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Federal Reserve Bank of St. Louis
VOLUME 1
- PROCEEDINGS
CONFERENCE
O F GOVERNORS
O F THE
FEDERAL R E S E R V E B A N K S
TREASURY BUILDING
W A S H I N G T O N , D.C.
N O V E M B E R 12-15, 1923
WALTER S. COX
SHORTHAND REPORTER
COLUMBIAN BUILDING
W A S H I N G T O N , © . G.
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Federal Reserve Bank of St. Louis
PROGEEDINGS
OF A
CONFERENCS
O F GOVERNORS
of t h e
FEDERAL RESERVE BANXS
Washington, D . CG.
Monday, N o v . l e , 1925°
A conference n f G o v e r n o r s
Banks c o n v e n e d
o f t h e Federal Reserve
i n t h e Treasury Building, Washington,
D e Gay
#n Monday, Hovenber 12,.1925, at.10 o'clock, avms
Present:
We P. G . Harding, Governor, Federal Reserve
Bank o f Bostone
Benjamin Strong, Governor, Federal Reserve
Bank o f N e w York.
George We. Norris, G o v e r n o r , F e d e r a l R e s e r v e
Bank o f Philadelphia.
E. R s Fancher, G o v e r n o r , F e d e r a l R e s o r v e
Bank o f Clevelande
George J . Seay, Governor, Federal Reserve
Bank o f Richmond.
uellbporn, Governor, Federal Reserve B o n k
of A t l a n t a .
McDougal, Governor, Federal Reserve B a n k
of Chicago.
Biggs, Governor, Federal Reserve B a n k o f
Sie
L O U L S s
Young, 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
Minneapolis.
Bailey, Governor, Federal R o g e v e Bank o f
Kansas C i t y .
Calkins, Governor, Federal Reserve B a n k o f
San Francisco.
George L . Harrison, D o p u t y Governor, Federal Reservo
Bank o f Naeg w York, a n d secretary t o t h o Conference
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Federal Reserve Bank of St. Louis
o f Governors.
T would Likes t o m o v e
w= t h i e
f efrr ea nw c ef ,h
sy
I will s e c ond that: mobiles,
4
fon h a v i n g p s e n cuLiy
eeconced w a s unusnl o u s l y
Governgy iicJougsl t o o k t h e ¢ h a i r 9 s C h a i r m e n o f
am sure y o u will e l l agree
Om
with m s
e
e
s
i
n
g
regret t h a t
ane t i m e 1 :
Gwervtor Strong i s not i n
exoressi:s b H S -eress
Governor S t r o n s b e c k w i t h
rt
wo V
Strong,
a n d w 2 are yery
course, U l c e r t h s elydéine
shsil
slthough I
d o the
we Hill pocesd,
s m sure I
teen
l eKlaman
m e n
Tg a m
OHP
topics o f the Governas' a r o§fran.
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Federal Reserve Bank of St. Louis
1, C r e d i t T r s n s a c t i o a s
(2)
a n d Pol
cis
Revort o f o p e n m a r k e t i n v e s t ment c o m m i t t e e f o r t h e F e d e r a l .
Reecorve System,
Chairman.
G o ermor Strong,
4
Pe OO bu
t h e
r e p o r t af t x c o m
p e t>e
om
Governor Strong,
pLeSeure;
yjL l e e s e s y u r e
Seturcay mornings
This r e p o r t w h i c h 2 9 8
report b y t a s s s e r e t a r
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Federal Reserve Bank of St. Louis
ny osction,
a
Tie
C Ch2irnien
n:
I
of mie
£
would succest t h a t t h e report
tne Federsl Ressrve SysNovember l t h , h a v -
coubtless
e
rng
ka
Gas Casirmens
T h e t
routine report i n the minutes.
Governa S t r o n a : e
o
+
Coyernor
Governor S t r o x g
tir. Harrisons:
Committee Gheizrmen!
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Federal Reserve Bank of St. Louis
the J o i n t Conf2rence,
the O p e n
Gis t L bated
t o thie m e n
ine
detail
.2
Wea C o v e r n o r s
s t their
&
Q
Cart
LscA
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Federal Reserve Bank of St. Louis
y
a i ee
oO n tne
° a=
by
lee
e ies
D Le)
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Federal Reserve Bank of St. Louis
summer
o f 1922
continuous Lizuicstion o f Governren'
b
>] neld o n October
e
i
n
g
meximum o f ., , 0 0 0 , 0 0 0 o n Jun
1
nis t o li~uidsete loans,
ady been mace
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Federal Reserve Bank of St. Louis
member
TOis T a n
“Man
aes
weys b o r r o w
given volume o f
3
and n o i n f l e t i o n o f b a n k c r s d i
becsuss
vestment
O o c i s c o u n t s
e c c o u n t
b y menbers
no
iucressed.
l o n g e r
h e d
t o
f cadiscount,
out
O L debe
er
L
WOStTHSH
nevertheless,
t h e result w a x further t o
+
interest retsés
moderste t h e courses of liguidstion, r e d u c e
e c o n o m i c recovery.
firr:.ly establish t h e f o u n idetion f o r
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Federal Reserve Bank of St. Louis
revived
o
e
e e
=dant. s a e
snceDtiig some caspartmen
a
“dag operations, W a g s s o f
advences,
The loesns
on
Arove o u r m e r
.
SWoE uN s st
an c o n r r o n t e c
genuery,
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Federal Reserve Bank of St. Louis
sac ition
urrency t a e n
recucetion of
tOshBe
n
ma}
Bn
ugh
Ar Oe
E S
u
Down t o
PS
a n yvw <&
uch development.
t August, 1925,
nea m o r e t h a n o f f s s t
:,
Shad i
is only since t h e
Gomestic p r o d u c t i o n
nst
in
U
7s
Rse
r e n mPER
Fi
n bude
eh
la
ld imports, t h a t this n e t
the imports
holdings
nee= se!
ra N p a Rie
Coy c e G e s
the s e m e c o m m e n t s
ent eccount,
fnat
y
4.1
L me
o f Govern-
a s ao. ly t o o u r
l o o eWpa
csc o u n t - - t
rates f o r purcnasss o f
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Federal Reserve Bank of St. Louis
does u s u s l l y
The market rete for prime
mislly be ehout
1%
more below
differcnice
boy ag A P eee
bey
however,
money
iat 2edvahce
ates f o r bills
Ee Gehl wets b o-bhe.
devel o f our cis 5
LLG
@
our buying
- -S a e
wholly
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Federal Reserve Bank of St. Louis
snomalous s n d r a t h e r u n f o r t u n e t e
advances o u r buying rate with merks
a
be dumpec o n the Res<
n e s u s i n g t o o lergs e n a c c u m -
lation, destroying t h e brosd merkset f o r bills which w e h
struggled t o create e n d possibly defe:
1 g othsr purposes o f
policy l a t e r mentioned.
To increase discount rates, e n d t o restore t h e
ential,
i s just a t this time probably n o t justified,
possibility o * harm when business i s
sn incication o f t h e attitude
recit situetion.
On the whole the Conmittee's
Gelay a n y considerable change i t u y i n g
year's developments Giscloss
gome r e c u c t i o n
market r a t e s
i n member
problem unsolved.
System h o p e s
ing investments,
t o offs f u r t h e r g o l c imports
i t will necesdtate m m m selli
by
L o ms
ew o f t h e Reserve Banks, a n d ther
its holdings o f bills, provided,
smounts o f gold arrive
o f courss, further large
T h e result t o the earnings o f some
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Federal Reserve Bank of St. Louis
of t h e b e n k s w o u l d
be
to t h e m o f
would s l s o m e k e i t difficult
for bill purchesss,
t o a v o i c e n aavance
i n cese monsy rete
o 6 Gelay i n any change o f ; i t y stems caesir-
wasn w e consicer
Finally, quite enother view is | 1
b
just whet our policy s h o u l d e
h
e hesitation a n d
uncsrtsinty which seems t
notsbly New Znglend, should threeten 6 real setback
While t h e country i s now o n the whole proépé
5
labor guite fully employed, m o s t mills b u s y e n d with a
exceptions
n o sxcess stocks o f goods o n hana -
o
some indica
fscing a slump.
tnsere a r e a l s o
f a growth o f distrust l e s t business i s
S t e s l orders a r e lower, production o f
cotton mills hes recently been reduced, sutoa long
mobile tire business h a s glowed down, a n d w e have h e d
and rather sherp liquidation i n t h e stock maerkst resulting
at
in 2 reduction o f Stock Exchange losens, estimated
5532,000,000.
System
It i s the view o f the Committee t h a t t h e Resorvs
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Federal Reserve Bank of St. Louis
Oo&
f
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Acces stan
Bougnat
Fobruary 1
1
November
December
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Federal Reserve Bank of St. Louis
EARNING
Discounts
R
o
s eer
ae
September
Ob tObeF
October
SL
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Federal Reserve Bank of St. Louis
Discounts
“unicipel warrants i n c luced.
my
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Federal Reserve Bank of St. Louis
Accenatences
1923
Jenusry
YLO
Pebruery
Ta}
x
April
hiey
June
cuLy
August
ae BY
October
S l
punicipel
ws
STREFT LOANS
AND
BALANCES OF OUT-OF-TOPN
CORRESPONDENTS
(000 Omitted)
Total Street Loang
For account o f
Corraspondents
Balanc?
Str«-t Loana S t r o v t Loans T o t a l
o
f
a
f
n
o
d balancés
r account o f
for account o f f o r own Ac- S t r : + Out-of-Town O u t ~ o f = t own
1923
Jamary 3
10
Psi
C
o
r
r ‘pond nts
S 5 3 5 9 3 7 , 8 5 2 R a c T L , 454
6 6,077
7
9 2 1 5 , 280 a 2 . 7 6 0 ,5°7 9 7 , 3sN55 8
. 4.26
8
alt 7 9 2 , 0 1 2
31 7 5 0 , 2 8 5
February 7
S
0
4
2
1
7
6
B
0
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Federal Reserve Bank of St. Louis
#
1 ,606
14
21
1
1
6 7 3 7 1 0 9
3 823
6
5
1
,
8
5
9
8
2
7 273 b o g , 6 6 2 , 7 9 0
1
8 UAT 6 2 0 , 0 6 659,427
8 6 4 7 1 0
5 7 , 2 712,477
1 ,739 8 1 3 , 1 8 2 ' 1,6 7 0 8 5 9 6 6
u
#
5 1530
3
, 407 7 7 4 , 3 8 9 5 7 8 . 7 9 6 667,879
28 7 9 2 , 5 3 2
March 7
7
3 ,O45
7 9 8 , 9 1 7
14 2 0 1 , 2 2 8
21
L o a n s Correspondents _Corrasmonduntes,
c o n n t
z 564 7 9 9 , 8 5 6 :
3
, us
2s $ 1 0 , 1 3 7
07,295
8 3 7 , 6 9 9
€
1 2 , 9 0 1
2
,
0
7
0 , 0 uA5 6
5 , 1 8aNO2 7
2
.
1
a
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t
u
a
t
5
6 5 8 , 1 7 3
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g41 150
guy 288
s
7 4 7 9 5 6
237,487
i
831,029
B
821 ,490
e "yR3
a
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6 7 3 3 8 4
6
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, href
4 53s #1, 6c 6 4 7 5 8 7
gb
,al 6
611,557
814,377 7 2 7 , 4 5 0 6
616,932
767,612 7 7 4 , 7 0 1 1,552, 5 0 7 , 726
756 ,070 7 7 9 , 4 1 9 1,535,469 523,542 1 , 3 3 9 ,
4
754,569
13
20
27
750,120
595,934
745,606
537,345
3
Lo
8,f18
i 5300
1s a
18
658, %30
606 1308
25
636 635
eho res
a
g
619,371
557,277
60,393
535 714
15
a
1955
22
fe 020
29
are
September 5
ce
19
26
Octob=r 3
190
if
oy
3x
* Hightfor all times.
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Federal Reserve Bank of St. Louis
6 0 0156,
512.851
8
5
587,914
583 535
a e
563 293
559, S31
1,225 ,830
1,199,599
1,225,173
570.337
56az, nay
569, zs :
582,419
1,“976 ‘605
594,151
575,089
1,262,113
7. her
21,406
a 951
535,232
95,759
21,507
a 501
1,255, ont
1,262 p
1,274,52
537, "3
581 314
594,733
1,205, 939
9
o4
ae z
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Federal Reserve Bank of St. Louis
Gentlernen, t h e rsport
t o this c o n f e r e n c e .
report o f t h e c o m m i t t e e
¥ yori? L i s e
resus
o p e n
rnor Strong: G o v e r n m e n t securiti¢cs,
Tt i g w i s e r t o d o t h a t t h a n t o i n e r s s s e t n e
purchases of bills, which would disturb our rate situetion
w e have
and would defeat t h e distribution o f bills, something
een seeking to accomplish ell taese years.
Governor Herding:
which I
t
suggestedi
T
securitiss,
that t h e m a t t e r
u
wovld
n
e maturities, e n c was
be
of
f h e market, thet it is
nealthy influea
proposition--- y o u hsvs
wiere
we had securities t o
it would heve e very healthy effect i f
we
our money =
having some matured securi-
¢ n o t repurchsse,
i t wou
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Federal Reserve Bank of St. Louis
an effect which w e could n o t possibly exert
ket
o u t o f t h e merket---
the c o u r s s
2 G Bes O S
pan
Feacher: i
ey
s r y thorougnily
of
that t h s
who Lesoms
nd nearly o n s
or
C O p e o
C o
ments
smovunt t n o a t
money market, o n c
toexercise
m y r e a l influences,
w e ought t o neve Government
‘curities, s h o r t t i m e certificetes, w i t h whicn t o co i t e
Governor Hariing: G o v e r n o r Strong, “ i c
any s o s c i f i c s m o u n t o f C o v a r m e n t s e c u r i t i s s
Governor Strong: I o a i d not,
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Federal Reserve Bank of St. Louis
ZO
any s u c c e s t i o n o f p o l i c y
+
b
a
450 n o poticy:. “ s e e n
Say O f
a
b a 2 Ob ney
Governor H e r d i
p
o
l
i
y v e r y f e r back
c
thers wesn't eny coordinsti
Governor Strong:
N o .
A n d thet hed vargous effects we
to erouse objection o n the part o f the secretary o f
in t r o i n s t e a c e s
h e y thought t h e benks h a c
wrote t o t h e bent ;
arnmnent
government
«o
e
the
na
dd +
hey n
1 e c D e t t e r d u iyt b u y =
thasy
seood m e n y c o n f l i c t s
5:
*
woenl Ww ieE « S
bS
A
j
i S UWl S r
sny chengss n o w
if so, when, o r whether
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Federal Reserve Bank of St. Louis
4.
it s h o u l c n o t b e , s s w e slweys e x p s c t e d
tion t o b e concuctec
1 t would.
u n i s o n b y tne
conmmittes,
Governor
feet u p o n t a e rebarn?
Governor Strong: I
Wheat w e c a n s a y i s this:
do n o t think
I t has b s o n disclosec
buying b y reservs b s
no m a t t e r w h i c h
i
g too p r i n g 2
sherp recuction f
réserve b a k s
Out
member benks f r o m t h e
in
the purcnesses w
monsy centers, e n c o u r ciscounts
ioney i n the t h r e e o r f o u r p r i n c i p e l m o n s y merksts,
4own t h e Stock E x c h s n s e
a
n scount,
i t recuccs t h e
essier m o n s y
the w h o l e country,
in the monsy centers have s
surplus t o losn.
e t t i e money
s n d t h e benks
f h e t i s ell
it amounts to.
Governor Sseey:
h e t i s whet I
hed
System ecopt a policy which will probebly r e s u
slicht lowering i n the re/turn o n these securi
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Federal Reserve Bank of St. Louis
bast force.
i o w
tie rate o n benkers!
SbPOnS:.6
tances?
d
have t e n d s n c y t o
l
because, Governor
the r a t e o n bills
u
A
t
o
h
wpo pee T h
e benks
the s e m e t h i n g i n B o s t o n e n d
York, a n d a I
L money over, e r e not-willing t o
loans s t first.
it o n t h e
something
Exchange,
o r b u y bills,
or s h o r t Governusnts,
back guickly.
SAV re t h e y c a n g e t t h e m o n c y
whe
a
has t h e
T h e y
o r
Thet
the most fluid things
reducing t h e rate o n
in t h e m o n e y markst.
And probably t h e bills would b e offered
Governor S e a y :
freely t o t h e
eserve b m k s .
Governor Strong:
WW
Li .-Wo
NOs
they will g o into t h e merket
d r o u rl buyin
e
ow
tes
o
u
r port.
folios w o u l d g o down.
Do y o u b e l i e v e t h e r w i l l b e
Governor Seay:
sen t h s
R
o n G oPv e r n m e Un s
see
ures Tess
bankers! secentencss?
Governor Strong:
oO
a
cee
ie&
I would exmect 6
which W
LS@® u n t r a t e
e
¢
k & investments
a
m
he
i n
U p
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Federal Reserve Bank of St. Louis
There i s now,
gnths o f one p e r cent.
Perhaps I
s not t h e point I
i
Governor Seay:
did n o make myself clear.
trisa
Y o u l d you expect t o
e Cifferential between t h
tern securities,
ing Government securities?
Governor Strong:
T h e y sell o n very nearly the
besis nov, e n d t h i n k srobebly they w o u l d continus
i
Governor 35:
n
k e n y m a r k e d i2iffsrence
would devel op-=Governor Strong: I
do not think so, no.
M e r e w o u l d p o s s i b l y b e some.
Governor C a l k i n s :
thet bills r u n f o r niast
deys.
I f benkers' sccaptences were
three a n d e
n
g i n New York
nelf p e r cent, y o u a r e a l m o s t
certificetes o f inasbtedness selling e t
helf p e r cent.
I
t i s the meturity t h s t counts.
Governor Beiley:
S td
we give t h e
tion t o t h e s e l l i n g o f s e c u r i t i e s t h e t w e h e v e t o b u y i n g
them?
I z other word,
i f w e want t o sell 4 million cdol-
lers worth of securities, ought we to offer them for sele
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Federal Reserve Bank of St. Louis
Lf -some concert
should w e sel
Governor Strong:
T h e
heory t h e t locel trenssc
it w e s o n l y w h e n o r d e r s
beyond t h e normsl business s t the counter
the bank, t h e t t h e conmittse w o u l d b e emp loyec..
Governor Selkins:
B u t i t wes n o t contempleted t h e t a
benk would b u y o r s s
through t h e cormittee?
Governor Strong:
T h e t i s trué.
tA
Nor:wes
aS
i t contemplsted t a s t orders
as Governor Bailey h a s refer:
t
o woulc b e consunmated
59% o n the understending t h e t a l l transections o f m y
ey
im
portence would b e r e
Governor Bailey:
n g t e n c e s
w e e : Golied over: t h e
worth o f o u r
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Federal Reserve Bank of St. Louis
meen before t h e sele w a s mace.
Governor Bsilsy: I
Governor Strong:
y o u not?
Y o u reported a
Governor Strong:
W a y , NO.
Governor Norris:
n
y recollection
i s that trenseetions
which e e c h b a n k w e s s t l i b e r t y t o m a k e w i t h o u t c o n s u l t a t i o n
with t h e committee o r without going through t h e coumit
were confined t o whet micht b e celled o d d lots a n c t o trensactions v i t h member bahks. I
would n o t consider, f o r in-
stencse, i f Solomon Brothers c s m e i n
a million Gollers worth o f notes, t h a t w e woulc b e e t libsrty
without peior consultation w i t h t h e committse.
Tiet i s simply m y uncerstsnding o f it.
Governor Strong: I
thought t h e t w o :
t l w a y t h e conmit-
as b e s n operating.
Governor Norris: I
think, i f you will refer t o the
minutes, y o u will find tast e l l
through t h e committee, except i n the way I say, t i s t is; o d a
lot transactions, sccormodstion t o some locel p:
trensactions w i t h m e m b e r b e n k s ,
Governor (Calkins:
T h e t w e : obviously t h e iatention,
or o t h e r w i s e t h e c o m m i t t e s c o u l d n o t o p s r a t e successfully.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
s m let t o believe b y
Governor strong: I
fesling may hevs icveloped thet this
i t sctuslly 2oes going
ly
Vv then
merkst o n é buying Governmeat short t e r m 46¢
wend thet.
may c o m e w n e n t h s t w o u l c
Governor Herding h e s >
b e «
very
situetion i n
with i t i n cstai l--- b u t
such 2 tsitiation i n
beginning t o telk s s t h
rsel business setback i n this country; t h s t w s
boom;
-Giet. i t i s over now, o n d t o look o u t J o r m e yosriod
of ree-ssion,
b u t o n t h s fisures thst w e hsve a t t h e b e n k o f
coing o n t h r o u g h o u t t h e c o u n t r y p e n e r e i i y , tuist
.
s
t ]
O
o
pessimism which i s perneeting things c o
ego o u r t o t s l
GaALe--oimMeS
banks h e v e c o m e
-- U
ceventy million.
V
e bought
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
reciscount---
but
been moving Sa slong in. c n ora r l y "ey;
easing
=
hes-pot
been any
Aizine
r i s
r e i n S a
t
o hy sr oreseut
e s e n t c cr roopp mmoovviinngg
gon enyvhere.
Governor
think monsy v i l l b e
concerned, t h e menufscturin
soms o f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor
epout thse Sicures c p t e c n s e » t h e rsport which ougn
Tito tae Pear lpine
PULTSe bo. DOPTOy more,
tobe b b o r r o w s
y
l
g lo ie nug g uo de
p until b i l l s
volume er o f b e n k borreving, tacere
upon t h s borrovsrse
9
How. e a n 1 b is,. OU. o s s :
postrowsc.
9
0
,
0
0
9
,
ees
0
p
r
0
0
alee
the R e s e r v e c y s t e m , t o s r e
1.
y a e m b e r banks
c
e
r) t t y
F
o
sprecd o l fort: on gus. p a r t o f member b a r k s
SCUCS
infiyenco
pon
1S MNGi Oaes
A o oper
O L
t i o
p e r r o wiess
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Gio: “ales Oe Sh,
8 very ¢ c
thet i e ao, e n c
w
e
n the
our policy
wiiat b e t t e r tusiness.
I
t
perks psople u p
thet o r e s s r e
“
hos h a d e n influsnee u p o n b u s i n e
go f
i s c o n f i r m e dOar,
s s i t c e n b e confirmed, b j >
Stock B x c h a ¢
f
i
v
i n m y mina,
enormous reduc tion i n
e hunc
millions
Governor
Governor
snd s o m e w h a t
with
ing o f t h e spsculative position i n
constant wihdrewal o f money f r o m t h e Stock Sxcnsnge
us off,
e n d I
SY
think,
>’
a s 2
result
h4 m o n s y r a t s
o f h i c us
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Zz
Vu
I
bhey o f pessimism.
ing
t struek m e thet t h e
e should b e somswhat
time m e y b e m i n g w h e n thet p r e s s r
G
let up, end the ws:
o i t i s through Section 14, undoubt-
edly.
Governor Norris:
vnich vnaderlies e n d p r :
c e s
1
o u
T h e r s d u c t i o n o f our }
question.
8
tines
e
o
n
i n Goverment
obligstions, which begen i n ley of 1922, was brought sbout,
ngistent repressntetions o f
Their obfection t o i t ws: n o t o n
gonersl question o f credit policy, b u t o n t h e
an asbnormol
~sesury obligestions.
tier
i
twould
b
e cdviseble f o r us t o r e s u m e purchesss,
-gision, before w e even s o e n y furT would like t o know
and they: a r e
4
purcnessss, t h a y
on u s
sto L o r e r
high price?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
econfersncs
ons t h e t
think I
me
vowld esree with G o v e r n o r Fanchsr
thet,
ssscod b y t h e T r e asury D e n s rtment
nt
tis s e c o m p l i s a i p t o c a t e
sosury, b u t probably e s b
Sspowt
t n e ‘$5
so into. t h e
to conditions thet mey
Governor
thet o time
nszt Governors!
tast t h e
nis thet
som
fm)
i
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Hording:
T a s point I wentsd t o meke w e
w
ether w e s h o u l e w a i t until
h
n monsy s o t
e
little bit,
ox}
enticipete ¢
should
little vhnile
“ a t Governor S t r o n g s e i a s
spsculetion.
is trues, t h e t v e r y l o w m o n s y p r o n ;
ma
SL
mignt b e conesiveble t a s t
L
t
e d
tt
2eried i n the letter part o f Jenuer Ly
would c o off very actively, s n ¢
meke m o n e y 2 l l t
buy G o v e r n m e n t s e c u r i t i c s G
2
by p u t t i n g m o r e m o n e y i n t h e m e r
g o t very casy, w e
sccumilsted o u r stock before conditions
wou lc h e v <
opportunity,
$ n case
FUnSWEeY m e r k e t ,
w e s 2
there
LLL
to turn loose sovernment
OFS
Governor Seay:
tustificetion itor
Governor Strong:
I hed n o opsortunt y
t o consult snybocy
in
i v o u ke
ro n o b
Governor
Governor
369¥: f
a
p
= ,
B o a r d w o u l d c o s i d e r that.
rot 7
Lag
bho F e d a r e 3
a
t
pumpors
w e g o into t n e merket for “te.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
KP ed
vO
6 indicated i n this report, o f bring
c
hen we migit
condttict
ne
to e r i t i c i s m
thet e t t h e f i r s t o f thse y e a
fecotly evident that nov i s t h e
Governor s t r o n g :
too sasy, t h e n t h e
thing t o < o i s t o sell. ¢ t h e r w i s e I
Go not think there
joule b e a n y justification f o r it.
Governor C s lkins:
t+pow i n 3
position t o
considerable influsnes o n the merket; thet L f
i
e 2 ite
into
we should exercise a n y influence, w e must get
iafluence before
no opoortunity wastever e t
situation thet
Tie P e d s
Governor seay:
ime17 w e c o n o n l y influence
w
w e golc o u r Government obligstions
pre hat
“Tien
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
fcetly obvious w o ougit t o asve
of c o u r s s
4
OSvs
heves s
stock o f goods.
Governor Haralng:
tis story.
throum
1
Benks heave
yvernor otrong:;
Lt1 would b e
weulé b
e too m d
o f
Gove
report,
Governor strong
Y o u meson ebout t i s
Governor
the p o s s i
control o v e r t h e
ce for purensse o f
Govermusat
secur
Governor Strong:
GOUrES,
T hsc n o opportunity t o cone
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Federal Reserve Bank of St. Louis
ur, ey; S i c m y v i c w
then’ thet 1 t was wissr t o submit f o r t h e coxnmis tse
retion
n o more t h o n
COUMIEE TOS G O
snoulc m e k e 2
tis
ioe ees,
chonge o f policy.
fsvorsbly s n a t
consid
aangée i n policy i s before
thet t a s
a
a polfiey, t h s r e p o r t
irst o f Januery,
baecsuss'
i t contains
n o more
ition, rether t h e n 6s
Governor Norris:
going o n r e c o r d 2 8
ime w e s r i p e
Governor Calkins:
tiat
The report n o t contsining
e construs
w o u l d b
(o=8 Leeiuds t a s s u g
Governor Strong:
encation,
juntona
r o n rslkias:
evoG
Governor 5say:
i s not
FSOCoOr:.
I believe i f Governor Hardi:g'
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
og
ast)
n
a
i
w
o ei
s edadcec
t
iad!
s
thie. conference,
if 4 ¢
€
s an e x p r e s s i o n o f t h e
w
of t h e conference,
vwi s t h e t i m e t o enter u p o n s u c h purchases
lad upon t h e merks
his r e p o r t w o n c e r f u l l y e n d m a k e i t @
i n orcasr
i t would strengtht i f i a b l e move om?
the Federel Reserve System.
Governor Strong:
D i d i t not strike you, ir. Msirman,
the report, t h s t t h e committee, ©
far
function i n t h e premises, h e a
willing t o go, end thet i f there were any more
mmencstions >
mads they should be made b y
Wosn't that the spirit i n which the report
Thst i s ons reason f o r submitting
nere.
Governor Strong:
report m s y r e c e i v e a
on 3
ad:finite r e c o m m e
illuminsting
Governor Seay:
rt i s thet i t may eappes
Getorgl Reserve Banks i n entering t h e money
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
40
to 2 t t e m p t t o
men i b i s p u t u p o n
t to. satssii:
p
n 3 s bstter
a
i 0 1t4 upon Ethe market
2
it
2i O e
r e e
“Ch a
h k s s y o u d eos
thst n o w
(is: b o l d
e n o u d >
b
gree ciye 42% 2
n t oa stitust committee
s
e
-ia
Fed ral Resery
hola u p o n t a s
Governor
6 Bounke
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
iaflusnce?
Governor Calkins: {
think t h a t i s m o r s o r i s s s i n h e r -
t¢ i n t h e f o p r e v e l o f t h e s u g g e s t i o n c o n t a i n e d
i n this re-
S o u t t h e t t h e Vevert: conpeimad
Your recowmencation, Governor Calkins,
is opportune f o r u s t o s t r e n g t h e n o u r
hends b y increesing our open merket investments?
Governor Cslkins:
strongly
s
t h e t , but ret
a
v
e i t within t
of t h e commit tee
Governor >
h
waere i t i s now.
1th
t i s exsctly
a
Governor
Strong both expressed the view that the cormittee
letituce permitted i t t o go,
sforring t o thet p o i n t s n d nothing else.
Governor strong:
A
s s orecticsl metter, i s n ' t i t neces
ot
sary thet s n y redicel change i n policy b e precessc
Wit :
understen nay it eon the Federal Reserve Boara,
ss
a change i n policy, whet i t imeens, o n d how f a r
to g o ?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
J7SEcec
np e e s
cB
nse
furthers
Governor
such chen ge
thou sh
4,~
n
the t e n o r
would b
e n o obisction t o
then t h e camaittes
a
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Harcing:
the c o n r e r s n a c e .
Governor
ot -
‘
GOVSrnor
comnittes
the m e r k s
ties, ine guch a s the Governmen
in t h e market;
to a c c ptances.
I
t oceurred
t o us
if this committee w e s going t o supervise o p e n
wsrket transactions, t h a t a oart o f taose transsctions
consis ts of for*ign business
susaotity, b u t h i c h y
H
e do, which is negli-
nevertnaeless 3
pert e f the
should
coOnmLtLEe?
re
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
titi.
’smilier v i t h it, d u t
Weta t a s
Jo you, Governor Harding?
Governor Hercing:
conzucted
Governor
Boston s i d Atlante,
neve n o p e r t
i
Governor Strong:
seting u p o n t h i s report,
thet
i t leaves this commit
tn @ somewhet snenslous position,
member o f =
coumit
waich t h e Boston’ Ben
otner f o u r m e m b e r s
to d o w i t h t r a n s e c t i o n s
est.
Governor Harding.
ii
s t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Sxcept
tie
1¢ 7
Governor
ao i s -éuss i o n
this p o i n t t o m y f u r t n e r e x t e n
Governor s t r o n g :
cane m e m b e r s
a r n o r
N o .
o f
the
c o c
tres
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
N o , t h e cormittee.
Governor Strong:
rno3 5
should heve s a i d t h e commii
1kir T
Benk o f New York for tne c o mitt
transact
cy understending i s that there a r e n o foreign
with Cuba. I
co n o t know whether t h e t i s correct o r not.
Governor Strong: I
do not know. 8
with t h e business t h a t i s proposed t o b e
cept i n a very gensral
Governor Wellborn:
w
a
s snticipated t h a t w e would
buy bills.
Governor Harcing:
Y o u heve s u t h o r i t yto b u y bills,
bills, s n a t a e
but e s @ moetter o f fact y o u S o n o t buy
prospects a r e that y o u never will.
The only bills w e would buy would be
te Boerd's resolution suthoriziag
qeal e x c e p t w i t h
buying bills.
that h e s a n y b i l l s w i l l h e n d
t h e m itself,
A n y
e n a if
went eny eesh they will buy sac s l l ceble.
Tos Chairmen:
A
h
s I T understend G o v e r n o b strong,
r e p o r t i t b e uncergts thet i n t h e edostion o f this
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
then t h o s e tact s r e c a r r i e d o n - b y t h e
I rignt ebout thet, Governor Strong?
G@vernor Strong:
N o ,
in writing thst peregreph.
this cormittee i s t o superviss t h e trensact
ment s s e u r i t i s s
s n d bankers
sa
ene we
Sea o r a
he e e o r y
Sut
tovernor H a r d i n g :
the Cuban business
sion.
G
o not s e e whet there
i s in
c a l l Z o r t h e cowmittse's supervi-
T t i s simply ¢« « estion o f one benk mppolying cur-
rency a n d snother benk msking trousfers.
Governor Strons: I
do not know thet timre is, Gover-
nor Harding.
Governor Harding:
S o far a 8
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
+
mo obiection t o msking 2: report t o t h e conmittes o f w ,
h
lW t
is going on,
Tas Cheirmen:
u n d s r s t e n d it, t h s
eny f u r t h e r
lus Paten&. tact
nothing else?
i n view o f Governor
I thins,
vast i s m e a n t b y t h e
it would b s
pWealte 2
thet I
mignt wis!
Governor strong:
so e t sll, Governor Hercing
A
s nidicrstend
sw York benk i s n o t ints
Governor Herding:
Governor strong:
Bonk o f N o w Y o r k c o n c u c t s f o r
ie
S=-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor H e r i n g :
©
%
ge +
Governor
N o t a bit.
a
<
n 4
t i s perfectly satisfsctory t o
I
a
d
: al w i t h t
159
A
i n : s n y wennSer t e
r e g c
a <
n
d
i i
S l y
Bs n k
b y t h e B o s t o n Baul
business c o n c u c t e d
sendubted for its own sccount without
committee suporvision, i t suits m e perfectly, s n d coubtless
Will suit the rest o f us perfectly, e n d I thought w e migh
game principli
for
t n
b u s i n e s s w h i c h i s conducted
s
l
e
v
e
n banks.
conmittes ought n o b t o superv ise
n
w h i c h t h s y hjs v e n o i n
Governor Wellborn:
Gown thuere,
sot ah
b
the otner reserve b a k
5Ors
I f t h e Boston Bank shoulé b u y
t o b e Undsr> t h e s u p s F v i s i o n
t h a t ougnt
Governor Strong:
+ b c
u
C
a
s
e
i
E
n
e
s
Sa
s for
>
ae
not t h i n k t h e c e amie tee
Governor Vellborn:
o
rticipate
other banks might @
Governor
w
$
s contemplsted t h e
i n their purchases.
f i t did,. i t seens t o meothe same
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
50
principle w o u l d soply t o that that would apoly t o v s
thing else.
1
Governor Wellborn:
s
there haven't been sny purchases o f bilis,
one o f t h e provisions.
bill 4 f you
siven you.
enything
2|
monopoly i a supp n e g i b a w i c u r r e n c y o f
of Atlenta a
44S o w n n o t e s .
D e l l e s wented
i n o n i t but t h e
t o come
Bosrd would n o t let them.
thea r e p o r t .
n the spprovel
o
The Cheirman: a
of
T h e Ayes h a v e b e s n taken,
>a
Governor Strong:
G o v e r n o r Herding h e s msc
Vetlon.
Governor H e r i n g
n
N
W
e
a f
n
e | t h e resery
if t h e committee ascsuned jurisdiction over t n e
actions I
might w e n t t o
reservation
i s contein
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
e reservation i s
n
‘gereph itself.
f su 33
None o
conmittss has
business. >
Fedral R e s s
B o n k of Bo
Boston i s not concucting
Governor H e r
Governor strong:
think i s a
verfectly c l e a r o n s , tess. i f t e
a
ssrve B e n k o f N e w Y o r k
i s t o con-uct business
ror
reserve banks, ths committee which supervises thet busi.css
a
e from the =
shouldb
t h a t e r e Lutcorests
Governor Herding: Certeinly.
Governor Strong:
The Cheirmsn:
T h s
(The motion,
Governor Harding: Z
s s e r v e t i o n i s just this, t h a t
it should n o t epely t o %! w b e n sgency,
i n view o f the
two
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5e
by the Board's resolution.
Governor i e l l b o r n ?
ioing n o w i s concerned,
Ha
sny trenssctions i n bills i t would probsbl, 5 b
a e a
reserve banks, t h e n t i
supervised
b y t h e committes.
C
Governor
e
r
s inl
t
b snk o r for itself,
for account o f s n y other reservs
expect t o .
{ taink t h e recore
re
teke u p o u r
Toh
be
snnunciated i n
Gf-Juay A n e E U S e s
s n erbitrery c i s
ket p u r c h a s e s |
p
u
r
c
h a s s s .
tribution o
e
j a e
m
r
=
f
t +
‘
Thst evenstss
Governor Bailsy: I
wented t o clear u p i n m y own minc
rom this com5sl o t o f bills a n c h e a
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
lot ted u s
m i l l i o n , a n d wh
two million
d b
l
u
e obligsted
m if, -und°r our c
take
w
tk
felt w e were n o t justified
,noitaut
ws
is
r
too
o
n
r
Strong:
we h a v e a y e r
Ie d ov n o to t hGi n k
w
chased any bills for
i
t
h
o
t knowi
u
that w e were buying for 1
r
o n
Boiley:
That
r
Thst
e vis owhat
G I
metter c e r e u p i n our Jiscount committees,
r oer nho tt it
e wha s w en arbitrary metter.
p the
“Une.
Governor HMsncher:
out t h s participstion w o u l d b e
jnculsed
wos w o r k e d
i n b y t h e banks
: y o u rr situstion
e
I was s u c h
rieh-in reserve,
faaet= L t w a s e n o t
plan thst
edvis-ble, y o u would
not b é
allotted
the
binkbss
+f u e w e r e e l l o t t e d b i l l s
Governor Bailey:
Wwe
thought o u r p o s i t i o n
a it
w e
would h a v e t h e
Governor S t r o n g :
Certeinly.
The C h s i r m a n
i
g
r D r e s siced.for
a
i n tus
ginel plan.
Governor Strong:
And y o u w o u l d b e under
tion t o asceept p u r c h a s e s m a d e u n l e s s y o u
n o obliga-
were
v
inf a c
e
s
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Federal Reserve Bank of St. Louis
thet saucy w e r e
The Chairmsn:
D o e s that satisfy y o u w
this topic, G o v e r n o r B s i l s y ?
Governor Bailsy:
The Chairman:
(c} P o l i c y of purcnas
aon
firms.
E
O
P ine
Thet i s s l s o f r o m Kensas C i t y .
put thet question o n thers b s
Governor Beiley: I
Governor Calkins:
L i r e Chairmen, I
would like t o
est a n sajournment for lunch.
Governor Bailey:
T h i s will o n l y
to find o u t whet i s
old people w h o hsve more fsith
than they heve i n enything else, i
s to buy s
they c o m e i n
thousend o r t e n thousand dollars w o r t h
for them, e n d w e sell them from our portfolio,
and I
w n t t o know what t h e prectice is, rhether t h e other
banks c d o t h s t ?
The Cheirmsn:
S p e a k i n g f o r Chicago,
w e d o not in-
do n o t t h i n k
w e should
do
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Federal Reserve Bank of St. Louis
ao R o b b e
small wey, I
Governor N o r r i s :
shoulc
oe
Lerisn
e LSS
Governor -say:
Governor Young:
T I went t o report t h a t w e d o
“We hesve s
Governor N o r r i s :
numbe:
of non-member state
T h i s . xvefers
firms.
Governor Young:
T w e s mekineg this 6 x »
eotten o u t o r jebt,
vest their funds,
a n d t h ey v e n tb to
for t h e m i n
hes a s v e l o p e d I n t o
e
nvo t e a5h Tih
4
have i n ta:
n a r cis
ought t o continue it.
o
d
not
banks d o n o t c o it,
o
t h a t i t makes a n y c i f f o r e n c e T O U S .
cae
Governor Yellborn:
Our benk i s likes yours, Governor
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Young.
d e .do i t for incividuals,
1
97 ponds.
4066 n o t p o l y to. certificstes.
1 2 - 5 - LO¥F
Governor “sllborn:
Governor Bailsy:
j u s t wanted t o clerify m y mince
88 t o what the other benks w e r e doling.
i e s
Governor Wellbomrn:
n o t hsvé e n o u g h o f i t t o
7,
nencles i t ond gets t h e cocmission onywey.
Governor Cslkins:
D o e s t h e N e w Yorke B a n k inculce
in s n y s u c h prectice’
Governor Strong:
T h e only trenssctions
faonewS t n G o v e r a n s :
We s e l l a
ings w i t h t h e public.
Governor Norris:
W O U Go: H O b a x
Governor Strong?
N o .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
t T think t h e Treesur
Governor Fancher;
o f this s o r t .
s t o conduct operstions
2 e u r y o n this
meme corresponcence w i t h the *
have a memorandum here, w h i c h i s a s follows:
ae
“Requests o f this kind which we reesivé are not very
frequent s n d might j u s t a s well b e placed throuch the b m k
h w h i c h t h e i ntd i v i d u a l
or fii r m mainteinsW counections,
such pureheses v h e n mace through t h e
medium of the benk ere generelly more satisfectory."
of thse acerued interest
we received
direct
from ir’ Gilbert, w e could not very well
urchassr
t o h e v e t h e ord:r c o m e t h r o u g h his
Governor Beiley:
Wosthet s generel letter
Treasury D e p e rtment?
