this, t h a t t h e British
Government
i n t h e market
i s always
paying purposes o v e r here,
t o b u y dollars f o r interest-
o n their debts. I
consider v e r y c a r e f u l l y w h e t h e r
i t is a
think w e much
wise t h i n g t o p l a c e a t
the disposal o f the Bank o f Breiand o r the Pritish Government
& considerable a m o u n t
is a
o f e x c h a n g e f o r t h a t purpose,
very m u c h larger purpose
Governor Seay:
w h e n there
t o b e s e r v e d later.
D o e s n o t this c o m e within t h e peculiar
province o f the Open Market Investment Committee,
t o act o n
it consultation with t h e Board?
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Federal Reserve Bank of St. Louis
The Chairman:
Governor Seay:
Y e s ,
H a s that committee a n y definite recommen-
65
dation t o make i n this connection o n which w e could act?
The C h a i r m a n :
‘ Y e are going
we have g o t t o hold here. I
t o discuss
i t at a
meeting t
hat
d o not know what t h e recom:enda-
Sion will be. G o v e r n o r Fancher's b a n k has bought some bilis,
and that m a y indicate a
different v i e w from that which I take
apout- it,
Governor iicDougal: I
do not believe that Goverror
Fancher's a c t i o n w o u l d i n t e f f e r e a t a l l w i t h t h e c o n s i d e r a t i o n
of the subject f r o m t h e broadest standpoint.
few bills locally. I
do not imow whether i t would b e interest~-
ing t o note this, b u t I
quite a
large n u m b e r
H e picked u p a
know there have b e e n i n the aggregate
o f these bills b o u g h t
i n Chicago,
i n the
recent past, a n d I suppose that i s t h e class o f bills y o u
picked u p , G o v e r n o r Fancher.
“ W h a t r a t e d o y o u g e t o n them?
What d o you net?
Governor Fancher:
T L . think itstse about equal t o the biti
rate o n the dollar bill, 2-1/4 per cent.
The Chairman:
I t will w o r k o u t that way.
I n future
always
sales o f s t e r l i n g i t will a l m o s t r e p r e s e n t t h e d i f f e r e n c e
in
the level o f the money rate between t h e market i n New York a n d
the market i n London, p l u s t h e commission.
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Federal Reserve Bank of St. Louis
Governor Fancherk
T h e spread i s about three cuarters o f
One p e r Come.
The Chairman:
I
f you get a
greater d i s p a r i t y
i n interest
rates between t h e t w o markets there will b e a greater disparity i n exchange.
U n l e s s y o u d o business yourself o n the
ground a n d h a v e s p e c i a l f a c i l i t i e s ,
y o u really d o n o t realize
any more.
Governor Fancher:
Y o u made a
regard t o the hedging i n exchange.
statement i n Chicago w i t h
T h e total hedges were s o
tremendously greater t h a n the actual sterling bills that i t
was a
surprising thing t o m e a n d I did n o t realize t h a t there
was a
normal balance o f a certain number o f millions o f pounds---
The Chairmans J u s t what makes future exchange? “ F u t u r e ®
sterling
/exchange i s o f two kinds. O n e i s the supply o f sterling whikh
will arise i n the future, a n d t h e other i s t h e demand f o r sterling t o b e satisfied i n the future.
T h e r e f o r e i t arises o u t
of o n e t h i n g e n l y - - - t h e s a l e o f goods,
there a r e s p e c u l a t o r s
y o u see.
O
f course
i n t h e m a r k e t w h o w i l l t a k e t h e r i s k ont
an o p e n a c c o u n t a n d g i v e y o u a n o b l i g a t i o n t h a t d o e s n o t repre-
sent a n actual transaction i n goods, b u t when w e are dealing i n
future exchange w e are simply anticipating payments w h i c h a r e
to b e naid f o r
to be made for goods bought and sold/in the future.
T h e supply
of real futures i s limited t o these contracts f o r goods. Tnhere-
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Federal Reserve Bank of St. Louis
67
fore y o u might s a y that actual transactions
i n "Puture"
sterling i s represented i n the market b y ten, twenty o r possiply fifty times t h e actual demand o r actual supply a t a given
date.
Y o u have g o t t o b e very careful i n the future market,
because, s
uppose
w e undertake
t o buy a
hund « d o r t w o h u n d r e d
million i n sterling bills a n d sell that amount o f futures
W e might g e t u p t o a certain point, s e y 1 0 0 ,000,~
sist c e t them?
000 a n d when w e got there w e would find,-- a n d w e would not
take t h e o b l i g a t i o n s
speculators,
o f numerous b r o k e r s a n d d e a l e r s a n d
b u t would o n l y take institutions t h e t w e know - -
we w o u l d f i n d t h e t w e h a d b u t t o n e d
u p institution A
with
10,000,000 contracts, institution B with 920,000,000,
ins titution C
of the month,
with 415,000,000, a n d s o on, a n d a t the e n d
i f i t took a
month t o d o the job, w e would t i e
up every o n e o f the b i g institutions w i t h future contracts,
against which they would have t o have sterling coming in, o r
at least have t o have a
demend coming in. That demand i s
limited b y the trade, a n d pretty s o o n embarrassment would
arise, t h e y would find their other customers needed their
facilities, a n d t h e first thing w e knew w e might n o t b e able
to continue t h e aécount.
I t would depend o n the willingness
of the market t o b u y futures.
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Federal Reserve Bank of St. Louis
A s soon a s the point o f
68
s aturation arrived, t h e t i s , w h e n w e had sold a l l t h e future
sterling t h e market would take, t h e market would s a y thet
they would n o t renew, t h e n t h e spread would begin t o widen
right a w a y a n d the p r o i t s would a l l g o out o f the business
es the spread widened, a n d instead o f controlling what y o u
are going t o carry i n that account, t h e market would control
you and y o u would have t o take just whet t h e market would
furnish y o u i n the w a y o f future contracts.
been t e s t e d o u t , b u t I
think i t i s a
-to consider i n a big account.
with a
small account,
but
T h i s has never
very important t r i n g
i t doesn't m e k e a n y
i f w e were operating sround
100,000,000
o r 200,000,00 d o l l a r s
i t would meke a
difference.
N o w , £
L i n y personal view, e n d
a m just expr
I a m not s u r e whether t n e directors
big
o f my ba
with it, because t h e transaction w a s n u t through while I
AWAY. I
personally h o p e t h e t w e will w e i t a
while b e f o r e
we d o this a n d s e e what i s going t o hannen, a n d thet
goixe
t o d o anything
t o help t h e gold standard
that w e d o i t k n o w i n g w h a t t h e o u t c o m e
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Federal Reserve Bank of St. Louis
i n Europe,
i s going t o b e a n d
a voluntary offer without arranging
wes
the other s i d e o f the bargain.
Governor Fancher:
Y o u d o not think w e should b e guided
by the proposition i n the resolution concerning t h e earning
assets
o f t h e system?
The Chairman:
N o .
T h a t argument i s absolutely unsound
and cannot b e supported a t all.
ence what w e are buying,
ket.
I t does n o t make a n y differ-
w o are putting o u r funds i n the mar-
T h e r e i s n o t h i n g n e w o n t h a t point.
Governor Cglkins: I
Governor Norris: I
d o n o t s e e that there is, Mr. Chair-
move that we adjourn for lunch, Mr.
Chairman.
(Whereupon,
a t 1:25 o'clock p . m.,
o n m o t i o n d u l y seconded,
a recess w a s taken until 2:30 otclock p. m. o f the same day.
AFTER RECLSS.
The C o n f e r e n c e reassembled, pursuant t o the taking o f
pedess,
a t 2:50 o'cloék pe: m,
The Chairman:
T h e topic t h a t w e h a d under discussion w h e n
we adjourned f o r lunch was this matter o f investment i n foreign
bills. I
understood the meeting agreed that w e had better
leave that until after t h e meeting o f the Open tlarket Cormittee.
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Federal Reserve Bank of St. Louis
70
I havo b e e n a s k e d b y G o v e r n o r C r i s s i n g e r
mittee m e e t a t h i s r o o m a t 4
t o have t h a t c o m -
o'clock t h i s afternoon.
The next topic i s 1-(1).
1-(i) R e p o r t o f Subcommittee o f General
Comnittee
The Chairman:
it contains a
o n Bankers! A c c e p t a n c e s ,
T h a t report h a s n o t been distributed, a n d
discussion o f matter which Governor liarding refer-
red t o this morning, a n d w e will take i t u p after h e comes in.
The next i s Topic 1-(j).
1-(j) R e p o r t o n Foreign iccounts.
The Chairman: I
eign accounts.
wish t o s u b m i t
T h i s statement
t o you a
report
o n for-
i s t h e report w h i c h t h e b a n k
of N e w York makes ordinarily t o t h e committee, a n d i t has been
distributed
t o t h e banks.
T h i s w s on. t h e p r o g r a m f i r s t
in
order that a n y questions m a y b e answered that a r e asked about
105
I want t o r e f e r t o t w o a c c o u n t s w h i c h a r e m a i n t a i n e d
in
™,
the Reserve B a n k o f N e w York which a r e n o t a part o f the System's
foreign accounts,
a n d e x p l a i n t h e r e a s o n why.
When w e o p e n e d o u r a c c o u n t w i t h t h e B a n k o f Sypgland,
l o ng
pefore t h e division o f foreign accounts w a s effected, b a c k i n
1916, w h e n w e opened that account,
it w a s s i m p l y a
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Federal Reserve Bank of St. Louis
a s explained this morning,
complimentary a c c o u n t a n d c o m p e n s a t e d f o r w o r k
a
they w e r e doing.
effected t h e r e
of sterling,
w h e n t h e division o f foreign accounts w a s
had been a
very great dopreciation
a n d there w a s aonsequently a
loss i n t h e d o l l a r v a l u e o f o u r b a l a n c e
i n the value
very considerable
i n t h e B a n k o f Ungland.
ve naturally could n o t a s k the other reserve banks t o assume
that loss,
steriing,
O n the other hand w e did n o t want t o b u y a n y more
a n d i f w e h a d d i v i d e d t h e s t e r l i n g Leloneco c t i t e
then v a l u e a n d t h e r e h a d b e e n a n a p p r e c i a t i o n
sterling a s t h e r e h a s b e e n sincc,
t h e profit
i n the value o f
o n t h e account
would h a v e a c c r u e d t o t h e o t h e r rcoserve b a n k s a n d w e w o u l d h a v e
been left with a loss o n the major part o f it.
I n addition t o
that I was n o t v e r y keen t o divide u p a n account o f that character which might impose loss o n the particivating banks.
There have b e e n n o large transactions. conducted i n connection
with the account.
T h e purchases o f bills which w e make f o r
account o f the Bank o f @ngland a n d t h e M a n k o f France a r e i n
fact n o t f o r a c c o u n t
account
o f those b a n k s
a t all, b u t t h e y a r e f o r
o f t h e Reparations C o m m i s s i o n .
until t h i s q u e s t i o n o f exchange:
M
y suggestion i s that
works o u t a
little f u r t h e r
that w e d o nothing further about t h e Bank o f England account,
but just l e t i t stand as. i t is,
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Federal Reserve Bank of St. Louis
Some time ago, somewhat a t the suggestion o f the B a n k o f
12
England,
please,
we
o f f o r e d t h e Reimsbank apportunity,
t o start relations v i t h us.
i f you
T h i s w a s after t h e treaty
with Germany h a d b e e n ratified, o u r treaty o f peace w i t h Germany . I
covwresponded with t h e then head o f the Reichsbank
and i n due course t h e y opened a
small account w i t h us.
I t de-
veloped that that account w a s a n account o f convenience i n connection with t h e exchange operations o f the Reichsbank. ‘ s h i l e
they m a i n t a i n e d a
balance s o m e t i m e s
of a
million d o l l a r s
or
more w i t h u s w e were paying f r o m a thousand u p t o three thousand checks a
day for them, a n d i n view o f the character o f the
account a n d t h e c i r c u m s t a n c e s s u r r o u n d i n g i t , I
in the bank that I
told t h e m e n
did not think i t would b e fair t o our-
selves o r t o the other reserve banks t o divide that account
when i t was exceedingly unprofitable t o us.
labor i n connection w i t h i t was great.
ing about it.
gram f o r t h e r e s t o r a t i o n
i n connection w i t h t h e Dawes
o f exchange
w i t h it. I
e e
i n their
T b e
s t i 3
T h e y h a v e u s e d u s a s t h e means
earmarking g o l d a n d w e have h a d a
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Federal Reserve Bank of St. Louis
h a s resulted
v e r y l a r g e b a l a n c e w i t h us.
very a c t i v e a c c o u n t ,
in c o n n e c t i o n
W e have done nogh-
B u t I want t o explain that since t h e n t h e
policy o f the Reichsbank,
accumulating a
T h e amount o f
of
good deal o f work t o d o
do not want t h e officers
o f the
1S
other reserve banks t o think that this i s a case o f select-ing the fat a n d t h e lean.
T h e accounts t h a t have b e e n worth
anything have b e e n divided a n d those that a r e worthless a n d
unprofitable
t o u s h a v e b e e n ttept b y t h e B a n k
o f N e w York.
This p a r t i c u l a r a c c o u n t h a s g r o w n t o v e r y l a r g e proportions.
It was m y idea, n o t a t this meeting today, because o f the
other important matters w e have before us, b u t later t o get
the Investment Committee together, t h a t is, those members w h o
are interested i n this business a n d have a little t a l k with
them a n d decide what t h e y want t o d o about that account.
have h a d quite a job, I
not know what t h e futurc
We
can tell you, handling it, a n d I d o
i
t i s going t o be.
A commercial b a n k i n N e w Yorke t o l d m e t h a t i t h a d o n e
of the Reichsbank
s
, a n d one o f the officers o f the
bank told m e that t h e y h a d a balance, l e s s t h a n the balance
they h a d with us, althouwh t h e y allowed interest o n it, a n d
that some days t h e y h a d paid 7,00C checks i n one day o n that
SCCouUNnts
The checks issucd b y the various officers o f the Reichsbank a r e u s e d a l m o s t a s cursency.
C h e c k s f o r v e r y small
amounts a r e b e i n g d r a w n e v e r y day, t h o u s a n d s a n d thousands
them. I
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Federal Reserve Bank of St. Louis
of
think they use u s a s a sort o f last reserve, a n d w e
have collected a
good many o f them.
Governor Bailey:
T h e checks t h a t w e r e d r a v n against
you were dollar checks?
The Chairmans
Y e s , d r a w n i n Germany.
come u p i n c o n n e c t i o n w i t h t h e d i s c u s s i o n
ject o f eur foreign problems.
taken o n t h e matter.
A l l o f this will
o f the whole sub-
T h e r e i s n o action t o b e
T h e report i s submitted a n d i s i n the
hands o f every o n e a n d i f there a r e a n y questions i n regard
to i t I will b e glad t o answer t h e m i f I a m able t o d o so.
The n e x t t o p i c
o n t h e p r o g r a m i s 1-(1).
1-(i1) R e p o r t o f Subcommittees
committee
o f General
o n Bankers' acceptances.
The s a m e q u e s t i o n i s r a i s e d
i n regard t o domestic bills,
*
and u n f o r t u n a t e l y t h e report, a c c o r d i n g
not c o n t a i n a
definite
a n d specific recommendation
amendment t o the rezulation,
could act. I
t o m y notion, d o e s
i f one i s desired,
for
a n
o n which w e
have not, individually given s u c h study that
I ean recommend o n e i n a genera
V N |
the belief o f the
men i n o u r o f f i c e i s t h a t t h e p r e s e n t s u l a t i o n s a p p l y i n g
to
the domestic acceptance business, limiting t h e life o f the
bills
t o transportation time, w o r k a
groat i n j u s t i c e u p o n
the A m e r i c a n m a n u f a c t u r e r a n d u p o n A m e r i c a n c o m m e r c e
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Federal Reserve Bank of St. Louis
a s dis-
75
tinguished f r o m w h a t m a y b e d o n e i n g r a n t i n g a c c e p t a n c e c r e d i t
in foreign transactions.
Governor Harding:
U n d e r t h e Board's regulation,
i f
the seller o f the goods will d r a w t h e bill t h e y c a n d o it.
In t h e c a s e I
cited t h i s m o r n i n g t h e seller o f t h e c o t t o n
declined t o draw t h e draft.
T h e hill treasurer, a f t e r t h e
cotton h a d gotten t o h i m o r had gotten t o t h e warehouse a n d
he h a d t h e w a r e h o u s e r e c e i p t ,
w e n t t o the bank t o borrow
money, a n d instead o f making a
note h e drew a draft a n d they
accepted it.
T h e f o r m o f i t was e n t i r e l y wrong.
The Chairman:
Governor Harding:
U n d e r t h e Board's regulation i f the
seller o f t h e c o t t o n i n N o r f o l k h a d d r a w n a
have been a different proposition.
draft i t w o u l d
H e d i d not draw a draft,
but he got cash, a n d the mill treasurer fixed u p this scheme
after h e got t h e cotton.
i r . Harrison reminds
The Chairman:
m e that t h e report
here i s t h e o n e w h i c h w a s p r e p a r e d f o r t h e l a s t C o n f e r e n c e
of Governors. I
have here, f r o m ir. Kenzel, a
separate
memorandum w h i c h w a s n o t p r e p a r e d f o r s u b m i s s i o n a s 4
tee report.
T h e r e h a s b e e n n o meeting o f the committee since
the l a s t C o n f e r e n c e
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Federal Reserve Bank of St. Louis
commit-
o f Governors;
b u t a n investigation
of
76
this matter h a s b e e n conducted, t h e y have sent inquiries o u t
to a lot o f bankers i n this country who are interested i n
the business,
a n d t h e American Acceptance Council
i s going
to review t h e material w h i c h they have gathered together a n d
they a r e going t o submit a
specific recommendation f o r a n
amendmont t o the regulation which they think will overcome t h e
objections t h a t t h e y f i n d t o t h e r e g u l a t i o n o f t h e Board.
Therefore, I
d o n o t k n o w t h a t a n y a c t i o n i s t o b e t a k e n here.
The representative o f the Boston Reserve B a n k who was o n this
committee h a s l e f t a n d h a s s i n c e died, M r . Bullen,
a n d that
bank i s n o t represented o n the committee.
Governor Harding: I
would like t o ask that Mr. Paddock
take his place o n the committee.
The Chairman:
I f i t i s agreeable t o t h e meeting I
appoint Mr. Paddock,
o f the Federal Reserve B a n k o f Boston
to take t h e place formerly occupied b y Mr. Bullen.
objection,
will
Without
i t i s s o ordered.
Governor Young:
“ l e have referred t h e question o f eli-
gibility of bankers' acceptances t o the Federal Reserve Board
and they have asked u s t o bring i t before this Conference o f
Governors.
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Federal Reserve Bank of St. Louis
I s this a n opportune t i m e t o d o it?
The Chairman:
I
s i t o n t h e program?
ee
Mr. Young:
N o , but t h e r e ’ s
i recent correspondence w e
have h a d w i t h t h e Board,
S h o u l d I
take i t u p w i t h t h e e l i -
gibllity conmittee?
The Chairman:
w e have a
supplementary program o f topics
which came i n after t h e p r o g r a m w
a
s made up, a n d i f you will
turn i t o v e r t o Mp. H a r r i s o n h e w i l l p u t i t o n t h a t program,
to b e reached w h e n w e get through with this program.
satisfactory
I s that
t o you?
Mr. Young: E n t i r e l y .
The Chairman:
T h e néxt topic o n the program i s the sub-
of collections a n d clearings, W o . 2 .
f p s .tipst: i s
2-(a) R e p o r t o f Standing CGommittee o n
Collections, M r . S t r a t e r Chairman.
Mr. Strater is not here. G o v e r n o r Fancher has as
him t o b e here tomorrow morning, a n d w e will pass this until
tomorrow.
The n e x t i s
(ob) Bxtension o f check collection
facilities.
Desirability a n d
necessity f o r further development
of t h e c h e c k c o l l e c t i o n system.
That i s s u g g e s t e d
b y Governor Calkins.
Governor Calkins:
T h e purpose
the program was f o r discussion,
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Federal Reserve Bank of St. Louis
o f putting t h i s topic
a s indicated. I
on
think: that
78
some o f us--- p e r h a p s n o t a l l o f us--- h a v e b e e n v e r y m u c h
impressed
b y the undesirability
tions w i t h rediscounts.
o f hooking u p c h e c k collec-
T h e diffleultiés
which h a v e e x p e r i e n c e d acutic c o n d i t i o n s
i n those districts
i n the recent p a s t
in c o n t i n u i n g t h e c o l l e c t i o n o f checks h a v e b e e n s u c h a s t o
convince s o m e people,
a t least, t h a t i t would b e highly desir-
able t o h a v e t h e c h e c k c o l l e c t i o n f u n c t i o n s
o f the Federal
reserve banks transferred t o some other mechanism,
way improved.
T h a t i s the purpose
on the program, I
cussed.
o r i n some
o f putting t h i s topic
think i t i s a matter t h a t should b e dis-
I d o n o t look -for any action a t this time. I
recall
that several governors h a v e exoressed v e r y pointed views o n
the s u b j e c t
i n t h e s e conferences,
and I
myself h a v e b e c o m e
convinced t h a t t h e p o s i t i o n o f t h e F e d e r a l r e s e r v e banks,
compelled
t o accept a n d collect checks d r a w n u p o n banks
precarious condition,
a n d which perhaps
in
i t i s the duty o f the
Federal reserve b a n k t o support, produces a
very impossible
situation, a n d I would lice v e r y m u c h t o hear f r o m sone o f
the o t h e r s w h o h a v e v i e w s
o n t h e subiect.
G o v e r n o r Young
has p r o b a b l y h a d m o r e e x p e r i e n c e t h a n t h e r e s t o f u s p u t t o g e ther.
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Federal Reserve Bank of St. Louis
Governor Young: I
can make t h e statement that e v e r y loss
79
that t h e »s4nneapolis B a n k h a s h a d c a m e t h r o u g h t h e p a r c o l l e c tGlon o f checks:
The C h a i r m a n :
G a m e through
Governor Young:
checks
o f checks?
C a m e through t h e par collection o f
t o collect checks
o r t h e attempt
F r o r m members.
a t par.
o f non-member banks?
F r o m member
Governor h i c k i n n e y :
Governor Young:
t h e collection
w
e got away from the
non=member p r o p o s i t i o n b e c a u s e w e t o o k t h e m o f f t h e List.
Governor ‘yellborn:
W
Governor Young:
H o w d o y o u have losses?
e s e n d t h e checks o u t t o a
charge t h e m u p , - ~ t h e y r e t u r n t h e c h e c k s
we s e n d a
bank a n d
t o t h e customer a n d
representative o u t t h e r e t o g e t t h e c h e c k s back,
and w e c a n n o t g e t t h e m back,
a n d t h e o n l y thime o u s t a n d e t s
you
to t a k e w h a t y o u c a n get, t a k e w h a t h e i s w i l l i n g t o p i v e
from h i s portfolio.
Governor lickinney:
Y o u charge t h e m back t o the remit-
ting b a n i ?
I f i t i s a closed institution, t h a t i s
Governor Young:
determine,
souething f o r t h e Comptroller o f the Currency t o
whether i t should stay open o r closed.
Governor Calkins:
when y o u s e n d c h e c k s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
whether,
H a s n ' t i t yet t o b e determined
to a
bank which
a r g e s t h e checks
to
80
a customer's a c c o u n t a n d perhaps r e t u r n s t h e m t o t h e c u s t o m e r
and d o e s
m t return anything
t o you, w h e t h e r y o u h a v e a
claim
on t h e endorser, w h e t h e r y o u h a v e t h e r i g h t o r c a n e x e r c i s e
the right o f charging t h e m back?
D o y o u believe that m e s -
tion i s settled?
Governor Young:
N o , I
Governor ieKinney:
do not.
O u r counsel feels i t i s pretty well
settled i n favor o f our right t o charge b a c k against t h e endorsing bank.
Governor Young:
O u r circular frees u s f r o m everything
except negligence,
W h a t negligence i s and what i t i s not
is d e t e r m i n e d
jury.
by a
L e t u s take s o m e specific c a s e
where w e h a v e m o w n t h a t a
bank w a s i n a
where w e h a v e k n o w n t h a t i t s c a p i t a l
precarious c o n d i t i o n ,
a s impaired,
a n d some
cases where w e have known that t h e capital w a s exhausted,
and w e s t i l l c o n t i n u e
t o send checks
t o t h a t bank.
T h a t
would b e a oue.tion f o r a jury t o determine, whether w e were
hegligent i n sending them out under those conditions.
T have
m y o v m ideas
a s t o what a
Governor Calkins: l
have a
A n d
jury vould say.
definite i d e a t h a t n o t
only a jury but t h e Court would determine t h a t i f you h a d
sufficient definite kmo-ledge o f the insolvency o f the bank
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Federal Reserve Bank of St. Louis
81
and still undertook t o use i t a s a collection agency, t h a t y o u
would h a v e t o stand t h e doss.
Governor Young:
I f yeu only h a d o n e bank t o deal with
it would b e a n easy enough proposition t o handle, because
you c o u l d s e n d a
m a n o u t there;
b u t w h e n y o u have three o r
four hundred banks y o u d o not know whether t h e y were goingto
pull through o r not, y o u don't have three o r four hundred
men
t o s e n d o u t there,
w
e acl y
kept a
man
i n South Dakota
for forty-five days t o keep f r o m lending member banks money.
G a c h d a y h e h a n d l e d o u r p a p e r a n d pre-
That t s a l l h e did.
sented
o u t checks,
T h e more I
checks, t h e more experience I
have with it, t H e snore 1
convinced t h a t i t s h o u l d b e o n a
member a n d n o n - m e m b e r b a n k s .
see o f t h e par collection
o f
au
voluntary b a s i s b o t h w i t h
O u r counsel h a s advised u s
that i n a case o f thet kind, e v e n though Section 1 6 says that
we must handle checks o f a member bank, t h a t w e would b e en-
tirely justified i n refusing t o handle them.
Governor wellborn:
I f you d i d that y o u would break the
banks.
Governor Young:
W e l l , t h e y a r e going t o break anyway
when they g e t that b a d off.
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Federal Reserve Bank of St. Louis
Governor Calkins:
T h a t i s only o n e aspect o f a very
82
large o u e s t i o n ,
T h e fact i s t h e people w h o conduct t h e
Federal reserve banks a r e highly dissatisfied w i t h the collection s y s t e m s e t u p .
I
t d o e s n o t w o r k satisfactorily.
I n
same cases there i s a great liability o f loss, i f not actual
loss,
I t i s unsatisfactory t o the non-member banks.
L t 1s
involved i n litigation i n 4 9 diffe.ent places, a n d i n 4 9 different kinds o f cases.
of d i s c u s s i o n
T h e topic i s suggested f o r t h e purpose
t o determine whether
o r n o t i t i s tncumbent u p o n
the p e o p l e w h o r u n t h e F e d e r a l R e s e r v e B a n k s t o t r y t o d e v i s e
and bring into existence s o m e better a n d more satisfactory
and l e s s o b j e c t i o n a b l e m e t h o d .
The Chairman: ‘ h a t would you suggest? ‘what method?
Governor Calkins:
o f course that i s a large order.
This w a s s u g g e s t e d f o r t h e p u r p o s e
suguesting
a s yet that a n y action
o f discussion. I
b e taken, L
a m not
do not lmow
how f a r t h e o t h e r G o v e r n o r s a g r e e w i t h m e a n d w i t h G o v e r n o r
Young i n regard t o the disadvantages i n c i d e n t t o the carry-ing
on a t t h e s a m e t i m e o f t h e p a r c o l l e c t i o n a n d d i s c o u n t i n g f o r
member banks.
I t may b e that t h e majority, n o t having h a d
the experience t h a t w e have had, a r e o f the opinion that t h e
system i s w o r k i n g f a i r l y w e l l a n d a s w e l l a s c o u l d b e expected.
I do pot. think so.
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Federal Reserve Bank of St. Louis
83
Governor IicDougal:
H o w tmany o f those 4 9 suits affect
the S a n Francisco Bank?
Governor Calkins:
L l .could m t . t e l l y o u offhand,
but a
great many.
The Chairman:
A r e there a s many a s 49?
Governor Calkins:
Y e s , and a
g o o d m a n y m o r e t h a n that.
The F e d e r a l R e s e r v e B o a r d i s t o h o l d a
conference h e r e w i t h
the counsel o f those Federal reserve banks which have b e e n
invglved i n litigation over p a r collections.
I f I remember
correctly, t h e Cleveland b a n k has h a d some litigation. t h e
Richmond B a n k a n d t h e Atlanta Bank,
Governor Seay:
w e have h a d some.
Governor Calkins: I
know w e have h a d a
Governor Y o u n g h a s h a d a
great d e a l . I
great deal.
do n o t k n o w whether
the other banks have b e e n involved i n i t o r not.
Governor Welborn:
Governor Calkins:
& long time.
W
e a r e s t i l l h a v i n g i t i n Atlanta.
Y e s , a n d you still will have i t for
M y idea--- a
wild idea, perhaps--- i s more o r
less expressed i n t h i s suggestion:
pointed
T h a t a committee b e ap-
t o study t h e c h e c k colloction s y s t o m a s conducted
by
the banks throughout t h e United States w i t h a view t o making
connections w i t h t h e F e d e r a l r e s e r v e b a n k s a n d b a n k i n g i n s t i t u -
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Federal Reserve Bank of St. Louis
84
tions generally t o extend better facilitics t o banks b o t h
member a n d n o n - m e m b e r s
o f t h e system situated
i n interior
centers a n d removed f r o m Federal reserve banks a n d branches;
that s u c h c o m m i t t e e c o n s i s t
reserve banks,
o f representatives
o f Federal
o f the American Bankers Association,
United S t a t e s C h a m b e r
o f Commerce,
a n d the
t h a t t h e committee
b e au-
thorized
t o select s u i t a b l y qualified m e n t o conduct investi-
gation s
under t h e d i r e c t i o n o f t h e committee.
haps a
wild suggestion,
T h a t i s per-
b u t t h e p u r p o s e i s , i f possible,
t o
set u p a satisfactory working m e c h a n i s m t
o effect t h e clear-~
ance o f checks throughout t h e United States satisfactorily
so f a r a s p o s s i b l e
t o a l l t h e b a n k s o f t h e country,
which d o not u s e t h e Federal reserve banks.
they h a v e a
many o f
F o r instance,
nation-wide c l e a r a n c e s y s t e m i n G r e a t B r i t a i n
which h a s t e e n i n o p e r a t i o n @
great m a n y years,
a n d t o which
no o n e h a s e v e r r a i s e d t h e s l i g h t e s t o b j e c t i o n .
Whether we
can a c h i e v e a n y t h i n g a s s a t i s f a c t o r y a s t h a t i s doubtful,
course, b u t I
o f
do believe personally t h a t a better p l a n prob-
ably will b e found eventually, a n d the only m e s t i o n raised
here i s w h e t h e r
i t i s incumbent u p o n t h e Federal reserve banks
to interest themselves i n devising a
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Federal Reserve Bank of St. Louis
Governor iicDougal:
I
better plan.
s i t your i d e a t o extené t h e matter
to t h e securing o f proper legislation?
Governor Calkins:
Governor “(cDougal ¢I
consider t h e plan w e are operat-
ing under n o w i s t h e best that c a n b e devised under t h e terrs
of the l a w a s i t i s written.
Governor Calkins:
P e r h a p s u n d e r t h e terms o f t h e lavas
written a t t h e present time, because t h a t places a n absolute
+4
obligation upon u s t o proceed under t h e terms o f the law.
Governor iMeDougeals:
T h e s e matters w e r e a l l very carefully
considered i n the early d a y
\ f the development o f this systen.,
That has happened i n inneapolis a n d I »vresume what has happened i n San Francisco i s nothing more t h a n what w e believed
would probably some time happen.
years, a n d these casés, I
rather r e c e n t development,
W e have gone along for ten
presume,
o r most o f them, a r e o f
a n d t h e whole difficulties h a v e
I believe,
t o t h e plan under which
serve b a n k s i t e m s w h i c h o t h e r w i s e
we w o u l d s e n d t o o t h e r b a n k s , r
cial b a n k
o f course
checks t o a
w e would
w e “ere r u n n i n g a
b e very careful
not
t o send
bank i f v e k n o w t h a t t h e c o n d i t i o n o f t h a t b a n k
was n o t such a s t o justify confidence.
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Federal Reserve Bank of St. Louis
.commer-=
Governor Seay:
Whether a
member
o r otherwise?
86
Governor ‘ i e D o u g a l :
I f we vere running 4
bank, t h e s e i s n o c o m e r c i a l
caimercial
b a n k that would s e n d items
aGirece t e 2
“pans i n P e o r t e
o r a n y piecereiae,
they were a
correspondent,
i f they knew that that b a n k
was i n a criticial condition,
what “ o u l d hanpen,
V l y ? B e c a u s e they know
a n d that i s what h a s happened
polis, t h a t t h e y w o u l d l o s e c o n t r o l
of t h e d i f f e r e n c e
t o ‘lirnea-
o f t h o s e items.
Because
i n t i m e t h e y n i e babies wowla n o t h a v e a
chance t o n o t i f y t h e i r e n d o r s e r s
The Chairman:
even 12
t o protect themselves---
i l a y I ask ho. checks vere collected o n
a bank where there w a s only o n e bani i n the town, before
Feder:
Governor sicDougal:
The Chairman:
Y o u c a n answer that a s well
T h e y . were B e n k
Governor MgDougal:
O f course t h e y were, b u t they would
mot be. sent direct, under those circumstances,
t o a bank,
4f the sender k n e w that t h e bani was i n a precarious condi-
tion.
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Federal Reserve Bank of St. Louis
T h e y would send them tog the express company, o r i n
some o t h e r way, a n d t h a t h a s a l w a y s b e e n t h e r u l e i n conmercial banking.
Governor Y o u n g :
L e t u s assume that y o u have a
bank
i n
87
one t o v n that i s i n a precarious condition a n d y o u d o not
care t o s e n d c h e c k s
a bank across
t o t h a t institution,
t h e strect that
The Chairman:
B u t I
b u t y o u also have
i s i n «ood condition---
say i n a
case w h e r e t h e r e i s
only o n e b a n k i n town.
Governor Young:
banks, b e c a u s e I
B u t l e t u s assume there a r e t w o
want t o f o l l o v o u t G o v e r n o r M c D o u g a l ' s i d e a ,
and w h a t y o u d o i s this;
y o u pass o v e r t o that g o o d member
bank the problem that y o u are afraid t o undertake yourself,
and y o u r u i n a
good b a n k i n t h e process,
b e c a u s o t h e only
thing i n the world they can do i s t o take a draft from that
bani a c r o s s t h e street.
I
t would b e extremely embarrassing
for t h e n t o d e m a n d cash,
w i t h t h e experience I
have h a d
with t h e s e c h e c k s o u t i n t h e n o r t h w e s t t h e r e i s o n l y o n e ray
you c a n protect yourself, a n d that i s t o send a man out there
to the bank t o collect those checks.
I f h e cannot g e t cash,
if h e gets a draft, y o u have g o t t o take t h e chance o f certification there.
Governor Callins:
Y o u find yourself
worse s i t u a t i o n t h a n y o u h a v e d e s c r i b e d
MeDougal has described,
in a
very m u c h
o r than Governor
Y o u have checks amounting t o $10,000
on the First National B a n k from somewhere; y o u have advanced
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Federal Reserve Bank of St. Louis
88
all t h a t y o u s a f e l y c a n advance,
the a c c e p t a b l e p a p e r a n d y
a n d you have taken all
s e n d that $10,000
i n checks
to
that F i r s t N a t i o n a l B a n k a n d t h e y h a v e n o t h i n g w i t h w h i c h
to m e e t them.
T h e y then ask for a
are t h e r e f o r e c o m p e l l e d
Bank s h a l l s u r v i v e
absolutely
evade it.
further advance.
t o decide whether t h e First National
o r b e closed,
o n your shoulders
T h e responsibility
is
i n every case a n d you cannot
Y o u cannot get the checks bach
anything e x c e n t m a k e a
Y o u
Y o u cannot d o
further a d v a n c e w h e n y o u I m o w y o u
ought n o t to, o r thasx elsc close t h e bank,
I s n ' t that cor-
YeEot?
Governor Young:
T h a t i s the story I
have b e e n t r y i n g
to get across here f o r t h e last three o r four years.
Governor Calkins:
T h e e x t r e m e i n f l a t i o n o f precarious
banks c o m e s t h r o u g h t h e d i r e c t c o l l e c t i o n
a s Governor Young h a s pointed out.
banks,
tended,
y o u k n o w i t i s extended,
o f checks
o n those
T h e bank i s ¢€x-
y o u won't m a k e a n y further
advances, y o u send checks t o it, a n d y o u automatically have
to make a
further advancej;
y o u d o the same thing t h e n e x
day, a n d s o o n until finally somebody else closes u p that
bank a n d t h e n y o u a r e s t u c k ,
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Federal Reserve Bank of St. Louis
Governor wellborn:
O c c a s i o n a l l y w e have t h e
89
situation that Governor Young speaks of,
W e give notice
to t h e endorsers t h a t t h e checks a r e n o t paid a n d i n ten
days w e give t h e m a m t h e r notice.