Governor F a n c h e r
ome corresponda ce
person
w
i
of s s d u g i t i s ‘ieee:
t o t h e purcnese s n d
h referenc:
t
s s u e t h s t p r e v i o u s l y h e d b e e n sold.
-
i
S
b
a
s
As I recell it, m y memory i s 2? Little hezy o n it, the)
sttempted t o subs
scription.
b e e f t e r t h e closing o f ths sub-
T h e y went < g
for some weeks, e n d then ene
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
BB |
a
h
wULGin,
P
e
e res, 4 - 3
2 n a
v bne
them t o s e l l
executing t h o s e o r c rs
purcneses.
Governor Bailey:
doing i t i n 9
T h e r e certainly w o u l d b e n o objsc~
smell way, i f
brokerage business.
T h e r
aS
oi
stories thst t h e y h a v e b e e n
they c a n come t o U s s n d o s k u s t o b u y t e n tious
vorth
o f securities
f o r them,
Yes.
T think vhere:-is
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Federal Reserve Bank of St. Louis
of t h e country,2-:
Government C s
t h e ism ing of esrtificet
securities
in the : 3
bonds.
W
e
e slight:
o e : Bg.
e e
with m e m b e r b e n k s o r s n y c l a s s o f
a c y : ¢
not c o n f i n e :
L*slers.
h
is
‘ e s l w i t h t h e individuel
i n government
P a s
eseling w i t h
country s n d t h e ad-elers i n thsss securities; b u t the t i m s
merket f o r gsovernis coring, j u s t a s s u r e s s fats, w h e n t h e
rest
ment bonds i s going t o b e i n the
Tt
slways c o v e l o p s t h e t way.
Governor
Calkins:
a
C h e irre 1
(Upon motion, d u l y secon:
et l o'clock until 2:30 o'clock p e ™m.
a 8 W e sdfourn,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
pursuant
The Cheirmen:
to
T h e x t & t o p i c o n the
£40)
reconms
tist i t s f u n c t i o n s
heve been
Committee
TImove t h e t t i
u
s
for the
s
pest sorvices.
Governor Bisgs:
(The motion, navi
that c o m s s t o m y
some o f t h e s t a n c i n g conmi
COLWMLEtSES «
O n s committees
committee o n collections; e n o t n e
8 On p'
“gormitt 6
s
t ¢ JISDUTY
. o f which t h e Chairmen i s
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Federal Reserve Bank of St. Louis
61
8 conmittze
think m o o f f i
which I
o n insur-
£ your b a n k i s
»
cormittees f r o m t i m s .to t i m e m a k e
reports.
mittse
h e r e t h e report o f tle collection c o m
a e
t o be L
end G o
the pension conmittee, a n d i t eocurred t o m e the:
which mey g o into op: rating prob}
lems, a n d s e forth, thet, where i t c a t
Bonvoniontiy,
it might b e well when t h e reports o f a n yJ
=
ere considered,
t o have ths chsirmen o f the
oregent a t t h e t p a r t i c u l e r s e s s i o n o f this c o n f e r e n c e .
very ecvisebles. that
atother committess n e t e
Gov Srhnoe
rscomicndstions o f ths foirt,
wire committes, e n d t h s non-cash collection
or whetever i t may
w
h
i
c
h committee
consicer
held ¢ meetingo s t the sueccstion o f O r iiller t o
g very important motter; r e c o ; endaetions w e m e l e ,
then
i t
w a s
p a s s e d
b e c k
b y
D r *
H E Li
m
s
W E t h
m d
w e
Ssup<
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Federal Reserve Bank of St. Louis
procedure b e followed
securs
not going into < " tail
I think .it w u l d
n e l p f u l t o have t u n
on b e h a l f o f t u s
very helpful t o have
a4. t a e h i n e . . t h e t-te
Il-know t h e t bm. Kenzel,
o :
anxious t h e t t h e e c t i o n o f t h a t committee,
ja i t s report, r e c e i v e cerinite, s o n t t h p o s s
consicerstion;
e n d i f there e r s n o obiections
[OmMO LrOw
session w i t h t h e Casirmenand the Boord,
is
Strst¢r
t o b e here o n
obieetion t u s t plan
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Federal Reserve Bank of St. Louis
»zoposed
f o r d i s cussion
a
tions made in X-3807, Mr. Gilbert's letter of Ausust
Bes, to. G o ernor Criss
t o have Mr. Gilbert's ‘Ict-
It would perha.s b e w e
this point s o that w e m e y
-3807
SECRETARYF
O THS
JASHINGTON.
August 5 , P a
a a
ty d e a r G o v e r n o r :
T seke i t t o n s ttasre
n
3
o immediate occasion s t this
?
time t o consider possible sadvancs
h
e d i s c o u n t rates
Fed:ral Ressrve Benks, p n t Y t i s conecsiveble t h e t
some occssion m s y arise i n t h e not cistent
writi
t
o sussest a
to the problem which i t seems t o m e
ciently considered i n the past.
the p o s s i b i l i t y
o f establishing
ms
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Federal Reserve Bank of St. Louis
now are process
count rate f o r 2ll classes o f paps
rete f o r bankers a c
nothiig sacred, however,
fest t h e t a
{nto a c c o u n t
y uniform
t h e cifferences
3
clesses o f pepsr.
a d
g
T h e most fundementel
a
a
c i fersn
woich h e s
n o marke
Baabsetans ©
System o f t h e importance:
t h e opsn
Ispsl Reserve Banks, 2 n d with t h e
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Federal Reserve Bank of St. Louis
65
9 2G
is through
euestion
the t
5 ¥ onsen m s r k
a e tt
an
o f msking
en much progress
V a n e
L o e w
accurately i n v e s t m e n t
u r y
corti-
values o f Tressury csrptifiests
4
liquid short-time
SSctErrUrcs
have e c h i s v e
undersell
ns
Soba e S gp ee
S C C S lL o i e
s
66
were kept u p t o the market, a n d I understend t h e Central
Committee
o f Governors
o n open marlet overations h a s b e e n
giving s o m e study t o this side o f t h e protlem,.
A t any
ate, b o t h t h e Breasury a n d t h e Federal Reserve Banks h a v e
had s u f f i c i e n t e x p e r i e n c e w i t h T r e a s u r y c e r t i f i c a t e s a n d
bankers a c c e p t a n c e s
t o trnow t h a t a n o p e n m a r k e t c a n b e
successfully d e v e l o p e d f o r b o t h G l a s s e s
o f securitics,
and that i f free o f artificial influences this marltzet
will
constantly r e f l e c t t h e truco p o s i t i o n o f t h e s e c u r i t i o s a n d
afford f r e e play, t h r o u g h p u r c h a s o g ‘and S a l e s
o f certi-
ficates a n d acceptances,
t o changes i n the credit situa-
tion.
The f u r t h e r doveolopment o f t h e o p e n m a r k e t f o r
certificates a n d a c c e p t a n c e s o f f e r s ,
i t seemsto m e , t h e best
opportunity i n the world f o r placing t h e Federal Reserve
Banks i n something o f the same relation t o t h e market
here t h a t t h e b a n k s o f E n g l a n d h o l d s
over t h e r e ,
l e a v i n g t h e Federal
the B a n k o f England,
orcdite
t o t e b i l l marizet
Reserve Banks
t o deal, likes
w i t h o n l p t h e marginal demand f o r
T h e o p e n market,
i n other words, w o u l d a c t a s
a kind o f talaence-whecl b e t w e e n t h e b a n k s a n d t h e F e d e r a l
Reserve B a n k s ,
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Federal Reserve Bank of St. Louis
B a n k s
i n the financial
centers would hold
67
in their p o r t f o l i o s r e a s o n a t l e a m o u n t s
o f liquid short-
time securities, l i k e Treasury eertifieates a n d bankers
acceptances, a n d whon i n need o f funds would sell-certificates o r acceptances t o t h e market before h a v i n g
recourse t o the Federal Reserve Banks.
normally a b s o r b t h e c e r t i f i c a t e s
T h e market would
o r acceptances t h u s sold,
probably through sale t o a n investor o r t o another b a n k
having a n excess supply o f funds, b u t i n the event o f a
real l a c k o f credit,
t h e market itself could a p p l y t o t h e
Federal Reserve B a n k under i t s a p e n market powerde
v O
some extent this i s already what happens i n the principal f i n a n c i a l c e n t e r s u n d e r t h e p r e s e n t s y s t e m , b u t i f
breaks d o w n i n a situation where member banks, without
having recourse t o the market, c a n get funds from the
Co
Federal
Reserve Banks
with t h e F e d e r a l
onthe
s a m e terms
b y discounting
Resorve Banks oustomers!
notes
a n d lino
of credit loans which have n o standing i n the open markct.
Under this system discounts o f customers!’ notes aro almost
always made a t a rate lower t h a n t h a n going rate f o r such
paper, W h i l e sales o f certifisutes o r bhlls t o the
Federal Roserve Banks, w h i c h mast b e regarded f o r practical
purposes
a s o n l y a n o t h o r f o r m o f discount,
w i l l probably
ee made a t about t h e open market rate, unless t h e Federal
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
buying r a t e s f o r
sl r e c o g n i t i o n g i v e n t o p a p e r e n j o y i - g
waat b e s b e s n d o n e
i n the neme
o f
merket f o r a c e s p t e n
it gecms t o me, w o u l d b e
notes 2 n d l i n e o f c r a d i t
fiestes
rate o n c o m
fevor o f p a p e r
eneoursge t h e da-vé
B
benks m o r e s n d m o r s
funds
reletions
m o o r s
fant
A
t t h e s e m e t i m e i t would
thet
tos
market w o u l d keep t h e Federsl R e s e r v e Banks mors o n
mettle i n the d=velopme.:t o f these policies.
69
The s u g g e s t i o n o f f e r s p a r t i c u l a r l y i n t e r c s t i n g p o s -
sibilitios i n case there should b o a situation Galling f o r
an increase i n discount rates, f o r i t would m a k e i t possible t o recognize,
a s t h o official Fedoral Reserve rato,
the r a t e o n acceptances a n d c e r t i f i c a t e s
o f iadebtedness,
: j the
with
proviso t h a t t h eo r a t e o f d iss 8c o u n t
o n sutomera!
notes a n d l i n e o f c r e d i t l o a n s w o u l d tke, s a y , 1
higher t h a n the ostablished rate,
per c e n t
T h i s would recognize
the essential differences bctween t h e t w o classes o f paper,
would b e a perfectly s a f e distinction i n view o f the liquidity
Paper a n d t h e independent o p e n market which i t
would e n j o y ,
a n d w o u l d m a k e t h o F e d e r a l Reosorve r a t e MOLES
nearly c o m p a r a b l e t h a n i t h a s e v e r b e e n b e f o r e
t o the
discount rate o f the Bank o f England, Incidentally, i t
would h a v e t h e p s y c h o l o g i c a l a d v a n t a g e
o f leaving o n e
official rate a t the relatively lower figure, w i t h a
higher r a t e applicable t o discounts o f line o f credit
loans, W h i ¢ n a r e handled ordinarily t y tanks i n practically
all sections o f t h e country a b a r a t e eonsidorably highor
than t h o o p e n m a r k e t r a t e o n c o r t i f i c a t e s a n d a c c e p t -
ances.»
T h e differential would thus accord w i t h the
facts. E v e n now, for example, with a four and a half
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
seh(
51
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lage
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
xsniple,
snc s t i
meet t n e m a r k e t
loans.
n o t m u c n more
o n customers!
A n y inersese i n retss
s e enough t o put tae
rete o n custom rs’
gOULC thus Opsrete Most
s@csptsnces
Si
of erscait loans, t o put
s n c ser~
ble ’ b y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ing t o sccom:1i
our p o s i t i o n
in
an ¢ p roprists
ne 6
to ordinary conmerciel peper.
rs
2 S L L262 OLS
T h i s w u l d enble our
bankers e n d busi.ess m s n t o c o m p s t s
our
on
o w n
tisl t a rates i s that i t would keep t h e
Benks o n their mettle,
m d require t hLLe m
to k e e p i n t h e closest t o u c h w i t h t h e merkst.
Tressury w o u l d hsavs
to avoid s t 911 costs e n y action o n
would t e n d t o p u t e i t h e r c e r s
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Federal Reserve Bank of St. Louis
GOurss, more c o r
entative and would heve t o b efurtner d:velopsd, b u t I
ffering t h e m now i n the laght o f ths
these m e t t e r s w i t h t h e t h o u g h t
t o conside
reel opportunity
£
to their possibilitiss
i S
e o n e ie e
or short-time
tAob
Tressury
notes. G e n e r e l l y speaking,
i t ssems t o
Liberty boncs s n d Tressury notes,
class o f short-time Treasury certificstss o r
scceptances,
n d n o t having
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
+
notes
anc
Governor
ction,
a
y
c
: n o s i r r e H
r
i
e
r
B
o
a
nr
tn
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
do n o t k n o w
the n r e r s n c ® I
Go not know
visws
o f Governor
tre tsble express w e i r
rder, perheps, to limit
Governor Strong's letter, written i n August,
Llioquisl msnnen,
t o Dr,
Pees
SS-cLLeP?
Sars
L A S
Lt Compaeres
ne
L
ide S
tarougn
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Federal Reserve Bank of St. Louis
orincipis
some
es t o w
meturit
b
l i u w
a
So T i m e s
the m e r k e t
a
a
j
“
4
O M e o r e ee
c
o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ane BrieLeacrs
the bounds
TrSetvely
under
only
he v e r i o u s
the v o l u n
s vS
e tUSh
e ;
S
I
G
TYom U S Somemnet
control
S e r a te
ur
E VG !
Y N O s h Oats y
8s: ths
S
n
the purchase
h o u s e s b o r r o w J r o m these
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Federal Reserve Bank of St. Louis
73
upon o u r @oluntary
to s h o w c o n v i n c i n g l y
nvestrent C o m i t t s s
Our o r S r e n se
ciecount
w a t e (Tour? 2 n c s e w e p t
cent)
a n d our buying
(sey four t o four s n d &
by o n e o f t y o c o u r s e
WO. O s u
wey
: >
»
4
+
ur BDUYyLns 7 6 7 8 s
would b e u n s o u n d e n d inflstionery.
heave h o i e t
w r i t t e n r s c o ims taetio
79
in your files -
as I have i n mine -
urging that w o reduco
yates o n bills a n d Treasury certificates,
a s a n alternativo
to our o w n recommendations t h a t both o u r discount rates
and t h o Troasury borrowing rates should b e advanced.
Thore are, however, s o m e points regarding o u r open
market operations w h i c h I
a m hoping t h a t y o u a n d your col-
leagues Will consider v e r y seriously.
L e t m e just skoteh
out the. points.
Ste T h e r e i s a n earnest demand that our policy
should b e a d d r e s s e d
t o prico rogulatione
M
u views h a v e
not changed, o v e n after m u c h reflection, t h a t s u c h a n
openly published and accepted polisy would court disastere
Few peoplo c a n grasp t h e difforence between t h e "general
price level” a n d "prices", that i s individual commodity
pricese
H a d w e been t h e "price fixers" h o w earnestly
would w e have boen importuned this year t o “put down sugar"
and "put up wheat". T h e Reserve System would he tho
tragot f o r e v e r y a t t a c k n o t o n l y a s t o comméity,
but
as:to l a b o r pricos, rents, otc., a n d i n time would b o a s
much abused i n usc, a s i t has been i n print}
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Federal Reserve Bank of St. Louis
L e t us stick
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Federal Reserve Bank of St. Louis
M Y own reconn
done
c
o
n
r
e
r
-
op2re-
ences, h e s i n fact
b y t h e Committes
tions
ment,
A
eBas alos hues
on
care r i gt
write someta
b e
}1
Danis
York
GOS,
woicnh
borrowing
revenuss,
See B s
becomes 8
Lag
b e n k s
ho aalra
pay
Cy
e
iscount,
ae j
3 ¢eaear-
the
bo roo w=
irectly t h s i n t e r s s t o r i i s c o u n t costs.
ing s s they will t o s s c aj¢ Se
wicaeo o
K
th is t e x
+
4
o n their profits,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
sl
sak t h e i r c u s t o m e r s
totel a m o u n t
e
paid 2
as
g e e :
lerger
smount b
t l V A O U R
o f losns
t o
joss ibly f o u r or: f i v e t i n s s
ac
s e c u r i t i e s
w e have s o l d -
the
amount is in fact equel to or greater then whetever
erected originally u p o n
very u n c e r t a i n
~
market
sibly t h e mejor pert, o f t h s creait furnisnec t h e
by our oriv-inel purchase w a s used s t thet time b y borrow~
ing member b a n k s
t o repé
As wos the case i n i
u
g b o r r o w i n g s f r o m us,
s a r l y part o f 1922.
B u t t h e fun-
cementel fset i s thet w h e n w e buy a n d increase o u r investment holdings,
s o much o f the funds © s are not spplied b y
u s forms t h e
member benks t o repaying loens t h e n owing t o
me ratio,
s a y four o r five
A n d
eleins p o u t double t h a t ratio.
ll, i t st ones increases borrowings from
licvidete
losns b y many benks, sSpreacine
o r reduce
s e c t i o n s , f
amount i n total equel t o what w e have s o l d t o t h e
multiplied b y the pyremid factor o r coefficient.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ienorect o r c a cless, pull cowm
Phat .rocess, i s
maximumali s t some ind<finite period following o u r
end w e msy ffeil t o ¢°
1 6 . 6
o
n sccount o f
tio 1o,. t u t 3 8 rere
tion, s n d not nearly
ument i n support o f this dogins
ord, I n t é m a t e l y besring upon
sold movement,
i n ® word, o u r policy s s t o t h e volume o f
4
credit m s y b e made t o
r lus)
n
imports o r , b y jgnorissg t h e m , m a y 6
o r . gold
a g e r a t e t h e harm,
with t h e e n
This I have consistently u r g e d b u t n o t
support
New York benk,
sre s s follows:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
83
“1,523,516,00
August 1, 1923 ,
“
1
,
0
8
2 ,870,000
Recuction o f Herning Assets
Totsl Gross G o l d Imports
December 30, 1921 t o August l,
Totel Gold Exports,
a
same |
5
es
Net Gold Ineree
without @
9
p
,
6
9
1
1
,
0
0
0
) 379,685,000
f i g u r e s sveileble here, I
shell essume
that Jomestic g o l d production i n this period o f 1 9 months
hes e x e c e d e d c o n s u m p t i o n b y menufecture,
b y s e y vifty mile
Lior d a i c h i s probably too high).
crecit, w e nevs, curing
enc 1923, 3s o m e w h a t more t h a n offset t h e malign i n -
fluence o f gold imports, b y our livuidetion o f some 440
lions o f Giscounts s a d investments.
a
D u r i n g this per-
fod $240,066,000 o f
end s u c h e x c e s s
of
a
n
d vroduction
over
t h
as r e a c h e d u s , h e
ing out gold merely sffects our r e
does n o t e l t e r t h e r e s u l t s
4th.
Cc
S
x
a s t o volune
T h e next factor i n importance, b u t without
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
84
cArect. bearing, =
posits,
ena
n p
conversion o f dsmend into t i m e
1 6 s o m e smount
o f reserve
to
ereeter total o f loans s n d deposits, w h i c h has b e m going
on s t s merry pecs
t i l e s t f e w years.
ne above, y o u will gether t h e t I o m
Ger 9 su-~estion s s t o our policy (not
= new one) w h i c n s p r i v e s s t slong a
wholly
line o f sreument then thet enploysd b y Lr.
which should mcet t h e situstion s o long e s
gein support f o r proposals ( a ) t o incr
or (ob) t o buy bills o r Treesury eortific
ficial ¢
gfereatiel o r (c) t o establish special d i s
(Section 13) rates for bills o r certificstes, lower then
those
f o r cowmercisal psper.
Sth.
I n 911 consid rstion o f spec
C=p S e c t i o n 1 3 f o r s p e c i s l c o l l a t e r a l
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
85
Nothing whatever beyond that w o u l d b
e secomexesoting possibly t o p u t some small premium i n
eper t o which w e extended t h e
that i s the ons which t h e
s b e the lowsst one. ° During
Over C O p e r i c a t
ol ou
solely b e c o u s e o f
was ended, s h e o
ecsuse o f t h e coavenience a n d
smaller risk and 2 x :
i l i n g by mail, ete.
Specific comment on certsin points i n kr, Gilbert's
letter, which I have merkec, might well b e ss follows:
(1) Z o s t of this i s crswerec.
T
h
e
r
e i s sorme-
form rete, hovever, because i t places
resources a t the comvaznd of e l l o f o u r membsrs,
a t the
cod
to esch, whether t h e member offers
benker's bill, o r @ m
hould
b e und:r Section 1
Gilbert i s a bit confus
2 s t o t h e Loadon
Tie Benk of Englend takes “floaters",that is,
‘paper, l i k e bills, Trecsury obligations, ¢svwc.,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
85
its
uniform /Aublisna3. f i s c o u n t rate.
u
r i
i
vate, under Ssetion 13, b u t n o t 2 minimum rate.
of Englend,
uniform
.
T i e Benk
o n t h e other hand, losns private customers o f
‘tein types e t lower retss t h e n t h e minimum discount
rates.
T h e collsteral m s y
lomberd losns) commodities, foreien g o v e r n m e n t bonas, <ctc.
O u r Section M @ cerrying rate
ond the Bank o f #ngland has n o
which c o m p s r e s w i t h o u r S e c t i o n 1 3 d i s c o u n t
should n o t
b e the
ne i n o u r c r e d i t
no
Vito D e y O n
give t h e System
ond dividends,
nst something, possibly o u r o n mis teken policy,
hes f o r c e é
e n unnecessary liguication,
s u c h 9 s would pay off
many hundreds o f millions o f our earning cSssets.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a7
6 been buy-
bea
ed
w s
all c o m
operets.
m
ees that our membcrs
L will ome to
Se
L
withid u s u n d - r S e c t i o n
ofEnglena in London.
+
OMS
a
d S
1 4 2 s bill nouses d e a l w i t h
T o 2 small
0 e
Strset would shortly heve 8
$4 c o c k y
ALS
U k
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(F) I
think the member bank should pay
et
rate, v h e n borrowing f r o m us, wnether t h e colleter
Government b o n d s
o r customers! n o t e s .
T n e lower market
for these spsciel securities w i l l b e those e t which
the c c c l e r s u n e r
section 1 4 ,
Trus enough, s n d o n t h e surface
is’ not. w i t h - o u r
tau.
O U l « o S e e u lt
ne gensrel money merket.
T n e t
-y veply t o yours o f t h e 18th.
real point.
I t boils. c o w n
at retes o n l y o n business
reatss apply t o Tressury
ve Should n o t considtr s u c h
monent.
u n a t s v e r t h e srgument m e y n o w
Hag b i e r
0 % 2 1 should b e seriously
We w o u l d 2
smount,
m m e r c i a l money
e a e wa 8
p u t 3 a premium
h
e Tres sury
core
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
89
another s c r a m b l e
f o r Government
We know from jest experience that once thess
preferential rates a r e established, t h e large City, (expecielly N e w Y o r k C i t y ) b a n k s ,
Sromptly e n d f u l l y a v a i l
s * t h e only ones which c a n
o f tha
neither a hold-r nor e ce:
T
h
e country b a n k
i n those luxuries that
to 211 our membe:
the collsteral, n o r 2
4 o r location o f the bank,
Size,
s o long 9 s the member
simply borrows for 3, fixed t e r m under Section 15.
Now, l e t me here enswer yours o f the 18th
the .function of our rote. I
not only still believ
of members! Ziscounts)
e n o u og slow
t
h
down the mechine,
h a r
t e advances of say one per cent
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
90
the m e c h i n e
o r start
i t movin
a
thet the co-siticient i s t o o strong 3
ons i m p o r t e n t r e a s o n w h y I
been o p p o s s d t o
Here, there:
e s e
f u r t i n
r
e
nave
s o f e r t h i s year.
y o u r policy outlines
t o
me f r o m a
First - vie should s i m t o maintein »
ste ble volums o f
4, with c u e regerd t o
(a) I n c r e a s e s o n d asersases i i
(b) A n n u s l o r longsr period reauiremtnits
cresses i n credit volume i n corresponasncs
ineresses i n population s n a procuetion
and consumption -
specisl world recoastruction consic:retions
e netionel policy.
“e s h o u l d c o n t r o l t h e volums
o f member b a n k
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
OL
borrovings, ktespins t h e m reesoasbly s t the needs o f
eountry's sessonel racuirensnts, b u t preventing
of borrowings b y 9 uniform rate for credit extended under
Section 13, “hich Joes n o t encourage o u r borrowing.
oli 6 Bs T g shoulé enlarge i n volume end sctivity a n d
importence, o u r market operations under Section 14, making
thet the meens o f promptly supplying deficiencies e n d
over e n d beyond thet i s
cone und-r Section 13.
Fourth: -
W e should cons1as
n i s f g r s l .rogrom a s
situation
but temporary a n d tentetive, f i t t i n g P r e v a
x
the world b u t ourselves h e s suspenced g o l d pay-
intending
v e c e s t o u r point o f view
the e p p r o a c h o f r e s u m p t i o n o f s p e c i e o a y m e n t
b y important
“es s h o u l d p r o v ptly s s e k m o r e e c c u r a t e a n d
mesns o f a t t e r m m i ig how much s n d w h e n t o b u y o r
to sell uné vr Section 1 4 througa
If the Fed-rsl Reserve Board a n d the Governors o f
s policy solely a s one
to menege o r control t h e total volume o f efiective
and b r u s h esiade e v e r y l o c e l o r aLtstries
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
92
or special consideration a s of secondary importance, I
believe w e cen f i n d the solution o f some o f o u r puzzles
and difficulties.
With n o opportunity t o consult m y colleagues
York, I
i n New
a m unsble t o s a y whether t h e y will ogree w i t h all
of t h e above,
s o please consider i t a n expression o f m y
own v i e w s only.
And please overlook t h e very poor errangement o f
this letter, which i s 9 first creft only. I
facilities h e r e f o r polishing:
have n o
W a r m regards t o y o u a n d
toyour associates.”
I do not know thet “ h e topic,
a s i t sppears o n t h e
Separate progrem for the Governors Conference, calls
for a n y special action i n advance o f t h e Joint Conference
tomorrow, b u t i t may not b e amiss f o r t h e ®niference
to consider s o m e question o f general opinion a s t o what
they think o f t h e differential principle.
The Chairman:
T h e topic appears o n the Joint Con-
ference progrem, a n d i t seems t o m e that everything t h a t
in
might b e brought out will b e and shoud be brought out
the J o i n t Conference.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Sup teei.
J
o
i
n
t
Governor Harding o f
Secretary Gilbert's
lett:r b y G o v e r n o r S s s y - n d G
M i sClO\C e e
n
g
I
t will b e
to h a v e t h i s
conclusion.
mu
cisouss
the
worth
you t h i n k 1 4 w o u l d b s v o r t h while,
further w i t h i t , n o w ?
Governor
thing, cond thet i e the Lnconsist:
buyiag Government
a n d then turning
Open B u r k e t p r o p o s i t i o n ,
ths momber benks ¢ pr:fer~
concerned,
it
boost t o o v e r n m e n t
Thos Cheirmen:
Governor Harding:
S
e
l
e
s
gane,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
aay
u
e
‘
n
}
ob)
C
)
o l
n o mr s benk
s
new
Li o« 4 s
a
o
c
O a
y i
t o
i1 I
‘Xs “
avd ickSores
o
Wha
s
r oGomes
l k
K
enien
facies &
or ¥
ees
r
impetus
,
1.
k n a b Ui
O
O e n COW,
o
to
pOe a p uS a¥
)
of
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
on thet
5ears 4
nsG
w
S n o
Inc y v e
GACY
“td
SrRaNGn G
would b e s v s i l i n g tacls
t a n
Lleterel o f thet charecter t o
cad
OUs
B
e
t
Ly pecsaus<
policy would b e
methi-~f of l a t e , 1
a
sa
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
fects pointed o u t b y Governor Strong,
Within o u r S$xperfficient t o c o n d e m n b r
y open merket operations;
Government
yUitodisg
a m
w e e n y
“
4 ,
member
b a n k~ s
Wit Ue, e n a
we boucnt t h e m oursslvés.
T think t h o s ?
two
The Choirmen: I
think y o u might
brougnt o u t b y Govsrnor
knowledgs, t n s t w e
ri
S
S
Go VEFrnniEen
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
getting s v a y f r o m it.
I
t seems t o me, too, t h a t
a rate were established i t would stimulate interbrosden t h e market f o r bills s n d Treesury certi-
ag well, because i f the banks could buy those
+ they could rediscount a t a preferent
they would c o
Governor d i n : a
d
heve 2 n uncontrolable
effect upon t h e msrket f o r government bonds, whereas a n
at
open market policy, t h e Federsl Reserve Banks buying
times end sellinc e t times, i s something that w e can regulate.
Governor Fancher: I
think t h e point y o u m e k e S o u t
the smaller member banks making t h e cherge t h e t this preFerentisl rate would ‘
favorsble t o s n d used more b y
ne lerger banks, becsuse those are t h e banks that own
I think s
matter
e brought u p s n d stress
would b
because m a n y o f t h e m c o m p l a i n n o w s p o u t t h e a p w e r
perticulerly i n t h e Federal
a
vantsges which the larger benks,
those cities,
Reserve Cities, e n j o y over t h e banks reniote f r o m
snd this would add just one more objection t o the list.
b very obvious that the
Also, i t seems t o me, i t w o u l d e
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Federal Reserve Bank of St. Louis
of y o u r G i s c o u n t s w o u l c b e
seeuzed b y G o v e r n m e n t securities.
Y o u would n o t have
ging whst t h e funds were used
you w o u l d n o t k n o w v h e t u e r t h e y w o u l c b s
1a nwin
a t2 a
i tox
y Yae
a
OV
SPiipol
ies
Gees
ywoulee
b
Amat
i v y
p>
eae
the peper i n your portfolio w o u l d
a r e f
5
not indicate w h e t t n e c r e d i t war
think
i n g used for. I
s very serious objection.
Governor S s e
provices t h a t 2
e progrsm f o r t h e joint conference
n
z
e
p sn
the v i e w s t h e t h e v e b e e n s x .
t h e t discussion.
ssed here I
x f o m
sse t h s t they
closely i n s e c o r d t o w h s t h e s b e e n i n m y mind.
that l e t t 2 r
inconsitencies.
divoted t o o p e n m s r k e t operstio-s e n d .
ea e k
UiLS
market,
the open
By
wast h a s b e e n d o n e i n t h s m e t t e r o f e n c o u r a g i n g
back
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ean
e S S o n ee.
L
t
. think t h e r e w e s
“one
t o
buying scceptences 2 t such a low
si l t h a t
were
merkst.
inthe
inconsistency
should
i n
1
be
waich e a j o y7e d s n opésn m s r k s t .
zt n e
v O C1Less f
papers w h i (
P t 7
5
a
Government
he c o n t e n d s
Governor
Governo x
is n o
l j a t e occesion 8
n
e t o Consider
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
23 t o w u n d e r s e l l
“nc i f t h n s t o c e s s i o n
discount r a t e - - - e n e d
we mipgnt siford a t
till t h e m e r k e t - - - t n e n
there t o
Governor Fancher: A
for ecceptences
vse
wouldb
e the
Governor
d=retions,
mignt compsts w i t h
upon competition c*veloping
merket o p e r e t i o n s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
nOreover,
end your lines o f c r e d i t
f
Wits be. to-e¥sil o f thet K i n d o
s
n
d put that money
ity:
There-
down e t every
Governor Herding: '
I undtrstood y o u t o
het pswer secured b y Government obliga-
a slip o f t h e tongué.
cs mot buy thet psver i n the open merket.
Governor Ces likxins:
contravention
h
ofthe
y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
102
ate i s that i t would keep “ h e Federal Reserve
Bsnks o n their msttle a n a reguire t h e m i n sll their opera
in t h e c l o s e s t t o u c h w i t h t h e markst.
29
Pedsreal R e s e r v e S y as t e m s n d t h e Tressury w o u l d
h s v e tb
as
utmost c a r e t o w a t c h s n y srtificiesl i n f l u e n c e
the merket f o r certificates o r sce ptences,
sll cost a n y action o n their pert thet would
tend t o put cither certificates o r seceptsnces o n 9 false
keep t h e Federal Reserve Bonks o n their
s t o have. them cngsgs i n open merket operations
t
at <« fluctuating rete
in fsvor o f scceptencss
Governor Har@ing:
in t h a t w a y a n d t u r n i
e
t e e t w e s i x Ss
s e c u
a
y e i t h e r one.
Y o u los? control of it entirely
t
o t e n t h o u s a n d m e m b e r benks.
Governor Seay:
consistency.
tir. Herrison:
ifferential b y r e
2
4 G i s c o u n t rete.
¢03s s e y thet, n o t i n s o meny worcs, b u t he
‘ite remedy,
i t seems t o me, w o u l d b e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
count
o n cwstomers
Ate
*4fferentiesl
MSnGoOr
¥*
I
BO P
o
i n fevor
o f paper which hes inde-
Ee
t
S 0G L G
e
“a
e
r
runds ,
temporarily
Governor Harding:
tember o f i919, w h e n v e
ivisory Council,
that t h e T r e s s u r y w o u l d h a v e n o o b j e c t i o n
Paste
O n Cont
Government
Governor N o r r i s :
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
System, 377,000,000 were secured b y Government obligations
I
end 439,000,000 other bills discounted.
n other words,
there vere not, f o r preeticel purposes--- l e t m e s e y that
“uilte a r l y half e:d helf.
sucsestion, s p s l i e d
camp le-
to
a n d I
nzey o f illustration,
ste should b e made 1 1 s n d s half per cent on
secured
T
Goveriment obligations o r benks i
siEe ig
o n our:
littls affect
Governor Celkins:
Governor
u
i
it would slight j n e r e a s e
t would
r e t u r n o n dis countsd
w o u l d slichtly
Norr }
a
t vould
i n
slightl
i t Z o r the moment, b u t i t
becca s e
would s o o n b a l s n c e
tendency t h s t h a s b e s n
l u d e d t o hsre
ag l e r g e esmounts a s
c
h
e
a
p r a t e peper.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
sarly
rely
remember t h e w o r d ending t h e p! s é - - - b u t o n o p e n mserket
operations. I
doubt, tsking s
long view o f it, whether
we c o n rely incressingly o n open market operstions, because
with whth
ba. ESS
w e can
T h e
volume of Tressury certific: outstanding--- end bear in
mind s
rele :
m
e s t u f f a n d does n o t
jnelude Liberty Bonds o r loug time trecsury notes, i t i s
t h e volume o f short t e r m
for s h o r t m e t u r i t i e s - - -
is b o u n d t o b e constantly c e c r e a s The volurie o f benkers! s e c e p t a n c e s
it. i s smsller t h e n i t wes,
yords, o r e o f t h e t w o c l a s s e s o f
is bound t o constently c = )
g 6 , 3nd. t h e other
so t h e t
thet w e e r e
not i n 8
t
creasingly o n
dearesase i n volume,
Another thing--- i t has been very truly
o rely i n kely t o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
LOG
the Government s
:
s n d bills would b e held prin-
cipslly b y the City Banks e n d thet they would have a n
s°ventage over t h e country banks
rate were esteblished, s n d t e r s
Strong's letter t o interest p a i d t o the Fedcrel Reserve
Banks a s 9 tex o n the profits
banks,
o f t h e borrowing member
I n the case o f the city benk, whose loans pos-
sibly would n o t
rete veaid t o u s would not b e e@
e fer from @ tex,
it certeinly w o u l d b
it w o u l d be = ¢ o n t i n u a l p r o f i t t o them, i f they were
able t o put with u s lsrgsly sxclusively t h e psper 3 t the
lower rete.
tretion I
A
put
t t h e same m
s
smell c o u n t r y b a n k s
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Federal Reserve Bank of St. Louis
LO”?
never l e n d s a n y m o n e y u n d e r s i x p e r c e n t a n d i n m a n y d i s -
tricts i t gets seven, eight,
o r a s much a s ten, s o that i t
doesn't s e e m t o m e that y o u could call borrawing m o n e y a t
five per cent and lending i t anywhere from six to ten,
a very heavy t a x o n the profits.
me sound either,
t o s a y that a
I t doesn't s e e m t o
member b a n k should worrow
from u s a t the same rate regardless o f the kind o f paper
thet t h e y put u p with us.
I f w e rely entirely o n the credit
of the bank, o n the theory that o n e bank i s entitled t o
say thet i t s credit i s a s good a s that o f another, w h y d o
we e x a m i n e w i t h t h e c a r e t h a t w e d o t h e p a p e r t h a t i s
offered t o us, a n d why d o the other banks ao, e s i
pre
sume they d o - - w e d o - - more quickly request excess
collateral from a bank whose paper w e know little o r
nothing about than we d o from the bank that offers u s
first rate paper? I
question whether i t i s true that
the lower rate, i f established, would b e the only effective o n e , b e c a u s e
o f t h e skrinkage,
that I
have a l r e a d y
alluded t o , i n the volume o f paper that would take t h e l o w
rate; I
doubt whether t h e banks would have anything like
enough o f i t t o d o a l l o f t h e i r p o r r o w i n g
o n t h a t paper.
Even i f they did, hewever, a s a return for the low rate
that w e would b e getting,
paper i n o u r portfolios.
w e would have distinctly better
N e i t h e r can I
say that i t would
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Federal Reserve Bank of St. Louis
greut d e a l
o f .differen
Curpose.. t o r W i e c h o u r f u n d s w e r e
banks b o r r o w i n g f r o m
2
dred a n d s e v e n t y e i g h t m i l l i o n d o l l a r s
o n Government o b -
lowest
I suppose
i t i s fair t o assume t h e t whatever t h e
figure w a s a t i t s l o w e s t p o i n t , vorobadly
i n the f a l l o f 1 9 2 2 ,
it r e p r e s e n t e d t h e a m o u n t t h e t w a s r e y
being borrowed t o
carry G o v e r n m e n t o
a
t
a
n
d
.
a
t whatever increase
there hoes been i n that, t h a t f r o m that time t o this, r e p resents m o n e y b o r r o w e d
o n Government o b l i g a t i o n s b u t u s e d
for o t h e r purposes.
Governor C a l k i n s .
W h y
d o y o u reach that conclusion,
Governor N o r r i s ?
Governor Norris.
B e c a u s e a t t h e rime
the presumption is, a s I say,
that Was-needed. at. t h a t t i m e
C a r r y
Government
continual process o f absorption;
triotic
o r other urge
unquestionable
t o us
n o one has h a d
t o b u y Government securities
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Federal Reserve Bank of St. Louis
about
bb =
t o means. that. o
i b l y a t least one-half
of w h a t h a s b e e n b o r r o w e d f r o m u s o n Government s e c u r i is b e i n g u s e d f o r c o m m e r c i a l p u r p o s e s .
c d o . not
see how any bank can tell, a n d i f they cannot tell now
they w o u l d n o t b e a n y w o r s e o f f i f t h e p r o v o r t i o n s w e r e
changed.
Governor Calkins.
Oris
T h e y would b e t*is m u c h worse
I f your borrowings o n Government securities w e r e
doubled you would know just half a s much a s you now d o
not k n o w ,
Governor Norris.
B u t i t doesn't make m u c h dif-
ference whether y o u know a quarter o f the story, o r
three-quarters o f the story, i f you @
Governor Harding.
n o t know
i f the loans amounted t o 350,000-
000, and y ou had n o line o n the use i t was p u t t o you
would b e n o worse o f f i f the loans t o the banks o n
Government s e c u r i t i e s a m o u n t e d
no k n o w l e d g e
t o 10,000,000
a s t o what t h e t e n millions
I do not follow the argument.
n
a n d you had
w a s used for.
k t h e larger volume
of loans o r advances made b y F e d e c e s e r v e banks, t h e
purposes o f wrich camnot b e know, t h e greater r i s k there
is o f their being used f o r improper purposes, a n d i t
seems t o m e t h a t i s obvious.
I n the case o f t h e e i t y banks
Governor Norris.
obligations a n d
almost a l l o u r l o a n s sere o n Government
the c o u n t r y b a n k s d i s c o u n t t h e i r customers!
us.
“ w e know what
O
m e r a
n k s haven't s o t a n y aopre=
advanced h e r e t h e 5
ciable a m o u n t
n the theory
o f Government
s e m r i t i e s o u t u p a n d trere-
fore i t woulda not change t h e s i tuetion.
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Federal Reserve Bank of St. Louis
Governor S e a y e
Governor N o r r i s , t h a t
I s i t n o t altogether yrobable,
i f the Government securities w e r e
not i n t h e market, t h e r e w o u l d b e a
far greater demund f o r
bankers! a c c e p t a n c e s ?
Governor N
have n o d o u b t o f that, y e s .
I
Governor Harding.
about t h e a i s t r i b u t i o n
M r . Norris svoke a
o f Government s e c u r i t i e s
were c e n t e r e d
more o r less.
moment
i n the F e c
e t the
. 1 Reserve banks
distribputec.