Governor McDougal:
Governor Wellborn:
Governor MeDougal:
W h e n d o you give t h e first notice?
N o specified time.
B u t what does “immediately "mean?
Do y o u m e a n i n t w o o r t h r e o d a y s ?
Governor Welborn:
noticc,
Y e s , a n d i n t e n days w e s e n d another
‘ g e have a n iron-clad agreement that c a c h bank
must sign, t h a t w h e n w e send out those checks t h e y won't
hold u s liable f o r t h e checks t h a t w e send t o the member
banks.
B u t t h a t h a s n e v e r b e e n t e s t e d i n t h e courts. I
am
inclined t o agree w i t h Governor Young that i f i t came t o a
test before a jury i t would narrow down t o the question o f
negligence.
I
f they could prove t h a t w e h a d continued
to
send checks t o banks that h a d not remitted f o r them, a n d w e
admit o n the stand that w e knew t h e bank was i n a precarious
condition, t h e n I think w e would b e liable.
Gevernor Calkins:
T h e question here is, i f I may state
it again, whether this conference desires t o discuss a n d set
up a better mechanism f o r carrying o n par collection o f checks
throughout t h e country t h a n i s a t present i n operation,
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Federal Reserve Bank of St. Louis
or
whether i t does n o t desire t o discuss t h a t question.
not: insistent
o n Lt.
l L think w e witli e e n t e 4 2 7 3 9
course o f time, a n d m a y b e a
The Ghairman:
long time.
A s Governor McDougal h a s stated, t h i s
possibility w a s f u l l y d i s c u s s e d
I remember a
7 6
a t t h e e a r l i e r conferences.
discussion v i v i d l y b e c a u s e
i t had polation 6 0
an occurrence i n the nineties, a n d again i n '97 vhen y o u
could n o t collect cheeks.
T h e m e s t i o n here i s whether t h e
Conference i s ready t o g o ahead a n d take u p t h e question o f
the collection problem again,
anyone o f f e r a
motion?
Governor ‘vellborn:
for discussion, I
necessary,
W h a t i s your verdict? D o e s
A s this question was brought u p
would like t o know why i t i s absolutely
s o far a s w e have gone, “ o r u s t o maintain this
check c o l l e c t i o n s y s t e m i n o r d e r t o m a k e t h e F e d e r a l R e s e r v e
Systom a success; w h e t h e r o r not i f we cut i t out entirely
the S y s t e m w o u l d g o a l o n g j u s t a s w e l l a s a
credit a n d p r o -
tective o p e r a t i o n ?
The Chairman:
Y o u méan abandon i t ?
Governor ‘ellborn:
e abandoned
W h e t h e r o r not i t c o u l d b
and t h e Federal Reserve System b e maintained a s i t is?
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Federal Reserve Bank of St. Louis
Governor Calkins:
9
8 p e r cent o f the banking interests
1
of t h e c o u n t r y a r e i n f a v o r o f t h e c o n t i n u a t i o n o f t h e p a r
collection system,
s o that I
a.estion a b o u t t h r o w i n g
something b e t t e r
do not consider there i s a n y
i t away unless
y o u c a n substitute
i n i t s place.
The C h a i r m a n :
I f y o u g a v e i t up, w h a t w o u l d h a p p e n ?
The c h e c k s w o u l d h a v e t o b e c o l l e c t e d t h r o u g h s o m e g e n c y ,
and t h a t a g e n c y w o u l d b e a
be a b l e
t o collect
bank.
those checks
I
n order t h a t t h e y m i g h t
and not
b e paying
t h e expense
so
and not getting their bait back, t h e o l d reserve accounts
in o n e f o r m o r a n o t h e r w o u l d h a v e t o b e r e s t o r e d w i t h t h e
collecting b a n k s
i n compensation.
T h e n
w e would h a v e t w o
lawful
sets o f reserves i n the country, o n e a
r e s e r v e , carried
with us, a n d the other a compensating balance carried with
who did the collecting.
in this c o u n t r y w i t h o u t a
ments,
a n d that means
Y o u never could d o that
revision o f t h e r e s e r v e r e o u i r e -
that y o u would surrender
t o t h e banks
some part o f the reserves t h a t w e n o w hold, a n d w e would have
to s t a r t
t h e reserve system all over again upon
The collection o f checks i s a n integral p a r t o f
system a n d w e c a m o t e s c a p e i t .
I
f w e propose
t o revis
the wethod o f collection, t h a t i s one thing B u t i f w e pro-~
pose t o a b a n d o n
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Federal Reserve Bank of St. Louis
i t and put a
good p a r t o f i t o n t o s o m e b o d y else,
92
then w e h a v e g o t t o c o n s i d e r w h a t t h e e f f e c t i s g o i n g t o
be o n the reserve condition o f the country, a n d I think i t
Governor Calkins:
i l y proposal
i s n o t t o d o either
one, b u t t o study t h e situation throughout t h e country, and,
in t h e l i g h t o f t h e e x p e r i e n c e
aGetermine w h e t h e r
o f t h e F e d e r a l R e s e r v e banks,
i t would n o t b e possible
t o set u p a
better
mechanism, involving less dissatisfaction, l e s s contest,
and l e s s r i s k o f l o s s a n d m r e g e n e r a l s a t i s f a c t i o n .
The Chairman:
I
s that m a d e a s a
Governor Calkins:
I
t i s not a
motion?
motion.
i
t was p u t o n
for discussion, a n d w e have h a d some.
Governor Harding: I
think t h e position o f the Federal
Reserve S y s t e m o n t h e o u e s t i o n o f c o l l e c t i o n i s d u e t o t h e
fact that collections a r e mace a t par
premium
f o r them.
reserve b a n k s
I
p
a
y
i
n
g a
f i t should c o m e about that t h e Federal
cee
P t e o n e - t e n t h o f o n e p e r cent, t h a t w o u l d
not alter t h e risk involved:
t h a t would still remain, a l -
though i t would remove some o f the dissatisfaction.
a e
think these problems a r e d u e very largely t o the fact that
the F e d e r a l R e s e r v e S y s t e m o p e r a t e s
as a
regional s y s t e m
and not a s a central bank, because t h e y a r e more acute i n
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Federal Reserve Bank of St. Louis
93
certain d i s t r i c t s t h a n i n others.
than his share i n his bank.
ago t h a t i f t h e r e w o r e a
G o v e r n o r Young has more
I t occurred t o m e some time
more e m u i t a b l e s c h o n e f o r t h e p a y -
ment o f t h e f r a n c h i s e t a x t o t h e government,
t h a t i f t h e ayer
could b e aménded--- a n d i n méntioning this o f course I
real-
ize t h e dager o f going t o Congress f o r a n y amendment, a n d
that has got to be considered--- but I think there would b e
certain advantages agained i f Section 7 of the Reserve A c t
gould b e amended s o a s t o provide t h a t after a n y Federal r e serve b a n k h a d r e a c h e d i t s l i m i t o f surplus a n d c a r r i e d t e n
per cent o f its current carnings a s a further addition t o
surplus, t h a t i n s t e a d o f p a y i n g t h e 9 0 p e r c e n t d i r e c t t o
the government a s a franchise tax, i t should b e provided
that that 9 0 ver cent should b e paid over t o t h e fedrral r e serve b o a r d a s a
kind o f equalization fund,
a n d that t h e
Federal R e s e r v e B o a r d s h o u l d t h e n d i s t r i b u t e t h a t f u n d t o
those banks which, through losses,
had s h o w n a
deficiency
o r insufficient sarnings,
i n earnin Ss
gs for t h e current year;
that a f t e r t h i s f u n d h a d b e e n d i s t r i b u t e d a n d a
remained,
t h a t balance should
b e paid
net b a l a n c e
b y the Federal Reserve
Board o n behalf o f a l l t h e Federal R e s e r v e b a n k s a s a
chise tax.
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Federal Reserve Bank of St. Louis
fran-
I n that w a y y o u would n o t deprive a n y bank o f
94
the earnings
i t i s e n t i t l e d t o now, a n d i f a n y o n e b a n k i n
the system, through b a d luck, o r o n account o f local cenditions, s h o u l d incur lossess or, o n the other hand,
i n case i t
should have insufficient earnings--- instcad o f Dalls, f o r
instance, a s k i n g t h e committee f o r a n extra distribution c f
bills i n order t o help t h e m out o n earnings---
i t would n o t
apply this year, o f course--~ i n ordinary years t h e y would
know that i t did rot make a n y difference t o them, b u t t h e y
could show a strong reserve; t h e r e would b e n o dissatisfaction a n d n o charges made locally that that b a n k a s a regional
bank was loaning money i n “all Street, t a k i n g o u r money a n d
sending i t u p there.
T h e Federal Reserve B o a r d could send
you a check o u t o f surplus earnings, a n d i t would balance
up a s f a r a s i t w o u l d g o . I
vantages,
think t h a t w o u l d h a v e s o m e a d -
a n d i t would equalize losses
collection system.
i n regard t o this
N o w , t h e main objection t o it, o f course,
is g o i n g t o Congress, b e c a u s e y o u r e a l i z e w h e n y o u g e t u p
there y o u never k n o w when y o u are going t o get anything.
You a r e n o t d e p r i v i n g t h e g o v e r n m e n t
o f anything
i n the long
run, i f you have a balance which i s never paid o f f o n the
--fPanchise tax,
I
f Minneapolis o r any other reserve bank
should h a v e t o d i p i n t o s u r p l u s f o r o n e c a u s e o r a n o t h e r f o r
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Federal Reserve Bank of St. Louis
95
& million dollars, t h e y need n o t p a y a n y t a x until t h e y build
the surplus u p again,
T h i s would equalize t h e whole system;
we w o u l d p a y t a x e s n o t a s i n d i v i d u a l r e s e r v e banks,
taxes a s a
system. I
proposition,
b u t pay
spoke t o G o v e r n o r C r i s s i n g e r a b o u t t h e
a n d h e s a i d the Board w a s interested
i n i t and
would l i k e m e t o bring i t u p for discussion a t t h e proper
time, a n d I
a m referring t o i t n o w i n connection with thecol-
lectian system, because 1
do not believe i t would solve t h e
proposition t o pay one-tenth, because y o u would still have
the same risk, I
devise a
do not see, under t h e law, h o w you c a n
better system than y o u have now, b u t this other w a y
would e q u a l i z e t h e w h o l e p r o p o s i t i o n
s o that i t would b e o n
a system basis, j u s t a s they d o with a central bank.
I f we
had a central banking system this thing would n o t b e s o acute,
because the losses w e have i n the Northvest today would h e
equalized i n t h e other districts.
Governor Wellborn: I
think that i s a very good sugges-
tion, a n d while w e are o n this subject, I wonder whether a n
amendment c o u l d not b e gotten through Congress stating that
when w e s e n t a
check t o a
member t a n k w e s h o u l d n o t b e h e l d
liable f o r a n y loss, s e t that u p i n the A c t itself.
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Federal Reserve Bank of St. Louis
The Chairman: I
do. n o t - t h i n k i t - i s p o s s i b l e
t o b e re-
lieved o f negligence e v e n b y a n Act o f Congress.
Governor Vellborn:
T h a t i s the point I
make, w h e t h e r
Congress could relieve u s o f it? 4
The Chairman: L
doubt i t very mich.
Governor Seay: C o n g r e s s could not even define negligence.
The Chairman;
C o n g r e s s w o u l d n o t pass s u c h a n act
anyway.
Governor Calkins: I
do not think w e ought t o b e re-
lieved o f t h e c o n s e q u e n c e s
Governor “iellborn:
negligence,
o f negligence.
I
f w e s t stated,
i t wouldn't
be
i f w e sent i t t o the member b a n k a n d t h e bank
failed t o pay.
Governor Young; I
have a
have t h e G o v e r n o r s c o n s i d e r ;
suggestion I
would like t o
t h a t i s , t h a t t h e Act:
so t h a t a l l p a r .collection o f c h e c k s
non-member banks b e entirely u p o n a
b e amended
o f member b a n k s a n d
voluntrary basis.
would g i v e t h e r e s e r v e b a n k o p p o r t u n i t y
That
t o protect i t s e l f
when i t had a bank that i t knew was i n a precarious condi-
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Federal Reserve Bank of St. Louis
tion, because i t could refuse t o vhandle t h e checks.
I t is
quite t r u e t h a t m i g h t p r e c i p i t a t e t h e c l o s i n g o f t h e bank,
but before w e would g o that f a r w e would b e pretty sure t h a t
the bank should close anyway.
I make that suggéstion because a
couple o f years ago,
long b e f o r e t h e B o a r d m a d e a n y s u c h ruling,
w e found i t im-
I t was
possible t o collect those checks o n state banks,
very unsatisfactory.
T h e y would remit i n exchange that w e
did not want a n d that w e never could have accepted.
those b a n k s o f f t h e p a r list.
I
kind o f black eye with the trade.
W e took
t i s true t h a t gave t h e m a
I t should not have done
s did not intend b o d o it; b a t 1 b did 1b, end-we actuals
had t h o s e b a n k s w r i t i n g u s a n d b e g g i n g u s t o p u t t h e m
the par list, w e t o dictate our own terms a s t o the
of exchange they would furnish,
m d s o forth.
I think t h e p a r collection o f checks hasgone s o far i n
country
a n d i s s o well developed
that
a voluntary b a s i s a n d b e successful.
i t can b e put
T h a t i s t h e solu-
of the difficulty t h a t occurs t o m e now,
The Chairman:
C a n w e n o t have a
express t h e s e n t i m e n t h e r e ?
resolution w h i c h will
Y o u asked f o r a n expression
of views, Governor Calkins?
Governor Calkins:
anything about a
vote, I
W
e h a v e h a d that, a n d 1
think perhaps i t i s premature,
and I suggest that w e pass t h e topic.
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Federal Reserve Bank of St. Louis
do not care
98
The Chairman:
“ i t h o u t objection,
t h a t w i l l b e done.
The next topic i s 2-(c)
2-(c)
The Chairman: I
the p r o g r a m b e c a u s e
P a r Collection Litigation.
took t h e l i b e r t y o f p u t t i n g t h a t o n
of a
new thing that h a s c o m e u p since
the last conference, a n d I thought perhaps someone would want
to talk about i t a n d a s k questions a b o u t it.
Governor Wellborn: I
in our diatricst,
can tell you the status o f i t
T h e case o f the Pascagoula National B a n k
of M i s s i s s i p p i c o m e s
u p f o r t r i a l in-Oectober.
A n injunction
was denied by the Federal Judge. T h e Judge also denied the
right t o bring the Federal Reserve Board into the suit, T h o s e
were t h e o n l y t w o p o i n t s d e c i d e d .
on i t s m e r i t s
i n December.
w
T h e y will t r y the case
e have v e r y able counsel hand-
ling that case a n d Hr. Baker, former Secretary o f ar,
Cleveland,
credit.
i s general counsel.
of
T h e case involves immediate
T h e bank i s suing f o r damages f o r the amount o f
loss that they sustained i n remitting checks a t par.
I n case
suits
‘they s h o u l d w i n t h a t s u i t t h e r e w i l l b e d a m a g e
i n every
losses,
Federal reserve district t o recover t h e same kind o f
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Federal Reserve Bank of St. Louis
brought
and i t really i s one o f the most important cases e v e r
against t h e system.
99
The Chairman:
Y o u have another case i n Iota, Louisiana,
have y o u n o t ?
Governor Wellborn:
therc.
Y e s .
T h a t is a
state b a n k d o w n
T h e y owedthe Federal Reserve S y s t e m a
amount o f money i n 1920.
considerable
T h e bank h a d done a l l i t couldto
save it, carried i t along with the idea o f having i t workout
in better crop conditions, a n d n o w t h e depositors o f that
bank are suing o u r bank, charging that w e are responsible
because
w e k e p t t h e b a n k open.
Governor McDougal:
D o n ' t they claim that you put your
own m a n i n there?
Governor Wellborn:
Y e s .
B u t w e c a n p r o v e w e d i d not.
We did s a y that w e did not like t h e management o f the bank
at o n e t i m e a n d t h e y s e l e c t e d a m t h e r
to w h o w a s a
better m a n t h a n t h e o t h e r one.
Governor Seay:
placed
m a n that w e agreed
i n charge
W a s there a n y m a n from your b a n k
o f that bank?
W e would n o t d o that i n any
Governor Wellborn:
N o .
Governor McKinney:
W a s thet a local man, o f their
case.
own selection?
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Federal Reserve Bank of St. Louis
Governor Wellborn:
Y e s . &
want t o s a y further,
in
100
answer t o Governor Seay's question that w e tried that o u t
in 1920 with a bank i n Sparta which g o t i n very b a d shape.
We s e n t a
talco
man t o t h e b a n k t o charge o f i t a n d see i f h e
could p u l l i t out, a n d w e f o u n d t h a t t h e d e p o s i t s i n c r e a s e d
by reason o f our m a n being there a n the belief that t h e
Federal R e s e r v e B o a r d w a s b a c k o f it.
T h e b a n k g o t i n worse
condition . a m i w e realized t h e n that there might b e liability
from o u r sending a
man from our bank, a n d ever since that
time w e have kept o u t o f that sort o f thing.
send a n y b o d y f r o m o u r bank.
I
W e d i d not
n fact r e c e n t l y o n e o f our
assistant c a s h i e r s w a s o f f e r e d t h e p l a c e o f v i c e p r e s i d e n t
of a
b a n k i n Georgia,
thought
a n d h e took that position a n d they
i n that t o w n that w e h a d s e n t a
man there f r o m o u r
bank a n d w e had t o disatuse ~ t h e i r minds o f that.
was a
I t
voluntary r e s i g n a t i o n a n d t o o k p l a c e b e c a u s e h e w a s
offered a
good position.
L - d o n o t b e l i e v e it. is. t a e p r o p e r
thing f o r a federal reserve b a n k t o send a man from the
Pedcral reserve b a n k t o a bank o f this kind, because t h e y
do a s s u m e r e s p o n s i bility o f d e p o s i t i n c r e a s e s ,
and I
believe
they would b e liable f o r it.
Governor Seay: I
would like t o ask, f o r information,
if special c o u n s e l B a k e r h a s b e e n i n intimate t o u c h w i t h t h e
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Federal Reserve Bank of St. Louis
Atlanta B a n k i n p r e p a r a t i o n o f t h i s m a t t e r ?
Governor ‘ellborn:
Governor Seay:
Y o u mean t h e P a s c a g o u l a case?
e s s
Governor “Yell corn:
YOa.
H e was i n court t h e d a y
the injunction was denied.
Governor Seay; I
with y o u r
mean has h e been i n intimate touch
n k i n reference
t o t h e preparation
o f the case
or anything o f that kind?
Governor ‘iollborn:
here in’ Washington.
Yes.
T h e y have h a d conferences
O u r attorney h a s recently gone t o
Cleveland t o confer w i t h him, a n d h e i s thoroughly familiar
with o u r case. I
believe
h e spent a
couple
o f days
in
Governor Fancher'tg b a n k ,
Governor Biggs:
M r . Baker h a s planned t o meet some
of the counsel o f the banks o n Thursday, a n d i t was carried
over a
week longer,
a n d this c a s e i s t o b e discussed
Baker, M r . Wyatt, a n d several others.
b y Mr.
W e have some interest
in the case a n d our attorney will b e here w h e n that discussion t a k e s p l a c e .
Governor Calkins:
Perhaps
i t i s proper f o r m e t o s a y
t h a t I suggested t o Governor Crissinger that i t would b e
wise, I
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Federal Reserve Bank of St. Louis
thought,
t o have counsel f o r these banks t h a t were
102
involved
i n litigation
o f this character t o m e e t
ence b e f o r e t h e cases a r e tried,
i n confer-
a n d that conference h a s
been called a n d will meet some time i n December,
I t would
have b e e n held this w e e k b u t f o r t h e fact that o u r counsel,
who has charge o f the litigation, w a s involved inthe trial
of a
case a n d c o u l d n o t attend.
W
e have a
case t o b e t r i e d
next January o n a claim o f damages, t h e case t o b e tried
in the Federal Court i n Portland presumably before a jury.
Our counsel a n d t h e local attorney have b e e n preparing t h e
case a n d n o w a s k w h e t h e r
Baker p a r t i c i p a t e
pearing
in a
i t would b e advisable
i n t h a t trial.
case b e f o r e a
reserve b a n k s u e d b y a
t o have Mr.
i t y opinion i s that i n ap-
jury i n a
Federal court, w i t h t h e
samll s t a t e b a n k w i t h i t s l o c a l a t t o r -
ney, t h a t w e w o u l d p e r h a p s
b e placed a t a
came into court w i t h too heavy a
disadvantage
i f we
battery o f attorneys, a n d
ITa m disposed t o s a y i t would n o t b e desirable t o have Hr.
Baker p a r t i c i p a t e
The Chairman:
i n t h a t trial.
I
f that h a s b e e n discussed e n o u g h w e
will take u p the next topic, w h i c h i s 2-(d).
2-(d) A b s o r p t i o n o f postage o n cash letters
sent d i r t
b y member banks.
It is recomended that none o f the Fed ral Reserve Banks
should absorb t h e cost o f postage o n any cash letters sent
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Federal Reserve Bank of St. Louis
103
direct b y members t o other federal reserve banks,
suggested
b y N e w York,
a n d t h e recommendation
o n the program
is t h e a c t i o n t h a t w e w o u l d l i k e t o h a v e taken.
happened
i s this:
I
n some districts I
T h a t is
“ W h a t has
d o n o t k n o w whichoneg,
member b a n k s a r e b e i n g s u p o l i e d w i t h p o s t a g e
o n items w h i c h
are b e i n g s e n t d i r e c t t o o t h e r F e d e r a l r e s e r v e banks, s o m e
of our members h a v e learned o f i t a n d they have asked w h y
we d i d not give t h e m free postage,
checks a
T h e r e a r e 160,000
day going direct f r o m our district t o other districts,
and the postage would be $50,000 a year or more, and we don't
want t o pay it.
Governor Harding:
T h e n I move that none o f the Federal
reserve banks should absorb t h e cost o f postage o n any cash
letter sent direct b y a member t o other federal reserve
banks.
Governor Seay:
the c i t y o f Richmond,
O u r bank i s reimbursing the banks i n
a n d also t o a
more l i m i t e d e x t e n t
in the City o f Baltimore, f o r postage o n checks which a r e
transmitted directly b y them t o other Federal reserve banks.
It w a s a t o u r i n i t i a t i v e t h a t t h e m a t t e r w a s t a k e n u p w i t h
the R i c h m o n d B a n k , b e c a u s e
thousand checks a
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Federal Reserve Bank of St. Louis
i t saves u s t h e h a n d l i n g o f several
day a n d saves expense, because w e would have
104
to p a y t h e p o s t a g e anyway,
a n d i f t h e practice w e r e abandoned
in o u r c a s e i t w o u l d i n v o l v e t h e e m p l o y m e n t
o f more p e o p l e
in the transit department, a n d would involve o u r having t o
pay t h e postage
i n a n y event.
The Chairman:
I
n the case o f direct sendings w i t h u s
they are saving u s t h e expense including t h e postage, a n d
the postage alone would b e $50,000 o r more a
year with us.
IR o n e o r t w o o f t h e r e s e r v e b a n k s p a y t h e p o s t a g e , t h e o t h e r
banks g e t o n t o i t a n d i t g o e s t h r o u g h t h e system,
first t h i n g y o u k n o w w e w i l l b e p a y i n g a
$200,000 a
year,
a n d the
postage b i l l o f
whichw
e are n o w saving,
Governor s a g e
The Chairman:
Y o u refer t o t h e banksin your o w n city?
T h e r e are 200 o f them that are sendhng
checks direct.
Governor Seay:
Y o u have t o p a y t h e postage now,
do
you n o t ?
The Chairman:
N o , not a
penny,
W
e never h a v e paid
any postage o n direct sendings.
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Federal Reserve Bank of St. Louis
Governor Seay:
The Chairman:
Governor S e a y ?
The C h a i r m a n s
N o t o n direct sendings?
N o .
F r o m banks
N o .
i n your o w n city?
105
Governor Seay:
I f they d o not t u r n t h e checks o v e r
to you they send them direct a t their o w n volition--The Chairman:
Governor Seay:
T h e y s e n d 160,000 a
day o n the avera ge.
W h a t inducement i s there f o r them t o
send direct?
The Chairman:
T h e s a v i n g o f time.
D A G y
e t Credit = e
day sooner.
Governor Calkins:
T h e advantage i s much greater t h a n
the cost o f the postage, because t h e y save a day.
Governor Seay:
T h e y would n o t save a
Governor Hancher:
d a y w i t h us.
Y o u donk) t a k e checks e x c e p t w p t o
early afternoon, a n d that enables t h e banks w i t h large volume t o complete t h e day's business a n d mail their letter.
The Chairman:
A r e there a n y other banks t h a t furnish
postage f o r direct sendings?
Governor Biggs:
W e d o i t and find i t economical t o
GG 3 ts
Governor ‘wellborn:
T e t e
t h e *opimton o f o u r d a n k t h a t
if w e discontinued t o absorb t h e cost o f postage o n cash
letters sent direct b y members t o other Federal Reserve banks
that t h e saving would b e small,
actually effected.
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Federal Reserve Bank of St. Louis
I
i f i n fact a n y saving was
n our district v e r y f e w o f the member
106
banks, except t h e banks located i n Feberal Reserve a n d branch
cities u s e t h e direct sending privilege,
a n d i f w e discon-
tinued t o a b s o r b t h e p o s t a g e t h e y w o u l d l i k e l y s e n d t h e
checks direct t o u s o r t o our branches a n d w e would have t o
pay t h e postage i n addition t o the cost o f handling.
therefore r e c o m m e n d t h a t t h e p r e s e n t
W w e
pracbice
o
f a b s o r b i n gg p ons t -
age b e continued.
Governor McDougal:
T h a t experience i s quite different
from G o v e r n o r S t r o n g ' s e x p e r i e n c e , T
they s e n t t h e m d i r e c t
sending t h e m d i r e c t
t o s a v e time.
on a
had t h e i d e a t h a t
T h e y make a
day b y
large p a r t o f t h e i r remittances;
at l e a s t t h e y d o i n Chicago.
Governor Seay:
their sendings,
go t h r o u g h you.
themselves,
T h e y would o n l y save time o n a
T h e bulk o f the sendings, I
I
part o f
imagine, w o u l d
n our c a s e t h e y transmit t h e b u l k o f t h e m
I t saves u s clerk hire i n the handling o f the
checks a n d w e reimburse t h e m for t h e postage because w e would
have t o p a y i t anyway.
that. i t i s a
I
t e a n b e determined, t h e r e f o r e ,
saving a n d t h e r e f o r e
i n t h e l i n e o f economy.
I realize t h a t t h e r e m a y b e c e r t a i n r e s e r v e b a n k s w h o m a y
give c e r t a i n p r i v i l e g e s
a n d o t h e r b a n k s t h a t d o not, a n d t h a t
information g e t s o u t i n s o m e w a y o r o t h e r a n d i t m a y b e d i s -
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Federal Reserve Bank of St. Louis
advantageous.
Governor McKinney:
D o y o u réimburse f o r postage out-
side t h e city?
Governor S e a y :
N o .
I
n t h e C i t y o f Richmond w e p a y
postage o n items which they transmit direct t o other federal
reserve banks.
The Chairman:
York a n d I
T h i s w a s p u t o n the program b y New
suppose I
can offer a
resolution.
M a y b e t h e ques=—
tion requires m o r e investigation t h a n has b e e n g i
+ o ;
Our belief i n New York i s that t h e fact that w e are saving
work a s well a s postage o n 160,000 items a
day i s pretty good
evidence o f the fact that direct sendings c a n b e effected
without absorbing postage.
I t seems t o u s that this i s a
case where uniformity i s desirable, a n d uniformity i n absorbing t h e c h a r g e s
i s going t o cost u s a
great d e a l o f money.
I do not know whether i t 1s going t o save u s money, a n d I
would h a v e t o f i n d o u t a b o u t i t , a n d t h e r e f o r e
m y suggestion
was that i t b e referred t o the Standing Committee o n Collec~tions f o r a
thorough investigation t o find o u t just -here w e
are o n t h e m a t t e r a n d h a v e t h e m r e p o r t a n d m a k e &
von.
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Federal Reserve Bank of St. Louis
reconmenda=
o O Ws.
Governor S e a y :
O u r experience
i s exactly contrary t o
108
yours.
W
e know that
i t does
absorb t h e postage, b e c a u s e
handled i t i n this way.
not save
u s anything
not to
i t was a t our initiative t h a t w e
T h e y were accustomed t o bringing
them t o u s late i n the d a y a t a time w h e n o u r transit force
was most heavily occupied, a n d dumping t h e m o n us, a n d i t
was a
source o f some embarrassment a n d finally w e s a w that w e
could save ourselves t h e trouble a n d expense i n this way.
Governor Harding:
H o w late d o y o u receive them, Gover-
nor Seay?
Governor Seay:
U n t i l t w o otclock.
Mr. Harrison:
W
Governor Seay: I
e r e c e i v e t h e m u n t i l 2:30.
think your resolution, M y . Chairman,
very g o o d o n e u n d e r t h e circumstances.
The Chairman:
A r e y o u ready t o consider
Governor Seay: I
will second it.
(fhe motion, h a v i n g b e e n d u l y seconded,
Phe Chairman:
A
m y proposal?
s I
w a s carried.)
understand i t , G o v e r n o r N o r r i s ,
Topic (6), collection o f checks d r a w n o n banks located i n
Porto Rico a n d Hawaii i s withdrawn f r o m t h e program?
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Federal Reserve Bank of St. Louis
Governor Norris:
The Chairman:
Yeu.
T h e next topic i s 2-(f).
2-(f) A i r p l a n e tlail Service.
It i s r e c o m e n d e d t h a t t h e s t a n d i n g c o m m i t t e e
tions b e r e q u e s t e d
o n collec-
t o study t h e airplane m a i l service w i t h
a view o f d e t e r m i n i n g w h e t h e r
i t i s feasible
t o adjust t h e
time schedule s o a s t o give member banks t h e benefit o f
earlier p r e s e n t a t i o n
plane,
o f items w h i c h a r e d i s p a t c h e d
b y aero-
T h e s u g z e s t i o n h a s b e e n m a d e t o u s b y :ir. Lucas,
one o f the m e n i n the A i r Wail Service, t h a t i f they c a n
ascertain that there will b e enough traffic t h a t t h e y will
extend t h e service,
a n d h e wanted t o k n o w whether t h e Federal
reserve system would b e interested i n having h i m d o so.
“we find i n New York that a good deal depends upon whether
they a r e going t o make night flights between N e w York a n d
Chicago.
T h a t i s the k e y t o the situation.
I t i s only a b o u t
started, a n d w e are afraid o f the winter service, t h a t i t
may b e unreliable.
I
ules, a n d m i g h t r e s u l t
t involves a
change
i n great i n e q u a l i t y
i n t h e time schedi n the time sched-
ules because o f the facility afforded o v e r these shorter
distances.
W h e n
i t came
u p I ] read t h e papers r e l a t i n g
t o
it, a n d i t occurred t o m e a t once that i t had many possibile
ramifications
a n d results t h a t w o u l d n o t b e s u p e r f i s i a l l y a p -
parent, a n d for that reason t h e suggestion i s made that inves-~
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Beh)
tigation
b e made
a s t o just what t h e results would
b e on
our t i m e s c h e c u l e s a n d s o on.
Governor Harding: I
agree w i t h y o u fully, a n d I
think i t should b e referred t o t h e committee f o r study a n d
report,
Governor Valkins:
Governor Fancher’,
i w i t i o c o r t e r that a s a
P e e
motion.
Gnd Ab,
(The motion, having b e e n d u l y seconded, w a s carried.)
The Chairman:
T h e next i s 2-(g)
Member bank's warranty that i t has
authority o f c u s t o m e r t o a c c e p t t h o s c
provisions o f R e g u l a t i o n J regarding
responsibility o f items.
The recommendation o n the program i s that t h e Standing
Committee o n Collections b e instructed t o prepare a
circular c o n t a i n i n g a
uniform
form o f contra b e t v v e e n banks a n d
their depositors, r e q u e s t i n g m e m b e r a n d c l e a r i n g m e m b e r
to a m e n d t h e i r c o n t r a c t s ( c o n t a i n e d
and s i g n a t u r e c a r d s )
in: B i e c l e i
o n deposit s l i p s
i n accorcance w i t h t h e f o r m proposed
a n d recomended f
t h e
t h a t t h e Federal
reserve b a n i s a m e n d t h e i r c h e c k c o l l e c t i o n c i r c u l a b
1, 1925,
o n -larch
t o provide t h a t t h e a c t o f submitting checks
to
Federal R e s e r v e B a n k s f o r c o l l e c t i o n w i l l b e c o n s t r u e d a s a
aa i
varranty t h a t t h e d e p o s i t o r h a s l o d g e d w i t h t h e d e p o s i t i n g
bank t h e required agreement.
I understand t h a t G o v e r n o r F a n c h e r w i s h e s
Strater's a r r i v a l , b e c a u s e t h i s i s a
up w i t h t h a t report,
t o await Mr.
matter w h i c h i s t i e d
a n d w e w i l l p a s s i t a t t h i s time.
The n e x t t o p i c i s 3 . C o i n , Currency: a n d CiPpoulation.
3-(a)
T h e desirability o f all Federal
Reserve Banks giving full consideration
to currency i n transit i n computing
the r e s e r v e r e q u i r e m e n t s a n d p e n a l t i e s
for d e f i c i e i c i c s i n reserves o f member
banks,
That t o p i c h a s b e e n u p b e f o r e a n d w e h a v e v o t e d u p o n
ig e e o d Pecel..
A m I right?
Mr. Harrison:
Y e s .
The Chairman:
W h a t w a s t h e action o f t h e conference
last t i m e ?
Mr, Harrison:
T h e r e w o r e s i x i n favor o f i t a n d s i x
opposed t o it, b u t seven doing i t a n d five n o t doing it.
The Chairman: I
d o n o t believe w e c a n dispose
of
this before t h e meeting w i t h t h e Board.
Governor Harding: I
would like t o s a y aword o n this.
The F e d e r a l R e s e r v e B a n k o f B o s t o n i s o n e o f t h e banks t h a t
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Federal Reserve Bank of St. Louis
is giving this privilege, a n d i t meets w i t h very general a p -
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Federal Reserve Bank of St. Louis
biF
proval
o n t h e p a r t o f o u r member banks.
however,
that w e % >
not a
party t o t h e p e r m i s s i o n g i v e n
i
by the Federal Reserve B o :
L o w a suores a y ,
e
s
y e d i d not k m o w i t was
move f o r i t a n d d i d n o t
know a n y t h i n g a b o u t i t u n t i l
we
l a t e r advice t h a t i n our
been g i v e n that disere-
discretion w e could d o it. g
tion w e d i d it, b u t w e would n o t mind i f the Board s a w fit
vO r e v o k e
1 s
‘ w e have a
compact district,
a n d they figure
ery closely o n most everything t h e y c a n get.if T h e
Reserve B o a r d s e y s t h a t i n o u r G i s e r e t i o n w e c a n d o
so, I t p e t e u s c i t
a e embarrassing p o s i t i o n i f w e d o
it, because w e haven't t h e argument against i t that
of t h e b a n k s w i t h l a r g e t e r r i t o r y have.
The Chairman:
Gentlemen, I
nor U r i s s i n g e r
t o call 4
ment C o r m i t t e e
i n his
meeting o f t h e O p e n M a r k e t I n v e s t -
m a t 4
progress, not as”
have b e e n a s k e d b y Gover-
o'cloek,
‘ Y e are making
a s I would like, and I doubt
much whether we will get through with that matter i n
emble a g e i n b e f o r e d i n n e r .
Governor Calkins: I
move that w e adjourn
Chairnan.
o'clock t o m o r r o w morning, iin.
Governor Young: I
second t h e motion.
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Federal Reserve Bank of St. Louis
ea
(Thereupon, o n motion duly seconded, t h e conference
adjourned a t 3:55 o'clock ps m. until tomorrow, Tuesday,
November ll, 1924, a t 9 ofclock
November 11, 1924,
LOs 45-0 G l o c k “asm.
The C o n f e r e n c e m e t , p u r s u a n t
t o adjournment
o f yester-
at 1 0 : 4 5 o ' c l o c k a . m .
Present:
A
s indicated
The Chairman:
gentlemen,
i n vesterday's r e c o r d .
T h e next topic f o r consideration,
i s No. 3 , Coin, Currency a n d Circulation.
(a) T h e desirability o f all Federal
Reserve Banks giving f u l l consideration t o c u r r e n c y i n transit i n comouting r e s e r v e r e q u i r e m e n t s a n d penal-
ties f o r deficiencies
i n reserves o f
member banks.
This a p p e a r s
o n t h e J o i n t P r o g r a m again,
a n d n o action
has b e e n recottiended b y the proposer o f the topic.
L t
came f r o m t h e F e d e r a l R e s e r v e B o a r d a n d i s o p e n f o r d i s c u s ston.
Governor Seay:
w e . Chairman, I
would j u s t like t o
know h o w m a n y r e s e r v e b a n k s a r e g i v i n g t h i s consideration.