N o w , t h e y have b e e n pretty well
Tt s e c m s t o m e y o u a r e a d v o c a t i n g 2
»volicy ‘ h i c h w o u l d i n -
o f being
vite t h e r e v e r s e p r o c e s s a n d t h a t i n s t e a d
con
distributed t h e y w o u l d b é c o m e m o r e a n d m o r e
in t h e banks.
Y o u w i l l remenbdex G a l e t w o s é
before t h e war, w h e n nearly a l l o f the consols were
w a
l
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Federal Reserve Bank of St. Louis
21a
bv the national banks t o secure girculation a n d there wasn't
for them anywhere else. t h e i r value was i n the
circulation vrivilege.
a special p a p e r u n d e r a
I f vou have a
form o f security,
very l o v discount rate,
i t seems t o
me t h e tendency i s going t o be, inevitably, t h a t t h e distribution spoken o f just n o w a s being a
fortunate thing,
is g o i n g t o g o t h r o u g h t h e r e v e r s e »rcecess a n d t h e r e i s
going t o b e a n u n d u e t e n d e n c y o f t h e p a r t o f the.banks
to get ready t o load u p o n Government securities again,
because t h e y would s a y i f they ever needed t o borrow a n y money
they h a v e s o m e t h i n g
o n which t h e y c a n porrew a t the cheapest
rateée
Governor Norris.
Y e s , b u t this suggestion,
as I
understand it, i s confined sdely t o short t e r m T r e a s u r y ~ ” °
certificates.
I t d o e s n o t i n c l u d e L i b e r t y bonds.
Governor Harding. I
Governor Norris.
Governor Harding. I
understand.
I t does n o t include Treasury notes.
know, b u t w h e n t h e Treasury cer-
tificate becomes due, there i s another issue t o take ibe. . =~:
place a n d t h o s e b a n k s t h a t h a d s h o r t t i m e m a t u r i t i e s
would g o ahead a n d bid for more s o a s t o keep stocked u p
all t h e t i m e .
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Federal Reserve Bank of St. Louis
Like
Governor Norris. I
think i t would lead t o a n
increase i n the holding o f short t e r m Treasury certificates
o y t h e banks,
but to a
very considerable e x t e n t
ILthink t h e y would take t h e place o f investments t h a t
they make n o w i n »onds that t h e y h a d better never buye
Governor Seay.
M r . Gilbert h a s repeatedly dwelt
upon t h e d e s i r a b i l i t y o f a
certificates.
natural m a r k e t f o r G o v e r n m e n t
C a n i t be, i f a preferential r a t o were made
for those, t h a t i t w o u l d n o t t e n d t o c r e a t e
a n artificial
market?
Governor Norris. I
never a g r e e d w i t h hr. G i l b e r t ' s
view that that was a detriment t o the Treasury Depart:ent.
I think there i s a difference between a n artificial market
and a market that i s what r o u might call t h e result o f a n
extension
o f some favor.
A n artificial
market
i s o f course
an unjustiviable thing, b u t a market that i s a little
higher than i t othervise would b e because o f some special
would n o t c a l l a n arti-
favor o f vrivilegée a c c o r d e d t o i t I
fiaial markete I
vould s a y i t was a
market t h a t reflected,
among other things, t h e existence o f that favore N o w
_if t h e y w e r e e x t e n d i n g t h a t f a v o r
industry
o r to a
to a
certain c l a s s o f
certain g r o u p o r c l a s s o f banks,
be o f c o u r s e h i g h l y o b j e c t i o n a b l e ,
i t would
b u t i f the favor i s o n l y
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Federal Reserve Bank of St. Louis
113
effect o f
extanded t o the United States Government, t h e onlv
to reduce o u r tames.e
Governor Callrins.
Y o u s a y i f w e were t o extend that
favor t o a group o f yanip - ~ don't you agree you would be
extending i t t o a group o f banks almost entirely t o the e x clusion o f another group o f banks?
I n other words y o u would
extend i t t o banks generally located i n large cities that
could afford t o carry securities a n d d o carry them?
Governor Norrise I
ten million dollar
think that a
pank t h a t c h a r g e s i t s c u s t o m e r s
a n a n average
o f five a n d a
you
quarter p e r c e n t a n d t h a t p u t s u p w i t h y o u p a p e r t h a t
ean l i g u i d a t e
i n the market
a lower rate t h a n a
i n t e n minutes
i s entitled t o
3 2 5 , 0 0 0 b a n k that puts u p paper w i t h
you y o u c a n n o t l i c u i d a t e
i n aie, S i e e e
Governor Harding (intercosing)
B u t I would like t o
remind vou, G o v e r n o r Norris, w h e n speaking about artificial
Ir.
markets f o r G o v e r n m e n t u r i t i e s , t h a t lir. MeAdoo a n d
Glass s o l d certificates ourely o n a n artificial basis,
of
pased o n a preferential rate, deposits a n d all that sort
lir. Houston, u n d e r adverse circumstances, t r i e d the
policy o f s e l l i n g t h e m o n t h e n a r k e t
Melion c a m e
at a
higher rateée L i r e
i n and followed thet v e r y same cairse
madea v e r y > r i l l i a n t s u c c e s s , J
think,
a n d has
o f h i s w h o l e operations.
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Federal Reserve Bank of St. Louis
Now, t h i s suggestion o f Lr. Gilbe1 Pinge ta, oieBeSee”
to out the Treasury certificates b a c k o n a n
a s s o f securi-
simply Decausse n e é
banks vould Diy, B O T o m s s
the i n v e s t m e n t r e t u r n y -
h
é solvency o f
s i m p l y ‘for t h e
reason that t h e r vould h a v o r e f e r e n t i a l r a t e
CO DOrrows,
Governor Callztins.
I t i s not necessary
a A A S e OMe GO. T G tre 8
t o devine
f e c t l y obvias
that t h e v v o u l d b e p u t o n a
sn't a thing
an
preferential
s t will create a n arti-
permanent i n v e s t o r s ,
o r i n the
hands o f the banks, a n d if t h a t ~olicy w o u l d not encourage
a
an increased holding o f these b y the banks, then I do not
From
certificates w o u l d b e i
ne g i v i n g a
i ”
3
o m m e r c i a l purposes.
T h a t wv
1 r a t e o n commercial demands
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Federal Reserve Bank of St. Louis
on the Federal Reserve Bani - Governor Norris.
T h e y vould b e offering u s better
collateral, c o l l a t e r a l that stood o n its o w m basis.
The Chairman. N o w , gentlemen , we have discussed
this matter, a n d i t might b e helpful, I
helpful,
think i t
i f w e could have, f o r the »enefit o r the confer=
ence tomorro\’, a n expression o f oninion o f this body. T h e
coneensus
o f oniriion i s n o t i n f a v o r o f t h e s u g g e s t i o n o f
irs Gilbert, apnarentir.
Governor Calkins. I
move i t i s the sense o f this
conference that i t i s not e~pedient a t this t i m e t o establish
a preferential r e d i s c o u n t r a t e f o r p a p e r s e c u r e d b y Govern=
ment o b l i g a t i o n s
o r pankers! a c c e p t a n c e s .
The Ghairman.
T h i s h a s t o d o vith a
rate f o r t h e d i s c o u n t o r »urchase.
discount
o f bankers! a c c e p t a n c e s
o f saper secured
Govermor Calkins. I
preferential
o y Government
certi-
purposely confined i t t o re-
discounting.
Governor Seay.s. I
will second that motion, lire.
Chairman.
( The motion having been duly seconded i t was
carried.)
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Federal Reserve Bank of St. Louis
LES
Govermor N o r r i s a
O
G e. 10 a. ie C h e
e i
LOnLe> V s a i e «
eae g u s t
L E ’
is submitted “ y S a n
Powermor Calieinsa.
f i e aes
4
discussed t h e n G
ead
M A T .
i
a
c s vniech I
r n t r o n s
! 5
t n e
o
i s »vresent.e
D 4
ection
W e
until
y eds
GovL
ernor
Interpretation o f ‘ord "Borrover,"
in Section 1 5 o f Federal Reserve
Acte inline recuested b r Yederal
Reserve Board b y October,
U o n f e r féGovernors.
e no c e ©
under t h e heading o f un=
finished susiness.
I t nas ¢
successive c o n f e r
t
i
o
n the progra
m
e t h e recuest
dering Gon. of t u e
Reserve. act.
The Vhairman. I
cen s a y
c h respecu t O tia
advice “ e p e c e i v e d w a s t o
the m a t t e r
mittee a n d that i s where i t rests.
t o i t s l a w come-
I t i s unfinished »usiness
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Federal Reserve Bank of St. Louis
Bg
I think should b e dealt w i t h a n d t h e Board a s k e d f o r t h e
Governor Fancher.
o u l d i t b e consistent, L r . Chair-
man, t o again renew o u r request f o r a n interpretation o f the
word?
The Chairman. I
think i t vould bee
-overnor F a n c h e r e
h e n I
move lire C h a i r m a n t h a t v e
repeat t h e r e c u e s t t h a t t h e B o a r d g i v e u s a
ruling o n t h e
matter of interpretation o f the word "borrower " in Sece#
tion 1 3 o f t h e F e d e r a l R e s e r v e A c t e
would second that.
Governor Biggs. I
The m o t i o n h a v i n g b e e n d u l y s e c o n d e d i t w a s unanimousl:
T h e next tovic i s 1-H.
“he Chairman.
H. Lethods o f dealing v i t h member banks
waich are constant a n d excessive bor-
TOWELS.
That i s submitted b y Philadelohia.
«
1
Governor Callins,
I s not that also covered i n the
conference Program?
Lire harrison.
Y e s , i t ise
Governor Fancher.
h a y I inquire o f Governor Norris,
this topic, w h a t h e has i n mind.
who suggested
DOO
Governor N o r r i s e I
would l i k e t o g e t s o m e i n f o r m a -
tion a s t o h o w t h e o t h e r R e s e r v e B a n k s a r e t r e a t i n g t h o s e
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Federal Reserve Bank of St. Louis
banks which never l e n d money below s i x per cent a n d are contantly »orrowing f r o m u s a t four a n d a half p e r cent f o r
the »urpose o f having more money t o loan. T h e i r paper i s
satisfactorye
T h e y a r e chronic borrowers, b u t their »or-
rowings d o not a t a n y one time become excessive,
do, t h e y a r e s p o k e n t o a b o u t i t ,
reasonable f i g u r e ;
t o bring t h e m d o w n t o
e n d ther j u s t r u n f r o m a
an u n r e a s o n a b l e f i g u r e .
o r i f they
reasonable
M v cuestion i s what c a n b e done
with them?
gan s a y for Chicaro that w e have
The Chairmane I
at all times endeavored t o avoid that condition, a n d have
avoided i t p r e t t y g e n e r a l l y , e x c e p t wuLlth respect
the b a n k s
t o some
a n d have n o t been able
that become overloaned
paw themselves oute ‘ J e believe t h a t t h e banks s
be e d u c a t e d t o u n d e r s t a n d t h a t t h e y a r e e x p e c t e d
in their o w n loaning »over,
“ear,
a t least during a
a n d t o avail themselves
Reserve S v s t e m f o r s e a s o n a l
and w e h a v e n e v e r failed
gentiglgyr othervise,
t o operate
yortion
o f t h e crecit facilities
o r other temporary p u r e
t o r e m i n d t h e banks, e i t h e r
a s the circumsta
h a v e seemed to
justify.
Governor Norris.
they w o u l d n o t » r o f i t
S u p :ose v o u have educated tiiem and
b y t h e education?
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Federal Reserve Bank of St. Louis
LL9
The Chairman.
T h e n w e suggest t o them that t h e y get
busy a n d i n c r e a s e t h e i r c a p i t a l , b e c a u s e w e a r e n o t g o i n g
to loan them capital year after year, except curing emere
gencies.
Governor Norris
I f vou s u g est t o them t o increase
heir capital, t h e n t h e y will s a y they will have t o increas
their l o a n s t o a i d t h e i r c u s t o m e r s ,
a n d they will b e -orse
off t h a n t h e v a r e n o w e
Te Chairmane I
d o not s e e that a t all,
O f cmrse
if they a r e going t o let t h e customers r u n the banks, I
can u n d e r s t a n d h o y t h a t
Governor B i g g s
x I f i t i s ror legitimate needs,
using i t for »vrofiteering,
\ them h a v e
sell>orne.
Norris, a n d i t i s along t h e
Governor Calkins. I
think G o v e r n o r Norris!
ine
quiry needs some d e f i n i t i o n before i t is D o s s i b l e t o dis-
cuss ite F i r s t i t is "Methods o f dealing with member
1.
which s r e c o n s t a n t a n d e x c e s s i v e b o r r o v e r s " ?
Y o u
define what o u mean b y "constant >orrower",
eee °
Canter a e ,
f
aril: what is meant by "excessive borrowers
t
Governor Norris savs that this r t i c u l a r bank, o r those
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Federal Reserve Bank of St. Louis
yanks that h é has i n mind, n e v e r l e n d money
six v e r a e s
a n d borrow f r o m h i m a t f
if t h e y a r e a d m o n i s h e d
1
a half, b u t
t o recuce t h e i r loans
to &
reasons
able amount - - I think h e used the exact words “reasonable
amount" --~ and then there i s the cuestion what i s the reasonable a m o u n t f o r a
constant b o r r o v e r ?
I
s i t a n y more
reasonable f o r abank, under s u c h conditions ‘described,
to
borrow 1 0 per cent o f its capital t h a n i t i s for i t t o
“
porrow t w a n t y ?
n
t is a
a
tion f o r t h e b a n k h e r e f e r s
Governor Norris.
reasonable a m o u n t
t o as a
Roughly,
i n »vropor-
constant b o r r o w e r ?
f o r t h e »urpose
o f ansver-
ing vour question b y “constant” I mean "continual", a° bank
a3
which
i s seldom
o r never
and b y "reasonable" I
of its basic line.
out
o r deot
t o t h e reserve bank,
would say raighly, n o t i n excess
T a k e a
bank that i s scarcely ever below
constantly a v o v e i t , a n d t h e b a n k
w o u l de
d out
the time i f i t wasn't continually spoken t o
ajout i t e
Governor Bigss.
t s there a n y eviden
borrowing for a profit, o r are they using i t i n the community.
Governor N o r r i s .
they are doing a
T h e y are
bigger business t h a n they have a n y right
to d o o n their resources,
30-6
O
a n d they f i n d i t profita>le t o d o
f course w h e n w e make a
fovr a n d a
half p e r cert
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Federal Reserve Bank of St. Louis
Lek
han: t h a t n e v e r l o a n s b e l o w s i x p e r c e n t v e a r s
ng o u t a n a p p l e t o t h e n a n d a s k i n g t h e m n o t t o e a t i t .
Covernor Fancher.
Governor N o r r i s refers.
‘ J e a l l h a v e t h e s i t n e t b o n to*vwhich
h
e banks apvarentir
conception o f their “roper u s e £
the borroving
of the Federal Reserve banks. ‘ i e have reminded them o f the
fact t h a t t h e r e i s a
basic l i n e , a n d t h e m e r e f a c t t h a t t h e y
have g o t
have g o t that i n their minds makes t h e m think they
a Itne o f c r e d i t “ i t h t h e T e d e r a l H e s e r v e b a n k s a n d t h e r
oroceed t o adjust their loaning policy t o that particular
ag thouch= t h e y h a d a n additional
t o month;
situation o f that s o r t c o n t i n u i n g f r o m i ¢ m o n t h
and w h e r e vie Z i n d 3
i t
A
Y neignoorhood that a r e
b y core
lating t h e i r l o a n s i s t o f i r s t m a k e i n q u i r y
resvondence a s to the »articular condition i n that banks
thas makes i t apparently necessary f o r them t o continually
oad
b a n k across t h e street i s
norrow while their neichnboring
in a n d o v t occasionally a n d nas s o m e period o f liquidation,
under t h e same conditions prevailing i n She particular 1 6 =
:
a
p
l
e to ;
;
.
chere v e a r e / u n c o v e r t h e S a CRa8bL0n 311 6
letters,
w e next t r v t o get them into t h e bank
situation overs
I f that does n o t vork, t h e n t e
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Federal Reserve Bank of St. Louis
122
set o u r e x a m i n a t i o n d e p a r t m e n t
t o get some examiner
t o work,
to drop i n the bank a n d g o over t h e situation very carefully
and find out what their policy is, a n d what their ideas a r e
of their borrowing facilities a t the Federal Reserve bank,
O r course y o u un-=-
and i n what manner t h e y a r e using it.
I n many cases o f
cover @ good many Gifferent situations.
course r o u wide h
facilities f o r profit.
the f a c t that t h e r a r e using o u r
G o v e r n o r Norris
do n o t l o a n b e l o w s i x p e r cent.
some banizs that charge seven a n d eight.
develov
h
t fact
m e n t i o n e de
W e have i n Ohio
W e had a situation
i n o n e o f o u r i m p o r t a n t c e n t e r s a l o n g i n May, w h e r e
we had a bani: with seven o r eight miliions o f resources
yorrowing f r o m u s a considerable amgint a n d went o v e r t h e
basic linee ‘ T h e other banig, curiously enough, w e r e liqui-~
dateds
j e h a d s o m e c o r r e s v o n d e n c e w i t h them.
kmow ‘ u t t h a t s h e r e h a d b e e n a
shirt o f v u d l i c f u n d s .
comes about a t certain seasons o f the rear w h e n one bank m a y
have h a d l a r g e country deposits,
and a
dis ri>ution m a d e
to various o t h e r a c c o w m t s a n d t h e o t h e r b a n k s g e t t h e de-=
posits, a n d that bani: which loses t h e devosit will >orroW.
Finaliy w e got t h e president, a f t e r this exchange o f letters,
t o c o m e u p a n d g o over t h e situation.
h
t situation.
admittece
H
e very frankly
H e said, " I have b e e n looking
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Federal Reserve Bank of St. Louis
123
over t h e condition o f the Federal Reserve bank, a n d I find
7 our i n v e s t e d a s s e t s a r e low, a n d I
thought p e r h a p s I
could
do vou a good turm b y borrowing o n paper o n which y o u make
four a n d a half v e r cent, a n d I have gone o u t a n d taken
on a
large l i n e o f » a p e r a t s i x a n d a
two ner cent."
hed:
p e r cent, makings
“ h e Facts were h e had sone out and solicited
trade a c c e n t a n c e s f r o m a
c o r n o r a t i o n wreich k e p t a c c o u n t s
in o t h e r cities, b e c a u s e
i t w a s v e r y l a r g e i n i t s operations,
he h a c s o n e t o t h e - t r e a s u r e r
o f that c o m p a n y a n d vicked
five o r s i x h u n d r e d t h o u s a n d c o l l a r s
and brought
t w o p e r c e n t spread.
i t in, m a k i n g
him oromptly.
o f commercial p a p e r
“ / e cured
H e did not have quite the »>roper conception
of what 7 s borrowing »orivilegs t
a the Federal Reserve bank
entitled h i m to, o r how h e should u s e then.
r
v h a t has been
banits where o t h e y a r e steady¢ »orrovers,
manner o f handling
u
that i s t o find out t h e ldcal situation a n d what t h e y a r e
doing v i t h t h e i r funds.
correspondence,
~
@ have a d o p t e d t h e »orocess o f
a n d having t n e m come i n ana talk about it,
and also t h e >rocess o f using t h e examination department.
Governor Norris.
T h e panks I
have i n mind a r e banks
that haven't d o n e a n v a r t i c u l a r thing O f that s o r t , ‘ u t
simply that almost every account o n their books i s a »orrowing account, particularly t v o o r three banizs whose customers
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Lee
vic meckalae
ceepee
Cila
Ho vend: a n d sinew ead.
legitimate c o m m e r =
difference. a
rhposition - fhe Vnaimman,
b u t t h e y are. overloaning.
They a r e overloaning,
think ~ o u r p r o b l e m i s
wish vou, w o u l d
spect t o b a n k s t h a t a r e o n e r a t i n g
bneir o u n t o a n i n e D o r e :
and advice.
steacily,
what they need
is
T h e advice t h e y should receive
erroneous
.
the F e d e r a l
conception o f
Reserve
s yn
i s »~roperly used
Governor N o r r i s .
rv
w h a t
If t h e r e
course
the
is i n dangerous
condition c o n s t a n t i y a n c t h e i r p o s i t i o n
thére
i s a
i s weakened,
and if
little » l o v o f vind, t h e r might b e &ble t o take ce.
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Federal Reserve Bank of St. Louis
125
of the situation b u t t h e y might not; whereas i f they operate
more c o n s e r v a t i v e l y t h e y couadd c o m e t o y o u a n d v o u w o u l d h a n d
them o u t oromptly liberal credit accommodations, w h i c h y o u
pannot d o perhaps under t h e situation y o u mentionede
Governor Norris. e
told them that... I
have
gone t o t h e o f f i c e r s a n d h a v e m e t t h e H o a r d o f directors
of t h e b a n k a n d I
have s a i d a l l t h a t t c t h e m i n t h e p r e s e n c e
of their officers, but I rather suspect after I leave the
president o r the cashier says, "Yell, now that has blown
over, l e t u s get d o v m t o business a n d g o get some mores”
Governor Young. I
to have t w o answers.
think t h e w a y t o handle t h a t i s
O n e would b e yes a n d the other no.
‘Yhen they make application for rediscount one answer is
"no", a n d then when they want the reason give them the
reason.
Governor Norris. T h e n you mean you would refuse t o
loan them?
Governor Y o u n g .
Refuse
t o l o a n them,
l e t their reserve
go down, a n d then they could not 10an a n y more money because
if they did that they would get i n difficulty with the Comptroller o f the Currency.
Governor N o r r i s . I
have d o n e a l l t h a t b u t I
do anything because h e says there i s no penalty.
cannot
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Federal Reserve Bank of St. Louis
L26
if r o u have: s e n t
°
xaminer d o w n t o t h e m to g o o v e r t h e 1@aB granted
Federal Reserve Bank?
Governor Norris.
Governor S e a y .
I n one case w e dic.
D i d o u c l a s s i f y t h e loans,
t o see
mn
fal
if thev were loaning i n that directions loans wWeich were o f
a nermanent nature?
Governor Horris.e. I
Gover o r Seave
d o not I m o w about that.
case o f t h a t k i n d a n d w e s e n t
+ 6 had a
= £
our e x a m i n e r d o r m t o g o o v e r t n e l o a n s a n d c l a s s i f y them.
They c o n t e n d e d i t w a s a l l n e c e s s a r y »yorrowing, t h a t i t w a s
all f o r c o m m e r c i a l nurposes.
i t vasn't a l l commercial »orrow-
amine i n t o i t a n d ‘'e 1
ing .
and
to
it
or. @
a
l
t
h
et
l f o r commercial purposes.
h
f
. ¢ s e n t Our m a n d o v m t o ex-=
T h e n w e wrote
e cashier a letter asking him t o read
directors;
t o r s a n d ther “ormed a
h e d i d read i t t o the board
cormittee a n d came u p t o see
us a n d w e had a very nice satisfactory perfectly pleasant
interviews t h e y agreed that the p o l i c y o f the bank h a d been
wrong, t h e y agreed t o s e e that i t w v c o m m e n
a n d they have
corrected i t .
Governor Norris.
Y o u r story i s the same a s mine,
Governor Seay, except that last sentence.
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Federal Reserve Bank of St. Louis
L27
mor Young.
A f.
O U Nave = a
j
reserve h a s become devleted,
and a d n
l o anwvt? e
u
s
bank, w h e n i t s
t k e e p s o n loaning
b o t r y t o reduce t h e i r b o s n d o r
rheir o w n d e v o s i t s
wake
o r resources,
m e d a w a n d find that v o u have a
u p
thousand d o l l a r
i
t
e
m t h a t i s unpaid,
man down there, a n d vou find that
i
s
and
s
u
e
or casnier's check o n “ou = ~
rovernor Callzinse I i x e cheduenan., what I
hope t o
bring o u t from Governor Norris h a s been more o r less brought
v2
4
b
out b y G o v e r n o r I a n c h e r
a n d f that
there
i s t t f a c t - o m Vaich
i s n o hard fast
ZL
o r calendar
a
s
Y e
“ h4 e
t h e rS a y vant:
ive borrower o r 9 constant norrowere ‘ i e have
district that have been » o r r o w i n g three rears
not
they a r e constant » o r r o y
v
i
e have others t h a t a r e
borrowing f a r i n excuss o f their basic line, b u t a r e not
excessive jorrovers.,
I t i s ansolutely necessary
t o apyly
judgement t o every individual c a s e i n order t o determine
whether a bank i s doing something t h a o u g h t not t o d o
in following a necessary coursee J
think
to try t o set u p anrthing
controlling borrowing b y member banks,
d
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Federal Reserve Bank of St. Louis
TAVIS V E
D
L C O g r D E L T A A DS
i
s
This t o n i c o n t h e j o i n t c o n f e r e n c e
has b e e n assipned t o lir. Wills t o lead t h e discussion, a n d
sort o f procecure program t o b e followed b y
I have here a
xaminers.
A f t e r v e exchange l e t y
and fand I v
an examiner, t h e examination department
is called o n to make a n i n v c a t i c a
means o f ceter=
mining erent
Le
h e nature o f the manegement o f the bank a n d its
credit policy.
he general character o f loans, a n d classificavaria:s i n c u s t r i e s e
officers a n d directors individually
or t h r o u g h a r t i l i a t i o n s a r e u s i n g t h e a s s e t s o f . t h e b a n k
verond »orudent L i m i t s é
srover investiga
polications f o r loans, “ o t h i n determining t h e solvency
the a p p l i c a n t a n d t
t
o «mich t h e »roceeds a r e t o
Dube
aig “ h e t h e r t o o n s a r e m a d e o n
standing o f the apvlicant i n
purpose
o f i n c r e a s e d r e v e n u e to. t h e t a
be ‘ j n e t h e r t h e b a n i h a s a c c o u n t s
o f some large c o n -
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Federal Reserve Bank of St. Louis
nie tuatLon
d e v o s i t s .
“nether t h e b a n k
g
e the -reciscount r a c k
Reserve b a n k t o » r o v i c e r o r
Sis o r m c u s t o m e r s
investnents
i n the communitr
ieloans/for t h e sole nurvose o f making a
Governor R e a .
t
L o d d Lkice “bo
lowed the »rocess o f revieving t h e borrowing
ror a ~eriod o f three
r averace Dorroving, m o n t h b y month t o r three years,
m S o r inspection.
e
ing b a n i i s r a t h e r short;
Ba|
} lone
"
“he merioryb o f the »orror.
i t does n o t reeall
t h e ~ e a r ~reviouvs.
“ i e handle
us.
that
Y o u asked
mo)
Governor Callsin e
have certain
hove n o n e o f
GCaliromia,
uf
1
@ law,
i t i s perfectly »~ossivle t o
estavlish a bani o f any lind whatever.
T e r e
rettine t h e c a p i t a l overnight. A
L s n o cifti~
s,
bank w i t h a
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Federal Reserve Bank of St. Louis
130
in l e s s t h a n t w o
sian etteMonat
That i s a s a n
extreme g a s e a s I
think
w i c h s e e m e d t o h e incorrect,
we f o u n d ap-‘lications
t o
were
it .ildlv. W e / o b l i g e d t o tell them that t h e u s e o a t h e
or
Federal R e s e r v e bani:, ‘f:ich w a s r e a l l y f o r t h e » u r p o s e
was
competition a n d n o t h i n g e l s e i n t h e “ o r l d - - o r o f i t
not a
b u t competition w a s - - that t h e u s s
consideration,
imof t h e F e d e r a l R e s e r v e B a n k f o r s u c h c o m p e t i t i o n w a s
orover a n d t h a t
the b a n k »~aid
2
in
u n d e r s u c h cond:
Governor G a l k i n s .
here
P a i d i n jold j
w a s n o t r o w b l e a b o u t that.
pani, estanlished
t was a
i
vresuriee
I
national
i n accordance i t h t h e
the Chairman. I
mean t h e subscribers t o the cap-
had t o n o r r o w t h e m o n e y i n o r d e r
Ware t h e f u n c s
t o »sut i t i n o r a i d
ith
Governor Callzins.
e.
Coes t h e t
n e e
tovernor F a n c h e r e
pani w i t h a
half a
b e
i e h e d similar cases.
million c a p i t e l p a i d i n a n d t h e y r e -
discounted v i t h u s within sixty a
T h e r were -Oing o u t
>
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Federal Reserve Bank of St. Louis
151
business,
o r talking care o f business soi-
the o n e n i n g o f t h e bank,
u s i n g o u r funds t o
new accounts i n »rand n e w lines.
The Chairman.
T h e amount o f the borrowing o f a
does not signify i n itself excessive borrowing.
had a
verry extreme c a s e recently.
T
e had a
that was presided over b y a man who Occupied a very
i n one o f o u r citiese
position
Errort
a s
made
t o
f r o m o u r b a n k e n d t h e y went t o greater
secure a c c o m o d a t i o n s
extremes thah i n any other case i n our district. ‘Through
our: o w n i n v e s t i g a t i o n
n
o
l before, t h a t
w e had a s c e r t a i n g jg
there w a s a tendency o n the vart o f soreone interested: 4n
h
the baniz t o r
i
s yvosition a n d w e immeidately b e g m
curtailing t h e bank's loans.
T h e y never were very high,
put w e c u r t a i l e d t h e m a n d t h e c r a s h c a m e w h e n i t w a s
foumd that o u t o f >robably five huncred o r Your hundred
and fifty thousand loans t h a t this individual w a s using
directly a n d indirectly something like t w o hundred a n d
fifty f i v e t h o u A
when t h e crash
a radius o f
ICOe bey
T
o h n e were
h u n
a d miles
h
e result
w a s that
v e r y many banks
t o whom they were not
heavily indebted, b u t t h e y were o u t o f our debt.
Lr. Fancher h a s said, t h e condition
pect
t o a l l t h o s e banits t h a t a r e s o - c a l l e d c o n s t a n t
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Federal Reserve Bank of St. Louis
132.
parently e x c e s s i v e b o r r o w e r s . I
agree w i t h G o v e r n o r
T h e s e cases
Galkins thet n o rigid rule c a n b e laid d o m .
have t o be treated i n accordance with the attendant circumstances.
Do vou wish a n y *urther discussion, Governor Norris?
Governor Norris.
T h a n k you, N O e
. e then come t o the next topic - - I.
“he Chairman.
Lis S h o u l d a | ine o f credit b e established
for b o r r o w i n g m e m b e r b a n k s , a n d , if,s0o,
what s h o v l d b e t h e m a x i m u m a m o u n t ?
well disIt s e e m s t o m e t h a t t h a t h a s b e e n p r e t t y
posed o f i n the discussion o f the former topic.
Governor “iellborn.
that o f G o v e r n o r N o r r i s e
with quite a
l i y story i s very similar t o
‘ . e G O have a
good d e a l o f trouble
number o f the smaller banks.
difficult t @ handle them.
F o r instance,
I t i s extremely
i f they g e t u p
vorrovings
to a certain amount, w h i c h w e call excessive
when 8
which I call u p t o capital and surplus - - I think
u p t h e actual
pank g e t s u p a v o v e t h a t a n d d o e s n o t vut
commodittes that i t constitutes excessive borrowing.
Fancher s a y s i t i s a
misconception
using t h e Federal Reserve system. I
any misconcoption.
the credit,
o f their vrivilege
G a ernor
of
d o not think there i s
T h e y a r e w e l l educated.
T T h e y want
b u t t h e r d o n o t w a n t t o i n c r e a s e t h e capital
stock o f the bank.
T h e y demand t h e credit a n d i t i s a
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Federal Reserve Bank of St. Louis
133
Tt i s a
serious m a t t e r
t o
theVv credit o f a bank, especially «hen they
paper, elicible »aper, which they say is good “aper
Wich apoarently i s good papers
The Chairmane B u t vou check them u p o n that?
Governor “iellborn. Y e s e
to see t e m a n d t o have a
“ i e send a n ¢xaminer d o w n
meeting w i t h their board, a n d
n they g e t beyond
e
h
t h e proper
point t hwe y s a y the waar
Tee warns t o
borrow a n y more, but their deposits
clined a n d they have g o t t o h a v e more moneys
Yiovld nodt t h a t
Governor Bailey.
Governor ellborn.
be a
f00d reason ?
A l l their deposits decline every
year and t h e y imow t
The C h a i r m a n .
undertake
banks
I t vould b e *
gmpractic
e
rable t o
t o establish definite lines
i n adwmace. ,
O 6 f credit
f o r member
You h a v e f o u n d t h a t t o b e true, h a v e
wou not?
Governor ‘ e l l b o r n .
B u t s u p ose
how much they c a n get this rear.
thate
W
c
o
m
e i n and
H o w c a n w e answer
e s a y i f v o u have s o t c o o d paper y o u c a n keep o n
g t on m e e t
i tht
c
s
i
e n e end s ou f y oou r customers.
would
would b ei unlimited.
m
i 1
Y e Mo ! e b e e n d e p r i v e d o f t h i s
vro«
gressive r a t e vhich, I
thing.
d That
think i n p r i n c i v l e
i s a n excellent
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Federal Reserve Bank of St. Louis
134
Gor ernor Fancher.
D o r o u think t h e r a t e would controll
the s i t u a t i o n ?
Governor -.elborn.
tion t h e b a n k s
Undou' j l y , because
S D E shies
i n our sec-
B e aals ore c e n t f o r t h e i r l o a n s
and t h e y b o r r o w a t f o u r a n d a half, w h i c h m a k e s
i t very
attractive.
Governor Fancher.
MOO. 6
I f vour r a t e w a s 7
ver
COMbrOL.. Lime
Governor “jellborn,
I f i t w e m t u p t o e i g h t p e r cent,
if the accommodation w a s a t eight p e r cent there vould b e
10 orofit.
‘ s e cannot d i f f e r e n t i a t e o n d v h e t m a t e u n d e r t h e
in
act a s i t a n c b u t w e may make’ disferent rates o n the clas
that i s o n t h e vrimeé.
Govemor Seay.
T h e y a r e not sensitive t o criticism ,
Governor iellborn.
‘ i e say,"Well, <~our statenent
hey sav, “ l o , t h e f a r m e r s v a n t l o a n s a n d
to supoly the farmers." [
supnvose they tell
thinge
Governor searv. e
have » u t o n a limit i n m m y caséSe
Governor ‘Jjel70rn.
T h e n t h e y write letters
Congressman.
t o their
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
155
Perigo mweams *
notice
“hey have v o r r o v e d e x c e s s i v e l y e
w
o n t h e m t h e t i t is. not-ocnur “ u r p o s e
any more noney.
J e have cone that i n some cases a n d
V e r y frecuently, i n dealing w i t h
been effectivee
and a p o l y f o r r e d i s -
Sonde Tan additional volume of paper,
for the officers t o come i n and explain the particular
snecial discount.
make v e r y
much
f a r e >
i n o v r distr
i
ner c e n t
Governor Sear.
2 5 - Seinics 4 0 o i e
ii
o u r loans.
D o y o u imoi vhether t r o b a n k s a r e
loaning t o other country bani:s?
Governor Jellborn. Y e s . M o s t o f that i s going t o
country b a n s ,
t h e advantages
vovlying t h e non-member »ani:s, W a s
Fecleral
T h e y are
e n d s o m e m e m b e r b a n k s probably.
Reserve
The Chairman.
o w s h e m trroeu: gh I L E
C O R O
s p o n d e n t Se
i p , é l i b o m i ’ s t i e stlon- i e s n o o l a 2
banikx
line o f c r e d i t b e e s t a b l i s h e d r o r p o r r o w i n g member
eds Ar:
w h a t should
be
believe
t h e maximum. I
t cuestion
a,
los -
-
|
O V Oh
te lo
estaplished
f o r borroving member banka";
the s e c o n d D e r t
o 7
7
-
2
t h e ansver
S
e
.
:3
“ a L i e tO F “ C R e a s
i s i n the nega
t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
136
needs
line
n o further
o f
te e m
urle c o n ~ -
Pz 3 C r
ent
W
h
a
~w
a g abe
t
think
Governor Bailgy. I
that l i n e s h o u l c
we r e s t r a i n
adaitional coéllateral.
s
long 4 s
ce,
aAD
eer
ey
ty hLs
e
B
le papere
e1
a ag B c aio
“
6
good u p t o i t s
indors
think
a very g e n e r o u s
yee c h e r oC
vyg o a b o v e t h a t v e m a k e
the t i m e y o u
up e x c e s s
excess c o l l a t e r a l
feet y e e e e
several t i m e s t h e
don
‘he Ghairman.
made
a Line
Governor S e a y .
Yes,
Governor M a n c h e r .
:
(The 110 tion
carried.)
of
second t h a t .
having b e e n dulr
seconded
i t vas vnani-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
137
The Chairman.
o n the »rogram i s J.
‘ T h e next t o p i c
. Payment o f Gold Certificates.
| for d i s c u s s i o n
o f the extent
t o which
in e a c h
T h a t t o n i c w a s v r o vosed
ir, Earrison.
bben b r o u g h t o u t 0 3
open market investment committee report, t h e oneration
hes. F a L e l y s u c c e s s f u l l y o f f s e t t h e i m v o r t s
a
s
the credit standpoint i s c o n c e r n e d , ’
offsetting t h e infhationary effect o f imports
system i s concerned, A
o f
vear a z o last aucust
in order t o offset t h e imports o f gold,
ofr published aterients of gold” holdings which relate
escect x
to t h e cuestion o f our reserve “er-
centages a n d not t o inflation, t h e N e w York bank undertook
the
2olicy o f p a y i n g o u t c e r t a i n l i m i t e d a m o u n t s
in g o l d c e r t i f i c a t e s
t o o u r o w n m e m b e r banits.
o f gold
I n the
period from August, 1922 t o October ist o f this year, that
is a period o f fourteen months, t h e N e w York bank valid
out 3925,000,000 i n gold certificates.
. e received during
+
the same time o n deposit ,»588,000,000, t h a t i s the a n ount
of certificates t h a t came b a c k t o us, making
ment o f 3557,000,000.
D u r i n g t h e s a m e period t h e impor
into t h e country were »240,000,000
s o that ‘'e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a
i n rovnd ‘dollars, t h e amount o f t h e impor
offset,
an a c t u a l f a c t , h o w e v e r ,
received
the gold
during that same veriod
whole w e n t u p b y o v e r f i f t y
i n the system a s a
I n other words, while o u r net disburse=
million dollarse
ments exceeded t h e net imports b y a hundred a n d forty
Oe
o
e
_ _e
h o l d i n g s
million, t h e systems
e
f gold went u p about fiity *our
think i t was.
million, I
i n continunig
Governor Strong i s very much i n e s t e d
of g o l d i n s u f r i c i e n t
c u
i t
t
o offset
The difficulty that v e are having i s thet
in New York
ie h a v e o r a c t i c a l l y r e a c h e d t h e s a t u r a t i o n p o i n t /
inspite
o VUfas 0 8 7 -
d4soursenents t h e reserves
continue t o ;.0 u p probably B
a n d that
i n the syste m
aemtHe
u y sno f
e c a
“eg o u t o u t g o i n t o o t h e r r e s e r v e b a n k
are n o t r e i s s u e d
b y those reserve bankse
se i s
The inebes/aue fo the fact that the Treasury has deposited
the same veriod certain amounts o f free g o l d
and t h e n w e a l s o h a v e t h e a c c u i s i t i £
the d o m e s t i c p r o ~
dollars.
duction o f gold, s o m e fifty o r siz m i l l i o n s o f
Governor Strons asked m e t o incuire o f the conference whether
they would look with favor u p o n payments o f certificates
Ae
to the amount that t h e y a r e received o n deposit i n the
respective
reserve banks.
T h a t would enabl e
us t o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
;
1
3
6
o f putting :
‘_
continue o u r »olicr/fout certiiieates i n suiiicient a
ount
Ps
1d t o k e e p t h e ‘ o l d r e s e r v e
o F the
fairly
ees f i x e d amount.
Governor Calitins.
conference
»rogram
i s also o n the joint
‘ i s tovic
t o D é Giscussed
o v Governor Strong
and
the universal custom t o v a y
1d w h e n t h e y m a k e a
O u r
snecialrecuest f o r i t .
vractice i s t o p a y out s o l d certificates received
>
the repvlar ca:rse o f ‘usiness a n c f i t for. circulation.
no efvort t o accumulate them. ‘ T h e amount received
apout thirty thousand a week - If t h e r e i s a n v v i r t u e
i n pvaving
in order t o offset imports, w h y
not take steps t o make t h e Federal Reserve note a
eertifieate a n d ~ a v t h a t o u t .
gold
f o r instance, i n s t e a d o f
vaying g o l d o u t p u t i t u p i n t h e f u t u r e
t o offset n o t e s t h a t
you have outstanding a n d treasury redeemed notes. ‘ h e r s
one. f a c t o r auGvut t h i s t h i n g i n w h i c h 6
dark i n . a g e n e r a l way, ‘ T h e r e a
States currency,
-are BLAS d e t h e t e s
l a r g e anounts
o f United
o f all kinds, including fFederal R e
notes, hoarded a n d i n circulation i n foreign countries. ‘ie
Lo
know f r o m S e p t e m b e r 1 7 ° .
t o J u l y 19,
w h e n w e had 9
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Federal Reserve Bank of St. Louis
140.
on this through permits f o r shivment, t h a t 3 1 0 , 0 0 0 , 0 0 0
currency was sent o u t o f t e country.
amount
252,000,000
t o France,
went
vrobabdly
50 nav o u r soldiers a n d the rest vent t o other countries.
A million s e v e n h u n d r e d
th :
c
t
A a
o Russia.
Since t h e restriction o f permits h a s been removed, e n d that
was d o n e i n 1919,
i t i s c u i t e »~robablg t h a t t h e a m o u n t t h a t
has sone o u t o f the country i s very much larger then during
do
the rears 1917 t o 1919.
T t reminds m e very much o f Mr.
ww
‘arburg's v l a n which h e h a d when h e came back f r o m S o u t h
an0ut a n i n t e r n a k i o n a l s o l d r e s e r v e
6 f it, a n d s o m e o r t h e r e p r e s e n t a t i v e s
was c v i t e f u l l
- - he
of
some fopveign c o u n t r i e s w i t h w h o m h e h a d t a l k e d a b o u t i t
thought
i t “as a
g o o d idea, p r o v i d e d t h e l r c a i n t r y w o u l d
carry the sold r e
keeping a
e ; nobody was entnu
t i c about
sold reserve i n some other country:
events w e h a v e
b y force o f
i n this country a n international g o l d r e rve n o t e i s h e l a a b r o a d v e r y
L Believe
a r e
t o g e t h e r v i t h other forms
of United States currency - - you c a n s e e where t h e notes
would b e noarded i n preference t o the actual gold, because
they c a n b e t r a n s p o r t e d
a t less expense
- - but the d a y may
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Federal Reserve Bank of St. Louis
141
come “hen this vast amount o f Federal Reserve notes, t h e
whereabouts o f which w e d o not l m o w a t the present time,
will c o m e b a c k i n f o r redemntion,
have a
a n c t h e federal Reserve
fal
very large amount o f those notes o u t ‘ill
be very much embarassed i f i t h a d p u r s u e d apolicy o g Dayin g
out . ° s o l d , t h e r e a s
own note,
i f i t makes a
sold certificate
o f its
i t sets aside t ht
e g o l d f o re t h a t a n d si s o n s a f e
ground.
Governor S e a r .
n
o
t
h
i
n
g t o risk.
Governor Hardinge
The Chairman.
Gentlemen, I
do not think t i s s a m e
subject appears o n the joint conference program. ‘ h e r e
is a tonic, " G o l d movement", a
general statement regarding
the movement o f gold during the past year into and out o f
the country,
a n d into a n d o u t o f t h e Federal Reserve banks.
That m a r b e identical. I
a m gming t o a s k around t h e
and a s c e r t a i n w h a t b a n k s a r e »vaving o u t g o l d a n d t o what
eet
e x t e n t
®
Th i e a i t
r
Calkins.
o
n
r
topic 4 , Gold hovements,
Oe n page
v
o
2G0
m
a
the j o i n t » r o g r a m ,
a , general statements, a
D s
paving out gold certificates, Mir. Perrin and Governor Biggs.
ual
e Chairman.
‘ t h a t i s rour pleasure
i n regard t o
I think i t s h o u l d b e d i s c u s s e d b r i e f l y
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Federal Reserve Bank of St. Louis
142
So far as we are concerned, there
holding i t o v e r u n t i l t o m o r r o w .
‘The
the joint session, where t h e
board i s usually present,
i t i s pretty difficult t o get
any definite action o r expression o f the opinion o f Gover- u
nors a s a whole.
I t was put o n this program before v e
Imew i t w a s o n the joint program.
think y o u will f i n d o n the program
The Chairman. I
the v a r i o u s t o n i c s h a v e b e e n a s s i g n e d t o s p e c i f i c in-=
in which case I
vill b e n e c e s s a r y
think i t i s not expected that
t o g o around t h e table o n a l d these
NO0intTS »
understooa
lire H a r v i s o n . I
Governor S e a y .
conference
oninions
and I
thate
“ h i s tonic has been discussed
o f Governors
m o r e t h a n once,
o f t h e Governors wereexpressede
think I
b y the
a n d the individual
I
am, t h e o v e r w h e l m i n g j uuc g m e n t
f I
a m correct,
o f tvh e G o v e r n e r s
paying o u t g o l d a n c g o l d certificates, e x c e p t
sold certificates w e r e demandede
neChairman.
I T think vou are right about
Governor Seay, b u t s i x months h a v e g o n e b y .
Governor S e a y . hire. G i l b e r t b r o u g h t t h e c u e s t i o n u p
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Federal Reserve Bank of St. Louis
143
judgment vias e x p r e s s e d b r h i m a t that. t i m e s
wear
H
i
a e
t h ha5 t f ia se U r e .
Harrison.
e
Lis
s
1
c a m
C e t
6 au DA s p £
e
r
a
con=
A t
n e r a l i y t o vay o u t g o l d certificates.
Terence
that v e r y t i m e , h o w e v e r , G o v e r n o r S t r o n g r e f e r r e d
fact t h a t c e r t a i n i m n o r t s
o f gold that h e
this country, largel y
desired
t o offset
t o the
w o f “ere
i e
for effect, w h i c h
i n our statement
o f reserves,
Itwog rather general:y understood, m o r e o r less informaiiwe £
mally,
h
in
vote o f the conference w a s not t o
li et thh e
e 6
nar o u t a n d distripute
t h e m that t h e N e w York bank would
out f o r a while t o offset t h e «mount o f the g o l d
Therefore
u pbaeests
w e h a v e c o n t i n u e d t h a t » o ° ’ l c l yp
the »resent time. Governor Strong
continue i t , c e r t a i n l y for. a
i f i t i s t o become
is t h a t
i t
s
i
while longer.
really effective
us g e n e r a l i y t o c o n t r o l t h e a m o u n t
and h a v e
e
yemain f a i r l +
r
a
b
l
e to
T h e o n l y point
a n d enable
o f i t i n circulation
equal t o t h e a m o u n t o f t h e i n -
rts, i t vould b e most helpful i f the other reserve banks
Z
vould v a y o u t t h e c e r t i f i c a t e s
as c u r r e n t l y received;
not
necessarily “ o r e t h a n t h a t e
The C h a i r m a n e
I t i s a s s u m e d t h a t a h a t h e pbaniss
represented here a r e prying g o l d o n demand. ‘Yoathat further
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
extent a r e r o u v a y i n g i t , G o v e r n o r B a i l e y ?
ps
‘ t f h e n t h e g o l d certificate c o m e s
Governor Bailev.
coes i n t o t h e m i x e a c u r r e n c y a n d i s Dvaid o u t i n t h e
WAV.
‘ / e pay out anything v e talen
Governor Harding.
the v a y o f gold certificates.
certivicates.
W e d o not take i n
‘ # e vay out gold certificates o n
t, but o u r receipts a r e negligible.
‘ie have b e e n p a r i n g o u t g o l d
certificates sinee avout t h e first o f June.
W e have d e -
p o u t four million dollars.
creased o u r gola :
Ye have p a o u t o u r e i p t s a n d avont f o u r million dollars additions 3
a
t : i f t e e n o r sixteen million d o l -
lars h a v e g o n e o u t d u r i n g t h e t pericode
Governor Bigss
OVveLe
‘ i e have ~laced n o restriction
‘ l e s e y 2 G o U t >. hen recuUestede
time w e h a v e o a i d o u t l i t t l e o v e r s i x n i l l i o n
have r e c e i v e d 3 6 , 0 5 0 , 0 0 0 ,
s o “ve have r e c e i v e d m o r e t h m
we h a v e 2 a i d o u t e
Governor Calixins.
the a d v i c e
‘ i e have T o l l o w e d q u i t e c o n s i s t e n t l y
o f t h e c o m m i t t e e consis’ c
Mpeasury Devartment a n d the
as followg, "Banks,
of representatives
F e d e r eserve
a l R Board,
i n making payments o f curyeney
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Federal Reserve Bank of St. Louis
145
listribute t h e currency i n the following order o f
preference, f i v e s a n d over, ly, n a t i o n a l banic notes;
reserve b a n k notes; 5S, s i l v e r certificates
4
2,
, United
States notes, 5 , Federal Reserve notes, 6 , gold certificates,
which amounts i n practice, t o paving out gold certificates,
when recuested, a n d not othervise.
s “our output greater t h a n rour i n -
I
The Chairman.
Governor Callinse Avdout t h e samee
Governor ‘:ellborn.
e p a y them out i n the regular order.
Y
special recuests.
Governa S e a y .
Y e d o not confine o u r »vayments t o
W e v a y them o u t only o n demand.
‘Je
have never been able t @ see how i t hurts the Federal Reserve
penis t o leave a
depository o f gold i n this country, a n d
were w e can pay out Federal Reserve notes and put behind
them a dollar i n gold, w e d o it.
Governor Young.
‘ J e pay o u t gold when i t i s re-
“Je have n a i d out since L a y lst 3 9 7 , 0 0 0 .
Chairman.
H o w much d i d vou take in?
Governor Youngs I
Governor Norris. I
an exact statmenstanted,
statement h e r e .
have n o report o n that.
interpret this tonic t o m e m
a n d I therefore h a v e t h e exact
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Federal Reserve Bank of St. Louis
146
oe
In t h e c a l e n d a r
P ?o? p o
a n c e c k ad o u t
In t h e n i n e m o n t h s
e Teygey L
ie)
i anld:
of
eon
S
G
ee
bhiis eyee a r
ve r e c e i v e d
COUN »
--ear
last
33,979,500
endin
oe ae ’
O
A
d i h z y i c l e l e Aig
Haas v e a r
In genats,
pL
51,901,000.
we r e c e i v e d
Said. sub. J6y014, S00,
in gold
we r e c e i v e d
16,000, ‘ t h a t i s
“ T aek e o e
c e r ss
i Ibc
att Se t e
n
192
sear
EyVOD y
O00
We
2,000 a n a
a n d
have r e c e i v e d
EO. a e
sent
Treasury 35,522,000.
r
sx
r
t sge
a s us i s tJa n
ie
u
e
A
o
u
we have dealings w i t h
sold c e r t i f i c a t e s
are s t i l .
them,
o r cOine
& S000 m a n y
or the b a n k s
Sia. 3
undez
all t h e s o l c c o i n a n d
‘he - C h a i r m a n s - l h n
litte
do n o t s e e m t o
eold
certificates.
Vhicarce 1@ are
ie Bo
r >i a
n g
ng
O u t
a n e anecihe- L a s s a
529,425,000. During
311,:40,000. ‘ i e are
eran U r .
Rey 2
e l e
vould Dales
destination
o r
ATOR A a a .
TOU.
iL
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Federal Reserve Bank of St. Louis
147
into t h é F e d e r a l R e s e r v e b a n s . I
do not s e e where i t has
mone.
Harrison.
I t i s impossible
t o s a v where i t has
gonee A p n a r e n t l y f r o m t h e f i g u r e s g i v e n j u s t n o w i t i s n o t y
peing a c c u m u l a t e d
i n t h e o t h e r r e s e r v e banks.
The Chairman. I
Mr. Harrison.
know that.
T h e increase
i n gold over t h e amount
ef our excess vavments o f certificates must b e due t o deposits
or
of free gold b y the Treasury b y member banks,to t h e domes~
tic production, |
The Chairman.
D i d I gather f r o m your figures, G o v e
ernor Norris, t h a t r o u g a i n e d s o m e i n gold?
Governor Norris.
Yese
T h i s year w e gained a
little l e s s t h a n t w e l v e m i l l i o n
Governor Seay.
operations i n gold?
i n certificates.
W e r e t h o s e d u e t o deposits,
o r due t o
I n other -ords, w e r e those Over the
counter?
Governor Norris, T h o s e were g o l d certificates.=---:
received o v e r t h e counter.
‘‘henever w e make payments
to
any o f the Government officers w e always p a y a wart o f i t
in gold certificates.
there
I do not thinkAs occasion t o ask for
any a c t i o n o n t h i s a t all.
T h e o n l y action that w a s contem-
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Federal Reserve Bank of St. Louis
148
plated w a s v e r h a p s h a v e t h e b a n k s p a y o u t a p p r o x i m a t e l y
much a s they were receiving.
vith t h e e x c e p t i o n
as
T h e y a r e evidently doing
o f o n e o r t w o cases,
“ h e r e i s o n e o t h e r matter, w h i c h h a s
Governor . Calkins.
received t h e attention o f this conference before a n d might
receive i t now, a n d that i s the question vhether i t i s
expedient f o r the Federal Reserve banks t o endeavor t o pay
out gold a n d “old certificates,
tent. ‘ T h e r e i s a
Gifference
o r “hether i t i s inexped-
o f ovinion abort t h a t a n d I
think the conference might g o o n record about i t e
Er. Harrison. D o e s n ' t t h a t mean specifically that
“rou m e a n w h e t h e r
o r not i t would b e advisable f o r N e w Y o r k
to c o n t i n u e i t s p r e s e n t
Governor Seay.
olicy?
H o w much gold have y o u lost i n
period?
Mr. H
V
arrison.
e have m a d e n e t poyments
o f
hundrec a n d tventy seven million o v e r imports, b u t i n
his
spite
e e
hotdings o f the svstem i n sold have gone-
over v i f t y f o u r m i l l i o n d o l k a r s
The C h a i r m a n .
W o u l d . : o u
i n the s a m e periode
like
m e t o g o around
table w i t h that inquiry, Governor Calkins?
Governor Calkins.
N o , Mr. Chairman, I
do not think
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a
I will say-this
Harrison. ~
t the. d ¢ c u l a r
“hich originally induced G o v e r n o r Strong to c o n s i d e r
out certivicates,
i s not
Lte
Governor Calitins. H o v e v e r i t i s still i n existence.
It i s less pressing, b u t stil. theres
Governor .ellborme.
in
I t was t h e idea o f the hoard,
ve
sending out the circular referred t o by hr. Calkins that
hearded t h e s o l d d u r i n g 7
40 s c a t t e r a
.
good policy
a
e n d that i t w
little s o l d o u t i n t o c i r c u l a t i o n n o w ?
Governor Bailey.
hade
‘ T h aL t w a s t h e i m p r e s s i o n I
Governor . e l l b o r n .
T h a t w a s t h e reason
for it and
to u s a s k i n g t h a t w e p a r out. e v e n m o r e s o l d ,
tion m a d
d
o not Imow whether informally o r other isey
be a rood idea t o vay o u t five hundred million
certificates.
Se O n
n e
a
M a t w a s t h e iisure mentioned;---@~
r e
e e n T
i
f v e wanted to.
say o u t a n y “ o r e t h a n w e a r e p a v i n g n o .
said w e } >
f
V
e
O Otte
nracticallvy r e a c h e d t h e S a p u U p a t T n
ye
e OL
f o
do what t h e Treasury suggests would involve t h e extension
of our »olicy t o the other reserve banlcs.
b u t a s long a s
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Federal Reserve Bank of St. Louis
150
that particular question, t h a t i s the »ayring out deliberately
of a large vdlume o f certificates,
ference, I
i s not before t h e con-
do not think i t i s necessary t o decide i t now,
The o n l y c u e s t i o n t h e t n i g h t c o m e u p w o u l d b e w h e t h e r t h e
other r e s e r v e b a n k s a r e d e f i n i t e l y o p v o s e d t o N e w Y o r k
continuing t h e >rogram that has been invekgde f o r some fourteen months.
Governor beare ‘ j a s not t h e original i d e a “ith t h e
definite >urpose o f reducing t h e Federal Reserve pank's
reserve, a n d was i t n o t told i n order thet t h e Reserve banks
micht n o t accumulate a
large volume o f i t anc thus foster
an exynansion o f c r e c i t
La, Peary isons.
v
a
s n o t s o m u c h t o recucey G o v e r n o r
Seav, a s i t was t o prevent further increase.
T h a t was the
real c u e s t i o n e
(tovernor Sear. I
have n e v e r b e e n a b l e t o e n t e r t a i n
any s y m p a t h y « i t h t h a t s u s c e s t i o n
o r idea. I
believe
it
to b e f u n d a m e n t a l l y i n e : p e d i e n t .
The Chairman.
v
o ~ o u ‘ i s h this matter
t o b e dis-
surtiner a t t i s t i m e , tires H a r r i s o n ?
There i s n o occasion f o r it. But I
think G o v e r n o r C a l k i n s f e l t t h a t i t m i c h t b e e
a
good i d e a
for the conference t o express a n o»vinion a s t o *hether
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Federal Reserve Bank of St. Louis
York should continue t o v a y out t h e sold.
I do not think that i s necessary.
Covernor Fancher.
orogram t h a t b r i n g s
T h e r e i s another t o p i c l a t e r o n
u b c u r r e n c y operations.
the following motion
mades )
move
Governor Biggs: I
a t the Chair apnoint a
committee o f three t o disucss with Hr. «inston the proprie-
ty o f taking some action to speed up the printing of dollar
notes f o r t h e C h r i s t m a s d e m a n d .
(That motion, a f t e r »eing d u l y seconded vas unani-
mously carried.)
The Chairman.
T h a t committee
. ¥ Consist.
O L urs
i f apreeahbhe, ir. Harrison, w h o
Fancher, 3l rL. E Biggs
S S » n a d
time.
represents t h e N e w “ o r k b a n k a t t h e p r e s e n t
Now, i f there i s n o objection w e will pass t o topic
Board's W i t h d r a w a l
S e e
o f Permission
L i e m b e x r Bo 2 S
ae
Wises Acouired r o n o
Banks.
Governor Bailey.
Av»vly
e
I t would b e a very serious handi-
if o u r m e m b e r banks w e r e n o t p e r m i t t e d
paper t h e y h a v e t a k e n f r o m 4
t o rediscount
non-member b a n k e
O u r
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Federal Reserve Bank of St. Louis
152
Ther
member pvanlss a r e t a k i n g c a r e o f t h e c o u n t r y o u t there.
lnow
take c a r e o f t h e p a p e r o f t h e n o n - m e m b e r b a n k s . I
the a r g u m e n t
i s made t h a t t h e non-member b a n k wants
get t h e benefit o f the system without coming in.
theory i s t h a t a
to
N y
member b a n k w h o h a s t a k e n t i e n o t e o f
a non-member bank,
i n due course, s h o u l d b e allowed t o
t it. nf a k e uf o r instance
o
ca four
s months
i t note
d that
it h a s c a r r i e d f o r t w o m o n t h s a n d a
member b a n k f i n d s i t
I
f that vaper i s per=
necessary
t o r e d i s c o u n t w i t h us.
fectly eligibld w e ought t o b e permitted t o take it.
T I
believe r o u will penalize t h e member banks more than t h e
non-member b a n k s .
T h e member b a n k i s helping t o take
care o f the non-member because h e i s a corres»nondent,
and I believe t h e arbitrary ruling o f the Boa:
could n o t t a k e a n y p a p e r b e a r i n g t h e i n d o r s e m e n t 0
non-member b a n k w o u l d w o r k a
Governor Searve
hardship
o n them.
A r e t h e y s o loaded u p with non-
member ~ a p e r t h a t t h e y h a v e n o t a
sufficient q u a n t i t y o f
other vaper t o offer?
Governor Bailey. I
would not s a v they were, b u t i f
times i t i s their best naper a n d they want t o offer it, I
think i t s h o u l d b e accepted.
Governor ‘Jellborn. I
have n o t u n d e r s t o o d t h e r u l i n g
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Federal Reserve Bank of St. Louis
153
1.7,
the B o a r d a s -rou do.
Emvernor Young. I
c o r y o f X-5784?
H a s anvvone a
have t h e letter.
Governor ‘iellborn. I
think that i s direct loans t o
non-member Danlise
Governor Dailey. I
world b e absolutely apoosed t o
the none»
the member bank being t h e source through which
A t a
i p o
member bank: c a n get t h e benefit o f the s y
bank,
non-member yank, d o i n g business v i t h a member
due c o u r s e h a s g i v e n t h e m e m b e r ‘ a n k a
in
niece o f p a p e r a n d
I
the member b a n k offers i t t o u s for rediscount
think w e
aght t o be verm.tted t o take it.
Governor Sear. ‘ouldn't that resvuit i n the member
a s desired
pani: loaning a s freely t o the non-member bank
or c a l l e d u p o n ?
fovernor Bailey. I
we
d e n
t r a t o r
ivas oye ®
Se
think i t ‘mould, W e < E e e e
t h e menmoer
*
dajt
i n t h e mereat
panks
condition.
those caseSse
/ e
umstances,
For rediscount.
Governor B a i l e y .
“ j e undertook too:
that~-and t h e y
s u c h vaper a s i t n o w
said t h a t t h e b a n k c o u l d r e d i s c o u n t
had
i n its vortfolio.
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Federal Reserve Bank of St. Louis
154
t o borrowing
I s the bank you -efer
Governor S e a r .
heavily?
I t i s not borroving a t all.
Governor Bailey.
Governor Seay.
examiner.
Then I
think i t
T h e bank wust have 2
reasonable
améunt
o f eli-
i f the bank
gible p a p e r o t h e r t h a n n o n - m e m b e r b a n k p a p e r
good o r d e r e
I
t ought
t o exhaust
the o t h e r i t s e e m s t O M G e L
that vaper before
think
+0
erroneous impression a s t o the Board's attitude.
seem t o m e t o b e a n arbitrary ruling a t ail.
Mave a n
I t doesn't
I f there w a s
arbitrary i t vas during t h e w a r »veriod vhen Governor
associates, permitted
vernor Bailey. I
understood that.
non-member
grant t h e m e n b e r b a n k s t h e »~rivilege o f t a k i n g
banks!
t h e othe
p a p e r d u r i n g t h e war, e n d t h i s r u l i n g
hes j u s t r e v e r s e d t h a t a n d n u t s
sition o f n o t t a k i n g a n y e
Gove
Boarde
°
Go; ernor Bailer. _
i have h a a a n experience
v
c o v i de
permission e n d they replie “that a beni:
its portfolio.
Further than that,
r4+
i n asking
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Federal Reserve Bank of St. Louis
weich h a s a
Jocument
,
number
o f cotton bills
and
«h.ch come f r o m Uouston
veston i f anys bills h a p v e n t o e a r
t h e indorsment
G A
o f some
country n o n - m e m b e r b a n k t h e y w o u l d n t l e t t h e m t a k e i t .
Our d i s t r i c t
i s cvite largely a n
acricultural d i s t r i c t a n c w e n e v e r h a v e f r o m t h e p e g i n n i n g
vw
sfece o f n o n - m e m b e r b a n k p a p e r i n c o r s e d b y
a member bani, except that issued tor war purposes.
Governor Harding. D i d n ' t vou d o i t a t one time
4
bank in--Kaleighy,
nk d i d n o t c a l l w o o n u s e ‘ i s
permission
i n Shot case.
Tt h a s n e v e r b e e n “ u r d e n s o m e
to u s i n a n y s e n s e o f
seaye a r e n ' t r o u i m a g i n i n g t h a t i t m a y
nerhaps b e a »urden?,
Governor Bailey.
4 s soon
v o u l d discover that
the member bank vas abusing i t we a u t o m a t i c a l l y shut
itoff, but if it pore
ey the
ear
h a v i n g been i n a
member bani: for t w o months, a n d h a d two months more t o run,
ano i t vas a good s~iece o f papers I
permitted
think w e ought t o b e
t o take it.
Governor Seav.
My o w n o p i n i o n i s t h a t o n e o f t h e
at
tha
most jumidious acts o f the Board was
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Federal Reserve Bank of St. Louis
156
non-menber i s outside o f the system b y
election.
i n some sections o f
he i s f i g h t i n g t h e s y s t e m f o r a l l h e i s worth.
H e i s the
man w h o carries these matters i n conference, carries t h e m
she m a n v h o i s c r e a t i n g t h e trouble.
will n o t c o m e i n a n d c o n t r i b u t e a n y o f h i s s t r e n g t h t o
the benefit o f it.
M y ovwm
he d o e s n o t d e s e r v e a n y s v m p a t h y e
Tt i s undov>» edlv true that
non-member Dan!lise
Chairman. G o v e r n o r Bailey,
i t seems t o m e that
the Board has not entirely withdravn i t s permission.
Their attitu
h a s been a s liberal a s the circumstances
on. tita?:
Governor Bailey.
have a
chance t o
the a d v i s o r y c o u
last meeting, i f I remember,
Governor S e a v e I
The Chairman.
d o not t h i n k so, Governore
. I n the interest o f ~rogress, w h a t
dis»sosition d o y o u s u g g e s t t h a t
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Federal Reserve Bank of St. Louis
L57
vnere i t s h o u l d rest.
through i f you care
any f u r t h e r a c t i o n b e
Gay ernor Bailes. l o , sire
The Chairman.
N o w that completes t h e first section
e Ff, w i c h
of our orogran, v i t h t h e exception o : t o p l e L
we have >ostponed discussion o f until Governor Strong i s
here.
He wilh n o t d e v a t h i s afternoon.
Chairmane
t h e n e x t section o f the vrogram has
Clearingse
S i n c e thet has t o
willl t a k e u p w i t h M r . S t r a t e r
t o the next section
and Lr. nénzel, p e r h a v s
v e had b e t v e r ©
of the.oregram. «% i
N o e S y cOin,y currency and circul-
ation.
balieina,. T h e e 7
a1Lé
t
h
¢
e joint confreren:
program i s i t not?
The Ch@irman.
a r e “ou willing t o have that g o over?
Governor Seay. .
‘je ought t o b e s i v e n o p o o r t u n i t 7
read t h e report before i t i s brought u p for d
The report h a s just been handed t o u s todar.
Governor liorris. I
did n o t sunnose t h a t
to
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Federal Reserve Bank of St. Louis
D bevore T u e s d a y
o r ‘ednesdayr
o r I
would have
to g e t t h e n e p o r t h e r e c a r l i e r e
The Chairman.
T h e n t h e vronosition
i s t o have t h e
o f the conference r e a d over t h e report
members
mittee a n v o i n t e d
o f the com-
o f Governors
i n larch, 1 9 2 5 c o n f e r e n c e
to consider t h e advantages o f tax o n circulation over
Government p a r t i c i p a t i o n
i n profits
I
f that i s t h e
wish o f t h e c o n f e r e n c e t h a t c o u r s e w i l l b e p u r s u e d e
The n e x t t o p i c i s S = B.
u m e ? F i t United States
PE
o e s
Betveen R e n e s v e B a n k s .
sleie i s r e c o m m e n d e d t h a t t h e R e s e r v e B o a r d b e r e c u e s t e d
to d e v i s e s o m e v l a n w h e r e b y e x c e s s s u p v l i e s
o f fit United
be
States currency accurmlated i n Federal Reserve banks m a y
T h i s recommendation i s
utilised b y other reserve b a n s .
from N e
the T r e a s u r y D e p a r t m e n t
has a l r e a d y d e v i s e d a
progran
the r e s e r v e banizs c o n t a i n i n g a
w h i c h ther
sugsestion
ha
o f redistributing
these e x c e s s suporlies o f f i t o n e d o l l a r H i l l s
provosal
s o thet t h e
o f the N e w Y o r k bank that t h e Board b e recuested
already
to d e v i s e s o m e v l a n h a s b e e n a n s w e r e d b y t h a t a c t i o n
taken b y t h e Y r e a s u r y D e p a r t m e n t
i n w o r k i n g out a
plane
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Federal Reserve Bank of St. Louis
159
Governor Calkins.
Lr.
r e a l
I
B u t t h a t o l a n h a s n o t b e e n ado»vted.
t h a s n o t b e e n adopted,
m a t :
E b i
tonic n o w s h o u l d more s p e c i f i c a l l y d e a l w i t h a p p r o v i n g
>rogram which t h e treasury h a s »ronosed.
The Chairman.
A r e rou familiar with the plan?
lire Harrison. I
understa
t h e oneration i s t o b e
through some central committee o f the Federal Reserve Board
of the Treasury Department.
T h o s e banks which have received
flit notes i n excess o f the amount t h e y have p a i d o u t a n d
thererore have a n accumulation o f Pit notes vould, under
he vlan pronosed,
b e recuired t o ship those notes t o other
banks where there i s e shortage o f Zit notes.
of it, a s I
wuderstand,
T h e »ourpose
i s t o permit t h e Treasury Depart-
to issue nev) currency t o each Federal Réserve b a n k i n
sufficient a m o u n t t o a l l o w t h o s e b a n k s
t o p a y out i n the
ratio they have tried t o naintain o f 6 O new a n d 4 0 fite
That vrogram has been
; imvossible f o r us =i n the past because
fact t h a t t h e r c h a s b e e n s u c h a n e x c e s s
Bo
s
o
m
Of i S e t e r a t
less t h e r e i s s o m e m e a n s
:
e _ =
r e d e r a l Reserve pants,
o f snifting t h ei
one r e s e r v e b a n k t o a n o t h e r
distribution,
n
s o a s t o permit o f
t h e »>rogram f a l l s d o w n .
have s o m e c e n t r a l s o u r c e
a c c u m u
a n d un=
f r o m
t t 60-40
‘ t h e plan i s t o
t o direct t h e vroper redistribution
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Federal Reserve Bank of St. Louis
160
T h e o n l y question that c a m e u p
of t h e f i t notes.
minds o f the ‘'reasury Department,
the c o r r e s p o n d e n c e ,
s o far a s w e could get f r o m
w a s t h e c u e s t i o n o 1 y e y i n e t h e costs o f
notes betveen banks. Legicaliy w e
easury Department “ o u l d b e
inasmuch a s i t
of making shipments o f notes direct f r o m
to other voints.
T h e y claim, however, a n d I have n o doubt
it i s perfectly true, t h a t t h e y have n o t sufficient aporo=priation
t o d o that a n c therefore t h e success
plan a t present d e p e n d s u p o n t h e willingness.
serve b a n k s
G l Tas
of
t o absorb t h e coste
was wondering «‘hether a l l
The Ghaibmanel I
have t h e plan.
believe i t was sent t o each ban,
ir. Harrison. I
put I
a m not sures
T h i s cuestion i s bound u p with
Governor Calkins.
another ¢
o
n w h i c h w e h a v e discussed u p hill a n d down
dale a g o o d m a n y years,
fit a n d u n f i t n o t e s e
in h a v i n g
by a
a n d that j
y r . New Y o 9
t h o uniform sorting o f
o n t vrecicament
a n excess s u p o l v o f f i t n o t e s h a s b e e n c a u s e d
too liberal p o l i c y
o n t h e i r part i n paying
o t
--
f they receive 4 0 per cent fit and 59 unfit, they have
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Federal Reserve Bank of St. Louis
L61
paid out 41 per cent fit a n d 8@ per cent unfit. T h e r e is
great variation among t h e banks i n the processes o f sorting.
lir. Harrison.
:
p r o p e r
W e are making the/:poyments,
the provortion o f 60-40.
a b o u t
T h e difficulty i s that-ve g e s
pack o n deposit m o r e f i t n o t e s t h a n 4 0 p e r c e n t i n Davymente
Therefore t h e r e i s a n accumulation.
this p r o g r a m t h a t h a s b e e n v r o p o s e d
that c a m e u p i s a b o u t t h e e x p e n s e
W
e o f course f a v o r
m d t h e o n l y question
o f t h e shipment.
feeling i s t h e r e c e i v i n g b a n i s h o u l d p a y i t b e c a u s e
fact that, i n the case o f New York f o r instance,
O u r
o f the
w e bear
the assorting charge, w h i c h i s far i n excess o f the cost o f
shipment.
B u t i f the success
o f the program depends u p o n
bank
h
t cost, w e are perfectly willing
the N e w Y o r k / a s s u m i n g e
to d o it.
T h e total amount under t i s p l a n has been esti-
mated t o b e only 38,000 a vear.
Governor Calkins.
T h e suggestion w a s made, inas-
much a s the l a n would benefit a l l F e d e r a l reserve banks
that i t should be borne b y the banks i n proportion t o their
capital a n d surplus,
a s i n the case o f new fit bills bet-
ween t h e b a n k s e
Mré¢ Harrison.
T h a t would o f ca'rse b e cheaper f r o m
Yew York's standpoint, because most o f the shipments would
be f r o m N e w Y o r k .
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Federal Reserve Bank of St. Louis
162
have h a d a
great d e a l o f t r o u b l e
of o n e G o l l a r b i l i s f o r »vayroll p u r vie G i d have. a
Situation w h e r e a b o u t 7 5 p e r c e n t
unfit currency w a s circulated i n the fourth district.
S i x
weeks a g o this w a s helped a little b y some n e w currency,
V i e oaid t h e ex-
but w e h a v e h a d a n extreme s i t u a t i o n .
pense o f s o r t i n g 3 5 , 0 0 0 , 0 0 0
i n one dollar bills t h a t w e
got f r o m the N e w York bank, and, f o r that labor, w e got
40 p e r c e n t f i t f o r circulation.
T h e o n e dollar bill sit-
uation i s a very serious o n e i n the f u r t h district a n d
has b e e n s o f o r months.
Governor Seay.
hes r e c e i v e d a
T h e Treasury Department anda the Board
c o m m u n i c a t i o n f r o m e v e r y bank,
position t o take t h e next stop.
A
and
s I recall i t
provosal w a s t h a t w e a d o p t t h e s a m e o r o c e d u r e t h a t w e a d o p t e d
in r e t u r n i n g f i t F e d e r a l r e s e r v e notes.
T I believe t h e - -
25
receiving b a n k p a y s t h e c o s t a n d t h e o t h e r b a n k D a y s
the insurance, something o f that kind.
The C h a i r m a n . I
cers s t a t i n g t h e y a r e
have a
note f r o m s o m e
i n favor
o f the plan
o f o u r offi-~
a s o u t l i n e d pro=-
viding t h e cost o f inter bank shipments o f fit notes b e
assumed b y all the Federal Reserve banks.
only i n v o l v e a
small amount.
o i e : ke S e a
M r . Harrison thinks
i t might b e
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Federal Reserve Bank of St. Louis
-ITLpeGaBp- ize
be abott 38,000 a s a maxinum.
‘hat i s f o r t h e w h o l e s v s t e m p e r y e a r e
Mp, h e r r : son.
fhe O n a trmsan sg £ 6
would
seems t o m e t h a t t h e w h o l e s r s t e m
‘ l e might n o t r e c e i v e s h i p m e n t s Ofte Las
be benefitted.
but w e would get some
W
tribution o f n e w notesSe
benefit f r o m the treasury d i s
e w o u l d a l l get some benefit
from that would w e not?
Mr, Harrison.
think w e c a n d i s p o s e
Yese I
topic, i f w e are i n favor
one t h e plan,
o f tnis
b y recOmmending t h a t
the e x p e n s e b e G i v i d e d » r o - r a t a a m o n g t h e t w e l v e F e d e r a l
reserve banks.
I would make s u c h a motion, Mr.
Governor Y o u n g e
Chairman.
Governor Fancher.
The Chairman.
B u t just how would that work out?
I t vould work o u t that s o m e panks would
ship a n d some receive a n d other »anks would neither ship.
nob receive,
b u t t h e y would a l l participate equitably
the d i s t r i b u t i o n o f n e w n o t e s
in
a t least.
Governor Fancher. T h e new notes are put out by the
Treasury Department, a n d that i s } npovided f o r ; b u t a s t o
who
shipments betveen Federal reserve banks o f fit notes,
is g o i n g t o s t a n d t h e s h o c k ?
Governor Young.
The m o t i o n
¥
i s that t h e cost
b e
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Federal Reserve Bank of St. Louis
163
pro-rated a m o n g t h e F e d e r a l r e s e r v e p a n k s
i n proportion
to
their c a p i t a l a n d surplus.
Governor Sear.
f
“ould a
o
H o w “ould the accounting b e done?
r t h e shipment
a t t h e t i m e a n d report
the cost t o the Federal Reserve Board?
ir. Harrisone
T h e N e w York view i s that logically
the receiving b a n k would b e the o n e t o make payment.
I n y letter t o Lrs Jinston,.
Governor F a n c h e r . n
in
ansver t o the cuestion about t h e shipment o f fit notes, w e
took the »osition that i f w e relieved some bank, a s w e
have i n t h e past,
o f the trouble a n d expense o f sorting t h e
currency, w h e r e w e h a v e s o m e b a n k s s h i p u s o n e d o l l a r B i l i s
unsorted, t h a t bank that ships t o u s i s benefitted b y the
saving o f t h e l a b o r o f sorting,
of shipment;
a n d should n a y t h e expense
b u t i f ther s h i p f i t notes t h a t t h e y have g o n e
to t h e e x p e n s e o f sorting, t h e n i
aG
i
s f o r o u r benefit t h a t
shoulda D a y t h e s h i p p i n g c h a r g e s e
The Chairman. ‘souldn't that be the vroper procedure,
t o have t h e shipping bank
then s h i p a t t h e e x p e n s e
then,
t o count
o f the receiving bank?
i f for some special reason v o u made a
lieve a
a d « - . <->
a n d sort
A
n
d
deal t o re-
bank o f the sorting, t h a t t h e y would b e willing
to v a y t h e eharges o f shipment because t h e y would t h e n b e
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Federal Reserve Bank of St. Louis
relieved o f t h a t w o r k ?
liv. Harrison.
T h a t would b e satisfactory t o New
Governor Norris.
A n d it w o u l d b
e satisfactory t o us.
Governor Fancher. I
think t h e Federal Reserve b a n k
benefitted b y the shipment o f the f i t currency should p a y
the s h i p p i n g c h a r g e s e
will b e glad t o withdraw m y motion,
Governor Young. I
Mr. Chairman.
Governor Seay. I
would like to move that the Federal
Reserve Board b e urge? t o put t h e p l a n into operation a n d
to d e t e r m i n e u p o n m e t h o d s
o f bearing t h e expense o f ship-
ma
ment o f f i t n o t e s b e t w e e n F e d e r a l R e s e r v e banks,
t h e method
bg
to be determined according t o suggestions received from the
different Federal Reserve banks.
Governor Fancher. I
will second that.
(The motion having been duly seconded, was unanimously
carriede)
The Ohairman.
T h e next topic i s 5 ~ C.
CG. C o s t o f Shipments o f Currency t o Member
Banks for account o f Disbursing Officer.
Governor Calkins,
A t the ~ . Governors’ ©
eigen E E
in Mey, 1 9 2 2 ,
M o e ~
i t was voted that t h e cost o f shipping c u r -
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Federal Reserve Bank of St. Louis
165
reney t o G o v e r n m e n t o f f i c e r s e i t h e r d i r e c t
o r t o panks f o r
credit o f their account, b e not absorbed. F e d e r a l Heserve banits a r e n o w absorbing t h e cost o f shipment o f curreney t o m e m b e r banks, w i t h t h e e x c e p t i o n o f s h i p m e n t s f o r
the account o f Government officers.
I n view o f the fact
of t h e i n f r e c u e n c y o f t h e s h i p m e n t s e n a t h e FHot.. t h e t t h e
Federal Reserve banks cannot vossibly identify t h e shipments
i i s recommended t h a t t h e cost o f shipping
for t h a t » ~ u r p o s e , t
currency t o member banks o n account o f Government officers
shipbe a b s o r b e d b y t h e F e d e r a l R e s e r v e p a n k a n d t h a t t h e
officers
r oo” |
f
ment o f currency " © ~
A
b e not absorbed.
s a
§
matter
aemese G o Government
o f fact
w e cannot
identify shipments t o member banks f o r Government officers.
We d o n o t lkmow w h e t h e r
w e charge f o r t h e m o r note
Governor Seaye ‘ J e ship them b y express o n Government
bill o f lading. I
it i s r a d e a s a
would like t o second that proposition i f
motion.
Governor Calkins. |
r e f e r s
t o the action taken i n
May o f 1920.
The Chairman.
I
Governor Calkins.
The Chairman.
s that offered a s a
motion?
Yese
I s there a n y further discussion
on
the c u e s t i o n ?
(There was n o further discussion and the motion having
been duly seconded, was’ unanimously carried.)
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Federal Reserve Bank of St. Louis
The Chairman.
T h e next topic i s 5 - D.
D. P a y m e n t o f G o l d Certificates.
That c o v i c h a s b e e n d i s p o s e d o f e
“le will n o w take u p fiscal agency operations.
Governor Young.
The Chairman.
‘ T h a t i s o n t h e j o i n t progran.
T h e first under Topiie V's:
A. R e i m b u r s e m e n t s o r F i s c a l A g e n c y
ExpenseSe
That i s suggested b y New York.
would prefer t o have that g o over
Mr. Harrison. I
a s Goverto b e considered o n the joint programy, especailly
nor Strong i s not here.
The Chairman. W i t h o u t objection that will b e done.
The Chairman.
T h e next i s B e W a r Loan Deposit
Accounte
B. W a r L o a n D e p o s i t A c c o u n t .
That i s s u b m i t t e d f o r d i s c u s s i o n w i t h a
view t o
f o r profit m a k ~
eliminating w a r l o a n d e p o s i t a c c o u n t s s o l e l y
ing purposese
The f i r s t s u b - h e a d i s 1 .