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Federal Reserve Bank of St. Louis
The Chairman:
Governor i f e D o u g a l :
phia, C l e v e l a n d ,
Atlanta,
L o u i s
a n d Kansas vity,
is o p p o s e d b y N e w York,
Dallas a n d S a n Francisco,
The Chairman: N o t w i t h s t a n d i n g that being the expression o f o p i n i o n
o f t h e Governor,
Governor McDougal:
I
mond h a d o p p o s e d t h e plan,
Richmond
i s doing it.
t developed t h a t although Richi n r e p l y t o S a n Francisco,
they
were making allowance f o r t h e time.
Governor Bailey:
TO B V O l d a
C
W e a r e doing i t when i t i s necessary
e lrene
c
Governor licKinney:
would b e v a l u a b l e
to a
Governor B a i l e y :
a bank
i s deficient
The Chairman:
two d e f e c t s
T h a t i s about t h e o n l y t i m e i t
member b a n k .
W
e d o m e t d o i t every day,
i n reserves
w e make allowance
but if
f o r it.
O u r v i e w i n N e w York i s that there a r e
i n this vroposal.
O n e
i s that
i t leaves
i t
to e a c h r e s e r v e b a n k t o d e t e r m i n e t h e r e s e r v e r e a u i r e m e n t s
or t h e b e n k s
t n i t e district, i
tion o f t h e r e s e r v e r e q u i r e m e n t s ,
i
g it is a
relaxa-—
w h i c h i s contrary t o t h e
law, a n d w e b e l i e v e t h a t t h e a c t i o n w h i c h should, b e t a l e n
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Federal Reserve Bank of St. Louis
115
is t e m p o r a r i l y n o t t o g i v e c r e d i t f o r c u r r e n c y
i n Transit,
but t o r e f e r t h i s a l l f o r study, w i t h o t h e r r e s e r v e q u e s tions,
t o t h e committee w h i c h h a s b e e n empowered
t o employ
an e x p e r t .
Governor Calkins:
I
T a m exactly
that statement, Governor Strong.
have t a k e n a t a l l times,
i n agreement w i t h
T h a t is.the position w e
a n d that i s t h e position w e intend
to take a s long a s w e can.
I t i s contrary t o l a w i n the
first place, a n d contrary t o good practice i n the second.
Governor McDougal:
T h i s subject h a s b e e n diseusscd
at l e n g t h a t previous c o n f e r e n c e s ,
legality w a s r a i s e d
a n d t h e question o f
b y Deputy Governor C a s e .
T h i s oues-
tion has since b e e n arswered b y the opinion o f the Board's
counsel, w h i c h reads i n part a s follows:
"Currency i n transit, a n d therefore owing, will legal-~
ly constitute part o f the required reserves o f member banks,
provided t h e carrier i n such case i s the agent o f the
Federal Heserve Board, w h o reseives a n d holds s u c h currency f o r t h e Federal Reserve Banks rather t h a n f o r the mem-
ber banks,"
The Chairman:
T h e curious thing about i t i s that those
banks t h a t a l l o w t h i s d o n o t d o i t b y a
form o f procedure
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Federal Reserve Bank of St. Louis
AS:
in b o o k k e e p i n g w h i c h c o n f o r m s
for t h e F e d e r a l
t o t h e o p i n i o n o f counsel
Reserve Board,
Governor S e a y : P r e c i s e l y .
T h e y d o n o t bookkeep+ t h e y
avyoLd A i s
The Chairman:
T h e y avoid every process t h a t would
give t h e m t h e a p p e a r a n c o
o f legality, a l t h o u g h I
Mp. Wyatt's opinion i s wrong.
rather t h a n t o location,
inconsistency
hold t h a t
H é e i s referring t o titi¢s
s o t o speak,
B u t there i s another
i n i t a n d that i s when t h e member b a n k dis-
patches durrency t o the Federal Reserve B a n k i t i s t h e property o f t h e F e d e r a l R e s e r v e 3 a n k b u t w h e n t h e F e d e r a l R e s e r v e
Bank d i s p a t c h e s c u r r e n c y t o t h e m e m b e r b a n k i t i s n o t t h e
property o f the member b a n k but still remains t h e property
of t h e F e d e r a l r e s e r v e b a n k ,
P h e w vs a
violation
o f the
legal relation which has existed w i t h common carriers a s
between c o n s i g n e e a n d consignar,
Governor Bailey:
Governor Seay: 2
D o e s t h e insurance c o v e r i t ?
viteae i n s u r e d f o r w h o m i t m a y concern,
which i s the owner.
The Chairman:
W h a t action d o y o u wish t o take? T h e r e
is n o u n i f o r m p r a c t i c e
a n d there
i s n o uniform ovinion.
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Federal Reserve Bank of St. Louis
Bi
There certainly i s not between the banks and-counsel f o r
the Board i n this case.
W e have discussed i t a t such
length a t previous meetings t h a t further discussion seems
clearly unnecessary.
W h a t disposition shall w e make o f
the t o p i c ?
Governor ‘jellborn:
Chairman;
w e follow that practice, iir.
w e put t h e country banks
on a
parity w i t h t h e
banks i n the reserve cities a n d branch citiws.
Governor C a l k i n s :
Governor Norris:
B u t that was done b y the law,
T h i s topic w a s p u t o n b y t h e Reserve
Board?
The Chairman:
Yes.
Governor l o r r i s : I
take i t f o r g r a n t e d , i n r e a d i n g i t ,
that t h e y p u t i t o n w i t h t h e v i e w o f a p p l y i n g s o m e p r e s s u r e
to t h e f o u r o r f i v e b a n k s t h a t v e r e n o t a l r e a d y d o i n g i t
to induce t h e m t o d o it. T h e r e f o r e I
take i t that t h e y
are t h e b a n k s t h a t a r e p a r t i c u l a r l y c o n c e r n e d
i n this thing.
You are one o f those banics, w e believe, a n d i f you would
like t o h a v e i t r e f e r r e d t o t h i s c o m m i t t e e
I should i m a g i n e t h a t v o u l d b e a g r e e a b l e
The Chairman:
o n reserve,
t o a l l o f us.
H o w many banks n o w consider currency
in transit a s reserve?
A l l doing s o will please p u t u p
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Federal Reserve Bank of St. Louis
their right hands.
Governor S e a y :
E a n e s C h elas W e v a r e n o t c o u n t i n g
16
as reserve, b u t w e are making allowances f o r i t i n case o f
deficiency.
N o n e o f u s are counting i t a s reserve,
Governor Norris:
N o , n o n e o f u s count i t a s reserve.
Governor iiecKinneys:
B u t i n effect y o u are counting
it a s reserve?
Governor Norris:
Board doés
N o , I
do not admit that
m t admit it.
Governor i f e D o u g a l :
T h e auestion
is put
a s t o the matter
of giving full consideration t o currency i n transit.
Y o u
aré n o t doing that, Governor Seay?
Governor Seay:
W e are mot.
T h a t is, n o t bookkeeping
it and counting i t as reserve, b u t i n calculating the
deficiencies,
w e are making allowances,
Governor Fancher:
The Chairman:
T h a t i s what w e are doing.
I f y o u will r e f e r t o t h e Board's o r i -
ginal idea o n this subject, y o u will s e e that i t gives t o
each bank t h e decision a s t o whether i t shall count i t a s
reserve.
Governor Fancher:
‘Therefore,
H e r e i s the language o f the Board}
b e i t resolved, T h a t t h e Board sees n o objection
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Federal Reserve Bank of St. Louis
119
to t h e F e d e r a l r e s e r v e baniks g i v i n g f u l l c o n s i d e r a t i o n
eurrency
i n transit
t n computing reserve requirements
penalties f o r d e f i c i e n c i e s
i n reserves
to
and
o f member b a n k s ,
Thevorder justifies o n l y counting i t a s reserves, b u t
not t e k i n g i t i n t e c o n s i d e r a t i o n
i n computing reserve r e -
quirements a n d penalties f o r deficiencies
i n reserves o f
member banks.
lip, Harrison:
M r . Yyatt justifies o n l y counting i t a s
reserves, b u t n o t taking i t into consideration i n assessing
penalties f o r deficiencies.
N o bank i s doing i t the way
that h e justifies it, b u t soven banks a r e doing i t i n a way
that apparently n o ruling y e t has justified.
Governor: Norris: I
have a l w a y s b e l i e v e d t h e i n c o n -
sistency existed t o which Governor S e a y has just alluded,
and I said when the thing was under discussion I thought
it o u g h t n o t t o b e c o u n t e d o n e way.
Governor Seay: L e s t w e b e accused again o f a lack o f
definiteness,
a n d lest w e give a
reply i n addition t o t h e
fact o f referring i t t o that committee,
favor, I
o f which I
am i n
think i t might b e determined here whether this
conference considers i t t o b e a desirable practice.
Governor Seay:
T h é e n m y resolution i s that t h e
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Federal Reserve Bank of St. Louis
120
practice w h i c h n o w p r e v a i l s w i t h s o m e F e d e r a l r e s e r v e banks,
including t h e Mederal Reserve B a n k o f Richmond,
allowance f o r c u r r e n c y
i n transit
for deficiency o f reserve,
in transit a s a
the p r a c t i c e
i n determining penalties
i s i n effect counting currency
part o f t h e r e s e r v e
i s not a
o f making
o f member banks, t h a t
sound o n e a n d n o t a
desirable
one?
furthermore, t h a t this mestion, a l o n g with other questions
relating t o t h e subject o f reserve might b e a n d should b e
referred
t o a
committee
U P O N -Pesehves,
which h a s b e e n o u t l i n e d
o f
t o t h i s mseting.
Governor Callcins: I
The Chairman:
t e e comer ruency
would s e c o n d that,
I s t h e r e a n y furither d i s c u s s i o n
o f that
resolution?
Governor Calkins: 2
The Chairman: A
Cee
O P
e r roll: call. jie. t n e ies
roll call i s asked f o r a n d I will
put t h e c u e s t i o n i n d i v i d u a l l y .
Governor Harding: I
would b e p e r f e c t l y w i l l i n g
to
vote t o refer t h e matter t o a cormittee, b u t I would n o t
care t o vote f o r that part o f the resolution which says t h e
practice
i s not a
sound o n e .
Governor liicDougals:
T a k e currency bound t w o ways.
Cure
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Federal Reserve Bank of St. Louis
pency
w e s h i p o u t uly order
t o save. a
bani
n ° [ewe P r o m cus
pending w o u l d n o t e n a b l e t h e m t o p a y t h e i r c h e c k s u n t i l
it
currency bound t h e other w a y certainly will n o t
protect t h e i n t e g r i t y o f t h e i r a c c o u n t a g a i n s t p r e s e n t a t i o n
of checks i f they. come i n while that currency i a i n transit.
Tile m e t R e u s
Governor Harding:
this.
T h e w a y w e Mandie
i t i n Foston t s
C u r r e n c y shipments m a d e t o u s a r e m a d e b y registered
mail, i n s u r e d u n d e r o u r policy.
I
n other words,
delivery a t the post office,
e
r
h
transit w e m a k e c l a i m a g a i n s t t
w e accept
e i s a n y loss i n
i n s u r a n c e company.
I n
like manner, t h e shipments o f currency t h a t w e make t o
member b a n k s a r e i n s u r e d u n d e r o u r p o l i c y f o r o u r account,
and i t remains o u r p r o p e r t y u n t i l t h e m e m b e r b a n k receives
it a n d re-sipts
that i f I
f o r it. I
had b e e n a
member
do not want
t o b e undepstood
o f the Federal Reserve B o a r d
I would have voted f o r this proposition; b u t t h e F e d
Reserve B o a r d p a s s e s t h i s r e s o l u t i o n a n d s e n d s o u t t h i s
letter after advising w i t h their counsel. I
jar w i t h t h e d e b a t e t h a t o g e h r r e d
a m not famil-
o n t h e subject,
o r the
reasons t h a t actuated t h e Board, a n d I think i t would b e
rather i m p o l i t i c
has a d o p t e d
t o g o out o f m y w a y a n d s a y that t h e Board
i n this c a s e a n unsound resolution. I
a m per-
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Federal Reserve Bank of St. Louis
Mie
fectly w i l l i n g
t o vote r o r that part
o f the resolution
which would refer t h e matter t o this general committee o n
reserves, b u t I would n o t like t o vote f o r that part which
speaks o f i t a s being unsound,
The Chairman:
I
t Governor S e a y w o u l d p u t t h a t i n t o
two motions i t might b e better.
Governor Seay:
I . am perfectly willing.
L i e
S
i
inate the word “unsound" and make it undesirable", would you
bewilling t o go that rar?
Governor Harding: I
that w e h a v e a
the s e n t i m e n t
think I explained o n yesterday
rather small, c o m p a c t district,
o f the banks
and I
know
o n t h e subject, w h i c h i s p r e t t y
strongly i n favor o f it, a n d IT would t e t like to. commit: myself t o saying that i t i s undesirable w h e n they want it,
The Chairman:
w h e n w e have t w o difrerent subjects
to d e a l w i t h i n o n e r e s o l u t i o n
i t i s difficult
t o get ac-
tion.
Governor Calkins: I
will withdraw m y second i f Gover-~
nor Seay will withdraw h i s resolution, a n d w e c a n start over
again.
Governor Norris:
S p l i t i t i n t o t w o resolutions a n d w e
can v o t e o n e a c h o n e separately,
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Federal Reserve Bank of St. Louis
wt)
The Chairman:
I s that agreeable t o you, Governor
Governor Seay:
Yes; I
Seay?
would rather d o that t h a n show
a division o f opinion,
i f t h e r e i s a n y u n a n i m i t y o f opinion,
Governor Fancher:
C o u l d n ' t y o u s t a t e i n your p r e a m b l e
that there i s lack o f uniformity o n the part o f the banks,
that i t h a s s o m e b e a r i n g
o n t h e r e s e r v e position,
that the
matter should b e rererred t o this committee f o r settlement.
The Chairman;
L e t m e suggest that. Governor Seay, h a v -
ing withdrawn h i s resolution,
on t h e q u e s t i o n o f w h e t h e r
w e rirst take a
vote simply
w o f a v o r o r d o n o t f a v o r t h e pRe-
sent practice o f some banks o f taking c a s h i n transit i n t o
account i n reserve calculations.
Governor C a l k i n s :
Governor S e a y :
The Chairuan:
I s that motion seconded?
T w i l a second At.
Y o u m e a n i n that language?
J u s t i n that language, whether w e favor
Leon d e o noun reser. 1 5 % I
will a s k t h o s e w h o f a v o r t a k i n g
into account c a s h i n transit i n making reserve calculations
and i n imposing penalties,
(Five w e r e
i n favor
t o please raise their right hands.
o f taking cash
account’ i
n making& r e s e r v e c a l c u l a t i o n s
i n transit
into
a n d imposing p e n a l -
a)
ties.
" T h o s e f i v e were Governors Norris, Fancher, Biggs,
"9
“ellborn a n d Bailey.)
The Chairman:
T h o s e w h o oppose t f>
raise t h e i r
right: h e n d s s
(There were s i p o s e d , Strong, Seay, iicDougal,
uic@hinney, Young, C a l k i n s , a n d o n e n o t voting, Governor
Harding.)
Governor S e a y :
I
n n o t f a y r i n g t h e practice,
expressing m y o v n opinion a s executive o f the bank.
Our
directors h a v e a p p r o v e d t h e practice,
might
say that I
and I
think I
believe t h e y were inrluenced t o some extent i n
approving i t b y t h e f a c t t h a t s o m e o r t h e b a n k s h a d s t a r t e d
the practice.
The C h a i r m a n :
refer t h e s u b j e c t
T h e other part
to a
committee
o f this motion w a s
t o
i n connection w i t h their
study o f the whole subject o t reserves, w h i c h committee i t
has a l r e a d y b e e n s u g g e s t e d
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Federal Reserve Bank of St. Louis
as y o u w i l l r e c a l l
b e appointed,
i s empovered
a n d which committee
t o e m p l o y a n expert.
I
s
that m o t i o n s e c o n d e d ?
Governor Fancher: l
wikl s e c o n d that.
(The motion having b e e n duly seconded,
Governor ‘Yellborns I
desire
t o b e recorded
a s voting
The Chairman:
T h e n t h e motion i s carried w i t h o n e
dissenting v o t e .
The next topic o n the program i s 3-(b).,
5-(b) M e a n s
o f increasing circulation o f
standard s i l v e r dollars.
Also ( c ) , p r o d u c t i o n a n d d i s t k i b u t i o n f
o U. 8 .
currency,
and ( d ) , G o l d payments.
These were suggested b y the Board, partly, a n d i n
one c a s e b y t h e F e d e r a l R o s e r v e B a n k o f N e w York. I
be-
lieve i t i s u n d e r s t o o d t h a t A s s i s t a n t S e c r e t a r y D e w e y d e sired t o b e p r e s e n t a n d t o t a k e p a r t i n t h e d i s c u s s i o n o f
these topics,
a s h e deals w i t h these particular matters i n
the Treasury.
D o y o u wish t o invite h i m t o come now, o r
do y o u t h i n k i t w o u l d b e b e s t t o d e f e r a s k i n g h i m a t t h e p r e sent t i m e u n t i l w e h a v e d i s c u s s e d t h e s e m a t t e r s o u r s e l v e s ?
Governor iicDougal: I
thine to-do.
t o invite
think i t w o u l d b e a
very proper
i m D e w e y i n t o discuss t h e s e subjects
with us.
The Chairmwan:
I w i l l appoint a committee o f one t o
go a n d s e e h i m a n d find o u t a convenient time,
ie. Harrison: I
respect
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Federal Reserve Bank of St. Louis
spoke to Mr. Dewey on yesterday with
t o this a n d h e t o l d m e this afternoon w o u l d b e more
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Federal Reserve Bank of St. Louis
convenient t h a n t h i e morning.
The Chairman!
T h e n , i f agrreable,
w e will derer con-
sideration. o r the topic until Teter i n the meeting,
Governor Seay:
W o u l d i t n o t b e well t o d o a s w e gen-
erally d o i n such matters, consider i t ourselves i n advance
and arrive a t a conclusion s o that i t may not r e m i r e
so
much d i s c u s s i o n ?
The Chairman;
Ea
e o Eo
I
M y thought w a s that w e ought t o hear
t i s hardly f a i r t o t h e Assistant Secretary
of the Treasury t o have o u r minds made u p about i t and take
some action which,
a s the result o f some statement h e might
make w e might h a v e t o undo.
Governor Harding:
T h e r e i s one part. o f i t w e m a y
consider which does n o t concern hin.
l
r
, James'letter
made t h e suggestion that the Federal Reserve Banks,
order t o put silver dollars i n circulation,
in
p a y the
transportation c h a r g e s ,
The Chairman:
T h a t i s t h e qmestion,
Governor Harding:
Y o u will remember
Con r e s s h a d t o m a k e a n a p p r o p r i a t i o n
charges o n silver dollars. I
involved there.
I
i n the o l d days
t o p a y transportation
think there i s a principéde
t may n o t amount
t o much, b u t i t m a y
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Federal Reserve Bank of St. Louis
Laer
amount t e .a great deal. T h e r e i s a-principle involved.
Governor Seay:
I t might b e well t o call attention t o
one statement i n the report o r the conmittee o n Salaries,
Expenditures a n d urriciency i n which they say, “As the pay~
ment o f charges b o t h ways o n shipments o f currency a n d coin
as a
policy o f t h e b a n k s
i s p r a c t i c a l l y uniform,
t h e only
real question f o r consideration i s whether t h e vaiue o f the
service justiries i t s continuance.
Governor Harding:
T h e Chairman o f that committee
writes and suggests that w e pay the transportation charges,
and I
think i f w e a s s i s t t h e T r e a s u r y
i n circulating m o r e
silver dollars t h a t i t will b e a very substantial item,
The Chairman: -
think 2 b would 000.
Governor Harding: B e c a u s e a t the present t i m e practically a l l s i l v e r d o l l a r s a r e impounded.
T h e y are not ciPe
culated, a n d i f you at:empt t o put o u t a
substantial
amount
o f t h e m y o u will h a v e t h e m coming b a c k a n d y o u will
have a
very substantial shipping charge.
The Chairman:
T h e r e i s a point that w e have got t o
consider pretty carefully, a n d i t is going t o be rorced
upon u s ‘“hether w e w a n t i t o r not.
ing a r r a n g e m e n t s
T h e T r e a s u r y i s mak-
t o make certain payments
t o the Army a n d
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Federal Reserve Bank of St. Louis
128
Navy,
t o Civil Service establishments,
Some Sxteny i n silver’ doliers,
a n d s o forth;
t o
N o w , 12. the T r e s s u r y , ;a
the expense o f the various Departments, w o a l d u s e i t for
pay rolls, s h o u l d s h i p a
purpose
o f p a y rolis,
supply o r s i l v e r d o l l a r s f o r t h e
a n d i r i t i s n o t desired
i n ci-enla-
tion, t h e efi'ect o r i t would b e that i t would come right
and
back t o u s from t h e member banks,
i n order t o carry o u t the
Treasury policy w e would have t o ship i t out again.
I t
would come t a c k again a n d w e would s e t u p a perrectly f a l s e
circulation o f s l i v e r t o b e s u s t a i n e d
b y o u r willineness
pay t h e expense o f moving i t back a n d rorth.
to
T h e sugxes-
tion i s made t o t r y a n d see what t h e volume would be, b u t
I a m arraid t h a t o n c e w e start t o pass t h e m o u t w e will g e t
addléd
with 4
large -expénss
a n d never
Wisy Ldea i s t o d i s c o n t i n u e t h e e x p e n s e
and t h a t w i l l a r r o r d u s a
in c i r c u l a t i o n
b e a b l e to. s t o p i t .
o f s h i p m e n t b o t h ways,
real t - s t o f whether
i t would s t a y
e r not.
Governor G a l i n s : I
indicate t h e cost.
have s o m e f i g u r e s h e r e which.
T h e t w o points
i n our district b e t w e e n
which w e w o u l d b e a s k e d t o s h i p a r e p r o b a b l y S a n D i e g o a n d
Seattle,
i t costs 4 6 cents t o ship $1,000 i n one desllar
bills s r o m S e a t t l e
t e S a n Francisco a n d $3.75 t o s h i p 1,000
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Federal Reserve Bank of St. Louis
nee
sfiver dollars.
\
¢ have h a d a recuest i r o m S a n Diego,
where t h e cost i s n o t auite a s great, b u t nearly so.
I t
18 tot a probablitty, «but it.ie certain: that ff: we ship
ilver d o l l a r s
to a
member b a n k i n S a n Diexzo t o b e u s e d
in paying t h e sailors o n the Fleet, t h e y vill come pignt
back t o t h e member b a n k a n d rrom that member b a n k right
back t o us.
Governor i i g k i n n e y :
4 n d
a t your éxpense?
Governor Calkins: Ab<our-expeng6,; yes.
The Chairman:
I
T warned ‘ r + D e w e y w h e n t h i s m a t t e r
first c a m e u p a n d c a l l e d h i s a t t e n t i o n
t o t h e famous stste-
ment o r Macauley that t h e mest important consequences o f
legislation
b y lexislative bodies w a s r r e n u e n t l y q u i t e d i r -
ferent f r o m t h o s e w h i c h t h e b i l l i s d e s i g n e d
that fs,
Ci0ns
t o accomplish,
1 @ indirect a n d unexpected results o f the legisla-
T h a t i s exactly w h a t i s liable t o conrront
attempting
t o p u t silver dollars i n t o circulation,
might save t h e government a
enthusiasm developed
Hays bre B i t s
‘Ve
printing bill o n paper money
of a dollar a t the expense 6 f y o t o u s , I
cerned about it. i
us in
a m really con=
a m arraid there h a s b e e n t o o -uch
i
t
, a n d that w e are going t o
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Federal Reserve Bank of St. Louis
130
I a m i n r o r m e d t h a t :ir. Dewey,
i s here a n d will
to c o m e i n now. “ i t h o u t . objection, I
b e glad
will i n v i t e h i m
to c o m e i n .
(Whereupon, A s s i s t a n t v e c r e t a r y o f t h e T r e a s u r y D e w e y
entered t h e c o n r e r e n c e r o o m a n d t h e f o l l o w i n g p r o c é c d i n g s
were h a d ,
The Chairman:
5~(b, ¢
d r . S e c r e t a r y , w e a r e d o w m t o Topics
and dad), which a r e
(bob) Means o f increasing t h e circulation o f
standard s i l v e r d o l l a r s
Production ane. distriputionCurrency.
Gold payments.
o t Uy. oi.
order o f the program t h e first topic f o r discussion w o u l d b e W e a n s
o f increasing t h e circulation
standard s i l v e r dollars.
W
of
e will b e g l a d t o hear f r o m
yOU.
ir. Dewey:
Gentlemen, I
think there i s a
that t h e s e s t a n d a r d s i l v e r d o l l a r s a r e
have beén. «
feeling
m t popular a n d never
would just like t o read a letter here, w h i c h
iso l i t t l e - o u t v o r - d a t e .
b a t 1 b h a s -some: features
which s h o w t h a t t h e r e a r e s o m e r e a l f r i e n d s
silver dollar i n the country.
c o 24
o f the standard
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Federal Reserve Bank of St. Louis
SOUTHSRN R
.
A
Ori Lee T 6 c e o s
Seban 3 o 3
Supt. R e d e m p t i o n B u r e a u
Treasury D'pt.
washington, D . CG.
“411 y o u k i n d l y r e d e e m t h e e n c l o s e d L n t e t y ( 6 5 , 0 0 )
Aollars o f pestilence spreading j u n k with n e w one ($1.00)
dollar bills.
A n d m a y t h e g o o d G o d protect t h e l a d y t h a t
has t h e h a n d l i n g
a m from California
o f it. I
i t a n d shines
money r i n g s w h e n y o u h a n d l e
where your
i n t h e sunlieht.
But this baccilli infested j u n k doesnot l o o k good t o
me.
Scatter
i t back
o f t h e Hunts
iine
i n France
can b e d e p e n d e d u p o n t o d o i t s d e a d i y work.
which w o u l d b e h o o k worm,
way c l e a r
a n d aca
T h e least o f
H o p i n g t h a t y o u m a y s e e your
t o a c t u p o n t h i s p a t r i o t i c sugezestion a n d t h e r e b y
bring t h e war t o a speedy end.
T.remain,
Very respectfully,
Coen
S o h n eepoms
RS. 0. Box. 8 6
Toccoa, G a .
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Federal Reserve Bank of St. Louis
132
I just w a n t e d t o r e a d t h a t f o r t h e r e a s o n t h a t I
think there i s some doubt i n the public m i n d that anybody
ever l o v e d t h e s t a n d a r d s i l v e r dollar.
Governor C a l k i n s :
M a n y years a g o there w a s a
current
saying i n California that they wanted something "that will
ring
o n a
gravestone":
?w
5
h i c h meant something metallic rather
than paper.
The Chairman:
I
t i s well t o remember, :ir. Dewey, -
that there w a s a
large section o f a certain political
party t h a t h a d a
v e r y deep, h e a r t f c l t d e v o t i o n f e r t h e
silver c o l l a r ,
am g o i n g t o t a k e y o u r t i m e f o r a
addressed t o Mr...
moment
" . Head, s i g n e d b y
Secretary e l l o n ,
Pm
Oia
e e O P Ae.
My dear itr. H e
The T r e a s u r y h a s b e e n c o n c e r n e d r e c e n t l y w i t h t h e n e e d
Tor improving t h e currency... §
¢
this problem, J I
feel s u r e t h a t w e c a n c o u n t o n t h e c o o p e r a t i o n orf the m e m of t h e A m e r i c a n Barkers! A s s o c i a t i o n ,
tions i n v o l v e d a r e o f i n t e r : s t
t o bankers
the G o v e r n m e n t a n d t o t h e public.
r o r t h e quesn o less t h a n t o
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Federal Reserve Bank of St. Louis
133
Dyrines “tné L a s t t h r e e y e a r s
u n p r e c e d o n t e d demand
has d e v e l o p e d f o r p a p o r c u r r e n c y o r t h e s m a l l e r d e n o m i n a tions.
T h i s i s p a r t i c u l a r l y t r u e o f $ 1 notes, w h i c h a r e
being u s e d i n i n c r e a s i n g l y l a r g e numbers.
I n order t o
supply t h e d e m a n d a n d t o m e e t r e d e m p t i o n s
o f unrit a n d
mutilated dollar bilis, it. is neccssary t o print a n d put
into circulation 48,000,000 o f these bills e a c h month.
A note w h i c h i s t h u s r u s h e d t h r o u g h t h e p r o c e s s
ture b e c o m e s u n r i t f o 1
w
i
t
h
i
o r manufac-
n s e v e n o r eight
months o f issue, whercas notes which haye b e e n given a
reasonable p e r i o d o f seasoning,
ion f r o m t e n t o c i e v e n months.
w i l l continue
i n circula-
B a n k e r s throughout t h e
country a r e constantly complaining o f the poor quality o f
the paper moncy; and, while t h e Treasury i s aware o f the
situation a n d i s d o i n g a l l i n l t s p o w e r t o r e c t i f y i t , w e
must a s k y o u r c o o p e r a t i o n
i f the
i r e d r e s u l t s are. t o b e
obtained.
Obviously w e m u s t b u i l d u p a
ciently large i n amount t o keep a
of seasoning.
reserve s u p p l y s f f i -
portion o f i t i n process
T h i s i s what t h e Treasury intends t o do, J
will b e necessary t o obtain r o m Congress a n additional
appropriation w i t h w h i c h t o b u i l d u p a n adequate r e s e r v e
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Federal Reserve Bank of St. Louis
stock, b u t i n the e n d such a program will result i n increased s a v i n g t o t h e taxpayers. \
dollar n o t e c o s t s t o d a y
17/10 c e n t s t o m a n u r a c t u r e a n d k e e p i n circulation,
ie Aye Lire. c a n b e prolonged b y twe months,
remains
s o that i t
i n c i r e u l a t i o n t e h months i n s t e a d o f elght, a
yearly
saving o f 31,666,000 will b e efiected i n this denomination
alone,
The building u p o f a n adequate currency reserve will
time,
increase
O n e w a y o f facilitating t h e operation i s t o
t h e number
o f standard silver dollars
tion, a n d t h i s a l s o t h e Treasuryhopes
t o do.
i n circula-
I
n this
way w e shall b e able immediately t o pile u p a reserve o f
paper d o i l a r s
i n the amount o f t h e standard silver dollars
which a r e p u t into cipeculation,
The n u m b e r
Low normal.
or
D u r i n g t h e war,
a s y o u know, C o n g r e s s p a s s e d
the Pittman Act, authorizing t h e Treasury t o melt standard
siiver c o l l a r s a n d sell t h e m e s b u l l i o n r o r use: o f t h e
British Government i n India.‘
T h e greater portion o f the
sliver t h u s s o l d w a s r e p r e s e n t e d
i n cur.-enecy c i r c u l a t i e n
by s i l v e r c e r t i f i c a t e s w h i c h w e r e w i t h d r a w n f r o m circulaeons
[ I n addition t o t h i s d e c r e a s e
i n the circulating
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Federal Reserve Bank of St. Louis
135
medium, t h e numher o f silver dollars i n current u s e has
dropped f r o m 8 4 , 0 0 0 , 0 0 0
i n 1919 t o 54,000,000
o n July 1 ,
When silver again became available f o r purchase, t h o
Treasury w a s required b y law t o m y silver a n d coin n e w
silver
standard dollars, w h i c h would replace those s o l d during
the w a r ,
T h e s e repurchases
Treasury h a s n o t s u c c e e d e d
a r e n o w completed
i n restoring,
but the
b y a t loast
50,000,000 t h e number o f silver dollars i n circulation i n
2S;
There a r e many reasons w h y the silver dollar should
be restored t o its former importance i n the currency structure.
I n the first place, t h e life o f a standard silver
doilar h a s n o r e a s c n a b l e l i m i t , w h e r e a s t h a t o f a
dollar does n o t a t most exceed t e n months. A
paper
paper dol-
lar, a s was pointed o u t atove, c o s t s 1-7/10 cents t o manu-
facture and keep t n circulation.
I f the Treasury,
therefore, n
a
c restore t o circulation 30,000,000 dollars
in centinéntal U n i t e d S t a t e s a n d 1 0 , 0 0 0 , 0 0 0
we c a n d i s p l a c e e q u a l a m o u n t s
i n e u r insukar
o f paper cur-
renecy a n d errect a n a m u a l saving o n this i t e m alone o f
$828,000, which i s equivalent t o the interest o f 4% o n
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Federal Reserve Bank of St. Louis
$21,000,000 of the public debt.
The u s e o f t h e s i l v e r d o l l a r
i s n o t a n innovation.
It h a s ' m e r e l y l o s t i t s p l a c e t e m p o r a r i l y
in c e r t a i n localities;
store a
a n d a l l that i s proposed
very limited amount
to t h e p a p e r c u r r e n c y ,
T
Flain
i s t o re-
o f these c o i n s a s auxiliary
f w e a r e t o succed
we m a s t h a v e y e u r c o o p e r a t i o n ,
banks,
i n t h e circulation
I
i n this p l a n
t i s necessary f o r t h e
t h r o u g h t h e i r c a s h i e r s a n d p a y i n g tellers,
t o their customers
ing e v e r y o n e
t h e Government's
reasons
t o exf o r want-
t o take a t least o n e o r t w o silver dollars
with their paver. currency. I
a m fully convinced t h a t t h e
public w i l l cooperate i f they know that s u c h action o n
their part will result, first,
Government t h r o u g h a
and, second,
i n a direct saving t o the
reduction o i e x p e n d i t u r e s r o r currency,
i n a n improvement i n the quality o f paver cur-
rency b y making possible t h e accamulation o f a currency
reserve
i n process
o i seasoning.
S i l v e r dollars c a n not
be forced u p o n a n unwilling public.
made,
h o ever, a n d t h e a p p e a l
I f a proper anpeal
i s b a c k e d b y logic a n d r e a
son, t h e American public c a n h e counted u p o n t o cooperate
with the Government i n its eifort t o supniy t h e currency
requirements
o f t h e country.
Sincerely yours,
A.I, Mellon, Secretary of Treasury.
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Federal Reserve Bank of St. Louis
or
Fa)
In l i n e w i t h t h i s p l a n o f t h e T r e a s u r y D e p a r t m e n t
to endeavor t o put o u t additional silver dollars, t h e
main dirriculty,
a s evypressed
i n severalletters w h i c h [
have received here, a n d also i n a large number o f other
Letters, s e e m s t o b e i n t h e c o s t o r transportation;
that t h e * e d e r a l R e s e r v e b a n k s a r e p r e t t y w e l l s t o c k e d u p
with circulated silver dollars, a n d haven't a n y n e w silver
dollars,
N o w , there i s a certain amount o f psychology i n
having brand n e w dollars t o put out, rather t h a n putting
out t h e o l d dollar a n d t h e Treasury i s willing t o v a y the
cost o i t r a n s p o r t a t i o n
Reserve b a n k s
o n t h e requirements
o f t h e Federal
u p t o t e n m i l l i o n dollars, b e c a u s e w e h a v e
that a m o u n t f r e e a n d c a n a r i o r d t o s e n d $ 1 0 , 0 0 0 , 0 0 0
Reserve banks. I
that w e a r e w i l l i n g
requirements,
t o the
imagino y o u have a l l received t h e notice
s o t o do, a n d i f y o u w i l l s t a t e y o u r
w e w i l l s u p p l y t h e n e w s i l v e r dollars,
the
uncirculated ones.
In trying t o put forward this p l a n w e relt that t h e
Christmas H o l i d a y s m i g h t
b e a n o p p o r t u n e moment, a
ogical moment t o bring out our silver dollars.
psychol-
T h e r e is
a certain amount o f request o n the part o f the public Y o r
silver dollars t o g o into p a y roil envelopes, children's
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Federal Reserve Bank of St. Louis
stockings and-so Torth, a n d ii: the. new
out a t t h a t time,
i t might g e t t h e m i n t o t h e hands
o f the
pubilte,
This i d e a i s a n e x p e r i m e n t
have b e e n s p o r a d i c a t t c m p t s , I
two o r three years,
to 4
certain e x t e n t .
believe, d u r i n g t h e p a s t
t o shove o u t the: siaver dol2ap; b u s
there h a s b e e n n o c o n c e r t e d e f f o r t made; I
mean there
has b e e n n o real plan bacic o f putting o u t t h e silver dolee
T h e Federal Reserve Banks h a v e b e e n asked t o t r y
to p u t t h e m out, b u t t h e T r e a s u r y h a s n o t c o o p e r a t e d
great extent, p o s s i b l y ,
ag 0
t o any
n o r h a s there b e e n a n y public a d v i c e
j u s t w h y v e a r e doing it.
U n d e r o u n present. p l a n
we hope t o have a little propaganda working, a n d w e feel,
as i r . M e l l o n s t a t e s
i n his letter, t h a t i f t h e p u b l i c
are fully advised just w h y w e a r e doing it, j u s t w h y w e
are putting t h e silver dollars i n t o circulation, t h a t i t
will m e a n g o v e r n m e n t s a v i n g ,
cooperate. I
i f they a r e willing t o
think t h e e n t i r e p u b l i c
o f the United States
te looking. t o r “tax reduction a n d i f they realize that
this i s o n e o f t h e m e a n s o f g a i n i n g t h a t e n d t h e y w i l l
cooperate.
As I
have said, t h e c o m p l a i n t
w e receive f r o m a
num-
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Federal Reserve Bank of St. Louis
139
ber o f hanks, P r e m merber banks a n d f r o m state institutions
not m e m b e r s
o f t h e system,
dollars, o n e s ,
i s that t h e y c a n get paper
a t n e cost, w h i l e t h e s h i p o i n g e x p e n s e
on
silver i s r a t h e r hea’ty, e n d t h e y s a y t h e y m i g h t b e willing,
if t h e y w e r e a b l e t o p u t t h e m o u t o n t h e s a m e b a s i s a s t h e
paper ones.
I would like t o ask, i n order that w e m a y make a n
experiment
o f t h i s proposition,
t h a t t h e Federal Reserve
Banks absorb t h e cost temporarily,
a t least until w e c a n
have a n experiment w h i c h will s h o w h o w the plan i s going
to w o r k out, a b s o r b t h e c o s t o f t r a n s p o r t a t i o n
ver d o l l a r s f r o m t h e m s e l v e s
o f t h e sil-
t o their member banks.
O
n the
outgoing cost y o u c a n get a good postal rate b u t t h e banks
cannot g e t t h a t s a m e r a t e s h i p p i n g back.
The Chairman:
Mr. Dewey:
w e g e t t h e same rate under o u r policy.
Y o u do? I
understood there was a dif-
ference i n cost.
The chairman:
Governor Seay:
T
t its under t h e s a m e policy.
T h e Treasury Department will n o t
p>
let t h e m s h i p t o us.
Banks
T h e y permit t h e Federal Reserve
t o s h i p a t parcel p o s t rates,
b u t t h e y d o n o t per-
mit themember banks t o ship back i n that way.
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Federal Reserve Bank of St. Louis
Hr
Dewey :
than “ite dees g o i n g
The Chairman: i
a m PeLrerring t o e u r p o l i c y a s cover-—
ing currency shipments.
Governor S e a y :
‘Yhat I
mean, G o v e r n o r Strong,
the s o v e r n m e n t w o n ' t p e r m i t t h e m e m b e r b a n k s
back t o t h e Federal r e s e r v e b a n k s
it permits t h e r e s e r v e b a n k s
The Chairman:
i s that
t o send i t
a t the same rate a t which
t o s e n d i t out.
‘ V e are talking about t w o different
Ae
things.
Y o u a r e talking about t h e
proposal a n d I
«
a m talking a b o u t t h e practice
i n some o f
the banks o f handling t h e coin both ways a n d
shipoing charges b o t h ways under t h e same policy
the s a m e rate.
Governor S e a y :
L - w a s speaking
o f the difrerence
in rates g o i n g o u t a n d c o m i n g b a c k ,
Ir w e c a n p r e v a i l
o n t h e F e d e r a l HReperve
banks t o absorb t h e cost going out, while w e are making
this experiment,
a n d i f t h e experiment proves t h a t there
is s o m e p o s s i b i l i t y
o f putting s i l v e r dollars o u t perman-
ently i n circulation a n d increasing t h e amount o f their
circulation, t h e n t h e Treasury would g o t o Congress a n d
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Federal Reserve Bank of St. Louis
we
sOr a n anpropriation t6. cover this, s o that should a
would a l w a y s r e s t a n y o u r
shoulcers.
gress h o w , I
*
e could t
g e t a n anrtropriation v r o m C o n -
doubt v e r y m u c h i n t h i s s h o r t séssion,
we c o u l d g e t t h e F e d e r a l r e s e r v e b a n k s
but
nee
t o cooperate w i t h
.
us p e n d i n g o u r d e c i s i o n
a s t o “hether
Or not, later on. we e r :
cover t h e t r a n s p o r t a t i o n
The Chairman:
Jie, Dewey’
h
i
c
h w o u 1d
of
B o t h ways?
o t h ways,
later d i s c o v e r e d w h e t h e r
it o n e way,
w
i sq p o s s i b le
t h e plan
o r whether
o p singly, j u s t a s i t i s
i t would
b e justiriabis:
t o pay
i t would m a k e t o o m u c h turn-over.
If we paid b o t h ways i t might make a constant output o f
silver d o l l a r s v e r y expensive,
The Chairnan:
them t h e o t h e r
I i w e p a y them one ‘ay a n d y o u p a y
a y t h e outcome
t o t h e Government w o u l d
be identical, because i t s i m p l y reduce t h e
amount t h a t y o u w o u l d g e t o u t o f t h e v r o r i t s
serve banks.
I
v you declined
we p a i d t h e n g o i n g
h
o f the re-
t o p a y t h e m coming i n
e expense o f t h e o n e w a y
ment might ecual t h e saving that y o u a r e contemol
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Federal Reserve Bank of St. Louis
142
elo
on. the paver currency. y
one t h a t y o u raised,
point, . © * Dewsy, t h e very
i s t h a t a n attempt
>
t o p u t silver dol-
lars i n t o circulation which a r e n o t wanted--“up. Dewey:
Y e s .
The Chairman:
~ r ~ would result in'constant shipping
back a s fast a s you ship them, out, w h i c h vould n o t r
ially i n c r e a s e t h e c i r c u l a t i o n
o f s i l v e r dollars.
the ouestion bevore t s i s :-hether,
Now,
b y cistontinuing paying
the cost o f shipping in, w e would i n facet reducc t h e erpense.
N e would b e constantly shipping silver dollars
out that would b e accumulating i n the banks,
ezpense
t o save t h e
o r shipping back, b u t would n o t t h e expense
of
shipoing o n e w a y b y the reserve banks b e equal t o t h e saving w h i c h w o u l d b e e i s e c t e d
ip. Dewey:
P o n i
i n the printing bill?
t t would toe. certain.extent.
I doubt i f i t would i f w e got t h e silver dollars popular~
ized a m o n g t h e banks,
I
t t h e y d i d n o t b e c o m e vopular-~
ized a m o n g t h e banks, t h e n t h e p r o p o s i t i o n
ve h a d b e t t e r d r o p b a c ’
t o t h e present s i t u a t i o n
ting t h e -sii ver d o llass r e m a i n
tempt
t o rores them,
I
i s n o good, a n d
i n the vaults
i w e c a n popularize
s n d 20;
t h e m they ought
to Abay out, a n d t h e saving -ould b e i n this forms T h e
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Federal Reserve Bank of St. Louis
145
paper m o n e y w e a r s o u t y e a r a r t e r y e a r a n d s i l v e r d o l l a r s
they a r e once p u t out a n d become pooular t h e y
will s t a y out a n d w e would n o t have t h e constantly recurring
charge w h i c h w e w o u l d h a v e i n t h e m a n u f a c t u r e
money o r t h e e xpsnse
o r s h i p p i n g charges.
o f paper
B e e w o
P i s t e
the s h i p p i n g c h a r g e s a r e g o i n g t o r e c u r t h e n w e h a d b e t t e r
drop t h e w h o l e p l a n ,
The C h a i r m a n :
G o v e r n o r Calkins
h a s made a
statoment
which y o u will find rather inportant i n that particular.
The p r i n c i p a l derniand f o r shipment,
f o r instance,
i n the
San Francisco District would b e f r o m San Diego and Seattle,
would i t n o t ?
Governor Calkins:
The Cnairman:
Y e s ,
H e tells u s that t h e cost o r shipping
a thousand o n e d o l l a r b i l l s i s 6 4 cents.
Governor Calkins:
T o Seattle i t i s 4 6 cents, a n d
y
it costs $3.75 t o ship a
thousand sé#lver dollars parcel
post i n s u r e d ,
The Chairman:
4 6 cents a s a g i n s t 93.75,aAma v e r y
small p r o p o r t i o n o f s i l v e r w o u l d b e s h i p p e d r o r t h a t p u r -
pose, b u t there weuld b e a n enormous increase i n the cost
of handling.
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Federal Reserve Bank of St. Louis
“pn. Dewey:
P r o m S a n #rancisco
t e Seattle.
I t Looks
as though i f there vere v e r y many return. shipments i t
would e a t u p t h e prorits,
Governor Harding:
H a v e y o u considered t h e metal token,
the m e t a l s i l v e r c e r t i f i c a t e ?
ilp. Deweys
require
T h a t h a s b e e n considered, but. i t w o u l d
s o much legislation a n d i s s u c h a
big subject t h a t
we rather hesitated t o d o anything w i t h it.
Governor Harding:
I
n France t h e y have a tcke
the o n e Trance
service p e o p l e
d o not look
with favor upon anything o r that kind; t h e y d o not look
with favor o n any coin that would n o t have a
OL a s e
o e es
I
f you have a
certain amour
nickel c o i n o r s o m e t h i n g
like t h a t i t c o u l d b e s o e a s i l y s t a m p e d o u t t h a t c o u n t e r fekters w o u l d g e t b u s y a t o n c e a n d v e w o u l d h a v e t o h a v e
practically t h e s a m e a m o u n t
in the doliar nowe
i n the
k
e
n
v
e have
W e thought p e
of g o l d a n d s i l v e r f i n e 4
te; S e e s
ywould have t o be brokenup t o see whether i t had the prover
proportion, a n d you couldn't d o that a t all well.
tried aluminum a n d silver, b u t that didn't work.
1 €
Aiter
all, t h e amount o f copper i n the standard silver dollar
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Federal Reserve Bank of St. Louis
145
is n o t v e r y g r e a t a n d d o e s n o t v e i g h t m u c h m o r e t h a n t h e
copper
in a
one c e n t piece,
amount o f o n e c e n t o r copper
a n d there i s just about t h e
in a
stanciard s i i v e r dollar.
Tt-i8 v e r y Gifricult: to. t h t n k o f a n y way-01. g e t t i n g a r o u n d
our p r e s e n t s i l v e r dollar, e x c e p t p u t t i n g i t o u t i n circu-
lation,
The Chairman:
T h e French c o i n has three metals i n
Governor Harding:
have a
N e x t wednesday w e are going t o
meeting o r f the s t o c k h o l d e r s
o f t h e B o s t o n bank, r e p -
resenting about 4 2 5 banks, a n d I will bring this matter u p
dust t o s e e h o w t h e y f e e l a b o u t i t . A
good m a n y o r those
banks a r e i n mill centers a n d t h e mill paymasters w o u l d
like v e r y much t o get silver dollars, because t h e y like
put o n e o r t w o i n t h e e n v e l o p e j u s t t o w e i g h i t down.
They will a l l b e glad t o use a
certain amount o f silver
they c a n get t h e transportation charges p a i d both ways,
but w e want t h e m t o p a y transportation charges themselves.
The Chairman:
the c o u r e e
a m afraid I
interrupted
o t y o u r talk.
Mr. Dewey;
cept-this;
M r , Dewey, I
T h e r e i s very little more t o b e said ex-~
T h a t ,
a s t h e S e c r e t a r y b r o u g h t o u t i n his l e t -
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Federal Reserve Bank of St. Louis
146
ben,
T e n o t think any effort has ever been made i n the
past t o i n f o r m t h e public j u s t w h a t t h e s a v i n g w o u l d b e t o
the government, a n d that t h e little embarrassment t h e y would
have o f having t h e weight o f a couple o f standard silver
dollars i n their pocket i s not asked simply because t h e
Treasary i s g o i n g t o d o s o m e t h i n g n e w .
the point o f trying t o make a
I
t really h a s
saving t o the Government,
and i f w e i n f o r m t h e m o f t h a t a n d l e t t h e m k n o w t h e y a r e
doing their share i n reducing taxes,
accept t h e standard silver dollars, I
i f they a r e willing t o
belleve t h e recuest
would b e r e c e i v e d b e t t e r t h a n i f w e j u s t t r i e d t o f o r c e
them out withcut saying anything about it.
Along that same line i t i s suggested t h a t i n the
monthly bulletin, w h i c h goes t o all t h e member banks occasional a r t i c l e s
b e written, a d d r e s s e d
t o cashiers a n d p a y -
ing tellers o f member banks, bringing o u t exactly what these
savings a r e a n d w h y t h e t r e a s u r y w a n t s t h e m t o h e l p p u s h
the Standard silver dollar, a n d requesting t h e cashiers
and p a y i n g t e l l e r s
t o tell their customers h o w they c a n
help m a k e t h a t saving. I
keep t h e s i l v e r d o l l a r s
think i f that i s done i t might
i n circulation a n d w e wouldn't h a v e
them t u r n i n g u p t o a n y g r e a t extent;
i f t h e banks w i l l
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Federal Reserve Bank of St. Louis
147
take all they c a n absorb a n d put t h e m out a n d they stay
in circulation, t h e n w e would n o t b e raced with t h e
problem o f return shipments.
w e would like t o have t h e
Federal r e s e r v e b a n k s b e a r w i t h
a short period,
not work,
us
o n this experiment
for
L a t e r on, if-1t. is. found thar.it doe”
i f t h e member b a n k s s a y t h a t t h e y cannot f o r c e
them out a n d they a r e constantly being returned t o the
Federal r e s e r v e banks, t h e n w e w i l l j u s t d r o p t h e s u b j e c t
as h a v i n g b e e n w o r k e d
o u t a n d found impracticable.
B
u
t
do feel that i f w e could g e t this w o r k i n o f putting o u t
some articles,
n o t o n l y i n t h e public press,
b u t gradually
and consistently putting o u t little stories through t h e
Associated P r e s s a n d t h e v a r i o u s b a n k publications,
on, t h a t i t m i g h t b e done,
est arouses. I
T h e r e i s quite a
and so
little i n t e r -
do n o t k n o w whether y o u have noticed i t
as much a s w e have, perhaps, b u t f r o m papers a l l over t h e
country come clippings about t h e standard silver dollars.
They have caught t h e idea a n d they a r e rather favorable
to t h e experiment. I
think i f w e could g e t t h e cooperation
of t h e F e d e r a l R e s e r v e Bulletins,
a n d o f t h e cashiers a n d
paying tellers, a n d encourage t h e m t o help us, t h a t w e will
get several millions o f these silver dollars o u t a n d keep
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Federal Reserve Bank of St. Louis
them out.
Bvery o n e w e g e t o u t i s a
Governor Calkins:
saving.
A S Governor Harding has indicated,
the banks a r e really t h e k e y t o t h e movement, a n d i f the
banks a r e a d v i s e d t h a t t r a n s p o r t a t i o n c h a r g e s w i l l b e p a i d
to them, b u t n o t t h e r e t u r n charges, I
they w o u l d
b e very reluctant
think t h a t generally
t o accept a
large v o l u m e
o f
silver dollars, because t h e y would b e afraid o f a n accumulation.
Governor ‘icDeugal:
O n the other hand, t h e quickest
way, l I think, t o defeat t h e plan o f the Treasury, w o u l d b e
to pay transportation b o t h ways. I
think that would de-
stroy t h e effectiveness o f the whole thing, because t h e y
are n o t popular a n d they will come back very rapidly.
The Chairman:
I n other words,
y o u have got t o create
a demand f o r t h e m t h x t d o é s n o t n o w exist.
f
e
wip, Dewey, t h a t i f t h e Government establishments,
a
r was,
t h e Army
posts, t h e Civil Service a n d s o on, should begin t o p a y
out large amounts o f silver i n Government payrolls, a n d
the r e s e r v e b a n k s s h o u l d c h a n g e t h e i r p r e s e n t practice,
whether
pense
w e wanted t o o r n o t w e would have a
very g r e a t e x -
i n paying charges w h e r e w e n o w i n some cases p a y t h e
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Federal Reserve Bank of St. Louis
the c o s t o f i n c o m i n g shipments.
t
f personally T e e l v e r y
sure that t h e y will come back.
There i s a n o t h e r p o i n t a b o u t i t w h i c h w a s r a i s e d t h i s
morning.
Y o u know t h e Government o r the United States
is s u p p o s e d t o b e d o n d u c t e d u n d e r t h e provisions
Constitution,
of t h e g e n e r a l
o f the
w h i c h provides t h a t n o m o n e y m a y b e paid o u t
rund
o f the Treasury without appropriation.
Due t o t h e emergency o r the war, a n d r o r other reasons,
the earnings o f the Federal reserve banks have b e e n made
to serve t o pay bills where legislation could n o t b e cbt&inea o n 1 % d i d not s c o m wise V o s a k f o r its
amazed a t t h e e x t e n t o f t h e d e v e l o p m e n t
the s e r i o u s a s p e c t
developments,
o f it.
Y o u would b e
o f that t h i n g a n d
L e t m e review s o m e o f these
s o that y o u c a n see h o w necessary i t i s t o
consider it.
In the first place, w i t h t h e exception o f a very small
appropriation,
amounting this year
t o ~200,000,
t h e Federal
reserve banks p a y all o f the cost o f conducting t h e fiscal
business o f the Treasury a s their Yriscal agents.
During
the war, w h e n t h e r e w a s a n e m e r g e n c y t o f u r n i s h t h e
country w i t h a
supply o f curraty,
t h e Federal R e s e r v e
banks were called upon
k to put
9 up $500,000 for presses a t p
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Federal Reserve Bank of St. Louis
the Bureau o f 2ngraving a n d Printing, u p o n t h e theory thac
what t h e F e d e r a l r e s e r v e b a n k s w e r e p a y i n g r o r c u r r e n c y
did not include depreciation o n those presses, notwithstanding that, b e c a u s e t h e c u r r e n c y h a d v e r y m a t e r i a l l y i n -
creased, t h e r e w a s a
200,000,
very large increase i n addition t o the
a n d i t h a s n o t b e e n r e p a i d yet.
Then t h e r e w a s t h e q u e s t i o n o f t h e s h o r t a g e
o f crucibles
to make assays i n New York a n d for melting t h e enormous
amount o f gold that was coming in, a n d there w a s n o provision t o b u y them,
n o appropriation,
T h e gold was piling
up a n d w e actually h a d t o b u y the. crucibles f o r the assay
ofrice
s o t h a t v e c o u l d g e t t h a t g o l d a s s a y e d a n d melted.
Then w e have h a d transferred t o u s t h e handling o f
all t h e coin, without a n y provision f o r meeting the.expense,
for t h e s u b s i d i a r y a n d m i n o r coin, a n d t h e Federal R e s e r v e
Bank o f N e w Y o r k t o d a y h a n d l e s e v e r y d o l l a r a t i t s o w n cost,
and t h e r e a r e f o r t y t o n s
Then,
i n and out
t h e Comptroller
i n a
day's t u r n o v e r .
o f the Currency
w h o t o o k ofrico
after Mp. Williams retired, f o u n d a deficiency i n the office
and was contronted w i t h a c t u a l inability t o pay traveling e x p e n s e a n d salaries o r f t h e examiners.
I
n a
pleasant
moent w e agreed t o p a y r o r certain reports, w h i c h h a d there-
ol
tofore b e e n given t o u s without cost. S i n c e t h e n t h e charge
has c o n s t e n t l y i n c r e c s e d u n t i l t h i s y e e r I
assume t h e c o s t
to the Federel reserve banks - - not t h e reimbursable c o s t
to the Comptroller f o r making copies, b u t t o
deficiency
i n his revenues,
w i l l r u n a r o u n d S L O yOOo:: to
200,000, f o r
When t h e deficiency bill failed last yerr i t left t h e
position where, b e c a u s e
about s h
o f t h e Gast? peusery
3 , a n d s o on, i t was necessery t o discontinue
our appointment a s fiscal agents, a n d t o treat t i e Reserve
Banks t h e s m e e s commercial banks a n d put u p o n them t h e
entire cost o f the out shipments o f currency.
I n the
execution o f tiiis policy o f economy during t h e past three
years t h e a c c u m u l a t i o n
o f gold i n this c o u n t r y h a s n o t
peen converted into c o i n until v e r y recently, a n d while
it did not cost u s anytiing,
as t h e r e s p o n s i b l e
agency
gold p a y m e n t w i t h o u t
i t left t h e res:rve system
o f the Government
t o maintain
e n adequate s u p p l y o f g o l d t o c a r r y
it out.
Finally,
G overnment,
sulted,
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Federal Reserve Bank of St. Louis
t h i s q u e s t i o n o f economy o n the part o f the
which I
a s you know ,
think i s m o s t d e s i r a b l e ,
i n a rearranzement
o f course, r e -
o f t h e insurance
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Federal Reserve Bank of St. Louis
L52
policies
effects a
o n shipments o f curcency s o that t h e Treasury
considerable saving, b u t a very heavy burden was
put u p o n s o m e o f t h e r e s e r v e b a n k s ,
There a r e other i t e s t h a t I
could mention, b u t I want
to point o u t that this tendency o f using t h e earnings
o f
the reserve banks f o r purposes w h i c h a r e not strictly
business o f the banks, b u t really t h e business o f the
Government,
i s becoming a
matter t h a t some d a y m a y prove
a great s o u r c e o f e m b a r r a s s m e n t
t o a l l c f us, b e c a u s e o u r
critics i n Congress will s a y that t h e earnings o r these
reserve b a n k s , w h i c h a r e s o m e t i m e s v e r y large,
are a
cut femigetting m o n e y o u t o f t h e Y r e a s u r y w i t h o u t
priation f r o m Congrcss, I
short
a n appro-
a m atraid o r i t and have b e e n
afraid o f it from the very beginning,
O r course the answer
in most c a s e s w i l l b e t h a t i t i s s i m p l y a
means
of
paying certain fiscal expenses o f running t h e Treasury
by using t h e reserve banks t c t h e limit o f their capacity,
and t h a t i t d o e s n o t r e a l l y a l t e r
r e s u l t
t o the
but w h e n i t comes
to some o f these items
l i n k i t i s v e r y auestionable.
Under these circumstances, I
a m absolutely convinced
that i f w e should undertake t o put silver dollars i n t o cir-
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Federal Reserve Bank of St. Louis
153
culation i n a large way, a n d p a y t h e cost b o t h ways,
that
the Treasury might s a v e sev» ral hundred thousand dollars,
but t h a t t h e e x p e n s e p u t u p o n t h e r e s e r v e b a n k s
might exceed
that amount o f saving a great deal a n d there would
b e a: net
loss t o t h e Treasury, a l t h o u g h it: w o u l d a p p e a r
a s though
they were making a
saving.
W e aré contronted w i t h this
situation a n d t h i s ovuestion
a t at i n e w h e n e v e r y r e s e r v e
bank i s being expostulated w i t h a n d remonstrated
with about
If y o u e l i m i n a t e P r o m t h é e x p e n s e
o r t h e reserve
banks t h e expense o f the collection system a n d t h e
expenses
which a r e imposed upon u s b y handling these fiscal
operations
for t h e Goverment,
y o u will f i n d that t h e cost o f running
the r e s e r v e b a n k s i s r e a l i y tritiigne.
enormous
magnitude
considering t h e
o f t h e i r c r e d i t O p e r a ts o r e
Almost t h e b u l k o f t h e e x p e n s e i s c a u s e d b y t h e c o l l e c ~
tion s y s t e m a n d t h e h a n d l i n g
=
one form o r another.
I
i n
do not want y o u t o gather that I
ai Opposed t o t h i s program,
ciscuss
o r Government business
but I
think w h e n w e c o m e t o
i t w e want t o have i n mind t h e ulterior indications
or t h e program,
ol t r o u b l e
a n d that i t may b e a
move i n t h e d i r e c t i o n
f o r u s ultimately.
ir, Dewey:
i
i y o u w i l l remember, I
made t h e s t a t e -
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Federal Reserve Bank of St. Louis
154
ment t h a t t h e s u g g e s t i o n
t h a t t h e Federal Reserve Banks
should a b s o r b t h e c o s t o n o u t g o i n g s h i p m e n t s w a s t o b e a n
experiment.
V
e cannot g e t a n y money m u c h berore a
from t h i s D e c e m b e I
doubt i f i n a
very m a n y s i l v e r d o l l a r s p u t out,
year
year t h e r e w o u l d b e
a s compared w i t h t h e
number w e have hoped t o get out, b u t i t would give u s some
line o n what t h e expense would be,
I f the Federal reserve
banks would keep t h e r i g u r c s o n transportation o f silver
dollars,
w e could: very. shortly analyze t h e m a n d rind o u t
the ratio o f savings a n d loss thereon a s compared t o
the handling o f that amount o f 2 paper dollars w h i c h might
have w o r n out.
If, after a
few months try-out i t was found t o b e
economically unsound, t h e n I think t h e Treasury would b e
the first: party t o say. "let's stop it."
The Chairman: T h a t is just the point. I
say something,
w h i c h y o u m u s t n o t t a k e personally,
want t o
lr.
Dewey, b u t i t i s i n the mind o f every m a n i n this r o o m that
orricers o f t h e Treasury a r e here f o r temporary periods,
as a rule, t h a t these arrangements a r e made, a n d once t h e y
are m a d e t h e y b e c o m e m o r e o r l e s s o f a
habit
i n t h e Depart-
ments. 1 7 > sets u p @ tradition, a n d 3 t 1 8 with-tas utmost
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Federal Reserve Bank of St. Louis
159
diiriculty that y o u c a n receie t r o m a position once taken .
That w a s t h e s i t u a t i o n
o f t h e Comptroller
with r e g a r d t o t h e s e r e p o r t s ,
W
e had a
o f the Currency
specific: s t i n g i a -
tion that this arrangement t o make payment r o r t h e reports
a
a n emerg:
was t o m e e t
was v e r y d e r i n i t e
in
d w a s f o r o n e y e a r only,
n
1 e r e c o r d a n d admitted
once i t w a s m a d e a n d t h e earnings
E
t
t o b e so, b u t
o f the reserve banks w e r e
t h e p r o g r a m o r assessments u p o n banks f o r t h e
dravmupon,
pense o f e x a m i n a t i o n s
w a s determined
o n that basis a n d
position w h e r e i t w a s i m p o s s i b l e
recede
T
e s a m e i s true o f t h e insurance matter
h
e r e r red
to w h i c h
The e f f o r t
to
t d o e s e r r e c t r e a l e c o n o m y there.
I
o f getting that policy r r o m t h e underwriters
and t h e further effort o f securing a
i
a 2 3 fuetion vnere. 4
it, b e c a u s e w
m
o
readjustment h a s created
m p o s s i b l e r o r u s t o recede f r o m
t ge
g
are a l l s t i r r e d u p a n d w i
a
m
e rates.
T h e underwriters
n c t m a k e another bargain.
have g o t t q w a i t a n d r e l y u p o n a n a d j u s t m e n t a y e r s
W e
B E
vould want t o make v e r y sure, before w e face t h e possibilthe
ity o f a
permanent cxpense,
thet when
i t came
v o q u e s t i o n
of withdrawal yvrom i t it wa a g r e e m e n t where the reserve
banks would really have something t o say before this expense
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Federal Reserve Bank of St. Louis
a6
should mount up, i f i t d i d mount u p , because w e have h a d
no o p p o r t u n i t y to. give r e c o n s i d e r a t i o n
t o some o f these
other matters,
wie: “ D O w e y ¢ “ o w l d Orie. S m e e p l em e r e s
sidered?
W
E
e
a
d
t
h
e number
o f silver
bo - be s h i p p e d
tine t h e c o s t Lactate
saving t h a t w o u l d
T h e n a p a r e
i a t v e l o tie
b e mace b y t h e silver dollars t a k i n g
I
the p l a c e o f t h e p a p e r ones.
>
r t h e shipments
o f stand-
ard silver dollars apparently was going to increase i n the
period, t h e n i t w o u l d s h o r t l y s h o w t h a t i t w a s g o i n g a t a
less s a v i n g ,
as h a v i n g
bans
Pp
would only agres
t o pay out a
certain number,
can tell t h e m about t h e kind o f test that w e would l i k
to make, a n d w e would s h i v s o many dollars i n t o t h e
fous reserve banks a n d allocate a
them t o e a c h
certain number o r
g i c k a n d a s k them t o absorb t h e outming
a}
shipment charges o n 4 survicient number o f standard silver
+
dellars, a n d once that has b e s n established,
t h e n t h e deal
ras)
LLOveqgee
i
The Chairman: I
was just wondering what assurance
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Federal Reserve Bank of St. Louis
daa
we could g c t about t h e deal being ofr. I
t o b e c a p t i o u s a b o u t this.
aopear
do not want t o
T h e others h a v e views
to express, b u t I wanted t o express t h e considerations i n m y o v n mind.
Governor Calicins:
sone a s s u r a n c e
I
t ould
b e necessary
t o have
a s t o o u r a b i l i t y t o s h i p o u t t h e dollars.
In other words, s o m e assurance o v our ability t o get t h e
member banks t o take them.
the situation.
I
T h e member banks a r e t h e k e y t o
r w e advised t h e m t h a t w e vould s h i p
n o t permit t h e m t o ship b a c k
out a t o u r e x p e n s e b u t o u l d
at our expense,
i t i s very doubtrul whether w e would inter-
est t h o m i n any considerable quantity o i them.
lip. Dewey:
M
theory.
the plan,
T h a t v o u l d either p r o v e o r disprove o u b
l w e want t o a s k for i s a n honest erie. o f
I v y the plan d i d not o r k , t h e n w e would b e
very g l a d t o c a l l i t orr.
Y
e j u s t w a n t t o discuss
something, a n d we would like t o either Sec I t ort o m
minds
b y p r o v i n g t h a t t h e y w i l l t a k e them,
o r b y proving
that they will not, a n d then just make u p our minds that
the standard silver dollar i s gone a s a part o i our cur-
rency.
B u t we want t o give i t a thoroughgoing test.
t h e reserve
After w e h a d p u t o u t o u r p r o p a g a n d a t h r o u g h
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Federal Reserve Bank of St. Louis
158
bulletin a n d m a d e e v e r y e s f o r t
t o shove t h e m a n d they
would n o t a c c e p t t h e m , t h e n t h a t w i l l b e t h e a r s w e r t o t h e
whole q u e s t i o n ,
I L think,
Governor #ancher:
I
n following t h e discussion o f
the matter i n Cleveland, a n d t h e receipt o f the letter
rrou + r . James enclosing t h e covy o f the Secretary's letter v O ir. Head, J
had o u r assistant cashier i n eharge- o r
est o F t h e matter,
out t h e esentim
h
a
v
just
e here replies r r o m 5 9
n t h e t h r e e c e n t e r s w h e r e w e h a v e ofirices, a n d t h e n
a*nomnber of-vreplies: 1 r o m . c o u n u r y lames, c i n d © f “course T h e i r
attitude
a s e»pressed h e r e will b e predicated u p o n o u r
paying t h e s h i p p i n g c h a r g e s b o t h w a y s o n s i l v e r dollars,
which i s our. pres
P e n t r e , I
think i t might b e inter-
for y o u t o g o over this correcpondence, i r e Dewey.
It has b e e n surmarized b y the Assistant cashier, a n d I
think i t would b e quite i n t e r s s t i n g o
t you,
bear i n mind that t h e willingness
Y o u must
o n the part o f some
of the country banks t o cooperate i s predicated upon their
being able,
returned
i i they V i n d t h a t t h e dollars
t o “vhem,
iin, Dewey:
t o s h i p t h e m back’
Yes, I
g o out and are
t o u s -at-our- e x p e n s e ,
will b e very glad t o have that.
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Federal Reserve Bank of St. Louis
159
Governor Fancher:
ested t o h a v e that. I
Y e s , i : think y o u w i l l b e inter-~
think y o u will b e interested a n d
will b e v e r y g l a d t o h a v e y o u l o o k t h i s over.
‘ir, Dewey: I
willbe
v e r y chads t o r v a k e y o u r rile,
Governor.
Governor Seay:
M a y I ask how many o f them y o u could
vurnish b e t w e e n n o w a n d t h e f i r s t o f t h e year,
they w o u l d t a k e t h e m ?
‘ip, Dewey:
H o w many standard silver dollars?
Governor S e a y :
rp. Dewey:
e s a
‘ 1 e @ have,
o f course, a n y cusntity o f them.
There are 40,000,900 o f them in Denver.
them out, o f course,
‘ l e might put
b y cancelling silver certificates a s
they come i n ror redemotion a n d increasing t h e standard
silver t o t h e rull amount, b u t there a r e 40,000,000 o f
them n o w i n Denver, 2 n d varying amounts i n other mints.
am s u r e w e v o u l d h a v e n o s h o r t a g e
dollars o f even the n e w mints,
o f standard silver
i f there w o u l d b e a demand
ror them.
The Chairman:
T h e experience i n currency abroad
would indicate t h a t o u r o n e a n d two dollar bills a r e rather
anomalous i n y w a y .
B r i t i s h coin, b e r o r e
h e war,
a s you know
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Federal Reserve Bank of St. Louis
silver c o i n w a s t h e e c t i v a l e n t
cent piece,
of a
2.50
fifty
a n d t h e s m a l l e s t g o i d c o i n w a s t h e equivalent
g o l d piece.
was e d u i v a l e n t
ments
of a
t o 25.
T h e smallest p i e c e o f paper m o n e y
T h a t s e e m e d t o satisry t h e require-
o f t h e B r i t i s h trade.
I
t i s o n l y i n recent y e a r s
that t h e B a n k o f F r a n c e h a s i s s u e d a
very recent years, 1
Governor
F a
A
s I
note l e s s t h a n 5 0
think since t h e war.
understand
i t , iir. S e c r e t a r y ,
1e willingness o f the T r e a s u r y t o p a y
the shipoving charges o n silver dollars
t h e reserve banks
or branches,
in, D e w e y s
Governor Fancher:
a number
o f our member
A s s u m i n g that w e might find that
r
e
r
e w i l l i n g t o assist
in
this program, banks outside o f those particular
would t h e Treasury make direct shipments
pense
t o those banks?
ilp, Dewey?
Y o u mean direct shipment t o t h e member
banks?
Governor Fancher:
Y e s , u p o n recuest
reserve b a n k s t h a t s u c h s h i p m e n t
iip .Dewey? I
b y the
b e made?
have a l r e a d y t a k e n t h a t u p w i t h t h e
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Federal Reserve Bank of St. Louis
EGE
Comptroller a n d h e h a s n o t g i v e n m e a n answor. I
believes
Federal Reserve B a n k o f Philacelphia h a s a money depot
at Scranton.
O n t h e basis 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
could d e d i g n a t e a n y o f i t s m e m b e r b a n k s
i p a i d t h e (omptroller whether
or t r a n s p o r t a t i o n
w e could n o t p a y the coat
t o t h o s e depots,
to take that u n d r advisement.
H
his w i s d o m t h a t a
member
e said h e would like
H e still h a s i t there a n d
I haven't b e e n a b l e t o g e t a n answer.
not answer your cuestion, sir.
a s money depots
Thererore,
I : can
i i h e s h o d cecige i e
bank was not a
m o n e y Gepote.
o r
really n o t a part o f the #ederal Reserve B a n k o r branch,
it might b e that w e would get ourselves into considerable
trouble.
S 5 0 I cannot answer that ocuestion.
Governor Seay:
T h e thought I had i n mind was that
if t h e banks s h o w a d vinite disposition t o take then,
then y o u o u l d h a v e t o b e i n a position t o furnish them a s
rapidly a s t h e y w o u l d t a k e them.
O t h e r w i s e their geal
Tor t h e m w o u l d b e abated,
Mr. Dewey:
W
e c o u l d T i l l t h e i r ordérs, I
“e e a n s h i p a 1 1 t h a t a r e r e q u i r e d
t o t h e Federal reserve
banks
t o supply t h e i r member banks,
would
b e our idea
t o leave
think,
o f t h e n e w mints.
t h e o l d coin a s covor
I t
and to
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Federal Reserve Bank of St. Louis
get t h e n e w coin into circulation,
Governor Fancher:
be n o greater
T h e expenses
i n shipping a
o f the Treasury would
thousand d o l l a r s
to a
bank i n
Nentucky, t h a n i t would b e t o the Branch bank o f Cleveland
at Cincinnati,
eg
O E Y $ N o , y o u a r e quite correct, a n d that was
the basis o f m y statement t o the Comptroller.
Governor Harding:
B u t would a
agreé t o d e s i g n a t e a n y e m b e r
dollars a s a money depot,
federal reserve bani
b a n k that might want silver
T h a t might arouse some jeal-
ousies a n d bring about sone complications.
The Chairman:
m
D e n voe r
I f this n e w c o i n h a d t o b e shipped
i tr w o u l dF b e
just a s c h e a p i r w e h a d a
e
for t h e m f r o m A l b a n y o r Buifalo,
demand
t o s h i p direct f r o m Den-
ver t o t h e m e m b e r b a n k i n A l b a n y o r B u f r a l o r a t h e r t h a n
ship i t t o N e w York a n d out again,
Governor Harding: I
had i n m i n d t h e m o r a l eriect.
It i s l i k e t h e o n l y i d e a o f a- bank t e i n g a
depository.
I
f y o u designate a
goverment
iember b a n k a s a
money
depot o 1 the Federal reserve bank i t would perhaps give
them s o m e v r e s t
Governor Seay:
U n l e s s w e designated e a c h bank that
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Federal Reserve Bank of St. Louis
wanted t h e s i l v e r dollars.