A s t h e result o f operations
investors a r e
of larger banks under t h e present practices
same degree. t h e y
not able t o obtain certificates t o the
theme
would i f banks d i d not compete f o r
Governor Calkins.
T h e r e i s one thing I
think should
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Federal Reserve Bank of St. Louis
done i n c o n n e c t i o n v i t h t h i s topic.
There seems t o b e full justification f o r a bank payscriptions o f its amstomers b y credit because i t
relieves t h e pressure o n the bank b y reason o f withdrawal
of i t s d e p o s i t s
However, a
i n Government securities.
f o r investment
few o f the larger banks finding a desirable profit
in the war loan account have subscribed f o r certificates a n d
notes f o r their o w n account.
I t i s realized that e v e n
though t h e y might disvose o f such investments a t a discount,
yet t h e o p e r a t i o n o f t h e d e p o s i t a c c o u n t n o t o n l y o f f s e t s
thet l o s s ( i f a n y ) ‘ u t l e a v e s a
margin o f »rofit.
N o t
margin o f vrofit sought b y these banks,
war l o a n a c c o u n t e n a b l e s t h e m t o k e e p u p t h e i r t o a l
line.
Tt i s a l s o s u g g e s t e d t h a t t h e t i m e h a s n o w a r r i v e d
wherein t h e use o f commercial paper a s security i s n o
longer a necessity.
The thing I
wish t o recommend i s that t h e Treasury
Department b e asked t o discontinue t h e eligibility o f commercial p a p o r ae - ‘collateral f o r w a r l o a n d e p o s i t s e
Governor Seare I
Governor Young. I
will second that motion.
do not know that i t i s necessary
- to have the Secretary o f the “reasury d o that.
ey
W e stopped
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Federal Reserve Bank of St. Louis
year a n d a
h a l f a g o a t Linneapolis.
Governor Calkins.
Phe Chairman. I
T h e r e g u l a t i o n s a r e q u i t e clear.
have this comment i n regard t o the
topic: C o r m e r c i a l paper w a s used a s security f o r Govern-
ment deposits during the war when i t was difficult f o r the
yanks
in
t o provide t h e G o v e r n m e n t w i t h o t h e r s e c u r i t i e s
sufficient cuantity t o cover t h e amount o f deposits.
I t
does not s e e m necessary n o w t o take commercial paper, and,
considerable amount o f work i n
inasmuch a s i t causes a
checking u p the names a n d continuously replacing t h e maturi-~
ties, i n the interest o f economy t h e practice should b e
discoritinued. A
motion t o that affect h a s been seconded.
Mr. Harrison. I
to New York.
would like t o s a y this with regard
M a n y o f the institutions i n w r district,
principally t h e larger N e w York City banks, continue. 5 G G e s
posit commercial paper; a s collateral t o their war loan
depositse
T h e r e a r e a t present s o m e thirty banks i n New
York City w h o continue this » r a c t i c e , t h e amount o f commercial » a p e r o n deposit
a t this t i m e cotaling upwards
of
521,000,000 against a total o f all classes o f collateral
of about 158,000,000.
T h e taktng a w a y o f this vrivilege
would b e undesirable a s the banks f i n d i t a real convenience
to b e a b l e t o p l e d g e c o m m e r c i a l p a p e r a n d t h u s o b t a i n t h e |
prompt delivery o f Government certificates o r other securi-~
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Federal Reserve Bank of St. Louis
169
dat
ties f r o m t h e i r w a r l o a n accounts.
Governor Norris.
the s i x t h d i s t r i c t
A t t h e present t i m e t h e banks
have ledged with
in
u s apvroximately forty-
four million o f securities a s collateral f o r war loan de~
posits.
O f this amount twelve million,
per c e n t o f t h e coliateral, c o n s i s t s
o r over twenvy-five
o f commercial paper,
deposited almost exclusively b y city banks.
T h a t clearly
indicates that t h e c i t y banks prefer t o deposit collateral
of this character i n order t o avoid t h e work a n d risk involved i n handling negotiable securities which,
i n quite a
few cases, requires t h e supervision o f several o f their officials. P e r s o n a l l y I
do not s e e anrthing t o b e gained b y
his vrivilege a s the paper i s easily handled a n d
checked a n d g e n e r a l l y c o n s i s t s
o f prime o p e n market p a p e r
roind amounts, p r o v i d i n g a m p l e p r o t e c t i o n
in
t o t h e Government
for i t s deposit.
Governor Wellborn.
T h e y sell their certificates a n d
then p u t t h e c o m m e r c i a l p a p e r a s c o l l a t e r a l ?
Governor S e a y .
T h e v d o both.
T h e y sell them a n d
porrow o n t h e paper, w i t h d r a w t h e s e c u r i t i e s , b o r r o w
again o n the securities.
Governor Young. I
to t h e S e c r e t a r y
a m afraid i f that suggestion goes
o f the T r e a s u r y
h e might c o m e b a c k a n d s a y
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Federal Reserve Bank of St. Louis
170
commercial paper c a n b e taken a n d h e may s a y i t must b e
There i s n o w t h i s o p t i o n w i t h t h e b a n k a s t o w h e t h e r
will t a k e i t o r n o t s
Govermor Calkins. I
d o n o t t h i n k i t i s optional.
(‘le
are u n d e r i n s p e c t i o n f r o m t h e T r e a s u r y Department.
Governor Y o u n g e
and a
B u t w e naven't t a k e n i t f o r a
yeu
half.
The Chairman. u n d e r s t a n d the motion is that w e
apyrove t h e suge
o
n t h a t t h e use o f commercial paper
for war loan deposits b e discontinued.
further questions?
A r e there a n y
A r e v o u ready f o r the question?
(On a vote of the ayes andmys the motion was
carried 6 ayes t o 6 noese)
Is s u b - t o p i c B e l w i t h d r a w n ?
Governor Calkins. i
d o n0b. Care. t O Ofrer: a; F 6 s 0 u =
tion except w i t h regard t o B-2, Mr. Chairman.
The Chairman.
N o w w e w i l l a s k lire H a r r i s o n t o l e t
us know where w e stand o n the program.
Me, Harrison.
I
t aonears t h a t w e have disposed o f
the whole o f topic No. 1 , credit transactions a n d vol
with Bhe exception o f topic f , repurchase agreement, lir.
opinion o f august 18, 1925.
Ye have not teuched any of the topics under colIéctions
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Federal Reserve Bank of St. Louis
L71-172
and clearings.
‘Je have d i s p o s e d o f a l l t h e t o p i c s u n d e r N o . 3 , Coinz,
currency a n d circulation, w i t h the exception o f the report
of Governor Norris! committee.
There does n o t appear anything left that w e c a n consider
further tonight, Mr. Chairmane
The Chairman.
T h e n t h e Chair will entertain a
motion
Mhereupon, a t 5240 o'clock pem., o n motion duly
nh
+
seconded, t h e conference adjourned t o meet i n joint scssion
with t h e @ h a i r m a n a n d F e d e r a l R e s e r v e A g e n t s
o f the Feder-
al Reserve B o a r d o n Tuesday, Noveber 15, 1925, a t 10.50
o'clock asm., t h e Conference o f Governors adjourning until
‘lednesday, November 14, 1925, a t 10.00 o'clock asm.)
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Federal Reserve Bank of St. Louis
Se
O o2
D
OF GOVERNORS O F FEDERAL RESERVE
BANKS.
Wednescay, November 14, 19235,
°2: 50 ea @toek,
The c o n f e r e n c e s
y y om,
o f Governors recoavened, p u r s u s n t
to
adjournment o f Mondsy, a t 2:30 o'clock p. m. i n the hear-
ing room Federal Reserve Bosrd, Treesury Building, Weshinerony i: 6,
Present:
t
A g indicated i n the proceedings o f the
n d also Mr, Kenzel,
session,
s
r
i
re oll
o f the Federal Reserve
Bank of New York, a n d Mr. Strater, o f the Fecdersl Reserve
Bsnk o f C l e v e l a n d .
PROCEEDINGS.
The Chairmen: G e n t l e m e n , t h e meétins will come t o
order. I
which I
have received a
telegram from Governor w.cKinney,
will s s k
lir. Harrison: “ C y e i r n a n , Governors Conference,
Depply regret é@riticel illness o f Brother h s s preventec
my ettending conference.
W i l l miss association s s well
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Federal Reserve Bank of St. Louis
L174
which w o u l d s e c r u e t o m e p e r s o n a l l y f r o m
our F e c e r s l R e s e r v e
Uu w n e n s v e r
i t is
y wes deputy Covernor t h i s bank
snc i s thoroughly converseat w i t h opere
the b e n i :
W e
our
5 ge
S nsrsei concditio=
a
extenc
>irmen:
t
f w e r e 1 s mo: o
b ejtion.
S
x
Harrison s c k n o w l e c e s t h i s
symmaethy o f the conferen
Cover t h a t m e t e r .
Te will take u p f o r ciscu
s
e
c
t
i
o
n of t
o
. 2, which i s hescd-d “Collections 2 n d Clesrings,
programN
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Federal Reserve Bank of St. Louis
Alig oat s e e
Lda
Raserve
LU R S
L e n e ,
e
M i n n e a p o l i s enproved o f
Iniform Collection Vireuls
i
s
a
a n y
, the<ides of 4%,
sotusl opsration,
LSS
N
e
e hes b s e
innespolis
on
asfining generat 4
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s b l e to
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
congitions m i g n t
u
seree t o h a n d l e i t e m s
ae)
TEs
ve
last e n d o r s e r
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a ijps)
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we hendls t h e m entirely
nember bank,
~
4ik
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circulers
L
e
t
h e d been
p
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i
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s
, 1925,
d i d
, b u t they
put o u t e n d i t w o u l d
job t o chenge t h e circulers, sltnough t h e y
elthough o u r c o u n s e l
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Young,
theyY w i l l b e c ool l e c t e d
wise “ E l e G. SOIMy a
you. brovucht u p
et
BOSS
bscomes
into t h e t
Governor Young:
A r e n t
VeS
a s fp R
N43Eo DS
Governor
a
=
but t h e
It“doas.
Suto
Poo O c o e e
Ls
banks
Governor Young:
Governor s l l b o r m :
TLO a|
ie
bao
a e
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Federal Reserve Bank of St. Louis
rorer, Governor Young 3
r Young;
o
n
Nr O e«
v
ohaveG t o
went t o o r
o ui
datrh
t Wop
renga aare dro 4t
s oyyhsO
verrente,
o f woet tot, i s
third psrsagraph, w h i c h i s ths. paragraph r e l
routing checks ‘enc other ceah- items
—
h e
snd
b p ar e nr c7 h e s
had
, tSo p uLt that
E parap
eO V n
e ed r3 :
S
e E ryh ocra rP r
ai
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report’?
r Young:
o
:n O
rc
te o
v
b
G
e o r report
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Ata
Gowa t o the lettar which tmey suggest-
between the Federsl Reserve Banks, which
is the blenkst euarentee o n a l l items that may b e routed
indirectly t o other Fed-ral
conditions that e x i s t i n our dis trict,
to p e r m i t ¢1l o f our member banks t o route
snd n o n - c s s h i t e m s Jirect.
to benks w h i c h w e t h i n k s h o u l d have t h e t p r i v i l e
Thet c o m e s s b o u t b e c s u s s
o % n e condition o f sons
our m e m b e r banks.
cuarenty o n a l l c a s h a n d
and i n t h e Novemocer f s } a
i
s year
nencation f o r
Federal R e s e r v e B a n k s o n non~
na r s c o m e n d t h a t w e d o n o t u s e t h s O
u
endorsement, w i t h prior endorssments g u a rentced, although
they insisted t h e t iwinnespolis givs it.
>
neserve B a n k s h a v e
will find/on o s g e l l o f t h e October
5 of t h e November
Governor Seay: i
-erve Banks, Governor Young?
s
betwee
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Federal Reserve Bank of St. Louis
Governor Young:
S
e
Governor Seay:
i
s a different thing, i s a ' t it?
N o t at all.
Governor Young:
I t says here, “You are
snd requested t o handle checks s n d otter
2uthor @
your cistricet, w h e n re-
cash items c r e w n o n par 6 3 n
PMBhber c l e a r i n g b a n k i n
from a n y m e m b e r o
a
h District, f o r our account, proviaec t h e y are
es pects
perly s n a o r s e d b y t h e
£
snc c o n d i t i o n s
from time t o time r
i n
tha
the hondling
vour m e m b e r banks.”
Then
i t seys:
un@erstood t h e t this l e t t e r i s a blenket guarenéorsesment o f 3
S
U i t e m s forwerded
to
isseribed.
you heve i n your l e f t hend r v fers
Gover nor. Young:
t h e non-cash items.
A n d thea they sey: . “ S v e r y b a k
bi lis o r o t h e r n o n - c a s h i t e m s
t o
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Federal Reserve Bank of St. Louis
Benk, o r t o another Ffedera
eccount, w i l l be understood t o have
snd concitions o f this c
n receiving s u c h items t h e Federal
Reserve Benk will e c t only a s the collecting sgent o f
- no, that i s not t h e letter.
I t
says “You sare hereby suthorized
and hendle maturing notes, bills s n d other non-cash col-
lection items payable i n i s t r i c t ’ , end so forth---~
Governor Calkins:
i r , Chairman, I
sugsest t h e t w e
have this thing out now, i n ordsr that w e mey find out
T heve ¢ memorandum which refers t o t h e
ding cormittoe n o w before us, whikh
aiended b y t h e committee t h e t Federal
general practice,
d o not guarantee
ndorsements o n non-cssh collection items, unless
ngent u p o n t h e g u a r a n t e e
Federsl Reserve Bank, s n d then
by the next preceding bank sncorser.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
THE O N D E R O F
enk, banker, t r u s t company
for collection o n l y
1923
rior E n d o r s e m e n t C u e r e n t e e d
ral Reserve Benk of San Francisco."
h i On g eo s
—f a
v r s n t l y
The q u e s t i o n u n d e r c i s c u s s i o n s o p
o n
: ther the words
e
h gusranteed"
“
should
“Priora endorsement
ip S e
be left i n o r teken o u t o f t h e endorsement stamp, u p o n t a s
supposition thet,
t
a
k
n out, t h e prior endorse-
e
ments w i l l n o t b e gusrentesc N o w W , - - The Chairmen:
Tow, I
want t o make s sug-estion,
that i s thet w e n e S t r e t e r r e a d this report.
been very carsfully conin better position t o discuss i t
hire Harrison:
L e t m e s a y this, w h i e h m s y svoid con-
fusion i n considering t h e report.
nor Y o u n g resc, w h i c h p u r p o r t e d
T h e letter vnich Gover-
t o relats
t o tne
of prior endorsements o n non-cash collection 1
7 J.
w
a
coms
183
a letter whieh was recommended b y a n ocarlier Collection
Committce;
i t was never voted upon b y this Conference a t
that tiwe, b u t u t was referrod b a c k t o cach Federa 1
Reserve
Benk f o r consideration, a n d subsequently w a s referred t o lr.
Strater's Committee for final disposition.
A s I recollect
the situation there w a s never a n y agstion taken b y this Conference requiring o r requesting Reserve Banks t o quarantce
prior e n d o r s e m e n t s
o n nonecash collections.
I
t t s undoub-
tedly true a s t o cash collections, b u t while I may bo
mistaken, I
think n o action was evor taken a s t o nonecash
items, s o that the recommendetion o f lir. Strator i n this
report
t o which y o u refer i s not necessarily inconsistent
with a n y t h i n g t h o C o m m i t t e e h a s d o n e h e r c t o f o r e e
Governor Young: I
a m quito s u r e t h e Federal R o -
serve Banks have been nigkea t o furnish both o f those
guarantoose
I s that right?
Mr. Strater:
I t is, thay have.
T h a t i s not a
guarantee o f prior endorsements, b u t a guarantee o f the
missing endorsement o f the Federal Reserve B a n k f o r which
the member bank i s acting a s agent.
T h e Board was
quite decided i n its opinion that a
Federal Reserve Bank
Should n o t roceive directly f r o m member bakns i n other
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Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
184
Cistricts non-cesh collection items, b u t thet they could
receive t h e m i f the member b a n k w a s scting ¢ s t e agent
of t h e other Federal Reserve Benk.
lir. strater:
t
V h a t i s meat g
Governor Young:
guerentes’?
T h e blenket guerantse i s the missing
endorsement o f t h e d - r e l Reserve Bank f o r whom t h e
s s a g
member benk i s s g i
a
d 3 guarsatse
n
member bank's
r s s t o that.
a
g
i
Governor i
W e c a n refer
A blanket gurantee i s s blenkst guerentee.
thet t o ir, Herrison,
Strater:
w h o c a n s e t t l e i t v e r y quickly.
O f courss, a s Mr, H a r r i s o n s e t h i s
originally d r e w u p thst letter, b u t
our c o r m i t t e e e n d p u t i n t o o u r f i r s t
s recomiscndstion.
Governor Y o u n g :
W
O
2
7
1
Line Strater, t h e t y o u heve esked
that y o u r e c o r m e n d
n
g t o show
t
o ¢
et
ir, Streter:
muni tt
Governor Young:
T h e t msy b e disputed.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
guera
they. woulé. not
to i t s m s wnoich y o u
come
t o you
Which cdo c o m e t h r o u g h you,
Gentlemen, I
think w e c o u l d m e k e b e t -
the report, e n d es matters come u p
“3 ‘ o REPORT? OF “STAND ENG> COMMPTTEE O N COLLECTIONS.
o f>
“The report
submitted
n
i
s
Standing Conmittee o n Collections
o f Govertiors; neta: >
x e
aach o f the
reserve b e n s
solisction circu
0
collection circulers embodying -eco., sndations
previous report, s x c e p t t h e Yecere.
Winneepolis e n d Delles.
s e L S V o n rer
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ks
issue t h e
this Committes.
collsction circular
recommendstions
o f t h i s Gommittese.
Bank o f Minneapolis a i d not 7
after s o m e G i s c u s s i o n
i t wes moved t h e t t h s
beck t o this committees, w i t h instructions t o commaunicete w i t h t h e Federal 5
idinneanolis,
oe, f
in s n effort t o come t o some sgresment,
to the uniform circulars which have been approved b y t h e other elever banks.
I n sccordsnee w i t h
this mo¢ion, t h e
eral Reserve B s
f this
Governor Young esdvisec
net counsel f o r t h e Minnespolis benk h e a con-
Governor Young, howby t h e F e d e r s l R e -
ntinuing t h e c o l l e c
serve Board s s t o continuing o r G i s ®
tion
o f non-cash items
s n d because
o f uncertsintiss
a s
Supreme Court o f
to t h e effect o f the decisions o f the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
the United States i n the Atlante a n d -ichmond cases,
?innespolis b a n k would refrain f r o m issuing, either t h e
check collection o r non-cash collestion circulars, f o r
the present.
I
n commenting u p o n t h e fect thet
neapolis b e n k q s l e s
authorization 4
U a re
t
o issue 3
o
general
f endorsements
l e t t ro f
t o other Fecer=
21 Reserve banks, Governor Young cdvisec thse Coumittee
that this matter had not been referred t o counsel, b u t
thet t h e Executive Committee refused t o suthorize h i m t o
sign such 9 letter covering t h e direct sendings o f all
member 9nd non-member clearing banks.
T h e #ederel Re-
serve Bank o f Minneapolis contends t h a t i t hes sutnorized
cirec
only t w o o r three o f its member benks t o route items
6t this time ond inesimch a s t h e y heve giwen other Pederal
eserve banks specific letters o f suthorizetion s n a g u
antes covering this privilege, nothing further i s nec*ssary.
7
The Cormittee fsels t h a t i t has done everything
which i t can w i t h propriet
about uniformity i n tne
o
h
s t t e n
n
o
n
n g t o bring
-
c
e
s
collection circulsrs o f t h e verious
end thet the accomplishment o f this
must
n o w b e left with t h e Conference
o f Covernors
i
l
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
188
AT S I G H T O R O N
ARB vitAW
i
i&
T H E DOURSTIC s H I P L a N T
STAPLE
Under t h e existing roling o f the
Bosrd, conteined i n its letter X-301¢
not p a m i t t e d t o route non-casn
Cirect
t o member
o r non-membsr
The Agriculturel C r e d
benks
i n other
A c t o f 1923 amends >zction
13 o f t h e Federal R e s
Mi
anks w e y discount o r purchase b i l l s a f exchence
at sight o m o n demeai w h i c h s r e d r a w n t o finance t h e
‘omestic s h i p m e n t o f non-perishable,
stsple e g r i c u l t u r s l procucts.
r e s d i l y merketsble,
T h e Federsl Reserve B o a r d
this Conmittee 9 request b y one of the
the a d v i s a b i l i t y
benks t o route s u c n crefts,
or purchased b y them, “ireet t o t h e point o f
or Fed: ral r e s e r v e d i s t r i c t s
i n cases w h e r e
ne r o u t i n g o f e n y s u c h i t e m t h r o u g h t h e Fecaer
Lai
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Federal Reserve Bank of St. Louis
fh w o i c h
or b r o e n c h o f
woul.
the item
is
result
the o p i n i o n t h a t
e, should not be permitted
r
mn - m
ee m b
me r
aen d b n o
Pastor
obvious
nt ruling,
s o 4s
ano tner
s y benks
r e S 8E P
y
b bank vhich
t h e yenber
@
for G o l l e c t i o n s u c h item,
om
of Governors,
BE:
of u n i f o r m i t y
ad - out t e t . “ t h e r s
.
reserve
pens
I n 5 myers
nnmc ao l l
s s est iCo n
items.
‘ peLOe
Conference h a v i n g sirs2q}
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
190
prior s n - o r s e -
Woy
Sn ors ements
Conferanc £
roport
t o tls BSxL
Governors
a
to b e n o u n i f o r m i t y
eusrantseins
the
oninion o f t h e Gommittee, hnowever
o f presen
pee s t e n d p o i n t
he
i
Dee fi xY
w
Fs)
ow]
there i s
n o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
191
> ee
oceesion f o r ~eserve banks t o gssume t h e responsibility
of cusrsnteeing prior endorsements o n non-cesn items.
It is, therefore, recomnended that, a s 8 geners] practice,
bsnks G o n o t g u a r e n t e e
w i o o r endorsements
on such items, unless t h e payment o f a n y such item i s
by 4
contingent upon t h e suarentee o f prior endorssnents
TZ c e
Fed-rel r e s e r v e b a n k s n d t h e n o n l y i n c a s s s waicre p r i o r
fou
endorsements h a v e b e e n s 2uxs r a n t e e c b y t hee n e x t p r e c e d i n re] €
or.
hy
Governor Cslkins:
l i r . Cheirman,
i t seems
t o me
here i s one o f t h e points t h a t w e should ciscuss s n d
=
mine now.
I
t is a
vital m a t t e r .
T
h
e recommencatio
a
unof the committee i s that they should not guarantee
less i t i s necessary.
S o m e o f u s w h o have h a d banking
collect
experience will probably realize t h a t when w e
t h e peyon
items i t i s necessary t o d o that, o r otnerwise
will n o t pay t h e item.
John Smith, w i t h h e l f »
Y o u c s m o t present tare croft o f
cozen endorsements,
e n d esk the
“hethner t h e
payor t o p e y i t without o n y knowledge o f
s i t i s nec
encorssm
guerantee,
a n d 4 7 i t i s nscessery
t o guarentes,
do i t a s a n ordinary procecure jnstead o f
W a y not
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
192
should o n l y b e done under sxcentional circumstcnces w h i c h
sre e l m o s t u n i v e r s s l circumstences.
Toe Chsirmen:
B u t does n o t t h e report s a y that t h e
Cormittee's investigation
custom varied among t h e commerciesl b m k s ?
think t h e report coes s a y that,
Governor Celkins: I
but thet does n o t beer o n m y point.
6
Chaidrivan:
t does b e s r o n t h e point w h e n y o u
I
say i t is necessary t h a t t h e banks guarentee those encorssments.
Governor
C e lk
A
g
s a rule i t i s necessary.
some
‘i
knomn t o ths peyer, o r where t h e y e r e O f Ba. per=
consequence;
b u t unerr ordinery prectics,
just
tse e n
corsements.
Governor S e e y :
T h e r e w o u l d h a v e t o b e a n under-
banks,
standing i n such cases between t h e Federal reserve
orcer
that i t was s s s a r y g u e r a r e n d o r s e m e n t i n
to obtsin payment.
is not
Governor Calkins: T h e point I am meking i s i t
o r non-cesnh,
practical f o r u s t o collect items, either c a s h
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Without g u e r a n t s e
worcs, i t i s not neceswor <s
Thet G o s s n o t
“orior endorsement suarantsed”
mean snything.
Is t h e t
iv. H e r r i s o n :
true i f y o u ercorss f o r
collection o n l y ?
Governor C a l k i n s
m
e n ty
MOTE
gusrentesing e l l prior
you.
D o e Ss
of collection only?
Governor
Celkins:
W
h
e re t h e c o l l e c t i o n i t e m i s re-
strictively e n c
¢‘he u s e o f t h e w
supsrfhous, o u r counss
hold Ling t h e t 2
orsement a n d the 1
h c words
u s
SnCox7rs Ss}
sre o r sre n o t used,
ispend largely upon t h e
G e c i s l i o mni csses?
T d o n o t k n o w w h e t h e r t h e c o Oourts
atween a
cash i t e m o n d
collection
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Of [G0Gr ss
s
m quotins f r o m o u r
not c o n c l u s i v e
by
=
d=ei1 sions
in
subiect.
rulings.
he verious banks, w h o
esived t h o s e opinions.
f
heve
o
r opinions, hsve re-
I have given t h e substence o f
counsel
our counsel's opinion,
for the Fedral
Re-
prior c n t o r s s m e n t s
by
, t s rbeiF
by t h e b a n k u n d e r e n c o r s e m e n t
$
for c o l l e c t i o n r e t h e r t h e n t n e
codastituts
3 a warrant
‘bruments
law
e endorser's
n
twarren
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
holiers
i n due course
courss,
W e
MO: by P r e Mite -bae: +
1
9 8 g5Sieev e n i n t h e t l e w
6 “Tnewes
e
n
t
me p r e c t i c e
tae
‘
A
L
L+ r
o f includ-
endorsements suarsntzed",
or words o f similer tenor, h a s developed.
The function o f guarenteesing incursso
with respect t o cssh 3 n d non-cesh items, and.
termined
i f
B E
that
ment s n o u l e
bs
B
er cloln
yNi
tcene a beis
nelwe H S H S neue. b hbout Goes T h o s only question I
chathner o r n o t
ter o f f a c t suerantss
os
“ N O L S SMSnts.
Governor Celkins:
the N e c o
‘2 t i a b l e
in
T i e
e
S
y
a
i r , Kenzel hes just sus
Instruments A
S e e i
c r e
c o v e r s tnet.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
prectice,
enclorsements
on L
e m s unless t h e payment o f a n y s u c h
item l s conting
ssmuents heve been susranteed b y
It s e e m s
t o me,
3
3 S s3
psr a c t i c a l
1 herdly b e fsasible, t h a t y o u
és c o n t i n g e n t u p o n t h e guersntse,
tould y o u cover s u c h 9 trensection i n your bill
Tt would mesn thet y o u w t a
tae
t o single
out every ons--iy. Harrison:
s particularly t r u e i n
T h a t woulcb
case o f d i r e c t sendings.
Governor fsnchner:
Y e s ;
Le. SCemg. 6 0
5 moetter o f hendling
prior e n é o r s e m e n t s
to y o u r c a s h s n d y o u r
Governor Seay:
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Federal Reserve Bank of St. Louis
197
NG 2
x25, w
GELS C e e
4
Th
when G o v e r n o r C s l k i n s <civerted t h e d i s c u s s i o n
to another direction, t h e t i n that event i t woulda b e necesy f o r e a c h Fec«ral
r
r eserve e b a n k t o g u a r sa n t é s s n o t i e r
al reserve b a n k thst w h e n i t wes obliged t o g v
s@ e n o o r s e m e n t s
anc
it would guarentee t o that
b
u
t that
ise, o f courses, i t w o u l d n o t guarentee t h e endorsejon i t e m v o u l d b e r e t u r n e d e n d t h e m e t e
O
Governor Young:
anteesda
I
n cirect routings t h e y have suar-
n Minnespolis w e d o n o t send any.
lire Herrison:
s
o
Lz, Strater give h i s epinion,
o
c
d iftea t o h a v e
i n visw o f the discussion
wiich hes -aken plece here and now? P e r h a p s there are
ek
e
y~
Vere o i
ittes i n making its-
S e
slea t o d o thet.
Governor Young hgs re
p o i n t thet this .: r m e n d a =
tion i s contrsry t o our former rem nmencation, t h e t is,
thet s u e r e n t e s s n c o r s e m e n t s
b
e
t
w
e
e
n s l l Federal
The committee's idea there was, vithout lengusse o f t h e letter, t hnS
at
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
vas b e t w e e n F e d e r e l r e s e r v e b a n k s o n l y
handling o f collection items reeeivec
fs %
%
N Z ,
s P
i
Governor
Y o uGnog e h
e s s e v e r5a l nb a
nl s e cr
¢cirect
t o ether
ConnMltyee- w e s
4.
G
a
m
e
hey would assume
if t hd teeeisrFU
oa
Governor Young:
}4
’
s
G e s
o
d wary
V W L S S
a y y
U
O
‘
T
a c t
TASS
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
assume
t o pass
o n
It wes our idea,
thet i t would
prectice,
becomes a custom, s n d i t
courts.
Governor Young:
give a s
a n t :
says t h a t t h e F e d e r a
Y o u s e y i t wes your intention t o
i
B
s n d o r s s m e n t s , s n d our counsel
e
n
k
~
s heve
=
reason
member
~1,
w o y
b a n k a n d non-member
iy, Strater: D o u b t l e s s
e6 d i d n o t s u e s t i o n t h e r e a s o n s @
out thst what this conference h e c ask:
w h i c h w o u l d b e univsrselly
bw m e t h i n g
try t o w o r k o u t s o
accepted = n d b e general with the twelve b e
v
i
t
h ree
spect t o the reconmendsation that w e make i n the report
thet i s under consideration nov, w e felt that the generel
7ag thst there w a s n o requirement f o r a prior
of s n d o r s e m e n t
i n v e r y m e n y czses, t h a t i n m o s t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
200
cases those items would b e -paid without specific guarentee
W h e t h e r o r not the fect that a
of p r i o r endorsement.
benk's cndorsement appears o n the item i s itself 2 guarentee o r not, i s o f course = izgal question, s n c w e could
not eesume t o decide that.
I t may b e i n spite o f the ab-
sence o f that specific guarantse t h a t t h e guarantee i s
there snyway.
I t is not there i f i t is a restric-
Governor Strong:
enorsement, m a k i n g i t clear thet y o u a r e acting simply
collecting egent.
Vell, t h e t i s 6
Governor Strong:
question,
T h e poiat involved i s whether o r
oak w e h e v e n o t t o d s a l w i t h t w o t y p e s o f endorsements.
one i s a restrictive endorsement w h i c h makes i t clear that
you a r e simply ecting a s e n agent, without t h e usuel responsibility o f t h e unconditional endorser, s n d the second
proposition i s that w e e c d t o these
items,
e w s
collection
i n certain esses, suersntee o f prior sndorsemsnts,
which i s e n enlergsment o f t h e liebility which
“he restrictive collection encorsement only.
t o “S61 vith
_your wndersetending o f the question w e heve
nere?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
T h s twas m y uncs
tir. Harrison:
reised b y Governor Celkin
prior. ¢
therefore
b expressly
w e d i d n o t s c c o m . l i s h . s n y t h i n gy
nendorgenents?
a
l
og o n
uaratecin i
Governor’ ©
Governor Seay:
L
g with him a t ell
T h a t w e s Gove
ei
ernor Calkins! stetement.
r
Governor Strong: g
e Item for. colisetion,
and make i t olsar that y o u e r e ecting
pessing such title s s you get, with
end ell the equ a
o
u e r e n o t guarentesing sny-
simply saying, “If you pay the money t o
obligation t o pass i t back t o m y customer.”
question here i s shell
o3s n o t m e k e
endorsement o n which woulc guar
unless
i t i s neces
u s lisble
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
202
the G o v e r n x
5
,4
1 ,
o
ax
+
“ 4 a nt
table h e s been thet W w s u a r e n t e e
prior a n c o r s emer
eesh c o l l e c t i o n
r
Strong:
o
n
lection for payment,
r
e
y
v
o
o
u
G
prssen
xz
i f i t contains
benk may sey, " I s m not
esponsibility f o r these prior encdorsebecause I
G o n o t k n o w them; I
have g o t t o l o o k
you snd you have g o t to look t o the presenting b s
/
euerentse t h s 9m:.03
Thst i
endorsement thet impliss
‘then there must be,
letter b e t w e e n
ths
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2S
that i f G u s y b e v e b o cusrsentee T o a
hardly prcoetical;
i t i s incomplete.
If y o u will
stuff that goes through the collection depsrtment, y o u w i l
pretty g o o d percentage o f it--- I
Gevertior 5
n g
a m not
B u t y o u cic not l o o k into t h e legal
courts
s
o
collecting a g e n
m
e cases, t h e t
w i t h
follow t h e procescs
to be very cerefully worded i n o3
new o r o c e d u r e
FOSS
+4
L o e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
regard t o
F
I
t Gid n o t feel capsble
e w A w i n e
clo
S l v A i l os
n about
o i thst,
t ss snc
e there
L
nc
is n o g u e s t i o n b u t w h a t s o m s o f t h e s e s m a l l n o n - m e m b e r
y i n g = check un-
benks i n the country w o u l d obiect
e u a e y 2184
u
S
in ths case o f notes,
o
t
h
do. n o t think: t h e t
s
r documents
go through e s col
Governor Seay: e
hole thet it
set u p 2
where n e c e s s a r y
B8Ym™ment
m
.
h
practic:
t o b s ne
o f t h e item?
g
thet t h e
sssume
Governor Seay:
counsel t h e t t h e v e
u
l
o
r mmittes
i
coesa't
t
d voluntarily
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
unless i t i s specizicslly stated t h a t i t i s not 6 guarenSt
Tat m e y b e t r u
Conot believe i t i
u e i n ell states.
which t h e c o m m i t t s e w o u l d n o t u n d e r t s k e
requires
t o
ths
Corsements b y the Federal R e s e r v e Benk, a n d
a: fi
V
O
Reserve B a n k h s s n o t p r e v i o u s l y r e c e i v e d t h e guesrsantes o f
waiich sent i t t o it, t h e n there
that sopeéar o n t h e r e
suarentesd
=
aut
, e r o T eCALs
reM
bank w h i c }
s
e
i
s lecking thse
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
in
bank s/whi ch
» S O thet t i s
2 suarentee i n thet
there,
V e r y much so, particulerly i n the
lire Herrison:
I
cese o f direct sendings.
f the Netionel City sencs
direct t o t h e Federal Reserve B s n k o f Cleveland, t h e
edersl Reserve B a n k o f Clevelsnd m e k e s presentation e n a
endorsements i s necessary
the C l e v e l e n d B a r k s s y s ~
it nes n o t been sent unde
New York,
But S 2 5 0
baa nk/.6- i s
Cleveland would d o it, without t n e
Governor Fsnehsr:
I ns
osse o f t h
“oral R e s e r v e B e n k s w o u l d c o v e r
transection.
Governor Seey:
T h e t i s t h e point.
I t would b e
necessary t o have s u c h a istter between t h e Fed:ral Reserve B e n k s .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Young:
sent, giving t h e
Governor strong:
I s i t understood thet
susrentes prior s m o r s s n s
member bank, f r o m which t h e i t e m
to u s ?
cotitusel i s o f t h e opinion’ t h e
aw t h a t
which the
endorsement i s forged, collects t n e
a
e
d
4royee dirsetly o r through 3 n
the return o f ths money;
such 2
i t;
s9lso t h e l o w that
Gusek b e s r i n g s
foresd
5 pont o w e r i s responsible t o the
his
sfter t h e procseas haves b e e n turned over t o
In other words, i f a feterel
bar e n item endorsed f o r collsction,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
208
mere sgent f o r t h e collection, a n d
egerve bank becomes a
it does n o t guarantee prior sndorsements, i t s lie bility
when i t h a s c o l l e c t e d t h e m o n e y s n d t u r n e d i t over
s m o f t h e opinion that i t i s i
principal. I
1g terminete t h e liebility o f the Fedsrel
rve bank upon t h e completion o f the collection e n d
turning over o f t h e money t o the appsrent owner."
Governor Strong:
T h e t i s just t n e point.
stand y o u c e n follow t h e proceeds bsck, b u t h e cannot hold
you j.efter y o u h e v e e c c o u n t e d f o r i t .
Governor Biggs: T
would like t o submit t h e opinion
of our counsel o n thet.
g to the w i r y conteined i n your memorandcur
of April 30th, reletive t o "prior sncorsenent guaranteed",
I have a g s i n g o n e o v e r t h e mstter
change m y v i c w s
s n a
# s expressed
c o f i n d nothing
i n t h e memorsnadum Y u r -
nished under dates o f Jsnuery 3 r d e n d #sbruery 13th,
eserve A c t intondsd t h e t t h s d e r :
guersntes endorssments;
for,
S
s s
benks should
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Federal Reserve Bank of St. Louis
guersntseing o e n c o r s e m e n t s ,
the requir ements
a
t a n
e
a
o
STrev g oS ‘u s b y ore S e r es:
-~ q x
anks o f recuiring that
So oreenate
es 2
ipened
to such usage ¢ ! w o u l d b e prsctically impossible
to -sscurs vrormipt p e y m e n
f
- eollection L t e m s i f tic
orior e n c o r s s m sthn
nts.
py
mstter a f practical operation,
4
“oresd
t o msks this
d g e e m to b e n o s u t h n o r i t y uv
to m s k e r a c o m m e n c a t i o n s
orted t o t h e
t h i s e u b i e e t r e p Fs
ne t h e u n l i o r m e n c o r s e n s :
rel Reserve
benks
i n their
submitted t o e
Boerd i t was moved G o v e r n o r
seconced b y Governor MeKinney s n a cerris« t u s t
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
210
the conference unenimously agree u p o n t h e form o f uniform
an“orgsement reco.mended b y t h e committee, o n d that its ection b e communicated t o t h e Federal Reserve Boerd i n
order t h e t the Board m s y make s n y chenges t h a t i t mignt
consicer necessary i n Resuletion J .
This matter h a s thus been brought t o t h e sttention o f
Federal Reserve Boers, e n d i t seems t o me thst there
for u s t o d o i n t h e metter until t h e Board
chenged i t s regulation o r directed t h e Federal
reserve b a n k s t o d i s c o n t i n u e
Gov«rnor Norris: T
t o guarentee endorsements."
note thet Regulation J, Series
of 1923, n o t yet effective, states t h e t a Federal reserve
i t s o w n neglibank w i l l e s s u m e n o l i s b i l i t y e x c e p t e s t o
8, o n d 9 s guesrantee o f prior endorsements, whereas
Regulation J of 1920 merely states that the Federal Reserve
< will essume n o liability except for negligence, a n d
specifically t o checks, I
in the collection o f noncash iters 3 s well.
Toe Chairman:
e r e “isT h e w e y t h e metter s t e n i s w e
working o n 8 unicusd g ¢ non-cash items a n d t h e system i s
form b e s i s e x c e p t w i t h r e s p e c t
t o ‘ n e Minnespolis B a n k ,
6s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
L unceratend. it.
Governor Young:
T h e t i s not *uite sceurate, i r .
Sneirman,
number
iy. H a r r i s o n : A
o f t h e reserve
b a n k s cdo
guerontee prior ancorsements o n non-cash collections.
knor t h e New York Benk foes not.
The Cis irinan:
Y e e r e only consid r i n g non-cash
lections now, s s I understanca it.
Governor Young:
Peg
e s O u t Ot: - Line's
inneapolis
A
s 9
i s n o t the only one
matter o f fact, I
i\innespolis i s going t o srgue about this.
to guarantees p r i o r e n d o r s e m e n t s
do not think
W e are willing
i f w e h a n d l e sny.
Tis objection i s thst liinneapolis does
not care t o include i n the blenket guarantee a l l o f its
riembsr o r non-member banks,
Governor Young:
T h a t i s correct.
T h e r e i s n o oc=
cession f o r discussing thet, becesuse t h a t has b e e n t k
general practice f o r two years,
o r a year e n d s half a t
ond liinuneeapolis h e s n - v e r d i s turbed a n y o t h e r r e directly,
serve b e n k b y h e v i n s s o m e m e m b e r b a n k s e n d i t e m s
up.
Ms cuestion has never come u p s n d i t never will c o m e
to
Tf i t Coes come u p $11 you hevs t o d o i s t o refuse
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
hendle it.
Toes Chairmen: G o n t L e m e n ,
snd I
think
conmittese
be not guarsnteed,
Governor Young:
T h e only thing
was t h e f a c t t h e t i t w a s 9
aslresdy b e i n g done,
done.
2
T h a t is 2
contradiction o f
w i e n y o u recommend
ze©
contradiction,
thet
i t not
e n d I intend t o show
seversl o t h e r c o n t r a d i c t i o n s
If there i s n o objection,
CHARGES
w e will
O N UNPAID C o
collectsa
from tne
istrict i n which they originatec
Submitted
question w e s
“mel reserve
b y Kans
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Federal Reserve Bank of St. Louis
mmerciel b a n k s
in 9
m6
they require t h e t
usndling non-cssh- coltem b u t n o 4
m the r e p o r t o f t h i s
of Governors
Poe.
n
m Sheer © .
o f October
Ss
On sccount o f t h e s m e l l s m o u n t s
numsrous e n t r i e s w h i c h w o u l d b s
Cormmittes recommends t h e t t h e Feceral reserve benics
Tike
n o > C i e xr
Zstion should b e followed, e v e n though i t
the c o l l e c t i n g
ge t o the
chars
ent w h e n s v s r e n } t e m s o f t a i s
unpe1ic.
BANKS STIRS D e o 3
Submit
eG
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
214
The committ’e i s o f the opinion t h s t notics o f
itions to, o r withdrewels f r o m the par list, t s cesirsble whenever s u c h sdditions o r withdrewis becoie siriective previous t o the date w h e n t h e semi-annual p s r list
or the monthly supplement t o the p a r list a r e usually
in circulation b y the Federal Reserve Board.
The Conmittese sucgests, however, t n e t non-member banks
Which e x o r e s s t h e i r i n t e n t i o n
t o withdraw f r o m t h e p e r
P|
list b e induced, whenever possible,
t o continue t o remit
usual course
for their items a t par, until notices i n the
Fecerel reserve
ean b e given t o all member banks e n d all
of
banks which, o f course, would obviate the necessity
b - y wire.
notifying other Fed:ral reserve banks
NON-CASH COLLECSHOULD FEDERAL R E S E R V E BANKS HANDLE A S
NON-i.2LBER BANKS,
PIONS CMTPIPFICATES O F DEPOSIT DRAWN B Y
R= NOT O N T H E P A R
Submitted
b y S t e louis.
o* t h e F e d s r e l R e s e r v e B o e r d c o n t a i n s
check foot note t h e following definition o f 4
o r ordsr
in check i s generslly acfinec a s §& draft
t o b e C P BW n
upon s benk o r benking house, purporting
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
gia
upon 3 2eposit o f funds, f o r t h e payment s t sll events
of c e r t a i n s u m of money t o = certsin person therein
or to him, o r t o his order, o r t o besrer, a n d
instantly o n demand."
Committee
LS p o s i t
of c e
i s o f t h e opinion t h s t s
certificates
does n o t come within t h i s clessificat
het t h e F e d e r a l r e s e r v e b a n k s a r e t h e r e f o r e n o t prohib-
ited from hsndling s u c h e n item for collection s v e n
non-member
bank which has not
Fec:ral
one o f
serve Board hes definitely r u l e d i n a letter t o
o f isposit i s
the Federsl reserve banks t h a t = certificate
in sffect © promissory note of the bank imamahiomg issuing
it end that i t i s thersfore permissible t o receive a
cere
tificate o f ceposit f o r collection & 5 9 non-cash i t e m and
¢ charges w h e n
thet t h e issuing bank m s y exact e n exchang
making remittance therefor.
ORAUN
THE HANDLING OF NON-GAsH COLIZOTION ITE.S
URXHANGE” ADDED.
Submitted
b y N e w York.
b y o n e o f t h e Federal r s s
ac
s topic w a s p r e s e n t e d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
existing rules t h e
elsering house o f
e i ‘ e g u i r e s 5 1 1 clearing houcs
T
members t o impose °
a
y ns
a
of non-cssh items Ceposited w i t h
With t h e e x c e p t i o n o f i t e m s o n o
Because o f t h e f e c t
p?)
the clearing house benks) either refuse t o
s
o
-
esllead c o l l e c t i o n cherg:
prectice o f the elssring house benks,
i n meny
to s d d t o
syount s u f f i c i e n t
house rule.
vrasults
t
t o meet
e Aaa
ee
i n e n alteration
c r e w n forse
spperently
Sad
is, the worcs
customer peyeble “with exchenge"; thet
bocy o f the cHett
Gwith exenange”, e r e written i n the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ear
which t h s amount i s writte:c i n
sarg t o ° s the universal undoersts
sxcicnge” when written i n
body o f 9 dreft mweens thet t h e collsecting bank
to Goliect f r o
érawn, c a d
n e p s
h e r 3
s
m f o r which t h e
u
Soy coarge to. b é macs b y the ‘benk
f collecting end
o
Selleeting ths. item f
remitting, s u c h cherge mist b e
l e c t e f r o m t h e psyer a n d
the face smount i n any svent remittec
entirely eccording t o custom.
M i s preetice i s
I t is, however, n o t cus-
tomary i n s u c h cases f o r t h e s m o u n t O F
ot sll, b u t merely t o note i n the instruction t h a t
syeble “with sxehenge’.
ag the question und«r consideration i s concernec,
no different, however, f r o m those n o t crewn psyeble
exenange”, beceuse t h e “exchenge” cherge
tue b o d y o f s u c h i t e s
collecting bank f o r 2
c o l l e c t i o n
n s the 1 t s n
_ean iay#1ae
house h e v k f o r a g n d l i n g
crawer,
L t s customer. A
collection
erroneously called “exhienge") i s me
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
and.
for t h a t senyicss
not drawn paysble
from t h e
remitted
with the
e x c h a n g e ” written
collsectiig b e n k w
u n c e r s t a n d thst the fs
beremitted s n d t h a t t h e collsction cherge
payor i n eddition t o ths face
64must g9lso b e rememberec t h e t 9 great m m y collec- 5
tion i t e m s p e y e b l e
i n Federsl r e s e r v e b a n k s n d
benks
without making
easés,
i t woulc snpsar o n t h e
en exchenge cnargs
> L S the charge w h i c h t h e cles
expret to. b e collseted f r o m the
benks s h o u l d n o t
Teo
from the peyer o f sn i t e m o r require t h e i r sgent b e n s
t
o
. d é m s n a f r o m t h e payer, ¢
is b e i n g c o l l e c t e c
f
t h e benk f o r which
i n addition
t o the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
psyer o f a n item t o pay
vice w h e n n o c h a r s e i s m e d e f o r t h e t s e r v i c e
i n view o f t h e f a c t t h e t i t
ly
e true
a
icult t o make t h e banks e n d the public u n c
believe t h s t t h e F e : l - r e s s r v
the exchenge which has b e e n
The idea might b e circuleted a n d
mace, through ignorance o r intent, that the
T h i s latter reason, hor-
exchange,
incidental a n d 7o¢es n o t influsnes t h e
nmittee
i n “seiding o n t h e principle
involved.
Tt i s the opinion o f t h e Committee t h e t non-cesh
x
Ha
Wwe
g members must charge
such items, s
of thse b a n k
cherge should b e paid b s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Evom. t a 6 - 8
RSS a
c
Governor C e l k i n s
1 Beye
n
wober=y|
i
Ltents ,contain7 “g 0 reisrence
4... THE: pare
Sxcnen
b
u
t which s r e sent
With S32
cover t h e clearing houss
Governor Sesy: A p r o p o s o f that
bark,
s
im n
oregr s o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
eek
Letter todey f r o m t h e benk inelucing s
conmunication f r o m
s Richmond Brokerege concern steting thet « New York confor w h i c h s n e x c h e n g e
saci t i o n t h e r s w a s
a n
cays, amounting t o
thet p e e -conmmn1 FES
Governor S e s
a d u n d e r consiceretion.
>
m e a t w a s n o t collseteca b y the Rich-
o Tle. mFede
Tt
a 1
iar 3,
I
C
h
a
a bj
Faln ne e nn :s
PA
Wa J2
wg
r T
V i n s
§o
n
G a EEC
+E
i : Vo
)
i
n
G e
o
x
=
c
h
e
r g &
}
wast?
under t h e N e w Y o r k c l e a r i n g h o u s e r u l e s , p l u s
Governor
5 ¢w oee y : ,
Et N e w
York
firm
thet
dsposited
thet croft with the e r i n g nouse bank made s charge, becsuse t h e c l e s r i n g oO h o u s s
being o n e tsnth,
an
house b a n k
to c o v e r i n t e r e s t
ot 3
end i n s d d t i o n t o t h a t i t m:
of the seme smount, 13.08.
r
h
) a t e f o r six
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
222
ir, Harrison:
3
, according t o the
correspondencs, where one o f our member banks sent the i t e m
cirect t o Richmond.
may heve come t o u s from t h e
Bank; I
c o n o t know.
letter s h o w s t h s t i t c a m e
Liechenics
M e t e l g Bank.
Casirman: G e n t i s m e n ,
F h 2VS
at vr, Gilbsrt. w o u l ’ l i k e
mest w i s G o v e r n o r s .
y e s
G o v e r n o r
would b e very
to peuse l o n s enough t o
just -recsivec f r o m lr.
benk i n e
anc c l o s e
this a f t e r Governor
Governor iicKinney s o m
s
y
m
ps
t
:4
Oklehome, w h e r e
a
n
ay a r
rLlole
d will b e burris
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
225
to frame s n sporopriatse
send i t t o Governor MeKinney,
mis report, it. s e e s t o m e
return s n d cive consicaration t o tne first
is, t o t h e subject matter ceslt
with there, which refers t o the fsct thet there i s 9 lack
of uniformity, s n d the committee believes thet i t has
done everythine w h i c h i t c a n d o with propristy i n sttempting t o bring sbout uniformity i n the check collection
anc n o n - c a s h c o l l e c t i o n c i r c u l e r s
o f t h e various Fedcral
sble purpose must n o w b e left t o t h e
Governors.
Now, gentlemen, wheat i s your
matter?
Governor Y
+
e G o o irmen, 1
k
time o n this a t t h e lest t h r e e meetings, e n d f e e l
I mien. consume more b i s .
to
else I
o
u
E i t h e r I heave lecksd sbility
r cis trict: properly,
have n o t good a s o n i n g powers. I
whst i t is, b u t will t r y i t once more. I
@&
co not know
w a t to start
by saying t h e t y o u c a m o t collect checks o r non-cssh i t e s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
on b a n k s t h s t c e n n o t
t
psy
e esnaoebSs-.-d
what t h e l e w i s .
nismenigement o n d because o l
pelled, u n d e r S e c t i o n a p Oe
thet i t hss e n y perticular
hevs besring a n the non-member
u
r up i n
fo n o t h e v s s a o l d - f s s h i o n e a n
Sistrict.
mana cosh.
P c o p l e d o not g o t o t h e countsr e n d aee-
T a e y heve w h e t they csll =
depositor knows h e probebly m u l a
‘silent run.
m t
goes t o the countsr o f t h e
cashisr
01
So, ‘through 2
matured,
bo. £ 2 pesit
then r o u t e d
to t h a t i n s t i t u t i o n ,
assumed f a r 3 2
nart
n e wW t h e t t h e r s wes n o
o f the Federel
Reserve
Bank
o f sS.innea!
sendingake0) a n item u p there either t o 4 member
end
T h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
thet w e s h o u l
hen t h e question srose what i s c u e care
the exeminer's report before
member benk, which
w
s it i s not i n good ¢
and t h e t o u r S x e c u t i v e C o m m i t t e e w o u l d n o t b e
to l e n d a n y m o r e m o n e y t o t h e t b a n k I
thet
bank hes been slow i n remitting t o u s f o r 2 month o r
several weeks, o r what not, I think any jury i n the Unite
tates would convict u s o f noglis
items u p there.
h
e
r
e is
thet w e cen prot sct ourselves,
w
2 h
y i n the world
a
t
o
. Sena = per
sonel representative.
only have o n e benk a t 9
me r i g h t now, t h e s a m e k i n d o f r e p o r t t h a t i s l s
avery morning, showing 884 transit items i n the
Jinncapolis office alone thst ere all the way from one t o
ten days lates.
W e cennot s e n d 2man out t o Gach one o f
those places.
we t a k e j u s t 9 s m u c h c n a n c e @ S W e p o
and have been doing thst f o r three years.
is
finslly c o m e t o the place where t h e member b a k
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Or
BAe
thet y o u have t o send a representative o u t thers, i f you
can possibly g e t hold o f one,
Y o u camot s e n d the tram
you cennot send the head o f t h e depertment,
but y o u heve
man out there w h o has judgment
S O x2
to hsndle t h e situation;
a n d when your m e n does
up
he finds t h e t t h e bank has chargeca
—)
4
*
=
)
LSESUSC s
cashier's check upon itself, o r they have issued
areft upon t h e F e d r a l Reserve B a n k that i s not good,
sud y o u e r e confronted w i t h t w o concitions i n order t o
protect yourself.
O n e i s t o seek recourses through t h e
courts, w h i c h precipitates closing t h e benk, 3 n d then
y o u c é n g o t o that b a n k a n d try
you haven't enything, a
yourto get what y o u c e n out o f i t s portfolio t o protect
self,
N o w , i f you send more items o u t t o that bank
whet you
“wnder those conditions there i s n o question b u t
are guilty o f negligence.
Now, w e have t o undertake t h e t risk with o u r member
to
banks, S e c t i o n 1 6 o f the Act apgarently uv compels u s
send t h o s s i t e m s o u t .
T h e resul
h
e Federal Reserve
Bank o f Minneapolis h a s made 6 great number o f sdvances
tO
to member benks i n its district t h a t i t dia n o t care
make, l o a n s f o r c e d u p o n o u r institution.
T h e r e i s nothing
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
serious e b o u t t h e t
st h o w m u c h o u r b e n k h a s
so
ybocy clse knows,
do
h n o t think m
a
lost I G o not know.
thousear dollars t r y i n g
eilthnough L I heave spént,
loss
get t h e information.
co not know whether
000 s t I
gsnothine serious 2bout
those conditions continus,
end o u r m e t h o d s
o f hand
i t i s only =
checks continve,
out there, beceuse w e won't
will b e dealing w i t h
ITwant t o modify t h a t 2
you t o g s t h e r
O
r
e
cet
L 86 net want
i
the c n a i t i o n d
s
3
i
]
S
c
a
L
sll o f o u r member b s n k s
yrotect t h e m -
r e d t Wi Gite
you s r e b o t hneSs
Governor Young:
@ member b a n k
n difficulty i t don't p a y e n y sttention t o our t i
ule,
o r whether t h e y c a n c o l l e c t q u i c k e r
is
fon
sia
b y sending
S e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
themselves;
t h e y just route t h r o u g h U S
i a mcesuce)eb
retty quickly when ® bani i s i n d i f f lty,
hing begins t o come through us.
T h e y don't nmdle c a s h items o r
4
Governor Harding:
collections J i r e c t t o t h e t b a n k t h a
A G Y
( 7 2 8 Oo. Boge?
N o t i f they c a n
Gor trnor Young:
ml
Governor Herding:
T h e y co
them, don’t they?
Governor
ung:
n e y s e n d t h e m over t o US.
C O W er neG
them?
e d
Governor Young: F r o m member
Governor Herding:
n d e 5
Governor Young: :
lew w i t h regsrd t o msem-~
ber b a n k s - - -
esefully.
the Currency
aminers.
ave G o n e 2 9 very “0o-.
7
been
greet m a n y o f t h o s e b a n k s h a v e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Closing o f ¢
t migit have b e e n seved.
a
I f you should uncerteks t o
Governor USalkins:
member b a n k y o u woulc precipi-
to eccept items u r e 5
a S promptly.
tate the closing o fthe benk }
a
Governor f
v
e s u g g e s t e d thet.
oa]
Governor
U en
k n o w ,
b u t Governor
P e r o t ox cain
Go that, anc. we
have tried
9
W
)
e
e o n e c h e a d s n d take
the loss a n d sssumsd t h e
Now, comins d o w n t o t n e non-iember banks,
wes i n 1920, o r 1921, I
handling t h e s s
ling those items.
t
do not know which i t we
s upon non-member banks i n sood
E v e r y s o often w e
thet could not remit, o r would n o t remit, o n c
snd h e w o u l d f i n d t h a t t h e c h e c k s h
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
e
3 4s ti8h w y
h Sé
thems 31
and the only thing you
wes to go into thet
d l
o c
d ou under
you c o u l s find.
bank's portfolio
e continustion
289 n o n of t n e i n
months
efore t h e y
3 cash L t e m o r
C Ligens
S A
ea
not b e e n satis fezctory.
Now, this conmictes,
report o f
bam
CG Le c h e c k s
cannot collect on,
Thet
upon
s whet I objectec
whot w e will n o t o ¢2YSe T O
o
Theo
sum
T the
whole t h i n g up, w e will sgree t o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
s, but w e will not egree t o try
n benks t h e t
te‘
1 PeLLeve
7S
v e@
Uh
cannot
"
i
ecollect upon.
2
ee x
~
t o cole
o L U 0 - B L O R
O n
C O G
oY
mitted promptly i n sne
OG
t O sae
where i t woulc i n v o l v s
T a p s
ano ther
:7
POeSSrve
wea
Federal
pD e
l ke ,
an
1 only
aif-
bank m i g n t o v e r - s t a
5:
thing
t h e proposition,
has.
Fe L N
4
i s jus
es
or f o n e c e s h i t e m s o n
r
a
d
w i l l sectis
the whols thing
Governor Fancher:
y
o
u w a n t t o call o n t.¢ non-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
&
7
Ba
yourself t
o
Governor Young
Leet upon.
Governor Frncher:
ually racuced
H
o s r y o u r par list
b y voluntary withdrawals s i n c e
Court D e c i s i o n s ?
Tnen, w i t h those benks t h a t y o u
thet h e v e n o t b e s n r e m i t t i n g s a t i s f a c putting
t h e m off t h e p e r l i s t ?
Governor Young:
Governor ffncnser:
@el t h a t 2
bank i s
all right s n c there i s ¢ possibility o f collecting,
we
heve s e n t those items o u t beceuss w e thougnt that they
would b e peid, were v
r e f u s¢
s e n d t h e m out w e
would heve t o give & @ t p l e n e t i o n s n d thet m i g h t b e
tle cengerous.
you confid:ntislly
I think
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
to r e l i e v e
$0 C O m e
x e1
s n d .ennouncs
any non-cosh items o r cash items o n
sey “thet will n o t remi'
FMsacher:
T
t i s not o n l y ®
question o f r e -
a question o f t h e solvency o f t h e i n -
Governor Y o u n g :
The Cheirmen:
h y not say thet you will not col& ren
n
g satisfactorily?
tee e
on benks t h
t
Governor Young:
T a s t would cover 8
benk t h e t romittt.
but insisted o n deducting for
wrong e n c then y o u would haves
law s u i t o n y o u r hencs.
Y o u c a n g s t o w e y f r o m t h s w h o le
thing b y just saying t h e t y o u Will n o t hendle items crawn
on non-perring benks.
me Chairmen:
Y o u s r e speaking n o w w i t h r
to n o n - c a s h i t e m s e x c l u s i v e l y ?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor Young:
The Cheirmen:
Governor Young:
Yes.
Governor Gslkins:
B u t you a r e i n difficulty there.
you receive f r o m snother benk a n item for collection,
y
cash o r non-cash, y o u
to c o l l e c t t h a t item.
I
o
u
r
Z y o u return thet i t e m
nieking e n attempt t o collect i t you o r e heid
Governor Young: I
a m not doing thet.
E v e r y Gover-
w
nor hes g o n e o n record thet i n 2 case o f thst k i n c
gent, t h a t w e will
pe By
rignt t o notify t h s principal,
2¢ s n i t e m o f t h e b k i t
wire y o u thse conditions
Governor Sesy:
¢
&
e m u s s sa
otner
liebility t h s t w a y f h a n assume i t t h e
ir, Strater:
W r . Cheirmsn, Governor Young has
tist t h e c o m m i t t e e h e s r e c o w m e n c e d t h s t
collect c h e c k s o n s l l n o n - m e m b e r benks.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Zot
feulerly
as s u m e
ay
mL
Foot
dil
the c o m m i t t s e
t o checks,
h a s never
bank wheat i t s h e l l o r
o
Ct
Shama CaS
to. t n i e p a r t
the c o n d i t i o n s
protection, e n d
uncer t h o s e c o n d i t i
tor d n s truetionus,s
uniform Liability
(Continuing)
perasraph o f t h e report o f
the c o m m i t t e e
p erticuler refe:
a
cere o f t h e
~ 7
Yes
(Interpos ing):
a
fd
1¥
Benk o f M i n n e a p
ao
SS
ceks
}
h
aydobemosS
o r nonecssh i t e m s
not
cs
Governor F e n c h s r :
when y o u s e n d
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
rovernor Young:
And t h e n s o m e transit m a n e g s r o f
by t h e Board
cttsntion t o something tnat was
+
Aan
NFbe Governors
thet I
voted upon, e n d i f I cic
never
voted n o .
T would like t o e s k
Do y o u a r b i t r e r i l y
ke t h a t point
i. S t R e G a n s
hi s8-paz
I hove n o t e x e c t l y u n d e
a
of such 5 telegram,
thet wa.
-eGall o n s non-cash item, e n c prob-
received
ably o n 3 non-per bank,
% snovia b s
Pea e e e
ae gu a t t o a s k our
O
endorsers
Whe thor t h e y e r e w w
tg
r o si tanc
l l
bee
a s
aid y o u
Governor Young:
Stra
whet w a s absolutely
them n o i n f o r m a t i o n
necsssery, t h a t
w
e
r
e prob-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
or
t h i n g of
the tronsaction.
Y o u < h a v e c o t t o teal
them something, a n d w e would n o t uncertake t o essume re~sponsibility without going beck t o o u r Sndorser.
Governor Fancher: T h e n , w W h e n y o u have f o u n d ebank
het sort, s n d you have wired t o us, 4 s y o u c i d t h e
other day--- s n d w e will assume this might b e a cash
you t a k e t h e t b a n k o f f the p e r l i s t ?
Governor Young: y
2
a d i t off the par List
before that.
Governor Fancher:
A n d sfter y o u have notified u s
you w o u l d n o t haflle t h e c h e c k ?
Governor Young:'
W e would n o t hendle it, no.
Governor F e n c h e r :
het
Governor Young:
word?
T f thet check ceme i n
got the notice, w e would probably wire you,
Governor Fancher:
Y o u r present polic:
t h e t when
you f i n d 2 bank thes h e s
and whose returns s r e n o t satisfactory, y o u s r e
give o f t h e situation, t h e n y o u take that bank o f f
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
par l i s t e n d n o t i f y t h e o t h e r F e d e r a l
Governor Young:
Yes.
A n d y o u a r e gracuslly clea
Governor Fancher:
that situation u p b y the r e d u c t i o n
o f your per list suto-
meticelly a s y o u g o 8 long ; t h a t is, a s eesch sore spot
is untovereda, y o u tek? T t off?
Governor Young:
Y e s .
A n d y o u t r y t o mnticipate
Governor Fencher:
times, w h e n y o u know t h a t they a r e i n trouble, s n d you
take t h e m off,
m d y o u r par list i s g a d u a l l y b e i n g r e -
duced right elong?
Governor Young:
W e have thet condition right now.
It i s rather hard t o enswer @
‘Ye d o different things.
question e s t o what w e d
F o r stancs,
bank i n t h e State o f South Dekote, s
Reserve System, whoss
i
t~c
w e heve t h e l a
member o f
s a r e between s i x
g
Ls]
million Collars.
1 4 5 1 § c o r r e s p o n d t n t s t w o hundre
4: the Stete o f South Dakota.
‘ea conceived ¢
T h e first o f this year
7 9 a of orgenizing a new state benk
and taking over that bank, w h i c h sutoma tically t o o k i t m t
of the System.
I t wesn't t h e best institution i n the
world w h i l e i t w a s a
member.
W
e m:
n
e
w exemination
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a
ox t h e institution,
sent e
report d o w n t o t h e
serve Board w i t h the recormendetion t h a t they n o t b e per52d t o bocome m e m b e r s
o f t h e F e d e r e l R e s e r v e System.
The Boerd agreed with that e n d s
t h e y would permit t h e m
to become members w h e n they h a d accomplished certain
things.
N o w , t h e t b a n k i s not unlike certain other
in Milwaukee, Sioux City, Cedar Rapids, o r where not,
esmot cemand payment i n lLinneapolis exchange;
suppose N e w York c o u l d c o that, because
practicable. I
everybody
i t i s im-
h a s e N e w Y o r k account,
b u t Chicsgo c a m o t
do
ity
Kanses/@onnot d o it, a n d Minnespolis csnnot c o it,
I assume D a l l a s c a n n o t d o it.
W
e accept a
not immedistely evaileble.
whole l o t
N o w ,
care down a a complsined t h a t w e were forcing
banks t o open u p sccounts i n liinneapolis e n d St.
~
, because w e demanded that kim o f exchange. I
cited what Chicago w a s doing e n d what they w e r e d o i m
other places,
s o with those institutions
cept Sioux Fells
7
c
i n
w e agreed t o ace
. a n d when w e got that w e sent it
out t o t h e Sioux Fslls Bank, getting o u t there inside o f
hours, a n d the checks w e r e e l l right a n d t h e crafts
twelve
!?
were a l l right.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(After informel < 4 cussion: )
think w e h a d b e t t s r c i s t
The Chairman: I
subject.
T h e committee ssys, “Ths committes
it has d o n e e v e r y t h i n g w h i c h i t c m ©
w i t h pri;
attempting t o bring atout uniformity i n the check collection e n d non-cash collection circulars o f the various
Federal Reserve Banks, a n d that t h e accomplishment o f this
very desirable purpose must n o w b e left t o theConference o f
Governors,”
I a m setisfied w i t h t h e report t h a t y o u have m a c e
thet
w e cannot
g&o a n y f u r t h e r
a t p
ir e s e n t
ect
w i t h r e s ps
t o
think there i s s g o d <csal i n
the Minneapolis Bank. I
wheat y o u say.
(At this
‘
T
i
s U n d e r Seerstary o f the
n
Treesury, a n d
the Treesury,
Gilbert,
w e would like t o haves
a word f r o m you, a n d from ir. Winston,
enything t o the Conference.
i f you cars t o s e y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
nee G i i b e r t < I
do n o t think I
héve
about your program, a s I do not know what
I have just come back sfter =» two months! holidey
have n o t taken u p t h e t i a s
afternoon s i m p l y t o s s y h e l l o
m
e a r o u n d this
t o e v e r y b o d y s n d t o intro-
duce Mr. Winston t o you, a n d then t o s a y goodbrs. 4
expect t o b s back i n New York o n Monday morning, e n d a m
going t o t r y t o b e a lawyer egsin.
I want t o s a y I
ciations t h a t I
will n e v e r f o r g s t t h e p l e a s a n t a s s o -
heve h e d h e r e w i t h y o u all, b o t h i n Yash-
end i n o u r r e l a t i o n s
i n a
Treasury7 f o r sll these years.
fiscal w o r k o f t h e
Y o u r support h s s meant
everything t o t h e Tressury operstions, e n d I
can never
thenk y o u a l l enough f o r everything y o u have cone.
The Chairman: I
e m sure, i n reply, t h e t I can speak
for the Conference when I say thet i t has been a great
satisfaction t o have h a d opportunity t o work with you,
em
we w i s h y o u e v e r y success.
ir. Winston: G e n t l e m e n ,
i t i s @ greet pleasu
me to be given opportunity t o take up this work
meet y o u pappls, people w i t h w h o m I have corres pona¢
but whom I have n o t had t h e pleasure o f meeting before. I
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
241
heve h e a r d f r o m Mr, G i l b e r t h o w r e l i a b l e y o u a r e e n d w h a t
support y o u h a v e b e e n t o t h e Treasury.
I have h e d just one little experience w i t h your
Chairmen here,
i n a little metter t h a t hag care up, a n d
he hsendled it s s e Scotchman should hmdle it, without
sny guestion.
T h a t is, h e d i d the right think e n d then
told u s whet h e had done. I
fsel sure thst working t o -
gether with y o u I will g e t a great d e a l out o f this
Tres sury position.
(After further informal discussion lir, G i l b e r t e n d
My. ‘Tinston left t h e conference room, whereupon t h e Conferences o f Governors procsedsc 2 s follows: )
The Chairmen:
N o w , gentlemen, t h e subject before
us i s o n t h e sdoption o f this report.
Governor Fancher:
O n page 2
there i s = reconmenda-
tion submitted b y t h e Federal Reserve B a n k o f St- louis
with regard t o bills o f exchenge, e n d the commit tee seys:
‘chile the committee i s of the opinion that Federal
reserve b a k s ,
a s s genersl rule, s h o u l c n o t b e sermitted
to r o u t e c o l l e c t i o n i t e m s d i r e c t
banks o f other districts,
t o member a n d nonemember
i t i s believed t h a t f o r obvious
essons t h e B o a r d s h o u l d a m e n d i t s p r e s e n t r u l i n g ,
s o
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
om
is t o permit Federal R e s e r v e Banks,
in
to route a n y documentery draft payeble
whether s u c h draft b e purchesed, discounted,
or
ceived for collection, dir=ct t o the point o f payment
another district, b u t only when the Federal rcserve banks
specifically r e q u e s t e d
d
o s o b y t h e member b e n k
which sslls, rediscounts, o r cspos
Governor S e a y :
h
ié
f
f o r collection such
t h e report w o u l d c a r r y
with i t aporoval o f thet recommendation?
Governor F a n c h e r :
Y e s .
I move t h e t t h e r e p o r t b e
this m e t t e r ?
<r "
Governor “Youtie: I
i
b
a
i i°
will have t o vote “ N o ” o n it,
n't you think a n smencment c o
which would cover t h e situation?
Governor Young: I
think s n emencmer
which w o u l d c o v e r t h e situation.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
to a t o u r benk.
st l i b e r t y t o v o t e
no, Governor Young.
Governor Vellborn:
non-cesh i t e m s ?
Chairman:
Governor Seay: ‘ h i l e I
port, I
moved t h e sdo.fion o f
believe t h a t i t will still
Stending Committee o n Collections t o meke a furth
m sndation covering t h s mis
we h a v e p r e v i o u s l y discuss¢da,
sn t h e F e d e r a l r e s e r v e b e n k s w i l l b e
+ Jo n o t think thet need sffect sction o n
The Cheirmsen: G o v e r n o r Young,
sinsat b e f o r e w e v o t e o n this?
Governor Young: ° A c t i o n o n this report
ctually covers a l l o f t h e
some things i n this
would like t o discuss further.
-4dnnespolis snould p u t o u t t h t u n i f o r m circuler,.
n e
It doesn't ssy enything sbout
a non-cash circular,
O f course,
We°
-.:4 .
Gould not
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
244
tne o t h e r s .
IP s a t )
we2 Fagg
li
anale
n o nae c s s he
Ye d o n o t w a n t t o
Bye aatelat
banks not locatec
g -Mpon c A e iur
fece t h Le n o t e t i o n
for immediate aveilsbility i
fe
sg b c eh en c ke s t
swn o n b a nPkan
the Pecerel
North Dskota, s n d
ank o f Minneapolis, a n a
sd
e eF
l aRree
eserve
St. e n e
went u s t o c r e d i t a s M i n c e a p o l i s
do t h e y
o r as of ecina
Governor Young:
The Chsirmen:
r
Governor Young:
,
s
p
y
recomzended
r
o
i n the
v
r
i
n
g t o t h e sierch report
YSs.e
e thisZ
report w e s p xrove w n s t W s
T circuler.
h
i
former
s w h o l e matter
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
because o f w a r r a n t s t h a t thi
Those warrants e r e payeblis e t such s n a suchs
:¢ 9 ¢ c a s h iteis.
checks, b u t w s
You con't know
when they e r e going t o b e paid.
to checks, a n d I think
eble through t h e Northern N e w Jersey
There a r e several other clearing houses t h a t opsrate
game way, b a t t h e idea o f t h e conmittee w a s t o bb:
the a t t e n t i o n o f t h e m e m b e r e n a e s r o u t i n g i t e m s
York t h e t they c o u l d list such checks o n their, imuscdis
credit letter instead o f on their two day letter, a s
would otherwise do, s n d
on 2
tion o f c h e c k s p a y a b l e t h r o u g h t h e clearings h o u s e
warFed-ral Reserve City, a n d i t has nothing t o d o with
rents o r e n y o t h e r s o r t o f documents.
Governor Young:
S u p p o s e t h e First National Benk o f
Sioux C i t y i n s t r u c t e d a l l i t s c u s t o m e r s
t O
A
Yn
their
Chica go",
checks “Payable a t the Federal Reserve Bank of
those checks?
and Chicsgo w o u l d give immediate credit for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
not think Chicago w o u l d want t o d o that.
Mr, Strater:
O h , no.
T h o t i s t h e point. T
Governor Young:
do: 276-6 “ c o e
had better leave i t t o t h e committee t o cec
matter---
w e could h a v e o n uncerstending b e t w e e n ourselves
es t o those things, b i t i f i t became circulated, t h e member b m k s m i g h t teke adventege o f i t .
But y o u g i v e c r e d i t s u b j s e t
t o final
payment i n all cases.
I f it was payable
Governor Young:
d o n o t t h i n k y o u would,
Reserve B a n k o f Chicago, I
would not cash. sn individual's check thet just had stamped
on it, “Psyable at t h eFedersl Reserve B a k of Chicago”,
i n Chicago.
anc g i v e i m m e d i a t e c r e d i t
d o not think thet w a s intended
Strater T
Governor Young: I
At any emuent, i t i s
know, b u t thet i s possible.
h
e circular o f eight of the
Federal reserve banks, because i t wasn't i n your recormendation i n the October, 1922, report.
Mir. Strater:
Governor Young:
“
3s
true.
Because
a t t h a t t i m e s i g n t 6i- t S
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
t, a n a yest y o u r e c o m
in Merch: o f t h i s year t h e t 1 t b s p u t i n ,
(After further
Governor Fancher: |
‘
2
/ Pais i s a stencing conmittes, e n d you have
to you f o r considcration topics f r o m t h e Conference o f
Governors,
y o u nave mitters referred
anc b y t h e P e d - r a l R e s e r v e
submitted f r o m three sources,
y o u b y t h e Reserve
e
t
L
n nec
y E
Y
o
u have
e m -
thos¢ things i n t h e report y o u meke.
Strster:
E
y
r
, e n d w e have t r i e d t o
2 source o f e a c h inguiry.
The Cheirmen:
b a d t o e sugpeestion y o u
Out y o u r n e n t i n e
to have clearing houss
the outlying banks,
elisve
that i s n o t generslly known
t h e banks throughout t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
248
direct sending sens
a n a m e m b e r s of
they w o u l d
tb b o tHe: o y e
ena get imusdiate
final payment,
on
lisbility o r responsibility
scarps i
r e s s r v e
PE k e roe G e e i e
bak giving. imnuc
ignores it, i t Soesn't mez
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Go varnor
Governor
maintsining
group,
s s ¥é
list out of our deps
we gain f r o m it,
m c
their n a m e s
srroan genet
ere locel objections t o it,
fisiee o n t h e lle, t a s t i s
sifesct o u r
Gover tot Seay.
L O r e P e C O r n i Z Ss
nO O n tHLS,
1 2 1 5 ee- c e e
v
e recognize t h e
thet they s r e willing t o g o just o s f a
in carrying o u t t h e
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
willing-
I think t h e y e
is o n t h e 8
t o d o that, Governor 56ay.
acoption o f t h e report.
(Upon motion, c u l y
Governor Youns, o f t h e
polis, voting no.)
Governor
Young: t
e Cheirmsn:
will votvs
N o w ,
i
r
.
Cheirmen.
d o y o u went t o state snything
her, Governor Young, o r just 1 et y o u r steterx S
go a
record?
Governor Young:
i y , Cheirmsn,
1S 8
5
I F went t o o f f e r 4
carve b e n k s r e f u s e
,
t o nendle
points o r
upon n o n - p a l v o n p e r beaks.
5
o
g e n o r e l
proposition?
a
Don't you m e a
4
= ce
eonsh cO o lo
l e c pNr o n
regulation.
as t o n o n e
Governor
ESS.
Govsrnor F a n c h s r :
Governor Youns:
T h a
you c o u l s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
251
Thet woulc m e a n t h e discontinuing
or
Governor Young:
Fancher:
rasa
it fevors discontinuing
collections o n non-per points; t h a t t h e h m d l i n g
non c s s h i t e n s b o c o n f i n e d n o w t o o u r p e r l i s t ?
Governor
Governor G a l i
D o e s thet
those adrgwn o n i n s ‘ t i o n s l o c a t e d
mean y o u will not hendle
i n non-perring c i t
or w h e 6?
Governor S e a y :
Governor Young:
T h e t i s taet- L t m e ape. R o n - p e r
9t n o n - p e r
migh
tached, covering soms 2uton
I don't want to send them out
out t h e r s ,
Governor
es
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Federal Reserve Bank of St. Louis
252
cash items, drefts o f different kinds, memorandum notes
end bills paysble 2t 9 bonk which is habitually charging
exchange,
i n s town, however, w h e r e there i s 9 national
bank through whitch w e c a n collect t h e t item,
W h y should
you cis criminete egsinst t h e non-cash i t e m when y o u a r =
able t o collect i t by paying exchenge, o r whsre there i s
9 way of collecting i t through 9 par bank, one of our o m
combers, a n d it is psyable a t e bank which will make a n
sxchange charge on it, and we collect it back from our
there a n y o b j e c t i o n
t o Wendling s u c h a n
Governor Young:
I s this a good bank, a par bank?
Governor Strong:
I t doesn't make m y cifference.
Governor Young:
I
t makes t h e cifference t h a t there
certain fetr veys of handling t h e business,
town t h e t w e w i l l n o t t r y t o c o l l e c t
benk i n tust town thet i s
sood b a n k
m
s
y not b e opposed
t o these collection
matters, and. here i s s liability that w e will not sssume
ourselves, b u t w e put i t o n ths: nstionel bank.
not right s n d w e would n o t d o it.
Governor Fancher.
L e t u s assume y o u have a
tion i t e m p a y a b l e a t --~- w e will.
for f l i v v e r s
take a
- - -nd i t i s drawn o n a
a
a non-per o n n k a n d y o u a l s o h e v e
collec-
bill o f leading d r a f t
voint w h e r e y o u h a v e
member bank, e n d w o u l d
vou h e n d l e t h a t c o l l e c t i o n ?
n o difficulty about that.
“gvernor Young. T h e r e would b e
B
Governor F a n c h e r .
u
ie, c e e ,
t h o w could y o u Pea
L a e
the
o u r collection devartment a l l
confusion t h e t h a s a r i s e n i n
time.
understood t h e m o t i o n i t c o v e r e d
A s I
Governor ielloorn.
non-par vlaces.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
s a i d non-péer p o i n t s
Governor Youns. I
o r non-par banks.
non-par p o i n t m e a m s a
I thought t h a t covered. A G S *
com~
bank, o r tvs banks o r three
munity where t h e y have b u t o n e
banks
a n d not any one
o f the ba:ks
i s o n our S a r DiStS a
Mone
t w o banks i n a town, t h a t o n e
par bank would m e a n h e r e a r e
was o n a
not.
par basis « n d t h e other w a s
an i t e m t h a t w a s d r a w n o n a
W e wonvld n o t h a n d l e
w e had
non-par b a n k , e v e n ¢ h o u g h
a good par bank i n thet towne
Governor Fancher.
a n inN o t drawn o n a bank,out o n
dividual.
Governor Young.
I
I f d r a v n o n m n instividual
would c o l -
lect it.
certificate o f devosit
Ty. .Sthabews ‘ i e would not reke a
on a
bank
i n the Winneepolis
terribory
f o r collection under
any circumstances;
“ e just w o l d n o t take it.
Y o u r cirevlar
Governor Y o u n g s
your r e c o m n e n d a t i o n
i s that y o u wOULd
seys you
n o b
am s p e a k i n g n o w o f w h a t ‘ h e C l e v e l a n d
bank w i l l d o e
Governor Strong.
S u p p o s e y o u set a n L e m
parrine b a n k i n y o u r “ i s t r i c t
Ton
Yad C r e e s i s k :
wa 5
it docsn™t mike a n y “ifference wheth
ona
i
sa
o e s t e n .oF
taking
a collection item, i f you cannot collect i t -ithout
«and will n o t
ereat risk, v o u will just advise shat v o u ce*not
-overnor
Governor Strong. I
these items?
here?
thought t h a t m i l e a p o l i e d
w o y doesn't i t apply t o all o f tris report
h a n d l e t h e items.
Y o u c a n just s e y thet y o u will n o t
“Governor Young.
T h e r e p o r t s a y s w e gnhall h a n d l e t h o s e
end srotect t h e sensing Federal Reserve Bank.
propose
t o vrotect
w e d o not
t h e sendins Federal heserve oank.
of
are g o i n g t o t r y t o p r o t e c t t h e F e d e r a l K e s e r v e B a n k
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
irinneapolis.
O f course, t h a t “ e y b e a
s e l f i s h v o i n t o f view.
think thet i s justifiaole, a n d
Governor Strong. I
when y o u cannot handle a n item, s a y s o snd gend i t back.