Governor Harding:
the m i n d o f t h e p u b l i c
w n a t erzect vould that have o n
a s t o whether
o r n o t t h e Federal r e -
vas backing that particular bank,
Governor Seay:
T
t would h e s i t a t e
t o appoint t h e m a s
roney depots myself.
The Chairman:
N o w ; . i r = Devey,
situation, t h o r o u g h l y u n d e r s t o o d
wish t h i s m e e t i n g
further a
“ 1 think thie=-ie t h e
b y everyhbay, t h a t y o u
t o d e c i d e v h e t h e r t h e r e s e r v e banks w i l l
plan o f d i s t r i b u t i n g a n d p u t t i n g i n t o c i r c u l a t i o n
and p o s s i b l y d e v e l o p i n g
which w i l l k e e p
a n appetite Y o r s i l v e r d o l l a r s
n circulation,
t h e m i
a n d i f they should
agree t o d o s o then y o u will agree t o p a y t h e outgoing
cost o f s h i p m e n t a n d n o t t h e i n c o m i n g c o s t ?
LIthink that would b e t h e way w e
Later o n , w h e n w e g o t o u t o w n a p o r o p r i a to r e l i e v e y o u o f a l l t h e s h i p p i n g
tS.
B u t t h e present p l a n j u s t contemplates t a k i n g c a r e
of the outgoing costs.
T h e member banks have g o t t o get
them b a c k t h e b e s t
The Chairman:
‘ j o u l d t h e T r e a s u r y a g r e e w i t h us,
r,u p o n t h e distribution o f 2 definite, specifie amount
aaa y ;
S
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Federal Reserve Bank of St. Louis
164
through e a c h R e s e r v e b a n k , w h i c h w o u l d b e s h i p p e d t o t h e t
bank a t the Treasury's expense, a n d i f i t develops,
the c o u r s e o f a
great a
currency,
in
s u g g o s t e d period, t h a t i t i s i m p o s i n g t o o
cxpense,
i n proportion
t o the cost o f the paper
u p o n t h e Federal reserve banks, t h a t i t would
then, automatically, a n d without further action,
b e discon-~
tinued?
iir. Dewey:
M e s o .
The Chairman: I
do not want t o appear t o b e making
a harsh o r destructrul bargain w i t h t h e Treasury.
My. Dewey:
O h , I
understand your position entirely,
Governor.
The Chairman:
B u t i t i s best t o have a n understand-
ing om. ites
ilp. Dewey: I
think i t o u g h t t o b e u n d e r s t o o d t h a t
this i s entirely a n experiment.
“ h a t I
think t h e Treas-
ury would l i k e t o d o would b e t o have t h e thing tested out,
and,
i t 16- 1 s n e t -s61n8 to. 26, g e t 1t. c u t of: o u r w i n d s f o r
good a n d a l l .
T
h
e proposition
i s constantly cropping
up
to shove out the silver dolianr, a n d 1 think w e ought t o
decid: whether i t 1 s worth while working o n o r not.
The Chairman: I
t h i n k y o u w i l l find, w h e n y o u c o m e
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Federal Reserve Bank of St. Louis
165
down t o it, t h a t y o u w i l l g e t a
any r e q u e s t r r o m t h e Treasury,
sympathetic r e s p o n s e
to
i f i t does n o t l e t u s into
a permament o v e r h e a d ,
r Fancher:
o
n
e
v M r .o Secretary,
G
Do Ir understand,
in t h e e v e n t y o u a r e a b l e t o g e t a n a p p r o p r i a t i o n f r o m C o n -
gress later on,
x pense w h i c h w e mea y b e p u t t o i n
h
ta h e
t
t wr ae
this preliminary experiment would
s t h i s p r e l i m i n a r y e x p e n s e g o4i n g
De. Treinpyrs cde ee,
or
to b e w h o l l y a t t h e ex-~
pense o f t h e F e d e r a l r e s o r v e b a n k s ?
Mr° Dewey: I
é you, bsu t I
would like t o think 1 t possible t o rer
doubt
v e r yu much
s T h i s money thatt would n o t b e
Governor Fancher:
if
b Congress
m
w o u l di p e r m i t
expended
i
would b e gone.
s a n cxpense
A
t o t h e Federal R e -
serve System?
iip., Dewey:
Governor iigcDougal:
like t o make,
T h e r e is a
o f e r r e d yt o ,
have re
dress a
would
i n connection w i t h t h e policy o f giving n o -
tice generally t o t h e public,
u
suggestion I
|
ae
i n addition t o t h e medium that
believe i f the Treasury would ad-~
letter t o e a c h o f t h e 3 0 , 0 0 0 b a n k s o r t h e r e a b o u t s
in this country, expressing t h e plan a n d the underlying
motive, t h a t i t probably would have some efrect.
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Federal Reserve Bank of St. Louis
Governor
Gi
Meee ass O l :
Governor S e a y :
o
r
e ;
one
Governor -tDougal,* a n d that i
not n o v p a y c h a r g e s
Governor Seay:
P
E
r ee
O s p e cone tered:
reserve banks d o
o n outgceing s i l v e r t o n o n - m e m b e r banks.
s o iomvceralecye ser y e s .
had b e t t e r c o n s i d e r
i t only
in c o n n é c t i o n w i
u
Governor -‘cDougal
only t o c o n s i d e r
y understanding
i t i n c o n n e c t i o n w i t h ‘ien
Dot 1
bitin: v o u r - c i r e n d a r
Hamies
i n t h e eoumway..
ovr
w e r rer=co |
g
o t o all the
vip. Devey:
The Chairman:
T h e r e a r e between t e n a n d eleven
thousand m e n b e r b a n k s ,
Governor c D o u g a l : “Ve@,eannot- t a l e c a r e
requirements
ter m i g h t
b e addressed
t o all t h e i n k s
5)
his D E W I C Y < “ o u l d n ! t
there
b e a
i n “the c o u n t r y .
controversy
them a s t o g e t t i n g t h e s i l v e r i n t o t h e i r h a n d s ?
with
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Federal Reserve Bank of St. Louis
167
They w o u l d c o m e b a c k a n d s a y t h e y w o u l d b e g l a d t o d o
it provided w e got i t t o them, b u t o t course we-could a l
ways c o m e b a c k a n d t e l l t h e m t o j o i n t h e system.
The Chairman: I
d o n o t believe i t would b e neces-
sary t o s e n d t h e l e t t e r
t o non-member b a n s ,
f o r this
If the procedure l a i d dovn results i n putting a
considerable n u m b e r
a large part
banks,
o f s i l v e r d o l l a r s i n t o circulation,
o f them will
b e deposited
T h e i r first efrort
willbe
i n t h e non-member
t o p a y t h e m out, be-~
cause t h e y cannot s h i p them i n without cost, w h i c h will
rather s t i m u l a t e c i r c u l a t i o n t h a n otherwise.
Governor Seay:
T h e hope of suécess lies i n the peo-
ple a t large being willing t o retain o n e o r two silver doilars
i n t h e i r pockets,
Mr. Dewey:
Y e s .
Governor S 6 3 ) T
d o = m o t “belteve- t h e e r l r o r t - t o — n a v e
because t h e y will
accumulate a
great n a n y o f them i n the small banks b e t w e e n
pay r o l l t i m e s ,
an e x p e n s e
keep a
a n d t h e y c a n n o t h o l d then:
t o t h e m t o h o l d them;
dollar
i t would b e
o u t i f t h e people w o u l d
o r t w o i n t h e i r pockets, q u i t e a
lions w o u l d b e a b s o r b e d
i n that way,
few mil-
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Federal Reserve Bank of St. Louis
168
is t h e b i g hope,
t O have t h e m be-
the publicts p o c k e t money.
Now, I
want t o s a y a
few words relative
t o t h e Treas-
ury's c u r r e n c y p r o g r a m a n d w h a t w e w a n t t o d o t o t r y t o
rectiry c o n d i t i o n s t h a t n o w e x i s t
i n p a p e r currency.
There
aré s o m e q u e s t i o n s t h a t y o u would. l i k e t o a s k a b o u t that,
probably, a n d I
a m going t o make a n informal statement o f
the c o n d i t i o n s t h a t e x i s t a t t h e p r e s e n t t i m e a n d w h a t w e
are t r y i n g t o d o t o r e e t i z y t h e n .
i f a n y auestions a r e
“asked I will answor t h e m now, o r i f I cannot d o so, make
a note o f t h e m a n d a n s w e r t h e m l a t e r
slate
willbe
clean, i
i n order t h a t t h e
dio nos beime-stabisties
that
will cover every question a s t o number o f the five dollar
denomination o r the various kinds outstanding, b u t w e c a n
get t h a t v e r y readily.
question I
B u t I
think i n answering t h a t
m a y i n c l u d e j u s t w h a t o u r p r o g r a m contemplates,
which i n f o r m a t i o n I
will s u b m i t G O s o u s
The conditions surrounding curremy,
think y o u a r e all perrectly familiar,
the s h o r t l i r e t h a t i s d e v e l o p e d
w i t h which I
i s this w e s t i o n o f
i n t h e manufacture
o f cur-
rency.
“e a t e u p o u r r e s e r v e s d u r i n g t h e i n f l a t i o n p e r i o d w h e n
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Federal Reserve Bank of St. Louis
169
the c u r r e n c y w e n t u p t o a
peak,
a n d i n order t o satisfy
the demand w e had t o turn o u t paber currency i n a n entirely too expeditious manner.
the war,
P r i o r t o that time, pripr t o
i t took three months
t o manufacture a
one d o l l a r
eia ee T h e paper came f r o m t h e mill,
i t stayed i n storage
ror o n e m o n t h t o p e r m i t
t h e n i t was deliver-
i t t o season;
ed t o the Bureau o f “Engraving a n d Printing a n d i t took
then t h r e e m o n t h s f o r a
dollar t o e m e r g e a s a
in the hands o f the Treasury.
I t remained i n the Treas-
ury o n e m o n t h i n t h e r e s e r v e s t o c k b e r o r e
At t h a t t i m e a
completed b i l l
i t w a s p a i d out.
dollar b i l l l a s t e d a n y w h e r e f r o m 2 l e v e n t o
twelve months.
Now,
seasoning;
big.
a t t h e present t i m e w e a r e giving o u r paper
i t takes t h r e e w e e k s
t o manuractwre a
no
dollar
T h e Treasury frequently calls u p t h e Bureau,
or
the Treasurer does, a n d says h e has a n order f r o m such a n d
such a bank f o r s o many o n e dollar bills, a n d wanting t o
know whether they can hurry u p that order which they have
on hand i n order t h a t h e may fill h i s requisitions.
A s
a result, d o l l a r bills a r e going f r o m distinctive i n t o
bills a n d going into circulation inside o f four weeks.
That c o n d i t i o n h a s s h o r t e n e d t h e l i f e o f t h e b i l l t o 4
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Federal Reserve Bank of St. Louis
Wie b i l ss de, nO, Basu.
We m o w h a v e i n t h e d é r i c i e n c y a p p r o p r i a t i o n ,
hands
i n the
o f General L o r d o f t h e Byreau o f t h e Budget f o r h i s
approval,
a n item which will permit
In t h e f i r s t place,
i n ordér
u e t o - d o t w o things.
t o supply t h e demand
o n the
part o f t h e member banks t h e y have done a w a y with t h e sort
which w a s e s t a b l i s h e d
s e y e a r s a g o b y t h e Treasury
60 p e r c é n t n e w b i l l s a n d 40° per c e n t fit;
of
t h e y Bave p u t
that sort d o w n t o a fifty-fifty t s i s , a n d i n some districts,
as y o u know, t h e r e i s even a lower percentage. i
Order
to bring that standard o f sort back, w h e r e t h e Federal r e serve banks shall p a y 6 0 per cent n e w a n d 4 0 per cent fit,
it will r e q u i r e a b o u t 7 4 m i l l i o n d o l l a r s
dO e n DLL a s
o f additional o n e
w e are n o t i n such b a d shape o n the twos,
fives a n d tens, a n d the other denominations because w e have
A surficilent v e s s r v e
serve:
o f those,
o r almost: a
b u b t h e o n e dollanm b i l l )
t
surfieient r e ~
0
T h i s
sapplemental a p p r o p r i a t i o n w i l l p u t i n t o c i r c u l a t i o n
e32,000,000 additional o f one dollar bills, w h i c h will
permit t h e b a n k s t o g e t b a c k o n t h e b a s i s
o f t h e 60-46
sort.
The Chairnan:
T h e s t a n d a r d orf fitness
i s entirely
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Federal Reserve Bank of St. Louis
Peo low.
vir. Dewey: i n t i r e l y too low.
to g o b a c k t o t h e o l d standard.
t h i s will permit u s
T h e whole proposition has
fallen t o o low, b u t this will l e t u s g o back t o the stendard o f fitness which was prescribed, I
think,
i n 192.
W e
giso w i l l p u t i m . t e n m i l l i o n acdttigneal o n e d o l l a r o i i i s
in circulation, w h i c h w e figure will about cover t h e tincreased demand over t h e past year, a n d will take care o f
the c u r r e n t d e m a n d
have
n
a
d
f o r t h e o n e dollar denomination,
e additi n
the other denominations
W
e
which
will bring u p our standard o r fitness a n d which will take
care olf current r e q u i r e m e n t s .
We are e n d e a v o r i n g , t
o build u p o u r feserve.
W h e n we
started work about tvo months ago the Treasurer o f the
United S t a t e s h a d l e s s t h a n h a l f a
bills
o n hand,
the bureau,
day's s u p p l y o f d o l l z r
T h e r e wags a b s o l u t e l y
n o reserve s t o c k i n
W h i l e t h a t r e f e r s o n l y t o ones,
t h e situa~
tion w a s n o t a n y t o o good, t h o u g h n o t a s b a s a s i n t h e
ones, w i t h r e g a r d t o t h e o t h e r d e n o m i n a t i o n s .
T h i s supple-
mental a p p r o p r i a t i o n w i l l g i v e u s m o n e y t o p u r c h a s e e n o u g h
distinctive p a p e r t o c a r r y o u t a
printing p r o g r a m w h i c h
will r e - e s t a b l i s h t h e s e r e s e r v e s t o c k s .
T
t w i d give t s
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Federal Reserve Bank of St. Louis
ie
one m o n t h ' s s u p p l y o r d i s t i n c t i v e p a p e r
the d e p a r t m e n t that. t :
i n t h e Buresu,
i n
c a r e o f t h e distinctive paper;
it w i l l p e r m i t t h a t p a p e r
t o s e a s o n r o r o n e month,
and
t will give u s one month's supply o f bills o f all denominations a n d kinds w i t h merely t h e backs t o print i t on.
“with only t h e backs printed o n for o n e month, t h a t will
permit t h e p a p e r
t o t h o r o u g h l y d r y i n d t h e i n k t o harden.
Then w e w i l l h a v e o n e m o n t h ' s s u p p l y o f a l l d e n o m i n a t i o n s
with backs a n d races printed on, a n d they will have a month
in which t o allow t h e paper t o d r y a n d the i n k t o harden,
hey will t h e n b e sealed a n d approved a n d delivered t o
the T r e a s u r e r
o f t h e U n i t e d States,
w h o will have a
cient supply t o hold t h e m i n his vaults o n e month,
suffi-
S o ,
from t h e beginning t o the last w e will have o n e monthts
supply o r reserve distinctive paper, o n e month's supply o r
bills w i t h b a c k s p r i n t e d ,
and f a c e s printed,
bills, making a
o n e month's s u p p l y w i t h backs
a n d o n e month's s u p p l y o f completed
four months' s u p p l y o v currency, w h i c h will
then h a v e a n o p p o r t u n i t y
t o season a n d w e feel t h a t that
seasoning p r o c e s s , t o g e t h e r w i t h o t h e r b e n e f i t s f r o m c h a n g e s
of m a n u f a c t u r e t h a t h a v e b e e n p u t i n t o e r f e c t
i n the
Bureau, w i l l increase t h e life o f the o n e dollar biit,
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Federal Reserve Bank of St. Louis
BEae
which i s t h e b i l l w e u s é a s a
standard
t o d o o u r calculat-
ing with, f . o m about seven t o eight months where i t i s a t
the p r e s e n t t i m e , b a c k t o e l e v e n o r t w e l v e m o n t h s ,
hope
oe
W
e
t o have t h i s r e s e r v e s t o c k s e t u p b y t h e e n d o f this
e e
a y
t y Lee.
priation c o m p l e t e d y e t .
v e haven't gotten o u t appro-~
1
@ naturally R a v e t o wart ungit
Congress reconvenes a n d get them, b u t w e are going ahead
more o r less o n t h e b a s i s
a s t h o u g h t h e y h a d b e e n g i v e n us.
If w e d o n o t g e t t h e m w e a r e g o i n g t o b e i n trouble,
but I
think with the approval o f General Lord and the backing
of the Secretary o f the Treasury t h a t w e will g e t t h e money
all r i g h t t r o m Congress.
T h a t Will placc-the.cuprency
back u n d e r o l d c o n d i t i o n s a n d w i l l e n a b l e u s t o p r o d u c e
more satisra ctory c h a S i csees bills.
Governor Fancher:
F r o m your statement I
judge w e
will probably g e t n o relief during t h e balance o f the
calendar y e a r ?
I
n o t h e r words,
w e a r e g o i n g t o experience
the usual demand t o r a large volume o f new ones during t h e
poriod o f t h e holidays,
a n d w e have g o t t o live along
from hand t o mouth, probably?
Mp* D e w e y s
N o . I
can assure y o u that w e have g o t
a hundred million o n e dollar bills,
o f which 7 0 per cent
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Federal Reserve Bank of St. Louis
Le
are new, w h i c h will take care o r the Ch.istmas reoulre-~
ments. I
do not think y o u need t o worry about those
ye have b e e n vorking u p t o
Christmas requirements, b e c é >
That point.
l a y IL a s k y o u a
Governor N o r r i s :
wwestion r i g h t
there, t i n s D e w e y ?
‘yp. Dewey: C e r t a i n l y .
o I
D
Governor Norris:
understand c o r r e c t l y t h a t t h e
is n o t dtie.to i n a b i l i t y
or d u e t o m e c h a n i c a l l i m i t a t i o n s
t e ee. p a p e r
i n t h e Bureau,
b u t i s sim-
ply due t o failure i n the past t o get adenuate appropriations?
Myr. Dewey:
t
t w a s -a-L4tt.6 o r both.
those v i c i o u s c i r c l e s ,
T
It.was one of
a t n e Tire: pieces, y o u m s t e e e
member that t h e Bureau was n o t able t o take care o f this
enornous p r i n t i n g o r government s e c u r i t i e s w h i c h t o o k
place d u r i n g t h e war.
top o f t h e p r i n t i n g
T h a t w a s p u t onto t h e Bureau o n
o f g o v e r n m e n t p a p e r moncy.
i n e Bureau
went t o work, v o r k e d d a y a n d night a n d was rushed t o death.
They h a d n o s o o n e r e m e r g e d f r o m t h a t w h e n t h e y h a d t o c u t
down a little o n the manuracture o i currency because stocls
had r u n down.
T h e n o n top o i that c a m e a
great d e m a n d
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Federal Reserve Bank of St. Louis
iad
for p a p e r m o n e y a n d t h e y h a d t o p l u n g e i n t o t h i s e x p e d i tious m a n n e r
o f manufacturing p a p e r m o n e y w h i c h d i d n o t
permit t h e p a p e r t o s e a s o n properly,
a n d w e have been faced
with h a v i n g t o k e e p u p w i t h a n i n c r e a s i n g d e m a n d w i t h o u t
any reserve,
a n d also without sufficient appropriations
o n
the part o f Congress t o build u p t h e reservo, a n d that
naturally s h o r t e n e d t h e l i f e o f paper money.
T h e Secite-
tary a n n o u n c e d t h e p o l i c y s o m e t i n e a g o o f m e e t i n g g o l d
imports b y the payment o f gold certificates,
very, v e r y e n c o u r a g i n g
a n d i t is
t o u s that w e have estimated a
ficient amount o f gold certiricates
guf-
i n the lower denomina-
tions o f ten, twenty a n d fifty t o take care o f any probable continuation o f theilmportation o f gold.
have u n d e r s t o o d
that
i t was t h e desire
V e also
o f the Government
and o f t h e F e d e r a l R e s e r v e B o a r d t o h a v e a
twenty p e r c e n t
stock o f hand t o hand gold i n coin a n d i n certificates,
that i s , t w e n t y p e r c e n t o f t h e n o t e and. deposit l i a b i l i t y
on hand i n each one o f the Federal reserve banks, t h i s
twenty p e r cent t o b e divided i n the following manner:
One-fourth o f gold coin a n d three fourths g o l d certificates.
We h a v e e s t i n a t e d t h e a m o u n t s
o f various percentages
of
hand t o hand gold coin i n certiricates n o w o n hand i n the
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Federal Reserve Bank of St. Louis
176
various b a n k s a n d o u r p l a n h a s t a k e n i n t o a c c o u n t t h e s e
percentages
others;
o f overages
i n some banks a n d shortages
i n
w e have t a k e n i n t o account theprinting program
ror g o l d c e r t i f i c a t e s
a n d t h e minting program v o r gold
coin s o a s t o b e a b l e t o s u v p l y a l l t h e b a n k s w i t h t w e n t y
per cent o f their n e t deposit liability i n denominations
of ten, t w e n t y a n d fifty.
T h a t i s also included i n our
program, g e n t l e m e n ,
Ye have also understood t n a t i t was t h e desire o f the
Federal Reserve banks t o have a n emergency gold reserve,
There i s a n enormous a m o u n t o f g o l d i n t h e c o u n t r y a n d i t
woy¥ld t a k e time, t i n case i t w a s n e c e s s a r y
gold, i f there w a s a
t o p a y out this
demand f o r gold payments, a n d the gold
payments w o u l d naturally b e made i n the form o f certifics
ates, a n d w e might become embarrassed b y not having a
sufficiont s u p p l y o f t h e p r o p e r d e n o m i n a t i o n s
tiricates t o pay cut. I
1s q u i t e a
o f gold cer-
believe a t t h e present t i m e there
supply o f g o l d c e r t i f i c a t e s
are o f t h e u n u s a b l e d e n o m i n a t i o n s
of a
o n hand b u t they
thousand dollars,
five thousand dollars, a n d amoxnts o f that kind i n size,
and very f e w o f t h e smaller denominations.
I
t was under-
stood that t h e estimate might b e placed a t one billion
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Federal Reserve Bank of St. Louis
a
dollars f
o gold reserve certiricates
tions.
i n small denomina-
W e have taken into account t h e amount which w e
ten,
now h a v e o n h a n d i n / t w e n t y a n d f i f t y d o l l a r d e n o m i n a t i o n s
and w e are going t o increase that a t the rate o f three
hundred m i l l i o n a
4s a
year u p u n t i l t h e t i m e w e h a v e o n hand,
vault r e s e r v e , a
certificates B
fifty a n d a
one b i l i t o n d o l l a r s u p p l y o f g o l d
i n t h e denominations
hundred,
based
o f ten, t w e n t y a n d
o n certain proportions--- [
think 3 5 and 40, o r something like that, although I have
forgotten t h e evact proportion--- b u t w e have a
proportion o f tens a n d twenties.
opogram,
very fair
T h a t covers t h e gold
a s far a s printing o f currency i s concerned.
Governor Fancher: I
do not understand quite clearly
when t h e a m o u n t w i l l b e sufrvicient
s o that w e m a y b e able
to build u p our gold certificate reserve t o the required
amount.
W
e understand
a t t h e present t i n e w e a r e about
956,000,000 short o f our desired amount o f gold certificates.
rp. Dewey:
‘ v s contemplate getting this whole progran
completed b y July 1 , 1925.
W e expect t o b e able t o
turn o v e r t o e a c h F e d e r a l r e s e r v e b a n k i t s p r o p o r t i o n
of
this twenty p e r cent o f note a n d deposit liability o f hand
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Federal Reserve Bank of St. Louis
73
to hand gold i n the form of gold certificates, based o n
the p e r c e n t a g e m e n t i o n e d o f 2 5 p e r c e n t o f c o i n a n d 7 5
per Seni certificates b y gsuly 1, d e e .
Governor McDougal:
to t h e m a t t e r
H a s t h e Treasury given a n y thought
o f taking t h e necessary steps t h r o u g h Congress
to a u t h o r i t y t h e p u t t i n g g u t o r L i v e d o i i a r g o l d c e r t i t i ~
cates?
Mr. Dewey:
W
any c o n s i d e r a t i o n
e have n o t really b e e n able t o give
t o t h a t a s yet, G o v e r n o r M c D o u g a l f o r
the r e a s o n t h a t w e h a v e b e e n s 0 m u c h o c c u p i e d
to b u i l d u p t h e s e reserves,
i n trying
a n d i n getting s u f l i c i e n t
funds fromthe Director o f the Budget t o d o it.
W
e did
not feel that w e could take into consideration suggesting
any l e g i s l a t i o n
a t t h e present time.
covering t h a t w h o l e s u b j e c t
house
i n order,
once
W
e d o contemplate
w e are able
t o put our
b u t w e feel t h a t o u r present program-is
the m o s t n e c e s s a r y t h i n g a t present.
gotten o u r a p p r o p r i a t i o n s
A
s s o o n a s w e have
a n d know that o u r reserve stocks
are going t o b e built up, w e contemplate doing t w o o r
three things,
alee
o n e o f which i s investigating t h e design o f
S u g g e s t i o n s h a v e b e e n made t h a t certain savings
might b e h a d b y c h a n g i n g t h e d e s i g n o f federal r e s e r v e
notes,
i n having those notes w i t h n o backs, b u t having
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Federal Reserve Bank of St. Louis
Le
two faces, a n d i n having t h e m printed i n the same w a y that
our money i s printed a t t h e present time, t h a t i s money o f
coin design,
s o that w h e n y o u turn i t over this w a y i t i s
always right s i d e up. S u g g e s t i o n s l i k e that have been
submitted
a n d various
other suggestions
covering
t h e whole
currency situation, a n d w e contemplate forming a cormittéee
to g i v e t h a t m a t t e r c o n s i d e r a b l e s t u d y w i t h i n t h e n e x t
year, and at that time have the committee take up the
question o f the rive dollar gold certirloate.
Governor S e a y :
b e e s
t h e l a w permit a
rive dollar
gold c e r t i r i c a t e n o w ?
‘ip, Dewey:
N o , t e n dollars
got t o g e t l e g i s l a t i o n
t o print a
I will give wr* Harrison a
i s t h e lowest.
W e have
five d o l l a r note.
copy o f o u r program, show-
ing just what w e are going t o print during this coming
year i n order t h a t i t m a y b e m a d e a
part o f t h e record,
if- You. G a r e f o h a v e i t ,
Now,
i f there a r s a n y westions w h i c h y o u c a r e t o
have answered, I
am unable
ed,
will e n d e a v o r
t o answer t h e m I
t o a n s w e r t h e m and,
irl
will s e e t h a t t h e y a r e a n s w e r -
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Federal Reserve Bank of St. Louis
180
f t h e r e i s n o objection, a
I
Mie, e e e SOrs
that c a n b e s e >
each Governor.
will b e gbad: t o give y o u photostatic
vip. Dewey: L
copies, s h o w i n g t h e a m o u n t w e a r e g o i n g t o p r i n t
fort t o b r i n g t h e s o r t b a c k t o t h e 6 6 - 4 0 basis,
Governor Fancher:
M a y I
as t o t h e p r e s e n t a t t i t u d e
payment
copy o f
i n our efa n d s o on.
inquire, i r . S e c r e t a r y ,
o f t h e Treasury toward g o l d
t o t h e Federal r e s e r v e banks. I
understood y o u
to s t a t e t h a t t h e T r e a s u r y h a d p r o v i d e d f o r g o l d p a y m e n t s
its program, e q u a l t o t h e i m p o r t s
o r gold.
We. “ D S W ey s Y e s .
Governor Fancher:
T h e imports o f gold a r e dwindling,
Is i t t h e d e s i r e o f t h e T r e a s u r y t h a t g o l d p a y m e n t s
Federal r e s e r v e b a n k s continue,
be increased,
t o the
t h a t t h e volume should
o r what does t h e Treasury desire?
‘lp. D e w e y s S o t a m a s I
ments w i l l c o n t i n u e
the ppaes t f e w months.
know, I
just cxactly
T h e r s
t h i n k t h e g o l d pay-
a s they have been
i n
e a t e x p o &r t i n g o f g o l d
i s n o gr1
now, b u t w e are n o t sure that t h e imports m a y n o t start
There
i s a
certain amount
o : earmarking going
but I do not think there i s anything that has indicated
that that i s not just a
temporary matter i n connection with
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Federal Reserve Bank of St. Louis
Re Gh
certain c r e d i t s t h a t h a v e b e e n e x t e n d e d abroad.
Just
what t h e fumre will bring a n d whether w e will have a n outgold I do not think has b e e n deciced, a n d w e will
have t o wait until there i s some trend o n e w a y o r the
other.
T h e trend has b e e n entirely o u r w a y u p until t h e
last t w o o r t h r e e months.
T h e r e h a s b e e n some actual
exporting a n d s o m e c a r m a r k i n g
o r impounding,
but I
do not
think there has anything been derinitely decided, a n d I
think t h e Treasury contemplates t h a t t h e gold payments
shall c o n t i n u e
Sens
t o b e m a d e f o r s o m e t i m e t o come, u n t i l
1 6 a d e r i n i t e change.
ip. Harrison: I
might say, Governor Fancher, that
the N e w Y o r k p a n k w h i c h h a s b e e n o n e o f t h e c h i e f p a y e r s
of gold certificates has, o n account o f the substantial
reduction i n imports a n d the additional o f f s e t t i n g
influence
o r earmaricing, r e d u c e d i t s p a y m e n t s f o r t h e t i m e
being o n l y t o o n e - t h i r d
o f what i t h a d b e e n doing i n the
past.
Governor Fancher:
Ton
Y o u r e a c h e d t h e p o i n t o f satura-
e e “yon o r
me, Harrison:
%
@ peached t h e point w h e r e o u r r e -
ceipts p r e t t y n e a r l y a p p r o x i m a t e d o u r payments.
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Federal Reserve Bank of St. Louis
182
At t h e s a m e t i n e w e r e y o u c o r r a l i n g
Governor Seay:
the. gold certificates w h i c h came’ ¢ 5aiid DYOptra OUT
iigecHarPison:
the t i m o being,
Y e s ;
that i s o n e t h i n g w e
W e " C a n o r IGounres
but t h e r e w o u l d b e n o p o i n t
Governor F a n c h e r s
A
S
Cam: do: r o r
later r e d e e m t h e m ,
in doing that.
the p r e s e n t t i m e y o u a r e p a y ~
ing out less t h a n y o u a r e receiving a n d you a r e
impounding
to s o m e e x t e n t ?
Mir. Harrisons
W e a r e paying
less t h a n w e a r e r e -
celiving a t t h e p r e s e n t t i m e ,
Ilwamb t o t h a n k y o u very.
ur... Devmey * G e n t l e m e n ,
for p e r m i t t i n g
nruch
m e t o take u p y
, n H
or.p Due wee r
y er eht ivr e
(d
room a n d t h e conrerence,
from t h e c o n ? r é r e n c e
duly seconded,
o n motion
Oe lock p . m ,
o'clock a , m., recessed until 2:15
a t 12:45
6) ae
same d a y ,
The c o n f e r e n c e r e c o n v e n e d
SUAnG l O R e c e s s - S o lie i n t e
a t
executi
o'elosk p . m , . w h e n t h e r e p o r t e r
room a n d t h e
S
Gos
reentered
CLon wntil
O
V3 4 0 5
the c o n r e r e n c e
proceedings continued a s follows:
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Federal Reserve Bank of St. Louis
183
The Chairman:
T h e meeting will please come t o order.
To d i s p a t c h t h e m a t t e r s d i s c u s s e d
b y Mr, Dewey, I
under-
stand there i s only o n e question that requires action, a n d
that i s whether t h e Federal reserve banks a r e willing t o
adopt a
uniform policy t o promote t h e circulation o f
Standard. silver dollars b y agreeing, f o r a limited t i n e
y
and f o r a speciried
amount,
i n each instance, a
amount o f silver d o l l a r s a l l o t t e d
speciried
t o e a c h bank, t h e t o t a l ©
mt t o exceed ten million dollars, t o promote the distribution a n d circulation o f them a n d p a y t h e express charges
going out, b u t n o t t h e e x p r e s s c h a r g e s c o m i n g i n ; t h a t i t
be understood that this i s for t h e purpose o f a test o f
the a p p e t i t e
o f the country f o r t h e circulation
o f new
silver dollars, a n d that once that i t i s shown t o b e too
expensive i t shall automatically stop, without requiring
any order o r anything o f that sort b y the Treasury Depastment.
Governor Seay:
practice
T h a t would necessitate changing t h e
o f some o f the reserve bants with respect t o abcharges o n shipments o f silver dollars, w o u l d
The Chairman:
T h a t is: j u s t t h e auestion, w h e t h e r
we
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Federal Reserve Bank of St. Louis
are willing t o d o it.
Governor McDougal: I
considered n o w r r o m a
est o f p r o g r e s s I
think that stbject should b e
broader s t a n d p o i n t ,
would recommend
that
a n d i n t h e inter-
w e discontinue
the
payment o f charges o n shipments o f currency a n d coin both
ways, p a y i n g i t o n e w a y o n b o t h c u r r e n c y a n d coin.
T h e
fact h a s b e e n d e m o n s t r a t e d t h a t t h e r e i s a n a b u s e o f t h e
currency vrivilege, t h a t t h e movements
i n and out a r e much
greater t h a n t h e y n e e d be, a n d t h e e x p e n s e i n v o l v e d c a n n o t
be measured b y the express charges, because i f there i s a
surplus o f currency o r coin moving i n and out t h e cost o f
maintaining o u r organization i s materially increased a n d
you camnot measure i t i n dollars a n d cents entirely. I
think I
a m right a b o u t t h a t ,
Governor Harding:
W o u l d y o u p a y o n ircoming?
Governor iMeDougal: I
Governor Harding:
would p a y o n outgoing.
T h e n h o w i s i t going t o afrect t h e
par c o l l e c t i o n system, b e c a u s e t h e r e a r e c e r t a i n n o n member banks---~
Governor McDougal; (Interrupting) I
think w e will
perhaps h a v e t o take care o f that i n some w a y because w e
are c o m m i t t e d
t o it.
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Federal Reserve Bank of St. Louis
185
The Chalrman: G e n t l e m e n ,
i t seems t o m e i t i s going
to b e confusing t o the discussion o f the subject o f handling silver dollars b y the Treasury t o introduce a
matter
currency
a t t h e s a m e time,
Governor MeDougal: P e r h a p s so, b u t m y thought was
that p e r h a p s
w e w o u l d h a v e t o d e a l w i t h i t Yrom a
standpoint t h a n with respect t o silver dollars.
broader
L i we
are not going t o continue t o pay charges b o t h ways o n
silver, t h a t would help u s materially i n dealing with t h e
Treasury department.
Governor Young:
U n d e r present regulations y o u have
got t o pay charges o n incoming silver i f sent t o
settlement o f transit items, a n d they can always
it t h a t w a y .
The Chairnan:
N o w , Governor iicDougal, t h i s does
introduce a complication i n deciding this one topic o f a
most seérious nature, ’a n d the record astands this way:y T h a t
a t h e request o f t h e Federal Reserve B o a r d a
review w a s
made o f all voluntary services f o r which t h e Federal R e serve banks were paying charges a n d absorbing t h e
That matter w a s reviewed b y a committee o f which you,
Governor F a n c h e r a n d I
were members.
recently t h a t t h i s p r a c t i c e
W w e recommended q u i t e
b e continued,
I
t has b e e n
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Federal Reserve Bank of St. Louis
186
approved
b y the P e d R e s e r v e B o a r
time t o reopen t h e subject without a
N o w ,
i s this t h e
very much greater
study o r the whole thing than c a n b e made here a t this
meeting?
Governor ic¢Dougal: I
d o not think w e appro
cifically t h i s p a r t i c u l a r matter.
The Chairman:
O h , yes
Governor t g D o u g a l :
I
n a n y event,
i t becomes n e c e s -
Sary t e reconsider i t i f w e a r e going t o deal with t h e
Treasury Department.
Governor - Calkins:
The Chairman:
Governor ifg
T
h
e
y want u s t o p a y charges b o t h
ways.
The Chairman:
h
a
Governor ‘igDougal:
s b e e n optional,
N i n e . OO. N O G
here a n d w a s t o l d t h a t I
L H e
1 5 Se.
e e e
was t h e o n l y b a n k o u t o f t w e l v e
that had not gotten into line and I said, "Yell, w e will
get into line, b u t i t is a wrong principle. °
The C h a i r m a n s
I
f y o u will l o o k u p t h e record y o u
will s e e that there w a s a
specific exception made a s t o
silver d o l l a r s a n d g o l d c o i n ,
T h a t w a s done because
of
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
137
the d i v e r g e n c e
o f conditions inherent
i n t h e difrerent
Gistricts.
Governor f f a l k i n s :
G o v e r n o r ifcDougal
w a s mista]
when h e said h e was alone i n that, because w e were n o t
Goines 1 s
Governor MeaDougal:
T t - y o u w e r e s o t doing. e
you-atd
not a n n o u n c e i t .