Governor F a n c h e r .
e
r
s
b h e vosition
o f a
Federal
note w i t h a very close maturity
when i t tekes a
coint o u t s i d e ,
i t reaches t h e Minnea-
a n
Ehey cannot: c o l l e c :
t o s e n d i n g i t back.
sumes 2 1 1 t h e r i e k i n c i d e n t
107
I f the in-
c a n show that h e
the e q u i t a b l e o w n e r o f t h e t draft,
been injured v y reason of the failure o f the bank to make
collection,
i t a n d atter
i f t h e b a n k h a s n o t presented
sad i
G h a n i a n
Governor Young. ‘ e l l , o u r counsel says w e c a n d o it.
Governor Seay.
w
receive n o n - c a s h i t e m s
h
s
a
h
e objection t o declining
non-per n o i n t ?
on a
Governor Young. T h e r e i s n o objection that I
can see.
se@lieve t h e r e i s a m 2
means a
modificati«
t
s i l
e c o l l e c t i o n vrocedure.
h
the f i r s t n l a c e ,
Governor G a l k i n n
h o w would
w e know
are?
Governor Seey.
Y o u w o u l d v e advi:
ments, e n d y o u would b e advised b y wire
meantime
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i
n the monthly state-
h a p p e n e d i n the
i n between t h e statements.
Governor Harding.
seems t o m e t h a t a
I
n t h e intra district vroposition
it
bank o u g h t t o e x e r c i s e i t s o w n discretion,
y
ovecausée, being o n the ground,
i t would know h o w t o handle it,
wnat y o u eré really aiming a t i s the inter “istrict transACtLON,
I n other words
y o u d 6 not want t h e “ember banks
t o
-be handling these certificates o f deposit because t h e y could
only h s n d l e t h e m p r o b a b l y b y s e n d i n g t h e m t o you,
advise ~ - . . the other banks that a
I f e y o u
particular territory o r
certain points a r e non-par voints, i s n ' t that notice t o the
other b a n k s t h a t y o u c a n n o t h a n d l e t h e m ,
y o u d o not k n o w any-
thing about them?
Governor Young, Y e s .
Governor Hardning.
Governor Young.
T h e n don't t a k e then.
W e would rotify y o u b y wire.
Governor Harding.
Y o u would j u s t simply return t h e m a n d
say y o u c o u l d n o t h a n d l e
them
o n non-par points,
a n d for your
own district y o u c a n exercise y o u r o w n discretion,
Y
o
u want
to warn t h e banks t h : tsuch a n d such a point i s a non-par
poing...-—
Governor Young. I
Governor Strong.
think the resolution covers that - N o , I
d o n o t t h i n k i t does.
Y o u have
got t o have a black list, s o t o speak, o f banks u p o n which
you won't collect non-cash items, a n d t >
will b e i n towns
where y o u haven't a n y par banks.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
overnor C a l k i n s ,
Y o u would
h :
h e
s v e a
piace eestor
banks a n d towns.
Governor Seay.
kind i n a
I
f you have a
place i t i s n o t a
c o l l e c t i n g a g e n c y of. a n y
non-par point.
Governor Young. ‘ t h e Board has suggested v e r y strongly,
in their letter o f duly O t h , t h e t «
d e r a l Reserve Banks
discontinue collecting through agencies.
w e cannot d o t h a t
with m e m b e r b a n k s .
‘ w e h a v e g o t to’ s e n d m e n o u t
member::‘banks a n d I
do n o t t h i n k i t i s advisable
t o the non-
t o try t o
collect throush agencies.
the Ghairman.
Perhaos
i t would b e better i f y o u would
state y o u r m o t i o n again, G o v e r n o r Young.
Governor Young. I
will m o v e t h a t a l l F e d e r a l R e s e r v e
refuse t o h a n d l e c a s h , o
r non-cash i t e m s d r a w n u p o n n o n -
or
par points/on non-per banks.
The Chairman.
Y o u have modified it, have y o u not.
the cash items a
Governor Young. I
moment ago.
put thet |
t
h
e
f o r the reason
that there is always a p u t e b e t y F e d e r a l Reserve Banks
as t o w h a t a r e n o n - c a s h i t e m s
a n d what a r e not.
I t may b e
superflous; b u t i t will n o t d o any harm.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Phe Chairman.
D o I
Governor Bailey. I
hear a ‘ second t o t h a t m o t i o n ?
will second t h e motion.
T h a t i s exactly
we are doing now.
Yhe Geairman.
I s there e n y further discussion?
do not think t h t
Governor Calkins. I
i s what w e a r e
doing now.
I f y o u w i l l p e r m i t t h e suggestion,
Governor Strong.
why
don't v o u f r a m e i t s o t h a t e a c h F e d e r a l R e s e r v e B a n k w i l l
of ;
banks
notify a l l o t h e r F e d e r a l R e s e r v e b a n k s / the points a n d
within i t s district u p o n which they will n o t hendle,
unable t o handle, non-cash items.
Governor Young. ‘ t h a t i s satisfactory t o m e a n d
make t h e m o t i o n i n t h a t way.
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Federal Reserve Bank of St. Louis
The Gheirman.
T h a t eliminates c a s h items?
Governor Young.
The Chairman.
Yess
D o I héar a second to that?
Governor Bailey. I
Governor Strong.
will s e c o n d i t .
w i l l second that motion.
(fhe m o t i o n h a v i n e b e e n d u l y s e c o n d e d w a s u n a n i m o u s l y c a r -
Gentlemen,
w e have quite a
ways t o g o bet-
we
ween n o w e n d the t e n o'clock meeting tomo~row rorning when
meet a g a i n 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 .
and I
m r . Kenzel
i s here
a m going t o a s k h i m n o w t o submit t h e report o f the
Pension Committee.
H e i s h e r e f o r t h a t purpose,
Mr, Harrison.
of
M r . Chairman, d u r i n g t h e discussion
non-cash c o l l e c t i o n i t e m s s o m e
o f the banks made t h e con-
on i e aaa,
:i
tention t h e t t h e y a r e n o w g u a r a n t e e i n g
and
+ » indorsements
that t h e report recommends t h a t w e d o not guarantes™.>* i n =
dorsements u n l e s s n e c e s s a r y
s
d e r s t a
item. &
c
at t h e t i m e o f t h e d i s c u s s i o n
t»ings j u s t a s they are.
h
e sense o f the conference
o f this point t h a t w e would
O n the other hand t h e subse-
quent a c t i o n o f t h e e o n f e r e n c e h a s b e e n t o a
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Was that intended,
o f the
i n order t o effect payment
oprove t h e report.
o r was i t not, t o apvrove t h e recommenda=
no l o n g e r c u a r a n t e e
j Ohegi
6: g0 e e a
indorsements.
for m e t o w r i t e u p t h e m i n u t e s
P
Z
y wade:
o n that unless
because t h e r e w a s n o definite action o n i t a t the
climes,
Governor Galkins.
T h e fact i s 2
2 h nor eas e t
GSE,
the banks, w h i c h a r e d e t e r m i n e d n o t t o g u a r a n t e e
e
e
e
a r e actually doing
guarantee i n d o r s e m e n t I
fi4
i t as a
tee
n order
i n y o u r incorsement.
a n the usual a n d general w a y I
them.
Governor Seay.
I
not
t o
a m verfectly satisfied t h a t y o u must
include t h e v o r d s " n o t suaranteed"
you i n d o r s e
fact.
B r i e -2ne
k v e n i f y o u .ndorse
L e
believe y o u g u a r a n -
260
collection o n l y "
carrying &
y o u believe t h a t
suerantee
i s «
general indorsement
o f previous indorsements?
Governor Calkins.
My. Harrigson:.
Yes.
R s a matter o f fact there a r e a great
many b a n k s w h o s e i n d o r s e m e n t s a r e f o r c o l l e c t i o n only. I
understand t h a t c o u n s e l f o r t h e S a n F r a n c i s c o b a n k h o l d s
that t h a t i n d o r s e m e n t
prior indorsements.,
necessarily inciudes a
guarantee
o f
I t i s the opinion o f other counsel
that that i s not true, i n other sections o f the country.
Governor Calkins.
Governor Young.
‘ w h e r e @ m you f i n d t h a t ?
M r . Fancher r e a d that t o u s from your
book there.
Vr. H a r r i s o n , I
personally
feel that
i t does n o t guaran-
tee them, b u t I w o u l d l i k e t o l o o k i t u p a s I
a m not sure o f
it. G o v e r n o r Strong egrees w i t h m e that i t does n o t guarantee
prior indorsements,
at t h e p r e s e n t
T h e y indorse f o r collection o n l y a n d w e
t i m e reindorse
f o r collection only.
W e would
be perfectly willing t o suarantee t h e prior indorsements;
fact, 3t3 h a t would b e our recommendation,
in
t h e t w e all d o it.
ify pointiin bringing this u p was t o merely clear t h e situation
up e n d f i n d o u t “ h a t t h e c o n f e r n é n c e w a n t e d t o do.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(After discussion, )
Mr. Harrison.
I f i t wovld h e l p matters any,
i n
261
of Governor Strong, a n d h e said that I might speak for h i m o n
this subjeot, I
would like t o move that a l l
o f the Federal R o -
serve banks change their indorsement t h e y put o n non-cash
collections
s o a s t o e x p r e s s l y g u a r a n t e e p r i o r indorsemont.
Governor Culkins: P r o v i d e d ?
Mr.'Harrison:
P r o v i d e d t h e depositing b a n k made a
Similar guarantec.
Governor Calkins: I
Governor Sexy:
Mr. Strater:
would second t h e motion.
B u t n o t otherwise.
I t seems t o m e that i s exactly what t h e
committoe recommends.
Governor Calkins: I
think that i s what t h e y intended
to recommend.
Mr. Harrison:
commended t h a t a s a
T h e committee says i t i s therefore re-~
gonera 1
practico F e d e r a l R e s e r v e b a n k s
not guarantee prior indorsements unloss necessary t o effect
collection,
a n d t h e n o n l y w h e r e t h e p r i o r i n d o r s o m e n t s heave
been g u a r a n t e e y
b the next preceding bank.
Governor Calkins:
T h e being interpreted t h a t inasmuch
as i t i s always necessary t h e y should always d o i t when t h o
depositing bank has guarantcod.
The Chairman:
W i t h that interpretation would y o u b e
satisfied w i t h t h e report?
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Federal Reserve Bank of St. Louis
Harrison,
meant .
nor Calkins. I
Strater.
teen a
wijl not withdraw m y second,
T h e recommendetion
positive one, ~
You h a v e
is a
negative o n e
t o have t h e preceding
to suarantee prior indorsement - ~
Governor Calkins.
T h e r e is a
with r e g i r d t o t h e indorsement
opinion.
a n d I
differenee o f opinion
a m speeking f r o m m y
M r . Strater says i t i s necessary t o have t h e prior
indo sement specifically guaranteed, b u t L e e n o v o i n k 1 5 384
I think t h e g e n e r a l i n d o r s e m e n t
is 4
suarantee.
think t h e u s e
with t h e t e x c e p t I
words, “for collection only" iCys a restrictive indorseé
a
e Ys
P
e
o
a
u
t 4
ment and is not a“general indorsement guarantecing prior in-
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Federal Reserve Bank of St. Louis
dorsements.
Governor Calkins.
O n advice o f counsel I
will h a v e
disagree w i t h you.
Harrison s a y 6 - i s satisfactory
Governor Calkins.
The Chatrman.
n
o
t withdrawn
m y second.
Y o u g o i n g t o withdraw i t now,
you?
Governor Calkins.
W hI
think t h e m o t i o n s h o u l d b e passed.
+ -
lbeeal p r o b l e m a n y W a y y o u
think i t i s a
+ .
Strater. I
it.
ze
Governor Seay; I t seems t o me that the motion creates
I t places t h e operating de-
an almost impossible situation.
partments o f the banks under a
tremendous handicap, because
they w i l l h e v e t o i n s p e c t e v e r y i n d i v i d u e l i t e n , t h e y w i i l
have t o have &ifferent kinds o f indorsement stamps.
heave t o have e
T h e y will
stamp ‘vrith orior iniorsements guaranteed which
they will u s e i n case t h e depositing vank guarantees, a n d a
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Federal Reserve Bank of St. Louis
stamp t h e t t h e y
puarantee.
Mr,y. Harrison.
mendation, I
T h a t would b e the effect o f this recom-
should think,
the
I t neduees/ n u m b e r o f cases where t h e
Governor Calkins.
muerantee w o u l d %
c
a
fused unless i t i s there I
s
e
i s re-
move that w e g o the whole thing.
We s h o u l d n o t a c c e p t a n d - h a n d l e i t e m s
ments a r e n o t g u a r e n t e e d
s where vayment
o n w h i c h vorior i n d o r s e -
b y t h e d e p o s i t i n g banks.
W w e snould +
7
not b e handling t h e m a t all.
Wr, Streter..
I f y o u d o thet y o u ¥
b
e clarifying
whole situation, b u t y o u will b e charging t h e entire coliection procedure w i t h t h e commercial ‘anks, w h i c h d o not d e i t
mi
<
Governor Calkins.
T h e y do in a
Sos n o t t h i n s
majority o f c a s e s T
s o o e
s
think,
e
i do not. Limit i b ter tne eistriot, . out
as a general practice.
ire Byrater.
W e investigated t h a t a s closely a s w e could
and f o u n d t h a t m o s t o f t h e b a n k s
i n o v r district =
end uost o f the banks i n Philadelphia a n d
New Y o r k
d o not guarantee indorsements
Mr. Harrison.
o n collection items.
O u r operating man s a i d with respect t o the
recommendation that w e gusrantee prior indorsements a n d then
nae o u r depositing banks quarantee t e m .
Goverior C a l k i n s
s t a t e m e n t
o f t h e committee w a s
su’ sestion o n l y bécause o f the difference i n our views
to the legal effect o f the indorsement i n blank?
NRsehediga) Gauilavsaimed nscpeiqai!
t
o
Governor Calvins,.
T h e n 7”- your i n q u i r y d e v e l o p e d
the
that t h e banks d i d not specificelly quasrantee?
Mr
Sorever.
Governor O a l i r i n s
suarantee,
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Federal Reserve Bank of St. Louis
L
o
i
f t Enele senéeéral i n d o r s e m e n t
did
t h e n t h e r e w o u l d b e n o difference.
Governor Fancher.
T h e r e i s a p e rently a
difference
of
legal o p i n i o n
Governor Seay
I
t i s just a s desirable, f r o m many points
of view, t h a t t h e i n d o r s e m e n t s h o u l d b e g u a r a n t e e d
cash i t e m s a s i t i s t h a t i t s h o u l d b e g u a r a n t e e d
items.
I
o n the non-
o n the cash
f t h e c o l l e c t i o n o f n o n - c a s h i t e m s i s small, t h e n
some exception might b e made, b u t c h e business i s growing
to v e r y l a r g e o r o o o r t i o n s a n d w e s h o u l d n o t c i m p s s d o p e r a t i n g
burdens
o n o u r operating departments
- - I. think w r , S t r a t e r i s
right i n thet - - and i f i t i s desirable t h a t non-cash items
be g u a r a n t e e d
b y t h e d e p o s i t i n g banks,
as I
I do not think there will b e much difficulty
believe
i t is,
i n bringing t h e m
we -ell t h e m that w e will n o t teke their items u n PPE.
Mire S t r a t e
I
f t h a t i s done,
y o u simplify t h e -roblem
at once, That w o l d r e q u i r e t h a t a l l i t e m s sent. f o r c o l be
lection, . s h a n d n o n - c a s h s u a r a n t e e d a s t o indorsements.
that i s good, s o u n d banking practice.
The Cheirman.
i d e . C a l k i n s , w i l l y o u kindly repeat y o u r
Governor Calkins.
‘ h e resolution n o w before t h e house,
as I understand it, provides that t h e Bederal Reserve banks
shall i n d o r s e t h e c u a r a n t e e i n g
o f orior indorsements
non c a s h c o l l e c t i o n i t e m s w e i c h t h e y u n d e r t a k e
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Federal Reserve Bank of St. Louis
o n all
t o hendle, o r o -
266
vided t h a t t h e depositing k
intdorsemnent.
has l i k e w i s e gueranteed t h e prior
W h e addition t o thet w a s t h e suggestion that
we srovuld n o t h a n d l e t h e m u n l e s s t h e d e p o s i t i n g b a n k d i d g u a r a n tee them. I
do n o t k n o w whether Mr. Aarrison i s willing t o
include t h a t i n h i s motion.
Harrison. I
Governor Seay.
would l i k e t o inelude t h a t ,
S r e y o u willing t o take a s a sudstitute
she F e d e r a l R e s e r v e b a n k s r e q u i r e t h a t a l l n o n - c a s h
shall b e s u a r a n t e e d
a s t o »vrior indorsements,
a n d that
the F e d e r a l R e s e r v e b a n k s t h e m s e l v e s g u a r a n t e e t h e i n d o r s e m e n t s
thereon?
Gover
a l k
Harrison.
T h a t i s the same
F e r h a p s t h a t expresses a
little more clear-
ig wmeant.
‘airman.
D o you, o f f e r t h a t
Governor Calkins.
I
t was
a s a
H a r r i s
motion,
Governor
m o t i o n which I
seconded.
vir, Harrison.
I
t i s offered a s a
iovernor Calkins. I
motion.
will s e c o n d motion.
( The notion having b e e n d u l y seconded
carried. )
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Federal Reserve Bank of St. Louis
i t was unanimously
267
The Chairman.
N o w , gentlemen,
w e will take u p the topic
dealing w i t h the Pension Committee.
4. O p e r a t i o n .
b. R e p o r t o f P e n s i o n Committee,
Mr. K e n z e l , C h a i r m a n .
Perhaps y o u h a d better g o back o n this a
little, M r ,
Kenzel i n order t o refresh t h e minds o f the conference.
Mr, BRenzel.
w i t h your permission I
will g o back t o
the action taken i n October, 1 9 2 2 b y this conference.
I t was
voted that i t was t h e sense o f the conference that i f possible s o m e s o r t o f Federal R e s e r v e p e n s i o n p l a n b e inaugurated,
and s o forth.
In accordance w i t h that action o f the conference t h e Committee o n Pensions g a v e careful consideration t o the whole pension scheme, g o i n g over i t with o u r advisors, a n d ascertaining
if anything h a d developed within t h e t w o years preceding that
would s u g g e s t a
orofitable c h a n g e
i n t h e plan;
w e also toek
4t u p with o u r counsel t o determine whether o r not i t was feasible i n h i s o p i n i o n t o p r o c e e d
inaugurate a
t o make a
recommendation
to
pension p l a n lacking Congressional legislation.
The r e p o r t c o f s t h e s e c o n c l u s i o n s w a s d e l i v e r e d
t o t h i s con-~
ference i n March o f 1923, w h i c h included t h e recommendations o f
the s i t i e s
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Federal Reserve Bank of St. Louis
t o proceed
i n a c c o r d a n c e w i t h t h e a d v i c e o f coun-
sel t o t r y a n d bring about t h e inauguration o f a pension p l a n
under t h e charitable corporation l a w o f the District o f
umbia, w h i c h o u r counsel advised w a s feasible a n d legal
the banks t o undertake,
a s h e had already advised b a c k i n
1920.
That r e p o r t w a s r e c e i v e d
March o f 1923, a n d approved,
b y this b o d y a t i t s meeting
in
a n d w i t h t h e approval t h e y asked
the committee t o restate t h e whole matter t o the Federal Reserve Board a n d impress t h e Federal Reserve Board a s well a s
they could with the urgency of .. fixirig upon a plan for the
system,
a n d also instructed t h e Committee
t o pass o n t o t h e
Board the conclusions reached b y the conference i n March o f
1923,
T h a t w a s done b y the committee
mentary r e p o r t
i n the f o r m o f a
supple-
t o this conference a n d t o t h e Federal Reserve
Board dated October 19, 1923, o f which copies have been received b y you gentlemen.
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Federal Reserve Bank of St. Louis
toa
269
of the committee o n pension matters, after a conference with
the c o m n i t t e e
i n w h i c h t h e p l a n o f procedure w a s l a i d b e f o r e
him b y the committee.
Now I have here sufficient d a t a t o cover t h e whole course
of consideration b y the Pension Committee, w i t h t h e plans heretofore suggested a n d adopted b y all t h e banks a n d their directors, t o enable m e t o answer a n y question which members o f the
conference,
w h o w e r e n o t m e m b e r s b a c k i n 1920, m i g h t w i s h t o
ask m€.«
I would also venture t o call t o your attention that w h e
delay i n putting t h e pension p l a n inte operation seemed t o
arise f r o m t h e f a c t t h a t a
bill, h a v i n g b e e n p r e p a r e d f o r
introduction i n Congress t o permit t h e Federal Reserve banks
to m a k e n e c e s s a r y a p p r o p r i a t i o n f o r t h e e s t a b l i s h m e n t a n d
maintenance o f this fund, w a s delayed i n introduction, dsbeliee a s a
matter o f political e x p e d i e n c y ,
a n d the time that
has s i n c e e l a p s e d h a s o f c o u r s e c a r r i e d w i t h i t a n accrual
of
liabilitzes which will make i t a more expensive t h i toOyh a n
would h a v e b e e n t h e c a s e a
few years ago.
I
t will cause a
larger initial outlay b y the banks, undoubtedly, h o w large i t
is impossible f o r u s t o s a y without actuarial calculations,
based o n t h e p r e s e n t s t a f f o f employees.
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Federal Reserve Bank of St. Louis
H o w much larger i t
rago
will be, i f any, a s t o the yearly contributions
banks, I
a m not orepared
t o say. i
b y . the
doubt i f i t w i l l b e a n y
larger, b u t t h e burden, t h e chief burden o f it, will come u p o n
the employees who, under t h e v l a n revised, a n d revised w i t h
the condition o f its approval b y Senator Smoot t h e accrued
liabilities will have t o b e borne practically fifty-fifty b y
the b a n k s a n d t h e e m p l o y e e s
that p a r t w h i c h w i l l h a v e
o f t h e banks,
t o b e borne
a n d w i t h respect
b y the employees
to
o f
the banks, unless v e r y >vrompt action i s taken, within t h e
your committee, i t wiil b e very difficult, i f not
ampossible f o r t h e e m p l o y e e s
proportion
t o assume t o discharge t h e i r
o f these accrued liabilities.
T h e r e f o r e your
committee wishes m e t o urge uwoon y o u a t this time their
earnest h o p e t h a t y o u w i l l c o n s i d e r t h e t h i n g n o w a n d b r i n g
it &
conclusion.
Governor S e a y .
M a y I
ask o n e guestion,
Mr. Chairman?
The
to t h e e m p l o y e t s ,
templated t h a t t h e vaymer
buted o v e r a
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Federal Reserve Bank of St. Louis
i t 1 s cone
t h e y shall make shall b e distri-
tern
vir. Kenzel.
T h a t w o u l d h a v e t o b e true, u n d o u b t e d l y .
Governor Fancher. « n o r t i z e d o v e r a
Wir. Kenzel.
period o f years?
I t is perfectly feasible t o take care o f
ad 6
£
oy a m o r t i z i n g t h e p a y m e n t s o v e r a
period, w h i c h w o u l d h a v e t o
be w o r k e d o u t .
Governor Harding.
C o v l d n o t those employees
b e given t h e
opiiion, s t a r t i n g i n , a s f a r s a s t h e p e n s i o n v l a n i s concerned,
as n e w employees,
s o a s t o avoid that b a
going the bank's benefits?
Kenzel.
T h a t w o u l d b e o f v e r y d o u b t f u l benefit.
Have t h e e m p l o y e e s c o n s i d e r e d
th
possibility t h a t t h e Federal R e s e r v e b a n k s m i g h t n o t b e r e -
chartered? A
gocd many o f our o w n employees h a v e become
so discouraged t h a t t h e y d o not care anything about t h e pension plan.
Governor Bailey.
on e v e r y e m p l o y e e
Mr. Kenzel.
employees;
I s i t the theory t o make i t compulsory
o f the bank?
I t i s optional w i t h respect
t o present
i t would give t h e m a year i n which t o decide, b u t
it w o u l d b e c o m p u l s o r y
Governor Harding.
o n n e w employees.
W h e t would }
D e C o n g r e s s did
not r e c h a r t e r t h e b a n k s ?
Mr. Kenzel.
T h e forporation, w h i c h would b e formed either
under Congressional law, o r under t h e laws o f the District o f
Columbia, w o u l d b e i n d e p e n d e n t
solvent insurance company.
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Federal Reserve Bank of St. Louis
o f t h e banks.
I t waquid b e a
I t might have t o liquidate, b u t i t
would b e solvent.
Governor Calkins. I
believe
i t i s provided t h a t a n y
employee * i t h d r a w i n g f r o m t h e b a n k i s e n t i t l e d
t o receive
the contribution h e has paid, w i t h accumulation?
Mr. Kengél.
W i t h Intercst, V e s e
Governor Harding.
D o y o u know what t h e attitude o f the
Federal Reserve Board i s abovt this now, whether they would
approve p a y m e n t s
Mr. Kenzel.
b y t h e banks?
T h e onlyy information I
have h a d f r o m t h e
Governor was a n acknowledgment o f this, i n which they observed
that i t i s a
part o f t h e r e c o m m e n d a t i o n t h a t t h e c o m m i t t e e
proceed t o obtain a District o f Columoia charter, a n d direct
me a s chairman t o take n o steps towards that end; t h e y also
stated t h a t
i t would
b e considered
a t this conference
a n d that
I, a s chairman, w o u l d b e advised l a t e r o f the outcome o f consideration b y the conference a n d b y the Board.
Governor Seay. D o e s counse] f o r t h e Board concur i n the
opinion o f y o u r c o u n s e l t h a t i t c o u l d b e l e g a l l y d o n e ?
Mr. Kenzel. I
do not know.
T h e history o f this, f r o m
the legal point o f view, i s that Mr. Curtis,
i n 1920, I
think
it was, g a v e u s a n opinion that i t might b e accomplished legally
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Federal Reserve Bank of St. Louis
in o n e o f t h r e e ways:
n i t h e r through a
District o f Columbia charter,
o r a charter under t h e laws o f
any state that might b e desired,
individually could d o it.
federal c h a r t e r , a
o r that e a c h o f the banks
T h e Board a t that time first d e L a t e r they
cided t h a t t h e y w o u l d n o t w i s h t o g o t o Congress.
changed their views i n that regard a n d decided that t h e better
way would b e t o g o t o Congress a n d get a Federal. charter.
Governor Harding.
T h e y reached a
very definite conclu-
sion t h a t t h e y w o u l d n o t a p p r o v e a n y e x p e n d i t u r e s
o n the part
of t h e b a n k s e x c e p t w i t h C o n g r e s s i o n a l s a n c t i o n .
Mr. Kenzel.
Yes.
T h e n t h e idea was advanced that t h e y
then it
should g e t a n o p i n i o n f r o m t h e A t t o r n e y General;
was decided that that w a s not a desirable course.
1920 there w a s a
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Federal Reserve Bank of St. Louis
of f i v e a s I
committee o f this conference, a
recall i t , t o a c t w i t h a
committee
eral R e s e r v e B o a r d , w h i c h c o m m i t t e e w a i t e d
B a c k in
committee
o f the Fed-
o n S e n a t o r Smoot;
they h a d s e v e r a l m e e t i n g s w i t h h i m e n d t h e p l a n w a s amended’
according t o his ideas.
T h a t amended p l a n was embodied i n
the bill I have already referred t o , wnich was t o b e introduced, b u t then something happened t o i t a n d nothing h a s been
done since, T h a t w a s t h e o l a n a s originally submitted b y the
committee, a n d I think that w a s unanimous.
Governor Harding.
I t i s a ver m e r i t o r i o u s plan, b u t I
274
think i t i s rather hopeless t o form i t under t h e charitable corporation l a w o f the District o f Columbia,
W h e t right h a s
the Federal Reserve b a n k t o take stock?
Mr, Benzel.
T h e Federal Reserve b a n k would not take
stock..
Governor Harding.
as a
I t might b e possible t o work i t out
separate p e n s i o n p l a n f o r e a c h bank.
Mr. Kenzel.
T h e difficulty
o f that i s that y o u lose
the advantage o f the application o f the l a w o f insurance averAges.
w i t h all the banks counted a s one w e have a
group
of twelve thousand persons affected, b u t with the individual
banks,
w e are advised b y our experts that i t would b e prac-
tically i m p o s s i b l e f o r t h e s m a l l banks.
I t might b e pos-
sible for New York and Chicago, b u t the others would vrobably
find i t v e r y d i f f i c u l t
Governor Calkins.
t o establish a
safe plan.
I n regard t o the initial cost, i t
occurs that i t i s doubtful whether i t Wentd-be “eeess a s was
computed because o f the very great turnover i n all o f the
Federal Reserve Banks since that time. I
it would b e very much less.
A
think i n our case
s a n illustration, t h e turn-
over i n t h e L o s A n g e l e s b r a n c h i n 1 9 2 2 w a s s o m e t h i n g l i k e
thirty-five p e r cent,
the cost less.
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Federal Reserve Bank of St. Louis
T h a t o f course would operate t o make
Governor H e r d i n g e W
turnover
e h aiv e h a d
i n
Last veer, t o o .
Falawil!!0aaaahounUae 8 the b a n k s
(overnor g
have
ha
turnover.
e x p e r i e n e 6 o f t h e N AT- w Y o r k b a n k
Kenzel.
the t u r n o v e r
i s v e r y re.
to t h e s m a l l e r s a l a r i e d e m e
p l o y e eas ,
Governor C a l i c i n s ,
— . 0 F course
the l o w e r s a l a r i e d e m p l o y e e s ,
pid i t i s largély confined
t o
1 5
but it
s
much
si i o r e rapid among
has been very consider-
saleried e m p l o yees
e lv o sa t 1 &
fery l a r g e p r o n o r t i o n o f hish-salzi.
Governor o e a y .
B e c a u s e
t h e y w e re o f f e r e d b e t t e r
In ‘sost
e Chairman.h
CASES}
During TC u r r e n t y e a r w e - h a v e l o s t n o t
h a e
S
ess t h a n s e v e n
i
x
w h o m h e ve g o n e i n t o p o s i t i o n s
n
g h e r e v o f Ore c o n e e n c e s ,
of
=
[
gni
fo
l raerf gor
broader fields;
ally s p e
months
a
n
y
t
h
i
Governor W e l l b o r n . I
Directors
made’ 2
repo rt t o o u r B o a r d - o r
a t the October meeting that
They h a d t h e i d e a t h a t w e w e r e p a y i n g
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Federal Reserve Bank of St. Louis
a surprise t o trem.
s a w a
te o f f i c e r s
and employees t h a h were usually p a i d i n sitlenta banks.
W e
wie
the f i s u r e s
f r o m t h e atlanta banks
and
i n e V e r y .Casé.oup
ss than those p a i d i n the banks, e v e n d w
to bookkeéepers,
fhe Chairman.
I n one instance, o n e o f our men, w h o was
receiving »15,000, w a s taken away, w i t h t h e understanding that
he would receive 318,000; h i s salary has been increased t i c e
since t h e n a n d h e i s n o w getting #25,000, a n d i n addition t o
that h e i s receiving a
bonus.
Governor Norris. P e r h a p s I
should ad¢ t o this b y saying
that i n ten months o f this y e a r o u r resignations h a v e amounted
to 5 7 p e r c e n t «
Ves Seiees.
t o t a l foree.
t h e rapid turnover o f force would nave t h e
effect o f reducing t h e accrued liability t o
evidently impossible, however,
t o estimate what that might be,
Man « T h e comaittee,
action ¢
i n accordance w i t h the
the last conference w a s instructed t o l a y before t h e
pension p l a n framed b y the committee
and its advisors, a n d approved b y the Governors! Vonference, t o aether with the recital o f the steps whereby t h e vlan was de-
veloped a n d t o express i o t h e Board the conviction o f the conference
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Federal Reserve Bank of St. Louis
that nothins
could
b e more beneficial
t o the operation
Federal R e s e r v e S y s t e m thet
T h e committee
oroposed.
h e ado
h a L o t
o
f some such
i n accordance with
recommendatioh.
M r . Cheirman, I
Governor Harding.
the r e p a t
b e r e c e i v e d a n d accepted,
would m o v e y o u t h a t
« n d laid before t h e Fed-
eral R e s e r v e B o a r d .
The Chairman.
T h a t motion hes received a
second, b u t
before i t i s acted o n i t seems t o m e something m i g h
to e m p h a s i z e t h e n e c e s s i t y o f « h e i m p o r t a n c e
do not t i n k i t wovld d o a n y good
Governor Harding. T
to a d d t o that,
I - m e e n t exactly what I
the r e p o r t
o f “srompt action.
i d when I
b e received, a c c e p t e d ,
made t h e
a n d laid before
the Federal Reserve Board.
Governor Fancher.
Y o u m e a n without recommendation?
Governor Harding.
T h e report recommends itself;
i t speaks
very h i g h l y o f itself.
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Federal Reserve Bank of St. Louis
Governor B i g s
B u t t h e r e p o r t h a s b e e n recomnendéed t h r e e
Governor Harding.
Governor
L Y
a
n
d should
w e not affirm that recommenda-
al
The C Fh
e r rman, -
think 8 0 %
Governor Harding.
V e r y well then, I
will move that t h e
renort
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
will s e c o n d t h a t .
T would
of Governors
b e appointed
Chairmen.
Comma tees
d e a l with
W w o r d d Lt. n o t p e
t o Go: p h a t ?
not
ee
e a e
Gnaitrmean,
unanimously
Pension C o m a i t t e e
Has
i s
P O R ?
Ma
4 FER DGRAD H o b E k h V e
D O A
py t h e
GOVe.RHORS! G O N F L R R N C #
through t h e
fuTTiisk O N P a N S T O N S O F T H e CONPAAENCI
IN’ RODUCTION
AUTHORITY F O R
to the Pedsral Reserve Board:
The Governors! Conference,
a t its meeting i n March,
1925, directed t h e Committee o n Pensions o f the Conference,
to l a y b e f o r e t h e F e d e r a l R e s e r v e B o a r d t h e p e n s i o n p l a n
ed b y t h e c o m m i t t e e
ernors! Conference, together w i t h a
recital o f
by the p l a n was developed, a n d t o express e
Board “the
conviction o f the conference that nothing could b e more beneficial
t o t h e operation o f t h e Federal Keserve S y s t e m t h a n
the adoption o f some such plan a s oroposed." ( S e e Note 1 )
In pursuance
o f t h e i r instruction,
t h e Committee
o n Pen-
sions submits t o the Board the following memorandum, giving,
in Part I , t h e history o f the pension plan; P a r t II, a n outline o f t h e dlan; a n d P a r t I I I , t h e r e c o m m e n d a t i o n s
committee
a s approved
o v e r n o r s ! Uonference.
The Governors! Conference, a t i t s meeting i n
appointed a
Commi ttee o n Pensions, ( S e e Note 2 )
the B o a r d t o a u t h o r i z e
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Federal Reserve Bank of St. Louis
a n appropr
o f the
the C o m m i t t e e ,
ONPENSIONS.
The Committee o n Pensions organized o n September 8 ,
1920, ( S e e Note 3 ) a n d after t h e most exhaustive consi.dération,
presented
t o t h e Governors!
Conference
i n Mere
J9Cl, &
Sea
sion p l a n f o r t h e p r o t e c t i o n r o f t h e o f f i c e r s a n d e m p l o y e e s
the F e d e r a l r e s e r v e b a n k s ,
of
t o b e o p e n a l s o t o t h e employees
of
the Bederal Reserve Board, a n d upon suitable terms t o the member
banks a n d t r u s t companies.
Saihiaheiencaaidrarane
Note 1
-~ Governors! Conference w i t h the Federal Reserve
Board, March 1923. “ v o t e d that the report (printed pages
550-563, stenogravhic record) o f the Pensions Committee b e
received a n d the recommendations contained therein approved,
with the understanding that the Pensions Committee should communicate t h e action o f the conference t o the Pederal Reserve
e e
Board, citing f o r them all t h e
t h a t h a d been taken i n
developing t h e pension plan, a n d expressing t h e conviction that
nothing c o u l d
b e more beneficial
t o the operation
o f the Feder-
al Reserve Systen t h a n t h e adoption o f some s u c h plan a s proposed,"
Note 2 - -The Committee consisted o f HE. R. Kenzel, D e p u t y
Governor
o f t h e N e w Y o r k Bank;
J . B . McDougal, G o v e r n o r
o f the
Chicago Bank; a n d #. R. Fancher, Governor o f the Cleveland Bank.
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Federal Reserve Bank of St. Louis
Note 3
-- The following specialists w e r e i n attendance
and continued t o advise t h e Committee during i t s sessions:
Counsel, Jcemes F . Curtis; f o r m e r A s s i s t a n t S e c r e t a r y o f t h e
Treasury; Pension Adviser, Monell Savre, ixecutive Viceresident
o f the Pension F u n d o f the Hpiscopal C h u r c h a n d
1 adviser
t o t h e C h u r c h o f kngland, C o n s u l t i n g i.ctuary,
y Moir, A c t u a r y o f t h e H o m e L i f e I n s u r a n c e C o m n a n y o f N e w
York, a n d former President o f the «merican actuarial Society;
“working setuary, G e o r g e B . Buck, a c t u a r y o f t h e N e w Y o r k
Municipal P e n s i o n system.
ADOPLTON BY “he YOVsHKHORS' JONPoK
The Governors!
C o n f e r e n c e a d o p t e d t h e p e n s i o n p l a n recom-
mended b y the Com«ittee, a n d directed that i t b e leid before
the Board.
A c c o m p a n y i n g t h e report, t h e C o m m i t t e e l a i d b e -
fore t h e Board a n opinion o f the counsel t o the Committee,
outlining
t h e measures
into overstion.
complished
t o b e adopted
t o nut t h e pension plan
T h e counsel advised t h a t this might b e ac-
i n either
o f t w o forms, f i r s t ,
by a
special a c t
of Congress incorporating t h e proposed Federal Keserve Pension
Fund;
o r second,
b y articles
al c o r p o r a t i o n l a w s
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Federal Reserve Bank of St. Louis
o f incorporation under t h e gener-
o f the District
o f Columbia
i n pursuance
of authority conferred u p o n t h e Federal Reserve Board b y the
law c r e a t i n g t h e s a i d Board.
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Federal Reserve Bank of St. Louis
PubDeERAL ReSkRVe BOAKD
The B o a r d passed 4
r e u t i o n t i v i n g i t s seneral approbe
chet a p p l i c a t i o n s
act o f i n c o r p o r a t i o n
for t h e v r o v o s e d v e n s i o n fund.
Governor W e P . G
f a r d i n ge
on beheld.
o f Tne
chairman o f the Pension Committee a n d i t s expert
stor S m o o t o f Utah.
S e n a t o r Smoot considered
the draft o f the bill dravym u p b y the counsel t o the committee e n d stated t h a t h e w o u l d b e p r e p a r e d
t o introduce t h e
bill i n the Senate, provided t h a t a n impor a n t change were
made i n the pension pian b y the committee.
The Pension Committee 2
( S e e Note 4 )
s o t e d + ) s u g g e s t i o n , a n d the coun-
-- W i s change w a s t h e substitution, f o r the prothe F e d e r e l r e s e r v e b a n k s s h o u l d b e a r a l l
accrued liabilities
o f the
f o r t h e officers a n d employees
of the banks w h e n the pension system should g o into operation,
of a
vrovision t h a t t h e b a n k s s h o u l d p a y h a l f o f t h e a c c r u e d
liabilities a n d that t h e respective officers a n d employees
should p a y the other half.
T h e nature o f the accrued
278 <%
lities a n d the meaning o f this alteration i s explained
in Part Ii, om. pases I l and. 12.
Owing t o the attention o f Congress b e i n g absorbed b y
i t did not seem
the t a r i f f l e g i s l a t i o n « n d f o r o t h e r reasons,
advisable
t o Senator S m o o t t o introduce t h e bill incorsoraa n d s o the subject h a s never
ting t h e o r o p o s e d p e n s i o n fund,
peen a c t e d u p o n
b y Congress.
ADOPYION
B Y VHp FeDERAL RuSERVE BANKS
Following t h e a c t i o n o n t h e v r o p o s e d p e n s i o n p l a n b y t h e
Governors!
Conference e n d the
was l a i d b e f o r e t h e d i r e c t o r s
e r a l |
a
r
d
, t h e plan
o f each o f the twelve federal
reserve banks, a n d was approved b y each o f said board o f directors.
VHE P R E S E N T S I V U A T T O N
The p e n s i o n p l a n d e v e l o p e d
the Governors!
b y the Pensions Committee
of
Conference w i t h the
pert a d v i s e r s h a s t h e r e f o r e b e e n approved, f i r s t ,
b y the dir-
ectors o f each o f the Federal reserve banks; second, b y the
Governors!
third,
C o n f e r e n c e w i t h t h e Federal R e s e r v e Board;
b y the Federal Reserve Board.
T h e plan aweits t h e
appropriate l e g a l s t e p s t o b e p u t i n t o execution.
are, either,
a n act o f Congress,
and
T h e s e steps
o r incorpbration under a
general law by the authority at present possessed b y the Federal r e s e r v e banks.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
216=F
oresent
b
considerable t i n
h e organi-
e
Congress i n December,
Pensions C o m m i t t e e
o f t h e Governors!
t h e Board take i n t o consideration
u
U
.
that
the r e c o m m e n d a t i o n s
t o b e made
dum, t h a t t h e p e n s i o n
4 n Part I I I
o f t h i s mnemoran-
p l a n b e put i n t o operation a t t h e
given b y t h e c o u n s e l
form
t o f Columbia >
o f incornorati
a
OH
D
t k
PROPOSED PeNSTON PbAN
ypJsOT
‘cet o f t h e v r o p o s e d p e n s i o n p l a n i s t o a f f o r d
of v r o t e c t i o n
t o t h e o f f i c e r s a n d emplo;
= Shree o t t o e p r a n c e =
ase o f i n c a p a c i t y
due to
pension
s
pli
an
b y the
278-G
Feder: 1reserve b a n k s
operating t
rough
i s the i n c r e a s e
the followin
o f their efficiency
causes:
the e l i m i n a t i o n f r o m t h e s e r v i c e
o f those i n -
or disease,
improvement
nsclousness
of a
o f the morale
o f the force
r e a s nardle m e a s u r e
o f pro-
‘tthe vrincipal d a n g e r s o f l i f e ,
third, t h e stabilization o f the service o f the banks
through t h e r e t e n t i o n
o f their s e r v i c e o f c a p a b l e o f f i c e r s
and employees.
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Federal Reserve Bank of St. Louis
Fourth, t h e attraction o f the adler type o f young m a n
service
o f t h e banks.
Vin P R O T E C T I O N s G a i n s t SUPsRANNUAYTION
WHEN aAVATLABLE
The o f f i c e r
o r employee m a y retire, u v o n application,
of sixty-five.
H
e must retire a t the age o f
seventy, except that n o officer o r employee i n the service
of t h e b a n k s w h e n t h e o r o p o s e d p e n s i o n s y s t e m s o e s i n t o o p e r ation s h a l l b e c o m p e l l e d
t o retire u n t i l f i v e years there-
after.
veen fenerally adopted,
in banking a n d ge i f o c c u p a t i o n s ,
oO
ive r e t i r e m e n t
a n d there seems
a s the a g e o f permiss-
t o valid reason f o r varying
Prom “Cots U s e re.
HOt. W e l l Deo m i e n
T s e
r i d s u o eer ze
she g e n e r e l p u r p o s e o f t h e F e d e r a l r e s e r v e b a n k s
g
a vension system.
n
u lp
i
b
e p u t nl o w e r w i t h o u t
e eo f retirement
m
f o r
tor i n t h e v e n s i o n s y s t e m ,
e n g
i n vlan-
a
largest
i s the
o n e yeer
G~.
y
r e tri r e moe n t
s
l
u
p
m
o
beC r e -
more then counterbalanced d y a d v a n t a g e o f
ing many o l d men who, although incompetent, cannot b e persuaded<.0f -bhat<—facth.
h as
c
u
Williamss C o l l e g e ,
whereby t h e c o m p u l s o r y
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Federal Reserve Bank of St. Louis
l a u deases.
i v i df ne ir
provision
suspena
c o m m u l s o r y
ret
avoid l e g i s l a t i o n o f
(HR A G E A L L O W A N C E
allowance
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Federal Reserve Bank of St. Louis
average s a l a r y s u r i n g t h e e n t i r e p e r i o d o f
service w i t h t h e banks, multirx
Rverasce s a l a r y i s a
o f years
s d o y t h e number
of
much
terminal salery o r p e r i o d s o f terminal selary,
a s for ex-
T h e
-he five years preceding retirement.
nay v e dangerous i n periods o f violent
they l e n d t h e m s e l v e s
t o oractices
aimed
a t bringing
hicher vensions, a n d t h e y tend t o prevent demotion o r
method o f vart pay.
ie
7 1 g i n tyoieal c a s e s w i l l w o r k o u t a s follows:
An employee entering t h e service o f the bank a t the
twenty-one,
a t a
salary
a n d advencing,
o f ,600.00
accore
3859.00.
employee e n t e r i n g t h e s e
s
e bank a t
h
ve y e a r s
00,
O U I DS retreive 2
t o a
s e oension o f » 957.00.
entering a t
P i p e L o a mere L i v e y e a r s 7
a
vension o f ~5,958.00.
a
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Federal Reserve Bank of St. Louis
fi
An
employer e n t e r i n g
of 310,000.00;
of. ,»15,668.00,
e n d a d v e n c i n g a f t e r tcuirty y e a r s t o «
p
e
n
s
i
saleny
n o f 35,951.00.
o
pension < i v e n b Y a p o l i c e a t i o n o f t h e f o r m an a v e a l l o w e n c e
which
+n degree o f
ard o f living usually a d opted b y
minal s a l a r i e s
pected.
provide f o r a
t o his income
closer apvroximation
sak
1
pension s y s t e m t o a t t e m p t t h i s w o u l d b e t o
a burden f o r t h e employing banks a n d t o
a part o f the salary o f the officer o r
é
in this f o r m u l a r a n g e ,
from one. t o bWvoO p e r cent.
i n p e n s i o n systems,
O n e p e r cent.,
terninal salary, w o u l d hardly vroduce
ner cent.,. w h e n t h e
worranted.
was a d o p t e d a
i
n force.
n
e a2
n
a
i n S s ereat n u m b e r
of
use o f t h e y e a r s
o f service
e
i n the formula r e -
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Federal Reserve Bank of St. Louis
the p e r -
PROTSOTION aGal ( O T A L AND PuKeane? DISABILITY
WHEN AVaTLApLE
Any o f f i c e r
o r employee t o t a l l y a n d permanently d i s -
a, e i t n e r o h y s i e a l l y o r mentally,
eite
l
e year's s e r -
s+.
vice with t h e bank, s h a l l b e entitled t o a n allowance,
providing t h a t a
physical e x a m i n a t i o n h a d
the b a n k u v o n l i s e n t r a n c e 4 n t o t h e service.
f l e smpavaware yoyacat
PAVE. Vears?
Pro TeCbs 01
almost n e c e s s a r y i f t h e
from e x c e s s i v e p r e s s u r e
i n e x c e o t i o n a l cases.
in a
will a r i s e
ut
pénsion s y s t e m unless
278-1;
s
tothe period o f five years, insurance opinions
A
421,
i
incline t o r e g a r d t h e e f f e c t
o f a n initial p h y s i c a l ex-=
amination a s b e i n g w i t h o u t s e l e c t i v e e f f e c t b e y o n d t h i s
period.
A:UUNT OF ALLOWANCE FOR TOTAL AND PsKianisNt DISABILITY
The a m o u n t
o f the ellowance f o r total a n d permanent
disability i s o n e and one-quarter v e r cent.
o f the average
salary during t h e entire veriod o f service with the banks,
multiplied b y the number o f such years o f service.
that a
I n order
pension o f s o m e r e a s o n a b l e a d e q u a c y m a y b e p r o v i d e d
in case total a n d permanent disability occurs i n the earlier years o f service,
i t i s provided t h a t s u c h pension
shall a l w a y s r e p r e s e n t o n e a n d o n e - q u a r t e r v e r cent.
o f the
average salary, miltiplied b y twenty years o f service,
even i f t h e v e r i o d o f s e r v i c e i s l e s s t h e n t w e n t y years.
In n o case, h o w e v e r , s h a l l t h e a l l o w a n c e f o r t o t a l a n d ver-=
manent disability b e greater t h a n would have b e e n the retir~
ing allowance i f the beneficiary h a d remeined i n service
until t h e a g e o f sixty- f i v e .
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Federal Reserve Bank of St. Louis
O P:.SS UPON APPLICATIONS
MyoTCaL BOARD T
FOR T O T s L a N D F R R i u N E N T DISSBILTRY.
The v e n s i o n e d m i n i s t r a t i o n o s h n a l l
create a
medical
278=<i
consisting o f physicians o f standing
for t h e m e d i c a l e x a m i n a t i o n s
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Federal Reserve Bank of St. Louis
o f all
ing f o r v e n s i o n s f o r t o t a l a n d »vermanent disability,
dSetsi
such m e d i c a l b o a r d , u p o n t h e m e d i c a l
o mf
by t h e e x a m i n i n g v h y s i c i a n
s o appointed
by
shall b e final a n d c o n e l u s i v e u p o n s u c h applications.
PROTHCTIUN T O W H P A M I L Y 1 N : V E N T O F D a t e
benefit
i s provid
e d f o r t h e officers a n d mem-
bers o f t h e F e d e r a l r e s e r v e b a n k s w i o d i e i n acti v e service,
to o n e v e a r ' s s a l a r y o f s a i d o f f i s
cer
fi m e y y
o b1
t t h e time
2
o f n i s death.
S a i d death bene-
payable a t o n c e o r i n a n y installments,
at t h e o v t i o n o f t h e o f f i c e r
o r o f t h e einployee o r a t t h e
o f t h e beneficiary.
option
TO woOkh P A Y A B L E
The d e e t h b e n e f i t
ficiery,
i s payable
o r , w i t h t h e approval
t o the estate o f the bene~
o f t h e p e n s i o n ad: inistration,
manner a s d i r e c t e d
b y t h e officer
o r employee.
MAXI m u h :
Wo c o n t r i b u t i o n s s n a l l b e m a d e b y a n o f f i c e r h i m s e l f
nor b y t h e b a n k o n h i s b e n e l f
o n any part o f a
salary i n
excess
o f $18,000.00;
n o r shall a n y part o
excess
o f s u c h amount
b e used i n calculating a n y pension o r
death b e n e f i t .
[aL SUPPORT
CONTRIBUTIUNS
O F ©SNSION P L A N
O F F ICeRS « N D bie PLOYEuS
BY He
The pensions a r e t o b e supvorted b y a contribution
ron)
vided between t h e officers o r employees a n d the Federal
reserve b a n k o n a n approximately equal basis.
by t h e o f f i c e r s
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a n d employees
are
‘ h e -eyments
t o b e percentages
salary, g r a d u a t e d a c c o r d i n g t o t h e a g e o f entrance
o f
o f the
officer o r employee i n t o t h e service o f the bank, that is,
according t o the number o f years o v e r which the contribution
is t o b e vaid.
T h e rates
o f contribution
a t t h e different
ages o f entrance are given i n the footnote. ( S e e Note.5)
The a r g u m e n t s f o r a
overwhelming. A
vartially contributing p l a n s e e m
wholly contributing p l a n does n o t rep~
resent t h e interest o f the employer i n the retirement o f
aged.
o r disabled employees,
supvort
a n d cannot
g a i n the cordial
o f t h e staff, - A plan w i t h o u t e o n t r i b u t i o n s - o y t h e
employee,
o n t h e o t h e r hand, w h i l e l a y i n g a n u n d u e c h a r g e
on t h e c o r p o r a t i o n treasury, d o e s n o t a s s i s t
i n the devel-
opment o f interest i n the staff a n d lends itself t o censtant d e m a n d s
o n t h e v e r t o f t h e s t a f f o r t h e i r leaders.
Where t h e plan o f partial contributions i s adopted t h e
usuel a n d m o s t c o n v e n i e n t d i v i s i o n i s t o m a k e t h e resvnective
contributions a p o r o x i m a t e l y equal.
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Federal Reserve Bank of St. Louis
Tt h a s b e e n f o u n d v e r y d i f f i c u l t
t o devise a n y
of ovension w h i c h d o e s n o t r e g e r d t h e s a l a r y scale.
quate v e n s i o n f o r t h e d o o r m a n o f a
very m u c h t o a
terms
cashier.
o f salary,
I
bank w o u l d n o t m e a n
f the pension i s calculated
in
o f c o u r s e t h e c o n t r i b u t i o n s m u s t b e also.
The o n l y s c i e n t i f i c m e t h o d o f c a l c u l a t i n g c o n t r i b u t i o n s
in terms o f salary i s according t o age a t entrance.
ther-
wise a v e r a g e s m u s t b e employed, w h i c h a r e not. o n l y d a n g e r -
financially, b u t work injustice i n extreme cases.
iduals a f f e c t e d
b y this i n j ;
r h e
a r e almost c e r t a i n
of it, a n d they act a s a centre o f dissatisfaction
with t h e pensionasystem. A
f e w such,
¢ s pecially i f t h e y a r e
and voluble individuals, c a n practically nullify
peneficial influence o f t h e p e n s i o n s y s t e m o n t h e staff.
PERCGENGAGHS O F S A L A R Y P A Y A B L E A S H A T E S
OF C O N T R I B U T I O N
B Y tePLUYsnS
A N D B Y BaNKS
Age a t P a y a b l e P a y a b l e P a y a o l e b y P a y a b l e b y
B a n k s for B e n k s for
b
y
b y
Hntrance
F e m a l e
M a l e
F e m a l e
hiale
b
m
p
l
o
y
e
es Employees
E
m
p
l
o
y
e
e
s
Employees
2£78=—P
Pavable
by
Age a
Entrance
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Wale
Employees
Payable
P a y a b l e by
Banks f o r
Male
bmplovees
Zo
3206
26
5645
Mt
on
AS
Payable b y
Banks f o r
Female
impoloyees.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
STB
Payable
by
Female
Employees
5.40
5251
v
Payable b y P a y a b l e
Banks
for
kmployees
6.94
ry
p e ind
LVEDD
B a n k s
by
for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
RETURN OF CONTRIBUTIONS TO ©
All c o n t r i b u t i o n s m a d e v y a n o f f i c e r
o r employee a r e t o
be returned t o him w ith interest i n the event o f his resigo r vaid with interest t o his estate
nation o r dismissal,
or t o a beneficiary designated b y h i m with the consent o f
the vension administration,
i n the event o f his death be-
fore r e t i r e n c n t .
A return o f c o n t r i b u t i o n s
i n a n y event t h a t t h e officer
is
or employee d o e s n o t r e c e i v e t h e f u l l b e n e f i t t h e r e o f
morally obligatory,
a n d t h e s a m e t h i n g applies
to a
rea-
sonable r a t e o f interest.
FuDskz.L R E S E R V E B A N K S
The b a n k s w i l l m a k e a
,
i
i
n nercentage
OL
salary, gradu a t e d according t o the a g e o f entrance i n t o
the servi c e o f the bank b y the officer o r employes, a c cording t o the figures a i v e n i n footnote. ( S e e Note 5 )
Pie
N s OF
the death o f a n officer o r emoloyee after h e has
retired a n d his name h a s been olaced u n o n t h e vension list,
there shall b e oaid t o nis estate,
o r t o a beneficiary desig-
nated b y him with the consent o f the pension administration,
all contributions w i t h interest m a d e either b y h i m o r by.
the F e d e r e l r e s e r v e
bank
o n nis behalf
which have not peen
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Federal Reserve Bank of St. Louis
tov S e o
O r r veer: o r
Note 6 - - T h e c o s t o f
October 1 , 1920, w a s a s follows:
Boston
New Y o r k
Philedelphia
Cleveland
Richmond
21,008
48, 560
The d i f f e r e n c e
detween
act that t h e bank provides entirely f o r
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Federal Reserve Bank of St. Louis
and second;
eco
t h e f a c t t h a t t h e contriboutic
s e u l e ted: omc i h e
ime Federal reserve banks will pay, a t she inauguration
of t h e v e n s i o n s y s t e m o r i n a n
equivalent manner, one-half
j o f the pension
of w h e t w o u l d heave b e e n i n t h e
fund T o r any: s i v e n o r t i c e r
contributions a c c o r d i n g
o r employee
a t that time
if
t o t h e t a b l e h e r e with a n n e
been p a i d s i n c e t h e s a i d o f f i c e r
o r smployes entered
for 6 8 6 0 h o f E L e e r
Nension system,
w h o himself pays,
the
o r
o r makes s a t i s f a c t o r y
Jensiionnadministration f o r the payment,
the other one-half o f said contrioutions. ( S e e Note 7).
The a c c r u e d l i a b i l i t i
e s represent t h e s u m which a
fon fund should pvossess a t its establishment t o equal
e c o n t r i b u t i o n s w i thh i n t e r e s t
by the officers o r emoloyecs o r
which w otu l d h a v e b e e n m a d e
i
r behalf s o thet
previous service m a y b e represented b y pensions according
GO
bhe r u l e p r o v i d e d E h e r é s or.
The a c c r u e d l i a b i l i t i e s
must
b e vaid into the pension
ay
fund treasury f r o m some quarter. O t h e r w i s e ,
the p e n s i o n
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Federal Reserve Bank of St. Louis
system w i l l o n l y b e e d e q u e t e v r a c t i c a l l y f o r n e w e n t r a n t s
into t h e service o f the banks, e n d the beneficial operation
of t h e s y s t e m o v e r a
considerable part. o f i t s f i e l d b e d e -
ferred f o r m a n y years.
I
n practice,
t h e accrued liabilities
b y the employing
are p a i d , p r e c t i c a l l y w i t h o u t e x c e p t i o n ,
I n deference t o Senator Smoot's objections,
corporations.
the P e n s i o n G o m m i t t e e a m e n d e d i t s o r i g i n a l p l a n =
cost o f t t
l
i
a
b
i
that. t h e
i e s i s divided between t h e banks
and. t h e i r s t a f f s .
Note 7
- -
at t h e i n c e p t i o n :
T h e contributions
b y t h e banks,
o f one- H a t e oof
o f t h e p e n s i o n system,
o n October l , 1920,
the a c c r u e d l i a b i l i t i e s , w a s ,
4 70,105.00
New Y o r k
£ 8 2 , 1 0 5 , . 5 0
Philadelphia
Cleveland
Atlanta
5 5 , 7 0 6 . 0 0
7 9 , 8 3 0 . 5 0
4
Richmond
3
8
1
Kansas C i t y
,
,
7
6
6
9
2
.
0
0
0
.
5
0
0 , 1 6 5 . 0 0
Dallas 4 9 , 6 9 7 . 5 0
San Prancisce
t o b e paid
8 3 , 5 9 4 . 0 0
a s follows:
273-V
fo l a y n o r e t h a n t h i s o n t h e s h o u l d e r s
and e m p l o y e e s
i s impreci b
ties a r e imporative,
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Federal Reserve Bank of St. Louis
e f t h e officers
m e n d as t h e a c c r u e d l i a b i l i -
t h e successful organization
o f the. p e n -
system i s devendent u n o n t h e »sermission b y the B o r d
the r e s p e c t i v e F e d e r a l r e s e r v e b a n k s a p v r o p r i a t e o n e tabilities e r i s i n g
i n e a c h bank.
OF P R O r O S H D P e l STON P L A N
O FPeboRAL R E S U R V E B M A S
OFFICERS A N D b e é i r L U Y e n S F
The p r o p o s e d v e n s i o n o l e n s h e l l o e c o m p u l s o r y u p o n a l l
officérs a n d employees o f the Federal reserve banks w h o
enter t h e service o f any o f sa@id banks after t h e date o f the
establishment
o f t h e v e n s i o n system, o r ,
i n c a s e said offi-
cer o r employee i s below t h e a g e o f twenty-.one u p o n Ais entrance,
u v o n his attaining
s a i d age.
The p l a n s h a l l b e e l e c t i v e v o o n a l l o f f i c e r s a n d e m DLoyees a n . t h e - s e r y i c e
o f
a m F e d e r a l reserve
bank
time w h e n t h e » e n s i o n s y s t e m s o e s i n t o operation;
a t the
they may
as they choose, b u t s u c h election must b e exerthe i n a u c u r e t i o n
of
the s y s t e m .
BM PLOYRisS O F i t s FebDinaL R E S s R V E B o a r
ro
The pension v l a n shell b e oven under t h e above vrovi-
sions t o the employees o f the Federal Reserve Board,
Board s h a l l d e c i d e t h a t i t w i s h e s
i f the
t o enter t h e systen f o r
its employees.
-
MEMBER B A N A S
Tiss
A N D TRUST ComPAN
for the
m a y make vrovision
a
d
m
i
n
i
s
t
r
a
y
i
o
n
The p e n s i o n
admission
o f 2
member
o r trust company
bank
a r y
( a e a oe
u p o n said bank
officers a n d employees
i
t
s
f
o
r
s
y
s
t
e
m
gion
share o f the
i t s spovortionate
or t r u s t c o a n y v a y i n g
i n rea n d upon s u c h terms
administration,
of the vension
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Federal Reserve Bank of St. Louis
ecrued l i a b i l i t i e s
iinterest
a s shall b e equitable
t o aly
i n t h e o e n s i o n system.
I N b V e N T O F D e ATH
PROTECTION F O R 7 : MiLY
benefit
Me c o s t o f t h e d e a t h
at
o f one year's s a l a r y
Federal r e f o r entirely o y the
paid
1
s
death
o
f
the tine
panks.
deceased o f f i c e r
T h e family o f the
o r em~
made into t h e pension
lso r e c e i v e s t h e c o n t r i b u t i o n
payme
fund b y him with interest.Tiese
f
cient t o v r o v i d e n e r m a n e n t l y
family.
t h e
a a y n o t b e suffkr
orovisions,
T o supviement t h e s e
t
s
o r employee's
t h e officers a n d
orivisystem shall have t h e
employees w i t h i n “ h e p e n s i o n
lege
o f taking
o u t 1 i f e insurance,
the p e n s i o n a d m i n i s t r a t i o n ,
i n its warious forms,
e t actuerial c o s t e
THe A D A I N I S T R e r I U N
O F "As
s h a l l b e administered,
The p r o p o s e d s y s t e m
tuarial reserve basis,
from
b y a corporati a
o n GAS
B o
consisting o f twenty-
six trustees, twelve t o b e «lected
a
Federal reserve banks, o n e f o r each bank, a n d twelve b y
officers a n d employee:
twO t r u s t e e s
byt
oloyees r e s v e c t i v e l y ,
i
o n e f o r each bank;
d ban!
F e d e r a l Reserve Board a n d i t s
i f the Board shall enter t h e system
T h e terms o f said trustees s h a l l b e s o
for i t s employees.
arraned
i
a s always
t o oreserve
i n said b o d y aucontinuity
o f
pension policy.
COST FOF a D w i n T S u n a t T o n
The c o s t o f a d m i n i s t e r i n g t h e v e n s i o n s y s t e m s h a l l b e
borne b y t h e F e d e r a l r e s e r v e b a n k s p r o r a t a i n t h e v r o p o r tion o f t h e i r a n n u a l c o n t r i b u t i o n s t h e r e t o
o n behalf
of
their respective officers and employees.
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Federal Reserve Bank of St. Louis
PaRE: L i t
ReCOnmukNDatIoNS
O F THE PeNSIONS COMmiTten
USBRVE B A L K S P O W A T DiSsbVaANTAGH
COMAUN ITY
ederal r e s e r v e b a n k s
competition
are 9
t o obtain a n d
d a t a
disadvantage
t o rétain able officers
employees while t h e y a r e unarle t o oromise thei r
reasonabcle m e a s u r e
and
staff sane
o f s e n s i o n protection.
PROBLEM M U C H ACCLAKTUATED B Y tlusRE P L S S a G e O F T I M E
reason f o r v r o m o t a c t i o n m a y b e a d d e d a
second;
Any p e n s i o n s c h e m e
i s complicated
b y the oroblem
o f the ac-
n the v e r y early years
o f a n organiza-
$i6n, t h i s p r o b l e m 2 3 c o m p a r a t i v e l y s i m p l e .
I t s difficulty
itie:
crued a
I
i
: Gar’ Set Hag
grows rapidly. ;
f
g
culty h a s b e e n m u c h e n h a n c e d
i n the t w o years which have
elapsed s i n c e t h e p e n s i o n o l a n w a s f i r s t f o r m u l a t e d .
Your
committee e a r n e s t l y r e c o m m e n d t h e t a c t i o n b e t a k e n o n t h e
sywestion o f pensions
the nroblem o f t h e s
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Federal Reserve Bank of St. Louis
i n the Federal reserve banks before
x
4 liabilities grows s o difficult
solution m u s t n e c e s s a r i l y b e o f a n u n s a t i s f a c t o r y
Wavbucse.
ACTION B Y C O N G R E S S PROBLsMaATICsL
To await t h e passage o f a n act o f incorporation b y Gongress w i l l i n v o l v e m u c h delay;
a n d i t m a y b e that, u n d e r e x -
sting circumstances, s u c h a n act might n o t b e able t o
receive c o n s i d e r a t i o n d u r i n g t h e C o n g r e s s w h i c h
vene i n December.
T o make t h e establishment
W i
cone
o f t h e voension
system f o r t h e F e d e r a l r e s e r v e b a n k s d e p e n d e n t u p o n t h e a c ceptation o f t h i s m e t h o d o f l e g a l p r o c e d u r e m a y t h e r e f o r e
mean i n d e f i n i t e v o s t p o n e m e n t .
VixBOARD HAS POWER VO ACT
The a l t e r n a t i v e m e t h o d r e c o r m e n d e d
the c o m m i t t e e
i s available
a t once.
b y the counsel t o
_ t i s n o w well estab-
lished t h e t corpor:.tions gener-.lly p o s s e s s t h e p o w e r
t o their power t o
sblish pension systems a s a n incide
ony saleries f o r work done, bensions being, f r o m a scientific
standpoint, m e r e l y d é f e r r e d salaries.
T h e counsel
t o the
has a d v i s e d t h a t t h e F e d e r a l r e s e r v e b a n k s a l s o
possess t h i s p o w e r u n d e r t h e a c t w h i c h e s t a b l i s h e d t h e
The counsel h a s also reported t h a t
o
this vower c a n b e exercised effectively under t h e
incorporation l a w o f t h e D i s t r i c t
Your committee, therefore,
solution o f 2
Board
o f Columbia.
e s t
question w h o s e d e c i s i o n
2 s will suthorize
t h e directors
o n l y practical
i s o f high importance
o f the Federal reserve
banks t o take t h e eporopriate legal steps, a s advised b y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
counsel,
t o inaugurate a
pension system a s outlined i n this
renort, e n d t o make t h e appropriation f o r their share o f
accrued l i a b i l i t i e s
a n d o f the annual contribution
gsuovort s e i d s y s t e m s a s h a s
POR
W a T 5
PORWAL
been
h e r e i n indicated.
E I T
nea
foment
P U
E
OrpinluN BY. C O U N S E
o
a
r
s t o e e e iP
LaGeL
t o
as the. a u t h o r i t y u n d e r l a w
less t h e paramount consideration w i t h the Board, y o u r committee
closes this :1emorandum b y siving i n full t h e formal legal
opinion o f its counsel. (Letter o f December 2Y,1920 o f Mrs
Gurtis, apvended. )
January 24, 1925, Mir
‘rman o f the committee, reviewed t h e legal
oreviously taken,
such as t t Jrafting
o f the p r o p o -
sedNe a c t o f incorvoration b y Congress, a n d concluded asfollowss
““Jowever,
t u r a l l y remainnstill
o f the opinion that
the P e d e r a l r e s e r v e b a n k s u n d e r
to e s t a b l i s h
t h e » w r o n o s e c p ea 5n s i o n s y s3 t e m
s
either under their o w n control a s individual banks,
Ly t h r o u g h t h e i n s t r u m e n t a l i t y
the l a w s o f t h e D i s t r i c t
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Federal Reserve Bank of St. Louis
of a
o f Columbia
corporation o r g a n i z e d u n d e r
o r o t h e r s i m i l a r entity.
proposed
difficulty
o r joint-
b y such 2
c e established
£78-B-B
December 2 7 , 1 9 2 0
Dear hir, Kenzel:
In accordance w i t h y o u r request, I
giving b e l o w
m y views w i t h r e s p e c t
eral r e s e r v e b a n k t o m a k e p a y m e n t s
take p l e a s u r e
t o t h e right o f a
to 4
corporation
other entity f o r t h e vurpose o f vroviding a
in
Fed-
or
fund o u t o f
which shall b e paid pensions o r other forms o f relief for
the banks! o f f i c e r s a n d e m p l o y e e s a n d t h e i r dependents,
As y o u a r e aware,
t h e views expressed herein a r e merely a
more formal statement o f the opinions w h i c h I have alpeady
rendered t o your committee o n several occasions.
questions i n v o l v e d a p p e a r
T h e legal
t o m e t o b e three.
a Pederal r e s e r v e b a n k t h e s t a t u t o r y p o w e r t o
set a s i d e a
pensions
fund t o b e u s e d f o r t h e p u r p o s e
o f providing
o r other forms o f relief f o r i t s officers a n d
employees a n d their dependents under t h e powers granted
to i t b y v i r t u e o f t h e v r o v i s i o n s
o f Section 4
of the
Federal R e s e r v e A c t ?
ee A s s u m i n g t h e foresoing question i s answered i n the
affirmati v e may the bank set aside the fund i n the h a
o f
a corvoration o r o t h e r s n t i t y o r g a n i z e d f o r t h e s o l e p u r -
pose o f providing s u c h pensions a n d other relief, without
profit t o itself, and use such entity . 3 an instrumentality i n t h e a d m i n i s t r a t i o n
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Federal Reserve Bank of St. Louis
o f t h e pension o r relief system?
278-C-G
cing a s i d e o f a
relief f u n d o u t o f t h e e a r n i n g s
o r surplus
pension o r
o f the bank
conflict « i t h t h e p r o v i s i o n s c o n c e r n i n g t h e d i s p o s i t i o n
of earnings
o f t h e b a n k a s vrovided
i n Section 7
of the
Federal Reserve A c t a s amended b y the Act o f March 3 , 1919?
The p e r t i n e n t p r o v i s i o n s
follows: S e c t i o n 4
provides that e a c h Federal reserve
bank "shall have power poard o f directors
o f these t w o sections a r e a s
H
.
O G . OXeYC ise O y its
o r duly authorized officers
all p o w e r s s p e c i f i c a l l y g r a n t e d
act a n d s u c h i n c i d e n t a l n o w e r s
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Federal Reserve Bank of St. Louis
R
o r agents
b y the vrovisions
o f this
a s gs: all b e n e c e s s a r y
to
carry o n the business o f banking within t h e limitations
prescribed b y this act."
Section 7, as amended, provides that "after a e necessary e x p e n s e s
of a
Federal r e s e r v e b a n k
or provided for, t h e stockholders shall b e entitled t o receive a n a n n u a l d i v i d e n d o f s i x p e r c e n t u m x
x x x x. A f t e r
the a f o r e s a i d d i v i d e n d c l a i m s h a v e b e e n f u l l y m e t t h e n e t
earnings s h a l l b e p a i d t o t h e U n i t e d S t a t e s
as a
franchise
tax, eReept that t h e whole o f such net earnings, including
those f o r the year ending December 31, 1918, shall b e paid
into a
surplus f u n d u n t i l
i t shall amount
t o o n e hundred p e r
centum o f the subscribed capital stock o f such bank % x x."
278-D=-D
Taking u n , f i r s t ,
s h e question raised a s t o whether t h e
proposed v l a n f o r vensiion o r o t h e r r e l i e f i s w i t h i n t h e p o w e r s
of the bank under t h e »rovisions o f Section 4 , I find that
the bank a t oresent, a m o n g others, exercises t h e following
incidental powers:
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Federal Reserve Bank of St. Louis
(a) I t sets u p e general reserve account, which i s
carried u p o n t h e b o o k s o f t h e b a n k f o r t h e p u r p o s e
O L DPOs
viding f o r possible, t h o u g h unascertained losses,
(bo)
I t insures t h e lives o f a l l i t s officers a n d
employees under a
group volicy with the #Hquitable Life As-
surance Society, under t h e terms o f which the life o f each
officer a n d employee i s insured f o r t h e amount o f one year's
annual salary,
n o t t o e x c e e d i n a n y c a s e ~5,000,
ance t o 2 0 a s directed
b y the insured b u t subject
t h e insurt o the gen-
control o f the bank a s t o method o f distribution.
T h e
vays t h e w h o l e v r e m i u m f o r t h i s insurance.
tc) I t operates a
Welfare Department, s e t t i n g aside
various rooms i n the Equitable Building, rented b y the n k ,
for rest rooms, cafeteria, hosoital rooms a n d administra-
tion offices.
T h e bank also pays the salaries o f several
persons whose whole time i s occupied w i t h the welfare w o r k
includi
n g f o u r nurses,
a n d t w o d o c t o r s w i o g i v e p a r t time.
(d) I t has s e t aside a
self insurence f u n d b y which i t
insures t h e f i d e l i t y o f i t s o f f i c e r s a n d employees.
If Section 4 were strictly construed, I would say that
no o n e o f t h e s e f t e t i v i t i e s
i s absolutely necessery t o
o f banking within t h e dimitations p r e =
carry o n t h e b u s i n e s s
seribed 5 y t h e Federal Reserve Act.
O n the other hand, I
am c l e a r l y o f i o v i n i o n t h e t t h e s e a c t i v i t i e s a r e o f 2
char-
acter t h a t m a y f a i r l y b e c a l l e d i n c i d e n t a l a n d n e c e s s a r y
to t h e o p e r a t i o n s
of 2
Federal r e s e r v e b a n k ,
i n v i e w o f mod-
ern banking conditions a n d taking a liberal v i e w o f the intention o f Congress i n using t h e phrase “ s u c h incidental
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Federal Reserve Bank of St. Louis
power a s shall b e necessary," etc.
This c o n v i c t i o n
i s greatly strengthened
b y the considera-
tion o f the trend o f ovinion i n this country, a n d indeed
throughou t
the civilized world, w i t h respect t o the obli-=
gations resting v o o n t} a r g e employers o f labor t o make
appropriate provisions f o r the health, s a f e t y a n d welfare
ana f u t u r e i n d e p e n d e n c e
o f t h e i r employees.
correct r e l a t i o n s h i p b e t w e e n canital
one o f t h e f o r e m o s t q u e s t i o n s
J u s s a 8 cne
a n d laccr h a s become
o f the day s
a e puplic* o p i n
jon o f the world, including t h e views o f our courts o f law,
come m o r e a n d m o r e t o t h e o o i n t o f v i e w t h a t e x p e n d i t u r e s
of
money b y c o r p o r a t i o n s ( i n c l u d i n g b a n k i n g c o r p o r a t i o n s a m o n g
a
others) f o r t h e b e n e f i t
i
>=
o f their employees
i n various f o r m s
278-F-F
is a
vroper a n d l e g i t i m a t e e x p e n d i t u r e
o f <funds.-=hb-28-we ls:
knowm that many o f the larger industrial, commercial a n d
panking o r g a n i z a t i o n s
o f the country have established
ven-
sion and relief funds a n d systems within t h e past t w o decades.
I n this regard, I
chants! A s s o c i a t i o n
o f New York o f a
industrial v e n s i o n s a n d a
tems p u b l i s h e d
i n 1920.
t o the Mer-
quote f r o m t h e r e p o r t
special c o m m i t t e e
non
s u r v e y o f industrial p e n s i o n s y s -
A f t e r speaking
o f the pension
systems established b y the american bhxpress Company i n 1875,
Baltimore &
Ohio Railroad i n 1889, a n d the First National
Bank o f Chicago i n 1899, i t stetes that “the pension idea
first became vrominent w i t h the railroads, a
number o f wnich
T h e latest
adopted vension systems during 1903 o r earlier.
tendency i s s e e n a m o n s t h e b a n k i n g institubptons,
espeo=
fally the large banks o f New York City."
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Federal Reserve Bank of St. Louis
In m y ovinion, t h e course o f events i n tris regerd h a s
placed bevond question t h e propriety o f establishing pension funds w i t h corporate assets a s a matter o f bread sound
public volicy.
From another p o i n t o f view, m o r e technical
application, I
believe t h a t t h e e s t a b l i s n m e n t
fund m a y b e j u s t i f i e d f o r b a n k i n g T
n
and Federal reserve banks i n particula .
of a
vension
a n wenerat:
C
ePULOnS
I J refer t o the
2£75-G-G
point
o f view that
i n essence ovensions a r e wages.
i n this
regard, permit m e t o quote f r o m t h e report o f the Carnegie
Foundation f o r t h e A d v a n c e m e n t
o f Teaching, p r e s e n t e d
by
Mr, H e n r y S . Pritchett, President o f the Foundation, p u b e
lished i n 1916, i n which i s found t h e following statement:
"It i s generally agreed b y economists that a free pension
provided
b y a n employer, w h e t h e r t h a t e m p l o y e r
ment o r industrial organization,
i s i n effect a
be a
sovern-
part o f wages.
In order t o get a full understanding o f old age a n d service
pensions,
of a
t h e y should b e considered a
part o f t h e r e a l w a g e s
workman."
Of c o u r s e ,
this
that c o n t e m p l a t e d
i s particularly
b y your. committee
true
of a
plan s u c h a s
i n that t h e pension
end “other f o r m s o f Y e l i e r w i l t be. p a i d L o r o u t o f f u n d s
partly c o n t r i b u t e d
b y t h e e m p l o y e e a n d p a r t l y b y t h e bank.
In v i e w o f t h e s e c o n d i t i o n s , I
a m o f o»vinion t h a t t h e
first q u e s t i o n pronounded. should b e a n s w e r e d
tive, i.g@, t h a t a
Federal reserve b a n k has anthority under
the p r o v i s i o n s o f S e c t i o n 4
set a s i d e a
yensions
i n the affirma-
of the Federal Reserve A c t t o
fund t o b e u s e d f o r t h e purpose
o r other forms
o f vroviding
o f relief f o r i t s o f f i c e r s a n d
employees a n d t h e i r dependents.
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Federal Reserve Bank of St. Louis
We c o m e n o w t o a
consideration
o f che second question
e78<H-i
o r not t h e bank m a y s e t s u c h a
as t o w h e t h e r
the h a n d s
o f a
b e used
separate entity 1
tality i n t h e administration
fund aside i n
a s a n instrumen-
o f t h e s y s t e m w i t h o u t profit:
to
itself.
In m y o p i n i o n ,
d i f f e r e n c e -hether
i t makes
acbion a d m i n i s t r a t i o n o f - t h e 4
the
and system provided
s
i s
carried o n directly b y the Federal reserve b a n k o r through
an instrumentality created f o r the purpose. l i g e s o v e r , I
pelieve t h a t a
Federal r e s e r v e b a n k w o u l d h a v e a u t h o r i t y t o
purthase pvensions i n advance f r o m a n i n s u r a n c e
o r other
York ( a n d
company j u s t a s t h e F e d e r a l R e s e r v e B a n k o f N e w
as I
a m advised a l l t h e other Federal reserve b a n k s )
purchased t h e g r o u p l i f e i n s u r a n c e f r o m a
ance company.
well k n o w n i n s u r -
I f , a s I have indicated above, t h e .conten-
tion i s sound that F e d e r a l reserve b a n k m a y lawfully e x -
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Federal Reserve Bank of St. Louis
pend its funds f o r the wurvose o f sroviding pensions e n d
other f o r m s
o f relief
the v r e c i s e m e t h o d s
for i
ts employees
o f edministration
e n d t»eir dependents,
o f s u c h funds a r e i n -
material a n d the bank would b e authorizecto u s e s u c h agencies
or i n s t r u m e n t a l i t i e s
useful
o r appropriate
a s the Board
o f Directors
t o carry o u t t h e curposes
misht deem
o f the
Consequently, I have no hesitation i n answering the
second q u e s t i o n
i n the affirmative.
TBs i—1
4e n o w c o m e t o a
provounded,
t
consideratio
h
e tiird question
aside o f a
i . é . , w o u l d t h e “roposed s e t t i n g
pension o r r e l i e f f u n d o u t o f t h e e a r n i n g s
o r surplus
of 2
concernFederal r e s e r v e b a n k c o n f l i c t w i t h t h e o r o v i s i o n s
ing t h e d i s p o s i t i o n
Section 7
o f earnings
o f c h e b a n k a s provided
i n
by t h e A c t
o f t h e F e d e r a l R e s e r v e &£ct as. a m l
of diaron 6, 19197
With respect t o the provisions o f Bection.7,
L a n of
opinion t h e t t h e p h r a s e N o f t e r a l l n e c e s s a r y e x p e n s e s
of a
provided f o r "
Federal r e s e r v e b a n k h a v e b e e n p a i d o r
is
t h e descrivtion
o f
sufficiently
broad
t o include within
expenses" all the expenses which the directors o f
the b a n k i n t h e e x e r c i s e
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Federal Reserve Bank of St. Louis
=
pe n e c e s s a r y
o r proper
o f their best judgment consider
i n the conduct
to
o f t h e bank, pro-~
in
vided o f course thet t h e functions o r activities
ercise
o f w
wich t h e exoenses
are a u t h o r i z e d
b y the provisions
Consequently,
of S e c t i o n 4
what I
1
hav ,
. e t i f
w i t h respect
have i
and i t s application
- gee s u c h 2 6
bhe L e t s
t o the scope
t o the vroposed p l a n renders
unnecessary a n y e l a b o r a t e d i s c u s s i o
t
h
e e f f e c t o f Section
Te
o f law
In m y odinion, therefore there i s n o provision
218-J=i
which p r e v e n t s t h e v r o p o s e d p l a n f o r t h e estab.
operetionoof a
m
e
a n d
-
system o f pensions a n d other r e l i e f f o r F e d °
eral reserve b a n k officers a n d employees a n d their dependents
from being lawfully put inke operation.
Yours
v e r y truly,
CAMBS
Kenzel, Chetry
Committe
Reserve
5 Nassau Street, N e w York C i
JPC sEMM
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Federal Reserve Bank of St. Louis
h e CURTIS,
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Federal Reserve Bank of St. Louis