Governor Calkins:
The Chairman:
+
y
e
s Todadas
6 a m e i f - y o u will pardon me, w e
will have to make progress on this program, T h e ouestion
on t h e p r o g r a m d o e s n o t i n c l u d e c u r r e n c y a n d therefore I
think I
will h a v e t o r u l e G o v e r n o r #icDougal o u t o f order.
If h e wants t o bring u p arother question that c a n b e done
on a
s u p p l e m e n t a r y vrogram,.
I
f w e a r e going t o make pro-
gress w e h a d better stick t o o u r program.
t
Governor iicDouga
T have t h e g r e a t e s t
h
Governor ‘iellborn:
I
T think w e o u g h t t o h e l p c a r r y
out t h e Treasury's program o n silver dollars a n d LOerelore
I make a
motion t o a d o p t t h e suggestion. I
do not be-
lieve there will b e very great evpense connected w i t h t h e
matter, a n d I
do not think there will b e a very b i g demand
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Federal Reserve Bank of St. Louis
for t h e s i l v e r d o l l a r s ,
The C h a i r m a n :
N
G
C o n n L~viliiis.-6.6.2
1 born: 2
The Chairman:
a o T e Gr a s .
O y
e s , b u t i f w e d o not have t h e demand
the.erpense w i l l
greater.
Governor C a l k i n s
{ i L you attempt
t o rorce
ber banks i n this s y s t e m t o take silver dollars i n place
Of 016 Gollan e e
a
r
e g o i n g t o have m a n y difricui-
ties,
up r i g h t away.
For t h e p u r p o s e
o f progress [ I
will s e c o n d G o v e r n o r ‘‘ellborn's r e s o l u t i o n ,
which I
under-
stand t o b e that w e will take, f o r a limited time, a n d t o
a limited amount,
b o t h specivied,
crease A n - t h e c i r e m i a t i o n
charges
t o bring a b o u t a n in-
o f silver dollers
o n outgoing shipments
b y paying:
the
t o m e m b e r banks a n d d i
tinuing t h e p a y m e n t o i
from m e m b e r banks.
=
The C h a i r m a n : I
deserves a
think Governor Young's
little c o n s i d e r a t i o n ,
W
suggestion
e all kmow that i f
these country banks d o not want t h e silver dollars t h e y
will
pis
u :t t h e m
i n every sack
o f coin that comes
back
t o us.
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Federal Reserve Bank of St. Louis
don't
w e know that?
I know they will
Governor
S e a y :
OF p a y i n g c h a r g é s
w
e
w i l l
b e
p l a c e d
i n Minnesota,
i n
o n silver d o i l a r s c o m i n g
t h e
B O S L t L O n
i n to us for
some p u r p o s e s a n d n o t p a y i n g t h e m o n t h e s e c o m i n g i n f o r
Other purposes.
Governor H a r d i n g : I
would L i k e
t o zZive n o t i c e ,
4 s
far a s the Bostan bank i s concerned, t h a t w e could n o t d o
this u n l e s s
w e h a d a n af: irmative r e s o l u t i o n
iL Directors, 4
b y our Board
resolution w a s a d o p t e d s o m e y e a r s a g o
by our directors, a n d I would n o t
aera
The Chairman:
o u l d n o t t h e action o f the conference
be o f this character, Governor Harding, t h a t w e would express o u r approval o f the project t o the Treasury,
approve
o r it, t h a t
w e would reauest
t h e Federal
i f we d o
Reserve
Board t o m a k e a n o t h e r r u l i n g o r a m e n d t h e r e g u l a t i o n s
ive. G r fect t o ,
i n
and that w e would recommend
it t o , o u r B o a r d o f Directors
i n those c a s e s w h e r e
i t is
necessary.
Governor C a l k i n s : T
have c o n s i d e r a b l e
doubt
a s to
whether the Federal Reserve Board will approve o f it.
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Federal Reserve Bank of St. Louis
ecessariily b e subject t o
Reserve B o a r d t s a p p )
a l a n d aporoval
o r our own
GaPecLors.
Governor H a r d i n g i
a sugeestion
J a m e s ! circular lett
o n that.
The Chairman:
Gentlomen,
T o p a y c h a r g e s b o t h ways.
w e must make progress,
T h e r e i s a motion
belore t h e House made b y Governor e l l b o r n a n d seconded b y
Governor - U a l k i n s ,
(The motion, h a v i n g b e e n d u l y seconded,
three members o f the conrerence, Governors NcKinney,
and Seayuvoting
o no.)
>
Governor S e a y i
would l i t e t o s a y t h a t m y r e a s o n
for v o t i n g n e i s n o t b y r e a s o n o 1 a n y l a c k o f s y m p a t h y r o r
+
the p u r p o s e
operation,
o i t h e Treasury,
but I
believe
o r any lack
t o discontinue
o f spirit
t h e payment
o f coo f
charges o n incoming silver dollars, w h i c h w e are n o v pay-
ing, would involve us i n a good many complications which
pieced 2 h
sistent p o s i t i o n w h i c h w e c a n n o t defend.
The Chairnans i
would like t o offer. a
supplemer
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Federal Reserve Bank of St. Louis
191
resolution that i n making this recommendation t o t h e Joint
Conference
i t b e pointed o u t rirst t h a t i t m a y develop
some i n c o n s i s t c n c y
i n regard
t o t h e existing regulations
practices a b o u t i n c o m i n g s h i p m e n t s r o r t h e p u r p o s e
of
cash let::ers a n d so.on, w h i c h
the regulations o f the Board;
second, t h a t i t m i g h t r e o u i r e a c t i o n b y t h e directors
GO. etrect. 2
practice;
chanse
t h i r d , t h a t t h e proposal
ing t h e c o s t o f incomimw s h i p m e n t s
of
i m v h s Cxurar=
t o discontinue p a y -
t o federal reserve b a n k s
4s c o n t r a r y t o t h e advice. r e c e i v e d r r o m t h e F e d e r a l r e s e r v e
Board,
b u t i n accordance w i t h t h e a d v i c e r e c e i v e d f r o m
Assistant S e c r e t a r y Dewey;
f o u r t h t h a t t h e meeting's a t -
tention w a s c a l l e d t o t h e f a c t t h a t a s a
practical m a t t e r
it will never b e possible t o avoid paying t h e cost o f incoming s h i p m e n t s
o f s i l v e r dollars b e c a u s e t h e y w i l l u s u a l l y
come i n m i x e d w i t h o t h e r c o i n i n o r d e r t o a v o i d a s s u m i n g
o f the member banks.
the c o s t o n . t h e p a r t
t T think i t i s necessary to-cail t h e
Governor Seay:
attention o f t h e B o a r d t o t h e f a c t t h a t w e a r e c o n s c i o u s
or t h e s e i n c o n s i s t e n c i e s .
The Chairman:
I
s that motion seconded?
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Federal Reserve Bank of St. Louis
Governor S ea a y :
b o w s
The C h a i r m a n :
i
s t h e r e a n y further caiscussion?
Governor Callxins: 1
appears
quite-4. d e f i n i t e conflict,
‘Toe Cheemem:
seconcri0%
t o m e t h a t there i s
T f thet-2s-
o b reeticnapls.
W e l l , w e have carried a
motion t o d o
a certain thing i n the face o f tertain objections
ere d e r i n i t e l y w e t e n t t o 4 1 1 “or us, 200-18.
1 0 not
make s u r e t h a t t h e r e c o r d s h o w s t h a t w e i n t e n d t o c a l l t h e
Conference's a t t e n t i o n t o i t a n d h a v e i t c l e a r i n t h e r e cord t h a t t h a t i s what
w e seek
t o bring about.
W o u l d that
meet yeur views, Governor
Governor Harding:
The Chairman:
Governor Seay:
A n d you, G O V e r n o r
Yes.
Governor B i g g s :
T h a t w o u l e suit- me, C h a i r m a n .
Governor iickinney:
The Chairman:
Y e s , itr. Ghairman.
T h e m o t i o n h a s b e e n seconded,
and I
Cee tOt- S-VOLe.
(The motion, having been duly seconded, w a s carried.)
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Federal Reserve Bank of St. Louis
The Chairman:
T o p i c 1(d) was passed because w e did
not think i t was advisable t o discuss t h a t until after t h e
open market matter w a s atted upon.
this andhave a
N o w , i f w e discuss
recoumendation t o make, t h e n w e will b e
ready t o take u p lir. Strater's report.
Governor Fancher:
l-(c), t h e Dawes plan,
The Chairman:
M r , Chairman,
i s withdrawn f r o m t h e program?
1 - ( c ) i s withdrawn. I
call y o u r a t t e n t i o n t o t h i s
would like t o
i n connection w i t h t h e sugges-
tion o f sub-topic ( b ) , o b v i o u s l y ,
an amount ¢ q u a l
a s i understand it,
t h e proposal
t o capita a n d surplus
t o invest
i n long t i m e govern-
ment bonds i s based upon t h e theory that capital a n d surplus
are n o t s u b j e c t
t o t h e same rules a s t o liquidity a s apply
to assets a r i s i n g f r o m deposits.
T h e capital a n d surplus
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Federal Reserve Bank of St. Louis
194
of t h e Federal R e s e r v e S y s t e m t o d a y i s 3555,000,000,
thereabouts.
o r
O f that $533,000,000 some $41,000,000 i s
already invested i n long time bonds, w h i c h would reduce
tre f r e e -capital s a n d s u r p l u s t o . S 2
xf 9 2
2 ,0
. 0 02, 0: 0 0 .
O
r -binact
9292,000,000 $60,000,000 i s invested i n buildings, w h i c h
would r e d u c e
i t t o 8252,000,000.
O
T t h a b $252,000, 000,
ITassume t h a t c e r t a i n o f t h e r e s e r v e b a n k s h a v e
more o r less fixed s e t s , a s t h e result
which w e h a v e j u s t b e e n through, w h i c h c o u l d b e c o n s i d e r e d
more o r l e s s p e r m a n e n t i n v e s t m e n t s
That amount i s undetermined.
that i s b e i n g c o n s i d e r e d
sum p o s s i b l y
i n excess
Governor Norris:
the w h o l e $ 3 5 3 , 0 0 0 , 0 0 0
o f capital a n d surplus.
S o that i t is not $3535,000,000
o n t h a t thiery,
o f 200,000,000
A
b u t i t i s some
o r thereabouts.
g i t i s stated here i t would
because
t h e topic does
n o
exception a t all.
ore n e rien:
certain a s p e c t s
N o , i t does not. I
o f it.
Governor W e l l porn:
surplus
a m just ciscussing
H o w would i t b e t o invest
i n Government b o n d s ?
The Chairman: I
hesitate
t o express a n y v e r y s t r o n g
opinion, because w e have n o intention o f doing that i n ] New
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Federal Reserve Bank of St. Louis
Governor Seay: I
Dein
thought i t was recognized t h a t n o
O l y Deserves... .1,
be i n v e s t e d p u r e l y v o r t h e p u r p o s e
o f income; t h a t t h e
whole m a t t e r o f t h e u s c o f F e d e r a l R e s e r v e B a n k r e s o u r c c s
was c o n t r o l l e d
by a
much b r o a d e r p r i n c i p l e t h a n that,
o e
fact t h e principle which governs t h e actions o f the Open
iflarket I n v e s t m e n t C o m m i t t e e .
f
F bhime
t h e two are very
closely allied, a n d t h e very statement o f this nuestion 1
think i s a
negation o f t h e principle.
Governor “ellborn:
v
y idea i s that t h e banks
to p a y t h e i r d i v i d e n d s o u t o f surplus.
Governor Seay: I
think i t must b e remembercd that
this i s intimately connected w i t h o p e n market operations
and w e are o n record a s having given voice t o the convic~
tion t h a t n o p a r t o f t h e o p e r a t i o n s
o f the O p e n Market
Investment C o m m i t t e e s h o u l d b e u n d e r t a k e n p u r e l y f o r t h e
purposes
o f revenue,
Governor licDougal:
T h a t applies, I
think, G o v e r n o r
Seay, e n t i r e l y t o t h e s p e c i a l f u n d .
Governor S e a y : I
believe, ifr. Chairman, t h a t i t
ought t o apply fundamentally t o all investments o f Federal
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Chairman:
P e r h a p s se, but
overnor ichinneys
I
n other words, w h e n w e
o f our resources i n t o t h e money mar-
two h a n d r e d m i l l i o n s
contributed t o u s b y
is
the m e m b e r b a n k s a s c a p i t e y - w h e t h e r ,
a p i t a l a n d surplus
Governor S e a y : i
deposits,
i t amounts
Governor
i t i s -deposits—-—
or
t o the same
v t all :
matter t h a t c o u l d n o t
T h i s is a
to
be d e t e r m i n e d e x c e p t b y r e f e r e n c e
tors o f t h e v a r i o u s r e s e r v e banks.
me t o s a j i
t h e v i e w o f t h e directors
cisco B a n k w o u l d b e , e x c e t
s
a
ot
should p e r s o n a l l y
y that I
at t h e p r e s e n t t i m e b e v e r y r i g i d l y o p p o s e d t o a n y s u c h
proposal,
and I
have n o d o u b t t h a t t h e y w o u l d b e .
or S e a y : I
would l i k e t o a s k w h a t w e v o u l d
accumulated i n
do with our discounted paper when i t had
volume,
a n d v h e n w e h a d a n abundance
independent
o r earning assets
o f that portion o r o u r resources w h i c h w a s
Goverment securities?
Governor Norris:
The Chairman:
“ f o u l a w e sell them?
I . should t h i n k s o .
w e would realize a
good f a t loss i f
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Federal Reserve Bank of St. Louis
Vice N o n
Governor iicDougal:
H a y I
inouite w h o p u t t h i s t o p i c
on t h e p r o g r a m ?
The Chairman:
T h e board.
Governor i W e D o u g a l s
I
n respect
t o t h e subject,
hink i t s h o u l d b e c o n s i d e r e d t h a t t h e * e d e r a l N e s e r v e S y s ~
tem has taken o n obligations
i n the form o f services w h i c h
we have voluntarily extended t o o u r member banks, the cost
very l a r g e p r o p o r t i o n
operating t h e reserve banks.
o r the cost o f
I t seems t o m e that t h e
Federal r e s e r v e m n k s c a n n o t b e e x p e c t e d t o b e a
mediam
through which the member banks will borrow, excepting i n
times o i seasonal o r unusual requirements,
gencies g r e a t a n d small,
ter o f prudence
a n d i t seems
a n d i n emer-
t o m e that a s a
mate
i t would b e advisable f o r t h e Federal R e -
serve Banks t o l a y i n a reasonable supply o f assets o f this
sort f o r e a r n i n g purposes. T
that
i t should
a m not intending
b e a n amount e q u a l
t o the capital
t o say
o r the
capital a n d surplus, b u t a backlog u p o n which w e could depend f o r a n income during a
long period o f lean earnings
which t h e s e b a n k s c a n l o o k r o r w a r d t o .
The Chairman:
B a t woald y o u d o that now?
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Federal Reserve Bank of St. Louis
Governor iicDougal:
N O D oe Dr ere
do i t a s t h e o p p o r t u n i t y eariseés,
our B o a r d p a s s e d a
ar: I
would
T w o o r three m o n t h s a g o
resolution u n d e r w h i c h i t w a s d e c i d e d
that i n s t e a d o f i m m e d i a t e l y m a r k e t i n g a l l o f a n y o n e specifr-
ic issue o f bonds t h a t came t o u s from menber banks i n
amounts o f five, t e n thousand,
tain those,
this purpose.
Y
o r larger, t h a t w e would re-
e are doing i t and have b e o n doing i t for
W
e a r e o n e o f t h e banks I
think G o v e r n o r
Strong has i n mind, a n d there a r e others t h a t have b e e n
doing t h e s a m e thing.
W
e have accumulated I
think s e v e n
or 6ight million dollars o v e r that period o f time o r that
class
o f securities
perfectly j u s t i r i e d
f o r t h a t purpose,
a n d w o think
w e are
i m doing so,
Governor Young: M
t
h
e worst offender
in that respect o n this question o f buying l o n g time bonds.
That c a m e a b o u t f o r a
number
o f reasons.
T w o o r three
years a g o w e a n t i c i p a t e d , t h e t i m e w o u l d d o m e w h e n o u r m e n -
ber banks would n o t borrow a great deal o f money f r o m us.
We a p p e a r e d b e f o r e t h i s c o n f e r e n c e s e v e r a l t i m e s a n d t r i e d
to e l i m i n a t e c e r t a i n g r a t u i t o u s s e r v i c e s t h a t w e h a d b e e n
performing,
W e realized that there w a s a
that w e c o t l d n o t c u t down.
W
large expense
e felt t h a t i t was g o o d
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Federal Reserve Bank of St. Louis
dee
commercial banking t o invest t h e capital a n d surplus i n
long time assets, t h a t is, vour capital a n d surplus t h a t
you perhaps would never b e called u p o n t o pay, s o that w e
have p u r c h a s e d s e v e n m i l l i o n d o l l a r s w o r t h o f l o n g t i m e
government bonds a n d i t has b e e n a nice source o f income.
At t h a t t i m e y o u w i l l r é c a l l t h a t a l l t h e o t h e r F e d é r a i
reserve tanks were bidding against e a c h other t o buy short
time g o v e r n m e n t o b l i g a t i o n s .
I n fact w e g o t s o much i n the
System that t h e Secretary o f the Treasury recauested u s t o
sell s o m e o f them.
‘ q 4 n n e a p o l i s d i d n o t participate
i n
that, b u t bought l o n g time bonds i n prererence t o short
time b o n d s a n d w e h a v e q u i t e a
Donds a t Gue- p r e s e n t tiue.. I
handsome p r o f i t i n t h o s e
d o n o t believe t h a t o u r
people would g o into this market a n d b u y those bonds.
profit,
ye have made a
4, p e r cent.
I
T h e y have earned u s better t h a n
f w e were forced t o sell t h e m this y e a r
we would j u s t have t o turn the money over t o the Government.
I f w e c a n g o along until next year perhaps w e
could s e l l t h e m a n d u s e t h o s e v r o f i t s
t o advantage.
may b e b a d H e d e r a l r e s e r v e voanking a n d financing, i
abet,
do n o t
know, b u t I think i t was g o o d cormercial b a n k Yinancing.
Governor lickinney:
“ M 4 1 1 v o u n o t have t o readjust
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Federal Reserve Bank of St. Louis
200
the v a l u e o f t h o s e b o n d s a t t h e e n d o f this c a l e n d a r year,
in a c c o r d a n c e w i t h t h e B o a r d ' s v r o g r a m ?
Governor Young: I
did not intend to take that u p
with t h i s c o n f e r e n c e . I
that myselr..
put t h o s e
intended
i f i w e d o w e w i l l s e l l them. I
o n the books
would n o t
a t t h e present values.
Governor Norris: i
is t h e s e n s e
t o s e e t h e Board about
e
o f this conferencs
in -rincipvle t o t h e i n v e s t m e n t
e a
resolution t h a s i t
that there
i s n o objection
b y reserve banks
i n long
time g o v e r n m e n t b o n d s o f s u c h o f t h e i r c a p i t a l a n d s u r p l u s
esented b y buildings o r other rixed investd e a Sse
Governor Young:
L
e Waele -eecond: that-metion.
Governor “ellborn:
f o l
Second. 1a;
I have b e e n u n a b l e
t o adopt t h e v i e w
that a n y portion o f the resources o f reserve banks should
be invested with a view t o pemianency. t
besleve 2 e 3
o resé
inconsistent w i t h t h e u s a g e f
Governor McKinney: I
views
concur w i t h G o v e r n o r S e a y * s
o n that.
Governor Seay:
I t i s m y conviction that w e are all---
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Federal Reserve Bank of St. Louis
201
some o f u sbs) a t least--- a t least b i t t o hasty i n reaching
the c o n c l u s i o n t h a t t h e o r d i n a r y d e m a n d s u p o n t h e r e s e r v e
banks w i l l n o t b e s u f f i c i e n t
t o g i v e t h e m a n e a r n i n g power,
There h a v e b e e n e n u m e r a t e d h e r e t o d a y a
number
o f factors
which a r e gradually making f o r a higher money rate a n d a
greater activity i n the money market a n d a greater demand
upon t h e F e d e r a l r e s e r v e b a n k s .
cipate t h a t a n d b e c a u s e
w
e a r e never able
o f that fact I
t o anti-
think t h e i n v e s t -
ment o f a n y part o f the resources o f the reserve banks
with a view t o permanency i s positively inconsistent w i t h
reserve banking principles.
The Chairman:
I
Governor Norris:
s there a n y further discussion?
M P . Chairnan,
t h i s is-a-tepie t h a t
Mr. Aystin, o u r Chairman, h a s always b e e n very much interested in. ‘ h e n i t was p u t o n this program I asked h i m
to put his views in’ writing, w h i c h h e did,
a n d I would like
to r e a d f r o m h i s memorandum.
"In considering this matter, disposition first should
be m a c e t o t h e b r o a d e r a u e s t i o n a s t o w h t h e r o r n o t a
Federal r e s e r v e b a n k s h o u l d m a k e i n v e s t m e n t s f o r i n c o m e
purposes,
w h e n s u c h investments
by the demands o f trade.
d o n o t s e e m t o b e required
T h i s question has b e e n touched
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Federal Reserve Bank of St. Louis
202
on i r o m t i n e t o v i n e a t . o u r conferences, - b u v t a e a t z l c u d e
of t h e F e d e r a l H e s e r v e B o a r d a n c t h e o f f i g e r s
banks,
o f the
a s f a r a s t h e w r o t e r Imows, n e v o r h a s b e e n a c c u r -
ately ascertained. P r o p o n e n t s o f the theory that
reserve banks should n o t p u t money into t h e mark
market needs it, é
G a s
Gisturbanee,
opinion that <
hold 2
a n tale w i t h o u t causs u c ebimes “Lhe
Fedcral reserve banks should r u n a t
make earnings through such investments.
lieved t h a t i t - w i l l
b e r o u n d that |
Met t h e Padertal-veserve b a n e
ene
B u t Licols .. be=
s2nee w e iority r e e l
ganized to s
self-
supporting--- t h a t t h e reductions i n the r e s r o q u i r e ments o f m e m b e r banks,
ficient
a n d o t h e r measures,
a r e amply suf-
t o compensate t h e m f o r t h e slight competition t h e y
might m e e t f r o m t h e F e d e r a l r e s e r v e b a n i t s , - -
that gen
ss will absorb, without material
turbance, t h e amount o f Lunds t h e Feder:
will have t o invest t o make suriicient earnings t o covel
their expensés,-- t h a t i t would b e a great menace t o the
continuance
o f t h e System should t h e banks n o t b e able
to s u p p o r t t h e m s e l v e s , be a
and that there would hardly ever
time w h e n t h e l a t t e r w o u l d b e j u s t i f i e d
i n refraining
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Federal Reserve Bank of St. Louis
203
from waintaining sufiicient earning assets t o p a y expenses
and dividends.
"Believing t h e n that a majority o f this b o d y feels
that F e d e r a l r e s e r v e b a n k s s h o u l d c a r r y s u f f i c i e n t e a r n i n g
assets
t o m e e t t h e i r expense, d i v i d e n d a n d s u r p l u s require.
ments, t h e auestion arises ~ "Why should not a reasonable
part o f such earning assets consist o f Government bonds?"
Because w e have n o t b e e n investing i n Government bonds,
one i s inclined t o ask - “what i s the matter with them?"
The security i s unouestioned,
t h e income larger t h a n that
from o t h e r Governrient obligations,
o r f r o m bankers bills;
they a r e flexible, a n d , f o r s t r a t e g i c p u r p o s e s ,
just as
good.
This q u e s t i o n b e f o r e u s i s t h e s a m e a s t h e o n e s u b m i t ted t o t h e B o a r d s o m e t h r e e y e a r s
a g o when t h e financial
conditions existing today were plainly forescen.
T h e sug-
gestion that Federal reserve banks b e allowed t o invest
in Liberty bonds and Victory notes for income purposes
was n o t approved,
t t investments
i n United States n o t e s
and Certificates o f Indebtedness w e r e permitted.
T h e Federal
Advisory Council, t o which the question o l investments o f
Federal reserve banks w a s referred i n the spring o f 1922,
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Federal Reserve Bank of St. Louis
said:-
"t'hile t h e council believes a t the same time that
the F e d ral Reserve System would b e well advised i n making
efforts:
t o increase i t s holdings
o f scesptances..
no d o u b t 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 a s a
there i s
whole c a n n o t
avoid a t this time, f o r t h e reasons explained, investing
very s u b s t a n t i a l a m o u n t s e i t h e r
i n Government b o n d s , C e r -
tificates
o f Indebtedness
no doubt,
t h e short-term Treasury certificates a r e t h e
most s u i t a b l e
Bearing
o r warrants.
O
e thess curec:,
a s i n v e s t m e n t s f o r t h e F e d e r a l r e s e r v e banks.
i n mind t h a t t h e capital a n d surplus
bined F e d e r a l r e s e r v e b a n k s a m o u n t s
o f the com-
t o approximately
$300,000,000, t h e Council does not feel that there i s just
cause t o criticise t h e Federal reserve banks f o r having
invested
i n Treasury c e r t i f i c a t e s
a n d short-term G o v e r n
ment obligations u p t o a n amount which i s not largely i n
excess o f their capital a n d surplus, a n d which, considering the amount o f their assets, constitutcs o n l y a small
perth o f tGeeir resourses:
"The Council i s still o f the opinion that the Federal
reserve banks should avoid investing i n long-term Govern-~
ment bonds.?
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Federal Reserve Bank of St. Louis
205
‘ h y t h i s d i s t i n c t i o n w a s made, n e v e r h a s t e n c o n v i n c ingly explained.
I
t i s n o t unlikely t h a t t h e attitude
towards Covernment tonds w a s d u e t o the unsatisfactory
condition o f t h e b o n d m a r k e t t h a t h a d e x i s t e d u p t o c h a t
time.
T h e great w a r issues h a d n o t been digested; member
banks a n d F e d e r a l r e s e r v e b a n i s w e r e c a r r y i n g a s c o l l a t e r a l
security f o r loans hundreds o f millions o f them which h a d
beenbought,
n o t f o r investment purposes,
b u t f r o m patriot-
ic motives, u n d the banks were most anxious t o get r i d o f
them, S e c u r i t i e s ,
floated
i n such a
way, w o u l d n o t b e
looked upon favorably b y bankers a n d this professional
atCCLtUCE “Of
s
r
s toward investments w a s
to affocet their thinking e v e n about Government bonds.
The G o v e r n m e n t b o n d m a r k e t h a s s o c h a n g e d t h a t i t i s doubtful i f t h e s a m e a t t i t u d e w o u l d b e t a k e n today,
a s n o one
seriously c a n s a y t h a t t h e b o n d s o f o u r G o v e r n m e n t
do
not p r o v i d e t h e s a f e s t i n v e s t m e n t t h a t c a n b e m a d e - t h e y
ave a
broader market,
c a n b e sold a t a n y time i n any
kind o f a money market w i t h less fluctuations
i n price t h a n
any other security, a n d a s far a s o u r operations f o r
sabilizing t h e money market m a y go, t h e y provide better
instruments t h a n a n y other investment.
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Federal Reserve Bank of St. Louis
206
"Hod investments i n Government bonds b e e n permitted
at t h e t i m e t h e s u g g e s t i o n w a s m a d e n o disturbantse o f
money m a r k e t w o u l d h a v e resulted.
T h e reserve banks u n -
doubtedly would have b e e n sold t h e bonds which they already were holding a s security f o r loans t o member banks.
Thus t h e borrowings o f member banks would have b e e n more
speedily liquidated; e a r n i n g i n v e s t m e n t s
o f Federal r e »
serve b a n k s w o u l d n o t h a v e b e e n increased;
bond m a r k e t w o u l d h a v e b e e n stabilized;
have h a d a n assured income,
constantly
t h e Government
t h e banks w o u l d
a n d would n o t have b e e n s o
i n t h e market f o r bills a n d Government s h o r t -
term investments.
I
t igs s u r p r i s i n g n o w t o t h i n k t h a t a n y
opposition w a s o f f e r e d t o s u c h investments.
ignortly after their organization t h e Federal reserve
banks m a d e l a r g e p u r c h a s e s
come purposes.
o f United S t a t e s b o n d s f o r i n -
T h e Federal Reserve A c t provided t h a t
Federal r e s e r v e b a n k s s h o u l d p u r c h a s e f r o m m e m b e r b a n k s
at par United States 2
be e x c h a n g e d
per cent bonds, w h i c h bonds might
5 0 per cent:for 50-year 3
50 p e r c e n t f o r o n e y e a r 3
renewals,
approval
T h i s provision
o f t h e investment
per c e n t bonds a n d
per c e n t notes, s u b j e c t
o f the A c t appears
b y reserve b a n k s
t o 50
t o be a
i n United
clear
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Federal Reserve Bank of St. Louis
States b o n d s .
"a study o f the charters a n d operations o f the Hanks
of England, France, Belgium, Holland, S w e d e n a n d Japan
shows that a l l a r e authorized t o hold Government securities;
that s o m e a r e r e q u i r e d
capital a n d s u r p l u s
t o invest a l l o r a
part o f their
i n t h e loans o f their respective
and t h a t a l l c a r r y l a r g e a m o u n t s
above s t a t e m e n t s a r e s u f f i c i e n t
Federal r e s e r v e b a n k s d i d i n v e s t
o f them.
t o s h o w that
i n Government bonds,
that, u n d e r c e r t a i n circumstances,
t h e y were required
and
to
do so; t h a t i t i s a proper policy, a n d one rollowed b y
the c e n t r a l b a n k s
o f the nations
o f t h e world.
:
e
e
s
s o m a r
m
i
"Phe
a v eer-a g e p r i c e o f U n i t e d S t a t e s 44:3 bonds
102,
‘
e
i s about
W e r e t h e capital a n d surplus o f the Federal reserve
banks, amounting t o $333,000,000 invested i n those bonds
at that average price, t h e income would amount t o
T o produce a n equal income, i t would re-
$13,875,000,
quire a n investment o f $616,000,000 i n bankers bills a t
the r a t e t h e y a r e r e t u r n i n g today,
$542,000,000
o r a n investment
i n United States Certificates
Thus a
or
o f Indebted-
conservation o f resources amounting t o
$285,000,000 could b e made b y investing i n bonds instead
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Federal Reserve Bank of St. Louis
or C e r t i f i c a t e s
o f ladevcecnees.
"Apout 1 8 months ago, i n carrying out the investment
policy o f t h e banks,
rocoives
reduced
w e sold a t quite a
o f U e Sy: Certis poaiee of.
o u r holdings
o f bankers!
loss s o m e o f o u r
fadentedres=|
bills,
a n d 2is0
presumably because
money was s o abundant t h a t i t was considere u n w i s e L o r
Federal r e s e r v e b a n k s
t o contribute f u n d s
t o t h e market
when t h e apvarent demand f o r them w a s s m a l l .
S o m e
months later, w h e n a p p a r e n t l y t h e r e w a s a
less d e m a n d f o r
funds, t h e i n v e s t m e n t p o l i c y w a s changed,
a n d i t was de-
cided t o tuwy f o r t h e banks $3500,000,000
o f Treasury bills.
Following that b y a few months, ~ h e n still t h e money market
failead t o s h o w a n y improvement, a
further i n c r e a s e
i n the
amount o f Treasury bills t o b e purchased was agreed upon.
The c o m b i n e d s t a t e m e n t s
o f t h e Federal reserve p a n k s s h o w
that discounts h a d declined f r o m (3884,000,000 o n October
1923, t o 4401,000,000,
crease
i n t h e purcheses
o n June 4 , 1924, a n d the i n
o f Treasury n o t e s a n d Certiricates
may have b e e n made t o oiiset this decline i n the holdings
or d i s ¢ o u n t e d B i d e n
“ w h i l e t h e a d v i s a b i l i t y o f purchases
in the open market t o maintain t h e earning assets o f the
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Federal Reserve Bank of St. Louis
209
banks w a s recognized, s o m e thing that Government bonds
would h a v e b e e n a
better purchase.
B u t
i t would s e e n
that this policy o f making a n y purchases during these perilods i s a
distinct r e v e r s a l
which s e v e r a l
o f the policy according t o
o f t h e banks a
few months p r i o r h a d b e e n com-
Pelied £6. s e k i securities,
WNi4thout a doubt,
large i n v e s t m e n t s
i t vould b e unwise a t once t o
i n Government bonds,
but i t ould
to b e s o u n d t o r e f r a i n v r o m v u r t h e r b u y i n g o f Certivicates
of I n d btedness, a n d a s funds a r e released m
reinvest t h o s e f u n d s
opportunities
i n bonds.
them, t o
S n o u l d there b e any
t o make additional
investments
i n bonds,
advantage should b e taken o f then u p t o a reasonable
extent."
Governornoucs*
T
l think t h e r e s i s 4 . .c60d d e a l i a
I think thers i s n o doubt about t h e tact that
our o r i g i n a l p u r c h a s e s
o f g o v e r m e n t b o n d s a n d certifi-
made f o r earning purposes, a n d i f we a r e going
to c a r r y a n y g o v e r n m e n t s e c u r i t i e s
a t all f o r earning pur-
poses, i t would seem t o m e to b e viser t o deal i n the
larger market t h a n i n the smaller market, a n d t o b u y securities w h i c h
v e d o not have
t o b e continually replacing.
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Federal Reserve Bank of St. Louis
ra
The Chairman:
cited there, I
do n o t g o a
G o v e r n o r lorris, t h e precedents
think
a r e liable t o b e misleading
little b i t u n d e r n e a t h t h e surface.
case o f the Bank o f England, a
I
A e OU.
n the
charter t o the B a n k o f Eng-
land w a s g r a n t e d u p o n t h e c o n d i t i o n t h a t t h e b a n k w o u l d m a k e
the l o a n t o the British Government a n d t h e increment o f
some part o f t h e public d e b t n o w owned b y the Bank o f England h a s t e e n d u e t o t h e o p e r a t i o n o f a
ment o f 0 b e i s s u e s
s y s t e m o f retize-
o f p r i v a t e b a n k s w h i c h h a s resulted,
just a s i t w o u l d h a v e r e s u l t e d
i n t h e case o f t h e Federal
Reserve System i f w e had takon over t h e national b a n k
notes.
In t h e c a s e o f t h e B a x k o f France, w h e n N a p o l e a n
granted a
charter t e the Bank o f France h e did i t i n
return r o r a Government loan, w h i c h i s a statutory loan,
and t h a t l o a n h a s a l w a y s b e e n c a r r i e d s i n c e thon.
o made a
decree e s t a b l i s h i n g t h e B a n k
of Japan, t h a t w a s done u p o n t h e basis n f a loan t o the
Government b y the Bank o f Japan without interest.
a statutory l o a n a n d w a s mag:
ing t h e u l t i m a t e r e t i r e m e n t
f o r t h e purpose
o f the national
of
bank note
circulation that t o o k t h e place o f the Shogun notes.
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Federal Reserve Bank of St. Louis
Gaya:
The s i t u a t i o n
in detail,
i n Germany, w h i c h I - c a n n o t d e s c r i b e
i s very much t h e same,
holdings o f government bonds
abea
a t the t i m e “or the establishment
o f t h e bank, -pecause
the g o v e r n m e n t m a d e a
bargain w i t h t h e proprietors
vate b a n k s
charter
to grant a
i n exchange
o f pri-
f o r a . -loan,.and
those banks, cxcept a s t h e result o l we
not large buyers o f Government bonds i n the markets a t
aul.
T h e B a n k o f France
i s i n f l i c t e d w i t h a n enormous
Hoes... VWoEeR e v e
i e eManoyOlOpeke destwecers
result o f the war, a n d a s y o u know, t h e entire surplus
Fank o f France a r e n o w appropriated
1
.
b
e
y
to r e d u c i n g t h a t d e b t j u s t a s f a s t a s t h e y can.
q3
fore, I
isn
there-
think the precedent, w h e n you analyze it, i n the
history o f tewese banks
i s quite t h e other way.
I put
o n t h e program,
and I
g o n e
have
n o
as l o n g a s i t w a s u n d e r dis-+
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Federal Reserve Bank of St. Louis
Governor Norris! motion?
(The motion, having b e e n duly seconded, w a s lost,
Six Voting’ i n favor o f Itty a n t 2a. voting m o .
The Chairman:
W
e will n o w take u p section 4
of the
program, O p e r a t i o n s ,
Beonomy a n d BHificiency.
Operating expenses o r Federal
Reserve B a n i c s
Formulation
and
adoption o f d e f i n i t e p l a n f o r a
constructive p r o g r a m f o r g r e a t e r
a
economy a n d sriiciency.,
i would like, i f you please,
that I
t o refer t o a memorandum
have o n that subject f r o m iir., Rounds, a n d before
making a n y s u g g e s t i o n a b o u t t h i s t o p i c I
would l i k e t o
ask i f i n general there 1 8 a Peeling,
a s I have heard i t
expressed,
helpful c o n t r i b u t i o n
t h a t Mr. Rounds
has made a
in the work that h e has done froin time t o tine i n this
matter, i
the
mean i s he a satisfactory adjunct i n this work
c o m m i t t e e
of e c o n o m y a n d e f f i c i e n c y / s o f a r a s y o u h a v e h a d e x p e r -
lence with him?
think s o , M r , C h a i r m a n ,
Governor Young:
Yes}; I
Governor Seay:
i e m n o t f a m i l i a r w i t h t h e contribu-
tions h e has made t o t h e subject, b u t I have n o doubt o f
I think Governor MeDougal
a n d Gover-
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Federal Reserve Bank of St. Louis
eho
nor Fancher have h a d morc contact w i t h h i n o n the work.
How d o y o u reel about it, Governor Harding?
Governor Harding:
H e has b e e n very helpful, I
think.
The Chairman: I
do not s e e h o w w e c a n discuss this
without taking u p sub-topic N o . 2 , which i s adoptionby
each F e d e r a l R e s e r v e B a n k o f a
budget s y s t e m r o r c o n t r o l
of expenditures.
To start t h e discussion, l e t m e s a y I really think w e
have t h r e e t h i n g s
t o discuss.
O n e i s t h e proposal t h a t
the B o a r d h a s m a d e t h a t t h e R e s e r v e B a n k s a d o p t b u d g e t s
for controlling expenses.
T h e second i s consideration
of o u r p o l i c y o f a b s o r b i n g t h e c o s t o r o p e r a t i n g a n d per-
forming certain services, a n d t h e third i s the ouestion o f
the economy that could b e efiected, w h i c h i s not a
of policy,
b u t j u s t o f operation;
omies t h a t m i g h t s t i l l b e e f f e c t e d
gestion
i n o t h e r words, e c o n i n the reserve banks
in the operations w h i c h t h e y d o conduct.
Governor Harding: I
would like t o discuss t h a t i f
I may.
The Chairman: I
was just trying t o arrange t h e topic
for orderly discussion, Governor Harding.
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Federal Reserve Bank of St. Louis
214
Governor Harding:
ordinarily i s n o t a
W e have a district i n Boston which
heavy b o r r o w i n g d i s t r i c t .
E v e n in
1920 t h e members h a d gotten o u t o f debt, w h i c h enabled u s
to r e d i s c o u n t f o r o t h e r d i s t r i c t s q u i t e extensively,
you w i l l remember,
W
e have a
a s
great m a n y t r u s t c o m p a n i e s
in the Boston District, s o m e o f which, l i k e t h e trust companies
i n Providence,
any money,
have a
a r e members,
b u t have never borrowed
o r c e r t a i n l y n o t i n t h e l a s t f o u r years.
W e
number o f national banks w h o a r e beginning t o wonder
just w h a t b e n e f i t t h e r e i s i n b e i n g a
national bank,
and
which a r e considering conversion into state b a n k charters.
There w a s a
sentiment a
year a g o v e r y m u c h i n f a v o r o f get-
ting interest o n deposits.
T h a t h a s b e e n exploded, a n d
I think they a r e a l l satisfied about that.
B u t they a r e
very k e e n about t h e things t h e y g e t o u t o f the Federal
Reserve System i n addition t o the dividends.
T h e y set
great store o n these various services t h a t w e are granting, a n d for that reason I
believe i f there w a s a n y mater-
jal curtailment i n the service t h e y a r e n o w getting that
quite a
number o i them would withdraw, a n d quate a
number
of t h e n a t i o n a l b a n k s w o u l d c o n v e r t i n t o t r u s t companiés,
the s t a t e b a n k s w o u l d w i t h d r a w
a n d w e would
b e left there
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Federal Reserve Bank of St. Louis
with a
mere-skeleton,
The Chairman:
Y o u a r c referring t o t h e possibility
the s e r v i c e s ?
Gyvernor Harding:
proposition,
V e s .
N o w ,
i n regard t o t h e budget
w e have b e e n trimming d o w n o u r official staff
and our clerical staff right along.
W e have made every
conceivable c u t t h a t w e c o u l d m a k e a s l o n g a s w e k e e p u p
Ghese services. I
think t h e r e c o r d w i l l s h o w t h a t t h e
reductions t h a t w e have b e e n able t o make i n the last t w o
years w i l l c o m p a r e f a v o r a b l y w i t h t h o s e m a d e i n a n y o t h e r
bank,
F o r instance,
matter o f lights,
w e made quite a
reduction i n the
“ Y e had a n indirect l i g h t i n g system,
We t o o k t h a t o u t a n d p u t i n a
a thousand dollars a
direct system,
a n d w e saved
month o n the light bill.
placed $30 shades with shades that cost one dollar, $ 1 2
a dozen, a n d w e got better light,
w e have done away with
200 candle power lawps a n d put i n 1 5 candle power instead,
and w e a r e g e t t i n g b e t t e r l i g h t a n d s a v i n g 9 1 , 0 0 0 a
month,
W
e keep u p with t h e expense proposition month
after month.
Y e have a
the d e p a r t m e n t s
meeting o f the various heads o f
a n d w e g o over everything a n d make sugges-
tions w h e r e w e t h i n k w e c a n s a v e money.
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Federal Reserve Bank of St. Louis
216
What I
this: I
anxious,
a m afraid o f a b o u t t h e b u d g e t p r o p o s i t i o n
is
think that t h e chief o f each division would b e
o f course,
t o avoid making a n estimate t h a t would
have t o b e overruled;
h e would n o t want i t s a i d that h e
had exceeded h i s budget, a n d t h e consequence would b e that
the estimates would b e plenty liberal enough t o cover a l l
contingencies a n d i t might i n the aggregate m c a n a n increase
or t h e e x p e n s e account.
Secondly,
i f the b a n k was c r o n
trolled entirely b y its o w n board o f directors i t would b e
a different p r o p o s i t i o n .
a budget t h e n .
I
t would b e hard enough t o make
n a commercial b a n k y o u c o u l d a p p r o p r i a t e
so m u c h f o r advertising,
that, a n d s o on.
I
s o m u c h r o r this,
B u t o u r position
as a
s o much f o r
Federal r e s e r v e
bank i s such that a s soon a s w e eirect s o m e economy, h e r e
comes a
notification f r o m the Federal Reserve Board t o d o
something else.
For instance,
ler,
h e r e i s this matter w i t h t h e Comptrol-
W e lose about half o f what w e have made o n the
w give that t o t h e Comptroller.
mattor o f lights b e c a u s e e
Then t h e Treasury comes along with something ¢1lse, a n d you
ne ver k n o w w h a t i s g o i n g t o happen.
I
t would b e pretty
hard t o f i x a budget # n advance saying h o w much y o u were
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Federal Reserve Bank of St. Louis
eea|
going t o p a y for t h e printing o f Federal rescrve notes,
and t h e r e a r e s o m a n y t h i n g s t h a t e n t e r i n t o t h e calcula-
tion i n the matter o f a federal reserve b a n k a s distinguished f r o m a
Leas +
commercial b a n k t h a t i t w o u l d b e v e r y d i f -
O f course, w h i l e w e c o u l d h a v e a
budget systen,
everybody would b e very careful t o make their estimates p l e n t y l i b e r a l e n o u g h t o c o v e r e v e r y t h i n g .
Governor Bailey:
live u p t o t h e b u d g e t
T h e r e would b e a disposition t o
o n t h e p a r t o f t h e departments.
Governor Harding:
Yes.
T h a t i s the way i t has
seemed t o u s i n Boston.
Governor Bailey:
T h a t i s the w a y i t seems t o me.
I do not s e e h o w w e c a n d o i t out there a n d perform t h e
functions t h a t w e do.
F o r instance,
a s t o currency,
we
had enough t o carry over last year, b u t this year i t cost
us $25,000. I
dontt know how you are going t o provide a
budget t o supply t h e banks c u t i n our country.
L a 3
important, a n d i t i s a mighty uncertain thing.
transit business,
W e r u n along 120,000 items
the first thing y o u know there will b e 200,000
Now, w e have a
system o u t there where i f there i s a n y in-
crease i n the cost o f operating this department w e call
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Federal Reserve Bank of St. Louis
the b o y s
i n a n d make t h e m give a
reason f o r i t .
“ i e have
a sort oil rviendly r i v a i r y b e t w e e n t h e d e p a r t m e n t s
expenses d o w n , a n d I
t o keep
d o not believe w e could improve
that situation w i t h t h e m d g e t ,
on
s o far a s w e are concerned
Out A m M a k o n s s
a 2-04 tye.
The Chairran:
x p e r i e n c e
h a s been rather t o
think i t might
GHIe C O N E a r y O f G e a . I
b e that w i t h a
larger v o l a m e o f w o r k i t i s s a s i e r t o g e t a n average.
The b u d g e t s y s t e m h a s b e e n o p e r a t e d w i t h u s s i n c e 1921,
reduction
and e v e r y y e a r v e have b e e n a b l e t o e f r e c t a
the budget, a n d also a
reduction i n expenses b e l o w t h e
good dé: i e p e n d s
amount “of: t h e m d e e r . A
whieh i t - i s d o n e .
L
a
in
c
i
o n the w a y i n
a l . -lhe“dis t a c u r e r e s - and. i n =
accuracies t h a t develop, Governor Bailey,
i n making u p a
budget estimate, because t h e y a r e n o more t h a n estimates,
but w e find what happens i s that i f the budget i s reg
not a s a guide b u t a s 4 means o r exercising actual
over the money spent, s o that n o increased amount c a n be
spent
i n the department
without
going through
t h e machin-
ery which controls t h e budget, t h a t t h e tendency i s t o
e expenses a l l t h e time, a n d the results this year
are very striking,
‘ f e took over the operation o f our
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Federal Reserve Bank of St. Louis
219
building o n the first o f August, t o o k i t into o u t expense
account,
a n d the organization h a s t e o n working t o take u p
that additional expense a s well a s they could,
A s a mat-
ter o f fact, w i t h t h e exception o f one month when w e r a n
over, I
think, a
thousand dollars,
w e have b e e n able t o a hb-
sorb t h e e x p e n s e a n d k e e p i n s i d e t h e budget.
never c o u l d h a v e d o n e t h a t w i t h o u t a
Governor Calkins:
I a m
budget.
T h e r e i s c o n s i d e r a b l e di:Tference
in the situation o f the different banks. I
should s a y
that t h e o p e r a t i o n o f t h e F e d e r a l R e s e r v e B a n k o f N a w Y o r k
probably lends itself better t o the budget system o f
control
t h a n does a n y o f t h e other banks.
The Chairman: I
Governor
a 0
e e I
think that i s probably so.
do not think t h e situation
the w e s t e r n b a n k s l e n d s i t s e l f
s o readily.
I
o f
n the case
of o n e b r a n c h o f t h e S a n F r a n c i s c o B a n k t h e r e w o u l d b e a
wider f l u c t u a t i o n o f t h e v o l u m e o f t M s i n e s s h a n d l e d
count d s p a r t m e n 1
i n the
there w o u l d b e i n t h e F e d e r a l
Reserve B a n k o f N e w York i n the satie time, day, w e e k o r
month,
W e would rrequently handle more pieces o f paper
for rediscount i n one d a y than y o u would average i n perhaps a
week,
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Federal Reserve Bank of St. Louis
219 a
The Chairman:
aot
O l
e r p
T - d 6 mot. k n o w ebout:- that.
D u s s es e r o
Governor C a l k i n s ?
B a o
rifty, s e v e n t y - f i v e a n d a
W
e have
u p 7stawe.,
n o G-thimic aroun v o l u m e
or
hundred d o l l a r n o t e s c o m p a r e s
with t h a t orf s o m e o f t h e r e s t o f us.
The CGairman:
Governor t
N e .
alkins:
A s a matter o f fact, t h e Salt
Gity branch o f the S a n Francisco b a n k handles a
o f pieces
number
tems
o f paper t h a n a n y other p l a c e
T h a t situation seems
larger
i n the Sys-
t o m e t o inject considerable
some difriculty into t h e satisfactory operation
of a
budget system.
N o w , I
a m very reluctant
the negative s i d e o f anything,
t o be on
a s y o u m a y have noticed, b u t
it appears t o m e that what y o u might call a
unit budget
system would b e more applicable t o our operations t h a n
departmental budget system that could possible b e concoLved,
O n e o f the reasons f o r that i s i n our ofrice w e
shift employes f r o m o n e department t o another daily i f neceshave a n increase i n operations
i n one depart-~
a decrease i n another,
The C h a i r m a n s
T h a t
i s taken care
o f i n our account
svstem a n d t h e t i m e i s c h a r g e d u p j u s t t h e s a m e a g a i n s t
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Federal Reserve Bank of St. Louis
the department.
Governor Calkins:
to n
e
s t e p e k y e . the most difiriewis
r ou
of t h e b a n k p a r t i c u l a r l y
The Chairman:
i
t Fluctuation
i n t h e sctivity
i n t h e d i s c o u n t department.
T h e r e is~one thing y o u Nave c o t t o
consider i n considering a
budget, Governor C a l k i n s , a n d
that i s that a budget, outside o f the Government's budgct,
is generally applied t o the business o f a profit making
corporation,
profits.
w h e r e t h e result
o f budget c o n t r o l s h o w s
W e . cannot u s e p r o f i t s
as a
measure
in
o r success
em o f e c o n o m y i n t r o d u c e d w h e r e y o u h a v e g o t a
as i n a manufacturing plant, r o r instance, a n d
therefore t h e only basis o f measurement which t h e reserve
banks w o u l d h a v e w o u l d
the previous year, 4
time,
or a
comparison
Beservye-banik,
b e the comparison o f one year w i t h
comparison o r unit cost f r o m time t o
o f o n e reserve b a n k w i t h a m t h e r
O u r basis
o f comparison h a s developed
to
the p o i n t w h e r e w e a r e a b l e t o w a t c h t h e u n i t c o s t o f
handling checks, t h e number o f pisces o f money, a n d s o on,
and w e a r é a l s o a b l e t o c h e c k t h i s y e a r w i t h t h e l a s t t w o
or t h r e e years,
do n o t
U n d e r schedule £ , w h i c h w e regard a s a
very e f f e c t i v e b a s i s o f comparison,
w e are able t o get
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Federal Reserve Bank of St. Louis
Peed:
some c o m p a r i s
v
i
t h e operations
o f other r e s e r v e banks.
That h a s n o t h i n g t o d o w i t h a
budget,
though.
The Chairman:
O n l y t h e unit cost.
Governor Seay:
A n y system, ‘ir. Chairman,
be budgetary o r otherwise, w h i c h brings about a
scrutiny o f expenses b o t h b e f o r e a n d a f t e r t h e y a r e
incurrec,
i s o f c o u r s e o f value.
B u t t h e situation
i n the
larger banks i s quite different f r o m what i t i s
i n the smalier banks’,
I n our bank w e have a
ConEprod-,
system which might b e
{ I t involves t h e s u p e r v i s i o n
junior officials, d e p a r t m e n t heads,
of
a n d s e n i o r ofYricials
-nd i f i t s h o u l d c o m e t o a asatic 1
of c h o i c e b e t v e e n o u r
present method a n d a budget i t wouldn't talce
u s half a
moment
t o choose
i n fawr
o f our present method.
if a n y b o d y b e l i e v e s t h a t t h e
help u s ,
However,
O p e EraO n o F 2 a budget v o u l d
w e would b e very g l a d t o consider t h e
matter,
as t o t h e si'Pectiveness
wudget
but
i n our
have v e r y l i t t l e h o t e o f it.
Governor C a l k i n s :
I
s i t not more
o r less true that
while i n a comercial organization o r
any other private
organization
a
=
budget c a n b e a c o p t e d w h i c h i s m o r e o r l e s s
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Federal Reserve Bank of St. Louis
rigid,
that
i n a
to f l u c t u a t i o n
Federal
Reserve
t r e l y b e y o n d control, t h a t
must b e a tentative budget?
The Chairman:
Yee.
Governor C a l k i n s :
A n d t h e objection
to a
tentative
budget i s that i t has n o t the same moral force behind i t
that a
real o n e has.
The Chairman:
O h ,
m ; t h e experience
o f the budget
control o f expenditures o f all goverments, w h e r e t h e y
originated, i s that they have a deficiency bill. T h e r e
isntt a
budget i n the world whero t h e y d o not have a defi-
ciency b i l l .
Governor C l k i n s :
I
t i s not quite t h e same thing---
I t is providing for those things which
The Chairman:
camot b e forecast.
W e have adopted t h e budget system
in the governnent a n d cvery department i s being held
down t o t h e i t e m s
o f proposed expenditure---
a n d yet when
that i s d o n e w i t h t h e m o s t s c i e n t i f i c precision,
yet as
long a s a n y b o d y h a s t h e r i g h t t o m a k e a n approovriation
to s p e n d money,
o r authorize t h e exvenciture
o r money,
other t h a n that arbitrarily controlled b y the budget, t h e n
you have g o t t o have a deficiency bill.
T h a t i s just what
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Federal Reserve Bank of St. Louis
happens
Bibclas 2
s
¢ os r p eer a t ni o n
i
o f s a n yu k i kn d,
where
Dae Jb u t
you a r e abies
to measure,
banks, a b o u t
70 p e r c e n t o f y o u r tusiness,Thre business
ses
conducted c o n d u c t e d
a s we b e l i e v e y o u a r e
b y a b o u t 7 0 p e r c e n t o f y o u r employes,
you a r e a b l e t o m e a s u r e t h a t o n a
t
in t h e
unit basis,
y o u have
some
o y o u i n y o u r b u d g egt a n d i n determint
t guide t o a i d
whether y o u r b u d g e t i s e f f e c t i v e
o r not.
r C a l koi n s : nW h a tr y o u are
e
o
n o vw saying,
attempted t o s a y a few moments ago, a n d
i s what I
Strong,
Governor
G
that was that t h e unit budget system seemed t o b e applicable t o the operations o f the foderal Reserve banks rather
than t h e D e p a r t m e n t a l b u d g e t system.
The Chairman:
Every department i n our bank has b e e n
d u n d eer t h et b u d g eat
do n o t g e t r e s u l t s
g
n m e ei t
t o
system
r
f oer s o m p
e t i n eo n o w .
Ou
right away, b u t e v e r y d e p a r t m e n t
tvh e piu d g ert .
t
There
s
is n o m e s t i o n a b o u t
the efforts, a n d they a r s trying t o d o better t h a n t h e
budget.
Governor ‘vellborn:
I
n the Atlanta district 2
never s e e n t h e b u d g e t p l a n a p p l i e d a n d t h e r e f o r e I
w much about
o
it.
n
r b a n k ki s small;
u
have
do not
weO h a v e f o u r
branches a n d two agencies, a n d w e c a n keep u p with our
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Federal Reserve Bank of St. Louis
expenses s o close, a n d w e d o d o it, t h a t I
how a
budget w o u l d h e l p u s .
do not s e e
T h i s year w e have cut down
four officors, amounting t o about $70,000.
Governor iieKinney:
i f r . Chairman,
t o what extent
do
commercial b a n k s u s e t h e b u d g e t p l a n ?
The Chairman: I
cannot a n s w e r t h a t .
or them that have budget control.
T h e r e a r e some
M a r k you, t h e budget
Le Hot. werth atything unless i t i e t h e pestis o f actives
Control,
people
J u s t as a
guide f o r t h e information.
i n t h e bank, I
where a
man makes a
d o n o t believe
budget,
o f the
i t i s erfcctive;
s o m u c h f o r p a y rolls,
but
s o
much cxpenditure ror supplies, a n d s o “uch for this and
that a n d s o forth,
a n d those expenditures h a w a t o
b e ap-
proved r i g h t a l o n g a n d h e c a n n o t s p e n d m o n e y o v e r h i s
budget w i t h o u t c o m i n g a n d j u s t i f y i n g i t , t h o n y o u h a v e g o t
a grip
o n t h e situation.
¢
Governor Fancher:
in C l e v e l a n d
‘ “ * 6 installed t h e budget system
o n t h e f i r s t o f July.
j
i ee P E S
a e e e
too early t o determine results, b u t I think i t i s having
a splLendid.
e i rect.
“ h a t y o u s a y about e a c h department
head, Mr-e Chairman,
i s true.
within t h e budget.
I
T h e y are very keen t o work
n fact, a l l o f them a r e well within
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Federal Reserve Bank of St. Louis
the budget, a p p a r e n t l y ,
a n d w e sare m a k i n g q u i t e a
savi
ALL expenses a r e v e r y carefully revicwed, everything i s
being w a t c h e d v e r y carefully,
and I
think i t i s having a
splentid-erirect,
Governor iicDougals:
Chivaco
2 a dmesor t h e veserve
banks operating under this system,
U n d e r t h e methods fol-
lowed, t h e officials i n their statements a r e furnishing
statements
o f expenses f o r t h e d e p a r t m e n t f o r t h e p a s t t w o
years, a n d using that a s the basis o f estimates w h i c h a r e
prepared f o r e a c h d e p a r t m e n t
a s relating todirect expenses,
such a s salaries, stationery supplies, a n d s o forth i n
departments w h i c h h a v e o p e r a t i o n s w h i c h c a n b e m e a s u r e d
through a n t i c i p a t e d v o l u m e
o f work, u p o n w h i c h t h e e x p e n s e
a r e prepared
b y the
managers a n d submitted t o the procedure committee.
T h i s
requirements
a r c based.
committee r e v i e w s
T h e budgets
a l l budgets
a n d submits
managing c o m m i t t e e f o r adoption.
mental e x p e n s e roports,
T
the same
t o the
n our monthiv depart-
w h i c h o f course a r e s u b m i t t e d t o
our tanaging conmittee i s indicated t h e standing o f each
comnittee
i n respect
t o i t s budget,
and in this w
lent control i s secured over a l l expenditures,
T h e resuits
being attained this year a r e v e r y gratifying a n d w e think
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Federal Reserve Bank of St. Louis
26
they a r e l a r g e l y
due
t o t h e adoption
o f the budget system.
Our expense account f o r t h e first t e n months o f this year
is very materially less t h a n i t was over t h e same period o f
last year, a n d w e attribute t h a t largely t o the operation
of t h i s b u d g e t p l a n .
Governor Young?
W e have n o t adopted t h e kudget.
[ I
have tried t o figure o u t i n m y own mind just h o w w e could
acopt it.
I t i s impossible,
lish any e s
i n the first place, to. eatab-=
f o r our closed bank department.
T h e
closed b a n k department n o w i s costing u s i n the neighborhood o f {150,000 a
year.
S i x months f r o m n o w i t may b e
Operéting st-a-cost o f $25,000 o r ya0,000 a year, o r 10
may b e o p e r a t i n g a t a cost o f w200,000 a
ties o f that D e p a r t m e n t h a v e o u i t e a
of o t h e r d e p a r t m e n t s
o f t h e bank.
year.
bearing
T h e activi-
o n a number
F o r instance,
activi-
ties i n the closed b a n k department h a v e effect o n the
central s t e n o g r a p h i c d e p a r t m e n t ,
a n d s o o n d o w n t h e lire.
But i f N e w York, C l e v e l a n d a n d C h i c a g o h a v e p u t t h i s i n
and i t h a s a p p a r e n t l y b e e n successful, I
up m y m i n d t o t r y t o w o r k o u t s o m e t h i n g
had about m a d e
i n the way o f the
budget idea.
The Chairman;
T - think t h e r e i a a
little. m i s u n d e r —
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Federal Reserve Bank of St. Louis
fet
standing about t h e making u p o f a budget,
concerned,
a t leas
net controlable,
s o far a s w e are
T h e r e a r e certain expenses w h i c h a r e
f o r instance,
the
c
o
s
t o f currency
the Federal Reserve Board, a n d items o f like
character.
N o budget i s perfectly automatic.
reduce t h e a s s e s s m e n t s
systemo
f economy.
Y o u cannot
o f t h e Federal Reserve
Y e u just pay it.
i k e t h e t r a n s i t d e p a r t m e n t a n d o t h e r departments,
where y o u h a v e g o t t o o p e r a t e t h e m ,
tire
i s nce m e s t i o n
of policy there a s t o charges t h a t c a n b e made t o increase
your i n c o m e o r . r e d u c e e x p e n s e s ,
Pable
o f analysis
a s t o volume
t h e work
i s more
a n d unit cost.
T
o r less
c a
t seems
to m e t h a t i n those c a s e s t h e b u d g e t i s p e c u l i a r l y a p p l i c -
abie, a n d i t i s i n these departments t h a t i t works s o well
with us.
N o w , expenses t h a t areaquite beyond the control
or the bank have g o t t o b e treated a s beyond t h e control
of t h e bank,
U n d e r t h e United States Government budget
they h a v e c o n t i n u i n g a p p r o p r i a t i o n s t h a t a r e m a t t e r
There isn't a n y particular w a y t o deal with them:
o f law.
they
just g o i n every year; f o r instance, interest o n the
debt
public a n d items o f that character, j u s t continue f r o m year
to year.
T h e appropriation u n d e r t h e Rogers Bill,
as I
>
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Federal Reserve Bank of St. Louis
understand it, i s a continuing aporopriation.
not think that t h e fluctuations
i n uncontrollable expense,
like failed banks, i s a matter that should interfere w i t h
the waking o f a budget.
Governor Calkins:
cient o p p o r t u n i t y
‘ : 6 @ probably h a v e n o t h a d sufli-
t o study t h e budget s y s t e m a s applied t o
Pederal reserve banks, I
should s a y that i n our case,
and probably i n the case o f several other reserve banks,
have a
we
budget system, o n l y w e d o not call i t b y that name.
I d o n o t t h i n k there i s a n y v e r y material difference,
but
I was wondering whether the Federal Reserve Bank o f New
York would b e willing t o furnish u s with all i t s collected
information with regard t o the operation o f the budget
system?
The Chairman: I
I had ouite a
want t o say o n that subject t h a t
discussion w i t h t h e F e d e r a l R e s e r v e B o a r d
regarding this matter, covering t h e whole program, a n d I
urged u p o n t h e B o a r d t h a t t h i s w a s n o t t h e tire, f o r v a r jous r e a s o n s t h a t I
d o n o t n e e d t a recount,
continue a n y v o l u n t a r y services,
charges.
t o either d i s -
o r t o atteupt
t p impose
“ h i l e t h e Board has taken n o formal action,
they said t o m e a t that time that t h e y agreed with m e en-
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Federal Reserve Bank of St. Louis
229
Our p o l i c y “and 2mpoese
services,
tinue them,
O F attempt
t o discton+
2 b s h o u l d n o t b e t a k e n U p untill esiter b a n k
earnings generally were greater t h a n they a r e now, a n d i n
this: very low. interest market,
v h e n conditions w e r e
such t h a t i t v o u l d b e w i s e t o e f f e c t a
change o f policy,
fit t h e s u b j e c t c o u l d b e t a k e n u p a n d studied. 1
<o ROG
think the. B o a r d e x p e c t s a n y r e v i e w o f v o l u n t a r y s e r v i c e s
to l a y a foundation f o r a change o r policy.
anxious,
however,
t o have a
trial
T h s Board i s
o f the budget
pian
i n
as many o f the reserve banks a s are willing t o give i t a
trial, b e c a u s e t h e e x p e r i e n c e
o f those w h o h a v e t r i e d i t
has b e e n such that t h e y a r e unanimously i n favor o f i t
and recommend it.
Governor Calkins:
ject right here, I
I
f you will vérmit
would like t o s a y that w i t h the ex-
ception o f t h e N e w Y o r k b a n k t h e e x p e r i e n c e
banks
m e t o inter-
i s not sufficient
o f the other
t o justify a n y v e r y definite con-
clusion, because Chicago a n d Cleveland have just begun.
The Chairman:
T h e y have h a d t w o years i n Chicago.
Governor iigDougal:
The Chairman:
J u s t o n e year i n Micago.
T h i s i s the second year, i s n ' t 1 t ?
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Federal Reserve Bank of St. Louis
250
Governor 4eaDougals
N o . . Dhis tere
t
h
e o n l y year
we h a v e t e s t e d i t o u t .
The Chairman: i 6 é , 1 . , b h o rosuit o f our discussion w a g
that I
agreed t o s u b m i t t h i s p r o p o s a l
t o t h e meeting,
that
the Board would assign wr. S»ead, a n d t h e Federal Reserve
Bank o f N e w Y o r k w o u l d l o a n ip. Younds,
t o t h e e x t e n t nedd-
60 t o p r e p a r e d a t a o n t h e m a t t e r a n d t o g i v e a d v i c e a n d
assistance, a n d that added t o them should b e a representative o f o n e o f t h e r e s e r v e b a n k s w h i c h m i g h t h a v e h a d e x perience a l o n g t h i s l i n e ,
would a c t a s a
committee
t h e idea b e i n g t h a t t h e s e
c
e
e
reserve b a n k s a n d t r y t o w o r k o u t a
ind. hezprul,
W
a
e r e c t yy y e
p r o g r a m t h a t would
b e
e =~ ind t e a t i e . K o u n d s <and-Ma,
Smead a r e i n complete agreement a s t o t h e whole program o f
economy a n d eifriciency, intciuding t h e b u d g p r o g r a m ,
They d o not believe that a
system review o r aralysis b y a
eounittee o r anvthing o f that sort will b e productive o f
results.
h
e
l eneral
it f r o m t a l k i n g w i t h R o u n d
g is; as =
gather
a n d w i t h t h e Board, t h a t
they t h i n k t h e r e s p o n s i b i l i t y
rests u p o n t h e directors
i
f o r control
o f expenses
o f t h e different r e s e r v e banks,
that t h e i n r o r m a t i o n s h o u l d
b e developed
b y unified proce-
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Federal Reserve Bank of St. Louis
jure a s tfuch a
s i e b e
of t h e preserve b : s
neces
p
o
s
S C
might
1 6 -OPPeepors. a n d
e v e r y scrap
s L C , UO” £ 4 ¥6..b WOM =. n b a a y Cie m a k e c o m p a r i -
order t h a t e c o n o m i e s m a y b e e r i e
attermpt a
the whole subject i n a
departments o f the
B
u
t that
thoroughgoing e x a m i n a t i o n
big way; t h a t there a r e certain
b a n k s whic!
y
w great variation
in unit c o s t o f conduct n g operations.
i think they would undertake t o
see whether t h e system o f accounting i s differ:
whether
i t w a s l a c k o f economy,
a n d then point o u t t h e
difficulties t h a t ought t o b e remedied.
Governor C a l k i n s :
T h e r e w a s o n e i t e m that h a s recent-
ly been discussed t h a t i s quite inrorming a n d which brings
out t h e f a c t t h a t a
mich better analysis t h a n w a s m a d e i n
that case will b e necessary t o determine whether
too m u c h e x p e n d i t u r e
i n o n e c a s e a n d n o t e n o u g h i n anether,
and that i s t h e case 0 1 c o s r
Aakeeab h e s wear LT roMm-jisle
top, i : think,
+
to
a n d Keneas City, perhaps,
rest o f u s a l o n g i n b e t w e e n somewhere,
y
absurd situation,
l
:
ered s p o r t s , which r u n
r t does n o t cost
a b the: bottom,
T h a t is a
th
'Sl
tT
tie
perrect-
i n one case a n d
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Federal Reserve Bank of St. Louis
37 i n another case t o do t h e same work, N o w , I would like
to offer a
resolution t h a t a committee, consisting o f
‘ip. Rounds, i r . S m e a d a n d a
Federal R e s e r v e B a n k ,
representative
o f some other
b e s e t u p f o r t h e purpose
ing t h e o t h e r F e d e r a l R e s e r v e banits d e s i r o u s
o f furnish-
o f considering
the matter a l l t h e available information that they have
SpentGd a s a
result
o r their cxperience
i n operating b u d g e t
systems.
Governor Norris:
T w i t
Governor Bailey:
w h e n such a meeting i s held, I
a man that I
The Chairman:
e e c o n d that:
would l i k e
T h a t i s just a matter o f arrangement
to b e m a d e w i t h a n y o f t h e b a n k s .
Mr. R o u n d s a n d Hr,
a
i
i
n
k
i f you wrote
d y o u would Jike t o have
them come o u t there a n d tackle t h e j o b o n the ground, t h a t
at the very first opportunity t h e y would come o u t a n d d o
it, a n d I think i t would b e very helpful.
Governor Calkins:. I
would b e very “uch disposed t o
invite t h e m ,
Governor Seay: I
would like t o say that w e have al-
ready pt a k e n s t e p s t o a d o p t g b u d g e t& c o n t r o l , n o t w i t h s t a n d i n g J
what I
have stated.
W
e wore influenced
i n that because
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Federal Reserve Bank of St. Louis
there a r e those w h o belié' ,
wad e
a n advantage,
we were loath n o t t 6 adepy anything. that m
in c o n t r o l l i n g t h e e x p e n s e s
certain e x p e n s e s
o f o u r banks,
of 1
b
a
controlable a n d o t h e r s w h i c h a r e not.
n
i
T h e Chai
k
s which are
n the report e f
the Economy a n d Efficiency Committee there i s a comparison
between t w o y e a r s f o r t h e R i c h m o n d
ement m a d e a s t o ~ h e t h e r t h e i n c r e a s e
or noncontrolabie.
T h e Richmond b a n k
That i n c r e a s e
nthe o O s t o f F e d e r e l R e s e r v e cum’ ency,
an additional suppiy under orders o f the Board.
The C h a i r m a n :
T
T vows Had. 2
tadee
y s t e m t h a t would
be e x p o s e d a t once,
Governor Seay:a
point
i t i s exposed a l l right, b u t m y
t h a t t h e report s h o u l d s h o w t h e 4
tween controllable a n d n o n - c o n t r o
Governor Baiisy:
us 3 2 2 , 0 0 0 m o r e t h i s y e a r t h a n i +
GOVeErnor Seay:
\ric
The Chairman:
I
gentlewen,
S
s C O S t U s 2 5 5 , 0 0 0 more.
g t h e r e i s n o f u r t h e r discussion,
w e will p u t this matter t e a vote.
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Federal Reserve Bank of St. Louis
254
(The motion, h a v i n g b e e n d u l y seconded,
The Chairman:
get.
Thatcodispeses
w a s carried,)
o f t h e matter
o r the b u d
T h e auestion o f voluntary services i s disposed of,
as I understand it, a n d m w I
think i t might b e desirable
clency Committee o f the Federal Reserve Board has a n y
specific s u g g e s t i o n
t o make
t o t h e various Federal reserve
banks a s t o a n y specific expenses i n those banks which i t
believes s h o u l d b e r e v i e w e d a n d d e a l t w i t h e i t h e r b y t h e
individual b a n k o r w i t h t h e a s s i s t a n c e
Governor Bailey:
D
o f t h i s committee.
o you mean that a s a
request f r o m
this c o n t e r e n c e ?
The Chairman: .
and e c o n o m y c o m m i t t e e
Governor Calkins:
From t h i s c o n f e r e n c e
t o the efficiency
o f t h e Board.
i
o Wil) “second t h a s motLlon,
(The motion, n a v i n g been d u l y seconded, w a s unani-
mously carried.)
Governor Young:
A s I
understand it, t h e main Pearson
for n o t g i v i n g c o n s i d e r a t i o n t o t h i s s e r v i c e p r o p o s i t i o n
at t h i s t i m e i s b e c a u s e G o v e r n o r H a r d i n g e x p r e s s w s t h e f e a r
that h e might lose some member banks through discontinuing
these g r a t u i t o u s s e r v i c e s ?
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Federal Reserve Bank of St. Louis
2355
The Chairman:
T h a t T s o n e o d j6¢tion:
Governor Young:
WMinneapolis.
independent
to 1,
I . do not think that would apply i n
H o w serious would i t b e i f Minneapolis,
o f t h e o t h e r banks, s h o u l d m a k e charges:
should w e a c t t o g e t h e r
The Chairman:
I
o r
i n this?
f one bank gives t h e free service,
then t h e o t h e r s a r e u s u a l l y d r a g g e d i n t o d o i n g i t too.
Governor Fancher:
some f i g u r e s
M r . Chairman,
[ I would l i k e t o g i v e
a s t o t h e c o s t o f these services. i
comparisons h e r e f o r t h e f i r s t t h r e e q u a r t e r s
eompared w i t h t h e f i r s t t h r e e q u a r v e r s
have s o m e
o f 1924 a s
o f 192s.
T h e non-
cash collections handied i n 1925 amounted t o 4,205,000
items, exclusive o f government coupons, f o r t h e system, a n d
in 1 9 2 4 i t w a s 4 , 5 1 0 , 0 0 0 items,
Liters,
a n increase
o f 305,000
T h e cost o f handling t h e non-cash collection
in the first three quarters o f 1923 was $757,000, a n d
the first three ouarters o f 1924 $682,000,
o r 305,000
additional items handled a t a n décreased cost o f $55,000.
Governor c o u p o n c o s t d e c r e a s e d $23,000, c o m p a r i n g t h e f i b s t
three q u a r t e r s
o f 1924 with t h e first three quarters
o f
Oa O's H a n d l i n g c u r r e n c y a n d c o i n f o r t h e f i r s t t h r e e
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Federal Reserve Bank of St. Louis
ZOO
for t h e first three ousrters o f 1923 w e spent $1,802,000
-nd f o r t h e c o r r e s p o n d i n g p e r i o d f o r 1 9 2 4 $1,834,000,
a n
increase o f $32,000, w h i c h was n o t controlable.
Shipping c h a r g e s
o n currency a n d coin f r o m rember
banks a n d f r o m non-members,
r o r 1925, $ 9 8 4 , 0 0 0 a n d 1924,
~1,049,000, a n increase o f $61,000, S h i p p i n g charges o n
currency a n d c o i n f r o m m e m b e r a n d n o n - m e m b e r b a n k s
is a
comparison o f t h e f i r s t t h r e e q u a r t e r s
the f i r s t t h r e e o u a r t e r s
Governor Young:
That
o f 1924 w i t h
o f 1923,
“ h a t was t h e total cost f o r 1924
of non-cash collections?
Governor Fancher: $682,090 for 1924 and $737,000 for
xclusive o f government coupons.
T h e figures I
for t h e system.
Governor Young:
Minneapolis
24
i s handling more non_
4
cash c o l l e c t i o n i t e m s t h a n a n y o t h e r F e d e r a l r e s e r v e b a n k ,
WetbheOne= execenLuLon,
Governor ‘Vellborn:
“ W h a t was y o u r c o s t o n nonecash
collection items during last y
Governor Young: $ 5 5 , 0 0 0 last year.
“ e are handling
more i t e m s t h a n a n y o t h e r F e d e r a l r e s e r v e bank, w i t h o n e
EXCEPTION.
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Federal Reserve Bank of St. Louis
Zor
overnor Bailey:
Y o u have a
Governor Young:
w
good many grain drafts?
e handle a
great number o f
them.
The. Chainman’
T h e m o t i o n b e r o r e t h e house, h a v i n g
to d e with Topic 6«(a),
that n o changes
member b a n k s
i s thet m M charges p e made. a n d
b e made i n the voluntary services f o r
a t t h e present time.
Governor. Breas: i
wal Second h a u ,
(The motion, being duly seconded, w a s carried,
Governors Bailey a n d ‘ellborn w t i n g no.)
The C h a i r m a n s
Francisco,
w h i c h was p u t o n the program
serve Board, Topic 4-(c)-2.
4-{c)-2, S h o u l d Federal Reserve Banks effect
teleprep hic t r a n s r e r s o v e r c o m n e r Cia W i r e s r o r m o i s b a n k s w h i c h
charge t h e i r c u s t o m e r s
a n d impose
for t h i s s e r v i c e a n a m o u n t i n excess
Of t h e a c t u a l c o s t - o l velergrams:
d o y o u w i s h t o m a k e o f t h i s topic,
Wat d i s p o s i t i o n
Governor C a l k i n s ?
Governor Young:
m p , Chairman, t h a t i s a matter
which r e s t s e n t i r e l y b e t w e e n t h e m e m b e r b a n k a n d i t s c u s tomer a n d i s n o t s o m e t h i n g t h a t w e h a v e a n y t h i n g t o d o with.
Governor C a l k i n s :
I
t 1s a
matter
t h a t this confsr-
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Federal Reserve Bank of St. Louis
and a l w a y s h a s h a d s e m e -
put u p t h e argument f o r
for b a n k s t o c h a r g e e x -
change f o r operations conducted through the
serve banks, a n d w e have eliminated
fers t h e transfers o n which a member b a n k could collect
exchange, except this one, a n d w e w a n
applicable t o all banks, t h a t n o transfer shail b e
handled b y a Federal reserve bank when the member banks
make a n exchange charge f o r it.
Governor McDougal: i
o
w are y o u going t o keep
tab o n your member banks?
Governor
1
a l k
e w i l l k e e p t a b o n them.
S h o u l d
Governor M c D o u g a
not the same thing apoly
to c o l l e c t i o n
Governor Calkin.
C e r t a i n i y noc,
Governor McKinney: Couhdn't i t alse appiy to rediscounts?
Governor U a !
r
e 4
a
n
d I d o not’ know
what y o u mean b y that.
Governor Herding: D
eur province.
s
going out o f
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Federal Reserve Bank of St. Louis
Governor C a l k i n s
a i i c b e s oVo\e
going t o r e v e r s e y o u r
NeW
Governor Harding: ( A f t e r Surether discussion) I
it i s t h e s e n s e
o f this conference
that this
i s a
move
matter
that s h o u l d b e l e f t t o e a c h i n d i v i d u a l F e d e r a l r e s e r v e
bank,
Governor Norris: I
second that.
(The motion, h a v i n g b e e n d u l y seconded,
The Chairman:
which i s a
w a s carried.)
L e t u s n o w t a k e u p T o p i c 4-(f),
topic t h e B o a r d h a s a s k e d u s t o discuss.
4-(f). Observance o f holidays by
Federal Reserv
Governor Calkins:
Y o u have overlooked 4-(d), h a v e
you n o t ?
a m just folloving
Chairman: [
th
program, now, Governor Calkins.
I ¢ é n -only e x p r e s s
legal o p i n i o n s
view
o n this;
i n t h e b a n k o n it, b u t I
to r e p e a t t h e m , I
objections
my-own
think t h e r e a r e a
e
o e
some
would n o t a t t e n p t
great m a n y s e r i o u s
t o t h i s p a r t i c u l a r r u l i n g o f t h e Board.
‘ i t h
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Federal Reserve Bank of St. Louis
240
regard t o settlements through t h e Gold Settlement F u n d ,
if t h e b a n k s
i n one district a r e n o t doing business a n d
the daily balances
a w transfers d o not occur, o n e bank
which p a y s a n d d o e s n o t g e
Pibly-sucden decline i n
exptain.
T h e r e
is
p
t
a
y
m
h
e
a
n
t
t m a y g e t ter-
1 4 -would haye-¢
o t h e r objection which
is a
very
in New York, a n d that i s that “ h e n there i s
egal h o l i d a y y o u d o n o t g e t p o l i c y p r o t e c t i o n a n d i f
you o p e n u p .your v a u l t y o u h a v e a
because
all
feeling S i n s e c u r i t y
o f y o u r o r g &a n i z a t i o n
Governor Seay: " e - f e l t : i f in B a r t i m o r e v e r y recently,
quite s e r i o u s l y .
The Chairman:
+
O t h e r t h a n that, i f the bank i s open,
it means i n our case that w e may g e t four o r five hundred
OL CUueEsicy,.
secur
without t h e o r g a n i z a t i o n p r e s e n t
to afford them the usual protection, a n d w e are not willing t o d o P o n s D e c a e fblic
greater t h a n the loss which would occur under a
technicality v i t h r e g a r d t o f a i l u r e
item o r the carrying out o f a
strict
o f presentation o f a n
a ni
do not think
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Federal Reserve Bank of St. Louis
241
there i s a n y c u e s t i o n b u t w h a t t h e r i s k i s m u c h g r e a t e r
in keeping o p e n i n N e w Y o r k o n a holiday,
f o r t h e benerit o f
eight banks i n Connecticut a n d the other districts, t h a n
Ss
there w o u l d
b e i f v e closed.
Ayother thing, o u r counscl agrees t h a t where i t i s
a legal holiday i n New York, that no legal suestion can
44
transfer o r transaction which vould give u s
arise about a
liability,
t h a t w e a r e protected
b y law.
i s e d lar k e
t o have i n
further c o n s i d e r a t i o n t h a t * I t h i n k w e h a v e g o t
mind, a n d that i s that sometimes w e assume more liability
course o f t h i s k i n d t h a n w e d o b y f o l l o w i n g
by p u r s u i n g a
what 1 s the well settled practice.
to s a y so, I
sentations
I f you will permit m e
believe t h a t e v e r y legal q u e s t i o n a s t o p r e s o o n w h i c h m a y arises w i t h a
and
Federal
reserve
bank would arise with a n y ordinary national b a n k o r any
member b a n k f o r n o t keeping o p e n a n d using diligence a n d
so on, a n d I cannot
f
o
r
c
e o f this opinion o f the
Board's c o u n s e l ,
=
Governor Harding:
“ W i t h regard t o t h e N e w k n g l a n d
district, t h e legal holidays a r e uniform there, except i n
the case o f the State o f waine., R h o d e Island, I
has s o m e h o l i d a y s t h a t o t h e r s t a t e s
think,
d o n o t have, Dit: D o L a =
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Federal Reserve Bank of St. Louis
242
days i n Masszchusetts a r e also holidays i n all t h e other
states except tlaine,.
T h e Boston banks close o n a legal
holiday a n d w e c o u l d n o t c o l l e c t a n y t h i n g t h a t ¢ a m e i n t o
us payable a t a Boston bank,
A n y checks t h a t w e would
have payable i n the State o f “aine would have t e e n forwarded there t h e d a y t e fore t h e holiday, a n d they would b e duly
collected,
o r protested,
a s the sase might be, i n Maine,
because those banks a r e n o t closed,
T h e n w e could o r
make a n y s h i p m e n t s t h r o u g h t h e P o s t Office,
e v e n I f w e kept
our vaults open, because t h e Post Office observes t h e legai holidays,
t h a t i s , t h e Rolidays l e g a l
i n t h e state.
The Board gave u s some option i n the letter,
i n which they
said that wemlght clase d o w n certain departments a n d s o
and: reduce t h e force,
U n d e r a
specific r e s o l u t i o n
Board o f Directors, w h i c h I feel should b e obeyed,
as running t h e b a n k i s concerned, r a t h e r t h a n t h e
instructions
o f t h e Board, t h e y i n s t r u c t e d
vaults closed o n legal holidays.
m e t o keep t h e
" W e notified t h e banks
of the State o f tlaine that w e were going t o close o n Monday,
the 1 3 t h d a y o f October, a n d i f they desired t o have a n y
currency t o u s e o n M o n d a y a n d T u e s d a y t o l e t u s h a v e t h e i r
orders n o t l a t e r t h a n t w e l v e o ' c l o c k
o n Saturday.
W
e con-
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Federal Reserve Bank of St. Louis
245
ducted t h e gold settlement clearings i n a one-handed manHer,
a s wevere-1oreed
we w e r e n o t a s k e d
d o , b u t w e m a d e n o shipments;
t o make
a n y shipments,
a n d i t s o happen-
ed t h a t w e c o u l d n o t h a v e m a d e a n y shipments, b e c a u s e t h e
Poet Office: w a e closes,
The C h a i r m a n s
O u r feeling i s that t h e Federal R e -
serve B a n k o f N e w Y o r k i s completely p r o t e c t e d f o r a n y
lack o f d i l i g e n c e t h a t m a y b e p r e s u m e d
t o h a v e occurred,
for n o t presenting items o n a legal holiday i n the state,
because t h e l a w g i v e s u s t h a t protection.
Governor Harding:
v
y:
make presenta-~
e d etuleda o
tions anywhere except H a i n e , a n d t h o s e m s w e r e presented.
The Chairman:
N e w ,
a s t o those items which would
have b e e n presented i n Fairfield County, Connecticut o n e
day earlier,
h a d w e k e p t o p e n t h e Federal reserve
T réalize t h a t i n order
r i f e vrescntation
i n
County, C o n n e c t i c u t o n e d a y e a r l i e r w e w o u l d h a v e
practically
t o k e e p t h e whol
a n k or
had t o open the mail t o see what was :
e w o u l d have
v
2
Tete:
a day's delay i n presenting items i n Fairfield County,
Connecticut, b e c a u s e w e d r o p o n e d a y ' s b u s i n e s s .
te
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Federal Reserve Bank of St. Louis
2.4
Governor Seay:
B u t y o u are protected b y the l a w o f
New York,
The Chairman:
I
t seems >
me w e a r e p r o t e c t e d u n d e r
the law, n o t w i t h s t a n d i n g t h e f a c t t h a t e l e c t i o n d a y i s
not observed a s a legal holiday i n the State o f Connecticut,
as.1 Understand. 4 I
do not s e e where a n y liability c a n
possibly arise,
Governor *-6l] barns
cases w h e r e i t i s n o t a
A r e w e protected
legal h o l i d a y
b y law,
i n
i n other states, b e -
eause 1 t i s a legal holiday i n the state where: t h e bank
is located?
The Chaieman:
Y e s , I
think s o . I
d o not believe
there i s a case i n the whole history o f banking i n this
country w h e r e
a n y difficulty
h a s arisen because
o f the
situation,
Wp. Harrisons
Y o u a r e allowed twenty-rour o u r s
delay i n a n y event,
you a r e p r o t e c t e d
a n d i f you have a
i n t w o ways,
first
legal h o l i d a y t h e n
t h e twenty-four
hours
delay, e v e n i f i t were n o t a legal holiday, a n d secondly,
if there i s a n actual legal holiday you are protected o n
account,
Governor Harding:
W h a t i s the practice o f banks
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Federal Reserve Bank of St. Louis
245
where t h e y have branchos i n other cities?
suppose
i t is a
legal h o l i d a y
and? R O t e i n Washington.
because i t w a s ¢
F o r instance,
i n t h e State o f California
w o u l d t h e washington b r a n c h close
g a l h o l i d a y i n California
o r keep open?
Governor Calkins
I
The Chairman: I
have suggested t o one o f the members
of t h e B o a r d t h a t i t seems
t would keep open,
t o m e t h e reasonable w a y t o deal
with t h e a u e s t i o n o f holidays w a s t o h a v e t h e regulations
of t h e B o a r d r e q u i r e e v e r y r e s e r v e
b a n k t
o give notice t o
the F e d e r a l r e s e r v e B o a r d o f a n y h o l i d a y s
i n its district,
say a week i n advance, a n d that would give t h e Board a n
opportunity
t o m t i f y e v e r y o t h e r r e s e r v e bani: t h a t a s t o
certain r e s e r v e b a n k o r b r a n c h i t w o u l d b e c l o s e d o n t h a t
day a n d w o u l d n o t p a r t i c i p a t e e i t h e r w a y i n t h e clearings.
Governor NeKinney:
H a s n ' t t h a t practice b e e n pretty
observed h e r e t o r o r e ?
The Ghairman:
fect o f that,
I t was before this ruling.
a s t o m i n t a i n i n g balances
is t o l e a v e t o t h e c o u n s e l
i n
o f every reserve
it a s t o i t s l e g a l p o s i t i o n a s t o helidays.
Governor Harding: I
will offer a
motion that t h e
Federal R e s e r v e B o a r d b e r e s p e c t f u l l y r e a u e s t e d
b y this
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Federal Reserve Bank of St. Louis
246
Conference t o reconsider i t s ruling i n the matter
of
holidays, w i t h t h e hope expressed b y the Conference t h a t
they will revise t h e ruling;
Governor Seay: I
Governor Norris:
will second that motion.
w o u l d i t not b e well t o incorpor-
ate i n that motion t h e suggestion that t h e Board's counsel
conrer w i t h counsel f o r t h e Federal reserve banks?
Governor Seay:
A n d might w e n o t express t h e convic-
tion t h a t t h e r i s k s o f k e e p i n g o p e n a r e i n f i n i t e l y g r e a t e r
than t h e risks incurred b y closing under protection o f
law.
Governor Harding:
I f currency t r n s a c t i o n s a r e con-
dueted through t h e post office, t h e n w e couldn't m a k e
or
receive s h i p m e n t s
o n a
Governor MeDougal:
legal holiday.
T h e r e i s one respect i n which
these reserve banks a p e in-a Very different position’ fpon
the commercial banks.
w e are obligated t o take care o f
the c u r r e n c y r e q u i r e m e n t s
e:tent I
a n d t o that
believe t h e ruling o f the Board i s worthy o f con-
sideration,
sensible.
4
o f o u r mermper banks,
a n d as a
matter
o f fa
w e thought
i t was pretty
i f the banks i n the S t a t e o f Iowa a r e open
and we are closed, and they
1 l d need currency, w e feel
shat w e s h o u l d g e t i t o u t t o them,
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Federal Reserve Bank of St. Louis
2A7
Governor Harding:
Send i t b y express?
H o w v o u l d y o u g e t i t t o them?
Y o u couldn't s e n d i t b y registered
mail.
Governor i f e D o u g a l :
G e t
i t out
t o them
i n a n y way--
send a man along w i t h i t i f w e h a d to.
Governor Harding:
D i d y o u s e n d any?
Governor M c D o u g a l s
O
h ater «yeas
Governor Harding:
O n a holiday?
Governor hicDougal:
Yes.
had o f this character,
O n the first o n e w e executéd 1 9
requests f o r t r a n s f e r s
on t h e s e c o n d
O n the two holidays w e have
a n d m a d e 2 2 c u r r e n c y shipments;
o n e 1 7 requests
f o r transfers
a n d 1 9 cur-
rency shipments.
Governor Seay:
H a d y o u a n y treason t o belteve: t h a t
that c o u l d r o t h a v e b e e n m e t o r p r o v i d e d f o r i n advance?
Governor iieDougals
cases s u c h a s I
referred
Governor B i g g s :
I
N e t . at. a d ,
T h o s e were n o t
t o a s being possible omergencies.
f you h a d pursued
that y o u h a d pursued prior t o t
simply sent t h e member banks a
t h e same course
r u l i n g , y o u vould have
notice t h a t y o u would b e
4
closed, a n d i f theyJ wanted currency t o get i t the day beLORS,
W
e d i d that a n d h a d n o trouble
a t all.
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Federal Reserve Bank of St. Louis
248
Governor Calkins:
Weare.
Governor iieDougal: I
s u v
G 6 hue. t,
think G o v e r n o r Biggs! s t a t e m e n t
is worthy o f consideration.
I t i s a fact that w e had
operated f o r n i n e o r t o n years b e f o r e t h e r u l i n g w e n t i n t o
effect a n d I
d o not recall a
case w h e r e d i f f i c u l t y o r d i s -
aster came f r o m not being o p e n t o make currency shipments.
Governor Calkins:
W
e notified o u r member banks
in
San F r a n c i s c o a n d L o s A n g e l e s t h a t w e w o u l d b e c l o s e d o n a
legal holiday i n the State o f California, a n d w e h a d n o ocCas20n -for-comp loint:.
Governor Seay:
a complaint o n 1
D o e s anyone k n o w whether t h e r e w a s
p a r t o f the public o r the banks o f the
country?
The Chairman: I
d o n o t k n o w h o w t h e c u e s t i o n arose.
Governor Fancher: I
was going t o a s k i f vou knew
what b r o u g h t t h i s a b o u t .
‘tr, Harrison: I
was t o l d i t w a s b e c a u s e
o f the fact
that some Federal reserve banks forgot t o advise t h a t t h e y
were going t o close o n certain holidays, a n d credits t o
the g o l d s e t t l e m e n t f u n d w e r e s e n t t h r o u g h a n d c a u s e d c o n -
fusion here a t W a s h i n g t o n .
The Chairman;
T h e only point i n the Board's ruling,
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Federal Reserve Bank of St. Louis
249
which really w a s i n the nature o f a direction h a d t o d o
with the conduct o f the gold settlement fund.
no other directions i n the Board's letter,
Governor S e a y :
T h e point
T h e r e were
a s I recall it.
i n this c a s e s e e m i n g l y i s
that t h e e x p l i c i t d i r e c t i o n o f t h e B o a r d t h a t t h e F e d e r a l
reserve b a n k s a n d b r a n c h e s s h o u l d p a r t i c i p a t e
Settlement
r u n d w a s n o t rerarded:
I
i n the Gold
n our state I
guess
there w e r e t e n o f t h e m t h a t d i d n o t pay.
Governor Biggs:
I t may b e interesting t o you t o
know that o n Columbus Day, October 13th, w e received miscellaneous c r e d i t s
f r o m several reserve banks located
states w h e r e t h e r e w a r a
i n
holiday a n d m o s t o r t h e m d i d n o t
settle that d a y for checks o n which they were unable t o effect collection, w i t h t h e result t h a t w e carried a
in excess
o f $6,000,000,
float
d u e t o t h e fact t h a t w e credited
our member banks a n d the items t w cane available o n that
day, b u t t h e reserve banks t o whom w e sent t h e items d i d
not credit u s $ 6 , 0 0 0 , 0 0 0
o n Columbus D a y t h a t w e c a r r i e d
unnecessarily.
Governor S e a y :
s
a
m
e situation arose
o n two oc-
ions w i t h us, a n d o n e d a y w e carried $6,000,000 a n d the
other day $10,000,000,
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Federal Reserve Bank of St. Louis
250
Governor Biggs:
S u p p o s e y o u r reserves a r e d o w n t o
42 p e r c e n t a n d y o u g e t h i t l i k e t h a t ?
Y o u will g e t a
S000 JolLs,
Governor Fancher:
w e were h i t $5,500,000 b o t h days.
weacoOLlected f o r . t h e m a n d t h e y d i d n o t collect. f o r u s ,
The Chairman:
G o v e r n o r Harding's motion i s that w e
ask t h e B o a r d t o r e c o n s i d e r t h i s regulation.
Governor MeKinney:
I want t o make,
T h e r e i s one little observation
T h e B o a r d h a s s e l e c t e d t h o s e s i x days,
and o n e o f t h o d a y s s e l e c t e d
in o n e o f t h e states
b y the Board i s not a
i n o u r district.
holiday
L a b o r d a y i s not
& holiday i n - N e w M e x i c o ,
Governor S e a y ;
E l e c t i o n
Day i s not a
holiday
i n
the: pisthrict -of Columbia.
Governor H a r d i n g :
N o r
is it a
holiday
i n Massa-
chusetts.
Tf t h e r e i e m o f u r t h e r d i s c t s s i o n I
will c a l l f o r t h e motion,
(The motion, having been duly seconded, w a s carvied,)
The Chairman:
4-(g)
n
e
x
t topic f o r consideration i s
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Federal Reserve Bank of St. Louis
funds r o r t h e p u r p o s e o f well-~
Tare a n d e d u c a t i o n a l w o r k a m o n g
Federal Reserve B a n k employes.
The a d v i s a b i l i t y
or partially,
o f reserve b a n k s defraying,
wholly
t h e expr:nse o f s u c h w e l f a r e a n d e d u c a t i o n a l
°
work,
Governor Hahinney:
want
t o call attention
a decision r e n d e r e d
P r e l i m i h a r y t o this discussion,
t o the fact that there h a s been
b y some Federal court v e r y recently
to t h e e f f s c t t h a t d e d u c t i o n f r o m i n c o m e t a x r e t u r n s
funds e x p e n d e d
ive
f o r welfare
o f employes
i s a
of
legitimate
O f expendi pure:
Governor S e a y :
w r . Chairman, I
would suggest
that
ask how many banks h a v e received legal advice o n this
The Chairman:
H o w many here have b e e n legally advi
on this s u b j e c t ?
(Mince G o v e r n o r s 0
Chairman: f
J e d i n t h e afrirmative.)
t h o s e banks. t h a t h a v e b e e n l e g a l
advised, h o w many counsel have advised t h a t i t
or, h a s a n y bank been advised t h a t i t i s illegal?
(No banks h a d been s o advised.)
8€a
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Federal Reserve Bank of St. Louis
252
The C h a i r m a n :
have been asked a
I s n ' t
i t perfectly clear that
we
question o f l a w a n d that every b a n k which
has consulted counsel h a s b e e n advised that i t i s legal?
fs i t not desirable, therefore, t h a t w e advise t h e Board
to t h a t e f f e c t ?
Governor Calkins: I
Governor Young: 2
so move, i i C h a i r m a n ,
Betend ct.
(The motion, having b e e n d u l y seconded, w a s carried.)
Governor Seay:
T h e r e i s a second clause t o that
topic, Mr. Chairman, "the advisability o f reserve banks
defraying, w h o l l y o r partially, t h e expense o f such welfare a n d educational w
The Chairman:
W i l l someone offer a
Governor McDougal: .
have a
motion o n that?
A s t o t h e edvyiseeility o f 20° F T
memorandum which says that welfare w o r k among
employes, whether i t refers t o clerical h e l p o r physical
laborers, h a s come t o b e recognized a m o n g t h e employers
generally a s n e c e s s a r y
efficiency b y workers,
t o maintenance
of a
high d e g r e e o f
T h e same principle will apply
to t h e o p e r a t i o n o f Federal r e s e r v e b a n k s a n d I
move t h a t
i t i s the sense
therefore
o f this m e e t i n g t h a t t h e practice,
which was established a number o f years ago, i s a highly
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Federal Reserve Bank of St. Louis
Gesirable practice.
Governor Seay:
I
n supoort o f t h a t v t e t
m e read a
little quotation f r o m t h e Manchester Guardian, @ngland,
of Oetober 16, 1924:
"Employers o f labor have l o n g since passed t h e stage
of r e g a r d i n g t h e i r r e s p o n s i b i l i t y
t o their w o r k people a s
ended b y the payment o f wages a n d t h e observance o f the
Factory Acts.
T h e y have discovered that good health a n d
good h u m o r m e a n g o o d w o r k a n d c o n t i n u i t y
o f service,
and
‘that i t i s w e l l w o r t h while--- e v e n o n p u r e l y b u s i n e s s
grounds---
t o study what i s n o w called tndustrial welfaro."
The Chairman:
Gentlenen,
of Governor Mebougal:
Governor Young:
Governor Harding:
y o u have heard t h e motion
I s there a second?
L o n e s e c o n d it.
I
t has b e e n t h e practice
o f the
ederal Reserve Systom, w i t h t h e approval o f the Board,
for a
number o f years
withdrawal
t o make t h e s e contributions,
o f them n o w would have a
more
and a
o r less demoral-
izing efrect u p o n t h e morale o f the force o f the Federal
reserve banks, w h i c h w o u l d m o r e t h a n o f f s e t a n y p e c u n i a r y
saving t h a t m i g h t b e made,
I
t has b e e n t h e established
custom, t h o y have come t o expect i t and i f you withdraw i t
it i s g o i n g t o h a v e a
v e r y d e p r e s s i n g e f f e c t u p o n t h e morale.
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Federal Reserve Bank of St. Louis
204
The Chairman:
T h a t i s a n amendment
Dougalts r e s o l u t i o n .
D
o you-agree
t o G o v e r n o r iHe-
t o t h a t amendment,
Governor M e D o u g a l ?
Governor McDougal:
Yes.
The motion, having been duly seconded, w a s carried.)
The Chairman:
T h e next] toplet-on. t h e p r o g r a m f o r c o n
sideration i s 4~(h)
4=(h}).
h a t s h o l d b e the policy o f Federal
reserve banks w i t h reference t o making
charges against surplus f o r t h e items
enumerated below when current earnings
are insufficient t o provide therefor:
Dividends
Reserve t o c o v e r a n n u a l d e p r e c i a -
tion o f bank .pventses..
Charge-rorts f o r t h e p u r p o s e
o f re~
ducing b o o k value o f bank buildings,
to a p p r o x i m a t e r e p l a c e m e n t c o s t s .
Furniture a n d equipment.
would sug: est that w e take sub-
Governor icDougals I
topic 1 and deal with that separately, a n d deal with the
others s e p a r a t e l y a l s o .
Governor Seay: I
should say that the other three
topics would come before Wo. 1 , dividends.
Governor McDougal:
I
t makes n o difference, j u s t s o
they a r e treated separately.
The Chairman: I
have h e r e a
which I think i s very pertinent.
statement
b y Mr. R u u n d s ,
H e says, “The whole ob-
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Federal Reserve Bank of St. Louis
200
ject o f b o o k k e e p i n g
i s t o present t h e facts w i t h respect
to t h e c o n d i t i o n o f 1
i
f
. Preserves. p r o p o s e d .to
be s e t a s i d e f o r a m m u a l d e p r e c i a t i o n
set u p a s a c c u r a t e l y a s possible,
o n bank premises a r e
a n d with a
v i e w t o pro-
viding f o r t h e a c t u a l d e p r e c i a t i o n a s n e a r l y a s i t c a n b e
determined,
t h e n i t would s e e m obvious t h a t s u c h reserves
should b e s e t a s i d e r e v a r d l e s s
earnings,
o f t h e a m o u n t o f current
f o r t h e premises w i l l depreciate j u s t a s m a c h i n
a year o f l e a n e a r n i n g s
a s i n a y e a r o f l a r g e earnings,
and i t would b e very difficult t o justify t h e handling
of a
depreciation reserve account
aside w e r e t o b e m e a s u r e d
account,
I
i f the amount
b y the condition
n m y judgment, r e s e r v e s
t o b e sét
o f the income
o f this character
should b e set aside regardless o f earnings.
Governor MaDougal:
I
f that policy i s n o t pursued
the banks a r e going t o fool themselves.
T h e y a r e going
to p u b l i s h s t a t e m e n t s t h e i n t e g r i t y o f w h i c h c a n n o t b e d e fended,
a n d i t seems
t o m e there isn!t a n y need t o g o very
far o n this subject, e x c e p t t o regard t h e necessity o f making reasonable provisions f o r Wos. 2 , 3
and 4 , regard-
less o f what o u r e a r n i n smay be, e v e n a t t h e expense o f
Gspleting r e s e r v e s .
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Federal Reserve Bank of St. Louis
256
Governor Mexinney: I
think dividends a r e a n entire-
ly s e p a r a t e a n d d i s t i n c t p r o p o s i t i o n ,
Governor :icDougal:
i ; en o t “eaiscussivigeeaest « < b aie
not i n c l u d e t h e m .
Governor Harding:
W h y not s a y i t seems
es a r e a l s o p r o p e r a n d n e c e s s a r y
t h a t
heset charg-
i n order t o reflect
accurately t h e condition o f the bank, a n d that i t i s the
opinion o f t h e c o n f e r e n c e t h a t t h e y s h o u l d b e made.
m o s t i o n v e r y much whether y o u
Governor Fancher: I
Consider
earnings
item 3,
S u e s
t o do-it.
did n o t s a y comply fully w i t h 3 ,
Governor Harding: I
but I
w h e n y o u have sufficient
say @
reasonable provision.
V o l G a n n o t Cxpect.
to
cut i t all off in one year.
Governor Seay:
w h a t i s a reasonable ouantity i n
each case has b e e n fixed b y the Board a n d i n some cases i t
is a l s o d e t e r m i n e d t h a t a
little f u r t h e r c h a r g e w o u l d b e
reasonable.
The Chairmans
to d e a l w i t h los. 2
M y idea o f t h e proposition would b e
and 4
i n o n e resolution,
3 i n another resolution.
solution separately also.
a n d deal with
T h e n deal w i t h No. 1
ina
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Federal Reserve Bank of St. Louis
257
Ag t o Nos. 2
and 4 , w e recommend t h a t t h e oreserva-
tion o f t h e i n t e g r i t y o f t h e a c c o u n t s
are published,
o f t h e banks w h i c h
i n order that t h e statcment m a y exhibit a
true a n d a c c u r a t e c o n d i t i o n , r e q u i r e s t h a t n o c h a n g e b e
made i n the policy which has heretofore b e e n established
as t o setting u p reserves t o cover a m u a l depreciation o f
bank premises,
a n d charging furtniture a n d equipment
to
OVErPatINe Cosh.
Governor Harding: I
The Chairman:
I
will sedond that.
f t h e resolution passes
that t h i s year, ipvrespective o f o u r earnings,
w e understand
w e would
not o v e r
charge o f f t e n per cent f o r machinery a n d two p e r cent
for buildings, a n d furniture a n d ecuipment a s usual.
(The motion, having b e e n duly seconded, w a s carried.)
The Chairman:
A
s t o Wl. 5 , t h a t i s a
off o f t h e c o s t o f buildings,
books, a f t e r a
t o bring i t down o n our
period o f years, I
Governor F a n c h e r :
The Chairman:
i
think i t i s five years.
t i s three years
after a
special c h a r g e -
w i t h us.
period, w h i c h m a y vary,
bring i t down t o what i t would have cost i f building
costs a t the time w e put u p t h e buildings, h a d b e e n o n a
the average o f
parity w i t h r i r t e e n y e a r s p a s t .
T h e difierence
i n our case
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Federal Reserve Bank of St. Louis
was estimated t o be ~2,500,000, I
ori
me
o
Y
A
°
ie
Thin,
-
one-fifth, o n e - t h i r d ; coe wp edblaera
Governor Fancher:
i6 charged o f f o n é - t h i r d l a s t
year,
The C h a i r m a n :
the Board,
mind,
is
A s . t o this topic,] w o u l d
indieats
t o
b y a resolution, w h i c h I have n o t > sramed i n m y
that t h i s i s a
type o f c h a r g e a g a i n s t s u r p l u s
There i s n o question, however,
Open Go..dcuestion,
to the wisdom,
a s matter o f policy,
which
aa
o f making s u c h a charge
against earnings w h e n earnings justify it; but, after considering «
earnings
5
5pions o f the present year a n d the falling
of t h e d i f f e r e n t r e s e r v e b a n k s ,
t h e varging
the
conditions
applying
t o buildings,
that e a c h Federal r e s e r v e
bank b e reauested b y the Federal reserve Board t o submit
its o w n view individually a s t o what charge-oif,
should b e made u
GOVERnoOP?
has p a s s e d a
Via
oS
make
are g o i n g
n di
e rs
B a si GY °
1 i o
ny 2
h e m 3.
L
say frankly that o u r Board
wil
resolution n o t t o m aLow ke a n extra charge-off,.
and.
to charge t w o p e r c e n t , t e n p e r c e n t Ed and n o t
a n extra charge-off.
j
e
6an G h a n g e that: o f f - i n f a t
years rather t h a n i n lean years.
The Chairman:
Then,
as I understand it, G o v e r n o r
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Federal Reserve Bank of St. Louis
Balley m a k e s t h a t motion,
Governor Calkins: Lo-wrti.
(The motion, h a v i n g b e e n d u l y seconded, w a s carried.)
The Chairman:
T h e last sub-topic i s No. 1 , dividends.
cherge a n d
After w e h a v e a c t e d o n t h e t v o p e r c e n t a n d t e n p e r c e n t fon
furniture, a n d such charge-orff.as t h e directors m a y submit
for a p p r o v a l
o f t h e Board f o r t h e purpose
o f reducing t h e
book value o f bank buildings t o approximate replacement
cost, t h e q u e s t i o n c o m e s t h a t , h a v i n g n o earnings l e f t i n
some cases, s h a l l d i v i d e n d s
Governor McKinney:
of l a w a n d t h a n a
b e p a i d o u t o f surplus?
T h a t involves f i r s t a
question
question o f policy.
The Chairman:
W o have been advised i n New York---
Mp. Harrison:
T h e attorney General h a s ruled t h a t
we c a n p a y d i v i d e n d s o u t o f surplus.
The Chairman:
counsel,
O u r feeling, b a s e d o n the opinion o f
i s that t h e dividend i s cumulative, t h a t i t be-
longs t o the stockholders, t h a t w e have a n accumulation
which c a n b e a n d s h o u l d b e paid.
Governor Calkinsg M u s t b e paid, I
think.
holder c a n compel y o u t o p a y i t .
The Chairman: I
have n o d o u b t o f that.
A n y stock-
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Federal Reserve Bank of St. Louis
260
Governor Seay: I
move i t i s t h e s e n s e o f t h i s c o n -
ference t h a t i f , a f t e r c h a r g e s s p e c i f i e d
serve t o c o v e r a n n u a l d
preciation
in 2
and 4 , r e -
o f b a n k premises,
and
furniture a n d equipment, csarnings a r e n o t s u f f i c i e n t
pay dividends,
o r i f t h e r e a r e n o earnings,
to
t h e n t h e divi-
dends s h o u l d b e p a i d o u t o f a n d c h a r g e d t o surplus.
Governor Biggs: I
Governor N o r r i s :
"should e
b paid out
will second that.
W o u l d y o u mind adding t o that
o f surplus accumulated
partly for that
purpose"?
Yes, I
Governor Seay:
would b e willing t o a d d that
specifically.
D i d Iunderstand someone t o s a y that
Governor Young:
e
the stockholders c o u l d compel y o u t o p a y dividends o u t o f
surplus?
Governor Calkins:
The Chairman:
P r o b a b l y so.
T h a t i s a "horse~-shed" opinion that
the stockholders h a v e t h e right t o d o it.
Governor Seay:
I f they have the right t o d o it, t h e n
they c o u l d c o m p e l y o u t o d o i t .
Governor McKinney: T
doubt L f t h e s t e c k h o i d e r
ina
corporation has t h e right t o force t h e directors t o declare
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Federal Reserve Bank of St. Louis
261
S fiver
3 4
j M c E g n H>
est o f t h e c o r p o r a t i o n r e q u i r e s
Governor Norris: i
of the directors. t h e intert h a t
m e w D e paie.
-do n o b K n o w o f 2
stoclholder h a s g o n e i n t o c o u r t a n d w o n a
Henluavel”
case w h e r e a
case o f t h a t
T h e court always holds t h a t t h e declaration
dividend
i s within t h e sound discretion
directors,
of a
o f the
t h a t i f t h e stockholder thinks a
dividend: s h o u l d
be paid a n d t h e directors d o not think so, t h e stockholder's
remedy i s t o c h a n g e t h e d i r e c t o r s
a n d n o t t o come i n t o
COMI.
The Chairman:
T h e motion i s made that
should b e paid o u t o i surplus.
d i v i d e n d s
T h a t motion
(The motion, having b e e n duly seconded, wa: carried.)
Governor Young: i
NO O n D a e
desive
t o v e recorded
a s voting
m o tsoOn.
(“hereupon,
o n motion d u l y seconded,
a t 5:15 o'clock
, the Confe.ence o f Governors adjourned until tonorrow, w e d n e s d a y , N o v e m b e r 1 2 , 1 9 2 4 ,
e
e
a t 9° o'clock a . m . )
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Federal Reserve Bank of St. Louis